65 FR 78472, December 15, 2000 A-337-803 Administrative Review Public Document MEMORANDUM TO: Troy H. Cribb Assistant Secretary for Import Administration FROM: Holly Kuga Acting Deputy Assistant Secretary for Import Administration Group II DATE: Novermber 16, 2000 SUBJECT: Issues and Decision Memorandum for the Final Results of the First Administrative Review of Fresh Atlantic Salmon from Chile Summary This memorandum addresses issues raised in the above-referenced proceeding. Sections A lists the general and company-specific issues briefed by interested parties. Section B sets out the scope, or product coverage, of this administrative review. Section C identifies the changes made in the margin calculation since the preliminary results of review. Finally, Section D analyzes the comments of the interested parties, and provides our recommendations on each of the issues. A. General Issues 1. Cost of Production and Constructed Value: Monetary Corrections for Inflation 2. Constructed Value: Calculation of Profit and Selling Expense Rates 3. Normal Value: Difference-In-Merchandise Adjustment Company-Specific Issues 4. Adverse Facts Available 5. Normal Value: Third-Country Sales 6. Normal Value: Home Market Price Calculation 4. Cost of Production: Financial Expense Ratio -- Eicosal 7. Cost of Production: Financial Expense Ratio -- Pacific Star 8. Cost of Production: General, Selling and Administrative Expense 9. Cost of Production: Cost Test Freight Expense 10. Constructed Value: Provision for Catastrophic Loss 11. Constructed Value: Use of Verified Data 12. Export Price: Treatment of U.S. Credit Expense B. Scope of the Review The product covered by this review is fresh, farmed Atlantic salmon, whether imported "dressed" or cut. Atlantic salmon is the species Salmo salar, in the genus Salmo of the family salmoninae. "Dressed" Atlantic salmon refers to salmon that has been bled, gutted, and cleaned. Dressed Atlantic salmon may be imported with the head on or off; with the tail on or off; and with the gills in or out. All cuts of fresh Atlantic salmon are included in the scope of the review. Examples of cuts include, but are not limited to: crosswise cuts (steaks), lengthwise cuts (fillets), lengthwise cuts attached by skin (butterfly cuts), combinations of crosswise and lengthwise cuts (combination packages), and Atlantic salmon that is minced, shredded, or ground. Cuts may be subjected to various degrees of trimming, and imported with the skin on or off and with the "pin bones" in or out. Excluded from the scope are (1) fresh Atlantic salmon that is "not farmed" (i.e., wild Atlantic salmon); (2) live Atlantic salmon; and (3) Atlantic salmon that has been subject to further processing, such as frozen, canned, dried, and smoked Atlantic salmon, or processed into forms such as sausages, hot dogs, and burgers. The merchandise subject to this investigation is classifiable as item numbers 0302.12.0003, 0304.10.4093, 0304.90.1009, 0304.90.1089, and 0304.90.9091 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS statistical reporting numbers are provided for convenience and customs purposes, the written description of the merchandise is dispositive. C. Changes in the Margin Calculation Since the Preliminary Determination For Cultivos Marinos Chiloe Ltda. (Cultivos Marinos), Fiordo Blanco, S.A. (Fiordo Blanco), and Salmones Tecmar, S.A. (Tecmar), where appropriate, we allowed for comparisons of similar salmon products that differed in trim, and made a difference-in-merchandise adjustment. For Pesquera Eicosal Ltda. (Eicosal), Salmones Pacifico Sur, S.A. (Pacifico Sur), Salmones Pacific Star (Pacific Star), Tecmar, Cultivos Marinos and Cultivadora de Salmones Linao Ltda. (Linao), we have adjusted the financial expense ratio for calculating the cost of production (COP) and constructed value (CV). The adjustment captures the gains or losses on monetary liabilities due to the effects of inflation, after accounting for the effects of inflation on monetary assets. For Pesquera Mares Australes (Mares Australes), we have excluded a provision for future catastrophic stock losses from the reported costs. D. Discussion of Interested Party Comments Comment 1: Cost of Production and Constructed Value: Monetary Corrections for Inflation Respondents Eicosal, Pacific Sur, Pacific Star, Tecmar, Cultivos Marinos and Linao argue that, in the final results of review, the Department should include in COP and CV an amount for monetary correction to loan balances, consistent with the methodology followed in the underlying less- than-fair-value (LTFV) investigation. According to the respondents, it was arbitrary for the Department to deny the adjustment for monetary correction to loan balances while accepting other inflation-related adjustments to costs, such as adjustments to capitalized fish stock costs. The respondents argue that monetary correction to loan balances is required by Chilean GAAP, and accordingly is reflected in the respondents' books and records. According to the respondents, section 773(f)(1)(A) of the Act requires that costs be normally based on the records of the foreign producer or exporter, provided that those records are consistent with GAAP. The respondents further claim that it is the Department's longstanding practice to account for the impact of inflation on costs of production by accounting for foreign exchange gains and losses associated with holding debt during inflationary periods. According to the respondents, it does not make sense to adjust foreign exchange losses on foreign currency loans for inflation and not make a similar adjustment to loan balances. The respondents maintain that both adjustments are required by Chilean GAAP and that the claimed offset to loan balances should therefore also be allowed. In the alternative, the respondents contend that the Department should also disregard all other inflation and exchange loss adjustments. Further, the respondents argue that the Department violated their procedural rights by not providing timely notification that it was reconsidering the monetary correction to loan balances and by not providing an explanation for the change. The respondents argue that the antidumping statute is designed to allow companies to change their behavior to eliminate dumping, and that the Department's change in methodologies prevents them from doing so. The petitioners did not brief this issue. The Department's Position: While we disagree with several of the respondents' arguments, we agree that gains and losses due to the effects of inflation on monetary liabilities must be properly accounted for, when such amounts are recognized in the companies' normal books and records, and in accordance with their home country GAAP. In doing so, however, we must also account for the effect of inflation on the monetary assets, which counterbalance the gains and losses on the monetary liabilities. Therefore, consistent with section 773(f)(1)(A) of the Act, we have made such adjustments to monetary assets and monetary liabilities for the final results of this review. The purpose of the monetary correction methodology followed by Chilean GAAP is two-fold. First, the methodology seeks to present the financial position of an entity (its assets, liabilities and shareholders' equity) and its revenues and expenses in terms of year-end pesos of constant purchasing power. Second, the methodology attempts to measure the net gain or loss resulting from holding monetary assets and monetary liabilities exposed to the effects of inflation. The actual calculation of the net gain or loss resulting from holding monetary assets and monetary liabilities during the year utilizes a "mirror image" methodology. That is, the effect on them is captured through the adjustment of non-monetary assets (e.g., fixed assets) and non-monetary liabilities (e.g., shareholders' equity). The change in the official Consumer Price Index (IPC) is used as the adjustment factor. The opposite side of each of these entries is booked to a monetary correction account, the net of which represents the net result of monetary position (i.e., the net of this account equals the gain or loss from holding monetary assets and liabilities). Additionally, monetary assets and liabilities denominated in foreign currencies are restated at the applicable period-end exchange rates (i.e., foreign exchange gains and losses are recognized). Revenue and expense accounts are also restated, but there is no impact on net earnings for the period because the counter entries are included in the monetary correction line in the income statement and offset any effect on net income. See Can Monetary Correction be Explained, and Even Better Yet, Managed?, by Ronald T. Besecker, Partner, Ernst & Young (Chile) Ltda., posted on the Chilean-American Chamber of Commerce (AMCHAM) www.amchamchile.cl, and dated October 4, 2000. We agree with respondents that, in addition to the foreign exchange gains and losses, the Department should account for the impact of inflation on the net monetary position, if they make such adjustments in their normal books and records, and in accordance with their home country GAAP. Upon further analysis, we believe that under inflationary circumstances, a borrower must come up with the same amount of dollars to repay a dollar denominated loan, which requires a greater number of pesos (i.e., exchange loss). However, it is also true that those pesos will have decreased somewhat in value (i.e., a monetary gain to the borrower). Therefore, both the foreign exchange gain or loss and the monetary gain or loss, as computed in the respondent's normal books and records in accordance with Chilean GAAP, must be counted if the Department is to properly state the company's expenses. For the final determination, we recommend including the net gain or loss on holding monetary assets and monetary liabilities. We note, however, that the adjustment to financial expense reported by respondents overstates the gain from holding monetary liabilities (i.e., debt), because it fails to capture the other side of the monetary equation, monetary assets (which generate losses). Thus, we recommend including in the calculation an offset to respondent's adjustment in order to account for the effect of inflation on monetary assets. Further, we have included only the amount related to current monetary assets and monetary liabilities. This treatment is consistent with our determination in the Final Determination of Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber From Mexico Federal Register Vol. 64 No. 5, March 29, 1999, 14872, 14882 (Comment 6) (ESBR Mexico). In that case, the Department stated that it was reasonable to include in the interest expense computation the impact of holding monetary assets and liabilities throughout the year. Even though the respondent normally computed its net gain or loss on monetary position using all monetary assets and liabilities (both current and long-term), the Department computed the net gain amount using only the respondent's current monetary assets and liabilities. The Department further stated, consistent with its practice of including in the interest expense calculation only a portion of the foreign exchange gains and losses related to foreign debt, that it would include a portion of the gain on monetary position related to the respondent's monetary assets and liabilities. Finally, we disagree with respondents' assertion that their procedural rights were violated. The Department is sometimes obligated to reconsider certain aspects of its practice, as it gains greater understanding of certain issues that cut across segments of a particular proceeding. The Department's preliminary results in this review fully disclosed the Department's reconsideration of certain aspects of adjustments for monetary correction in an antidumping calculation. Interested parties were afforded ample opportunity to comment on this issue in their case briefs, and several of them availed themselves of the opportunity to do so. Comment 2: Constructed Value: Calculation of Profit and Selling Expense Rates Respondents Mares Australes and Pacific Star, which do not have viable comparison markets, argue that the Department should not calculate surrogate profit and selling expense rates for CV on the basis of data submitted by other respondents with viable home markets. The respondents argue that because the Chilean salmon industry is generally export- oriented, the Department should, as in the LTFV investigation, base surrogate profit and selling expense rates on the data submitted by respondents with viable third country markets. In the alternative, the respondents argue that the Department should base surrogate profit and selling expense rates on an average of home market and third-country market data. The petitioners did not brief this issue. The Department's Position: We disagree with the respondents. Where it is not possible to base profit and selling expenses for CV on the actual amounts of the respondent, section 773(e)(2)(B) of the Act provides three alternative methodologies. Given the fact pattern of this case, the Department's regulations, at 19 CFR 351.405(b)(2), require that profit and selling expenses calculated under these alternative methodologies be based on home market data. In the LTFV investigation, none of the respondents had a reliable home market, since home market sales either failed the viability test or presented a particular market situation within the meaning of section 773(a)(1) of the Act. As a consequence, the Department relied on third-country sales in the investigation. In the instant review, however, there are two respondents with viable home markets, and the Department has not determined that these sales present a particular market situation. As a consequence, consistent with section 773(e)(2)(B)(ii), we relied on these sales for purposes of calculating surrogate profit and selling expense rates for CV. Comment 3: Normal Value: Difference-In-Merchandise Adjustment Cultivos Marinos argues that the Department's matching methodology should allow for comparisons of products of different trims, with a corresponding difference-in-merchandise adjustment. The petitioners did not brief this issue. The Department's Position: We agree with Cultivos Marinos. In the original LTFV investigation, the Department's product matching methodology relied on three criteria: form, grade, and weight band. The Department found that it was appropriate to compare only identical products, since it was not possible to make a meaningful difference-in-merchandise adjustment for differences among these three characteristics. See Fresh Atlantic Salmon from Chile, 62 FR 31411 (June 9, 1998). For the preliminary results of this review, the Department adopted a fourth matching criterion: trim. We agree with Cultivos Marinos that, unlike the other three physical characteristics, the trim is the result of a processing operation with readily identifiable differences in the variable cost of manufacturing, permitting comparison of similar products with a difference-in-merchandise adjustment. We made such comparisons, where appropriate, for the final results of this review. Comment 4: Adverse Facts Available Fiordo Blanco, S.A. (Fiordo) argues that the Department should accept its reported data for purposes of the final results of review. While acknowledging errors in the original reporting of its dates of sale, Fiordo Blanco contends that the errors were minor in their effect and fully corrected, and that the Department has now fully verified the submitted data. The petitioners did not brief this issue. The Department's Position: In the preliminary results of this review, the Department was unable to rely on the data submitted by Fiordo Blanco, due to irregularities in the reporting of date of sale and the respondent's inability to explain those problems in a timely manner, despite several opportunities to do so. Instead, the Department relied on adverse facts available. There is a detailed explanation of problems with the reported date of sale in Preliminary Results of Antidumping Duty Administrative Review and Partial Rescission of Antidumping Administrative Review: Fresh Atlantic Salmon from Chile,65 FR 48457, 48459 - 48460 (August 8, 2000). However, the Department noted that it would examine the issue further at verification, and determine whether, and to what extent, the submitted data could be relied upon for the final results of review. The Department has now conducted a thorough verification of the reported data, including extensive tests of the reported date of sale, and a careful examination of a number of corrections to those dates of sale prior to verification. We are satisfied that the data have been accurately reported, and that the errors at issue in the preliminary results of review were ultimately corrected prior to verification (and, in any event, minor in their effect). See Fiordo Blanco Sales Verification Report, dated August 31, 2000, in the case file. Therefore, we relied on the submitted data for the final results of review. Comment 5: Normal Value: Third-Country Sales Salmones Mainstream, S.A. (Mainstream) objects to suggestions made by the petitioners, in a letter of May 31, 2000, that Mainstream's sales to Brazil might be sample sales, fictitious sales, or sales outside the ordinary course of trade. Mainstream further alleges that the petitioners' challenge to the use of Brazil as a third country market was untimely filed, and should be stricken from the record. The petitioners did not brief this issue. The Department's Position: We agree with Mainstream that questions regarding market selection should be raised by interested parties early in antidumping reviews, consistent with the Department's regulations at 19 CFR 351.301(d)(1). However, the letter cited by Mainstream merely suggested, based on information already on the record, that the Department examine certain topics at verification with respect to third country sales, which are in the purview of a normal antidumping verification. The letter did not constitute a formal allegation that sales to Brazil were sample sales, fictitious, or outside the ordinary course of trade. In any event, at verification, we found that the sales in question were bona fide, and supported by the company's books and records. See detailed discussion of verification of third country sales in Mainstream Sales Verification Report, dated August 4, 2000, in the case file. We therefore continued to rely on these sales for purposes of calculating normal value. Comment 6: Normal Value: Home Market Price Calculation Eicosal contends that, as established at verification, it negotiated the prices of certain home market sales in U.S. dollars. Eicosal argues that the Department should not have relied upon the peso equivalent of these prices in calculating average home market prices. Eicosal contends that, instead, the Department should rely on the U.S. dollar-denominated home market sales prices where the reported sales prices were originally negotiated in U.S. dollars. The petitioners did not brief this issue. The Department's position: We agree with Eicosal. The Department's practice is to rely on the currency in which a sale was negotiated. We revised the margin program accordingly. Comment 7: Cost of Production: Financial Expense Ratio - Eicosal Eicosal argues that the Department should not use the highest level of consolidated financial statements of which Eicosal is a member in order to calculate its financial expense ratio. Eicosal contends that, instead, the financial expense ratio should be calculated using the consolidated financial statements of its parent company, one level below the highest level of consolidation. The respondent alleges that the Department's practice of using the financial statements at the highest level of consolidation grossly distorts its actual financing costs. Citing Gulf States Tube Division of Quanex Corp. v. United States ("Gulf States"), 981 F. Supp. 630, 650 (Ct. Int'l Trade 1997) and AIMCOR v. United States ("AIMCOR"), 69 F. Supp. 2d 1345, 1354 (Ct. Int'l Trade 1999), Eicosal claims that the Department must allow respondents to present sufficient evidence to show that the Department's practice of calculating the financial expense ratio based on a consolidated group of companies would result in a distortion of the true financing costs of the subsidiary's operations. The respondent claims that in AIMCOR, the U.S. Court of International Trade ("CIT") ruled that the Department may not rely on financial statements at the highest level of consolidation where there is no record evidence of inter-company borrowing or other indicia establishing that those consolidated financial statements accurately reflect the true costs to the specific exporter at issue. The respondent argues further that the Department has followed this principle in Final Results of Antidumping Duty Administrative Review: Silicon Metal from Brazil (Silicon Metal), 65 FR 7497 (February 15, 2000). The respondent argues further that the financial ratio calculated using the financial statements at the highest level of consolidation leads to a distortion of the actual financing costs incurred by Eicosal because these financial statements were not fully consolidated in accordance with Chilean GAAP. The respondent claims that the financing expenses presented in the consolidated financial statements included financing expenses related to an affiliated company outside the consolidated group, which was inappropriately accounted for using the equity method; however, the cost of goods sold presented in these financial statements reflected only those costs related to Eicosal, and did not include the costs of the affiliated company. The respondent concludes that, as a result of this disparity, calculating a finance expense ratio using the consolidated financial expenses would inappropriately attribute all the interest expense incurred to finance the affiliated company entirely to the operations of Eicosal. Eicosal suggests that if the Department insists on using Eicosal's financial expenses based on the highest level of consolidation, the financial expense ratio should be calculated using a cost of goods sold amount that includes the cost of goods sold of the affiliated company. The petitioners did not brief this issue. The Department's Position: As explained below, we disagree with the respondent that the Department erred in its preliminary determination in calculating Eicosal's financial expense rate based on the highest level of consolidated financial statements in which Eicosal is included. Section 773(b)(3)(B) of the Act states that for purposes of calculating cost of production, the Department shall include "an amount for selling, general, and administrative expenses based on the actual data pertaining to the production and sales of the foreign like product by the exporter in question" (emphasis added). Section 773(e)(2)(A) of the Act states that for purposes of calculating constructed value (CV) the Department shall include "the actual amounts incurred and realized by the specific exporter or producer being examined in the investigation or review for selling, general, and administrative expenses..." (emphasis added). Finally, section 773(f)(1)(A) of the Act states that "[c]osts shall normally be calculated based on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with production and sale of the merchandise." The Department's long-standing policy of calculating financial expenses for COP and CV purposes based on the borrowing costs at the consolidated group level is in accordance with the provisions set forth in the Act and most accurately reflects the "actual" cost of financing to the respondent. The Department's policy recognizes the fungible nature of money within a consolidated group of companies and that the controlling entity within a consolidated group has the power to determine the capital structure of each member within the group. See, e.g., Final Results of Antidumping Duty Administrative Review; Silicon Metal From Brazil, 63 FR 6899, 6906 (February 11, 1998) and Notice of Final Determination of Sales at Less Than Fair Value: Steel Wire Rod from Canada, 63 FR 9182, 9188 (February 24, 1998). Companies finance operations through various forms of debt transactions, stock transactions, and even corporate operating transactions. These financing activities are conducted both with internal and external parties. The controlling management of the group coordinates these activities in order to maximize the benefit to the group as a whole. A few examples of these types of activities include, but are not limited to: debt moved to specific companies in order to shield assets in other companies from creditors; monies moved through manipulated transfer prices to avoid tax liabilities or currency restrictions; or, conversions of debt into equities (or vice versa) may be made in order to present a group member in a more favorable financial position. The important point here is that the corporate control on the financing operations of individual group member companies may exist even in the apparent absence of specific inter- company financing transactions. The CIT has upheld the Department's practice of relying on consolidated financial statements when corporate control, whether direct or indirect, exists. See, E.I. DuPont de Nemours & Co. v. United States, (DuPont) Slip Op. 98-7 (CIT 1998). It is the Department's position that majority equity ownership is prima facie evidence of corporate control. See, e.g., Final Determination of Sales at Less Than Fair Value: New Minivans from Japan (Minivans), 57 FR 21946 (May 26, 1992). In Minivans, the Department determined that, as a member of a consolidated group of companies, the operations of a company remain under the controlling influence of the group. Like other members of the consolidated group, a company's capital structure is determined largely within the group. Consequently, its interest income and expenses are as much a part of the group's overall borrowing experience as any other member of the group. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from Italy (Pipe From Italy), 60 FR 31981 (June 19, 1995). Moreover, the Department's policy of deriving financing costs based on the borrowing experience of the consolidated group of companies is consistent with U.S. GAAP and International Accounting Standards. The language found in the U.S. GAAP Accounting and Research Bulletin No. 51 (ARB 51) and Statement of Financial Accounting Standard 94 (FAS 94) require, except in narrowly defined circumstances, that all investments in which a parent company has a controlling financial interest, represented by the direct or indirect ownership, be consolidated. FAS 94 also states: There is a presumption that consolidated statements are more meaningful than separate statements and that they are usually necessary for a fair presentation when one of the companies in the group directly or indirectly has a controlling financial interest in the other companies. FAS ¶ 1. In the instant case, the record establishes that the entity controlling the consolidated group is a majority owner of Eicosal. As such, it is reasonable for the Department to rely on the financial statements of the consolidated group at the top level to determine Eicosal's "actual" financing expenses because Eicosal's financial expenses, as well as all other group companies' financing expenses, are in fact reflected in the financing expenses on the financial statements of the highest level consolidated group. The respondent cites Gulf States in support of its position that the Department must allow respondents to present evidence that the calculation of the financial expense ratio based on a consolidated group of companies would result in a distortion of the true financing costs of the subsidiary's operations, and that the Department will change its practice when presented with the appropriate information. We note that in Gulf States, the court, after stating that a departure from the Department's practice may be possible in some situations, based on record evidence, did not depart from the Department's general practice. "Although it might also be reasonable for [the Department] to have based its calculations on [respondent's own] consolidated statements, the Court may only determine whether [the Department's] method was a reasonable one. In view of the presumption that majority equity ownership of a subsidiary is prima facie evidence of corporate control, [the Department's] use of the [highest level] of consolidation expense is reasonable." Gulf States, 981 F. Supp., at 650-51. In DuPont, the Court stated that the respondent must rebut the presumption of control to indicate that the use of consolidated expenses distorts actual costs. DuPont, at 17. See, also Minivans and Pipe From Italy. Because the respondent in the instant case has neither provided sufficient evidence to support its claim that relying on the consolidated group financial statements results in a distortion of Eicosal's true financing expenses nor rebutted the presumption that majority equity ownership of the subsidiaries is prima facie evidence of corporate control, we believe that the consolidated group's financial statements are a reasonable basis on which to calculate the "actual" financial expenses of Eicosal. The respondent also cites AIMCOR as support for its argument that the Department may not rely on financial statements at the highest level of consolidation where there is no record evidence of inter-company borrowing or other indicia establishing that those consolidated financial statements accurately reflect the true costs to the specific exporter at issue. However, in AIMCOR, the CIT stated that "Commerce is justified in utilizing consolidated financial statements when corporate control, whether direct or indirect, exists..." AIMCOR, 69 F. Supp. 2d at 1354. We grant that, in that case, the CIT stated that "Commerce is statutorily mandated to utilize the ratio which will more accurately reflect actual costs incurred -- especially ... where there was no record evidence on inter-company borrowings or other indicia" that the respondent's parent company determined the respondent's cost of money. We note, however, that the AIMCOR litigation (including the remand ordered on this issue) was stayed indefinitely by the CIT on March 2, 2000. As a result, the Department has had no opportunity to address the Court's ruling on remand. For these reasons, the AIMCOR decision does not compel adoption of respondent's argument. (1) As to the argument that an affiliated company's results were erroneously excluded from the group's consolidated financial statements, we note that the independent auditor's reports on the 1998 and 1999 financial statements of the consolidated group states that these financial statements are presented fairly in accordance with Chilean GAAP. In 1998, the affiliate was accounted for under the equity method (2); in 1999, it was accounted for under the consolidation method. If, as the respondent claims, the 1998 financial statements did in fact erroneously exclude a member company from the consolidation, the resulting departure from Chilean GAAP would have been cited in the auditor's report and the financial statements would have been labeled as having a material misstatement. Moreover, the 1999 consolidated financial statements present the change in the treatment of the company (from the equity method to the consolidation method) as a change in accounting principle, not as an "accounting error affecting prior periods." (3) Therefore, the respondent's assertion that the consolidated group's financial statements erroneously excluded the non-consolidated affiliated company appears to be contradicted by the record. In sum, the Department, absent clear and compelling evidence, is reluctant to supersede the judgement of the independent public auditors, who have a greater intimate knowledge of all the companies within the group and who have spent months auditing the books and records of each of those companies. Finally, we find no basis in the respondent's claim that the consolidated financial expenses reflect the expenses of the affiliate in question (while the cost of goods sold do not reflect the costs of that company). Eicosal's consolidated financial statements do not indicate such asymmetric treatment. Therefore, it would be inappropriate to adjust the cost-of-goods-sold denominator of the financial expense calculation by the amount of the cost of sales of the affiliated company. We made no change to the interest expense calculation relied upon in the preliminary results. Comment 8: Cost of Production: Financial Expense Ratio - Pacific Star Pacific Star argues that the Department erred in its preliminary results by relying on a financial expense ratio calculated based on the company's 1998 financial statements. According to Pacific Star, reliance on 1998 financial expense data distorts the reported costs due to the significant differences that exist between financial expenses in 1998 and 1999. Additionally, Pacific Star contends, only five months of the period of review are in 1998, while six months of the POR are in 1999. Pacific Star contends that the Department should use the 1998-1999 weighted-average financial expense ratio as submitted for its responses in its final results. In the alternative, Pacific Star argues that the Department should calculate the ratio based on 1999 financial expense data. The petitioners did not brief this issue. The Department's Position: We disagree with Pacific Star. The period of review is July 28, 1998 through June 30, 1999. Since the 1998 and 1999 financial statements straddled the period of review, the Department permitted all of the respondents, including Pacific Star, to report costs for the period July 1, 1998 to June 30, 1999, in order to simplify the reporting burden on the parties. Generally, either the 1998 or the 1999 financial statements would be acceptable in computing interest expense. However, when respondents filed their section D questionnaire responses, their 1999 audited financial statements were not complete. Thus, all respondents, including Pacific Star, computed their financial expense rate based on the 1998 financial statements. The Department did not request a revised computation when 1999 financial statements became available, and only Pacific Star attempted to use something other than a financial expense rate based on the 1998 financial statement. We believe that, for consistency purposes, it is appropriate to use the 1998 fiscal year financial statements for all parties. Comment 9: Cost of Production: General, Selling and Administrative Expense Mares Australes argues that the Department erred in its preliminary determination by including an increase in its provision for future catastrophic stock losses in its general and administrative (G&A) expense ratio, and that this amount should be excluded from the reported costs. Mares Australes contends that in its accounting system, it treats extraordinary mortality as a current expense in the period of the actual loss, and that no extraordinary mortality was experienced or recognized for Atlantic salmon during the period of review. Further, Mares Australes asserts that the Department required it to report its extraordinary mortality costs in the period of the loss consistent with its accounting system. Mares Australes contends that its reserve for future extraordinary stock losses is a discretionary amount related to the company's financial performance and that there is no relationship between the amount of the provision and actual extraordinary mortality costs. The petitioners did not brief this issue. The Department's Position: We agree with Mares Australes that the provision for future catastrophic stock losses should be excluded from the reported costs. Section 773(f)(1)(A) of the Act directs the Department to rely upon a company's normal books and records when they are prepared in accordance with the home country's GAAP and reasonably reflect the cost of producing and selling the subject merchandise. While accrual and deferral accounts are clearly necessary to properly calculate the actual revenues and expenses of an enterprise in any given period, the specific account in question does not represent such an account and, therefore, its inclusion in the cost calculations would lead to a distortion. We note, however, that we disagree with Mares Australes that the inclusion of the account would lead to double counting of costs because the amounts in the account do not reflect either future, past or current fish losses. As the Department's verification report noted, the annual amount booked to this account is arbitrary and does not relate to current year expenses. In other words, the amounts booked to the account do not represent either a reasonable estimate or past experience of the company. We further note that normal and extraordinary fish losses are recognized by Mares Australes in the current year and are therefore already captured in the reported costs. Comment 10: Cost of Production: Cost Test Freight Expense Cultivos Marinos asserts that its foreign inland freight expenses were included in its reported cost of manufacturing and that the Department deducted these expenses from the home market price in the cost test. Cultivos Marinos argues that to ensure a proper comparison, these freight expenses should not be deducted from the home market price for the cost test in the final results. The petitioners did not brief this issue. The Department's Position: We agree with Cultivos Marinos. Both the sales and cost verification reports issued by the Department noted the inclusion of foreign inland freight expense in the cost-of-production data submitted by Cultivos Marinos. For the final results, we did not deduct these expenses from the home market price for the cost test. Comment 11: Constructed Value: Provision for Catastrophic Loss Mares Australes argues that its live fish disposal costs incurred during the POR were properly reported as a POR cost of manufacturing, and that the Department erred in its preliminary determination by including its calendar year 1998 live fish disposal costs in the G&A ratio calculation. Mares Australes asserts that in both its accounting system and its response its live fish disposal costs are considered as a cost of manufacturing in the month of disposal and that the Department actually instructed Mares Australes to report its costs in this manner. Accordingly, Mares Australes argues, as it did not incur any expenses for live fish disposals during the POR, there is no basis for including its 1998 costs as a general expense. The petitioners did not brief this issue. The Department's Position: We agree with Mares Australes that its live fish disposal costs were properly recorded as a POR cost of manufacturing. All of the Atlantic salmon live fish disposal costs incurred during calendar year 1998 occurred outside the POR and were recorded in the month of disposal, consistent with the Department's instructions. As none of these costs relate to the POR, they are not relevant to this proceeding. Accordingly, for these final results we have excluded the calendar year 1998 Atlantic salmon live fish disposal costs from the calculation of the G&A ratio. Comment 12: Constructed Value: Use of Verified Data The petitioners assert that the Department verified certain revisions to Pacifico Sur's CV data at verification but calculated the company's preliminary results using unrevised data. The petitioners request that the Department rely on the revised data. Pacifico Sur did not brief this issue. The Department's Position: We agree with the petitioners and recommend the use of the revised data in the final margin calculation. Comment 13: Export Price: Treatment of U.S. Credit Expense The petitioners assert that the Department inadvertently failed, in its calculation of Eicosal's normal value, to make a circumstance of sale adjustment for U.S. credit expenses. Eicosal did not brief this issue. The Department's Position: We agree with the petitioners and have made a circumstance of sale adjustment for U.S. credit expenses in the calculation of Eicosal's normal value. 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 results of review and the final weighted-average dumping margins in the Federal Register. Agree____ Disagree_____ _____________________ Troy H. Cribb Assistant Secretary for Import Administration ___________________ (Date) ________________________________________________________________________ footnotes: 1. We note that the Silicon Metal decision cited by respondent is the administrative proceeding to which the AIMCOR proceeding pertained and is similarly inapposite. 2. Under the equity method, equity ownership in a company is recorded as an investment in a single investment account; under the consolidation method, all of the company's accounts (i.e., assets, liabilities, equity, revenues, and expenses) are combined with all of the accounts of the other companies within the group. 3. A "change in accounting principle" is a change from one generally accepted principle to another acceptable principle at the judgement of management. An "accounting error affecting prior periods" results from errors affecting prior periods such as miscalculations, errors in the application of a generally accepted accounting principle, or changing from an accounting principle that is not generally accepted to one that is generally acceptable.