[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40422-40432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20018]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-475-820]
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Wire Rod From Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 29, 1998.
FOR FURTHER INFORMATION CONTACT: Shawn Thompson or Irina Itkin, Import
Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC
20230; telephone: (202) 482-1776 or (202) 482-0656, 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 regulations of the Department
of Commerce (the Department) are to the regulations at 19 CFR part 351,
62 FR 27296 (May 19, 1997).
Final Determination
We determine that stainless steel wire rod (SSWR) from Italy is
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 ``Suspension of Liquidation'' section of this notice, below.
Case History
Since the preliminary determination in this investigation on
February 25, 1998 (see Notice of Preliminary Determination of Sales at
Less Than Fair Value and Postponement of Final Determination: Stainless
Steel Wire Rod from Italy, 63 FR 10831 (Mar. 5, 1998)), the following
events have occurred:
In February 1998, we issued supplemental questionnaires to the two
respondents in this case, Acciaierie Valbruna S.r.l. (including its
subsidiary Acciaierie di Bolzano SpA) (collectively ``Valbruna'') and
Cogne Acciai Speciali S.r.l. (CAS). We received responses to these
questionnaires in March 1998.
In March, April, and May 1998, we verified the questionnaire
responses of the two respondents, as well as the section A response of
an additional company, Rodacciai SpA (Rodacciai). In May 1998, CAS and
Valbruna submitted revised sales databases at the Department's request.
The petitioners (i.e., AL Tech Specialty Steel Corp., Carpenter
Technology Corp., Republic Engineered Steels, Talley Metals Technology,
Inc., and the United Steel Workers of America, AFL-CIO/CLC) and both
respondents submitted case briefs on June 3, 1998, and rebuttal briefs
on June 10, 1998. The Department held a public hearing on June 17,
1998.
Scope of Investigation
For purposes of this investigation, SSWR comprises products that
are hot-rolled or hot-rolled annealed and/or pickled and/or descaled
rounds, squares, octagons, hexagons or other shapes, in coils, that may
also be coated with a lubricant containing copper, lime or oxalate.
SSWR is made of alloy steels containing, by weight, 1.2 percent or less
of carbon and 10.5 percent or more of chromium, with or without other
elements. These products are manufactured only by hot-rolling or hot-
rolling, annealing, and/or pickling and/or descaling, are normally sold
in coiled form, and are of solid cross-section. The majority of SSWR
sold in the United States is round in cross-sectional shape, annealed
and pickled, and later cold-finished into stainless steel wire or
small-diameter bar.
The most common size for such products is 5.5 millimeters or 0.217
inches in diameter, which represents the smallest size that normally is
produced on a rolling mill and is the size that most wire-drawing
machines are set up to draw. The range of SSWR sizes normally sold in
the United States is between 0.20 inches and 1.312 inches diameter. Two
stainless steel grades,
[[Page 40423]]
SF20T and K-M35FL, are excluded from the scope of the investigation.
The chemical makeup for the excluded grades is as follows:
SF20T
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.05 max.
Manganese................................. 2.00 max.
Phosphorous............................... 0.05 max.
Sulfur.................................... 0.15 max.
Silicon................................... 1.00 max.
Chromium.................................. 19.00/21.00.
Molybednum................................ 1.50/2.50.
Lead...................................... added (0.10/0.30).
Tellurium................................. added (0.03 min).
------------------------------------------------------------------------
K-M35FL
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.015 max.
Silicon................................... 0.70/1.00.
Manganese................................. 0.40 max.
Phosphorous............................... 0.04 max.
Sulfur.................................... 0.03 max.
Nickel.................................... 0.30 max
Chromium.................................. 12.50/14.00.
Lead...................................... 0.10/0.30.
Aluminum.................................. 0.20/0.35.
------------------------------------------------------------------------
The products under investigation are currently classifiable under
subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and
7221.00.0075 of the Harmonized Tariff Schedule of the United States
(HTSUS). Although the HTSUS subheadings are provided for convenience
and customs purposes, the written description of the scope of this
investigation is dispositive.
Period of Investigation
The period of investigation (POI) is July 1, 1996, through June 30,
1997.
Fair Value Comparisons
To determine whether sales of SSWR from Italy to the United States
were made at less than fair value, we compared the Export Price (EP) to
the Normal Value (NV). Except as noted below, our calculations followed
the methodologies described in the preliminary determination.
On January 8, 1998, the Court of Appeals for the Federal Circuit
issued a decision in CEMEX v. United States, 1998 WL 3626 (Fed Cir.).
In that case, based on the pre-URAA version of the Act, the Court
discussed the appropriateness of using constructed value (CV) as the
basis for foreign market value when the Department finds home market
sales to be outside the ``ordinary course of trade.'' This issue was
not raised by any party in this proceeding. However, the URAA amended
the definition of sales outside the ``ordinary course of trade'' to
include sales below cost. See Section 771(15) of the Act. Consequently,
the Department has reconsidered its practice in accordance with this
court decision and has determined that it would be inappropriate to
resort directly to CV, in lieu of foreign market sales, as the basis
for NV if the Department finds foreign market sales of merchandise
identical or most similar to that sold in the United States to be
outside the ``ordinary course of trade.'' Instead, the Department will
use sales of similar merchandise, if such sales exist. The Department
will use CV as the basis for NV only when there are no above-cost sales
that are otherwise suitable for comparison. Therefore, in this
proceeding, when making comparisons in accordance with section 771(16)
of the Act, we considered all products sold in the home market as
described in the ``Scope of Investigation'' section of this notice,
above, that were in the ordinary course of trade for purposes of
determining appropriate product comparisons to U.S. sales. Where there
were no sales of identical merchandise in the home market made in the
ordinary course of trade to compare to U.S. sales, we compared U.S.
sales to sales of the most similar foreign like product made in the
ordinary course of trade, based on the characteristics listed in
Sections B and C of our antidumping questionnaire. We have implemented
the Court's decision in this case, to the extent that the data on the
record permitted.
In instances in which a respondent has reported a non-AISI grade
(or an internal grade code) for a product that falls within a single
AISI category, we have used the actual AISI grade rather than the non-
AISI grade reported by the respondent for purposes of our analysis.
However, in instances in which the chemical content range of a reported
non-AISI (or an internal grade code) grade is outside an AISI grade, we
have used the grade code reported by the respondents for analysis
purposes. For further discussion of this issue, see Comment 3 in the
``Interested Party Comments'' section of this notice, below.
Level of Trade
In the preliminary determination, we conducted a level of trade
analysis for both respondents. Based on this analysis, we determined
that a level of trade adjustment was not warranted for either company.
No party to this investigation has commented on our level of trade
determination. Accordingly, for purposes of the final determination, we
continue to find that a level of trade adjustment is not warranted.
Export Price
For both respondents, we used EP methodology, in accordance with
section 772(a) of the Act, because the subject merchandise was sold
directly to the first unaffiliated purchaser in the United States prior
to importation and CEP methodology was not otherwise indicated. For
further discussion, see Comment 1 in the ``Interested Party Comments''
section of this notice.
A. CAS
We calculated EP based on the same methodology used in the
preliminary determination, except as noted below:
1. At the time of the preliminary determination, CAS had not
reported U.S. customs duties and U.S. brokerage and handling expenses
for certain U.S. sales. Because this information is now on the record
and has been verified, we have used it for purposes of the final
determination.
2. We made adjustments for other transportation expenses (e.g.,
demurrage), where appropriate, based on our findings at verification.
B. Valbruna
We made no changes to the methodology used in the preliminary
determination.
Normal Value
We calculated NV, cost of production (COP) and CV based on the same
methodology used in the preliminary determination, except as noted
below.
A. CAS
For the calculation of COP and CV, we adjusted CAS's reported costs
by:
1. Adding the accelerated portion of CAS's depreciation expenses
(see Comment 10);
2. Adding depreciation expenses related to leasehold improvements
(see Comment 11);
3. Adding back to material costs a deduction made by CAS for the
balance in its inventory provision (see Comment 12);
4. Deducting finished goods inventory write-downs from CAS's
general and administrative expenses (see Comment 12);
5. Adding back to material and variable overhead costs a deduction
made by CAS for inventory write-up adjustments (see Comment 13);
6. Adding unaccrued purchase costs that were excluded by CAS (see
Comment 14);
7. Reclassifying certain expense and income items from general and
administrative expenses to financial expenses (see Comment 16);
[[Page 40424]]
8. Correcting the double-counting of certain expenses that were
reported in both variable overhead and general and administrative (G&A)
expenses; and
9. Correcting an error made by CAS in a reported variable overhead
adjustment factor.
These adjustments are further discussed in the Memorandum regarding
Cost Calculation Adjustments from William Jones to Chris Marsh, dated
July 20, 1998.
As in the preliminary determination, we found that, for certain
models of SSWR, more than 20 percent of CAS's home market sales within
an extended period of time were at prices less than COP. Further, the
prices did not provide for the recovery of costs within a reasonable
period of time. We therefore disregarded the below-cost sales and used
the remaining above-cost sales as the basis for determining NV, in
accordance with section 773(b)(1) of the Act. For those U.S. sales of
SSWR for which there were no comparable home market sales in the
ordinary course of trade, we compared EP to CV in accordance with
section 773(a)(4) of the Act.
We made the following changes to our price-to-price or price-to-CV
comparisons:
1. In the preliminary determination, we made no adjustment for home
market packing costs or warranty expenses because CAS failed to provide
the supporting documentation requested by the Department. Because
verified packing and warranty information is now on the record, we have
used it for purposes of the final determination.
2. Also in the preliminary determination, we made no adjustment for
home market credit expenses because CAS based its credit periods on
estimates, rather than on the accounts receivable information requested
in a supplemental questionnaire. Because verified accounts receivable
information is now on the record, we made an adjustment for home market
credit expenses for purposes of the final determination.
3. We offset home market freight expenses by a freight revenue
factor based on our findings at verification.
B. Valbruna
We made the following changes to our price-to-price comparisons:
1. In the preliminary determination, we made no adjustment for pre-
sale warehousing expenses because Valbruna had not appropriately
segregated these expenses from its indirect selling expenses. Because
this information is now on the record, we have used it for purposes of
the final determination. See Comment 18.
2. In the preliminary determination, we also made no adjustment for
certain inland freight expenses because these expenses were based on
data outside the POI. Because Valbruna revised its freight calculations
to utilize POI data, we have adjusted for these freight expenses in the
final determination.
Currency Conversion
As in the preliminary determination, we made currency conversions
into U.S. dollars based on the exchange rates in effect on the dates of
the U.S. sales, as certified by the Federal Reserve Bank in accordance
with section 773A of the Act.
Interested Party Comments
General Issues
Comment 1: CEP vs. EP Methodology.
The petitioners argue that the Department should treat all of the
respondents' sales through their affiliated parties in the United
States as CEP transactions. According to the petitioners, the
Department's practice in this area is to classify sales as CEP sales
when the U.S. affiliated party has more than an incidental involvement
in making the sale (e.g., soliciting sales, negotiating sales contracts
or prices) or performs other selling functions. As support for this
assertion, the petitioners cite Certain Cold-Rolled and Corrosion-
Resistant Steel Flat Products from Korea: Final Results of Antidumping
Duty Administrative Reviews, 63 FR 13170, 13172 (Mar. 18, 1998) (Korean
Steel); and Notice of Preliminary Determination of Sales at Less Than
Fair Value and Postponement of Final Determination: Stainless Steel
Wire Rod from Spain, 63 FR 10849, 10852 (Mar. 5, 1998) (SSWR from Spain
Preliminary).
The petitioners allege that documents obtained at verification
demonstrate that the affiliated parties were substantially involved in
the sales process and were not mere communication links with their
Italian parents. Specifically, the petitioners assert that these
documents show that the affiliates served as contacts for the U.S.
customers and were involved in the negotiation of sales terms and
prices.
Regarding CAS, the petitioners maintain that its U.S. affiliate,
CAS USA, was unable to demonstrate at verification that CAS controlled
all pricing decisions in Italy, because: 1) CAS USA was unable to
provide any customer inquiries during the POI; and 2) the post-POI
document proffered by CAS merely showed that the Italian sales manager
approved a portion of the order. Morever, the petitioners note that CAS
USA recorded the purchase and resale of SSWR in its accounting records,
collected payment from the customer, took title to the merchandise, and
stored it in a U.S. warehouse while it awaited delivery to the U.S.
customer.
According to the respondents, the Department correctly found in the
preliminary determination that all of their U.S. sales were EP
transactions. The respondents note that the Department's long-standing
practice is to classify sales as EP if the sale occurred prior to
importation and the following three criteria are met: 1) the
merchandise is shipped directly to the U.S. customer without entering
the affiliate's inventory; 2) this is the customary channel of trade
for the affected sales; and 3) the affiliate acts only as a sales
document processor and communications link. In support of their
position, the respondents cite Certain Cold-Rolled and Corrosion-
Resistant Steel Flat Products from Korea: Final Results of Antidumping
Duty Administrative Reviews, 62 FR 18404, 18423 (Apr. 15, 1997); Final
Determination of Sales at Less Than Fair Value: Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled from Germany, 61 FR 38166, 38175 (July 23, 1996); and Final
Results of Antidumping Duty Administrative Reviews; Certain Corrosion-
Resistant Carbon Steel Flat Products from Canada, 63 FR 12725 (Mar. 16,
1998).
The respondents argue that their sales meet each of the above
criteria. Regarding the first two criteria, they state that subject
merchandise never enters their physical inventory in the United States
and that this sales channel is their customary channel of trade, CAS
argues that CAS USA exerts no physical control over the subject
merchandise, because almost all sales are either shipped directly to
the U.S. customer or to the customer's storage facility for its own
account. Moreover, CAS asserts that any warehousing performed at the
port is done merely while unloading occurs; this merchandise is
destined for a specific customer and cannot be sold to another party.
Thus, CAS notes that SSWR never enters CAS USA's physical inventory.
Regarding CAS USA's involvement in the sales process, CAS asserts
that CAS USA's role is ancillary or incidental, because CAS USA simply
functions as a paper processor and communications link with CAS. CAS
asserts that it controls all aspects of the marketing and sales process
from Italy. Specifically, CAS maintains that CAS USA has no
[[Page 40425]]
negotiating or pricing authority with regard to SSWR, but rather only
forwards sales inquiries from U.S. customers to Italy. According to
CAS, because most of its pricing instructions to CAS USA are via
telephone, the absence of written records is not significant.
CAS asserts that the decision made in Korean Steel is not
applicable here. Specifically, CAS asserts that the U.S. affiliate of
one of the two respondents in that case had almost complete negotiating
control over the sale, including the authority to write and sign sales
contracts and to set prices, while the U.S. affiliate of the other
respondent engaged in significant after-sale activity.
Valbruna notes that all of its U.S. merchandise was shipped
directly to the U.S. customer without entering a warehouse in the
United States. Moreover, Valbruna notes that its U.S. affiliates act
only as paper processors and communications links with their parent
companies, due to the time difference that exists between the United
States and Italy. Valbruna maintains that it negotiates all sales and
makes all pricing decisions in Italy, confirms the sale, determines the
production and delivery schedule, arranges for the delivery, invoices
the customer, and collects payment. According to Valbruna, the evidence
of U.S. selling activity cited by the petitioners was either taken out
of context or misinterpreted. For example, Valbruna notes that, in one
instance, the petitioners cited a fax relating to non-subject
merchandise and, in another, merely referenced a pro forma closing
statement to a letter.
DOC Position
We agree with the respondents and have continued to classify their
U.S. sales as EP transactions for purposes of the final determination.
We have based this finding on an analysis of the three factors that the
Department uses to determine the appropriate classification of U.S.
sales transactions (i.e., customary channel of trade, method of
shipment, and the affiliate's role in the sales process).
Regarding the first two criteria, we find that both respondents
shipped their merchandise directly to the U.S. customer without the
merchandise entering the affiliate's inventory and that this
constituted the customary channel of trade for the affected sales.
Thus, we find that the first two criteria for designating these sales
as EP transactions have been met. Regarding the petitioners' contention
that CAS USA warehoused SSWR at the port, we disagree that this is
relevant. We noted at verification that the warehousing performed by
CAS USA was independent of the company's normal physical inventory
maintained for non-subject products. Because the merchandise never
entered CAS USA's physical inventory, we consider the criterion for
designating the sales as EP transactions to be met.
Regarding the third criterion, we find that both respondents'
affiliates acted as processors of paperwork and communication links
with their Italian parent companies for sales of subject merchandise.
Specifically, we confirmed at verification that both companies have no
authority to negotiate prices or sales terms with the customer, they do
not contact customers on their own initiative, and they perform no
marketing activities or after-sale support functions. We found that
these companies received requests for quotations from customers, via
either fax or telephone, which they then forwarded on to Italy for
approval or counter-offer. For this reason, we find that the
significant selling activities for the sales in question took place in
Italy, while those activities performed in the United States (e.g.,
invoicing, collecting payment, etc.) were ancillary or incidental to
the sale.
Regarding the company-specific concerns raised by the petitioners,
we note that CAS USA was operational for only four months during the
POI. Consequently, while CAS USA was able to provide only a limited
number of examples of written communication between itself and its
parent, this is sufficient to demonstrate that pricing decisions are
made in Italy. Regarding Valbruna, we find that the statements cited by
the petitioners were taken out of context, as asserted by Valbruna.
In addition, we note that the petitioners' citation to Korean Steel
does not apply here. In Korean Steel, one of the U.S. affiliates had
the authority to write and sign sales contracts, while another
performed significant after-sale support functions. Neither of these
conditions apply in this case. Likewise, we find that SSWR from Spain
Preliminary also is not applicable. In that case, not only was the
respondent unable to demonstrate that pricing decisions were made in
Spain, but the U.S. affiliate admitted, and the Department verified,
that it had the authority to set prices for certain sales without
consultation with its parent and initiated contact with the U.S.
customers on its own authority. None of these facts are present here.
Consequently, we have continued to classify the respondents' sales
through their U.S. affiliated parties as EP sales for purposes of the
final determination. We also have continued to treat CAS's sales
through AST USA as EP sales for purposes of the final determination
because the sales process for these sales is nearly identical to that
of sales through CAS USA. Our decision here is consistent with our
decisions on the matter in the concurrently published final
determinations on SSWR from Spain and Taiwan.
Comment 2: Date of Sale.
According to the petitioners, the Department should continue to use
purchase order date as the date of sale for CAS and revise its date of
sale methodology for Valbruna to use the date of sales confirmation
instead of invoice date. The petitioners assert that use of these dates
is consistent with both the Department's regulations and its practice,
because the material terms of sale are set at the time of the purchase
order/sales confirmation. As support for Department precedent in this
area, the petitioners cite memoranda issued in the 1995-1996 new
shipper review on stainless steel flanges from India and the 1996-1997
new shipper review on stainless steel bar from India, in which the
Department used the date of purchase order as the date of sale, as well
as the Notice of Final Results of Antidumping Duty Administrative
Review; Canned Pineapple Fruit from Thailand, 63 FR 7392, 7394 (Feb.
13, 1998), in which the Department used the date of a sales contract.
The petitioners note that, not only do both respondents produce
SSWR to order, but the sales documents reviewed at verification also
showed that the price, quantity, product specifications, and shipment
dates were established when the order was approved. Further, the
petitioners note that the lag-times between shipment and invoicing (for
CAS) and sales confirmation and invoicing (for Valbruna) are
significant.
The petitioners contend that Valbruna should not be allowed to
report an incorrect date of sale merely because the proper date is not
readily available in a computerized database, especially given that
Valbruna was able to provide the proper information in a previous
antidumping duty investigation involving stainless steel bar. According
to the petitioners, the Department should use the average number of
days between sales confirmation and invoice date, as observed at
verification, in order to construct a theoretical date of sales
confirmation. Specifically, the petitioners contend that this average
period should be subtracted from the reported invoice date to derive
the date of sale, and that this resulting date
[[Page 40426]]
should be used when making currency conversions.
According to CAS, the Department erred in its preliminary
determination by using the purchase order date instead of the invoice
date as the date of sale. CAS argues that the Department's regulations
establish a strong presumption in favor of using invoice date as the
date of sale for purposes of antidumping proceedings and that the
Department should adhere to this presumption for several reasons.
First, CAS asserts that, because the exact amount of the alloy
surcharge is not known until the time of shipment, it would be
distortive to compare U.S. prices to Italian prices based on the
purchase order date as the date of sale. Second, CAS states that use of
invoice date eases the reporting and verification burdens because it is
the date recorded in CAS's accounting records in the ordinary course of
business. Third, CAS argues that using the purchase order date as the
date of sale establishes bad precedent, in that one of the purposes of
the Department's current regulations was to simplify reporting
requirements and improve the predictability of the antidumping law. CAS
notes that the circumstances under which the Department would depart
from its presumption in favor of the invoice date are not present here,
because CAS neither sells large custom-made merchandise nor sells
pursuant to long term contracts. As support for this position, CAS
cites to the preamble to the Department's regulations (see Antidumping
Duties; Countervailing Duties; Final rule, 62 FR 27296, 27349, 27350
(May 19, 1997) (Final rule).
According to Valbruna, it appropriately reported the date of
invoice as the date of sale. Specifically, Valbruna notes that the
Department not only instructed it to report the date of invoice, but
the Department also verified that this information was reported
accurately.
Valbruna maintains that the petitioners' reliance on the length of
time between sales confirmation and invoicing is misplaced. According
to Valbruna, the Department's standard test is to compare the dates of
shipment and invoicing, rather than the dates of order confirmation and
invoicing. As support for this contention, Valbruna cites the
Department's questionnaire at Appendix I-4. Valbruna asserts that the
time between when it ships its merchandise and when it issues its
invoices is inconsequential, because this period is a matter of days,
not weeks or months.
Finally, Valbruna asserts that the petitioners' reference to the
stainless steel bar investigation is equally misplaced. According to
Valbruna, in the bar case, the order confirmation used as the date of
sale was the confirmation issued by the U.S. subsidiary. Valbruna
asserts that, in this investigation, all of the sales documentation is
issued by Valbruna in Italy. Consequently, Valbruna claims that there
is no relationship between the dates of sale used in the bar case and
here.
DOC Position
We disagree with CAS, in part, and agree with Valbruna. The
Department treats the invoice date as the date of sale under normal
circumstances. As both discussed in the preamble to the Department's
regulations and noted by CAS, use of invoice date simplifies the
reporting and verification of information and enhances the
predictability of outcomes. See Final rule at 27348. The preamble,
however, confirms that the Department retained the flexibility to use a
different date as the date of sale in appropriate circumstances. See
Final rule at 27348, 27349 and 27411 (19 CFR 351.401(i)). In the
preamble to the regulations, the Department indicated that use of
invoice date may not be appropriate in situations involving large,
custom-made products or long-term contracts. See Final rule at 27349,
27350. The Department further articulated conditions under which it
would consider departing from the invoice date as the date of sale in
its questionnaire. Therein, the Department stated:
[G]enerally, the date of sale is the date of invoice, as
recorded in the exporter or producer's records kept in the ordinary
course of business, provided that: (1) the exporter does not use
long-term contracts to sell its subject merchandise; and (2) there
is not an exceptionally long period between the date of invoice and
the date of shipment. See letter from James Maeder to William
Silverman, September 19, 1997, at Appendix I-4.
In the instant investigation, neither respondent sold subject
merchandise pursuant to long-term contracts, nor did they sell the type
of large custom-made merchandise envisioned in the preamble to the
regulations. However, in the case of CAS, a significant period of time
often passes between the date of shipment and the date of invoice.
Therefore, because the material terms of sale are normally set no later
than the date of shipment, we find that the invoice date is not an
appropriate date of sale for CAS. Having ruled out the invoice date for
CAS, we then determined that the purchase order date, which we used in
the preliminary determination, best reflected the date at which the
material terms of sale were established.
We disagree with CAS's assertion that it would be distortive to
compare U.S. and Italian prices using the purchase order as the date of
sale. CAS's argument relies upon the fact that the alloy surcharges are
not known until the time of shipment. However, this is not accurate, as
the final amount paid by the customer often is determined at the time
of the purchase order. Nevertheless, even assuming that the purchase
order date might not be appropriate in some instances, use of this date
does not create distortion because: (1) we used it as the date of sale
for both markets; and (2) we determined that the length of time between
purchase order and invoice date was comparable in the two markets.
Given those circumstances and the fact that we compare POI-average NVs
to POI-average EPs, we find that no material distortion exists in our
price-to-price comparisons due to minimal timing differences related to
the alloy surcharges received by CAS.
For Valbruna, we have continued to use invoice date as the date of
sale. As discussed above, our presumption is that the invoice date is
the appropriate date of sale unless the facts suggest otherwise. For
Valbruna, there is no significant difference between the shipment and
invoice dates, and we have no reason to believe that the material terms
of sale are set significantly prior to the date of invoice. Moreover,
the fact that a different date of sale was used for Valbruna in the
stainless steel bar case is irrelevant because each antidumping
proceeding is distinct and based on its own record.
Comment 3: Use of AISI Grade Designations for Product Matching.
According to the petitioners, the Department should perform its
model matches using standard AISI grades for steel, rather than the
respondents' internal grade designations.
The respondents agree, noting that the Department verified that
they appropriately classified each of their internal grades into its
corresponding AISI category where possible.
DOC Position
We agree. We examined the respondents' grade classifications at
verification and confirmed that both of the respondents appropriately
classified each of their internal SSWR grades into the corresponding
AISI category. Accordingly, we have utilized this information for
purposes of the final determination.
Comment 4: Corrections Arising From Verification.
[[Page 40427]]
According to both the petitioners and the respondents, the
Department should correct the respondents' data for clerical errors
found during verification.l
DOC Position
We agree. We have made the appropriate corrections for purposes of
the final determination. These corrections are further discussed in a
separate memorandum regarding the calculation adjustments performed for
this company. (See Memorandum regarding Calculations Performed for
Acciaierie Valbruna Srl/Acciaierie di Bolzano SpA (Valbruna) for the
Final Determination in the Antidumping Duty Investigation on Stainless
Steel Wire Rod from Italy from Shawn Thompson to The File, dated July
20, 1998.)
Specific Issues
A. CAS
Comment 5: Treatment of U.S. Sales Involving AST USA: In the
preliminary determination, the Department treated AST USA.
A party unaffiliated with CAS, as a U.S. sales agent. According to
the petitioners, both CAS's description of AST USA's sales process and
the U.S. sales documents contained in the questionnaire responses and
reviewed at verification indicate that AST USA was a customer rather
than a sales agent. Specifically, the petitioners cite CAS's March 16,
1998, supplemental response, in which CAS stated that it ``has
concluded that it may be more appropriate to consider AST USA as CAS's
first unaffiliated U.S. customer.'' Accordingly, the petitioners state
that, because the Department is required to base U.S. price on the sale
to the first unaffiliated customer, it must base U.S. price on the
price between CAS and AST USA for purposes of the final determination.
Nonetheless, the petitioners contend that, should the Department
determine that AST USA acted as a sales agent, the Department should
also determine that sales made through AST USA should be classified as
CEP sales for the same reasons that sales made through CAS USA should
be classified as CEP sales. See Comment 1.
Notwithstanding its March 16, 1998, statement, CAS maintains that
AST USA operated as CAS's unaffiliated sales agent and not as its U.S.
customer. Therefore, CAS maintains that the Department should continue
to base U.S. price on the price that AST USA charged its unaffiliated
customers.
DOC Position
We agree with CAS. Based on the information on the record, we find
that AST USA acted as a sales agent for CAS in making sales of SSWR in
the United States. Specifically, AST USA had a formal sales
representative agreement with CAS which outlined the relationship
between the parties during the POI. According to this agreement, AST
USA was responsible for taking orders from U.S. end-user customers on
behalf of CAS, for which AST USA, in turn, earned a sales commission.
This agreement stated explicitly that CAS company officials have
exclusive authority to make decisions regarding sales terms. See CAS
Home Market Verification Report, May 13, 1998, at 4.
In addition to the conditions outlined in the formal agreement, we
found that CAS knew AST USA's customers and it shipped its merchandise
directly to them in the United States. At verification, we found that
AST USA performed essentially the same role in the sales process as did
CAS's affiliated sales agent, CAS USA. See CAS USA Verification Report,
May 22, 1998, at 5.
For these reasons, we have continued to treat AST USA as a sales
agent for purposes of the final determination. Moreover, as discussed
in Comment 1, we have also continued to treat sales through AST USA as
EP sales.
Comment 6: Treatment of Commissions Paid to AST USA.
The petitioners argue that the Department should make an adjustment
for commissions paid to AST USA for selling the subject merchandise in
the United States. As support for their position, the petitioners cite
section 772(d)(1)(A) of the Act and 19 U.S.C. 1677a(d)(1)(A).
CAS agrees that the Department should adjust for commissions paid
to AST USA for purposes of the final determination.
DOC Position
Where U.S. price is based on EP, it is the Department's practice to
adjust for commissions paid to unaffiliated parties under the
circumstance of sale provision set forth in section 773(a)(6) of the
Act. (See also 19 CFR 351.410(e).) Because AST USA is an unaffiliated
party that received commissions related to EP sales during the POI, we
have made a circumstance-of-sale adjustment to NV to account for these
commissions for purposes of the final determination.
Comment 7: Treatment of Commissions Paid by CAS to CAS USA.
The petitioners assert that the Department should treat the
difference between the price that CAS charged CAS USA and the price
that CAS USA charged the unaffiliated customer as a commission for
purposes of the final determination. The petitioners further assert
that the Department should adjust for these commissions, regardless of
whether the Department determines CAS's U.S. sales to be EP or CEP
sales. If the Department finds CAS's U.S. sales to be CEP sales, the
petitioners assert that the Department should use the commission as a
surrogate for indirect selling expenses, given that CAS was not
required to report its actual indirect selling expenses.
According to CAS, the spread between the price that CAS charged CAS
USA and the price that CAS USA charged the unaffiliated U.S. customer
accounts for costs that CAS would have incurred in Italy, but for the
relocation of the incidental services that CAS USA performs on behalf
of CAS in the United States. Further, CAS states that, since these
expenses would not be deductible from the U.S. price in an EP scenario,
the Department should not deem the difference to be a commission and,
therefore, should not make a commission adjustment for purposes of the
final determination.
DOC Position
We agree with CAS. The Department's current practice is to not make
an adjustment for affiliated party commissions in EP situations because
we consider them to be intra-company transfers of funds to compensate
an affiliate for actual expenses incurred in facilitating the sale to
unaffiliated customers. See Notice of Final Determination of Sales at
Less Than Fair Value: Steel Wire Rod from Trinidad and Tobago, 63 FR
9177, 9181 (Feb. 24, 1998) and Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy,
Japan, Romania, Singapore, Sweden, and the United Kingdom; Final
Results of Antidumping Duty Administrative Reviews, 63 FR 33320, 33345
(Jun. 18, 1998). Consequently, we have not adjusted U.S. price for
these commissions for purposes of the final determination.
Regarding the petitioners' argument concerning the commission
adjustment as a surrogate for indirect selling expenses, this issue is
moot because we have determined that the sales made by CAS through CAS
USA are EP sales. See Comment 1.
Comment 8: Treatment of Unreported Sales.
During the U.S. verification, the Department discovered that CAS
did not report any POI sales with invoices issued in 1998. According to
the petitioners, for purposes of the final determination, the
Department should base the margins for these sales on either: (1) the
average of the margins
[[Page 40428]]
alleged in the petition; or (2) the highest non-aberrant calculated
margin. As support for its position, the petitioners cite Final
Determination of Sales at Less Than Fair Value: Certain Stainless Steel
Wire Rods from France, 58 FR 68865, 68869 (Dec. 29, 1993) (SSWR from
France), in which the Department used best information available to
determine the margin for sales that were not reported due to a computer
error.
According to CAS, its failure to report the sales in question was
inadvertent. Specifically, CAS notes that, at the time the Department
requested that sales data be submitted on an order date basis, the
invoices in question had not yet been issued and, therefore, were not
available for inclusion in the sales listing. However, CAS maintains
that, because the prices associated with these sales are typical of
other POI sales, no adverse inference is warranted.
CAS asserts that the situation in SSWR from France is
distinguishable from the present case. Specifically, CAS states that
the French sales were omitted due to computer error, whereas its own
sales data were not available at the time of the submission of the
relevant sales listing. Furthermore, CAS notes that this issue would be
moot if the Department were to use invoice date as the date of sale
(see Comment 2, above).
DOC Position
We agree with the petitioners. Although the invoice data did not
exist at the time that CAS submitted its January 1998 sales listing,
the purchase order and other transaction-related information did exist
when CAS completed its questionnaire response. Moreover, the invoice
information existed and was available when CAS submitted its March 1998
supplemental response. Because CAS failed to provide a complete
database, we have based the margin for the unreported U.S. sales on
facts available.
Section 776(b) of the Act provides that adverse inferences may be
used when a party has failed to cooperate by not acting to the best of
its ability to comply with requests for information. See also Statement
of Administrative Action accompanying the URAA, H.R. Rep. No. 316, 103d
Cong., 2d Sess. 870 (SAA). CAS's failure to report the information in
question to the Department's questionnaire demonstrates that it has
failed to act to the best of its ability in this investigation. Thus,
the Department has determined that, in selecting among the facts
otherwise available to this company, an adverse inference is warranted.
As adverse facts available, we have selected a margin from the fair
value comparisons which were performed for CAS's reported sales that is
sufficiently adverse so as to effectuate the statutory purposes of the
adverse facts available rule to induce respondents to provide the
Department with complete and accurate information in a timely manner.
We also sought a margin that is indicative of CAS's customary selling
practices and is rationally related to the transactions to which the
adverse facts available are being applied. To that end, we selected a
margin for sales of a product that involved a substantial commercial
quantity and fell within the mainstream of CAS's transactions based on
quantity. Finally, we found nothing on the record to indicate that the
sales of the product we selected were not transacted in a normal
manner. For details regarding the methodology used to select the margin
for the sales in question, see the Sales Calculation Memorandum from
Irina Itkin to the File, dated July 20, 1998.
Comment 9: Treatment of Unpaid Sales.
At verification, the Department found that CAS had not received
payment for a small number of U.S. sales. According to the petitioners,
the Department should use the date of the final determination as date
of payment for these transactions. As support for their position, the
petitioners cite Certain Stainless Wire Rods from France; Final Results
of Antidumping Duty Administrative Review, 61 FR 47874, 47881 (Sep. 11,
1996).
DOC Position
We disagree. The Department's recent practice regarding this issue
has been to use the last day of verification as the date of payment for
all unpaid sales. See Brass Sheet and Strip from Sweden; Final Results
of Antidumping Administrative Review, 60 FR 3617, 3620 (Jan. 18, 1995),
Notice of Final Determination of Sales at Less Than Fair Value: Static
Random Access Memory Semiconductors From Taiwan, 63 FR 8909 (Feb. 23,
1998), and Extruded Rubber Thread from Malaysia; Final Results of
Antidumping Duty Administrative Review, 63 FR 12752, 12757 (Mar. 16,
1998). Accordingly, we have used the last day of CAS's U.S.
verification as the date of payment for all unpaid transactions or
portions thereof.
Comment 10: Depreciation Expenses.
The petitioners argue that the Department should increase CAS's COP
and CV data for accelerated depreciation expenses, which were excluded
from its submitted costs. The petitioner notes that the Department's
policy is to calculate COP/CV based on the normal accounting records
maintained by the respondent and that CAS's income statement reflects
the accelerated depreciation expenses in question.
CAS notes that Italian fiscal law allows companies to recognize
additional depreciation expense (i.e., accelerated depreciation) on new
equipment in an amount equal to the ordinary expense that would be
calculated using a straight-line depreciation method. According to CAS,
the purpose of recognizing such additional expense is to reduce taxable
income. CAS argues that, because accelerated depreciation does not
accurately reflect the company's actual cost of manufacturing, it
excluded the accelerated portion of depreciation expense recognized in
the company's financial statements. Specifically, CAS claims that the
use of both ordinary straight-line depreciation and accelerated
depreciation would double its depreciation expenses for qualified
assets and, thus, cannot reasonably reflect the company's actual
manufacturing costs. As support for its position, CAS cites to Final
Determination of Sales at Less Than Fair Value: Fresh and Chilled
Atlantic Salmon from Norway, 56 FR 7661, 7665 (Feb. 25, 1991)
(Norwegian Salmon), in which the Department included only the
respondent's ordinary depreciation expenses in COP and CV.
DOC Position
We agree with the petitioners and have adjusted CAS's submitted
costs to reflect the total depreciation expense reported in its
financial statements. Section 773(f)(1)(A) of the Act states:
[c]osts shall normally be calculated based on the records of the
exporter or producer of the merchandise, if such records are kept in
accordance with the generally accepted accounting principles of the
exporting country (or the producing country, as appropriate) and
reasonably reflect the costs associated with the production and sale
of the merchandise. The administering authority shall consider all
available evidence on the proper allocation of costs . . . if such
allocations have been historically used by the exporter of producer,
in particular for establishing appropriate amortization and
depreciation periods, and allowances for capital expenditures and
other development costs.
For the past three years, CAS has chosen to use an accelerated
depreciation methodology, which is consistent with Italian generally
accepted accounting principles (GAAP), to calculate depreciation
expenses on both its audited financial statements and its tax return.
Accelerated
[[Page 40429]]
depreciation methods, such as the one applied by CAS, provide for a
higher depreciation charge in the years immediately following an
asset's acquisition, while lower charges are recorded in later periods.
We disagree with CAS's assertion that the use of this accelerated
depreciation methodology results in an inaccurate cost of
manufacturing. Other than merely stating that the accelerated
depreciation method results in a greater expense than would be
calculated using a straight-line methodology, CAS has provided no
evidence demonstrating that its depreciation methodology is distortive.
According to Intermediate Accounting: 8th Edition (Kieso &
Weygandt, 1995), the use of an accelerated depreciation methodology is
neither wrong nor distortive. The text notes that an accelerated method
may, in some instances, be more appropriate than a straight-line
depreciation method that records an equal amount of depreciation each
year an asset is in service. As the text states, ``The matching concept
does not justify a constant charge to income. If the benefits from the
asset decline as the asset gets older, then a decreasing charge to
income would better match cost to benefits.''
In past cases, the Department has included the accelerated portion
of depreciation expenses when such an approach is reflected in the
respondent's financial statements, in accordance with the home country
GAAP, and the respondent has not demonstrated that the use of
accelerated depreciation is distortive. See, e.g., Silicon Metal from
Brazil; Final Results of Antidumping Duty Administrative Review and
Determination Not to Revoke in Part, 62 FR 1954, 1958 (Jan. 14, 1997),
in which COP was calculated using the respondent's financial records,
which reflected the historical use of accelerated depreciation in
accordance with Brazilian GAAP; and 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, 51418 (Oct. 2,
1996), in which COP was calculated using the respondent's financial
records, which historically used an accelerated depreciation method.
Our practice is to adhere to a respondent's recording of costs in
accordance with GAAP of its home country if we are satisfied that such
records reasonably reflect the costs of producing the subject
merchandise. See, e.g., Certain Fresh Cut Flowers from Colombia; Final
Results of Antidumping Duty Administrative Reviews, 61 FR 42833, 42846
(Aug. 19, 1996); and section 773(f)(1)(A) of the Act. This practice has
been sustained by the Court of International Trade (CIT). See, e.g.,
Laclede Steel Co. v. United States, Slip Op. 94-160 at 21-25 (CIT Oct.
12, 1994) (upholding the Department's rejection of the respondent's
reported depreciation expenses in favor of verified information from
the company's financial statements that were consistent with Korean
GAAP); and Hercules, Inc. v. United States, 673 F. Supp. 454 (CIT 1987)
(upholding the Department's reliance on COP information from the
respondent's normal financial statements maintained in conformity with
GAAP).
Comment 11: Leasehold Improvements.
The petitioners argue that the Department should adjust CAS's COP
and CV data to include the cost of leasehold improvements, which were
excluded from its submitted costs. The petitioners note that the
Department's policy is to calculate COP and CV based on the normal
accounting records maintained by the respondent and that CAS's income
statement reflects the cost of leasehold improvements.
CAS notes that, during 1995 and 1996, it made several improvements
to leased assets, including a new production facility roof, a new
cafeteria, and an infirmary. According to CAS, under Italian GAAP,
lessors are prohibited from capitalizing and depreciating leasehold
improvements and, instead, are required to expense such costs in the
year incurred. CAS argues that the inclusion of the full value of its
leasehold improvements in COP/CV would be highly distortive, given that
these expenditures represent a long-term investment in fixed assets and
have a multi-year usefulness. CAS proposes that a logical alternative
to excluding leasehold improvement costs in total would be to
depreciate the cost over the thirty-year term of its lease.
DOC Position
We agree with the petitioners, in part. Section 773(f)(1)(A) of the
Act states that COP and CV shall normally be calculated based on the
books and records of the exporter or producer of the merchandise if
such records are kept in accordance with GAAP of the exporting country
and if such records reasonably reflect the costs associated with the
production of the merchandise under investigation. Because the
leasehold improvements made by CAS represent costs that were associated
with the production of the merchandise under investigation, we find
that it is appropriate to include them in the calculation of its COP
and CV.
We disagree with the petitioners, however, that the full cost of
the leasehold improvements should be recognized in the year incurred.
These costs, as argued by CAS, are expected to benefit future periods.
We therefore consider it appropriate, in this instance, to deviate from
Italian GAAP by capitalizing and depreciating these costs over a
reasonable period of time, not to exceed the actual term of the lease.
CAS's proposal of a thirty-year depreciation period would be
appropriate if the company could be expected to benefit from the
improvements for that period of time. However, the useful life of CAS's
fixed assets, as submitted, indicates that a shorter period is
appropriate for the types of leasehold improvements in question.
Accordingly, we calculated depreciation expense for the leasehold
improvements made by applying the accelerated depreciation methodology
used in CAS's normal accounting records to the useful life of the
assets.
Comment 12: Adjustment Related to the Inventory Write-down
Provision.
The petitioners argue that the Department should value material
costs in accordance with CAS's financial statements. Specifically, the
petitioners argue that the Department should disallow CAS's submitted
offset to materials costs for its inventory write-down provision.
According to the petitioners, the Department's policy is to calculate
COP and CV based on the normal accounting records maintained by the
respondent.
CAS argues that it properly reduced its materials costs for the
inventory write-down provision. CAS notes that it adjusts the provision
at the end of each fiscal year to account for fluctuations in the
values of its raw materials, work-in-process (WIP), and finished goods
inventories, which are stated on a last-in, first-out (LIFO) basis. CAS
claims that the provision reflects the difference between the LIFO
values of its inventories and their current market values. CAS argues
that, consistent with this approach, its reported materials costs
reflect the deduction of the inventory write-down provision from the
cost of materials consumed as reported on its financial statements. As
support for its position, CAS cites to Antifriction Bearings (Other
Than Tapered Roller Bearings) and Parts Thereof From France, Germany,
Italy, Japan, Singapore, and the United Kingdom; Final Results of
Antidumping Duty Administrative Reviews, 62 FR 2081, 2118 (Jan. 15,
1997), in which the Department stated that the respondent's inventory
write-downs ``are not actual costs but are a provisional reduction-in-
[[Page 40430]]
inventory value in anticipation of a lower resale value.''
According to CAS, the Department noted at verification that CAS
included the 1996 addition to its inventory write-down provision in its
reported G&A expenses. CAS argues that, should the Department revise
the reported COP/CV data in order to exclude the provision, it should
make a corresponding adjustment by removing the 1996 addition from the
G&A calculation to avoid double-counting this expense.
DOC Position
We agree with the petitioners that CAS should not have reduced its
material costs by the value of its inventory write-down provision. The
provision that CAS established for inventory value fluctuations is a
balance sheet account that relates to CAS's inventory values at the end
of the year and has no impact on the actual cost of materials used in
production. Accordingly, in calculating COP and CV, there is no basis
for reducing the material costs actually incurred by the full amount of
the inventory write-down provision on CAS's balance sheet.
We disagree with CAS's assertion that, because we have not reduced
the company's materials costs by the full amount of the inventory
write-down provision, the Department must exclude from G&A expenses the
amount of the change to the provision that was reported as an expense
in CAS's 1996 income statement. Specifically, only the incremental
increase or decrease in this provisional account is recognized by the
company on its income statement and the incremental change during 1996
was reported by CAS as a G&A expense item for purposes of its
submission. The incremental change in the provision is the only portion
of the provision that may be appropriate to include in CAS's COP and CV
calculations. In this case, however, the full amount of the increase to
the provision should not be included in the calculation of COP and CV
because the portion of the write-down associated with finished goods
inventory is not a cost of production to CAS. Unlike the complete
write-off of unsaleable merchandise which the Department considers a
cost, this type of inventory write-down arises when a company
determines that the market value for its finished goods inventory is
less than its cost to produce the merchandise. Consequently, it would
be unreasonable to include such write-down amounts, which arise only
because CAS cannot sell the merchandise for what it cost to produce, as
an additional cost of production.
We disagree with CAS's assertion, however, that write-downs
associated with raw materials and WIP inventories should also be
excluded from COP and CV. Both raw materials and WIP inventories are
inputs into the cost of manufacturing the merchandise. It is the
Department's practice to recognize the full amount paid to acquire
production inputs, which are included in raw materials and WIP
inventories, in determining the cost of producing the merchandise.
Consequently, for the final determination, we removed the offset to
CAS's material costs for the inventory write-down provision.
Additionally, we included in G&A expense only the incremental change in
CAS's inventory write-down provision that is associated with raw
materials and WIP inventories.
Comment 13: Materials and Spare Parts.
The petitioners argue that CAS inappropriately reduced its 1997
materials and spare parts costs for an inventory ``write-up''
adjustment that is not reflected in its financial statements or normal
accounting records. CAS applied the adjustment to the costs shown in
its normal accounting records to derive the reported costs.
CAS argues that, in calucating its reported 1997 material and spare
parts costs, it adjusted its inventory based on prices paid during the
period. CAS argues that such an adjustment is necessary to calculate
its cost of production on a current basis, although the adjustment is
not reflected in its financial statements.
DOC Position
We agree with the petitioners. It is the Department's practice to
base the cost of manufacturing on costs incurred during the period of
investigation, as reflected in CAS's normal books and records, rather
than on current prices. In accordance with section 773(f)(1)(A) of the
Act, the Department accepts the inventory valuation methods
historically used by the respondent unless it can be shown that these
methods distort the reported costs. The simple fact that costs would be
lower using an alternative inventory valuation method is not a valid
reason for deviating from a company's normal books and records.
Accordingly, we have removed the adjustment applied by CAS in
calculating its submitted costs.
Comments 14: Accruals for Previous Year Purchases.
The petitioners argue that the Department should make an adjustment
for supplier invoices related to 1996 purchases that were excluded from
CAS's reported costs.
CAS argues that the Department should not adjust its submitted
costs. According to CAS, at year-end 1996, it properly accrued expenses
on purchases for which it anticipated it would receive invoices in
1997. CAS claims that its accrual was based on a reasonable estimate of
the amounts on the invoices to be received and was prepared in
accordance with Italian GAAP and the company's normal internal
accounting policies. CAS notes that it recorded the difference between
its accrual and the invoiced amounts as extraordinary expense in 1997,
and that such treatment is also consistent with Italian GAAP.
DOC Position
We agree with the petitioners. While CAS's treatment of the
supplier invoices received in 1997 for 1996 purchases may have been in
accordance with Italian GAAP, it does not properly reflect the cost of
production during the period of investigation. The recording of an
accrual is a normal part of the year-end accounting process and, as CAS
notes, is based on an estimate. At the end of 1996, CAS recorded
accruals for supplier invoices yet to be received for purchases made
during the year. In early 1997, it became known that CAS's 1996
accruals were understated and, therefore, its 1996 production costs
were understated. The POI encompasses portions of both 1996 and 1997
and, thus, it is proper to adjust the submitted amounts to include the
correct input costs rather than an incorrect estimate. We have
therefore corrected for the understated production costs for purposes
of the final determination.
Comment 15: Offset to G&A Expenses.
The petitioners claim that the Department should remove an offset
that was included in CAS's G&A expense calculation. The offset amount
represents a correction of prior year accruals and is classified in the
financial statements as non-operating management profits. The
petitioners argue that a correction of prior year accruals does not
relate to operations during the POI and, therefore, should not be used
to offset actual G&A expenses incurred during the POI.
DOC Position
We agree with the petitioners. Since CAS failed to provide details
surrounding the over-accrued amounts which were corrected during the
POI, we are unable to determine exactly what merchandise the accruals
relate to. The prior year accruals being corrected may relate solely to
non-subject merchandise
[[Page 40431]]
(in which case we would exclude the correction), solely to subject
merchandise (in which case we would apply the amount to offset the cost
of manufacturing), or to the general production activity of the company
as a whole (in which case we would apply the offset to G&A expenses).
Since we do not know which activities these over-accruals relate to, we
excluded the correction of the prior year's accruals from the submitted
COP and CV computations.
Comment 16: Foreign Exchange Gains and Losses.
The petitioners argue that the Department should revise CAS's
reported G&A expense calculation to exclude certain foreign exchange
gains and losses related to hedging. The petitioners note that such
amounts were classified in CAS's financial statements as financial
income or financial expense and argue that the Department should treat
these amounts in the same manner.
CAS agrees with the petitioners regarding the classification of
foreign exchange gains and losses.
DOC Position
We agree. The foreign exchange gains and losses incurred by CAS on
its hedging operations are more properly classified as financial income
and expenses. Accordingly, we reclassified these amounts for the final
determination.
Comment 17: Double-Counting of Currency Option Expenses.
CAS argues that the Department, in making its preliminary
determination, improperly adjusted CAS's financial expenses to include
an amount related to currency option expenses. CAS notes that this
amount was already included in its G&A expense calculation and, as a
result, the Department double-counted these costs in calculating COP
and CV.
DOC Position
We agree. We have corrected the G&A expense calculation to exclude
the amount that was double-counted.
B. Valbruna
Comment 18: Home Market Warehousing Costs.
According to Valbruna, the Department erred in its preliminary
determination by not adjusting for various costs incurred at its home
market service centers. Specifically, Valbruna contends that the
Department should have deducted its service center costs from NV under
the warehousing provision of the regulations (i.e., 19 CFR
351.401(e)(2)), because one of the functions of the service centers is
warehousing. However, Valbruna asserts that, if the Department does not
consider all service center costs to be warehousing for purposes of the
final determination, it should, at a minimum, deduct all costs directly
associated with warehousing.
The petitioners argue that the Department should continue to
disallow an adjustment for Valbruna's service center costs. The
petitioners cite the Department's preliminary concurrence memorandum,
which stated that the Department denied Valbruna's claim for the
preliminary analysis because: 1) the service centers were merely
branches or sales offices of Valbruna; and 2) only one of the service
centers carried inventory of SSWR. Accordingly, the petitioners
maintain that, if the product under investigation is not maintained in
inventory at the service centers, there is no basis for subtracting
from NV any warehousing costs incurred there.
DOC Position
We agree with Valbruna, in part. Under 19 CFR 351.401(e)(2), the
Department considers warehousing expenses that are incurred after the
merchandise leaves the original place of shipment to be movement
expenses. Accordingly, to the extent that Valbruna incurred expenses
relating to the warehousing of SSWR at its service centers, we have
treated these expenses as movement costs.
Regarding those expenses incurred at the service centers which
relate to selling functions, however, we disagree with Valbruna that
these expenses also constitute part of its warehousing. Rather, we find
that these expenses constitute indirect selling expenses. Because we
have found U.S. sales to be EP sales and we are making no offsets for
U.S. commissions under 19 CFR 351.410(e), we have disregarded these
expenses for purposes of the final determination.
Comment 19: Use of Long-Term Debt in the Calculation of the Home
Market Interest Rate.
Valbruna argues that the Department should base the calculation of
its home market interest rate on the company's interest experience on
all of its current liabilities, not just those arising from short-term
obligations. Specifically, Valbruna asserts that the Department should
include in its calculation the short-term portion of a long-term debt,
because this debt is classified as a current liability on the company's
balance sheet. As such, Valbruna asserts, it is part of the company's
working capital, which is used to finance the company's current assets
(including accounts receivables).
The petitioners disagree. According to the petitioners, it is
irrelevant that Valbruna reclassified a portion of its long-term debts
as a current liability; the interest rate on that portion remains the
rate paid on the company's long-term obligations. According to the
petitioners, it is not appropriate to include long-term debts in the
formula used to calculate the weighted-average short-term interest
rate, because the interest paid on these debts does not properly
measure a company's short-term interest experience. Consequently, the
petitioners maintain that the Department should continue to exclude the
current portion of Valbruna's long-term debt from the calculation of
its short-term interest rate.
DOC Position
We agree with the petitioners. The imputed credit calculation
measures the opportunity cost associated with carrying accounts
receivables. Because accounts receivables are short-term in nature, it
is appropriate to base the interest rate used in the credit calculation
only on rates paid on short-term loans.
We note that long-term debt generally is incurred to finance large-
scale projects (e.g., acquisition of machinery, capital improvements,
etc.). Because it is not incurred to manage the day-to-day cash flow of
a company, it would be inappropriate to include the interest paid on
this type of debt in the credit calculation. The fact that some portion
of the long-term debt becomes a current liability each year is
irrelevant to this reasoning. Accordingly, we have continued to exclude
long-term debt from the calculation of the home market interest rate
for purposes of the final determination.
Comment 20: Inventory Carrying Costs as a Direct Selling Expense.
Valbruna claimed the inventory carrying costs at certain of its
service centers as a direct selling expense. According to the
petitioners, the Department should continue to treat these expenses as
indirect, because Valbruna could not substantiate its claim for direct
treatment at verification. Specifically, the petitioners argue that
Valbruna could not demonstrate that it maintained a customer-specific
inventory during the POI, nor could it show that the merchandise
initially tagged for shipment to particular customers was not sold to
different companies after it left the factory.
Valbruna contends that the expenses in question are analogous to
pre-sale warehousing expenses. According to Valbruna, the URAA
establishes that home market movement expenses,
[[Page 40432]]
including pre-sale freight and warehousing expenses, are to be deducted
from normal value in all cases, without being subject to a ``direct/
indirect'' test similar to selling expenses.
Nonetheless, Valbruna argues that the facts cited by the
petitioners are inconsequential. According to Valbruna, the fact that
its inventory records are not company-specific does not prove that it
incurred no pre-sale warehousing expenses. Moreover, Valbruna asserts
that it shipped merchandise tagged for particular customers to other
clients only under emergency situations.
DOC Position
We agree with the petitioners. The expenses in question are not
actual pre-sale warehousing expenses, such as rent on the warehouse or
salaries of the warehousing personnel. Rather, they are the imputed
costs associated with maintaining an inventory at the warehouse. As
such, they form part of Valbruna's selling expenses, not its
warehousing expenses.
Valbruna was unable to substantiate the facts on which it based its
assertion that these costs were directly related to the sales of SSWR
reported in its home market sales listing. Notably, we found that the
data which formed the basis for Valbruna's claim reflected the
company's inventory levels more than eight months after the end of the
POI. Therefore, we have made no adjustment for these expenses for
purposes of the final determination.
Comment 21: Home Market Freight Costs.
In its questionnaire response, Valbruna calculated freight expenses
at one of its service centers using an 11-month period, rather than the
full 12-month POI. Valbruna contends that the Department should accept
this calculation, rather than recalculate Valbruna's freight costs
using 12 months, because the volume of shipments in the twelfth month
was insignificant. Valbruna asserts that such a recalculation would be
inappropriate because it would result in a mis-matching of expenses
over time.
According to the petitioners, the Department should allocate
Valbruna's freight costs over the entire POI. The petitioners note that
not only did Valbruna make shipments throughout the POI, but also many
of the expenses (e.g., depreciation and insurance) were incurred
regardless of whether the company's trucks were idle.
DOC Position
We agree with the petitioners. At verification, we noted that
Valbruna both shipped SSWR to its customers and incurred freight
expenses throughout the POI. Accordingly, we have used a freight factor
applicable to the 12-month POI for purposes of the final determination.
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 SSWR from Italy--except those produced and sold for export
to the United States by Valbruna, for whom the final antidumping rate
is de minimis--that are entered, or withdrawn from warehouse, for
consumption, on or after March 5, 1998, the date of publication of our
preliminary determination in the Federal Register. Article VI.5 of the
General Agreement on Tariffs and Trade (GATT 1994) provides that ``[n]o
product . . . shall be subject to both antidumping and countervailing
duties to compensate for the same situation of dumping or export
subsidization.'' This provision is implemented by section 772(c)(1)(C)
of the Act. Since antidumping duties cannot be assessed on the portion
of the margin attributed to export subsidies, there is no reason to
require a cash deposit or bond for that amount. The Department has
determined, in its Final Affirmative Countervailing Duty Determination:
Certain Stainless Steel Wire Rod from Italy, that the product under
investigation benefitted from export subsidies. Normally, where the
product under investigation is also subject to a concurrent
countervailing duty (CVD) investigation, we instruct the Customs
Service to require a cash deposit or posting of a bond equal to the
weighted-average amount by which the NV exceeds the EP, as shown below,
minus the amount determined to constitute an export subsidy. (See
Antidumping Order and Amendment of Final Determination of Sales at Less
Than Fair Value: Extruded Rubber Thread from Malaysia, 57 FR 46150
(Oct. 7, 1992).) For CAS, we are subtracting for cash deposit purposes,
the cash deposit rate attributable to the export subsidies found in the
CVD investigation for that company (i.e., 0.01 percent). The ``All
Others'' deposit rate is also based on subtracting the rate
attributable to the export subsidies found in the CVD investigation for
CAS.
These suspension of liquidation instructions will remain in effect
until further notice. The weighted-average dumping margins are as
follows:
------------------------------------------------------------------------
Weighted-
average Bonding
Exporter/Manufacturer margin percentage
percentage
------------------------------------------------------------------------
Acciaierie Valbruna/Acciaierie di
Bolzano SpA............................ 1.27 N/A
Cogne Acciai Speciali S.r.l............. 12.73 12.72
All Others.............................. 12.73 12.72
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded all zero and de minimis weighted-average dumping margins from
the calculation of the ``All Others'' rate.
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (ITC) of our determination. As our final
determination is affirmative, the ITC will, within 45 days, determine
whether these imports are materially injuring, or threaten material
injury to, the U.S. industry. If the ITC determines that material
injury, or threat of material injury does not exist, the proceeding
will be terminated and all securities posted will be refunded or
canceled. If the ITC determines that such injury does exist, the
Department will issue an antidumping duty order 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 published pursuant to section 735(d) of the
Act.
Dated: July 20, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-20018 Filed 7-28-98; 8:45 am]
BILLING CODE 3510-DS-P
