[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