[Federal Register Volume 63, Number 52 (Wednesday, March 18, 1998)]
[Notices]
[Pages 13204-13216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6884]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-421-804]
Certain Cold-Rolled Carbon Steel Flat Products From the
Netherlands: Final Results of Antidumping Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of antidumping duty administrative
review.
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SUMMARY: On September 9, 1997, the Department of Commerce (the
Department) published the preliminary results of the administrative
review of the antidumping duty order on certain cold-rolled carbon
steel flat products from the Netherlands. This review covers one
manufacturer/exporter of the subject merchandise to the United States
during the period of review (POR), August 1, 1995, through July 31,
1996. We gave interested parties an opportunity to comment on our
preliminary results. We also issued a supplemental questionnaire on
December 18, 1997, on the issues of reimbursement and level of trade.
Based on our analysis of the comments received, we have changed the
results from those presented in the preliminary results of review.
EFFECTIVE DATE: March 18, 1998.
FOR FURTHER INFORMATION CONTACT: Helen Kramer or Linda Ludwig,
Enforcement Group III, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, D.C. 20230; telephone: (202) 482-
0405 or (202) 482-3833, respectively.
SUPPLEMENTARY INFORMATION:
Background
On September 9, 1997, the Department published in the Federal
Register (62 FR 47418) the preliminary results of the administrative
review of the antidumping duty order on certain cold-rolled carbon
steel flat products from the Netherlands (58 FR 44172, August 19,
1993), as amended pursuant to Court of International Trade (CIT)
decision (61 FR 47871, September 11, 1996). On December 5, 1997, the
Department published in the Federal Register (62 FR 64354) a notice of
extension of the time limit for completion of this review until March
9, 1998. The Department has now completed this administrative review in
accordance with section 751 of the Tariff Act of 1930, as amended (the
Act).
Applicable Statute and Regulations
Unless otherwise stated, 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 19 CFR
Part 353 (1997).
Scope of This Review
The products covered by this review include cold-rolled (cold-
reduced) carbon steel flat-rolled products, of rectangular shape,
neither clad, plated nor coated with metal, whether or not painted,
varnished or coated with plastics or other nonmetallic substances, 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
7209.15.0000, 7209.16.0030, 7209.16.0060, 7209.16.0090, 7209.17.0030,
7209.17.0060, 7209.17.0090, 7209.18.1530, 7209.18.1560, 7209.18.2550,
7209.18.6000, 7209.25.0000, 7209.26.0000, 7209.27.0000, 7209.28.0000,
7209.90.0000, 7210.70.3000, 7210.90.9000, 7211.23.1500, 7211.23.2000,
7211.23.3000, 7211.23.4500, 7211.23.6030, 7211.23.6060, 7211.23.6085,
7211.29.2030, 7211.29.2090, 7211.29.4500, 7211.29.6030, 7211.29.6080,
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7215.50.0015,
7215.50.0060, 7215.50.0090, 7215.90.5000, 7217.10.1000, 7217.10.2000,
7217.10.3000, 7217.10.7000, 7217.90.1000, 7217.90.5030, 7217.90.5060,
and 7217.90.5090. Included in this review are flat-rolled products of
nonrectangular 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 from this review is certain
shadow mask steel, i.e., aluminum-killed, cold-rolled steel coil that
is open-coil annealed, has a carbon content of less than 0.002 percent,
is of 0.003 to 0.012 inch in thickness, 15 to 30 inches in width, and
has an ultra flat, isotropic surface. These 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. This review
covers entries of certain cold-rolled carbon steel flat products from
the Netherlands by Hoogovens Staal B.V. (Hoogovens).
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received case and rebuttal briefs from the
respondent (Hoogovens) and petitioners (Bethlehem Steel Corporation,
U.S. Steel Company (a Unit of USX Corporation), Inland Steel
Industries, Inc., Geneva Steel, Gulf States Steel Inc. of Alabama,
Sharon Steel Corporation, and Lukens Steel Company).
Comment 1: Petitioners argue that Hoogovens failed to segregate
properly its warranty and technical service expenses into direct and
indirect portions, as required under the law. Where a respondent fails
to report warranty and technical service expenses in direct and
indirect components, petitioners claim that the Department's practice
is to treat the expenses as direct in the U.S. market, and to deny any
adjustment in the home market. According to petitioners, the CIT has
upheld this policy on several occasions. See RHP Bearings v. United
States, 875 F. Supp. 854, 859 (CIT 1995).
Petitioners argue that the three categories of warranty and
technical service expenses Hoogovens identified and reported as part of
indirect selling expenses (the amount of credit notes issued to
customers to satisfy claims of defective merchandise, the cost of
returned merchandise, and travel
[[Page 13205]]
expenses of Quality Assurance personnel) are direct expenses, as they
are variable expenses incurred as a direct and unavoidable consequence
of sales, and vary with the quantity sold. Although Hoogovens claims
that it cannot tie these expenses to particular sales, petitioners
argue this does not excuse its improper reporting. According to
petitioners, the Court of Appeals for the Federal Circuit held in
Torrington Co. v. United States, 82 F.3d at 1051 (Fed.Cir. 1996), that
the respondent's method of allocating or recording expenses does not
alter the relationship of the expenses to the sales under
consideration, and that its failure to keep adequate records does not
justify treatment of direct expenses as indirect.
Hoogovens argues that the Department verified and accepted the
manner in which it maintains these expenses in its accounting records
and the methodology Hoogovens adopted to report these expenses in the
investigation, the two previous reviews and the preliminary results of
this review. Further, Hoogovens claims that the Department frequently
treats warranty and technical service expenses as indirect, citing
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof From France, Germany, Italy, Japan, Singapore, and the United
Kingdom; Final Results of Antidumping Duty Administrative Reviews, 62
FR 2081, 2097 (January 15, 1997) (``AFBs 1997''). Hoogovens points out
that warranty and technical service expenses incurred during the POR
frequently relate to sales made before the POR. Accordingly, Hoogovens
argues it is not possible for respondents to tie warranty expenses
incurred during the POR to specific sales made during the POR, and
therefore the Department's long-standing practice is to require
respondents to report the warranty and technical service expenses
actually incurred during the POR, regardless of when the sales were
made. Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or
Less in Outside Diameter, and Components Thereof, From Japan; Final
Results of Antidumping Duty Administrative Reviews and Termination in
Part, 62 FR 11825, 11839 (March 13, 1997). Hoogovens argues that its
warranty and technical service expenses are primarily claims for
damaged merchandise, and that these expenses are not analogous to the
types of expenses the Department generally considers to be variable
and/or associated with particular sales, i.e., post-sale price
adjustments, rebates and discounts. Moreover, Hoogovens claims its
historical experience shows there is no direct relationship between its
warranty expenses and the total quantity of sales. Therefore, Hoogovens
urges the Department to reject petitioners' argument and continue its
practice of treating Hoogovens' warranty and technical service expenses
as indirect selling expenses in both the U.S. and home markets.
Department's Position: We agree with petitioners that Hoogovens'
warranty and technical service expenses should be considered as direct
expenses. Contrary to Hoogovens' claim that it has reported these
expenses as indirect selling expenses (ISE) in both of the previous
reviews, in the first administrative review it reported them separately
as direct warranty expenses allocated to subject merchandise on the
basis of tonnage sold. There has been no change since then in the
manner in which Hoogovens records these expenses in its accounting
system, and Hoogovens did not explain why it reported them differently
in the second and third reviews. The Department verified Hoogovens'
worksheets for calculating U.S. warranty expenses in this review, in
which it reported expenses on warranty claims and travel expenses of
Quality Assurance personnel for subject merchandise. For home market
warranty expenses, Hoogovens reported expenses on claims, returned/
rejected material, and travel expenses for the home market reporting
period of December 1993 through September 1996, and calculated the
total warranty expenses as a percentage of sales.
As noted in AFBs 1997, the Department has long recognized that
warranty expenses generally cannot be reported on a transaction-
specific basis and an allocation is necessary. Although Hoogovens cites
AFBs 1997 as supporting its treatment of warranty and technical service
expenses as indirect, the relevant comment makes clear that the
expenses the Department allowed as indirect were fixed expenses for
salaries, benefits, rent, utilities and depreciation, rather than the
variable warranty expenses reported in this case. Accordingly, for the
final results of this review, we have calculated warranty expenses as a
separate direct variable expense in both the U.S. and home markets and
deducted them from the reported ISE in the respective markets. We
allocated the expense to the metric tonnage sold, rather than gross
price, to avoid the distorting effects of dumping prices in the U.S.
market and of different terms of sale in the home market. As Hoogovens
reported these expenses, we disagree with petitioners' argument that we
should invoke adverse facts available and penalize Hoogovens by denying
an adjustment to normal value (NV).
Comment 2: Petitioners argue that the Department should match
Hoogovens' sales by level of trade (LOT) on the grounds that in the
second review, Hoogovens initially claimed that it provided much
greater sales support to its end-user customers than to service
centers, but later reversed itself. Petitioners cite the statute's
requirement that an adjustment to NV be made where a difference in LOT
involves the performance of different selling activities and is
demonstrated to affect price comparability, based on a pattern of
persistent price differences between sales at different LOTs in the
country in which NV is determined. Petitioners also cite the
Department's regulations providing that the Secretary shall determine
that sales are made at different LOTs if they are made at different
marketing stages.
Petitioners argue that Hoogovens' end-user and service center
customers are at different phases of marketing. In the second review,
Hoogovens stated that steel service centers sell subject merchandise to
the same types of end-user customers as Hoogovens, and concluded that
end-user customers are further removed from Hoogovens' factory than the
service centers. In this review, Hoogovens explained that its products
are incorporated into the merchandise manufactured by the end-user
customers, and that service centers function as distributors, who
purchase steel from Hoogovens, and after slitting, rolling and/or
cutting to length, sell essentially the same product to end-user
customers.
Petitioners note that in the final results of the second review,
the Department agreed with petitioners that end-users and service
centers/distributors constitute different phases of marketing. Certain
Cold-Rolled Carbon Steel Flat Products from the Netherlands, 62 FR
18476, 18480 (April 15, 1997). Petitioners argue that information on
the record in this review supports the same finding: Hoogovens' product
brochure states that Hoogovens advises its customers regarding the best
processing options; in describing the company's research activities,
the brochure states that car manufacturers involve Hoogovens in the
design of new cars, and that Hoogovens advises manufacturers on which
steel types and qualities are best for their production process.
Section A Response at Exhibit A-14, pp. 10-11 (Public Version).
[[Page 13206]]
Petitioners point out that Hoogovens claimed in this review that it
is frequently aware of the nature of the product required by the end-
user customers of its service center customers, and those downstream
customers' processing capabilities, in order to provide the correct
quality of steel. On this basis, Hoogovens claimed that it must supply
the same support functions to service centers as to end-user customers.
However, petitioners note, in the second review Hoogovens stated that
steel service centers purchase steel from Hoogovens without having
identified an end-user customer at the time of purchase. Hoogovens also
stated that it provides far greater sales assistance to its end-user
customers than to its service center customers, because the service
centers do not know the ultimate use of the product at the time of
purchase from Hoogovens. Petitioners point out that Hoogovens has not
described any changes in the function or business of its service center
customers that would explain these contradictory statements.
Petitioners argue that the Department should not assume from a
respondent's failure to come forward with detailed information that
there are no differences in selling functions, because it may be in the
respondent's interest to refrain from claiming a LOT adjustment.
Hoogovens denies that respondents who do not claim different LOTs
have a burden to prove the negative, i.e., that no different LOTs
exist. According to Hoogovens, the Department's practice is to verify
the submitted data to ensure that respondent's position accurately
reflects its sales practices. In the current review, Hoogovens argues,
the Department asked extensive supplemental questions on the LOT issue,
to which Hoogovens responded fully, and which the Department verified.
Hoogovens claims that in virtually every other steel case in which the
issue has arisen, the Department has concluded that the respondent's
sales to end-users and steel service centers have been made at the same
LOT.
According to Hoogovens, petitioners' entire LOT argument appears to
be based on the facts of the second administrative review, rather than
on the evidence on the record in this review. However, Hoogovens points
out, petitioners fail to note that the Department concluded that
Hoogovens export price (EP) sales and home market sales were made at a
single LOT. The Department has consistently found in steel cases that
sales to end-users and service centers, while representing sales at
different phases of marketing, are not at different LOTs.
Hoogovens argues that petitioners' quotations from Hoogovens'
product brochures are irrelevant on the grounds that advertising
brochures are general descriptions of a company's operations and cannot
constitute persuasive evidence of actual selling functions performed
for different customers. According to Hoogovens, petitioners' arguments
regarding different LOTs are almost entirely focused on alleged
different selling functions performed by Hoogovens for automotive
customers, rather than on differences between other end-users and
service centers. Petitioners omit that the functions performed for
automotive customers are also described in the brochures as available
for other customers. Product/market development employees are described
as working closely with sales teams, product line employees and R&D to
deliver the best possible product without regard to customer category.
Hoogovens claims this is consistent with its statement in its
Supplemental Response (January 24, 1997, at 7) that ``it is
increasingly important for Hoogovens to provide as much product
development assistance as possible to its steel service center
customers to enable the service centers to maintain their relationships
with their end-user customers.''
Petitioners also argue that there are price differences by LOT.
According to Hoogovens, the Department has consistently held that price
differences are, by themselves, not sufficient to justify a finding of
different LOTs. Hoogovens cites AFBs 1997, 62 FR at 2109, where the
Department stated: ``In any event, differences in prices do not
determine the existence of levels of trade.'' Hoogovens further argues
that as petitioners have allegedly failed to establish that there are
different LOTs based on Hoogovens' selling functions, the Department
need not consider the relevance of differences in price levels.
Moreover, Hoogovens points out that petitioners have not argued that
there is any consistent pattern of price differences on Hoogovens
reported EP sales. Hoogovens therefore concludes that petitioners'
arguments cannot sustain a finding that there are different LOTs in the
U.S. market. Further, to the extent that petitioners are arguing that
there is one LOT in the U.S. market and two LOTs in the home market,
Hoogovens points out that petitioners have not explained to which
alleged home market LOT the U.S. LOT should be matched, or how the
Department should make any LOT adjustment between the U.S. LOT and
either of the two alleged home market LOTs.
In its January 16, 1998, response to a supplemental questionnaire
issued by the Department, Hoogovens reiterated prior claims that it
provides services based on the ultimate end use of the product rather
than the identity or category of the customer, and that it provides the
same services to all customers in the home market. Hoogovens maintains
that it is frequently aware of the nature of the end-use for which its
products are required. Hoogovens also provided examples of its product
development activities.
Petitioners commented on this response on January 30, 1998.
Petitioners continue to argue that Hoogovens failed to substantiate its
allegation that all of its customers were at the same LOT. Petitioners
claim that Hoogovens' response consists of vague, unsupported
assertions, tallies of customer visits and a small selection of
customer visit reports that were chosen by Hoogovens to support its
claim.
Department's Position: Under the URAA, a level of trade adjustment
can increase or decrease normal value. SAA at 159. Accordingly, the SAA
directs Commerce to ``require evidence from the foreign producers that
the functions performed by the sellers at the same level of trade in
the U.S. and foreign markets are similar, and that different selling
activities are actually performed at the allegedly different levels of
trade.'' Id. (Emphasis added). See also Small Diameter Circular
Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From
Germany: Preliminary Results of Antidumping Duty Administrative Review,
62 Fed. Reg. 47446, 47450 (September 9, 1997). Thus, to properly
establish the LOT of the relevant sales, Commerce specifically requests
LOT information in every antidumping proceeding conducted under the
URAA, regardless of whether a respondent sells solely to one nominal
customer category, such as service centers or end-users. Moreover,
consistent with that approach, we note that of necessity, the burden is
on a respondent to demonstrate that its categorizations of LOT are
correct. Respondent must do so by demonstrating that selling functions
for sales at allegedly the same level are substantially the same, and
that selling functions for sales at allegedly different LOTs are
substantially different.
As a matter of policy, the Department cannot allow respondents to
form their own conclusions on LOT and then submit the data to support
their conclusions. Rather, it is the Department's responsibility, not
respondent's, to determine LOTs. It is
[[Page 13207]]
not that respondents have the burden to ``prove the negative,'' as
Hoogovens states, but that respondents have a burden to demonstrate
that there is only one LOT. We make no presumption as to the number of
LOTs in a market. Rather, the respondent must provide information which
satisfactorily demonstrates what LOTs exist. Respondent's failure in
this case to provide detailed LOT information leads the Department to
conclude that it has not met its burden of proof to demonstrate that
there is in fact only one LOT, particularly in light of other
information indicating the existence of two LOTs.
To make a proper determination as to whether home market sales are
at a different LOT than U.S. sales, the Department examines whether the
home market sales are at different stages in the marketing process than
the U.S. sales. We review and compare the distribution systems in the
home market and U.S. export markets, including selling functions, class
of customer, and the extent and level of selling expenses for each
claimed LOT. An analysis of the chain of distribution and of selling
functions substantiates or invalidates claimed LOTs based on customer
classifications. Different LOTs necessarily involve differences in
selling functions, but differences in selling functions, even
substantial ones, are not alone sufficient to establish a difference in
the LOT. Different LOTs are characterized by purchasers at different
places in the chain of distribution and sellers performing
qualitatively or quantitatively different functions in selling to them.
When we compare U.S. sales to home market sales at a different LOT,
we make a level-of-trade adjustment if the difference in LOT affects
price comparability. We determine any effect on price comparability by
examining sales at different LOTs in a single market, the home market.
To quantify the price differences, we calculate the difference in the
average of the net prices of the same models sold at different LOTs. We
use the average difference in net prices to adjust the NV when it is
based on a LOT different from that of the export sale. If there is a
pattern of no price differences, then the difference in LOT does not
have a price effect, and no adjustment is necessary.
As stated above, the Department begins its LOT analysis with an
examination of the different distribution systems, or channels of
trade. Normally, transactions at different LOTs occur at different
points in the distribution system, which is reflected in the commercial
designation of customer categories, such as distributor or service
center, and the selling functions that support such commercial
designations. In the present case, Hoogovens sold to end-users and
service centers in both the U.S. and home markets. It is undisputed
that these transactions constitute sales through different channels of
trade.
With respect to the selling functions performed, we conducted a
comprehensive examination of the available information provided by
Hoogovens in this case. The Department requested information on selling
functions in the original questionnaire and two supplemental
questionnaires. Based upon the information submitted on the record, we
are unable to determine conclusively whether the specific selling
functions performed by Hoogovens with respect to sales to the service
centers and end-users reflect sales at the same LOT.
In this review, Hoogovens has repeatedly claimed that it provides
the same technical and warranty services to all customers in all
markets. See e.g., January 24, 1997 response at 7. However, as the
Department has stated, different LOTs may be established where a
respondent performs functions that are the same with respect to all
markets and all customers, as Hoogovens claims in this case. The
critical element in such a case is the degree to which the selling
functions are performed.
Significantly, on this important issue, Hoogovens stated in the
previous review that ``increased quality assurance and product
development assistance'' may be the basis for treatment of end-user
sales and service center sales as different LOTs. January 24, 1997
response at 12-13 (citing to its Section A response in the 1994-95
review). In this review, Hoogovens claims that the quantitative aspect
of the selling functions performed varies only by customer, not
customer category. Hoogovens also states that the services performed
vary based upon the end-use of the product, but that performance of the
same services does not vary by customer category. Id. at 11.
The statements and evidence Hoogovens has elected to place on the
record indicate an ability to isolate data on selling functions and
determine how they vary in kind and degree by customer category or end-
use. Despite that apparent ability, Hoogovens declined to provide all
of the detailed information which the Department requested for purposes
of conducting a LOT analysis. As noted above, respondent's failure to
provide detailed LOT information has left the Department with an
inadequate record on this issue. For example, the Department
specifically requested that Hoogovens ``describe in detail the nature
and extent of the selling functions performed.'' January 24, 1997
response at 9. The Department required that ``[f]or each selling
function, describe in detail whether it is performed to a greater
degree, or in a different manner, depending on customer type.'' Id. By
its own admission, Hoogovens performed varying levels of technical and
quality assurance assistance. Nevertheless, Hoogovens did not provide
the information necessary for the Department to make a proper
evaluation of LOT and assess the assertions made by Hoogovens. Because
Hoogovens has not provided an adequate explanation of the services it
performs, nor demonstrated that variations in services supplied are not
related to customer category, the Department is unable to assess the
validity of Hoogovens' claim that it performs the same services for all
customers in all markets.
Furthermore, other evidence on the record suggests that there are
different selling functions performed based on customer category in
this case. For example, while Hoogovens claims to provide the same
support to all customers, it acknowledges that one large service center
customer in the home market has itself received several important
quality certifications in the automotive and other industries.
Hoogovens claims that these certifications require assurance of
chemical and mechanical properties. However, other information on the
record shows that this customer also provides special delivery
services, as well as further manufacturing. In addition, this customer
itself guarantees the quality of its products and has a metallurgist on
its staff. All of this suggests that there is less need for Hoogovens
to provide technical support services to this service center and its
customers than to Hoogovens' own end-user customers. Further, despite
our requests, Hoogovens did not provide any detailed analysis or
description of the precise nature of product research and technical
support Hoogovens provides to various customers and amount of expenses
incurred.
Further, Hoogovens' responses appear contradictory. Hoogovens
claims that its quality assurance department has the same
representatives assigned to all home market customers. See January 16,
1998 submission at 19. But Hoogovens also states that quality assurance
representatives are assigned on the basis of the ultimate application
of the
[[Page 13208]]
product. Id. The Department is unable to determine how these
representatives are assigned and whether their assignments reflect a
greater level of technical and quality assurance assistance to end-
users and whether greater expenses are incurred for either service
centers or end-users. Moreover, Hoogovens has stated (1) that service
centers frequently do not know the end-use of the product at the time
of purchase from Hoogovens and (2) that service centers assume the risk
of finding a customer for the material. See January 24, 1997 submission
at 14. These statements demonstrate that Hoogovens frequently does not
know the identity of the service center's customer and thus cannot
provide technical services in support of such sales. Rather, these
statements support Hoogovens' earlier position that it provides far
greater sales assistance to end-user customers than to its service
center customers.
Finally, we find the evidence concerning the number of visits to
customers and the meetings with customers to be unpersuasive. The
number of visits is not a useful tool for examination. In some
instances, Hoogovens has common customers with service centers, thereby
confusing the issue of whether the visit relates to products purchased
from Hoogovens or from the service center. Second, the evidence on
meetings with customers submitted by Hoogovens does not establish that
technical services and quality assurance assistance are ``the same for
all customers.'' A comparison of the selling functions performed based
upon a full description of such functions is necessary for the
Department to make that conclusion. Further, the limited number of
reports relative to the size of the customer base does not provide an
adequate reflection of the circumstances in this case and cannot
substitute for the description of the selling functions requested by
the Department. Thus, Hoogovens has failed to meet its burden of proof
establishing that there is only one LOT in the home market.
In sum, the evidence on the record demonstrates that, both in the
home market and in the United States, sales occur at two different
stages in the marketing process and to two different customer
categories (i.e., service centers and end-users). Significantly in this
case, the Department has also determined that a pattern of consistent
price differences exists with respect to sales occurring at these two
different stages of marketing in the home market. In fact, Hoogovens
has acknowledged that one primary factor governing prices charged to
end-users and service centers is the ``historic commercial reasons
related to the relative functions of service centers and end-users.''
January 24, 1997 submission at 13. Therefore, on the basis of the facts
available, we are treating EP and home market sales to end-users as a
different LOT than home market sales to service centers. Further, since
the basis for distinguishing LOT is the provision of technical and
warranty services, and the LOT of the CEP sales is the LOT of the
affiliated service centers, we are treating all CEP sales as sales to
service centers and this LOT as equivalent to the home market service
center LOT. Where it is not possible to match a U.S. sale to a home
market sale at the same LOT, we have made a LOT adjustment based on our
comparison of the weighted-average net prices, by product, of
merchandise sold in the home market to service centers to the weighted-
average net prices, by product, of merchandise sold to end-users. When
a U.S. sale to an end-user is compared to a home market sale to a
service center, the NV is adjusted upward; conversely, when a U.S. sale
to a service center is compared to a home market sale to an end-user,
the NV is adjusted downward. The CEP offset issue is addressed in the
following comment.
Comment 3: Hoogovens argues that in the preliminary results the
Department improperly failed to make a CEP offset adjustment to NV
pursuant to section 773 (a)(7)(B) of the Act when comparing Hoogovens'
reported CEP sales to NV, and that this failure was based on a
misunderstanding of the facts of this review and on a misinterpretation
of both the statute and the Department's current practice.
As the Department explained in the preliminary results, in
identifying the LOT for CEP sales, its current policy is to consider
only the selling activities reflected in the U.S. price after deduction
of expenses and profit under section 772(d) of the Act. 62 FR 47421. In
comparing the CEP LOT to home market sales, the Department considers
the selling functions reflected in the starting price of the home
market sales before any adjustments. According to Hoogovens, the
Department makes a CEP offset when it finds after this comparison that
the unadjusted home market price is at a more advanced LOT than the
adjusted CEP.
Hoogovens argues that the Department's conclusion in the
preliminary results that there were no differences between the adjusted
CEP and the unadjusted home market price is not supported by the facts.
62 FR 47421. Hoogovens claims that in this case, this comparison
``necessarily results in a comparison of sales at different levels of
trade,'' because the starting price of the home market sales includes
``many selling activities not reflected in the adjusted CEP price.''
These include indirect selling activities, indirect warranty and
technical service expenses, and freight and delivery arrangements. All
of these types of expenses, incurred both in the Netherlands and the
United States, have been deducted from the net CEP used to establish
the LOT for CEP sales. Hoogovens concludes that the home market LOT
must be deemed to be a different, more advanced LOT than the adjusted
CEP LOT. Case Brief at 10.
Hoogovens further argues that there were no sales in the home
market at a LOT equivalent to the CEP LOT, and that all sales in the
home market were at the same LOT. Hoogovens concludes that in the
absence of data to quantify a LOT adjustment to account for the
difference between the CEP LOT and the home market LOT, the Department
should make a CEP offset adjustment to NV. Case Brief at 11.
Petitioners argue that the Department properly denied a CEP offset
adjustment, inasmuch as Hoogovens has failed to provide information in
the current review that would allow the Department to determine what
selling functions are reflected in the price of either home market
sales or the adjusted CEP. The Department's questionnaire instructed
Hoogovens to provide a chart showing all selling functions provided for
each customer category, and a list separately reporting those expenses
deducted from U.S. price, with a narrative explanation detailing each
selling function noted within each customer group. Questionnaire at
Addendum I (Question 9.B.). Hoogovens failed to provide any chart
regarding CEP sales, or any list or meaningful narrative separately
detailing the expenses and selling functions deducted from U.S. price.
See Section A Response at 20 (Public Version). Petitioners argue
further that Hoogovens also failed to provide any meaningful analysis
of whether its selling functions performed in the Netherlands for its
U.S. sales were associated with economic activities in the United
States, whether these functions related to the sale to the unaffiliated
customer, and whether the expenses associated with these functions
should be deducted from CEP. Petitioners therefore conclude that the
Department has no basis to determine that there is a distinct CEP LOT.
Petitioners further comment that none of the three selling
activities cited by Hoogovens, i.e., indirect selling activities,
indirect warranty and
[[Page 13209]]
technical service expenses, and freight and delivery arrangements,
provides any basis for treating the CEP as a distinct LOT. In the first
place, petitioners point out, the Department did not deduct ``indirect
selling activities'' incurred in the Netherlands from CEP. See
Preliminary Results, 62 FR at 47419. This was one of the reasons the
Department did not allow an offset in the preliminary results--namely,
because of its finding that the indirect selling functions incurred at
the sales office in IJmuiden were common to both the adjusted CEP and
the home market price.
Second, petitioners continue, Hoogovens' warranty and technical
service expenses are not properly considered as indirect expenses at
all. Accordingly, the Department may choose to account for such
expenses under the circumstance of sale provision, in which case they
are not removed from the adjusted CEP for purposes of the LOT analysis.
Even if they are removed from the adjusted CEP, petitioners point out
that Hoogovens has not shown that the significance of these functions
would justify a finding of different LOTs.
Finally, petitioners argue, costs and expenses associated with
freight and delivery are not deducted under section 772(d) and thus are
not removed from the adjusted CEP for purposes of the LOT analysis.
Neither are they removed from the home market price for purposes of
that analysis. See the Department's regulations, 62 FR at 27370; 19
U.S.C. Sec. 1677b(a)(6). Petitioners conclude that Hoogovens' assertion
that these expenses are reflected in the home market starting price but
deducted from the adjusted CEP is therefore false; on the contrary,
such expenses are common to both the adjusted CEP and the starting
price in the home market, and provide no basis for a CEP offset
adjustment.
Department's Position: Section 773(a)(7)(B) of the Act provides for
a CEP offset when: (1) NV is determined at a different LOT than the CEP
LOT; and (2) the data available do not provide an appropriate basis for
quantifying the amount of a LOT adjustment. Section 351.412(f)(1) of
the Department's new regulations (62 FR 27296; May 19, 1997) provides
that the Department will grant a CEP offset only where NV is determined
at a more advanced LOT than the CEP LOT, and despite the fact that
respondent has cooperated to the best of its ability, the data
available do not provide an appropriate basis to determine whether the
difference in LOT affects price comparability. ``More advanced LOT''
refers to a more advanced stage of marketing, which generally means
that the home market LOT is more remote from the factory door than the
CEP LOT. A more advanced, or remote, LOT is typically characterized by
more selling activities and greater selling expenses.
Section 773(a)(7)(B) of the Act defines the CEP offset as the
amount of ISE included in NV, up to the amount of ISE deducted in
calculating the CEP. ISE in the CEP offset are selling expenses, other
than direct selling expenses or assumed expenses, that the seller would
incur regardless of whether particular sales were made, but that are
attributable, in whole or in part, to such sales.
We adjusted the starting prices of the affiliated service center's
sales to their first unaffiliated customers by deducting U.S. selling
expenses, costs of further manufacturing and an amount for profits,
which yields an estimate of the prices Hoogovens would have charged the
service centers if they were not affiliated.
Hoogovens has suggested that the CEP is in effect an ex-factory
transfer price to its U.S. affiliate. This is an inaccurate
characterization for several reasons. First, transfer prices do not
enter into our analysis because the CEP is a calculated price derived
from the price to the first unaffiliated customer in the United States.
Second, the deductions we make under section 772(d) of the Act do not
include all possible direct and indirect selling expenses. These
deductions remove only expenses associated with economic activities in
the United States that support the U.S. resale. The CEP is not a price
exclusive of all selling expenses because it contains the same type of
selling expenses as a directly observed export price. Accordingly, the
Department's new regulations clearly direct us not to deduct from the
starting price any expense ``related solely to the sale to an
affiliated importer in the United States,'' i.e., those expenses that
support the sale from the exporter to its U.S. affiliate. 19 CFR
351.402. We may, however, make a circumstances of sale adjustment to
normal value for such expenses, if they are direct expenses, under
section 773(a)(6)(C)(iii) of the Act.
Petitioners correctly observe that Hoogovens did not answer the
Department's questions on LOT with regard to CEP sales, and did not
provide an analysis of selling functions associated with CEP sales, nor
show how they differ from home market sales. Consequently, the
Department has based its analysis in the final results on the facts
otherwise on the record in this review.
In calculating CEP, the Department deducted the imputed credit
expenses incurred by the Rafferty-Brown companies as direct selling
expenses. Hoogovens' affiliated companies did not report any warranty
or technical service expenses for the U.S. resales, and we did not
deduct any allocated warranty expenses incurred in the Netherlands for
sales to the Rafferty-Brown companies. In accordance with section
772(d)(1), the Department deducted ISE and imputed inventory carrying
costs (``ICC'') incurred in the United States by the Rafferty-Brown
companies for sales to the first unaffiliated buyers to arrive at the
CEP. For the final results of this review, the Department did not
deduct ISE and ICC incurred in the Netherlands, nor expenses of the
U.S. sales office from the adjusted CEP on the grounds that these are
expenses associated with the sale to Hoogovens' U.S. affiliates, rather
than with the sales by the affiliates to the first unaffiliated buyers.
Thus, the CEP includes Hoogovens' warranty and technical service
expenses for U.S. sales, as well as ISE, including the expenses of the
sales offices in IJmuiden and New York, and ICC incurred in connection
with the sale to the affiliated service center.
Hoogovens' starting price for home market sales includes direct
warranty and technical service expenses, ICC, the expenses of the sales
office in IJmuiden, and other indirect selling expenses incurred for
home market sales. Thus, for the purposes of the LOT analysis, there is
no distinguishable difference between the selling functions included in
the home market starting price and the selling functions included in
the CEP. On the basis of this analysis, the Department has determined
that there is no basis for Hoogovens' claim that home market sales are
at a different, more advanced LOT than the adjusted CEP sales. When a
CEP sale could not be matched to a home market sale to a service
center, we made a LOT adjustment. Therefore, the issue of a CEP offset
is moot.
Comment 4: Hoogovens claims that the Department's decision in the
preliminary results to deny an offset to the reported U.S. ISE for the
cost of financing cash deposits of estimated antidumping duties during
the POR is incorrect, and that the Department should continue to grant
this adjustment for the reasons stated in the bearings determinations.
See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished,
From Japan, and Tapered Roller Bearings, Four Inches or less in Outside
Diameter, and Components Thereof, From Japan; Final Results of
Antidumping Duty
[[Page 13210]]
Administrative Reviews and Termination in Part, 62 FR 11825, 11826-30
(March 13, 1997).
Hoogovens cities the preliminary results of this review, in which
the Department stated that there may not be opportunity costs
associated with paying cash deposits and that some respondents may not
require loans to cover deposits. 62 FR at 47419 (September 9, 1997).
Under this rationale, according to Hoogovens, the Department should not
make adjustments for the opportunity costs of carrying either inventory
or credit. Hoogovens argues that the opportunity cost of tying
considerable sums up as cash deposits exists regardless of whether a
loan must be obtained to cover the cost.
Petitioners urge the Department to adhere to its decision to deny
this adjustment, supporting the Department's arguments that it is
unclear that opportunity costs are incurred, given the fungibility of
money, and that borrowing funds for one activity may simply mean that
funds need not be borrowed for another activity. Petitioners argue that
the difficulty in determining whether such opportunity costs exist, how
such costs (if any) should be quantified, and whether such costs are
appropriately accounted for in the calculation of ISE, makes an
adjustment inappropriate. Petitioners contend that the Department has a
longstanding policy of not making an adjustment to account for the time
value of every deduction from sales price, such as freight charges,
rebates, etc. Similarly, petitioners deduce, the multitude of
arrangements whereby cash deposits are paid would make an inquiry into
opportunity costs associated with such deposits extraordinarily
complicated and in all likelihood inaccurate.
Petitioners further argue that the obligation to pay cash deposits
arises only where a respondent has engaged in unfair trade activity in
the United States, something that is within the respondent's control.
Moreover, under the statute, interest accrues only for any overpayment
or underpayment of cash deposits, meaning that the importer does not
receive interest for the amount of its deposits that reflect the duty
finally determined. As such, petitioners argue, the payment of cash
deposits cannot be seen merely as an expense incident to an antidumping
proceeding, such as lawyers' fees; rather, such payment reflects a
current obligation resulting from a respondent's unfair trading
activity in the United States. In petitioners' view, allowing a
respondent to reap a benefit in its margin calculation based on payment
of such deposits would be inconsistent with the fundamental goal of the
statute--i.e., to discourage unfair trade and provide a level playing
field on which domestic producers can compete.
According to petitioners, the facts of the present case demonstrate
why an adjustment for interest in financing cash deposits is
inappropriate: Hoogovens has sought to reduce the ISE of the Rafferty-
Brown companies (Hoogovens' affiliated U.S. service centers) based on
``imputed'' interest in financing cash deposits, notwithstanding the
fact that neither company ever paid any cash deposits. In fact,
petitioners point out, Hoogovens acknowledged that ``HSUSA, as sales
agent and importer of record for Hoogovens' sales, paid cash deposits
on entries for sales during the period of review, using funds
transferred periodically by HSBV to HSUSA for that purpose.''
Hoogovens' Response to the Department's Supplemental Questionnaire
(Public Version, June 26, 1997 at 1).
Petitioners argue that the Rafferty-Brown companies incurred no
expenses, imputed or otherwise, related to the payment of cash
deposits, and there is no basis in fact or logic for making any
adjustment to their ISE. Petitioners conclude that Hoogovens' claim
points to a fundamental defect in the Department's past practice:
parties could claim adjustments without any showing that they incurred
opportunity costs, that such costs have any relationship to their
reported ISE, or how such costs may be quantified.
Department's Position: We agree with petitioners that we should
deny an adjustment to Hoogovens' U.S. ISE for expenses which Hoogoven's
claims are related to the financing of cash deposits. The statute does
not contain a precise definition of what constitutes a selling expense.
Instead, Congress gave the administering authority discretion in this
area. It is a matter of policy whether we consider there to be any
financing expenses associated with cash deposits. We recognize that we
have, to a limited extent, allowed deductions of such expenses in past
reviews of the orders on AFBs. However, we have reconsidered our
position on this matter and have concluded that this practice is
inappropriate.
We have long maintained, and continue to maintain, that antidumping
duties, and cash deposits of antidumping duties, are not expenses that
we should deduct from U.S. price. To do so would involve a circular
logic that could result in an unending spiral of deductions for an
amount that is intended to represent the actual offset for the dumping.
We have also declined to deduct legal fees associated with
participation in an antidumping case, reasoning that such expenses are
incurred solely as a result of the existence of the antidumping duty
order. Antifriction Bearings (Other Than Tapered Roller Bearings) and
Parts Thereof From France, et al.; Final Results of Antidumping Duty
Administrative Reviews, 57 FR 28360 (June 24, 1992). Underlying our
logic in both these instances is an attempt to distinguish between
business expenses that arise from economic activities in the United
States and business expenses that are direct, inevitable consequences
of the antidumping duty order.
Financial expenses allegedly associated with cash deposits are not
a direct, inevitable consequence of an antidumping duty order. As we
stated in the preliminary results: ``money is fungible within a
corporate entity. Thus, if an importer acquires a loan to cover one
operating cost, that may simply mean that it will not be necessary to
borrow money to cover a different operating cost.'' See Preliminary
Results at 47,419. Companies may choose to meet obligations for cash
deposits in a variety of ways that rely on existing capital resources
or that require raising new resources through debt or equity. For
example, companies may choose to pay deposits by using cash on hand,
obtaining loans, increasing sales revenues, or raising capital through
the sale of equity shares. In fact, companies face these choices every
day regarding all their expenses and financial obligations. There is
nothing inevitable about a company having to finance cash deposits and
there is no way for the Department to trace the motivation or use of
such funds even if it were inevitable.
In a different context, we have made similar observations. For
example, we stated that ``debt is fungible and corporations can shift
debt and its related expenses toward or away from subsidiaries in order
to manage profit'' (see Ferrosilicon from Brazil; Final Results of
Antidumping Duty Administrative Review, 61 FR at 59412, regarding
whether the Department should allocate debt to specific divisions of a
corporation).
So, while under the statute we may allow a limited exemption from
deductions from U.S. price for cash deposits themselves and legal fees
associated with participation in dumping cases, we do not see a sound
basis for extending this exemption to financing expenses allegedly
associated with financing cash deposits. By the same token, for the
reasons stated above,
[[Page 13211]]
we would not allow an offset for financing the payment of legal fees
associated with participation in a dumping case.
Finally, we also determine that we should not use an imputed amount
that would theoretically be associated with financing of cash deposits.
There is no real opportunity cost associated with cash deposits when
the paying of such deposits is a precondition for doing business in the
United States. Like taxes, rent, and salaries, cash deposits are simply
a financial obligation of doing business. Companies cannot choose not
to pay cash deposits if they want to import nor can they dictate the
terms, conditions, or timing of such payments. By contrast, we impute
credit and inventory carrying costs when companies do not show an
actual expense in their records, because companies have it within their
discretion to provide different payment terms to different customers
and to hold different inventory balances for different markets. We
impute costs in these circumstances as a means of comparing different
conditions of sale in different markets.
Comment 5: Petitioners argue that the Department should change its
methodology for calculating profit for CV and CEP and revert to the
method used in the previous review, accepting Hoogovens' reported
profit for CV, which Hoogovens calculated by subtracting the weighted-
average actual cost from the weighted-average net price for home market
sales of subject merchandise during the POR. Hoogovens divided the
profit per ton by the weighted-average actual cost to arrive at the
reported profit rate. Petitioners object that instead of using
Hoogovens' reported profit rate, the Department calculated it using the
1995 Profit and Loss Statement for Hoogovens' Steel Division with
respect to the same general category of products as the subject
merchandise, which was the same source the Department used to calculate
the CEP profit ratio under section 772(d)(3) of the Act.
Petitioners argue that the Department's recalculation of the CV
profit figure is unreasonable, and does not account for the actual
amounts incurred for profits in connection with the production and sale
of the foreign like product, as required by the statute. In addition,
petitioners claim, the Department's use of a financial report that
includes non-subject merchandise to calculate the CEP profit ratio is
unnecessary and inconsistent with the statutory preference for
information relating only to the subject merchandise and foreign like
product. 19 U.S.C. Sec. 1677a(f)(2)(C). Further, petitioners argue,
there is no reason why the Department should use the same profit figure
for both CV and CEP, particularly given that the two figures are
typically calculated on a different basis. Petitioners claim that
Hoogovens' sales and CV files contain all of the information needed to
calculate the CEP profit ratio, with the exception of the cost of goods
sold of merchandise sold in the home market, and that this figure can
be obtained using the data supplied by Hoogovens in its calculation of
CV profit.
Hoogovens argues that the Department's calculation of CEP profit
was consistent with its policy bulletin, Calculation of Profit for
Constructed Export Price Transactions, Policy Bulletin No. 97/1
(September 4, 1997), and should not be changed for the final results.
This bulletin explains that section 772(f) of the Act provides a
hierarchy of three alternative methods for calculating CEP profit and
that the first of these alternatives ``reflects the expense data
available to the Department when conducting a sales below cost
investigation.'' Id. at 4. Hoogovens points out that since there is no
below-cost investigation in this case, the Department must use the next
alternatives, described in the policy bulletin as ``expense and profit
information derived from financial reports provided by the
respondent.'' As explained in the Department's analysis memorandum, the
Department therefore ``derived total profit and total expenses from the
audited 1995 profit and loss statement of Hoogovens' steel division
(Hoogovens Staalbedrijf),'' which was the ``narrowest category for
which [the Department] had information on the record in this review.''
Analysis Memorandum (September 2, 1997) at 7.
Hoogovens also argues that petitioners' suggested methodology of
using information from Hoogovens' CV files to calculate the cost of
goods sold in the home market may be inaccurate because of differences
in product mix and timing.
Department's Position: We disagree with petitioners that we should
use cost data from the CV file to calculate CEP profit. The calculation
of total actual profit under section 772(f)(2)(D) of the statute
includes all revenues and expenses resulting from the respondent's U.S.
sales and home market sales. However, the calculated profit for CV is
only the profit on Hoogovens' home market sales of subject merchandise.
It is also inappropriate to use the calculated weighted-average cost
for CV as a substitute for the cost of goods sold in the home market,
as it includes only the costs of the products sold to the U.S. market,
and thus is not representative of the home market product mix.
Moreover, because Hoogovens sells to some customers under long-term
contracts, the period for reporting home market sales is much longer
than the POR. Consequently, there may be more variation in the costs of
home market sales than in the costs of U.S. sales, even for the same
products. However, the Department agrees with petitioners that it
should use the CV profit submitted by Hoogovens to calculate CV instead
of the profit rate the Department calculated for the preliminary
results, because the former more accurately reflects the scope of
merchandise covered in this review. For the final results, the
Department used the weighted average profit from the audited 1995 and
1996 profit and loss statements of Hoogovens' steel division to
calculate CEP profit, and Hoogovens' reported CV profit ratio to
calculate CV.
Comment 6: Hoogovens argues that the Department improperly deducted
from CEP expenses incurred in the Netherlands that are attributable to
U.S. sales. For the preliminary results, the Department recalculated
Hoogovens' reported ISE to exclude ISE incurred in the Netherlands and
allocated to U.S. sales of subject merchandise, on the grounds that
they did not relate to economic activities in the United States. 62 FR
at 47419. The Department then deducted from CEP the expenses of
Hoogovens' U.S. sales office and warranty expenses for U.S. sales
claimed as indirect. According to Hoogovens, these expenses were not
incurred with respect to sales by the Rafferty-Brown companies to the
first unaffiliated customers, and these expenses should therefore not
be deducted from CEP.
Hoogovens cites the Statement of Administrative Action Accompanying
the Uruguay Round Agreements (SAA) as stating that CEP will be
calculated by reducing the price of the first sale to an unaffiliated
customer in the United States by certain expenses and profit associated
with economic activities occurring in the United States. SAA at 823.
Hoogovens argues that the Department has consistently interpreted this
provision to permit the deduction from CEP only of those expenses
incurred with respect to the sale to the unaffiliated CEP customer.
According to Hoogovens, the activities of its U.S. sales office, HSUSA,
in connection with Hoogovens' U.S. sales are limited to the sales to
the unaffiliated customer in the case of EP sales, and the sales to the
affiliated Rafferty-Brown companies in
[[Page 13212]]
the case of CEP sales. Because HSUSA plays no role in the sales by the
Rafferty-Brown companies to the unaffiliated customer, Hoogovens argues
that the Department should not deduct HSUSA's expenses from U.S. price
in CEP situations. See Grey Portland Cement and Clinker from Mexico:
Final Results of Antidumping Duty Administrative Review, 62 FR 17148,
17168 (April 9, 1997).
Similarly, Hoogovens argues, warranty and technical service
expenses incurred in the Netherlands for U.S. sales are incurred
primarily with respect to EP sales and should therefore not be deducted
in calculating U.S. price for CEP sales. Hoogovens claims that although
some of these expenses were incurred in connection with sales to the
Rafferty-Brown companies, these expenses were not related to the
Rafferty-Brown companies' sales to the unaffiliated CEP customers.
Hoogovens concludes that under the Department's interpretation of
section 772(d), these expenses cannot be said to constitute economic
activity in the United States.
Petitioners argue that expenses incurred by HSUSA must be deducted
from CEP, citing the statute's requirement that the CEP be reduced by
``any selling expenses'' that are ``incurred by or for the account of
the producer or exporter, or the affiliated seller in the United
States, in selling the subject merchandise.'' 19 U.S.C. Sec. 1677a(d).
According to petitioners, each of the cases Hoogovens relied upon in
its argument dealt with ISE incurred in the home market, and the
Department's practice is to deduct such expenses from CEP only where it
finds that they are associated with U.S. economic activity, and that
they do not relate solely to the sale to an affiliated importer.
However, petitioners argue, none of the cases cited by Hoogovens holds
that selling expenses incurred in the United States by a U.S. affiliate
will not be deducted from CEP.
Department's Position: We agree with respondent. The expenses
deducted under section 772(d) of the Act and the profit associated with
those expenses represent activities undertaken in the United States to
support the U.S. resale to an unaffiliated customer. Generally, these
activities are undertaken by the affiliated importer and occur after
the transaction between the exporter and the importer.
In the current case, the importer of record, HSUSA, is not a
reseller. HSUSA does not take title to the subject merchandise; rather,
in the case of CEP sales, the merchandise is shipped directly by
Hoogovens to the affiliated service centers, the Rafferty-Brown
companies. The Department's new regulations clearly direct us not to
deduct from the starting price any expense ``related solely to the sale
to an affiliated importer in the United States''; i.e., those expenses
that support the sale from the exporter to its U.S. affiliate. 19 CFR
351.402. In this case, the expenses incurred by HSUSA, which are
consolidated with those of Hoogovens in the latters accounting system,
are related to sales to the Rafferty-Brown companies and to export
price sales. Hoogovens reported these expenses as part of the selling
expenses incurred in the home market to support U.S. sales. Therefore
for these final results, we have deducted only the reported ISE
incurred by the Rafferty-Brown companies from CEP.
Comment 7: Hoogovens argues that the Department's presumption that
duty absorption will occur on those sales for which the Department
found margins, together with its insistence that absorption can only be
rebutted by evidence of a separate agreement that the unaffiliated
customer will be responsible for antidumping duties, are contrary to
Congress' intent that an analysis be performed to determine whether
duty absorption is occurring. According to Hoogovens, had Congress
intended that duty absorption would be presumed in all cases in which
margins exist, Congress could have instructed the International Trade
Commission (ITC) to assume that absorption occurred with respect to all
sales on which margins were found, obviating the need for the
Department to make an absorption determination.
Hoogovens further argues that there is no basis in either law or
logic for ignoring the majority of the sales on which no margins were
found. According to Hoogovens, the issue of duty absorption must be
based on an examination of the respondent's overall sales practices in
the U.S. market, including all sales that are examined by the
Department in its reviews. The antidumping law does not require that
absorption be determined either on a sale-specific basis or solely by
reference to sales on which margins exist. Hoogovens contends that the
Department should not find that absorption is occurring where a
respondent sells to unaffiliated customers at prices which are high
enough to cover any antidumping duties that may be assessed on some of
the respondent's sales. The downward trend in Hoogovens' margins should
be considered as prima facie evidence that Hoogovens is passing
antidumping duties on to its customers. Finally, Hoogovens concludes,
given that it is collecting from its unaffiliated customers revenue in
excess of the fair value of the subject merchandise that is more than
twice the amount of the antidumping duties calculated in the
preliminary results of this review, it is unreasonable to conclude that
it is absorbing any of the antidumping duties to be assessed in this
review.
Petitioners argue that Hoogovens' objections are untimely and
incorrect. In its preliminary results, the Department stated that if
interested parties wish to submit evidence that the unaffiliated
purchasers in the United States will pay the ultimately assessed duty,
they must do so no later than 15 days after the publication of the
preliminary results. 62 FR at 47422. Hoogovens submitted no evidence
within the time allotted by the Department to rebut the presumption
that absorption of antidumping duties is occurring. According to
petitioners, in another case the Department specifically rejected the
argument that it should consider sales with prices above fair value in
conducting its absorption inquiry:
We disagree * * * that negative and positive margins should be
aggregated. * * * The Department treats so-called ``negative''
margins as being equal to zero in calculating a weighted-average
margin because otherwise exporters would be able to mask their
dumped sales with non-dumped sales. It would be inconsistent on one
hand to calculate margins using positive margin sales which is the
Department's practice, and then argue, in effect, that there are no
margins because credit should be given for non-margin sales. Thus,
those sales which are used to determine whether there are margins
should also be used to determine whether there is duty absorption.
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From the
United Kingdom, Final Results of Antidumping Duty Administrative
Reviews, 62 FR 18744, 18745 (April 17, 1997).
Petitioners contend that the Department's policy makes perfect
sense, in that under Hoogovens' approach, respondents could shield
unfairly traded sales of a particular product through sales of other
products that happen to be fairly traded. According to petitioners,
this would open an enormous loophole in the law.
Department's Position: We agree with petitioners for the reasons
cited, and have not changed our approach for the final results of this
review. We have determined that there are dumping margins on 93.0
percent of Hoogovens' U.S. sales by quantity. In the absence of any
information on the record that the unaffiliated purchasers in the
United States will pay the ultimately assessed duties, the Department
finds that respondent has absorbed antidumping duties on 93 percent of
its U.S. sales.
[[Page 13213]]
Reimbursement
Given the circumstances of this case, the Department has continued
to reconsider and refine its policy on reimbursement pursuant to the
reimbursement regulation. Accordingly, on December 18, 1997, the
Department issued a supplemental questionnaire addressing the
reimbursement issue. We requested that parties comment on the following
proposed statement of policy:
The Department continues to presume that exporters and producers
1 do not reimburse importers for antidumping duties,
absent direct evidence of such activity. However, where the
Department determines in the final results of an administrative
review that an exporter or producer has engaged in the practice of
reimbursing the importer, the Department will presume that the
company has continued to engage in such activity in subsequent
reviews, absent a demonstration to the contrary. Accordingly, if the
producer or exporter claims that the reimbursement situation no
longer exists, such producer or exporter must satisfy the Department
that (1) the importer is solely responsible for the payment of the
antidumping duty, and (2) either (a) the importer was, and continues
to be, financially able to pay the antidumping duties, or (b) a
corporate event, such as a corporate restructuring or a capital
infusion, enabled the importer to generate enough income to pay such
duty. December 18, 1997 Supplemental Questionnaire.
\1\ Manufacturer, producer, seller, or exporter, as set forth in
19 CFR 351.402(f)(2).
---------------------------------------------------------------------------
In its response dated January 16, 1998, Hoogovens argues that a
presumption on the Department's part that reimbursement will recur if
there is a finding of reimbursement in the final results of an
administrative review is a radical departure from the express terms of
the reimbursement regulation. According to Hoogovens, the express terms
of the regulation permit the Department to presume reimbursement only
in those cases where the importer fails to file a certificate prior to
liquidation of entries stating that it has not been reimbursed for
antidumping duties. Hoogovens claims that the inclusion in section
353.26(c) of one instance in which reimbursement may be presumed would
appear to exclude the Department's authority to apply other
presumptions. In Hoogovens' view, to create a presumption found nowhere
in the terms of the reimbursement regulation is also fundamentally
inconsistent with the Department's application of the regulation, which
in both this and other cases has turned on whether the factual
circumstances satisfy the precise, literal language of the regulation.
Secondly, Hoogovens argues that the presumption that reimbursement
will occur in subsequent reviews is inconsistent with the Department's
long-standing position that ``[e]ach antidumping review is a separate
proceeding covering merchandise entering the United States during a
specific time period, and the facts of each review are considered
separately based on information submitted for that proceeding.''
Sulfanilic Acid from the People's Republic of China; Final Results and
Partial Rescission of Antidumping Duty Administrative Review, 61 FR
53702, 53707 (October 15, 1996). Hoogovens concludes that a departure
from this rule in the present case would be contrary to the
Department's obligation to administer the antidumping law in a fair and
impartial manner, and could create a burdensome precedent.
Hoogovens assumes that this presumption could not be permanent, and
that it would reverse once the Department determined in the final
results of an administrative review not to apply the reimbursement
regulation. Establishing an essentially permanent presumption of
reimbursement is particularly unfair, Hoogovens argues, where the
burden with which the respondent is tasked involves proving the
negative, that reimbursement has not occurred.
Hoogovens asks the Department to amend the proposed statement of
policy to eliminate any presumption which fails to maintain the
integrity of the section 751 administrative review process, or at least
to add the following sentence to the end of the policy statement:
Where a respondent has successfully rebutted allegations of
reimbursement for the final results of an administrative review,
there will no longer be a presumption of reimbursement in the
subsequent review.
In their comments of January 30, 1998 on Hoogovens' January 16,
1998 response, petitioners comment that placing the burden on
respondent to demonstrate that reimbursement is not recurring is
appropriate, given that respondents control all of the information
relevant to a reimbursement determination and the facts may be
extremely difficult to uncover, especially where the parties are
affiliated. Petitioners argue that because much of the documentation
and information regarding the reimbursement issue has first been placed
on the record in the present review, it would be inappropriate to
relieve Hoogovens of its burden to show that reimbursement is not
recurring, based merely on the Department's decision in the previous
review. Given the difficulty of uncovering a reimbursement scheme,
petitioners argue, a respondent found to have engaged in such a scheme
should bear the burden in each subsequent review to show that
reimbursement will not occur. At a minimum, a presumption must continue
until a respondent has shown, through complete, fully verified
information, that reimbursement has ceased.
Petitioners suggest, however, that it is incorrect not to apply the
reimbursement regulation when a corporate event, such as a capital
infusion, ``enabled the importer to generate sufficient income to pay''
antidumping duties. According to petitioners, such an event may in fact
be the very means of reimbursing the importer. Petitioners argue that
the Department's proposed policy statement is inconsistent with its
stated policy of applying the reimbursement regulation where there is
financial intermingling linked to reimbursement, or, in the words of
the CIT, ``a link between intracorporate transfers and the
reimbursement of antidumping duties.'' Torrington Company v. United
States, Consol. Court No. 95-03-00350 (CIT, October 3, 1996) at 7.
Petitioners assert that even in cases where there is no specific
agreement to reimburse antidumping duties, the law requires that the
reimbursement regulation be applied if there is ``financial
intermingling'' between an importer and the producer/exporter that can
be linked to reimbursement. In the second administrative review, the
Department committed itself to ``examine [in future reviews] whether
there is any inappropriate financial intermingling, to ensure that
reimbursement does not recur.'' Cold-Rolled Carbon Steel Flat Products
from the Netherlands; Final Results of Administrative Review, 62 FR at
18478 (April 15, 1997). Petitioners observe that intracorporate
transfers between affiliated parties could serve to reimburse duties,
regardless of whether the transfers were specifically labeled
``reimbursement,'' and regardless of whether the transfers were made
pursuant to an explicit agreement to reimburse. Further, the
Department's statement of proposed policy could be read to suggest that
the regulation will not be applied where the importer is able to fund
its obligations by means of a capital infusion or other intracorporate
transfer, regardless of whether such an infusion or transfer is
specifically linked to reimbursement. Petitioners argue that this
position is inconsistent with the law and incompatible with the basic
purpose of the reimbursement regulation. According to petitioners,
[[Page 13214]]
under the Department's proposed policy statement, a respondent caught
reimbursing duties could continue to pay such duties without
application of the regulation, simply by calling the transferred funds
a ``capital infusion.'' Petitioners conclude that this would defeat the
entire purpose of the reimbursement regulation and would invite
reimbursement schemes.
Petitioners propose the following changes to the Department's
proposed policy statement: First, delete clause (2)(b) in the final
sentence, and second, add a provision at the end of the statement to
indicate that the reimbursement regulation will apply where the
Department finds the requisite link between intracorporate transfers
and the reimbursement of antidumping duties. Petitioners suggest the
following language:
The Department will apply the reimbursement regulation where it
finds ``financial intermingling''--i.e., intracorporate transfers--
linked to reimbursement. In this regard, the Department will presume
that reimbursement is occurring where an importer that is
financially unable to pay antidumping duties receives an
intracorporate transfer that enables it to pay such duties.
Moreover, even where an importer is financially able to pay duties,
the respondent will bear the burden to show that intracorporate
transfers are not linked to reimbursement where there is a previous
finding of reimbursement.
Petitioners' comments at 11 (January 30, 1998).
Department's Position: The Department has considered the comments
submitted in this case and is continuing to follow the guidelines
contained in the December 18, 1997, supplemental questionnaire. Based
on the comments we received, we appreciate the need for further
guidance. Accordingly, we may develop further guidelines in order to
define more precisely such terms as corporate restructuring and the
circumstances of reimbursement, as the need arises. In the present
case, the facts and circumstances surrounding the corporate
restructuring are clear and consistent with the purposes of the
regulation. See case specific comments on reimbursement below.
Further, we disagree with Hoogovens that these guidelines violate
the express terms of the regulation. Contrary to Hoogovens' claim,
nothing in the regulation limits the application of a presumption
exclusively to certifications under section 353.26(c) of our
regulations. Further, while each review is a separate proceeding
covering merchandise entering the United States during a specific time
period, the establishment of a rebuttable presumption allows the
Department to administer the law fairly and effectively. Based upon the
final results of a previous review where the Department found
reimbursement of antidumping duties, we conclude that respondent's
behavior in the review or reviews following that determination requires
careful scrutiny. The Department has been granted broad discretionary
power to enforce the antidumping law. In the Department's view, that
discretionary power is at its zenith when the fundamental purpose of
the law is at stake. Reimbursement of antidumping duties relieves the
importer of its obligation to pay antidumping duties and thereby
undermines the remedial effect of the antidumping law and frustrates
the purpose and administration of that law. Accordingly, the Department
has full authority to address instances of reimbursement. See SAA at
216. The Department therefore concludes that it has proper authority to
establish a rebuttable presumption where a respondent was previously
found to have engaged in reimbursement activities.
Whether circumstances warrant reversing the presumption of
reimbursement must be decided on a case-by-case basis. In the present
case, we have determined that the continuing payment of antidumping
duty cash deposits during the POR by Hoogovens warrants maintaining the
rebuttable presumption of reimbursement. The prior finding of
reimbursement together with the continuing payment of cash deposits is
a sufficient basis for shifting the burden of proof to respondent,
particularly in light of the fact that the relevant evidence is solely
within the hands of the respondent.
We agree with petitioners that, under certain circumstances, the
corporate event, such as a capital infusion, may be the very means of
reimbursing the importer. The Department's policy is crafted to address
the instances in which there has been a finding of reimbursement and
the importer is financially unable to pay the duty on its own. In that
circumstance, the Department will determine that the importer must
continue to rely on reimbursements, such as intracorporate transfers,
from the producer or exporter in order to meet its obligation to pay
the duties. However, where a corporate event, such as a restructuring,
has occurred, the importer must demonstrate that this event provides a
continuing source of income to the importer such that the importer is
able to pay the antidumping duty on its own (i.e., based upon the
importer's total income). In contrast, a capital infusion that is used
to pay antidumping duties directly would constitute further
reimbursement of antidumping duties. In such a case, the Department
will deduct the amount of the reimbursement from U.S. price in
calculating the dumping margin.
Case-Specific Comments on Reimbursement
Petitioners argue that the evidence on the record demonstrates that
HSUSA is being reimbursed for antidumping duties, and that the
Department must apply its reimbursement regulation (19 C.F.R.
Sec. 353.26) for the final results. According to petitioners, both the
courts and the Department have recognized that in cases where the
importer is affiliated with the producer/exporter, the reimbursement
regulation may be applied based on an agreement to reimburse or on
``financial intermingling'' that can be linked to reimbursement. See
Color Television Receivers from the Republic of Korea; Final Results of
Antidumping Duty Administrative Reviews, 61 FR at 4410-11 (February 6,
1996); Torrington Company v. United States, Court No. 95-03-00350 at 7
(October 10, 1996). This practice reflects the fact that intracorporate
transfers between affiliated parties could serve effectively to
reimburse duties, regardless of whether the transfers are specifically
labeled as ``reimbursement.''
Petitioners cite the Department's determination in the second
administrative review to examine in subsequent reviews ``whether there
is any inappropriate financial intermingling between the companies in
order to ensure that reimbursement does not recur.'' Memorandum on
Proprietary Comments on Reimbursement in Cold-Rolled Carbon Steel Flat
Products from the Netherlands (April 2, 1997), at 4 in Hoogovens' June
26, 1997 Submission at Exhibit D (APO Version). According to
petitioners, Hoogovens' statement that ``HSUSA, as sales agent and
importer of record for Hoogovens' sales, paid cash deposits on entries
for sales during the period of review, using funds transferred
periodically by HSBV to HSUSA for that purpose'' is evidence that
Hoogovens reimbursed HSUSA on all sales during the POR. Hoogovens' June
26, 1997 Submission at 1 (Public Version). Petitioners summarize the
proprietary information on the record in this review in support of
their contention that there was financial intermingling between
Hoogovens' parent company and HSUSA, and that the corporate
restructuring undertaken after the application of the
[[Page 13215]]
reimbursement regulation in the first administrative review was
motivated by the intention to circumvent the regulation.
Petitioners argue that the Department's decision not to apply the
reimbursement regulation in Certain Porcelain-on-Steel Cookware from
Mexico; Final Results of Antidumping Duty Administrative Review, 62 FR
42496, 42505 (August 7, 1997) (POS Cookware) is not applicable to the
facts of this case, and that to the extent that POS Cookware suggests
that the regulation will only be applied where the source of funds for
duty reimbursement is directly tied to the producer/exporter, it is
clearly incorrect. Petitioners claim that under such reasoning, all
importers, whether affiliated or unaffiliated, could receive direct
reimbursement for duties without adverse consequences, provided the
funds came from an affiliate of the producer/exporter, and not the
producer/exporter itself. Given the fungibility of money and the
numerous transactions between holding companies or parents of foreign
producers and their affiliates, petitioners contend the Department
could never hope to determine whether the source of funds was the
producer/exporter or its affiliate.
Petitioners insist that the source of funds is irrelevant to the
purpose behind the reimbursement regulation, which they claim is
intended to prevent the absorption of antidumping duties by exporters,
and to ensure that injured U.S. industries can fairly compete.
Regardless of whether duties are reimbursed by a producer/exporter or
its affiliate, according to petitioners it is clear that the duties
will still be absorbed and the U.S. industry will continue to be
deprived of the opportunity to compete fairly. Thus, petitioners
conclude, POS Cookware provides no reason to refrain from applying the
reimbursement regulation to the facts of this case.
Hoogovens argues that the Department lacks statutory authority to
apply the reimbursement regulation on the basis of affiliated party
transactions. Further, Hoogovens contends that there is no substantial
evidence on the record of reimbursement within the meaning of the
regulation. According to Hoogovens, verified evidence in this review,
including the amended agency agreement between Hoogovens and HSUSA and
the refund by HSUSA to Hoogovens of the amount of antidumping duties
calculated by the Department in the first and second administrative
reviews, clearly supports the Department's determination not to apply
the reimbursement regulation in the Preliminary Results. See 62 FR at
47421 and Memorandum from Helen M. Kramer to Richard O. Weible
(Decision Memorandum in 1995/96 Review), dated August 29, 1997, at 2.
Hoogovens contends that the standard announced by the Department in
POS Cookware prevents application of the reimbursement regulation in
this review on the grounds that Hoogovens' parent, KHNV, is neither a
producer nor a reseller of scope merchandise. While HSUSA and Hoogovens
share the same ultimate parent, Hoogovens argues that under the
Department's interpretation of the language of the reimbursement
regulation, a finding of reimbursement cannot be based on transactions
between KHNV and HSUSA. Furthermore, Hoogovens argues, the Department
stated in POS Cookware that payments from a non-producer/reseller
affiliated party to a U.S. importer subsidiary that are specifically
for the payment of antidumping duties do not trigger the reimbursement
regulation, and this implies that payments that are not for such a
purpose (as in this case) cannot trigger the reimbursement regulation.
Hoogovens concludes that the Department cannot apply the regulation in
either unaffiliated or affiliated party transactions unless the
prerequisites of the regulatory language are met, namely that the
Department expressly find reimbursement, or payment of antidumping
duties by the producer or reseller on behalf of the importer. According
to Hoogovens, there is no evidence of such reimbursement in this case.
Finally, Hoogovens rejects petitioners' contention that the purpose
of the reimbursement regulation is to remedy duty absorption and to
allow the U.S. industry ``to fairly compete.'' Petitioners' brief at
48-49. Hoogovens points out that the reimbursement regulation says
nothing about the issue of duty absorption, which is addressed in a
separate provision and which may not affect the calculation of
antidumping margins. SAA at 215.
Department's Position: After reviewing the proprietary information
on the record in this review, the Department has determined that
Hoogovens has met its burden of establishing that its affiliated
importer, HSUSA, (1) is solely responsible for the payment of the
antidumping duties in this review; and (2) has the financial ability to
generate sufficient income to pay the antidumping duties to be
assessed. See Memorandum from Helen M. Kramer to Richard O. Weible of
March 9, 1998. The record shows that there is no longer an agreement to
reimburse HSUSA for antidumping duties to be assessed and that HSUSA is
now generating sufficient income to pay the duties. Furthermore, HSUSA
has repaid Hoogovens the portion of the sums advanced for the payment
of cash deposits equal to the antidumping duties to be assessed in the
second review.
Further, we disagree with petitioners' position that the regulation
should be invoked where a corporate restructuring was motivated by
respondent's intention to circumvent the regulation. While we will be
extremely vigilant in ensuring that respondent does not circumvent the
regulation, it would be inappropriate to adopt a policy that requires
us to divine a respondent's intent or motivation. Rather, we will
examine the facts of a particular corporate restructuring to determine
whether the restructuring provides a continuing source of income to the
importer sufficient to cover payment of antidumping duties.
Final Results of Review
As a result of our review, we determine that the following
weighted-average margin exists:
------------------------------------------------------------------------
Manufacturer/exporter Period of review Margin (percent)
------------------------------------------------------------------------
Hoogovens Staal B.V............... 8/1/95-7/31/96 6.08.
------------------------------------------------------------------------
The Department shall determine, and the Customs Service shall
assess, antidumping duties on all appropriate entries. For assessment
purposes, the duty assessment rate will be a specific amount per metric
ton. The Department will issue appraisement instructions directly to
the Customs Service.
Furthermore, the following deposit requirements will be effective
upon publication of this notice of final results of review for all
shipments of cold-rolled carbon steel flat products from the
Netherlands entered, or withdrawn from warehouse, for consumption on or
[[Page 13216]]
after the publication date, as provided for by section 751(a)(1) of the
Act: (1) the cash deposit rate for the reviewed company will be the
rate for that firm as stated above; (2) if the exporter is not a firm
covered in this 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) if neither the exporter nor the manufacturer
is a firm covered in this review, the cash deposit rate will be 19.32
percent. This is the ``all others'' rate from the amended final
determination in the LTFV investigation. See Amended Final
Determination Pursuant to CIT Decision: Certain Cold-Rolled Carbon
Steel Flat Products from the Netherlands, 61 Fed. Reg. 47871. These
deposit requirements, when imposed, shall remain in effect until
publication of the final results of the next administrative review.
This notice serves as a final reminder to importers of their
responsibility under section 353.26 of the Department's regulations 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 antidumping duties
occurred and the subsequent assessment of double antidumping duties.
This notice also serves as a reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with section 353.34(d) of the Department's
regulations. Timely notification of 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 this notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and section 353.22
of the Department's regulations.
Dated: March 9, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-6884 Filed 3-17-98; 8:45 am]
BILLING CODE 3510-DS-P
