[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33539-33551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15616]



-----------------------------------------------------------------------
[A-357-810]


Final Determination of Sales at Less Than Fair Value: Oil Country 
Tubular Goods From Argentina

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

EFFECTIVE DATE: June 28, 1995.

FOR FURTHER INFORMATION CONTACT: John Beck or Jennifer Stagner, Office 
of Antidumping Investigations, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-
3646 or (202) 482-1673, respectively.

Final Determination

    The Department of Commerce (the Department) determines that oil 
country tubular goods (OCTG) from Argentina are being, or are likely to 
be, sold in the United States at less than fair value, as provided in 
section 735 of the Tariff Act of 1930, as amended (the Act). The 
estimated margins are shown in the Suspension of Liquidation section of 
this notice.

Case History

    Since the amended preliminary determination on March 6, 1995 (60 FR 
13119, March 10, 1995), the following events have occurred.
    In March and April 1995, the Department verified the cost and sales 
questionnaire responses of Siderca S.A.I.C. and Siderca Corp. 
(collectively Siderca). Verification reports were issued in May 1995. 
On May 10 and 17, 1995, the interested parties submitted case and 
rebuttal briefs, respectively. On May 18, 1995, a public hearing was 
held. On May 23, 1995, Siderca submitted a revised sales tape pursuant 
to the Department's request correcting for minor errors discovered at 
verification.

Scope of the Investigation

    For purposes of this investigation, OCTG are hollow steel products 
of circular cross-section, including oil well [[Page 33540]] casing, 
tubing, and drill pipe, of iron (other than cast iron) or steel (both 
carbon and alloy), whether seamless or welded, whether or not 
conforming to American Petroleum Institute (API) or non-API 
specifications, whether finished or unfinished (including green tubes 
and limited service OCTG products). This scope does not cover casing, 
tubing, or drill pipe containing 10.5 percent or more of chromium. The 
OCTG subject to this investigation are currently classified in the 
Harmonized Tariff Schedule of the United States (HTSUS) under item 
numbers: 7304.20.10.10, 7304.20.10.20, 7304.20.10.30, 7304.20.10.40, 
7304.20.10.50, 7304.20.10.60, 7304.20.10.80, 7304.20.20.10, 
7304.20.20.20, 7304.20.20.30, 7304.20.20.40, 7304.20.20.50, 
7304.20.20.60, 7304.20.20.80, 7304.20.30.10, 7304.20.30.20, 
7304.20.30.30, 7304.20.30.40, 7304.20.30.50, 7304.20.30.60, 
7304.20.30.80, 7304.20.40.10, 7304.20.40.20, 7304.20.40.30, 
7304.20.40.40, 7304.20.40.50, 7304.20.40.60, 7304.20.40.80, 
7304.20.50.15, 7304.20.50.30, 7304.20.50.45, 7304.20.50.60, 
7304.20.50.75, 7304.20.60.15, 7304.20.60.30, 7304.20.60.45, 
7304.20.60.60, 7304.20.60.75, 7304.20.70.00, 7304.20.80.30, 
7304.20.80.45, 7304.20.80.60, 7305.20.20.00, 7305.20.40.00, 
7305.20.60.00, 7305.20.80.00, 7306.20.10.30, 7306.20.10.90, 
7306.20.20.00, 7306.20.30.00, 7306.20.40.00, 7306.20.60.10, 
7306.20.60.50, 7306.20.80.10, and 7306.20.80.50.
    After the publication of the preliminary determination, we were 
informed by Customs that HTSUS item numbers 7304.20.10.00, 
7304.20.20.00, 7304.20.30.00, 7304.20.40.00, 7304.20.50.10, 
7304.20.50.50, 7304.20.60.10, 7304.20.60.50, and 7304.20.80.00 were no 
longer valid HTSUS item numbers. This was confirmed by examination both 
of the Customs module and the published 1995 HTSUS tariff schedule. 
Accordingly, these numbers have been deleted from the scope of this 
investigation.
    Although the HTSUS subheadings are provided for convenience and 
customs purposes, our written description of the scope of this 
investigation is dispositive.

Period of Investigation

    The period of investigation (POI) is January 1, 1994, through June 
30, 1994.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute and to the 
Department's regulations are in reference to the provisions as they 
existed on December 31, 1994.

Such or Similar Comparisons

    We have determined for purposes of the final determination that the 
OCTG covered by this investigation comprises a single category of 
``such or similar'' merchandise within the meaning of section 771(16) 
of the Act. Where there were no sales of identical merchandise in the 
third country 1 to compare to U.S. sales, we made similar 
merchandise comparisons on the basis of the product characteristics 
listed in Appendix V of the Department's antidumping questionnaire, as 
modified and discussed in the preliminary determination. In two 
instances, the revised product concordance submitted by Siderca did not 
follow exactly the product comparisons made in the preliminary 
determination. We have corrected the product concordance for these 
instances (see Comment 5 in the ``Interested Party Comments'' section 
of this notice).

    \1\ The home market in this case is not viable. Sales to the 
People's Republic of China (PRC) are being used as the basis for the 
FMV and COP analysis.
---------------------------------------------------------------------------

    We made adjustments, where appropriate, for differences in the 
physical characteristics of the merchandise, in accordance with section 
773(a)(4)(C) of the Act.

Fair Value Comparisons

    To determine whether Siderca's sales of OCTG from Argentina to the 
United States were made at less than fair value, we compared the United 
States price (USP) to the foreign market value (FMV), as specified in 
the ``United States Price'' and ``Foreign Market Value'' sections of 
this notice.

United States Price

    We calculated USP according to the methodology described in our 
preliminary determination, with the following exceptions:
    1. For the cost of production (COP) of the merchandise that was 
further manufactured in the United States, we included in the cost of 
manufacture (COM) the research and development (R&D) expense excluded 
by respondent and computed general and administrative (G&A) expense on 
an annual basis from Siderca's March 31, 1994, income statement.
    2. We applied the net financial expense of the consolidated parent 
to the further manufacturing costs of the related further manufacturer.
    3. We made deductions from gross unit price for movement variances 
that represent the difference between the accrual and actual movement 
costs.
    4. We recalculated inventory carrying cost to use the interest rate 
of the entity during the time period when that entity holds title to 
the goods. That is, we used the Argentine interest rate during the 
period from production to Siderca S.A.I.C.'s transfer of title to 
Siderca Corp. and the U.S. interest rate during the period the 
merchandise is held by Siderca Corp.
    In order to calculate credit expenses for certain sales which had 
either not yet been shipped or paid for, we followed the methodology 
used in our preliminary determination and assigned the average number 
of credit days when shipment and payment dates were missing, but now 
used the date of the final determination, June 19, 1995, as the assumed 
payment date when only payment dates were missing.

Foreign Market Value

    As stated in the preliminary determination, we found that the home 
market was not viable for sales of OCTG and based FMV on sales to the 
People's Republic of China (PRC). During the course of this 
investigation, the petitioners questioned the legitimacy of certain 
sales made by Siderca to the Chinese market. The Department closely 
examined these sales at verification and found no reason to alter its 
determination that PRC sales are the appropriate basis for FMV (see 
Comment 1 in the ``Interested Party Comments'' section of this notice).

Cost of Production Analysis

    As we indicated in our preliminary determination, the Department 
initiated an investigation to determine whether Siderca's sales in the 
PRC were made below their COP. We calculated the COP according to the 
methodology described in our preliminary determination, with the 
following exceptions:
    1. We included in the COM the R&D expense excluded by Siderca.
    2. We computed G&A expense on an annual basis from Siderca's March 
31, 1994, income statement.
    3. We excluded duties from the COP since the price to which COP was 
compared was also exclusive of duties.
    After computing COP, we compared product-specific COP net of direct 
and indirect selling expenses to reported third-country prices that 
were net of movement charges and direct and indirect selling expenses. 
[[Page 33541]] 

Results of COP Analysis

    In accordance with section 773(b) of the Act, we followed our 
standard methodology as described in the preliminary determination to 
determine whether the third country sales of each product were made at 
prices below their COP. Based on this methodology, none of Siderca's 
PRC sales were found to be below cost. Accordingly, we calculated FMV 
according to the methodology described in our preliminary 
determination, with the following exceptions:
    1. We recalculated credit using the U.S. interest rate since all 
third country sales were denominated in U.S. dollars.
    2. We made a circumstance-of-sale adjustment to FMV to account for 
the difference in the average effective reintegro (rebate) rate 
included in the U.S. price (see Comment 6 in the ``Interested Party 
Comments'' section of this notice).
    In order to calculate credit expenses for unshipped or unpaid 
Chinese sales, we applied the same methodology described above for USP.

Currency Conversion

    Because certified exchange rates for Argentina were unavailable 
from the Federal Reserve, we made currency conversions for expenses 
denominated in Argentine pesos based on the official monthly exchange 
rates in effect on the dates of the U.S. sales as published by the 
International Monetary Fund in accordance with 19 CFR 353.60(a).

Verification

    As provided in section 776(b) of the Act, we verified the 
information used in making our final determination.

Interested Party Comments

Comment 1: Third Country Sales

    The petitioners argue that information obtained from Siderca 
reveals that the date of sale of many of Siderca's third-country sales 
falls outside the POI, making the home market viable. The petitioners 
state that Siderca did not adhere to the Department's definition of 
date of sale for the majority of its third-country sales. They argue 
that Siderca's refusal to produce written agreements with a certain 
Chinese customer or price lists pursuant to those agreements leads one 
to conclude that there were two binding contracts between Siderca and 
the Chinese customer, one inside the POI and one outside the POI. The 
petitioners argue that the shipments pursuant to both of those 
agreements should be excluded from the Department's viability analysis.
    Regarding the first agreement, the petitioners argue that the price 
and quantity were agreed to before the POI, in accordance with the 
terms specified in Siderca's 1991 Framework Agreement with its 
customer. Therefore, the POI shipments should be associated with pre-
POI sales and excluded from the Department's analysis.
    The petitioners argue that Siderca's contention that the 1991 
Framework Agreement resulted only in periodic ``general agreements'' on 
quantity and on ``general price levels'' is an attempt to discount the 
authority of the 1991 Framework Agreement. They state that nothing in 
the 1991 Framework Agreement makes any mention of Siderca's claim that 
the general agreements entered into periodically with the customer were 
not final. Furthermore, the petitioners state that changes in some 
sales terms, as mentioned by Siderca to support its claim that the 
general agreements were not final sales agreements, do not invalidate 
the parties' intent to establish definite sales terms in the general 
agreements for the rest of the merchandise.
    The petitioners further state that in the Final Determination of 
Sales at Less Than Fair Value: Steel Bar from India (59 FR 66915, 
December 28, 1994), the Department found that shipments under a sale 
agreement were a valid sale as of the date of the agreement, even 
though the sale was subsequently cancelled. The petitioners argue that 
if the cancellation of a contract does not alter the date of sale with 
regard to other merchandise covered by the contract, then ordering a 
new product does not alter the date of sale, at least for all other 
types of merchandise, evidenced by the general agreements in question. 
Therefore, the periodic agreements must be considered actual sales 
agreements.
    As a result, the petitioners maintain that only the second 
agreement with the Chinese customer was entered into during the POI. 
However, the petitioners argue that the shipments pursuant to this 
second agreement should also be excluded from the Department's 
viability analysis because the terms of delivery for the total tonnage 
ordered were not met by Siderca, and the quantity shipped is not even 
close to the shipment terms agreed to by the parties. The petitioners 
state that the delivery term was an essential term of the agreement and 
was changed; therefore, the Department must exclude these sales from 
its viability analysis. Alternatively, if the Department does not 
exclude all the sales pursuant to this agreement, it must, at a 
minimum, exclude the merchandise where shipment was not even close to 
the shipment term agreed to by the parties. Additionally, the 
petitioners contend that the merchandise that remained unordered under 
the second agreement should also not be considered as POI sales and 
should be excluded from the viability analysis.
    Regarding a non-Chinese third country sale, the petitioners state 
that the documentation placed on the record demonstrates that the 
correct date of sale is outside the POI, since the documentation 
references a sales acknowledgement dated outside the POI. Therefore, 
the Department must also exclude this sale from its viability analysis.
    Finally, the petitioners argue that because a proper analysis of 
third country sales results in a viable home market, the Department 
must base its determination on the best information available, which in 
this case is the information contained in the petition.
    Siderca states that to determine the date of sale, the Department 
relies on the first written memorialization of the sales agreement 
setting forth the essential contract terms. Siderca argues that there 
were no written agreements with the Chinese customer pursuant to the 
periodic negotiations and that there is nothing in the record to 
support the petitioners' claims that written agreements or price lists 
pursuant to the periodic negotiations exist.
    Siderca states that it holds periodic negotiations with its 
customer regarding sales of OCTG, pursuant to the 1991 Framework 
Agreement, which end with a general agreement on the tonnage to be 
purchased during the next six months, and on general price levels. 
However, the product mix is not specified in these agreements, nor is 
there any firm commitment to purchase the total quantity. Sometimes the 
customer orders the total quantity discussed in the negotiations, 
sometimes it does not. Siderca states that production does not begin 
until the contracts pursuant to the general agreements are signed. It 
further states that it reported all contracts which were signed by both 
parties during the POI as POI sales.
    Siderca argues that its sales process was fully verified by the 
Department. Siderca states that information was provided on the record 
which supports Siderca's treatment of the contract date as the date of 
sale, such as an internal document requesting guidance on the price to 
offer a certain customer during the POI. Siderca further states that 
the verification showed that it was consistent in its approach to the 
date of sale; for example, not treating as POI sales those shipments 
during the POI [[Page 33542]] that were pursuant to a contract signed 
before the POI.
    Siderca further argues that there is evidence on the record which 
proves that the periodic negotiations with the Chinese customer do not 
end in a formal commitment to buy or sell. This is evidenced by a 
purchase order showing no terms for a particular product and also by 
the fact that, while the second agreement listed a certain quantity, 
only a portion of that quantity was actually ordered and shipped.
    Siderca contends that the record supports its position that the 
specific terms of sale are established when the customer's purchase 
order is received. It notes that the original contracts were examined 
at the verification.
    Regarding the merchandise that was shipped after the delivery date 
stipulated in the contract, Siderca argues that the delivery date 
influenced the timing of the negotiations and the timing of the 
contract signing. Siderca contends that the customer wanted shipment by 
a particular month but then experienced logistical problems and 
arranged for subsequent delivery. It states that the parties did not 
change the merchandise, price, quantity or other material terms of the 
contract. It also states that the petitioners could cite no cases where 
this type of modification had been interpreted as changing the date of 
sale.
    Siderca then addresses the petitioners' argument that, at a 
minimum, the Department should exclude the merchandise where the 
shipment terms were not even close to those agreed to by the parties. 
Siderca argues that the petitioners provided no precedent to support 
their theory that these sales do not constitute sales during the POI. 
It argues that a delivery term is only a material term if the parties 
treat it as one and that the evidence on the record shows that all 
merchandise was eventually shipped.
    Next, Siderca addresses the petitioners' argument that the 
merchandise that remained unordered under the second agreement should 
also not be considered as POI sales and excluded from the viability 
analysis. Siderca states that this merchandise was never ordered 
because it was never sold. Therefore, it does not need to be excluded 
from the viability analysis because it was never included.
    Finally, Siderca addresses the petitioners' argument that the 
documentation placed on the record demonstrates that the correct date 
of sale for a non-Chinese third country sale is outside the POI, since 
the documentation references a sales acknowledgement dated outside the 
POI. It argues that the sales acknowledgement was only an 
``observation/clarification'' of the customer's purchase order and that 
the record does not show any change or modification in the material 
terms.

DOC Position

    We agree with Siderca. This issue was argued extensively by the 
parties and examined very closely by the Department at the 
verification. At verification, we found no evidence of written price 
agreements or price lists pursuant to the periodic negotiations which 
might result in certain reported sales being outside the POI. A review 
of the 1991 Framework Agreement also showed no basis to discount 
Siderca's claim that the periodic agreements with the Chinese customer 
were only ``general agreements'' where terms were not finalized. Thus, 
the 1991 Framework Agreement was akin to a memorandum of understanding 
between the parties, setting forth no definite material contract terms. 
It is clear from information on the record that the purchase order sets 
the price and quantity of the sale. Therefore, respondent's reporting 
of the purchase order date as the date of sale was consistent, and in 
accordance, with the Department's practice (see, e.g., Final 
Determination of Sales at Less than Fair Value: Certain Forged Steel 
Crankshafts from the United Kingdom (52 FR 18992, July 28, 1987).
    Furthermore, changes in the delivery term of the contract at the 
end of the POI do not constitute changes to a term of the contract 
significant enough to alter the date of sale, unlike terms such as 
price and quantity. This is evidenced by the fact that the parties 
themselves did not treat the delivery term as a material one. Moreover, 
the petitioners could show no cases to support the opposite conclusion. 
Therefore, these sales were also properly within the POI.
    Regarding the petitioners' argument that the merchandise that 
remained unordered under the second agreement should also not be 
considered as POI sales and should be excluded from the viability 
analysis, this merchandise was never sold nor reported; therefore, this 
issue is moot.
    Regarding the petitioners' argument that the documentation placed 
on the record demonstrates that the correct date of sale for a non-
Chinese sale is outside the POI, the acknowledgement in question 
references no change in the material contract terms. Furthermore, even 
if the petitioners' argument was correct, excluding this sale alone 
would not change the viability analysis.
    Accordingly, the use of best information available, as suggested by 
the petitioners, is not warranted. We will use all PRC sales as 
reported by Siderca in our analysis.
Comment 2: Related Customer Allegation

    The petitioners argue that Siderca and a certain Chinese customer 
are related parties and, therefore, the sales to the Chinese customer 
must be excluded from the Department's analysis. They state that the 
Department's questionnaire specifies that companies are considered 
related when one or more of the same individuals are members of the 
board of directors of both companies or other entities which control 
those companies. The petitioners also argue that in the Final Results 
of Administrative Review: Roller Chain, Other than Bicycle, from Japan 
(57 FR 56319, November 27, 1992) (Roller Chain), the Department found 
that two companies were related when they shared one director on each 
board. Thus, the petitioners contend that shared board members and 
officers have long been equated with common control of companies.
    The petitioners state that when different individuals sit on the 
boards of two different companies, but serve as representatives of a 
common corporation, it results in interlocking directors which may 
violate section 8 of the Clayton Act, instituted to prevent a restraint 
of trade from being effected. The petitioners state that this is the 
situation that exists between Siderca and the Chinese customer through 
the management of several companies. They claim that Siderca failed to 
rebut the documentary evidence of relatedness placed on the record by 
the petitioners.
    The petitioners contend that the ownership of Siderca is closely 
tied to that of many other companies, through Siderca's parent 
companies. They then argue that information on the record demonstrates 
shared management between Siderca and the Chinese customer. The 
petitioners note that all evidence they placed on the record to show 
the interrelationship between the management of these companies are 
certified copies of extracts from commercial registers. The petitioners 
then state that Siderca's attempts to rebut this evidence at 
verification are inadequate for the following reasons.
    First, the petitioners discuss Siderca's attempt to obtain 
ownership information from the Chinese customer. They argue that 
Siderca has shared management with the Chinese customer and, therefore, 
it could have done more to obtain information from this 
[[Page 33543]] customer than just to send the customer a letter.
    Second, the petitioners discuss Siderca's explanation of its 
alleged connection with the representative of the Chinese customer. 
They question Siderca's characterization of the president of Siderca's 
ultimate parent as only serving as local agent of the representative of 
the Chinese customer. The petitioners also claim that, under Swiss law, 
which applies to the representative of the Chinese customer, persons 
authorized to represent a company have the right to carry out all acts 
that may be covered by the company's aims. In addition, the petitioners 
claim that Siderca's explanation for the common board member between 
the Chinese customer and its representative fails to rebut the 
presumption of a relationship.
    Third, the petitioners discuss Siderca's explanation of the alleged 
relationship with the local Argentine office of its Chinese customer. 
They argue that Siderca's characterization of a legal representative as 
that of an employee with no powers of a director or officer of the 
company is incorrect. The petitioners contend that, under Argentine 
law, persons authorized to represent a company are ``obliged to it for 
all the acts that are not manifestly outside the company's 
objectives.'' Furthermore, the petitioners argue that the self-serving 
oral explanations at verification are not sufficient to rebut the 
documentary evidence provided by the petitioners.
    Fourth, the petitioners discuss the charts provided by Siderca to 
illustrate its relationships with other companies. The petitioners 
contend that these charts are inadequate to rebut the claim of 
relatedness between Siderca and the Chinese customer because the charts 
are incomplete and have no supporting documentation.
    The petitioners conclude that the Department must exclude Siderca's 
sales to this particular Chinese customer from its analysis because 
they were made to a related party and because Siderca has made no 
effort to prove that the sales to this customer were at arm's length.
    Siderca argues that the petitioners' argument is results-oriented 
and that the Department should follow established standards for 
determining whether parties are related. Moreover, the fact that the 
sales to the customer in question are similar to U.S. sales makes the 
Chinese market a better comparison market than those where Siderca did 
not sell similar merchandise (i.e., plain end OCTG).
    Siderca argues that the Tariff Act of 1930, as amended (19 U.S.C. 
1677(13)), focuses on either some financial relationship through stock 
ownership or otherwise, or the exercise of some control over the other 
business, to show relatedness. Siderca maintains that neither it nor 
its related commissionaire own or control the Chinese customer and are, 
therefore, not related to that customer.
    Siderca maintains that the verification documents support the 
following conclusions. First, there is no corporate relationship 
between the Chinese customer and its representative, which the Chinese 
customer uses for certain corporate services, such as the collection of 
mail. Second, there is no corporate relationship between the customer 
and Siderca, either by ownership or control. Third, the only 
information that links Siderca and its Chinese customer is a good 
relationship that is not uncommon between a supplier and a client. 
Siderca states that it is because of this good relationship that the 
customer approached an officer of one of Siderca's related parties for 
advice on setting up a subsidiary in another country. Siderca maintains 
that this individual agreed to have his name placed on the 
incorporation documents as an attorney-in-fact. As a result, Siderca 
states that its related company and this customer each had a subsidiary 
in the same country with the same individual involved in both. In 
addition, Siderca argues that its related company and its customer 
appointed some of the same citizens to serve as corporate directors in 
fulfillment of local law requirements regarding the citizenship and 
residency of corporate directors.
    Fourth, the Chinese customer expanded its activities in Argentina 
by opening a branch there, and hired an employee to serve as its local 
representative. This employee was not involved at any time in the 
ownership or management of the Chinese customer, and was never employed 
at the same time by the Chinese customer and Siderca's related 
companies. Siderca argues that this person switched jobs to one of 
Siderca's related companies, and recommended another person to wind 
down the operations of the Argentine branch of the Chinese customer. 
This other person was a retired employee of one of Siderca's related 
parties, who was allowed to use one of the office buildings belonging 
to the organization.
    Siderca concludes from the above-cited evidence that there is no 
evidence of corporate control, through stock ownership, common 
management, or otherwise.
    Siderca then states that the Department's questionnaire never 
mentions the term ``shared management,'' even though the petitioners 
use this term to define related parties. It also states that Roller 
Chain says nothing about ``shared management'' and refers to 
individuals on multiple boards being one of the indicia of control, not 
control in and of itself. Siderca argues that Roller Chain based 
relatedness by control on many factors, including financial 
relationship and the sharing of two of five board members. It states 
that the Department mentioned common board members as ``further 
evidence that the potential to control was present'' and this was not 
the only or major reason for its decision. Siderca also argues that 
modern corporate boards are routinely comprised of individuals who sit 
on boards of other unrelated companies. It says that this does not make 
the companies related.
    Siderca concludes that the petitioners' relationship allegations do 
not satisfy a balanced statement of the applicable statutory provision, 
nor even the ``shared management control'' standard that the 
petitioners, themselves, have invented. It states that the petitioners 
have shown no ownership, financial dealings, coordinated management or 
cross investments.

DOC Position

    We agree with Siderca. To determine whether Siderca's customer is 
related to Siderca, we examined whether the definition of ``exporter'' 
was met by the customer within the meaning of section 771(13) of the 
Act. First, regarding the petitioners' argument that since Siderca has 
shared management with the Chinese customer, Siderca could have done 
more to obtain information than simply to send a letter, we note that, 
as stated below, no shared management between these parties has been 
demonstrated by the record evidence.
    Second, regarding the petitioners' claim that under Swiss law, 
persons authorized to represent a company have the right to carry out 
all acts that may be covered by the company's aims, we acknowledge 
that, under Swiss law, a representative acts in the same capacity as a 
board member. However, with regard to the president of the ultimate 
parent of Siderca, this only shows that the Siderca's parent company 
and the customer's agent had a common board member. As shown below, 
this is not enough to establish control of Siderca over the Chinese 
customer.
    Regarding the other individuals listed by the petitioners as 
showing a relationship between Siderca and its [[Page 33544]] customer, 
only one has conclusively been shown to be on the board of a company 
related to Siderca through its parent companies and also on the board 
of a subsidiary of Siderca's customer. All other individuals 
characterized by the petitioners to be common board members have what 
is known as a ``power of attorney.'' We found no evidence that under 
Swiss law, the ``power of attorney'' capacity equates with being a 
member of a board of directors.
    Few past cases address the issue of indirect control. In Roller 
Chain, cited by the petitioners, the Department found that a company 
was related to its customer within the meaning of 771(13) of the Act, 
noting that since two company officials were members of the customer's 
board of directors and that the company in question provided a majority 
(60%) of the capital used to establish the customer. Thus, in Roller 
Chain, it was the significant financial connection, coupled with the 
two common board members, that provided the basis for the Department's 
determination of relatedness. In this case, there is only one common 
board member and no proof of outlay of capital to establish the 
customer. Therefore, the circumstances present in this case are not 
analogous to those found by the Department in Roller Chain. 
Furthermore, there is no proof of any stock ownership between the 
companies.
    Third, with regard to the alleged relationship between Siderca and 
the local Argentine office of its Chinese customer, the Department 
acknowledges that, under Argentine law, persons authorized to represent 
a company are ``obliged to it for all the acts that are not manifestly 
outside the company's objectives.'' However, the employee in question 
was never employed at the same time by the Chinese customer and 
Siderca's related companies.
    Also, the other person mentioned by the petitioners was 
characterized by Siderca as having been hired to wind down the 
operations of the Argentine branch of the Chinese customer. This other 
person was also characterized as a retired employee of one of Siderca's 
related parties, who was allowed to use one of the office buildings 
belonging to the organization. We note for the record that the 
Department was informed at verification that this person was not 
completely retired from one of Siderca's related parties but was still 
on the payroll as a consultant when he was hired by the Argentine 
branch of the Chinese customer. However, even if he was on Siderca's 
payroll as a consultant at the same time he was winding down the 
operations of the Argentine branch of the Chinese customer, this 
employee/consultant capacity is not the same thing as board membership 
or management and is not enough to establish control.
    Fourth, regarding the petitioners' contention that the charts 
provided by Siderca to illustrate its relationships with other 
companies are inadequate to rebut the claim of relatedness, at the 
verification the team also examined the corporate books that listed the 
management of these companies. Nothing to discredit Siderca's claims 
was found.
    Finally, we also note that the petitioners have shown, and we have 
found, no ownership between the parties.
    In sum, the record evidence does not demonstrate that the Chinese 
customer and Siderca are related companies within the meaning of 
section 771(13) of the Act.

Comment 3: Ordinary Course of Trade

    The petitioners state that section 773(a)(1)(A) of the Act requires 
that FMV of imported merchandise be based on sales made in the ordinary 
course of trade. According to the petitioners, the U.S. Court of 
International Trade noted that the ordinary course of trade requirement 
is meant to ``prevent dumping margins which are not representative'' of 
sales in the home market (Cemex, S.A. v. United States, Slip. Op. 95-72 
at 6, April 24, 1995). The petitioners contend that, in the past, the 
Department has considered the following factors to determine whether 
sales were made in the ordinary course of trade.
    First, the petitioners discuss the channels of sale. The 
petitioners argue that since the Chinese customer was not located in 
China, used the services of another company not located in China, and 
had intertwined control with Siderca, the sales to this customer are 
not representative of Siderca's sales practices in China.
    Second, the petitioners discuss product uses. The petitioners argue 
that the products sold by Siderca to this Chinese customer had 
different characteristics from Siderca's other sales of OCTG to the 
Chinese market and therefore were not in the ordinary course of trade. 
The petitioners cite the Final Results of Administrative Review: 
Certain Welded Carbon Steel Standard Pipes and Tubes from India (57 FR 
54360, November 18, 1992) (Standard Pipes) to show a case where 
products with different physical characteristics were excluded as being 
outside the ordinary course of trade.
    Third, the petitioners discuss the frequency and volume of sales. 
The petitioners argue that the frequency and volume of sales to this 
particular Chinese customer, when compared to the frequency and volume 
of sales to another customer, and when considering the other factors 
mentioned by the petitioners, demonstrates that these sales were not in 
the ordinary course of trade.
    Fourth, the petitioners discuss the shipping arrangements. The 
petitioners contend that the difference in the average time between 
order and shipment for the sales to this particular customer, when 
compared to the other reported Chinese sales, is evidence that these 
sales are not in the ordinary course of trade.
    Finally, the petitioners state that Siderca's characterization of 
its relationship with the Chinese customer is not one of an ordinary 
business relationship, even a ``friendly'' one, between a producer and 
a buyer. The petitioners argue that in the ordinary course of trade 
producers do not lend the services of their officers to set up 
subsidiary companies for their buyers and serve as attorneys in fact 
for the resulting subsidiaries.
    Siderca argues that petitioners' points fail to show that this sale 
is outside the ordinary course of trade. First, regarding the channels 
of sale, Siderca contends that there is no abnormality in the customer 
not being located in China, as it is a trading company. Siderca asserts 
that trading companies rarely take delivery in the country where they 
do business. Siderca states that this particular customer purchased 
OCTG for other markets during the POI as well. Siderca argues that the 
use of trading companies is a normal practice in the steel trade.
    Second, regarding product uses, Siderca states that, while the 
merchandise to this customer did have different, albeit not abnormal, 
physical characteristics than the other merchandise sold to this 
market, it did have the same end use. Siderca states that the trading 
company's customer in China simply did not need, or could not use, the 
type of product Siderca sold to the other Chinese customers. Siderca 
argues that the Department only excludes sales as outside the ordinary 
course of trade where the product use is very dissimilar. Siderca 
states that in Standard Pipes, the Department found that the physical 
differences had a direct bearing on use.
    Third, regarding the frequency and volume of sales, Siderca argues 
that these sales cannot be considered aberrant. Siderca states that the 
sales to [[Page 33545]] this particular customer are similar in size 
and frequency to the sales to another Chinese customer, to which the 
petitioners do not object. Therefore, Siderca states that the sales to 
the customer in question were consistent with other sales in the 
Chinese market.
    Fourth, regarding the shipping arrangements, Siderca states that in 
examining shipping arrangements for the purpose of an ordinary course 
of trade determination, the Department examines factors such as 
shipments over substantial distances, the unusual absorption of high 
freight costs or a complete change in shipping terms, none of which is 
relevant to the customer in question. Furthermore, Siderca notes that 
shipment was made within the period stipulated in the purchase order.

DOC Position

    We agree with Siderca. In making the determination whether sales 
should be excluded by being outside the ordinary course of trade within 
the meaning of section 773 of the Act and section 353.46 of the 
Department's regulations, the Department examines several factors (see 
the 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, July 9, 1993).
    Regarding channels of sale, there is nothing unusual with selling 
to a trading company located in a third country. As noted by Siderca, 
we consider these sales to be Chinese sales because Siderca knew the 
ultimate destination of the merchandise. Regarding product uses, the 
petitioners, although showing that the products sold to different 
customers in China had certain different physical characteristics, in 
no way proved, and we did not find, that the products had different end 
uses.
    Regarding the frequency and volume of sales, since the frequency 
and volume of sales to the customer in question were similar to that of 
another Chinese customer, we don't find that there is an abnormality. 
Regarding the shipping arrangements, differences in average time 
between order and shipment alone is not evidence that the sales were 
outside the ordinary course of trade. No cases were cited by the 
petitioners, nor found by us, to support this position and the 
shipments were made within the period stipulated in the purchase order. 
Therefore, the Department finds that these sales are not outside the 
ordinary course of trade within the meaning of section 773(a)(1)(A) of 
the Act.

Comment 4: Home Market Sales

    The petitioners contend that certain home market sales reported as 
being made prior to the POI were actually made during the POI. 
According to the petitioners, the prices for Siderca's sales to a 
specific home market customer do not correspond with the prices listed 
in the sales agreement with this customer. Since the prices do not 
match, the petitioners contend that these sales were made during the 
POI and not pursuant to the pre-POI sales agreement. The petitioners 
claim that adding the home market sales to this particular customer in 
the viability analysis would make the home market viable.
    Siderca argues that the petitioners are wrong in claiming that the 
prices for Siderca's sales to a specific home market customer do not 
correspond with the prices listed in the sales agreement with this 
customer. Siderca states that the petitioners did not take into 
consideration an article in the contract that explained a large part of 
the discrepancy. Siderca also states that minor calculation errors were 
made by the petitioners due to poor copy quality of the contract. 
Siderca argues that correcting for these errors results in the price 
charged being the same as the price agreed upon in the contract.
    Siderca claims that it correctly reported the home market sales 
during the POI. It states that information was provided which supported 
its position that: (1) Exporting to world-wide markets has dominated 
Siderca's sales in each six month interval; (2) short-term sales were 
the norm in the 18 month period from January 1, 1993 to June 30, 1994; 
(3) the POI, with private end-user clients, was representative of the 
post-privatization market that was the context for Siderca's home 
market sales practices during the 18 month period; (4) there was no 
sale pursuant to a long-term contract in the POI; and (5) Siderca's 
home market sales practices prior to 1993 reflected a different era, 
characterized by a single, state-owned oil and gas monopoly.
    Siderca states that its definition of the date of sale and the 
Department's preliminary determination that the home market was not 
viable during the POI was supported by the evidence presented at 
verification. It states that the Department reviewed the long-term 
contracts in detail, including a complete list of the purchase orders 
associated with a given contract and, for selected purchase orders, the 
shipments made against the order. Siderca states that the Department 
also verified the actual volume and value of Siderca's home market 
sales and no discrepancies were found.

DOC Position
    We agree with Siderca. At the public hearing, the petitioners 
conceded that their argument was based on an incomplete reading of the 
contract (namely, failure to take into account an article in the 
contract), as well as an illegible copy of the contract. Therefore, 
there was no price discrepancy. Furthermore, we examined the home 
market sales process (especially price and quantity terms in the 
purchase orders pursuant to the long-term contracts) in detail at the 
verification and no discrepancies were found. Therefore, the record 
continues to show that the home market is not viable.

Comment 5: Model Match

    The petitioners argue that the Department should rely on its own 
product matching decisions outlined in a January 24, 1995, product 
matching memorandum and used in the preliminary determination instead 
of Siderca's proposed model matches.
    Siderca argues that a certain Chinese product, although more 
similar to the U.S. products based on a strict application of the 
Department's model-matching methodology, is not the most similar 
overall based on physical characteristics, production and commercial 
value. Siderca states that while the two third country selections are 
nearly equally dissimilar to the U.S. products based on a higher-
ranking characteristic, its match is more similar based on lower-
ranking characteristics, which should be taken into consideration.
    Siderca argues that there is nothing that prevents the Department 
from adapting the hierarchy to a particular set of facts, especially 
where there is a clear reason to modify the approach and the statutory 
definition of similar merchandise warrants the modification. Siderca 
contends that in the past the Department has deviated from the 
published hierarchy when the respondent has demonstrated that it is 
necessary to achieve the proper comparison.

DOC Position

    We agree with the petitioners. The matching of the U.S. products 
based on the January 24, 1995, memorandum, is consistent with the 
purpose of a matching hierarchy; i.e., more weight is given to higher-
ranked characteristics and less weight to lower-ranked characteristics. 
Following a strict application of the matching hierarchy 
[[Page 33546]] also allows for more predictable results. Lower-ranked 
characteristics are taken into consideration only when higher-ranked 
characteristics are equal. This is not the case here.

Comment 6: Reintegro (Rebate)

    The petitioners argue that the Department must deduct from the COP 
only that portion of the reintegro (a rebate upon export of indirect 
taxes imposed during production of the merchandise) attributable to 
material inputs. The petitioners note that current law does not address 
the issue of rebates such as the reintegro in COP situations. The 
petitioners argue that the statutory silence on the issue of indirect 
taxes relating to items other than materials indicates that such taxes 
should remain in the product's cost and, therefore, the full rebate 
should not be deducted from the COP. Both the Department's regulations 
(19 CFR 353.50(a)(1)) and section 773(e)(1)(A) of the Act provide that, 
when calculating constructed value, the cost of materials is to exclude 
internal taxes applied directly to the cost of such materials when the 
taxes are refunded upon exportation. The petitioners argue that under 
current law only the Department's practice of excluding value added 
taxes paid on raw material inputs offers guidance in the area of COP.
    The petitioners also argue that the Department must average the 
market specific tax rebate so that only one cost of production is 
reported for each product. The petitioners maintain that the 
Department's long standing practice is that cost differences based on 
shipping destination should not enter into the company's cost of 
production for a particular product.
    Siderca argues it properly reduced the actual cost of production by 
the average rebate received on sales to China. Siderca states that both 
final stage and prior stage indirect taxes appear in its records as 
costs and, therefore, the rebate of the tax must be applied as an 
offset to this cost. Siderca argues it presented to the Department the 
same indirect tax study it presents annually to the Argentine 
government to prove the amount of rebate it is entitled to under the 
reintegro program. Siderca notes the study was tested and reviewed 
during the cost verification and that Department personnel have 
reviewed the study on six previous occasions.
    Siderca concedes the precise percentage of material cost accounted 
for by cumulative indirect taxes cannot be known, but argues that the 
study provides a reasonable estimate. Moreover, there is no double 
counting of the exclusion, because the total level of taxes paid 
exceeds the rebate. Further, the 1993 tax study, upon which the 1994 
rebate was based, accurately reflects the amount of taxes paid while 
the tax was in effect during 1993. Siderca states that it presented 
support for the actual cash rebate received on sales to the U.S. and 
China.
    Siderca maintains that its approach is consistent with the 
Department's practice of using actual costs, and cites to the Final 
Determination of Sales at Less Than Fair Value: Fresh Chilled Atlantic 
Salmon from Norway (58 FR 37915, July 14, 1993), where the Department 
stated its preference for the use of the actual cost of the subject 
merchandise, whenever possible. Siderca also cites Final Determination 
of Sales at Less Than Fair Value: Aramid Fiber Formed of Poly-phenylene 
Terephthalamide from the Netherlands (59 FR 23684, May 6, 1994) in 
which the Department treated government grants as an offset to the 
respondent's fixed overhead costs.
    Siderca does not dispute that its methodology results in two 
different net costs, but argues that this is always the case when 
duties are rebated on export sales. Siderca states that the cost of the 
home market product is tax inclusive, and the cost of the export 
product is exclusive of the tax after export. Because the COP 
comparisons are based on sales to a specific market, the calculation 
should take into account only rebated taxes relevant to that market.
    Finally, Siderca argues the effect of the differential should not 
be a source of double jeopardy. The differential exists because Siderca 
has foregone a portion of the rebate for exports to the United States 
in deference to the U.S. countervailing duty regime.

DOC Position

    We agree with Siderca, in part. Regarding the issue of allowing 
only the portion of the reintegro attributable to material inputs, the 
Department's Offices of Countervailing Investigations and 
Countervailing Compliance normally test to determine whether or not the 
reintegro is countervailable (see, e.g., American Alloys, Inc. v. 
United States, 30 F.3d 1469 (Fed. Cir. 1994). To be non-
countervailable, the rebate must be for taxes on merchandise which was 
physically incorporated into the exported product and the rebate must 
be no greater than the actual taxes imposed.
    The last countervailing determination concerning OCTG from 
Argentina for which results have been published is the 1988-89 
Countervailing Duty Administrative Review. In the preliminary results 
of that review, the Department determined that Siderca was entitled to 
the entire reintegro without incurring countervailing duties (56 FR 
50855, October 9, 1991). This issue was not discussed and, therefore, 
was not changed, in the final results (56 FR 64493, December 10, 1991). 
The reimbursement percentage on OCTG was then raised in 1992. However, 
Siderca only accepts the pre-1992 rebate percentage on U.S. sales 
because the current U.S. countervailing duty order is still in place. 
Based on the fact that the Department has previously determined that 
Siderca was entitled to a rebate without incurring countervailing 
duties and because it currently accepts a lower rebate, it is 
reasonable to assume that the entire reintegro is attributable only to 
material inputs.
    We agree with Siderca regarding the issue of averaging the market 
specific tax rebates so that only one cost of production is reported 
for each product. For the cost test, the Department noted that the cost 
of production is the cost of the product as sold in the third country. 
This cost is being compared to the third country price. Since Siderca 
receives the entire rebate on sales to the third country, the cost of 
the third country product should be lowered by the entire amount of the 
rebate received upon exportation of the product to the third country.
    Therefore, for COP, we have made no changes from the preliminary 
determination and have deducted the full rebate percentage from the 
COP.
    Although not mentioned by the interested parties, the impact of the 
reintegro in the context of the price-to-price comparisons must be 
addressed. Included in Siderca's manufacturing costs of OCTG are taxes 
paid to the Argentine government. Siderca received a rebate of these 
taxes upon exportation of the merchandise. However, the amount of the 
rebate claimed by Siderca for the two export markets was not identical. 
For sales to the PRC, Siderca chose to accept the entire rebate. For 
sales to the United States, Siderca chose to accept only a partial 
rebate. Because only a partial rebate is taken for U.S. sales, a 
portion of the tax imposed by the Argentine government remains in the 
U.S. price (the difference between the total rebate and the partial 
rebate taken). Because these rebates are directly related to the sales 
of the merchandise in the two markets, it is necessary to make a 
circumstance-of-sale adjustment to FMV to account for the different 
amount of taxes included in the Chinese and U.S. prices. This procedure 
is consistent with Zenith [[Page 33547]] Electronics v. United States, 
988 F.2d 1573, 1581 (Fed. Cir. 1993).
    In calculating dumping margins, the Department equalizes the 
effective tax rates in each market. Normally (where the home market 
sale is taxed, but the export sale to the United States is not taxed) 
this is accomplished by applying the home market tax rate to the U.S. 
price at the same point in the chain of commerce at which the home 
market tax is imposed. Here, where the pipe exported to the United 
States was taxed in excess of the tax on the pipe exported to China, 
the comparable procedure would be to subtract the differential from the 
price charged in the United States. Because the statute provides no 
mechanism for removing tax from the U.S. price, however, we achieved 
the necessary equivalence in tax rates by adding the difference between 
the effective rebate percentages claimed by Siderca between the two 
prices to the price of the pipe exported to China as a circumstance-of-
sale adjustment, pursuant to section 773(a)(4)(B) of the Act and 19 CFR 
353.56(a). This prevented Siderca's acceptance of a complete tax rebate 
on the sales to China, but only a partial export tax rebate on the 
sales to the United States from masking any tax-net dumping margin.
Comment 7: Revenues Earned on Sales of Secondary Pipe

    The petitioners argue Siderca should not reduce the reported costs 
for the subject merchandise by revenues earned on sales of secondary 
pipe. The petitioners argue that Siderca is treating secondary pipe as 
a by-product, when it should be treated as a co-product. According to 
the petitioners, in IPSCO Inc. v. United States (IPSCO) (965 F.2d 1056, 
1060-61 (Fed. Cir. 1992)) the Court of Appeals for the Federal Circuit 
upheld the Department's treatment of second quality pipe when the 
Department fully allocated costs evenly over output tons. The 
petitioners argue that the classification of secondary pipe as a co-
product precludes Siderca's offset of costs by revenue from secondary 
pipe.
    Siderca argues it properly offset the cost of production by the 
revenue earned on sales of secondary pipe. Siderca contends the 
secondary pipe in question is a by-product, not a co-product, and is 
pulled from the scrap pile when a particular customer periodically 
stops by to purchase material. It further contends by-products are 
defined as products that have a low sales value compared with the sales 
value of the main product. Siderca notes that revenue from the sale of 
these products account for a small percentage of its total revenue for 
the period. Siderca rebuts the petitioners' reliance on IPSCO by 
asserting that IPSCO concerned limited service pipe, not scrap pipe. It 
argues that if the Department treats the secondary pipe as a co-
product, then it must increase the production quantity over which 
production costs have been allocated, thereby lowering the cost of all 
products.

DOC Position

    We disagree with the petitioners that IPSCO applies in this case. 
IPSCO dealt with limited service merchandise, an OCTG product with a 
quality sufficient enough to allow its use in some drilling 
applications. We also note that during the relevant period in that 
case, IPSCO produced and sold limited service products in significant 
quantities. Although Siderca overstates its assertion that these pipes 
are scrap sales, this is not a product that could be used for normal 
pipe applications. In this case, the merchandise in question was 
purchased because of its form, not because of its ability to act as a 
conduit for fluids.
    The distinction as to whether a joint product is a by-product or a 
co-product of the subject merchandise is important because the 
Department treats by-products and co-products differently in 
calculating the COP of the subject merchandise. Central to our 
determination as to whether a product is a by-product or a co-product 
of the subject merchandise is the determination of the ``split-off'' 
point, which is the point in the production process where the co-
product becomes a separately identifiable product. All costs incurred 
up to and including the split-off point are considered common to 
producing all co-products. Accordingly, where the Department determines 
a product to be a co-product, common costs incurred up to and including 
the split-off point are allocated among all the co-products, with none 
allocated to by-products. Alternatively, where the Department 
determines a product to be a by-product, it allocates all common costs 
to the primary merchandise and subtracts the amount of the revenue from 
the sale of by-products from the total COM of the chief product (see, 
e.g., the Preliminary Determination of Sales at Less than Fair Value 
and Postponement of the Final Determination: Sebacic Acid from the 
People's Republic of China (Sebacic Acid) (59 FR 565 (January 5, 
1994)).
    The most important factor in determining whether a product is a co-
product or a by-product is its relative sales value compared with that 
of the other main products produced in the joint processes (see Sebacic 
Acid). By-products are defined as ``products of joint processes that 
have minor sales value as compared with that of the chief product'' by 
Charles T. Horngren in Cost Accounting, Fifth Edition. In this case, 
the record evidence demonstrates that the relative value of secondary 
pipe is insignificant compared to OCTG and line pipe, and accounts for 
only a small percentage of Siderca's sales.
    Additional factors that the Department may examine include: the 
respondent's normal accounting treatment; whether significant 
additional processing occurs after the split-off point; whether 
management controls the quantity produced of the product in question; 
and whether its production is an unavoidable consequence of the 
production process (see Sebacic Acid; see also the Final Determination 
of Sales at Less than Fair Value: Titanium Sponge from Japan (49 FR 
38687, October 1, 1987) and the Final Determination of Sales at Less 
than Fair Value: Frozen Concentrated Orange Juice from Brazil (52 FR 
8324, March 17, 1987).
    The respondent's normal accounting treatment indicates its opinion 
as to whether the product in question is a by- or co-product. A 
respondent's normal treatment is not considered persuasive if the 
Department has evidence indicating that it would be unreasonable for 
purposes of an antidumping analysis. In this case the respondent treats 
the product in question as a by-product. We find that this treatment 
does not distort the antidumping analysis. Significant additional 
processing of a magnitude that would raise the value of the product in 
question to a point where its relative value to the other main products 
is significant may indicate that the product should be treated as a co-
product. In this case no additional processing takes place. 
Additionally, if management takes steps to intentionally produce the 
product, then it would be an indication that the product may be a co-
product. If the production of a product is unavoidable, the product 
could be either a by-product or co-product. Other factors would have to 
be considered to make the determination. In this case, the management 
of Siderca takes steps to avoid the production errors which cause pipes 
to become seconds. It is only where production errors exist that the 
secondary pipe is produced. After careful consideration of all of the 
relevant factors, the Department concludes that the product in question 
was properly treated as a by-product in this investigation.

[[Page 33548]]

Comment 8: Fixed Fabrication and Depreciation Cost

    The petitioners argue the difference between the company-wide 
average and the average of the reported fixed fabrication and 
depreciation cost indicates Siderca understated the reported amounts. 
The petitioners assert fixed costs are normally higher for OCTG than 
for other types of pipe because of substantially higher finishing costs 
for OCTG. The petitioners state differences in fixed costs could only 
result if different production lines are used or if different capacity 
utilization rates are realized, but neither situation applies to 
Siderca. The petitioners reference Siderca's production flow charts, 
which show that subject and non-subject merchandise share the same 
production lines. Where subject and non-subject merchandise do not 
share the same production line, the equipment used for downstream 
processing is similar.
    Siderca argues it properly allocated depreciation expense in the 
reported product-specific costs. Siderca asserts the results of the 
gross comparison test can be explained. First, the test compares an 
average of all products to an average from only two OCTG markets. 
Siderca's plain-end pipes carry a smaller portion of fixed fabrication 
and depreciation, while the remaining production carries a greater 
amount of these costs, because of their complexity. Siderca argues the 
overall product mix of the merchandise sold to the United States and 
China is at the lower end of the complexity range. It is natural, they 
argue, that the average fixed fabrication and depreciation costs 
allocated to OCTG sold in the United States and China would be lower. 
The more complex products include pipe that is cold-drawn, custom 
threaded, buttress threaded, and also pup joints.
    Second, the Department's verification report notes that the total 
depreciation expense was traced to each cost center and that Siderca 
demonstrated how the per-unit costs were determined using the 
productivity of each product in a given cost center. Siderca also notes 
the Department looked at several product comparisons which show the 
relative amounts of fixed fabrication costs allocated to each product.
    Siderca contends that it was able to demonstrate the flow of fixed 
factory costs and depreciation from the financial statements to the 
amounts input into the computer for each cost center. Siderca notes 
that the Department verified the allocation factors used to apply fixed 
factory costs and depreciation and that they were the same factors used 
to allocate factory costs under normal circumstances. In addition, they 
note that the Department was able to recalculate the cost of 
manufacturing for the test products and compared the allocation of 
costs between various products, including line pipe. Siderca further 
argues that plain end pipes account for a significant portion of its 
U.S. sales, but account for only a small proportion of its overall 
sales.

DOC Position

    We agree with Siderca. At verification, while we could not 
reconcile the total of the individual per unit fixed fabrication and 
depreciation costs to the total expense, we were able to perform 
alternative procedures in place of that reconciliation. If the 
Department is satisfied that the respondent described the systems 
abilities accurately, that the system was used in the normal course of 
business, and that the data could be verified through alternative 
procedures, then the Department normally does not adjust the reported 
information. In this case, the system used to allocate the fixed 
factory cost and depreciation is the same system used in the normal 
course of business to derive the variable factory costs. We performed 
the following alternative procedures in place of the reconciliation.
    Our analysis compared a company-wide average of fixed factory 
overhead and depreciation expense to an average of these variables for 
only the U.S. and PRC markets. Additionally, our test of reasonableness 
compared a weighted-average figure of fixed factory overhead and 
depreciation expense to a simple average figure of these variables. We 
do not find that the Department's reasonableness test nor other 
evidence on the record indicated Siderca's methodology distorted the 
reported per unit costs. Consequently, we used the per unit fixed 
factory costs and depreciation reported by Siderca.

Comment 9: Treatment of Quality Control Costs

    The petitioners argue the Department may not treat inspection costs 
as selling expenses. The petitioners contend that the costs in question 
are quality control costs incurred at the end of the production process 
and in varying degrees are incurred on all products. The petitioners 
cite the Final Determination of Sales at Less than Fair Value: Gray 
Portland Cement and Clinker from Japan (56 FR 12156, 12162, March 22, 
1991), in which the Department held that quality control costs incurred 
at respondent's plant did not constitute selling expenses. The 
petitioners argue that the record does not demonstrate that the testing 
was a condition of sale. In the Final Determination of Sales at Less 
than Fair Value: Forged Stainless Steel Flanges from India (59 FR 
68853, 68858, December 29, 1993), the petitioners argue that the 
Department found that there was no evidence on the record to support 
the assertion that the testing was a condition of sale, and the 
Department included the quality control costs in the cost of 
manufacturing.
    Siderca argues that it correctly treated these particular 
inspection costs as selling expenses. It argues that its normal records 
treat these inspection costs as selling expenses, and notes that the 
Department verified Siderca's ability to identify the extra inspection 
costs associated with sales to China. It further argues that the 
Department has treated inspection costs as a selling expense in prior 
cases. Siderca cites the Final Results of Antidumping Duty 
Administrative Review and Revocation in Part of an Antidumping Duty 
Order: Antifriction Bearings from Japan (Industrial Belts) (58 FR 
39729, 39750, July 26, 1993) and Final Results of Antidumping Duty 
Administrative Review: Industrial Belts and Components and Parts 
Thereof Whether Cured or Uncured, from Japan (58 FR 30018, 30024, May 
25, 1993).

DOC Position

    We agree with Siderca. We find that these costs are incurred 
commensurate with Siderca's corporate goal to continue to develop sales 
of OCTG to the PRC, a situation similar to that in Industrial Belts 
(Comment 12). At the sales verification, we looked at correspondence 
and other documentation between Siderca and the Chinese customer and 
were able to confirm that quality control issues were discussed in 
great detail.
    At the cost verification, we were able to verify that Siderca 
tested OCTG destined for China significantly more than OCTG destined 
for other markets. Finally, Siderca is only claiming the quality 
control testing costs which can be specifically identified to a 
particular market. Siderca included quality control testing costs 
incurred at earlier production steps as a cost of production. These 
quality control testing costs incurred at the earlier production stage 
were incurred regardless of market and, therefore, were properly 
included in the COP. The quality control costs incurred at the end of 
production could be differentiated based on the market to which the 
merchandise was shipped. [[Page 33549]] 

Comment 10: Threading Technology Research and Development

    The petitioners argue that the reported costs must include the 
amounts Siderca spent on threading technology R&D. The petitioners 
argue that Siderca's assertion that it properly excluded R&D costs is 
completely unsupported. The company brochure indicates Siderca's 
research center focuses on research into basic physical phenomena and 
research directly related to production techniques. It is clear, they 
argue, that R&D advancements in threading technology would benefit all 
OCTG products and are, therefore, not market specific.
    Siderca argues it properly excluded non-related R&D costs from the 
cost of production. Siderca argues the R&D expenses did not relate to 
any of the products sold in the United States or China during the POI. 
The expenditures were targeted at the development of special threading 
for extreme conditions. Siderca argues that the brochure only refers to 
the capabilities of the R&D facility, not to specific R&D efforts. 
Siderca asserts that if the Department decides to include these R&D 
costs, the amount incurred in 1993 should be added, not the 1994 
amount.

DOC Position

    We agree with the petitioners. Siderca provided no support for its 
assertion that the R&D expenses relate only to OCTG products sold in 
markets other than the United States and China. More importantly, the 
R&D costs in question were for products included in the scope of the 
investigation, even if they were not sold in the United States or China 
during the period of investigation. Research into technologies for 
specific products within the scope of the investigation can reasonably 
be assumed to provide collateral benefits for other products within 
scope. It would be infeasible for the Department to identify model-
specific distinctions in R&D expenditures. Generally, the Department 
has only made distinctions between research into subject and non-
subject merchandise, as shown in the Final Determination of Sales at 
Less Than Fair Value: Antifriction Bearings and Parts Thereof From 
France, et al. (60 FR 10900, 101921, February 28, 1995). The Department 
normally does not make distinctions between research into specific 
models. We, therefore, included the R&D expenses as part of the cost of 
manufacturing.

Comment 11: Asset Taxes, Restructuring Costs and Social Security Taxes

    The petitioners argue Siderca understated G&A expense by excluding 
a portion of asset taxes and by normalizing restructuring costs and 
social security taxes. Siderca calculated a G&A rate from the audited 
financial statements for the year ending March 31, 1994, but in doing 
so adjusted these three types of expenses. The petitioners argue the 
Department's long-standing practice requires G&A expenses to be 
calculated from the financial statements which most closely correspond 
to the period of investigation, as shown in Final Determination of 
Sales at Less Than Fair Value: Furfuryl Alcohol From Thailand (Furfuryl 
Alcohol) (60 FR 22557, 22560, May 8, 1995).
    In Furfuryl Alcohol, the Department reasoned G&A expenses are tied 
more closely to the time period than to the revenues earned during the 
period and, therefore, an average rate representing one full business 
cycle of the company is a reasonable basis on which to calculate the 
G&A rate. The Department concluded the G&A rate should be calculated 
from annual audited financial statements because G&A expenses: (1) Are 
incurred sporadically throughout the fiscal year; (2) are frequently 
based on estimates that are adjusted to actual expenses at fiscal year 
end; and (3) are typically incurred in connection with the company's 
overall operations. The salient point, the petitioners argue, is that 
Department methodology already smooths out fluctuations and captures a 
representative picture of respondent's G&A costs. The petitioners also 
note the Department's questionnaire instructed Siderca to calculate its 
G&A rate from the audited financial statements for the year which most 
closely corresponds to the POI.
    Siderca argues the Department is mistaken about the amount of asset 
taxes excluded from G&A expense, and that it was proper to exclude this 
portion. Siderca argues the government repealed the asset tax four 
months prior to the POI and, therefore, the asset tax does not relate 
to the products under investigation.
    In Argentina, the private pension funds took over the social 
security functions previously administered by the Argentine government. 
Individuals close to the retirement age were given the option of 
remaining under the old system. The retirement age was increased by 
five years. As a result, a significant number of individuals chose to 
retire early. This led to a larger than normal number of retirements 
for Siderca. These higher costs were recognized by Siderca in 1994.
    Siderca argues that because of this, severance expenses and social 
security expenses were adjusted to reflect what they otherwise would 
have been if the government had not changed the labor law at the end of 
1993. Because of the privatization, Siderca argues it incurred in 
fiscal 1993 labor costs that it otherwise would have incurred in a 
future period.

DOC Position

    We agree with the petitioners. As the petitioners note, the 
Department's methodology intends to smooth out fluctuations and capture 
a representative picture of respondent's G&A costs (see e.g., Furfuryl 
Alcohol). The Department's long-standing practice is to calculate G&A 
expenses from the audited financial statements which most closely 
correspond to the POI. Neither the change in the tax law nor the 
restructuring costs incurred during the period are extraordinary events 
that warrant a departure from the Department's practice. The events are 
neither unusual in nature nor infrequent in occurrence. Companies 
frequently must react to changes in the laws of the countries in which 
they conduct business. The specific change may not occur frequently, 
but tax laws which affect the company and its employees are 
continuously changing. Therefore, consistent with our normal 
methodology, as set forth in Furfuryl Alcohol, we have excluded 
Siderca's normalization of costs, and recalculated the G&A rate from 
audited financial statements for the year ending March 31, 1994.

Comment 12: Offsetting G&A With Intermediary Sales Revenues

    The petitioners argue that Siderca inappropriately offset G&A 
expense with revenues from the sale of non-subject merchandise. 
Reported total G&A expense included other income and expenses. The 
detail of other income and expenses shows revenues from the sale of 
miscellaneous products, none of which were pipe. The petitioners argue 
the Department's long-standing policy is to deduct from G&A only the 
portion of miscellaneous income related to the production of subject 
merchandise. The petitioners cite the Final Results of Antidumping Duty 
Administrative Reviews: Certain Brass Sheet and Strip From Italy (57 FR 
9235, March 17, 1992), in which the Department disallowed miscellaneous 
income because it did not relate to the subject merchandise. 
[[Page 33550]] 
    Siderca argues that the revenue from the sale of intermediate 
products can be used to offset G&A expense because they were produced 
in the same integrated facility with the OCTG products. Siderca argues 
that the costs associated with the revenue are included in the reported 
costs, and therefore the G&A should be offset by the revenue. Siderca 
claims that the petitioners' focus on ``production of the subject 
merchandise'' is misleading. Siderca argues there does not have to be a 
direct link to OCTG, only to the production facilities where the 
merchandise was produced. Siderca cites the Final Determination of 
Sales at Not Less Than Fair Value: Saccharin from Korea (59 FR 58826, 
58828, November 15, 1994), in which the Department stated that 
miscellaneous income should be permitted as an offset to G&A because 
the income was related to respondent's production operations.
DOC Position

    We agree with Siderca. The insignificant size of the offset 
indicates the revenue is miscellaneous in nature and should be included 
in G&A. The costs associated with this revenue are captured in the 
company's overall variance and, therefore, have been included in the 
reported costs. As the Department noted in Saccharin from Korea, 
miscellaneous income relating to production operations of the subject 
merchandise may be permitted as an offset to G&A. Intermediate 
products, sold in small quantities, are considered to be related to 
production operations. We have included in G&A the miscellaneous 
revenue from the sale of intermediate products.

Comment 13: G&A Expense of Siderca Corp.

    The petitioners argue the Department must treat the G&A expense of 
Siderca Corp. as further manufacturing costs and not as indirect 
selling expenses. They state that Siderca Corp. plays an integral part 
in the further manufacturing process, claiming it negotiates and 
oversees the work of the unrelated subcontractors, functions as a 
purchasing agent for Texas Pipe Threaders (TPT) and the unrelated 
subcontractor, and shares with TPT office space and the same company 
president. The petitioners argue that, because Siderca failed to 
demonstrate which of Siderca Corp.'s G&A expenses relate to further 
manufacturing, the Department should make an adverse inference, and 
include all of the costs in further manufacturing.
    Siderca argues that it properly included Siderca Corp.'s G&A 
expenses as a selling expense. Siderca concedes that Siderca Corp. does 
purchase material for use in further manufacturing, and arranges when 
necessary for the further processing to occur at TPT and other 
processors. However, Siderca argues that Siderca Corp.'s activities are 
directed toward selling merchandise.

DOC Position

    We agree with Siderca. Siderca Corp. may direct the movement of 
materials to the related and unrelated further manufacturers, but all 
production activities are carried out by the further manufacturers. 
These further manufacturers charge Siderca Corp. for their services. 
These charges have been reported as further manufacturing costs. We 
have treated the G&A expenses of Siderca Corp. as a selling expense, 
since the primary function of Siderca Corp. is one of a selling agent.

Comment 14: Interest Expense on Further Manufactured Merchandise

    The petitioners argue that Siderca calculated and applied interest 
expense incorrectly on sales of further manufactured merchandise. The 
petitioners also argue Siderca inappropriately applied the interest 
factor to fabrication costs only, and thereby understated costs. 
Finally, the petitioners argue Siderca should calculate the rate from 
the consolidated financial statements of Siderca, rather than the 
financial statements of Siderca Corp.
    Siderca maintains that Siderca Corp.'s interest expense is the 
appropriate measure of interest expense on sales of further 
manufactured merchandise. Siderca argues that Siderca Corp. has a 
direct line of credit with a bank in the United States to finance its 
operations. Siderca also argues that it is unnecessary to apply any 
financing to TPT's activities as the cash balance at TPT is sufficient 
to handle its requirements.

DOC Position

    The Department's methodology for calculating financial expense is 
well-established (see, e.g., the Final Determination of Sales at Less 
than Fair Value: New Minivans from Japan (57 FR 21937, May 26, 1992) 
and the Final Determination of Sales at Less than Fair Value: Small 
Business Telephones from Korea (54 FR 53141, December 27, 1989)). The 
Department's preference for using the consolidated financial statements 
of the organization, because of the fungibility of money, applies 
equally in further manufacturing situations. Both TPT and Siderca Corp. 
are consolidated with their parent, Siderca S.A.I.C.. Therefore, the 
appropriate rate to apply to the further manufacturing costs is the 
rate from the parent's consolidated financial statements.
    The petitioners are incorrect in their assertion the rate should be 
applied to the cost of the materials (i.e., the cost of the product 
produced by Siderca in Argentina which is further manufactured in the 
United States). The Department accounts for the interest expense 
associated with the product produced in Argentina as part of the 
financing cost of the product. It would effect a double counting of 
financial expenses if the Department applied the financial expense rate 
first to the product produced in Argentina and then to the total of the 
further manufactured product.
    We applied the financial expense percentage calculated from the 
audited consolidated financial statements of Siderca to the cost of the 
foreign manufactured product and the cost of the U.S. further 
manufacturing.

Suspension of Liquidation

    Pursuant to section 735(c)(1)(B) of the Act, we will instruct the 
Customs Service to require a cash deposit or posting of a bond equal to 
the estimated final dumping margins, as shown below for entries of OCTG 
from Argentina that are entered, or withdrawn from warehouse, for 
consumption from the date of publication of this notice in the Federal 
Register. The suspension of liquidation will remain in effect until 
further notice.

------------------------------------------------------------------------
                                                              Weighted- 
                                                               average  
               Manufacturer/producer/exporter                   margin  
                                                              percentage
------------------------------------------------------------------------
Siderca S.A.I.C............................................         1.36
All Others.................................................         1.36
------------------------------------------------------------------------

International Trade Commission (ITC) Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determination. The ITC will make its determination whether 
these imports materially injure, or threaten injury to, a U.S. industry 
within 75 days of the publication of this notice, in accordance with 
section 735(b)(3) of the Act. If the ITC determines that material 
injury or threat of material injury does not exist, the proceeding will 
be terminated and all securities posted as a result of the suspension 
of liquidation will be refunded or cancelled. However, if the ITC 
determines that material injury or threat of material injury does 
exist, the [[Page 33551]] Department will issue an antidumping duty 
order.

Notification to Interested Parties

    This notice serves as the only reminder to parties subject to 
administrative protective order (APO) in this investigation of their 
responsibility covering the return or destruction of proprietary 
information disclosed under APO in accordance with 19 CFR 353.34(d). 
Failure to comply is a violation of the APO.
    This determination is published pursuant to section 735(d) of the 
Act (19 U.S.C. 1673(d)) and 19 CFR 353.20.

    Dated: June 19, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-15616 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P