[Federal Register Volume 64, Number 87 (Thursday, May 6, 1999)]
[Notices]
[Pages 24329-24370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11286]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-588-846]
Notice of Final Determination of Sales at Less Than Fair Value:
Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Japan
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: May 6, 1999.
FOR FURTHER INFORMATION CONTACT: Nithya Nagarajan, John Totaro, LaVonne
Jackson, or Keir Whitson, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
4243, (202) 482-1374, (202) 482-0961, and (202) 482-1394, respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (``the Act''), are references to the provisions
effective January 1, 1995, the effective date of the amendments made to
the Act by the Uruguay Round Agreements Act (``URAA''). In addition,
unless otherwise indicated, all citations to the Department's
regulations are to the regulations at 19 C.F.R. part 351 (1998).
Final Determination
We determine that hot-rolled, flat-rolled, carbon-quality steel
products (``hot-rolled steel'') from Japan is being sold in the United
States at less than fair value (``LTFV''), as provided in Section 735
of the Act. The estimated margins are shown in the ``Continuation of
Suspension of Liquidation'' section of this notice.
Case History
Since the Preliminary Determination (see Notice of Preliminary
Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled
Carbon-Quality Steel Products from Japan, 64 FR 8291 (Feb. 19, 1999))
(``Preliminary Determination''), the following events have occurred:
During February and March 1999, respondents Nippon Steel
Corporation (``NSC''), NKK Corporation (``NKK'') and Kawasaki Steel
Corporation (``KSC'') submitted responses to the sales and cost
supplemental questionnaires issued by the Department. On February 12,
1999, February 25, 1999, and March 3, 1999, petitioners submitted
comments regarding the issue of date of sale and the Department's Japan
sales and cost verifications. On February 19, 1999, NKK filed an
allegation of clerical error and requested the Department to issue an
amended preliminary determination. On March 1, 1999, NSC submitted pre-
verification changes and new factual information presumably discovered
while preparing for the sales verification in Japan. On March 4, 1999,
KSC submitted corrections presumably discovered while preparing for
sales verification. Similarly, on March 4, 1999, NKK submitted pre-
verification changes and new factual information
[[Page 24330]]
presumably discovered while preparing for sales verification.
During February and March 1999, we conducted sales and cost
verifications of NSC's, NKK's and KSC's responses to the antidumping
questionnaire. On March 26, 1999, we issued our sales and cost
verification reports for all three responding companies. Petitioners
and respondents submitted case briefs on April 12, 1999, and rebuttal
briefs on April 19, 1999. On April 21, 1999, the Department held a
public hearing. In addition, on April 12, 1999, General Motors
Corporation (``GM'') requested a scope exclusion for hot-rolled carbon
steel that both meets the standards of SAE J2329 Grade 2 and is of a
gauge thinner than 2 mm with a 2.5 percent maximum tolerance. On April
22, 1999, the petitioners requested that certain ASTM A570-50 grade
steel be excluded from the investigation. For a more detailed
discussion of scope issue, please see Scope Amendments Memorandum,
dated April 28, 1999.
Scope of Investigation
For purposes of this investigation, the products covered are
certain hot-rolled flat-rolled carbon-quality steel products of a
rectangular shape, of a width of 0.5 inch or greater, neither clad,
plated, nor coated with metal and whether or not painted, varnished, or
coated with plastics or other non-metallic substances, in coils
(whether or not in successively superimposed layers) regardless of
thickness, and in straight lengths, of a thickness less than 4.75 mm
and of a width measuring at least 10 times the thickness. Universal
mill plate (i.e., flat-rolled products rolled on four faces or in a
closed box pass, of a width exceeding 150 mm but not exceeding 1250 mm
and of a thickness of not less than 4 mm, not in coils and without
patterns in relief) of a thickness not less than 4.0 mm is not included
within the scope of these investigations.
Specifically included in this scope are vacuum degassed, fully
stabilized (commonly referred to as interstitial-free (``IF'')) steels,
high strength low alloy (``HSLA'') steels, and the substrate for motor
lamination steels. IF steels are recognized as low carbon steels with
micro-alloying levels of elements such as titanium and/or niobium added
to stabilize carbon and nitrogen elements. HSLA steels are recognized
as steels with micro-alloying levels of elements such as chromium,
copper, niobium, titanium, vanadium, and molybdenum. The substrate for
motor lamination steels contains micro-alloying levels of elements such
as silicon and aluminum.
Steel products to be included in the scope of this investigation,
regardless of HTSUS definitions, are products in which: (1) iron
predominates, by weight, over each of the other contained elements; (2)
the carbon content is 2 percent or less, by weight; and (3) none of the
elements listed below exceeds the quantity, by weight, respectively
indicated:
1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.012 percent of boron, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent of zirconium.
All products that meet the physical and chemical description provided
above are within the scope of this investigation unless otherwise
excluded. The following products, by way of example, are outside and/or
specifically excluded from the scope of this investigation:
Alloy hot-rolled steel products in which at least one of
the chemical elements exceeds those listed above (including e.g., ASTM
specifications A543, A387, A514, A517, and A506).
SAE/AISI grades of series 2300 and higher.
Ball bearing steels, as defined in the HTSUS.
Tool steels, as defined in the HTSUS.
Silico-manganese (as defined in the HTSUS) or silicon
electrical steel with a silicon level exceeding 1.50 percent.
ASTM specifications A710 and A736.
USS Abrasion-resistant steels (USS AR 400, USS AR 500).
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.10-0.14%....................... 0.90% Max............ 0.025% Max........... 0.005% Max........... 0.30-0.50%........... 0.50-0.70%........... 0.20-0.40%.......... 0.20% Max.
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Width = 44.80 inches maximum; Thickness = 0.063-0.198 inches;
Yield Strength = 50,000 ksi minimum; Tensile Strength =
70,000-88,000 psi.
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni Mo
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.10-0.16%..................... 0.70-0.90%......... 0.025% Max........ 0.006% Max........ 0.30-0.50%........ 0.50-0.70%........ 0.25% Max......... 0.20% Max......... 0.21% Max
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Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi
Aim.
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni V(wt.) Cb
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
010.10-0.14%................... 11.30-1.80%..... 10.025% Max..... 1.005% Max...... 10.30-0.50%..... 10.50-0.70%..... 10.20-0.40%..... 10.20% Max...... 010.10 Max...... 0.08% Max
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Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi
Aim.
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:
[[Page 24331]]
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C Mn P S Si Cr Cu Ni Nb Ca Al
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.15% Max..................... 1.40% Max...... 0.025% Max..... 0.010% Max.... 0.50% Max..... 1.00% Max..... 0.50% Max..... 0.20% Max..... 0.005% Min.... Treated....... 0.01-0.07%
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Width = 39.37 inches; Thickness = 0.181 inches maximum; Yield
Strength = 70,000 psi minimum for thicknesses 0.148 inches
and 65,000 psi minimum for thicknesses >0.148 inches; Tensile Strength
= 80,000 psi minimum.
Hot-rolled dual phase steel, phase-hardened, primarily
with a ferritic-martensitic microstructure, contains 0.9 percent up to
and including 1.5 percent silicon by weight, further characterized by
either (i) tensile strength between 540 N/mm 2 and 640 N/mm
2 and an elongation percentage 26 percent for
thicknesses of 2 mm and above, or (ii) a tensile strength between 590
N/mm 2 and 690 N/mm 2 and an elongation
percentage 25 percent for thicknesses of 2mm and above.
Hot-rolled bearing quality steel, SAE grade 1050, in
coils, with an inclusion rating of 1.0 maximum per ASTM E 45, Method A,
with excellent surface quality and chemistry restrictions as follows:
0.012 percent maximum phosphorus, 0.015 percent maximum sulfur, and
0.20 percent maximum residuals including 0.15 percent maximum chromium.
Grade ASTM A570-50 hot-rolled steel sheet in coils or cut
lengths, width of 74 inches (nominal, within ASTM tolerances),
thickness of 11 gauge (0.119 inch nominal), mill edge and skin passed,
with a minimum copper content of 0.20%.
The merchandise subject to these investigations is classified in
the Harmonized Tariff Schedule of the United States (``HTSUS'') at
subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00,
7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60,
7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60,
7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30,
7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90,
7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00,
7208.90.00.00, 7210.70.30.00, 7210.90.90.00, 7211.14.00.30,
7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00,
7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60,
7211.19.75.90, 7212.40.10.00, 7212.40.50.00, 7212.50.00.00. Certain
hot-rolled flat-rolled carbon-quality steel covered by this
investigation, including: vacuum degassed, fully stabilized; high
strength low alloy; and the substrate for motor lamination steel may
also enter under the following tariff numbers: 7225.11.00.00,
7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00,
7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60,
7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00,
7226.91.80.00, and 7226.99.00.00. Although the HTSUS subheadings are
provided for convenience and Customs purposes, the written description
of the merchandise under investigation is dispositive.
Period of Investigation
The period of investigation (``POI'') is July 1, 1997 through June
30, 1998.
Product Comparisons
In accordance with section 771(16) of the Act, all products
produced by the respondents covered by the description in the Scope of
Investigation section, above, and sold in Japan during the POI are
considered to be foreign like products for purposes of determining
appropriate product comparisons to U.S. sales. We have relied on eleven
characteristics to match U.S. sales of subject merchandise to
comparison market sales of the foreign like product: paint, quality,
carbon content, strength, thickness, width, coiled or non-coiled,
temper rolling, pickling, edge trim, and patterns. These
characteristics have been weighted by the Department where appropriate.
Where there were no sales of identical merchandise in the home market
to compare to U.S. sales, we compared U.S. sales to the next most
similar foreign like product on the basis of the characteristics listed
in the antidumping questionnaire and reporting instructions.
Changes From the Department's Preliminary Determination
The Department, upon review of the preliminary margin calculation
program, found that there were errors associated with the calculation
of the difference in merchandise adjustment (DIFMER) in NKK's model
match program. The program that we used, failed to calculate the DIFMER
adjustment associated with the matching home market CONNUM. Instead,
the DIFMER calculation selected in the concordance program was chosen
from the last comparison, resulting in the application of an incorrect
DIFMER adjustment. For a complete discussion, please see the
Department's Final Determination Analysis Memo, dated April 28, 1999.
Second, the Department disallowed KSC's home market technical
service expenses because these expenses could not be verified. However,
we continue to adjust for U.S. technical service expenses. See KSC Home
Market Verification Report, dated March 26, 1999; see also KSC Final
Analysis Memo, dated April 28, 1999.
Third, the Department corrected the model match and margin programs
for all three companies in calculating packing costs for use in the
cost test and constructed value. In the Preliminary Determination, the
Department inadvertently used a sale specific packing cost for use in
the calculation of general and administrative (``G&A'') expenses and
interest expenses in both the cost test and constructed value analysis.
For the final determination, the Department has revised this section of
the program to calculate a weighted-average packing cost per CONNUM for
use in these calculations. For a more complete analysis, please see the
Final Determination Analysis Memo, dated April 28, 1999, for all three
responding companies.
Interested Party Comments
Home Market and U.S. Sales
Comment 1: Date of Sale.
NKK
NKK states that the Department should reaffirm its preliminary
finding that the invoice date/shipment date is the most appropriate
date of sale for NKK. NKK argues that the material terms of sale were
not finalized until after shipment for the majority of its U.S. and
home market sales as supported by documentation provided during
verification. In addition, NKK argues that the Department's regulations
and other determinations dictate the use of date of invoice as the date
of sale.
NKK argues that its demonstrated sales process clearly indicates
that the invoice date/shipment date best reflects the date on which the
final material terms of sale were finalized during the period of
investigation, and that material terms of sale, i.e. price and
quantity, often changed after the order confirmation date. NKK argues
that the
[[Page 24332]]
Department verified that a significant portion of home market and U.S.
sales had significant changes to price and/or quantity during the POI,
and therefore the invoice/shipment date is the most appropriate date of
sale for NKK's sales of subject merchandise.
Secondly, NKK argues that the Department's regulations indicate a
preference for the use of date of invoice as the date of sale where
changes from the original order occur on a frequent basis. NKK states
that the Department established a presumption that material terms would
be considered established on the invoice date after adopting
Sec. 351.401(i) of its regulations. NKK also argues that the
presumption in favor of invoice date is supported by the language in
the preamble to the regulations and that an alternative date of sale
will be used only when there is evidence satisfying the Department that
the different date better reflects the date on which the exporter or
producer establishes the material terms of sale. NKK argues that the
regulations therefore place the burden of proof on the party claiming
that another date is more appropriate, and that this burden of proof
has not been satisfied by record evidence. Rather, the record supports
the finding that the material terms of sale are set on the date of
shipment/invoice; thus, that date is the most appropriate date of sale.
Petitioners argue that the Department may use a date of sale other
than invoice date if it determines that an alternative date more
accurately reflects the date on which the material terms of sale are
established. Petitioners argue that the documents and information
obtained at NKK's verification support the conclusion that the
essential terms of sale are set on the order confirmation date and
therefore the order confirmation is the appropriate date of sale for
this investigation.
Petitioners contend that NKK manufactures product to order and that
the principal terms of sale are set at the point the customer places
the order. Further, they argue that although the Department examined
numerous transactions at verification, the data show that only a
minuscule portion of sales had changes to material terms (i.e., price
terms). Petitioners argue that, for the majority of sales, price terms
did not change between order confirmation date and invoice/shipment
date, and that, in instances where changes did occur, they were
accounted for after the invoice was issued. Petitioners contend that
changes to price terms which occur after invoicing are not an
appropriate adjustment for consideration in the Department's date of
sale analysis. Petitioners further argue that, in the majority of sales
reviewed at verification, the quantities shipped were within shipping
tolerances and should therefore not be considered in the date of sale
analysis. Because sales where the quantity shipped was outside the
applicable delivery tolerances occurred only in a small number of
verified transactions, the order confirmation date is the appropriate
date of sale. Petitioners further argue that, in Certain Corrosion-
Resistant Carbon Steel Flat Products from Japan: Final Results of
Antidumping Duty Administrative Review (``Certain Corrosion-Resistant
Carbon Steel From Japan''), 64 FR 12951, 12956-12957 (Mar.16, 1999),
the Department used the order confirmation date as the date of sale
under similar factual circumstances. Finally, petitioners argue that
the Department should use facts available due to the fact that NKK did
not report a separate database of sales based on order confirmation
date. According to petitioners, the Department requested NKK to provide
this information in both its original questionnaire as well as its
supplemental questionnaire, and NKK refused to provide the requested
information. Therefore, since the record evidence indicates that order
confirmation date is the most appropriate date of sale, the Department
should assign the highest dumping margin, or the highest rate in the
petition as facts available.
NKK rebuts petitioners' arguments that order confirmation date is
the date of sale. NKK argues that petitioners are incorrect in arguing
that only a few transactions were reviewed at verification for the
Department's date of sale analysis. NKK argues that the Department
reviewed a large sample of sales and found that over fifty percent of
these transactions had changes to material terms. See NKK Sales
Verification Report, dated March 26, 1999, at 14. NKK argues that,
contrary to petitioners' assertion, the frequency of changes for both
price and quantity terms is sufficiently large to justify using invoice
date as the date of sale. Secondly, NKK argues that petitioners'
contention that post-shipment price changes are irrelevant to the date
of sale analysis is incorrect. Citing Diameter Circular Seamless Carbon
and Alloy Steel Standard Line and Pressure Pipe from German: Final
Results of Antidumping Duty Administrative Review, 63 FR 13217 (March
18, 1998), NKK argues that the Department stated that it will use
shipment date as a proxy date for sales invoice after shipment, not
that all post-shipment price changes are to be ignored in the date of
sale analysis. Third, NKK argues that the evidence on the record
demonstrates that the final price invoiced was not determined until
after shipment occurred and this differs from the price stated on the
order confirmation. Fourth, NKK contends that each of the cases cited
by petitioners in their argument can be distinguished from the facts in
the present case. NKK argues that, in each of these cases, the
Department used the order confirmation date because there were no
changes to the terms of sale after the order date, whereas in the
instant case, NKK has proven and the Department has verified that
material terms are not final at order confirmation and that material
terms changed frequently. These facts, according to NKK, support the
conclusion that shipment/invoice date is the appropriate date of sale.
Finally, NKK argues that it is inappropriate to apply adverse facts
available to NKK. NKK contends that the Department gave NKK the choice
as to whether to provide a single sales database using invoice date as
the date of sale or to provide both invoice date and order confirmation
date databases. NKK contends that it chose to provide a single database
and has subsequently proven, through record evidence, that invoice date
is the appropriate date of sale. Thus, there is no basis to use facts
available.
Petitioners rebut NKK's argument that invoice date is the date on
which material terms of sale are set and should be the date of sale.
Petitioners reiterate their argument that only a small percentage of
home market and U.S. sales had changes to material terms after the
order confirmation date. Petitioners continue to argue that changes
made after shipment are not an appropriate basis for the Department's
date of sale analysis. Petitioners contend that the Department's
verification demonstrates that only a few sales had changes to material
terms, and state that this confirms that order confirmation date is the
appropriate date of sale. Petitioners further contend that, because NKK
failed to provide sales databases using order confirmation date as the
date of sale, the Department should apply adverse facts available.
According to petitioners, NKK did not report all sales where the order
was confirmed within the POI, therefore the necessary sales are not on
the record. Because NKK failed to report these sales, there is
justification for the Department to reject NKK's response and apply
facts available.
[[Page 24333]]
NSC
NSC argues that the Department should follow its preliminary
determination and continue using the date of shipment as the date of
sale. NSC argues that the Department verified that the essential terms
of sale changed between the initial order and shipment date for a
significant portion of home market and U.S. sales. NSC used the date of
shipment as a proxy for the date of invoice because the shipment date
falls within a short time of the invoice date.
NSC argues that the Department's regulations mandate the use of
date of invoice as the date of sale, and that there is a rebuttable
presumption that the appropriate date of sale is the invoice date. NSC
argues that the presumption can only be overcome by compelling evidence
on the record. NSC states that the essential terms of sale for its
sales of subject merchandise are not finally established until, and
sometimes after, shipment, and that this supports the presumption in
favor of invoice date. NSC argues that there is a high standard to be
met to overcome this presumption, and that record evidence on the
frequency of changes and the potential for change to the essential
terms after the initial order support the finding that invoice date is
the appropriate date of sale.
NSC argues that the Department verified that material terms of sale
changed after the initial order was placed in a significant portion of
the sales examined. In addition, respondent argues that the Department
verified that, in the Japanese hot-rolled steel industry, terms of sale
are not established until the material is shipped to the purchaser.
Based on these reasons, NSC argues that the date of shipment/invoice is
the most appropriate date of sale as supported by the preference stated
in the Department's regulations and record evidence and we should
continue using the date of shipment as the date of sale for the final
determination.
Petitioners argue that the Department may use a date of sale other
than invoice date if it determines that an alternative date more
accurately reflects the date on which the material terms of sale are
established. Petitioners argue that the documents and information
obtained at NSC's verification support the conclusion that the
essential terms of sale are set on the order confirmation date and
therefore the order confirmation is the appropriate date of sale for
this investigation. In sum, petitioners argue that there was not a
significant portion of sales for which material terms of sale changed,
and that as a result the most appropriate date of sale is the date of
order confirmation.
Petitioners argue that NSC only produces merchandise after the
customer places the order and that the critical step in determining the
material terms of sale is the issuance of the order confirmation.
Petitioners further argue that the evidence examined at verification
supports the conclusion that only modifications that occur between
order confirmation and shipment are relevant to the date of sale
analysis, and that modifications which occur after shipment are not
relevant to the date of sale because the Department does not examine
any date after the date of shipment as a possible date of sale.
Petitioners contend that the data examined at verification indicate
that only a small portion of home market and U.S. sales have changes to
either price or quantity between order confirmation and shipment.
Further, they contend that the analysis presented by NSC at
verification was incorrect. Petitioners argue that their examination of
the record shows that the sales traces examined indicated changes after
the date of shipment and are therefore inappropriate to use as a basis
for examining the most appropriate date of sale. In sum, the
petitioners argue that NSC's claimed date of sale is not supported by
record evidence and the Department should use the order confirmation
date as the date of sale, as it did in Certain Corrosion-Resistant
Carbon Steel Products from Japan 64 FR at 12956-57.
Petitioners argue that, should the Department choose to use date of
invoice as the date of sale, it should employ a transaction-specific
date of sale analysis, isolate those individual transactions for which
material terms did not change, and use the order confirmation date as
the date of sale for such transactions. In cases where terms of sale
did change, the Department could use the date of shipment/invoice as
the date of sale.
Petitioners rebut NSC's argument that date of shipment/invoice is
the appropriate date of sale. Petitioners argue that the information on
the record does not support the conclusion that a significant number of
NSC's home market and U.S. sales had changes to material terms after
shipment occurred. In fact, petitioners contend that only a small
minority of reviewed transactions had changes to material terms
sufficient to justify the determination that shipment/invoice date is
the appropriate date of sale. In addition, petitioners state that NSC's
argument that there are compelling facts on the record to warrant the
use of shipment/invoice date as the date of sale creates a new standard
unsupported by statutory or case precedent. Further, they claim that
the argument that there is a potential for change should also be
disregarded as it is based on a misunderstanding of the Department's
regulations. Rather, they contend that it would be unreasonable to use
invoice date as the date of sale merely because there is a hypothetical
potential for post-order modifications. Petitioners conclude that,
based on the facts and evidence on the record, the Department should
use the order confirmation date or the date of the revised order
confirmation as the date of sale.
NSC rebuts petitioners' arguments that order confirmation date is
the most appropriate date of sale by reiterating its initial arguments
on this topic. In addition, NSC contends that petitioners' analysis of
the information on the record is wrong both in fact and in law. NSC
argues that petitioners have misread how NSC reports its price
adjustments after shipment and how NSC's documents reflect order
modifications. NSC rebuts each of petitioners' points using proprietary
information which is incapable of adequate public summary. NSC argues
that petitioners' claims that order modification is the correct date
because changes in the orders prior to shipment are reflected in the
order modification and that changes after shipment cannot be considered
are wrong. According to NSC, the Department may consider potential for
changes both pre- and post-shipment in conducting its date of sale
analysis. In fact, NSC argues, the Department's questionnaire instructs
them to report the unit price recorded on the invoice for sales shipped
and invoiced in whole or in part, which is what NSC reported to the
Department.
NSC argues that the Department's regulations create a presumption
in favor of date of invoice as the date of sale, a presumption which
the petitioners have not overcome through record evidence. NSC argues
once again that the significance of potential for change has been
supported by Department precedent. Thus, the Department has concluded
that simply because the essential terms of sale did not change after
the initial contract date, this does not demonstrate that essential
terms of sale were not subject to change after this date. See Certain
Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from
Korea: Final Results of Antidumping Duty Administrative Reviews
(``Carbon Steel Flat Products from Korea''), 64 FR 12927, 12935 (March
16, 1999). NSC concludes, that because the terms of NSC's sales of
[[Page 24334]]
subject merchandise remain subject to change throughout the sales
process, petitioners cannot overcome the presumption in favor of
invoice date. Finally, NSC argues that the Department verified that 36
percent of its sales during the POI were in fact modified after the
order confirmation was issued. The mere fact that hot-rolled steel
products are made-to-order is not conclusive evidence that the parties
engage in formal negotiating and contracting procedures that would
result in terms of sale which are finally and irrevocably established
at the beginning of the sales process. NSC argues that hot-rolled steel
is a commodity product that is not sold through a formal negotiation
and contracting process. Therefore, petitioners' argument that hot-
rolled product is made to order is irrelevant to the date of sale
analysis. NSC argues that, based upon the evidence placed on the
record, the most appropriate date of sale is the shipment/invoice date.
KSC
Respondent argues that the Department's regulation establishes a
presumption that invoice date should be used as the date of sale.
Respondent also argues that the Department has consistently applied
this rule. Specifically, respondent cites Notice of Final Determination
of Sales at Less Than Fair Value: Stainless Steel Plate in Coils from
South Africa, 64 FR 15459, 15465 (March, 31, 1999) as evidence that the
Department reaffirmed its practice of using the invoice date as the
proper date of sale when material terms of sale can change between
order and invoice date, even if the changes are not frequent, and the
reporting company uses invoice date in its internal records.
Furthermore, KSC asserts that the Department has stated that its
preference for invoice date is based on two policy rationales. First,
the date on which the terms of sales are normally established is the
invoice date. Second, the Department intends that the reporting and
verification of information be simplified, resulting in predictable
outcomes as well as the efficient use of resources. Additionally,
respondent asserts that the Department will use invoice date as the
date of sale unless the material terms of sale, as evidence by the
record, are established on a different date.
Respondent argues that material changes to the terms of sale,
affecting price or quantity, may and do occur between KSC's order
confirmation and invoice. As a result, the terms of sale become fixed
and finalized on the shipment/invoice date. In certain instances within
the home market, price changes may occur even after invoicing.
Respondent believes that the frequency of material changes between
order confirmation and invoice, as seen during verification, proves
that the invoice date should be used as KSC's date of sale because the
terms of sale are final only at invoicing (even though the price may
change afterward in the home market).
Respondent also argues that invoice date is the date of sale for
KSC because, in accordance with the Department's regulations which
provide that the date of sales is to be based upon data maintained by
the respondent in the ordinary course of business, the books and
records of KSC, Kawasho Corporation (``Kawasho'') and Kawasho
International USA, Inc. (``Kawasho International'') are based on
invoice data. Additionally, using the invoice date as the date of sale
results in an efficient use of resources by simplifying reporting and
the verification of information. Finally, respondent states that by
using the invoice date, the Department allows for predictability in its
proceedings.
Petitioners did not comment on KSC's date of sale argument.
Department's Position: We agree with all three respondents (NSC,
NKK and KSC) that invoice/shipment date is the correct date of sale for
all home market and U.S. sales of subject merchandise for each of the
responding companies.
Under our current practice, as codified in the Department's Final
Regulations at Sec. 351.401(i), in identifying the date of sale of the
subject merchandise, the Department will normally use the date of
invoice, as recorded in the producer's records kept in the ordinary
course of business. See Certain Welded Carbon Steel Pipes and Tubes
from Thailand: Final Results of Administrative Review, 63 FR 55578,
55587 (1998) (``Pipes and Tubes from Thailand''). However, in some
instances, it may not be appropriate to rely on the date of invoice as
the date of sale, because the evidence may indicate that the material
terms of sale were established on some date other than invoice date.
See Preamble to the Department's Final Regulations at 19 CFR Part 351
(``Preamble''), 62 FR 27296 (1997). Thus, despite the general
presumption that the invoice date constitutes the date of sale, the
Department may determine that this is not an appropriate date of sale
where the evidence of the respondent's selling practice points to a
different date on which the material terms of sale were set.
In this investigation, in response to the original questionnaire,
NSC and NKK reported invoice/shipment date as the date of sale in both
the U.S. and home markets. KSC reported order confirmation date as the
date of sale based on the belief that that is what the Department
wanted. However, KSC also provided sales databases using invoice/
shipment date as the date of sale, and continued to argue that this
would be a more appropriate date of sale. To ascertain whether NSC, NKK
and KSC accurately reported the date of sale, the Department included
in its January 4, 1999 supplemental questionnaire a request for
additional information regarding changes in terms of sale subsequent to
order date. In its January 25, 1999 response, NSC, NKK and KSC
indicated that there were numerous instances in which terms such as
price and quantity changed subsequent to the confirmation of the
original orders in the U.S. and home markets. NSC, NKK and KSC cited
specific figures for each type of change. For purposes of our
Preliminary Determination, we accepted the date of invoice as the date
of sale subject to verification. See Preliminary Determination, 64 FR
at 8294.
At verification, we carefully examined NSC's, NKK's and KSC's
selling practices. We found that each company records sales in its
financial records by date of invoice/shipment. For the home market, we
reviewed several sales observations for which the price and quantity
changed subsequent to the original order (see Home Market Verification
Reports, dated March 26, 1999 for the respective companies). For the
U.S. market, we reviewed several instances in which terms of sale
changed subsequent to the original order. Based on respondents'
representations, and as a result of our examination of each company's
selling records kept in the ordinary course of business, we are
satisfied that the date of invoice/shipment should be used as the date
of sale because it best reflects the date on which material terms of
sale were established for NSC's, NKK's and KSC's U.S. and home market
sales.
We disagree with the petitioners' claim that, since the terms do
not change after the order confirmation date, the order date (or the
final change order date) is the most appropriate date of sale for
NSC's, NKK's and KSC's U.S. and home market sales. The fact that terms
often changed subsequent to the original order, and even after an
initial order confirmation, suggests that these terms remained subject
to change (whether or not they did change with respect to individual
transactions) until as late as the invoice date. For sales that
[[Page 24335]]
we reviewed, we found this to be true for material terms of sale such
as price and quantity, including quantity changes outside of
established tolerances. The Department's decision in Certain Corrosion-
Resistant Carbon Steel Flat Products from Japan, 64 FR 12951, 12958
(Mar. 16, 1999) should, therefore, not be followed in this case. In
that case, the Department found that the material terms of sale were
established on the date of the final order confirmation and that there
were no material changes thereafter. As stated in the Federal Register
notice, the Department in that case found that there were no changes
between the final revised order confirmation and the shipment/invoice
date. In addition, in the Corrosion-Resistant Steel case, there was no
discussion on the possibility or frequency of changes between the
original order confirmation, any revised order confirmations, the
invoice, and changes subsequent to the invoice. The facts of the
instant case are distinguishable. In the instant case, pursuant to our
findings at verification, the Department determines that there are
changes between the original order confirmation date (i.e, the date of
sale proposed by petitioner), the invoice date (i.e., the date of sale
proposed by respondents), and in certain instances changes which occur
after the invoice date for a significant number of individual
transactions. Each of these facts distinguishes the factual record in
the current case from the Department's decision in the Corrosion-
Resistant Steel case. Therefore, pursuant to our findings at
verification, we have determined that invoice date is the appropriate
date of sale for NSC's, NKK's and KSC's sales, as it most accurately
represents the date on which the material terms of sale are
established.
In addition, the Department has also examined the time lags between
order date and invoice date to determine whether it was appropriate to
use order date as the date of sale dates. See Circular Welded Non-Alloy
Steel Pipe from the Republic of Korea; Final Results of Antidumping
Duty Administrative Review (``Steel Pipe from Korea''), 63 FR 32833,
32835 (June 16, 1998). However, it is important to note that, in Steel
Pipe from Korea, the Department found that ``{t}he material terms of
sale in the United States are set on the contract date and any
subsequent changes are usually immaterial in nature or, if material,
rarely occur.'' Id., 63 FR at 32836. In contrast, NSC, NKK and KSC each
reported that there were numerous instances of changes in terms of sale
between the initial order date, and the shipment/invoice date.
Therefore, invoice date is the most appropriate date of sale,
notwithstanding some time lag between order confirmation and invoice.
As noted above, we observed a significant number of such instances at
verification where changes did occur between order confirmation and
invoice.
We also disagree with petitioners' assertion that NSC's, NKK's and
KSC's reported sales information was inaccurate and incomplete. During
the course of sales verifications, the Department requested specific
documentation from each of the responding companies in support of its
claim that the date of invoice should be used as the date of sale. NSC,
NKK and KSC complied with the verifiers' request for sales trace
documentation, and the Department utilized the purchase order, order
confirmation and invoice information provided by each company as part
of the basis for its decision on this issue. At verification, the
Department also clarified which quantity changes were and were not
within tolerance, and used this information in conducting its date of
sale analysis.
Finally, we have not accepted petitioners' suggestion that the
Department should use a transaction-specific date of sale methodology.
While this may be appropriate for products involving only a handful of
sales within the period of investigation or review, such an approach
would impose a very substantial undue burden on both respondents and
the Department in terms of reporting and verification. As explained in
the Preamble to the Department's regulations, the use of a single date
of sale for each respondent makes more efficient use of the
Department's resources and enhances the predictability of outcomes. See
62 FR at 27348.
Comment 2: Preliminary Determination of Critical Circumstances.
NKK
NKK argues that the Department's preliminary finding of critical
circumstances is not supported by the facts on the record. First, NKK
states, there is no history of dumping with respect to this product;
thus, the Department must find ``knowledge of dumping'' in order to
find critical circumstances. In this respect, NKK states, the
Department normally relies on company-specific margins of over 25
percent to impute knowledge of dumping. NKK claims that its final
margin, if adjusted for the alleged clerical error, will not exceed 25
percent and will therefore not meet the first statutory criterion for
finding critical circumstances. NKK argues that although the Department
relied on margins alleged in the petition in its preliminary critical
circumstances finding, there is no basis for not using company-specific
margins in the final critical circumstances determination.
Second, NKK argues that its shipments were not massive during the
three months immediately preceding and the three months immediately
following the filing of the petition. NKK argues that the Department's
longstanding practice is to compare the volume of shipments during the
three months preceding the filing of the petition with the volume of
shipments in a comparable period following the filing of the petition.
The Department deviated from this practice in its preliminary
determination as to critical circumstances, comparing instead the
December 1997-April 1998 period to the May 1998-September 1998 time
period. NKK argues that there is no basis for the use of this time
period to support a finding of critical circumstances, and that the
evidence on the record does not support a finding that there were
massive imports of NKK merchandise during the appropriate comparison
period. In addition, NKK argues that the Department's conclusions with
respect to importer knowledge of dumping based on press reports and
rumors about the possibility of antidumping cases were contradicted by
price increases during the same time period. Respondent argues that the
Department's reliance on vague news articles and press reports placed
on the record prior to the preliminary determination as to critical
circumstances was misplaced because these sources did not clearly
indicate that it was likely that the domestic industry would file
antidumping cases against hot-rolled steel from Japan. NKK concludes
that, due to the serious economic consequences a finding of critical
circumstances could involve for itself and its customers, the
Department should utilize company-specific import data for its final
critical circumstances determination. If it does so, NKK claims, it
must make a negative finding, because the ``massive shipments''
criterion has not been satisfied.
Petitioners rebut NKK's argument that the Department's preliminary
determination of critical circumstances is not supported by the
information on the record. Petitioners contend that NKK's argument for
use of company-specific shipment data is contrary to the Department's
regulations. According to petitioners, the Department must
[[Page 24336]]
examine imports into the United States as opposed to shipments, which
may or may not correlate to imports during the relevant period.
Secondly, petitioners argue that, if the Department were to use
shipment data, this information would still not be an accurate basis
for analysis as this would be company-specific data, whereas the
analysis should focus on total imports from Japan. Because NKK has not
cited any authority for its statement that the Department should make a
company-specific critical circumstances finding, the Department should
affirm its preliminary finding by using total imports from Japan as the
basis for its critical circumstances determination. Finally,
petitioners argue that NKK and other respondents knew that an
antidumping investigation was likely, based upon the articles in the
press placed on the record. Thus, petitioners argue, the Department
should continue to disregard respondents' argument to the contrary and
base its decision on record evidence.
NSC
NSC argues that the statute requires that the Department, if it is
finding critical circumstances, must first either find a history of
dumping, or impute knowledge of dumping and of material injury by
reason of dumped sales. NSC argues that the Department's preliminary
finding of critical circumstances was based on inflated margins and was
contrary to law. NSC argues that the Department's final determination
as to critical circumstances must be supported by evidence on the
record.
First, NSC argues that the Department's reliance on allegations
from the petition and the use of these allegations to make a
preliminary finding of critical circumstances were unacceptable
precedent. NSC states that mere allegations in the petition do not
provide sufficient support for the Department to impute knowledge based
on the magnitude of dumping margins and injury. NSC argues that the
statute requires that the Department conduct a factual investigation
and determine that there is a reasonable basis to believe or suspect
that products are being dumped before making a finding of critical
circumstances. In conducting this analysis, respondent argues, the
Department has never before relied merely on petition allegations to
form a reasonable belief concerning critical circumstances. Because the
Department's preliminary determination was based on alleged and
unsupported information from the petition, it cannot withstand
scrutiny. Therefore, NSC argues, the Department should not find
critical circumstances in the final determination.
Second, NSC argues that the Department's preliminary determination
of sales at less than fair value was based on adverse inferences with
no basis in either fact or law. Specifically, NSC argues that the use
of facts available for NSC's home market freight cost and U.S.
theoretical weight sales was not supported by record evidence. NSC
argues that the Department cannot rely on margins based on improper
adverse inferences in imputing knowledge for purposes of its final
determination as to critical circumstances.
In rebuttal, petitioners argue that the Department's Policy
Bulletin dated October 7, 1998 governs the decision reached by the
Department. Petitioners note that NSC is incorrect in its assertion
that the Department has unlawfully taken a substantive action adverse
to it based solely on the information contained in the petition. They
note that, under Article 5.3 of the World Trade Organization's
(``WTO'') Agreement on Antidumping the Department must examine the
adequacy of the evidence presented in the petition and whether these
allegations are supported by evidence. Second, petitioners argue that
the Department should not rely on NSC's statutory construction
argument, because as NSC interprets the argument, the Department would
have to issue questionnaires, evaluate responses and calculate company-
specific margins prior to issuing a preliminary critical circumstances
determination. Petitioners contend that there is no legal basis for
this argument, because the requirements for a preliminary critical
circumstances finding are not the same as those for a preliminary
dumping determination. The fact remains, petitioners state, that the
primary factor reviewed for a critical circumstances finding is whether
there has been a massive increase in imports. Petitioners argue that
the existence of massive imports was known at the time the petition was
filed. They further argue that, based on this information, the statute
leaves it to the Department's discretion to decide what procedures it
will follow in determining whether there is reason to believe or
suspect that dumping is occurring.
KSC
KSC asserts that the Department's preliminary critical
circumstances determination contravened the statute. First, KSC argues
that the Department does not have the authority to use a time frame
other than the one based upon the date of filing of the petition to
determine whether or not there were massive imports. Further, the
articles relied upon by the Department to support the use of an
earlier-than-usual time frame do not support a conclusion that KSC had
reason to believe a case was being filed or likely to be filed. Second,
KSC claims that it did not have massive imports during the ``proper
time frame.'' Third, KSC claims that the Department violated its normal
practice when it relied upon country-specific, rather than company-
specific shipment data. Fourth, KSC argues that the Department's
preliminary critical circumstances finding should have been negative
because the ITC preliminarily determined that there was no present
material injury with respect to this product. KSC's arguments with
respect to each of these points is discussed in greater detail below.
KSC first argues that neither the statute nor the regulations grant
the Department authority to examine a shipment period unrelated to
either the filing of the petition or the preliminary determination in
measuring ``massive shipments'' for purposes of the critical
circumstances determination. According to the Department's regulations,
the determination of whether or not there has been a massive increase
in imports is normally made based on the period beginning on the date
the proceeding begins and ending at least three months later. See 19
CFR Sec. 351.216(h) and (i). KSC argues that the Department overstepped
its authority by using a time frame disconnected from the date of
filing of the petition. KSC further asserts that the use of any
comparison time other than period immediately following the filing of
the petition is unlawful because it contravenes the purpose of the
statutory provision, which (according to the legislative history) is to
deter the increase of exports ``during the period between initiation of
an investigation and a preliminary determination'' (H. Rep. No. 96-317
at 63 (1979). Thus, KSC argues, the proper comparison is between
shipments during the October-December 1998 period and shipments during
the July-September 1998 period. KSC also argues that the articles
relied upon by the Department to impute knowledge of dumping involve
mere speculation, do not specifically refer to hot-rolled steel, and
are not grounded in fact. KSC concludes that without a specific
allegation with respect to a proceeding against hot rolled steel from
Japan, the Department cannot attribute knowledge of a proceeding to KSC
in order to provide a basis for use of a
[[Page 24337]]
different time frame for its massive imports analysis.
Second, KSC argues that, based on company-specific data of record,
it did not have massive imports during the normal time frame provided
for in the regulations. Rather, its imports decreased, in both quantity
and value terms, during the post-petition October--December 1998
period, as compared to the pre-petition July-September 1998 period.
Therefore, KSC argues, the Department should reverse its preliminary
finding of critical circumstances.
Third, KSC argues that the Department unlawfully used country-
specific data rather than company-specific data in its preliminary
finding. KSC argues that the Department failed to request company-
specific import data until after the preliminary critical circumstances
determination, and the Department's failure to obtain this information
unfairly punished KSC by applying an adverse inference even though they
were cooperating. KSC argues that the Department must use the company-
specific shipment data submitted by KSC for its final determination.
Finally, KSC argues that the Department's preliminary critical
circumstances finding was unlawful because, given the ITC's preliminary
determination that there was no present material injury, the Department
could not reasonably impute knowledge of material injury, which is
necessary for a finding of critical circumstances under post-URAA law
when there is no history of dumping. KSC argues that a preliminary
critical circumstances determination cannot be made by the Department
unless the ITC determines that there was actual material injury. See
Preliminary Determination of Sales at Less Than Fair Value: Certain
Cut-to-Length Carbon Steel Plate from the Russian Federation, 62 FR
31967, 31971 (June 11, 1997). KSC states that the Department cannot
ignore the ITC injury finding. Thus, KSC argues that the Department
should make a negative critical circumstances finding in the final
determination.
Petitioners rebut each of KSC's four arguments regarding the
Department's preliminary determination of critical circumstances.
First, with respect to the Department's choice of a time frame for
measuring shipments, petitioners argue that, despite KSC's reference to
various legal authorities, the Statement of Administrative Action
(``SAA''), congressional reports, and Department documents, KSC does
not explain why the Department's regulation is at issue, or why the
Department's actions in this case are not consistent with the
authorities cited. Petitioners assert that the Department's action in
this case did, in fact, serve to deter an increase in imports during
the period following initiation.
Petitioners rebut criticism of the Department's reliance on
published articles for selecting an early time frame by pointing out
that, although KSC disputed the significance of certain articles
considered by the Department in its determination, the articles
discussed by KSC in its brief were, with one exception, published after
April 1998. Petitioners thus conclude that it is apparent that the
Department did not rely on these articles. Petitioners make two points
in this respect.
First, petitioners contend, one report included in an exhibit to
the petition is sufficient by itself to prove requisite knowledge by
KSC. Petitioners cite the report dated April 1998 by CRU Steel Monitor.
See Exhibit 3 of Petition for the Imposition of Antidumping Duties:
Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From
Japan, (September 30, 1998). Petitioners assert that this report,
respected within the industry worldwide, discusses concerns actually
expressed by Japanese producers.
Second, petitioners argue that, although it is true that the other
materials included as part of the petition did not refer specifically
to hot-rolled imports from Japan, it is equally true that certain of
these reports did refer specifically to the likelihood of antidumping
cases being filed against hot-rolled steel imports. Petitioners add
that although these reports mentioned Russia, the fact that, during
this period, Japan was the second largest hot-rolled import supplier to
the U.S. market makes it far-fetched to imagine that Japanese
producers, like KSC, would infer that cases would be brought against
Russia, the largest importer, but not Japan. Petitioners also contend
that KSC is aware that U.S. flat-rolled producers have filed a large
number of trade cases over the past two decades and those cases have
always been brought against multiple countries.
Petitioners contend that KSC's argument that the Department's use
of country-wide (rather than company-specific) import data for purposes
of its analysis is an unjustified departure from the Department's
normal practice is a moot point because, as KSC concedes, the company-
specific data submitted to the Department shows a massive increase in
imports by KSC during the period examined.
Finally, petitioners provide two reasons why, in their view, KSC's
assertion that the Department was precluded from finding critical
circumstances because the ITC did not preliminarily find present
material injury in it preliminary injury determination is incorrect.
First, petitioners argue that neither the statute nor its legislative
history indicates that the Department must find that there is no
material injury for purposes of such determination simply because the
ITC did not find present material injury. Second, the ITC may find
present material injury in its final determination even when it did not
make such a finding in its preliminary investigation. Petitioners point
out that the ITC, in its opinion, did not actually say that it did not
find a reasonable indication of present material injury. Instead, the
ITC avoided that issue entirely by moving directly to the threat of
injury. Petitioners assert that this opinion is unusual, and that the
Department might reasonably wonder whether this is because the ITC was
carefully refusing to rule out a finding of present material injury in
a final investigation.
Sumitomo Metal Industries
Sumitomo argues that the Department should not find critical
circumstances with respect to it in the final determination. Sumitomo
argues that the Department chose not to investigate Sumitomo because of
the administrative burden to the Department, yet nevertheless applied
its preliminary affirmative critical circumstances finding to imports
by Sumitomo. Sumitomo argues that, as a cooperative non-selected
respondent, it is entitled to a negative critical circumstances finding
in the final determination. See Preliminary Determinations of Critical
Circumstances: Brake Drums and Brake Rotors from The People's Republic
of China, 61 FR 55269, 55270 (October 25, 1996). Sumitomo argues that
it is the Department's practice not to issue final affirmative critical
circumstances with regard to cooperative non-selected companies. For
these reasons, Sumitomo argues the Department should find negative
critical circumstances for non-mandatory cooperative respondents.
Department's Position: For the reasons discussed below, we continue
to find critical circumstances for respondent KSC and ``all other''
respondents. However, in the final determination, we do not find
critical circumstances with respect to NSC or NKK.
Section 735(a)(3) of the Act provides that if critical
circumstances are alleged, the Department will determine whether:
(A)(i) there is a history of dumping and
[[Page 24338]]
material injury by reason of dumped imports in the United States or
elsewhere of the subject merchandise, or (ii) the person by whom, or
for whose account, the merchandise was imported knew or should have
known that the exporter was selling the subject merchandise at less
than its fair value and that there would be material injury by reason
of such sales, and (B) there have been massive imports of the subject
merchandise over a relatively short period.
As discussed in the preliminary critical circumstances finding, we
are not aware of any antidumping order in any country on hot-rolled
steel from Japan, for purposes of this final determination. Therefore,
in this final determination we examined whether there was importer
knowledge. In determining whether an importer knew or should have known
that the exporter was selling hot-rolled steel at less than fair value
and thereby causing material injury, the Department normally considers
margins of 25 percent or more and a preliminary ITC determination of
material injury sufficient to impute knowledge of dumping and the
resultant material injury. The Department's final margins for KSC
exceeded 25 percent. Therefore, we determine that importers knew or
should have known that KSC was dumping the subject merchandise. As to
the knowledge of injury from such dumped imports, in the present case,
the ITC preliminarily found threat of material injury to the domestic
industry due to imports of hot-rolled steel from Japan. Therefore, we
also considered other sources of information, including numerous press
reports from early to mid-1998 regarding rising imports, falling
domestic prices resulting from rising imports and domestic buyers
shifting to foreign suppliers. For a full discussion of the evidence on
the record see Final Critical Circumstances Memo, dated Apr. 28, 1999.
Based on this information, we find that importers knew or should have
known that there would be material injury from the dumped merchandise.
Because we have found that the first statutory criterion is met
with regard to KSC, we must consider the second statutory criterion:
whether imports of the merchandise have been massive over a relatively
short period. According to 19 CFR Sec. 351.206(h), we consider the
following to determine whether imports have been massive over a
relatively short period of time: (1) volume and value of the imports;
(2) seasonal trends (if applicable); and (3) the share of domestic
consumption accounted for by the imports.
When examining volume and value data, the Department typically
compares the export volume for equal periods immediately preceding and
following the filing of the petition. Under 19 CFR Sec. 351.206(h),
unless the imports in the comparison period have increased by at least
15 percent over the imports during the base period, we normally will
not consider the imports to have been ``massive.'' In addition,
pursuant to 19 CFR Sec. 351.206(i), the Department may use an
alternative period if we find that importers, exporters, or producers
had reason to believe, at some time prior to the beginning of the
proceeding, that a proceeding was likely. In the instant case, to
determine whether or not imports of subject merchandise have been
massive over a relatively short period for the final determination, we
examined each selected respondents' export volumes from May-September
1998, as compared to December 1997-April 1998 and found that imports of
hot-rolled steel from Japan increased by more than 100 percent. In this
case, petitioners argue that importers, exporters, or producers of
Japanese hot-rolled steel had reason to believe that an antidumping
proceeding was likely. We find that press reports, particularly in
March and April 1998, are sufficient to establish that by the end of
April 1998, importers, exporters, or producers knew or should have
known that a proceeding was likely concerning hot-rolled products from
Japan. See Critical Circumstances Memo, dated Apr. 28, 1999.
Accordingly, we examined the increase in import volumes from May--
September 1998 as compared to December 1997--April 1998 and found that
imports of hot rolled steel from Japan increased by more than 100
percent. Based on our analysis, we find that there was a massive
increase in imports with respect to KSC.
With regard to ``all others'' (i.e., companies that were not
analyzed in this investigation, e.g., Sumitomo), we have reconsidered
our Preliminary Determination finding of critical circumstances. For
the final determination we conducted the following analysis, based on
the experience of the investigated companies, to determine whether a
finding of critical circumstances is appropriate with respect to
uninvestigated exporters. See Notice of Final Determination of Sales at
Less than Fair Value: Certain Steel Concrete Reinforcing Bars from
Turkey, 62 FR 9737, 9741 (March 4, 1997) (Rebars from Turkey). In
Rebars from Turkey, the Department found critical circumstances for the
``all others'' category because it found critical circumstances for
three of the four companies investigated. However, we are concerned
that literally applying that approach may produce anomalous results in
certain cases. For example, if the ``all others'' rate is below the
critical circumstances threshold, we do not believe it would be
appropriate to find critical circumstances for the all others category
even if we found critical circumstances for a majority of the
investigated companies. Therefore, we believe it is appropriate to
address both critical circumstances criteria in reaching a
determination concerning the ``all others'' category. Thus, we have
applied that experience to both criteria. First, in determining whether
knowledge of dumping existed, we looked to the ``all-others'' rate,
which is based on the weighted-average of the individual rates for the
investigated companies. In the instant case, the ``all others'' rate
exceeds 25 percent. Thus, we find importers knew or should have known
that there was dumping by the all other companies. Similarly, as with
respondent KSC, we find that importers knew or should have known that
injury from the dumping by all other companies existed based on the
ITC's threat finding and the extensive press coverage, from early to
mid-1998, of widespread lost sales and falling domestic prices as a
result of dumped imports. Second, we have evaluated whether there are
``massive imports'' for the ``all others'' companies in terms of both
the imports of the investigated companies and country-specific import
data. An evaluation of the company-specific shipment data provided by
respondents indicates that all three mandatory respondents had massive
imports and that, on average, imports increased by over 50 percent
during the comparison period. In addition, where, as in the instant
case, the U.S. customs data also permit the Department to analyze
overall imports of the product at issue, we will consider whether those
data are consistent with a finding of massive imports overall. Again,
in the instant case, aggregate imports of hot-rolled steel during the
comparison period increased by more than 100 percent. Thus, we find
that imports from uninvestigated exporters were massive during the
relevant period. Therefore, based on these factors, the Department
determines that there are critical circumstances with regard to all
other imports of hot-rolled steel from Japan. For a complete discussion
of the data examined, see the Department's Final Critical Circumstances
Memo, dated April 28, 1999.
[[Page 24339]]
Comment 3: NKK's Home Market Levels of Trade.
In its case brief submitted to the Department, NKK argues that in
the preliminary determination, the Department incorrectly concluded
that NKK sells at one level of trade in the home market. NKK asserts
that, prior to the Department's preliminary determination, NKK had
provided supporting qualitative evidence to confirm that in the home
market sales by NKK to unaffiliated trading companies and end-users and
sales made by affiliated trading companies take place at two distinct
levels of trade.
NKK asserts that section 773(a)(1)(B) of the Act requires the
Department to compare prices, as is practicable, at the same level of
trade. Furthermore, NKK asserts that the Department's own regulations
describe that sales are made at different levels of trade when sales
are made at different marketing stages. See 19 C.F.R.
Sec. 351.412(c)(2). NKK argues that two levels of trade can be, but are
not always, based on substantial differences in selling activities. NKK
further argues that the Department must determine in its analysis if
levels of trade are meaningful. See Preamble, 62 FR at 27371.
NKK reminds the Department that in its initial section A
questionnaire response it presented three distinct channels of trade in
the home market and argued that the first two channels to end users and
sales to unaffiliated trading companies, should be consolidated into
one level of trade. The other level of trade, sales to affiliated
trading companies, is distinct from sales to unaffiliated end-users and
trading companies. NKK contends that the Department, in its level of
trade analysis memorandum for the preliminary determination, ignored
the selling category in which NKK sells merchandise to unaffiliated
trading companies. NKK asserts that these sales account for 90 percent
of total sales to unaffiliated customers during the period of
investigation. NKK believes that this is a significant error.
NKK argues that there is a significant difference between the
selling activities of NKK and the selling activities of its affiliated
resellers. NKK asserts that while it performs a high degree of selling
activities in sales to end-users, this type of sale is a small part of
this level of trade. NKK argues that, in general, its selling
activities for total sales are smaller than the selling activities of
its affiliated resellers. See Level of Trade Exhibit, attached to
Verification Report, dated March 26, 1999. NKK argues that when its
end-user sales are compared to its affiliated trading companies' end-
user sales, NKK engages in significantly less selling activity related
to the development of new users, the assessment of user demand, the
financing of steel purchases by end-users, the provision of inventory
management and warehousing, and the management of delivery. NKK's
affiliated trading companies, on the other hand, engages to a high
degree in the aforementioned selling activities.
NKK argues that there is a substantial and meaningful difference
between selling activities performed by NKK and those performed by
affiliated resellers/trading companies. NKK points out that the
Department's own regulations establish that a substantially different
selling function results with additional layers of selling activities.
See Preamble, 62 FR at 27371. NKK asserts that its affiliated trading
companies also incur comparatively greater risk as a result of more
active and diverse selling activities. NKK, on the other hand, chooses
to limit its own risk by selling 93 percent of its merchandise through
affiliated trading companies and makes sales directly to end-users only
in the case of well-established customers. Finally, NKK argues that its
indirect selling expense ratio was significantly less than that of one
of its trading companies during the POI. This, according to NKK, is
consistent with the preamble to the Department's regulations, and
definitively supports the notion that NKK and its affiliated trading
companies sell at two distinct levels of trade in the home market. See
Id.
Petitioners assert that, having found itself unable to quantify
pricing differences for the sake of claiming a LOT adjustment, NKK is
now claiming that the home market is actually two LOTs, and that U.S.
sales should be only matched to the closer level. Petitioners further
assert that NKK's argument that the Department's chart, used for
comparison of selling activities, is inaccurate should be accorded no
weight, since pursuant to Sec. 351.412(c)(2) of the Department's
regulations, the ``substantial differences in selling activities are a
necessary, but not sufficient, condition for determining that there is
a difference in the stage of marketing.'' Finally, petitioners rebut
NKK's claims that (1) its affiliate's high degree of performance of
selling functions yields a higher level of exposure for them and NKK
can thus diffuse risk and that (2) there is a difference in indirect
expenses ratios between itself and its trading company by asserting
that, whether or not it is true, NKK's first claim is unquantifiable,
and the second claim is problematic because the higher level of
indirect selling expenses may be typical for a reseller. Therefore,
petitioners assert that, as in the Preliminary Determination, the
Department should continue to deny NKK any LOT adjustment.
Petitioners argue that although NKK claims that it never provided
inventory warehousing and management for its sales to unaffiliated
trading companies, and rarely provided such services to end-users, the
record shows that NKK provided high level delivery management services
on sales to unaffiliated trading companies and also contradicts NKK's
claim as to inventory warehousing. Therefore, for the 4 ``mill''
functions and 2 of the 5 ``trading company'' functions, (i.e., for 6
out of the 9 categories of selling functions that NKK performs) NKK's
selling functions on sales to unaffiliated customers and sales by its
trading company to end-users are substantially the same. In light of
these facts, petitioners argue that the Department should continue to
find one level of trade in the home market.
Department's Position: We do not agree that NKK's home market sales
are made at two distinct levels of trade. In accordance with section
773(a)(1)(B)(i) of the Act, to the extent practicable, we determine NV
based on sales in the comparison market at the same level of trade
(``LOT'') as the EP or CEP transaction. The NV LOT is that of the
starting price sales in the comparison market or, when NV is based on
CV, that of the sales from which we derive SG&A and profit.
To determine the LOT of a company's sales (whether in the home
market or in the U.S. market), we examine stages in the marketing
process and selling functions along the chain of distribution between
the producer and the unaffiliated customer. See Notice of Final
Determination of Sales at Less Than Fair Value: Certain Cut-to-Length
Carbon Steel Plate from South Africa (``Certain Cut-to-Length Carbon
Steel Plate from South Africa''), 62 FR 61731 (November 19, 1997).
NKK sells subject merchandise in the home market through two
channels of distribution: one channel involves sales by NKK to
unaffiliated customers (including both end-users and trading
companies); the second channel involves sales by NKK's affiliate to
unaffiliated customers. For the preliminary determination, the
Department found that NKK's sales to these three types of home market
customers involved essentially the same level of selling functions.
After a careful analysis of the information on the
[[Page 24340]]
record, we continue to find that there was not a substantial difference
in the selling functions performed by NKK in making sales to its
unaffiliated customers and those associated with sales by NKK's
affiliated company to its unaffiliated customers. Therefore, we
continue to find that there is one level of trade in the home market.
As discussed in the Department's preliminary Level of Trade Memo,
dated February 12, 1999, the Department reviewed the selling functions
performed with respect for each of the customer categories. As
indicated by NKK in its January 19, 1999, supplemental section A
response, NKK collapsed sales directly to unaffiliated companies (end-
users and others) into one level of trade. In conducting its analysis
the Department reviewed the information placed on the record and did
not ignore the level of selling activity for sales to unaffiliated
trading companies, as evidenced by the inclusion of this category in
the Level of Trade Memo.
Second, NKK argues that there are substantial differences in the
selling activities performed by NKK and the selling activities of its
affiliated resellers. In the instant case, in conducting its level of
trade analysis, the Department compared the selling functions performed
for sales in the home market to the first unaffiliated customer. As
evidenced by the discussion in the Department's Level of Trade Memo
(referenced above), the information on the record indicates that the
selling functions and activities performed by NKK on sales to
unaffiliated customers as compared to the selling functions and
activities performed by both NKK and its affiliate on sales to
unaffiliated customers do not vary on a qualitative basis. NKK's
argument that there are differences between these selling functions is
not supported by the evidence on the record. Once again, in the
Department's Level of Trade Memo we discussed the level of service
provided for each channel of distribution and we found no distinction
in the levels of service provided. NKK further argues that there are
substantial differences in the amount of selling functions associated
with the two groups of sales. However, the Department finds that, while
the record indicates some differences in the amount of certain
functions performed, these differences are not so substantial as to
warrant finding different LOTs on this basis alone. Therefore, because
the customer types are the same, the types of selling functions are the
same, and there are not substantial differences in the level of
functions performed, we continue to find that there is one LOT in the
home market.
Comment 4: KSC's CEP Offset.
Petitioners argue that the Department should not grant KSC a CEP
offset to the normal value of its home market sales in the final
determination since KSC has failed to factually establish its
entitlement to a CEP offset. Furthermore, petitioners argue that KSC's
statements on the record actually refute its claim for a CEP offset.
Petitioners claim that KSC has not established sufficiently that its
home market and CEP sales through its affiliates, Kawasho Corporation
and Kawasho International, are at different level of trades. For
instance, petitioners claim that KSC originally stated in its section A
response that it had two levels of trade in the home market and the
same two levels of trade in the United States market. Petitioners state
that KSC only claimed that its home market and U.S. sales to
unaffiliated trading companies were at a less advanced stage in the
marketing process than its sales to its affiliates. Petitioners also
claim that KSC did not respond to Department inquiries that KSC
``explain why [it] considers the home market level of trade more
advanced than the U.S. level of trade to warrant a CEP offset if
necessary.''
Petitioners also argue that the fact that all sales to both markets
were manufactured to order and were to the same categories of customers
indicates that there are no differences in levels of trade between home
market and the United States. Finally, petitioners claim that KSC's
descriptions of its selling activities and services have been
inconsistent and thus unreliable. As a result, petitioners argue that
KSC has not met the required burden of proof to factually demonstrate
that its home market sales and CEP sales were made at different levels
of trade. Thus, the Department should not grant KSC a CEP offset for
the final determination.
Respondent contends that the Department's decision to grant KSC a
CEP offset is in accordance with law and is supported by substantial
evidence on the record. As legal authority, respondent relies upon
section 772(a)(7)(B) of the Tariff Act (19 U.S.C. Sec. 1677b(a)(7)(B))
and the SAA at 831. Respondent argues that, contrary to petitioners'
assertions, the facts on the record support KSC's claim for a CEP
offset. Respondent asserts that petitioners misread KSC's response to
the Department's section A questionnaire and that petitioners are
incorrect in stating that KSC asserted that there were two levels of
trade in the U.S. which correspond exactly to the two levels of trade
in the home market. According to the respondent, KSC's section A
response explains that there are at least three marketing stages for
its CEP sales. In addition, KSC has consistently explained, in its
section A, Supplemental section A, and section B responses, that its
CEP sales were at a different level of trade than its home market sales
through Kawasho. In fact, the respondent states that KSC's home market
sales through Kawasho are at a more advanced level of trade than its
CEP sales because these home market sales are at a more advanced stage
of distribution and farther removed from the factory. Respondent
asserts that, throughout the immediate investigation, KSC has supplied
the Department with information, in its Supplemental responses and
during verification, showing that it has to perform more and different
selling activities and services for its home market sales than for its
CEP sales. Furthermore, respondent argues that the difference in the
number of employees for the different markets confirms that more is
required to sell in the home market than to the CEP level of trade.
Respondent concludes by stating that since there is no comparable level
of trade in the home market, KSC is unable to calculate a trade
adjustment for its CEP sales and instead requests the Department to
grant a CEP offset pursuant to section 772(a)(7)(B) of the Tariff Act
(19 U.S.C. Sec. 1677b(a)(7)(B)) and 19 CFR Sec. 351.412(f).
Department's Position: We disagree with petitioners that KSC's CEP
offset should be denied. In accordance with section 773(a)(1)(B)(i) of
the Act, to the extent practicable, we determine NV based on sales in
the comparison market at the same level of trade (``LOT'') as the EP or
CEP transaction. The NV LOT is that of the starting price sales in the
comparison market or, when NV is based on CV, that of the sales from
which we derive SG&A and profit. For CEP sales, the Department makes
its analysis at the level of the constructed export sale from the
exporter to the affiliated importer.
Because of the statutory mandate to take level of trade differences
into consideration, the Department is required to conduct a LOT
analysis in every case, regardless of whether or not a respondent has
requested a LOT adjustment or a CEP offset for a given group of sales.
To determine whether NV sales are at a different LOT than EP or CEP
sales, we examine stages in the marketing process and selling functions
along the chain of distribution between the producer and the
unaffiliated customer. If the comparison market sales are at a
different LOT, and the
[[Page 24341]]
difference affects price comparability, as manifested in a pattern of
consistent price differences between the sales on which NV is based and
comparison market sales at the LOT of the export transaction, we make a
LOT adjustment under section 773(a)(7)(A) of the Act. Finally, for CEP
sales, if the NV level is more remote from the factory than the CEP
level and there is no basis for determining whether the differences in
the LOTs between the NV and the CEP sales affects price comparability,
we adjust NV under section 773(A)(7)(B) of the Act (the CEP offset
provision). See Certain Cut-to-Length Carbon Steel Plate from South
Africa, 62 FR at 61731.
In the Preliminary Determination, the Department made a CEP offset
adjustment to the normal value of KSC's sales that were compared to CEP
sales in the United States, because the Department preliminarily found
that all of KSC's home market sales were made at levels of trade
different from and more advanced than the level of trade of KSC's CEP
sales in the United States, and there is no basis for determining
whether the differences in the LOTs between the NV and the CEP sales
affects price comparability. See Level of Trade Memo, dated February
12, 1999. In particular, the Department found that KSC performed fewer
and different selling functions in connection with CEP sales to Kawasho
International and Kawasho Corporation than in connection with home
market sales to its unaffiliated customers. For example, the Department
found that KSC provided a high level of warehousing, processing,
freight arrangement, and payment collection services in the home
market, but did not provide the same level of services on its CEP sales
to the United States. Further, the Department found that it was not
possible to quantify a LOT adjustment based on the available data. The
fact that KSC originally identified a different LOT pattern is not
determinative. As explained above, the Department conducts its own LOT
analysis, rather than merely accepting the assertions of the parties.
Similarly, just as sales to a different customer category is
insufficient, by itself, to establish a different level of trade, all
sales to the same customer category are not necessarily sales made at
the same level of trade. See Preamble to the Department's regulations,
62 FR at 27371. Finally, the Department is satisfied that it has
sufficient reliable information to reach a decision as to the levels of
trade at which KSC and its affiliates sell subject merchandise.
Furthermore, the Department verified the data used in making this
analysis. See Verification Report, dated March 26, 1999. Thus, after
further examination of the record, the Department will continue to make
a CEP offset because the facts on the record indicate that KSC's CEP
level of trade is different from and less advanced than KSC's home
market levels of trade and that the data of record do not permit it to,
instead, make a LOT adjustment based on the effect of the LOT
difference on price comparability.
Comment 5: Overruns.
NKK asserts that the Department should consider its sales of
overruns in its calculation of home market price because such sales
meet the Department's criteria for sales in the ordinary course of
trade. NKK argues that (1) its invoice coding system identifies sales
as overruns; (2) its overruns are sold for the same uses as ordinary
production, and unlike non-prime merchandise, the specific product
characteristics are maintained and used to determine whether overruns
meet a customer's needs, and there is no physical difference between
overruns and ordinary production; and (3) the number of customers
purchasing overruns and the volume of overruns purchased are similar to
ordinary sales according to the Department's overrun methodology.
Petitioners, in rebuttal, argue that the Department properly
excluded the overruns in its preliminary determination margin
calculation. Furthermore, petitioners argue that application of the
Department's own standards for determining whether overrun sales are in
the ordinary course of trade supports the Department's decision to
exclude overruns from its margin calculation. See, e.g., Circular
Welded Non-Alloy Steel Pipe from the Republic of Korea; Preliminary
Results of Antidumping Duty Administrative Review, 62 FR 64559, 64561
(December 8, 1997) referencing, Laclede Steel Co. v. United States, 18
CIT 965, (1995); Carbon Steel Flat Products from Korea, 64 FR at 12941-
42. Petitioners argue that, by the Department's standards, NKK's
overrun sales are outside the ordinary course of trade based on the
ratio of overrun sales to home market sales, the number of overrun
customers in relation to the total number of customers, the average
price of overrun sales compared to commercial production sales, the
relative profitability of overrun sales, and the quantity of overrun
sales compared to the total quantity of commercial sales. Petitioners
claim that no one factor among these standards is dispositive, and,
finally, that the Department has excluded and should continue to
exclude overruns in its margin calculation.
Department's Position: We agree with petitioners that overruns
should continue to be excluded from the Department's final analysis.
After an examination of the record, the Department has determined that
NKK's overrun sales are sold at a lower price, sold in smaller
quantities overall and sold to fewer customers than product that is not
overruns. Second, based on the results of verification, where the
Department examined overrun sales, we determined that these sales are
made only after they cannot be applied to other sales and after a
significant time lag follows production as compared to other sales in
the normal course of business. The Department concedes that NKK's
overruns are sold as prime merchandise; however, this sole factor does
not enable these sales to be considered in the ordinary course of
trade. Third, the Department found that there were sufficient matches
to non-overrun prime merchandise sold in the ordinary course of trade,
which is the Department's preference in determining matches between
U.S. sales and home market sales. Based on these factors, the
Department continues to exclude overrun sales from its analysis.
Comment 6: Department's Arm's Length Test.
NKK argues that the Department should use a different arm's length
test than the ``99.5 percent'' test that it normally uses and used in
the preliminary determination. The Department's current policy is to
treat home market sales prices to an affiliated customer as having been
made at ``arm's length'' (and therefore useable in the normal value
calculation) if prices to that affiliated purchaser are, on average, at
least 99.5 percent of the prices charged to unaffiliated purchasers.
See Preamble, 62 FR at 27355. NKK states that the Department has not
codified its ``99.5 percent'' arm's length test methodology, and
therefore suggests what it believes to be a more accurate arm's length
test. NKK claims that both generally and on the fact of this case, the
Department's current test produces distorted results. NKK argues that
there is no factual basis on which to conclude that sales to one of its
affiliated trading companies were not made at arm's length prices.
NKK describes two variations of the test used in past dumping
investigations and argues that both variations are methodologically
flawed. Specifically, NKK argues that the current arm's length test
methodology is flawed because the application of a single fixed
[[Page 24342]]
ratio ( ``99.5 percent'') to CONNUM-specific or weighted-average
related/unrelated customer price ratios distorts commercial reality by
not taking into account actual pricing practices. NKK references
several types of situations in which it argues the current test
produces anomalous results.
NKK also proposes a new approach involving several changes to its
current test. First, NKK asserts that the Department should abandon its
methodology of creating an ``overall customer percent-ratio
aggregation'' and, instead, base its arm's length test on CONNUM-
specific sales data. In short, NKK argues that the arm's length test
should be applied on a CONNUM-specific basis, rather than a customer-
specific basis. Second, NKK argues that, instead of using an
``inflexible and mechanical'' 99.5% of the mean for a benchmark to
determine arm's length sales, the Department should instead adopt a
test based on standard deviations. Such a test, according to NKK, would
address the variability and magnitude of pricing data. Specifically,
when the mean price for the CONNUM sold to the related customer is
within one standard deviation of the mean price to the unrelated
customer, the Department should consider that sales of that CONNUM to
that customer are at arm's length.
NKK argues that its proposed test would not be difficult to apply,
and includes proposed SAS programming. Finally, NKK asserts that if the
Department adopts an arm's length analysis methodology that applies a
standard-deviation test on a CONNUM-specific basis, the record will
show that NKK's sales to affiliated trading companies were, in fact, at
arm's length.
Petitioners, in rebuttal, argue that there is no reason for the
Department to abandon its current arm's length test. Specifically,
petitioners argue that the Department has considerable discretion in
determining when to exclude related party sales in the calculation of
normal value. See, e.g., Usinor Sacilor v. United States, 872 F. Supp.
1000, 1004 (CIT 1994). Furthermore, petitioners argue that the courts
will uphold the Department's arm's length test unless respondents can
prove that the test is unreasonable and distorts price comparability.
See SSAB Svenskt Stal AB v. Bethlehem Steel Corporation, 976 F. Supp.
1027, 1030-1031 (CIT 1997); Micron Technology Inc. v. United Tests, 893
F. Supp. 21, 38 (CIT 1995). Petitioners argue that the burden of
persuasion, with respect to the theory that the Department's arm's
length test distorts price comparability, falls on the respondent. See
NEC Home Electronics Ltd. v. United States, 54 F. 3d 736, 744 (Fed.
Cir. 1995).
Petitioners specifically reject NKK's proposed arm's length test.
Petitioners argue that NKK's proposed alternative test is based
entirely on the idea of using standard deviations to account for
pricing variability. Petitioners, citing statistical authorities,
assert that the application of a mean/standard deviation analysis only
works when there is a symmetrical, bell-shaped frequency distribution,
and claim that NKK's data sets do not fit this model. Petitioners
reject the accuracy of the sample scenarios that NKK advances in its
case brief. For example, petitioners argue that one of NKK's case brief
scenarios misrepresents the facts of a standard deviation-based
analysis to the extent that NKK does not establish the standard
deviation for unrelated prices. Petitioners assert that NKK's proposed
arm's length test is over-inclusive, and statistically inaccurate;
therefore, they argue, it should be dismissed by the Department.
Department's Position: The Department has not adopted NKK's
proposed arm's length test for purposes of this investigation. As NKK
has acknowledged, determining whether home market sales made to
affiliated parties are made at arm's length is a complex process which
the Department considered in some detail during the most recent round
of regulatory revisions. At that time, the Department decided that it
would not codify the current test, but would continue to apply it
unless and until it developed a new method, in which case the new
methodology would be described and announced in a policy bulletin. See
Preamble, 62 FR at 27355. The Department's ``99.5 percent'' arm's
length test methodology is well established and the CIT has repeatedly
sustained the methodology. See Micron Technology Inc. v. U.S., 893 F
Supp. 21 (CIT 1995) and Torrington Co. v. United States, 960 F. Supp.
339 (CIT 1997).
An agency's interpretation of the statute it administers must be
accorded substantial weight. Thus, the Department's well-established
practice can be sustained as long as it is ``sufficiently reasonable.''
See American Lamb Co. v. United States, 785 F.2d 994, 1001 (Fed. Cir.
1986). In Usinor Sacilor v. United States, 872 F. Supp. at 1004, the
Court of International Trade stated that it would uphold the
Department's ``99.5 percent'' test unless it was shown to be
unreasonable. While NKK has proposed an alternative methodology based
on a statistical approach, it has not demonstrated that the current
methodology is unreasonable. The CIT has already rejected the idea that
the ``99.5 percent'' test is unreasonable because it does not take into
account price variance. See Usinor Sacilor v. United States, 872 F.
Supp. at 1004.
With respect to NKK's concern of applying the arm's-length test on
a customer basis, we note that the question underlying the arm's-length
test is whether affiliation between the seller and the customer has (in
general) affected pricing. Because affiliation is the result of
relationships between firms, the focus of the arm's-length test is the
customer, not a particular product. For this reason, the Department
makes one up-or-down call on pricing to an affiliated customer: either
there is arm's-length pricing or there is not. However, under NKK's
proposed connum-by-connum approach, affiliation could be found to
matter for some connums, but not for others, even though the customer
in both cases is the same. To support it's proposal, in exhibit B to
it's submission dated April 12, 1999, NKK claims that the sales to an
affiliated customer, NKK Trading of certain CONNUMs were considered not
to be at arm's length prices although the prices for over 50% of those
sales exceeded the mean price to the unaffiliated customers for these
connums. However, the relatively small share of total sales to NKK
Trading for which these connums account is perfectly consistent with
the Department's finding that NKK's affiliation with NKK Trading has in
general affected price.
Additionally, NKK presents several theoretical situations under the
Department's current approach, where NKK claims that sales could be
excluded for reasons unrelated to affiliation. In particular, NKK
argues that a statistical approach would reduce the likelihood of
testing error when pricing to affiliated and unaffiliated customers is
the same (i.e., the error of finding that affiliation has affected
prices when, in fact, it has not). However, NKK does not address the
concern that, by lowering the threshold for accepting affiliated party
sales under their statistical approach from the Department's current
standard, NKK's test would increase the likelihood of testing error
when pricing to affiliated and unaffiliated customers is not the same
(i.e., the error of finding that affiliation has not affected price
when, in fact, it has). Given this concern with NKK's proposed
approach, the Department continues to believe that the ``99.5 percent''
test imposes a reasonable requirement on affiliated-party prices:
[[Page 24343]]
on average, they essentially must be as high as prices to unaffiliated
parties.
Comment 7: NSC's Affiliated Freight Costs.
NSC argues that the Department should allow all of NSC's home
market inland freight expenses for the final determination because the
Department verified that NSC procures inland freight services at arm's
length prices, and that NSC had properly reported these expenses.
NSC argues that, under the antidumping law, the Department shall
reduce the normal value price by the costs incurred to bring the
subject merchandise from the original place of shipment to the place of
delivery to the purchaser in order to achieve an undistorted fair value
comparison. See section 772(c)(2)(A); SAA at 4040. NSC argues that the
Department has allowed respondents to deduct the full expense of inland
freight services provided by affiliates unless the Department cannot
establish that the services were not purchased in an arm's length
transaction. See Notice of Final Determinations of Sales at Less than
Fair Value: Certain Hot-Rolled, Cold-Rolled, and Corrosion Resistant
Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate
from France, 58 FR 37125, 37132 (1993); Certain Cold Rolled Carbon
Steel Flat Products from Korea: Final Results of Antidumping Duty
Administrative Review, 63 FR 781, 788 (January 7, 1998); Steel Pipe
from Korea, 63 FR at 32,839; see also Gray Portland Cement and Clinker
from Mexico: Final Results, 63 FR 12764, 12780 (1998).
NSC states that it ``confirmed'' prior to verification that these
services from affiliates were purchased at arm's length prices by
providing freight charts and explaining that it paid the same rates to
affiliates and unaffiliates. NSC argues that the Department verified
that NSC paid arm's length prices to affiliated and non-affiliated
freight suppliers, and that NSC reported its inland freight charges
accurately. See Verification Report at 14-15, dated March 26, 1999. NSC
concludes that, therefore, the Department must make a deduction for
NSC's home market inland freight expenses when calculating normal value
for the final determination.
Department's Position: We agree with NSC. The Department has
allowed a deduction for home market freight expenses because NSC
reported its freight expenses in accordance with Departmental
methodology and the expenses were verifiable. While NSC's responses to
the Department's questionnaires did not demonstrate that NSC had
procured inland freight services from affiliates at arm's length
prices, at verification, we examined contracts and payment
documentation which demonstrated that NSC's reported inland freight
charges were accurate and non-distortive. See Verification Report at
15, dated March 26, 1999. Therefore, in the final determination, we
have utilized NSC's reported home market freight expenses in the
calculation of normal value.
Comment 8: NKK's Home Market Freight Costs.
Petitioners assert that, according to NKK, the company does not
track actual delivery charges on an individual shipment basis; thus, it
calculated its reported movement costs in the home market based on the
way in which a particular product was most likely transported.
Petitioners note that NKK, late in the process, disclosed that the
reported delivery terms, for 19 percent of its transactions, were
incorrect. In addition, NKK also revealed that a computer programming
error resulted in the wrong method of transportation being reported for
a full 13 percent of its home market sales. Petitioners argue that, in
light of the numerous errors in NKK's reporting of movement expenses,
NKK has failed to demonstrate that (1) its method for allocating its
home market movement expenses does not cause inaccuracies or distortion
and (2) it is entitled to an adjustment for movement expenses in the
home market. Therefore, petitioners assert that, at minimum, the
Department should deny NKK's reported adjustments for movement expenses
for certain specific sales.
NKK asserts that it reported, in its original and supplemental
questionnaire responses, that it does not retain transaction specific
movement expenses. Instead, using its monthly summaries, NKK determined
an average per-ton movement expense for each category of
transportation, as well as by each method of transportation.
In addition, NKK argues, that pursuant to the Department's
practice, a week before verification NKK submitted new revised
databases. The Department accepted and verified the accuracy of the
method for allocating these rates to specific transactions, and tested
the reported movement expenses in 45 sample sales transactions. No
discrepancies were found. Furthermore, NKK asserts that, contrary to
what petitioners alleged in both in their pre-verification comments and
briefs, the Department verified that the sales terms code did match the
claim of a movement expense. Therefore, NKK's asserts that its
methodology was reliable and accurate. NKK has successfully
demonstrated its entitlement to an adjustment for movement expenses in
the home market, and evidence on the record proves that petitioners'
claims have no basis.
Department's Position: We agree with NKK and have allowed a
deduction for freight expenses for home market sales of subject
merchandise because the reported expenses are in accordance with
Departmental methodology, are consistent with the company's accounting
practices, and were substantiated at verification. See Verification
Report, dated March 26, 1999. NKK has reported home market freight in
accordance with its accounting system and provided the data on a
product, transportation-type and destination-specific basis. Based on
its findings at verification, the Department determined that
respondent's reported freight costs for home market sales of hot-rolled
steel are not distortive, and provide a reasonable estimate of actual
transaction-specific freight expenses. Therefore, we are granting NKK a
home market freight adjustment for sales of subject merchandise.
Comment 9: NSC's U.S. Sales.
Petitioners contend that certain of NSC's U.S. sales, those made
through an affiliated U.S. reseller and reported as export price
(``EP'') sales, are constructed export price (``CEP'') sales and that
adverse facts available should be applied to these sales. Petitioners
state that NSC was not forthright with its explanation of the U.S.
reseller's functions in the sales process, as the Department found that
the reseller performed many more functions than were originally
outlined in the questionnaire responses. More specifically, petitioners
believe that the findings at verification demonstrate the involvement
of the reseller in the negotiation of the substantive terms of sales,
such as prices. Furthermore, petitioners assert that NSC's claim that
the reseller was merely a processor of information and a communication
link is untenable. In addition, petitioners argue that because NSC
failed to report ``significant facts'' regarding the reseller's role in
the sales process the Department should use facts available.
Petitioners contend that NSC withheld information from the Department,
failed to provide information in a timely manner and impeded the
proceeding. Lastly, petitioners have requested that the Department use
the highest calculated margin for NSC's U.S. sales as facts available.
NSC argues that verification confirmed the facts underlying the
Department's preliminary decision that
[[Page 24344]]
NSC's U.S. sales were properly characterized as EP sales. NSC states
that the sales meet criteria for EP sales established in Mitsubishi
Heavy Indus., Inc. v. United States, 15 F.Supp. 2d 807, 812 (CIT 1998)
(citing PQ Corp. v. United States, 652 F.Supp. 724, 731 (CIT 1987), and
affirmed in AK Steel Corp. v. United States, No. 97-05-00865, 1998 WL
846764, at *6 (CIT 1998).
NSC argues that if a transaction meets these criteria, the
Department will treat the sales as EP because the routine selling
functions of the manufacturer have been relocated geographically from
the selling country to the United States. See Koenig & Bauer-Albert AG
v. United States, 15 F. Supp. 2d 834, 352 (CIT 1998). NSC adds that, in
such circumstances, the EP sales are in effect made directly to the
unrelated buyer because the U.S. affiliate has no independent function.
The remainder of NSC's argument cannot be recreated in a public
summary.
Petitioners rebut NSC's contention that the Department should not
use adverse inferences with regard to NSC's sales made through its
affiliated U.S. reseller. The petitioners cite to the Department's
Verification Report which shows that the U.S. reseller negotiated terms
of sale with customers. Petitioners further argue that NSC's arguments
ignore the U.S. reseller's role as verified by the Department.
Additionally, petitioners state that due to the reseller's role in the
``negotiations and base price proposals'' the sales should be deemed
CEP. Furthermore, petitioners contend that because NSC did not describe
the full range of the reseller's role and the Department consequently
does not have all of the information necessary with which to calculate
a margin for CEP sales, the Department should find adverse inferences
and use the highest calculated margin for these sales.
Petitioners argue that the Department finds that CEP treatment is
justified where a U.S. affiliate plays a significant role in soliciting
business and maintaining customer contacts, or participates in the
negotiation of sales price to the extent that it is more than a
processor of sales-related documentation or a communications link. See
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products
from Korea: Final Results of Antidumping Duty Administrative Reviews,
63 FR 13170, 13172 (March 18, 1998). Petitioners argue that, contrary
to NSC's assertions, the facts in this case justify classifying certain
of NSC's sales as CEP.
Petitioners also note that where the U.S. affiliate acts as the
first and only point of contact for the U.S. unaffiliated customer, or
that it played the primary role in generating the sale by bringing the
customer to the foreign producer, the Department has found that the
affiliate's role in the sales process is significant. See Stainless
Steel Plate in Coils from the Republic of Korea, 64 FR 15444, 15453
(March, 31, 1999); see also Notice of Final Determination of Sales at
Less Than Fair Value: Extruded Rubber Thread from Malaysia: Final
Results of Antidumping Duty Administrative Review, 64 FR 12967, 12971
(March 16, 1999); Carbon Steel Flat Products from Korea, 64 FR at
12927. Petitioner also argues that the Department has found that where
the U.S. affiliate participates in negotiations, its role is elevated
beyond a processor of documentation or a communications link.
Petitioner argues this is true even where the U.S. affiliate negotiates
along with the foreign producer (Small Diameter Circular Seamless
Carbon and Alloy Steel Standard Line and Pressure Pipe from Germany:
Preliminary Results of Antidumping Duty Administrative Review, 62 FR
47446, 47448 (September 15, 1997), reserved the right to approve all
orders, id. or limited the affiliate's ability to negotiate prices
within certain ranges, Cut-to-Length Carbon Steel Plate from Belgium:
Preliminary Results of Antidumping Duty Administrative Review, 62 FR
48213, 48214-15 (1997); Certain Cut-to-Length Carbon Steel Plate from
Germany: Final Results of Antidumping Duty Administrative Review, 62 FR
18390, 18391-92 (1997)). Petitioners argue that where the U.S.
affiliate's role is not incidental or ancillary, CEP treatment is
appropriate. See Industrial Nitrocellulose from the United Kingdom:
Final Results of Antidumping Duty Administrative Review, 64 FR 6609,
6611 (February 10, 1999). Petitioners cite the U.S. verification report
in support of their argument that CEP is appropriate for certain of
NSC's U.S. sales, and argue that application of facts available is
justified as well, based NSC's failure to provide complete information
on these circumstances.
In its rebuttal, NSC argues that the Department should continue to
treat NSC's sales through its affiliated U.S. reseller as EP sales. NSC
contends that the affiliated U.S. reseller acted as a communication
link between the affiliated Japanese reseller and the U.S. customer.
NSC states that the U.S. reseller acted ``only as a processor of sales-
related documentation and a communication link with the unrelated U.S.
buyer.'' See Mitsubishi Heavy Indus., Ltd. v. United States, 15 F.
Supp. 2d 807, 812 (CIT 1998). Furthermore, NSC argues that the U.S.
reseller was in constant communication with the Japanese reseller and
that messages during the sales negotiations document that the U.S.
reseller had no authority to make decisions without the consent of the
Japanese reseller. NSC contends that the U.S. reseller acted as a
communication link, which is a role that U.S. affiliates may play in EP
sales. See AK Steel Corporation v. United States, 34 F. Supp. 2d 756
(CIT 1998); see also NSC U.S. Verification Memorandum, dated March 26,
1999, at Exhibit 4. In sum, NSC argues that at no point did the
affiliated U.S. reseller make any decisions with regard to the terms of
sale without first consulting the Japanese reseller. Finally, NSC
contends that if the U.S. reseller had authority to negotiate terms of
sale the documented correspondence between the U.S. and Japanese
resellers would not have occurred. Thus, the U.S. reseller was simply a
conduit for communication.
Department's Position: We disagree with petitioners that NSC's U.S.
sales should be treated as CEP sales. The statute defines export price
as the price at which the subject merchandise is first sold (or offered
for sale) to an unaffiliated purchaser before the date of import by the
exporter outside the United States. In contrast, CEP is the price at
which the subject merchandise is first sold (or offered for sale),
before or after the date of import, in the United States by or for the
account of the exporter or by a seller affiliated with the exporter to
an unaffiliated purchaser. Thus, sales made prior to import can be
either EP or CEP, with the former being sold by the exporter or
producer outside the United States and the latter being sold by someone
in the United States who is selling for the account of the exporter or
is affiliated with the exporter. In cases in which both the exporter
and a U.S. affiliate or a party in the United States acting on the
exporter's behalf are involved in the sales transaction, a case-by-case
determination must be made, based on the facts associated with the
transactions at issue, to determine whether such sales are properly
characterized as EP or CEP sales. Normally, when a party in the United
States is involved in the sale to the first unaffiliated customer, the
sales are properly treated as CEP sales. However, the Department has a
long history of recognizing so-called ``indirect EP sales,'' which are
sales made by an exporter, with the party in the United States
performing only certain ancillary
[[Page 24345]]
functions that support the sales process. To determine whether sales
are properly classified as EP in such cases the Department examines
three criteria: whether (1) the merchandise is not inventoried by the
importer, (2) the sale is made through a customary commercial channel
for sales of this merchandise, and (3) the affiliated importer acts
only as a processor of sales-related documents and as a communications
link with the exporter. See, e.g., Du Pont, 841 F. Supp. at 1248-50; AK
Steel, 1998 WL 846764 at *6. Only when all three criteria are met does
the Department treat the sales as EP sales. As the Court explained in
AK Steel, this test is simply a means to determine whether a sale at
issue is in essence between the exporter and the unaffiliated buyer, in
which case the EP rules apply, or whether the role of the affiliate has
sufficient substance that the CEP rules apply. Id.
In this case, NSC's small U.S. office merely assisted NSC and its
affiliated Japanese trading company in making the sales in question.
With respect to the first prong of the indirect EP test, the
merchandise at issue was shipped directly from the manufacturer to the
unaffiliated U.S. customer without being introduced into the physical
inventory of NSC's U.S. affiliate. With respect to the second prong,
this pattern of direct shipment is a customary commercial channel for
sales of such merchandise in the industry, and there is no indication
that the sales between the parties involved represented any departure
from the customary commercial patterns. As for the third prong,
information obtained by the Department at verification confirmed NSC's
claims that its U.S. affiliate's role was that of a processor of sales-
related documents and as a communications link with the exporter.
The gravamen of petitioner's claim that these sales should be
classified as CEP sales appears to be the fact that the affiliate is
involved in the negotiation process. However, the sales-related
documents we examined at verification indicated that the affiliate's
role in the sales negotiation process is properly characterized as
ancillary to the role of NSC and an affiliated trading company in
Japan. See U.S. Sales Verification Report, dated March 26, 1999. The
primary function of the U.S. affiliate in negotiation was conveying
offers and counter-offers between the customer on the one hand, and NSC
and the Japanese trading company on the other--in other words, serving
as a ``communications link'' between the parties involved in making the
decisions with respect to these sales. Contrary to petitioners'
assertions, the U.S. affiliate cannot be said to have participated in
any real sense in the negotiation of the sales at issue.
Verification also confirmed the accuracy of information NSC
provided on the record with respect to its performance of other support
functions related to these U.S. sales, including conveying an initial
offer to bid, issuing certain sales documentation, and assisting in
arranging the transport of the merchandise from Japan to the customer.
The affiliate also pays U.S. import duties and certain transportation
expenses (wharfage, brokerage, barge/demurrage, stevedoring, and
trucking expenses) on these sales, receives payment from the customer
and receives a commission on the sale. See NSC U.S. Verification Report
at 2-4, dated March 26, 1999. These are all functions that have
previously been found to be compatible with a finding that the sales
involved are EP sales. In addition, the Court of International Trade
has held that the fact that a U.S. subsidiary receives a commission for
providing such services is not incompatible with a finding that the
sales are EP sales. See Outokumpu Copper Rolled Products AB v. United
States (``Outokumpu''), 829 F. Supp. 1371, 1378-80 (CIT 1993). Thus,
the facts of record, taken as a whole and considered in context,
demonstrate that these sales are essentially sales between NSC's
affiliated Japanese trading company and the unaffiliated U.S. customer,
with certain routine sales support functions carried out by the U.S.
affiliate. Therefore, we find that the facts on the record demonstrate
that the sales at issue meet the well-established criteria for indirect
EP sales.
In addition, we note that these sales constitute such a minute
portion of NSC's U.S. sales that, even if the Department had accepted
petitioners' argument both that they should be considered CEP sales and
that the Department should apply an adverse margin to these sales, the
impact on NSC's margin, if any, would have been negligible.
Comment 10: NSC's U.S. Sales Prices.
Petitioners contend that the Department should use the gross unit
U.S. price in dollars which appears on the invoice, and not a converted
net price in yen as the basis for its U.S. price calculations. NSC
reported the gross unit price for its U.S. sales in dollars, and this
value appears on the invoice, even though NSC's customers ultimately
pay for the merchandise in yen based on a nine day forward exchange
rate. NSC reported the price paid in yen minus a trading company
discount as NETPRTCU. Petitioners claim that the Department converted
the net yen value to dollars on the date of shipment, and state that
this approach is improper. Petitioners rely upon Ferrosilicon from
Brazil: Amended Final Results of Antidumping Duty Administrative Review
(``Ferrosilicon from Brazil''), 62 FR 54085, 54086 (1997), where the
Department amended its final results in order to use the U.S. dollar-
denominated gross unit price, and on Notice of Final Determination of
Sales at Less Than Fair Value: Stainless Steel Wire Rod from Japan, 63
FR 40434, 40446-7 (1998), where the Department also used a gross unit
price in dollars.
Department's Position: The Department disagrees that we should use
the gross unit U.S. price in dollars which appears on the invoice and
not the converted price in yen. The yen value on the invoice is the
value which is invoiced and paid by NSC's customers. For every U.S.
sale, and other export sales, NSC records the dollar value, the yen
value, and the exchange rate used to convert the dollar to yen, and
then tracks the yen invoice value through to their accounts receivable.
Petitioners' argument is that the Department should avoid unnecessary
conversion where possible. The Department verified that the yen value
on the invoice is converted using the yen to dollar exchange rate on
the ninth day after shipment. This conversion is pursuant to the terms
of sale agreed upon by the parties at the time of the order
confirmation. Therefore, for purposes of NSC's normal accounting
records, the yen value posted in the normal course of business is the
converted dollar value effective on the date of shipment, using the
methodology discussed above. In reporting U.S. sales to the Department,
NSC directly reported the yen value from the invoice as recorded in the
normal course of business. As a result, the Department used the yen
value from the invoice as the starting point in its calculation of U.S.
price.
Petitioners' reliance on the two administrative cases cited is
misplaced. The Ferrosilicon from Brazil case, unlike this case,
involved a forward exchange rate agreement. Thus, section 773A(a) of
the Act required that foreign currencies be converted into U.S. dollars
based on the exchange rate specified in the forward exchange rate
agreement. Instead, the Department, due to the erroneous impression
that it did not have dollar-denominated prices on record, ``mistakenly
converted the U.S. sales prices reported in Brazilian currency to U.S.
dollars on the date of sale.'' 62 FR at 54086. Because the
[[Page 24346]]
Brazilian currency gross unit amount which appeared on the commercial
invoice corresponded to the dollar-denominated price as of the date of
conversion pursuant to the forward exchange agreement, converting that
Brazilian currency value to U.S. dollars was an exchange rate error.
Because the dollar value reported to the Department already
corresponded to the dollar equivalent of the amount to be paid in
Brazilian currency on the proper day for making that currency exchange,
the Department used the submitted dollar value.
The Japanese wire rod case involved a situation similar to
Ferrosilicon from Brazil. In that case, the Department stated that the
invoice listed a gross unit price only in dollars, the conversion
factor associated with the forward exchange agreement, the amount
corresponding to a commission (or ``discount'') paid to the Japanese
trading company to which Nippon (i.e., NSC in the instant case) sold,
and a net price in yen that results after that ``discount'' was
deducted. 63 FR at 40447. As instructed in the questionnaire, Nippon
had reported the gross unit price on the invoice (which was in
dollars), and the Department had used this price as the starting price
in its preliminary calculations. Id. Petitioners urged that, because
payment was made in yen, rather than in dollars, the Department should
disregard Nippon's data and use facts available. Id. In the final
determination, the Department continued to use the reported dollar
gross price because Nippon, as requested, had provided the price on the
invoice. Id. In addition, the Department had verified that Nippon
received the yen-denominated amount corresponding to that dollar
amount, converted at the forward exchange rate reflected on the
invoice, minus the trading company's ``discount.'' Id. In other words,
once the discount was taken into consideration (as it would necessarily
be regardless of which currency was used), the dollar amount exactly
corresponded to the net yen amount petitioners complained had not been
used in the first place.
Based on the facts of the instant case, the Department has used the
yen value reported on the invoice as the starting point for the
calculation of U.S. price.
Comment 11: NSC's Arm's Length Analysis.
Petitioners argue that the Department should apply the arm's length
test to resales made by NSC's affiliated customer to other NSC
affiliates. On January 4, 1999, the Department requested that NSC add a
field to its sales database indicating the relation of the end-user to
NSC for sales made through one of NSC's affiliated resellers. Citing
lack of time, NSC responded by providing the Department with a list of
the affiliated reseller's customers who were also affiliated with NSC,
instead of updating the database. Therefore, petitioners request that
the Department apply the arm's length test to the subsequent sales by
NSC's affiliated reseller, where applicable.
Department's Position: The Department disagrees with petitioners.
The Department's regulations state that, if an exporter or producer
sold the foreign like product to an affiliated party, it may calculate
normal value based on such sales if it determines that the price is
comparable to the price at which the exporter or producer sold the
foreign like product to a person who is not affiliated with the seller.
See 19 C.F.R. Sec. 351.403(c). It is the Department's normal practice
to run the arm's length test on home market sales made by the producer
to an affiliated company to determine whether the prices for such sales
are comparable to prices charged to unrelated parties. In the instant
case, the Department conducted its normal arm's length analysis and
found that NSC's sales to the affiliated reseller at issue failed the
arm's length test. Therefore, our preference is to use the downstream
sales if available. Based upon the information placed on the record, we
find no basis for departing from the Department's normal practice in
this regard.
As the Department has stated in the Preamble to its regulations,
``[t]he purpose of an arm's length test is to eliminate prices that are
distorted.'' See 62 FR at 27356. Once a non-distorted price has been
identified in a given series of transactions for use as normal value,
``the Department does not believe it is necessary or appropriate to
require the reporting of downstream sales in all instances.'' See Id.
The approach proposed by petitioners, which would require routine
reporting of all downstream data for home market sales to affiliates,
so that the arm's length test could be conducted at multiple levels,
would be both burdensome and unnecessary. Thus, for the final
determination, when a sale by NSC to an affiliated party passed the
arm's length test, we did not conduct further tests to determine
whether the sales by that affiliate were also made at arm's length.
Comment 12: NSC's Home Market Downstream Sales.
NSC argues that the Department should continue to find that NSC
need not report any further downstream sales. As it did in the
Preliminary Determination, NSC contends that the process of acquiring
the necessary information for the still unreported downstream sales
would be overly burdensome due to the manual effort involved, and the
affiliated reseller's limited retention of paper documents.
Furthermore, NSC has continued to work to report the downstream sales.
At verification, NSC demonstrated that the task of reporting the
outstanding downstream sales would be overly burdensome, and, in some
cases, impossible. In addition, NSC cites to the Department's
regulations at 19 C.F.R. Sec. 351.403(d), which state that in some
cases the Department will not require the reporting of all downstream
sales if the outstanding sales ``account for less than five percent of
the total value (or quantity) of the exporter's or producer's sales of
the foreign like product * * *'' As NSC's unreported downstream sales
meet this Departmental requirement, NSC requests that the Department
not change its Preliminary Determination regarding this issue.
Petitioners did not comment on NSC's argument in their rebuttal briefs.
Department's Position: We agree with NSC that certain downstream
sales should continue to be disregarded in the final determination.
Pursuant to Sec. 351.403 of the Department's regulations, the
Department does not normally require the reporting of downstream sales
if total sales of the foreign like product by a firm to all affiliated
customers account for five percent or less of the firm's total sales of
the foreign like product. In general, the Department does not believe
it necessary or appropriate to require the reporting of downstream
sales in all instances. Questions concerning the reporting of
downstream sales are complicated, and the resolution of such questions
depends on a number of considerations, including the nature of the
merchandise sold to and by the affiliate, the volume of sales to the
affiliate, the levels of trade involved, and whether sales to
affiliates were made at arm's length. In addition, the Department
normally will not require the respondent to report the affiliate's
downstream sales unless the sales to the affiliate fail the arm's
length test. The Department believes that imposing the burden of
reporting small numbers of downstream sales often is not warranted, and
that the accuracy of determinations generally is not compromised by the
absence of such sales.
In the instant case, NSC requested that it be excused from
reporting a small percentage of home market downstream
[[Page 24347]]
sales due to overwhelming burdens in obtaining the information and the
fact that these downstream sales will not constitute appropriate
matches for their U.S. sales of subject merchandise. Furthermore, the
Department examined these sales at verification and confirmed that
these sales will not constitute appropriate matches for U.S. sales. See
NSC Home Market Verification Report, dated March 26, 1999. After
examining the data placed on the record, the Department has determined
that there are sufficient matches of sales in the home market and that
the downstream sales in question account for less than three percent of
each firm's total home market sales of subject merchandise. For
purposes of this final determination, the Department is disregarding
this small percentage of downstream sales.
Comment 13: Request for Written Opinion/ Ex Parte Communications.
NSC argues that, pursuant to section 782(g) of the Tariff Act (19
U.S.C. Sec. 1677m(g)), and in accordance with the SAA at 814, the
Department must inform all parties of the essential facts under
consideration before making a final determination, and give all parties
sufficient time to defend their interests. See Bethlehem Steel Corp. v.
United States, 27 F. Supp. 2d 201, 207-08 (CIT 1998); Michael Y. Chung,
U.S. Antidumping Laws: A Look at the New Legislation, 20 N.C.J. Int'l
L. & Com. Reg. 495, 525 (1995). NSC states that the Court of
International Trade has held that the Department cannot rely on
information on which the parties have not been given an opportunity to
comment. See Wieland-Werke AG v. United States, 4 F. Supp. 2d 1207 (CIT
1998). NSC argues that this requirement is necessary to provide due
process and a fair judgement. NSC charges that the Department has not
provided NSC with all information relevant to this investigation, and
thus appears to be about to make a final determination which does not
afford NSC the right to defend itself or respond to that information.
In particular, NSC notes that the Department has not placed on the
record the factual or legal bases for its decision not to verify NSC's
theoretical-actual weight conversion factor. NSC states that the
Department has not responded to its letters on this issue and has not
placed on the record an ex-parte memorandum with respect to the meeting
between NSC's representatives and Deputy Assistant Secretary Spetrini
at which this issue was discussed.
NSC argues that the Department's failure to explain its basis for
not verifying the conversion factor violates section 782(g) of the
Tariff Act (19 U.S.C. Sec. 1677m(g)) and Article 6.9 of the Antidumping
Agreement (referring to informing parties of the essential facts under
consideration, so that they may defend their interests), as well as
Sec. 351.307(c) of the Department's regulations and Article 6.7 of the
Antidumping Agreement (which relate to reporting on the results of
verification). NSC argues that the Department has refused to provide
this information, that this refusal was illegal, and that it has
prejudiced NSC's ability to defend its interests and affected its due
process rights. In this respect, NSC relies upon the SAA at 814, and
Clifford v. United States, 136 F.3d 144, 149 (D.C. Cir. 1998). NSC
states that the Department's actions raise the specter of government
officials secretly prejudging this matter, and not allowing NSC to
respond or defend its interests. See NEC Corp. v. United States, 151
F.3d 1361, 1374 (Fed. Cir. 1998). NSC concludes that, for these
reasons, the Department's decision on theoretical weight cannot stand.
NSC also cites the statutory requirement that the agency document
ex-parte communications on the official record. See section 777(a)(3)
of the Tariff Act (19 U.S.C. Sec. 1677f(a)(3)); see also Gilmore Steel
Corp. v. United States, 585 F. Supp. 670, 679 (CIT 1984). The
Department is required to include notice of these communications in the
official record of the case for judicial review. NSC states that, in
addition, in order to allow interested parties to comment on
information submitted by other parties during such meetings, see 19
C.F.R. Sec. 351.301(c)(1), information communicated during ex-parte
meetings must be placed on the record.
NSC states that the Department has ``chosen secrecy over
transparency'' by not placing on the official record memoranda
memorializing any ex-parte meetings between petitioner or other
interested parties and members of the Administration concerning issues
presented during this proceeding, and cites press reports alleging the
occurrence of several meetings relating to this case. NSC adds that the
Department also did not respond to NSC's letters requesting that ex-
parte memoranda be placed on the record. NSC argues that the Department
is thus in violation of section 777(a)(3) of the Tariff Act (19 U.S.C.
Sec. 1677f(a)(3)) and 19 C.F.R. Sec. 351.104. NSC claims that, coupled
with the violations of Article 6.9 and 19 U.S.C. Sec. 1677m(g)
described above, the Department's actions in this respect threaten the
fairness and integrity of the entire proceeding. Petitioners did not
comment on NSC's request in their rebuttal briefs.
Department's Position: We disagree with NSC's assertion that the
Department has not provided NSC with all information relied upon in the
investigation, in particular information relating to the Department's
decision regarding NSC's sales made on a theoretical weight basis. At
the time that the Department made the decision not to verify the
theoretical-to-actual weight conversion factor, the Department
explained to NSC's counsel the basis for the Department's actions. In
addition, the Department issued a letter dated April 12, 1999,
explaining the reason for rejecting the submitted conversion factors.
The factual and legal bases for the Department's decision regarding
these sales are also discussed in Comment 29, ``Use of Facts Available
for NSC's Theoretical Weight Sales.''
The Department, pursuant to section 777f(a)(3) of the Act has
placed all ex parte communications on the official record of the case
and they are available to interested parties in room B-099 of the main
Department of Commerce building. The only ex parte communications
relating to NSC's sales made on a theoretical weight basis were
communications with representatives of NSC. Therefore, NSC was not
prejudiced by any delay in recording those communications for the
record. In addition, as reflected in the memos summarizing ex parte
communications, all ex parte communications with petitioners' counsel
involved no new information and all information discussed was on the
record.
The Department disagrees with NSC that it was not informed of the
essential facts and did not have sufficient time to defend its
interests. NSC, like other parties in this proceeding, has availed
itself of the myriad opportunities to participate actively in the
antidumping investigation by submitting information and argument and by
commenting on information and argument placed upon the record. NSC has
done so in meetings with the Department, in written briefs, and during
the hearing conducted in this proceeding. In particular, NSC devoted
over 40 pages of its case brief to arguing the actual/theoretical
weight issue and argued the issue again at the hearing. Thus, NSC, like
all other parties, has been given ample time to analyze and comment
upon the essential facts under consideration, and to preserve its
rights to appeal the decisions of the Department.
[[Page 24348]]
Cost of Production
NSC
Comment 14: NSC's Costs for Particular CONNUMs.
Petitioners argue that the Department should use adverse facts
available for any U.S. sales that are matched to control numbers
(``CONNUMs'') for which NSC failed to report product-specific cost.
Petitioners state that the Department requested NSC to provide product-
specific cost for all CONNUMs, including those that, in NSC's view,
were not likely to be matched to U.S. sales. By refusing to provide the
information, the petitioners assert, NSC has significantly impeded the
investigation by failing to cooperate to the best of its ability.
Petitioners maintain that the statute mandates use of facts available
in several circumstances, including when a respondent withholds
requested information or ``fails to provide such information by the
deadlines for submission of the information.'' Section 776(a)(2)(A) and
776(b) of the Act authorize the Department to use an adverse inference
where the respondent has ``not acted to the best of its ability to
comply with a request for information.'' As further support for their
position, petitioners cite Certain Welded Carbon Steel Pipes and Tubes
from Thailand: Final Results of Antidumping Duty Administrative Review,
62 FR 53808, 53819-20 (October 16, 1997), in which the Department
determined that an adverse inference was warranted because the company
being reviewed failed to act to the best of its ability and did not
comply with the Department's request.
In addition, petitioners contend that adverse facts available
should be applied to 19 CONNUMs for which the Department found certain
problems at verification. For these CONNUMs, costs were reported on a
product-specific basis and on a CAPS code basis, but were then weight-
averaged across a ``mix of products.'' According to petitioners, the
evidence shows the respondent did not act to the best of its ability in
reporting these costs, and an adverse inference should be used in
applying facts available to ensure that the respondent will not be
rewarded for its failure to supply the necessary information. Thus, for
the final determination, whenever a U.S. sale is matched to a home
market CONNUM for which product-specific costs were not reported, the
Department should apply the highest calculated margin as facts
available.
NSC argues that petitioners' suggestion that the Department should
use adverse facts available for the products for which costs were
reported on a broad product group average (i.e., CAPS code specific
basis) is unwarranted. NSC contends that it has cooperated as far as
possible given the accelerated timeframe and fully explained its
inability to report all costs on a product-specific basis. Moreover,
NSC asserts that under section 782(e) of the Tariff Act (19 U.S.C.
Sec. 1677m(e)), the Department is required to consider respondents'
information, even if it is not submitted by the deadlines or in the
form requested. NSC claims, however, that the information submitted was
timely, complete and verified, and thus the Department has no basis for
the use of facts available or adverse facts available.
Further, NSC asserts that if facts available is warranted, an
adverse inference should not be applied because the information on the
record does not establish that NSC failed to act to the best of its
ability throughout the investigation. In support of its position NSC
cities 62 FR 27340, where the Department explained that it will
consider whether ``practical difficulties'' contributed to a
respondent's inability to supply requested information. Accordingly,
the Department has no grounds to apply facts available with adverse
inferences.
In addition, NSC argues that if the Department decides an adverse
inference is proper, applying the highest calculated margin is aberrant
and not consistent with the law or the Department's past practice.
According to NSC, the Department's well-established policy limits it to
the highest non-aberrant margin. See Notice of Final Determination of
Sales at Less Than Fair Value: Stainless Steel Wire Rod From Italy, 63
FR 40422, 40428 (1998). Further, NSC contends that a margin is not
always the most appropriate means of substituting missing information.
Thus, NSC asserts, should the Department choose to apply an adverse
inference in selecting facts available, it should consider using
information on the record related to the missing data, as opposed to
using a punitively high margin.
Department's Position: We agree with petitioners that adverse facts
available should be applied to any U.S. sales which are matched to
CONNUMs for which the product-specific costs have not been provided. As
noted in the comments from the petitioners, section 776(a) of the Act
provides that, if an interested party withholds information that has
been requested by the Department, fails to provide such information in
a timely manner or in the form or manner requested, significantly
impedes a proceeding under the antidumping statute, or provides
information which cannot be verified, the Department shall use, subject
to section 782 (d) and (e), facts otherwise available in reaching the
applicable determination. In this investigation, on more than one
occasion, the Department requested that NSC provide product-specific
cost data for all U.S. and home market sales of subject merchandise.
However, NSC failed to provide this information for certain CONNUMs. As
noted in the cost verification report, the Department found nineteen
CONNUMs where the mix of products within the CONNUM included both
product-specific costs and costs reported on a broader product group
cost, which means that the reported costs for these CONNUMs are not
product-specific. Since NSC failed to provide the necessary information
in the form and manner requested, and in some instances the submitted
information was found to be inaccurate, we conclude that pursuant to
section 776(a) of the Act, use of facts otherwise available is
appropriate.
Moreover, section 776(b) of the Act, provides that an adverse
inference may be used when an interested party has failed to cooperate
by not acting to the best of its ability to comply with requests for
information. As discussed above, even though we asked twice, NSC failed
to comply with our requests for product-specific information. The
information necessary to compute CONNUM specific costs for the products
in question was available in NSC's books and records (as evidenced by
the existence of similar data used to report product-specific costs for
the products sold to the United States). NSC, however, simply elected
not to report CONNUM-specific costs for these products because they
believed these products would not be used as matches in the antidumping
margin. Thus, for the final determination, we applied the highest
calculated margin to any U.S. sales which is matched to home market
CONNUMs for which the product-specific cost data was not reported.
Comment 15: NSC's Corrections to U.S. CONNUM Database Presented at
Verification.
At verification, NSC submitted, as a minor correction, data showing
that certain CONNUMs had been reported incorrectly due to an improper
conversion from millimeters to inches. This resulted in the creation of
a small number of new U.S. CONNUMs. According to petitioners, the
Department should use adverse facts available for these CONNUMs in
[[Page 24349]]
calculating the margin for the final determination, because NSC failed
to supply cost information for the new CONNUMs.
NSC rebuts petitioners argument and states that the costs for the
new CONNUMs are reported in Verification exhibit B.1 and 15, and also
included in the revised cost file NSC submitted at the Department's
request on April 14, 1999. NSC asserts that it did not fail to report
product costs for the minor corrections submitted at verification. NSC
contends that full costs for all U.S. CONNUMs, including all of the new
CONNUMs related to the minor corrections were included in the cost
verification exhibits and in a cost file subsequently requested by the
Department.
Department's Position: We disagree with petitioners. At
verification, NSC provided a worksheet which showed the product-
specific cost for the new CONNUMs created due to the minor correction.
In addition, on April 14, 1999, the Department requested and received a
revised COP and CV tape which reflects the minor corrections presented
at verification.
Comment 16: NSC's Electricity Purchases.
The petitioners argue that the Department should not use transfer
prices to value transactions between NSC and its affiliated suppliers
of electricity. Instead, petitioners assert that, in dealing with
transactions between affiliated suppliers under section 773(f)(2) and
(3) of the Act, it is the Department's practice to value major inputs,
like electricity, at the higher of the transfer price, market price or
actual cost of production. Further, petitioners contend that there is
nothing on the record to warrant changing the Department's an
established practice. According to petitioners, NSC's claim that the
price differential between the affiliated and unaffiliated suppliers is
due to the different levels of distribution is baseless. Petitioners
assert that the record shows there is no ``wholesale market'' for
electricity in Japan.
In addition, petitioners dispute NSC's claims that the financial
performances of the affiliated and unaffiliated suppliers are relevant
as to whether the market price exceeds transfer price. Further,
petitioners contend that financial analyses are not a function of
prices charged to an affiliated company. Therefore, NSC is overlooking
the purpose of the arm's length test-- to guarantee a price that
reflects the market value. Thus, for the final determination, the
petitioners contend that the Department should adjust the transfer
price to reflect the higher market price.
NSC contends that the Department should not adjust the price it
paid to its affiliated electric power cooperatives (``co-ops'').
According to NSC, a simple comparison between the rates paid to their
affiliated suppliers and those paid to their unaffiliated suppliers
(i.e., regional electric companies) is meaningless. NSC argues that the
electricity supplied by the affiliated and unaffiliated suppliers
involves different segments of the electricity market. Specifically,
the co-ops are wholesalers, whereas the regional companies are
retailers. In addition, respondent asserts that it demonstrated at
verification, through financial analysis, that the co-ops are not
selling electricity at unreasonably low rates for wholesalers of
electric power as compared to the unaffiliated regional electric
companies. NSC further points out that if co-ops were to adjust their
prices to equal the retail market price, the result would be an
unrealistically high rate of return on assets. Thus, NSC claims it
would be inappropriate for the Department to make any adjustment to its
reported electricity costs.
Department's Position: While we disagree with petitioners that
NSC's electricity purchases from its affiliated suppliers represent a
major input in this case, we agree that the reported cost of
electricity purchased from its affiliates should be adjusted to a
market price (i.e., arm's length price) in accordance with section
773(f)(2) of the Act.
We disagree with NSC's argument that section 773(f)(2) of the Act
requires the Department to take into account whether NSC's affiliated
and unaffiliated suppliers of electricity are at different levels of
distribution, and if they are, to refuse to compare the prices charged
by each the two groups of suppliers. Even if these suppliers do operate
at different levels of distribution, the customer (i.e., NSC) in all
instances, is at the same level. Section 773(f)(2) of the Act focuses
on whether the arms-length comparison reflects comparable merchandise
and whether the transaction occurred in the market under consideration.
It does not focus on the nature or circumstances of the supplier. In
this instance, both NSC's affiliated and unaffiliated electricity
suppliers provided the identical input to NSC. Purchases of electricity
from its affiliated and unaffiliated suppliers occurred in Japan, the
market under consideration.
We also disagree with NSC that a comparative return on asset
analysis is indicative of whether transactions between affiliates
occurred at market prices. The structure and efficiency of an entity is
unique to that entity's operations. We agree that those characteristics
do impact the profitability of an entity; however, we disagree that it
is indicative of whether the selling practices in a particular market
are necessarily at arm's-length prices. Accordingly, for the final
determination, we adjusted NSC's electricity purchases from affiliates
to reflect the prices charged by its unaffiliated suppliers.
Comment 17: NSC's Exchange Gains and Losses.
The petitioners argue that NSC failed to provide requested
information as to the types of transactions that gave rise to reported
foreign exchange gains and losses. The petitioners claim that NSC is
able to segregate its foreign exchange gains and losses and contend
that NSC's chart of accounts provides evidence that the means to do so
were readily available. The petitioners note that this information was
necessary because the Department treats exchange gains and losses
differently depending on their source.
The petitioners state that, since NSC failed to comply with the
Department's request to the best of its ability, the Department should
draw an adverse inference and conclude that the entire amount of the
transaction exchange gain is related to accounts receivable and thus
should be disallowed. In addition, the petitioners argue that the
Department should draw the adverse inference that the entire amount of
exchange losses is related to accounts payable and should therefore be
included in the cost of manufacturing.
NSC contends that in reporting foreign exchange gains and losses,
it acted to the best of its ability and petitioners claim that an
adverse inference should be applied is without merit. Although NSC
notes that its chart of accounts divides exchange gains and losses into
certain categories, in practice those accounts are not used. NSC
asserts that it does not maintain transaction-specific data on foreign
exchange gains and losses. Accordingly, NSC argues that reclassifying
the information to meet the Department's request would be overwhelming.
Thus, NSC asserts that it acted to the best of its ability and there is
nothing on the record to suggest that it could have reported the
requested information. Further, NSC argues that the Department should
continue to exclude the portion of the exchange losses unrelated to the
cost of production of hot-rolled steel.
Department's Position: While we disagree with the petitioners that
we found evidence indicating that NSC had the means to segregate its
foreign exchange gains and losses, we agree that
[[Page 24350]]
the foreign exchange gains should be excluded and certain foreign
exchange losses included in the calculation of the G&A expense ratio.
It is the Department's normal practice to distinguish between foreign
exchange gains and losses from sales transactions and exchange gains
and losses from other types of transactions. See, e.g., Final
Determination of Sales at Less Than Fair Value: Steel Wire Rod From
Trinidad & Tobago, 63 FR 9177, 9181 (February 24, 1998). The Department
normally does not include exchange gains and losses generated from
accounts receivable. Since NSC failed to provide any documentation
showing that the foreign exchange gains should be included as an offset
to the G&A expenses, we do not consider it appropriate to allow the
gains as an offset to reported costs. In addition, with the exception
of the exchange losses associated with or incurred by to divisions
unrelated to steelmaking, NSC failed to provide any substantiation that
the foreign exchange losses should be excluded. We therefore adjusted
NSC's G&A expense ratio to exclude the foreign exchange gains and
include certain foreign exchange losses.
Comment 18: NSC's G&A Expenses.
The petitioners argue that the Department should recalculate NSC's
G&A expense ratio to include all appropriate expenses, including
certain expenses the nature of which constitutes business proprietary
information. The petitioners contend that the expenses at issue, which
are discussed in more detail in the proprietary version of their case
brief, relate to the company as a whole, and that NSC should not be
permitted to exclude the portions of those expenses that relate to non-
steel divisions.
In addition, the petitioners argue that there is no reason to
believe that the poor performance of the Japanese economy affected any
NSC division differently than any other division and that NSC failed to
support this claim. The petitioners therefore believe that economic
conditions are irrelevant to the issue at hand and provide no basis for
excluding certain expenses from the G&A calculation.
NSC argues that its calculation of general and administrative
expenses properly allocates company-wide costs to the production of
hot-rolled steel. Specifically, NSC states that non-operating and
special profits and losses are properly allocated to the production of
hot-rolled steel using steel division cost of sales in the denominator,
and that all exclusions from the calculation relate to gains and losses
of non-steel divisions. NSC asserts that its non-operating and special
profits and losses differ from general and administrative expenses as
they arise from specific events and are not related to the operations
of the company as a whole. NSC contends that the Department has
excluded such special gains and losses from the cost calculation in the
past and cites Stainless Steel Wire Rod from Italy, 63 FR at 40430 in
support of its argument.
NSC argues that certain expenses at issue that were excluded from
the G&A calculation are accurately classified as special losses and
that the exclusion of these expenses should be retained. NSC contends
that these expenses are related to ongoing restructuring and are
determined by economic conditions at each separate division of the
company. Accordingly, NSC argues that such expenses are not related to
the company as a whole, but instead are specifically tied to each
division, and there is no reason to allocate a portion of the
proprietary expense associated with or pertaining to a separate
division to the G&A expenses of the steel division. Further, NSC
asserts that it demonstrated at verification that its allocation
methodology actually excluded fewer costs than were incurred by non-
steel divisions.
Department's Position: We agree with petitioners that the total
amount of the proprietary expenses should be included in the G&A
expense calculation. We find no reason to conclude that NSC's normal
accounting treatment of not including this proprietary item as a cost
of manufacturing, in accordance with its home country Generally
Accepted Accounting Principles (``GAAP''), is unreasonable or
distortive. In fact, there is virtually no difference in the amount of
these proprietary expenses allocated to subject merchandise whether
they are treated as G&A or as a cost of manufacturing. We consider
these expenses to relate to the general operations of the company as a
whole and as such consider it appropriate to allocate them on a
company-wide basis as a percentage of unconsolidated cost sales.
Comment 19: NSC's Blast Furnace Costs.
The petitioners argue that, for the final determination, the
Department should eliminate an offset for a reversal of a reserve for
the repair of blast furnaces. According to petitioners, the
Department's practice is to disallow the reversal of a charge taken in
a prior year because it would distort the current year's costs.
Petitioners note that, for instance, in Certain Cut-to-Length Carbon
Steel Plate from Germany: Final Results of Antidumping Duty
Administrative Review, 61 FR 13834, 13837 (March 26, 1996), the
Department disallowed a reduction in current year production costs by
the reversal of prior year operating expense accruals and write downs
of equipment and inventory. Petitioners further claim that, although a
reversal of a prior period charge is in accordance with Generally
Accepted Accounting Principles (``GAAP''), the adjustment is considered
improper for the antidumping analysis because it bears no relation to
the cost of production during the current year.
Department's Position: We agree with the petitioners that an offset
to G&A expenses for a reversal of a reserve for repairs of the blast
furnace should be disallowed. It has been the Department's practice to
disallow reductions to current year production costs by the reversal of
prior year operating expense accruals. The subsequent year's reversal
of these estimated costs does not represent revenue or reduced
operating costs in the year of the reversal. Rather, they represent a
correction of an estimate which was made in a prior year. While
reversals of accruals are in accordance with GAAP, the Department
relies on GAAP provided that it does not result in distorted per unit
costs. In this investigation, we find it inappropriate to reduce the
actual production costs incurred in the current year by excess reserves
recognized in prior years.
Comment 20: NSC's Reconciliation Adjustment.
NSC argues that the Department incorrectly excluded NSC's
reconciliation adjustment from its reported COP and CV data in the
preliminary determination. NSC argues that its reconciliation
adjustment corrects for differences between total reported costs and
total actual costs incurred, and that failure to include the adjustment
would result in a reported cost of manufacture that does not reconcile
with NSC's accounting records. NSC thus concludes that the Department
should include the reported reconciliation adjustment in its final
determination.
Petitioners argue that the Department properly excluded the
reconciliation adjustment in its Preliminary Determination because the
quantities used to derive the adjustment were not on the same basis.
Petitioner contends that while the overall differences may be very
small for product groups, the particular quantity differences for
specific products within groups are significant. The petitioners
therefore refute NSC's claim that the difference is insignificant and
contend that inclusion
[[Page 24351]]
of the reconciliation adjustment would distort product costs at the
individual CONNUM level. In addition, the petitioner states that the
reconciliation pertains only to quantity differences and is not related
to per unit cost. The petitioner thus concludes that since the
reconciliation adjustment does not represent an element of cost, no
corresponding adjustment to the cost of manufacturing should be made.
Department's Position: We agree with the respondent that the
reconciliation adjustment should be included in the COP and CV data
files for the final determination. At verification, we determined that
the reconciliation adjustment is based on differences between costs in
NSC's normal books and records and product-specific cost reported to
the Department. NSC maintains costs in the normal course of business at
a more aggregate level than required by the Department; therefore, NSC
used a reporting methodology which differed in some respects from its
normal cost accounting system. As a result of deriving the reported
costs, there were small differences between the reported product-
specific cost and NSC's cost of manufacturing subject merchandise.
Since the reconciliation adjustment reconciles the reported cost to the
cost of manufacturing as recorded in its financial accounting system,
for the final determination we have included the adjustment.
NKK
Comment 21: NKK's Overall Cost Methodology.
Petitioners argue that NKK's reporting methodology should be
rejected because it is fundamentally flawed and results in costs that
are significantly understated. Petitioners assert that NKK's
methodology distorts costs because it relies on a base group that is
not reflective of the actual production levels of subject merchandise
at the individual manufacturing facilities and, therefore, does not
properly reflect plant efficiencies; it relies on a single variance for
all product groups, rather than more detailed variances; and, it relies
on the cost extras from only one facility. (See Comments below for a
detailed discussion of each of these three allegations.) Petitioners
argue that the effect of these flaws is not quantifiable and the
necessary information to correct these deficiencies is not on the
record.
Moreover, petitioners argue that NKK withheld information requested
by the Department that would have enabled the Department to correct
these deficiencies and, therefore, has not acted to the best of its
ability. First, petitioners assert that NKK did not provide variances
by budget group when requested to do so by the Department. Second,
petitioners argue that NKK did not provide cost extras for the second
facility, even though there are significant differences in cost between
plants. Third, petitioners argue that the selected base product is not,
as claimed by NKK, representative of the overall production of the
subject merchandise.
Therefore, petitioners assert that the Department must resort to
total adverse facts available. If, however, the Department does not
resort to total adverse facts available, then it argues that the
Department should draw an adverse inference in selecting an alternative
remedy to address the significant distortions.
NKK asserts that the Department verified that in the aggregate it
reported all its costs and the issue is not whether NKK provided
weighted average costs but the reasonableness of NKK's particular
weighting methodology. NKK argues that petitioners' concerns regarding
the reported variance are unwarranted because NKK developed the most
specific variance it could for the hot-rolled steel operations. NKK
argues that its use of Fukuyama's cost extras was reasonable because it
developed the most reasonable product specific costs it could and had
no choice but to work with the information which it maintains in the
normal course of business. NKK also argues that the Department tested
the reasonableness of NKK's reported values for cost extras during
verification and noted no problems. NKK contends that there is no basis
for using adverse facts available as petitioners request because it has
been fully cooperative in all phases of this investigation. NKK
contends that an alternative methodology can be based on verified
information on the record and should not be based on adverse facts
available.
Department Position: We disagree with petitioners that we should
reject NKK's reported costs and use, instead, adverse facts available.
While we agree that NKK's methodology improperly weights costs, because
the selected base product does not adequately represent the range of
subject merchandise produced at each plant, we find that this problem
is correctable. (See Comment below.) We disagree with petitioners that
NKK's reported variance or its cost extra methodology distort the
reported costs. (See Comments below.) We note that the variance used by
NKK was for the specific base product group and took into account the
specific cost centers those products passed through during production.
We also note that the absence on the record of cost extras specific to
the second facility does not impugn NKK's methodology, since NKK
adjusted the cost extras associated with the other facility by the
difference between the weighted average base product groups of both
facilities and the pinpoint product.
Moreover, we do not agree with petitioners that NKK did not act to
the best of their ability in reporting costs. First, record evidence
allows the Department to reasonably adjust for the improper weighting
of costs (i.e., to account for the cost differences between plants).
Second, as noted above, NKK did not use one plant-wide variance, but
calculated a variance for the specific base product group and took into
account the specific cost centers those products passed through during
production. Third, although NKK did not provide the requested
information concerning each individual base group's variance, the
Department was able to verify NKK's assertion as to the level of
difficulty in preparing such variances. We also note that the selected
base product group accounted for a significant portion of the U.S. and
home market products, and that the information is not necessary in
order to correct the flaws identified in NKK's response. Finally, the
Department did not request that NKK provide cost extras for the second
facility, nor did it determine that the presence of such data would
have significantly altered the results, since the first facility's cost
extras were adjusted by the difference in the pinpoint product and the
weighted average base costs of both facilities. Therefore, we have
relied on NKK's reported costs except for certain adjustments to
account for the improper weight averaging of the cost of the two
manufacturing facilities to account for plant efficiency.
Comment 22: NKK's Weighted-Average Costs.
Petitioners argue that NKK's response methodology for weighting the
cost of the two manufacturing facilities which produced the subject
merchandise significantly understates the cost of manufacturing
(``COM''). Petitioners maintain that the Department's questionnaire
states that the respondent must report COP and CV based on the weighted
average cost incurred at all facilities and that NKK's methodology does
not properly account for the actual production levels at the two
facilities.
Petitioners also note that the Department's questionnaire
specifically stated that, if NKK did not believe it could respond to
the Department's request in the form requested, it was to notify the
Department in writing before
[[Page 24352]]
it submitted the response. Accordingly, petitioners contend that at no
time did NKK submit a letter asking permission to use a single selected
product as the starting point instead of providing all of its product
groups. Moreover, petitioners argue that NKK has acknowledged that it
could have reported a certain number of additional product groups and
account for the majority of U.S. sales during the POI but did not do
so. Petitioners argue that NKK's failure to report accurate costs for
these additional product groups means that the cost of corresponding
home market sales that are matched to U.S. sales are inaccurate.
According to petitioners, the production of the ``pinpoint''
product (used by NKK to differentiate the cost of the base product
group's cost to product specific cost) is not representative of the
production of all of the base product groups at each production
facility.
In support of their position, petitioners note that in Carbon Steel
Flat Products from Korea, 64 FR at 12945, the Department rejected
respondent's cost submission upon finding that the reported costs were
understated. Petitioners argue that the Department concluded that the
respondent could have reported information on a CONNUM-specific basis,
but failed to do so. The Department rejected the submitted cost in that
case and applied adverse facts available. Petitioners assert that NKK
had the ability to report costs in a manner that reflected the actual
product mix of the two works but that it disregarded the Department's
instructions and used a distortive weighting methodology. Thus,
petitioners contend that NKK's response should be rejected.
Petitioners contend that NKK's proposed adjustment does not result
in reported costs that reflect the actual cost of certain product
groups other than NKK's selected product group. Instead, petitioners
argue that NKK's adjustment simply applies the base cost of the
selected product group to the production quantities of the other
product groups. Thus, petitioners contend that applying the correct
production mix to the wrong cost does not remedy flaws in NKK's
reporting.
NKK argues that its allocation methodology is reasonable. NKK
asserts that its initial response showed that the relative weighting of
costs between the Fukuyama and Keihin works was based on a subset of
the total production quantity. In addition NKK argues that it clarified
the reasons for choosing the particular product as the starting point
for development of the actual costs in a supplemental response. NKK
argues that the particular product chosen as the starting point
corresponds most closely with the ``pinpoint'' product used in
calculating the cost extras and that it represents the overwhelming
majority of the U.S. sales. Further, NKK asserts that it was not
practical to develop a different weighting for each of the subject
merchandise product groups. NKK claims that due to time constraints it
would have been impossible to extract each of the variances that
related to the production flow of each of the different product groups
and, therefore, once it had gone through the exercise for the selected
group it was necessary and accurate enough to use this group for the
weighting.
According to NKK, the correction to the weighting between the
Fukuyama and Keihin works the Department contemplates in the cost
verification report would be less accurate and less reasonable than
NKK's methodology. NKK asserts that its methodology does not understate
costs, and that this is clear because the total cost reconciled within
a small difference. Thus, NKK argues that increasing the reported costs
would constitute a serious distortion.
NKK contends that while its methodology is less precise for a
portion of the subject merchandise, its method is more appropriate for
the particular product group which represents the majority of the home
market data that match to U.S. sales. Further, NKK claims that the
remaining portion of the database is small and its methodology actually
overstates the cost for some product categories. In addition, NKK
argues that there were certain product groups which were only produced
at Fukuyama and that the methodology NKK used actually overstates cost
for these product groups. Thus, NKK states that using the overall
aggregate weighting methodology mentioned in the Department's Cost
Verification Report would result in an even greater distortion of
costs.
NKK argues that, if the Department rejects NKK's methodology, the
Department should adjust the weighting factors of the four key product
groups. Using information on the record to allocate the production of
these groups, NKK argues, the Department should increase the cost for
two of the product groups and reduce the cost for the other two product
groups. According to NKK, a single adjustment is too crude and
adjustments for all product groups would be unduly burdensome and
impractical.
NKK argues that petitioners mischaracterize the Department's
decision in Carbon Steel Flat Products from Korea. NKK points out that
the Department in fact rejected petitioners' call for total adverse
facts available in that case and simply adjusted the reported costs
with respect to the methodological issue as to weighting. NKK contends
that the situation in this case is identical. In this case, NKK argues,
the Department can accept its approach as reasonable, adjust the costs
for product groups other than the selected product group on a product
by product basis, or adjust the reported costs for the overall relative
weighting.
Department's Position: While we agree with petitioners that NKK's
submission methodology inappropriately weighted production at each of
its two facilities, by using a single product group's production mix to
weight all product groups, we disagree that the entire response should
be rejected. While we do not have on the record CONNUM-specific
production quantities for each facility, we do have information to
allow the Department to re-weight NKK's production costs on a product-
group specific basis to more properly reflect the actual production
quantities at the facilities. A product group weighted average, between
the two plants, is a reasonable approximation of our preferred method,
as opposed to using a mix for a single product group for all subject
merchandise.
NKK's reporting methodology first computed an average base cost for
what it identified as a representative product for use as the starting
point for the reported costs. The average base cost was computed using
its budgeted cost system which is maintained in the normal course of
business. NKK increased or decreased the average base cost depending on
the relationship of each specific product to the base product using its
standard management costing system. The selected product groups
budgeted costs for the three periods covering the POI for each plant
(six in total) were used to compute the POI weighted average cost of
manufacturing for the base product. The six different budgeted costs
were weight averaged based on actual production quantities of the
selected product group at each plant during each budgeted cost
calculation period during the POI. As a result, all CONNUMs for
submission purposes reflect the production mix between the two plants
for this selected product rather than the production mix of each of the
subject merchandise product groups. We disagree with NKK that this
methodology is the most reasonable given the information on the record
because we found significant
[[Page 24353]]
differences in the product mix between the plants.
We disagree with petitioners that NKK's proposed adjustment applies
a corrected production mix to the wrong cost. The weighting issue
between the two plants does not impair the base cost plus extra
methodology used to report product-specific costs. The relative cost
differences between the pinpoint product and each of the other products
NKK reported are not impacted by this issue.
Also, the Carbon Steel Flat Products from Korea case cited by
petitioners does not support the use of adverse facts available in this
case. In that case, the Department found that the respondent did not
act to the best of its ability because the respondent repeatedly did
not supply the requested information and during verification we found
that the information existed.
Comment 23: NKK's Reported Cost Variances.
Petitioners contend that NKK's use of a single variance for all
product groups is distortive and must be rejected. Petitioners assert
that consistent with the Department's long standing practice of
requiring variances at the most specific level, the Department directed
NKK to report variances for each product group. Petitioners argue that
the overall steel division variance is not a reliable substitute for
the product group-specific variances requested by the Department,
noting the difference in variances for each of the manufacturing
facilities. Petitioners estimated the variances for a product group
other than the NKK-selected product group and assert that neither the
overall steel division variance nor the selected product group variance
can substitute for the individual product group variances.
Petitioners argue that in Antifriction Bearing (Other than Tapered
Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan,
Romania, Singapore, Sweden and the United Kingdom: Final Results of
Antidumping Duty Administrative Reviews, (``Antifriction Bearings'') 60
FR 10900, 10928 (1995), the Department rejected respondent's use of
plant-wide variances instead of more specific variances because it
resulted in unreasonable cost shifting between products. Petitioners
contend that, in this case, NKK's proposal to use the variance for the
entire steel division, which incorporates more than one plant, is
distortive. Petitioners contend that NKK's use of either the selected
product group or the steel division variance leads to unreasonable cost
shifting. Petitioners allege that NKK had the ability to report product
group-specific variances but refused to do so.
NKK argues that the Department reviewed the variance calculation in
detail at verification and noted no particular problems in the cost
verification report with respect to the variance calculation or
methodology. NKK contends that the Department reconciled the reported
costs to the overall cost in the accounting records and that if there
were any serious distortions one would have expected to find
discrepancies in the reconciliation exercise.
NKK asserts that it could not have reported product-group-specific
variances as petitioners contend. NKK claims that the variances it
tracks in the ordinary course of business have no detail that would
allow it to calculate separate variances, for example, for high carbon
hot-rolled steel and for regular carbon hot-rolled steel. NKK contends
that there is no need to do so and that it does not do so in the
ordinary course of trade.
NKK asserts that it developed the most specific variance that it
could for the hot rolled steel operations. NKK contends that it
extracted those variances associated with the production stages leading
up to finished hot-rolled steel. NKK claims that its comparison of this
variance to the overall steel division variance simply shows that the
disparity in variances among different steel products is relatively
small and that this should be no surprise since the largest portion of
the variance for both hot-rolled and downstream products usually occurs
at the upstream production stages. NKK asserts that petitioners'
argument about variances for different subject product groups ignores
the facts on the record. NKK notes that petitioners' argument concludes
that there are substantial differences between NKK's selected product
group and the petitioners' example product group, when in fact the only
difference is pickling. NKK claims that it is not plausible that the
variances at the pickling stage alone could double the size of the
overall variance.
Department's Position: We disagree with petitioners that NKK's
application of variances is distortive and have continued to rely on
NKK's submitted variances for the final determination. The Department's
practice calls for respondents to report the most specific level of
variances kept in their normal books and records. NKK, however, does
not normally accumulate and allocate variances at the product group
level. For the response, NKK determined variances by cost center for
the production stages (e.g., hot strip mill) at each of the
manufacturing facilities through which the vast majority of the subject
merchandise passes. NKK allocated the other variances it normally
records across all products. In this case, NKK's variance methodology
appears to reasonably reflect the variances applicable to the subject
merchandise. Unlike the variances in Antifriction Bearings, NKK's
reported variances are on a more specific level than the division-wide
basis questioned in Antifriction Bearings. In addition, in Antifriction
Bearings, the Department noted that the company did in fact maintain
variances at a more detailed level than division-wide. Accordingly, we
do not consider it appropriate to adjust NKK's reported variance
amounts.
Comment 24: NKK's Reported Cost Extras.
Petitioners argue that NKK's use of Fukuyama's cost extras to
develop the reported costs was not reasonable because they do not
represent costs at the other facility.
NKK argues that it developed the most reasonable product specific
costs that it could and had no choice but to work with information in
its normal accounting system and those materials which it has in the
ordinary course of business. NKK contends that the Department spent a
great deal of time at the verification exploring the cost extras and
testing the reasonableness of the only cost extras that NKK has in the
ordinary course of business.
For a full discussion of this issue see the Department's April 28,
1999 Memorandum to Neal Halper, Acting Director, Office of Accounting,
Cost of production (``COP'') and constructed value (``CV'') Calculation
Memorandum for Final Determination, (``Final NKK Cost Calculation
Memorandum'').
Department's Position: We agree with NKK that the use of Fukuyama
cost extras by NKK is appropriate. NKK used the information it kept in
the ordinary course of business to calculate product specific costs
required by the Department. We did not request that NKK provide cost
extras for the second facility, nor did we determine that the presence
of such data would have significantly altered the results, since the
first facility's cost extras accounted for the relative difference in
costs due to technical specification differences between the pinpoint
product and all other products. This relative difference was applied to
a base cost that already incorporated cost differences between the two
facilities. We also note that the cost extras were adjusted to reflect
the costs at both facilities. For a full
[[Page 24354]]
discussion of this issue, see the Department's April 28, 1999 Final NKK
Cost Calculation Memorandum. We have not made any adjustments to NKK's
cost extras.
Comment 25: NKK's G&A Expenses.
NKK argues that the Department should not calculate G&A expenses on
a company-wide basis, but should use NKK's steel division G&A. NKK
argues that the Department's questionnaire does not require a company-
wide G&A rate. NKK asserts that it normally assigns G&A expense to the
relevant division that incurred the expense. NKK contends that expenses
incurred in other divisions, which have nothing to do with the steel
production, should not be attributed to the steel division and that
head office expenses which relate to the overall operations are
normally allocated to each division. NKK argues that the questionnaire
allows for some flexibility in responses, depending on how a company
incurs and records G&A expenses, and does not mandate a fixed approach
to G&A expense reporting.
NKK contends that using its division-specific G&A expense kept in
the normal course of business is consistent with the Department's prior
practice. Citing the Final Determination of Sales at Less Than Fair
Value: Furfuryl Alcohol From South Africa (``Furfuryl Alcohol From
South Africa''), 60 FR 22550, 22556 (May 8, 1995), NKK alleges that the
Department focused on respondent's approach in the normal course of
business. In that case, NKK asserts, the Department noted that the
respondent was able to demonstrate that some G&A expenses were directly
related to non-subject merchandise and that the Department excluded
these unrelated G&A expenses from the G&A ratio. NKK contends that its
G&A methodology is based on the same premise that only relevant
expenses should be included in the G&A.
NKK also cites the Notice of Final Determination of Sales at Less
Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR 31411, 31433
(June 9, 1998) (``Fresh Atlantic Salmon from Chile''), to support the
argument that the Department followed the respondent's normal business
practices. In that case, the respondent argued that the Department
should use the reported G&A expense, which included expenses associated
with an affiliated company. NKK notes that the Department rejected this
approach and used only those expenses related to the responding salmon
company, as recorded in the respondent's normal books and records. NKK
argues that its approach is consistent with this decision, and states
that the fact that business units are organized as divisions rather
than ``legally separate'' affiliated companies should not matter. NKK
contends that it makes no sense to ignore existing distinctions in G&A
expenses between steel production and other business activities and
that the narrowest category recorded in the respondent's accounting
records should be used.
Petitioners argue that it is the Department's long-standing
practice to calculate G&A expenses using a company's audited,
unconsolidated financial statements. As support for their position,
petitioners cited the Notice of Final Determination of Sales at Less
Than Fair Value: Stainless Steel Round Wire from Canada (``Stainless
Steel Round Wire from Canada''), 64 FR 17324, 17333 (April 9, 1999) and
several other cases in which the Department followed this long-standing
practice.
Petitioners contend that the Fresh Atlantic Salmon from Chile case
cited by NKK is not consistent with NKK's argument that G&A expenses of
other divisions should be excluded from respondents' G&A. Petitioners
argue that the Department's determination in that case was to exclude
expenses incurred by an affiliate and use the respondent's audited,
unconsolidated financial statements.
Department's Position: We disagree with NKK that G&A expenses
should be based on NKK's Steel Division G&A rather than on company-wide
G&A. G&A expenses by their nature are indirect expenses incurred by the
company as a whole. If they directly related to one process or product,
they would more appropriately be considered manufacturing costs. NKK
provided no specific reasons as to why its normal method of allocation
of G&A to different divisions is more reasonable than the Department's
normal method. It is the Department's consistent practice to calculate
G&A expenses based on the producing company as a whole and not on a
divisional or product-specific basis. See Stainless Steel Round Wire
from Canada; Notice of Final Determination of Sales at Less Than Fair
Value: Stainless Steel Wire Rod from Sweden, 63 FR 40449, 40459 (July
29, 1998) and Fresh Atlantic Salmon from Chile, 63 FR at 31433. This
approach recognizes the general nature of these expenses and the fact
that they relate to the company as a whole and is consistent with GAAP
treatment of such period costs. The Department's methodology also
avoids any distortions that may result if, for business reasons,
greater amounts of company-wide general expenses are allocated
disproportionally between divisions. We consistently apply this
methodology, unless the respondent provides case-specific facts that
clearly support a departure from our normal practice of allocating
company-wide G&A expenses over company-wide cost of sales. This
approach is both reasonable and predictable. To allow a respondent to
choose between the Department's normal method and an alternative method
simply because one method results in a lower rate, would be a results
oriented approach.
The Department's calculation of G&A expenses in the Furfuryl
Alcohol from South Africa case was specific to the facts of that case.
As noted above, we believe that the facts of this case warrant
continuing to follow the Department's long-standing practice of
calculating G&A expenses on a company-wide basis.
In the Fresh Atlantic Salmon from Chile case cited by NKK, we
followed our normal practice of calculating the G&A expense rate based
on the respondent's unconsolidated operations. The determination in
that case was to exclude an affiliated company's G&A not to exclude G&A
expenses of a different division as being unrelated to producing the
subject merchandise. Moreover, we disagree with NKK's assertion that
there is no distinction between a division and a stand alone affiliated
company. Divisions may exist in name only or may have some autonomy,
but they are controlled by the greater company. Affiliated companies
are separate legal entities and as such require complete administration
structures. In this case, NKK's divisions are not separate entities but
merely separate business units within a single corporation. Thus, we
have calculated G&A expenses based on NKK's unconsolidated company-wide
G&A for the final determination.
Comment 26: NKK's Blast Furnace Costs.
NKK argues that the Department improperly included the loss from a
blast furnace accident in G&A. NKK asserts that, consistent with prior
Department practice, the Department should exclude the blast furnace
losses as an extraordinary expense. NKK contends that this accident
meets the standard for extraordinary treatment affirmed by the Court of
International Trade in Floral Trade Council of Davis, California v.
United States, (``Floral Trade Council'') 16 CIT 1014, 1016-17 (CIT
1992), because an accident such as this is ``unusual in nature and
infrequent in occurrence.''
NKK argues that the blast furnace accident was ``unusual in
nature'' because record evidence demonstrates that NKK has never had a
blast furnace
[[Page 24355]]
accident in its history. NKK claims that, in past cases where the
Department has excluded extraordinary expenses from the cost of
production, an unforeseen and abnormal event occurred which was beyond
management's control. NKK cited the following cases for the
Department's practice with regard to the frequency with which the event
occurred: Notice of Final Determination of Sales at Less Than Fair
Value: Stainless Steel Wire Rod from Taiwan, 63 FR 40462 (July 29,
1998), Notice of Final Determination of Sales at Less Than Fair Value:
Large Newspaper Printing Presses and Components Thereof, Whether
Assembled or Unassembled, From Japan, 61 FR 38139, 38153 (July 23,
1996) and Final Determination of Sales at Less Than Fair Value: Fresh
Cut Roses from Ecuador, 60 FR 7019, 7038 (February 6, 1995). NKK argues
that the blast furnace accident was unforeseen and beyond its control;
otherwise it would have performed the necessary repairs to prevent the
accident from occurring.
NKK argues that the blast furnace accident was also ``infrequent in
occurrence.'' NKK contends that the Court explained in Floral Trade
Council that ``an event is ``infrequent in occurrence'' if it is not
reasonably expected to recur in the foreseeable future.'' NKK asserts
that these are the facts in this case because NKK has never before had
a blast furnace accident.
NKK also claimed that it properly treated the blast furnace
accident as a non-operating expense in its audited financial
statements. NKK argues that the Department's standard practice is to
use costs as they are reported in the respondent's financial
statements. NKK argues that it reported the losses resulting from the
blast furnace accident as non-operating expenses in the financial
statements that were completed and audited before the initiation of
this antidumping investigation. NKK contends that its treatment of the
blast furnace accident as a non-operating expense was in accordance
with standard Japanese GAAP.
Petitioners argue that the Department correctly included certain
losses related to the blast furnace accident in NKK's G&A. Petitioners
assert that these losses do not qualify as extraordinary expenses.
Petitioners contend that a breakdown in the blast furnace is not
unusual in nature because it is not highly abnormal, unrelated nor
incidentally related, to the manufacture of steel. Petitioners argue
that only in rare situations will an event occur that meets both the
``infrequent in occurrence'' and ``unusual in nature'' criteria.
Petitioners cited Notice of Final Determination of Sales at Less Than
Fair Value: Certain Preserved Mushrooms from India, 63 FR 72246
(December 31, 1998) and Notice of Final Determination of Final
Determination of Sales at Less Than Fair Value: Static Random Access
Memory Semiconductors from Taiwan, (``SRAMS from Taiwan''), 63 FR 8909
(February 23, 1998) to demonstrate the type of events the Department
determined were not unusual in nature. Petitioners contend that while
blast furnace accidents may be infrequent, they are by no means
``unusual'' in occurrences in the steel industry. Therefore,
petitioners argue that the Department should include the losses related
to the blast furnace accident in NKK's G&A expenses.
Department's Position: We disagree with NKK that the loss from the
blast furnace accident should be treated as an extraordinary expense.
As noted in Floral Trade Council, an extraordinary event is both
``unusual in nature and infrequent in occurrence.'' NKK argues that the
blast furnace accident was unusual in nature and infrequent in
occurrence because this was the first blast furnace accident in NKK
history. We disagree with NKK's assertion that this accident is unusual
in nature. Like other steel producers, NKK performs regular maintenance
and repairs of its blast furnaces in hopes of preventing accidents and
loss of operation. While NKK may not have experienced a blast furnace
accident in the past, industrial accidents are neither unusual nor
unforeseen for steel producers. Furthermore, as NKK itself notes, it
classified the loss due to the blast furnace accident in its audited
financial statements as a non-operating expense and not an
extraordinary loss. As in the Department's determination in the SRAMS
from Taiwan, we have included the loss incurred as a result of the
blast furnace accident in the G&A expenses for the final determination.
KSC
Comment 27: KSC's Affiliated Input Costs.
Petitioners argue that the Department should adjust KSC's reported
materials costs for iron ore and coal purchased from affiliated parties
at below-market prices. Petitioners note that KSC purchased iron ore
and coal from affiliated and non-affiliated parties during the period
of investigation (``POI'') and that, on average, the price paid to
affiliated parties for these inputs was lower than the price paid to
non-affiliated parties. Petitioners argue that section 773(f) (2) and
(3) of the Act require such purchases to be valued at the higher of
market prices, transfer price or the affiliated supplier's cost of
production. Petitioners note that documentation provided by KSC
demonstrates that its affiliated supplier's transfer price was lower
than the market price paid to unaffiliated trading companies for the
same materials. Petitioners also note that none of the schedules
submitted by KSC makes references to any price differentiation by grade
or time of purchase. Petitioners assert that it is the respondent's
burden to show whether any adjustments to the transfer price or market
price are necessary before a comparison may be made and cites to
Department precedent in Certain Corrosion-Resistant Carbon Steel Flat
Products and Certain Cut-to-Length Carbon Steel Plate from Canada:
Final Results of Antidumping Duty Administrative Reviews and
Determination To Revoke in Part, 64 FR 2173, 2181-82 (January 13, 1999)
(``Steel from Canada''). Since KSC has failed to meet this burden,
petitioners argue, the Department must increase the affiliated
supplier's transfer price to reflect the market value of iron ore and
coal.
KSC argues that the Department should reject petitioners' request
to adjust KSC's purchase price of iron ore and coal inputs through an
affiliated party. KSC claims that the Department's verification report
and the petitioners' analysis do not reflect the fact that there are
price differences between various grades and types of iron ore and
coal, and that its purchases were made at different times over the
course of the POI. If these grade and timing differences are
considered, KSC argues, then the price paid to the affiliated suppliers
is virtually the same as that paid to the non-affiliated suppliers. KSC
claims that since it does not purchase all types of iron ore and coal
in consistent proportions from both affiliated and non-affiliated
parties, the overall POI-average price does not provide for a valid
comparison. KSC asserts that a cost verification exhibit offers a
breakdown of input prices by commodity code, which demonstrates that
prices paid to affiliated suppliers and unaffiliated suppliers are
virtually the same when compared by grade. KSC notes that in many
instances the price charged by the affiliated supplier is higher than
the price charged by an unaffiliated supplier, while in other cases it
is lower. KSC also claims that the Department's sample comparisons of
identical grades on nearly the same date show nearly identical prices
being
[[Page 24356]]
charged by affiliated and unaffiliated suppliers. KSC argues that this
comparison confirms that the overall average prices of all grades over
the entire year was not a valid indicator of arm's length pricing
between KSC and its affiliated supplier.
Department Position: We agree with petitioners. KSC submitted a
schedule which demonstrates that, on average, its POI purchases of iron
ore and coal from affiliated parties were made at lower prices than its
purchases from non-affiliated parties. KSC did not submit sufficient
information to support its contention that timing differences and grade
differences have an impact on the comparison of iron ore and coal
prices and, therefore, we were not able to perform a more detailed
analysis. At verification we reviewed a list of iron ore and coal
prices by commodity code and noted, as KSC acknowledges, that the
prices from affiliated suppliers were often lower than prices charged
by unaffiliated suppliers. Since there is sufficient evidence on the
record that purchases from affiliated parties were made at below-market
prices, we believe that a comparison of the POI average prices is
appropriate and does not distort our analysis. Therefore, in accordance
with section 773(f)(2) of the Act, we have adjusted the cost of
materials to reflect the market values of iron ore and coal, based on
the prices charged by unaffiliated suppliers.
Comment 28: KSC's G&A Expenses.
In reporting G&A expenses, KSC argues that it properly excluded its
expenses for special retirement expenses and losses on the sale of
fixed assets used for production of non-subject merchandise. KSC notes
that the special retirement expenses are one-time severance payments to
transferred employees. KSC states that these expenses are incurred in
more than one year to the extent that downsizing of operations is not
completed in a single year, but the expense is a one-time event for the
particular employees transferred during a particular year. KSC claims
that since these expenses are not related to the current production of
the company and are considered an extraordinary expense under Japanese
GAAP, they should be excluded from G&A expenses. With regard to the
losses on sale of fixed assets, KSC cites to Fresh Atlantic Salmon From
Chile, 63 FR at 31436, in which the Department noted that losses on the
sale of fixed assets are not included in G&A expenses when the assets
in question are tied to the production of non-subject merchandise. KSC
also cites the following cases as examples of Department practice on
this issue: Brass Sheet and Strip from Canada; Final Results of
Antidumping Duty Administrative Review, 61 FR 46618, 46619-20
(September 4, 1996); Certain Hot-Rolled Lead and Bismuth Carbon Steel
Flat Products From the United Kingdom; Final Results of Antidumping
Duty Administrative Review, 60 FR 44009, 44012 (August 24, 1995)
(``Lead and Bismuth''), Final Determination of Sales at Less Than Fair
Value: Furfuryl Alcohol From South Africa, 60 FR 22550, 22556 (1995)
(``Furfuryl Alcohol''), Final Determination of Sales at Less Than Fair
Value: Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR
18791, 18795 (April 20, 1994) (``Steel Wire Rod''). KSC asserts that
these cases provide examples of instances where the Department has
recognized that expenses relating exclusively to the production of non-
subject merchandise should not be included in the G&A expenses of
subject merchandise. In the instant case, KSC claims that the
Department should exclude the losses referred to above because they
relate to assets which were used solely for the production of non-
subject merchandise.
Petitioners argue that the Department normally calculates G&A
expenses based on the respondent's unconsolidated operations, which
include the operations of each of the respondent's divisions. See,
e.g., Notice of Final Determination of Sales at Less Than Fair Value--
Stainless Steel Round Wire from Canada, 64 FR 17324, 17333 (April 9,
1999). Petitioners also assert that KSC has not established on the
record that the losses on the sale of fixed assets relate solely or
exclusively to the production of non-subject merchandise. With regard
to the expenses on special retirement payments, petitioners argue that
expenses relating to the termination, transfer or early retirement of
employees in a downsizing event are neither unusual nor infrequent for
the steel industry, and therefore cannot be classified as extraordinary
expenses. Petitioners add that the fact that KSC incurred special
retirement expenses in 1996, 1997 and 1998 is further evidence that
these expenses are not extraordinary under U.S. GAAP, and therefore
should be included in the calculation of KSC's G&A expense rate.
Department's Position: We agree with petitioners and, as in the
preliminary determination, we have included the special retirement and
losses on sales of fixed assets in our calculation of KSC's G&A expense
rate. The expenses for special retirement are severance costs that are
recorded as part of KSC's ongoing downsizing operations. The
Department's normal practice is to include severance costs in a
company's G&A expenses. See, e.g., Notice of Preliminary Determination
of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality
Steel Products from Brazil, 64 FR 8299, 8305-8306 (February 19, 1999)
and Notice of Final Results and Partial Rescission of Antidumping Duty
Administrative Review: Certain Pasta From Turkey, 63 FR 68429, 68434
(December 11, 1998). We noted at verification that these downsizing
activities have resulted in recurring expenses for KSC. The fact that
the process may extend over multiple years does not preclude the use of
current period expenses. KSC has recognized in its audited financial
statements the expense related to the current fiscal year, and it is
this period cost which we have included in KSC's G&A expenses. Also,
even though the classification of these amounts as extraordinary
expenses under Japanese GAAP. The Department does allow for the
exclusion of extraordinary expenses under certain circumstances, but
these severance amounts do not fall into this category. The Department
normally will exclude costs considered extraordinary, provided that
they are both unusual in nature and infrequent in occurrence. These
expenses for special retirement cannot be considered infrequent in
occurrence since they have been a recurring cost for KSC and,
therefore, should be included in G&A expenses along with other period
costs. See Silicomanganese From Brazil: Preliminary Results of
Antidumping Administrative Review, 62 FR 1320, 1322 (January 9, 1997).
With regard to the losses on sale of fixed assets, we verified that
the assets in question relate to the production of non-subject
merchandise. However, it is our practice to calculate G&A expenses
using the operations of the company as a whole. See, e.g., Brass Sheet
and Strip at 46619, Circular Welded Non-Alloy Steel Pipe and Tube From
Mexico: Final Results of Antidumping Duty Administrative Review, 63 FR
33041, 33050 (June 17, 1998). As we stated in the original
questionnaire issued to KSC, ``G&A expenses are those period expenses
which relate indirectly to the general production operations of the
company rather than directly to the production process for the subject
merchandise* * *'' Therefore, any income or expense incurred through
KSC's disposition of fixed assets should be included in the G&A expense
rate, regardless of whether they are used purely for the production of
subject merchandise or non-subject
[[Page 24357]]
merchandise. This policy was established in Final Determination of
Sales at Less Than Fair Value: New Minivans from Japan, 57 FR 21937,
21943 (May 26, 1992) (``Minivans''). In that case, the Department
stated, ``we generally consider disposal of fixed assets to be a normal
part of a company's operations and have included, therefore, any gains
or losses generated by these transactions in the cost of production
calculation.'' (emphasis added) This is consistent with our treatment
of miscellaneous expenses in U.S. Steel Group et al v. United States,
998 F. Supp. 1151, 1153-54 (CIT 1998). We note also that KSC incurred
losses on sale of fixed assets related to the production of subject
merchandise and these losses were included in G&A expenses and
allocated over the cost of all products that KSC produced.
In the Fresh Atlantic Salmon from Chile case cited by KSC, the
issue was whether or not to treat temporary shutdown costs as period
costs, or G&A expenses, that would normally be allocated over the cost
of all products. The Department determined that the facilities in
question were only idle for a brief period of time and therefore the
costs associated with the temporary shutdown should not be treated as
G&A expenses. Rather, the costs of operating the facility were charged
directly to the cost of manufacturing for the non-subject products
produced in the facility. The Department did not, as KSC implies,
specifically exclude the shutdown costs from the G&A expense
calculation because the facility did not produce subject merchandise.
KSC's reliance on to Brass Sheet and Strip and Steel Wire Rod is
similarly misplaced. The issue in these cases was whether to include in
a respondent's G&A expenses certain costs that were incurred by a
parent company or a subsidiary. The cites are not on point since the
instant case involves equipment that was owned by KSC itself and, as
noted above, the Department calculates G&A expenses based on the
operations of the respondent, as a whole. Expense incurred by a parent
company, or any other affiliated company, are only included in the G&A
expense calculation to the extent of the support provided by the parent
or affiliated company. KSC's reliance to Lead and Bismuth is also
misplaced, since the respondent in that case closed an entire facility
that only produced non-subject merchandise and then excluded these
closure costs from the G&A expense rate calculation. In the instant
case, KSC simply disposed of assets and, as noted above in Minivans,
the Department's policy is to include in G&A all gains or losses
generated by such disposals. The respondent in Furfuryl Alcohol
calculated separate G&A expense rates by division and a company-wide
G&A expense rate for G&A expenses that related to the operations of the
company as a whole. Here, KSC submitted a single G&A expense rate for
the entire company and only included its losses on sale of fixed assets
related to subject merchandise. It would not be appropriate or
reasonable to allocate these losses over the cost of producing all
products, while specifically excluding losses on sale of fixed assets
used for non-subject production. Since the sale of fixed assets is a
general activity of the company, and not specifically related to
production, we have allocated all losses on the sale of fixed assets
over the cost of producing all products.
Facts Available
Comment 29: Use of Facts Available for NSC's Theoretical Weight
U.S. Sales.
NSC characterizes as an inadvertent mistake the fact that, in its
response to the initial questionnaire, NSC stated that a theoretical
weight to actual weight conversion factor could not be supplied because
coils sold on a theoretical basis are never weighed. Respondent states
that it believed this statement to be true at the time of filing. NSC
argues that it corrected this error within the Department's time limits
for submitting new information. In the alternative, NSC argues that the
conversion data it presented constitutes a minor correction. Thus, the
Department should have accepted the information under the minor
corrections rule. NSC states that the Department never rejected the
filings containing the corrections as untimely, and therefore abused
its discretion by refusing to verify this information and by applying
adverse facts available to the affected sales. NSC also argues that to
reject the information now would severely prejudice NSC's rights, that
this information meets the criteria set forth in section 782(e) of the
Tariff Act and, thus, that the Department must consider this
information in calculating a margin for NSC. Finally, NSC argues that
the Department incorrectly applied an adverse inference in the
preliminary determination regarding the theoretical-actual conversion
factor, because it did not first find that NSC had not acted to the
best of its ability to provide this information to the Department. To
the contrary, NSC argues its responses to the Department's requests for
information establish a pattern of cooperation and accuracy.
NSC further states that it was placed under extreme time pressures
in attempting to comply with the Department's accelerated schedule in
this investigation, and that this contributed to NSC's failure to
identify the mistake regarding the weight conversion factor.
NSC states that it realized in preparing for verification that all
hot-rolled coils are weighed during the production process, and that
these actual weight data are recorded at the production facilities. NSC
adds that the production databases do not overlap with the sales
databases at NSC's headquarters. NSC stated it obtained the actual
weight information, calculated a conversion factor and submitted this
information to the Department on February 22, 1999, prior to both the
cost and sales verifications. NSC also states that it filed additional
information on this subject on March 1, 1999.
NSC disagrees with the Department's statement in the Preliminary
Determination (February 19, 1999) that NSC had ``refused'' to provide a
conversion factor. NSC argues that this statement baselessly implies
that NSC intentionally withheld information, whereas, it claims, the
record shows that NSC cooperated fully but committed an inadvertent
error in its initial questionnaire response.
NSC states that the Department took no action to remove the
conversion factor from the record, and included in the verification
agenda an instruction that NSC explain how its production and sales
systems capture actual weight. NSC alleges that at verification,
``Department representatives repeatedly assured NSC that the
theoretical weight conversion factor would be verified. Those
assurances notwithstanding, NSC claims, the Department abruptly
informed it approximately two hours before the end of verification that
``Washington'' had directed that the conversion factor not be verified.
The Department also refused to allow NSC's representatives to even
explain the background of its initial mistake. The reasons for those
decisions have never been disclosed on the record and the verification
report was silent on theoretical weight.'' NSC Brief at 16. NSC
concludes that the Department's failure to verify this issue was
unwarranted and unexplained.
NSC further argues that (1) its correction was submitted more than
seven days prior to verification, (2) the conversion factor is not a
substantial revision to NSC's response, but is similar to the type of
corrections
[[Page 24358]]
allowed by the Department on the first day of or during verification
and (3) the Department had adequate time to analyze the conversion
factor prior to verification.
NSC cites Sec. 351.301(b)(1) of the Department's regulations, which
states that in an investigation, the time limit for submitting factual
information is no later than seven days before the commencement of
verification. NSC argues that it is the Department's practice to allow
respondents to amend questionnaire responses to correct limited errors
within this period, and to verify the accuracy of this information at
verification, and use the corrected data. See, e.g., Porcelain-on-Steel
Cooking Ware from the People's Republic of China; Final Results of
Administrative Review, 62 FR 32757, 32,759 (June 17, 1997); Notice of
Final Determination of Sales at Less than Fair Value: Certain Partial-
Extension Steel Drawer Slides from the People's Republic of China, 60
FR 54472 (October 24, 1995); Notice of Determination of Sales at Not
Less than Fair Value: Stainless Steel Bar from Italy, 59 FR 66921,
66926 (December 28, 1994). See also Final Determination of Sales at
less than Fair Value: Certain Corrosion-Resistant Carbon Steel Flat
Products from Australia, 58 FR 37079, 37081 (July 9, 1993). NSC
acknowledges that the Department has rejected timely submissions which
are substantial revisions of previously submitted data or attempts to
respond to a questionnaire for the first time. See, e.g., Koenig &
Bauer-Albert AG v. United States, 15 F. Supp. 2d 834, 847 n.6 (CIT
1998); Final Determination of Sales at Less Than Fair Value: Certain
Cut-to-Length Steel From the People's Republic of China, 62 FR 61964,
61987 (November 20, 1997). NSC argues, however, that because submitting
its conversion factor is not comparable to submitting a substantial
quantity of new information, and because it answered the questionnaire
(albeit incorrectly as to this point) within the questionnaire
deadline, it properly corrected its response by submitting the
correction within the terms of the seven-day rule.
NSC argues that the Department accepts minor corrections even when
the correcting submissions are untimely filed. See Bowe-Passat v.
United States, 17 CIT 335, 337-8 (1993). NSC asserts that it is the
Department's practice to allow respondents to make minor revisions to
or to supplement questionnaire responses after the preliminary
determination, both prior to and during verification. See, e.g., 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 18992, 19034 (May 3, 1989); Notice of Final
Determination of Sales at Less than Fair Value: Certain Pasta from
Italy, 61 FR 30326, 30352 (June 15, 1996); Notice of Final
Determination of Sales at Less than Fair Value: Certain Cut-to Length
Carbon Steel Plate from the Russian Federation, 62 FR 61787, 61789
(November 19, 1997); Notice of Final Determination of Sales at Less
than Fair Value: Certain Freshwater Crawfish Tail Meat from The
People's Republic of China, 62 FR 41347, 41356 (August 1, 1997); Usinor
Sacilor v. United States, 872 F. Supp. 1000, 1008 (CIT 1994). NSC
argues that the Department has allowed this type of revision where the
correction is limited and the corrected information is submitted early
enough to allow adequate time for the Department to analyze the
revision. NSC argues that its correction, which affects only a limited
number of its U.S. sales, qualifies as a minor correction.
NSC states that the timing of its correcting submissions allowed
the Department and petitioner adequate time to review its changes. See
Brother Indus. Ltd. v. United States, 771 F. Supp. 374, 383-84 (CIT
1991); Final Determination of Sales at Less than Fair Value; Steel Wire
Rope from Korea, 58 FR 11029, 11031 (February 23, 1993); Antidumping:
Circular Welded Carbon Steel Pipes and Tubes from Thailand; Final
Determination of Sales at Less than Fair Value, 51 FR 3384, 3386
(January 27, 1986).
NSC states, furthermore, that its conversion factor is so simple
that there was no analysis that the Department or petitioners could
have performed on it, and therefore the petitioner suffered no
disadvantage or prejudice from NSC's submission of the conversion
factor prior to verification. NSC adds that it would not have been
difficult for the Department to incorporate the factor into the margin
calculation. NSC also argues that use of its conversion factor, rather
than use of facts available, contributes to the accuracy of the record
on which the margin is calculated--a goal of the antidumping statute.
See Rhone-Poulenc, Inc. v. United States, 899 F.2d 1185, 1191 (Fed.
Cir. 1990).
NSC argues that, if the Department believed that the submissions
containing its conversion factor were untimely, the Department was
required under Sec. 351.301(c) and 351.302.(d) of its regulations to
reject and return the submissions to NSC with written notice stating
the reason for the return. See Koenig & Bauer-Albert AG v. United
States, 15 F. Supp. 2d at 847 n.6 (CIT 1998); Kerr-McGee Chem. Corp. v.
United States, 955 F. Supp. 1466, 1469-70 (CIT 1997); Usinor Sacilor v.
United States, 872 F. Supp. 1000, 1007 (CIT 1994); Gray Portland Cement
and Clinker from Mexico; Final Results of Antidumping Duty
Administrative Review, 64 FR 13148, 13153 (March 17, 1999); Final
Determination of Sales at Less than Fair Value: Certain Cut-to-Length
Steel Plate from the People's Republic of China, 62 FR 61964, 61985
(November 20, 1997). Because these submissions were on the record at
the time of verification, NSC states that the Department could not
refuse to verify the conversion factor. NSC also states that the
Department would prejudice the rights of parties by removing
information from the record without following the procedures
established in the regulations, since the record serves as the basis
for the parties' arguments before the Department or in a subsequent
appeal. See Kerr-McGee Chem. Corp. v. United States, 955 F. Supp. 1466,
1472 (CIT 1997).
NSC also notes that the Department has broad discretion in choosing
to accept untimely filed information onto the record, and thus the
parties must rely on the Department's notice of rejection to determine
the status of each submission. See Bowe-Passat v. United States, 17 CIT
at 338 (1993). Thus, NSC argues that to reject the information now
would deprive it of the opportunity to respond to the Department's
rationale for rejecting the submission, and to demonstrate that the
conversion factor could have been easily derived, which will prejudice
NSC by leading to the continued use of facts available.
NSC argues that if, notwithstanding the above arguments, the
Department wishes to resort to use of the facts available as to this
issue, pursuant to section 776(a)(2)(B) of the Act (19 U.S.C.
Sec. 1677e(a)(2)(B)), because NSC did not submit its conversion factor
within the questionnaire deadlines, the Department must also consider
the provisions of 782(e) of the Tariff Act (19 U.S.C. Sec. 1677m(e)).
See 19 U.S.C. Sec. 1677(e)(a)(2)(B); Borden, Inc. v. United States
(``Borden''), 4 F. Supp. 2d 1221, 1244-45 (CIT 1998). NSC argues that
the conversion factor submission meets the criteria set forth in
Sec. 1677m(e) (i.e., it is complete, capable of being verified, capable
of being used without undue difficulty, provided by NSC acting to the
best of its ability, and submitted within the deadline established for
its submission) and thus is appropriate for use in the final
determination.
NSC argues that its submission was timely because ``in the context
of Sec. 1677m(e)(1), the `deadline' cannot be
[[Page 24359]]
interpreted as the due date for the initial or supplemental
questionnaires because such an interpretation would nullify the express
reference to Sec. 1677m(e) in Sec. 1677e(a)(2)(B).'' NSC Brief at 31.
NSC argues that untimely information can still be considered for a
final determination, provided that it meets the requirements set out in
Sec. 1677m(e). NSC states that the reference to a ``deadline'' in
Sec. 1677m(e) should be interpreted as compliance with the seven-day
rule or the minor error rule, and thus NSC's conversion factor should
be used in the final determination.
The Department, according to NSC, may rely on information it does
not examine at verification. See Floral Trade Council v. United States,
822 F. Supp. 766, 722 (CIT 1993); Micron Tech., Inc. v. United States,
117 F.3d 1386, 1396 (Fed. Cir. 1997); Certain Cut-to-Length Carbon
Steel Plate from Germany: Final Results of Antidumping Duty
Administrative Review, 61 FR 13834, 13840 (1996). Moreover, NSC argues,
there is no reason to doubt the accuracy of its conversion factors
given the accuracy of other NSC information demonstrated at
verification.
NSC argues that, in the Preliminary Determination, the Department
did not make the requisite finding under section 776(b) of the Tariff
Act (19 U.S.C. Sec. 1677e(b)) and 19 C.F.R. Sec. 351.308.(a) that NSC
had failed to cooperate to the best of its ability; instead, it found
only that NSC had not provided the conversion factor requested.
Therefore, NSC argues, the Department was not justified in using an
adverse inference in selecting facts available to apply to the affected
sales. See Ferro Union, Inc. v. United States, Ct. No. 97-11-01973,
Slip Op. 99-27, 1999 CIT LEXIS 24, at *54 (March 23, 1999); D&L Supply
Co. v. United States, Ct. No. 92-06-00424, Slip Op. 98-81, 1998 CIT
LEXIS 79, at *4 (June 22, 1998). See also Certain Cold-Rolled and
Corrosion-Resistant Carbon Steel Flat Products from Korea: Final
Results of Antidumping Duty Administrative Reviews, 64 FR 12927, 12947
(Mar. 16, 1999). NSC states that this two-part process the Department
must undertake before using an adverse inference differs from the
Department's former BIA standard under prior law. See Antidumping
Duties; Countervailing Duties: Proposed Rule, 61 FR 7308, 7327 (1996).
NSC argues that the Department may only apply an adverse inference
if the Department determines that a party's failure to provide
information is ``deliberate.'' See Preamble to Proposed Rule, 61 FR at
7328; Borden Inc. v. United States, 4 F. Supp. 2d at 25 (CIT 1998);
Ferro Union Inc. v. United States, 1999 CIT LEXIS 24, at *7. NSC states
that the Department refused to verify the circumstances surrounding
NSC's failure to provide the actual weight data, although NSC sought to
have it do so. NSC contends that the Department cannot prevent
inclusion on the record of information relating to whether its initial
failure to provide these data was deliberate, and then conclude that it
was unwilling to provide the data. See Usinor Sacilor v. United States,
872 F. Supp. 1000, 1007 (CIT 1994).
NSC also states that the record as a whole evidences its
extraordinary level of cooperation. NSC states that the Department
cannot hold NSC to the ``standard of perfection'' that it appears to
have applied in the preliminary determination (see NTN Bearings Corp.
v. United States, 74 F.3d 1204, 1208 (Fed. Cir. 1995)), and that the
selection of adverse facts available was improper given the minor
adjustment in data involved (see Usinor Sacilor v. United States, 872
F. Supp. 1000,1007 (CIT 1994)). NSC argues that the Department should
not treat a respondent that simply errs the same way it treats a
respondent that refuses to reply to part or all of a questionnaire.
NSC argues that the rate assigned to it in the Preliminary
Determination was punitive, and that antidumping law prohibits imposing
punitive duties, calling instead for remedial measures. See NTN
Bearings Corp. v. United States, 74 F.3d 1204, 1208 (Fed. Cir. 1995).
For this reason, NSC contends, in choosing the ``facts available,'' the
Department must, at a minimum, select margins that are ``nonaberrant,''
and not abnormal. See National Steel Corp. v. United States (``National
Steel I''), 870 F. Supp. 1130, 1134-37 (CIT 1994). NSC argues that it
is a Department policy upheld by the court that a margin used as facts
available must correspond to a substantial commercial quantity of a
respondent's sales that fall within the mainstream of that respondent's
sales. See National Steel Corp v. United States (``National Steel
III''), 929 F. Supp. 1577, 1579-80 (CIT 1996). NSC argues that the
margin the Department used in the Preliminary Determination for the
sales affected by this issue was the highest possible, and that
therefore it is ``aberrant.'' Finally, NSC argues that the extent of
increase in the total margin as a result of this issue constitutes an
impermissible penalty.
Petitioners argue that NSC's case brief and letters submitted after
the Preliminary Determination regarding the theoretical-actual weight
conversion factor amount to admissions that NSC did not act to the best
of its ability in responding to the Department's questionnaires and did
not provide information in a timely manner. Petitioners point out that
NSC stated that in preparing its responses, it failed to check the
records at the manufacturing facilities, despite two Department
requests for information maintained there. Petitioners argue that NSC's
failure to cooperate to the best of its ability warrants using adverse
inferences.
Petitioners stated that NSC's arguments that its post-Preliminary
Determination submissions regarding the conversions factor were timely
under the seven-day rule ignore 19 CFR Sec. 351.301(c)(2), which
authorizes the Department to set time limits for questionnaire
responses, and 19 CFR Sec. 351.302(d), which authorizes the Department
to return untimely filed questionnaire responses. Petitioners note that
the Department cited Sec. 351.302(d) in its supplemental questionnaire
issued on January 4, 1999. Petitioners contend that, under 19 CFR
Sec. 351.301(c)(2), the seven-day rule does not apply in these
circumstances.
Petitioners state that, because NSC indicated that it would not and
could not provide this data, and because the Department did not request
it again, the time for submitting new information other than specific
corrections had passed. For these reasons, petitioners argue that the
Department was authorized to use facts available. See Cut-to-Length
Steel from the People's Republic of China, 62 FR 61964, 61987 (November
20, 1997) (``Steel from China'').
Petitioners state that the cases cited by NSC at pages 17 and 18 of
its case brief are off point, because the respondents in those cases
sought to correct minor errors prior to verification. Petitioners argue
that, in the instant case, NSC is seeking to present new information
which contradicts earlier statements that the information did not
exist. Petitioners argue that Steel from China, also cited in NSC's
brief, is on point, in that the Department rejected information a
respondent had previously failed to provide in a questionnaire
response.
Petitioners also argues that even under the seven-day rule, the
conversion submission was untimely filed. Petitioners then argue that
NSC's three post-Preliminary Determination submissions reveal that NSC
did not make a reasonable inquiry to obtain the weight conversion
information in response to the Department's questionnaires. For this
reason, petitioners argue that NSC's case brief argument regarding the
Department's
[[Page 24360]]
failure to verify the information it submitted after the preliminary
determination is out of place and without merit. Finally, petitioners
argue that NSC incorrectly characterized its submission of the
conversion information as a minor correction. Petitioners state that
NSC's submission attempted to supply new information it had previously
characterized as unattainable and nonexistent. This type of
information, petitioners argue, is not eligible for untimely admission.
Petitioners argue that the Department acted correctly and should
continue to use adverse inferences in the final results.
Petitioners argue that all NSC information relating to the weight
conversion factor was submitted after the questionnaire deadlines and
was therefore untimely filed. Petitioners argue that under section
776(a)(2) of the Tariff Act (19 U.S.C. Sec. 1677e(a)(2)), the
Department was justified in rejecting this information and applying
facts available. Petitioners add that the statute mandates the use of
facts available in these circumstances, and that to refrain from using
facts available would run contrary to the intent of the law, which is
to encourage compliance with the Department's questionnaires. See SAA
at 868.
Petitioners also argue that NSC's claim that the Department
improperly rejected its weight conversion factor is without merit.
Petitioners state that, contrary to NSC's position, the seven-day rule
does not apply to the correlation submissions, since it does not serve
to extend the established deadlines for responses to the Department's
questionnaires. See 19 C.F.R. Sec. 351.301(b) and (c). The information
NSC attempted to submit, petitioners argue, was the subject of a
specific request in a Department questionnaire and was not provided by
the deadline set in that questionnaire.
Petitioners also rebut NSC's argument that its weight conversion
information was properly submitted as a minor correction. Petitioners
state that NSC's submission does not meet the standard for minor
corrections established in Titanium Sponge from the Russian Federation,
61 FR 58525, 58531 (November 15, 1996). According to petitioners, the
information NSC submitted was not a correction to anything, but was
instead information supplied for the first time after being repeatedly
withheld.
Petitioners state that NSC improperly relied on section 782(e) of
the Act (19 U.S.C. Sec. 1677m(e)) (the Department ``shall not decline
to consider information that is submitted by an interested party'')
because NSC did not submit its weight conversion information within the
deadlines established in the Department's questionnaires, and failed to
act to the best of its ability to comply with the Department's
requirements for supplying this information. See Borden, 4 F. Supp. 2d
at 1245. Petitioners note that NSC stated in its original questionnaire
response that, despite the Department's request, the factor was
unnecessary, and stated in its supplemental questionnaire response that
it could not calculate a factor, when in fact the required information
was within its records. Petitioners also point to NSC's statement that
the conversion factor was ``hardly the most pressing issue for NSC's
staff'' when preparing its response. See NSC Brief at 13. Petitioners
conclude that the requirements of section 782(e) are not met because,
if NSC had acted to the best of its ability, the information would have
been timely filed and NSC would not have presented inaccurate
explanations for its failure to provide this information.
Petitioners reject as irrelevant NSC's claims that its weight
conversion information should be accepted because its failure to
provide the data when they were originally requested was inadvertent.
Petitioners state that the statute does not require the Department to
determine whether a reporting failure is in good faith, and that the
Department cannot excuse inaccurate responses on the grounds of
``honest mistake.'' Petitioners argue that this would undermine the
Department's ability to gather information. Petitioners state that the
Department's rejection of NSC's responses regarding the conversion
factor as untimely was warranted under the statute and the Department's
practice.
Petitioners argue that the Department properly applied adverse
facts available because NSC failed to provide information under its
possession and control to the Department in a timely manner. These
circumstances, petitioners contend, show that NSC did not act to the
best of its ability in preparing this aspect of its questionnaire
response. See Borden, 4 F. Supp. 2d at 1246; Ferro Union 1999 CIT LEXIS
24, at * 55. Petitioner notes that, contrary to NSC's inference in its
case brief, affirmative evidence of bad faith is not required before
the Department can make an adverse inference. See Preamble, 62 FR at
27340.
Further, petitioners reject NSC's argument that the Department
should be precluded from making an adverse inference because much of
NSC's other information was timely submitted and verified. Petitioners
state that use of partial facts available is appropriate in these
circumstances. Petitioners state that NSC has pointed to no
justification for its claim that the adverse facts available margin
applied to NSC's U.S. theoretical weight sales was aberrant, and that
this may constitute the best information available. See National Steel
I, 870 F. Supp. at 1136; accord National Steel Corporation v. United
States (``National Steel II''), 913 F. Supp. at 596-597; see also
Stainless Steel Sheet and Strip in Coils from Mexico, 64 FR 124, 128
(January 4, 1999). The facts available margin, petitioners claim, was
based on NSC mainstream sales made under customary selling practices.
Finally, petitioners state that NSC was incorrect when it argued
that its only act of non-cooperation was to make a mistake in its
answer. Petitioners argue that NSC repeatedly withheld information
within its control, and issued statements as to why this information
was not provided which were shown to be untrue.
Department's Position: We agree with petitioners that the
Department should continue to apply adverse facts available with
respect to NSC's U.S. sales which are based on theoretical weight.
Section 776(a)(2) of the Act provides that if an interested party: (A)
withholds information that has been requested by the Department; (B)
fails to provide such information in a timely manner or in the form or
manner requested; (C) significantly impedes a proceeding under the
antidumping statute; or (D) provides such information but the
information cannot be verified, as provided in section 782(i), the
Department shall, subject to subsection 782(d), use facts otherwise
available in reaching the applicable determination. Section 776(b) of
the Act further provides that adverse inferences may be used where an
interested party has failed to cooperate by not acting to the best of
its ability to comply with the Department's requests for information.
See also, SAA at 870.
NSC reported most of its U.S. and home market sales on an actual
weight basis, with the exception of a small percentage of U.S. and home
market sales. The Department requested conversion factors for these
transactions in its original and supplemental questionnaires. Section
351.301(b)(1) of the Department's regulations provides generally that,
in an investigation, factual information can be submitted up to seven
days prior to verification. However, section 351.301(c)(2) states that
``[n]otwithstanding paragraph (b)'',
[[Page 24361]]
when requesting information pursuant to a questionnaire, the Department
will specify the deadlines by which time the information is to be
provided by the parties. Thus, NSC is incorrect in asserting that the
requested conversion data is timely because it was submitted within the
general deadline in section 351.301(b)(1). Any information submitted
after the deadline specified in the questionnaire is untimely,
regardless of whether the general deadline in section 351.301(b)(1) has
passed.
In the instant case, NSC failed to submit the requested information
by December 21, 1998 (the deadline for the original section B and C
questionnaire responses), nor did it provide this information by
January 25, 1999 (the deadline for submission of information requested
in the section B and C supplemental questionnaire). Despite repeated
requests for this information, NSC did not provide the requested data
until March 1, 1999 (nearly 3 months after the initial questionnaire
deadline).
NSC also argues that the conversion data falls within the
Department's practice of accepting ``minor corrections'' to
questionnaire responses after the response deadline has passed,
provided the Department has the information in time to verify it.
However, a minor correction is normally a correction to information
that was timely submitted. In this case, NSC did not timely submit the
conversion data that it subsequently sought to correct. NSC's only
response was that the data did not exist. While NSC characterizes that
statement as a correctable minor error, we disagree. The evidence
indicates that the requested information was routinely maintained by
NSC in the normal course of business, but that obtaining it was simply
not a priority. Regardless of who specifically knew about this
information, the sales department or the production department, the
data existed and could have easily been obtained. The fact that NSC was
able to provide this information shortly after the preliminary
determination also supports the conclusion that it could have done so
within the time requested. Moreover, it is impossible for the
Department to determine whether NSC's claims of inadvertent error are
valid or merely self-serving. Thus, they are insufficient to rebut the
evidence establishing that the requested information was readily
available.
Furthermore, timely, accurate conversion information is necessary
to the margin calculation and can have a significant impact. In
recognition of steel industry practices, the Department routinely
requests respondents in proceedings involving steel to provide either
the actual and theoretical weights of the transactions in both markets,
or in the alternative, to provide conversion factors to ensure apples
to apples comparisons on the same weight basis. See Preliminary
Determination of Sales at Less Than Fair Value: Circular Welded Non-
Alloy Steel Pipe from Brazil, 57 FR 17883, 17884 (April 28, 1992). The
need for timely filed, verifiable actual weights or conversion factors
is particularly acute with flat rolled steel products in coils,
including those at issue. Assuming that the coils meet the
specifications of the ordered product, the actual width and the actual
thickness of the coils will vary within the allowed tolerances, but the
lengths of the coils are not specified in the available sales-related
documentation. Therefore, the total actual weight of the coils sold in
transactions denominated in theoretical weight can vary by a
significant, but unknown amount, as the actual dimensions of the coils
cannot be determined. Accordingly, the resulting unit values that would
be used in the Department's price-to-price comparisons could also vary
by a significant, but unknown amount. The Court of International Trade
has addressed the issue, upholding the Department's decision to apply
best information available when a theoretical-to-actual conversion
factor could not be verified. See Persico Pizzamiglio, S.A. v. United
States, 18 CIT 299, 305 (CIT 1994).
Because NSC's conversion data was untimely and did not constitute a
minor correction, the Department informed NSC at verification that it
would not accept the theoretical to actual weight conversion factors
and returned the data on April 12, 1999. Section 351.302(d) of the
Department's regulations provides that the Department will not retain
in the record information that is untimely or unsolicited. 19 C.F.R.
Sec. 351.302(d)(2). The fact that the Department did not reject this
information prior to verification did not prejudice NSC. Many decisions
are made between the preliminary and final determinations, including,
in some instances, the rejection of submissions. While the Department
must explain the basis for those decisions in its final determination,
it is under no obligation to do so before then. As evidenced by NSC's
case brief and the hearing transcript, the company was well aware of
the issue and has had ample opportunity to defend its interests. See
also Department's response to Comment 13, ``Ex Parte Communications'',
above.
Section 776 of the Act states that, if a party fails to provide
information by the established deadline, the Department shall, subject
to section 782(d), use the facts otherwise available. See also 19
C.F.R. 351.301(c)(2)(ii) (``failure to submit requested information in
the requested manner by the date specified may result in use of facts
available under section 776 of the Act and section 351.308.''). Section
782(d) of the Act provides that, subject to 782(e), the Department may
disregard a deficient response. NSC argues that the Department should
have used the conversion factor data because it meets the criteria of
section 782(e), i.e., it is complete, capable of being verified,
capable of being used without undue difficulty, provided by NSC acting
to the best of its ability, and submitted within the deadline
established for its submission. We find this argument unpersuasive. The
provision of the statute relied upon by NSC sets forth the
circumstances under which the Department will consider information
provided by a respondent, even though it may be deficient in some
respects. For example, if the freight information in a timely
questionnaire response is missing or cannot be used, the Department
will not reject the entire response; it will consider the remaining
information, provided that it is verified. There is simply no support
for NSC's argument that this provision is essentially an exception to
rejecting information that is submitted after the established deadline.
To the contrary, the first criterion in this provision is that ``the
information is submitted by the deadline established for its
submission.'' As noted above, NSC's conversion data was not submitted
by the deadline established in the questionnaire. Therefore, it does
not meet the criteria of section 782(e) and the use of facts available
for theoretical weight sales is warranted.
Because NSC failed to timely provide requested information, in
accordance with section 776 of the Act, the Department has made its
determination with respect to the theoretical weight sales on the basis
of the facts available. Further, the Department finds that NSC, by not
submitting a theoretical weight conversion factor it could have
provided when originally requested until well after the time for
response had passed, failed to cooperate by not acting to the best of
its ability. NSC's claims that it could provide a conversion factor in
March of 1999, but was unable to derive such a factor when the
questionnaire responses were due, does not withstand scrutiny. Although
NSC argues that it lacked the data necessary to calculate a conversion
factor, as required by section
[[Page 24362]]
782(c)(1) of the Act, it should have proposed to the Department the
sort of conversion factor it ultimately did calculate, explaining why a
more accurate one might not be practicable. Instead, NSC merely
dismissed the Department's repeated requests. As noted above, the data
requested was routinely maintained by NSC in the normal course of
business. It was readily available and would not have been burdensome
to produce in a timely manner. Moreover, NSC had other information to
use in providing a conversion factor. Nevertheless, NSC did not provide
the information until well after the established deadline. As noted
above, NSC's claims of inadvertent error are insufficient to overcome
these basic facts. The fact that NSC ultimately did provide such a
factor is proof that it could have done so much earlier. Thus, because
NSC failed to timely provide the requested conversion data, it has
``failed to cooperate by not acting to the best of its ability to
comply with an information request.'' Therefore, in accordance with
section 776(b) of the Act, the Department is authorized, to use an
adverse inference in choosing the facts otherwise available.
We have considered, but rejected, the suggestion made by NSC that
the Department use a theoretical-to-actual conversion factor from
another source as facts available. Because of the potential differences
in theoretical-to-actual variances among producers and for different
flat rolled products, particularly those sold in coils, we cannot
determine that an alternative theoretical-to-actual conversion factor
would be appropriate in this situation. Therefore, we have used a facts
available margin for these sales.
In selecting a facts available margin, we sought a margin that is
sufficiently adverse so as to effectuate the statutory purposes of the
adverse facts available rule, which is to induce respondents to provide
the Department with complete and accurate information in a timely
manner. We also sought a margin that is indicative of NSC's customary
selling practices and is rationally related to the transactions to
which the adverse facts available are being applied. To that end, we
selected margins from individual sales of CONNUMs that involved
substantial commercial quantities and fell within the mainstream of
NSC's transactions. Thus, as adverse facts available, we have
calculated an average of the highest calculated sale-specific margins
for each of the CONNUMs involved in the theoretical weight sales; that
is, we used margins from sales of the same CONNUMs with actual weight
sales for which we had all necessary information to calculate a margin.
Finally, we found nothing on the record to indicate that the
transactions that we selected were not conducted in a normal manner.
Comment 30: Use of Facts Available for NKK's Theoretical Weight
Sales.
NKK argues that the Department should reverse its decision to
reject the submitted prices for all of its home market sales sold on a
theoretical weight basis and to apply adverse facts available to these
sales. NKK claims that (1) its failure to provide conversion factors
for these sales prior to the preliminary determination was based on a
legitimate misunderstanding of what the Department desired, (2) upon
learning what the Department desired, NKK promptly submitted the
requested conversion factors and (3) the Department fully verified the
calculation of the conversion factors.
NKK first explains that its failure to provide the conversion
factor requested by the Department was based on a legitimate
misunderstanding of what the Department required. NKK asserts that, in
its original questionnaire, the Department asked NKK to specify, for
each and every transaction, whether the quantity sold was based on
actual weight or some other basis, and if more than one weight was
reported, to provide the conversion factor to arrive at a uniform
quantity measure. NKK responded by stating that providing such
conversion factor was either impracticable or impossible, because it
did not weigh the coils sold on a theoretical basis, and therefore did
not have the actual weights for these sales. NKK states that when, in
its supplemental questionnaire, the Department requested that NKK
provide the conversion factor that it ``used'' to arrive at a uniform
quantity measure, NKK assumed that the Department had misunderstood
NKK's initial response, so it repeated its rationale for not providing
a conversion factor. After NKK complained that it was wrongly penalized
in the Preliminary Determination, the Department pointed to KSC's
ability to respond to the same question. NKK states that KSC had
provided not a conversion factor, but a more accurate estimate of the
actual weight, and states that if the Department had clarified earlier
that this was what it wanted, it could have complied earlier.
Finally, NKK asserts that after it had a clearer understanding of
what the Department required, it was able to prepare a conversion
factor (on a basis involving proprietary information) which could be
used to calculate a more accurate estimate of the weight for the
theoretical weight sales. NKK provided this factor one week before
verification and argues that, pursuant to Sec. 351.301(b)(1) of the
Department's regulations, this was within the established time limits.
In addition, NKK argues that the Department was able to verify fully
all submitted information. Therefore, NKK argues, the Department cannot
rely on section 776 of the Act to apply facts available, since none of
the criteria in that provision apply in this case.
Petitioners, on the other hand, argue that, in the Final
Determination, the Department should reject the theoretical-to-actual
weight conversion factor provided by NKK in its February 22, 1999
filing, and should apply adverse facts available to NKK's theoretical
weight transactions. Petitioners assert that the Department asked NKK
to provide a theoretical-to-actual weight conversion factor in the
Department's initial and supplemental section B questionnaires. Thus,
petitioners argue, the Department made two clear requests for a
theoretical-to-actual weight conversion factor, which it needed in
order to calculate CONNUM-specific DIFMERs and costs. According to
petitioners, NKK twice refused to provide the conversion and, by
choosing to provide the conversion factor only after the Department had
applied adverse facts available to NKK's theoretical weight
transactions, demonstrated a clear intent to not comply with the
Department's request. This refusal to comply, in the opinion of
petitioners, warrants the application of adverse facts available
pursuant to section 776 of the Tariff Act (19 U.S.C. Sec. 1677e).
Petitioners argue that the Department should not allow NKK to
selectively choose what information the company will provide the
Department. They characterize NKK's refusal to provide a theoretical-
to-actual weight conversion until adverse facts available had been
applied in the preliminary determination as ``cherry picking'' and
assert that in antidumping investigations the Department, not the
respondent, should decide what information is required to ensure the
integrity of the process. See Ansaldo Componenti, S.p.A. v. United
States, 628 F. Supp. 198, 205 (CIT 1986); see also Olympic Adhesives,
Inc. v. United States, 899 F. 2d 1565, 1572 (Fed. Cir. 1990).
In its rebuttal brief, NKK reiterates that it did not ``refuse'' to
comply; instead it misunderstood the Department's request for a
theoretical weight conversion factor. NKK stresses
[[Page 24363]]
that it maintained that it could not calculate the actual differences
between the theoretical and actual weight of its coils because, unlike
the merchandise of another respondent, NKK's theoretical weight sales
were not, in fact, weighed. See Olympic Adhesives, 899 F. 2d at 1573
(Fed. Cir. 1990) (it is not a refusal to provide requested information
when a respondent answers that such information is not available). NKK
rebuts petitioners' assertion that NKK did not comply with the
Department's request for a theoretical weight conversion factor and,
furthermore, rebuts petitioners claim that NKK did not cooperate to the
best of its ability.
NKK argues that once it understood the Department's request, it
provided the appropriate theoretical weight conversion factor. NKK
argues that because actual weight was not available for its theoretical
weight sales and because it communicated this fact to the Department,
it did not provide the requested data as it believed that this data was
not available. See Olympic Adhesives, 899 F. 2d at 1573. NKK further
argues that the conversion factor does not calculate the actual weight.
NKK admits that it filed its conversion factor after the original and
supplemental questionnaire deadlines but asserts that, ultimately, the
conversion factor was filed with the Department seven days prior to
verification. NKK asserts that the Department's own regulations
establish this as the latest date on which factual information is due.
See 19 C.F.R. Sec. 351.301(b)(1).
NKK in its rebuttal brief, argues that the Department routinely
accepts untimely information when circumstances of a particular case
warrant the need to accept untimely filings. See Bowe-Passat v. United
States, 17 CIT at 337-38. NKK further argues that if certain conditions
are met, the Department cannot legally decline to consider certain
information, even if the information does not meet all of the
Department's requirements. NKK argues that its case meets the necessary
legal criteria and, thus, its theoretical weight conversion factor
should be considered by the Department. See section 782(e) of the Act.
Specifically, NKK argues in its rebuttal brief that ``first, the
conversion factor was submitted before the latest deadline for
submission of factual information; second, the conversion factor can be
and was verified; third, NKK fully explained how the conversion factor
was arrived upon and is therefore a reliable basis on which to reach an
applicable determination; fourth, NKK provided the factor as soon as it
understood the Department's specific request; and fifth, the
application of NKK's conversion factor is easily accomplished in the
Department's programming.'' In summary, NKK argues that there is no
reasonable basis on which the Department can reject its theoretical
weight conversion factor.
Petitioners rebut NKK's argument that NKK acted to the best of its
ability. Petitioners argue that NKK failed to respond to the
Department's specific requests for an actual to theoretical weight
conversion factor. Petitioners argue that the Department should
therefore draw an adverse inference in selecting adverse facts
available for NKK's theoretical weight transactions. See section 776(b)
of the Act (19 U.S.C. Sec. 1677e(b)). Petitioners assert that the
Department, in its final determination, should continue to apply
adverse facts available to NKK's theoretical weight sales because NKK
should not be allowed to benefit through its failure to comply with the
Department's requests. See SAA at 868, 896 (1994).
Department's Position: We agree with petitioners that the
Department should continue to apply adverse facts available for NKK's
home market theoretical weight sales. Section 776(a)(2) of the Act
provides that, if an interested party: (A) withholds information that
has been requested by the Department; (B) fails to provide such
information in a timely manner or in the form or manner requested; (C)
significantly impedes a proceeding under the antidumping statute; or
(D) provides such information but the information cannot be verified,
as provided in section 782(i), the Department shall, subject to
subsection 782(d), use facts otherwise available in reaching the
applicable determination. Further, section 776(b) of the Act provides
that adverse inferences may be used where an interested party has
failed to cooperate by not acting to the best of its ability to comply
with the Department's requests for information. See also SAA at 870.
NKK reported all its U.S. and home market sales on an actual weight
basis, with the exception of less than one percent of home market
sales. Although the Department requested conversion factors for these
transactions, NKK refused to provide conversion factors for these sales
within the deadline established in the questionnaire. Rather, it
submitted these factors on February 22, 1999, almost 2 months after the
deadline for the original questionnaire response and one month after
the deadline for the supplemental questionnaire response. Because the
Department requested these conversion factors in questionnaires with
earlier deadlines, and these data were not submitted in accordance with
those deadlines, the conversion factors submitted on February 22, 1999,
constituted untimely submitted information within the meaning of 19
C.F.R. Sec. 351.301(c)(2)(ii). Because these data were required to be
provided in NKK's questionnaire responses, the more general provision
upon which NKK relies in stating that the factors were timely provided
(i.e., 19 C.F.R. Sec. 351.301(b)(1)) does not apply. Because NKK's
conversion factor data were not timely submitted, the Department
rejected these factors in a letter dated April 12, 1999. The
Department, therefore, has not considered these data or retained them
in the official record of the proceeding. See 19 C.F.R.
Sec. 351.302(d)(1). The Department does not agree with NKK's assertion
that these data were verified. Rather, at verification the Department
specifically informed NKK and its counsel that the Department would not
accept the conversion factor and would specifically instruct NKK to
submit this information on the record if the Department determined that
it was timely. However, any arguments as to the accuracy of these data
are moot because the data in question are no longer part of the record
before the Department.
Because NKK failed to timely provide requested information, in
accordance with section 776 of the Act, the Department has made its
determination with respect to the theoretical weight sales on the basis
of the facts available. Further, the Department finds that NKK, by not
submitting a theoretical weight conversion factor it could have
provided when originally requested until well after the time for
response had passed, failed to cooperate by not acting to the best of
its ability. NKK's claims that it could calculate a conversion factor
in February of 1999, but was unable to derive such a factor when the
questionnaire responses were due, does not withstand scrutiny. Although
NKK argues that it did not understand what the Department wanted when
it originally requested a ``conversion factor'', although this was not
stated at the time, and that it lacked the data necessary to calculate
one, as required by section 782(c)(1) of the Act, it should have
proposed to the Department the sort of conversion factor it ultimately
did calculate, explaining why a more accurate one might not be
practicable. Instead, NKK merely dismissed the Department's repeated
requests. The fact that NKK ultimately did provide such a factor is the
proof that they could have
[[Page 24364]]
done so much earlier. Thus, because NKK failed to timely provide the
requested conversion data, it has ``failed to cooperate by not acting
to the best of its ability to comply with an information request.''
Therefore, in accordance with section 776(b) of the Act, the Department
is authorized, to use an adverse inference in choosing the facts
otherwise available.
The only NKK sales affected by this failure to provide data were
home market sales. Therefore, as adverse facts available we assigned
the highest calculated adjusted price (NV) for any CONNUM to the
relevant transactions.
Comment 31: Use of Facts Available for KSC's U.S. Sales Through
CSI.
KSC asserts that the Department erred both by including in its
margin calculation sales made through its U.S. affiliate California
Steel Industries (``CSI'') and in using adverse facts available in
connection with those sales. Sumitomo Metal Industries, Ltd. (``SMI''),
a non-selected respondent whose margin will be affected by KSC's
margin, also urges that the Department should not use adverse facts
available for KSC's sales to CSI, arguing that the fact that CSI is a
petitioner shows that KSC cannot ``control'' CSI, and is not,
therefore, responsible for CSI's refusal to provide data requested by
the Department.
With respect to the first point, KSC argues that the Department
should have based the margins for its CSI sales on sales made to
unaffiliated companies, in accordance with Sec. 772(e) of the Act (the
``Special Rule for Merchandise With Value Added After Importation'').
With respect to the second point, KSC argues that, if The Department
does calculate a margin based on the CSI sales, it should not treat
CSI's refusal to provide the requested data as a lack of cooperation on
the part of KSC. Therefore, KSC argues, The Department should not apply
adverse facts available to the KSC's CSI sales.
Decision Not To Apply the ``Special Rule''
Respondent contends that the Department's application of adverse
facts available in its Preliminary Determination was unlawful because
the subject merchandise from KSC which is further processed by CSI
qualifies for the simplified reporting provision or ``special rule for
merchandise with value added after importation'' contained in the
statute at 19 U.S.C. Sec. 1677a(e)(1). The purpose of this provision,
according to the SAA, is to give the Department a ``simpler and more
effective method for determining export price'' in situations where the
value added after importation to the United States is likely to exceed
substantially the value of the subject merchandise.'' See SAA at 825.
As explained in the SAA, this level is reached when ``value added in
the United States is estimated to be substantially more than half the
price of the merchandise as sold in the United States.'' See Id.
Respondent states that 19 C.F.R. Sec. 351.402(c)(2) provides that
the Department will ``normally determine that the value added in the
United States by the affiliated person is likely to exceed
substantially the value of the subject merchandise if the [Department]
estimates the value added to be at least 65 percent of the price
charged to the first unaffiliated purchaser for the merchandise as sold
in the United States.'' Respondent states that the use of terms such as
``normally'' and ``estimates'' indicates that the 65 percent test is
not a bright line rule. Respondent cites Tapered Roller Bearings and
Parts Thereof, Finished and Unfinished, From Japan and Tapered Roller
Bearings, Four Inches or Less in Outside Diameter, and Component
Thereof, From Japan,
63 FR 37344 (1998), as evidence that the Department has applied the
special rule without requiring the value added to be more than 65
percent. CSI added substantial value to the subject merchandise it
obtained from KSC, contends the respondent, because the value added by
CSI represents more than half of the price charged to the first
unaffiliated customer buying galvanized steel and is ``on the cusp'' of
being over half the price charged for cold-rolled steel and pipe.
Respondent concludes that the significant value added by CSI, combined
with the provision's purpose of simplifying the Department's
determination, should permit the application of the special rule.
Therefore, KSC urges, the Department should use the weighted average
margin of other sales of identical subject merchandise sold by KSC for
the volume of hot-rolled steel sold to CSI in making its determination.
Use of Adverse Facts Available for the CSI Sales
Respondent's overall conclusion that the Department's application
of adverse facts available as to the CSI sales is unsupported by law or
fact is based on five broad arguments.
First, respondent states that the Department cannot draw an adverse
inference unless it has found that a party did not act to the best of
its ability in responding to the Department's information requests.
Respondent argues that, in determining whether a party acted to the
best of its ability, the Department considers, among other things, the
accuracy and completeness of the information submitted, and whether the
party has hindered the calculation of accurate dumping margins. As a
result of the Uruguay Round Agreements Act (``URAA''), respondent
asserts, the Department cannot apply an adverse inference without first
making factual findings on the record to support any conclusion that a
party failed to act to the best of its ability. See Preamble, 62 FR at
27340. Furthermore, the Court of International Trade decisions in
Borden, Inc. v. United States, 4 F. Supp. 2d 1221 (1998) (``Borden'')
and Ferro Union, Inc. v. United States (``Ferro Union''), Ct. No. 97-
11-01973, Slip Op. 99-27 (March 23, 1999), 1999 CIT LEXIS 24, at *54 ,
hold that the Department must base any finding that a respondent failed
to cooperate on record evidence, not on the mere absence of information
on the record. Therefore, respondent concludes that the Department must
either correct its preliminary decision to apply an adverse inference
to these sales or provide a factual basis for its conclusion that KSC
did not act to the best of its ability.
KSC's second argument is that the administrative record for this
case establishes beyond question that KSC acted to the best of its
ability. See Preamble, 62 FR at 27341 (the Department will make
determinations regarding a respondent's acting to the best of its
ability on a fact-and case-specific basis); see also, NEC Home
Electronics, Ltd. v. United States, 54 F. 3d 736, 742 (Fed. Cir. 1995);
Atlantic Sugar, Ltd. v. United States, 744 F. 2d 1556, 1559 (Fed. Cir.
1984) (The Department's determinations must be based on a complete and
objective evaluation of the actual evidence on record). Respondent
contends that all the evidence in the instant case demonstrates that
KSC acted to the best of its ability, with no implication that KSC was
uncooperative or that KSC impeded the investigation. Specifically, KSC
claims that the record shows that it: (1) made repeated written and
oral requests urging CSI to cooperate in providing the data The
Department had requested, (2) offered to provide CSI with assistance in
furnishing this data to The Department, (3) offered CSI the option of
reporting proprietary information it did not want to reveal to KSC
directly to the Department, and (4) submitted a voluminous amount of
information during the course of the investigation and answered all
[[Page 24365]]
questions posed by the Department at verification, including those
relating to the CSI issue. Thus, KSC concludes that the absence of data
on the CSI sales should be attributed to the non-cooperation of CSI,
but not of KSC.
KSC's third point is that its extensive cooperation prohibits use
of the most adverse facts available, even if the Department should find
that it did not meet the ``best of its ability'' standard, because KSC
``substantially cooperated'' in this investigation. See Roller Chain,
Other Than Bicycle from Japan: Final Results and Partial Recission of
Antidumping Duty Administrative Review, 63 FR 63,674 (1998); Certain
Cut-to-Length Carbon Steel Plate from Sweden, 62 FR 46,947, 46,948
(1997); Final Results of Review of Antidumping Duty Administrative
Review of Certain Pasta from Italy, 61 FR 30326, 30329 (1996) (the
Department's normal practice is to refrain from applying the most
adverse inference possible in calculating a margin when a party has
been cooperative).
Respondent also refers to the previous distinction between
cooperative and uncooperative parties under the Department's pre-URAA
two-tiered Best Information Available (``BIA'') methodology. Under this
methodology, the most adverse BIA was reserved only for parties that
refused to provide requested information, not those parties that were
cooperative and made every effort to obtain and provide information
requested by the Department. Respondent contends that, even under the
pre-URAA law, the Department would have been prohibited from applying
an adverse inference against KSC in the instant case. Respondent states
that the Department's failure to follow its own practice as to KSC in
this case ``constitutes abusive agency action'' and that it is
incomprehensible and unjustifiable for the Department to ignore KSC's
immense efforts to comply with the Department's requests for
information.
KSC's fourth argument is that the Department's application of an
adverse inference based on the ``erroneous presumption'' that, because
they are affiliated KSC has sufficient ``control'' over CSI to compel
that company to provide the requested data disregards the contrary
evidence on record. Thereby, KSC argues, The Department violates both
the antidumping statute and the Constitution. Respondent asserts that
the Department's decision to apply adverse facts available was based on
the erroneous assumption that KSC has operational or legal control over
CSI and, as a result, could have obtained the requested information
from CSI. Respondent does not dispute that KSC and CSI are affiliated
parties, as defined by the statute, and agrees that normally it is
reasonable to presume that closely affiliated parties have access to
each other's documents and employees. What is illegal, KSC contends, is
that the Department has refused to take into consideration the record
evidence rebutting such a presumption in this case. KSC also claims
that the Department's application of the affiliation definition in this
manner raises federal due process concerns.
Respondent points out that 19 U.S.C. Sec. 1677(33) provides that
one party is deemed to ``control'' another party when the first party
is ``legally or operationally in a position to exercise restraint or
direction over the other person.'' Respondent argues that, although it
is reasonable to presume that if parties are related under the statute
they are in the best position to obtain information from each other,
the judicial precedents supporting this proposition do not also support
the Department's application of a non-rebuttable presumption that this
is the case. Thus, KSC argues, the Department may not ignore evidence
on the record that demonstrates that the parties do not have access to
each other's documents or employees. See Koyo Seiko Co. v. United
States, 92 F. 3d 1162 (Fed. Cir. 1996); Helmerich & Payne, Inc. v.
United States (``Helmerich''), 24 F. Supp. 2d 304 (CIT 1998); Usinor
Sacilor v. United States (``Usinor''), 907 F. Supp. 426, 428-29 (CIT
1995); Koyo Seiko Co. v. United States, 905 F. Supp. 1112 (CIT 1995);
Holmes Prods. Corp v. United States, 795 F. Supp. 1205, 1206-07 (CIT
1992).
Respondent argues that, in Helmerich, although the Court upheld the
Department's decision to apply the facts available in that pre-URAA
case in which the respondent twice failed to complete the
questionnaire, it made a point of noting that it would have reached a
different decision under the post-URAA law. In Usinor, respondent
asserts, the Court had held that the Department should not have applied
severely adverse BIA when missing data were beyond the control of the
respondent; on remand, the Department agreed that the respondent could
not realistically have collected the required data from its related
subsidiaries. Respondent notes that, in the Preamble to its ``facts
available'' regulation (19 C.F.R. Sec. 351.308), the Department
acknowledged that it agreed with the substance of an argument that
where a respondent has made a good-faith effort to obtain information
from an affiliate, failure of the affiliate to provide the information
should not give rise to an adverse inference. See 62 FR at 2341. Thus,
the Department stated that it would continue to determine the
application of adverse inferences on a fact- and case-specific basis.
KSC asserts that the federal courts have been vigilant in rejecting
claims that related corporate entities necessarily have access to each
other's data. KSC argues that, in this respect, the federal courts have
looked to other factors such as whether the requested documents were
available during the regular course of business and whether the two
parties operated as a single business unit. See Cooper Industries, Inc.
v. British Aerospace, Inc., 102 F.R.D. 918, 919-20 (S.D.N.Y. 1984);
Camden Iron & Metal, Inc., v. Marubeni Am. Corp., 138 F.R.D 438, 442
(D.N.J. 1991); see also Glaxo, Inc. v. Boehringer Ingelhaim Corp., 40
U.S.P.Q. 2d (BNA) 1848, 1850, 1851 n.4 (D.Conn. 1996) (the mere fact
that documents are in the possession of a joint venturer does not
automatically establish ``control'' over them). Respondent claims that
the evidence on record demonstrates that KSC did not have the ability
to obtain the requested information from CSI and that the Department
learned during verification that, because of the structure and past
practice of the joint venture, it was impossible for KSC to impose its
will upon CSI. The fact that CSI is a petitioner (as well as a
respondent) in this case is, according to KSC, the best evidence that
KSC does not have operational control over CSI.
Respondent argues that any action by a federal agency that is taken
in total disregard of the administrative record raises due process
concerns. See NEC Corp. v. United States, 151 F. 3d 1361, 1370 (Fed.
Cir. 1998) cert. denied, 119 S. Ct. 1029 (1999) (if application of an
excessive dumping margin as a result of an adverse inference deprives
importers of significant property interests, a cognizable due process
claim under the Fifth Amendment of the Constitution will exist); see
also Techsnabexport, Ltd. v. United States, 795 F. Supp. 428, 435-36
(CIT 1992) and cases cited therein.
Respondent asserts that the Supreme Court has established a three-
part test to determine what procedures are required to comport with due
process. This test balances the competing rights and interests at
issue. See Mathews v. Eldridge, 424 U.S. 319, 334 (1976). If a statute
is found to involve an ``irrebuttable presumption,'' the focus of this
balance shifts to whether ``the presumption is not necessarily or
universally true in fact,'' and whether ``the government has available
a
[[Page 24366]]
`reasonable alternative means of making the crucial determination.'''
See Rogers v. United States, 575 F. Supp. 4, 9-10 (D. Mont. 1982);
Vlandis v. Kline, 412 U.S. 441, 452 (1973) Universal Restoration, Inc.
v. United States, 798 F. 2d 1400, 1406 (Fed. Cir. 1986). Respondent
contends that the Department's application of adverse facts available
against KSC in the instant case based on the refusal of an ``adverse
affiliate'' to provide information requested by the Department amounts
to a denial of due process rights by improperly raising an irrebuttable
presumption. Respondent argues that the facts on the record show that
it is not ``universally true'' that a respondent can control the
actions of its affiliate, particularly when the affiliate is a
petitioner in the case. See Steven M. v. Gilhool, 700 F. Supp. 261,
264-65 (E.D.P. 1988) (irrebuttable presumption can only survive if it
is universally true). In this case, respondent argues, the Department
has a reasonable alternative to an irrebuttable presumption available.
The facts on record enable it to determine whether KSC actually does
``control'' CSI, rather than presuming such control exists.
KSC's fifth and final point is that the Department's decision to
use the most adverse facts available contradicts important policy
considerations underlying the antidumping law. One purpose of the
adverse inference provision is to ensure that parties do not obtain a
more favorable result by not cooperating in an agency proceeding. In
this case, however, if the Department applies the adverse inference,
CSI, the uncooperative petitioner, will benefit from refusing to
provide information as a result of increased antidumping duties
assessed on competing imports, whereas KSC, which has been a
cooperative respondent, will be penalized by a significantly increased
margin. Respondent contends that it is arguable that KSC would have
been in a better position if it had refused to cooperate altogether,
given that the highest margin alleged in the petition was lower than
the margin calculated by the Department for KSC in its preliminary
determination.
Finally, respondent claims that CSI, by controlling what
information the Department has available for calculating a margin, has
``usurped the investigatory role'' assigned to the Department by
defining the scope of the record. See Allied-Signal Co. Aerospace v.
United States, 996 F.2d 1185, 1191 (Fed. Cir. 1993). Respondent
concludes that the Department cannot allow any party, including a
petitioner, to benefit from an attempt to control the results of the
administrative process through its own unresponsiveness.
In their rebuttal, petitioners allege that the Department's
application of adverse facts available for KSC's sales through its
affiliate CSI is warranted by the facts and the law, and should not be
modified in the Department's final determination. Petitioners' rebuttal
argument is based on two points. First, they argue, the Department's
decision to apply adverse facts available is appropriate under Sec. 776
of the Act. Petitioners argue that KSC failed to act to the best of its
ability by not responding to Section E of the Department's
questionnaire regarding CSI's further manufactured sales. KSC's claim
that, based on the record, the Department can find only CSI to be
uncooperative, and its claim that the Department's decision to apply
adverse facts available is unlawful because it is based on the
presumption that KSC has operational or legal control over CSI, lack
merit. According to the petitioners, the factual basis underlying the
Department's decision to apply adverse facts available is supported in
the record and provides adequate justification for the decision.
Petitioners state that the Department has determined that it will
consider an affiliated party's non-compliance with the Department's
requests ``as an omission imputable to the respondent'' which merits
the application of adverse facts available. See Silicomanganese From
Brazil, 62 FR 37869, 37873 (1997) (``Silicomanganese From Brazil '')
and Roller Chain, Other Than Bicycle, From Japan, 61 FR 64328, 64329
(1996). Due to KSC's significant ownership interest, CSI is
undisputedly affiliated with KSC. As a result, petitioners argue, KSC
had the burden of obtaining the requested information and providing it
to the Department without regard to any alleged lack of cooperation
from CSI. Therefore, the omission of CSI's further manufactured sales
information is imputed to KSC and subjects KSC to the application of
adverse facts available.
Petitioners cite Silicomanganese From Brazil and Koyo Seiko Co.,
Ltd. v. United States, 92 F. 3d 1166 (Fed. Cir. 1996) as evidence that
the respondent, in order to be excused from submitting requested
information in the possession of the affiliate, bears the burden of
demonstrating that it does not have control over and cannot compel an
affiliated party to submit such information. Petitioners also cite
Tapered Roller Bearings and Parts Thereof, Finished and Unfinished From
the People's Republic of China, 63 FR 63842, 63857 (1998) and
Silicomanganese From Brazil as evidence that the Department will apply
adverse facts available when a respondent fails to meet its burden of
demonstrating that it cannot obtain requested information in the
possession of another party. According to petitioners, KSC failed to
meet its burden to establish in that it acted in the best of its
ability to obtain the requested information from CSI and that it could
not have exerted control over CSI to obtain the information.
Petitioners conclude that, despite CSI's Shareholders' Agreement, which
shows that KSC had the right and the powers to exert such control, KSC
did not attempt to exercise any of these rights and powers.
Petitioners support this conclusion by arguing that KSC failed to
have its representatives on CSI's Board of Directors call a board
meeting to address the lack of cooperation received by KSC from CSI,
that the lack of cooperation was not discussed during a regular
quarterly CSI board meeting, that during verification KSC officials
acknowledged that this issue was not discussed among the joint venture
partners, and more significantly, nothing on the record shows that KSC
made any efforts to enforce its right under the Shareholders'
Agreement. Petitioners argue that KSC should have exerted control over
CSI and states that the fact that CSI is a petitioner in the immediate
investigation does not establish that KSC lacked control over CSI.
Petitioners also argue that KSC has not substantiated on the record its
claims that CSI's officers refused to cooperate in responding to the
Department's requests. The three letters from CSI's CEO placed on the
record by KSC, according to petitioners, do not constitute refusals by
CSI to provide the requested information. Petitioners cite letters
dated October 29, 1998, November 6, 1998 and December 14, 1998 as
evidence for this conclusion. Petitioners point out that KSC's counsel
claimed for the first time during verification that, in response to
CSI's concern regarding the disclosure of highly sensitive information
as evidenced in these letters, KSC's counsel offered to compile a
response maintaining the confidentiality of the CSI's information, but
that the offer was rejected by CSI. Petitioners argue that there is no
evidence of such an offer by KSC counsel in the letters provided for
the record or in KSC's responses to the Department's supplemental
questionnaires. Because KSC failed to substantiate and establish that
it acted to the best of its ability in regard to CSI's further
manufactured sales, petitioner
[[Page 24367]]
conclude that the Department's decision to apply adverse facts
available is justified and the Department should continue to use
adverse facts available in its final determination.
Petitioners' second point is that the Department's choice of facts
available represents a valid exercise of its discretion and is
consistent with the statutory purpose of applying adverse fact
available. Petitioners disagree that KSC's cooperation in other aspects
of the investigation prohibits the use of adverse facts available and
that this remedy contravenes the purpose underlying the use of adverse
inferences. Petitioners cite Sec. 776(b) of the Act which discusses the
information the Department may rely on in selecting adverse facts
available and the discretion afforded to the Department in the
application of adverse facts available. Petitioners contend that the
Department's analysis in employing adverse facts available for KSC's
sales through CSI in the its Preliminary Determination was in complete
accordance with the Department's practice. See Stainless Steel Wire Rod
From Italy, 63 FR 40422, 40428 (1998). Petitioners also cite National
Steel I, 870 F. Supp. at 1136 and Certain Welded Carbon Steel Pipes and
Tubes from Thailand, 62 FR 53808, 53820-53821 (1997) as evidence that,
even assuming that KSC was substantially cooperative, the Department
had broad discretion to select a level of adverse facts available that
appropriately addressed KSC's failure to respond to the Department's
Section E questionnaire for its sales through CSI. In response to KSC's
claims that the remedy violates the purpose of the underlying use of
adverse inferences, petitioner argue that this remedy of applying
adverse facts available will serve to induce respondents to use all
reasonably available means to exercise control over their affiliates in
order to ensure that complete and accurate reporting of data is made to
the Department for the calculation of accurate dumping margins. In
conclusion, petitioner state that the Department, in its final
determination, should adhere to its decision to apply adverse facts
available.
Substantial Value Added
Petitioners contend that KSC's argument that it should not have
been required to report further manufacturing information because CSI
added substantial value to KSC's subject merchandise is devoid of
merit. See Sec. 772(e) of the Act (19 U.S.C. Sec. 1677a(e)); SAA at
825; and 19 C.F.R. Sec. 351.402(c)(2). Petitioners contend that, based
on average purchase prices and reselling prices set forth by KSC in its
November 10, 1998 letter to the Department, CSI's sales of further
manufactured merchandise, which include cold-rolled steel, corrosion-
resistant steel and pipe, do not meet the 65 percent threshold outlined
in the Department's regulations. Petitioners argue that KSC's claim
that the 65 percent test should not be seen as a ``bright-line rule''
must be rejected because the Department has stated that the 65 percent
rule is, in fact, a ``bright-line test.'' See Preamble, 62 FR at 27352.
Even if KSC could satisfy the Department's test, petitioners argue that
the special rule would not excuse KSC's failure to report CSI's further
manufacturing information requested by the Department because the
special rule is intended to relieve administrative burden, not excuse
the reporting of required data. Petitioners contend that, in this case,
the Department's calculations would not have been burdensome given that
CSI's further manufacturing consisted predominantly of one or two
additional processes. Petitioners conclude that, even if the 65 percent
threshold had been met, it is likely that the Department would have
used the actual further manufacturing data rather than one of the
alternatives permitted by the statute. Accordingly, state petitioners,
there is no justification for KSC's failure to respond to the
Department's Section E questionnaire and as a result, the Department's
application of adverse facts available remains appropriate.
Department's Position: We disagree with KSC with respect to the use
of the ``special rule'' and with KSC and Sumitomo with respect to the
Department's decision to use adverse facts available for the CSI sales.
Decision Not To Apply the ``Special Rule''
As KSC has implicitly acknowledged, the extent to which CSI adds
value to KSC merchandise through further processing does not meet the
Department's normal 65 percent standard even for the further
manufactured products with the highest level of value added.
Furthermore, for products further manufactured into cold-rolled steel
and pipe, the value added is less than half of the price charged to
CSI's unaffiliated customer and a small amount of KSC's subject
merchandise is resold by CSI ``as is,'' with no value added at all.
Although the 65 percent benchmark is not an inflexible rule, it
does provide useful guidance as to when it is no longer appropriate to
consider certain sales in determining a producer's margin. The degree
of value added by CSI simply does not reach this threshold, especially
in view of the fact that the CSI sales represent a very significant
portion of KSC's total U.S. sales. It would not be appropriate to
abandon the Department's normal practice in this case for a much vaguer
standard whereby the Department would obtain proxy values for sales
through any affiliate whose value added could be considered
``substantial.'' Thus, the Department properly has not applied the
``special rule'' of section 772(e) of the Act to the CSI sales.
Use of Adverse Facts Available for the CSI Sales
It is undisputed that KSC's sales of subject merchandise through
its affiliate CSI are constructed export price (``CEP'') sales.
Therefore, the statute requires that the U.S. price of these sales for
margin calculation purposes be calculated by using CSI's price to the
first unaffiliated U.S. customer and adjusted, pursuant to section
772(c) and (d) of the Act, to account for certain expenses incurred by
CSI and KSC. These adjustments include, but are not limited to, the
costs associated with further manufacturing performed by CSI prior to
its sale to the unaffiliated customer. In essence, for purposes of the
CEP calculation, the statute treats the exporter and the U.S. affiliate
collectively, rather than independently, regardless of whether the
exporter controls the affiliate. Accordingly, KSC's argument that it
does not ``control'' CSI is misplaced and irrelevant.
Because the statute requires that the Department base its margin
calculations for the CSI sales on record information concerning the CSI
sales themselves, the Department required that KSC and CSI,
collectively, provide the necessary price and cost data for KSC's U.S.
sales through CSI. It is also undisputed that KSC and CSI failed to
provide this necessary information. Because the information possessed
by a U.S. affiliate such as CSI is essential to the dumping
determination, the antidumping law is thwarted if the affiliate refuses
to provide the necessary information.
Section 776(a) of the Act requires that the Department use facts
otherwise available when necessary information is not on the record, or
an interested party withholds requested information, fails to provide
such information in a timely manner, significantly impedes a
proceeding, or provides information that cannot be verified. As the
necessary information with respect to these sales is not on the record,
the Department
[[Page 24368]]
must use the facts otherwise available in calculating the margins for
the CSI sales.
Section 776(b) of the Act authorizes the Department to use an
adverse inference in determining the facts otherwise available whenever
an interested party has failed to cooperate with the Department by not
acting to the best of its ability to comply with requests for
information. KSC and CSI have neither provided the data on CSI's sales,
as requested by the Department, nor demonstrated to the Department's
satisfaction that this is not possible. Therefore, the Department finds
that KSC and CSI have failed to cooperate by not acting to the best of
their ability to comply with the Department's requests for information
with respect to the CSI sales. Therefore, we have used an adverse
inference in selecting the facts available with respect to the CSI
sales.
Allowing a producer and its U.S. affiliate to decline to provide
U.S. cost and sales data on a large portion of their U.S. sales would
create considerable opportunities for such parties to mask future sales
at less than fair value through the U.S. affiliate. The fact that the
affiliate is a petitioner does not allay such concerns. Thus, this fact
does not constitute an exception to the principle that the Department
may make an adverse inference with respect to sales for which data is
not provided unless the foreign exporter and its U.S. affiliate have
acted to the best of their ability to provide such data.
While it is clear that KSC and CSI collectively have not acted to
the best of their ability, we also disagree with KSC's claim that it
alone acted to the best of its ability. At verification, the Department
investigated this claim. See KSC Verification Report at 20-23. After
careful consideration of all of the evidence on record, the Department
finds that KSC did not act to the best of its ability with respect to
the requested CSI data.
CSI is a joint venture between KSC and a large Brazilian mining
operation, Companhia Valle do Rio Doce (``CVRD''). Through their
respective U.S. affiliates, KSC and CVRD each own 50 percent of CSI.
KSC's claim that it acted to the best of its ability with respect to
this issue rests on its assertion that it was powerless to compel CSI
to provide the Department with this data, given that CSI, as a
petitioner in this case, refused to cooperate. Some of the most
important evidence contradicting KSC on this issue, including
information pertaining to the board and the Shareholders' Agreement,
constitutes business proprietary information, and are discussed only in
our proprietary Analysis Memorandum, which is hereby incorporated by
reference. Generally, however, the record shows that, although KSC
could have been much more active in obtaining the cooperation of CSI in
this investigation, it limited its efforts to merely requesting the
required data and otherwise took a ``hands-off'' approach with respect
to CSI's alleged decision not to provide this data. For example, KSC
officials stated that KSC did not instruct its members of the CSI board
to address the issue, did not invoke the Shareholder's Agreement, and
did not discuss this issue with its joint venture partner. This does
not reach the ``best efforts'' threshold embodied in Sec. 776(b).
Furthermore, the fact that KSC has provided a great deal of information
and has substantially cooperated with respect to other issues does not
relieve it of the requirement to act to the best of its ability to
provide the requested CSI information. With respect to the CSI sales,
KSC has provided only minimal volume and value information and has not
acted to the best of its ability to obtain further information. Thus,
as to the missing CSI data, it cannot be said that KSC was fully
cooperative and made every effort to obtain and provide the information
requested by the Department. Therefore, even though full cooperation by
KSC alone would not constrain the Department from using adverse facts
available specifically with respect to the CSI sales, we do not agree
with KSC's argument that it has ``substantially cooperated'' during
this investigation.
As indicated above, the Department has based its decision to use
adverse facts available on its finding that KSC and CSI collectively
did not act to the best of their ability with respect to the CSI data,
not, as KSC claims, on any ``presumption'' that solely because the two
companies are ``affiliated'' within the meaning of the statute, KSC
necessarily has sufficient control to compel CSI to provide this data.
As KSC has noted, the Department makes such decisions on a case-
specific basis, using the totality of the record evidence. See
Preamble, 62 FR at 27341. That is what the Department has done in this
case. The Department provided KSC with extensive opportunities, prior
to and at verification, to explain and document its efforts to obtain
the necessary data, and has considered all of this data in making its
determination. While the Department has considered that the record
supports KSC's claim that it did make some effort to obtain the data
and that CSI's management rebuffed these efforts, the record also shows
that KSC essentially acquiesced in CSI's decision not to provide this
data. Given KSC's relationship with this 50/50 joint venture, as
detailed in the Home Market Sales Verification Report, dated March 26,
1999, this did not constitute making its best efforts to obtain the
data. Because the Department did not rely upon any ``irrebuttable
presumption'' of control arising out of the statutory definition of
affiliation in reaching this determination, KSC's arguments based on
this theory, including its due process argument, have no merit with
respect to this case.
Finally, KSC's claim that use of an adverse inference in this case
will contradict the Department's policy of not rewarding uncooperative
parties is likewise incorrect. As KSC notes, one purpose of an adverse
inference is to ensure that parties do not obtain a more favorable
result by not cooperating. However, KSC misconstrues this to mean that
the Department can or should somehow take into account the effect of a
dumping margin on other business interests of an interested party. We
disagree. In applying an adverse inference, the Department can only
reasonably ensure that the dumping margin determined for the subject
merchandise is not less than the actual margin we would have found had
the parties cooperated. We cannot reasonably predict or weigh the
multitude of effects this might or might not have on the parties
involved. In this case, we can only ensure that KSC and CSI do not
obtain a more favorable dumping margin on subject merchandise. As an
affiliated importer and/or seller of KSC's subject merchandise, CSI
will be affected by any margin assigned to KSC's exports of this
merchandise. Neither KSC nor CSI will be rewarded with more favorable
dumping margins. Any benefit accruing to CSI from its non-cooperation
will flow not from its role as an affiliate-respondent, but from its
role as a U.S. producer of non-subject merchandise. Furthermore, KSC,
as a 50 percent shareholder in CSI, will share in any such benefit. In
addition, we note that it is not the use of the adverse inference which
allows KSC's U.S. affiliate to restrict the scope of data on the
record--it is CSI's decision to withhold that data and KSC's decision
to acquiesce in this posture. Neither KSC nor CSI should be relieved of
the obligation to report data on sales through CSI in this or future
proceedings. Thus, while KSC's business relationships may involve
certain internal conflicts of interest, the use of an adverse inference
in determining the dumping margins on CSI sales does not contradict the
Department's policies.
[[Page 24369]]
For the final determination, the Department has used as adverse
facts available the second highest calculated margin for an individual
CONNUM. Although no party commented on the rate chosen as facts
available in the preliminary determination, we have reexamined our
choice for this final determination. In the preliminary determination,
we used as the facts available margin the highest margin by CONNUM.
However, upon reexamining that decision, we find that the margin chosen
was not sufficiently within the mainstream of KSC's sales in that the
rate was derived from sales of a product that accounted for a very
small portion of KSC's total sales as well as the highest rate by
CONNUM. In selecting the facts available margin for the final
determination, we sought a margin that is sufficiently adverse so as to
effectuate the statutory purposes of the adverse facts available rule
to induce respondents to provide the Department with complete and
accurate information in a timely manner. We also sought a margin that
is indicative of KSC's customary selling practices and is rationally
related to the transactions to which the adverse facts available are
being applied. To that end, we selected a margin for a CONNUM that
involved substantial commercial quantities and thus fell within the
mainstream of KSC's transactions based on quantity. Finally, we found
nothing on the record to indicate that the sales that we selected were
not transacted in a normal manner.
Changes to the Department's SAS Computer Programming
Comment 32: NKK's Clerical Error Allegation.
NKK requests that the Department correct a ministerial error in the
Department's preliminary calculation of NKK's dumping margin. NKK
states that, in accordance with the Department's instructions, it
reported all values in its U.S. and home market databases in the
currency in which these values were incurred. NKK therefore reported
all selling expenses in Japanese yen. NKK states that the Department,
in its margin calculation program, intended to convert reported home
market and U.S. price and expense amounts to U.S. dollars before
determining NKK's sales-specific and weighted-average dumping margin.
However, NKK concludes, the Department failed to convert U.S. direct
and indirect expenses from Japanese yen to U.S. dollars when
calculating the actual dumping margin.
Specifically, NKK asserts that the Department, in calculating
foreign unit price in U.S. dollars (FUPDOL), did not apply the
appropriate exchange rate. NKK states that when the Department
calculates FUPDOL in an exporter price calculation, U.S. direct and
indirect expenses are not deducted from U.S. price in the calculation
of net U.S. price (NETPRIU). Thus, U.S. direct and indirect expenses,
through a commission offset adjustment, are added to normal value when
calculating FUPDOL. However, in calculating NKK's preliminary dumping
margin, the Department did not convert U.S. direct and indirect
expenses prior to the FUPDOL calculation and, as a result, yen expenses
were mistakenly added to a dollar unit value in calculating FUPDOL. NKK
provided suggested computer programming language for use in correcting
this error. Petitioners have not commented on this issue in their
rebuttal brief.
Department's Position: The Department agrees that this was an
error, and has corrected the yen to dollar exchange rate conversion
error in its final determination. Pursuant to Sec. 351.224 of the
Department's regulations, the effective date of this correction will be
30 days after the filing of the alleged clerical error.
Comment 33: Changes to NKK's Preliminary Margin Calculation.
Petitioners assert that the Department should correct three
ministerial errors in the arm's length and model match programs used in
calculating NKK's dumping margin. First, petitioners state that the
Department should add the variable OVERRUNH to the KEEP statement for
home market sales at line 786 of the model match program. Second,
petitioners argue that The Department should revise line 98 (pertaining
to the arm's length test) in the manner indicated in its case brief.
Finally, petitioners argue that the Department should revise line 863
of the model match program in the manner indicated in its case brief.
Petitioners provided suggested computer programming language to
implement these corrections. NKK did not rebut petitioners' allegation
in their rebuttal brief.
Department's Position: The Department agrees with petitioners and
has made the appropriate changes to the arm's length program, model
match program and margin calculation program.
Comment 34: Changes to NSC's Preliminary Margin Calculation
Program.
NSC argues that the Department erred by including the sales to
which it had assigned a facts available margin in its calculations of
the margins for NSC's ``mainstream'' sales. NSC contends that these
sales should have been excluded from the calculation once the facts
available margins were assigned. Petitioners argue that the Department
should reject NSC's argument and follow its established practice of
determining the overall weighted average percent margin across all
CONNUMS by using the value (U.S. price by CONNUM quantity by CONNUM),
not just the quantity. Petitioners argue that unless this value is used
in the calculation, the impact of facts available will be diminished.
Secondly, NSC argues that because the Department matches prime
products to prime products, and because there were no U.S. sales of
non-prime merchandise, sales of non-prime merchandise were effectively
eliminated from the preliminary results margin calculation program.
However, NSC states, the Department erred by combining home market
sales of prime and non-prime merchandise in the same CONNUM to
calculate the percentage of sales above and below the cost of
production. NSC argues that this creates a distorting error in the
determination of whether sales of a particular CONNUM were made below
cost. Thus, NSC argues, the preliminary margin determination is
contrary to the Department's policy of conducting separate cost tests
on prime and non-prime products. See Notice of Final Determination of
Sales at Less than Fair Value: Stainless Steel Plate in Coils
(``SSPC'') from the Republic of Korea, 64 FR 15444, 15455 (March 31,
1999); Notice of Final Results of Antidumping Duty Administrative
Review: Certain Cold-Rolled Carbon Steel Flat Products from the
Netherlands, 61 FR 48465, 48466 (September 13, 1996). Petitioners have
not commented on this argument.
Department's Position: The Department agrees that prime and non-
prime merchandise should not be combined to determine whether sales
fell above or below cost. As noted by NSC, it is the Department's
longstanding policy to conduct separate cost tests for prime and non-
prime materials. Therefore, for the final determination, the Department
has excluded non-prime merchandise from its analysis.
However, the Department agrees with petitioners reasoning as to why
some sales should be used in the calculation of the overall margin and
continues to use the same analysis it did in the preliminary
determination.
Continuation of Suspension of Liquidation
In accordance with section 735(c)(1)(B) of the Act, we are
directing the Customs Service to continue to
[[Page 24370]]
suspend liquidation of all entries of subject merchandise from Japan
that were entered, or withdrawn from warehouse, for consumption on or
after November 21, 1998 (90 days prior to the date of publication of
the Preliminary Determination in the Federal Register) for KSC and
those companies which fall under the ``all-others'' rate. In addition,
we will continue to suspend liquidation of all entries of subject
merchandise from Japan that were entered, or withdrawn from warehouse,
for consumption on or after February 19, 1999 (the date of publication
of the Department's preliminary determination) for NSC and NKK. We
shall refund cash deposits and release bonds for NSC and NKK for the
period between November 21, 1998 and February 19, 1999 (i.e., the
critical circumstances period). The Customs Service shall continue to
require a cash deposit or posting of a bond equal to the estimated
amount by which the normal value exceeds the U.S. price as shown below.
These suspension of liquidation instructions will remain in effect
until further notice. The weighted-average dumping margins are as
follows:
------------------------------------------------------------------------
Margins
Company (percent)
------------------------------------------------------------------------
Nippon Steel Corporation................................... 19.65
NKK Corporation............................................ 17.86
Kawasaki Steel Corporation................................. 67.14
All Others................................................. 29.30
------------------------------------------------------------------------
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (``ITC'') of our determination. Because
our final determination is affirmative, the ITC will, within 45 days,
determine whether these imports are materially injuring, or threatening
material injury to, the U.S. industry. If the ITC determines that
material injury, or threat of material injury does not exist, the
proceeding will be terminated and all securities posted will be
refunded or canceled. If the ITC determines that such injury does
exist, the Department will issue an antidumping duty order directing
Customs officials to assess antidumping duties on all imports of the
subject merchandise entered, or withdrawn from warehouse, for
consumption on or after the effective date of the suspension of
liquidation.
This determination is issued and published in accordance with
sections 735(d) and 777(i)(1) of the Act.
Dated: April 28, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-11286 Filed 5-5-99; 8:45 am]
BILLING CODE 3510-DS-P
