[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33567-33575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15621]



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[A-201-817]


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

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

EFFECTIVE DATE: June 28, 1995.

FOR FURTHER INFORMATION CONTACT: John Beck or Jennifer Stagner, Office 
of Antidumping Investigations, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone (202) 482-3464 
or (202) 482-1673, respectively.

Final Determination:

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

Case History

    Since the preliminary determination on January 26, 1995, (60 FR 
6510, February 2, 1995), the following events have occurred.
    In March and April 1995, the Department verified the cost and sales 
questionnaire responses of Tubos de Acero de Mexico, S.A. (TAMSA). 
[[Page 33568]] Verification reports were issued in April and May, 1995. 
On May 9 and 16, 1995, the interested parties submitted case and 
rebuttal briefs, respectively. TAMSA submitted revised sales and cost 
tapes that corrected clerical errors discovered at verification on May 
18 and 23, 1995. A public hearing was held on May 19, 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 found 
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. 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

    We have determined for purposes of the final determination that 
OCTG covered by this investigation comprises a single category of 
``such or similar'' merchandise within the meaning of section 771(16) 
of the Act. Where there were no sales of identical merchandise in the 
third country 1 to compare to U.S. sales, we made similar 
merchandise comparisons on the basis of the characteristics listed in 
Appendix V of the Department's antidumping questionnaire. We made 
adjustments, where appropriate, for differences in the physical 
characteristics of the merchandise, in accordance with section 
773(a)(4)(C) of the Act.

    \1\ The home market in this case is not viable. Sales to Saudi 
Arabia are being used as the basis for foreign market value and cost 
of production analysis.
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Fair Value Comparisons

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

United States Price

    We calculated USP according to the methodology described in our 
preliminary determination, with the following exceptions:

1. We applied the net financial expense of the consolidated parent to 
the further manufacturing costs of the related U.S. company, Texas Pipe 
Threaders (TPT).
2. We made deductions from gross unit price for movement variances that 
represent the difference between the accrual and actual movement costs.
3. We recalculated inventory carrying cost for the inventory time in 
the United States using a U.S. interest rate, in accordance with the 
Department's practice to use the interest rate applicable to the 
currency of the transaction (see Final Determination of Sales at Less 
Than Fair Value: Certain Carbon Steel Butt-Weld Pipe Fittings from 
Thailand (60 FR 10552, February 27, 1995)).
Foreign Market Value

    As stated in the preliminary determination, under 19 CFR 353.48, we 
found that the home market was not viable for sales of OCTG and based 
FMV on sales to Saudi Arabia. During the course of this investigation 
the petitioner questioned the legitimacy of certain transactions made 
by TAMSA to the Saudi Arabian market. The Department closely examined 
these transactions at verification and found no reason to alter its 
decision to use Saudi Arabia as the appropriate market for determining 
FMV (see Comment 1 in the ``Interested Party Comments'' section of this 
notice).

Cost of Production Analysis

    Based on information contained in the petitioner's allegation that 
TAMSA is selling OCTG in Saudi Arabia at prices below its cost of 
production (COP), the Department initiated a COP investigation for the 
Saudi Arabian sales of TAMSA, under 19 CFR 353.51. This COP 
investigation was initiated on December 22, 1994. Because TAMSA 
submitted its cost information on February 1, 1995, which was after the 
preliminary determination, the Department was unable to use this 
information for purposes of the preliminary determination.
    In order to determine whether the third-country prices were below 
the COP, we calculated the COP based on the sum of TAMSA's reported 
cost of materials, fabrication, and general expenses, in accordance 
with 19 CFR 353.51(c). After computing COP, we compared product-
specific COP to reported third-country prices, net of movement charges 
and direct and indirect selling expenses. We accepted TAMSA's COP data, 
with the following exceptions:

1. We revised TAMSA's financing expense rate to reflect the first two 
quarters of 1994 consolidated results (see Interested Party Comment 6).
2. We revised costs for TAMSA's allocation methodology for fixed costs 
and variances based on standard cost (see Interested Party Comment 7).
3. We revised TAMSA's general and administrative (G&A) expenses to 
reflect 1994 unconsolidated results (see Interested Party Comment 8).

Results of COP Analysis

    Under our standard practice, when we find that less than 10 percent 
of a [[Page 33569]] company's sales are at prices below the COP, we do 
not disregard any below-cost sales because that company's below-cost 
sales were not made in substantial quantities. When we find between 10 
and 90 percent of the company's sales are at prices below the COP, and 
the below-cost sales are made over an extended period of time, we 
disregard only the below-cost sales. When we find that more than 90 
percent of the company's sales are at prices below the COP, and the 
sales were made over an extended period of time, we disregard all sales 
for that product and calculate FMV based on constructed value (CV), in 
accordance with 773(b) of the Act.
    In accordance with section 773(b)(1) of the Act, in order to 
determine whether below-cost sales were made over an extended period of 
time, we compare the number of months in which below-cost sales 
occurred for each product to the number of months of the POI in which 
that product was sold. If a product was sold in three or more months of 
the POI, we do not exclude below-cost sales unless there were below-
cost sales in at least three months of the POI. When we find that all 
sales of a product only occurred in one or two months, the number of 
months in which the sales occurred constitutes the extended period of 
time; i.e., where sales of a product were made in only two months, the 
extended period of time is two months, where sales of a product were 
made in only one month, the extended period of time is one month (see 
Preliminary Results and Partial Termination of Antidumping Duty 
Administrative Review: Tapered Roller Bearings, Four Inches or Less in 
Outside Diameter, and Components Thereof, From Japan (58 FR 69336, 
69338, December 10, 1993)).
    Following the above type of analysis, we determine that sales below 
cost were in substantial quantities over an extended period of time, 
and that there were no remaining sales above cost. Accordingly, we 
compared USP to CV.

Constructed Value

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of TAMSA's cost of materials, fabrication, general 
expenses, and profit. In accordance with section 773(e)(1)(B)(i) and 
(ii) of the Act, we included in CV: (1) TAMSA's revised general 
expenses because they were greater than the statutory minimum of ten 
percent of the COM, and (2) for profit, the statutory minimum of eight 
percent of the sum of COM and general expenses because it was greater 
than the actual profit, as calculated on a market-specific basis.
    We made the same adjustments to TAMSA's reported CV data as to 
TAMSA's COP data, as described above.
    For CV to U.S. price comparisons, we made deductions from CV, where 
appropriate, for the weighted-average third country direct selling 
expenses, in accordance with 19 CFR 353.56. 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).

Currency Conversion

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

Verification

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

    Comment 1: Date of Sale Methodology and Home Market Viability.
    The petitioner argues that the date of shipment, rather than the 
date of purchase order, is the appropriate date of sale for all home 
market transactions. It notes that the Department verified that TAMSA 
had home market sales that were shipped prior to TAMSA receiving an 
order, and that this was not revealed prior to verification. The 
petitioner contends that in Final Determination of Sales at Less Than 
Fair Value: Certain Forged Stainless Steel Flanges from India (58 FR 
68853, December 29, 1993), the Department found significant 
discrepancies between a company's response and the randomly selected 
documents and, thus, determined that the response had not been 
verified. It also notes that in the Final Results of Administrative 
Review of Roller Chain, Other Than Bicycle, from Japan (Roller Chain 
from Japan) (54 FR 3099, January 23, 1989), the Department used the 
shipment date as the date of sale since orders were taken by phone and 
generally shipped before issuance of the sales documentation.
    The petitioner further argues that the home market becomes viable 
when the date of shipment serves as the date of sale. Because TAMSA did 
not report home market sales, the Department should therefore reject 
TAMSA's third country sales and use the best information available 
(BIA) in its final determination. Because the Department has previously 
recognized that the misreporting of the date of sale warrants the use 
of BIA, the petitioner asserts that the Department should use the 
highest margin provided in the petition, 45.22 percent, as BIA (see 
Final Determination of Certain Corrosion-Resistant Carbon Steel Flat 
Products and Certain Cut-to-Length Carbon Steel Plate from Mexico (58 
FR 37192, July 9, 1993) and Final Determinations of Sales at Less Than 
Fair Value: Calcium Aluminate Cement, Cement Clinker and Flux from 
France (59 FR 14136, March 25, 1994)).
    TAMSA contends that the Department verified the actual volume and 
value of TAMSA's home market and third country sales and the basis for 
the non-viability determination. It argues that the reported date of 
sale methodology was appropriate because the purchase order date is the 
date when all substantive terms of sale are finalized.
    TAMSA argues that there were a few pre-order shipments in the POI, 
and those were the result of an ``aberrational'' request by the 
customer for shipment before the customer issued the written order. It 
asserts that the Department verified that shipment before receipt of an 
order is against company policy and is unusual. TAMSA argues that, in 
the rare instance where shipment occurred prior to the order, it 
properly reported the date of shipment as the date of sale pursuant to 
the Department's instructions and precedent that the date of sale 
cannot be later than the date of shipment.

DOC Position

    We agree with TAMSA. The Department generally defines the date of 
sale as the date when all substantive terms of the sale, particularly 
price and quantity terms, are agreed to by interested parties (see 
Final Determination of Sales at Less Than Fair Value: Certain Forged 
Steel Crankshafts from the United Kingdom (52 FR 18992, July 28, 
1987)). At verification, we thoroughly examined TAMSA's home market 
sales process, including numerous sales documents, and found that the 
price and quantity terms did not change between the date of the 
purchase order and the date of shipment.
    Furthermore, Roller Chain from Japan is not applicable to this 
investigation because, in that investigation, the Department revised 
the date of sale because most sales were taken over the phone and 
shipped prior to the issuance of a purchase order. We verified that, in 
its home market, TAMSA normally ships merchandise after receipt of a 
[[Page 33570]] purchase order and found that, only rarely, were sales 
shipped prior to receipt of the purchase order.
    Thus, based on our findings at verification, we determine that the 
date of purchase order is the appropriate date of sale, except when 
date of shipment occurred prior to the purchase order, which occurred 
rarely. In those instances, date of shipment was the appropriate date 
of sale. TAMSA, therefore, properly reported its POI sales.
    Comment 2: Cancellations.
    The petitioner asserts that, in the instances where purchase orders 
were received prior to the shipment date, a substantial number of those 
purchase orders in Mexico were cancelled. The petitioner contends that 
TAMSA erred in its reconciliation of its reported sales to its 
financial statements at verification because the pre-shipments 
cancelled orders would not have been recorded as shipments in the 
financial statements, thus, arguing that TAMSA must have sold and 
shipped this merchandise during the POI prior to issuing the 
unexplained cancellations.
    In 64K Dynamic Random Access Memory Components from Japan: Final 
Determination of Sales at Less Than Fair Value (DRAMs from Japan) (51 
FR 15943, April 29, 1986), the Department determined that no binding 
agreement had been entered into as of the purchase order date (because 
there were significant cancellations) and found that the appropriate 
date of sale was the shipment date since this was the earliest point in 
the transaction at which any sort of binding commitment could be 
inferred. The petitioner thus argues that the purchase order does not 
constitute a binding commitment between the parties; and, consequently, 
the Department should find that the shipment date represents the date 
of sale as it did in DRAMs from Japan.
    Moreover, the petitioner contends that if the Department accepts 
the order date as the basis for determining home market sales and if 
the Department disallows post-petition credit memos and order 
cancellations, the home market was viable during the POI. It notes that 
disallowing post-petition credit memos and order cancellations is 
consistent with the Department's policy of not allowing rebates which 
are instituted retroactively after the filing of a petition (see 
Antidumping Manual and Preliminary Determination of Sales at Less Than 
Fair Value and Postponement of Final Determination: Antidumping Duty 
Investigation of Color Negative Photographic Paper from Japan (59 FR 
16177, April 6, 1994)).
    TAMSA argues that the invoice cancellations did not affect the 
terms of the purchase order and had no contractual significance. TAMSA 
states that the amounts in question represent credit memos, corrections 
to the booking and invoicing processes, or cancelled invoices, not 
cancellations in the orders, and that they had no effect on the 
quantity ordered.
    TAMSA asserts that DRAMs from Japan does not support the 
petitioner's date of sale argument. In that investigation, the 
Department determined that neither party to the purchase order intended 
it to be a binding agreement or treated it as such. TAMSA argues that 
this situation does not apply to its home market sales process because 
the customer's order constitutes the binding sales agreement between 
the parties, and the Department found there were no changes in the 
sales terms from the order date to the invoice date. Thus, its date of 
sale methodology is correct.

DOC Position

    We agree with TAMSA. At verification, we found that these 
``cancellations'' were, for the most part, changes to invoices (e.g., 
correcting for a wrong shipment date) or were credit memoranda; they 
were not similar to post-petition rebates as the petitioner claims.
    DRAMs from Japan is inapposite because, in that case, the 
respondent argued that it did not normally acknowledge purchase orders, 
but instead stated that its normal acceptance of an order occurs when 
the order is actually shipped. Furthermore, the Department found, in 
that case, in addition to cancellations by both parties, that there 
were frequent price revisions.
    At verification, we thoroughly examined TAMSA's sales process and 
found that the purchase order is the binding agreement; the terms did 
not change between the order date and the shipment date. Thus, we 
determine that the order date, when used as the basis for date of sale, 
was appropriate.
    Comment 3: Possible Exclusion of a Certain Saudi Arabian 
Transaction.
    The petitioner argues that a certain Saudi Arabian transaction 
should be excluded because the date of sale was misreported and 
incorrectly included in the POI. Because the essential terms of sale, 
specifically the payment terms, for this transaction were not fixed on 
the reported date of sale, the Department should determine that the 
date of sale is outside the POI. The petitioner notes that it is the 
Department's policy to determine the date of sale to be the date on 
which all substantive or material terms of sale are agreed upon by the 
parties (see Antidumping Manual). In Roller Chain from Japan, the 
Department found that the shipping documents were the first written 
evidence of the merchandise, price, quantity, and payment terms and, 
therefore, determined that the shipment date was the appropriate date 
of sale.
    The petitioner also contends that its claim is supported by Mexican 
Commercial Law and notes that the Department has recognized that this 
type of foreign contract law analysis is relevant in determining when a 
sale occurs for the purposes of the antidumping laws (see DRAMs from 
Japan).
    TAMSA argues that the verification report acknowledged that the 
purchase order by the Saudi customer is the ``culmination of the 
negotiating process,'' establishing the essential terms of sale, which 
did not change between order and shipment. It argues that 
communications between the parties between the quote and the order 
normally are not referenced in the order, and that it is ``not unusual 
for negotiation during this period to take place.''
    In addition, TAMSA contends that the Department verified that the 
customer's order constitutes the contract between the parties and that 
before the order is issued (including the time between bid and order), 
the parties may conduct negotiations. Since the purchase order is the 
earliest date of agreement between the parties on the terms of sale, 
the purchase order date is the proper date of sale.
    TAMSA states that the Department normally finds that the purchase 
order constitutes the date of sale, focusing on the intent of the 
parties to be bound by the order (see Final Determination of Sales at 
Less Than Fair Value: Certain Small Business Telephone Systems and 
Subassemblies Thereof from Taiwan (54 FR 42543, October 17, 1989)). 
TAMSA notes that, in Notice of Final Determination of Sales at Less 
Than Fair Value: Disposable Pocket Lighters from the People's Republic 
of China (60 FR 22359, May 5, 1995), the Department considered the date 
of sale to be the date on which all substantive terms of sale (normally 
price and quantity) are agreed to by the parties, and that, in Roller 
Chain from Japan, the Department found that payment terms are not an 
essential term of sale.
    In DRAMs from Japan, TAMSA maintains that the Department based its 
date of sale determination on the intent of the parties. TAMSA argues 
that the opinion by the Mexican lawyer on [[Page 33571]] Mexican law 
provided by the petitioner omitted the fact, which the Department 
verified, that between the quotation and the order there were 
additional negotiations on the key sales terms in the order, and that 
the action of the parties illustrate an intent by the parties to 
contract on the order date.

DOC Position

    We agree with TAMSA. The issue regarding the price and quantity 
differences between the quotation and purchase order was argued 
extensively by the parties and was examined thoroughly by the 
Department at verification. At verification, the Department found no 
written evidence of changes in the sales terms after the purchase 
order.
    The Department normally considers the essential terms of sale to be 
price and quantity. We believe that, in this case, the term of payment 
is not an essential term of sale because the terms of payment are 
similar for all of TAMSA's sales to Saudi Arabia. Furthermore, at 
verification, the Department examined all relevant sales documentation 
of the transaction, including the quotation, purchase order, invoices, 
and letters of credit. We did not find any discrepancies with the 
documentation. Thus, we are not excluding this transaction from our 
analysis.
    Comment 4: Whether a Certain Saudi Arabian Transaction Was Made 
Outside the Ordinary Course of Trade.
    The petitioner argues that a certain Saudi Arabian transaction 
should be excluded because it was made outside the ordinary course of 
trade (i.e., was not made under normal conditions and practices). It 
cites to Final Determination of Sales at Less Than Fair Value: Sulfur 
Dyes, including Sulfur Vat Dyes, from the United Kingdom (Sulfur Dyes 
from the U.K.) (58 FR 3253, January 8, 1993) to support its argument.
    TAMSA argues that this Saudi Arabian transaction was consistent 
with its terms and processes for all of its other Saudi Arabian 
transactions; thus, it was made in the ordinary course of trade. At 
verification, the Department examined documentation for the reported 
Saudi sales and confirmed that they were made with a large, unrelated 
customer. TAMSA further asserts that the Department verified sales 
prior and subsequent to the POI, and found that the transaction in 
question was consistent with the terms and process for other Saudi 
Arabian sales.
    TAMSA argues that this Saudi Arabian transaction was consistent 
with its practice for other Saudi Arabian transactions. TAMSA argues 
that the actions of the parties illustrate that the purchase order 
finalizes the sales terms and concludes the sale; specifically, once it 
receives an order, it secures a letter of credit guaranteeing payment 
and begins production based on the terms in the order. Although after 
the order there are no further contractual communications between the 
parties until shipment and invoicing, the customer plans and arranges 
for delivery and payment, and there are no changes to the terms of sale 
between order and shipment, which TAMSA argues was verified by the 
Department as the common practice for all Saudi sales.
    In Sulfur Dyes, TAMSA maintains that the Department found a sale to 
be outside the ordinary course of trade because it was larger than 
other sales and was made at a lower price pursuant to a special 
agreement. Because the transaction in question was similar to other 
Saudi Arabian transactions, TAMSA argues that Sulfur Dyes is not 
applicable to this investigation.
DOC Position

    We agree with TAMSA. Under 19 CFR 353.46(b), in determining whether 
a sale was made in the ordinary course of trade, the Department 
considers the ``conditions and practices'' which have been normal in 
the trade of the subject merchandise. At verification, we found no 
abnormalities in the sales terms as compared to other Saudi Arabian 
sales. We also verified that the procedures followed in this 
transaction were consistent with the procedures in other Saudi Arabian 
transactions. Regarding the delivery time, we do not believe that 
differences in average time between order and shipment is evidence that 
the sales were outside the ordinary course of trade. The shipments were 
made within the period stipulated in the purchase order.
    Furthermore, Sulfur Dyes from the U.K. does not apply to this 
investigation because the sales terms of the transaction in question 
are not significantly different than the sales terms of TAMSA's other 
Saudi Arabian transactions. For these reasons, we are not excluding 
this sale from our analysis.
    Comment 5: Possible Extension of the POI.
    The petitioner argues that the Department's decision not to extend 
the POI to capture TAMSA's sales in the home market contradicts the 
antidumping statute and regulations. The statutory and regulatory 
provisions establish a preference for the home market as the basis for 
FMV, and permits the Department to use third country sales data or 
constructed value only if it has determined that home market sales are 
small with respect to third country sales.
    The petitioner notes that the Department's regulations state that 
it can extend the POI ``for any additional or alternative period'' that 
it determines is appropriate. The Department has extended the POI in 
prior proceedings where the six-month period ``did not adequately 
reflect the sales practices of the firms subject to the investigation'' 
(see Preliminary Determination of Sales at Not Less Than Fair Value: 
Thermostatically Controlled Appliance Plugs and Internal Probe 
Thermostats Therefor from Hong Kong (Thermostats from Hong Kong) (53 FR 
50064, December 13, 1988) and Notice of Final Determination of Sales at 
Less Than Fair Value: Defrost Timers from Japan (59 FR 1928, January 
13, 1994)). If the Department expanded the POI an additional six 
months, TAMSA's home market sales would be viable.
    TAMSA argues that the Department's preference for the home market 
simply means that it should look first to home market prices, and only 
select alternatives when the home market is not viable. TAMSA asserts 
that the Department has already determined that the home market is not 
viable in its November 3, 1994, memorandum from Richard W. Moreland to 
Barbara R. Stafford. SKF USA, Inc. v. United States, 762 F. Supp. 344, 
page 352 (CIT 1991) acknowledged that ``as home market sales are the 
statutorily preferred choice for comparison in FMV calculations, the 
ITA cannot use third country sales without first making a definitive 
determination that the home market is not viable'' (see also U.H.F.C. 
Co. v. United States, 916 F.2d 689, page 696 (Fed. Cir. 1990)).
    TAMSA further asserts that the cases cited by the petitioner 
concern long-term contracts and U.S. and third country sales and do not 
involve the extension of the POI solely to change home market 
viability, thus, arguing that those cases do not apply to this 
investigation.

DOC Position

    We agree with TAMSA. According to 19 CFR 353.42(b), the POI will 
normally include the month in which the petition is filed and the five 
months prior to the filing of the petition, but the Department has the 
discretion to examine any other period which it concludes is 
appropriate.
    The Department has previously expanded the POI. In Thermostats from 
Hong Kong, the home market sales were [[Page 33572]] inadequate and the 
Department expanded the POI in order to base FMV on third country sales 
rather than on constructed value. In Defrost Timers from Japan, the 
Department extended the POI to include a long-term contract. However, 
the Department has never extended the POI to change the home market 
viability ratio.
    This investigation is unlike Thermostats from Hong Kong and Defrost 
Timers from Japan because we have determined that sales to Saudi Arabia 
is the appropriate basis for calculating FMV and there are no sales 
made pursuant to long-term contracts.
    According to 19 CFR 353.48(a), if the quantity of the subject 
merchandise sold in the home market is so small in relation to the 
quantity sold for exportation to third countries (normally less than 
five percent of the amount sold to third countries) that it is an 
inadequate basis for FMV, the Department will calculate FMV based on 
third country sales or constructed value.
    We have verified TAMSA's reported home market and third country 
sales volumes and have determined that the home market is not viable 
during the POI because the home market sales were less than five 
percent of sales to countries other than the United States.
    For these reasons, we are not extending the period of 
investigation.
    Comment 6: Appropriate Financial Expense.
    The petitioner argues that the 1994 financial statements were 
critically important to this investigation and TAMSA systematically 
withheld these statements from the Department. The petitioner further 
asserts that the 1994 financial statements were undeniably available at 
the time of verification. As proof of this, the petitioner submitted, 
with its case brief, TAMSA's 1994 financial statements filed with the 
Mexican securities oversight agency and the Mexico Stock Exchange prior 
to the completion of verification. The petitioner argues that TAMSA 
refused to provide 1994 financial statement information because it 
reflected considerably higher costs than the amounts reported in the 
submission which were based on 1993 results.
    Therefore, the petitioner contends that the Department must use 
uncooperative BIA in this situation. The petitioner argues that as BIA 
the COP and CV interest expense should be based on the interest costs 
of 95 percent from TAMSA's 1994 consolidated financial statements 
without any adjustment for the extraordinary costs associated with the 
devaluation of the Mexican currency.
    TAMSA asserts that it has fully cooperated with the Department's 
requests for financial statements. TAMSA refutes the Department's cost 
verification report, claiming that company officials did not state that 
1994 financial statements would be available at a particular time. 
TAMSA notes that the unaudited, unconsolidated trial balance was 
presented at the cost verification. At the further manufacturing 
verification, TAMSA presented a press release which provided summarized 
unaudited 1994 financial results. Thus, TAMSA contends, it has provided 
accurate responses to the Department's requests. TAMSA argues that the 
Department should follow its practice and rely on the most recently 
available audited financial statements, which in this case would be the 
1993 statements, to calculate financial and general and administrative 
(G&A) expenses. TAMSA notes that in the final determination of Final 
Determination of Sales at Less Than Fair Value: Furfuryl Alcohol from 
Thailand (Furfuryl Alcohol from Thailand) (60 FR 22557, May 8, 1995) 
the Department used the most recent fiscal year for which the 
respondent had complete and audited financial statements. TAMSA further 
argues that the dramatic devaluation in the Mexican currency reflected 
in the 1994 financial statements occurred well after the period of 
investigation and is not representative of the comparatively stable 
period experienced in 1993 and the first half of 1994. Finally, TAMSA 
believes that it would be arbitrary and unjustified to use BIA in this 
situation.

DOC Position

    We agree, in part, with petitioner. In antidumping investigations, 
we require respondents to provide accurate responses to our requests 
for information. In this case, the record demonstrates that the 
Department requested TAMSA's 1994 financial statements. Although the 
financial statements were not available when TAMSA filed its initial 
responses to the Department's questionnaires, these statements did 
become available during the course of the investigation. Indeed, 
although unaudited, these financial statements were filed with the 
Mexican Securities Exchange. However, TAMSA failed to provide the 1994 
financial data to the Department when it became available, even though 
the Department specifically requested the information at verification. 
We believe that a failure to be forthcoming with information during 
verification is a serious problem.
    Section 776(c) of the Act states that the Department will use BIA 
``whenever a party or any other person refuses or is unable to produce 
information requested in a timely manner and in the form required'' 
(see also 19 CFR 353.37). Accordingly, because TAMSA withheld 
information requested by the Department, the statute requires us to use 
BIA for this information.
    As BIA, we calculated interest expense using TAMSA's financial 
statements for the first two quarters of 1994. The January--June 1994 
financing expense is substantially higher than the 1993 amount, in part 
due to the fact that the Mexican peso lost approximately nine percent 
of its value during the POI. Our finding is adverse because the full 
effect of the change in the value of the currency that occurred during 
the POI is reflected in the cost of financing for the first two 
quarters of the fiscal year. Had it not been necessary to resort to 
BIA, our calculation methodology would have resulted in a lower 
financing expense.
    However, contrary to petitioner's request, we have not calculated 
TAMSA's financial expense based on the annual statements for 1994 
because (1) the sudden and severe devaluation in December 1994--a drop 
of over 50 percent in the value of the Mexican peso--makes TAMSA's 
annual financial results unrepresentative of the POI and severely 
distortive, and (2) the devaluation occurred well after the POI.
    Thus, we reject TAMSA's request that we use 1993 financial data. 
This information is not the most current information available, is not 
indicative of the expenses incurred during the POI, and would reward 
the respondent for not fully cooperating in the investigation.
    Finally, TAMSA's reliance on Furfuryl Alcohol from Thailand to 
support the use of financial expense from the 1993 audited financial 
statements is misplaced. In that case, respondents fully cooperated 
with respect to the Department's request for available information, 
unlike the situation in this investigation.
    Comment 7: Allocation Methodology for Nonstandard Costs.
    In its normal accounting system, TAMSA calculates, in total, the 
amount of the price variances, efficiency variance, total depreciation 
and other fixed costs. It does not normally allocate these costs to 
individual products. For financial statement purposes, TAMSA includes 
the total nonstandard costs in the cost of goods sold. For purposes of 
responding to the Department's questionnaire, TAMSA developed a 
methodology to allocate nonstandard costs to its submitted per unit 
COPs and [[Page 33573]] CVs based on machine time for a single process 
(the finishing line).
    The petitioner argues that TAMSA's allocation methodology for 
variances, depreciation and other fixed costs (termed ``nonstandard'' 
costs) distorts actual production costs because it shifts overhead 
expenses to products which undergo more finishing. This allocation 
methodology may also shift costs to products purchased from Siderca 
S.A.I.C., a related entity, if TAMSA is finishing the Siderca-produced 
products. Furthermore, the relative finishing line time TAMSA used as 
the allocation basis for variances and fixed costs is the least 
accurate method for allocating these costs to specific products. The 
petitioner asserts that finishing costs are only a fraction of the 
costs incurred in other production processes. The differences resulting 
from the finishing process will have little or no relationship to 
product-specific cost differences in the other processes.
    As a result, the petitioner argues that the Department should apply 
BIA. As BIA, the Department should allocate the costs on a per-ton 
basis over all production. The petitioner discounts the usage of 
standard costs as a basis for allocation since the major component of 
standard costs is materials.
    TAMSA argues that machine time at the finishing line is the most 
appropriate basis for allocating nonstandard costs according to 
accounting theory. Production, and therefore costs, are dependent on 
the slowest machine in the entire production process. TAMSA asserts 
that the finishing line is the slowest process and argues that the 
alternative of allocating nonstandard costs on a per-ton basis ignores 
all differences in machine usage and physical differences between 
products. Similarly, it contends that allocating nonstandard costs 
based on standard costs would ignore the relationship of machine usage 
for physically different types of products.

DOC Position

    We agree with the petitioner that TAMSA's allocation methodology 
for fixed costs and variances distorts actual production costs because 
it shifts overhead expenses to products which undergo more finishing. 
The basic premise that machine time can be a reasonable and appropriate 
allocation basis for depreciation costs is well substantiated in both 
accounting (Davidson & Weil, Handbook of Cost Accounting, Prentice 
Hall, 1978) and Departmental practice (Final Determination of Sales at 
Less Than Fair Value; Steel Wire Rope from Korea (58 FR 11029, February 
23, 1993)). However, TAMSA did not rely on total machine time as the 
basis for allocation. Instead, TAMSA based its allocation on the 
standard time for only one production step, the finishing line. Thus, 
TAMSA's allocation basis did not reflect the machine time for other 
processes performed. TAMSA's methodology allocated more than just 
depreciation expenses based on the finishing line time. It also 
allocated material and energy price variances, efficiency variance, and 
other fixed costs on the basis of standard finishing line. TAMSA's 
chosen allocation methodology ignored the cost drivers for the price 
variances, efficiency variance and other fixed costs. These costs are 
not driven by machine time, as they are more closely associated with 
material and transformation costs. For these reasons, machine time is 
not the appropriate allocation basis for costs other than depreciation.
    The petitioner's recommendation of allocating nonstandard costs on 
a per-ton basis would allocate the same nonstandard cost to each ton 
produced. This type of allocation would not accurately reflect the 
processes needed to produce each product, or the differences in the 
machine time and labor hours for each product. Similarly, it does not 
capture the specific costs of the materials required to produce 
different products.
    The petitioners argument against using standard cost as the 
allocation basis for the variances and fixed costs because a large part 
of the standard costs is material cost is unfounded. The variances 
being allocated include material price and material efficiency 
variances. Therefore, the appropriate cost driver for the material 
variances (materials) is included in the standard costs.
    We have used total standard cost as the appropriate allocation 
basis for the nonstandard costs. Total standard cost factors in machine 
time, labor hours, direct and indirect material cost and usage, labor 
cost and usage, energy cost and usage, other variable costs, 
maintenance, and other services. Therefore, we revised the COP and CV 
to include nonstandard costs as a percent of total standard costs.
    Comment 8: Calculation of G&A Expenses.
    TAMSA submitted G&A expenses based upon 1993 financial statements. 
The petitioner argues that TAMSA should have used G&A expenses from its 
1994 financial statements since they encompass the POI. Further, the 
petitioner argues that the Department should base G&A expenses on BIA 
because TAMSA has systematically withheld its 1994 consolidated 
financial statements from the Department (see complete discussion at 
Comment 6). As BIA, the petitioner recommends that the Department rely 
on the reported amounts in the company's consolidated 1994 financial 
statements which were filed with the Mexican securities oversight 
agency.
    TAMSA refutes the petitioner's arguments saying it has fully 
cooperated with all Department requests. TAMSA asserts that the 
different format and form of the information filed on the public record 
with the U.S. and Mexican authorities and the time lag between 
publication in the United States and filing with the SEC has led to 
some confusion.

DOC Position

    We agree, in part, with the petitioner that it is inappropriate to 
use the 1993 G&A expenses. (See DOC position regarding Comment 6.) We 
disagree with the petitioner, however, that BIA is appropriate because 
TAMSA provided us with the 1994 G&A information that the Department 
requested. As indicated in the questionnaire, it is the Department's 
standard practice to calculate G&A based on the financial statements of 
the producing company that most closely relates to the POI, which, in 
this investigation, is January 1, 1994 through June 30, 1994. 
Therefore, the appropriate financial statement for TAMSA's G&A 
calculation is TAMSA's unconsolidated 1994 financial statement. We used 
the 1994 G&A expenses from the unconsolidated producing entity.
    All other comments concerning G&A are moot, as they concerned the 
calculation of G&A using the 1993 financial statements.
    Comment 9: Depreciation Expenses.
    The petitioner argues that TAMSA's reported depreciation expense 
was based on overstated useful lives and that TAMSA's appraised value 
of assets was less than the acquisition cost adjusted for inflation. 
Therefore, the petitioner argues that the submitted depreciation 
expense was understated. The petitioner contends that TAMSA's 
depreciation methodology is contradictory to U.S. practice and distorts 
the POI actual costs. The petitioner concludes that the Department 
should increase TAMSA's depreciation expense to reflect the difference 
between TAMSA's average useful life of all assets and its purported 
U.S. useful life.
    TAMSA argues that its method of reporting depreciation expenses is 
consistent with Mexican GAAP. TAMSA argues that the petitioner has 
[[Page 33574]] not provided any evidence to support its assertion that 
Mexican GAAP distorts costs. The Department verified the asset values 
and useful lives at the cost verification and has accepted Mexican 
GAAP's treatment of assets in Porcelain-on-Steel Cooking Ware from 
Mexico; Final Results of Antidumping Administrative Review (Cooking 
Ware from Mexico)(60 FR 2378, January 9, 1995).
DOC Position

    We agree with TAMSA. The Department has relied on the revaluations 
required by Mexican GAAP in other cases, such as Cooking Ware from 
Mexico. We made no adjustment for the useful life of the assets because 
there is no evidence that the lives used in the depreciation 
calculation were overstated. In fact, as reflected in the cost 
verification report, the Department reviewed the depreciation schedules 
and calculations and found them to be reasonable. Mexican GAAP requires 
an annual revaluation of assets. The annual revaluation was performed 
by an independent appraiser and it calculates the useful life remaining 
for depreciation expense calculation, and the valuation of the asset. 
Therefore, the petitioner's assertion that we should use the asset life 
as prescribed for U.S. income tax depreciation as a surrogate for the 
asset life determined by the independent appraiser is unfounded.
    Comment 10: Periodic Maintenance and Shut-Down Costs.
    The petitioner argues that TAMSA's reported costs fail to capture 
the variance associated with the actual shutdown costs.
    The Department should increase the nonstandard costs for the 
difference between the POI efficiency variance and the entire year 
efficiency variance. It claims that, since the actual shutdown occurs 
in August, the appropriate efficiency variance is the annual variance, 
not the POI variance as used by TAMSA.
    TAMSA argues that it properly captured the periodic maintenance and 
shut-down costs for the POI. TAMSA argues that its accrual for repair 
and maintenance in the POI was carefully established through a thorough 
analytical process over a series of months and was approved by plant 
engineers and management.

DOC Position

    We agree with TAMSA. TAMSA accrues a monthly amount for the annual 
shutdown which occurs in August. The difference between the accrued 
shutdown expenses and the actual expenses was captured in the 
efficiency variance. There is no evidence on the record indicating any 
difference between the accrued and actual plant shutdown costs. The 
actual expenses for the annual shutdown could be either higher or lower 
than the accrued amount. The efficiency variance includes elements 
other than the difference between accrued and actual shutdown costs. It 
also reflects all other variances in efficiency. The petitioner's 
argument to use the annual efficiency variance to capture the variance 
in shutdown costs would have the effect of capturing other variances 
that did not relate to production in the POI.
    Comment 11: CV Interest Offset.
    The petitioner asserts that TAMSA improperly included raw materials 
and semi-finished products and non-customer accounts receivables in the 
CV interest offset. The petitioner argues that the Department should 
revise the CV interest offset for the final determination.
    TAMSA did not comment on this issue.

DOC Position

    We agree with the petitioner. TAMSA's calculation of the CV 
interest offset was in error. As part of the Department's normal 
methodology, we allow only finished goods inventory and customer 
accounts receivable as an offset to CV interest expense. This offset 
avoids double counting interest expense captured in the imputed 
inventory carrying cost and the imputed credit expense. We revised the 
CV financial expense ratio to reflect only the finished goods inventory 
and the customer accounts receivable as an offset.
    Comment 12: Rental Payments in Further Manufacturing Costs.
    The petitioner argues that TAMSA's related company which performs 
further manufacturing in the United States, TPT, reduced its general 
expenses by net rental income received from Siderca Corp. The 
petitioner contends that this is inappropriate and the income should be 
removed.
    TAMSA disagrees with the petitioner's assertion and clarifies that 
the gross rental payments received by TPT are net rental income in 
excess of expenses. In addition, TAMSA argues that the rental income is 
directly offset by rent expenses reported on the books of Siderca Corp. 
TAMSA argues that the petitioner's request would overstate expenses by 
recognizing the rental expense as a selling expense and by not 
recognizing the offsetting rental revenue as a reduction to further 
manufacturing G&A.

DOC Position

    We agree with TAMSA. The Department verified that the rental 
payments made by Siderca are reflected as a selling expense on its 
books. The depreciation, utilities, taxes, and other expenses 
associated with the rental property are reflected on TPT's books. If we 
disallowed the rental income offset, the expenses of the entities as a 
whole would be overstated.
    Comment 13: Financial Expenses in Further Manufacturing Costs.
    The petitioner argues that TAMSA failed to add financial expenses 
to the further manufacturing cost of unrelated companies. The 
petitioner argues that the consolidated interest expense of TAMSA 
should be applied to the amount charged to TAMSA by the unrelated 
further manufacturer.
    TAMSA argues that it properly reported the amount charged by the 
unrelated further manufacturers. The fee it was charged includes an 
amount for financial expense, because it must be assumed that the 
unrelated further manufacturer charges an amount that would cover all 
of its costs, including financial costs. TAMSA also argues that it 
properly included the financial expenses of TIC and Siderca Corp. as 
selling expenses and TPT's financial expense as a further manufacturing 
cost on merchandise processed by TPT.
DOC Position

    We agree with TAMSA. We verified that TAMSA included the amount 
charged by the unrelated further manufacturers in its submitted costs. 
This fee includes financing and G&A costs incurred by the unrelated 
further manufacturer. If we added TAMSA's financing costs to the costs 
reported for the unrelated company, we would be burdening an arm's-
length transaction with inappropriate costs. For products further 
manufactured by TPT, TAMSA included TPT's G&A, and we added the 
consolidated parents financial expense, pursuant to the Department's 
practice (see Final Determination of Sales at Less Than Fair Value: New 
Minivans from Japan (57 FR 21937, May 26, 1992)).

Suspension of Liquidation

    Pursuant to section 735(c)(1)(B) of the Act, we will instruct the 
Customs Service to require a cash deposit or posting of a bond equal to 
the estimated final dumping margins, as shown below for entries of OCTG 
from Mexico 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.

                                                                        
[[Page 33575]]
------------------------------------------------------------------------
                                                              Weighted- 
                                                               average  
               Manufacturer/producer/exporter                   margin  
                                                              percentage
------------------------------------------------------------------------
Tubos Acero de Mexico, S.A.................................        23.79
All Others.................................................        23.79
------------------------------------------------------------------------

International Trade Commission (ITC) Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determination. The ITC will make its determination whether 
these imports materially injure, or threaten injury to, a U.S. industry 
within 75 days of the publication of this notice, in accordance with 
section 735(b)(3) of the Act. If the ITC determines that material 
injury or threat of material injury does not exist, the proceeding will 
be terminated and all securities posted as a result of the suspension 
of liquidation will be refunded or cancelled. However, if the ITC 
determines that material injury or threat of material injury does 
exist, the 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 and 19 CFR 353.20(a)(4).

    Dated: June 19, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-15621 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P