[Federal Register Volume 59, Number 76 (Wednesday, April 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9551]
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[Federal Register: April 20, 1994]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-122-824]
Final Determination of Sales at Less Than Fair Value: Certain
Carbon and Alloy Steel Wire Rod from Canada
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: April 20, 1994.
FOR FURTHER INFORMATION CONTACT: David J. Goldberger or Michelle A.
Frederick, Office of Antidumping Investigations, Import Administration,
U.S. Department of Commerce, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230; telephone (202) 482-4136 or 482-0186,
respectively.
FINAL DETERMINATION: We determine that imports of certain carbon and
alloy steel wire rod (``steel wire rod'') from Canada are being, or are
likely to be, sold in the United States at less than fair value (Less
Than Fair Value), as provided in section 735 of the Tariff Act of 1930,
as amended (the Act). The estimated margins are shown in the
``Suspension of Liquidation'' section of this notice.
Case History
Since our November 19, 1993, preliminary determination (58 FR
62639, November 29, 1993), the following events have occurred: We
received requests for a public hearing on December 8, 1993, from
respondent Stelco Inc. and interested party Michelin Tire Corporation,
and on December 9, 1993, from the petitioners.
Sales and cost verifications took place in Canada and the United
States from November 1993 through February 1994. During this period,
respondents Stelco and Ivaco Inc. submitted revisions and corrections
to their questionnaire responses, including revised computer media
sales and cost listings.
On December 29, 1993, we advised interested parties that all scope
issues would be addressed in conjunction with the briefs and hearing
for the final determinations in the companion investigations of steel
wire rod from Brazil and Japan. Accordingly, petitioners, Stelco, and
interested parties Michelin, the Barnes Group, and Amercord Inc., filed
case briefs on January 5, and rebuttal briefs on January 10, 1994. A
public hearing on scope issues for all three steel wire rod
investigations took place on January 12, 1994.
On March 7, 1994, petitioners, Ivaco, Stelco, and interested party
Sidbec-Dosco Inc. filed case briefs on issues related solely to this
investigation. These parties filed rebuttal briefs on March 14, 1994.
The request for a public hearing was withdrawn on March 16, 1994.
Scope of Investigation
The products covered by this investigation are hot-rolled carbon
steel and alloy steel wire rod, in coils, of approximately round cross
section, between 0.20 and 0.75 inches in solid cross-sectional
diameter. The following products are excluded from the scope of this
investigation:
Steel wire rod 5.5 mm or less in diameter, with tensile
strength greater than or equal to 1040 MPa, and the following chemical
content, by weight: carbon greater than or equal to 0.79%, aluminum
less than or equal to 0.005%, phosphorous plus sulfur less than or
equal to 0.040%, and nitrogen less than or equal to 0.006%;
Free-machining steel containing 0.03% or more of lead,
0.05% or more of bismuth, 0.08% or more of sulfur, more than 0.4% of
phosphorus, more than 0.05% of selenium, and/or more than 0.01% of
tellurium;
Stainless steel rods, tool steel rods, free-cutting steel
rods, resulfurized steel rods, ball bearing steel rods, high-nickel
steel rods, and concrete reinforcing bars and rods; and
Wire rod 7.9 to 18 mm in diameter, containing 0.48 to
0.73% carbon by weight, and having partial decarburization and seams no
more than 0.075 mm in depth.
The decision regarding the scope of this investigation was based on
the great weight afforded petitioners in determining the products from
which they require relief, and because Michelin failed to adequately
support its claim that the Department should divide wire rod into more
than one class or kind. Our decision regarding the scope in this case
is more fully explained in the final determinations with respect to
steel wire rod from Brazil and Japan published on February 9, 1994 (59
FR 5984 and 5987, respectively).
The products under investigation are currently classifiable under
subheadings 7213.31.3000, 7213.31.6000, 7213.39.0030, 7213.39.0090,
7213.41.3000, 7213.41.6000, 7213.49.0030, 7213.49.0090, 7213.50.0020,
7213.50.0040, 7213.50.0080, 7227.20.0000, and 7227.90.6050 of the
Harmonized Tariff Schedule of the United States (HTSUS). Although the
HTSUS subheadings are provided for convenience and customs purposes,
our written description of the scope of this investigation is
dispositive.
Period of Investigation
The period of investigation is October 1, 1992, through March 31,
1993.
Such or Similar Comparisons
We have determined that the products covered by this investigation
constitute a single category of such or similar merchandise. Where
there were no sales of identical merchandise in the home market to
compare to U.S. sales, we made similar merchandise comparisons on the
basis of certain criteria including chemical composition and quality,
heat treatment, and dimensions. For a full definition of the criteria
see appendix V to the antidumping duty questionnaire, and the appendix
V amendment of August 12, 1993, both of which are on file in Room B-099
of the main building of the Department of Commerce.
Fair Value Comparisons
To determine whether Ivaco's and Stelco's sales to the United
States were made at less than fair value, we compared the United States
price (USP) to the foreign market value (FMV), as specified in the
``United States Price'' and ``Foreign Market Value'' sections of this
notice.
We have not considered in our analysis Ivaco's purchase price
transactions which underwent further manufacturing after importation
for the reasons explained in comment 5 below.
United States Price
Generally, we calculated USP for both Ivaco and Stelco according to
the methodology described in our notice of preliminary determinations.
Except as noted below, all findings at verifications were incorporated
in revised computer sales, constructed value (CV), and further
manufacturing tapes submitted subsequent to verifications.
In comparing USP to FMV on a price-to-price basis, we made
adjustments to Ivaco's and Stelco's USP for the Goods and Services Tax
(GST) paid on the comparison sale in Canada. In Federal-Mogul
Corporation and The Torrington Company v. the United States (Federal-
Mogul), Slip Op. 93-194 (CIT October 7, 1993), the Court of
International Trade (CIT) prohibited us from applying a purely tax
neutral margin calculation methodology. As discussed in recent
determinations, such as Final Determination of Sales at Less Than Fair
Value: Certain Stainless Steel Wire Rod from France (58 FR 68865,
68867, 68870 (December 29, 1993)) (French Rods), we have made our tax
methodology conform to the instructions of the CIT, and adjusted USP
for tax by multiplying the Canadian GST rate of seven percent by the
U.S. price at the point in the chain of commerce of the U.S.
merchandise that is analogous to the point in the Canadian chain of
commerce at which Canada applies the GST. We also calculated the amount
of the tax adjustment that was due solely to the inclusion in the
original tax base of expenses that are later deducted from the price to
calculate USP (i.e., seven percent of the sum of any adjustments,
expenses and charges that were deducted from the price of the U.S.
merchandise). We deducted this amount from the net USP after all other
additions and deductions had been made. By making this additional tax
adjustment, we avoid a distortion that would cause the creation of a
dumping margin even when pre-tax dumping is zero. See Comment 2.
In addition, we made the following company-specific revisions and
adjustments:
A. Ivaco
To calculate USP, we added freight when freight charges were not
included in the gross price but billed separately to the customer on
the invoice, and deducted the corresponding expenses incurred by Ivaco
on these transactions. (See Comment 12).
To determine the general and administrative (G&A) expenses
attributable to further manufactured sales made by its related
subsidiary, Sivaco New York, Ivaco allocated G&A over its cost of
sales. It then applied the G&A rate only to the further manufacturing
costs of Sivaco New York. We reallocated the expenses by multiplying
the reported G&A rate by the sum of Sivaco New York's cost of
manufacturing (COM) and the COM of the steel coming from Ivaco. The
Department's adjustment was made because while the denominator in
Ivaco's calculation (cost of sales) includes materials, labor, and
factory overhead, it had been applied only to labor and factory
overhead.
B. Stelco
To calculate USP, we added freight brokerage, and/or duty charges,
when these charges were not included in the gross price but billed
separately to the customer on the invoice, and deducted the
corresponding freight expense incurred by Stelco on these transactions.
(See Comment 12).
Foreign Market Value
Generally, we calculated FMV for both Ivaco and Stelco according to
the methodology described in our notice of preliminary determination
except where specifically noted below. We included in FMV the amount of
the GST collected in the Canadian market. We also calculated the amount
of the tax that was due solely to the inclusion in the original tax
base of expenses that are later deducted from home market price to
calculate FMV (i.e., seven percent of the sum of any adjustments,
expenses, charges, and offsets that were deducted from the home market
price). We deducted this amount after all other additions and
deductions were made. By making this additional tax adjustment, we
avoid a distortion that would cause the creation of a dumping margin
even when pre-tax dumping is zero. In addition, we calculated a re-
adjustment of the amount of tax to take into account the amount of
packing expenses added to FMV (i.e., seven percent of the packing
expenses). All findings at verifications were incorporated in revised
computer sales and cost of production (COP) tapes submitted subsequent
to verifications.
Cost of Production
We calculated the COP for each company according to the methodology
described in our preliminary determination, except for the following
company-specific revisions:
A. Ivaco
No new adjustments were made.
B. Stelco
We reclassified gains on the sale of production equipment from COM
to G&A expenses (see Comment 17).
After calculating COP, we tested whether home market sales of steel
wire rod were at prices below COP according to the methodology
discussed in our preliminary determination.
For both Ivaco and Stelco, as explained in our preliminary
determination, we found that for certain models more than 90 percent of
home market sales were at below-COP prices over an extended period of
time. No information has been provided to show that the below cost
sales were at prices that would permit recovery of all costs within a
reasonable period of time in the normal course of trade. For U.S. sales
left without a match as a result of disregarding these below COP sales,
we based FMV on CV, in accordance with section 773(b) of the Act. (see
Comment 1).
Constructed Value
We calculated CV according to the methodology described in our
preliminary determination, except for Stelco as noted above under Cost
of Production.
Price-to-Price Comparisons
For both Ivaco and Stelco, for those products for which there were
an adequate number of sales at prices above the COP, we based FMV on
home market prices. Except as noted below, we calculated FMV according
to the methodology described in our preliminary determination. In
accordance with the decision in Ad Hoc Committee of AZ-NM-TX-FL
Producers of Gray Portland Cement v. United States (Cement), Slip Op.
93-1239 (Fed. Cir., January 5, 1994), we made circumstance-of-sale
adjustments for post-sale movement expenses for both companies.
A. Ivaco
We compared U.S. sales to home market sales without regard to level
of trade since we determined that Ivaco was unable to support its claim
that it made its sales at different levels of trade. (See Comments 3
and 4.) We added freight charges when these expenses were not included
in the gross price, but billed separately to the customer on the
invoice, and deducted the corresponding freight expense incurred by
Ivaco on these transactions. We also revised the circumstance-of-sale
adjustments for credit expenses to include freight charges in the price
base used to impute credit (See Comment 12).
For home market to exporter's sales price (ESP) comparisons that
involved further manufacturing in the United States, we adjusted the
cap on the deduction for home market indirect selling expenses to
properly account for the portion of U.S. indirect selling expenses and
the portion of commissions (if any) attributable to the foreign-
produced input product.
B. Stelco
We added freight charges when these expenses were not included in
the gross price, but billed separately to the customer on the invoice,
and deducted the corresponding freight expense incurred by Stelco on
these transactions.
In making circumstance-of-sale adjustments, we used Stelco's
reported credit expenses, which were calculated to include movement
revenue in the price base (see Comment 12). We also recalculated
warranty expenses to reflect Stelco's five-year warranty history, as
discussed below under Comment 11.
For home market to ESP comparisons that involved further
manufacturing in the United States, we corrected the cap on the
deduction for home market indirect selling expenses to properly account
for the portion of U.S. indirect selling expenses and the portion of
commissions (if any) attributable to the foreign-produced input
product.
Currency Conversion
We made currency conversions based on official exchange rates as
certified by the Federal Reserve Bank.
Verification
As provided in section 776(b) of the Act, we verified information
provided by Ivaco and Stelco by using standard verification procedures,
including the examination of relevant sales and financial records, and
selection of original source documentation containing relevant
information.
Interested Party Comments
Comment 1: Ivaco and Stelco claim that the statute and judicial
precedent require that, in determining FMV, if the Department finds
that sales of the identical or most similar product are below the COP,
the Department should use the next most similar product sold above cost
to determine FMV, rather than immediately resort to CV. They contend
that section 773(b) of the Act requires that the Department use CV only
when there is no home market product sold above cost with a difference
in merchandise adjustment of less than 20 percent available for
comparison to the U.S. sale. Further, respondents argue that the Policy
Bulletin dated December 15, 1992, concerning this policy contravenes
the law.
Petitioners contend that the respondents' proposal violates the
statutory prohibition against using similar merchandise to calculate
FMV when identical merchandise is available. Petitioners contend that
were we to conduct the cost test prior to model matching, FMV would be
based on the most similar of the above-cost home market products,
rather than on the identical or most similar product, thereby making
the cost test a factor in the model matching process. They further
state that the statute clearly distinguishes between selecting the
appropriate model match and calculating FMV. Accordingly, petitioners
contend that this separation clearly establishes that model matching
shall be based only on the criteria included in the statutory
definition of ``such or similar merchandise,'' and that FMV shall be
calculated on the basis of the appropriate match so selected unless
there are insufficient above-cost sales of that product, in which case
CV shall be used.
DOC Position: We disagree with respondents that the statute
prohibits our use of CV when there are sales of similar merchandise at
above cost prices. As articulated in such determinations as Final
Determination of Sales at Less Than Fair Value: Ferrosilicon from
Venezuela (58 FR 27522, 27534, May 10, 1993), section 771(16) of the
Act defines such or similar merchandise and provides a hierarchy of
preferences for determining which merchandise sold in the foreign
market is most similar to the merchandise sold in the United States.
Whether a model is sold in the home market or third countries at prices
below cost is not a criterion for determining what is most similar
merchandise under the statute.
Furthermore, the Department conducts the cost test on a model-by-
model basis. Thus, we treat the ``remaining sales'' referred to in
section 773(b) as the above-cost sales of the best-match model. These
above cost sales of the most similar model are all used in calculating
the weighted average which serves as the FMV for any sales of the U.S.
model to which that home market model is matched.
Finally, the judicial cases and administrative decisions cited by
respondents are not contrary to our position. In Koyo Seiko Co., Ltd.
v. United States, 810 F.Supp. 1287 (March 1993), for example, we
requested remand in order to apply the 20 percent difmer test referred
to above. This approach can be distinguished from the approach
suggested by the respondents because the 20 percent difference in
merchandise (difmer) test is the Department's way of implementing the
mandate in subsection (B)(iii) of section 771(16) of the Act, which
requires that similar merchandise be merchandise ``which the
administering authority determine[s] may reasonably be compared with''
the merchandise exported to the United States. Thus, the difmer test is
part of the statutory criteria for selecting the single best match.
Comment 2: Petitioners contend that the treatment of the Canadian
Goods and Services Tax in the preliminary determination is inconsistent
with the Federal-Mogul decision at the CIT, which held that Commerce
must increase USP by the amount of tax that the exporting country would
have assessed on the merchandise if it had been sold in the home
market. Accordingly, petitioners state that the Department should apply
the methodology adopted in such recent cases as French Rods for the
final determination.
Ivaco, Stelco, and Sidbec-Dosco argue that the Department adjusted
properly for the GST in the preliminary determination, by adding to the
U.S. price the absolute amount of GST assessed on the home market
merchandise. Stelco claims that the Department's French Rods
methodology exceeded the court's ruling in Federal-Mogul, which Stelco
states simply rejected the Department's previous methodology, and
created a distortive methodology that exaggerates any dumping margin.
Sidbec-Dosco adds that the Federal-Mogul decision is not binding on
this case. Ivaco contends that the Federal-Mogul decision is
inconsistent with higher court decisions, such as Zenith Electronics
Corp. v. United States, 988 F.2d 1573 (Fed. Cir. 1993) (Zenith).
DOC Position: We are continuing to use the methodology articulated
in French Rods and described in the ``United States Price'' and
``Foreign Market Value'' sections of this notice. This methodology is
consistent with both the Federal-Mogul decision to allow the
``multiplier effect'' and the decisions in Zenith and Federal-Mogul,
which allow the Department to avoid the ``margin creation'' effect.
(See French Rods, Comment 4, 58 FR 68870.)
Regarding Stelco's comment that the methodology exaggerates dumping
margins, we note that the CIT opinion in Federal-Mogul interpreted the
observation in Zenith that ``[t]he multiplier effect occurs only when a
dumping margin already exists'' as a clear indication that ``tax
neutrality is irrelevant to the proper application of 19 U.S.C.
1677a(d)(1)(C).'' In response to Sidbec-Dosco's comment, we note that,
since the Department has decided not to appeal the holding in Federal-
Mogul, we have acted reasonably in adopting the methodology set forth
in that holding. This decision, while not necessarily the only
methodology consistent with the Zenith case, has been found by the CIT
to be consistent with that higher court holding.
Comment 3: Petitioners contend that Ivaco has failed to demonstrate
that its alleged level of trade classifications (integrated processors
(level 1), distributors (level 2), and end-users (level 3)) represent
discrete customer functions. They cite several examples from the
verification reports of inconsistencies in Ivaco's customer
classifications.
Ivaco contends that the Department correctly recognized Ivaco's
levels of trade in the preliminary determination and that verification
supported its position.
DOC Position: We agree with petitioners. Comparisons are made at
distinct, discernable levels of trade based on the function each level
of trade performs, such as end-user, distributor, and retailer. At
verification, we found that most level 1 customers differed from level
3 customers in the quantities and types of products purchased from
Ivaco, but not in terms of function. That is, both levels represent
end-users. Level 1 integrated processors purchase rod from Ivaco and
manufacture a finished good in the same manner as level 3 customers.
For our preliminary determination, we accepted Ivaco's representations
of the level of trade functions. However, we found at verification that
the primary basis for classifying Ivaco's customers was not the
function of the purchasing entity, but which Ivaco entity made the
sale. That is, if Ivaco Rolling Mills made the sale, it was classified
as a level 1 sale, and if a related processor such as Sivaco Ontario
made the sale, it was usually classified as a level 3 sale. Further,
Ivaco did not demonstrate that any differences in sales process or
expenses were directly related to differences in selling at the claimed
levels of trade.
Comment 4: Ivaco claims that the Department should make its product
comparisons first by level of trade and then by the physical
characteristics of the product. Accordingly, if no product identical to
the U.S. sale was sold in the home market at the same level of trade,
Ivaco contends that the Department should match the U.S. sale to the
most similar product at the same level of trade, rather than to an
identical product at a different level of trade.
Petitioners argue that Ivaco's approach puts level of trade above
physical similarity of the merchandise, which is clearly at odds with
the Department's model matching methodology which is based solely on
the physical characteristics of the merchandise. Further, as noted
above, petitioners claim that Ivaco failed to support it's
characterization of its levels of trade. Thus there is no basis to
follow such a methodology.
DOC Position: We agree with petitioners. As discussed above, Ivaco
failed to support its level of trade claim. Therefore, there is no
basis to consider level of trade at all, much less to give it
precedence over the physical characteristic in our matching criteria.
Comment 5: Ivaco claims that the statute directs the Department to
consider its purchase price sales that underwent further manufacturing
subsequent to importation on an ``as imported'' basis because the
statute directs the Department to add to USP the amount necessary to
place the merchandise in a condition for shipment to the U.S., and to
make deductions from USP for items incident to bringing the merchandise
to the place of delivery in the United States.
Petitioners contend that consideration of these products on an ``as
sold'' basis is proper and insures that the U.S. product that is
actually sold to an unrelated party is matched to the identical or most
similar product in the home market.
DOC Position: The statute envisions the calculation of FMV based on
home market sales of a product comparable to the imported product and
the assessment of the duty on the merchandise as imported. However, the
statute makes no provisions in a purchase price situation for deducting
from the USP the value added by further manufacturing which takes place
in the United States. Thus, were we to utilize these further
manufactured purchase price sales in calculating a margin, we would
have two options: (a) Compare an FMV and a USP based on the merchandise
as sold, which would conflict with the statutory intent that the FMV
calculation be based on home market sales comparable to the imported
merchandise; or (b) deduct the further manufacturing expenses on the
U.S. sales as we would do if these were an ESP type of transaction,
which is inconsistent with section 772 of the Act. Because of this
dilemma, and because only a very small quantity of Ivaco's U.S. sales
are further manufactured purchase price sales, we have excluded these
sales from consideration in our analysis.
Comment 6: Petitioners claim that Ivaco erroneously allocated the
fabrication costs incurred in the melt shop and continuous caster based
on special productivity factors rather than tonnage. Petitioners argue
that the ``days of production'' statistic that Ivaco used to allocate
these fabrication costs does not reconcile to the total days of actual
production. Because Ivaco could not reconcile the discrepancy caused by
its submission methodology, petitioners claim that the Department
should revise the calculated cost based on tonnage.
Ivaco contends that its allocation of these fabrication costs is
more accurate than an allocation based on tonnage. Ivaco's methodology
allocated a relatively lower per ton cost to product grades that were
produced more quickly, and a higher cost to products that required more
time to produce. The ``missing'' days were intentionally excluded
because more than one grade of steel were produced on these days, which
renders them useless for calculating production efficiencies between
grades of steel.
DOC Position: We agree with Ivaco. It is not relevant whether the
sum of the estimated days of production used by Ivaco to allocate
fabrication costs between grades of steel reconciled to the total days
of actual production, because the statistics for the days used in the
calculation are merely a representative sample. The use of tonnage to
allocate melt shop costs, as petitioner suggests, would result in the
same cost per ton regardless of the grade of steel. Ivaco's methodology
provides a reasonable estimate of the efficiencies incurred by the melt
shop and caster when producing different grades of steel.
Comment 7: Petitioners argue that the Department should reject
Ivaco's allocation of corporate overhead expenses. They urge the
Department to allocate the portion of corporate overhead not normally
allocated to divisions or affiliates using the same ratio Ivaco
generally uses in allocating the corporate overhead. In its own
accounting system, Ivaco allocates only a portion of corporate overhead
to its divisions and affiliates. Of this allocated portion, the vast
majority is charged to the divisions. Petitioners argue that the same
ratio between the divisional allocation and the affiliate allocation
should be used to achieve the complete allocation of corporate overhead
required by the Department for purposes of this investigation.
Ivaco argues that the methodology it used in its response,
allocating the corporate overhead expenses based on the proportional
cost of goods sold of each division and affiliate, is consistent with
the Department's request contained in the questionnaire. Ivaco argues
that its normal methodology allocates a lower percentage of total
corporate overhead than the methodology it used to respond to the
Department.
DOC Position: We agree with Ivaco. A company's management may
allocate overhead charges in many different ways and for many different
reasons, frequently for tax and income reporting requirements. In
addition, there is nothing on the record to support the assertion that
the total corporate head office charges, most of which are not normally
allocated at all, should be allocated in the same proportion as those
which are normally allocated between divisions and affiliates. Upon
further review, the Department has accepted Ivaco's allocation based on
cost of goods sold because an allocation of G&A based on cost of goods
sold applies G&A proportionately to each product regardless of
management's subjective allocations.
Comment 8: Ivaco argues that the Department's analysis in the
verification report, questioning the cost of goods sold figure used to
allocate interest, incorrectly commingled divisional data with
consolidated data. Ivaco contends that only consolidated data should be
used because intercompany revenue and expenses are eliminated upon
consolidation. The use of divisional data overstates the non-
manufacturing expense that the Department subtracted from the total
production costs as reported in the consolidated financial statements.
DOC Position: We agree with Ivaco. Intercompany transactions are
eliminated upon consolidation. The commingling of consolidated and
company level data as well as the uses of different accounting
principles used at the corporate and divisional levels, account for the
differences.
Comment 9: Petitioners state that Ivaco excluded from the COP
certain restructuring charges reported in its consolidated financial
statements. They argue that the Department should increase the G&A
expense percentage to compensate for this oversight.
Ivaco argues that it properly excluded these restructuring costs
from the reported G&A expense because they relate to non-subject
merchandise. The restructuring costs in question are solely related to
the operations of a subsidiary not involved in the production of the
subject merchandise.
DOC Position: We agree with Ivaco. Non-operating expenses, such as
restructuring costs, have been excluded by the Department when they
relate solely to entities outside of facilities producing the subject
merchandise. These restructuring costs relate solely to the operations
of a company which produces plastic and not the subject merchandise,
thus Ivaco properly excluded these costs from the G&A expense
computation.
Comment 10: Petitioners contend that Ivaco should not be allowed to
offset interest expense with its dividend income because dividend
income is considered investment income and Department policy dictates
that it may not be used to reduce actual production expenses.
Ivaco states that the dividend income in question relates to
exchangeable debentures that bear interest equal to the cash dividend
Ivaco earns on shares in another company, plus a premium. Thus, Ivaco
is legally obligated to pay to the debenture holder all of the
dividends that Ivaco earns on these shares, plus a premium. Ivaco
further notes that it excluded all other dividend income from its
interest expense calculation.
DOC Position: We agree with Ivaco. Ivaco demonstrated at
verification that the dividend income is merely passed through Ivaco
from Dofasco to the debenture holder. Because the interest expense and
these specific dividends are directly linked, Ivaco properly treated
these dividends as a direct offset to Ivaco's debenture interest. All
other dividend income was excluded.
Comment 11: Petitioners claim that Stelco's home market warranty
expenses for the POI are unusually high when compared to the historical
five-year average that Stelco reported. Petitioners further state that
Stelco offers no explanation for this apparent discrepancy, therefore
they contend that the Department should substitute the five-year
average for the reported expenses.
Stelco responds that its home market warranty expenses were simply
higher during the period of investigation and that these expenses were
verified.
DOC Position: Because respondents usually cannot tie POI sales to
their associated warranty expenses, the Department often relies on
historical data. Obviously, historical data would not be a more
accurate reflection of the warranty expenses where a respondent is able
to demonstrate a relationship between POI sales and its warranty
expense claim. This relationship could be shown by tying actual
warranty expenses to POI sales, or by demonstrating why warranty
expenses during the POI would be a more representative proxy of
eventual warranty expenses on POI sales than the historical average,
such as by showing that the POI sales reflected a new technology or
demonstrate quality control improvements. Although the POI warranty
expense amount claimed by Stelco was verified, Stelco's methodology was
not based on a relationship between the reported POI warranty expenses
and anticipated warranty expenses on POI sales. Accordingly, we have
recalculated both U.S. and home market warranty expenses to reflect the
historical five-year average.
Comment 12: In some cases in both markets, Stelco sold the
merchandise to the customer at a price exclusive of movement charges,
and recorded a separate charge for freight and, on U.S. sales, duty and
brokerage. For such sales, Stelco claims that the Department should
calculate the imputed credit expense on a price base that includes
these movement expenses not included in the selling price as listed on
the invoice, but listed separately on the invoice. Stelco reasons that
it effectively extends credit to its customers on this basis, rather
than on the basis of price of the merchandise alone, and thus the full
value of its opportunity cost should be reflected in the imputed credit
calculation.
Petitioners state that the Department was correct in the
preliminary determination in excluding these expenses from the credit
calculation. They note that the record contains no information
supporting Stelco's claim that it incurred a true opportunity cost for
these expenses since Stelco did not demonstrate that it must pay its
shippers prior to receipt of payment from its customers.
DOC Position: Where freight and movement charges are not included
in the price, but are invoiced to the customer at the same time as the
charge for the merchandise, the Department considers the transaction to
be similar to a delivered price transaction since the seller may
consider its return on both transactions in setting price. Thus we have
revised the methodology used in our preliminary determination for Ivaco
and Stelco to add to both USP and FMV the freight and other movement
charges to the customer, and deducted the corresponding freight expense
incurred by the respondents on these transactions. This methodology is
consistent with our treatment of these expenses where they are included
in the gross price. Since we now have, in effect, a gross price that
includes the movement charge, it is appropriate to include the movement
charge in calculating imputed credit. Accordingly, we have recalculated
imputed credit for both respondents to reflect this addition to price,
where appropriate.
With respect to the opportunity cost arguments raised by Stelco and
petitioners, the Department is not required to determine the true
economic cost of each adjustment when such a level of precision poses
such an unreasonable burden (see Federal-Mogul Corporation and The
Torrington Company v. the United States 839 F. Supp. 881 (1993)).
Whether Stelco has demonstrated an opportunity cost or not is
immaterial, since we are making the imputed credit adjustment for the
reason described above, rather than based on Stelco's opportunity cost
theory.
Comment 13: Stelco claims that it is entitled to a circumstance-of-
sale adjustment for post-sale warehousing expenses in both markets. It
contends that it has provided sufficient evidence to show that, as a
commercial reality, this expense is a condition of sale and that the
Department does not need to require a formal contract between the
parties specifying these warehousing services in order to allow this
adjustment.
Petitioners respond that Stelco was unable to produce ``hard
evidence'' that post-sale warehousing was a condition of sale. Its use
of this service was instead a discretionary business decision that
would not qualify for this adjustment. Petitioners cite Final
Determination of Sales at Less Than Fair Value: Certain Carbon Steel
Butt-Weld Pipe Fittings from Japan (51 FR 46892, 46894 (December 29,
1986)) to show that the Department requires contractual agreement to
warehousing expenses in order to grant the adjustment.
DOC Position: We agree with petitioners that, in order for the
Department to allow adjustment, the respondent must provide some
evidence that it is obligated to perform this service as a condition of
sale, as in Final Determination of Sales at Less Than Fair Value:
Carbon Steel Wire Rod from Trinidad and Tobago (46 FR 43206 (September
22, 1983)). The information Stelco submitted and presented at
verification described Stelco's perception of the expectations of the
customer regarding the condition of the product, but does not
specifically indicate that the post-sale warehousing was a necessary
condition of the sale, particularly as Stelco failed to demonstrate
that it provided this service on each sale to the customer.
Accordingly, we have not treated post-sale warehousing expenses as a
direct expense in making circumstance of sale adjustments. We have,
however, included the expense as an indirect expense.
Comment 14: Petitioners assert that purchases of scrap by Stelco
McMaster Ltee, a wholly owned Stelco subsidiary which produces billets
used in the production of wire rod, from a 50 percent owned related
party, were incorrectly valued at intercompany transfer prices.
Petitioners further state that the transfer prices were below the COP
of the scrap.
Stelco argues that it followed the Department's instructions in the
COP questionnaire, in which the Department instructed Stelco to provide
the transfer price for purchases from subsidiaries in which the
respondent's ownership interest is 50 percent or less. Moreover, Stelco
argues that for COP purposes, in determining the cost of inputs from
related suppliers, the Department correctly applied the rule of using
transfer price when subsidiaries in which the respondent's interest is
50 percent or less are involved (see, Final Determination of Sales at
Less Than Fair Value: Antifriction Bearings from West Germany, 54 FR
18992 (May 3, 1989)).
DOC Position: We agree with Stelco. In the COP questionnaire issued
to Stelco, the Department clearly requested, for COP purposes, that the
company submit transfer prices for purchases of inputs from companies
that have direct or indirect common ownership of 50 percent or less.
This request is in accord with long-standing Department practice, and
was followed by Stelco in reporting these scrap purchases. The
Department's treatment of related party transactions for COP tracks the
requirements for consolidation contained in Canadian and U.S. Generally
Accepted Accounting Principles (GAAP). The consolidation principle
states that economic activities are consolidated for all companies that
have direct or indirect common ownership of greater than 50 percent
(ARB Number 51). Therefore no adjustment was made for the final
determination.
Comment 15: Petitioners claim that Stelco incorrectly valued at
cost iron ore received from a related supplier in which Stelco held a
minority interest. Because Stelco only holds a minority interest in the
supplier, petitioner maintains that Stelco should have used the
transfer price in valuing the iron ore received from the related
supplier.
Stelco argues that the transfer price of iron ore obtained from
Wabush (an unincorporated joint venture which transfers pellets to its
members at cost) was the same as actual cost. Stelco further states
that the figure the petitioner interpreted to be the transfer price is
a budgeted value assigned by Stelco's interim cost accounting system.
DOC Position: We agree with Stelco. The Department verified that
Stelco's purchases of iron ore (i.e. transfer price) from its minority
owned related supplier occurred at the supplier's actual COP, i.e., the
transfer price and the actual price were the same. Additionally, the
Department verified that transfer price was the same as the price paid
by an unrelated purchaser to the related supplier for the same grade of
iron ore. Therefore, no adjustment was made.
Comment 16: Petitioners claim that Stelco should adjust the cost of
coal received from Ontario Coal for a portion of the overall corporate
losses incurred by Ontario Coal, a related supplier. Petitioners argue
that if overall operations experience a loss, it is part of the cost of
doing business for all the products made for all customers. Therefore
part of the loss should be attributable to coal sold to Stelco.
Petitioners further argue that this situation is especially true in a
high fixed cost sector like mining, in which producers may sell
incremental tonnage at a price higher than variable cost, but below
total cost, to realize economies of scale and spread fixed costs over a
larger tonnage. Ontario's unprofitable sales to external customers
would reduce the total cost of the coal sold to Stelco.
Stelco argues that the loss on Ontario Coal's December 31, 1992
financial statements was not a result of Stelco's purchases from
Ontario, but rather a result of Ontario's selling coal to unrelated
parties at prices below its fully absorbed cost of producing the coal.
Stelco further states that its average cost of acquiring coal from
Ontario was within one penny of covering Ontario's fully absorbed cost
of producing the coal.
DOC Position: We agree with Stelco. The Department verified that
Ontario Coal's sales to Stelco occurred at Ontario Coal's actual COP.
Therefore, no adjustment was made for the final determination.
Comment 17: Petitioners contend that Stelco incorrectly reduced its
reported COM by the amount of gains on the sale of production
equipment. Petitioners argue that the gain on the sale of the
production equipment should be reclassified as a credit to the reported
G&A expenses as opposed to a credit to the COM.
Stelco contends that in its normal accounting system, gains and
losses arising from the sale of production equipment are included in
its reported depreciation expenses. For the purpose of consistency,
Stelco also included the gain on the sale of production equipment with
its depreciation expense for submission purposes.
DOC Position: We agree with petitioners. Stelco provided no
evidence that the production equipment which generated the gains on the
sale was solely related to the production of subject merchandise.
Therefore, the Department considers these gains to be related to the
general production activities of Stelco as a whole, and they were,
therefore, reclassified to the G&A expense calculation.
Comment 18: Petitioners claim that Stelco incorrectly reduced the
depreciable basis of its capital assets by an investment tax credit
(``ITC'') recognized during the POI. Petitioners further state that the
Department should recalculate Stelco's depreciation expense excluding
the offset of the ITC against the depreciable basis of the capital
assets.
Stelco contends that its inclusion of the ITC in reporting
depreciation expenses is consistent with Canadian GAAP. Stelco further
states that the Department instructed Stelco to quantify and value its
reported COM in accordance with GAAP.
DOC Position: Stelco's submitted depreciation expense was
calculated utilizing a historical cost fixed asset basis reduced by any
investment tax credits realized as a result of purchasing the
depreciated equipment. This methodology was in accordance with Canadian
GAAP. The Department found that this Canadian approach to defining
basis for depreciation purposes is not distortive for antidumping
purposes in this case because the impact of the ITC is so small as to
have essentially no effect on the overall cost of production of the
subject merchandise. Therefore, we have continued to calculate cost of
production using the depreciation expense as submitted by Stelco.
Comment 19: Petitioners allege that Stelco's classification of
secondary merchandise as a co-product for purposes of the investigation
is inconsistent with its own accounting system and understates the cost
of prime merchandise. Petitioners further state that the Department
must correct Stelco's accounting for secondary merchandise by treating
all secondary rod as a by-product. In doing so, the petitioners
recommend allocating the cost less the recovery value of secondary rod
to production of prime merchandise.
Stelco cites IPSCO Inc. v. United States (IPSCO) (965 F.2d 1057
(Fed. Cir. 1990) in which the Court upheld the Department's treatment
of secondary pipe (pipe that did not meet the specifications for prime
pipe, also known as ``off-specification'' pipe) as a co-product, not a
by-product. Stelco contends that the Department must follow the IPSCO
precedent in its treatment of off-specification wire rod.
DOC Position: We agree with Stelco. Stelco's steel wire rod comes
in two grades: Prime and non-prime. After production of a manufacturing
lot, the wire rod is examined and classified as either prime or non-
prime by inspection teams. Non-prime wire rod is then sold to companies
that transform it into such things as shopping carts, sofa springs and
nails. The same manufacturing factors go into the production of both
prime and non-prime wire rod. Other than quality and market value,
there are no differences between prime and non-prime wire rod. Stelco's
reporting methodology was consistent with IPSCO.
Suspension of Liquidation
In accordance with section 733(d)(1) of the Act, we are directing
the Customs Service to continue to suspend liquidation of all entries
of steel wire rod from Canada that are entered, or withdrawn from
warehouse, for consumption on or after the date of publication of this
notice in the Federal Register. The Customs Service shall require a
cash deposit or posting of a bond equal to the estimated dumping
margins, as shown below. The suspension of liquidation will remain in
effect until further notice. The weighted-average margins are as
follows:
------------------------------------------------------------------------
Weighted-
average
Producer/manufacturer/exporter margin
percentage
------------------------------------------------------------------------
Ivaco Inc.................................................. 10.25
Stelco Inc................................................. 13.20
All Others................................................. 11.36
------------------------------------------------------------------------
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. The ITC will now determine whether these
imports are materially injuring, or threaten material injury to, the
U.S. industry within 45 days. If the ITC determines that material
injury, or threat of material injury, does not exist with respect to
the subject merchandise, the proceeding will be terminated and all
securities posted will be refunded or cancelled. If the ITC determines
that such injury does exist, the Department will issue an antidumping
duty order directing Customs officials to assess antidumping duties on
all imports of the subject merchandise from Canada entered, or
withdrawn from warehouse, for consumption on or after the effective
date of the suspension of liquidation.
Notice to Interested Parties
This notice also serves as the only reminder to parties subject to
administrative protective order (APO) of their responsibility, pursuant
to 19 CFR 353.34(d), concerning the return or destruction of
proprietary information disclosed under APO. Failure to comply is a
violation of the APO.
This determination is published pursuant to section 735(d) of the
Act (19 U.S.C. 1673d(d)) and 19 CFR 353.20(a)(4).
Dated: April 13, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-9551 Filed 4-19-94; 8:45 am]
BILLING CODE 3510-DS-P
