[Federal Register Volume 62, Number 72 (Tuesday, April 15, 1997)]
[Notices]
[Pages 18448-18468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9425]
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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 October 4, 1996, 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 four manufacturers/exporters of the
subject merchandise to the United States and the period August 1, 1994
through July 31, 1995. We gave interested parties an opportunity to
comment on our preliminary results. Based upon our analysis of the
comments received, we have changed the results from those presented in
the preliminary results of review.
We determine that sales have been made below normal value (``NV'')
by various companies subject to these reviews. Thus, we will instruct
U.S. Customs to assess antidumping duties based on the difference
between the export price (``EP'') or constructed export price (``CEP'')
and the NV.
EFFECTIVE DATE: April 15, 1997.
FOR FURTHER INFORMATION CONTACT: Robert Bolling (Continuous Colour Coat
(``CCC'')), Eric Johnson (Dofasco Inc. and Sorevco Inc. (``Dofasco'')),
Greg Weber (Algoma, Inc. (``Algoma'')), N. Gerard Zapiain (Stelco, Inc.
(``Stelco'')), or Jean Kemp, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-3793.
SUPPLEMENTARY INFORMATION:
The Applicable Statute
Unless otherwise indicated, all citations to the statute refer to
the provisions effective January 1, 1995, the effective date of the
amendments made to the Tariff Act of 1930 (the Act) by the Uruguay
Round Agreements Act (URAA). In addition, unless otherwise indicated,
all citations to the Department's regulations are to the current
regulations, as amended by the interim regulations published in the
Federal Register on May 11, 1995 (60 FR 25130).
Background
On October 4, 1996, the Department published in the Federal
Register (61 FR 51892) 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. We gave interested parties an opportunity to comment on
our preliminary results. We received written comments on November 4,
1996 from Algoma, CCC, Dofasco/Sorevco, 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 received rebuttal comments on November 12, 1996 from
interested parties.
As we noted in the preliminary results of review, on February 28,
1996, the petitioners requested that the Department determine whether
antidumping duties had been absorbed by Algoma, Dofasco, and Stelco
(for corrosion-resistant only) during the 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
[[Page 18449]]
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.
For transition orders as defined in section 751(c)(6)(C) of the
Act, i.e., orders in effect as of January 1, 1995, Sec. 351.213(j)(2)
of the Department's proposed regulations provides that the Department
will make a duty absorption determination, if requested, for any
administrative review initiated in 1996 or 1998. See, Notice of
Proposed Rulemaking and Request for Public Comments, 61 FR 7308, 7366
(February 27, 1996) (``Proposed Regulations''). The commentary to the
proposed regulations explains that reviews initiated in 1996 will be
considered initiated in the second year and reviews initiated in 1998
will be considered initiated in the fourth year. Id. at 7317. Although
these proposed regulations are not yet binding upon the Department,
they do constitute a public statement of how the Department expects to
proceed in construing section 751(a)(4) of the amended statute. This
approach assures that interested parties will have the opportunity to
request a duty absorption determination on entries for which the second
and fourth years following an order have already passed, prior to the
time for sunset review of the order under section 751(c). 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. Therefore, based on the policy stated
above, the Department will first consider a request for a duty
absorption determination for reviews of these orders initiated in 1996.
Because these reviews were initiated in 1995, we have not considered
the issue of absorption in these reviews. However, if requested, we
will do so in the next reviews.
Under the Act, the Department may extend the deadline for
completion of administrative reviews if it determines that it is not
practicable to complete the reviews within the statutory time limit of
365 days. On April 1, 1996, the Department extended the time limits for
the preliminary and final results in this case. See, Extension of Time
Limit for Antidumping Duty Administrative Reviews 61 FR 14291 (1996).
We have now completed the administrative reviews in accordance with
section 751 of the Act.
Scope of Reviews
The merchandise under review is certain corrosion-resistant carbon
steel flat products and certain cut-to-length carbon steel plate.
Although the Harmonized Tariff Schedule of the United States (HTSUS)
subheadings are provided for convenience and customs purposes, the
written description of the merchandise under investigation is
dispositive.
I. Certain Corrosion-Resistant Carbon Steel Flat Products
These products include 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 HTSUS under item numbers 7210.30.0030,
7210.30.0060, 7210.41.0000, 7210.49.0030, 7210.49.0090, 7210.61.0000,
7210.69.0000, 7210.70.6030, 7210.70.6060, 7210.70.6090, 7210.90.1000,
7210.90.6000, 7210.90.9000, 7212.20.0000, 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, 7215.90.3000, 7215.90.5000, 7217.20.1500,
7217.30.1530, 7217.30.1560, 7217.90.1000, 7217.90.5030, 7217.90.5060,
7217.90.5090. Included in this review are corrosion-resistant 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 from this review
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 from this
review 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 from this review
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.
II. Certain Cut-to-Length Carbon Steel Plate
These products include 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 HTSUS under item
numbers 7208.40.3030, 7208.40.3060, 7208.51.0030, 7208.51.0045,
7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000, 7210.70.3000,
7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045, 7211.90.0000,
7212.40.1000, 7212.40.5000, 7212.50.0000. Included in this review 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 from this review is
grade X-70 plate.
The period of review (POR) is August 1, 1994, through July 31,
1995.
[[Page 18450]]
Analysis of Comments Received
Algoma
Comment 1
Petitioners argue that Algoma's method of reporting costs is
distortive and should be rejected because Algoma allocated rolling
costs based on the average rolling cost of only one of its two mills
that produces subject merchandise. Petitioners argue that the
Department has consistently required that respondents report COP and CV
based on the actual costs incurred. Petitioners point to the
Department's antidumping questionnaire which states that COP and CV
figures ``should be calculated based on the actual costs incurred by
your company during the period of review * * * as recorded under its
normal accounting system.'' Petitioners also cite IPSCO, Inc. and IPSCO
Steel, Inc. v. United States, 687 F. Supp. 633, 639 (CIT 1988) which
quotes F.W. Myers & Co., Inc. v. United States, 376 F. Supp. 860, 873
(CIT 1974) in stating ``value determinations made in antidumping cases
`must be based upon proof of actual costs of prices--not estimates,
approximations or averages. ' Petitioners argue that Algoma did not
weight-average the actual rolling costs of each mill. As the
Department's antidumping questionnaire at D-2 states, ``If you produce
the merchandise under review at more than one facility, you must report
COP and CV based on the weighted-average of costs incurred at all
facilities.'' Petitioners cite Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof From Italy, 60 FR 10959,
10962 (February 28, 1995): ``if a respondent produces subject
merchandise at more than one facility, the reported COM should be the
weighted-average manufacturing costs from all facilities.'' Petitioners
claim that Algoma's methodology resulted in the misreporting of COP and
CV.
Petitioners also claim that Algoma's methodology causes all
comparisons of non-identical merchandise to be erroneous. Petitioners
argue that Algoma's failure to report actual costs--whether under or
overstated--means that the difference in merchandise tests are invalid.
Petitioners claim that the 20-percent test, which the Department uses
to determine if a non-identical home market product is sufficiently
similar to the U.S. product for a price comparison, will not operate
properly due to Algoma's flawed methodology. Therefore, petitioners
argue that where non-identical sales are being matched, there is no way
to ensure that the comparison is being made with merchandise that is
comparable as required by the statute. Thus, petitioners argue that
since costs are overstated, the DIFMER adjustment will always be
incorrect. Petitioners cite Certain Pasta from Turkey, 61 FR 30309,
30311 (June 14, 1996) which states, ``Insofar as DIFMER data is based
on cost information {that is flawed}, the effect of these physical
differences cannot be determined by the Department.''
Petitioners also argue that Algoma's attempts to justify its
allocation system must be rejected. Petitioners specifically point to
Algoma's claim that its accounting system does not record costs at a
sufficient level of detail that would permit direct calculation of
actual costs incurred at the 106'' mill that relate only to the subject
merchandise. Petitioners argue that there are few, if any, accounting
systems that maintain costs in the normal course of business in a
manner that mirrors the Department's reporting requirements.
Petitioners point to Sec. 351.308 of the Department's Proposed
Regulations which state, ``not all information that needs to be
produced during the course of a proceeding is kept in the ordinary
course of business (e.g., worksheets), and failure to provide such
information may be deemed to violate the `best of ability' standard.''
Petitioners go on to say that all respondents--including Algoma--are
required to construct methodologies for reporting purposes that result
in the reasonable allocation of actual costs.
Finally, petitioners argue that Algoma's distortive allocation
methodology leaves the Department with no alternative but to reject COP
and CV and apply total facts available. Petitioners claim, pursuant to
section 776(b) of the statute, that the Department should select the
most adverse margin available as the final weighted-average margin for
this review. However, petitioners argue, if the Department decides not
to apply total adverse facts available, then it should apply facts
available with regard to the comparison of non-identical merchandise.
In selecting partial facts available, they argue, the Department should
follow its own established practice and add an upward DIFMER adjustment
equal to 20 percent of TCOMU to normal value for each comparison of
non-identical products. Petitioners cite two Department decisions, Gray
Portland Cement and Clinker from Mexico, Results of Redetermination
Pursuant to Court Remand, and Tapered Roller Bearings, and Certain
Components Thereof, from Japan, 56 FR 26054, 26057 (June 6, 1991), in
which the Department added an upward DIFMER adjustment of 20 percent as
best information available. Accordingly, petitioners feel the
Department should apply the same remedy in this situation.
Algoma argues that although they were unable to report actual
rolling costs for the 106'' mill, the Department must examine any cost
allocation to determine if it is reasonable. Respondent cites Floral
Trading Council v. U.S., 822 F. Supp 766, 772 (CIT 1993) and Welded
Stainless Steel Pipe from Malaysia, Final Determination of Sales at
Less Than Fair Value, 59 FR 4023, 4027 (January 28, 1994) in which the
Department accepted allocation methods as reasonable. Respondent
asserts that the Department should continue to accept Algoma's rolling
cost allocation method because it did so in the first review of this
case, Certain Steel Products from Canada: Final Results of
Administrative Review, 61 FR at 13817. In that decision, the Department
accepted Algoma's rolling cost calculation methodology stating,
``Algoma's reporting of rolling costs incurred at only one of its
manufacturing facilities is reasonable, considering (1) The nature of
its cost accounting system, (2) Algoma's verified inability to
determine specific rolling costs based upon the gauge of materials
being manufactured at either facility, and (3) the conservative
methodology adopted by Algoma.'' Respondent contends that same
rationale is fully supported by the record in this review and leads to
the conclusion that Algoma's method for calculating rolling costs is
reasonable.
Additionally, respondent asserts that Algoma explicitly sought the
Department's guidance on whether to use the same rolling cost
calculation methodology as in the first administrative review and that
the Department instructed Algoma to use the same methodology.
Respondent argues Algoma does not track rolling costs by width and
gauge in the normal course of business. In addition, a very large
percentage of the products produced on the 166'' Plate Mill and a very
small percentage of the products produced on the 106'' Strip Mill
constitute subject merchandise. Respondents contend, in light of those
two verified facts, Algoma had only three reasonable alternatives in
assigning rolling costs to a particular category of subject
merchandise: It could either assign the average Strip Mill rolling
costs, assign the average Plate Mill rolling costs, or assign a mixture
of the two. Respondents argue that since the 106'' Strip Mill average
[[Page 18451]]
rolling costs are overwhelmingly determined by non-subject merchandise,
using the average 106'' mill rolling cost, or a mixture of costs from
both mills, would have caused the rolling cost calculation to be driven
by the cost of rolling non-subject merchandise. Therefore, Algoma used
the average rolling cost of the 166'' mill--where only products with
gauges falling within the definition of subject merchandise are
rolled--as a surrogate for the average rolling cost of the 106'' mill.
Respondent argues that this is a conservative methodology based on the
verified fact that rolling costs on the 166'' mill were higher than
rolling costs on the 106'' mill. Based on the facts above, respondents
argue that Algoma's rolling cost methodology should again be determined
reasonable by the Department.
Concerning petitioners' argument that Algoma's methodology renders
the DIFMER adjustment inaccurate, respondent argues that these
arguments are based on conclusions that are untrue. Respondent provides
calculations for the potentially affected matches, which they argue
demonstrate that it would be mathematically impossible for the cost
reporting methodology to yield a distortion in the results of the
DIFMER test.
Department's Position. We agree with respondent. Consistent with
the final results of the first review, Certain Steel Products from
Canada: Final Results of Administrative Review, 61 FR at 13817,
Algoma's cost reporting methodology is reasonable, considering (1) we
verified its cost accounting system, (2) Algoma's verified inability to
determine specific rolling costs based upon the gauge of the material
being manufactured at either facility, (3) the conservative methodology
adopted by Algoma and verified by the Department, and (4) respondent's
compliance with Department instructions on cost reporting methodology
in this review.
Petitioners state that it is the responsibility of any respondent
to construct methodologies for reporting purposes that result in the
reasonable allocation of costs. The Department determined that Algoma's
cost accounting system computes one average rolling cost for all
products rolled on the 166'' Plate Mill and one average rolling cost
for all products rolled on the 106'' Strip Mill. Moreover, the
Department verified that a very large percentage of the products
produced on the 166'' mill and a very small percentage of the products
produced on the 106'' mill are subject merchandise. Therefore it was a
reasonable and non-distortive methodology for Algoma to use the average
cost of the 166'' mill as a surrogate for the rolling cost of the 106''
mill. Accepting this methodology is made more reasonable by the fact
that the average rolling cost of the 166'' mill is higher than the
average rolling cost of the 106'' mill, thus insuring a conservative
costing methodology. However, this difference in rolling costs is not
so great as to cause significant distortions to the DIFMER.
Regarding petitioners' claim that the Department should reject
Algoma's COP and CV data and apply total facts available, respondent
has acted to the best of its ability and provided the Department with a
reasonable methodology that has been verified. Moreover, the Department
provided guidance on Algoma's cost reporting methodology and
respondents complied with that guidance. Regarding petitioners' claim
that the Department should apply facts available with regard to the
comparison of non-identical goods, once again, respondent has provided
a reasonable methodology and the DIFMER is, therefore, reliable.
Respondent has demonstrated that for the product comparisons in
question Algoma's cost methodology would not cause the 20-percent
DIFMER test to yield inaccurate results. In addition, while it is
possible that the allocation method could change the DIFMER adjustment
amount slightly for some product comparisons, the insignificant degree
of the possible difference is not enough to render the allocation
method unreasonable and invalid. Based on the above arguments, the
verified record, and previous Department decisions, we find that
Algoma's cost allocation methodology, productivity matrices, exclusion
of certain runs, and DIFMER adjustments are accurate and reasonable.
Comment 2
Petitioners argue that the record shows that Algoma sold subject
merchandise at two different levels of trade. Petitioners contend that
in determining whether customers are at separate levels of trade, the
Department reviews the selling activities performed by the seller for
each type of customer. Petitioners assert that Algoma stated that it
sold subject merchandise to ``two very different types of customers'':
steel service centers (SSCs) and end-users. Petitioners state that
Algoma specifically stated in its July 11 supplemental response that it
performed selling functions for end-users that are not ``routinely
performed'' for SSCs. In addition, Algoma stated that it performed some
of the selling functions identified by the Department ``mainly for end
users.'' Petitioners assert that this is significant because the
Department has previously found differences in these types of selling
functions to be important in distinguishing separate levels of trade.
See, Antifriction Bearings from France, 61 FR at 35720.
Petitioners argue that the Department accepted Algoma's claim that
all sales are at one level of trade based on the Department's
``examin{ation} and verif{ication} of the selling functions''
identified by Algoma. Petitioners note, however, that Algoma did not
report its selling functions on the record until two months after
verification. Therefore, Petitioners contend, there is no possible way
for the Department to have ``examined and verified'' Algoma's selling
functions. Even if the Department were to rely on Algoma's unverified
descriptions of selling functions, Petitioners argue that the
Department must still find that Algoma sold to two levels of trade.
Petitioners assert that such a conclusion is mandated because the
functions undertaken by Algoma for its end-user customers are
significantly different from those engaged in for the SSC customers.
Therefore, Petitioners argue that the Department must make a level
of trade adjustment. Petitioners contend that the statute requires that
``to the extent practicable,'' U.S. sales should be compared to home
market sales at the same level of trade, 19 U.S.C. section 1677b
(a)(1)(B). When a U.S. sale is compared to a home market sale at a
different level of trade, however, the Department is required to
determine if a level of trade adjustment should be made, 19 U.S.C.
section 1677b(a)(7)(A). Petitioners argue that an adjustment must be
made under the statute where the difference in level of trade affects
price comparability. Petitioners claim that the Department set forth
its methodology for making this determination in Antifriction Bearings
from France, 61 FR at 35719. Petitioners argue that the difference in
level of trade between sales to SSCs and end-users does affect price
comparability. Petitioners present a number of calculations that they
contend demonstrate a pattern of consistent price difference between
the different levels of trade in the home market based on both the
number of models and the quantity of sales. Accordingly, petitioners
argue that a level of trade adjustment is warranted.
Respondent contends that the Department correctly concluded in the
preliminary results that Algoma sells plate products at one level of
trade.
[[Page 18452]]
Respondent asserts that conclusion is fully supported by the verified
record in this review, and the Department should reach the same
conclusion in the final results of review. Respondent points to the
Department's preliminary analysis memorandum, which states that the
Department ``examined and verified the selling functions'' performed by
Algoma for its two customer classes: end-users and steel service
centers (SSCs). Based on the verified information, the Department
concluded in its analysis memorandum that ``Algoma's selling activities
were substantially similar for both classes of customers for sales of
subject merchandise and warrant one level of trade.'' Respondent states
that Algoma determined that it sold plate products at only one level of
trade, by comparing the services performed for plate customers to those
performed for purchasers of sheet products, its largest product line.
For sheet products, Algoma engages in very different levels and types
of selling functions for service centers and fabricators. Respondent
states for plate products, however, those services are rarely
performed. Respondent also asserts that on those rare occasions when
services like just-in-time delivery are performed for plate customers,
they are mainly performed for end-users. Respondent points to Algoma's
July 11 supplemental questionnaire response which states that ``(w)hile
Algoma does perform some selling functions for end-users in plate trade
that are not routinely performed for SSCs, in Algoma's view the
activity is not so significant as to cause plate end-users to be a
level of trade different from SSCs.
Respondent also asserts that the Department's preliminary decision
that Algoma sells plate products to only one level of trade is
consistent with other recent decisions. Respondent points to the final
determination in Certain Pasta from Italy, 61 FR 30326, 30337-39, and
30342-43 (June 14, 1996) (quoting Proposed Regulations), which states
that ``small differences in the functions of the seller will not alter
the level of trade.'' Respondent claims Algoma has demonstrated that
the selling functions performed for various customer classes of the
subject merchandise are ``sufficiently similar'' to justify a finding
of one level of trade, as was the case for many of the respondents in
that case. In addition, respondent asserts that the Department should
disregard petitioners'' calculations that suggest that a price
discrepancy exists between levels of trade. Respondent claims that
petitioners'' calculations hardly constitute the ``significant
correlation between prices and selling expenses on one hand, and levels
of trade on the other,'' required to make a level of trade adjustment.
See, Steel Plate from Sweden, 61 FR 15772, 15776 (April 9, 1996) (Final
Review). Based on the above comments and previous Department decisions,
respondent contends that the Department is correct in finding that
Algoma sold plate products at one level of trade and, thus, there is no
need for the Department to make a level of trade adjustment.
Department's Position. The Department agrees with respondent that
Algoma sold plate products at one level of trade and, thus, no level of
trade adjustment is warranted.
In order to determine whether sales in the comparison market are
made at more than one level of trade, the Department must find that
sales have been made at different stages in the marketing process, or
the equivalent. We make this determination on the basis of a review of
the distribution system, including selling functions, class of
customer, and the level of selling expenses for each type of sale.
Different stages of marketing necessarily involve differences in
selling functions, but differences in selling functions, even
substantial ones, are not alone sufficient to establish a difference in
the level of trade. While customer categories such as ``distributor''
and ``wholesaler'' may be useful in identifying different levels of
trade, they are insufficient in themselves to establish that there is a
difference in the level of trade. See, Antifriction Bearings (other
than Tapered Roller Bearings) and Parts Thereof from France, et al:
Final Results of Antidumping Administrative Reviews, 62 FR 2081, 2105
(January 15, 1997).
An examination of Algoma's selling activities--the selling
functions and the level of selling expenses--for Algoma's two customer
classes indicates that while Algoma occasionally may perform some
services for end-users that it does not perform for SSCs, these
differences in terms of selling functions and level of selling expenses
are not great enough to warrant a finding of different levels of trade.
As respondent noted in Certain Pasta from Italy, 61 FR 30326, 30337-39,
and 30342-43 (June 14, 1996), small differences in selling functions do
not warrant a different level of trade. Petitioners' arguments on price
comparability are moot because the Department has determined that only
one level of trade exists.
Finally, the Department disagrees with petitioners'' contention
that the Department did not review Algoma's selling activities at
verification because Algoma submitted some of its selling activity
information after verification. Prior to verification, there was enough
information on the record concerning Algoma's selling activities for
the Department to determine whether these activities were
``substantially similar'' for Algoma's two customer classes: end-users
and steel service centers (SSCs). Moreover, prior to verification,
petitioners notified the Department of their concerns and requested
that the Department carefully analyze and test all of Algoma's selling
functions and differences in these selling functions between end-users
and SSCs. At verification, the Department examined the differences in
selling activities between end-users and SSCs. Algoma's supplemental
response concerning level of trade, requested by the Department and
submitted after verification, presented no evidence to contradict this
determination and does not invalidate the information which was
verified.
Comment 3
Petitioners claim that Algoma's failure to provide plate qualities
for certain sales warrants the application of adverse facts available.
For the preliminary results, respondent identified plate quality as
``structural'', ``pressure vessel'', or ``other.'' Algoma reported
``other'' as the plate quality for a number of its prime home market
sales and for some of its prime U.S. market sales as well. Petitioners
argue that Algoma's incomplete reporting of plate quality has
undermined the Department's model match program. For this reason,
petitioners assert the Department should apply facts available to all
U.S. sales where plate quality has been identified as ``other.''
Petitioners state that Algoma attempted to justify its reporting
method by claiming that its method was consistent with industry
standards and practices. According to Algoma, any plate not falling
into either the structural or pressure vessel quality categories, is
appropriately considered ``other.'' Petitioners claim, however, that
there are, in fact, other plate quality categories recognized in the
steel industry. Petitioners point to the Iron and Steel Society's
authoritative Steel Products Manual which mentions four other ``quality
descriptions'' for steel plate.
Petitioners contend that the Court of International Trade (CIT) has
specifically stated that respondents must provide complete information
regarding the physical characteristics of subject merchandise. In
Timken Co. v. United States, 630 F. Supp. 1327, 1338 (CIT 1986), the
CIT stated, ``It is of
[[Page 18453]]
particular importance that the administering agency itself make the
required determination of what constitutes most similar merchandise,
rather than delegating that responsibility to an interested party.'' In
the same case, the CIT states that ``accepting a foreign manufacturer's
assertions as to what constitutes most similar merchandise without
obtaining the complete data needed to determine the appropriateness of
those assertions'', would ``violate the spirit of the statutory
requirement.''
Petitioners contend that because of Algoma's incomplete reporting,
the Department should apply adverse facts available because of the
Department's repeated requests and Algoma's repeated refusals to
provide this information. Petitioners assert that the Department should
apply the most adverse margin to all United States sales where plate
quality has been reported as ``other.''
Respondent claims that Petitioners' arguments are misplaced because
Algoma has properly reported, and the Department has verified and
accepted, the three categories of plate quality reported by Algoma in
this review. In response to the Department's first supplemental
questionnaire, Algoma explained that it:
``followed the Department's instructions in separating subject
merchandise into the categories of `structural,' `pressure vessel'
or `other' in the PLQUALH/U fields. Consistent with industry
standards and practices, the only `quality' types recognized for
plate products are structural and pressure vessel. Any plate not
falling into one of the two categories is appropriately considered
`other,' and therefore was included by Algoma in the `other'
category. The types of plate that may not meet the structural or
pressure vessel qualities, and therefore are appropriately
considered `other,' include floor plate, chemical grades, and non-
prime plate.
Respondent also asserts that at verification, the Department verified
the plate qualities reported by Algoma.
In response to petitioners' cite to the Iron and Steel Society
publication, respondent contends that the additional plate qualities
mentioned by the publication are both out of date and not applicable to
Algoma. Respondent also asserts that the very same publication supports
Algoma's understanding by listing as typical, in ``Typical Standard
Specifications,'' only structural and pressure vessel qualities.
Respondent argues that based on the facts above and the verified
record, the Department should not change its decision regarding plate
quality categories in making its final determination.
Department's Position. We agree with respondent. Algoma classified
all plate that did not fall within the structural or pressure vessel
qualities, as ``other.'' The Department fully verified the plate
qualities reported by Algoma during the period of review. The
Department agrees this practice is consistent with industry standards.
In addition, this classification does not undermine the Department's
model match program. Petitioners' cite to Timken Co. v. United States
is not relevant to this issue because the Department has accepted and
verified Algoma's reporting of qualities; therefore Algoma's response
cannot be considered incomplete. In addition, petitioners' mention of
the Iron and Steel Society's Steel Products Manual is also irrelevant.
That publication quotes additional plate qualities that are not
relevant to this review and that in no way would affect model matches.
Furthermore, since Algoma properly reported all plate qualities, there
is no need to consider petitioners' argument for the use of adverse
facts available. Based on the verified record and industry standards,
the Department fully accepts Algoma's reporting of plate qualities.
Comment 4
Petitioners argue that the Department erred in accepting as a
movement charge deductible from normal value under section
773(a)(6)(B)(ii) of the statute Algoma's reported freight expenses,
which Algoma incurred in transporting merchandise to a further
processor. Petitioners argue that the Department has consistently
treated such expenses as a cost of manufacturing, and not a movement
charge. Therefore, the Department should disallow Algoma's claim for a
freight adjustment for all further processed sales.
Petitioners state that the Department requires respondents to
establish that they are entitled to favorable adjustments to normal
value. Petitioners cite The Timken Company v. United States, 673 F.
Supp. 495, 513, (CIT 1987), in which the Court ``plac(es) the burden of
establishing adjustments on a respondent that seeks the adjustments and
that has access to the necessary information.'' Petitioners contend
that Algoma has failed to establish that it is entitled to a favorable
adjustment to normal value. Petitioners assert that Algoma defends its
reporting by claiming that its freight expenses were incurred ``post-
sale'' and hence should be classified as movement charges. However,
petitioners claim that the freight expenses in question were incurred
in transporting unfinished merchandise for further processing, and
thus, they are properly classified as cost of manufacturing, and not a
movement charge. Therefore, petitioners argue, whether the freight
expenses were incurred pre-sale or post-sale is irrelevant. Petitioners
cite Certain Carbon Steel Flat Products from Canada, 58 FR 37099, 37118
(comment 61) (July 9, 1993), which states ``pre-sale freight charges
for unfinished merchandise should not be considered a movement
charge.'' The Department decision goes on to say, ``(f)reight between a
factory and the further processor of a work in progress is not a
deductible adjustment . . .'' Similarly, petitioners argue, the
Department has consistently treated the freight from the U.S. port to a
further manufacturing plant as a cost of further manufacturing, and not
a freight expense. See, Gray Portland Cement and Clinker from Japan, 60
FR 43761, 43768 (Aug. 23, 1995).
Therefore, based on the reasons above petitioners argue that the
Department should disallow Algoma's claim for a freight adjustment for
all further processed sales.
Respondent claims that petitioners' arguments are based on the
incorrect assumption that these freight expenses are pre-sale freight
expenses. Respondent contends that under the recently amended
antidumping law, all freight expense incurred from the producer to the
processor and from the processor to the customer, should be deducted
from normal value. Section 773 (a)(6)(B)(ii) states that an adjustment
to normal value is appropriate for ``the amount, if any, included in
the price . . . attributable to any additional costs, charges, and
expenses incident to bringing the foreign like product from the
original place of shipment to the place of delivery to the purchaser.''
Respondent cites the Statement of Administrative Action (SAA) at 827,
which also explains that under that new section movement charges are to
be deducted from normal value. According to respondent, Algoma's
movement charges from the plant to the processor and then to the
customer fall within that statutory provision and thus are properly
deducted from normal value. Respondent also claims that petitioners'
citations to the decisions by the Department under the old law are
irrelevant to this review in light of the change in the law and the
Department's practice.
Department's Position. We agree with respondent. The freight from
Algoma to the further processor is a movement charge deductible
pursuant to 773 (a)(6)(B)(ii) because it is not freight incurred in the
process of
[[Page 18454]]
manufacturing subject merchandise but freight incurred in sending
subject merchandise for further processing at the customer's request as
part of the sale. Algoma performs this further processing on a small
percentage of sales as a courtesy to the customer and is not part of
its actual production of subject merchandise which is being used for
comparison in this review. Moreover, it would be unfair to respondent
to compare ex-factory prices in the U.S. market with home market prices
that include freight. 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. Based on the information in the record, the Department has
determined that the respondent has satisfied its burden of establishing
its entitlement to the adjustment under Timken. Petitioners' cite to
Certain Carbon Steel Flat Products from Canada is irrelevant because
that case involved the pre-sale transfer of a work-in-process. In
addition, petitioners' cite to Gray Portland Cement and Clinker from
Japan is inappropriate because it deals with the cost of further
manufacturing in the United States which is not relevant to this case.
Comment 5
Petitioners argue that Algoma should not be allowed a freight
adjustment for sales in which it inadvertently reported actual freight
in the accrued freight field. Throughout this review, Algoma has
claimed that it had reported an accrued freight expense amount in the
INLFACH field of its sales tape. Petitioners state that according to
Algoma, the amount reported in this field was not based on the freight
expenses actually incurred, rather it was based on the expected freight
charge at the time the products were shipped. Petitioners contend that
Algoma claimed, for the first time, four months after verification,
that for certain sales it had ``inadvertently'' reported the actual
amount for inland freight in the accrued freight field (INLFACH) and
that the Department had verified this claim.
Petitioners argue that respondent's claims were untimely,
unsupported by the record and must be rejected by the Department. Again
petitioners point to the Timken case which places the burden of
establishing adjustments on respondents. Petitioners claim that there
is no mention whatsoever in the verification reports of the Department
having verified (or even having been notified of) Algoma's claim.
Moreover, petitioners assert, there is no mention of Algoma's
``inadvertent'' reporting in the Corrections Memorandum that Algoma
submitted at the outset of verification. Therefore, petitioners
contend, the Department has no alternative but to deny Algoma's claimed
freight adjustment for all sales where freight expenses are reported in
the INLFACH field of the sales database.
Respondent argues that the Department's preliminary results
correctly concluded that Algoma properly reported actual freight
expense. Respondent contends that as Algoma explained to Department
officials during verification, due to an oversight, Algoma reported the
actual amount for inland freight associated with those transactions in
the accrued freight (INLFACH) field. Respondent asserts that this fact
does not affect the freight expense calculation and has been fully
explained to the Department.
Respondent states that at verification, Algoma demonstrated that
the freight expense reported for these sales transactions was fully
accounted for and properly included in Algoma's sales tape, but it
merely appeared in the wrong field. Respondent claims the Department
verified this by examining two of the preselected sales traces.
Respondent states that in the sales verification exhibits, Algoma
provided the Department with freight invoices and calculations
confirming that the freight reported in INLFACH represented the actual
freight expense incurred for the shipment to the customer. Respondent
claims that Algoma did not identify this issue in its Corrections Memo
mentioned by petitioners because no correction was necessary.
Respondent asserts that whether the amounts appeared in the actual or
accrued expense field had absolutely no affect on the margin
calculation. Therefore, respondent argues, the Department should
continue to accept Algoma's explanation for the final determination.
Department's Position. We agree with respondent. Whether the actual
freight is reported in the actual freight field (INLFTCH) or the
accrued freight field (INLFACH) has no effect on the margin
calculation. For the preliminary and final determinations, freight
expense was calculated by adding the actual freight field and the
accrued freight field together. Thus, whether the actual freight
expense was in the actual field or the accrued field is not important,
since they are combined into one freight expense. This fact renders
this argument moot as long as the actual freight amounts were reported
and verified in one of the two fields. As stated in the Department's
verification reports and documented by verification exhibits, the
freight amounts were verified by the Department and found to be
accurate.
Comment 6
Petitioners argue that a circumstance-of-sale adjustment for credit
expense should not be allowed for sales where Algoma failed to report
payment dates. Petitioners assert that throughout this review, Algoma
made numerous revisions and corrections to its data tapes. Algoma,
however, never updated its sales tape to include the payment dates that
were missing from its initial sales tape. Petitioners claim that
respondent failed to do this even though the missing information became
available to Algoma during the course of this review. Petitioners
assert that Algoma's failure to report complete payment date
information has made it impossible for the Department to calculate
accurately Algoma's credit expenses.
Petitioners argue that Algoma's justification for incomplete
reporting must be rejected. Respondent stated that it did not provide
the missing payment dates because ``at no time during this review did
the Department request that Algoma update its sales tape to include
payment date information.'' Petitioners cite the Department's decision
in Brass Sheet and Strip from Canada, 61 FR 46618, 46620 (September 4,
1996). Petitioners contend, as with the respondent in Brass Sheet and
Strip, Algoma failed to provide information that had been specifically
requested by the Department and which was in respondent's possession.
Petitioners argue for the reasons above, the Department must deny
respondent's claim for a circumstance of sale adjustment for credit
expenses for all sales with missing payment dates.
Respondent contends that Algoma reported all requested payment date
information and that information was fully verified by the Department.
Respondent states that as Algoma demonstrated during verification,
payment dates were not reported on Algoma's sales tape for orders that
were unpaid at the time Algoma created the tape. Respondent asserts
that this is customary practice and at no time during the review did
the Department request that Algoma update its sales tape to include
payment date information. Respondent also states that the Department
carefully verified and gathered supporting documentation on those
transactions which petitioners requested the Department verify as
``bona fide.'' Respondent argues that since Algoma has complied with
all the Department's requests for information,
[[Page 18455]]
the Department should reject petitioners' arguments.
Department's Position. We agree with respondent. The Department
never requested the updated payment dates from Algoma. In addition, the
alternative methodology Algoma used of substituting in an average
number of days outstanding for the unknown date is reasonable and has
been verified. Based on these facts, the Department will allow the
circumstance-of-sale adjustment for all sales with missing payment
dates.
Comment 7
Petitioners claim that Algoma should not be allowed to use the U.S.
prime rate in calculating its U.S. credit expense, but instead, Algoma
should use a rate more consistent with commercial reality. Petitioners
cite the case La Metalli Industriale v. United States, 912 F.2d 455
(Fed. Cir. 1990), which states the cost of credit ``must be imputed on
the basis of usual and reasonable commercial behavior.'' Petitioners
argue that since Algoma could not qualify for the Canadian prime rate
in any of its home market borrowings, Algoma would not be able to
qualify for the U.S. prime rate. Therefore, petitioners claim the U.S.
prime rate does not reflect the commercial reality of borrowing in the
United States for Algoma. They cite Certain Corrosion-Resistant Carbon
Steel Flat Products from Australia; Final Results of Antidumping Duty
Administrative Reviews, 61 FR 14049, 14054 (March 29, 1996) (Steel from
Australia) and Final Results of Antidumping Duty Administrative Review;
Certain Cut-to-Length Carbon Steel Plate from Sweden, 61 FR 15772,
15780 (April 9, 1996) (Steel from Sweden). In Steel from Australia and
Steel from Sweden, the Department stated that, in the absence of U.S.
dollar borrowings, a reasonable surrogate for imputing U.S. credit
expense must be used. Petitioners argue that the fact that Algoma could
not qualify for the Canadian prime rate provides substantial evidence
that Algoma could not qualify for the U.S. prime rate.
Therefore, petitioners suggest that the U.S. prime rate be adjusted
to reflect this fact, or in the alternative, the Department could use
Algoma's adjusted home market interest rate. In Canada, Algoma
qualified for loans of .5%, 1.0%, and 1.5% above the Canadian prime
rate. Therefore, petitioners state that 1.5% should be added to the
U.S. prime rate to reflect Algoma's commercial reality of borrowing in
the United States. The alternative is to adjust the home market
interest rate to account for currency fluctuations. Petitioners cite
Certain Fresh Cut Flowers from Colombia, 61 FR 42833, 42848 (August 9,
1996) in which this method was used in the absence of U.S. dollar
borrowings.
Respondent argues that the use of the Federal Reserve prime short-
term lending rate is consistent with Department practice. Respondent
cites two cases, Canned Pineapple Fruit from Thailand: Final
Determination of Sales at Less than Fair Value, 60 FR 29553, 29558
(June 5, 1995) and Brass Sheet and Strip from Germany: Final Results of
Antidumping Duty Administrative Review, 60 FR 38542, 38545 (July 27,
1995), in which the U.S. prime rate was used to compute U.S. credit
expense in the absence of any borrowing in U.S. dollars. Respondent
also cites Section C of the Department's questionnaire which states
``if you have not borrowed in U.S. dollars, use a U.S. published
commercial bank prime short-term lending rate.'' Respondent also cites
Steel from Australia and Steel from Sweden. Respondent states that in
both cases the Department concluded that the Federal Reserve rate in
effect over the POR was a ``reasonable surrogate'' for an actual dollar
interest rate. In both cases the Department chose the average short-
term lending rate as calculated by the Federal Reserve. Each quarter
the Federal Reserve collects data on loans made during the first full
week of the mid-month of each quarter by sampling 340 commercial banks
of all sizes. The sample data are used to estimate the terms of loans
extended during that week to all insured commercial banks. This rate
represents a reasonable surrogate for an actual dollar interest rate
because it is calculated based on actual loans to a variety of actual
customers.
Also, respondent states that the Department itself has recognized
that the use of Aexternal ``external'' information, such as the Federal
Reserve rate, is preferred over an adjusted home market interest rate
in deriving computed credit costs. The Department states in its
September 6, 1994 Memorandum re: Proposed Change In Policy Regarding
Interest Rates Used In Credit Calculations that the Department's
preference is to get the interest rate for both currencies concerned,
rather than making an adjustment to the home market interest rate to
account for exchange rate fluctuations. Therefore, respondent argues
that the Federal Reserve commercial bank prime short-term interest rate
should be used when calculating Algoma's credit expense.
Department's Position. We agree, in part, with respondent and
petitioners that commercial reality can be more accurately reflected by
a surrogate U.S. short-term interest rate. Consistent with Department
practice in Steel from Sweden and Steel from Australia, we are
selecting the U.S. average short-term lending rate as reported by the
Federal Reserve. This ``survey rate'' reflects the average short-term
lending rate of 340 U.S. banks given over the quarter. Given the
absence of actual short-term borrowing in the United Stated by Algoma
during the POR, this average is the best measure of the short-term cost
of funds in the United States during the POR.
Comment 8
Respondent claims that the Department's model match program failed
to match U.S. products of a certain grade to home market products of
the same grade. Also, respondent claims that the Department's margin
program incorrectly modified the billing adjustment value for an
invoice on which a rounding difference was identified at Algoma's
verification.
Department's Position. The Department agrees with respondent in
both cases and has made the appropriate corrections for the final
results.
CCC
Comment 1
Petitioners state that CCC utilized Stelco's costs of producing
steel substrate in its cost of production (COP) and constructed value
(CV) data because the Department treated Stelco as an affiliated
supplier to CCC in the first review. Petitioners note that CCC's
reported transfer prices for Stelco substrate were different than the
reported costs. Petitioners, therefore, argue that under the Tariff
Act, CCC would have been required to utilize Stelco's transfer prices
in reporting COP and CV. Petitioners state that sections 773(f)(2) and
(3) of the Act provide that major inputs purchased from affiliated
parties must be valued at the higher of market value, transfer price or
the affiliate's cost of production. Therefore, petitioners state that
the Department must recalculate CCC's COP and CV to account for the
difference between Stelco's costs of production and transfer prices for
the final results.
Respondent states that the antidumping law does not require the use
of the higher of transfer price or cost. It requires the use of cost
whenever the prices between related parties cannot be demonstrated to
be at arm's length. Respondent notes that it has
[[Page 18456]]
always reported its cost of steel substrate at the cost of production
incurred by Stelco, since the original investigation, and the
Department used these costs in the last administrative review.
Respondent argues that the Department has interpreted the antidumping
law to require the use of cost to value inputs by related parties
whenever the transfer prices between them could not be shown to have
been made at arm's length. In addition, respondent states that the
transfer price whether higher or lower than the cost of production is
not relevant if the transfer price could not be shown to have been an
arm's length price. Respondent argues that petitioners have not argued
that Stelco's prices to CCC are at arm's length. Therefore, respondent
states that there is no basis in the law for using's Stelco's prices to
CCC to establish the cost of Stelco's substrate to CCC. Additionally,
respondents states that the facts of the record do not support use of
the transfer prices as the cost of production.
Department's Position. We agree with petitioners. Under section 773
(f)(2) and (3) of the Act, major inputs purchased from affiliated
parties may be valued at the higher of market value, transfer price or
the affiliate's cost of production. In the Final Results of Antidumping
Administrative Review: Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from France, Germany, Italy, Japan,
Singapore, and the United Kingdom, 62 FR 2,081, 2,115 (January 15,
1997) 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.'' There is no market price on the record for
this input. Therefore, the Department's analysis was focused on
transfer prices and cost of production. However, since CCC did not
provide the Department with specific information on transfer prices by
model (i.e., control number), the Department could not perform the
comparison on a model by model basis. Therefore, the Department
compared CCC's average transfer price for all models to the average
total cost of manufacture for all models. The Department found that
CCC's average total cost of manufacture was higher than its average
transfer price. Therefore, for the final results, the Department finds
that substrate from Stelco will be valued at the cost of production. In
addition, we disagree with respondent that the Department has
interpreted the antidumping law to require the use of cost to value
inputs by related parties only where the transfer price between the
parties could not be shown to have been made at arm's length. Even
where prices are demonstrated to have been made at arm's length, under
section 773(f)(3) of the Act, where such prices are for major inputs
and are below the cost of production, the Department may disregard such
prices and base the value of the major input on its cost.
Comment 2
Petitioners argue that CCC failed to report its general and
administrative (G&A) expense in the manner requested by the Department.
Petitioners state that the Department's questionnaire required CCC to
reconcile reported costs to the company's audited financial statements
for the year that most clearly corresponds to the POR. In addition,
petitioners note that CCC's fiscal year data encompasses a full nine
months of the POR, and that administrative and sales expenses in CCC's
financial statements can be reconciled to its audited financial
statements. Petitioners state that CCC used the G&A expenses for the
POR. Therefore, petitioners argue that the Department should
recalculate G&A expenses using a fiscal year period and not a POR
period.
Respondent states that the Department should continue to calculate
G&A expenses based on the POR financial statement data rather than 1995
fiscal year data. Respondent notes that it believes that using 1995
fiscal year data would be improper for several reasons. First, the
Department's past practice has been to use CCC's expenses for the POR
to calculate the G&A ratio. Second, the Department requires that fiscal
year G&A calculations be end-of-year adjustments which are fully
incorporated in the POR costs, which respondent states it has done.
Lastly, the respondent notes that all of its monthly financial
statements can be reconciled with the appropriate audited financial
statements and the audited financial statements are drafted using the
monthly financial statements, which would negate petitioners argument
that the Department should use fiscal year 1995 costs since they can be
reconciled to the audited financial statement. Also, respondent states
that it provided a reconciliation of G&A costs to the aggregated
monthly financial statements. Therefore, the Department should continue
to follow its methodology and calculate G&A costs based on the POR
expenses as reported in the POR financial statement.
Department's Position. We agree with petitioners. It is the
Department's normal practice to calculate G&A expenses based on full-
year G&A and cost of sales figures as reported in the audited financial
statement which most closely corresponds to the POR. (See, Certain
Pasta from Italy, Final Determination of Sales at Less than Fair Value,
61 FR 30326, 30363 (June 14, 1996).) While respondent argues that the
Department should continue to calculate G&A expenses based on POR
financial statement data, the Department may change its position on a
specific issue taken in prior proceedings as long as it provides an
explanation for the change (see, Rust v. Sullivan, 500 U.S. 173, 186-
187 (1991).) Although CCC submitted G&A expenses in the last
administrative review based on costs from monthly financial statements
for the POR, that methodology was not the Department's normal practice
for calculating G&A expenses. Furthermore, there is no basis in this
record to justify deviating from the Department's normal practice.
Consequently, we are following our normal practice in this review,
which is to calculate G&A expense based on CCC's 1995 annual audited
financial statements. (See, Furfuryl Alcohol from Thailand, Final
Determination of Sales at Less Than Fair Value, 60 FR 22557, 22560,
(May 8, 1995).) However, to avoid double-counting, the Department
subtracted indirect selling expenses and movement expenses from the
general and administrative expenses (i.e., the numerator) reported in
the audited financial statements.
Comment 3
Petitioners argue that CCC incorrectly calculated interest expense
and failed to reconcile that value to the amount of interest reported
in its audited income statement. Petitioners note that CCC reduced its
financial statement interest expense by an unexplained amount when it
calculated its interest expense ratio. Petitioners state that the
Department only allows an offset to interest expense for short-term
interest income that is related to production operations. Moreover,
petitioners argue that for the Department to allow the short-term
interest income offset it is the respondent's responsibility to prove
that interest income was short-term and related to production
operations. Therefore, petitioners argue that the Department should
recalculate CCC's interest expense using its 1995 audited financial
statements.
Respondent states that it reported only the interest expense it
paid during the year. Respondent notes that the
[[Page 18457]]
interest it excluded from total interest expense was not paid during
the year. Respondent argues that based on the relationship between the
two parties that it is appropriate to exclude this interest expense.
Therefore, CCC contends it excluded the interest in accordance with
Department practice.
Department's Position. It is the Department's standard practice to
calculate interest expense based on audited financial statements which
most closely correspond to the POR. (See, Notice of Final Determination
of Sales at Less Than Fair Value: Canned Pineapple Fruit from Thailand,
60 FR 29553, 29569 (June 5, 1995)) Only short-term interest income
directly related to general operations of the company may be used as an
offset to interest expense. (See, Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof from the Federal Republic of
Germany, Final Results of Antidumping Duty Administrative Review, 56 FR
31734 (July 11, 1991)) The reduction CCC made to its interest expense
was not interest income; rather, it was an exclusion of certain
interest expenses which it had not paid. The Department calculates the
interest expense based on the total interest a company incurs (accrual
basis) and not simply the interest it paid (cash basis). Section
773(f)(1)(a) specifies that costs will be calculated based on records
kept in accordance with generally accepted accounting principles
(GAAP). Financial statements prepared on the accrual basis are GAAP,
while financial statements prepared on the cash basis are not GAAP.
Therefore, for the final results, we have recalculated interest expense
based on CCC's 1995 interest expense from annual audited financial
statements which were prepared on the accrual basis and in accordance
with GAAP.
Comment 4
Petitioners argue that for one control number (CONNUM) CCC reported
inconsistent cost information. Petitioners state that CCC reported its
variable and total costs of manufacture differently in its sales and
costs listings. Moreover, CCC's cost data was not verified, therefore
it is not possible to determine which set of calculations is correct.
Therefore, petitioners argue that the Department should utilize the
higher of the two values for calculating COP and CV, as facts
available.
Respondent states that the cost data for the one U.S. sale falling
within this particular CONNUM should be corrected. Respondent states
that it originally improperly reported this sale as a temper rolled
product. However, during the course of verification, CCC states it
discovered that this sale was a non-temper rolled product.
Additionally, respondent states that it corrected the final sales
database for this CONNUM, but inadvertently failed to do so in its cost
database because of a computer glitch.
Respondent opposes the petitioners' argument that because the
Department did not conduct a full cost verification, it should use an
adverse inference and apply the higher costs for all sales falling
within this CONIUM in the U.S. and home markets. Respondent notes that
this would be unfair. Respondent argues that the Department reviewed
two CONNUMs during verification and verified its VCOM and TCOM
calculations of these two CONNUMs with no discrepancies. Respondent
argues that facts available are used where the requested information is
missing or cannot be used because it has not been provided, was
provided late, or the Department could not verify the information.
Respondent states that it provided the information in a timely manner
and was able to verify the costs. Therefore, no basis exists to
substitute the higher temper rolled costs for the non-temper rolled
costs.
Department's Position. We agree with the respondent. At
verification, the Department discovered that the control number for
this sale was incorrectly reported. The Department then allowed the
respondent the opportunity to correct its database (See, Verification
Report, Pre-Selected U.S. Sale EP1 Exhibit 10). While respondent
corrected the sales information for this control number, it failed to
correct its cost information. In addition, the Department verified
CCC's methodology for calculating the variable cost of manufacturing
(VCOM) and the total cost of manufacturing (TCOM) and found that its
methodology was reasonable (see, Verification Report, CONNUM Cost
Traces). Therefore, for the final results, the Department has corrected
CCC's cost information (i.e., VCOM and TCOM) in the U.S. database for
this CONNUM in the model match program.
Comment 5
Petitioners state that section 772(c) of the Act provides that in
calculating EP or CEP, a deduction must be made to account for duties,
including antidumping duties, paid by the respondent or its related
party, as supported by C.J. Tower & Sons v. United States, 71 f.2d 438,
445 (C.C.P.A. 1934). Thus, conclude petitioners, the statute requires
that the Department must deduct antidumping duties paid by the
respondent on U.S. sales.
Petitioners state that in Federal-Mogul Corp. v. United States, the
plaintiff challenged the Department's decision not to deduct estimated
antidumping duty deposits under the predecessor provision to section
772(c)(2)(A). Petitioners contend that the Department argued that this
provision applied only to deduction of ``normal'' import duties.
Petitioners also state that, the Department argued in the alternative,
not deducting estimated antidumping duties (as opposed to duties
actually to be assessed) had been its longstanding practice. The CIT
affirmed the Department's refusal to deduct estimated AD duties, but
did not adopt the Department's reasoning that section 772 applied only
to ``normal'' import duties, and that antidumping duties were not
normal import duties within the meaning of the statute (813 F. Supp.
872). Thus, petitioners maintain that section 772 requires the
Department to deduct any import duties (including antidumping duties)
that can be accurately determined at the time the Department calculates
dumping margins.
Petitioners state that the legislative history to the URAA does not
suggest that Congress rejected the construction of section 772(c)(2)(A)
urged by petitioners. Petitioners continue that the Senate Finance
Committee recognized that the Court of International Trade was
considering this issue, and directed the Department to abide by the
outcome of that litigation (see, S. Rep. No. 412, 103d Cong., 2d Sess.
64 (1994)). Therefore, state petitioners, Congress did not intend to
ratify the Department's not having treated duties as a cost in the
URAA, but recognized that the issue would be resolved through the
judicial process.
Petitioners state that the difference calculated between normal
value and EP or CEP on each sale by the Department's margin program is
equal to the AD duties to be paid by the importer. Once this difference
is calculated, they argue, it should then be deducted from EP or CEP
for use in calculating final margins.
Respondent asserts that the Department should once again reject
petitioners' argument to deduct AD duties in its margin calculation and
that the Department did not deduct AD duties from EP and CEP sales in
the first administrative review. Respondents contend that petitioners
failed to offer any argument as to why the Department should reach a
different conclusion in this review. Respondent continues that in
numerous determinations over many years, the Department has
consistently
[[Page 18458]]
refused to deduct AD duties from EP and CEP sales and should continue
to do so. Respondent contends that while petitioners'' argue that
section 772(c)(2)(A) requires the Department to deduct AD duties from
EP and CEP sales, there are no U.S. rulings in direct support of their
interpretation. Respondent states that the Department has consistently
rejected petitioners'' argument and that the most succinct rationale
for the Department's policy is contained in Carbon Steel Flat Products
from the Netherlands, 61 FR 48465 (September 13, 1996)). It states, in
part, ``it is the Department's longstanding position that antidumping
and countervailing duties are not a cost within the meaning of 19
U.S.C. section 1677(a)(d). . . . Unlike normal duties, which are an
assessment against value, antidumping duties derive from the margin of
dumping or the rate of subsidization found. Logically, antidumping and
countervailing duties cannot be part of the very calculation from which
they are derived.''
Respondent concludes that the Department's practice is clear, and
that the CIT has consistently affirmed the decision not to deduct AD
duty deposits from EP and CEP sales. Additionally, respondent states
that the URAA House Ways and Means Committee Report and the SAA
explicitly state that the new duty absorption provision is not intended
to provide for the treatment of antidumping duties as a cost. Thus,
states respondent, the Department should continue to refuse to deduct
AD duties from Stelco's EP and CEP sales.
Department's Position. We disagree with petitioners. As we stated
in the final results of the first administrative review of this order.
The Department does not deduct antidumping duties from the U.S. price,
because they do not qualify for deduction as ``normal import duties,
under section 772 and because such a deduction would double-count the
dumping margin. See, Certain Corrosion-Resistant Carbon Steel Flat
Products and Certain Cut-to-Length Carbon Steel Plate from Canada:
Final Results of Antidumping Duty Administrative Review, 61 FR 13815
(March 28, 1996) (Comment 23): note that the applicable provision of
the statute, 1677a(d)(2)(A), in that review was recodified under the
URAA as 1677a(c)(2)(A). Nothing in the SAA or in the legislative
history of the URAA compels the Department to reconsider that decision.
Furthermore, there have been no intervening judicial interpretations
suggesting that the Department reconsider its interpretation of the
statute as it applies to this case.
Dofasco
Comment 1
Petitioners argue that Dofasco failed to use its normal cost
accounting system to prepare the response as required by the
questionnaire. Petitioners maintain that the system which Dofasco, Inc.
chose to use, the PaYs system (a management system), is not audited and
therefore cannot be used to report costs. Petitioners also state that
the Department's questionnaire requires respondent to contact the
official in charge before submitting the response to Section D of the
questionnaire in the event that respondent does not intend to use its
normal cost accounting system and cost allocation methods to compute
COP and CV for the merchandise under review. The Department, therefore,
should use adverse facts available.
Dofasco asserts that it submitted actual, fully-absorbed product
costs. According to Dofasco, it relied on its normal cost accounting
system for the POR costs, and the PaYs system was used only to
calculate product costs. Dofasco further notes that the PaYs system, as
an allocative system, does not require an audit opinion.
Department's Position. The Department's Questionnaire states that
the ``COP and CV figures that you report in the response (to Section D
of the Questionnaire) should be calculated based on the actual costs
incurred by your company during the period of review as recorded under
its normal accounting system.'' See, Department's Second Administrative
Review Antidumping Questionnaire (September 14, 1995), page D-1. The
Questionnaire further states that these figures must reconcile to the
actual cost reported in the company's costs accounting system and to
accounting records used by the company to prepare its financial
statements.
Significantly, the Department verified that the COP and CV figures
reported in Dofasco's response were in fact based on the actual costs
incurred by Dofasco during the period of review. Furthermore, we
reconciled these actual costs to Dofasco's accounting records used by
the company to prepare its financial statements. Therefore, we
determined that the actual costs from Dofasco's process cost accounting
system formed the basis of Dofasco's response. The overriding concern,
then, becomes the allocation methodologies employed by respondents.
Dofasco utilized a management cost system to perform the
allocations of its actual costs. Petitioners question the integrity of
such an allocation system, citing Certain Hot-Rolled Carbon Steel Flat
Products from Korea. Specifically, petitioners note that the Department
stated in that case that reliance on ``a management cost system which
has not been audited and is not used for the preparation of the
financial statements or for any purposed outside internal deliberations
of the company does not assure the Department that such costs have been
stated in accordance with generally accepted accounting principles, or
that all costs have been appropriately captured by the system.'' See,
Certain Hot-Rolled Carbon Steel Flat Products from Korea, 58 FR 37176,
37186 (July 9, 1993).
However, we note that the circumstances surrounding the
Department's decision in Hot Rolled Steel from Korea and this case are
significantly different. First, in Hot-Rolled Steel from Korea, the
Department found at verification that respondent was unable to
reconcile its reported per unit costs to company documents maintained
and used in the ordinary course of business. In contrast, at
verification, Dofasco reconciled its actual costs to documents
maintained and used in the ordinary course of business, such as the
grade code cost table (Cost Verification Report, page 4) the corporate
order history database (Cost Verification Report, pp. 4-5), and
therefore the PaYs system.
Second, while the respondent in Hot-Rolled Steel from Korea
reconciled (with adjustments) the total costs of production from its
management system with the total costs of production used in its
financial accounting system and its audited financial statement,
respondent could not support the adjustments it made to the financial
statement system. Dofasco's reported production costs, in contrast,
tied to its financial accounting system and to its audited financial
statements (see, e.g., page 3 of the Cost Verification Report), and the
Department found no inappropriate adjustments to Dofasco's financial
statement system.
Finally, we note that the Department's remedy in Hot-Rolled Steel
from Korea was to upwardly revise respondent's costs by the difference
between the financial accounting system total costs and the submitted
management system total costs. However, the Department verified that
Dofasco modified PaYs to include all costs (except for the minor
discrepancies discussed at Comments 2 and 3 below). See, e.g., the
Department's review of Dofasco's reported costs for fixed overhead
expense (page 14 of the Cost Verification Report), and for inventory
change (page 15 of the Cost Verification Report).
[[Page 18459]]
Petitioners have also cited Certain Carbon Steel Flat Products from
Brazil, 58 FR 37091 (July 9, 1993) and Erasable Programmable Read Only
Panels from Japan, 51 FR 39680 (October 30, 1986) as further evidence
that the Department expects respondent to base its response on its
normal cost accounting system. However, because we determined that
Dofasco's costs tied to its normal cost accounting system, respondents
have fulfilled that expectation.
Petitioners stress that, as an unaudited system, errors in the
program will remain uncorrected, and that the costs generated by the
system are not necessarily formulated in accordance within generally
accepted accounting principles. 19 U.S.C. section 1677b(f) states that
``costs shall normally be calculated based on the costs of the exporter
or producer...if such records are kept in keeping with the generally
accepted accounting principles of the exporting country.'' In this
respect, Dofasco has responded to the Department's request for
information in accordance with the statute. The Department found at
verification that Dofasco's costs were in fact based on audited costs,
and thus were costs based on records kept in accordance with the
generally accepted accounting principles of Canada. See, e.g., Cost
Verification Report at pp. 7-12, 14-15, 18-19. As respondent has noted
in its rebuttal brief, the PaYs system allocates costs from Dofasco's
cost accounting system to specific Departmentally-defined products
(``control numbers''). Thus, the Department's role at verification with
regard to this allocation system was to (1) ensure that the costs
forming the basis of the allocation were audited costs; and (2) to
examine the parameters on which the allocations were based. As
discussed above, the Department verified that the reported costs were
actual and audited. Furthermore, at verification we examined several
allocations made by the PaYs system (see, pages 5 and 9 of the Cost
Verification Report) to confirm that these allocations were used in
Dofasco's normal course of business, have been used historically by
Dofasco, and reasonably reflect and accurately capture all actual costs
in producing the product under review, as required by the SAA (at 834-
835).
Regarding respondent's obligation to contact the official in charge
before submitting the response to Section D of the questionnaire in the
event that respondent does not intend to use its normal cost accounting
system and cost allocation methods to compute COP and CV for the
merchandise under review, we note that respondent's reported costs tie
to its normal cost accounting system. Furthermore, the PaYs system is a
cost accounting system used by Dofasco for management accounting and
cost control purposes (see, Cost Verification Report, page 4) which
reconciles completely with the financial accounting system. Therefore,
we do not find that Dofasco was obliged to notify the Department of its
methodology prior to submission of its response.
Comment 2
Petitioners maintain that the PaYs system and Dofasco's normal cost
accounting system have different yield loss rates, and such a
difference affects the accuracy of reported costs. Petitioners also
argue that the yield loss calculated for the PaYs system was in part
due to the inclusion of impossible yields on certain individual orders.
Dofasco asserts that the difference in yield loss was due to three
factors. First, Dofasco states that the yield loss for PaYs was based
on home market orders, as requested by the Department, while the yield
loss under Dofasco's normal accounting system is based on total
shipments since separate inventories are not kept for the home market
versus other destinations. Second, Dofasco noted that the yield loss
for PaYs is based on production over the period of review, while the
yield loss under Dofasco's normal accounting system is based on
shipments over the period of review. Finally, Dofasco stated that PaYs
tracks weights by operation, thus separating galvalume from galvanized
material, while under Dofasco's normal accounting system galvalume and
galvanized material are kept in common inventory accounts to the end of
cold rolling.
Department's Position. At verification, the Department reviewed
Dofasco's narrative explanation of the yield loss. See, Cost
Verification Report, pg. 20. Petitioners do not contest the rationale
offered by Dofasco to explain differences between the yield loss rates
and the Department has accepted the rationale as reasonable. However,
as petitioners have noted, an examination of the data placed on the
record indicates that, in addition to the three reasons put forward by
Dofasco explaining the differences in yield loss rates, inaccurate data
also affected the yield loss rates generated by PaYs. As petitioners
also note, Dofasco did not provide a numerical reconciliation of the
difference at verification. Additionally, Dofasco has not offered an
explanation of the apparently aberrational data to which petitioners
have pointed in their case brief.
Section 776(a)(1) of the Act stipulates that if the necessary
information is not available on the record * * * the administering
authority and the Commission shall, subject to section 782(d), use the
facts otherwise available in reaching the applicable determination
under this title. Therefore, for the final results of review, the
Department has calculated the difference between Dofasco's reported
yield loss rate after excluding sales orders which incorporate
inaccurate data. As facts otherwise available, the Department considers
the error for this group of products to be representative of Dofasco's
reporting of all subject merchandise. Because the effect of the error
was to over-report produced weight, the corresponding yield loss rate
was under-reported by the PaYs system. Thus, we have upwardly adjusted
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, Memorandum to the File: Analysis Memorandum for the
Final Results of Review--Second Administrative Review of Certain
Corrosion-Resistant Carbon Steel Flat Products from Canada (Dofasco),
page 7.
Comment 3
Petitioners maintain that the PaYs system fails to account for
changes in work-in-process inventory (``WIP''), and that Dofasco failed
to include these costs in its reported costs.
Dofasco responds that, because the costs incorporated into PaYs
originate from the normal process cost accounting system, changes in
WIP have been included in PaYs. Further, Dofasco asserts that the
Department verified that Dofasco adjusted for inventory change, both
finished and in process.
Department's Position. We agree with petitioners. Contrary to
respondent's assertion with regard to what the Department verified, at
verification the Department reconciled WIP to Dofasco's financial
statements, and verified Dofasco's reported actual costs for work-in-
process and finished inventory. See, Cost Verification Report at page
3. There is no discussion in the verification report showing that
Dofasco provided a reconciliation of WIP to the costs included in
Dofasco's computer submission to the Department.
While there is no evidence that WIP has been included in Dofasco's
reported costs through PaYs, the record contains evidence of Dofasco's
WIP change for the POR. See, Exhibit 7 of the Cost Verification Report.
Because inventories for all WIP rose for the POR, the effect
[[Page 18460]]
is that Dofasco overstated its costs for the period by a small amount.
See, Analysis Memorandum, pg. 7 and Attachment 2. We have adjusted
Dofasco's cost of manufacture accordingly.
Comment 4
According to petitioners, despite the Department's repeated
requests, Dofasco failed to provide an inventory cost reconciliation.
Petitioners insist that Dofasco should have been able to reconcile its
10 normal cost accounting product groupings to the over-1000
Departmentally-defined ``products.'' Petitioners argue that no company
is expected to maintain its costs using the Department's narrow product
definition.
Petitioners allege that Dofasco failed to prepare the necessary
reconciliation: specifically, multiplying the reported costs by the
quantity and reconciling the total to the financial statements.
Petitioners state that: (1) While individual costs used by PaYs are
derived from the same source documents as the financial statements,
nevertheless it does not follow that per unit costs of manufacture
(COMs) calculated by PaYs will equal the per unit costs maintained for
purposes of the financial statements; and (2) items presented at
verification failed to demonstrate that Dofasco had submitted fully-
absorbed product costs. Petitioners assert that, barring use of adverse
facts available, the Department should request reconciliations again,
and verify them.
Dofasco argues that the PaYs system correctly accounts for changes
in inventory, and that Dofasco has reconciled its reported costs.
Furthermore, the Department verified these costs, by reconciling (1)
the financial statements (which include inventory values) to the normal
cost accounting system, and (2) the normal cost accounting system to
PaYs. In addition, Dofasco claims that for certain ``PRODUCTS''
(Departmentally defined models) selected by the Department, it provided
a detailed reconciliation of the normal cost accounting system to PaYs,
and a reconciliation of PaYs to PRODUCT costs.
Department's Position. In its original questionnaire and in a
supplemental questionnaire, we asked for an inventory cost
reconciliation, for selected models. Specifically, we asked Dofasco to
perform the reconciliation from the per-unit cost of the product
Dofasco records for inventory movements from work-in-process to
finished goods inventory to the COM submitted in the COP/CV response.
In response to this request, Dofasco provided a thorough explanation in
its submission to the Department as to why such a reconciliation was
not possible, explaining adequately why its ten normal, internal
product categories for corrosion-resistant products do not lend
themselves to a reconciliation with specific, Departmentally-defined
models.
Nonetheless, at verification, the company reconciled numerous costs
from the audited financial statements, to plant operating statements,
to Dofasco's Section D response, to the PaYs system, and to submitted
COP/CV data. Additionally, at verification, we reviewed the cost build-
up for two specific models. See, Cost Verification Report, pp. 5-6.
Petitioner cites Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from Germany, 56 FR 31692, 31707 (July 11,
1991) and the Department's statement that ``verification depends
precisely on tying amounts reported in the responses to the company's
internal accounting and financial statements. Failure to demonstrate
such a relationship results in a failed verification.'' In this case,
the Department upholds this principle. Actual cost expenditures, as
reported in Dofasco's Section D response, have been tied to Dofasco's
plant operating statements, financial statements, normal accounting
records, and, through PaYs, to the submitted COP/CV. See, e.g., the
discussion of Dofasco's variable overhead expense in the Cost
Verification Report, pp. 11-12. Therefore, the Department determines
that costs have been accurately captured and that the cost amounts
reported in the response reconcile to the company's financial
statements.
Comment 5
Petitioners argue that Dofasco improperly calculated its interest
expense factors. Petitioners state that Dofasco did not include certain
expenses in the calculation of total interest expense. According to
petitioners, Dofasco also improperly included a profit sharing figure
in its cost of sales. Finally, petitioners maintain that Dofasco
improperly adjusted for trade accounts receivable for the CV interest
expense. Petitioners assert that Dofasco should conform the CV interest
expense to its COP expense calculation.
Dofasco contends that it did include the proper expenses in its
consolidated interest expense calculation, and that it properly
included profit sharing in general and administrative expenses only.
With regard to an adjustment for trade accounts receivable, Dofasco
argues that the Department's policy on this issue was elucidated 3 1/2
months after Dofasco's submission of its Section D response. Therefore,
Dofasco maintains that it was not an ``error'' by Dofasco to report the
CV interest expense in the manner it did.
Department's Position. The expenses that petitioners maintain have
been excluded from the interest expense calculation have in fact been
included in respondent's calculation of interest. See, Dofasco, Inc.'s
response to Section D Supplemental, Exhibit Supp. I.8, ``Calculation of
Interest'' for 1995, which shows that the expenses in question have
been included in one of the components of Dofasco's calculation.
With regard to the amount for profit sharing, verification exhibit
33, page B3 shows that the cost of sales figure reported on page B1
does not include profit sharing, but does include the cost of sales
figure used in Dofasco's calculation shown on page A1. Furthermore, the
cost of sales figure reported on page B1 indicates that it is a figure
calculated before certain adjustments, including that for profit
sharing.
Finally, with regard to the calculation of interest expense for CV,
we agree with Dofasco that its response methodology does not constitute
an ``error,'' as the Department had not made clear respondents'
requirements under the new statute at the time of Dofasco Inc.'s
Section D submission. Nevertheless, the Department has stated in
Certain Pasta from Italy that the statute requires interest expense to
be computed in the same way for COP and CV, and that an accounts
receivable offset for CV interest expense is not permitted. Therefore,
for the purposes of calculating interest expense for the final results
of review, we have revised Dofasco's calculation of interest expense
for CV to remove the offset for trade accounts receivable.
Comment 6
Petitioners state that Dofasco should treat sales through Dofasco's
U.S. subsidiary as constructed export price sales, because Dofasco USA
(DUSA) played a significant role in the sales process, incurred
expenses connected with its U.S. and further manufacturing activities,
and because the circumstances regarding ownership and control of the
merchandise sold in the U.S. prior to delivery to customers were such
that these sales should be considered CEP sales.
Petitioners argue that, in the event that the Department does not
classify all DUSA sales as CEP sales, then it must
[[Page 18461]]
at least classify those DUSA sales for which there has been further
manufacturing as CEP transactions. Petitioners allege that in this same
situation, the Department ruled in Certain Cold-Rolled and Corrosion-
Resistant Carbon Steel Flat Products from Korea that such sales should
be considered CEP sales.
Petitioners also maintain that, in the event that the Department
does not classify all further manufactured sales as CEP sales, it must
at least classify those DUSA sales for which the date of sale occurred
after importation as CEP sales.
Dofasco states that the Department properly determined that U.S.
sales through DUSA were export price transactions. Dofasco notes that
the Department and the Court have held that sales through a U.S.
affiliate are export price transactions if the merchandise is sold
directly to U.S. customers without physically entering the affiliate's
inventory. Dofasco goes on to state that the sales constitute a
customary commercial channel of trade, and the U.S. affiliate only
acted as a paper processor and communications link for those sales.
Dofasco argues that the merchandise sold did not enter DUSA's physical
inventory for storage awaiting sale to a customer, and that Dofasco
negotiated the prices charged and was responsible for marketing and
sales development. Dofasco notes that the Department has held
(including in the first review of this case) that the circumstances
surrounding the further processing of some of the merchandise sold
through a U.S. affiliate do not indicate that those sales were CEP
transactions. Dofasco also stresses that the further processing was not
undertaken on the account of the producer or exporter, or the
affiliated party in the United States.
Department's Position. We agree with respondent. The Department, in
the first administrative review of this proceeding, noted that
Dofasco's sales through DUSA were purchase price (now referred to as
export price) 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 MacDonald:
Administrative Review of Corrosion Resistant Carbon Steel Flat Products
from Canada: Categorization of sales of Dofasco, Inc. (``Memorandum for
Roland MacDonald''), page 2 (July 12, 1995) (Public Version). While
this decision was made under the pre-URAA governing statute, there are
no differences under the post-URAA statute with regard to the statutory
basis for this determination.
Thus, in the first administrative review the Department based its
decision with regard to the DUSA sales on three factors: (1) While DUSA
took title to the steel, it did not take the steel into physical
inventory; (2) because DUSA had no facilities in the United States, it
was clear that the channel of delivery was directly from Dofasco to the
customer, or to an unrelated processor of the customer's choosing; and
(3) DUSA was nothing more than a processor of paper and communications
link. See, Memorandum for Roland MacDonald, page 3 (July 12, 1995)
(Public Version).
In the current administrative proceeding, the only change in
circumstances is the establishment of a separate DUSA office in the
United States. Hence, the Department must review the basis of its
earlier decision in light of this changed circumstance. Specifically,
we must determine: (1) Whether DUSA takes physical inventory of subject
merchandise at the new location; (2) whether the channel of delivery is
customary (i.e., still from Dofasco to the customer); and (3) whether
the new office performs a role more significant than that of a
processor of documents and communications link.
With regard to whether DUSA takes physical inventory of subject
merchandise at the new location, Dofasco has stated for the record that
neither Dofasco nor DUSA own or lease any U.S. warehousing facilities.
See, Dofasco's Supplemental Sales Response, pp. 23-24 (January 18,
1996). Petitioners do not dispute this fact. Rather, petitioners argue
that the fact that DUSA does not own a warehouse has no legal
significance. Instead, petitioners stress that the ``critical fact'' is
that the merchandise is in the United States prior to being sent to the
ultimate customer, under circumstances which warrant the Department's
determination that such sales are CEP sales.
Despite petitioners' assertions, as the Department noted in the
first administrative review (Memorandum for Roland MacDonald, page 3
(Public Version)), the Department has long required that the
merchandise be taken into physical inventory, rather than mere
financial (accounting) inventory. See, Certain Steel from France, 58
FR, 37134 (1993) (sale is PP where U.S. subsidiary takes title but does
not warehouse merchandise in the ordinary course of business);
Polyethylene Terephthalate (``PET'') Film, Sheet and Strip from Japan,
56 FR 16300, 16303 (1991) (sale is PP where subsidiary takes financial
but not physical inventory). Therefore, we find no reason to reverse
our decision based on this criterion.
With regard to whether the channel of delivery is customary, the
Department determined in the first administrative review that because
DUSA has no facilities in the United States, it is clear that the
channel of delivery is directly from Dofasco to the customer, or to an
unrelated processor of the customer's choosing. While DUSA now has an
office in the United States, the Department has verified for the
current review that Dofasco's channels of delivery through DUSA remain
the same as for the prior review period. Petitioners suggest that the
mere existence of this U.S. office serves to establish that the ``use
of DUSA as was done during the POR is not the customary channel of
trade.'' See, Petitioners' Case Brief at 38. However, petitioners have
not shown that the channel of delivery is in any way different from the
previous review period. Indeed, there is no record evidence that
subject merchandise is now being shipped to the U.S. affiliate (or to a
warehouse dictated by the customer) from the subsidiary location in the
United States, or that the channel of shipment is otherwise different
from the first administrative period. Therefore, there is no reason to
reverse our decision in the last administrative review based on this
criterion.
With regard to the last criterion, whether DUSA plays a role more
significant than that of a processor of documents and communications
link, petitioners make several arguments. First, petitioners state
that, by virtue of maintaining U.S. operations, DUSA incurred
significant expenses in connection with its activities, such as
salaries of its personnel and general and administrative expenses to
support them. Petitioners argue that deducting such expenses from the
U.S. price in CEP situations is one of the statutory requirements
intended to ensure fair comparisons in an antidumping analysis. Second,
petitioners maintain that the record shows that DUSA was an active
participant in the negotiating and selling process, citing letters with
customers which are on the record of this review. Finally, petitioners
state that certain other support functions performed by DUSA add to the
significance of its role as a seller.
Petitioners suggest that the existence of a U.S. operation which
incurs
[[Page 18462]]
``significant'' expenses requires the Department, by statute, to treat
sales through this U.S. affiliate as CEP sales in order to deduct such
expenses from the U.S. price. However, we disagree that the level of
the expenses, by itself, should be a criterion. Rather, the significant
consideration is whether the U.S. affiliate's function is more than
acting as a communications link between the unaffiliated customer and
the exporter. We have stated this in numerous other cases in which the
Department has considered whether there are circumstances in which
sales through U.S. affiliates should be treated as export price (or,
under the pre-URAA law, purchase price) transactions. See, e.g.,
Certain Corrosion-Resistant Carbon Steel Flat Products from Korea, 61
FR 18547; Stainless Steel Wire Rod from France 58 FR 68865; and New
Minivans from Japan 21 FR 21937. The Department's three criteria for
determining the treatment of sales through a U.S. affiliate as EP or
CEP are appropriate for making this determination.
With regard to petitioners' interpretation of DUSA's role in the
negotiating and selling process, the record evidence does not prove
that the terms and conditions of a specific contract (see, Attachment
I.10 of the January 18, 1996 Supplemental Questionnaire Response, APO
Version) were negotiated by DUSA, nor does the evidence contradict
Dofasco's explanation regarding the contract's circumstances (see,
Respondent's Rebuttal Brief (APO Version), pg. 25). Moreover, numerous
documents have been placed on the record, including those taken at
verification, demonstrating DUSA's role vis-a-vis Dofasco, Inc.'s role
in sales negotiations. See, e.g., exhibit 2 of the Sales Verification
Report; and Attachments I.6, I.8, and I.9 of Dofasco's Supplemental
Questionnaire Response (January 18, 1996). These documents support
respondent's claim that Dofasco, Inc. was primarily responsible for
conducting sales activities with U.S. clients.
Finally, concerning petitioners' assertion that certain other
support functions performed by DUSA add to the significance of its role
as a seller, we believe that the affiliate's status with regard to
title, its involvement in warehousing and further processing, and the
performance of certain selling functions do not warrant rejection of
Dofasco's EP classification of these sales. First, with regard to
title, these circumstances are no different than in the first review.
See, Memorandum for Roland MacDonald at page 3. Second, petitioners
have not accurately described DUSA's role with regard to warehousing
and further processing. Thus, petitioners' cite to Large Newspaper
Printing Presses from Germany does not provide an applicable precedent.
Finally, because the Department verified that DUSA continued to perform
the same functions as a sales facilitator as it did during the first
administrative review (see, Dofasco Sales Verification Report, August
6, 1996, pg. 2), we do not regard the performance of the selling
function cited by petitioners (see, Page 36 of petitioners' Case Brief)
as adding to the significance of DUSA's role.
Comment 7
Petitioners claim that Dofasco failed to report freight charges for
numerous U.S. sales, and that by doing so, Dofasco failed to act to the
best of its ability in preparing its response. Therefore, petitioners
argue that the Department should use the highest freight rate as
partial facts available for these sales, citing PVC and Polystyrene
Framing Stock from the United Kingdom, 61 FR 51411, 51415 (October 2,
1996).
Dofasco asserts that petitioners' contention that it failed to
report any freight charges for U.S. sales is wrong, because the freight
expense is contained in computer fields other than the ones specifying
the maximum freight charge for U.S. transactions.
Department's Position We agree with respondents that, for the large
majority of the sales in question, Dofasco has in fact reported freight
charges as required by the Department. As noted by Dofasco in its
rebuttal brief, in many instances it has reported maximum freight
charges in the computer field for freight from Dofasco to the
warehouse. Additionally, the Department verified that Dofasco reported
actual freight in the computer fields for warehousing, further
processing, and freight-out.
However, for several of these transactions, Dofasco failed to
report any freight charges. See, Analysis Memorandum at page 4. For
these sales, as partial facts available we have assigned the maximum
freight value for that destination (consistent with Dofasco's reporting
methodology of using the maximum value for each destination), or, in
the event there was no maximum freight value for that destination
anywhere on the database, we have assigned the highest maximum freight
value for any destination.
Comment 8
Petitioners argue that the Department should deduct antidumping
duties paid by Dofasco USA which were reimbursed by Dofasco. According
to petitioners, the fact that Dofasco USA had more liabilities than
assets is evidence that it must have been reimbursed antidumping duties
paid on U.S. imports. Petitioners state that this is contrary to the
statute.
Dofasco contends that no evidence exists to support petitioners'
allegation that Dofasco pays antidumping duties on behalf of Dofasco
USA or reimburses Dofasco USA for antidumping duties. Dofasco claims
that the language of the reimbursement provision, as well as the
Department's interpretation of that regulation, indicates that in order
to trigger the regulation, affirmative evidence (``evidence beyond a
mere allegation'') must exist. According to Dofasco, because
petitioners have failed to establish a link between intracorporate
transfers of funds and the reimbursement of antidumping duties, the
Department should not rule that reimbursement exists.
Department's Position. We agree with respondents. In this case,
petitioners have provided no evidence showing that the Dofasco directly
pays antidumping duties or reimburses Dofasco USA specifically for such
duties. Even if Dofasco USAs financial records could be construed to
show that there has been an intracorporate transfer of funds, such a
transfer is likewise insufficient evidence of reimbursement of duties.
As the Department stated in AFBs from France, ``the antidumping law
does not . . . prohibit related parties from transferring money to
one another.'' See, Final Results of Antidumping Administrative Review:
Antifriction Bearings (Other than Tapered Roller Bearings) and Parts
Thereof from France, 57 FR 28360, 28371 (June 24, 1992). The Department
clarified this point before the Court of International Trade, in
Torrington Co. v. United States (881 F. Supp. at 629):
Commerce states 19 CFR 353.26 mandates a deduction to USP, not when
there is any transfer between related parties, but rather, when there
is reimbursement of antidumping duties. Commerce asserts that it has
consistently held that absent evidence of reimbursements, it has no
authority to make such an adjustment to U.S. price.
Thus, we do not find that reimbursement of antidumping duties
exists in this case.
Comment 9
Petitioners argue that the Department must deduct antidumping
duties paid by the respondent or related parties, pursuant to section
772(c)(2)(A) of the Act. Specifically, petitioners argue that
[[Page 18463]]
the phrase ``import'' used in this provision included antidumping and
countervailing duties.
Dofasco asserts that the Department has consistently determined not
to deduct antidumping duties from US price and should continue to do so
for the final results.
Department's Position. We agree with respondents. See, CCC comment
5 supra.
Comment 10
Respondents allege certain clerical errors were made in the
computer program used to calculate Dofasco's margin. Specifically,
Dofasco claims that the Department made errors by: (1) Failing to
follow the established product hierarchy in the model match program;
(2) improperly calculating the weighted-average home market values
where there are two or more most similar products in the home market;
(3) failing to combine a customer category for Sorevco, Inc. in the
same manner as was done for Dofasco Inc.'s customer categories
(petitioners made the same claim); (4) erroneously including customer
category in the model match program; (5) erroneously including sales in
its model match which were excluded in the margin calculation program;
(6) failing to exclude, from the margin calculation program, sales
outside the ordinary course of trade, and those outside the window
period (petitioners made the same claim); (7) incorrectly calculating
entry value for those sales in which Dofasco was unable to provide an
entry value figure; (8) including certain repetitive language in the
program; (9) not eliminating sales of a given product to affiliated
customers when no sales of that same product were made to unaffiliated
customers in the pattern of price differences program; (10) performing
an incorrect mathematical computation in calculating constructed value
profit; (11) erroneously matching sales within the same month at
different levels of trade before matching sales at the same level of
trade within the 90/60 day window period; and (12) improperly including
sales which had failed the arm's-length test in calculating indirect
selling expenses and constructed value profit.
Petitioners additionally claimed that the Department made a
clerical error by including the minimum freight field for expenses used
to calculate cost instead of the maximum freight field.
Department's Position. We agree with all comments made by Dofasco
and petitioners, and have corrected our program for the final results.
Stelco Inc.
Comment 1
Because Stelco reported the cost of painting steel coils by its
affiliate Baycoat in lieu of reporting the price charged by Baycoat to
Stelco, petitioners urge the Department to: (i) Draw an adverse
inference based on Stelco's failure to cooperate; (ii) utilize the most
adverse facts otherwise available to recalculate COP and CV; and, (iii)
use an adverse adjustment to normal value with respect to the
comparison of nonidentical merchandise. Petitioners state the
Department was fully justified in rejecting Stelco's use of
manufacturing costs as the value of painting services provided to
Stelco by its affiliate Baycoat.
Petitioners cite section 773 (f)(2) and (3) of the Tariff Act of
1930 (``the Act'), as amended, which states that when valuing inputs
supplied to a respondent by affiliated suppliers the value reported for
a transaction must be the value of such input (i.e., transfer price)
provided such price reflects the price commonly charged in the market.
Petitioners state that the cost of producing the input may only be used
for a major input where it is greater than the market value.
Petitioners assert the facts on the record of this case establish that
(1) painting was a major input; (2) the prices charged to Stelco by
Baycoat were at market value; and, (3) the transfer prices were higher
than the cost of production.
Petitioners argue that prior determinations did not bind the
Department because of a significant change in the law. Between the time
of the first review and the current proceeding sections 773(f) (2) and
(3) of the Act were amended and now clearly apply to both cost of
production and constructed value, whereas under the old law different
rules applied. Petitioners argue that Stelco's acknowledgment in their
submissions that prices from Baycoat were market prices establish that
the prices were at fair (i.e., market) value.
Petitioners also claim Stelco had more than adequate notice of the
change in the law through the new statute, the statement of
administrative action, the new questionnaire, and the Department's
request for transfer prices in the supplemental questionnaire.
Petitioners cite section 776(b) of the Act, as amended, to support
their contention that the Department use an adverse inference.
Petitioners state that the fact that transfer prices examined by the
Department differed from the reported costs is compelling evidence that
Stelco withheld transfer price information and failed to provide
information in the form or manner requested. Petitioners argue
Department practice is to use an adverse inference where a respondent
has not cooperated to the best of its ability. Petitioners cite the
Preliminary Results of Antidumping Duty Administrative Review: Granular
Polytetrafluoroethylene Resin from Italy, 61 FR 51266, 51267 (October
1, 1996) (Resin from Italy) and the Preliminary Results of Antidumping
Duty Administrative Review: Roller Chain, Other Than Bicycle, From
Japan, 61 FR 28,168, 28,169 (June 4, 1996) (Roller Chain from Japan) to
support their contention the Department has used the most adverse
information when choosing among alternative facts available.
Petitioners reason that applying an adjustment factor to the
difference in merchandise data does not constitute an adverse inference
either. Petitioners suggest the highest difference in merchandise
adjustment that can be added to normal value and still result in
comparable merchandise is 20 percent of the total cost of
manufacturing. Petitioners cite the Final Results of Antidumping
Administrative Review: Tapered Roller Bearings, Four Inches or Less in
Outside Diameter and Certain Components Thereof, from Japan, 56 FR
26,054, 25,055, 25,058 (June 6, 1991), and Gray Portland Cement and
Clinker from Mexico, Results of Redetermination Pursuant to Court
Remand at 13 (February 1, 1996) (remand determination), CEMEX, S.A. v.
United States, Slip Op. 96-132, LEXIS 147, at 10-11 (CIT, 1996) to
support the use of a 20-percent difference in merchandise adjustment.
Respondent states the Department's preliminary results on this
issue reverses the methodology that was specifically accepted in the
original final determination and first review. Stelco argues the
Department's determination is unsupported by any of the usual criteria
for changing methodologies established in prior determinations. Stelco
asserts there has been no change in the law and no significant mistake
in the earlier determination. Stelco cites Shikoku Chemical
Corporation, et al., v. United States, 795 F.Supp. 417 (CIT 1992) which
held that principles of fairness prevented Commerce from changing its
methodology where key facts had not changed to justify a new approach
and respondents had relied on the old method of calculating the
adjustment. Stelco further contends that in this same review the
Department preliminarily accepted Dofasco's use of the cost of painting
by Baycoat. Stelco argues that
[[Page 18464]]
the invoiced prices from Baycoat are inappropriate to use because they
have not been shown to be indicative of market prices or arm's length
prices. Stelco states that Baycoat sells only to its two shareholders,
Stelco and Dofasco, and therefore no unaffiliated transactions exist
with which to establish the arm's length nature of the transactions.
Stelco cites the Final Determination of Sales at Less Than Fair Value:
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof from the Federal Republic of Germany, 54 FR 18,992, Appendix B
(May 3, 1989) (AFB's from Germany) where the Department stated that
lacking arm's length prices for components to compare to transfer
prices, for CV purposes, the Department generally used the cost of the
components as representative of the value reflected in the market under
consideration. Stelco points out that under the shareholder agreement,
each partner shares in the profit or loss from Baycoat at year-end.
Stelco cites AFB's from Germany, to support its claim that when
transfer prices from a joint venture company are used, the transfer
price must be adjusted by any loss incurred by the joint venture
company because the loss of the joint venture must be absorbed by the
participants in the joint venture. Lastly, Stelco asserts if the
Department considered paint a major input, it failed to provide Stelco
with adequate notice and an opportunity to provide transfer price
information.
Department's Position. The Department agrees with petitioners that
sections 773(f) (2) and (3) of the Act directs Commerce 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 the Final Results of Antidumping Administrative Review:
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof from France, Germany, Italy, Japan, Singapore, and the United
Kingdom, 62 FR 2,081, 2,115 (January 15, 1997) 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.'' Stelco identified painting as a major input in its section D
response to the antidumping questionnaire. Therefore, the Department
agrees that painting services provided to Stelco by its affiliate,
Baycoat, should be valued at the invoice price between the two
companies provided that the invoice price represents a price commonly
charged in the market. The Department agrees with petitioners that
valuing this input at cost would only be appropriate where cost is
higher than the transfer price. See, section 773(f)(3) of the Act. Our
verification established that the transfer price was higher than the
cost of painting services for sample transactions. Furthermore, Stelco
acknowledged that Baycoat's selling prices were set at prevailing
market rates and above cost in their response to the supplemental
section D questionnaire response.
Since Stelco did not report transfer prices for each control number
as requested, we have increased the reported cost of painting by the
average difference between the transfer price from the sampled painting
invoices obtained at the verification and the painting cost reported
for the final results. Section 776(a) of the Act states in part that a
determination may be made on the basis of facts available if necessary
information is not available on the record or if any interested party
fails to provide such information by the deadlines for submission of
the information or in the form and manner requested.
The Department disagrees with petitioners that applying the ratio
representing the difference between the cost and transfer price to the
painting cost reported as part of the variable cost of manufacture does
not appropriately adjust cost for the difference in merchandise
calculation. The difference in merchandise calculation will account for
the cost difference between paint services valued at cost and at
transfer price by taking into account that the transfer price for
painting exceeds the cost.
The Department disagrees with respondent's allegation that the
Department's preliminary results were unsupported by any of the usual
criteria for changing methodologies established in prior determinations
such as a change in the law or a significant mistake made in the
earlier determination. The Department is not bound by prior
determinations because the law changed with the enactment of the
Uruguay Round Agreements Act which amended the Act and made affiliated
party transactions (i.e., the transactions disregarded and major input
rules) apply to both cost of production and constructed value, whereas
these rules previously applied only to the calculation of constructed
value.
The Department disagrees with Stelco's reference to AFB's from
Germany which Stelco contends supports the acceptance of transfer
prices with an appropriate reduction for profits on inputs transferred
from the affiliated party. In AFB's from Germany we compared the
transfer prices to the cost of production and found that the cost of
production of the affiliated inputs was higher than the transfer
prices. The Department used cost for the affiliated inputs in that case
because the transfer prices were below the cost of production.
Mathematically, this was done by adjusting the transfer price upward by
the losses at the affiliate. This is consistent with our practice in
this case where we compared the transfer price of painting to the cost
of painting and found that the transfer price exceeded the cost. The
Department used the transfer price because it is higher than the cost
of production of the major input. Section 773(f)(3) of the Act allows
the Department to use the cost of production of a major input where it
is greater than the transfer price.
The Department has determined that Stelco had adequate notice of
the change in the law through the new statute, the SAA, and through our
request for transfer prices in the original questionnaire and the
supplemental cost questionnaire.
Finally, in order to be consistent in our treatment of painting
services Baycoat provided for its other owner, Dofasco, for these final
results, we have recalculated the input value of Baycoat's painting
services based on transfer price. See, Dofasco's Analysis Memorandum at
page 7.
Comment 2
Petitioners argue Stelco's general and administrative expense
(``G&A'') should be recalculated based entirely on the unconsolidated
income statement. Petitioners state the Department incorrectly combined
selected unconsolidated data with consolidated data (i.e., sundry
income and expense) in the preliminary results and consequently
calculated an inaccurate G&A expense rate. Petitioners state that
Stelco started with the amount of sundry expense reported in its
consolidated financial statements and adjusted the consolidated amount
for certain items specifically related to other consolidated entities.
Petitioners take issue with a consolidating entry reducing
unconsolidated sundry expense. Petitioners claim that Stelco provided
no reasonable explanation for why this offset to unconsolidated sundry
expense should be allowed.
[[Page 18465]]
Petitioners state the offset is not supported by any record evidence
and must be disallowed.
Stelco responds that petitioners'' argument with regard to lack of
record evidence is inconsistent with the Department's preliminary
determination and verification report. Stelco asserts the methodology
for calculating the sundry expense reported using the consolidated
sundry income and expense figure as a starting point was fully
documented in its submissions and was not identified as deficient in
the Department's verification report. Stelco states the Department
verified and traced all the amounts included in Stelco's G&A expense
calculation and used these figures in its preliminary determination.
Stelco concludes that there is no basis to resort to facts available
since they have cooperated fully with the Department's requests for
information.
Department's Position. Petitioners state correctly that the
Department's normal practice is to use G&A expenses from the
unconsolidated income statement. See, the Final Results of Antidumping
Administrative Duty Review: Ferrosilicon from Brazil, 61 FR, 59,407,
59,411 (November 22, 1996) and Final Determination of Sales at Less
Than Fair Value: Certain Hot Rolled Carbon Steel Flat Products, Certain
Cold-Rolled Carbon Steel Flat Products, and Certain Corrosion Resistant
Carbon Steel Flat Products from Japan, 37154, 37166 (July 9, 1993).
However, the Department disagrees with petitioners' assertion that the
Department randomly combined unconsolidated and consolidated G&A data
and consequently computed an incorrect G&A rate. The Department based
G&A on Stelco's unconsolidated data. The Department adjusted a
component of G&A, the unconsolidated sundry income/expense account, for
intercompany transactions which effectively overstated the balance of
this account. The Department has determined it would be inappropriate
to use the unconsolidated sundry income/expense account without
adjustment because this would double count income/expenses which were
subsequently eliminated during consolidation. During consolidation,
profits/losses from intercompany transactions are eliminated in order
to recognize profits/losses from transactions only with unaffiliated
companies. For the final results, the Department has computed a G&A
rate based on Stelco's unconsolidated G&A expenses and cost of sales,
adjusted as noted above.
Comment 3
Petitioners contend that Stelco USA's slitting expenses must be
treated as a further manufacturing cost because slitting costs
represent further processing charges incurred in the United States
pursuant to section 772 (d)(2) of the Act. Petitioners state that
section 772 (d)(2) of the Act requires that adjustments to U.S. price
be made for ``the cost of any further manufacture or assembly
(including additional material and labor), . . . .''
Department's Position. The Department agrees with petitioners that
certain CEP sales which were slit in the United States qualify as
further manufacturing as defined section 772(d)(2) of the Act.
Therefore, for all sales where the computer variable DIRSELU is greater
than zero, we have designated the variable SALETYPE as ``FMG'' and have
added DIRSELU to the variable FURMANU for these final results.
Comment 4
Petitioners, citing Final Results of an Antidumping Duty
Administrative Review: Gray Portland Cement and Clinker from Japan, 58
FR 48,826, 48,829 (Comment 8) (September 20, 1993) state that the
Department has held and the Court of International Trade has affirmed
that freight incurred in moving merchandise from the U.S. port to a
further processor should be treated as a further manufacturing cost,
and that the Department did not do so in its preliminary results.
Petitioners claim that this practice was affirmed in The Ad Hoc
Committee of Southern California Producers of Gray Portland Cement v.
the United States, 914 F. Supp. 535, 541. Petitioners conclude that for
all sales with SALETYPE ``FMG'', the Department should add USOTREU,
INLFTC1U and INLFTC2U to FURMANU.
Department's Position. We agree with petitioners. There is no
record information with regard to movement expenses as a condition of
sale. Thus, we have made appropriate computer program adjustments for
all sales with SALETYPE ``FMG'' to have added USOTREU, (INLFTC1U *
EXRATE) and INLFTC2U to FURMANU.
Comment 5
Stelco disagrees with the Department's decision at the preliminary
results of review to exclude payments to governments other than income
taxes (a component of general and administrative expenses) from their
calculation of cost of sales which was used as the denominator in the
financing expense ratio. Stelco objects to the assertion that the cost
of sales figure it provided was not based on the actual accounting
records of the company. Stelco asserts that its cost of sales figure is
derived directly from its accounting records albeit in a different
format from the published income statement which aggregates general
ledger accounts in summary form. Stelco argues that payments to
governments other than income taxes and corporate services (components
of general and administrative expenses) relate directly to the cost of
production and therefore should be included in the cost of sales
denominator.
Department's Position. We disagree with Stelco. Stelco argues that
the consolidated cost of sales used as the denominator in the financing
expense rate should include corporate services and payments to
governments other than income taxes. Summarized in the caption
corporate services are costs of administration, legal, information
system and treasury services. Summarized in the caption payments to
governments other than income taxes are non-income-based levied by
Canadian federal, provincial, regional and municipal governments such
as property taxes, business taxes, and capital taxes. Corporate
services and payments to governments other than income taxes are
periodic expenses general in nature related to the company as a whole.
The Department has determined these expenses are properly classified as
general and administrative expense items which should be excluded from
cost of sales. As explained in the Final Determination of Sales at Less
Than Fair Value: Certain Pasta from Italy, 61 FR, 30,326, 30,349 (June
14, 1996), the financial expense rate should be calculated on a basis
consistent with the cost of manufacturing (``COM'') figures to which
they are applied. The reported COMs do not include general and
administrative expenses so cost of sales should not include any general
and administrative expenses. We have therefore recalculated the
financing expense rate for the final results excluding corporate
services and payments to governments other than income taxes from the
denominator, cost of sales.
Comment 6
Petitioners allege the Department made several errors in the margin
program utilized in the preliminary results. Petitioners state the
Department omitted the variable SOTHMAT at line 294 of the margin
program when calculating TOTCOM. Petitioners argue
[[Page 18466]]
that the Department included sales which failed the related party arm's
length test in the CV profit calculation which is incorrect since these
sales are outside the ordinary course of trade. Petitioners urge the
Department to exclude such sales in calculating CV profit. Petitioners
argue that in line 1131 of the constructed value portion of the program
that the Department used an ampersand instead of an asterisk in the
formula. Petitioners assert the Department omitted the variable SOTHMAT
at line 1140 of the constructed value portion of the program.
Petitioners also state the Department added asterisks to lines 1139 and
1143 making these lines inoperable and recommend removing the
asterisks. Petitioners note the Department defined Stelco's total cost
of manufacture for CV purposes as TOTCOMU whereas in subsequent lines
of programming, however, the Department used the term TOTCOM instead.
Petitioners advocate replacing TOTCOM with TOTCOMU in lines 1145, 1146,
1148 and 1149 of the final margin program. Petitioners observe that in
line 1150 the Department reduced CV by TOTCOM which was incorrect.
Petitioners state the Department should correct line 1150 to read CV =
TOTCV-DSELCV. Petitioners note that the Department failed to convert
inland freight charges listed under ``INLFTC1U,'' which were reported
in Canadian currency.
Petitioners also claim that in implementing the CEP offset, the
Department failed to cap the offset by the amount of U.S. indirect
selling expenses. Petitioners recommend amending the computer program.
However, respondent contests petitioners' claim, stating that the
Department properly capped this offset. Additionally, respondent
contends that petitioners' proposed correcting language attempts to
obtain a change in calculation methodology not related to the capping
of the CEP offset.
Department's Position. The Department agrees with petitioners in
all cases noted in the comment above, except the one pertinent to the
CEP offset. The Department has thus made all appropriate corrections to
its margin calculations for these final results.
Comment 7
Petitioners argue that because Stelco had neither requested nor
established entitlement to a CEP offset, the Department should not have
made such an adjustment. To qualify for a CEP offset, state
petitioners, referring to section 773(a)(7)(B) of the statute and the
Statement of Administrative Action (``SAA'') at 830, a respondent must
first establish that different levels of trade exist between home
market and U.S. sales. Then, if the data do not provide an adequate
basis for LOT adjustment and normal value is established at a more
advanced stage of distribution than the CEP, the Department is required
to reduce normal value by the CEP offset. Petitioners maintain that
Stelco did not demonstrate all of the conditions which would entitle it
to the CEP offset granted by the Department as a surrogate for a LOT
adjustment. Petitioners contend that Stelco has not established that
different LOTs exist, it has not claimed an LOT adjustment, nor has it
requested a CEP offset. Petitioners conclude that use of a CEP offset
was unwarranted and should not be used in the final determination.
Respondent replies that the Department properly fulfilled its
statutory mandate in granting Stelco a CEP offset. Respondent agrees
that it must submit LOT data to demonstrate that it is entitled to a
CEP offset. Once appropriate LOT data is submitted, states respondent,
section 773(a)(7)(B) requires that the Department grant a CEP offset as
long as two conditions are met: (1) When normal value is established at
a level of trade which constitutes a more advanced stage of
distribution than the level of trade of the constructed export price;
and (2) the data available do not provide an appropriate basis to
determine a level of trade adjustment. Respondent concludes that if the
Department finds that the LOT data submitted by respondent satisfies
both statutory criteria, normal value shall be adjusted accordingly.
Respondent also contests petitioners' apparent claim that a
respondent must claim a LOT adjustment in order for the Department to
conduct an LOT analysis. Respondent states that section 773(a)(7)(A)
requires the Department to pursue an LOT analysis in all instances, and
that the Department acted properly in doing so.
Respondent maintains that despite petitioners' claims, the record
is replete with LOT data submitted by Stelco and that the Department
had all the factual information it needed for its LOT analysis, and
consequently had all the information to support its use of a CEP
offset. Accordingly, respondent argues, the Department should reaffirm
its decision to grant Stelco a CEP offset adjustment.
Department's Position. We agree with respondent. Section
773(a)(1)(B) requires that Commerce, to the extent practicable,
establish normal value based on home market (or third country) sales at
the same level of trade as the constructed export price or the starting
price for the export price. If Commerce is able to compare sales at the
same level of trade, it will not make any level of trade adjustment or
constructed export price offset in lieu of a level of trade adjustment.
When sales in the U.S. and foreign markets cannot be compared at
the same level of trade, an adjustment to normal value may be
appropriate. Section 773(a)(7)(A) provides that, after making all
appropriate adjustments to export price or constructed export price and
normal value, Commerce shall adjust normal value to account for any
differences in these prices that are demonstrated to be attributable to
differences in the level of trade of the comparison sales in each
market. This adjustment may either increase or decrease normal value.
Commerce will grant such adjustments only where: (1) There is a
difference in the level of trade (i.e., there is a difference between
the actual functions performed by the sellers at the different levels
of trade in the two markets); and (2) the difference affects price
comparability.
In order to determine whether Stelco's sales in the comparison
market are at a different level of trade than the export price or CEP,
we examined whether the comparison sales were at different stages in
the marketing process than the export price or CEP. We made this
determination on the basis of a review of the distribution system in
the comparison market, including selling functions, class of customer,
and the level of selling expenses for each type of sale. Different
stages of marketing necessarily involve differences in selling
functions, but differences in selling functions, even substantial ones,
are not alone sufficient to establish a difference in the level of
trade. While customer categories such as ``distributor'' and
``wholesaler'' may be useful in identifying different levels of trade,
they are insufficient in themselves to establish that there is a
difference in the level of trade.
Our discussion of the specific selling functions that we examined,
as well as our Stelco-specific findings in this regard, are contained
in our preliminary results.
The effect on price comparability is measured by examining price
differences between goods sold to different levels of trade in the
foreign market where normal value is being established. Commerce
measures any effect on price comparability by determining if there is a
pattern of price differences between sales at the different levels of
trade in the foreign market.
[[Page 18467]]
Any adjustment under section 773(a)(7)(A) will be calculated as the
percentage by which the weighted-average prices at each of the two
levels of trade differ in the market used to establish normal value. An
effect on price comparability must be identified and measured by
observed differences between prices at different levels of trade. The
Department will isolate the price effect, if any, attributable to the
sale at different levels of trade, and will ensure that expenses
previously deducted from normal value are not deducted a second time
through a level of trade adjustment.
Only where different functions at different levels of trade are
established under section 773(a)(7)(A)(i), but the data available do
not form an appropriate basis for determining a level of trade
adjustment under section 773(a)(7)(A)(ii), will Commerce make a CEP
offset adjustment under section 773(a)(7)(B). In the case of Stelco,
there is only one home market level of trade for the subject
merchandise and that level of trade is different from the level of
trade of the CEP. Therefore, Stelco's home market sales do not provide
an appropriate basis for determining a level-of-trade adjustment.
Moreover, we have determined that data from Dofasco (the other company
in this proceeding with multiple levels of trade) does not form an
appropriate basis for determining whether a level of trade adjustment
is appropriate because none of Dofasco's home marketlevels of trade are
sufficiently similar to Stelco's CEP level of trade. See, Stelco
Analysis Memorandum at Attachment 1. Therefore, because Stelco's home
market sales are at a more advanced stage of distribution than the
level of trade of the CEP and the data available do not provide an
appropriate basis to determine a level-of-trade adjustment, we have
made a CEP offset adjustment. This adjustment is ``capped'' by the
amount of indirect expenses deducted in calculating CEP under section
772(d)(1)(D).
Comment 8
Petitioners argue that the Department improperly excluded imputed
expense (i.e., credit expenses and inventory carrying costs) from the
calculation of total United States expenses for the purpose of
determining profit on CEP sales. Petitioners state that credit expenses
and inventory carrying costs are deducted under section 772(d)(1) of
the Act. Accordingly, conclude petitioners, these amounts must be
considered a part of ``total United States expenses'' and must be
included in the allocation factor for such expenses.
Department's Position. We agree with petitioners. Section 772(d)(3)
requires that we deduct an amount of profit allocated to the expenses
described in sections 772(d) (1) and (2). Section 772(d)(1) (B) and (C)
state that the price used to establish constructed export price shall
also be reduced by expenses that result from, and bear a direct
relationship to, the sale, such as credit expenses, guarantees and
warranties; (and) any selling expenses that the seller pays on behalf
of the purchaser. We have thus corrected our margin calculation program
to include imputed expenses in the calculation of total United States
expenses for this purpose. In computing the total CEP profit for
allocation, we included any below-cost sales in determining the total
revenues earned by Stelco and excluded any sales to affiliated parties
that were found to have been made at non-arm's-length prices.
Comment 9
Petitioners state that section 772(c) of the Act provides that in
calculating EP or CEP, a deduction must be made to account for duties,
including antidumping duties, paid by the respondent or its affiliated
party, as supported by C.J. Tower & Sons v. United States, 71 f.2d 438,
445 (C.C.P.A. 1934). Thus, conclude petitioners, the statute requires
that the Department must deduct antidumping duties paid by the
respondent on U.S. sales.
Petitioners state that in Federal-Mogul Corp. v. United States, the
plaintiff challenged the Department's decision not to deduct estimated
antidumping duty deposits under the predecessor provision to section
772(c)(2)(A). Petitioners contend that the Department argued that this
provision applied only to deduction of ``normal'' import duties.
Alternatively, say petitioners, the Department argued that not
deducting estimated antidumping duties (as opposed to duties actually
to be assessed) had been its longstanding practice. The CIT affirmed
the Department's refusal to deduct estimated AD duties, but did not
adopt the Department's reasoning that section 772 applied only to
``normal'' import duties, and that antidumping duties were not normal
import duties within the meaning of the statute (813 F. Supp. 872).
Thus, petitioners maintain that section 772 requires the Department to
deduct any import duties (including antidumping duties) that can be
accurately determined at the time the Department calculated dumping
margins.
Petitioners state that the legislative history to the URAA does not
suggest that Congress rejected the construction of section 772(c)(2)(A)
urged by petitioners. Petitioners continue that the Senate Finance
Committee recognized that the Court of International Trade was
considering this issue, and directed the Department to abide by the
outcome of that litigation (see, S. Rep. No. 412, 103d Cong., 2d Sess.
64 (1994)). Therefore, state petitioners, Congress did not intend to
ratify the Department's not having treated duties as a cost in the
URAA, but recognized that the issue would be resolved through the
judicial process.
Petitioners state that the difference calculated between normal
value and EP or CEP on each sale by the Department's margin program is
equal to the AD duties to be paid by the importer. Once this difference
is calculated, state petitioners, it is then deducted from EP or CEP as
a cost for use in calculating final margins.
Respondent asserts that the Department should once again reject
petitioners'' argument to deduct AD duties in its margin calculation
and that the Department did not deduct AD duties from EP and CEP sales
in the first administrative review. Respondent contends that
petitioners failed to offer any argument as to why the Department
should reach a different conclusion in this review. Respondent
continues that in numerous determinations over many years, the
Department has consistently refused to deduct AD duties from EP and CEP
sales and should continue to do so. Respondent continues that
petitioners argument that section 772(c)(2)(A) requires the Department
to deduct AD duties from EP and CEP sales notwithstanding, there are no
U.S. rulings in direct support of their interpretation. Respondent
states that the Department has consistently rejected petitioners
argument as supported in Carbon Steel Flat Products from the
Netherlands (61 FR 48465 (September 13, 1996)). It states, in part,
``it is the Department's longstanding position that antidumping and
countervailing duties are not a cost within the meaning of 19 U.S.C.
section 1677(a)(d). . . . Unlike normal duties, which are an assessment
against value, antidumping duties derive from the margin of dumping or
the rate of subsidization found. Logically, antidumping and
countervailing duties cannot be part of the very calculation from which
they are derived.''
Respondent concludes that the Department's practice is clear, and
that the CIT has consistently affirmed the its decision not to deduct
AD duty deposits
[[Page 18468]]
from EP and CEP sales. Also, respondent states that the URAA House Ways
and Means Committee Report and the SAA explicitly state that the new
duty absorption provision is not intended to provide for the treatment
of antidumping duties as a cost. Thus, states respondent, the
Department should continue to refuse to deduct AD duties from Stelco's
EP and CEP sales.
Department's Position. We agree with respondent. See, CCC comment
5, supra.
Final Results of Reviews
As a result of our review of the comments received, we have changed
the results from those presented in preliminary results of review.
Therefore, we determine that the following margins exist as a result of
our review:
------------------------------------------------------------------------
Margin
Manufacturer/exporter Time period (percent)
------------------------------------------------------------------------
Corrosion-Resistant Steel:
Dofasco............................. 8/1/94-7/31/95 0.56
CCC................................. 8/1/94-7/31/95 1.58
Stelco.............................. 8/1/94-7/31/95 0.55
Cut-to-Length Plate:
Algoma.............................. 8/1/94-7/31/95 \1\ 0.37
Stelco.............................. 8/1/94-7/31/95 0
------------------------------------------------------------------------
\1\ This is a de minimis margin.
The Department shall determine, and the Customs Service shall
assess, antidumping duties on all appropriate entries. 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 cash deposit requirements will be effective upon publication
of these final results for all shipments of this merchandise, entered
or withdrawn from warehouse for consumption on or after the publication
date, as provided for by section 751(a)1) of the Act: (1) the cash
deposit rates for the reviewed companies will be the rates for those
firms as stated above (except that if the rate for a particular product
is de minimis i.e., less than 0.5 percent, a cash deposit rate of zero
will be required for that company); (2) for previously investigated
companies not listed above, the cash deposit rate will continue to be
the company-specific rate published for the most recent period; (3) if
the exporter is not a firm covered in this review, or the original
investigation, but the manufacturer is, the case deposit rate will be
the rate established for the most recent period for the manufacturer of
the merchandise; and (4) the case deposit rate for all other
manufacturers will be the ``all others'' rate made effective by the
final results of the 1993-1994 administrative review of these orders
(see, Certain Corrosion-Resistant Carbon Steel Flat Products and
Certain Cut-to-Length Steel Plate from Canada; Final Results of
Antidumping Administrative Reviews, 61 FR 13815 (March 28, 1996)). 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,
Amended Final Determination, 60 FR 49582 (September 26, 1995)). These
deposit requirements shall remain in effect until publication of the
final results of the next administrative reviews.
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 antidumping duties occurred and the subsequent
assessment of double antidumping duties. This notice 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
Sec. 353.22 of the Department's regulations.
Dated: April 2, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-9425 Filed 4-14-97; 8:45 am]
BILLING CODE 3510-DS-P
