67 FR 8520, February 25, 2002
                                                            A-570-822
                                        Seventh Administrative Review
                                                 POR: 10/1/99-9/30/00
                                                      Public Document
                                                           SAH: x3464
MEMORANDUM 

DATE: February 15, 2002 

TO:   Faryar Shirzad
      Assistant Secretary 
        for Import Administration

FROM: Richard W. Moreland
      Deputy Assistant Secretary, Group I
        Import Administration

SUBJECT: Issues and Decision Memorandum for the Final Results of the
Antidumping Duty Administrative Review of Certain Helical Spring Lock
Washers from the People's Republic of China

_________________________________________________________________________

SUMMARY

We have analyzed the comments in the case and rebuttal briefs submitted
by interested parties in the antidumping duty administrative review of
certain helical spring lock washers ("HSLWs") from the People's Republic
of China ("PRC"). As a result of our analysis, we have made changes,
including corrections of clerical errors, in the margin calculations. We
recommend that you approve the positions we have developed in the
Discussion of the Issues section of this memorandum. Below is the complete
list of the issues in this review for which we received comments from the
parties:

Comment 1: Use of Import Prices to Value All Steel Wire Rod Inputs
Comment 2: Plating Operations: Factory Overhead, SG&A Expenses and Profit 
Comment 3: Representativeness of Plating Factors of Production
Comment 4: Valuation of Hydrochloric Acid
Comment 5: Valuation of Inland Shipping Rate
Comment 6: Valuation of Potassium Aluminum Sulfate
Comment 7: Calculation of Factory Overhead Net of Scrap

BACKGROUND

The products covered by this review are HSLWs of carbon steel, of carbon
alloy steel, or of stainless steel, heat-treated or non-heat-treated,
plated or non-plated, with ends that are off-line. HSLWs are designed to:
(1) function as a spring to compensate for developed looseness between the
component parts of a fastened assembly; (2) distribute the load over a
larger area for screws or bolts; and, (3) provide a hardened bearing
surface. The scope does not include internal or external tooth washers,
nor does it include spring lock washers made of other metals, such as
copper. 

This administrative review was requested by Shakeproof Assembly
Components, Inc. ("the petitioner"). The respondent is Hang Zhou Spring
Washer Co. Ltd. ("Hangzhou"), also known as Zhejiang Wanxin Group, Co.,
Ltd.

The period of review ("POR") is October 1, 1999 through September 30,
2000. We invited parties to comment on our preliminary results. 

DISCUSSION OF ISSUES

Comment 1: Use of Import Prices to Value All Steel Wire Rod Inputs

In the Preliminary Results, the Department used the price of steel wire
rod ("SWR") imported by Hangzhou from the United Kingdom to value
Hangzhou's SWR input.

The petitioner raises several objections to the use of this information
for valuing this input. 

First, the petitioner contends that the prices paid by Hangzhou cannot be
used because: (i) the prices are aberrationally low; (ii) Hangzhou's
estimated usage of SWR is based on changes in inventory, without tracing
the SWR used to the HSLWs actually produced, and (iii) the prices reported
by Hangzhou reflect unverified prices paid for imported SWR during the
POR, not the cost of wire rod in its inventory. According to the
petitioner, the prices Hangzhou paid are aberrational when compared to
data on Indian imports, Chinese imports, U.K. exports and U.S. imports. 

Second, the petitioner argues that, as a matter of administrative
practice, the Department must reject small quantity import data when the
unit values differ substantially from larger quantity imports. In support
of this claim the petitioner refers to Shakeproof Assembly Components
Division of Illinois Tool Works Inc. v. United States, Slip Op. 99-70, at
11 (CIT 1999) ("Shakeproof I"), which cites, inter alia, to Heavy Forged
Hand Tools, Finished or Unfinished, With or Without Handles, from the
People's Republic of China, Final Results of Administrative Reviews, 62 FR
11813 (March 13, 1997). 

Third, the petitioner argues that the Department is abusing its
discretion by using the prices Hangzhou paid for SWR without first
verifying the prices and the fact that the imported SWR was actually used
during the POR. The Department further abused its discretion, according to
the petitioner, when it used the prices Hangzhou paid for imported SWR
despite the fact that Hangzhou did not import every size of SWR that it
used and the chemical compositions of the imported and domestically
sourced SWR differed in some instances. 

Before using the actual import prices paid by Hangzhou, the petitioner
contends, the Department must find the use of import prices leads to a
more accurate calculation of the dumping margin than the alternatives
(citing Shakeproof I at 7). In this review, the petitioner points out, the
Department did not justify or support its claim that the amount of
imported steel was meaningful. The petitioner further contends that the
Department's remand determination in Olympia Indus., Inc. v. United
States, 7 F. Supp. 2d 997 (CIT 1998) and 36 F. Supp. 2d 414 (CIT 1999)
("Olympia") established the criteria for determining whether to use import
values. Under these criteria, the Department must examine: (i) the value
and volume of imports; (ii) the type and quality of the imported input;
and (iii) consumption of the imported input by the nonmarket economy
("NME") producers in order to assess the reliability of steel import
prices as "alternative surrogate values." The petitioner concludes that
unless the Department can demonstrate that the actual import prices paid
by Hangzhou for SWR yield a more accurate method of valuing this input,
then the Department must use Indian steel prices.

Hangzhou supports the valuation methodology used by the Department in the
Preliminary Results. First, Hangzhou contends that the valuation issue has
been definitively settled by the Department in 351.408(c)(1) of its
antidumping duty regulations and by the CIT in Shakeproof Assembly
Components Division of Illinois Tool Works, Inc. v. United States,
("Shakeproof II"), 102 F.Supp. 2d 486 (CIT 2000), which affirmed the
Department's remand determination in Certain Helical Spring Lock Washers
from the People's Republic of China; Final Results of Antidumping Duty
Administrative Review, 62 FR 61794 (November 7, 1997) ("3rd administrative
review"). Section 351.408(c)(1) of the regulations states that the
Department will normally use the market economy price paid by a NME
producer in a market economy currency to value an input, even if only a
portion of the input used is imported, and that regulation is controlling
in this review. Because of the regulation, Hangzhou maintains that the
Department does not need to determine actual usage of the imported steel
by Hangzhou or how the use of import prices leads to a more accurate
result than the use of Indian surrogate values. The respondent adds that
the Department's regulation in fact promotes predictability because it
puts parties on notice regarding factor valuation by the Department.

Second, Hangzhou argues that the CIT's decision in Shakeproof II fully
supports the methodology used in this review. According to that decision,
Hangzhou claims, the use of actual import prices paid by the NME producer
promotes accuracy in the Department's results. Also, the court in
Shakeproof II applied the less deferential Skidmore standard (see Skidmore
v. Swift & Co., 323 U.S. 134 (1944). However, because the current review
is being conducted under 408(c)(1) of the Department's regulations,
Hangzhou argues that the Department's actions are entitled to a full
Chevron deference (see Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984). 

Third, Hangzhou maintains that under all relevant law, a market economy
price is preferable to a surrogate value to value a factor of production
("FOP") unless that quantity is not meaningful (i.e., deemed
"insignificant"). In this review, Hangzhou states that over half of the
SWR it purchased was from market economy suppliers as compared to the 34
percent considered significant by the CIT in Shakeproof II. Hangzhou
points to Ferrovanadium and Nitrided Vanadium from the Russian Federation,
62 FR 65656, 65661 (December 15, 1997), where the Department noted that
the respondent had purchased a "relatively small amount" of an input from
a market economy supplier. Despite this, according to Hangzhou, the
Department rejected the price paid to the market economy supplier on the
grounds that the imported and Russian-sourced inputs were not comparable,
and not on the grounds that "a relatively small amount" was
"insignificant."

Hangzhou contends that because the prices it paid for imported SWR meet
all the criteria established in 351.408(c)(1) of the Department's
regulations and the amounts are significant, use of those prices promotes
accuracy, fairness and predictability. Hangzhou notes that several of the
arguments made by the petitioner against using these import prices have
been raised and dismissed by the Department in prior reviews. Regarding
the petitioner's claim that the import prices are invalid because certain
diameters of SWR are not imported, the Department has found that the SWR
with larger diameters (sourced domestically) is usually less expensive
than the smaller diameter (imported) rod and that relatively little large
diameter SWR is used by Hangzhou.

Hangzhou further contends that the petitioner's claim of aberrationally
low prices of imported SWR is unsubstantiated. Hangzhou also notes the
Department's statement in Certain Helical Spring Lock Washers from the
People's Republic of China; Final Results of Antidumping Duty
Administrative Review, 65 FR 31143 (May 16, 2000) ("5th administrative
review"), i.e., that Commerce is not aware of any cases where it "tested"
market economy prices actually paid by an NME producer. Hangzhou argues
that there is no reason to do so here because the petitioner has not
identified any relevant fact that would lead the Department to question
whether these were market economy transactions. Also, the petitioner's
reference to "information and belief" regarding U.S. prices is not
relevant because the United States' level of economic development is not
comparable to that of the PRC and, hence, U.S. prices would not normally
be used.

Regarding Olympia, Hangzhou contends that the petitioner incorrectly
continues to rely on this decision. As Hangzhou has argued in past reviews
and the Department has agreed, Olympia addresses the situation where an
input is imported by a Chinese trading company and resold to the Chinese
producer, and payment is made in NME currency. Olympia does not apply in
the instant case, according to Hangzhou, because Hangzhou purchases its
SWR from a market economy supplier through a market economy trading
company with market-economy currency. However, Hangzhou claims that even
if the Department were to apply the Olympia criteria to its purchases of
steel wire rod, its import prices would be found reliable. 

Finally, Hangzhou dismisses the petitioner's argument that the Department
must verify Hangzhou's import prices before they can be used to value SWR.
Hangzhou states that it was verified in the 4th and 6th reviews of this
order (see Certain Helical Spring Lock Washers from the People's Republic
of China; Final Results of Antidumping Duty Administrative Review, 64 FR
13401 (March 18, 1999) ("4th administrative review") and Certain Helical
Spring Lock Washers from the People's Republic of China; Final Results of
Antidumping Duty Administrative Review, 66 FR 1078 (January 5, 2001) ("6th
administrative review")) and no discrepancies were found regarding the
price of the imported SWR and the rod's usage. On this point, Hangzhou
argues that the petitioner's speculation is insufficient to establish
"good cause" to conduct a verification. 

Department's Position: 

We have continued to value all SWR using the price paid by Hangzhou for
SWR imported from the U.K. during the POR for these final results. This
administrative review is being conducted under 351.408(c)(1) of the
Department's regulations. According to 351.408(c)(1), the Department will
use the actual price paid by an NME producer for its input, if the NME
producer purchases the input from a market economy supplier and pays for
it in a market economy currency. Moreover, that regulation provides that
the actual price will be used even if a portion of the input in question
is sourced domestically. 

To date, two exceptions to the rule articulated in 351.408(c)(1) have
arisen. The first is where the imported amount is insignificant or not
meaningful. As Hangzhou has pointed out, over half of the SWR it purchased
during the POR was imported from a market economy and paid for in a market
economy currency. We determine that this amount is significant, and that
the actual prices paid by Hangzhou should not be disregarded on this
basis. (See, "Hang Zhou Spring Washer Plant, Ltd., also known as Zhejiang
Wanxin Group Co., Ltd. ("Hangzhou") Calculation Memorandum," dated
February 15, 2002.) The second exception arises where the input is dumped
or subsidized (see Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished from the Peoples Republic of China; Final Results of 1998-1999
Administrative Review, 66 FR 1953 (January 10, 2001)("TRBs 12"), Issues
and Decision Memorandum, Comment 1 and Final Determination of Sales at
Less Than Fair Value: Certain Automotive Replacement Glass Windshields
from the People's Republic of China, 67 FR 6482 (February 12, 2002),
Issues and Decision Memorandum, Comments 1-5). The petitioner has not
pointed to any evidence of dumping or subsidization. Therefore, this
exception does not provide a basis for disregarding the prices Hangzhou
actually paid for imported SWR.

Instead, the petitioner has raised a number of other objections to use of
these prices. We address these in turn.

First, the petitioner claims the prices are aberrationally low. We note
that the petitioner does not point to any evidence on the record to
support this claim, except in comparison to the price of imports of SWR
into India. As this value itself would be subject to claims that it is
aberrational (see below), it is not an appropriate benchmark. More
importantly, assuming for the sake of argument that the price paid by
Hangzhou is low, we do not agree that this is a basis for rejecting the
price. It is the price paid by Hangzhou to an unrelated market economy
supplier through an unrelated market economy trading company, i.e., an
arm's length price, and the petitioner has provided no information except
the allegedly low price that would lead us to question the reliability of
the data. While the Department will examine surrogate values to determine
whether they are aberrational (see, e.g., Final Determination of Sales at
Less Than Fair Value: Creatine Monohydrate from the People's Republic of
China, 64 FR 71104, 71106 (December 20, 1999)), we are not aware of, nor
has the petitioner pointed to, any case where we have tested the actual
price paid by the NME producer to a market economy supplier for the input. 

The petitioner also raised the Department's practice of disregarding
small quantity import data when the per unit value of the small quantity
transaction differs from the per unit value of larger quantities. As
discussed above, we have determined that Hangzhou's imports of SWR were
significant. Moreover, the petitioner fails to mention that the cited
practice relates to surrogate data. Specifically, when the Department uses
a surrogate country's import statistics to value an input, we omit imports
from NMEs and small quantity shipments in calculating the average import
price. A review of the cases cited by the petitioner shows that the
Department was examining the per unit values and quantities of imports
into the surrogate country and not imports by the NME producer (see, Heavy
Forged Hand Tools, Finished or Unfinished, With or Without Handles, from
the People's Republic of China, Final Results of Administrative Reviews,
62 FR 11813, 11815 (March 13, 1997), and Tapered Roller Bearings and Parts
Thereof, Finished or Unfinished, from Romania, 62 FR 37194, 37195 (July
11, 1997)). 

Regarding the petitioner's concerns about measuring the volume of SWR by
reference to inventory changes and basing the value on SWR purchased as
opposed to SWR used, we are satisfied that the amount reported by Hangzhou
accurately reflects the price for imported SWR. We do not believe that it
is necessary to trace the amount of imported SWR actually used during the
POR because our regulations direct us to use the import price for all of
the input. Also, we accept the price paid for SWR during the POR (rather
than the price paid for rod in inventory). This is consistent with our
methodology when we use surrogate values, i.e., we seek a value that is
contemporaneous with the POR. 

Regarding the fact that Hangzhou did not import all sizes of wire rod, as
stated in Hangzhou's rebuttal brief, the verification in the 4th
administrative review demonstrated that Hangzhou (which was known as ZWG
at that time) did not import the larger-sized diameter because of certain
minimum order requirements set by the supplier. Also as stated by
Hangzhou, we verified in the 4th administrative review that Hangzhou does
not use very much of the larger-sized rod, and that the larger-sized
diameter wire rod is usually less expensive than the smaller-sized wire
rod. Therefore, in using the prices for the smaller diameter rod to value
this input, the Department is arguably overvaluing the larger diameter
input.

More generally, the petitioner's comments have relied extensively on two
rulings by the CIT, Shakeproof I and Olympia. Regarding Shakeproof I, we
note that the Department's redetermination on remand was affirmed by the
CIT in Shakeproof II and, since the filing of comments in this proceeding,
upheld by the Court of Appeals for the Federal Circuit (See, Shakeproof
Assembly Components Division of Illinois Tool Works, Inc. v. United
States, 268 F.3d 1376 (Fed. Cir. 2001) ("Shakeproof III").

We agree with the petitioner, and, as articulated by the CAFC in
Shakeproof III, that 773(c)(1) of the Act requires the Department to use
the "best available information" to value the NME producer's factors of
production. We disagree, however, with the petitioner's assertion that the
Department did not do so. Discussing valuation of FOP and determination of
"best available information," the CAFC stated that, though the Act
authorizes the Department to use surrogate countries which are at a
comparable level of economic development and are significant producers of
comparable merchandise, to estimate the value of the FOP, the Act does not
require the Department to always use surrogate country values. (Shakeproof
III, 268 F.3d at 1382.) Ruling on facts almost identical to those in this
review, the CAFC adopted Commerce's reasoning that the actual price paid
for inputs imported from a market economy country in meaningful quantities
is the "best available information" and promotes accuracy in the dumping
calculation. Id. The Court recognized that a "meaningful amount" of
imported goods must be determined on a case-by-case basis, and in the 3rd
administrative review, the court found imported steel amounting to
approximately one-third of all the steel used by ZWG to be "meaningful."
Id. As discussed above, the amount of SWR input imported by Hangzhou in
this review is over half. 

Therefore, we believe we have complied fully with the rulings of the CIT
and the CAFC in the Shakeproof cases, and that using the price paid by
Hangzhou in purchasing SWR from a market economy supplier in a market
economy currency to value this input is correct as a matter of law.

Regarding Olympia, we agree with Hangzhou that the petitioner's reliance
on this ruling is misplaced. Olympia dealt with the situation where the
imported input was purchased by the NME producer from a NME trading
company. Thus, the Department tested the reliability of the price paid by
the trading company as a surrogate value. In this proceeding, Hangzhou
purchased the input directly from the market economy supplier through a
market economy trading company. The CAFC in Shakeproof III notes that a
critical difference exists between the facts of Olympia and those in the
3rd administrative review of the HSLW order. (See Shakeproof III, 268 F.3d
at 1383.) The facts in this review are very similar to those in the 3rd
administrative review. Thus, the criteria developed in Olympia do not
apply here. 

Finally, we disagree with the petitioner that Hangzhou's data are
undermined because they were not verified. The regulation dealing with
factor valuation, 351.408(c)(1), does not state that the import price
paid by the NME producer must be verified. Also, we are not required to
conduct a verification of this particular POR under 782(i) of the Act.
Specifically, 782(i) of the Act requires verification of information used
in final review results if, inter alia, there has been no verification in
the two immediately preceding reviews. (See also 351.307 of the
Department's regulations.) In this case, we verified the information
provided by Hangzhou in the 6th administrative review, the most recent
review, including information regarding Hangzhou's imported SWR. 

Section 782(i) of the Act also directs that information used in final
review results will be verified if "good cause" for verification exists.
In this review, the petitioner filed a timely request for verification for
"good cause." We examined the request, noted that verification was
conducted in the 6th administrative review, that the facts and issues in
this review were similar to those in the 6th administrative review, and
determined that "good cause" was not shown. Therefore, we concluded that
verification was not warranted. (See Shakeproof III.)

Comment 2: Factory Overhead, SG&A Expenses and Profit in Plating Operations

The petitioner contends that the Department has incorrectly treated the
plating of Hangzhou's HSLWs as an integrated operation, though Hangzhou
purchases plating from independent contractors. Consequently, in the
petitioner's view, normal value is understated. According to the
petitioner, the Department should use either a surrogate value for plating
or include the plater's overheard, SG&A and profit in the value for the
plating input. 

In support of its claim, the petitioner argues that, in a market economy
case, if plating is undertaken by an independent contractor, the full cost
of the plating, including the plater's overhead, SG&A, and profit, would
be included in the constructed value calculations (the petitioner cites
Notice of Final Determination of Sales at Not Less Than Fair Value:
Collated Roofing Nails from Korea, 62 FR 51420, 51423 (October 1, 1997)
("Collated Roofing Nails from Korea"). The petitioner asserts that the
same methodology should apply to NME cases. The petitioner further
contends that the Department has, in fact, applied this methodology in an
NME case and cites Natural Paint Brushes and Brush Heads from the People's
Republic of China, (Paint Brushes), 62 FR, 60228, 60230 (November 7,
1997). According to the petitioner, in Paint Brushes, the Department used
surrogate values for inputs such as handles and added the factory's
overhead, SG&A, and profit on top of the full value of the finished
handles. The petitioner claims that the purchase of handles in Paint
Brushes is comparable to Hangzhou's purchase of plating. 

Second, the petitioner maintains that under the WTO Antidumping Agreement
a constructed value is a proxy for a "fair sales price." Because a "fair
sales price" would cover SG&A and profit, the Department's calculation of
normal value should include the plating subcontractor's overhead expenses,
SG&A, and profit. 

Third, the petitioner claims that its proposed methodology is supported
by  773(c) and (e) of the Act, which define the calculation of normal
value for NME cases and constructed value in market economy cases,
respectively. With respect to these sections of the Act, the petitioner
asserts that the Department is instructed "to add amounts for SG&A and
profit to reflect the value of the subject merchandise as sold."

Finally, the petitioner disputes Hangzhou's argument in the 4th
administrative review that adding overhead, SG&A and profit to the plating
factors of production would constitute double counting. The petitioner
asserts that the Department is determining the normal value of the subject
merchandise, not the cost of producing it, and claims that the normal
value must contain the cost of all of the inputs, plus the SG&A component.
According to the petitioner, treating plating as an input does not require
the Department to treat plating as a price between NME companies, but
rather as an input, like the steel wire rod input. Unlike the steel price,
however, the petitioner contends that the plating constructed value does
not include SG&A and profit for the plating activity.

Hangzhou contends that the Department accurately accounted for all costs,
including all subcontracted costs for plating, in the Preliminary Results.
Hangzhou argues that the Department's methodology is consistent with
previous HSLWs administrative reviews and fully captures the costs at
Hangzhou and the plating factory, including all factory overhead, SG&A and
profit related to the plating operations. 

According to Hangzhou, the methodology proposed by the petitioner would
result in double-counting overhead, SG&A and profit for the plating
portion of production. Hangzhou further asserts that the petitioner's
methodology is contrary to the Department's regulations and practice with
regard to the treatment of subcontractors in market and nonmarket economy
cases. While Hangzhou agrees with the petitioner's reference to 773(c) of
the Act for the calculation of normal value in NME cases, Hangzhou
contends that the petitioner has failed to recognize that the Department's
regulations provide that subcontractors may not be treated as the producer
of the subject merchandise (see 351.401(h)). Hangzhou contends that the
evidence on the record indicates that Hangzhou's platers are
subcontractors as defined by the Department's regulations and, therefore,
cannot be treated as producers of the subject merchandise. Hangzhou argues
that the Department's calculation methodology fully accounts for the
plating factors and that adopting the petitioner's methodology instead
would result in treating the plating companies as producers together with
Hangzhou rather than as Hangzhou's subcontractors.

Citing Collated Roofing Nails from the PRC, 62 FR at 51416, Hangzhou
asserts that the Department recognized this principle of not treating
subcontractors as producers in NME cases and rejected essentially the same
calculation methodology argument raised by the petitioner in this case.
Hangzhou further alleges that the petitioner inaccurately cites Paint
Brushes for the proposition that the Department used surrogate values for
handles allegedly supplied by subcontractors. Hangzhou contends that the
handles in Paint Brushes were not processed by a subcontractor at the
direction of the respondent, but rather the brush factory purchased the
finished handles from unaffiliated suppliers in normal arm's length
transactions. According to Hangzhou, Paint Brushes has nothing to do with
the issue of the proper valuation of a factor supplied by a subcontractor. 

Department's Position:

We have continued to use the methodology applied in the Preliminary
Results for calculating plating costs because we find no basis for the
petitioner's claim that this methodology results in an understatement of
normal value. In our calculation, we take all material costs (including
plating materials) and apply the surrogate overhead, SG&A and profit
ratios. Thus, a portion of the overhead, SG&A and profit amounts can be
attributed to plating.

The petitioner would, instead, have us build up a price for plating that
includes plating overhead, SG&A, and profit, and then treat this as an
input, assigning to it, in addition, Hangzhou's overhead, SG&A, and
profit. Such a calculation could be correct if information indicated the
Indian producers from whose data the overhead, SG&A, and profit ratios are
derived also subcontracted their plating operations. If they did, then
their cost structure and, in particular, the relationship of their
materials costs, and overhead, SG&A and profit, would be such that it
could be appropriate to apply the Indian ratios to a plating value that
includes plating overhead, SG&A and profit. For example, in the Final
Determination of Sales at Less Than Fair Value Bulk Aspirin from the
People's Republic of China, 65 FR 33805 (May 25, 2000) , Decision
Memorandum, Comment 4), the Department adjusted its calculations to
reflect that the Indian surrogate producers were less integrated than
their PRC counterparts. However, there is no information on the record of
this proceeding to indicate whether the Indian producers whose information
is used to compute the overhead, SG&A and profit ratios perform their own
plating or subcontract for it. Without such information, the petitioner
cannot claim that normal value is understated.

For this same reason, we do not find the petitioner's market economy
example to be relevant. In a market economy dumping calculation, we
compute the responding producer's actual costs and they will reflect that
producer's experience either performing its own plating or subcontracting
that part of the production process. In contrast, in an NME calculation,
we are imputing surrogate producers' ratios to the NME producer. We are
seldom able to know whether the experience of the NME and surrogate
producers are similar or how to adjust for differences. 

Further, we agree with Hangzhou that its situation is different from that
of the PRC paintbrush producers who purchased handles. Unlike plating,
which is one step in the production process and might be performed in
house or through a subcontracting arrangement, we treat material inputs
such as handles as inputs that would be purchased.

We further agree with Hangzhou that the petitioner's references to 
773(c) and (e) are not relevant in this context. Clearly, we have included
amounts for overhead, SG&A and profit in our calculation of normal value.
These sections do not, in our view, require that additional amounts be
included for a subcontractor under the circumstances here.

Comment 3: Representativeness of Plating Factors of Production

The petitioner contends that, because several subcontractors performed
plating operations, information provided by Hangzhou for one plater is not
representative. The petitioner argues that plating is a significant part
of the value for plated HSLWs and the factors of production utilized by
each of the subcontractors will differ. The petitioner maintains that when
the Department uses constructed value for normal value in market economy
cases, the producer must account for all costs not just representative
costs. 

Hangzhou responds that none of the petitioner's complaints about the
plating subcontractor's data are relevant or warrant changing the
Preliminary Results. Hangzhou asserts that the evidence on the record
demonstrates that the Department acted reasonably in using the plating
subcontractors' data provided by Hangzhou. 

Department's Position: 

Hangzhou reported factors of production for its two largest platers. As
in the Preliminary Results, we have continued to use those factors of
production to value plating inputs. Although the petitioner claims that
the factors of production reported by these platers are not representative
of the plating factors generally, the claim is not substantiated. We note
that the platers whose data were used accounted for more than 90 percent
of Hangzhou's plated HSLWs during the POR. Given the relative importance
of these platers, we view their operations as representative of plating
factors for producing Hangzhou's HSLWs. Also, because these two platers
accounted for such a large proportion, we did not ask Hangzhou to report
factors for the other plating companies it used during the POR.

Comment 4: Valuation of Hydrochloric Acid

In the Preliminary Results, the Department valued hydrochloric acid using
the Indian import statistics from Chemical Weekly.

Hangzhou argues that the Department should value hydrochloric acid using
Indonesian import statistics for the POR. In support of its argument,
Hangzhou cites 773(c)(1)(B) of the Act which states that the Department
is required to rely on "the best available information" to value factors
of production. In this case, according to Hangzhou, the Indonesian import
value constitutes the "best available information" because it is
contemporaneous with the POR, specific to the input used and more accurate
than the Chemical Weekly import statistics. Moreover, Hangzhou argues, the
Chemical Weekly import statistics are aberrational and inconsistent with
world pricing trends. In support of this claim, Hangzhou points to
evidence on the record to show that the Chemical Weekly price is more than
ten times the price of Indonesian imports, U.S. imports, U.S. exports and
Indian exports for comparable time periods and nearly thirteen times the
highest alternative value, U.S. export prices. 

Hangzhou points out that the Department has faced difficulty in valuing
hydrochloric acid in other cases and in a decision earlier this year,
Steel Wire Rope from the PRC ("SW Rope"), 66 FR 12759 (February 28, 2001),
used Indonesian values. (See, SW Rope Factors of Production Valuation for
the Final Determination Memorandum at 4-5, (February 14, 2001).) Hangzhou
states that the Indonesian import data are a reliable source and are
consistent with U.S. import and export prices. In support of use of the
Indonesian import statistics, Hangzhou maintains that these data are also
based on a significant volume of imports whereas the Indian import data
are based on an insignificant volume of imports.

The petitioner takes issue with Hangzhou's proposed use of the Indonesian
import statistics to value hydrochloric acid. Because the Department has
selected India as the primary surrogate country, the petitioner contends
that using prices from other surrogate countries would be arbitrary and
lead to confusion. Second, the petitioner does not find the Chemical
Weekly import prices aberrational when compared to United States import
prices from Malaysia and U.S. import prices from India submitted by
Hangzhou. (The petitioner points out that Malaysia accounts for a large
share of imports into Indonesia. The petitioner claims that a comparison
of the value of Malaysian imports into Indonesia with the value of
Malaysian imports into the United States shows that the Indonesian import
statistics are flawed.) Third, the petitioner argues that the U.S. is not
eligible to be a surrogate country and disputes the use of U.S. prices as
a benchmark because the large volume of Canadian imports to the U.S. had a
relatively low value. The petitioner concludes by urging the Department to
continue to value hydrochloric acid using the Indian Chemical Weekly
prices.

In its rebuttal, Hangzhou argues that the Department frequently looks
beyond the primary surrogate country when the data from that country are
not within global pricing trends, aberrational or otherwise defective.
While Hangzhou agrees with the petitioner that a U.S. value may not be an
ideal source for a surrogate value given the availability of data from
economically comparable countries, it argues that the U.S. price may be
used as a reference point to determine a reasonable market price for the
factor in question. Regarding the petitioner's specific claims about
Malaysian, U.S. and Indonesian prices, Hangzhou points out that the
petitioner has misread the data by looking at U.S. exports rather than
imports into the United States. Looking at statistics regarding imports
into the United States, the import prices are consistently lower than the
prices of hydrochloric acid imported into India and comparable to price of
imports into Indonesia.

If the Department rejects the Indonesian import data, Hangzhou suggests
that the Department use export statistics from the Chemical Weekly to
value hydrochloric acid. If the Department continues to rely on the
Chemical Weekly import statistics, Hangzhou contends that the Department
should use only the sales price from E. Merck (India) Limited, the only
value which is not aberrational, to value hydrochloric acid.

Department's Position:

We have made a change from the Preliminary Results and used the
Indonesian import statistics to value the hydrochloric acid input.

We agree with Hangzhou that the Indian Chemical Weekly price for
hydrochloric acid is aberrational. When compared to virtually every other
price for hydrochloric acid on the record of this proceeding, the Indian
Chemical Weekly price of $3.27/kg. must be viewed as distorted. U.S.
import prices during the corresponding period ranged from $.08/kg. to
$.64/kg., with the weighted average being $.10/kg. (These data cover
imports from nine countries.) The average U.S. export price for the period
was $.26/kg. The only values that might support use of the Indian Chemical
Weekly price are the prices of U.S. exports to Indonesia in 1999
($3.42/kg.) and 2000 ($1.91/kg.). However, these prices themselves appear
to be aberrational when compared to the ranged U.S. import data, the
average U.S. import price, and the average U.S. export value listed above.

We disagree with the petitioner's statement that the use of Indonesian
statistics is contrary to Department policy and would lead to arbitrary
results. While 351.408(c)(2) of our regulations states a preference for
valuing factors in a single surrogate country, we have used more than one
country to value inputs where data from the primary surrogate did not
exist or were not useable. See, e.g., Tapered Roller Bearings and Parts
Thereof, Finished and Unfinished, from the People's Republic of China;
Preliminary Results of 1998-1999 Administrative Review, Partial Rescission
of Review, and Notice of Intent To Revoke Order in Part, 65 FR 41944,
41947 (July 7, 2000), decision unchanged in Tapered Roller Bearings and
Parts Thereof, Finished and Unfinished, from the People's Republic of
China; Final Results of 1998-1999 Administrative Review, Partial
Rescission of Review, and Determination Not To Revoke Order in Part, 66 FR
1953 (January 10, 2001), and Notice of Final Determination of Sales at
Less Than Fair Value: Certain Partial-Extension Drawer Slides with Rollers
from the People's Republic of China, 60 FR 54472, 54475-76 (October 24,
1995). 

Further, we disagree with the petitioner's claims regarding the use of
U.S. prices to determine whether the Indian Chemical Weekly price is
aberrational. Although we would not normally use U.S. prices to value PRC
inputs because the U.S. economy would not be considered comparable to that
of the PRC, we have used U.S. prices as benchmarks to test whether
particular surrogate values are aberrational. See, e.g., TRBs 12, Issues
and Decision Memorandum, Comment 5. The courts have upheld this
methodology. See, e.g., Timken Company v. United States, 59 F. Supp 2d
1371, 1376 (CIT 1999).

Finally, we do not agree with the petitioner that inclusion of low-priced
imports from Canada in the U.S. statistics renders the U.S. data
unuseable. Beyond objecting to the fact that such prices are low, the
petitioner provides no evidence that the Canadian prices are not
reflective of world market prices for hydrochloric acid. 

Comment 5: Valuation of Inland Shipping Rate

In the Preliminary Results, we used information from a 1993 cable from
the U.S. Consulate in Bombay ("cable rate") to value inland shipping. 

Hangzhou argues that the Department should use rates published by the
Inland Waterways Authority of India ("Inland Waterways rate") dated July,
1997, to value inland shipping. Hangzhou points to the fact that the river
shipping rates are more contemporaneous with the POR than the cable rate.
In addition, Hangzhou claims that the ship freight rate seems aberrational
compared to the freight rates used for truck and rail in the Preliminary
Results. Hangzhou calculates that the ship freight rate based on the cable
rate is 85 times the truck and rail freight rates. According to Hangzhou,
no rational business would use inland shipping when it could use truck or
rail much less expensively.

If the Department continues to use the cable rate, Hangzhou requests that
we rely on the rate that corresponds to the actual distance Hangzhou ships
its steel wire.

The petitioner did not comment.

Department's Position:

We have used the Inland Waterways rate submitted by Hangzhou for valuing
inland ship freight for these final results. We agree with Hangzhou that
the Inland Waterways rates are more contemporaneous with the POR and,
hence, preferable for valuing this input.

Comment 6: Valuation of Potassium Aluminum Sulphate

In the Preliminary Results, we used the Indian import values of "other
alums" to value potassium aluminum sulfate. 

Hangzhou contends that the Department should use the data it submitted
for "potassium sulfate" to value the potassium aluminum sulfate input in
the final results of this review. According to Hangzhou, the Department
prefers surrogate values which are more specific to the actual inputs used
in the production of subject merchandise, and "potassium sulfate" is more
specific than "other alums."

Should the Department continue to use "other alums" to value potassium
aluminum sulfate, Hangzhou requests that we correct a clerical error in
the calculation of the total quantity of "other alums" as reported in the
Monthly Statistics of the Foreign Trade of India ("MSFTI").

The petitioner argues that the Department should continue to use the
Indian surrogate value for "other alums" to value the potassium aluminum
sulfate input. According to the petitioner, Hangzhou's assertion that
"potassium sulfate" is more specific to potassium aluminum sulfate is
unsupported and fails to address the fact that "potassium sulfate" does
not contain aluminum. The petitioner maintains that because potassium
aluminum sulfate contains aluminum, "other alums" more accurately
represents the chemical input than "potassium sulfate." The petitioner
further urges the Department to use the "other alums" values which it
submitted on July 31, 2001.

Department's Position:

We agree with the petitioner that "other alums" should continue to be
used to value potassium aluminum sulfate. Chapter 31 of the Harmonized
Tariff System of the United States, which includes "potassium sulphate,"
covers fertilizers. In this case though, Hangzhou uses potassium aluminum
sulphate as an input in the plating process for its helical spring lock
washers. Because aluminum is integral to potassium aluminum sulfate and
its use in the plating process, it is aluminum which distinguishes
potassium aluminum sulfate from "potassium sulfate." (See Memorandum to
the File from Sally Hastings dated February 15, 2002, which is on file in
the CRU.) Therefore, the Department finds that "other alums" provides the
most accurate and specific value for potassium aluminum sulfate. 

For the final results, we have used the more contemporaneous values for
"other alums" provided by the petitioner on July 31, 2001, to value
potassium aluminum sulfate. Thus, the clerical error noted by Hangzhou is
no longer at issue.

Comment 7: Calculation of Factory Overhead Net of Scrap

In the Preliminary Results, the Department calculated factory overhead by
adding total materials, total labor and total energy and multiplying the
sum by the overhead ratio. 

Hangzhou argues that the Department overstated the total cost of
manufacture (COM) in the Preliminary Results by not subtracting scrap from
Hangzhou's material consumption before applying the surrogate overhead
ratio. Because Hangzhou generates scrap which it sells to third parties,
it claims that the total amount of materials associated with the subject
merchandise is reduced, and, hence, overhead should also be reduced. The
respondent also states that the Department's calculation of factory
overhead is inconsistent with its calculation of SG&A and profit. Finally,
Hangzhou cites the Steel Wire Rope Analysis Memorandum for Fasten Group
Import and Export Co., Ltd: Final Determination in Antidumping
Investigation of Steel Wire Rope from the People's Republic of China at 1
(February 14, 2001) ("SW Rope Analysis Memorandum") and the Preliminary
Determination of Hot-Rolled Carbon Steel Flat Products from the People's
Republic of China ("Hot Rolled Steel"), 66 FR 22183 (May 3, 2001), as
evidence of the Department's long established practice of applying the
surrogate overhead ratio to an amount net of scrap or byproduct credits.

The petitioner states that whether a scrap adjustment is made or not
should be determined by the surrogate information used to calculate the
overhead ratio. If the financials adjust for scrap, then an adjustment for
scrap is appropriate, but if the financials make no adjustment for scrap,
then no adjustment for scrap should be made. 

Department's Position:

We agree with the petitioner that the treatment of scrap in the
calculation of factory overhead should mirror the treatment of scrap in
the calculation of the surrogate overhead ratio. If the surrogate overhead
ratio were calculated based on material costs net of scrap revenue, then
the methodology proposed by Hangzhou would be appropriate. However, if
revenue from scrap sales by the surrogate producers were reported as
income, then it would not be appropriate to deduct scrap before
calculating Hangzhou's factory overhead. Unfortunately, the data used to
develop the overhead ratio in this proceeding, information from the
Reserve Bank of India, do not provide sufficient information for us to
know whether the amounts reported there for "raw material, components,
etc., consumed" are net of scrap. Nor is the reporting of "Other Income"
sufficiently detailed to identify whether revenue from sales of scrap are
reported there.

We have reviewed the precedents cited by Hangzhou and disagree that they
support the approach Hangzhou suggests. In the SW Rope Analysis
Memorandum, contrary to Hangzhou's claim, the cited language indicates
that the Department calculated and included overhead before applying the
scrap offset ("We reduced the cost of manufacturing (i.e., the total cost
of direct materials, direct labor, energy and factory overhead) by the
value of scrap generated during production." (emphasis added) (SW Rope
Analysis Memorandum at 1.) Regarding Hot-Rolled Steel, the Department was
not addressing a situation where scrap was simply recovered and sold.
Instead, in that case, the respondents were additionally recovering
materials and reintroducing them into the production process. Thus, the
different fact pattern in Hot-Rolled Steel could support a different
methodology in that case. 

Because we cannot say whether the data from the Reserve Bank of India
reflect a cost of materials net of scrap or whether scrap revenue is
included in other income, we have followed the methodology used in prior
reviews of this order where we also relied on data from the Reserve Bank
of India for the overhead ratio. Thus, we have not reduced the reported
materials by the amount of scrap generated and sold by Hangzhou. Instead,
we have offset the COM (inclusive of scrap) by the scrap revenue.

RECOMMENDATION

Based on our analysis of the comments received, we recommend adopting all
of the above positions and adjusting all related margin calculations
accordingly. If these recommendations are accepted, we will publish the
final results in the Federal Register.

AGREE ____ DISAGREE ____

______________________

Faryar Shirzad
Assistant Secretary for 
  Import Administration

______________________
(Date)