[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33561-33567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15620]
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[A-580-825]
Final Determination of Sales at Less Than Fair Value: Oil Country
Tubular Goods from Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 28, 1995.
FOR FURTHER INFORMATION CONTACT: Brian C. Smith or John Beck, Office of
Antidumping Investigations, Import Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue NW., Washington, DC
20230; telephone (202) 482-1766 or (202) 482-3464, respectively.
Final Determination:
The Department of Commerce (the Department) determines that oil
country tubular goods (OCTG) from Korea 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 ``Continuation of Suspension of
Liquidation'' section of this notice.
Case History
Since the January 26, 1995, preliminary determination (60 FR 6507,
February 2, 1995), the following events have occurred.
On February 3, 1995, we issued a supplemental questionnaire to
Hyundai Steel Pipe Company, Ltd. (HSP). We received HSP's response on
February 27, 1995.
In March 1995, we conducted the sales and cost verifications in
Houston, Texas, and Seoul, Korea. We issued the verification reports in
April 1995. On May 2 and May 3, 1995, HSP and the petitioners submitted
their case briefs, respectively. On May 10, 1995, both parties
submitted their rebuttal briefs. A public hearing was held on May 16,
1995.
Scope of Investigation
For purposes of this investigation, OCTG are hollow steel products
of circular cross-section, including oil well 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 [[Page 33562]] 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 found
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. Accordingly, these numbers have been deleted from the scope
definition.
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.
Best Information Available
In accordance with section 776(c) of the Act, we have determined
that the use of best information available (BIA) is appropriate for
sales of OCTG by Union Steel Manufacturing Company (Union). Given that
Union did not respond to the Department's questionnaire, we find that
it has not cooperated in this investigation.
In determining what to use as BIA, the Department follows a two-
tiered methodology whereby the Department normally assigns lower
margins to those respondents who cooperate in an investigation, and
margins based on more adverse assumptions for those respondents who do
not cooperate in an investigation. If a respondent is non-cooperative,
that respondent's final margin for the relevant class or kind of
merchandise is the higher of either 1) the highest margin in the
petition, or 2) the highest calculated margin of any respondent (see
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof From the Federal Republic of Germany: Final Determination of
Sales at Less Than Fair Value (54 FR 18992, 19033, May 3, 1989)). The
Department's two-tier methodology for assigning BIA based on the degree
of the respondents' cooperation has been upheld by the U.S. Court of
Appeals for the Federal Circuit. (See Allied-Signal Aerospace Co. v.
the United States, 996 F.2d 1185 (Fed. Cir. 1993); see also Krupp Stahl
AG. et al. v. the United States, 822 F. Supp. 789 (CIT 1993).
In this investigation, Union refused to cooperate by failing to
respond to the Department's questionnaire. Therefore, in accordance
with our standard practice, the Department has assigned the highest
margin in the petition to Union. The assigned BIA margin is the same
margin that was assigned for the preliminary determination.
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. All comparisons of U.S. to third-country 1 sales
involved identical merchandise.
\1\ The home market in this case is not viable. Sales to Canada
are being used as the basis for FMV and the cost of production
analysis.
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Fair Value Comparisons
To determine whether HSP's sales of OCTG from Korea to the United
States were made at less than fair value, we compared United States
price (USP) to 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 methdology described in our
preliminary determination, with the following exceptions as a result of
verification:
1. We removed two types of bank charges from the U.S. indirect
selling expense calculation and treated them as a direct expense; we
included a third type of bank charge in the indirect selling expense
calculation (see Comment 7).
2. We recalculated U.S. and non-U.S. indirect selling expenses;
3. We recalculated inventory carrying costs using HSP's revised
cost data and the appropriate interest rates (see Comment 6).
4. We recalculated foreign brokerage and handling expenses.
5. We deducted a related party's interest charge from USP (see
Comment 8).
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
Canada.
Cost of Production (COP) Analysis
As we indicated in our preliminary determination, the Department
initiated an investigation to determine whether HSP's sales in Canada
were made below their COP. In order to determine whether the third-
country prices were below the COP, we calculated the COP based on the
sum of HSP's reported cost of materials, fabrication, general expenses,
and packing, in accordance with 19 CFR 353.51(c). We did not add duties
paid on the coil to the cost of manufacture (COM)(see Comment 3). We
made the following adjustments to HSP's COP data:
1. We increased the material costs relating to the settlement
received for the purchase of defective coil. We adjusted the settlement
amount to account for only that portion that was pertinent to
production of the subject merchandise during the POI (see Comment 10);
2. We increased the general and administrative expenses to exclude
income and expenses resulting from investment activities of the company
(see Comment 11); and
3. We increased the COM to reflect the allocation of overhead on
the basis of actual hours rather than standard hours (see Comment 12).
After computing COP, we compared product-specific COP to reported
third-country prices that were net of movement charges and direct and
indirect selling expenses. [[Page 33563]]
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, we found that none of HSP's Canadian
sales were at prices below the COP.
Third Country Price Comparisons
For third country price to U.S. price comparisons, we calculated
FMV according to the methodology described in our preliminary
determination, with the following exceptions as a result of
verification:
1. We recalculated foreign brokerage and handling expenses.
2. We recalculated U.S. and non-U.S. indirect selling expenses by
removing antidumping legal expenses from HSP's calculation.
3. We recalculated inventory carrying costs using HSP's revised
cost data and the appropriate interest rates (see Comment 6).
4. We recalculated Canadian credit expenses (see Comment 8).
Currency Conversion
Pursuant to 19 CFR 353.60, 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.
Verification
As provided in section 776(b) of the Act, we verified the
information used in making our final determination.
Comment 1--Interested Party Comments: Whether Best Information
Available (BIA) Is Appropriate for HSP Based on Transaction-Specific
Data Arguments
The petitioners argue that the verification report findings and the
record evidence demonstrate that the respondent should have reported
vessel-specific (e.g., transaction-specific data) instead of POI
average charges and adjustments for its U.S. sales during the POI. In
summary, the petitioners maintain that: (1) The respondent was asked
for transaction-specific information; (2) the respondent stated that
such data would be impossible to provide; (3) the Department verified
that the respondent could provide such data; (4) the respondent
provided such information at verification; and (5) the transaction-
specific data the respondent provided at verification differs from the
POI average figures submitted prior to verification. The petitioners
maintain that because the respondent could have reported transaction-
specific information but failed to do so, the respondent has been
uncooperative, significantly impeding the investigation and casting
doubt on the reliability of its questionnaire response. The petitioners
argue that since the respondent ignored the questionnaire requirement
to report transaction-specific information, the Department should
resort to the application of adverse BIA.
The respondent maintains that its calculation of weighted-average
POI movement expenses for its U.S. sales was reasonable because: (1) It
cannot always trace the actual product from Korea to a sale because it
does not have access to the records of the stockyard (e.g., an
unrelated party) where it stores its OCTG prior to sale; (2) the
tracing method outlined in the verification report for determining
transaction-specific movement expense data is not always accurate; and
(3) sales-specific tracing would have been unduly burdensome. Moreover,
the respondent points out that the difference between the transaction-
specific movement expenses reviewed at verification and the weighted-
average movement expenses reported is de minimis. Therefore, the
respondent maintains that the Department should accept its movement
expense allocation methodology.
DOC Position
We agree with the respondent. We have accepted HPA's average
expense reporting methodology because (1) it is representative and non-
distortive of transaction-specific data; and (2) it would be contrary
to our practice to require an unrelated party that is not a party
subject to this proceeding (i.e., the stockyard) to provide
information. We disagree with the petitioners that HPA has been
uncooperative, that it has significantly impeded the investigation, or
that it misled or made misrepresentations to the Department.
The Department's preference is for a respondent to report
transaction-specific sales information unless a respondent can
demonstrate that doing so is overly burdensome or that its alternative
methodology is representative and non-distortive of transaction-
specific sales information. (In this case, transaction-specific
information is equivalent to vessel-specific information.) HSP's U.S.
subsidiary, HPA, maintained from the outset of this investigation that
it could not report transaction-specific movement expenses for its
sales of OCTG made during the POI because its accounting system does
not contain such information. At verification, this statement was
clarified to mean that HPA could not physically trace the OCTG through
its sales documentation from the vessel, through the stockyard (which
is an unrelated party), and then to the ultimate U.S. customer. Though
HPA uses stock numbers to record movement of OCTG to and from the
stockyard and on sales documentation sent to its U.S. customers, we
have determined that HPA used the stock numbers simply as a technique
to account for the OCTG it sent to its stockyard (an unrelated party)
prior to release to its customers, and for determining what portion of
unsold OCTG remained at the stockyard. At no time after HPA had the
OCTG delivered to the stockyard from the U.S. port of entry did HPA
retain records which would allow it to physically account for the
movement of the OCTG from the stockyard to the first unrelated
customer.
While the stockyard is required by the American Petroleum Institute
(API) to be able to trace, at any time, any piece of OCTG released to
HPA's first unrelated customer back to the specific production run,
such information could not be confirmed from HPA's accounting system or
sales documentation. Only the stockyard's records would likely contain
the information to link the actual OCTG removed from a given vessel to
an actual HPA sale. However, because the stockyard is an unrelated
party to HPA, that information was not obtainable. HPA is therefore
correct when it states that its records cannot physically trace the
OCTG from the vessel to the customer. For this reason, we do not find
that HPA sought to impede the investigation by not providing such data.
Thus, the issue of whether it was burdensome for HPA to report
transaction-specific information is moot.
Finally, after an analysis of business proprietary data and our
findings at verification, we have determined that HPA's methodology of
reporting average POI movement expenses is non-distortive and
representative of the expenses it incurred during the POI on sales of
OCTG. The difference between the vessel-specific movement expenses we
requested at verification and the weighted-average movement expenses
reported is negligible.
Comment 2--Whether BIA Is Appropriate for HSP Based On Alleged Data
Deficiency Arguments
The petitioners maintain that verification revealed several serious
deficiencies in the respondent's questionnaire response. For example,
the petitioners allege that the [[Page 33564]] respondent incorrectly
included movement expenses, bank charges, and antidumping legal
expenses in its indirect selling expenses and that there were serious
discrepancies between actual production hours and the standard
production hours used to allocate costs. The petitioners maintain that
the corrections are so numerous and substantial that the data provided
by the respondent is unusable, and argue, therefore, that the
Department should assign the petition margin as BIA.
The respondent contends that every expense was verified, as the
verification reports make clear. In addition, the respondent points out
that it produced complete information which was entirely verified by
the Department. Therefore, the respondent maintains that the Department
should use its response in the final determination and not resort to
BIA.
DOC Position
We agree with the respondent. We tested the respondent's sales
databases and established that the errors mentioned above were
inadvertent and relatively minor. The respondent either brought these
errors to our attention, or we discovered them as a result of the
respondent providing all requested information. We were able to correct
these errors. The errors mentioned above were not ones which lead us to
question the reliability of the response. These are the types of errors
the Department generally encounters in a typical investigation and it
is the Department's normal practice to correct such minor errors for
purposes of its analysis and less-than-fair-value calculations.
Therefore, we are using the respondent's response in the final
determination and not resorting to BIA.
Comment 3--Exclusion of Duties from the COM
The respondent maintains that the Department must exclude duties
paid from the COP and exclude duty drawback from the Canadian price
because to do otherwise is contrary to Department practice. The
respondent cites Carlisle Tire & Rubber Co. v. United States, 634
F.Suppl. 419, 424 (CIT 1986), and Final Determination of Sales at Less
Than Fair Value: Sweaters Wholly or in Chief Weight of Man-Made Fiber
from the Korea (55 FR 32659, 32666, August 10, 1990) (Sweaters from
Korea) in support of its argument.
The petitioners argue that it would be inappropriate to exclude
duties from the COP because the drawback received on a majority of the
Canadian sales is different from the duties HSP paid on the imported
coil incorporated into the exported pipe.
DOC Position
We agree with the respondent. Our practice, as enunciated in
Sweaters from Korea, is to calculate a COP exclusive of duties and
compare this COP to a duty-exclusive price. Thus, the fact that there
may be a difference between the amount of duty paid and the amount of
drawback received is irrelevant because neither amount is used for
purposes of the COP test involving third country sales. Consequently,
other issues which relate to the duty calculation are moot.
Comment 4--Duty Drawback on U.S. Sales
The petitioners contend that the respondent should have calculated
U.S. duty drawback using shipment-specific drawback data instead of the
average drawback received on all shipments during the period July-
December 1993. They further contend that such reporting would not have
been burdensome because the respondent provided this information at
verification. In addition, the petitioners assert that the respondent's
averaging methodology was not reasonable because it does not accurately
capture the correct universe of duty drawback received. Therefore, the
petitioners request that the Department deny the allocated duty
drawback adjustment to U.S. price.
The respondent maintains that in Laclede Steel Co. v. United
States, Slip Op. 94-160 (CIT 1994) (Laclede), the CIT upheld HSP's
drawback methodology which is virtually identical to the methodology
HSP is using in this instant case. The respondent points out that based
on Laclede, HSP is not required to perform sales-specific calculations
of Korean duty drawback. Moreover, the respondent maintains that it
cannot trace the amount of drawback received on a particular
exportation of OCTG back to a particular imported coil upon which duty
has previously been paid because of the very nature of the Korean
drawback system. Additionally, the respondent contends that the issue
of whether it would have been burdensome to provide transaction-
specific data is irrelevant because there is no relationship between
coil inputs to the OCTG exports. Finally, the respondent argues that
its allocation methodology is reasonable because the amount of drawback
assigned to each vessel bears no relationship to the sales that are
made of the OCTG transported on that vessel.
DOC Position
We agree with the respondent. Contrary to the petitioners'
assertions, we verified that HSP is unable to trace the amount of
drawback received upon a particular exportation of OCTG back to a
particular imported coil upon which duty has previously been paid
because of the nature of the Korean drawback system. Specifically, the
Korean duty drawback system is set up such that HSP is allowed to use a
FIFO (first in first out) method in matching import permits for raw
materials used to produce OCTG to export permits showing OCTG
shipments. When it submits its application for duty drawback, HSP is
not required by the Korean government to link the amount it paid in
duty for a specific amount of imported coil to the OCTG it actually
exported.
However, even if HSP were able to provide transaction-specific
amounts for duty drawback, the Laclede decision is clear that a
respondent is not required to report sales-specific calculations for
duty drawback relating to sales in a particular market.
Regarding whether HSP's duty drawback allocation methodology is
reasonable, we examined at verification alternative allocation methods
HSP could have used. We determined, based on verification, that the
methodology HSP selected reasonably allocated its duty drawback amounts
and was non-distortive based on the following facts: (1) While HSP
cannot determine on a sales specific basis which coil imported actually
was used to produce a specific product for export, it can in general
determine which coil was used to produce U.S.-destined OCTG and
Canadian-destined OCTG; (2) HSP applies for duty drawback in the
ordinary course of business by taking the oldest coil import permits
and linking them to export permits so that it receives all of the
drawback due to it; and (3) there was an insignificant difference
between using HSP's method and using an alternative method based on the
drawback received on OCTG sold during the POI. Regarding petitioners'
request that the duty drawback amount be limited to the actual amount
of duties included in CV and the COP, this issue is moot since we have
excluded duties from the COP calculation and we are not resorting to CV
as a basis for FMV.
Therefore, we are accepting the respondent's duty drawback
allocation methodology because it is in accordance with the Laclede
decision and Department practice. [[Page 33565]]
Comment 5--Dual Prices for Identical Merchandise
The petitioners maintain that the respondent failed to adequately
support its claim that it can and does charge two different prices to
the same customer for the same product on the same day. Absent evidence
to the contrary, the petitioners contend that the real reason for the
change in prices may relate to differences in physical characteristics
or to market conditions. The petitioners argue that if the Department
is not going to resort to BIA, it may have to make a difference-in-
merchandise or circumstance-of-sale adjustment.
The respondent maintains that the Department thoroughly examined
this issue at verification and found no evidence that HPA charges
different prices for the same product based on physical characteristics
or market conditions. The respondent contends that the petitioners'
statements on this issue are unsupported speculation and should be
disregarded.
DOC Position
We agree with the respondent. At verification we examined invoices
which contained different prices for the same product specification to
the same customer. We found that, in fact, HPA will charge two
different prices for identical product from the same stock number to
the same customer on the same invoice. In looking at how the continuous
negotiation process between HPA and its customers works (which is
described in the ESP verification report), export documentation from
Korea, and import documentation into the United States, we find no
reason to suspect that HPA is mislabelling a product's physical
characteristics in the invoice. Therefore, we have accepted HPA's
reported prices and used them in our analysis.
Comment 6--U.S. Inventory Carrying Costs
HSP sells the OCTG to Hyundai Corporation (HC), a related party
(also in Korea), which in turns sells the OCTG to Hyundai Pipe of
America (HPA), HSP's U.S. subsidiary.
The petitioners maintain that when HSP calculated U.S. inventory
carrying costs, it should have used the won-denominated interest rate
applicable while the merchandise was in Korea and then used HC's
interest rate before the merchandise entered HPA's inventory.
The respondent contends that the Federal Circuit's decision in LMI-
LaMetalli Industriale v. United States, 912 F.2d 455 (1990), requires
that HSP use its subsidiary's, HPA's, U.S. interest rate.
DOC Position
We agree with the petitioners. Respondent's use of the U.S.
interest rate to calculate its inventory carrying costs is not in
accordance with Department practice (see Final Determination of Sales
at Less Than Fair Value: Certain Carbon Steel Butt-Weld Pipe Fittings
from Thailand (60 FR 10552, February 27, 1995), and the September 24,
1994, memorandum in that case from Susan Kuhbach, Director, Office of
Countervailing Duty Investigations to Barbara R. Stafford, Deputy
Assistant Secretary for Investigations). The Department's current
practice is to use the interest rate denominated in the currency of the
transaction.
A company selling in a given currency (such as sales denominated in
dollars) is effectively lending to its purchasers in the currency in
which its receivables are denominated (in this instance in won and
dollars) for the period from shipment of its goods until the date it
receives payment from its purchaser. Thus, when sales are made, and
future payments are expected, in a given currency, the measure of the
company's extension of credit should be based on an interest rate tied
to the currency in which its receivables are denominated. This
recognizes both the time value of money and the effect of currency
fluctuations on repatriating revenue. Such an approach comports with
the Federal Circuit's decision in LMI-La Metalli, wherein the court
noted that ``[i]f the cost of credit is imputed in the first instance
to conform with commercial reality, it must be imputed on the basis of
usual and reasonable commercial behavior.'' 912 F.2d at 461.
In this instance, HSP sold the merchandise in Korea to the Korean
company HC in a won-denominated transaction. In turn, HC sold the
merchandise to HPA, the U.S. affiliate, in a dollar-denominated
transaction. Finally, HPA sold the merchandise to the first unrelated
U.S. customer in a dollar-denominated transaction. Accordingly, we have
used (1) the Korean interest rate during the period from production to
HSP's sale of the merchandise; and (2) HPA's U.S. interest rate during
the period it was held by HPA. For the period of time between HC's
purchase of the merchandise and its sale of the merchandise to HPA, we
have used an actual expense and not the imputed expense (see Comment 8
for a further discussion).
Comment 7--HPA's Bank Charges
The respondent maintains that the three types of bank charges which
it included in its U.S. indirect selling expense calculation are not
direct expenses because they cover shipments which include both OCTG
and non-subject merchandise. Therefore, the respondent contends that
the bank charges are not directly associated with individual products.
The petitioners maintain that the bank charges at issue are direct
expenses for both OCTG and non-subject merchandise and can be
attributed to specific shipments. Moreover, even though in some cases
the charge must be allocated between OCTG and non-subject merchandise
within a particular shipment, the charge is still a direct expense
because it is a charge HPA incurs regardless of what product is sold.
DOC Position
We agree in part with the petitioners. The respondent incurs the
following three types of bank charges on U.S. sales of OCTG: (1)
Charges for opening a letter of credit (e.g., L/C open commission); (2)
charges for an analysis of its bank account (e.g., account analysis
charge); and (3) charges from the bank for checking the sales documents
for HPA (e.g., a negotiation commission). Based on our verification
findings, it is clear that the account analysis charges are indirect
selling expenses because they are not associated with the direct sale
of OCTG. As for the L/C open commission, it is a telex charge for
opening a letter of credit for each sale. Therefore, it is a direct
selling expense. Regarding the negotiation commissions, these are
expenses associated with the transfer of sales documentation from HC to
HPA and are directly related to the sale of the subject merchandise, as
well as non-subject merchandise, because these commissions are the fees
that HPA's bank charges HPA for reviewing the sales documentation
between HC and HPA. Moreover, HPA's bank determines the amount of the
charge based on a percentage of the value of the merchandise.
Therefore, we have included the account analysis charges as part of
HPA's U.S. indirect selling expense calculation. However, we have
removed the negotiation commissions and letter of credit fees from the
indirect selling expense calculation and treated these as direct
selling expenses. We allocated these direct expenses between the OCTG
and the non-subject merchandise based on a percentage of the sales
values between HC and HPA. [[Page 33566]]
Comment 8--HC's Interest Charges
HSP reported that it ``sells'' the OCTG to HC, which in turn
``sells'' the OCTG to HPA, HSP's U.S. subsidiary. The respondent
maintains that HC pays a certain percentage of the transfer price in
interest charges to compensate the Korean bank for the time value of
the money resulting from the time lag between the Korean bank's payment
to HC and the payment to the Korean bank from the U.S. bank. HSP
maintains that these interest charges to finance the internal movement
within Hyundai of OCTG while in physical transit from Korea to the
United States. Therefore, the respondent contends that, because HPA
makes ESP sales out of its U.S. inventory, HC's interest charges cannot
be associated with goods which are subject to a later sale.
The respondent contends that this interest charge calculated by HSP
is duplicated by HPA's inventory carrying cost calculation and HSP's
Canadian credit expense calculation because it compensates the Korean
bank for the short delay in HC's receipt of payment under the letter of
credit posted by HPA. The respondent also contends that this type of
charge is included in HPA's indirect selling expenses and therefore
must be removed from them. Otherwise, the respondent maintains that the
Department is double counting this expense.
The petitioners maintain that the interest charges and inventory
carrying costs must be fully and separately reported and deducted from
U.S. price.
DOC Position
We agree in part with the respondent. Based on verification of
HPA's ESP sales process, we have determined that HC's interest charges
cannot be specifically traced to the U.S. sale of OCTG to the first
unrelated customer. Therefore, this charge is clearly associated with
the internal movement of the subject merchandise from Korea to the
United States and not associated with a specific sale. Accordingly, we
have treated this expense as an indirect selling expense in the final
determination.
Regarding the respondent's claim that an imputed amount capturing
the delay in payment must be deducted from inventory carrying expense
and/or credit expense, HPA's bank will not pay HC's bank until HPA
provides the shipment documents received after receipt of the OCTG from
HC. Therefore, we find that the interest charge is associated with the
delay in payment between HC's bank and HPA's bank and that this is a
result of the time delay between when HC releases the OCTG and when HPA
receives the OCTG. We find that the interest charge represents part of
the inventory carrying expense calculation and does not represent an
additional expense. Since the deduction of both this interest charge
and the time during which the OCTG is in HC's inventory would represent
double counting, we have removed the inventory days during which the
OCTG is in HC's inventory from the inventory carrying expense
calculation.
Regarding the respondent's claim that HC's interest charge amount
must be deducted from HPA's indirect selling expenses, we disagree
because HC's expenses are not captured in HPA's indirect selling
expenses calculation.
Finally, regarding the respondent's claim that the interest charge
(which is also incurred on Canadian sales of OCTG), is duplicated by
HSP's Canadian credit expense calculation, HPA's bank will not pay HC's
bank until the Canadian customer pays HPA and this transaction occurs
after the customer receives the shipment documents. However, HC's bank
will still pay HC based on the letter of credit opened by HPA, and HC's
bank will charge HC an interest charge for the advance receipt of the
value of the OCTG. Therefore, we find that the interest charge is an
actual credit expense which is associated with receiving payment for
the OCTG before the Canadian customer pays HPA for the OCTG. Although
this interest charge does not cover the entire credit period (e.g.,
shipment from Korea until HPA's receipt of payment from the Canadian
customer), we have accounted for the additional credit period by
imputing a credit expense which is based on the use of HPA's interest
rate and the difference between HPA's and HC's sales prices of OCTG to
the U.S. market.
Comment 9--Packing Expense
The petitioners contend that HSP has improperly applied its
conversion factor to packing expenses. Specifically, the petitioners
allege that since HSP allocated packing costs over the total tonnage of
OCTG sold rather than produced, it was unnecessary to use a conversion
factor to determine the expenses. The actual packing costs have already
been allocated on a theoretical weight basis.
The respondent maintains that verification demonstrated that HSP
allocated packing costs over the total actual volume of small pipe
sales, and then applied a conversion factor to restate the costs on a
nominal weight basis.
DOC Position
We agree with the respondent. We find that HSP did not use its
conversion factor twice to determine its packing expenses. Verification
demonstrated that HSP applied a conversion factor to the actual tonnage
of OCTG produced to determine its packing costs. HSP used the quantity
figures from its inventory ledger, (which record the actual tonnage),
and not its sales ledger, as the basis for its packing expense
allocation methodology. Therefore, we have accepted HSP's packing
expense methodology.
Comment 10--Settlement Adjustment on Defective Coil Purchase
The petitioners argue that some of the coils on which HSP received
settlement for defective material were consumed before the POI.
Accordingly, the petitioners maintain that only the settlement revenue
received by HSP and associated with coil consumed in the POI should be
used to offset materials.
The respondent argues that it received all the settlement payment,
which was to compensate HSP for defective material, during the POI, and
that it should be offset against HSP's POI coil cost.
DOC Position
We agree with the petitioners. We found at verification that some
of the defective material was used in production in 1993. The actual
material cost for the POI equals the total net amount paid. This amount
equals the amount paid on the material used during the POI, less the
proportional amount of the settlement. In January 1994, HSP knew the
amount it would receive and it knew the specific materials associated
with the settlement. Therefore, we have adjusted the settlement amount
for defective material to account for the production that occurred
prior to the POI, and have considered only that portion of the
settlement pertinent to production during the POI.
Comment 11--Adjustment of G&A Calculation
The petitioners argue that the gains and losses on investment
securities and other investment related expense and income items should
be excluded from the calculation of general and administrative (G&A)
expenses. They contend that all non-operating items must be excluded
from the SG&A calculation.
The respondent states the inclusion of investment related items is
consistent with its financial statements. [[Page 33567]]
DOC Position
We agree with the petitioners. The Department's practice has been
not to include investment-related gains, losses and expenses in the
calculation of G&A for purposes of COP or CV calculations. The
Department's purpose in COP and CV situations is to determine the cost
to produce the subject merchandise. The cost to produce the subject
merchandise does not include unrelated production or investment
activities. The Department accounts for investment activities which
relate to financing a company's working capital as part of the
financial expense. The financial expense is calculated on a
consolidated company-wide basis. Therefore, we have recalculated G&A
expenses by excluding HSP's company-wide investment related items.
Comment 12--Allocation Based on Standard Vs. Actual Hours for Overhead
The petitioners argue that the respondent, by using standard hours
rather than actual hours for the allocation of overhead, has
miscalculated the allocation of actual costs between subject and non-
subject merchandise. The petitioners further argue that if the overhead
costs cannot be recalculated on the basis of actual hours, then the
submitted cost data should be rejected.
The respondent argues that in Final Determination of Sales at Less
Than Fair Value: Circular Welded Non-Alloy Steel Pipe From the Republic
of Korea (57 FR 42942, September 17, 1992) (Circular Pipe), the
Department did not question the use of standard hours as the basis for
the allocation of fabrication costs, only depreciation and G&A
expenses. The respondent states that, in the instant case, the standard
hours approximate the actual hours which were provided at verification.
In any event, the respondent provided actual hours.
DOC Position
We agree with the petitioners. The Department's strong preference
is to use actual costs for purposes of calculating COM whenever
possible. See Final Determination of Sales at Less Than Fair Value:
Fresh Chilled Atlantic Salmon from Norway (58 FR 37915, July 14, 1993).
After a thorough review of Circular Pipe, it is clear that neither
party raised the issue regarding the use of standard hours. Since HSP
reported actual hours and we verified these hours, we applied the
actual hours to the actual variable and fixed overhead costs to
calculate the COM.
Comment 13--Double Use of Conversion Factor
The petitioners argue that HSP has applied the conversion factor
which converts the costs of production from an actual to nominal basis,
twice: First to material costs and then to total COP and CV. The
petitioners maintain that this action causes costs to be understated.
The respondent states that it applied the conversion factor only
once at the end of the total cost calculation.
DOC Position
We agree with the respondent that the conversion factor was applied
only once. An examination of the cost verification exhibits show that
the conversion factor was applied once to the actual material costs to
derive the nominal material costs which were then converted to nominal
terms. Thus, we agree with the respondent that no adjustment has to be
made.
Continuation of Suspension of Liquidation
In accordance with section 733(d)(1) of the Act (19 USC
1673b(d)(1)), we directed the Customs Service to suspend liquidation of
all entries of OCTG from Korea, as defined in the ``Scope of
Investigation'' section of this notice, that are entered, or withdrawn
from warehouse, for consumption on or after February 2, 1995.
The Customs Service shall require a cash deposit or posting of a
bond equal to the estimated dumping margin, as shown below for entries
of OCTG from Korea 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.
------------------------------------------------------------------------
Margin
Producer/manufacturer/exporter percentage
------------------------------------------------------------------------
Hyundai Steel Pipe Company, Ltd............................. 00.00
Union Steel Manufacturing Company........................... 12.17
All Others.................................................. 12.17
------------------------------------------------------------------------
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 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 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 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. 1673d(d)) and 19 CFR 353.20.
Dated: June 19, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-15620 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P
