67 FR 35474, May 20, 2002
                                                            A-583-837
                                               POI: 04/01/00-03/31/01
                                                      Public Document
                                                           G2/O4: RMT

May 6, 2002

MEMORANDUM TO: Faryar Shirzad 
               Assistant Secretary
                 for Import Administration

FROM:          Bernard T. Carreau
               Deputy Assistant Secretary 
                 for Import Administration, Group II

SUBJECT: Issues and Decision Memorandum for the Final Determination in
         the Antidumping Duty Investigation of Polyethylene Terephthalate
         Film, Sheet, and Strip (PET film) from Taiwan

Summary

We have analyzed the comments and rebuttal comments of interested parties
in the antidumping duty investigation of PET film from Taiwan for the
period April 1, 2000 through March 31, 2001. As a result of our analysis,
we have made changes in the preliminary margin calculations. We recommend
that you approve the positions we have developed in the "Discussion of the
Issues" section of this memorandum for this final determination.

Background

On December 21, 2001, the Department of Commerce (the Department)
published the preliminary determination of the antidumping duty
investigation of PET film from Taiwan. See Notice of Preliminary
Determination of Sales at Less Than Fair Value and Postponement of Final
Determination: Polyethylene Terephthalate Film, Sheet and Strip (PET Film)
From Taiwan, 66 FR 65889 (December 21, 2001) (Preliminary Determination).
The period of investigation (POI) is April 1, 2000, through March 31,
2001. The investigation covers two manufacturers/exporters, Nan Ya
Plastics Corporation, Ltd. (Nan Ya), and Shinkong Synthetic Fibers
Corporation (Shinkong). The petitioners in this investigation are Dupont
Teijin Films, Mitsubishi Polyester Film of America, and Toray Plastics
(America) (collectively, the petitioners).

We conducted verification of the questionnaire responses of Nan Ya during
the weeks of January 28, 2002 and February 8, 2002, and Shinkong during
the weeks of February 25, 2002 and March 4, 2002. We gave interested
parties an opportunity to comment on our preliminary determination. On
April 8, 2002, Shinkong and the petitioners, submitted case briefs. On
April 12, 2001, Shinkong and the petitioners submitted rebuttal briefs. On
April 16, 2002, Nan Ya submitted its rebuttal brief. The Department
received requests for a public hearing from both petitioners and Shinkong.
A public hearing was held on April 17, 2002.

List of Issues

Below is the complete list of issues in this investigation for which we
received comments and rebuttal comments from parties:

1. Nan Ya's Yield Ratios

2. Nan Ya's PET Film Productivity

3. Nan Ya's Product-Specific Costs

4. Nan Ya's Relationship With U.S. Customers

5. Nan Ya's Recycled Packing Costs

6. Nan Ya's Sales Quantities

7. Shinkong's Home Market Sales Made to Port

8. Shinkong's Packing Costs

9. Shinkong's Certified Public Accountant (CPA) adjustments

Discussion of the Issues

Comment 1: Nan Ya's Yield Ratios

The petitioners argue that the Department should apply adverse facts
available (AFA) to value Nan Ya's cost of production (COP) for the final
determination because Nan Ya's yield ratios are fundamentally flawed.
Specifically, the petitioners claim that Nan Ya has reported that for
several control numbers (CONNUMs), it produces more saleable PET film than
the amount of PET film that it takes from its production lines to produce
this film. See Petitioners' Case Brief, at Exhibit 2. The petitioners
assert that is not possible for Nan Ya to produce more than one kilogram
of saleable film for each kilogram of master roll film that Nan Ya uses to
produce this film.

In rebuttal, Nan Ya states that it reported in its section A and D
questionnaire responses that it tracks production costs through four
separate cost centers: (1) the PET chip product stage; (2) the PET film
stretching stage; (3) the PET film slitting stage; and (4) the PET film
packing stage. Nan Ya points out that as is standard for most production
systems, Nan Ya's normal production process involves a certain amount of
work-in-process (WIP) material that is accounted for at the beginning and
end of each separate production stage. According to Nan Ya, the output of
the starting stage would include WIP that was in inventory and was
produced in the prior stage in a prior period. Thus, the output of the
stretching stage naturally would not be equal to the output of the
slitting stage over the same periods because of the considerable amount of
WIP in each stage at the beginning of production.

Nan Ya contends that the petitioners ignore this fact in making their
assertion that Nan Ya produces more saleable PET film than the same unit
amount of material contained on the master roll used to produce it.
According to Nan Ya, the petitioners presume, without foundation, that
each stage's output should match another, and then make an absurd
conclusion based on this faulty presumption. Nan Ya claims that the
petitioners have manipulated Nan Ya's reported cost figures in an effort
to discredit the company's cost reporting methodology.

Department's Position: We disagree with the petitioners that Nan Ya's
data suggest the company produced more saleable film than the amount of
PET film it takes from the production lines to produce this film. In their
analysis, the petitioners compared Nan Ya's data reported in its
constructed value (CV) and COP databases to the data in cost verification
Exhibit 26 containing production quantities by film type. See Petitioners'
Case Brief at 3. We note that we obtained this exhibit only to analyze
production output per minute of different types of film, not to calculate
total production quantities. We used cost verification Exhibit 30 to
verify and calculate total production quantities which reconciled with
NanYa's reported CV and COP databases. See Verification of the Cost of
Production and Constructed Value Data Submitted by Nan Ya Plastics
Corporation Ltd. (March 13, 2002) at Exhibit 26 and Exhibit 30 (Nan Ya's
Cost Verification Report). Based on our analysis and contrary to the
petitioners' contention, we did not find that Nan Ya's yield ratios were
flawed. Therefore, for these final results, we have used Nan Ya's reported
yield ratios.

Comment 2: Nan Ya's PET film Productivity

The petitioners argue that the Department should apply AFA for the final
determination because the productivity data provided by Nan Ya are
unreliable. According to the petitioners, Nan Ya's reported productivity
is unbelievably constant over a wide range of production runs, grade,
thickness and time. The petitioners state that many variables affect PET
film productivity over the course of a year. For example, long production
runs of a single product generally result in higher productivity. The
longer the production run the fewer interruptions in the process. But, the
petitioners claim that Nan Ya's data suggest that the length of the
production run is irrelevant to productivity. 

Another variable affecting productivity is processing flaws, including
the "accidental stops and breakdowns" that Nan Ya described during
verification. As a result of these "downtimes," the petitioners claim, it
is practically impossible for productivity to remain constant over the
course of a year for a wide range of models. 

In addition, the petitioners contend that it is widely accepted among PET
film producers that the thickness of film affects the processing rate.
However, the petitioners claim that Nan Ya's data does not indicate that
the thickness of film has an effect on the processing rate. The
petitioners state that while Nan Ya admits that thickness and "downtimes"
affect productivity, it also seems to suggest these two variables exactly
cancel each other out, so that thickness remains a constant in PET film
productivity. See Nan Ya's Cost Verification Report at 17. According to
the petitioners, it is simply not possible that increased downtimes
associated with thicker films exactly cancel out any productivity
efficiencies associated with the manufacture of the thicker PET film.

Further, the petitioners assert that time is lost in changing from one
master roll to the next. The petitioners maintain that because of
differences in changeovers, it is practically impossible for productivity
to remain constant for many models of PET film over the course of a year.

Finally, the petitioners claim that the productivity of a PET film
production line can vary over the course of a year as a result of changes
in operations. According to the petitioners, while Nan Ya's data indicate
that its operational conditions remained exactly the same over the POI,
the overwhelming evidence suggests this is simply not possible.

In rebuttal, Nan Ya rejects the petitioners' claims that Nan Ya is unable
to maintain constant productivity over a wide range of PET film models
(i.e., thickness). Nan Ya contends that by utilizing its specialized
production process it is able to achieve efficiency gains that standardize
PET film productivity regardless of product thicknesses. Therefore, Nan Ya
maintains that the data it provided is reliable.

Department's Position: We disagree with the petitioners that the
productivity data provided by Nan Ya are unreliable. At verification, we
were able to trace the reported POI production output and production times
at the various production stages to Nan Ya's actual production records.
Therefore, based on our findings at verification, we believe that Nan Ya's
reported productivity data are reliable. However, as discussed below, Nan
Ya did not use this productivity data to provide product-specific costs
based on thickness.

Comment 3: Nan Ya's Product-Specific Costs

The petitioners argue that Nan Ya's data demonstrate that production
costs depend on thickness. During verification, Nan Ya provided the
Department with a graph that purportedly demonstrates that productivity
remains fairly constant over the range of thicknesses of PET film.
According to the petitioners, even if the Department were to accept the
fundamentally-flawed data upon which this graph is based, the graph itself
is presented in such a way that the relationship between thickness and
productivity is significantly distorted. The petitioners claim that after
correcting for these distortions, it becomes clear that productivity tends
to significantly increase as film thickness increases and this is borne
out even using Nan Ya's own data. See Petitioners' Case Brief, Exhibit 6.

According to the petitioners, other PET film producers agree that film
thickness affects production costs. See Petitioners Case Brief, at 8,
Exhibit 4 and Exhibit 5. For example, Shinkong reports that thickness
significantly affects both cost and sales price. Moreover, the petitioners
assert that Nan Ya has provided no information in this investigation to
suggest that its production processes differ significantly from the
processes of other PET film producers in Taiwan. 

The petitioners contend that the Department must apply AFA to determine
Nan Ya's COP data. According to the petitioners, Nan Ya's cost data are
fatally flawed and unreliable and the records show that Nan Ya cannot
support its assertion that film thickness is irrelevant to its cost or
justify its refusal to provide the cost data requested by the Department. 

The petitioners argue that the Department explained the requirement to
provide product-specific data to Nan Ya just two years ago. See Notice of
Final Determination of Sales at Less Than Fair Value: Certain Polyester
Staple Fiber From Taiwan, 65 FR 16877 (March 30, 2000) and accompanying
Issues and Decision Memorandum at Comment 31 (Polyester Staple Fiber).
According to the petitioners Nan Ya should know that any purported
limitation in its cost accounting system does not justify a failure to
report requested product-specific costs. The petitioners contend that
based on its recent experience in Polyester Staple Fiber, Nan Ya should
know that (1) the Department requires product-specific costs by CONNUM and
(2) purported limitations in a firm's cost accounting system do not excuse
the failure to provide product-specific costs. Thus, the petitioners
maintain that because Nan Ya has failed to provide product-specific cost
information, the Department should apply AFA in this investigation.

In rebuttal, Nan Ya claims that its cost allocation system is reasonable
and supported by evidence on the record. Nan Ya states that it allocated
costs over production quantity and argues that under its production
system, using processing time as an allocation base would have led to
distortion. According to Nan Ya, only an allocation based upon quantity
leads to an accurate allocation.

Nan Ya contends that it has supported with record evidence the fact that
there is "no direct correlation between production output and thickness of
the product." See Nan Ya's Cost Verification Report at 19. According to
Nan Ya, the Department examined this at verification and found no
discrepancies. Id. For this reason, Nan Ya alleges that under its system,
processing time does not lead to a more accurate allocation base.

Nan Ya alleges that the petitioners have cited no valid evidence to
support their claim of a correlation between production output and
thickness, instead, they merely assert the presumption that the thicker
the film, the greater the processing rate. Moreover, Nan Ya states that
the petitioners fail to appreciate that even if the processing rate was
correlated and increased with thickness so would the production quantity.
Thus, Nan Ya claims that its cost allocation system, which allocates over
quantity, would be accurate even under the petitioners' flawed assumption,
because quantity would reflect any alleged production rate increase due to
thickness. 

According to Nan Ya, it has properly reported its product-specific COP
consistent with its accounting system. Nan Ya states that it has explained
its methodology in its Section D questionnaire response, and it has
provided additional details on this issue in its response to the
Department's supplemental Section D questionnaire.

Nan Ya contends that it has acted to the best of its ability on this
issue, and the petitioners have provided no evidence to the contrary.
Therefore, the Department must reject the petitioners' request that the
Department apply AFA in calculating Nan Ya's dumping margin.

Department's Position: We agree with the petitioners and are applying
partial AFA to calculate Nan Ya's dumping margin in this investigation.
The Department requires respondents to provide product-specific costs. As
the Department's questionnaire specifies, respondent's submitted costs
must account for POI cost differences for each of the physical
characteristics identified in the section B and C questionnaires. In our
initial Section D questionnaire, as well as in the supplemental section D
questionnaire, we requested that Nan Ya provide product-specific costs
taking into account product thickness, one of the physical characteristics
identified in sections B and C of our questionnaire. In both questionnaire
responses, Nan Ya claimed that there were no cost differences due to
product thickness. However, data obtained at verification shows a
correlation between productivity and film thickness, confirming that there
are cost differences for products with different thicknesses. During the
POI, Nan Ya experienced cost differences for product thickness, which is
supported by the data showing a direct correlation between product
thickness and production output. See Nan Ya's Cost Verification Report,
Exhibit 26.

In the Department's view, the requirement to obtain product-specific
sales and cost data is one of the most basic and significant requirements
for performing the antidumping analysis and margin calculation. The
specific physical characteristics which define a product for purposes of
an antidumping proceeding are those physical characteristics determined to
be the most significant in differentiating between products. These are the
physical characteristics that define a unique product for sales and cost
comparison purposes. Absent product-specific COP information, we cannot
perform, for example, an accurate sales-below-cost test, nor can we
determine accurate CVs for use as normal value (NV), as required by the
statute and regulations. See Polyester Staple Fiber, at Comment 31. Since
Nan Ya did not provide product-specific costs according to thickness in
response to the Department's request for information, the Department has
determined, in accordance with sections 776(a)(2)(A) and (B) and 776(b) of
the Act, that the use of partial AFA is appropriate for Nan Ya's product
conversion costs.

Section 776(a)(2) of the Act provides that if an interested party or any
other person: (A) withholds information that has been requested by the
administering authority; (B) fails to provide such information by the
deadlines for the submission of the information or in the form and manner
requested, subject to subsections (c)(1) and (e) of section 782; (C)
significantly impedes a proceeding under this title; or (D) provides such
information but the information cannot be verified as provided in section
782(i), the administering authority shall, subject to section 782(d), use
the facts otherwise available in reaching the applicable determination
under this title. In this investigation, Nan Ya failed to provide
information
explicitly requested by the Department in accordance with sections
776(a)(2)(A) and (B) of the Act. Because Nan Ya did not provide the
information specifically requested by the Department, we must resort to
the use of facts available (FA). Section 782(d) is not applicable because
Nan Ya indicated in response to the Department's questionnaire that there
were no differences in cost for each of the physical characteristics of
its merchandise. In our initial Section D questionnaire, we requested that
Nan Ya provide product-specific costs taking into account product
thickness. Nan Ya, in its October 29, 2001, section D questionnaire
response, stated that there were no cost differences due to product
thickness. In the supplemental section D questionnaire, we again requested
that Nan Ya provide product-specific costs taking into account product
thickness. Nan Ya again claimed that there were no cost differences due to
product thickness. At verification, we found that Nan Ya does track
production times by both production code and thickness. However, despite
the fact that Nan Ya does track this information, it still did not provide
this information in response to the Department's section D questionnaire
or in response to the Department's supplemental section D questionnaire.
Absent this information, the Department cannot accurately perform such
steps as determining sales below cost, comparing similar products, or
calculating CVs for use as normal value for comparisons to U.S. sales.
Thus, any remaining information on the record is insufficient to form the
basis for any determination under section 782(e) of the Act. Therefore, in
accordance with section 776(a)(2), we are applying partial FA to Nan Ya's
product-specific costs.

In addition, section 776(b) of the Act provides that, if the Department
finds that an interested party "has failed to cooperate by not acting to
the best of its ability to comply with a request for information," the
Department may use an inference that is adverse to the interests of the
party as the facts otherwise available. Adverse inferences are appropriate
"to ensure that the party does not obtain a more favorable result by
failing 
to cooperate than if it had cooperated fully." See Statement of
Administrative
Action (SAA) accompanying the Uruguay Round Agreements Act (URAA), H.R.
Rep. 
No. 103-316 at 870 (1994). This provision is intended to induce parties to
cooperate in antidumping proceedings. In applying the facts otherwise
available, the Department has determined that an adverse inference is
warranted pursuant to 776(b) of the Act because the Department has
determined that Nan Ya failed to cooperate to the best of its ability, 
as we discuss below.

As noted above, in our section D questionnaire, we requested that Nan Ya
provide product-specific costs taking into account product thickness. Nan
Ya did not provide the requested information. In our supplemental section
D, we stated that cost differences for physical characteristics identified
by the Department but not tracked by Nan Ya's normal accounting system
should be calculated using a reasonable method based on available record
data. In its response to our supplemental Section D, Nan Ya acknowledged
that the Department specifically identified thickness as a physical
characteristic for matching purposes. However, as it had done in its
section D response, Nan Ya stated that in its normal cost accounting
system the cost effects of thicknesses are minor and are not reflected in
the available records of Nan Ya's cost accounting system. At verification,
although Nan Ya claimed that there is no direct correlation between the
thickness of the product and hourly production output, we found that at
the stretching stage Nan Ya tracks production times by both production
code and thickness and the times are measured at the point where each
product type reaches the end of the stretching line. See Nan Ya's Cost
Verification Report, at 17. Nevertheless, Nan Ya failed to provide this
information in response to the Department's questionnaires. This
information was crucial to the accurate completion of the Department's
antidumping analysis. As mentioned above, without the product-specific
cost data, the Department could not perform such steps as accurately
determining sales below cost, or calculating CVs for use as NV or ensure
proper comparisons with similar merchandise. Therefore, because Nan Ya
failed to provide the information requested, despite numerous
opportunities to do so, we determine that Nan Ya has failed to cooperate
to the best of its ability.

In numerous cases, a respondent's normal cost accounting system does not
differentiate or provide product-specific costs to the level of detail
required by the Department. Our consistent practice, however, is to have
respondents start with the costs established in their normal cost
accounting system and then further allocate the costs to specific products
based upon a reasonable method available to them. See section 773(f)(1)(A)
of the Act; see also Polyester Staple Fiber, at Comment 31. While Nan Ya's
financial and cost accounting records may not contain the information
requested on separate product costs, the company could have developed a
reasonable methodology to allocate costs to products on a product-specific
basis using the company's normal cost accounting records as a starting
point to calculate product-specific costs. As we found at verification,
productivity of different products (i.e., the output per hour) is in
direct correlation with product thickness. Different productivity rates
result in different conversion costs. The more products made in an hour,
the less cost is attributable to each product, meaning the product with
the highest productivity will have the lowest cost. Nan Ya could have
allocated its conversion costs by product thickness (i.e., by productivity
rates of products with different thicknesses) using conversion factors
based on productivity of products with different thicknesses. This would
have been a minimal task since Nan Ya already records product thickness.
See Verification Report at 17. 

Because Nan Ya failed to report product-specific costs according to
product thickness, the Department lacks complete and necessary information
to calculate an accurate antidumping margin for Nan Ya, as discussed
above. Therefore, we find that Nan Ya did not act to the best of its
ability in accordance with section 776(b) of the Act. As a result of Nan
Ya's failure to comply with our request for information, we have relied on
partial AFA in accordance with section 776(b) of the Act. Because Nan Ya
did not account for cost differences due to product thickness, we can not
be sure that conversion costs were allocated properly to all products.
Therefore, for the final determination, as adverse AFA, we noted the
difference between the lowest production output for all product
thicknesses and the highest production output for all product thicknesses
and increased Nan Ya's reported per unit conversion cost by the
difference. See Nan Ya's Cost of Production and Constructed Value
Calculation Adjustments (May 6, 2002).

Comment 4: Nan Ya's Relationship With U.S. Customers

The petitioners claim that the record plainly illustrates that Nan Ya has
installed relatives throughout its North American distributorships to
carry out family-controlled transactions. The petitioners allege that nine
out of thirteen North American distributors are either managed or owned by
a close family relative. Further, they contend that two Canadian
distributors were founded by a close family relative.

According to the petitioners, the weight of authority supports a finding
that Nan Ya is affiliated with two of its U.S. customers. These companies
are referred to as Company A and Company B in this notice for business
proprietary reasons. (1) The petitioners claim that Nan Ya and Company A
and Company B are affiliated pursuant to section 771(33)(A) of the Act,
which states that "members of a family, including brothers and sisters
(whether by whole or half blood), spouse, ancestors, and lineal
descendants" shall be considered "affiliated" or "affiliated persons."
They argue that this language illustrates that affiliated-person family
relationships are not limited to brothers, sisters, and spouses. The
petitioners contend that the word "including" in this section of the
statute indicates that the enumerated family relationships are only
examples of a larger set of affiliated-person relationships to which the
statute applies. They state that the Court of International Trade (CIT)
has upheld Department affiliation findings based on a definition of family
that includes uncle-nephew relationships. See Ferro Union, Inc. v. United
States, 44 F. Supp 2d 1310 (CIT 1999) (Ferro Union). In a more recent
investigation, the Department confirmed that affiliated-person family
relationships covered by the statute include "uncle-nephew relationships,
aunt-niece relationships, or cousin-cousin relationships. See Notice of
Final Determination of Sales at Less Than Fair Value: Steel Concrete
Reinforcing Bars From the Republic of Korea, 66 FR 33526 (June 22, 2001)
and accompanying Decision Memorandum at Comment 1 (Steel Concrete
Reinforcing Bars). The petitioners assert that the Department should
follow this established principle in analyzing the relationship between
Nan Ya and Company A and Company B.

The petitioners point out that the existence of a close family
relationship is not dispositive of affiliation under section 771(33). They
state that the statute provides that "a person shall be considered to
control another person if the person legally or operationally is in a
position to exercise restraint or direction over the other person." See
section 771(33). According to the petitioners, this means that the family
relationship must have the "potential to impact decisions concerning the
production, pricing or cost of the subject merchandise." See Antidumping
Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27297 (May 19,
1997) (Final Rule). Thus, the petitioners maintain that when determining
affiliation, the crucial inquiry concerns the capacity to exert control,
not actual exertion. Pointing to Ferro Union, the petitioners note that
the CIT has upheld the Department's determination of affiliation where the
Department found a person second in command had potential legal and
operational control of a company. Similarly, they argue that in Steel
Concrete Reinforcing Bars, the Department determined that two companies
were affiliated because family members held senior management positions
with the capacity to control all three companies. The petitioners assert
that in this investigation the family's positions in senior management at
both Nan Ya and Company A and Company B give it the capacity "to impact
decisions concerning the production, pricing or cost of the subject
merchandise." See Final Rule, 62 FR at 27296-27298. In addition, they
state that family members collectively hold a significant equity interest
in Nan Ya and likewise hold ownership interests in Company A and Company B.

The petitioners contend that the Department should apply AFA to Nan Ya
because it has failed to cooperate by not acting to the best of its
ability and by failing to identify and provide requested information
concerning affiliation with Company A and Company B despite having the
ability to do so. According to the petitioners, Nan Ya has evidenced a
persistent pattern of misrepresentation and evasion in this issue that
began at the start of this investigation and continued throughout. See
Petitioners' Case Brief at 19-21.

The petitioners allege that Nan Ya's misrepresentations and lack of
candor in this investigation are unacceptable and pervasive. According to
the petitioners, there is no question that Nan Ya acted in bad faith
because the information the Department has repeatedly requested is clearly
within Nan Ya's possession and readily accessible. The petitioners claim
that Nan Ya has consciously chosen to omit material information in its
questionnaire responses and continued throughout the investigation to
provide incomplete and misleading supplemental responses despite being
given ample opportunity to clarify its relationship with Company A,
Company B, and other U.S. customers. Thus, the petitioners state that the
Department should find that Nan Ya and Company A and Company B are
affiliated, pursuant to section 771(33), and assign the highest dumping
margin for any U.S. sale made to other customers during the POI to Nan
Ya's U.S. sales to Company A and Company B as AFA.

In rebuttal, Nan Ya states that throughout this investigation, the
Department issued to Nan Ya a series of questionnaires regarding Nan Ya's
affiliation with some of its U.S. customers. According to Nan Ya, it has
cooperated and responded fully to all of the Department's questionnaires
and also answered the Department's questions during verification. Nan Ya
asserts that it has demonstrated to the Department that it is not
affiliated with its U.S. customers, and the Department verified this fact
in its sales verification report. See Verification of the Sales Responses
of Nan Ya Plastics Corporation, Ltd. (March 26, 2002) at 3-4 (Nan Ya's
Sales Verification Report). Nan Ya maintains that there is no indication
that Nan Ya's Chairman has any control of the pricing or the business
relationship between Nan Ya and its U.S. customers. Neither is there
evidence that Nan Ya has any affiliation with any of its customers.

Nan Ya states that more than 80 percent of its shares are held publicly
and that the company is run by a professional manager who is not related
to Nan Ya's Chairman and who must report to the company's board of
directors. Nan Ya points out that less than 20 percent of its board
members are in any way related to the company's chairman.

In conclusion, Nan Ya reiterates its claim that it has fully disclosed
the nature of any connections between Nan Ya and its U.S. customers.
According to Nan Ya, the facts simply do not support the petitioners'
allegations. Nan Ya also maintains that the Department's verifiers
concluded that no evidence of affiliation exists.

Department's Position: In the preliminary determination, we did not treat
Nan Ya as affiliated with its U.S. customers. Instead, we stated that we
would continue to collect and analyze information and determine in the
final determination whether these companies are considered affiliated
under the statute. We invited interested parties to submit comments on
this issue, especially with regard to affiliation through a family
grouping. See Preliminary Determination, 66 FR at 65890.

The Department has analyzed the information on affiliation on the record
in this investigation, including the case briefs submitted by the
petitioners and Nan Ya. Based on the information on the record, we have
determined that Nan Ya and certain U.S. customers are affiliated under
section 771(33)(F) of the Act by virtue of common control by members of a
family involved in the ownership and management of Nan Ya.

Section 771(33)(F) of the Act defines "affiliated" and "affiliated
persons" for purposes of our antidumping analysis. Section 771(33)(A) of
the Act provides that "{m}embers of a family, including brothers and
sisters (whether by whole or half blood), spouse, ancestors, and lineal
descendants" shall be considered affiliated. See Certain Welded Carbon
Steel Pipes and Tubes from Thailand: Final Results of Antidumping Duty
Administrative Review, 62 FR 53808, 53809 (October 16, 1997) (Pipe from
Thailand I). (2)

Section 771(33)(F) of the Act defines affiliates as "{t}wo or more
persons directly or indirectly controlling, controlled by, or under common
control with, any person." Furthermore, the statutory definition of
affiliated persons in section 771(33) of the Act states that "control"
exists where one person "is legally or operationally in a position to
exercise restraint or direction" over another person. The SAA indicates
that stock ownership is not the single evidentiary factor for determining
whether a person is in a position of control, and that control may also be
established through corporate or family groupings. See SAA at 838.
Moreover, as stated in the final regulations, the Department intends to
scrutinize closely issues of affiliation by family groupings. See Final
Rule, 62 FR at 53809.

In defining family groupings, the Department is not required to find the
existence of a "control group acting in concert." Rather, the Department's
analysis emphasizes the control group's ability, or "potential to act in
concert or act out of common interest" to exert restraint or direction
over a company's activities. See Certain Welded Carbon Steel Pipes and
Tubes From Thailand: Final Results of Antidumping Duty Administrative
Review, 63 FR 55578, 55581-55582 (October 16, 1998) (Pipe from Thailand
II) (emphasis added). Furthermore, single or multiple persons or groups
may be in control, individually and jointly, of one or more entities. See
Pipe from Thailand I, 62 FR at 53815.

Pursuant to 19 CFR 351.102(b), in determining whether control over
another person exists, within the meaning of section 771(33) of the Act,
the Department will consider, among other factors: (1) corporate or family
groupings, (2) franchise or joint venture agreements, (3) debt financing,
and (4) close supplier relationships. The Department will not, however,
find that control exists unless the "relationship has the potential to
impact decisions concerning the production, pricing or cost of the subject
merchandise or foreign like product." In applying this provision, the
Department makes a case-by-case determination of whether the relationship
has the potential to affect the subject merchandise. See Final Rule, 62 FR
at 27297-27298.

As discussed below, we find that Nan Ya is affiliated with Company A and
Company B under section 771(33)(F) of the Act by virtue of common control
by members of the same family. The family members are affiliated under
section 771(33)(A) of the Act because they are members of the Wang family
and under the Act, the members of the family are viewed as a unit, i.e.,
person.

The Wang family is in a position of legal and operational control of Nan
Ya, Company A, and Company B by virtue of the family's substantial
ownership in all three companies and the positions of family members as
officers of these companies. Given that the Wang family is legally and
operationally in a position of control over Nan Ya, Company A and Company
B, these companies are affiliated under section 771(33)(F) of the Act. (3) 

See Pipe from Thailand I, 62 FR at 53810.

In its rebuttal comments, Nan Ya argues that the Department's overview of
Nan Ya's corporate structure, activities, ownership, and affiliation did
not reveal any evidence that the owners of Company A and Company B have
ever worked for or owned stock in Nan Ya or served on Nan Ya's board, and
that there is no indication that Nan Ya's Chairman has any control over
pricing or the business relationship between Nan Ya and its U.S.
customers. However, we note that, while the Department verified documents
related to Nan Ya's corporate structure, affiliation, and stock-ownership,
and did not find any evidence of affiliation based on these documents, the
Department's test of affiliation does not focus solely on stock ownership.
The SAA indicates that stock ownership is not the single evidentiary
factor for determining whether a person is in a position of control, and
that control may also be established through corporate or family
groupings. See SAA at 838. Therefore, while our overview of Nan Ya's
corporate structure, activities, ownership, and affiliation did not reveal
any evidence that the owners of Company A and Company B have ever worked
for, owned stock in, or served on the Board of Directors of Nan Ya, it did
not address the issue of family relationship or control. 

Furthermore, the Department's test of affiliation does not mandate a
finding of actual or absolute control, but merely predicates that the
parties in question be in a position to influence decisions concerning the
production, pricing, or cost of the subject merchandise or foreign like
product. In light of the forgoing discussion, the Department has reason to
believe that the Wang family has the potential to influence the decisions
concerning the production, pricing, or cost of the subject merchandise or
foreign like product. See 19 CFR 351.102(b) and Pipe from Thailand II, 63
FR at 55580 and 55586.

Because we have concluded that Nan Ya is affiliated with two of its U.S.
customers, Company A and Company B, the appropriate sale for use in our
analysis is the sale by the two U.S. affiliates to their unaffiliated U.S.
customers. Those sales are constructed export price (CEP) transactions
because they were made in the United States after the date of importation.
See section 772(b) of the Act. For CEP sales, the Department deducts from
the U.S. resale price to an independent purchaser all selling,
distribution, and manufacturing expenses incurred in the United States and
an amount for profit allocable to these expenses. See section 772(c) of
the Act. However, since Nan Ya reported its CEP sales as export price (EP)
sales, we are unable to calculate accurate dumping margins for its sales
through Company A and Company B.

Although Nan Ya responded to the Department's questionnaire and
supplemental questionnaires regarding affiliation, it failed to report its
affiliated U.S. customer sales. Sections 776(a)(2)(A) and 776(a)(2)(B) of
the Act provide for the use of FA when an interested party withholds
information that has been requested by the Department, or when an
interested party fails to provide the information requested in a timely
manner and in the form required. Since Nan Ya neither reported its
affiliation with its U.S. customers nor provided the sales information for
its U.S. customers, as requested by the Department, we must resort to the
use of FA. Because Nan Ya did not provide the information regarding its
affiliation and did not provide the sales data of its affiliates, section
782(d) of the Act is not applicable. Further, absent this information,
i.e., the sales price to the unaffiliated customer and the expenses
incurred in making those sales, the Department cannot calculate CEP, and
therefore cannot accurately calculate a dumping margin. Thus, the
information on the record cannot serve as a reliable basis for this
determination under section 782(e) of the Act. Therefore, in accordance
with section 776(a)(2) of the Act, we are applying FA to calculate CEP for
Nan Ya.

In its Section A questionnaire response, Nan Ya stated that all of its
U.S. sales during the POI were EP sales. Nan Ya then stated that, during
the POI, it made a relatively small amount of sales to two companies in
the United States, Company A and Company B, which employ a relative of Nan
Ya's Chairman, Y.C. Wang. See Nan Ya's August 17, 2001, Section A
Questionnaire Response at 1. Later, in response to a supplemental
questionnaire, Nan Ya stated that relatives of Chairman Wang were officers
and shareholders in Company A and Company B. See Nan Ya's October 12,
2001, Supplemental Response. Despite admitting that a family relationship
existed between the Nan Ya's chairman and the officers of Company A and
Company B, Nan Ya did not submit a revised U.S. sales database, and
continued reporting the sales to Company A and Company B as EP sales. As
long recognized by the CIT, the burden is on the respondent, not the
Department, to create a complete and accurate record. See Pistachio Group
of Association Food Industries v. United States, 671 F. Supp. 31, 39-40
(CIT 1987). Therefore, because it did not report the sales of those
affiliated resellers, we find that the application of FA is warranted. As
FA, we have applied the dumping margin of Nan Ya's sales to unaffiliated
customers to Nan Ya's sales to these two affiliated customers.

Comment 5: Nan Ya's Recycled Packing Costs

The petitioners state that they have raised the issue of recycled packing
costs on several occasions in this case because it is common for PET film
producers to recycle packing materials and because an accurate accounting
of recycled packing costs is important to the Department's dumping
calculation. According to the petitioners, the statute provides for the
adjustment of differences in the cost of packing for exports and for sales
in the home market. Moreover, the petitioners claim that it is established
Department practice to take into account recycling in determining export
and home market packing costs. Thus, the petitioners maintain that when
packing materials such as pallets and drums have a one-time use for
exports, but multiple use through recycling for sales in the home market,
the cost of packing for exports is greater than that for sales in the home
market. 

The petitioners contend that in this case packing cost is material
because it represents a substantial portion of the sales price. Although
Nan Ya stated that it recycled pallets and sideplates in its responses,
the petitioners assert that Nan Ya apparently only included recycled
pallets and plastic cores in its calculations. See Nan Ya's Supplemental
Questionnaire, dated November 9, 2001, at Exhibit 2. The petitioners
further note that at verification the Department found that "recycled
materials are used with some of Nan Ya's home market customers," but that
"none of the U.S. packing materials are reused, recycled or returned by
customers." See Nan Ya's Sales Verification Report at 13 and 18. According
to the petitioners, however, Nan Ya's reported packing costs do not
reflect this finding. Further, they claim that the data on the record
regarding the extent of recycling and its impact on differences in U.S.
and home market packing are unreliable and incomplete.

The petitioners state that the Department made note of Nan Ya's treatment
of the purchase price of plastic cores in its verification report, but
there is no data on the record concerning Nan Ya's actual usage of
recycled pallets, side plates and plastic cores. In these circumstances,
the petitioners contend that the best available basis for adjusting U.S.
and home market packing costs is to take into account differential use of
recycled materials. Specifically, the petitioners recommend that the
Department increase Nan Ya's reported U.S. packing costs by the share of
packing costs that are recycled in the home market.

In rebuttal, Nan Ya states that the Department's verifiers examined Nan
Ya's packing cost reporting methodology and confirmed that Nan Ya
accurately reported its use of certain recycled packing materials. Nan Ya
states that the Department confirmed that these materials were used only
for home market customers. Further, Nan Ya claims that it identified all
packing material components in the source documentation the company
provided to the Department's verifiers, including those that were
recycled. In addition, Nan Ya maintains that the Department reconciled the
company's reported figure for recycled packing materials to Nan Ya's cost
calculation worksheet. Nan Ya states that the Department noted no
discrepancies and tied all related figures to Nan Ya's accounting system.
Thus, Nan Ya asserts that the Department should reject the petitioners'
request that the Department recalculate Nan Ya's home and U.S. market
packing costs.

Department's Position: We disagree with the petitioners' suggestion that
Nan Ya's U.S. and home market reported packing costs should be adjusted
for the final determination. Contrary to the petitioners' argument, we
verified that the only packing material recycled by Nan Ya are plastic
cores and pallets used for home market customers. Moreover at
verification, we closely examined the methodology used by Nan Ya to
calculate packing and found that Nan Ya's home market and U.S. packing
cost data wwere reliable. See NanYa Sales Verification at 13 and Exhibit
1C. Therefore, we have not adjusted Nan Ya's packing cost for this final
determination.

Comment 6: Nan Ya's Sales Quantities

From the outset of this investigation, the petitioners contend that they
have expressed concern that Nan Ya could circumvent an antidumping order
by providing more film to a customer than the quantity shown on the
invoice. See e.g., Petitioners' October 23, 2001, Letter to the Department
re: Comments to Nan Ya's Supplemental Sections B & C Questionnaire
Responses. The petitioners state that under-reported quantities also
distort the Department's margin calculations. In its August 17, 2001
Section A Questionnaire Response, Nan Ya reported that it only made a
limited number of sample sales during the POI. However, according to the
petitioners, the Department's verification exhibits include documentation
on a U.S. sale where the packing list shows a shipment with a greater
quantity than is reported in the U.S. sales database. Nan Ya accounts for
this difference by referring to the additional quantity as a sample "with
no commercial value." See Nan Ya's Sales Verification, Exhibit 11 at 2 and
8.

The petitioners state that since this excess quantity is not one of the
sample sales reported by Nan Ya in its questionnaire response, the
Department should increase the quantity for this transaction and reduce
the gross unit price. Further, the petitioners state that although this
adjustment corrects the excess quantity problem for this particular
transaction, it does not address other instances where under reported
quantities likely exist. The petitioners point out that the Department's
verification report only covers seven U.S. sales. They argue that if the
Department extrapolates the adjustment they recommend for the transaction
discussed above to all of Nan Ya's U.S. sales based on the Department's
verification ratio (sales verified to total U.S. sales), it would show how
substantial under reported quantities may be in this case and how
significant this factor is for an accurate dumping calculation. The
petitioners contend that adjusting Nan Ya's understatement of sales
quantities is necessary for a reliable dumping calculation in this case.

In rebuttal, Nan Ya point outs that for one sale, the Department noted a
small oversight in Nan Ya's reporting with regard to quantity. Nan Ya
contends that the petitioners seek to exaggerate this single error to
inflate the margin by claiming that it undermines the whole database. 

Nan Ya argues that the Department must disregard the petitioners'
accusation that a sample sale that appears in a single packing list for a
single sale within the POI should somehow lead the Department to question
the integrity and accuracy of Nan Ya's reported total sales quantity.
According to Nan Ya, the Department's sales verification report describes
tests that Department officials used to ensure that Nan Ya's sales
quantities had been accurately reported. Nan Ya maintains that a full
reading of the Department's sales verification report does not leave one
with the impression that Nan Ya has in any way misreported any of its
sales information. On the contrary, Nan Ya contends that the Department's
verification confirmed that Nan Ya's sales databases, with the exception
of a handful of minor corrections disclosed by Nan Ya at the beginning of
verification, were reported to a high degree of accuracy. 

Department's Position: We agree with Nan Ya that there is no basis to
adjust the sales quantities and gross unit prices for all U.S. sales. We
identified only one sale at verification for which the sales quantity had
been incorrectly reported and the error was relatively small. In the
course of verifying the reported quantities for other U.S. sales, we noted
no other sale incorrectly reported as a sample sale or with the sales
quantities incorrectly reported. Therefore, we found no indication that
this particular error was anything other than inadvertent. Therefore, for
the final determination, we have corrected for this error by adding in the
unreported quantity and sales value for this one sale only.

Comment 7: Shinkong's Home Market Sales Made to Port

The petitioners state that Shinkong has included in its home market sales
database shipments that were delivered to Taiwanese ports, even though the
respondent believes these shipments are destined to other markets. See
Verification Report for Shinkong Synthetic Fibers Corporation, dated March
28, 2002, at 12 (Shinkong's Sales Verification Report). Prior to
verification, the petitioners requested that the Department review these
port shipments. The petitioners contend that although they cannot
determine from the verification report whether the Department actively
examined the exporter instructions to Shinkong to confirm such
"indications of destination," they believe that sufficient evidence exists
on the record to exclude these port sales from Shinkong's home market
database. According to the petitioners, there is additional support for
such exclusion found in Shinkong's sales reconciliation submission. The
petitioners maintain that these materials show that the port sales may be
categorized in Shinkong's books and records as "indirect exports," further
suggesting that the port sales are not made to the home market, but are
ultimately destined for export markets outside of Taiwan. Accordingly, in
the final determination, the petitioners state that the Department should
delete the port sales from Shinkong's home market sales database. The
petitioners assert that this comports with the Department's longstanding
practice to exclude such sales where the respondent knew or had reason to
know that the merchandise was not sold for home market consumption. See
Notice of Final Determination of Sales at Less Than Fair Value: Stainless
Steel Sheet and Strip in Coils From Taiwan, 64 FR 30592, 30598 (June 8,
1999) (Stainless Steel Sheet and Strip in Coils From Taiwan).

From the beginning of this investigation, Shinkong contends, it informed
the Department that it was including in its home market database sales
that were shipped to container yards near ports (code 2 sales) and to
bonded warehouses (code 4 sales). According to Shinkong, it further
informed the Department that it had no proof of the ultimate destination
of these sales, as it did not export them. Shinkong points to the
verification report where it claims that the Department found no evidence
that Shinkong had documentary proof of the ultimate destination of the
merchandise. See Shinkong's Sales Verification Report at 10-11. Thus,
Shinkong argues that since the record shows these sales to be made within
the home market, the Department should continue to treat them as home
market sales.

Shinkong asserts that the case cited by the petitioners is not relevant
to code 2 sales, since those sales (1) were not shipped in bond to a port;
(2) were not made to bonded warehouses, and (3) Shinkong did not "know"
whether they were ultimately exported to the U.S. Thus, Shinkong argues
that the facts in the instant investigation are different from those cited
by petitioners. With respect to code 4 sales, Shinkong maintains that
while they were shipped to bonded warehouses, they could have been shipped
out of those warehouses back into Taiwan proper, further manufactured and
shipped back to Taiwan, or exported. Shinkong claims that it has no
knowledge of the ultimate destination of those shipments. Therefore,
Shinkong argues that there is no verified information on the record to
support petitioners' arguments.

Department's Position: We agree with the petitioners that sales that were
shipped by Shinkong to container yards near ports (code 2 sales) should be
excluded from Shinkong's home market sales database. Under section
773(a)(1)(B), NV is based on sales of the like product for consumption in
the home market. Thus, sales may be excluded from the home market database
if a respondent knew or had reason to know that merchandise was not sold
for home consumption even if the respondent did not know the ultimate
destination. See, e.g., INA Walzlager Schaeffler KG v. United States, 957
F. Supp. 251, 263H (CIT 1997). 

In the instant case, the record indicates that Shinkong knew or had
reason to know that code 2 sales were not sold for consumption in the home
market even if it did not know the ultimate destination of those sales. At
verification, "company officials noted that because container terminals
are located close to Taiwan's ports, it is Shinkong's general
understanding that the customers of such sales (code 2) eventually export
this merchandise." Company officials further stated that because "Shinkong
has no definite knowledge as to the ultimate destination of code 2 sales,
the company reported these as domestic sales in its home market sales
listing." See Shinkong's Sales Verification Report at 12. Thus, for the
final determination we excluded Shinkong's code 2 sales from the home
market sales database.

With respect to sales made to bonded warehouses (code 4 sales), we agree
with Shinkong that those sales should be treated as home market sales. It
is Department practice that if merchandise sold in the home market, even
if ultimately destined for export, was consumed in the home market in
producing non-subject merchandise prior to exportation, then it should be
reported as part of the home market sales database. See Stainless Steel
Sheet and Strip in Coils From Taiwan, 64 FR at 30598.

At verification, the Department verified that all code 4 sales were made
to a single customer, a Taiwanese affiliate of a Japanese company, that
further manufacturers PET film into adhesive tape. Company officials noted
that it was their understanding that the adhesive tape was eventually
exported. See Shinkong's Sales Verification Report at 12. Therefore, for
purposes of the final determination, we will continue to treat code 4
sales as home market sales.

Comment 8: Shinkong's Packing Costs

The petitioners state that the record makes clear that the Department
cannot rely on Shinkong's revised home market and U.S. packing cost in the
final determination. According to the petitioners, Shinkong has reported a
uniform packing cost in the U.S. and home markets for each pack type, even
though the cost of packing for export is greater than that for home-market
consumption because packing materials for export experience one-time use,
while home market packing materials are returned from customers and
reused. In addition, the petitioners allege that the Department found
during verification that Shinkong's rolls/pallet assumption (4) underlying
its packing cost allocation is flawed as a result of the mistaken addition
of meters and pieces related to cores. See Shinkong's Sales Verification
Report at 3. The rolls/pallet assumption is important because it drives
Shinkong's allocation of packing, labor, depreciation, utilities and other
expenses. The petitioners contend that by overstating the rolls/pallet
cost for 3 inch pack types, Shinkong has created "convert rates" for the
predominate 3 inch pack type that are higher than the predominate 6 inch
pack type. See Shinkong's Section B and C Questionnaire Response, Exhibit
B-8 at 8 (August 31, 2001).

The petitioners state that Shinkong has reported uniform packing costs in
the U.S. and home markets for each pack type. According to the
petitioners, this cannot be correct given the errors in "conversion rates"
and given the fact that recycling only occurs on packing for home-market
sales. To remedy this problem, the petitioners recommend that the
Department substitute the average packing overhead for the reported
specific packing overheads. 

The petitioners assert that the statute, i.e., sections 773(a)(6)(A) and
(B) of the Act, requires the Department to adjust for differences in
packing costs for sales in the U.S. and home markets. Moreover, the
petitioners argue that Department practice is to take account of
differences in packing costs based on the fact that materials are used
once for export sales, but used multiple times through recycling in the
home market sales. In these situations, the cost of packing for export
sales is greater than the cost of packing for sales in the home market.
See Final Determination of Sales at Less Than Fair Value: Industrial
Nitrocellulose from Brazil, 55 FR 23120, 23122 (June 6, 1990); Anhydrous
Sodium Metasllicate From France; Final Results of Administrative Review of
Antidumping Duty Order, 49 FR 43733, 43734 (October 31, 1984). In the
instant case, the record shows that only customers in the home market
return packing materials. See Shinkong's Second Supplemental Sections A, B
and C Response (November 14, 2001), at 6. Thus, the petitioners argue that
Shinkong's packing cost for home market sales must be less than its
packing cost for U.S. sales when the same type of materials are used for
both. However, the petitioners point out that Shinkong's reported packing
cost fails to reflect this difference because Shinkong spreads the cost
savings that it made on recycled materials across both home and U.S.
market sales. Therefore, the petitioners assert that because Shinkong's
reporting methodology is inconsistent with the statute and based upon past
Department practice and the facts of this case, the Department should
recalculate Shinkong's packing costs to reflect the fact that only home
market customers return packing materials.

The petitioners state that Shinkong has not placed on the record
information regarding the quantities of new and recycled pieces of those
part numbers actually used in the home market. As FA, the petitioners
recommend that the Department adjust Shinkong's reported packing costs by
treating all of these part numbers used in the home market as recycled
materials.

In rebuttal, Shinkong argues that the petitioners are operating under a
fundamental misconception. According to Shinkong, the petitioners believe
that U.S. sales use packing materials only once, while the materials may
be re-used for home market shipments. This is incorrect. The re-used
material is used for packing PET film sold both in the home market and the
United States. Moreover, Shinkong states that the Department verified that
it "included the cost of repurchased packing materials in the reported
packing costs." See Shinkong's Sales Verification Report, at 21.

Shinkong contends that it explained to the verification team that only
home market customers sell used packing materials back to Shinkong.
Shinkong takes the used packing materials and simply puts them back into
the general packing materials inventory. Thus, they may be re-used in both
home market and U.S. sales. Shinkong maintains that it has no reason to
track the use of re-used packing materials. Thus, it claims that there is
a 50-50 chance of any re-used packing material being used for U.S.
shipments.

With respect to the petitioners' argument that the rolls/pallet
assumption by Shinkong is incorrect, Shinkong states that while the
narrative response of Shinkong did add meters and pieces, the underlying
calculations used for the packing costs in the database were correct.
According to Shinkong the Department verified the accuracy of the use of
meters and pieces. See Shinkong's Sales Verification Report, at 21.

Finally, regarding the petitioners' argument that the packing costs for
U.S. sales were incorrectly reported because of the recycling cost issue,
Shinkong contends that the Department verified that Shinkong used the
correct methodology. Thus, no change is warranted.

Department's Position: We disagree with the petitioners' argument
regarding recycled packing material. We verified that Shinkong repurchases
packing materials from home market customers only. These packing materials
are returned to general packing material inventory. We confirmed that the
recycled materials are used for all types of packing without regard to
whether the sale is for the home market or United States. We verified that
the company included the cost of recycled packing material in the per unit
packing cost for both the home market and U.S. sales. See Shinkong's Sales
Verification Report at 23 and Exhibit 26.

Contrary to the petitioners' contention, we did not find during
verification that Shinkong's rolls/pallet assumption was flawed. In the
schedule of materials worksheet submitted by Shinkong in its Section B
Questionnaire Response, it inadvertently combined quantities of different
units (i.e., meters and pieces) for 3 inch paper cores. However, we
verified that the calculations used for the packing cost in the home
market and U.S. sales databases were correct. Further, during our tour of
Shinkong's factory, the Department verified the rolls/pallet assumption
for different packing types. Id. at 23 and Exhibit 29. Therefore, the
petitioners' allegation that the cost of packing is higher for U.S. sales
than it is for home market sales is without merit.

Comment 9: Shinkong's CPA Adjustments

In the preliminary determination, the Department increased Shinkong's
cost of manufacture (COM) by apportioning the amount of the "Other-
Production-CPA Adjust," a figure containing adjustments Shinkong's auditor
made and a large reconciliation item in Shinkong's COP response, to
Shinkong's operating divisions, including its PET film division. Shinkong
argues that the CPA adjustments were irrelevant to subject merchandise,
and should be excluded, except for the pension fund adjustment and the
year-end bonus adjustment. Shinkong agrees that the amounts verified by
the Department for these two items should be factored into the COP of
subject merchandise.

In discussing the other CPA adjustments, Shinkong maintains that with
respect to "losses on factory shutdown," the verification report does not
state that this item was neither verified, nor unreconciled. Accordingly,
Shinkong argues that the verified data should be used in the final
determination. 

Shinkong points out that in discussing "unrealized sales gross profit"
the Department notes in its cost verification report that: "Company
officials stated that the 'affiliated company' is actually two companies,
the Chinese and Thai subsidiaries. The auditor sheets, however, does not
identify the affiliated companies." According to Shinkong, this statement
appears to imply that unless the Department knows the identity of the
affiliates, it will not correctly allocate this data. However, Shinkong
argues that there is substantial evidence on the record not only
identifying these companies, but identifying them as being located outside
of Taiwan. 

Shinkong claims that it clearly distinguished for the verification team
the amount of "cost of sales of raw materials and supplies" that came from
the Taoyun plant, and therefore should be allocated to subject
merchandise, and the amount that came from the Chung Li plant, which does
not make the subject merchandise. Shinkong maintains that the verification
team did not request any other documents to prove Shinkong's claim.
Moreover, Shinkong contends that Shinkong's Cost Verification Report does
not indicate that the figures do not tie to the accounting records, or
that the data for the appropriate merchandise was not verified.
Accordingly, Shinkong states that the verified data should be used in the
final determination.

The petitioners state that the Department's cost verification focused on
particular items that make up Shinkong's CPA adjustment. According to the
petitioners, the purchase of DVD chips from Shinkong's subsidiary in
Thailand, concerns reclassifying an amount from one division to another.
However, the petitioners claim that there is no dispute that the item is
properly included in cost of goods sold (COGS). The petitioners maintain
that as long as it is reflected as such in the general ledger, it should
not matter whether the item related specifically to PET film-and there
should be no need to subtract this item from COGS in the financial
statement as part of reconciliation.

Another item included as a CPA adjustment, "losses on factory shut-down,"
concerns reclassifying an amount from "non-operating expenses" to COGS.
According to the petitioners, this reconciliation should result in a
subtraction of this item from COGS in the financial statement. However,
the Department's verification statement includes the following statement:
"[c]ompany officials claimed that this shutdown expense is already
included in the reported costs because this expense primarily consists of
labor expenses." See Shinkong's Cost Verification Report at 10. The
petitioners argue that this makes little sense because whether or not
these expenses have been reported should hinge on whether Shinkong
included non-operating expenses from the general ledger in its COM
calculation-not whether they are labor expenses. 

The petitioners state that another item, "cost of sales of raw materials
and supplies," concerns reclassifying an amount from "miscellaneous
expenses" to COGS. According to the petitioners, this amount should be
subtracted from the COGS in the financial statement and adjusted for
reconciliation. The petitioners state that Shinkong seems to propose that
the portion of this increase in COGS that is related to PET film should be
added to general and administrative (G&A) expenses. The petitioners
maintain that this is nonsense and argue that if the auditors deem that
expense to be COGS for PET film, then it should be part of COM-not G&A.

According to the petitioners, the "pension adjustment" and the
"overestimated year-end bonus" represent adjustment items that are
properly reflected in the general ledger and therefore require no
adjustment for reconciliation. Further, the petitioners argue that "Item
P" (unrealized gain on sale of equipment to affiliated parties in Thailand
and China) should not be required in the reconciliation, but is clearly
part of the CPA adjustment for the first quarter of 2000.

The petitioners believe that in the final determination, the Department
should revise the CPA adjustment with respect to amounts of "unrealized
sales gross profit" and "depreciation expenses on leased assets." However,
the Department should treat the remaining aspects of the CPA adjustment in
the same manner as in the preliminary determination. 

In rebuttal to Shinkong's comments, the petitioners state that the
underlying issue before the Department is whether it has received a
consistent and reliable explanation of items relating to the CPA
adjustment as proper reconciliation items and not, as Shinkong suggests,
whether one or more of these items appears in some part of the general
ledger for PET film operating division.

In dealing with "loss on factory shutdown," the petitioners claim that
Shinkong simply focuses on whether the Department seemed satisfied with
certain data or documentation presented at verification but ignores the
more important issue in the verification report, which is illustrated by
the Department's statement that "{c}ompany officials claimed that this
shut-down expense is already included in the reported costs because this
expense primarily consists of labor expenses." See Shinkong's Cost
Verification Report at 10. The petitioners argue that this assertion by
company officials is inconsistent with Shinkong's general explanation for
"losses on factory shutdown" as a reconciling item because it implies that
the shutdown expense was already in the COGS of the operating divisions
even though the Department was told that this item was reclassified from
"non-operating expenses" to other COGS. According to the petitioners, if
these expenses were already in the operating divisions' COGS, then it
should not be a reconciling item for COGS. On the other hand, if the
shutdown expense was in "non-operating expenses," but was reclassified to
COGS, then it should be a reconciling item for COGS. 

With regard to the "cost of sales of raw materials and supplies," the
petitioners contend that the Department's real concern on this matter is
whether it has received a consistent explanation of the CPA adjustment as
a reconciling item for COGS. According to the petitioners, the cost
verification report states that company officials agreed that it is
appropriate to include an amount from this CPA adjustment in the G&A
calculations. The petitioners maintain that this statement contradicts
Shinkong's explanation of the CPA adjustment during verification.
Specifically, the petitioners allege that Shinkong's assertion that this
amount is part of G&A conflicts with the statement in the verification
report that this was a "reclassification" from "miscellaneous expenses" to
COGS and therefore properly part of the reconciliation between COGS and
operating division COGS.

In rebuttal to the petitioners' comments, Shinkong states that it is
clear that all of the CPA adjustment data was thoroughly explained to the
verification team and verified. Thus, Shinkong claims that nothing the
petitioners argue to obfuscate the issue can detract from the fact that
the CPA adjustment data was reconciled and verified. 

According to Shinkong, the petitioners' misunderstanding of generally
accepted accounting principles (GAAP) in Taiwan cause them to incorrectly
interpret virtually all of Shinkong's accounting system. For example,
Shinkong claims that the petitioners' argument concerning "losses on
factory shut-down" is incorrect. Shinkong notes that this should be an
increasing item, rather than a decreasing item, because it is on the debit
side and Shinkong did not include the shutdown period labor cost in its
Section D calculation since it used the total actual paid labor divided by
the net production quantity at each stage of production.

For basically the same reasons, Shinkong maintains that the petitioners
are wrong about "cost on sales of raw materials and supplies." Shinkong
states that this item is on the debit side and should be increased, not
decreased. Further, Shinkong argues that according to the Taiwanese GAAP,
the "cost of sales of raw materials or supplies" are recorded as "other
expense" under G&A.

In addition, Shinkong asserts that the "pension adjustment" and
"overestimated year-end bonus" are expenses reported in Shinkong's Section
D calculations. According to Shinkong, the Department verified the
appropriate amounts that should be adjusted for these items. Finally,
Shinkong states that contrary to petitioners' arguments Item P (unrealized
gain on sale of equipment to affiliated parties in Thailand and China)
should not be included because it occurred in the first quarter of 2000,
which is outside of the POI and it was not related to subject merchandise.

Shinkong states that the reclassifications and adjustments performed by
Shinkong's independent auditor, which affected both subject and non-
subject merchandise, were found by the Department to be correct. Shinkong
contends that the Department is required to calculate a COP for the
subject merchandise as precisely as possible and argues that only by using
verified data will the Department accomplish this goal.

Finally, Shinkong notes that the petitioners did not cite even one
instance where either a CPA adjustment was not verified by the Department,
or an explanation of the rationale for any CPA adjustment was not accepted
by the Department. Moreover, Shinkong maintains that the petitioners did
not cite any legal authority to support their argument. 

Department's Position: We agree with Shinkong in part that the Department
should modify its treatment of the CPA adjustments in the final
determination In its Section D Questionnaire Response, Shinkong stated
that it had excluded from its calculations certain "Non-Operations
Income/Expense" because it claimed these items were "irrelevant to the
subject merchandise." See Shinkong's Section D Questionnaire Response,
October 29, 2001. In our Section D Supplemental Questionnaire, we asked
Shinkong to explain in detail (emphasis added) why it excluded each
expense that it described as "irrelevant to the subject merchandise." On
November 30, 2001, Shinkong explained that one of the excluded
"irrelevant" items included CPA adjustments, or adjustments to the
financial statement made by its independent auditor. These adjustments
included "losses on sales of fixed assets, utilities costs sold to
Shinkong Spinning Corporation, cost of equipments sold to Hangzhou Huachun
Chemical Fiber Co., rental assets depreciation, cost on sales of raw
material and supplies, losses on sales of vehicles." However, instead of
providing an explanation of why these items were irrelevant to subject
merchandise, Shinkong stated that it would "provide sufficient
documentation to substantiate this determination during the on-the-spot
verification." See Shinkong's Section D Supplemental, November 30, 2001,
at 4. Further, in its Total Cost of Manufacture Reconciliation Worksheet
submitted as Exhibit 1 to its Section D Supplemental Response, Shinkong
listed the CPA adjustments as an adjustment to its cost of goods sold
(COGS). These adjustments represented nearly 16 percent of the total COGS.
Given the large size of these adjustments, and Shinkong's failure to
provide a detailed explanation regarding why it had excluded these items
for the preliminary determination, we recalculated Shinkong's COM to
attribute a portion for CPA adjustments to subject merchandise for
purposes of the Department's preliminary determination in this proceeding.

In comments submitted to the Department on January 10, 2002, Shinkong
objected to the Department's preliminary determination regarding its CPA
adjustments. It complained that it had explained clearly that the CPA
adjustments had nothing to do with the COM of the subject merchandise and
that the Department had no authority to assume the worse case scenario,
without first asking Shinkong in a supplemental questionnaire about the
CPA adjustments and their relevance to subject merchandise. It requested
that the Department amend the Preliminary Determination to correct what it
called a "methodological error." See Request for Amended Preliminary
Determination, January 10, 2002.

In its January 10, 2002, submission, Shinkong included an exhibit which
listed each of the CPA adjustments in question. The CPA adjustments
included the following adjustments to the COGS: 1) the purchase cost of
material incurred by the Thai Shinkong Industry Corporation; (2) the
losses incurred as a result of the shut-down of a factory; (3) a pension
adjustment; (4) the costs incurred on the sales of raw materials and
supplies; (5) the transfer to waste; (6) the depreciation expense incurred
on leased assets; (7) an amount representing the overestimate of year-end
bonuses; and (8) the unrealized sales gross profit.

The largest of these CPA adjustments was the purchase cost of material,
in this case, DVD chips from Shinkong's subsidiary in Thailand, the Thai
Shinkong Industry Corporation. This item represents an increase to the
COGS and constitutes nearly 90 percent of the total CPA adjustments. We
verified that these DVD chips are not used in the production or sale of
subject merchandise. Therefore, we did not include this adjustment in our
calculation of Shinkong's COM.

Similarly, we found that the "depreciation on leased assets" represents
the depreciation on machinery used to produce non-subject merchandise. We
also verified that "unrealized sales gross profit," was related to
subsidiaries of Shinkong that were not involved in the production of
subject merchandise. Additionally, we verified that the cost of
transferring scrap to waste and a portion of the "cost on sales of raw
material and supplies" were not attributable to subject merchandise. Id.
at Exhibit D1. We, therefore, excluded these items from our calculation of
Shinkong's COM as well.

With regard to the CPA adjustments for the pension fund and the
overestimate of year-end bonuses, Shinkong reported that it failed to
allocate these adjustments to subject merchandise as part of the minor
corrections it presented at the start of the verification. We reconciled
these to items to Shinkong's general ledger. Further, as part of its minor
corrections claims, Shinkong reported that an amount of the "cost on sales
of raw material and supplies" attributable to subject merchandise was
omitted from its calculation of G&A expenses. Thus, for the final
determination, we increased Shinkong's G&A expenses by the amount of the
"cost on sales of raw material and supplies" attributable to subject
merchandise.

In relation to the losses incurred as a result of the shut-down of one of
Shinkong's factories, we were unable to verify that these losses were
included in the reported COM as asserted by Shinkong. Shinkong argues that
the losses are already included in reported labor costs and adding them
into the COM would, thus, constitute double counting. However, in
reconciling all the CPA adjustments to Shinkong's financial statement, we
were unable to verify the inclusion of these losses in Shinkong's reported
COM. Thus, while the issue was discussed at verification, no documentation
was provided to demonstrate that these expenses were already included in
Shinkong's reported COM. As a result, we have included an allocated amount
of losses in our calculation of Shinkong's COM. To establish the amount,
since it is not disputed that the losses incurred as a result of the
factory shut-down are related to all products produced by Shinkong, we
allocated these losses to Shinkong's total production, not just the
production of subject merchandise.

In conclusion, we excluded from Shinkong's COM the CPA adjustment items
which were not related to the production or sales of PET film. In
contrast, we included those items that were related to the production or
sales of subject merchandise and that Shinkong did not demonstrate were
already in the production costs the company reported. Therefore, for the
final determination, we allocated amounts of the pension fund adjustment,
year-end bonus adjustment, cost on sales of raw material and supplies, and
the losses incurred as a result of a factory shut-down to Shinkong's COM
for PET film. See Calculation Memorandum of the Final Determination of the
Investigation of Shinkong Synthetic Fibers Corporation, May 6, 2002. 

Recommendation

Based on our analysis of the comments received, we recommend adopting the
positions described above. If these recommendations are accepted, we will
publish the final determination and the final weighted-average dumping
margins in the Federal Register.

Agree__________ Disagree__________ Let's Discuss___________

__________________________________
Joseph A. Spetrini 
Acting Assistant Secretary
  for Import Administration

__________________________________
(Date)

________________________________________________________________________
footnotes:

1. Due to the proprietary nature of these issues, for further discussion,
see memorandum from Holly A. Kuga to Bernard T. Carreau, Whether Nan Ya
Plastics Corporation, Ltd., is Affiliated, Under the Tariff Act of 1930,
as Amended, with its U.S. Customers, May 6, 2002 (Nan Ya Affiliation
Memo). 

2. In Ferro Union, the Court upheld the Department's determination in
Pipe from Thailand I that a "family" is a control person under section
771(33)(F) of the Act. The Court ruled that "the singular word 'person'
{in section 771(33)(F) of the Act} can be interpreted to encompass a
'family' in order to carry out the intent of the statute." The Court noted
that the intent of the statute, as expressed by the SAA, "was to identify
control exercised through 'corporate or family groupings.'" The Court
concluded that "by interpreting 'family' as a control person, Commerce was
giving effect to this intent." Ferro Union, 44 F.Supp. 2d at 1326. 

3. Due to the proprietary nature of these issues, for further discussion,
see Nan Ya Affiliation Memo, May 6, 2002.

4. The petitioners use the term "rolls/pallet assumption" in their
discussion of Shinkong's allocation of packing expenses (material, labor,
utilities, etc.) The Department understands this "rolls/pallet assumption"
to represent the amount of rolls per pallet for different types of
packing.