67 FR 35790, May 21, 2002 A-337-806 Investigation PUBLIC DOCUMENT DAS I/1: B. Ziv May 15, 2002 MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary Import Administration, Group I SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Investigation of IQF Red Raspberries from Chile; Final Determination SUMMARY We have analyzed the case and rebuttal briefs of interested parties in the antidumping duty investigation of individually quick frozen ("IQF") red raspberries from Chile. As a result of our analysis, we have made changes to the preliminary determination. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is a complete list of the issues in this investigation for which we received comments and rebuttals by parties: Frucol Comment 1: COP Methodology Comment 2: Production Quantities Comment 3: Frucol's Purchases of Fresh Raspberries Comment 4: Extraordinary Costs Comment 5: Unreconciled Differences Comment 6: General and Administrative Expense Ratio Comment 7: Third Country Sales Comment 8: Billing Adjustment Comfrut Comment 9: Direct Material Costs Comment 10: Raw Material Costs Olmue Comment 11: COM Comment 12: Sales to Third Country Comment 13: CV Profit Rate BACKGROUND On December 31, 2001, the Department of Commerce ("the Department")issued the preliminary determination of this antidumping duty investigation of IQF red raspberries from Chile. See Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: IQF Red Raspberries from Chile, 66 FR 67510 (December 31, 2001) ("Preliminary Determination"). The period of investigation ("POI") is April 1, 2000, through March 31, 2001. We invited parties to comment on the Preliminary Determination. The petitioners and respondents filed case and rebuttal briefs, respectively, on April 15 and April 18, 2002. At the request of the petitioners, the Department held a public hearing on April 22, 2002. DISCUSSION OF ISSUES FRUCOL Comment 1: COP Methodology Petitioners' Argument: Petitioners argue that the Department should calculate Frucol's COP by value rather than by volume, rejecting the methodology the Department used in its Preliminary Determination. Petitioners argue that raspberries cost more to grow and process compared to the other fruits Frucol sells. Thus, petitioners argue that the volume- based methodology used in the Preliminary Determination inappropriately shifts costs away from raspberries to other products. To support this argument, petitioners cite Notice of Final Determination of Sales at Less than Fair Value: Certain Softwood Lumber Products from Canada, 67 FR 15539 (April 2, 2002) ("Lumber"). They assert that the Department accepted a value-based methodology for allocating costs in Lumber because the cost allocation applied to broad groups of products that differed significantly in value. Using Lumber as a basis for comparison, petitioners point to an exhibit collected by the Department at the Frucol cost verification (see Frucol Cost Verification Report at Exhibit C-5). Using the information in this exhibit, petitioners assert that several of the products that Frucol grows and processes command significantly different prices in the market. Petitioners also contend that the various products sold by Frucol differ greatly in physical characteristics. Given the differences in physical characteristics and market values of the products grown and processed by Frucol, petitioners argue that the record does not contain sufficient evidence that Frucol's volume-based allocation is reasonable. They contend that the Department should reject Frucol's methodology and use a value-based allocation of cost. Respondent's Argument: Frucol asserts that a volume-based methodology is reasonable. First, Frucol asserts that it reported costs consistent with its accounting records. Second, it argues that a value-based method of allocation would distort the costs and would be inconsistent with Department practice. Frucol maintains that the Department should allocate costs as it did in the Preliminary Determination. Frucol argues that it does not normally keep the types of records that would form a verifiable basis for allocating the various components of production costs to different products. It argues that the Department does not penalize a respondent because it does not maintain its records in the manner which the Department would prefer. To support this argument, Frucol cites Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From Canada; Final Results of Antidumping Duty Administrative Reviews ("Plate from Canada"), 61 FR 13820 (March 28, 1996). In Plate from Canada, the respondent did not maintain records that would enable it to calculate the actual cost of producing the subject merchandise at each of its plants. According to Frucol, the Department based its acceptance of the reported costs in Plate from Canada on three factors that are also present in this case: (1) the nature of the respondent's accounting system prevented more detailed reporting; (2) the respondent's inability to determine more specific costs; and (3) the respondent's alternative methodology was a conservative estimate of costs. Frucol asserts that it has met these requirements and should not be penalized for reporting costs according to the normal records it keeps. In addition, Frucol argues that a value-based allocation methodology would distort the costs and would be inconsistent with Department practice. Frucol supports this argument by citing Lumber. Frucol asserts that in Lumber the Department limited the value-based allocation to only a portion of the manufacturing costs. Specifically, Frucol contends that Lumber addressed issues pertaining to joint products, and none of the products grown on its affiliated farm are joint products. Frucol asserts that in the Lumber analysis the Department stated that the products at issue are significantly different products produced by different production processes. Thus, Frucol argues that the issue before the Department is not how to allocate joint production costs but how to allocate common production costs. Frucol argues that petitioners have failed to demonstrate that the products in question have significantly different processes that would warrant an allocation basis other than production quantities. Frucol maintains that the Department should allocate costs as it did in the Preliminary Determination. However, Frucol argues that if the Department determines to adopt a value-based methodology it should apply the methodology consistently and allocate costs to the individual raspberry forms based on the value of the final product (i.e., IQF, whole and broken, crumble, and puree). Department's Position: We agree with petitioners that Frucol's volume- based cost allocation method is not appropriate because the agricultural products being grown are vastly different. That is, they are cultivated differently, they are tended differently, and they are harvested differently. Because of these differences, we believe that costs specifically associated with growing each product should have been pooled separately and common costs should have been allocated proportionately using appropriate allocation factors. However, Frucol did not maintain its records during the POI in a manner that would allow for this type of allocation. We note that the Department recognized that volume might not be an appropriate allocation basis for the growing costs and in the supplemental questionnaire dated November 30, 2001, we requested that Frucol provide area under cultivation, by type of product. While Frucol provided this information, our findings at verification lead us to believe that an allocation based on area would also be inappropriate because the fruit growing processes were so different and clearly not associated with acreage. However, we disagree with the petitioners' assertion that the Department should use a value-based allocation for growing costs. Petitioners' reliance on Lumber is misplaced; the Department's decision in that case was not based on the fact that the numerous end products commanded different prices. In that case, a value-based allocation was appropriate because lumber is a joint product generated from sawing logs. In Lumber, because of the different types of wood contained in a given log, it was necessary to allocate log and sawmill costs to the physically distinct joint products. This is not the case here, where separate activities take place to grow, tend and harvest the products produced by Frucol. In addition, the variations in grades of raspberries result largely from the cultivation process, not from physical differences inherent in the input material. Because Frucol was unable to provide an appropriate cost allocation methodology, we are relying on the facts otherwise available, pursuant to section 776(a)(1) of the Act, to determine the cost of the raspberries grown by Frucol. Given that Frucol provided the Department with all requested cost allocation information, we believe neutral facts available is appropriate. As neutral facts available, therefore, we have used the weighted-average market value from the other two respondents in this case to value the raspberries grown by Frucol. The resulting weighted-average amount was again weight averaged with the appropriate value for raspberries purchased for processing by Frucol. See Comment 3 below. Comment 2: Frucol's Production Quantities Petitioners' Argument: Petitioners argue that the Department should correct significant errors in Frucol's calculated COP. Specifically, petitioners argue that Frucol failed to deduct beginning inventories when calculating the transfer quantities from its affiliated processor to Frucol during the POI. Petitioners claim that the calculation as reported overstates the quantities produced by the affiliated processor that were sold during the POI. Because information regarding beginning inventories of the various products that Frucol cultivates and processes at the affiliated processor are not on the record, petitioners argue that the Department should correct the calculation by removing inventories from the calculation. By removing inventories, petitioners assert that the Department would make a reasonable assumption that beginning and ending inventories for the POI were equivalent. In addition, petitioners assert that Frucol's calculation of production quantities fails to account for non-subject products, including raspberry puree. Petitioners point to a report obtained at verification. Petitioners argue that this report shows that Frucol outputs a significant level of puree. They further argue that the Department should revise Frucol's calculation of the volume of raspberries grown and the calculation of all products grown to include puree. Respondent's Argument: Frucol argues that it included production quantities for all forms of raspberry products, including puree, as the Department verified. Frucol further asserts that the Department thoroughly reviewed transfers from Frucol's affiliated processor during the POI and confirmed that the transfers also included the raspberry puree in question. Thus, no adjustment is needed. Department's Position: We agree with petitioners and respondents, in part. As petitioners pointed out, Frucol overstated the processed volume of raspberries by not adjusting for beginning inventory in its calculations. Because the information concerning beginning inventories was not on the record, pursuant to section 776(a)(1) of the Act, we adjusted Frucol's total production quantity based on the facts available. Because the Department had never specifically requested this information, we did not make adverse inferences in selecting facts available for this purpose. As neutral facts available, we have assumed that beginning and ending inventories are equivalent and reduced the volume of processed raspberries by the ending inventory quantity. We also agree with the respondent that it included in its production quantities all forms of raspberry products, including puree. Therefore, it is not necessary to adjust the production quantities to include puree. Comment 3: Frucol's Purchases of Fresh Raspberries Petitioners' Argument: Petitioners argue that the Department should disregard the purchase prices of fresh raspberries from Frucol's affiliated service provider and base the cost of these raspberries on average market prices. Petitioners assert that the fresh raspberry purchases from Frucol's affiliated service provider account for more of the overall volume of raspberries processed than the raspberries grown on Frocol's farms. Also, petitioners argue that the acquisition cost of raspberries purchased from Frucol's affiliated service provider is a significant component of Frucol's reported COP. Petitioners assert that the record shows that the average price Frucol paid its affiliated service provider for fresh raspberries during the POI was lower than the combined average market price paid by Comfrut and Olmue. For the final determination, the petitioners argue that the Department should reject the transfer price paid between Frucol and its affiliated service provider and instead use the average market price on the record from the other respondents to value Frucol's purchases of raw materials. Respondent's Argument: Frucol argues that the purchases of fresh raspberries from its affiliated service provider represent the cost of acquiring the raspberries from unaffiliated growers. Frucol asserts that the value of the raspberries is the cost actually paid to the suppliers and that its affiliated service provider invoices Frucol separately for its procurement services. Frucol argues that the only input sourced from its affiliated service provider is the administrative services in procuring the raspberries. According to Frucol, the only input potentially subject to adjustment is the procurement service which is so minor that it has relatively no impact on the overall manufacturing costs. Thus, Frucol argues that no adjustment is needed in the final determination. Department's Position: We agree with petitioners. Frucol did not demonstrate that the transfer price it paid to its affiliated service provider for raspberries reflected a market price. Therefore, pursuant to section 773(f)(2) of the Act, we compared Frucol's average transfer prices for grade A and whole/broken raspberries to the weighted-average market prices paid by the other two respondents in this case for these inputs. Where the transfer price was lower than the weighted-average market price, we adjusted Frucol's transfer price to reflect a market price. Where the transfer price was higher than the weighted-average market price, no adjustment was necessary. As noted above in Comment 1, in order to calculate one average cost of fresh raspberries, we weight-averaged the value we assigned to Frucol's self-produced raspberries with the respective values assigned to the raspberries purchased from its affiliate. Comment 4: Extraordinary Costs Petitioners' Argument: Petitioners argue that the Department should include all costs in Frucol's cost of production, including those claimed to be extraordinary. Petitioners assert that Frucol should not have excluded extraordinary losses associated with the destruction of a pear orchard due to disease. First, petitioners argue that Frucol based its cost response on the total costs of the entire farming operation, including the production of all products. Based on this all-inclusive cost allocation methodology, petitioners assert that the Department should not allow Frucol to exclude these costs since they fall under the umbrella of this allocation method. Second, petitioners argue that Frucol has not demonstrated that these costs were truly extraordinary. They claim that in Notice of Final Results of Antidumping Duty Administrative Review and Rescission of Administrative Review in Part: Canned Pineapple Fruit From Thailand, 66 FR 52744 (October 17, 2001) and Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from India, 63 FR 72246 (December 31, 1998) the Department explained that there is a strict standard for the type of expenses that may be excluded as extraordinary and that the respondent making the claim must provide evidence supporting its claim that they are truly extraordinary expenses. Petitioners argue that Frucol has not met these standards. Petitioners further argue that the Department has previously disallowed extraordinary costs similar to Frucol's. To support this argument, petitioners point to Final Determination of Sales at Less Than Fair Value: Fresh and Chilled Atlantic Salmon from Norway, 56 FR 7661 (February 25, 1991) and Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from India, 63 FR 72251 (1998). In these cases, petitioners assert that the Department rejected extraordinary cost claims that were associated with diseases. In sum, petitioners argue that since Frucol's allocation method involves including costs for all products, Frucol has not demonstrated that these costs were truly extraordinary and the Department has previously disallowed similar claims, the Department should include Frucol's claimed extraordinary costs in its COP. Respondent's Argument: Frucol argues that the Department correctly recognized that the extraordinary cost should not be included in its production costs. Frucol argues that this cost was recognized solely for tax purposes and, thus, should not be included in its COP. Frucol cites three cases to support its argument, Fresh and Chilled Atlantic Salmon From Norway; Final Results of Antidumping Duty Administrative Review, 58 FR 37912 (July 14, 1993); Final Determination of Sales at Less Than Fair Value: Antidumping Duty Investigation of Stainless Steel Angle From Japan, 60 FR 16608 (March 31, 1995); and Stainless Steel Bar From Japan: Final Results of Antidumping Administrative Review, 65 FR 13717 (March 14, 2000). Frucol asserts that in these cases the Department held that certain costs associated with depreciation of equipment were excluded from COP because they were solely related to the tax law and represented no real addition to the cost of the company. Frucol argues that, as in the above- cited cases, the destruction of the pear orchard was strictly a tax- related item, as verified by the Department. Continuing, Frucol asserts that the orchard was destroyed after 15 years of service and the useful life to depreciate orchards is 15 years. Consequently, Frucol argues that there was no remaining net book value for this asset and its depreciation represented no real out of pocket expense to the company. However, the value for tax purposes was the current market value of the orchard. Frucol concludes that this cost was appropriately excluded from production costs, consistent with Department precedent as confirmed in the Preliminary Determination. Department's Position: We agree with Frucol that the costs associated with the destruction of its pear orchards should be excluded from the COP and CV calculations. These orchards had no remaining book value at the time of their destruction and thus no asset value to write off for financial reporting purposes. It is only for tax purposes that the company was able to claim a casualty loss deduction for the destruction of its pear orchards. Comment 5: Unreconciled Differences Respondent's Argument: Frucol argues that the Department erroneously adjusted Frucol's reported production costs to account for certain unreconciled differences between Frucol's affiliated party's financial statements and its income tax return. Frucol asserts that the Department increased Frucol's TOTCOM by 50 percent to include other expenses deducted from gross revenues reflected on its affiliated processor's 2000 tax return but not included in its affiliated processor's 2000 Balance General. Frucol argues that the Department verified the adjustments made to net income. Frucol contends that these items related solely to the calculation of taxable net income, rather than the net income recognized under Chilean GAAP and reported in its affiliated processor's Balance General. Petitioners' Argument: Petitioners did not comment on this issue. Department's Position: We agree with Frucol. The amount in question did not represent costs from the current period and should not have been included in its COP and CV. For the final determination, we have not made this adjustment. Comment 6: General and Administrative Expense Ratio Respondent's Argument: Frucol argues that the Department erroneously adjusted Frucol's reported G&A expense ratio for "general expenses" in its Preliminary Determination. Frucol asserts that because of this adjustment these expenses have been double counted in the Department's analysis. Frucol argues that these expenses have already been accounted for in the Department's analysis as movement expenses. Accordingly, Frucol argues that the Department should eliminate these adjustments in its final determination. Petitioners' Argument: Petitioners did not comment on this issue. Department's Position: We agree with Frucol and have revised the G&A expense ratio in the final determination calculations accordingly. Comment 7: Frucol's Third Country Sales Petitioners' Argument: The petitioners argue that the Department should exclude certain sales from Frucol's third country sales listing because the evidence of record does not support Frucol's claim that these are export sales. According to petitioners, there is no evidence that Frucol knew or had reason to know, at the time of sale, that the final destination of the merchandise was the United Kingdom. In support of their argument, the petitioners cite Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Final Results of Antidumping Duty Administrative Review and Determination Not To Revoke the Order in Part ("DRAMs"), 64 FR 69694, 69713 (December 14, 1999). The petitioners point to the Department's March 7, 2002 Sales Verification Report for Frucol ("Frucol Sales Verification Report"), contending that Frucol stated that any sales in the home market are made by Frucol's affiliate rather than by Frucol. In the petitioners' view, Frucol reported the sales in question as third country sales based solely on the identification of the customer. The petitioners cite to a letter from the customer clarifying its status in this investigation. According to the petitioners, the letter is inconclusive because it implies that the customer exports IQF raspberries not only to the United Kingdom, but to other markets as well. Moreover, because these two sales were made in the manner in which Frucol normally makes home market sales, the petitioners conclude that there cannot be knowledge by Frucol that the ultimate destination of merchandise sold to this customer was the United Kingdom. Given the absence of evidence demonstrating that Frucol knew at the time of these sales that the merchandise was destined for the United Kingdom, the petitioners argue that the Department should classify these sales as home market sales and exclude them from the third country database. Alternatively, the petitioners argue that these sales should be removed from the third country sales listing because they were not in the ordinary course of trade. According to the petitioners, these sales were highly unusual and not representative of the reported third country sales because (1) they were the only reported sales made by Frucol's affiliate; (2) they were recorded differently for accounting purposes; and (3) the invoices for these sales were issued in a different manner than for other sales. Moreover, the petitioners contend that the sales involved terms of sale that were highly unusual compared to other reported third-country sales. Finally, the petitioners assert that the prices for these sales were significantly different than the price of identical merchandise sold to the third country market. The petitioners cite to the Final Determination of Sales at Less Than Fair Value: Sulfur Dyes, Including Sulfur Vat Dyes, From the United Kingdom, 58 FR 3253, 3256 (January 8, 1993), stating that, in that case, the Department excluded a sale as outside the ordinary course of trade based on its determination that the sale "was concluded in a manner noticeably different from respondent's other sales during the POI." The petitioners argue further that the sales in question are at a different level of trade than all of Frucol's other sales to the United Kingdom. The petitioners contend that the Department did not consider the third country sales at issue in making its preliminary level-of-trade determination. The petitioners contend that Frucol's terms of payment, terms of delivery, channel of distribution, selling functions, and selling expenses were significantly different for these sales than for all other sales. To support their argument, the petitioners point to several decisions where the Department has determined that sales were made at different levels of trade: Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts thereof From France, Germany, Italy, Japan, Singapore, and The United Kingdom: Preliminary Results of Antidumping Duty Administrative Reviews and Partial Rescission of Administrative Reviews, 67 FR 17361, 17365 (April 10, 2002); Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Japan; Final Results of Antidumping Duty Administrative Review, 67 FR 2408, at Decision Memorandum, Comment 1 (January 17, 2002). The petitioners assert that, in these cases, the Department examined stages in the marketing process and selling functions along the chain of distribution between the producer and the unaffiliated customer. Furthermore, the Department determined that different levels of trade are characterized by purchasers at different places in the chain of distribution and sellers performing qualitatively different selling functions in selling to them. In this case, the petitioners argue that the record with respect to Frucol's sales indicates that the sales at issue are at a different stage in the marketing process and at a different place in the chain of distribution than all other reported third country or U.S. sales. Moreover, the petitioners contend that the record reflects that there were qualitatively and quantitatively different selling functions with respect to these sales. Respondent's Argument: Frucol counters that the petitioners' claims ignore the record evidence and the Department's well-established rules regarding such sales. Frucol argues that it properly reported the sales at issue as third country sales and, thus, the Department should not exclude these sales from Frucol's third country sales listing. First, Frucol maintains that it was well aware that its customer, as verified by the Department, was a local buying office for an overseas company and that this customer did not sell merchandise in Chile. Frucol therefore, argues that it had no reason to believe that the merchandise would be consumed or resold in the home market. Frucol contends that the fact that these sales were made by Frucol's affiliate, and that Frucol's affiliate "normally" makes home market sales, is no indication that Frucol believed that these sales were intended for the home market. According to Frucol, its affiliate was involved in the sale because the immediate customer is located in Chile. Moreover, Frucol argues that the Department has often encountered cases in which a respondent's domestic sales team (as opposed to the export sales team) was responsible for sales to resellers located in the home market, even though the respondent knew that those resellers would ultimately export the merchandise to the United States or a third country. To support its argument, Frucol cites to Notice of Final Determination of Sales at Less Than Fair Value: Certain Polyester Staple Fiber From the Republic of Korea, 65 FR 16880 (March 30, 2000) and accompanying Issues and Decision Memorandum at Comment 9. In that case, the Department determined that sales to resellers located in the home market were export sales regardless of the fact that the sales were made by the respondent's domestic sales team. Frucol also cites to INA Walzlager Schaeffler KG v. United States, 957 F. Supp. 251, 263-64 (CIT 1997) ("INA Walzlager"), maintaining that the Department and the CIT have stated that, pursuant to section 773(a), sales cannot be included in the home market database when a respondent knew or should have known that sales were not for home consumption. Second, Frucol claims that the evidence on the record demonstrates that these sales are export sales and not for home market consumption. Frucol maintains that it has had a long-standing relationship with its customer, and has stated since the beginning of this proceeding that it knew, at the time of sale, that the merchandise was destined for the United Kingdom. Frucol further contends that the Department thoroughly reviewed this issue during verification and accepted a letter from its customer as a verification exhibit stipulating this fact. Regarding the petitioners' argument that these sales were not in the ordinary course of trade, Frucol argues that the petitioners ignore the fact that the Department has established a high threshold for determining when sales are considered outside of the ordinary course of trade. Frucol cites to 19 C.F.R. § 351.102, noting that the Department reserves this type of determination for sales that are "extraordinary" or "aberrational." Furthermore, Frucol contends that this determination must be based on the totality of the circumstances rather than on individual factors. According to Frucol, the minor differences between these sales and other third country sales result from the fact that these sales were "local or indirect" export sales, while the other third country sales were "direct" export sales. Frucol concludes, therefore, that there was nothing unusual about these sales that rises to the level of being "extraordinary" or "aberrational." Frucol further argues that the petitioners again ignore that the Department sets a high threshold for finding different levels of trade. Frucol cites Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products From the Republic of Korea; Notice of Preliminary Results of Antidumping Duty Administrative Review, 66 FR 47163, 47170 (September 11, 2001). In that case, the Department determined that there was only one level of trade despite numerous differences claimed by the respondent. In this case, Frucol argues that there are no significant differences in selling functions between these sales and other third country sales to justify a finding that these sales were made at different levels of trade. Department's Position: We agree with Frucol that these sales were properly classified as third country sales. We believe that the information provided by Frucol in its response and at verification was sufficient to demonstrate that it had knowledge of the ultimate destination at the time of sale. Frucol has maintained since the beginning of this case that it knew the destination of these sales and that its customer did not sell merchandise in Chile. Moreover, as noted by Frucol, we thoroughly examined these sales at verification. We noted nothing concerning the circumstances of these sales that would lead us to question whether Frucol knew the ultimate destination at the time of sale. We believe that the fact that these sales were made in a manner similar to that in which Frucol makes home market sales is irrelevant. At verification, Frucol provided a letter from this customer stating that it is a facilitator of IQF exports to overseas markets. Since this customer is engaged in export operations, it is reasonable to conclude that these were export sales. Concerning whether these export sales were destined for the United Kingdom, the business operations of this customer (the details of which can not be discussed here because they are business proprietary in nature) support the proposition that these sales were destined for the United Kingdom. See the proprietary version of the May 15, 2002 calculation memorandum entitled, "Calculations for the Final Determination of Exportatora Frucol Ltda." Furthermore, we disagree with the petitioners that these sales were outside the ordinary course of trade. We examined the circumstances surrounding these sales and, while they were concluded in a different manner from Frucol's other third country sales, we disagree with the petitioners' characterization of them as being so unique as to fall outside the ordinary course of trade. We agree with Frucol that the differences between these sales and Frucol's other third country sales resulted from their being indirect export sales rather than direct export sales. We also disagree that these sales were made at a different level of trade. As noted above, we do not consider the differences between these sales and Frucol's other sales with respect to or selling functions sufficient to warrant a finding of different levels of trade. We continue to find that a single level of trade exists in the U.S. and third country markets (see the December 20, 2001 memorandum from the case analyst to the file entitled, "Calculations for the Preliminary Determination of Exportatora Frucol Ltda." Therefore, we have continued to include these sales for the final determination. Comment 8: Billing Adjustment Petitioners' Argument: The petitioners argue that the Department should adjust its calculations in the Preliminary Determination with respect to Frucol's claim for a billing adjustment. The petitioners claim that although a billing adjustment was appropriate based on the credit issued by Frucol, the documentary evidence shows that Frucol adjusted the wrong sale. Specifically, the petitioners contend that Frucol did not adjust the price of the actual sale on which the billing adjustment was granted, but applied the adjustment to an earlier sale. Respondent's Argument: Frucol counters that the Department has applied Frucol's billing adjustment to the appropriate sale. In Frucol's view, the Department has examined this issue exhaustively and determined that the billing adjustment does, in fact, relate to the sale as reported by Frucol. According to Frucol, the petitioners' case brief ignores information on the record concerning the billing adjustment and the Department's verification findings. Frucol contends that the Department not only examined this issue in detail prior to the Preliminary Determination, but also examined it at length during verification. Furthermore, Frucol states that, as part of verification, the Department selected both of the sales at issue as either pre-selected or surprise sales traces. Thus, Frucol argues that the Department had the opportunity to examine all documentation and evidence concerning each of these transactions. Department's Position: We disagree with the petitioners that Frucol claimed the adjustment on the wrong sale, and we continue to find that the billing adjustment was correctly reported by Frucol and applied in the Preliminary Determination. We examined the original source documents supporting the claimed adjustment at verification and, while Frucol permitted its customer to take an adjustment on a later sale, the evidence indicates that the adjustment was actually the result of the circumstances of an earlier sale. But for problems with the earlier sale, no price adjustment would have been granted to the customer. Therefore, we continue to find that the adjustment is appropriately reflected as an adjustment to the price of the earlier sale. COMFRUT Comment 9: Direct Material Costs Petitioners' Argument: Petitioners argue that Comfrut failed to account for ending inventory amounts correctly in its calculation of raw material costs. Petitioners argue that, by failing to account for ending inventories, Comfrut understated the cost of IQF raspberries. Petitioners support this argument with the data contained in Comfrut's cost verification report and exhibits. Petitioners assert that this data indicates unexplained differences in the amount of raw materials calculated by Comfrut and those calculated from the Frusur (Comfrut's affiliated processor) production records. Petitioners argue that the calculation of raw material costs for the POI starts with beginning inventory, adds purchases during the period, and then subtracts the ending inventory. Petitioners assert that the Department did not verify the ending inventory amounts. Since all other components of the calculation were verified, petitioners argue that the only explanation for the above- mentioned differences in the amount of raw materials calculated is that ending inventory quantities were misstated by Comfrut. Petitioners assert that Comfrut's error can be corrected using data on the record. Petitioners contend that, by working backwards, the ending inventory figures can be calculated by reversing the calculation explained above (i.e., beginning inventory, plus purchases during the POI, less consumption during the POI, results in ending inventory quantities). Petitioners argue that the Department should adopt this methodology in its calculations for the final determination. Respondent's Argument: Comfrut begins by arguing that the Department, not petitioners, decides what items will or will not be reviewed during verification. Pointing to the Comfrut Cost Verification Report, Comfrut argues that the Department conducted an extensive review of the raw materials consumption calculations and found no discrepancies. In addition, Comfrut argues that timing differences and the period of investigation explain any differences between raw materials consumption quantities and production quantities. Comfrut asserts that these differences reflect timing differences between any combination of physical receipt of raw materials, receipt of the raw materials suppliers' invoice and subsequent entry in the accounting records, physical processing at the plant, and Frusur's actual invoice to Comfrut for processing. Comfrut argues that, as the Department verified, over the course of an entire season the quantities purchased by Comfrut correspond directly to the quantities processed and invoiced by Frusur. Explaining further, Comfrut says that any differences are considered yield loss, and these losses have been included in the reported costs. Comfrut also asserts that production quantities may vary from season to season. According to Comfrut, because the POI combines portions of two separate seasons, the timing differences between the seasons are not smoothed out, and thus, there are differences in the raw material consumption quantities on the one hand and invoiced processed production quantities on the other. Comfrut asserts that the petitioners' adjustment would yield significantly distorted results. Comfrut contends that the Department verified that it correctly and accurately reported costs of raw materials consumed during the POI as recorded in its accounting records. Department's Position: We agree with Comfrut. Petitioners' logic is flawed, because the cost periods for Comfrut and Frusur are different. Therefore, the production quantities for the two companies cannot be compared directly; there will be timing differences. Noting this disparity in reporting periods, we tested the volumes that were transferred from Comfrut to Frusur within the same time period and noted no significant differences. Comment 10: Raw Material Costs Petitioners' Argument: Petitioners argue that Comfrut's raw materials costs for each product type are based on theoretical, rather than actual, differences in raw materials costs. They argue that this methodology shifts costs away from whole and broken and crumbled IQF raspberries and distorts the reported COP. Comfrut reported that it determines the quality of fruit received based on a quality control analysis and pays the growers on that basis, with different prices for IQF, whole and broken, block and crumbled fruit. Accordingly, Comfrut has reported discrete raw material costs for its different output products. Petitioners argue that this methodology presupposes a strong correlation between grade, variety, and forms of fruit purchased for processing and the actual output after processing. Based on the information in the verification exhibits, petitioners assert that there is, at best, a weak correlation between input and output products at Comfrut. Furthermore, to support their argument, petitioners point to Comfrut's September 24, 2001, Section D Questionnaire Response at page D-15, where Comfrut states that, "Raspberries are purchased in different qualities, in theory, each approximately representing the end product for which it is intended." Petitioners continue, citing, "...the grade and form of the finished products become individually identifiable after the berries have been processed in the IQF tunnel." Petitioners argue that Comfrut admitted that it produces all grades and forms from any other grade and form of raspberry. Petitioners assert that there is no accounting or logical justification for attributing costs of the raw materials as purchased to the final products actually produced. Petitioners conclude that there is no justification for weight-averaging raw material costs by the theoretical output grades or forms of the berries. Thus, petitioners argue that the Department should weight-average Comfrut's raw material costs by cultivation type (organic and non-organic) in the final determination. Respondent's Argument: Comfrut begins by arguing that it has reported its costs consistent with its accounting records, business practices, and manufacturing processes, and thus, its costs require no adjustment. Comfrut asserts that section 773 (f)(1)(A) of the Act provides that the Department shall normally base its cost determination on "the records of the exporter or producer of the merchandise." Comfrut argues that, in its experience, the quality of the raw materials is directly correlated to the quality of the final product. Comfrut argues that it does not have the production records to match each specific production lot with the quality of the input material. However, Comfrut maintains that its ordinary production records clearly demonstrate that there is a high correlation between IQF quality raw materials and IQF quality finished goods. Comfrut argues that its methodology is consistent with Department practice, and Comfrut has appropriately associated the cost of IQF quality raw material with the IQF quality finished product. Comfrut maintains that the Department was correct in its Preliminary Determination, and no adjustment is needed for the final determination. Department's Position: We agree with Comfrut. At verification we noted that Comfrut determines the quality of the raspberries upon arrival. This inspection determines the overall quality of the fruit and the price Comfrut pays for the fruit. We confirmed that Comfrut normally records the cost for the different quality berries in its accounting records. We compared the volumes of the berries purchased as IQF quality to the volume of IQF raspberries processed and noted that there was not a significant difference between them. This leads us to conclude that Comfrut has accurately reported its fruit cost by quality, and that no adjustment is necessary for the final determination. OLMUE Comment 11: COM Petitioners' Argument: The petitioners argue that the Department should apply one average cost of manufacturing ("COM") for all product forms because it is consistent with Olmue's actual production experience. The petitioners state that, although Olmue initially reported a single COM for all of the different product forms, Olmue abandoned its original methodology in a supplemental response, claiming separate costs for the different products. According to the petitioners, Olmue's revised methodology is based on estimates that are arbitrary and for which there is no documentary support. The petitioners also take issue with the fact that, although the three respondents in this investigation reported their costs to manufacture IQF raspberries differently, the procedures and costs of growing, harvesting, and processing all types of IQF raspberries are the same. Therefore, the petitioners argue that the cost of raspberries used in the production of all forms of IQF raspberries should be the same. The petitioners contend that Olmue conceded in its November 14, 2001 Supplemental Response that an unspecified percentage of whole and broken and crumbled IQF raspberries result from "IQF quality" fresh raspberries. According to the petitioners, Olmue cannot determine the percentage of IQF quality raspberries that are damaged during the production process. The petitioners further state that Olmue has conceded that an input intended for one type of finished product will not always match the finished product when it is diverted to another type of finished product or when the finished IQF product must undergo reprocessing. Furthermore, the petitioners argue that Olmue never explained how its methodology accounted for yield loss during processing. The petitioners argue that the most fundamental flaw in Olmue's methodology concerns its cost allocation of certain types of raspberries to individual products. The petitioners contend that there is no evidence supporting Olmue's reported price and cost allocation. To support their contention, the petitioners cite to the Department's April 4, 2002 Cost Verification Report for Olmue ("Olmue Cost Verification Report"), which showed that the average purchase price paid for certain types of raspberries during the POI was only slightly lower than the average price paid for IQF quality raspberries. According to the petitioners, because the acquisition costs for these two products were similar, the two product categories do not provide a meaningful distinction by which to allocate costs. Respondent's Argument: Olmue argues that it has correctly calculated separate material costs for IQF products. Although the petitioners insist that the production processes are essentially the same for all three respondents, Olmue contends that, aside from the freezing process, the companies' operations are significantly different. In Olmue's view, it is only logical, therefore, that the cost reporting methodologies for these companies would be different. While Olmue agrees with the petitioners that the costs to grow raspberries do not vary by the quality of the berry, it asserts that this point is irrelevant with respect to Olmue's costs because Olmue purchases its berries. Olmue maintains that it incurs a significantly higher cost for IQF quality raspberries. Citing to Consolidated Automotive v. United States, 809 F. Supp. 125 (CIT 1992), Olmue states that in this instance, the Department does not examine the cost of production of an input. Olmue holds that it is the cost that it pays for the berries, not the cost of the growers that is the relevant cost. To further support its contention, Olmue points to section 773 (f)(1) of the Act, which states that the Department shall normally base its cost determination on "the records of the exporter or producer of the merchandise." Olmue contends that the Olmue Cost Verification Report demonstrates that it pays a significantly higher price for IQF quality raw material because, in its experience, the quality of the raw material is directly correlated to the quality of the finished product. Olmue further argues that the petitioners have attempted to portray the differences between IQF, whole and broken and crumble quality berries as solely a function of form. According to Olmue, quality also refers to the visual appearance of the berry (e.g., color or shape) and the presence of foreign materials (e.g., plant materials, mold or insects). Concerning the propriety of its revised reporting methodology, Olmue asserts that, as required under Department practice, Olmue adjusted its reported costs in its Supplemental Response to more closely reflect the manner in which it tracks material costs in its accounting system. Olmue notes that, in order to cooperate with the Department's investigation, respondents have continued to review their records throughout the questionnaire response process, which may require modification of responses accordingly. Department's Position: We agree with Olmue. Olmue complied with the Department's instructions to calculate its reported costs to correspond to the product characteristics identified in the questionnaire. Its revision of the reported costs was made at the Department's request and not in a self-serving manner. The company had the level of detail in its accounting records to break out the costs to a more detailed level than initially reported to the Department. We verified the revised cost information. See Olmue Cost Verification Report. This leads us to conclude that Olmue has accurately reported its fruit cost by quality and that no adjustment is necessary for the final determination. Comment 12: Sales to Third Country Petitioners' Argument: The petitioners argue that Olmue has included sales in its U.S. sales listing that are, in fact, not U.S. sales. According to the petitioners, Olmue has not provided any documentary evidence showing that the merchandise from these sales entered the United States. Respondent's Argument: Olmue counters that the Department should continue to classify these sales as U.S. sales because Olmue knew that these sales were destined for the United States. Olmue argues that the Department's practice clearly recognizes the treatment of sales initially shipped to a third country as U.S. sales based on the reasonable understanding of the foreign producer at the time of sale. To support its argument, Olmue cites the following cases: Certain Stainless Steel Flanges From India; Final Results of Antidumping Duty Administrative Review, 66 FR 48244 (September 19, 2001); Notice of Preliminary Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products From Kazakhstan, 66 FR 22168 (May 3, 2001); Final Determination of Sales at Less Than Fair Value: Certain Small Business Telephone Systems and Subassemblies Thereof From Korea, 54 FR 53141 (December 27, 1989); Certain Stainless Steel Sheet and Strip Products From the Federal Republic of Germany; Final Determinations of Sales at Less Than Fair Value, 48 FR 20459 (May 6, 1983); and Notice of Final Determination of Sales at Not Less Than Fair Value: Pure Magnesium From the Russian Federation, 66 FR 49437 (September 27, 2001). Olmue contends that it has provided supporting sales documentation for these sales, including the export invoices and purchase orders which list its customer's U.S. address. Moreover, Olmue argues that the Department verified that the shipping notice specified the final destination and the markings on the boxes used for these sales support that the products were destined for the United States. See the Department's April 3, 2002 sales verification report for Olmue ("Olmue Sales Verification Report") at 4. Department's Position: We disagree with the petitioners that we should exclude these sales from Olmue's U.S. sales listing. Olmue has maintained throughout this case that these sales were destined for the United States. We thoroughly examined these sales at verification. Specifically, we noted that the purchase order, invoice and shipping documents showed the U.S. customer's name and address. Furthermore, payment documentation collected at verification established that the customer's bank is located in the United States. As noted by Olmue, we examined the boxes used for these sales and noted that particular markings on the boxes support Olmue's claim that the products were destined for the United States. Based on the evidence on record, we believe it is reasonable to conclude that these sales were destined for the United States and have continued to include these sales in our calculations. Comment 13: CV Profit Rate Respondent's Argument: Olmue argues that the Department should modify the calculation of profit for constructed value ("CV"). Olmue asserts that, pursuant to section 773(a) of the Act, the Department must make a "fair comparison between the price charged for subject merchandise in the United States and the price charged for the corresponding foreign like product in the home market." In calculating CV profit, Olmue states that the Department has used an overall average profit rate based only on above cost third country sales as specified in the antidumping statute pursuant to section 771 of the Act. Olmue refers to this as the Department's "preferred method." According to Olmue, however, there is no "foreign like product" in this case comparable to the U.S. sales in question (i.e., organic Heritage berries) for calculating the appropriate profit level. Olmue therefore argues that the Department's "preferred method" produces distorted results because the profit rate is significantly inflated by including sales of a unique, niche product (Meeker raspberries) that is only sold in France. Olmue argues that the prices for Meeker raspberries are not representative because of their significant price premium over any other variety sold in Chile's export markets. Thus, in Olmue's view, the profit used in the Preliminary Determination fails to satisfy its purpose, which is to function as a proxy for profit on U.S. sales. Olmue contends that the Department should use one of the alternative profit calculation methodologies provided in the statute in the final determination. Olmue cites a recent decision of the Court of Appeals for the Federal Circuit, SKF USA Inc. v. United States, 263 F.3d 1369 (Fed. Cir. 2001) ("SKF USA"), which held that the foreign like product definition should be the same when making price-based calculations for normal value prescribed pursuant to section 773(a) of the Act and when calculating CV pursuant to 773(e) of the Act. According to Olmue, the Department may use an alternative profit calculation method when all sales of a specific control number ("CONNUM") fall below cost or when that CONNUM is not sold in the market being used for normal value. Because the Department used a single profit rate for CV, Olmue contends that the Department, in effect, used a different definition for "foreign like product" when calculating CV than it used when calculating price-based normal value. Alternatively, Olmue proposes that the Department should calculate CV profit using one of the alternative methodologies set forth under section 773(e)(2)(B) of the Act. According to Olmue, the statute permits three alternative methods which would allow the Department to calculate CV profit: (1) including all sales (including below cost sales) in the calculation of CV profit; (2) using an average profit rate of other Chilean respondents; or (3) eliminating sales of Meeker variety IQF berries from the profit calculation. Olmue notes that, according to the Statement of Administrative Action ("SAA"), there is no hierarchy among the three alternative methods. Therefore, the Department can decide on a case-by-case basis which alternative to use. See SAA at 170. To support its argument, Olmue cites to Certain Fresh Cut Flowers From Ecuador; Final Results of Antidumping Duty Administrative Review, 64 FR 18878, 18882 (April 16, 1999) ("Flowers From Ecuador"). In that case, the Department selected an alternative constructed value profit calculation methodology for the four respondents. Alternatively, Olmue argues, if the Department continues to calculate CV profit under the "preferred methodology," the Department should exclude sales of Meeker berries because these sales are outside the ordinary course of trade. According to Olmue, the record demonstrates that prices for Meeker IQF berries are extraordinarily high compared to prices for sales of other varieties to France or sales to other export markets. Thus, Olmue concludes that prices for Meeker berries are not representative of Olmue's sales to the United States. In support, Olmue cites Notice of Final Determination of Sales at Less Than Fair Value: Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Germany, 61 FR 38166 (July 23, 1996). In that case, the Department stated that, in order for it to determine that profits are abnormally high, there must be certain unique or unusual characteristics related to the sales at issue. Moreover, the evidence must indicate that such sales were made outside the ordinary course of trade for purposes of calculating normal value. Petitioners' Argument: The petitioners counter that the Department should reject Olmue's arguments and make no changes to the calculation of CV profit for Olmue in the final determination. The petitioners argue that the statute does not require the Department to determine CONNUM specific profit rates for purposes of calculating CV. In accordance with the Uruguay Round Agreements Act ("URAA"), the petitioners assert that the Department has consistently maintained "that an aggregate calculation that encompasses all foreign like products under consideration for normal value represents a reasonable interpretation of the statute." Moreover, contrary to Olmue's assertion, SKF USA does not require the Department to change its practice in this respect. The petitioners further argue that the Department correctly defined the foreign like product to include all subject merchandise. According to the petitioners, Olmue confuses the definition of the foreign like product with the Department's difference-in-merchandise ("difmer") test. The Department's difmer test is a limitation on the comparability of products that are within the same foreign like product category. The petitioners, therefore, argue that the failure of the difmer test does not necessarily mean that products are not "foreign like products." With respect to the contention that the CV profit calculated in the Preliminary Determination is distortive, the petitioners assert that Olmue's argument is misplaced. According to the petitioners, CV is a proxy for the comparison market price of the product sold in the United States, not a proxy for the price of a different product sold in the comparison market. Thus, CV profit and comparison market prices will not necessarily correlate. The petitioners further argue that the case cited by Olmue is inapposite. In Flowers From Ecuador, the Department resorted to an alternative methodology to calculate CV profit where there were no above-cost sales of the foreign like product in the comparison market. In this case, the petitioners contend that an alternative CV profit methodology is unnecessary because the Department has sufficient above cost sales of the foreign like product in the comparison market on which to base its calculation. Finally, the petitioners counter that Olmue has failed to establish that its sales of Meeker raspberries were made in "unusual circumstances" such that exclusion as outside the ordinary course of trade is warranted. The petitioners argue that there is no support for the contention the sales of Meeker raspberries in France constitute a "niche" market. To the contrary, strong demand for Meeker raspberries would make such sales in that market typical, not atypical and thus, in the ordinary course of trade. Moreover, the petitioners assert that high prices alone are not sufficient grounds to exclude sales as outside the ordinary course of trade. To support their argument, the petitioners cite Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan, Sweden, and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews and Revocation of Orders in Part, 66 FR 36551 (July 12, 2001) and accompanying Decision Memorandum at Comment 26. Department's Position: We believe that an aggregate calculation of profit that encompasses all foreign like products under consideration for normal value represents a reasonable interpretation of the statute. As stated in the preamble to the Department's regulations, this approach is consistent with the Department's method of computing SG&A and profit under the URAA. See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27359 (May 10, 1997) ("Final Rule"). Thus, pursuant to the regulations and our practice as explained in the preamble, we believe that, in applying the preferred method for computing SG&A and profit under section 773(e)(2)(A) of the Act in this case, the use of aggregate data results in a reasonable and practical measure of profit that the Department can apply consistently in each case. We disagree with the interpretation of the CV profit calculation (section 773(e)(2)(A) of the Act) contemplated in SKF USA. As the Department argued in Lumber, at Comment 6, [i]n accordance with the definition of foreign like product under section 771(16) of the Act, "foreign like product" is not limited to the product which is identical in physical characteristics to the subject merchandise (section 771(16)(A) of the Act) or even to the product that is similar to the subject merchandise (section 771(16)(B) of the Act). Merchandise of the "same general class or kind" as the subject merchandise (section 771(16)(C) of the Act) will qualify as the "foreign like product" in cases where either the identical or similar merchandise is not available. There is no indication that, by referring to "a foreign like product" in section 773(e)(2)(A) of the Act, Congress intended that profit be calculated only upon the basis of merchandise that was used in the price to price comparison. The alternative method suggested by Olmue seeks to exclude sales of Meeker berries because Olmue claims that these sales are outside the ordinary course of trade. We do not believe, however, that Olmue's sales of Meeker raspberries are outside the ordinary course of trade. We agree with the petitioners that high prices alone are not sufficient grounds to exclude sales as outside the ordinary course of trade. The circumstances surrounding these transactions do not show that profits earned from the sales of Meeker raspberries are "abnormal" or otherwise unusable as the basis for CV profit. Therefore, we have made no changes to the calculation of CV for the final determination. 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 determination of this investigation and the final weighted-average dumping margins for all investigated firms in the Federal Register. AGREE _________ DISAGREE _________ Faryar Shirzad Assistant Secretary for Import Administration Date