[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Notices]
[Pages 30664-30688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13770]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-580-834]
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Sheet and Strip in Coils From the Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 8, 1999.
FOR FURTHER INFORMATION CONTACT: Maria Dybczak (POSCO), Brandon
Farlander (Inchon) or Rick Johnson, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, N.W., Washington, D.C. 20230;
telephone: (202) 482-5811, (202) 482-1082 or (202) 482-3818,
respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (``the Act''), are references to the provisions
effective January 1, 1995, the effective date of the amendments made to
the Act by the Uruguay Round Agreements Act (``URAA''). In addition,
unless otherwise indicated, all citations to the Department 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 the Republic of Korea 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:
Stainless Steel Sheet and Strip in Coils (``SSSS'') from the Republic
of Korea (``Preliminary Determination''), 64 FR 137 (January 4, 1999)),
the following events have occurred:
On December 17, 1998, the Department postponed the final
determination to 135 days after publication of the preliminary
determination (see Notice of Preliminary Determination of Sales at Less
Than Fair Value: Stainless Steel Sheet and Strip in Coils (``SSSS'')
from the Republic of Korea (``Preliminary Determination''), 64 FR 137
(January 4, 1999)). On December 28, 1998, respondent Pohang Iron &
Steel Co., Ltd., (``POSCO'') alleged ``significant ministerial errors''
made in the Department's margin calculation for the preliminary
determination. After reviewing POSCO's allegations, the Department
agreed that it had inadvertently used daily rates instead of a
weighted-average exchange rate, that sales made to unaffiliated
companies were erroneously excluded from the calculation of normal
value, and that deductions for inland freight from plant to warehouse
and warehousing expenses were inadvertently excluded from the
calculation of normal value. Because these errors taken together
constitute a significant ministerial error, as defined in 19 CFR
351.224(g), we amended our preliminary determination. On January 26,
1999 the Department published its amended preliminary determination
(see Notice of Amended Preliminary Determination of Sales at Less Than
Fair Value: Stainless Steel Sheet and Strip in Coils from Korea (64 FR
3928)), amending
[[Page 30665]]
POSCO's cash deposit rate and the All Others rate from 12.59 to 3.92
percent. On February 23, 1999, the Department published a subsequent
amended preliminary determination, incorporating corrected scope
language. See Notice of Preliminary Determinations of Sales at Less
than Fair Value: Stainless Steel Sheet and Strip in Coils 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 8799 (February 23,
1999).
During December 1998, the Department conducted the cost
verification of POSCO's responses to the antidumping questionnaire. On
January 12, 1999, we issued our cost verification report (see
Memorandum to Neal Halper, Acting Director, Office of Accounting: Cost
Verification Report--Pohang Iron and Steel Company, Ltd. (``Cost
Verification Report''), dated January 12, 1999). On February 12, 1999,
we requested that POSCO provide narrative descriptions of certain home
market variables on the first day of the home market sales verification
(see Memorandum to File: Narrative Definitions of Certain Home Market
Variables, dated February 12, 1999). From February 22 through February
26, 1999, and from March 17 through March 18, 1999, we conducted the
sales verification of POSCO's responses to the antidumping
questionnaire. On April 2, 1999, we issued our sales verification
report on the U.S. sales verification of Pohang Steel America
(``POSAM'') (see Memorandum to the File: Report on the Verification of
U.S. Sales by Pohang Steel America (``POSAM'') in the Antidumping
Investigation of Stainless Steel Sheet and Strip in Coils from Korea
(``POSAM Verification Report'')). On April 6, 1999, we issued our sales
verification report on the home market and U.S. sales verification in
Seoul, Korea (see Memorandum to the File: Report on the Sales
Verification of Pohang Iron & Steel Company, Ltd. (``POSCO Verification
Report'')). Following verification, POSCO submitted a revised sales
database reflecting its pre-verification corrections on March 8, 1999.
On February 3, 1999, we received additional comments from
petitioners and, on February 11, 1999, we issued a second supplemental
questionnaire to Inchon. On February 22, 1999, we received Inchon's
second supplemental questionnaire response. We verified Inchon's sales
and cost questionnaire responses in Inchon, South Korea, from March 1-
5, 1999. On March 15-16, 1999, we verified Hyundai U.S.A., a wholly-
owned U.S. subsidiary of Hyundai Corporation, an affiliated trading
company of Inchon. On April 5, 1999, we issued the U.S. sales
verification report (see Memorandum to the File: Report on the
Verification of U.S. Sales by Hyundai U.S.A. in the Antidumping
Investigation of Stainless Steel Sheet & Strip in Coils from South
Korea (``Hyundai U.S.A. Verification Report'')). On April 8, 1999, we
issued the home market sales and cost verification report (see
Memorandum to the File: Inchon Iron & Steel Co., Ltd. Home Market
Sales, United States Sales, and Cost of Production Verification Report
(``Inchon Verification Report'')).
On January 21 and January 28, 1999, respondents and petitioners,
respectively, submitted their requests for a public hearing, and asked
that the Department extend the procedural schedule so that the hearing
might follow the release of all verification reports. On April 15,
1999, respondents and petitioners submitted their case briefs and on
April 21, 1999, all parties submitted their rebuttal briefs. A public
hearing was held on April 26, 1999, a transcript of which has been
placed on the record of this investigation.
Finally, on April 1, 1999, we asked Inchon and POSCO to submit
monthly shipment data for 1996, 1997, and 1998, requested by the
Department for the purposes of making a final critical circumstances
determination. On April 12, 1999, both POSCO and Inchon submitted
monthly shipment information as requested by the Department.
Scope of 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 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,
[[Page 30666]]
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 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.
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Period of Investigation
The period of investigation is April 1, 1997 through March 31,
1998.
Transactions Investigated
POSCO
According to section 351.403(d) of the Department's regulations,
downstream sales to a home market affiliate accounting for less than 5
percent of total sales are normally excluded from the normal value
calculation. In the preliminary determination, since respondent's sales
to resellers did not meet the Department's 5 percent threshold, the
Department has considered POSCO's sales to the affiliated service
centers and, to the extent that these sales pass the arm's length test,
has included these sales in our calculation of margin. Additionally, as
described in Comment 5, the Department has determined that for POSCO's
U.S. and home market sales the date of invoice is the appropriate date
of sale as this is the date on which the material terms of sale are
set. Therefore, the Department has included POSCO's sales in our margin
calculation based on invoice date.
[[Page 30667]]
Inchon
For the final determination, the Department determines that, for
Inchon's home market sales, the purchase order date is the appropriate
date of sale as this is the date on which the material terms of sale
are set. For U.S. sales, we determine that Hyundai U.S.A.'s invoice
date (or shipment date, when shipment occurs prior to issuing the
invoice) is the appropriate date of sale as this is the date on which
the material terms of sale are set. See Comment 12 for additional
information. Additionally, Inchon stated that it erroneously included
in its home market sales database sales shipped during the POI but
returned after the POI. Inchon provided a list of these returns. See
Inchon Verification Report, Exhibit 1. Therefore, we have excluded the
returns noted above from Inchon's home market sales database.
Product Comparisons
In accordance with section 771(16) of the Act, we considered all
products produced by the respondents, covered by the description in the
Scope of Investigation section above, and sold in the home market
during the POI, to be foreign like products for purposes of determining
appropriate product comparisons to U.S. sales. 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 and the August 3, 1998 reporting instructions.
Fair Value Comparisons
To determine whether sales of SSSS from the Republic of Korea to
the United States were made at less than fair value, we compared export
price (``EP'') or constructed export price (``CEP'') to the Normal
Value (``NV''), as described below in the ``Export Price/Constructed
Export Price'' and ``Normal Value'' sections of this notice.
POSCO
In the preliminary determination, for sales classified as EP by
POSCO, we compared EP to NV, and compared CEP to NV for those sales the
respondent identified as CEP transactions. However, as discussed in
Comment 3, the Department finds that POSCO's U.S. sales through POSAM
(U.S. channel 2) constitute CEP sales and has therefore compared CEP to
NV for those sales. In accordance with section 777A(d)(1)(A)(i) of the
Act, we calculated weighted-average EPs or CEPs for comparison to
weighted-average NVs.
Inchon
For the final determination, we compared Inchon's U.S. sales
through Hyundai U.S.A. (U.S. channel 1), which we classified as CEP
sales (see Comment 19), to NV for those sales. For Inchon's sales
through U.S. channel's 2 and 3, we compared EP to NV. In accordance
with section 777A(d)(1)(A)(i) of the Act, we calculated weighted-
average EPs or CEPs for comparison to weighted-average NVs.
Level of Trade
In accordance with section 773(a)(1)(B)(i) of the Act, to the
extent practicable, we determine NV based on sales in the comparison
market at the same level of trade (``LOT'') as the EP or CEP
transaction. The NV LOT is that of the starting price sales in the
comparison market or, when NV is based on CV, that of the sales from
which we derive selling, general and administrative expenses (``SG&A'')
and profit. For EP, the LOT is also the level of the starting price
sale, which is usually from the exporter to the importer. For CEP, it
is the level of the constructed sale from the exporter to the importer.
To determine whether NV sales are at a different LOT from EP or CEP
sales, we examine stages in the marketing process and selling functions
along the chain of distribution between the producer and the
unaffiliated customer. If the comparison market sales are at a
different LOT, and the difference affects price comparability, as
manifested in a pattern of consistent price differences between the
sales on which NV is based and comparison market sales at the LOT of
the export transaction, we make a LOT adjustment under section
773(a)(7)(A) of the Act. Finally, for CEP sales, if the NV level is
more remote from the factory than the CEP level and there is no basis
for determining whether the differences in the levels between NV and
CEP sales 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 Sheet and Strip from South Africa, 62 FR 61731 (November
19, 1997).
In the present investigation, neither respondent requested a LOT
adjustment. To ensure that no such adjustment was necessary, in
accordance with the principles discussed above, we examined information
regarding the distribution systems in both the United States and Korean
markets, including the selling functions, classes of customer, and
selling expenses for each respondent.
POSCO
POSCO did not claim a LOT adjustment. POSCO identified two channels
of distribution in the home market: (1) sales made by POSCO directly to
its customers; and (2) sales made by POSCO through its selling arm,
POSCO Steel Sales & Services Co., Ltd. (``POSTEEL''), to customers.
Both POSCO and POSTEEL made sales to domestic trading companies,
service centers, and unaffiliated and affiliated end-users. For both
channels, POSCO and POSTEEL report that they perform similar selling
functions. Either POSCO or POSTEEL contacted customers, managed
inventory, arranged for shipment and freight, and invoiced the
customer. In addition, POSCO claims that either POSCO or POSTEEL
offered, as needed, technical services and warranty processing. At
verification, the Department confirmed the selling functions performed
by the affiliates. See POSCO Verification Report at 10-12. Therefore,
we determine that selling functions performed in HM Channel 1 (sales
made by POSCO directly to customers) are similar to selling functions
performed in HM Channel 2 (sales made by POSCO through POSTEEL to
customers): freight and delivery, invoicing, sales negotiation, and
limited amounts of market research, warranty services, and technical
advice. Because channels of distribution do not qualify as separate
LOTs when the selling functions performed for each customer class are
sufficiently similar, we find that the home market constitutes a single
LOT.
POSCO reported three channels of distribution in the U.S. market:
(1) sales made by POSTEEL directly to a U.S. end-user; (2) sales to
U.S. end-users made by POSTEEL through its wholly-owned U.S.
subsidiary, POSAM; and (3) sales made by POSTEEL to unaffiliated Korean
trading companies for shipment to the United States. POSCO claimed two
LOTs in the U.S. market, but requested no LOT adjustment for the U.S.
LOT purported to be different from the home market LOT. The Department
examined at verification the claimed selling functions performed by
POSCO and its subsidiaries, POSTEEL and POSAM, for all U.S. sales.
These selling functions included freight and delivery arrangements,
invoicing customers, and extending credit. See POSAM Verification
Report, at 4-6. As discussed in Comment 3 below, we have determined
that POSCO's U.S. sales
[[Page 30668]]
through POSAM (U.S. channel 2) should be classified as CEP
transactions.
In order to determine whether NV was established at a different LOT
than EP or CEP sales, we examined stages in the marketing process and
selling functions along the chains of distribution between POSCO and
its home market and U.S. customers. We compared the selling functions
performed for home market sales with those performed with respect to
the EP and CEP transactions, after deductions for economic activities
occurring in the United States, pursuant to section 772(d) of the Act,
to determine if the home market level of trade constituted a more
advanced stage of distribution than the EP or CEP level of trade.
We have determined that sales made through U.S. channels 1 or 3
should be classified as EP transactions. Therefore, we have examined
the selling functions performed by POSCO and/or POSTEEL, and have found
that they are similar to the functions performed for home market sales.
As discussed in Comment 3 below, we have determined that POSCO's U.S.
sales through POSAM (U.S. channel 2) should be classified as CEP
transactions. With regard to POSTEEL's selling activities and services
offered to its U.S. affiliate (POSAM) for CEP sales, we note that POSCO
failed to provide this information despite the Department's explicit
request in its questionnaire (see Questionnaire at A-7). In any event,
we found at verification that POSTEEL itself performs selling functions
for U.S. sales. Specifically, POSTEEL conducted market research for
initial customer contacts, sales negotiation, arranged for ocean
freight and delivery to the U.S. port, and invoiced POSAM for sales of
subject merchandise. See POSCO Verification Report, at 11-12.
Therefore, we find that the selling activities in the U.S. market are
similar to those in the home market.
Based on our analysis of the chains of distribution and selling
functions performed for sales in the home market and in the U.S.
market, we find that sales to all three channels of distribution are
made at the same stage in the marketing process and involve nearly
identical selling functions. Therefore, we determine that POSCO and its
subsidiaries POSTEEL and POSAM provided a sufficiently similar degree
of services on sales to all three channels of distribution, and that
the sales made to the United States constitute one LOT.
Based on a comparison of the selling activities performed in the
U.S. market to the selling activities in the home market, we find that
there is not a significant difference in the selling functions
performed in both markets, and thus, sales in both markets were made at
the same LOT. Therefore, a LOT adjustment is not appropriate.
Inchon
In the home market, Inchon reported two sales channels: (1) To
unaffiliated distributors; and (2) to affiliated and unaffiliated end-
users. We examined record evidence to identify the selling functions
performed for both channels. These selling functions included inventory
maintenance, freight and delivery arrangements, and credit services. At
verification, we confirmed the selling functions noted above. See
Inchon Verification Report, at 20-21. Because there are no differences
between the selling functions on sales made to either unaffiliated
distributors or affiliated and unaffiliated end-users in the home
market, sales through both channels constitute one LOT. Therefore, for
the final determination, we conclude that sales to unaffiliated
distributors and affiliated and unaffiliated end-users constitute one
LOT in the home market.
For its EP and CEP sales in the U.S. market, Inchon reported three
sales channels: (1) Inchon sales through Hyundai Corporation, Inchon's
affiliated trading company, to Hyundai U.S.A., a wholly-owned
subsidiary of Hyundai Corporation located in the United States and an
affiliate of Inchon, and finally, to an unaffiliated customer; (2)
Inchon sales through Hyundai Corporation, to an unaffiliated customer;
and (3) Inchon sales to an unaffiliated trading customer. For purposes
of our LOT analysis, Inchon's U.S. customers for all three sales
channels are trading companies and distributors. We examined the
selling functions performed for each of the three U.S. sales channels.
These selling functions included freight and delivery arrangements,
credit services, and post-sale warehousing. With the exception of post-
sale warehousing for one sale in channel one, selling functions
performed in the three sales channels were identical. At verification,
we confirmed the selling functions noted above. See Hyundai U.S.A.
Verification Report, at 4-6. Therefore, for the final determination, we
determine that Inchon provided a sufficiently similar degree of
services on sales to all three channels of distribution, and that the
sales made to the United States constitute one LOT.
Further, because we determined that the U.S. LOT and the home
market LOT included similar selling functions, we conclude that these
sales are made at the same LOT. Therefore, a LOT adjustment for Inchon
is not appropriate. For a further discussion, see Analysis Memo:
Inchon.
Export Price/Constructed Export Price
POSCO
POSCO reported three channels of distribution for U.S. sales. In
channel 1, POSCO Steel Sales and Service Co., Ltd. (``POSTEEL''), which
is POSCO's affiliated trading company, sold directly to a U.S.
customer. In channel 3, POSTEEL sold directly to unaffiliated Korean
trading companies for resale of subject merchandise to the United
States. We classified sales made through these two channels as EP
sales, since the U.S. affiliate, POSAM, had no involvement in the
selling process. In channel 2, however, POSAM was involved in all the
sales made to unaffiliated U.S. customers, and reported that although
the majority of sales were EP sales, there were some sales classified
as CEP.
For U.S. sales channels one and three, we based our calculation on
EP, in accordance with section 772(a) of the Act, because the subject
merchandise was sold by the producer or exporter directly to the first
unaffiliated purchaser in the United States prior to importation, and
CEP methodology was not otherwise indicated.
For U.S. sales made through POSAM, we calculated CEP based on
packed prices to unaffiliated customers in the United States. We made
deductions for movement expenses in accordance with section
772(c)(2)(A) of the Act; these included, where appropriate, foreign
inland freight, foreign brokerage and handling, international freight,
marine insurance, U.S. inland freight, U.S. Customs Duty, and U.S.
brokerage and wharfage charges. In accordance with section 772(d)(1) of
the Act, we deducted those selling expenses associated with economic
activity occurring in the United States, including direct selling
expenses (credit costs, bank charges, and U.S. commissions) and
indirect selling expenses. In addition, we deducted a per unit direct
selling expense to account for bad debt losses incurred by POSAM for
sales made to a bankrupt customer. For a further discussion of the bad
debt expense and an explanation of its calculation, please refer to
Comment 1, and Memorandum to the File: Analysis for Final Determination
in the Investigation of Stainless Steel Sheet and Strip in Coils from
Korea--Pohang Iron & Steel Co., Ltd., (``Analysis Memo: POSCO''), dated
May 19, 1999. Also, we made an adjustment for CEP profit in accordance
with section 772(d)(3) of the
[[Page 30669]]
Act. Finally, we added to U.S. price an amount for duty drawback
pursuant to section 772(c)(1) (B) of the Act.
Inchon
For U.S. sales channels two and three, which are defined in the
Level of Trade section above, we based our calculation on EP, in
accordance with section 772(a) of the Act, because the subject
merchandise was sold by the producer or exporter directly to the first
unaffiliated purchaser in the United States prior to importation, and
CEP methodology was not otherwise indicated. For U.S. sales channel
one, which are sales made through Inchon's affiliate, Hyundai U.S.A.,
we based our calculation on CEP, in accordance with section 772(b) of
the Act, because the merchandise was sold by or for the account of the
producer or exporter of such merchandise or by a seller affiliated with
the producer or exporter, to a purchaser not affiliated with the
producer or exporter, and based on our analysis of the facts as
discussed in this section.
In the preliminary determination, we found that Hyundai U.S.A., the
U.S. affiliate, did more than merely act as a ``processor of sales-
related documentation and a communication link with the unrelated U.S.
buyer.'' See Preliminary Determination, 64 FR at 142. To ensure proper
application of statutory definitions, where a U.S. affiliate is
involved in making a sale, we normally consider the sale to be CEP
unless the record demonstrates that the U.S. affiliate's involvement in
making the sale is incidental or ancillary. The record demonstrates
that Hyundai U.S.A.'s role exceeds that of an incidental or ancillary
role. For a further discussion of this issue, see Analysis Memo:
Inchon, and Comment 19 below.
We based EP on the packed, delivered, tax and duty unpaid price to
unaffiliated purchasers in the United States. We made deductions for
movement expenses in accordance with section 772(c)(2)(A) of the Act;
these included, where appropriate, foreign inland freight, foreign
wharfage and loading, international freight, marine insurance, domestic
inland freight, and U.S. brokerage and wharfage. Additionally, we added
to the U.S. price an amount for duty drawback pursuant to section
772(c)(1)(B) of the Act. For a further discussion of this issue, see
Analysis Memo: Inchon.
We calculated CEP, in accordance with subsections 772(b), (c), and
(d) of the Act, for those sales to the first unaffiliated purchaser
that took place after importation into the United States. We based CEP
on the packed, delivered, duty paid or delivered prices to unaffiliated
purchasers in the United States. We made deductions for movement
expenses in accordance with section 772(c)(2)(A) of the Act; these
included, where appropriate, foreign inland freight, foreign wharfage
and loading, international freight, marine insurance, domestic inland
freight, U.S. brokerage and wharfage, and U.S. warehousing expenses. In
accordance with section 772(d)(1) of the Act, we deducted those selling
expenses associated with economic activities occurring in the United
States, including direct selling expenses (credit costs and bank
charges), and indirect selling expenses. For CEP sales, we also made an
adjustment for profit in accordance with section 772(d)(3) of the Act.
Additionally, we added to the U.S. price an amount for duty drawback
pursuant to section 772(c)(1)(B) of the Act. For a further discussion
of this issue, see Analysis Memo: Inchon.
We made certain adjustments based on minor discrepancies noted at
Inchon's U.S. verification and pre-verification corrections to several
CEP transactions. For one sale, we adjusted credit expenses and the
quantity and converted quantity, in MT, sold. For several sales, Inchon
did not report a handling commission (see Comment 14). In addition, for
several sales, we adjusted U.S. duty per MT and, for one sale, we
adjusted marine insurance. Further, Hyundai U.S.A. had incorrectly
invoiced one of its customers; hence, we adjusted multiple fields for
several sales. As this information involves proprietary information,
see Analysis Memo: Inchon.
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 Comparison'' sections of this
notice.
1. Home Market Viability
As discussed in the preliminary determination, we determined that
the home market was viable and no parties have contested that decision.
For the final determination, we have based NV on home market sales.
2. Cost of Production Analysis
POSCO
As discussed in the preliminary determination, we conducted an
investigation to determine whether POSCO made sales of the foreign like
product in the home market during the POI at prices below their cost of
production (``COP''). In accordance with section 773(b)(3) of the Act,
we calculated COP based on the sum of POSCO's cost of materials and
fabrication for the foreign like product, plus amounts for home market
SG&A, interest expenses, and packing costs. We used the information
from POSCO's questionnaire responses and the updated sales database
(dated March 8, 1999) to calculate COP, except in the following
instance.
POSCO purchased a significant amount of elements of value from
affiliated parties during the POI. For each affiliated purchase, we
reviewed whether the transfer price was at an arm's length price. Where
appropriate, we increased POSCO's per unit costs to the market price or
the supplier's cost of production, pursuant to 19 CFR 351.407(b). See
Memorandum to Neal Halper, Acting Director, Office of Accounting: Cost
of Production (``COP'') and Constructed Value (``CV'') Calculation
Adjustments for the Final Determination of Pohang Iron & Steel Co.,
Ltd. (``POSCO'') (``Cost Analysis Memorandum''), dated May 19, 1999.
See also, Comment 11.
Inchon
As discussed in the preliminary determination, we conducted an
investigation to determine whether Inchon made sales of the foreign
like product in the home market during the POI at prices below their
cost of production (``COP''). In accordance with section 773(b)(3) of
the Act, we calculated COP based on the sum of Inchon's cost of
materials and fabrication for the foreign like product, plus amounts
for home market SG&A, interest expenses, and packing costs. We used the
information from Inchon's questionnaire responses and the sales
database to calculate COP, except in the following instance.
Inchon stated that it erroneously used indirect selling expenses
during the POI rather than the 1997 fiscal year. See Inchon
Verification Report, Exhibit 1. We modified Inchon's G&A calculation
based on a pre-verification correction.
3. Test of Home Market Sales Prices
As in our preliminary determination, we compared the weighted-
average COP, adjusted where appropriate (see above), to home market
sales of the foreign like product as required under section 773(b) of
the Act. In determining whether to disregard home market sales made at
prices less than the COP, we examined whether the sales were made (1)
within an extended period of time in substantial quantities, and (2)
whether such sales were made at prices which
[[Page 30670]]
permitted the recovery of all costs within a reasonable period of time.
4. Results of the COP Test
Pursuant to section 773(b)(2)(C) of the Act, where less than 20
percent of respondent's sales of a given product were at prices less
than the COP, we did not disregard any below-cost sales of that product
because we determined that the below-cost sales were not made in
``substantial quantities.'' Where 20 percent or more of a respondent's
sales of a given product during the POI were at prices less than the
COP, we determined such sales to have been made in ``substantial
quantities,'' as defined in section 773(b)(2)(C)(i) of the Act, within
an extended period of time in accordance with section 773(b)(2)(B) of
the Act. In such cases, because we compared prices to weighted-average
COPs for the POI , we also determined that such sales were not made at
prices which would permit recovery of all costs within a reasonable
period of time, in accordance with section 773(b)(2)(D) of the Act.
Therefore, we disregarded the below-cost sales.
Calculation of CV
As in our preliminary determination, we calculated CV based on the
sum of respondent's cost of materials, fabrication, SG&A, interest
expenses and profit. In calculating CV, we made the same adjustments as
those noted above, in the ``Calculation of COP'' section of the notice.
In accordance with section 773(e)(2)(A) of the Act, we based SG&A and
profit on the amounts incurred and realized by the respondent in
connection with the production and sale of the foreign like product in
the ordinary course of trade, for consumption in the foreign country.
Price-to-Price Comparisons
As in our preliminary determination, for those product comparisons
for which there were sales at prices above the COP, 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)(ii) of the Act.
POSCO
We calculated NV based on the same methodology used in the
preliminary determination, with the following exception. As discussed
in Comment 9, we determined at verification that POSCO incorrectly
excluded housing expenses from its calculation of POSAM's indirect
selling expense ratio. We recalculated POSCO's indirect selling
expenses reported for U.S. Channel 2 sales (sales through POSAM), and
used this updated expense in deducting from NV the amount of indirect
selling expenses, capped by the amount of the U.S. commissions.
Inchon
We calculated NV based on the same methodology used in the
preliminary determination, with the following exceptions. In its home
market pre-verification corrections, Inchon discovered that it charged
interest to certain customers, when Inchon extended the due date of the
promissory notes. Inchon argued that because Inchon did not reduce
credit expense by the interest income, interest income should be added,
as noted in Inchon's Interest Revenue for STS Customer during POI
table. See Inchon Verification Report, Exhibit 1. We made an adjustment
to account for Inchon's interest revenue because we had accepted
Inchon's pre-verification correction. Additionally, we adjusted U.S.
Other Transportation Expenses for several sales, based on Inchon's
February 22, 1999 submission.
Price-to-CV Comparisons
For price-to-CV comparisons, we made adjustments to CV in
accordance with section 773(a)(8) of the Act. If appropriate, we
deducted from CV the amount of indirect selling expenses (adjusted as
described in the ``Price-to-Price Comparisons'' section above) capped
by the amount of the U.S. commissions.
Currency Conversion
In the preliminary determination, the Department determined that
the decline in the won at the end of 1997 was so precipitous and large
that the dollar-won exchange rate cannot reasonably be viewed as having
simply fluctuated during this time, i.e., as having experienced only a
momentary drop in value. Therefore, the Department used daily rates
exclusively for currency conversion purposes for HM sales matched to
U.S. sales occurring between November 1 and December 31, 1997, and the
standard exchange rate model with a modified benchmark for sales
occurring between January 1, 1999 and February 28, 1999. See
Preliminary Determination, 64 FR at 145. As discussed in Comment 2, the
Department continues to find that use of daily exchange rates and
modified benchmarks are warranted during the periods noted above.
In addition, as discussed in Comment 2 and Analysis Memo: POSCO, we
have determined that the severe and precipitous drop in the value of
the won from November 1997 through February 1998 necessitates the use
of two averaging periods, under 19 CFR 351.414(d)(3).
Critical Circumstances
On October 30, 1998, petitioners alleged that there is a reasonable
basis to believe or suspect that critical circumstances exist with
respect to imports of SSSS from Korea. In accordance with 19 CFR
351.206(c)(2)(i), we preliminarily determined that critical
circumstances did not exist with respect to respondents POSCO and
Inchon, which the Department had preliminarily determined not to have
margins over 15 percent, the first criterion for ascertaining whether
critical circumstances exist. See Preliminary Determination, 64 FR at
145-46.
Section 735(a)(3) of the Act provides that the Department will
determine that critical circumstances exist if: (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.
To determine whether there is a history of injurious dumping of the
merchandise under investigation, in accordance with section 735(a)(3)
of the Act, the Department considers evidence of an existing
antidumping order on SSSS from the country in question in the United
States or elsewhere to be sufficient. We are not aware of any
antidumping order in any country on SSSS from any of the countries
subject to this investigation.
In determining whether an importer knew or should have known that
the exporter was selling SSSS at less than fair value and thereby
causing material injury, the Department normally considers margins of
15 percent for CEP sales and 25 percent for EP sales or more sufficient
to impute knowledge of dumping and of resultant material injury. See
Notice of Final Determination of Sales Less than Fair Value: Certain
Cut-to-Length Carbon Steel Plate from the People's Republic of China,
63 FR 61964, 61967 (November 20, 1997); see also Notice of Final
Determination of Sales Less Than Fair Value: Manganese Sulphate from
[[Page 30671]]
People's of Republic of China 60 FR 52155, 52161 (October 5, 1995).
In this investigation, respondents POSCO and Inchon, which the
Department has determined have both EP and CEP sales, do not have
margins over 15 percent. Based on these facts, we determine that the
first criterion for ascertaining whether critical circumstances exist
is not satisfied. Therefore, we determine that there is no basis to
find that critical circumstances exist with respect to imports of SSSS
from respondents POSCO or Inchon, pursuant to section 735(a)(3) of the
Act. Therefore, we did not analyze the respondent's shipment data to
examine whether imports of SSSS have been massive over a relatively
short period. See e.g., Notice of Preliminary Determination of Sales at
Less Than Fair Value and Postponement of Final Determination: Collated
Roofing Nails from Korea, 63 FR 25895, 25898 (May 12, 1997).
However, one respondent, Taihan Electric Wire (``Taihan'') has not
responded to the Department's questionnaires, and has been assigned a
margin based on facts otherwise available (see ``Facts Available''
section, below). As Taihan's margin exceeds 25 percent, the first
criterion has been met. Also, as facts available, we consider Taihan to
have had massive imports over a relatively short period. Therefore,
having met both criteria, critical circumstances exist for imports of
subject merchandise from Taihan. See Preliminary Determination of Sales
at Less Than Fair Value: Stainless Sheet and Strip in Coils from Japan,
64 FR 108, 112 (January 4, 1999).
Regarding all other exporters, an ``All Others'' rate has been
determined (see ``The All Others Rate,'' below); because this rate does
not exceed 15 percent, we determine that critical circumstances do not
exist for companies covered by the ``All Others'' rate.
Verification
As provided in section 782(i) of the Act, we conducted on-site
verification of the information submitted by the respondents for use in
our final determination. We used standard verification procedures,
including examination of relevant sales, accounting and production
records and original source documents provided by the respondents.
Interested Party Comments
Comment 1: POSCO--Sales to a Bankrupt Customer
Petitioners argue that POSCO's sales to a bankrupt U.S. customer
are neither atypical nor insignificant, and that the Department should
account for the value of these sales in its final determination.
Petitioners contend that the Department should also not exclude the
sales based on a ``5 percent threshold'' for the exclusion of
insignificant sales from its analysis. Citing Gulf States Tube Div. v.
United States, 981 F. Supp. 630 (CIT 1997) and Certain Carbon and Alloy
Steel Wire Rod from Canada, 58 FR 62639, 62641 (November 29, 1993),
petitioners argue that these cases stand for the proposition that the
exclusion threshold is primarily to limit reporting of sales data that
would place a disproportionate burden on the Department. Petitioners
contend that no such burden exists in the instant case, as the sales
are already on the record.
Petitioners maintain that sales to financially troubled customers
are an everyday occurrence, and that the terms of sale usually reflect
the increased risk borne by the seller. Petitioners note that the chart
of accounts for the Korean parent, POSCO, includes several accounts and
reserves relating to bad debt. Petitioners note that the Department's
practice in an investigation is to take a ``snapshot'' of a
respondent's selling practices, and that since the Department uses a
weighted average of sales in its margin determination, no sales,
whether or not they are atypical, should be excluded from the analysis.
Petitioner notes that in Notice of Final Determination Sales at
Less Than Fair Value: Stainless Steel Plate in Coils (``SSPC'') from
the Republic of Korea (``SSPC from Korea''), 64 FR 15444 (March 31,
1999), the Department treated the cost of the bankrupt sales as direct
selling expenses allocated to all U.S. sales. Petitioners argue that
this treatment was correct. Petitioners further argue that under the
Department's reasoning in the preliminary determination of this
investigation, there would be no consequences when an importer is not
paid for subject merchandise if the sales have been classified as EP
sales. Petitioners further insist that POSCO must bear fees and
production costs associated with the bankrupt sales, and that these
must be classified as direct selling expenses since POSCO would not
have incurred them but for the customer's bankruptcy. Petitioners
contend that the value of these sales is most analogous to a warranty
claim, and that the Department reached this same conclusion in SSPC
from Korea and in Color Television Receivers from the Republic of
Korea: Final Results of Antidumping Administrative Review (``CTVs from
Korea''), 61 FR 4408 (February 6, 1996). Petitioners note that the
Department, citing AOC Intl. v. United States, 721 F. Supp. 314 (CIT
1989) and Daewoo Elecs. Co. v. United States, 712 F. Supp. 931 (CIT
1989), concluded in SSPC from Korea, 64 FR at 15449, that ``a bad debt
expense * * * is directly related to sales of the subject
merchandise,'' which petitioners contend requires a direct selling
expense adjustment to starting price. Petitioners contend that since
the sales were never paid for, and that future payments are highly
unlikely, the expense associated with these sales should be treated in
the same manner as is the expense associated with merchandise returned
for warranty claims, and that there should be no ``sale'' since the
sales had been written off and effectively canceled by POSCO. However,
petitioners note that there is a direct selling expense associated with
the sale of subject merchandise, similar to a warranty-related refund
or forgiveness of payment. Petitioners contend that the loss resulting
from the unpaid sales is a ``direct and unavoidable consequence of the
sale,'' and that the Department should follow its own precedent in its
treatment of these sales.
Petitioners also argue that, according to Timken Co. v. United
States, 852 F. Supp. 1122, 1125 (CIT 1994), all selling expenses are
presumed to be direct, unless the respondent can prove otherwise;
petitioners further argue that as the respondent failed to meet that
burden, the Department must treat these expenses associated with the
bankrupt sales as direct selling expenses. In addition, petitioners
argue that the expenses should be allocated to total sales of subject
merchandise only, citing Smith-Corona Group v. United States, 713 F.2d
1568, 1577 (Fed. Cir.1983), wherein the court stated that the
administrating authority must make a fair value comparison, comparing
``apples to apples.'' Petitioners contend that as information regarding
unpaid sales of stainless steel plate in coil products is not on the
record of this investigation, it would be inappropriate to include
sales of these products in the denominator.
Petitioners also argue that the Department should not include the
bankrupt sales in its margin determination, comparing these sales to
merchandise that was returned or lost in transit, which would not be
considered a sale. Petitioners further argue that sales made to a
bankrupt customer where there is no reasonable expectation of payment
cannot be considered as ``sales'' and must instead
[[Page 30672]]
be considered as a direct selling expense. Petitioners contend,
however, that should the Department include the sales in its margin
analysis, it must impute a credit period, and should assume that
payment was made on the date of the final determination.
Petitioners argue that POSCO has provided no support for its
contention that unpaid sales to the bankrupt customer represent
indirect selling expenses. They contend that in Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Wire
Rod from Korea (``SSWR from Korea''), 63 FR 40404, 40406 (July 29,
1998), the Department treated an accrual for bad debt as an indirect
selling expense, not an actual expense. Petitioners distinguish that
treatment with the instant case, wherein POSCO incurred a tangible loss
directly related to the sales of subject merchandise. In Notice of
Final Determination of Sales at Less Than Fair Value: Bicycles from the
People's Republic of China (``Bicycles from the PRC''), 61 FR 19026,
19044 (April 30, 1996) , petitioners contend, the Department never
addressed the issue of whether the bad debt expense was a direct or an
indirect selling expense: ``(t)hese expenses (have) been deducted from
U.S. price as part of CEP deductions. Because we are not making a
corresponding CEP offset * * * the classification of these expenses as
direct or indirect is moot.'' Petitioners argue that in Bicycles from
the PRC, there was no indication on the record that the expenses in
question were accruals or actual expenses, or whether they involved
subject merchandise. Petitioners note that there are no such questions
in the instant case, and that the expenses are clearly actual and
directly related to subject merchandise. Petitioners note that Final
Determination of Sales at Less Than Fair Value: Certain Fresh Cut
Flowers from Columbia (``Flowers from Columbia''), 52 FR 6842 (March 5,
1987), cited by POSCO, is also distinguishable from this investigation.
In Flowers from Columbia, petitioners note, it was not clear from the
record whether the bad debt expense was related to subject merchandise,
or whether the company had written off the bad debt. In the instant
case, petitioners argue, the bad debt expense is directly related to
subject merchandise, and the respondent has written off the sale.
However, petitioners do not agree with the Department's statement
in Flowers from Columbia that it ``consider(s) bad debt, by its very
nature, to be an indirect selling expense since, under generally
accepted accounting principles (``GAAP''), bad debt is recovered over
time by future price increases.'' Instead, they note that GAAP is
concerned with the measurement of economic activity at the time when
such measurements are recorded. In addition, petitioners argue that
basic accounting principles require a finding that such an expense
would not have occurred but for the making of a sale. Petitioners argue
that the accumulated costs incurred to generate a sale are recognized
when the merchandise is sold, and that therefore, the costs associated
with the bankrupt sales are directly related to the sales, since absent
the sale, they would not have been recognized in POSCO's or POSAM's
accounting system.
Petitioners further contend that POSAM's transfer price for the
bankrupt sales is not a valid basis for determining the amount of the
direct selling expense. Petitioners argue that the transfer price is a
meaningless figure for dumping purposes, and that the Department should
use, as it did in the SSPC from Korea, the more objective benchmark of
the constructed value of the sales.
Respondent argues that sales for which it never received payment
due to the customer's bankruptcy are atypical, and that inclusion of
these sales would distort the margin calculation. POSCO notes that in
the preliminary determination of this investigation, the Department did
not include the sales in the margin calculation, but did include the
cost of those sales (namely, the transfer price between the parent
company and the U.S. affiliate) as an indirect selling expense.
However, as respondent notes, the Department chose a different
treatment of these sales in SSPC from Korea, including the sales to the
bankrupt customer in the calculation of U.S. price and allocating the
actual cost of producing the merchandise (rather than the transfer
price) over all U.S. sales of subject merchandise as a per unit direct
selling expense. Respondent claims that this treatment increased
POSCO's preliminary deposit margin by over 300 percent.
POSCO argues that the Department has ample discretion to exclude
U.S. sales in an investigation where it finds that the sales are
atypical, not part of the respondent's ordinary business practice, and
would undermine the fairness of the comparison, citing Final
Determination of Sales at Less Than Fair Value: Fresh Cut Roses from
Colombia (``Roses from Colombia''), 60 FR 6980, 7004 (February 6,
1995), and Final Determination of Sales at Less Than Fair Value:
Professional Electric Cutting and Sanding/Grinding Tools from Japan, 58
FR 30144, 30146 (May 26, 1993). Respondent notes that the Department
has used this discretion in an investigation because the initial
deposit rate is intended as an estimate of future behavior, which
should not be calculated on extraordinary or unusual circumstances,
citing Koenig v. United States, 15 F. Supp. 2d 834, 841 (CIT 1998),
wherein the court distinguished between investigations, which are
intended to determine an estimated margin on future sales, and a
review, which is intended to assess actual duties. POSCO maintains that
the unpaid sales in the instant investigation constitute less than 5
percent of total U.S. sales, while in the companion investigation of
stainless steel plate in coils, the quantity was higher. POSCO notes
that the Department has traditionally treated 5 percent as its
threshold measure for determining significance, citing 19 CFR
351.403(d) (stating that downstream sales to affiliates in the home
market accounting for less than 5 percent of total sales are excluded
from the normal value calculation); and 19 CFR 351.404(b) (stating that
a home market is viable if it accounts for five percent of sales to the
United States). Respondent argues that petitioner's suggestion that
these sales are not atypical is wrong. POSCO notes that the scenario
``devised'' by petitioners in which a home market customer receives a
discount for high volume sales is in no way analogous with the
situation involved in the instant case. POSCO points to the fact that
voluntary discounts and terms of sale are negotiated by parties; in the
instant case, the customer's bankruptcy was not under POSCO's control.
Respondent argues that its U.S. affiliate, POSAM, has otherwise
never sold merchandise to a customer that did not eventually pay, and
as the Department verified, POSAM does not have an account for bad debt
in its accounting system. Accordingly, POSCO maintains that these sales
must be considered atypical and should not be included in the margin
calculation. In addition, respondent maintains that the inclusion of
these sales would undermine the fairness of the pricing comparison and
distort the margin, as they maintain occurred in SSPC from Korea.
Respondent contends that the Department further erred in SSPC from
Korea when it treated sales made to a bankrupt customer as both sales
for the purposes of the margin calculation and bad debt in terms of
allocating the cost of the sales as a per unit direct selling expense.
POSCO maintains that by treating the transactions as both sales
[[Page 30673]]
and bad debt, the Department would render the most distortive outcome
possible, violating the United States' obligations under the WTO
Antidumping Agreement to make a fair comparison between export price
and the normal value, citing Federal-Mogul Corp. v. United States, 872
F. Supp. 1011 (CIT 1994) and Melamine Chemicals v. United States
(``Melamine''), 732 F.2d 924, 933 (Fed. Cir. 1984). Respondent further
adds that, contrary to petitioners' contention, the Department has the
authority to take into account ``extraordinary events'' that were
``infrequent in occurrence,'' as cited by petitioners from Floral Trade
Council v. United States, 16 CIT 1014, 1016-17 (1992). POSCO argues
that the inclusion of these sales in the margin calculation would
constitute an unfair comparison between export price and normal value.
POSCO argues that it reported the transactions as sales rather than
bad debt because the transactions coincide with the Department's
definition of a sale and because POSCO fully expected to be paid for
these sales. Respondent notes that in administrative reviews the
Department normally leaves unpaid sales in the database for purposes of
the margin calculation, rather than to treat them as a bad debt
expense. As support for this contention, respondent cites Brass Sheet
and Strip from Sweden, Final Results of Antidumping Administrative
Review, 60 FR 3617, 3621 (January 18, 1995); Polythylene Terephthalate
Film, Sheet and Strip from Korea: Final Results of Administrative
Review, 60 FR 42835, 42839 (August 17, 1995); and Certain Internal-
Combustion, Industrial Forklift Trucks from Japan: Final Results of
Antidumping Administrative Reviews (``Forklift Trucks''), 57 FR 3167,
3173 (January 28, 1992). Respondent maintains that in these cases the
Department applied a credit period to the unpaid sales to reflect the
credit expense in the final margin. POSCO notes that in Forklift
Trucks, the Department treated the unpaid sales as subject sales since
the merchandise had been sold in the normal course of trade in the
period of review.
POSCO argues that the Department also erred in its reliance on CTVs
from Korea. Respondent argues that CTVs from Korea was an
administrative review, not an investigation. As such, POSCO contends
that the Department is responsible in the instant case for calculating
a cash deposit rate that can be relied on as a predictor and reasonable
estimate of future duties, whereas in a review, an actual assessment is
made and exclusions are not ordinarily allowed. Respondent argues that
in CTVs from Korea, the bad debt treated as a direct selling expense
was associated with sales in a prior period and recorded in the
company's bad debt expense account. Therefore, POSCO contends that the
Department did not treat the unpaid sales as sales in the database and
simultaneously as bad debt, instead allocating the expense amount as a
direct expense to the period of review sales that were actually paid.
POSCO further contends that the Department's policy is to treat
recognized bad debt as an indirect selling expense rather than a direct
selling expense. As support for this contention, respondent cites to
several cases: Flowers from Columbia, 52 FR at 6850; SSWR from Korea,
63 FR at 40406; and Bicycles from the PRC, 61 FR at 19041. Respondent
further points out that the Department recognized the cost of these
sales as an indirect selling expenses, based on the definition of
indirect expenses as those which are incurred whether or not a sale is
made. POSCO contends that the cost of these sales bear no direct
relationship to any other sale on the database, and that the cost,
represented by POSAM's payment to POSCO, would have been incurred even
if POSAM made no other U.S. sales. POSCO argues that for these reasons,
the cost of these sales is not a direct selling expense, and should not
be allocated to subject merchandise alone, but to all of POSCO's U.S.
sales.
Respondent argues that the Department's purpose for treating bad
debt as a direct expense in CTVs from Korea was to avoid distortion.
POSCO argues that in Daewoo Electronics v. United States, 712 F. Supp.
931, 938 (CIT 1989), cited in CTVs from Korea, the CIT remanded the
Department's determination, finding that the Department's practice of
disregarding selling expenses for bad debt losses, while granting
adjustments for warranty expenses which were not directly related to
the sales under review, was arbitrary and likely to result in distorted
margin calculations. Respondent maintains that the CIT did not direct
the Department to treat bad debt as a direct selling expense in all
cases, but to avoid distortion in the margin.
POSCO argues that even if the Department were to treat the cost of
sales as a direct selling expense, it should do so based on the
transfer price from the parent company to the affiliate, rather than
the constructed value of the merchandise. Respondent argues that in
CTVs from Korea, the bad debt directly expensed was based on the amount
recorded as bad debt in the respondent's normal books and records, not
on the cost of production. Respondent contends that the Department
verified that POSAM records the transfer price between itself and
POSTEEL as the cost of its sale, that the expense was captured in
POSAM's financial statements, not POSCO's, and that POSAM does not have
any accounts for bad debt in its accounting system.
Therefore, respondent argues that the cost reflected in POSAM's
accounting records, which POSCO argues is the transfer price, should be
the basis for any allocation of bad debt expense.
Respondent further argues that, should the Department include the
cost of the bankrupt sales in its margin calculation, the cost should
be allocated over all U.S. sales of stainless steel, not just
restricted to sales of subject merchandise. POSCO notes that the total
amount of stainless steel sales for the POI had been verified and
recorded as part of the Department's verification, and that therefore,
there is no reason why any recognized expense should not be allocated
over sales of all stainless products.
Respondent argues that petitioner's comparison between the bankrupt
sales and defective or lost merchandise is incorrect. POSCO contends
that defective merchandise is generally returned to the producer and
either resold or reincorporated into the production process. Likewise,
POSCO argues that lost merchandise is covered by insurance and would
not be accounted for in an investigation. Respondent maintains that
while a producer can be held responsible for defective merchandise
resulting in a warranty claim, a customer's bankruptcy is beyond the
producer's control, and that therefore, these transactions should be
excluded from the Department's analysis to the extent that they cause
distortion to the margin.
Department's Position: We agree with petitioners in part. Although
we disregarded the sales in the preliminary determination, we have
reconsidered our determination and find that the sales to the bankrupt
customer for which payment was not received should be included in the
margin analysis. POSCO reported the bankrupt sales as U.S. sales
because the material terms of sale were final, as required under the
statute. Section 772(a) of the Act. There was nothing atypical about
the terms of the sales at the time they were made; we agree with
petitioners that there is an inherent risk, when selling to customers
on a credit basis, that the customer might not make full or even
partial payment. Moreover, the price of the sales themselves is not
necessarily distortive because, at the time they were
[[Page 30674]]
made, POSCO was not aware that the customer would declare bankruptcy.
Therefore, these sales must be included in the database. In addition,
respondent's arguments regarding the relative significance of these
sales compared to POSAM's total sales is inapposite. Although the
Department employs a 5 percent threshold in regard to other issues in
investigations (namely, reporting of downstream sales and home market
viability), none of the instances described by respondent apply to this
case.
As petitioners have noted, the Department uses the 5 percent
threshold, for example, in determining whether to require a party to
report home market (or U.S.) downstream sales data. Where that data,
even if it constitutes less than 5 percent, has already been supplied,
there is no basis for the Department to refuse to use such data.
Furthermore, the Department has chosen a 5 percent benchmark to ease
the administrative burden of an investigation, operating under the
general assumption that there is less likelihood of introducing
distortions into the margin calculation if fewer than 5 percent of a
sales database is excluded. The Department, however, is not persuaded
by respondent's argument that the exclusion of reported sales is
necessary to eliminate distortions. As noted above, there is nothing
atypical or distortive about the price of such sales because, at the
time of such sales, POSCO was not aware that the customer would declare
bankruptcy.
We also disagree with respondent's claim that the Department
``double counted'' the sales by including the sales in the margin
calculation and treating the cost of the sales as a direct selling
expense. As the Department noted in SSPC from Korea, and in CTVs from
Korea, it is our practice to ``include sales which incur bad debt in
the database and treat the bad debt expense as a direct selling expense
when the expense is incurred on sales of subject merchandise.'' See
SSPC from Korea, 64 FR at 15448, and CTVs from Korea, 61 FR at 4412. In
addition, in Notice of Final Determination of Sales at Less Than Fair
Value: Foam Extruded PVC and Polystyrene Framing Stock from the United
Kingdom, 61 FR 51411, 51417 (October 2, 1996), the Department treated
bad debt expenses as direct selling expenses, as they were ``incurred
with respect to sales of the subject merchandise and to specific
customers which went bankrupt during the POI.'' Consequently, as in
SSPC from Korea, we have treated the bad debt expense as a direct
selling expense. However, we have not imputed a credit period for these
sales, due to its distortive effect on the margin. Thus, the Department
did not double-count the cost of the unpaid sales.
Furthermore, contrary to respondent's contention, the appellate
court ruling in Melamine is not relevant to the credit expense issue in
the instant case. In Melamine, the Court ruled that margins created
solely through fluctuations in exchange rates would be unreal,
unreasonable, and unfair. Unlike exchange rate fluctuations, companies
can control credit expenses through negotiation and contractual
agreement. In the instant case, POSAM's decision to sell to this
particular customer and extend credit was solely within its control.
POSAM could have chosen to insure itself against the risk that this (or
any) customer would not pay, as do other companies which sell on a
credit basis. Finally, POSAM could also have negotiated different terms
of sale, which in fact it did when it sold subject merchandise to the
same customer on a cash-on-delivery basis after the customer had
declared bankruptcy.
With regard to the classification of the expense related to these
sales, at verification, the Department found that POSAM reversed the
sales in its books at year-end by issuing negative invoices to the
customer for the unpaid merchandise in question. See POSAM Verification
Report at 6, and Exhibit 6. Although POSAM does not maintain separate
bad debt accounts, these sales have been effectively classified as a
type of bad debt. As in SSPC from Korea and CTVs from Korea, this bad
debt expense is directly related to sales of the subject merchandise.
See AOC International v. US, 721 F. Supp. 314 (CIT 1989) and Daewoo
Electronics v. US, 712 F. Supp. 931 (CIT 1989). We have determined that
the bad debt expense should be treated as a direct selling expense,
since but for the sale made to the bankrupt customer, the bad debt
expense would not have been incurred. We agree with petitioners that
the cases cited by POSCO do not support its contention that the
Department has a practice of treating bad debt expense as an indirect
selling expense in all instances. In all three cases, Bicycles from the
PRC, Flowers from Columbia, and SSWR from Korea, either the bad debt
expensed was an accrual versus an actual expense, or the bad debt could
not be tied to sales of subject merchandise. In the instant case, there
is no dispute that the expense was incurred, since POSAM's own records
indicate that the sales had been written off, and that the expense was
directly related to sales of subject merchandise.
We also agree with petitioners that it is most appropriate to use
an objective measure of the expense incurred for these unpaid sales
(namely, the constructed value of the sales), rather than an intra-
company transfer price which may not accurately reflect the cost of the
merchandise. The constructed value of the sales are determined based on
the actual cost of the inputs to the subject merchandise, which have
been verified by the Department in its Cost Verification. The transfer
price's basis is unknown, and may be based on a percentage of sale
price basis, or a fixed amount equally unrelated to the actual cost of
the product in question. In addition, we agree with petitioners that
the most appropriate allocation of the cost of the sales would be to
sales of subject merchandise, as the expenses plainly resulted from
subject merchandise sales. As petitioners noted, the Department is
required to make a fair value comparison on a fair basis, comparing
``apples to apples,'' citing Smith-Corona Group v. United States, 713
F.2d. 1568, 157 (Fed. Circ. 1983), and as the bad debt directly relates
only to subject merchandise sold to a U.S. customer, the appropriate
calculation is to allocate the direct selling expense over the total
U.S. sales of subject merchandise. For our calculation of the per unit
direct selling expense, see Analysis Memo: POSCO.
Comment 2: POSCO--Multiple Averaging Periods
Petitioners argue that the Department should calculate weighted-
average prices for multiple averaging periods to account for the
devaluation of the Korean won during the POI. Noting that the
Department accounted for this devaluation in the preliminary
determination by using daily and modified exchange rates during the
devaluation period, petitioners contend that this treatment did not
adequately account for the decline in the won, because the rates were
tied to the date of sale reported by respondents. Petitioners urge the
Department to calculate two separate weighted-average price comparisons
for each product under investigation to avoid a dilution of pre-
existing dumping margins solely as the result of the severe and
precipitous drop in the value of the won.
Petitioners argue that in recent investigations involving Korea
(i.e. SSPC from Korea and Final Determination of Sales at Less Than
Fair Value: Emulsion Styrene-Butadiene Rubber from the Republic of
Korea (``Rubber from Korea''), 64 FR 14865
[[Page 30675]]
(March 29, 1999)), the Department has determined that multiple
averaging periods are appropriate. In fact, in a review of the
Department's preliminary determination, petitioners find that there are
virtually no findings of sales at less than fair value during the
November 1997--March 1998 period, which coincides with the period of
currency devaluation. Petitioners argue that these results were
directly related to the Department's failure to adequately account for
the decline in the won.
Petitioners also argue that section 777A(d)(1)(A) of the Act allows
the Department to employ an average-to-average comparison of U.S. sales
to the relevant home market or third country sales, and, according to
the Statement of Administrative Action (``SAA''), time is a factor
which may affect the comparability of sales. Petitioners contend that
the effect of the currency decline on POSCO's costs and prices would be
``blended'' together with pre-crisis costs. They cite to Melamine,
noting that dumping margins should not be artificially eliminated
because of unanticipated changes in the exchange rate. Petitioners also
cite several cases supporting the Department's authority to make
special adjustments to take extraordinary circumstances into account,
including Floral Trade Council v. United States, 16 CIT 1014 (1992),
and Notice of Final Determination of Sales at Less Than Fair Value:
Large Newspaper Presses and Components Thereof, Whether Assembled or
Unassembled, from Japan, 61 FR 38139, 38153 (July 23, 1996).
Petitioners specifically cite to two cases involving adjustments for
currency issues, Final Determination of Sales at Less Than Fair Value:
Industrial Nitrocellulose from Brazil, 55 FR 23120 (June 6, 1990); and
Certain Fresh Cut Flowers from Columbia: Final Results and Partial
Recission of Antidumping Duty Administrative Review, 62 FR 53287, 53297
(October 14, 1997), and refer to these cases as illustrative of the
Department's authority to use a variety of methods to compare prices in
determining whether sales at less than fair value exist. In addition,
petitioners note that the Department's regulations allow it to employ
special procedures for exchange rate conversion where foreign
currencies appreciate vis-a-vis the dollar so that currency
fluctuations do not ``create'' dumping margins. Petitioners urge the
Department to adopt similar measures in this case to prevent currency
fluctuations from reducing dumping margins, and cite to Koyo Seiko, 20
F.3d 1156, 1159 (Fed. Cir. 1994) as indicative of the Department's
obligation to rely on alternative methods to calculate dumping margins
to ensure a fair result.
Petitioners argue that POSCO's arguments against the use of shorter
averaging periods are without merit. Petitioners contend that the fact
that different product matches could result from using shorter
averaging periods does not outweigh the need to employ multiple periods
given the sudden and precipitous drop in the won's value. Petitioners
also argue that POSCO's contention that the use of daily exchange rates
is sufficient to account for the drop in the currency is invalidated by
the Department's use of shorter periods in a significant inflation
scenario. Petitioners also maintain that respondent's argument that use
of shorter periods in the instant case will result in arguments for
multiple periods in all cases involving exchange rate fluctuations is
incorrect, and note that the extraordinary two-month 47 percent drop in
the won's value cannot equate to a typical currency fluctuation.
Respondent POSCO argues that the Department has no basis for a
decision to alter the standard price comparison period. POSCO contends
that because the Department has already applied a mechanism to address
the exchange rate fluctuations (namely, adjusting the exchange rates
used in the calculation of export price/constructed export price and
normal value) in the preliminary determination of this investigation,
there is no further need to alter the comparison period in the final
determination. Citing the Department's policy bulletin on this issue
(Policy Bulletin 96-1: Currency Conversions, 61 FR 9434 (March 8,
1996)), respondent maintains that the Department's treatment of
exchange rates in the preliminary determination ensured that exporters,
when setting U.S. prices, would know with certainty the exchange rate
the Department would use in a dumping analysis. POSCO contends that the
use of averaging periods would eliminate this certainty, and allow for
manipulation of the margin. Respondent further argues that the
Department's own regulations under the Uruguay Round Agreements Act
(``URAA'') stipulate that the Department may only use weighted averages
for shorter periods ``when normal values, export prices or constructed
export prices differ significantly over the course of the period of
investigation.'' POSCO contends that it sold subject merchandise based
on negotiated prices and whatever ``macroeconomic conditions'' existed
in the market during the POI. POSCO argues that the mere fact that
exchange rates fluctuated during the POI does not demonstrate that its
prices, pricing practices, and/or costs changed during the POI.
POSCO further argues that in recent cases, the Department has not
varied the averaging period due to exchange rate fluctuations alone.
Citing Notice of Final Determination of Sales At Less Than Fair Value:
Certain Mushrooms from Indonesia (``Mushrooms''), 63 FR 72268, 72272
(December 31, 1998), respondents contend that the case reflects the
Department's decision not to use two averaging periods to account for
the effect of currency devaluation. POSCO also cites Notice of
Preliminary Determination of Sales at Less Than Fair Value;
Postponement of Final Determination: Certain Preserved Mushrooms from
Indonesia, 63 FR 41783, 41785 (August 5, 1998) (``Preserved
Mushrooms''). Although POSCO states that the Department noted in both
SSPC from Korea and Mushrooms that it also considers prolonged large
changes in exchange rates, respondent maintains that the changes in won
during the POI were addressed by the Department's currency conversion
policy. Respondent points to another case, Final Determination of Sales
at Less Than Fair Value: Polyvinyl Alcohol from Taiwan (``Polyvinyl
Alcohol''), 61 FR 14064, 14069 (March 29, 1996), which the Department
distinguished in Mushrooms based on the facts of that case: the
respondent (in Polyvinyl Alcohol) ``changed the way it conducted
business with its principal home market customers, including its price
structure, while at the same time, U.S. prices and input cost trends
moved in tandem (citing Preserved Mushrooms, 63 FR at 41785).
Respondent argues that, as in Preserved Mushrooms, it did not change
the way it conducted its business or its pricing structure during the
POI.
Respondent also argues that the use of multiple periods has the
potential to distort the margin for reasons wholly unrelated to the
exchange rate. As an example, POSCO notes that the use of shorter
averaging periods may result in U.S. sales being matched to less
similar home market sales because of sales patterns wholly unrelated to
currency issues. POSCO argues that the purpose of calculating margins
based on POI averages is to eliminate the impact of such patterns on
the overall margin. Citing Melamine, 732 F.2d at 932, POSCO contends
that basing a margin on a factor beyond the control of the exporter
would be unreal, unreasonable, and unfair.
Department's Position: We agree with petitioners. Given the
economic
[[Page 30676]]
situation in Korea during the POI, it is most appropriate to use daily
and modified exchange rates in this case, for the reasons explained in
the preliminary determination, and to employ two averaging periods in
calculating the dumping margin. Under section 777A(d)(1)(A) of the Act,
the Department has broad authority to use a number of methodologies in
calculating the average prices used to determine whether sales at less
than fair value exist. More specifically, under 19 C.F.R.
351.414(d)(3), the Department may use averaging periods of less than
the POI when normal value, export price, or constructed export price
varies significantly over the POI. In this investigation, in the last
five months of the POI, NV (in dollars) differed significantly from NV
earlier in the POI, due primarily to a significant change in the
underlying dollar value of the won, evidenced by the precipitous drop
in the won's value that began in November 1997 and continued through
December 1997. In the span of two months, the won's value decreased by
more than 40 percent in relation to the dollar. Consequently, it is
appropriate to use two averaging periods to avoid the possibility of a
distortion in the dumping calculation. Moreover, we disagree with
respondent's claim that the use of averaging periods is dependent upon
a change in a respondent's selling practices. In the final
determination of Preserved Mushrooms, the Department stated that ``in
addition to changes in selling practices, we believe that we should
also consider other factors, such as prolonged large changes in
exchange rates, in determining whether it is appropriate to use more
than one averaging period.'' See Notice of Final Determination of Sales
at Less Than Fair Value: Certain Preserved Mushrooms from Indonesia, 63
FR 72268, 72272 (December 31, 1998). Therefore, for both POSCO and
Inchon, we have used two averaging periods for the final determination:
January through October 1997 and November 1997 through March 1998.
Comment 3: POSCO--CEP vs. EP
Petitioners argue that the Department should classify sales made
through POSCO's U.S. affiliate as CEP sales. Petitioners note that the
Department has found that where the U.S. subsidiary: (1) was the
importer of record and took title to the merchandise; (2) financed the
relevant sales transactions; (3) arranged and paid for further
processing; and (4) assumed the seller's risk, such sales were
classified as CEP sales (citing Certain Cold-Rolled and Corrosion-
Resistant Carbon Steel Flat Products from Korea: Preliminary Results of
Antidumping Duty Administrative Review, 61 FR 51882, 51885 (October 4,
1996); and upheld in Final Results, 62 FR 18404 (April 15, 1997).
Petitioners argue that POSCO's U.S. affiliate meets the criteria set
forth in that case. They contend that POSAM was the importer of record,
financed the sales to the U.S. customer, and assumed the risk
associated with these sales (as is evident with regard to the bankrupt
sales). Although no further processing was reported after importation,
petitioners argue that POSAM was responsible for other post-importation
services, such as arranging customs clearance, U.S. freight, invoicing
customers, and collecting payment.
In addition, petitioners note that in SSPC from Korea, the
Department determined that POSAM is more than a processor of sales-
related documentation, and that all sales through the affiliate were
CEP sales. Petitioners contend that POSAM is the only contact for the
U.S. customer, follows up initial contacts made by the Korean parent,
incurs the cost of unpaid sales, and is responsible for collecting
payment from customers. Petitioners also cite to several other cases
wherein the Department reclassified sales as CEP transactions when the
respondents' U.S. affiliates were found to have significant selling
functions in the United States (e.g. following up on calls made to U.S.
customers; market research for POSTEEL; receiving and preparing orders;
and collecting payments from customers).
Petitioners also argue that the Department should infer from
POSAM's size, both in terms of its staff and its asset value, that
POSAM is involved in setting U.S. prices. Petitioners urge the
Department to find as a general proposition that the mere existence of
a U.S. subsidiary the size of POSAM is a strong indication that the
activity of the staff must be ``significant.'' Petitioners note that
the level of sales and expenditures attributed to POSAM indicate that
POSAM has a significant involvement in setting prices for the subject
merchandise. In addition, petitioners contend that POSAM's selling
expenses should be deducted from the starting price, and should be
modified to reflect expenses for only those sales made to unaffiliated
parties.
Petitioners argue that the Department has found in all recent
cases, with the single exception of SSWR from Korea, that U.S. sales
made through POSCO's affiliate warrant CEP treatment, citing Certain
Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from
Korea: Final Results of Antidumping Duty Administrative Reviews
(``Carbon Steel from Korea-3rd Review''), 63 FR 13170, 13182-183 (March
18, 1998); and Certain Cold-Rolled and Corrosion-Resistant Carbon Steel
Flat Products from Korea: Final Results of Antidumping Duty
Administrative Reviews (``Carbon Steel from Korea--4th Review''), 64 FR
12927, 12937-38 (March 16, 1999).
POSCO argues that its sales through POSAM meet the Department's
criteria for classification as EP sales. Citing Final Results of
Antidumping Duty Administrative Review and Partial Termination of
Administrative Review: Circular Welded Non-Alloy Steel Pipe from Korea,
62 FR 55574, 55579 (October 27, 1997), respondent notes that the
Department considers whether (1) the merchandise was shipped directly
from the manufacturer to the unaffiliated U.S. customer; (2) this was
the customary commercial channel between the parties involved; and (3)
the functions of the U.S. affiliates were limited to that of processors
of sales-related documentation and communication links with the
unaffiliated U.S. buyer. POSCO argues that the Department has
classified sales as EP when all three criteria have been met, and has
considered the routine functions of the exporter as merely having been
relocated geographically from the country of exportation to the United
States, citing Industrial Phosphoric Acid from Belgium; Preliminary
Results of Antidumping Duty Administrative Review, 63 FR 25830, 25831
(May 11, 1998) and AK Steel Corporation v. United States, Slip Op. 98-
159, 1998 WL 846764 (CIT, November 23, 1998).
Respondent argues that POSAM's role in U.S. sales is that of a
processor of sales-related documentation. POSCO argues that POSTEEL,
POSAM's Korean-based affiliate, determines the material terms of sale,
and performs all sales-related activities, with the exception of
arranging freight for certain delivered sales, and arranging credit for
certain transactions. POSCO contends that POSAM communicates inquiries,
purchase orders, and confirmations between the U.S. customer and
POSTEEL, and that it has no negotiating authority, as petitioners
suggest. POSCO states that, contrary to petitioners' contention, POSAM
is not the first and only point of contact for the U.S. customer,
noting that POSCO or POSTEEL originated all of the contacts and
relationships with U.S. customers, and that the Korean affiliates
maintain direct contact with these customers through marketing trips to
the United
[[Page 30677]]
States. POSCO acknowledges that POSAM discusses the U.S. market
situation and prices with its parent in order to provide insight to
POSCO since POSAM is closer to the market. Respondent also contends
that petitioners' claim that POSAM's size indicates the level of
involvement in sales is inaccurate. POSCO argues that the Department
verified that only two employees at POSAM's headquarters are
responsible for sales of subject merchandise (as well as other product
sales) along with two accounting personnel who are responsible for
processing payment information for all customers and all products.
Respondent argues that petitioners' suggestion that the extent of
POSAM's involvement can be directly linked to the value of merchandise
recorded in POSAM's accounting records is totally irrelevant, and
points out that processing an invoice takes the same amount of time no
matter what its value. POSCO contends that, contrary to petitioners'
claim, the ``mere existence'' of a U.S. subsidiary does not dictate CEP
treatment.
Citing Final Determination of Sales at Less Than Fair Value: Coated
Groundwood Paper from Belgium, 56 FR 56359, 56362 (November 4, 1991)
and Final Determination of Sales at Less Than Fair Value: Coated
Groundwood Paper from Finland, 56 FR 56363, 56371 (November 4, 1991),
POSCO contends that the Department has held that the fact that an
affiliated U.S. company quotes prices to U.S. customers does not lead
to CEP designations, nor does a U.S. affiliate's identifying and
maintaining contact with customers. POSCO also cites to Final
Determination of Sales at Less Than Fair Value: Extruded Rubber Thread
from Malaysia, 57 FR 38465, 38469 (August 25, 1992), noting that the
Department found that the role of a branch office whose functions
include ``receiving orders, preparing and executing order
confirmations, invoices, packing lists, and other sales-related
documentation, and receiving and processing payments from customers'
was not sufficient to classify the affiliates' activities as beyond
those of a mere processor of documents or communications link.
Respondent further argues that petitioners' suggestion that the
Department segregate POSAM's indirect selling expenses by product is
wholly without merit. POSCO contends that, at verification in New
Jersey, the Department examined the activities of POSAM's employees,
and found that the sales and support staff are responsible for all
sales. Respondent notes that allocating POSAM's total indirect selling
expenses across all of its sales is the method by which the Department
has calculated all other reviews and investigations with which POSCO is
involved, including SSPC from Korea.
Department's Position: We agree with petitioners that sales through
POSAM are more appropriately treated as CEP transactions. Although the
facts in this investigation are similar to the facts in the stainless
steel wire rod determination cited by respondent, there are several
significant differences on the record of the present case which lead
the Department to change its decision from the preliminary
determination and conclude that POSCO's U.S. sales through POSAM
warrant classification as CEP sales, as we did in SSPC from Korea.
The Department treats sales through an agent in the United States
as CEP sales, unless the activities of the agent are merely ancillary
to the sales process. Specifically, where sales are made prior to
importation through a U.S. based affiliate to an unaffiliated customer
in the United States, the Department examines several factors to
determine whether these sales warrant classification as EP sales. As
respondents have noted, these factors are: (1) whether the merchandise
was shipped directly from the manufacturer to the unaffiliated U.S.
customer without being introduced into the physical inventory of the
affiliated selling agent; (2) whether this sale is the customary
commercial channel between the parties involved; and (3) whether the
function of the U.S. selling agent is limited to that of a ``processor
of sales-related documentation'' and a ``communication link'' with the
unrelated U.S. buyer. Where the factors indicate that the activities of
the U.S. selling agent are ancillary to the sale (e.g., arranging
transportation or customs clearance), we treat the transactions as EP
sales. Where the U.S. selling agent is substantially involved in the
sales process (e.g., negotiating prices), we treat the transactions as
CEP sales. See Certain Cut-to-Length Carbon Steel Plate from Germany:
Final Results of Antidumping Administrative Review, 62 FR 18389, 18391
(April 15, 1997); Mitsubishi Heavy Industries v. United States, Slip
Op. 98-82 at 6 (CIT, June 23, 1998).
We note that neither party has disputed that POSCO's U.S. sales
through POSAM meet the first two criterion of the Department's
standard. Therefore, the determining factor in this case is the degree
of involvement by POSAM in the sales process. In the preliminary
determination, the Department based its EP classification of sales
through POSAM on POSCO's statement that POSTEEL determined price and
terms of sale. However, in our preliminary determination, we noted that
we would conduct an in-depth examination of the most appropriate
classification of POSCO's U.S. sales through POSAM (i.e., CEP versus
EP) at verification. See Preliminary Determination, 64 FR at 142.
Although POSTEEL performs many selling activities for U.S. sales
through POSAM, including meeting with potential U.S. customers of the
subject merchandise (see POSCO Verification Report, at 11-12 and
Exhibit 15), the record does not support POSCO's assertion that POSAM
is merely a processor of sales-related documentation. First, POSAM is
the primary point of contact for the U.S. unaffiliated customer. POSAM
officials explained that because of the time zone difference and the
cost of long distance, it would be expensive and inconvenient for the
customer to contact POSTEEL directly. See POSCO Verification Report at
11. In addition, POSAM also conducts, albeit informally, market
research for POSTEEL, in that POSAM officials report market conditions
and pricing information to POSTEEL.
Also, as demonstrated by the unpaid sales to the bankrupt customer,
POSAM incurs the ``seller's risk'' for U.S. Channel 2 sales. The record
indicates that it was POSAM, not POSTEEL, who incurred the cost of the
unpaid sales, as POSAM pre-pays POSTEEL. See POSAM Verification Report
at 6. Moreover, it is POSAM, not POSTEEL, who is responsible for
collecting payment from the customer through bankruptcy proceedings.
See POSAM Verification Report, Exhibit 9. Bearing such financial risk
is indicative of a seller, not a mere facilitator. This selling
arrangement between POSAM and POSTEEL differs from the one between
POSAM and Changwon, addressed in SSWR from Korea, where the ``U.S.
customers remit payment to POSAM, which subsequently transfers the
payment to POSTEEL, which, in turn, transfers it to Changwon.'' See
SSWR from Korea, 63 FR at 40419 (emphasis added).
Therefore, because of the significant risk incurred by POSAM in
addition to its other selling activities, we find that POSAM's
activities are more than ancillary to the sales process and have
classified POSCO's U.S. sales through POSAM as CEP transactions.
Additionally, we disagree with petitioners that the reported
indirect selling expenses for POSAM should be adjusted. Petitioners
have not stated that POSCO's calculation was incorrect or is
[[Page 30678]]
in any way distortive. We verified POSCO's calculation of POSAM's
indirect selling expense at verification and noted no discrepancies.
See POSAM Verification Report at 11-12. Thus, for CEP sales, we have
deducted an amount for indirect selling expenses incurred in the United
States using POSCO's reported indirect selling expense for POSAM.
Comment 4: POSCO--Local Letter of Credit Sales
Respondent argues that the Department should calculate normal value
for ``local'' sales made in the home market based on the U.S. dollar
price at which those sales were invoiced. Local sales are sales of
subject merchandise to home market customers who will further process
the merchandise into non-subject products for export. Respondent
maintains that although POSCO is paid in Korean won, the amount of
payment is based on the U.S. dollar-invoiced price. Respondent contends
that because POSCO's local sales are denominated and invoiced in U.S.
dollars, the invoiced prices do not require conversion to won for U.S.
comparison prices, and that the conversion of the U.S. dollar price to
won and then back to dollars is not only unnecessary, but would
significantly distort the margin. Respondent cites to Final
Determination of Sales at Less Than Fair Value: Fresh Cut Roses from
Columbia (``Roses from Columbia''), 60 FR 6980, 7006 (February 6,
1995), noting that the Department agreed and accepted the U.S. prices
for sales invoiced in U.S. dollars, notwithstanding that the respondent
received payment from the customer in the home market currency.
Respondent argues that in the final determination in SSPC from Korea,
the Department's concern was that POSCO's customers paid for local
sales in won, the sales amounts were recorded in won in POSCO's
accounting records, and that the exchange rates utilized by POSCO to
determine the won equivalents were different from those exchange rates
used by the Department. Respondent contends that the fact that payment
is made in won is irrelevant, since both the contract and the invoice
reflect a U.S. dollar price, and that sales are converted to won for
the purposes of consistency with POSCO's accounting records, which are
maintained in won.
Petitioners claim that the use of the dollar value for local sales
in the home market would be inappropriate, given that POSCO receives
payment in won. Petitioners distinguish this case from Roses from
Columbia by noting that in that case, the Department was factoring in
the effects of inflation in the cost-of-production analysis, costs were
converted into dollars; the payments in local currencies had reflected
the prevailing exchange rate, and all home market sales had been
invoiced in dollars and paid in pesos. Petitioners further contend that
in Roses from Columbia, the decision to use U.S. dollar-based prices
was presumably made for convenience and consistency, as costs were also
dollar-denominated. Petitioners further note that the disparity between
the exchange rates reflected in the price conversion and the rates used
by the Department is too great to reconcile, and is in contrast to the
situation in Roses from Columbia. Petitioners argue that the use of a
constant index such as the dollar is used by the Department in the face
of currency depreciation or significant deflation, and should not be
applied selectively to reduce a dumping margin.
Department's Position: We agree with petitioners. First, we believe
that respondent's reliance on Roses from Columbia is misplaced. In that
case, all prices and costs, both in the home market and in the U.S.,
were dollar denominated, and the exchange rates reflected in the
dollar-to-peso conversion coincided with the exchange rates used by the
Department. Given these facts, the use of dollar-denominated prices
provided consistency throughout the Department's analysis in that case.
Neither of these facts are present in the instant case. At
verification, we found that local sales are the only sales made in the
home market that are expressly linked to a dollar value, but that the
sale is ultimately a won-denominated sale. Additionally, the vast
majority of the costs incurred for home market and U.S. sales are
denominated and paid by POSCO in won. See POSCO Verification Report at
14-18. Finally, as we note above, there is a disparity between the
exchange rates reflected in POSCO's accounting records and those used
by the Department (see POSCO Verification Report, Exhibit 17). Although
the sales are linked to a dollar value, there is no question that the
respondent receives payment in won, and therefore, the use of the
dollar-denominated gross unit price for local letter of credit sales in
the home market is unwarranted. In addition, in recent cases involving
POSCO (e.g. SSPC from Korea, and Carbon Steel from Korea--3rd Review),
the Department has used the won-denominated price for local letter of
credit sales in the home market because we found that, as in the
instant case, the local sales were paid in won and recorded in POSCO's
accounting records in won, and the exchange rates used by POSCO were
dissimilar from those used by the Department. See SSPC from Korea, 63
FR at 15456.
Comment 5: POSCO--Date of Sale
Petitioners argue that the Department should use the order
confirmation date as the date of sale for both home market and U.S.
sales unless the circumstances of a particular sale indicated use of
some other date. They contend that the Department ``may use a date
other than the date of invoice if the Secretary is satisfied that a
different date better reflects the date on which the exporter or
producer establishes the material terms of the sale,'' including price
and quantity. See 19 CFR 351.401(i). Petitioners contend that the
Department has the authority to treat order date as the date of sale,
and has done so in the recent past, citing Final Results of Antidumping
Administrative Review: Circular Welded Non-Alloy Steel Pipe from the
Republic of Korea (``Pipe from Korea''), 63 FR 32833, 32835-36 (June
16, 1998)). Petitioners argue that the documents included in the
Department's verification exhibits illustrate that, with the exception
of special circumstances (involving bankrupt sales) the material terms
of sale are set on the order date and do not change prior to shipment
and invoice. Petitioners maintain that documentation reviewed at
verification indicates that POSCO knew well before actual shipment the
order quantity of the invoice. Petitioners note that, with the
exception of two sales involving merchandise originally intended for a
bankrupt customer, the other seven sales (involving either a home
market or a U.S. sale) reviewed at verification did not involve changes
in quantity or price from order date to invoice date.
Petitioners argue that for U.S. sales in channel 2, the Department
should use as the date of sale the date of POSAM's invoice to the U.S.
customer, rather than the date of POSTEEL's invoice to POSAM.
Petitioners further contend that this invoice is meaningless because it
represents the transfer price on an intra-company transaction.
Respondent does not deny that the Department has the discretion to
use a date other than invoice date as date of sale, but noted that in
SSPC from Korea, the Department chose not to alter its date of sale
methodology. POSCO disputes that use of invoice date requires that
price and/or quantity change frequently between order date and invoice
date, contending that the fact that whether material terms change after
the order date does not diminish
[[Page 30679]]
the fact that they could and sometimes do change, so that material
terms are not firmly established as of the order date. Respondent cites
to recent cases as precedent for the Department's decision to use
invoice date as date of sale, including Certain Corrosion-Resistant
Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate
from Canada, 64 FR 2173, 2178 (January 13, 1999), wherein the
Department found at verification that quantity changed between the
order date and the invoice date, and determined that invoice date was
the most appropriate date to use in accordance with normal practice.
POSCO distinguishes the instant case from Pipe from Korea, wherein the
material terms had been set in the U.S. contract, and that subsequent
changes were immaterial in nature. Contrary to petitioners' contention,
POSCO argues that the documents provided at verification support
invoice date as the date of sale, rather than order date, as
petitioners claim. Respondent further argues that the Department's
obligation with regard to date of sale is to determine when price and
quantity are normally finalized, and that the reason for a change in
terms is irrelevant to the Department's analysis. Therefore, POSCO
submits that there is no reason for the Department to deviate from its
standard practice of using invoice date as date of sale.
Respondent believes that the Department, in its preliminary
determination, properly used the date of POSTEEL's invoice to POSAM as
the date of sale since the material terms of sale were finalized upon
shipment to the customer from Korea (the point at which POSTEEL issues
its invoice to POSAM). Moreover, POSCO maintains that the Department
has a well-established rule that the date of sale must precede or be
equal to the date of shipment, citing Carbon Steel from Korea--4th
Review. Respondent further argues that petitioners' contention that the
invoice between POSTEEL and POSAM is meaningless is immaterial to the
determination of the date of sale. POSCO notes that use of an invoice
date between a U.S. affiliate and its unaffiliated customer would only
be appropriate with regard to CEP transactions.
Department's Position: We agree with respondents in part. Under the
Department's regulations, we normally use date of invoice as the date
of sale. 19 CFR 351.401(i). However, we may use another date, such as
date of order confirmation, if that date better reflects the date on
which the material terms of the sale were established. In adopting this
regulation, we explained that the purpose was, whenever possible, to
establish a uniform event which could be used as the date of sale.
Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296,
27348-49 (May 19, 1997). We further explained that we do not treat an
initial agreement as establishing the material terms of sale between
the buyer and seller when changes to such an agreement are common, even
if, for a particular sale, the terms did not actually change.
Consequently, our analysis focuses on whether changes are sufficiently
common to allow us to conclude that initial agreements should not be
considered to finally establish the material terms of sale. As
discussed in detail in the Analysis Memo: POSCO (at 1-2), a review of
the sales documentation supports POSCO's contention that certain
material terms of sale (i.e., price and quantity) are subject to change
until the invoice date. Moreover, we find petitioners' contention that
the record supports use of order confirmation date as date of sale to
be without merit. As the Department noted in Carbon Steel from Korea--
4th Review, ``even if documentation from a few sample U.S. sales
suggests that essential terms of sale did not change after initial
contract date, this does not demonstrate that essential terms of sale
were not subject to change after the initial contract date, or that
essential terms of sale did not in fact change after the initial
contract date for significant numbers of sales.'' See Carbon Steel from
Korea--4th Review, 64 FR at 12935. While we note that, at verification,
we discovered that POSCO's methodology in determining the frequency of
pricing changes overstated the actual number of occurrences (see
Analysis Memo: POSCO), based upon our examination of the frequency of
pricing changes for home market sales, and for U.S. sales classified as
EP transactions, we have determined that invoice date is the
appropriate date for date of sale. However, in keeping with the
Department's practice, the date of sale cannot occur after the date of
shipment. Therefore, when the date of shipment precedes the date of the
invoice to the first unaffiliated purchaser in the United States, we
have used shipment date as the date of sale, in accordance with recent
reviews involving POSCO (see Carbon Steel from Korea--4th Review, 64 FR
at 12935, citing Carbon Steel from Korea--3rd Review, 63 FR at 13172-
73).
Comment 6: POSCO--Sales of Non-Prime Merchandise
POSCO argues that in the final determination, the Department should
distinguish between prime and secondary merchandise. POSCO explains
that it had submitted control numbers corresponding to each product
reported as subject merchandise, and assigned to each control number a
suffix of either ``P'' for prime merchandise or ``N'' for non-prime
merchandise. However, respondent noted that the Department truncated
the suffix from the control numbers, collapsing prime and non-prime
material for the purposes of the cost test. Respondent argues that the
Department's methodology contradicts its practice of distinguishing
between prime and secondary merchandise in its analysis. POSCO cites to
Memorandum from Roland L. MacDonald to Joseph A. Spetrini, dated April
19, 1995 (``Carbon Steel Memorandum''), and Certain Cold-Rolled Carbon
Steel Flat Products from the Netherlands (``Carbon Steel from the
Netherlands''), 61 FR 48465 (September 13, 1996), wherein the
Department segregated secondary merchandise from prime merchandise for
the purposes of conducting the arm's length test, the cost test, and
the margin calculation. POSCO notes that the Department also segregated
secondary from prime merchandise in SSPC from Korea and should follow
the same methodology in the instant case.
Petitioners argue that the Department should not distinguish
between prime and secondary merchandise for purposes of its cost test.
Petitioners contend that a respondent can selectively label merchandise
as ``non-prime'' in order to avoid having low-priced sales tested with
other sales of the same control number, and cause below-cost home
market prices to artificially pass the cost test. Petitioners further
contend that Carbon Steel from the Netherlands stands for the
proposition that the Department acknowledges that prime and secondary
merchandise incur identical costs. Citing Extruded Rubber Thread from
Malaysia: Final Results of Antidumping Duty Administrative Review, 63
FR 12752 (March 16, 1998), petitioners note that the Department's
practice is not to distinguish between first and second quality
merchandise in conducting the cost test.
Department's Position: We agree with respondent. As noted in the
Carbon Steel Memorandum, ``separating prime and seconds for the cost
test has the benefit of facilitating an untainted analysis of the
majority of sales (prime merchandise).'' See Carbon Steel Memorandum at
4. Consistent with Carbon Steel from the Netherlands and IPSCO, 965
F.2d 1056 (Fed. Cir. 1992), in this case, POSCO has reported the
[[Page 30680]]
same cost of production for sales of prime and non-prime merchandise.
However, we do not regard prime and non-prime merchandise as identical
for the purposes of our analysis, as prime and secondary products are
typically fundamentally different from each other, since the latter
normally possess defects resulting from errors in the production
process. For this reason, the Department's model matching methodology
in fact prevents any matches of prime to non-prime merchandise. In the
instant case, POSCO noted that merchandise classified as non-prime does
not meet any standard specification (see POSCO's November 23, 1998
supplemental response at 15), and at verification we examined POSCO's
coding process for prime vis-a-vis non-prime and noted no discrepancies
(see POSCO Verification Report at 5).
The cost test compares the price and cost of all comparison market
sales, by model (identified by control number, or ``CONNUM''). Pursuant
to section 773(b)(2)(C) of the Act, where less than 20 percent of
respondent's sales of a given product were at prices less than the COP,
we do not disregard any below-cost sales of that product because we
determine that the below-cost sales were not made in ``substantial
quantities.'' If we were to combine prime and non-prime sales for a
given CONNUM in the cost test (thereby affecting whether the 20 percent
threshold has been met), sales of prime could be disregarded in the
calculation of NV or, alternatively, sales of below-cost non-prime
could be the basis of NV, solely because the analysis combined prime
with secondary merchandise. This result would stem from the fact that
it is more likely that non-prime sales are sold below cost.
Further, we note that petitioners reliance upon Extruded Rubber
Thread from Malaysia is misplaced. In that case, as in the Carbon Steel
Memorandum, the Department ran separate cost tests for prime and non-
prime merchandise in order to avoid distortions. Thus, for the final
determination in the instant case, we have distinguished prime from
non-prime merchandise using POSCO's reported control numbers for
purposes of the cost test and margin analysis.
Comment 7: POSCO--Application of Facts Available for U.S. Sale
Petitioners argue that POSCO failed to report a U.S. sale to the
Department and that facts available based on the highest transaction
margin calculated for reported sales should be applied to this
``unreported'' quantity. Petitioners also contend that two invoices
excluded from the U.S. sales database based on POSTEEL's invoice date
should be included as POSAM's invoice date for these sales is within
the POI, and should be similarly factored into the margin calculation
with the highest transaction margin.
Respondents argue that the U.S. sale to which petitioners refer had
been discovered during the Department's Korean verification, and had
been reported as a correction at the New Jersey verification (see POSAM
Verification Report, at 1 and Exhibit 1). POSCO contends that the other
sale to which petitioner refers as having been incorrectly excluded
from the database is a sale whose shipment date is before the POI, and
that therefore, the sales had been properly excluded from the U.S.
sales database.
Department's Position: We agree with respondent. The U.S. sale that
respondent inadvertently excluded from the sales database was accepted
by the Department as a minor correction at the beginning of the New
Jersey sales verification. Information relating to the sale was
examined and verified. In addition, the two sales shipped prior to the
POI were correctly excluded from the sales database, as the Department
recognizes the date of sale as the earlier of POSAM's invoice date to
the U.S. customer or the date of shipment from Korea. As such, the use
of facts available for these sales is unwarranted.
Comment 8: POSCO--Correction of POSTEEL's Credit Expense for U.S. sales
Petitioners contend that the Department should correct credit for
U.S. sales involving POSTEEL to reflect the revision noted in the
Department's verification report (see POSCO Verification Report, at 2).
Respondent argues that it had presented the correction to U.S. credit
expense for POSTEEL for all U.S. channel 1 and 3 sales in its pre-
verification corrections, that it had presented the Department with an
updated sales listing incorporating the correct rate on March 8, 1999,
and that no other revisions are necessary.
Department's Position: We agree with respondent. POSCO presented
its pre-verification correction to POSTEEL's short-term borrowing rate
for U.S. dollars and the corresponding corrections to U.S. credit
expenses for sales in channels 1 and 3. In addition, POSCO had
presented these corrections in an updated sales listing, and we find
that no other revisions are required.
Comment 9: POSCO--POSAM's Indirect Selling Expenses
Petitioners argue that POSAM's indirect selling expenses were
understated. Petitioners urge the Department to add to POSAM's indirect
selling expense figure the amount of short-term interest incurred by
POSAM, claiming that such offsets to indirect selling expenses have
been explicitly rejected by the Department (citing Extruded Rubber
Thread from Malaysia, 63 FR 12578). In addition, petitioners also argue
that the amount of housing expenses for POSAM employees incurred in the
year of consideration should be added to total indirect selling
expenses.
Respondent contends that the Department's policy and practice is to
deduct short-term interest expenses from indirect selling expense
figures, as these short-term interest expenses relate to financing
accounts receivable. Because credit expense is calculated separately,
respondent argues that the inclusion of the short-term interest expense
would constitute double counting credit expenses in the U.S. market,
citing SSPC from Korea and Carbon Steel from Korea--4th Review in
support of this contention. Respondent further contends that the
housing expenses noted by petitioners bear no relation to POSAM's sales
during the POI, and therefore, do not require inclusion. However, POSCO
does note that once income derived from housing is deducted from the
expense, the net expense has a negligible effect on the ratio.
Department's Position: We agree in part with respondents. It is the
Department's practice to exclude short-term borrowing expenses in the
calculation of indirect selling expenses when credit expense has been
otherwise accounted for, and the borrowing expense is clearly related
to sales, as in SSPC from Korea and Carbon Steel from Korea--4th
Review. However, we note that the housing expenses found at
verification should be included (less housing income) in the
calculation of the indirect selling expense ratio, as the housing
expenses related to housing provided for POSAM's employees, and no
evidence presented at verification indicated that the expenses bore no
relation to POSAM's sales during the POI. See POSAM Verification Report
at 12. For this calculation, see Analysis Memo: POSCO.
Comment 10: POSCO--Offset to Financial Expenses
Petitioners argue that foreign exchange gains and interest income
[[Page 30681]]
should not be allowed because the Department's verification revealed
that POSCO could not support its reported offsets to financial
expenses. Petitioners state that the reported financial expense ratio
should be recalculated for the final determination.
Respondent asserts that its financial expenses were correctly
reported. POSCO explains that the Department verified the
reasonableness of its reported short-term interest income and the
foreign exchange gains and losses related to debt for the consolidated
company.
Department's Position: We agree with respondent. POSCO calculated
consolidated short-term interest income and consolidated foreign
exchange gains and losses based on the relative percentage of these
items from the unconsolidated financial statements. At verification we
examined the figures used in the calculation and traced them to POSCO's
unconsolidated financial statements. Since POSCO's unconsolidated
financial statements comprise a significant portion of its consolidated
financial statements, we consider the allocation based on the
unconsolidated percentages to be a reasonable surrogate.
Comment 11: POSCO--Affiliated Party Purchases
Petitioners argue that the Department should amend POSCO's reported
costs by valuing raw material inputs purchased from affiliated parties
at the highest of transfer price, COP, or market price in accordance
with the major input rule. Petitioners argue that the major input rule
requires the Department to value purchases from affiliated parties at
the highest of transfer price, the affiliate's COP, or market value, as
cited in section 773(f)(3) of the Act. Petitioners note that the
Department's February 4, 1999 cost verification report indicates that
POSCO's weighted-average purchase price for some affiliated party
inputs occurred at prices that were less than the related parties' COP.
Petitioners state that POSCO failed altogether to report a market price
benchmark for an additional alloy, which requires the Department to
apply facts available for the alloy.
POSCO asserts that material inputs purchased from affiliated
parties do not meet the statutory definition of a major input and
represent arm's length transactions based on the relationship of the
price paid to the affiliated supplier and the cost incurred by that
supplier. POSCO claims that even if the Department were to define one
or more of the inputs as a major input, there is no basis on which to
adjust the submitted costs.
Department's Position: We agree in part with respondent and in part
with petitioners. POSCO obtained three inputs from both affiliated and
non-affiliated suppliers. Sections 773(f)(2) and (3) of the Act allow
the Department to test whether transactions between affiliated parties
are at arm's length. Section 773(f)(2) allows the Department to test
whether transactions between affiliated parties involving any element
of value are at prices that ``fairly reflect * * * the market under
consideration.'' Section 773(f)(3) allows the Department to test
whether transactions between affiliated parties involving a major input
are above the affiliated supplier's cost of production. In other words,
if an understatement in the value of an input would have a significant
impact on the reported cost of the subject merchandise, the law allows
the Department to insure that the transfer price or market price is
above the affiliated suppliers' cost. The determination as to whether
an input is considered major is made on a case-by-case basis. See
Antidumping Duties; Final Rule, 62 FR 27296, 27362 (May 19, 1997). In
determining whether an input is considered major, among other factors,
the Department looks at both the percentage of the input obtained from
affiliated suppliers (verses un-affiliated suppliers) and the
percentage the individual element represents of the subject
merchandise's COM (i.e. whether the value of inputs obtained from an
affiliated supplier comprises a substantial portion of the total cost
of production for subject merchandise).
In the instant case, we looked at these percentages for each of the
three inputs. For one of the three inputs we found that section
773(f)(3) of the Act does apply to POSCO's purchases from affiliated
parties. See Memorandum to Neal Halper: Cost of Production (``COP'')
and Constructed Value (``CV'') calculation adjustments for the Final
Determination of Pohang Iron & Steel Co., Ltd. (``POSCO''), dated May
19, 1999. For this input, we then compared the transfer price between
POSCO and its affiliated supplier to that supplier's actual cost of
production. Since the affiliated supplier's actual cost of production
exceeded the transfer price, we have increased the COM of the subject
merchandise to reflect the cost of the affiliated supplier. However,
for the other two inputs we have determined that because of the limited
amounts of these inputs obtained from affiliated suppliers and the
relatively small percentage that the individual elements represent of
the subject merchandise's COM, section 773(f)(3) of the Act does not
apply. Furthermore, for these two inputs we found that the transfer
price with POSCO's affiliates are reflective of a market price.
Therefore, we have accepted the transfer price from POSCO's affiliate
as the cost with respect to these inputs and have not adjusted the COM
of the subject merchandise, pursuant to section 773(f)(2) of the Act.
Comment 12: Inchon--Date of Sale
Petitioners argue that, based on the verified record, the
appropriate date of sale for home market sales is the invoice date.
Petitioners argue that Inchon does not accept the basic terms of sale
until the shipment request is entered into the warehousing/shipping
document which coincides with the issuance of the invoice to the
customer. Petitioners cite the Department's verification findings,
which state that a ``sale representative enters the order into the
system and awaits sales approval. Inchon's sales team explained that
price and quantity terms had to be approved by sales management; once
approval is gained, the sales team enters a shipment request to the
warehousing/shipping department.'' See Inchon Verification Report, at
20. Petitioners argue that, based on the above verification findings,
Inchon does not accept the material terms of sale until ``sometime
after the order is received from the customer.'' Also, petitioners
argue that it is the Department's preference to use the invoice date
unless the material terms of sale are established at a different date,
citing Antidumping Duties; Countervailing Duties; Final Rule, 62 FR
27296, 27349 (May 19, 1997).
Respondent agrees with petitioners that, for home market sales, the
invoice date should be used, instead of the purchase order/order
confirmation date. Respondent argues that the use of the purchase order
date in the preliminary determination is directly contrary to the
Department's date of sale regulations, which state that ``[i]n
identifying the date of sale of the subject merchandise or foreign like
product, the Secretary normally will use the date of invoice, as
recorded in the exporter or producer's records kept in the ordinary
course of business. However, the Secretary may use a date other than
the date of invoice if the Secretary is satisfied that a different date
better reflects the date on which the exporter or producer establishes
the material terms of sale.'' See 19 CFR 351.401(i). Inchon argues that
while the vast majority of home market sales are filled from inventory
on hand, and the shipping and invoicing takes place within one or two
days of
[[Page 30682]]
the order, if Inchon does not have a requested product in inventory, it
will (if the order is approved) produce the product. Respondent
concludes that if Inchon produces the product, the essential terms of
sale often change between the purchase order date and the invoice date;
thus, the most appropriate date of sale is the invoice date.
For U.S. sales, petitioners argue that the Department should use
the order date/contract date as the date of sale, and not the invoice
date, as the Department preliminarily determined. Petitioners note that
``once material terms and schedules are set, a firm offer is sent by
Inchon to Hyundai Corporation, which sends its firm offer to Hyundai
U.S.A., which finally sends a firm offer to the final customer.'' See
Inchon Verification Report, at 21. Also, petitioners support their
argument by citing to the verification report: ``[a]ccording to Inchon,
it also sends a sales contract to the final contract [sic], which lists
all terms of the sale; this contract is signed by both parties.'' Id.
Petitioners argue that the Department should use the date of
contract/order as the U.S. date of sale unless there is record evidence
that demonstrates that ``the material terms of sale change frequently
enough on U.S. sales so as to give both buyers and sellers any
expectation that the final terms will differ from those agreed to in
the contract'', citing SSPC from Korea and Circular Welded Non-Alloy
Steel Pipe From the Republic of Korea; Final Results of Antidumping
Duty Administrative Review (``Circular Welded Non-Alloy Steel Pipe From
the Republic of Korea''), 63 FR 32833, 32836 (June 16, 1998).
Petitioners argue that respondent's two sales examples (see
Inchon's November 19, 1998 response, at 21 and Exhibit A-28) do not
demonstrate a change in the material terms of sale between the date of
contract/order and the invoice date. In the first example, petitioners
argue that the U.S. customer asked for a split-shipment of the quantity
ordered and it did not cancel the quantity. In the second example,
``the customer sent a purchase order requesting multiple products;
however, Inchon agreed to supply one of the products from each of the
purchase orders.'' Petitioners argue that this example only illustrates
Inchon's sales process, where Inchon only sends a firm contract to the
customer after the material terms of sale are established.
Petitioners allege that the sales processes in the home market and
in the U.S. market differ because home market sales are usually made
from inventory and U.S. sales are made-to-order. Petitioners argue
another comparison point between the U.S. and home market sales
concerning the terms of payment and invoicing; however, as this subject
involves proprietary information, please see Inchon Analysis Memorandum
for the Final Results of the 1997/1998 Investigation for Stainless
Steel Sheet and Strip in Coils from Korea (``Analysis Memo: Inchon'')
for a more complete discussion of this issue. Petitioners argue that
the Department, in a similar factual situation (Circular Welded Non-
Alloy Steel Pipe From the Republic of Korea, 63 FR at 32835), noted
differences between the U.S. and home market sales process. In the
above Korean case, petitioners noted that the Department used the
invoice date for home market sales from inventory and the date of
contract for U.S. made-to-order sales.
Furthermore, petitioners argue that Inchon's price and quantity
change chart is inaccurate. See Exhibit C-24 of Inchon's November 19,
1998 response. Petitioners note that respondent claims that this chart
illustrates that the price and quantity changed between order date and
the invoice date on 17% of U.S. sales, by sales volume. Petitioners
argue that an accurate comparison would be to compare any price or
quantity changes between Inchon's contract/order date and invoice date,
and not between the customer's purchase order date and the invoice
date. Petitioners argue that, based on the Hyundai U.S.A. verification
exhibits, there were no changes in the material terms of sale (i.e.,
price or quantity) between Inchon's contract/order date and the invoice
date.
Finally, petitioners argue that if the Department disagrees with
petitioners' above arguments to use the date of contract/order as the
U.S. date of sale, the Department should use the date of invoice from
Hyundai U.S.A. to the unaffiliated U.S. customer and not the date of
invoice from Inchon to either unaffiliated customers (channel 3) or
affiliated customers (channels 1 and 2).
Respondent argues that, for U.S. sales, the Department should
continue to use Inchon's invoice date as the date of sale. Respondent
argues that petitioners were incorrect in stating that Inchon's
specific example of a change in quantity from the contract to the
invoice was a split shipment contract. Respondent argues that in this
example, the final shipment was canceled by the U.S. customer because
of a failure to agree on a price and that this information was verified
by the Department. Respondent argues that this is an example of how the
material terms of sale (in this case, quantity) can change after the
date of contract. Respondent argues that petitioners understand that
Inchon uses the terms ``PO'' and ``contract'' interchangeably and that
the reference to ``P/O QTY,'' in Exhibit C-24 of Inchon's November 19,
1998 response refers to the customer contract quantities, and that the
quantities in both the purchase order and customer contract are the
same. Also, respondent argues that in similar cases where there are
documented changes in material terms of sale, the Department has used
the invoice date as the date of sale. See Certain Corrosion-Resistant
Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate
from Canada, 64 FR 2173, 2178 (January 13, 1999).
Respondent also disagrees with petitioners' argument that if the
Department uses invoice date as the date of sale, the Department should
use the invoice date from Hyundai U.S.A. to the unaffiliated U.S.
customer. Respondent argues that using this invoice date is contrary to
the Department's long-standing position that date of sale may not be
after the date of shipment to the unaffiliated customer, citing Carbon
Steel from Korea--3rd Review, 63 FR at 13172-73. Respondent notes that
the Department did use the invoice date to the unaffiliated customer
for U.S. sales through POSAM, the U.S. affiliate of POSCO in SSPC from
Korea; however, the U.S. sales through POSAM were classified as CEP
sales, and not EP sales. See SSPC from Korea, 64 FR at 15456.
Department's Position: We disagree with both parties' assertions
that we should use invoice date for home market sales. For our
preliminary determination, we used the purchase order/order
confirmation date as the home market date of sale because, by
respondents' own admission, ``there would rarely be significant
differences in the sales terms'' between order date and invoice date.
See Inchon's November 19, 1998 supplemental questionnaire response.
Finally, at verification, we noted that for the home market sales
traces, there were no changes in the material terms of sale between
order date and invoice date.
Inchon's case brief states that when Inchon accepts an order for a
product which it does not have in inventory, it produces the requested
product, and, in these instances, the essential terms of sale can often
change. This fact (of which, we note, we were aware at the time of our
preliminary determination) does not change the fact that, for the large
majority of Inchon's home market sales, the essential terms of sale do
not change between order date and invoice date. As we noted in the
preamble to the
[[Page 30683]]
governing regulations, we have established a ``preference for using a
single date of sale for each respondent, rather than a different date
of sale for each sale.'' See Preamble, 62 FR at 27348. In this case,
where the record assertions and evidence support the conclusion that
the essential terms of sale for the ``vast majority'' of sales are
established at order date, our preference to utilize a uniform date of
sale leads to our conclusion that order date is the more appropriate
date. Similarly, we note that petitioners' reference to our
verification findings regarding the sales process does not contradict
Inchon's statements that ``the vast majority'' of home market sales are
made from inventory and that the terms of sale rarely change between
the purchase order date and the invoice date. Hence, we disagree with
both petitioners and respondent's arguments and continue to determine
that the purchase order date, and not the invoice date, is the most
appropriate sale date for home market sales in this case.
For U.S. sales, we disagree with petitioners' arguments to use the
purchase order date instead of the invoice date from Inchon to either
unaffiliated customers (channel 3) or affiliated customers (channels 1
and 2). While we agree with petitioners' argument that Inchon's home
and U.S. sales process differ, it does not automatically follow that we
must therefore use invoice date for home market sales and purchase
order date for U.S. sales. We note that in the case cited by
petitioners, Circular Welded Non-Alloy Steel Pipe From the Republic of
Korea (63 FR at 32836), the Department considered a factual pattern in
which ``[t]he material terms of sale in the U.S. [were] set on the
contract date and any subsequent changes [were] usually immaterial in
nature or, if material, rarely [occurred].'' This is not the situation
for Inchon's U.S. sales, where Inchon has provided evidence that there
were changes to the essential terms of sale for a significant portion
of its U.S. sales. For example, we note that the two examples cited by
Inchon, as well as its price and quantity change chart (see Exhibit C-
24 of Inchon's November 19, 1998 response), demonstrate that the
material terms of sale can and do change often enough to justify using
invoice date. Therefore, for U.S. sales, we determine that Hyundai
U.S.A.'s invoice date (or shipment date, if earlier) is the appropriate
date of sale for Inchon's U.S. sales.
Moreover, for U.S. sales, we disagree with respondent's arguments
that Inchon's invoice date should be used as the date of sale for the
final determination. For U.S. sales categorized as either EP or CEP
transactions, it is the Department's practice to use the date of the
invoice to the first unaffiliated purchaser in the United States. We
note that for Inchon's sales made through Hyundai Corporation,
respondent has provided the date of Inchon's invoice to Hyundai
Corporation as the invoice date rather than the date of Hyundai
Corporation's invoice to the first unaffiliated U.S. purchaser.
However, as noted above in Comment 5, the date of sale cannot occur
after the date of shipment. Therefore, when date of shipment to the
first unaffiliated purchaser in the United States precedes the date of
the invoice, we will use shipment date as the date of sale (see Carbon
Steel from Korea--4th Review, 64 FR at 12935, citing Carbon Steel from
Korea--3rd Review, 63 FR at 13172-73).
Comment 13: Inchon--Net Price vs. Gross Unit Price
Petitioners argue that the Department should recalculate both home
market credit expenses and indirect selling expenses based on the net
price (i.e., after accounting for billing adjustments) rather than the
gross unit price. Petitioners argue that Inchon used incorrect formulas
for its calculation of home market credit expenses and indirect selling
expenses, which were listed on pages B-27 and B-31, respectively, of
Inchon's September 23, 1998 response.
Respondent rebuts petitioners' argument that the Department should
adjust Inchon's home market credit and indirect selling expenses based
on the net price because these adjustments would be ``insignificant
adjustments'' within the meaning of 19 CFR 351.413 (1998). Respondent
argues that these adjustments do not affect the calculation of Inchon's
normal value by more than 1 percent, and would be a waste of the
Department's time and resources to implement.
Department's Position: We agree with petitioners and have
recalculated both home market credit expenses and indirect selling
expenses based upon net price. As noted in the original questionnaire
in this case, the Department uses in its margin calculations a price
net of adjustments, such as discounts, rebates, and post-sale price
adjustments, that are reflected in the purchaser's net outlay. See 19
CFR 351.102(b) and 351.401(c). This calculation formula error was noted
in petitioners' February 3, 1999 alleged deficiency comments.
Respondent's argument for us to use 19 CFR 351.413 to justify not
making the calculation formula change is unfounded. As noted in the
preamble to the governing regulations, ``[section] 351.413 give[s] the
Department the flexibility to determine, on a case-by-case basis,
whether it should disregard a particular insignificant adjustment.''
See Preamble, 62 FR 27372. It would be more of a burden upon the
Department to calculate a margin both with the adjustment and without
the adjustment, compare the results, and determine whether the
adjustment is ``insignificant.'' Therefore, we have used Inchon's net
price to the customer as the basis for credit and indirect selling
expenses.
Comment 14: Inchon--U.S. Handling Commission Fee Adjustment
Petitioners argue that the Department should apply the highest per
unit handling commission fee to all Hyundai U.S.A. sales with a
particular term of payment, as partial facts available, because the
Department discovered at verification that Inchon failed to disclose
the handling commission fee. Because Inchon did not report the handling
commission fee and because the Department discovered the fee at the
Hyundai U.S.A. verification, petitioners argue that the Department
should apply facts available and use the highest per unit handling
commission fee for those U.S. sales with this particular term of
payment.
Respondent argues that at Inchon's U.S. verification, Inchon
realized that it had inadvertently excluded a handling commission fee
for certain of its U.S. sales, and that the Department should apply the
actual transaction-specific adjustment, based on the calculations in
U.S. Verification Exhibit 12. Respondent argues that the Department
should not apply facts available or adverse facts available because the
Department has the information on the record to make the transaction-
specific adjustments. Also, respondent argues that this is the type of
minor correction that the Department normally makes after verification.
Department's Position: We agree with respondent and will apply the
U.S. handling commission fee transaction-specific adjustments, where
applicable. We discovered, and then calculated, the handling commission
fee expenses at verification for all U.S. sales. See Hyundai U.S.A.
Verification Report, Exhibit 12. We disagree with petitioners' argument
to apply partial facts available. First, there is no missing
information with respect to these minor adjustments. Second, the
Department verified the accuracy of these minor adjustments for all
U.S. sales. Thus, the
[[Page 30684]]
application of facts available is unwarranted. See Notice of Final
Results and Partial Rescission of Antidumping Duty Administration
Review: Certain Pasta from Turkey, 63 FR 68,429, 68,432 (December 11,
1998) (Department adjusted freight expenses to reflect verification
findings, despite an argument that the ``adjustment is negligible and
may be ignored,'' citing 19 CFR 351.413.) Therefore, for the final
determination, we have adjusted for these expenses on a transaction-
specific basis. See Analysis Memo: Inchon for a discussion of the
calculations.
Comment 15: Inchon--Converted Quantity
Petitioners argue that the Department should use the converted
quantity field in the U.S. sales database, with quantities in metric
tons, instead of the quantities reported in field QTYU, which,
petitioners argue, contains mixed units of measurement, for the
purposes of calculating an overall antidumping margin.
Respondent Inchon agrees with petitioners that the Department
should use the converted quantity field in the U.S. sales database for
the quantity sold.
Department's Position: We agree with both parties that we should
use the converted quantity field from the U.S. sale database. Because
Inchon had to convert some U.S. sales from short tons into metric tons,
using the converted quantity field in the U.S. sales database assures
us that the quantities used for the final determination are based upon
the same measurement, which is an actual per ton basis, for each
transaction.
Comment 16: Inchon--Other Freight Expenses
Petitioners argue that the Department should correct the U.S. sale
database based on the discovery, at verification, of an error regarding
Inchon's failure to include a standard handling fee as part of other
freight expenses for a particular U.S. sales observation.
Respondent agrees with petitioners that the Department should
correct the error discovered at verification. However, respondent
argues that this handling fee pertains only to merchandise which Inchon
exported through the ports of Pusan or Pohang. Thus, respondent argues
that, in making the handling fee adjustments, the database should be
adjusted only when Inchon shipped through the ports of Pusan or Pohang.
Department's Position: We agree with both parties that, based on
our findings at verification, Inchon had not added a standard handling
fee for all shipments through the ports of Pohang and Pusan. This error
was discovered during verification and the correct figure was
calculated for the U.S. sales observation. See Inchon Verification
Report, at 1. Additionally, we agree with respondent that the error
exists only with respect to those sales which were exported through
Pusan or Pohang. This conclusion is consistent with the information
gathered at verification. See Inchon Verification Report, Exhibit 18.
Therefore, for the final determination, we will adjust the expenses
associated with domestic inland freight to the port of export for all
applicable U.S. sales.
Comment 17: Inchon--Scrap Recovery Value
Petitioner's argue that the Department should reject Inchon's new
methodology for calculating scrap recovery. Previously, Inchon valued
scrap recovery based on net realizable value. However, at the start of
verification, Inchon changed the valuation methodology to the actual
sales value. Petitioners argue that the Department should accept
Inchon's original scrap recovery rate based on net realizable value
because that method is based on Inchon's normal books and records.
Petitioners cite section 773(f)(1)(A) of the Act, which states that
costs shall normally be calculated based on the records of the exporter
or producer if those records are prepared in accordance with the home
country's generally accepted accounting principles, and reasonably
reflect the cost of producing the merchandise.
Petitioners claim that there is no evidence on the record to
suggest that Inchon's normal accounting of scrap recovery costs
recorded in its normal books and records are not reasonable.
Furthermore, petitioners assert that this change in methodology and the
submission of new factual information was not a minor correction; thus
it was untimely filed and pursuant to section 351.302(d) of the
regulations, the Department should not consider or retain in the
official record of the proceeding untimely filed information.
Petitioners claim that the Department only accepts new information at
verification when: (1) The need for that information was not evident
previously, (2) the information makes minor corrections to information
already on the record, or (3) the information corroborates, supports,
or clarifies information already on the record. Petitioners assert that
on all points, Inchon's submission of new factual information is not a
minor correction.
Inchon states that in the normal course of business it values scrap
at its net realizable value. However, to comply with the Department's
policy to reduce material costs by the actual revenue received on sales
of scrap during the POI, Inchon provided a revised scrap recovery
calculation based on actual scrap revenue. Inchon asserts that the
information used in the new scrap recovery calculation was placed on
the record in its November 19, 1998 supplemental D response in exhibit
D-21. Thus, petitioner's argument that the information was submitted
untimely are without merit.
Department's Position: We agree with petitioners' assertion that
the net realizable value scrap recovery method should be used in for
this case. Inchon uses the net realizable method in its normal books
and records which reasonably reflects the costs associated with the
production and sale of the subject merchandise, pursuant to section
773(f)(1)(A) of the Act. We agree that the actual scrap value, as
opposed to a standard or theoretical scrap value, should be used to
reduce material costs. However, the costs associated with obtaining the
scrap (i.e., transportation and processing costs) should be deducted
from the actual sales revenue to arrive at a net value for scrap used
as a reduction in material costs. Inchon has not provided sufficient
evidence to demonstrate that the net realizable method does not
reasonably reflect costs, and therefore, should not be relied upon in
the stainless steel sheet and strip case.
Comment 18: Inchon--Depreciation
Petitioners argue that Inchon's change in useful lives and change
in depreciation method was not justified nor consistent with the
depreciation methodologies that it employed in prior years.
Petitioner's cite Carbon Steel from Korea--3rd Review, where the
Department denied respondent's change in useful life, even though the
change was in accordance with Korean GAAP. In that case, the Department
found that the respondent failed to sufficiently justify the change,
and therefore, the Department calculated the depreciation expense based
on the original useful lives of the assets. Petitioners assert that in
the instant case, Inchon did not provide sufficient justification for
the changes and the depreciation should be recalculated based on the
original method and useful lives of the assets.
Inchon argues that its change in depreciation methodology is fully
consistent with Korean GAAP. Inchon cites section 773(f)(1)(A) of the
Act which requires the Department to base its calculation of costs on
GAAP in the country of manufacture unless the result
[[Page 30685]]
is distortive. Inchon claims that the petitioners have not demonstrated
any such distortion. Furthermore, Inchon asserts that Carbon Steel from
Korea--3rd Review cited by petitioners is not applicable because it
involves an administrative review. Inchon states that in administrative
reviews, the Department must be concerned about possible distortions
arising from changes in methodology from one review period to another,
which could result in some costs never being captured in any review
period. Additionally, in a review, the Department may have legitimate
concerns about respondents making strategic changes to accounting
methodologies in order to affect dumping margins. Inchon argues that in
the instant case neither concern is applicable because in this initial
investigation, the change in depreciation methods and change in useful
lives occurred before the dumping case was filed.
Department's Position: We agree with Inchon. At verification we
examined the change in depreciation method and useful lives, noting
that the changes were neither unusual nor unreasonable. These changes
were reflected in Inchon's December 31, 1997 audited financial
statements in accordance with Korean generally accepted accounting
principles. In addition, the change in depreciation method and useful
lives occurred prior to the initiation of this investigation. We agree
that, where changes in accounting principles and costing methodologies
occur subsequent to the initiation of an antidumping proceeding, the
Department has concerns about the possible distortions which could
result. However, since Inchon provided evidence that its change in
depreciation methods and useful lives were reasonable, and that the
change occurred in a time period prior to the initiation of the
investigation, we have relied on the new methodologies and have not
made adjustments to Inchon's depreciation expense.
Comment 19: Inchon--CEP vs. EP
Respondent argues that the Department should determine that
Inchon's channel one U.S. sales are EP sales, and not CEP sales as
preliminarily determined. Respondent stated that ``[i]n determining
whether U.S. sales made by an affiliated U.S. importer prior to
importation should be classified as EP or CEP sales, the Department
considers whether: (1) The merchandise was shipped directly from the
manufacturer to the unaffiliated U.S. customer; (2) this was the
customary commercial channel between the parties involved; and (3) the
functions of the U.S. sales affiliates were limited to that of
processors of sales-related documentation and communications links with
the unaffiliated U.S. buyer,'' citing Preliminary Results of
Antidumping Review: Circular Welded Non-Alloy Steel Pipe from Korea, 62
FR 55574, 55579 (October 27, 1997). Respondent also argues that when
the above three criteria are met, the Department classifies the
transactions as EP sales, citing, e.g., Industrial Phosphoric Acid from
Belgium, 63 FR 25830, 25831 (May 11, 1998); Independent Radionic
Workers of America v. United States, 19 CIT 375 (1995); and AK Steel
Corporation v. United States, Slip Op. 98-159, WL 846764 (CIT, November
23, 1998).
Respondent argues that in this investigation, the first two
criteria are met because Inchon's channel one U.S. sales through
Hyundai U.S.A. were shipped directly from the manufacturer to the
unaffiliated U.S. customer, which is the customary commercial channel
of distribution for Inchon's channel one U.S. sales. Respondent notes
that for one invoice, which covered four U.S. transactions, at the
unaffiliated U.S. customer's request, Hyundai U.S.A. arranged for a
brief period of warehousing at a commercial warehouse at the U.S. port
of entry. Respondent argues that this post-sale warehousing does not
void Inchon's claim for EP treatment because: (i) it was done at the
customer's request; (ii) the goods never entered the inventory of
Hyundai U.S.A.; and (iii) after warehousing, the goods were shipped
directly to the unaffiliated U.S. customer.
Concerning the third criterion, respondent argues that Hyundai
U.S.A. acted as a processor of sales-related documentation and a
communication link with the unrelated U.S. buyer. Respondent argues
that Hyundai U.S.A.'s role was therefore that of a classic sales
processor and communications link: forwarding orders to Inchon for
approval, serving as a contact point for customer inquiries, arranging
for importation, freight, and delivery to the customer, and performing
invoicing and payment collection functions on behalf of Inchon. More
specifically, respondent argues that the Hyundai U.S.A. Verification
Report demonstrates Hyundai U.S.A.'s limited role in these
transactions. First, respondent argues that Inchon, not Hyundai U.S.A.,
identified U.S. channel one customers and determined which potential
customers should be served through this sales channel. Respondent also
argues that Inchon's own sales personnel would travel from Korea to
make joint sales calls for important U.S. customers. See Hyundai U.S.A.
Verification Report, at 4. Second, respondent argues that it does not
have a specific department or division for stainless steel sales and
the U.S. sales through Hyundai U.S.A. were sold by sales personnel that
are primarily responsible for other non-subject products. Third,
respondent argues that Hyundai U.S.A. was not responsible for setting
prices or other key terms of sale, and that, while Hyundai U.S.A.
personnel were familiar with Inchon's prices and did communicate
current prices to U.S. customers, Hyundai U.S.A. had no authority to
accept or approve sales of subject merchandise. Respondent argues that
Inchon approved all sales and Inchon, after receiving a sales inquiry
from Hyundai U.S.A., would often change the material terms of sale,
which the Department verified.
In addition, respondent argues that none of the following
activities justify the Department's preliminary determination that
Hyundai U.S.A.'s sales should be CEP sales: (i) that Hyundai U.S.A.
sometimes quotes prices to unaffiliated customers, (ii) that Hyundai
U.S.A. arranged for post-sale warehousing for one customer, (iii) that
Hyundai U.S.A. invoices and collects payment from the U.S. customer,
and (iv) that Hyundai U.S.A. extends credit to the U.S. customer.
Citing Final Determination of Sales at Less Than Fair Value: Coated
Groundwood Paper from Belgium, 56 FR 56359, 56362 (November 4, 1991)
and Final Determination of Sales at Less Than Fair Value: Coated
Groundwood Paper from Finland, 56 FR 56363, 56371 (November 4, 1991),
respondent contends that the Department has held that the fact that an
affiliated U.S. company quotes prices to U.S. customers does not lead
to CEP designations, nor does a U.S. affiliate's identifying and
maintaining contact with customers. Respondent also cites to Final
Determination of Sales at Less Than Fair Value: Extruded Rubber Thread
from Malaysia, 57 FR 38465, 38469 (August 25, 1992), noting that the
Department found that the role of a branch office whose functions
include ``receiving orders, preparing and executing order
confirmations, invoices, packing lists, and other sales-related
documentation, and receiving and processing payments from customers''
was not sufficient to classify the affiliate's activities as beyond
those of a mere processor of documents or communications link.
Respondents also cite E.I. DuPont de Nemours & Co. v.
[[Page 30686]]
United States, 841 F. Supp. 1237, 1249-50 (CIT 1994) in support of this
proposition.
Petitioners argue that the Hyundai U.S.A. sales are CEP because
Hyundai U.S.A. solicits sales, negotiates contracts, and finalizes the
sale. Petitioners argue that these activities are not ancillary
activities in making the U.S. sale. Petitioners note that the
Department has stated that, ``[w]here the U.S. affiliate has more than
an incidental involvement in making sales (e.g., solicits sales,
negotiates contracts or prices) or provides customer support, we treat
the transactions as CEP sales,'' citing, e.g., Certain Corrosion-
Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon
Steel Plate from Canada: Final Results of Antidumping Duty
Administrative Review (``Certain Corrosion-Resistant Carbon Steel Flat
Products and Certain Cut-to-Length Carbon Steel Plate from Canada''),
63 FR 12725, 12738 (March 16, 1998).
Petitioners argue that record evidence shows that Hyundai U.S.A.
solicits sales. Specifically, petitioners note that the Hyundai U.S.A.
Verification Report, at 4-5, states that ``Hyundai U.S.A. would contact
potential customers'' and ``(w)hen only Hyundai U.S.A. is making sales
calls, company officials stated that they would know Inchon's current
steel market prices because they review a publicly available industry
publication (with prices) and are in contact with Inchon concerning
Inchon's price structure.'' Also, petitioners argue that the Hyundai
U.S.A. Verification Report supports the conclusion that Hyundai U.S.A.
negotiates contracts. Specifically, petitioners cite the Hyundai U.S.A.
Verification Report, at 5, which states that ``negotiations would
continue between Inchon, Hyundai U.S.A., and the customer.''
Petitioners argue that the above record indicates that these are not
ancillary activities in making the U.S. sale, and therefore, the
Department must consider sales through Hyundai U.S.A. to be CEP
transactions.
Department's Position: We agree with petitioners that Inchon's
sales through Hyundai U.S.A. should continue to be classified as CEP
sales for the final determination. The Department treats sales through
an agent in the United States as CEP sales, unless the activities of
the agent are merely ancillary to the sales process. Specifically,
where sales are made prior to importation through a U.S.-based
affiliate to an unaffiliated customer in the United States, the
Department examines several factors to determine whether these sales
warrant classification as EP sales. These factors are: (1) Whether the
merchandise was shipped directly from the manufacturer to the
unaffiliated U.S. customer without being introduced into the physical
inventory of the affiliated selling agent; (2) whether this sale is the
customary commercial channel between the parties involved; and (3)
whether the function of the U.S. selling agent is limited to that of a
``processor of sales-related documentation'' and a ``communication
link'' with the unrelated U.S. buyer. Where the factors indicate that
the activities of the U.S. selling agent are ancillary to the sale
(e.g., arranging transportation or customs clearance), we treat the
transactions as EP sales. Where the U.S. selling agent is substantially
involved in the sales process (e.g., negotiating prices), we treat the
transactions as CEP sales. See Certain Cut-to-Length Carbon Steel Plate
from Germany: Final Results of Antidumping Administrative Review, 62 FR
18389, 18391 (April 15, 1997); Mitsubishi Heavy Industries v. United
States, Slip Op. 98-82 at 6 (CIT, June 23, 1998). The Department has
stated that, ``(w)here the U.S. affiliate has more than an incidental
involvement in making sales (e.g., solicits sales, negotiates contracts
or prices) or provides customer support, we treat the transactions as
CEP sales,'' citing, e.g., Certain Corrosion-Resistant Carbon Steel
Flat Products and Certain Cut-to-Length Carbon Steel Plate from Canada,
63 FR 12725, 12738 (March 16, 1998).
In this case, we note that Hyundai U.S.A.'s level of sales
activities cannot be regarded as merely ancillary. While Inchon
performs many selling activities for U.S. sales through Hyundai U.S.A.,
including undertaking business trips to meet with potential U.S.
customers of the subject merchandise (see Hyundai U.S.A. Verification
Report, at 4), the record contradicts respondent's assertion that
Hyundai U.S.A. is merely a processor of sales-related documentation.
In this case, the facts on the record, taken together, indicate
that Hyundai U.S.A. plays a significant role in the sales process.
First, we note that Hyundai U.S.A. ``arranged for a brief period of
warehousing at a commercial warehouse at the U.S. port of entry.'' Id.
Second, Hyundai U.S.A. solicits sales. The record shows that, as
part of the normal course of business, Hyundai U.S.A.'s employees
travel with Inchon employees to make U.S. sales calls. Once Inchon had
provided its affiliate a list of potential customers, ``Hyundai U.S.A.
would contact these potential customers.'' In addition, Hyundai U.S.A.
employees would make sales calls without Inchon employees, because
Hyundai U.S.A. employees have knowledge of Inchon's prices. Id.
Third, Hyundai U.S.A. assumed the credit risk because it invoiced
the U.S. customer and was responsible for collecting payment from the
U.S. customer. Hyundai U.S.A. was not collecting the payment on behalf
of Inchon, as respondent argues, but for itself. Bearing such financial
risk is indicative of a seller, not a mere facilitator.
Fourth, Hyundai U.S.A. itself has noted that it also ``conducts
market research and reports to Inchon on steel market conditions.'' Id.
All of these activities performed by Hyundai U.S.A., taken
together, constitute significant selling activities, and therefore, we
find that Hyundai U.S.A.'s activities are more than ancillary to the
sales process and have classified Inchon's U.S. sales through Hyundai
U.S.A. as CEP transactions.
Comment 20: Inchon--Packing Expense
Respondent argues that the Department should base packing expenses
on the revised figures provided as a pre-verification correction.
Respondent states that the packing expenses submitted by Inchon in its
September 23, 1998 response, on pages B-32 and C-40 and Exhibits B-13
and C-22, were based on a certain coil size, which, respondent claims,
is the smallest coil size Inchon uses. Respondent argues that using
this particular certain coil size overstated packing costs because the
same amount of packing cost is incurred for each coil, regardless of
coil size. In its pre-verification corrections, Inchon argues that it
provided an average coil size for both U.S. and home shipments, and
provided revised U.S. and home packing per-unit costs. See Inchon
Verification Report, Exhibit 1. Hence, respondent argues that the
Department should accept the modified packing expense figures.
Petitioners argue that the modified packing expense figures,
presented by Inchon as a pre-verification correction, are untimely new
factual information that the Department should not consider or retain
as part of the official record.
Department's Position: We agree with respondent and have accepted
Inchon's pre-verification correction to its packing expenses. We
accepted this packing expense data at the beginning of verification
because we determined that it was a minor correction to the U.S. and
home market sales databases, rather than new factual information. We
disagree with petitioners' argument that this packing expense
correction is untimely new factual information, since Inchon's packing
expense correction was made with regard to the underlying
[[Page 30687]]
coil size, which was the basis for its reported per unit packing
expense. Therefore, for the final determination, we adjusted packing
expenses in both the U.S. and home markets, based on Inchon's submitted
pre-verification corrections. See Analysis Memo: Inchon for specific
packing expense data.
Comment 21: Inchon--Payment Date
Respondent argues that the Inchon Verification Report was incorrect
when it reported that for a U.S. sales trace, there was a discrepancy
regarding whose payment date was reported on the record. See Inchon
Verification Report, at 1-2. Respondent argues that the U.S. sales
trace package (Home Market Verification Exhibit #18) has documentation
which supports respondent's position concerning whose payment date was
reported on the record. Petitioners did not comment on this issue.
Department's Position: We agree with respondent. We reviewed the
documents included in the U.S. sales trace package in question, (Inchon
Verification Report, Exhibit #18) and have determined that the report
did not reflect the correct information on this issue. Although Inchon
officials had reported that the document reflected payment to one
affiliate, further examination of the document revealed that payment
had been received by the correct affiliate, and that the corresponding
payment date reported to the Department was correct.
Facts Available
Section 776(a)(2) of the Act provides that if an interested party
or any other person (A) withholds information that has been requested
by the administrating authority; (B) fails to provide such information
by the deadlines for the submission of information or in the form and
manner requested, subject to subsections (c)(1) and (e) of section 782
of the Act; (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) of the
Act, the Department shall, subject to section 782(d) of the Act, use
facts otherwise available in reaching the applicable determination. As
discussed in Preliminary Determination, Taihan failed to respond to the
Department's questionnaire. Accordingly, we find, under section
776(a)(2)(A), that we must base our determination for that company on
facts available.
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
also the Statement of Administrative Action (``SAA''), accompanying the
URAA, H.R. Rep. No. 103-316 at 870). Given the company's refusal to
comply with the Department's request for information, Taihan has failed
to cooperate to the best of its ability in this investigation. A
respondent's refusal to respond to the Department's request for
information, much less provide information, is an extreme example of a
party's failure to cooperate to the best of its ability. Therefore, the
Department has determined that an adverse inference is warranted with
respect to Taihan.
In this proceeding, we used the information from the petition, as
adjusted by the Department for the purposes of initiation, to form the
basis for a dumping margin for this respondent. Thus, consistent with
the Department's practice (see Notice of Preliminary Determination of
Sales at Less Than Fair Value: Stainless Steel Wire Rod from Germany,
63 FR 10847 (March 5, 1998) (``SSWR from Germany'')), the Department is
assigning to Taihan the highest margin alleged in the petition, as
adjusted, for Korean producers, which is 58.79 percent (see June 30,
1998, ``Import Administration Antidumping Investigation Initiation
Checklist (``Initiation Checklist'') and Initiation of Antidumping Duty
Investigations: Stainless Steel Sheet and Strip from France, Germany,
Italy, Japan, Mexico, South Korea, Taiwan, and the United Kingdom, 63
FR 37521 (July 13, 1998) for a discussion of the margin calculations in
the petition).
Section 776(c) of the Act provides that when the Department relies
on ``secondary information'' (e.g., the petition) as the facts
available, the Department shall, to the extent practicable, corroborate
that information with independent sources reasonably at the
Department's disposal. The SAA accompanying the URAA clarifies that the
petition is ``secondary information.'' See SAA at 870. The SAA also
clarifies that ``corroborate'' means to determine whether the
information used has probative value. Id. See also 19 C.F.R.
351.308(c)(1) and (d).
We reviewed the accuracy and adequacy 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, foreign market research reports, and data from U.S.
producers). See Initiation Checklist. Specifically, in the petition,
the petitioners based both EP and NV on foreign market research,
affidavits concerning prices and freight costs, official U.S. import
statistics, U.S. government sources and International Financial
Statistics.
With respect to gross U.S. and home market unit prices used in the
margin calculations included in the petition, which were developed
based on foreign market research (see Memorandum to the File--Re:
Foreign Market Research, dated June 20, 1998), we have compared the
information provided by Inchon and POSCO with the information provided
in the petition. We find that the margins provided in the petition are
corroborated by the pricing and cost information provided by POSCO and
Inchon. See Memorandum to the File: Final Determination of the Sales at
Less Than Fair Value Investigation of Stainless Steel Sheet and Strip
in Coils (``SSSS'') from Korea: Application of Total Adverse Facts
Available for Taihan Electric Wire Co., Ltd. (``Facts Available
Memo''), dated May 19, 1999. We further note that the Department has,
in other cases, for facts available purposes, used margins developed in
a petition that are based in part on foreign market research. See,
e.g., SSWR from Germany, and Notice of Preliminary Determination of
Sales at Less Than Fair Value and Postponement of Final Determination:
Melamine Institutional Dinnerware Products from Indonesia, 61 FR 43333
(August 22, 1996).
In addition, as certain other information included in the
petition's margin calculation is from public, independent sources
(e.g., international freight and insurance, U.S. harbor maintenance and
U.S. merchandise processing fees, SG&A, and profit), we find that this
information also has probative value. Finally, we also have examined
the reliability of the other information provided in the petition (see
Memorandum to the File--Re: Foreign Market Research, dated June 20,
1998), and find that it has probative value in light of the information
provided on the record by Inchon and POSCO. For example, we determined
that the price quotes for EP and NV reported in the petition fell
within the range of price information reported in Inchon's and POSCO's
responses. Similarly, for COP and CV data reported in the petition, we
determined that such data also fell within the range of COP and CV data
reported by Inchon and POSCO. See Facts Available Memo.
Based upon the above, we have determined that the information
reported in the petition is corroborated in this case. Accordingly, the
Department has relied on information provided in the petition as the
basis of facts available.
[[Page 30688]]
The All Others Rate
Section 735(c)(5)(A) of the Act provides that the estimated all-
others rate shall be an amount equal to the weighted average of the
estimated dumping margins established for exporters and producers
individually investigated, excluding any zero and de minimis margins,
and any margins determined entirely under section 776 of the Act. As
Inchon's rate has been determined to be zero, and Taihan's rate has
been determined under section 776 of the Act (determinations on the
basis of the facts available), for this final determination, the all-
others rate is simply the calculated rate for POSCO.
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 the Republic of Korea, except for
Inchon, 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). 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
------------------------------------------------------------------------
Pohang Iron & Steel Co., Ltd............................... 12.12
Inchon Iron & Steel Co., Ltd............................... 0.00
Taihan Electric Wire Co., Ltd.............................. 58.79
All Others................................................. 12.12
------------------------------------------------------------------------
Since the final weighted average margin percentage for Inchon is
zero, Inchon is excluded from an antidumping order on stainless steel
sheet and strip in coils from the Republic of Korea as a result of this
investigation.
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. Because 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 directing Customs officials to assess
antidumping duties on all imports of the subject merchandise entered
for consumption on or after the effective date of the suspension of
liquidation.
This determination is issued and published in accordance with
sections 735(d) and 777(i)(1) of the Act.
Dated: May 19, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-13770 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P
