[Federal Register Volume 61, Number 82 (Friday, April 26, 1996)]
[Notices]
[Pages 18547-18568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10404]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-580-814, A-580-816]
Certain Corrosion-Resistant Carbon Steel Flat Products From
Korea: Final Results of Antidumping Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Final Results of Antidumping Duty Administrative Review.
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SUMMARY: On August 24, 1995, the Department of Commerce (``the
Department'') published the preliminary results of the administrative
review of the antidumping duty order on certain corrosion-resistant
carbon steel flat products from Korea. This review covers two
manufacturers/exporters of the subject merchandise to the United States
and the period February 4, 1993, through July 31, 1994. We gave
interested parties an opportunity to comment on our preliminary
results. Based on our analysis of the comments received, we have
changed the results from those presented in the preliminary results of
review.
EFFECTIVE DATE: April 26, 1996.
FOR FURTHER INFORMATION CONTACT:
Charles Rast (Dongbu), Alain Letort (Union) or Linda Ludwig, Office of
Agreements Compliance, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230, telephone (202) 482-
3793 or fax (202) 482-1388.
SUPPLEMENTARY INFORMATION:
Background
On August 24, 1995, the Department published in the Federal
Register (60 FR 44006) the preliminary results of the administrative
review of the antidumping duty order on corrosion-resistant carbon
steel flat products from Korea (58 FR 44159--August 19, 1993). The
Department has now completed this administrative review in accordance
with section 751 of the Tariff Act of 1930, as amended (``the Act'').
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and to the
Department's regulations are references to the provisions as they
existed on December 31, 1994.
Scope of the Review
These products include flat-rolled carbon steel products, of
rectangular shape, either clad, plated, or coated with corrosion-
resistant metals such as zinc, aluminum or zinc-, aluminum-, nickel- or
iron-based alloys, whether or not corrugated or painted, varnished or
coated with plastics or other nonmetallic substances in addition to the
metallic coating, in coils (whether or not in successively superimposed
layers) and of a width of 0.5 inch or greater, or in straight lengths
which, if of a thickness less than 4.75 millimeters, are of a width of
0.5 inch or greater and which measures at least 20 times the thickness
or if a thickness of 4.75 millimeters or more are of a width which
exceeds 150 millimeters and measures at least twice the thickness, as
currently classifiable in the HTS under item numbers 7210.31.0000,
7210.39.0000, 7210.41.0000, 7210.49.0030, 7210.49.0090, 7210.60.0000,
7210.70.6030, 7210.70.6060, 7210.70.6090, 7210.90.1000, 7210.90.6000,
7210.90.9000, 7212.21.0000, 7212.29.0000, 7212.30.1030, 7212.30.1090,
7212.30.3000, 7212.30.5000, 7212.40.1000, 7212.40.5000, 7212.50.0000,
7212.60.0000, 7215.90.1000, 7215.90.5000, 7217.12.1000, 7217.13.1000,
7217.19.1000, 7217.19.5000, 7217.22.5000, 7217.23.5000, 7217.29.1000,
7217.29.5000, 7217.32.5000, 7217.33.5000, 7217.39.1000, and
7217.39.5000. Included are flat-rolled products of nonrectangular
cross-section where such cross-section is achieved
[[Page 18548]]
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
bevelled or rounded at the edges. Excluded are flat-rolled steel
products either plated or coated with tin, lead, chromium, chromium
oxides, both tin and lead (``terne plate''), or both chromium and
chromium oxides (``tin-free steel''), whether or not painted, varnished
or coated with plastics or other nonmetallic substances in addition to
the metallic coating. Also excluded are clad products in straight
lengths of 0.1875 inch or more in composite thickness and of a width
which exceeds 150 millimeters and measures at least twice the
thickness. Also excluded are certain clad stainless flat-rolled
products, which are three-layered corrosion-resistant carbon steel
flat-rolled products less than 4.75 millimeters in composite thickness
that consist of a carbon steel flat-rolled product clad on both sides
with stainless steel in a 20-60-20 percent ratio. These HTS item
numbers are provided for convenience and customs purposes. The written
description remains dispositive.
The POR is February 4, 1993 through July 31, 1994.
VAT Tax Methodology
In light of the Federal Circuit's decision in Federal Mogul v.
United States, 63 F.3d 1572 (Fed. Cir. 1995), the Department has
changed its treatment of home-market consumption taxes. Where
merchandise exported to the United States is exempt from the
consumption tax, the Department will add to the U.S. price the absolute
amount of such taxes charged on the comparison sales in the home
market. This is the same methodology that the Department adopted
following the decision of the Federal Circuit in Zenith v. United
States, 988 F.2d 1573, 1582 (1993), and which was suggested by that
court in footnote 4 of its decision. The Court of International Trade
(``CIT'') overturned this methodology in Federal Mogul v. United
States, 834 F. Supp. 1391 (1993), and the Department acquiesced in the
CIT's decision. The Department then followed the CIT's preferred
methodology, which was to calculate the tax to be added to U.S. price
by multiplying the adjusted U.S. price by the foreign-market tax rate;
the Department made adjustments to this amount so that the tax
adjustment would not alter a ``zero'' pre-tax dumping assessment.
The foreign exporters in the Federal Mogul case, however, appealed
that decision to the Federal Circuit, which reversed the CIT and held
that the statute did not preclude Commerce from using the ``Zenith
Footnote 4'' methodology to calculate tax-neutral dumping assessments
(i.e., assessments that are unaffected by the existence or amount of
home-market consumption taxes). Moreover, the Federal Circuit
recognized that certain international agreements to which the United
States is a party, in particular the General Agreement on Tariffs and
Trade (``GATT'') and the Tokyo Round Antidumping Code, required the
calculation of tax-neutral dumping assessments. The Federal Circuit
remanded the case to the CIT with instructions to direct Commerce to
determine which tax methodology it will employ.
The Department has determined that the ``Zenith Footnote 4''
methodology should be used. First, as the Department has explained in
numerous administrative determinations and court filings over the past
decade, and as the Federal Circuit has now recognized, Article VI of
the GATT and Article 2 of the Tokyo Round Antidumping Code require that
dumping assessments be tax-neutral. This requirement continues under
the new Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade. Second, the Uruguay Round Agreements
Act (``URAA'') explicitly amended the antidumping law to remove
consumption taxes from the home-market price and to eliminate the
addition of taxes to U.S. price, so that no consumption tax is included
in the price in either market. The Statement of Administrative Action
(p. 159) explicitly states that this change was intended to result in
tax-neutral dumping margins.
While the ``Zenith Footnote 4'' methodology is slightly different
from the URAA methodology, in that section 772(d)(1)(C) of the pre-URAA
law required that the tax be added to United States price rather than
subtracted from home-market price, it does result in tax-neutral duty
assessments. In sum, the Department has elected to treat consumption
taxes in a manner consistent with its longstanding policy of
calculating tax-neutral dumping margins, the GATT, and the post-URAA
statute.
Dongbu has provided information indicating that under Korean law,
VAT taxes associated with home-market sales are assessed based on the
price of goods and services at the time of delivery, and that certain
adjustments made to the price after the goods and services have already
been delivered do not result in adjustments to VAT taxes already paid.
Verification
As provided in section 776(b) of the Act, we verified information
provided by Dongbu and Union using standard verification procedures,
including the examination of relevant sales and financial records, and
selection of original source documentation containing relevant
information.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received comments and rebuttal comments from
Dongbu Steel Co., Ltd. (``Dongbu'') and Union Steel Manufacturing Co.,
Ltd. (``Union''), exports of the subject merchandise (``respondents''),
and from Bethlehem Steel Corporation, U.S. Steel Group--a Unit of USX
Corporation, Inland Steel Industries, Inc., Gulf States Steel Inc. of
Alabama, Sharon Steel Corporation, Geneva Steel, and Lukens Steel
Company (``petitioners''). Union requested a public hearing, but
subsequently withdrew its request in a timely manner.
Petitioners' Comments
Comment 1
Petitioners argue that the Department should use alternative
information on the record to determine the market value of transaction
handling fees that Dongbu paid to a related party for imported raw
materials. Petitioners contend that Dongbu did not provide substantive
evidence to support its claim that the transfer prices paid to the
related party were at arm's-length or at least equal to the related
party's actual costs for providing the services. Moreover, the
petitioners argue that since the Department was unable to test the
transfer price at verification, the possibility exists that Dongbu may
have selectively structured these related-party transactions to
maximize adjustments that would lower Dongbu's production costs of the
subject merchandise. Thus, the petitioners state that the Department
should make an adverse inference and increase the costs of raw
materials based on the comparison of similar arm's-length transaction
handling fees charged by unrelated parties that Dongbu's U.S. sales
affiliate (``DBLA'') used to import subject merchandise into the United
States.
Dongbu contends that there is no basis for adjusting its raw
material costs to account for transaction fees paid to a related party
as suggested by the petitioners. Dongbu states that the services this
related party provides to the company are not of any tangible
[[Page 18549]]
economic value other than lending its internationally recognized name
to the transaction. Dongbu additionally states that the arrangement
between the related party and itself simply reflects an intra-company
transfer that benefits the related party and its shareholders.
Therefore, Dongbu believes that the Department should accept the
submitted transaction fees that the related party charged the company.
Department's Position
For the final results, we accepted Dongbu's submitted transaction
fees that were paid to a related party. The transaction fees that
Dongbu paid to the related party were for assistance in handling and
processing the related paperwork created by the importation of the
material. See Dongbu's February 21, 1995 submission at page 12. The
value of the service was based on a constant percentage of the
acquisition price of the input. Dongbu was unable to substantiate that
submitted transaction fees reflected the market value of the service
provided. At verification, company officials stated they did not obtain
similar services for the importation of inputs from any other party,
nor did the related party provide this service to any other entity. See
Cost Verification Report of Dongbu Steel Co., Ltd. (May 19, 1995) at
page 12. However, after further review of information on the record, we
have concluded that the transfer prices submitted by Dongbu did fairly
represent the amount usually reflected in sales for such services. This
determination was made by comparing Dongbu's submitted transaction fees
(expressed as a percentage of the purchase price) to the weighted-
average (also expressed as a percentage of the purchase price) of
similar arm's-length transaction fees charged by unrelated parties that
DBLA used to import subject merchandise into the United States. This
comparison showed that the submitted transaction fees were above the
weighted-average value charged by unrelated parties. Thus, we accepted
the submitted transaction fees that were paid to a related party
because they reasonably reflected a market value.
Comment 2
Petitioners contend that submitted costs for its research and
development (R&D) department, raw material department, quality control
department, and procurement department should be included in Dongbu's
manufacturing costs rather than in its general expenses. The
petitioners argue that Dongbu's submitted description of the functions
performed by these departments sufficiently demonstrates that they were
manufacturing costs. They add that neither the cost verification report
nor the accompanying exhibits contained any indication that Dongbu
attempted to provide additional explanations, documentation, or
schedules to support its claim that the expenses were general in
nature. Therefore, the petitioners believe that the Department should
include all general expenses that are not attributable to Dongbu's
sales department in the company's cost of manufacturing.
Dongbu believes that its submitted classification of these
departmental costs as general expenses is appropriate. The company
argues that these costs were classified as general expenses on its
audited income statement because they benefit the entire company as a
whole. This fact was confirmed by the Department at verification.
Furthermore, the company argues that reclassifying these cost to
manufacturing costs would have an inconsequential effect, if any, on
its cost of production.
Department's Position
We agree with respondent that, in this case, it is reasonably to
classify these costs as general expenses, consistent with the company's
financial statements. For the final results, we accepted Dongbu's
inclusion of costs from its R&D department, raw material department,
quality control department and procurement department as general
expenses. At verification, the Department reviewed Dongbu's associated
source documentation and noted that these costs were reported as
general expenses on the company's audited income statement and not as a
part of its cost-of-sales. Nor were these costs included as part of the
inventoried costs reported in Dongbu's finished product inventory
ledgers. In this specific case, we are satisfied that the cost in
question were properly classified as general expenses. Therefore, we
are not reclassifying these general expenses to manufacturing costs.
See Final Determination of Sales at Less Than Fair Value: Certain Hot-
Rolled Carbon Steel Flat Products, Certain Corrosion-resistant Carbon
Steel Flat Products, and Certain Cut to Length Carbon Steel Plate from
Korea, 58 FR 37176, 37191 (July 9, 1993).
Comment 3
Petitioners argue that the Department should include foreign
exchange losses among Dongbu's manufacturing costs to ensure that the
cost of production is calculated accurately and that the statutory
minimum amounts for general expenses and profit are properly computed
for constructed value. The petitioners state that it is the
Department's normal practice to include foreign exchange gains and
losses related to the production of subject merchandise in the cost of
manufacturing and not as G&A expenses.
Dongbu believes that its net foreign exchange losses were
appropriately submitted as general expenses and not as costs of
manufacturing. Dongbu states that it recognizes that it is the
Department's normal practice to include foreign exchange gains and
losses related to material purchases in the cost of manufacturing.
However, Dongbu states that its submitted methodology is consistent
with the classification of those expenses on its audited income
statement. Furthermore, Bongbu argues that an adjustment to reclassify
the costs would only be trivial and needless.
Department's Position
We agree with both petitioners and respondent in part. Foreign
exchange losses arising from the purchase of raw materials normally
should be included in material cost because this is a component of the
cost of manufacturing. However, in this particular instance we have not
reclassified these losses from general expenses to cost of
manufacturing as it would have no impact on the submitted cost of
production. The slight increase in manufacturing costs the
reclassification creates is simply offset by coinciding decreases in
G&A and financing costs. See Final Determination of Sales at Less Than
Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit
and Above from the Republic of Korea, 54 FR 15467, 15475 (March 23,
1993).
Comment 4
Petitioners contend that the Department should deny all of the
claimed miscellaneous income offsets (e.g., dividends, gains on
investments) that were applied against Dongbu's submitted G&A costs.
The petitioners argue that the Department does not grant offsets in
excess of actual expenses incurred. Nor is it the Department's practice
to allow a reduction of G&A costs unless it can be substantiated that
the offsetting income can be tied to specific expenses related to
production. The petitioners also contend that Dongbu failed to do both
of these steps and, therefore, the Department should deny all of
Dongbu's claimed offsetting adjustments to G&A costs.
Dongbu contends that it properly offset G&A costs with its various
miscellaneous income items. Dongbu
[[Page 18550]]
states that it submitted a complete list of miscellaneous income items
used to offset G&A costs that the Department reviewed each of these
items during verification. Therefore, the company believes that the
Department should ignore the petitioners' request and allow the
miscellaneous income offsets to G&A costs.
Department's Position
For the final results, we continue to disallow certain non-
production-related income offsets to Dongbu's G&A costs. At
verification, we reviewed source documentation and obtained
explanations from company officials on all the income items that were
used to offset Dongbu's G&A costs. We found that certain revenue items
(e.g., dividends, gain on investments) were related to investments, and
not to the production of subject merchandise. Therefore, we denied
these unrelated income offsets in calculating G&A costs. See Final
Determination of Sales at Not Less Than Fair Value: Saccharin from
Korea, 59 FR 58826, 58828 (November 15, 1994).
Comment 5
Petitioners contend that the Department should exclude Dongbu's
duty payments from the calculation of the company's G&A and interest
expense factors. According to the petitioners, the addition of the duty
to the cost-of-sales figure inappropriately overstates the figure. The
petitioners argue that Dongbu's duty drawbacks represent a refund of
import duties incurred in the production of finished merchandise that
is subsequently exported. Therefore, the cost-of-sales figures in
Dongbu's audited income statements, which is net of import duties
refunded on certain export sales, accurately represented Dongbu's final
cost of manufacturing.
Dongbu believes that it properly increased its cost-of-sales figure
to include the duty in order to calculate G&A and interest expense
factors. Dongbu contends that the increase to its cost-of-sales is
necessary in order to ensure comparability. Dongbu notes that its
audited income statement cost-of-sales figure is net of duty drawback,
while its submitted costs of manufacturing figures include the duty
because the Department requested that it be submitted in this manner.
Therefore, the respondent states that any G&A or interest factor that
is applied to its duty-inclusive cost of manufacturing must itself be
determined on a duty-inclusive basis.
Department's position
For the final results, the Department allowed Dongbu to add an
amount reflecting duties paid to its audited cost-of sales figure which
was used as the denominator in calculating G&A and interest expense
factors. The cost-of-sales figure obtained from Dongbu's audited income
statements was net of duty drawbacks, while the company's submitted
cost of manufacturing included duties paid on inputs. Therefore, it is
appropriate for Dongbu to include duty payments in its denominator in
order to properly allocate both the G&A and interest costs.
Comment 6
Petitioners assert that the Department's analysis must account for
the difference between U.S. sales by Dongbu and its U.S. sales
affiliate, DBLA. They argue that the Department is in error in its
treatment of DBLA's and Dongbu's sales and request that DBLA's sales be
treated as exporter's sales price (``ESP'') sales. Petitioners note
that Dongbu makes sales to the United States through three separate and
distinct channels: directly to customers in the United States; through
related and unrelated trading companies in Korea; and through its
affiliate in the United States, DBLA's, which purchases subject
merchandise from Dongbu and resells it to unrelated customers in the
United States. Petitioners assert that Dongbu is incorrect in claiming
that sales made through each of these channels are purchase-price
(``PP'') sales. They state that Dongbu's contention implies that if
sales through each of these channels are treated as such, the U.S.
prices calculated by the Department will represent prices at the same
point in the chain of commerce in all cases, and thus implying that the
charges by DBLA to the first unrelated customer in the United States
represent the arm's-length prices that Dongbu would charge for the same
merchandise if sold directly to an unrelated U.S. customer, without the
involvement of DBLA. Petitioners claim that Dongbu's own sales data
indicate that there is a systematic and significant difference between
Dongbu's and DBLA's pricing structure which is the result of the fact
that DBLA's involvement in the sale of subject merchandise results in
significant costs which are included in the prices it charges its U.S.
customers.
Petitioners also argue that because DBLA's selling prices are
distinct from Dongbu's, the Department must analyze DBLA's sales
differently from Dongbu's sales in order to ensure consistency with the
fundamental purpose of the Tariff Act regarding the calculation of
United States price. They argue that the Tariff Act identifies two
types of U.S. sales, purchase price and ESP, and mandates different
adjustments to each so that United States price is reconstructed at the
same point in the chain of commerce regardless of whether a U.S.
affiliate of the manufacturer or exporter is involved in the
transaction. Citing 19 U.S.C. 1677a(b), petitioners contend that the
Tariff Act defines purchase price as the price at which merchandise is
purchased, or agreed to be purchased, prior to the date of importation,
from either a reseller, manufacturer, or producer of the merchandise
for exportation to the United States. Conversely, say petitioners, ESP
is defined as the price at which merchandise is sold or agreed to be
sold in the United States, prior to or after importation by or for the
account of the exporter. See 19 U.S. 1677a(c). Thus, ESP is typically
used when an affiliate of the manufacturer or exporter imports
merchandise into the United States. Also, petitioners cite Smith Corona
Group v. United States, 713 F. 2d 1568, 1571-72 (Fed. Cir. 1983), in
arguing that when a U.S. affiliate of a foreign respondent imports
merchandise in question, all costs and expenses incurred by the
affiliate must be deducted from the affiliate's resale price in order
to derive a United States price that reflects the price that the
merchandise would command in an arm's-length transaction. They further
state that this is the case whether the sales are from the importer to
an independent retailer or directly to the public, as if the affiliate
had no role in the transaction. Petitioners note that DBLA's role in
selling subject merchandise results in selling prices that are distinct
from Dongbu's prices for the same product, and that as a result, DBLA's
role in selling subject merchandise creates the type of bias that is
addressed by the provisions of the Tariff Act regarding United States
price.
Petitioners also contend that Dongbu's sales through DBLA do not
meet the statutory definition of purchase price. They argue that the
Department utilizes a three-part test to determine whether ESP or
purchase price should be used to determine USP when the sale is made
prior to the date of importation; and the focus must be on the third
factor in this test; that is, that if the related party in the United
States only acts as a conduit between the first unrelated purchaser and
the seller, the resulting sale is a sale for export to the United
States. Petitioners contend, however, that
[[Page 18551]]
before the Department can accurately determine that the related party
is just a process of documentation, there must be evidence on the
record supporting that conclusion. They argue that in this case, there
is no documentary evidence in the record in support of this claim by
Dongbu. Citing to Creswell Trading Co., et al. v. United States, 15
F.3d 1054 (Fed. Cir. 1994) petitioners claim that Dongbu has the burden
of producing information that proves that point, which it has not done;
and in the absence of such information, the Department cannot conclude
that the indirect purchase price sales at issue were made in Korea by
Dongbu for exportation to the United States. Instead, petitions
conclude that the Department must determine that the sales were made in
the United States by DBLA, and that they must be treated as ESP sales.
Petitioners further argue that the price at which DBLA sells
subject merchandise to the unrelated purchaser is different from the
price at which DBLA purchases it from Dongbu. They contend that these
prices reflect the fact that DBLA performs significant selling
activities in the United States which require the Department to treat
the sales in question as ESP sales. Petitioners note also that DBLA
extends credit to certain customers by permitting them to delay payment
for subject merchandise; that DBLA identifies customers, negotiates
prices, and provides some warranty-related services; and that DBLA is
engaged in marketing activities that include development of downstream
applications for subject merchandise. Petitioners contend that another
significant selling function performed by DBLA is the posting of cash
deposits of antidumping and countervailing duties on behalf of its U.S.
customers. They argue that in a typical purchase price transaction, the
U.S. customer, as the importer of record, would be required to deposit
cash deposits with the U.S. Customs Service upon importation of the
merchandise, resulting in additional costs. In ESP transactions,
however, the customer is relieved of this burden and of the risks of
uncertain future liabilities. Petitioners contend that DBLA's selling
activities can be demonstrated in several ways. First, the activities
performed by DBLA are significant in the context of the totality of
activities required to sell subject merchandise. In other words, DBLA
performs all of the functions required to sell subject merchandise in
the United States. Second, the significance of DBLA's selling
activities, and the economic benefit these provide to DBLA's customers,
is reflected in DBLA's prices. Finally, petitioners cite declarations
made by DBLA on Customs Form 7501 which indicate that it was more that
a processor of sales related documentation.
Respondent counters these arguments by stating that Dongbu's sales
through DBLA meet the statutory definition of purchase price sales, and
that Dongbu's sales thus adhere to the three-part test employed by the
Department already detailed by petitioners. It argues that the purpose
of this test is to determine, on the basis of the selling functions
assumed by the U.S. affiliate, whether the transaction in question
meets the statutory requirements for purchase price at dictated by 19
U.S.C. 1677a(b). Respondent argues that there is no dispute regarding
the first two prongs of this test, as petitioners concede that Dongbu's
sales through DBLA are shipped directly from Dongbu to the unrelated
buyer without being introduced into DBLA's inventory and that such
shipments are customary in the industry. Respondent contends that
verification reports and associated documents confirm that sales
through DBLA also meet the third requirement of the test, and that DBLA
played only a limited role as a processor of sales related
documentation and as a communications like to the customer.
Respondent describes DBLA's role in these sales transactions as
straight forward. Dongbu states that its sales are made by its export
department in Korea, with DBLA assisting by transmitting customer
inquires to Korea and issuing sales contracts on Dongbu's behalf if
orders are accepted. Respondent notes that DBLA facilitates the sales
by processing the documents needed to ensure that the merchandise is
delivered in accordance with the negotiated sales terms: that is,
delivery to the customer after clearance through U.S. Customs and
payment of brokerage and related charges. In detailing these functions,
respondent argues that all of the selling activities carried out by
DBLA in connection with these sales are within the range of activities
determined by the Department to be consistent with purchase price
classification in previous cases.
Regarding petitioners' argument that the Department should classify
sales through DBLA based upon comparative pricing patterns, respondent
counters that there is no legal or factual basis for reclassifying
these sales as ESP. Respondent contends that selling functions, not
selling prices, are the basis for the Department's classification of
sales as purchase price or ESP. Specifically, the application of the
Department's three-pronged test is to determine whether the selling
functions undertaken by the related U.S. selling agent are of a kind
that would normally be carried out by the exporter in connection with
the sales, and that such an analysis must be made with reference to
terms of the sale itself which establishes the parameters of the U.S.
affiliate's selling function. Therefore, with regard to Dongbu's sales
through DBLA, respondent argues that the Department must consider
DBLA's selling functions in connection with the fact that these
products are sold to the unrelated U.S. customer on an ex-dock duty-
paid basis and must thus be delivered to the possession of the customer
after clearance through U.S. Customs. Respondent notes that in this
case, Dongbu has simply transferred these routine selling functions to
a related selling agent in the United States, and that the substance of
the transaction is not changed, which is that they are purchase price
rather than ESP.
Department's Position
We agree with respondent and have determined that purchase price is
the appropriate basis for calculating USP. Typically, whenever sales
are made prior to the date of importation through a related sales agent
in the United States, we conclude that purchase price is the most
appropriate determinant of the USP based upon the following factors:
(1) The merchandise in question was shipped directly from the
manufacturer to the unrelated buyer, without being introduced into the
inventory of the related shipping agent; (2) direct shipment from the
manufacturer to the unrelated buyers was the customary commercial
channel for sales of this merchandise between the parties involved; and
(3) the related selling agent in the United States acted only as a
processor of sales-related documentation and a communication link with
the unrelated U.S. buyers. See, e.g., Certain Stainless Steel Wire Rods
from France: Final Determination of Sales at Less that Fair Value, 58
FR 68865, 68868-9 (December 29, 1993); Granular Polytetrafluoroethylene
Resin from Japan: Final Results of Antidumping Duty Administrative
Review, 58 FR 50343-4 (September 27, 1993). This test was first
developed in response to the Court of International Trade's decision in
PQ Corporation v. United States, 652 F. Supp. 724, 733-35 (CIT 1987).
It has also been used to uphold indirect purchase-price transactions
involving exporters and their U.S. affiliates. See e.g., Zenith
Electronics Corp. v. United States,
[[Page 18552]]
Consol. Ct. No. 88-07-00488, Slip Op. 94-146 (CIT 1994).
We disagree with petitioners' argument in citing to Creswell
Trading Co., et al. v. United States, 15 F.3d 1054 (Fed. Cir. 1994)
that Dongbu has not met the burden of producing information that
demonstrates that the related party in the United States functions only
as a processor of documentation. Dongbu has placed information on the
record which we have verified describing the functions of its related
party. Furthermore, the Department has recognized and classified as
indirect purchase price sales transactions involving selling activities
similar to those of DBLA's in other antidumping proceedings involving
Korean manufacturers and their related U.S. affiliates. See, e.g.,
Final Determination of Sales at Less Than Fair Value; Circular Welded
Non-Alloy Steel Pipe from the Republic of Korea, 57 FR 42942, 42950-1
(September 17, 1992). In the present review, we found that: (1)
Dongbu's sales though DBLA, its related sales agent in the United
States, are shipped directly from Dongbu to the unrelated buyer without
being introduced into DBLA's inventory; (2) such shipments are the
customary channel of distribution for the parties involved; (3) DBLA
performed limited liaison functions in the processing of sales-related
documentation and a limited role as a communication link in connection
with these sales.
We agree with respondent that we regard selling functions, rather
than selling prices, as the basis for classifying sales as purchase
price or ESP. When all three of the criteria described above are met,
we consider that the exporter's selling functions have been relocated
geographically from the country of exportation to the United States,
where the sales agent performs them. We determine that DBLA's selling
functions are of a kind that would normally be undertaken by the
exporter in connection with these sales. DBLA's role in the payment of
cash deposits of antidumping and countervailing duties, extension of
credit to U.S. customers, the processing of certain warranty claims,
and project development are consistent with purchase price
classification and are a relocation of routine selling functions from
Korea to the United States.
Comment 7
According to petitioners, the Department is required by law to
deduct the cost of ``actual'' antidumping and countervailing duties
from USP when the record demonstrates that those costs are included in
the prices paid by the first unrelated purchaser. Petitioners contend
that these duties are costs to Dongbu and must be deducted from the
price paid by the first unrelated purchaser in order to obtain a fair
comparison between USP and foreign market value.
Petitioners assert that the statute provides authority for
deducting the cost of actual antidumping and countervailing duties
incorporated in the price used to establish USP. Citing section
1677a(d)(2)(A), they argue that USP shall be reduced by ``the amount,
if any, included in such price which is attributable to additional
costs, charges, and expenses, and United States import duties, incident
to bringing the merchandise into the United States.'' The costs of
antidumping and countervailing duties thus fall within the scope of
this provision as costs, charges, and expenses or as U.S. import
duties. The former, petitioners note, is a subset of the latter, and as
a matter of law they must be deducted from the price to the first
unrelated purchaser. They also argue that the statute provides that USP
shall be increased by the amount of any countervailing duty imposed to
offset an export subsidy.
According to petitioners, the Department must deduct the full
amount of the countervailing duties paid by Dongbu for those entries
covered by the first and second annual reviews of the countervailing
duty order. They claim that none of the arguments for not deducting the
estimated antidumping duties applies in the case of the countervailing
duty payments. First, petitioners argue that Dongbu has presented
evidence that DBLA paid those duties and that they have an impact on
the price. Second, they contend, there is no danger of double-counting
since the countervailing duties are not paid to offset past price
discrimination. In this case, the countervailing duties are paid to
offset domestic subsidies and have nothing to do with Dongbu's price
discrimination practices. Thus, petitioners assert that the
countervailing duties are a cost separate from the payment of
antidumping duties and should be treated as normal customs duties.
Also, petitioners claim that since no party requested a review of the
countervailing duty order at the time of the first or second
anniversary, those duties have become final duties. They also assert
that the Department must deduct the cost of antidumping duties equal to
the amount of the calculated margin.
Petitioners note that the court acknowledged in Zenith Elec. Corp.
v. United States, 18 CIT ____, Slip Op 94-146 (September 19, 1994) that
the deduction from USP of actual antidumping duties remains an open
issue. Accordingly, contend petitioners, the court expects that the
Department will approach the payment of actual antidumping duties
differently than it does the payment of estimated antidumping duties.
Petitioners cite Final Results of Antidumping Duty Administrative
Review: Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from
the United Kingdom, 60 FR 44009 (August 24, 1995), in which they argued
that the Department should treat actual antidumping duties as a cost.
Petitioners claim that although the Department rejected their argument,
the authority cited by the Department in the determination does not
support its position. Petitioners also note that there has been no
court decision that the deduction of estimated antidumping duties is
unlawful, and that all of the cases having to do with this issue have
upheld the Department's decision not to do so based on the facts of the
individual case.
Respondent argues that in the absence of reimbursement, it is
unlawful and contrary to Department practice to deduct antidumping and
countervailing duties from USP. Respondent contends that petitioners'
reading of the statute is contradicted by both long-standing
administrative and judicial precedent; (e.g., Final Results of
Antidumping Duty Administrative Review: Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products from the United Kingdom, 60 FR 44009
(August 24, 1995), Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from France, et al.; Final Results of
Antidumping Administrative Reviews, 60 FR 10900, 10907 (February 28,
1995), PQ Corp. v. United States, 652 Supp. 724, 735-37 (CIT 1987),
Federal-Mogul Corp. v. United States, 813 F. Supp. 856, 872 (1993), and
Torrington Co. v. United States, Consol. Ct. No. 92-07-00483 (CIT
1995). Respondent further argues that the Department and the courts
have long since recognized that such deductions are not authorized
under the antidumping laws because they are, inter alia, not ``selling
expenses'' within the meaning of the statute and are inherently
contingent in nature. Respondent notes that making the required
adjustment would unlawfully result in the double-counting of dumping
duties, and would perpetuate dumping orders thereby violating both the
letter and remedial purposes of the statute. They also state that
Congress has refused to yield to lobbying by the
[[Page 18553]]
U.S. steel industry for the enactment of legislation that would for the
first time authorize such a deduction, clearly evincing Congressional
disapproval of petitioners' position.
Respondent asserts that petitioners are incorrect in their argument
that the issue of deducting antidumping and countervailing duties
should be considered differently in this case because the Department is
determining ``actual'' rather than ``estimated'' antidumping duties.
Respondent also states that petitioners are wrong in their extension of
this argument to Dongbu's countervailing duty deposits on the theory
that such deposits represent ``actual'' duties because the amounts
deposited are ``conclusive'' since no party requested an administrative
review. Respondent notes that the countervailing duty order is
currently on appeal to the Court of International Trade and liquidation
of these entries has been suspended pending the outcome of that appeal.
By assessing duties beyond the actual margins of dumping, according
to respondent, petitioners' recommended deduction would also violate
international law as embodied in the WTO antidumping agreement. See
Final Act Embodying the Results of the Uruguay Round of Multilateral
Trade Negotiations, April 15, 1994, and Agreement on Implementation of
Article VI of the General Agreement on Tariffs and Trade 1994, article
2 para. 4.
Respondent claims that petitioners are incorrect in arguing that
their proposal will not result in a double-counting of antidumping
duties. Rather, respondent asserts it is a ``mathematical certainty''
that this will be the result. Respondent argues that the remedial
purposes of the antidumping laws are presumably fulfilled when a
foreign respondent is induced to raise its prices to unrelated
customers in the United States in response to the antidumping order,
since it is at that level that the foreign producer competes directly
with U.S. producers. Respondent notes that the concern that has
traditionally been raised is that the relief intended by the order
would be ``blunted or denied'' if the related importer ``absorbs'' the
antidumping duties by being ``reimbursed'' by the foreign producer and,
as a result, fails to pass the additional expense on the unrelated U.S.
customer in the form of higher prices. Respondent claims that
petitioners in this case are claiming that the Department should
penalize Dongbu for raising its prices to unrelated purchasers. The
effect of this, according to respondent, would be to create additional
margins.
Department's Position
We disagree with petitioners. In Final Results of Antidumping Duty
Administrative Review: Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from the United Kingdom (``UK Lead and Bismuth''), 60 FR
44009, 44010 (August 24, 1995), petitioners made arguments similar to
those presented here--that ``actual'' antidumping duties are a
``selling expense'' and that the Department has not previously
considered whether to deduct ``actual'' expenses under section
772(d)(2)(A). In UK Lead and Bismuth, we responded that ``[a]ntidumping
duties are intended to offset the effect of discriminatory pricing
between the two markets. In this context, making an additional
deduction from USP for the same antidumping duties that correct this
price discrimination would result in double-counting. Therefore, we
have not treated cash deposits of estimated antidumping duties as
direct selling expenses.'' Id. at 44010. See also color Television
Receivers from the Republic of Korea, Final Results of Administrative
Review, 58 FR 50333, 50337 (September 27, 1993); and Antifriction
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from
France, et al.; Final Results of Antidumping Administrative Reviews, 60
FR 10900, 10906 (February 28, 1995).
We also disagree with petitioners' extension of their argument to
Dongbu's countervailing duty deposits on the basis that the amounts
deposited are ``conclusive'' since no party has requested an
administrative review. In fact, the countervailing duty order is
currently on appeal to the Court of International Trade and liquidation
of these entries has been suspended pending the outcome of that appeal.
These entries will be liquidated only in accordance with a final and
conclusive court decision in that proceeding, as in accordance with 19
U.S.C. 1516a(e). In other words, the amount that will be collected, if
any, is uncertain at this time.
As our verification report indicates, there is no evidence that
Dongbu's related importer in the U.S. is being reimbursed by Dongbu.
Comment 8
Petitioners argue that Dongbu improperly calculated credit expenses
for home-market sales using gross unit prices. They argue that Dongbu's
reported credit expenses are overstated because Dongbu failed to
account for rebates when calculating the credit expenses. Petitioners
contend that Dongbu calculates per-unit credit expenses for home-market
sales differently than is done by the Department, which calculates
credit expenses based on selling prices that are net of discounts and
rebates. See Final Determination of Sales at Less Than Fair Value;
Fresh Cut Roses from Colombia, 60 FR 6980 (February 6, 1995).
Therefore, according to petitioners, Dongbu's use of an adjusted gross
unit price is not in accordance with Department practice, and results
in an artificially inflated credit expense. Petitioners continue this
point by stating that the Department should reduce Dongbu's claimed
home-market credit expenses to account for rebates paid to certain
home-market customers in order to be consistent with its established
practice of calculating credit expenses using prices net of discounts
and rebates. To accomplish this, they explain, the Department should
reduce the reported credit expense by the amount of the rebate,
expressed as a percentage of gross unit price.
Respondent argues that petitioners are in error, and that home-
market credit expenses are not overstated. According to respondent,
petitioners' allegation relies upon the Department's final
determination in Fresh Cut Roses from Colombia, and while it is true
that the Department in that case adjusted one respondent's credit
figures downward to account for certain discounts discovered late in
the proceeding, there is no mention in the case of similar treatment
being required in the case of rebates. Respondent further notes that
this distinction between discounts and rebates, with respect to credit
calculations, is not inconsequential. Also, the fact that rebates are
paid after the sale, has no bearing on the final price paid by the
customer. In these cases, the final price paid is one that is net of
the rebate itself. But, when it comes to calculating credit expenses,
the emphasis on the rebate being paid ``after'' rather than at the time
of the sale is dispositive of this issue, according to Dongbu.
Respondent also argues that the imputation of credit cost is based
on the principal of the ``time value of money.'' See LMI-La Metalli
Industriale S.p.A. v. United States, 912 F.2d 455 (Fed. Cir. 1990).
Respondent asserts that the value to the seller is a function of the
amount of the account being financed, the period of time that the
account is being financed, and the relevant cost of borrowing that
could be used to finance the account. Respondent argues in the case of
a discount, the amount financed over this period is the purchase price
less the discount, and it is appropriate
[[Page 18554]]
to deduct this amount from the gross unit price in determining the
imputed cost of credit. In the case of rebates, Dongbu states the
amount is not likely to have accrued at the time of sale but instead,
over a longer period of time.
Respondent claims it would thus be improper to deduct rebate
amounts from gross unit price in determining imputed credit expenses
because the amount being financed over the credit period is the gross
unit price rather that the gross unit price less an undertermined
rebate.
Department's Position
We agree with respondent. Dongbu's rebates are often accrued after
payment has been made. More often than not, rebate amounts are not
determinable until after payment of the account has been made.
Accordingly, it would be improper in these cases to deduct rebate
amounts from gross unit price in determining imputed credit costs
because the amount being financed over the credit period (i.e., from
shipment to payment) is the gross unit price, and not the gross unit
price less an undertermined rebate. We agree with respondent that it is
appropriate in the case of a discount to calculate imputed credit costs
on gross unit price net of discounts (since that amount is determined
at the time of sale and shipment). However, particularly in the case of
rebates that are not precisely known at the time of sale, it would be
inappropriate to deduct this undetermined amount from gross unit price
in calculating credit expenses.
Comment 9
Petitioners argue that Dongbu's freight charges for home-market
sales should be reduced by the amount of the intra-company transfer of
funds between Dongbu and Dongbu Express. They assert that
transportation services for Dongbu's home-market sales are provided by
unrelated trucking companies pursuant to contracts with Dongbu's
wholly-owned subsidiary, Dongbu Express; and that as such, Dongbu's
payment to Dongbu Express for those services is nothing more than ``an
internal price constructed for bookkeeping purposes.'' Petitioners
contend that the Department should revise these expenses to exclude
markups charged by Dongbu Express on the grounds that such markups
represent intra company transfers of funds. They cite Final
Determination, Rescission of Investigation, and Partial Dismissal of
Petition High Information Content Flat Panel Displays and Display Glass
Therefor from Japan, 56 FR 32376 (July 16, 1991), and Final Results of
Antidumping Duty Administrative Review: Color Picture Tubes from Japan,
55 FR 37915 (September 14, 1990), in arguing that the Department has
previously disregarded the same type of mark-up paid to Dongbu Express
when calculating adjustments to foreign market value, and that the
Department attempts to value sales-related services at actual market
rates, rather than at the rates established between related parties.
Respondent counters that there is no basis for reducing the
reported home- market inland freight charges, and that petitioners'
position ignores the circumstances under which these services are
provided. Respondent argues that Dongbu contracts for freight services
through a freight forwarder that has the expertise and volume of
business to obtain regular service and competitive rates, an
arrangement made by many other businesses that also do not own their
own trucking fleet. These services provided by Dongbu Express have
value, and as such the payment of a mark-up is expected and consistent
with similar commercial transactions. According to respondent, the
additional administrative costs incurred by Dongbu Express in arranging
for shipment, as well as a reasonable return to Dongbu Express, are
simply part of the value of the trucking service. Thus, respondent
states, if the Department is to obtain a reasonable measure of the
``actual market rates'' for the freight services, as petitioners
contend, there must be reflected in the reported charge some amount for
the valuable freight forwarding services provided by Dongbu Express.
Dongbu asserts it has demonstrated that the mark-up charged by Dongbu
Express reflects a reasonable amount for profit, and that this mark-up
is equivalent to that included by Dongbu Express in its charges to
unrelated parties.
Department's Position
We disagree with petitioners. We find that the mark-ups charged by
Dongbu Express to Dongbu were commercially reasonable charges for the
services provided by Dongbu Express. Although the Department does not
have a standard policy requiring it to deduct related-party mark-ups in
all cases, in Final Determination, Rescission of Investigation, and
Partial Dismissal of Petition: High Information Content Flat Panel
Displays and Display Glass Therefor from Japan, 56 FR 32376, 32393
(July 16, 1991), the Department rejected the price between related
parties not only because there was a mark-up, but because it was
determined that the reported amount reflected a price constructed for
``internal bookkeeping purposes'' rather than a market value. Also, in
Final Results of Antidumping Administrative Review: Color Picture Tubes
from Japan, 55 FR 37915, 32922-23 (September 14, 1990), the Department
acknowledged and accepted the respondent's argument that an
administrative fee paid by the respondent to its related shipper
reflected additional services that would have been sustained by either
another trucking company or the respondent directly. In the present
review, we verified the arm's-length nature of Dongbu's freight charges
by reviewing invoices from the trucking company to Dongbu Express; the
unit prices on those invoices were lower than those charged by Dongbu
Express to Dongbu. Therefore, we find no basis for reducing home-market
inland freight charges.
Comment 10
Petitioners argue that Dongbu's Korean inland freight charges for
certain U.S. sales appear to be below arms's-length rates, and that the
Department must revise the reported charges for the final results of
this review. According to petitioners, Dongbu informed the Department
prior to verification that certain sales were shipped to the United
States from either Pusan or P'ohang, and not from Inch'on, as
originally reported. Petitioners state that Dongbu revised the reported
charges for these sales, many of which represent payments by Dongbu to
Dongbu Express at amounts less than those made by Dongbu Express to
unrelated trucking companies for the same transactions. They assert
that the discrepancy between the amount charged by unrelated parties
for transporting the subject merchandise between Inch'on and P'ohang
(or Pusan), and the revised amounts reported by Dongbu, indicates that
not all of Dongbu's reported inland freight charges for U.S. sales were
at arm's-length rates. Therefore, the Department must adjust for these
amounts accordingly.
Respondent counters these arguments by reporting that the example
cited by petitioners involves freight charges imposed by an unrelated
trucking company, and not Dongbu Express as asserted. It says this
``discrepancy'' claimed by petitioners also explains why the freight
amount charged with respect to this sale, and the other shipments
identified by petitioners is lower than would have been expected given
the schedule of freight charges paid by Dongbu Express. According to
respondent, the commercial invoices and bill of lading show in this
instance that ocean freight companies sometimes request at the last
minute that a
[[Page 18555]]
manufacturer agree to change the port of exportation to another port
that may be located farther from the factory than originally agreed to
with the understanding that the ocean freight company will absorb any
additional freight cost. Such was the case with the sale cited by
petitioners, according to respondent. Dongbu argues that it paid no
more than it originally contemplated.
Department's Position
We agree with respondent. The discrepancy identified by petitioners
involves freight charges imposed by an unrelated trucking company and,
as we determined at verification, the Department has not found any
transactions for which there is an indication that the rates charged
for freight were not at arm's-length. As our verification report
indicates, we reviewed invoices from the unrelated trucking company to
Dongbu Express that included unit prices, which, from the evidence
observed, reflected prices below which Dongbu pays to Dongbu Express.
On this basis, we accept the foreign freight charges as reported for
purposes of the final results.
Comment 11
According to petitioners, the amounts reported by Dongbu and used
by the Department to determine the market rates for Dongbu's foreign
brokerage and handling charges are incorrect. They reject the amounts
used for the following reasons: that the evidence presented by Dongbu
that freight charges are provided at arm's-lengh rates is irrelevant to
whether the same company also provides unloading charges at arm's-
length rates; and, that Dongbu has not demonstrated that Dongbu Express
provides freight services at arm's-length rates. On this basis, argue
petitioners, the Department must determine the value of unloading
charges incurred in Korea using alternative information, specifically,
the highest reported brokerage and handling charge for any U.S. sales.
Respondent argues that there is no substance or merit to the
allegation that Dongbu Express provided freight services on anything
other than an arm's-length basis. It asserts that petitioners are
equally wrong in claiming that it is inappropriate or unreasonable for
the Department to accept the reported freight charges based upon the
overwhelming evidence that Dongbu Express provides other more valuable
services at arm's-length rates. Respondent cites Final Determination of
Sales at Less Than Fair Value; Certain Hot-Rolled Carbon Steel Flat
Products, Certain Cold-Rolled Carbon Steel Flat Products, and Certain
Corrosion-Resistant Carbon Steel Flat Products from Japan, 58 FR 37154
(1993) (Comment 15) in asserting that the Department, when the arm's-
length methodology is unavailable, very often will assess the
circumstances generally to determine whether the rates charged are
likely to be commercial. In that case, Dongbu notes, the Department had
only time and resources available to it to conduct a verification of
two of the four companies to which the respondent paid freight charges.
As a result, respondent states, the Department decided to accept the
reported charges because there was no ``indication that their freight
expenses were inaccurate.'' Also cited by respondent is Final
Determinations 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 Korea, 58 FR 37176 (1993)
in arguing that the Department also showed a reasonable flexibility in
accepting alternative means of verifying the arm's-length nature of
services for which there were no ready unrelated comparisons.
Department's Position
We disagree with petitioners. Although the Department generally
prefers to demonstrate that a related-party service was provided at
arm's-length by contrasting those rates with charges for comparable
services provided by unrelated companies, the Department does not
automatically resort to best information available when that
methodology is unavailable. Verification is the Department's means of
testing information; it is not intended, nor is it possible, that every
single item be examined during verification. See Monsanto Co. v. U.S.,
698 F. Supp. 275, 281 (CIT 1988). As our verification report indicates,
we performed an arm's-length test on Dongbu's related party, Dongbu
Express, and found that inland freight charges charged by an unrelated
party were less than those charged by Dongbu Express. Thus, we believe
Dongbu's brokerage and handling expenses to be at arm's-length.
Comment 12
While supporting the Department's decision to apply partial BIA to
Union because of the respondent's inability, at verification, to
properly document home-market product characteristics, petitioners
contend the Department should have resorted to total BIA. Petitioners
argue, failure to verify Union's product characteristics taints not
only union's product comparisons, but also Union's cost-of-production
(``COP'') and constructed-value (``CV'') data, since those data are
reported on the basis of specific control numbers, and each control
number (``CONNUM'') is defined by a unique set of unverified product
characteristics. To derive the per-ton cost of each CONNUM reported in
its response, petitioners state that Union allocated costs on the basis
of the total quantity produced of that CONNUM. If the home-market
product characteristics used as a basis for defining CONNUMs are
suspect, then the production quantities and cost allocations based on
those CONNUMs are unreliable according to petitioners. They claim that,
in a number of cases where the use of unverified data would have
rendered meaningless any calculation employing that data, or where the
Department was unable to verify a respondent's home-market product
characteristics, the Department has resorted to total, rather than
partial, BIA. In addition, petitioners note that the Department has
routinely resorted to total BIA where a respondent has destroyed, or
has been unable to produce, documents supporting critical aspects of
its submitted data. Petitioners point out that the Court of
International Trade (``CIT'') has recognized that parties who initiate
unfair trade proceedings--as did Union by requesting this review--bear
the burden of maintaining and retaining records relevant to the
proceeding. See e.g., Krupp Stahl AG v. United States, 822 F. Supp. 789
(CIT 1993) (``Krupp Stahl''). Petitioners contend that Union's data
deficiency, which was caused by its failure to retain relevant
production records and customer correspondence in a review that it
requested, is every bit as pervasive and significant as in prior cases
where the Department has resorted to BIA. According to petitioners,
when this data deficiency is combined with the Department's inability
to verify the accuracy of Union's home-market date of sale and Union's
failure to report accurate dates of sale for a significant percentage
of its U.S. sales, the Department has no alternative but to resort to
total BIA in its final results in petitioners' view.
Petitioners cite Krupp Stahl in support of their contention that
the choice of which information to use as BIA must not reward a
respondent. Petitioners take issue with the Department's partial BIA
approach, and the Department's presumption that the largest possible
adjustment to the prices of comparable products is no more than 20
percent of the cost of manufacturing
[[Page 18556]]
(``COM'') of that product. Petitioners claim that the Department can
have no idea of the extent to which improper matches may understate FMV
because some or all home-market products may be improperly matched.
Therefore, petitioners state, any sales of any product in Union's home-
market database could theoretically be compared to U.S. price, and the
record shows that price differences between U.S. and Korean sales are
in fact far greater than the adjustment preliminarily used by the
Department. According to petitioners, the Department has therefore
rewarded, rather than penalized, Union for its improper record-keeping
procedures. Should the Department fail to use total BIA in its final
results, the Department will invite manipulation and circumvention of
the antidumping process by respondents, petitioners say. under the
partial BIA methodology employed by the Department, petitioners claim a
respondent could request a review and then destroy critical supporting
documentation associated with any sale under the guise that such
destruction is its normal business practice and assign to such sales
the product characteristics it desires to ensure the most favorable
price-to-price comparisons, secure in the knowledge that the Department
will cap any BIA adjustment at a mere 20 percent of the product's COM.
Similarly, petitioners argue, knowing that COP/CV data will not be
adjusted despite the Department's inability to verify home-market
product characteristics, respondents could simply assign costs to
specific CONNUMs as they desire to ensure the most favorable outcome.
For all of the above reasons, petitioners urge the Department to apply
total BIA to Union for the final review results.
Respondent rejects petitioners' claim that there are pervasive and
significant data deficiencies. It states that the Department verified
home-market date of sale and that the Department has already adjusted
the data with regard to U.S. date of sale. Union states that there is
no evidence on the record indicating that the home-market codes are
wrong. It notes that product code questions for home-market sales have
no implications for any of the cost data.
Respondent states that petitioners' reliance on Cold-Rolled
Stainless Steel Sheet from Germany and Krupp Stahl is misplaced. In
that case, Union states, all records had been destroyed, preventing it
from preparing a response to the Department's questionnaire and
preventing the Department from conducting a verification. In this case,
Union claims only two types of documents are at issue: mill
certificates and customer correspondence. In Union's view, respondent
had no reason to suspect that these documents, which it does not
normally retain, would be deemed necessary at verification. Union
concludes that the precedents ``underscore that the use of total BIA is
appropriate only for a noncooperative respondent or a respondent whose
submission is so fundamentally flawed that it cannot be used even with
partial BIA.'' See, e.g., Antifriction Bearings, (Other Than Tapered
Roller Bearings) and Parts Thereof from France, 60 FR 10900. Thus,
respondent states that the Department must reject petitioners' request
to use total BIA.
Respondent notes that the statement in the verification report that
the Department was ``unable to verify the accuracy of the product code
system for [Union's] home-market sales, or determine the basis behind
Union's coding of certain model-match characteristics,'' upon which
petitioners rest their claim for application of total BIA, is
contradicted by factual evidence on the record. Union asserts that, as
part of the verification, the Department: (1) Repeatedly tied the
product codes reported on Union's tape to the product codes used on
commercial invoices maintained in the normal course of business; (2)
traced the reported invoice data, including the product code, from the
commercial invoice to Union's sales ledgers, and thus into the audited
financial accounting system; (3) compared the product codes with
Union's product manual, and found no discrepancies; and (4) repeatedly
checked product codes for U.S. sales (which are the same product codes
used in the home-market) against mill certificates. Union also asserts
that the decision memorandum forwarded to the Assistant Secretary
failed to mention the first three of these facts. Rather, Union avers,
the Department's memorandum gives central status to two types of
documents--mill certificates and customer notifications--on no basis
other than the fact that these documents were not retained. Union also
claims that, by not notifying the company during verification of its
concerns with regard to product characteristics, the Department
deprived Union of an opportunity to address those concerns.
Union, citing recent cases (see e.g., Brass Sheet and Strip from
Canada, and Oil Country Tubular Goods from Korea), argues that the
Department routinely relies on commercial documentation, such as
invoices and sales ledgers, to verify internal product codes, and does
not normally tract product codes to production records.
Union maintains that there exists on the record production
information, viewed by the Department at verification, supporting its
internal product characteristics. The Department, according to Union,
examined post-POR mill certificates. In addition, Union claims that the
Department's cost verifiers ascertained that Union used a single
product coding system, which enabled them to test the quality and
specifications of input materials to the quality and specifications of
the finished product. It is Union's view that the Department's
verifiers could have tied Union's product codes to its inventory
withdrawal records and to entries into the finished goods inventory,
which in turn could have been tied to production records such as
inspection cards and daily production reports, but they did not do so.
Alternatively, Union suspects the Department could have reconciled
total sales to total inventory entries or withdrawals, thereby
confirming that the amount sold of a given product matched the total
amount produced and entered into finished goods inventory, but it did
not.
Respondent reiterates that there is only one internal product
coding system used for home-market sales, U.S. sales and cost of
manufacturing. Respondent claims it is beyond dispute that the
Department verified both the U.S. sales data and cost data, which
confirms the integrity of the entire internal product coding system,
even if the Department was not fully satisfied that could tie home-
market sales to mill certificates or customer correspondence.
Union also asserts that its recordkeeping practices do not differ
significantly from Dongbu's, which, like Union, did not retain home-
market mill certificates or customer correspondence. Even if Union had
kept records in a significantly different manner from Dongbu's Union
cites Coated Groundwood Paper from Finland; Final Determination of
Sales at Less Than Fair Value (56 FR 56363--November 4, 1991) as an
example where the Department relied on very different documentation to
verify two respondents' respective product characteristics. In that
case, Union claims the Department relied upon Metsa-Serla's product
coding sheet to verify that respondent's product characteristics. It
says Metsa-Serla was not penalized because it was unable to provide
mill orders and the other respondent, UPM/Rupola, was.
Union states that the purported difficulty in verifying home-market
product characteristics is limited to
[[Page 18557]]
those defined based on the internal product codes in Union's sales
ledgers. Union claims that the majority of the reported product
characteristics are not derived from the internal product code. The
product code was used as a basis of only 5 product characteristics out
of 11. Even when the product code was relevant, it was generally
relevant for only some distinctions within a product characteristic
(e.g., the distinction between different types of paints).
Union states that the record of this review does not provide any
explanation or reasoned basis for the Department's product hierarchy.
Under those circumstances, it is Union's opinion that the Department
may not lawfully use partial BIA even if Union fails to support its
product distinctions sufficiently.
Even assuming certain product characteristics could not be
verified, Union argues, the Department's conclusion that the maximum
possible adjustment for differences in physical characteristics of the
merchandise (``difmer'') is necessary to account for the worst case is
unwarranted. The Department could have drawn an adverse inference with
respect to the specific product characteristics at issue.
Petitions dispute Union's suggestion that only a minority of
product characteristic variables were derived from the internal product
code. Petitioners point out that the verification report specifically
says the opposite in three different places, and that Union never
attempted to clarify or rebut these statements. Union's claim that
certain product characteristics were derived from the product's name,
is a non sequitur in petitioners' view. They argue that while these
physical characteristics may be associated with the product name, that
alleged fact in no way demonstrates that the product actually produced
and sold possesses the physical characteristics attributable to it by
virtue of its product name. Petitioners add that such a demonstration
could only have been effected by providing the Department with
production records indicating the physical characteristics of the
products produced and sold (e.g., production orders or mill
certificates), which Union failed to do. In any event, petitioners
argue, even if a minority of Union's reported product characteristics
were derived from its internal product code, it would be reasonable to
limit application of partial BIA to specific product characteristics,
because Union's home-market sales, cost, and constructed-value data
would still be tainted. Petitioners suggest, the Department could use
as partial BIA the highest VCOMH reported in Union's database for
purposes of calculating the difmer adjustment as well as COP and CV.
Respondent denies that the Department's preliminary results reward
Union and urges the Department to reject the notion that, absent any
evidence of manipulation, a 20 percent difmer adjustment would provide
future respondents with an incentive to manipulate the model-match
process.
Union argues that even if the Department justifiably determined
that Union's product characteristics had inadequately been verified,
its decision to resort to partial BIA was wrong, since the statute
affords the Department broad discretion to base FMV on CV. Because
Union's CV data was verified and reflects the cost of the products sold
in the United States, and the Department's stated policy is to use as
much of a respondent's data as possible, the Department had a
responsibility to use Union's own, verified data rather than using a
flat, across-the-board difmer of 20 percent as BIA. Respondent notes,
that a comparison of U.S. price to CV is totally unaffected by the
perceived problems with the verification of product characteristics and
suggests that in light of the Department's concerns, the use of CV is
``the obvious alternative.''
Petitioners counter that Union's CV database is just as tainted by
the failure adequately to verify product characteristics as Union's
sales database. Union, they claim, mistakenly believes that, because
the product characteristics associated with the merchandise sold by
Union in the U.S. market are not in the dispute, the costs associated
with producing that merchandise are also not in dispute. Petitioners
state that, due to the Department's inability to verify the accuracy of
Union Steel's reported home-market product characteristics, the
physical characteristics of the products whose production levels Union
used in calculating the unit cost of each given product are either
unknown or unreliable.
Petitioners also affirm that the statute does not give the
Department discretion to use CV as FMV when home-market sales data is
not verified. They note the statute provides that the Department may
use CV when home-market sales are found to be below cost in significant
numbers and when there are no matchable numbers in the home-market
because they exceed the 20 percent difmer test. In those situations,
petitioners observe, the Department has before it otherwise usable and
properly verified data which cannot be used in margin calculations. In
this case, however, the Department did not have home-market sales data
that was otherwise usable according to petitioners. Petitioners argue
that when the Department is unable to verify submitted data, as it was
in this case, the statute requires the Department to resort to BIA,
which is always an adverse inference. In this case, they claim using
Union's CV data is not adverse to Union and would reward Union.
Petitioners counter that the record is unclear as to whether the
Department ``repeatedly'' tied the product codes to sales and
production documents, as claimed by Union. Even if the Department did
repeatedly perform each of these tasks cited by Union, petitioners
argue that none of these tasks (i.e., tying product codes from sales
invoice to sales tape, tracing invoice data to sales ledgers, checking
product codes against a product code key, checking U.S. product
characteristics against mill test certificates) in any way confirmed
that products sold in the home-market possessed the physical
characteristics reported by Union.
Petitioners claim that the statute requires the Department to
verify the accuracy of the data submitted, not some proxy thereof. They
note that Union has admitted on the record that its home-market
customers are somewhat less concerned than U.S. customers with the
accuracy of product specifications. Therefore, petitioners argue,
verification of U.S. product characteristics cannot serve as proxy or
surrogate for verification of home-market product characteristics.
Petitioners allege that, to the extent that the internal product code
was the basis for matching home-market products to U.S. products, Union
had an incentive to ensure that the product code assigned to an
individual home-market sale resulted in the most favorable match.
Petitioners claim that Union does not seem to recognize that submitted
data must be verified not to its own satisfaction, but to the
Department's.
Petitioners also argue that the verification reports cited by Union
as evidence that the Department normally applies a lower standard for
verification of product characteristics than was the case here are all
inapposite. In those cases, petitioners claim, the Department was not
verifying the accuracy of product characteristics as reflected by
product codes, but rather whether the merchandise was in-scope versus
out-of-scope, or whether the respondent had completely reported all
sales of the subject merchandise. In those cases,
[[Page 18558]]
according to petitioners, the Department was provided with other
documentation, including documentation furnished by the customer, such
as purchase orders and order confirmations. Further, as Union has
conceded, the verification techniques employed in a given instance are
dependent on the specific facts of each case. Petitioners state that
the Department has considerable latitude in conducting verification and
``[t]he decision to select a particular method of verification rests
solely within [the Department's] sound discretion.'' See Floral Trade
Council v. United States, 822 F. Supp. 766 (CIT 1993). Petitioners
stress that Union, as the requester of the review, has only itself to
blame for not preserving vital documentation months after the review
had started. In addition, petitioners note that Union gave the
Department reason to distrust the company's reported product
characteristics by placing on the record a report, prepared by a
private consulting firm in Union's employ, which stated that the
respondent was incapable of tracing its production records to
individual shipments.
Petitioners claim that Union's post hoc explanation of the
production records it allegedly maintained does not demonstrate the
accuracy of its reported home-market product codes. Petitioners allege
that the explanation furnished by Union with regard to post-POR records
allegedly examined by the Department's verifiers constitutes new
factual information that should be stricken from Union's case brief.
Petitioners argue that explanation does not exist anywhere on the
record, nor is it clear that verification reports or exhibits support
that purported explanation. Consequently, petitioners request that this
explanation be stricken from the record and ignored on the grounds that
it is untimely submitted. In any event, these materials were examined
by petitioners for the limited purpose of ascertaining the accuracy of
Union's reported date of sale in the home-market. Therefore,
petitioners claim any assertion that these materials support home-
market product characteristics is post hoc and unverified.
Petitioners also deny that the cost verification supports the
validity of Union's internal product coding system. They claim that the
cost verifiers did not ascertain whether the reported internal codes
accurately reflected the characteristics of products produced and sold.
Rather, petitioners say, the verifiers tested input costs on the basis
of the specifications of Union's internal product code and physical
dimensions. It is unclear, petitioners note, whether the products that
Union reported as coming off its production line actually possessed the
physical characteristics represented by the internal product code
assigned to them in the accounting records maintained with respect to
production. Finally, petitioners argue, the fact that the accuracy of
the internal code may have verified with respect to one market (the
United States) does not mean it verified with respect to the other
(Korea). Even if the Department incorrectly concluded that the accuracy
of Union's internal product code with respect to products produced for
the home-market was verified, the accuracy of the codes appearing on
self-generated commercial invoices for home-market sales remains
unverified. Petitioners object to Union's suggestion that the
Department could have employed alternative verification techniques,
thereby trying to usurp the Department's role. They note that the
verification outline clearly put the respondent on notice as to the
goals of the verification and as to the type of supporting
documentation Union would be required to produce. It was therefore
``unconscionable'' for Union to destroy records that would have allowed
the Department to verify the accuracy of the most critical component of
antidumping analysis--the product characteristics assigned to each
control number, according to petitioners. It is incumbent upon a
respondent to volunteer to the Department's verifiers information as to
what sort of documentation is available to permit verification. It
would appear that by inserting the consulting firm's report on the
record of the verification, Union was fully aware of the problem posed
by verifying home-market product characteristics. Yet it was not until
the case brief that Union volunteered the existence of documents which
it claims would have permitted such a verification. Union had
repeatedly denied that production records could be tied to shipment
records. Union also suggests post hoc that inventory records could have
been used to verify product characteristics, yet the consulting firm's
report states outright that these records are inaccurate. If the
product code could not be verified for home-market sales, petitioners
suggest, it is doubtful that the accuracy of the product codes in the
inventory records could have been verified. Petitioners affirm that
there is no requirement that the Department inform a respondent, during
verification, of errors and deficiencies discovered during same.
Petitioners dispute Union's contention that the Department's
preliminary decision to use BIA was arbitrary because it was based on a
comparison of Union's recordkeeping practices with Dongbu. Petitioners
find this ``strange,'' since in its case brief, Union itself compared
its recordkeeping practices to those of other respondents in non-flat-
rolled-steel cases in an attempt to demonstrate the validity of its
records. As to Union's contention that, in fact, its recordkeeping
practices differ little from Dongbu's, petitioners point out that Union
officials or counsel were not present at Dongbu's verification, that
Dongbu never asserted (as Union did) that it was incapable of tracing
production to shipment, that it was able to show certain production
records to the Department, and that Dongbu had not destroyed all of its
home-market production records relating to the POR.
Department's Position
We disagree with petitioners that the Department should have
restored to total BIA. The Department applies total BIA when a
respondent refuses to provide the information requested in a timely
manner or in the form required, or otherwise significantly impedes a
proceeding. See Antifriction Bearings (Other than Tapered Roller
Bearings) and Parts from France, et al.; Final Results of Antidumping
Administrative Reviews, 60 FR 10900, 10908 (February 28, 1995), Allied-
Signal Aerospace Co. v. United States, 996 F.2d 1185 (Fed. Cir. 1993);
NTN Bearing Corp. of America v. United States, Slip Op. 93-129 (CIT
July 13, 1993). The Department considers the errors and inconsistencies
in Union's submission to be of such a nature that they do not warrant
the use of BIA, as discussed below. With respect to U.S. date of sale
discrepancies, we agree with respondent that this has already been
addressed in the preliminary results by using date of shipment as date
of sale.
We agree with respondent that the case cited by petitioners
regarding the destruction of records are not applicable to this
instance. In Krupp Stahl AG v. United States, 822 F. Supp. 789 (CIT
1993), for instance, respondent purposefully destroyed all records for
the POR, making it impossible for them to respond to our questionnaire
or enable us to verify any submitted information. That is not the case
with Union. Following its normal procedures, Union did not retain mill
certificates or other documents needed to verify home-market product
characteristics. However, all other documentation was maintained and
[[Page 18559]]
there is no evidence that respondent's failure to retain certain
records was intended to impede our ability to conduct this proceeding.
Union's claim that the difficulty in verifying home-market product
characteristics was limited to those defined by the internal product
code is partially correct. The internal product code did serve as the
basis for categorizing many of the corrosion-resistant model-match
variables; however, it was the basis for a majority of the variables,
rather than just the five referenced by respondent. In fact, five of
the six most important variables in the model-match hierarchy were
derived from the internal product code, and Union's methodology for
categorizing an additional variable (Yield strength) on specific sales
was not explained to the Department. Since Union did not maintain
records of any correspondence with its home-market customers prior to
shipment indicating the product being sought, and the description of
products sold in the home market and appearing on the commercial
invoices was only the internal product code, with the exception of
thickness and width, the Department was required to verify that the
product code represented an accurate reflection of the product sold and
shipped. The fact that Union did not preserve production records for
its home-market sales, such as mill certificates, which would provide
this detailed information on products produced and which would like
these products to specific sales, prevented the Department from
determining the accuracy of this system.
With respect to Union's claims that the Department relies on
commercial documentation, such as invoices and sales ledgers, to verify
internal product codes, we note that Union's invoices--unlike those for
many companies do not contain a detailed product description of the
product sold. Neither did Union maintain any customer correspondence or
any documentation which contained such a detailed product description.
With respect to the cases cited by Union, we note that the reference in
Brass Sheet and Strip from Canada was not relevant to verifying product
characteristics as it involved a volume and value trace. The reference
to Small Diameter Circular Seamless Carbon and Alloy Steel Standard,
Line and Pressure Pipe from Brazil and Germany was also not relevant to
the present case, as Mannesmann used universal product codes. No such
claim was made by Union; indeed Union consistently referred to its
codes as ``internal'' codes.
Union's allegation that the internal product code was the same as
that used for U.S. sales and the Department was able to verify its
accuracy is irrelevant. Products sold in the U.S. had commercial
invoices with detailed descriptions of the product sold, and the
necessary mill certificates that could be used to confirm these product
descriptions. In addition, products sold in the two markets possess
different physical and mechanical characteristics, are made to
different specifications, and are coded differently in the internal
product code.
We note that Union, in its case brief of October 2, 1995 (at 15 et
seq.), almost seven months after the verification and five months after
the sales verification report (``SVR'') was issued, suggests that the
Department could have used alternative verification techniques to
verify Union's home-market product characteristics. If that were true,
respondent could have suggested these techniques during the
verification itself, but did not do so. Only the respondent is in a
position to know what documentary evidence there exists in its
possession; it is the respondent's responsibility to determine, prior
to the verification, what documentary evidence exists in its records
supporting the information previously supplied to the Department, and
to provide such documentary evidence to the Department's verifiers. It
is not the responsibility of the Department's verifiers to guess what
records might be in the respondent's possession and to suggest to the
respondent how it might best document the information provided in the
questionnaire responses. We note further that, at verification, Union
entered as a verification exhibit a consulting report stating that
Union's production and inventory records are inaccurate. See Union's
SVR of May 16, 1995, at 10. This calls into question the possibility of
successfully employing the alternative techniques Union is now
advocating. Finally, contrary to Union's claim, it is not true that at
verification the Department examined post-POR mill certificates as well
as ``factory inspection cards'' for certain home-market sales within
the POR.
Union's assertion that its recordkeeping practices do not differ
significantly from Dongbu's is also incorrect. Dongbu, like most other
parties in these flat-rolled steel proceedings, did maintain mill
certificates on at least some of its home-market sales during the POR.
Dongbu also retained various customer correspondence containing product
descriptions. While it is not the Department's practice to mandate that
respondents keep their records in a particular manner, in this case all
of this information, as well an any alternative documentation which
could have served to verify reported product characteristics, was
lacking for Union, or not brought to the Department's attention.
As a result of our analysis of all comments received following our
preliminary results and a re-evaluation of the information on the
record for this proceeding, we are changing the methodology from that
used in the preliminary results. Because Union's reported home-market
product characteristics were not verifiable, it was not possible for
the Department to make reliable price-to-price comparisons. Under such
circumstances, the use of total BIA normally would be warranted in
calculating FMV. In this particular case, however, the Department has
concluded that it would be inappropriate to use total BIA for the
following reasons:
--Union's normal business practice at the time was not to retain
certain production records, such as mill certificates;
--there is no evidence on the record that Union deliberately refrained
from retaining those records with the purpose of impeding the
Department's ability to conduct this proceeding;
--we were able to verify product characteristics of the merchandise
sold in the U.S. market and to link specific U.S. sales to control
numbers; and
--CV was associated with specific control numbers.
Accordingly, we have used CV to determine FMV, in accordance with
section 773(a)(2) of the Act. In any future review of this order,
however, the Department expects Union to retain any and all records,
including production records, necessary to permit the Department to
verify Union's home-market product characteristics.
We disagree in part with petitioners' assertion that the CV cost
data are not viable because production quantities were used to allocate
costs. While it is true that the quantities of each control number sold
were used to reconcile total costs to respondent's financial
statements, these quantities were not used to build up individual costs
by control number. Instead, Union used average material costs based on
withdrawals from inventory. The weighted-average costs were then
applied to a specific control number, and therefore, the final
production quantity of that control number was not relevant. For
fabrication costs, Union used the pass-through quantities for each
process to accumulate and allocate
[[Page 18560]]
costs to a specific control number. Again, the final production
quantity was not used to allocate costs, and therefore, is irrelevant.
Thus, we are satisfied that Union's method of assigning a cost to a
specific control number is reasonable and that total costs (i.e.,
materials, labor, overhead) were allocated to either home-market,
third-country, or U.S. merchandise.
In calculating FMV on the basis of CV, we did not use the statutory
minimum eight-percent profit. Section 773(e)(1)(B)(ii) of the Act
requires that, as a component of CV, an amount for profit shall be used
that is equal to that usually reflected in the sales of the merchandise
made by producers in the country of exportation, except that the amount
of profit shall not be less than 8 percent of the sum of such general
expenses and cost. In this instance we were unable to determine the
actual amount of Union's profit because the profit component of Union's
reported CV data is derived from Union's home-market COP database,
which, as we explained above, is not usable because we could not verify
Union's home-market sales product characteristics. Because these
product characteristics could not be verified, we were unable to match
specific sales to specific costs; thus, it was not possible to
determine the actual profit for specific products based on a
transaction-by-transaction build up. Consequently, because of this
failure of verification, the Department, pursuant to section 776(c) of
the Act, resorted to the use of BIA in order to determine the profit
component to be used in calculating CV. As partial BIA, we have used
the weighted-average profit for all above-cost home-market sales.
In order to determine which sales were made at prices above the
COP, we calculated a simple average COP based on all home-market sales.
We were unable to calculate a weighted-average COP because we could not
link Union's COP database to individual home-market sales as Union's
home-market sales product characteristics could not be verified. After
calculating the simple average COP, we compared that cost to each
individual home-market sale to determine which sales were made at
prices above the COP.
Once we had determined which home-market transactions were made at
prices above the simple average COP, we calculated the transaction-
specific profit for those sales. This was done by first calculating the
sales value of each individual home-market transaction (i.e., net price
times sales quantity). From each sales value we subtracted the value of
the COP for that particular transaction to determine the transaction-
specific profit (i.e., sales value minus simple average COP times sales
quantity). Finally, we weight-averaged the transaction-specific profits
for purposes of deriving an overall profit percentage for use in the CV
calculation. We were able to weight-average profit because we verified
the quantities and prices of Union's individual home-market sales
transactions.
Given Union's home-market data deficiencies, we determined that
this approach was a reasonable means to calculate the profit component
of CV. We used as much of Union's verified data as possible. However,
where verified data were not available, we resorted to partial BIA,
still using Union's data but in a more adverse manner than if the data
in question had not failed to verify. We concluded that adopting this
partial BIA approach, rather than using the statutory minimum profit,
comported with the statute, the Department's practice, and with Court
precedent. As the Department has previously noted, ``the noncomplying
respondent cannot find itself in a better position as a result of
failing to comply with the Department's information request than had
the respondent provided the Department with complete, accurate and
timely data.'' Replacement Parts for Self-Propelled Bituminous Paving
Equipment From Canada; Final Results of Antidumping Duty Administrative
Review, 56 FR 47451, 47453 (September 19, 1991). See also National
Steel Corp., et al. v. United States, 870 F. Supp. 1130, 1135 (CIT
1994) (approving use of adverse partial BIA when only part of the
submitted information is deficient).
Finally, we agree with petitioners that certain statement made by
Union its in its case brief and rebuttal brief constitute new factual
information within the meaning of section 353.31(a)(3) of the
Department's regulations, and have stricken this information from the
record. We have also stricken from the record references made by Union
to the DKI verification report in the concurrent proceeding involving
certain cold-rolled carbon steel flat products from Korea. That is a
separate proceeding, and the information in question is not on the
record of this case.
As we are not using total BIA, comments regarding the choice of a
total BIA margin are moot.
Comment 13
Petitioners contend that Union Steel's submitted COP and CV data
must be revised to reflect product-specific costs. According to
petitioners, Union improperly assigned the same cost of manufacturing
to multiple products in its COP and CV databases when these products'
physical characteristics differed in yield strength and, or, width. The
petitioners argue that these products with the same COM figures are not
identical products and, therefore, should have distinct production
costs. Thus, to avoid any manipulation of cost, the petitioners request
that the Department adjust Union's cost data to eliminate the
distortion caused by inappropriate cost allocations.
Union contends that its cost data was reported to an appropriate
degree of specificity. Union states that the petitioners claim is made
without any substantial support because the Department's hierarchy is
not based on physical characteristics alone, and that there are no
reasons to expect any given company to track possible small differences
in costs that may be associated with different classifications in the
hierarchy. Additionally, the Department's hierarchy classification
chose to conform to commercial practices rather than production
characteristics which cause some products to have similar costs of
manufacturing. Furthermore, Union states the Department thoroughly
verified product costs by control number and found no discrepancies.
Department's Position
For the final results, we accepted Union's control-number-specific
costs. We found that Union's cost data was allocated to a sufficient
level of product detail following the Department's section D
questionnaire instructions. Following these instructions, it is
possible for some of Union's control numbers to have similar cost of
manufacturing for products that varied only in yield strength and
width. Specifically, the determination of a product's manufacturing
costs that are associated with yield strength is based mainly on the
carbon content and possibly any micro alloying elements of the raw-
material input. A raw material input with a higher carbon level will
produce a product with a higher yield strength. However, even though
raw-material inputs may vary in carbon content, their acquisition cost
can be identical. Additionally, Union weight-averaged its raw materials
based on other industry characteristics of the raw material input than
the carbon content (i.e., commercial quality, drawing quality and ASTM
grade). Hence, it is possible for some of Union's products that are in
different strength bands to have no cost differential. As for
petitioners' concern that the cost of
[[Page 18561]]
manufacturing should differ for products with different width, we are
satisfied that the respondent reasonably allocated costs associated
with width differentials. For certain types of cost, Union used
processing times to allocate fabrication costs by deriving an average
cost. This average cost was then applied to specific control numbers.
Therefore, due to this averaging it is possible for identical products,
with the exception of width, to have the same cost of manufacturing.
Comment 14
Petitioners contend that the conversion factor used by Union to
convert home-market sales of sheet reported in theoretical-weight terms
to actual-weight terms was flawed, because Union was unable to document
the basis for its formula at verification and because the formula, by
Union's own admission, was based on incomplete data covering only a
portion of the POR. Petitioners suggest instead that the Department
apply a conversion factor derived from the lowest ratio experienced by
Union on the basis of information on the record.
Respondent counters that the Department was able to verify the
theoretical-to-actual weight conversion factor. Union states that the
sales verification report was inaccurate on this point, and that it
explained the nature of the discrepancy immediately following the
issuance of the report.
Department's Position
Because we based FMV on CV, this comment is moot.
Comment 15
Petitioners argue the Department should deny Union's claimed
circumstance-of-sale adjustment for inventory carrying costs, since
during verification Union prevented the Department's staff from
actually examining the area in the mill where the physical inventory is
stored. Petitioners claim that allowing the claimed adjustment would
only reward Union's obstructiveness.
Respondent retorts that these costs were fully verified. Union
notes that it does not have a distinct warehouse for finished goods,
and the verification team did examine inventory areas at the mill.
Department's Position
We disagree with petitioners. During the sales verification, the
Department's verifiers mistakenly understood that there was a separate
area in Union's mill dedicated to storing inventory. The cost verifies,
however, understood differently, and ascertained that steel coils were
being stored on the mill floor. The department also verified Union's
calculation of inventory carrying costs and traced the figures to
Union's accounting records. The Department, therefore, believes there
is sufficient information on the record in support of this adjustment.
Comment 16
Petitioners claim that the Department should treat Union's U.S.
sales through Union America (``UA'') as ESP transactions for purposes
of the final results. Petitioners base this claim on three broad
reasons: (1) Union's U.S. sales through UA do not meet the statutory
definition of purchase-price transactions; (2) the limited factual
information on the record only supports a conclusion that the subject
sales are ESP transactions; and (3) declarations made on Customs form
7501 clearly indicate that UA is the purchaser of the imported
merchandise.
In determining whether a U.S. sales transaction meets the statutory
definition of purchase price, the Department looks at whether (a) the
merchandise was shipped directly from the manufacturer to the first
unrelated purchaser in the United States, without being introduced into
the inventory of the related shipping agent; (b) direct shipment from
the manufacturer to the unrelated parties was the customary commercial
channel for sales of the merchandise between the parties involved; and
(c) the related selling agent in the United States acted only as a
processor of sales-related documentation and a communications link with
the unrelated U.S. buyers. Petitioners claim that the first two factors
may be indicia pointing to the conclusion that sales took place in a
foreign country for exportation to the United States, but are not
dispositive of the issue. In the steel industry, petitioners contend,
these factors are not informative because most international shipments
are shipped directly to the customer and not carried in inventory.
Therefore, even if the merchandise is shipped directly to the customer
and not placed in inventory in the United States, more evidence is
needed to conclude that a sale is a purchase-price transaction,
according to petitioners. Under the circumstance, they argue, the focus
must be on the third factor of the Department's test.
Petitioners contend that the record evidence demonstrates that UA
acts as more than a mere processor of sales-related documentation on
behalf of Union's U.S. purchasers. They report that UA is involved in
the following activities: the arrangement and payment for warehousing
expenses on U.S. sales; the financing of U.S. sales; and the hiring of
commission agents and entrance into commission arrangements with same.
Petitioners state that UA reported substantial inventories of steel
products in 1993, and that UA will, for certain warranties,
independently authorize a compensatory cash discount without contacting
Union. Petitioners further report the following: that UA has the
authority to grant rebates; that UA is engaged in advertising on behalf
of Union; that UA assumes the seller's risk pursuant to the terms of
the invoices issued to U.S. customers; that UA is the carrier of
Union's marine insurance policy and pays the premium for that
insurance; that UA is the importer of record and pays U.S. duties,
brokerage, and handling on U.S. sales; that UA pays Union the transfer
price for the merchandise and in turn is paid by the U.S. customer,
thereby bearing the risk of non-payment by U.S. customers; and that UA
takes title to the merchandise at the time it is loaded in Korea.
Petitioners assert that UA repeatedly declared on Customs form 7501
(``Entry Summary'') that it purchased the merchandise. Therefore, the
transaction between Union and UA is a purchase ``for export to the
United States,'' so that the transactions between UA and its unrelated
purchasers are necessarily sales ``in the United States'' meeting the
definition of ESP transactions, in petitioners' view. They add that UA
entered the merchandise in question for appraisement at its
``transaction value,'' which is defined as ``the price actually paid or
payable for the merchandise when sold for exportation to the United
States.'' If the importer of record (UA) has entered the merchandise at
the price established between the related parties as the transaction
value, then by definition the sale was for export to the United States
and the sale between UA and the first unrelated U.S. purchaser cannot
also be the sale for export to the United States. It follows, say
petitioners, that the latter sale must be an ESP transaction.
Respondent answers that the Department properly treated the vast
majority of Union's U.S. sales through Union America as purchase price
sales. The terms of sales are set prior to importation. Union claims
that petitioners concede that the merchandise in question was shipped
directly from the manufacturer to the unrelated buyer, without being
introduced into inventory of the related shipping agent, and direct
shipment was the customary channel of distribution.
[[Page 18562]]
With regard to whether UA acted only as a processor of sales-
related documentation and a communications link, Union cites the
following: UA does not warehouse the imported merchandise; UA does not
sell from inventory; UA does not finance U.S. sales; UA does not have
the authority to authorize a cash discount for warranty claims; Union
Steel sets guidelines for hiring of any commission agents; UA does not
enter into rebate agreements; UA does not engage in any significant
advertising on behalf of Union; Union Steel ultimately assumes the
seller's risk pursuant to the terms of the invoices issued to U.S.
customers; UA's procurement of marine insurance is a normal function of
related selling agent; and that UA's role as the importer of record and
payment of U.S. duties, brokerage, and handling on U.S. sales is a
normal function of a related selling agent. Union further states that
although UA issues commercial invoices as Union's proxy, it merely
processes sales-related documentation, Union Steel bearing the final
responsibility for the transaction. Union notes that whether or not UA
takes title to the merchandise at the time of loading in Korea is
irrelevant, since it must take title of the merchandise in order to
resell it to an unrelated customer in the United States. Thus, in
respondent's view, Union has strictly limited the role of UA to that of
a conduit for Union's sales and processors of sales-related
documentation and these sales should be treated as purchase price.
Department's Position
We agree with respondents. We determined that purchase price was
the appropriate basis for calculating USP. Typically, whenever sales
are made prior to the date of importation through a related sales agent
in the United States, we conclude that purchase price is the most
appropriate determinant of the USP based upon the following factors:
(1) The merchandise in question was shipped directly from the
manufacturer to the unrelated buyer, without being introduced into the
inventory of the related shipping agent; (2) direct shipment from the
manufacturer to the unrelated buyers was the customary commercial
channel for sales of this merchandise between the parties involved; and
(3) the related selling agent in the United States acted only as a
processor of sales-related documentation and a communication linked
with the unrelated U.S. buyers. See, e.g., Certain Stainless Steel Wire
Rods from France; Final Determination of Sales at Less than Fair Value,
58 FR 68865, 68868-9 (December 29, 1993); Granular
Polytetrafluoroethylene Resin from Japan: Final Results of Antidumping
Duty Administrative Review, 58 FR 50343-4 (September 27, 1993). These
criteria were first developed in response to the Court of International
Trade's decision in PQ Corporation v. United States, 652 F. Supp. 724,
733-35 (CIT 1987). It has also been considered in cases with indirect
purchase-price transactions involving exporters and their U.S.
affiliates. See, e.g., Zenith Electronics Corp. v. United States,
Consol. Ct. No. 88-07-00488, Slip Op. 94-146 (CIT 1994).
Furthermore, the Department has recognized and classified as
indirect purchase price sales transactions involving selling activities
similar to those of UA's in other antidumping proceedings involving
Korean manufacturers and their related U.S. affiliates. See, e.g.,
Final Determination of Sales at Less Than Fair Value; Circular Welded
Non-Alloy Steel Pipe from the Republic of Korea, 57 FR 42942, 42950-1
(September 17, 1992). In the present review, for sales considered to be
purchase price in the preliminary results we found that: (1) Union's
sales through UA, its related sales agent in the United States, are
most always shipped directly from Union to the unrelated buyer and only
rarely are introduced into UA's inventory; (2) Union's customary
channel of distribution is direct shipment, although certain limited
sales are normally introduced into UA's inventory; (3) UA performed
limited liaison functions in the processing of sales-related
documentation and a limited role as a communication link in connection
with these sales. UA's role, for example, in extending credit to U.S.
customers, processing of certain warranty claims, limited advertising,
processing of import documents, and payment of cash deposits on
antidumping and countervailing duties, appears to be consistent with
purchase-price classification. These selling services as an agent on
behalf of the foreign producer are thus a relocation of routine selling
functions from Korea to the United States. In other words, we
determined that UA's selling functions are of a kind that would
normally be undertaken by the exporter in conneciton with these sales.
More specifically, we regard selling functions, rather than selling
prices, as the basis for classifying sales as purchase price or ESP.
While in some cases certain merchandise sold by Union was entered into
UA's inventory, this merchandise was sold prior to the importation of
the merchandise, but not from UA's inventory. When all three of the
factors already described for sales made prior to the date of
importation through a related sales agent in the United States are met,
we regard those selling functions of the exporter as having been
relocated geographically from the country of exportation to the United
States, where the sales agent performs them. The substance of the
transaction or the functions do not change whether these functions are
performed in the United States or abroad. In this case, Union has
transferred these routine selling functions to its related selling
agent in the United States and the substance of the transaction is
unchanged.
Comment 17
Petitioners contend the Department must deduct actual
countervailing and antidumping duties from USP when they are paid by
the respondent or related parties because (1) the plain language of the
statute requires this conclusion; (2) court decisions are also
consistent with this conclusion; and (3) the record evidence
demonstrates that UA is paying for countervailing and antidumping
duties on behalf of Union's U.S. sales and that those costs are
included in the price to the first unrelated party.
With respect to the first point, petitioners cite section 772(d)(2)
of the Act, which provides in relevant part that ``the purchase price
and the exporter's sales price shall be * * * reduced by--except as
provided in paragraph (1)(D), * * * United States import duties,
incident to bringing the merchandise from the place of shipment in the
country of exportation to the place of delivery in the United States''
(19 U.S.C. 1677a(d)). Antidumping and countervailing duties are plainly
import duties ``incident to bringing the merchandise from the place of
shipment in the country of exportation to the place of delivery in the
United States.'' The language of the statute does not indicate that
antidumping and countervailing duties are to be excluded from the
phrase ``import duties.'' Moreover, petitioners say, when this
provision is read in conjunction with section 772(d)(1)(D) of the Act,
the conclusion that antidumping and countervailing duties constitute
``import duties'' under section 772(d)(2)(A) is inescapable. Section
772(d)(1)(D) provides that USP shall be increased by the amount of any
countervailing duty imposed to offset an export subsidy. By including
the phrase ``except as provided in paragraph (1)(D)'' in section
772(d)(2)(A), the drafters clearly understood the subsection's
reference to
[[Page 18563]]
``import duties'' as including countervailing duties imposed to offset
an export subsidy. This exception was necessary to ensure that the
statute was consistent with Article VIpara. 5 of the General Agreements
on Tariffs and Trade (``GATT''), which prohibits the assessment of both
antidumping and countervailing duties to compensate for the same cause
of unfairly low-priced imports, whether by dumping or as a result of an
export subsidy. Had the exception not been inserted, an amount would be
added to USP by section 772(d)(1)(D) and deducted by section
772(d)(2)(A). Therefore, petitioners believe, Congress contemplated
that antidumping and countervailing duties were to be treated as
``import duties'' and deducted from USP.
With respect to the second point, petitioners argue that the
Department must also deduct the cost of antidumping duties equal to the
amount of the calculated margin. In Federal-Mogul Corp. v. United
States, 813 F. Supp. 856, 872 (CIT 1993), according to petitioners, the
court recognized that section 772(d)(2)(A) of the Act requires the
Department to deduct any import duties that can accurately be
determined at the time the Department is calculating the current
dumping margins. In this case, once the final results are issues,
Union's antidumping duties will actually be determined. Therefore,
petitioners urge the Department, in its final results, to deduct the
difference between FMV and USP (i.e., the actual duty amount) from USP
before the final margin is calculated.
With respect to the third point, petitioners cite the verification
report as evidence that Union America is incurring the cost of
antidumping and countervailing duties on behalf of Union, and that
those costs are passed on to the first unrelated purchaser in the
United States.
Petitioners state that the Department must deduct the full amount
of the countervailing duties paid by UA for those entries covered by
the first administrative review of the countervailing duty order on the
subject merchandise. Since no party requested a review of this order,
those duties have become final and they represent a calculable cost to
Union apart from the payment of the estimated antidumping duty deposit.
Therefore, petitioners claim, the payment of countervailing duties must
be treated as actual import duties for purposes of calculating Union's
dumping margin.
Union replies that the Department has repeatedly rejected the
notion of treating AD/CVD duties as expenses to be deducted from U.S.
price. Union adds that, in Antifriction Bearings (Other Than Tapered
Roller Bearings) and Parts Thereof from France, et al.; Final Results
of Antidumping Duty Administrative Reviews, Partial Termination of
Administrative Reviews, and Revocation in Part of Antidumping Duty
Orders, 60 FR 10900 (February 28, 1995), the Department stated as
follows:
We agree with respondents that making an additional deduction
from USP for the same antidumping duties that correct for price
discrimination between comparable goods in the U.S. and foreign
markets would result in double-counting. Thus, we have not deducted
antidumping duties or antidumping duty-related expenses from ESP in
this case.
Union states that the Department disagreed with petitioners' claim that
antidumping duties constitute a selling expense, and notes that the
Department's practice has been upheld by the courts. Finally, Union
denies that the intent of Congress has been that AD/CVD duties be
deducted from USP, citing the Statement of Administrative Action that
accompanied the URAA that the law ``is not intended to provide for the
treatment of antidumping duties as a cost.''
Department's Position
We agree with respondent. See DOC Position to Petitioners' Comment
7 supra.
Comment 18
Because on three separate occasions the Department requested
information from Union regarding its early-payment discount policies
for U.S. customers, and Union failed to provide the requested
information, petitioners argue that the Department should adopt BIA
with respect to those discounts. Petitioners suggest, as a reasonable
adverse inference, that the Department assume that Union granted an
early-payment discount on any transaction where payment was received
before the due date.
Union claims that it was fully responsive to the Department with
regard to information about this discount and that it was fully
verified. Union states that its discount ``policy'' does not matter;
all that matters is that it did extend early-payment discounts, that it
did report them, and that they were verified.
Department's Position
We agree with respondent. Although the Department did ask Union, on
more than one occasion, to state it policy with respect to early-
payment discounts in the U.S. market and did not receive an answer, the
Department was able to ascertain that Union in fact extended certain
early-payment discounts, and to verify to its satisfaction the amount
of such discounts. See Union's SVR of May 16, 1995, at 33.
Comment 19
Petitioners point out that, although Union provided revised COP/CV
information to the Department at verification, Union did not submit
this information in computer format after the verification and that, as
a consequence, the Department inadvertently failed to include these
revisions in its margin calculations for the preliminary results.
Accordingly, the Department must incorporate Union's revised, verified
COP/CV data in its final results.
Department's Position
We agree with petitioners. We requested that Union provide us with
its revised, post-verification COP/CV data. Union provided us with the
data consistent with the methodology we are employing in these final
results.
Comment 20
Petitioners argue that the Department must revise Union's reported
G&A expenses to account for expenses incurred by the Dongkuk Steel Mill
(``DSM'') group as a whole. In prior cases, the Department has adjusted
a respondent's submitted data to include an allocated portion of the
parent company's expenses. The record in this case, petitioners assert,
clearly indicates that expenses were incurred at the headquarters or
DSM group level (e.g., chairman's salary, group product brochures,
group training center, and personnel welfare center, office costs,
security expenses, entertainment expenses, etc.).
Since Union failed to furnish complete information regarding these
expenses, petitioners argue that the Department should, as BIA,
increase Union's calculated G&A expense by the ratio of all G&A
expenses incurred at DSM over the consolidated DSM group's cost-of-
sales.
Union contends that the Department should reject the petitioners
proposed combination of DSM's and Union's G&A expenses. Union argues
that there is no parent-subsidiary relationship between the two
entities and that there are no DSM general expenses to attribute to
Union's activities. Union also counters that Dongkuk Steel Mill was a
respondent in the 1993 antidumping investigation of Certain Cut-to-
Length Carbon Steel Plate from the Republic of Korea, and in that case
the Department concluded that Dongkuk Steel Mill's G&A expenses were
appropriately
[[Page 18564]]
allocated to Dongkuk Steel Mill's activities and not to a group.
Additionally, Union contends that the petitioners' proposed adjustment
is a specific question to the review of cold-rolled, which is a totally
different proceeding. Therefore, since the Department failed to request
this information for this review, it cannot use a BIA adjustment based
on the failure to provide the information.
Department's Position
We disagree with petitioners. For the final results, we did not
combine Dongkuk Steel Mill and Union's general and administrative
costs. It is the Department's normal practice to include a portion of
the G&A expense incurred by affiliated companies on the reporting
entity's behalf in total G&A expenses for COP and CV purposes. However,
in this specific case, we did not identify and allocable parent company
costs after reviewing the information on the record. See e.g., Final
Determination of Sales at Less Than Fair Value: Small Diameter Circular
Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from
Italy, 60 FR 31981, 31992 (June 19, 1995); Final Determination of Sales
at Less Than Fair Value: Welded Stainless Steel Pipe from Malaysia, 59
FR 4023, 4027 (January 28, 1994).
Respondents' Comments
Dongbu
Comment 1
According to respondent, the Department is required to make an
additional upward adjustment to USP to account for export subsidies
subject to countervailing duties. Citing Article VIpara.5 of the
General Agreement on Tariffs and Trade (Uruguay Round Agreements Act,
Pub. L. 103-465, Th. section 101 (approving the Final Act Embodying the
Results of the Uruguay Round of Multilateral Trade Negotiations, Annex
1A 1(a)), respondent states that it provides that ``[n]o product * * *
shall be subject to both antidumping and countervailing duties to
compensate for the same situation for dumping or export
subsidization.'' This provision was implemented into U.S. law by
section 772(d)(1)(D) of the Tariff Act of 1930, amended, 19 U.S.C.
1677a(d)(1)(D). Thus, argues respondent, purchase price and exporter's
sales price shall be increased by the amount of any countervailing duty
imposed on the merchandise to offset the export subsidy. Respondent
also asserts that, during the original less-than-fair value
investigation of flat-rolled carbon steel products from Korea, the
Department made upward adjustments to USP of this type. See Final
Determinations 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 Korea, 58 FR 37176
(1993). Dongbu states that such an adjustment is required both for
assessment purposes and for purposes of determining the cash deposit
rate applicable to future entries. As reported in the Final
Determinations, the level of export subsidies determined in the final
countervailing duty determination for corrosion-resident products was
0.10 percent ad valorem. Because Dongbu has made deposits reflecting
these amounts in conjunction with the entries of corrosion-resident
flat products under review in this proceeding, Dongbu claims it is
therefore entitled to a further adjustment of USP in this amount.
Petitioners agree with respondent provided that the Department
fully implements the statute, which they assert also requires under
section 772(d)(2)(A) of the Act that USP also be reduced by ``(A)
except as provided in paragraph (1)(D), the amount if any, included in
such price, attributable to any additional costs, charges and expenses,
and United States import duties, incident to bringing the merchandise
from the place of shipment in the country of exportation to the place
of delivery in the United States'' (19 U.S.C. 1677a(d)). Thus,
petitioners argue that if the Department adds the amount of the export
subsidy to USP, it should also treat the remaining part of the
countervailing duties paid on those shipments as costs, charges and
expenses, and United States import duties in accordance with the
statute.
Department's Position
We agree with petitioners and respondent in their arguments that
Dongbu is entitled to a 0.10 percent ad valorem adjustment to the USP.
However, we disagree with petitioners regarding their contention that
if the amount of the export subsidy is added to USP, the remaining
portion of the countervailing duties paid on those shipments must also
be treated as costs, charges and expenses, and United States import
duties. As noted earlier in our comments, we determined in Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom;
Final Results of Antidumping Duty Administrative Review (60 FR 44009,
44010--August 24, 1995) that making an additional adjustment to USP for
the same antidumping duties that correct the price discrimination
between the U.S. and home markets would result in double-counting, and
inconsistency with administrative and judicial precedent. The same
principle applies with regard to countervailing duties. Deducting such
duties as a cost would negate the purpose of their being added to USP
in the first place.
Union
Comment 1
Union contends that the Department erroneously included a small
number of U.S. sales as ESP transactions in its preliminary
calculations. Because the merchandise in question was entered into the
United States prior to the POR, Union requests that these transactions
be removed from the final margin calculations.
Petitioners support the Department's finding that these
transactions are subject to review. They note that these transactions
occurred after importation, clearly making them ESP transactions.
Petitioners quote from the Department's questionnaire, which states
that for ESP transactions, respondents must report all sales to
unrelated purchasers which occurred during the period of review. As
this merchandise was resold in the United States during the POR it is
covered, according to petitioners.
Department's Position
We have reviewed our position on this issue and now agree with
respondent. In accordance with section 751 of the Act, the Department
is required to determine the FMV and PP or ESP of each entry of subject
merchandise during the relevant review period. Because there can be a
significant lag between entry date and sale date for ESP sales, it has
been the Department's practice to examine U.S. ESP sales during the
review. See e.g., Gray Portland Cement and Clinker from Japan; Final
Results of Antidumping Duty Administrative Review (58 FR 48826--
September 20, 1993), where the Department did not consider ESP entries
which were sold after the POR. The CIT has upheld the Department's
practice in this regard. See The Ad Hoc Committee of Southern
California Producers of Gray Portland Cement v. United States, CIT Slip
Op. 95-195, December 1, 1995 (``Ad Hoc''). Although the CIT, in Ad Hoc,
accepted that ``consideration of all sales, rather than entries, made
during the period of review may result in the consideration of entries
made prior to the suspension of liquidation,'' Ad Hoc is not a case in
which the respondent linked specific sales during the POR to specific
entries
[[Page 18565]]
prior to the suspension of liquidation. Ad Hoc at 19 (emphasis added).
The Department has adopted an exception to its practice of
examining all U.S. sales during the period of review. That exception
applies when a respondent is able to demonstrate, to the satisfaction
of the Department, that the merchandise covered by a particular sale
entered prior to the suspension of liquidation pursuant to the
Department's preliminary determination in the LTFV investigation. See
e.g., High Tenacity Rayon Filament Yarn from Germany: Preliminary
Results of Antidumping Duty Administrative Review (59 FR 32181, 32182--
June 22, 1994), where specific sales were excluded when linked to pre-
suspension entries. Merchandise proven to have entered the U.S. prior
to the suspension of liquidation (and in the absence of an affirmative
critical circumstances finding) is not subject merchandise within the
meaning of section 771(25) of the Act.
In this review, Union claimed that certain merchandise was not
subject to review because it entered the United States prior to the
period of review but was sold by Union's affiliated U.S. company to the
first unrelated purchaser during the period of review. The Department
verified that Union tied certain sales during the period to entries of
merchandise prior to the suspension of liquidation. Because Union has
demonstrated that certain merchandise entered the United States prior
to the suspension of liquidation, we excluded sales of that merchandise
from our analysis.
Comment 2
Union argues the Department improperly reclassified U.S. sales
involving post-importation slitting and embossing as ESP transactions.
Union believes this reclassification was improper because the terms of
sale, including stateside slitting and embossing, were negotiated by
Union in Korea before the exportation of the merchandise.
Petitioners reply that it is the Department's practice to consider
U.S. sales through a related U.S. subsidiary prior to importation as
purchase-price (``PP'') sales only if three criteria are satisfied: (1)
The merchandise was shipped directly from the foreign producer to the
unrelated U.S. purchaser without first being introduced into the
inventory of the related U.S. selling agent; (2) the customary channel
for such sales was direct shipment from the producer to the unrelated
purchaser; and (3) the related U.S. selling entity acted only as a
processor of sales-related documentation and a communication link to
unrelated buyers. See, e.g., Coated Groundwood Paper from Finland;
Final Determination of Sales at Less Than Fair Value (56 FR 56363--
November 4, 1991) and New Minivans from Japan; Final Determination of
Sales at Less Than Fair Value (57 FR 21937--May 26, 1992). Petitioners
argue that Union's post-importation sales of slit and embossed
merchandise fail to satisfy these criteria, and that these sales should
be treated as ESP transactions.
Department's Position
We agree with petitioners. We are continuing to treat these sales
as ESP transactions, because record evidence shows that (1) The
merchandise was not shipped directly to the first unrelated U.S.
purchaser; (2) direct shipment from Union to the unrelated purchaser
was not the normal channel for these sales; and (3) arranging and
paying for slitting and embossing goes beyond the functions usually
associated with processing sales-related documentation and serving as a
communication link to unrelated buyers.
Comment 3
Union claims that the Department erred in (1) Concluding that Union
had understated its U.S. credit expenses by not including bank charges
therein, and (2) increasing Union's U.S. credit expenses by the amount
of those charges. In fact, Union maintains, it included its U.S. bank
charges in U.S. brokerage and handling expenses, so that they were
double-counted by the Department. In addition, Union claims, the
Department compounded its error by mistakenly dividing two years' worth
of interest expenses by 18 months' worth of short-term borrowings.
Union urges the Department, for purposes of the final results, to
follow its own practice and treat bank charges as selling expenses.
Union claims to have reported its bank charges on a sale-by-sale basis,
which is the most accurate form of reporting. Also, respondent asserts,
including bank charges in an interest-rate calculation is illogical,
since a bank charge need not be connected to the time value of money,
but can simply consist of a flat fee for services rendered.
Petitioners reply that Union's claims regarding double-counting are
unsubstantiated. Petitioners note that Union's claims that it included
transaction-specific bank charges in its reported U.S. brokerage and
handling expenses is not supported by any sample calculations or
documents. Petitioners state that it is the Department's practice to
include bank charges in credit expenses when they are not elsewhere
reported. Because of the absence of specific data pertaining to bank
charges alone, petitioners agree that the Department had no alternative
but to use Union's combined interest and bank charge data for the two
fiscal years.
Department's Position
We agree with petitioners and respondent in part. Because there is
no evidence on the record supporting Union's claims that it included
bank charges in its reported brokerage and handling expenses, we have
increased Union's reported credit expenses to account for these bank
charges. We acknowledge our error, however, in dividing two years'
worth of interest expenses by 18 months' worth of short-term
borrowings, and have corrected this error for purposes of these final
results.
Comment 4
Union disagrees with the Department's treatment of its home-market
warehousing expenses as indirect selling expenses, and contradicts the
Department's statement that these expenses were evenly allocated
across-the-board to all home-market sales. In fact, Union affirms that
all warehousing expenses other than labor were traced to the particular
areas devoted to subject and non-subject merchandise, because Union
separately warehouses subject and non-subject merchandise, and thus can
determine the proportion of warehousing expenses attributable to each.
Union also maintains that a selling expense is not indirect simply
because it occurs prior to sale. For these reasons, and because the
warehousing expenses in question are attributable to a later sale of
the subject merchandise, Union requests that the Department treat these
warehousing expenses as direct for purposes of the final results.
Petitioners respond that Union stores three broad, distinct types
of merchandise in the same warehouse--cold-rolled, corrosion-resistant,
and pipe products. Petitioners state that Union did not link specific
warehousing charges to specific sales, but rather allocated costs based
on the square footage dedicated to each product type and on the total
quantity of each product type warehoused. Petitioners believe that the
Department's preliminary results correctly denied Union's claim that
these expenses be classified as direct.
[[Page 18566]]
Department's Position
We agree with petitioners. Union did not tie warehousing expenses
to specific sales, but merely allocated them. The amount reported by
Union on its computer tape for this expense in Korean won is identical
for all sales transactions where a warehousing expense was claimed,
regardless of the length of time the merchandise was actually
warehoused. Therefore, we do not consider these expenses to be direct.
Comment 5
Union disagrees with the Department's treatment of pre-sale inland
freight expenses in the home market as indirect. Union argues that the
Department must examine the facts of each case to determine whether
warehousing and pre-sale freight are so linked that they must
necessarily be treated in the same fashion. In the final results of
redetermination on remand (January 5, 1995) pursuant to The Ad Hoc
Committee on AZ-NM-TX-FL Producers of Gray Portland Cement v. United
States, Slip Op. 94-151 (1994), the Department noted that ``warehousing
and movement expenses are, for analytical purposes, inextricably
linked'' and ``if pre-sale warehousing is an indirect expense, then, in
the absence of contrary evidence, pre-sale movement expenses should
also be treated as an indirect expense.'' Earlier in the case, the
Court had stated that ``if the pre-sale warehousing expense in this
case is not shown to be a direct expense, then it follows that the cost
of transporting the cement to the warehouse is also not shown to be a
direct expense.''
Union argues that in this case, pre-sale freight and warehousing
are not inextricably linked. Union claims that pre-sale freight was
constant, since the merchandise was moved over the same route for all
sales. Therefore, each ton sold from the warehouse led to an exactly
identified increment to costs--the amount of the pre-sale freight--and
the expense was incurred on a one-on-one basis with each unit of
subject merchandise sold. Therefore, Union maintains the expense in
question is clearly direct.
Petitioners respond that the Department correctly determined that
Union's pre-sale freight expenses were indirect. Petitioners state that
the Department's standard is clear: pre-sale warehousing and freight
expenses are inextricably linked; thus, in the absence of contrary
evidence, if pre-sale warehousing is an indirect expense, so too must
be pre-sale freight. Petitioners note that it is always true that each
ton shipped leads to an additional charge for freight, but this does
not mean that pre-sale freight is always direct selling expense.
Department's Position
In the preliminary review results, the Department stated that it
``considers pre-sale movement expenses as direct selling expenses only
if the movement expenses in question are directly related to the home-
market sales under consideration. In order to determine whether pre-
sale movement expenses are direct under the facts of a particular case,
the Department examines the respondent's pre-sale warehousing expenses,
since the pre-sale movement charges incurred in positioning the
merchandise at the warehouse are, for analytical purposes, inextricably
linked to pre-sale warehousing expenses. If the pre-sale warehousing
constitutes an indirect expense, the expense involved in getting the
merchandise to the warehouse must also be indirect. Conversely, a
direct pre-sale warehousing expense necessarily implies a direct pre-
sale movement expense. We note that, although pre-sale warehousing
expenses in most cases have been found to be indirect selling expenses,
these expenses may be deducted from FMV as a circumstance-of-sale
adjustment in a particular case if the respondent is able to
demonstrate that the expenses are directly related to the sales under
consideration.'' The Department is continuing to treat Union's pre-sale
home-market inland freight expenses as indirect, because Union did not
distinguish between pre- and post-sale warehousing expenses or
demonstrate that these expenses were directly related to the sales
under consideration.
Comment 6
Union argues that the Department should differentiate Union's
painted products according to specific paint types, because (1) there
are significant cost, price, and commercial differences among Union's
painted products; (2) these differences demonstrate that union's
customers perceive significantly different applications for such
products; and (3) if the Department compares different paint types, it
must make an appropriate difmer adjustment.
Petitioners state the Department was correct not to revise the
existing paint categories for the preliminary results of this review
and should also reject this argument for the final results. Petitioners
note that Union's arguments do not address the criteria used by the
Department to establish categories of products and determine whether
certain products may be compared and are not supported by the record
evidence. Petitioners state that Union ignores that the primary basis
for creating product categories is physical characteristics. Thus,
according to petitioners, the Department can accept Union's proposed
paint categories only if Union demonstrates that the physical
characteristics of the various paint types are so dissimilar that the
paint types cannot be compared--which Union has not done. Petitioners
cite Koyo Seiko Co. v. United States, Slip Op. 94-1363 at 15 (Fed. Cir.
Sept. 20, 1995) which states that in the presence of significant
physical similarities, products do not have to be ``technically
substitutable, purchased, by the same types of customers, or applied to
the same end use'' in order to be compared. Petitioners add that the
record does not support Union's contention that its different paint
types exhibit significant differences in cost or price.
Petitioners reject the notion of making a difmer adjustment for
difference in paint types. Petitioners state that it is the
Department's position in these flat-rolled proceedings that it will not
make adjustments to account for differences between physical
characteristics of U.S. and home-market products when the products are
identified by the same control number. If products have the same
control number, according to petitioners, they are in effect identical
for purposes of this review and no difmer adjustment should be granted.
Department's Position
We agree with petitioners. As stated in our internal memorandum of
August 10, 1995, discussing our preliminary results of review, Union
provided insufficient and non-compelling information to support the
necessity for differentiating additional types of painted products.
Union did not demonstrate how each of the proposed additional paint
types possesses physical characteristics that are significantly
different from those of the other proposed paint types, and how each
paint type is intended for significantly different applications and
uses. Therefore, we did not create additional paint categories for
purposes of these final results. Union's request that we make a difmer
adjustment for different paint types within the same control number is
moot because we are using CV as the basis for FMV.
Comment 7
Union argues that the Department should not combine the financing
expenses of Union Steel with those of other member companies of the
[[Page 18567]]
Dongkuk chaebol or group (i.e., DSM and DKI) because this collapsing of
interest expense is entirely at odds with the Department's practice.
Union states that it is the Department's established policy to
calculate interest expense from the costs of borrowing incurred by the
respondent and its related parties only when the companies are
consolidated in the normal course of business. Union states that there
are two fundamental reasons for this. First, the accounting
practicality of consolidating different companies, particularly with
respect to cost of goods sold, demands that an audited consolidated
statement be generated in the normal course of business. Second, the
parent into which the subsidiary is consolidated is assumed to control
the financing decisions of the subsidiary. See Final Determination of
Sales at Less Than Fair Value; Small Diameter Circular Seamless Carbon
Allow Steel, Standard, Line and Pressure Pipe from Italy (60 FR 31918,
31900--June 19, 1995). Furthermore, Union asserts that the Department
has explicitly decided that the company should not be collapsed with
respect to the instant review, which concerns corrosion-resistant
merchandise. The collapsing decision in the review of cold-rolled
products was made in the context of that review, which is a separate
and distinct proceeding. Therefore, Union states that it should be
treated as a ``stand-alone'' entity and the Department should follow
the precedent set with respect to other Korean chaebols. See, e.g.,
Final Determination of Sales at Less than Fair Value; Dynamic Random
Access Memory Semiconductors of One Megabit and Above from the Republic
of Korea (58 FR 15467, 15475--March 3, 1993); Final Determination of
Sales at Less than Fair Value; Polyethylene Terephthalate Film, Sheet,
and Strip from the Republic of Korea (56 FR 16305, 16313--April 22,
1991).
Additionally, Union states that the Department's calculation of its
financing factor was incorrect because it failed to offset DKI and
DMS's financing costs with short-term interest income. The respondent
argues that the Department's calculation only offset Union's financing
costs with short-term interest income. Therefore, the Department's
calculation did not make an appropriate ``apples-to-apples''
comparison.
Petitioners contend that the Department properly combined Union's
interest expense with the interest expense of other numbers of the
Dongkuk chaebol. petitioners state that this decision is consistent
with the Department's normal practice because the companies are under
common control and produce similar subject merchandise. As for the
respondent's concern that collapsing relates only to the parallel cold-
rolled proceeding and not to the instant review, petitioners state that
for this specific issue the collapsing of Union, DKI and DSM is
necessary. Petitioners contend that capital acquisition costs are
fungible and that any borrowing by Union, DKI, or DSM may be used for a
variety of beneficial purposes for the group as a whole. Therefore,
petitioners believe that the Department should continue to use the
combined interest expenses of Union, DKI and DSM it its calculation for
the final results of this instant review.
Petitioners also state that the Department deducted an appropriate
short-term interest income figure in its net financing factor
calculation. Furthermore, they state that the respondent's argument of
requiring an apples to apples comparison is inappropriate in this
circumstance because symmetrical results are not necessary in this step
of the net financing calculation.
Department's Position
For the final results, we calculated a combined net interest factor
using Union's, DSM, and DKI's audited financial figures obtained from
verification exhibits, respondent's submissions and public records.
This methodology of calculating a single net interest factor is
consistent with our longstanding practice for computing interest
expense in cases involving parent subsidiary corporate relationships.
DSM's ownership interest in Union and DKI places the parent in a
position to influence Union's financial borrowing and overall caption
structure. We note that, contrary to Union's assertions that Union is
an independent company and not controlled by DSM, the two companies
share common directors and related stockholders. Based on this
information, it is difficult to see how Union's operations are
independent of its parent to such an extent that we should ignore our
normal practice of computing interest. See Final Determination of Sales
at Less Than Fair Value; Certain Carbon Steel Butt-Weld Pipe Fittings
from Thailand (60 FR 10552, 10557--February 27, 1995). Additionally, we
find it appropriate to collapse the financing costs of these three
companies in this instant review because we consider that the financing
costs of the parent and its subsidiaries to be fungible.
Additionally, we agree with the respondent in that it is the
Department's practice to allow a respondent to offset financial
expenses with interest earned from the general operations of the
company. See e.g., Timkin v. United States, 582 F. Supp. 1040, 1048
(CIT 1994). The Department does not, however, offset interest expense
with interest income earned on long-term investments. See Final
Determination of Sales at Less Than Fair Value; Small Diameter Circular
Seamless Carbon and Alloy Steel, Standard, line and Pressure Pipe from
Italy (60 FR 31981, 31991--June 19, 1995). Therefore, for the final
results we offset the combined financing costs by the respective short-
term interest income of the three entities.
Comment 8
Union argues that the Department should not include the company's
``special depreciation'' that was reported as an extraordinary item on
its audited financial statement in the cost of production of subject
merchandise. Union contends that the Department's established policy
with respect to this kind of expense is to exclude the cost because it
relates solely to tax law and represents no real additional cost to the
company. See Final Determination of Sales at less than Fair Value;
Stainless Steel Angles from Japan (60 FR 16608, 16617--March 31, 1995)
(``Angles''). Therefore, Union believes that the Department should
follow the precedent established in that determination and remove the
special depreciation from Union's production costs.
Petitioners argue that the Department should continue to include
Union Steel's accelerated depreciation costs in its calculation of the
company's COP and CV. Petitioners contend the Department does not have
an established policy of excluding accelerated depreciation as a cost
of production. To support their argument, petitioners state that in
recent determination the Department rejected a similar contention made
by the respondent and included the company's accelerated depreciation
charges in the calculation of COP and CV. See Final Determination of
Sales at Less Than Fair Value; Canned Pineapple Fruit from Thailand (60
FR 29553, 29560--June 5, 1995). Furthermore, petitioners contend that
the cost should be included in COP and CV because it is reported on
Union's financial statements that are in accordance with generally
accepted accounting principles (``GAAP '') in Korea.
Department's Position
We disagree with the respondent and have included Union's entire
special depreciation as a production cost for these final results.
Unlike in Angels
[[Page 18568]]
where the respondent company used special financial accounting
treatment to reflect only its regular depreciation (i.e., non-tax
depreciation) as a cost in its audited income statements for that year,
Union recorded the full special depreciation charge as a cost in its
audited income statement in accordance with Korean GAAP. We note that
it is the Department's normal practice to use costs recorded in normal
books and records of the respondent unless it can be shown that such
costs do not reasonably reflect the amounts incurred to produce the
subject merchandise. See, e.g., Final Determination of Sales at Less
Than Fair Value; Oil Country Tubular Goods from Argentina (60 FR 33539,
33548--June 28, 1995); High-Tenacity Rayon Filament yarn from Germany;
Final Results of Antidumping Duty Administrative Review (59 FR 15897,
15898--March 28, 1995).
Final Results of Review
As a result of this review, we have determined that the following
margins exist for the period February 4, 1993, through July 31, 1994:
Certain Corrosion-Resistant Carbon Steel Flat Products
------------------------------------------------------------------------
Weighted-
average
Producer/manufacturer/exporter margin
(percent)
------------------------------------------------------------------------
Dongbu..................................................... 1.50
Union...................................................... 10.74
------------------------------------------------------------------------
The Department shall determine, and the U.S. Customs Service shall
assess, antidumping duties on all appropriate entries. The Department
shall issue appraisement instructions directly to the Customs Service.
Furthermore, the following deposit requirements shall be effective
upon publication of this notice of final results of review for all
shipments of certain corrosion-resistant carbon steel flat products
Korea entered, or withdrawn from warehouse, for consumption on or after
the publication date, as provided for by section 751(a)(1) of the
Tariff Act: (1) The cash deposit rates for the reviewed companies named
above which have separate rates will be the rates for those firms as
stated above; (2) for previously investigated companies not listed
above, the cash deposit rate will continue to be the company-specific
rate published for the most recent period; (3) if the exporter is not a
firm covered in this review or the original less-than-fair-value
(``LTFV'') investigation, but the manufacturer is, the cash deposit
rate will be the rate established for the most recent period for the
manufacturer of the merchandise; and (4) the cash deposit rate for all
other manufacturers or exporters will continue to be 17.70 percent,
which is the ``all others'' rate in the LTFV investigation.
Article VIpara.5 of the General Agreement on Tariffs and Trade
provides that ``(n)o product * * * shall be subject to both antidumping
and countervailing duties to compensate for the same situation of
dumping or export subsidization.'' This provision is implemented by
section 772(d)(1)(D) of the Act. Since antidumping duties cannot be
assessed on the portion of the margin attributable to export subsidies,
there is no reason to require a cash deposit or bond for that amount.
Accordingly, the level of export subsidies as determined in Final
Affirmative Countervailing Duty Determinations and Final Negative
Critical Circumstances Determinations; Certain Steel Products from
Korea (58 FR 327328--July 9, 1993), which is 0.10 percent ad valorem,
will be subtracted from the cash deposit rate for deposit or bonding
purposes.
The deposit requirements, when imposed, shall remain in effect
until publication of the final results of the next administrative
review.
This notice serves as a final reminder to importers of their
responsibility under 19 CFR 353.26 to file a certificate regarding the
reimbursement of antidumping duties prior to liquidation of the
relevant entries this review period. Failure to comply with this
requirement could result in the Secretary's presumption that
reimbursement of antidumping duties occurred and the subsequent
assessment of double antidumping duties.
This notice also serves as a reminder to parties subject to
administrative protective order (``APO'') of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with section 353.34(d) of the Department's
regulations. Timely notification of return/destruction of APO materials
or conversion to judicial protective order is hereby requested. Failure
to comply with the regulations and the terms of an APO is a
sanctionable violation.
These administrative reviews and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and section 353.22
of the Department's regulations.
Dated: April 16, 1996.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 96-10404 Filed 4-25-96; 8:45 am]
BILLING CODE 3510-DS-M