[Federal Register Volume 63, Number 50 (Monday, March 16, 1998)]
[Notices]
[Pages 12725-12744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6689]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-122-822, A-122-823]
Certain Corrosion-Resistant Carbon Steel Flat Products and
Certain Cut-to-Length Carbon Steel Plate From Canada: Final Results of
Antidumping Duty Administrative Reviews
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of antidumping duty administrative
reviews.
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SUMMARY: On September 9, 1997, the Department of Commerce (``the
Department'') published the preliminary results of its administrative
reviews of the antidumping duty orders on certain corrosion-resistant
carbon steel flat products and certain cut-to-length carbon steel plate
from Canada. These reviews cover five manufacturers/exporters of the
subject merchandise to the United States during the period August 1,
1995, through July 31, 1996. We gave interested parties an opportunity
to comment on our preliminary results. As a result of these comments,
we have changed the results from those presented in the preliminary
results of review.
EFFECTIVE DATE: March 16, 1998.
FOR FURTHER INFORMATION CONTACT: Lyn Baranowski (Dofasco, Inc. and
Sorevco Inc. (``Dofasco'')); Carrie Blozy (Continuous Colour Coat
(``CCC'')); Rick Johnson (Algoma Inc. (``Algoma'')); Doreen Chen,
Gerdau MRM Steel (``MRM'')); N. Gerard Zapiain (Stelco, Inc.
(``Stelco'')); Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th and Constitution
Avenue, N.W., Washington DC 20230; telephone: (202) 482-3793.
SUPPLEMENTARY INFORMATION:
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (``the Act''), 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 to the regulations set forth at 19 CFR part 353 (April
1997).
Background
On September 9, 1997, the Department published in the Federal
Register (62 FR 47429) the preliminary results of its administrative
reviews of the antidumping duty orders on certain corrosion-resistant
carbon steel flat products and certain cut-to-length carbon steel plate
from Canada (``Preliminary Results''). We gave interested parties an
opportunity to comment on our preliminary results. We received written
comments from Algoma, CCC, Dofasco, MRM, Stelco, and from the
petitioners (Bethlehem Steel Corporation, U.S. Steel Group (a unit of
USX Corporation), Inland Steel Industries, Inc., Gulf States Steel Inc.
of Alabama, Sharon Steel Corporation, Geneva Steel, and Lukens Steel
Company). We have now completed these administrative reviews in
accordance with section 751(a) of the Act.
On October 10, 1996, petitioners requested that the Department
determine whether antidumping duties had been absorbed by Algoma, CCC,
Dofasco, MRM, and Stelco during the period of review (POR), pursuant to
section 751(a)(4) of the Act. Section 751(a)(4) provides that the
Department, if requested, will determine during an administrative
review initiated two years or four years after publication of the order
whether antidumping duties have been absorbed by a foreign producer or
exporter subject to the order if the subject merchandise is sold in the
United States through an importer who is affiliated with such foreign
producer or exporter. Section 751(a)(4) was added to the Act by the
URAA. The Department's interim regulations do not address this
provision of the Act. Section 351.213(j)(2) of the Department's May 19,
1997 regulations provides that, for transition orders as defined in
section 751(c)(6)(C) of the Act, i.e., orders in effect as of January
1, 1995, the Department will make a duty absorption determination upon
request in administrative reviews initiated in 1996 and 1998. See
Antidumping Duties; Countervailing Duties: Final Rule, 62 FR 27296,
27394 (``'new regulations'''). Although these new regulations do not
govern these administrative reviews, they do constitute a public
statement of how the Department will proceed in construing section
751(a)(4) of the Act. This
[[Page 12726]]
approach assures that interested parties will have the opportunity to
request a duty absorption determination prior to sunset reviews for
entries for which the second and fourth years following an order have
already passed. Because the orders on corrosion-resistant carbon steel
flat products and cut-to-length carbon steel plate from Canada have
been in effect since 1993, these are transition orders within the
meaning of section 751(c)(6)(C) of the Act. Thus, as there has been a
request for an absorption determination in these reviews (initiated in
1996), we are making a duty-absorption determination.
The statute provides for a determination on duty absorption if the
subject merchandise is sold in the United States through an affiliated
importer. Respondents are themselves the importers of record for either
some (Algoma, Stelco, and Dofasco) or all (CCC and MRM) of their
respective sales to the United States (i.e., the exporter and the
importer are the same entity). In addition, some of Dofasco's U.S.
sales are made through a U.S. affiliate. Therefore, the importer and
the exporter are ``affiliated'' within the meaning of 751(a)(4) for all
Dofasco, MRM and CCC transactions, and for some Algoma and Stelco
transactions. For corrosion-resistant subject merchandise, with respect
to CCC, we have determined that there is a dumping margin on 2.72
percent of its U.S. sales during the POR. For corrosion-resistant
subject merchandise with respect to Dofasco, we have determined that
there is a dumping margin on 16.05 percent of its U.S. sales. For
corrosion-resistant subject merchandise with respect to Stelco, we have
determined that there is a dumping margin on 16.50 percent of its U.S.
sales. In addition, for CCC, Dofasco, and Stelco corrosion-resistant
product, we cannot conclude from the record that the unaffiliated
purchaser in the United States will pay the ultimately assessed duty.
Under these circumstances, therefore, we find that antidumping duties
have been absorbed by Dofasco on 16.05 percent of its U.S. sales, by
CCC on 2.72 percent of its U.S. sales and by Stelco on 16.50 percent of
its U.S. sales of corrosion-resistant product. For Algoma, MRM and
Stelco plate, we have determined that there are zero or de minimis
dumping margins on their U.S. sales during the POR. For Algoma, MRM,
and Stelco plate, because there are no dumping margins, we find that
antidumping duties have not been absorbed.
Under section 751(a)(3)(A) of the Act, the Department may extend
the deadline for completion of administrative reviews if it determines
that it is not practicable to complete the review within the
established time limit. On January 7, 1998, the Department published a
notice of extension of the time limit for the final results in this
case to March 9, 1998. See Extension of Time Limits for Antidumping
Duty Administrative Reviews, 63 FR 808. The Department is conducting
these reviews in accordance with section 751(a) of the Act.
Scope of Reviews
The products covered by these administrative reviews constitute two
separate ``classes or kinds'' of merchandise: (1) certain corrosion-
resistant steel and (2) certain cut-to-length plate.
The first class or kind, certain corrosion-resistant steel,
includes flat-rolled carbon steel products, of rectangular shape,
either clad, plated, or coated with corrosion-resistant metals such as
zinc, aluminum, or zinc-, aluminum-, nickel- or iron-based alloys,
whether or not corrugated or painted, varnished or coated with plastics
or other nonmetallic substances in addition to the metallic coating, in
coils (whether or not in successively superimposed layers) and of a
width of 0.5 inch or greater, or in straight lengths which, if of a
thickness less than 4.75 millimeters, are of a width of 0.5 inch or
greater and which measures at least 10 times the thickness or if of a
thickness of 4.75 millimeters or more are of a width which exceeds 150
millimeters and measures at least twice the thickness, as currently
classifiable in the Harmonized Tariff Schedule (HTS) under item numbers
7210.31.0000, 7210.39.0000, 7210.41.0000, 7210.49.0030, 7210.49.0090,
7210.60.0000, 7210.70.6030, 7210.70.6060, 7210.70.6090, 7210.90.1000,
7210.90.6000, 7210.90.9000, 7212.21.0000, 7212.29.0000, 7212.30.1030,
7212.30.1090, 7212.30.3000, 7212.30.5000, 7212.40.1000, 7212.40.5000,
7212.50.0000, 7212.60.0000, 7215.90.1000, 7215.90.5000, 7217.12.1000,
7217.13.1000, 7217.19.1000, 7217.19.5000, 7217.22.5000, 7217.23.5000,
7217.29.1000, 7217.29.5000, 7217.32.5000, 7217.33.5000, 7217.39.1000,
and 7217.39.5000. Included are flat-rolled products of non-rectangular
cross-section where such cross-section is achieved subsequent to the
rolling process (i.e., products which have been worked after rolling)--
for example, products which have been beveled or rounded at the edges.
Excluded are flat-rolled steel products either plated or coated with
tin, lead, chromium, chromium oxides, both tin and lead (``terne
plate''), or both chromium and chromium oxides (``tin-free steel''),
whether or not painted, varnished or coated with plastics or other
nonmetallic substances in addition to the metallic coating. Also
excluded are clad products in straight lengths of 0.1875 inch or more
in composite thickness and of a width which exceeds 150 millimeters and
measures at least twice the thickness. Also excluded are certain clad
stainless flat-rolled products, which are three-layered corrosion-
resistant carbon steel flat-rolled products less than 4.75 millimeters
in composite thickness that consist of a carbon steel flat-rolled
product clad on both sides with stainless steel in a 20%-60%-20% ratio.
These HTS item numbers are provided for convenience and Customs
purposes. The written description remains dispositive.
The second class or kind, certain cut-to-length plate, includes
hot-rolled carbon steel universal mill plates (i.e., flat-rolled
products rolled on four faces or in a closed box pass, of a width
exceeding 150 millimeters but not exceeding 1,250 millimeters and of a
thickness of not less than 4 millimeters, not in coils and without
patterns in relief), of rectangular shape, neither clad, plated nor
coated with metal, whether or not painted, varnished, or coated with
plastics or other nonmetallic substances; and certain hot-rolled carbon
steel flat-rolled products in straight lengths, of rectangular shape,
hot rolled, neither clad, plated, nor coated with metal, whether or not
painted, varnished, or coated with plastics or other nonmetallic
substances, 4.75 millimeters or more in thickness and of a width which
exceeds 150 millimeters and measures at least twice the thickness, as
currently classifiable in the HTS under item numbers 7208.31.0000,
7208.32.0000, 7208.33.1000, 7208.33.5000, 7208.41.0000, 7208.42.0000,
7208.43.0000, 7208.90.0000, 7210.70.3000, 7210.90.9000, 7211.11.0000,
7211.12.0000, 7211.21.0000, 7211.22.0045, 7211.90.0000, 7212.40.1000,
7212.40.5000, and 7212.50.0000. Included are flat-rolled products of
non-rectangular cross-section where such cross-section is achieved
subsequent to the rolling process (i.e., products which have been
worked after rolling)--for example, products which have been beveled or
rounded at the edges. Excluded is grade X-70 plate. These
[[Page 12727]]
HTS item numbers are provided for convenience and Customs purposes. The
written description remains dispositive.
The POR is August 1, 1995, through July 31, 1996.
Fair Value Comparisons
To determine whether sales of subject merchandise from Canada 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
``Export Price'' and ``Normal Value'' sections of the preliminary
results of review notice (see Preliminary Results at 47431). On January
8, 1998, the Court of Appeals for the Federal Circuit issued a decision
in CEMEX. United States, 1998 WL 3626 (Fed Cir.). 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
below cost. See Section 771(15) of the Act. Consequently, the
Department has reconsidered its practice in accordance with this court
decision and has determined that it would be inappropriate to resort
directly to CV, in lieu of foreign market sales, as the basis for NV if
the Department finds foreign market sales of merchandise identical or
most similar to that sold in the United States to be outside the
``ordinary course of trade.'' We will match a given U.S. sale to
foreign market sales of the next most similar model when all sales of
the most comparable model are below cost. The Department will use CV as
the basis for NV only when there are no above-cost sales that are
otherwise suitable for comparison. Therefore, in this proceeding, when
making comparisons in accordance with section 771(16) of the Act, we
considered all products sold in the home market as described in the
``Scope of Review'' section of this notice, above, that were in the
ordinary course of trade for purposes of determining appropriate
product comparisons to U.S. sales. Where there were no sales of
identical merchandise in the home market made in the ordinary course of
trade to compare to U.S. sales, we compared U.S. sales to sales of the
most similar foreign like product made in the ordinary course of trade,
based on the characteristics listed in Sections B and C of our
antidumping questionnaire. We have implemented the Court's decision in
this case, to the extent that the data on the record permitted.
Analysis of Comments Received
Algoma
Comment 1: Petitioners argue that Algoma improperly excluded what
Algoma deemed to be ``excessively long'' production runs from its
calculation of product costs. Petitioners cite Final Determination of
Sales at Less Than Fair Value: Titanium Sponge from Japan (``Titanium
Sponge'') 49 FR 38687 (October 1, 1984) and Final Determination of
Sales at Less Than Fair Value: Oil Country Tubular Goods from Austria
(``OCTG from Austria'') 60 FR 33551 (June 28, 1995) as cases in which
the Department disallowed adjustments to a hypothetical production cost
model. Petitioners assert that the Department should direct Algoma to
recalculate its costs to account for these production runs.
Algoma claims that, contrary to petitioners' implication, it did
not exclude any costs by excluding aberrant production runs from its
productivity analysis. Algoma argues that the productivity matrices are
merely the means of allocating Algoma's aggregate costs. Therefore,
according to Algoma, petitioners' reliance on Titanium Sponge and OCTG
from Austria, two cases in which the Department was concerned with the
completeness of the cost reporting, is misplaced.
Algoma also notes that it reported and discussed its exclusion of
aberrant production runs on the record of this review ``well in advance
of'' the Department's verification. Nevertheless, according to Algoma,
petitioners have not offered any specific modifications of Algoma's
guidelines that would continue to identify and exclude aberrant
production runs. Algoma further argues that inclusion of aberrant runs
would be inappropriate.
Finally, Algoma argues that the appropriate standard by which to
judge an allocation methodology is whether it is reasonable and
representative under the circumstances and does not lead to a
distortion of costs. By this standard, Algoma believes that, by basing
its allocation on actual and verified production run times, it has met
these criteria.
Department's Position: We agree with respondent. First, as Algoma
has argued, the Department is not determining whether an adjustment to
actual costs is appropriate, which was the question faced by the
Department in Titanium Sponge and OCTG from Austria. For example, in
OCTG from Austria, the Department did not allow two variances which
were adjustments to actual costs, because (as petitioners have noted)
they reflected ``an improper hypothetical normalization of actual costs
incurred during the POI.'' See OCTG from Austria at 33552. In this
case, the Department fully reconciled actual costs at verification (see
Algoma Cost Verification Report, September 2, 1997, pp. 2-3), and
Algoma is not seeking an adjustment to these costs by excluding
aberrant production runs from its allocative system. Therefore,
petitioners' reliance on Titanium Sponge and OCTG from Austria is
misplaced.
With respect to the appropriateness of using an allocation
methodology which excludes certain time data, we agree with respondent
that in this case, Algoma's exclusion of excessively long production
runs yields more accurate results. Indeed, if we were to accept
petitioners' argument that all runs should be included in the cost
calculations, manipulation of product-specific cost reporting would in
fact be facilitated. For example, a disproportionate share of actual
costs could be shifted to a product not sold in the United States
simply through the application of purported ``equipment breakdowns''
during production runs of that product. Clearly, such a result does not
reflect a product's actual costs. In fact, in this case we believe that
the integrity of the allocation system employed by Algoma is supported
by the fact that the aberrant production runs have been excluded.
Comment 2: Petitioners allege that, contrary to section 773A(a) of
the statute, Algoma failed to report U.S. inland freight expenses in
the currency incurred. Specifically, petitioners assert that Algoma's
U.S. inland freight expenses incurred in U.S. dollars were converted
using Algoma's ``projection'' of what the average exchange rate was
going to be for the month in which the payment was made, instead of
using the actual exchange rate.
Petitioners further point out that, because Algoma reports currency
gains and losses, it must maintain records of its U.S. inland freight
expenses in the currency incurred. Petitioners note that, given the
number of U.S. sales, reporting would not have imposed a burden on
respondents. Petitioners also point out that, because Algoma is
participating in its third administrative review, it ``clearly'' had
notice of the reporting requirement.
According to petitioners, the Department should apply adverse facts
available to Algoma's U.S. inland freight expenses, because Algoma
withheld the requested information and thus did not
[[Page 12728]]
act to the best of its ability in providing the information.
Algoma contends that it was not reasonably possible to report these
amounts in U.S. dollars because that information is not maintained
electronically in Algoma's accounting records. Algoma does not regard
as credible petitioners' contention that the recording of gains and
losses on foreign currency transactions indicates an ability to report
transaction-specific data to the Department. Specifically, Algoma
claims that these gains and losses are based on account balances, not
on individual transactions.
Furthermore, Algoma argues that there would have been no advantage
to the company to deliberately withhold the data, because the exchange
rate fluctuated very little during the POR.
Finally, Algoma argues that its reporting of these expenses in
Canadian dollars was consistent with its practice in the normal course
of business and with the manner in which these expenses have been
reported in past reviews.
Department's Position: We agree with respondent. First, we note
that Algoma has reported U.S. inland freight expenses in Canadian
dollars in past reviews of this case. Moreover, the Department reviewed
Algoma's reporting of these expenses at verification in the most
recently completed segment of this proceeding. See Memorandum to the
File: Algoma Sales Verification Report, August 12, 1996, which has been
added to the record of this proceeding, at page 6 (``Algoma stated that
it bills its U.S. customers in U.S. dollars but that Algoma maintains
its records in Canadian dollars.'' See also pp. 10-13, the Department's
review of ten U.S. sales traces, which revealed no discrepancies in
Algoma's reporting). The Department accepted Algoma's method of
reporting these expenses. Furthermore, Algoma stated for the record of
this review that there ``have been no changes to Algoma's financial
accounting practices since the Department conducted its verification of
Algoma's COP questionnaire responses in the second administrative
review'' (June 3-6, 1996). See Algoma's Section D response at page 16.
We therefore do not believe that Algoma maintains these records in U.S.
dollars.
Algoma has reported these expenses in a manner consistent with
their record-keeping in the normal course of business. Furthermore,
given the relatively stable exchange rate over the period in which
these sales occurred (the USD/CD exchange rate ranged from
approximately .72 to .75 for the POR, with a beginning POR rate of
approximately .732 and an ending POR rate of approximately .727),
reporting these expenses in Canadian dollars would not produce a
significant effect on the Department's dumping calculations. Therefore,
we have made no adjustments to Algoma's reported U.S. inland freight
expenses for the final results of review.
Comment 3: Petitioners allege that Algoma may not have reported
certain U.S. sales, based on the fact that Algoma reported commissions
for some U.S. customers in the last six months of 1995, yet did not
report sales to these customers in the 1995 portion of the POR (i.e.,
August through December).
Algoma notes that the Department traced and reconciled its sales
quantities and values at verification. Algoma maintains that the
apparent discrepancy identified by petitioners is explained by the way
Algoma pays its commissions. See Rebuttal Brief at page 15 (business
proprietary version).
Department's Position: We disagree with petitioners. Petitioners'
speculation that Algoma may not have reported certain U.S. sales is
contradicted by information that the Department examined at
verification, at which time we tied Algoma's reported U.S. sales to its
sales register and annual report. See Algoma Cost Verification Report,
Exhibit 17. Furthermore, record evidence supports Algoma's explanation
of the way Algoma pays its commissions. As the discussion of this issue
involves business proprietary information, see Exhibit 7 of Algoma's
supplemental questionnaire response (December 20, 1996) (business
proprietary version).
Based on these facts, we determine there is no basis to suspect
that Algoma did not report certain U.S. sales.
Comment 4: Petitioners contend that Algoma should have reported
commissions on a transaction-specific basis, instead of on a six-month
average basis, given that Algoma has reported the ``exact payment
schedule'' for its commission sales.
Algoma asserts that transaction-specific reporting in this instance
is neither warranted nor possible because of the manner in which
commissions were actually calculated and paid in the normal course of
business. Furthermore, Algoma states that petitioners' alternative
methodology would be mathematically incorrect and would not reflect the
actual amount of commissions paid on the individual sales in question.
Finally, Algoma argues that its allocation of commissions is in
accordance with the Department's policy to accept such allocations if
they are not inaccurate or distortive.
Department's Position: We agree with petitioners in part and
respondents in part. With regard to reporting U.S. direct expenses such
as commissions, the Department permits respondents to use averages only
for expenses that cannot be tied to a specific sale. See Antidumping
Questionnaire at page 4. When direct expenses cannot reasonably be tied
on a sale-by-sale basis, it is the Department's clear preference to
apply an allocation methodology at the most specific level permitted by
the respondent's records kept in the normal course of business. See,
e.g., Certain Porcelain-on-Steel Cookware from Mexico: Final Results of
Antidumping Duty Administrative Review, Comment 6, 62 FR 42496, 42501
(August 7, 1997), in which the Department accepted respondents'
allocation of a direct expense (freight).
Based on information on the record with respect to how Algoma pays
commissions (see Exhibit 7 of Algoma's supplemental questionnaire
response), we believe that it was appropriate for Algoma to report
commissions on a customer-specific basis over a period of time.
However, it is also clear that commissions were paid by Algoma based on
monthly shipments, and not semi-annually. Therefore, Algoma should have
reported its U.S. commissions on a monthly basis instead of a semi-
annual basis.
The Department has therefore adjusted Algoma's reported commissions
as appropriate for the final results of review. See Algoma's Final
Analysis Memorandum at page 2.
Comment 5: Petitioners argue that Algoma's adjustment to normal
value for pre-processing freight must be denied, as such charges should
be included in the cost of manufacture. First, petitioners note that
section 773(a) of the statute requires that only those movement charges
``incident to bringing the foreign like product from the original place
of shipment to the place of delivery to the purchaser'' shall be
deducted from normal value. According to petitioners, the Department
has interpreted ``original place of shipment'' to mean the production
facility. Because the cost of the outside processing has been included
in the cost of manufacture, petitioners conclude that the outside
processor's plant is a production facility.
Second, petitioners argue that, if the Department were to allow
such freight expenses to be deducted from normal value, a respondent
could manipulate dumping margins by, for example, performing certain
processing at its own
[[Page 12729]]
facility for U.S. sales, while having the same processing performed by
an outside processor for the comparison sales in the home market.
Third, petitioners claim that the Department has determined in
other cases that the cost of shipping unfinished merchandise to outside
processors should be treated as a cost of manufacturing, and not a
movement charge, citing, inter alia, the less-than-fair-value (LTFV)
investigation of this proceeding. Furthermore, petitioners contend that
respondents CCC and Stelco in this proceeding have been reporting such
charges as manufacturing costs.
Accordingly, petitioners assert that the Department should deny
these normal value adjustments, and should upwardly adjust Algoma's
costs to include these freight expenses.
Petitioners additionally contend that, in the event the Department
does not deny this adjustment in full, it should reduce the claimed
adjustment using the average freight costs to the outside processors at
one location (and increase the manufacturing costs for the affected
control numbers by the same amount).
Algoma argues that the Department addressed this precise issue in
the last review, and that the Department's position in that review
should be upheld in this review.
Department's Position: We agree with respondent that Algoma's
adjustment to normal value for pre-processing freight is allowable. As
stated in the final results of the second review of this proceeding,
``the freight from Algoma to the further processor is a movement charge
deductible pursuant to section 772(a)(6)(B)(ii) of the Act because it
is not freight incurred in the process of manufacturing subject
merchandise but freight incurred in sending subject merchandise for
further processing at the customer's request as part of the sale . . .
In order to insure that a proper comparison is made with ex-factory
home market products and ex-factory U.S. market products, all ex-
factory freight expenses need to be excluded from the price.'' See
Final Results of Antidumping Administrative Reviews on Certain
Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-
Length Carbon Steel Plate from Canada (``1994/95 Canadian Steel''), 62
FR 18448, 18453 (April 15, 1997). As there is no record evidence of any
change in the facts of the case, and because there has been no change
in statute or Department regulations since the publication of the final
results of the second review, there is no basis to revisit our
decision, with the exception of the additional argument raised by
petitioners for this review.
With respect to petitioners' new argument in this review that the
allowance of such freight deductions could lead to margin manipulation
by respondent, we note that the rationale for allowing such a deduction
in the first place is to compare ex-factory prices for U.S. sales to
ex-factory prices of home market sales, in order to ensure that there
are no distortions to actual prices. Moreover, petitioners have pointed
to no evidence on the record suggesting that Algoma has positioned its
own processing facilities, in Canada, significantly closer to its U.S.
customers. Finally, even if such processing facilities owned by Algoma
did exist, petitioners have not even attempted to show that the pattern
suggested by petitioners exists with respect to Algoma: namely, that
respondent could manipulate its dumping margins by performing
processing at its own facility for U.S. sales, while having the same
processing performed by an outside processor for the comparison sales
in the home market. Therefore, we do not find that petitioners'
speculation in this regard warrants reversal of our position on
Algoma's freight expenses.
Comment 6: Petitioners allege that the Department made a
ministerial error involving a currency conversion with regard to
Algoma's U.S. inland freight expenses. Respondent agrees with
petitioners.
Department's Position: We agree and have corrected this error. See
Algoma's Final Results Analysis Memorandum at page 2.
CCC
Comment 7: Petitioners argue that CCC improperly reported the value
of steel substrate purchased from Stelco. Petitioners state that the
Department's July 17, 1997 questionnaire directed CCC to recalculate
its cost data for Stelco substrate based on its transfer price and to
submit a new COP/CV cost file reflecting only this change. Petitioners
note that the cost of Stelco substrate as well as non-Stelco substrate
changed in the revised cost submission. See CCC's response to the
Department's supplemental questionnaire (July 31, 1997). Petitioners
continue that because the cost of non-Stelco substrate changed, the
Department should not rely on the cost data from CCC's third
supplemental response. Moreover, they argue that because there is no
reliable means of identifying Stelco substrate and non-Stelco
substrate, the Department should recalculate CCC's cost data for all
control numbers, citing Final Results of Antidumping Administrative
Reviews on Certain Corrosion-Resistant Carbon Steel Flat Products and
Certain Cut-to-Length Carbon Steel Plate from Canada (``1994/95
Canadian Steel''), 62 FR 18448, 18463 (April 15, 1997). Petitioners
maintain that the Department should change the value of all control
numbers by an amount equal to the difference between reported transfer
price and cost for products reported by CCC as Stelco substrate.
Respondent argues that, in its July 31, 1997 response to the
Department's supplemental questionnaire, it revised the cost of all
control numbers that used Stelco substrate to reflect the invoice price
charged by Stelco. CCC notes that changes were made on a work order-
specific basis, and that control numbers were comprised of numerous
work orders, some of which used Stelco substrate and others which did
not. CCC concedes that the data field in the sales response which
identifies the control number as containing either Stelco or non-Stelco
coils is incorrect with respect to certain sales. CCC acknowledges that
many control numbers contain both Stelco and non-Stelco coils. CCC
maintains, however, that the accuracy of the cost submission is
unaffected by the error in the sales response.
CCC asserts that the accuracy of its July 31, 1997 cost submission
can be verified by cross-referencing control numbers to work orders
provided in Exhibit 28 of CCC's December 20, 1996 Supplemental
Response. CCC adds that cost data changed for a control number that was
reported in the sales response as being produced from non-Stelco
substrate for one of two reasons: either the sales response
misidentified the coil origin; or CCC was unable to identify the
specific work orders for the merchandise. CCC reports that, in the
latter case, it used a weighted average of all work order costs for
either painted or unpainted merchandise, as appropriate.
In conclusion, CCC argues that the Department should accept CCC's
cost response as correct. CCC further contends that, in the event the
Department determines that an adjustment is necessary, the Department
should use CCC's calculation for the weighted average difference
between Stelco's transfer price and cost of manufacture.
Department's position: While we agree with petitioners that there
are some minor discrepancies concerning CCC's costs, we do not agree
that these discrepancies are sufficient to discredit CCC's cost data.
In the Department's
[[Page 12730]]
July, 17, 1997 letter to CCC, we requested that:
``[f]or all production of subject merchandise using steel
substrate provided by Stelco, Inc., please recalculate CCC's cost
data based on the transfer price (not cost of production) of such
steel substrate. Please submit your COP/CV cost file (which, with
the exception of this revision to the cost data, should be identical
to your most recent submission) * * *''
There is no evidence to suggest that CCC failed to comply with the
Department's request to revalue, at the invoice price paid by CCC, all
control numbers that used Stelco substrate. In addition, based on
information on the record of review, we agree with CCC that the
original reporting for certain control numbers was inaccurate.
Moreover, the accuracy of CCC's revised costs for those control numbers
can be confirmed by information on the record. See CCC Final Results
Analysis Memorandum at pages 2 and 3.
With respect to CCC's decision to report average costs for certain
control numbers for which it could not identify the source of the
substrate, we find respondent's methodology to be reasonable.
Petitioners have provided no basis for concluding that CCC could have
identified the source of the substrate, nor have they provided a
``neutral'' basis for calculating the costs. Pursuant to section 776(b)
of the statue, the Department may not apply an ``adverse'' inference
unless the respondent has not acted to the best of its ability in
complying with the Department's requests for information. Respondent's
methodology represents an appropriate use of the ``facts available''
pursuant to section 776(a) of the statute.
Comment 8: Petitioners argue that the Department should not accept
CCC's allegedly improperly allocated price adjustments. Citing Final
Results of Antidumping Duty Administrative Reviews Antifriction
Bearings (Other than Tapered Roller Bearings) and Parts Thereof from
France, Germany, Italy, Japan, Singapore, and the United Kingdom
(``AFBs 1996''), 61 FR 66472, 66498 (December 17, 1996), Final Results
of Antidumping Duty Administrative Reviews Antifriction Bearings (Other
than Tapered Roller Bearings) and Parts Thereof from France, Germany,
Italy, Japan, Singapore, and the United Kingdom (``AFBs 1995'') 60 FR
10900, 10929 (February 28, 1995), and Final Results of Antidumping Duty
Administrative Reviews Antifriction Bearings (Other than Tapered Roller
Bearings) and Parts Thereof from France, Germany, Italy, Japan,
Singapore, and the United Kingdom (``AFBs 1993'') 59 FR 39729, 39759
(July 26, 1993), petitioners maintain that longstanding Department
practice requires price adjustments to be reported on a transaction-
specific basis. In support, they also cite to NSK Ltd. v. United
States, 910 F Supp. 365 (CIT 1995) and Torrington Co. v. United States,
926 F. Supp. 1151, 1159 (CIT 1996). Additionally, citing Torrington Co.
v. United States, 832 F Supp. 365, 376 (CIT 1993) and Smith Corona v.
United States, 713 F.2d 1568 (Fed. Cir. 1983), petitioners maintain
that a price adjustment must have actually been paid on all sales to
which it is allocated.
Petitioners argue that CCC did not report price adjustments on a
transaction-specific basis. They claim that in some cases CCC allocated
adjustments on invoices without determining whether the adjustment
applied to all transactions recorded on the invoice. They also assert
that, for some customers, CCC applied adjustments across all sales
(including subject and non-subject merchandise) when they could only
tie the credit or debit note to a particular customer. Finally,
petitioners maintain that CCC incorrectly allocated the adjustments.
Petitioners state that the Department's new regulations (see
Antidumping Duties; Countervailing Duties, 62 FR 27296 (May 19, 1997))
concerning allocated price adjustments are contrary to the Department's
longstanding practice, established case law, and the URAA. However,
petitioners argue that, even under its new regulations, the Department
must continue to deny CCC its claimed price adjustments.
Petitioners maintain that CCC was able to report some of its price
adjustments on a transaction-specific basis, and this indicates that
CCC therefore could have reported all of its price adjustments in this
manner. Because CCC did not do so, petitioners contend that CCC did not
act to the best of its ability in responding to the Department's
request for information. They continue that, because CCC did not report
the total number of sales to which allocated adjustments applied, an
adverse inference must be applied. Petitioners argue that the
Department should reject all of CCC's claimed adjustments in both the
home market and the U.S. market. As facts available, petitioners argue
that the Department should apply the highest debit for any sale in the
home market to all sales for which a debit was reported. In the U.S.
market, petitioners argue that the Department should apply the highest
credit for any sale to all sales for which a credit was reported.
Respondent argues that CCC's reported price adjustments should
again be accepted by the Department as they were in the first and
second administrative reviews. Respondent notes that the Department
rejected petitioners' arguments concerning CCC's price adjustments in
the first and second administrative reviews and that the Department
verified CCC's methodology in the second administrative review. CCC
maintains that it has applied pricing adjustments in the same manner in
this review.
CCC argues that the Department's decision to accept CCC's claimed
price adjustments is consistent with its decisions in other cases,
citing Final Results of Antidumping Duty Administrative Reviews on
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof From France, Germany, Italy, Japan, Romania, Singapore, Sweden
and the United Kingdom (``AFBs October 1997''), 62 FR 54043 (October
17, 1997); Final Results of Antidumping Duty Administrative Reviews on
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof From France, Germany, Italy, Japan, Romania, Singapore, Sweden
and the United Kingdom (``AFBs January 1997''), 62 FR 2081 (January 15,
1997); and AFBs 1996. CCC states that the Department has verified in
past reviews that CCC has applied its price adjustments using the most
precise methodology possible and in a manner not unreasonably
distortive. Therefore, CCC argues that, based on the precedents in this
proceeding and the law, the Department should accept CCC's price
adjustments.
Department's Position: We agree with respondent. In light of the
Department's determination in recent cases and the facts of the record,
we accept CCC's post-sale price adjustments.
In its rebuttal brief, CCC cites to AFBs January 1997 and AFBs
October 1997, in which the Department allowed the use of allocations
where they did not cause unreasonable inaccuracies or distortions. The
Department, citing section 776 of the Tariff Act, determined that ``it
is inappropriate to reject allocations that are not unreasonably
distortive in favor of facts otherwise available where a fully
cooperating respondent is unable to report the information in a more
specific manner'' (AFBs January 1997 at 2090 and AFBs October 1997 at
54049). Significantly, the Department treated these discounts, rebates
and billing adjustments not as direct (or indirect) selling expenses
but as ``direct adjustments necessary to identify the correct starting
price.'' Id.
[[Page 12731]]
The Department's policy represented a departure from earlier AFBs
cases, to which petitioners cite in their case brief. In these earlier
cases, the Department only permitted adjustments if they were reported
on a transaction-specific basis or granted on a fixed and constant
percentage of sales on all transactions which were reported. See AFBs
1993 at 39759, AFBs 1995 at 10929, and AFBs 1996 at 66498.
In the most recent AFBs cases, the Department addressed the
relevance of Torrington Co. v. United States, 82 F.3d 1039, 1047-51
(Fed. Circ 1996) (``Torrington I''), to the allocation of adjustments.
The Department noted that, while the Court of Appeals for the Federal
Circuit (``CAFC'') in its decision in Torrington I questioned whether
price adjustments constituted expenses (see Torrington I at n.15), the
Court maintained that, if the adjustments were expenses, they had to be
treated as direct selling expenses. Significantly, ``the CAFC did not
find that such price adjustments could not be based on allocations''
(AFBs October 1997 at 54050).
In its rebuttal brief, CCC notes that it has allocated price
adjustments in the same manner as in previous reviews. In the second
administrative review, the Department conducted a verification of CCC's
response, in which the Department examined many home market and U.S.
market sales, several of which contained adjustments similar to the
ones in question in this review (see CCC Verification Report for
Certain Corrosion-Resistant Carbon Steel Flat Products From Canada at
pp. 11-15 (August 8, 1996)). We note that while there were some
discrepancies, CCC accounted for these discrepancies to the
Department's satisfaction. In our final results in the second
administrative review, the Department accepted CCC's allocation of
price adjustments.
Based on information on the record of this review, we find CCC to
have fully cooperated and to have allocated its price adjustments using
a methodology which is not unreasonably distortive. With respect to
petitioners' comments on the legality of the Department's May 1997
regulations, we note that this case is being conducted under the
Department's regulations as they existed prior to May 1997, and
therefore petitioners' comments are not applicable here.
Comment 9: Respondent argues that the Department should recalculate
G&A expenses to exclude antidumping legal expenses. CCC notes that the
Department consistently has held that legal fees paid in connection
with participating in an antidumping investigation or administrative
review are not selling expenses. See Final Results of Administrative
Review of Antidumping Duty Order on Color Television Receivers from the
Republic of Korea, 58 FR 50333, 50366 (September 27, 1993); Final
Results of Antidumping Duty Administrative Review on Television
Receivers, Monochrome and Color, from Japan, 56 FR 28417, 38419 (August
13, 1991). CCC also notes that the Court of International Trade has
affirmed the Department's exclusion of antidumping legal expenses in
the margin calculation. See, e.g., Federal-Mogul Corp. v. United
States, 813 F. Supp. 856, 871 (CIT 1993) Daewoo Electronics Co., Ltd.
v. United States, 712 F. Supp. 931, 947 (CIT 1989). CCC argues further
that, in the second administrative review of this proceeding, the
Department determined that CCC's antidumping legal expenses should be
excluded from its calculation of the G&A expense ratio. See CCC Final
Results Analysis Memo for Certain Corrosion-Resistant Carbon Steel Flat
Products From Canada (August 13, 1997).
Furthermore, CCC maintains that the Department has the information
on the record needed to calculate G&A expenses exclusive of antidumping
legal expenses. Respondent states that the antidumping legal expenses
for the case were calculated from invoices received and paid by CCC
during the POR. Respondent notes that, in its preliminary results
notice, the Department rejected CCC's POR G&A calculations and
recalculated the G&A expense ratio based on CCC's eleven month internal
financial statement (see CCC's Supplemental Response at Exhibit 6, pg.
14 (December 20, 1996)). CCC states that the Department failed to
deduct the antidumping legal expenses when the Department recalculated
the G&A expense ratio. CCC argues that, if the Department does not deem
the exclusion of the antidumping legal expenses from the G&A to be a
ministerial error, the Department should exclude antidumping legal
expenses from total selling and administrative expense as a matter of
law.
Petitioners did not comment on this issue.
Department's Position: We agree with respondent that the Department
made a ministerial error in the calculation of the G&A expense ratio,
and that antidumping legal expenses should have been deducted from
total selling and administrative expenses. We have recalculated the
general and administrative expense ratio to exclude antidumping legal
expenses. See CCC Final Results Analysis Memorandum at page 3.
Comment 10: Petitioners state that the Department should correct a
ministerial error in its margin calculation program. They maintain that
the Department erroneously calculated CCC's G&A for constructed value
based on CCC's variable cost of manufacture. Instead, petitioners argue
that G&A for CV should be calculated based on CCC's total cost of
manufacture.
CCC did not comment on this issue.
Department's Position: We agree with petitioners. The Department
has recalculated G&A for CV based on a percentage of total cost of
manufacture. See CCC Final Results Analysis Memorandum at page 3.
Dofasco
Comment 11: Respondent argues that the Department should value the
painting services that Dofasco receives from Baycoat based on the cost
of production, not the invoice price. Dofasco asserts that, although
Baycoat initially invoices Dofasco at a price that is higher than its
cost of production, Baycoat issues the equivalent of a cash ``rebate''
to Dofasco at year-end that reduces the invoice price so that it is
equal to Baycoat's cost of production. This is required by the terms of
the shareholder agreement. Dofasco maintains that it records both the
initial invoice price and the year-end cash rebate in its accounting
records. Consequently, Dofasco asserts that all painting services are
effectively valued in Dofasco's normal accounting records at year-end
at Baycoat's cost of production.
Dofasco maintains that this situation is distinct from one in which
intercompany profits are eliminated, because in this case, Dofasco
actually receives a check from Baycoat at year-end. Dofasco argues that
the Department should treat this situation as it would treat one
involving a rebate that a company receives from a vendor. As such,
respondent argues that the Department should change its methodology to
include the rebate of profits from Baycoat to Dofasco in the
calculation of total cost of manufacture.
Alternatively, Dofasco urges the Department to offset Dofasco's
general and administrative expenses (G&A) with the ``miscellaneous
income'' that is the difference between the invoice price and the net
cost to Dofasco. Respondent cites Final Determination of Sales at Not
Less than Fair Value: Saccharin from Korea (``Saccharin from Korea'')
59 FR 58826, 58828 (November 15, 1994) and U.S. Steel Group v. United
States (``U.S. Steel v. United States''), Slip Op. 97-95,
[[Page 12732]]
CIT (July 14, 1997) as two cases in which the Department offset G&A by
miscellaneous income relating to production operations of the subject
merchandise. In the instant case, respondent maintains that the
remission of profits constitutes miscellaneous income.
Petitioners contend that it is the Department's practice, as
reflected under 19 CFR 351.407(b) (regulations which the Department has
noted, in the section of this notice entitled ``Applicable Statute and
Regulations,'' do not apply to this case), to determine the value of a
major input purchased from an affiliated person based on the higher of
the price paid by the exporter, the amount usually reflected in sales
of the major input in the market under consideration, or the cost to
the affiliated person of producing the major input. Petitioners note
that, in the most recently concluded segment of this proceeding, the
Department valued Baycoat's services to Dofasco and Stelco based on the
transfer price.
Petitioners assert that the Department rejected a similar argument
made by Stelco in the last review. In that case, Stelco argued that the
profit remitted by Baycoat constituted a rebate on each invoice which
should be deducted from transfer price. Petitioners note that the
Department denied the requested adjustment under the major input rule.
See 1994/95 Canadian Steel at 18464. Dofasco, petitioners assert, has
made no compelling new arguments warranting a reversal of that prior
decision. In addition, petitioners cite Mechanical Transfer Presses
from Japan: Final Results of Antidumping Administrative Review (``MTPs
from Japan''), 61 FR 52910, 52913-14 (October 9, 1996) as a case in
which respondent's requested downward adjustment from transfer price to
cost was not allowed.
Petitioners additionally contend that Baycoat's profit remission is
not analogous to a rebate. Rebates are generally related to sales in
some way (i.e., Baycoat would offer Dofasco a rebate if Dofasco
purchased a certain amount of goods from Baycoat), but in this case,
Dofasco receives its share of Baycoat's profits without regard to
Dofasco's purchases from Baycoat. There is nothing on the record which
demonstrates that this distribution is in any way related to the
quantity or value of specific sales. Consequently, petitioners argue
that the Department should maintain the methodology it adopted in the
second administrative review and value Baycoat's painting services at
transfer price.
Petitioners argue that Dofasco's suggested alternative, to offset
Dofasco's G&A expenses by year-end profit received from Baycoat, is
faulty for two reasons. First, petitioners contend that the remission
of profits from Baycoat to Dofasco does not constitute miscellaneous
income as it is not income which Dofasco receives from secondary or
auxiliary activities, but instead is income that is produced by the
corporation's principal business activities. In fact, petitioners argue
that the record shows that Dofasco itself does not classify income it
receives from Baycoat as ``miscellaneous income.'' Second, petitioners
assert that even if the profit were to be considered miscellaneous
income, an offset would be improper because an offset cannot be made to
G&A when the cost relating to the activity in question is in the cost
of manufacture. See Certain Cold-Rolled and Corrosion-Resistant Steel
Flat Products from Korea: Final Results of Antidumping Administrative
Review (``Steel from Korea'') 62 FR 18404, 18447 (April 15, 1997) and
Final Determination of Sales at Less Than Fair Value: Canned Pineapple
Fruit from Thailand (``Pineapple from Thailand''), 60 FR 29553, 29566
(June 5, 1995).
Nevertheless, should the Department consider granting the offset,
petitioners maintain that the amount proposed by respondent must be
rejected as it reflects the period of review rather than the calendar
year 1995, which is the period upon which G&A is based. Petitioners
assert that it would be distortive for the Department to apply the
profit for one period to the G&A of another period. Finally, should the
Department decide to include the profit from Baycoat as an offset,
petitioners suggest that the Department also include other gains and
losses related to other affiliates.
Department's Position: We agree with petitioners that it is
appropriate to use an unadjusted transfer price in valuing Baycoat's
painting services to Dofasco. Sections 773(f)(2) and (3) of the Act
direct the Department to value inputs supplied by affiliated persons at
the transfer price between the entities provided that such a price
reflects the price commonly charged in the market and, for major
inputs, is not below the cost of producing the input. In AFBs January
1997 (at 2115), the Department found that ``in the case of a
transaction between affiliated persons involving a major input, we will
use the highest of the transfer price between the affiliated parties,
the market price between unaffiliated parties, and the affiliated
supplier's cost of producing the major input.'' As painting services
obtained from Baycoat constitute a major input, we will continue to use
the transfer price, as it is above cost and we have no other
information regarding market values. Furthermore, we will not adjust
the transfer price in any manner, whether it be a year-end cash rebate
or an offset to G&A, for the reasons stated in Comment 22 of this
notice (Stelco).
While it is inappropriate to adjust transfer price in any manner,
there are further reasons to reject Dofasco's alternatives to adjusting
the transfer price by a year-end cash rebate. With respect to a price-
to-cost offset to G&A, in MTPs from Japan, the Department rejected an
argument to offset the transfer price and determined that as the
transfer price is higher than the cost of production, ``it would be
inappropriate to ignore the transfer price.'' See MTPs from Japan at
52914. Also, we note that G&A expenses are defined as expenses incurred
in performing general and administrative activities and are shown under
the operating expense portion of a company's income statement. See
Siegel, Joel G. and Jae K. Shim, Barron's Dictionary of Accounting
Terms (1987), at 191. Profit remission from Baycoat is not an activity
that Dofasco has classified in its own accounting records as a general
or administrative expense.
Respondent cites Saccharin from Korea and U.S. Steel Group v.
United States as cases in which ``miscellaneous income'' was permitted
as an offset to G&A because this income was related to production
operations. However, in the instant case, remission of profits does not
constitute miscellaneous income, which is traditionally defined as
income received from secondary or auxiliary activities. See Kieso and
Weygandt, Intermediate Accounting, 5th Ed. (1986) at 118. The record
shows that Dofasco classifies this income as income from steel
operations in its financial statements. See Dofasco's Cost Verification
Report, July 17, 1997, Exhibit 4 at 12 (hereinafter ``Dofasco
Verification Report'').
Comment 12: Petitioners claim that the reconciliation Dofasco
performed at verification between Dofasco's costs as kept in its normal
accounting system and Dofasco's reported costs was incorrect,
incomplete and based on unreliable information.
First, petitioners suggest that the record shows that there were
significant discrepancies in the total costs and quantities between the
response and the financial statements in three out of the four prime
product categories.
Second, petitioners allege that Dofasco attempted to reconcile its
reported costs to its earning statements, and not to its inventory
values, which petitioners claim is standard practice.
[[Page 12733]]
Petitioners contend that Dofasco did not explain the relationship
between values from earnings statements and inventory. Also,
petitioners argue that Dofasco did not clarify which elements of cost
are included in the costs of the earnings statements.
Third, petitioners contend that the reconciliation was invalid
because Dofasco's comparisons were not made on an ``apples-to-apples''
basis; the two sets of costs that were being compared did not reflect
the same items and were not based on data from the same time periods.
Fourth, petitioners further argue that Dofasco failed to include
third country production costs in the calculation of the reported
costs, and that this alleged failure is contrary to the Department's
practice. See Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
from the United Kingdom: Final Results of Antidumping Administrative
Review, 60 FR 44009, 44012 (August 24, 1995). Petitioners maintain that
the Department's comparison of costs and quantities reported in the
response (which petitioners insist did not include third country
production) to costs and quantities in the earnings statements (which
petitioners claim did include these costs) was improper; any
reconciliation based on this inconsistent comparison, petitioners
assert, is therefore meaningless.
Fifth, petitioners state that an additional defect in Dofasco's
reconciliation of cost concerns the fact that Dofasco reported cost of
goods sold (COGS) instead of the cost of manufacture, which petitioners
claim is contrary to the Department's practice. Petitioners argue that
Dofasco's December 23, 1996 response indicates that Dofasco added an
adjustment based on changes in inventory to COM to convert it to COGS.
In the reconciliation, petitioners assert that Dofasco compared
reported costs, based on COGS, to the costs in the earnings statement,
based on cost of goods manufactured. Petitioners state that the
verification exhibits show that costs from the earnings statement were
adjusted by inventory change to reflect COM.
Sixth, according to petitioners, Dofasco did not use the yield loss
rates maintained in its normal cost accounting system to prepare the
costs in its response. Instead, petitioners point out that Dofasco used
yields calculated by PaYs, its management cost system. Petitioners
maintain that Dofasco acknowledged that there were differences in the
bases upon which yields were calculated under the two systems but it
did not account for these differences in the reconciliation. In
addition, petitioners contend that the Department did not verify
seemingly aberrational yield loss rates at verification.
Seventh, petitioners claim that Dofasco improperly included certain
products and costs in its reconciliation for various product groups;
this inclusion makes a proper reconciliation more improbable.
Eighth, petitioners argue that Dofasco has not properly treated
fixed costs. According to petitioners, in its reconciliation, Dofasco
adjusted the ``costs per earning statement'' to arrive at a variable
cost of manufacture (VCOM) amount and then added only one fixed cost
(depreciation) to calculate a total cost of manufacture (TOTCOM). This
reconciliation, petitioners maintain, is inconsistent with the response
where Dofasco stated that TOTCOM included VCOM as well as ``numerous''
fixed costs, such as an allocation from sundry cost of sales, the
ongoing costs of idled operations, and the expense portion of capital
projects. Therefore, for the reconciliation, Dofasco compared VCOMs
from the response, which petitioners argue must have no fixed costs, to
VCOMs from the earnings statement, which petitioners surmise to include
all fixed costs other than depreciation.
Finally, petitioners assert that the total production costs and
quantities which Dofasco attempted to reconcile to its accounting
records were unreliable as their cost accounting (PaYs) categories were
comprised of both subject merchandise and alloy products. The costs and
quantities associated with the alloy products were important to a
proper reconciliation, but petitioners argue that Dofasco did not
explain its calculations relating to alloy products and did not
properly corroborate quantities and costs for these products, thus
making a proper reconciliation impossible.
Petitioners maintain that all of these failures contributed to
Dofasco's inability to reconcile its reported costs to the accounting
records. As such, petitioners assert that the Department should reject
the reported costs, citing numerous cases in support of this assertion
See, e.g., Certain Welded Carbon Steel Piles and Tubes from Thailand:
Preliminary Results of Antidumping Administrative Review, 62 FR 17590,
17593-94 (April 10, 1997); and Cut-to-Length Carbon Steel Plate from
Sweden: Preliminary Results of Antidumping Administrative Review, 61 FR
51899 (October 4, 1996). Petitioners also argue, citing Notice of Final
Determination of Sales at Less Than Fair Value: Certain Pasta from
Turkey, 61 FR 30309, 30312 (June 14, 1996), that the Department's
practice in such cases is to apply total facts available. Petitioners
argue that, should the Department decide to use partial facts
available, the Department should use the highest reported cost for each
inventory category as the cost for all products in that category. See
Granular Polytetrafluroethylene Resin from Italy: Final Results of
Antidumping Administrative Reviews, 62 FR 5590 (February 6, 1997).
Respondent asserts that petitioners' argument concerning Dofasco's
cost reconciliation is without merit and demonstrates petitioners'
basic misunderstanding of the thorough analysis performed by the
Department verifiers. Dofasco states that the Department spent days at
verification ensuring that detailed product costs properly reconciled
to the average costs of the aggregate product groupings per Dofasco's
financial statements. In fact, Dofasco asserts that the Department's
cost verification report states that the Department was able to tie
costs calculated by PaYs to costs per earnings statement.
Regarding petitioners' contention that there is a fundamental flaw
in Dofasco's reconciliation because costs were reconciled to the
earnings statements and not to inventory values, Dofasco argues that a
basic cost accounting concept is that inventory values represent the
costs at one point in time and that the cost of goods manufactured from
the earnings statement represents the costs over the period of time
corresponding to the cost reporting period. The Department's
reconciliation, therefore, was based on the reconciliation of reported
costs for the one year period to the total costs actually incurred
during the same period.
Respondent also asserts that petitioners' argument that Dofasco
performed its reconciliation solely on the basis of a comparison of
per-unit costs is inaccurate. In fact, Dofasco claims that it
reconciled the submission to both the per-unit costs and the total
costs. Dofasco claims that the alleged differences in the total cost
and total quantities in the verification exhibits are a result of
timing differences in the reported production quantities and represent
a reconciling item between the submission and the books. Thus, once the
reconciling quantities are valued at the cost per the books, there is
essentially no difference in the total costs. Dofasco states that, at
verification, it was able to reconcile the fact that the per unit costs
were comparable, and
[[Page 12734]]
also that the total costs were comparable.
Dofasco disagrees with petitioners' argument that Dofasco failed to
make ``apples-to-apples'' comparisons. According to Dofasco, the
reported costs include all variances, sundry items, and depreciation.
Dofasco contends that these same items were added to the earnings
statement to ensure that the costs per the books for each of the
selected product categories were on exactly the same basis as in the
response. In addition, petitioners' allegation that the reported costs
and the costs per the earnings statement are not for the same time
period is factually incorrect, Dofasco maintains, as the earnings
statement covers the period July 1, 1995 through June 30, 1996
(Dofasco's fiscal period) and the Department expressly allowed Dofasco
to base its reported costs on its fiscal period rather than the POR.
Additionally, Dofasco disputes petitioners' claim that Dofasco did
not include third country production costs in the calculation of the
reported cost. Dofasco maintains that, as explained in its Section D
response, Dofasco accumulates the costs for each factory process and
weight averages the actual production cost and existing inventory cost
of that process to arrive at an average product cost that flows into
the next process. At the time that a product is manufactured, the mill
floor is not aware of the destination of the order and is therefore
unable to track the cost of North American and offshore orders
separately. Hence, the total production cost at a factory process
includes the cost of both North American and third country shipments.
Dofasco maintains that reported costs do in fact reconcile to both
cost of goods manufactured and COGS, contrary to petitioners'
allegation. Dofasco asserts that it adjusted TOTCOM to account for
changes in its inventory only as a result of petitioners' suggestions
and the Department's subsequent request to calculate inventory change
on a quarterly basis. Regardless, Dofasco argues that the difference
between the cost of sales per earning statement and the reported TOTCOM
is insignificant.
Dofasco states that the allegation regarding yield loss rates is
incorrect because the production data for financial statement purposes
and PaYs flows from common systems and thus, the overall source of the
production figures for calculating yields is the same for financial
statement purposes as PaYs. In addition, respondent states that the
Department did verify and accept Dofasco's explanation of the aberrant
yield loss rates at verification.
Dofasco also disputes petitioners' claim that several products
exist in Dofasco's reconciliation that do not exist in Dofasco's cost
database. Dofasco states that the products at issue were products that
Dofasco sold during the third administrative review period but did not
produce during this period. Because Sorevco (an affiliated producer of
subject merchandise) had produced these products and because the
Department treats Dofasco and Sorevco as one entity, Dofasco reported
per unit costs for such products based on Sorevco's costs. At
reconciliation, Dofasco reported the cost for such products based on
its own second administrative review costs because these were the
actual costs associated with the products. Regardless, respondents
assert that the difference this makes to the TOTCOM field is
insignificant and represents petitioners' continued ``nitpicking.''
According to Dofasco, petitioners' argument that Dofasco's
treatment of fixed costs was faulty and that sundry expenses were not
included in the calculation of VCOM is ``ridiculous.'' Dofasco asserts
that a careful examination of the calculations will show that sundry
expenses were included in VCOM, which explains why depreciation is the
only item added to VCOM to calculate TOTCOM. For the reconciliation,
Dofasco states that all fixed overhead costs were included in
calculating the unit cost for the selected product costs.
Finally, Dofasco disputes petitioners' claim that it failed to
explain the nature of its calculations relating to alloy products. In
fact, for the reconciliation, Dofasco had to include the cost of alloy
products in order to calculate the total (and per unit) costs for
products within the broad inventory groupings. Dofasco states that the
cost of alloy products was calculated in exactly the same manner as the
cost of subject goods. For purposes of the administrative review,
however, alloy products are not in the scope of the review and
therefore, Dofasco asserts that it was not required to submit any data
related to alloy products on the record.
Department's Position: We agree with respondents that the
Department was satisfied with the outcome of verification and note that
one of the Department's principle mandates at verification is to
reconcile the cost response with the financial statements to a point at
which the accuracy of the response is confirmed. In this case, at
verification, we reconciled the reported costs with the financial
statements and determined that Dofasco properly reported costs as
incurred. ``Dofasco's product costs, as calculated by PaYs and reported
to the Department, were comparable to Dofasco's costs per earnings
statement (and hence, Dofasco's normal cost accounting system).'' See
Dofasco Verification Report at page 7. However, we will address each
argument made by petitioners and respondent in turn.
(1) Discrepancies in Three Out of Four Prime Product Categories
The Department notes that costs for all of the categories reviewed
(with the exception of galvanized waste and seconds) were reconciled
such that the Department deemed the average costs to be ``comparable''.
First, Dofasco has stated that differences between reported production
quantities and the financial statements are timing differences.
Petitioners have pointed to no compelling reason to dispute this
explanation.
Moreover, and more importantly, the Department notes that minor
differences between reported and financial costs are expected at
verification. A company's inability to reconcile costs exactly does
not, however, render a company's response unuseable. See, e.g. Brass
Sheet and Strip from the Netherlands: Final Results of Antidumping
Administrative Review, 62 FR 51449, 51453-454 (October 1, 1997) and
Final Determination of Sales at Less Than Fair Value: Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled, From Japan, 61 FR 38139, 38154 (July 23, 1996). Rather,
the Department's responsibility is to ensure that costs incurred for
production of the subject merchandise during the POR have been properly
reported, and that the allocations employed are not distortive. The
Department reviewed the reported quantities and costs for these three
categories at verification, and found that the costs were comparable.
Concerning the fourth prime category for which there were more
substantial differences in cost, Dofasco provided a reasonable
explanation for this discrepancy. See Dofasco Verification Report at
page 7-8.
(2) Reconciliation to Earnings Statements, Not Inventory Values
The Department has the discretion to determine how to best
reconcile the cost response at verification, as long as the
reconciliation serves to confirm the overall validity of respondent's
reported costs. In this case, the Department accepted Dofasco's
reconciliation of the response to the earnings statements and not to
inventory values. Furthermore, the Department did not request an
inventory value reconciliation at
[[Page 12735]]
verification, but determined that a reconciliation to Dofasco's
earnings statement would appropriately indicate whether Dofasco's
reported costs were in line with Dofasco's normal cost accounting
records. As stated in the Verification Agenda dated June 9, 1997 at 3-
4, the Department specifically asked Dofasco to ``obtain a
reconciliation of the total POR cost of manufacturing costs per cost
accounting system to the total of the per-unit manufacturing costs
submitted to the Department.'' This is in fact what was accomplished at
verification. See Dofasco Verification Report at page 7.
(3) Timing and Product Differences
We agree with respondents that Dofasco's earnings statements were
adjusted so that the cost response and the earnings statements
reflected the same items. In fact, the Department expressly allowed
Dofasco to report costs based on its fiscal period rather than the POR,
as the two periods differed by only a month. See the Department's
Antidumping Questionnaire dated September 9, 1996 at page D-1; Memo to
The File from Rick Johnson dated November 12, 1996, and Dofasco's
Section D Response dated November 13, 1996 at page D-2 and D-3. As
such, the cost response and the financial statements reflected data
from the same period.
(4) Third Country Production Costs
In the first administrative review of this case, petitioners raised
the concern that Dofasco did not include third-country production in
its weighted-average cost calculations. As we noted in that review,
``[t]he Department verified that Dofasco used costs incurred in its
total production to determine the COP and CV of subject merchandise.
Third country information was only disregarded when Dofasco weight-
averaged its costs to determine U.S. specific CV data and home market-
specific COP data.'' See Certain Corrosion-Resistant Carbon Steel Flat
Products and Certain Cut-to-Length Carbon Steel Plate From Canada:
Final Results of Antidumping Administrative Reviews (``1993/94 Canadian
Steel'') 61 FR 13815 (March 28, 1996). Significantly, the CIT upheld
the Department's finding, stating that ``Commerce's acceptance of
Dofasco's methodology essentially finds a middle ground. Total
production costs are incorporated into the COM, but final COP and CV
are determined based on a weighted-average reflecting production for a
particular market.'' See AK Steel Corp. et al. v. United States, Slip
Op. 97-152, CIT (November 14, 1997) at page 14.
While Dofasco no longer reports market-specific costs for the same
control number, its methodology with respect to the incorporation of
third country production data has not changed since the first review.
Thus, there is no compelling new information on the record which
indicates any failure to include third country production costs in the
calculation of COP and which would warrant a reexamination of this
issue. Therefore, the Department is maintaining the position adopted in
the first review and upheld by the CIT that third country production
information has been properly included and accounted for in Dofasco's
cost calculations.
(5) Reconciliation to Cost of Goods Sold
We agree in part with petitioners and respondents. We agree with
petitioners that at verification, we compared the TOTCOM (effectively,
cost of goods sold) from Dofasco's response to the cost of good
manufactured from their accounting records. It would have been more
appropriate to compare the reported costs to the costs in the earnings
statement, had the two sets of numbers been calculated based on the
same items (i.e., both inclusive or exclusive of the inventory change
adjustment). However, the difference between the two sets of figures
resulting from the inventory change adjustment is insignificant. See
Dofasco Final Results Analysis Memorandum, page 9.
(6) Calculation of Yield Loss Rates
We agree with petitioners that there may be some minor differences
in the bases upon which yield loss rates were calculated in PaYs and in
Dofasco's normal accounting system. However, these minor differences do
not constitute a serious enough reason for rejecting the entire cost
verification. We note that Dofasco has already acknowledged that there
are minor differences between the yields calculated by PaYs as opposed
to the yields calculated with Dofasco's normal cost accounting system.
See Dofasco's December 23, 1996 response at 35-38. Significantly, the
Department did not, as a result of the information provided by Dofasco,
inform the company at that time that the difference provided a
sufficient basis to question the use of PaYs as a reporting tool.
Furthermore, the Department has found no evidence to contradict
Dofasco's explanation regarding the reasons for the differences in the
yields calculated by the two systems. Id.
Concerning petitioners' contention that the Department did not
verify Dofasco's explanation concerning aberrational yield loss rates,
we disagree. In the second administrative review, the Department
adjusted certain yield loss rates reported by Dofasco because the
Department determined that there were certain aberrant yield loss rates
which affected the total yield loss rates generated by PaYs. See 1994/
95 Canadian Steel at 18459. The Department stated that Dofasco did not
offer an explanation of the apparently aberrational data. As such, for
the final determination in the second administrative review, the
Department applied facts available by excluding sales orders which
incorporated what appeared to be inaccurate data and by upwardly
adjusting Dofasco's reported cost of manufacture on all models by the
percentage difference between the reported yield loss rate and the
corrected yield loss rate. See 1994/95 Canadian Steel at 18468 (April
15, 1997).
However, for this review, Dofasco has provided an acceptable
explanation regarding these apparently ``aberrational'' yields.
Specifically, Dofasco stated that ``customization of an order often
involves adding a piece of steel with the same characteristics as the
existing steel being processed. Dofasco added that this customization
usually occurs at either the pickle line or the galvanizing line * * *.
Therefore, Dofasco explained that the yield loss rates reported in the
PaYs system with respect to these orders in fact is accurate. Dofasco
also stated that, because the customization of these orders involves
taking pieces originally processed for other orders, those other orders
would have correspondingly low yields.'' See Dofasco Verification
Report at pg. 20, Exhibit 24. Therefore, we disagree with petitioners'
assertion that the Department did not verify these seemingly
aberrational rates.
(7) Inclusion of Certain Products and Costs
We disagree with petitioners concerning the allegedly improper
inclusion of certain products and their costs in Dofasco's response.
Petitioners are correct to point out that there are several CONNUMs
reported in the response for which there are different costs per the
earnings statement. The answer for this was presented by Dofasco at
verification, when Dofasco noted that there were several products sold
(by Sorevco) during the third administrative review period which were
produced during the second administrative review. At reconciliation,
[[Page 12736]]
Dofasco reported the cost for such products based on verified second
administrative review costs. See Dofasco Verification Report at pp. 18-
19.
(8) Calculation of Fixed Costs and Variable Cost of Manufacture (VCOM)
We agree in part with petitioners and respondents. While the record
shows that there may be some differences regarding the items Dofasco
included in VCOM as reported to the Department, compared to those items
included in the reconciliation at verification, we note that regardless
of the individual classification of certain items in the
reconciliation, the Department reconciled Dofasco's reported costs to
the costs determined from Dofasco's normal accounting system examined
by the Department at verification. The Department found that the
average costs per product grouping for those product groupings examined
at verification were comparable (with the exception of one grouping,
for which Dofasco provided an explanation). See Dofasco Verification
Report at page 7. The Department's concern with comparing total costs
for each product grouping is reflected in the verification report, in
which the Department discusses the comparison of total manufacturing
costs, as opposed to variable manufacturing costs: ``[w]e then compared
total per unit values per earnings statement after the above
reconciling items to the average TOTCOM2 as calculated from the
submission to the Department.'' (Emphasis added) See Dofasco
Verification Report at page 7. Whether certain costs were included in
VCOM or not, the most important aspect of the cost reconciliation is
that the same costs were included in both the submission and Dofasco's
normal cost accounting system.
(9) Verification of Alloy Products
Concerning the inclusion of alloy products and costs, we disagree
in part with both petitioners and respondents. For the reconciliation,
the Department tied the costs per financial statements, exclusive of
costs associated with alloy products, to the costs reported by Dofasco.
See Dofasco Verification Report at pg. 7 (``We reviewed Dofasco's
adjustment to exclude the cost of alloy products which are incorporated
into Dofasco's normal cost accounting categories'').
We note that, contrary to Dofasco's assertion, the Department is
indeed entitled to examine costs for alloy products at verification, as
such costs were necessary to perform an adequate reconciliation.
However, the Department has the discretion in deciding the depth to
which it will examine any information presented at verification. The
fact that respondents did not provide more complete information, when
the Department did not ask for it, cannot be held against respondents.
The purpose of verification is not to examine every number submitted by
respondent: instead, the objective is to ensure the integrity of the
response. See, e.g., Silicon Metal from Argentina: Final Results of
Antidumping Administrative Review, 58 FR 65336, 65340 (December 14,
1993) (``the Department is not required to verify every figure reported
in the questionnaire response. The process of verification involves
spot-checking and cross-checking the information that the Department
selects for emphasis in analyzing each specific response''); Porcelain-
on-Steel Cookware from Mexico: Final Results of Antidumping
Administrative Review, 55 FR 21061, 21064 (May 22, 1990) (``The
Department has discretion to decide which items to verify''); Monsanto
Co. v. United States, 698 Fed. Supp. 275, 281 (CIT 1988)
(``Verification is a spot check and is not intended to be an exhaustive
examination of the respondent's business'').
Comment 13: Petitioners maintain that Sorevco's reconciliation,
which was placed on the record as part of its questionnaire response,
shows a significant discrepancy. In attempting to show that the total
cost of manufacture reported in its response agreed with the production
costs in its financial statements, Sorevco determined the total of the
COMs in the response for all products. However, Sorevco's database
shows that Sorevco's total COMs (i.e. the sum of the COM for each
CONNUM multiplied by the quantity for that CONNUM) is different.
Petitioners state that where there is a discrepancy between the
reported costs and the costs maintained in the financial statement, the
Department has increased the reported costs by the difference. See
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Pasta from Italy, 61 FR 30326, 30358 (June 14, 1996).
Respondent states that petitioners' allegation that there is a
discrepancy in Sorevco's reported costs is in error because petitioners
incorrectly attempted to compare the total COM reported to the
Department on the computer database with the reconciliation that
Sorevco provided in Exhibit 4 of its December 23, 1996 supplemental
response. According to Sorevco, this is not an appropriate comparison.
The COM reported by Sorevco in the December 23, 1996 response reflected
Sorevco's costs as the company maintains them in the normal course of
business; that is, this COM reflects the transfer price at which
Sorevco buys cold-rolled steel from Dofasco and Sidbec-Dosco. However,
as a result of the Department's treatment of Dofasco and Sorevco,
Dofasco provided its per-unit cost of production for the cold-rolled
steel it sold to Sorevco. For each Sorevco product code, Dofasco's per-
unit cost of production was weight-averaged with Sidbec-Dosco's
transfer price to arrive at a weight-averaged cost of production that
was used in the response. Therefore, respondent states that in the
computer database, Sorevco's COM is calculated using both cost and
transfer price data for cold-rolled material. Respondent states that
this same methodology was used in prior reviews, has been verified by
the Department, and has never been challenged by petitioners.
Department's Position: We agree with respondent. In past reviews
and in the instant case, the Department has accepted Sorevco's
methodology for reporting COM, including the valuation of substrate
provided by related parties. This methodology leads to the difference
between the costs reported to the Department and Sorevco's internal
cost accounts. The difference is therefore adequately explained.
Comment 14: Petitioners claim that on May 28, 1997, Dofasco for the
first time submitted freight information that had been the subject of
two prior information requests by the Department. Petitioners maintain
that Dofasco had the information in its possession and claimed complete
reporting but did not submit this information until petitioners
demonstrated, in another review, that Dofasco's claim of complete
reporting was incorrect. Petitioners further suggest that the
Department use adverse facts available based on the fact that Dofasco
did not comply to the best of its ability when it repeatedly failed to
supply the necessary freight rates in response to the Department's
information requests. As such, petitioners argue that the May 28, 1997
response constitutes an untimely submission of factual information
which warrants the application of facts available by the Department.
Dofasco contends that it did not withhold information from the
Department. According to Dofasco, in the second administrative review
it became clear that there was a programming error which caused certain
freight costs to be missing. As soon as this programming error was
discovered in the second review,
[[Page 12737]]
Dofasco alleges that its counsel contacted the Department to inform the
Department that the same error existed in the third review. Dofasco
contends that as a result of this conversation, the Department issued a
supplemental questionnaire on this issue which was intended to allow
Dofasco to explain whether any freight costs were missing and provide
any missing data. At that time, Dofasco explains that it informed the
Department of the programming error and provided the data for the
locations in question. Dofasco maintains that it could not have
withheld information because Dofasco did not even know that an error
existed at the time it filed its first supplemental questionnaire
response in the third review.
In addition, Dofasco claims that section 782(d) of the Act provides
the Department with the discretion to allow respondents to remedy or
explain deficiencies. Respondent states that this was exactly what the
Department did when it issued the supplemental questionnaire to Dofasco
requesting information on the missing maximum freight rates. After
receiving the information from Dofasco, Dofasco maintains that the
Department appeared to be satisfied with the information and used it in
the preliminary results over three months later.
In conclusion, Dofasco argues that the information was submitted in
a timely manner according to the second supplemental questionnaire,
could be verified, was not incomplete, and could be used without undue
difficulty. Moreover, Dofasco maintains that it acted to the best of
its ability to provide the information as soon as it was discovered
that it was missing. As a result, Dofasco argues that the Department
should continue to use the information supplied by Dofasco in the final
results.
Department's Position: We agree with respondent. In its original
questionnaire, the Department required Dofasco to report the freight
cost incurred for each sale to the United States. Dofasco stated that
for certain sales, it was unable to report the actual freight charges;
instead, it reported maximum freight for each destination. See
Dofasco's November 13, 1996 response at C-22, 23 (proprietary version).
In the database submitted in the response dated November 13, 1996,
however, there were numerous sales in the United States for which
Dofasco reported a prepaid freight but failed to report a maximum
freight rate. In a supplemental questionnaire, the Department asked
Dofasco to explain why it had not reported a maximum freight rate for
certain sales. See the Department's Supplemental Questionnaire dated
December 5, 1996 at page 4. Dofasco responded that it had reported
maximum freight for these sales, either in the MAXFRTU field or else in
the DINLFTWU field. See Dofasco's December 23, 1996 response at 16
(proprietary version). In early May of 1997, it became apparent, in the
second review of this proceeding, that there was a programming error
which caused certain freight costs to be missing. The Department issued
Dofasco a second supplemental questionnaire dated May 16, 1997, which
asked Dofasco to explain why there were certain sales with no
associated maximum freight value, despite Dofasco's statement to the
contrary. Dofasco explained that due to a programming error, it
inadvertently failed to report maximum freight charges for certain
sales; it supplied the missing maximum freight rates for four customer
shipping locations. See Dofasco's response dated May 28, 1997 at page
2.
Section 782(d) of the Act and section 353.31(b)(1) of the
Department's regulations permit the Department to solicit and consider
information which was not supplied in the original or first
supplemental questionnaire responses. Based on this statutory and
regulatory authority, the Department accepted this information as
reported. Since Dofasco's May 28, 1997 response to the Department's May
16, 1997 questionnaire was submitted by the deadline, there is no basis
to petitioners' claim that the information was not submitted in a
timely manner. Therefore, we have continued to use this information for
the final results of this review.
Comment 15: Petitioners argue that the Department has traditionally
treated sales to the United States as constructed export price
(``CEP'') sales when the sale is made through a foreign producer's U.S.
subsidiary. Petitioners claim that, where sales are made prior to
importation, the Department will classify such U.S. sales as export
price (``EP'') sales when the merchandise is shipped directly to an
unaffiliated buyer without being introduced into the affiliated selling
agent's inventory or where this procedure is the customary sales
channel between the parties and the affiliated selling agent only acts
as a processor of paper and a communications link between the
unaffiliated buyer and the foreign producer.
In the instant case, petitioners maintain that the record shows
that Dofasco's U.S. subsidiary, Dofasco U.S.A. (``DUSA''), introduced
the merchandise into its inventory and performed an active role in
selling the merchandise. Thus, petitioners contend that CEP treatment
is warranted.
First, petitioners allege that DUSA introduces merchandise into its
physical inventory in cases where it stores the merchandise at
independently-owned warehouses prior to delivery. The Department's
practice, petitioners contend, has been to classify sales as CEP
whenever the merchandise is warehoused by the affiliate. See Certain
Cut-to-Length Carbon Steel Plate from Germany: Final Results of
Antidumping Administrative Review, 62 FR 18390, 18391 (April 15, 1997).
Petitioners allege that in the instant case, a significant portion of
Dofasco's sales were warehoused in the United States prior to delivery.
In addition, petitioners maintain that DUSA plays an active role in
Dofasco's selling activities. They maintain that the Department has
accorded CEP treatment to sales where the foreign producer attended
meetings with U.S. customers, reserved the right to approve all orders,
and limited the affiliate's ability to negotiate prices within certain
ranges. See Small Diameter Circular Seamless Carbon and Alloy Steel
Standard, Line and Pressure Pipe From Germany: Preliminary Results of
Antidumping Administrative Review, 62 FR 47446 (September 9, 1997) and
Cut-to-Length Carbon Steel Plate from Belgium: Preliminary Results of
Antidumping Administrative Review, 62 FR 48213, 49214-15 (September 15,
1997). In the instant case, petitioners claim that the issue is not
whether DUSA has negotiating authority, but instead whether DUSA's
level of participation in the selling process is sufficiently
substantial. Petitioners cite certain letters on the record which they
believe demonstrates DUSA's substantial involvement in the selling
process. Furthermore, they point out several documents on the record
which discuss DUSA's involvement in arranging further manufacturing and
warehousing, which they claim the Department has determined in other
cases to constitute more than simply routine selling functions (thus
meriting CEP treatment). See, e.g., Notice of Final Determination of
Sales at Less Than Fair Value: Large Newspaper Printing Presses and
Components Thereof, Whether Assembled or Unassembled from Germany
(``Printing Presses from Germany''), 61 FR 38166 (July 23, 1996).
Dofasco asserts that the Department correctly determined that all
of Dofasco's U.S. sales were EP transactions based on the fact that the
[[Page 12738]]
sales were made before importation. Dofasco maintains that the
Department's practice has been to treat U.S. sales through a U.S.
affiliate as EP transactions if the following three criteria are met:
(1) the merchandise is shipped directly to the U.S. customer without
entering the affiliate's inventory; (2) this is the customary channel
of trade and (3) the affiliate only acts as a sales document processor
and communications link. See Steel from Korea, 62 FR 18404, 18423
(April 15, 1997) and Printing Presses from Germany, 38175.
Dofasco argues that the Department defines ``inventory'' as
merchandise that is in storage and is available for sale to various
customers. See Certain Cut-to-Length Steel Plate from Germany: Final
Results of Antidumping Administrative Review (``Steel Plate from
Germany''), 61 FR 13834, 13843 (March 28, 1996) and Final Determination
of Sales at Less Than Fair Value: Certain Stainless Wire Rods from
France (``Wire Rod from France''), 58 FR 68865, 68868-69 (December 29,
1993). Dofasco maintains that the Department has held that even though
a U.S. affiliate may have taken title to the imported merchandise and
arranged for its warehousing in the U.S., if the merchandise was
warehoused to await delivery to a specific customer or if the customer
dictated that merchandise be warehoused, then the sale is not
considered to be a CEP transaction. See Zenith Electrical Corp. v.
United States (``Zenith''), Slip Op. 94-146 at 7-8 (CIT 1994) and
Cellular Mobile Telephones and Subassemblies from Japan: Preliminary
Results of Antidumping Administrative Review, 54 FR 48922, 48923 (Nov.
28, 1989). In this case, Dofasco contends that for the few sales
through DUSA that were warehoused, this merchandise was warehoused in
independent warehouses after the sale, and thus was not stored awaiting
sale.
Dofasco also maintains that DUSA's role is that of a paper
processor and communications link that does not negotiate prices or
market products. Even were the affiliate to extend credit to U.S.
customers, process warranty claims, and engage in project development,
Dofasco argues that the Department has held that a sale through the
U.S. affiliate is properly an EP transaction because the affiliate's
selling functions are of a kind that the exporter or foreign producer
would normally perform. Dofasco argues that an affiliate ceases to be a
paper processor and communications link only if it controls the terms
of sale. See Certain Corrosion-Resistant Carbon Steel Flat Products
from Korea: Final Results of Antidumping Administrative Review, 61 FR
18547, 18552 (April 26, 1996); Steel Plate from Germany at 13842-43;
and Wire Rod from France at 68869. In this case, Dofasco alleges that
DUSA does not perform any additional selling functions that Dofasco
would normally perform; documents on the record demonstrate that
Dofasco is responsible for conducting sales activities.
Department's Position: We agree with respondents. The Department,
in the first and second administrative reviews of this proceeding,
determined that Dofasco's sales through DUSA were EP transactions. The
Department noted that ``while the Department usually finds further
manufacturing of merchandise occurs in the context of ESP (now CEP)
sales, and while 19 U.S.C. section 1677a(e)(3), discussing adjustments
to ESP, is the only explicit reference to further manufacturing in the
statute, it would clearly be a mistake to define the sale as an ESP
sale simply because there is further manufacturing.'' See Memorandum
for Roland McDonald: Administrative Review of Corrosion Resistant
Carbon Steel Flat Products from Canada: Categorization of Sales of
Dofasco, Inc. (``Memorandum for Roland McDonald''), page 2 (July 12,
1995) (Public Version).
In the second administrative review, the Department determined that
sales through DUSA should not be classified as CEP sales based on the
following: (1) warehousing inventory destined for specific customers at
privately owned warehousing facilities does not constitute taking the
merchandise into DUSA's physical inventory; (2) Dofasco's channels of
delivery remain the same--that is, the Department verified that the
merchandise is delivered directly from Dofasco to the U.S. customer;
and (3) DUSA's role in the sales process constitutes only that of a
communications link and paper processor. See 1994/95 Canadian Steel at
18460-18462 (April 15, 1997).
A further discussion of this policy exists in Certain Cold-Rolled
and Corrosion-Resistant Carbon Steel Flat Products from Korea: Final
Results of Antidumping Administrative Review (``Korean Steel Final
Results''), which was signed March 9, 1998. In that notice, we explain
that CEP treatment is appropriate where certain facts indicate ``that
the subject merchandise is first sold in the United States by or for
the account of the producer or exporter'' and not sold by the producer
or exporter outside the United States. Such a finding requires that
certain criteria be met, such as: (1) whether the merchandise was
shipped directly from the manufacturer to the unaffiliated U.S.
customer; (2) whether this was the customary commercial channel between
the parties involved; and (3) whether the function of the U.S. selling
agent is limited to that of a ``processor of sales-related
documentation'' and a ``communication link'' with the unrelated U.S.
buyer. Where the factors indicate that the activities of the U.S.
affiliate are ancillary to the sale (e.g. arranging transportation or
customs clearance, invoicing), we treat the transactions as EP sales.
Where the U.S. affiliate has more than an incidental involvement in
making sales (e.g., solicits sales, negotiates contracts or prices) or
providing customer support, we treat the transactions as CEP sales.''
For this administrative review, petitioners do not present any new
arguments regarding this issue, nor is the fact pattern pertaining to
DUSA sales significantly different from past reviews. Moreover, as we
also indicate in Comment 16 below, we believe that evidence on the
record indicates that DUSA's involvement in the sales process is
ancillary. Therefore, we are maintaining the methodology we adopted in
the first and second administrative reviews and classifying DUSA's
sales as EP transactions.
Comment 16: Petitioners urge that, in the event the Department does
not agree with petitioners with respect to the classification of all
DUSA sales as CEP sales, the Department should classify all further
manufactured sales as CEP sales. Petitioners cite Certain Cold-Rolled
and Corrosion-Resistant Carbon Steel Flat Products from Korea:
Preliminary Results of Antidumping Administrative Review (``Korean
Steel''), 62 FR 47422, 47425-26 (September 9, 1997) as a case in which
the Department found that certain sales made by a respondent prior to
importation had substantial involvement on the part of the U.S.
subsidiary. Petitioners argue that the same facts apply here.
Dofasco argues that sales through DUSA which were further processed
should not be treated as CEP transactions solely because of this
further processing. Dofasco argues that the Department's position in
the first and second administrative reviews (that it would be incorrect
to define the sale as CEP simply because there is further processing)
is still valid as there is no additional information on the record in
this review which would merit a revisiting of this issue.
Department's Position: We disagree with petitioners that the
information on the record proves that DUSA plays an ``active'' role in
the selling process. In fact, the evidence on the record does not
suggest that DUSA's role in the selling
[[Page 12739]]
process was anything beyond an ancillary role. As much of this
information is business proprietary, please refer to Dofasco's Final
Results Analysis Memorandum, page 5 (business proprietary version). In
addition, Korean Steel discussed four factors in its determination of
CEP/EP treatment for sales with further processing, not all of which
apply to this case. See Dofasco's Final Results Analysis Memorandum,
page 5 (business proprietary version). Therefore, for these final
results, we have classified all sales made through DUSA as EP
transactions.
Comment 17: Petitioners contend that Dofasco improperly calculated
home market credit expenses in its response by applying the interest
rate to the gross unit price plus the amount of the goods and services
tax (``GST''). Petitioners maintain that the Department's clearly
stated practice is that home market credit expenses are to be
calculated on the basis of gross unit price exclusive of any value
added tax (``VAT''). See Certain Cut-to-Length Carbon Steel Plate from
Brazil: Final Results of Antidumping Administrative Review (``Carbon
Steel Plate from Brazil''), 62 FR 18486, 18487-88 (April 15, 1997),
Silicon Metal from Brazil: Final Results of Antidumping Administrative
Review and Determination not to Revoke in Part, 62 FR 1954, 1961
(January 14, 1997), Ferrosilicon from Brazil: Final Results of
Antidumping Administrative Review, 61 FR 59407, 59410 (November 22,
1996), Steel Wire Rope from the Republic of Korea: Final Results of
Antidumping Administrative Review, 60 FR 63499, 63504 (December 11,
1995), and Circular Welded Non-Alloy Steel Pipe and Tube from Mexico:
Final Results of Antidumping Administrative Review (``Steel Pipe and
Tube from Mexico''), 62 FR 37014, 37016 (July 10, 1997). Accordingly,
petitioners contend that the Department should recalculate Dofasco's
home market credit expense exclusive of the seven percent GST.
Dofasco does not dispute that the Department's practice has been to
exclude VAT from the calculation of credit expense. See, e.g., Steel
Pipe and Tube from Mexico at 37106. However, they allege that the
Department's reasoning for doing so is incorrect. Dofasco claims that
the Department's statement that VAT is a revenue for the government is
correct. However, Dofasco claims that the Department is incorrect in
stating that credit expenses for VAT payment by the company is a
government expense. In fact, Dofasco maintains that because there is a
lag between the time that it pays the tax (the date of shipment) and
the date it receives payment from the buyer, Dofasco incurs an
opportunity cost associated with the time it does not have use of the
money. Dofasco requests that the Department reconsider its position on
this issue and calculate Dofasco's credit expense inclusive of VAT.
Department's Position: We agree with petitioners and respondents
that it has been the Department's long-standing practice to calculate a
company's credit expense exclusive of VAT. However, we disagree with
respondents that the Department should revisit this position. In Carbon
Steel Plate from Brazil at 18486, the Department rejected the argument
Dofasco makes here, stating that ``there may be a potential opportunity
cost associated with the respondents'' prepayment of the VAT, [however]
this fact alone is not a sufficient basis for the Department to make an
adjustment in price-to-price comparisons. Thus, to allow the type of
credit adjustment suggested by the respondents would imply in the
future the Department would be faced with the virtually impossible task
of trying to determine the potential opportunity cost or gain of every
charge and expense reported in the respondents' home market and U.S.
databases.'' Therefore, for the final results of this review, the
Department has recalculated Dofasco's credit expense so that it is
exclusive of VAT, as suggested by petitioners.
Comment 18: Respondent argues that the Department should correct
certain clerical errors it made in the preliminary results of review.
Specifically, Dofasco claims that the Department: (1) incorrectly
subtracted prepaid freight from the reported gross unit price in the
margin calculation program; (2) failed to use the proper exchange rate
conversions in the calculation of direct selling expenses; and (3) used
maximum freight expenses instead of actual freight expenses, where
provided, to calculate U.S. movement expenses. Additionally, as stated
above in Comment 11, Dofasco disagrees with the Department's use of
Baycoat's invoice prices. However, if the Department uses those prices,
Dofasco asserts that it must also use the reported G&A and interest
expenses that are based on the invoice price.
Petitioners disagree that the Department should value U.S. movement
expenses based on actual, instead of maximum, freight as the record
allegedly shows certain inconsistencies which suggest that the computer
system which tracks actual freight is not yet functional. In
particular, petitioners contend that an invoice submitted in order to
confirm the validity of the computer program which tracks actual
freight in fact proves that the program is not working properly, since
the database reflects a different number than that reported in the
invoice. See Dofasco's December 23, 1996 Response (proprietary version)
at Exhibit 17, compared to, inter alia, observation number 1921 in
Dofasco's December 23, 1996 Section C computer printout.
Petitioners agree with respondents that the Department should
include reported G&A and interest expenses for reported costs based on
Baycoat's invoice prices.
Petitioners argue that the Department failed to include all
relevant freight charges for certain U.S. sales. In particular,
petitioners assert that the Department should add inland freight from
the warehouse to the U.S. customer (INLFWCU) to its calculation of U.S.
moving expenses for these sales.
Department's Position: We agree with respondent that we incorrectly
subtracted prepaid freight from the reported gross unit price in the
margin calculation program and have corrected this error for the final
results. We also agree with respondents that we should revise our
exchange rate conversion errors in the calculation of direct selling
expenses for the final results.
We agree with petitioners that the record demonstrates that the
computer program which Dofasco has begun using to calculate actual
freight expenses is not working properly as the actual freight charge
which is shown on the invoice does not match that reported in Dofasco's
database. As there is nothing on the record that can demonstrate the
accuracy of the actual freight field, we are continuing to use the
maximum freight field when determining U.S. moving expenses for certain
sales in the final results of this review.
We agree with both respondents and petitioners that we should use
the reported G&A and interest expenses based on Baycoat's transfer
price and have corrected this error for the final results of this
review.
We disagree with petitioners that the Department should add inland
freight from the warehouse to the U.S. customer (INLFWCU) to its
calculation of U.S. moving expenses for certain sales. The Department
understands the MAXFRTU field to represent the maximum freight expenses
from the warehouse to the customer. See the Department's questionnaire
dated September 19, 1996 at page C-30 and Dofasco's November 13, 1996
response to the Department's questionnaire at page C-21-23. As such, we
will treat U.S. movement expenses consistently
[[Page 12740]]
with our treatment of movement expenses in earlier segments of this
proceeding. See, e.g., 1994/95 Canadian Steel at 18462.
MRM
Comment 19: Petitioners argue that MRM has reported estimated
freight expenses despite its ability to report actual freight expenses
on an invoice-by-invoice basis. Therefore, petitioners contend that the
Department should reject MRM's reported freight expense. Because MRM
allegedly withheld information requested twice by the Department,
petitioners contend that the Department should apply adverse facts
available in calculating MRM's freight expenses for both the home
market (by disallowing all reported freight expenses) and the U.S.
market (by applying the highest reported freight expense to all sales).
MRM maintains that it does not track actual freight costs on an
invoice-specific or transaction-specific basis in the ordinary course
of business. For this administrative review, MRM reported an estimated
freight cost based on the application of MRM's freight rate to each
specific shipment. MRM claims that when the actual freight costs are
available, it records this information in its accounts payable files.
MRM contends that reporting actual freight expense instead of the
estimated freight expense would have been extremely tedious and
burdensome for MRM and would have little effect on the Department's
margin analysis. Moreover, MRM claims that the Department accepted
MRM's allocation method for freight expenses for the first review. See
1993/94 Canadian Steel at 13829. MRM argues that the Department
verified MRM's treatment of freight expenses and the Department's
questionnaire did not prohibit the use of an appropriate allocation
methodology in determining freight expense.
MRM argues that the Department has consistently allowed the use of
reasonable allocative methodologies in reporting freight expense. See
Notice of Final Determination of Sales at Less Than Fair Value: Small
Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and
Pressure Pipe from Italy, 60 FR 31981, 31987 (June 19, 1995), and Final
Determination of Sales at Less Than Fair Value: Oil Country Tubular
Goods from Korea, 60 FR 33561, 33563 (June 28, 1995).
Department's Position: We agree with respondent. First, we note the
Department's standard questionnaire explicitly contemplates a
respondent's inability to report actual freight expenses. See
Antidumping Duty Questionnaire, page 4 (``Averages may only be used for
expenses that can be tied to a particular sale (e.g., freight) when to
do otherwise would create a significant burden because of the manner in
which your accounting records are maintained''). Second, the Department
has in the past allowed the reporting of estimated freight expenses as
long as the freight estimates are reasonable and any differences
between estimated amounts and actual freight charges are minor. See,
e.g., Notice of Final Determination of Sales at Less Than Fair Value:
Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line
and Pressure Pipe from Italy, 60 FR 31981, 31987 (June 19, 1995).
In this review, MRM reported that it does not track the actual
freight payment on an invoice-by-invoice basis in the normal course of
business. See Verification of Gerdau MRM Steel's (``MRM'') Sales
Response at pp. 6-9. At verification, we examined documentation
concerning MRM's freight expenses and tied them to the response. In
addition, we examined the variances between actual and estimated
freight payments for both home market and U.S. sales and found that the
variances were either nonexistent or minimal. Consequently, we
determine that MRM's freight methodology is reasonable and have allowed
the adjustments for the final results.
Comment 20: Petitioners argue that MRM improperly reported credit
expense. Specifically, petitioners argue that MRM inappropriately
calculated credit expense using the average payment date information
instead of actual payment date information. Petitioners claim that MRM
recorded actual payment data but then deleted this information from its
computer system. Because MRM allegedly deleted this information,
petitioners insist that the Department must disallow MRM's reported
home market credit expense. Furthermore, petitioners urge the
Department to apply adverse facts available for credit expense for U.S.
sales by using the highest reported credit period.
MRM argues that it reported estimated dates based on each
customer's terms of payment because it does not maintain records of the
actual date of payment received for each invoice in its ordinary course
of business. MRM asserts that its ordinary operating procedures do not
provide for the maintenance of information on the date of payment. MRM
notes that the maintenance of information on the date of payment is
neither relevant to MRM from a business perspective, nor mandated under
Canadian GAAP. Further, MRM argues that the Department verified the
methodology used by MRM in this review, and accepted MRM's methodology
for approximating the date of payment in the first review of plate from
Canada. See 1993/94 Canadian Steel at 13829.
MRM contends that they were not instructed by the Department in the
first administrative review to follow any particular methodologies in
future reviews. MRM also notes that in the first review, the Department
accepted the same method utilized in this case for purposes of
calculating MRM's credit expense. Id. Further, MRM asserts that in the
litigation arising from the review, the Department withdrew its request
for a remand on the issue of the allowance of the adjustment to FMV for
MRM's credit expenses. Finally, MRM argues that, even if MRM's U.S.
credit expense was uniformly increased by the amount suggested by
petitioners, the result would be a minimal decrease in MRM's ``large''
negative margins.
Department's Position: We disagree with petitioners that MRM's
credit expenses should be denied. Based on the results of verification,
we find MRM's use of the average age of invoices for each month of the
POR to be an acceptable methodology for determining credit expenses. At
verification, we found that MRM was unable to report the actual expense
because in the normal course of business, MRM does not maintain
information on the date of payment in its computer system. We reviewed
MRM's credit information contained in their sales response and
determined that actual accounts receivable balances were divided by
average daily sales figures to arrive at average days outstanding
balances for Canadian customers and U.S. customers. Furthermore, MRM
stated that this is the same methodology it uses in submitting
information to its parent company in the normal course of business. See
Verification of Gerdau MRM Steel's (``MRM'') Sales Response at pg. 9.
Finally, petitioners have pointed to no record evidence showing that
MRM's methodology has led to a distortion of reported credit expenses.
Therefore, we have allowed MRM's reported credit expenses for the final
results.
Comment 21: Petitioners argue that MRM failed to substantiate its
claimed home market rebate adjustment. Petitioners charge that MRM did
not meet its burden of showing that its customers had prior knowledge
of the rebates. Because MRM has not established its entitlement to this
[[Page 12741]]
adjustment, petitioners urge the Department to reject MRM's claim.
MRM argues that there is substantial evidence on the administrative
record to support the Department's decision to adjust normal value for
claimed rebate amounts. MRM insists that the Department routinely
grants adjustments to normal value for rebates or other post-sale price
adjustments. Smith-Corona Group v. United States, 713 F.2d 1568 (1983).
MRM notes that the Department deducted rebate amounts from FMV in the
first administrative review of steel plate from Canada. See 1993/94
Canadian Steel at 13829. MRM argues that since it used the same
methodology to derive and report transaction-specific rebate amounts in
the first review, the Department's preliminary decision to reduce
normal value for these amounts should be adopted in the final results
of the instant review.
MRM further argues that they have satisfied the legal criteria for
rebates and therefore should receive an adjustment to normal value on
that basis. See Smith-Corona Group, Consumer Products Division, SCM
Corp. v. United States, 3 CIT 126, 146-49 (1982). MRM asserts that it
is the Department's ``general policy to allow rebates only when the
terms of sale are predetermined.'' Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof from France et al.; Final
Results of Antidumping Duty Administrative Review, Partial Termination
of Antidumping Reviews, and Revocation in Part of Antidumping Duty
Orders, 60 FR 10900, 10930 (Feb. 28, 1995).
MRM argues that the rebate amounts are properly viewed as
``predetermined.'' MRM claims that customers had prior knowledge of the
rebate amount since customers were informed of the MRM's rebate
practices through telephone contacts and invoices which indicated the
total rebate amount. MRM maintains that the method of setting rebates
and the level of rebates are based on MRM's standard business
practices. In addition, MRM maintains that the Department verified
written agreements with regard to rebates.
If, in the alternative, the Department declines to adjust normal
value for rebates granted by MRM, MRM urges the Department to grant an
adjustment to normal value for the same amounts as post-sale price
adjustments. MRM maintains that the Department makes post-sale price
adjustments that reflect a respondent's ``normal business practice.''
MRM claims that there is substantial evidence on the administrative
record of these proceedings to support MRM's assertion that MRM's
rebate program is an integral part of MRM's business practice. MRM adds
that the Department found the payments in question to be ``part of the
company's ``normal business practice''' in the first administrative
review. See 1993/94 Canadian Steel at 13828.
Department's Position: We agree with respondent that these
adjustments are allowable as rebates. At verification, we examined
documentation which sufficiently demonstrated that MRM's customers had
prior knowledge of MRM's rebate program. We also confirmed that in the
normal course of business, MRM normally made verbal agreements with its
customers concerning rebates, and that its rebate program has not
changed since 1993. We examined a letter of confirmation of a rebate
agreement for one of MRM's customers. Finally, we also examined
correspondence between MRM and another customer which indicated the
customer's acknowledgment of MRM's rebate policies. See Verification of
Gerdau MRM Steel's (``MRM'') Sales Response at p. 11, and Exhibit S-36.
Therefore, because substantial record evidence indicates that MRM's
customers were aware of the rebate prior to the time of sale, we have
continued to adjust normal value to account for rebates for these final
results of review.
Stelco
Comment 22: Stelco argues that there is no factual or legal basis
for the Department's decision to increase Stelco's submitted actual
costs of production for certain inputs supplied by Baycoat (painting
services), Z-Line Company (galvanizing services), and iron ore obtained
from Stelco's affiliated mines for both corrosion-resistant and plate
products. Stelco maintains that the Department erroneously ``grossed
up'' the costs beyond Stelco's actual costs of production, to what the
Department claimed to be the ``unadjusted transfer price'' of these
inputs. Stelco asserts that (1) the antidumping statute requires that
the Department use the actual costs of production of the company as it
calculates them, provided that these are not distortive; (2) the
statutory language of the ``major input rule'' does not require the
Department to increase an affiliated supplier's actual cost of
production in valuing its major inputs; and (3) the major input rule
does not apply to affiliated suppliers that are collapsed with the
respondent.
Stelco continues that, in any event, the Department's methodology
for comparing the transfer price to the affiliated supplier's cost is
incorrect, because it used a transfer price that did not accurately
reflect how Stelco records its cost of inputs, which resulted in double
counting of expenses.
Petitioners, in response to Stelco's argument, state that the
Department correctly valued at transfer price the inputs received from
Stelco's affiliated suppliers. Petitioners continue that the statute
does not permit valuation of a major input based on an affiliated
supplier's cost when such cost is below the transfer price and that it
is the Department's practice to value a major input based on transfer
price where such price exceeds the affiliated supplier's COP.
Petitioners further argue that Stelco's assertion that the
Department should treat Stelco and its affiliated suppliers as a single
entity is baseless. Petitioners state that Stelco has failed to
establish (1) that the affiliated suppliers are ``divisions'' of
Stelco, or (2) that the requirements for collapsing, which petitioners
assert are not even applicable to this situation, have been satisfied
with respect to any of its affiliates.
Petitioners conclude that the Department properly rejected Stelco's
adjustments to transfer prices. Petitioners maintain that transfer
prices should not be reduced by the affiliated suppliers' profit, G&A
and interest expense.
Department's Position: We agree with petitioners that it is
appropriate to use the transfer price to value Stelco's major inputs.
Under section 773(f)(2) of the Act, the Department's current practice
is to request information on both the transfer price and the market
value of the input and to choose the higher of the two valuations.
Pursuant to section 773(f)(3) of the Act, the Department may alter this
valuation only in those cases where the input is ``major'' and the
value determined under section 773(f)(2) is lower than the COP of the
inputs. All parties agree that the inputs in question are major inputs
within the meaning of section 773(f)(3); we have determined that the
value determined under section 773(f)(2) is not lower than the COP of
the inputs.
Stelco cites Torrington Co. v. United States (``Torrington'') (881
F. Supp 622, 642-643 CIT 1995) and SKF USA Inc. v. United States
(``SKF'') (888 F. Supp 152, 156 CIT 1995) to support its contention
that a COP valuation is appropriate when it is below transfer price.
However, in those cases, which concerned the calculation of CV, the
Department had not requested or received information on the transfer
prices of the inputs. The CIT did not say that the Department was
prohibited
[[Page 12742]]
from requesting the transfer prices of the inputs; rather, it said that
the Department was within its discretion to choose to rely on cost
information. Here, because of the Department's current policy, the
Department requested and received the transfer prices of the inputs.
These transfer prices are greater than the affiliated suppliers' COP.
The policy applied here was the policy applied by the Department in
the second review of this case. The Department held in the second
administrative review (the most recently completed segment of this
proceeding) that the statute directs it ``to value inputs supplied by
affiliated persons at the transfer price between the entities provided
that such a price reflects the price commonly charged in the market
and, for major inputs, is not below the cost of producing the input.''
See 1994/95 Canadian Steel at 18464.
Stelco also argues that it and its affiliated suppliers should be
treated as a single entity for determining cost of production. However,
Stelco has not established either that the affiliated suppliers are
``divisions'' of Stelco or that the requirements for sales collapsing
have been satisfied with respect to its affiliates. In Certain Forged
Steel Crankshafts from the United Kingdom, 61 FR 54613, 54614 (October
21, 1996), (``Crankshafts'') respondent argued that because it and its
affiliated supplier were ``both unincorporated operating divisions
within a single entity, * * * they are parts of the same company and
share a common steel COP.'' The Department ruled that the record
evidence indicated that they were divisions of the same corporation and
found that the major input rule did not apply. Unlike the respondent in
Crankshafts, Stelco does not contend that the affiliated suppliers are
actual divisions of a single entity. Rather, Stelco contends that the
affiliated suppliers and the manufacturer should be treated as a single
entity for purposes of the major input rule. The Department rejected a
similar argument in Mechanical Transfer Presses from Japan 55 FR 335
(January 4, 1990) (``MTPs from Japan'') in which respondent maintained
that its wholly-owned subsidiaries ``function[ed] as divisions.'' The
Department noted that the ``wholly-owned subsidiaries are separate
legal entities,'' and thus applied the major input rule. The
subsidiaries in question here are clearly separate legal entities and
thus the rule of Crankshafts does not apply.
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat
Products from Korea, 62 FR 18404, 18430 (April 15, 1997) (``Korean
Steel'') represents another instance where we have determined that the
major input rule does not apply. In that case, the Department
disregarded the major input rule for transactions between producers of
the subject merchandise where it had determined that such producers
should be collapsed into a single respondent for purposes of analyzing
sales. The criteria applied for determining whether sales collapsing is
appropriate do not apply in cases where the affiliated supplier does
not have the capacity to produce the subject merchandise. See 19 FR
351.401(f) (new regulation which does not, technically, apply in this
proceeding, but which restates the Department's practice on
collapsing).
The criteria applied by the Department for purposes of sales
collapsing do not, on their face, apply to affiliations with suppliers
that do not produce the subject merchandise. We agree with petitioners
that Stelco has not established a basis for the treatment of Stelco's
affiliated suppliers as ``collapsed'' entities.
Finally, a year-end profit distribution does not function as an
adjustment to price. The entitlement to a profit distribution arises
from the ownership interest, not from the sale. The Department has
therefore allowed no adjustments to the transfer price between Stelco
and its affiliated suppliers.
Comment 23: Petitioners argue that the Department must recalculate
home market credit expenses, because they maintain that Stelco's
inclusion of the GST and provincial sales tax (``PST'') in its home
market credit expense calculation was improper. GST and PST are not
revenues for the company, but for the government, and thus, according
to petitioners, Stelco's home market credit expenses should be
recalculated to exclude such taxes.
Department's Position: We agree with petitioners. Accordingly, the
Department has corrected Stelco's home market credit expenses to
exclude both GST and PST.
Comment 24: Petitioners maintain that Stelco failed to use the
interest rate on actual borrowings by its U.S. subsidiary to determine
credit expense on U.S. dollar-denominated sales. Petitioners argue
that, during the POR, Stelco USA borrowed against a line of credit.
Petitioners contend that it is the Department's practice to use a
respondent's actual cost of short-term financing in the currency of
sale. Because money is fungible, argue petitioners, and a corporate
parent determines the capital structure of a company, it does not
matter whether the entity doing the actual borrowing is a parent or its
subsidiary. Therefore, conclude petitioners, the Department should
recalculate the credit expense on Stelco's U.S. dollar-denominated
sales, using the rate on actual borrowings by Stelco USA.
Stelco argues that there is no basis for modification of the
interest rate utilized to calculate imputed credit for Stelco's U.S.
sales. Stelco argues that: (1) Stelco Inc. (and not Stelco USA) was the
only entity that made sales of subject merchandise (corrosion-resistant
and cut-to-length plate) to the United States; (2) Stelco Inc. did not
borrow U.S. dollars during the POR; and (3) Stelco Inc. had access to
borrowed funds at the LIBOR rate through an open line of credit. See
Stelco's section B questionnaire response of November 4, 1996 and its
supplemental response of December 24, 1996. Respondent states that
there is evidence on the record regarding what rate it would have
received had it borrowed U.S. dollars. Consequently, the Department was
correct to use the LIBOR rate to calculate imputed credit expense for
Stelco's U.S. sales.
Department's Position: We disagree with both respondent and
petitioners. As we stated in Import Administration Policy Bulletin 98.2
(February 23, 1998) at pg. 6, ``[i]n cases where a respondent has no
short-term borrowings in the currency of the transactions, we will use
publicly available information to establish a short-term interest rate
applicable to the currency of the transaction. * * * For dollar
transactions, we will generally use the average short-term lending
rates calculated by the Federal Reserve to impute credit expenses.''
Therefore, for the final results of review, we have recalculated
imputed credit expense based on Federal Reserve rates. See Stelco's
Final Results Analysis Memorandum for Corrosion-Resistant Products.
Comment 25: Petitioners argue that certain sales of both corrosion-
resistant and plate products in the home market were erroneously
matched to sales made in the United States, and that the Department
should adopt certain proposed corrective steps.
Stelco argues that petitioners' suggestion would result in a
``wholesale change in the reporting of product characteristics.''
Stelco concludes that petitioners' suggestion would result in a
completely unworkable change in the Department's questionnaire.
Department's Position: We agree with Stelco, and will not make
petitioners' proposed change to the Department's program. For further
discussion of this comment, including business
[[Page 12743]]
proprietary information, please see Stelco's analysis memorandum, at
pg. 13.
Comment 26: Petitioners contend that Stelco failed to properly
report pension expense in accordance with its actual funding
obligations based on independent actuarial assessments. Thus,
petitioners argue that the Department must disallow Stelco's reporting
methodology calculated for financial statement purposes, even though
these pension expenses were reported in accordance with Canadian GAAP.
Petitioners argue that Stelco adjusted its standard product costs to
reflect a different pension amount. Petitioners argue that, in the
investigation in this proceeding, the Department determined that
Stelco's pension expense should be reported in accordance with Canadian
GAAP. Petitioners continue that the Department stated that, because the
difference between the CICA pension expense and the higher required
funding was ``recorded as a deferred asset on Stelco's financial
statements,'' it is ``not properly included in current expenses.'' See
Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-Rolled
Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon Steel
Flat Products and Certain Cut-to Length Carbon Steel Plate from Canada,
Final Determination (``Canadian Steel Investigation'') 58 FR 37099,
37120 (July 9, 1993). Petitioners state that under nearly identical
circumstances in Certain Hot-Rolled Carbon Steel Flat Products, Certain
Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant
Carbon Steel Flat Products and Certain Cut-to Length Carbon Steel Plate
from Brazil; Final Determination, 58 FR 37091 (July 9, 1993), the
Department rejected pension expense reporting under Brazilian GAAP and
accepted pension expense reporting in accordance with an independent
actuary's report. Petitioners conclude that it is the Department's
practice, now codified at section 773(f)(1)(A) of the Tariff Act of
1930, as amended, to rely on a company's normal books and records if
such records are in accordance with home country GAAP and reasonably
reflect the costs associated with production of the merchandise. In
this instance, although it conforms to Canadian GAAP, petitioners argue
that the CICA pension expense reflected in Stelco's financial
statements does not reasonably reflect the costs associated with
producing the subject merchandise. Petitioners reason that therefore,
the CICA pension adjustment must be disallowed for purposes of the
final results.
Stelco states that the Department should reject petitioners'
suggestion to reverse the Department's precedent regarding its
methodology for calculating pension costs. Stelco asserts that the
appropriate methodology to value its pension obligations is the
methodology required by Canadian GAAP, and not the cash outlay
(actuarial) methodology petitioner suggests. Stelco concludes that the
Department followed this methodology in the investigation and in both
subsequent reviews. See Canadian Steel Investigation at 37120. Stelco
states that petitioners confuse cash outlay in an accounting period
with cost of production, and that for any company which operates on an
accrual accounting basis, the amount of cash paid in a year does not
accurately reflect the cost of production in that year. Stelco
continues that this is the case for pension costs. According to Stelco,
CICA (which establishes Canadian GAAP) prohibits companies from
declaring the cash value of their pension outlays in a year as the cost
of the pensions in that year because using the cash methodology
distorts pension costs. That is, according to Stelco, companies make
cash payments to pension funds for reasons that have ``nothing to do
with'' the nature of a company's pension obligations. To permit
companies to account for pension costs on the basis of cash outlays
would, in CICA's view, severely distort a company's true cost picture.
Stelco continues that petitioners imply that Stelco's standard
costs value pension costs at their actuarial value, and that
petitioners erroneously imply that this treatment carries through to
Stelco's calculation of its cost of production. Stelco further notes
that petitioners state that the CICA pension adjustment, which adjusts
pension costs to conform to GAAP, is for financial purposes only.
Stelco argues that its standard costs are budgeted costs set at the
beginning of the year on the basis of estimates, and because these are
estimates, the Department requires that costs not be reported purely on
a standard basis, but rather that all standard costs be adjusted to
reflect actual outlays. Stelco states that, in order for its standards
to be corrected on an actual basis, they must be adjusted monthly and
annually to take into account appropriate variances. Stelco argues that
its true costs of production are therefore not calculated using the
cash outlay methodology of pension costs, just as the standard cost of
production is not fully reflective of their actual cost of production.
Hence, the application of such pension outlays would not properly
reflect the true costs of producing this merchandise. Stelco concludes
that the Department's long-standing precedent in this case requires the
use of CICA methodology in calculating pension costs.
Department's Position: We agree with respondent. Stelco's treatment
of its pension costs is in accordance with both Canadian and U.S. GAAP.
These accounting principles are not arbitrary, but are established as
the method deemed to be the most accurate representation of a company's
costs. Furthermore, in Canadian Steel Investigation (58 FR 37099, 37120
(July 9, 1993)), the Department determined that the appropriate
methodology for Stelco to value its pension obligations is the
methodology required by Canadian GAAP, not the cash outlay (actuarial
methodology). Petitioners' reliance on Certain Hot-Rolled Carbon Steel
Flat Products, etc., from Brazil, Final Determination, 58 FR 37091
(July 9, 1993) is misplaced because in it, the Department noted that
the respondent acknowledged that according to an independent actuary's
report, these costs (as recorded in the company's books) may not be
sufficient to cover the respondent's ultimate liability. The actuary's
report apparently indicated that the normal accounting treatment did
not fully reflect the company's cost obligations, and the respondent
did not contest that conclusion. The nature of the reports and the
nature of the cost situations involved are very different in these two
cases. Therefore, for the final results of review, we have used
Stelco's pension costs as reported and have not applied the cash outlay
methodology to determine Stelco's pension funding cost.
Comment 27: Petitioners allege that the Department made the
following ministerial errors in its margin calculation program for both
corrosion-resistant and plate products:
For corrosion-resistant: (1) The Department revised Stelco's total
cost of manufacture for cost of production purposes using the variable
name ``TCOM.'' However, in revising Stelco's general and administrative
and interest expenses, the Department failed to use the revised TCOM,
using ``TOTCOM'' instead. (2) The Department recalculated general and
administrative expenses for constructed value purposes, using the
variable name ``GNACV.'' Similarly, the Department renamed the interest
variable for CV purposes ``INTEXCV.'' However, when calculating GNA and
interest factors as a percentage of the total cost of
[[Page 12744]]
manufacture, the Department failed to use the recalculated GNACV and
the renamed INTEXCV. (3) The Department erroneously converted PACKU
into U.S. dollars twice. (4) The Department revised respondent's total
cost of manufacture for CV purposes using the variable name ``TCOM.''
Subsequently, the Department failed to use the variable ``TCOM,'' using
``TOTCOMCV'' instead.
For plate: The Department revised respondent's total cost of
manufacture for CV purposes using the variable name TCOM. However, when
the Department recalculated CV profit and total CV, the Department
failed to use the variable name TCOM, using ``TOTCOMCV'' instead.
Department's Position: We agree with petitioners and have made the
appropriate modifications to the Department's margin calculation
programs. See Stelco's Final Results Analysis Memorandum for Corrosion-
Resistant Products, pp. 3 and 4 and Stelco's Final Results Analysis
Memorandum for Plate, pg. 3.
Final Results of Review
As a result of our review, we determine the dumping margin (in
percent) for the period August 1, 1995, through July 31, 1996 to be as
follows:
------------------------------------------------------------------------
Margin
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Corrosion-Resistant Steel:
Dofasco................................................... 0.72
CCC....................................................... 0.54
Stelco.................................................... 3.48
Cut-to-Length Plate:
Algoma.................................................... \1\ 0.44
MRM....................................................... 0.00
Stelco.................................................... \1\ 0.23
------------------------------------------------------------------------
\1\ Deminimis.
The Department will determine, and the U.S. Customs Service shall
assess, antidumping duties on all appropriate entries. For assessment
purposes, we have calculated importer-specific ad valorem duty
assessment rates for the merchandise based on the ratio of the total
amount of antidumping duties calculated for the examined sales during
the POR to the total quantity of sales examined during the POR.
Individual differences between U.S. price and normal value may vary
from the percentages stated above. The Department will issue
appraisement instructions directly to the Customs Service.
Furthermore, the following deposit requirements will be effective
upon publication of these final results for all shipments of the
subject merchandise entered, or withdrawn from warehouse, for
consumption on or after the publication date provided by section
751(a)(1) of the Act: (1) The cash deposit rates for the reviewed
companies will be the rates stated above; (2) if the exporter is not a
firm covered in this review, a prior review, or the original less than
fair value (LTFV) investigation, but the manufacturer is, the cash
deposit rate will be the rate established for the most recent period
for the manufacturer of the merchandise; and (3) the cash deposit rate
for all other manufacturers or exporters will continue to be the ``all
others'' rate made effective by the final results of the 1994-1995
administrative review of this order (See Certain Corrosion-Resistant
Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate
from Canada: Final Results of Antidumping Duty Administrative Reviews
62 FR 18448 (April 15, 1997)). As noted in those final results, these
rates are the ``all others'' rates from the relevant LTFV
investigations which were 18.71 percent for corrosion-resistant steel
products and 61.88 percent for plate (See Final Determination, 60 FR
49582 (September 26, 1995)). These deposit requirements, when imposed,
shall remain in effect until publication of the final results of the
next administrative review.
Notification of Interested Parties
This notice also serves as a final reminder to importers of their
responsibility under 19 CFR 353.26 to file a certificate regarding the
reimbursement of antidumping duties prior to liquidation of the
relevant entries during this review period. Failure to comply with this
requirement could result in the Secretary's presumption that
reimbursement of the antidumping duties occurred and the subsequent
assessment of double antidumping duties.
This notice also serves as a reminder to parties subject to
administrative protective orders (APOs) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR 353.34(d)(1). Timely written notification
of the return/destruction of APO materials or conversion to judicial
protective order is hereby requested. Failure to comply with the
regulations and the terms of an APO is a sanctionable violation.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR
353.22(c)(5).
Dated: March 9, 1998.
Robert S. LaRussa
Assistant Secretary for Import Administration
[FR Doc. 98-6689 Filed 3-13-98; 8:45 am]
BILLING CODE 3510-DS-P
