99-18225. Notice of Final Determination of Sales at Less Than Fair Value; Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil  

  • [Federal Register Volume 64, Number 137 (Monday, July 19, 1999)]
    [Notices]
    [Pages 38756-38792]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-18225]
    
    
    
    [[Page 38756]]
    
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    DEPARTMENT OF COMMERCE
    
    International Trade Administration
    [A-351-828]
    
    
    Notice of Final Determination of Sales at Less Than Fair Value; 
    Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From 
    Brazil
    
    AGENCY: Import Administration, International Trade Administration, 
    Department of Commerce.
    
    ACTION: Notice of final determination of sales at less than fair value.
    
    -----------------------------------------------------------------------
    
    EFFECTIVE DATE: July 19, 1999.
    
    FOR FURTHER INFORMATION, CONTACT: Maureen McPhillips at 202-482-0193 
    for CSN, Barbara Chaves at 202-482-0414 or Samantha Denenberg at 202-
    482-1386 for USIMINAS/COSIPA, or Linda Ludwig at 202-482-3833, 
    Antidumping and Countervailing Duty Enforcement Group III, Import 
    Administration, International Trade Administration, U.S. Department of 
    Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 
    20230.
    
    Applicable Statute and Regulations
    
        Unless otherwise indicated, all citations to the Tariff Act of 
    1930, as amended (the Act), are to the provisions effective January 1, 
    1995, the effective date of the amendments made to the Act by the 
    Uruguay Round Agreements Act (URAA). In addition, unless otherwise 
    indicated, all citations to the Department's regulations are to the 
    regulations codified at 19 CFR part 351 (1999).
    
    Final Determination
    
        We determine that certain hot-rolled flat-rolled carbon-quality 
    steel products (hot-rolled steel) from Brazil are being, or are likely 
    to be, sold in the United States at less than fair value (LTFV), as 
    provided in section 735 of the Act. The estimated margins of sales at 
    LTFV are shown in the ``Suspension of Liquidation'' section of this 
    notice.
    
    Case History
    
        We published in the Federal Register the preliminary determination 
    in this investigation on February 19, 1999. See Notice of Preliminary 
    Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled 
    Carbon-Quality Steel Products from Brazil, 64 FR 8299 (Feb. 19, 1999) 
    (Preliminary Determination). Since the publication of the Preliminary 
    Determination the following events have occurred:
        The respondents in this investigation: Companhia Siderurgica 
    Nacional (CSN); Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS); 
    and Companhia Siderurgica Paulista (COSIPA) requested postponement of 
    the final determination in accordance with Section 735(a)(2) of the Act 
    on February 2, 1999. Accordingly, we postponed the final determination 
    in this investigation on February 18, 1999 for 30 days. See 
    Postponement of Final Determination of Antidumping and Countervailing 
    Duty Investigations of Hot-Rolled Flat-Rolled Carbon-Quality Steel 
    Products from Brazil, 64 FR 9475 (February 26, 1999).
        The Department verified sections A (General Information), B (Home 
    Market Sales) and C (U.S. Sales) of CSN's responses on March 8 through 
    March 12, 1999. The Department verified section D (Cost) of CSN's 
    response on March 15 through March 19, 1999. These verifications were 
    performed at CSN's production facility in Volta Redonda. See Memorandum 
    to the File; ``Sales Verification Report of Companhia Siderurgica 
    Nacional (CSN),'' April 7, 1999, (CSN's Sales Verification Report) and 
    Memorandum to Neal Halper, Acting Director, Office of Accounting; 
    ``Verification of the Cost of Production and Constructed Value Data--
    CSN,'' April 7, 1999, (CSN's Cost Verification Report). Public versions 
    of these, and all other Departmental memoranda referred to herein, are 
    on file in room B-099 of the main Commerce building.
        The Department verified sections A-C of USIMINAS' responses on 
    March 15 through March 20, 1999 at USIMINAS' corporate headquarters in 
    Belo Horizonte and its production facility in Ipatinga, Brazil. The 
    Department verified section D of USIMINAS' response on March 22 through 
    March 26, 1999 at USIMINAS'' production facility in Ipatinga, Brazil. 
    See Memorandum For the File; ``Sales Verification of Sections A-C 
    Questionnaire Responses Submitted by Usinas Siderurgicas de Minas 
    Gerais, S.A. (USIMINAS),'' April 9, 1999 (USIMINAS' Sales Verification 
    Report) and Memorandum to Neal Halper, Acting Director, Office of 
    Accounting; ``Verification of the Cost of Production and Constructed 
    Value Data--USIMINAS,'' April 9, 1999 (USIMINAS' Cost Verification 
    Report).
        The Department verified section D of COSIPA's response on March 15 
    through March 19, 1999 at COSIPA's production facility in Cubatao, 
    Brazil. The Department verified sections A-C of COSIPA's responses on 
    March 22 through March 27, 1999 at COSIPA's production facility in 
    Cubatao, Brazil. See Memorandum to Neal Halper, Acting Director, Office 
    of Accounting; ``Verification of the Cost of Production and Constructed 
    Value Submissions of Companhia Siderurgica Paulista,'' April 8, 1999 
    (COSIPA's Cost Verification Report) and Memorandum For the File; 
    ``Sales Verification of Sections A-C Questionnaire Responses Submitted 
    by Companhia Siderurgica Paulista (COSIPA),'' April 9, 1999 (COSIPA's 
    Sales Verification Report).
        On March 22, 1999, CSN, USIMINAS, and COSIPA (respondents) 
    requested a public hearing in this case. California Steel Industries, 
    Gallatin Steel Company, Geneva Steel, Gulf States Steel, Inc., IPSCO 
    Steel Inc., Steel Dynamics, Inc., Weirton Steel Corporation, Bethlehem 
    Steel Corporation, U.S. Steel Group, a unit of USX Corporation, Ispat 
    Inland Steel, LTV Steel Company, Inc., National Steel Corporation, 
    Independent Steelworkers Union, and United Steelworkers of America 
    (petitioners) also requested a public hearing on March 22, 1999. On 
    April 16, 1999, petitioners and respondents in this investigation filed 
    case briefs. We received rebuttal briefs from petitioners and 
    respondents on April 26, 1999. On April 22, 1999, the Department sent a 
    request to USIMINAS and COSIPA to report further information identified 
    at the verifications. The Department received this information on April 
    28, 1999.
        In addition, on April 15, 1999, General Motors Corporation (``GM'') 
    requested a scope exclusion for hot-rolled carbon steel that both meets 
    the standards of SAE J2329 Grade 2 and is of a gauge thinner than 2 mm 
    with a 2.5 percent maximum tolerance. On April 22, 1999, the 
    petitioners requested that certain ASTM A570-50 grade steel be excluded 
    from the investigation. For a more detailed discussion of scope issues, 
    please see Scope Amendments Memorandum (April 28, 1999).
        On May 5, 1999, the respondents and counsel for petitioners 
    withdrew requests for a hearing, and therefore, there was no hearing 
    for in this investigation. On, May 6, 1999, the Department published 
    Postponement of Final Determination of Antidumping and Countervailing 
    Duty Investigations of Hot-Rolled Flat-Rolled Carbon-Quality Steel from 
    Brazil, 64 FR 24321, further extending the deadline for this 
    investigation.
    
    Scope of the Investigation
    
        For purposes of this investigation, the products covered are 
    certain hot-rolled flat-rolled carbon-quality steel products of a 
    rectangular shape, of a width of 0.5 inch or greater, neither clad, 
    plated, nor coated with metal and whether or not painted, varnished, or 
    coated with plastics or other non-metallic
    
    [[Page 38757]]
    
    substances, in coils (whether or not in successively superimposed 
    layers) regardless of thickness, and in straight lengths, of a 
    thickness less than 4.75 mm and of a width measuring at least 10 times 
    the thickness. Universal mill plate (i.e., flat-rolled products rolled 
    on four faces or in a closed box pass, of a width exceeding 150 mm, but 
    not exceeding 1250 mm and of a thickness of not less than 4 mm, not in 
    coils and without patterns in relief) of a thickness not less than 4.0 
    mm is not included within the scope of these investigations.
        Specifically included in this scope are vacuum degassed, fully 
    stabilized (commonly referred to as interstitial-free (``IF'')) steels, 
    high strength low alloy (``HSLA'') steels, and the substrate for motor 
    lamination steels. IF steels are recognized as low carbon steels with 
    micro-alloying levels of elements such as titanium and/or niobium added 
    to stabilize carbon and nitrogen elements. HSLA steels are recognized 
    as steels with micro-alloying levels of elements such as chromium, 
    copper, niobium, titanium, vanadium, and molybdenum. The substrate for 
    motor lamination steels contains micro-alloying levels of elements such 
    as silicon and aluminum.
        Steel products to be included in the scope of this investigation, 
    regardless of HTSUS definitions, are products in which: (1) Iron 
    predominates, by weight, over each of the other contained elements; (2) 
    the carbon content is 2 percent or less, by weight; and (3) none of the 
    elements listed below exceeds the quantity, by weight, respectively 
    indicated:
    
    1.80 percent of manganese, or
    1.50 percent of silicon, or
    1.00 percent of copper, or
    0.50 percent of aluminum, or
    1.25 percent of chromium, or
    0.30 percent of cobalt, or
    0.40 percent of lead, or
    1.25 percent of nickel, or
    0.30 percent of tungsten, or
    0.012 percent of boron, or
    0.10 percent of molybdenum, or
    0.10 percent of niobium, or
    0.41 percent of titanium, or
    0.15 percent of vanadium, or
    0.15 percent of zirconium.
    
        All products that meet the physical and chemical description 
    provided above are within the scope of this investigation unless 
    otherwise excluded. The following products, by way of example, are 
    outside and/or specifically excluded from the scope of this 
    investigation:
         Alloy hot-rolled steel products in which at least one of 
    the chemical elements exceeds those listed above (including e.g., ASTM 
    specifications A543, A387, A514, A517, and A506).
         SAE/AISI grades of series 2300 and higher.
         Ball bearing steels, as defined in the HTSUS.
         Tool steels, as defined in the HTSUS.
         Silico-manganese (as defined in the HTSUS) or silicon 
    electrical steel with a silicon level exceeding 1.50 percent.
         ASTM specifications A710 and A736.
         USS Abrasion-resistant steels (USS AR 400, USS AR 500).
         Hot-rolled steel coil which meets the following chemical, 
    physical and mechanical specifications:
    
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                  C                       Mn                 P                 S                Si                Cr               Cu               Ni
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    0.10-0.14%...................  0.90% Max.......  0.025% Max......  0.005% Max......  0.30-0.50%......  0.50-0.70%.....  0.20-0.40%.....  0.20% Max.
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    
    Width = 44.80 inches maximum; Thickness = 0.063--0.198 inches;
    Yield Strength = 50,000 ksi minimum; Tensile Strength = 70,000--88,000 
    psi.
    
         Hot-rolled steel coil which meets the following chemical, 
    physical and mechanical specifications:
    
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    C                         Mn                   P                   S                  Si                  Cr                  Cu                  Ni                  Mo
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    0.10-0.16%......................  0.70-0.90%........  0.025% Max........  0.006% Max........  0.30-0.50%........  0.50-0.70%........  0.25% Max.........  0.20% Max.........  0.21% Max
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    
    Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
    Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi 
    Aim.
    
         Hot-rolled steel coil which meets the following chemical, 
    physical and mechanical specifications:
    
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                   C                       Mn                 P                 S                Si                Cr                Cu                Ni              V(wt.)              Cb
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    0.10--0.14%...................  1.30-1.80%......  0.025% Max......  0.005% Max......  0.30-0.50%......  0.50-0.70%......  0.20-0.40%......  0.20% Max.......  0.10 Max........  0.08% Max
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    
    Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
    Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi 
    Aim.
    Hot-rolled steel coil which meets the following chemical, physical and 
    mechanical specifications:
    
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    C                         Mn                   P                   S                  Si                  Cr                  Cu                  Ni                  Nb                  Ca                  Al
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    0.15% Max.......................  1.40% Max.........  0.025% Max........  0.010% Max........  0.50% Max.........  1.00% Max.........  0.50% Max.........  0.20% Max.........  0.005% Min........  Treated...........  0.01-0.07%.
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    
    Width = 39.37 inches; Thickness = 0.181 inches maximum;
    Yield Strength = 70,000 psi minimum for thicknesses 0.148 
    inches and 65,000 psi minimum for thicknesses >0.148 inches; Tensile 
    Strength = 80,000 psi minimum.
    
         Hot-rolled dual phase steel, phase-hardened, primarily 
    with a ferritic-martensitic microstructure, contains 0.9 percent up to 
    and including 1.5 percent
    
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    silicon by weight, further characterized by either (i) tensile strength 
    between 540 N/mm \2\ and 640 N/mm \2\ and an elongation percentage 
    26 percent for thicknesses of 2 mm and above, or (ii) a 
    tensile strength between 590 N/mm \2\ and 690 N/mm \2\ and an 
    elongation percentage 25 percent for thicknesses of 2mm and 
    above.
         Hot-rolled bearing quality steel, SAE grade 1050, in 
    coils, with an inclusion rating of 1.0 maximum per ASTM E 45, Method A, 
    with excellent surface quality and chemistry restrictions as follows: 
    0.012 percent maximum phosphorus, 0.015 percent maximum sulfur, and 
    0.20 percent maximum residuals including 0.15 percent maximum chromium.
         Grade ASTM A570-50 hot-rolled steel sheet in coils or cut 
    lengths, width of 74 inches (nominal, within ASTM tolerances), 
    thickness of 11 gauge (0.119 inch nominal), mill edge and skin passed, 
    with a minimum copper content of 0.20%.
        The merchandise subject to these investigations is classified in 
    the Harmonized Tariff Schedule of the United States (``HTSUS'') at 
    subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00, 
    7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60, 
    7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60, 
    7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30, 
    7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90, 
    7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00, 
    7208.90.00.00, 7210.70.30.00, 7210.90.90.00, 7211.14.00.30, 
    7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00, 
    7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60, 
    7211.19.75.90, 7212.40.10.00, 7212.40.50.00, 7212.50.00.00. Certain 
    hot-rolled flat-rolled carbon-quality steel covered by this 
    investigation, including: Vacuum degassed, fully stabilized; high 
    strength low alloy; and the substrate for motor lamination steel may 
    also enter under the following tariff numbers: 7225.11.00.00, 
    7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00, 
    7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60, 
    7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00, 
    7226.91.80.00, and 7226.99.00.00. Although the HTSUS subheadings are 
    provided for convenience and Customs purposes, the written description 
    of the merchandise under investigation is dispositive.
    
    Period of Investigation
    
        The period of investigation (POI) is July 1, 1997 through June 30, 
    1998.
    
    Facts Available
    
        Section 776(a)(2) of the Act provides that ``if an interested party 
    or any other person--(A) withholds information that has been requested 
    by the administering authority; (B) fails to provide such information 
    by the deadlines for the submission of the information or in the form 
    and manner requested, subject to subsections (c)(1) and (e) of section 
    782; (C) significantly impedes a proceeding under this title; or (D) 
    provides such information but the information cannot be verified as 
    provided in section 782(i), the administering authority shall, subject 
    to section 782(d), use the facts otherwise available in reaching the 
    applicable determination under this title.''
        The statute requires that certain conditions be met before the 
    Department may resort to the facts available. Where the Department 
    determines that a response to a request for information does not comply 
    with the request, section 782(d) of the Act provides that the 
    Department will so inform the party submitting the response and will, 
    to the extent practicable, provide that party the opportunity to remedy 
    or explain the deficiency. If the party fails to remedy the deficiency 
    within the applicable time limits, the Department may, subject to 
    section 782(e), disregard all or part of the original and subsequent 
    responses, as appropriate. Briefly, section 782(e) provides that the 
    Department ``shall not decline to consider information that is 
    submitted by an interested party and is necessary to the determination 
    but does not meet all the applicable requirements established by (the 
    Department)'' if the information is timely, can be verified, is not so 
    incomplete that it cannot be used, and if the interested party acted to 
    the best of its ability in providing the information. Where all of 
    these conditions are met, and the Department can use the information 
    without undue difficulties, the statute requires it to do so.
        In addition, section 776(b) of the Act provides that, if the 
    Department finds that an interested party ``has failed to cooperate by 
    not acting to the best of its ability to comply with a request for 
    information,'' the Department may use information that is adverse to 
    the interests of the party as the facts otherwise available. Adverse 
    inferences are appropriate ``to ensure that the party does not obtain a 
    more favorable result by failing to cooperate than if it had cooperated 
    fully.'' See Statement of Administrative Action (SAA) accompanying the 
    URAA, H.R. Doc. No. 316, 103d Cong. 2nd Sess. (1994), at 870. 
    Furthermore, ``an affirmative finding of bad faith on the part of the 
    respondent is not required before the Department may make an adverse 
    inference.'' Final Rule, 62 FR at 27340. The statute notes, in 
    addition, that in selecting from among the facts available the 
    Department may, subject to the corroboration requirements of section 
    776(c), rely upon information drawn from the petition, a final 
    determination in the investigation, any previous administrative review 
    conducted under section 751 (or section 753 for countervailing duty 
    cases), or any other information on the record.
    
    CSN
    
        We are applying adverse facts available where the criteria laid out 
    in section 776(a)(2) of the Act are present. For this final 
    determination, we have applied facts available to account for those 
    unreported U.S. sales where the nota fiscal date--the date of sale--was 
    within the POI but the commercial invoice date (the date of sale 
    reported by CSN) fell outside the POI. Please see Comment 5 for a more 
    detailed explanation of this issue.
    
    USIMINAS/COSIPA
    
        In March, 1999, the Department conducted verifications of USIMINAS 
    and COSIPA and was unable to verify various issues. As noted in 
    USIMINAS'' Sales Verification Report, COSIPA's Sales Verification 
    Report, and the respective Cost Verification Reports, respondents were 
    either unprepared, unwilling, or unable to review certain issues at the 
    verifications. When the material remained unverified, but respondents 
    exhibited cooperation in supplying at least a basic level of 
    information, the Department applied facts available in accordance with 
    section 776(a) of the Act. This was the case in the Department's 
    application of facts available for USIMINAS'' costs. USIMINAS deviated 
    from its normal allocation system in reporting its product-specific 
    costs. As a result, it failed to pick up all costs captured in its 
    financial accounting records. As facts available, the Department 
    adjusted USIMINAS'' reported costs to coincide with its normal 
    accounting records. See Comment 47. The Department also used facts 
    otherwise available in its determination of critical circumstances. See 
    the Critical Circumstances section below.
        In several other instances, the respondent failed to cooperate to 
    the
    
    [[Page 38759]]
    
    best of its ability. In these cases the Department asked repeatedly to 
    cover certain issues, but respondents declined and they remained 
    outstanding at the end of verification. Therefore, in accordance with 
    section 776(b) of the Act, we have determined that adverse inferences 
    are warranted for USIMINAS'' unreported U.S. sales where the nota 
    fiscal date--the date of sale--was within the POI but the commercial 
    invoice date (the date of sale reported by USIMINAS) fell outside the 
    POI. See Comment 19. We have also determined that adverse inferences 
    are warranted for the following items: downstream sales data, USIMINAS' 
    home market inland freight, USIMINAS' U.S. inland freight, USIMINAS' 
    warranty expense, COSIPA's home market inland freight, COSIPA's 
    brokerage and handling expenses, COSIPA's packing, and USIMINAS' 
    failure to report its affiliated supplier's actual cost of production 
    (COP),. See Comments 18, 25, 26, 30, 34, 35, 40, and 49. See also 
    Notice of Final Determination of Sales at Less Than Fair Value: Certain 
    Pasta from Turkey, 61 FR 30309, 30310 (June 14, 1996).
    
    Critical Circumstances
    
        In our preliminary determination, the Department found that there 
    was no reasonable basis to believe or suspect that critical 
    circumstances exist with respect to imports of hot-rolled steel from 
    Brazil. In this final determination, the Department finds the same to 
    be true. In accordance with section 735(a)(3) of the Act, if a 
    petitioner alleges critical circumstances, the Department will 
    determine whether: (A)(i) There is a history of dumping and material 
    injury by reason of dumped imports in the United States or elsewhere of 
    the subject merchandise, or (ii) the person by whom, or for whose 
    account, the merchandise was imported knew or should have known that 
    the exporter was selling the subject merchandise at less than its fair 
    value and that there would be material injury by reason of such sales, 
    and (B) there have been massive imports of the subject merchandise over 
    a relatively short period.
        As in the Preliminary Determination, the Department finds that the 
    first criterion has been met since Mexico has an antidumping duty order 
    on hot-rolled steel from Brazil. This shows a history of dumping and 
    material injury by reason of dumped imports of the subject merchandise. 
    To determine whether the second criterion is met, i.e. whether imports 
    were massive over a relatively short time period, the Department 
    typically compares the import volume of the subject merchandise for at 
    least three months immediately preceding and following the filing of 
    the petition. See 19 CFR 351.206(i). The Department, therefore, 
    requested on February 9, 1999, that respondents submit monthly U.S. 
    shipment data from January 1997 through January 1999. COSIPA submitted 
    this data on February 19, 1999; USIMINAS on March 1, 1999; and CSN on 
    February 22, 1999. In the Department's verification outlines and at 
    verification, the Department requested that respondents demonstrate 
    their methodology in reporting the monthly U.S. shipment data. CSN's 
    monthly shipment data was verified, but USIMINAS and COSIPA's was not. 
    See USIMINAS' Sales Verification Report, page 59 and COSIPA's Sales 
    Verification Report, page 45.
        Pursuant to 19 CFR 351.206(h)(2), the Department will consider an 
    increase of 15 % or more in the imports of the subject merchandise over 
    the relevant period to be massive. CSN's verified data demonstrates 
    that the threshold needed to find critical circumstances was not met 
    since a comparison of shipments immediately preceding and following the 
    filing of the petition did not reflect an increase of more than 15%. 
    See Exhibit 5 of CSN's February 22, 1999 submission of monthly U.S. 
    shipment data. We were unable to verify USIMINAS/COSIPA's shipment 
    data, and therefore, are not using it in making our final critical 
    circumstances determination. However, based on information available to 
    the Department including official Census statistics, verified data for 
    CSN, and the fact that CSN, USIMINAS, and COSIPA are the only known 
    producers/exporters of the subject merchandise to the United States, we 
    have determined that imports of the subject merchandise produced by 
    USIMINAS/COSIPA did not increase by 15%. See Memorandum to the File: 
    ``Analysis for Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) / 
    Companhia Siderurgica Paulista (COSIPA) for the Final Determination of 
    the Antidumping Duty Investigation of Certain Hot-Rolled Flat-Rolled 
    Carbon-Quality Steel Products from Brazil for the period July 1, 1997 
    through June 30, 1998,'' July 6, 1999, (USIMINAS/COSIPA's Analysis 
    Memo). Therefore, the threshold for critical circumstances was not met.
    
    Fair Value Comparisons
    
        To determine whether sales of hot-rolled steel from Brazil to the 
    United States were made at LTFV, we compared export price (EP) to the 
    normal value (NV), as described in the ``Export Price'' and ``Normal 
    Value'' sections of this notice, below. In accordance with section 
    777A(d)(1)(A)(i) of the Act, we calculated weighted-average export 
    prices for comparison to weighted-average normal values or constructed 
    values.
    
    Product Comparisons
    
        In accordance with section 771(16) of the Act, we considered all 
    products produced by the respondents covered by the description in the 
    ``Scope of the Investigation'' section above, and sold in the home 
    market during the POI, to be foreign like products for purposes of 
    determining appropriate comparisons to U.S. sales. Where there were no 
    sales of identical merchandise in the home market to compare to U.S. 
    sales, we compared U.S. sales to the next most similar foreign like 
    product on the basis of the characteristics and reporting instructions 
    listed in the Department's questionnaire. If there were no home market 
    foreign like products to compare to a U.S. sale, we used constructed 
    value (CV).
    
    Affiliated Respondents
    
        In our preliminary determination, we determined that USIMINAS and 
    COSIPA were affiliated parties, and we collapsed these entities. See 
    Collapsing Memorandum to Joseph A. Spetrini from Richard Weible, 
    December 22, 1998 (Collapsing Memo). For the purpose of this 
    investigation, we continue to consider these two respondents as a 
    single entity. See Comment 17 below for a further discussion of this 
    issue. Petitioners also argue that all three respondents are affiliated 
    and should be collapsed. For this final determination, the Department 
    determined that there is insufficient evidence on the record to warrant 
    a collapsing of all three respondents. See Comment 1 below for a 
    further discussion of this issue. However, should this investigation 
    result in an antidumping duty order, we intend to scrutinize this issue 
    in any subsequent segment of this proceeding.
    
    Level of Trade
    
    CSN
        In our preliminary determination we agreed with CSN that one level 
    of trade (LOT) existed for CSN in the home market. Furthermore, we 
    agreed with CSN that its EP sales in the United States were at a single 
    LOT, and that CSN's sales in both markets were at the same LOT (see 
    Preliminary Determination, 64 FR 8302). During verification, in the 
    course of reviewing
    
    [[Page 38760]]
    
    CSN's sales process, accounting system, and sales documentation for 
    both home market and U.S. customers, we found no evidence of different 
    selling functions based on customer category, distribution channels, or 
    market (see CSN's Sales Verification Report, p. 15).
        No party to this investigation commented on this issue relative to 
    CSN and the Department has no new evidence that would warrant altering 
    our preliminary determination. Therefore, as in the preliminary 
    determination, we find that CSN's sales within or between markets were 
    made at the same LOT and, therefore, a LOT adjustment pursuant to 
    section 773(a)(7)(A) of the Act is not appropriate.
    USIMINAS/COSIPA
        In our preliminary determination, the Department found that two 
    LOTs existed in the home market, one to affiliated resellers and the 
    other to all other types of customers which we termed mill direct 
    sales. In the U.S. market, the Department determined that there was one 
    LOT, and that the U.S. LOT was equivalent to all types of home market 
    sales except those to affiliated resellers. However, we were unable to 
    verify USIMINAS/COSIPA's LOT claims. Therefore, for this final 
    determination we are considering all U.S. and home market sales to be 
    at the same LOT. See Comment 18 below.
    
    Export Price
    
        The Department based its calculations on EP in accordance with 
    section 772(a) of the Act, because the subject merchandise was sold by 
    the producer or exporter directly to the first unaffiliated purchaser 
    in the United States prior to importation. The Department calculated EP 
    based on packed prices charged to the first unaffiliated customer in 
    the United States.
        We calculated EP for CSN and USIMINAS/COSIPA based on the same 
    methodology employed in the Preliminary Determination, except as noted 
    in the Comment section below. See Memorandum to the File: ``Analysis 
    for Companhia Siderurgica Nacional (CSN) for the Final Results of the 
    Antidumping Duty Investigation of Certain Hot-Rolled Flat-Rolled 
    Carbon-Quality Steel Products from Brazil for the period July 1, 1997 
    through June 30, 1998,'' (July 6, 1999), (CSN's Analysis Memo), and 
    USIMINAS/COSIPA's Analysis Memo.
    
    Normal Value
    
    Home Market Viability
    
        As discussed in the Preliminary Determination, in order to 
    determine whether the home market was viable for purposes of 
    calculating NV (i.e., the aggregate volume of home market sales of the 
    foreign like product was equal to or greater than five percent of the 
    aggregate volume of U.S. sales), we compared the respondents' volume of 
    home market sales of the foreign like product to the volume of U.S. 
    sales of the subject merchandise, in accordance with section 
    773(a)(1)(C) of the Act. As CSN's and USIMINAS/COSIPA's aggregate 
    volumes of home market sales of the foreign like product were greater 
    than five percent of these companies' aggregate volumes of U.S. sales 
    of the subject merchandise, we determined that the home market was 
    viable for both CSN and USIMINAS/COSIPA. Therefore, we based NV on home 
    market sales in the usual commercial quantities and in the ordinary 
    course of trade.
    
    Affiliated-Party Transactions and Arm's Length Test
    
        Sales to affiliated customers in the home market not made at arm's 
    length prices (if any) were excluded from our analysis because we 
    consider them to be outside the ordinary course of trade. See 19 CFR 
    351.102. To test whether these sales were made at arm's length prices, 
    we compared, on a model-specific basis, the prices of sales to 
    affiliated and unaffiliated customers, net of all movement charges, 
    direct selling expenses, and packing. Where, for the tested models of 
    subject merchandise, prices to the affiliated party were on average 
    99.5 % or more of the price to unaffiliated parties, we determined that 
    sales made to the affiliated party were at arm's length. See 19 CFR 
    351.403(c). In instances where no price ratio could be constructed for 
    an affiliated customer because identical merchandise was not sold to 
    unaffiliated customers, we were unable to determine that sales to that 
    affiliated customer were made at arm's length prices and, therefore, we 
    excluded them from our LTFV analysis. See, e.g., Final Determination of 
    Sales at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat 
    Products from Argentina, 58 FR 37062, 37077 (July 9, 1993).
        Where the exclusion of such sales eliminated all sales of the most 
    appropriate comparison product, we made a comparison to the next most 
    similar model.
    
    Cost of Production Analysis
    
        Petitioners provided reasonable grounds to believe or suspect that 
    CSN and USIMINAS/COSIPA's sales of the foreign like product under 
    consideration for determining NV may have been at prices below the cost 
    of production (COP), as provided in section 773(b)(2)(A)(ii) of the 
    Act. Therefore, pursuant to section 773(b)(1) of the Act, we initiated 
    a COP investigation of sales by the respondents in this investigation.
        In accordance with section 773(b)(3) of the Act, we calculated the 
    weighted-average COP based on the sum of respondents' cost of 
    materials, fabrication, general expenses, and packing costs. We relied 
    on CSN's and USIMINAS/COSIPA's submitted COP, except in the following 
    specific instances:
    CSN
        1. We revised COP and CV to include the identified reconciliation 
    items and minor corrections, presented on the first day of 
    verification, which were not included in CSN's reported costs. See 
    Comment 43.
        2. We revised CSN's selling, general and administrative (SG&A) 
    expense rate in order to include the net exchange loss and the 
    amortization of goodwill. See Comment 44.
        3. We recalculated CSN's financial expense rate to include certain 
    net exchange losses which were financial in nature. We also revised the 
    long-term financial income amount based on consolidated statement 
    figures instead of company-specific figures. See Comment 44.
    
    USIMINAS
    
        1. We adjusted the reported cost of manufacturing (COM) for each 
    CONNUM to coincide with its normal accounting records. See Comment 47.
        2. Where different COM's were reported for the same CONNUM, we used 
    the higher amount. See Comment 48.
        3. We adjusted the transfer price for iron ore and coal obtained 
    from an affiliated supplier in accordance with the major input rule. 
    See Comment 49.
        4. We computed the interest income offset using data from the 
    USIMINAS unconsolidated entity. See Comment 51.
        5. We adjusted the G&A rate calculation to exclude those expenses 
    which directly relate to revenue received from non-operational 
    activities. See Comment 52.
    COSIPA
        1. We revised the cost of iron ore to reflect the market value of 
    this input. See Comment 54.
    
    [[Page 38761]]
    
        2. We revised COSIPA's G&A expense rate calculation to reflect 
    amounts from the 1997 financial statements and disallowed income 
    resulting from rescheduling of ICMS payments to offset general and 
    administrative expenses. See Comment 55.
        3. We revised the interest expense rate to use USIMINAS's revised 
    rate. See Comment 51.
    
    Price-to-Price Comparisons
    
    CSN
        For those product comparisons for which there were sales at home 
    market prices at or above the COP, we based NV on CSN's sales to 
    unaffiliated home market customers or sales to affiliated customers 
    that we determined to be at arm's length. We made adjustments for U.S. 
    packing expenses. We made deductions, where appropriate, for movement 
    expenses, taxes, and home market packing pursuant to section 
    773(a)(6)(B) of the Act. In addition, we made adjustments, where 
    appropriate, for physical differences in the merchandise in accordance 
    with section 773(a)(6)(C)(ii) of the Act. We made circumstance-of-sale 
    (COS) adjustments for warranty expenses, credit, and interest revenue 
    in accordance with section 773(a)(6)(C)(iii) of the Act.
    USIMINAS/COSIPA
        For those product comparisons for which there were sales at home 
    market prices at or above the COP, we based NV on USIMINAS/COSIPA's 
    sales to unaffiliated home market customers or prices to affiliated 
    customers that we determined to be at arm's length prices. We made 
    adjustments for selling expenses, discounts, movement expenses, packing 
    and taxes in accordance with section 773(a)(6) of the Act. We made 
    adjustments, where appropriate, for physical differences in the 
    merchandise in accordance with section 773(a)(6)(C)(ii) of the Act. In 
    addition, we made COS adjustments for warranty expenses, credit, and 
    interest revenue in accordance with section 773(a)(6)(C)(iii) of the 
    Act.
    
    Price-to-Constructed Value Comparisons
    
        In accordance with section 773(a)(4) of the Act, we based NV on CV 
    if we were unable to find a home market match of identical or similar 
    merchandise. We calculated CV based on the costs of materials and 
    fabrication employed in producing the subject merchandise, SG&A, and 
    profit. See section 773(e)(1). In accordance with section 773(e)(2)(A) 
    of the Act, we based SG&A expense and profit on the amounts incurred 
    and realized by the respondent in connection with the production and 
    sale of the foreign like product in the ordinary course of trade for 
    consumption in Brazil. We calculated the cost of materials, 
    fabrication, and general expenses based upon the methodology described 
    in the ``Cost of Production Analysis'' section above. For selling 
    expenses, we used the weighted-average home market selling expenses. 
    Where appropriate, we made adjustments to CV in accordance with section 
    773(a)(8) of the Act. We made COS adjustments by deducting home market 
    direct selling expenses from NV and adding U.S. direct selling 
    expenses.
    
    Currency Conversion
    
        We made currency conversions into U.S. dollars in accordance with 
    section 773A(a) of the Act based on the exchange rates in effect on the 
    dates of the U.S. sales, as certified by the Federal Reserve Bank.
    
    Analysis of Interested Party Comments
    
    I. Sales Issues pertaining to all three respondents
    
        Comment 1: Whether to collapse USIMINAS/COSIPA with CSN. 
    Petitioners assert that in addition to collapsing USIMINAS and COSIPA, 
    all of the respondents should be collapsed into a single entity for 
    purposes of this investigation. They argue that CSN and USIMINAS/COSIPA 
    produce the same products, share common directors, and have intertwined 
    operations, all of which create the potential for the manipulation of 
    price or production. Referring to the Letter from Dewey Ballantine LLP 
    to the U.S. Department of Commerce, Case No. A-351-828 (March 11, 1999) 
    (Collapsing Comments), petitioners argue that the linkages between all 
    three respondents clearly satisfy the affiliation and collapsing 
    criteria set out in the Department's regulations.
        Petitioners cite to the definition of affiliated parties in section 
    771(33) of the Act. Petitioners maintain that CSN, in conjunction with 
    Companhia Vale do Rio Doce (CVRD) and other affiliated companies, or 
    the ``CSN/CVRD group,'' is affiliated with USIMINAS/COSIPA as evidenced 
    by (1) the CSN/CVRD group sharing equity and managerial relationships 
    which petitioners claim establish an integrated unit under the control 
    of Benjamin Steinbruch and his family; (2) the ``CSN/CVRD group'' 
    sharing board members with USIMINAS; and (3) the CSN/CVRD group holding 
    significant equity interest in USIMINAS.
        Petitioners first argue that CSN and CVRD should be treated as a 
    single entity, and that this ``CSN/CVRD'' entity is affiliated with 
    USIMINAS by virtue of the alleged control of both by Mr. Steinbruch. In 
    support of this theory, petitioners note that Mr. Steinbruch is the 
    head of the Vicunha Group, or Steinbruch family business, which owns 
    14.1% of CSN through Textilia. Textilia is a member of CSN's 
    shareholders' agreement (a group of minority shareholders which vote as 
    a block and together control 64.3% of the voting shares) and has two 
    representatives on CSN's board, including Mr. Steinbruch. Mr. 
    Steinbruch is chairman of both CSN and CVRD's boards, and petitioners 
    cite Business Week and Financial Times articles referring to Mr. 
    Steinbruch as controlling the ``CSN/CVRD group.'' In fact, petitioners 
    claim that CSN's stake in CVRD through its 31% ownership of Valepar, 
    S.A. (Valepar) (which owns 27% of CVRD) and CVRD's stake in CSN through 
    its 96.84% ownership of Vale do Rio Doce Navegacao (Docenave)(which, in 
    turn, owns 25.2% of CSN), effectively makes CSN and CVRD a single 
    business entity. In quoting the Financial Times, petitioners state that 
    Mr. Steinbruch's reorganization of CVRD strengthened his control of 
    this company beyond what CSN's ownership would imply.
        Petitioners believe that the directors and officers shared by CVRD 
    and Valepar and by CSN and CVRD further solidify Mr. Steinbruch's 
    control over the companies, and ``provide a ready means for the 
    companies to act in concert (e.g., planning and pricing decisions).'' 
    Petitioners point out that Gabriel Stoliar, a director of CVRD, sits on 
    CSN's and USIMINAS'' board of directors. On the subject of board 
    members, petitioners take issue with the different explanations by 
    USIMINAS and CSN of the function of a board of directors. They state 
    that USIMINAS compares the function of the ``Administrative Council'' 
    to a U.S. board of directors and the ``Board of Directors'' to a 
    company's management, while CSN makes no such distinction. Therefore, 
    when petitioners use the term ``Board of Directors'' they intend it to 
    mean ``the entity controlling the company.''
        Second, petitioners claim that because of CSN's equity interest in 
    CVRD, which in turn owns a 23% interest in USIMINAS, CSN has more than 
    5% of the outstanding stock in USIMINAS. They believe that this factor 
    demonstrates CSN's ability to exercise restraint or direction over 
    USIMINAS and is sufficient grounds for finding affiliation between CSN 
    and USIMINAS.
    
    [[Page 38762]]
    
        Third, petitioners argue that CSN and USIMINAS are affiliated based 
    on common ties to the Caixa de Previdencia dos Funcionarios do Banco do 
    Brasil (Previ) (employee pension fund of the Bank of Brazil). They 
    believe that CSN has a close relationship with Previ and acts in 
    concert with it to acquire and control various companies, including 
    USIMINAS. They argue that Previ is not a passive investor of pension 
    funds but an important source of capital for Mr. Steinbruch's 
    investments. Petitioners state that Previ is a member of CSN's 
    shareholders agreement, directly owns 13.8% of the company, and 
    together with CSN, submitted the winning bid in the privatization of 
    CVRD. According to petitioners, Previ and CSN together maintain 30 or 
    38% of the outstanding voting stock of CVRD. They also point out that 
    Previ is the third largest shareholder in USIMINAS, and while not a 
    member of its shareholders' agreement, has two employees from the Banco 
    do Brasil on USIMINAS' Board of Directors. Petitioners argue that 
    Previ's ownership in CSN, CVRD, and USIMINAS and its joint interests 
    and activities with CSN demonstrate that Previ and CSN together are 
    affiliated with USIMINAS.
        Having explained their arguments for affiliation, petitioners next 
    argue that CSN's legal, organizational, and operational ties with 
    USIMINAS/COSIPA also satisfy the Department's other criteria for 
    collapsing. Petitioners note that, pursuant to Sec. 351.401(f)(1) of 
    the Department's regulations, affiliated producers will be treated as a 
    single entity if (1) the producers have production facilities for 
    similar or identical products that would not require substantial 
    retooling of either facility in order to restructure manufacturing 
    priorities, and (2) the Department concludes that there is a 
    significant potential for the manipulation of price or production.
        Petitioners believe that CSN and USIMINAS/COSIPA are capable of 
    easily shifting production of identical or similar products among 
    themselves, as evidenced by similar production facilities and similar 
    products. In discussing the ``significant potential'' criterion, 
    petitioners quote Sec. 351.401(f)(2), which explains that the 
    Department examines the following factors, among others: (i) The level 
    of common ownership; (ii) the extent to which managerial employees or 
    board members of one firm sit on the board of directors of an 
    affiliated firm; and (iii) whether operations are intertwined, such as 
    through the sharing of sales information, involvement in production and 
    pricing decisions, the sharing of facilities or employees, or 
    significant transactions between the affiliated producers.
        Petitioners cite cases (see FAG Kugelfischer v. United States, 932 
    F. Supp. 315 (CIT 1996); Nihon Cement Co., Ltd. v. United States, 17 
    CIT 400 (1993); Queen's Flowers de Colombia, et al., v. United States, 
    981 F. Supp. 617 (CIT 1997), in which the U.S. Court of International 
    Trade (the Court) upheld the Department's articulation of these 
    collapsing criteria. Petitioners believe that the central issue 
    according to the Court is ``whether parties are sufficiently related to 
    present the possibility of price manipulation.'' Petitioners believe 
    there is significant potential for manipulation of price or production 
    between CSN and USIMINAS/COSIPA. Petitioners state that this potential 
    stems from the high level of common ownership, common members on the 
    boards of directors, and intertwined operations, and is reflected in 
    the ongoing price fixing investigation of CSN, USIMINAS and COSIPA by 
    the Brazilian government (see USIMINAS' Sales Verification Report, page 
    9 and COSIPA's Sales Verification Report, pages 5-6 for a discussion of 
    the ongoing price-fixing investigation).
        With respect to intertwined operations, petitioners cite several 
    factors. They argue that there is a connection between USIMINAS and CSN 
    through a third company in the United States. CSN is affiliated with 
    this third company by way of two companies in which it has equity. 
    USIMINAS also has a relationship with this third U.S. company through a 
    commercial agreement. Petitioners believe there is potential for CSN 
    and USIMINAS to use this common tie to manipulate U.S. prices. 
    Additionally, petitioners believe that respondents' joint purchase of 
    coal, common ownership in MRS Logistica (a railroad transport company), 
    and a common source of inputs demonstrate operational links. 
    Petitioners include iron ore among the common inputs, arguing that just 
    as USIMINAS/COSIPA purchases iron ore from CVRD, a statement by Mr. 
    Steinbruch in ``CSN Denies Cartel Charges,'' American Metal Market 
    (March 1, 1999) indicates that CSN does so as well.
        In conclusion, petitioners argue that respondents' nearly identical 
    production facilities and products, common equity ownership, shared 
    board members, the on-going price-fixing investigation, and intertwined 
    operations all indicate that there is a significant potential for price 
    or production manipulation. Petitioners also believe that these factors 
    are similar to those relied upon in prior determinations such as Final 
    Results of Antidumping Duty Administrative Review: Certain Fresh Cut 
    Flowers from Columbia, 61 FR 42833, 42853, (August 19, 1996), (Fresh 
    Cut Flowers) and Final Results of Antidumping Duty Administrative 
    Review: Gray Portland Cement and Clinker from Mexico, 64 FR 13148, 
    13151 (March 17, 1999) and Final Determination of Sales at Less than 
    Fair Value: Stainless Steel Wire Rod from Sweden, 63 FR 40449, 40453-54 
    (July 29, 1998) in which the Department collapsed respondents.
        While respondents did not address the issue of collapsing CSN with 
    USIMINAS/COSIPA, they did argue that USIMINAS and COSIPA should not be 
    collapsed for this investigation. See Comment 17.
        Department's Position: The Department has determined that USIMINAS 
    and COSIPA should be collapsed for margin calculation purposes (see 
    Comment 17). To collapse CSN with USIMINAS/COSIPA, as petitioners 
    suggest, requires that we first find that CSN and USIMINAS/COSIPA are 
    affiliated parties within the meaning of section 771(33) of the Act. 
    Because we find that USIMINAS/COSIPA is not affiliated with CSN, we 
    have not collapsed these entities for purposes of this investigation.
        The issue of whether CSN is affiliated with USIMINAS/COSIPA, is 
    governed by section 771(33) of the Act, which deems the following 
    persons to be affiliated: (A) Members of a family; (B) any officer or 
    director of an organization and such organization (C) partners; (D) 
    employer and employees; (E) any person directly or indirectly owning, 
    controlling, or holding with power to vote, 5% or more of the 
    outstanding voting stock or shares of any organization and such 
    organization; (F) two or more persons directly or indirectly 
    controlling, controlled by, or under common control with, any person; 
    and (G) any person who controls any other person and such other person. 
    For purposes of this provision, a person controls another person if the 
    person is in a position to exercise restraint or direction over the 
    other person. Petitioners arguments for finding USIMINAS/COSIPA and CSN 
    affiliated appear to be based on subparagraphs (E), (F) and (G) of 
    section 771(33) of the Act.
        Pursuant to section 771(33)(E), the Department examined CSN's 
    ownership interest, direct or indirect, in USIMINAS (USIMINAS/COSIPA 
    does not own or control any shares in CSN). CSN owns a 31% equity 
    interest in
    
    [[Page 38763]]
    
    Valepar, which owns 27%, 42%, or 52% of CVRD, depending on which of the 
    sources submitted in this investigation is used. Throughout the POI, 
    CVRD, in turn, had a 15.48% interest in USIMINAS. Even assuming the 
    highest possible percentages of equity ownership by CSN in Valepar, by 
    Valepar in CVRD, and by CVRD in USIMINAS, CSN would own well under 5% 
    of USIMINAS. Based on this evidence, CSN and USIMINAS/COSIPA are not 
    affiliated within the meaning of section 771(33)(E) of the Act.
        With respect to affiliation based on control, petitioners have not 
    clearly identified which entities they believe are in a position to 
    exercise control over CSN and USIMINAS (or USIMINAS/COSIPA) or on which 
    specific subparagraph (F or G) of section 771(33) they are relying in 
    their analysis. Therefore, we have analyzed petitioners comments under 
    both section 771(33)(F) and (G).
        In accordance with section 771(33)(F), we first examined whether 
    the record establishes common control over these entities by Mr. 
    Steinbruch, CVRD, or Previ as separate entities. Assuming arguendo that 
    we were to conclude that Mr. Steinbruch, as chairman of CSN's board of 
    directors, controls CSN, the record contains no evidence that he 
    controls USIMINAS.
        CVRD is affiliated with both CSN and USIMINAS under section 
    771(33)(E). CVRD directly owns more than 5% of USIMINAS (15.48% of the 
    voting shares) and indirectly owns, through its holdings in Docenave, 
    more than 5% of CSN (10.3% of the voting shares). However, CVRD does 
    not control both CSN and USIMINAS. Mr. Gabriel Stoliar, the CEO of 
    CVRD, serves on the eight-to-ten-member boards of both CSN and 
    USIMINAS. In addition, CVRD appoints an additional board member at 
    USIMINAS and through Docenave (in which CVRD is the majority 
    stockholder), appoints one at CSN. However, Brazilian law prohibits 
    board members from representing any other company's interests while 
    serving on the board of a different company. See USIMINAS' Sales 
    Verification Report at 5-6 and COSIPA's Sales Verification Report at 2. 
    In addition, the record indicates that the USIMINAS board of directors 
    (the ``administrative council'') is responsible for macroeconomic 
    issues such as large investment matters and does not control daily 
    operations. See USIMINAS' Sales Verification Report, at 5. Finally, 
    CVRD is not a member of the USIMINAS shareholder's agreement, whose 
    members control 53% of the voting stock of that company. The Department 
    finds that, under the circumstances of this case, CVRD is not in a 
    position to control USIMINAS within the meaning of section 771(33) of 
    the Act. Because CVRD does not control USIMINAS, it cannot exercise 
    common control over both CSN and USIMINAS within the meaning of 
    subsection (F). Therefore, the issue of whether CVRD controls CSN is 
    moot for purposes of this analysis.
        Previ, like CVRD, is affiliated with both CSN and USIMINAS through 
    equity ownership. However, subsection (F) requires a finding of common 
    control, not merely of common affiliation. Previ is not a member of the 
    USIMINAS shareholders' agreement, which controls 53% of the voting 
    stock of that company. Nor is there other evidence that Previ is in a 
    position to control USIMINAS. Because the record evidence does not 
    establish that Previ is otherwise in a position to control USIMINAS, we 
    find that CSN and USIMINAS are not affiliated by virtue of common 
    control by Previ.
        The SAA recognizes that, even in the absence of an equity 
    relationship, control may be established ``through corporate or family 
    groupings'' (see SAA at 838), i.e., a corporate or family group may 
    constitute a ``person'' within the meaning of section 771(33) of the 
    Act. See Ferro Union v. United States, Slip Op. 99-27 (Ct. of Int'l 
    Trade, March 23, 1999). In such a case, the control factors of 
    individual members of the group (e.g., stock ownership, management 
    positions, board membership) are considered in the aggregate. 
    Accordingly, the Department considered whether USIMINAS and CSN are 
    affiliated by virtue of common control by a corporate or family group.
        Petitioners allege that the Steinbruch family controls the ``CSN/
    CVRD group.'' However, there is no record evidence that the family 
    controls USIMINAS. Therefore, there is no basis to find CSN and 
    USIMINAS affiliated through common control by the Steinbruch family.
        What constitutes a ``corporate group'' for purposes of the 
    affiliation analysis is not defined; the Department must address the 
    issue on a case-by-case basis. The cases in which the Department has 
    recognized that affiliation exists by virtue of participation in the 
    same corporate or family group involved common control of the firms at 
    issue by members of the same family, the same group of investors, or 
    the same group of corporations. In other words, the ``control group'' 
    language in the SAA does not add a new criterion to the statutory 
    definition of ``affiliation.'' It merely acknowledges that the 
    controlling entity of the ``common control'' provision can be something 
    other than a physical or legal person, and can exercise that common 
    control by means other than equity ownership. It does not allow for 
    treating all affiliation relationships as if they created new ``control 
    groups.'' With respect to USIMINAS and CSN, there is no such pattern of 
    common control. Although petitioners reference a variety of connections 
    between various other entities and CSN and USIMINAS, they do not 
    identify, nor do we find, any definable corporate group that controls 
    both CSN and USIMINAS. Thus, we do not have a basis in the record to 
    find affiliation under section 771(33)(F) of the Act.
        With respect to section 771(33)(G) of the Act, petitioners have 
    again failed to clearly identify a basis for finding that CSN controls 
    USIMINAS (or USIMINAS/COSIPA), or vice versa. Petitioners appear to 
    argue that CSN and CVRD are a ``corporate group'' for purposes of the 
    affiliation analysis. While we agree that CSN and CVRD are affiliated, 
    that by itself is not sufficient to consider them a ``corporate group'' 
    for purposes of an affiliation analysis. Moreover, even if the 
    Department were to treat CSN and CVRD as a corporate group, there is no 
    evidence that the alleged ``CSN/CVRD group'' controls USIMINAS within 
    the meaning of section 771(33)(G) of the Act. In some instances 
    petitioners appear to suggest that the corporate group includes not 
    only CSN and CVRD, but also Previ. However, we do not find a sufficient 
    basis in the record to treat CSN, CVRD and Previ as a corporate group 
    for purposes of the affiliation analysis.
        Because the record evidence does not support a finding that 
    USIMINAS (or USIMINAS/COSIPA) and CSN are affiliated under any 
    provision of section 771(33), there is no basis to apply the collapsing 
    criteria in Sec. 351.401(f). Therefore, the Department has continued to 
    treat CSN and USIMINAS/COSIPA as separate entities for the purposes of 
    this investigation.
        Comment 2: PIS/COFINS Taxes. To avoid duplication, USIMINAS/COSIPA 
    and CSN prepared a joint description of their PIS/COFINS tax argument 
    in CSN's Case Brief of April 16, 1999 (CSN's Case Brief). In their 
    argument, respondents note that section 773(a)(6)(B)(iii) of the Act 
    (``the tax adjustment provision''), as amended, ensures that the 
    Department makes a tax-neutral comparison when comparing normal value 
    to export price. This section of the statute achieves this end by 
    requiring the Department to adjust normal value by the amount of any
    
    [[Page 38764]]
    
    indirect taxes imposed on home market sales, but not on export sales. 
    Respondents state that, until recently, the Department considered 
    Brazil's Programa de Integracao Social (PIS) and Contribuicao do Fin 
    Social (COFINS) taxes to be indirect taxes that fall within the meaning 
    of the tax adjustment provision. The Department's change in its 
    treatment of these taxes, according to respondents, is based on a 
    factually incorrect assumption that these taxes apply to total gross 
    revenue and on a legally improper understanding of what indirect taxes 
    are.
        Respondents point out that the statute and prior case law make 
    clear that three circumstances must exist for the tax adjustment 
    provision to apply to a particular tax. First, the tax must be 
    ``directly'' imposed on the home market product. Second, it must be 
    rebated or not collected on export sales. Third, it must be added to or 
    included in the price of the home market sale. The fact that these 
    taxes are not imposed on exports has never been an issue. Thus, 
    respondents state that the only requirements of significance in this 
    review are the first and third requirements.
        In failing to adjust respondents' home market price for Brazil's 
    PIS/COFINS taxes in the Preliminary Determination, respondents argue 
    that the Department incorrectly determined that ``these taxes are 
    levied on total revenues.'' Respondents state that until recently, the 
    Department consistently held that PIS/COFINS fall within the meaning of 
    the tax adjustment provision. Respondents cite numerous antidumping 
    cases from Brazil in support of their position that PIS and COFINS 
    should be deducted from home market price. See CSN's Case Brief, p. 7.
        Respondents contend that in the Final Administrative Review of 
    Silicon Metal from Brazil, 62 FR 1970 (January 14, 1997)(Silicon Metal 
    from Brazil, 1997), the Department erroneously determined that PIS/
    COFINS are analogous to two Argentine taxes previously determined not 
    to be indirect taxes within the meaning of the tax adjustment 
    provision. Respondents state that in the Final Determination of the 
    Less-Than-Fair Value Investigation of Silicon Metal from Argentina, 56 
    FR 37891 (August 9, 1991) (Silicon Metal from Argentina), the 
    Department refused to make an upward adjustment to U.S. price for two 
    Argentine taxes because these taxes were based on non-sales revenue as 
    well as sales revenue. The Department concluded that these taxes were 
    not ``directly'' imposed on Argentine sales within the meaning of 
    section 773(a)(6)(B)(iii) of the Act.
        According to respondents, petitioners in Silicon Metal from Brazil, 
    1997 glossed over the fact that Brazilian and Argentine taxes are, in 
    fact, vastly different and asserted that PIS/COFINS are ``almost 
    identical'' to the two Argentine taxes. Respondents state that PIS/
    COFINS are imposed only on a company's total domestic sales. 
    Respondents assert that CSN's Sales Verification Report and Exhibit 28 
    of the Report demonstrate that the basis for both PIS and COFINS is 
    gross sales (Receita Bruta de Vendas), minus credit billing 
    adjustments, canceled sales, and IPI, plus ``other'' sales revenue. 
    Respondents state that the accounting documents in Exhibit 28 further 
    demonstrate that it calculates its PIS and COFINS tax liability on 
    sales revenue alone. Moreover, respondents note that Brazilian law 
    specifies that the COFINS tax ``shall be two percent and charged 
    against monthly billing, that is gross revenues derived from the sale 
    of goods and services of any nature.'' (emphasis added). See CSN's 
    Supplemental Response--Sections B and C at Exhibit 9 (January 25, 
    1999). Likewise, the PIS tax represents 0.65% of invoicing--
    ``invoicing'' being defined as the ``gross revenue* * *originating from 
    the sale of goods from own account (sic), from the price of the 
    services rendered and from the result obtained from alien's (i.e., 
    consignees) account.'' See Supplementary Law No. 70 of September 7, 
    1970. Since neither tax is based on non-sales revenue, respondents 
    maintain that PIS/COFINS are not ``gross revenue taxes'' and, 
    therefore, not analogous to the Argentine taxes in Silicon Metal from 
    Argentina.
        In addition, respondents claim that the Department's decision not 
    to make an adjustment for PIS and COFINS is unsupported by any 
    accounting or economic analysis. The fact that PIS and COFINS sales 
    taxes are calculated on an aggregate basis as opposed to an invoice-
    specific basis is irrelevant--the tax liability is the same. In 
    respondents' view, no basis exists to conclude that the manner of 
    calculating a tax disqualifies a tax from an adjustment under section 
    773(a)(6)(B)(iii) of the Act.
        Respondents state that the Department has not, in any of its 
    decisions relating to this issue, identified any support for its 
    classification of a sales tax as a ``gross revenue tax'' simply because 
    it is calculated on an aggregate basis. As a result, respondents 
    reiterate that the taxes are based exclusively on home market sales and 
    for this reason the Department for almost two decades found these taxes 
    to qualify for a COS adjustment.
        The third prong, inclusion of the taxes in the home market price, 
    is satisfied in the instant case--the Department has never based its 
    denial of the PIS/COFINS adjustment on a specific or explained finding 
    that the taxes were not included in the price and passed through to the 
    home market customer. Respondents note that in the Final Administrative 
    Review of Color Television Receivers from Korea, 49 FR 50420 (December 
    28, 1984), the Department made an adjustment for home market taxes 
    based on the conclusion that the taxes were fully passed through to the 
    home market customers. The ensuing court appeals upheld the 
    Department's practice of making an adjustment for home market taxes 
    under section 772(d)(1)(C) of the Act. See American Alloys, Inc. v. 
    United States, 810 F3d.1469, 1475 (Fed. Circ., 1994). Therefore, 
    respondents urge the Department to determine that PIS and COFINS are 
    included in the home market price, and passed through to home market 
    customers. In addition, respondents assert that in the Preliminary 
    Determination, the Department did not cite to any record evidence that 
    there is no pass-through. Nor did it prepare any questions related to 
    the pass-through aspect of these taxes in its questionnaires or at 
    verification. Since the Department never asked respondents to rebut any 
    newfound presumption that these taxes were not included in the home 
    market price to the customers, respondents believe the Department is 
    not justified in finding no pass-through in this investigation.
        If the Department were to argue that PIS and COFINS are not 
    included in the price because they are not itemized on the invoice 
    (like the IPI and ICMS taxes), respondents maintain that it would be 
    wrong for two reasons: (1) PIS and COFINS were not itemized on the 
    Brazilian invoices in all the Department's previous investigations, yet 
    it always found that these taxes were included in the home market 
    price, and qualified for an adjustment. (2) Whether or not the tax is 
    itemized on the invoice is irrelevant to a pass-through finding. If the 
    tax is not itemized, it is included in the gross unit price. 
    Itemization on the invoice only indicates how the tax is calculated in 
    the accounting records of the company.
        Respondents conclude that there is no justification for the 
    Department's preliminary decision to ignore the necessary deduction for 
    PIS and COFINS. The PIS/COFINS adjustment is consistent with Department 
    findings (except for recent erroneous decisions),
    
    [[Page 38765]]
    
    and decisions by the Courts. Moreover, there is no evidence on the 
    record to support a Department presumption that PIS/COFINS are not 
    included in the home market price. The PIS/COFINS adjustment is 
    required to ensure that the Department's LTFV comparisons are tax 
    neutral, as contemplated by the U.S. dumping law and Article 2.4 of the 
    WTO Antidumping Agreement.
        Petitioners counter that the statute and the SAA clearly state that 
    downward adjustments to normal value may only be made for tax amounts 
    directly imposed upon sales of the foreign like product. See section 
    773(a)(6)(B)(iii) of the Act and SAA, pp. 827-828. In this case, 
    neither the PIS nor the COFINS is directly imposed on sales of the 
    foreign like product. To the contrary, petitioners maintain that these 
    taxes are based on income, not sales prices, and are imposed on all of 
    the company's domestic sales revenue, including service revenue, on an 
    aggregate basis. In fact, petitioners contend that neither PIS nor 
    COFINS appears to be a simple aggregation of sales revenue, as 
    suggested by respondents. COFINS tax liability is net of the ``tax on 
    industrialized goods,'' and as to PIS, it is not clear that PIS is 
    levied on sales revenues and exclusive of financial revenue. See 
    Rebuttal Brief of Schagrin Associates, p. 3, April 27, 1999.
        According to petitioners, respondents bear the burden of creating a 
    record sufficient to support findings made by the Department. 
    Petitioners claim that the record in the instant case is devoid of 
    evidence that PIS and COFINS are fully passed through to purchasers.
        Contrary to respondents' suggestion that the Department lacks an 
    understanding of indirect taxes, petitioners state that the Department 
    is ``intimately familiar with the way the PIS/COFINS taxes are imposed 
    and collected,'' and since mid-1997 has consistently disallowed claimed 
    adjustments to normal value for these taxes. See footnote no. 10, p. 4 
    of Dewey Ballantine Rebuttal Brief, April 26, 1999. Petitioners urge 
    the Department not to disturb its settled practice on this issue.
        Department's Position: Petitioners are correct in stating that 
    since mid-1997 the Department has consistently disallowed claimed 
    adjustments to normal value for these taxes. Pursuant to section 
    773(a)(6)(B)(iii) of the Act, normal value of the merchandise will be 
    reduced by the amount of any taxes imposed directly upon the foreign 
    like product or components thereof which have been rebated, or which 
    have not been collected, on the subject merchandise, but only to the 
    extent that such taxes are added to or included in the price of the 
    foreign like product.
        Respondents have not provided any evidence to support their claim 
    that the Department incorrectly concluded that the PIS and COFINS taxes 
    are taxes on gross revenue exclusive of export revenue and, thus, are 
    not imposed specifically on the merchandise or components thereof. 
    Information on the record demonstrates that the PIS and COFINS taxes 
    are taxes on gross revenue exclusive of export revenue. These taxes do 
    not appear to be imposed on the subject merchandise or components 
    thereof, and therefore, we have no statutory basis to deduct them from 
    NV. As in the most recent review of Silicon Metal from Brazil, 64 FR 
    6318 (February 19, 1999), (Silicon Metal from Brazil, 1999), the 
    Department has determined that a deduction of the PIS and COFINS taxes 
    is not correct in the calculation of NV because these taxes are levied 
    on total revenues (except for export revenues), and thus the taxes are 
    direct, similar to taxes on profit or wages. Therefore, we made no 
    adjustment for PIS/COFINS taxes in the calculation of the dumping 
    margin for this final determination.
        Comment 3: Input Tax Credit. While petitioners made this comment 
    with respect to CSN, it also applies to USIMINAS/COSIPA. According to 
    petitioners, the Department inappropriately deducted the gross ICMS and 
    IPI tax amounts shown on CSN's sales invoices from CSN's reported home 
    market gross unit price. Petitioners believe that for the final 
    determination, the Department should deduct only the actual net ICMS 
    and IPI payments made by CSN to the state and federal governments from 
    CSN's reported home market gross unit prices. Petitioners cite the 
    statute, which states that normal value shall be reduced by ``the 
    amount of any taxes imposed directly upon the foreign like product* * 
    *, but only to the extent that such taxes are added to or included in 
    the price of the foreign like product.'' See section 773(a)(6)(B)(iii) 
    (emphasis added). The SAA reiterates petitioners' position: ``It would 
    be inappropriate to reduce a foreign price by the amount of the tax, 
    unless a tax liability had actually been incurred on that sale.'' See 
    Uruguay Round Agreements Act, Statement of Administrative Action, H.R. 
    Doc. No. 103-516, 103d Cong., 2d Sess. at 827-828. (emphasis added).
        Petitioners argue that the actual net ICMS and IPI payments made by 
    CSN to the state and federal governments were significantly less than 
    the amounts reported by CSN in its home market database. First, 
    petitioners aver that CSN clearly stated in its Section B Response that 
    ``the net liability is the amount of the IPI and ICMS owing on the sale 
    of the finished product, minus the credit for ICMS and IPI paid on raw 
    materials.'' (CSN Section B Response at B-23) (emphasis added). Second, 
    petitioners point out that both ICMS and IPI are value-added taxes 
    (VAT), meaning that they are intended to tax the value added by each 
    producer, not the full amount of the producer's sales value. 
    Petitioners suggest that CSN does not understand the nature of a VAT. 
    Finally, petitioners state that the Department's Sales Verification 
    Report clearly indicates that the actual ICMS and IPI tax payments made 
    by CSN to the state and federal governments were significantly less 
    than the gross tax amounts reported in the TAX1 and TAX2 fields of 
    CSN's home market database. Petitioners provide specific examples from 
    the Department's CSN Sales Verification Report at 35 to support this 
    conclusion.
        CSN counters that petitioners' arguments for reducing the amount of 
    the adjustment to home market prices for ICMS and IPI taxes to account 
    for the credit received by manufacturers for ICMS and IPI paid on 
    inputs, are wrong both as a matter of fact and of law. CSN cites 
    section 773(b)(6)(B)(iii) of the Act and Daewoo Electronics Co. v. 
    United States, 6 F.3d 1511, 1513-14 (Fed. Cir. 1993) (Daewoo 
    Electronics) in support of its position that the statute requires an 
    adjustment ``to the extent to which the company bears the burden of 
    such taxes.'' The Court of Appeals of the Federal Circuit (CAFC) 
    stated:
    
        To prevent the creation of dumping margins merely because the 
    country of exportation taxes home market sales but not exports, the 
    antidumping law provides an offsetting adjustment to the sales price 
    of the goods. . . . (emphasis added).
    
    CSN notes that the court refused to engage in an inquiry into the 
    extent that the tax is ``passed through'' to the customer; if it is 
    imposed on the home market sale but not on the U.S. sale, it is fully 
    deductible.
        CSN claims that the petitioners were selective in their reading of 
    the SAA. CSN states that according to petitioners, the quoted language 
    seeks only to distinguish between sales which incur a tax liability and 
    those which do not. CSN, however, maintains that the clear language of 
    the statute is to make sure that a fair comparison be made between 
    prices on the same basis. CSN concludes that there is nothing in either 
    the statute or the legislative history which requires
    
    [[Page 38766]]
    
    any inquiry into the amount of payment actually remitted by the 
    manufacturer.
        However, CSN emphasizes that the steel companies, in fact, do incur 
    the full amount of ICMS and IPI imposed on the sale of their products. 
    In order to prevent the ``cascading'' of a tax, each processor is given 
    a credit for the tax it pays on the inputs it uses to produce the 
    product, so the tax that the manufacturer pays is no more than the tax 
    that is incident on the sale of the finished product. Citing the 
    antidumping statute, CSN notes that the tax is limited to ``the extent 
    that such taxes are added to or included in the price of the foreign 
    like product.''
        According to CSN, petitioners are wrong in implying that value-
    added taxes are somehow different from excise taxes when in fact the 
    courts have made clear that value-added taxes are to be treated in the 
    same manner as excise taxes when it comes to granting the adjustment 
    for indirect taxes. See Daewoo Electronics at 1517. In addition, CSN 
    maintains that petitioners' ultimate conclusion is wrong in that value-
    added taxes do not ensure that a company's liability is less than the 
    amount of the tax on the product; on the contrary, it is only by the 
    credit against taxes paid on the inputs that the value-added tax 
    ensures that the manufacturer's liability is equal to the amount of the 
    tax on the product it manufactures.
        Department's Position: We agree with CSN. To prevent the creation 
    of dumping margins merely because the country of exportation taxes home 
    market sales but not exports, the antidumping law provides an 
    offsetting adjustment to the sales price of the goods in the United 
    States. See section 773(a)(6)(B)(iii) of the Act.
        The CAFC in Daewoo Electronics concluded that ``[i]f an exporter's 
    records show that a tax was either a separate ``add on'' to the 
    domestic price or, although not separately stated, was, in fact, 
    included in the price and that the taxes were paid to the government, 
    that satisfies the tax inquiry required by the statute for an 
    adjustment of the U.S. price.'' The CAFC further stated that the 
    statute does not speak to tax incidence, shifting burdens, or pass-
    through, nor does it contain any hint that an econometric analysis must 
    be performed. The statutory language does not mandate that the ITA look 
    at the effect of the tax on consumers rather than on the . . . company. 
    The CAFC reasoned that as an unavoidable incident of any sale by the 
    company, these taxes can only be recouped in their entirety from 
    purchasers. Id. at 1517.
        Section 773 (a)(6)(B)(iii) of the Act requires the deduction from 
    NV of any taxes imposed directly upon the foreign like product or 
    components thereof which have been rebated or which have not been 
    collected on the subject merchandise, but only to the extent that such 
    taxes are added to or included in the price of the foreign like 
    product. The SAA (see, Section B.2.c.(2), at 157)) explains that the 
    deduction of indirect taxes from NV constitutes a change from the 
    existing statute, which required the addition of the tax amount to the 
    U.S. price. The requirement that the home-market consumption taxes in 
    question be ``added to or included in the price'' of the foreign-like 
    product is intended to ensure that such taxes actually have been 
    charged and paid on the home market sales used to calculate NV, rather 
    than charged on sales of such merchandise in the home market generally. 
    As the SAA states, ``[it] would be inappropriate to reduce a foreign 
    price by the amount of the tax, unless a tax liability had actually 
    been incurred on that sale.'' At verification, we verified the amount 
    of ICMS and IPI taxes CSN reported for home market sales used to 
    calculate NV. Besides tracing CSN's monthly payments to the government 
    for these taxes from CSN's fiscal accounts to the proof of payment 
    form, in the course of our home market sales traces, we verified that 
    the ICMS and IPI taxes were included on each home market sale invoice. 
    See Exhibits 25 and 29 of CSN's Sales Verification Report.
        In sum, the Department is treating consumption taxes in a manner 
    consistent with its longstanding policy (i.e., calculating tax-neutral 
    dumping margins), and in conformity with the statute as amended by the 
    URAA. Since the reported home market gross unit price includes ICMS and 
    IPI taxes, as demonstrated at verification, we have continued to deduct 
    the full amount of these taxes from the home market price in order to 
    achieve parity between the reported U.S. price, exclusive of taxes, and 
    the NV of the comparison model.
        Comment 4: Quality Designations. Though petitioners commented on 
    CSN's quality designations, USIMINAS/COSIPA also submitted additional 
    quality fields. Therefore, in the Department's Position below, we have 
    addressed both companies' quality designations.
        In petitioners' opinion, the Department should not allow CSN to 
    adopt two additional quality designations: American Petroleum Institute 
    (API) quality (code 9) and automotive wheel quality (code 10). 
    According to CSN, code 9 is produced to API standards for oil 
    pipelines, has a high silicon content, and very clean edges to ensure a 
    tight weld. Petitioners note that end use is irrelevant and the limited 
    information on the record indicates that this quality of steel is 
    already identified by the Department's quality designation ``1'' (i.e., 
    ``High Strength Low Alloy''). According to petitioners, the American 
    Society of Testing and Materials (ASTM) specification A 572 is within 
    quality code ``1'' and contains the ``high silicon content'' that CSN 
    claims is limited to its API quality products. Moreover, petitioners 
    state that CSN's claims regarding the ``very clean'' or ``purified'' 
    nature of this quality steel is equally inappropriate for requiring a 
    separate quality designation. They state that CSN's claim that all its 
    products are ``either aluminum killed or a combination of aluminum 
    killed and silicon'' applies equally to the ASTM A 572 family of 
    steels.
        With respect to CSN's claims regarding the need for an automotive 
    wheel quality designation (code ``10''), petitioners assert that this 
    separate designation is based on end use and the Department's existing 
    quality designations confirm that application or use is not the 
    determining factor in distinguishing quality designations. Furthermore, 
    petitioners state that steel products with these characteristics are 
    already separately identified in quality code ``6'' (i.e., deep 
    drawing, whether or not fully stabilized (interstitial-free) or special 
    killed; pressure vessel) is comprised almost exclusively of steels with 
    low silicon content, mechanical strength, and formability.
        For the foregoing reasons, petitioners recommend that the 
    Department revise CSN's quality designations so that quality 
    designation ``9'' is revised to ``1'' and quality designation ``10'' is 
    revised to ``6''. Furthermore, they state that the cost dataset should 
    be revised to weight-average the cost of CONNUMS that are identical but 
    for quality code ``1'' and ``9'', and ``6'' and ``10,'' respectively. 
    If this approach proves too difficult to program, petitioners recommend 
    that the Department use the higher of the two reported cost amounts.
        Respondents did not comment on this issue.
        Department's Position: We agree with petitioners. We believe that 
    the quality codes designated by the Department in its initial 
    questionnaire to the respondents adequately cover the different 
    classifications possible for hot-rolled flat-rolled carbon-quality 
    steel products. Therefore, we have designated the quality code ``9'' as 
    quality code ``1'' and quality code ``10'' as quality code
    
    [[Page 38767]]
    
    ``6'') and adjusted the cost of the CONNUMS accordingly. See Analysis 
    Memo for CSN.
        USIMINAS/COSIPA also adopted four additional quality designations 
    which we believe are adequately covered by the codes designated by the 
    Department in its initial questionnaire. We have changed the new codes 
    created by them and matched each one to the correct code among the 
    eight originally designated by the Department. We have, therefore, 
    changed codes ``9'' and ``11'' to code ``3'' and codes ``10'' and 
    ``12'' to code ``4'' and adjusted the cost of the CONNUMS accordingly. 
    See USIMINAS/COSIPA's Analysis Memo.
    
    II. Company Specific Sales Comments
    
        CSN
        Comment 5: Date of Sale. Petitioners argue that for sales to the 
    United States, the commercial invoice date is not an appropriate date 
    of sale for CSN in this investigation. Rather, the record in this case 
    overwhelmingly indicates that the date of the order confirmation is the 
    date when the material terms of sale are established and, therefore, 
    should be used as the date of sale.
        Although the Department's regulations provide that the date of sale 
    will normally be the invoice date, petitioners state that, as a general 
    rule, the date of sale may not occur after the date of shipment (see 
    Department Questionnaire, B-16, n.7 (``no date occurring after the date 
    of shipment, including invoice may be used as the ``date of sale'''). 
    Moreover, petitioners note that a date other than invoice date may be 
    used where ``a different date better reflects the date on which the 
    exporter or producer establishes the material terms of sale.'' See 
    Preliminary Results of Antidumping Duty Administrative Review of 
    Circular Welded Non-alloy Steel Pipe from Korea, 62 FR 64559, 64560 
    (December 8, 1997).
        Petitioners point out that in its Preliminary Determination the 
    Department stated that ``in most cases, the U.S. date of sale reported 
    by respondents is after the date of shipment of the product from the 
    factory. Because it is the Department's practice to use shipment date 
    as the latest date of sale, the Department is using the ex-factory 
    shipment date as the date of sale for U.S. sales in those cases in 
    which the commercial invoice date is later.'' See Preliminary 
    Determination, p. 8304. Petitioners term the Department's practice of 
    not using a date of sale after shipment as ``appropriate,'' because it 
    reflects the common sense notion that a producer does not ship a 
    product, particularly one made to order, without agreement on the 
    material terms of sale.
        Petitioners term the selection of the date of the ``nota fiscal'' 
    (i.e., the ex-factory date) as the Department's ``default'' date of 
    sale methodology. However, in petitioners'' view, the ex-factory date 
    evinces no particular establishment of the material terms of sale. 
    According to petitioners, the record in this investigation indicates 
    that the material terms for CSN's U.S. sales were established at the 
    order confirmation date. To support their position, petitioners cite 
    CSN's Section A submission, which states that the order confirmation is 
    computer generated and ``sets forth the general terms of sale, and 
    specifies...the product type, weight, weight tolerance, price, 
    delivery, destination and other terms and conditions for sale.'' See 
    Section A of CSN's Questionnaire Response (November 11, 1998), p. 27. 
    Moreover, petitioners note that a discussion of the sales process with 
    company personnel at verification confirmed that material terms of sale 
    are established by negotiation of price and quantity, the specific 
    terms of which are confirmed by fax to the customer. See CSN's Sales 
    Verification Report, p. 9).
        CSN's U.S. shipment data also supports order confirmation as the 
    date of sale, according to petitioners. They point out that for a large 
    majority of CSN's U.S. sales, the quantities shipped met the order 
    confirmation terms, and even where the quantities shipped exceeded 
    contract quantity tolerances, there appeared to be no change in the 
    unit price for the merchandise. Petitioners note that order date is 
    available for most CSN sales and non-adverse facts available can be 
    used for those instances where the date is not available.
        Petitioners conclude that invoice date is not an acceptable date of 
    sale and shipment date is simply an arbitrary construction which does 
    not reflect the evidence of record. Therefore, the Department should 
    use order confirmation date as the date of sale for CSN's sales to the 
    United States.
        CSN maintains that the Department should continue to use the nota 
    fiscal date as the home market date of sale and use the commercial 
    invoice date as the U.S. date of sale. CSN notes that petitioners seem 
    to acquiesce in the use of nota fiscal date as the date of sale for 
    home market sales. It is CSN's opinion that petitioners are briefing 
    the U.S. date of sale because (a) an earlier U.S. date of sale will 
    move the universe of POI sales to the United States forward so as to 
    capture invoices issued after the POI and (b) CSN's failure to report 
    sales with nota fiscal or commercial invoice dates outside the POI 
    could result in application of facts available.
        CSN states that the commercial invoice date is the only appropriate 
    date of sale for U.S. sales because it is the earliest date by which 
    the material terms of sale are finalized. To support its position CSN 
    notes the following: (1) The fact that quantity tolerances are often 
    exceeded is enough to establish a post-order confirmation date of sale 
    (see, e.g., Final Results of Administrative Review of Certain Welded 
    Carbon Steel Pipes and Tubes from Thailand, 63 FR 55578, 55588 (October 
    16, 1998)); (2) use of the order confirmation date is not practicable 
    for CSN because it is not maintained in the computer system for more 
    than a few months, after which point, the numbers are reused; (3) the 
    only purpose of the nota fiscal is to accompany the over-land shipment 
    from the mill to the port, in conformity with Brazilian law; (4) once 
    at the port, a product originally destined for one market can be 
    diverted to another market; and (5) as verified by the Department, 
    ``the commercial invoice is issued after the coils are in the hold of 
    the ship and, therefore, at that time it is definitely an export 
    sale.'' See CSN's Sales Verification Report, p. 9.
        CSN, therefore, stands by its position that the only appropriate 
    U.S. date of sale is the date of the commercial invoice. To the extent 
    that the commercial invoice date is after the ex-port shipment date, 
    CSN suggests that the Department use the ex-port shipment date as an 
    alternative date of sale.
        In an issue related to the selection of the date of the U.S. sale, 
    petitioners believe that the Department should apply facts available to 
    those sales CSN failed to report based on the date of shipment from the 
    factory. Although CSN claimed that the date of invoice from its 
    affiliate CSN Cayman/Overseas was the most appropriate date for 
    determining date of sale, petitioners note that the Department used the 
    date of shipment from the mill as the date of sale in its Preliminary 
    Determination. Petitioners state that this information was obtained as 
    a result of a request in the Department's supplemental questionnaire.
        Petitioners claim that the Department discovered at verification 
    that CSN had failed to report all sales based on date of shipment from 
    the factory, and subsequently requested that CSN provide the additional 
    sales information. Petitioners argue that because this information was 
    provided late and contains fundamental flaws (i.e.
    
    [[Page 38768]]
    
    lack of CONNUM designation, price adjustment amounts), the Department 
    should reject it and employ the highest calculated margin to these 
    sales. See section 776(a)(1995) of the Act.
        Department's Position: We agree with CSN that the order 
    confirmation date is not the appropriate date of sale. We have 
    determined that the nota fiscal date is the home market date of sale. 
    For U.S. sales, we have continued to use the ex-factory shipment date 
    as the date of sale because the commercial invoice date, the date CSN 
    reported as the date of sale, is after shipment from the factory.
        The Department considers the date of sale to be the date on which 
    all substantive terms of sale are agreed upon by the parties. This 
    normally includes the price, quantity, delivery terms and payment 
    terms. In accordance with 19 CFR 351.401(i), the date of sale will 
    normally be the date of the invoice, as recorded in the exporter's or 
    producer's records kept in the ordinary course of business, unless 
    satisfactory evidence is presented that the exporter or producer 
    establishes the material terms of sale on some other date. In some 
    instances, it may not be appropriate to rely on the date of invoice as 
    the date of sale, because the evidence may indicate that the material 
    terms of sale were established on some date other than the invoice 
    date. See Preamble to the Department's Final Regulations at 19 CFR part 
    351 (``Preamble''), 62 FR 27296 (1997); Final Determination of Sales at 
    Less Than Fair Value; Polyvinyl Alcohol from Taiwan, 61 FR 14067 (March 
    29, 1996). Further, in submissions throughout this investigation, CSN 
    has reiterated the fact that the date of the order confirmation is not 
    maintained in its computer system, hard copies are not always kept, and 
    the order confirmation numbers are reused after a few months. 
    Department staff verified the accuracy of these statements (see CSN's 
    Sales Verification Report, pp. 9-11).
        The Department does not consider dates subsequent to the date of 
    shipment from the factory as appropriate for date of sale. We also 
    disagree with CSN's assertion that invoice date or export shipment date 
    most appropriately represent date of sale. Because the commercial 
    invoice date reported by CSN as its U.S. date of sale falls after the 
    date of shipment of the product from the factory, the Department is 
    continuing to use the ex-factory shipment date as the date of sale for 
    its U.S. merchandise. CSN reported the date of the nota fiscal (i.e., 
    the ex-factory shipment date) of its U.S. sales in its supplemental 
    submission. However, although we gave CSN ample opportunity to report 
    the dates of all potential dates of sale, including order confirmations 
    and notas fiscais issued during the POI, CSN elected not to submit the 
    requested data in its entirety.
        In our supplemental questionnaire to CSN's Section A Response 
    (December 4, 1998), we requested that CSN report:
    
    all sales for which ``the order confirmation date (or comparable 
    date if data on order confirmation does not exist) was within the 
    POI. If you believe another date is a more appropriate date of sale, 
    you should provide all sales during the POI based on order 
    confirmation date, using alternative production or accounting 
    records, and the other date (provided the other date is not after 
    the merchandise is shipped from the plant). (emphasis added)
    
        In our January 4, 1999 Supplemental Questionnaire to Sections BCD, 
    we repeated this question and added:
    
        If CSN chooses not to report order confirmation date, and we 
    determine at verification that this information is available and is 
    a more appropriate date of sale than that reported, CSN may be 
    subject to the use of adverse facts available pursuant to section 
    776 of our statute.
    
        In its response to this submission (January 25, 1999), CSN did 
    provide the dates of the U.S. notas fiscais, but only those dates 
    associated with the commercial invoices issued during the POI. In their 
    pre-verification comments, petitioners requested that at verification 
    the Department examine those sales shipped from the factory, but not 
    invoiced during the POI (see, Dewey Ballantine's Letter to the 
    Secretary, March 8, 1999). Accordingly, the Department specifically 
    requested this information in its verification outline. At 
    verification, CSN prepared a printout of the quantity and value of 
    those U.S. sales which left the mill (i.e., which had a nota fiscal 
    date) during the POI, but were not invoiced until after the POI (see 
    Exhibit 27 of CSN's Sales Verification Report), which represent 
    unreported U.S. sales.
        Since CSN failed to follow explicit instructions in the 
    questionnaire, or to contact the Department to determine whether an 
    alternate reporting basis was appropriate, we find that CSN did not 
    cooperate to the best of its ability. Therefore, as adverse facts 
    available, we are applying the highest calculated margin to those U.S. 
    sales. The Department finds that this margin is indicative of CSN's 
    customary selling practices and is rationally related to the 
    transactions to which the adverse facts available are being applied.
        Comment 6: Affiliation. Petitioners contend that despite explicit 
    instructions in the Department's questionnaire to report U.S. prices 
    that are ``calculated from the price at which the subject merchandise 
    is first sold to a person not affiliated with the foreign producer or 
    exporter,'' CSN inappropriately reported as its ultimate U.S. price the 
    transaction between itself and a trading company to which CSN has 
    numerous connections. Petitioners note that in response to the 
    Department's request for additional information on the relationship 
    between CSN and this customer, CSN stated that its customer is ``simply 
    a trading company that receives a commission from its suppliers.'' See 
    Section A of CSN's Supplemental Response, January 19, 1999, p. 41.
        Petitioners claim that CSN failed to inform the Department that the 
    person who manages the trading company's daily operations is also a 
    board member of both CSN and the trading company's controlled 
    subsidiary, Emesa, which, petitioners point out, CSN acknowledges as a 
    ``related party.'' According to petitioners, the fact that the manager 
    of the trading company's operations is ``required by law to act in the 
    best interest of CSN'' further demonstrates an affiliation between the 
    two parties. Petitioners assert that, faced with similar circumstances 
    in the past, the Department not only deemed companies to be affiliated, 
    but also collapsed companies, based on overlapping board involvement by 
    senior managers. In support of their position, petitioners cite the 
    Final Results of New Shippers Antidumping Duty Administrative Review of 
    Certain Welded Carbon Standard Steel Pipes and Tubes From India, 62 FR 
    47632, 47639 (September 10, 1997) (Steel Pipes and Tubes From India).
        In addition, petitioners note that CSN's Sales Verification Report 
    reveals a surprising similarity in terminology between Brazilian GAAP's 
    definition of a related party and the Act's definition of an affiliated 
    entity (see Exhibit 2a, p. 4 and 771(33) (1995) of the Act). As stated 
    under Brazilian GAAP, petitioners claim that CSN's transactions with 
    the trading company should also be described as ``lacking the 
    independence that characterizes the transactions with independent third 
    parties.'' Ibid. Petitioners also contend that the language of the 
    Brazilian GAAP suggests other undisclosed links between the two 
    parties. For example, even though CSN has stated that there is no 
    controlling relationship between itself and the trading company's 
    subsidiary, Emesa, CSN's 1998 Financial Statement indicates that Emesa 
    is related to CSN. Moreover, petitioners note that CSN's disclosure of
    
    [[Page 38769]]
    
    the trading company's subsidiary as a related party is in isolation. 
    The important point, according to petitioners is that the subsidiary is 
    defined as a related party even though CSN did not fully disclose why 
    it was deemed a related party.
        Petitioners conclude that the evidence on the record indicates that 
    the Department should not base its final determination on the reported 
    transaction prices between CSN and the trading company. Rather, the 
    Department should resort to adverse facts available and apply the 
    highest transaction margin in the petition or the highest calculated 
    transaction margin to these sales.
        CSN rejects petitioners' conclusion that the trading company and 
    CSN are affiliated because a customer of CSN owns a percentage of 
    Emesa, which in turn owns 1.1% of CSN. The fact that one of the 
    officers of the trading company sits on the boards of both Emesa and 
    CSN is equally unconvincing in CSN's view.
        CSN contends that petitioners' reasoning cannot possibly lead to a 
    determination that Emesa, with only 1.1% of CSN shares, controls CSN. 
    Moreover, CSN notes that Emesa must vote with the majority of the 
    parties to the shareholders' agreement and consequently has as little 
    power as other shareholders with similar percentage holdings in CSN.
        According to CSN, the critical question regarding Mr. Netto's 
    position as an officer of the trading company and a member of CSN's 
    board, is whether Mr. Netto is in a position to control both companies. 
    While Mr. Netto may be able to control the trading company, CSN 
    maintains that he has no ability to control CSN because Emesa, the 
    company he represents, holds only 1.1 % of CSN shares.
        Furthermore, CSN argues that evidence on the record shows that CSN 
    board members play no role in setting prices (see CSN's Sales 
    Verification Report, pp. 4-5). To confirm this statement, CSN ran the 
    traditional arm's length test used by the Department and found that 
    sales to this customer passed the test, i.e., the prices charged to 
    this company were not lower than the prices charged to its other U.S. 
    customers.
        For all the above reasons, CSN urges the Department to use the U.S. 
    sales data as reported by CSN (i.e., CSN's sales to the trading 
    company) and not require CSN to report the resales of the trading 
    company.
        Department's Position: We agree with CSN. Section 771(33) of the 
    Act provides that the following persons are affiliated: (A) Members of 
    a family; (B) any officer or director of an organization and such 
    organization; (C) partners; (D) employer or employee (E) any person 
    directly or indirectly owning, controlling, or holding with power to 
    vote, 5% or more of the outstanding voting stock or shares of any 
    organization and such organization; (F) two or more persons, directly 
    or indirectly controlling, controlled by, or under common control with, 
    any person; (G) any person who controls any other person and such other 
    person.
        An examination of each of these criteria results in the conclusion 
    that the trading company and CSN are not affiliated pursuant to section 
    771(33) of the Act. The relationships among the trading company, Emesa, 
    and CSN, and the connection that Mr. Netto has to each as a board 
    member of CSN and a corporate officer of the trading company and of 
    Emesa provide, the basis for petitioners' conclusion that CSN and the 
    trading company are affiliated. First, section 771(33)(A) of the Act is 
    inapplicable because evidence on the record does not reveal any 
    familial ties among the three entities and Mr. Netto. Nor is the 
    relationship between CSN and its customer, the trading company, one of 
    a partnership or employer or employee within the meaning of sections 
    771(33)(C) and (D) of the Act.
        As a corporate officer of the trading company and a member of CSN's 
    board, the Department considers Mr. Netto affiliated to the trading 
    company and CSN pursuant to section 771(33)(B) of the Act. As a 
    corporate officer of the trading company, Mr. Netto may be able to 
    control that entity within the meaning of section 771(33), but he is in 
    no position to control CSN because Emesa, the company he represents on 
    CSN's board, holds only 1.1% of CSN's shares. We find this percentage 
    ownership, even with Emesa's participation in CSN's shareholders 
    agreement, insufficient to establish that Emesa is in a position to 
    control CSN, as required under section 771(33)(F) or (G) of the Act. 
    Moreover, Mr. Netto is obligated to vote with the majority of the 
    parties to the shareholders' agreement and has little say in the 
    operations of CSN. Mr. Netto's affiliation with the trading company and 
    CSN does not put him in a position to control CSN or Emesa, even though 
    he is on the board of each of these companies.
        Finally, section 771(33)(E) of the Act, which considers any persons 
    or parties affiliated if they directly or indirectly own, control, or 
    hold with power to vote 5% or more of the outstanding votes in a 
    company, does not apply. Although Emesa is considered a subsidiary of 
    the trading company, its 1.1% voting share in CSN's stock does not meet 
    the statutory criteria.
        In conclusion, we find no basis for affiliation between CSN and its 
    customer, the trading company. Petitioners' reliance on the similarity 
    between the Brazilian GAAP's definition of a ``related party'' and the 
    Act's definition of an ``affiliated party'' is irrelevant. A similarity 
    in the definition of two words does not necessarily give them the same 
    meaning, especially when applied in different circumstances. 
    Petitioners provide no support for their conclusion that CSN's dealings 
    with the trading company ``lack independence.'' Finally, the fact that 
    CSN's 1998 financial statement indicates that Emesa is related to CSN 
    does not establish that CSN is affiliated with the trading company 
    within the meaning of section 771(33) of the Act.
        Therefore, for this final determination, we are using the U.S. 
    sales between CSN and the trading company as reported by CSN.
        Comment 7: Commissions. Petitioners object to CSN's 
    characterization of a certain payment directly to CSN's customer as a 
    ``commission,'' when, in fact, it is a rebate or discount. According to 
    petitioners, when customers receive payments from suppliers, those 
    payments cannot be classified as commissions unless the party that 
    receives the payment is functioning solely as a commissionaire and not 
    as a purchaser--which is not the case in this instance. Petitioners 
    state that there is no dispute in this investigation that the so-called 
    ``commission agent'' is affiliated with the U.S. customer. Therefore, 
    petitioners contend that the Department should follow its practice of 
    treating payments made directly to the U.S. customer or to a customer's 
    affiliate as a rebate or discount, not a commission. Petitioners cite 
    the Preliminary Determination of Sales at Less-than-Fair-Value; Open-
    End Spun Rayon Singles Yarn from Austria, 62 FR 14399, 14401 (March 26, 
    1997), (Preliminary Determination of Spun Rayon Singles Yarn) in 
    support of their position.
        CSN claims that petitioners' reading of this case improperly 
    suggests that the Department's analysis focuses entirely on whether an 
    unaffiliated purchaser resells subject merchandise to a party with whom 
    that purchaser is affiliated. CSN notes that petitioners conceded that 
    the Department reversed its preliminary determination to treat the 
    commission as rebates in the Final Determination of Sales at Less Than 
    Fair Value of Open-End Spun Rayon Singles
    
    [[Page 38770]]
    
    Yarn From Austria, 62 FR 43708-09 (August 15, 1997) (Final 
    Determination of Spun Rayon Singles Yarn) after it learned that the 
    unaffiliated purchaser indeed acted as a commissionaire. CSN claims 
    that contrary to what petitioners suggest, the Department did not 
    reverse its treatment of the commission from the Preliminary 
    Determination to the Final Determination of Spun Rayon Singles Yarn 
    solely because the selling agent and the selling agent's customer were 
    unaffiliated, but because the unaffiliated selling agent ``performed 
    the functions of a commission agent'' and because the respondent made 
    ``payments directly to the selling agent for services rendered in the 
    sales transaction'' See Id.
        CSN states that it pays a commission directly to the affiliate of 
    its ultimate customer, not to these companies' customers, for the 
    selling services these companies perform for CSN (e.g., handling the 
    paperwork involved in a sale). Moreover, CSN directly invoices the 
    ultimate customers and consistently refers to the payments it makes to 
    these two parties as commissions in its accounting records.
        CSN also rejects petitioners' claim that its payments to another 
    customer for sales services are rebates because the party is a 
    customer, not a commissionaire. According to CSN, this party earns the 
    commission by establishing a portion of CSN's export business in the 
    United States and handling sales paperwork and claims that arise from 
    that portion of CSN's export business. For these reasons, and the fact 
    that CSN refers to these payments as commissions in its questionnaire 
    responses and its accounting records, CSN maintains that the Department 
    was correct in treating these payments as commissions.
        Department's Position: We agree with CSN. Generally speaking, a 
    commission is a payment to a sales representative for engaging in sales 
    activity. See, e.g., Antifriction Bearings (Other Than Tapered Roller 
    Bearings) and Parts Thereof From France, et al.; Final Results of 
    Antidumping Duty Administrative Reviews, and Revocation in Part of the 
    Antidumping Duty Orders, 60 FR 10900, 10914 (February 28, 1995). A 
    discount is a reduction in price to a customer, while a commission is a 
    form of payment for services. Therefore, the issue is not whether or 
    not the trading company is affiliated with the customer but whether 
    there was one transaction between CSN and the ultimate customer in 
    which the trading company acted as sales agents for a commission; or 
    whether there were two transactions, one in which the trading company 
    bought from CSN and received a discount on the price for that initial 
    sale and subsequently resold the merchandise to the ultimate purchaser. 
    See Certain Cold-Rolled Carbon Steel Flat Products from Germany; Final 
    Results of Antidumping Duty Review 60 FR 65264, 65277-8 (December 19, 
    1995); Certain Carbon Steel Products from Austria; Final Determination 
    of Sales at LTFV, 50 FR 33365 (August 19, 1985).
        The general purpose and administration of the payments at issue is, 
    in most instances, consistent with the characteristics of commissions 
    to trading companies outlined in the Final Determination of Sales at 
    Less-Than-Fair Value: Stainless Steel Angle from Japan, 60 FR 16608, 
    16611 (March 31, 1995): The Department has recognized that commissions 
    paid to trading companies have certain characteristics: (1) They are 
    agreed upon in writing, (2) they are earned directly on sales made, 
    based on flat rates or percentage rates applied to the value of 
    individual orders, (3) they take into consideration the expenses which 
    a trading company incurs, and (4) they take into consideration the 
    sales and marketing services performed by a trading company in lieu of 
    an exporter/manufacturer establishing its own larger sales force. See 
    Gray Portland Cement and Clinker From Japan; Final Results of 
    Antidumping Duty Administrative Review, 61 FR 67308-67318 ( December 
    20, 1996) and Oil Country Tubular Goods from Austria, 60 FR 33551 (June 
    28, 1995) (OCTG from Austria).
        Although CSN does not maintain general commission agreements with 
    either the agents or with the trading companies it uses, the commission 
    rate is negotiated on a sale-by-sale basis and is referenced on the 
    ``production order'' that CSN issues upon receiving an order from a 
    client. See Document B in Exhibit 5 of CSN's Section A Response.
        Commissions are normally set at given rates prior to sale. During 
    the POI, CSN's commission rate remained constant, regardless of the 
    price of the individual sale or the trading company involved. The 
    trading companies used for sales of the subject merchandise performed 
    the functions of a commission agent. CSN characterizes its payments to 
    these trading companies as recognition for services performed in the 
    sales process. As such, they are by nature sales commissions (see OCTG 
    From Austria).
        Each U.S. sale involved one transaction between CSN and its U.S. 
    customer. CSN, through CSN Overseas or CSN Cayman, invoiced the U.S. 
    customer directly. The U.S. customer, not the selling agent, paid for 
    the merchandise. If CSN had paid the ``commission'' to the ultimate 
    unaffiliated U.S. customer the expense would be considered a discount 
    on the price between the U.S. customer and CSN. CSN paid the trading 
    companies a commission in a separate transaction for services rendered. 
    Moreover, at verification we established that the payments CSN made to 
    the trading companies during the POI were administered and documented 
    as commissions in CSN's accounting records. See CSN's Section A 
    Response to the Department's Questionnaire, Exhibit 5.
        Comment 8: Overruns. Petitioners maintain that, consistent with its 
    prior practice, the Department should not include overrun sales in its 
    calculation of normal value because these sales are not in the ordinary 
    course of trade.
        In CSN's opinion, the fact that these products are sold out of 
    inventory does not make them a different product from that which is 
    produced to order. CSN concedes that if the product were non-prime 
    quality, petitioners would have a good argument. However, CSN states 
    that these products are mostly prime-quality merchandise. CSN maintains 
    that the fact that these products are sometimes sold at a discount is 
    no reason to exclude them.
        Department's Position: We agree with respondent. To determine if 
    sales or transactions are outside the ordinary course of trade, the 
    Department evaluates all of the circumstances particular to the sales 
    in question. Examples of sales that we might consider outside the 
    ordinary course of trade are sales involving off-quality merchandise or 
    merchandise produced according to unusual product specifications, 
    merchandise sold at aberrational prices or with abnormally high 
    profits, merchandise sold pursuant to unusual terms of sale, or 
    merchandise sold to an affiliated party at a non-arm's length price. 
    See 19 CFR 351.102.
        In its questionnaire response, CSN stated that it generally 
    produces to order. Sometimes, however, the company runs coil that 
    weighs more than the customer will accept or is of a quality that meets 
    the necessary specifications but does not meet the customer's 
    particular quality expectations. The product is set aside to be sold 
    out of inventory to other customers that will accept it. CSN then 
    assigns an order confirmation number identifying the sale as an 
    overrun. At verification we learned that overruns, like any of the 
    merchandise produced by CSN can occasionally be judged as off-quality 
    by a committee of production engineers, be placed in inventory, and
    
    [[Page 38771]]
    
    subsequently sold as non-prime product. However, the merchandise can 
    just as readily involve the wrong dimensions for a specific customer's 
    order and continue to be sold as prime merchandise.
        Moreover, CSN did not produce any of the subject merchandise 
    according to unusual specifications. Nor were any of CSN's products 
    sold at aberrational prices, with abnormally high profits, or sold 
    pursuant to unusual terms of sale.
        Finally, at verification we determined that those sales classified 
    as overruns by CSN were only sold in the home market and represent such 
    an insignificant portion of total home market sales during the POI that 
    their effect on the margin, if any, would be negligible (see Exhibit 9 
    (c) of CSN's Sales Verification Report). Since the factors that the 
    Department considers in determining if merchandise is outside the 
    ordinary course of trade are not germane to the sales CSN classifies as 
    overruns, we do not think they warrant exclusion from the home market 
    database.
        Comment 9: Duty Drawback. Since CSN failed to present the requested 
    information on duty drawback at verification, petitioners state that 
    consistent with the Act and Department practice regarding information 
    that is unverified, the Department should disallow any duty drawback 
    adjustment for purposes of this final determination.
        CSN counters that it is not uncommon for the Department to decline 
    to verify several items during the course of a verification. In fact, 
    CSN notes that this practice is specifically endorsed in the 
    Department's Antidumping Manual (see Chapter 13, pp. 5-6, January 22, 
    1998). CSN states that since this item has a relatively small impact on 
    the antidumping margin and verification of duty drawback adjustments 
    can take an inordinate amount of time, the Department elected not to 
    verify CSN's duty drawback adjustment. CSN concludes that denial of 
    this adjustment would be inconsistent with Department policy and would 
    set a bad precedent for future cases.
        Department's Position: We disagree with petitioners. The 
    petitioners are incorrect in stating that it is consistent with the Act 
    and Department practice to disallow any unverified adjustment. In 
    Monsanto v. United States, 698 F. Supp 275, 281 (CIT 1988) the Court 
    upheld the Department's discretion to pick and choose which items it 
    wants to examine in detail. The Court stated that ``verification is a 
    spot check and is not intended to be an exhaustive examination of the 
    respondent's business.'' Id. In addition, in the Department's 
    Antidumping Duty Manual we state the following:
    
        Usually, it is not necessary, nor is there time to verify every 
    bit of data in the questionnaire response. Therefore, it is critical 
    to rank your verification topics in priority . . . . The fact that 
    an item was not actually verified will not mean that the item is 
    unverified. Verifications involve a great deal of sampling. 
    Consequently, assumptions about items not selected for verification 
    will depend on how the verification went for the selected items . . 
    . .
    
        Due to time constraints and the relatively small impact of the duty 
    drawback adjustment on the dumping margin, it was mutually agreed that 
    other adjustments (e.g., interest rate for imputed credit) were of 
    greater significance. Therefore, we did not examine the documentation 
    relating to CSN's duty drawback adjustment. We have continued to adjust 
    U.S. price for duty drawback in this final determination.
        Comment 10: Inland Freight Costs. Petitioners cite a number of 
    instances in the Department's Verification Report where it was unable 
    to verify CSN's reported home market and U.S. inland freight costs. 
    Moreover, petitioners note that the Department was unable to verify the 
    arm's length nature of CSN's freight expenses with MRS and FCA, both 
    rail companies in which CSN owns shares.
        Accordingly, petitioners maintain that the Department should not 
    rely on CSN's reported amounts, but rather should resort to (adverse) 
    facts available, using either zero or the lowest amount reported for 
    home market sales and the highest amount reported for all U.S. sales.
        CSN strongly objects to petitioners' recommendation that the 
    Department use adverse facts available for its home market and U.S. 
    inland freight expenses. CSN points out that for each of the many 
    shipments which leave its mill every day, it receives an invoice from 
    the transportation company, the amounts of which are input manually 
    into CSN's nota fiscal database. According to CSN, since verification 
    of these amounts involved searching manually for the transportation 
    invoice(s) associated with each selected sale, time did not permit 
    finding all of the documentation for the pre-selected and surprise 
    sales chosen by the Department.
        In response to petitioners' claim that CSN could not establish the 
    arm's length nature of its rail expenses, CSN states that MRS's 
    financial statements during the POI demonstrate its profitability. CSN 
    also showed the arm's length nature of its purchase of transportation 
    services from FCA by comparing the rates charged to CSN with the rates 
    charged to unaffiliated customers for similar distances and similar 
    products.
        CSN points out that it did not provide documents showing that the 
    reported inland freight amounts were wrong. It simply did not have 
    enough time. CSN concludes that since the integrity of the reported 
    amounts was never questioned, the Department should find CSN's 
    methodology for reporting inland freight to be reasonable and accurate. 
    If the Department determines otherwise, CSN suggests the following: an 
    alternative combined port expense/inland freight adjustment (see CSN's 
    Sales Verification Report, p. 29 and Exhibit 23) for U.S. sales; use 
    the amount in CSN's income statement for the POI for freight and divide 
    by the POI sales value for a factor to be applied to the gross unit 
    price).
        Department's Position: We agree with CSN. At verification we 
    determined that CSN used the actual freight expenses incurred for its 
    home market inland freight expenses. We were able to trace these 
    amounts to CSN's nota fiscal database. For U.S. inland freight 
    expenses, the only error as noted by CSN during verification was the 
    incorrect coding of a U.S. shipment by truck when, in fact, the 
    merchandise was shipped by rail. Since trucking is more expensive than 
    rail, this error was not to CSN's advantage.
        In addition, we cannot accept petitioners' claim that CSN's freight 
    expenses were not made at arm's length. MRS' financial statements 
    during the POI indicate that the rail company sold above its cost of 
    production and the Department's cost verifiers noted its net 
    profitability in its financial statements covering the POI (see Exhibit 
    14 of CSN's Section A Response, November 16, 1998 and CSN's Cost 
    Verification Report, April 8, 1999, p. 14). In addition, in its 
    Supplemental Section BCD Response, CSN demonstrated the arm's length 
    nature of its purchase of FCA transportation services, showing CSN's 
    expenses as greater than the average rate charged to other FCA 
    customers.
        We are satisfied that CSN demonstrated the integrity of its home 
    market and U.S. inland freight expenses. Moreover, CSN showed that its 
    transactions with the affiliated rail companies were arm's length in 
    nature. Therefore, we have accepted CSN's freight expenses as reported 
    for the final determination.
        Comment 11: Imputed Credit. According to CSN, the Department erred 
    in its calculation of both U.S. and home market imputed credit in the
    
    [[Page 38772]]
    
    Preliminary Determination. CSN objects to the Department's use of the 
    period between the ex-factory date and date of payment by the customer 
    in calculating U.S. credit. In its calculation of home market credit, 
    CSN contends that the Department should use the gross unit price, 
    inclusive of ICMS and IPI, and not the net unit price.
    
    U.S.
    
        CSN argues that the ex-port shipment date more accurately reflects 
    the theory behind the U.S. imputed credit adjustment. According to CSN, 
    under the time value of money theory, a seller begins losing money the 
    day the product is released from its possession for delivery to a 
    customer until the day the seller receives payment from the customer. 
    To support its opinion, CSN cites the CAFC in LMI-LaMetalli Industriale 
    v. United States, 912 F.2d 455, 460-61 (Fed. Cir. 1990)(LMI-LaMetalli), 
    which stated that the imputation of credit costs ``must correspond to a 
    . . . figure reasonably calculated to account for such value during the 
    gap between delivery and payment.''
        CSN asserts that the Department determined during verification that 
    shipment of the product to the port simply represents the day the 
    product leaves the mill for the port, where it may or may not be placed 
    on a ship for export. CSN notes that the nota fiscal, not the 
    commercial invoice, accompanies the merchandise to the port, where it 
    can then be diverted to other markets, including the home market. CSN 
    states that since ``delivery'' can only be deemed to begin when the 
    product leaves the port, the Department should use ex-port date to 
    calculate U.S. imputed credit expenses.
        Petitioners point out that CSN recognizes that the appropriate 
    calculation of U.S. credit is inextricably linked to the issue of the 
    appropriate U.S. date of sale. Since the Department correctly used the 
    date of the nota fiscal as the date of sale in the Preliminary 
    Determination, petitioners believe the U.S. imputed credit should be 
    calculated from this date to the date of payment by the customer.
        Petitioners note that CSN has reported that the vast majority of 
    its U.S. sales are produced to order. Therefore, they conclude that CSN 
    knows that the product is destined for the United States in most 
    instances. As support for their argument, petitioners point out that 
    the Department verified that the only merchandise diverted to the home 
    market is damaged merchandise. See CSN's Sales Verification Report, p. 
    9. In petitioners' opinion, CSN is asking the Department to determine 
    the date of sale, and thereby, the appropriate date for calculating 
    imputed credit costs, on exceptional cases rather than on the vast 
    majority of sales.
        Moreover, regardless of its destination, petitioners contend that 
    the product, once it leaves the factory, incurs an imputed credit cost. 
    This, according to petitioners, is the ``commercial reality'' which 
    must be reflected in the Department's calculations. See, LMI-LaMetalli 
    v. United States, 912 F.2d 455 (Federal Circuit 1990); cf CSN's Case 
    Brief, p. 5.
        Alternatively, petitioners state that if no credit cost is incurred 
    until shipment from the port, then CSN must incur an inventory carrying 
    cost for the time between shipment from the factory and shipment from 
    the port.
    
    Home Market
    
        CSN views the Department's calculation of the home market imputed 
    credit adjustment net of ICMS and IPI taxes as inappropriate because 
    the money lost as a result of the passage of time between shipment to 
    the customer and the receipt of payment from the customer is the entire 
    amount of the payment due on the invoice (i.e., inclusive of on-invoice 
    taxes).
        CSN states that it is required to pay the government each month for 
    the amount of the invoiced ICMS and IPI it collects (net of credit for 
    taxes paid on inputs). CSN emphasizes that it alone is responsible for 
    any time value of money losses it incurs as a result of extending its 
    customers' credit terms. Therefore, CSN asserts that the basis for the 
    calculation of home market credit should be the gross unit price, 
    inclusive of taxes.
        To support its position, CSN cites the final LTFV determination in 
    Silicon Metal from Brazil, 56 FR 26982 (June 12, 1991) as precedent for 
    this approach: ``The ICMS incident to a home market sale is outstanding 
    until the time that the customer pays for its merchandise. Until the 
    customer pays . . . the (producer) cannot use the ICMS collected on the 
    sale to offset the ICMS it has paid on purchases of materials used in 
    the production of the subject merchandise * * * . Therefore, we have 
    included the ICMS in the home market price when calculating imputed 
    credit expenses.'' The respondent also cites the CAFC, in LMI-LaMetalli 
    v. United States, which stated that the imputation of credit cost, as 
    ``a reflection of the time value of money, * * * must correspond to a * 
    * * figure reasonably calculated to account for such value during the 
    gap between delivery and payment,'' and that it should conform with 
    ``commercial reality.'' 912 F.2d at 460-61.
        CSN concludes that the VAT taxes in Brazil, which are included on 
    each invoice, are a part of the time value losses incurred by Brazilian 
    companies when extending credit terms to their customers. Therefore, it 
    reflects commercial reality to include these taxes in the home market 
    imputed credit adjustment.
        Petitioners argue that the Department correctly calculated home 
    market credit expenses using a price net of ICMS and IPI taxes. 
    (Petitioners noted that although the Department intended to calculate 
    home market credit expenses net of taxes, it inadvertently failed to do 
    so in the computer programming.) They maintain that there are no credit 
    costs associated with the ICMS and IPI payments to the government 
    because CSN admits that it does not pay these taxes until it collects 
    from its customers. Petitioners state that even if CSN pays the 
    government on an invoice-specific basis, these taxes are only paid once 
    a month. Moreover, the record contains no data which correlates 
    shipments, customer payments to CSN, and CSN's payment of VAT taxes to 
    the government, which would permit the accurate calculation of the 
    claimed imputed credit cost adjustment.
        Regarding CSN's contention that an imputed credit cost inclusive of 
    ICMS and IPI taxes is warranted because the producer cannot use the 
    ICMS collected on the sale to offset the tax paid on raw materials used 
    in the production of the merchandise, petitioners argue that the 
    imputed credit costs would be incurred only on the amount of the VAT on 
    the raw material costs and not on the finished product. Furthermore, 
    petitioners maintain that this imputed credit cost would have to 
    reflect the CSN payment period on raw material purchases for both home 
    market and exported merchandise. Petitioners add that even if CSN did 
    pay the VAT on the final product prior to payment from CSN's customer, 
    the period for home market imputed credit costs would be the date of 
    payment to the government, not the date of shipment.
        Petitioners note in the Final Results of the Antidumping 
    Administrative Review of Certain Cut-to-Length Carbon Steel Plate from 
    Brazil, 62 FR 18486, 18488 (April 15, 1997), the Department stated that 
    there is no statutory or regulatory requirement for making this 
    adjustment. According to petitioners, to allow the type of credit 
    adjustment suggested by the respondents would imply that in the future 
    the Department would be faced with the virtually impossible task of 
    trying to determine
    
    [[Page 38773]]
    
    the potential opportunity cost or gain of every charge and expense 
    reported in respondents' home market and U.S. databases.
        Therefore, petitioners conclude that the Department should continue 
    to use its well-supported and consistent practice of calculating 
    imputed home market credit expenses net of ICMS and IPI taxes.
        Department's Position: Both petitioners and the respondent are 
    incorrect in their contention that the credit period is inextricably 
    linked to the date of sale. As cited by petitioners, the seller begins 
    losing money the day the product is released from its possession for 
    delivery to a customer until the day the seller receives payment from 
    the customer. This period comprises the imputed credit period. It is 
    the Department's longstanding policy when calculating imputed credit to 
    use the period between the date of shipment from the factory and the 
    date of payment by the customer. See Notice of Final Results of 
    Antidumping Duty Administrative Review; Ferrosilicon From Brazil, 62 FR 
    43508 (August 14, 1997).
        CSN's characterization of the ex-factory date as ``simply the day 
    the product leaves the mill for the port, where it may or may not be 
    placed on a ship for export'' is misleading. The ex- factory date is 
    the date marking the commencement of delivery of an order to a specific 
    customer. The imputation of credit costs ``must correspond to a * * * 
    figure reasonably calculated to account for such value during the gap 
    between delivery and payment.'' See LMI-LaMetalli, 912 F.2d at 460-61.
        Since the vast majority of CSN's sales are produced to order, CSN 
    knows which products are destined for the United States when the 
    product leaves the factory. Diverting an order of merchandise destined 
    for export to a home market customer because of damage or some other 
    reason is certainly the exception, not the rule, as CSN seems to 
    characterize it.
        CSN itself characterized the calculation of the imputed credit 
    adjustment as ``the difference between ex-factory shipment date and 
    payment date divided by 365 multiplied by the interest rate multiplied 
    by the gross unit price. See CSN's Section C Response to the 
    Department's Questionnaire, p. C-34.
        Therefore, we have continued to use the day the product leaves the 
    factory for delivery to a customer until the day the seller receives 
    payment from the customer as the period for the calculation of both 
    home market and U.S. imputed credit.
        With regard to CSN's contention that home market imputed credit 
    should be calculated using a gross price, the Department agrees with 
    petitioners that home market imputed credit expense should be 
    calculated using the price net of taxes, rather than the gross unit 
    price. It is the Department's practice not to impute credit expenses 
    related to VAT payments. Nor is there any statutory or regulatory 
    requirement for making the adjustment proposed by the respondent.
        While there may be an opportunity cost associated with the 
    respondents' prepayment of the VAT, this fact alone is not a sufficient 
    basis for the Department to make an adjustment in price-to-price 
    comparisons. Virtually every charge or expense associated with price-
    to-price comparisons is either prepaid or paid for at some point after 
    the cost is incurred. Consequently, there is potentially an opportunity 
    cost or gain associated with each expense. To allow the type of credit 
    adjustment suggested by CSN would imply that the Department would have 
    the impossible task of trying to determine the opportunity cost or gain 
    of every charge and expense reported in the respondent's U.S. and home 
    market databases. Therefore, we have changed the computer program for 
    this final determination to reflect our intention in the Preliminary 
    Determination of calculating home market imputed credit expenses using 
    the price net of VAT taxes. See Certain Cut-to-Length Carbon Steel 
    Plate from Brazil, 62 FR 18488, (April 15, 1997); Notice of Final 
    Determination of Sales at LTFV: ESBR from Korea, 64 FR 14865, 14868-69 
    (March 29, 1999).
        Comment 12: Late Payment Fee. CSN objects to the Department 
    imputing a late payment fee on CSN's home market sales when payment had 
    not been received by the date of CSN's January 25, 1999 submission. CSN 
    notes that imputing such late payment fees for these sales is 
    inappropriate because the Department discovered at verification that 
    CSN does not always charge its customers with these late payment fees. 
    The Department, therefore, should not add the imputed fees to CSN's 
    home market price.
        Petitioners, however, maintain that in the Preliminary 
    Determination the Department correctly imputed late payment fees for 
    home market sales with missing payment dates because this reflects 
    commercial reality, and CSN's stated policy. Since the Department found 
    at verification that it was CSN's practice to charge late payment fees, 
    petitioners state that it is only logical to impute late payment fees 
    for sales that have missing payment dates. The burden was on CSN to 
    provide specific information on those sales exempt from a late payment 
    fee. In fact, petitioners note that it is the Department's practice to 
    supply facts available data where the information on the record is 
    missing or inadequate. See Final Determination of Sales at Less Than 
    Fair Value; Certain Preserved Mushrooms from Chile, 63 FR 56613, 56622 
    (October 22, 1998). Given that it is CSN's practice to charge late 
    payment fees and CSN failed to report payment dates on a number of 
    sales, petitioners believe the Department's decision to impute late 
    payment fees was reasonable and in accordance with commercial reality. 
    Moreover, the burden was on CSN to provide specific information on 
    those sales exempt from late payments.
        Department's Position: We agree with petitioners. Although CSN's 
    statement that late payment fees on home market sales were not always 
    assessed was borne out at verification, it is CSN's general policy to 
    require a late payment fee. In fact, in the course of the sales 
    verification, we noted that specific rates for late payments appeared 
    on the invoices of some of the customers. Absent any specific 
    information which would indicate which sales were exempt from payment 
    of a late fee, for this final determination, the Department has assumed 
    that CSN assesses a late payment fee on home market sales under the 
    contractual sales terms.
    USIMINAS/COSIPA
        Comment 13: What Constitutes Verification. In several comments, 
    respondents disagree with the Department's assessment in USIMINAS'' and 
    COSIPA's Sales Verification Reports of what constitutes a verified 
    item. Specifically they dispute the use of terms such as ``spot-
    checking,'' ``unable to fully review,'' and ``unverified.'' They 
    particularly disagree with the Department's assessment in the USIMINAS 
    and COSIPA verification reports that several items were deemed 
    unverified ``because the Department has not reviewed that item, or not 
    reviewed all accounting records related to that document or 
    transaction.'' They find the Department's practices in several 
    instances to not be in keeping with Chapter 13 of the Department's 
    Antidumping Manual. Furthermore, respondents argue that the vast 
    majority of their fundamental sales and cost data verified.
        In referring specifically to certain home market sales trace 
    packets, respondents disagree with the term ``spot checking,'' since 
    they believe that
    
    [[Page 38774]]
    
    the documents reviewed in fully verified traces were similar to those 
    reviewed in spot checks. Respondents believe that both types of checks 
    included the documents of internal order allocation screen, nota 
    fiscal, order confirmation sheet, mill certificate, and the bill of 
    lading. USIMINAS states that the only additional documents found in a 
    fully verified trace were bank documents, accounting ledgers, and 
    payment advices. Additionally, respondents argue that checking every 
    document for every field in order to consider them fully verified 
    contradicts Department practice as noted in the Antidumping Manual, 
    Chapter 13, 47-50. They note that this section of the manual says the 
    goal of this phase of verification is to verify the details of each 
    sale, such as date of sale, product description, customer, destination, 
    date of invoice, date of shipment, quantity, price, credit terms, and 
    date of payment.
        USIMINAS also disagrees with the Department's use of the expression 
    ``unable to fully review'' in referring to a sales trace and dispute 
    the accuracy of this phrase. Respondents also do not believe that they 
    suggested that the Department ``spot check'' sales traces but rather 
    insisted that the Department ``move on and verify the items that are 
    most important to the verification'' so as not to spend an ``inordinate 
    amount of time verifying such insignificant expenses'' as had been 
    verified in previous sales traces. USIMINAS cited the length of the 
    COSIPA inland insurance and the USIMINAS indirect selling expense 
    exhibits, noting the insignificance of these adjustments.
        Petitioners argue that the Department should stand by its verified 
    sales findings in the final determination. They believe that 
    respondents were ``woefully unprepared'' for verification and little of 
    the submitted information could be verified. In citing Chapter 13 of 
    the Antidumping Manual, petitioners note that the Department's 
    verifiers correctly followed Departmental practice by examining source 
    documents ``rather than simply accepting `explanations' '' offered by 
    respondents. Petitioners note that in respondents' first example of a 
    spot-checked sales trace, they mistakenly appear to be comparing a home 
    market with a U.S. sales trace. Petitioners also argue that absent 
    proof of payment and proof of receipt of payment, a sales trace is 
    incomplete and cannot be considered ``verified.'' They subsequently 
    quote eleven statements in the verification reports that they believe 
    demonstrate USIMINAS and COSIPA's general lack of preparation in 
    providing fundamental verification documentation. In petitioners' view, 
    this lack of preparation and uncooperative behavior call for the 
    application of total adverse facts available in the final 
    determination.
        Department's Position: As indicated by the USIMINAS and COSIPA 
    verification reports, respondents either said they were unprepared or 
    preferred to cover other topics at each point when items requested by 
    the Department were left unaddressed. In the Department's March 8, 1999 
    verification outline sent to USIMINAS and the March 11, 1999 outline 
    sent to COSIPA, we stated, ``If your clients are not prepared to 
    support or explain a response item at the appropriate time, the 
    verifiers will move on to another topic. If, due to time constraints, 
    it is not possible to return to that item, we may consider the item 
    unverified. Furthermore, if information requested for verification is 
    not supplied, or is unverified, pursuant to section 776(a) of the Act, 
    we may use facts available for our final determinations, which may 
    include information supplied by the petitioners.'' Respondents were 
    fully aware that failure to cover items requested by the Department 
    could result in these items being considered unverified. The Department 
    sought to verify each of the items at issue, but these items were not 
    addressed by the company at the time of the request. Further, the 
    verification procedures and verification reports were in compliance 
    with Departmental procedures laid out in Chapter 13 of the Antidumping 
    Manual.
        At the same time, most of the items that Commerce was unable to 
    verify are relatively minor and the most essential components of 
    verification were successfully completed. The Department, therefore, 
    does not agree with petitioners that the use of total adverse facts 
    available is warranted. The Department is, instead, applying partial 
    facts available where necessary and using an adverse inference where 
    appropriate under section 776(b) of the Act. See the Facts Available 
    section of this notice and the treatment of specific issues in the 
    comments.
        Comment 14: Prioritization and Volume of Material Covered. 
    USIMINAS/COSIPA generally argue that the large volume of material the 
    Department attempted to review in one week and the time the Department 
    spent reviewing ``many items in detail'' did not permit certain items 
    to be verified. They disagree with the manner in which the Department 
    conducted verification and do not believe the Department followed 
    proper time management and prioritization procedures as outlined in 
    Chapter 13 of the Antidumping Manual. Respondents had four specific 
    comments related to prioritization and time management.
        USIMINAS believes that the Department's attempt to review USIMINAS 
    and its downstream affiliates, Rio Negro and Fasal, within one week was 
    misguided. It argues that the Department sought to review in detail 
    each company's accounting practices, corporate structure, sales 
    process, quantity and value, and sales trace documents. The respondent 
    believes that this was too difficult and time consuming a task and 
    notes that the review of Fasal as discussed in the USIMINAS 
    Verification Report took nearly a full day of the USIMINAS 
    verification.
        Respondents claim that the Department sought to verify ``numerous 
    time consuming and contentious issues'' such as date of sale, order 
    confirmation, CONNUM methodologies, and production and cost 
    information. Respondents argue that the Department should have allotted 
    extra time for the verification, given the level of complexity and 
    detail with which the Department reviewed these items.
        Respondents state that the Department requested twenty preselected 
    sales traces, fourteen partial sales traces for specific issues in the 
    verification report, ten surprise sales traces on the first day of 
    verification, and twenty more surprise ``date of sale'' sales traces. 
    They argue that retrieving and compiling all the source documents for 
    these sales was unduly burdensome for USIMINAS staff to prepare, review 
    for accuracy, and present to the Department.
        Lastly, respondents argue that the Department sought to verify each 
    item of a sales trace in detail regardless of its importance to the 
    Department's calculations. For instance, they believe that the 
    Department spent ``hours verifying USIMINAS' inland insurance'' and 
    that the length of COSIPA's exhibit on inland insurance demonstrates 
    the Department's overemphasis on the issue. Respondents quote sections 
    of Chapter 13 of the Department's Antidumping Manual to demonstrate 
    that the Department should not ``spend one day verifying inland 
    insurance'' and that verifiers should not treat all information with 
    the same importance.
        Petitioners argue that the Department did prioritize issues but 
    USIMINAS and COSIPA prevented the verifiers from verifying those 
    issues. As noted in Chapter 13 of the Antidumping Manual, petitioners 
    state that setting priorities is the responsibility of the verifiers, 
    not
    
    [[Page 38775]]
    
    the respondents. They argue that the verifiers' efforts to keep the 
    verification moving and to set priorities were constantly challenged by 
    respondents. They cite thirteen quotations from the verification report 
    which they believe support this claim. An example of such a quote is, 
    ``Although we asked for documentation regarding Dufer's sales process, 
    COSIPA requested that we move on to verify other verification subjects, 
    and return to Dufer. We never returned to this issue.'' Petitioners 
    argue that if USIMINAS and COSIPA could dictate which issues could be 
    verified and how deeply, they would be able to ``manipulate the outcome 
    of the verification.''
        Petitioners state that ``the verification agenda is not to blame 
    for the fact that USIMINAS and COSIPA were unprepared for 
    verification.'' They disagree that the ``large volume of material the 
    Department attempted to verify'' or the ``considerable time'' the 
    Department spent reviewing items were responsible for USIMINAS and 
    COSIPA's performance at verification. Petitioners note that the 
    Department issues a similarly detailed verification agenda in virtually 
    every proceeding and that respondents never complained to the 
    Department prior to verification. Petitioners contradict respondents' 
    assumption that more time would have allowed verifiers to consider each 
    issue by stating that ``virtually no issue could be verified, 
    regardless of the amount of time devoted to it.'' For example, 
    petitioners note that the Department was unable to verify Fasal's 
    quantity and value despite the amount of time spent reviewing Fasal. 
    Instead, petitioners argue that respondents were unprepared and 
    uncooperative and the Department should apply total adverse facts 
    available in the Final Determination.
        Department's Position: In the Department's verification agendas, we 
    informed respondents to contact the Department ``[I]f you have any 
    questions regarding this verification or if you believe any of the 
    verification procedures cannot be performed.'' The Department did not 
    receive any submissions from respondents regarding the length or 
    breadth of the outline prior to verification. The outlines given to the 
    companies were based on Departmental standards with the exception of 
    downstream data, a topic only covered when merited by the facts of a 
    case. The Department disagrees with respondents' description of the 
    amount of time it took to review certain topics such as USIMINAS' 
    corporate structure and inland insurance, and notes that the length of 
    time it took to cover other topics such as quantity and value was left 
    unaddressed by respondents. The verification exhibits themselves 
    demonstrate one factor that contributed to the slow pace of 
    verification--the number of untranslated pages.
        The Department recognizes that, like many verifications, there was 
    a significant amount of material to cover. However, it is the 
    Department's responsibility to set priorities and to determine the 
    amount of time spent on topics to ensure that the verification moves 
    forward. As noted in the Department's verification outline, it is the 
    responsibility of the respondents to be prepared for verification to 
    allow this information to be covered expeditiously. The Department 
    believes that it met its responsibilities and that the time spent 
    reviewing certain fundamental issues, such as downstream affiliates, 
    date of sale, order confirmation, and CONNUM methodologies was 
    appropriate for information essential to this investigation.
        Comment 15: Use of Total Facts Available. Petitioners state that, 
    based on multiple problems with USIMINAS' sales verification, the 
    Department should apply total adverse facts available. Petitioners 
    specifically reference the Department's inability to complete all of 
    the pre-selected and surprise sales trace examinations in the home 
    market and the U.S. market during its verification of USIMINAS. Based 
    on the problems noted in the USIMINAS' Sales Verification Report, 
    petitioners question the reliability and accuracy of the following 
    reported information in the home market: Taxes, billing adjustments, 
    quantity discounts, other discounts, inland freight, inland insurance, 
    payment date, credit expense, interest revenue, warranty expense, 
    indirect selling expenses, inventory carrying costs, packing expenses, 
    and variable cost of manufacture. Petitioners also question, in most 
    instances, the reliability of the following reported information in the 
    U.S. market: Product characteristics, customer name, date of payment, 
    sales terms, terms of payment, level of trade, domestic inland freight, 
    domestic brokerage and handling, international freight, destination, 
    credit expense, interest revenue, warranty expense, indirect selling 
    expenses, packing expenses, and variable costs. Petitioners recommend 
    that the Department apply as total adverse facts available, the highest 
    rate calculated in the petition, 85.71%.
        Petitioners likewise state that based on multiple problems with 
    COSIPA's sales verification, the Department should apply total adverse 
    facts available. Petitioners specifically reference the Department's 
    inability to complete all of the pre-selected and surprise sales trace 
    examinations in the home market and the U.S. market. Petitioners 
    question the reliability and accuracy of the following reported 
    information in the home market: value-added tax credits on production 
    inputs, billing adjustments, quantity discounts, other discounts, 
    inland freight, inland insurance, payment date, credit expense, 
    interest revenue, warranty expenses, indirect selling expenses, 
    inventory carrying costs, packing expenses, and variable cost of 
    manufacture. Petitioners question, in most instances, the reliability 
    of the following reported information in the U.S. market: product 
    characteristics, customer name, order date, sale date, date of 
    shipment, date of payment, sales terms, terms of payment, quantity, 
    level of trade, domestic inland freight, domestic brokerage and 
    handling, destination, credit expense, interest revenue, warranty 
    expense, indirect selling expense, packing expense, and variable costs.
        As further argument that the Department should apply total adverse 
    facts available in this case, petitioners state that the Department was 
    unable to verify the accuracy of the date of sale reported by COSIPA 
    for home market sales. Petitioners refer to the COSIPA verification 
    where the Department requested specific documents for ten additional 
    home market sales. Petitioners state that since the Department only 
    received one document for a limited number of the requested sales, that 
    the Department cannot be confident that the appropriate date of sale 
    was reported for home market sales. Petitioners also maintain that 
    other problems discovered at verification are cause to use total facts 
    available. Petitioners refer to COSIPA's omission of supplementary 
    notas fiscais issued during the period of investigation, the 
    Department's inability to verify the reported order confirmation date, 
    and instances where the Department requested but did not receive sales 
    process information and documentation. Furthermore, petitioners refer 
    to problems with verification of COSIPA's quantity and value. 
    Petitioners highlight instances where the company neglected to report 
    certain home market sales to the Department for more than one customer. 
    Petitioners recommend that the Department apply as total adverse facts 
    available, the highest rate calculated in the petition, 85.71%.
        Respondents do not feel that the information willingly submitted by
    
    [[Page 38776]]
    
    USIMINAS and COSIPA satisfies the high threshold for the application of 
    total adverse facts available. Respondents refer to Borden, Gooch Foods 
    and Hershey Foods v. United States, 4 F. Supp. 2d. 1221, 1244 (CIT 
    1998) (Borden Foods), to support their opinion that it is not proper 
    for the Department to apply total adverse facts available in this 
    investigation. Respondents provide several facts to support their claim 
    that they cooperated fully in these proceedings. First, respondents 
    point to the number of questionnaire and supplemental questionnaire 
    responses that they have submitted in this investigation as evidence 
    that they have fully cooperated. In addition to the numerous 
    questionnaire responses, respondents note the refinements to submitted 
    data that were researched by hand, such as multiple payment dates, 
    calculating actual freight amounts, creating additional CONNUMS for 
    unique qualities, creating additional methodologies to report missing 
    carbon and yield strengths, and designing and implementing complicated 
    computer programs to extract scope merchandise based on chemical 
    composition. Respondents refer to NSK Ltd. and NSK Corp. v. United 
    States, 919 F. Supp. 422, 448 (CIT 1996) (NSK Ltd.) and Ferro Union v. 
    United States, Slip Op. 99-27 (CIT March 23, 1999) (Ferro Union), as 
    support for their argument that the Department should not accept 
    petitioners' suggestion that it disregard months of work on USIMINAS' 
    and COSIPA's parts in lieu of total facts available since they 
    cooperated throughout the proceeding. Second, respondents state that 
    the USIMINAS and COSIPA opened up company books, records, and computer 
    systems to Department officials during verification. Respondents state 
    that they brought representatives of the affiliated resellers to their 
    own locations to provide source documentation and maintain that they 
    prepared volumes of information for verification. Respondents argue 
    they did not hamper the investigation in any way and state that it was 
    only when the companies were faced with unrealistic demands at 
    verification that they were unable to provide all the information 
    sought by the Department.
        Respondents refute petitioners' claim that much of the submitted 
    data was unverified, claiming that value and volume, product 
    characteristics, date of sale, sales processes, accounting processes, 
    corporate structures, and production processes were fully verified. 
    Respondents assert that quantity and value were verified and that any 
    discrepancies were either noted at the beginning of verification, or 
    minor errors discovered during the course of verification. Respondents 
    state that petitioners did not allege any significant errors regarding 
    the quantity and value of respondents' reported sales. Respondents 
    maintain that the Department reviewed and verified the sales processes 
    of the companies and that the verification reports did not note 
    significant discrepancies. Respondents believe that the verification 
    reports substantiate respondents' claims that order date should not be 
    used for date of sale purposes. Respondents point out that no 
    discrepancies were noted in the verification reports regarding the 
    Department's review of production processes and facilities, the 
    explanation of the classification of products, and plant tours. 
    Respondents cite Asociacion Colombiana de Exportadores v. United 
    States, 704 F. Supp. 1114, 1117 (CIT 1989) (Asociacion Colombiana) as 
    further evidence that the verification deficiencies of minor expenses 
    are not enough to justify the use of total adverse facts available.
        Respondents state that petitioners' claim that Department verifiers 
    were unable to verify USIMINAS' and COSIPA's sales data is incorrect. 
    Respondents maintain that the Department's sampling of the selected 
    sales traces was reasonable and therefore, the sales information should 
    be considered verified. Respondents point to the number of home market 
    sales traces that were completed by the Department and state that the 
    spot checks of the other traces in conjunction with the separate 
    verification of the allocated expenses constitute verification of sales 
    data.
        Respondents also state that petitioners do not point to basic 
    problems or flaws with the sales data actually reviewed. Respondents 
    assert that petitioners focus on the Department's inability to review 
    information at verification, and that it would be inconceivable for the 
    Department to apply total facts available simply because the Department 
    did not review all the fields of all of the sales traces. Respondents 
    state that petitioners incorrectly make the assumption that the 
    Department's inability to verify certain subjects means that those 
    subjects were not considered verified. Respondents maintain that the 
    Department's failure to review an item does not mean that the item is 
    not verified.
        Respondents also state that petitioners are incorrect in asserting 
    that COSIPA did not report certain home market sales. COSIPA maintains 
    that these sales had been previously reported, but had been 
    inadvertently omitted from the March 1, 1999 submission of data. COSIPA 
    states that these sales were corrected and reported at verification.
        Department's Position: The Department disagrees with petitioners' 
    call for total adverse facts available for USIMINAS and COSIPA. While 
    the Department acknowledges that there were multiple problems at the 
    sales verifications of USIMINAS and COSIPA, the nature and extent of 
    these problems do not support the use of total facts available. The 
    Department agrees with respondents that the major components of 
    verification verified. These include quantity and value, production 
    characteristics, and sales and accounting processes. By contrast, the 
    majority of the information that did not verify generally constituted 
    relatively minor issues and adjustments. The Department does not find 
    that the inability to complete all of the pre-selected and surprise 
    sales traces is substantial enough in this case to necessitate the use 
    of total facts available.
        Respondents' reference to Borden Foods, however, is off point. In 
    the Borden Foods case, the Court did not disagree with the Department's 
    use of total adverse facts available. Instead, that case dealt with the 
    subject of corroboration of the facts available margin imposed in that 
    proceeding.
        Further, the Department disagrees with respondents' assumption that 
    the Department's failure to review certain items at verification 
    equates to the verification of those items. As stated in USIMINAS' and 
    COSIPA's Sales Verification Reports, there were numerous instances in 
    which the Department sought to cover certain items, and the respondents 
    declined for reasons described in the report. These items do not have 
    the same status as items which the Department chooses not to raise at 
    verification. The Department considers these items which were raised by 
    the Department, but not addressed by the respondents, to be unverified. 
    Please see Comment 13 on What Constitutes Verification for a complete 
    discussion of this issue.
        While the Department does not find the use of total facts available 
    appropriate in this investigation, there were several instances which 
    merited the use of partial facts available. See the comments below for 
    specific applications of facts available.
        Comment 16: Use of Facts Available. Petitioners state that if the 
    Department decides to accept USIMINAS and COSIPA's questionnaire 
    responses, facts available must be applied in certain
    
    [[Page 38777]]
    
    instances as described in several comments below.
        Respondents refer to Borden Foods in asserting that the Department 
    must use caution in applying facts available, but respondents suggest 
    that the Department use facts available in certain instances as 
    described in specific comments below. Respondents also refer to 
    National Steel in stating that the Department should not make adverse 
    inferences where respondents have acted to the best of their ability 
    and the error is minor.
        To support their claim that verification problems were 
    insignificant, respondents cite NSK Ltd., which in turn cites Ad Hoc 
    Comm. Of AZ-NM-TX-FL Producers of Gray Portland Cement v. United 
    States, 865 F. Supp. 857, 866, (CIT 1994), stating, ``Neutral BIA is 
    `applied only to a respondent who has substantially complied and there 
    is also an inadvertent or unavoidable gap in the record, or when a 
    minor or insignificant adjustment is involved.' '' 919 F. Supp. at 448.
        Department's Position: As discussed in the Facts Available section 
    above, the Department has determined that facts available should be 
    applied for certain sales adjustments and expenses. The Department gave 
    USIMINAS and COSIPA substantial opportunity to verify multiple 
    outstanding issues at the sales verification. As noted in the Sales 
    Verification Reports for both companies, respondents were either unable 
    to or unwilling to verify these issues. The agendas were provided to 
    respondents prior to verification, and the information was repeatedly 
    requested by the Department officials at the verification. In instances 
    in which the material remained unverified, the Department applied facts 
    available. In several instances, because the respondents failed to 
    cooperate to the best of their abilities, the Department applied 
    adverse facts available in accordance with section 776(b) of the Act. 
    See the individual comments below for specific applications of facts 
    available and adverse facts available.
        In reference to Borden Foods and National Steel, the Department 
    notes that these cases were not governed by the current statute, and 
    the use of adverse inferences is now governed by section 776(b) of the 
    Act. Moreover, respondents' reference to Borden Foods is off point. See 
    Comment 15 above. In addition, respondents' reliance on National Steel 
    in asserting that the Department should not make adverse inferences in 
    the application of facts available is misplaced. Further examination of 
    National Steel supports the use of partial facts available ``when only 
    part of the submitted information is deficient,'' and the use of an 
    adverse inference ``depend[ing] on the level of sufficiency of the 
    information provided.'' 919 F. Supp. at 442.
        Comment 17: Collapsing USIMINAS AND COSIPA. Respondents assert that 
    the Department's decision to collapse USIMINAS and COSIPA into a single 
    company for purposes of calculating dumping margins, a single average 
    cost of production and unified average prices was incorrect. 
    Respondents do not dispute two of the criteria used by the Department 
    in making this determination: (1) The two companies manufacture 
    substantially similar products and (2) USIMINAS has a high level of 
    direct ownership in COSIPA. They do, however, dispute the Department's 
    determination that there is some intertwining of operations and do not 
    believe that USIMINAS is in a position to manipulate COSIPA's prices or 
    production. Though USIMINAS is the largest shareholder in COSIPA and 
    appoints two members to its Administrative Council, respondents argue 
    that USIMINAS'' influence is limited. Respondents state that the 
    Administrative Council focuses on ``large-impact corporate decisions'' 
    and not pricing. They also indicate that each company's Directorate, 
    where pricing and sales policies are discussed, is composed entirely of 
    its own employees with neither company appointing directors of the 
    other. Citing their letter of February 9, 1999, respondents note that 
    the companies maintain separate and distinct sales staff and offices, 
    do not make joint sales calls, meet with their own customers, and 
    determine prices separately.
        Respondents contest the Department's view that USIMINAS and COSIPA 
    have some intertwining of operations as shown by the supply of 
    technology from USIMINAS to COSIPA. They state that this supply has to 
    do with the sale of computer programs and discussions on optimizing 
    productivity of equipment, but nothing to do with the pricing or 
    marketing of products. For all these reasons, respondents do not 
    believe that there is a basis for collapsing USIMINAS and COSIPA to 
    determine dumping margins.
        Petitioners disagree with respondents' argument that USIMINAS'' and 
    COSIPA's operations are not sufficiently intertwined to justify 
    collapsing the two companies. First, they cite the Preliminary Results 
    and Partial Rescission of Antidumping Administrative Review of 
    Sulfanilic Acid from the People's Republic of China, 61 FR 29073, 29075 
    (June 7, 1996) and the Fresh Cut Flowers, 61 FR 42833, 42853, arguing 
    that substantial intertwining of operations is not a necessary 
    precondition to collapsing where evidence on the other collapsing 
    factors is sufficient to indicate a significant possibility of price 
    manipulation and where determinations are made based on the totality of 
    the circumstances. Secondly, petitioners refer again to Fresh Cut 
    Flowers in arguing that the lack of current intertwining of operations 
    does not establish that there is no potential that such will occur. 
    They believe that the circumstances of this case indicate the 
    significant potential for such intertwining to occur.
        Petitioners contest respondents' assertion that USIMINAS and COSIPA 
    were improperly collapsed for this investigation. Citing the 
    Department's findings in the U.S. Department of Commerce Internal 
    Memorandum from R. Weible for J. Spetrini, Case No. A-351-828 (December 
    22, 1998) (``Collapsing Memorandum''), petitioners state that the first 
    prong of the collapsing test, that both companies' facilities and 
    products were similar enough so as not to require substantial retooling 
    in order to restructure manufacturing priorities, had been met. 
    Regarding the second prong of the test, in which the Department 
    examines the potential for price manipulation or production, 
    petitioners state that there are three relevant factors the Department 
    considers as listed in the Collapsing Memorandum. They note that all 
    three factors need not be present in order to find significant 
    potential for price or production manipulation. Petitioners point out 
    that respondents conceded that the first two factors, a high level of 
    common ownership and common employees or board members, are present in 
    this case. They also refer to the Collapsing Memorandum, in which the 
    Department found that the third criterion of intertwined operations was 
    met by virtue of transferred technology. Petitioners reiterate that 
    even though all three factors need not be present, the Department's 
    findings and the record show that all three are present and 
    sufficiently demonstrate the significant potential for price or 
    production manipulation.
        Department's Position: The Department agrees with petitioners. On 
    December 22, 1998, the Department outlined in its Collapsing Memorandum 
    referenced above its decision to collapse USIMINAS and COSIPA. For this 
    final determination, we have continued to collapse these two companies. 
    Because the Department is concerned with price and cost manipulation, 
    it must ensure that reviewed companies ``constitute
    
    [[Page 38778]]
    
    separate manufacturers or exporters for purposes of the dumping law.'' 
    See, Final Determination of Sales at Less than Fair Value; Certain 
    Granite Products from Spain, 53 FR 24335, 24337 (June 28, 1988). Where 
    there is evidence indicating a significant potential for the 
    manipulation of price and production, the Department will ``collapse'' 
    related companies; that is, the Department will treat the companies as 
    one entity for purposes of calculating the dumping margin.
        Before considering whether companies should be collapsed, the 
    Department must first find that the companies in question are 
    affiliated within the meaning of section 771(33) of the Act. As 
    outlined in the Department's Collapsing Memorandum, USIMINAS and COSIPA 
    meet the criteria for affiliation which is undisputed by respondents. 
    Under Sec. 351.401(f)(1) of the Department's regulations, to determine 
    whether to collapse, we examine whether the affiliated producers have 
    similar production facilities, such that retooling would not be 
    required to shift production from one company to another, and if there 
    is significant potential for the manipulation of prices or production. 
    USIMINAS and COSIPA meet the first prong of this test since they are 
    both fully integrated producers of steel offering a similar range of 
    products. See the Collapsing Memorandum for further discussion of this 
    issue. In examining the potential for the manipulation of price or 
    production, the Department considers the following: (1) The level of 
    common ownership; (2) the existence of interlocking officers or 
    directors; and (3) the existence of intertwined operations. The 
    Department notes that section 351.401(f)(2) states that all three 
    factors need not be present to find a significant potential for the 
    manipulation of price or production.
        Since USIMINAS is the largest single shareholder in COSIPA, owning 
    49.79% of its voting stock, the level of common ownership is 
    significant. USIMINAS' Chairman of the Board (or Administrative 
    Council) and USIMINAS' Director both serve on COSIPA's board of 
    directors. See COSIPA Verification Exhibit 1 at 7 and USIMINAS 
    Verification Exhibit 2 at 6. Regarding intertwined operations, as noted 
    in the Collapsing Memorandum, Brazil's Securities Commission reports 
    that USIMINAS has supplied COSIPA with technology. USIMINAS and COSIPA, 
    together with CSN, also joined in a consortium to buy a controlling 
    interest in MRS Logistica, a rail transport company. Additionally, 
    USIMINAS, COSIPA, and CSN cooperate in the buying of imported coal.
        Even if the degree of intertwined operations between USIMINAS and 
    COSIPA is insufficient by itself to find a potential for the 
    manipulation of prices or production, we rely on the totality of the 
    circumstances in deciding this issue. See Final Determination of Sales 
    at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, 
    Certain Cold-Rolled Carbon Steel Flat Product, and Certain Corrosion-
    Resistant Carbon Steel Flat Products from Japan, 58 FR 37154, 37159 
    (July 9, 1993), (Japanese Steel). The Department finds that the 
    preponderance of evidence on the record indicates a significant 
    potential for USIMINAS and COSIPA to manipulate prices or production. 
    Since the criteria outlined in Sec. 351.401(f)(1) of the Department's 
    regulations have been met, the Department is continuing to collapse 
    USIMINAS and COSIPA in this final determination.
        Comment 18: Downstream Sales/Level of Trade. Petitioners state that 
    due to the Department's inability to verify downstream sales data, 
    facts available should be applied for the final determination. 
    Petitioners recall that in the Preliminary Determination, the 
    Department used facts available because the reported downstream sales 
    data was incomplete and not useable. Petitioners state that problems 
    with the verification of downstream data (e.g., the Department was 
    unable to verify quantity and value for the downstream companies, 
    USIMINAS was unable to provide information requested by the verifiers 
    regarding the completeness of sales through one of the downstream 
    companies, and the Department's inability to verify the sales process 
    of some downstream companies) necessitate the use of facts available. 
    Petitioners also maintain that the Department's inability to verify the 
    respondents' LOT claims make it impossible to determine if different 
    levels of trade exist. Petitioners state that because of these 
    problems, the Department must resort to facts available. As facts 
    available, the petitioners recommend that the Department apply the same 
    facts available methodology that was applied in the Preliminary 
    Determination.
        Respondents believe that the Department inaccurately portrayed the 
    fact that the Rio Negro was not verified by making the statement, 
    ``USIMINAS said it preferred to review other topics instead.'' They 
    argue that a more accurate representation is that the Department's 
    verification methods prevented respondents from presenting all 
    information requested in the outline in the manner desired by the 
    Department. These methods included spending a ``full day and a half 
    reviewing USIMINAS' corporate structure and price fixing allegations,'' 
    a full day reviewing USIMINAS' other downstream affiliate, Fasal, and 
    not following the recommendation in Chapter 13 of its Antidumping 
    Manual on setting verification priorities. Moreover, respondents 
    suggested that the verification of Rio Negro take place at COSIPA's 
    offices because USIMINAS and COSIPA were collapsed for this 
    investigation, because it would save time at USIMINAS, and because Rio 
    Negro's facilities were closer to COSIPA. For all of these reasons, 
    respondents made clear that it preferred to move on to topics other 
    than Rio Negro.
        Respondents maintain that the petitioners overstate claims that the 
    Department's verification reports note several flaws and problems with 
    the USIMINAS and COSIPA verifications. Respondents state that 
    petitioners focus too much emphasis on respondents' downstream sales 
    data, and that petitioners misquote portions of the verification 
    reports. Respondents state that many of the flaws pointed out by 
    petitioners are not flaws, but rather items that the Department was not 
    able to verify because of time constraints.
        Respondents state that the Department should disregard petitioners 
    calls for the use of facts available in lieu of respondents' downstream 
    sales data. While the respondents agree that the Department officials 
    were unable to review much of the affiliates' downstream sales data, 
    they state that there was not enough time allotted to the verification 
    to allow for the review of the downstream data. Respondents maintain 
    that it would be incorrect for the Department to resort to facts 
    available based on the fact that all downstream sales data were not 
    verified. Respondents have maintained throughout the proceeding that 
    the Department should not use downstream data in calculating margins 
    since these sales account for a small percentage of the respondents' 
    home market sales, are physically different products, and are made at a 
    different LOT. Respondents also note that it was very difficult for the 
    companies to gather the downstream data as requested by the Department. 
    Respondents maintain that based on the facts listed above, the 
    Department should simply disregard downstream sales. Respondents state 
    that if the Department does not choose to disregard these sales, facts 
    available should not be used. Rather, respondents suggest the 
    Department should use the
    
    [[Page 38779]]
    
    downstream information reported because the downstream companies 
    provided this information to the best of their abilities. Respondents 
    state that section 782 of the Act provides that the Department should 
    not disregard the information submitted by an interested party if it 
    has acted to the best if its ability, and that the Department should 
    take into consideration any difficulties experienced by interested 
    parties in providing information to the Department.
        Department's Position: The Department agrees in part with both 
    petitioners and respondents. At verification, the Department requested 
    to cover LOT, but respondents indicated they preferred to move on to 
    other topics. We repeatedly asked to return to this issue, but were 
    unsuccessful. Because respondents showed no cooperation in verifying 
    this topic and the burden is on respondents to support all LOT claims, 
    we are not making an LOT adjustment. See Cold-Rolled Carbon Steel Flat 
    Products from the Netherlands; Final Results of Antidumping Duty 
    Administrative Review, 63 FR 13205, 13206 (March 18, 1998) (``the 
    burden is on a respondent to demonstrate that its categorizations of 
    LOT are correct.'')
        The Department was also unable to verify most issues regarding the 
    affiliated downstream companies. We were unable to verify quantity and 
    value for any downstream entity. We were only able to verify portions 
    of one sales trace and product characteristics for one downstream 
    company. There were many variables for this sales trace that we could 
    not verify. Therefore, pursuant to section 776(a)(2)(D) of the Act, we 
    must us the facts available. Respondents suggest that the verification 
    of downstream companies was burdensome, but upon receiving the 
    verification outline, they did not indicate that they were unable to 
    comply with this section. See section 782(c)(1) of the Act. The 
    Department made repeated attempts to verify downstream sales 
    information, but respondents declined to cover these topics. For these 
    reasons we find that respondents failed to cooperate to the best of 
    their abilities and pursuant to section 776(b) of the Act, the 
    Department is applying adverse facts available to downstream sales.
        As adverse facts available, the Department used the downstream data 
    reported by USIMINAS and COSIPA for CONNUM matching purposes only. In 
    cases in which the best match is to a downstream home market sale, we 
    applied as adverse facts available the highest calculated margin for 
    any USIMINAS/COSIPA CONNUM. The Department finds that this margin is 
    indicative of USIMINAS/COSIPA's customary selling practices and is 
    rationally related to the transactions to which the adverse facts 
    available are being applied.
        The approach proposed by petitioners--using only identical matches 
    at the same LOT--is not appropriate for several reasons. First, as 
    noted above, because respondent did not support its claims for multiple 
    LOTs, we are determining there is a single LOT for all U.S. and home 
    market sales for this final determination. Second, we are able to 
    calculate difference in merchandise adjustments for this final 
    determination, because the deficiencies in the cost data at the time of 
    the preliminary determination have been subsequently remedied.
        Comment 19: Date of Sale. Petitioners assert that the verifications 
    of USIMINAS and COSIPA establish that documents issued long before the 
    commercial invoice memorialize the agreed terms of sale. USIMINAS sends 
    the customer an export contract which sets out the general terms of 
    sale, including price and quantity. The attached order confirmation 
    specifies quantity, price, tolerances, order date, and expected 
    delivery date. Similarly, COSIPA's export contract specifies the 
    estimated delivery time, sales conditions, payment terms, and the date 
    of issuance. Attachments to this document specify dimensions, price, 
    quantity, and tolerances. See USIMINAS'' Sales Verification Report, p. 
    15 and COSIPA's Sales Verification Report, p.10.
        Petitioners maintain that USIMINAS'' and COSIPA's shipment data 
    likewise indicate no change in material terms which invalidate order 
    confirmation or export contract date as the date of sale. In the great 
    majority of instances, petitioners argue that shipments were within 
    contract tolerances. Even where quantity tolerances are not met, 
    petitioners note that the price was unaffected. Petitioners conclude 
    that invoice date is not acceptable as the date of sale for USIMINAS 
    and COSIPA. Therefore, the Department should use the order confirmation 
    date, or alternatively, the export contract date, which is available 
    for most U.S. sales.
        Respondents counter that the Department was correct in using the 
    date of nota fiscal as the date of sale for home market sales and 
    relying on the commercial invoice date for USIMINAS and the nota fiscal 
    date for COSIPA in its Preliminary Determination. According to 
    USIMINAS/COSIPA, the Department's regulations make clear that the 
    ``invoice'' date is the preferred sale date because it simplifies 
    reporting and verification of information and accommodates changes that 
    often occur up to the invoice date. In support of this argument, they 
    cite the Department's Antidumping Regulations, 62 FR 27296, 27348 (May 
    19, 1997). Moreover, USIMINAS and COSIPA state that their sales terms 
    are not set with finality until the invoice date. Respondents assert 
    that Department verifiers were unable to locate any retrievable date to 
    use as the ``order'' date. (See USIMINAS'' Sales Verification Report, 
    pp. 12-16.) Therefore, the Department should continue to use the 
    invoice date as the date of sale for the final determination.
        Respondents also raise several issues related to the Department's 
    methodology in verifying date of sale and the discussion of the issue 
    in the USIMINAS and COSIPA verification reports. They dispute the 
    Department's phrasing that ``it was not possible to verify USIMINAS'' 
    order dates due to the apparent unavailability of certain documents.'' 
    They believe that a more accurate statement would have been that 
    respondents ``do not reliably keep order confirmation date information 
    in their normal course of business.'' Respondents assert that they made 
    clear in prior submissions that they could not provide this information 
    because they do not reliably keep such records in their normal course 
    of business. They also state that the Department spent significant time 
    at verification searching for order date information and that the 
    Department's verification report supports their claim that these 
    documents are elusive, not that they are not verified.
        USIMINAS points out that while the Department did not receive 
    alteration history screens for all sales traces as requested, it did 
    receive printouts of this document for ``nearly all'' of the sales 
    traces. It adds that copies of the screens were presented on the last 
    day of COSIPA's verification, but the Department did not choose to take 
    all of them. Additionally, USIMINAS states that the computer screens 
    themselves, if not actual copies, were available to the verifiers. 
    Respondents argue that the Department spent ``considerable time 
    reviewing information that appears to be more relevant to costs than to 
    sales.'' They find it conceivable that the Department originally sought 
    this information to address the order date issue, but believe that the 
    Department's focus was more on production and cost information. 
    Respondents cite as evidence of this that the Department insisted on 
    visiting the control tower, witnessing the types of computer
    
    [[Page 38780]]
    
    reports used to generate production reports, and later meeting with 
    production planning staff.
        Respondents believe that the amount of time devoted to the order 
    confirmation and date of sale issues and the level of detail sought by 
    the Department limited the amount of time that could be devoted to 
    other topics. Respondents note the number of pages written by the 
    Department about the topic and comment that the discussions included 
    details about their price circulars, location and responsibilities of 
    each sales office, the method by which the mill is contacted, time and 
    manner of computer record keeping, and the frequency of internal sales 
    meetings. Respondents argue that despite their indications that order 
    confirmation information was not stored in the computers in any 
    organized fashion, the Department spent considerable time at both 
    USIMINAS and COSIPA learning more about the order confirmation process, 
    reviewing computer records, and asking for production records.
        Department's Position: The Department disagrees in part with both 
    petitioners and the respondents. The date of sale is the date on which 
    all substantive terms of sale are agreed upon by the parties, including 
    the price, quantity, delivery and payment terms. In accordance with 19 
    CFR 351.401(i), the date of sale will normally be the date of the 
    invoice, as recorded in the exporter's or producer's records kept in 
    the ordinary course of business, unless satisfactory evidence is 
    presented that a different date better reflects the date on which the 
    exporter or producer establishes the material terms of sale. For 
    example, in Final Determination of Sales at Less Than Fair Value; 
    Polyvinyl Alcohol from Taiwan, 61 FR 14067 (March 29, 1996), the 
    Department used the date of the purchase order as the date of sale. In 
    addition, it is the Department's practice not to use a date of sale 
    that falls after the shipment of the product from the factory for 
    delivery, e.g. an ex-port shipment date. This practice is dictated by 
    the fact that a customer's price and quantity would rarely, if ever, 
    change after a delivery has commenced.
        The Department agrees with the respondents that the nota fiscal is 
    the correct date of sale in the home market. The nota fiscal represents 
    the first point at which USIMINAS'' and COSIPA's records can establish 
    that the material terms of sale are set, it is issued as products leave 
    the factory, and it serves as the invoice. For this final 
    determination, the Department will continue to use the nota fiscal as 
    the date of sale in the home market for both USIMINAS and COSIPA.
        For COSIPA's U.S. date of sale, the Department agrees with the 
    respondent that the commercial invoice represents the correct date of 
    sale. The terms of sale are set at this point, and the commercial 
    invoice is generally issued at the same time that the subject 
    merchandise leaves COSIPA's factory. See COSIPA's Sales Verification 
    Report, p. 11.
        For USIMINAS, the Department disagrees with the respondent that the 
    commercial invoice represents the correct date of sale in the U.S. 
    market. The commercial invoice is issued when the merchandise is 
    shipped from the port. As noted below, we explicitly instructed 
    USIMINAS that date of sale may not be after the merchandise was shipped 
    from the factory. Because the terms of sale are set at the issuance of 
    the nota fiscal (as acknowledged by USIMINAS on page 32 of the November 
    16, 1998 Section A Response and verified by the Department) and the 
    nota fiscal represents an ex-factory, not ex-port shipment date, the 
    Department finds that nota fiscal is the correct U.S. date of sale.
        The Department notes that petitioners argue that order confirmation 
    is the correct date of sale in both the home and U.S. markets. However, 
    as indicated in USIMINAS' Sales Verification Report at 15 and Exhibit 7 
    of the January 19, 1999 Supplemental Section A Response, there is 
    evidence of significant change in the terms of sale, specifically 
    quantities exceeding tolerances, between the issuance of the order 
    confirmation and the nota fiscal. The Department was also able to 
    verify respondent claims that they are unable to reliably report order 
    confirmation as their U.S. or home market date of sale. See USIMINAS 
    Sales Verification Report at 18 and COSIPA Sales Verification Report at 
    14. Since the record does not establish that order confirmation best 
    reflects the date at which the terms of sale are set, and it is 
    difficult or impossible for respondents to report this date, the 
    Department does not consider order confirmation the appropriate date of 
    sale.
        In reference to USIMINAS' U.S. date of sale, the Department 
    specifically requested in its supplemental questionnaire to USIMINAS' 
    Section A Response (December 4, 1998) that USIMINAS report:
    
    all sales for which ``the order confirmation date (or comparable 
    date if data on order confirmation does not exist) was within the 
    POI. If you believe another date is a more appropriate date of sale, 
    you should provide all sales during the POI based on order 
    confirmation date, using alternative production or accounting 
    records, and the other date (provided the other date is not after 
    the merchandise is shipped from the plant). (emphasis added)
    
        In our January 4, 1999 Supplemental Questionnaire to Sections BCD, 
    we repeated this question and added:
    
    If USIMINAS chooses not to report order confirmation date, and we 
    determine at verification that this information is available and is 
    a more appropriate date of sale than that reported, USIMINAS may be 
    subject to the use of adverse facts available pursuant to section 
    776 of our statute.
    
    USIMINAS, however, continued to report the commercial invoice date as 
    the date of sale even though this date is after shipment from the 
    factory, and it did not report all sales during the POI based on an ex-
    factory date of sale. Since USIMINAS failed to follow explicit 
    instructions in the questionnaire, or to contact the Department to 
    determine whether an alternate reporting basis was appropriate, we find 
    that USIMINAS did not cooperate to the best of its ability. Therefore, 
    we are applying adverse facts available for the sales that were not 
    reported based on an ex-factory date of sale. For the unreported sales 
    we estimated the average number of days between the ex-factory shipment 
    date and the commercial invoice date, using USIMINAS' submitted data. 
    We then estimated the value of USIMINAS' unreported sales for the 
    estimated amount of time using the data USIMINAS submitted for purposes 
    of our critical circumstances analysis. See USIMINAS/COSIPA's Analysis 
    Memo. We applied the highest margin calculated for any CONNUM to this 
    value. The Department finds that this margin is indicative of USIMINAS/
    COSIPA's customary selling practices and is rationally related to the 
    transactions to which the adverse facts available are being applied.
        In reference to respondents' general comments regarding date of 
    sale issues discussed in the Department's verification reports, the 
    Department did seek information on production in order to understand 
    the order confirmation process. Both respondents and petitioners in 
    this investigation have spent considerable time analyzing and writing 
    about date of sale. Date of sale is an important issue in this 
    investigation and the amount of time spent reviewing the topic was 
    merited and within Departmental practices.
        Comment 20: Contracts with affiliated suppliers--USIMINAS. The 
    respondent believes that the statement, ``USIMINAS did not provide any 
    contracts with
    
    [[Page 38781]]
    
    affiliated suppliers'' should have been further explained. USIMINAS 
    argues that its rail contracts were not presented because they do not 
    exist. They further assert that the Department acknowledged this by 
    saying, ``USIMINAS stated that Rios Unidos does not have exclusive 
    agreements with any of these companies'' and ``USIMINAS said that CVRD 
    negotiates and sells separately to its customers and they do not have 
    any special buying arrangements together with CSN and COSIPA.''
        Petitioners believe that the Department's conclusion that USIMINAS 
    failed to provide the requested documentation was correct. Petitioners 
    argue that statements asserting that such contracts do not exist do not 
    constitute verification. Furthermore, they note that the lack of 
    ``exclusive agreements'' does not demonstrate that USIMINAS had no 
    contracts whatsoever with affiliated suppliers. Petitioners believe it 
    is also unclear how the stated absence of a ``special buying 
    arrangement'' between CVRD, CSN, and COSIPA indicates that USIMINAS had 
    no contract with CVRD. Petitioners maintain that because USIMINAS did 
    not provide the requested contracts with affiliated suppliers, the 
    Department should make an adverse inference with respect to the costs 
    of materials purchased from affiliated suppliers such as iron ore and 
    coal. Petitioners state that the respondent's cost of production should 
    be increased as facts available.
        Department's Position: The two statements about USIMINAS' contracts 
    with Rios Unidos and CVRD were taken out of context. These sentences 
    referred to contractual agreements between all three of the respondents 
    (CSN, COSIPA, USIMINAS) and affiliated suppliers, and not to individual 
    contracts USIMINAS had with affiliated suppliers. Furthermore, the fact 
    that USIMINAS asserted that it did not have any special or exclusive 
    buying relationship in concert with all respondents or individually is 
    not the same thing as saying that it had no contract with its 
    affiliated suppliers. See Comments 49 and 50 for a complete discussion 
    of the costs of iron ore and coal.
        Comment 21: Fasal's Commissions--USIMINAS. Petitioners state that 
    since the Department was not able to verify the reported commission for 
    Fasal's (one of USIMINAS/COSIPA's affiliated resellers) home market 
    sales, the Department should deny the commission adjustment as facts 
    available.
        Department's Position: Because the Department was unable to verify 
    downstream sales, including Fasal's sales, we have based the margin for 
    all U.S. sales matching to any of respondent's downstream sales solely 
    on adverse facts available. Therefore, we need not reach the question 
    of commission adjustments. See Comment 18 on Downstream Sales/Level of 
    Trade for a complete discussion of the downstream sales issue.
        Comment 22: Fasal's Inventory Carrying Costs--USIMINAS. Petitioners 
    state that the Department's inability to verify Fasal's reported 
    inventory carrying cost necessitates that the Department apply adverse 
    facts available.
        Department's Position: We are not using inventory carrying costs in 
    our analysis because in this investigation, we are not analyzing CEP 
    sales and do not have to calculate a CEP offset. Additionally, we are 
    not calculating a commission offset. Therefore, this issue is moot.
        Comment 23: Theoretical weight sales--USIMINAS. The respondent 
    disagrees with the Department's conclusion that the gross unit price 
    calculations for a small number of sales made on a theoretical weight 
    basis is unverified. USIMINAS does not dispute that it made a clerical 
    error in its calculation and reporting of these sales, and that this 
    error was discovered during verification, not at the beginning of it. 
    However USIMINAS states that it provided the Department with a 
    reconciliation worksheet correcting the prices and quantities. The 
    respondent points out that the impact of the error is minuscule, the 
    Department is emphasizing a clerical error, and USIMINAS found the 
    error in a voluntary attempt to revise unusual transactions in its 
    database.
        Petitioners argue that all U.S. sales made on a theoretical weight 
    basis had incorrectly calculated gross unit prices. Petitioners state 
    that theoretical weight sales were only made in the United States. 
    Petitioners feel that the Department should apply facts available to 
    all U.S. sales made on a theoretical weight basis by assigning the 
    highest margin alleged in the petition, 85.71%.
        Department's Position: Regarding USIMINAS' U.S. sales made on a 
    theoretical weight basis, we agree with respondents. At verification, 
    USIMINAS realized that a clerical error had been made in the 
    computation of gross unit prices on this small number of sales. 
    USIMINAS presented the Department with a list of revised gross unit 
    prices during the verification. Given the nature and extent of the 
    error, the Department accepted these revised prices and has used them 
    in the final calculations. See USIMINAS' Sales Verification Report, 
    Exhibit 31, and USIMINAS/COSIPA's Analysis Memo.
        Comment 24: Indirect Selling Expenses--USIMINAS. USIMINAS believes 
    that the Department's statement that it was unable to verify indirect 
    selling expenses for a certain transaction because of mistakes 
    discovered at verification is a mischaracterization that is 
    contradicted by the Department's report. It argues that this shows the 
    Department does not realize this is an allocated expense which is 
    applied across the board to all sales. Respondents also state that the 
    Department verified indirect selling expenses on page 58 of the 
    verification report.
        Petitioners state that based on errors in the calculation of U.S. 
    indirect selling expenses found at verification, the Department should 
    apply as facts available the highest indirect selling expense amount 
    reported on the USIMINAS U.S. or home market sales databases.
        Respondents dispute petitioners' proposal for facts available and 
    state that a reasonable facts available approach would be to use 
    COSIPA's indirect selling expenses for USIMINAS since the two companies 
    are collapsed for the purpose of this investigation.
        Department's Position: We are not using indirect selling expenses 
    in our analysis, because in this investigation, we are not analyzing 
    CEP sales and do not have to calculate a CEP offset. Additionally, we 
    are not calculating a commission offset. Therefore, this issue is moot.
        Comment 25: Home Market Inland Freight--USIMINAS. USIMINAS believes 
    the Department made a false statement in saying that USIMINAS did not 
    have anything prepared to prove that transactions with affiliated rail 
    companies were at arm's length. The respondent argues that the 
    Department contradicts this assertion with two statements: ``USIMINAS 
    stated that CVRD and MRS have no preferential arrangement with it even 
    though they are affiliated parties'' and ``USIMINAS also stated that it 
    is difficult to prove this issue because some of the rail companies 
    provide transportation for routes that no other rail company 
    services.'' With these statements, USIMINAS feels it explained this 
    situation and the Department's findings were false.
        Petitioners assert that USIMINAS' statements made at verification 
    do not constitute demonstration of a claim. They further note that if 
    verbal
    
    [[Page 38782]]
    
    explanations rather than concrete documentation were all that was 
    required, there would be no point in conducting verifications.
        Petitioners maintain that because the Department was not presented 
    with requested proof that freight transactions with affiliated trucking 
    or rail companies were made at arm's length, the Department should deny 
    the inland freight adjustment for all home market sales.
        Respondents reply that petitioners are incorrect and that USIMINAS 
    has no contracts with these affiliated companies and that USIMINAS 
    staff presented oral testimony that the company does not receive 
    preferential treatment from affiliated transportation companies. 
    Respondents state that the Department should reject petitioners' facts 
    available suggestion because it is excessively punitory. Furthermore, 
    respondents claim that since the Department verified the arm's length 
    nature of COSIPA's affiliated freight transactions and since the 
    Department has collapsed USIMINAS and COSIPA, the Department should 
    assume that USIMINAS' affiliated freight transactions were also made at 
    arm's length. Respondents suggest that should the Department reject 
    USIMINAS' reported freight expenses and apply facts available, COSIPA's 
    freight rates should be used as surrogate values for USIMINAS' freight 
    expenses.
        Department's Position: The Department agrees in part with 
    petitioners. USIMINAS' assertion that it has no preferential 
    arrangements with CVRD and MRS does not constitute proof that it has no 
    arrangement or contract with these affiliated rail companies or that 
    transactions were at arm's length. As noted in USIMINAS' Sales 
    Verification Report, p. 50, we requested information from USIMINAS 
    showing that its rail and trucking freight transactions were at arm's 
    length. We reminded respondents that an alternative way to demonstrate 
    arm's length transactions to affiliated companies is to show that the 
    transactions were above those companies' costs or that the companies 
    were profitable. Nevertheless, USIMINAS had nothing prepared to 
    demonstrate that the freight charges were at arm's length. After 
    several attempts to verify the arm's length nature of USIMINAS' 
    transactions with affiliated transportation companies, we determined 
    that the USIMINAS claim that these sales are made at arm's length had 
    not been substantiated or verified.
        USIMINAS made no attempt to establish that its inland freight 
    transactions were at arm's length, despite the Department's repeated 
    attempts to verify this issue. Further, the Department offered 
    alternative solutions for verifying this topic in accordance with 
    section 782(c)(2), but USIMINAS made no attempt to provide verifying 
    information. Therefore, the Department is applying adverse facts 
    available to USIMINAS' home market inland freight. Accordingly, for 
    sales in which USIMINAS incurred a freight expense, the Department used 
    the lowest value for inland freight reported by USIMINAS. Because we 
    are already making an adverse assumption in assigning inland freight 
    expenses, we are not making an additional adjustment for VAT taxes. See 
    USIMINAS/COSIPA's Analysis Memo.
        Comment 26: U.S. Inland Freight--USIMINAS. Petitioners maintain 
    that since the Department was only able to verify the reported inland 
    freight for one U.S. sale, as facts available, the Department should 
    apply to all U.S. sales the highest reported inland freight expense.
        Respondents state that petitioners' call for facts available for 
    the inland freight value associated with USIMINAS' U.S. sales should be 
    rejected. Respondents claim that petitioners acknowledge in their case 
    brief that the Department verified USIMINAS' inland freight 
    adjustments, and therefore, the Department should use USIMINAS' 
    reported U.S. inland freight expense.
        Department's Position: We agree with petitioners that adverse facts 
    available should be applied to USIMINAS' reported U.S. inland freight 
    expenses. Respondents mis-characterize petitioners' brief by stating 
    that the petitioners asserted that the Department was able to verify 
    this adjustment, when in fact, the brief suggests that the Department 
    was only able to review the U.S. inland freight adjustment for one 
    observation, and the reported amount for that observation did not 
    reconcile to company records. We note that it is not necessary for the 
    Department to verify more than one example of an expense to consider 
    the expense to be verified. See Monsanto v. United States. However, the 
    reported expense for the sale we examined did not agree with the actual 
    expense. (See Verification Exhibit 36). Therefore, we have rejected 
    USIMINAS' inland freight adjustments due to failure of this data to 
    verify and instead have used the facts available, pursuant to section 
    776(a)(2)(D) of the Act. The unexplained failure of this data to verify 
    demonstrates that USIMINAS failed to cooperate to the best of its 
    ability in responding to our request for inland freight data. 
    Therefore, we are applying as adverse facts available USIMINAS' highest 
    reported amount for inland freight. See USIMINAS/COSIPA's Analysis 
    Memo.
        Comment 27: Warehousing Expense--USIMINAS. Petitioners state that 
    since the Department was unable to verify USIMINAS' U.S. warehousing 
    expenses, facts available should be applied. Petitioners argue that 
    since USIMINAS claims to have reported these expenses with the indirect 
    selling expenses that as adverse facts available, the Department should 
    treat all of USIMINAS' reported indirect selling expenses as direct 
    selling expenses.
        Department's Position: We disagree with petitioners. Respondent 
    consistently told the Department that it was unable to segregate 
    warehousing expenses from its indirect selling expenses and that it had 
    reported warehousing as part of these expenses. See USIMINAS' Section B 
    response at B-41 and Section C response at C-38 (December 21, 1998). 
    Therefore, we have accepted respondent's data, as reported, and are not 
    reclassifying respondent's indirect selling expenses as direct selling 
    expenses for this final determination.
        Comment 28: Inland Insurance--USIMINAS. In referring to inland 
    insurance for home market sales, petitioners state that since the 
    Department was not able to completely verify the reported amounts, for 
    all home market sales, the inland insurance adjustment should be denied 
    as adverse facts available.
        Department's Position: We disagree with petitioners that adverse 
    facts available should be applied to USIMINAS' reported inland 
    insurance expenses. At verification, the Department verified USIMINAS' 
    nominal rate, discount rate, and reported rate. We were satisfied with 
    the verification of USIMINAS' reported expense. In an April 22, 1999 
    letter to respondents, we requested that USIMINAS correct the reported 
    inland insurance amount to include IOF taxes and fees. We accept the 
    reported amount and adjusted for the inland insurance amount 
    accordingly.
        Comment 29: Billing Adjustments--USIMINAS. Petitioners maintain 
    that USIMINAS incorrectly included canceled sales (sales in which the 
    billing adjustment is equal to the gross unit price) within the billing 
    adjustment field of its home market database. Petitioners state that 
    these sales should be removed. Petitioners also reference an error 
    discovered at verification in which the reported billing adjustment for 
    observation 52003 was incorrectly reported. Petitioners state that the
    
    [[Page 38783]]
    
    adjustment for this transaction should be denied.
        Department's Position: We agree with petitioners that canceled 
    sales should be removed from the database and have done so for this 
    final determination. We also agree that there was an error with respect 
    to the observation cited by petitioners and the billing adjustment 
    should be denied for this sale.
        Comment 30: Warranty Expense--USIMINAS. Petitioners maintain that 
    because the Department was unable to verify USIMINAS' warranty expense, 
    the Department should apply adverse facts available and deny the 
    adjustment in its entirety.
        Department's Position: We determine that adverse facts available 
    should be applied to USIMINAS'' reported warranty expense. As noted in 
    USIMINAS'' Sales Verification Report, at 57, we requested to verify 
    warranty expenses several times but USIMINAS asked to skip this topic. 
    Thus, despite our repeated attempts to verify this data, we were unable 
    to do so. By declining our request to verify warranty expenses, 
    USIMINAS did not cooperate to the best of its ability. Therefore, as 
    adverse facts available, we are denying the warranty expense adjustment 
    for all of USIMINAS'' home market sales. Since USIMINAS did not report 
    any warranty expenses for U.S. sales, we are not making any changes to 
    these sales. See USIMINAS/COSIPA's Analysis Memo.
        Comment 31: Packing Expenses--USIMINAS. Petitioners state that 
    since the verification of U.S. and home market packing expenses was not 
    completed, the Department should use the highest reported packing 
    expense on the USIMINAS U.S. sales database as the packing adjustment 
    for all U.S. sales. Petitioners then state that for home market sales, 
    the packing adjustment should be set equal to zero.
        Respondents disagree with petitioners suggestions for facts 
    available with regard to USIMINAS'' packing expenses. Respondents state 
    that the Department should accept USIMINAS'' reported packing expenses. 
    Respondents maintain that USIMINAS presented information to Department 
    officials at the mill, and that Department staff preferred to return to 
    the head office and after they returned, discovered that they had more 
    questions about the packing expense. Respondents further state that 
    USIMINAS made the packing expense information available to the cost 
    verification team, but that the cost verifiers elected not to examine 
    the documents. USIMINAS maintains that since USIMINAS presented the 
    packing information to the Department, and since verifiers elected not 
    to review the information, the Department should consider the packing 
    expenses verified for USIMINAS.
        Department's Position: The Department disagrees with petitioners 
    that facts available should be applied to USIMINAS'' reported packing 
    expenses. Respondent presented information about packing to the 
    verification team at the mill and, subsequent to leaving the mill, the 
    team asked for additional information. We were not able to review this 
    additional information, and requested that the cost verification team 
    review this issue. Due to time constraints, the cost verification team 
    was not able to verify the outstanding questions regarding packing 
    because the Department determined that other issues were more important 
    to verify in the remaining time period. We are therefore accepting 
    USIMINAS'' submitted packing information in this final determination.
        Comment 32: Inland Insurance--COSIPA. Petitioners state that, due 
    to errors in the verification of COSIPA's inland insurance, the 
    Department should apply adverse facts available and not make an 
    adjustment for home market inland insurance.
        Department's Position: The Department disagrees with petitioners 
    that adverse facts available should be applied to COSIPA's reported 
    inland insurance expenses. At verification, we verified COSIPA's 
    nominal rate, discount rate and reported rate. In an April 22, 1999 
    letter to respondents, we requested that COSIPA correct the reported 
    inland insurance amount to include certain taxes and fees. We accept 
    the reported amount and adjusted for the inland insurance amount 
    accordingly.
        Comment 33: IPI Tax--COSIPA. Petitioners state that due to problems 
    with the verification of the IPI tax, as adverse facts available, the 
    reported tax amounts should be revised downward to reflect the actual 
    amounts paid to the federal government.
        Department's Position: We disagree with petitioners that adverse 
    facts available should be applied to COSIPA's reported IPI tax. 
    Although the verification did reveal a clerical error on the part of 
    COSIPA in calculating the IPI tax paid to the government for one month 
    of the period of investigation, we do not believe that this error 
    justifies the use of adverse facts available. See COSIPA's Sales 
    Verification Report at 31. The Department is generally satisfied with 
    the verification of the IPI tax. We accept the reported amount and 
    adjusted for the tax accordingly.
        Comment 34: Home Market Inland Freight--COSIPA. Petitioners 
    maintain that because COSIPA failed to demonstrate that freight 
    services provided by affiliated parties were made at arm's length 
    prices, the inland freight adjustment should be denied for home market 
    transactions, and for U.S. transactions, the highest reported expense 
    should be applied as domestic inland freight.
        Respondents state that COSIPA established the arm's length nature 
    of its transactions with affiliated transportation companies. 
    Respondents state that the Department should reject petitioners' facts 
    available suggestion because it is excessively punitory.
        Department's Position: The Department agrees in part with 
    petitioners. The respondent was able to demonstrate that transactions 
    with one of its two affiliated trucking companies were at arm's length. 
    See COSIPA's Sales Verification Report at 39. However, despite the 
    Department's repeated attempts to verify the arm's length nature of 
    transactions with affiliated rail companies including offering 
    alternative solutions for verifying this topic, the respondent failed 
    to cooperate with our verification efforts. Therefore, in accordance 
    with section 782(c)(2), the Department is applying adverse facts 
    available to COSIPA's home market inland freight. Accordingly, for 
    sales in which COSIPA incurred a freight expense, the Department used 
    the lowest value for inland freight reported by COSIPA. Because we are 
    already making an adverse assumption in assigning inland freight 
    expenses, we are not making an additional adjustment for VAT taxes. See 
    USIMINAS/COSIPA's Analysis Memo.
        Comment 35: Brokerage and Handling--COSIPA: Petitioners state that 
    because the Department was unable to verify the reported brokerage and 
    handling expenses, the reported amount should be doubled as facts 
    available for all U.S. sales.
        Respondents dispute petitioners' interpretation of COSIPA's Sales 
    Verification Report. Respondents interpret the Department's inability 
    to verify the reported brokerage and handling expenses as an indication 
    that the Department simply ran out of time and was therefore unable to 
    review the information. Respondents claim that the Department should 
    consider COSIPA's reported brokerage and handling expenses verified. 
    However, respondents do suggest that the Department use USIMINAS' 
    verified brokerage and handling expenses as facts available for COSIPA 
    in the event that the Department does not consider the COSIPA expense 
    to be verified.
    
    [[Page 38784]]
    
        Department's Position: Since the Department repeatedly attempted to 
    verify brokerage and handling, COSIPA declined to review this item 
    within the time frame allotted for verification (see COSIPA's Sales 
    Verification Report at 41), and there is no indication that the 
    reported amounts are accurate, the Department is applying adverse facts 
    available to COSIPA's reported U.S. brokerage and handling. As adverse 
    facts available, we are using the highest reported brokerage and 
    handling amount for all U.S. sales. See USIMINAS/COSIPA's Analysis 
    Memo.
        Comment 36: Home Market Credit--COSIPA. Petitioners maintain that 
    due to the Department's inability to verify the reported home market 
    credit expense, as adverse facts available, it should deny the 
    adjustment.
        Department's Position: We disagree with petitioners that adverse 
    facts available should be applied to COSIPA's reported home market 
    credit expense. As is discussed in the verification report, COSIPA 
    intended to calculate the reported credit expense using the same 
    formula and interest rates as did USIMINAS; however, a clerical error 
    was made by COSIPA when the expense was calculated, and the incorrect 
    factors were input into the credit formula. The Department verified 
    that USIMINAS correctly calculated its credit expense. Furthermore, the 
    Department agrees with USIMINAS and COSIPA that the financing rates 
    received by USIMINAS would be much more conservative than those 
    received by COSIPA or any of the other downstream companies. This can 
    be illustrated by the Brazilian publications of lending rates supplied 
    to the Department by USIMINAS at verification. See USIMINAS' Sales 
    Verification Report and Exhibits 23 and 43. Therefore, the Department 
    recalculated COSIPA's home market credit expense by using the interest 
    rates supplied by USIMINAS to correct for the clerical error discovered 
    at verification. See USIMINAS/COSIPA's Analysis Memo.
        Comment 37: Interest Revenue--COSIPA. Petitioners state that 
    because COSIPA did not provide certain documentation at verification, 
    the reported interest revenue (INTREV1H) is called into question, and 
    as adverse facts available, the Department should apply the highest 
    reported amount of interest revenue to all home market sales where 
    interest revenue was reported.
        Respondents state that the Department should disregard petitioners' 
    call for facts available for this issue. Respondents' interpretation of 
    the verification report is that the interest revenue amount reported in 
    the INTREV1H field was verified. Respondents state that the 
    verification report indicates that only the highest interest rate used 
    to calculate interest revenue was not documented, and claim that this 
    documentation was not provided because it was not requested.
        Department's Position: We disagree with petitioners that adverse 
    facts available should be applied to COSIPA's reported interest revenue 
    expense. As is discussed in the verification report, COSIPA stated at 
    the verification that the Department should not adjust for the second 
    interest revenue field (INTREV2H) because COSIPA incorrectly reported 
    the additional interest revenue field. COSIPA explained that the 
    interest rate is negotiated on a sale by sale basis with customers 
    depending on the risk factor associated with the customer. The 
    verification report also notes that COSIPA was unable to provide 
    documentation illustrating the highest interest revenue percentage that 
    COSIPA might assign to any sale. However, the Department did not review 
    any documentation or information that would alter its position in the 
    Preliminary Determination. Based on information reviewed at COSIPA, we 
    consider its reported interest revenue (INTREV1H) to be verified. See 
    COSIPA's Sales Verification Report at 43. We are, therefore, accepting 
    the reported amount for INTREV1H, setting INTREV2H equal to zero, and 
    adjusting for interest revenue as appropriate. For sales with 
    unreported payment dates, we are continuing as we did in the 
    Preliminary Determination to calculate an imputed interest revenue 
    expense for both COSIPA and USIMINAS. See USIMINAS/COSIPA's Analysis 
    Memo.
        Comment 38: Inventory Carrying Costs--COSIPA. Petitioners feel that 
    because the Department was unable to verify the reported inventory 
    carrying costs, which were only reported for home market sales, the 
    Department should deny the adjustment as adverse facts available.
        Department's Position: We are not using inventory carrying costs in 
    our analysis, because in this investigation, we are not analyzing CEP 
    sales and do not have to calculate a CEP offset. Additionally, we are 
    not calculating a commission offset. Therefore, this issue is moot.
        Comment 39: Indirect Selling Expenses--COSIPA. Petitioners state 
    that COSIPA reported a higher unit value indirect selling expense than 
    the amount discovered at verification. They therefore argue that the 
    Department should apply as adverse facts available the reported 
    indirect selling expenses discovered at the verification.
        Department's Position: We are not using indirect selling expenses 
    in our analysis, because in this investigation, we are not analyzing 
    CEP sales and do not have to calculate a CEP offset. Additionally, we 
    are not calculating a commission offset. Therefore, this issue is moot.
        Comment 40: Packing--COSIPA. Petitioners maintain that since the 
    reported packing expenses were unverified, the Department should apply 
    facts available as follows: in the home market, the packing expense 
    adjustment should be denied; in the U.S. market, the highest reported 
    packing expense should be applied to all U.S. sales.
        Respondents state that as facts available, the Department should 
    employ USIMINAS' packing expenses to COSIPA on a CONNUM specific basis 
    as a surrogate value. Respondents also state that for any COSIPA CONNUM 
    that does not have a packing expense, the Department should use an 
    average of USIMINAS packing expenses.
        Department's Position: We agree with petitioners that adverse facts 
    available should be applied to COSIPA's reported packing expenses. 
    Since the Department repeatedly attempted to verify packing, COSIPA 
    declined to review this item within the time frame allotted for 
    verification (see COSIPA's Sales Verification Report at 45), and there 
    is no indication that the reported amounts are accurate, the Department 
    is applying adverse facts available to COSIPA's packing expenses. As 
    adverse facts available, we are applying the highest reported packing 
    amount to all U.S. sales, and we are denying the packing adjustment in 
    the home market. See USIMINAS/COSIPA's Analysis Memo.
        Comment 41: Corporate Structure. USIMINAS disagrees with the use of 
    the phrase ``exercises control'' in the statements ``CVRD is the 
    largest single shareholder in USIMINAS and exercises control in 
    USIMINAS as such'' and ``Previ is the third largest shareholder in 
    USIMINAS * * * and exercises control over USIMINAS by utilizing its 
    voting share as a shareholder.'' Respondents believe that there is no 
    factual evidence to support this language. Since USIMINAS' group of 
    shareholders that vote as one block have 53% of the voting capital and 
    CVRD and Previ have 23.14% and 15% respectively, respondents do not 
    believe these companies can be said to ``exercise control'' over 
    USIMINAS.
        Department's Position: The Department does not believe that this 
    clarification adds to or subtracts from its
    
    [[Page 38785]]
    
    determination regarding collapsing USIMINAS/COSIPA with CSN. See 
    Comment 1 for a complete discussion of the collapsing issue .
        Comment 42: U.S. Sales Processes for USIMINAS and COSIPA. USIMINAS 
    states that the Department incorrectly referred to a U.S. company that 
    buys the respondent's products from one of its customers as USIMINAS' 
    customer. USIMINAS pointed out that its contractual relationship is 
    with its own customer, not its customer's customer. Similarly, COSIPA 
    believes that the Department was mistaken in saying that its product is 
    shipped to COSIPA's contractual customer which is a company in the 
    Cayman Islands that facilitates international transactions. COSIPA 
    states that the Department did however correctly describe its U.S. 
    sales process when it stated that ``such sales have `two financial 
    paths, a financial flow of documents and a physical flow of products.''
        Department's Position: The Department agrees with respondents. We 
    recognize that USIMINAS's contractual relationship is with its own 
    customer, not its customers' customers. The Department also recognizes 
    that COSIPA's products are not shipped to the Cayman Island company but 
    wherever the contractual customer directs them to ship the products.
    
    III. Cost Issues
    
    CSN
    
        Comment 43: Adjustments Identified in the Overall Cost 
    Reconciliation. CSN argues that the Department should not adjust the 
    company's reported COP and CV amounts to include the reconciling items 
    shown in the cost reconciliation. Specifically, CSN states that the 
    first reconciling item in question relates to the company's discovery 
    of an overstatement of its inventory values in the normal course of 
    business. This overstatement was found when the company switched to a 
    new financial accounting system in 1997. According to CSN, the company 
    did not reflect this adjustment in its cost accounting system until the 
    new cost accounting systems became fully functional in 1999. Moreover, 
    CSN claims that since the adjustment did not affect monthly POI cost or 
    POI inventory levels it does not impact the reported costs. As for the 
    second reconciling item in question, CSN states that this item relates 
    to the total adjustment needed to reconcile the submitted costs to the 
    costs of goods sold reported on the financial statements. According to 
    the company, this reconciling item is negligible and does not cast 
    doubt on the submitted costs. Moreover, the time and effort required to 
    determine what this small amount represents is simply unreasonable in 
    light of its insignificance. Therefore, CSN argues that no adjustment 
    to the reported costs is necessary.
        According to the petitioners, CSN has inappropriately excluded 
    certain costs from the calculation of COP and CV even though they 
    relate to the production of the subject merchandise. The petitioners 
    argue that the Department normally requires respondents to include 
    these types of reconciling items in the reported costs. To support 
    their position, the petitioners cite the Final Determination of Sales 
    at Less Than Fair Value: Certain Stainless Steel Wire Rod from France, 
    58 FR 68865, 68873 (December 29, 1993), in which the Department 
    included similar reconciling items.
        Department's Position: We agree with petitioners that we should 
    include certain reconciling items in the calculation of COP and CV. As 
    noted by CSN, the first reconciling item in question relates to a 
    difference in production costs that exists between CSN's cost 
    accounting system and financial accounting system. Specifically, the 
    financial accounting system reflects a loss realized on missing raw 
    materials while the cost accounting system does not. Thus, CSN's cost 
    accounting system and financial accounting system generate different 
    results due to this inventory adjustment. (For submission purposes, CSN 
    relied on its cost accounting system to calculate the reported costs.) 
    In such instances where the total costs reported in the cost accounting 
    system differ from the total costs reported on the financial 
    statements, we typically rely on the amounts reported on a company's 
    audited financial statements prepared in accordance with generally 
    accepted accounting principles (``GAAP''), provided that it does not 
    result in distorted per-unit costs. In this instance, we do not find it 
    unreasonable to include raw material write-offs in the reported costs. 
    This practice has been upheld by the Court (see, FAG U.K. Ltd. v. 
    United States, 945 F. Supp. 260, 271 (CIT 1996) (upholding the 
    Department's reliance on a firm's expense as recorded on the firm's 
    financial statements.) and Hercules, Inc. v. United States, 673 F. 
    Supp. 454 (CIT 1987) (upholding the Department's reliance on COP 
    information from the respondent's normal financial statements 
    maintained in conformity with GAAP).
        As for the second reconciling item, which relates to the 
    unreconcilable difference that cannot be explained by CSN, we note that 
    our normal practice is to include such items in the calculation of COP 
    and CV unless respondent can identify and document why such amount does 
    not relate to the merchandise under investigation. See, Notice of Final 
    Determination of Sales at Less Than Fair Value: Stainless Steel Plate 
    in Coils from Taiwan, 64 FR 15493, 15498 (March 31, 1999). (The 
    Department determined that the respondent should include the 
    unreconciled difference between amounts in the accounting records and 
    reported costs in reported costs.) In this case, CSN failed to do so.
        Comment 44: Including Foreign Exchange Gains and Losses in SG&A and 
    Interest Expense. The petitioners argue that CSN's exchange gains and 
    losses related to accounts payable for the POI should be included in 
    the company's SG&A expense rate calculation. Citing Notice of Final 
    Determination of Sales at Less Than Fair Value: Stainless Steel Round 
    Wire from Canada, 64 FR 17324, 17334 (April 9, 1999) (Comment 16), 
    petitioners assert that exchange gains and losses for accounts payable 
    are related to purchases of raw materials, and that therefore, the 
    Department normally includes them in the COP and CV calculations. In 
    addition, petitioners argue that the Department should include all 
    exchange losses that relate to financing transactions in CSN's 
    financial expense rate calculation.
        CSN, on the other hand, claims that exchange gains and losses that 
    relate to both accounts payable and accounts receivable should be 
    included in the company's G&A expense rate calculation. CSN realizes 
    that the Department's normal practice is to include in COP net exchange 
    gains and losses associated with accounts payable but not accounts 
    receivable. However, it contends that the Department should reconsider 
    this policy because no adjustment is ever made to gross unit prices 
    under the antidumping law to account for exchange gains or losses on 
    sales. As an alternative to reconsideration of including gains and 
    losses associated with accounts receivables CSN claims that the 
    Department should simply not adjust the company's price of inputs for 
    exchange gains and losses incurred on accounts payable. Therefore, CSN 
    requests that the Department use the G&A rate presented at 
    verification, exclusive of exchange gains and losses related to 
    accounts receivable and accounts payable, in calculating COP and CV. As 
    for net exchange losses that relate to debt, CSN argues that it has 
    included them in the calculation of
    
    [[Page 38786]]
    
    G&A. Thus, the Department would double-count this expense if it also 
    included them in the calculation of the financial expense rate.
        Department's Position: We disagree with respondent that exchange 
    gains and losses related to accounts payable should not be included in 
    CSN's G&A rate calculation. We also disagree with CSN that the 
    calculation of COP and CV should reflect exchange gains and losses 
    realized on accounts receivables. As the Department has repeatedly 
    stated, our normal practice is to include a portion of the respondent's 
    foreign-exchange gains and losses in the calculation of COP and CV. 
    Specifically, it is our normal practice to distinguish between exchange 
    gains and losses realized or incurred in connection with sales 
    transactions and those associated with purchase transactions. (See, 
    e.g., Notice of Final Determination of Sales at Less Than Fair Value: 
    Stainless Steel Round Wire from Canada, 64 FR 17324, 17334 (April 9, 
    1999) (Comment 16); Notice of Final Determination of Sales at Less Than 
    Fair Value: Emulsion Styrene-Butadiene Rubber From the Republic of 
    Korea (``ESBR''), 64 FR 14865, 14871 (March 29, 1999) (Comment 7); 
    Notice of Final Determination of Sales at Less Than Fair Value: Fresh 
    Atlantic Salmon from Chile, 63 FR 31411, 31430 (June 9, 1998) and 
    Notice of Final Determination of Sales at Less Than Fair Value: Steel 
    Wire Rod from Trinidad and Tobago, 63 FR 9177, 9181 (February 24, 
    1998)). We normally include in the calculation of COP and CV the 
    foreign-exchange gains and losses that result from the transactions 
    related to a company's manufacturing activities. We do not consider 
    exchange gains and losses from sales transactions to be related to the 
    manufacturing activities of the company. Accordingly, for purposes of 
    the final determination, we have included all foreign-exchange gains 
    and losses in the G&A rate calculation, except for those related to 
    accounts receivable and debt.
        As for exchange gains and losses associated with financing 
    transactions (i.e., debt), we agree with the petitioners that the 
    respondent should include them in the calculation of the financial 
    expense rate. We normally include the foreign exchange gains and losses 
    resulting from debt in the calculation of the financial expense rate 
    (see, ESBR). For the final determination, we included the exchange 
    gains and losses generated from financial transactions in the 
    calculation of the financial expense rate and included the exchange 
    gains and losses generated from accounts payable in the calculation of 
    the G&A expense rate.
        Comment 45: Unreported COP/CV Data. CSN states that the Department 
    should not apply adverse facts available to those CONNUMS for which 
    they did not provide COP data as of the date of the preliminary 
    determination. CSN notes that it submitted the missing data to the 
    Department following the preliminary determination, which the 
    Department verified during the cost verification.
        Petitioners had no comment on this issue.
        Department's Position: We agree with CSN. For the preliminary 
    determination, we applied adverse facts available for those CONNUMS for 
    which CSN failed to provide a cost. Following the preliminary 
    determination, CSN submitted revised cost files at our request. CSN 
    filed these cost files on a timely basis and we verified the 
    information contained in these files. As a result, we have used CSN's 
    data.
        Comment 46: Major Input Rule in Relation to Electricity Costs. CSN 
    contends that the Department should not increase COP and CV for the 
    difference between the energy costs it incurred and its affiliated 
    suppliers total per-unit COP. According to CSN, the Department 
    overlooked the fact that the company's affiliation to its energy 
    supplier (i.e., Light-Servicios de Electricidade S.A. (``Light'')) has 
    no bearing on prices which Light charges to CSN because the Brazilian 
    government prohibits Light from deviating from the regulated rates. 
    Consequently, CSN claims that it is not reasonable for the Department 
    to compare the transfer price with either the COP or the market price 
    because of the regulatory aspect involved. CSN further notes that it is 
    quite common throughout the world for electricity companies to charge a 
    broad range of rates to different types of customers. For example, 
    utility companies typically charge residential customers a higher rate 
    than industrial users because they require additional lines and 
    converters to supply the electricity. As for Light's reported COP, CSN 
    claims that Light's overall profit recorded on its financial statement 
    proves that the company is not losing money on larger users like CSN. 
    Therefore, the Department should not rely on Light's COP in this 
    instance. CSN also argues that the Department has the discretion to not 
    apply the major input rule (i.e., higher of COP, market value, or 
    transfer price) in this case. Thus, the company concludes that the 
    Department should not apply the major input rule in this instance.
        Petitioners state that the Department should revise CSN's reported 
    electricity costs from transfer prices to the affiliate's average COP 
    as done in the preliminary determination. In addition, the petitioners 
    disagree with CSN's arguments that the Department should not adjust the 
    cost for the following reasons. First, petitioners note that CSN's 
    argument that it costs more to supply electricity to residential 
    customers than to industrial users is not supported by the respondent's 
    submitted data. Second, petitioners dispute that the company's overall 
    profitability does not provide any support for the transfer prices to a 
    specific entity. Finally, petitioners maintain that the statute does 
    not specify that inputs which are charged at government rates are 
    exempt from the major input rule (see section 773(f)(3) of the Act). 
    Petitioners further argue that the Department only ignores the major 
    input rule when it involves collapsed entities. Since CSN and Light are 
    not collapsed entities, petitioners conclude that the Department should 
    continue to apply the major input rule to CSN's electricity costs as it 
    did in its preliminary determination.
        Department's Position: We agree with respondent that it is 
    inappropriate to apply the major input rule in this instance. The price 
    charged by Light to CSN for electricity is set by the Brazilian 
    government. Accordingly, we have not disregarded the transaction prices 
    between CSN and Light because they are government regulated prices that 
    cannot be affected by the relationship between the parties. As such, 
    the regulated price charged to CSN by Light, which is the same rate 
    charged to other companies in the same general industry, fairly 
    represents market value.
    
    USIMINAS/COSIPA
    
        Comment 47: USIMINAS'' Reported Cost Methodology. Petitioners argue 
    that the Department should resort to total facts available because 
    USIMINAS failed to provide cost data from its normal cost accounting 
    system. Petitioners claim that the system used to derive the cost data 
    (i.e., USIMINAS'' ``Dumping Matrix'') does not calculate costs on a 
    more specific level than the normal cost accounting system. Petitioners 
    assert that the Dumping Matrix results in a loss of product specificity 
    because the system begins with the average slab cost for all grades and 
    sizes of steel, whereas the normal cost accounting system calculates 
    costs at a level of detail which accounts for these differences.
        According to petitioners, there were significant differences 
    between the submitted product-specific costs from the Dumping Matrix 
    and product-specific costs from the normal cost
    
    [[Page 38787]]
    
    accounting system. Petitioners note that all the transformation costs 
    for the selected products were lower in the Dumping matrix system 
    compared to the costs in the normal cost accounting system. Petitioners 
    argue that the total cost captured by the Dumping Matrix system for 
    subject merchandise was less than the total cost captured in the normal 
    cost accounting system, and that thus, the costs could not be tied to 
    the financial accounting system. The petitioners further note that 
    USIMINAS did not provide documentation for the revisions to its 
    standard costs and therefore, the Department could not verify the 
    reasonableness of the standards. Petitioners argue that since the 
    Department was not able to verify these critical data, the Department 
    has no choice but to apply facts available as mandated by the statute. 
    Finally, petitioners argue that the Department is not obligated to 
    accept an incorrect methodology and perpetuate a mistake because it was 
    accepted in a prior review, as suggested by USIMINAS. Petitioners note 
    that in Final Results of Antidumping Administrative Reviews: Certain 
    Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from 
    Korea, 64 FR 12927, 12945-48 (March 16, 1999), the Department applied 
    facts available to adjust for reporting errors despite the fact that 
    the Department had accepted an identical cost system in every other 
    case involving the respondent.
        USIMINAS states that the Department should accept the costs as 
    submitted and not resort to facts available. USIMINAS maintains that 
    the cost verification report wrongly criticizes the integrity of the 
    Dumping Matrix. USIMINAS states that the Department's concern about the 
    Dumping Matrix methodology was first raised in the cost verification 
    report. USIMINAS asserts that the cost verification report inaccurately 
    says that ``the Dumping Matrix does not distinguish between grade, 
    width, thickness and process.'' According to USIMINAS, once an 
    adjustment factor is applied to the Dumping Matrix cost then these 
    differences are accounted for.
        USIMINAS believes that the Department's concerns about its 
    reporting methodology are based solely on the results of the 
    reconciliation which showed overall hot rolling costs were less in the 
    Dumping Matrix than in the cost accounting system. USIMINAS claims that 
    the cost verification report leaves the wrong impression that the 
    identified methodological difference was for subject merchandise only. 
    USIMINAS claims that the Department did not find that the global costs 
    were wrong in the Dumping Matrix.
        USIMINAS argues that it used the Dumping Matrix system in the 1995/
    1996 cut-to-length plate review and the Department did not question the 
    methodology. USIMINAS asserts that the Department should rely on the 
    Dumping Matrix based on its prior use of the system. USIMINAS alleges 
    that the Department never asked it to resubmit its costs using the 
    financial-cost accounting system and there is nothing in the report 
    that indicates that the Department found methodological differences 
    between the Matrix system and the financial cost accounting system.
        USIMINAS contends that the financial-cost accounting system has 
    several shortcomings. The largest is that variances and depreciation 
    are allocated on a factory-wide basis. USIMINAS states that the Matrix 
    system is the only system that correctly assigned variances and 
    depreciation to products. Therefore, it had to resort to the usage of 
    the Dumping Matrix.
        Department's Position: We agree with petitioners, in part. We agree 
    that USIMINAS did not use its normal cost accounting system to derive 
    the reported costs and, as a result, it understated its submitted 
    costs. However, because we were able to adjust for the understatement 
    of reported costs, it was not necessary to resort to total facts 
    available.
        Because of the ambiguity and numerous inconsistences in USIMINAS' 
    responses regarding its multiple costing systems, we were not able to 
    discern the differences between these systems until the cost 
    verification. At verification we learned that the normal cost 
    accounting system was fully integrated with USIMINAS' financial 
    accounting system. USIMINAS' normal cost accounting system which was 
    used to prepare the audited financial statements was a process cost 
    accounting system based on standards. Even though USIMINAS' cost 
    accounting system calculated product-specific costs which accounted for 
    the differences in steel grade, width, thickness and process, USIMINAS 
    did not rely on it to prepare the submitted COP and CV data. We do not 
    find persuasive USIMINAS' claim that its normal cost accounting system 
    did not contain the level of cost detail requested by the Department. 
    The normal cost accounting system utilized a twenty-seven digit product 
    coding scheme with the various product characteristics accounted for. 
    The underlying cost detail remained despite the fact that USIMINAS 
    averaged multiple products together for inventory valuation while 
    preparing the financial statements. Thus, the normal cost accounting 
    system was sufficient for Department cost reporting purposes. See, 
    Memorandum from Laurens van Houten, et al. to Neal Halper--Verification 
    of the Cost of Production and Constructed Value Data, April 9, 1999 
    (Cost Verification Report).
        Despite the existence of a detailed cost accounting system, 
    USIMINAS used its dumping matrix system, which was outside its normal 
    cost and financial accounting system, to calculate the reported costs. 
    The dumping matrix is not audited by the independent auditors, nor did 
    the independent auditors opine as to whether the principles used by the 
    matrix were in accordance with Brazilian generally accepted accounting 
    principles (GAAP). The USIMINAS dumping matrix system reallocates costs 
    to broad product groups and does not account for the physical 
    characteristics defined by the Department. This is undisputed by 
    USIMINAS. In an attempt to differentiate costs for each CONNUM's 
    physical characteristics, USIMINAS applied a correction factor to the 
    cost calculated by the dumping matrix. The correction factor was the 
    ratio of the product specific cost from the normal cost accounting 
    system to the average group cost from the normal cost accounting 
    system.
        There were numerous problems with the methodology employed by 
    USIMINAS to develop the reported costs. First and foremost, USIMINAS 
    failed to use its normal cost accounting system to prepare the reported 
    costs. Section 773(f)(1)(A) of the Act specifically requires that costs 
    be calculated based on the records of the exporter or producer of the 
    merchandise, if such records are kept in accordance with the GAAP of 
    the exporting country and reasonably reflect the costs associated with 
    the production and sale of the merchandise. In accordance with the 
    statutory directive, the Department will accept costs of the exporter 
    or producer if they are based on records kept in accordance with GAAP 
    of the exporting country and reasonably reflect the costs associated 
    with the production and sale of the merchandise (i.e., the cost data 
    can be reasonably allocated to subject merchandise). In determining 
    whether the costs were reasonably allocated to all products the 
    Department will, consistent with section 773(f)(1)(A) of the Act, 
    examine whether the allocation methods are used in the normal 
    accounting records and whether they have been historically used by the 
    company. As demonstrated by the
    
    [[Page 38788]]
    
    record evidence in this case (see, e.g., Cost Verification Report), the 
    normal cost accounting system was based on records kept in accordance 
    with GAAP of the exporting country and reasonably reflected the costs 
    associated with the production and sale of the merchandise (i.e., the 
    costs were reasonably allocated to subject merchandise). Because 
    USIMINAS' normal cost accounting system was maintained in accordance 
    with Brazilian GAAP and reasonably reflected the costs associated with 
    the production and sale of subject merchandise, USIMINAS should have 
    reported the costs from its normal cost accounting system.
        We allow companies to deviate from their normal cost accounting 
    system when that system does not appropriately allocate costs to 
    specific products. See, e.g., Certain Cut-to-Length Carbon Steel Plate 
    From Mexico: Final Results of Antidumping Duty Administrative Review 64 
    FR 76, 80 (January 4, 1999). This is not the case here. In the instant 
    case, USIMINAS normal cost accounting system calculated costs at a much 
    greater level of detail than the dumping matrix. Therefore, contrary to 
    USIMINAS' claim, it was not necessary for it to resort to the dumping 
    matrix to develop the reported costs.
        Another shortcoming of USIMINAS' reporting methodology is that the 
    product costs in the dumping matrix are based on a single average cost 
    for slab. That is, USIMINAS used the average cost of all slab 
    regardless of the grade or quality of the steel. Hence, in the dumping 
    matrix there is no cost differentiation for grade or quality of steel. 
    USIMINAS claims to have accounted for this difference in the reported 
    costs by applying a correction factor to the dumping matrix costs. 
    However, USIMINAS calculated the correction factor based on the ratio 
    of a product-specific slab cost to the group-specific cost it relates 
    to and applied the factor to the company-wide average slab cost (which 
    is an average of numerous product groups). As a result, the ratio used 
    to compute the slab cost adjustment has nothing to do with the average 
    slab cost to which it is applied. Thus, this methodology does not 
    appropriately allocate slab costs to the specific product.
        In order to test the reported product-specific costs, we compared 
    the reported costs for several products to the product-specific costs 
    recorded in the normal cost accounting system. We found that the 
    dumping matrix costs, even after they were adjusted by the ``correction 
    factor,'' were consistently lower than the costs recorded in the normal 
    cost accounting system used to prepare the audited financial 
    statements. Additionally, during our testing we noted that the dumping 
    matrix allocated process center costs to products on a basis different 
    from that used in the normal cost accounting system to allocate these 
    costs. Therefore, the allocation methods used for the reported costs 
    were not those historically used by the company as required by section 
    773(f)(1)(A).
        Before the Department can assess the reasonableness of a 
    respondent's cost allocation methodology, it must ensure that the 
    aggregate amount of the reported costs captures all costs incurred by 
    the respondent in producing the subject merchandise during the period 
    under examination. This is done by performing a reconciliation of the 
    respondent's submitted COP and CV data to the company's audited 
    financial statements, when such statements are available. Because of 
    the time constraints imposed on verifications, the Department generally 
    must rely on the independent auditor's opinion concerning whether a 
    respondent's financial statements present the actual costs incurred by 
    the company, and whether those financial statements are in accordance 
    with GAAP of the exporting country. In situations where the 
    respondent's total reported costs differ from amounts reported in its 
    financial statements, the overall cost reconciliation assists the 
    Department in identifying and quantifying those differences in order to 
    determine whether it was reasonable for the respondent to exclude 
    certain costs for purposes of reporting COP and CV. Although the format 
    of the reconciliation of submitted costs to actual financial statement 
    costs depends greatly on the nature of the accounting records 
    maintained by the respondent, the reconciliation represents the 
    starting point of a cost verification because it assures the Department 
    that the respondent has accounted for all costs before allocating those 
    costs to individual products.
        In performing this reconciliation, at verification USIMINAS 
    provided a reconciling schedule which indicates an amount which was 
    identified as that corresponding to the methodological difference 
    between the normal cost accounting system and the reported costs. The 
    amount of the overall reconciliation difference was consistent with the 
    highest difference we found when we compared the reported product-
    specific costs to the product-specific costs in the normal cost 
    accounting system. Therefore, to correct USIMINAS' mis-allocation of 
    costs and its failure to use its normal cost accounting system as 
    required by section 773(f)(1)(A), as facts available we increased the 
    reported costs for all products by the largest reconciliation 
    difference we found between the reported product-specific costs from 
    the dumping matrix and the product specific costs in the normal cost 
    accounting system.
        Section 776(a) of the Act provides that, if an interested party 
    withholds information that has been requested by the Department, fails 
    to provide such information in a timely manner or in the form or manner 
    requested, significantly impedes a proceeding under the antidumping 
    statute, or provides information which cannot be verified, the 
    Department shall use, subject to sections 782(d) and (e), facts 
    otherwise available in reaching the applicable determination. In this 
    case USIMINAS failed to provide COP and CV data in the form and manner 
    requested, i.e., based on its normal cost accounting system as required 
    by section 773(f)(1)(A). Since USIMINAS failed to provide the necessary 
    information in the form and manner requested, and in some instances the 
    submitted information was found to be inaccurate, we conclude that, 
    pursuant to section 776(a) of the Act, use of facts otherwise available 
    is appropriate.
        Section 776(b) of the Act provides that adverse inferences may be 
    used when an interested party has failed to cooperate by not acting to 
    the best of its ability to comply with requests for information. As 
    discussed above and in the verification report, USIMINAS failed to use 
    its normal cost accounting system to report the submitted COP and CV 
    data and, as a result, failed to reconcile the reported costs to its 
    normal cost accounting system. In this case, however, an adverse 
    inference is not warranted. The Department has applied the 
    reconciliation difference to correct the submitted cost data. As 
    explained above, the Department determined at verification that this 
    reconciliation difference accurately represents the actual variation 
    between product-specific costs generated by the dumping matrix and 
    product-specific costs generated by the normal cost accounting system.
        We also disagree with USIMINAS' claim that the Department should 
    have relied on its dumping matrix because it had done so in a previous 
    review. As articulated in Final Results of Antidumping Administrative 
    Reviews: Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat 
    Products from Korea, 64 FR 12927, 12945-48 (March 16, 1999), the 
    Department is not
    
    [[Page 38789]]
    
    obligated to accept an incorrect methodology and perpetuate a mistake 
    because it was accepted in a prior review, as suggested by USIMINAS.
        We disagree with USIMINAS' claim that it had to use the dumping 
    matrix because it was the only system that correctly allocated 
    variances and depreciation. In its normal cost accounting system, 
    USIMINAS did not allocate these costs to specific products. However, 
    USIMINAS allocated them to the cost of goods sold and the cost of 
    inventory based on the standard costs. In its normal accounting system, 
    USIMINAS recognizes that standard cost is the appropriate allocation 
    base for variances and depreciation. As this allocation methodology 
    factors in the cost drivers of the variances and depreciation (e.g. 
    machine time, labor hours, direct and indirect material cost and usage, 
    energy cost and usage, other variable costs, maintenance, and other 
    services) it would have been a reasonable method to report costs for 
    Department purposes. Therefore, we disagree that the dumping matrix was 
    the only system that correctly accounted for these costs.
        Comment 48: USIMINAS' Different COP and CV values. Petitioners 
    argue that the Department should employ as facts available the higher 
    of the COP or CV when the COP and CV differ for an identical CONNUM. 
    Petitioners argue that USIMINAS did not calculate a weight-averaged 
    cost based on global sales quantities for each product as instructed by 
    the Department. Petitioners argue that it is impossible to fix this 
    error with either of the remedies suggested by USIMINAS. Petitioners 
    argue that without the sales quantity for each 27-digit product in a 
    CONNUM, the Department cannot correct the error.
        USIMINAS maintains that the existence of different CONNUM-specific 
    costs in the COP and CV files is not a problem. USIMINAS argues that 
    the submitted global cost file provides the cost for each CONNUM, 
    segregated by product groups, which the Department may use to calculate 
    a unique cost for each CONNUM. In addition, USIMINAS states that, in 
    the event the Department elects to collapse USIMINAS and COSIPA, the 
    Department will ultimately rely on the consolidated cost file provided 
    for USIMINAS and COSIPA. USIMINAS claims that in this file USIMINAS and 
    COSIPA have provided unique costs for each CONNUM and, as a result, the 
    Department's observation about a distinct CONNUM cost in the USIMINAS-
    specific COP and CV file should have no impact on the Department's 
    calculations in this investigation.
        Department's Position: We agree with petitioners. USIMINAS 
    calculated a COM for COP purposes which was different from the COM it 
    calculated for CV purposes for identical CONNUMS. Because the COM for a 
    given CONNUM is the weighted average cost of producing that CONNUM, at 
    least one of the reported COMs for each such ``two-value'' CONNUMS is 
    incorrect. Although USIMINAS has provided a ``global'' file that 
    consolidates COM (for both COP and CV) for both USIMINAS and COSIPA on 
    a per-CONNUM basis, this global figure is not sufficient for the 
    Department's needs. Specifically, the Department needs an accurate 
    USIMINAS-specific COM for each CONNUM in order to make USIMINAS-
    specific adjustments to that COM before it is averaged with the COSIPA-
    specific COM data, to which COSIPA-specific adjustments have been made.
        The apparent reason why there are different USIMINAS COMs for COP 
    and CV is that the former represents the COM of units sold in the home 
    market, whereas the latter represents the COM of units sold to the 
    United States. Instead, the Department's practice is to calculate COM 
    values (for both COP and CV) for each CONNUM (which in this case is a 
    group of multiple discrete products, each represented by a 27-digit 
    product code) based on production of that CONNUM for sale to the 
    worldwide market. The Department repeatedly requested that USIMINAS 
    provide a single, weighted average COM for each USIMINAS CONNUM, but 
    USIMINAS failed to provide this. Furthermore, the Department is unable 
    to calculate such a COM from the data supplied by USIMINAS because it 
    does not have the sales quantity data for each 27-digit product code 
    needed to calculate the CONNUM-specific average across production for 
    world-wide sale. Because USIMINAS has not provided the USIMINAS-
    specific weighted average COM for each CONNUM, the Department must use 
    the facts otherwise available for this information. Therefore, when the 
    COM reported for COP purposes and the COM reported for CV purposes 
    differed for any USIMINAS CONNUM, we have used the higher of the two 
    figures as the COM value for that CONNUM.
        Comment 49: USIMINAS' Major Inputs from CVRD. Petitioners argue 
    that iron ore is a major input and that since USIMINAS failed to 
    provide the COP information for iron ore purchased from its affiliate 
    Companhia do Vale Rio Doce (``CVRD''), the Department should use facts 
    available to value this input.
        USIMINAS argues that Department should accept the iron ore transfer 
    price from CVRD, as the Department has done in a prior administrative 
    review because the iron ore prices charged by CVRD were above the price 
    charged by unaffiliated companies. USIMINAS argues that the 
    circumstances in this case are identical to that in a prior review in 
    which the Department made no adjustment. In addition, USIMINAS 
    maintains that the Department has confirmed that the iron ore prices 
    charged by CVRD are above the prices charged by unaffiliated suppliers. 
    USIMINAS argues that it could not compel CVRD to provide its COP of 
    iron ore.
        USIMINAS states that the Department overestimated the percentage of 
    CVRD's iron ore in the total cost of manufacturing in its verification 
    report. USIMINAS argues that the Department's calculation incorrectly 
    assumes that the entire cost of sinter is equivalent to iron ore, 
    whereas sinter is a value-added product in which iron ore is one input. 
    USIMINAS argues that cost verification exhibit C-15 shows that the 
    monthly consumption of iron ore is less than half of the amount assumed 
    by the Department. USIMINAS states that when the correct monthly cost 
    of iron ore is used in the Department's methodology, the cost of iron 
    ore is a much lower percentage of the total cost of manufacturing.
        Department's position: We have applied the major input rule in 
    accordance with section 773(f)(3) of the Act in valuing the iron ore 
    received from CVRD. In doing so, we have used, as facts available, the 
    COP information provided in the September 30, 1998 petition as the COP 
    of iron ore from CVRD since USIMINAS did not provide the COP 
    information as requested by the Department.
        We consider iron ore to be a major input in accordance with section 
    773(f)(3) of the Act. Section 773(f)(2) allows the Department to test 
    whether transactions between affiliated parties involving any element 
    of value (i.e., major or minor inputs) are at prices that ``fairly 
    reflect the market under consideration.'' Section 773(f)(3) allows the 
    Department to test whether, for transactions between affiliated parties 
    involving a major input, the value of the major input is not less than 
    the affiliated supplier's COP where there is reasonable cause to 
    believe or suspect the price is below COP. In other words, if an 
    understatement in the value of an input would have a significant impact 
    on the reported cost of the subject merchandise, the law allows the 
    Department to insure that the transfer price or market price is not 
    below cost. We consider the initiation of a sales-
    
    [[Page 38790]]
    
    below-cost investigation reasonable grounds to believe or suspect that 
    major inputs to the foreign like product may also have been sold at 
    prices below the COP within the meaning of section 773(f)(3) of the Act 
    (see e.g., Final Results of Antidumping Administrative Review: 
    Silicomanganese from Brazil, 62 FR 37871 (July 15, 1997)).
        In determining whether an input is considered major, among other 
    factors, the Department considers both the percentage of the input 
    obtained from affiliated suppliers (versus unaffiliated suppliers) and 
    the percentage the individual element represents of the product's COM. 
    Even though we agree with USIMINAS that the Department overestimated 
    the percentage of CVRD's iron ore in USIMINAS's total COM in the 
    USIMINAS cost verification report, we still determined in this case 
    that iron ore represents a significant percentage of the total cost of 
    manufacturing and that USIMINAS receives a significant portion of its 
    iron ore from its affiliate CVRD. The combination of the significant 
    amounts of the inputs obtained from CVRD and the relatively large 
    percentage the iron ore represents of the product's COM increases the 
    risk of misstatement of the subject merchandise's costs to such a 
    degree that we have determined that section 773(f)(3) of the Act 
    applies to this input.
        Because we have determined that iron ore purchased from an 
    affiliate is a major input in USIMINAS' production of carbon steel, the 
    statute requires that, for the dumping analysis, the major input should 
    be valued at the higher of transfer price, market price or COP. See 
    Notice of Final Determination of Sales at Less Than Fair Value: 
    Stainless Steel Round Wire from Canada, 64 FR 17324, 17335 (April 9, 
    1999). In accordance with sections 773(f)(2) and (3) of the Act, we 
    attempted to compare the transfer price for iron ore purchased from 
    USIMINAS' affiliated supplier to the supplier's COP and a market price. 
    Even though the Department requested that USIMINAS provide its 
    affiliated supplier's actual COP for iron ore in the original section D 
    questionnaire, the supplemental questionnaires and at verification, 
    USIMINAS failed to do so.
        Section 776(a) of the Act provides that, if an interested party 
    withholds information that has been requested by the Department, fails 
    to provide such information in a timely manner or in the form or manner 
    requested, significantly impedes a proceeding under the antidumping 
    statute, or provides information which cannot be verified, the 
    Department shall use, subject to sections 782(d) and (e), facts 
    otherwise available in reaching the applicable determination. Section 
    776(b) of the Act provides that, if the administering authority ``finds 
    that an interested party has failed to cooperate by not acting to the 
    best of its ability to comply with a request for information,'' then in 
    determining the applicable facts available it ``may use an inference 
    that is adverse to the interests of that party in selecting from among 
    the facts otherwise available.''
        In the instant case, the use of facts available is warranted 
    because USIMINAS failed to provide the COP of iron ore received from 
    its affiliated supplier. Because USIMINAS failed to respond to repeated 
    requests for this information, as adverse facts available, we have 
    relied on the COP provided in the September 30, 1998 petition. For the 
    final determination, we adjusted the transfer price of the iron ore 
    inputs received from CVRD to reflect the higher COP in the petition.
        Comment 50: USIMINAS' Major Inputs from USIMPEX. Petitioners note 
    that USIMINAS purchases the majority of its coal from an affiliate, 
    USIMINAS Importacao e Exportacao S.A. (``USIMPEX''). Petitioners argue 
    that USIMPEX's COP for coal was higher than the market value and the 
    transfer price used to establish the COP and CV. Petitioners contend 
    that since coal is a major input, the Department should apply the major 
    input rule and use the higher of market value, transfer price or COP.
        USIMINAS argues that the Department incorrectly calculated the 
    amount of USIMPEX's 1997 loss and USIMPEX actually had a gross profit. 
    USIMINAS argues that the amount the Department stated was USIMPEX's 
    negative gross profit was the company's net operating expenses. 
    USIMINAS argues that because USIMPEX had a gross profit in 1997 its 
    sales prices were above its costs. USIMINAS further argues that if the 
    Department were to subtract USIMPEX's SG&A expenses, there is still no 
    indication that USIMPEX is selling below its costs because the 
    resulting loss is insignificant and would show that it was essentially 
    operating at the break-even point.
        Department's position: As it relates to the facts of this case, we 
    consider coal to be a major input in the production of carbon steel in 
    accordance with section 773(f)(3) of the Act (see response to Comment 
    49).
        Because we have determined that coal purchased from an affiliate is 
    a major input in USIMINAS' production of carbon steel in this case, the 
    statute requires that, for the dumping analysis, the major input should 
    be valued at the higher of transfer price, market price or COP. See 
    Notice of Final Determination of Sales at Less Than Fair Value: 
    Stainless Steel Round Wire from Canada, 64 FR 17324, 17335 (April 9, 
    1999). In accordance with section 773(f)(2) and (3) of the Act, we 
    compared the transfer price to the affiliated supplier's COP and the 
    market price (i.e., prices from un-affiliated suppliers) and found that 
    the market price was greater than both the transfer price and the COP. 
    Thus, for the final determination we have adjusted the reported cost 
    for coal purchases from USIMINAS' affiliated supplier to reflect the 
    higher market price.
        Comment 51: USIMINAS' Interest Revenue Offset. Petitioners argue 
    that the Department should deny USIMINAS' claimed interest income 
    offset in its entirety because USIMINAS was unable to segregate the 
    long- and short-term components of the consolidated interest revenue. 
    Petitioners argue that the segregation of long- and short-term interest 
    revenue for the producing entity alone is inappropriate because the 
    producer's interest income may include amounts derived from affiliated 
    party transactions which would be eliminated in the preparation of 
    consolidated financial statements.
        USIMINAS argues that if the Department does not accept USIMINAS' 
    submitted short-term financial income values identified in the 
    response, the Department should use the ratio between USIMINAS' short-
    term and long-term financial income as a surrogate to derive short-term 
    income from the total consolidated financial income for USIMINAS 
    companies. USIMINAS notes that the Department examined USIMINAS' 
    interest income for the purposes of distinguishing short-term and long-
    term portions. USIMINAS argues that the Department must allow interest 
    on accounts receivable and accounts receivable discounts as an offset 
    to interest expense because these two items are short-term in nature. 
    In addition, USIMINAS argues that given the sizable increase in total 
    financial income from the USIMINAS parent company to the USIMINAS 
    consolidated entity, the Petitioners' theory, that the short-term 
    financial income may include revenue derived from affiliated party 
    transactions, has no merit.
        Department's position: We agree with USIMINAS that it is reasonable 
    to use the USIMINAS company-specific short-term to long-term financial 
    income ratio as a surrogate to derive the short-term portion of total 
    interest income from the USIMINAS consolidated financial
    
    [[Page 38791]]
    
    statements. While USIMINAS was unable to document the short-term 
    portion of interest income for the consolidated entity, we found that 
    the USIMINAS company-specific interest income represented the majority 
    of the consolidated entity's interest income. Therefore, we have found 
    it reasonable to use the USIMINAS company-specific short-term to long-
    term financial income ratio as a surrogate to derive the short-term 
    interest income from the total USIMINAS consolidated financial income.
        We disagree with USIMINAS that interest income earned on accounts 
    receivable and accounts receivable discounts should be included as an 
    offset to interest expense. Interest charged to customers relating to 
    specific sales are more appropriately treated as sales revenue. In 
    fact, there is a separate field identified in the section B and C 
    questionnaires in which this revenue is to be reported (i.e., INTREVH 
    for home market sales and INTREVU for U.S. sales). Accordingly, we have 
    disallowed this interest income on accounts receivable and accounts 
    receivable discounts as an offset to interest expense.
        Comment 52: USIMINAS' SG&A. USIMINAS argues that the Department 
    incorrectly excluded the income from certain USIMINAS operations, while 
    including the associated expenses (for example USIMINAS ownership of 
    the Ipatinga airport) in the preliminary determination. USIMINAS argues 
    that if Department excludes the income from any non-operational 
    activity, it should also exclude the expense associated with that 
    activity.
        Petitioners argue that USIMINAS has not demonstrated that the 
    revenue in question is related to operations for which SG&A expenses 
    were reported. Petitioners further argue that it would be improper to 
    use revenue as an offset if no related expenses were included in the 
    SG&A, thus, USIMINAS does not qualify for an offset to its SG&A 
    expenses.
        Department's position: We agree with USIMINAS. In the preliminary 
    determination we excluded the income from certain USIMINAS operations, 
    while including the associated expenses (for example USIMINAS ownership 
    of the Ipatinga airport). At verification, we reviewed source documents 
    and obtained explanations from company officials on all the income 
    items that were used to offset USIMINAS' SG&A costs. We found that 
    certain revenue items (e.g., airport leases and rent) were related to 
    investments, and not to the general operations of the company as a 
    whole. In addition, we found that certain expense items related to the 
    activities which produced this income were included in the SG&A 
    calculation. For the final determination we have excluded the expenses 
    which directly relate to the excluded revenues.
        Comment 53: COSIPA's Errors in Reporting Sales Quantities. 
    Petitioners argue that errors in COSIPA's calculation of sales quantity 
    result in an understatement of the total cost of manufacturing which 
    requires the use of facts available. Petitioners assert that to correct 
    this error the Department should increase the total cost of 
    manufacturing for each product by the same percentage since the 
    product-specific impact of these errors is not known.
        COSIPA retorts that the errors in sales quantity as originally 
    submitted do not result in an understatement of the total cost of 
    manufacturing but an overstatement of costs. COSIPA argues that 
    petitioners' justification for using facts available is flawed since 
    the product-specific corrections were submitted at the Department's 
    request.
        Department's Position: We agree with COSIPA. The sales quantities 
    as originally reported overstated the total cost of manufacturing. The 
    Department obtained at the first day of verification an exhibit 
    explaining the error in sales quantities and in the provisions account. 
    We verified the accuracy and impact of the product-specific corrections 
    and obtained revised databases. As a result, no additional adjustment 
    as a result of this correction is necessary.
        Comment 54: COSIPA's Iron Ore Purchases from Affiliates. 
    Petitioners argue that COSIPA failed to provide CVRD's COP for the 
    major input iron ore, despite repeated requests from the Department 
    throughout the course of this investigation. Petitioners advocate the 
    use of facts available to value iron ore.
        COSIPA argues that the Department should accept the iron ore costs 
    based on the transfer price because COSIPA acted to the best of its 
    ability to obtain cost information from CVRD but were unable to do so 
    because of the nature of affiliation with CVRD. COSIPA also states that 
    the affiliated prices from CVRD are higher than iron ore prices from 
    unaffiliated suppliers. COSIPA claims that this would be consistent 
    with the Final Results of Antidumping Duty Administrative Review: 
    Certain Cut-to-Length Carbon Steel Plate from Brazil 63 FR 12744, 12751 
    (March 16, 1998) where the Department decided to accept COSIPA's 
    submitted iron ore costs from CVRD.
        Department's Position: In determining whether an input is 
    considered major in accordance with section 773(f)(3) of the Act, among 
    other factors, the Department considers both the percentage of the 
    input obtained from affiliated suppliers (versus un-affiliated 
    suppliers) and the percentage the individual element represents of the 
    product's total cost of manufacturing. COSIPA purchased iron ore from 
    an affiliate, CVRD. We have determined that the quantity and value of 
    iron ore purchased during the POI from CVRD are not of enough 
    significance to be considered a major input in accordance with section 
    773(f)(3). However, pursuant to section 773(f)(2) of the Act, the 
    Department may disregard the transfer price from an affiliated supplier 
    if it is less than the market price for the same input. We compared the 
    transfer price of iron ore purchased from CVRD to the market price 
    (i.e., prices for purchases from unaffiliated suppliers) and found that 
    the market price was higher. Therefore, for the final determination, we 
    adjusted the submitted iron ore costs to reflect a market price.
        Comment 55: COSIPA's Coal Purchases from Affiliates. Petitioners 
    assert that the cost of coal obtained by COSIPA from affiliated parties 
    is undervalued, requiring the use of facts available. Petitioner states 
    that coal is a major input and since the affiliate's cost, excluding 
    freight, is higher than the price charged to COSIPA, the Department 
    should increase the reported value for coal by the percentage 
    difference between the cost and the transfer price.
        In comparing transfer price to cost, respondents state that the 
    petitioners' analysis is flawed due to double-counting of COSIPA 
    expenses. Respondents argue that it is incorrect to include any of 
    COSIPA Overseas' financial expenses as a cost because these expenses 
    are already captured in the consolidated financial expenses for COSIPA 
    using the COSIPA/USIMINAS consolidated financial statement. Second, 
    respondents state the inclusion of SG&A expenses of COSIPA Overseas is 
    also incorrect, as the SG&A used by the Department in the preliminary 
    determination was apparently the consolidated SG&A for both COSIPA and 
    COSIPA Overseas.
        Department's Position: COSIPA purchased coal from an affiliate, 
    COSIPA Overseas. We have determined that the quantity and value of coal 
    purchased during the POI from the affiliate were significant. Pursuant 
    to sections 773(f)(2) and (3) of the Act, the Department may value 
    major inputs purchased from affiliated suppliers at the higher of 
    market value, transfer
    
    [[Page 38792]]
    
    price or the affiliated supplier's COP. See Comment 49.
        In accordance with sections 773 (f)(2) and (3) of the Act we 
    attempted to compare the transfer price of the coal purchased from the 
    affiliated supplier to the market price for coal and to the affiliate's 
    COP. Since COSIPA did not purchase coal from any other supplier nor did 
    the affiliate sell coal to another customer during the period of 
    investigation, we were unable to establish a market price for coal. We 
    agree with the respondent's assertion that the Department's cost 
    verification report double counted financial expenses in calculating 
    the affiliate's COP. The double counting occurred as a result of 
    consolidating the affiliate's expenses into COSIPA's financial 
    statements. After adjusting for this duplication, the transfer price 
    from the affiliate is higher than the affiliate's calculated COP. Since 
    our testing indicated that the transfer price between COSIPA and its 
    affiliate was higher than COP, no adjustment was necessary. We disagree 
    with respondent's contention that we used the consolidated SG&A for the 
    preliminary determination. In fact we used the unconsolidated COSIPA 
    SG&A expenses.
        Comment 56: COSIPA's SG&A Expenses. Petitioners state that COSIPA's 
    SG&A rate was understated and must be revised to reflect all related 
    expenses. Petitioners point out that COSIPA failed to include expenses 
    related to the depreciation and amortization on administrative assets 
    in its SG&A rate calculation. Petitioners also point out that accruals 
    for lawsuit contingencies were omitted. Petitioners argue these amounts 
    should be included in the SG&A rate calculation.
        The respondent did not comment on this issue.
        Department's Position: We agree with petitioners that the costs 
    associated with depreciation and amortization on administrative assets 
    and accruals for lawsuit contingencies should be included in COSIPA's 
    SG&A expense rate calculation. We consider these costs to be related to 
    the general operations of the company as a whole. We have therefore 
    revised COSIPA's SG&A calculation to include these costs. Since we did 
    not include ICMS taxes in the COP and CV computations, we did not allow 
    income recognized from rescheduling of ICMS taxes as an offset to SG&A 
    expense.
        Comment 57: Dufer's Further Processing Costs. Petitioners argue 
    that the Department should use facts available to determine the cost of 
    further processing at Dufer because Dufer has no product-specific cost 
    records.
        Respondents argue that Dufer has no basis for determining product-
    specific costs as required by the Department. Respondents state that 
    Dufer is a small company and cooperated to the best of its ability by 
    providing all of the information it could to the Department. 
    Respondent's cite Annex II of the 1994 Agreement on Implementation of 
    Article VI of the GATT in arguing that the Department should use 
    information provided to it by respondents, ``provided the interested 
    party has acted to the best of its ability.'' In the instant case, 
    respondents argue that Dufer provided all of the information it had to 
    the best of its ability and fully cooperated with the Department at 
    verification, and thus there is no basis for the Department to use 
    facts available to determine Dufer's costs.
        Department's Position: These comments on Dufer's cost issues are 
    moot due to the Department's decision to use adverse facts available 
    for sales from Dufer. See Comment 18.
    
    Suspension of Liquidation
    
        On July 6, 1999, the Department signed a suspension agreement with 
    CSN, USIMINAS, and COSIPA suspending this investigation. Pursuant to 
    section 734(f)(2)(A) of the Act, we are instructing Customs to 
    terminate the suspension of liquidation of all entries of hot-rolled 
    flat-rolled, carbon-quality steel products from Brazil. Any cash 
    deposits of entries of hot-rolled flat-rolled, carbon-quality steel 
    products from Brazil shall be refunded and any bonds shall be released.
        On July 2, 1999, the Department received a request from petitioners 
    requesting that we continue the investigation. Pursuant to this 
    request, we have continued and completed the investigation in 
    accordance with section 734(g) of the Act. We have found the following 
    weighted-average dumping margins:
    
    ------------------------------------------------------------------------
                                                                  Weighted-
                                                                   average
                       Exporter/manufacturer                        margin
                                                                  (percent)
    ------------------------------------------------------------------------
    CSN........................................................        41.27
    USIMINAS/COSIPA............................................        43.40
    All Others.................................................        42.12
    ------------------------------------------------------------------------
    
    ITC Notification
    
        In accordance with section 735(d) of the Act, we have notified the 
    ITC of our determination. As our determination is affirmative, the ITC 
    will determine, within 45 days, whether these imports are causing 
    material injury, or threat of material injury, to an industry in the 
    United States. If the ITC's injury determination is negative, the 
    agreement will have no force or effect, and the investigation will be 
    terminated (see section 734(f)(3)(A) of the Act). If the ITC's 
    determination is affirmative, the Department will not issue an 
    antidumping duty order as long as the suspension agreement remains in 
    force (see section 734(f)(3)(B) of the Act).
        This determination is issued and published in accordance with 
    sections 735(d) and 777(i)(1) of the Act.
    
        Dated: July 6, 1999.
    Robert S. LaRussa,
    Assistant Secretary for Import Administration.
    [FR Doc. 99-18225 Filed 7-16-99; 8:45 am]
    BILLING CODE 3510-DS-P
    
    
    

Document Information

Effective Date:
7/19/1999
Published:
07/19/1999
Department:
International Trade Administration
Entry Type:
Notice
Action:
Notice of final determination of sales at less than fair value.
Document Number:
99-18225
Dates:
July 19, 1999.
Pages:
38756-38792 (37 pages)
Docket Numbers:
A-351-828
PDF File:
99-18225.Pdf