[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33551-33558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15617]



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[A-433-805]


Final Determination of Sales at Less Than Fair Value: Oil Country 
Tubular Goods from Austria

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

EFFECTIVE DATE: June 28, 1995.

FOR FURTHER INFORMATION CONTACT: Bill Crow or James Maeder, Office of 
Antidumping Investigations, Import Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW., Washington, DC. 
20230; telephone (202) 482-0116 or 482-3330, respectively.

Final Determination

    We determine that oil country tubular goods (``OCTG'') from Austria 
are being 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 preliminary determination of sales at less than fair 
value in this investigation on January 26, 1995 (60 FR 6512, February 
2, 1995), the following events have occurred.
    In February and April 1995, the Department conducted its sales and 
cost verifications of the respondent, Voest-Alpine Stahlrohr Kindberg 
GmbH (``Kindberg''). Verification reports were issued on April 17, 
1995, April 26, 1995, and April 27, 1994.
    On May 12, 1995, Koppel Steel Corporation, U.S. Steel Group (a unit 
of USX Corporation) and USS/Kobe Steel Company (``the petitioners'') 
and Kindberg submitted case briefs. Rebuttal briefs were submitted by 
both parties on May 19, 1995. No hearing was held, as petitioners 
withdrew their request on April 12, 1995.

Scope of Investigation

    For purposes of this investigation, OCTG are hollow steel products 
of circular cross-section, including oil well 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 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 definition.
    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

    For purposes of the final determination, we have determined that 
the OCTG covered by this investigation comprises a single category of 
``such or similar'' merchandise within the meaning of section 771(b) of 
the Act. We modified the matching hierarchy outlined in Appendix V of 
the Department's antidumping questionnaire as described in the 
preliminary determination.

Fair Value Comparisons

    To determine whether sales of OCTG from Austria 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. When comparing the U.S. sales to sales of similar merchandise 
in the third country, we made adjustments for differences in physical 
characteristics, pursuant to 19 CFR 353.57. Further, in accordance with 
19 CFR 353.58, we made comparisons at the same level of trade, where 
possible.

United States Price (USP)

    We calculated USP according to the methodology described in our 
preliminary determination with the following exceptions: (1) We 
recalculated U.S. indirect selling expenses incurred in Austria to 
adjust for cost variances; (2) we recalculated U.S. indirect selling 
expenses incurred by Kindberg's Houston Texas related sales agent, 
VATC, to adjust for cost variances and to correct for an incorrect 
allocation of VATC's personnel costs; (3) we made corrections and 
adjustments to reported foreign brokerage charges; (4) we made 
corrections and adjustments to U.S. duty, wharfage and brokerage 
expenses, where necessary; and (5) we recalculated U.S. imputed credit 
to use an interest rate tied to U.S. dollar lending.

[[Page 33552]]

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 third country 
sales to Russia.

Cost of Production (COP)

    As we indicated in our preliminary determination, on October 5, 
1994, the Department initiated an investigation to determine if sales 
in the third-country market were made below the cost of production 
(COP). In order to determine whether the third country prices were 
below COP within the meaning of section 773(b) of the Act, we 
calculated the COP based on the sum of Kindberg's cost of materials, 
fabrication, general expenses, and packing, in accordance with 19 CFR 
353.51(c). Kindberg had reported four cost variances prior to the 
preliminary determination, but provided insufficient explanation and 
incomplete documentation. In fact, some of the information on the 
record at the date of the preliminary determination concerning the 
reported variances was self-contradictory.
    We sent Kindberg several supplemental questionnaires. The last 
supplemental questionnaire due date fell after the preliminary 
determination, therefore we could only consider the corrections 
submitted pursuant to the last supplemental questionnaire for purposes 
of this final determination. Additionally, the nature of the variances 
was confirmed during the course of the cost verification. Therefore, 
for purposes of the preliminary determination, we did not adjust the 
reported standard costs for the reported variances because Kindberg had 
not, at that time, properly explained and documented these variances. 
Based on clarifications timely submitted after the preliminary 
determination and reviewed at verification, we analyzed the variances 
submitted by Kindberg for purposes of the final determination.
    Kindberg's four reported variances are as follows: (1) The 
``Recalculating'' (Verrechnungsergebnis) variance, which adjusts 
standard costs to actual costs, (2) the ``Reconciling'' (Uberleitung) 
variance, which reconciles the cost accounting system results with 
Kindberg's financial statements, (3) the ``Plant Idling'' 
(Betriebstillstand) variance, which adjusts actual period factory 
overhead to reverse the decreased efficiencies of scale caused by 
factory idling, and (4) the ``profit-sharing'' (Gewinnausschuttung) 
variance, which adjusts actual period costs to reverse Kindberg's 
state-mandated bonus pay.
    For our final determination, we made the following adjustments to 
Kindberg's costs:
    1. We used only the ``Recalculating'' and ``Reconciling'' variances 
to adjust Kindberg's reported standard costs because the remaining two 
variances reflect an improper hypothetical normalization of actual 
costs incurred during the POI. A detailed and proprietary analysis of 
the nature of Kindberg's reported cost variances is contained in the 
Department's June 12, 1995, final concurrence memorandum. Also, see the 
Cost Comments section of the notice, below.
    2. We have recalculated the variance as a percentage of the POI 
cost of manufacturing (COM) and applied that percentage to each per-
unit cost of manufacturing. See also the Cost Comments section of the 
notice, below.
    3. We calculated a revised (G&A) rate from the annual financial 
statements and applied this revised rate to the per-unit cost of 
manufacturing.
    4. We removed from the COM of one model sold in the United States, 
to a separate packing expense field, the significant packing costs 
incorrectly included by Kindberg in COM.
    5. We recalculated Kindberg's financial expenses using the 1993 
annual audited financial statements of its parent organization, 
O.I.A.G. A detailed and proprietary analysis of this adjustment is 
contained in the Office of Accounting's June 13, 1995, memorandum.
    After computing COP, we compared product-specific COP to reported 
third-country prices that were net of movement charges and direct and 
indirect selling expenses.

Results of COP Analysis

    In accordance with Section 773(b) of the Act, we followed our 
standard methodology to determine whether the third country sales of 
each product were made at prices below their COP in substantial 
quantities over an extended period of time, and whether such sales were 
made at prices that would permit recovery of all costs within a 
reasonable period of time in the normal course of trade, as described 
in the preliminary determination.
    Based on this methodology, for certain products sold in the United 
States, there were adequate numbers of third country sales made above 
the cost of production to serve as FMV. For U.S. sales of other 
products, there were not. In such cases, we matched U.S. sales to 
constructed value (CV).

Constructed Value

    In accordance with section 773(e) of the Act, we calculated CV as 
described in the preliminary determination, with the same adjustments 
for purposes of this final determination as listed in the ``Cost of 
Production'' section above, with one additional change: We offset the 
financial expense calculated from O.I.A.G.'s financial statements by 
the ratio of trade receivables and inventory over total assets.
    For CV to U.S. price comparisons, we made deductions from CV, where 
appropriate, for the weighted-average third country direct selling 
expenses. We also deducted the weighted-average third country indirect 
selling expenses. We limited this adjustment by the amount of indirect 
selling expenses incurred on U.S. sales, in accordance with 19 CFR 
353.56(b)(2).

Third-Country Sales Comparisons

    Where appropriate, we calculated FMV based on delivered prices to 
unrelated customers in Russia and to unrelated international trading 
companies whose customers in Russia were known to Kindberg at the time 
of Kindberg's sale to the trading company.
    In light of the Court of Appeals for the Federal Circuit's (CAFC) 
decision in Ad Hoc Committee of AZ-NM-TX-FL Producers of Gray Portland 
Cement v. United States, 13 F.3d 398 (Fed. Cir. 1994), the Department 
no longer can deduct third-country movement charges from FMV pursuant 
to its inherent power to fill in gaps in the antidumping statute. 
Instead, we will adjust for those expenses under the circumstance-of-
sale provision of 19 CFR 353.56(a), as appropriate. Accordingly, in the 
present case, we deducted post-sale third-country inland freight, 
inland insurance and foreign inland insurance from FMV as direct 
selling expenses under the circumstance-of-sale provision of 19 CFR 
353.56(a).
    We deducted third-country packing costs and added U.S. packing 
costs in accordance with section 773(a)(1) of the Act. We also made 
circumstance-of-sale adjustments for differences in direct selling 
expenses, which included credit, warranties, guarantees and 
commissions, in accordance with 19 CFR 353.56(a)(2). We deducted 
commissions incurred on third-country sales and added total U.S. 
indirect selling expenses, capped by the amount of third-country 
commissions; those total U.S. indirect selling expenses included U.S. 
inventory carrying costs, indirect selling expenses incurred in Austria 
on U.S. sales and indirect [[Page 33553]] selling expenses incurred in 
the United States.
    Based on information obtained at verification, we made corrections 
and adjustments to certain charges claimed by Kindberg. We recalculated 
indirect selling expenses incurred in Austria for Russian sales to 
adjust for cost variances. We also recalculated imputed credit on 
Russian sales to use an interest rate tied to U.S. dollar lending, 
since Russian sales were denominated in U.S. dollars. Based on 
information obtained at verification, we allowed an adjustment for 
occasional early payment discounts, where applicable.
    We discovered at verification that Kindberg failed to report a 
limited number of Russian sales. However, taking into considering the 
relatively insignificant volume of these sales and the FMV of these 
sales relative to the FMV of reported sales, we find that the omission 
does not distort our margin calculation. Therefore, we made no 
modification to our analysis to account for their inadvertent 
exclusion. See also Sales Comment 1, below.

Currency Conversion

    We made currency conversions based on the official exchange rates, 
as certified by the Federal Reserve Bank of New York, in effect on the 
dates of the U.S. sales, pursuant to 19 CFR 353.60.

Verification

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

Sales Comments

Comment 1--Kindberg's Failure To Report Certain Russian Sales

    The petitioners maintain that the Department should use best 
information available (BIA) to remedy Kindberg's failure to report 
Russian sales which account for a portion of the total volume of POI 
sales to Russia. According to the petitioners, the information on the 
record is not sufficient to determine what effect these sales would 
have on the calculation of third country prices or on dumping margins. 
The petitioners urge the Department to employ a methodology similar to 
that used in Final Determination of Sales at Less Than Fair Value: 
Fresh Kiwifruit from New Zealand (57 FR 13695, April 17, 1992), 
(``Kiwifruit'') whereby the Department distributed the volume of the 
missing sales equally across all pricing periods, and assigned to each 
portion of the added volume the highest net price in the pricing period 
that was found in each kiwifruit category.
    Kindberg maintains that its omission of these sales should be 
treated as a clerical error pursuant to section 735(e) of the Act and 
therefore should be corrected for purposes of the final determination. 
Kindberg rejects the petitioners' suggestion for use of BIA, stating 
that the failure to report these sales was unintentional and that their 
inclusion would have actually benefitted Kindberg. The respondent 
states that Kiwifruit as cited by the petitioners is not germane for 
several reasons: (1) The omission of the Russian sales was inadvertent; 
(2) Kindberg is not requesting that the sales be disregarded; (3) 
Kiwifruit involved the omission of a significantly larger portion of 
sales; and (4) Kiwifruit involved sales over six distinct pricing 
periods where the price did not change during those periods, whereas no 
analogous pricing structure exists for OCTG. Kindberg maintains that 
the Department should use its discretion to modify the record and not 
reject the new sales data, and argues that the courts have never 
reversed a decision by the Department to accept late information rather 
than use BIA.

DOC Position

    We disagree with the petitioners in that we are not using BIA for 
these unreported sales. We also disagree with respondent, in that we 
have not corrected the database to account for the missing 
transactions. The amount of sales inadvertently omitted is relatively 
insignificant.
    The Department has, in the past, disregarded sales inadvertently 
omitted from the database for FMV when such unreported sales were of 
insignificant quantity and value. In the Final Determination of Sales 
at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, 
Certain Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-
Resistant Carbon Steel Flat Products, and Certain Cut-to-Length Carbon 
Steel Plate from France, (58 FR 37131, comment 16, July 9, 1993), we 
disregarded previously unreported home market sales, both those 
presented at the outset of, and those discovered during the course of, 
the Department's verification, because they were of insignificant 
quantity and value.
    Further, based on our analysis of sampled missing invoices, the 
gross prices of the omitted transactions were considerably lower than 
similar sales reported. As such, the record indicates that the omission 
of these third-country sales is in fact, adverse to respondent's 
interests. Accordingly, no further adverse action is warranted.

Comment 2--Discounts on Russian Sales

    The petitioners argue that the Department should not allow any 
adjustment to third country prices for discounts. According to the 
petitioners, because Kindberg did not report discounts in its database 
sales listing, but rather only referred to their possible existence in 
the body of its narrative response, it never truly reported the 
discounts. The petitioners acknowledge that the Department was able to 
successfully test the discount program at verification; however, the 
petitioners also point out that the verification report records the 
verifier's notice to company officials that examination of the 
administration of the discount program did not constitute acceptance of 
the adjustment for purposes of the final determination. Indeed, they 
object to any such acceptance. The petitioners cite to the Department's 
regulation that factual information must be submitted no later than 
seven days before the scheduled date on which the verification is to 
commence (19 CFR 353.31(a)(i)), maintaining that the inclusion of the 
discounts is not warranted because the discounts are not a minor 
revision to the responses but instead are substantial new information.
    Kindberg maintains that its omission from the computer listing of 
these discounts should be treated as a clerical error pursuant to 
section 735(e) of the Act and therefore corrected for purposes of the 
final determination. Kindberg maintains that it did report these 
discounts in its response, though it inadvertently did not include them 
on its submitted computer tape. Kindberg states that the Department 
corroborated the applicability of the discounts at verification.

DOC Position

    We disagree with the petitioners. Kindberg did report the 
circumstances in which this discount apply and the percentage thereof, 
but failed to include the transaction-specific amounts in its 
computerized sales listing. The detailed information submitted by 
Kindberg enabled the Department to analyze the pertinent Russian sales 
prior to verification. Thus, the verification team had at its disposal 
the subset of such sales in a format which allowed relatively easy 
review of the omitted discounts. Kindberg officials recognized and 
alerted verifiers to their mistake early in the verification. The 
sample selected for verification by the team tied correctly and the 
correction placed no administrative burden on the Department. Given 
these particular [[Page 33554]] circumstances, we modified the final 
programming to deduct the discount from those sales with the 
corresponding payment code.
Comment 3--Exchange Rates

    The petitioners contend that the Department should follow its 
normal practice and apply the Federal Reserve exchange rates in its 
final margin calculations and reject Kindberg's logic for using the 
``secured exchange rates'' reported in its sales listings. The 
petitioners maintain that the Department's regulations governing 
currency conversions state clearly that the Department will use the 
quarterly exchange rates published by the Treasury Department on the 
applicable date of sale. First, the petitioners claim that the 
Department's decision in the administrative review of Antifriction 
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from 
France, et. al., 60 FR 10900, 10921 (February 25 1995), confirms that 
the Department will not use the exchange rate a company allegedly 
received through hedging operations, citing our position in that review 
that the Department is required by 19 CFR 353.60 to make currency 
conversions using the Federal Reserve rates. Second, the petitioners 
allege that verification revealed that many sales were not secured by 
forward contracts, but were entered into Kindberg's books using either 
a mixed rate consisting of the secured exchange rate and the daily 
exchange rate quoted in the Wiener Zeitung or the Wiener Zeitung daily 
rate alone.
    Kindberg maintains that the mix of daily and hedged currency 
conversion rates should be treated as a clerical error pursuant to 
section 735(e) of the Act (19 USC 1673d(e)) and therefore corrected for 
purposes of the final determination. Kindberg argues that the reported 
exchange rate contracts lock in sales that are denominated in U.S. 
dollars and that these rates are integrally linked to Kindberg's cost 
accounting and financial accounting systems.

DOC Position

    We disagree with the respondent. First, the Department should not 
use Kindberg's parent-company's partial currency hedging exchange rates 
in lieu of official exchange rates. The Department is required by 19 
CFR 353.60 to make currency conversions using the Federal Reserve 
rates.
    Second, the petitioners are correct in pointing out that 
verification revealed that many sales were not secured by forward 
contracts, but were entered into Kindberg's books using either a mixed 
rate consisting of the secured exchange rate and the daily exchange 
rate quoted in the Wiener Zeitung or the Wiener Zeitung daily rate 
alone. Kindberg is incorrect to classify a question of fundamental 
calculation methodology as a ``clerical'' error. The error herein is 
Kindberg's inaccuracy in describing the use of ``secured'' exchange 
rates. The Department cannot accurately use Kindberg's mix of reported 
exchange rates, since the databases for U.S. and third-country sales do 
not indicate which transactions were ``secured,'' which were recorded 
with daily newspaper rates and which were recorded with part-secured/
part-daily rates.

Comment 4--Third Country Commissions

    The petitioners argue that the Department should not adjust 
Kindberg's third country prices for commissions because Kindberg failed 
to submit adequate information regarding commissions paid on sales to 
the Russian market. According to the petitioners, Kindberg failed to 
provide meaningful details on the payment of charges it claims as 
commissions in its response. Additionally, the petitioners argue that 
Kindberg failed to submit any usable information regarding commissions 
until verification. The petitioners maintain that the information 
presented at verification by Kindberg indicates that the commissions 
may not be linked to individual sales or even calculated on the basis 
of sales.
    Kindberg maintains that it reported in its response that 
commissions on sales to Russia are negotiated individually and may vary 
for each commissionaire depending on the agreement negotiated with 
Kindberg. Further, Kindberg states that, regardless of the extent of 
their services, all commissionaires provide Kindberg with client 
contact and client cultivation directly relating to sales that are the 
subject of this investigation. Kindberg therefore urges the Department 
to make a downward adjustment to foreign market value to account for 
these commissions.

DOC Position

    We disagree with the petitioners. The payments examined in the 
context of the selected Russian sales were documented by Kindberg as 
having been administered as commissions. These payments were made in 
recognition of the selling functions of the trading companies, which 
are located in market economies, and are by nature sales commissions. 
The general purpose and administration of these payments is fully 
consistent with the characteristics of commissions outlined in the 
Final Determination of Sales at Less Than Fair Value: Stainless Steel 
Angle from Japan, (60 FR 16608, 16611, March 31, 1995). These 
characteristics are consistent in that: (1) These adjustments are 
designed and agreed upon in writing with the commissionaires; (2) 
commissions were earned directly on sales made, based on flat rates or 
percentage rates applied to the value of individual orders; (3) the 
commissions take into consideration the expenses which the trading 
companies must incur to cultivate and maintain successful relationships 
with Russian purchasers; and (4) Kindberg relies on the external sales 
and marketing abilities of these commissionaires in lieu of 
establishing its own larger Eastern European sales force. We are, 
therefore, continuing to treat these reported adjustments as 
commissions, deducting them from FMV and adding to FMV indirect selling 
expenses incurred by Kindberg on U.S. sales, capped by the amount of 
third-country commissions.

Comment 5--Value Allocation of U.S. Indirect Selling Expenses

    The petitioners maintain that in calculating U.S. price, the 
Department should divide the total U.S. indirect selling expenses 
reported by Kindberg by the value of sales to obtain the proper 
allocation, rather than use the per-ton charges originally reported by 
Kindberg.

DOC Position

    We agree with the petitioners, and are calculating indirect selling 
expenses, both on U.S. and Russian sales, as a percentage of sales.

Comment 6--U.S. Credit Expenses

    The petitioners note that in reporting U.S. sales, Kindberg 
calculated imputed credit using an Austrian interest rate of 4.6 
percent. They point out that in the preliminary determination, the 
Department based its calculation of U.S. imputed credit on the late 
payment charge formula used by VATC on its invoices, of ``prevailing 
New York prime plus 1 percent.'' According to the petitioners, the 
Department has stated in the past that for a given interest rate to be 
used, a respondent must show that it actually had access to funds at 
that interest rate. The petitioners maintain that Kindberg has provided 
no information that it or VATC in access to funds at the prevailing New 
York prime rate plus one percent. The petitioners urge the Department 
to use the higher interest rate on Kindberg's invoices to VATC to 
calculate U.S. imputed credit. [[Page 33555]] 
    In response, Kindberg maintains that the Department should not use 
the late payment rate set forth on its invoices to VATC because this 
rate is not a borrowing rate but rather a punitive rate established by 
Kindberg to encourage timely payment by their related sales agent. 
Asserting that this rate does not reflect the actual cost to it for 
extending credit to customers in the United States, Kindberg urges the 
Department to use instead the 4.6 percent interest rate it reported 
which was based on its deferred interest deposits in Austrian 
schillings.
DOC Position

    We disagree with both parties. Petitioners object to using the U.S. 
interest rate noted on the VATC invoice to the U.S. customer, and would 
have us use a higher rate noted on the pro-forma invoice from Kindberg 
to VATC. Yet the higher rate set forth on the pro-forma invoice does 
not represent actual borrowing by Kindberg any more than does the rate 
on the VATC invoices. However, the rate on the VATC invoice is used by 
VATC to establish the time value of credit it extends when receiving 
late payment by the first unrelated U.S. customer, the purchaser who 
defines the actual U.S. transaction. Additionally, the rate on the VATC 
invoice to the U.S. customer is tied to an objective market rate, the 
N.Y. prime interest rate.
    In contrast, the nominal late payment interest rate shown on the 
Kindberg to VATC invoices is for delinquent intra-company repatriation 
of funds from VATC to Kindberg, and is not tied to any objective 
benchmark related to the lending market, such as a U.S. prime rate. 
Thus, it is even further removed from objective commercial criteria.
    We are not using the reported rate of 4.6 percent because this 
Austrian rate is denominated in schillings, and both U.S. and Russian 
sales are denominated and paid for in U.S. dollars. A company selling 
in a given currency (such as sales denominated in dollars) is 
effectively lending to its purchasers in the currency in which its 
receivables are denominated (in this case, in dollars) for the period 
from shipment of its goods until the date it receives payment from its 
purchaser. Thus, when sales are made in, and future payments are 
expected in, a given currency, the measure of the company's extension 
of credit should be based on an interest rate tied to the currency in 
which its receivables are denominated. Only then does establishing a 
measure of imputed credit recognize both the time value of money and 
the effect of currency fluctuations on repatriating revenue.
    Since the purchaser of record in the investigation is the first 
unrelated customer in the United States, the appropriate interest rate 
reflecting imputed credit expenses by Kindberg through VATC is a rate 
denominated in U.S. dollars. The New York prime rate plus one percent 
is the rate set during the POI by which Kindberg's related U.S. sales 
agent measured the time value of late revenue on U.S. sales. In a 
parallel manner, the Department's imputed credit expense measures the 
cost to Kindberg, via VATC, of extending credit to that U.S. customer. 
Additionally, since sales to Russia are also denominated in U.S. 
dollars, and since this is the only dollar-denominated interest rate 
indicated by Kindberg's actual business practices, we are also 
calculating imputed interest for those sales at the New York prime 
interest rate plus one percent.

Comment 7--Price Changes on Certain U.S. Sales

    The petitioners note that the Department discovered that for 
certain U.S. sales, VATC did not simply re-invoice the prices recorded 
in Kindberg's invoice to it, but re-invoiced the first unrelated U.S. 
customer at a higher price, based on renegotiated extended payment 
terms and, on one occasion, on extraordinary freight expenses incurred 
by VATC. The petitioners urge the Department not to make any adjustment 
to these price changes in its final antidumping calculations.
    Kindberg states that for the sales where VATC had to re-invoice the 
customer, the new payment terms were contained in the purchase orders 
sent from VATC to Kindberg, but omitted from the invoice sent from 
Kindberg. Kindberg urges the Department to adjust these U.S. prices 
upward.

DOC Position

    We agree with the petitioners. Kindberg did not identify the 
invoice reporting error to the Department, rather, this inaccuracy was 
discovered by the Department. We note, however, that the occasional 
freight charges incurred were passed on exactly to the U.S. customer 
and that the upward adjustment to U.S. price for extended payment terms 
was offset by the increased cost of the extended credit. Thus 
Kindberg's failure to report the subset of changed VATC invoice prices 
and related charges had no effect on the margin calculations. 
Additionally, Kindberg's mistake was inadvertent. For these reasons, we 
did not make any adjustment to the reported gross price on those sales, 
nor did we apply partial BIA.

Comment 8--Unincorporated Russian Debit and Credit Memoranda

    Citing from the Austrian Sales Verification Report, Kindberg notes 
that it had not matched several debit and credit memos to the Russian 
sales that they modified. Kindberg stresses that the net effect of the 
unincorporated memoranda was an over-reporting of certain third-country 
sales prices and urges, therefore, that the mistakes identified at 
verification be corrected.

DOC Position

    We disagree with the respondent. First, it is not the Department's 
practice to make substantial and complicated revisions, nor is it the 
Department's responsibility to reconstruct a response. Correction of 
the omission of these debit and credit memoranda would require 
extensive matching and recalculation of specific prices by matching 
missing memoranda to invoices through mill orders.
    Second, in this specific instance, the net effect of Kindberg's 
omissions is a marginally higher FMV than the correct amount, which we 
note is slightly adverse to the respondent. We are therefore keeping 
the reported third-country prices unchanged for purposes of the final 
determination.

Comment 9--Double-counting of Transportation Insurance Expenses in U.S. 
and Russian Indirect Selling Expenses

    Kindberg notes that the Department found at verification that 
Kindberg had double-counted transportation insurance expenses by 
reporting these individually and also as a sub-component of indirect 
selling expenses, both for sales to the United States and to Russia. 
Kindberg urges that the mistakes identified at verification be 
corrected.

DOC Position

    We disagree with the respondent. We agree that, where significant, 
double-counting may be addressed. We note, however, that the 
inadvertent inclusion of insurance costs comprises a very minute per-
ton amount. Additionally, we note that this small error affects equally 
both U.S. price and FMV. We did not collect the rather extensive 
documentation required to correct this minor inclusion. Because it is 
not the Department's practice to reconstruct major portions of a 
response, which would be required in order to back out these costs from 
indirect selling [[Page 33556]] expenses, we are using the expenses as 
reported.

Comment 10--Packing Costs

    The petitioners argue that the Department confirmed at verification 
that Kindberg incorrectly included packing costs in its calculation of 
the variable cost of manufacturing used for COP, CV and difference-in 
merchandise (DIFMER) calculations. According to the petitioners, it is 
a well-established principle that packing costs are not a cost of 
manufacturing, and are not included in the variable costs or the difmer 
calculation, but should instead be reported separately.
    However, they also maintain that for all but one model of OCTG the 
impact of these misplaced packing costs are immaterial. The petitioners 
state that for that one remaining model where the packing is in wooden 
boxes, a uniquely expensive method, the actual costs needed for the 
margin calculations are not on the record. They therefore urge the 
Department to assign, as partial BIA, to all U.S. sales of this model, 
a packing cost based on the difference between the highest total cost 
(sum of material costs, labor costs and variable overhead) of any U.S. 
sale, which is packing inclusive, and the total cost for the same model 
as sold in the third country, which is packing exclusive. Calculating 
this difference isolates from total COM the packing charges which were 
only included in COM for the U.S. sales of this model.
    Kindberg maintains that the special packing costs for this one U.S. 
model should not be included in the variable cost of manufacturing or 
in the calculation of differences in merchandise, but that they should 
be reported as packing costs based on actual cost. Kindberg does not 
agree with the petitioners' contention that the highest difference in 
total manufacturing costs for this model should be used as BIA. 
Kindberg does not state how it would recommend remedying the incorrect 
reporting.

DOC Position

    We agree with the petitioners that the packing costs should not 
have been reported as a component of manufacturing costs. We also agree 
with the petitioners that the packing costs should be removed from the 
reported manufacturing costs and reported independently as packing 
charges for the specific model in question. We do not agree with the 
petitioners' recommendation for partial BIA. We have instead calculated 
the packing expenses for this model from cost of manufacturing based on 
the data collected at verification, as noted in greater detail in the 
June 13, 1995, Office of Accounting memorandum. The Department 
identified the difference between the average unpacked COM reported in 
the COP database for this OCTG model when sold to Russia and the 
average packed COM reported in the CV database for sales to the United 
States. This data allowed the Department to compute a POI-average 
packing cost for the U.S. sales of this model.

Cost Comments

Comment 1--Cost of Steel Billets

    The petitioners object to the use of transfer prices from 
Kindberg's related supplier, VA Stahl Donawitz, in determining the cost 
of production and constructed value. They maintain that the use of the 
reported transfer prices to determine either COP or CV would be 
contrary to the Act.
    With respect to COP, according to the petitioners, Kindberg never 
provided cost data for raw material purchased from Donawitz, despite 
the fact that Kindberg and Donawitz are both under common control. The 
petitioners question the validity of Kindberg's submission of general 
cost data pertaining to Donawitz's production of various types of 
blooms and billets, which the petitioners characterize as being 
untranslated and incomprehensible. The petitioners maintain that these 
documents do not establish the COP of the billets purchased by 
Kindberg. Therefore, the petitioners argue that Kindberg has failed to 
meet the statutory requirement for the use of transfer prices in COP.
    With respect to CV, the petitioners maintain that U.S. law only 
allows the use of transfer prices if two conditions are met: (1) The 
transfer price reflects market value, and (2) for major inputs, the 
transfer price is shown to be above the cost of producing the input. 
They cite to the Department's administrative review of Antifriction 
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from 
France, Germany, Italy, Japan, Romania, Singapore, Sweden, Thailand, 
and the United Kingdom, 58 FR 39729, 39754-5, July 26, 1993.
    The petitioners contend that Kindberg has not fulfilled the first 
condition because it did not demonstrate that the POI purchases of 
Donawitz billets were at market value, but instead made a comparison of 
market prices and transfer prices for the year prior to the POI. The 
petitioners also argue that Kindberg has also failed to meet the second 
condition, since they presented no actual COP data on billets, the 
single most significant input for OCTG production.
    To remedy this alleged deficiency, the petitioners recommend that 
the Department follow the statutory instruction to construct cost on 
the best evidence available as to what costs would have been if the 
transaction had occurred between unrelated parties. The petitioners 
suggest that the Department increase the raw material variable overhead 
for each control number by an amount equal to the average cost of 
manufacture reported by Donawitz, multiplied by the statutory ten 
percent for SG&A.
    Kindberg contends that it has provided both a comparative analysis 
of market prices and Donawitz's average cost of production per ton per 
billet during the POI for the record in this investigation. According 
to Kindberg, the information provided demonstrates that the transfer 
prices are above Donawitz's cost of production and that Donawitz was 
profitable during the full year 1994. Kindberg claims that the 
documentation shows specifically that Donawitz sold raw materials to it 
at a profit. Kindberg therefore urges the Department to utilize the 
reported transfer prices in its calculation of cost of production and 
constructed value.
    Kindberg maintains that the petitioners' suggestion that the 
Department should increase the variable overhead cost of raw materials 
by a hypothetical amount is totally without merit. Kindberg claims that 
this suggestion was made without citation to administrative precedents, 
judicial precedents or statutory authority; further, the suggestion 
runs counter to the antidumping law. Kindberg maintains that the 
Department is required to, and has a practice of, using actual market 
prices when related party prices are found to be unreliable. According 
to Kindberg, the information on record clearly establishes that market 
prices are lower than those paid by Kindberg to its related party 
supplier.

DOC Position
    We disagree with the petitioners. Kindberg: (1) Was able to show 
benchmark market prices using both a 1994 contract for purchases of 
billets from an unrelated party; and (2) provided cost data from 
Donawitz showing the average cost of producing billets to be below all 
of the transfer prices reported. Therefore, we used the transfer price 
from Donawitz to Kindberg for purposes of the final determination. 
[[Page 33557]] 

Comment 2--The Plant Idling Variance

    The petitioners maintain that Kindberg's calculation of net cost 
variance improperly included a reduction in costs calculated to reflect 
idle plant expenses due to problems with a major contract. The 
petitioners contend that this element, which Kindberg called its 
``Plant-Idling variance'' is not truly a cost variance. According to 
the petitioners, Kindberg is using this amount to adjust actual costs 
to hypothetical costs, i.e., those costs which would have been incurred 
if it had not encountered contract problems and thus had operated its 
factory at ``normal'' levels in 1994. The petitioners cite to Final 
Determination of Sales at Less Than Fair Value: Titanium Sponge from 
Japan, 49 FR 39687, 38689, October 1, 1984, to support their contention 
that the Department has in the past specifically rejected adjustments 
to actual costs, where the adjustments were designed to convert actual 
production costs to those of a ``hypothetical efficient cost model.'' 
Second, the petitioners maintain that the Department requires 
respondents to report a fully absorbed cost of production, including 
costs associated with down time and with low capacity utilization. The 
petitioners contend that, based on this principle, the Department 
requires respondents to include depreciation costs of idled equipment 
and labor costs of idled staff. According to the petitioners, such 
costs are included in COP regardless of the cause of plant idling.
    According to Kindberg, the reported variance includes costs which 
are not associated with temporary down-time or low capacity utilization 
or other costs incurred due to general business conditions such as 
strikes or production problems or factory modernization. Kindberg 
maintains that the freezing of the contract, particularly for an 
extended period of time, forced the factory to incur unforeseeable 
costs that are not normally associated with general business 
conditions. Kindberg argues that, because these costs do not reflect 
its actual cost of production, the Department should include this 
variance in the calculation of cost of production and constructed 
value.

DOC Position

    We disagree with the respondent. We are rejecting the adjustment to 
fixed factory overhead costs for the ``Plant Idling'' variance. 
Rejecting this claimed adjustment corrects fixed factory overhead to 
the levels actually incurred in the POI. The Department's practice is 
to calculate the respondent's fully absorbed cost of production for the 
POI. By fully absorbed cost the Department means actual cost incurred 
in the POI, including period costs such as SG&A, financial expense and 
all non-operating costs. The purpose of the COP test is to determine if 
the respondent's home market or third-country price is sufficient to 
recover all of its costs, including period costs.
    Kindberg recognized the total overhead costs as an operating 
expense in their income statement, not as an extraordinary expense. 
Under Austrian GAAP, these expenses were not considered extraordinary, 
and, in fact, they were not reported as extraordinary expenses in 
Kindberg's financial statements. As noted in Final Results of 
Antidumping Duty Administrative Review: Color Picture Tubes from Japan 
(55 FR 37924, September 14, 1990, the Department does not normally 
accept the use of expected or budgeted production quantities. Although 
the cause of Kindberg's loss of the export guarantee was unique, the 
resulting delay in a major sale was not itself an extraordinary event. 
Moreover, Kindberg did not provide any evidence to establish their 
normal production level. The Department may normalize production costs 
in extraordinary circumstances if the respondent provides several years 
of production data, establishing their normal historical production 
level. Kindberg only submitted its year-end yield accounts. Without the 
historical cost data, we would not have been able to analyze a 
benchmark for the ``normal'' production level of Kindberg, even if we 
had determined that normalization was appropriate.

Comment 3--The Profit Sharing Variance

    The petitioners maintain that Kindberg's calculation of net cost 
variance improperly included a reduction in costs calculated to adjust 
for its distribution of profit to employees. The petitioners contend 
that this element, which Kindberg called its ``profit-sharing 
variance'' is not truly a cost variance. According to the petitioners, 
Kindberg is using this amount to remove from the reported manufacturing 
costs, the expense of paying its employees as mandated by Austrian law. 
The petitioners cite to the final determinations in the administrative 
reviews of Porcelain-on-Steel Cooking Ware from Mexico (Mexican Cooking 
Ware), (60 FR 2378, 2839 January 9, 1995) and (58 FR 43327, 43331-
43332, August 16, 1993) as well to the Final Determination of Sales at 
Less Than Fair Value: Carbon Steel Flat Products from Canada, (58 FR 
37099, 37113-37114, July 9, 1993), to support their claim that the 
Department has consistently required such payment to be included in 
COP.
    Kindberg argues that it properly removed from production costs the 
bonuses paid to employees under the profit sharing plan. Kindberg 
states that the Austrian Government sets statutory wage rates and 
salaries for different jobs in the iron and steel industry and that the 
profit distribution is a regular incentive given to employees, even if 
the company incurs a loss. Kindberg argues that the amounts should not 
be included in the reported costs, because the profit distributions 
exceed the statutory wages Kindberg is required to pay.

DOC Position

    We disagree with respondent. We are rejecting Kindberg's adjustment 
to manufacturing costs for the ``Profit-Sharing'' variance. Rejecting 
this variance restates Kindberg's conversion costs to amounts 
reflecting the actual costs incurred in the POI.
    In general, from an economic standpoint, there are several benefits 
that a company receives through the adoption of a profit sharing plan. 
The company's fixed wages are reduced allowing it to remain cost 
efficient in tough economic conditions. The promise of sharing profits 
in prosperous periods can be used to gain wage concessions from unions. 
Therefore, profit sharing plans are directly related to wages and 
salaries.
    From an accounting perspective, profit distributions to employees 
are treated in a manner similar to bonuses. They are typically recorded 
as an expense and are shown on the income statement. Kindberg included 
these nominal ``profit-sharing'' distributions as an operating expense 
on its financial statements. In contrast, dividends, which are true 
distributions of profit, affect only the equity section of the balance 
sheet and do not flow through the income statement. This distinction 
implies that profit sharing distributions are more closely associated 
with expenses, rather than with earnings. Kindberg admits in its case 
brief that the profit-sharing distributions are regular incentives to 
employees and that the distributions increase the operating loss.
    Consistent with our determinations in consecutive administrative 
reviews of Mexican Cooking Ware, the Department determines that these 
mandatory payments represent compensation to the employees for their 
efforts in the production of merchandise and the administration of the 
company.

[[Page 33558]]

Comment 4--Allocation of Net Variance

    The petitioners take exception to the allocation of Kindberg's net 
variance. Kindberg divided the total of all of its variances by the 
total tons produced in the POI. This fixed amount per ton was applied 
as an offset to each specific per unit standard cost reported to the 
Department.
    The petitioners argue that the Department must apply the cost 
variances to the cost of manufacturing as a percentage, rather than as 
a fixed amount per ton. The variance must be applied as a percentage in 
order to obtain an applied variance proportional to the manufacturing 
costs. The petitioners argue the fixed amount per ton distorts the 
reported costs, because it understates the variance applied to products 
with higher manufacturing costs and overstates the variance applied to 
products with lower manufacturing costs. The petitioners cite Carbon 
Steel Alloy Steel Wire Rod from Canada, 59 FR 18791 (April 20, 1994), 
in which the Department disallowed the use of tonnage to allocate melt 
shop costs, because it resulted in the same cost per ton regardless of 
steel grade.

DOC Position

    We agree with the petitioners. We have recalculated the variance 
from standard cost as a percentage of the POI cost of manufacturing and 
applied the rate to each per-unit cost of manufacturing. The 
petitioners are correct in their assertion that Kindberg's methodology 
``smooths'' costs by applying a smaller proportion of the variance to 
products with higher production costs. The variance relates to all 
production costs and should be allocated proportionally among product 
costs.

Continuation of Suspension of Liquidation

    In accordance with section 733(d)(1)of the Act 19 USC 1673b(d)(1), 
we directed the Customs Service to suspend liquidation of all entries 
of OCTG from Austria, as defined in the ``Scope of Investigation'' 
section of this notice, that are entered, or withdrawn from warehouse, 
for consumption on or after February 2, 1995.
    Pursuant to the results of this final determination, we will 
instruct the Customs Service to require a cash deposit or posting of a 
bond equal to the estimated final dumping margin, as shown below for 
entries of OCTG from Austria 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.

------------------------------------------------------------------------
                                                                Margin  
               Producer/manufacturer/exporter                 percentage
------------------------------------------------------------------------
Voest-Alpine Stahlrohr Kindberg GmbH.......................        12.72
All Others.................................................        12.72
------------------------------------------------------------------------

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 45 days of the publication of this notice. 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 such injury does exist, the 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. 95-15617 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P