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Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices6181Respondents’’ COM upward to accountfor defective products.Petitioner states that, in calculatingmaterials and labor usage per unit ofoutput, most Respondents reported thatthey divided the weight of steel issuedand the total labor hours worked by thenumber of units produced. Petitionercontends that these calculations do nottake into account that a percentage oftotal units produced will inevitably bedefective products which consumematerials, labor, and overhead butcannot be sold. Petitioner claims forinstance that, in the previous review,Shanghai General Bearing Company 2reported publicly that it uses a ‘‘twopercentallowance . . . based on thecompany’s empirical evidence of howmuch production fails to passinspection’’ (citing Shanghai GeneralPublic Verification Report for 1993–94Review). Petitioner suggests that theDepartment revise its calculations ofCOM upward by 0.2 percent for allrespondents in order to account forunreported defective production.Guizhou Machinery et al. respondthat the Department’s questionnairedoes not request that Respondentsprovide any data on production defectrates and, therefore, the Department hasno basis for making any inferencesregarding the production of defectivebearings. Guizhou Machinery et al. addthat Petitioner offers no evidence tosupport the theory that the experienceof Shanghai General is representative ofother Chinese producers.East Sea claims that Petitioner’ssuggestion that the Department increaseCOM by 0.2 percent is misguidedbecause there is no evidence thatRespondents have accountedimproperly for defective products. EastSea states that, in fact, it has reportedFOP for finished products, i.e., factorsdata required to produce satisfactory,non-defective products.Department’s PositionWe disagree with Petitioner. While weagree that, in calculating per-unitmaterial and labor quantities,Respondents must account for defectiveproducts properly, Petitioner hasprovided no evidence that Respondentsdid not do so. The fact that onecompany, Shanghai General, that statedexplicitly it accounted for defectiveproducts properly does not mean that2 Because we revoked Shanghai General in the1993–94 administrative review, we are notaddressing issues involving this company in the1994–95 review. However, we include reference toShanghai General here because Petitioner’scontention concerns the application of ShanghaiGeneral data to other respondents that are involvedin this review.Respondents in this review did not,particularly since that statement wasmade in a previous review. In fact,Respondents generally account fordefective products by including allmaterial and labor quantities for allproducts produced (including defectiveproducts) in the numerator of the perunitmaterial and labor calculationswhile basing the denominator (numberof units produced) only on those unitsthat pass inspection and are saleable.Where we find, generally throughverification, that this is not the case, weadjust the denominator accordingly. SeeTRBs IV–VI at 65540 (Comment 23).However, as Guizhou Machinery et al.note, we did not ask Respondents toprovide specific data regardingproduction-defect rates in ourquestionnaire nor would we use suchrates in our calculations. Therefore, itwould be inappropriate to draw anadverse inference from the lack of dataon the record regarding such rates.2.(b)Comment 8Labor ValuationPetitioner objects to the Department’streatment of indirect labor. Specifically,Petitioner claims that, in thepreliminary results, the Departmentvalued indirect labor as a percentage ofSKF’s total labor cost and included aportion of indirect labor in overheadand a portion in SG&A. Petitionercontends that, instead of valuingindirect labor in this manner, theDepartment should value this expenseusing its FOP methodology, as it didwith direct labor, then combine directand indirect labor to derive a total laborexpense. Petitioner states that, unlikeindirect labor, the Departmentcalculated direct labor in the mannerthe statute envisions, as a factor ofproduction to which the Departmentapplied the Indian surrogate value.Petitioner suggests valuing indirectlabor as follows. Petitioner claims thatmost respondents reported that indirectoverhead labor is 20 percent of directlabor and that indirect SG&A labor isalso 20 percent of direct labor.Petitioner suggests that, since indirectlaborhours are 40 percent of directlaborhours, the Department shouldcalculate a total (direct plus indirect)labor value by multiplying the directlaborhours by 1.4, then applying theIndian surrogate-labor value to thisquantity.Guizhou Machinery et al. respond bynoting that, in NME cases, theDepartment has treated indirect labor asan overhead cost, not as a direct laborcost. Guizhou Machinery et al. add thatthe questionnaire requests thatRespondents report assembly labor andindirect labor separately and contend,therefore, that the Department shouldreject Petitioner’s proposal.Department’s PositionWe agree with Petitioner, in part.Petitioner is correct in asserting that,where we have the data to calculateexpenses incurred by NME respondentsusing the factors of productionmethodology (i.e., multiplying arespondent’s reported per-unit usagerates by surrogate values), we should doso. See section 776(c) of the Act. Withrespect to indirect labor, data on therecord allow us to calculate the per-unitquantities of such labor attributable tooverhead and to SG&A. We also havereliable surrogate information regardinglabor values in India (IL&T data).Accordingly, for the final results, wevalued indirect labor attributable tooverhead and indirect labor attributableto SG&A by multiplying the respectiveper-unit labor hours by the IL&T laborrate.However, although we agree withPetitioner regarding the appropriatemethodology for deriving the indirectlabor expense, we disagree withPetitioner’s proposal that we shouldinclude the total per-unit indirect-laborexpense together with the per-unitdirect-labor expense, effectivelycalculating a single, per-unit laborexpense. In recommending that wecreate a single, total labor amount,presumably to be included as part ofCOM (Petitioner does not specify whereto include this total labor value),Petitioner incorrectly attributes allindirect labor to COM instead ofallocating this expense to both overheadand SG&A, as reported by Respondents.In this respect, the methodology that weused in the preliminary results, whereinwe allocated indirect labor to overheadand to SG&A using the allocationpercentages reported by Respondents,conforms to our practice of consideringindirect labor as labor attributable toboth overhead and to SG&A operations(e.g., supervisory and sales personnel).See Final Determination of Sales at LessThan Fair Value: Sebacic Acid from thePRC, 59 FR 28053, 28059–60 (SebacicAcid). Accordingly, while we havevalued indirect labor in the manner thatPetitioner recommends, we haveallocated this expense to both overheadand SG&A.Comment 9Petitioner argues that, in calculatingthe surrogate value for labor, theDepartment should make allowance forvacation, sick leave and casual leavewhen calculating the number of weeks