[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Notices]
[Pages 30574-30592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13680]
[[Page 30573]]
_______________________________________________________________________
Part II
Department of Commerce
_______________________________________________________________________
International Trade Administration
_______________________________________________________________________
Final Determination of Sales at Less Than Fair Value: Stainless Steel
Sheet and Strip in Coils From Japan, Taiwan, Germany, etc.; Notice
Federal Register / Vol. 64, No. 109 / Tuesday, June 8, 1999 /
Notices
[[Page 30574]]
DEPARTMENT OF COMMERCE
International Trade Administration
[A-588-845]
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Sheet and Strip in Coils From Japan
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 8, 1999.
FOR FURTHER INFORMATION CONTACT: Letitia Kress or Karla Whalen, Import
Administration, International Trade Administration, U.S. Department of
Commerce, Room 7866, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; at telephone: (202) 482-3793.
The Applicable Statute
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (``the Act''), are references to the provisions
effective January 1, 1995, the effective date of the amendments made to
the Act by the Uruguay Round Agreements Act (``URAA''). In addition,
unless otherwise indicated, all citations to the Department of Commerce
(``Department'') regulations are to the regulations at 19 CFR Part 351
(1998).
Final Determination
We determine that stainless steel sheet and strip in coils
(``SSSS'') from Japan are being sold in the United States at less than
fair value (``LTFV''), as provided in section 735 of the Act. The
estimated margins are shown in the ``Continuation of Suspension of
Liquidation'' section of this notice.
Case History
Since the preliminary determination, issued on December 17, 1998
(Notice of Preliminary Determination of Sales at Less Than Fair Value
and Postponement of Final Determination: Stainless Steel Sheet and
Strip in Coils from Japan, 64 FR 108 (January 4, 1999)) (``Preliminary
Determination''), the following events have occurred.
On December 21, 1998, Nippon Steel Corporation (``NSC'') requested
that the Department extend the deadline for its response to the Section
D supplemental questionnaire until January 11, 1998. The Department
granted NSC an extension for this response until January 4, 1999. On
December 22, 1998, petitioners submitted comments on NSC's Section D
response. On January 4, 1999, NSC notified the Department of its
inability to respond to the Section D supplemental request on time. On
January 11, 1999, Petitioners requested that the Department cancel
verification for NSC due to the lack of a response and base its final
determination on facts otherwise available. On January 12, 1999, the
Department granted NSC an extension to respond to the supplemental cost
response until January 25, 1999. On January 19, 1999, NSC notified the
Department that it could not respond to the Department's supplemental
questionnaire. However, in the same letter, NSC also asked the
Department to verify its shipment data for purposes of the Department's
final critical circumstances determination.
On December 22, 1998, the Department issued a supplemental cost
questionnaire to Kawasaki Steel Corporation (``KSC''). On December 23,
1998, KSC requested an extension of the deadline for its response to
supplemental cost questionnaire. On January 4, 1999, KSC submitted a
ministerial error allegation on the Department's Preliminary
Determination. On February 23, 1999, the Department published the
amended preliminary determination incorporating the correct scope
language. See Notice of Preliminary Determinations of Sales at Less
than Fair Value: Stainless Steel Sheet and Strip from France, Germany,
Italy, Japan, Mexico, South Korea, and United Kingdom; and Amended
Preliminary Determination of Sales at Less than Fair Value, Stainless
Steel Sheet and Strip from Taiwan, 64 FR 8749 (Feb. 23, 1999). On
January 25, 1999, KSC submitted its supplemental cost response to the
Department as well as its supplemental home market sales information.
On January 15, 1999, Sumitomo Metal Industries (``SMI''), a
producer not selected as a respondent in this investigation, requested
that the Department reverse its decision that SMI be subject to the
``All Others'' affirmative critical circumstances cooperative finding
since it cooperated with the Department's request for information until
being deselected as a respondent (See Decision Memorandum from Division
Directors, Office VII, to Joseph Spetrini, regarding Selection of
Respondents, September 21, 1998). On January 29, 1999, Nippon Metal
Industry Co., Ltd. (``NMI''), a mandatory but unresponsive respondent,
submitted shipment information in connection with the Department's
preliminary critical circumstances finding.
On January 25, 1999 and February 2, 1999, KSC and NSC,
respectively, requested that the Department conduct a hearing. On
February 2, 1999, petitioners and SMI requested that they too
participate in the hearing.
On January 28, 1999, petitioners submitted comments regarding the
upcoming KSC sales verification. On March 24, 1999, the Department
forwarded the sales verification outline to KSC. The Department
conducted the sales verification from February 1 through February 9,
1999. On February 2, 1999 and February 9, 1999, KSC submitted a list of
minor corrections reported at the beginning of verification for KSC and
Kawasho Corporation (``Kawasho''), its affiliated trading company,
respectively. The Department did not conduct a sales verification of
NSC or NMI.
On February 12, 1999, the Department issued the cost verification
outline to KSC. Petitioners submitted cost verification comments
regarding KSC on February 18, 1999. The Department conducted the cost
verification in conjunction with the LTFV investigation on Certain Hot-
Rolled Flat-Rolled Carbon-Quality Steel Products from Japan from
February 22 through March 5, 1999. The Department issued its cost
verification report on March 23, 1999 and sales verification report on
March 24, 1999. (See Memorandum to James Doyle, Program Manager, AD/CVD
Enforcement Group III, Office 7: Verification of the Sales
Questionnaire Responses of Kawasaki Steel Corporation (``KSC Sales
Verification Report'') and Memorandum to Neal Halper, Acting Director,
Office of Accounting: Cost Verification Report-Kawasaki Steel
Corporation) (``KSC Cost Verification Report''). On April 13, 1999, KSC
submitted a revised sales database which incorporated the minor
corrections presented at verification as well as verification findings.
On April 2, 1999, Petitioners, KSC, SMI, Watanabe Trading Co., Ltd.
(``Watanabe''), and Printing Developments Inc. submitted case briefs.
On April 9, 1999, petitioners, KSC and NSC submitted rebuttal briefs.
The Department conducted the hearing on April 14, 1999.
Scope of the Investigation
We have made minor corrections to the scope language excluding
certain stainless steel foil for automotive catalytic converters and
certain specialty stainless steel products in response to comments by
interested parties.
For purposes of this investigation, the products covered are
certain stainless steel sheet and strip in coils. Stainless steel is an
alloy steel containing, by weight, 1.2 percent or less of carbon and
10.5 percent or more of chromium, with
[[Page 30575]]
or without other elements. The subject sheet and strip is a flat-rolled
product in coils that is greater than 9.5 mm in width and less than
4.75 mm in thickness, and that is annealed or otherwise heat treated
and pickled or otherwise descaled. The subject sheet and strip may also
be further processed (e.g., cold-rolled, polished, aluminized, coated,
etc.) provided that it maintains the specific dimensions of sheet and
strip following such processing.
The merchandise subject to this investigation is classified in the
Harmonized Tariff Schedule of the United States (HTS) at subheadings:
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,
7220.20.60.10, 7220.20.60.15, 7220.20.60.60, 7220.20.60.80,
7220.20.70.05, 7220.20.70.10, 7220.20.70.15, 7220.20.70.60,
7220.20.70.80, 7220.20.80.00, 7220.20.90.30, 7220.20.90.60,
7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and 7220.90.00.80.
Although the HTS subheadings are provided for convenience and Customs
purposes, the Department's written description of the merchandise under
investigation is dispositive.
Excluded from the scope of this investigation are the following:
(1) Sheet and strip that is not annealed or otherwise heat treated and
pickled or otherwise descaled, (2) sheet and strip that is cut to
length, (3) plate (i.e., flat-rolled stainless steel products of a
thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled
sections, with a prepared edge, rectangular in shape, of a width of not
more than 9.5 mm), and (5) razor blade steel. Razor blade steel is a
flat-rolled product of stainless steel, not further worked than cold-
rolled (cold-reduced), in coils, of a width of not more than 23 mm and
a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5
percent chromium, and certified at the time of entry to be used in the
manufacture of razor blades. See Chapter 72 of the HTS, ``Additional
U.S. Note'' 1(d).
In response to comments by interested parties the Department has
determined that certain specialty stainless steel products are also
excluded from the scope of this investigation. These excluded products
are described below.
Flapper valve steel is defined as stainless steel strip in coils
containing, by weight, between 0.37 and 0.43 percent carbon, between
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent
manganese. This steel also contains, by weight, phosphorus of 0.025
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur
of 0.020 percent or less. The product is manufactured by means of
vacuum arc remelting, with inclusion controls for sulphide of no more
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper
valve steel has a tensile strength of between 210 and 300 ksi, yield
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a
hardness (Hv) of between 460 and 590. Flapper valve steel is most
commonly used to produce specialty flapper valves in compressors.
Also excluded is a product referred to as suspension foil, a
specialty steel product used in the manufacture of suspension
assemblies for computer disk drives. Suspension foil is described as
302/304 grade or 202 grade stainless steel of a thickness between 14
and 127 microns, with a thickness tolerance of plus-or-minus 2.01
microns, and surface glossiness of 200 to 700 percent Gs. Suspension
foil must be supplied in coil widths of not more than 407 mm, and with
a mass of 225 kg or less. Roll marks may only be visible on one side,
with no scratches of measurable depth. The material must exhibit
residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm
over 685 mm length.
Certain stainless steel foil for automotive catalytic converters is
also excluded from the scope of this investigation. This stainless
steel strip in coils is a specialty foil with a thickness of between 20
and 110 microns used to produce a metallic substrate with a honeycomb
structure for use in automotive catalytic converters. The steel
contains, by weight, carbon of no more than 0.030 percent, silicon of
no more than 1.0 percent, manganese of no more than 1.0 percent,
chromium of between 19 and 22 percent, aluminum of no less than 5.0
percent, phosphorus of no more than 0.045 percent, sulfur of no more
than 0.03 percent, lanthanum of less than 0.002 or greater than 0.05
percent, and total rare earth elements of more than 0.06 percent, with
the balance iron.
Permanent magnet iron-chromium-cobalt alloy stainless strip is also
excluded from the scope of this investigation. This ductile stainless
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10
percent cobalt, with the remainder of iron, in widths 228.6 mm or less,
and a thickness between 0.127 and 1.270 mm. It exhibits magnetic
remanence between 9,000 and 12,000 gauss, and a coercivity of between
50 and 300 oersteds. This product is most commonly used in electronic
sensors and is currently available under proprietary trade names such
as ``Arnokrome III.'' 1
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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering
Company.
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Certain electrical resistance alloy steel is also excluded from the
scope of this investigation. This product is defined as a non-magnetic
stainless steel manufactured to American Society of Testing and
Materials (ASTM) specification B344 and containing, by weight, 36
percent nickel, 18 percent chromium, and 46 percent iron, and is most
notable for its resistance to high temperature corrosion. It has a
melting point of 1390 degrees Celsius and displays a creep rupture
limit of 4 kilograms per square millimeter at 1000 degrees Celsius.
This steel is most commonly used in the production of heating ribbons
for circuit breakers and industrial furnaces, and in rheostats for
railway locomotives. The product is currently available under
proprietary trade names such as ``Gilphy 36.'' 2
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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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Certain martensitic precipitation-hardenable stainless steel is
also excluded from the scope of this investigation. This high-strength,
ductile stainless steel product is designated under the Unified
Numbering System (UNS) as S45500-grade steel, and contains, by weight,
11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon,
manganese, silicon and molybdenum each comprise, by weight, 0.05
percent or less, with phosphorus and sulfur each comprising, by weight,
0.03 percent or less. This steel has copper, niobium, and titanium
added to achieve aging, and will exhibit yield strengths as high as
1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after
aging, with elongation percentages of 3 percent or less in 50 mm. It is
generally provided in thicknesses between 0.635 and 0.787 mm, and in
widths of 25.4 mm. This product is most commonly used in the
manufacture of television tubes and is
[[Page 30576]]
currently available under proprietary trade names such as ``Durphynox
17.'' 3
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\3\ ``Durphynox 17'' is a trademark of Imphy, S.A.
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Finally, three specialty stainless steels typically used in certain
industrial blades and surgical and medical instruments are also
excluded from the scope of this investigation. These include stainless
steel strip in coils used in the production of textile cutting tools
(e.g., carpet knives).4 This steel is similar to AISI grade
420 but containing, by weight, 0.5 to 0.7 percent of molybdenum. The
steel also contains, by weight, carbon of between 1.0 and 1.1 percent,
sulfur of 0.020 percent or less, and includes between 0.20 and 0.30
percent copper and between 0.20 and 0.50 percent cobalt. This steel is
sold under proprietary names such as ``GIN4 Mo.'' The second excluded
stainless steel strip in coils is similar to AISI 420-J2 and contains,
by weight, carbon of between 0.62 and 0.70 percent, silicon of between
0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent,
phosphorus of no more than 0.025 percent and sulfur of no more than
0.020 percent. This steel has a carbide density on average of 100
carbide particles per 100 square microns. An example of this product is
``GIN5'' steel. The third specialty steel has a chemical composition
similar to AISI 420 F, with carbon of between 0.37 and 0.43 percent,
molybdenum of between 1.15 and 1.35 percent, but lower manganese of
between 0.20 and 0.80 percent, phosphorus of no more than 0.025
percent, silicon of between 0.20 and 0.50 percent, and sulfur of no
more than 0.020 percent. This product is supplied with a hardness of
more than Hv 500 guaranteed after customer processing, and is supplied
as, for example, ``GIN6''. 5
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\4\ This list of uses is illustrative and provided for
descriptive purposes only.
\5\ ``GIN4 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary
grades of Hitachi Metals America, Ltd.
---------------------------------------------------------------------------
Period of Investigation
The period of investigation (``POI'') is April 1, 1997 through
March 31, 1998.
Product Comparisons
In accordance with section 771(16) of the Act, we considered all
products, covered by the description in the Scope of Investigation
section above produced by KSC, and sold in Japan during the POI to be
foreign like products for purposes of determining appropriate product
comparisons to U.S. sales. We relied on nine characteristics to match
U.S. sales of subject merchandise to comparison market sales of the
foreign like product (listed in order of significance): grade; hot/cold
rolled; gauge; finish; metallic coating; non-metallic coating; width;
temper/tensile strength; and edge trim. These characteristics have been
weighted by the Department where appropriate. Where there were no sales
of identical merchandise in the home market to compare to U.S. sales,
we compared U.S. sales to the next most similar foreign like product on
the basis of the characteristics listed in the antidumping duty
questionnaire instructions.
Fair Value Comparisons
To determine whether sales of SSSS from Japan to the United States
were made at LTFV, we compared export price (``EP'') to the normal
value (``NV''), as described in the ``Export Price'' and ``Normal
Value'' sections of this notice below. In accordance with sections
772(a) and (c) of the Act, we calculated EP for all of KSC's sales,
since the subject merchandise was first sold in the United States to an
unaffiliated purchaser, and constructed export price (``CEP'') was not
otherwise warranted based on the facts on the record.
Level of Trade
In accordance with section 773(a)(1)(B) of the Act, to the extent
practicable, the Department determines NV based on sales in the
comparison market at the same level of trade (``LOT'') as the EP or CEP
transaction. The NV LOT is that of the starting-price sales in the
comparison market or, when NV is based on constructed value (``CV''),
that of the sales from which we derive selling, general and
administrative (``SG&A'') expenses and profit. For EP, the U.S. LOT is
also the level of the starting-price sale, which is usually from
exporter to importer. For CEP sales, it is the level of the constructed
sale from the exporter to the importer. To determine whether NV sales
are at a different LOT than EP or CEP, we examine stages in the
marketing process and selling functions along the chain of distribution
between the producer and the unaffiliated customer. If the home market
sales are at a different LOT, and the difference affects price
comparability, as manifested in a pattern of consistent price
differences between the sales on which NV is based and home market
sales at the LOT of the export transaction, we make an LOT adjustment
under section 773(a)(7)(A) of the Act. Finally, for CEP, if the NV
level is more remote from the factory than the CEP level and there is
no basis for determining whether the difference in the levels between
NV and CEP affects price comparability, we adjust NV under section
773(a)(7)(B) of the Act (the CEP offset provision). See Notice of Final
Determination of Sales at Less Than Fair Value: Certain Cut-to-Length
Carbon Steel Plate from South Africa, 62 FR 61731 (November 19, 1997).
We applied the aforementioned criteria in the Preliminary
Determination and indicated that the information on the record revealed
two levels of trade (end-users and trading companies) for KSC in the
home market. The Department also found that sales made through trading
companies in both the home market and the United States were at the
same level of trade. See Preliminary Determination, 64 FR at 114-115.
As we further explain this issue in response to Comment 3, below, we
continue to find that there are two levels of trade: (1) KSC sales to
end-users; and (2) KSC sales to affiliated and unaffiliated trading
companies. Additionally, we continue to find that no consistent,
significant pattern of price differences existed and therefore we did
not adjust NV for U.S. sales when compared to home market sales made at
a different LOT.
Export Price
We calculated EP based on the packed, delivered price to
unaffiliated purchasers in the United States. For KSC, we deducted,
where appropriate, foreign inland freight, insurance, rebates,
brokerage and handling from the starting price and added duty drawback.
Normal Value
After testing home market viability and whether home market sales
were at below-cost prices, we calculated NV as noted in the ``Price-to-
Price Comparisons'' and ``Price-to-CV Comparisons'' sections of this
notice, below.
1. Home Market Viability
As discussed in the Preliminary Determination, we determined that
the home market was viable. See Preliminary Determination, 64 FR at
113. The parties did not contest the viability of the home market and
we have no other reason to reconsider our preliminary determination
regarding viability. Consequently, for the final determination, we have
based NV on home market sales.
2. Cost of Production (``COP'')
In accordance with section 773(b)(3) of the Act, we calculated the
weighted-average COP, based on the sum of KSC's cost of materials,
fabrication, SG&A expenses, and packing costs. We relied on KSC's
submitted COPs, except in the following specific instances where the
[[Page 30577]]
submitted costs were not appropriately quantified or valued.
1. We adjusted KSC's reported cost of manufacturing to remove
variances associated with the packing and transportation cost centers.
2. We revised KSC's reported financial expense rate to include a
subsidiary's excluded foreign exchange losses.
3. We applied the general and administrative expense rate and
financial expense rate to KSC's cost of manufacturing plus packing
expenses and loading costs. See Memorandum of Cost of Production and
Constructed Value Calculation Adjustments for the Final Determination
from William Jones to Neal Halper, dated May 19, 1999. (``Cost
Calculation Memo'')
We conducted the sales-below-cost test in the same manner as
described in our Preliminary Determination, 64 FR at 113. As with our
Preliminary Determination, we found that for certain models of SSSS,
more than 20 percent of KSC's home market sales were at prices less
than the COP within an extended period of time. See section
773(b)(1)(A) of the Act. Further, the prices did not provide for the
recovery of cost within a reasonable period of time. We, therefore,
disregarded the sales that failed the cost test and used the remaining
sales as the basis for determining NV, in accordance with section
773(b)(1) of the Act.
3. Calculation of Constructed Value
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of KSC's cost of materials, fabrication, SG&A
expenses, direct and indirect selling expenses, interest expense,
research and development expenses incurred in producing the subject
merchandise, U.S. packing costs, and profit. We relied on the submitted
CVs except for the specific instances noted in the ``Cost of
Production'' section above.
Price-to-Price Comparisons
For those product comparisons for which there were sales that did
not fail the cost test, we based NV on prices to home market customers.
We made adjustments, where appropriate, for physical differences in the
merchandise in accordance with section 773(a)(6)(C) of the Act. Where
applicable, we made adjustments for rebates and movement expenses. To
adjust for differences in circumstances of sale between the home market
and the United States, we reduced home market prices by the amounts of
direct selling expenses (i.e., warranty and credit expenses) and added
U.S. credit expenses. In order to adjust for differences in packing
between the two markets, we deducted home market packing costs and
added U.S. packing costs.
Price-to-CV Comparisons
In accordance with section 773(a)(4) of the Act, where we were
unable to find a home market match of identical or similar merchandise,
we based NV on CV. We calculated CV based on KSC's cost of materials,
fabrication, SG&A expenses, U.S. packing, direct and indirect expenses,
interest expense, research and development expenses employed in
producing the subject merchandise, and profit. In accordance with
section 773(a)(2)(A) of the Act, we based SG&A expense and profit on
the amounts incurred and realized by KSC in connection with the
production and sale of the foreign like product during the ordinary
course of trade for consumption in Japan. For selling expenses, we used
the weighted-average home market selling expenses. Where appropriate,
we made adjustments to CV in accordance with section 773(a)(8) of the
Act. For comparisons to EP, we made circumstances of sale (``COS'')
adjustments by deducting home market direct selling expenses and adding
U.S. direct selling expenses.
Changes Since the Preliminary Determination
Based on our analysis of comments received, we have made certain
corrections for the final determination. We have corrected certain
programming and clerical errors that occurred in the Preliminary
Determination. Where applicable, these errors are discussed in the
relevant comment sections below.
Currency Conversion
We made currency conversions into U.S. dollars in accordance with
section 773A of the Act based on the exchange rates in effect on the
dates of the U.S. sales, as certified by the Federal Reserve Bank.
Facts Available
Section 776(a)(2) of the Act provides that, if an interested party:
(A) Withholds information that has been requested by the Department;
(B) fails to provide such information in a timely manner or in the form
or manner requested; (C) significantly impedes a proceeding under the
antidumping statute; or (D) provides such information but the
information cannot be verified, as provided in section 782(i), the
Department shall, subject to subsections 782(d) of the Act, use facts
otherwise available in reaching the applicable determination. In this
investigation, NSC, NMI, Nisshin Steel Co., Ltd., and Nippon Yakin
Kogyo failed to provide requested information. Therefore, use of facts
available is warranted.
Section 776(b) of the Act further provides that adverse inferences
may be used for a party that has failed to cooperate by not acting to
the best of its ability to comply with a request for information (See
Statement of Administrative Action (``SAA''), accompanying the URAA,
H.R. DOC. No. 103-316 at 870 (1994)). Given that Nisshin Steel
Corporation, Nippon Yakin Kogyo and NMI refused to comply with the
Department's request for information, we find that these companies have
failed to act to the best of their ability to comply with reporting
obligations in this investigation. Therefore, the Department has
determined that an adverse inference is warranted with respect to these
three mandatory respondents. As in the Preliminary Determination, the
Department has selected as adverse facts available a margin of 57.87
percent, which is based on the highest margin alleged in the petition
for any Japanese producer. As discussed in the Preliminary
Determination, the Department has, to the extent practicable,
corroborated the information used as adverse facts available because
information from a petition is considered secondary information. See 19
CFR 351.308(c) and (d). For example, we reviewed the adequacy and
accuracy of the information in the petition during our pre-initiation
analysis of the petition, to the extent appropriate information was
available for this purpose (e.g., import statistics, call reports, and
data from business contacts). We have also determined that the adverse
facts available petition rate has probative value by comparing this
rate to actual sales made by KSC, the only respondent whose information
the Department was able to verify and use for margin calculation. After
comparing the information in the petition to KSC's verified sales data,
we find that the petition data is reliable for use as adverse facts
available. (See Corroboration Memorandum Detailing Application of Total
Adverse Facts Available from James Doyle, Program Manager, to Roland
MacDonald, Director Office VII, dated May 19, 1999.) (``Corroboration
Memorandum'') Furthermore, no record evidence or argument has been
submitted that would cause the Department to call into question the
accuracy of the data in the petition. Therefore, we determine that the
use of this margin as facts available
[[Page 30578]]
for these three companies is appropriate. For further discussion
regarding the Department's use and selection of facts available for
these three companies, see the Preliminary Determination, 64 FR at 115.
In addition, in light of NSC's decision not to respond to the
Department's December 7, 1998, supplemental cost response despite
repeated extensions by the Department, the Department has determined
that NSC has failed to act to the best of its ability in this
investigation. Furthermore, NSC's failed to provide the requested cost
information, including a large number of affiliated input suppliers, a
breakdown of NSC costs by production process and explanations and
clarifications regarding allocation methodologies used by NSC in
arriving at product-specific costs. As a result, the Department was
unable to assess whether any input constituted major inputs, whether
collapsing certain steel grades is appropriate, as well as the
reasonableness of the allocation methodologies used. Thus, the
Department has determined that, in selecting from among facts
available, an adverse inference is appropriate. Consistent with
Department practice in cases where a respondent withdraws its
participation in an investigation, as adverse facts available, we have
applied the highest margin in the petition. See Comment 13 and
Corroboration Memorandum; see also Final Determination of Sales at Less
Than Fair Value: Vector Supercomputers From Japan, 62 FR 45623 (August
28, 1997).
Critical Circumstances
Section 735(a)(3) of the Act provides that if a petitioner alleges
critical circumstances, the Department will determine whether: (A)(i)
There is a history of dumping and material injury by reason of dumped
imports in the United States or elsewhere of the subject merchandise;
or (ii) the person by whom, or for whose account, the merchandise was
imported knew or should have known that the exporter was selling the
subject merchandise at less than its fair value and that there would be
material injury by reason of such sales; and (B) there have been
massive imports of the subject merchandise over a relatively short
period.
As discussed in our preliminary findings of critical circumstances,
we are not aware of any antidumping order in any country on stainless
steel sheet and strip in coils from Japan, nor has any additional
information in this regard been placed on the record for purposes of
the final determination. Therefore, we examined whether there was
importer knowledge. The statute and the Statement of Administrative
Action (``SAA''), which accompany the Uruguay Round Agreements Act, are
silent as to how the Department is to make a finding that there was
knowledge of less than fair value sales and the likelihood of material
injury. Therefore, Congress has left the method of implementing this
provision to the Department's discretion.
In determining whether an importer knew or should have known that
the exporter was selling the product at less than fair value, the
Department normally considers margins of 15 percent or more sufficient
to impute knowledge of dumping for constructed export price (``CEP'')
sales, and margins of 25 percent or more for export price (``EP'')
sales. See Final Determination of Sales at Less Than Fair Value: Brake
Drums and Brake Rotors From the PRC, 62 FR 9160 (February 28, 1997). In
this investigation, as discussed above in the Facts Available section,
we have determined pursuant to an application of adverse facts
available that the petition margin of 57.87 percent is probative of the
selling practices of mandatory respondents Nisshin Steel Corporation,
Nippon Yakin Kogyo, Nippon Metal Industries, and NSC. This margin
indicates dumping over the 15 and 25 percent thresholds for these
respondents' sales. In addition, the Department normally considers a
preliminary International Trade Commission (``ITC'') determination of
material injury sufficient to impute knowledge of likelihood of
resultant material injury. The ITC preliminarily found material injury
to the domestic industry due to imports of sheet and strip from Japan
and, on this basis, the Department may impute knowledge of likelihood
of injury to these respondents. See Preliminary Determination of the
ITC of Certain Stainless Steel Sheet and Strip from France, Germany,
Italy, Japan, the Republic of Korea, Mexico, Taiwan, and the United
Kingdom, 63 FR 33092, (June 17, 1998). Thus, we determine that the
knowledge criterion for ascertaining whether critical circumstances
exist has been satisfied.
Moreover, because we are applying adverse facts available to these
four companies with respect to our final critical circumstances
determination, we also find that imports for each of them have been
massive. Consequently, both prongs of our critical circumstances
analyses have been met. We further discuss our treatment of Facts
Available/Critical Circumstances in Comment 15 below.
We do not find critical circumstances for KSC. KSC was a
cooperative mandatory respondent whose verified shipments did not
evidence massive imports but, instead, showed an increase of less than
the requisite threshold of 15 percent during the relevant comparison
periods (January-May 1998 with June-October 1998). Although the
Department's regulations at 19 CFR 206(i) require that we examine at
least three months in making our determination of whether imports are
massive, it is the Department's practice to examine the longest period
for which information is available up until the preliminary
determination. See Notice of 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 this case, for purposes
of the Final Determination, available information permitted us to
examine relevant comparison periods covering five months before and
after the filing of the petition. Additionally, for purposes of the
final determination we included June in the post-petition period, as it
was incorrectly included in the pre-petition period for purposes of the
Preliminary Determination.
We have reconsidered our Preliminary Determination's finding as to
the ``All Others'' category of companies and further discuss our
treatment of the ``All Others'' category in Comment 14 below. For a
complete discussion, see Memo from Roland MacDonald to Joe Spetrini
regarding Final Critical Circumstances Determination, dated May 19,
1999, (``Final Critical Circumstances Memo''). For this final
determination, we do not find critical circumstances for the ``All
Others'' category.
Verification
As provided in section 782(i) of the Act, we verified the
information submitted by KSC for use in our final determination. We
used standard verification procedures, including examination of
relevant accounting and production records and original source
documents provided by KSC.
Interested Party Comments Regarding Sales Issues
Comment 1: Exclusion of Sales of Foil Products
KSC argues that the Department should have excluded product code
R20-5USR grade foil products, which are used for automotive catalytic
converter applications, from its
[[Page 30579]]
preliminary margin calculation since this product meets the exclusion
criteria as outlined in the Scope of Investigation of the Preliminary
Determination. Further, KSC contends that the Department's verification
findings support its claim for exclusion of these foil products. For
instance, KSC claims that at verification, the Department reviewed
numerous sales transactions of R20-5USR foil products, including
production records and mill certificates. KSC argues that these
findings prove that the R20-5USR grade foil product, previously
included in the sales database, met all of the Department's physical
and chemical criteria for exclusion. Thus, KSC argues that the
merchandise is outside the scope of the investigation and therefore
must be removed from the Department's dumping margin calculations for
the final determination.
Alternatively, KSC contends that if the Department decides not to
exclude sales of foil used for automotive catalytic converter
applications, then the Department should exclude the home market trial
sales as being outside the ordinary course of trade. KSC argues that
the home market sales of R20-5USR grade foil product, also classified
as trials, are outside the ``ordinary course of trade,'' in accordance
with the section 773(a)(1) of the Act because: (1) These sales
represent a small percentage of the entire volume of home market sales
of SSSS during the POI; (2) the price of the trial sales is
aberrational; (3) the average quantity of the trial sales is an
insignificant percentage of the average quantity of commercial sales of
all subject merchandise during the POI; and (4) the trial sales are not
used for commercial production by the end-users, but are used only for
testing and evaluation purposes. For the aforementioned reasons, KSC
contends that if the Department should decide to use R20-5USR grade
foil in its margin analysis then the Department should exclude the home
market trial sales from its margin analysis, on the basis of the fact
that these sales are ``outside the ordinary course of trade'' and sold
in non-commercial quantities.
Petitioners' first contention is that respondent's exclusion
request of October 15, 1998, related only to narrowly focused foil
product sold only by Emitec, a producer. According to the petitioners,
KSC sells a wide range of foil products falling under the R20-5USR
designation and the evidence on the record suggests that KSC's home
market sales of foil products do not meet the precise exclusion
specifications agreed to by petitioners. Petitioners agree that the
verified U.S. sales of R20-5USR meet all the ``Emitec specifications''
and thereby fall within the exclusion. However, petitioners argue that
the mill certificates of the home market sales of foil products contain
certain chemical elements but not other elements and do not clearly
indicate that the product meets ``Emitec specifications.''
Furthermore, petitioners assert that the cost data for foil
products vary significantly between the export products and the
domestic products, which they argue indicates that not all foil
products have the same cost of production, as discussed in KSC Cost
Verification Report at S-14. For the aforementioned reasons,
petitioners urge the Department to limit exclusion of sales only to
those sales of foil products that meet the precise exclusion
requirements as defined in its October 15, 1998 submission. As a
result, petitioners request that the Department not exclude home market
foil products from its margin calculations as the exclusion applies
only to a particular producer, and the home market foil products do not
appear to meet the specifications set forth in the exclusion language.
Petitioners' second contention is that KSC's request that its sales of
home market foil products be excluded as being outside the ordinary
course of trade should not be granted. Petitioners argue that these
sales were made at arm's length regardless of the quantity sold.
Department's Position: We agree with KSC. At verification, KSC was
able to demonstrate that its R20-5USR products met all of the
Department's exclusion criteria for foil products as defined in the
Scope of Investigation of the Preliminary Determination. Specifically,
KSC provided copies of mill certificates for a randomly selected group
of foil sales accompanied by a ladle analysis (indicating chemical
contents). This verification documentation demonstrates that the
chemical content of all exclusion elements met the narrow exclusion
requirements as defined in the Scope of Investigation of the
Department's Preliminary Determination.
The Department first disagrees with petitioners' application of the
scope exclusion on a customer-specific basis. The scope of an
antidumping duty order covers merchandise, not companies. Second, the
Department has determined that petitioners' argument that home market
mill certificates contain certain elements not within the scope
exclusion is unjustified given the facts of the record. Contrary to
this contention, we find that the evidence on the record (i.e., mill
certificates and ladle analysis) demonstrates that each of the elements
required by the Department's exclusion criteria, as stated in the
Preliminary Determination, is disclosed on the home market mill
certificates and ladle analysis for the randomly selected and verified
foil sales. (See KSC Sales Verification Report and verification exhibit
3.) Therefore, those chemical elements referred to by petitioners that
were not found in the market mill certificates are not relevant to the
question of scope. Since these sales meet the exclusion criteria, they
do not fall within the scope as defined in the Preliminary
Determination. Thus, we have eliminated them from the final
determination margin calculations because we determine that these sales
meet the exclusion criteria, we do not need to address respondent's
ordinary course of trade argument.
Comment 2: Proper Application of the Arm's Length Test
KSC claims that the Department erred in its application of the
arm's length test by testing sales on a sales destination basis, rather
than on a customer basis. According to KSC, the Department's normal
practice is to compare overall weighted average home market net prices
for each control number sold to affiliated customers with the overall
weighted average home market net prices for each control number sold to
unaffiliated customers. KSC argues that the Department performed its
arm's length test for sales to affiliated customers for each delivery
point, as each delivery point has a unique customer code in KSC's sales
database, rather than aggregating the delivery points maintained by one
particular customer. KSC claims that the arm's length test should have
been performed by customer taking into account the customer's various
delivery points in determining the appropriate comparison price. Hence,
KSC asserts that the Department should perform this test on an
affiliated customer-specific basis, rather than on a destination-
specific basis.
In response, petitioners note that KSC failed to indicate that its
reported customer codes are ``commingled'' with customers'' delivery
locations in its questionnaire response. Further, petitioners contend
that the data on the record contradict KSC's assertion that an
affiliated customer may have numerous delivery points as reflected in
the multiple codes assigned to the customer. First, petitioners claim
that not all of the delivery locations for each home market sale were
reported. Second, petitioners argue with KSC's contention that each
customer code
[[Page 30580]]
signifies a particular destination point since a specific customer code
is reported to have more than one destination point related to it and
certain customer codes share the same destination point as reflected in
KSC's home market sales database. In light of the above contradictions
to KSC's claim, petitioners argue that the Department should continue
to use the existing customer codes in KSC's home market database as in
the Department's Preliminary Determination.
Department's Position: We agree with KSC. Although KSC could have
explained that its individual customer codes may at times reference the
same customer at a different location by a different customer code, the
necessary factual information has already been presented on the record
in the Section B and C responses. Further, the Department did not find
any discrepancies with the reporting of customers or delivery locations
at verification. Hence, we have no reason to suspect that the
information in regard the destination data field (i.e., DESTH) is in
error in the sales databases. Finally, the Department attempts to
calculate margins as accurately as possible and this inadvertent
oversight by KSC and the Department will be corrected by using
information on the record. Accordingly, we have corrected our arm's
length program and tested the prices on a customer basis rather than an
individual customer delivery location basis.
Comment 3: Proper Implementation of Level of Trade Analysis
KSC argues that the Department should recognize that KSC's sales to
all end-users are classified as a separate level of trade regardless of
whether the end-user is a customer of KSC or Kawasho, an affiliated
party of KSC. KSC contends that Kawasho's sales to its end-users
exhibit the same differences in selling functions as KSC's sales to its
end-users. In addition, KSC claims that the Department found no
discrepancies in its review of the framework agreement between KSC and
its end-users and the distinct sales functions performed by Kawasho to
its end-users. According to KSC, these distinctions in selling
functions, as examined during the course of verification, warrant two
separate levels of trade. Kawasaki argues that because sales to trading
companies were at the same LOT in both markets, the Department should
match U.S. sales to trading companies with normal values derived from
home market sales to trading companies, citing Notice of Preliminary
Determination of Sales Less than Fair Value: Certain Welded Carbon
Steel Pipe and Tube from Turkey, 63 FR 6155, 6158 (February 6, 1998)
(``We first attempted to compare sales at the U.S. level of trade to
sales at the identical home market level of trade. If no match was
available at the same level of trade, we attempted to compare sales at
the U.S. level of trade to sales at the second home market level of
trade.''); Certain Stainless Steel Wire Rods From France Final Results
of Antidumping Duty Administrative Review, 61 FR 47874, 47880
(September 11, 1996) (same). Thus, KSC urges that sales to end users
should be segregated from sales to trading companies.
Petitioners did not comment on this issue.
Department's Position: As discussed in the Department's Preliminary
Determination, 64 FR at 114, 115, we disagree with KSC for the
following reasons. To determine whether normal value was established at
a different LOT than KSC's EP sales, we examined stages in the
marketing process and selling functions along the chain of distribution
between KSC and its U.S. customers, and then compared those functions
to the two LOTs that we previously identified in the home market
(``HM''). In the U.S., we identified a single channel of distribution:
sales from KSC to the unaffiliated Japanese trading companies. In the
HM, we identified two channels of distribution: (1) Sales from KSC to
end-users; and (2) sales from KSC to all trading companies (affiliated
and unaffiliated). In examining the LOTs of the HM sales at
verification, we verified that KSC conducted price negotiations,
communications with customers, payment collection activity, and
warranty activity with its end-users. In contrast, KSC did not perform
these same sales functions with respect to sales to both affiliated and
unaffiliated trading companies. In our comparison of sales function of
KSC to affiliated trading companies and then to unaffiliated customers
(end-users/distributors), we noted that KSC's affiliated trading
companies gathered market intelligence and customer information, made
customer contacts, and performed marketing services, price
negotiations, warehousing, processing, payment collection activity, and
warranty activity. Based on the above-referenced distinctions between
the selling functions of KSC to end-users and those of KSC to
affiliated trading companies, and then to unaffiliated customers, we
consider the respondent's request that the Department treat KSC's sales
to all end-users as one level of trade to be unpersuasive. Finally,
because the Department found no ``consistent price differences between
the sales on which NV is based and comparison markets sales at the LOT
of the export transaction,'' we found that no LOT adjustment or offset
was necessary for NV in the event that U.S. sales (KSC sales to
unaffiliated trading companies) were compared to home market sales made
at a different LOT (KSC sales to end-users) as demonstrated in the
Preliminary Determination Pattern of Price Program results. For a
discussion of the Department's practice concerning level of trade
adjustments, see Notice of Final Determination of Sales at Less than
Fair Value: Stainless Steel Plate in Coils from the Republic of Korea,
64 FR 15444, 15445 (March 31, 1999) (``If the comparison market sales
are at a different LOT, and the difference affects price comparability,
as manifested in a pattern of consistent price differences between the
sales in which NV is based and comparison market sales at the LOT of
the export transaction, we make a LOT adjustment * * *''). Therefore,
for this final determination, in accordance with section 773(a)(7)(A)
of the Act, we maintain our preliminary position with regard to KSC's
level of trade analysis.
Comment 4: Rolled-On or Hard Finish With 2B Finish
Petitioners argue that the Department should collapse the finish
codes 7 and 9 into 2B finish as these finish codes are broad and lack
profound distinctions to justify separate categories. Citing Final
Determination of Sales at Less Than Fair Value: Emulsion Styrene-
Butadiene Rubber from Mexico, 64 FR 14872, 14875 (March 29, 1999)
(``Emulsion Styrene-Butadiene''), petitioners suggest that subtle
differences may exist among various finish codes; however, the
underlying intention of the model match program is not to recognize
each distinction between a product but rather to distinguish the major
physical differences in the merchandise.
Petitioners urge the Department to treat finish codes 7 (Rolled-On)
and 9 (Hard Finish) as a consolidated finish code 2B (temper rolled or
skin passed) in its final determination due to the similarity of the
products and the fact that these two codes are not in KSC's product
brochure which is used in KSC's normal course of business. Moreover,
petitioners cite Rautaruukki Oy v. United States, Slip Op. 98-112 at 14
arguing that a respondent may not unilaterally alter the physical
characteristics of the Department's model match methodology.
KSC responds that it did not ``unilaterally'' alter the product
codes,
[[Page 30581]]
since the Department's model match criteria in the questionnaire
specifically lists code 7, ``Rolled-On,'' as a distinct finish, and
further requested respondent to specify distinct finishes other than
those specifically listed in the questionnaire. Instead, KSC notes that
the individual specifications of these finishes were demonstrated with
support documentation at verification. KSC argues that the products
with finish code 7 and finish code 9 undergo separate production
processes according to customer specifications on finishes. KSC argues
further that there is a lack of evidence on the record to suggest that
KSC's rolled-on or hard finishes are identical to 2B finish.
With respect to petitioners' comment that finish codes 7 and 9 were
not mentioned in KSC's product brochure, KSC argues that it provides
numerous ``bona fide'' grades and options that are not listed in the
main product brochure to its customers. According to KSC, the product
brochure features only the most popular grades and options and by no
means dictates the types of grades and options that it produces for its
customer.
Finally, KSC stresses that if the Department decides to consolidate
these finish codes, it would be necessary to recalculate CONNUM-
specific costs, imposing burdensome programming calculations and
increasing the risk of clerical errors. Therefore, KSC argues that the
Department should not deem it appropriate to consolidate these two
finishes into 2B, and its statement in the verification report should
be read as ``most similar'' to 2B rather than identical.
Department's Position: We agree with KSC. In accordance with
section 771(16)(A) of the Act, the Department's selection of
appropriate matching criteria was based on meaningful physical
characteristics and the comments of the parties. See Emulsion Styrene
Butadiene. As part of the criteria selection process, the Department's
original antidumping questionnaire in this investigation specifically
asked KSC to report ``Rolled-On'' (code 7) and ``Other'' (code 9).
Pursuant to the questionnaire instructions, KSC reported finish code 7
and code 9 in its sales database and constructed CONNUM-specific costs
accordingly. During verification, we noted that KSC offers code 7 and
code 9 finish treatments in its ordinary course of business even though
these specific finishes are not listed in its finish brochure. (See KSC
Sales Verification Report at 8 and Exhibit 3 of the verification
exhibits.) Despite the overall similarities shared by code 7, code 9
and 2B finish, we examined technical documentation for finish code 7
and internal specifications for code 9, and determined that code 7 and
code 9 were distinctly different finishes from 2B. In addition, during
verification, we reviewed sales documentation indicating both types of
finishes. Accordingly, we have maintained our treatment of code 7 and
code 9 as distinct finish codes from code 2B for the final
determination.
Comment 5: Advertising and Technical Service Expenses
KSC argues that it classified home market advertising and technical
services as direct selling expenses in its questionnaire response; yet
the Department inadvertently reclassified these expenses as indirect
selling expenses in its Preliminary Determination margin calculations.
KSC notes that, in response to the Department's questionnaire
instructions, it classified only the technical service expense as
direct expense.
KSC contends that nothing in the Department's sales verification
report contradicts KSC's classification that these expenses are direct.
Instead, numerous documents in the verification exhibits demonstrate
the nature of these expenses as being direct. See KSC Sales
Verification Report at 18-19.
Petitioners argue that KSC's reported home market advertising and
technical service expenses were not directly related to the subject
merchandise, and thus were not direct expenses.
In addition, petitioners maintain that none of the advertisements
on the record referred directly to the subject merchandise. Rather, the
advertisements referred to stainless steel products in general and
covered grades of subject merchandise that were either not subject
merchandise or represented an insignificant percentage of KSC's total
home market sales during the POI. Further, petitioners argue that KSC's
home market advertisements were not directly aimed at the users of the
subject merchandise sold during the POI, but to KSC's customers for
stainless products in general.
With respect to technical service expenses, petitioners argue that
the record suggests that a calculation worksheet from the verification
demonstrates that KSC's financial accounting system captures technical
service expense for subject and non-subject merchandise under the same
cost center, even though KSC used the home market SSSS sales value as
the denominator for its technical service expense calculation. Thus,
petitioners assert that such expenses are not variable costs.
Petitioners cite to the Notice of Final Results of Antidumping Duty
Administrative Review for Certain Internal-Combustion Industrial
Forklift Trucks from Japan, (``Industrial Forklift Trucks from Japan'')
62 FR 5592, 5607-5608 (February 6, 1997) arguing that the Department
considers expenses as direct expenses if these expenses vary with the
sale of a subject merchandise.
KSC rebuts petitioners' argument that KSC's direct selling expenses
should be treated as indirect on the basis that these expenses are
related to the trading company's sale to its customer, rather than
KSC's sale to the trading company. According to KSC, the Department has
consistently treated manufacturer's expenses made on behalf of end-
users as direct, citing the Department's questionnaire at Appendix I at
1-6, Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Wire Rod from Japan (``Stainless Steel Wire Rod''), 63
FR 40434, 40437 (July 29, 1998); Notice of Final Determination of Sales
at Less Than Fair Value: Stainless Steel Plate in Coils from South
Africa, 64 FR 15459, 15469 (Mar. 31, 1999) (disallowing advertising
expense as a direct expense, because advertising was directed at
respondent's direct customer, rather than at customer's customer); and
Notice of Final Determination of Sales at Less than Fair Value: Calcium
Aluminate Cement, Cement Clinker and Flux from France, 59 FR 14136,
14145 (March 25, 1994). Similarly, KSC contends that its home market
advertising and technical service expenses should be considered direct
as indicated in the Sales Verification Report. Regarding technical
service expenses, KSC argues that technical service expenses should be
classified as direct expenses since KSC incurred those expenses in
connection with particular sales.
Department's Position: We agree, in part, with KSC. Based on the
record evidence in this investigation and the information examined at
verification, we have determined that KSC's reported advertising
expenses apply to all stainless steel products, including subject and
non-subject merchandise, and were incurred on behalf of KSC's customer.
In accordance with the Department's practice, in determining whether
advertising expenses directly tie to particular sales, we applied the
two-prong test used in Final Determination of Sales at Less than Fair
Value: Antifriction Bearings Other than Tapered Roller Bearings and
Parts Thereof from France, Germany, Italy, Japan, Singapore, and the
United Kingdom (``AFB's''), 62 FR 2102-2104 (January 15, 1997). In
AFB's, the
[[Page 30582]]
Department stated that ``for advertising to be treated as a direct
expense, it must be incurred on products under review and assumed on
behalf of the respondent's customer; that is, it must be shown to be
directed toward the customer's customer.'' Id.; See also Stainless
Steel Wire Rod from Japan, 63 FR at 40437 (Department will treat
expenses as direct expenses if they can be directly tied to specific
sales). As evidenced by documentation gathered at verification in
Exhibit 7 of the verification exhibits and KSC Sales Verification
Report, we examined samples of brochures directed to the end-user's
product design needs, invoices for advertisements concerning KSC's
environmental safety record, invoices for advertisements for a
particular company, as well as brochures directed at construction
application uses. At verification, KSC provided sufficient
documentation that the advertising expenses in question relate to
subject merchandise and target the customer's customer. (See KSC Sales
Verification Report at 4-11). Accordingly, we have reclassified KSC's
advertising expenses as direct selling expenses for the purpose of the
final determination. This is consistent with our determination in
Stainless Steel Wire Rod.
With respect to technical service expenses, there is nothing on the
record to support petitioners claims. Furthermore, the case cited by
petitioners, Industrial Forklift Trucks from Japan, is factually
distinguishable from this case as the respondent in that case stated
that its technical service ``expenses are all expenses and do not
relate to specific sales.'' 62 FR at 5605. Furthermore, there is
nothing on the record to support petitioners' position that the
technical expense did not vary with the sale of subject merchandise.
Accordingly, we reclassified KSC's technical service expenses as direct
selling expenses for the final determination.
With regard to petitioners' assertion that KSC used the home market
SSSS sales value as the denominator for its technical service expense
calculation despite KSC's assignment of technical service expenses to
one cost center, we agree with the petitioners and accordingly revised
the reported per-unit technical service expense. In order to properly
reflect the portion of the total technical service and advertising
expense associated with the subject merchandise, we calculated a ratio
by dividing the sales of subject merchandise by total sales of
stainless steel products, and applied the ratio to the total respective
verified technical service and advertising expense amounts for the
stainless steel products.
Comment 6: Home Market Advertising Expenses
Petitioners argue that the Department should apply the revised
advertising expense ratios to KSC's respective sales databases for its
final determination. Additionally, the Department should reject KSC's
correction to the advertising expense for a certain home market sale
observation because this particular reported advertising expense
contradicts other information on the record. Petitioners further claim
that KSC may not use an allocation methodology for some sales but
choose actual expenses for others.
KSC rebuts petitioners' argument that home market advertising
expenses be recalculated on newspapers alone, on the basis that the
home market advertising expense comprises not only the newspaper
expense but also catalogue and other advertising expenses. KSC adds, as
a result, that the home market advertising expense ratio should remain
the same, reflecting the total sum of catalogue, newspaper and
advertising expense. In addition, KSC urges that the Department deny
petitioners' request that HM observation 400 be corrected, pointing to
the verified sales data which support KSC's corrected advertising
value.
Department's Position: The Department agrees with KSC in that the
advertising expenses should be used as reported to the Department since
this expense was verified. Additionally, the Department has taken into
account the minor corrections presented at verification. At
verification, we found no inconsistencies in KSC's reporting of its
advertising expense. See KSC Sales Verification Report at 18. Further,
the Department has determined that the value reported for the
particular home market sale in question corresponds to the verified
expense ratios. Thus, we have not corrected this observation.
Comment 7: Correction of Errors in KSC's Weighted-Average Cost
Calculation for Certain Products
Petitioners argue that in the process of recalculating the value of
financial expenses in its preliminary margin analysis, the Department
miscalculated the financial expenses for constructed value by applying
the financial expenses ratio to KSC's reported financial expenses,
rather than to KSC's reported cost of manufacturing for CV. Thus,
petitioners claim, the Department should revise KSC's margin
calculation program by multiplying the revised total cost of
manufacturing for CV by the revised financial expense ratio.
KSC agrees with this change.
Department's Position: We agree with the proposed change and have
corrected this inadvertent error in this final determination. (See Cost
Calculation Memo).
Comment 8: KSC's Sales to Unaffiliated Trading Companies as Separate
Transactions
Petitioners assert that the information on the record indicates
that the trading company's role is limited to conveying the end-user's
order requests and KSC's acceptance or counter-offer to the end-user.
Petitioners argue that the trading companies' roles are similar to that
of commissioned agents, and thus the Department should not establish
the normal value on the sales price between KSC and the trading
company. Instead, petitioners urge the Department to rely on the price
paid by the end-user or, in the absence of such information, the
Department add an amount for the commission to the sales price reported
by KSC to calculate normal value for KSC's home market sales.
Petitioners contend that if the Department views the transaction
between the trading company and the end-user as a separate transaction,
the Department should then recognize the expenses incurred by KSC on
its sales to trading companies as indirect selling expenses, rather
than direct selling expenses, on the basis that the services associated
with these expenses pertain to ``downstream'' sales and thereby
directly benefit the end-user and not the trading company, citing
Notice of Final Results of Antidumping Duty Administrative Reviews:
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden,
and the United Kingdom, 62 FR, 54042, 54054 (October 17, 1997); and
Notice of Final Determination of Sales at Less than Fair Value:
Stainless Steel Wire Rod from Japan, 63 FR 40434, 40436 (July 29,
1998). Petitioners request that the Department treat those expenses
that are not part of the negotiated deal between KSC and the trading
companies as indirect selling expenses in KSC's margin calculation
analysis.
KSC argues that the record demonstrates that the unaffiliated
trading companies are customers of KSC, rather than ``commissioned
sales agents. In support, KSC notes that the Department reviewed the
framework agreements for its unaffiliated trading companies as well as
contracts demonstrating that KSC makes bona fide
[[Page 30583]]
sales to the trading companies. (See KSC Sales Verification Report and
verification exhibit 4.) Furthermore, KSC adds that the sales reviewed
by the Department at verification demonstrated that KSC issues an order
confirmation and an invoice to its trading company customer and records
the invoice amount to the trading company in its financial accounting
system. KSC notes that the obligation to pay KSC rests with the trading
company and not on the condition that the trading company receive
payment from its downstream customer for payment to KSC. KSC further
stresses that the trading companies take title to the goods and are
solely responsible for the resale transaction, issue order
confirmations and invoices to their customers, and bear the full
responsibility of a resale profit or loss on their sale. Finally, KSC
argues that, because the sales to the trading companies are actual bona
fide sales, the Department may not disregard those sales. KSC stresses
that the Department practice is to use manufacturers' sales to trading
companies, even in instances where the manufacturers ships the goods
directly to the customers of the trading companies. See Stainless Steel
Wire Rod from Taiwan, 63 FR 40461, 40470 (Jul. 29, 1998), and Stainless
Steel Plate in Coils from South Africa, 64 FR 15459, 15467 (Mar. 31,
1999).
Department's Position: We agree with KSC. At verification, the
Department found that the trading company obtains title to goods and
has direct responsibility for payment to KSC for merchandise sold to
the customer of the trading company even if the customer defaults on
its payment. See KSC Sales Verification Report at 5. Additionally, our
examination of KSC's sales process did not demonstrate that the trading
companies assume the role of commissioned agents. At verification, KSC
stated that trading companies undertake their own sales negotiations
with their customers, issue separate order confirmations and sales
invoices and take title of goods purchased from KSC. See KSC Sales
Verification Report at 3. Thus, we have not changed our treatment of NV
sales for the final determination.
Comment 9: Actual vs. Budgeted Brokerage and Handling Expenses for
KSC's U.S. Sales
Petitioners contend that the Department should rely on the actual
brokerage and handling expenses reported in Verification Exhibit 9
rather than KSC's budgeted brokerage and handling expenses. According
to petitioners, a review of KSC's most recent U.S. sales listing
demonstrates that the verified brokerage and handling expenses were not
reported to the Department. Instead, KSC reported budgeted brokerage
and handling costs for its U.S. sales.
KSC finds no basis for the petitioners' assertion that KSC applied
budgeted rather than actual brokerage and handling expenses. In fact,
KSC argues that the petitioners misconstrued the brokerage and handling
expense calculation in Verification Exhibit 9, as the Department found
values from this worksheet to be actual and calculated on a bi-annual
basis. KSC acknowledges that its original calculation contained errors
that needed to be revised; however, it argues that neither the original
calculation nor the revised calculation were based on budgeted values.
In addition, KSC contends that the Department tested the integrity of
the calculation worksheets, during verification and found no
inconsistencies in the calculation worksheets, with the exception of a
clerical error presented at the beginning of verification. As a result,
KSC concludes that the revised and actual brokerage and handling
expenses should be used by the Department.
Department's Position: We agree with the respondent. Although KSC
reported brokerage and handling expense values in its January 25, 1999
sales listing that were different from those verified, we were able to
confirm the accuracy of the per-unit brokerage and handling expenses
submitted at the time of verification by obtaining support
documentation and reconciling those values to KSC's financial
accounting system. (See KSC Sales Verification Report at 13-15). We
further note that our findings at verification clearly demonstrate that
the verified brokerage and handling amounts are actual and not
budgeted. Thus, for the purpose of the final determination, we will use
KSC's verified brokerage and handling expenses as submitted on April
13, 1999.
Comment 10: Verified Inland Insurance Amounts for KSC's Home Market and
U.S. Sales
Petitioners argue that some of KSC's reported inland insurance
amount exceeded the maximum amount of verified home market inland
insurance expense for home market sales and fell below the minium
verified value for certain U.S. sales. Petitioners contend that in
instances where KSC reported incorrect inland insurance amounts, the
Department should apply adverse facts available to those sales. As
facts available, petitioners argue that the Department should assign a
zero to those home market sales with reported inland insurance greater
than the maximum verified amount, and the maximum amount for those
sales that were reported to have an inland insurance expense lower than
the minimum verified amount.
KSC explains that the higher and lower per-unit values exist simply
as a result of KSC's use of multiple invoices as was verified by the
Department. KSC contends that the per-unit values for certain sales
would be less where not all invoices issued against a given order had
insurance charges, indicating that not all of the quantity for the
particular order incurred inland insurance charges. KSC states that,
even though insurance charges are incurred on an invoice-specific
basis, KSC's allocation of the total insurance charges for a particular
order over the total quantity of that order is consistent with its
freight calculation methodology. Further, KSC emphasizes the relative
insignificance of the alleged inconsistencies, as they only apply to
four home market sales and may potentially apply only to twenty eight
U.S. sales. KSC suggests that even if the Department views these
inconsistencies as errors, the Department should either ignore them or
assign the mean of the home market and U.S. insurance expenses to those
sales, rather than apply any punitive facts available, citing Notice of
Final Determination of Sales Less than Fair Value: Stainless Steel
Plate in Coils from Belgium, 64 FR 15476 (March 31, 1999).
Department's Position: We agree with the petitioners. As noted by
the petitioners, KSC incorrectly reported inland insurance values for
certain home market sales with amounts below the minimum value and
those exceeding the maximum value for inland insurance. KSC's argument
that its inland insurance calculation methodology is consistent with
that of inland freight is without merit. We note that our findings are
in contrast to KSC's claim that the per-unit insurance expense was
derived by allocating total insurance charges to order quantity. As the
Department examined at verification, and as KSC demonstrated in its
exhibits, the per-unit inland insurance expense is a contract-based
amount, with rates that varied on the designated market of the sale
(i.e., home market vs. export market) and location (i.e., Nishinomiya
plant vs. Chiba Works) in which the merchandise was produced. (See KSC
Sales Verification Report at 10-11.) Moreover, our comparison of the
home market sales database to the inland insurance
[[Page 30584]]
expense values submitted at verification confirm these alleged
inconsistencies in KSC's sales data. Therefore, as facts available for
the final determination, we have accounted for the existing
inconsistencies by assigning the average inland insurance rate to those
home market and U.S. sales with reported inland insurance greater than
the maximum verified amount and to those sales that were reported to
have an insurance expense lower than the minimum verified amount.
Comment 11: KSC Misreported Inland Freight Expense for Certain U.S.
Sales
Petitioners argue that a comparison of per-unit inland freight
expense on a particular sale from the verification exhibit to KSC's
January 25, 1999 sales listing reveals that the revised inland freight
expense remains incorrect. Petitioners contend that even though the
total freight expense for the U.S. sale in question is correct, the
verified shipment quantity does not match the reported shipment
quantity on this particular sale. Thus, the Department should use the
total reported quantity for this particular sale on the sales listing
rather than the total shipment quantity that the Department examined
during verification. Petitioners point out that the revised allocation
base will produce results comparable to inland freight expenses of
other U.S. sales while conforming to the overall allocation methodology
used to calculate inland freight expenses.
KSC argues that petitioners have misunderstood KSC's order-based
freight calculations, explaining that the per-unit expense on sales
covered by that specific order is based on the order quantity for each
delivery. KSC reiterates that the Department reviewed relevant
supporting documentation and was able to tie KSC's reported inland
freight expenses to its financial accounting system. For the purposes
of the final determination, KSC urges the Department to continue using
its verified freight information.
Department's Position: We agree with KSC. At verification, we
confirmed that KSC allocates its total inland freight charges on an
order-specific basis rather than on an invoice-specific basis. We again
reviewed Exhibit 10 in regards to the noted invoice and have confirmed
that the per order calculation is correct. It appears that petitioners
neglected to include one invoice of the affected order in their
calculation. Thus, we are using KSC's submitted information for this
invoice.
Comment 12: Duty Drawback
Petitioners argue that KSC's duty drawback calculation is
erroneous. According to petitioners, KSC applied the duty rate to the
total consumption value without duty to derive a duty-inclusive total
consumption value. KSC then used the difference in the unit prices with
and without duty as the per-unit value for duty savings. The duty
inclusive total consumption value after the application of the duty
rate to the total consumption value is different from the value
verified by the Department. Petitioners assert that this mathematical
error improperly increases the per-unit value of duty drawback.
Petitioners request that the Department use KSC's recalculated per-unit
duty saving value for chromium to correct this mathematical error.
KSC agrees with the petitioners' recalculation of duty drawback and
with their suggested programming language to correct KSC's inadvertent
error.
Department's Position: We agree with petitioners and KSC. For the
purpose of the final determination, we have continued to rely on KSC's
duty drawback calculation methodology while adjusting appropriately for
the mathematical error on KSC's part.
Comment 13: Facts Available for NSC
Petitioners contend that the Department should rely on total
adverse facts available for NSC in the final determination. Petitioners
argue that due to NSC's failure to submit cost information and, as a
result, the Department's inability to verify any portion of NSC's
response, the Department should rely on facts available. Petitioners
note that on prior occasions the Department has found that an inability
to utilize cost data results in the inability to use the sales data.
NSC contends that to assess an adverse facts available rate would be to
ignore its ``substantial compliance'' with the Department's requests
and also the reasons for which NSC was unable to respond to the
Supplemental D questionnaire. NSC asserts that it did in fact act to
the best of its ability and that the Department should assess a non-
punitive facts available rate for NSC, using the average margin
calculated in the petition. NSC cites to the preamble to the
Department's regulations which state that ``the Department will
consider whether a failure to respond was due to practical difficulties
that made the company unable to respond by the specified deadline.'' 62
FR 27296, 27340 (May 19, 1997). NSC states that to assess the same
punitive margin to it as that assigned to the totally non-responsive
companies is unfair and would not be consistent with the meaning of the
facts available provision. Furthermore, in one instance, the Department
used the weighted average petition rate to calculate the final margin
where the company had not responded completely and the Department was
not able to verify some of the data. See Notice of Final Determination
of Sales Less than Fair Value: Certain Welded Carbon Steel Pipes and
Tubes from Thailand, 62 FR 53808 (October16, 1997).
Department's Position: We agree with the petitioners that the
highest rate alleged in the petition, and corroborated by the
Department, is the appropriate facts available rate for NSC in this
determination. Although NSC cooperated with the Department until the
deadline for the section D supplemental response, NSC has not
cooperated with the Department's request for cost of production
information, which is essential to our dumping analysis. The
supplemental section D questionnaire requested: (1) Detailed
information on NSC's large number of affiliated input suppliers; (2) a
breakdown of NSC's costs by production process; and (3) explanations
and clarification regarding allocation methodologies used by NSC in
arriving at product-specific costs from NSC's more aggregated
accounting records. Absent the affiliated input data, we are unable to
determine whether transfer prices between the affiliates occurred at
market prices in accordance with section 773(f)(2) of the Act.
Moreover, we are unable to assess whether any of these inputs from
affiliated parties constituted major inputs. If major inputs are found
by the Department to have been used in the production of subject
merchandise, we would need the appropriate affiliated suppliers' actual
costs of production in accordance with section 773(f)(3) of the Act.
With respect to our request for cost information disaggregated
according to the stages of the production process, without this
information, we are unable to collapse steel grades where appropriate
(as we are doing with other respondents in the other SSSS cases),
unable to analyze the validity of the reported product-specific data,
and unable to adequately plan for verification. Thus, this data
omission rendered NSC's response unusable for the cost of production
analysis (i.e., the Department is unable to determine whether home
market sales were made at prices at or above production costs) and, as
a result, for margin analysis.
The Department's practice has been to reject a respondent's
submitted information in toto when flawed and
[[Page 30585]]
unreliable cost data renders any price-to-price comparison impossible.
See, e.g., Preliminary Results of Antidumping Duty Administrative
Review: Certain Cut-to-Length Carbon Steel Plate from Mexico, 63 FR
48181, 48183 (September 9, 1998); and Notice of Final Determination of
Sales at Less Than Fair Value: Grain Oriented Electrical Steel From
Italy, 59 FR 33952 (July 1, 1994). The rejection of a respondent's
questionnaire response is particularly appropriate and consistent with
Department practice in instances where a respondent failed completely
to provide verifiable COP information. Id.; see also Final Results of
Antidumping Duty Administrative Review: Certain Corrosion-Resistant
Carbon Steel Flat Products from Korea, 61 FR 18547, 18559 (April 26,
1996) (use of total BIA warranted where reliable price-to-price
comparisons are not possible). Therefore, where a respondent's failure
to respond is so substantial as to require analysis based upon total
facts available the Department will not then selectively review subsets
of data provided by the respondent.
Comment 14: Critical Circumstances for ``All Others''
Sumitomo Metal Industries, Ltd. (``SMI'') argues that the
Department should not find critical circumstances with respect to it in
the final determination. SMI argues that the Department chose not to
investigate SMI because of the administrative burden to the Department,
yet nonetheless applied its preliminary affirmative critical
circumstances finding to imports by SMI. Sumitomo argues that, as a
cooperative non-selected respondent, it is entitled to a negative final
critical circumstances determination. See Preliminary Determination of
Critical Circumstances: Brake Drums and Brake Rotors from The People's
Republic of China, 61 FR 55269, 55270 (Oct. 25, 1996). SMI argues that
it is the Department's practice not to issue final affirmative critical
circumstances with regard to cooperative non-selected companies. SMI
also cites to the Department's decision in Honey from the People's
Republic of China, 60 FR 29824, 29825 (Jun. 6, 1995) noting that the
Department determined that it was not appropriate ``to penalize
respondents whose individual data have not been analyzed due to the
Department's own administrative constraints.'' In addition, SMI argues
that even though the company falls within the ``all others'' category,
the Department must consider its shipment data for purposes of
determining whether there were massive imports.
Department's Position: With regard to the ``all others'' category
(i.e., companies that were not analyzed in this investigation, e.g.,
SMI) we have reconsidered our Preliminary Determination finding of
critical circumstances. In order to determine whether a finding of
critical circumstances is appropriate with respect to uninvestigated
exporters, it is the Department's normal practice to conduct its
analysis based on the experience of investigated companies. See Notice
of Final Determination of Sales at Less Than Fair Value: Certain Steel
Concrete Reinforcing Bars from Turkey, (``Rebars from Turkey'') 62 FR
9737, 9741 (Mar. 4, 1997). In addition, in the instant case, while we
have found affirmative critical circumstances for four of the five
respondents, we did not extend our affirmative critical circumstances
findings to the ``all others'' category, because these companies
received affirmative critical circumstances based on adverse facts
available. In Rebars from Turkey, the Department found critical
circumstances for the ``all others'' category because it found critical
circumstances for three of the four companies investigated. However, as
we most recently determined in Notice of Final Determination of Sales
at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel
Products from Japan, 64 FR 24329 (May 6, 1999) (``Hot-Rolled Steel from
Japan''), we are concerned that literally applying that approach could
produce anomalous results in certain cases. We believe it would be
inappropriate to extend the Department's application of adverse facts
available to ``all others'' for purposes of making a critical
circumstances determination where there is verified data for an
investigated company. Instead, we find that it is appropriate in this
case to apply the traditional critical circumstances criteria to the
``all others'' category. For further discussion regarding the criteria
considered when determining critical circumstances see Comment 15.
First, in determining knowledge of dumping, we look to the ``all
others'' rate, which is based on the weighted-average rate of all
investigated companies. In this case, such a weighted-average rate
must, of necessity, be based on the individual rate of KSC, the only
investigated company that did not receive adverse facts available in
this investigation. KSC's rate, applied to the ``all others,'' is 37.13
percent. This rate is high enough to impute knowledge of dumping to the
``all others'' category. Furthermore, on the basis of the ITC's
preliminary material injury determination, we also find that importers
knew or should have known that there would be material injury from the
dumped merchandise.
Second, we also must also evaluate the second prong of the critical
circumstances criteria: whether there have been ``massive imports'' for
the ``all others'' companies. In making this determination, we examined
the verified company-specific shipment data provided by KSC, the only
investigated company that did not receive adverse facts available in
this investigation. KSC's data showed an increase of less than 15
percent during the relevant comparison periods, and we therefore found
that KSC's data provided no evidence of massive imports. In accordance
with our decision in Hot-Rolled Steel from Japan, we also considered
U.S. Customs data on overall imports from Japan of the products at
issue. These statistics, however, cover numerous HTS categories that
include merchandise other than subject merchandise. As such, we have
not relied on this data in making our ``massive imports'' determination
for ``all others.'' Based on our review of KSC's data on massive
imports, we find that imports from uninvestigated exporters, (e.g.,
``all others'') were also not massive during the relevant comparison
periods. Given these factors, the Department determines that there are
no critical circumstances with regard to ``all other'' imports of SSSS
from Japan. For a complete discussion of the data examined, see the
Department's Final Critical Circumstances Memo, dated May 19, 1999.
Comment 15: Fact Available/Critical Circumstances
Petitioners argue that the Department should use adverse facts
available with respect to critical circumstances for the non-responding
exporters. As for NSC, petitioners contend that a non-responsive
company should not be able to manipulate or selectively respond to the
Department's questionnaire and benefit as a result. See Carbon Steel
Plate from Mexico and Pistachio Group of the Association of Food
Industries v. United States, 11 CIT 668, 671 F. Supp. 31 (1987).
Petitioners further argue that NSC, Nisshin Steel Co., Nippon Yakin
Kogyo, and Nippon Metal Industries chose not to respond to the
Department and should not be rewarded for the section that they
responded to because they deemed it as beneficial to their company
while remaining non-responsive to other aspects of the
[[Page 30586]]
investigation. Because none of the shipment data has been verified,
petitioners contend that the Department should use facts available when
determining critical circumstances.
In its rebuttal, NSC argues that the Department should use non-
adverse facts available in its critical circumstance determination and
should instead use the submitted data in conjunction with the U.S.
Customs data. Further, NSC contends that the record does not show that
it ``failed to cooperate by not acting to the best of its ability,''
because it submitted the shipment data in a timely manner and requested
that the Department verify the information. Furthermore, NSC argues
that the shipment data it submitted clearly demonstrates that its
shipments to the United States have not been massive during the
relevant period. NSC contends that the Department has used Customs
import data where the respondent's data was not verified. See Sodium
Thiosulfate from the Federal Republic of Germany and the United
Kingdom, (``Sodium Thiosulfate'') 55 FR 51749 (Dec. 17, 1990). In
another case, where the exporters were non-responsive, the Department
used import statistics for its critical circumstances determination and
the petition rates for their margins. See Sodium Thiosulfate from the
PRC, 56 FR 2904 (Jan. 25, 1991). In sum, NSC states that the
Department, in some cases, has used Customs import statistics as facts
available for determining critical circumstances.
Department's Position: We agree with petitioners. With respect to
critical circumstances, it would not be possible to conduct a critical
circumstances analysis without relying on adverse facts available. In
accordance with section 735(a)(3) of the Act for the final
determination, we determine critical circumstances to exist if: (1)
There is a history of dumping and material injury by reason of dumped
imports in the United States or elsewhere of the subject merchandise;
or (2) the importer knew or should have known (imputed knowledge) that
the exporter was selling the subject merchandise at less than fair
value and that there would be material injury by reason of such sales;
and (3) there have been massive imports of the subject merchandise over
a relatively short time.
In order to determine whether or not the importer of a product
under investigation knew or should have known that the exporter was
selling the product at less than fair value, we use the estimated
margins in our determination as a guide to ``impute knowledge.'' See
Final Determination of Sales at Less Than Fair Value: Manganese Sulfate
from the People's Republic of China, 60 FR 52155 (Oct. 5, 1995); Final
Determination of Sales at Less Than Fair Value: Disposable Pocket
Lighters from the People's Republic of China, 60 FR 22359 (May 5,
1995); Final Determination of Sales at Less Than Fair Value:
Ferrosilicon from Brazil, 59 FR 22359 (Jan. 6, 1994). If a particular
exporter's sales to an unaffiliated U.S. company (EP transactions)
yields a margin of 25 percent or greater, we determine that margin
sufficient to impute knowledge to the importer. Similarly, if a
particular exporter's sales to an unaffiliated U.S. company through an
affiliated company (CEP transactions) yields a margin of 15 percent or
greater, we determine that margin sufficient to impute knowledge to the
importer.
In this investigation, as discussed above in the Facts Available
section, we have determined pursuant to an application of adverse facts
available that the petition margin of 57.87 percent is probative of the
selling practices of mandatory respondents Nisshin Steel Corporation,
Nippon Yakin Kogyo, Nippon Metal Industries, and NSC. This margin
indicates dumping over the 15 and 25 percent thresholds for these
respondents' sales. In addition, the Department normally considers a
preliminary International Trade Commission (``ITC'') determination of
material injury sufficient to impute knowledge of likelihood of
resultant material injury. The ITC preliminarily found material injury
to the domestic industry due to imports of stainless steel sheet and
strip in coils from Japan and, on this basis, the Department may impute
knowledge of likelihood of injury to these respondents. See Preliminary
Determination of the ITC of Certain Stainless Steel Sheet and Strip
from France, Germany, Italy, Japan, the Republic of Korea, Mexico,
Taiwan, and the United Kingdom, 63 FR 33092, (June 17, 1998). Thus, we
determine that the knowledge criterion for ascertaining whether
critical circumstances exist has been satisfied.
Moreover, because we are applying adverse facts available to these
four companies with respect to our final critical circumstances
determination, we also find that imports for each of the companies have
been massive. Consequently, both prongs of our critical circumstances
analyses have been met. See Critical Circumstances section above for
full discussion.
We disagree with NSC's arguments for the following reasons. First,
NSC argues that the Department should use the shipment data it
submitted. Although, NSC submitted its shipment data in a timely manner
and offered to have this information verified by the Department, the
Department decided not to verify any of the information submitted by
NSC due to substantial missing information since NSC did not respond to
the Department's supplemental cost questionnaire. Thus, because the
Department could not rely on NSC's sales and cost information as a
whole we must apply total adverse facts available and it is not the
Department's practice to verify partial information by a respondent who
has not fully cooperated. Second, NSC argues that the Department can
rely on Customs data in this case as was done previously in Sodium
Thiosulfate. The Department is unable to do such an analysis in this
case since the HTS numbers in the scope of the investigation are basket
categories that include non-subject merchandise, and thus do not permit
the Department to make an accurate analysis as discussed above.
Further, the Department again has determined that, in this case, such
an analysis is not warranted for NSC due to NSC's lack of cooperation
in this investigation. Therefore, we have found affirmative critical
circumstances for NSC.
Comment 16: Date of Sale
KSC asserts that the Department should use invoice date as the date
of sale. KSC contends that the Department proved through numerous tests
during the course of verification that the material terms of sales
change after the order confirmation date and up until the invoice date.
For this reason, KSC believes that the Department's should consider the
date of invoice as the date of sale. KSC cites the Department's
regulations which state that the Secretary normally will use the date
of invoice but, in some cases, will use a date that better reflects the
date on which the exporter or producer establishes the material terms
of sale. KSC asserts that in this case the invoice date is the only
date that reflects the intention of the Department's regulations for
date of sale. Furthermore, KSC cites the Department's decision in
Notice of Final Results of Review: Certain Welded Carbon Steel Pipes
and Tubes from Thailand, 63 FR 55578, 55587-88 (October 16, 1998)
(``Pipes and Tubes from Thailand''), where the Department found the
date on which the essential terms of the sale were established as the
proper date of sale.
Petitioners did not comment on this issue.
Department's Position: We agree with KSC that invoice/shipment date
is the correct date of sale for its home market
[[Page 30587]]
and U.S. sales of subject merchandise. Under our current practice, as
codified in the Department's regulations at section 351.401(i), in
identifying the date of sale of the subject merchandise, the Department
will normally use the date of invoice, as recorded in the producer's
records kept in the ordinary course of business. See Pipes and Tubes
from Thailand, 63 FR at 55578-55587. However, in some instances, it may
not be appropriate to rely on the date of invoice as the date of sale,
because the evidence may indicate that the material terms of sale were
established on some date other than invoice date. See Preamble to the
Department's Final Regulations, 62 FR 27296 (May 19, 1997)
(``Preamble''). Thus, despite the general presumption that the invoice
date is the appropriate the date of sale, the Department may determine
that this is not an appropriate date of sale where the evidence of the
respondent's selling practice points to a different date on which the
material terms of sale were set.
In this investigation, KSC, in its response to the original
questionnaire reported invoice/shipment date as the date of sale in
both the U.S. and home markets. However, when requested by the
Department, KSC also reported order confirmation date, but maintained
that the invoice date would be a more appropriate date of sale. For
purposes of our Preliminary Determination, we accepted the date of
invoice as the date of sale subject to verification. See Preliminary
Determination, 64 FR at 112.
At verification, we carefully examined KSC's selling practices. We
found that it records sales in its sales and financial records by date
of invoice/shipment. For the home market, we reviewed several sales
observations for which the price and quantity changed subsequent to the
original order (see KSC Sales Verification Report, dated March 24,
1999). For the U.S. market, we reviewed several instances in which
material terms of sale changed subsequent to the original order. In
addition, the Department has examined the time lags between order date
and invoice date to determine whether it was appropriate to use order
date as the date of sale. See Circular Welded Non-Alloy Steel Pipe from
the Republic of Korea; Final Results of Antidumping Duty Administrative
Review, 63 FR 32833, 32835 (June 16, 1998) (``Steel Pipe from Korea'').
However, it is important to note that, in Steel Pipe from Korea, the
Department found that ``[t]he material terms of sale in the United
States are set on the contract date and any subsequent changes are
usually immaterial in nature or, if material, rarely occur.'' Id., 63
FR at 32836. In contrast, KSC reported that there were numerous
instances of changes in terms of sale between the initial order date
and the shipment/invoice date. Therefore, invoice date is the most
appropriate date of sale, notwithstanding some time lag between order
confirmation and invoice. As noted above, we observed a significant
number of such instances at verification where changes did occur
between order confirmation and invoice. Based on KSC's representations,
and as a result of our examination of its selling records kept in the
ordinary course of business, we are satisfied that the date of invoice/
shipment should be used as the date of sale because it best reflects
the date on which material terms of sale were established for KSC's
U.S. and home market sales.
Comment 17: Scope Exclusion Requests
Since the Preliminary Determination we received a number of scope
exclusion requests. Printing Developments, Inc. (``PDI'') requests that
the necessary stainless steel supplies used for the production of
printing plates using a stainless steel substrate be excluded from the
scope of the investigation. PDI has found only one Japanese
manufacturer who produces materials to meet PDI's rigorous
specifications. To date, PDI has found no U.S. producer able to produce
this specialized product. PDI is presently discussing the requested
exclusion with one petitioner who has demonstrated some interest in
supplying stainless steel sheet for the production of the printing
plates.
SMI argues that the Department should exclude a certain form of
ASTM specification 403. SMI contends that it is the only producer in
the world of this grade of stainless steel sheet and strip used for
production of certain applications. Furthermore, a partner of SMI in
developing this material solicited three U.S. steel producers but none
were willing or able to produce the material in question.
Watanabe argues that welding strip should be excluded from the
scope of the investigation. Watanabe cites the Preamble in stating that
the Department ``intend(s) to avoid * * * situations where products in
which the domestic industry has no interest are included in the scope
of an order'' 62 FR at 27323. Further, Watanabe claims that it
solicited quotes from all petitioners but received no response.
Therefore, Watanabe urges the Department to exclude welding strip from
the scope of the investigation. Because there is no evidence on the
record of this investigation that U.S. producers have sold the
aforementioned product during the POI and because no U.S. manufacturer
was willing to produce the said merchandise, Watanabe argues that
welding strip should be excluded from the scope. In addition, Watanabe
claims that there are no ASTM and AISI standards for this product.
Petitioners have commented that they are unwilling to consider any
further exclusions from the scope of investigation.
Department's Position: Since petitioners have not indicated a lack
of interest in these particular products, the Department has not
excluded any of these products from the final scope of investigation.
Comment 18: GIN4 and GIN5 Scope Correction
Hitachi Metals America, Ltd. (``HMA'') requests that the Department
make two corrections to the definition for GIN4 and one correction to
the definition of GIN5. First, HMA asserts that the proprietary name
``GIN4 HI-C'' should be included in the definition of GIN4, because the
excluded product is sold under that name as well as GIN4 Mo. Second,
HMA contends that the product GIN4 should be compared to AISI 420 as it
is ``more similar'' to that product than ASTM 440F. Finally, HMA argues
that the Department should revise the units for carbide density for the
product GIN5. HMA asserts that the correct units for carbide density
should read ``one hundred square microns'' as opposed to ``square
micron.''
The petitioners have not commented on these requests.
Department's Position: We agree in part. The Department disagrees
with the suggestion that we include an explicit reference to GIN4 HI-C
in the scope language. The Department's scope has provided illustrative
examples but not an exhaustive list of proprietary names. It is
unreasonable to expect the Department to do such for each particular
product variety and it is unnecessary for the scope language to include
each and every proprietary product meeting the noted exclusion. The
Department agrees that the product GIN4 should be compared to AISI 420
and has made the necessary change. Finally, in regard to the GIN5
correction, the Department agrees with the noted correction and has
made the necessary change.
[[Page 30588]]
Interested Party Comments Regarding Cost
Comment 1: Cost of Second Quality Merchandise
Petitioners argue that the Department should reject KSC's reported
costs for non-prime merchandise (``seconds'') and the related offset
adjustment to prime merchandise costs. Petitioners assert that in its
November 18, 1998 Section D response, KSC did not report costs for
seconds because it claimed it could not identify the physical
characteristics for sales of such products. Petitioners argue that
KSC's home market sales database provides information allowing it to
identify at least three of the product characteristics for seconds.
Petitioners note that KSC offered a proposal in its Section D response
that the Department should use the weighted-average cost of all prime
merchandise as a proxy for the cost of seconds. Petitioners state that
this proposal was rejected by the Department and KSC then submitted
costs for seconds in a supplemental response dated January 11, 1999.
Petitioners claim that, instead of reporting its actual costs for
seconds, KSC provided the average cost of products based on the known
physical characteristics. Petitioners argue that KSC should have
calculated the actual costs of production for seconds based on its
costs for prime merchandise with the same identifiable characteristics.
Petitioners assert that the methodology used by KSC to report the costs
of seconds in its supplemental response resulted in unreasonable cost
allocations. As an example, petitioners claim that nine products with
different grades were assigned the same variable cost of manufacturing.
Petitioners also argue that KSC assigned unreasonable costs that do not
reflect the reported costs of prime merchandise with similar
specifications, as demonstrated by four submitted comparisons of nearly
identical prime and secondary products with significantly different
assigned costs. In addition, petitioners argue that KSC improperly
reduced its costs of prime merchandise with an offset adjustment
related to the assigned costs of seconds. Petitioners note that KSC
claimed this offset was necessary to avoid overstating total costs
because it calculated costs for seconds in the same manner as prime
merchandise. Petitioners assert, however, that KSC did not assign the
same costs for prime merchandise and seconds of the same product
specifications. Petitioners also claim that it is unclear from the
record what methodology was used by KSC to derive its offset adjustment
and that there is no indication that the Department traced this
adjustment to KSC's normal books and records. Therefore, petitioners
argue that the Department should disallow this reduction to the costs
of KSC's prime merchandise.
KSC argues that the Department should use its reported costs for
seconds, which were based on data maintained in the ordinary course of
business. KSC notes that it has repeatedly explained, and the
Department has confirmed, that it does not maintain actual production
costs for seconds and therefore it cannot report actual costs for
seconds. KSC states that, as confirmed by the Department in its sales
verification report, it does not maintain the same product details for
seconds as it maintains for prime merchandise. KSC asserts that the
extent to which its sales records provide reliable evidence as to the
precise characteristics of a secondary product depends on the
information needed by sales personnel in order to make the sale. KSC
claims that some of the reported physical characteristics in its sales
database may be pure estimates and that the only thing known for
certain is that the sales of seconds are, in fact, seconds. With regard
to the different products that were assigned the same variable cost of
manufacturing, KSC asserts that each of those products either had an
unknown grade, finish, or metallic coating, and thus these physical
characteristics could not be reliably identified. KSC states that
seconds are recorded in inventory as a by-product, at their net
realizable value, but that it reported costs for seconds as if they
were co-products of the prime merchandise, in accordance with IPSCO,
Inc. v. United States, 965 F.2d 1056, 1061 (Fed. Cir. 1992) (``IPSCO'')
and Notice of Final Determination of Sales at Less than Fair Value of
Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15444,
15455 (March 31, 1999) (``SSPC from Korea''). KSC asserts that by using
this reporting methodology, which adjusts the costs of seconds, it is
necessary to reduce the costs of prime merchandise to avoid overstating
its total costs of production.
Department's Position: We agree with KSC and have not adjusted its
reported costs. As petitioners note, we did object to the proposal set
forth by KSC in its Section D response for reporting the costs of
seconds. Our supplemental questionnaire dated December 22, 1998 stated,
``the COP for second-quality products should not be calculated using
the methodology suggested at page D-29. The use of a single weighted-
average cost of all prime products is not an acceptable method of
calculating costs for second-quality merchandise. Evidence presented in
the home market sales database indicates that KSC is able to identify
sales of second-quality products to a high level of specificity. To the
extent possible, KSC should use its production system to calculate the
actual production quantities and costs for second-quality products
during the POI. If such detailed production information is not
available, KSC should derive such production quantities and costs based
on its sales records.'' KSC followed these specific directions in
reporting costs for seconds in its supplemental responses, dated
January 11, 1999 and January 25, 1999. The only instances in which KSC
based its reported costs for seconds on the overall weighted-average of
prime merchandise were those in which it was unable to identify the
grade, finish, and non-metallic coating of the secondary product. The
nine secondary products that petitioners submitted as an example of
different products with the same reported costs clearly fall into this
category. While petitioners claim that the grades of these products are
different, the grade, finish and non-metallic coating characteristics
were all coded as unknown. As KSC notes, in no case did the Department
identify a second that was miscoded as a prime, or a prime that was
miscoded as a second. Thus, it is reasonable to expect that the costs
of these seconds would be calculated based on the weighted-average of
all prime products.
In other instances where only one or two of these three
characteristics were unknown, KSC calculated the reported costs of
seconds based on the weighted-average costs of prime merchandise with
the identical characteristics, aside from the unknown
characteristic(s). The four comparisons presented by petitioners
clearly reflect this approach, as we recalculated the cost of these
secondary products without exception. See, Memo to The File from
William Jones, dated May 19, 1999. As a result of our analysis, it
appears that KSC properly reported its cost of seconds, to the extent
it was able, in accordance with the IPSCO rule that prime and secondary
merchandise be treated as co-products and be assigned equivalent costs.
With regard to the offset adjustment that KSC applied to its prime
merchandise, we agree with KSC that this offset was necessary to avoid
overstating its total costs. Since KSC does not track the cost of its
secondary merchandise in its normal books and records, it was necessary
for the company to recalculate costs in the
[[Page 30589]]
manner described above. We reviewed a reconciliation of KSC's total
reported costs to its audited financial statements, noting an
insignificant difference. If the offset adjustment applied to the prime
merchandise had been overstated, then the reported costs of prime
merchandise and seconds would have been understated, and the
reconciliation would have revealed the understatement. Since the offset
adjustment appears to have been properly calculated, we will not make
any additional adjustments to the reported costs of KSC's prime
merchandise.
Comment 2: Application of Cost Variances
KSC allocated its variable cost variances between subject and non-
subject merchandise on the basis of total standard costs incurred for
subject and non-subject production. In the KSC Cost Verification Report
at 2, we stated that it may be appropriate to allocate variable cost
variances at the packing and transportation cost centers on the basis
of production quantities, rather than standard costs, since the costs
in these cost centers are more likely to vary in relation to the
production quantities. KSC allocated its fixed cost variances between
subject and non-subject merchandise on the basis of the total finished
production quantities of subject and non-subject merchandise. We also
stated in our cost verification report that it may be appropriate to
allocate fixed cost variances at KSC's No. 4 refining and No. 4
continuous caster cost centers on the basis of tons processed.
KSC claims that standard cost is the most appropriate basis for
allocating packing and internal transportation costs, as these costs
vary by value, and therefore no adjustment is necessary. KSC argues
that its packing costs vary based on the type of packing rather than
the quantity of production. KSC asserts that the subject merchandise
requires more costly packing to protect the thinner gauge models and to
protect the finish of models with special surfaces. KSC argues that its
internal transportation costs are also more likely to vary with value
because higher-cost products require extensive downstream processing
and are transferred more extensively throughout the mill. KSC claims
that if the Department reallocates the variances incurred at the
refining and continuous caster cost centers, it should do so in a
consistent manner for both variable and fixed variances, based on data
from the entire POI. KSC states that it has no objection to such a
reallocation, though it would result in a de minimis adjustment which
indicates the reasonableness of its submitted methodology.
Petitioners claim that KSC improperly allocated certain variable
and fixed overhead variances, as identified in the cost verification
report, which understated KSC's reported costs. Petitioners argue that
information on the record does not support KSC's assertion that its
packing costs tend to be associated more closely with the value of the
product than with production quantity. Petitioners argue that there is
no consistent correlation between the reported per-unit packing cost
and either sales value or the cost of manufacturing. Petitioners
provide examples to support its claim that there is no information on
the record to affirm KSC's assertion that its internal transportation
costs vary by value rather than quantity. Petitioners note that the
Department's verifiers focused on the common cost centers that
generated the largest variances and that, if the Department had the
resources to examine all of KSC's allocations, other errors requiring
revisions may have surfaced.
Department's Position: We agree with KSC that any reallocation of
variances incurred at the No. 4 refining and No. 4 continuous caster
cost centers should be applied to both variable and fixed cost
variances, and should be calculated based on the entire POI. The result
of such an adjustment would have a de minimis impact and therefore we
have not revised the variance allocations.
We have adjusted the reported costs, however, to remove the packing
and transportation variances. KSC derived its reported costs by first
calculating variable and fixed cost variances, then applying these
variances to the standard cost of each product. Since the resulting
actual cost includes packing and loading costs, it was necessary for
KSC to remove packing and loading which are not part of the cost of
manufacturing. KSC only deducted the standard packing and loading
costs, however, while retaining the variances associated with packing
and transportation cost centers in the reported costs. Since packing
costs are classified as an adjustment to the gross selling price, and
since the packing costs reported in the sales databases are actual
costs (see KSC Sales Verification Report at 17), the variances
associated with packing and transportation should be removed from the
reported cost of manufacturing. We have adjusted the reported costs to
remove these variances, rendering the allocation basis (i.e., quantity
or standard cost) a moot point. It is irrelevant whether production
quantities or standard costs are used to allocate packing and
transportation cost variances between subject and non-subject
merchandise, as long as the allocated variances for these costs are
completely removed in deriving the cost of manufacturing.
Comment 3: G&A Expenses--Losses on Disposal of Fixed Assets
Petitioners argue that KSC erroneously excluded certain losses on
the disposal of fixed assets from the calculation of its general and
administrative (``G&A'') expense rate. Petitioners argue that, although
these fixed assets may be unrelated to production of subject
merchandise, the Department's normal practice is to calculate G&A
expenses based on the producing company as a whole, and not on a
divisional or product-specific basis. See, e.g. Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Round
Wire from Canada, 64 FR 17324, 17333 (April 9, 1999); and Notice of
Final Determination of Sales at Less Than Fair Value: Fresh Atlantic
Salmon from Chile, 63 FR 31412, 31433 (June 9, 1998) (``Fresh Atlantic
Salmon from Chile''). Petitioners claim that it is reasonable to
include all cost of sales as well as all G&A expenses incurred by KSC
during the POI for the calculation of its G&A expense rate.
KSC argues that the Department should not include its losses on the
disposal of fixed assets used for production of non-subject merchandise
in calculating the G&A expense rate. KSC claims that the Department has
recognized that expenses relating exclusively to the production of non-
subject merchandise do not belong in G&A expenses. KSC maintains that
the facts in the instant case are similar to the facts in Fresh
Atlantic Salmon from Chile, in which the Department noted that it would
not include the disposal of fixed assets in G&A if the assets in
questions were tied to the production of non-subject merchandise. KSC
also cites to the following cases as examples of Department practice on
this issue: Brass Sheet and Strip from Canada; Final Results of
Antidumping Duty Administrative Review, 61 FR 46618, 46619-20
(September 4, 1996) (``Brass Sheet and Strip from Canada''); Certain
Hot-Rolled Lead and Bismuth Carbon Steel Flat Products From the United
Kingdom; Final Results of Antidumping Duty Administrative Review, 60 FR
44009, 44012 (August 24, 1995) (``Lead and Bismuth from the U.K.'');
Final Determination of Sales at Less Than Fair Value: Furfuryl Alcohol
From South Africa, 60 FR 22550, 22556 (May 8, 1995) (``Furfuryl Alcohol
from South
[[Page 30590]]
Africa''); and Final Determination of Sales at Less Than Fair Value:
Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18791,
197895 (April 10, 1994) (``Steel Wire Rod from Canada''). KSC claims
that because the assets in question relate to the production of non-
subject merchandise, the Department should exclude such expenses from
the calculation of KSC's G&A expense rate.
Department's Position: We agree with petitioners and, as in the
Preliminary Determination, we have included the losses on the disposal
of fixed assets in our calculation of KSC's G&A expense rate. We
verified that the assets in question relate to the production of non-
subject merchandise. However, it is our practice to calculate G&A
expenses using the operations of the company as a whole. See, e.g.,
Brass Sheet and Strip from Canada, 61 FR at 46619; and Circular Welded
Non-Alloy Steel Pipe and Tube From Mexico: Final Results of Antidumping
Duty Administrative Review, 63 FR 33041, 33050 (June 17, 1998). As we
stated in the original questionnaire issued to KSC, ``G&A expenses are
those period expenses which relate indirectly to the general production
operations of the company rather than directly to the production
process for the subject merchandise * * *''. Therefore, any income or
expense incurred through KSC's disposition of fixed assets should be
included in the G&A expense rate, regardless of whether they are used
purely for the production of subject merchandise or non-subject
merchandise. This policy was established in Final Determination of
Sales at Less Than Fair Value: New Minivans from Japan, 57 FR 21937,
21943 (May 26, 1992) (``Minivans from Japan''). In that case, the
Department stated, ``we generally consider disposal of fixed assets to
be a normal part of a company's operations and have included,
therefore, any gains or losses generated by these transactions in the
cost of production calculation.'' (emphasis added). This is consistent
with our treatment of miscellaneous income expenses in U.S. Steel Group
et al v. United States, 998 F. Supp 1151 (CIT 1998). We note also that
KSC incurred losses on sale of fixed assets related to the production
of subject merchandise and these losses were included in G&A expenses
and allocated over the cost of all products that KSC produced.
In Fresh Atlantic Salmon from Chile, cited by KSC, the issue was
whether to treat temporary shutdown costs as period costs or G&A
expenses, that would normally be allocated over the cost of all
products. The Department determined that the facilities in question
were only idle for a brief period of time and therefore the costs
associated with the temporary shutdown should not be treated as G&A
expenses. Rather, the costs of operating the facility were charged
directly to the cost of manufacturing for the non-subject products
produced in the facility. The Department did not, as KSC implies,
specifically exclude the shutdown costs from the G&A expense
calculation because the facility did not produce subject merchandise.
KSC's reliance on Brass Sheet and Strip from Canada and Steel Wire Rod
from Canada is similarly misplaced. The issue in these cases was
whether to include in a respondent's G&A expenses certain costs that
were incurred by a parent company or a subsidiary. The citations are
not on point since the instant case involves equipment that was owned
by KSC itself and, as noted above, the Department calculates G&A
expenses based on the operations of the respondent as a whole. Expenses
incurred by a parent company, or any other affiliated company, are only
included in the G&A expense calculation where the affiliated company
provides services to the respondent company. KSC's citation to Lead and
Bismuth from the U.K. is also misplaced, since the respondent in that
case closed an entire facility that only produced non-subject
merchandise and then excluded these closure costs from the G&A expense
rate calculation. In the instant case, KSC simply disposed of assets
and, as noted above in Minivans from Japan, the Department's policy is
to include all gains or losses generated by such disposals. The
respondent in Furfuryl Alcohol from South Africa calculated separate
G&A expense rates by division and a company-wide G&A expense rate for
G&A expenses that related to the operations of the company as a whole.
60 FR at 22556. Here, KSC submitted a single G&A expense rate for the
entire company and only included the losses on the sale of fixed assets
related to subject merchandise. It would not be appropriate nor
reasonable to allocate these losses over the cost of producing all
products, while specifically excluding losses on the sale of fixed
assets used for non-subject production. Since the sale of fixed assets
is a general activity of the company, and not specifically related to
production, we have allocated all losses on the sale of fixed assets
over the cost of producing all products.
Comment 4: General Administrative Expenses--Severance Expenses
KSC states that its expenses on special retirement are one-time
severance payments to employees who are transferred from the company
and are considered an extraordinary expense under Japanese generally
accepted accounting principles (``GAAP''). Therefore, KSC claims that
the Department should not include these expenses in the G&A expense
rate calculation. KSC asserts that the special retirement payments are
not normal, as petitioners claim, because these expenses would normally
be accrued as pension liability over an employee's career. KSC also
claims that these amounts are not related to KSC's current operations
since the workers are no longer employed by the company and KSC has no
obligation to make continuing payments to these former employees. KSC
states that it can incur such expenses in more than one year, to the
extent that the downsizing of operations may not be completed in a
single year and additional layoffs or transfers may occur in other
years.
Petitioners argue that KSC erroneously excluded expenses on special
retirement from the calculation of its G&A expense rate. Petitioners
claim that these expenses were incurred during the POI and constitute
normal costs associated with the operation of KSC's business.
Petitioners state that to qualify as ``extraordinary'' in nature, an
expense must be highly unusual and should not reasonably be expected to
recur in the foreseeable future. Petitioners assert that it is not
unusual for a company to layoff employees when downsizing and it is not
unusual for a company to offer severance payments to affected
employees. Petitioners also argue that such expenses cannot be
considered infrequent because KSC recorded the same expenses during the
two prior fiscal years. Petitioners state that it is irrelevant whether
the expenses on special retirement may be classified as extraordinary
under Japanese GAAP, because the Department's practice is to rely upon
a respondent's books and records prepared in accordance with home
country GAAP on the condition that those accounting principles
reasonably reflect the costs associated with the production of subject
merchandise and have been historically used. See, e.g., Notice of Court
Decision: Certain Corrosion-Resistant Carbon Steel Flat Products From
Canada, 63 FR 49078, 49079 (September 14, 1998). Petitioners claim that
since the expenses were incurred both prior to and during the
[[Page 30591]]
POI, and the expenses were associated with KSC's business operations,
the Department should include these expenses in the G&A expense
calculation, regardless of whether Japanese GAAP allows KSC to present
these amounts as ``extraordinary'' items on the financial statements.
Department's Position: We agree with petitioners and, as in the
Preliminary Determination, we have included the expenses on special
retirement in our calculation of KSC's G&A expense rate. The expenses
for special retirement are severance costs that are recorded as part of
KSC's ongoing downsizing operations. The Department's normal practice
is to include severance costs in a company's G&A expenses. See, e.g.,
Notice of Preliminary Determination of Sales at Less Than Fair Value:
Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil, 64 FR
8299, 8305-8306 (February 19, 1999), and Notice of Final Results and
Partial Rescission of Antidumping Duty Administrative Review: Certain
Pasta From Turkey, 63 FR 68429, 68434 (December 11, 1998). We noted at
verification that these downsizing activities have resulted in
recurring expenses for KSC. The fact that the process may extend over
multiple years does not preclude the use of current period expenses.
KSC has recognized in its audited financial statements the expense
related to the current fiscal year, and it is this period cost which we
have included in KSC's G&A expenses. Also, the classification of these
amounts as extraordinary expenses under Japanese GAAP is irrelevant.
The Department in some instances will exclude costs considered
extraordinary, provided that they are both unusual in nature and
infrequent in occurrence. These expenses for special retirement cannot
be considered infrequent in occurrence since they have been a recurring
cost for KSC and, therefore, are properly included in G&A expenses
along with other period costs. See Silicomanganese From Brazil:
Preliminary Results of Antidumping Administrative Review, 62 FR 1320,
1322 (January 9, 1997).
Comment 5: G&A Expenses--Bonuses
Petitioners claim that KSC should include bonuses paid to the
company's directors and statutory auditors in the calculation of its
G&A expense rate. Petitioners refer to a schedule in KSC's consolidated
financial statements, which indicates that such bonuses totaled 10,773
million yen during the POI.
KSC points out that the petitioners' claim is based on a misreading
of its financial statements and that the bonuses paid to the directors
and statutory auditors were actually 42 million yen. In addition, KSC
claims that its G&A expense rate calculation includes all relevant
bonus expenses.
Department's Position: We agree with KSC and therefore have not
adjusted the G&A expense rate calculation for bonuses. As shown in
KSC's financial statements in its ``Statement of Other Surplus,'' the
total bonuses to directors and statutory auditors during the POI were
only 42 million yen, and we verified that the amount of bonuses
reported in KSC's G&A expenses were reasonable.
Comment 6: G&A and Financial Expense Rate Application
Petitioners argue that the Department should account for packing
costs and loading charges in calculating and applying KSC's G&A and
financial expense rates. Petitioners note that packing costs and
loading charges are included in the cost of sales denominators used to
calculate these rates, but the per-unit cost of manufacturing figures,
to which the rates are applied, do not account for these costs.
Petitioners argue that the Department should correct this situation by
increasing the cost of manufacturing of each product for packing costs
and loading charges.
KSC asserts that the Department could address this problem by
removing packing costs and loading charges from the cost of sales
denominators, as it has in previous cases. See Notice of Final Results
and Partial Rescission of Antidumping Duty Administrative Review:
Certain Pasta From Turkey, 63 FR 68429, 68434 (December 11, 1998).
However, KSC argues that it is impossible for large companies (such as
KSC) to determine the precise amount of packing costs incurred for all
products, in all plants and by all divisions. As an alternative, KSC
suggests that the Department reduce the company-wide cost of sales
figures using the ratio of packing and loading costs to total costs of
manufacturing for the subject merchandise.
Department's Position: We agree with petitioners that an adjustment
is necessary in order to apply the G&A and financial expense rates to
the per-unit cost of manufacturing on the same basis on which it is
calculated. We also agree with KSC that our preferred method of making
this adjustment is to remove packing and loading costs from the cost of
sales denominator. However, as KSC acknowledges, the company-wide
packing and loading costs are not available in the instant case. We
have chosen not to use KSC's proposed alternative, which requires the
assumption that packing costs for all company products are incurred in
the same ratios as the subject merchandise. Instead, we have applied
the G&A and financial expense rates to the per-unit cost of
manufacturing inclusive of packing and loading costs.
Comment 7: Financial Expenses--Foreign Exchange Losses
Petitioners argue that KSC incorrectly excluded a subsidiary's
foreign exchange losses when calculating its reported financial expense
rate. Petitioners note that the Department's practice is to use the
highest level of consolidation to calculate financial expenses due to
the fungibility of financial resources and to include foreign exchange
losses on debt in the same calculation. Petitioners claim that the
excluded foreign exchange losses were related to debt and thus should
be included in the financial expense rate calculation.
KSC acknowledges that an insignificant amount of foreign exchange
losses were inadvertently omitted from the calculation of its financial
expense rate.
Department's Position: We agree with petitioners and have adjusted
KSC's financial expense rate calculation to include the foreign
exchange losses related to debt that were incurred by a KSC subsidiary.
Comment 8: Financial Expenses--Affiliated Party
Petitioners argue that the Department should adjust KSC's reported
costs to include financing costs associated with the purchase of
equipment. Petitioners note that an affiliated company, KSC
Enterprises, purchased equipment from unaffiliated companies and then
sold the equipment to KSC under an installment contract. Petitioners
assert that the cost of financing was not included in the purchase
price and therefore was not included in KSC's depreciation basis for
the purchased assets. Petitioners further note that the financing cost
was not captured since it was eliminated in the preparation of KSC's
consolidated financial statements.
KSC contends that the interest expenses captured on its
consolidated income statement reflect all of the financing expenses
actually incurred by the consolidated entity and that petitioners'
claim seeks to supplement these amounts with financing incurred on
specific assets. KSC argues that petitioners' claim violates the
Department's practice of allocating finance expenses based on the
consolidated corporate entity. See
[[Page 30592]]
Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide From the
Netherlands; Final Results of Antidumping Administrative Review, 63 FR
37516, 37517 (July 13, 1998); E.I. DuPont De Nemours & Co. v. The
United States, 98-7 (CIT Jan. 29, 1998) (``DuPont'').
Department's Position: We agree with KSC. As noted, our long-
standing practice is to derive the financial expense rate using the
respondent's audited consolidated financial statements. See, e.g.,
Silicon Metal From Brazil: Preliminary Results of Antidumping Duty
Administrative Review, 63 FR 42001, 42005 (August 6, 1998). This
practice has been upheld by the CIT as reasonable. See DuPont.
Petitioners are correct in noting that the depreciable basis of the
asset does not include financing costs, and the financing costs
associated with this specific transaction between the two affiliated
entities are eliminated in the preparation of consolidated financial
statements. However, petitioners are incorrect in their assertion that
these financing expenses should be included in the depreciable basis of
the asset as this would result in the double-counting of costs. Since
KSC's reported financial expense rate was properly based on its audited
consolidated financial statements, which reflect all borrowing incurred
by the consolidated entity, we have not made any adjustments to this
rate.
Comment 9: Calculation Error
Petitioners claim that there is an error in KSC's reported cost for
one control number, because the reported cost does not agree to
supporting documents presented at the cost verification. Petitioners
claim that the supporting documents indicate that the reported costs
were understated and the Department should adjust the reported cost
accordingly.
KSC asserts that the reported cost for the control number is
correct. KSC states that the supporting worksheet contains a clerical
error and that, after correcting for this error, the weighted-average
cost calculation on the worksheet agrees to the reported cost.
Department's Position: We agree with KSC. We reviewed the worksheet
that demonstrates the weighted-average cost calculation for this
control number, noting that the unit costs of two products comprising
the control number were switched in error. When the error is corrected,
the resulting weighted-average cost is consistent with the figure
reported by KSC. Therefore no adjustment is warranted.
Continuation of Suspension of Liquidation
In accordance with section 735(c)(1)(B) of the Act, we are
directing the Customs Service to continue to suspend liquidation of all
entries of subject merchandise from Japan that are entered, or
withdrawn from warehouse, for consumption on or after January 4, 1999
(the date of publication of the Preliminary Determination in the
Federal Register) for KSC and companies falling under the All Others
category. We are directing the Customs Service to continue to suspend
liquidation of all entries of subject merchandise from Japan that are
entered, or withdrawn from warehouse, for consumption on or after
October 12, 1998, for NSC, Nippon Metal Industries, Nisshin Steel Co.,
Ltd., and Nippon Yakin Kogyo. The Customs Service shall continue to
require a cash deposit or posting of a bond equal to the estimated
amount by which the normal value exceeds the U.S. price as shown below.
These suspension of liquidation instructions will remain in effect
until further notice. The weighted-average dumping margins are as
follows:
------------------------------------------------------------------------
Weighted-
average
Exporter/manufacturer margin
percentage
------------------------------------------------------------------------
KSC Steel Corporation...................................... 37.13
Nippon Steel Corporation................................... 57.87
Nisshin Steel Co., Ltd..................................... 57.87
Nippon Yakin Kogyo......................................... 57.87
Nippon Metal Industries.................................... 57.87
All Others................................................. 37.13
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded any zero and de minimis margins and any margins determined
entirely under section 776 of the Act, from the calculation of the
``All Others'' rate.
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. As our final determination is affirmative,
the ITC will, within 45 days, determine whether these imports are
materially injuring, or threaten material injury to, the U.S. industry.
If the ITC determines that material injury, or threat of material
injury does not exist, the proceeding will be terminated and all
securities posted will be refunded or canceled. If the ITC determines
that such injury does exist, the Department will issue an antidumping
duty order and direct Customs Service officials to assess antidumping
duties on all imports of the subject merchandise entered, or withdrawn
from warehouse, for consumption on or after the effective dates of the
suspension of liquidation.
This determination is issued and published in accordance with
sections 735(d) and 777(i)(1) of the Act.
Dated: May 19, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-13680 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P
