[Federal Register Volume 63, Number 36 (Tuesday, February 24, 1998)]
[Notices]
[Pages 9182-9198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4700]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-122-826]
Notice of Final Determination of Sales at Less Than Fair Value:
Steel Wire Rod From Canada
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of Final Determination of Sales at Less Than Fair Value.
EFFECTIVE DATE: February 24, 1998.
FOR FURTHER INFORMATION CONTACT: Alexander Braier at 202/482-3818,
Lisette Lach 202/482-0190, Cindy Sonmez 202/482-0961 or Dorothy Woster
at 202/482-3362, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the Tariff Act of 1930
(``the Act'') as amended, are references 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
references to the provisions codified at
[[Page 9183]]
19 CFR part 353 (April 1997). Although the Department's new
regulations, codified at 19 CFR 351 (62 FR 27296 (May 19, 1997)) do not
govern these proceedings, citations to those regulations are provided,
where appropriate, to explain current departmental practice.
Final Determination
We determine that steel wire rod (``SWR'') from Canada is being, or
is 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 are shown in the ``Suspension of Liquidation'' section of this
notice.
Case History
Since the preliminary determination in this investigation (see
Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Steel Wire Rod (``SWR'') from
Canada, 62 FR 51572 (October 1, 1997) (``Preliminary Determination'')),
the following events have occurred:
In October and November 1997, we conducted verification of the
responses of the following respondents: Sidbec-Dosco (Ispat) Inc. (now
Ispat-Sidbec), Stelco, Inc. (``Stelco''), and Ivaco, Inc. (``Ivaco'').
In November and December 1997, the Department instructed Ispat-Sidbec,
Ivaco, and Stelco to resubmit their computer data which incorporated
corrections made at verification. On December 2, 1997, Stelco submitted
its revised computer data. On December 15, 1997, Ispat-Sidbec requested
an extension of time to resubmit its data. On December 18, 1997, the
Department granted Ispat-Sidbec an extension, until January 7, 1998, in
which to resubmit its computer data. On December 12, 1997, Ivaco
requested an extension of time for the case and rebuttal briefs,
originally due December 23, 1997, and December 30, 1997, respectively.
On December 18, 1997, the Department granted an extension of time for
submission of case and rebuttal briefs to all interested parties. The
new deadline for the case briefs was January 7, 1998, and rebuttal
briefs, January 14, 1998. As none of the parties requested a public
hearing, no such hearing was held.
Scope of Investigation
The products covered by this investigation are certain hot-rolled
carbon steel and alloy steel products, in coils, of approximately round
cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch),
inclusive, in solid cross-sectional diameter. Specifically excluded are
steel products possessing the above noted physical characteristics and
meeting the Harmonized Tariff Schedule of the United States (``HTSUS'')
definitions for (a) stainless steel; (b) tool steel; (c) high nickel
steel; (d) ball bearing steel; (e) free machining steel that contains
by weight 0.03 percent or more of lead, 0.05 percent or more of
bismuth, 0.08 percent or more of sulfur, more than 0.4 percent of
phosphorus, more than 0.05 percent of selenium, and/or more than 0.01
percent of tellurium; or (f) concrete reinforcing bars and rods.
The following products are also excluded from the scope of this
investigation:
Coiled products 5.50 mm or less in true diameter with an
average partial decarburization per coil of no more than 70 microns in
depth, no inclusions greater than 20 microns, containing by weight the
following: carbon greater than or equal to 0.68 percent; aluminum less
than or equal to 0.005 percent; phosphorous plus sulfur less than or
equal to 0.040 percent; maximum combined copper, nickel and chromium
content of 0.13 percent; and nitrogen less than or equal to 0.006
percent. This product is commonly referred to as ``Tire Cord Wire
Rod.''
Coiled products 7.9 to 18 mm in diameter, with a partial
decarburization of 75 microns or less in depth and seams no more than
75 microns in depth, containing 0.48 to 0.73 percent carbon by weight.
This product is commonly referred to as ``Valve Spring Quality Wire
Rod.''
Coiled products 11 mm to 12.5 mm in diameter, with an
average partial decarburization per coil of no more than 70 microns in
depth, no inclusions greater than 20 microns, containing by weight the
following: carbon greater than or equal to 0.72 percent; manganese
0.50-1.10 percent; phosphorus less than or equal to 0.030 percent;
sulfur less than or equal to 0.035 percent; and silicon 0.10-0.35
percent. This product is free of injurious piping and undue
segregation. The use of this excluded product is to fulfill contracts
for the sale of Class III pipe wrap wire in conformity with ASTM
specification A648-95 and imports of this product must be accompanied
by such a declaration on the mill certificate and/or sales invoice.
This excluded product is commonly referred to as ``Semifinished Class
III Pipe Wrapping Wire.''
The products under investigation are currently classifiable under
subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030,
7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the
HTSUS subheadings are provided for convenience and customs purposes,
our written description of the scope of this investigation is
dispositive.
Exclusion of Pipe Wrapping Wire
As stated in the Preliminary Determination, North American Wire
Products Corporation (``NAW''), an importer of the subject merchandise
from Germany, requested that the Department exclude SWR used to
manufacture Class III pipe wrapping wire from the scope of the
antidumping and countervailing duty investigations of SWR from Canada,
Germany, Trinidad and Tobago, and Venezuela. Because petitioners did
not agree to this scope exclusion, we did not exclude this merchandise
in the preliminary determination. On December 22, 1997, NAW submitted
to the Department a proposed exclusion definition. On December 30,
1997, and January 7, 1998, the petitioners submitted letters concurring
with the definition of the scope exclusion and requesting exclusion of
this product from the scope of the investigation. We have reviewed
NAW's request and petitioners' comments and have excluded SWR for
manufacturing Class III pipe wrapping wire from the scope of this
investigation. See Memorandum to Richard W. Moreland dated January 12,
1998. Accordingly, on February 3, 1998, we instructed the U.S. Customs
Service to terminate suspension of liquidation on all entries of Class
III pipe wrapping wire from Canada.
Period of Investigation
The period of investigation (``POI'') for all respondents is
January 1, 1996 through December 31, 1996.
Fair Value Comparisons
To determine whether sales of SWR sold by respondents to the United
States were made at less than fair value, we compared the Export Price
(``EP'') to the normal value (``NV''), as described in the ``EP and
CEP'' and ``Normal Value'' sections of this notice below. In accordance
with section 777A(d)(1)(A)(i), we calculated weighted-average EPs or
CEPs for comparison to weighted-average NVs.
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 Investigation'' section above, and sold in the home market
during the POI, to be foreign like products for purposes of determining
appropriate product comparisons to U.S. sales. Where there were no
sales of identical merchandise
[[Page 9184]]
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 listed in the antidumping duty questionnaire and the
May 22, 1997, reporting instructions.
Consistent with our practice, we compared prime merchandise sold in
the United States to prime merchandise sold in the home market, and
secondary merchandise to secondary merchandise. See e.g., Certain Cold-
Rolled Carbon Steel Flat Products from the Netherlands; Final Results
of Antidumping Duty Administrative Review, 61 FR 48465 (Sept. 13,
1996).
On January 8, 1998, the Court of Appeals of the Federal Circuit
issued a decision in Cemex, S.A. v. United States, No. 97-1151, 1998 WL
3626 (Fed. Cir. Jan. 8, 1998). In that case, based on the pre-URAA
version of the Act, the Court discussed the appropriateness of using
constructed value (``CV'') as the basis for foreign market value when
the Department finds home market sales to be outside the ordinary
course of trade. This issue was not raised by any party in this
proceeding. However, the URAA amended the definition of sales outside
the ``ordinary course of trade'' to include sales disregarded as below
cost. See section 771(15) of the Act. Because the Court's decision was
issued so close to the deadline for completing this administrative
review, we have not had sufficient time to evaluate and apply (if
appropriate and if there are adequate facts on the record) the decision
to the facts of this ``post-URAA'' case. For these reasons, we have
determined to continue to apply our policy regarding the use of CV when
we have disregarded below-cost sales from the calculation of NV.
Level of Trade
In accordance with section 773(a)(1)(B) of the Act, to the extent
practicable, we determine NV based on sales in the comparison market at
the same level of trade (``LOT'') as the EP or CEP transaction. The NV
LOT is that of the starting-price sales in the comparison market or,
when NV is based on constructed value (``CV''), that of the sales from
which we derive selling, general and administrative (``SG&A'') expenses
and profit. For EP, the U.S. LOT is also the level of the starting-
price sale, which is usually from exporter to importer. For CEP, it is
the level of the constructed sale from the exporter to the importer.
To determine whether NV sales are at a different LOT than EP or
CEP, we examine stages in the marketing process and selling functions
along the chain of distribution between the producer and the
unaffiliated customer. If the comparison-market sales are at a
different LOT, and the difference affects price comparability, as
manifested in a pattern of consistent price differences between the
sales on which NV is based and comparison-market sales at the LOT of
the export transaction, we make an LOT adjustment under section
773(a)(7)(A) of the Act. Finally, for CEP sales, if the NV level is
more remote from the factory than the CEP level and there is no basis
for determining whether the difference in the levels between NV and CEP
affects price comparability, we adjust NV under section 773(a)(7)(B) of
the Act (the CEP offset provision). See Notice of Final Determination
of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel
Plate from South Africa, 62 FR 61731 (November 19, 1997).
Ispat-Sidbec and Stelco did not claim a LOT adjustment. In the
preliminary determination, for both respondents, we made no LOT
adjustment, because we found all sales in the U.S. and home market to
be at the same LOT. Our findings at verification do not warrant a
change from our preliminary determination. Therefore, for the final
determination, no LOT adjustment is warranted for Ispat-Sidbec and
Stelco.
Ivaco did claim a LOT adjustment for its sales. In the preliminary
determination, we determined that a LOT adjustment was appropriate,
because we found sales in the U.S. and home market to be at different
LOTs. Our findings at verification do not warrant a change from the
preliminary determination. Therefore, for the final determination,
where applicable, we have made a LOT adjustment for Ivaco's sales.
Export Price (``EP'') and Constructed Export Price (``CEP'')
We calculated EP and CEP, as appropriate, in accordance with
subsections 772(a), (c) and (d) of the Act. The calculation for each
respondent was based on the same methodology used in the preliminary
determination.
Normal Value (``NV'')
We calculated NV, in accordance with subsections 773(a) of the Act.
The calculation for each respondent was based on the same methodology
used in the preliminary determination.
Cost of Production Analysis
A. Calculation of COP
The calculation for each respondent was based on the respective
cost submissions for each respondent, with the following exceptions:
Ispat-Sidbec
We adjusted Ispat-Sidbec's reported COP to include the consolidated
financing cost of Ispat International N.V. We recalculated Walker
Wire's further manufacturing COM to reflect the yield loss incurred
during the production process. See Memorandum to Chris Marsh from Stan
Bowen, dated February 13, 1998.
Ivaco
We recalculated Ivaco's general and administrative amounts based on
the expenses incurred by IRM, Sivaco Ontario, and Sivaco Quebec. We
adjusted the cost of billets to account for Atlantic Steel's selling,
general, and administrative costs. We recalculated further
manufacturing general and administrative amounts to reflect Sivaco New
York's verified expenses rather than IRM's expenses. We adjusted
Ivaco's COM to reflect the green rod yield loss incurred during rod
processing at Sivaco Ontario and Sivaco Quebec. See Memorandum to Chris
Marsh from Art Stein, dated February 13, 1998.
Stelco
We adjusted Stelco's reported COP to allocate ingot teeming costs
only to the products manufactured from billets produced at the facility
for which these costs were incurred. We subtracted Stelco McMaster
Ltee's G&A expenses from Stelco's combined G&A expense calculation.
Stelco McMaster Ltee's G&A expense was applied to the billet cost of
only those CONNUMs that were produced using Stelco McMaster Ltee's
billets. We recalculated Stelco's general and administrative amounts to
exclude certain off-sets to research and development and capital tax
expenses. See Memorandum to Chris Marsh from Stan Bowen, dated February
13, 1998.
B. Test of Home Market Prices
The calculation for each respondent was based on the same
methodology used in the preliminary determination.
C. Results of the COP Test
The calculation for each respondent was based on the same
methodology used in the preliminary determination.
D. Calculation of Constructed Value (CV)
The calculation for each respondent was based on the same
methodology used in the preliminary determination. We used the cost
information submitted by each respondent, except for the
[[Page 9185]]
adjustments noted above under ``Calculation of COP.''
Currency Conversion
For purposes of the preliminary determination, we made currency
conversions using the official daily exchange rate in effect on the
date of the U.S. sales. These exchange rates were derived from actual
daily exchange rates certified by the Dow Jones & Company, Inc. See
Change in Policy Regarding Currency Conversions, 61 FR 9434 (March 8,
1996).
Verification
As provided in section 782(i) of the Act, we verified the
information submitted by all respondents for use in our final
determination. We used standard verification procedures, including
examination of relevant accounting and sales/production records and
original source documents provided by respondents.
Comments Related to U.S. Price
Comment 1: Ispat-Sidbec Freight Expenses
Ispat-Sidbec contends that the Department should use Ispat-Sidbec's
reported and verified freight expenses in its final determination. In
the normal course of business, Ispat-Sidbec maintains all freight costs
recorded in its accounting system in Canadian dollars, regardless of
whether the original invoice was issued in U.S. or Canadian dollars by
the shipper. Due to the large number of sales, and the fact that one
sale may have multiple freight invoices, Ispat-Sidbec claims that it
would be virtually impossible to report the freight expense for each
sale in the currency in which the freight invoice was received.
Moreover, Ispat-Sidbec states that the Department verified that the
freight expenses had been properly converted to Canadian dollars, and
that this is how these expenses are maintained in the company's
internal accounting system. To support its position, Ispat-Sidbec
claims that the Department recently reaffirmed its preference for the
use of verified information maintained in a company's normal course of
business, even when that information may not correspond exactly to that
requested by the Department, citing Certain Cut-to-Length Steel Plate
From the People's Republic of China: Final Determination of Sales at
Less Than Fair Value, 62 FR 61964, 91991 (November 20, 1997).
Petitioners counter that, pursuant to section 776(a)(2)(A), the
Department should substitute the highest rate reported as adverse facts
available for Ispat-Sidbec's U.S. freight costs because Ispat-Sidbec
refused to submit freight expenses reported in the currency incurred,
as requested by the Department. Petitioners argue that the Department
must not accept Ispat-Sidbec's unilateral determination that the
requested information is unnecessary. Petitioners claim that if the
Department does not apply adverse inferences, Ispat-Sidbec will benefit
from its own lack of candor and cooperation.
Department's Position
Before applying facts available, section 782(e) of the Act permits
the Department to consider the ability of an interested party to submit
requested information if the party notifies the Department it cannot
provide the necessary information and includes a full explanation and
suggested alternatives. In its January 7, 1998 submission, Ispat-Sidbec
notified the Department that to report freight expenses in the currency
in which they were incurred would create an enormous burden requiring
Ispat-Sidbec to review numerous sales individually. While the
Department's standard questionnaire normally requires all parties to
report expenses in the currency in which they were incurred, the
Department verified that the expenses had been properly converted to
Canadian dollars using the daily exchange rate, and that this is how
the expenses were kept in the company's internal accounting system. In
this case, we have continued to use Ispat-Sidbec's reported and
verified freight expenses for these final results.
Comment 2: Ispat-Sidbec U.S. Selling Expenses
Ispat-Sidbec claims that in converting Ispat-Sidbec's U.S. selling
expenses to Canadian dollars for purposes of the CEP profit
calculation, the Department incorrectly applied the exchange rate
conversion to Ispat-Sidbec's inventory carrying cost in the country of
manufacture, which was already reported in Canadian dollars.
Department's Position
We agree with respondent and have corrected the CEP profit
calculation for this final determination.
Comments Related to Normal Value
Comment 1: Ispat-Sidbec Home Market Rebates
Ispat-Sidbec contends that the Department should continue to deduct
both of its reported rebates on home market sales from NV in the final
determination. Ispat-Sidbec claims that the Department verified the
terms and conditions of one (REBATE2H), and that another (REBATE1H)
clearly qualifies as a rebate under the Department's definition.
Department's Position
We agree with respondent that the record evidence supports a
deduction from NV for these rebates. In both instances, we verified the
terms and conditions of REBATE1H and REBATE2H. See Verification of the
Sales Data for Sidbec-Dosco (Ispat) Inc., December 18, 1997, at 12 and
19. Therefore, we will continue to deduct both REBATE1H and REBATE2H
from NV for purposes of this final determination.
Comment 2: Exclusion of Certain Stelco Home Market Sales
Petitioners argue that Stelco has reported home market sales of
subject merchandise that are neither made in commercial quantities nor
made in the ordinary course of business. Petitioners contend that sales
which do not meet Stelco's minimum order requirements are not sold in
commercial quantities. Particularly, petitioners argue that Stelco's
home market sale of a single coil was not made in commercial
quantities, as confirmed by Stelco at verification. Petitioners reject
Stelco's explanation that the sale at issue was made to fulfill a
previous under-delivery, as consistent with the record evidence.
Petitioners also argue that Stelco's sale of a single coil was not
made in the ordinary course of trade. They insist that the sale of a
single coil is aberrational in the wire rod industry and claim that
sales of single coils are used for samples, testing purposes, or other
aberrational circumstances. Petitioners allege that the preliminary
determination produced an anomalous result in the model match, where
Stelco's largest volume of U.S. sales was matched to the sale at issue.
Therefore, petitioners contend that the Department should exclude this
sale from the margin calculations, citing Nachi-Fujikoshi Corp. v.
United States, 798 F. Supp. 716, 718 (CIT 1992); Stainless Steel Angle
from Japan, 60 FR 16608, 16614 (March 31, 1995); Granular
Polytetrafluoroethylene Resin from Japan, 60 FR 5622, 5623 (January 30,
1995); Carbon Steel Plate from France, 58 FR 37125, 37126 (July 9,
1993).
Stelco urges the Department to reject petitioners' request to
exclude certain home market sales made by Stelco. Respondent maintains
that petitioners' arguments are meritless, because they rely primarily
on one sale made by
[[Page 9186]]
Stelwire. Stelco asserts that this sale of one coil is a perfectly
normal sale because it was part of shipment of multiple products, all
of which constituted a complete truckload.
Stelco also asserts that it included this sale, along with other
sales made by Stelwire, in the sales listings at petitioners'
insistence. It excluded this sale in the original response because the
sale at issue was a sale to an affiliated party. However, upon the
request of petitioners and the Department, Stelco included sales to
affiliates in its supplemental submissions to the Department.
Consequently, the sale of one coil was included in Stelco's subsequent
submissions of the sales tapes.
Moreover, Stelco insists that petitioners misinterpret Department
practice with respect to sales outside the ordinary course of trade.
Stelco alleges that petitioners have cited to court cases and
Department determinations arguing for, rather than against, the
inclusion of the sale at issue. First, respondent asserts that the
court case, Nachi-Fujikoshi Corp. v. United States, involved a decision
in which the Court upheld the Department's decision not to exclude a
sample sale from its LTFV comparisons as outside the ordinary course of
trade. Second, with regard to petitioners' cite to Stainless Steel
Angles from Japan, Stelco contends that petitioners fail to acknowledge
that, in that case, the Department rejected requests from both
petitioners and respondents to exclude certain sales as outside the
ordinary course of trade. Instead, the Department included in its
dumping comparisons the sales which parties argued were outside the
ordinary course of trade. Finally, Stelco asserts that Granular
Polytetrafluoroethylene Resin from France, and Carbon Steel Flat
Products from France, also do not support petitioners' argument.
Respondent maintains that, in both those cases, the Department decided
to exclude sales from its dumping comparisons because they were samples
and sales of seconds. Since petitioners have not alleged the sale at
issue is a sample sale, Stelco argues that these decisions are not
relevant to this investigation.
Department Position
We disagree with petitioners that certain Stelco home market sales,
including the sale of the single coil they reference, should be
excluded as sales not in ``usual commercial quantities'' and not in the
ordinary course of trade. First, we note that, while petitioners refer
to ``certain sales'' their arguments exclusively address Stelco's sale
of a single. With respect to petitioners' claim that this sale was made
in a non-commercial quantity, we reviewed the volumes, values, and
prices of Stelco's home market sales and found no evidence on the
record that this sale was not sold in ``usual commercial quantities''
within the meaning of section 771(17) of the Act. The record evidence
demonstrates that over 10% of the number of Stelco's home market sales,
to affiliated and unaffiliated customers, is comprised of quantities
comparable to the sale of the single coil. The prices of these sales,
including the price of the sale of the single coil, fall very close to
the midpoint of the price range of both Stelco's home market affiliated
and unaffiliated sales. Moreover, based upon the particular facts of
this case, we do not consider Stelco's minimum order practices as
determinative of whether these sales are within ``usual commercial
quantities'' because the record evidence demonstrates that Stelco made
a large number of sales of SWR in quantities below the volume orders,
and we have discovered nothing aberrational concerning these sales.
We also found the sale of the single coil to be within the ordinary
course of trade under section 771(15) of the Act. The Department
considers sales outside the ordinary course of trade to have
extraordinary characteristics for the market in question. 19 CFR
351.102, 62 FR at 27381. An ordinary course of trade determination
requires evaluation of sales on ``an individual basis taking account
all of the relevant facts of each case.'' Nachi-Fujikishi Corp. v.
United States, 798 F. Supp. 716, 719 (CIT 1992). This means that the
Department must review all circumstances particular to the sales in
question. See Gray Portland Cement and Clinker From Mexico: Final
Results of Antidumping Duty Administrative Review, 62 FR 17153 (April
9, 1997). The particular facts of this case do not support a finding
that the sale of the single coil was an extraordinary transaction in
relation to other home market sales transactions. First, during the
POI, the sale of the single coil was shipped as a line item in an
invoice including more than one type of subject merchandise, consistent
with the vast majority of Stelco's sales, and was shipped pursuant to
Stelco's regular shipping procedures. See Stelwire verification Exhibit
3. Second, Stelco had many similar sales of similar volumes in the home
market to both affiliated and unaffiliated customers. Third, as noted
above, the price of the sale at issue is near the midpoint of the price
range of Stelco's home market sales, and there is no evidence that the
price was aberrational. Fourth, there were no special handling or
shipping arrangements made for this particular coil. In sum, we have
found no record evidence demonstrating any significant distinctions
between the sale of the single coil and Stelco's other home market
sales. Therefore, since this sale was made in usual commercial
quantities and in the ordinary course of trade, we will not exclude it
from the home market sales listing.
Comments Related to Cost of Production
Comment 1: Ivaco Deferred Pre-Production Costs
Petitioners claim that the Department should deny Ivaco's deferral
of ``start-up'' costs associated with its furnace conversion.
Petitioners assert that the circumstances involving the furnace upgrade
fail to satisfy the statutory and regulatory standards for a start-up
cost adjustment because the furnace upgrade did not constitute a new
production facility or the replacement or rebuilding of nearly all
production machinery. Petitioners concede that the Department may rely
on records kept by the respondent in the normal course of business if
those accounts are in accordance with the home country GAAP and
reasonably reflect the costs associated with the production of the
subject merchandise. Petitioners argue that in this case, however,
Canadian GAAP distorts actual costs. Petitioners, citing Final
Determination: Certain Pasta from Italy, 62 FR 3026, 30355 (June 14,
1996) and Micron Technology, Inc. v. United States, 893 F. Supp. 21, 34
(CIT 1995), aff'd 117 F.3d 1386 (Fed. Cir. 1997), contend that because
the furnace upgrade costs were incurred during the POI, they should be
matched to the sales of the same period, and therefore, included in the
POI production costs.
Ivaco asserts that it never requested a ``start-up adjustment under
the statute,'' but that it deferred these expenses in its own books.
Respondent claims that the upgrades implemented during the furnace
conversion were extensive in nature and constituted major production
changes. Ivaco states that its external auditors approved its deferral
of its pre-production costs, as disclosed in notes (2) and (5) of IRM's
1996 audited financial statements. Ivaco argues that if the Department
chooses to disallow Ivaco's methodology of deferring and amortizing its
pre-production costs, then the Department must net out the pre-
production costs that Ivaco
[[Page 9187]]
capitalized prior to 1996 and amortized in 1996.
Department's Position
We agree with Ivaco that it properly deferred and amortized its
pre-production costs associated with its furnace conversion. Section
773(f) of the Act directs the Department to calculate costs based upon
the respondent's records, provided that such records are kept in
accordance with respondent's home country GAAP and reasonably reflect
the costs associated with the production of the merchandise. In this
case, Ivaco is not claiming a start-up adjustment in accordance with
section 773(f)(1)(C) of the Act. Rather, Ivaco, in the ordinary course
of business, capitalized certain costs related to its conversion of a
furnace. Ivaco's methodology of capitalizing and amortizing certain
pre-production costs over periods of up to five years is consistent
with Canadian GAAP and was approved by the company's auditors, as
evidenced by the disclosures in notes (2) and (5) of IRM's 1996 audited
financial statements.
Additionally, we consider it reasonable in this instance for Ivaco
to spread the furnace upgrade costs over future periods because these
costs will benefit the company's future operations through higher, more
efficient production levels. Ivaco has demonstrated this, having
deferred similar costs in past accounting periods. In fact, the
amortization recognized by Ivaco this year with respect to such
deferred costs from previous years approximates the total amount of
furnace upgrade costs that Ivaco deferred in the current year. Thus, we
find no reason to determine that such a methodology distorts the costs
associated with the production of the merchandise. Because we have
accepted Ivaco's methodology, the issue of netting out pre-production
costs capitalized prior to 1996 is moot.
Comment 2: Ivaco Deferred Foreign Exchange Costs
Petitioners assert that the full amount of the POI foreign exchange
losses should be included in the POI costs. Petitioners claim that
Department precedent is to treat foreign exchange gains and losses as
current period income or expenses, regardless of home country GAAP.
According to petitioners, the Department may rely on records kept by
the respondent in the normal course of business if those accounts are
in accordance with the home country GAAP and reasonably reflect the
costs associated with the production of the subject merchandise.
Petitioners maintain that Canadian GAAP distorts actual costs in this
situation. Petitioners cite Certain Pasta from Italy, where the
Department stated that the extinguishment of debt caused a foreign
exchange loss which represents a cost that provides no future benefit
and that if the current foreign exchange losses were deferred they
would not be properly matched against the sales of the period.
Petitioners also cite Micron Technology, Inc. v. U.S., an appeal from
the Department's determination in DRAMS from Korea, in which it was
ruled that if the foreign exchange translation gains and losses on
outstanding foreign currency monetary assets and liabilities were
deferred, the costs would not be appropriately matched to the sales of
the company during the POI.
Ivaco justifies its practice of deferring foreign exchange gains
and losses arising from non-current monetary items (i.e., payments to
be made after December 31, 1997) and amortizing those gains and losses
over the payment of the debt, as being consistent with Canadian GAAP.
Ivaco argues that this case differs from Certain Pasta from Italy
because, in that case, the respondent sought to defer current foreign
exchange gains and losses related to debt that had already been
extinguished. Ivaco claims that it has deferred only those foreign
exchange losses related to loans that were not extinguished, and that
it has expensed all foreign exchange losses related to extinguished
loans. Ivaco asserts that its methodology does not conflict with the
decision in Micron Technology, Inc. v. United States, where the Court
ruled that foreign exchange losses should be matched to the period in
which the loss occurred. Ivaco maintains that all its foreign exchange
losses related to loan repayments made in 1996 and projected loan
repayments to be made in 1997 were expensed in 1996 and included in its
COP, and that it deferred only those unrealized foreign exchange losses
related to the non-current portion of its loans as of December 31,
1996. Finally, Ivaco makes the same consistency argument it made
regarding its accounting for pre-production costs. Ivaco asserts that
if the Department chooses to disallow the deferral of the foreign
exchange losses, it should exclude the current period amortization of
foreign exchange costs that were deferred from prior years. Ivaco
claims that such treatment would result in a minimal difference in
Ivaco's costs.
Department's Position
We agree with Ivaco that it properly amortized foreign exchange
losses related to loans that were not extinguished during the POI. In
this instance, there is little difference between its method of
accounting for foreign exchange gains and losses and the method of
amortizing deferred exchange gains and losses used by the Department in
past cases. The Department normally relies upon the respondent's
records, provided that such records are kept in accordance with
respondent's home country GAAP and reasonably reflect the costs
associated with the production of the merchandise. Ivaco demonstrated
that its methodology of capitalizing non-current foreign exchange
gains/losses attributable to its outstanding debt and amortizing the
gains/losses over the payment of the debt is consistent with Canadian
GAAP and was approved by its auditors, as disclosed in notes (1) and
(6) of Ivaco Inc.'s 1996 audited financial statements. The Department's
position, established in recent cases, is that exchange gains/losses
should be amortized over the remaining life of the respondent's loans.
See Notice of Final Determination of Sales at Less Than Fair Value:
Fresh Cut Roses from Ecuador, 24 FR 7019, 7039 (February 6, 1995) and
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Steel Concrete Reinforcing Bars from Turkey, 42 FR 9737, 9743 (March 4,
1997). In this case, the impact of the difference between Ivaco's
methodology of deferring and amortizing exchange gains/losses on only
the non-current portion of long term debt and the Department's
preferred methodology of deferring and amortizing exchange gains/losses
over the remaining life of the debt is immaterial. Therefore, we find
Ivaco's methodology acceptable because it reasonably reflects the costs
associated with the production of the subject merchandise.
Comment 3: Sivaco Ontario and Quebec Yield Cost
Ivaco claims that it explained in its cost submissions and at
verification that because Sivaco Ontario's cost computation is based on
the volume produced at each production stage, its computation properly
accounts for the yield loss associated with the green rod. Ivaco
asserts that the yield losses are accurately reflected because the
denominator used to compute the per unit costs is the produced volume,
net of the yield loss.
Department's Position
We disagree with Ivaco that its methodology properly accounts for
yield loss, and therefore, reflects the actual cost of production of
SWR as
[[Page 9188]]
required by section 773(b)(3) of the Act. Although Sivaco Ontario and
Sivaco Quebec properly accounted for the heat treating and cleaning/
coating materials and processing costs associated with the rod lost
during their processing, the companies failed to include such costs
associated with the green rod received from IRM. We therefore
calculated a weighted average yield loss percentage for the rod used in
production at Sivaco Ontario and Sivaco Quebec. We based our
calculation on the yields reported in Ivaco's submissions and the
production volumes reported at verification. We then applied the yield
loss percentage to the cost of the green rod.
Comment 4: Sivaco New York Further Manufacturing G&A Calculation
Ivaco states that the Department should use the reported further
manufacturing data and G&A denominator in computing the further
manufacturing G&A rate for Sivaco New York. Ivaco claims that the
Sivaco New York cost of sales figure reported in the company's Section
D submission is based on Sivaco New York's audited financial statement.
Ivaco notes, however, that the cost of sales figure reported at
verification is based on Sivaco New York's internal financial
statement. Ivaco asserts that the cost of sales per Sivaco New York's
audited financial statement exceeds the cost of sales per its internal
financial statement by the sum of its shipping department and certain
freight-in costs (for returning damaged or defective merchandise or
racks). According to Ivaco, because these shipping department and
certain freight-in costs are included in Sivaco New York's submitted
further manufacturing costs, these costs must be included in the cost
of sales figure used as the denominator in computing Sivaco New York's
further manufacturing G&A rate.
Department's Position
We agree with Ivaco's contention that the cost of sales figure
reported at verification was based on Sivaco New York's internal
financial statement and excludes its shipping department and certain
freight-in costs. We also agree with Ivaco that these costs were
included in Sivaco New York's submitted further manufacturing costs.
However, the difference between the cost of sales figure reported in
the Section D submission and the cost of sales figure reported at
verification is slightly larger than the sum of the shipping department
and freight-in costs. We therefore adjusted the cost of sales figure
reported at verification to include these costs and recalculated
Ivaco's further manufacturing G&A rate for our final determination.
Comment 5: Ispat-Sidbec Interest Expense
Ispat-Sidbec contends that it is inappropriate for the Department
to request that the company use an interest expense factor that is
based on a reorganization that occurred after the POI. Ispat-Sidbec
maintains that the company derived the revised interest expense factor
solely for the Department's investigation and that it is not based on
POI data maintained by Ispat-Sidbec in the ordinary course of business.
According to Ispat-Sidbec, the statute requires the Department to
calculate costs based on a company's normal records if the respondent
maintains those records in accordance with GAAP. Ispat-Sidbec further
notes that in Aramid Fiber Formed of Poly-Phenylene Terephthalamide
from the Netherlands, 59 FR 23684, 23688 (May 6, 1994), the Department
declined to calculate interest expense based on consolidated data, when
the corporate restructuring did not occur until after the POI. Thus,
Ispat-Sidbec argues that the Department should accept its interest
expense factor as originally calculated based on the company's 1996
consolidated financial statements in accordance with Canadian GAAP.
Petitioners respond that for corporate groups, such as Ispat
International and its subsidiaries, the Department generally calculates
interest expense based on the consolidated financial results of a
parent corporation and its subsidiaries, whether or not the respondent
normally maintains such information in the ordinary course of business.
Petitioners state that the Department's policy is ``based on the fact
that the group's parent, primary operating company, or other
controlling entity . . . because of its influential ownership interest,
has the power to determine the capital structure of each member company
within the group.'' New Minivans from Japan, 57 FR 21937, 21946 (May
26, 1992). Petitioners also note that Ispat-Sidbec's argument that this
interest information as derived solely for the investigation is flawed
because Ispat International's consolidated financial statements for
1994 through 1996 were part of the record.
Department's Position
We agree with petitioners that it is the Department's long-standing
practice to calculate interest expense for COP and CV purposes based on
the borrowing costs incurred at the consolidated group level. This
methodology, which has been upheld by the CIT in Camargo Correa Metals,
S.A. v. U.S., No. 91-09-00641, Slip Op. 93-163 (CIT August 13, 1993),
is based on the fact that the consolidated group's controlling entity
has the power to determine the capital structure of each member of the
group. Thus, financial expenses at the group consolidation level must
reasonably reflect the borrowing costs incurred by each member of the
group. In this instance, prior to the POI, Ispat-Sidbec was a wholly-
owned subsidiary within a large group of companies. Although these
companies would normally prepare consolidated financial statements at
the group level, it was unnecessary for them to do so because they were
privately owned. Shortly after the POI, the Ispat Group reorganized its
operations, eliminating certain holding companies as well as making
other changes to its overall corporate structure. As part of the
reorganization, Ispat International N.V. emerged as the lead entity of
the former Ispat Group. Ispat International prepared consolidated
financial statements for the group, including statements covering the
POI.
Contrary to respondents arguments, this situation differs from that
in Aramid Fiber Formed of Poly-Phenylene Terephthalamide from the
Netherlands, 59 FR 23684, 23688 (May 6, 1994). In that instance, the
Department did not compute interest expense at the consolidated level
because the equity ownership in the respondent did not meet the
requirements for consolidation until the post POI reorganization.
However, in this case, Ispat-Sidbec was a member of the same group of
consolidating companies both prior to and after the reorganization.
Therefore, we will continue to use the Ispat Group's consolidated
interest expense factor for purposes of this final determination.
Comment 6: Walker Wire Further Manufacturing Yield Loss
Ispat-Sidbec states that the Department should accept the yield
loss reported in Walker Wire's further manufacturing Section E
questionnaire. Ispat-Sidbec claims that Walker Wire submitted the yield
loss that it normally calculates. Respondent maintains that Walker
Wire's cost accounting system appropriately tracks all costs, including
yield loss. In addition, Ispat-Sidbec asserts that the method used to
allocate yield loss to merchandise is appropriate and reasonable.
Department's Position
We disagree with Ispat Sidbec that Walker Wire's reported costs
adequately
[[Page 9189]]
accounts for yield loss associated with the further manufacture of the
subject merchandise. Walker Wire's reported yield loss accounts only
for a portion of its total yield loss because the company determined
the reported loss based on the quantity of raw material recovered and
sold for scrap. The company's methodology does not account for loss
that it never recovers. Secondly, Walker Wire's reported conversion
costs fail to account for yield loss incurred during production, which
understates Walker Wire's conversion costs. Finally, Walker Wire
uniformly allocates its yield loss to all products sold. Walker Wire
allocated yield loss to merchandise bought for resale that required no
fabrication and to customer-owned material that it fabricated. Neither
of these items should incur the yield loss associated with Walker
Wire's processing of its own materials. Therefore, for this final
determination, we have increased Walker Wire's reported costs to
account for the company's total yield loss.
Comment 7: Stelco Allocation of Excess Cost of Ingot Teeming
Stelco argues that it properly allocated the excess cost of ingot
teeming (i.e., the cost of ingots that are not required by Stelco's
internal order practice) to only round products produced during the
POI. Stelco notes that in its normal books and records it allocates
these costs to all products produced, both flat-rolled and round
products. However, in its submitted COP and CV data, Stelco allocated
its ingot teeming costs to only round products produced since it cannot
use ingots to produce flat-rolled products. Stelco contends that the
Department should accept this allocation methodology because, in
accordance with section 773(f) of the Act, it is the closest to
Stelco's normal accounting procedures and because it reasonably
reflects the actual cost of producing subject merchandise. Stelco
further supports this argument by stating that the company can produce
all of its round (i.e., rod and bar) products from either ingot steel
or cast steel.
Stelco further argues that if the Department does not accept its
methodology of allocating excess ingot teeming costs to all round
products, the Department should allocate these costs to those products
that, because of customer requirements, could only be manufactured
using ingots. Stelco maintains that during the POI, while no customers
specifically required that only ingot steel be used in their orders,
some customers required cast steel only.
Petitioners argue that the Department should reject Stelco's COP
and CV data and apply total adverse facts available for the final
determination because Stelco has repeatedly misreported its costs
incurred on the teeming of ingots. Petitioners claim that Stelco incurs
these costs on specific products and had the ability to assign its
ingot teeming costs in a product-specific manner. Petitioners contend,
however, that Stelco did not allocate its ingot teeming costs to
specific products produced from ingots but, instead, allocated these
costs over products that it claims could potentially be produced from
ingots. Petitioners argue that this allocation methodology is
unacceptable because the statute and the Department's long-standing
practice require product-specific cost reporting. Petitioners cite
Final Results of Antidumping Duty Administrative Review: Gray Portland
Cement and Clinker from Mexico, 58 FR 25803, 25809 (April 28, 1993), as
precedent for use of best information available, in this case, when the
respondent does not report product-specific materials costs.
Petitioners also assert that Stelco's submitted costs are not based
on its books and records maintained in the normal course of business
and argue that neither of Stelco's various cost submissions reasonably
reflect the costs associated with the production and sale of subject
merchandise. Petitioners claim that because Stelco's submitted
methodologies do not assign costs only to the products for which those
costs were incurred, Stelco diluted the dumping margins on ingot-teemed
products, while reducing its profit margins on non-ingot teemed
products. Petitioners further argue that since there is no verified
evidence on the record demonstrating which specific CONNUMs are ingot-
teemed products, the Department does not have the ability to correct
Stelco's reported costs. Thus, petitioners urge the Department to
reject Stelco's reported costs in their entirety and apply total
adverse facts available, using either the dumping margin alleged in the
petition for a Canadian respondent, or the highest dumping margin
generated on any sale reported in Stelco's questionnaire response.
Department's Position
We disagree with petitioners that because Stelco was unable to
allocate ingot teeming costs only to those products manufactured from
ingot-produced billets, the Department should reject Stelco's reported
costs in their entirety and resort to total adverse facts available.
First, we do not find that Stelco's cost submissions are totally flawed
and rendered unusable for the final determination under section 782(e)
of the Act. Stelco submitted its cost data in a timely manner, we were
able to verify significant elements of its COP and CV data, and as
discussed below, we were able to use the cost data without undue
difficulties. Thus, the facts in this case, do not support rejection of
the entire cost submission. See e.g., Certain Welded Carbon Steel Pipes
and Tubes from Thailand: Final Results of Antidumping Duty
Administrative Review, 62 FR 53808, 53819-20 (Oct. 16, 1997) (resorting
to total adverse facts available because the respondent's cost
submission was unverifiable). In addition, we do not find a sufficient
basis to apply adverse inferences in accordance with section 776(b) of
the Act because we determine that Stelco reported these costs to the
best of its ability. Although Stelco did not report product-specific
costs for all subject merchandise that used ingot steel, we confirmed
at verification Stelco's claim that its computerized production records
do not permit it to identify when a product is made using ingot steel.
Based on this examination, we consider it acceptable for Stelco to
allocate ingot teeming costs using an alternative methodology that
reasonably reflects the costs associated with producing the subject
merchandise.
However, we find neither of Stelco's alternative methodologies
acceptable for the final determination. Because Stelco McMaster Ltee
does not produce billets from ingots, allocating the ingot teeming
costs incurred at the Hilton Works facility to all round products,
including those made from billets manufactured at Stelco McMaster Ltee,
unreasonably understates ingot teeming costs. Also, allocating ingot
costs only to products that may be produced from ingots in the absence
of actual production records unreasonably relies upon unsubstantiated
costs. Therefore, we find that because Stelco states that it teems
ingot to allow maximum utilization of available steel in the Hilton
Works' ladles and that all round products can be produced using ingot
steel, a reasonable methodology is to allocate ingot teeming costs to
all products which used Hilton Works billets. Accordingly, for the
final determination, we allocated ingot teeming costs incurred at the
Hilton Works facility to all products manufactured from billets
produced at this facility.
Comment 8: Inclusion of Stelco Capital Tax Credit in the G&A
Expense Calculation
Stelco argues that its capital tax credit should be included in the
general and administrative (``G&A'') expense
[[Page 9190]]
calculation. Stelco cites Final Results of Antidumping Duty
Administrative Reviews: Certain Corrosion-Resistant Carbon Steel Flat
Products and Certain Cut-to-Length Carbon Steel Plate from Canada, 62
FR 18448, 18465 (April 15, 1997) (``Carbon Steel from Canada''), as
precedent for classifying capital taxes as a G&A expense. Stelco
contends that because capital tax is a G&A expense, it properly offset
the capital tax credit against G&A expenses. Furthermore, Stelco notes
that the Department's practice is to include income items that are
properly a part of G&A in the G&A expense calculation. To support this
argument, Stelco cites Notice of Antidumping Duty Order and Amended
Final Determination: Canned Pineapple Fruit from Thailand, 60 FR 36775,
36776 (July 18, 1995), in which the Department states it inadvertently
relied on the gross, rather than the net, G&A expenses of the company
in the calculations of COP and CV. Stelco maintains that the full
amount of the credit relates to the POI, and not to prior years.
Stelco further argues that if the Department accepts expense items
which relate to non-POI periods because they are recorded in the
company's normal books and records for the period, the Department
should accept income items which relate to non-POI periods if they are
recorded in the company's normal books and records in accordance with
GAAP. Stelco cites Final Results of Antidumping Duty Administrative
Review: Certain Cold-Rolled Carbon Steel Flat Products from Canada, 58
FR 37099, 37120 (July 9, 1993), in which the Department determined that
because the respondent chose to expense the entire amount of certain
expenses which related to future periods in the current period, the
total expense was included in the calculation of COP and CV. Therefore,
Stelco argues that even if the costs did relate to prior POI events,
section 773(f) of the Act and the Department's long-standing policy
require that costs be included in the calculation of COP and CV in the
year those costs are recorded in a company's books, if those records
are in accordance with GAAP and reasonably reflect the costs associated
with the production and sale of the merchandise. Thus, Stelco maintains
that its capital tax credit should be included in the calculation of
G&A expenses for the final determination because it is recorded in
Stelco's normal books and records in accordance with GAAP and
reasonably reflects COP.
Petitioners urge the Department to exclude Stelco's capital tax
offset from its G&A expense calculation. Petitioners argue that
Stelco's credit to G&A expenses is improper because the Department does
not normally include income taxes in its COP and CV calculations and
because it does not relate to the POI since Stelco recorded this credit
to reverse an overstated accrued liability from 1991. Petitioners state
that, contrary to Stelco's claim, the Department does not have a long-
standing policy of accepting such credits, particularly from prior
years. To support this argument, petitioners cite Final Results of
Antidumping Duty Administrative Review: Fresh Kiwifruit from New
Zealand, 57 FR 13695, 13702 (April 17, 1992), in which the Department
determined that ``tax recoveries cannot be used to offset costs.'' In
addition, petitioners argue that while the Department often accepts
costs in the year they are recorded in a company's books, the statue
specifically notes that COP shall be based on those records only when
they reasonably reflect the costs associated with the production and
sale of the merchandise. Thus, petitioners maintain that Stelco's
capital tax credit should be excluded from the G&A expense calculation
because it artificially and improperly lowers G&A expenses for the POI.
Department's Position
We agree with Stelco that the capital tax, which is a non-income-
based tax, is a G&A expense item and, therefore, credits to capital tax
should be offset to G&A expenses. See e.g., Oil Country Tubular Goods
From Canada; Final Determination of Sales at Less Than Fair Value, 51
FR 15029 (April 22, 1986) and Certain Steel from Canada, 62 FR at
18465. However, we disagree with Stelco that the total amount of the
capital tax credit should be included in the calculation of G&A
expenses. While it is reasonable to offset Stelco's capital tax expense
with its capital tax credit, it is not reasonable to offset other G&A
expenses by the amount of the credit that exceeds the amount of the
capital tax expense. Specifically, because the credit represents a
reduction in the amount of capital taxes due by the company, it is
unreasonable to offset unrelated G&A expenses, such as administrative
salaries, professional fees, and office supplies. Therefore, for the
final determination, we are including in Stelco's calculation of G&A
expenses its capital tax credit only to the extent of its current
capital tax expenses.
Comment 9: Inclusion of Stelco Tax Credit in G&A Expense Calculation
Stelco asserts that its investment tax credit should be included as
a reduction to the company's G&A expenses. Stelco maintains that the
credit is a reimbursement by the Canadian government of research and
development (``R&D'') expenses and, therefore, the company properly
offset this credit to the R&D expenses it included as part of the total
G&A expense. Stelco explains that although the Canadian government
reimburses the company through a reduction of its income tax payable,
the credit is not an income tax benefit. To support its argument that
it properly recorded the credit as an offset to G&A expenses, Stelco
cites the Canadian Institute of Chartered Accountants (``CICA'')
Handbook, the Canadian equivalent of U.S. GAAP. The Handbook states,
where the investment tax credit relates to R&D costs, it should be
accounted for using the cost reduction approach by including it in the
period's net income if it relates to current expenses. If on the other
hand, the ITC relates to fixed asset purchases, it may be accounted for
either, by deducting the credit from the related assets and calculating
depreciation expense on the net basis of the asset, or by deferring it
if it relates to the acquisition of assets and amortizing it to income.
The Handbook, however, states that ``when the investment tax credits
are not accrued in the year in which the qualifying expenditures are
made because there is no reasonable assurance that the credit will be
realized, such credits should be accrued in the subsequent year in
which reasonable assurance of realization is first obtained.'' Stelco
contends that reasonable assurance occurred in 1996 when the company
had sufficient net income taxes payable to apply the investment tax
credit. Stelco further argues that the Department's long-standing
policy is to calculate COP and CV using net G&A expenses. Stelco
maintains that the full amount of this credit should be included in the
calculation of G&A expenses for the final determination. However,
Stelco states that if the Department rejects its argument, it should at
a minimum allow a full offset to Stelco's R&D expenses for the POI.
Petitioners counter that the Department should exclude Stelco's
investment tax credit from the G&A expense calculation because the
Department normally does not include income taxes in its COP and CV
calculations. Petitioners cite Statement of Financial Accounting
Standards No. 109: Accounting for Income Taxes to show that U.S. GAAP
provides that investment tax credits be recorded as a reduction to
income tax expense.
[[Page 9191]]
Petitioners respond that since Stelco concedes that the method of
payment by the government is a reduction of income tax payable, the
Department should adopt the approach that if a tax credit (such as an
investment tax credit) results in an income tax reduction, it should be
considered as an income tax item and thus excluded from G&A.
Petitioners further argue that the credit should be excluded because
portions of the credit may relate to R&D costs from previous years, or
the credit may be calculated based on the purchase of equipment that is
to be depreciated over future years. Petitioners allege that Canadian
companies would receive an unfair advantage if the Department allows
this credit to be classified as a reduction of cost of production
instead of a reduction to income tax expense. Finally, petitioners
claim that Stelco did not adequately support its classification of this
credit to G&A expenses. They argue that the Department should reject as
new factual information the CICA Handbook excerpts submitted by Stelco
in its January 7, 1998, brief which relate to the timing of the receipt
of the benefit, but do not address its classification. Petitioners
conclude that Stelco's approach does not conform to Canadian GAAP
because Stelco did not submit material to support its presentation and
disclosure of the credit. Therefore, petitioners maintain that Stelco's
investment tax credit should be excluded in the calculation of G&A
expenses for the final determination.
Department's Position
We disagree with petitioners that the excerpts from the CICA
Handbook submitted by Stelco in its January 7, 1998, brief constitute
untimely new factual information which should be rejected. Stelco
previously provided this information during the cost verification to
clarify and support information already on the record. See Stelco Cost
Verification Exhibit 29 at 10. However, we agree with petitioners that
the Department normally does not include income taxes in its COP and CV
calculations. The CICA Handbook states that ``investment tax credits
are a type of government assistance related to specific qualifying
expenditures that are prescribed by tax legislation.'' These credits
reduce the amount of income taxes Stelco pays. We do not consider it
appropriate to offset production costs by the reduced income tax
liability arising from tax legislation, because the Department does not
include income taxes in the calculation of COP and CV. See e.g., Fresh
Cut Flowers From Mexico; Final Results of Antidumping Duty
Administrative Review and Revocation in Part of Antidumping Duty Order,
61 FR 63822, 63824 (December 2, 1996). Thus, we are excluding Stelco's
investment tax credit in the calculation of G&A expenses for the final
determination.
Comment 10: Inclusion of Stelco Pension Expenses in the G&A Expense
Calculation
Stelco included in its G&A expenses an adjustment for the company's
additional pension liability as of December 31, 1995, which resulted
from a 1996 court decision to partially wind up the company's pension
plan. Stelco notes that the company did not have any ``control'' over
the events which triggered the applicability of its pension expense or
its capital tax credit recorded during the POI. Stelco argues that if
the Department excludes its capital tax and investment tax credits from
its calculation of G&A expenses because these credits relate to prior
years, the Department should also exclude this partial pension wind-up
cost from the G&A calculation because it relates to prior years.
Petitioners state that Stelco's recognition in the POI of pension
costs from prior years was proper and should be included in the G&A
expense calculation. Petitioners reason that Stelco should include this
cost because, unlike Stelco's tax credits, this amount was not
``controlled'' by Stelco, but by the Canadian courts. In addition,
petitioners claim that, unlike the tax credits, the pension expense was
recorded in accordance with both Canadian and U.S. GAAP which state
that a liability contingent on a lawsuit's outcome is recorded only if
the company is likely to lose the suit. Therefore, petitioners argue
that the Department should include Stelco's pension cost expense
related to prior years in the G&A expense calculation.
Department's Position
We agree with petitioners that Stelco's partial pension wind-up
costs should be included in the calculation of G&A expenses. In Final
Results of Antidumping Duty Administrative Reviews: Certain Cold-Rolled
and Corrosion-Resistant Carbon Steel Flat Products from Korea, 62 FR
18404, 18443 (April 15, 1997), (``Carbon Steel Flat Products from
Korea''), we determined that including prior-period expenses, such as
severance benefits, as an element of COP and CV is appropriate to
reasonably reflect the costs associated with the production and sale of
the subject merchandise. We disagree with Stelco that if the Department
excludes the company's capital tax and investment tax credits from the
calculation of G&A expenses, we must also exclude these pension
expenses. The Department considers each cost issue separately, based on
the facts and circumstances surrounding each issue. Stelco did not
recognize the pension expenses as a contingent liability in prior years
because Stelco expected to successfully appeal the Canadian pension
commissioner's ruling that employees terminated in the early 1990's
were entitled to certain pension benefits. Stelco recognized these
costs for the first time during the POI in accordance with GAAP after
the Canadian Supreme Court denied Stelco's appeal. See Cost
Verification Report, at 2-3. Consistent with Carbon Steel Flat Products
from Korea, we determine that including Stelco's prior-period pension
expenses as an element of COP and CV is appropriate to reasonably
reflect the costs associated with the production and sale of the
subject merchandise. Therefore, for the final determination, we have
included Stelco's partial pension wind-up cost in the calculation of
G&A expenses.
Comments Related to Other Issues
Comment 1: Whether a LOT Adjustment for Ivaco is Warranted
Petitioners state that the Department should reverse its
preliminary determination to grant a level of trade adjustment to
Ivaco. Petitioners argue that when examining the way in which IRM and
its affiliates do business, the record evidence demonstrates that no
level of trade adjustment is applicable in this case.
Petitioners first note that in its Level of Trade Memorandum (``LOT
Memorandum'') and Preliminary Determination, the Department found that
IRM and Sivaco both sell to the same category of customer, and that
both sell green and processed rod. Petitioners then state that the
Department also found that warranty and credit services were provided
at the same level. Petitioners argue that based on these similarities
in business practices, and without record evidence of any substantial
differences in the selling functions offered by the companies, the
Department must determine that an LOT adjustment is not warranted in
this case.
Petitioners then argue that the distinctions in selling functions
between IRM and Sivaco, which Ivaco claims are indicative of different
levels of trade, are instead simply a function of product mix, as IRM
sells mostly green rod, while Sivaco, being a
[[Page 9192]]
processor, sells mostly processed rod. Petitioners argue that a
comparison of IRM and Sivaco on a product-to-product basis would yield
very similar selling practices and expenses. First, petitioners assert
that IRM provides the same inventorying and JIT services that Sivaco
provides through a certain type of IRM sale. They argue that this type
of IRM sale is identical to a Sivaco sale from inventory, as in both
types of sale, the seller incurs all opportunity costs up to the point
of sale, and the customer purchases merchandise only when needed.
Second, petitioners state that Ivaco's claimed differences in
inventory carrying periods do not constitute evidence of substantially
different selling activities but instead are largely attributable to
product mix differences. Petitioners assert that the inventory periods
for processed rod is similar for both entities. In addition,
petitioners argue that the average inventory period verified by the
Department does not include the inventory period of a particular type
of IRM's sales. Petitioners point out that while it is true that Sivaco
maintains green rod inventory for a different period than IRM, this is
only logical since Sivaco's green rod typically must go through
additional processing. Petitioners conclude that since IRM's sales of a
particular type allow IRM to extend the same JIT services as Sivaco,
both companies offer the same products and inventory services.
Third, petitioners take issue with Ivaco's claims concerning
differences in delivery terms, arguing that differences in shipment
quantities are irrelevant to the level of trade analysis because both
companies sell rod on a delivered basis, both deliver rod to the
majority of their customers by truck, and both sell in truckload and
less than truckload quantities. Finally, petitioners' comments also
briefly addressed other selling function distinctions alleged by Ivaco.
Petitioners claim that Sivaco's provision of bid assistance does not
constitute a substantial difference between IRM and Sivaco, because
Sivaco supplied this service to only a few of its customers, and
because the provision of this service occupied a small percentage of
the time of their employees. They state that the other alleged selling
functions, (producing to order, small order processing, shipping in
small quantities, and customer pick-up services) are all part of the
services offered by both IRM and Sivaco and as such, do not constitute
differences in levels of trade.
In response, Ivaco notes that petitioners do not dispute the fact
that IRM's sales are made at an earlier point in the chain of
distribution than Sivaco's sales, which is the first criterion that
must be established in order to qualify for an LOT adjustment.
Petitioners' argument that the Department should look at the customer
category is the old law standard. The new standard, citing Professional
Electric Cutting Tools from Japan, is that ``* * * Differences in
levels of trade are characterized by purchasers at different stages in
the chain of distribution and sellers performing qualitatively or
quantitatively different functions in selling to them.'' Ivaco Rebuttal
Brief at 1. Ivaco notes that in the LOT Memorandum, the Department
agreed with Ivaco on both these points.
According to Ivaco, petitioners ignore one of the most important
differences between IRM and Sivaco: the fact that Sivaco offers
significant inventory services while IRM does not. Ivaco notes that in
order to provide these services, Sivaco maintains a large uncommitted
general inventory, whereas IRM maintains no general uncommitted
inventory. Ivaco notes that in its verification report, the Department
confirmed that Sivaco Ontario inventories green rod many times longer
than IRM. Further, Ivaco asserts that Sivaco acts as a service center
for rod, bar, and wire, and maintains a large uncommitted inventory in
order to service its customers' requirements for: ``(i) small
quantities of rod; (ii) inventory services; and/or (iii) JIT
delivery.'' Ivaco Rebuttal Brief at 9. Ivaco goes on to cite several
cases (Polyethylene Terephthalate Film, Sheet, and Strip from the
Republic of Korea and Welded Carbon Steel Pipe and Tube from Turkey),
in which the Department has recognized the importance of services
associated with maintaining inventory as a factor in defining distinct
levels of trade.
Ivaco states that none of the arguments raised in petitioners' case
brief alters the conclusion in the LOT memorandum, and confirmed by the
Department's verification report and Preliminary Determination, that
Sivaco offers significantly different services than IRM. Ivaco states,
for example, that petitioners' contention that the difference in actual
number of days of credit outstanding between IRM and Sivaco is not
``particularly large'' is contradicted by the facts on the record which
indicate the actual difference in average payment dates is almost
double for Sivaco Ontario as compared to IRM. Further, Ivaco noted that
the Department stated in its LOT Memorandum that ``IRM's customer's
average payment period * * * reflects the greater liquidity of a larger
company, whereas Sivaco's * * * reflects the generally smaller size of
its customers.'' Ivaco Rebuttal Brief at 7.
Ivaco states that petitioners' attempt to categorize the inventory
services provided by Sivaco Ontario as a ``product-mix'' issue is
without merit. The company asserts that petitioners' comparison of the
quantity of processed rod sold by IRM versus Sivaco Ontario is
misleading, because during the POR, processed rod as a percentage of
IRM's total sales is extremely small, while for Sivaco Ontario, this
percentage is a very high percentage of sales. Therefore, Ivaco
concludes that petitioners' comparison of overall tonnage does not take
into consideration the ``actual magnitude of sales or the business
practices of either company.'' Ivaco Rebuttal Brief at 11.
Ivaco asserts that petitioners' argument that Sivaco does not offer
significantly different delivery services is without merit because
IRM's delivery services are structured to serve high-volume customers,
whereas Sivaco's delivery services are structured to serve smaller
customers who do not have the inventory capacity or buying power of
larger customers and therefore require JIT or short-lead time delivery
capability. Accordingly, Ivaco states, IRM sales structure is organized
around its quarterly rolling schedule, while Sivaco's sales structure
is organized around its uncommitted green rod inventory. Sivaco
delivery services are set up to accommodate routine customer pick-up,
while IRM is set up to provide for train-load deliveries. Further,
Ivaco states that the Department's LOT Memorandum and Verification
report confirm that Sivaco and IRM offer significantly different
delivery services.
Ivaco also disagrees with petitioners' claim that IRM provides, for
a particular type of sale, delivery services similar to those Sivaco
provides its customers. Ivaco states that the only difference between
its typical direct sales and this particular type of sale are the
payment terms. Ivaco stresses that IRM provides no other services for
this type of sale that are distinct from its other direct sales.
Department's Position
We disagree with petitioners that Ivaco's sales are made at the
same LOT, and therefore, a LOT adjustment is not warranted in this
case. As detailed in the LOT Memorandum for the preliminary
determination, we examined the selling functions performed by IRM and
Sivaco at each stage in the marketing process and identified
substantial differences in
[[Page 9193]]
services provided. We concluded that these differences were attributed
to selling at different points in the chain of distribution, i.e., IRM
primarily sells direct from the factory and Sivaco acts as a reseller
of SWR. Our findings at verification confirmed this analysis, and
petitioners have identified no record evidence to warrant changing our
preliminary determination. For example, petitioners continue to assert
that no LOT differences exist because both IRM and Sivaco sell to end-
users and provide the same type of warranty and credit services.
However, customer category alone is not the determinative factor of
establishing a level of trade. See e.g., Notice of Final Determination
of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel
Plate from South Africa, 62 FR 61731, 61732 (Nov. 19, 1997). Moreover,
the mere fact that certain selling activities are performed in a
similar manner does not refute a finding of different LOTs, rather, the
Department considers the totality of the circumstances in evaluating
whether qualitatively and quantitatively different selling functions
are performed for purchasers at different places in the chain of
distribution. In this instance, the record evidence supports our
finding of significant differences in the selling activities performed
by IRM and Sivaco and no substantiation of petitioners' claim that
these differences are attributable to product mix.
Comment 2: Petitioners' LOT Adjustment Methodology
Petitioners argue that if the Department does grant Ivaco a LOT
adjustment, the Department should apply the cost test to the LOT-
adjusted home market sales prices, and remove those sales which fail
from the margin calculation. Petitioners state that this proposed
methodology is supported by the statute, which requires the Department
to make ``due allowance'' for any differences in EP CEP and NV caused
by a difference in levels of trade. They assert that section 773(b)
states that where 20 percent or more of a respondent's sales of a given
product during the POI are at prices less than COP, the Department
should disregard the below cost sales in the determination of normal
value. Petitioners also point out that the Statement of Administrative
Action (SAA) states that ``[t]he Administration intends that Commerce
will disregard sales [below cost] when the conditions in the law are
met.'' See Petitioners Case Brief at 13. Petitioners argue that, when
viewed together, these provisions establish a clear intention that the
Department must not make ``due allowance'' for a level of trade
adjustment when such adjustment would cause the home market normal
value to fall below cost. Petitioners state that the importance of the
below-cost principle to the Department is demonstrated in Large
Newspaper Printing Presses and Components Thereof, Whether Assembled or
Unassembled, from Japan, 61 FR 38139, 38144 (July 23, 1996) (``Printing
Presses from Japan''), in which the Department excluded below-cost
sales from normal value, even though it did not initiate a below-cost
investigation.
Finally, petitioners assert that, after removing the sales with
prices below the cost of production, the data available does not
provide an ``appropriate basis'' to determine a level of trade
allowance, and therefore the Department should deny a level of trade
adjustment for CEP sales in this investigation. Petitioners note,
however, that the Department may grant a CEP offset where a LOT
adjustment is not warranted, and where the comparison sales are made at
a more advanced level of trade than sales to the United States, in
accordance with section 773(a)(7)(B) of the Act.
Ivaco responds that petitioners' argument is specious, because it
fails to take into account the fact that the sales used to calculate
the LOT adjustment have already passed a below-cost test. As such,
petitioners' cite to Newspaper Presses is not relevant, since, Ivaco
claims, the issue there was whether the Department could use sales when
no formal below-cost test was performed. In this case, the Department
has already applied the below-cost test once; petitioners are
requesting that it now be applied a second time. Ivaco states that
petitioners, by contending that the LOT adjustment causes normal values
to fall below cost, are asking the Department to: (1) Ignore the actual
pricing differentials that exist between above cost sales at levels one
and two; (2) perform a second below-cost test on home market sales that
have already passed one below-cost test; and (3) perform a below-cost
test on weighted-average normal values, which is contrary to the
Department's practice for performing a below-cost test. Furthermore,
Ivaco points out that it is just as likely that applying a difmer
adjustment or a circumstances of sale (COS) adjustment might cause a
given FUPDOL to be lower than the original home market sale's cost of
production. Despite this fact, the Department has never thrown out such
home market sales for failing the cost test. The reason, according to
Ivaco, is obvious: the normal values in question have already passed a
below-cost test.
Department Position
We disagree with petitioners that the Department should only apply
the cost test to LOT-adjusted home market sales. The statute directs
the Department to determine NV based on the price at which the foreign
like product is sold for consumption in the home market, in the normal
commercial quantities, and in the ordinary course of trade. Section
771(15) of the statute states that the sales which fail the cost test
under section 773(b) are deemed to be outside the ordinary course of
trade, and therefore should be excluded from the pool of home market
sales used to determine NV. The statute contemplates that the remaining
sales are suitable for purposes of determining NV. See section
773(b)(1) of the Act. The Department appropriately applies the LOT
methodology after the cost test is administered to those sales which,
according to the statute, are suitable for establishing NV. Moreover,
petitioners ignore the fact that LOT-adjusted home market sales that
``fail'' the cost test do not do so because the actual selling prices
are below cost, but do so as the result of other statutory adjustments
to NV, which have nothing to do with determining COP. Thus, LOT-
adjusted sales are not made at prices below cost within the meaning of
section 773(b) of the Act. Based on the above, the Department finds
that the petitioners' proposed methodology is inconsistent with the
statute, and will not be used for the final determination.
Comment 3: Ivaco's Proposed Level of Trade Methodology
Ivaco asserts that the Department should use its proposed LOT
methodology suggested in its pre-verification submissions. This
methodology is to apply the Department's concordance program to the
home market sales at level one and the home market sales at level two,
and subsequently apply an appropriate difmer adjustment. Ivaco claims
that this methodology allows the Department to analyze weight-averaged
pricing for both identical and similar products, based on the same
standard the Department uses for identifying similar products when
comparing U.S. and home market sales. By employing this proposed
methodology, the Department can assess the pricing differentials
between levels one and two, rather than allowing a handful of products
to determine the adjustment, as is currently the case. Furthermore,
applying a difmer adjustment will
[[Page 9194]]
remove any distortions that would result from differences in the
product mix at each level.
Ivaco states that the SAA provides the Department with wide
latitude in making a LOT adjustment, and does not mandate that the
Department rely solely on home market sales of identical products.
Ivaco asserts that the Department's methodology is inadequate to
demonstrate a pattern of price differences because it takes into
account a small percentage of possible comparisons, and accounts for
less than 25 percent of the home market sales quantity. Ivaco states
that by applying the Department's ``difmer'' adjustment to the home
market sales listing, the Department would avail itself of all home
market sales.
Ivaco asserts that by using only identical sales to determine the
amount of the adjustment, the Department failed to take into account
most of the products sold in the home market, and that the identical
matches used were of green rod, thus limiting the price comparison to
products that are not representative of the Sivaco Ontario's overall
business.
Department Position
We disagree with Ivaco that a difmer adjustment should be used in
our LOT methodology in this case. The SAA states that the Department
will normally base the calculation on sales of the same product;
however, if this information is not available, the adjustment may be
based on sales of similar products by the same company. See The
Statement of Administration Accompanying the URAA, H.R. Doc. 316,
Vol.1, 103d Cong. 830 (1994). Consistent with the SAA, to the extent
possible, the Department calculates the LOT adjustment based on
identical merchandise to reasonably ensure that the LOT adjustment is
isolated to differences in price between the two levels, and not other
factors. See e.g., section 351.412 (d)(s) and (e), Final Rule, 62 FR
27415 (May 19, 1997); Antifriction Bearings (Other Than Tapered Roller
Bearings and Parts Thereof from France: Final Results of Antidumping
Duty Administrative Review, 62 FR 2081, 2016 (Jan. 15, 1997).
Moreover, we disagree that our standard LOT methodology results in
distorted comparisons. Products sold at both home market LOTs account
for nearly 25% of the quantity of Ivaco's home market sales. Ivaco's
argument that over 98% of the home market control numbers were not used
in this calculation does not diminish the fact nearly 25% of Ivaco's
production was accounted for. Further, we note that the control numbers
used in the LOT analysis were sold at both LOTs in sufficient
quantities for a finding of a pattern of consistent price differences.
Ivaco further argued that the Department based its adjustment only on
green rod sales, and thus limited the price comparison to products that
are not representative of Sivaco Ontario's overall business. Ivaco's
assertion, although factually accurate, fails to address the underlying
rationale for making a LOT adjustment. The Department's LOT adjustment
is designed to isolate pricing differentials due to the provision of
different services by comparing sales of identical products at
different levels of trade. The LOT adjustment isolates pricing
differentials which exist due to services provided to customers, and
not to differences in products. Sivaco provided these services to all
of its customers, irrespective of the control number associated with
the products it sold them. The Department found a pattern of
consistence during the POI. These pricing differentials, therefore,
between sales of identical products sold by Sivaco and IRM, reflect
these different services, and thus the different levels of trade. The
Department's methodology reflects this principle, in that it calculates
only one LOT adjustment percentage for each type of comparison of
identical products at different levels of trade, irrespective of the
control number of the products being compared.
Comment 4: Freight and Packing Calculation
Ivaco states that the Department incorrectly allocated all freight
and packing variables to U.S. and home market sales, when in fact some
of these variables are cost items. Ivaco claims that in situations in
which Sivaco Ontario, Sivaco Quebec, or Sivaco New York process on
behalf of IRM or independently sell the rod themselves, IRM's freight
or packing on the unfinished goods shipped to these entities should be
part of the cost of production, constructed value and CEP profit.
Petitioners disagree that all freight and packing expenses for
movement of rod from IRM to Sivaco Ontario, Sivaco Quebec and Sivaco
New York should be included in the cost of production. Citing Section
773(a)(6)(B)(ii) of the Act, as well as several Department
determinations, petitioners state that freight and packing expenses are
charges deductible from the selling price of the subject merchandise,
and the Department adjusts for freight as a COS adjustment where such
adjustment constitutes a direct selling expense.
Department Position
We agree with Ivaco, and petitioners in part. We agree with Ivaco
that the Department incorrectly assigned all freight and packing
expense variables to selling expenses, when in fact some of these
variables are cost items. For Ivaco sales of processed rod, the packing
and freight required to transport the rod from IRM to the processor is
necessary to complete the production process and, as such, is a cost of
production. See e.g., Final Determination of Sales at Less Than Fair
Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-
Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon
Steel Flat Products, Certain Cut-to-Length Carbon Steel Plate from
Canada, 58 FR 37099, 37118 (Feb. 4, 1993). The exception to this
practice is with regard to CEP transactions. Consistent with the URAA,
for these transactions, all packing and freight expenses incurred in
order to transport the subject merchandise to the U.S. processor are
treated as further manufacturing expenses for the purpose of
establishing the constructed export price and CEP profit. See sections
772(d) and 772(f)(2)(B) of the Act. Freight and packing expenses
incurred in order to transport the finished product in condition packed
and ready for shipment to the place of delivery are deducted as
movement expenses from EP and CEP and treated as direct selling
expenses in the home market. See sections 772(c)(2)(A) and 773(a)(6)(B)
of the Act. As petitioners have correctly noted, when appropriate, the
Department adjusts for such direct expenses through a circumstances of
sale adjustment to NV. Therefore, we have modified our programing for
the final determination consistent with these principles.
Comment 5: Exclusion of Trials
Ivaco states that the Department should exclude trial sales from
its calculations. Petitioners disagree, arguing that the statute only
allows the Department to exclude sales that are not within the usual
commercial quantities . . . or . . . ordinary course of trade.
Petitioners state that the gross weighted-average home market and U.S.
prices for the sales Ivaco reported as trials are comparable to the
average prices reported for Ivaco's non-trial sales, and that only a
certain number of trial sales exceed a certain quantity of short tons
in shipment size. Petitioners conclude from these facts that Ivaco's
trial sales are ``clearly not aberrational and certainly fall within
the ordinary course of trade. Accordingly, the Department
[[Page 9195]]
should retain these sales in the margin calculation, as well as other
programs.
Department Position
We disagree with Ivaco. An analysis of the sales Ivaco reported as
trials indicates that the majority of these sales were made in the
typical quantities and prices of Ivaco's other sales that were found to
be in the normal course of trade. Therefore, for the final
determination, the Department has continued to include trial sales in
the margin calculations for Ivaco.
Comment 6: Clerical Errors in the Level of Trade Program
Ivaco states that the pattern of price differences (LOT) program
does not exclude Ivaco's sales of seconds, and sales of rod
manufactured by other manufacturers. Petitioners did not comment on
these items.
Department Position
We agree with Ivaco and have modified program for the final
determination accordingly.
Comment 7: Clerical Errors in the Arm's Length Program
Ivaco claims that the Department's arm's length program does not
exclude seconds, does not incorporate the LOT adjustment, and does not
exclude sales of rod manufactured by other manufacturers. Petitioners
did not comment on these items.
Department Position
We agree with Ivaco and have modified the final determination
accordingly.
Comment 8: Clerical Errors in the Concordance Program
Ivaco claims the Department made several clerical errors in the
concordance program used for the preliminary determination. First,
Ivaco claims that the Department incorrectly applied the revised billet
costs which overstated the reduction in the COM. Ivaco argues that this
error artificially eliminates home market sales from comparison with
U.S. sales. Ivaco contends that the revised billet costs should also be
reflected in a revised value for variable COM. Second, Ivaco claims
that the Department's concordance program failed to exclude sales of
subject merchandise produced by other manufacturers, trial sales in the
home and U.S. markets, and sales of secondary merchandise even though
these categories of sales were excluded from the margin calculation
program. Finally, Ivaco claims that the Department's concordance
program improperly converted values for control numbers for U.S. sales
to character values.
Department Position
We agree with Ivaco that we inadvertently applied the incorrect
amount to revised billet costs and inadvertently failed to make a
corresponding correction to variable COM. We also agree that sales of
subject merchandise produced by other manufacturers and sales of
secondary merchandise should be excluded from the concordance program.
As we stated in the preliminary determination, we concluded that sales
of SWR produced by other manufacturers are outside the scope of this
investigation. See Preliminary Determination, 62 FR at 51573. In
addition, while the Department normally includes sales of secondary
merchandise in its margin calculations, matching sales of secondary
merchandise in the home market to sales of secondary merchandise in the
U.S., the record evidence demonstrates that Ivaco had no U.S. sales of
secondary merchandise during the POI; therefore, we have excluded home
market sales of secondary merchandise from the concordance program. We
have made all of the above changes to the concordance program for the
final determination.
We have not excluded trial sales from the concordance program
because we have determined that these sales are properly included in
the margin calculation, and we have corrected the program accordingly.
(see Comment 5). Finally, we have also corrected the concordance
program with respect to the assigned values to control numbers for U.S.
sales.
Comment 9: Ivaco's U.S. Price Calculations
Ivaco claims that the U.S. price calculation improperly calculates
prices without considering levels of trade. Second, Ivaco contends that
the Department's program improperly merged the revised further
manufacturing data with the U.S. sales data set, causing numerous
values to be uninitialized, including the value for revised total
further manufacturing costs for all U.S. sales. Third, Ivaco asserts
that the Department erred in calculating the indirect selling expenses
incurred in Canada by expressing Sivaco Ontario's and IRM's indirect
selling expenses as percentages even though Ivaco reported the figures
as percentages and also failed to deduct amounts for credit
adjustments. Fourth, Ivaco states the Department incorrectly calculated
weighted-average U.S. prices by failing to combine EP and CEP sales in
the weighted-average calculation. Fifth, Ivaco argues the Department
incorrectly calculated direct U.S. selling expenses by adding the cost
of further manufacturing on Ivaco's CEP sales to direct U.S. selling
expenses rather than deducting further manufacturing costs from the net
U.S. price of the specific CEP transactions which incurred the cost.
Sixth, Ivaco claims the Department added rather than subtracted the
credit adjustment amount in the calculation of home market revenue for
CEP profit.
Department Position
We disagree with Ivaco in part. The Department has properly
calculated level of trade. We also disagree that EP and CEP sales
should be combined in the weighted-average calculation. Section
777A(d)(1)(A)(i) of the Act directs the Department to compare weighted-
average NVs to weighted-average EP or weighted-average CEP sales. See
e.g., Notice of Final Determination of Sales at Less Than Fair Value:
Certain Cut-to-Length Carbon Steel Plate From South Africa, 62 FR
61731, 61732 (Nov. 19, 1997). Because different statutory adjustments
are made to determine the net price of EP and CEP sales, combining
these prices to calculate a single weighted-average price would distort
the margin calculation. We agree, however, that the margin calculations
contain the other clerical errors identified above and have corrected
the calculations accordingly for the final determination. In addition,
we have added amounts for credit to the calculation of U.S. direct
selling expenses.
Comment 10: Clerical Errors in Ivaco's CV Calculations
Ivaco asserts that the CV calculation contains the following
clerical errors: (1) Direct and indirect selling expenses should be
included in the calculation of net cost of production, (2) credit
expenses should be excluded because they are imputed rather than actual
expenses, (3) the CV calculation should be based upon selling expenses
and profit for each LOT in the home market, (4) in calculating CV by
LOT, the Department should correct the program to ensure that each U.S.
sale will be matched to a constructed value at the same LOT, (5)
variable credit expenses should be excluded from the CV calculations.
Department Position
We agree with Ivaco that we inadvertently excluded indirect and
direct selling expenses from the calculation of net price cost of
[[Page 9196]]
production and included credit and variable credit expenses in the CV
calculations. We have corrected the margin calculations accordingly for
the final determination. However, we disagree that CV should be
calculated based upon LOT. As explained in the preliminary
determination, our methodology is not to calculate CV based upon LOT.
Rather, we calculate CV and then use the sales from which we derived
selling expenses and profit in CV to determine the LOT of CV. The CV
calculation program is consistent with the Department's standard
methodology; therefore, we have not made Ivaco's suggested changes
concerning LOT to the CV calculations.
Comment 11: Clerical Errors in Ivaco's CEP Calculations
Ivaco contends that several clerical errors exist in the
calculation of CEP and CEP profit. First, Ivaco asserts that after
correcting the calculation of U.S. indirect selling expenses as
discussed above, the Department should make appropriate corrections to
the calculation of total selling expenses in the CEP profit
calculation. Second, Ivaco claims that the calculation of U.S. direct
selling expenses should exclude amounts for imputed expenses and
expenses incurred in the country of manufacture. Third, inventory
carrying costs incurred for U.S. sales was reported in Canadian
currency, and therefore, should be converted into U.S. dollars. Fourth,
the calculation of U.S. selling expenses should be corrected to reflect
amounts only for indirect selling expenses. Fifth, the Department
should revise the CEP selling expenses variable to include direct
selling expenses for further manufacturing and indirect selling
expenses incurred in the U.S., including imputed expenses. Sixth, the
calculation of CEP net price should be corrected to reflect the changes
made in direct and indirect selling expenses.
Petitioners did not comment on any of these alleged clerical
errors.
Department Position
We agree with Ivaco and have modified the calculations for the
final determination accordingly.
Comment 12: Clerical Errors in Ispat-Sidbec Sales Below Cost Test
Ispat-Sidbec alleges that the Department made a clerical error in
the sales below cost test. Ispat-Sidbec claims that the Department
calculated the net price for each home market sale by deducting all
movement, selling, and packing expenses from the gross unit price. The
Department then compared this net price to a COP composed of the cost
of manufacture, plus general and administrative expenses, net interest
expense, plus selling expenses. Ispat-Sidbec claims that this results
in an ``apples-to-oranges'' comparison, and that the Department should
compare net price to a cost of production composed solely of total cost
of manufacture, general and administrative expenses, and interest
expenses. Ispat-Sidbec argues that the Department should change the
margin calculation program accordingly for the final determination.
Petitioners have no comment on this issue.
Department's Position
We agree with Ispat-Sidbec and have modified the calculations
accordingly.
Comment 13: Exclusion of Secondary and Non-Prime Sales in Ispat-Sidbec
Arm's Length Test
Ispat-Sidbec argues that the Department improperly excluded sales
of secondary or non-prime merchandise from the arm's length test.
Ispat-Sidbec contends that because the Department calculates dumping
margins on sales of both prime and secondary merchandise, the
Department's general practice is to include both types of merchandise
in its arm's length test. To support its argument, respondent cites
Certain Cold-Rolled Carbon Steel Flat Products from Argentina, 58 FR
7066, 7069 (February 4, 1993), and Certain Cold-Rolled Carbon Steel
Flat Products from Germany, 60 FR 65264, 65273 (December 19, 1995), in
which an arm's length analysis was performed on all sales.
Petitioners agree with Ispat-Sidbec that the Department's
consistent practice for steel cases is to perform the arm's length test
on all sales, including prime and secondary (non-prime) merchandise.
However, petitioners also note that the Department recognizes the
potential for distortion if sales of non-prime merchandise are compared
to sales of prime merchandise. Therefore, argues petitioners, the
Department must separate the non-prime from the prime merchandise
before performing the arm's length test.
Department's Position
We agree with respondent that the Department improperly excluded
sales of non-prime merchandise from the arm's length test. We also
agree with petitioners that sales of prime and non-prime merchandise
must be separated before performing the arm's length test. As noted in
Certain Cold-Rolled Carbon Steel Flat Products from Germany, in cases
where sales of prime and secondary merchandise were reported together
in the same CONNUM, the Department treated them as separate CONNUMs for
purposes of the arm's length test. For purposes of the final
determination, the arm's length test has been conducted on all of
Ispat-Sidbec's home market sales, separating prime from non-prime
merchandise.
Comment 14: Ispat-Sidbec Model Match
Ispat-Sidbec argues that the model match hierarchy matched both
non-AWS welding grades (GRDRANGH/U = `81') and products sold according
to ASTM and CSA grades (GRDRANGH/U = `91') to the numerically closest
ranges, instead of to the most similar match. Ispat-Sidbec argues that,
for example, welding grades are most similar to each other, and AWS
grades are most similar to non-AWS welding grades. Ispat-Sidbec
proposes that the Department modify the model match hierarchy to
produce the most similar matches.
Department's Position
At the home market verification, we examined several sales of
products classified as GRGRANGH/U = `81' and verified the
appropriateness of the grade range classification. We agree with
respondent that such non-AWS welding grade products should be matched
to other welding grade products in the absence of an identical match,
and have modified the model match hierarchy accordingly for purposes of
the final determination. However, with respect to products classified
as GRDRANGH/U = `91' (products sold according to ASTM and CSA grades)
we do not accept Ispat-Sidbec's separate classification of these
products. In general, such products should fall within the AISI grade
ranges determined by the Department. No such products were examined at
verification, and the Department does not have enough information to
determine which AISI grade range is most appropriate for these ASTM and
CSA grade products. We also note that only a small number of home
market sales were classified as GRDRANGH = `91,' and that no products
classified as GRDRANGU = `91' were sold in the U.S. market. Therefore,
we have not used products with GRDRANGH = `91' in the margin
calculation for the final determination.
Comment 15: Classification of Silicon-Killed Steel with Titanium
Additives (``Grade X'')
Stelco argues that the Department erroneously classified Stelco's
product coding for one product sold by Stelco (e.g., silicon-killed
steel with titanium additives or ``Grade X''). Stelco contends that
this classification, which allegedly results in an inappropriate
[[Page 9197]]
product matching of dissimilar Grade X U.S. sales to dissimilar Grade X
home market sales, is inconsistent with Department practice, court
decisions, the underlying structure of the product matching hierarchy
in this proceeding, and positions argued by petitioners at the outset
of this investigation. Therefore, the Department should accept Stelco's
revised product coding to ensure that Stelco's Grade X U.S. sales are
matched only to Stelco's Grade X home market sales and accordingly
revise the margin calculations of the final determination.
Stelco argues that Grade X steel warrants a separate deoxidation
category other than those deoxidation categories, as defined in the
Department's May 22, 1997 letter to Stelco, which revised the product
coding system. Respondent maintains that such steel is fine-grained
because titanium (an element not defined in any of the deoxidation
codes in the above-mentioned letter) is a grain refiner. Classifying
Grade X under deoxidation code of ``2'' for ``silicon-killed'' is
inappropriate because silicon-killing is a deoxidant for coarse-grained
steel rather than fine-grained steel. Stelco insists that merging
coarse-grained steels with fine-grained steels is inconsistent with
Department practice and courts decisions. Citing NTN Bearing Corp. v.
United States, 747 F. Supp. 726 (CIT 1990), Stelco asserts that the
principal objective of the Department's model match program is to
obtain the most useful comparison possible. Stelco also argues that in
practice the Department will consider a respondent's internal product
code system in developing its product matching hierarchy as set forth
in 19 CFR 351 (62 FR 27296, 27378 (May 19, 1997)).
Stelco contends that given the status of Grade X as a fine-grained
steel, the Department should consider the most appropriate
classification for Grade X steel. Stelco maintains that due to the
physical, cost and price distinctions, this steel should not be
classified under a deoxidation code of ``2'' for ``silicon-killed.''
Stelco claims that important physical differences exist between coarse-
grained, silicon-killed steel correctly classified as a deoxidation
code of ``2'' and Grade X steel and that the most significant
differences are the grain-refining process and the resulting grain
size. Furthermore, it maintains that, as presented at verification, the
current cost information for a standard coarse-grained, silicon-killed
steel and a Grade X steel demonstrates a vast cost difference between
the two products. It also maintains that a similar examination of the
Section D cost information for the same two products evidences
disparities in the costs for the two products. Therefore, Stelco urges
the Department to not reclassify Grade X steel under the deoxidation
code of 2 for ``silicon-killed.''
Petitioners urge the Department to reject Stelco's request to
reclassify Grade X steel. They argue that Stelco did not suggest that
titanium had special properties that required a separate category
during the product coding comment process at the outset of this
investigation or for two months after the comment period, and that
since that time, Stelco has presented no dispositive evidence to
support its classification. Thus, petitioners maintain that Stelco's
request to reclassify Grade X steel should be denied.
First, petitioners assert that Stelco's request to reclassify Grade
X steel under a separate model match was untimely. They state that the
Department conducted a thorough inquiry on model match issues,
providing an opportunity for parties to argue extensively over whether
and how to categorize different deoxidation and grain refinement
practices. Since Stelco did not comment on the impact of titanium in
the deoxidation process during this period, petitioners argue that the
Department did not address this issue in its revised reporting
instructions for product characteristics. As a result, the Department
only created five deoxidation categories.
Second, petitioners insist that they have submitted reliable
scientific evidence from multiple sources demonstrating that titanium
is not a reliable grain refiner. They claim that they have shown that
titanium grain refined is not a recognized industry product
classification, and that purchasers generally do not specify titanium
as a grain refiner. Petitioners refute respondent's claim that Grade X
has fine-grain structure and that its customers requested the addition
of titanium to produce fine-grain rods. Citing the Stelco Sales
Verification Report, they argue that the first point is irrelevant,
claiming that only specified physical characteristics matter. Given
that Stelco provided the Department only ``hand-picked'' samples of
Grade X steel, the existence of fine-grained steel is expected because
titanium widely affects the grain structure. Therefore, petitioners
reiterate that Stelco has failed to provide record evidence for its
claim that titanium is a grain refiner. As such, they argue that the
Department should classify Grade X steel as silicon-killed steel.
Department's Position
The Department agrees with petitioners that reclassification of
Stelco's Grade X steel is not warranted in this case. First, the
Department's May 22, 1997, letter to respondents which revised the
reporting instructions for product characteristics for this
investigation was ``in response to interested party comments regarding
modifications to the product characteristic reporting requirements.''
See May 22, 1997, letters to Ivaco, Sidbec and Stelco at 1-3. After
careful review of the comments received from both petitioners and
respondents, the Department ``modified the product reporting
instructions,'' including a field for deoxidation practices. Id. As a
result, the Department derived the various deoxidation codes, as
identified in the above-cited letter. Thus, all interested parties had
an opportunity to review and comment on the Department's product
characteristic reporting requirements.
Second, since the issue of titanium as a grain refiner was not
addressed during the comment period and since the Department did not
intend to account for every conceivable physical characteristic in the
subject merchandise, the Department did not subdivide a separate
category for silicon-killed with titanium additives. The Department
bases the product matching criteria on commercially meaningful
characteristics and on interested parties' comments, which permits the
Department to draw reasonable distinctions between products for
matching purposes, without attempting to account for every possible
difference inherent in the merchandise. Through this process, the
Department is able to match certain products as ``identical,''
consistent with section 771(16)(A) of the Act, even though they contain
minor differences. See e.g., Final Determination of Sales at Less Than
Fair Value; Gray Portland Cement and Clinker from Mexico, 55 FR 29244,
29247-48 (July 18, 1990). Furthermore, the Department need not account
for every conceivable physical characteristic of a product in its model
matching hierarchy. As such, in creating the various deoxidation codes,
which reflected parties' comments, the deoxidation code of ``2'' for
``silicon-killed'' was intended to include all silicon-killed steels
other than silicon-killed vanadium or niobium grain-refined steels.
Since silicon-killed steel with titanium additives is not included
among the five specific deoxidation codes, the Department has
reclassified Grade X steels as Code ``2'' for ``silicon-
[[Page 9198]]
killed.'' See Preliminary Determination of Sales at Less Than Fair
Value and Postponement of Final Determination: Steel Wire Rod from
Canada, 62 FR 51573 (October 1, 1997).
Comment 16: Rejection of Stelco Sales Data Due to Numerous Verified
Changes
Petitioners urge the Department to reject the changes made to
Stelco's revised December 2, 1997, sales listing and to calculate U.S.
price and NV based on the sales listing submitted prior to the above-
cited submission. They assert that Stelco's changes, as found by the
Department at verification, affected a number of inputs to U.S. price
and NV, including rebates, freight taxes, inventory carrying costs,
packing costs and inland freight. Because these changes were presented
at verification, petitioners claim that neither they nor the Department
had the opportunity to verify thoroughly these significant changes.
Furthermore, they argue that even at verification, the Department found
several inaccuracies in the revised data and that they find it
difficult to ascertain whether Stelco has actually corrected all the
errors identified at verification. As such, for its final
determination, the Department should reject these changes and calculate
U.S. price and NV based on the sales tapes submitted prior to Stelco's
December 2, 1997, submission.
Stelco urges the Department to accept Stelco's verified
information, insisting that petitioners are incorrect in alleging that
Stelco's December 2, 1997, sales tapes contain last-minute revisions.
Stelco states that respondents in an investigation are permitted by
long-standing Department policy to present corrections to their
response found when preparing for verification. In supporting its
allegation, Stelco cites section 351.301(b)(1) of the Department's
regulations. In addition, respondent asserts that it presented its list
of corrections at the outset of verification, and that the corrections
were minor. See Stelco Sales Verification Report at 1.
Department Position
We agree with Stelco that it is appropriate to use its revised
sales listings for purposes of this final determination. The
Department's practice is to permit respondents to submit minor
corrections to their submitted sales data prior to verification for use
in the final determination. See e.g., Certain Cut-to-Lengths Carbon
Steel Plate from the People's Republic of China, 62 FR 61996 (November
20, 1997). At the outset of its verification, Stelco presented a list
of corrections it found while preparing for verification. The
Department's review of the corrections during the course of the
verification indicates that they were caused by oversight or clerical
error on the part of Stelco. See Stelco's Sales Verification Report at
1. In addition, as a result of corrections found at the beginning of
verification, the Department instructed Stelco to revise its sales
listings. In previous cases, the Department has accepted such
corrections for the final determination. Therefore, the Department
disagrees with petitioners' request to reject Stelco's December 2,
1997, sales tapes due to minor errors which allegedly affected a host
of inputs to U.S. price and normal value and believes that Stelco's
latest submission of sales data is the most appropriate version for the
final margin calculations.
Suspension of Liquidation
In accordance with section 733(d) of the Act, we are directing the
Customs Service to continue to suspend liquidation of all entries of
steel wire rod from Canada, that are entered, or withdrawn from
warehouse, for consumption on or after the date of publication of this
notice in the Federal Register. The Customs Service will require a cash
deposit or posting of a bond equal to the estimated duty margins by
which the normal value exceeds the USP, as shown below. These
suspension of liquidation instructions will remain in effect until
further notice. The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weight-
average
Manufacturer/producer/exporter margin
percentage
------------------------------------------------------------------------
Ispat-Sidbec Inc........................................... 11.94
Ivaco, Inc................................................. 11.47
Stelco, Inc................................................ 0.91
All Others Rate............................................ 11.62
------------------------------------------------------------------------
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. As our final 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 determines that material injury, or
threat of material injury, does not exist, the proceedings will be
terminated and all securities posted will be refunded or canceled. If
the ITC determines that such injury does exist, the Department will
issue antidumping duty orders directing Customs officials to assess
antidumping duties on all imports of the subject merchandise entered,
or withdrawn from warehouse, for consumption on or after the effective
date of the suspension of liquidation.
This determination is published pursuant to section 735(d) of the
Act.
Dated: February 13, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-4700 Filed 2-23-98; 8:45 am]
BILLING CODE 3510-DS-P
