[Federal Register Volume 60, Number 117 (Monday, June 19, 1995)]
[Notices]
[Pages 31981-31992]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14939]
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DEPARTMENT OF COMMERCE
[A-475-814]
Notice of Final Determination of Sales at Less Than Fair Value:
Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line
and Pressure Pipe From Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 19, 1995.
FOR FURTHER INFORMATION CONTACT: Dolores Peck or James Terpstra, Office
of Antidumping Investigations, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-
4929 or 482-3965, respectively.
FINAL DETERMINATION: The Department of Commerce (the Department)
determines that small diameter circular seamless carbon and alloy
steel, standard, line and pressure pipe (seamless pipe) from Italy is
being, or is likely to be, sold in the United States at less than fair
value, as provided in section 735 of the Tariff Act of 1930, as amended
(the ``Act'') (1994). The estimated weighted-average margins are shown
in the ``Suspension of Liquidation'' section of this notice.
Case History
Since our negative preliminary determination on January 19, 1995
(60 FR 5358, January 27, 1995), the following events have occurred:
On February 1, 1995, we initiated a sales below cost investigation
of the respondent, Dalmine, S.p.A. (``Dalmine''). We instructed Dalmine
to respond to the complete cost questionnaire which it had previously
used to only report constructed value data. Dalmine submitted its
response to this questionnaire on March 7. Supplemental cost and sales
responses and revisions were submitted in February, March, and April
1995.
On February 8, 1995, we postponed the final determination until not
later than June 12, 1995 (60 FR 9012, February 16, 1995).
We conducted verifications of Dalmine's sales and cost
questionnaire responses in Italy and the United States in March and
April 1995. Verification reports were issued in May 1995.
On April 27, 1995, Koppel Steel Corporation, an interested party to
this investigation, requested that it be granted co-petitioner status,
which the Department granted.
The petitioner and the respondent submitted case briefs on May 18
and rebuttal briefs on May 24, 1995.
On May 22, and May 30, 1995, respectively, the Department returned
the respondent's case and rebuttal briefs and instructed the respondent
to refile the briefs redacting new information. The respondent did so
on May 25, and June 2, 1995.
Scope of the Investigation
The following scope language reflects certain modifications made
for purposes of the final determination, where appropriate, as
discussed in the ``Scope Issues'' section below.
The scope of this investigation includes seamless pipes produced to
the ASTM A-335, ASTM A-106, ASTM A-53 and API 5L specifications and
meeting the physical parameters described below, regardless of
application. The scope of this investigation also includes all products
used in standard, line, or pressure pipe applications and meeting the
physical parameters below, regardless of specification.
For purposes of this investigation, seamless pipes are seamless
carbon and alloy (other than stainless) steel pipes, of circular cross-
section, not more than 114.3 mm (4.5 inches) in outside diameter,
regardless of wall thickness, manufacturing process (hot-finished or
cold-drawn), end finish (plain end, bevelled end, upset end, threaded,
or threaded and coupled), or surface finish. These pipes are commonly
known as standard pipe, line pipe or pressure pipe, depending upon the
application. They may also be used in structural applications. Pipes
produced in non-standard wall thicknesses are commonly referred to as
tubes.
The seamless pipes subject to these investigations are currently
classifiable under subheadings 7304.10.10.20, 7304.10.50.20,
7304.31.60.50, 7304.39.00.16, 7304.39.00.20,
[[Page 31982]] 7304.39.00.24, 7304.39.00.28, 7304.39.00.32,
7304.51.50.05, 7304.51.50.60, 7304.59.60.00, 7304.59.80.10,
7304.59.80.15, 7304.59.80.20, and 7304.59.80.25 of the Harmonized
Tariff Schedule of the United States (HTSUS).
The following information further defines the scope of this
investigation, which covers pipes meeting the physical parameters
described above:
Specifications, Characteristics and Uses: Seamless pressure pipes
are intended for the conveyance of water, steam, petrochemicals,
chemicals, oil products, natural gas and other liquids and gasses in
industrial piping systems. They may carry these substances at elevated
pressures and temperatures and may be subject to the application of
external heat. Seamless carbon steel pressure pipe meeting the American
Society for Testing and Materials (ASTM) standard A-106 may be used in
temperatures of up to 1000 degrees fahrenheit, at various American
Society of Mechanical Engineers (ASME) code stress levels. Alloy pipes
made to ASTM standard A-335 must be used if temperatures and stress
levels exceed those allowed for A-106 and the ASME codes. Seamless
pressure pipes sold in the United States are commonly produced to the
ASTM A-106 standard.
Seamless standard pipes are most commonly produced to the ASTM A-53
specification and generally are not intended for high temperature
service. They are intended for the low temperature and pressure
conveyance of water, steam, natural gas, air and other liquids and
gasses in plumbing and heating systems, air conditioning units,
automatic sprinkler systems, and other related uses. Standard pipes
(depending on type and code) may carry liquids at elevated temperatures
but must not exceed relevant ASME code requirements.
Seamless line pipes are intended for the conveyance of oil and
natural gas or other fluids in pipe lines. Seamless line pipes are
produced to the API 5L specification.
Seamless pipes are commonly produced and certified to meet ASTM A-
106, ASTM A-53 and API 5L specifications. Such triple certification of
pipes is common because all pipes meeting the stringent A-106
specification necessarily meet the API 5L and ASTM A-53 specifications.
Pipes meeting the API 5L specification necessarily meet the ASTM A-53
specification. However, pipes meeting the A-53 or API 5L specifications
do not necessarily meet the A-106 specification. To avoid maintaining
separate production runs and separate inventories, manufacturers triple
certify the pipes. Since distributors sell the vast majority of this
product, they can thereby maintain a single inventory to service all
customers.
The primary application of ASTM A-106 pressure pipes and triple
certified pipes is in pressure piping systems by refineries,
petrochemical plants and chemical plants. Other applications are in
power generation plants (electrical-fossil fuel or nuclear), and in
some oil field uses (on shore and off shore) such as for separator
lines, gathering lines and metering runs. A minor application of this
product is for use as oil and gas distribution lines for commercial
applications. These applications constitute the majority of the market
for the subject seamless pipes. However, A-106 pipes may be used in
some boiler applications.
The scope of this investigation includes all seamless pipe meeting
the physical parameters described above and produced to one of the
specifications listed above, regardless of application, and whether or
not also certified to a non-covered specification. Standard, line and
pressure applications and the above-listed specifications are defining
characteristics of the scope of this investigation. Therefore, seamless
pipes meeting the physical description above, but not produced to the
A-335, A-106, A-53, or API 5L standards shall be covered if used in a
standard, line or pressure application.
For example, there are certain other ASTM specifications of pipe
which, because of overlapping characteristics, could potentially be
used in A-106 applications. These specifications generally include A-
162, A-192, A-210, A-333, and A-524. When such pipes are used in a
standard, line or pressure pipe application, such products are covered
by the scope of this investigation.
Specifically excluded from this investigation are boiler tubing and
mechanical tubing, if such products are not produced to A-335, A-106,
A-53 or API 5l specifications and are not used in standard, line or
pressure applications. In addition, finished and unfinished OCTG are
excluded from the scope of this investigation, if covered by the scope
of another antidumping duty order from the same country. If not covered
by such an OCTG order, finished and unfinished OCTG are included in
this scope when used in standard, line or pressure applications.
Finally, also excluded from this investigation are redraw hollows for
cold-drawing when used in the production of cold-drawn pipe or tube.
Although the HTSUS subheadings are provided for convenience and
customs purposes, our written description of the scope of this
investigation is dispositive.
Scope Issues
Interested parties in these investigations have raised several
issues related to the scope. We considered these issues in our
preliminary determination and invited additional comments from the
parties. These issues, which are discussed below, are: (A) whether to
continue to include end use as a factor in defining the scope of these
investigations; (B) whether the seamless pipe subject to these
investigations constitutes more than one class or kind of merchandise;
and (C) miscellaneous scope clarification issues and scope exclusion
requests.
A. End Use
We stated in our preliminary determination that we agreed with
petitioner that pipe products identified as potential substitutes used
in the same applications as the four standard, line, and pressure pipe
specifications listed in the scope would fall within the class or kind
of subject merchandise and, therefore, within the scope of any orders
issued in these investigations. However, we acknowledged the
difficulties involved with requiring end-use certifications,
particularly the burdens placed on the Department, the U.S. Customs
Service, and the parties, and stated that we would strive to simplify
any procedures in this regard.
For purposes of these final determinations, we have considered
carefully additional comments submitted by the parties and have
determined that it is appropriate to continue to employ end use to
define the scope of these cases with respect to non-listed
specifications. We find that the generally accepted definition of
standard, line and pressure seamless pipes is based largely on end use,
and that end use is implicit in the description of the subject
merchandise. Thus, end use must be considered a significant defining
characteristic of the subject merchandise. Given our past experience
with substitution after the imposition of antidumping orders on steel
pipe products 1, we agree with petitioner that if products
produced to a non-listed specification (e.g., seamless pipe produced to
A-162, a non-listed specification in the scope) were actually used as
standard, line, or pressure pipe, [[Page 31983]] then such product
would fall within the same class or kind of merchandise subject to
these investigations.
\1\ See Preliminary Affirmative Determination of Scope Inquiry
on Antidumping Duty Orders on Certain Welded Non-Alloy Steel Pipes
from Brazil, the Republic of Korea, Mexico and Venezuela, 59 FR
1929, January 13, 1994.
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Furthermore, we disagree with respondents' general contention that
using end use for the scope of an antidumping case is beyond the
purview of the U.S. antidumping law. The Department has interpreted
scope language in other cases as including an end-use specification.
See Ipsco Inc. v. United States, 715 F.Supp. 1104 (CIT 1989) (Ipsco).
In Ipsco, the Department had clarified the scope of certain orders, in
particular the phrase, ``intended for use in drilling for oil and
gas,'' as covering not only API specification OCTG pipe but, `` `all
other pipe with [certain specified] characteristics used in OCTG
applications * * *'' Ipsco at 1105. In reaching this determination, the
Department also provided an additional description of the covered
merchandise, and initiated an end-use certification procedure.
Regarding implementation of the end use provision of the scope of
these investigations, and any orders which may be issued in these
investigations, we are well aware of the difficulty and burden
associated with such certifications. Therefore, in order to maintain
the effectiveness of any order that may be issued in light of actual
substitution in the future (which the end-use criterion is meant to
achieve), yet administer certification procedures in the least
problematic manner, we have developed an approach which simplifies
these procedures to the greatest extent possible.
First, we will not require end-use certification until such time as
petitioner or other interested parties provide a reasonable basis to
believe or suspect that substitution is occurring.2 Second, we
will require end-use certification only for the product(s) (or
specification(s)) for which evidence is provided that substitution is
occurring. For example, if, based on evidence provided by petitioner,
the Department finds a reasonable basis to believe or suspect that
seamless pipe produced to A-162 specification is being used as pressure
pipe, we will require end-use certifications for imports of A-162
specification. Third, normally we will require only the importer of
record to certify to the end use of the imported merchandise. If it
later proves necessary for adequate implementation, we may also require
producers who export such products to the United States to provide such
certification on invoices accompanying shipments to the United States.
For a complete discussion of interested party comments and the
Department's analysis on this topic, see June 12, 1995, End Use
Decision Memorandum from Deputy Assistant Secretary Barbara Stafford
(DAS) to Assistant Secretary Susan Esserman (AS).
\2\ This approach is consistent with petitioner's request.
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B. Class or Kind
In the course of these investigations, certain respondents have
argued that the scope of the investigations should be divided into two
classes or kinds. Siderca S.A.I.C., the Argentine respondent, has
argued that the scope should be divided according to size: seamless
pipe with an outside diameter of 2 inches or less and pipe with an
outside diameter of greater than 2 inches constitute two classes or
kinds. Mannesmann S.A., the Brazilian respondent, and Mannesmannrohren-
Werke AG, the German respondent, argued that the scope should be
divided based upon material composition: carbon and alloy steel
seamless pipe constitute two classes or kinds.
In our preliminary determinations, we found insufficient evidence
on the record that the merchandise subject to these investigations
constitutes more than one class or kind. We also indicated that there
were a number of areas where clarification and additional comment were
needed. For purposes of the final determination, we considered a
significant amount of additional information submitted by the parties
on this issue, as well as information from other sources. This
information strongly supports a finding of one class or kind of
merchandise. As detailed in the June 12, 1995, Class or Kind Decision
Memorandum from DAS to AS, we analyzed this issue based on the criteria
set forth by the Court of International Trade in Diversified Products
v. United States, 6 CIT 155, 572 F. Supp. 883 (1983). These criteria
are as follows: (1) the general physical characteristics of the
merchandise; (2) expectations of the ultimate purchaser; (3) the
ultimate use of the merchandise; (4) the channels of trade in which the
merchandise moves; and (5) the cost of that merchandise.
In the past, the Department has divided a single class or kind in a
petition into multiple classes or kinds where analysis of the
Diversified Products criteria indicates that the subject merchandise
constitutes more than one class or kind. See, for example, Final
Determination of Sales at Less than Fair Value; Anti-Friction Bearings
(Apart from Tapered Roller Bearings) from Germany, 54 Fed. Reg. 18992,
18998 (May 3, 1989) (``AFBs from Germany''); Pure and Alloy Magnesium
from Canada: Final Affirmative Determination; Rescission of
Investigation and Partial Dismissal of Petition, 57 Fed. Reg. 30939
(July 13, 1992).
1. Physical Characteristics
We find little meaningful difference in physical characteristics
between seamless pipe above and below two inches. Both are covered by
the same technical specifications, which contains detailed
requirements.3 While we recognize that carbon and alloy pipe do
have some important physical differences (primarily the enhanced heat
and pressure tolerances associated with alloy grade steels), it is
difficult to say where carbon steel ends and alloy steel begins. As we
have discussed in our Class or Kind Decision Memorandum of June 12,
1995, carbon steel products themselves contain alloys, and there is a
range of percentages of alloy content present in merchandise made of
carbon steel. We find that alloy grade steels, and pipes made
therefrom, represent the upper end of a single continuum of steel
grades and associated attributes.4
\3\ The relevant ASTM specifications, as well as product
definitions from other independent sources (e.g., American Iron and
Steel Institute (AISI)), describe the sizes for standard, line, and
pressure pipe, as ranging from 1/2 inch to 60 inches (depending on
application). None of these descriptions suggest a break point at
two inches.
\4\ The Department has had numerous cases where steel products
including carbon and alloy grades were considered to be within the
same class or kind. See, e.g., Preliminary Determination of Sales at
Less than Fair Value: Oil Country Tubular Goods from Austria, et
al., 60 Fed. Reg. 6512 (February 2, 1995); Final Determination of
Sales at Less than Fair Value: Certain Alloy and Carbon Hot-Rolled
Bars, Rods, and Semi-Finished Products of Special Bar Quality
Engineered Steel from Brazil, 58 Fed. Reg. 31496 (June 3, 1993);
Final Determination of Sales at Less than Fair Value: Forged Steel
Crankshafts from the United Kingdom, 60 Fed. Reg. 22045 (May 9,
1995).
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In those prior determinations where the Department divided a single
class or kind, the Department emphasized that differences in physical
characteristics also affected the capabilities of the merchandise
(either the mechanical capabilities, as in AFBs from Germany, 54 Fed.
Reg. at 18999, 19002-03, or the chemical capabilities, as in Pure and
Alloy Magnesium from Canada, 57 Fed. Reg. at 30939), which in turn
established the boundaries of the ultimate use and customer
expectations of the products involved.
As the Department said in AFBs from Germany,
[t]he real question is whether the physical differences are so
material as to alter the essential nature of the product, and,
therefore, rise to the level of class or kind distinctions. We
believe that the physical differences between the five classes or
kinds [[Page 31984]] of the subject merchandise are fundamental and
are more than simply minor variations on a theme.
54 Fed. Reg. at 19002. In the present cases, there is insufficient
evidence to conclude that the differences between pipe over 2 inches in
outside diameter and 2 inches or less in outside diameter, rise to the
level of a class or kind distinction.
Furthermore, with regard to Siderca's allegation that a two-inch
breakpoint is widely recognized in the U.S. market for seamless pipe,
the Department has found only one technical source of U.S. market data
for seamless pipe, the Preston Pipe Report. The Preston Pipe Report,
which routinely collects and publishes U.S. market data for this
merchandise, publishes shipment data for the size ranges \1/2\ to 4\1/
2\ inches: it does not recognize a break point at 2 inches.
Accordingly, the Department does not agree with Siderca that ``the U.S.
market'' recognizes 2 inches as a physical boundary line for the
subject merchandise.
In these present cases, therefore, the Department finds that there
is insufficient evidence that any physical differences between pipe
over 2 inches in outside diameter and 2 inches or less in outside
diameter, or between carbon and alloy steel, rise to the level of class
or kind distinctions.
2. Ultimate Use and Purchaser Expectations
We find no evidence that pipe above and below two inches is used
exclusively in any specific applications. Rather, the record indicates
that there are overlapping applications. For example, pipe above and
below two inches may both be used as line and pressure pipe. The
technical definitions for line and pressure pipe provided by ASTM,
AISI, and a variety of other sources do not recognize a distinction
between pipe over and under two inches.
Likewise, despite the fact that alloy grade steels are associated
with enhanced heat and pressure tolerances, there is no evidence that
the carbon or alloy content of the subject merchandise can be
differentiated in the ultimate use or expectations of the ultimate
purchaser of seamless pipe.
3. Channels of Trade
Based on information supplied by the parties, we determine that the
vast majority of the subject merchandise is sold through the same
channel of distribution in the United States and is triple-stenciled in
order to meet the greatest number of applications.
Accordingly, the channels of trade offer no basis for dividing the
subject merchandise into multiple classes or kinds based on either the
size of the outside diameter or on pipe having a carbon or alloy
content.
4. Cost
Based on the evidence on the record, we find that cost differences
between the various products do exist. However, the parties varied
considerably in the factors which they characterized as most
significant in terms of affecting cost. There is no evidence that the
size ranges above and below two inches, and the difference between
carbon and alloy grade steels, form a break point in cost which would
support a finding of separate classes or kinds.
In conclusion, while we recognize that certain differences do exist
between the products in the proposed class or kind of merchandise, we
find that the similarities significantly outweigh any differences.
Therefore, for purposes of the final determination, we will continue to
consider the scope as constituting one class or kind of merchandise.
C. Miscellaneous Scope Clarification Issues and Exclusion Requests
The miscellaneous scope issues include: (1) whether OCTG and
unfinished OCTG are excluded from the scope of these investigations;
(2) whether pipes produced to non-standard wall thicknesses (commonly
referred to as ``tubes'') are covered by the scope; (3) whether certain
merchandise (e.g., boiler tubing, mechanical tubing) produced to a
specification listed in the scope but used in an application excluded
from the scope is covered by the scope; and (4) whether redraw hollows
used for cold drawing are excluded from the scope. For a complete
discussion of interested party comments and the Department's analysis
on these topics, see June 12, 1995, Additional Scope Clarifications
Decision Memorandum from DAS to AS.
Regarding OCTG, petitioner requested that OCTG and unfinished OCTG
be included within the scope of these investigations if used in a
standard, line or pressure pipe application. However, OCTG and
unfinished OCTG, even when used in a standard, line or pressure pipe
application, may come within the scope of certain separate, concurrent
investigations. We intend that merchandise from a particular country
not be classified simultaneously as subject to both an OCTG order and a
seamless pipe order. Thus, to eliminate any confusion, we have revised
the scope language above to exclude finished and unfinished OCTG, if
covered by the scope of another antidumping duty order from the same
country. If not covered by such an OCTG order, finished and unfinished
OCTG are included in this scope when used in a standard, line or
pressure pipe application, and, as with other non-listed
specifications, may be subject to end-use certification if there is
evidence of substitution. Regarding pipe produced in non-standard wall
thicknesses, we determine that these products are clearly within the
parameters of the scope of these investigations. For clarification
purposes, we note that the physical parameters of the scope include all
seamless carbon and alloy steel pipes, of circular cross-section, not
more than 4.5 inches in outside diameter, regardless of wall thickness.
Therefore, the fact that such products may be referred to as tubes by
some parties, and may be multiple-stenciled, does not render them
outside the scope.
Regarding pipe produced to a covered specification but used in a
non-covered application, we determine that these products are within
the scope. We agree with the petitioner that the scope of this
investigation includes all merchandise produced to the covered
specifications and meeting the physical parameters of the scope,
regardless of application. The end-use criteria included in the scope
is only applicable to products which can be substituted in the
applications to which the covered specifications are put i.e. standard,
line, and pressure applications.
It is apparent that at least one party in this case interpreted the
scope incorrectly. Therefore, we have clarified the scope to make it
more explicit that all products made to ASTM A-335, ASTM A-106, ASTM A-
53 and API 5L are covered, regardless of end use.
With respect to redraw hollows for cold drawing, the scope language
excludes such products specifically when used in the production of
cold-drawn pipe or tube. We understand that petitioner included this
exclusion language expressly and intentionally to ensure that hollows
imported into the United States are sold as intermediate products, not
as merchandise to be used in a covered application.
Standing
The Argentine, Brazilian, and German respondents have challenged
the standing of Gulf States Tube to file the petition with respect to
pipe and tube between 2.0 and 4.5 inches in outside diameter, arguing
that Gulf States Tube does not produce these products. [[Page 31985]]
Pursuant to section 732(b)(1) of the Act, an interested party as
defined in section 771(9)(C) of the Act has standing to file a
petition. (See also 19 C.F.R. Sec. 353.12(a).) Section 771(9)(C) of the
Act defines ``interested party,'' inter alia, as a producer of the like
product. For the reasons outlined in the ``Scope Issues'' section
above, we have determined that the subject merchandise constitutes a
single class or kind of merchandise. The International Trade Commission
(ITC) has also preliminarily determined that there is a single like
product consisting of circular seamless carbon and alloy steel
standard, line, and pressure pipe, and tubes not more than 4.5 inches
in outside diameter, and including redraw hollows. (See USITC
Publication 2734, August 1994 at 18.) For purposes of determining
standing, the Department has determined to accept the ITC's definition
of like product, for the reasons set forth in the ITC's preliminary
determination. Because Gulf States is a producer of the like product,
it has standing to file a petition with respect to the class or kind of
merchandise under investigation. Further, as noted in the ``Case
History'' section of this notice, on April 27, 1995, Koppel, a U.S.
producer of the product size range at issue, filed a request for co-
petitioner status, which the Department granted. As a producer of the
like product, Koppel also has standing.
The Argentine respondent argues that Koppel's request was filed too
late to confer legality on the initiation of these proceedings with
regard to the products at issue. Gulf States Tube maintains that the
Department has discretion to permit the amendment of a petition for
purposes of adding co-petitioners who produce the domestic like
product, at such time and upon such circumstances as deemed appropriate
by the Department.
The Court of International Trade (CIT) has upheld in very broad
terms the Department's ability to allow amendments to petitions. For
example, in Citrosuco Paulista, S.A. v. United States, 704 F. Supp.
1075 (Ct. Int'l Trade 1988), the Court sustained the Department's
granting of requests for co-petitioner status filed by six domestic
producers on five different dates during an investigation. The Court
held that the addition of the co-petitioners cured any defect in the
petition, and that allowing the petition to be amended was within
Commerce's discretion:
[S]ince Commerce has statutory discretion to allow amendment of a
dumping petition at any time, and since Commerce may self-initiate a
dumping petition, any defect in a petition filed by [a domestic
party is] cured when domestic producers of the like product [are]
added as co-petitioners and Commerce [is] not required to start a
new investigation.
Citrosuco, 704 F. Supp. at 1079 (emphasis added). The Court reasoned
that if Commerce were to have dismissed the petition for lack of
standing, and to have required the co-petitioners to refile at a later
date, it ``would have elevated form over substance and fruitlessly
delayed the antidumping investigation * * * when Congress clearly
intended these cases to proceed expeditiously.'' Id. at 1083-84.
Koppel has been an interested party and a participant in these
investigations from the outset. The timing of Koppel's request for co-
petitioner status and the fact that it made its request in response to
Siderca's challenge to Gulf States Tube's standing does not render its
request invalid. See Final Affirmative Countervailing Duty
Determination; Live Swine and Fresh, Chilled, and Frozen Pork Products
from Canada, 50 Fed. Reg. 25097 (June 17, 1985). The Department has
rejected a request to add a co-petitioner based on the untimeliness of
the request only where the Department determined that there was not
adequate time for opposing parties to submit comments and for the
Department to consider the relevant arguments. See Final Affirmative
Countervailing Duty Determination: Certain Stainless Steel Hollow
Products from Sweden, 52 Fed. Reg. 5794, 5795, 5803 (February 26,
1987). In this investigation, the respondents have had an opportunity
to comment on Koppel's request for co-petitioner status, and the
Argentine respondent has done so in its case brief. Therefore, we have
determined that, because respondents would not be prejudiced or unduly
burdened, amendment of the petition to add Koppel as co-petitioner is
appropriate.
Period of Investigation
The period of investigation (``POI'') is January 1, 1994, through
June 30, 1994.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and the
Department's regulations refer to these provisions as they existed on
December 31, 1994.
Such or Similar Comparisons
We have determined that all the products covered by this
investigation constitute a single category of such or similar
merchandise. We made fair value comparisons on this basis. In
accordance with the Department's standard methodology, we first
compared identical merchandise. Referencing Appendix V of our
questionnaire, Dalmine states that the physical characteristics for the
majority of the merchandise exported to the United States are identical
to the physical characteristics of merchandise sold in the home market.
We verified this claim. Where there were no sales of identical
merchandise in the home market to compare to U.S. sales, we based
foreign market value (``FMV'') on constructed value (``CV'') because
the difference in merchandise adjustment (``difmer'') for any similar
product comparison exceeded 20 percent. See Appendix V to the
antidumping questionnaire, on file in Room B-099 of the main building
of the Department.
Fair Value Comparisons
To determine whether sales of certain seamless pipe from Italy to
the United States were made at less than fair value, we compared the
United States price (USP) to the FMV, as specified in the ``United
States Price'' and ``Price-to-Price Comparisons'' sections of this
notice.
United States Price
We calculated USP according to the methodology described in our
preliminary determination, with the following exceptions:
We corrected certain clerical errors found at verification,
including: (a) the reduction of the marine insurance expense for one
sale (see U.S. verification report); b) an increase in the U.S.
interest rate used to calculate imputed credit expenses (see U.S.
verification report); and c) an increase in the percentage used to
calculate an offset for home market commissions (See Comment 5 below).
We also limited VAT adjustments to those sales on which VAT was paid on
the comparison home market sale.
Cost of Production
Based on the petitioner's allegations, the Department found
reasonable grounds to believe or suspect that sales in the home market
were made at prices below the cost of producing the merchandise. As a
result, the Department initiated an investigation to determine whether
Dalmine made home market sales during the POI at prices below their
cost of production (COP) within the meaning of section 773(b) of the
Act. See memorandum from the Team to Barbara Stafford dated February 1,
1995.
A. Calculation of COP
We calculated the COP based on the sum of the respondent's cost of
materials, fabrication, general expenses, and home market packing in
accordance [[Page 31986]] with 19 CFR 353.51(c). We relied on the
submitted COP data, except in the following instances where the costs
were not appropriately quantified or valued:
1. We recalculated the weighted average costs for two control
numbers (``CONNUM''). CONNUM's are used to identify a group of products
considered to be identical. See Comment 18 below.
2. We adjusted depreciation expenses to reflect mill- specific
costs. See Comment 13 below.
3. We used the revised total indirect costs submitted at
verification to recalculate the indirect cost allocation rate.
4. We disallowed the portion of the reported variance which
resulted from reversals of prior period accounting entries. See Comment
17 below.
5. We used Instituto per la Ricostruzione Industriale S.p.A.'s
(``IRI'') consolidated financing costs. IRI is the parent of Dalmine's
parent company. See Comment 14 and 15 below.
B. Test of Home Market Sales Prices
After calculating COP, we tested whether, as required by section
773(b) of the Act, the respondent's home market sales of subject
merchandise were made at prices below COP, over an extended period of
time in substantial quantities, and whether such sales were made at
prices which permit recovery of all costs within a reasonable period of
time in the normal course of trade. On a product-specific basis, we
compared the COP (net of selling expenses) to the reported home market
prices, less any applicable movement charges, rebates, and direct and
indirect selling expenses. To satisfy the requirement of section
773(b)(1) of the Act that below-cost sales be disregarded only if made
in substantial quantities, we applied the following methodology. If
over 90 percent of the respondent's sales of a given product were at
prices equal to or greater than the COP, we did not disregard any
below-cost sales of that product because we determined that the below-
cost sales were not made in ``substantial quantities.'' If between ten
and 90 percent of the respondent's sales of a given product were at
prices equal to or greater than the COP, we discarded only the below-
cost sales, provided sales of that product were also found to be made
over an extended period of time. Where we found that more than 90
percent of the respondent's sales of a product were at prices below the
COP, and the sales were made over an extended period of time, we
disregarded all sales of that product, and calculated FMV based on CV,
in accordance with section 773(b) of the Act.
In accordance with section 773(b)(1) of the Act, in order to
determine whether below-cost sales had been made over an extended
period of time, we compared the number of months in which below-cost
sales occurred for each product to the number of months in the POI in
which that product was sold. If a product was sold in three or more
months of the POI, we do not exclude below-cost sales unless there were
below-cost sales in at least three months during the POI. When we found
that sales of a product only occurred in one or two months, the number
of months in which the sales occurred constituted the extended period
of time, i.e., where sales of a product were made in only two months,
the extended period of time was two months; where sales of a product
were made in only one month, the extended period of time was one month.
See Final Determination of Sales at Less Than Fair Value: Certain
Carbon Steel Butt-Weld Pipe Fittings from the United Kingdom, 60 FR
10558, 10560 (February 27, 1995).
C. Results of COP Test
We found that for certain products more than 90 percent of the
respondent's home market sales were sold at below COP prices over an
extended period of time. Because Dalmine provided no indication that
the disregarded sales were at prices that would permit recovery of all
costs within a reasonable period of time in the normal course of trade,
for all U.S. sales left without a match to home market sales as a
result of our application of the COP test, we based FMV on CV, in
accordance with section 773(b) of the Act.
D. Calculation of CV
In accordance with section 773(e)(1) of the Act, we calculated CV
based on the sum of the respondent's cost of materials, fabrication,
general expenses and U.S. packing costs as reported in the U.S. sales
database. In accordance with section 773(e)(1)(B) (i) and (ii) of the
Act, we included: (1) for general expenses, the greater of the
respondent's reported general expenses, adjusted as detailed in the
``Calculation of COP'' section above, or the statutory minimum of ten
percent of the cost of manufacture; and (2) for profit, the statutory
minimum of eight percent of the sum of COM and general expenses because
actual profit on home market sales for the respondent was less than
eight percent. We recalculated the respondent's CV based on the
methodology described in the calculation of COP above.
Price-to-Price Comparisons
We calculated FMV according to the methodology described in our
preliminary determination with the following exceptions:
1. We excluded from our analysis reported home market sales that
were sold for shipment to third countries. See Comment 5 below.
2. We revised the imputed credit calculation for transactions
without reported payment dates, using the earliest verified payment
date from the preselected sales in our verification report. See Comment
10 below.
3. We limited VAT adjustments to those sales on which VAT was paid.
4. We decreased the interest rate used to calculate imputed credit
based on verified data. See home market verification report.
Price-to-CV Comparisons
Where we made CV to purchase price comparisons, we deducted from CV
the weighted-average home market direct selling expenses and added the
U.S. product-specific direct selling expenses. We adjusted for
differences in commissions in accordance with 19 CFR 353.56(a)(2).
Because commissions were paid on some, but not all home market sales,
we deducted from CV both (1) indirect selling expenses attributable to
those sales on which commissions were not paid; and (2) weighted
average commissions. The total deduction was capped by the amount of
indirect expenses paid on the U.S. sales in accordance with 19 CFR
353.56(b)(1) (1994).
Currency Conversion
We made currency conversions based on the official exchange rates
in effect on the dates of the U.S. sales as certified by the Federal
Reserve Bank of New York, pursuant to 19 CFR 353.60.
Verification
As provided in section 776(b) of the Act, we verified information
provided by Dalmine by using standard verification procedures,
including the examination of relevant sales and financial records, and
selection of original source documentation containing relevant
information.
Interested Party Comments
Sales Issues
Comment 1
The petitioner contends that a margin based on the best information
available (BIA) should be assigned to each of the
[[Page 31987]] unreported sales of subject merchandise discovered at
verification; stating that there is no evidence on the record that
Dalmine made a request to have these sales excluded. Additionally, the
petitioner asserts that the respondent's unilateral exclusion of
certain pipe sales without notice to or permission from the Department
was a deliberate and material omission which affected the Department's
decision to excuse the respondent from reporting certain categories of
sales. Had the Department known about the totality of the exclusion
being requested, it would not have excused the respondent from
reporting these sales.
The respondent argues that its non-reported sales fall into the
category of merchandise produced to a subject specification, but which
are used in a non-subject application. Thus, these sales are outside
the scope and therefore need not be reported. Since these unreported
sales involved non-subject merchandise, no exclusion request was
necessary. The respondent contends it only requested exclusions for
products produced to subject specifications and used in subject
applications, in accordance with the Department's published scope
language.
DOC Position
We agree in part with the petitioner. With respect to certain
unreported sales of merchandise which was the subject of the
respondent's exclusion request, we agree that BIA is appropriate. In
the early stages of this investigation, the respondent made several
requests to be excused from reporting particular categories of U.S.
sales which were clearly covered by the scope of this investigation.
The respondent based this exclusion request on the claim that these
sales represented a certain percentage of total U.S. sales. Based on
this representation, we granted the request but indicated that the
claim would be subject to verification. At verification we found
additional unreported sales of the same merchandise that was the
subject of the respondent's exclusion request. These additional
unreported sales constitute a significant additional quantity than was
represented in the exclusion request. Accordingly, we have assigned a
margin based on BIA to the U.S. sales involved in the exclusion
request, as well as the additional unreported sales of the same
merchandise.
With regard to the other unreported sales discovered at
verification, we agree that the merchandise is within the scope of this
investigation. However, we have decided that the use of adverse BIA for
these unreported sales is unwarranted. As discussed above (see the
Miscellaneous Scope Clarification Issues and Exclusion Requests section
of this notice) the scope language, as published in the notice of
initiation and the preliminary determination, was unclear as to whether
the products in question are subject merchandise. The respondent did
not report these sales based on its reading of the scope of the
initiation. Since the scope language in the initiation is ambiguous
(and hence has been clarified in the final determination), it is not
appropriate to penalize the respondent.
Comment 2
The petitioner urges the Department to apply a BIA margin to one
unreported U.S. sale of subject merchandise discovered during
verification. According to the petitioner, the Department should view
Dalmine's failure to report this sale against the background of the
respondent's failure to report other sales of subject merchandise, and
apply an adverse BIA margin.
The respondent acknowledges that it inadvertently failed to report
this sale. According to the respondent, the order for this unreported
sale appeared to be filled when it reported its U.S. sales data.
However, two months later, the respondent made an additional shipment
pursuant to this order, which was mistakenly not loaded with the first
two parts of the order. The respondent claims it did not attempt to
identify subsequent shipments pursuant to this order, since it
considered this order filled at the time it prepared the sales listing.
Only in the course of preparing for verification did the additional
invoice amount come to the company's attention.
DOC Position
We agree with the petitioner, in part. The respondent made several
shipments of subject merchandise pursuant to a customer's order. Each
of the shipments were separately invoiced. Two of the invoices were
reported in the respondent's sales listing. However, the respondent
failed to report one invoice for a small amount of subject merchandise
sold pursuant to this order. The facts do not support applying an
adverse BIA margin to this sale. Instead, as BIA, we applied the
average of all positive margins calculated for the remaining U.S.
sales.
Comment 3
The petitioner claims the respondent misreported home market
freight charges because it reported a calculated amount based on
certain assumptions rather than an actual amount. Therefore, the
petitioner urges the Department to use the lowest freight expense in
the home market response as the freight expense for all sales for its
price to price comparisons. For the Department's price to cost
comparisons, the Department should consider the highest freight charge
for any home market sale to be the freight charge for all home market
sales.
In reply, the respondent argues that it would have been
extraordinarily burdensome, if not impossible, to match specific
freight invoices to specific shipments because freight invoices are not
computerized. At verification, the respondent demonstrated it was
impractical to link thousands of freight invoices to the specific
shipments to which the invoices related. Therefore, the respondent
calculated the reported freight charges from published tariff rates by
assuming all shipments were part of a full truck load that was
delivered to more than one location. The respondent claims that the
Department verified that its freight estimates are reasonable and any
differences between estimated amounts and actual freight charges are
minor.
DOC Position
We agree with the respondent. At verification, we noted that, while
Dalmine maintained computerized databases regarding all sales and cost
information, it did not maintain invoice-specific expense data in its
computerized sales database. At verification the invoice-specific
actual expenses, calculated to check the information in the sales
response, had to be calculated manually and there was some difficulty
in obtaining source documentation.
At verification, we examined the respondent's methodology for
calculating estimated freight expenses. We compared actual freight
expenses with the reported estimated freight expenses, and noted only
minor discrepancies between these two figures. Therefore, the use of
BIA for this adjustment is not warranted.
Comment 4
The petitioner urges the Department to disallow the home market
credit expense adjustment in its dumping margin calculation because the
respondent overstated substantially credit costs by reporting March 6,
1995, as the payment for all sales unpaid as of November 1994. The
petitioner also claims the home market credit expense adjustment should
be disallowed because verified credit differed from the actual credit
for six of the eight [[Page 31988]] preselected sales. Further, the
petitioner asserts that the respondent failed to take into account
certain outstanding short-term loan balances in its calculation of the
interest rate used to compute credit costs. Finally, the petitioner
cites page 54 of the Department's Italian verification report where it
claims the Department notes that the payment dates reported by Dalmine
were either incorrect or not available.
The respondent admits that it did not update payment data in its
home market sales listing after the submission of December 19, 1994
(which reported all payments as of November 25, 1994). Nevertheless,
the respondent acknowledges that, for purposes of calculating imputed
credit costs in its March 6, 1995, filing, it assumed incorrectly that
all sales unpaid as of November 1994 remained unpaid as of March 6,
1995. As a result, the imputed credit calculation was wrong for sales
paid between November 25, 1994, and March 6, 1995. The respondent urges
the Department to calculate the imputed credit cost adjustment for all
sales for which no home market payment date was reported using November
1, 1994, as the date of payment, since this is a more conservative
approach than that employed in the Preliminary Determination.
DOC Position
We disagree with both the petitioner and the respondent. During the
Italian verification, we were able to verify the payment dates for
preselected and surprise home market sales. The petitioner's reference
to page 54 of the Italian sales verification report in support of its
statement that payment dates were not available for sales not paid
after November 23, 1994, is incorrect. The Italian sales verification
report in its entire discussion of payment dates and credit expenses
makes no statement regarding the unavailability of payment dates. We
used the earliest verified payment date, November 18, 1994, as the
payment date in the credit expense calculation for sales without
reported payment dates which were shipped before November 18, 1994. We
assumed no credit expenses were incurred for sales without reported
payment dates which were shipped after November 18, 1994.
Comment 5
The petitioner argues that the respondent incorrectly based its
commission offset on U.S. indirect selling expenses taken from
Dalmine's U.S. subsidiary's (TAD USA's) 1993 SG&A expenses. The
petitioner maintains that the Department must use the verified 1994
SG&A expenses to the extent that it offsets home market commissions.
According to the respondent, it acted reasonably in basing the
indirect selling expenses in its questionnaire response on 1993 SG&A
expense data, given that 1994 data was unavailable at the time the
response was being prepared. The respondent concedes that the 1994 data
obtained at verification would be more useful to the Department than
the 1993 data.
DOC Position
It is the Department's practice to use the most recent verified
data for indirect selling expenses in our margin calculations.
Accordingly, we used the verified 1994 SG&A figures in our final
determination calculations.
Comment 6
The petitioner claims that Dalmine incorrectly reported average
rather than actual foreign inland freight on U.S. sales. The petitioner
also claims that the respondent could have reported actual foreign
inland freight charges because its records are computerized. Therefore,
the petitioner urges the Department to assign the highest foreign
inland freight charge observed at verification to all U.S. sales.
In reply, the respondent claims the difference between the highest
foreign inland freight charge used in its calculation of average
freight and the average foreign inland freight reported for all U.S.
sales is immaterial. Moreover, the respondent maintains that its inland
and ocean freight documents are not computerized.
DOC Position
We agree with the respondent. There is no evidence that the
respondent's automated system allowed it to link individual sales with
the freight charges incurred for those sales. At verification, we noted
the actual per unit foreign inland freight charges for the U.S.
preselected sales did not differ materially from the average charge
reported in the sales listing.
Comment 7
In its case brief, the respondent requests that the Department
clarify which of its customers are related within the meaning of the
U.S. antidumping duty law.
In its rebuttal brief, the petitioner claims that there is no need
to make this distinction for the purposes of the final determination.
Should the Department address such an issue, the petitioner requests
that it do so in a manner consistent with any findings made in the
Antidumping Duty Investigation of Oil Country Tubular Goods from Italy
(A-475-816).
DOC Position
We agree with the petitioner that such a finding is unnecessary.
The respondent identified all related parties in its questionnaire
response. We verified the accuracy of that response (see page 6 of our
home market verification report). No further determination is
necessary.
Comment 8
The respondent argues that tubes and pipes are distinct products,
and urges the Department to clarify that the scope of this proceeding
is limited to pipes. In its case brief, the respondent included an
affidavit from a steel pipe and tube expert in which the expert
explains that hollow steel products known as ``pipe'' have specific
technical and commercial characteristics distinct from those hollow
steel products commonly known as ``tubes.'' According to this expert,
the pipe producing and consuming industries consider pipe to be a
product with any combination of outside diameter (``OD'') and wall
thickness set forth in the American Society for Testing Materials
(``ASTM'') standard B36.10. This expert reports that hollow steel
products that do not correspond to the OD and wall specifications set
forth in this standard are not pipes. The respondent's expert also
cites numerous reasons why products produced to non-pipe sizes are
normally not used in subject pipe applications. Finally, the respondent
notes that according to the American Iron & Steel Institute, tubing, as
distinguished from pipe, is normally produced to outside or inside
diameter dimensions and to a great variety of diameters and wall
thicknesses, and to chemical compositions and mechanical properties not
commonly available in pipe. Therefore, the respondent requests that the
Department clarify that products produced to non-pipe dimensions are
not subject to this investigation.
The petitioner argues that the petition and the published scope
expressly state that subject seamless pipe includes all outside
diameters not exceeding 4.5 inches regardless of wall thickness. The
petitioner contends that the specifications covered by the scope of
this investigation allow products to be made to non-standard dimensions
and notes that neither the petition, nor the published scope,
distinguishes between pipes and tubes. In addition, the petitioner
states that the ITC found a single like product containing both pipes
and tubes using an analysis [[Page 31989]] similar to that employed by
the Department. Finally, the petitioner argues that respondent's own
sales invoices and internal records refer to products made to non-
standard dimensions as pipes.
DOC Position
We agree with the petitioner. See Scope clarification discussion in
the body of this notice above.
Comment 9
The petitioner maintains that pipe and tube subject to this
investigation constitutes a single class or kind of merchandise. The
respondent did not comment on the class or kind issue in its case or
rebuttal briefs.
DOC Position
We agree with the petitioner. See Class or Kind discussion in the
body of this notice above.
Comment 10
The petitioner asserts that the respondent's home market sales data
contains a multitude of errors that render it unsuitable for
calculating an accurate FMV. Combined with substantial unreported U.S.
sales and misreported costs, the petitioner considers it appropriate
for the Department to base the final determination on BIA (petitioner
cites Final Determination of Sales at Less Than Fair Value: Circular
Welded Non-Alloy Steel Pipe from Brazil, 57 FR 42940 (September 17,
1992)).
The respondent claims that the discrepancies mentioned by the
petitioner are immaterial and the use of BIA is unwarranted.
DOC Position
We agree with the respondent that the use of total BIA is
unwarranted. Based on the facts on the record, we believe the errors
discovered at verification are minor in nature, and resulted from
oversight or mathematical rounding. In addition, the lack of clarity in
the scope, as published in the notice of initiation and the preliminary
determination, may have resulted in respondent misinterpretation. The
possibility that some of the unreported sales discovered at
verification were not reported because the respondent misinterpreted
the scope cannot be overlooked in our decision to accept or reject the
home market sales response.
However, we made certain adjustments to the home market sales
listing based on our findings at verification. Specifically, we deleted
sales of small quantities of subject merchandise which were unlikely to
be shipped and sales which the respondent believed would be exported to
a country other than the United States. See the June 12, 1995
concurrence memorandum to Barbara Stafford from the Team for a complete
discussion of this issue.
Cost Issues
Comment 11
The petitioner maintains that Dalmine understated its depreciation
expense by excluding improperly the costs associated with 1993 fixed
asset write-downs. Such costs, according to the petitioner, should be
amortized over a number of years, including the POI. The petitioner
argues that the Department should adjust the COP/CV figures by
including a portion of the 1993 fixed asset adjustment.
The respondent claims that the 1993 adjustment referred to by the
petitioner is not related to fixed assets, but is the adjustment to
Dalmine's investment in its subsidiaries. The amount of the adjustment
represents the operating losses of those subsidiaries. The respondent
argues that, even if the adjustment had involved the company's fixed
assets or inventory, it still should not be included in COP/CV as none
of the subject merchandise sold during the POI was produced in 1993.
DOC Position
We agree with the respondent. The write-downs referred to by the
petitioner are identified in Dalmine's 1993 annual report as write-
downs due to the operating results of subsidiaries, associated
companies and to an adjustment of the shareholder's equity of two
subsidiaries. Accordingly, these write-downs are not related to the
respondent's production activities or the subject merchandise and,
therefore, we did not adjust the reported COP/CV figures.
Comment 12
The petitioner claims that Dalmine understated its depreciation
expense by excluding improperly depreciation of its idle equipment.
Although Italian generally accepted accounting principles (GAAP) may
permit this practice, the petitioner argues that the Department should
not allow the respondent to exclude depreciation of idle assets since
this treatment creates distortions. The petitioner further states that
the Department's long-standing practice is to include depreciation on
idle assets in calculating COP and CV because such assets represent a
cost to the company. To support this statement, the petitioner cites
Antifriction Bearings and Parts Thereof from France, Germany, Italy,
Japan, Romania, Singapore, Sweden, Thailand and the United Kingdom, 58
FR 39729, 37756 (1993) (Antifriction Bearings). The petitioner asserts
that the Department should write off the remaining book value of the
idle assets and allocate the expense to the POI, because the petitioner
is unable to determine their remaining useful lives.
The respondent argues that it properly excluded depreciation
expense relating to its assets because the facility is permanently
closed and such accounting treatment is in accordance with Italian GAAP
(Iron Construction Castings From India, 51 FR 9486, 1988). If the
Department were to impute depreciation expense for the assets in the
closed facility, the respondent argues we should allocate the imputed
depreciation over 16 years, the average life of the fixed assets,
rather than expensing the remaining book value of the idle assets
during the POI.
DOC Position
The fixed assets in question relate to one of the respondent's
facilities which is no longer in operation. The land and building
housing these fixed assets have been sold and the company is currently
attempting to sell the equipment. Italian GAAP requires the recognition
of a loss on discontinued operations in the income statement, but the
appropriate period of recognition is not defined. The respondent, in
its normal books and records, has yet to recognize a gain or loss from
the remaining assets of the discontinued operation.
The assets in question relate clearly to discontinued operations
from a prior period and are no longer productive assets; they are
merely awaiting sale. Accordingly, we do not consider the respondent's
normal accounting treatment of these assets to be unreasonable. The
Antifriction Bearings case cited by the petitioner is not controlling
because it involved operations which were temporarily idle, while
Dalmine's facility is permanently closed.
Additionally, had we considered the respondent's accounting
treatment to be unreasonable and treated the discontinued operations in
accordance with U.S. GAAP, we would consider the loss to be related to
the year in which the decision was made to discontinue the operations,
which was prior to the POI. Upon disposal of these assets, the gain or
loss on the sale will be included on the respondent's income statement
and we will include the gain or loss in COP/CV, if an order is issued
and an administrative review conducted. [[Page 31990]]
Comment 13
The petitioner argues that Dalmine improperly allocated
depreciation expense using internal management reports instead of the
mill-specific fixed asset ledgers which are kept in the normal course
of business. The management reports, according to the petitioner, are
used for allocating plant-wide depreciation expense to specific mills,
but do not properly take into account the actual plant and equipment
used in manufacturing. Instead, the petitioner claims, the submitted
allocation method shifted costs from cost centers producing the subject
merchandise to cost centers producing non-subject merchandise. The
petitioner urges the Department to apply BIA because an analysis they
performed suggests that the respondent applied an unusually slow rate
of depreciation.
The respondent claims that it did not understate reported
depreciation costs, as the verification report suggested, and argues
that it may, in fact, have overstated its reported depreciation costs.
Dalmine asserts that the internal management reports used to calculate
depreciation for the submission segregate separately depreciation by
mill and are not used for company-wide allocations. It also maintains
that the depreciation expense for equipment used to produce the subject
merchandise, as reported in the company's fixed asset ledgers, is
substantially less than the depreciation expense which was reported in
the submitted COP/CV data.
DOC Position
We agree with the petitioner, in part. The respondent reported its
depreciation expense consistent with the way its cost accounting system
allocates it to specific mills in the ordinary course of business.
However, we believe that the use of its normal cost accounting
methodology may not be a reasonable and accurate methodology as it does
not properly take into account the actual plant and equipment used in
manufacturing the subject merchandise. We consider the mill-specific
fixed asset ledgers to be the most accurate basis for allocating
depreciation expense to specific products. Therefore, we used the mill-
specific depreciation expense.
We note that the petitioner's analysis regarding the unusually slow
depreciation rate is flawed because it did not properly consider the
cost of some fixed assets, such as land, which are not depreciated, and
the cost of other fixed assets, which have long useful lives.
Comment 14
The petitioner argues that the Department should reject Dalmine's
reported financing costs because Dalmine failed to disclose the fact
that its financial results are consolidated with the financial results
of its parent, ILVA S.p.A., in liq. (ILVA). These financial results
are, in turn, consolidated with the financial results of ILVA's parent,
IRI. The petitioner asserts that the Department calculates interest
expense on a consolidated basis, unless the financial structure of the
parent and the operating subsidiary are clearly not integrated, or
there are no reliable audited consolidated financial statements.
According to the petitioner, neither of these exceptions are applicable
in this case.
The petitioner also contends that the Department should reject the
respondent's argument that Dalmine's 1994 interest costs should be used
instead of IRI's 1993 interest costs because the Dalmine-based figures
are more closely correlated to the POI. The petitioner argues for the
application of BIA in the final determination. However, if the
Department determines that total BIA is inappropriate, then the
petitioner believes the Department should calculate financing costs
using IRI's 1993 audited financial statement information.
The respondent claims that it properly reported interest expense
based on the consolidated financing costs incurred at the Dalmine
level, rather than at the consolidated IRI level. In support of its
claim, the respondent states that IRI does not exercise control over
Dalmine's operations or its capital structure. In addition, the
respondent maintains that using IRI's consolidated financial expenses
would distort Dalmine's true financing costs because IRI's financing
costs include expenses for entities which are dissimilar to Dalmine.
Additionally, the respondent points out that IRI's 1994 audited
consolidated financial statements were not available at verification
and only its 1993 audited consolidated financial statements are on the
record. However, Dalmine's 1994 audited consolidated financial
statements are on the record and, according to the respondent, they are
more relevant because they encompass the entire POI. Lastly, the
respondent objects to the petitioner's insinuation that it attempted to
mislead the Department by failing to disclose that its financial
results are consolidated with the financial results of IRI. The
respondent asserts that this information was not provided since it was
not requested in the Department's questionnaires. When the Department
did request IRI's consolidated financial data at verification, the
respondent provided this information.
DOC Position
We agree with the petitioner, in part. The Department's long-
standing practice is to calculate interest expense for COP/CV purposes
from the borrowing costs incurred by the consolidated group. Silicon
Metal From Brazil, 56 Fed. Reg. at 26,986 (1991). This methodology,
which has been upheld by the CIT in Camargo Correa Metals, S.A. v.
U.S., Slip Op 93-163 (CIT 1993), is based on the fact that the
consolidated group's controlling entity has the power to determine the
capital structure of each member of the group. IRI has such power since
it owns a substantial majority of Dalmine through ILVA. In addition,
although the respondent claims that IRI does not exercise control over
Dalmine's operations, it is the Department's position that majority
equity ownership is prima facie evidence of corporate control. See,
e.g., Final Determination of Sales at Less Than Fair Value: New
Minivans from Japan, (Minivans) 57 FR 21946 (May 26, 1992) The
respondent has not presented sufficient evidence to demonstrate that
IRI's consolidated financing expense would distort Dalmine's financing
costs. In Minivans, we determined that, as a member of a consolidated
group of companies, the operations of a financing company remain under
the controlling influence of the group. Like other members of the
consolidated group, the financing company's capital structure is
determined largely within the group. Consequently, its interest income
and expenses are as much a part of the group's overall borrowing
experience as any other member company.
Lastly, we do not consider it more appropriate to use Dalmine's
1994 consolidated figures over IRI's 1993 consolidated figures simply
because Dalmine's audited information more closely relates to the time
period of the POI. We have no reason to believe that IRI's 1993 audited
financial statement interest expense data is not representative of the
POI.
Comment 15
The petitioner believes the Department should not allow the
respondent to offset its IRI level financing costs with short-term
interest income because the reported interest income included both
short and long-term interest income.
The respondent claims that the Department should reduce Dalmine's
interest expenses by long and short-term [[Page 31991]] interest income
since both long and short-term investments arise from the company's
current operations. The respondent argues that it must earn revenue
from its current operations in order to make long and short-term
investments. Therefore, it is illogical for the Department to only
consider short-term interest income to be related to current
operations. Additionally, the respondent notes that treating short and
long-term interest income differently contradicts the Department's
fungibility of money argument. The respondent claims that the
Department should recognize the symmetrical nature of interest income
and expense and calculate a true net interest cost which would take
long-term interest income into account.
DOC Position
We agree with the respondent, in part. It is the Department's
practice to allow a respondent to offset financial expenses with
interest income earned from the general operations of the company. See,
e.g., Timkin v. United States, 852 F. Supp. 1040, 1048 (CIT 1994). The
Department does not, however, offset interest expense with interest
income earned on long-term investments because long-term interest
income does not relate to current operations. See, e.g., Antifriction
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From
the Federal Republic of Germany: Final Results of Antidumping Duty
Administrative Review, 56 FR 31734 (July 11, 1991). The company did not
provide a break-down of short and long-term interest income for IRI.
However, we were able to determine the amount of short-term interest
income for the consolidated IRI group from verification exhibits and
have applied short-term interest income as an offset to Dalmine's
financing costs.
Comment 16
The petitioner contends that the Department should not allow the
respondent to offset production costs with foreign exchange gains
because the gains were not verified by the Department.
The respondent maintains that, contrary to the verification report,
it does not associate exchange gains and losses with particular
transactions. The respondent states that it classifies exchange gains
and losses as part of the company's general expenses and it urges the
Department to accept this treatment of these exchange gains and losses.
As an alternative to including both foreign exchange gains and losses
in its financing cost calculation, the respondent argues that the
Department should exclude both gains and losses. The respondent states
in its brief that it was not aware of the Department's treatment of
exchange gains and losses until it received the verification agenda
where the distinction was explicitly noted.
DOC Position
We agree with the petitioner. It is the Department's normal
practice to distinguish between exchange gains and loses from sales
transactions and exchange gains and losses from purchase transactions.
See, e.g., Final Determination of Sales at Less Than Fair Value;
Silicomanganese from Venezuela, 59 FR 55436 (November 7, 1994)
(Silicomanganese). Accordingly, the Department does not include
exchange gains and losses on accounts receivable because the exchange
rate used to convert third-country sales to U.S. dollars is that in
effect on the date of the U.S. sale. (See 19 CFR 353.60). The
Department includes, however, foreign exchange gains and losses on
financial assets and liabilities in its COP and CV, calculation where
they are related to the company's production. Financial assets and
liabilities are directly related to a company's need to borrow money,
and we include the cost of borrowing in our COP and CV calculations.
See Silicomanganese. The respondent did not provide any substantiation
for the exchange gains and losses reflected in either Dalmine's
financial statements or IRI's financial statements. However, Dalmine
did state at verification that exchange gains are generally from sales
transactions and exchange losses are generally from purchase
transactions. We therefore adjusted the interest expense rate
calculation to include IRI's exchange losses and exclude IRI's exchange
gains.
Comment 17
The petitioner argues that the Department should disallow the
portion of the LIFO variance adjustment which is comprised of reversals
of accruals and other reserves. The petitioner claims that these
accruals and reserves were established in prior accounting periods and
do not relate to POI production. According to the petitioner, allowing
such reversals provides companies that have advance knowledge of a
dumping case with a simple means of shifting costs out of the POI.
The respondent contends that it included properly reversals of 1993
accruals and write-downs in its COP/CV costs. Dalmine claims that the
Department's general practice is to include accruals which are
recognized in the respondent's audited financial statements in the COP/
CV calculations. According to the respondent, this treatment
necessitates the inclusion of any accrual reversals in COP/CV
calculations for the period in which the respondent recognizes the
reversal. Otherwise, the respondent claims, the Department would be
overstating the company's total costs.
DOC Position
We agree with the petitioner. We do not consider it appropriate to
reduce current year production costs by the reversal of prior year
operating expense accruals and write-downs of equipment and inventory.
The subsequent year's reversal of these estimated costs does not
represent revenue or reduced operating costs in the year of reversal.
See Notice of Final Determinations of Sales at Less Than Fair Value:
Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-Rolled
Carbon Steel Flat Products, and Certain Cut-to-Length Carbon Steel
Plate From France, 58 FR 37079 (July 9, 1993). Rather, they represent a
correction of an estimate which was made in a prior year. If the
Department is able to verify that an operating expense accrual or an
equipment or inventory write-down recorded during the POI is
subsequently adjusted because the company overestimated the cost, we
will use the corrected figure, but only for the same period in which
the accrual or write-down occurred. However, absent any verified
information supporting the overestimation of cost, we have no choice
but to rely on the amounts recorded by the company. The fact that a
company is unable to determine that it over accrued certain costs in
time for verification does not justify distorting the actual production
costs incurred in a subsequent year by reducing subsequent year costs
by the overestimated amount. In the present case, since the accruals
and write-downs did not occur during 1994, it would be inappropriate to
recognize the reversals of such entries in the reported costs.
Comment 18
The petitioner asserts that Dalmine has not reported the COP and CV
for all of the subject merchandise sold in the U.S. during the POI.
This assertion is based on the fact that Dalmine did not calculate a
weighted average cost for CONNUM's 45 and 108, because the company did
not produce those products during the POI. The petitioner claims that a
significant percentage of U.S. sales during the POI were for control
numbers not produced during the POI. The petitioner argues that the
[[Page 31992]] Department should increase the submitted COP and CV for
the two products sold in the U.S. during the POI, but produced prior to
the POI, because Dalmine was less profitable in 1993.
The respondent maintains that it calculated the average COP and CV
for CONNUM's 45 and 108 by using a simple average of the cost of the
products that comprise each CONNUM rather than a weighted average with
a weighting factor for the cost of products not produced during the
POI. Thus, the respondent contends that it properly reported actual
contemporaneous cost information.
DOC Position
We agree with the respondent. Dalmine used a simple average of the
cost of the products that comprised CONNUM's 45 and 108 and our
statement in the verification report that the respondent used a
weighting factor for some of the products in its cost calculation for
CONNUM's 45 and 108 is inaccurate. We calculated COP/CV by weight
averaging the average costs of products classified within those
CONNUM's by the production quantities which we obtained at
verification.
We disagree with the petitioner's claim that the Department should
increase the submitted cost data for the products produced prior to the
POI because the company was less profitable in the prior year. The
Department tested Dalmine's standard costs as adjusted to actual costs
at verification and determined that these costs actually reflect the
costs incurred during the POI.
Comment 19
The petitioner contends that Dalmine understated its reported
general and administrative (G&A) expenses as it failed to include an
allocation of G&A expenses incurred by ILVA and IRI. Because Dalmine
failed to disclose that it was consolidated with ILVA and IRI, the
petitioner believes that, as BIA, the Department should add the G&A
expenses calculated from ILVA's 1992 financial statements and IRI's
1993 financial statements to the amounts reported by Dalmine.
The respondent maintains that the Department verified that an
appropriate share of parent company management costs was included in
the submitted COP/CV data.
DOC Position
We agree with the respondent. It is the Department's practice to
include a portion of the G&A expenses incurred by affiliated companies
on the reporting entity's behalf in total G&A expenses for COP/CV
purposes. Final Determination of Sales at Less Than Fair Value: Welded
Stainless Steel Pipe from Malaysia, 59 Fed. Reg. 4023, 4027 (Jan. 28,
1994); Final Determination of Sales at Less Than Fair Value:
Ferrosilicon from Venezuela, 58 Fed. Reg. 27524 (May 10, 1993); Final
Determination of Sales at Less Than Fair Value: Sweaters from Hong
Kong, 55 Fed. Reg. 30733 (July 27, 1990); Final Determination of Sales
at Less Than Fair Value: Certain Small Business Telephones and
Subassemblies Thereof from Korea, 54 Fed. Reg. 53141 (Dec. 27, 1989).
In the present case, the respondent included a portion of Dalmine's G&A
expenses and the G&A expenses of its producing subsidiary in the
submitted G&A expenses. We identified no parent company costs allocable
to Dalmine.
Comment 20
The petitioner questions whether all steel mill variances have been
captured because steel bar costs have been reported exclusively on the
basis of standard costs. The petitioner claims that price and
efficiency variances for the steel mill were excluded from the ratio
used to allocate variances to each product.
The respondent claims that the Department verified that the steel
mill variance was properly allocated to the subject merchandise.
DOC Position
We agree with the respondent. The steel mill net profit reported on
the respondent's management report was zero after all steel mill costs
were allocated to producing mills, based on steel usage by the mills.
Therefore, all steel mill activity, including variances, was properly
allocated to the producing mills.
Suspension of Liquidation
Pursuant to the results of this final determination, we will
instruct the Customs Service to require a cash deposit or posting of a
bond equal to the estimated final dumping margin, as shown below, for
entries of seamless standard, line and pressure pipe from Italy that
are entered or withdrawn from warehouse, for consumption from the date
of publication of this notice in the Federal Register. The suspension
of liquidation will remain in effect until further notice. The
weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-
average
Producer/manufacturer exporter margin
(percent)
------------------------------------------------------------------------
Dalmine.................................................... 1.84
All Others................................................. 1.84
------------------------------------------------------------------------
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. The ITC will make its determination whether
these imports materially injure or threaten injury to a U.S. industry
within 45 days of the publication of this notice. 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 cancelled. However, if the ITC determines that material
injury or threat of material injury does exist, the Department will
issue an antidumping duty order.
Notification to Interested Parties
This notice serves as the only reminder to parties subject to
administrative protection order (``APO'') in these investigations of
their responsibility covering the return or destruction of proprietary
information disclosed under APO in accordance with 19 CFR 353.4(d).
Failure to comply is a violation of the APO.
This determination is published pursuant to section 735(d) of the
Act (19 U.S.C. 1673(d))and 19 CFR 353.20.
Dated: June 12, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-14939 Filed 6-16-95; 8:45 am]
BILLING CODE 3510-DS-P
