[Federal Register Volume 62, Number 72 (Tuesday, April 15, 1997)]
[Notices]
[Pages 18404-18448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9424]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-580-815 & A-580-816]
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat
Products From Korea: Final Results of Antidumping Duty Administrative
Reviews
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Final results of antidumping duty administrative reviews.
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SUMMARY: On October 4, 1996, the Department of Commerce (``the
Department'') published the preliminary results of the administrative
reviews of the antidumping duty orders on certain cold-rolled and
corrosion-resistant carbon steel flat products from Korea. These
reviews cover three manufacturers/exporters of the subject merchandise
to the United States and the period August 1, 1994, through July 31,
1995. We gave interested parties an opportunity to comment on our
preliminary results. Based on our analysis of the comments received, we
have changed the results from those presented in the preliminary
results of review.
EFFECTIVE DATE: April 15, 1997.
FOR FURTHER INFORMATION CONTACT: Charles Rast (Dongbu), Steve
Bezirganian (POSCO), Alain Letort (Union), or John Kugelman, AD/CVD
Enforcement Group III--Office 8, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230, telephone 202/482-5811
(Rast), 202/482-1395 (Bezirganian), 202/482-4243 (Letort), or 202/482-
0649 (Kugelman), fax 202/482-1388.
SUPPLEMENTARY INFORMATION:
Applicable Statute
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).
Background
The Department published antidumping duty orders on certain cold-
rolled and corrosion-resistant carbon steel flat products from Korea on
August 19, 1993 (58 FR 44159). The Department published a notice of
``Opportunity to Request an Administrative Review'' of the antidumping
duty orders for the 1994/95 review period on August 1, 1995 (60 FR
39150). On August 31, 1995, respondents Dongbu Steel Co., Ltd.
(``Dongbu''), Union Steel Manufacturing Co., Ltd. (``Union''), and
Pohang Iron and Steel Co., Ltd. (``POSCO''), requested that the
Department conduct administrative reviews of the antidumping duty
orders on cold-rolled and corrosion-resistant carbon steel flat
products from Korea. On the same day, the petitioners in the original
less-than-fair-value (``LTFV'') investigations (Bethlehem Steel
Corporation, U.S. Steel Group--a unit of USX Corporation, Inland Steel
Industries, Inc., Geneva Steel, Gulf States Steel Inc. of Alabama,
Sharon Steel Corporation, and Lukens Steel Company, collectively
referred to as ``petitioners'') filed a similar request. We initiated
these reviews on September 5, 1995 (60 FR 46817--September 8, 1996).
Under the Act, the Department may extend the deadline for
completion of an administrative review if it determines that it is not
practicable to complete the review within the statutory time limit of
365 days. On March 22, 1996, the Department extended the time limits
for preliminary and final results in these reviews. See Extension of
Time Limit for Antidumping Duty Administrative Reviews, 61 FR 14291
(April 1, 1996).
On October 4, 1996, the Department published in the Federal
Register the preliminary results of the second administrative reviews
of the antidumping duty orders on certain cold-rolled and corrosion-
resistant carbon steel flat products from Korea (61 FR 51882). The
Department has now completed these administrative reviews in accordance
with section 751 of the Act.
Scope of the Review
The review of ``certain cold-rolled carbon steel flat products''
covers cold-rolled (cold-reduced) carbon steel flat-rolled products, of
rectangular shape, neither clad, plated nor coated with metal, whether
or not painted, varnished or coated with plastics or other nonmetallic
substances, in coils (whether or not in successively superimposed
layers) and of a width of 0.5 inch or greater, or in straight lengths
which, if of a thickness less than 4.75 millimeters, are of a width of
0.5 inch or greater and which measures at least 10 times the thickness
or if of a thickness of 4.75 millimeters or more are of a width which
exceeds 150 millimeters and measures at least twice the thickness, as
currently classifiable in the Harmonized Tariff Schedule (``HTS'')
under item numbers 7209.15.0000, 7209.16.0030, 7209.16.0060,
7209.16.0090, 7209.17.0030, 7209.17.0060, 7209.17.0090, 7209.18.1530,
7209.18.1560, 7209.18.2550, 7209.18.6000, 7209.25.0000, 7209.26.0000,
7209.27.0000, 7209.28.0000, 7209.90.0000, 7210.70.3000, 7210.90.9000,
7211.23.1500, 7211.23.2000, 7211.23.3000, 7211.23.4500, 7211.23.6030,
7211.23.6060, 7211.23.6085, 7211.29.2030, 7211.29.2090, 7211.29.4500,
7211.29.6030, 7211.29.6080, 7211.90.0000, 7212.40.1000, 7212.40.5000,
7212.50.0000, 7215.50.0015, 7215.50.0060, 7215.50.0090, 7215.90.5000,
7217.10.1000, 7217.10.2000, 7217.10.3000, 7217.10.7000, 7217.90.1000,
7217.90.5030, 7217.90.5060, 7217.90.5090. Included in this review are
flat-rolled products of non-rectangular cross-section where such cross-
section is achieved subsequent to the rolling process (i.e., products
which have been ``worked after rolling'')--for example, products which
have been beveled or rounded at the edges. Excluded from this review is
certain shadow mask steel, i.e., aluminum-killed, cold-rolled steel
coil that is open-coil annealed, has a carbon content of less than
0.002 percent, is of
[[Page 18405]]
0.003 to 0.012 inch in thickness, 15 to 30 inches in width, and has an
ultra flat, isotropic surface.
The review of ``certain corrosion-resistant carbon steel flat
products'' covers flat-rolled carbon steel products, of rectangular
shape, either clad, plated, or coated with corrosion-resistant metals
such as zinc, aluminum, or zinc-, aluminum-, nickel- or iron-based
alloys, whether or not corrugated or painted, varnished or coated with
plastics or other nonmetallic substances in addition to the metallic
coating, in coils (whether or not in successively superimposed layers)
and of a width of 0.5 inch or greater, or in straight lengths which, if
of a thickness less than 4.75 millimeters, are of a width of 0.5 inch
or greater and which measures at least 10 times the thickness or if of
a thickness of 4.75 millimeters or more are of a width which exceeds
150 millimeters and measures at least twice the thickness, as currently
classifiable in the HTS under item numbers 7210.30.0030, 7210.30.0060,
7210.41.0000, 7210.49.0030, 7210.49.0090, 7210.61.0000, 7210.69.0000,
7210.70.6030, 7210.70.6060, 7210.70.6090, 7210.90.1000, 7210.90.6000,
7210.90.9000, 7212.20.0000, 7212.30.1030, 7212.30.1090, 7212.30.3000,
7212.30.5000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7212.60.0000,
7215.90.1000, 7215.90.3000, 7215.90.5000, 7217.20.1500, 7217.30.1530,
7217.30.1560, 7217.90.1000, 7217.90.5030, 7217.90.5060, 7217.90.5090.
Included in this review are corrosion-resistant flat-rolled products of
non-rectangular cross-section where such cross-section is achieved
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
beveled or rounded at the edges. Excluded from this review are flat-
rolled steel products either plated or coated with tin, lead, chromium,
chromium oxides, both tin and lead (``terne plate''), or both chromium
and chromium oxides (``tin-free steel''), whether or not painted,
varnished or coated with plastics or other nonmetallic substances in
addition to the metallic coating. Also excluded from this review are
clad products in straight lengths of 0.1875 inch or more in composite
thickness and of a width which exceeds 150 millimeters and measures at
least twice the thickness. Also excluded from this review are certain
clad stainless flat-rolled products, which are three-layered corrosion-
resistant carbon steel flat-rolled products less than 4.75 millimeters
in composite thickness that consist of a carbon steel flat-rolled
product clad on both sides with stainless steel in a 20%-60%-20% ratio.
These HTS item numbers are provided for convenience and customs
purposes. The written descriptions remain dispositive.
The period of review (``POR'') is August 1, 1994 through July 31,
1995. These reviews cover sales of certain cold-rolled and corrosion-
resistant carbon steel flat products by Dongbu, POSCO, and Union.
Verification
As provided in section 776(b) of the Act, we verified information
provided by Dongbu, POSCO, and Union using standard verification
procedures, including the examination of relevant sales and financial
records, and selection of original source documentation containing
relevant information.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received comments and rebuttal comments from
Dongbu, POSCO, and Union, exporters of the subject merchandise
(``respondents''), and from petitioners. Petitioners requested a public
hearing, which was held on December 16, 1996.
General Comments
Petitioners' Comments
Comment 1. Petitioners allege that the home market for such or
similar merchandise in Korea is not a viable comparison market, and
that the Department should base normal value (``NV'') on sales to third
countries. Petitioners cite section 773(a)(1)(C)(iii) of the Act, which
provides that the Department will use third-country sales as the basis
for normal value if ``the particular market situation in the exporting
country does not permit a proper comparison with the export price or
the constructed export price.'' 19 U.S.C. 1677b(a)(1)(C)(iii). The
Statement of Administrative Action (``SAA'') accompanying the URAA
states that ``* * * Commerce may determine that home-market sales are
inappropriate as a basis for determining normal value if the particular
market situation would not permit a proper comparison. The Agreement
[on Implementation of Article VI] does not define `particular market
situation,' but such a situation might exist where a single sale in the
home market constitutes five percent of sales to the United States or
where there is government control over pricing to such an extent that
home-market prices cannot be considered to be competitively set.'' H.R.
Doc. No. 316, 103rd Cong., 2nd Sess. 822 (1994). Petitioners argue that
steel prices in Korea are controlled de facto by the government of
Korea to such an extent that home-market prices cannot be considered to
be competitively set, making the Korean market non-viable.
Petitioners provide several lines of argument in support of their
contention that the Korean market is not viable. In their first line of
argument, petitioners contend that statements by numerous sources--both
the interested parties themselves and widely acknowledged independent
authorities--demonstrate the Korean government's control over the price
at which both subject merchandise and other non-steel products are
sold. These sources are:
(1) Circumstantial evidence, in the form of data submitted by the
respondents themselves, which allegedly demonstrates that prices for
subject merchandise in Korea remained flat and coincident from 1991
through 1995, even though all formal, de jure government price controls
had ended by February 7, 1994.
(2) Petitioners claim that independent, third party sources confirm
the existence of government control over steel prices and that no
credible, independent source has ever denied the existence of price
controls. Petitioners cite numerous articles and financial reports,
published in reputable financial dailies and by major financial
institutions in which the existence of government control over steel
prices is discussed. In particular, petitioners cite the following
sources in support of their allegations:
``Domestic steel prices in Korea do not necessarily move
directly with international prices or the domestic supply and demand
due to government price controls.'' Barclays de Zoete Wedd (Asia)
Limited, POSCO: The Price Is Right at 4 (Jan. 29, 1996) (``BZW
Report'').
``[T]he government allowed 4.2 percent domestic price
increases in April for the first time since 1991 to induce cold-rolled
steel makers to supply more volume to the domestic market.'' Id. at 11.
``POSCO needs government approval to raise domestic prices
and domestic prices rarely fluctuate due to the government's anti-
inflationary pricing policy.'' Id. at 17, in the section entitled
``Domestic Prices Are Under Government Control.''
[[Page 18406]]
``Prices, however, continued to fall due to the
government's tight pricing policy on * * * steel and cement.'' Hoare
Govett Securities, Ltd., Korean Steel Companies--Industry Report at 6
(Nov. 1, 1994) (``HGS Report'').
``With the Government as its largest shareholder, [POSCO]
has supported many domestic steel companies with stable prices.''
Young-Kyun Ryu, ``Steel: Imported Hot-coil Price is Lower Than POSCO's
Local Price,'' Investment Newsletter (June 27, 1996).
``About 75 percent of POSCO's products are sold in Korea
where a controlled market and strong domestic demand have smoothed the
traditional volatility of international steel markets.'' Investext,
POSCO--Company Report (June 12, 1996).
``The balanced market conditions have helped the
government establish a stable pricing policy on steel that protects
POSCO against cyclical downturns in the global steel industry.'' (BZW
Report)
``Domestic steel prices in Korea do not necessarily move
directly with international prices or domestic supply and demand due to
government price controls.'' John Burton, ``POSCO moves to pre-empt
challenge from Hyundai,'' Financial Times, Mar. 15, 1996.
``Domestic steel prices are under government control * *
*'' John Burton, ``Strong export prices boost POSCO 119 percent,''
Financial Times, Feb. 8, 1996.
``Last September, Metal Bulletin reported that `[d]omestic
Korean prices of CR and surface-treated sheet are closely monitored by
the Korean government * * *' '' Russ McCulloch, ``Pocos proposes
expansion into a growing market,'' Metal Bulletin, Sep. 1995, at 67.
``Though it denies it, POSCO is widely believed to
`consult' with the government about its business plans and its
pricing.'' ``South Korean Industry: The war goes on,'' The Economist,
Mar. 2, 1996, at 62.
As recognized by the Court of Appeals for the Federal Circuit
(``CAFC'') in Matsushita Elec. Indus. Co. v. United States, 750 F.2d
927, 934 (Fed. Cir. 1984), even circumstantial evidence is ``always
relevant and, indeed, may be more reliable than self-serving
declarations'' provided by respondents. Petitioners argue that these
articles and reports are so numerous, and emanate from such credible
and neutral third parties, as to give them the weight of authority. The
authors of the reports in question depend upon their knowledge of the
Korean steel market and their credibility for their very livelihoods,
claim petitioners.
(3) Petitioners assert that Union has previously admitted to the
existence of government price controls during the POR, and that Union's
subsequent retraction cannot be given any weight. In the verification
report issued as part of the first administrative review of this
proceeding, a Union official was quoted as volunteering that his
company was subject to government price controls and that ``the Korean
government sets the price levels for domestic sales * * *.'' Although
Union later ``clarified'' this statement by explaining that the Korean
government simply ``reviews and approves the price lists for domestic
sales,'' petitioners claim that this ``non-denial denial'' actually
substantiates their own claims. Petitioners argue that a year later,
after they had filed their allegation that the home market is not
viable and the full import of such a statement became clear, Union
retracted its ``non-denial denial'' and attempted to explain away its
admission by confusion over the date on which formal price controls had
been eliminated. Petitioners contend that the idea that a Union
executive could have so little idea of the company's pricing practices
as to provide a totally erroneous explanation of the government's
involvement in them is ludicrous. Petitioners point out that the record
contains several such instances of misrepresentation, omission, and
subsequent recantation by Union. Petitioners argue that admissions
against interest are considered so inherently trustworthy and probative
that they are an exception to the hearsay rule under the Federal Rules
of Evidence, and are deemed by courts to carry a circumstantial
guarantee of reliability that a party's neutral and favorable
statements are deemed to lack. See, e.g., Masson v. New Yorker
Magazine, Inc., 501 U.S. 496, 512 (1991).
(4) Petitioners contend that the Korean Iron and Steel Association
(``KOSA'') itself has acknowledged the existence of government price
controls. Petitioners quote KOSA's 1995 yearbook, which states in
pertinent part that ``the domestic price of the cold-rolled steel has
been maintained lower than the international price,'' and that the
``price management system can cause a shortage of domestic supply if
the difference of international and domestic prices becomes bigger.''
Petitioners add that when two independent professional translators,
neither of whom was apprised of the nature of the document or for what
purpose it would be used, were asked to translate this passage, they
both used ``price control'' rather than ``price management system.''
Petitioners argue that these minor differences in translation do not
detract from the evidence that the government controls steel prices in
Korea.
(5) Petitioners also submit that the price reporting termination
notices sent by the Korean government's Economic Planning Board to the
respondents repeatedly request their cooperation in the price
stabilization effort regardless of the reporting requirements.
According to petitioners, these notices indicate that the Korean
government controls the price at which subject merchandise is sold.
Petitioners also cite an authority on the Korean economy, who wrote, in
pertinent part, that ``[b]ecause of the acceptance of the government's
control over business, Korean companies will nearly always respond to
government directions even though they may not be legally binding. [ *
* * ] Failing to comply with administrative guidance on the ground that
it is not legally binding may result in disadvantageous treatment in
future transactions for which government approval is required.'' See
Trenholme J. Griffin, Korea: The Tiger Economy, 1988, appended to
petitioners' October 15, 1996 letter at Exhibit 10.
(6) Petitioners contend that the Korean government itself recently
announced price controls on flat-rolled steel products outside the
scope of the instant review. On October 9, 1996, petitioners allege,
the Korean Ministry of Finance and Economy issued a press release in
which it stated that POSCO would reduce domestic prices of hot-rolled
steel coil from its mini-mills at the end of that month. Petitioners
argue that whether or not POSCO announced the price cut itself in an
earlier press release is irrelevant, since that announcement was
subsequent to the Korean government's ``September 3rd
Countermeasures,'' whose explicit policy goal was the stabilization of
prices. Petitioners cite a letter (dated October 22, 1996) from Korea's
Ministry of Trade, Industry, and Energy to the United States Trade
Representative (``USTR'') as further proof of their allegations.
Petitioners find it ``suspicious'' that the Korean government saw
no need to ``clarify'' its statement until after the press release was
entered on the record of these proceedings and the trade-related
implications of the October 9 announcement became apparent. POSCO
itself did not protest the Korean government's announcement of the
price reduction as its own initiative until after the press release was
entered onto the record of these proceedings.
[[Page 18407]]
Petitioners argue that if the official government press release
announcing POSCO's price reductions was truly in error, then there is
no reason to accept the veracity of statements contained in a self-
serving, post hoc government letter of limited circulation. Petitioners
also stress that the fact that the Korean government's letter to USTR
bears the same date as POSCO's letter to the Department, to which it
was appended, demonstrates the degree of cooperation between the Korean
steel industry and the Korean government, a relationship which
respondents insist does not exist.
(7) Petitioners assert that Hanbo Steel, whose products potentially
are subject to the antidumping duty orders on subject merchandise, has
previously admitted that price controls exist, and that its subsequent
retraction cannot be given any weight. Petitioners cite a May 27, 1994
Offering Circular by Hanbo (four months after the date the Korean
respondents claim all price controls ended), in which Hanbo stated that
prices are ``determined by the Korean government'' and that its
competitors charge the same prices for the same products. Although
Hanbo later retracted this statement, petitioners point out that in the
Offering Circular, Hanbo confirmed that the information contained in
that document was true and accurate in all material respects. Said
Offering Circular, petitioners point out, was subject to securities
fraud laws in the United States and in other jurisdictions in which
Hanbo's securities were offered or sold. Given the potential
ramifications of an admission by Hanbo of the existence of price
controls during the Department's verification in a dumping case, Hanbo
had every reason to conceal their existence and to explain away its
prior admission in the Offering Circular. Therefore, petitioners argue,
Hanbo's recantation at verification should be ignored. Furthermore,
petitioners argue, the Department's own Hanbo verification report
actually supports the fact that the Korean government controls domestic
steel prices. See the Memorandum from Richard O. Weible to the Files
dated February 21, 1997.
(8) Finally, petitioners point to an article in Korea's leading
English-language daily, the Korea Herald, according to which leading
Korean steel makers, in a meeting with the Minister of Trade, Industry,
and Energy, requested the lowering of domestic hot-coil prices.
Petitioners affirm this belies statements by Korean government
officials denying government intervention in steel pricing. In another
article reporting on the same meeting and submitted by respondents
Dongbu and Union, it was stated that ``the request embarrassed the
Minister because that issue was not on the agenda of the meeting * *
*.'' To petitioners, such language suggests that issue is sometimes
included on the agenda of government-industry meetings.
In their second line of argument, petitioners claim that mechanisms
remain by which the Korean government can control the price at which
steel is sold in the domestic market, and which explain why
respondent's prices remained flat after the purported end of price
controls. Petitioners allege that the Korean government controls prices
through administrative guidance and through monitoring of the
respondents' prices and production costs under the ``Monopoly
Regulation and Fair Trade Act'' (``MRFTA'').
Petitioners allege that the Department itself, in a 1995 commercial
guide issued by the International Trade Administration, concluded that
``government intervention is extensive'' and that ``the prices of many
products are de facto controlled.'' See Korea: Economic Trends and
Outlook (USDOC, International Trade Administration, August 23, 1995).
Petitioners also allege that in a May 1994 article, after the putative
end of de jure price controls, the Korean president's senior economic
adviser acknowledged that price controls should be liberalized ``so
that prices may be determined normally in the market and thus
administrative guidance on prices can be eliminated altogether.'' See
Ed Paisley, ``The Morning After,'' in Far Eastern Economic Review, May
26, 1994, at 52. The legal authority for these price controls,
petitioners allege, derives from the Price Stabilization and Fair Trade
Act of 1992. Petitioners allege that the Korean government uses
administrative means at its disposal to pressure businesses into
complying with its price guidelines, in particular by means of tax
audits or the threat thereof. In support of this contention,
petitioners quote the English-language daily The Korea Times as saying,
on October 12, 1996, that ``[t]he government must stop its long
practice of mobilizing tax auditors, policemen, ward officials and fire
fighters to bully businessmen not to increase prices.'' Petitioners
affirm that POSCO's own ``Economic Policy Direction for 1995'' (sales
verification exhibit 85-E) is further evidence of the Korean
government's role in stabilizing domestic prices. Finally, petitioners
note that the Korean government's status as POSCO's single largest
shareholder enables it to control domestic steel prices. Petitioners
contend that one of POSCO's competitors, Hanbo, admitted as much to a
Department official during verification: ``POSCO does not raise prices
because of the partial government control of POSCO.'' See Hanbo
Viability Verification Report at 2.
According to petitioners, respondents admit, and verification
confirmed, that the Korean government continues to collect certain data
from respondents under the MRFTA. Petitioners contend that verification
exhibits demonstrate that the data collected relates not only to market
share, but also to liabilities, capital, and profit. In petitioners'
view, this confirms the statements made in KOSA's 1994 and 1995
yearbooks that domestic steel prices ``do not reflect market
conditions'' and ``are not flexible.'' See June 26, 1996 letter from
Dewey Ballantine to the Secretary of Commerce, Exhibit 3 (at 233).
Petitioners contest respondents' assertions that the Korean
government lifted price controls on February 7, 1994, stating that the
respondents' own pricing data demonstrate the opposite. Indeed,
petitioners affirm, prices of the subject merchandise in Korea remained
flat and coincident from 1991 through 1995, well after the official
lifting of price controls. No Korean steel company changed its prices
or charged a price statistically different from its competitors after
the formal lifting of price controls.
Petitioners argue that, once freed of government control,
respondents would have been expected to alter pricing on the basis of
market forces, especially in an environment of rapidly increasing
demand and high capacity utilization. Because this did not happen,
petitioners surmise that de jure price controls were replaced with de
facto price controls. Petitioners state that the Department has used
the lack of change in certain practices as evidence of the continuation
of de facto government activity, notwithstanding the alleged
termination of de jure government involvement. See, e.g., Final
Affirmative Countervailing Duty Determinations and Final Negative
Determinations of Critical Circumstances: Certain Steel Products from
Korea (58 FR 37328, 37342-45--July 9, 1993), where the Department
rejected respondents' claim that the Korean government was no longer
engaged in credit allocation.
Petitioners find respondents' explanations for continued and
coincident flat prices in the home market conflicting and, therefore,
incredible. On the one hand, say petitioners, respondents claim that
price stability was due to long-term market
[[Page 18408]]
strategy and a concern for their customers' ``well-being,'' but on the
other hand, they claim that transaction prices vary due to adjustments
in sales and payment terms. Petitioners contend that respondents'
explanations for their domestic pricing behavior are ``incredible'' for
several reasons.
First, POSCO has admitted that its home-market prices did not
change in a context of fluctuating economic indicators, such as world
prices, capacity utilization, exchange rates, and domestic inflation.
Since International Monetary Fund statistics show that domestic
consumer prices in Korea rose 27.2 percent between 1991 and 1995,
petitioners argue that Korean steel prices, unchanging in nominal
terms, actually decreased by nearly a third during that period, at a
time when demand for steel products in Korea was extremely strong.
Second, in response to respondents' claim that their pricing
behavior is normal and expected in an oligopolistic market situation,
petitioners retort that typical oligopolistic behavior conspires to
keep prices high, not low as is the case here. Moreover, note
petitioners, in an open market even oligopolies must respond to
international price pressures. Petitioners contend that what is at work
here is an oligopoly dominated by a government-owned entity (POSCO) and
dedicated to imposing government-mandated price disciplines on much
smaller entities (Dongbu and Union).
Third, argue petitioners, not only are respondents' claims that
they were able to compensate for the stability of list prices in the
1991-1995 period by altering their ``effective'' prices unsupported by
evidence on the record, these claims actually provide further evidence
that respondents are not free to alter domestic prices in response to
market conditions. After initially denying the existence of discounts,
petitioners say, respondents subsequently claimed that effective prices
were in fact altered by their discount policies. Petitioners find these
claims irrelevant, since what they have alleged all along is a
government-imposed ceiling, not a floor, on domestic steel prices. In
addition, record evidence shows that such discounts as were granted
were minimal and had no discernible effect on the stability of reported
transaction prices. If record evidence is to be believed, say
petitioners, many of the respondents' claimed ``discounts'' are in fact
credits for returns of merchandise, set sales terms which do not vary
with market conditions, or discounts for cash payments, which are not
true discounts since they are merely an acknowledgment that the
customer, not the respondent, is bearing the cost of financing the
sales transaction.
Petitioners also dismiss as incredible respondents' claims that
differences in credit terms have also been used to vary effective
prices. If respondents' previous claims that they maintain open payment
systems in which customers are invoiced and make payments on a
revolving rather than a sale-specific basis are correct, then the terms
of payment of any particular sales transaction are irrelevant, because
respondents are unable to link payments to specific sales. Petitioners
also contend that the questionnaire responses and verification exhibits
belie the respondents' claims that differences in credit terms were
used to alter effective prices selectively. In fact, the record shows
remarkably little variance in credit terms, in particular, in the
number of days for which credit was extended. Petitioners argue that
whatever differences in credit terms existed were minor and
statistically insignificant, as evidenced by the limited variation in
respondents' domestic net prices.
Finally, petitioners characterize Dongbu's claim at verification
that differences in freight terms were also used to vary effective
prices as ``new'' and unconvincing. Although Dongbu claimed it changed
the freight absorption for a selected customer twice in two years,
petitioners argue that Dongbu did not demonstrate that it was reacting
to market conditions, or that transaction prices to that customer were
actually affected.
According to petitioners, all of the foregoing reasons lead to the
inescapable conclusion that stable and coincident home-market prices
are a result of Korean government control of domestic steel prices.
Therefore, since the Korean home market is not viable and collection of
third-country sales data is not feasible at this late stage in the
proceedings, petitioners urge the Department to resort to constructed
value (``CV'') for purposes of determining NV. Petitioners contend that
if the Department bases NV on CV, it must calculate CV in a manner
consistent with a finding that the home market is not viable.
Specifically, petitioners say it would be inappropriate for the
Department to calculate the profit component of CV based on the actual
profit realized on sales in Korea, because those transactions did not
reflect true market prices. Because Japan is the Korean steelmakers'
largest third-country market, and because the Department normally uses
sales to the largest third-country market to calculate NV when the home
market is not viable, ideally the Department should base the profit
component of CV on the respondents' experience in that market. The
record, however, does not contain complete data on the respondents'
sales to Japan. Petitioners therefore urge the Department to rely on
the facts available, within the meaning of section 776(c) of the Act,
in determining the profit component of CV.
Petitioners suggest that the most comprehensive and product-
specific facts available to the Department at this point are official
Korean trade statistics showing export prices of subject merchandise to
Japan. Petitioners submit that a CV profit figure could be calculated
based on the difference between export prices, as reported in these
official statistics, and the respondents' costs of production
(``COP'').
Respondents retort that the Korean home market is in fact viable.
To support this contention, they set forth two affirmative arguments
and one negative argument. The affirmative arguments are that the
government does not set home-market prices and that home-market prices
are based on free market competition. The negative argument is that
petitioners have provided no evidence that suggests that there are
government price controls of subject merchandise.
To support their affirmative argument that the government does not
set home-market prices, Dongbu and Union first argue that any
government controls on prices of the subject merchandise ended long
before the POR. They deny petitioners' allegation that they had
themselves acknowledged that price controls existed until February
1994. In fact, they argue, their responses to the Department's
viability questionnaire and their statements at the verifications
demonstrate that the government policy of ``prior approval'' of prices
(i.e., price controls) ended in 1981, and that applicable ``post-price
change'' reporting requirements for cold-rolled products were
terminated in 1990 and for galvanized products in 1986. Such
requirements, Dongbu and Union argue, never applied to colored products
or any other subject merchandise. Furthermore, they argue that even
these previously terminated reporting requirements did not involve
``control'' or influence over their private pricing decisions, but
actually went no further than the reporting and monitoring of price
data. Similarly, POSCO argues that the only subject merchandise for
which it was required to report prices were for cold-rolled sheet and
hot-dipped
[[Page 18409]]
galvanized (``GI'') coil, and that even the reporting requirement for
these products was terminated in 1981.
Second, POSCO argues that there is ``substantial record proof'' to
demonstrate that the government of Korea does not in fact control
prices. POSCO cites in support the September 18, 1996, Memorandum from
Steve Bezirganian and Robin Gray to the Files (``Korea sales
verification report''). This report notes that the 1995-1996 Korean
Government Economic Plans make no reference to any purported plans by
the Korean government for steel prices. The verification report also
discusses documentation from the Korean Ministry of Finance reviewing
the history of price monitoring. That discussion, POSCO argues,
indicates that there were no price controls on subject merchandise in
place during the POR. POSCO argues that the Department's extensive
verification of the issue must serve as the core of the Department's
analysis of the issue.
Third, POSCO cites to the verification reports of Korean customers
and of Hanbo Steel as evidence that the Korean government does not
control steel prices. The Customer verification report, for instance,
states, ``regarding government influences in the prices of steel
products, company A stated it is not aware of any involvement by the
government in prices set by domestic suppliers.'' Furthermore,
according to the verification report, representatives from Hanbo Steel
reported that, ``at one time they did report prices to the government
for long products, but the prices were not subject to government
approval.''
Fourth, POSCO cites to documentation written by the government of
Korea and submitted to the record of this review as evidence that the
government of Korea does not control prices. In submissions to USTR on
June 23, 1995 and July 7, 1995, the Korean government stated that it
had repealed all laws and regulations imposing any price reporting or
monitoring requirements in the Korean market. More recently, the Korean
Minister of Trade and Industry filed an official submission with USTR
on October 22, 1996 which states that the government of Korea ``had no
role or input in POSCO's pricing decisions,'' and that the government
of Korea does not control prices for hot-rolled coil from mini-mills,
or any other type of steel in the Korean market. According to POSCO,
these statements alone, submitted in the context of the Section 301
consultation mechanism, should be the end of the matter.
Finally, POSCO cites an investment report concerning POSCO prepared
by the Hannuri Salomon Securities Co., Ltd. According to POSCO, the
Hannuri Salomon report conclusively states that ``the Korean
government's direct control of domestic steel prices ended in March
1982. Thereafter, the government has not participated in POSCO's
pricing decisions.''
To support their affirmative argument that home-market prices are
based on free market competition, and are thus not subject to
government control, all respondents first explain that their relatively
stable home-market prices, which petitioners cite as a demonstration of
government control, are actually a function of their long-term pricing
strategies. Dongbu and Union explain that their strategy is to ensure
long-term growth of their companies by maintaining a loyal and healthy
domestic customer base and a consistently high volume of domestic
sales. Similarly, POSCO states that its strategy is to maintain a
stable, steady, and loyal customer base and high capacity utilization
rates. Because of these pricing strategies, all three respondents state
that they resist any major revisions to their price schedules.
Furthermore, all three respondents argue that, despite the
stability of their home-market prices, there is free market competition
in the Korean market, and that evidence of this competition is on the
record of this review. To support this argument, respondents cite to
their discounts, varying credit terms, and adjustments in freight
terms. These variations in sales terms, they argue, are clear evidence
of price competition. Therefore, based on the alleged evidence of price
competition, Dongbu and Union ask, ``If, in fact, prices in the Korean
market were repressed by the alleged government price controls, what
incentive would there be for the Korean respondents to provide any
discounts, much less [ * * * ], extended credit terms, and freight
discounts?'' (Emphasis in original.) They argue that the existence of
discounts and other concessions is compelling and dispositive evidence
that prices in the Korean market are competitively set, and should be
determinative of the issue.
In addition to seeking to establish that there is evidence of price
competition on the record, respondents also seek to rebut petitioners'
arguments purporting to show the contrary. First, respondents argue
that petitioners are mistaken in stating that prices of the subject
merchandise in Korea remained flat and coincident from 1991 through
1995. Dongbu and Union state that in fact they raised their domestic
prices in March 1995 in response to market conditions; POSCO states
that for the same reason (and because Dongbu and Union had raised their
prices) it raised its domestic prices in April 1995. POSCO argues
further that the Department verified through examination of internal
POSCO documentation that POSCO raised its prices because of changing
market conditions. POSCO theorizes that petitioners chose not to
discuss this price increase because it contradicted their theories.
Moreover, all respondents find it significant that there is no evidence
on the record that the government of Korea was in any way involved in
the price increase that occurred in March and April 1995, which was,
they state, the first significant increase in list prices for the
subject merchandise in four years.
Second, regarding petitioners' argument that their pricing policies
are not consistent with oligopolistic behavior because their domestic
prices are low, Dongbu and Union argue that the petitioners' argument
ignores long-term trends, and that the Department verified that over
the period 1991-1994 Dongbu and Union in fact maintained stable high
domestic prices for subject merchandise relative to their export
prices. Regarding petitioners' argument that what is at work here is an
oligopoly dominated by a government-owned entity (POSCO) and dedicated
to imposing government-mandated price disciplines on much smaller
entities (Dongbu and Union), POSCO argues that government officials
play no role in POSCO's pricing policies. It states that no government
officials were on POSCO's board of directors, the government did not
appoint the chairman of the board, and no government officials had
access to POSCO's pricing data. POSCO, it argues, is managed and
operated independently of the government. POSCO states too that the
Department's verification report noted no discrepancies concerning any
of these key issues.
Third, regarding petitioners' argument that the existence of
discounts is irrelevant because the petitioners are alleging a
government-imposed ceiling, and not floor, POSCO argues that if the
government of Korea did control a ceiling on prices then, as profit
maximizers, POSCO and other Korean respondents would bump right up
against that price ceiling and would not discount off of it in order to
meet competition and short-term market conditions. Regarding
petitioners' argument that the effect of the discounts was minimal,
Dongbu and Union argue that competition does not occur in the
[[Page 18410]]
aggregate, but in terms of individual customers (for whom discounts
clearly do matter), and that the discounts clearly contributed to the
statistical variation in the Korean market.
Fourth, regarding petitioners' argument that the respondents'
credit terms are irrelevant because the respondents maintain an open
payment system and are unable to link payments to specific sales,
Dongbu and Union argue that because customers usually pay by promissory
note, they can easily adjust the payment period by reducing or
increasing the number of days for which they will accept the promissory
note. Thus, they argue, while payment occurs on a revolving basis, the
average credit period can be and is altered, as the Department
verified. With respect to the same argument, POSCO argues that the fact
that it did not track payment terms in its accounting records on a
transaction-specific basis during the POR does not mean that POSCO did
not alter those same credit terms during the period 1991-1995. Rather,
it means only that POSCO cannot track those changes and credit terms on
specific sales after the fact from its computerized database.
Fifth, regarding petitioners' argument that the effect of the
varying credit terms is statistically insignificant, Dongbu and Union
argue that petitioners' argument misses the point. They argue that
these varying credit terms are only one of several pieces of an overall
policy that, when used together, have an appreciable effect on the
companies' ability to engage in significant price competition.
Sixth, regarding petitioners' argument that varying freight terms
did not establish varying effective prices, Dongbu argues that
petitioners again miss the point. They argue that freight equalization
exists solely because there is competition in the market. Customer-
specific ``discounts'' would not exist in a market where prices are
fixed and established at repressed levels because the suppliers would
have no incentive to incur any freight expense.
To support their negative arguments that petitioners have provided
no evidence that suggests that there are government price controls of
subject merchandise, respondents attack individually the arguments that
petitioners set forth that purportedly substantiate that there are
government price controls of the subject merchandise.
First, respondents argue that petitioners are incorrect in stating
that on February 7, 1994 the government of Korea decontrolled prices.
They argue that what happened on February 7, 1994 was that the price
reporting requirements for hot-rolled coil (which they allege is non-
subject merchandise) were eliminated. Dongbu and Union argue that the
elimination of this reporting requirement was a non-event for producers
of the subject merchandise, and that this explains why prices did not
change as a result of the elimination of the reporting requirement.
POSCO argues that the fact that prices remained level after the lifting
of the reporting requirements actually confirms that those reporting
requirements had no impact on POSCO's or the other Korean respondents'
prices in the first place.
Second, respondents attack the reliability of petitioners' many
``independent third-party sources.'' Dongbu and Union argue that this
``evidence'' has been superseded by the Department's findings at
verification. These findings include, they argue, the termination of
the price-monitoring system. Similarly, POSCO argues that for the
Department to ignore its own verification findings (which, they argue,
demonstrate that much of the information petitioners submitted on this
issue is incorrect ) and to instead rely on third-party press accounts
would totally negate the integrity and importance of the Department's
own verification process. Furthermore, Dongbu and Union argue that the
petitioners have focused exclusively on those statements in the
``third-party sources'' which support their interpretation, and ignored
statements contained therein that would permit an alternative
interpretation. As an example, they cite petitioners' use of the BZW
Report. Petitioners use this report to support their contention that
there is government control of pricing in Korea. However, Dongbu and
Union point out, petitioners ignore the statement in the report that
``POSCO does not keep its domestic prices and local export prices lower
than international prices any more * * * . Indeed, domestic and local
export prices exceeded international export prices in late 1991 and had
remained at higher levels until mid 1994.'' Thus, Dongbu and Union
argue, the BZW Report does not support petitioners' central contention
that the alleged price controls have kept domestic prices low.
Additionally, POSCO argues that the ``third-party sources'' are
speculative, outdated, and largely irrelevant. It argues that the bulk
of the sources consist merely of third-hand references to outdated
materials concerning non-subject merchandise or, more commonly, only
the Korean economy generally and not the steel industry at all. These
reports, POSCO argues, do not constitute evidence, much less
``convincing evidence,'' that the government of Korea controls prices
for subject merchandise in the Korean market.
Third, POSCO argues that petitioners' argument with respect to the
KOSA 1995 yearbook is invalid. It argues that the Department's
translator determined that there was no reference to price controls in
the KOSA report. The Dongbu verification report, POSCO argues, states
that the quotes from the KOSA report upon which the petitioners rely
were mistranslated.
Fourth, POSCO argues that the Economic Planning Board's requests
for cooperation in the price stabilization effort are not evidence of
government control, but merely hortatory language equivalent to the
standard exhortations that governments make in nearly all countries.
Fifth, respondents argue that the government of Korea's October 9,
1996 press release does not provide evidence of government price
controls on subject merchandise. They point out that the press release
concerned hot-rolled coil, not subject merchandise. POSCO further
argues that the press release concerns only hot-rolled coil produced at
its mini-mill, and not hot-rolled coil produced at its integrated
facilities. In light of the fact that the hot-rolled coil produced at
the mini-mill represents a miniscule amount of total hot-rolled coil
production, POSCO argues, the government would surely have required a
reduction in prices of hot-rolled coil produced at the integrated
facilities if it actually intended to control prices. Moreover, POSCO
argues that the press release did not even say that the government had
any role in POSCO's pricing decision regarding the merchandise in
question; it simply said that the pricing decision was a positive
development. If the government considered POSCO's decision to be an
``official act,'' respondents argue, this only reflects the fact that
all governments seek to take credit for positive events in which they
were not involved. Finally, respondents argue that at the POSCO
verification the Department examined various internal documents
concerning POSCO's pricing decision, and that none of those documents
indicate any government involvement in the decision.
Sixth, respondents argue that petitioners' arguments regarding
Hanbo's Offering Circular are invalid. They point out that at the Hanbo
verification Department officials interviewed and discussed the
Offering Circular at length with Hanbo officials, and that they
informed Department
[[Page 18411]]
officials that the statements in the Offering Circular were incorrect.
Furthermore, respondents argue, the verification report does not
discredit or undercut the validity of Hanbo's statements at the
verification. Additionally, Dongbu and Union argue that the Offering
Circular is irrelevant because Hanbo was not then and is not now a
producer of the subject merchandise. Moreover, they argue that much
more telling than the Offering Circular is information in the Hanbo
verification report indicating that Hanbo's hot coil prices are based
on competitive market conditions.
Seventh, POSCO argues that no weight should be given to the article
in the Korea Herald according to which leading Korean steel makers, in
a meeting with the Minister of Trade, Industry, and Energy requested
the lowering of domestic hot-coil prices. It argues that at
verification it presented to Department verifiers more current and more
detailed documentation which demonstrates that newspaper accounts of
that meeting relied on by petitioners were misplaced and inaccurate.
Eighth, POSCO argues that petitioners' speculations as to what
possible indirect mechanisms could be used by the Korean government to
possibly control prices do not constitute evidence of price control. In
fact, POSCO argues, petitioners themselves acknowledge that they have
not identified any mechanisms which are in fact used to control prices.
Regarding petitioners' use of verification exhibit 85-E, POSCO states
that petitioners have conveniently ignored the plain language of the
Department's verification report, which states that, ``in reviewing the
plans we found nothing that specifically referred to plans by the
Korean government for steel prices.''
Finally, respondents argue that the evidentiary burden of proof
placed upon the petitioners is extremely high. They must show,
respondents argue, by ``convincing evidence'' that the home market is
not viable because the government of Korea controlled the prices of
subject merchandise in the Korean market ``to such an extent that home-
market prices cannot be considered to be competitively set.'' SAA at
152. Respondents argue that, taken together, the ``evidence''
petitioners have produced does not come close to meeting that burden.
Dongbu and Union argue that even if there were a ``price ceiling'' in
the home market, the existence of that ceiling does not nearly meet the
standard in the SAA for government control of prices to the extent that
prices cannot be considered to be competitively set. Because
petitioners have failed to meet their burden, respondents argue, their
contention should be rejected.
DOC Position. We disagree with petitioners' contention that the
particular market situation in the exporting country, Korea, does not
permit a proper comparison with EP and CEP. Although petitioners have
provided evidence indicative of a not insubstantial level of government
interest, and even involvement, in the day-to-day operations of the
Korean steel industry, including domestic price levels, the record
nevertheless does not show that the Korean government controls domestic
steel prices to such an extent that home-market prices cannot be
considered to be competitively set.
Although petitioners have alleged that controls existed over
domestic steel prices in Korea until February 7, 1994, information
collected at verification shows that the Korean government's policy of
``prior approval'' over domestic steel prices ended in 1981. See, e.g.,
Union sales verification exhibits 88 and 89. These exhibits also show
that, after 1981, Union's price-reporting requirements were terminated
for galvanized (i.e, corrosion-resistant) products in 1986 and for
cold-rolled products in 1990. POSCO's general reporting requirements
for cold-rolled products were eliminated in 1981, and Dongbu's
reporting requirements for these products were eliminated in April
1993. Because home-market steel prices were flat both before and after
the reporting requirements were terminated, we cannot conclude that
those requirements had any impact on domestic prices. Furthermore,
statements made in the supplemental verification reports on the issue
of home-market viability by Hanbo and two other POSCO customers support
the conclusion that government price controls do not exist.
Additionally, the Hannuri Salomon report provided by POSCO at
verification and cited by petitioners as providing evidence of Korean
government control over domestic steel prices states that the Korean
government's direct control of domestic steel prices ended in March
1982, and that since that date the government has not participated in
POSCO's pricing decisions. See POSCO home-market sales verification
exhibit 85E at 21.
The record also contains a number of official Korean government
documents which deny the existence of government control over domestic
steel prices during the POR. The sales verification report for POSCO
notes that the 1995-1996 Korean Government Economic Plans make no
reference to any plans by the Korean government with respect to steel
prices. Documentation from the Korean Ministry of Finance indicated
that there were no price controls on the subject merchandise during the
POR. See POSCO sales verification report at 21. The Korean government,
in formal submissions made to USTR on June 23, 1995, and to the Section
301 committee on July 7, 1995, stated that all laws and regulations
requiring any price reporting or monitoring of domestic steel prices
had been repealed in stages between 1981 and February 1994, i.e.,
before the POR. More recently, on October 22, 1996, the Korean Ministry
of Trade and Industry officially notified the USTR that the Korean
government had no role or input in POSCO's pricing decisions, and that
the Korean government does not control the prices of any type of steel
in the Korean market.
With regard to the press articles, academic treatises, and reports
from financial institutions submitted by petitioners, we believe that
most of that documentation, while perhaps accurate at the time it was
written, has become somewhat outdated. Further, petitioners omitted to
cite passage in the BZW Report stating that ``POSCO does not keep its
domestic prices and local export prices lower than international prices
any more * * *. Indeed, domestic and local export prices exceeded
international export prices in late 1991 and had remained at higher
levels until mid 1994.''
With respect to the issue of whether the KOSA report confirms the
existence of government ``price controls,'' as alleged by petitioners,
our translator confirmed that this report mentioned no such controls.
We stand by the bona fides and professional qualifications of its
translators, who are hired through the auspices, and with the
recommendation, of the United Stares Embassy in Korea. See Dongbu sales
verification report at 52.
While petitioners have cited an article in the Korea Herald
according to which leading Korean steelmakers ``requested government
intervention in price adjustments,'' more current and detailed
documentation submitted at verification casts doubt on the
verisimilitude of this account. In particular, the industry periodical
Metal Bulletin, published in the United Kingdom, noted on May 30, 1996
that the Korean Minister of Trade, Industry, and Energy ``maintained
that the Korean government has no say in the pricing policies of
private companies * * *. The Government has no right to decide
prices.''
With respect to petitioners' allegation that the press release of
October 9, 1996
[[Page 18412]]
by the Korean Ministry of Finance and Economy demonstrates government
control over domestic steel prices, the Department agrees with POSCO
that (1) the press release does not explicitly or even implicitly refer
to government involvement in POSCO's price increase, but only reports a
price increase and comments on it as a positive development; (2) the
press release concerns not the subject merchandise, but hot-rolled coil
(``HRC'), its major feedstock; and (3) the price increase in the press
release in question concerns only HRC produced at POSCO's mini-mill,
and not HRC produced at its integrated steel mills, which represents
the vast majority of POSCO's HRC production.
Petitioners have claimed that a sentence in a February 1994 notice
by the Economic Planning Board (``EPB'') terminating price reporting
requirements, in which the EPB hopes that POSCO will cooperate in
efforts to foster the country's general economic development and price
stabilization, is evidence of continued government price controls. At
verification we examined POSCO's submissions to the EPB and found no
evidence of price controls during the POR, or evidence of price
monitoring after February 1994. Governments, including our own,
routinely exhort businesses to cooperate with their macroeconomic and
public policy goals, which often include fighting inflation. We agree
with respondents that hortatory language of this kind does not
constitute evidence of formal price controls.
Petitioners have argued that Hanbo's Offering Circular states that
the ex-factory prices of Hanbo's steel products ``are, in practice,
determined by the Korean government, which approves manufacturers''
filed prices having regard to average costs in the Korean steel
industry, but without reference to the prices of products in
international markets.'' Hanbo, however, did not then, and does not
now, manufacture the subject merchandise. Petitioners also ignore
information in the Hanbo supplemental verification report that Hanbo's
domestic HRC prices were competitively set. Thus, on the issue of
government control, the record is somewhat mixed. Further, even if we
assume that there is some level of government control, we must have
substantial evidence that government control is so extensive that
prices are not competitively set. In the absence of such evidence, we
cannot find the Korean home market not to be viable.
By contrast, there is positive evidence on the record indicating
that domestic Korean steel prices were competitively set during the
POR. First, base (or list) prices were raised during the POR, in March
1995 by Dongbu and Union and in April 1995 by POSCO. During
verification, we conducted a thorough and exhaustive examination of
POSCO's internal records, including correspondence files, and
ascertained from this review that POSCO had raised its list prices on
account of changing market conditions; there was no evidence suggesting
that there was any government interference or involvement in this price
change. Second, record evidence shows that these list prices were
subject to discounts and adjustments for credit and freight, which
caused the effective price charged to customers to vary from customer
to customer. Although petitioners have claimed that these discounts are
statistically insignificant, we agree with respondents that discounts,
credit adjustments, and freight equalization taken together appreciably
affect the companies' ability to engage in significant price
competition. Further, the fact that steel prices remained flat
throughout the POR is not inconsistent with normal, expected price
trends in an oligopolistic market such as the Korean steel market.
Therefore, evidence of flat prices per se is insufficient to establish
that prices are not competitively set.
Having reviewed and weighed the facts on the record, we find that,
while there is some evidence of a substantial level of Korean
government involvement in domestic steel pricing, there is not
``convincing evidence'' that the Korean government controlled domestic
steel prices ``to such an extent that home market prices cannot be
considered to be competitively set.'' SAA at 152. We determine,
therefore, that the Korean home market is viable for purposes of the
instant proceedings.
Comment 2. Petitioners allege that Dongbu and Union are affiliated
with POSCO based on Dongbu and Union's dependence on POSCO as their
primary supplier of HRC, the primary input for the subject merchandise.
Petitioners also allege that Union and POSCO are affiliated based on
certain corporate and sales relationships between the two companies.
Petitioners contest the Department's preliminary determination that
Dongbu and Union are not affiliated with POSCO and suggest that the
Department acted arbitrarily and unreasonably by avoiding the issue
rather than addressing its merits. The Department, petitioners argue,
interpreted much too narrowly the statutory term ``control.''
Petitioners contend that the Department, instead of focusing, as the
statute requires, on whether POSCO was in a position to exercise
restraint or direction over the activities of Dongbu and Union, looked
instead for concrete evidence of actual dominance of POSCO over Dongbu
and Union. In doing so, say petitioners, the Department effectively
nullified the new definition of affiliated parties by ``administrative
fiat.'' Petitioners also question the Department's finding in the
preliminary results that the record at that point in time provided an
inadequate basis to make an affirmative determination of affiliation
and that it was too late in these proceedings to solicit additional
factual information. Not only, petitioners claim, did they make their
allegation of affiliation at an early stage in these proceedings
(shortly after the initial questionnaire responses were submitted), but
the Department explored this issue in great detail in supplemental
questionnaires and during verification. Even more troubling, according
to petitioners, is the fact that the Department, at the same time that
it indicated it was too late to obtain additional information on
affiliation, afforded the parties an opportunity to provide additional
factual information concerning the viability of the Korean market.
This, petitioners submit, demonstrates that the Department's
preliminary finding on affiliation was an arbitrary ``ruse.''
If, however, the Department continues to adopt its exceedingly
narrow interpretation of the statute's affiliation provision in the
final review results, petitioners contend the Department must conclude
that Pohang Coated Steel Co., Ltd. (``POCOS'') is unaffiliated with
company AKO. In its response to Section A of the Department's
antidumping questionnaire, POSCO initially indicated that it was
affiliated with AKO and AKO's U.S. affiliate, company BUS. (AKO is
located in Korea, and BUS is located in the United States; their
identities are proprietary information. For an explanation of these
acronyms, please refer to the memorandum from Alain Letort to the
Files, dated April 2, 1997.) POSCO subsequently retracted and clarified
this statement by pointing out it owns 50 percent of the equity in
POCOS, 49.99 percent being owned by Dongkuk Steel Mill (``DSM'') and
the remaining 0.01 percent by DSM's president personally. DSM is, in
turn, affiliated with AKO and BUS through stock ownership. Therefore,
using the Department's definition of affiliated parties, POSCO stated
that POCOS was indirectly affiliated with AKO and BUS through stock
ownership. Contesting POSCO's
[[Page 18413]]
assertions, petitioners assert that, since POCOS holds no equity
ownership in DSM and DSM has do direct equity holding in AKO, POCOS
cannot be deemed to hold any equity ownership in AKO or BUS.
Petitioners cite Union, which asserted on the record that under
Korean law, POSCO's 50 percent interest in POCOS puts it in control of
the latter. POCOS is included in POSCO's consolidated financial
statements, not DSM's. POSCO, not DSM, appoints the president of POCOS.
Petitioners claim that POSCO never challenged Union's assertion.
Besides, petitioners point out, POSCO and POCOS are collapsed for
purposes of these proceedings, since the Department determined that the
relationship between the two companies is so intimate as to present the
strong possibility of price and/or production manipulation. While
petitioners state their firm belief that DSM also ``controls'' POCOS as
that term is defined in the statute, they also affirm that, if the
Department retains its unreasonably narrow interpretation of that term,
it should conclude that it is impossible for two entities (POSCO and
DSM) simultaneously and separately to exercise actual ``control,''
i.e., dominance, over POCOS. The Department should also rule that POCOS
neither exercises actual ``control'' (i.e., dominance) over AKO nor is
affiliated with it, petitioners urge.
If the Department so finds, petitioners contend, it must base
POCOS' U.S. price on the price at which it sells the subject
merchandise to AKO. This is because POCOS' U.S. sales are made up of
several ``back-to-back'' transactions: POCOS sells the merchandise to
AKO, who resells it to BUS, who in turn sells the merchandise to the
U.S. customer. According to petitioners, where a manufacturer makes
export sales through an unaffiliated trading company, the Department's
practice is to determine which transactions are U.S. sales for
reporting purposes on the basis of whether the manufacturer knows the
ultimate destination of the merchandise. If the manufacturer does not
know the ultimate destination of the merchandise, the Department
determines U.S. price on the basis of the unaffiliated trading
company's sale to the United States. If the manufacturer does know the
destination, then the manufacturer's sale to the unaffiliated trading
company becomes the basis for the U.S. price.
Petitioners assert that record evidence shows POCOS is aware of the
ultimate destination of the merchandise, since POCOS' order entry sheet
shows the name and address of the U.S. customer at the time of the sale
from POCOS to AKO. Consequently, petitioners say, if the Department
rules that POCOS is unaffiliated with AKO, it must determine U.S. price
on the basis of POCOS' selling price to AKO.
With regard to the issue of whether or not Dongbu and Union are
affiliated with POSCO because of their supply relationships,
petitioners contend that the critical point is whether the supplier-
buyer relationship is such that the supplier is in a position to
exercise restraint or direction over the other. Petitioners claim that,
in its preliminary review results, the Department used a definition of
``control'' that is closer to the common meaning of that term (i.e.,
actual dominance) than to the statutory definition of the term. In
essence, petitioners affirm, the Department has adopted the
interpretation, advocated by Dongbu and Union and contrary to the
statute, that one party must control the commercial operations of the
other.
According to petitioners, the following factors place POSCO in a
position to exercise restraint or direction over Dongbu and Union and
make them ``reliant'' upon POSCO: (1) The sheer weight of POSCO--in
comparison with other sources of supply--as a supplier to Dongbu and
Union; (2) the percentage of Dongbu's and Union's cost of manufacturing
(``COM'') for which POSCO-sourced HRC accounts; and (3) the absence,
due to comparatively higher prices of imported HRC, of realistic
alternate sources of supply for Dongbu and Union. Clearly, say
petitioners, if POSCO were unilaterally to curtail its shipments to
Dongbu and Union, or increase its prices, it would disrupt their
production schedules and commercial relationships and create hardship
for Dongbu and Union. Indeed, petitioners claim, under generally
accepted accounting principles (``GAAP'') in the United States,
financial statement disclosure of a company's concentration with a
particular supplier is required because it is assumed to create the
risk of ``severe impact * * * from changes in the availability to the
entity of a resource.'' See American Institute of Certified Public
Accountants (``AICPA''), Statement of Position 94-6, ``Disclosure of
Certain Significant Risks and Uncertainties'' (December 30, 1994)
(``AICPA 94-6'') at 8. Petitioners dismiss Union's contention that its
purchases from POSCO would not meet the disclosure requirements of
AICPA 94-6 because it purchases a standard grade of raw material that
is readily available from a number of different suppliers, meaning that
its purchases fall into the category described in AICPA's
``Illustrative Disclosure B'' (``ID-B''). Petitioners retort that
Union's reference to ID-B is completely inapposite, because it
discusses a commodity product (wheat), which is entirely fungible
between various sources of supply, while HRC, Union's feedstock, has
different specifications, grades, metallurgical and chemical contents,
and properties; vendors of HRC must be located and qualified. Indeed,
petitioners assert, respondents vigorously argued before the U.S.
International Trade Commission (``ITC'') that steel products were not
fungible or substitutable.
According to petitioners, the verification exhibits directly
confirm the extent of POSCO's involvement with Dongbu and Union. The
Department, they claim, is highly unlikely to encounter circumstances
more demonstrative of ``control'' via a supply relationship than the
present situation.
Petitioners characterize respondents' claim that POSCO is a strong
competitor with Dongbu and Union in the same downstream market for the
subject merchandise as ``blatant exaggeration.'' Record evidence,
according to petitioners, suggests otherwise: one of the Department's
two supplemental verification reports on home-market viability
indicates that Dongbu and Union compete with POSCO for certain product
applications only, since in Korea only POSCO manufactures the full
spectrum of cold-rolled and corrosion-resistant carbon steel flat
products.
Petitioners contradict respondents' contention that they have
``complete and unfettered access'' to alternative sources of supply.
According to petitioners, Dongbu and Union statements on the record
that they continued to buy HRC from POSCO even when cheaper alternative
sources of supply were available ``because of the reliability of
supply, the convenience and familiarity, and other similar factors''
further demonstrates their reliance on POSCO.
Petitioners assert further that the relative proportion of Dongbu's
and Union's HRC purchases from POSCO and from sources other than POSCO
is more proof of their ``reliance'' upon POSCO.
Petitioners also argue that Dongbu's and Union's contentions that
there is no evidence of long-term supply contracts, joint ventures, or
other agreements between them and POSCO, and that they have no direct
or indirect involvement with POSCO's production, sales or distribution
activities beyond the purchase of HRC, are irrelevant and immaterial,
since neither the statute nor
[[Page 18414]]
the SAA requires the existence of the same in order to establish
affiliation on the basis of a supply relationship. Moreover, at least
with respect to Union, not only does there exist a joint venture
(POCOS) between POSCO and Union's controlling company (DSM), but Union
and POCOS--POSCO's subsidiary--share common sales channels.
None of the above ``facts'' cited by the respondents, according to
petitioners, alters the fact that POSCO was Dongbu's and Union's
dominant supplier of HRC during the POR and that imported HRC was
demonstrably dearer than the POSCO product during most of the POR.
Petitioners argue that the case cited by Dongbu and Union in
support of their contention that the Department rejected a claim for
affiliation on the basis of a close supply relationship--Notice of
Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Melamine Institutional Dinnerware
Products from Indonesia (61 FR 43333, 43335--August 22, 1996)
(``Melamine'')--is inapposite. In addition to the fact that the
Department's position in that case is only preliminary, the supply
relationship at issue in Melamine is easily distinguishable from, and
not even remotely akin to, the facts at issue in the instant case. In
Melamine, the Indonesian producer channeled 100 percent of its U.S.
sales through a single, unrelated U.S. importer. The U.S. importer was
just as free to purchase from other producers as the Indonesian
producer was to find another U.S. importer. In the instant case,
petitioners say, clearly Dongbu and Union had no realistic alternate
sources of supply due to the higher prices of imported HRC and the
absence of other sources within Korea.
Responding to Dongbu's and Union's assertions that, through the end
of 1994, imported HRC was cheaper, rather than dearer, if only their
highest-volume grade of HRC (i.e., SAE 1008) is taken into
consideration, petitioners claim that the aggregate figures in Dongbu's
cost verification exhibit 20 and Union's cost verification exhibit 24
are more reliable because they are more comprehensive. Respondents'
comparison of domestic and imported prices for grade SAE-1008 HRC is
misleading and inaccurate, petitioners argue, because (1) it focuses on
only one product out of many; (2) it compares home-market base prices
to import prices, ignoring the actual costs associated with coil
purchases; (3) it compares delivered domestic prices to import
purchases made on a f.o.b. basis, significantly understating the import
price (by the amount of ocean freight, brokerage and handling fees,
import duties, etc.); and (4) it is unclear whether the quarterly
prices cited by respondents are weight-averaged, as they ought to be.
Petitioners dismiss respondents' argument that historical trends
show that, on average, during the 1991-1995 period, import prices for
HRC were lower than POSCO's, and that disregarding historical trends
would allow temporary market fluctuations to be a dispositive factor in
any affiliation decision by the Department, contrary to the
Department's proposed regulations. See Notice of Proposed Rulemaking
and Request for Public Comment, 61 FR 7308, 7310 (February 27, 1996)
(``Proposed Regulations''). Not only is historical data distortive
because it is based on a comparison of base rather actual prices,
petitioners contend, but the fact that import prices for HRC were lower
in periods preceding the POR only demonstrates that Dongbu and Union
did not turn to alternate suppliers when imports were cheaper.
Petitioners contend that Dongbu's and Union's inability and/or
reluctance to turn to alternative sources of supply when POSCO's HRC
prices were higher than imported material signifies that the dependence
and reliance of those companies on POSCO as a supplier is not driven by
``temporary market power, created by variations in supply and demand
conditions * * *'' Ibid. at 7310. That Dongbu and Union did not turn to
alternative sources means, according to petitioners, that their
dependence on POSCO as a supplier is substantial and long-term, and
that the supply relationship between POSCO on the one hand and Dongbu
and Union on the other is significant and not easily replaced.'' Ibid.
at 7310.
In addition to their affiliation as a result of their close supply
relationship, petitioners claim that Union and POSCO are affiliated as
a result of other corporate and sales relationships. Petitioners argue
that the Department's preliminary finding that they failed to present
``any evidence of stock ownership or control'' between POSCO and Union
or POSCO and DSM, Union's controlling company, is incorrect. The
correct standard, according to petitioners, is not whether or not
actual control or dominance exists, but rather whether one party is in
a position to exercise restraint or direction over another party in
order to ``control'' that party.
It is petitioners' contention that POSCO is in just that position
vis-a-vis Union in view of the fact that:
POSCO holds a 50 percent equity interest in POCOS;
DSM owns a 49.99 percent equity interest in POCOS;
The remaining 0.01 percent of POCOS'' equity is held by
the son-in-law of Mr. Sang Tae Chang, chairman of the DSM group;
The Department has determined DSM to have, through the
Chang family, a controlling interest in Union;
The Department has determined the relationship between
Union and DSM to be so intimate that it collapsed Union with Dongkuk
Industries, Ltd. (``DKI''), another subsidiary of the Chang family and
DSM.
According to petitioners, the statute defines affiliated parties as
``[t]wo or more persons directly or indirectly controlling * * * any
person'' and ``[a]ny person who controls any other person and such
other person.'' Therefore, say petitioners, POSCO and DSM clearly
constitute affiliated parties inasmuch as they jointly ``control''
POCOS as a result of their joint venture. Petitioners contend further
that, because DSM and Union are essentially one entity since Union and
DKI were collapsed by virtue of their relationship with DSM, POSCO,
through its joint venture with DSM, is clearly in a position to
exercise restraint or direction over Union's activities.
Petitioners also argue that, because DSM and its president's son-
in-law jointly hold 50 percent interest in POCOS (i.e., as much as
POSCO), DSM is clearly in a position to exercise restraint or direction
over POCOS. Since Union and POCOS are ``[t]wo or more persons directly
or indirectly * * * controlled by * * * any person'' (in this case,
DSM), POCOS and Union are affiliated parties under the terms of the
statute. If POCOS is affiliated with Union, petitioners contend, the
realities of the marketplace dictate that POSCO must also be affiliated
with Union. Furthermore, they say, because POSCO has acknowledged that
POSCO, POCOS, and Pohang Steel Industries Co., Ltd. (``PSI'') are a
``single operating entity'' and have been collapsed by the Department,
any company affiliated with POCOS (e.g., Union) must also be considered
to be affiliated with POSCO. Petitioners contend that the implications
of collapsing POSCO and POCOS on the issue of POSCO's affiliation with
Union in no way alters the fact that POSCO and POCOS are affiliated
parties; therefore, the statutory tests that follow therefrom, such as
the ``major-input'' rule, continue to apply. Petitioners also contend
that collapsing only bears on the level of affiliation and the unusual
intimacy of the relationship
[[Page 18415]]
between the parties. Petitioners allege that by ignoring the unique
nature of the relationship between POSCO and POCOS and rigidly fixating
on the corporate forms of the companies, the Department has ignored
commercial reality.
Union, according to petitioners, has not provided any compelling
evidence or argument to rebut the information on the record
demonstrating affiliation between Union and POSCO through POCOS and
DSM, and merely ``pointed out'' at verification that POCOS is not
affiliated with Union. The fact that POSCO is in a position to exercise
``control'' over POCOS, petitioners say, does not necessarily entail
that DSM, with a 50 percent direct and indirect interest in POCOS
(through the son-in-law of DSM's president), is not also in a position
to do so. Petitioners are not advocating that Union is in a position to
control POCOS; rather, they are asserting that Union and POCOS are
affiliated because they are in the common control of DSM. Petitioners
agree that the mere affiliation of a party with another does not
necessarily entail that party's affiliation with all parties affiliated
with its affiliate. In this case, however, petitioners point out that
POSCO is not merely affiliated with POCOS--its relationship with POCOS
is so intimate that it is collapsed with POCOS and both companies are
treated as a single entity by the Department.
In addition to the corporate relationships between POSCO and Union,
petitioners allege that POSCO controls Union through shared U.S. sales
channels. Petitioners point out that:
BUS is the importer of record for Union in the United
States, and AKO purchases subject merchandise from Union in Korea; and
All of POCOS's (an entity collapsed with POSCO) U.S. sales
are made through AKO and BUS.
Petitioners allege that AKO and BUS provide a conduit for sharing
pricing and other sensitive information, which could be used to
manipulate transactions and allocate U.S. sales for the purpose of
reducing dumping margins. Petitioners aver that the fact that it is
POCOS and not POSCO that shares sales channels with Union does not
undermine POSCO's ability to exercise restraint or direction over
Union, because POSCO has control over POCOS and they are collapsed.
Petitioners contend that both POSCO and DSM have an incentive to
minimize POCOS' dumping liability since POCOS' financial statements are
fully consolidated with POSCO's and DSM is BUS's major shareholder. On
this basis of shared sales channels alone, petitioners argue, the
Department should conclude that POSCO and Union are affiliated.
In its preliminary results, the Department, according to
petitioners, concluded that Union and POSCO are unaffiliated by
considering separately each of the grounds presented by petitioners.
While petitioners believe that each basis for affiliation they have
argued demonstrates that POSCO and Union are affiliated, neither the
statute nor the SAA, they claim, require that the Department consider
each aspect of the relationship between Union and POSCO independently.
When all of the indicia--the supply relationship between POSCO and
Union, the joint venture relationship (i.e., POCOS) between POSCO and
DSM, the corporate relationships between Union and POSCO through POCOS
and DSM, the shared U.S. sales channels--are considered jointly,
petitioners believe the Department must find that POSCO is in a
position to exercise restraint or direction over Union and therefore
``controls'' Union within the meaning of the statute.
If the Department determines, as petitioners say it ought to, that
POSCO is affiliated with Dongbu and Union, in accordance with the
principle, set forth in section 773(f)(2) of the Act, that transactions
between affiliated parties must ``fairly reflect the amount usually
reflected in sales * * * in the market'', and that the price between
unaffiliated parties is the normal benchmark for market value, the
Department must compare the value of HRC purchased by Dongbu and Union
from POSCO with the value of HRC purchased from unaffiliated suppliers.
See 19 U.S.C. 1677b(f)(2). Such a comparison, in petitioners' view,
clearly indicates that Dongbu and Union do not purchase HRC from POSCO
at prices that can be deemed ``arm's-length.'' Verification exhibits on
the record show, according to petitioners, that HRC purchased by Dongbu
and Union from unaffiliated parties are substantially dearer than that
purchased from POSCO. Because the statute requires that input prices
must reflect fair market value, it is petitioners' view that the
Department, in calculating Dongbu's and Union's COM, must adjust upward
the value of the HRC Dongbu and Union purchased from POSCO to reflect
the value of HRC purchased from unaffiliated suppliers.
Respondents deny that either Dongbu or Union are affiliated with
POSCO. POSCO argues that petitioners' arguments merely repeat arguments
contained in their earlier submissions. Therefore, it argues, the
Department's September 6, 1996 memorandum to the file in which it
addressed the issue and determined that neither Dongbu nor Union were
related to POSCO, must stand. Dongbu and Union argue that the
conclusion contained in the September 6, 1996 memorandum was not, as
petitioners allege, arbitrary or unreasonable, but was instead the only
conclusion supported by evidence and the law.
In addition to citing the Department's prior determination on the
issue, respondents set forth their own arguments which, they believe,
demonstrate that the arguments petitioners set forth in their case
brief do not support the conclusion that Dongbu and Union are
affiliated with POSCO.
First, POSCO argues as a preliminary matter that the petitioners
are in error in charging that the Department applied the wrong standard
in the analysis reflected in the September 6, 1996 memorandum. It
argues that the standard the petitioners want the Department to apply
is at odds with the plain wording of the SAA. The petitioners, POSCO
argues, want the Department to read the standard in the SAA to find
only that two companies might be ``in a position'' to become reliant
upon the other through a buyer or supplier relationship. POSCO argues
that the SAA requires the Department to examine first if, through a
buyer or supplier relationship, ``the supplier or buyer becomes reliant
upon the other'' (emphasis added). Thus, POSCO argues, only if the
Department makes the initial finding that Dongbu and Union are reliant
upon POSCO could the Department conclude that the parties could be in a
position to exercise restraint or direction over the other. However,
POSCO argues, the record evidence here, as demonstrated by the
Department's September 6, 1996 memorandum, does not demonstrate
reliance.
Second, respondents argue that both Dongbu and Union purchase their
hot-rolled products from numerous sources, thus demonstrating that they
are not reliant upon POSCO. Dongbu and Union state that they have
``complete and unfettered'' access to numerous alternative supplies of
hot-rolled coil. Further, POSCO argues that the preamble to the
Proposed Regulation's definition of ``affiliated parties'' confirms
that the Department must find significant and actual indicia of
control. The preamble states that ``[b]usiness and economic reality
suggest that these relationships must be significant and not easily
replaced.'' See Proposed Regulations at 7310. Dongbu's and
[[Page 18416]]
Union's purchases from POSCO, POSCO argues, do not meet this standard.
Moreover, POSCO argues that petitioners' argument that Dongbu and
Union must have access to essentially identically-priced imports in
order not to be reliant on POSCO is incorrect. It argues that the
Department's analysis here must focus on whether POSCO as a supplier
can ``control'' Dongbu's and Union's activities. The fact that Dongbu
and Union can and do purchase significant quantities of imported hot-
rolled coil, POSCO argues, should end the analysis. Comparable pricing,
POSCO argues, is irrelevant.
Furthermore, Dongbu and Union argue that the record does not
support petitioners' claim that imports represent a prohibitively more
expensive alternative to hot-rolled coil purchased from POSCO. They
point out that the figures in Dongbu's cost verification exhibit 20 and
Union's cost verification exhibit 24 (upon which petitioners rely to
establish their argument) are aggregate purchase volumes and values,
and therefore do not account for product mix, differences in
specifications, grades, extras, and other similar factors. Furthermore,
Dongbu and Union argue that exhibit 96 of Dongbu's home-market sales
verification report and exhibit 99 of Union's sales verification report
show that import prices were lower than POSCO's prices for hot-rolled
steel in 15 out of 23 quarters from 1991 through the third quarter of
1996. Moreover, Dongbu and Union argue, price is only one criterion in
making purchasing decisions. Other criteria include quality of the
steel, long-standing relationships, lead-times, and technical support.
If comparative purchase factors frequently have favored POSCO, the fact
remains that there are literally dozens of alternative sources for the
same material located outside of Korea.
Third, respondents argue that petitioners are in error in their
allegations regarding the prices at which POSCO sells to Dongbu and
Union. Dongbu and Union argue that there is no evidence on the record
that POSCO charges Dongbu and Union any more or less for its hot-rolled
coil than it charges other domestic customers. POSCO argues that
petitioners are incorrect in stating that it sold to Dongbu and Union
at less than the cost of production. It argues that the figures upon
which petitioners relied in making this allegation are not indicative
of the costs for the specific types of coil sold to Dongbu and Union.
When the actual costs are used, POSCO argues, it becomes clear that its
sales to Dongbu and Union were above cost. POSCO also notes that
petitioners' calculation included general and administrative expenses
(``G&A'') as revised by the Department, which POSCO believes to be an
error.
Fourth, POSCO and Union argue that the Department's precedent
confirms that the parties are not affiliated. As support for this
argument, POSCO cites Melamine, in which the Department concluded that
no buyer-supplier relationship existed so as to constitute affiliation
even though the supplier made 100 percent of its U.S. sales through a
sole U.S. importer. The Department, POSCO states, considered the
following factors: (1) There was no corporate relationship between the
two companies; (2) the buyer was free to purchase, and did purchase,
from other suppliers; and (3) the supplier was free to sell to other
buyers. POSCO argues that these three factors are all satisfied here.
It also argues that the petitioners' attempt to distinguish this case
(based on whether subject merchandise or an input was being bought) is
irrelevant to the reliance issue facing the Department, and has no
basis in either the SAA or the Department's precedent.
Furthermore, POSCO and Union argue that Melamine demonstrates that
it is not enough to merely point out, as petitioners have, that a
supplier relationship exists. For the parties to be considered
affiliated, they argue, the evidence must show that the relationship is
of a kind that can realistically be characterized as involving
``control'' of one party over the commercial operations of another.
With respect to the issue of whether Union and POSCO are affiliated
through indirect stock ownership, respondents argue that petitioners'
demonstration that Union is related to POSCO based on ``indirect
corporate relationships'' is fallacious. POSCO bases this argument on
two factors. First, there is no stock ownership between POSCO and DSM,
or between POSCO and Union. They point out that the Department's
September 6, 1996 memorandum made mention of this very fact. Second,
POSCO and Union, as well as POSCO and DSM, are completely independent
entities. POSCO operates independently from both DSM and Union. There
is thus, POSCO argues, no ``control'' of any kind between POSCO and
DSM, or between POSCO and Union.
Furthermore, Union argues that the petitioners, in referencing the
affiliated persons definition, have incorrectly claimed that there is a
specific statutory basis for finding POSCO and Union to be affiliated.
Section 771(33)(E) of the Act states that an affiliated person is
``[a]ny person directly or indirectly owning, controlling, or holding
with power to vote 5 percent or more of the outstanding voting stock or
shares of any organization and such organization.'' It is
uncontradicted, Union argues, that neither POSCO nor Union, directly or
indirectly, own or control five percent or more of any of the other
party's securities. Thus, they argue, the petitioners' claim under this
provision fails. The second provision that the petitioners' have
referenced, subsection (F), reads that an affiliated party is ``[t]wo
or more persons directly or indirectly controlling, controlled by, or
under common control with, any person.'' According to Union, Union and
POSCO do not directly or indirectly control, are not controlled by, and
are not under common control with any party. The third provision that
the petitioners have referenced, subsection (G), states that an
affiliated party is ``[a]ny person who controls any other person and
such other person.'' Union argues that nothing in the record indicates
that either Union or POSCO is in a position to control, either legally
or operationally, the other party. In fact, it shows the opposite. It
shows, for instance, that POSCO and Union strongly compete in the sale
of subject merchandise in both the home and U.S. markets.
Finally, POSCO argues that the Department should reject
petitioners' argument that if the Department adopts a narrow reading of
the statute's affiliation provision it should also determine that POCOS
is not affiliated with AKO and BUS. It argues that under the statute
POCOS and AKO/BUS are clearly affiliated through indirect stock
ownership with DSM. It first explains that POCOS is jointly owned by
POSCO and DSM, with POSCO holding a 50 percent ownership interest and
DSM owning 49.99 percent. Under section 771(33)(F) of the Act,
affiliated parties include ``[t]wo or more persons directly or
indirectly controlled by * * * any person.'' Under this definition
POCOS and AKO/BUS are clearly affiliated, POSCO argues. Neither the
Department's precedent nor the plain language of the statute requires
that DSM own more than 50 percent of POCOS or be the only party in a
position to control POCOS for the statutory definition of affiliated
parties to apply. Rather, POSCO argues, the statute requires only that
DSM exercise ``control'' over POCOS. The fact that DSM can ``control''
POCOS, POSCO argues, is supported by the fact that a separate statutory
definition of affiliation (in section 771(33)(E) of the Act) provides
that two parties are
[[Page 18417]]
affiliated where one party holds a five percent interest in the other.
It argues that the fact that in a parallel provision of the statute a
mere 5 percent ownership interest can constitute control confirms that
an ownership interest of 50 percent can constitute ``control'' over two
parties under subsection (G). Furthermore, POSCO points out that the
Department, in current countervailing duty cases under the new law,
explicitly states in its questionnaire that if party A holds at least a
twenty percent interest in parties B and C, then parties B and C are
deemed affiliated.
Moreover, POSCO argues that apart from the plain language of the
statute and consistent Department practice, petitioners themselves have
acknowledged that the fact that POCOS is collapsed with POSCO for
dumping margin calculations purposes does not mean that DSM also cannot
exercise sufficient control over POCOS such that POCOS and AKO can be
deemed affiliated parties. To support this argument, POSCO points to
petitioners' joint case brief as an example, where petitioners state
explicitly (at 78) that ``petitioners firmly believe * * * that DSM
also ``controls'' POCOS as that term is defined in the statute.'' POSCO
also points to petitioners' statement in its joint case brief (at 104)
where petitioners state that both DSM and POSCO can ``control'' POCOS
for the purposes of the statute.
Finally, POSCO argues that in addition to the fact that AKO/BUS are
affiliated through DSM, they are also affiliated through POCOS's
operational control over AKO's selling activities. POSCO explains that
AKO has no independent authority to negotiate or set sales prices for
POCOS merchandise. Rather POCOS sets all of AKO's selling prices and
terms of sale. AKO only acts as a communications link, and all sales
and negotiation authority lie with POCOS. Under these circumstances,
POSCO argues, POCOS is clearly exercising operational control over
AKO's sales activities, and the parties are therefore affiliated.
DOC Position. We disagree with petitioners' contentions that Dongbu
and Union are affiliated with POSCO based on their supply relationship,
and that Union is affiliated with POSCO through indirect stock
ownership.
With respect to the issue of affiliation through a supply
relationship in which one party becomes reliant on the other, we agree
with respondents that petitioners have applied a wrong standard. The
standard is not, as petitioners claim, whether one company might be in
a position to become reliant upon another by means of their supplier-
buyer relationship; rather, the Department must find that a situation
exists where the buyer has, in fact, become reliant on the seller, or
vice versa. Only if we make such a finding can we address the issue of
whether one of the parties is in a position to exercise restraint or
direction over the other. When the preamble to our Proposed
Regulations, in its definition of ``affiliated parties,'' states that
``business and economic reality suggest that these relationships must
be significant and not easily replaced,'' it suggests that we must find
significant indicia of control. See Proposed Regulations at 7310. For
the following reasons, we believe that the record evidence does not
support the existence of a supply relationship between POSCO on the one
hand, and Dongbu and Union on the other, in which Dongbu and Union have
become reliant upon POSCO.
The record shows that Dongbu and Union have alternate sources of
supply for HRC, that they can and do purchase significant quantities of
HRC from abroad. Petitioners have identifed no law, regulation, or
directive, whether formal or informal, mandating Dongbu and Union to
purchase HRC from POSCO, or to limit their purchases from non-POSCO
sources. Nor is it true, as petitioners have alleged, that imports are
consistently more expensive for Dongbu and Union than POSCO material.
Record evidence shows that import prices were lower than POSCO's in 15
out of 23 quarters from 1991 through the third quarter of 1996. The
record indicates that POSCO has a comparative advantage over imported
steel for reasons of proximity, cost, reliability of supply, and
differences in specifications, grade, and quality, which can explain
POSCO's position as principal supplier to Dongbu and Union. That
position, therefore, does not signify that Dongbu and Union have a
relationship which is so significant that it could not be replaced.
Petitioners have alleged that POSCO sells HRC to Dongbu and Union
at prices below its cost of production. Petitioners calculated POSCO's
HRC production cost from POSCO's submitted cost data for cold-rolled
finished products. But these estimated costs are averages of all
possible types, grades, and dimensions of hot-rolled coil, and are not
comparable to the costs of the specific products sold to Dongbu and
Union for further manufacturing into cold-rolled and corrosion-
resistant products. When the actual costs of the HRC sold to Dongbu and
Union are used, POSCO's sales to Dongbu and Union are above cost of
production.
For the above reasons, the Department determines that there is no
supply relationship between POSCO on the one hand, and Dongbu and Union
on the other, to the extent that Dongbu and Union have become reliant
upon POSCO.
We also disagree with petitioners' argument that POSCO and Union
are affiliated by virtue of their respective affiliations with DSM,
Union's parent company. In support of their argument, petitioners cite
sections 771(33)(E) through (G) of the Act, which, inter alia, define
an affiliated person as ``[a]ny person directly or indirectly owning,
controlling, or holding with power to vote, 5 percent or more of the
outstanding voting stock or shares of any organization and such
organization,'' ``[t]wo or more persons directly or indirectly
controlling, controlled by, or under common control with, any person,''
and ``[a]ny person who controls any other person and such other
person.''
With respect to subsection (E), there is no record evidence
indicating that POSCO and Union directly or indirectly own or otherwise
control five percent or more of each other's equity. While DSM and
Union are affiliated through stock ownership, DSM and POSCO are not. As
we stated in an internal memo shortly before the preliminary review
results, ``we lack[ed] any evidence of stock ownership or control
between POSCO and Union or POSCO and DSM, Union's controlling
company.'' See memorandum from Richard O. Weible to Joseph A. Spetrini
(September 6, 1996). No new evidence has come to light that would lead
us to alter this statement.
With respect to subsection (F), Union and POSCO do not directly or
indirectly control, are not controlled by, and are not under common
control with, any party. Even though DSM controls Union through its
58.9 percent equity interest, and DSM and POSCO are affiliated with one
another due to their common control of their joint venture, POCOS, it
does not follow that POSCO controls either DSM or Union. As section
771(33) of the Act specifies, a finding of control hinges on whether a
person ``is legally or operationally in a position to exercise
restraint or direction over the other person.'' While POSCO and DSM are
clearly able to restrain or direct POCOS, and therefore control it for
purposes of the Act, this does not mean that POSCO and DSM control one
another. Subsection (F)'s affiliation standard is met where two parties
control a third, as here. But such a finding of affiliation does not
mean that the two affiliated parties control one another. The alleged
[[Page 18418]]
link between POSCO and Union is even more tenuous. Because POSCO does
not control DSM, Union's parent company, DSM is not a vehicle through
which POSCO can indirectly control Union, DSM's subsidiary. In other
words, POSCO affiliation with DSM and DSM control of Union do not add
up to POSCO control of Union. The affiliation standard set forth in
subsection (F) is thus not satisfied.
With respect to subsection (G), nothing in the record indicates
that either Union or POSCO is in a position to control, either legally
or operationally, the other party. The Department verified that (1)
POSCO and Union compete in both Korea and the United States for the
sale of the subject merchandise; and (2) POSCO on the one hand and DSM/
Union on the other are separate operational entities with no
overlapping stock ownership. The fact that POSCO supplies Union with
HRC does not alter this conclusion. As discussed above, this supplier
relationship does not rise to the level of reliance on POSCO.
Using the same statutory provisions, we continue to find that POCOS
is affiliated with AKO and BUS through indirect stock ownership, since
POCOS is 49.99 percent-owned by DSM, and DSM is affiliated with AKO and
BUS by virtue of its indirect stock ownership in those companies.
For the reasons stated above, the Department determines that POSCO
and Union are not affiliated under the provisions of section
771(33)(E)-(G) of the Act.
Comment 3. Petitioners contest the Department's preliminary
determination not to undertake a duty absorption inquiry despite their
entreaties to do so. By not considering requests for an absorption
inquiry until the 1996 administrative reviews, petitioners argue, the
Department has adopted an overly restrictive interpretation of its
authority to conduct such inquiries. Petitioners submit that, although
the statute requires the Department to conduct an inquiry, if
requested, during reviews initiated in the second and fourth years
following publication of an order, it does not preclude the Department
from conducting inquiries in reviews initiated during the first, third,
or fifth year following publication of an order.
Petitioners advance four main reasons why the Department should use
its discretion to conduct a duty absorption inquiry:
There is no valid reason not to examine the issue of duty
absorption when the record clearly indicates that respondents and their
affiliated importers have absorbed antidumping duties during the POR.
Confining absorption inquiries to the second and fourth
reviews will encourage respondents to manipulate the administrative
review process with a view to avoid duty absorption findings. As an
example, petitioners have requested duty absorption inquiries in the
1995-1996 administrative reviews on cold-rolled carbon steel flat
products from Korea (with respect to Union) and on cut-to-length carbon
steel plate from Germany (with respect to A.G. der Dillinger
Huttenwerke--Dillinger). Dillinger and Union, however, claim not to
have had any imports of these products during the POR. By not
conducting duty absorption inquiries with respect to these companies,
petitioners allege, the Department will permit Dillinger and Union to
elude penalties despite clear evidence on the record that both
companies absorb duties.
By limiting itself to conducting duty absorption inquiries
during the second and fourth administrative reviews, the Department is
only creating additional burdens for itself, since petitioners will
feel compelled to request complete administrative reviews for the sole
purpose of obtaining a duty absorption determination. The Department's
proposed policy effectively requires petitioners in certain
circumstances to incur additional costs by requesting a review when
they might not otherwise choose to do so. Petitioners argue that the
statute was not intended to force petitioners into a position of
choosing between incurring such additional costs or giving up their
right to an absorption determination, and the Department should not
establish a policy that would do so. Although it is conceivable that
the Department could conduct mini-reviews in the second and fourth
years focusing exclusively on the issue of duty absorption, the
workload savings would be far exceeded by the workload of additional
``protective'' reviews requested by petitioners. Additionally,
petitioners submit, if a respondent chose not to participate in such a
``mini-review,'' the Department would have to make an adverse
assumption that the respondent did, in fact, absorb antidumping duties.
As an example, petitioners cite the ongoing administrative review of
cut-to-length carbon steel plate from Sweden, where respondent Svenskt
Stal AB (``SSAB'') has withdrawn from the review and refuses to answer
requests for information. Although the Department has the option of
making an adverse assumption that SSAB absorbed antidumping duties,
petitioners wonder whether, and to what extent, the ITC in its sunset
review determination would give weight to a duty absorption
determination based on adverse assumptions as opposed to actual record
evidence.
Because all the information needed to conduct a duty
absorption inquiry is already on record and verified, and only a small
amount of additional activity is necessary to determine whether
antidumping duties have been absorbed, petitioners assert there is no
reason why the Department should not exercise its discretion and
conduct a duty absorption inquiry.
The record evidence cited by petitioners which, they allege,
conclusively demonstrates that duty absorption has occurred are the
following:
Petitioners cite as an example a U.S. sale by Dongbu where
the ultimate U.S. purchaser was invoiced less than what Dongbu
Corporation (Korea) billed DBLA, its Los Angeles, California sales
affiliate. See petitioners' common issues case brief, from Dewey
Ballantine to the Secretary of Commerce (proprietary version), as
resubmitted on February 27, 1997 (``CICB''), at 120-122.
Petitioners allege that an analysis of the data submitted
by POSCO clearly reveals that POSCO's U.S. prices do not reflect the
full amount of antidumping duties. In their example, petitioners submit
that the deduction from the reported gross unit price of the total of
(a) per-unit transfer price, (b) direct and indirect selling expenses
in the United States, (c) per-unit movement charges paid by BUS, and
(d) antidumping and countervailing duty cash deposits, results in a
negative margin. According to petitioners, this example demonstrates
that, by not raising its U.S. prices sufficiently to cover the margin
of dumping, BUS elected to pay the dumping duties rather than pass them
on to the customer. See CICB at 122-124.
Petitioners allege that an analysis of the data submitted
by Union clearly reveals that Union's prices to unaffiliated U.S.
purchasers do not reflect the full amount of antidumping duties. In
their example, petitioners submit that the deduction from the reported
gross unit price of the total of (a) per-unit transfer price, (b)
direct and indirect selling expenses in the United States, (c) per-unit
movement charges paid by Union America (``UA''), and (d) antidumping
and countervailing duty cash deposits, results in a negative margin.
According to petitioners, this example demonstrates that, by not
raising its U.S. prices sufficiently to
[[Page 18419]]
cover the margin of dumping, UA elected to pay the dumping duties
rather than pass them on to the customer. See CICB at 124-125.
Respondents retort that the Department should not conduct a duty
absorption inquiry. First, they argue that the request is premature
because in section 751(a)(4) of the Act, Congress authorized the
Department to conduct duty absorption inquiries in ``transition
reviews,'' (such as this one) only for reviews initiated in 1996 or
1998. For this same reason, Dongbu and Union argue, the Department,
contrary to petitioners' assertions, does not have the discretion to
conduct a duty absorption inquiry in this review.
Second, POSCO argues that according to the SAA, a duty absorption
inquiry is relevant only in the context of a sunset review proceeding.
The SAA (at 885) states that ``[t]he duty absorption inquiry would not
affect the calculation of margins in administrative reviews.'' Thus,
POSCO argues, not only is the request premature, but it is irrelevant
to the calculation of the dumping margin in this proceeding.
Third, Dongbu and Union argue that there is no evidence of duty
absorption on the record. The calculations the petitioners give in
their brief that allegedly demonstrate duty absorption, Dongbu and
Union argue, are incorrect. They argue that the petitioners'
calculations treat the antidumping and countervailing duty deposit
amounts as if they were the equivalent of a dumping margin. Doing so
was incorrect, Dongbu and Union argue, because the plain language of
the statute speaks of the absorption of ``antidumping duties,'' and not
estimated antidumping duties.
Fourth, regarding petitioners' argument that confining reviews to
the second and fourth reviews will encourage respondents to manipulate
the administrative review process, Dongbu and Union argue that this
argument is invalid. They argue that even if there were such a risk, it
would not give the Department the right to disregard the statutory
framework. Moreover, they argue that petitioners' suggestion that Union
ceased its exports of cold-rolled steel to the United States during the
1995-96 period in order to avoid a duty absorption inquiry is sheer
speculation and demonstrably incorrect. They argue that because Union
has set its prices to the point where the dumping margins determined by
the Department are insignificant, it is clear that it has not absorbed
antidumping duties, and the motive for avoiding a duty absorption
review therefore does not exist.
Fifth, regarding petitioners' argument that by limiting duty
absorption inquiries to only the second and fourth administrative
reviews the Department creates additional burdens for itself, Dongbu
and Union argue that even this consideration does not give the
Department the right to thwart the plain language of the law and
Congressional will by conducting a duty absorption inquiry when it is
not authorized to do so.
For these reasons, respondents argue that the Department should
uphold its determination in the preliminary results of review that
petitioners' request for a duty absorption inquiry is premature.
DOC Position. We agree with respondents that we are not required to
conduct a duty absorption inquiry for this administrative review.
Section 751(a)(4) of the Act provides that the Department, if
requested, will determine during an administrative review initiated two
years or four years after publication of the order whether antidumping
duties have been absorbed by a foreign producer or exporter subject to
the order if the subject merchandise is sold in the United States
through an importer who is affiliated with such foreign producer or
exporter. Section 751(a)(4) was added to the Act by the URAA.
Special rules, however, exist for transition orders, defined in
section 751(c)(6)(C) of the Act as orders in effect as of January 1,
1995. Section 351.213(j)(2) of the Department's proposed regulations
provides that the Department will make a duty absorption determination,
if requested, for any administrative review initiated in 1996 or 1998.
See Proposed Regulations at 7366. The commentary to the proposed
regulations explains that reviews initiated in 1996 will be considered
initiated in the second year and reviews initiated in 1998 will be
considered initiated in the fourth year. Ibid. at 7317. Although these
proposed regulations are not yet binding upon the Department, they do
constitute a public statement of how the Department expects to proceed
in construing section 751(a)(4) of the amended statute. This approach
ensures that interested parties will have the opportunity to request a
duty absorption determination on entries for which the second and
fourth years following an order have already passed, prior to the time
for sunset review of the order under section 751(c). See, e.g., Certain
Welded Stainless Steel Pipe From Taiwan; Preliminary Results of
Administrative Review, 62 FR 1435 (January 10, 1997) and Fresh Cut
Flowers From Mexico; Preliminary Results and Partial Termination of
Antidumping Duty Administrative Review, 62 FR 1318 (January 9, 1997).
Because the antidumping orders on corrosion-resistant and cold-
rolled carbon steel flat products from Korea have been in place since
1993, they clearly constitute transition orders. Therefore, based on
the policy articulated above, the Department will first consider a
request for a duty absorption determination for reviews of these orders
initiated in 1996. These reviews were initiated in 1995. Accordingly,
we have not considered the issue of duty absorption in these reviews.
See also Certain Corrosion-Resistant Carbon Steel Flat Products and
Certain Cut-to-Length Carbon Steel Plate From Canada: Preliminary
Results of Antidumping Duty Administrative Reviews, 61 FR 51891, 51892
(October 4, 1996).
Comment 4. Petitioners argue that, in calculating antidumping
margins for the respondents, the Department must deduct from the price
used to establish EP or CEP the actual countervailing and antidumping
duties paid by respondents' affiliated U.S. importers.
Petitioners argue that the plain language and structure of the
statute mandate that the Department make such a deduction, since it
provides, in section 772(c)(2)(A) of the Act, that ``the price used to
establish export price and constructed export price shall be * * *
reduced by * * * United States import duties, which are incident to
bringing the subject merchandise from the original place of shipment in
the exporting country to the place of delivery in the United States.''
19 U.S.C. Sec. 1677a(c)(2)(A) (1995) (emphasis added by petitioners).
Petitioners also contend that antidumping and countervailing duties are
plainly ``incident to bringing the subject merchandise from the
original place of shipment in the exporting country to the place of
delivery in the United States.'' Nor, they insist, does the language of
the statute mandate that antidumping and countervailing duties are to
be distinguished or excluded from the phrase ``United States import
duties.''
Petitioners state that the relevant provisions of section
772(c)(2)(A) of the Act, cited above, first entered U.S. law, verbatim,
in the Antidumping Act of 1921 (``1921 Act''). Although Congress at the
time omitted a definition of the phrase ``import duties,'' petitioners
assert that the Court of Customs and Patent Appeals subsequently and
specifically addressed the intentions of the drafters of the 1921 Act
and noted that antidumping and countervailing duties were ``desired and
intended (by Congress) to be considered as duties for
[[Page 18420]]
all purposes.'' See C.J. Tower & Sons v. United States, 771 F.2d 438,
445 (C.C.P.A. 1934) (emphasis added by petitioners).
That antidumping and countervailing duties are to be included in
the deduction, petitioners maintain, is confirmed when section
772(c)(2)(A) of the Act is read in conjunction with the later-added
section 772(c)(1)(C), which provides that, to derive EP or CEP, the
U.S. price shall be increased by the amount of any countervailing duty
imposed to offset an export subsidy. That provision was added to U.S.
law in 1979 to implement Article VIpara.5 of the General Agreement on
Tariffs and Trade, which prohibits the assessment of both antidumping
and countervailing duties to compensate for the same cause of unfairly
low-priced imports, whether by dumping or as a result of an export
subsidy. See Serampore Indus. Pvt. Ltd. v. United States, 675 F. Supp.
1354, 1359 (CIT 1987) (quoting H.R. Doc. No. 96-153 at 412, reprinted
in 1979 U.S.C.C.A.N. 683).
In the 1979 Trade Agreements Act, petitioners state, Congress, in
addition to adding section 772(c)(1)(C), added the phrase ``except as
provided in paragraph 1(C)'' to section 772(c)(2)(A). Petitioners argue
it is a fundamental precept of statutory construction that a statute
should be construed so that effect is given to all of its provisions,
so that no part will be inoperative or superfluous, void or
insignificant, and so that one section will not destroy another. They
argue further that Congress' specific exemption of countervailing
duties from section 772(c)(2)(A) demonstrates it clearly understood
that subsection's reference to ``any * * * United States import
duties'' as including antidumping and countervailing duties; otherwise,
there would have been no reason to exempt certain countervailing duties
from application of the provision. Had this exception not been
inserted, petitioners maintain, an equal amount would be added by the
operation of one subsection (i.e., section 772(c)(1)(C)) and deducted
as a result of the next subsection (i.e., section 772(c)(2)(A)).
Petitioners also argue that the Court of International Trade
(``CIT'') has implicitly held that section 772(c)(2)(A) covers actual
countervailing or antidumping duties. In Federal-Mogul Corp. v. United
States, 813 F. Supp. 856, 872 (CIT 1993) (``Federal-Mogul''), the CIT
did not adopt the Department's reasoning that section 1677a(c)(2)(A)
applied only to the deduction of ``normal'' import duties, and that
antidumping duties were not ``normal'' import duties. Rather, according
to petitioners, the CIT based its refusal to deduct estimated
antidumping duties on the fact that the duty deposits were only
estimates--not actual duties--which might not have borne any
relationship to the actual antidumping or countervailing duties owed.
Petitioners also cite PQ Corp. v. United States, where the CIT noted
approvingly that ``antidumping provisions in other jurisdictions
explicitly list antidumping duties as one of the adjustments to be made
in constructing prices.'' See PQ Corp. at 724.
Petitioners also put forward that in no way does the legislative
history of the URAA suggest that Congress rejected their construction
of section 772(c)(2)(A). Indeed, according to petitioners, the Senate
Finance Committee, aware that the issue of whether to deduct
antidumping duties from EP or CEP was being litigated, directed the
Department to abide by the outcome of the litigation. See S. Rep. No.
103-412 at 64 (1994). Petitioners also maintain that the SAA explicitly
states that no changes in the law were intended with respect to section
772(c)(2)(A). See SAA at 823. Petitioners deny that, as asserted
elsewhere by the Department, Congress' rejection of a separate
provision expressly allowing for the deduction of antidumping duties as
a cost in the context of the passage of the URAA requires a different
interpretation of section 772(c)(2)(A). See Certain Cold-Rolled Carbon
Steel Flat Products from the Netherlands: Final Results of Antidumping
Duty Administrative Review, 61 FR 48465, 48469 (September 13, 1996)
(``Netherlands Final''). This rejection, petitioners assert, does not
alter the Congressional intent with respect to a pre-existing statutory
provision.
Petitioners dismiss as illegitimate the Department's repeated
refusal to deduct antidumping and countervailing duties from U.S. price
on the grounds that such a deduction would result in double-counting,
for the following reasons.
First, the statute is not discretionary when it states
that the Department ``shall'' reduce U.S. price by the amount of United
States import duties. No conflicting policy rationale, they maintain,
can justify the Department's refusal to comply with a legal mandate.
Second, petitioners affirm, in the Netherlands Final the
Department did not consider doubling of antidumping margins to account
for reimbursement of antidumping duties, as constituting double-
counting. See Netherlands Final at 48470-71.
Third, the Department has refrained from making the
adjustment for antidumping duties because ``making an additional
adjustment to USP for the same antidumping duties that correct this
price discrimination between the U.S. and home markets would result in
double-counting.'' See Certain Corrosion-Resistant Carbon Steel Flat
Products from Korea: Final Results of Antidumping Duty Administrative
Review, 61 FR 18547, 18564 (April 26, 1996) (``Corrosion-Resistant
Final'') (emphasis added by petitioners). This rationale, petitioners
argue, cannot apply to countervailing duties, which offset
subsidization, not price discrimination.
In the event that the Department determines that actual antidumping
and countervailing duties do not fall within the general category of
``United States import duties,'' petitioners argue that antidumping and
countervailing duties constitute ``additional costs, charges, or
expenses * * * incident to bringing the subject merchandise from * *
* the exporting country to * * * the United States' within the
meaning of section 772(c)(2)(A) of the Act. These duties should
therefore be deducted from EP or CEP, petitioners contend.
Petitioners contend that, because no party requested a review of
the countervailing duty order on the subject merchandise at the time of
the second anniversary of the order, countervailing duties are
determinable and should be deducted in full from EP and CEP. Although
the Department is currently enjoined by order of the CIT from
liquidating the applicable entries pending a final resolution of the
respondents' legal challenge of the Department's final affirmative
countervailing duty determination, petitioners assert the presumption
exists that the Department's determination is correct (see H.R. Rep.
No. 96-317 at 182 (1979)) and the duties should be treated as final for
purposes of section 772(c)(2)(A). Indeed, petitioners say, in the
preliminary results of the instant reviews, the Department treated as
final those countervailing duties imposed to offset subsidies, and
stated that a respondent was entitled to an upward adjustment to U.S.
price, even though liquidation was still enjoined as a result of
litigation with respect to the entries in question. Petitioners contend
that, in the event the Department incorrectly determines not to treat
such duties as being final at this time, the actual amount to be
collected will be known if the court reaches a decision before the
final review results are issued, and the Department can make an
adjustment at that time. At a minimum, petitioners argue, the
Department should adjust the cash deposit rate upward by the amount of
countervailing duties (other than
[[Page 18421]]
those offsetting export subsidies) found in the original investigation.
Finally, petitioners request that the Department deduct the full
amount of the ``actual'' antidumping duties that respondents'
affiliated U.S. importers will be responsible for upon liquidation of
the entries of the subject merchandise. If the Department determines
that there exists a five percent dumping margin exclusive of the
payment of estimated antidumping duties, petitioners contend the
Department must deduct `` as per Federal-Mogul--an additional five
percent, which is equal to the cost of the antidumping duties that
Dongbu's, POSCO's, and Union's affiliated importers will be required to
pay to U.S. Customs. In this case, petitioners say, once the final
review results are issued, the exact amount of antidumping duties owed
by Dongbu's, POSCO's, and Union's affiliated importers will actually be
determined.
Respondents answer that the petitioners' argument is identical to
the one the Department considered and properly rejected in the first
administrative review of the order on corrosion-resistant products, and
that the Department should reject here as well because the petitioners
have not advanced any new arguments not set forth and rejected in the
first review. Dongbu and Union argue that the Department's
determination in the first review of corrosion-resistant products was
strengthened further when Congress and the Administration, in enacting
the URAA amendments under which this review is being conducted, very
pointedly rebuffed the petitioners' persistent lobbying for a ``duties
as a cost'' amendment. More recently, Dongbu and Union argue, the
Department rejected the petitioner's position again in Netherlands
Final, at 48469. Additionally, POSCO argues that the SAA (at 885) also
states that the Department does not intend to treat antidumping duties
as a cost in antidumping cases.
Furthermore, POSCO argues that petitioners' analogy with
Netherlands Final (in which the Department did not consider doubling of
antidumping margins, to account for reimbursement of antidumping
duties, as constituting double-counting) is inapposite. In the duty
reimbursement context, POSCO argues, the regulations require the
Department to double-count antidumping duties as a punitive measure.
The fact that antidumping duties are double-counted in that context,
therefore, is not a policy decision over which the Department has any
discretion. Because the Department's regulations do not require it to
double-count antidumping and countervailing duties in its antidumping
margin calculation, POSCO argues, the Department has the discretion to
conclude that it would be unfair to double-count those expenses.
Moreover, POSCO argues that petitioners' reasoning is circular. The
statute, POSCO argues, requires the Department to calculate the margin
by comparing U.S. price with NV. If the margin must first be subtracted
from U.S. prices, then, as a matter of simple mathematics, the
``correct'' margin could never be calculated.
In summary, Dongbu and Union argue, the petitioners' position is
entirely without foundation, is either contradicted by or finds no
support in the plain language of the law, the legislative history of
the law, court precedent, Department practice, or the United States'
legal obligations under the WTO Antidumping Agreement which prohibits
signatories from deducting in excess of the actual margin of dumping.
DOC Position. We disagree with petitioners. The term ``United
States import duties'' is not defined in the statute, and is therefore
open to interpretation. Substantial deference is owed to an agency's
interpretation of the statute it is charged with administering, as long
as such interpretation is reasonable. See Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984).
The term ``United States import duties'' first appeared in section
203 of the 1921 Act (42 Stat. 12). However, neither the 1921 Act nor
its legislative history defined the term. The Senate Report
accompanying the legislation, however, uniformly refers to antidumping
duties as ``special dumping dut[ies],'' and uniformly refers to
ordinary customs duties as ``United States import duties.'' The
rigorous use of these distinct terms indicates that the new ``special
dumping duties'' (payable only to offset dumping) were considered to be
distinct from the existing ``United States import duties'' (payable, ad
valorem, upon importation).
This conclusion is reinforced by the fact that section 211 of the
1921 Act (42 Stat. 15), provided that, for the limited purpose of duty
drawback, ``the special dumping dut[ies] * * * shall be treated in
all respects as regular customs duties.'' See S. Rep. No. 16, 67th
Cong., 1st Sess., at 4 (1921). If ``special dumping duties'' really
were considered to be just one type of ``United States import duty,''
this special provision would have served no purpose. That ``special
dumping duties'' are distinct from normal import duties also is
apparent from the fact that section 202(a) of the 1921 Act (42 Stat.
11) provided that ``special dumping duties'' may be applied to ``duty-
free'' merchandise. In this context, ``duty-free'' meant ``free from
ordinary import duties.'' If ``duty-free'' meant ``free from any
duties,'' that would include antidumping (``AD'') duties and
countervailing duties (``CVDs''). Plainly, however, ``duty-free'' was
understood to mean ``free from ordinary customs duties.'' Although the
Congress in 1921 did not explicitly stipulate that the new ``special
dumping duty'' should not be calculated so as to include itself, the
most reasonable explanation is that Congress would have considered it
absurd to spell out such a self-evident proposition.
When the AD law was amended in 1979, the provision requiring the
deduction of ``United States import duties'' from the starting price in
the United States was amended by adding the words ``except as provided
in paragraph (1)(D).'' Because paragraph (1)(D) provides for the
addition to the starting price of CVDs to offset export subsidies on
the subject merchandise, petitioners argue that this indicates that
Congress in 1979 considered ``United States import duties'' to include
countervailing duties. However, the only intent of Congress that is
clear is that the addition of export-subsidy CVDs to the price in the
United States should not be robbed of its logical effect by an
offsetting deduction. See Trade Agreements Act of 1979, Report of the
Committee on Finance on H.R. 4537, S. Rep. No. 249, 96th Cong., 1st
Sess., at 94 (1979). There is absolutely nothing in the legislative
history to indicate that Congress intended to change the standard
practice of not deducting either AD duties or CVDs from the starting
price in the United States as ``United States import duties.''
Furthermore, the SAA explicitly states that AD duties are not to be
treated as ``a cost'' to be deducted from the starting price in the
United States, and notes that Article 2.4 of the Antidumping Agreement
(at footnote 7) ``admonishes national authorities not to double count
adjustments'' in calculating dumping margins. See SAA at 139. In the
hundreds of antidumping duty administrative reviews that Commerce has
conducted since 1980, the Department has never deducted AD duties or
CVDs from the starting price in the United States, and the courts have
never directed the Department to change this practice. Congress has
been well aware of this situation, and, despite
[[Page 18422]]
numerous revisions of the antidumping law since 1921, has never amended
the law to change this result.
Petitioners' argument that the Department should deduct ``actual''
CVDs from U.S. price overlooks the distinction made by Congress in
section 772(c)(1)(C) of the Act between domestic and export subsidies.
Domestic subsidies presumably lower the price of the subject
merchandise both in the home and U.S. markets, and therefore have no
effect on the measurement of any dumping that might also occur. Export
subsidies, by contrast, benefit only exported merchandise. Accordingly,
an export subsidy brings about a lower U.S. price which could be
ascribed to either dumping or export subsidization, as well as the
potential for double remedies. Imposing both an export-subsidy CVD and
an AD duty, calculated with no adjustment for that CVD, would impose a
double remedy specifically prohibited by Article VIpara.5 of the GATT.
Thus, the only reasonable explanation for Congress' decision to provide
for the deduction from U.S. price of export-subsidy CVDs is protection
against double remedies.
Finally, the Department rejects petitioners' argument that the AD
duties and CVDs should be deducted as ``additional costs, charges, and
expenses * * * incident to importation'' because the Department's
rationale for refusing to deduct AD duties and CVDs from the United
States price (that it double-counts the dumping margin) applies equally
whether the AD duties and CVDs are described as ``import duties'' or
``costs of importation.''
Company-Specific Comments
Petitioners' Comments
Comment 5. Petitioners argue that CV profit must be calculated in a
manner consistent with the calculation of the CV base cost. Petitioners
state the Department calculated CV profit as a percentage of total
profit on above-cost sales over the corresponding sum of COM, G&A,
interest, commissions, selling expenses, and packing (``COPVALUE'').
Petitioners allege that in calculating the absolute amount of profit
for CV, the Department multiplied the CV profit rate by a different
base value representing the COM, G&A, and interest expenses, but
excluded selling expenses and packing. Petitioners propose that the
Department calculate CV profit as the total home-market sales value,
minus the total COP, and divided by the COP.
POSCO disagrees with petitioners' proposed correction. POSCO
asserts the home-market sales and total COP used as the numerator and
denominator in the calculation of the profit rate are extended values,
whereas the COP used as the denominator in petitioners' proposed
correction is a per-unit value. POSCO suggests that for the equation to
be correct mathematically the COP would have to be a total figure.
DOC Position. We agree that we incorrectly calculated CV profit in
the preliminary results. We calculated the profit rate including
packing and selling expenses and applied it to the CV base cost that
excluded packing and selling expenses. We have corrected the
programming language for the final results to include selling and
packing expenses in the CV base cost consistent with the components of
the profit rate (i.e., the numerator includes selling and packing
expenses and the denominator includes selling and packing expenses).
Comment 6. Petitioners note that Dongbu's CV financial expense
factor must be revised. According to petitioners, Dongbu incorrectly
offset CV financial expense with an adjustment based on the ratio of
accounts receivable and finished goods inventory to assets.
Dongbu acknowledges it inappropriately reduced its CV financial
expense rate with imputed accounts receivable and inventory carrying
expenses. Dongbu states that the company agrees to the use of the COP
financial expense factor for calculating CV.
DOC Position. We agree with both petitioners and Dongbu. The Act
directs the Department to exclude the imputed accounts receivable and
inventory carrying expense offsets. See, e.g., Final Determination of
Sales at Less than Fair Value: Certain Pasta from Italy, 61 FR 30326,
30361 (June 14, 1996) (``Pasta''). Therefore, we revised Dongbu's CV
financial expense rate for these final results, and used the company's
submitted COP financial expense factor to calculate the financial
expense factor used for CV, because this factor appropriately excluded
imputed offsets.
Comment 7. Petitioners argue that Dongbu's reported U.S. sales are
CEP transactions. They maintain that the record demonstrates that
Dongbu's U.S. sales are made through ``back-to-back'' transactions, in
which Dongbu USA, Dongbu's affiliated importer, engages in all selling
functions in the United States. Petitioners claim that new factual
information available to the Department in this review demonstrates
that Dongbu's sales are properly characterized as CEP transactions.
According to petitioners, the criteria typically used by the
Department for classifying sales as CEP or EP lead to the conclusion
that Dongbu's sales are CEP transactions. See, e.g., Notice of Final
Determination of Sales at Less Than Fair Value: Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled, from Germany, 61 FR 38166, 38175 (July 23, 1996)
(``Presses from Germany''); Final Determination of Sales at Less Than
Fair Value: Coated Groundwood Paper from France, 56 FR 56380, 56384
(November 4, 1991); Final Determination of Sales at Less Than Fair
Value: New Minivans from Japan, 57 FR 21937, 21945 (May 26, 1992); and
Brass Sheet and Strip from Sweden; Final Results of Antidumping Duty
Administrative Reviews, 57 FR 2706, 2708 (January 23, 1992). They
maintain that the Department also recently determined that a U.S. sale
is properly classified as a CEP transaction when the U.S. affiliate
plays an active role in the sales negotiation process, and when it
performs significant additional functions in support of U.S. sales. See
Presses from Germany at 38171. Petitioners claim that all selling
expenses related to Dongbu's U.S. sales are incurred in the United
States, that Dongbu USA engages in substantial selling activities in
the United States, and that the sale itself occurs in the United
States. Petitioners further argue that the record supports these
activities since Dongbu USA acts as the importer of record, issues
sales contracts for all U.S. sales, borrows to finance accounts
receivable, handles all billing and accounting functions related to
U.S. sales, and is involved in other selling functions consistent with
CEP sales.
Petitioners contend that Dongbu's selling functions exceed those of
a mere communications link or processor of documents. They argue that
evidence on the record demonstrates that for every reported U.S.
transaction, two sales take place, one from Dongbu to Dongbu USA and
the other from Dongbu USA to the unaffiliated U.S. customer.
Petitioners note that Dongbu describes its U.S. sales as involving
``back-to-back'' transactions, a characterization which appears to be
at odds with Dongbu's portrayal of its U.S. sales as direct sales to
unaffiliated customers. Petitioners maintain that separate transactions
indicate that Dongbu USA acts as more than a mere processor of
documents or communications link, and that the presence of multiple
transactions with CEP sales is consistent with the amendments made
under the URAA, as indirect selling expenses would typically be
incurred on the second
[[Page 18423]]
sales transaction, as they were in the present case.
Petitioners argue that Dongbu's own information makes it clear that
significantly greater sales activity occurs in the United States for
U.S. sales than occurs in the home market, and the amount of Dongbu's
U.S. indirect selling expenses incurred in Korea is an insignificant
percentage of sales price. From this evidence, according to
petitioners, it is clear that Dongbu USA's sales activity in the United
States is far more significant than that which takes place in Korea for
equivalent sales. Petitioners note that despite the evidence
demonstrating that Dongbu USA sells subject merchandise to the U.S.
customer, Dongbu claims that the U.S. sale is made by Dongbu, because
Dongbu approves the customer's purchase order. They contend that Dongbu
has failed to present evidence or documentation indicating that Dongbu
negotiated the price or quantity of the U.S. sales, or played any other
role in the sales process other than giving pro forma approval.
Dongbu asserts that the Department has already thoroughly
considered and rejected the arguments raised by petitioners in the
first administrative review and the preliminary review results. Dongbu
argues that there is no new factual information that the Department has
overlooked. The nature and scope of Dongbu USA's selling activities in
the United States have not changed for this review. According to
Dongbu, petitioners' contention that all selling functions related to
Dongbu's U.S. sales are incurred in the United States and that Dongbu
USA is involved in substantial selling activities is easily disproved
by evidence on the record supporting the fact that sales negotiations
are undertaken by Dongbu's export department in Seoul and that Dongbu
USA merely acts as a communications link in this process. Dongbu argues
further that it is a matter of record that the most significant selling
activities related to U.S. sales occur in Korea, including sales
negotiation, production scheduling, shipping scheduling, Korean
brokerage, handling, and loading expenses, Korean inland freight to the
port, and ocean freight. Respondent claims that Dongbu USA simply
facilitates the sale by ensuring delivery of the merchandise to the
customer after clearance through Customs and by invoicing the customer
and receiving payment.
Dongbu also contends that, contrary to petitioners' arguments, the
issue is not the relative quantity of the selling activities that are
undertaken in the United States and Korea, but the nature of those
selling activities; these selling activities are consistent with those
associated with acting as a communications link and document processor.
Dongbu points out that the CIT has upheld the classification of sales
as purchase price (now EP) sales in circumstances where the related
U.S. company undertook activities similar to, or even more extensive
than, those in this instance. See, e.g., Outokumpu Copper Rolled
Products v. United States, 829 F. Supp. 1371, 1379-1380 (CIT 1993),
appeal after remand dismissed, 850 F. Supp. 16 (CIT 1994); E.I. du Pont
de Nemours & Co., Inc. v. United States, 841 F. Supp. 1237, 1248-50
(CIT 1993); Zenith Electronics Corp. v. United States, Consol. Ct. No.
88-07-00488, Slip Op. 94-146 (CIT) (``Zenith'').
Dongbu argues that there is no factual evidence to support
petitioners' claim that the sale itself occurs in the United States.
The record itself, including the Department's verifications findings,
confirms that Dongbu USA has no authority to accept or reject U.S.
sales offers and that the approval of sales comes from Dongbu's export
department in Seoul. Dongbu also argues that there is no support for
petitioners' claim, either in past administrative practice or in the
URAA, that the use of intracorporate invoicing to facilitate shipment
of sales indicates that sales are CEP transactions. See SAA at 153.
Respondent contends that back-to-back invoicing is a common method by
which related parties are able to geographically transfer routine
selling functions to the United States, and that such invoicing is
consistent with EP classification.
DOC Position. We disagree with petitioners that the selling
functions of Dongbu USA exceed those of a mere communications link or
processor of documents. As discussed in our position on this matter
during the first administrative reviews, whenever sales are made prior
to the date of importation through an affiliated sales entity in the
United States, we determine whether EP is the most appropriate
determinant of the U.S. price based upon the following considerations:
(1) The subject merchandise was shipped directly from the manufacturer
to the unrelated buyer, without being introduced into the inventory of
the related shipping agent; (2) direct shipment from the manufacturer
to the unrelated buyer was the customary channel for sales of this
merchandise between the parties involved; and (3) the related selling
agent in the United States acted only as a processor of sales-related
documentation and a communication link with the unrelated U.S. buyer.
See, e.g., Certain Stainless Steel Wire Rods from France: Final
Determination of Sales at Less than Fair Value, 58 FR 68865, 68868-9
(December 29, 1993) (``Wire Rod''); Granular Polytetrafluoroethylene
Resin from Japan: Final Results of Antidumping Duty Administrative
Review, 58 FR 50343-4 (September 27, 1993) (``PTF Resin''). This test
was first developed in response to the CIT's decision in PQ Corp. at
733-35. It has also been used to uphold indirect purchase price
transactions involving exporters and their U.S. affiliates. See, e.g.,
Zenith. We agree with respondent that neither the nature nor the scope
of Dongbu USA's selling activities with regard to these activities in
the United States have changed in these reviews.
Furthermore, we agree with respondent that, when the criteria
described above are met, we consider the exporter's selling functions
to have been relocated geographically from the country of exportation
to the United States, where the sales agent performs them. We determine
that Dongbu USA's selling functions are of a kind that would normally
be undertaken by the exporter in connection with these sales. Dongbu
USA's role in the payment of cash deposits of antidumping and
countervailing duties, extension of credit to U.S. customers, the
processing of certain warranty claims, and project development are
consistent with EP classification and are a relocation of routine
selling functions from Korea to the United States.
Comment 8. Petitioners contend that Dongbu's reported credit
expenses should be revised to reflect the date of shipment from the
factory. Petitioners claim that Dongbu improperly computes the number
of credit days based on the date of the bill of lading at the port,
rather than on the date of shipment from the factory. Accordingly, the
Department should increase the credit period for all U.S. sales on the
basis of facts available. Petitioners argue that the Department
requires respondents to calculate credit expenses based on the number
of days between date of shipment to the customer and date of payment,
and that these instructions are consistent with the Department's long-
standing practice. See, e.g., Final Determination of Sales at Less Than
Fair Value: Certain Welded Stainless Steel Pipe from the Republic of
Korea, 57 FR 53693, 53700 (November 12, 1992) (``Stainless Pipe from
Korea''); Polyethylene Terephthalate Film, Sheet, and Strip from the
Republic of Korea; Final Results of Antidumping Duty
[[Page 18424]]
Administrative Reviews and Notice of Revocation in Part, 61 FR 35177,
35181 (July 5, 1996) (``PET Film''); and PTF Resin at 50344.
However, according to petitioners, Dongbu used as the date of
shipment the date of lading on board the ship as indicated on the bill
of lading. In doing so, they claim, Dongbu improperly shortened the
credit expense period in the U.S. market. See, e.g., Final
Determination of Sales at Less Than Fair Value: Welded Stainless Steel
Pipe from Malaysia, 59 FR 4023, 4029 (January 28, 1994); and Final
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Lead
and Bismuth Carbon Steel Products from the United Kingdom, 58 FR 6207,
6212 (January 27, 1993).
Petitioners support their argument by stating that sales
documentation examined by the Department at verification demonstrated
time differences between shipment of merchandise from the factory and
its lading at the port. They argue that Dongbu claims, post hoc, that
the source of this information was issued directly after production was
completed and prior to commencement of shipment, and does not indicate
the date of shipment from the factory. In noting this, petitioners
assert that Dongbu offers no evidence for its claim, which is
contradicted by its earlier responses and discredited by the document
itself. Petitioners contend that Dongbu's position is further weakened
by its unsupported claim that shipment from the factory does not occur
until an export permit has been issued by the Korean government.
Petitioners state that the claim is undermined by Dongbu's own
calculation of the number of days between the date of export and the
bill of lading date (as opposed to the date of shipment from the
factory), and the fact that Dongbu has admitted that subject
merchandise is warehoused between shipment from the factory and later
export.
Dongbu counters these arguments by noting that its use of the bill
of lading as the date of shipment is consistent with the methodology
accepted by the Department in the first review of corrosion-resistant-
products and in the preliminary results of the present reviews. Dongbu
argues that the issue is not whether a minimum number of consecutive
reviews were conducted prior to the change in practice--as in Shikoku
Chemicals Corporation v. United States, 795 F. Supp. 417, 421-22 (CIT
1992) (``Shikoku''), where the calculation methodology was changed
without notice after four consecutive reviews rather than just after
one--but whether there was reasonable reliance on the Department's
prior acceptance of the methodology, whether the fact pattern is
unchanged, and whether there is evidence of a ``significant error.''
Dongbu states that in the present case, it reasonably relied on the
Department's prior examination and acceptance of the reported date of
shipment, the fact pattern is unchanged, and there is no evidence of
error in using shipment date as the date of sale.
Dongbu maintains that petitioners' argument is based on their
incorrect identification of a verification document as a shipping
invoice. The document in question, according to Dongbu, is not a
shipping invoice, but a document which is generated prior to shipment.
Dongbu states that actual shipment from the factory does not occur
until later in the process, following the transmission of vessel
arrangements to the factory and export clearance being obtained from
the broker. Therefore, according to respondent, the invoice petitioners
question is not the same invoice that is generated at the time of
shipment from Dongbu's factory and which is the basis for recording the
date of sale in Dongbu's accounting records. Dongbu also notes that the
export permit, and other documents singled out by petitioners as
suspect, are documents that are prepared in advance of shipment from
the factory, while others, including the bill of lading, are issued at
approximately the time of shipment from the factory. Accordingly, these
facts explain the short time differences between the export permit date
and the shipment date questioned by petitioners.
DOC Position. Although we disagree with petitioners' interpretation
of the shipping documents, we agree with them that the Department's
general practice is to calculate credit expenses based on the number of
days between date of shipment to the customer and date of payment. See,
e.g., Stainless Pipe from Korea at 53700, PET Film at 35181, and PTF
Resin at 50344. However, we agree with respondent that Dongbu's use of
the bill of lading date as the date of shipment is consistent with the
methodology reviewed and accepted by the Department in both the first
review of corrosion-resistant products and the preliminary results of
these reviews; in this instance, the fact pattern is unchanged, and
there is no evidence that using the bill of lading date as the shipment
date would be in error. See Shikoku at 421-22.
While both petitioners and respondent argue at length over the
identification and characteristics of certain sales verification
documentation, we refer to our review and analysis of the documents in
question in our sales verification report for Dongbu. In that report,
and upon our review of the documents used to support the corresponding
sales data, we noted that ``no discrepancies were noted for this
transaction.'' Accordingly, we have continued to use this methodology
for these final review results.
Comment 9. Petitioners assert that Dongbu's warehousing expenses
must be deducted from U.S. price. They argue that Dongbu's warehousing
expenses should be treated as movement charges since Dongbu has stated
that subject merchandise is warehoused post-production and after
shipment from the factory. Petitioners maintain that while Dongbu
claimed in its questionnaire response that it does not introduce
subject merchandise into a distribution warehouse in the United States,
Dongbu later admitted that subject merchandise is warehoused after
shipment from the factory. According to petitioners, Dongbu's argument
shifted to the position that its warehousing expenses are more similar
to pre-shipment manufacturing overhead expenses.
Petitioners argue that Dongbu's revised claim is based on the
incorrect view that its warehousing expenses are incurred prior to
shipment to its U.S. customers. Petitioners state that in contrast to
this, Dongbu previously admitted that it transports unpainted cold-
rolled merchandise from the Seoul factory to its Inchon warehouse to
await exportation. Accordingly, the Department, consistent with the
statute, its proposed regulations, and the SAA, may deduct post-sale
warehousing expenses from U.S. price. See Proposed Regulations at 7330
and SAA at 823, 827.
Petitioners also take issue with Dongbu's claim that its
warehousing expenses are correctly characterized as overhead expenses
since they are associated with the temporary storing of semi-finished
products between product lines. Petitioners state that Dongbu itself
admitted to warehousing finished products after production is completed
and after shipment from the production facility. According to
petitioners, post-production warehousing expenses incurred after
shipment are not attributable to manufacturing, but instead constitute
movement charges and should be deducted from U.S. price. See, e.g.,
Erasable Programmable Read Only Memories from Japan; Final
Determination of Sales at Less Than Fair Value, 51 FR 39680, 39691
(October 30, 1986).
[[Page 18425]]
Petitioners contend that the Department should resort to facts
available in this instance because Dongbu failed to provide the
requested information regarding warehousing expenses, and because it
originally claimed that no such warehousing actually occurred.
Petitioners assert that, at a minimum, the Department should deduct
from U.S. price, as facts available, the amount calculated by Dongbu
for warehousing expenses. Alternatively, and only if the Department
incorrectly concludes that Dongbu's admitted post-warehousing expenses
are not movement charges, state petitioners, the amount calculated by
Dongbu for these charges should be deducted as a direct expense, since
this amount is directly linked to individual sales.
Dongbu argues that the pre-shipment expenses questioned by
petitioners are recorded as manufacturing overhead expenses in its
normal accounting records and have been reported properly as such in
its COP and CV data. Respondent states that the cost of such pre-
shipment overhead is no different from overhead expenses associated
with temporarily storing semi-finished products between production
lines, and that the Department has never treated pre-shipment
manufacturing costs as selling expenses.
Contrary to petitioners' claim that Dongbu shifted its position and
only characterized these expenses as manufacturing overhead following
petitioners' argument that they be treated as movement expenses,
respondent notes that it pointed this out three months earlier in its
Section D cost response to the Department. Respondent argues that
petitioners continue to miss the important point, which is that Dongbu
records these expenses as factory overhead, rather than selling
expenses in its normal course of business. Furthermore, Dongbu argues
that there is no legal basis to treat these expenses as movement
expenses pursuant to section 771(c)(2) of the Act since they are
incurred before shipment to the U.S. customer. Respondent argues that
the Department most recently stated in the Proposed Regulations that
the deduction for movement expenses only ``includes a deduction for all
warehousing expenses incurred after the merchandise leaves the
producers factory * * * ,'' a position which the Department notes is
``[c]onsistent with the SAA, at 823 and 827.'' See Proposed Regulations
at 7330 (preamble to proposed section 351.401(e)).
DOC Position. We disagree with petitioners' characterization of the
expenses in question as post-production warehousing expenses which
Dongbu has incurred after shipment, and that they should be treated as
movement charges and deducted from U.S. price. As we noted in our sales
verification report for Dongbu, the respondent indicated that the
warehousing expenses in question are not treated as selling expenses,
but rather as cost of manufacturing expenses. We noted in the same
report that, as such, the amounts reported in Dongbu's questionnaire
response of May 24, 1996, and the method of allocating these expenses,
were shown during Dongbu's cost verification to tie directly to audited
financial statements. Therefore, as in the preliminary results of these
reviews, we have continued to treat these expenses as manufacturing
overhead expenses, and we have not deducted them from U.S. price for
the final review results.
Comment 10. Petitioners argue that the Department should treat the
markup charged by Dongbu USA for transportation services in the U.S.
market consistently with the Department's treatment of similar charges
by Dongbu Express in the Korean market by deducting them as movement
expenses from the U.S. price. Petitioners note that in the first review
of corrosion-resistant products, and in the preliminary results of the
present reviews, the Department included the markups paid by Dongbu to
Dongbu's home-market subsidiary, Dongbu Express, in the adjustment made
to NV for movement charges. Petitioners contend that Dongbu's
transactions with Dongbu USA are identical in substance to those
between Dongbu and Dongbu Express, and the Department must analyze them
in the same way. In doing so, U.S. brokerage and handling expenses,
ocean freight, and the U.S. customs duty, which are arranged and/or
paid for Dongbu USA, should therefore be increased by the corresponding
value of the services performed by Dongbu USA relative to these
services.
Respondent argues that the actual expenses of the kind referred to
by petitioners (i.e., the costs of arranging for U.S. brokerage and
handling, U.S. customs clearance, and, as importer of record, the
payment of customs duties), are already completely accounted for.
According to Dongbu, Dongbu USA does not directly arrange for these
services, but instead employs Customs brokers for the brokerage
service, handling, customs clearance, and payment of customs duties.
Dongbu states that the full costs associated with these expenses were
fully reported on a sale-by-sale basis in the computer field USOTREU.
Dongbu maintains that even though it agrees with petitioners that the
markups charged by Dongbu Express for inland freight services
constitute deductible movement charges, the services at issue are
separate from the reported fees paid by Dongbu USA. Dongbu states
further that there is no legal basis for deducting an amount for Dongbu
USA's profit on these sales, because U.S. profit deductions such as
those suggested by petitioners are allowed only in connection with CEP
sales, and not EP sales.
DOC Position. We agree with petitioners and Dongbu that the actual
expenses charged by Dongbu Express for inland freight services in the
Korean home market consist of movement charges deductible from net
price and NV. We differ, however, with petitioners' argument that
Dongbu's transactions with Dongbu USA are identical in substance to
those between Dongbu and Dongbu Express. We agree with respondent that
the costs of arranging for U.S. brokerage and handling, U.S. customs
clearance, and, as the importer of record, the payment of customs
duties, are reflected in the brokerage fees paid by Dongbu USA and are
accounted for on a sale-by-sale basis in the reported field USOTREU,
which we verified during the sales verification. Accordingly, our
treatment of these expenses has not changed in these final review
results.
Comment 11. According to petitioners, the Department must apply
partial facts available to account for Dongbu's failure to report all
U.S. brokerage expenses. Petitioners state that the Department's
verification report indicates that the company did not report any U.S.
brokerage expenses for one observation number. As a result, the
Department should use partial facts available for this adjustment in
its U.S. price calculations. Respondent conceded this reporting error
and did not contest this issue.
DOC Position. We agree with petitioners and have corrected this
error by deducting from U.S. price the amount of U.S. brokerage fee
which we verified should have been allocated to this transaction.
Comment 12. Petitioners maintain that the Department must use facts
available to account for Dongbu's failure to report partial returns in
the home market. They argue that in its questionnaire responses, Dongbu
implied that it had reported all credit invoices as requested; however,
at verification the Department discovered that partial returns were not
reported. Petitioners state that while Dongbu
[[Page 18426]]
initially claimed as its excuse for omitting partial returns that it
had over-reported sales, Dongbu now claims that it failed to account
for partial returns because it could not do so. Petitioners argue that
the explanation for Dongbu's failure to report partial returns was a
simple unilateral decision not to do so, and that this omission may
result in its understatement of home-market monthly weighted prices to
be compared to U.S. price (i.e., if the original sale involving the
returned merchandise had a lower price than other sales during the
month). Petitioners state that in similar situations the Department has
resorted to facts available. See Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof from France, Germany, Japan,
Singapore, Sweden, Thailand and the United Kingdom, 60 FR 10900, 10908
(February 28, 1995) (Final Results of Antidumping Duty Administrative
Reviews). Petitioners contend that any uncertainty regarding the total
effect of the partial returns is attributable to Dongbu's misstatement
of the relevant facts and its failure to account for partial returns.
They further note that had Dongbu not misled the Department in stating
that returns had been traced to original invoices, the effect of
partial returns on specific products or CONNUMs could have been
reviewed during the course of the review. However, given Dongbu's
misstatement of the facts and its failure to account for partial
returns, the Department must resort to facts available.
Dongbu argues that there is no reason to revise its home-market
sales data because its methodology used in accounting for partial
returns is reasonable given its reporting capabilities, and that the
approach it adopted had no significant impact on the margin. According
to Dongbu, petitioners ignore the fact that the reason it did not
offset the reported sales quantities to account for partial returns is
because it could not do so, and that this was verified by the
Department. Dongbu excluded these credits from its reporting database,
but accounted for the universe of such credits during the quantity and
value reconciliation of the home-market sales verification. Respondent
argues that petitioners' claim that the exclusion of these partial
returns might distort monthly weighted-average prices is unfounded
since documents examined during verification demonstrate that the total
volume of such adjustments is so small as to have no discernible effect
on weighted-average prices. According to Dongbu, even if the quantities
at issue were significant, for petitioners' claim to have merit would
require that the original sales prices for partially returned
merchandise on average would have to have been consistently higher or
lower than prices for comparable merchandise in the same period.
Respondent contends, however, that given the random nature of returns,
there is no reason for such a pattern to occur. Also, Dongbu asserts
that there is no basis for petitioners' claim that it misled the
Department or misstated the facts, and that the methodology it used to
account for partial returns is consistent with that which the
Department verified in the first reviews.
DOC Position. We agree with Dongbu that its reporting methodology
was reasonable and consistent with the approach we verified and
accepted in the first review of corrosion-resistant products. As we
noted in the home-market section of the Dongbu sales verification
report, Dongbu did not report its partial returns because it could not
do so. We agree that it was not possible for the Department's verifiers
to trace partial return credit invoices to original sales transactions.
Although Dongbu excluded these credits from its home-market database,
we sampled and tested a complete listing of all such partial-return
credits during the quantity and value reconciliation process of the
sales verification, and found that Dongbu adequately accounted for the
universe of such credits. We also agree with Dongbu that the total
volume of the adjustments at issue is not significant and that, due to
the random nature of the returns, there is no conclusive way of knowing
that the original sales prices for partially returned products was
consistently higher or lower than prices of comparable products in the
same period. Accordingly, for the final results of this review we have
not adjusted home-market prices to account for partial returns.
Comment 13. Petitioners argue that Dongbu's home-market credit
expenses are improperly inflated because the calculation includes
value-added tax (``VAT'') in the numerator and excludes VAT from the
denominator. Petitioners further contend that it is the Department's
long-standing practice to calculate credit expenses exclusive of VAT.
Petitioners explain that Dongbu calculated the credit period for home-
market sales based on the average credit days outstanding, and thereby
improperly included VAT in the customer's accounts receivable. They
state this represents a practice not permitted under the Department's
precedent. See, e.g., Notice of Final Determination of Sales at Less
Than Fair Value: Silicomanganese from Venezuela, 59 FR 55436, 55438-39
(November 7, 1994) (``Silicomanganese''); Steel Wire Rope from the
Republic of Korea; Final Results of Antidumping Duty Administrative
Review, 60 FR 63499, 63504 (December 11, 1995) (``Wire Rope''); and
Final Determinations of Sales at Less Than Fair Value: Calcium
Aluminate Cement, Cement Clinker and Flux from France, 59 FR 14136,
14139, 14146 (March 25, 1994).
According to petitioners, the VAT portion of the customer's
accounts receivable relates to taxes which Dongbu collects from the
customer and pays the government of Korea, and not to the price which
Dongbu charges for the sale of the product under review. Petitioners
contend that the Department should revise Dongbu's credit expense
calculation such that the VAT is excluded from both receivables and
sales in determining the credit period, since the applicable credit
period concerns the period between shipment and payment for the
merchandise, and not the customer's payment of VAT. Petitioners further
argue that in Silicomanganese and Wire Rope, respondent attempted to
improperly inflate its credit expense by including VAT in the numerator
(i.e., the average daily receivables), and excluding VAT from the
denominator (i.e., the average daily sales) of the credit period ratio,
as Dongbu has done in the present review. Petitioners maintain that
prior to the Department's discovery at verification, Dongbu did not
accurately disclose its home-market credit methodology.
Dongbu argues that its home-market credit period was accurately
calculated, and that petitioners' comment regarding this issue is based
on a manifest error in the Department's sales verification report for
the home-market transaction cited. Dongbu states that the report
incorrectly reports that the accounts receivable amount used in
determining customer-specific credit periods is inclusive of VAT,
whereas the sales amount was not. Respondent argues that the
verification documentation in question demonstrates that the monthly
sales total for the customer reported is in fact inclusive of VAT,
rather than exclusive. Dongbu maintains that since both sides of the
equation used in determining the customer-specific credit period are
inclusive of VAT, there is no error in the reporting methodology.
Respondent notes that a potential problem could only arise if both
sides of the equation were not reported on the same basis.
[[Page 18427]]
DOC Position. We disagree with petitioners. While petitioners are
correct that it is the Department's practice to calculate credit
expenses exclusive of VAT, we disagree with petitioners' cites to
Silicomanganese and Wire Rope in support of their argument that Dongbu
incorrectly calculated the average receivable turnover rate based on an
average trade receivables inclusive of VAT. Unlike the respondent in
the present review, the respondents in these cases sought an adjustment
for the costs associated with carrying additional uncertain liabilities
for VAT.
Also, upon review of the sales verification documents cited by
respondent as the basis for petitioners' incorrect analysis of credit
periods, we agree that the Department's analysis incorrectly states
that the accounts receivable amount used in determining customer-
specific credit periods is in fact inclusive of VAT, while reported
sales values were not. The documents referred to by the respondent
demonstrate that the total monthly sales used in the credit period
calculation included--not excluded--VAT. Consequently, because both
sides of the equation used to determine the customer-specific credits
are inclusive of VAT, we agree with respondent that Dongbu's reporting
methodology for credit periods is not in error.
Comment 14. Petitioners claim that the markup charged by Dongbu
Express is not a permissible freight deduction, and that the Department
must adjust Dongbu's home-market movement expenses in the final
results. Petitioners contend that Dongbu has failed to demonstrate that
the freight-related markup charged to Dongbu by its affiliated service
provider, Dongbu Express, was at arm's length. Accordingly, the
Department should use facts available to ensure that these movement
charges reflect actual movement expenses, and not merely an intra-
corporate transfer. Petitioners argue that Dongbu reported the majority
of its home-market inland freight expenses as the amount it is charged
by Dongbu Express. They state that since Dongbu Express is an
affiliated concern, the amount charged by it must be shown to be arm's-
length before the data reported can be determined reliable. See, e.g.,
Final Results of Antidumping Duty Administrative Review; Color Picture
Tubes from Japan, 55 FR 37915, 37922-23 (September 14, 1990).
Petitioners claim that in the current reviews the record
demonstrates that Dongbu Express' home-market freight charges to Dongbu
are artificially inflated in excess of unaffiliated-party charges, and
that Dongbu has provided ``no credible information or evidence'' to
show that the markup charged by Dongbu Express for freight-related
charges reflects market value, and is not simply a price constructed
for internal bookkeeping purposes. As a result, according to
petitioners, the Department must revise Dongbu's claimed freight
adjustment by reducing the reported freight expenses by Dongbu Express
for merchandise delivered by unaffiliated truckers by the maximum
reported amount of Dongbu Express' markup. Petitioners further argue
that if Dongbu is entitled to the freight adjustment, a similar
adjustment must be made to account for the markup charged by Dongbu USA
for transportation-related services in the U.S. market.
Dongbu argues that the markup charged by Dongbu Express is
reasonable and at arm's length. Dongbu contends that, with respect to
the markup charged by Dongbu Express on shipments using unaffiliated
truckers, petitioners made exactly the same argument here as in the
first administrative reviews; those arguments were rejected by the
Department. Respondent states that petitioners have mischaracterized
the markup in question as an intra-corporate transfer or ``internal
bookkeeping entry'' rather than a real movement expense. Dongbu
maintains that it has demonstrated on the record of this review that
the markups at issue are reasonable in magnitude by comparing them to
Dongbu Express' company-wide overhead and profit, and that while the
comparison expenses and profit data relate to company-wide operations
rather than only steel-related trucking services, the test is
reasonable and accurate for the purpose of demonstrating that the
markup is commercially reasonable. Dongbu also takes issue with
petitioners' suggestion that it may be manipulating the markup in
question in order to ``reduce artificially the margin of dumping
calculated'' by referencing the data submitted by Dongbu and verified
by the Department during the home-market sales verification.
Respondent also points out that the Department verified in Korea
that Dongbu makes ex-factory sales where Dongbu Express provides the
freight services and the customer pays Dongbu Express directly for the
service. In these cases the amount paid is based on the same fee
schedule charged by Dongbu Express; therefore, the customer is charged
the same amounts by Dongbu Express that Dongbu Express charges Dongbu
for the same services.
DOC Position. We agree with respondent that the amount charged by
Dongbu Express is reasonable and at arm's length. As indicated by
Dongbu, it demonstrated during its home-market verification that the
prices charged by Dongbu Express to Dongbu were commercially reasonable
charges for the services provided by Dongbu Express. In the present
reviews, as was the case during the first administrative reviews,
Dongbu has demonstrated that, on average, the percentage of Dongbu
Express' general expenses to cost of sales is equal, on average, to the
profit Dongbu Express earns. The sum of these two items is equal to
Dongbu Express' markup to unrelated freight company charges, and,
therefore, the prices charged to Dongbu by Dongbu Express accurately
reflect market rates.
Comment 15. Petitioners argue that the Department must use facts
available to determine the freight adjustment for deliveries where
Dongbu Express' vehicles were used. Petitioners contend that Dongbu
refused to answer the Department's repeated inquiries on the matter.
According to petitioners, Dongbu confirmed in its supplemental
questionnaire response that Dongbu Express occasionally uses its own
trucks to transport subject merchandise for Dongbu Steel, but indicated
that such instances were very rare and involved no greater than an
estimated 10% of reported shipments. Petitioners state that while
Dongbu eventually identified those sales which were transported using
Dongbu Express' trucks, it did not provide the actual costs of the
services. The Department needs this information, assert petitioners, to
calculate the freight adjustment based upon actual costs. See, e.g.,
Color Television Receivers, Except for Video Monitors, from Taiwan;
Final Results, 55 FR 47093, 47099 (November 9, 1990). Therefore, as a
result of Dongbu's refusal to provide requested information, the
Department should deny Dongbu any freight deduction for those
deliveries identified as having been made using Dongbu Express'
personnel or vehicles.
Respondent argues that the reported amounts for transportation
where Dongbu Express vehicles were used were at arm's length. Dongbu
notes that while it pays a discrete amount for freight to an affiliated
party in accordance with an established fee schedule, petitioners have
erroneously claimed that it is the Department's practice to require
that adjustments for services provided by affiliated parties should in
all circumstances be reported on the basis of actual costs. Dongbu
argues that in such instances where respondents pay a fee for such a
service, the Department's practice is to accept the payment as the
basis for the reported
[[Page 18428]]
adjustment so long as it can be demonstrated to be at arm's length. If
this cannot be demonstrated, the Department requires respondents to
calculate a cost build-up based on the supplier's accounting records.
Respondent asserts that it has demonstrated in the present review that
the amounts paid to Dongbu Express for freight services provided using
its own trucks were reasonable and reflected arm's-length rates when
compared to a benchmark that is at arm's length. Furthermore, according
to Dongbu, the benchmark at issue is the arm's-length amount that
Dongbu Express was charged by unaffiliated trucking companies. Dongbu
claims it has demonstrated that the amounts charged to Dongbu were
equal to those third party charges plus a reasonable markup for Dongbu
Express' expenses and profit incurred in arranging for the freight
services.
DOC Position. We agree with Dongbu that the amounts reported for
transportation expenses when Dongbu Express vehicles were used were
demonstrated to be at arm's length. We agree that it has been the
Department's practice to accept the payment made by a respondent for a
service as the basis for reported adjustments so long as it can be
demonstrated to be at arm's length. If this cannot be demonstrated, we
require the respondent to calculate a cost build-up based on suppliers'
accounting records. See, e.g., Final Determination of Sales at Less
Than Fair Value; Certain Internal Combustion, Industrial Forklift
Trucks from Japan, 53 FR 12552 (April 15, 1988). In the present case,
however, Dongbu has demonstrated that the amounts paid to Dongbu
Express for freight services provided when using its own trucks were
reasonable and accurately reflect arm's-length rates. Dongbu did this
by demonstrating that the amounts charged to Dongbu are equal to those
charged by unaffiliated trucking companies (that provide trucking
services) plus a reasonable markup for Dongbu Express' expenses and
profit incurred in arranging for the freight services.
Comment 16. Petitioners claim that the POSCO group's method of
reporting COP and CV data is seriously flawed and warrants the use of
partial facts available. Petitioners claim that it is unclear whether
POSCO accurately assigned internal product codes known internally as
``representative product groups'' (``RPG's'') to control numbers
(``CONNUM's'') based on the physical characteristics of the CONNUM. An
RPG is a product having certain industrial specifications. POSCO
created CONNUMs using the Department's matching criteria by assigning
RPGs with similar physical characteristics to the CONNUM. Petitioners
note that in some instances POSCO combined RPGs with different physical
characteristics into one CONNUM. Petitioners argue that combining
disparate RPGs to create a single CONNUM and then calculating a single
cost for this CONNUM results in a severe distortion of costs.
Petitioners believe that it would be very easy for POSCO to manipulate
the cost of CONNUMs by combining disparate RPGs into a single CONNUM to
obtain an artificially low cost for the CONNUM. Petitioners state that
it would be difficult for the Department to discover this type of
manipulation due to the large number of RPGs and CONNUMs in the
database. Consequently, petitioners conclude it is impossible for the
Department to determine precisely which CONNUMs consist of multiple
RPGs with disparate physical characteristics and therefore costs which
are unreasonable. Petitioners continue that because there is no way for
the Department to assess the extent of these problems, the Department
should declare the RPG system unreliable and resort to facts available.
As facts available, petitioners suggest adjusting all of POSCO's
submitted cost data by assigning to each CONNUM the highest cost of
manufacturing reported for any particular RPG within that CONNUM.
POSCO responds that it has accurately assigned RPGs to CONNUMs in
accordance with the Department's model-match hierarchy. POSCO claims
that the product characteristics captured at the RPG level are in some
instances more detailed than the Department's CONNUM characteristics
and in other instances less detailed. POSCO states that for critical
characteristics such as width and thickness, POSCO's RPG
characteristics closely mirror the Department's specifications,
although the exact ranges are not identical. POSCO asserts the RPG
system matches the Department's requirements in the vast majority of
cases and characterizes petitioners' examples of severe systemic
defects as aberrant examples which were not portrayed as major
exceptions in the Department's cost verification report.
DOC Position. We agree with the POSCO group. For these final
results we have accepted POSCO's reported CONNUM-specific costs. We
found that POSCO's cost data were allocated to a sufficient level of
product detail following the model-match instructions. To derive the
submitted cost data, POSCO assigned and weight-averaged individual RPGs
based on characteristics that corresponded to our model-match
instructions. We examined the component RPGs within selected CONNUMs
and noted, in some instances, that the RPG characteristics were not
exactly identical to the Department's characteristics, and that POSCO's
combining of RPGs caused the cost of certain characteristics in the
CONNUM to be averaged. However, we have determined there is no
indication of a pervasive problem in how RPGs were assigned to
particular CONNUMs and that, with certain adjustments, the reported
CONNUM costs are reliable. We have determined that POSCO's reported
costs for CONNUMs reasonably reflected the production cost of the
merchandise during the POR. We made a similar determination in the
Corrosion-Resistant Final, where we accepted a respondent's CONNUM-
specific costs and found that the cost data were allocated to a
sufficient level of product detail following our model-match
instructions. See Corrosion-Resistant Final at 18560.
Comment 17. Petitioners argue that the POSCO group's use of the
cost during the POR of the most similar CONNUM for products which were
not produced but which were sold during the POR warrants the use of
partial facts available. Petitioners contend that product costs can
vary substantially from one period to the next. Accordingly, assigning
a surrogate value from a production period during the POR for a
different product produced outside the POR may result in a substantial
distortion of the reported costs. Petitioners state that the POSCO
group provided no information regarding the method it used in selecting
the most similar product for use as a surrogate. This practice did not
allow the Department to assess whether the reported most similar CONNUM
is, in fact, the most similar. Petitioners contend that all CONNUMs
with identical costs are surrogates. As partial facts available,
petitioners suggest using the highest reported cost from this group for
all the CONNUMs within the group.
The POSCO group retorts that the number of products which were sold
during the POR but which were not produced in this period is trivial.
The POSCO group criticizes petitioners' estimate of the number of
surrogate sales, stating that petitioners have inaccurately and
unreasonably summed the volume of all CONNUMs which share the same
total cost of manufacturing with another CONNUM. The POSCO group
contends that this
[[Page 18429]]
calculation grossly overstates the use of surrogate values because it
is the POSCO group's inability to account for all of the
characteristics in the model match that is the reason for the majority
of CONNUMs sharing the same total cost of manufacturing.
DOC Position. We have accepted the POSCO group's surrogate CONNUMs
for merchandise produced outside this POR. For subject merchandise
which was sold but was not produced during this POR, the POSCO group
used as a surrogate the COM of a similar CONNUM produced during this
POR. We compared the physical characteristics of POSCO's surrogate
CONNUMs with the product which was produced outside the POR (see cost
verification exhibit 27). This comparison indicates that the physical
characteristics of the surrogate closely resembled those of the actual
product. With regard to petitioners' concern that this method could
distort costs because manufacturing costs differ among time periods, we
note that the small amount of sales in question renders this concern
insignificant when considering the margin analysis as a whole.
Furthermore, our verification findings indicate that the POSCO group
reported CONNUMs with identical costs primarily because it weight-
averaged the cost of certain characteristics (see comments 16 and 20
for further discussion).
Comment 18. Petitioners argue that the POSCO group entities'
reported costs are less than those recorded in each company's financial
statement. Petitioners state that the Department must adjust the
submitted data to account for this unreconciled difference as partial
facts available. To support their position, petitioners cite Pasta, in
which the Department made this type of adjustment.
The POSCO group counters that petitioners' analysis of information
on the record is groundless because it relies on the ``total COM
valuation'' (i.e., a summation of reported per-unit COM values) as the
basis to prove that there is an understatement of reported costs. The
POSCO group first claims that petitioner's analysis relies on a
reconciliation worksheet (cost verification exhibit 26) that requires
further explanation to avoid misinterpretation of the data. The POSCO
group explains that this reconciliation did not result in a perfect
matching of the reported costs to the financial-statement COM because
the reconciliation relied on sales quantities and not production
quantities for the period of August 1, 1994 through July 20, 1995. The
POSCO group then used these sales quantities to extend the per-unit COM
values. However, the POSCO group states that the COM values reflect
manufacturing costs from July 1, 1994 through June 30, 1995. Therefore,
the total costs which were used to derive the unit costs in
petitioners' analysis reflect a different period of time than did the
quantity used to derive the sales. Second, the POSCO group explains
that the data for third-country costs had to be estimated because the
POSCO group entities do not keep cost records precisely in accordance
with the Department's requested reconciliation format. In order to
complete the reconciliation, the POSCO group states that it made the
simplifying assumption that the distribution of products sold in third
countries was identical on a CONNUM-by-CONNUM basis to the distribution
of those sold in the home market. The POSCO group asserts that this
mismatch does not indicate that the submitted costs do not tie to
POSCO's, POCOS'', or PSI's audited financial statements, but rather it
simply indicates that the Department's requested format for the
analysis did not fit exactly the CONNUM-specific cost reporting when
applied to third-country sales.
DOC Position. We agree with the POSCO group. We are satisfied that
the reconciliation provided by the POSCO group establishes that the
reported costs are not understated. We also agree with the POSCO group
that the format of the reconciliation necessarily would not result in a
perfect match of reported costs to the financial statement, but we have
determined that the reconciliation did indicate that all costs are
captured. We disagree with petitioners that this situation is analogous
to that found in Pasta. In that case, the respondent refused to provide
a reconciliation and therefore we adjusted for the differences between
the reported costs and the total costs reported in the financial
statement based on our reconciliation. In this case, each of the POSCO
group entities provided the requested reconciliation based on certain
assumptions that we determined were not significant enough to affect
the reliability of the data.
Comment 19. Petitioners submit that the Department should make a
number of adjustments in determining the appropriate fair value and COP
for purchases of substrates by POSCO's affiliates. Petitioners allege
that prices in Korea are not set by market forces and therefore the
Department should not rely on domestic sales prices of cold-rolled or
corrosion-resistant products for purposes of determining whether the
affiliated party transaction prices reflect fair value. Petitioners
suggest the Department should use export prices to third countries to
assess whether affiliated party transaction prices reflect fair value.
If the Department determines that the Korean market is viable,
petitioners suggest that the Department should calculate the difference
in profitability between sales to POCOS, PSI, and other customers in
Korea for sales of subject merchandise only as the measure of fair
value. Petitioners argue that this company-specific and product-
specific comparison more accurately portrays the difference in the
level of profitability of sales to affiliates and unaffiliated
companies.
Petitioners contend that the Department erroneously compared
transfer prices of substrates to the COM (as opposed to the COP) of
substrates. Petitioners argue the statute explicitly requires that this
test be a comparison of transfer price to COP, not COM.
The POSCO group argues that the Department erroneously failed to
treat POSCO, POCOS, PSI, and PCC as a single producer when calculating
the value of steel substrate that was subsequently painted, coated,
slit, or sheared by various segments of the collapsed entity. The POSCO
group states that because the Department is treating POSCO, POCOS, PSI,
and PCC as a single producer for antidumping duty rate purposes, the
substrate transferred between them should be valued at cost rather than
at the higher of cost, transfer price, or fair value.
The POSCO group challenges the Department's application of the
``fair-value'' and ``major-input'' provisions in this case. The POSCO
group argues that the fair-value provision and the major-input rule
apply only when reviewing transactions between affiliated entities. The
POSCO group contends that neither subsections (2) nor (3) of section
773(f) of the Act apply in this case, where the reviewed transactions
are between segments of a single collapsed entity. The POSCO group
states that the Department created a single producer for purposes of
calculating the COP when the Department instructed the POSCO group to
calculate a single, weighted cost for each unique control number when
reporting the costs of products manufactured at POSCO, POCOS, PSI, or
PCC. The POSCO group cites the Final Results of Antidumping Duty
Administrative Review: Certain Iron Construction Castings from Canada,
59 FR 25603, 25604 (May 17, 1994) (``Iron Castings'') to support its
case that the Department treats collapsed respondents as a single
entity. The POSCO group also states the Department tested sales of a
single
[[Page 18430]]
control number, without regard to the identity of the producer, to see
if the control number was sold below cost. The POSCO group argues that
by applying the major-input rule and the fair-value test to the
collapsed entity, the Department failed to fulfill its own stated
intention to treat POSCO, POCOS, PSI and PCC as a single producer.
The POSCO group cites the Final Results of Antidumping Duty
Administrative Review: Certain Forged Steel Crankshafts from the United
Kingdom, 61 FR 54613, 54614 (October 21, 1996) (``Crankshafts'') to
support its position that the Department does not apply the fair-value
provision or the major-input rule to transfers of steel substrate
between divisions of a single company. The POSCO group also states that
it is logically inconsistent and contrary to law for the Department to
treat two or more entities as a single unit for some areas of dumping
analysis such as inter-company transfers under the CEP methodology and
subject merchandise purchased for resale and not disregard transfer
prices in this instance. The POSCO group cites examples such as
technical services, warranty, and advertising expenses that are
routinely valued at the entity's cost, not at a rate charged by one
entity to its parent, subsidiary, or sister division. The POSCO group
sets forth that unaffiliated resellers have argued that, for purposes
of the sales below cost test, the Department should value subject
merchandise purchased from unaffiliated suppliers based on the
acquisition price rather than on the supplier's production costs. POSCO
states the Department has rejected this argument, explaining that COP
means actual production costs of the producer--plus selling, general
and administrative expenses (``SG&A'')--and not the acquisition price,
in the Final Results of Antidumping Duty Administrative Review:
Elemental Sulphur from Canada, 61 FR 8239, 8251 (March 4, 1996)
(``Sulphur'').
The POSCO group argues that the Department's fair-value adjustment
inappropriately double counts expenses and erroneously introduces
profit into the calculated COP for the sales-below-cost analysis. The
POSCO group asserts using the transfer price to value POCOS'' substrate
purchases includes POSCO's profit nominally earned on the substrate
transaction as well as elements of POSCO's SG&A. This, the POSCO group
avers, violates the Department's own definition of the COM, which
consists of materials, labor, fixed and variable overhead.
The POSCO group argues if the Department erroneously applies the
fair-value test, fundamental errors in the preliminary methodology
should be corrected for the final results. The POSCO group states the
statute directs that the amount of the element under consideration, in
this case the substrate, should fairly reflect the amount usually
represented in sales of that merchandise in the market under
consideration. The POSCO group states that it had sales of comparable
merchandise both to members of the combined entity and to unaffiliated
customers. The POSCO group contends the Department therefore should
have compared these two sets of prices when performing the fair-value
test. The POSCO group criticizes the Department's methodology as too
broad and inaccurate because the Department did not attempt to compare
profitability across sales of the same product sold in the same
relative volume to affiliated and unaffiliated customers.
Petitioners retort that the statute explicitly requires that the
major-input rule and fair-value provisions be applied to transactions
involving transfers of substrate between POSCO, POCOS, PSI, and PCC.
Petitioners argue that regardless of whether these entities have been
collapsed, they are clearly and undeniably ``affiliated persons'' under
the statutory definition. Accordingly, major inputs should be valued
using the major-input rule and the fair-value provision. Petitioners
contend the collapsing of entities merely goes to the level of
affiliation between the separate corporations and the unusual intimacy
of the relationship between the parties. If collapsed, entities are
treated as a single firm for the limited purpose of sales reporting and
calculation of a single margin. Petitioners argue that collapsing,
however, does not extinguish corporate forms per se. Petitioners state
that the collapsing of POSCO, POCOS, PSI, and PCC for sales reporting
and margin calculation does not in any way extinguish, or even
diminish, the fact that these entities are separate legal businesses.
Petitioners assert that, to the contrary, the collapsing of these
entities merely evidences the extremely high degree of affiliation and
intimate nature of their relationship demonstrated on the record
between these separate corporate entities. Petitioners cite the Final
Determination of Sales at Less Than Fair Value: Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled, from Germany 61 FR 38166, 38187 (July 23, 1996) to support
their position that the major-input rule and fair-value provisions
apply regardless of whether the entities are collapsed for sales
purposes.
Petitioners state that the POSCO group's argument regarding the
Department's valuation of merchandise purchased for resale is incorrect
since the statutory provision on which the POSCO group relies relates
to subject merchandise, not inputs. Petitioners also disagree with the
POSCO group's contention that the application of the major-input rule
results in the inappropriate inclusion of profit and certain expenses
because the major-input rule goes exclusively to material costs;
accordingly, profit earned on sales or purchases of the subject
merchandise never enters into the major-input rule and cannot be
infused into the COM as a result of that rule. Petitioners continue
that, for example, the cost to POCOS of the substrate naturally
includes a markup charged by POSCO and that the price with the markup
represents the true cost to POCOS of the input.
DOC Position. As indicated in the preliminary results of this
review, we have treated POSCO, POCOS, and PSI as a collapsed, single
entity, the POSCO group, for purposes of our antidumping analysis. See,
e.g., Preliminary Results of Antidumping Duty Administrative Review:
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products
from Korea, 61 FR 51882, 51884 (October 4, 1996). We have determined
that the POSCO group represents one producer of certain cold-rolled
steel flat products and certain corrosion-resistant carbon steel flat
products. We note that the POSCO group has also been treated as a
single entity in prior segments of these proceedings. See, e.g., Final
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat
Products, and Certain Cut-to-Length Carbon Steel Plate from Korea, 58
FR 37176 (July 9, 1993).
We have reconsidered our position with respect to those companies
which the Department determined are properly treated as a single entity
in performing an antidumping analysis. We find that our prior practice
of collapsing entities while continuing to apply the fair-value
provision and the major-input rule is improper. We have determined that
a decision to treat affiliated parties as a single entity necessitates
that transactions among the parties also be valued based on the group
as a whole. As such, we find that among collapsed entities, the fair-
value and major-input provisions are not controlling. Thus, for both
sales and cost reporting purposes,
[[Page 18431]]
we consider the POSCO group to be one producer. With regard to
transfers of inputs among the POSCO group companies we have valued
transfers of substrate between the companies at the cost of
manufacturing of the substrate plus the cost of inter-company
transportation and packing. We find the facts of this case analogous to
those found in Crankshafts where we did not apply the fair-value
provision or the major-input rule to transfers of steel substrate
between divisions of a single company. In Crankshafts, we sated that
``[a]lthough respondent describes UEF and UES as ``related'' in various
sections of their questionnaire response, the weight of record evidence
(e.g., corporate structure charts and audited financial statements)
indicate that they are divisions of the same corporation. The
Department has determined that section 773(e) (2) and (4) does not
apply in such situations.'' Crankshafts at 54614. See also Final
Determination of Sales at Less Than Fair Value: Offshore Platform
Jackets and Piles from Japan, 51 FR 11788, 11791 (April 7, 1986), where
the Department stated that because NSC's steel was manufactured
internally by another division of the same company, section 773(e) of
the Act--in relevant part now sections 773(f) (2) and (3)--is
inapplicable. Section 773(f)(2) directs the Department to disregard, in
certain instances, transactions directly or indirectly between two
persons. Since we have determined that the POSCO group is one entity
for these final results, sections 773(f) (2) and (3) of the Act cannot
apply because there are no transactions between affiliated persons.
We disagree with petitioners' reliance on Presses from Germany
which they argue supports their position that the major-input rule and
fair-value provisions apply regardless of whether the entities are
collapsed for sales purposes. In that case, the companies at issue were
not collapsed for sales reporting. However, respondents argued for
combining certain elements of cost between two affiliated companies
because the combination of these companies met, in their view, the
sales collapsing criteria set forth by the Department in Iron Castings.
We did not combine the companies for cost purposes in that case because
the two companies made different models and the respondent selectively
averaged certain costs between the companies but not other costs. This
is not consistent with the facts in the current case where we combined
companies for sales reporting purposes and are now combining the same
companies which produce the same models for cost purposes.
Additionally, in the current case, we are combining all elements of
cost, not selected elements of cost as respondent's suggested in
Presses from Germany.
Petitioners' comments regarding the comparison of affiliated
transactions to sales to third countries are moot since we have
determined that the Korean market is viable. The comments received from
petitioners and respondent concerning the application in these cases of
the fair-value and major-input provisions are irrelevant to these final
results, since the Department has determined that sections 773(f) (2)
and (3) of the Act do not apply here.
Comment 20. Petitioners argue the Department should apply partial
facts available for the POSCO group's submitted costs because costs for
certain physical characteristics were not appropriately accounted for.
See proprietary version of the Department's cost analysis memo, dated
April 2, 1997, for an explanation of these physical characteristics.
Petitioners state RPGs are unreliable as evidenced by the fact that
some RPGs with similar characteristics have different costs.
The POSCO group retorts that the Department may not apply adverse
facts available simply because POSCO did not maintain costs in the
level of detail contemplated by the Department. The POSCO group states
in cases where a company has been unable to provide costs at the level
of detail requested by the Department, the Department has accepted the
reported costs where it was satisfied that those costs nonetheless
reasonably reflected the actual costs of producing the subject
merchandise during the POR. The POSCO group cites the Final Results of
Antidumping Duty Administrative Review: Certain Corrosion-Resistant
Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate
from Canada, 61 FR 13815, 13817 (March 28, 1996) (``Canadian Plate''),
where the Department accepted submitted costs despite the fact that the
respondent had reported costs for one of two producing mills. The POSCO
group states the Department concluded that the respondent's methodology
was reasonable, given (1) the nature of its cost accounting system, (2)
its verified inability to determine specific costs, and (3) the
conservative method in which the costs were reported. The POSCO group
asserts its reported costs reflect the actual costs as recorded in its
normal accounting system and reasonably reflect the cost of producing
the merchandise.
Petitioners counter that the POSCO group failed to furnish the
Department with any means to account for the costs associated with
certain characteristics and did not, as the antidumping questionnaire
requires, provide costs determined on the basis of specific CONNUMs.
Petitioners state that the POSCO group's failure to account for the
cost of these characteristics severely distorts the dumping
calculations by understating the costs associated with these products.
The POSCO group argues the Department routinely accepts reported
costs where the Department is satisfied that those costs reasonably
reflect the actual costs of producing the subject merchandise. The
POSCO group asserts that its reported costs are acceptable for the same
reasons as stated in Canadian Plate. Specifically, the POSCO group
states the reported costs are based on the costs as recorded in the
company's normal accounting system. The POSCO group points out it does
not track cost differences with respect to certain physical
characteristics, which it maintains is a reasonable and conservative
approach, because any costs associated with these differences have been
spread over all products.
With regard to petitioners' argument that a serious distortion of
costs results from combining RPGs into CONNUMs, the POSCO group
responds that the cost difference between two RPGs with similar
characteristics results from POSCO's ability to produce identical
products using different production lines and production routes. The
POSCO group states it may also produce different volumes of a given
product over a specific period, resulting in varying unit costs. The
POSCO group argues that deviations in actual costs for similar RPGs are
not evidence of wide physical dissimilarity or an improper combination,
but rather a real-world testimony to the accuracy of POSCO's RPG system
where different processing conditions result in different costs.
DOC Position. We agree with petitioners and respondent in part. We
agree with petitioners that the POSCO group did not appropriately
account for two physical characteristics. See the Department's final
cost analysis memo, dated April 2, 1997. For the two physical
characteristics at issue, the POSCO group derived a general weighted-
average cost that was applied uniformly to all merchandise that
contained these characteristics. This resulted in a distortion of the
COM of CONNUMs with lower sales volume but which required a costlier
and higher grade of substrate. This weight-averaged cost is also
contrary to POSCO's normal
[[Page 18432]]
cost accounting system which reflects cost differences of RPGs; when
RPGs were combined to create CONNUMs, differentiations were lost
through averaging. For these final results, we calculated adjustment
factors specific to different types within each characteristic, and
recalculated the COM of the affected CONNUMs.
With regard to the remaining physical characteristics, we have
determined that the POSCO group reported product-specific costs from
its normal cost accounting system, which reasonably reflect the actual
cost of producing the merchandise. We agree with the POSCO group that
its reported costs for the other physical characteristics were
reasonable, for the same reasons outlined in Canadian Plate.
Specifically, the POSCO group reported product costs in as much detail
as its normal cost accounting system provides, and any costs associated
with the other physical characteristics are captured and allocated to
all products.
Comment 21. Petitioners argue that if the Department persists in
employing the unduly narrow reading of the statute's affiliation
provision that it employed in its preliminary results, POCOS's U.S.
price should be based on the price charged to AKO because, based on
such a narrow reading, POCOS was not in fact affiliated with that sales
entity.
The POSCO group argues that POCOS was affiliated with AKO and BUS,
and that even petitioners have acknowledged this fact.
DOC Position. As discussed in the DOC Position to Comment 2, supra,
we have determined that POCOS was affiliated with the entities in
question and that, therefore, U.S. price should be based upon the
prices charged to the unaffiliated U.S. customers reported by the POSCO
group.
Comment 22. Petitioners argue that if the Department finds that
POCOS was affiliated with the Korean and U.S. companies through which
the U.S. sales of its products were made, the Department should
classify POCOS's U.S. sales as CEP transactions, and make the required
deductions from U.S. gross unit price. Petitioners also argue that the
Department should classify POSCO's U.S. sales, which are made through
POSTRADE and POSAM, as CEP transactions.
Petitioners state that the Department classifies sales as EP
transactions if they satisfy three criteria: The merchandise is not
inventoried in the United States, the commercial channel at issue is
customary, and the U.S. selling agent functions only as a
communications link and mere processor of sales-related documentation.
See, e.g., Presses from Germany at 38171 and Notice of Final
Determination of Sales at Less Than Fair Value: Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled, From Japan, 61 FR 38139, 38141 (July 23, 1996) (``Presses
from Japan'').
Regarding the first two criteria, petitioners state that subject
merchandise is almost never warehoused for sale in either the United
States or Korea by manufacturers or trading companies, and the large
customer that typically buys from the manufacturer or trading company
would not require an alternative channel of distribution. Consequently,
petitioners assert, the Department's analysis must focus on the third
criterion: whether the U.S. selling agent functions as more than a
communications link and mere processor of sales-related documentation.
Furthermore, for purposes of this analysis, petitioners argue that
because POCOS performs virtually no selling functions in any of its
markets other than actually selling the product and maintaining
customer contacts, the Department's analysis of the functions of POCOS'
home market and U.S. sales entities should focus primarily on their
role in actually selling the product and maintaining customer contacts,
which petitioners assert is significant enough to warrant classifying
the U.S. sales in question as CEP sales.
Petitioners argue that several cases cited by the POSCO group in
its letter of September 20, 1996, as instances where the Department
treated sales as EP (formerly purchase price) sales, where the U.S.
affiliates allegedly played a far more active role than did POSAM and
BUS, actually involved instances where the Department indicated the
U.S. affiliates did not play a substantive role in negotiating U.S.
sales prices. See, e.g., Notice of Final Determinations of Sales at
Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products,
Certain Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-
Resistant Carbon Steel Flat Products, and Certain Cut-to-Length Carbon
Steel Plate from France, 58 FR 37125, 37133 (July 9, 1993); Wire Rod at
68869; and Final Determination of Sales at Less Than Fair Value: Coated
Groundwood Paper from Finland, 56 FR 56363, 56371 (November 4, 1991).
Petitioners argue that these determinations support petitioners' point
that even when a sale is made prior to importation, the Department will
classify that sale as a CEP transaction when the U.S. affiliate
negotiates, or plays a significant role in negotiating, the selling
prices in the United States.
Petitioners argue that BUS's close contact with U.S. customers
(both apart from and during the sales process), its role in setting the
price with the U.S. customers, and its involvement in numerous other
stages of such transactions show that BUS is much more than a mere
processor of sales-related documentation or a communications link in
the U.S. sales process, but rather is actively involved in selling,
transporting, and financing the product.
Petitioners argue that the SG&A data of BUS suggests that BUS
performed even more general selling activities for POCOS' U.S. sales
than POCOS does for its own home-market sales.
Petitioners also argue that the Department should treat POSCO's
U.S. sales made through POSAM, a U.S. trading company owned by POSCO,
as CEP transactions, because record evidence indicates that POSAM's
role in the U.S. sales process for POSCO products is very similar to
that of BUS.
Petitioners argue that in Presses from Germany the Department found
similar sales activities being performed by U.S. affiliates, and the
existence of substantial SG&A expenses incurred by those affiliates in
the U.S. sales process, and, as a result, the Department classified
sales transacted by these entities as CEP sales. Petitioners indicate
that the financial statements of BUS indicate the significant extent to
which it was involved in the U.S. sales process.
Petitioners argue that the Department's verification reports do not
indicate that U.S. customers negotiate directly with POCOS or that BUS
plays no role in establishing U.S. prices, but rather that the POSCO
group had only stated these points at verification. Furthermore,
petitioners argue that the presence of a POCOS official at the U.S.
sales verification at the offices of BUS, and the assertion by the
POSCO group that this official considers and confirms the proposed U.S.
price, do not negate the fact that BUS, not POCOS, deals with the
customer and negotiates the final price.
The POSCO group contests petitioners' claim that the Department
should ignore the first two criteria for determining whether or not
sales are classified as EP. The POSCO group argues that it is the
Department's longstanding practice to consider all three criteria, and
that the Department has in fact done so in prior steel cases, including
the Corrosion-Resistant Final; Wire Rod at 68869, in regard to the
other physical characteristics, and Brass Sheet
[[Page 18433]]
and Strip from The Netherlands; Final Results of Antidumping Duty
Administrative Review, 61 FR 1324, 1326 (January 19, 1996). The POSCO
group asserts that the SAA and the Proposed Regulations confirm the
Department's intention to continue its consistent prior practice in
this area; that the Department cannot simply change its regulations and
practices for each industry subject to an antidumping inquiry; and that
changing Department practice on a case-by-case basis and applying
different standards to respondents in different industries would be
fundamentally unfair to all parties.
The POSCO group argues that petitioners' claim that BUS played an
important role in setting the price to the ultimate customer is
directly contradicted by the sales verification reports and the record
evidence. The POSCO group notes that the petitioners state that POSAM's
role in the U.S. sales process for POSCO products is very similar to
the role of BUS in the U.S. sales process for POCOS products, and that
the Korea sales verification report noted that the Department's review
of sales documentation confirmed that POSAM served as a facilitator of
the sales process, that any customer service or product specification
issues were referred to POSCO, and that POSAM's function as facilitator
of U.S. sales appeared to be limited to functioning as the importer of
record and processing logistical arrangements such as brokerage and
handling. The POSCO group also notes that the U.S. sales verification
report indicates that BUS simply facilitates communications between
POCOS and the U.S. customer.
The POSCO group argues that POCOS' approval of the key terms of
sale was not a pro forma process. Rather, POCOS received its customers'
requests concerning the key terms of sale, considered them, and
determined the final price and quantity of each sale. The POSCO group
indicates that the U.S. sales verification report states that POCOS'
prices to the U.S. customers were negotiated with POCOS. The POSCO
group also indicates that one sales trace at the home-market sales
verification provides support that POCOS determined the quantity sold:
the U.S. customer tried to change the quantity component of the
purchase requisition and sent this request to BUS, but this request was
refused by POCOS.
The POSCO group argues that petitioners' suggestion that POCOS's
sales should be classified as CEP sales because all sales contact with
the customer was made by BUS is ridiculous. The POSCO group states that
the whole point of having a U.S. affiliate in such back-to-back sales
transactions as those here and in every other such EP case is to have a
presence in the United States to facilitate communications which, as
stated in the U.S. sales verification report, was the role of BUS in
POCOS's U.S. sales.
As for petitioners' argument that the Department should classify
the POSCO group's U.S. sales as CEP sales because BUS and POSAM
purportedly undertook numerous activities with respect to U.S. sales,
the POSCO group argues that the Department has determined in scores of
previous cases that a respondent's sales are properly classified as EP
(formerly purchase price) sales when its U.S. affiliate undertakes
activities identical to those undertaken here by BUS and POSAM. For
example, in the first administrative review of this corrosion-resistant
steel order, the Department found sales to be EP when the U.S.
affiliate participated in sales negotiations and took title and
warehoused the product. See Corrosion-Resistant Final at 18551, 18562.
The POSCO group argues that petitioners' claim that certain others of
these past cases are distinguishable because the affiliates did not
negotiate sales prices is not convincing because BUS likewise did not
negotiate sales prices but, rather, only communicated sales prices
determined by POCOS to POCOS' U.S. customers.
The POSCO group argues that many of the responsibilities attributed
by petitioners to BUS are commonly undertaken by an affiliated selling
entity that acts as a communications link, while several others are
typically undertaken by an entity, like BUS, that serves as the
importer of record. The POSCO group argues that the record shows that
BUS played a very limited role in U.S. transportation services, and the
POSCO group argues that petitioners failed to mention various functions
POCOS undertakes for U.S. sales, including (1) arranging and paying for
freight to the Korean port, loading charges, wharfage, harbor
maintenance fees, miscellaneous charges, and bank charges; (2) applying
for and supplying documentation for duty drawback; (3) investigating
and handling warranty claims; (4) determining the quarterly price to be
charged BUS and the prices for each individual sale; and (5) obtaining
market research from numerous sources.
The POSCO group indicates that BUS's overall SG&A expense figure
does not accurately reflect the expenses it incurs in selling the
subject merchandise because BUS'' activities extend far beyond selling
the merchandise subject to this antidumping inquiry, as evidenced by
relatively small value of its sales of subject merchandise compared to
total sales. The POSCO group argues that petitioners' continued
reliance on Presses from Germany is misplaced because in that case the
U.S. affiliates played a far more active role than did BUS and POSAM in
these cases, including identification of specific customers, handling
of warranty expenses, supervision of installation of products,
substantial procurement of parts, provision of technical assistance,
and arrangement of post-sale warehousing.
DOC Position. We disagree with petitioners' assertion that the
POSCO group's sales should be reclassified as CEP sales. When the three
criteria described in the DOC Position to Comment 7 supra are met, we
consider the exporter's selling functions to have been relocated
geographically from the country of exportation to the United States,
where the sales agent performs them. We also have recognized and
classified as indirect EP sales certain transactions involving selling
activities similar to those of BUS in other antidumping proceedings
involving Korean manufacturers and their related U.S. affiliates. See,
e.g., Final Determination of Sales at Less Than Fair Value; Circular
Welded Non-Alloy Steel Pipe from the Republic of Korea, 57 FR 42942,
42950-1 (September 17, 1992).
In these reviews, we determine that the selling functions of POSAM
and BUS are of a kind that would normally be undertaken by the exporter
in connection with these sales. The role of POSAM and BUS in the
payment of cash deposits of antidumping and countervailing duties,
their arrangement of certain movement-related expenses, their
involvement in contracts with customers and commissionaires and in
activities related to customer payment, are consistent with EP
classification and are a relocation of routine selling functions from
Korea to the United States.
Comment 23. Petitioners argue that, regardless of whether the POSCO
group's U.S. sales are classified as EP or CEP transactions, the
Department should reduce U.S. price by a portion of the revenue earned
by POSTRADE, POSAM, AKO, and BUS through the purchase and re-sale of
steel in the ``back-to-back'' nature of the U.S. sales. The additional
deduction would reflect a portion of this markup that can be attributed
to those entities' additional costs (e.g., overhead) and profit that
can be associated with the movement
[[Page 18434]]
expenses reported by the POSCO group in its U.S. sales file.
Petitioners indicate that for another respondent in these
proceedings, Dongbu Steel, the Department has made comparable
deductions from price, involving transportation expense services
provided by an affiliated party, Dongbu Express. See Corrosion-
Resistant Final at 18554 and Certain Cold-Rolled and Corrosion-
Resistant Carbon Steel Flat Products from Korea: Preliminary Results of
Antidumping Duty Administrative Reviews, 61 FR 51882, 51886 (October 4,
1996) (``Preliminary Results''). Petitioners argue that POSTRADE,
POSAM, AKO, and BUS performed functions similar to those performed by
Dongbu Express, and in the case of the latter the Department deducted
from home-market price the fee charged by Dongbu Express to Dongbu,
which reflected a markup beyond the expenses directly incurred by
Dongbu Express in the provision of the services.
Petitioners argue that the only difference between the POSCO
group's scenario and that of Dongbu Express is that POSCO, POCOS, and
PSI did not pay the affiliates directly for the provision of the
movement expense services; rather, those affiliates were reimbursed for
these, as well as other services, through the ``back-to-back'' nature
of the U.S. sales transactions. Petitioners argue that these markups
reflect payment for all of the services rendered for POSCO, POCOS, and
PSI, and would have been incurred by POSCO, POCOS, and PSI regardless
of what entities were involved in the process.
Petitioners cite an additional case where a similar adjustment was
made for services provided by affiliated parties. See Certain Internal-
Combustion, Industrial Forklift Trucks from Japan; Final Results of
Antidumping Duty Administrative Review, 57 FR 3167, 3178-9 (January 28,
1992) (``Forklifts''). Petitioners argue that, as in Forklifts, the
Department should presume that the amounts paid by POSCO, POCOS, and
PSI beyond the actual expenses directly incurred by the affiliated
parties for the certain specific expenses would have been incurred by
POSCO and POCOS (directly or indirectly), regardless of who provided
those services. Consequently, petitioners argue that the Department
should deduct from U.S. price an additional amount for those services
to reflect expenses beyond those directly incurred by the affiliates.
Petitioners argue that because POSTRADE and AKO only provided
movement services, it is reasonable to deduct the entire markup of
those Korean affiliates in the calculation of U.S. price. For POCOS,
petitioners note, the difference for each sale can be derived from the
U.S. sales database; for the other U.S. sales of respondent (i.e.,
those of POSCO and PSI), petitioners propose a specific per-ton amount,
based on sales verification report exhibit 24 at 17, which concerns a
particular sale.
Regarding POSAM and BUS, the petitioners concede that the
deductions should not be based on the entire markup, but only the
expenses and profit that can reasonably be attributed to U.S. movement
expenses. Petitioners state that it is not possible, from the
information provided by the POSCO group, to determine what portion is
attributable to the services other than those concerning U.S. movement
expenses. Petitioners argue that the Department should use the Dongbu
Express markup information available from the public record as a basis
for determining how to adjust the POSCO group's reported U.S. movement
expenses. Petitioners argue that this is appropriate because Dongbu
Express only provides services related to movement, and those services
are similar to some of those provided by the affiliates of POSCO,
POCOS, and PSI. Petitioners state that information submitted on the
record by Dongbu indicates that Dongbu Express' markup was 30 percent;
therefore, petitioners argue, the Department should increase the U.S.
movement expense variables (INLFWCU, USOTREU, USDUTYU, and MARNINU) by
30 percent. See the public version of the letter from Morrison &
Foerster to the Secretary of Commerce, dated February 29, 1996 (Exhibit
B-31 at 1). As an alternative source for an adjustment factor for the
U.S. affiliates, the petitioners cite estimates based upon reported
markups of POSTRADE and AKO.
The POSCO group argues that petitioners' request to make
adjustments for POSAM and BUS represents the rejection of years of
uniform practice, and that the Department properly rejected this
argument in the preliminary results of these reviews. The POSCO group
argues that the affiliate revenue in question reflects the affiliates'
indirect selling expenses and profit, typical of hundreds of identical
transactions that the Department has examined in scores of prior cases,
including numerous steel cases.
Respondent argues that section 772(c) of the Act indicates that
profit and any indirect selling expenses or overhead are not to be
deducted from EP. Respondent indicates that the Department has
frequently examined back-to-back transactions like those involved here,
and has never deducted profit or indirect selling expenses from EP, and
did not do so in the Corrosion-Resistant Final.
The POSCO group argues that the Department's longstanding policy
concerning EP sales is to utilize the price paid by the first
unaffiliated U.S. customer and to deduct only direct selling expenses
from the price. The POSCO group cites Certain Iron Construction
Castings from Canada: Final Determination of Sales at Less Than Fair
Value, 51 FR 2412 (January 16, 1986) (``Castings Final'') as a case
where the Department rejected petitioner's request that a markup earned
by a related U.S. distributor be deducted from purchase price because
the law only authorizes deduction of direct expenses from purchase
price (now EP).
The POSCO group indicates that even if the petitioners' claim can
be limited to transportation services, the claim should still be
rejected because, unlike Dongbu Express, POSAM and BUS purchased and
re-sold the merchandise in typical back-to-back indirect EP
transactions, and those affiliates' role in providing transportation
services was very limited.
Finally, while it believes it is not necessary because no
adjustment such as that proposed by petitioners is appropriate, the
POSCO group notes that the petitioners' calculation of the 30 percent
adjustment factor is faulty because it apparently reflects total
revenue earned by Dongbu Express. The POSCO group states that this
figure is irrelevant because Dongbu Express' expenses would have to be
deducted from that figure so that one could calculate the relevant
figure, Dongbu Express' profit as a percentage of cost of sales.
DOC Position. As indicated elsewhere in this notice, the basis for
treating the U.S. sales as EP rather than CEP, for purposes of our
analysis, is that the record indicates that POSAM and BUS acted as mere
facilitators of the transactions in question, rather than as selling
agents. Consequently, in analyzing the U.S. sales of the POSCO group,
it would be inappropriate for us to treat a significant portion of the
expenses incurred by the affiliates in question as selling expenses,
indirect or otherwise.
In any case, petitioners only propose additional adjustments to
U.S. price that can reasonably be limited to movement expenses, which
are to be deducted in the calculation of U.S. price. See section
772(c)(2)(A) of the Act. The U.S.
[[Page 18435]]
expenses reported by the POSCO group were deducted from U.S. price in
the preliminary results, without objection from respondent and
consistent with the requirements of the statute. Any additional portion
of the revenue earned by the affiliates through the ``back-to-back''
nature of the U.S. sales that can be attributed to U.S. movement should
be deducted as well.
The POSCO group questions the 30 percent adjustment factor proposed
by petitioners because the POSCO group claims that the profit rate
would be the ``relevant figure.'' However, none of the cases cited by
respondent, including the Corrosion-Resistant Final and Forklifts,
provide any grounds for limiting the adjustment to just profit. In the
Corrosion-Resistant Final, we deducted from home-market price the
entire amount charged by Dongbu Express to Dongbu. In Forklifts the CIT
found that, because the services performed were directly connected with
the movement of forklift trucks from Japan to the United States, the
Department correctly determined that Toyo's mark-ups were actual
expenses relating to the movement of the subject imports that Toyo
would have incurred regardless of the relationship of the party
performing the service, and that our conclusions were reasonable and
our determination was in accordance with the law. See Toyota Motor
Sales, Inc. v. United States, Consol Ct. No. 92-03-00134, Slip Op. 93-
154 (CIT 1993).
Furthermore, in Forklifts the CIT also indicated that because the
parties involved were only related indirectly, no intra-company
transfer was taking place. This is also the case with POCOS, because it
is not directly affiliated with its U.S. selling entity; consequently,
we have determined that the appropriate factor by which to increase the
reported expenses for those certain specific services provided by BUS
is the markup of Dongbu Express, including the portion that constitutes
profit. However, because POSAM was wholly-owned by POSCO, the profit
earned by POSAM that can be attributed to the movement services it
provided to POSCO should be treated as an intra-company transfer, and
therefore should not be deducted from U.S. price. Therefore, the
appropriate adjustment factor for the U.S. sales of POSCO and PSI would
be the markup, net of the profit rate.
We have determined, based on the Dongbu exhibit cited by
petitioners and the POSCO group, the appropriate markup rate was eight
percent, of which one-half reflected profit. Consequently, the
appropriate adjustment factor is eight percent for POCOS and four
percent for POSCO and PSI. We multiplied these factors by the variables
cited by petitioners, and deducted the results in the calculation of
U.S. price.
Regarding the Castings Final, that case actually states that the
distributor's markup was not deducted from U.S. price because it did
not fall into any of the categories of expenses that should be deducted
from U.S. price for purchase price sales. See Castings Final at 2414.
However, as noted above, POSAM and BUS clearly did provide services
involving movement expenses, and some of the markup, beyond the portion
reflected in the movement expenses reported by the POSCO group in its
U.S. sales databases, can be attributed to those movement services.
Regarding POSTRADE and AKO, the POSCO group did not contest either
petitioners' assertion that those affiliates only provided
transportation services, or petitioners' conclusion that it is
consequently reasonable to deduct from U.S. price the entire markup
(or, in the case of sales through POSTRADE, a markup based on a
verified sale). No information on the record indicates that those
affiliates provided services other than those described by petitioners.
To account for the additional unreported expenses, for POCOS's U.S.
sales we have deducted from U.S. price the entire difference between
the price paid by BUS to AKO and the price paid by AKO to POCOS.
However, for POSCO's and PSI's U.S. sales, which were made through
POSTRADE, we have only deducted from U.S. price that portion of the
POSTRADE markup that is not accounted for by POSTRADE profit (i.e.,
one-half of the markup, in accordance with the Dongbu Express
information), because that profit can be considered to have been an
internal transfer.
Comment 24. Petitioners argue that the Department should reverse
its preliminary decision regarding duty absorption, should conduct duty
absorption inquiries, and should determine that respondents have, in
fact, absorbed antidumping duties on behalf of their customers.
Petitioners argue that the statute provides that during any review
initiated two years after publication of an antidumping duty order, the
Department, if requested, will determine whether a foreign producer
absorbed antidumping duties on behalf of its U.S. customers when
subject merchandise is imported into the United States through an
affiliate of the producer. Petitioners argue that they requested such a
determination, and that reviews were initiated two years after the
publication of the relevant antidumping duty order.
Petitioners argue that even if the Department continues to
determine that it is not required to conduct the requested duty
absorption inquiry during these reviews because it determines that
these reviews are the ``first'' ones for purposes of duty absorption,
the Department nevertheless retains the discretion to do so and should
do so in these reviews.
Petitioners argue that the Department should not ignore absorption
when it is obvious on the record. Petitioners argue that analysis of
U.S. sales of POCOS indicates that the return to POCOS on certain sales
was negative and, consequently, that duties were absorbed.
Petitioners argue that confining absorption inquiries to the second
and fourth reviews will encourage respondents to manipulate the
administrative review process to avoid duty absorption findings.
Petitioners argue that if respondents know with certainty that
absorption reviews will only be conducted in the second and fourth
reviews, they could, and likely will, alter their absorption practices,
or not export any subject merchandise to the United States for the
review periods in which the absorption reviews are to be conducted.
Petitioners argue that absorption inquiries in these administrative
reviews would eliminate the necessity of filing protective absorption
inquiry requests that would otherwise be imposed upon petitioners.
Petitioners state that limiting such inquiries to certain reviews would
require petitioners to incur the additional expense of requesting a
review in those years solely to check for absorption. Petitioners state
that such additional requests would also consume the limited resources
of the Department and impose greater burdens on respondents. Even if
the Department chose to conduct such an absorption inquiry where a
review was not requested, substantial information would be required
which could be obtained during the normal course of reviews such as
these.
The POSCO group argues that petitioners' duty absorption argument
is untimely and irrelevant in this administrative review. The
Department's proposed regulations indicate that for ``transition
orders'' such as these, the Department will only make a duty absorption
determination for administrative reviews initiated in 1996 or 1998.
Furthermore, respondent argues, the SAA states that the duty absorption
inquiry is only relevant in the context of a sunset review proceeding.
Respondent states that the SAA indicates that ``[t]he duty absorption
inquiry would not affect the
[[Page 18436]]
calculation of margins in administrative reviews'' (SAA at 885).
DOC Position. We disagree with petitioners. As we stated in the
preliminary results of these reviews and earlier in this notice in the
DOC Position on Comment 3, for transition orders as defined in section
751(c)(6)(C) of the Act, i.e., orders in effect before January 1, 1995,
Sec. 351.213(j)(2) of our Proposed Regulations provides that the
Department will make a duty absorption determination, if requested, for
any administrative review initiated in 1996 or 1998. See Preliminary
Results at 51883. It is not the Department's intent to go beyond what
the statute provided with respect to conducting duty absorption
determinations in the second-and fourth-year reviews.
Comment 25. Petitioners argue that the Department should adjust NV
to account for physical differences between cold-rolled products that
were tension-leveled and those that were not tension-leveled.
Petitioners state that this process imparts special flatness
characteristics to steel products and, therefore, results in commercial
distinctions among products which frequently command a price extra.
Petitioners argue that the POSCO group apparently did not provide
any information during verification supporting its claim that there are
no commercial differences between products that were tension-leveled
and those that were not, except perhaps for products which were
processed on one other specific line which could impart characteristics
similar to those imparted by tension levelers. Petitioners argue that
the POSCO group conceded that a large volume of products were not
tension-leveled or processed on that other single line. Consequently,
it is very possible that tension-leveled U.S. sales are being compared
to home-market sales that were not tension-leveled.
Petitioners argue that the Department should recognize that
tension-leveling does, in fact, create commercial distinctions among
otherwise identical products, which are reflected in higher prices for
tension-leveled products. Petitioners argue that as adverse facts
available the Department should presume that all products sold in the
United States were tension-leveled, and that all of these sales are
being matched to home-market sales of products that have not been
tension-leveled. The Department should then make an upward adjustment
to normal value to account for physical differences in tension-leveling
between U.S. and home-market products. Petitioners assert this
adjustment should be based upon information submitted by petitioners,
because the POSCO group's responses do not contain data that can be
used to quantify the commercial difference between products that have
been tension-leveled and those that have not.
The POSCO group argues that its methodology is reasonable, that the
Department verified the products at issue are commercially
indistinguishable, and that the Korea sales verification report
supports this conclusion.
The POSCO group argues that petitioners are incorrect in their
claim that respondent has not demonstrated that products that are not
separately tension-leveled are commercially indistinguishable from
other products that have been tension-leveled. The POSCO group argues
that because it does not charge any extras depending on whether or not
the product is tension-leveled, and because the respondent's customers,
in placing the orders, did not specify whether or not the products
should be tension-leveled, the products are commercially
indistinguishable, and, in fact, the same price is charged whether or
not the product is separately tension-leveled.
The POSCO group also argues that the petitioners are mistaken in
their estimates of the quantity of steel that did not pass through any
type of equipment that imparts tension-leveled characteristics.
For the above reasons, the POSCO group argues that the Department
should not increase the NV of cold-rolled products to account for
alleged unreported differences in physical characteristics due to
differences in tension-leveling.
DOC Position. While inconsistencies exist between the explanations
of this product characteristic provided by the POSCO group in (a) its
February 13, 1996 submission, (b) at the sales verification in Korea,
and (c) in its rebuttal brief, nothing on the record of these reviews
contradicts the conclusion that a large portion of the home-market
sales of cold-rolled merchandise (other than full-hard coil and
electrical steel) was either tension-leveled or processed in such a way
that it possessed properties very similar to steel that had been
tension-leveled. Furthermore, no information on the record of these
reviews indicates that the customers of the POSCO group requested that
their steel be tension-leveled, or that the POSCO group charged extra
for steel that was tension-leveled (or otherwise processed in a way
that would impart similar properties). Furthermore, there is no
information on the record of these reviews indicating that the POSCO
group could actually determine from its internal records whether or not
specific sales consisted of steel that was tension-leveled. Finally,
there is no record evidence indicating that the POSCO group failed to
report the costs associated with these processes. As a result, in these
reviews we have not made any adjustments for this product
characteristic.
Comment 26. Petitioners argue that POSCO's overrun sales are
outside the ordinary course of trade and, therefore, if the Department
should base NV on home-market sales, those overrun sales should be
excluded from the Department's calculations. Petitioners argue that the
factors considered previously by the Department in analysis of this
issue--their volume relative to other sales, the profitability of such
sales, and the types of customers purchasing them--demonstrate that the
POSCO group's overrun sales were outside the ordinary course of trade.
Petitioners cite Certain Corrosion-Resistant Carbon Steel Flat Products
From Australia; Final Results of Antidumping Duty Administrative
Reviews, 61 FR 14049, 14050-51 (March 29, 1996) (``Australian Final'').
Petitioners point out that even the POSCO group, in requesting that it
be excused from reporting the downstream sales of affiliated service
centers in which POSCO owned a minority-interest, acknowledged that
overrun sales were not comparable to non-overrun sales through its
exclusion of sales of overrun coil from its presentation of downstream
sales data.
The POSCO group argues that the facts with respect to the POSCO
group's overrun sales are strikingly similar to those examined by the
Department in the Australian Final (at 14051), in which the Department
determined that the overrun sales of Broken Hill Proprietary Company
Ltd. (``BHP'') were in the ordinary course of trade. The POSCO group
argues that, as in that case, the Department typically examines several
factors, none of which is dispositive, including: (1) whether the home-
market sales in question did in fact consist of production overruns;
(2) whether differences in physical characteristics, product uses, or
production costs existed between overruns and ordinary production; and
(3) whether the price and profit differentials between sales of
overruns and ordinary production were dissimilar.
The POSCO group argues that the Department verified the POSCO
group's methodology for classifying overrun sales, and no discrepancies
were noted
[[Page 18437]]
in the Korea sales verification report, thereby establishing that the
overrun merchandise had been properly classified for reporting
purposes. The POSCO group states that, for a given CONNUM, the product
characteristics and costs associated with the overrun prime merchandise
were the same as those associated with non-overrun prime merchandise.
The POSCO group argues that as was the case for BHP in the Australian
Final, the POSCO group's overrun sales were more than an insignificant
percentage of total home-market sales, and the profit earned on those
sales was not insignificant. Finally, the POSCO group argues that
overrun sales are not unusual or abnormal in the steel industry.
DOC Position. In the Australian Final we indicated that it is the
Department's established practice to include home-market sales of such
or similar merchandise unless it can be established that such sales
were not made in the ordinary course of trade. In that case, we cited
as an example Final Determination of Stainless Steel Angle From Japan,
60 FR 16608, 16614-15 (1995). As noted by the POSCO group, when
evaluating whether or not sales of overrun merchandise were in the
ordinary course of trade, we typically examine several factors taken
together, with no one factor dispositive. See, e.g., Certain Welded
Carbon Steel Standard Pipes and Tubes From India, 56 FR 64753, 64755
(1991). In addition to the factors cited by the POSCO group, we also
stated in the Australian Final that we may consider whether the number
of buyers of overruns in the home-market and the sales volume and
quantity of overruns were similar or dissimilar in comparison to other
sales. See Australian Final at 14051.
Neither petitioners nor the POSCO group dispute the categorization
of the sales in question as production overruns.
Regarding physical characteristics, because overrun sales are made
from inventory (see Korea sales verification report at 34), the
thickness of the steel is already known at the time of sale and,
therefore, any concept of ``thickness tolerance'' is irrelevant. As a
default, the respondent coded the thickness tolerance variable as
``standard'' for inventory sales. See Korea sales verification report
at 33. Consequently, overrun sales were coded in CONNUMs that consisted
primarily of prime merchandise that was actually ordered to a specific
thickness tolerance, contrary to overrun sales, which were made from
inventory.
Given that overrun sales, unlike the overwhelming bulk of sales of
prime merchandise, were made from inventory, additional expenses
associated with this inventorying process would have been incurred for
overrun sales.
Regarding product uses and numbers of buyers for overrun
merchandise, these would have been limited in comparison to other
merchandise. As indicated in the Korea sales verification report at 34,
POSCO's selling practices are such that overruns would not normally be
offered to certain types of customers.
The reported overrun sales constitute a relatively small portion of
the home-market sales databases. In fact, they constitute a
considerably smaller portion of overall sales than did the forecasted
1997 share of POSCO hot-rolled steel output at its new mini-mill,
characterized by the respondent in its rebuttal brief at 30 as
``minuscule.''
Furthermore, the record indicates that excluding the sales the
POSCO group reported as overruns, as requested by the petitioners,
would not in fact exclude overproduced merchandise that was sold in the
normal course of business. Specifically, the POSCO group, in its
description of the decision to code specific steel as an overrun, noted
that typically it attempted to sell merchandise made in excess
quantities as ordinary prime. See Korea sales verification report at
34. The remainder, what the POSCO group internally classifies as
overruns, would just be the portion of what it overproduced which could
not be sold to customers as typical prime merchandise.
The POSCO group does not contest petitioners' assertion of
differences in relative profitability of overrun sales but, rather,
implies that the profits earned on overrun sales were not
insignificant. However, as admitted by the POSCO group in its listing
of factors we have considered in past instances, we are concerned with
relative profitability, not the ``significance'' of certain levels of
profitability.
As indicated by petitioners, the POSCO group did distinguish
between overruns and other prime merchandise in its request to be
excused from reporting downstream sales of certain affiliated service
centers. This is an additional indication that the POSCO group
considered sales of merchandise that had been actually recorded as
overruns as outside the ordinary course of trade.
As a result of these factors, we have determined that the POSCO
group's sales of overrun products were outside of the ordinary course
of trade, and have excluded them from our price comparisons.
Comment 27. Petitioners state that in its preliminary calculations
the Department presumed that the POSCO group had reported warranty
expenses in dollars for local sales, and divided the reported warranty
expenses by the dollar/won exchange rate in order to convert them to
won. Petitioners argue that the POSCO group in fact appeared to have
reported the warranty expenses for local sales in won. Petitioners
argue that the Department should conclude that the per-unit warranty
expenses for local sales were reported in won and, therefore, did not
need to be converted to won. Consequently, petitioners state that the
Department should correct this error by eliminating from the
programming the equations that divide the reported warranty expenses by
the dollar/won exchange rate.
DOC Position. We agree with petitioners, and have corrected this
error for purposes of these final results.
Comment 28. Petitioners state that the Department should increase
Union's reported COP for merchandise with high yield-strength
characteristics because the company inappropriately reported an average
cost of HRC with different yield strengths. According to petitioners,
Union can trace yield strength of HRC to a specific finished product.
Therefore, Union should have accounted for yield strength using a
model-specific approach rather than relying on a single weighted-
average cost. Petitioners also claim that Union's processing costs do
not distinguish between the manufacturing cost of producing merchandise
with different yield strengths, because reported conversion costs are
an average between high- and low-yield-strength products.
Union contends that the petitioners' assertion is incorrect and
based on their misinterpretation of the Department's findings at
verification. According to Union, the verification report does not
raise an issue with respect to its reported weighted-average HRC costs.
Furthermore, Union identified and provided separate HRC costs based on
yield strength as demonstrated in cost verification exhibit 26. As for
submitted processing costs, Union asserts that there is no difference
in processing costs associated with differing yield strengths because
there is no significant difference in the production process of high-
and low-yield-strength merchandise.
DOC Position. For the final results we have accepted Union's
CONNUM-specific costs. We found that Union's cost data were allocated
to a sufficient level of product detail pursuant to our instructions.
We note that in assessing yield strength, the most important
[[Page 18438]]
variable is the carbon content, and possibly any micro-alloying
elements in the HRC. An HRC with a higher carbon level will result in a
finished product with a higher yield strength. However, our model-match
hierarchy did not require that respondents identify carbon content.
Therefore, Union's HRC were weight-averaged based on other more
significant industry characteristics, such as the quality of the HRC.
This quality characteristic indirectly incorporates the cost of carbon,
which is the driver of yield strength. As for petitioners' concern
regarding processing costs, the information on the record does not
indicate that high- yield-strength and low-yield-strength products
require significantly different processing. Additionally, we tested
Union's submitted allocation methods and confirmed that Union allocated
its total costs (i.e., materials, labor, overhead) to either home-
market, third-country, or U.S. merchandise. We also reviewed and tested
the allocation methods used by Union to assign costs to individual
CONNUMs. We did not note any discrepancies in Union's allocation
methods to individual CONNUMs. Respondent has answered petitioners'
concerns by referencing the cost verification exhibits and
demonstrating that no additional adjustments are called for to
accurately reflect costs of products with different yield strengths.
Comment 29. Petitioners contend that the Department should increase
Union's submitted costs to account for the difference between the 1994
and 1995 year-end adjustment figures. Petitioners claim that because
Union's POR covers months in both the 1994 and 1995 calendar years, the
company's submitted costs should reflect year-end accounting
adjustments for both years. Petitioners further argue that the
Department has a longstanding policy of accounting for year-end
accounting adjustments even when the fiscal year-end occurs outside the
POR. In support of their position, petitioners cite Non-Alloy Steel
Pipe (at 42952) and Final Determinations of Sales at Less Than Fair
Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-
Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon
Steel Flat Products, and Certain Cut-to-Length Carbon Steel Plate from
Korea, 58 FR 37176, 37187 (July 9, 1993) (``Flat-Rolled Final''), in
which we included these types of year-end adjustments.
Union argues that its submitted costs already reflect 1994 year-end
accounting adjustments and June 30, 1995 semiannual accounting
adjustments. Therefore, Union contends that there is no practical
reason that in this instant review year-end adjustments for the last
six months of 1995, outside the cost reporting period, should be
included in the reported costs. According to Union, the adjustment the
petitioners request is de minimis in nature and should be rejected
pursuant to the Department's authority under 19 CFR Sec. 353.59(a).
DOC Position. We agree in part with the petitioners. We normally
consider year-end accounting adjustments when calculating costs during
the POR. See, e.g., Non-Alloy Steel Pipe at 42952. In the instant case,
Union reported costs for the period July 1, 1994 through June 30,
1995--a period that includes parts of two separate calendar years.
Firms periodically bring their accounting records to a current status
by means of updating and adjusting entries. The goal of these
adjustments is to match costs in the periods in which the associated
revenues are recognized. Union's submitted costs reflect only the 1994
year-end adjustments. We compared Union's 1994 and 1995 year-end
accounting adjustments and noted that Union's reliance on only the 1994
year-end adjustments reasonably reflects the company's costs for the
POR (see testing at cost verification exhibit 10). We did not find that
adjustments computed on the basis of a cost-reporting period differed
significantly from those computed for the calendar year 1994. In recent
determinations we have accepted a respondent's reported costs where
they reasonably reflected actual costs. See, e.g., Final Results of
Antidumping Administrative Review; Aramid Fiber Formed of Poly Para
Phenylene Terephthalamide from the Netherlands, 61 FR 51406, 51408
(October 2, 1996) and Presses from Germany at 38185.
Comment 30. Petitioners state that the Department should increase
Union's reported manufacturing costs to account for differences between
the company's POR costs (August 1, 1994 through July 31, 1995) and the
submitted fiscal period costs (July 1, 1994 through June 30, 1995).
Petitioners claim that information on the record indicates that Union's
manufacturing costs for the POR (August 1, 1994 through July 31, 1995)
exceed the submitted fiscal costs (July 1, 1994 through June 30, 1995).
Petitioners urge the Department to include this difference in the
submitted costs.
Union disagrees with petitioners and states that the Department
should accept its reported manufacturing costs. Union responds that the
Department permitted it to report POR costs based on the period July 1,
1994 through June 30, 1995 because the methodology did not distort
costs and simplifies the administrative process.
DOC Position. We agree with Union. We generally require that
respondents report a single, weighted-average COP and CV for the POR.
We allow respondents to report these costs based on a fiscal year
rather than the POR under certain defined conditions as explained in
Section D of our questionnaire. We confirmed that the change in the
cost reporting period of one month did not significantly distort costs,
by comparing significant elements of the COM computed on a fiscal-year
basis and on a POR basis (see testing at cost verification exhibit 17).
We noted that the fiscal year figures reasonably reflect the company's
POR results.
Comment 31. Petitioners claim that Union excluded its parent
company G&A expenses in the submitted costs. Petitioners assert that
the Department should increase Union's reported general expenses to
include the identified G&A expenses incurred by its parent, DSM, that
relate to the production of subject merchandise. In support of their
position, petitioners cite the Final Determination of Sales at Less
Than Fair Value; Certain Steel Butt-Weld Pipe Fittings from the United
Kingdom, 60 FR 10558, 10561 (February 27, 1995) (``Butt-Weld Pipe
Fittings from the U.K.''), in which the Department adjusted a
respondent's submitted data to include an allocated portion of the
parent company's G&A expenses.
Union states that, given the inconsequential amount of the
adjustment, the Department should adhere to its preliminary findings
and disregard the petitioners' claim pursuant to section 353.59(a) of
our regulations.
DOC Position. We agree with petitioners. It is our practice to
include a portion of the G&A expense incurred by the parent company on
behalf of the reporting entity. See, e.g., Butt-Weld Pipe Fittings from
the U.K. For these final results, we allocated a portion of DSM's G&A
expenses to Union's general expenses.
Comment 32. Petitioners argue that the Department should treat all
of Union's U.S. sales as CEP sales because of information in the
response and other information discovered at verification. Petitioners
draw a distinction between the present circumstances and those of the
first reviews, since the record of these reviews contains additional
information regarding the nature of UA's activities.
Petitioners argue that for U.S. sales to be classified as EP sales,
a respondent must demonstrate that its U.S. sales satisfy three tests,
as discussed in two recent final determinations, Presses from Germany
at 38171 and Presses
[[Page 18439]]
from Japan at 38141. According to petitioners, U.S. sales will be
classified as EP only if (a) merchandise is not inventoried in the
United States, (b) the commercial channel at issue is customary, and
(c) the U.S. selling agent is not substantively more than a ``processor
of sales-related documentation'' or a ``communications link.''
Concerning the first two aspects of the test, petitioners argue
that these are not relevant to the instant case, since all merchandise
is made to order in the respondent's industry, both in the United
States and in the home market. However, petitioners argue, the
respondent's U.S. affiliate (UA) performs significant selling functions
in the United States, plays an active and substantive role in the U.S.
sales process, and clearly acts as more than a mere processor of sales-
related documentation. Petitioners cite respondent's February 29, 1996
letters to establish that UA performs market research and strategic and
economic planning.
Petitioners argue that UA has substantial discretion and authority
to determine resale prices in the United States and that its parent's
approval of its price quotes is done on a pro forma basis.
Petitioners argue that the Department's verification report
contains further evidence of UA's active involvement in the sales
process, since it states that either ``Union America/Dongkuk
International (DKA) or an independent commissionaire finds a U.S. sale
for Union.'' This statement, petitioners argue, demonstrates that UA
acts as more than a mere processor of sales-related documentation and
that, at a minimum, the Department equates UA's role with that of a
commission agent.
Petitioners argue, again based on the verification report and
Union's February 29, 1996 letters, that, in addition to soliciting
customers, UA has responsibility for maintaining relationships with
U.S. customers and for providing numerous other functions in support of
Union's U.S. sales process: UA negotiates price and purchase terms with
U.S. customers, performs procurement or sourcing services, acts as the
importer of record, extends credit to U.S. customers, and makes
arrangements with independent commission agents.
Petitioners argue that during the POR, UA's activities were taken
over by DKA, and that UA thus became part of a larger organization
engaged in other activities besides the representation of Union.
Petitioners argue that UA thus ceased to be a part of Union, and became
instead part of a larger organization. Petitioners argue that UA's
increased autonomy from Union, and its involvement with other source
companies, highlights the greater role played by UA in the sales
process. Citing Presses from Germany and Presses from Japan,
petitioners argue that the Department holds sales to be CEP when a U.S.
affiliate plays an active role in the sales negotiation process, and
when it performs significant additional functions in support of U.S.
sales. Union's responses and the verification report demonstrate that
UA played an active and substantive role in the U.S. sales process, and
that all of Union's U.S. sales should therefore be classified as CEP
sales.
Respondent argues that the Department has thoroughly considered and
rejected these same arguments in both its first administrative review
final decision and its preliminary findings in these proceedings, and
argues that nothing has changed with respect to this issue from the
first administrative review. Respondent argues that it is Union, not
UA, who determines prices in the United States. Nothing in the record,
respondent argues, indicates that UA or DKA has any discretion, let
alone substantial discretion, in establishing Union's selling price in
the United States.
The respondent reiterates that no new facts or law would warrant a
change in the finding by the Department, in the first review of
corrosion-resistant products and the preliminary results of these
reviews, that Union's U.S. sales were EP sales. Respondent argues that
all of petitioners' arguments were fully examined and rejected by the
Department in the first review of corrosion-resistant products.
DOC Position. We disagree with petitioners. When the criteria
outlined in the DOC Position to Comment 7 supra are met, we consider
the exporter's selling functions to have been relocated geographically
from the country of exportation to the United States, where the sales
agent performs them. We also have recognized and classified as indirect
EP sales certain transactions involving selling activities similar to
UA's in other antidumping proceedings involving Korean manufacturers
and their related U.S. affiliates. See, e.g., Final Determination of
Sales at Less Than Fair Value; Circular Welded Non-Alloy Steel Pipe
from the Republic of Korea, 57 FR 42942, 42950-1 (September 17, 1992).
In the present reviews, we ascertained the following with regard to
sales considered as EP transactions in the preliminary review results:
(1) Union's sales through UA, its related sales agent in the United
States, are almost always shipped directly from Union to the unrelated
buyer, and only rarely are introduced into UA's inventory; (2) Union's
customary channel of distribution is direct shipment, although certain
limited sales are normally introduced into UA's inventory; (3) UA
performed limited liaison functions in the processing of sales-related
documentation and a limited role as a communication link in connection
with these sales. UA's role, for example, in extending credit to U.S.
customers, processing of certain warranty claims, limited advertising,
processing of import documents, and payment of cash deposits on
antidumping and countervailing duties, appears to be consistent with
purchase-price classification. These selling services as an agent on
behalf of the foreign producer are thus a relocation of routine selling
functions from Korea to the United States. In other words, we
determined that UA's selling functions are of a kind that would
normally be undertaken by the exporter in connection with these sales.
More specifically, we regard selling functions, rather than selling
prices, as the basis for classifying sales as EP or CEP. While in some
cases certain merchandise sold by Union was entered into UA's
inventory, this merchandise was sold prior to the importation of the
merchandise, but not from UA's inventory. When all three of the factors
already described for sales made prior to the date of importation
through a related sales agent in the United States are met, we regard
the selling functions of the exporter as having been relocated
geographically from the country of exportation to the United States,
where the sales agent performs them. The substance of the transaction
or the functions do not change whether these functions are performed in
the United States or abroad. In this case, Union has transferred these
routine selling functions to its related selling agent in the United
States and the substance of the transaction is unchanged.
Comment 33. Petitioners argue that in its preliminary results the
Department understated Union's per-unit CEP profit by using an
incorrect base for its profit calculations. Petitioners argue that the
Department should have included inventory carrying costs in indirect
selling expenses when the latter were added into the factor labeled as
``INDEXUS,'' which was the sum of direct and indirect selling expenses,
plus commissions. Petitioners cite
[[Page 18440]]
section 773 of the Act as requiring the Department to attribute CEP
profit to all selling expenses incurred with respect to U.S. sales,
including such imputed expenses as credit, which petitioners note that
the Department did properly include, and inventory carrying charges.
Respondent argues that petitioners' assumption that the Department
intended to use actual interest expenses as a proxy for imputed
inventory carrying costs is incorrect. Respondent cites programming
language to show that the Department deliberately excluded inventory
carrying costs from the profit calculation. Respondent maintains that
the only correction needed in regards to CEP profit is the inconsistent
treatment of credit expenses, which is addressed separately. See
Comment 34 infra.
DOC Position. We agree with respondent that our programming
language deliberately excluded inventory carrying costs from the profit
calculation. For a further discussion of this issue, see the DOC
position to Comment 34.
Comment 34. Union argues the Department erred by treating credit
expenses in the CEP profit calculation inconsistently when classifying
some of Union's sales as CEP. Union avers that credit expenses were not
included in the denominator of the CEP profit ratio, but were among the
expenses multiplied by that ratio. Union contends this inconsistency
must and can be corrected by adding credit expenses to the denominator
in the calculation of the CEP ratio, or by removing them from expenses
multiplied by the ratio.
Petitioners counter that Union's analysis of the Department's
methodology is incorrect, because credit expenses are, in fact,
implicitly included in the denominator of the ratio used to calculate
the CEP profit rate. The Department, petitioners state, calculates the
CEP profit rate by dividing the total profit on home-market and U.S.
sales by the total expenses incurred in both markets. Because the total
expenses include the actual amount of interest expenses incurred in
financing accounts receivable, petitioners' view is that credit
expenses are included in the denominator of the CEP profit ratio.
Petitioners add that, because the denominator of the CEP profit ratio
includes interest expenses incurred in extending credit to customers,
in accordance with the statutory requirement that CEP profit be
attributed to all selling expenses incurred on U.S. sales, the
Department deducts the imputed credit expenses reported for each sale
from the total expenses used to calculate the CEP profit rate in order
not to double-count these expenses. This does not alter, however, the
fact that credit expenses are implicitly included in the denominator;
for that reason, petitioners assert, the Department's methodology is
appropriate and accurate.
DOC Position. We agree with petitioners that imputed credit and
inventory carrying costs should be included in the definition of total
United States expenses used in the allocation of profit to CEP sales,
consistent with section 772(f)(1), and have revised our methodology for
these final results. The SAA states that ``[t]he total U.S. expenses
are all of the expenses deducted under section 772(d) (1) and (2) in
determining the constructed export price.'' SAA at 154. The SAA also
explains section 772(d)(1)(D) as providing for the deduction from CEP
of indirect selling expenses. These typically include imputed inventory
carrying costs, which represent the opportunity costs of the capital
tied up in inventories of the finished merchandise. Id. Section
772(d)(1)(B) explicitly includes credit expenses as among the direct
selling expenses to be deducted from CEP.
We disagree with respondent that imputed credit and inventory
carrying costs should be added to the total expenses used in the
denominator in the CEP profit allocation. In determining the amount of
profit to allocate to each CEP sale, the Department first computes the
total profit earned by the foreign producer. This amount is based on
the producer's actual profits calculated in accordance with section
772(f)(2)(D) of the Act. It includes any below-cost sales but excludes
sales made to affiliated parties at non-arm's-length prices. Because it
is the ``actual'' profit, this amount reflects the actual interest
expense incurred by the producer.
A portion of the total actual profit is then allocated to the U.S.
expenses incurred for each CEP sale. This is done based on the
applicable percentage described in section 772(f)(2)(A) of the Act. In
calculating this percentage, the statute directs us to include in the
numerator the CEP expenses deducted under 772(d), which includes
imputed credit and inventory carrying costs. In contrast, the total
expenses in the denominator are those used to compute total actual
profit. See section 772(f)(2)(D). As discussed above, ``actual'' profit
is calculated on the basis of ``actual'' rather than imputed expenses.
Although the actual and imputed amounts may differ, if we were to
account for imputed expenses in the denominator of the CEP allocation
ratio, we would double count the interest expense incurred for credit
and inventory carrying costs because these expenses are already
included in the denominator.
Comment 35. Petitioners argue that regardless of whether the
Department classifies Union's U.S. sales as EP or CEP transactions, it
still must account for the role played by UA with regard to services
for U.S. sales, including transportation services. Petitioners argue
that UA performs functions incident to bringing the subject merchandise
from the original place of shipment to the United States which are
similar to those performed by Dongbu Express. Petitioners argue that
although different in form, Union's transactions with UA are identical
in substance to those between Dongbu and Dongbu Express. The formal
structure of the transactions between Union and UA should not preclude
the Department from treating them the same way it would treat them if
Union were to pay UA directly for these transportation services,
petitioners argue. Petitioners urge the Department to add a markup to
the transportation services in question.
Because information in the record does not permit the Department to
determine what portion of UA's markup is attributable to
transportation-related services, the Department must use alternative
information to calculate the adjustment, petitioners argue. For this
purpose, petitioners suggest the Department have recourse to the
publicly available ranged data from Dongbu for the same kind of
transaction, where the markup is as much as 30 percent. Petitioners
argue that the Department should therefore add 30 percent to all
transportation services provided by UA, i.e., deduct 1.3 percent of all
reported transportation charges from U.S. price.
Union, citing section 772(d) of the Act, argues that the Act does
not include profits as one of the possible adjustments to EP, and that
there is absolutely no basis in law for deduction of CEP adjustments
from USP for EP sales. Respondent states that the cost of arranging the
movement-related services in question is included in the U.S. brokerage
and handling charges, which are fully accounted for as adjustments to
the U.S. price. Respondent also differentiates its U.S. sales process
from that of Dongbu by asserting that no comparable charge is paid by
Union to UA for the services involved, other than those paid by UA to
customs brokers. Finally, respondent argues, since its sales were EP
and not CEP, there is no basis in law or the Department's practice for
the deduction of UA's profit on such sales.
[[Page 18441]]
DOC Position. We disagree with petitioners and their analysis of
the facts at issue. We verified that UA does not directly perform for
U.S. brokerage and handling services for Union but rather employs
customs brokers to carry out such services, to facilitate customs
clearance, and to pay any customs duties. We verified that all U.S.
brokerage and handling expenses (i.e., demurrage and wharfage charges)
incurred by UA on behalf of Union were fully reported on a sale-by-sale
basis in the computer field USOTREU. We agree with Union that there is
no legal basis for deducting an amount for UA's profit on these sales,
because U.S. profit deductions are allowed only in connection with CEP
sales, and not EP sales. Accordingly, we have not modified our
treatment of movement expenses. See also DOC Position in response to
Comment 10, supra.
Comment 36. Petitioners argue that the Department should use
Union's date of shipment as date of sale for all U.S. sales because, in
multiple transactions, the Department found at verification that the
sales quantity changed between the sale date and shipment date.
Analyzing verification exhibit 14, petitioners note that the quantity
shipped differed from the quantity ordered by more than the established
delivery allowance of 10 percent in multiple instances. Petitioners
note that similar findings arose in the first review of corrosion-
resistant products, and that, as a result, the Department used date of
shipment for date of sale.
Respondent maintains that the verification actually upheld its
reported sale dates, since it showed that all of Unions' sales are
produced to order, that Union schedules its production to meet the
terms of the sale contract, that the delivery provision of the sales
contract merely requires the customer to accept any shipment falling
within the tolerance and does not in any way provide a party with the
opportunity to void the transaction if the delivered quantity exceeds
the delivery tolerance, as evidenced by the absence of any refused
shipments where the quantity fell outside the tolerance. Finally,
respondent argues, petitioners have exaggerated the data, and the
instances of quantities falling outside the delivery tolerances were
``quite limited.''
DOC Position. We agree with respondent. It is customary in high-
volume metal industries for quantities to vary slightly in unforeseen
amounts, for production convenience; this practice does not amount to a
renegotiation or a significant alteration in the terms of trade.
Therefore, we have continued to use the actual sale date as date of
sale for purposes of these final results.
Comment 37. Petitioners note that the Department discovered at
verification that Union's U.S. credit expenses were based on an
incorrect interest rate. Petitioners accordingly request the Department
to use the revised rate in its final results. Respondent did not
address this issue.
DOC Position. We agree with petitioners and have amended our
program accordingly for these final results.
Comment 38. Petitioners argue that the Department should convert
all data, including quantity, for U.S. and home-market sales made on
the basis of theoretical weight, to actual weight; in so doing, the
Department should divide the calculated per-unit net price by the
reported weight conversion factor. Respondent did not address this
issue.
DOC Position. We agree with petitioners and have amended our
program accordingly for these final results.
Comment 39. Petitioners argue that, in the event the Department
uses Union's home-market prices instead of CV, the Department should
make certain adjustments to Union's reported home-market sales data.
Citing the contractual arrangements which govern Union's home-
market distribution, petitioners argue that Union's distributors are
under Union's effective control; as examples, petitioners cite a
stipulation in one such contract prohibiting a distributor from selling
other firms' products. Petitioners cite other clauses which appear to
``give Union control over its distributors.'' In light of this control,
petitioners request that the Department subject Union's home-market
sales to an arm's-length test, and exclude any sales made at less than
arm's-length prices.
DOC Position. We disagree with petitioners. The arrangements Union
has entered into with its home-market distributors are simply exclusive
sales contracts which are a common commercial arrangement all over the
world. These arrangements are typically made at arm's length and do not
normally indicate control of one party over the other. In this case we
have no evidence that Union's distributors entered into these contracts
other than voluntarily and that these contracts cannot be terminated at
regular intervals by either party. For these final results, therefore,
we have not subjected Union's home-market sales through distributors to
an arm's-length test.
Comment 40. Petitioners note that Union identifies certain home-
market merchandise as ``overruns,'' which the Department typically
excludes from the calculation of NV as outside the ordinary course of
trade. Petitioners note that, at verification, the Department found
that Union uses the term ``overrun'' to identify sales that have
atypical characteristics, including sales of merchandise found to have
been obsolete, thinner than planned, or priced especially low to
compensate a customer for previous payments. Petitioners cite the
definition of ordinary course of trade in section 771(15) of the Act
and assert that the overrun sales clearly are not in the ordinary
course of trade. Petitioners also cite additional evidence to this
effect, such as Union's low volume of overrun sales as a percentage of
home-market sales, the different profit level on such sales, and the
sporadic and low-volume nature of the sales in question. Petitioners
urge the Department to exclude these sales from the calculation of NV.
Union argues that it does not in fact have any overruns, but that
it designated certain sales as such at the Department's direction based
solely on selling price.
DOC Position. We agree with petitioners. While ``overruns'' may not
be the correct term of art to describe each of these sales, since it
was at our direction that Union applied that designation to certain
sales, the sales bearing this designation do in fact show one of the
following signs of being outside the ordinary course of trade:
The merchandise was obsolete;
The merchandise was defective (e.g., thinner than
planned); or
The merchandise was priced especially low to compensate a
customer for previous payments.
When viewed as a whole, moreover, the fact that these ``overrun''
sales were sporadic, low-volume, accounted for only a small percentage
of home-market sales, and were far less profitable than was typically
the case in the home market, all suggest that these sales were, in
fact, outside the normal course of trade. For these final results,
therefore, we have eliminated those sales from our calculations of NV.
Comment 41. Recalling their argument in their general comments that
Union is affiliated with POSCO, petitioners argue that the Department
should use third-country prices for the value of Union's purchases of
HRC, and should use CV for NV, basing CV profit on Union's profit in
its largest third-country market.
Respondent argues that it is not affiliated with POSCO, that
petitioners have not demonstrated that Union is reliant upon or
controlled by POSCO,
[[Page 18442]]
that petitioners have not demonstrated that Union pays less than arm's-
length prices for HRC purchased from POSCO, and that there is no basis
for determining that Union is affiliated with POSCO.
DOC Position. Because the Department has determined that POSCO and
Union are not affiliated (see DOC Position to Comment 2, supra), this
comment is moot.
Comment 42. Petitioners note that in its preliminary results,
contrary to the intent expressed in its preliminary analysis
memorandum, the Department neglected to deduct brokerage and handling
charges incurred in Korea by Union from U.S. price. Petitioners request
the Department to correct its computer program to ensure that this
charge is duly deducted from Union's U.S. price.
DOC Position. We agree with petitioners and have amended our
program accordingly for these final results.
Respondents' Comments
Comments by Dongbu
Comment 43. Dongbu argues that it appropriately offset G&A expenses
by the net gain from foreign currency translations of accounts payable.
Dongbu asserts that these gains are associated with the production of
subject merchandise because they relate to the purchase and financing
of raw materials. In support of its contention, Dongbu states that this
inclusion of foreign currency gains and losses from translations in COP
and CV is consistent with the following Departmental determinations and
judicial precedent: Micron Technology, Inc. v United States, 893 F.
Supp. 21, 33 (CIT 1995) (``Micron''); Pasta at 30359; and Final
Determination of Sales at Less than Fair Value: Random Access Memory
Semiconductors of One Megabit and Above from the Republic of Korea, 58
FR 15467, 15480 (March 23, 1993) (``DRAMS'').
Petitioners contend that the Department should exclude Dongbu's net
gains on foreign currency translations from G&A, COP, and CV
calculations. The petitioners argue that the Department normally only
includes foreign exchange transactions and not foreign exchange
translations in the calculation of G&A expense. According to
petitioners, the Department does consider certain translation gains and
losses as a financial expense if such gains related to the cost of
acquiring debt. However, petitioners claim that this approach does not
apply in this instance, because the translation gains and losses are
associated with raw material accounts payable and not debt related to
external financing.
DOC Position. We disagree with Dongbu that the company's net gain
from certain foreign-currency translations gains represents a G&A
expense. In the past we have found that translation losses represent an
increase in the actual amount of cash needed by respondents to retire
their foreign-currency-denominated loan balances. See, e.g., Notice of
Final Determination of Sales at Less Than Fair Value: Fresh Cut Roses
from Ecuador, 24 FR 7019, 7039 (February 6, 1995). Using the same
reasoning, for purposes of these final results we have included
Dongbu's net gains on foreign-currency translations in COP as an offset
to financing cost, since the gains represent a decrease in the actual
amount of cash needed by respondents to retire their foreign-currency-
denominated loan balances.
Comment 44. Dongbu and Union argue that the Department erred in the
preliminary determination of this review by failing to add an amount to
export price to account for export subsidies, as required by section
772(c)(1)(C) of the Act. According to these respondents, article
VIpara. 5 of the GATT provides that ``[n]o product * * * shall be
subject to both antidumping and countervailing duties to compensate for
the same situation of dumping or export subsidization. This provision
was implemented into U.S. law by section 772(c)(1)(C) of the Act. As
provided therein, EP and CEP ``shall be * * * increased by * * * the
amount of any countervailing duty imposed on the merchandise * * * to
offset an export subsidy.'' In light of the above, Dongbu and Union
contend the Department erred by failing to add 0.05 percent (for cold-
rolled) and 0.10 percent (for corrosion-resistant) to EP and CEP to
account for the payment of countervailing duties offsetting export
subsidies. These respondents assert that the Department itself
indicated such an adjustment was warranted in the final LTFV
determination and in the final results of the first administrative
review of certain corrosion-resistant carbon steel flat products from
Korea. See, e.g., Flat-Rolled Final at 37191; Corrosion-Resistant Final
at 18568.
Petitioners argue that the Department's decision not to adjust U.S.
price for CVDs offsetting export subsidies is consistent with
Department practice. They contend that the statute provides for an
upward adjustment to U.S. price in order to account for CVDs imposed to
offset export subsidies. See section 772(c)(1)(C) of the Act.
Petitioners state that should the Department determine not to deduct
CVDs from U.S. price because these duties are not imposed, it should
also not make any upward adjustment to U.S. price for CVDs offsetting
export subsidies for the same reason. Furthermore, if the Department
treats the CVDs as not final, and determines to makes a downward
adjustment to the cash deposit rate for CVDs offsetting export
subsidies, it should also make an upward adjustment to the duty deposit
rate for all other CVDs. Petitioners argue that if such an adjustment
is made to the cash deposit rate, the applicable CVD rate must be
applied to entered value, and not reported EP.
Petitioners argue that it is the Department's practice to calculate
subsidy rates by allocating the benefit received over the f.o.b.
foreign port value of the respondent's sales. They state that since the
export subsidy rate is calculated using f.o.b. foreign port prices, the
adjustment to U.S. price for CVDs offsetting export subsidies should
also be calculated in this way; and that the percentage of the CVD rate
attributable to export subsidies must be applied to entered value.
However, according to petitioners, because respondents failed to
reported entered value to the Department in their sales submissions,
the adjustment cannot be made and respondents' request must be denied.
The POSCO group retorts that the Department was correct, in
accordance with section 772(c)(1)(C) of the Act, in increasing EP by
the amount of the CVD imposed to offset export subsidies, and adds that
petitioners' contention that the adjustment be based on the entered
value of the merchandise has no basis in the statute.
DOC Position. For purposes of these final results, we agree with
Dongbu and Union that they are entitled to a 0.05 percent ad valorem
adjustment to U.S. price for cold-rolled products and to a 0.10 percent
ad valorem adjustment to U.S. price for corrosion-resistant products,
in accordance with section 772(c)(1)(C) of the Act. Moreover, we
disagree with petitioners' claim that an increase to U.S. price to
account for export subsidies implies that the remaining portion of the
CVDs paid on those shipments must be deducted from U.S. price. Also,
nothing in the statute indicates that the upward adjustment should be
based on entered value rather than on U.S. price, and it is not our
practice to do so.
Comments by POSCO
Comment 45. The POSCO group asserts that the Department erred in
including foreign exchange gains and
[[Page 18443]]
losses in interest expense. The POSCO group maintains that the foreign
exchange gains and losses were not related to the production of the
subject merchandise. The POSCO group states the gains and losses were
either not realized during the POR or were amortized forward from a
prior period. The POSCO group argues that these categories of exchange
gains or losses do not in any way capture actual costs incurred during
the POR or costs incurred to produce the subject merchandise.
The POSCO group argues that the Department erroneously overstated
POSCO's interest expense by basing the denominator in its interest
expense calculation on the cost of goods sold as reported in POSCO's
consolidated financial statement, rather than on the higher amount that
the Department calculated for POSCO's COM during the POR. The POSCO
group urges the Department first to increase the cost of goods sold to
reflect any adjustments the Department makes to POSCO's COM before
dividing POSCO's interest expense by that amount.
Petitioners reply that the foreign-exchange translation losses are
related to the cost of acquiring debt. Thus, they are related to
production and are properly included in the calculation of POSCO's net
interest expense. Petitioners cite Micron, which held that, to the
extent that a respondent's translation losses resulted from debt
associated with production of the subject merchandise, such losses are
a legitimate component of the COP. Petitioners conclude that whether
POSCO's foreign exchange gains and losses were realized during the POR
is immaterial. They resulted from debt associated with production of
the subject merchandise, and were, accordingly, properly included in
the reported costs.
DOC Position. We agree with petitioners that including foreign-
exchange translation losses in net interest expense is appropriate. The
translation losses at issue are related to the cost of acquiring debt
and thus are related to production and are properly included in the
calculation of the POSCO group's net interest expense. The CIT has
upheld this practice, stating in Micron that ``[t]o the extent that
respondent's translation losses resulted from debt associated with
production of the subject merchandise, such losses are a legitimate
component of COP.'' See Micron at 33. Therefore, we increased POSCO's
cost of goods sold to reflect our fair-value adjustments for the final
results.
Comment 46. The POSCO group contends that the Department
erroneously included severance benefit expenses that were attributable
to years prior to the POR in our calculation of G&A. The POSCO group
cites section 773(f)(1)(B) of the Act, which directs the Department to
adjust the COP for those nonrecurring costs that benefit current or
future production, or both. The POSCO group argues that prior-period
severance benefits are nonrecurring costs that do not benefit current
or future production and therefore should not be included in the COP.
The POSCO group cites the Final Results of Antidumping Duty
Administrative Review: Certain Cut-to-Length Carbon Steel Plate from
Germany, 61 FR 13834, 13837 (March 28, 1996), to support its contention
that the Department does not adjust actual production costs incurred
during the POR to reflect severance costs related to prior periods.
Petitioners claim the severance benefits were properly included in
G&A because the POSCO group's omission of this expense understated, and
failed reasonably to reflect, the costs associated with the production
and sale of the subject merchandise in accordance with the statute.
Petitioners take issue with the POSCO group's characterization of
severance benefits as non-recurring costs. Petitioners cite the Final
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat
Products, Certain Corrosion-Resistant Carbon Steel Flat Products, and
Certain Cut-to-Length Carbon Steel Plate from Japan, 58 FR 37154, 37174
(July 9, 1993), to support their position that severance benefits are
not non-recurring items and should be included in G&A.
The POSCO group argues that charitable donations should be excluded
from G&A since donations to charitable causes clearly do not relate to
activities undertaken to manufacture and sell cold-rolled and
corrosion-resistant steel products, but rather are payments to support
the society at large. The POSCO group further argues that charitable
donations do not fall within any other category of costs that are
required to be included in the COP under the statute, such as
materials, fabrication, labor, overhead, or packing costs.
Petitioners respond that the POSCO group's charitable contributions
clearly benefit the POSCO group's research and development efforts
which are clearly activities undertaken to manufacture and sell cold-
rolled and corrosion resistant steel products. Petitioners cite the
Final Determination of Sales at Less Than Fair Value: Sweaters Wholly
or in Chief Weight of Man-Made Fiber from Hong Kong, 55 FR 30733, 30741
(July 27, 1990), to support their position that the Department's
practice is to include donations as a part of the G&A component of the
COP and CV.
DOC Position. We disagree with the POSCO group that the prior-
period severance benefits at issue do not relate to the current POR. In
1994, POSCO settled a lawsuit brought by current and former employees
regarding severance benefits promised to employees upon departure.
POSCO charged the additional severance benefits associated with prior
periods directly to retained earnings in accordance with generally
accepted accounting principles in Korea (``Korean GAAP''). However, we
have determined that including the prior-period severance benefit as an
element of COP is appropriate because the POSCO group's omission of
this severance benefit understates and does not reasonably reflect the
costs associated with the production and sale of the subject
merchandise pursuant to U.S. GAAP. If the POSCO group had followed U.S.
GAAP, it would have reported this expense currently and not as a charge
to retained earnings. According to Financial Accounting Standards Board
Statement No. 16 (1977), paragraph ten, `` * * * all items of profit
and loss recognized during a period, including accruals of estimated
losses from loss contingencies, shall be included in the determination
of net income for that period.'' Furthermore, this pronouncement
requires that losses from lawsuits, income tax disputes, and similar
events be included in the measurement of net income for the current
period and should not be treated as prior-period adjustments.
Accordingly, because we have determined that this method reasonably
reflects the costs associated with the production and sale of the
subject merchandise, we have included the severance benefits in general
expenses.
We have included donations in G&A because contributions to
charitable causes represent a general expense of the company, providing
the firm with valuable commercial exposure and recognition in the
marketplace. General expenses are appropriately included in the COP and
CV of the merchandise under investigation according to sections
773(b)(3)(B) and 773(e)(2)(A) of the Act.
Comment 47. The POSCO group claims the Department made several
cost-related clerical errors in the preliminary results. First, the
POSCO group claims the Department applied the wrong factor when the
Department adjusted the substrate costs to reflect
[[Page 18444]]
fair value for corrosion-resistant products manufactured by POCOS.
Second, in the sales-below-cost program, the POSCO group alleges the
Department failed to increase the home-market price by interest revenue
before comparing the result to the COP. Lastly, the POSCO group argues
that the Department incorrectly applied the fair-value adjustment in
situations where cost was higher than the transfer price. The POSCO
group claims it is inappropriate to apply a percentage figure to a
basis different from the data from which the percentage was calculated.
Further, the POSCO group claims the adjustment was intended to increase
only the value of the substrate; the Department's adjustment, however,
multiplied this factor by the COM, which includes additional materials
as well as labor and overhead expenses.
DOC Position. The POSCO group's contention that we used the wrong
factor to adjust the substrate costs to reflect fair value for
corrosion-resistant products manufactured by POCOS is moot since we
have not used either the major-input or fair-value provisions for these
final results. We agree that interest revenue should be included in the
home-market price which we did not include in the preliminary results.
We have corrected this error for the final results. The issue of
whether we applied the correct adjustment factor in cases where we
selected the actual cost of a CONNUM is moot, since we did not apply
the major-input rule in these final results.
Comment 48. The POSCO group argues that the Department erred by
reducing the post-sale warehousing expense for one warehouse because
the Department mistakenly thought the expense was not at arm's length.
Petitioners argue that the Department appropriately reduced POSCO's
expenses for the warehouse. Petitioners state that the POSCO group
failed to indicate before verification that the warehouse was owned by
an affiliated party or to provide evidence that the expenses were at
arm's length, and the Department should not presume that they were.
DOC Position. During the sales verification in Korea, the POSCO
group informed us that the warehouse in question was owned by an entity
that was affiliated with POSCO. See Korea sales verification report at
71. Included in the POSCO group's proposed list of POSCO expenses
associated with this warehousing, in addition to expenses directly
incurred by POSCO, such as those for labor, crane operations, and
maintenance (see pages 70-71 of the public version of the Korea sales
verification report), is an additional payment to the affiliated party.
It is not clear from the record what, if any, were the expenses to the
affiliated party that were associated with this payment.
In the preliminary results we deducted from the reported expense a
share of the additional payment to the affiliated party corresponding
to the ownership share POSCO held in that party. Given the information
on the record, we consider this portion of the payment to be an
internal transfer of funds. Consequently, we have maintained the
adjustment to the reported post-sale warehousing expense that we made
in the preliminary results.
Comment 49. The POSCO group argues that the Department erred by
failing to convert warehousing expenses to an actual-weight basis. The
POSCO group notes that it indicated explicitly in its February 27,
1996, submission that POSCO reported all expenses in a manner
consistent with the manner in which the product was sold. The POSCO
group states that no exceptions to this rule were indicated, nor were
any such exceptions found during verification and, therefore, the
Department has no basis for not converting this expense to an actual-
weight basis.
Petitioners argue that the per-unit warehousing expense is not
unambiguously expressed on a theoretical-weight basis or an actual-
weight basis according to the weight basis of the sale. Petitioners
indicate that because per-unit warehousing expenses are not expressed
on a theoretical-weight basis for sales made on a theoretical-weight
basis, the Department's decision not to divide warehousing expenses for
those sales by the weight conversion factor was appropriate.
DOC Position. We agree with petitioners. The POSCO group indicated
it calculated post-sale warehousing expenses for each warehouse by
dividing total aggregate expenses incurred at the warehouse by total
quantity of steel at the warehouse. For sales involving specific
warehouses, the POSCO group reported the same per-ton post-sale
warehousing expense regardless of whether the sales were on an actual-
weight basis or a theoretical-weight basis. This indicates that the
POSCO group was reporting the per-ton expense on the same basis for all
sales. Consequently, no further adjustment is appropriate.
It is possible that the total reported quantities for each
warehouse, which were used to calculate the per-ton expense for the
respective warehouses, were based on a mix of both theoretical and
actual weights. However, there is no evidence on the record that the
total reported quantities were based on such a mix of weight bases and,
even if there were such evidence, the adjustment proposed by the POSCO
group would not correct such an underlying methodological problem.
As a result of the aforementioned review of reported warehousing
expenses for sales made on a theoretical-weight basis, we discovered
that none of the per-ton warehousing expenses provided by the POSCO
group at verification were used in the post-sale warehousing field for
several home-market sales. See Korea sales verification exhibit 78 at
10. The value used for those sales is the last figure reported in
Exhibit 7 of the POSCO group's July 31, 1996, submission. Although the
POSCO group asserted in the cover letter to that July 31, 1996,
submission that the information in the attached exhibits contained the
``corrections'' that ``were presented to the Department during the
sales verification conducted from July 15-27, 1996,'' the figure in
question was not presented to the Department at verification, and there
is no explanation of its derivation on the record. Consequently, for
the final results we are denying this adjustment to all home market
sales for which that unverified and unexplainable figure was reported
as a post-sale warehousing expense.
Furthermore, the POSCO group indicated at verification that an
average per-ton expense across all warehouses had been used for sales
by Kyung Ahn and POSTEEL (see Korea sales verification report at 69 and
70); therefore, we have limited the post-sale warehousing expense for
sales by these entities to no more than the recalculated average
warehousing expense. See Attachment A to the October 8, 1996,
memorandum from Steve Bezirganian to the Files.
Comment 50. The POSCO group argues that the Department erroneously
failed to increase the home-market price used in the cost test by
interest revenue received by the POSCO group due to late payments by
customers. Petitioners did not comment on this issue.
DOC Position. We agree with the POSCO group, and have increased the
net price used in the cost test by the reported interest revenue for
each sales observation.
Comments by Union
Comment 51. Union claims that the Department inadvertently omitted
to add duty drawback to the U.S. gross unit price when calculating net
EP and CEP, as required by statute, and requests
[[Page 18445]]
that the Department correct its margin calculation program accordingly.
DOC Position. We agree and have corrected our margin calculation
program accordingly.
Comment 52. Union argues that the Department erred in combining
Union's net interest expenses with those of DSM and DKI, since (1)
under Korean GAAP, Union is not considered to be a controlled
subsidiary of any other company and is not required to be consolidated
with any other company; and (2) the Department verified that neither
DSM nor DKI has a controlling interest in Union and that Union's
financial statements are not consolidated with either of the two other
companies. Union submits that the Department itself answered the
question of whether, or under what circumstances, the Department can
unilaterally create a consolidated interest rate when the companies at
issue are not in fact consolidated or required to be consolidated, in
its Notice of Final Determination of Sales at Less Than Fair Value:
Aramid Fiber Formed of Poly-Phenylene Terephthalamide from the
Netherlands, 59 FR 23684, 23688 (May 6, 1994) (``Aramid Fiber''). In
Aramid Fiber the Department clarified that where there are no
consolidated statements, the issue is whether the parent company had
``sufficient control'' over the subsidiary, as indicated by equity
ownership, to warrant consolidation under foreign GAAP. Union adds that
in Aramid Fiber the Department cited two earlier cases in which it had
found evidence of ``sufficient control.'' In both cases the parent
company owned at least 50 percent of the subsidiary. See, e.g., Final
Determination of Sales at Less Than Fair Value: Certain Carbon Steel
Butt-Weld Pipe Fittings from Thailand, 57 FR 21065 (May 18, 1992);
Final Determination of Sales at Less Than Fair Value: Ferrosilicon from
Brazil, 59 FR 732 (January 6, 1994). Union argues that neither of the
above conditions are met since DKI's and DSM's equity ownership in
Union is far less than 50 percent and Korean GAAP do not recognize the
existence of a parent-subsidiary relationship between DSM or DKI and
Union.
Union also states that there is no evidence on the record of DSM's
or DKI's involvement in the financing activities of Union. In Aramid
Fiber, says Union, the Department refused to create a consolidated
interest expense for the respondent even though:
A parent-subsidiary relationship clearly existed;
The parent company owned 50 percent of the subsidiary's
equity;
The parent and subsidiary shared joint control over the
subsidiary's operations;
The parent and the subsidiary were consolidated after the
POR; and
The parent financed the subsidiary's transactions.
Even though none of these circumstances applied to Union's relationship
with DKI and DSM, Union points out, the Department chose to create a
consolidated interest rate for Union. Furthermore, Union states, in two
recent Korean cases the Department did not consolidate interest
expenses because the companies involved were not consolidated in the
normal course of business. See, e.g., DRAMs and Final Determination of
Sales at Less Than Fair Value: Polyethylene Terephthalate Film, Sheet
and Strip from the Republic of Korea, 56 FR 16305 (April 22, 1991).
For all the foregoing reasons, Union argues that the Department
should reverse its preliminary decision and cease consolidating Union
interest expenses with those of DSM and DKI.
Petitioners take issue with Union's contention that the
Department's decision to combine Union's interest expenses with those
of DSM and DKI is ``neither supported by facts nor by Department policy
and precedent.'' Indeed, say petitioners, not only did Union make (and
the Department reject) the same argument in the first administrative
review, but Union has presented in this review no new arguments that
would change this conclusion. Petitioners assert that the Department
does not impose any requirement that firms be formally consolidated
before combining their interest expenses, as claimed by Union Steel.
Rather, the Department attempts to determine whether a control
relationship exists between a respondent and its affiliates. Where
there is no evidence of significant control, say petitioners, the
Department will not calculate a combined interest rate, even when two
firms have a parent-subsidiary relationship on the basis of equity.
However, when there is a control relationship, the Department will
calculate a consolidated interest rate even if the two firms did not
prepare consolidated financial statements. In the first and instant
reviews of cold-rolled carbon steel flat products, petitioners point
out, the Department collapsed Union and DKI because they had
intertwined operations, shared production facilities and board members,
and were under the common control of the Chang family through its
ownership in DSM. Therefore, petitioners argue, DSM's level of control
over DKI and Union warrants the calculation of a consolidated interest
expense for all three firms. Petitioners claim the cases of Aramid
Fiber and PET Film cited by Union are inapposite, since in those cases
the Department did not find sufficient control of the subsidiary by the
parent. For these reasons, petitioners contend, the Department was
fully justified in calculating a consolidated interest expense for
Union, DSM, and DKI.
DOC Position. For the final results, we calculated a combined net
interest factor using Union's, DSM's, and DKI's audited financial
figures obtained from verification exhibits, respondent's submissions,
and public records. This methodology of calculating a single net
interest factor is consistent with our longstanding practice for
computing interest expenses in cases involving parent-subsidiary
corporate relationships. In contrast to Aramid Fiber, we have
established that parental control exists. DSM's ownership interest in
Union and DKI places the parent in a position to influence Union's
financial borrowing and overall capital structure. We note that,
contrary to Union's assertions that Union is an independent company and
not controlled by DSM, the two companies share common directors and
related stockholders. Based on this information, we do not see how
Union's operations are independent of its parent to such an extent that
we should ignore our normal practice of computing interest. See Notice
of Final Determination of Sales at Less Than Fair Value; Certain Carbon
Steel Butt-Weld Pipe Fittings from Thailand, 60 FR 10552, 10557
(February 27, 1995). Additionally, we find it appropriate to combine
the financing costs of these three companies in this instant review
because we consider the financing costs of the parent and its
subsidiaries to be fungible. Furthermore, the facts of these reviews
differ from both DRAMS and PET Film with regard to combining interest
expense factors. In DRAMS and PET Film the respondents requested that
the Department combine limited brother-sister companies to derive a
consolidated group-level interest expense factor. In those cases,
however, we determined that a consolidated group-level interest factor
was inappropriate because, while the respondents' own financial
statements were audited, those of the sister companies and the group-
level financial statements were unaudited. As we stated in DRAMS,
absent detailed testing usually associated with an audit, the
Department cannot rely on the
[[Page 18446]]
statements as submitted. See DRAMs, DOC Position for Comment 24, at
15475. In the instant review, by contrast, each of the entities in
question--Union, DSM, and DKI--prepared separate audited financial
statements, which we could therefore combine to calculate a group-level
interest expense factor based on Union's assertions that no significant
inter-company transactions existed.
Comment 53. Union contends the Department erred by failing to
differentiate products with disparate paint types that have different
costs and commercially meaningful different physical characteristics,
and arbitrarily combining them into a single category, contrary to the
statutory requirement that the Department make comparisons wherever
possible between products with identical physical characteristics.
Union argues the Department has unreasonably aggregated five very
different paint categories of painted products: (1) Polyester; (2)
silicone polyester; (3) high-polymer polyester; (4) abrasion-resistant
steel (``ARS'') texture; and (5) print. Union maintains these products
have significantly different:
Uses: for example, polyester-coated products are used for
roofing and siding due to their resistance to chemicals and weather,
while high-polymer polyester-coated products are used in home
appliances and electronics on account of their resistance to heat,
abrasion, and impact;
Material costs: The differences in physical
characteristics lead to substantially different manufacturing costs;
Values: Union's customers would not be willing to pay
substantial premiums for certain painting categories such as high-
polymer polyester if the differences in products were as negligible as
assumed in the Department's model-match hierarchy.
Union claims the CIT has ruled that ``Commerce must adjust for physical
differences between the products if satisfied that any price
differential is wholly or partly the result of such physical
differences.'' See Hussey Copper, Ltd. v. United States, 895 F. Supp.
311, 313 (1995) (``Hussey'') (emphasis added by Union). By treating
regular polyester-coated products as identical to silicone polyester,
high-polymer polyester, and other painted products, the Department,
Union argues, is violating the statutory requirement of fair
comparisons and the specific mandate of section 771(16)(A) of the Act
for comparisons, wherever possible, between products with ``identical
physical characteristics.'' Union, therefore, requests that the
Department use the alternative product concordance and difference-in-
COM data it has submitted.
Petitioners retort that Union's arguments do not address the
criteria used by the Department to establish product categories and
determine product comparisons. By focusing on the prices and costs of
different painted products, petitioners argue, Union ignores the
Department's longstanding practice of using physical characteristics as
the primary basis for creating product categories. Petitioners contend
that the Department could accept Union's proposed alternate painted
categories only if Union were able to demonstrate that the various
paint types are so dissimilar that they cannot be compared. According
to petitioners, the record does not support Union's claims that its
paint types have different physical characteristics and applications.
As an example, they cite regular polyester and silicon-polyester
paints, which both have weather and chemical resistance and can be used
for the exterior surfaces of buildings. Petitioners contend that
Union's own descriptions of its various paint types indicate that the
physical similarities between paint types far outweigh any differences.
Moreover, they contend that even if the costs and prices of paint types
were relevant to the creation of paint categories in the Department's
model-match hierarchy, which they are not, the differences in costs and
prices among painted products are neither significant nor systematic,
to the extent that they exist at all. Petitioners therefore urge the
Department to disregard Union's proposed alternate paint categories.
DOC Position. We agree with petitioners that Union provided
insufficient information to support the further differentiation of
painted products in the Department's model-match hierarchy. Contrary to
Union's assertions, the uses and applications of the merchandise are
not dispositive in this analysis. Rather, the Department looks to
physical differences and adjusts for them ``if satisfied that any price
differential is wholly or partly the result of such physical
differences.'' Hussey at 313.
Union contends that the different uses of products with distinct
paint coatings demonstrate that each paint coating imparts different
properties to the steel (e.g., corrosion-resistance, heat resistance,
etc.). Although Exhibit B-4 of Union's November 27, 1996, response to
sections B and C of our antidumping questionnaire (with respect to
corrosion-resistant products) purports to list the physical properties
of Union's various paint types, a close examination of the data
presented in that exhibit reveals that the properties listed are all
extremely general in nature (e.g., ``gloss,'' ``semi-gloss,'' and
``flat'') and are repeated in every paint category. Other alleged
physical properties listed by Union, such as ``drying time,''
``spreading rate,'' and ``specific gravity'' are not even physical
properties at all. Union, therefore, has not demonstrated the precise
nature of the respective properties of its paint categories, or the
actual physical differences in the paints that impart such properties,
nor has it offered any analysis of whether, or to what extent,
differences in physical characteristics between its paint categories
have resulted in cost differences.
As the CAFC has found, products possessing similar physical
characteristics need not be ``technically substitutable, purchased by
the same types of customers, or applied to the same end use'' in order
to be compared as ``identical'' merchandise within the meaning of
section 771(16)(A) of the Act. See Koyo Seiko Co. v. United States, 66
F.3d 1204, 1210 (Fed. Cir. 1995) (quoting Tapered Roller Bearings,
Finished and Unfinished, from Japan; Final Results of Antidumping Duty
Administrative Review, 56 FR 41508, 41511 (August 21, 1991)). Given the
tremendous number of variations within carbon steel product categories,
the Department may define certain products as ``identical'' even though
they contain minor differences. See, e.g., Certain Cold-Rolled Carbon
Steel Flat Products from Germany; Final Results of Antidumping
Administrative Review, 60 FR 65264, 65271 (December 19, 1995) and Final
Determination of Sales at Less Than Fair Value; Gray Portland Cement
and Clinker from Mexico, 55 FR 29244, 29247-48 (July 18, 1990). Union's
argument ignores the obvious fact that a product characteristic
hierarchy cannot possibly account for every single possible difference
between products--a result not required by Hussey. A range of products
may thus be considered ``identical'' within the meaning of the statute.
Therefore, we have disregarded the alternative product concordance and
difference-in-COM data Union has submitted.
Comment 54. Union argues the Department erred by removing Union's
scrap revenue from Union's COM, thereby lowering the COM denominator
for general expenses and profit allocations. This would have been
justified, Union says, only if scrap revenue had elsewhere been
credited to
[[Page 18447]]
costs, which is not the case. Union surmises that the Department may
have based its decision on the first review of corrosion-resistant
products, when scrap revenue was included in miscellaneous income, and
therefore was double-counted when included as an offset to COM. In this
review, however, Union contends that scrap revenue was not part of
miscellaneous income, was not used to reduce Union's general expenses,
and was already included in Union's COM.
Petitioners retort that Union's argument is factually inaccurate,
because verification exhibits demonstrate that: (1) Scrap material
costs are included among the manufacturing costs recorded in Union's
COM statements, and (2) Union recorded profits from scrap sales as
sales revenues, not as adjustments to manufacturing costs. The
Department, they claim, found no evidence that Union reduced its COM by
the amount of the scrap revenue. Rather, say petitioners, the record
shows that the manufacturing costs recorded in Union's COM statements
were used to determine the cost of sales in the financial statements,
so that the cost of sales has not been reduced by the amount of scrap
revenue, as the denominator of the allocation ratios for general
expenses and interest expenses. Petitioners urge the Department to
continue to deduct Union's scrap revenue from cost of sales in order to
ensure that per-unit general expenses and interest expenses are
calculated accurately for purposes of the final review results.
DOC Position. We agree with petitioners. Using its normal cost
accounting system, Union prepares COM statements that reflect revenue
from the sale of scrap credited against production costs. However,
Union's cost of sales figure does not reflect this same reduction
because Union reclassifies and recognizes this sale of scrap as sales
revenue instead of as an offset to cost. The cost of producing the
scrap remains a manufacturing cost and is included in the company's
cost of sales. Union's chart of accounts (see cost verification exhibit
6) and Union's reconciliation of sales revenue (see cost verification
exhibit 8) confirm this financial accounting treatment. Therefore, we
reduced Union's reported cost of sales figure by the 1994 scrap
revenues that Union used to offset manufacturing costs to determine the
proper denominator for the G&A and financing ratios.
Comment 55. Union contends the Department erred by excluding
foreign-exchange transaction gains and losses from Union's reported
general expenses on the grounds that they related to accounts
receivable and were therefore more appropriately treated as selling
expenses than as administrative expenses. The Department's calculation
of general expenses, says Union, includes indirect selling expenses as
well as administrative expenses. Consequently, Union contends, the net
transaction gain on currency conversion should be included in general
expenses; otherwise, this expense will not be captured in the dumping
calculation.
Petitioners retort that Union misstates the Department's position
with regard to the gains and losses at issue. The Department,
petitioners contend, never stated that these gains and losses should be
classified as selling expenses; rather, the Department was concerned
that Union included them in general expenses when these gains and
losses do not relate to the production of subject merchandise. It is
for that reason, according to petitioners, that the Department excluded
these gains and losses from Union's calculated costs in the first
administrative review. Petitioners urge the Department not to modify
its treatment of foreign-exchange gains and losses.
DOC Position. We agree with petitioners. Union calculated its net
translation gains from foreign currency gains on accounts receivable
balances. However, our normal practice is to exclude exchange gains and
losses on accounts receivable balances because the gains occurred after
the sale date and, therefore, are not relevant to our margin
calculations. See, e.g., Final Determination of Sales at Less than Fair
Value: Fresh Pasta from Turkey, 61 FR 30309, 30324 (June 14, 1996) and
Final Determination of Sales at Less Than Fair Value: Small Diameter
Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure
Pipe from Italy, 60 FR 31981, 31991 (June 19, 1995). For these final
results we excluded Union's net translation gains from accounts
receivable balances denominated in foreign currency.
Comment 56. Union argues the Department erred by treating pre-sale
freight and warehousing expenses as indirect selling expenses. Union
submits that the URAA for the first time establishes that home-market
movement charges are to be deducted from NV in all cases, without being
subject to a ``direct/indirect'' test like selling expenses, and
regardless of whether they occur before or after sale. See section
773(a)(6)(B)(ii) of the Act. Union also submits that the SAA requires
all movement charges to be deducted from normal value and does not
provide for them to be calculated sale by sale or analyzed in terms of
their ``direct'' or ``indirect'' nature. See SAA at 151. Union
therefore requests that the Department deduct all home-market movement
charges, including pre-sale freight and warehousing expenses, from NV.
DOC Position. We agree with Union and have deducted all home-market
movement charges, including pre-sale freight and warehousing expenses,
from NV for these final results.
Comment 57. Union argues that the Department, for purposes of
converting certain movement charges from a gross-weight to a net-weight
basis, incorrectly adjusted the field USOTREU rather than the field
DBROKU.
DOC Position. We agree with Union and have made this correction for
these final results.
Comment 58. Union contends the Department erred by not using the
most recent data sets in applying the arm's-length test and in
establishing the product concordance.
DOC Position. We agree with Union and have used the appropriate
data sets in these final results.
Final Results of Review
As a result of this review, we have determined that the following
margins exist for the period August 1, 1994, through July 31, 1995:
Certain Cold-Rolled Carbon Steel Flat Products
------------------------------------------------------------------------
Weighted-
Average
Producer/Manufacturer/Exporter Margin
(percent)
------------------------------------------------------------------------
Dongbu..................................................... 0.10
Union...................................................... 0.15
POSCO...................................................... 0.54
------------------------------------------------------------------------
Certain Corrosion-Resistant Carbon Steel Flat Products
------------------------------------------------------------------------
Weighted-
Average
Producer/Manufacturer/Exporter Margin
(percent)
------------------------------------------------------------------------
Dongbu..................................................... 0.00
Union...................................................... 1.09
POSCO...................................................... 0.09
------------------------------------------------------------------------
The Department shall determine, and the U.S. Customs Service shall
assess, antidumping duties on all appropriate entries. The Department
shall issue appraisement instructions directly to the Customs Service.
Furthermore, the following deposit requirements shall be effective
upon publication of this notice of final results
[[Page 18448]]
of review for all shipments of certain cold-rolled and corrosion-
resistant carbon steel flat products from Korea entered, or withdrawn
from warehouse, for consumption on or after the publication date, as
provided for by section 751(a)(1) of the Act: (1) The cash deposit
rates for the reviewed companies named above will be the rates for
those firms as stated above; (2) for previously investigated companies
not listed above, the cash deposit rate will continue to be the
company-specific rate published for the most recent period; (3) if the
exporter is not a firm covered in these reviews, or the original LTFV
investigations, but the manufacturer is, the cash deposit rate will be
the rate established for the most recent period for the manufacturer of
the merchandise; and (4) if neither the exporter nor the manufacturer
is a firm covered in these reviews, the cash deposit rate will continue
to be 14.44 percent (for certain cold-rolled carbon steel flat
products) and 17.70 percent (for certain corrosion-resistant carbon
steel flat products), which were the ``all others'' rates in the LTFV
investigations. See Flat-Rolled Final at 37191.
Article VIpara.5 of the GATT (cited earlier) provides that ``[n]o
product * * * shall be subject to both antidumping and countervailing
duties to compensate for the same situation of dumping or export
subsidization.'' This provision is implemented by section 772(d)(1)(D)
of the Act. Since antidumping duties cannot be assessed on the portion
of the margin attributable to export subsidies, there is no reason to
require a cash deposit or bond for that amount. Accordingly, the level
of export subsidies as determined in Final Affirmative Countervailing
Duty Determinations and Final Negative Critical Circumstances
Determinations; Certain Steel Products from Korea (58 FR 37328--July 9,
1993), which is 0.05 percent ad valorem, will be subtracted from the
cash deposit rate for deposit purposes.
The deposit requirements, when imposed, shall remain in effect
until publication of the final results of the next administrative
reviews.
This notice serves as a final reminder to importers of their
responsibility under 19 CFR Sec. 353.26 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 serves as a reminder to parties subject to
administrative protective order (``APO'') of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with section 353.34(d) of the Department's
regulations. Timely notification of return/destruction of APO materials
or conversion to judicial protective order is hereby requested. Failure
to comply with the regulations and the terms of an APO is a
sanctionable violation.
These administrative reviews and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and Sec. 353.22 of
the Department's regulations.
Dated: April 2, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-9424 Filed 4-14-97; 8:45 am]
BILLING CODE 3510-DS-P