[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40449-40461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20021]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-401-806]
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Wire Rod From Sweden
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 29, 1998.
FOR FURTHER INFORMATION CONTACT: Everett Kelly or Brian Smith, Import
Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230; telephone: (202) 482-4194 or (202) 482-1766, 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's
regulations 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 Sweden
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.
Case History
Since the preliminary determination (i.e., Notice of Preliminary
Determination of Sales at Less Than Fair Value: Stainless Steel Wire
from Sweden, 63 FR 10841 (March 5, 1998)), the following events have
occurred:
In February 1998, we requested additional information from Fagersta
Stainless AB (``Fagersta'') concerning grade specifications and
corresponding matching control numbers. In March 1998, we received
responses to these questionnaires, as well as supplemental responses to
Sections D and E of the Department's antidumping questionnaire. Also,
Fagersta submitted revised sales and cost databases.
From March to May 1998, we conducted verification of Fagersta's
responses to the antidumping questionnaire. In May 1998, we issued our
verification reports for Fagersta, Fagersta's home market affiliates AB
Sandvik Steel (``Sandvik'') and Avesta Welding, and Fagersta's U.S.
affiliates Sandvik Steel Company (``SSUS''), Avesta Sheffield Inc.
(``ASI''), Amstek Metal (``Amstek'') and the Kanthal Corporation.
Also in May 1998, AL Tech Specialty Steel Corp., Carpenter
Technology Corp., Republic Engineered Steels, Talley Metals Technology,
Inc., and United Steelworkers of America (``the petitioners'') withdrew
their request for a hearing. The petitioners and Fagersta submitted
case briefs on June 2, 1998, and rebuttal briefs on June 9, 1998. On
June 12 and 15, 1998, we held separate meetings with Fagersta and the
petitioners, respectively, concerning the level of trade issue raised
in their case briefs and rebuttal briefs.
On June 23, 1998, Fagersta requested that certain alloy metal wire
rod and wire for electric resistance heating material and heating
elements be excluded from the scope of the investigation. On July 6,
1998, the petitioners stated that they agreed that the scope of this
investigation should exclude the products in question. On July 8, 10
and 14, Fagersta provided detailed scope descriptions and
clarifications for the products it requested be excluded from the scope
of this investigation (see ``Scope of Investigation'' section of this
notice for further details).
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 in diameter.
Certain stainless steel grades are excluded from the scope of the
investigation. SF20T and K-M35FL are excluded. The following
proprietary grades of Kanthal AB are also excluded: Kanthal A-1,
Kanthal AF, Kanthal A, Kanthal D, Kanthal DT, Alkrothal 14, Alkrothal
720, and Nikrothal 40. 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.
Molybdenum................................ 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.
------------------------------------------------------------------------
Kanthal A-1
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.08 max.
Silicon................................... 0.70 max.
Manganese................................. 0.40 max.
Chromium.................................. 20.50 min, 23.50 max.
Aluminum.................................. 5.30 min, 6.30 max.
Iron...................................... Balance.
------------------------------------------------------------------------
Kanthal AF
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.08 max.
Silicon................................... 0.70 max.
[[Page 40450]]
Manganese................................. 0.40 max.
Chromium.................................. 20.50 min, 23.50 max.
Aluminum.................................. 4.80 min, 5.80 max.
Iron...................................... Balance.
------------------------------------------------------------------------
Kanthal A
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.08 max.
Silicon................................... 0.70 max.
Manganese................................. 0.50 max.
Chromium.................................. 20.50 min, 23.50 max.
Aluminum.................................. 4.80 min, 5.80 max.
Iron...................................... Balance.
------------------------------------------------------------------------
Kanthal D
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.08 max.
Silicon................................... 0.70 max.
Manganese................................. 0.50 max.
Chromium.................................. 20.50 min, 23.50 max.
Aluminum.................................. 4.30 min, 5.30 max.
Iron...................................... Balance.
------------------------------------------------------------------------
Kanthal DT
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.08 max.
Silicon................................... 0.70 max.
Manganese................................. 0.50 max.
Chromium.................................. 20.50 min, 23.50 max.
Aluminum.................................. 4.60 min, 5.60 max.
Iron...................................... Balance.
------------------------------------------------------------------------
Alkrothal 14
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.08 max.
Silicon................................... 0.70 max.
Manganese................................. 0.50 max.
Chromium.................................. 14.00 min, 16.00 max.
Aluminum.................................. 3.80 min, 4.80 max.
Iron...................................... Balance.
------------------------------------------------------------------------
Alkrothal 720
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.08 max.
Silicon................................... 0.70 max.
Manganese................................. 0.70 max.
Chromium.................................. 12.00 min, 14.00 max.
Aluminum.................................. 3.50 min, 4.50 max.
Iron...................................... Balance.
------------------------------------------------------------------------
Nikrothal 40
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.10 max.
Silicon................................... 1.60 min, 2.50 max.
Manganese................................. 1.00 max.
Chromium.................................. 18.00 min, 21.00 max.
Nickel.................................... 34.00 min, 37.00 max.
Iron...................................... Balance.
------------------------------------------------------------------------
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 (``POI'')
The POI is July 1, 1996, through June 30, 1997.
Fair Value Comparisons
To determine whether sales of SSWR from Sweden to the United States
were made at less than fair value, we compared the export price
(``EP'') or constructed export price (``CEP'') to the Normal Value
(``NV''), as described in the ``Export Price and Constructed Export
Price'' and ``Normal Value'' sections of this notice, below. In
accordance with section 777A(d)(1)(A)(i) of the Act, we calculated
weighted-average EPs and CEPs for comparison to weighted-average NVs.
On January 8, 1998, the Court of Appeals for the Federal Circuit
issued a decision in CEMEX v. United States, 133 F.3d 897 (Fed. Cir.
1998). 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, and information
submitted in Fagersta's response to the Department's February 26, 1998,
supplemental questionnaire. We have implemented the Court's decision in
this case, to the extent that the data on the record permitted.
In instances where Fagersta 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 Fagersta for purposes of our analysis. However, in
instances where the chemical content ranges of reported non-AISI (or an
internal grade code) grades are outside the parameters of an AISI
grade, we used the grade code reported by the respondents for analysis
purposes (see Comment 6). We made changes to our concordance program
from the preliminary determination which incorporated corrections
submitted to the Department in Fagersta's March 16, 1998, submission
with respect to Fagersta's three most similar grade comparisons (see
Calculation Memorandum for the Final Determination for Fagersta
Stainless AB dated July 20, 1998 (``Final Calculation Memorandum'')).
With respect to home market sales of non-prime merchandise made by
Fagersta during the POI, we have continued to exclude these sales from
our final analysis based on the limited quantity of such sales in the
home market and the fact that no such sales were made to the United
States during the POI, in accordance with our past practice (see Final
Determinations of Sales at Less Than Fair Value: Certain Hot-Rolled
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat
[[Page 40451]]
Products, Certain Corrosion-Resistant Carbon Steel Flat Products, and
Certain Cut-to-Length Carbon Steel Plate from Korea, 58 FR 37176, 37180
(July 9, 1993)).
Level of Trade
As discussed in the preliminary determination, Fagersta claimed a
level of trade (``LOT'') adjustment on the basis that it offers
significantly different services to its affiliated customers in the
home market, in comparison to its services to unaffiliated customers in
the United States, and charges its affiliated customers higher prices
as a result. In our preliminary determination, we determined Fagersta's
U.S. sales and home market sales to be at the same LOT and no LOT
adjustment under section 773(a)(7)(A) of the Act was consequently
warranted.
For the final determination, we have collapsed Fagersta and
Sandvik. Therefore, we have not used Fagersta's home market sales to
Sandvik in our analysis (see Comment 1 for further discussion). With
regard to Fagersta's home market sales to Sandvik's wholly-owned
affiliate Gusab Stainless AB (``Gusab'') and Fagersta's home market
sales to its affiliate Avesta Welding, we have continued to treat these
Fagersta home market sales as being at the same LOT as its U.S. sales
(see Comment 3).
Export Price and Constructed Export Price
As discussed in the preliminary determination of this proceeding,
Fagersta reported as EP transactions its sales of subject merchandise
sold to unaffiliated U.S. customers prior to importation through two
affiliated companies in the United States--ASI and SSUS. Fagersta
reported as CEP transactions its sales of subject merchandise sold to
SSUS for its own account and sales made by Amstek, the product of which
was sourced from SSUS. SSUS and Amstek either resold the subject
merchandise to unaffiliated customers or SSUS further manufactured the
wire rod into wire products which are outside the scope of this
investigation.
During verification, we reviewed the selling activities of
Fagersta's U.S. affiliates. In particular, we paid close attention to
ASI's and SSUS' inventory records and freight and U.S. customs
documentation, as well as correspondence documentation between Fagersta
and its U.S. affiliates. Based on our verification findings, we find
that EP is appropriate for all of Fagersta's sales to the United States
through ASI and for specific Fagersta sales through SSUS reported as EP
sales transactions (see pages 15 and 17 of the May 11, 1998, Sales
Verification Report of Fagersta Stainless AB, page 12 of the May 20,
1998, SSUS Verification Report, and pages 8 and 9 of the May 22, 1998,
ASI Verification Report). With respect to the EP sales mentioned above,
we find that the customary commercial channel between Fagersta and its
unaffiliated customers is for Fagersta to ship the merchandise directly
to the unaffiliated U.S. customers without having the merchandise enter
into the physical inventory of the U.S. affiliates. We also find that
the U.S. affiliates' activities are limited to that of a ``processor of
sales-related documentation'' and a ``communication link'' with the
unaffiliated U.S. buyers. Accordingly, for purposes of the final
determination, we treated certain SSUS sales and all of ASI's U.S.
sales as EP transactions (see Comment 4 for a further discussion of
SSUS' EP sales).
We calculated EP and CEP, as appropriate, in accordance with
sections 772 (a), (b), (c), and (d) of the Act. For those CEP sales
that were further manufactured from subject merchandise, we deducted
the costs of further manufacturing to determine CEP for such
merchandise, in accordance with section 772(d)(2) of the Act. We
calculated EP and CEP based on the same methodology used in the
preliminary determination, with the following exceptions: (1) we used
the March 16, 1998, U.S. and home market sales listings; (2) we
adjusted the U.S. inventory carrying costs and indirect selling
expenses based on our verification findings in Sweden; and (3) we
corrected a ministerial error in our margin program where we had
overwritten the sales quantity for the first record of each sale type
and control number combination (see Comment 10).
In addition, we made the following company-specific adjustments to
Fagersta's U.S. affiliates' reported data:
A. Amstek
Based on verification findings, we adjusted the direct selling
expenses and warranty expenses pertaining to Amstek's sales data, and
we deleted an invoice from Amstek's sales listing (see Comments 5 and 8
for further discussion).
B. SSUS
We corrected the reported amounts for discounts, freight, U.S.
duty, U.S. brokerage and handling, credit expenses, inventory carrying
costs and warranty expenses based on our verification findings (see
Comment 8 for further discussion). We calculated international freight
for SSUS' EP sales transactions based on transaction-specific expense
data examined at verification (see Comment 9 for further discussion).
We corrected for invoice-specific errors with respect to alloy
surcharges, sale dates, invoice dates, discounts, duty and brokerage
fees, and inland freight warehouse transfer expenses (see Final
Calculation Memorandum for further discussion).
C. ASI
We corrected ASI's reported direct selling expenses based on our
verification findings. We also corrected invoice-specific information
in ASI's sales listing with respect to quantities, U.S. brokerage fees,
international freight expenses, and inland freight expenses (see Final
Calculation Memorandum).
Normal Value
After testing (1) home market viability; (2) whether sales to
affiliates were at arm's-length prices; and (3) whether home market
sales were at below-cost prices, we calculated NV as noted in the
``Price to Price Comparisons'' and ``Price to CV Comparisons'' sections
of this notice (see ``Affiliated-Party Transactions and Arm's Length
Test'' section below and Comment 2 for further discussion).
1. Home Market Viability
In order to determine whether there is a sufficient volume of sales
in the home market to serve as a viable basis for calculating NV (i.e.,
the aggregate volume of home market sales of the foreign like product
is equal to or greater than five percent of the aggregate volume of
U.S. sales), we compared the respondent's volume of home market sales
of the foreign like product to the volume of U.S. sales of the subject
merchandise, in accordance with section 773(a)(1)(B) of the Act.
Because the respondent's aggregate volume of home market sales of the
foreign like product was greater than five percent of its aggregate
volume of U.S. sales for the subject merchandise, we determined that
the home market was viable for the respondent.
2. Affiliated-Party Transactions and Arm's-Length Test
We have not used Fagersta's home market sales to Sandvik in our
analysis, because we find that Fagersta and Sandvik meet the criteria
for collapsing affiliated companies (see Comment 1 for further
discussion). With respect to Fagersta's home market sales to Avesta
Sheffield's (``Avesta'') affiliate and Gusab (a wholly-owned affiliate
of Sandvik), we do not find that Fagersta and Avesta or Gusab meet the
criteria
[[Page 40452]]
for collapsing affiliated companies. Therefore, we have applied the
arm's-length test to these sales by comparing them to sales of
identical merchandise from Fagersta to its unaffiliated home market
customers. If these affiliated party sales satisfied the arm's-length
test, we used them in our analysis (see Comments 1 and 2 for further
discussion).
3. Cost of Production Analysis
As discussed in the preliminary determination, we conducted an
investigation to determine whether Fagersta made sales of the foreign
like product in the home market during the POI at prices below their
cost of production (``COP'') within the meaning of section 773(b)(1) of
the Act. We calculated COP based on the same methodology used in the
preliminary determination on a model-specific basis, except where we
modified the margin calculation program to correct for certain
adjustments and updated cost data based on verification findings (see
Final Calculation Memorandum).
For COP, we used Fagersta's revised SSWR COP data (utilizing the
cost file based on billet COP incurred by its affiliated suppliers,
Sandvik Steel and Avesta Sheffield, rather than the cost file based on
billet transfer price) and SSUS's revised further manufacturing COP
data, as submitted to the Department on March 16, and April 29, 1998,
respectively. Based on our verification findings, we made the following
adjustments to Fagersta's COP (see Final Calculation Memorandum):
1. We recalculated Sandvik Steel's selling, general, and
administrative (``SG&A'') expense rate using company-wide expenses and
cost of sales (``COS'') figures reported in Sandvik Steel's 1996
financial statements (see Comment 13 for a detailed discussion of
adjustments).
2. We adjusted the G&A expense rate for Avesta Sheffield based on
the company-wide expenses and COS figures reported in Avesta
Sheffield's audited 1996 financial statements.
3. We adjusted Fagersta's G&A expense rate to correct an error in
the company's computation.
4. We adjusted Fagersta's submitted actual variable overhead and
fixed overhead to reflect the difference between the packing materials
costs deducted in Fagersta's computation of its fabrication cost
variance rate, and the packing materials costs submitted by the company
during the Department's sales verification.
5. We adjusted SSUS's further manufacturing materials cost to
reflect the unreconciled difference between the submitted materials
cost and the materials cost reported in SSUS's normal accounting
records.
6. We adjusted Fagersta's reported materials costs for SSWR such
that the value of billets purchased from one of the company's
affiliated suppliers, Avesta Sheffield, reflected the transfer price of
the major input.
Pursuant to section 773(b)(2)(C), where less than 20 percent of the
respondent's sales of a given product were made at prices below 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 the respondent's sales of a
given product were made at prices below the COP, we disregarded the
below-cost sales because such sales were found to be made within an
extended period of time in ``substantial quantities'' in accordance
with sections 773(b)(2)(B) and (C) of the Act, and because the below
cost sales of the product were at prices which would not permit
recovery of all costs within a reasonable period of time, in accordance
with section 773(b)(2)(D) of the Act. Where all contemporaneous sales
of a specific product were made at prices below the COP, we calculated
NV based on CV, in accordance with section 773(a)(4) and (e) of the
Act.
We found that, for certain grades of SSWR, more than 20 percent of
Fagersta'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
excluded these sales and used the remaining above-cost sales as the
basis for determining NV if such sales existed, in accordance with
section 773(b)(1). For those U.S. sales of SSWR for which there were no
comparable (above-cost) home market sales in the ordinary course of
trade, we compared export prices or constructed export prices to CV in
accordance with section 773(a)(4) of the Act.
D. Calculation of CV
In accordance with section 773(e)(1) of the Act, we calculated CV
based on the sum of Fagersta's cost of materials, fabrication, SG&A,
interest, and U.S. packing costs. Where appropriate, we calculated CV
based on the methodology described above in the calculation of COP and
added an amount for profit. In accordance with sections 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. For selling expenses, we used the weighted-average
home market selling expenses.
Price-to-Price Comparisons
For price-to-price comparisons, we calculated NV based on the same
methodology used in the preliminary determination, with the following
exceptions: based on verification, we corrected Fagersta's home market
warranty expenses, inventory carrying costs, credit expenses and
indirect selling expenses (see Final Calculation Memorandum for further
discussion).
Price-to-CV Comparisons
For price-to-CV comparisons, we made adjustments to CV in
accordance with section 773(a)(8) of the Act. Where we compared CV to
EP, we made a circumstance-of-sale adjustment by deducting from CV the
weighted-average home market direct selling expenses and adding the
weighted-average U.S. product-specific direct selling expenses in
accordance with section 773(a)(6)(C)(iii) of the Act and 19 C.F.R.
351.410. Where we compared CV to CEP, we deducted from CV the weighted-
average home market direct selling expenses.
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.
Verification
As provided in section 782(i) of the Act, we verified the
information submitted by the respondent for use in our final
determination. We used standard verification procedures, including
examination of relevant accounting and production records and original
source documents provided by the respondent.
Interested Party Comments
Sales Issues
Comment 1: Collapsing Fagersta, Sandvik and Kanthal AB.
Fagersta contends that the Sandvik Group (which includes Kanthal AB
(``Kanthal''), Gusab, and AB Sandvik Steel (``Sandvik'')) fulfills the
Department's collapsing test based on 19 C.F.R. 351.401(f). Fagersta
states that it is affiliated with its billet producer and supplier,
Sandvik, because Sandvik owns 50 percent of Fagersta. Fagersta also
claims that Sandvik is a producer of similar or identical products and,
as
[[Page 40453]]
such, would not require substantial retooling in order to restructure
manufacturing priorities. Respondent makes this claim based on the fact
that Sandvik is a 100 percent owner of Kanthal, a subsidiary which has
a tolling arrangement with Sandvik to process billets produced and
supplied by Sandvik into the subject merchandise. Fagersta also states
that, while Sandvik used the majority of the subject merchandise it
purchased from Fagersta during the POI for internal consumption,
Sandvik did export a small quantity of the subject merchandise during
the POI (as reported to the Department), and has the capacity to
continue exporting subject merchandise to the U.S. market in the future
without substantial retooling. Fagersta states that Kanthal also sold
the subject merchandise in the U.S. market during the POI. Finally,
Fagersta states that there are interlocking directors between it and
Sandvik which further contribute to the significant potential for the
manipulation of price or production.
Fagersta contends that, because it and Sandvik should be collapsed,
the major input rule would not apply in this case. Consequently, the
Department should disregard the billet transfer prices between Sandvik
and Fagersta and compute COP and CV based on Sandvik's billet
production costs. In support of its position, Fagersta cites to Final
Results of Antidumping Duty Administrative Review: Certain Cold-Rolled
and Corrosion-Resistant Carbon Steel Flat Products from Korea, 62 FR
18404 (April 15, 1997); Final Determination of Sales at Less Than Fair
Value: Collated Roofing Nails from Taiwan, 62 FR 51427, 51436 (October
1, 1997) (Nails from Taiwan); Preliminary Results of Antidumping Duty
Changed Circumstances Review: Certain Fresh Cut Flowers from Colombia,
63 FR 25447, 25448 (May 8, 1998) (Flowers from Colombia); and Final
Results of Antidumping Duty Administrative Review: Polyvinyl Alcohol
from Taiwan, 63 FR 32810 (June 16, 1998) (PVA from Taiwan).
The petitioners point to the same determinations in support of
their contention that the Department should not collapse Fagersta and
Sandvik because Fagersta has not demonstrated that Sandvik (the billet
producer) has equipment within its facilities that could transform the
billets into the subject merchandise, precisely as Fagersta does in its
facilities without substantial retooling to restructure manufacturing
priorities. Specifically, the petitioners maintain that Sandvik must
enter into a tolling arrangement with an off-site company because it
does not have the on-site capability to produce the subject
merchandise. Consequently, the petitioners argue that the Department
must find that Sandvik's facilities would have to be substantially
retooled to restructure manufacturing priorities for subject
merchandise. The petitioners further maintain that previous Department
collapsing determinations indicate that the Department examines the
facilities of the company it is considering collapsing, not the
facilities of a separate company involved in a contractual tolling
arrangement. In addition, the petitioners contend that there is no
evidence on the record of this case which demonstrates that Sandvik and
Fagersta are divisions of the same company. Moreover, the petitioners
contend that Fagersta has failed to establish that its transactions
with Sandvik are part of an integrated system directed solely at
Sandvik's discretion. Finally, the petitioners contend that Fagersta
has failed to provide evidence which demonstrates the extent to which
managerial employees or board members of Sandvik sit on the board of
directors of Fagersta or whether their business operations are
intertwined, such as through shared sales information, involvement in
production and pricing decisions, the sharing of facilities or
employees, or significant transactions between the two entities. The
petitioners also cite to Final Results of Antidumping Duty
Administrative Review: Certain Forged Steel Crankshafts from the United
Kingdom, 61 FR 54613, 54614 (October 21, 1996) (Crankshafts from the
U.K.) in support of their argument.
DOC Position
We agree with Fagersta that Fagersta, Sandvik and Kanthal should be
collapsed.
However, for the reasons explained below, we disagree that Fagersta
and Avesta should be collapsed or that Fagersta and Gusab should be
collapsed. For the preliminary determination, the Department did not
collapse Fagersta, Sandvik, Kanthal, Avesta and Gusab. However, since
the preliminary determination, we have reexamined the collapsing issue,
taking into account the arguments advanced by the parties, as well as
our own analysis and verification findings, with respect to the
information on the record that is relevant to this issue. As a result
of our reexamination, we now agree with Fagersta that Fagersta and its
affiliates Sandvik and Kanthal should be collapsed. However, as we also
explain, we disagree that Fagersta and its other affiliates, Avesta and
Gusab, should be collapsed, as they do not meet the criteria for
collapsing.
Pursuant to 19 C.F.R. 351.401(f), the Department will collapse
producers and treat them as a single entity where (1) those producers
are affiliated, (2) the producers have production facilities for
producing similar or identical products that would not require
substantial retooling of either facility in order to restructure
manufacturing priorities, and (3) there is a significant potential for
manipulation of price or production. In determining whether a
significant potential for manipulation exists, the Department will
consider (1) the level of common ownership, (2) the extent to which
managerial employees or board members of one firm sit on the board of
directors of an affiliated firm, and (3) whether the operations of the
affiliated firms are intertwined. (See Gray Portland Cement and Clinker
From Mexico: Final Results of Antidumping Duty Administrative Review,
63 FR 12764, 12774 (March 16, 1998) and Nails From Taiwan, 62 FR at
51436.) Based on a totality of the circumstances, the Department will
collapse affiliated producers and treat them as a single entity where
the criteria of 19 C.F.R. 351.401(f) are met.
We find that Fagersta, Sandvik and Kanthal satisfy the first
criterion in that they are affiliated with each other. Under section
771(33)(E) of the Act, persons are deemed to be affiliated where any
person directly or indirectly owns, controls, or holds with power to
vote, five percent or more of the outstanding voting stock or shares of
any organization and such organization. In this instance, Sandvik and
Avesta are 50 percent owners of the joint venture respondent, Fagersta,
which makes them both affiliates of Fagersta. In addition, Kanthal is a
wholly-owned affiliate of Sandvik. See also 19 C.F.R. 351.102. Fagersta
and Kanthal are also affiliated based on section 771(33)(F) of the Act,
which provides that persons directly or indirectly under common control
of any person are affiliates. In this case, Sandvik owns 50 percent of
Fagersta and 100 percent of Kanthal so that these two entities would be
under the common control of Sandvik.
Second, pursuant to 19 C.F.R. 351.401(h), we find that Sandvik is
also a producer of the subject merchandise through its tolling
arrangement with its wholly-owned subsidiary, Kanthal. Sandvik produces
billets which are processed into SSWR by Kanthal for Sandvik.
Under this tolling arrangement, Sandvik retains title to the
billets at all times and simply pays Kanthal a processing fee. Even
though Kanthal
[[Page 40454]]
may not be located on the same premises as Sandvik, this fact, contrary
to the petitioners' contentions, does not make Sandvik any less a
producer of the subject merchandise than if the subject merchandise
were produced on its premises (see PVA from Taiwan, 63 FR 32810, 32813
(June 16, 1998); Notice of Final Determination of Sales at Less Than
Fair Value: Static Random Access Memory Semiconductors From Taiwan, 63
FR 8909, 8916 (February 23, 1998)). Thus, Sandvik is in fact a producer
of merchandise that is identical or similar to that produced by
Fagersta, and no retooling is required. In addition, we find that
Kanthal is a producer of the subject merchandise in its own right and
has the equipment in its facilities to produce subject merchandise that
is identical or similar to that produced by Fagersta. Accordingly, we
find the second collapsing criterion to have been met in that Sandvik,
Kanthal and Fagersta are affiliated parties, each of which is a
producer of identical or similar subject merchandise.
Finally, we also find that the operations of Sandvik, Fagersta and
Kanthal are so intertwined that there exists a significant potential
for manipulation of price or production if these affiliated producers
were not collapsed. See 19 C.F.R. 351.401(f)(2). In particular, the
level of common ownership is substantial as Sandvik owns 50 percent of
Fagersta and 100 percent of Kanthal. Additionally, 50 percent of the
management positions on Fagersta's board of directors are occupied by
Sandvik officials (see Exhibit 4 of the Fagersta Sales Verification
Report of Fagersta Stainless AB and Exhibit A-2 of May 19, 1998, Cost
Verification Report of AB Sandvik Steel), and Fagersta is required to
purchase only from Sandvik the billets that it processes into SSWR for
sale to Sandvik. Further, Sandvik, Kanthal, and Fagersta also share
information concerning sales, production, and pricing (see page 13 of
volume 1A of Fagersta's February 2, 1998, supplemental questionnaire
response).
On the other hand, while we find that Fagersta is affiliated with
Avesta and Gusab for the same reasons that it is affiliated with
Sandvik, we find that neither Avesta nor Gusab is a producer of the
subject merchandise. In particular, no evidence has been placed on the
record indicating that either Avesta or Gusab produces the subject
merchandise at its own facility or could produce the merchandise
without substantially retooling their facilities, or that either may be
considered a producer by way of a tolling arrangement like Sandvik.
Therefore, despite their affiliation with Fagersta, we have not
collapsed either Avesta or Gusab with Fagersta under 19 C.F.R.
351.401(f).
In this instance, based on a totality of the circumstances,
Fagersta, Sandvik and Sandvik's wholly-owned subsidiary Kanthal meet
the criteria for purposes of being collapsed and treated as a single
entity. In this respect, it is not necessary, as the petitioners appear
to suggest in referring to Crankshafts from the United Kingdom, that
Fagersta and Sandvik be divisions of the same company for collapsing
purposes. Because we have collapsed Fagersta, Sandvik and Kanthal, we
find that the major input rule does not apply in this instance and have
used Sandvik's billet costs as the basis for COP. In the case of
Avesta, since we have not collapsed Fagersta and Avesta, we find that
the major input rule under section 773(f)(2) and (3) of the Act does
apply and have therefore used the higher of the transfer price or
billet cost (no information on the market value of billets was
available) as the basis for calculating COP and CV for the subject
merchandise.
Comment 2: Home Market Affiliated Sales Transactions.
Fagersta contends that, in this case, the Department's arms-length
test fails to capture the basic distinction between its market-price
SSWR sales to unaffiliated parties and affiliated parties because for
its affiliated sales, Fagersta negotiates the processing fee with its
affiliated parties (i.e., Sandvik Group) for converting Sandvik billet
into SSWR for delivery to Sandvik's wire mills. Therefore, Fagersta
maintains that this special arrangement within the Sandvik Group in the
home market, including Fagersta's role as strictly a processor of
billet into SSWR, should compel the Department to treat Fagersta's home
market affiliated sales as outside the ordinary course of trade.
Fagersta cites to the Final Results of Antidumping Duty Administrative
Review: Gray Portland Cement and Clinker from Mexico, 63 FR 12764,
12770 (March 16, 1998) and 19 C.F.R. 351.403(c) in support of its
argument. Alternatively, Fagersta argues that the Department should
adjust the prices of its home market affiliated party sales to reduce
the distortion created by Sandvik's presence at both the billet and
wire stage by making a level of trade adjustment or exclude these sales
from its analysis because the major input rule does not apply in this
case.
The petitioners contend that if Fagersta's home market affiliated
sales pass the Department's arm's-length test, the Department must use
these sales in the final determination because Fagersta has provided no
basis for excluding such sales. The petitioners maintain that the
Department should find Fagersta's arguments that it is a division of
the same company as its suppliers, or that it meets the criteria for
being collapsed with its suppliers, are completely unsupported by
evidence in the record of this case and should be rejected by the
Department.
DOC Position
We agree in part with Fagersta. We have not used Fagersta's home
market sales to Sandvik because we find that Fagersta and Sandvik meet
the criteria for collapsing affiliated producers (see Comment 1 above).
Therefore, we find that the arm's-length test does not apply with
respect to Fagersta's home market sales of subject merchandise made to
Sandvik. Regarding Fagersta's home market sales to Gusab and Avesta
Welding, we find that neither Fagersta and Avesta Welding nor Fagersta
and Gusab meet the criteria for collapsing affiliated companies (see
Comment 1 above). Moreover, we do not find that these sales were made
outside the ordinary course of trade. We find that Fagersta's sales to
its affiliated end users, Avesta Welding and Gusab, were similar in
nature to the home market sales made to its unaffiliated customers.
However, in attempting to apply the arm's-length test to the sales to
Avesta's affiliate, we find no sales of identical merchandise made to
Fagersta's unaffiliated home market customers to match. Moreover, we do
not find that Fagersta made any U.S. sales of merchandise that was
identical to the merchandise sold to Avesta's home market affiliate.
Therefore, we have not used these sales in our analysis (see Final
Determination of Sales at Less Than Fair Value: Certain Cold-Rolled
Carbon Steel Flat Products from Argentina, 58 FR 37062 (July 9, 1993)).
In applying the arm's-length test to Fagersta's sales to Gusab, we do
find sales of identical merchandise to match to sales Fagersta made to
unaffiliated customers. Therefore, we have used these sales in our
analysis if they passed the arm's-length test.
Comment 3: Level of Trade.
Fagersta claims that it has provided evidence that its sales within
the Sandvik Group occur at a different marketing stage, involving
substantially different selling functions, than its sales to
unaffiliated home market and U.S. customers. In addition, Fagersta
claims that it has demonstrated that it provides premium services
during the integrated sales and marketing process for affiliated
customers which its
[[Page 40455]]
unaffiliated home market and U.S. customers either do not receive, or
receive to a lesser extent. Therefore, Fagersta contends that because a
substantial difference in selling activities and price comparability
exists between the home market Sandvik Group transactions and
unaffiliated home market or U.S. sales, the Department must recognize
that there is a difference in marketing stages and grant it a LOT
adjustment. Fagersta cites to Final Results of Antidumping Duty
Administrative Review: Certain Stainless Wire Rods from France, 61 FR
47874, 47880 (September 11, 1996) (Wire Rods from France) in support of
its argument.
The petitioners contend that the Department should not grant
Fagersta a LOT adjustment or CEP offset because Fagersta has not
demonstrated in this case that its home market sales are at a different
LOT than its U.S. sales. Specifically, the petitioners state that
Fagersta has failed to demonstrate that its sales to unaffiliated and
affiliated customers in the home market were not made through the same
channel of distribution and to the same category of customer. With
regard to the premium services Fagersta claims it provides its
affiliated customers, the petitioners maintain that the documentation
on the record does not support a finding that substantive differences
exist between services provided for sales to affiliated and
unaffiliated customers. Moreover, the petitioners argue that Fagersta
has not demonstrated that the difference in selling functions and
activities between its affiliated home market customers and U.S.
customers establishes a difference in marketing stages. Therefore, the
petitioners maintain that Fagersta has not demonstrated that there is
difference in selling functions as a result of different selling
activities associated with home market and U.S. sales. Finally, the
petitioners contend that Fagersta has failed to correlate any LOT
difference with a pattern of consistent price differences between sales
at different LOT in the home market.
DOC Position
We agree with the petitioners. A LOT adjustment can increase or
decrease normal value (see Statement of Administrative Action
(``SAA''), H. Doc. No. 316, Vol. 1, 103d Cong., 2d Sess. 829 (1994)).
The SAA directs the Department to ``require evidence from the foreign
producers that the functions performed by the sellers at the same level
of trade in the U.S. and foreign markets are similar, and that
different selling activities are actually performed at the allegedly
different levels of trade.'' Id. See also Final Results of Antidumping
Duty Administrative Review: Certain Cold-Rolled Carbon Steel Flat
Products from the Netherlands, 63 FR 13204, 13206 (March 18, 1998).
Thus, to properly establish the LOT of the relevant sales, the
Department specifically requests LOT information in every antidumping
proceeding, regardless of whether a respondent sells solely to one
nominal customer category, such as end-users. Moreover, consistent with
that approach, we note that of necessity, the burden is on a respondent
to demonstrate that its categorizations of LOT are correct. The
respondent must do so by demonstrating that selling functions for sales
at allegedly the same level are substantially the same, and that
selling functions for sales at allegedly different LOTs are
substantially different.
As a matter of policy, the Department does not permit a respondent
to submit data selectively to support its own conclusions with regard
to LOT. Specifically, Fagersta stated in its questionnaire response
that its home market sales were made through one channel of
distribution to essentially one customer category (i.e., direct sales
from the mill to the end user).
Moreover, Fagersta's description in its response of its customer
categories and channel of distribution in the U.S. market for its EP
sales was almost identical to its description of those factors in the
home market (see pages A-14 and A-15 of the October 24, 1997, Fagersta
Questionnaire Response). Subsequently, Fagersta filed a supplemental
questionnaire response where it reversed its claim that there was no
basis for a LOT adjustment (see page nine of the February 2, 1998,
Supplemental Questionnaire Response). In its supplemental response,
Fagersta claimed that its home market sales to Gusab occur at a
different marketing stage than its home market sales to unaffiliated
customers. Specifically, Fagersta stated its sales to Gusab begin with
the acquisition of billet from Sandvik and Fagersta's SSWR price to
Gusab is pegged to Sandvik's billet price. For its sales to
unaffiliated customers, Fagersta stated that the sale begins with the
sale of rod by Fagersta without any reference or linkage to the price
of the billet and without any involvement by the billet supplier
(either Gusab's parent or Avesta Sheffield) in the transaction (see
verification exhibit 15J of the May 11, 1998, Fagersta Sales
Verification Report).
In addressing Fagersta's argument that the Department should take
into account the sale of billets from Sandvik to Fagersta as a distinct
marketing stage for purposes of a LOT adjustment for Fagersta's sales
of SSWR back to the affiliated Sandvik Group, we note that the statute
is only concerned with possible differences in the level of trade
between the NV and the EP or CEP of the subject merchandise. See
section 773(a)(7)(A) of the Act. Billets are raw material inputs used
in the production of the SSWR, the subject merchandise. Billets are not
included in the scope of subject merchandise and, therefore, are not
subject merchandise. Accordingly, the stage of the production process
where Sandvik sells billets to Fagersta for further processing into
SSWR is not relevant for purposes of determining whether sales of the
subject merchandise in the home market and U.S. market are at different
LOTs. Moreover, Fagersta has failed to show why the billet price
setting practice with Sandvik translates into different selling
functions with respect to Gusab and Fagersta's unaffiliated customers.
Notwithstanding Fagersta's LOT claims, it is the Department's
responsibility, not Fagersta's, to determine LOTs. If a respondent
claims that different LOTs exist, it has the burden of demonstrating
that. We make no presumption as to the number of LOTs in a market.
Rather, the respondent must provide information which satisfactorily
demonstrates what LOTs exist. In this case, Fagersta has failed to meet
its burden of proof of demonstrating that there are in fact two
separate LOTs.
To make a proper determination as to whether home market sales are
at a different LOT than U.S. sales, the Department examines whether the
home market sales are at different stages in the marketing process than
the U.S. sales. We review and compare the distribution systems in the
home market and U.S. export markets, including selling functions, class
of customer, and the extent and level of selling expenses for each
claimed LOT. An analysis of the chain of distribution and of selling
functions substantiates or invalidates claimed LOTs based on customer
classifications. Different LOTs necessarily involve differences in
selling functions of the subject merchandise, but differences in
selling functions, even substantial ones, are not alone sufficient to
establish a difference in the LOT. Different LOTs are characterized by
purchasers at different places in the chain of distribution and sellers
performing qualitatively or
[[Page 40456]]
quantitatively different functions in selling to them.
When we compare U.S. sales to home market sales at a different LOT,
we make a LOT adjustment if the difference in LOT affects price
comparability. We determine any effect on price comparability by
examining sales at different LOTs in a single market, the home market.
To quantify the price differences, we calculate the difference in the
average of the net prices of the same models sold at different LOTs. We
use the average difference in net prices to adjust the NV when it is
based on a LOT different from that of the export sale. If there is a
pattern of no price differences, then the difference in LOT does not
have a price effect, and no adjustment is necessary.
As stated above, the Department begins its LOT analysis with an
examination of the different distribution systems or channels of trade.
Normally, transactions at different LOTs occur at different points in
the distribution system, which are reflected in the commercial
designation of customer categories, such as end-user or distributor,
and selling functions that support such commercial designations. In
this case, Fagersta sold to end-users in both the U.S. and home
markets. It is undisputed that these transactions constitute sales
through the same channel of trade. This indicates that distinct LOTs do
not exist in this situation.
Further, an analysis of selling functions supports this conclusion.
We conducted a comprehensive examination of the available information
on selling functions provided by Fagersta in this case. The Department
requested information on selling functions in the original
questionnaire and supplemental questionnaire and examined the data with
respect to selected sales at verification.
With respect to Fagersta's home market sales to its affiliate
Sandvik, we find that Fagersta and Sandvik should be collapsed in this
case. Therefore, we find Fagersta's argument that a LOT adjustment with
respect to home market sales made to Sandvik is moot as we excluded
those sales from our analysis. With respect to Fagersta's home market
sales to its affiliates Gusab and Avesta Welding, based upon our
analysis of the information submitted on the record, we do not find
that the selling functions performed by Fagersta with respect to these
affiliated customers and its sales to unaffiliated home market
customers to be meaningfully different.
Specifically, Fagersta has repeatedly claimed that it provides
premium services to its affiliated customers, Gusab and Avesta Welding,
but not to its unaffiliated customers. However, we find that the vast
majority of the selling functions were identical. Thus, the critical
element in establishing different LOTs is the degree to which these
selling functions are performed with respect to the different
customers. In this instance, we do not find the evidence concerning the
alleged differences in the degree to which selling functions are
performed with respect to affiliated and unaffiliated customers
establishes different LOTs. Fagersta maintains that although it
provides technical cooperation and warranty services to both its
affiliated and unaffiliated customers, the services Fagersta provides
to its affiliated customers are more substantial in that it provides
only its affiliated customers with (1) mandatory reservation of
production capacity to ensure priority production and delivery; (2)
intensive technical cooperation; (3) access to proprietary information;
(4) networked data exchange; (5) specialized product applications; (6)
just-in-time delivery; and (7) billet rebates. Fagersta has attempted
to emphasize these alleged differences noted above by providing
documents from meetings Fagersta held with respect to affiliated and
unaffiliated customers (see verification exhibits 27A through 27D of
the Fagersta Sales Verification Report). However, in reviewing these
verification exhibits, we do not find that they establish that the
services and assistance provided to Fagersta's affiliated customers are
significantly different from the services and assistance provided to
Fagersta's unaffiliated U.S. customers. Specifically, the following
agenda items were discussed in both meetings for affiliated and
unaffiliated customers: product quality issues, production issues and
problems, production testing analysis, and customer disputes (see
exhibits 27A through 27D of the Fagersta Sales Verification Report).
With respect to the agenda items not mentioned in meetings held on
unaffiliated customers but mentioned in meetings held on affiliated
customers (i.e., employee exchange programs, joint marketing
discussions, coordination of billet production and delivery with rod
processing and delivery within the Sandvik Group), these agenda items
would necessarily be topics of discussion between affiliated producers
of the subject merchandise or between affiliated parties which used the
subject merchandise for their own accounts. Thus, we find that the
agenda items where Fagersta discussed its affiliated and unaffiliated
customers are similar for both customer categories (see exhibits 27A
through 27D of the Fagersta Sales Verification Report). Although the
minutes of meetings held for affiliated customers are more detailed
than the minutes of meetings held for unaffiliated customers, we find
that the agenda items discussed in meetings for both customer types
indicate a central focus on Fagersta ensuring the quality of the
merchandise and Fagersta's ability to deliver the product to the
customer's specifications. As such, we do not find that there is a
significant difference in the degree to which Fagersta performs selling
functions between its affiliated home market and unaffiliated U.S.
customers. Thus, we disagree with Fagersta that a distinct marketing
stage exists for its sales to affiliated home market customers, and
further find that there is no substantial difference in selling
functions between affiliated and unaffiliated customers in the home and
U.S. markets.
Section 773(a)(7)(B) of the Act states that a CEP ``offset'' may be
made when two conditions exist: (1) normal value is established at a
level of trade which constitutes a more advanced stage of distribution
than the level of trade of the CEP; and (2) the data available do not
provide an appropriate basis for a level of trade adjustment. In this
case, since we have found no difference in the LOT of the sales in
question, for the reasons noted above, we do not find that a CEP offset
adjustment is warranted.
Comment 4: SSUS' EP Transactions.
The petitioners argue that the Department must treat SSUS's EP
sales as CEP sales because the Department found at verification that
the reported EP sales were also warehoused at SSUS, and that the
verification report reflects that finding. Moreover, the petitioners
contend that because these sales were introduced into SSUS' physical
inventory, SSUS would have necessarily incurred inland freight charges
for these sales which makes SSUS more than a mere processor of sales
documentation. Based on the Department's criteria for classifying sales
as EP, the petitioners urge the Department to treat these EP sales as
CEP sales.
Fagersta maintains that the verification report is in error in that
SSUS' EP sales did not enter its physical inventory, although they did
enter its financial accounts since SSUS took title to the merchandise.
Moreover, Fagersta maintains that verification exhibits containing
bills of lading, freight bills, sales invoices and shipping orders for
the sales in question demonstrate that
[[Page 40457]]
these sales were shipped directly to the customer and did not enter
physical inventory in the United States. Therefore, since these sales
did not incur a warehouse expense, Fagersta argues that the Department
should continue to treat these sales as EP since they meet the criteria
for classifying sales as EP.
DOC Position:
We agree with Fagersta. For the EP sales in question, we find no
evidence that these sales entered into the physical inventory, as
opposed to the financial inventory, of SSUS, prior to sale. We find
that the freight and delivery documentation for selected EP sales
examined at verification indicates that the subject merchandise was
shipped directly from Sweden to the U.S. customer's requested delivery
location. The petitioners' contention that the Department's
verification report states that the EP sales transactions in question
entered the physical inventory of SSUS is incorrect. Based on the
examined freight and delivery documentation at verification, we
conclude that the inventory journal records both merchandise that was
physically located at SSUS' warehouse as well as merchandise which did
not enter SSUS' warehouse but to which SSUS had title. For the sales in
question, we also find, based on the information examined at
verification, that the sales followed customary commercial channels
between the parties involved and that the function of SSUS was limited
to that of a ``processor of sales-related documentation'' and a
``communication link'' with the unrelated customer (see Final
Determinations of Sales at Less Than Fair Value: Brake Drums and Brake
Rotors from the People's Republic of China, 62 FR 9160, 9171 (February
28, 1997)). Therefore, we treated the sales in question as EP sales.
Comment 5: Exclusion or Inclusion of Certain ASI Sales.
The petitioners contend that, based on verification, the Department
should remove three sales from the U.S. sales listing (i.e., ASI
invoice nos. 119548, 122141, and 124740) because these sales were
outside the POI. In addition, the petitioners contend that the
Department should include one sale, determined at verification to be
included both in the U.S. sales listing as well as the exclusion
worksheet, if that sale was inside the POI (i.e., ASI invoice number
115936).
Fagersta contends that for the three sales in question, although
the ASI invoice date was outside the POI, the Fagersta invoice date was
inside the POI. Therefore, Fagersta maintains that these three sales
were correctly included in its U.S. sales listing and that the
Department should use these sales in the final determination. For the
other sale in question, Fagersta contends that the sale consisted of
two shipments from it, one of which originated from a Fagersta invoice
with an invoice date prior to the POI. Therefore, Fagersta maintains
that it correctly included in the U.S. sales listing the ASI sale in
which the Fagersta invoice date was in the POI and correctly excluded
the ASI sale in which the Fagersta invoice date was prior to the POI.
Therefore, Fagersta argues that based on the verification findings, it
is unnecessary for the Department to make revisions to the U.S. sales
listing for these sales.
DOC Position
We disagree with the petitioners' argument to exclude the three
sales from Fagersta's U.S. sales listing. Fagersta reported its U.S.
sales transactions through its U.S. affiliate ASI as EP sales because
Fagersta determines the terms of sale (see pages 15 and 17 of the
Fagersta verification report and pages 8 and 9 of the ASI Verification
Report). For its reported EP sales transactions, Fagersta used as the
date of sale the date of its sales invoice to the U.S. unaffiliated
customer. The Fagersta invoice is also sent to ASI which also issues a
sales invoice to the U.S. unaffiliated customer with the same terms of
sale specified on the Fagersta sales invoice. However, in a few cases,
the ASI sales invoice included merchandise covered by more than one
Fagersta sales invoice. For the three sales mentioned by the
petitioners, the sales have an ASI invoice date outside the POI as
noted in the invoice issued by ASI. However, we determined that they
were properly included in the U.S. sales listing because they
correspond to Fagersta invoice dates, which are within the POI.
(Fagersta, which shipped the merchandise directly to the U.S. customer,
reported all of its sales to the Department based on whether its
invoice dates, not ASI's invoice dates, were within the POI). We did
not note any discrepancies or inconsistencies with Fagersta's sales
database as far as its quantity and value reconciliation (see Fagersta
Sales Verification Report at page 9). Furthermore, verification of the
ASI sales listing showed that these three sales observations were
manually added to the database in order to be reconciled with
Fagersta's reported quantity and value (see ASI Verification Report at
page 7).
We reviewed documentation concerning the other sale, which was
included both in ASI's sales listing and its exclusion worksheet (see
Exhibit 8 of the ASI Verification Report). At verification, we noted
that the sale in question was invoiced by ASI as one sale, but that it
actually consisted of merchandise covered by two Fagersta invoices. Of
these two Fagersta invoices, one has a date prior to the POI, and
therefore, was properly excluded by ASI from the U.S. sales listing.
The other Fagersta invoice has a date during the POI and, therefore,
was properly included by ASI in the U.S. sales listing (see ASI
Verification Report at page 7).
Comment 6: Model Matching.
The petitioners contend that the Department should not rely on
Fagersta's own internal grade designations for products that would
otherwise fit within a standard AISI grade simply because Fagersta has
added small amounts of chemicals that are not otherwise specified as
being included in the standard AISI grade designation. Therefore, the
petitioners urge the Department to ensure that all internal product
codes designated by Fagersta in its questionnaire responses correspond
to a standard AISI grade code for matching purposes. Otherwise, the
petitioners allege that the methodology of relying on internal grade
designations for products that are only sold in the home market
impermissibly allows Fagersta to exclude certain high-priced sales in
the home market from the model match process simply by giving these
internal grade designations a special model match code that would never
allow it to be compared to a U.S. sale with a different code. Finally,
the petitioners contend that Fagersta has incorrectly applied the model
matching methodology devised by the Department by classifying several
grades in two or more very similar AISI grades. For the final
determination, the petitioners request that the Department collapse all
AISI/AWS grades into their simplest three-digit configuration based on
the suggestions contained in their case brief.
Fagersta contends that it has grouped its internal grades into bona
fide AISI/AWS norms where possible, and reported proprietary internal
grades only where its internal grade did not fall within the chemical
specifications of any recognized AISI/AWS standard, in accordance with
the Department's instructions. Fagersta further contends that the
Department thoroughly tested the accuracy and consistency of its
internal grade to AISI/AWS assignment at verification and found no
discrepancies. Alternatively, Fagersta states that if the Department
were to accept the petitioners' proposed
[[Page 40458]]
alternative to collapse all AISI/AWS grades that begin with the same
three numbers for purposes of grouping its internal grades, the
Department would be departing from its own instructions. Moreover,
Fagersta maintains that the petitioners' application of their proposed
alternative contained in their case brief is inconsistent as it
pertains to grouping Fagersta's internal grades. Finally, Fagersta
states that although it does not object to collapsing all AISI/AWS
grades into their simplest three-digit configuration, it would object
if the Department does not undertake this collapsing across the board
to all AISI/AWS grades.
DOC Position
We agree with Fagersta. We examined at verification the method
Fagersta used to assign standard AISI/AWS grades to its internal grades
based on the chemical specifications of the internal grade. We find
that Fagersta consistently applied its grade assignment methodology in
accordance with the Department's instructions contained in our
questionnaire. Therefore, we do not agree with the petitioners that
Fagersta classified several grades in two or more very similar AISI
grades. Finally, we do not agree with the petitioners that we should
collapse all AISI/AWS grades into their simplest three-digit
configuration since this alternative would collapse unique AISI/AWS
grades which differ principally because of a slight, though not
insignificant, difference in certain chemicals which define the AISI/
AWS grade.
Comment 7: SSUS Interest Rate.
Fagersta contends that the Department incorrectly calculated the
short-term interest rate derived from verification exhibits and must
correct this typographical error if it intends to use the short-term
interest rate based on SSUS' POI short-term borrowings for purposes of
SSUS' credit expenses and inventory carrying costs.
The petitioners contend that the Department should only use an
interest rate which is based on short-term loans and should use the
interest rate as discussed in the verification report to calculate
credit expenses and inventory carrying costs.
DOC Position
We agree with Fagersta. Whenever possible the Department uses
short-term interest rates based on actual loan agreements (see Policy
Bulletin 98-2: Imputed Credit Expenses and Interest Rates (February 23.
1998)). SSUS's short-term loan agreements included in verification
exhibit 26 reflect the only short-term loans entered into during the
POI. Therefore, the Department calculated the short-term interest rate
based on actual SSUS POI short-term loan agreements contained in
verification exhibit 26 for purposes of determining SSUS credit
expenses and inventory carrying costs. Specifically, we used the
interest rate noted in Fagersta's post-verification May 28, 1998,
submission and not the interest rate noted in our verification report
which was in error (see Final Calculation Memorandum for further
details).
Comment 8: Corrections to Certain SSUS and Amstek Expenses and
Corrections to Dates of Sale for Certain SSUS Sales.
The petitioners contend that the Department should revise SSUS'
early payment discounts, duty and brokerage and handling expenses and
inland freight warehouse transfers for all sales and the dates of sale
for certain sales transactions based on the verification findings. In
addition, the petitioners contend that the Department should revise
Amstek warranty expenses based on the verification findings.
Fagersta states that the Department should correct for the clerical
errors identified by Fagersta or otherwise found by the Department
based on the verification findings.
DOC Position
For the reasons stated above, we agree with both parties and have
revised the above mentioned company-specific discounts and expenses
based on our verification findings for purposes of the final
determination.
Comment 9: SSUS' International Freight Expense.
The petitioners contend that Fagersta should have reported the
actual international freight expense incurred for certain transactions
rather than an average international freight expense. The petitioners
maintain that this error is so egregious that the Department should use
facts available to calculate this expense for those transactions
affected by the error. For facts available, the petitioners urge the
Department to use the highest calculated international freight expense
for all sales rather than their revised calculations.
Fagersta contends that the Department's verification demonstrated
that for the sales in question, it had incorrectly reported an average
freight expense when it should have reported the transaction-specific
expense for these sales based on its claim that these sales should be
treated as EP transactions instead of as CEP transactions. Fagersta
also contends that it provided the Department the transaction-specific
freight expenses for these sales at verification which were examined by
Department officials. Therefore, Fagersta maintains that the error in
question is minor in nature and that the Department should use the
transaction-specific expenses and not resort to adverse facts available
for its claimed EP sales transactions for purposes of the final
determination.
DOC Position
We agree with Fagersta. We examined the correct expense data for
the sales in question at verification. Since we have treated these
sales as EP transactions, we find that Fagersta erred in reporting an
average POI international freight expense for its EP sales transactions
when it should have reported the average expense for its CEP sales
transactions only. Therefore, we used the actual freight expenses for
the EP sales transactions, based on our verification findings.
Comment 10: Quantity Variable Used in Margin Program.
Fagersta claims that in its preliminary margin calculation program,
the Department overstated the total U.S. quantity and value figures by
using the same quantity variable to derive weighted-average U.S.
prices, selling expenses, packing expenses, commissions and exchange
rates as it did to determine the total U.S. sales quantity and U.S.
sales value for purposes of calculating the dumping margin. To correct
this error, Fagersta urges the Department to use the appropriate
variable to derive the U.S. sales quantity and value.
The petitioners did not comment on this issue.
DOC Position
We agree with Fagersta and made the appropriate change in the final
calculation margin program (see Final Calculation Memorandum).
Cost Issues
Comment 11: Calculation of CV Profit.
Fagersta claims that in the margin program for the preliminary
determination, the Department erred in its calculation of CV profit by
using an improper denominator. According to Fagersta, the Department
calculated the amount of CV profit by: (1) Calculating a profit rate by
dividing the total profit earned on home market sales by the company's
production costs inclusive of only manufacturing costs, G&A and
interest expenses, and (2) applying this profit rate to the sum of
manufacturing costs, selling, G&A and interest expenses to derive the
amount of profit. Thus, Fagersta contends that the profit
[[Page 40459]]
rate was not calculated and applied on a consistent basis, resulting in
an overstatement of the profit included in CV.
The petitioners argue that the methodology used by the Department
to calculate CV profit was proper and in accordance with its
established practice.
DOC Position
We disagree with Fagersta that we incorrectly calculated CV profit.
In our preliminary margin program, we calculated CV profit in the
following manner: (1) We calculated the total profit earned on home
market sales and divided the profit by total production costs,
inclusive of only manufacturing costs, G&A and interest expenses to
derive a profit rate; (2) we then multiplied the calculated profit rate
by the sum of manufacturing costs, G&A and interest expenses. Contrary
to the Fagersta's claim, we did not include selling expenses in our
calculation of CV profit. Thus, we calculated and applied the profit
rate on a consistent basis. Accordingly, we did not make any changes in
the final margin program with respect to calculation of CV profit.
Comment 12: Sandvik's Reported General Expenses.
The petitioners contend that in calculating the cost of the billets
that Fagersta purchased from its affiliated supplier, Sandvik Steel,
the Department should make the adjustments to Sandvik's submitted
general expenses that it identified in its verification report. That
is, according to petitioners, Sandvik's general expenses should be
derived on a company-wide basis using the company's 1996 audited
financial statement. Moreover, petitioners note that the Department
should adjust the component of the general expenses representing
Sandvik Holding Company's general and administrative (``G&A'') expense
to reflect costs that the Department found to be inappropriately
excluded from billet production costs.
Fagersta argues that the Department should accept the general
expenses reported in Sandvik's normal internal accounting system at the
product line level, rather than computing a company-wide rate.
Alternatively, Fagersta contends that if the Department uses a company-
wide rate, it must exclude research and development expenses and
selling expenses incurred by product lines that are unrelated to the
subject merchandise.
In addition, Fagersta disputes the petitioners' assertion that the
Department determined Sandvik Holding Company's G&A rate to be
incorrect. According to Fagersta, the Department simply noted that
insurance expenses paid to a subsidiary and a write-down of internal
receivables were both excluded from the G&A computation. Fagersta
argues that these items were properly excluded from Sandvik Holding's
G&A rate because both are inter-company expenses that are eliminated in
the consolidated financial statements of Sandvik AB.
DOC Position
We disagree with Fagersta's contention that the Department should
accept Sandvik's reported general expense rate computation. Our normal
methodology for allocating general expenses to individual products is
to calculate a rate by dividing the company's general expenses by its
total COS, as reported in the respondent's audited financial statements
(see the Department's standard Section D questionnaire at page D-17).
This method recognizes that general expenses are costs that relate to
the company's overall operations, rather than to the operations of a
division within the company or to a single product line (see Final
Determinations of Sales at Less Than Fair Value: Certain Hot-Rolled
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat
Products, and Certain Corrosion-Resistant Carbon Steel Flat Products
From Japan, 58 FR 37154, 37166 (July 9, 1993). The approach is intended
to recognize the general nature of these expenses and the fact that
many of these expenses are incurred in supporting a range of the
overall company's various operations. This approach is consistent with
Generally Accepted Accounting Principles (``GAAP'') treatment of such
costs as period expenses.
In its submission, Sandvik deviated from the Department's normal
methodology and calculated its general expenses using an internal
accounting methodology, under which the company charged some general
expenses directly to specific product lines, while allocating other
such expenses across product lines. When a respondent abandons a normal
Department methodology in favor of an alternative one, it is incumbent
upon the respondent to satisfy a higher threshold for proving the
reasonableness and accuracy of its chosen approach. In this case,
however, Sandvik did not provide any documentation or support for the
methodology underlying the allocation of its general expenses among
different divisions and product lines within the company. In addition,
Sandvik did not clearly differentiate between general expenses incurred
directly at a product-line level and those amounts incurred at the
higher, divisional and parent company levels. Although during
verification Sandvik Steel presented data showing that, for managerial
reporting purposes, the company followed the multi-tiered allocation of
general expenses reported for COP and CV, the company did not
demonstrate whether this system more accurately captured general
expenses of the subject merchandise than under the Department's normal,
company-wide calculation method. Specifically, Sandvik failed to
demonstrate that expenses it allocated to both subject and non-subject
merchandise were, indeed, the expenses incurred for those particular
products. Further, Sandvik presented no evidence as to the
reasonableness of its internal accounting system. In effect, at
verification, Sandvik documented how its general expenses were spread
throughout the company, but provided no documentation to support the
resulting accuracy or validity of such reporting. Because Sandvik
failed to adequately demonstrate that only those general expenses
(including R&D and selling expenses) that were completely unrelated to
subject merchandise were excluded from its submitted general expense
rate calculation, the Department recomputed Sandvik's general expense
rate on a company-wide basis, in accordance with its normal
methodology.
We further disagree with Fagersta's assertion that the insurance
expenses that Sandvik Holding Company paid to a subsidiary and the
write-down of internal receivables should be excluded from the
calculation of the Sandvik Holding Company component of Sandvik's
general expense rate. Fagersta's justification that both are internal
items that are eliminated in Sandvik AB's consolidation is irrelevant.
The Department does not compute general expenses at the consolidated
level. The fact that these expenses are related to transactions with
affiliated parties does not negate the fact that they are expenses
incurred by Sandvik Holding Company. Therefore, we computed the Sandvik
Holding Company component of Sandvik's general expense rate, inclusive
of the insurance expenses and the write-down of internal receivables.
Comment 13: Adjustments to Avesta Cost Data.
The petitioners contend that because the Department did not conduct
a full-scale verification of Avesta's COP data, it must make the same
adjustments to Avesta's SSWR billet COP data as it intends to make to
Sandvik's SSWR
[[Page 40460]]
billet COP data based on verification at Sandvik.
Fagersta argues that the Department should not make any adjustments
to Avesta's general expenses or manufacturing costs to correspond to
adjustments to Sandvik's reported SSWR billet production costs simply
because the Department did not conduct a complete cost verification of
Avesta. Fagersta maintains that Avesta reported its costs in accordance
with its books and records and that the Department did not note any
significant errors in Avesta's cost submission during verification.
DOC Position
We disagree with the petitioners' assertion that we must make the
same numerical adjustments to Avesta's SSWR billet COP data as we make
to Sandvik's SSWR billet COP data. We note, however, that we intend to
apply consistent methodologies to both companies. In this regard, the
only adjustment to Sandvik's SSWR billet COP made by the Department
relates to Sandvik's general expense rate. The Department tested
Avesta's submitted general expense rate during verification and
adjusted the rate to reflect Avesta's company-wide general expenses in
a manner consistent with our treatment of Sandvik's general expenses.
Comment 14: Standard Material Cost Discrepancy.
The petitioners state that Sandvik's reported billet costs
incorrectly reflect the company's 1995, rather than 1996, standard
costs. The petitioners contend that the Department should adjust
Sandvik's submitted SSWR billet COP to account for the difference
between 1995 and 1996 standard costs.
Fagersta claims that the Department did not identify any errors in
Sandvik's standard costs or actual manufacturing costs for producing
billets. Further, Fagersta claims the 1995 versus 1996 standard cost
discrepancy necessitates no adjustment to Fagersta's reported costs
because Fagersta reported its actual manufacturing costs in accordance
with its normal books and records. Fagersta asserts that such a
standard cost discrepancy adjustment would overstate costs by using
standards that are not reflected in the audited financial statements
and would ignore a corresponding offset for the increase in the
favorable material cost variance.
DOC Position
We disagree with the petitioners' assertion that the Department
should adjust Sandvik's submitted SSWR billet COP to account for the
difference between the 1995 and 1996 standard costs. At the
Department's request, Fagersta submitted its SSWR production costs
under two different scenarios, one based on the transfer price of
billets purchased from affiliated suppliers and the other based on the
cost of producing these billets. The issue addressed above by the
petitioners and the respondent, as raised in the Department's cost
verification report, regards the accuracy of the Fagersta SSWR product
specific material (billet) cost, based on billet transfer price.
Because it involves Fagersta's standard costs used in its normal
accounting system to record purchases of billets, it does not have an
impact on any margin calculations that are based on the billet
suppliers' cost of production. Rather, it only has an impact on
Fagersta's SSWR production costs based on the billet transfer price.
Additionally, because Fagersta's error was in failing to revise its
1995 standard costs to reflect its computed 1996 standard costs for
billets purchased from Sandvik, it should only have an impact on
Fagersta material costs for SSWR made with billets purchased from
Sandvik. Because the Department is collapsing Fagersta and Sandvik, the
major input rule should not be used to value the billets purchased from
Sandvik. Rather, Fagersta's usage of Sandvik sourced billets should be
based on Sandvik's billet COP. Therefore, there is no need to adjust
Fagersta's submitted costs based on billet transfer prices to reflect
the difference between the 1995 and 1996 standard cost of the billets
purchased from Sandvik.
Comment 15: Revisions to SSUS' G&A and Interest Expenses.
The petitioners contend that the Department should increase both
SSUS' reported G&A expense rate and financial expense rate applied in
determining further manufacturing costs, based on the errors presented
by SSUS officials at verification.
Fagersta contends that verification findings reflect a difference
in rounding methodology used by SSUS and by the Department. Therefore,
Fagersta maintains that the errors the petitioners propose be made have
so small an effect on the final margin that the Department need not
make any changes in this regard in its final determination.
DOC Position
We disagree with the petitioners' claim that we should increase
both SSUS's reported G&A expense rate and financial expense rate.
However, as we indicated at page 44 of our May 19, 1998, verification
report, Fagersta corrected the SSUS G&A rate in the revised further
manufacturing cost file submitted on April 29, 1998, and there is no
need to adjust the financial expense. The Department determined that
the Sandvik financial expense factor, rather than the SSUS factor,
should be applied to SSUS further manufacturing costs. The financial
expense requires no adjustment to reflect Sandvik's factor because it
would have no impact on the reported costs.
Continuation of Suspension of Liquidation
In accordance with section 733(d)(1) and 735(c)(4)(B) of the Act,
we are directing the Customs Service to continue to suspend liquidation
of all entries of subject merchandise from Sweden, that is entered, or
withdrawn from warehouse, for consumption on or after March 5, 1998
(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
------------------------------------------------------------------------
Fagersta Stainless AB...................................... 5.71
All Others................................................. 5.71
------------------------------------------------------------------------
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.
[[Page 40461]]
This determination is issued and published in accordance with
sections 735(d) and 777(i)(1) of the Act.
Dated: July 20, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-20021 Filed 7-28-98; 8:45 am]
BILLING CODE 3510-DS-D
