[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33539-33551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15616]
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[A-357-810]
Final Determination of Sales at Less Than Fair Value: Oil Country
Tubular Goods From Argentina
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 28, 1995.
FOR FURTHER INFORMATION CONTACT: John Beck or Jennifer Stagner, 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-
3646 or (202) 482-1673, respectively.
Final Determination
The Department of Commerce (the Department) determines that oil
country tubular goods (OCTG) from Argentina are being, or are 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). The
estimated margins are shown in the Suspension of Liquidation section of
this notice.
Case History
Since the amended preliminary determination on March 6, 1995 (60 FR
13119, March 10, 1995), the following events have occurred.
In March and April 1995, the Department verified the cost and sales
questionnaire responses of Siderca S.A.I.C. and Siderca Corp.
(collectively Siderca). Verification reports were issued in May 1995.
On May 10 and 17, 1995, the interested parties submitted case and
rebuttal briefs, respectively. On May 18, 1995, a public hearing was
held. On May 23, 1995, Siderca submitted a revised sales tape pursuant
to the Department's request correcting for minor errors discovered at
verification.
Scope of the Investigation
For purposes of this investigation, OCTG are hollow steel products
of circular cross-section, including oil well [[Page 33540]] casing,
tubing, and drill pipe, of iron (other than cast iron) or steel (both
carbon and alloy), whether seamless or welded, whether or not
conforming to American Petroleum Institute (API) or non-API
specifications, whether finished or unfinished (including green tubes
and limited service OCTG products). This scope does not cover casing,
tubing, or drill pipe containing 10.5 percent or more of chromium. The
OCTG subject to this investigation are currently classified in the
Harmonized Tariff Schedule of the United States (HTSUS) under item
numbers: 7304.20.10.10, 7304.20.10.20, 7304.20.10.30, 7304.20.10.40,
7304.20.10.50, 7304.20.10.60, 7304.20.10.80, 7304.20.20.10,
7304.20.20.20, 7304.20.20.30, 7304.20.20.40, 7304.20.20.50,
7304.20.20.60, 7304.20.20.80, 7304.20.30.10, 7304.20.30.20,
7304.20.30.30, 7304.20.30.40, 7304.20.30.50, 7304.20.30.60,
7304.20.30.80, 7304.20.40.10, 7304.20.40.20, 7304.20.40.30,
7304.20.40.40, 7304.20.40.50, 7304.20.40.60, 7304.20.40.80,
7304.20.50.15, 7304.20.50.30, 7304.20.50.45, 7304.20.50.60,
7304.20.50.75, 7304.20.60.15, 7304.20.60.30, 7304.20.60.45,
7304.20.60.60, 7304.20.60.75, 7304.20.70.00, 7304.20.80.30,
7304.20.80.45, 7304.20.80.60, 7305.20.20.00, 7305.20.40.00,
7305.20.60.00, 7305.20.80.00, 7306.20.10.30, 7306.20.10.90,
7306.20.20.00, 7306.20.30.00, 7306.20.40.00, 7306.20.60.10,
7306.20.60.50, 7306.20.80.10, and 7306.20.80.50.
After the publication of the preliminary determination, we were
informed by Customs that HTSUS item numbers 7304.20.10.00,
7304.20.20.00, 7304.20.30.00, 7304.20.40.00, 7304.20.50.10,
7304.20.50.50, 7304.20.60.10, 7304.20.60.50, and 7304.20.80.00 were no
longer valid HTSUS item numbers. This was confirmed by examination both
of the Customs module and the published 1995 HTSUS tariff schedule.
Accordingly, these numbers have been deleted from the scope of this
investigation.
Although the HTSUS subheadings are provided for convenience and
customs purposes, our written description of the scope of this
investigation is dispositive.
Period of Investigation
The period of investigation (POI) is January 1, 1994, through June
30, 1994.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and to the
Department's regulations are in reference to the provisions as they
existed on December 31, 1994.
Such or Similar Comparisons
We have determined for purposes of the final determination that the
OCTG covered by this investigation comprises a single category of
``such or similar'' merchandise within the meaning of section 771(16)
of the Act. Where there were no sales of identical merchandise in the
third country 1 to compare to U.S. sales, we made similar
merchandise comparisons on the basis of the product characteristics
listed in Appendix V of the Department's antidumping questionnaire, as
modified and discussed in the preliminary determination. In two
instances, the revised product concordance submitted by Siderca did not
follow exactly the product comparisons made in the preliminary
determination. We have corrected the product concordance for these
instances (see Comment 5 in the ``Interested Party Comments'' section
of this notice).
\1\ The home market in this case is not viable. Sales to the
People's Republic of China (PRC) are being used as the basis for the
FMV and COP analysis.
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We made adjustments, where appropriate, for differences in the
physical characteristics of the merchandise, in accordance with section
773(a)(4)(C) of the Act.
Fair Value Comparisons
To determine whether Siderca's sales of OCTG from Argentina to the
United States were made at less than fair value, we compared the United
States price (USP) to the foreign market value (FMV), as specified in
the ``United States Price'' and ``Foreign Market Value'' sections of
this notice.
United States Price
We calculated USP according to the methodology described in our
preliminary determination, with the following exceptions:
1. For the cost of production (COP) of the merchandise that was
further manufactured in the United States, we included in the cost of
manufacture (COM) the research and development (R&D) expense excluded
by respondent and computed general and administrative (G&A) expense on
an annual basis from Siderca's March 31, 1994, income statement.
2. We applied the net financial expense of the consolidated parent
to the further manufacturing costs of the related further manufacturer.
3. We made deductions from gross unit price for movement variances
that represent the difference between the accrual and actual movement
costs.
4. We recalculated inventory carrying cost to use the interest rate
of the entity during the time period when that entity holds title to
the goods. That is, we used the Argentine interest rate during the
period from production to Siderca S.A.I.C.'s transfer of title to
Siderca Corp. and the U.S. interest rate during the period the
merchandise is held by Siderca Corp.
In order to calculate credit expenses for certain sales which had
either not yet been shipped or paid for, we followed the methodology
used in our preliminary determination and assigned the average number
of credit days when shipment and payment dates were missing, but now
used the date of the final determination, June 19, 1995, as the assumed
payment date when only payment dates were missing.
Foreign Market Value
As stated in the preliminary determination, we found that the home
market was not viable for sales of OCTG and based FMV on sales to the
People's Republic of China (PRC). During the course of this
investigation, the petitioners questioned the legitimacy of certain
sales made by Siderca to the Chinese market. The Department closely
examined these sales at verification and found no reason to alter its
determination that PRC sales are the appropriate basis for FMV (see
Comment 1 in the ``Interested Party Comments'' section of this notice).
Cost of Production Analysis
As we indicated in our preliminary determination, the Department
initiated an investigation to determine whether Siderca's sales in the
PRC were made below their COP. We calculated the COP according to the
methodology described in our preliminary determination, with the
following exceptions:
1. We included in the COM the R&D expense excluded by Siderca.
2. We computed G&A expense on an annual basis from Siderca's March
31, 1994, income statement.
3. We excluded duties from the COP since the price to which COP was
compared was also exclusive of duties.
After computing COP, we compared product-specific COP net of direct
and indirect selling expenses to reported third-country prices that
were net of movement charges and direct and indirect selling expenses.
[[Page 33541]]
Results of COP Analysis
In accordance with section 773(b) of the Act, we followed our
standard methodology as described in the preliminary determination to
determine whether the third country sales of each product were made at
prices below their COP. Based on this methodology, none of Siderca's
PRC sales were found to be below cost. Accordingly, we calculated FMV
according to the methodology described in our preliminary
determination, with the following exceptions:
1. We recalculated credit using the U.S. interest rate since all
third country sales were denominated in U.S. dollars.
2. We made a circumstance-of-sale adjustment to FMV to account for
the difference in the average effective reintegro (rebate) rate
included in the U.S. price (see Comment 6 in the ``Interested Party
Comments'' section of this notice).
In order to calculate credit expenses for unshipped or unpaid
Chinese sales, we applied the same methodology described above for USP.
Currency Conversion
Because certified exchange rates for Argentina were unavailable
from the Federal Reserve, we made currency conversions for expenses
denominated in Argentine pesos based on the official monthly exchange
rates in effect on the dates of the U.S. sales as published by the
International Monetary Fund in accordance with 19 CFR 353.60(a).
Verification
As provided in section 776(b) of the Act, we verified the
information used in making our final determination.
Interested Party Comments
Comment 1: Third Country Sales
The petitioners argue that information obtained from Siderca
reveals that the date of sale of many of Siderca's third-country sales
falls outside the POI, making the home market viable. The petitioners
state that Siderca did not adhere to the Department's definition of
date of sale for the majority of its third-country sales. They argue
that Siderca's refusal to produce written agreements with a certain
Chinese customer or price lists pursuant to those agreements leads one
to conclude that there were two binding contracts between Siderca and
the Chinese customer, one inside the POI and one outside the POI. The
petitioners argue that the shipments pursuant to both of those
agreements should be excluded from the Department's viability analysis.
Regarding the first agreement, the petitioners argue that the price
and quantity were agreed to before the POI, in accordance with the
terms specified in Siderca's 1991 Framework Agreement with its
customer. Therefore, the POI shipments should be associated with pre-
POI sales and excluded from the Department's analysis.
The petitioners argue that Siderca's contention that the 1991
Framework Agreement resulted only in periodic ``general agreements'' on
quantity and on ``general price levels'' is an attempt to discount the
authority of the 1991 Framework Agreement. They state that nothing in
the 1991 Framework Agreement makes any mention of Siderca's claim that
the general agreements entered into periodically with the customer were
not final. Furthermore, the petitioners state that changes in some
sales terms, as mentioned by Siderca to support its claim that the
general agreements were not final sales agreements, do not invalidate
the parties' intent to establish definite sales terms in the general
agreements for the rest of the merchandise.
The petitioners further state that in the Final Determination of
Sales at Less Than Fair Value: Steel Bar from India (59 FR 66915,
December 28, 1994), the Department found that shipments under a sale
agreement were a valid sale as of the date of the agreement, even
though the sale was subsequently cancelled. The petitioners argue that
if the cancellation of a contract does not alter the date of sale with
regard to other merchandise covered by the contract, then ordering a
new product does not alter the date of sale, at least for all other
types of merchandise, evidenced by the general agreements in question.
Therefore, the periodic agreements must be considered actual sales
agreements.
As a result, the petitioners maintain that only the second
agreement with the Chinese customer was entered into during the POI.
However, the petitioners argue that the shipments pursuant to this
second agreement should also be excluded from the Department's
viability analysis because the terms of delivery for the total tonnage
ordered were not met by Siderca, and the quantity shipped is not even
close to the shipment terms agreed to by the parties. The petitioners
state that the delivery term was an essential term of the agreement and
was changed; therefore, the Department must exclude these sales from
its viability analysis. Alternatively, if the Department does not
exclude all the sales pursuant to this agreement, it must, at a
minimum, exclude the merchandise where shipment was not even close to
the shipment term agreed to by the parties. Additionally, the
petitioners contend that the merchandise that remained unordered under
the second agreement should also not be considered as POI sales and
should be excluded from the viability analysis.
Regarding a non-Chinese third country sale, the petitioners state
that the documentation placed on the record demonstrates that the
correct date of sale is outside the POI, since the documentation
references a sales acknowledgement dated outside the POI. Therefore,
the Department must also exclude this sale from its viability analysis.
Finally, the petitioners argue that because a proper analysis of
third country sales results in a viable home market, the Department
must base its determination on the best information available, which in
this case is the information contained in the petition.
Siderca states that to determine the date of sale, the Department
relies on the first written memorialization of the sales agreement
setting forth the essential contract terms. Siderca argues that there
were no written agreements with the Chinese customer pursuant to the
periodic negotiations and that there is nothing in the record to
support the petitioners' claims that written agreements or price lists
pursuant to the periodic negotiations exist.
Siderca states that it holds periodic negotiations with its
customer regarding sales of OCTG, pursuant to the 1991 Framework
Agreement, which end with a general agreement on the tonnage to be
purchased during the next six months, and on general price levels.
However, the product mix is not specified in these agreements, nor is
there any firm commitment to purchase the total quantity. Sometimes the
customer orders the total quantity discussed in the negotiations,
sometimes it does not. Siderca states that production does not begin
until the contracts pursuant to the general agreements are signed. It
further states that it reported all contracts which were signed by both
parties during the POI as POI sales.
Siderca argues that its sales process was fully verified by the
Department. Siderca states that information was provided on the record
which supports Siderca's treatment of the contract date as the date of
sale, such as an internal document requesting guidance on the price to
offer a certain customer during the POI. Siderca further states that
the verification showed that it was consistent in its approach to the
date of sale; for example, not treating as POI sales those shipments
during the POI [[Page 33542]] that were pursuant to a contract signed
before the POI.
Siderca further argues that there is evidence on the record which
proves that the periodic negotiations with the Chinese customer do not
end in a formal commitment to buy or sell. This is evidenced by a
purchase order showing no terms for a particular product and also by
the fact that, while the second agreement listed a certain quantity,
only a portion of that quantity was actually ordered and shipped.
Siderca contends that the record supports its position that the
specific terms of sale are established when the customer's purchase
order is received. It notes that the original contracts were examined
at the verification.
Regarding the merchandise that was shipped after the delivery date
stipulated in the contract, Siderca argues that the delivery date
influenced the timing of the negotiations and the timing of the
contract signing. Siderca contends that the customer wanted shipment by
a particular month but then experienced logistical problems and
arranged for subsequent delivery. It states that the parties did not
change the merchandise, price, quantity or other material terms of the
contract. It also states that the petitioners could cite no cases where
this type of modification had been interpreted as changing the date of
sale.
Siderca then addresses the petitioners' argument that, at a
minimum, the Department should exclude the merchandise where the
shipment terms were not even close to those agreed to by the parties.
Siderca argues that the petitioners provided no precedent to support
their theory that these sales do not constitute sales during the POI.
It argues that a delivery term is only a material term if the parties
treat it as one and that the evidence on the record shows that all
merchandise was eventually shipped.
Next, Siderca addresses the petitioners' argument that the
merchandise that remained unordered under the second agreement should
also not be considered as POI sales and excluded from the viability
analysis. Siderca states that this merchandise was never ordered
because it was never sold. Therefore, it does not need to be excluded
from the viability analysis because it was never included.
Finally, Siderca addresses the petitioners' argument that the
documentation placed on the record demonstrates that the correct date
of sale for a non-Chinese third country sale is outside the POI, since
the documentation references a sales acknowledgement dated outside the
POI. It argues that the sales acknowledgement was only an
``observation/clarification'' of the customer's purchase order and that
the record does not show any change or modification in the material
terms.
DOC Position
We agree with Siderca. This issue was argued extensively by the
parties and examined very closely by the Department at the
verification. At verification, we found no evidence of written price
agreements or price lists pursuant to the periodic negotiations which
might result in certain reported sales being outside the POI. A review
of the 1991 Framework Agreement also showed no basis to discount
Siderca's claim that the periodic agreements with the Chinese customer
were only ``general agreements'' where terms were not finalized. Thus,
the 1991 Framework Agreement was akin to a memorandum of understanding
between the parties, setting forth no definite material contract terms.
It is clear from information on the record that the purchase order sets
the price and quantity of the sale. Therefore, respondent's reporting
of the purchase order date as the date of sale was consistent, and in
accordance, with the Department's practice (see, e.g., Final
Determination of Sales at Less than Fair Value: Certain Forged Steel
Crankshafts from the United Kingdom (52 FR 18992, July 28, 1987).
Furthermore, changes in the delivery term of the contract at the
end of the POI do not constitute changes to a term of the contract
significant enough to alter the date of sale, unlike terms such as
price and quantity. This is evidenced by the fact that the parties
themselves did not treat the delivery term as a material one. Moreover,
the petitioners could show no cases to support the opposite conclusion.
Therefore, these sales were also properly within the POI.
Regarding the petitioners' argument that the merchandise that
remained unordered under the second agreement should also not be
considered as POI sales and should be excluded from the viability
analysis, this merchandise was never sold nor reported; therefore, this
issue is moot.
Regarding the petitioners' argument that the documentation placed
on the record demonstrates that the correct date of sale for a non-
Chinese sale is outside the POI, the acknowledgement in question
references no change in the material contract terms. Furthermore, even
if the petitioners' argument was correct, excluding this sale alone
would not change the viability analysis.
Accordingly, the use of best information available, as suggested by
the petitioners, is not warranted. We will use all PRC sales as
reported by Siderca in our analysis.
Comment 2: Related Customer Allegation
The petitioners argue that Siderca and a certain Chinese customer
are related parties and, therefore, the sales to the Chinese customer
must be excluded from the Department's analysis. They state that the
Department's questionnaire specifies that companies are considered
related when one or more of the same individuals are members of the
board of directors of both companies or other entities which control
those companies. The petitioners also argue that in the Final Results
of Administrative Review: Roller Chain, Other than Bicycle, from Japan
(57 FR 56319, November 27, 1992) (Roller Chain), the Department found
that two companies were related when they shared one director on each
board. Thus, the petitioners contend that shared board members and
officers have long been equated with common control of companies.
The petitioners state that when different individuals sit on the
boards of two different companies, but serve as representatives of a
common corporation, it results in interlocking directors which may
violate section 8 of the Clayton Act, instituted to prevent a restraint
of trade from being effected. The petitioners state that this is the
situation that exists between Siderca and the Chinese customer through
the management of several companies. They claim that Siderca failed to
rebut the documentary evidence of relatedness placed on the record by
the petitioners.
The petitioners contend that the ownership of Siderca is closely
tied to that of many other companies, through Siderca's parent
companies. They then argue that information on the record demonstrates
shared management between Siderca and the Chinese customer. The
petitioners note that all evidence they placed on the record to show
the interrelationship between the management of these companies are
certified copies of extracts from commercial registers. The petitioners
then state that Siderca's attempts to rebut this evidence at
verification are inadequate for the following reasons.
First, the petitioners discuss Siderca's attempt to obtain
ownership information from the Chinese customer. They argue that
Siderca has shared management with the Chinese customer and, therefore,
it could have done more to obtain information from this
[[Page 33543]] customer than just to send the customer a letter.
Second, the petitioners discuss Siderca's explanation of its
alleged connection with the representative of the Chinese customer.
They question Siderca's characterization of the president of Siderca's
ultimate parent as only serving as local agent of the representative of
the Chinese customer. The petitioners also claim that, under Swiss law,
which applies to the representative of the Chinese customer, persons
authorized to represent a company have the right to carry out all acts
that may be covered by the company's aims. In addition, the petitioners
claim that Siderca's explanation for the common board member between
the Chinese customer and its representative fails to rebut the
presumption of a relationship.
Third, the petitioners discuss Siderca's explanation of the alleged
relationship with the local Argentine office of its Chinese customer.
They argue that Siderca's characterization of a legal representative as
that of an employee with no powers of a director or officer of the
company is incorrect. The petitioners contend that, under Argentine
law, persons authorized to represent a company are ``obliged to it for
all the acts that are not manifestly outside the company's
objectives.'' Furthermore, the petitioners argue that the self-serving
oral explanations at verification are not sufficient to rebut the
documentary evidence provided by the petitioners.
Fourth, the petitioners discuss the charts provided by Siderca to
illustrate its relationships with other companies. The petitioners
contend that these charts are inadequate to rebut the claim of
relatedness between Siderca and the Chinese customer because the charts
are incomplete and have no supporting documentation.
The petitioners conclude that the Department must exclude Siderca's
sales to this particular Chinese customer from its analysis because
they were made to a related party and because Siderca has made no
effort to prove that the sales to this customer were at arm's length.
Siderca argues that the petitioners' argument is results-oriented
and that the Department should follow established standards for
determining whether parties are related. Moreover, the fact that the
sales to the customer in question are similar to U.S. sales makes the
Chinese market a better comparison market than those where Siderca did
not sell similar merchandise (i.e., plain end OCTG).
Siderca argues that the Tariff Act of 1930, as amended (19 U.S.C.
1677(13)), focuses on either some financial relationship through stock
ownership or otherwise, or the exercise of some control over the other
business, to show relatedness. Siderca maintains that neither it nor
its related commissionaire own or control the Chinese customer and are,
therefore, not related to that customer.
Siderca maintains that the verification documents support the
following conclusions. First, there is no corporate relationship
between the Chinese customer and its representative, which the Chinese
customer uses for certain corporate services, such as the collection of
mail. Second, there is no corporate relationship between the customer
and Siderca, either by ownership or control. Third, the only
information that links Siderca and its Chinese customer is a good
relationship that is not uncommon between a supplier and a client.
Siderca states that it is because of this good relationship that the
customer approached an officer of one of Siderca's related parties for
advice on setting up a subsidiary in another country. Siderca maintains
that this individual agreed to have his name placed on the
incorporation documents as an attorney-in-fact. As a result, Siderca
states that its related company and this customer each had a subsidiary
in the same country with the same individual involved in both. In
addition, Siderca argues that its related company and its customer
appointed some of the same citizens to serve as corporate directors in
fulfillment of local law requirements regarding the citizenship and
residency of corporate directors.
Fourth, the Chinese customer expanded its activities in Argentina
by opening a branch there, and hired an employee to serve as its local
representative. This employee was not involved at any time in the
ownership or management of the Chinese customer, and was never employed
at the same time by the Chinese customer and Siderca's related
companies. Siderca argues that this person switched jobs to one of
Siderca's related companies, and recommended another person to wind
down the operations of the Argentine branch of the Chinese customer.
This other person was a retired employee of one of Siderca's related
parties, who was allowed to use one of the office buildings belonging
to the organization.
Siderca concludes from the above-cited evidence that there is no
evidence of corporate control, through stock ownership, common
management, or otherwise.
Siderca then states that the Department's questionnaire never
mentions the term ``shared management,'' even though the petitioners
use this term to define related parties. It also states that Roller
Chain says nothing about ``shared management'' and refers to
individuals on multiple boards being one of the indicia of control, not
control in and of itself. Siderca argues that Roller Chain based
relatedness by control on many factors, including financial
relationship and the sharing of two of five board members. It states
that the Department mentioned common board members as ``further
evidence that the potential to control was present'' and this was not
the only or major reason for its decision. Siderca also argues that
modern corporate boards are routinely comprised of individuals who sit
on boards of other unrelated companies. It says that this does not make
the companies related.
Siderca concludes that the petitioners' relationship allegations do
not satisfy a balanced statement of the applicable statutory provision,
nor even the ``shared management control'' standard that the
petitioners, themselves, have invented. It states that the petitioners
have shown no ownership, financial dealings, coordinated management or
cross investments.
DOC Position
We agree with Siderca. To determine whether Siderca's customer is
related to Siderca, we examined whether the definition of ``exporter''
was met by the customer within the meaning of section 771(13) of the
Act. First, regarding the petitioners' argument that since Siderca has
shared management with the Chinese customer, Siderca could have done
more to obtain information than simply to send a letter, we note that,
as stated below, no shared management between these parties has been
demonstrated by the record evidence.
Second, regarding the petitioners' claim that under Swiss law,
persons authorized to represent a company have the right to carry out
all acts that may be covered by the company's aims, we acknowledge
that, under Swiss law, a representative acts in the same capacity as a
board member. However, with regard to the president of the ultimate
parent of Siderca, this only shows that the Siderca's parent company
and the customer's agent had a common board member. As shown below,
this is not enough to establish control of Siderca over the Chinese
customer.
Regarding the other individuals listed by the petitioners as
showing a relationship between Siderca and its [[Page 33544]] customer,
only one has conclusively been shown to be on the board of a company
related to Siderca through its parent companies and also on the board
of a subsidiary of Siderca's customer. All other individuals
characterized by the petitioners to be common board members have what
is known as a ``power of attorney.'' We found no evidence that under
Swiss law, the ``power of attorney'' capacity equates with being a
member of a board of directors.
Few past cases address the issue of indirect control. In Roller
Chain, cited by the petitioners, the Department found that a company
was related to its customer within the meaning of 771(13) of the Act,
noting that since two company officials were members of the customer's
board of directors and that the company in question provided a majority
(60%) of the capital used to establish the customer. Thus, in Roller
Chain, it was the significant financial connection, coupled with the
two common board members, that provided the basis for the Department's
determination of relatedness. In this case, there is only one common
board member and no proof of outlay of capital to establish the
customer. Therefore, the circumstances present in this case are not
analogous to those found by the Department in Roller Chain.
Furthermore, there is no proof of any stock ownership between the
companies.
Third, with regard to the alleged relationship between Siderca and
the local Argentine office of its Chinese customer, the Department
acknowledges that, under Argentine law, persons authorized to represent
a company are ``obliged to it for all the acts that are not manifestly
outside the company's objectives.'' However, the employee in question
was never employed at the same time by the Chinese customer and
Siderca's related companies.
Also, the other person mentioned by the petitioners was
characterized by Siderca as having been hired to wind down the
operations of the Argentine branch of the Chinese customer. This other
person was also characterized as a retired employee of one of Siderca's
related parties, who was allowed to use one of the office buildings
belonging to the organization. We note for the record that the
Department was informed at verification that this person was not
completely retired from one of Siderca's related parties but was still
on the payroll as a consultant when he was hired by the Argentine
branch of the Chinese customer. However, even if he was on Siderca's
payroll as a consultant at the same time he was winding down the
operations of the Argentine branch of the Chinese customer, this
employee/consultant capacity is not the same thing as board membership
or management and is not enough to establish control.
Fourth, regarding the petitioners' contention that the charts
provided by Siderca to illustrate its relationships with other
companies are inadequate to rebut the claim of relatedness, at the
verification the team also examined the corporate books that listed the
management of these companies. Nothing to discredit Siderca's claims
was found.
Finally, we also note that the petitioners have shown, and we have
found, no ownership between the parties.
In sum, the record evidence does not demonstrate that the Chinese
customer and Siderca are related companies within the meaning of
section 771(13) of the Act.
Comment 3: Ordinary Course of Trade
The petitioners state that section 773(a)(1)(A) of the Act requires
that FMV of imported merchandise be based on sales made in the ordinary
course of trade. According to the petitioners, the U.S. Court of
International Trade noted that the ordinary course of trade requirement
is meant to ``prevent dumping margins which are not representative'' of
sales in the home market (Cemex, S.A. v. United States, Slip. Op. 95-72
at 6, April 24, 1995). The petitioners contend that, in the past, the
Department has considered the following factors to determine whether
sales were made in the ordinary course of trade.
First, the petitioners discuss the channels of sale. The
petitioners argue that since the Chinese customer was not located in
China, used the services of another company not located in China, and
had intertwined control with Siderca, the sales to this customer are
not representative of Siderca's sales practices in China.
Second, the petitioners discuss product uses. The petitioners argue
that the products sold by Siderca to this Chinese customer had
different characteristics from Siderca's other sales of OCTG to the
Chinese market and therefore were not in the ordinary course of trade.
The petitioners cite the Final Results of Administrative Review:
Certain Welded Carbon Steel Standard Pipes and Tubes from India (57 FR
54360, November 18, 1992) (Standard Pipes) to show a case where
products with different physical characteristics were excluded as being
outside the ordinary course of trade.
Third, the petitioners discuss the frequency and volume of sales.
The petitioners argue that the frequency and volume of sales to this
particular Chinese customer, when compared to the frequency and volume
of sales to another customer, and when considering the other factors
mentioned by the petitioners, demonstrates that these sales were not in
the ordinary course of trade.
Fourth, the petitioners discuss the shipping arrangements. The
petitioners contend that the difference in the average time between
order and shipment for the sales to this particular customer, when
compared to the other reported Chinese sales, is evidence that these
sales are not in the ordinary course of trade.
Finally, the petitioners state that Siderca's characterization of
its relationship with the Chinese customer is not one of an ordinary
business relationship, even a ``friendly'' one, between a producer and
a buyer. The petitioners argue that in the ordinary course of trade
producers do not lend the services of their officers to set up
subsidiary companies for their buyers and serve as attorneys in fact
for the resulting subsidiaries.
Siderca argues that petitioners' points fail to show that this sale
is outside the ordinary course of trade. First, regarding the channels
of sale, Siderca contends that there is no abnormality in the customer
not being located in China, as it is a trading company. Siderca asserts
that trading companies rarely take delivery in the country where they
do business. Siderca states that this particular customer purchased
OCTG for other markets during the POI as well. Siderca argues that the
use of trading companies is a normal practice in the steel trade.
Second, regarding product uses, Siderca states that, while the
merchandise to this customer did have different, albeit not abnormal,
physical characteristics than the other merchandise sold to this
market, it did have the same end use. Siderca states that the trading
company's customer in China simply did not need, or could not use, the
type of product Siderca sold to the other Chinese customers. Siderca
argues that the Department only excludes sales as outside the ordinary
course of trade where the product use is very dissimilar. Siderca
states that in Standard Pipes, the Department found that the physical
differences had a direct bearing on use.
Third, regarding the frequency and volume of sales, Siderca argues
that these sales cannot be considered aberrant. Siderca states that the
sales to [[Page 33545]] this particular customer are similar in size
and frequency to the sales to another Chinese customer, to which the
petitioners do not object. Therefore, Siderca states that the sales to
the customer in question were consistent with other sales in the
Chinese market.
Fourth, regarding the shipping arrangements, Siderca states that in
examining shipping arrangements for the purpose of an ordinary course
of trade determination, the Department examines factors such as
shipments over substantial distances, the unusual absorption of high
freight costs or a complete change in shipping terms, none of which is
relevant to the customer in question. Furthermore, Siderca notes that
shipment was made within the period stipulated in the purchase order.
DOC Position
We agree with Siderca. In making the determination whether sales
should be excluded by being outside the ordinary course of trade within
the meaning of section 773 of the Act and section 353.46 of the
Department's regulations, the Department examines several factors (see
the 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 Corrosion-Resistant Carbon Steel Flat
Products from Japan (58 FR 37154, July 9, 1993).
Regarding channels of sale, there is nothing unusual with selling
to a trading company located in a third country. As noted by Siderca,
we consider these sales to be Chinese sales because Siderca knew the
ultimate destination of the merchandise. Regarding product uses, the
petitioners, although showing that the products sold to different
customers in China had certain different physical characteristics, in
no way proved, and we did not find, that the products had different end
uses.
Regarding the frequency and volume of sales, since the frequency
and volume of sales to the customer in question were similar to that of
another Chinese customer, we don't find that there is an abnormality.
Regarding the shipping arrangements, differences in average time
between order and shipment alone is not evidence that the sales were
outside the ordinary course of trade. No cases were cited by the
petitioners, nor found by us, to support this position and the
shipments were made within the period stipulated in the purchase order.
Therefore, the Department finds that these sales are not outside the
ordinary course of trade within the meaning of section 773(a)(1)(A) of
the Act.
Comment 4: Home Market Sales
The petitioners contend that certain home market sales reported as
being made prior to the POI were actually made during the POI.
According to the petitioners, the prices for Siderca's sales to a
specific home market customer do not correspond with the prices listed
in the sales agreement with this customer. Since the prices do not
match, the petitioners contend that these sales were made during the
POI and not pursuant to the pre-POI sales agreement. The petitioners
claim that adding the home market sales to this particular customer in
the viability analysis would make the home market viable.
Siderca argues that the petitioners are wrong in claiming that the
prices for Siderca's sales to a specific home market customer do not
correspond with the prices listed in the sales agreement with this
customer. Siderca states that the petitioners did not take into
consideration an article in the contract that explained a large part of
the discrepancy. Siderca also states that minor calculation errors were
made by the petitioners due to poor copy quality of the contract.
Siderca argues that correcting for these errors results in the price
charged being the same as the price agreed upon in the contract.
Siderca claims that it correctly reported the home market sales
during the POI. It states that information was provided which supported
its position that: (1) Exporting to world-wide markets has dominated
Siderca's sales in each six month interval; (2) short-term sales were
the norm in the 18 month period from January 1, 1993 to June 30, 1994;
(3) the POI, with private end-user clients, was representative of the
post-privatization market that was the context for Siderca's home
market sales practices during the 18 month period; (4) there was no
sale pursuant to a long-term contract in the POI; and (5) Siderca's
home market sales practices prior to 1993 reflected a different era,
characterized by a single, state-owned oil and gas monopoly.
Siderca states that its definition of the date of sale and the
Department's preliminary determination that the home market was not
viable during the POI was supported by the evidence presented at
verification. It states that the Department reviewed the long-term
contracts in detail, including a complete list of the purchase orders
associated with a given contract and, for selected purchase orders, the
shipments made against the order. Siderca states that the Department
also verified the actual volume and value of Siderca's home market
sales and no discrepancies were found.
DOC Position
We agree with Siderca. At the public hearing, the petitioners
conceded that their argument was based on an incomplete reading of the
contract (namely, failure to take into account an article in the
contract), as well as an illegible copy of the contract. Therefore,
there was no price discrepancy. Furthermore, we examined the home
market sales process (especially price and quantity terms in the
purchase orders pursuant to the long-term contracts) in detail at the
verification and no discrepancies were found. Therefore, the record
continues to show that the home market is not viable.
Comment 5: Model Match
The petitioners argue that the Department should rely on its own
product matching decisions outlined in a January 24, 1995, product
matching memorandum and used in the preliminary determination instead
of Siderca's proposed model matches.
Siderca argues that a certain Chinese product, although more
similar to the U.S. products based on a strict application of the
Department's model-matching methodology, is not the most similar
overall based on physical characteristics, production and commercial
value. Siderca states that while the two third country selections are
nearly equally dissimilar to the U.S. products based on a higher-
ranking characteristic, its match is more similar based on lower-
ranking characteristics, which should be taken into consideration.
Siderca argues that there is nothing that prevents the Department
from adapting the hierarchy to a particular set of facts, especially
where there is a clear reason to modify the approach and the statutory
definition of similar merchandise warrants the modification. Siderca
contends that in the past the Department has deviated from the
published hierarchy when the respondent has demonstrated that it is
necessary to achieve the proper comparison.
DOC Position
We agree with the petitioners. The matching of the U.S. products
based on the January 24, 1995, memorandum, is consistent with the
purpose of a matching hierarchy; i.e., more weight is given to higher-
ranked characteristics and less weight to lower-ranked characteristics.
Following a strict application of the matching hierarchy
[[Page 33546]] also allows for more predictable results. Lower-ranked
characteristics are taken into consideration only when higher-ranked
characteristics are equal. This is not the case here.
Comment 6: Reintegro (Rebate)
The petitioners argue that the Department must deduct from the COP
only that portion of the reintegro (a rebate upon export of indirect
taxes imposed during production of the merchandise) attributable to
material inputs. The petitioners note that current law does not address
the issue of rebates such as the reintegro in COP situations. The
petitioners argue that the statutory silence on the issue of indirect
taxes relating to items other than materials indicates that such taxes
should remain in the product's cost and, therefore, the full rebate
should not be deducted from the COP. Both the Department's regulations
(19 CFR 353.50(a)(1)) and section 773(e)(1)(A) of the Act provide that,
when calculating constructed value, the cost of materials is to exclude
internal taxes applied directly to the cost of such materials when the
taxes are refunded upon exportation. The petitioners argue that under
current law only the Department's practice of excluding value added
taxes paid on raw material inputs offers guidance in the area of COP.
The petitioners also argue that the Department must average the
market specific tax rebate so that only one cost of production is
reported for each product. The petitioners maintain that the
Department's long standing practice is that cost differences based on
shipping destination should not enter into the company's cost of
production for a particular product.
Siderca argues it properly reduced the actual cost of production by
the average rebate received on sales to China. Siderca states that both
final stage and prior stage indirect taxes appear in its records as
costs and, therefore, the rebate of the tax must be applied as an
offset to this cost. Siderca argues it presented to the Department the
same indirect tax study it presents annually to the Argentine
government to prove the amount of rebate it is entitled to under the
reintegro program. Siderca notes the study was tested and reviewed
during the cost verification and that Department personnel have
reviewed the study on six previous occasions.
Siderca concedes the precise percentage of material cost accounted
for by cumulative indirect taxes cannot be known, but argues that the
study provides a reasonable estimate. Moreover, there is no double
counting of the exclusion, because the total level of taxes paid
exceeds the rebate. Further, the 1993 tax study, upon which the 1994
rebate was based, accurately reflects the amount of taxes paid while
the tax was in effect during 1993. Siderca states that it presented
support for the actual cash rebate received on sales to the U.S. and
China.
Siderca maintains that its approach is consistent with the
Department's practice of using actual costs, and cites to the Final
Determination of Sales at Less Than Fair Value: Fresh Chilled Atlantic
Salmon from Norway (58 FR 37915, July 14, 1993), where the Department
stated its preference for the use of the actual cost of the subject
merchandise, whenever possible. Siderca also cites Final Determination
of Sales at Less Than Fair Value: Aramid Fiber Formed of Poly-phenylene
Terephthalamide from the Netherlands (59 FR 23684, May 6, 1994) in
which the Department treated government grants as an offset to the
respondent's fixed overhead costs.
Siderca does not dispute that its methodology results in two
different net costs, but argues that this is always the case when
duties are rebated on export sales. Siderca states that the cost of the
home market product is tax inclusive, and the cost of the export
product is exclusive of the tax after export. Because the COP
comparisons are based on sales to a specific market, the calculation
should take into account only rebated taxes relevant to that market.
Finally, Siderca argues the effect of the differential should not
be a source of double jeopardy. The differential exists because Siderca
has foregone a portion of the rebate for exports to the United States
in deference to the U.S. countervailing duty regime.
DOC Position
We agree with Siderca, in part. Regarding the issue of allowing
only the portion of the reintegro attributable to material inputs, the
Department's Offices of Countervailing Investigations and
Countervailing Compliance normally test to determine whether or not the
reintegro is countervailable (see, e.g., American Alloys, Inc. v.
United States, 30 F.3d 1469 (Fed. Cir. 1994). To be non-
countervailable, the rebate must be for taxes on merchandise which was
physically incorporated into the exported product and the rebate must
be no greater than the actual taxes imposed.
The last countervailing determination concerning OCTG from
Argentina for which results have been published is the 1988-89
Countervailing Duty Administrative Review. In the preliminary results
of that review, the Department determined that Siderca was entitled to
the entire reintegro without incurring countervailing duties (56 FR
50855, October 9, 1991). This issue was not discussed and, therefore,
was not changed, in the final results (56 FR 64493, December 10, 1991).
The reimbursement percentage on OCTG was then raised in 1992. However,
Siderca only accepts the pre-1992 rebate percentage on U.S. sales
because the current U.S. countervailing duty order is still in place.
Based on the fact that the Department has previously determined that
Siderca was entitled to a rebate without incurring countervailing
duties and because it currently accepts a lower rebate, it is
reasonable to assume that the entire reintegro is attributable only to
material inputs.
We agree with Siderca regarding the issue of averaging the market
specific tax rebates so that only one cost of production is reported
for each product. For the cost test, the Department noted that the cost
of production is the cost of the product as sold in the third country.
This cost is being compared to the third country price. Since Siderca
receives the entire rebate on sales to the third country, the cost of
the third country product should be lowered by the entire amount of the
rebate received upon exportation of the product to the third country.
Therefore, for COP, we have made no changes from the preliminary
determination and have deducted the full rebate percentage from the
COP.
Although not mentioned by the interested parties, the impact of the
reintegro in the context of the price-to-price comparisons must be
addressed. Included in Siderca's manufacturing costs of OCTG are taxes
paid to the Argentine government. Siderca received a rebate of these
taxes upon exportation of the merchandise. However, the amount of the
rebate claimed by Siderca for the two export markets was not identical.
For sales to the PRC, Siderca chose to accept the entire rebate. For
sales to the United States, Siderca chose to accept only a partial
rebate. Because only a partial rebate is taken for U.S. sales, a
portion of the tax imposed by the Argentine government remains in the
U.S. price (the difference between the total rebate and the partial
rebate taken). Because these rebates are directly related to the sales
of the merchandise in the two markets, it is necessary to make a
circumstance-of-sale adjustment to FMV to account for the different
amount of taxes included in the Chinese and U.S. prices. This procedure
is consistent with Zenith [[Page 33547]] Electronics v. United States,
988 F.2d 1573, 1581 (Fed. Cir. 1993).
In calculating dumping margins, the Department equalizes the
effective tax rates in each market. Normally (where the home market
sale is taxed, but the export sale to the United States is not taxed)
this is accomplished by applying the home market tax rate to the U.S.
price at the same point in the chain of commerce at which the home
market tax is imposed. Here, where the pipe exported to the United
States was taxed in excess of the tax on the pipe exported to China,
the comparable procedure would be to subtract the differential from the
price charged in the United States. Because the statute provides no
mechanism for removing tax from the U.S. price, however, we achieved
the necessary equivalence in tax rates by adding the difference between
the effective rebate percentages claimed by Siderca between the two
prices to the price of the pipe exported to China as a circumstance-of-
sale adjustment, pursuant to section 773(a)(4)(B) of the Act and 19 CFR
353.56(a). This prevented Siderca's acceptance of a complete tax rebate
on the sales to China, but only a partial export tax rebate on the
sales to the United States from masking any tax-net dumping margin.
Comment 7: Revenues Earned on Sales of Secondary Pipe
The petitioners argue Siderca should not reduce the reported costs
for the subject merchandise by revenues earned on sales of secondary
pipe. The petitioners argue that Siderca is treating secondary pipe as
a by-product, when it should be treated as a co-product. According to
the petitioners, in IPSCO Inc. v. United States (IPSCO) (965 F.2d 1056,
1060-61 (Fed. Cir. 1992)) the Court of Appeals for the Federal Circuit
upheld the Department's treatment of second quality pipe when the
Department fully allocated costs evenly over output tons. The
petitioners argue that the classification of secondary pipe as a co-
product precludes Siderca's offset of costs by revenue from secondary
pipe.
Siderca argues it properly offset the cost of production by the
revenue earned on sales of secondary pipe. Siderca contends the
secondary pipe in question is a by-product, not a co-product, and is
pulled from the scrap pile when a particular customer periodically
stops by to purchase material. It further contends by-products are
defined as products that have a low sales value compared with the sales
value of the main product. Siderca notes that revenue from the sale of
these products account for a small percentage of its total revenue for
the period. Siderca rebuts the petitioners' reliance on IPSCO by
asserting that IPSCO concerned limited service pipe, not scrap pipe. It
argues that if the Department treats the secondary pipe as a co-
product, then it must increase the production quantity over which
production costs have been allocated, thereby lowering the cost of all
products.
DOC Position
We disagree with the petitioners that IPSCO applies in this case.
IPSCO dealt with limited service merchandise, an OCTG product with a
quality sufficient enough to allow its use in some drilling
applications. We also note that during the relevant period in that
case, IPSCO produced and sold limited service products in significant
quantities. Although Siderca overstates its assertion that these pipes
are scrap sales, this is not a product that could be used for normal
pipe applications. In this case, the merchandise in question was
purchased because of its form, not because of its ability to act as a
conduit for fluids.
The distinction as to whether a joint product is a by-product or a
co-product of the subject merchandise is important because the
Department treats by-products and co-products differently in
calculating the COP of the subject merchandise. Central to our
determination as to whether a product is a by-product or a co-product
of the subject merchandise is the determination of the ``split-off''
point, which is the point in the production process where the co-
product becomes a separately identifiable product. All costs incurred
up to and including the split-off point are considered common to
producing all co-products. Accordingly, where the Department determines
a product to be a co-product, common costs incurred up to and including
the split-off point are allocated among all the co-products, with none
allocated to by-products. Alternatively, where the Department
determines a product to be a by-product, it allocates all common costs
to the primary merchandise and subtracts the amount of the revenue from
the sale of by-products from the total COM of the chief product (see,
e.g., the Preliminary Determination of Sales at Less than Fair Value
and Postponement of the Final Determination: Sebacic Acid from the
People's Republic of China (Sebacic Acid) (59 FR 565 (January 5,
1994)).
The most important factor in determining whether a product is a co-
product or a by-product is its relative sales value compared with that
of the other main products produced in the joint processes (see Sebacic
Acid). By-products are defined as ``products of joint processes that
have minor sales value as compared with that of the chief product'' by
Charles T. Horngren in Cost Accounting, Fifth Edition. In this case,
the record evidence demonstrates that the relative value of secondary
pipe is insignificant compared to OCTG and line pipe, and accounts for
only a small percentage of Siderca's sales.
Additional factors that the Department may examine include: the
respondent's normal accounting treatment; whether significant
additional processing occurs after the split-off point; whether
management controls the quantity produced of the product in question;
and whether its production is an unavoidable consequence of the
production process (see Sebacic Acid; see also the Final Determination
of Sales at Less than Fair Value: Titanium Sponge from Japan (49 FR
38687, October 1, 1987) and the Final Determination of Sales at Less
than Fair Value: Frozen Concentrated Orange Juice from Brazil (52 FR
8324, March 17, 1987).
The respondent's normal accounting treatment indicates its opinion
as to whether the product in question is a by- or co-product. A
respondent's normal treatment is not considered persuasive if the
Department has evidence indicating that it would be unreasonable for
purposes of an antidumping analysis. In this case the respondent treats
the product in question as a by-product. We find that this treatment
does not distort the antidumping analysis. Significant additional
processing of a magnitude that would raise the value of the product in
question to a point where its relative value to the other main products
is significant may indicate that the product should be treated as a co-
product. In this case no additional processing takes place.
Additionally, if management takes steps to intentionally produce the
product, then it would be an indication that the product may be a co-
product. If the production of a product is unavoidable, the product
could be either a by-product or co-product. Other factors would have to
be considered to make the determination. In this case, the management
of Siderca takes steps to avoid the production errors which cause pipes
to become seconds. It is only where production errors exist that the
secondary pipe is produced. After careful consideration of all of the
relevant factors, the Department concludes that the product in question
was properly treated as a by-product in this investigation.
[[Page 33548]]
Comment 8: Fixed Fabrication and Depreciation Cost
The petitioners argue the difference between the company-wide
average and the average of the reported fixed fabrication and
depreciation cost indicates Siderca understated the reported amounts.
The petitioners assert fixed costs are normally higher for OCTG than
for other types of pipe because of substantially higher finishing costs
for OCTG. The petitioners state differences in fixed costs could only
result if different production lines are used or if different capacity
utilization rates are realized, but neither situation applies to
Siderca. The petitioners reference Siderca's production flow charts,
which show that subject and non-subject merchandise share the same
production lines. Where subject and non-subject merchandise do not
share the same production line, the equipment used for downstream
processing is similar.
Siderca argues it properly allocated depreciation expense in the
reported product-specific costs. Siderca asserts the results of the
gross comparison test can be explained. First, the test compares an
average of all products to an average from only two OCTG markets.
Siderca's plain-end pipes carry a smaller portion of fixed fabrication
and depreciation, while the remaining production carries a greater
amount of these costs, because of their complexity. Siderca argues the
overall product mix of the merchandise sold to the United States and
China is at the lower end of the complexity range. It is natural, they
argue, that the average fixed fabrication and depreciation costs
allocated to OCTG sold in the United States and China would be lower.
The more complex products include pipe that is cold-drawn, custom
threaded, buttress threaded, and also pup joints.
Second, the Department's verification report notes that the total
depreciation expense was traced to each cost center and that Siderca
demonstrated how the per-unit costs were determined using the
productivity of each product in a given cost center. Siderca also notes
the Department looked at several product comparisons which show the
relative amounts of fixed fabrication costs allocated to each product.
Siderca contends that it was able to demonstrate the flow of fixed
factory costs and depreciation from the financial statements to the
amounts input into the computer for each cost center. Siderca notes
that the Department verified the allocation factors used to apply fixed
factory costs and depreciation and that they were the same factors used
to allocate factory costs under normal circumstances. In addition, they
note that the Department was able to recalculate the cost of
manufacturing for the test products and compared the allocation of
costs between various products, including line pipe. Siderca further
argues that plain end pipes account for a significant portion of its
U.S. sales, but account for only a small proportion of its overall
sales.
DOC Position
We agree with Siderca. At verification, while we could not
reconcile the total of the individual per unit fixed fabrication and
depreciation costs to the total expense, we were able to perform
alternative procedures in place of that reconciliation. If the
Department is satisfied that the respondent described the systems
abilities accurately, that the system was used in the normal course of
business, and that the data could be verified through alternative
procedures, then the Department normally does not adjust the reported
information. In this case, the system used to allocate the fixed
factory cost and depreciation is the same system used in the normal
course of business to derive the variable factory costs. We performed
the following alternative procedures in place of the reconciliation.
Our analysis compared a company-wide average of fixed factory
overhead and depreciation expense to an average of these variables for
only the U.S. and PRC markets. Additionally, our test of reasonableness
compared a weighted-average figure of fixed factory overhead and
depreciation expense to a simple average figure of these variables. We
do not find that the Department's reasonableness test nor other
evidence on the record indicated Siderca's methodology distorted the
reported per unit costs. Consequently, we used the per unit fixed
factory costs and depreciation reported by Siderca.
Comment 9: Treatment of Quality Control Costs
The petitioners argue the Department may not treat inspection costs
as selling expenses. The petitioners contend that the costs in question
are quality control costs incurred at the end of the production process
and in varying degrees are incurred on all products. The petitioners
cite the Final Determination of Sales at Less than Fair Value: Gray
Portland Cement and Clinker from Japan (56 FR 12156, 12162, March 22,
1991), in which the Department held that quality control costs incurred
at respondent's plant did not constitute selling expenses. The
petitioners argue that the record does not demonstrate that the testing
was a condition of sale. In the Final Determination of Sales at Less
than Fair Value: Forged Stainless Steel Flanges from India (59 FR
68853, 68858, December 29, 1993), the petitioners argue that the
Department found that there was no evidence on the record to support
the assertion that the testing was a condition of sale, and the
Department included the quality control costs in the cost of
manufacturing.
Siderca argues that it correctly treated these particular
inspection costs as selling expenses. It argues that its normal records
treat these inspection costs as selling expenses, and notes that the
Department verified Siderca's ability to identify the extra inspection
costs associated with sales to China. It further argues that the
Department has treated inspection costs as a selling expense in prior
cases. Siderca cites the Final Results of Antidumping Duty
Administrative Review and Revocation in Part of an Antidumping Duty
Order: Antifriction Bearings from Japan (Industrial Belts) (58 FR
39729, 39750, July 26, 1993) and Final Results of Antidumping Duty
Administrative Review: Industrial Belts and Components and Parts
Thereof Whether Cured or Uncured, from Japan (58 FR 30018, 30024, May
25, 1993).
DOC Position
We agree with Siderca. We find that these costs are incurred
commensurate with Siderca's corporate goal to continue to develop sales
of OCTG to the PRC, a situation similar to that in Industrial Belts
(Comment 12). At the sales verification, we looked at correspondence
and other documentation between Siderca and the Chinese customer and
were able to confirm that quality control issues were discussed in
great detail.
At the cost verification, we were able to verify that Siderca
tested OCTG destined for China significantly more than OCTG destined
for other markets. Finally, Siderca is only claiming the quality
control testing costs which can be specifically identified to a
particular market. Siderca included quality control testing costs
incurred at earlier production steps as a cost of production. These
quality control testing costs incurred at the earlier production stage
were incurred regardless of market and, therefore, were properly
included in the COP. The quality control costs incurred at the end of
production could be differentiated based on the market to which the
merchandise was shipped. [[Page 33549]]
Comment 10: Threading Technology Research and Development
The petitioners argue that the reported costs must include the
amounts Siderca spent on threading technology R&D. The petitioners
argue that Siderca's assertion that it properly excluded R&D costs is
completely unsupported. The company brochure indicates Siderca's
research center focuses on research into basic physical phenomena and
research directly related to production techniques. It is clear, they
argue, that R&D advancements in threading technology would benefit all
OCTG products and are, therefore, not market specific.
Siderca argues it properly excluded non-related R&D costs from the
cost of production. Siderca argues the R&D expenses did not relate to
any of the products sold in the United States or China during the POI.
The expenditures were targeted at the development of special threading
for extreme conditions. Siderca argues that the brochure only refers to
the capabilities of the R&D facility, not to specific R&D efforts.
Siderca asserts that if the Department decides to include these R&D
costs, the amount incurred in 1993 should be added, not the 1994
amount.
DOC Position
We agree with the petitioners. Siderca provided no support for its
assertion that the R&D expenses relate only to OCTG products sold in
markets other than the United States and China. More importantly, the
R&D costs in question were for products included in the scope of the
investigation, even if they were not sold in the United States or China
during the period of investigation. Research into technologies for
specific products within the scope of the investigation can reasonably
be assumed to provide collateral benefits for other products within
scope. It would be infeasible for the Department to identify model-
specific distinctions in R&D expenditures. Generally, the Department
has only made distinctions between research into subject and non-
subject merchandise, as shown in the Final Determination of Sales at
Less Than Fair Value: Antifriction Bearings and Parts Thereof From
France, et al. (60 FR 10900, 101921, February 28, 1995). The Department
normally does not make distinctions between research into specific
models. We, therefore, included the R&D expenses as part of the cost of
manufacturing.
Comment 11: Asset Taxes, Restructuring Costs and Social Security Taxes
The petitioners argue Siderca understated G&A expense by excluding
a portion of asset taxes and by normalizing restructuring costs and
social security taxes. Siderca calculated a G&A rate from the audited
financial statements for the year ending March 31, 1994, but in doing
so adjusted these three types of expenses. The petitioners argue the
Department's long-standing practice requires G&A expenses to be
calculated from the financial statements which most closely correspond
to the period of investigation, as shown in Final Determination of
Sales at Less Than Fair Value: Furfuryl Alcohol From Thailand (Furfuryl
Alcohol) (60 FR 22557, 22560, May 8, 1995).
In Furfuryl Alcohol, the Department reasoned G&A expenses are tied
more closely to the time period than to the revenues earned during the
period and, therefore, an average rate representing one full business
cycle of the company is a reasonable basis on which to calculate the
G&A rate. The Department concluded the G&A rate should be calculated
from annual audited financial statements because G&A expenses: (1) Are
incurred sporadically throughout the fiscal year; (2) are frequently
based on estimates that are adjusted to actual expenses at fiscal year
end; and (3) are typically incurred in connection with the company's
overall operations. The salient point, the petitioners argue, is that
Department methodology already smooths out fluctuations and captures a
representative picture of respondent's G&A costs. The petitioners also
note the Department's questionnaire instructed Siderca to calculate its
G&A rate from the audited financial statements for the year which most
closely corresponds to the POI.
Siderca argues the Department is mistaken about the amount of asset
taxes excluded from G&A expense, and that it was proper to exclude this
portion. Siderca argues the government repealed the asset tax four
months prior to the POI and, therefore, the asset tax does not relate
to the products under investigation.
In Argentina, the private pension funds took over the social
security functions previously administered by the Argentine government.
Individuals close to the retirement age were given the option of
remaining under the old system. The retirement age was increased by
five years. As a result, a significant number of individuals chose to
retire early. This led to a larger than normal number of retirements
for Siderca. These higher costs were recognized by Siderca in 1994.
Siderca argues that because of this, severance expenses and social
security expenses were adjusted to reflect what they otherwise would
have been if the government had not changed the labor law at the end of
1993. Because of the privatization, Siderca argues it incurred in
fiscal 1993 labor costs that it otherwise would have incurred in a
future period.
DOC Position
We agree with the petitioners. As the petitioners note, the
Department's methodology intends to smooth out fluctuations and capture
a representative picture of respondent's G&A costs (see e.g., Furfuryl
Alcohol). The Department's long-standing practice is to calculate G&A
expenses from the audited financial statements which most closely
correspond to the POI. Neither the change in the tax law nor the
restructuring costs incurred during the period are extraordinary events
that warrant a departure from the Department's practice. The events are
neither unusual in nature nor infrequent in occurrence. Companies
frequently must react to changes in the laws of the countries in which
they conduct business. The specific change may not occur frequently,
but tax laws which affect the company and its employees are
continuously changing. Therefore, consistent with our normal
methodology, as set forth in Furfuryl Alcohol, we have excluded
Siderca's normalization of costs, and recalculated the G&A rate from
audited financial statements for the year ending March 31, 1994.
Comment 12: Offsetting G&A With Intermediary Sales Revenues
The petitioners argue that Siderca inappropriately offset G&A
expense with revenues from the sale of non-subject merchandise.
Reported total G&A expense included other income and expenses. The
detail of other income and expenses shows revenues from the sale of
miscellaneous products, none of which were pipe. The petitioners argue
the Department's long-standing policy is to deduct from G&A only the
portion of miscellaneous income related to the production of subject
merchandise. The petitioners cite the Final Results of Antidumping Duty
Administrative Reviews: Certain Brass Sheet and Strip From Italy (57 FR
9235, March 17, 1992), in which the Department disallowed miscellaneous
income because it did not relate to the subject merchandise.
[[Page 33550]]
Siderca argues that the revenue from the sale of intermediate
products can be used to offset G&A expense because they were produced
in the same integrated facility with the OCTG products. Siderca argues
that the costs associated with the revenue are included in the reported
costs, and therefore the G&A should be offset by the revenue. Siderca
claims that the petitioners' focus on ``production of the subject
merchandise'' is misleading. Siderca argues there does not have to be a
direct link to OCTG, only to the production facilities where the
merchandise was produced. Siderca cites the Final Determination of
Sales at Not Less Than Fair Value: Saccharin from Korea (59 FR 58826,
58828, November 15, 1994), in which the Department stated that
miscellaneous income should be permitted as an offset to G&A because
the income was related to respondent's production operations.
DOC Position
We agree with Siderca. The insignificant size of the offset
indicates the revenue is miscellaneous in nature and should be included
in G&A. The costs associated with this revenue are captured in the
company's overall variance and, therefore, have been included in the
reported costs. As the Department noted in Saccharin from Korea,
miscellaneous income relating to production operations of the subject
merchandise may be permitted as an offset to G&A. Intermediate
products, sold in small quantities, are considered to be related to
production operations. We have included in G&A the miscellaneous
revenue from the sale of intermediate products.
Comment 13: G&A Expense of Siderca Corp.
The petitioners argue the Department must treat the G&A expense of
Siderca Corp. as further manufacturing costs and not as indirect
selling expenses. They state that Siderca Corp. plays an integral part
in the further manufacturing process, claiming it negotiates and
oversees the work of the unrelated subcontractors, functions as a
purchasing agent for Texas Pipe Threaders (TPT) and the unrelated
subcontractor, and shares with TPT office space and the same company
president. The petitioners argue that, because Siderca failed to
demonstrate which of Siderca Corp.'s G&A expenses relate to further
manufacturing, the Department should make an adverse inference, and
include all of the costs in further manufacturing.
Siderca argues that it properly included Siderca Corp.'s G&A
expenses as a selling expense. Siderca concedes that Siderca Corp. does
purchase material for use in further manufacturing, and arranges when
necessary for the further processing to occur at TPT and other
processors. However, Siderca argues that Siderca Corp.'s activities are
directed toward selling merchandise.
DOC Position
We agree with Siderca. Siderca Corp. may direct the movement of
materials to the related and unrelated further manufacturers, but all
production activities are carried out by the further manufacturers.
These further manufacturers charge Siderca Corp. for their services.
These charges have been reported as further manufacturing costs. We
have treated the G&A expenses of Siderca Corp. as a selling expense,
since the primary function of Siderca Corp. is one of a selling agent.
Comment 14: Interest Expense on Further Manufactured Merchandise
The petitioners argue that Siderca calculated and applied interest
expense incorrectly on sales of further manufactured merchandise. The
petitioners also argue Siderca inappropriately applied the interest
factor to fabrication costs only, and thereby understated costs.
Finally, the petitioners argue Siderca should calculate the rate from
the consolidated financial statements of Siderca, rather than the
financial statements of Siderca Corp.
Siderca maintains that Siderca Corp.'s interest expense is the
appropriate measure of interest expense on sales of further
manufactured merchandise. Siderca argues that Siderca Corp. has a
direct line of credit with a bank in the United States to finance its
operations. Siderca also argues that it is unnecessary to apply any
financing to TPT's activities as the cash balance at TPT is sufficient
to handle its requirements.
DOC Position
The Department's methodology for calculating financial expense is
well-established (see, e.g., the Final Determination of Sales at Less
than Fair Value: New Minivans from Japan (57 FR 21937, May 26, 1992)
and the Final Determination of Sales at Less than Fair Value: Small
Business Telephones from Korea (54 FR 53141, December 27, 1989)). The
Department's preference for using the consolidated financial statements
of the organization, because of the fungibility of money, applies
equally in further manufacturing situations. Both TPT and Siderca Corp.
are consolidated with their parent, Siderca S.A.I.C.. Therefore, the
appropriate rate to apply to the further manufacturing costs is the
rate from the parent's consolidated financial statements.
The petitioners are incorrect in their assertion the rate should be
applied to the cost of the materials (i.e., the cost of the product
produced by Siderca in Argentina which is further manufactured in the
United States). The Department accounts for the interest expense
associated with the product produced in Argentina as part of the
financing cost of the product. It would effect a double counting of
financial expenses if the Department applied the financial expense rate
first to the product produced in Argentina and then to the total of the
further manufactured product.
We applied the financial expense percentage calculated from the
audited consolidated financial statements of Siderca to the cost of the
foreign manufactured product and the cost of the U.S. further
manufacturing.
Suspension of Liquidation
Pursuant to section 735(c)(1)(B) of the Act, we will instruct the
Customs Service to require a cash deposit or posting of a bond equal to
the estimated final dumping margins, as shown below for entries of OCTG
from Argentina 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.
------------------------------------------------------------------------
Weighted-
average
Manufacturer/producer/exporter margin
percentage
------------------------------------------------------------------------
Siderca S.A.I.C............................................ 1.36
All Others................................................. 1.36
------------------------------------------------------------------------
International Trade Commission (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 75 days of the publication of this notice, in accordance with
section 735(b)(3) of the Act. If the ITC determines that material
injury or threat of material injury does not exist, the proceeding will
be terminated and all securities posted as a result of the suspension
of liquidation will be refunded or cancelled. However, if the ITC
determines that material injury or threat of material injury does
exist, the [[Page 33551]] Department will issue an antidumping duty
order.
Notification to Interested Parties
This notice serves as the only reminder to parties subject to
administrative protective order (APO) in this investigation of their
responsibility covering the return or destruction of proprietary
information disclosed under APO in accordance with 19 CFR 353.34(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 19, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-15616 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P
