[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Notices]
[Pages 69067-69080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33296]
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DEPARTMENT OF COMMERCE
[A-489-501]
Notice of Final Results of Antidumping Duty Administrative
Review: Certain Welded Carbon Steel Pipe and Tube From Turkey
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: On July 5, 1996, the Department of Commerce published the
preliminary results of its administrative review of the antidumping
duty order on certain welded carbon steel pipe and tube from Turkey.
The review covers shipments of this merchandise to the United States
during the period May 1, 1994, through April 30, 1995.
Based on our analysis of the comments received, the correction of
certain clerical and computer program errors, and the correction of
errors found at verification, we have changed the preliminary results.
The final results
[[Page 69068]]
are listed below in the section ``Final Results of Review.''
EFFECTIVE DATE: December 31, 1996.
FOR FURTHER INFORMATION CONTACT: Jennifer Stagner, Brian Smith
(Erbosan), or Gabriel Adler (Borusan), Office of AD/CVD Enforcement II,
Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone: (202) 482-1673, (202) 482-1766, and
(202) 482-1442, respectively.
SUPPLEMENTARY INFORMATION:
Background
This review covers two manufacturers/exporters to the United States
of the subject merchandise, the Borusan Group (Borusan) and Erviyas
Boru Sanayii ve Ticaret A.S. (Erbosan), and the period May 1, 1994,
through April 30, 1995. On July 5, 1996, the Department of Commerce
(the Department) published in the Federal Register the Preliminary
Results of Administrative Review of the Antidumping Duty Order on
Certain Welded Carbon Steel Pipe and Tube from Turkey (61 FR 35188)
(Preliminary Results). We issued supplemental questionnaires to Borusan
and Erbosan in July 1996; we received the responses in August 1996.
Verification was conducted in September 1996. We received case and
rebuttal briefs on November 12, 1996, and November 19, 1996,
respectively.
The Department has now completed this administrative review in
accordance with section 751 of the Tariff Act of 1930, as amended (the
Act).
Scope of the Review
Imports covered by this review are shipments of certain welded
carbon steel pipe and tube products with an outside diameter of 0.375
inch or more but not over 16 inches, of any wall thickness. These
products are currently classifiable under the following Harmonized
Tariff Schedule of the United States (HTSUS) subheadings:
7306.30.10.00, 7306.30.50.25, 7306.30.50.32, 7306.30.50.40,
7306.30.50.55, 7306.30.50.85, and 7306.30.50.90. These products,
commonly referred to in the industry as standard pipe and tube, are
produced to various American Society for Testing and Materials (ASTM)
specifications, most notably A-120, A-53 or A-135.
Although the HTSUS subheadings are provided for convenience and
customs purposes, our written description of the scope of this
proceeding is dispositive.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (URAA). In addition, unless otherwise
indicated, all citations to the Department's regulations are to the
current regulations, as amended by the interim regulations published in
the Federal Register on May 11, 1995 (60 FR 25130).
Product Comparisons
In accordance with section 777A(d)(2) of the Act, we calculated for
Borusan transaction-specific Export Prices (EPs) and compared them to
normal value (NV) based on either weighted-average home market prices
or constructed values. For Erbosan, we calculated transaction-specific
EPs and compared them to NV based on weighted-average home market
prices only. The EPs and NVs were calculated and compared by product
characteristics and, where possible, at the same level of trade (see
``Level of Trade'' section below). For price-to-price comparisons, we
compared identical merchandise, where possible. Where there were no
sales of identical merchandise in the home market to compare to U.S.
sales, we made similar comparisons based on the characteristics listed
in the Department's antidumping questionnaire. For both Borusan and
Erbosan, we excluded certain reported products in the home market from
our analysis because the merchandise was not part of the foreign like
product. For Erbosan, we found that there were U.S. sales of certain
products for which there were no home market sales of identical or
similar products sold in the same month. As discussed in the
Preliminary Results, we did not apply the Department's 90/60 day rule
because Turkey experienced hyperinflation during the period of review
(POR). In general, where no match can be found for a U.S. sale, the
Department would normally resort to CV as the basis of NV. In this
case, however, no specific request was made by the Department that
Erbosan provide CV in these instances. Therefore, as facts available,
we assigned the U.S. sales without home market matches the average of
the calculated margins. In determining what to use as facts available,
we considered whether Erbosan cooperated to the best of it ability
using the criteria set for in section 776(b) of the Act. We determined
that Erbosan met all these criteria and concluded that an adverse
inference should not be made (see Erbosan Sales Comment 1 below).
Level of Trade
As set forth in section 773(a)(1)(B)(i) of the Act and in the
Statement of Administrative Action (SAA) accompanying the URAA at 829-
831, to the extent practicable, the Department will calculate NV based
on sales at the same level of trade as the U.S. sale. When the
Department is unable to find sale(s) in the comparison market at the
same level of trade as the U.S. sale(s), the Department may compare
sales in the U.S. and foreign markets at a different level of trade.
See Final Determination of Sales at Less than Fair Value; Certain Pasta
from Italy, 61 FR 30326 (June 14, 1996) (Pasta from Italy).
In accordance with section 773(a)(7)(A) of the Act, in comparing
U.S. sales to NV sales, the Department will adjust the NV to account
for any difference in level of trade if two conditions are met. First,
the sales must in fact be made at different levels of trade, which can
exist only if there are differences between the actual selling
functions performed by the seller at the level of trade of the U.S.
sale and the level of trade of the NV sale. Second, the difference must
affect price comparability as evidenced by a pattern of consistent
price differences between sales at the different levels of trade in the
market in which NV is determined.
In order to determine that there is a difference in level of trade,
the Department must find that two sales have been made at different
stages of marketing, or the equivalent. Different stages of marketing
necessarily involve differences in selling functions, but differences
in selling functions (even substantial ones) are not alone sufficient
to establish a difference in the level of trade. Similarly, seller and
customer descriptions (such as ``distributor'' and ``wholesaler'') are
useful in identifying different levels of trade, but are insufficient
to establish that there is a difference in the level of trade. See
Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-
to-Length Carbon Steel Plate from Canada: Preliminary Results of
Antidumping Duty Administrative Review, 61 FR 51891, 51895-96 (October
4, 1996) (Steel from Canada).
In implementing this principle in this review, we examined
information regarding the selling activities of the producers/exporters
associated with each stage of marketing, or the equivalent. In
addition, we examined any claimed levels of trade (LOTs) reported by
each respondent.
[[Page 69069]]
In reviewing the selling functions reported by the respondents, we
considered all types of selling activities, both claimed and unclaimed,
that had been performed. In analyzing whether separate LOTs existed in
this review, we found that no single selling activity in the pipe and
tube industry was sufficient to warrant a separate LOT (see Notice of
Proposed Rulemaking and Request for Public Comments, 61 FR 7307, 7348
(February 27, 1996)). For this review, we determined that the following
selling functions and activities are relevant to the pipe and tube
industry: (1) Inventory maintenance; (2) technical services; (3)
warranty services; (4) customer advice and product information; (5)
delivery arrangements; (6) sales from warehouse vs. direct sales; and
(7) direct advertising. We did not consider trade discounts as a
selling function (see Pasta from Italy).
When examining claimed LOTs, we analyzed the selling activities
associated with the classes of customers and marketing stages the
respondents reported. In applying this analysis, we expect that, if
claimed LOTs are the same, the functions and activities of the seller
should be similar. Conversely, if a party claims that LOTs are
different for different groups of sales, the functions and activities
of the seller should be dissimilar. The Department not only counts
activities, but weighs the overall function performed for each claimed
level of trade. In determining whether separate LOTs existed in the
home market, pursuant to section 773(a)(1)(B)(i) of the Act, we
considered the selling functions reflected in the starting price of the
home market sales before any adjustment.
A. Borusan
Borusan claimed that it has three LOTs in the home market: (1)
Direct sales; (2) reseller back-to-back sales; and (3) reseller
inventory sales. It reported only one LOT in the U.S. market (i.e.,
trading companies). We agree with Borusan that one LOT exists in the
U.S. market because Borusan has one chain of distribution and one
customer category in the U.S. market. However, based on our practice,
as stated recently in Steel from Canada, we have determined, for the
reasons described below, that there are not three, but only two LOTs in
the home market.
The first step in this analysis requires that the Department
identify the different stages of marketing. We find that there are two
stages of marketing: (1) Sales shipped directly to distributors/
wholesalers (direct sales and reseller back-to-back sales); and (2)
warehouse sales to retailers (reseller inventory sales).
After determining the number of marketing stages, we must then
examine whether the selling functions performed by the seller support
Borusan's claimed LOTs or the separate marketing stages determined by
the Department. For the claimed LOTs in the home market, we did not
find that there were three distinct sets of selling functions performed
by the seller. Rather, we found two distinct sets of selling functions
performed by the seller, which reflected the two marketing stages
determined by the Department. Thus, we concluded that there are two
distinct LOTs in the home market based on the marketing stages and
selling functions performed by the seller at those stages.
Next we examined the selling functions performed by the seller with
respect to both markets to determine if U.S. sales can be matched to
home market sales at the same LOT. See Sales Comment 3 for a complete
discussion; see also Memorandum to the File from the Team, dated
December 17, 1996.
Based on our analysis, we determined that there is one U.S. LOT and
two home market LOTs, one of which we determined to be identical in
aggregate selling functions to that at which sales are made to the
United States. We compared sales at the sole LOT in the U.S. market to
sales at the identical home market LOT. If no home market match was
available at the same LOT in the same month as the U.S. sale, we
compared sales at the sole LOT in the U.S. market to sales at the other
LOT in the home market. We then examined whether a LOT adjustment was
appropriate for Borusan when comparing sales at its U.S. LOT to sales
at the non-identical LOT.
To determine whether an LOT adjustment was necessary, we examined,
on a monthly basis, the prices of comparable product categories, net of
all adjustments, between sales at the identical home market LOT and
sales at the non-identical home market LOT. We did not find a
consistent pattern of price differences between sales at these LOTs.
Therefore, for non-identical LOT matches, we made no LOT adjustments.
If no home market match was found, we compared EP to constructed value.
It is now the Department's practice to calculate, to the extent
possible, a CV by LOT, using the selling expenses and profit determined
for each LOT in the comparison market. See Antifriction Bearings (Other
Than Tapered Roller Bearings) and Parts Thereof From France, Germany,
Italy, Japan, Romania, Singapore, Thailand and the United Kingdom;
Preliminary Results of Antidumping Duty Administrative Reviews,
Termination of Administrative Reviews, and Partial Termination of
Administrative Reviews, 61 FR 35713, 35718 (July 8, 1996). However,
because the record of this review does not include selling expense and
profit data specific to each LOT, we have calculated a CV for each
product without regard to LOTs.
B. Erbosan
Erbosan made no claim that different levels of trade existed.
However, the Department must still examine whether there are different
levels of trade when the information on the record permits adequate
analysis of the issue (see Pasta from Italy). In determining whether
separate levels of trade actually existed between the U.S. and home
markets, we first examined Erbosan's marketing stages. In reviewing the
chains of distribution and customer categories reported in the home
market, we found no differences between the reported chains/categories.
Thus, we found only one stage of marketing in the home market. For the
U.S. market, Erbosan had only one chain of distribution and one
customer category. Thus, we determined that Erbosan has one stage of
marketing in the U.S. market.
As described above, it is still necessary to examine the selling
functions performed to determine whether separate levels of trade exist
between these market stages. Our analysis was based on the selling
functions we examined at verification. Based on information contained
on the record and our verification findings, we determine that there
are no differences in the selling functions performed in the home
market within the LOT. Thus, for purposes of our final results, we have
considered all sales in the home market to be at one LOT. In reviewing
the same selling functions for the U.S. market, we found that the home
market LOT is not similar in aggregate selling functions to that found
in the United States. Thus, we determined that Erbosan has one LOT in
the home market and a different one in the U.S. market. See Memorandum
to the File from the Team, dated December 17, 1996.
If the Department determines that a LOT adjustment is warranted,
and if information on the same product and company is not available in
order to make such an adjustment, the Department may consider the sales
of other products by the same company or the selling experience of
other producers in the foreign market for the same product (or other
products) in
[[Page 69070]]
order to make an adjustment. See SAA at 830.
In this case, we found no information on the record which would
enable us to make a level of trade adjustment. Thus, we compared
Erbosan's sales at the sole LOT in the U.S. market to its sales at the
sole home market LOT without making a LOT adjustment.
Fair Value Comparisons
To determine whether sales of pipe and tube to the United States
were made at less than fair value, we compared the EP to the NV, as
described in the ``Export Price'' and ``Normal Value'' sections of this
notice.
Export Price
We calculated EP in accordance with section 772(a) of the Act,
because the subject merchandise was sold directly to the first
unaffiliated purchaser in the United States prior to importation and
Constructed Export Price (CEP) methodology was not otherwise warranted
based on the facts of this investigation.
A. Borusan
We calculated EP based on the same methodology used in the
Preliminary Results, except that we deducted payments made by Borusan
to its customers in the United States (see Sales Comment 4B below).
B. Erbosan
We based EP on prices to unaffiliated purchasers in the United
States. We made deductions from the starting price (gross unit price),
where appropriate, for foreign inland freight, foreign brokerage and
handling expenses, and international freight. Furthermore, we added
countervailing duties imposed on the subject merchandise to offset
export subsidies, pursuant to section 772(c)(1)(C) of the Act.
Normal Value
A. Borusan
We calculated NV as noted in the ``Price to Price Comparisons'' and
``Price to CV Comparisons'' sections of this notice.
B. Erbosan
In order to determine whether there was a sufficient volume of
sales in the home market to serve as a viable basis for calculating NV,
we compared Erbosan's volume of home market sales of the foreign like
product to the volume of its U.S. sales of the subject merchandise, in
accordance with section 773(a)(1)(C) of the Act. Since Erbosan's
aggregate volume of home market sales of the foreign like product was
greater than five percent of its aggregate volume of its U.S. sales of
the subject merchandise, we determined that the home market was viable.
We calculated NV as noted in the ``Price to Price Comparisons'' section
of this notice.
Cost of Production Analysis
As discussed in the Preliminary Results, the Department conducted
an investigation to determine whether Borusan made home market sales
during the POR at prices below its cost of production (COP) within the
meaning of section 773(b) of the Act. No below-cost allegation was made
with respect to Erbosan. Before making any fair value comparisons, we
conducted the COP analysis described below.
A. Calculation of COP
We calculated the COP based on the sum of Borusan's cost of
materials and fabrication for the foreign like product, plus amounts
for home market selling, general, and administrative expenses (SG&A)
and packing costs in accordance with section 773(b)(3) of the Act. As
noted in the Preliminary Results, we used Borusan's reported monthly
COP figures which were based on the current production costs incurred
during each month of the POR. This was done in order to avoid the
distortive effect of inflation on our comparison of costs and prices.
We relied on the reported COP amounts with the following exceptions:
1. We calculated a weighted-average per-unit variable cost of
manufacturing and total cost of manufacturing for each product;
2. We recalculated Borusan's SG&A expenses (see Cost Comment 2
below);
3. We recalculated Borusan's interest expenses (see Cost Comment 3
below);
4. We recalculated the reported product costs to reflect product-
specific weight-savings ratios where available (see Cost Comment 4
below); and
5. We adjusted the cost of a product for which an average coil cost
had been reported, to account for a more expensive input coil for that
product.
B. Test of Home Market Prices
As stated in the Preliminary Results, we used Borusan's adjusted
monthly COP amounts and the wholesale price index from the government
of Turkey's State Institute of Statistics to compute an annual weighted
average COP for the POR. We compared the weighted-average COP figures
to home market sales of the foreign like product as required under
section 773(b) of the Act, in order to determine whether these sales
had been made at prices below the COP. On a product-specific basis, we
compared the COP to the home market prices, less any applicable
movement charges, rebates, and direct selling expenses.
C. Results of COP Test
Pursuant to section 773(b)(2)(C)(i) of the Act, where less than 20
percent of a respondent's sales of a given product were at prices less
than the COP, we did not disregard any below-cost sales of that product
because we determined that the below-cost sales were not made in
``substantial quantities.'' Where 20 percent or more of a respondent's
sales of a given product were at prices less than the COP, we
disregarded the below-cost sales where such sales were found to be made
at prices which would not permit the recovery of all costs within a
reasonable period of time (in accordance with section 773(b)(2)(D) of
the Act). Where all sales of a specific product were at prices below
the COP, in accordance with section 773(b)(1) of the Act, we
disregarded all sales of that product, and calculated NV based on CV,
in accordance with section 773(e) of the Act.
We found that, for certain products, more than 20 percent of
Borusan's home market sales were sold at below the COP and, therefore,
that below-cost sales were made within an extended period of time in
substantial quantities. We also determined that these below-cost sales
were made at prices which would not permit recovery of all costs within
a reasonable period of time, in accordance with section 773(b)(2)(D) of
the Act. We therefore excluded these sales from our analysis and used
the remaining above-cost sales as the basis for determining NV, in
accordance with section 773(b)(1) of the Act. For those pipe and tube
products for which there were no above-cost sales in the ordinary
course of trade, we compared export prices to CV.
D. Calculation of CV
In accordance with section 773(e)(1) of the Act, we calculated CV
based on the sum of Borusan's cost of materials, fabrication, SG&A and
U.S. packing costs as reported in the U.S. sales databases. In
accordance with section 773(e)(2)(A) of the Act, we based SG&A and
profit on the actual amounts incurred and realized by Borusan in
connection with the production and sale of the foreign like product in
the ordinary course of trade (i.e., sales disregarded under section
773(b)(1) of the Act pursuant to the cost test and under section
773(e)(2) of the Act not at arm's length), for consumption in the
foreign country (see Sales Comment 8 below). We calculated CV based on
the
[[Page 69071]]
methodology described in the calculation of COP above and added an
amount for profit. For selling expenses, we used the weighted-average
home market selling expenses.
Price-to-Price Comparisons
A. Borusan
For those comparison products for which there were sales at prices
above the COP, we based NV on home market prices. We calculated NV
based on FOB mill/warehouse or delivered prices to unaffiliated
customers, or prices to affiliated customers which were determined to
be at arm's length. We calculated NV based on the same methodology used
in the Preliminary Results, with the following exceptions:
1. We deducted advertising and warranty expenses (see Sales Comment
9 below).
2. We set to zero the warehousing and freight expenses reported for
back-to-back sales, based on our findings at verification. See sales
verification report at 1.
3. For certain reseller sales, we revised the warehousing and
freight expenses, based on our findings at verification. See sales
verification report at 12-13.
B. Erbosan
We based NV on home market prices. We calculated NV based on FOB
factory prices to unaffiliated customers. We made deductions, where
appropriate, from the starting price for discounts and rebates, and we
added interest revenue. In accordance with section 773(a)(6) of the
Act, we deducted home market packing costs and added U.S. packing
costs.
We adjusted for differences in the circumstances of sale, in
accordance with section 773(a)(6)(C)(iii) of the Act. These
circumstances included differences in imputed credit expenses. Based on
our verification findings, we recalculated home market credit expenses.
We also made adjustments, where appropriate, for physical
differences in the merchandise in accordance with section
773(a)(6)(C)(ii) of the Act. Based on our verification findings, we
added an amount for thinner and lacquer costs to the variable
manufacturing cost and total cost of manufacture for all U.S. products.
We also added an amount for pipe straightening expenses to the costs
for certain U.S. products. Finally, we removed the amount for packing
expenses from the costs reported for all products. We indexed the
reported monthly costs to the end of the period using the wholesale
price index for Turkey. Next, we calculated average variable and total
costs of manufacturing by product based on sales quantities of the U.S.
and home market sales. (We used sales quantities because production
quantities were not available and because we assume that sales
quantities are a close approximation to production quantities.) We then
indexed the average variable and total costs of manufacturing to
restate them in the currency value of each respective month. The
adjusted monthly variable costs of manufacturing for U.S. and home
market products were then compared to arrive at the difference in
merchandise adjustment. To determine whether Erbosan's affiliated sales
were made at arm's length, we compared the gross unit prices of sales
to affiliated and unaffiliated customers net of all movement charges,
direct selling expenses, and packing (see Final Determination of Sales
at Less Than Fair Value; Certain Cold-Rolled Carbon Steel Flat Products
from Argentina, 58 FR 37062, 37077 (July 9, 1993)). We excluded all of
these sales from our analysis because they did not pass the arm's
length test in our analysis. See 19 CFR 353.45(a).
Price-to-CV Comparisons
For Borusan, where we compared CV to export prices, we deducted
from CV the weighted-average home market direct selling expenses and
added to CV the weighted-average U.S. product-specific direct selling
expenses.
Currency Conversion
The Department's preferred source for daily exchange rates is the
Federal Reserve Bank. However, the Federal Reserve Bank does not track
or publish exchange rates for the Turkish Lira. Therefore, we made
currency conversions based on the daily exchange rates from the Dow
Jones Service, as published in the Wall Street Journal.
Section 773A(a) directs the Department to use a daily exchange rate
in order to convert foreign currencies into U.S. dollars, unless the
daily rate involves a ``fluctuation.'' It is the Department's practice
to find that a fluctuation exists when the daily exchange rate differs
from a benchmark rate by 2.25 percent. The benchmark rate is defined as
the rolling average of the rates for the past 40 business days. See
Final Determination of Sales at Less Than Fair Value: Certain Pasta
from Turkey, 61 FR 30309 (June 14, 1996) (Pasta from Turkey).
However, we believe that it is appropriate in this case to use
actual daily exchange rates for currency conversion purposes, rather
than the benchmark rate. As noted in Policy Bulletin 96-1: Currency
Conversions, 61 FR 9434 (March 8, 1996), the Department is continuing
to examine the appropriateness of the currency conversion policy in
situations where the foreign currency depreciates substantially against
the dollar over the POR. In those situations, it may be appropriate to
rely on daily exchange rates. When the rate of domestic price inflation
is significant, as it is in this case, it is important that we use as a
basis for NV home market prices that are as contemporaneous as possible
with the date of the U.S. sale. This is to minimize the extent to which
calculated dumping margins are overstated or understated due solely to
price inflation that occurred in the intervening time period between
the U.S. and home market sales. For this reason, we have used the daily
exchange rates for currency conversion purposes.
Further, section 773A(b) directs the Department to allow a 60 day
adjustment period when a currency has undergone a sustained movement.
Such an adjustment period is required only when the foreign currency is
appreciating against the U.S. dollar. See SAA at 842. No adjustment
period is warranted in this review, because the Turkish Lira generally
remained constant or depreciated against the dollar during the POR.
Verification
In accordance with section 353.25(c)(2)(ii) of the Department's
regulations, we verified information provided by Borusan and Erbosan
using standard verification procedures, including on-site inspection of
the manufacturer's facilities, the examination of relevant sales and
financial records, and selection of original documentation containing
relevant information. We found certain errors at verification of both
Borusan and Erbosan, and have corrected for these errors in our final
results. For reasons stated in our preliminary results, we verified the
questionnaire responses submitted by both respondents after the
preliminary results were issued.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received comments from the petitioners and
Borusan. We received rebuttal comments from the petitioners and both
respondents.
[[Page 69072]]
A. Borusan
Cost Comments
Comment 1: Facts Available
The petitioners argue that Borusan's COP and CV data should be
rejected in favor of the facts available. According to the petitioners,
Borusan deviated from its normal accounting system in preparing its COP
and CV responses without obtaining authorization from the Department
for the methodologies used.
Specifically, the petitioners argue that Borusan departed from its
normal accounting practices in that it:
(a) Had the ability to track production costs on a product-specific
basis, but did not do so;
(b) Reported costs for products that had no production in a
particular month;
(c) Had the ability to report product-specific raw material costs
but failed to do so;
(d) Did not provide yields on a product-specific basis even though
it had at its disposal more accurate product-specific conversion
factors;
(e) Provided a single weight conversion factor even though it had
at its disposal more accurate product-specific conversion factors;
(f) Did not provide adequate verification support for the arm's
length nature of materials purchases from affiliated parties;
(g) Failed to accurately report factory-specific overhead;
(h) Misled the Department about its interest rate calculation;
(i) Failed to report freight costs to its customers; and
(j) Provided incorrect difference in merchandise (difmer)
information because of the same deficiencies alleged with respect to
the general cost data.
According to the petitioners, these departures from Borusan's
normal accounting system might have resulted in the allocation of costs
away from the subject merchandise and the foreign like product, with
little chance of detection. The petitioners contend that the burden of
creating an adequate response, including fully disclosing its record
keeping and reporting capabilities, rested with Borusan. Citing Olympic
Adhesives, Inc. v. United States, 899 F.2d 1565, 1572 (Fed. Cir. 1990),
the petitioners contend that if respondents are allowed to make
unilateral decisions about the information to be provided they would be
able to artificially lower antidumping margins by providing selected
information.
Borusan argues that the submitted COP data was based on its normal
cost accounting system to the extent permitted by the Department's
questionnaires, and that departures from the normal system were made
only in response to the Department's questionnaire requirements.
According to Borusan, the Department requested that COP data be
submitted on a basis different than that used in the normal course of
business to record costs. Borusan claims that it attempted to
recalculate current costs with as much product-specificity as possible,
and that the underlying source data was verified satisfactorily by the
Department. Borusan further contends that no elements of the reported
costs were unverified.
DOC Position
We disagree with the petitioners' contention that the methodologies
used by Borusan to prepare its COP responses warrant wholesale
rejection of those responses and the use of facts available. Section
776(a)(1) states that if necessary information is not available on the
record, the Department ``shall, subject to section 782(d), use the
facts otherwise available in reaching the applicable determination
under this title.'' Section 782(e) provides that the Department shall
not decline to consider information that is submitted by an interested
party and is necessary to the determination but does not meet all the
applicable requirements established by the Department if: (1) The
information is submitted by the deadline established for its
submission; (2) the information can be verified; (3) the information is
not so incomplete that it cannot serve as a reliable basis for reaching
the applicable determination; (4) the interested party has demonstrated
that it acted to the best of its ability in providing the information
and meeting the requirements established by the Department with respect
to the information; and (5) the information can be used without undue
difficulties. Accordingly, in using the facts available, the Department
may disregard information submitted by a respondent if any of the five
criteria has not been met.
We conducted numerous tests, described in our cost verification
report and summarized below, which supported the overall reasonableness
of the reported data. Although we agree that, in certain instances,
Borusan's reported costs did not reflect the same level of product-
specificity as the costs maintained in its normal course of business,
we have been able to adjust the reported costs to reflect more product-
specific data available on the record. Further, in the case of
unreported movement expenses affecting the integrity of our cost test
for certain sales, we have applied partial facts available that ensure
the viability of that test. Since Borusan's reported costs are in
general reliable, and deficiencies in those costs can be remedied via
data on the record and the application of partial facts available, we
find that the application of total facts available is not warranted.
Below, we discuss each of the points raised by the petitioners as
enumerated above:
(a) The petitioners have challenged the lack of product specificity
of Borusan's material and overhead costs. With respect to material
costs, we note that the cost questionnaire issued by the Department to
Borusan on May 23, 1996, requested that Borusan submit its COP data on
a current cost basis (i.e., that materials costs for merchandise
shipped in a particular month be valued at the average inventory value
of those materials during the month of production) in order to account
for the effect of hyperinflation on production costs. However, in the
normal course of business, Borusan records production costs on a
historical cost basis (i.e., Borusan records material costs at the
average purchase price during the month of production, a practice which
does not reflect the effect of inflation between purchase and usage of
the inputs). Consequently, Borusan was obligated to recalculate its
material costs. Throughout this review, we have found no evidence that
Borusan could have feasibly provided current costs at the same level of
product-specificity as the historical costs that it records in the
normal course of business. However, the reported material costs did
reflect the grade of the input coil, which was the principal variant in
material cost observed at verification, and we fully verified the
material costs reported at this level of detail (see item (c) below).
As for transformation costs, the reported figures reflect a reasonable
level of product-specific detail (see item (g) below). Given that the
current cost methodology was requested by the Department, and that
Borusan provided such data at a more aggregate yet nonetheless
reasonable level, it would be inappropriate to infer that the lesser
degree of product specificity inherent in Borusan's reported costs
reflects an attempt by Borusan to artificially reduce antidumping
margins.
(b) Borusan's reporting of a current COP for all products in every
month of the POR, despite the fact that certain products were not
produced in every month, did not artificially lower the COP of the
merchandise that was
[[Page 69073]]
actually produced. Borusan calculated the cost that would have been
incurred to produce one unit of each unique product in their product
line for each month of the POR based on the average per-unit material
costs during that month (see, e.g., Silicon Metal from Brazil; Final
Results of Antidumping Duty Administrative Review, 59 FR 42806 (August
19, 1994)). The average per-ton cost of material inputs (e.g., steel
coil) in a particular month is independent of which particular models
are produced, and thus Borusan's reporting of current costs for certain
products for which there was no production does not imply an
underallocation of costs.
(c) We agree that Borusan did not report material costs at the same
level of product-specificity that is recorded in the normal course of
business. (In the normal course of business, on a historical cost
basis, Borusan tracks its material costs for every production run, so
that each batch of pipe of a specified type and size absorbs the costs
of the materials used in the production of that batch.) However, in
submitting its costs on a current basis, Borusan did calculate grade-
specific costs; as explained in our verification report, we observed
that grade B pipe reflected a higher material cost for more expensive
coil inputs than were used for grade A pipe. See cost verification
report at 8. We fully verified that the submitted costs reconciled to
the company's records by tracing the coil costs to invoices for
material purchases and associated freight, material inventory
subsidiary ledgers, and cost center records. Id. at 18-20.
In reviewing Borusan's material purchases and production techniques
we did not find evidence that factors other than the grade of the input
coil (such as coil thickness) would have had a significant impact on
product-specific material costs. With respect to thickness, we noted
that sample invoices for purchases of coils of varying thicknesses
reflected identical per-ton coil costs regardless of the thickness of
the coil. See cost verification report at 17, note 9.
We did discover at verification that Borusan had used high-cost API
coil for one production run of a standard pipe product in April 1995.
In its response, Borusan averaged the higher cost of the API coil
across all pipe products rather allocating this cost to the specific
product for which API coil was used as an input. API coil is a
specialized input for the production of line pipe, and because of its
comparatively high cost, Borusan does not normally use it for
production of standard pipe. Borusan stated that it used such coil for
one run of standard pipe in April 1995 due to excess inventory, and we
found no evidence that Borusan routinely uses API coil in the
production of standard pipe. We have adjusted the April 1995 cost of
the pipe product manufactured from API coil to reflect the higher cost
of the input.
(d) Borusan calculated average monthly yields (i.e., the percentage
of each material input not wasted in the production process) across all
pipe products, rather than providing the production-specific yields
Borusan records in the normal course of business. (In the normal course
of business, Borusan tracks slitting, welding, and testing scrap for
each batch of pipe.) Borusan claimed that reporting product-specific
yields under a current cost methodology would have required prohibitive
work and effort because it would have had to individually identify the
production run corresponding to each sale of subject merchandise.
Borusan did not explain whether its records would have allowed it to
submit an average monthly yield for each product, and due to time
constraints this issue was not pursued at verification. We note,
however, that during the plant tour we observed that the manufacturing
process for the various dimensions and types of subject merchandise is
uniform, and would be unlikely to generate significantly different
yields for different products. (In other words, the material lost in
the production of a ton of two inch galvanized pipe should not be
significantly different than the material lost in the production of a
ton of six-inch black ungalvanized pipe.) Given this, and the absence
of evidence on the record of this review to suggest that different
Borusan pipe products have materially different yields, we are
accepting in this review the reported average figures as a reasonable
measure of yields for the subject merchandise. However, we emphasize
that the Department requires that yields (like other elements of cost)
be reported on as product-specific a basis as is feasible given a
respondent's records, and that Borusan should be prepared to
demonstrate that reported yields are consistent with our practice in
future reviews of the antidumping order.
(e) Borusan reported its costs using a single weight conversion
factor even though it had at its disposal more accurate product-
specific conversion factors. (See Cost Comment 4 below.) The more
specific conversion factors are on the record of this review, and we
have been able to adjust the reported costs using these data, obviating
the need for the use of facts available.
(f) At verification we found, without exception, that sample
purchases of materials by Kartal Boru (Borusan's affiliate producer)
from affiliated parties had been marked up over the price charged by
the manufacturer. The wording in our report was not meant to suggest
that we had found any evidence of materials purchases at less than
arm's length.\1\
---------------------------------------------------------------------------
\1\ The cost verification report noted that ``for selected
purchases of coil, the affiliates mark-up the price from the
unaffiliated producer of the coil in their invoice to [Kartal
Boru].'' (Emphasis added). See cost verification report at 17. This
was not intended to imply that not all purchases of coil selected
for verification reflected a mark-up.
---------------------------------------------------------------------------
(g) We disagree that Borusan failed to accurately report product-
and size-specific overhead. In the normal course of business Borusan
calculates an average transformation cost for all products passing
through each cost center. However, given that the Gemlik plant has
several welding lines and that welding costs are the largest component
of total transformation costs, Borusan reported product- and size-
specific welding costs using productivity ratios (i.e., by calculating
the total tons of each product, by size, passing through each line per
hour). See cost verification report at 22. Thus, Borusan calculated
welding costs at a greater level of detail than is recorded in the
normal course of business.
We saw no evidence at verification that this methodology resulted
in an underallocation of transformation costs to subject merchandise.
On the contrary, we noted that non-subject merchandise such as line
pipe has much higher welding productivity ratios than standard pipe,
and therefore it would have been in the respondent's interest to have
reported an average welding cost for all pipe rather than the product-
specific welding costs actually submitted.
(h) We disagree with the petitioners'' claim that Borusan did not
adequately explain the basis for its interest rate calculation. Borusan
explained the basis for its calculation on pages 8-10 of the July 24,
1996, response, well before verification.\2\
---------------------------------------------------------------------------
\2\ We note, however, that we have recalculated the interest
expenses submitted in that response consistent with our practice of
basing interest expenses on the consolidated group of companies (see
Comment 3 below).
---------------------------------------------------------------------------
(i) We agree that Borusan did not report freight expenses incurred
in certain shipments of merchandise from affiliated resellers directly
to customers. Section 776(a)(1) of the Act states that if necessary
information is not available on the record, the Department shall use
the facts otherwise available in reaching the applicable determination
under this
[[Page 69074]]
title. In this case, Borusan chose not to report these freight
expenses. As Borusan did not act to the best of its ability in
responding to our request for such information pursuant to section
782(e)(4) of the Act, we have therefore drawn an adverse inference
under the authority provided by section 776 of the Act. As facts
available, we are assigning the highest freight rate per kilogram to
those sales with no freight reported from the affiliated resellers to
the customers.
(j) As discussed above, we have found Borusan's cost calculations
to be generally adequate, and the difmer data are no less reliable.\3\
---------------------------------------------------------------------------
\3\ As with the general cost data, we have recalculated
Borusan's difmer data to reflect product- and size-specific weight
savings ratio where available; see Comment 4 below.
---------------------------------------------------------------------------
In conclusion, we find that Borusan's cost calculations are, on the
whole, reasonable. In those instances where Borusan's submitted
calculations are not as product specific as possible or are otherwise
deficient, we have adjusted the calculations based on more specific
data on the record or applied partial facts available. Therefore, the
application of total facts available is not warranted.
Comment 2: Adjustments to Borusan's SG&A
The petitioners argue that the Department should ensure that
certain stockyard movement expenses, certain year-end adjustments by
Borusan's auditor, and a net assets tax should be included in Borusan's
SG&A. The petitioners also argue that certain home market freight
expenses which were not reported in the sales database should be
included in Borusan's SG&A for purposes of calculating COP.
Borusan agrees that the stockyard movement expenses should be
included in SG&A for the final results of review, and notes that at
verification it provided a revised schedule of SG&A expenses including
the stockyard movement expenses. Borusan also agrees that the year-end
adjustments and the net asset tax should be included in SG&A. However,
Borusan argues that the freight expenses in question (involving
shipments by affiliated resellers from their warehouse to end
customers) are minimal in amount and unrelated to production of
merchandise and, therefore, should not be included in SG&A.
DOC Position
We agree with both parties that Borusan's SG&A figure should
include both the stockyard movement expenses, the auditor's year-end
adjustments, and the net assets tax. We have revised the SG&A used in
our final calculations accordingly.
We agree with the petitioners that Borusan failed to report
movement expenses incurred by home market affiliated resellers, but
disagree that these expenses should be included in Borusan's SG&A. The
movement expenses incurred by the affiliated resellers are related to
sales activities on behalf of Borusan's domestic sales, and are
unrelated to Borusan's production activities. Had they been reported,
these movement expenses would have been deducted from the home market
prices for the specific sales in which they were incurred, rather than
added to COP. Since Borusan failed to report these expenses, we have
drawn the adverse inference that reporting of the expenses would have
resulted in the affected sales failing the cost test. See Comment 1
above.
Comment 3: Interest Rate Factor
The petitioners argue that the Department should use an interest
expense factor calculated on the basis of the monthly interest expenses
of the consolidated group of companies of which Borusan is a member
(i.e., the interest expense of Borusan Holding Company). The
petitioners also argue that the Department should not offset interest
expenses by the amount of foreign exchange gains.
Borusan does not disagree that the Department should use an
interest expense factor calculated on the basis of the interest
expenses of the consolidated group of companies, but argues that the
rate suggested by the petitioners is exaggerated and factually
unfounded. Borusan notes that only annual (rather than monthly)
consolidated interest expenses could be provided. Borusan also contends
that the Department verified that foreign exchange income was primarily
short-term in nature and that this income should be offset against
interest expenses.
DOC Position
We agree with the petitioners that Borusan's interest expenses
should be calculated on the basis of the interest expenses of the
consolidated group of companies. While our normal practice is to
require monthly interest calculations (see, e.g., Pasta from Turkey),
we agree with Borusan that doing so in this case would have imposed an
unreasonable burden (see section 782(c)(1) of the Act) given that many
of the companies in the group do not prepare monthly schedules of
interest expenses in the ordinary course of business and that the group
as a whole prepares only semi-annual consolidation of expenses (see
cost verification report at 25). We therefore have relied on the annual
interest expenses for the consolidated group. However, in order to
follow our normal practice as closely as possible, we have allocated
these expenses to each month of the POR using the ratio of monthly to
annual interest expenses for the four largest firms of the Borusan
group, which Borusan provided in its cost response of June 10, 1996.
We agree with the petitioners that foreign exchange gains should
not be used to offset the interest expenses. At verification, we found
that the vast majority of the foreign exchange gains were not debt-
related, but rather involved export sales activities (i.e., the gains
arising from foreign-currency denominated export receivables). Since
the foreign exchange gains are unrelated to interest, it would be
inappropriate to offset interest expenses by these gains and we have
not done so.
Comment 4: Weight Savings Gains
The petitioners argue that Borusan had the ability to provide
weight-savings ratios (i.e., the ratio of theoretical weight of pipe to
actual weight of pipe) for each product but deliberately provided an
average ratio for all products. According to the petitioners, the
Department should either disallow the weight-savings adjustment or, in
the alternative, recalculate Borusan's costs to reflect product-
specific weight-savings ratios wherever the record permits
identification of such ratios.
Borusan argues that the weight-savings adjustment is necessary for
an apples-to-apples comparison of prices to costs, since materials
costs are incurred on an actual weight basis and sales prices are
charged on a theoretical weight basis. According to Borusan, the
Department verified the accuracy of the weight-savings data and the
reasonableness of the underlying methodology. Borusan does not rebut
the petitioners' argument that product-specific weight-savings data
should be used wherever available on the record.
DOC Position
We agree with Borusan that the weight-savings adjustment is
necessary for a proper comparison of Borusan's sales prices to costs
because of the difference in the weight bases. At the same time, we
agree with the petitioners that the product-specific weight-savings
factors should be used wherever available. As discussed in our
verification report, Borusan calculated a weight-savings rate on a
product- and size-specific basis for pipe and tube with diameters
between \1/2\'' and 6'',
[[Page 69075]]
which account for a large majority of Borusan's sales. These rates were
then averaged, and the average was applied to all products. See cost
verification report at 16. Given that specific weight-savings ratios
for Borusan's products are on the record for most sales, there is no
reason to use an average ratio where product-specific ratios are
available. Accordingly, for these final results, we have revised the
submitted cost data to reflect product- and size-specific weight-
savings gain ratios where available; where such ratios are not
available, we have applied the weighted-average ratio calculated by
Borusan.
Comment 5: Imputed Selling Expenses for Constructed Value
The petitioners argue that the Department neglected to include
imputed selling expenses such as credit expenses and inventory carrying
costs in the calculation of constructed value. The petitioners cite to
Import Administration's Policy Bulletin 94.6 (March 25, 1994) in
support of their position.
Borusan argues that, to the extent that the Department includes
imputed selling expenses in the buildup of constructed value, imputed
and actual interest expenses must not be double counted.
DOC Position
We disagree with the petitioners that imputed selling expenses must
be included in the calculation of constructed value. Under the URAA,
for both COP and CV, the statute provides that SG&A be based on actual
amounts incurred by the exporter for production and sale of the foreign
like product. Our previous practice with respect to COP was to compute
selling expenses exclusive of credit and inventory carrying costs
because these are imputed amounts that the Department relies on to
measure the effect of specific respondent selling practices in the
United States and the comparison market. Since the new law provides
that the Department compute SG&A for both COP and CV using the actual
data of the exporter, in order to ensure consistent treatment of COP
and CV we no longer include imputed selling expenses in CV.
Comment 6: Weighted-Average Cost of Production
The petitioners argue that the Department should calculate a
weighted-average COP, and apply facts available for any product for
which production quantities or COP data are not available.
DOC Position
For the preliminary results, the Department calculated a simple-
average COP because monthly production quantities had not yet been
reported. At verification, we confirmed that Borusan had reported
production quantities and cost data for all products. Since the
Department's normal practice is to calculate weighted-average costs of
production (see e.g., Pasta from Turkey), we have done so for these
final results.
Comment 7: Initiation of Cost Investigation
Borusan argues that the Department should not have initiated a
sales-below-cost investigation in this review because the petitioners'
cost allegation was not submitted until over three months after the
regulatory deadline for such allegations. Borusan further contends that
the allegation did not provide reasonable grounds to suspect that
Borusan had made below-cost sales, since it contained a number of
errors and failed to account for hyperinflation in Turkey. In addition,
Borusan claims that subsequent discovery of below-cost sales cannot
justify the improper initiation of a below-cost investigation.
The petitioners argue that the Department has the discretion to
extend the deadline for allegations of sales below cost when a
questionnaire response is received after the deadline for such
allegations, and that the deficiencies in the allegation alleged by
Borusan were factually incorrect and immaterial to the decision to
initiate a cost investigation. In addition, the petitioners contend
that there is no ``exclusionary'' rule that would compel the Department
to ignore a finding of sales below cost even if an investigation was
initiated pursuant to an untimely and unsupported allegation.
DOC Position
We agree with the petitioners. With respect to the timeliness
issue, as explained in detail in the memorandum from Laurie Parkhill to
Holly Kuga dated May 3, 1996, initiating the sales-below-cost
investigation, we found that a number of extenuating circumstances
beyond the petitioners'' control (including the delayed issuance of the
questionnaire and receipt of the questionnaire response, and the
extended closures of the Department due to the Federal budget crisis
and a blizzard) warranted an extension of the deadline for filing of a
sales-below-cost allegation, as permitted under 19 C.F.R.
353.31(c)(1)(ii). See also Notice of Final Results of Antidumping Duty
Administrative Review: Certain Forged Steel Crankshafts From the United
Kingdom, 60 FR 52150, 52153 (October 5, 1995) (noting that the
Secretary will use its discretion in setting a deadline for a COP
allegation where a relevant response is ``untimely or incomplete'').
With respect to the allegation itself, we found that it provided
reasonable grounds to believe or suspect that Borusan had made below-
cost sales. Borusan fails to note that the petitioners submitted a
revised allegation correcting for the errors noted by the respondent,
and that the revised allegation still provided evidence of below-cost
sales. Moreover, the Department considered Borusan's hyperinflation
argument, and determined that the petitioners' methodology was
reasonable given the information available to them. (The Department
made appropriate adjustments to account for the hyperinflation problem
identified by Borusan in the course of conducting the sales-below-cost
investigation.) Because the sales-below-cost investigation was
initiated pursuant to a timely and reasonable allegation, Borusan's
argument that a finding of sales below cost cannot be used to justify
the improper initiation of a sales-below-cost investigation is moot.
Comment 8: Offset to Interest Expenses for Short-Term Interest Income
Borusan claims that short-term interest income should be allowed as
an offset to interest expenses, since the Department verified the
sources and short-term nature of such income. The petitioners do not
dispute Borusan's claim that the sources and short-term nature of the
income in question were adequately verified.
DOC Position
We agree with Borusan, and have offset interest expenses (based on
the consolidated group of companies) accordingly.
Sales Comments
Comment 1: Home Market Sales of Bitumen-Coated Pipe
Borusan argues that it properly excluded sales of bitumen-coated
pipe from its home-market sales listing. According to Borusan, bitumen-
coated pipe is not within the scope of the antidumping order in this
review, and in any event its cost is sufficiently high to ensure that
the Department would never compare U.S. sales of standard pipe to home-
market sales of bitumen-coated pipe.
The petitioners claim that bitumen-coated pipe is within the scope
of the order on standard pipe from Turkey,
[[Page 69076]]
and should have been reported. According to the petitioners, the cost
differences alleged by Borusan, although reviewed by the Department at
the verification of Borusan's sales responses, were not subject to the
same kinds of procedures followed at the verification of Borusan's cost
responses. Therefore, they argue the difmer test performed at
verification is not accurate.
DOC Position
In performing its dumping calculations, the Department's practice
is to match U.S. sales of subject merchandise to home market sales of
subject merchandise. Where no identical matches exist, the Department
compares the U.S. sales to sales of the foreign like product, provided
that merchandise is within a 20 percent difmer threshold (i.e., the
ratio of the difference of the variable cost of manufacture of the two
products over the total cost of manufacture of the product sold in the
United States must not exceed 20 percent). If there are no home market
sales of similar merchandise within the 20 percent difmer threshold,
the Department resorts to CV. See Import Administration Policy
Bulletin: Number 92.2, July 28, 1992, Differences in Merchandise; 20
percent Rule. In the instant review, Borusan had no sales of bitumen-
coated pipe in the United States, so sales of bitumen-coated pipe in
the home market would not have served for identical matches. Further,
at verification we noted that the difmer between a standard pipe
product and that same product coated with bitumen exceeded the 20
percent threshold for comparison of similar products, so home-market
sales of bitumen-coated pipe would not have served for comparison to
U.S. sales of similar merchandise.4
---------------------------------------------------------------------------
\4\ Contrary to the petitioners' argument, during the sales
verification the Department verified the cost differences between
standard pipe and similar pipe covered with bitumen using the
identical procedures followed at the cost verification. See sales
verification report at 5-6, stating that the cost differences were
verified ``using the same procedures followed in the [cost]
verification''; see also sales verification exhibit 19, including
Borusan records supporting the costs in question. Also, we note that
Borusan did not volunteer the difmer data for bitumen-coated
products; these data were requested by the Department's verifiers.
See sales verification report at 5.
---------------------------------------------------------------------------
In the Preliminary Results, the Department inadvertently included
an incorrect description of the scope of this order. Based on the
actual scope language, which makes no distinctions based on surface
coating, we conclude that bitumen-coated pipe is within the scope.
Because bitumen-coated pipe did not serve for comparison to U.S. sales
of similar merchandise, however, it is immaterial that Borusan failed
to report these sales.
Comment 2: VAT Drawback
Borusan argues that the Department failed to make a circumstance of
sale (COS) adjustment for VAT drawback in the preliminary results.
Borusan states that the statute (19 U.S.C. 1677b(a)(6)(C)(iii))
requires the Department to make an adjustment for circumstances of sale
that are different between the U.S. and home market products--as the
Department does with imputed credit expenses. It claims that under
Turkish VAT law, Borusan is required to pay a 15 percent VAT on all
imported materials used for domestic consumption. Eventually, the
company will be reimbursed for the VAT at the time of the sale to the
customer. However, in the time period between payment and
reimbursement, Borusan bears the financial cost of the VAT (which it
characterizes as an interest-free loan to the Turkish government).
Borusan argues that this is a real and substantial cost because Turkey
is a hyperinflationary economy. It states that it does not have to pay
VAT on imported materials used in exported products and that this
differing VAT treatment has a direct impact on the expense of making
sales in the U.S. and home markets. According to Borusan, this
difference is a difference in the circumstance of sale and therefore
should be allowed for the final results.
The petitioners argue that the Department should not grant the VAT
adjustment because eligibility for an adjustment for drawback of duties
is limited to a rebate of duties paid and rebated (19 U.S.C.
1677a(c)(1)(B)). They contend that no case precedent nor statutory
authority exists that would allow the Department to grant such an
adjustment. The Department's regulations state that the Department will
make a reasonable allowance for a bona fide difference in the
circumstances of the sales when those circumstances bear a direct
relationship to the sales compared. See 19 C.F.R. 353.56(a)(1). The
petitioners argue that, unlike credit expenses which represent a cost
of carrying the purchaser's debt (directly related to a sale), the VAT
drawback relates to the cost of purchasing raw materials. It is an
imputed cost associated with the purchase of raw materials, and is
therefore a cost of production. They cite to Departmental practice
which is to not make a circumstance of sale adjustment for differences
in the costs of production. See Final Administrative Review: Certain
Welded Carbon Steel Standard Pipe from India, 57 FR 54360 (November 18,
1992). According to the petitioners, if the Department does not
consider the VAT to be part of the COP, it should consider it a general
expense as it did in past cases; in Certain Welded Carbon Steel Pipes
and Tubes from Thailand, 61 FR 56515 (November 1, 1996), the Department
treated interest expenses on financing raw material imports as a
general expense.
DOC Position.
We agree with petitioners, and have disallowed a COS adjustment for
imputed interest resulting from delayed ``reimbursement'' of VAT paid
on inputs. Allowing Borusan such an adjustment would involve imputing
an expense incurred not between Borusan and its customers, but between
Borusan, its supplier, and the government. ``[W]hile such a[n expense]
may affect the notion of true economic cost to [Borusan], it tells us
nothing about the difference in prices that result from the different
circumstances of sale.'' See Federal-Mogul Corp. v. United States, 839
F. Supp. 881, 885 (November 30, 1993).
Furthermore, while the amount of the imputed expense cannot be
quantified until Borusan makes a sale to a domestic customer, it is
incurred regardless of whether Borusan actually makes such a sale. In
other words, there is no direct relationship between the imputed
expense and the sales being examined. Accordingly, there is no basis
for the Department to make a COS adjustment.
Comment 3: Level of Trade
In the preliminary results, for Borusan, the Department determined
that there was one LOT in the U.S. market and three levels of trade in
the home market and did not distinguish between customer class within a
LOT. The petitioners argue that the Department should reject Borusan's
claimed distinctions between LOTs A (mill direct sales) and B (reseller
back-to-back sales) and combine them into one LOT. They contend the
selling functions between Borusan's claimed levels of trade show little
differences in the sales staff functions between Borusan and its
affiliates--only a difference in that LOT B involves handling of sales
paperwork. The petitioners cite to the Department's proposed
regulations (Proposed Regulations at 61 FR 7348), noting that ``small
differences in the functions of the seller will not alter the level of
trade.'' According to the petitioners, the sales functions performed at
LOT B are similar to those performed for export
[[Page 69077]]
sales. Thus, the petitioners argue that no adjustment should be made
between U.S. sales and home market sales of LOT B.
The petitioners further argue that the Department should continue
to make no distinctions between customer class within a LOT because the
record does not indicate any consistent pricing differences between the
customer classes within the claimed levels of trade.
Finally, the petitioners argue that no LOT adjustment should be
granted for LOT C sales (reseller inventory sales) because any
adjustments for differences in levels of trade must be linked to
differences in selling functions resulting in a consistent pattern of
price difference. They argue that Borusan did not establish such a link
nor any consistent patterns of price differences.
Borusan states that the Department was correct in its analysis of
the levels of trade in the preliminary results. It argues that it has
demonstrated three distinct levels of trade in the home market, which
the Department verified. Its LOT A sales involve high volume sales to a
small number of customers; LOTs B and C involve smaller quantities and
have relatively higher selling expenses. Borusan claims that this
results in higher prices for sales at LOT B and C than those at LOT A.
It further notes that the Department, in its own analysis, found a
consistent pattern of price differences between sales at the different
levels of trade in its preliminary results. Thus, Borusan argues that
the Department should continue to make the same distinctions in the
final results.
DOC Position
We agree with the petitioners with respect to finding one LOT for
Borusan's claimed LOTs A and B. As discussed above in the ``Level of
Trade'' section, the Department first examines whether there are
separate market stages in a particular market. In this case, we found
that there were two stages. The Department must then determine whether
there are identical selling functions between the market stages. In
this case, the selling functions examined are stated in the ``Level of
Trade'' section above. (In the preliminary results, we also examined
agent coordination of production and delivery and general vs. specialty
sales staff--we discuss these two functions below as well.) We found
that the selling functions were identical between Borusan's claimed
LOTs A and B. Thus, we combined these sales into one LOT. See
Memorandum from the Team to the File, dated December 17, 1996.
In our preliminary results, we considered agent coordination of
production and delivery and general vs. specialty sales staff to be
selling functions in our LOT analysis. At verification, we noted the
differences between the sales staff among the Borusan Group. (We
confirmed that the home market resellers had a general sales staff
whereas Borusan and Dagitim had specialty sales staff.) However, the
SAA states that ``a sales subsidiary created merely to perform the role
of a de facto sales department is not an appropriate basis for
adjustment.'' Thus, for purposes of these final results, we did not
consider these to be selling functions and did not incorporate them
into the LOT analysis.
Finally, we agree with the petitioners with respect to not making a
LOT adjustment for Borusan. However, we note the Department will
normally make a LOT adjustment when there are consistent price
differences at different levels of trade, not customer categories as
stated by the petitioners. As discussed above in the ``Level of Trade''
section, we found that there were no consistent price differences
between the two home market levels of trade. Thus, we made no
adjustment when comparing U.S. sales to home market sales made at the
non-identical level of trade.
Comment 4: Countervailing Duty Adjustment
A. Formula. The petitioners argue that Borusan's calculation of the
amount of countervailing duty (CVD) to be added to U.S. selling price
is incorrect. They argue that the Department should instead simply
apply the CVD rate (7.26%) to the entered value of each transaction and
use that amount for the addition and the rebate of CVD duties.
Borusan contends that the formula used to calculate the CVD
adjustment is accurate and was examined by the Department at
verification. Thus, the Department should use Borusan's reported
amounts in its final results.
DOC Position
We tested the formula used by Borusan for the individual sales that
were examined at verification and noted no discrepancies. See sales
verification report (at page 9). Thus, we have used the values reported
by Borusan in its sales listings for our calculations of export price.
B. Adjustment to export price. The petitioners argue that the
Department must, in calculating export price, deduct funds that Borusan
provides to its customers equal to the amount of countervailing duties.
The petitioner contends that these payments are rebates, and that the
Department normally reduces U.S. price by the amount of such rebates.
Borusan argues that while applicable precedent supports the addition of
countervailing duties in the export price calculation, it prohibits the
Department from treating Borusan's payments to the importer of amounts
equal to the countervailing duty as rebates.
DOC Position
We agree that the statute requires that we add to the price in the
United States the amount of countervailing duties attributable to
export subsidies, and have done so. However, the payments to Borusan's
unaffiliated customer's amounted to a post-sale price adjustment or
rebate and have been deducted in the calculation of export price.
Comment 5: Antidumping Duties
The petitioners contend that Borusan made an agreement to reimburse
antidumping duties. Borusan argues that the petitioners' allegation is
false because it has never reimbursed, nor agreed to reimburse, its
customers for antidumping duties. Borusan further contends that the
Department found no evidence of such at verification.
DOC Position
We agree with Borusan. The Department found no evidence of
reimbursement of antidumping duties. Because of the proprietary nature
of this comment, we are unable to further discuss this issue; a
complete discussion of the issue is contained in a decision memorandum.
See Memorandum from the Team to Barbara R. Stafford, dated December 23,
1996.
Comment 6: Duty Drawback
The petitioners argue that Borusan is not entitled to a drawback
adjustment because its exported eligibility ratios exceeded certain
limitations on drawback allowed by the Turkish government. They contend
that Borusan's duty drawback should not be allocated to sales that were
not eligible to receive such a drawback; to do so would violate the
Department's duty drawback test, which requires importation of
sufficient duty-exempted raw materials to cover the exports against
which drawback is claimed. (See Steel Wire Rope from the Republic of
Korea, 60 FR 63499, 63505-06 (December 11, 1995) (SWR from Korea).)
They argue that, although the Turkish government allows this to occur,
the adjustment must meet the Department's test.
[[Page 69078]]
Borusan argues that it reported drawback that it had actually
received and that it complied with the Turkish provisions. It notes
that the Department fully verified the drawback documentation and
traced the information to Borusan's accounting records.
DOC Position
We agree with Borusan. In determining whether a duty drawback
adjustment is appropriate, the Department applies a two-prong test to
establish that: (1) The import duty and rebate are directly linked to,
and dependent upon, one another; and (2) there were sufficient imports
of raw materials to account for the drawback received on the exported
product. See, e.g., SWR from Korea.
Based on information contained in Borusan's questionnaire responses
and on the Department's findings at verification, the respondent's
methodology for calculating a duty drawback adjustment meets both
elements of the test.
It is not disputed that Borusan meets the Department's first
requirement. Regarding the second requirement, the Department verified
Borusan's drawback applications, which documented sufficient imports of
raw materials to account for the drawback claimed. In the drawback
applications reviewed by the Department, it was shown on import
certificates that sufficient imports of raw materials existed for the
claimed exported amounts of finished pipe. Thus, duty drawback is being
applied to all of Borusan's U.S. sales.
Comment 7: Credit Expense
The petitioners argue that the Department should calculate a single
interest rate for credit expenses on both the U.S. and home markets
because it treats money as fungible. They note that in Certain Welded
Carbon Steel Pipes and Tubes from Thailand; Final Results of
Antidumping Duty Administrative Review, 61 FR 56515, 56519 (November 1,
1996), the Department allowed the respondents to move credit expenses
on imported coil purchases to the companies' SG&A from cost of
manufacture on the basis that such financing is fungible. According to
the petitioners, the Department should consider whether a company's
foreign- and domestic-currency-denominated borrowing should be equally
applied to all sales.
Borusan states that the Department's longstanding practice is to
calculate credit expenses using a weighted-average short-term borrowing
rate which reflects the currency in which the sale was invoiced (see
Final Determination of Sales at Less Than Fair Value: Disposable Pocket
Lighters from Thailand, 60 FR 14263, 14269 (March 16, 1995)). According
to Borusan, interest rates are not fungible; they are tied to inflation
rates of the currency in which the loan is denominated. Borusan cites a
recent Departmental determination, where the Department stated that
``the measure of the company's extension of credit would be based on an
interest rate tied to the currency in which its receivables are
denominated'' (see Final Determination of Sales at Less Than Fair
Value: Oil Country Tubular Goods from Austria, 60 FR 33551, 33555 (June
28, 1995) (OCTG from Austria)).
DOC Position
We agree with Borusan. As the Department has noted in a recent
investigation:
A company selling in a given currency * * * is effectively
lending to its purchasers in the currency in which its receivables
are denominated * * * for the period from shipment of its goods
until the date it receives payment from its purchaser. Thus, when
sales are made in, and future payments are expected in, a given
currency, the measure of the company's extension of credit should be
based on an interest rate tied to the currency in which its
receivables are denominated. Only then does establishing a measure
of imputed credit recognize both the time value of money and the
effect of currency fluctuations on repatriating revenue.
See OCTG from Austria, 60 FR 33551, 33555. Thus, based on the
Department's practice, we are valuing credit expenses using the
interest rate applicable to the currency of the sale.
We find the petitioners argument regarding fungibility to be
misguided. The Department's policy of using the interest rate
applicable to the currency of a sale reflects the commercial reality
that different currencies have different costs of borrowing.
Comment 8: CV Profit
The petitioners argue that the Department should base its CV profit
calculation on above-cost sales and sales made at arm's length, in
accordance with 19 U.S.C. 1677b(e)(2)(A) and 1677(15). According to the
petitioners, the Department stated in Pipe from Thailand that its
policy is to include only above cost sales in its calculation of
profit.
Borusan states that the statute does not limit the sales to be used
by the Department in calculating average profit, other than that the
sales must be from the same ``general category of products.'' Borusan
notes that the SAA states that the ``general category of merchandise''
will encompass a category broader than the foreign like product and
that the Department has the discretion to determine the general
categories. SAA at 840. It argues that the statute does not imply that
the exclusion of below-cost sales (19 U.S.C. 1677b(e)(2)(A)) is
applicable to the alternative methodologies (19 U.S.C. 1677b(e)(2)(B)).
Borusan claims that this interpretation was upheld by the Court of
International Trade in Torrington v. United States, Slip. Op. 96-163
(CIT October 3, 1996). According to Borusan the statute states that for
determining the amount of profit used for constructed value, the profit
will be based on the ``actual amounts incurred and realized'' by the
producer ``in connection with the production and sale of a foreign like
product.'' Thus, Borusan argues that the Department should include
below cost sales in its profit calculation.
DOC Position
Section 773(e)(2)(A) of the Act specifies that profit for CV be
computed using only those sales of the foreign like product that were
made in the ordinary course of trade. Section 771(15) of the Act, in
turn, provides that sales and transactions considered outside the
course of trade include, ``among others,'' sales disregarded under
section 773(b)(1) pursuant to the cost test and under section 773(e)(2)
as not at arm's length. See also SAA at 839-40. We found that Borusan
had made sales in the home market that were disregarded either pursuant
to the cost test or because they were not at arm's length (see the
``Normal Value'' and ``Cost of Production Analysis'' sections above).
Thus, we have not used these sales in computing profit for CV.
The Torrington case cited by Borusan relates to the law as it
existed before January 1995. In that case, the profit amount discussed
was the statutory minimum of eight percent. As noted above, this
practice has been superseded by the new statute.
Comment 9: Clerical Errors Contained in the Preliminary Results
Borusan states that the Department made the following clerical
errors in its preliminary results: (1) It failed to deduct advertising
and warranty expenses in calculating normal value when it had deducted
these expenses in the LOT adjustment program; and (2) it eliminated
certain products from the matching analysis that should have been
included.
[[Page 69079]]
The petitioners agree that advertising and warranty expenses should
be deducted. However, the petitioners argue that the products in
question should not be included in the product concordance (i.e., the
matching analysis) and further argue that any products produced to the
DIN 2458 specification should also be excluded. The petitioners contend
that (a) the excluded products have not been proven to be an
appropriate match to ASTM A-53 (U.S. products) as has the DIN 2440/44
standard; (b) DIN 2458 is not listed with other standard pipe products
in Borusan's product brochure; and (c) the excluded products are made
to nonstandard diameters.
DOC Position
We agree with Borusan. We have corrected for these errors in our
final results. At verification, we examined those products that were
excluded from our product comparison analysis. We found that all
products but one--boiler tube--were subject merchandise, and,
therefore, should have been included in our product comparisons.
B. Erbosan
Comment 1: Facts Available
The petitioners argue that the Department should base its final
results for Erbosan on total adverse facts available for the following
reasons: (1) Erbosan failed to comply with the Department's regulations
regarding service of questionnaire responses; and (2) Erbosan's data is
unusable. Regarding the first point, the petitioners contend that they
were not served with Erbosan's questionnaire response until seven
months after it was filed with the Department. A supplemental
questionnaire response was filed without much supporting documentation
and, according to the petitioners, contained serious deficiencies with
the reported variable costs of manufacture. Thus, a large proportion of
information was provided to the Department at verification which they
had no opportunity to review. Furthermore, the petitioners argue that
the verification exhibits were unreadable. Overall, the petitioners
argue, Erbosan's failure to provide this information in proper form and
on a timely basis precluded them from filing an allegation of sales
made below the COP.
Regarding its second point, the petitioners contend that Erbosan's
data is unusable because: (a) It failed to differentiate between grades
of pipe; and, (b) there is a high rate of errors for its reporting of
the dates of sale. If the Department does not find that adverse facts
available is appropriate, they suggest applying an additional
difference-in-merchandise adjustment for the differences in the grades.
The petitioners argue that with the absence of its due process
rights 5 and usable data, the Department should base the final
results for Erbosan on facts available. As facts available it should
choose either (a) 28.28 percent, the highest margin assigned to any
Turkish respondent since the order; or (b) the margin resulting from
the use of Erbosan's submitted data.
---------------------------------------------------------------------------
\5\ The petitioners cite to (1) the statute which states that
``[i]nformation that is submitted on a timely basis to the
[Department] * * * shall be subject to comment by other parties to
the proceeding'' (see 19 U.S.C. 1677m(g)); and (2) the SAA which
states ``all interested parties be informed of the essential facts
under consideration that form the basis for a determination in
sufficient time for the parties to the proceeding to defend their
interest'' (see H. Doc. No. 316, 103d Cong., 2d See. 871).
---------------------------------------------------------------------------
Erbosan contends that it tried to cooperate and follow the
Department's procedures to the best of its ability, without any outside
assistance. It notes that, although late, the petitioners did receive
Erbosan's questionnaire response and has possessed all of Erbosan's
submissions for several months. It also notes that the petitioners did
not argue that they had insufficient time to review information to
provide comments on the Department's verification or preparing their
case brief. Further, the petitioners were aware at the time of the
preliminary determination that the Department would be requesting
additional information from Erbosan and that it might use Erbosan's
information for the final results. Erbosan agrees that certain copies
of the verification exhibits were illegible, but notes that the
petitioners did not request more legible copies. Erbosan contends that
the petitioners had ample time to comment on the information submitted
on the record and defend their interest in this proceeding. Therefore,
the Department should not base Erbosan's final margin on facts
available.
Regarding the grade differences, Erbosan argues that the record
shows that there is no difference in its cost of producing both grades.
It notes that the Department verified this and noted this in its
verification report. Erbosan believes that, even if it should have
reported the grades separately, it does not render the response
unusable.
Regarding the misreporting of the dates of sale, Erbosan contends
that the sales in question are outside the POR. It notes that the
Department found no other occurrences in which the date of sale was
reported in the wrong month. Thus, Erbosan argues that this is a minor
error and does not undermine the data used for purposes of the
Department's analysis.
DOC Position
We disagree with the petitioners that the Department should
determine Erbosan's submissions as untimely and/or unusable and resort
to total adverse facts available for the final results. As described in
the preliminary results, a number of extenuating circumstances
prevented the petitioners and the Department from performing adequate
analyses of Erbosan's data before the preliminary results. Among these
reasons are the delayed issuance of the questionnaire and, therefore,
of receipt of the questionnaire response, and the extended closures of
the Department due to a blizzard and the Federal budget crisis. This
led to the Department's decision to assign facts available for the
preliminary results, present an additional supplemental questionnaire
to Erbosan, and verify Erbosan's response to that supplemental
questionnaire.
We agree that the petitioners were not initially served with
Erbosan's questionnaire response until seven months after it was filed
with the Department. However, we disagree that this precluded the
petitioners from making a cost allegation. In the case of Borusan, the
petitioners were granted their request for additional time for filing
of a sales below cost allegation despite the late date at which
Borusan's questionnaire responses were submitted to the Department.
Likewise, the petitioners could have made a similar request in the case
of Erbosan.
We agree with the petitioners that there was not much support
documentation on the record prior to verification and the reported
variable costs of manufacture were deficient. However, as explained in
the notice of preliminary results, although the Department requested
the respondent to support its claim that there were identical matches
for all U.S. sales, the Department failed to note the apparent
discrepancy in the respondent's initial questionnaire response that
differences in merchandise did exist. Furthermore, the Department
failed to address Erbosan's claim that the Turkish economy was
hyperinflationary at the time of the POR by providing standard
instructions regarding administrative reviews conducted within
hyperinflationary economies. (These instructions were provided to
Borusan when the Department re-issued section D of the questionnaire
with the
[[Page 69080]]
hyperinflation text.) Therefore, we find Erbosan's failure to report
its cost data properly as inadvertent, not uncooperative.
Regarding the additional points the petitioners raised with respect
to Erbosan's data as unusable, we disagree that Erbosan failed to
differentiate between grades of pipe or that there is a high rate of
errors for reporting dates of sale. Under section 776(a)(2)(D) of the
Act, the Department is authorized to use facts available if an
interested party provides necessary information, but the information
cannot be verified. In this case, however, based on our verification
findings, we find that Erbosan's cost data and sales data are accurate.
Regarding the cost data, we found no distinction between the steel
costs of grade A and grade B, and that Erbosan's cost accounting
records indicate the cost of steel is inclusive of both grades for all
products. Therefore, we disagree that the Department should apply an
additional difmer adjustment for the differences in grades. Regarding
the sales data, we find that the incorrect dates of sale for certain
transactions resulted in either those sales now being outside the POR
or resulted in minor changes in the month the sale was made for the
remaining transactions. Since Erbosan's errors are minor in nature, we
made the necessary corrections based on our verification findings and
are using Erbosan's data in the final results.
Comment 2: Correction for Errors Found at Verification
The petitioners contend that, if the Department does not base the
margin on facts available, it should correct for the errors discovered
at verification. These errors include omitted home market sales,
understated brokerage and handling, overstated discounts for home
market sales, and incorrect variable and total costs of manufacture
(including the grade differences as mentioned above in Comment 1).
Erbosan agrees that these errors, except for the grade differences
(as noted in Comment 1), should be corrected for the final results.
DOC Position
We agree with the respondent. Except for the adjustment for steel
grade differences, we have corrected the errors identified above in the
final results. We did not make adjustment for steel grade differences
to variable and total costs of manufacture because we found no
difference between actual costs for pipes with different grades, but
with the same dimension and size, sold in either market. Moreover, we
found no cost difference between grade A and grade B steel in Erbosan's
accounting records.
Final Results of Review
As a result of our review, we determine that the following margins
exist for the period May 1, 1994, through April 30, 1995:
------------------------------------------------------------------------
Margin
Manufacturer/exporter Review period (percent)
------------------------------------------------------------------------
Borusan................................... 5/1/94-4/30/94 3.15
Erbosan................................... 5/1/94-4/30/94 25.01
------------------------------------------------------------------------
The Department shall determine, and Customs shall assess,
antidumping duties on all appropriate entries. The Department will
issue appraisement instructions directly to Customs.
Furthermore, the following deposit requirements will be effective
for all shipments of the subject merchandise entered, or withdrawn from
warehouse, for consumption on or after the publication date of these
final results of this administrative review, as provided by section
751(a) of the Act: (1) The cash deposit rate for Borusan and Erbosan
will be the rate established above; (2) for merchandise exported by
manufacturers or exporters not covered in this review but covered in
the original less than fair value (LTFV) investigation or a previous
review, the cash deposit will continue to be the most recent rate
published in the final determination or final results for which the
manufacturer or exporter received a company-specific rate; (3) if the
exporter is not a firm covered in this review, or the original
investigation, but the manufacturer is, the cash deposit rate will be
that established for the manufacturer of the merchandise in these final
results of review or the LTFV investigation; and (4) if neither the
exporter nor the manufacturer is a firm covered in this or any previous
review, the cash deposit rate will be 14.74 percent, the ``all others''
rate established in the LTFV investigation.
These deposit requirements shall remain in effect until publication
of the final results of the next administrative review.
This notice also serves as final reminder to importers of their
responsibility to file a certificate regarding the reimbursement of
antidumping duties prior to liquidation of the relevant entries during
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 is the only reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 C.F.R. 353.34(d). Failure to
comply is a violation of the APO.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 C.F.R.
353.22.
Dated: December 24, 1996.
Jeffrey P. Bialos,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-33296 Filed 12-30-96; 8:45 am]
BILLING CODE 3510-DS-P