[Federal Register Volume 62, Number 174 (Tuesday, September 9, 1997)]
[Notices]
[Pages 47446-47452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23856]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-428-820]


Small Diameter Circular Seamless Carbon and Alloy Steel Standard, 
Line and Pressure Pipe From Germany: Preliminary Results of Antidumping 
Duty Administrative Review

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

ACTION: Notice of preliminary results of antidumping duty 
administrative review.

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SUMMARY: In response to a request from the respondent, 
Mannesmannroehren-Werke AG (``MRW'') and Mannesmann Pipe & Steel 
Corporation (``MPS'') (collectively, ``Mannesmann''), the Department of 
Commerce (the Department) is conducting an administrative review of the 
antidumping duty order on small diameter circular seamless carbon and 
alloy steel standard, line and pressure pipe from Germany. This review 
covers the above manufacturer/exporter of the subject merchandise to 
the United States. The period of review (POR) is January 27, 1995, 
through July 31, 1996.
    We preliminarily determine the dumping margin for Mannesmann to be 
28.69 percent during the POR. Interested parties are invited to comment 
on these preliminary results. Parties who submit arguments in this 
proceeding should also submit with their arguments (1) a statement of 
the issues, and (2) a brief summary of the arguments.

EFFECTIVE DATE: September 9, 1997.

FOR FURTHER INFORMATION CONTACT: Nancy Decker or Linda Ludwig, 
Enforcement Group III, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
1324 or (202) 482-3833, respectively.

SUPPLEMENTARY INFORMATION:

The Applicable Statute

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (the Act) are references to the provisions effective 
January 1, 1995, the effective date of the amendments made to the Act 
by the Uruguay Round Agreements Act (URAA). In addition, unless 
otherwise indicated, all references to the Department's regulations are 
to 19 CFR part 353, as amended by the Department's interim regulations 
(April 1, 1997). Where appropriate, we have cited the Department's new 
regulations, codified at 19 CFR part 351 (May 19, 1997--62 FR 27296). 
While not binding on this review, the new regulations serve as a 
restatement of the Department's policies.

Background

    On June 19, 1995, the Department published in the Federal Register 
(60 Fed. Reg. 31974) the final affirmative antidumping duty 
determination on small diameter circular seamless carbon and alloy 
steel standard, line and pressure pipe from Germany. We published an 
antidumping duty order and amended final determination on August 3, 
1995 (60 FR 39704). On August 12, 1996, the Department published the 
Opportunity to Request an Administrative Review of this order for the 
period January 27, 1995 through July 31, 1996 (61 FR 41768). The 
Department received a request for an administrative review of 
Mannesmann's exports from Mannesmann itself, a producer/exporter of the 
subject merchandise. We published a notice of initiation of the review 
on September 17, 1996 (61 FR 48882).
    Under section 751(a)(3)(A) of 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 5, 1997, the Department 
published a notice of extension of the time limit for the preliminary 
results in this case. See

[[Page 47447]]

Extension of Time Limit for Antidumping Duty Administrative Review, 62 
FR 10025 (March 5, 1997).
    The Department is conducting this review in accordance with section 
751(a) of the Act.

Scope of the Review

    The scope of this review includes small diameter seamless carbon 
and alloy standard, line and pressure pipes (seamless pipes) produced 
to the American Society for Testing and Materials (ASTM) standards A-
335, A-106, A-53 and American Petroleum Institute (API) standard API 5L 
specifications and meeting the physical parameters described below, 
regardless of application. The scope of this review also includes all 
products used in standard, line, or pressure pipe applications and 
meeting the physical parameters below, regardless of specification.
    For purposes of this review, seamless pipes are seamless carbon and 
alloy (other than stainless) steel pipes, of circular cross-section, 
not more than 114.3 mm (4.5 inches) in outside diameter, regardless of 
wall thickness, manufacturing process (hot-finished or cold-drawn), end 
finish (plain end, beveled end, upset end, threaded, or threaded and 
coupled), or surface finish. These pipes are commonly known as standard 
pipe, line pipe or pressure pipe, depending upon the application. They 
may also be used in structural applications. Pipes produced in non-
standard wall thicknesses are commonly referred to as tubes.
    The seamless pipes subject to this review are currently 
classifiable under subheadings 7304.10.10.20, 7304.10.50.20, 
7304.31.60.50, 7304.39.00.16, 7304.39.00.20, 7304.39.00.24, 
7304.39.00.28, 7304.39.00.32, 7304.51.50.05, 7304.51.50.60, 
7304.59.60.00, 7304.59.80.10, 7304.59.80.15, 7304.59.80.20, and 
7304.59.80.25 of the Harmonized Tariff Schedule of the United States 
(HTSUS).
    The following information further defines the scope of this review, 
which covers pipes meeting the physical parameters described above:
    Specifications, Characteristics and Uses: Seamless pressure pipes 
are intended for the conveyance of water, steam, petrochemicals, 
chemicals, oil products, natural gas and other liquids and gasses in 
industrial piping systems. They may carry these substances at elevated 
pressures and temperatures and may be subject to the application of 
external heat. Seamless carbon steel pressure pipe meeting the ASTM 
standard A-106 may be used in temperatures of up to 1000 degrees 
Fahrenheit, at various American Society of Mechanical Engineers (ASME) 
code stress levels. Alloy pipes made to ASTM standard A-335 must be 
used if temperatures and stress levels exceed those allowed for A-106 
and the ASME codes. Seamless pressure pipes sold in the United States 
are commonly produced to the ASTM A-106 standard.
    Seamless standard pipes are most commonly produced to the ASTM A-53 
specification and generally are not intended for high temperature 
service. They are intended for the low temperature and pressure 
conveyance of water, steam, natural gas, air and other liquids and 
gasses in plumbing and heating systems, air conditioning units, 
automatic sprinkler systems, and other related uses. Standard pipes 
(depending on type and code) may carry liquids at elevated temperatures 
but must not exceed relevant ASME code requirements.
    Seamless line pipes are intended for the conveyance of oil and 
natural gas or other fluids in pipe lines. Seamless line pipes are 
produced to the API 5L specification.
    Seamless pipes are commonly produced and certified to meet ASTM A-
106, ASTM A-53 and API 5L specifications. Such triple certification of 
pipes is common because all pipes meeting the stringent ASTM A-106 
specification necessarily meet the API 5L and ASTM A-53 specifications. 
Pipes meeting the API 5L specification necessarily meet the ASTM A-53 
specification. However, pipes meeting the A-53 or API 5L specifications 
do not necessarily meet the A-106 specification. To avoid maintaining 
separate production runs and separate inventories, manufacturers 
triple-certify the pipes. Since distributors sell the vast majority of 
this product, they can thereby maintain a single inventory to service 
all customers.
    The primary application of ASTM A-106 pressure pipes and triple-
certified pipes is in pressure piping systems by refineries, 
petrochemical plants and chemical plants. Other applications are in 
power generation plants (electrical-fossil fuel or nuclear), and in 
some oil field uses (on shore and off shore) such as for separator 
lines, gathering lines and metering runs. A minor application of this 
product is for use as oil and gas distribution lines for commercial 
applications. These applications constitute the majority of the market 
for the subject seamless pipes. However, A-106 pipes may be used in 
some boiler applications.
    The scope of this review includes all seamless pipe meeting the 
physical parameters described above and produced to one of the 
specifications listed above, regardless of application, and whether or 
not also certified to a non-covered specification. Standard, line and 
pressure applications and the above-listed specifications are defining 
characteristics of the scope of this review. Therefore, seamless pipes 
meeting the physical description above, but not produced to the ASTM A-
335, ASTM A-106, ASTM A-53, or API 5L standards shall be covered if 
used in a standard, line or pressure application.
    For example, there are certain other ASTM specifications of pipe 
which, because of overlapping characteristics, could potentially be 
used in A-106 applications. These specifications generally include A-
162, A-192, A-210, A-333, and A-524. When such pipes are used in a 
standard, line or pressure pipe application, such products are covered 
by the scope of this review.
    Specifically excluded from this review are boiler tubing and 
mechanical tubing, if such products are not produced to ASTM A-335, 
ASTM A-106, ASTM A-53 or API 5L specifications and are not used in 
standard, line or pressure applications. In addition, finished and 
unfinished oil country tubular goods (OCTG) are excluded from the scope 
of this review, if covered by the scope of another antidumping duty 
order from the same country. If not covered by such an OCTG order, 
finished and unfinished OCTG are included in this scope when used in 
standard, line or pressure applications. Finally, also excluded from 
this review are redraw hollows for cold-drawing when used in the 
production of cold-drawn pipe or tube.
    Although the HTSUS subheadings are provided for convenience and 
customs purposes, our written description of the scope of this review 
is dispositive.

Verification

    As provided in section 782(i) of the Act, we verified information 
provided by the respondent by using standard verification procedures, 
including on-site inspection of the manufacturer's facilities, the 
examination of relevant sales and financial records, and selection of 
original documentation containing relevant information. Our 
verification results are outlined in the verification reports, the 
public versions of which are available at the Department of Commerce, 
in Central Records Unit (CRU), Room B099.

[[Page 47448]]

Transactions Reviewed

    The Department determined the normal value (NV) and constructed 
export price (CEP) of each sale to the first unaffiliated customer in 
the United States during the POR.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products produced by the respondent, covered by the description in the 
``Scope of the Review'' section, above, and sold in the home market 
during the POR, to be foreign like products for purposes of determining 
appropriate product comparisons to U.S. sales. Where there were no 
sales of identical merchandise in the home market to compare to U.S. 
sales, we compared U.S. sales to the most similar foreign like product 
on the basis of the characteristics listed in Appendix V of the 
Department's antidumping questionnaire.

Fair Value Comparisons

    To determine whether sales of small diameter circular seamless 
carbon and alloy steel standard, line and pressure pipe by Mannesmann 
to the United States were made at less than fair value, we compared the 
CEP to the NV, as described in the ``Constructed Export Price'' and 
``Normal Value'' sections of this notice. In accordance with section 
777A(d)(2) of the Act, we calculated monthly weighted-average prices 
for NV and compared these to individual U.S. transactions.

Date of Sale

    The Department's current policy is normally to use the date of 
invoice as recorded in the exporter or producer's records kept in the 
ordinary course of business as the date of sale. However, we may use a 
date other than the date of invoice where appropriate.
    For Mannesmann's home-market sales, the company reported and we 
used invoice date (which is also shipment date) as the date of sale. 
For Mannesmann's U.S. sales, the company reported the date of order 
confirmation as the date of sale. In the Department's September 18, 
1996 questionnaire to Mannesmann at Appendix I, the Department stated 
that in no case could the date of sale be later than the date of 
shipment. Because the date of shipment for Mannesmann's U.S. sales was 
in all cases earlier than the date of invoice (and thus not reported as 
date of sale), we have used the shipment date of U.S. sales as date of 
sale. Since there can be several months between order confirmation and 
shipment, using shipment date in both markets puts home market and U.S. 
sales on the same basis for date of sale.

Constructed Export Price

    We have preliminarily determined that Mannesmann's U.S. sales 
reported as export price (EP) sales were CEP sales. Our determination 
is based on the evidence in the record of this review establishing that 
U.S. sales were made through Mannesmann's affiliated sales agent, MPS, 
who, as shown below, was more than a mere conduit, performing only 
clerical functions, for the producer/exporter.
    The Department determines U.S. sales through affiliated sales 
agents to be EP only if: (1) The merchandise was shipped directly to 
the unaffiliated buyer, without being introduced into the affiliated 
selling agent's inventory; (2) this procedure is the customary sales 
channel between the parties; and (3) the affiliated selling agent 
located in the United States acts only as a processor of documentation 
and a communication link between the foreign producer and the 
unaffiliated buyer. See, e.g., Certain Cut-to-Length Carbon Steel Plate 
from Germany: Final Results of Antidumping Duty Administrative Review, 
62 FR 18390, 18389-18391 (April 15, 1997); 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, 38174-5 (July 23, 1996); 
Certain Corrosion-Resistant Carbon Steel Flat Products From Korea: 
Final Results of Antidumping Duty Administrative Review, 61 FR 18547, 
18551 (April 26, 1996). This test has been approved by the CIT. 
Independent Radionic Workers of America v. United States, Slip Op. 95-
45 at 2-3 (CIT 1995); PQ Corp. v. United States, 652 F. Supp. 724, 733-
35 (CIT 1987).
    In applying the first two criteria to the present review, we found 
that for the majority of sales, the merchandise was shipped directly to 
the unaffiliated U.S. customer without being introduced into MPS's 
inventory. We found that MPS occasionally buys for its own inventory, 
but we did not find any subject merchandise purchased for inventory 
during the POR. In addition, several sales were warehoused upon arrival 
in the U.S. when the original customer canceled its order. MPS could 
not find a new customer and subsequently sold the merchandise to the 
original customer. The Department verified that the terms of sale 
during the POR were CIF, duty paid to a port of entry near the 
customer's plant, and that MPS did not take physical possession of the 
shipment, except in the unusual instance described above.
    Concerning the third criterion, however, the Department has 
determined that MPS did act as more than a processor of sales documents 
and a communications link between the unaffiliated U.S. customer and 
MRW, the producer in Germany. Although the MRW participates with MPS in 
meetings with U.S. customers once or twice a year and claims to reserve 
the right to approve all orders, MPS negotiates each of the sales with 
the customers, aiming to get the best price the market will allow. MPS 
admitted it had a small say in the price negotiated but claimed that it 
is very limited. The Department determined that MPS essentially 
negotiates all sales. We found no evidence to support Mannesmann's 
claim that MRW approved of or knew of the final prices on individual 
sales to U.S. customers. To the contrary, regardless of whether MRW has 
final approval rights, the record indicated that MPS has significant 
involvement in the sales process. Further, while MPS admitted that it 
is allowed to make a small profit on the U.S. sales, we found the price 
differential between the price from the German sales agent (Mannesmann 
Handel, a go-between for MRW and MPS) to MPS and the price from MPS to 
the customer to be unexplained by the small commissions or profits 
referenced by MPS at verification, nor by the U.S. duties and cash 
deposits on antidumping duties, which MPS pays as importer of record 
(see Sales Verification Report). Therefore, based on an analysis of all 
the facts, we find that the selling activities of MPS extend beyond 
those of a processor of documents or a communications link.
    We calculated CEP based on packed prices to unaffiliated customers 
in the United States. Where appropriate, we made deductions from the 
starting price for discounts, foreign inland freight, international 
freight, marine insurance, other transportation expenses, U.S. Customs 
duties, warranties, credit expense, and other selling expenses that 
were associated with economic activities occurring in the United 
States. Finally, we made an adjustment for CEP profit in accordance 
with section 772(d)(3) of the Act.
    Based on our verification of Mannesmann's sales responses, we made 
adjustments to credit, quantity, gross unit price, shipment date, and 
sales date on certain sales, and we also increased other transportation 
expenses on certain sales to account for unreported unloading expenses. 
We also rejected as unverifiable reported U.S.

[[Page 47449]]

duty, foreign inland freight and international freight. Accordingly, 
pursuant to section 776(a) of the Act, we used partial facts available. 
For U.S. duty and foreign inland freight, we used the highest reported 
U.S. duty and foreign inland freight, respectively, on any individual 
U.S. sale. For international freight, we added the highest differential 
between the actual and the reported international freight (from the 
sales examined at verification) to reported international freight on 
every U.S. sale.
    Mannesmann's response indicated that U.S. credit expense was 
calculated using the U.S. sales agent's interest rate on inter-company 
loans from its parent. We compared this to the U.S. prime rate. Since 
the company did not indicate that it has external borrowings and the 
prime rate was always higher than the inter-company rate, we 
recalculated credit expense using the U.S. prime rate.
    At verification, the respondent indicated that it had not reported 
any U.S. sales of ASTM A-333 (although it had reported home market 
sales of this specification) to the Department because it believed the 
scope definitively excluded this specification (as low temperature 
service steels). We note that the scope discussion indicates A-333 
(along with several other specifications) is covered by the scope of 
this review if it is used in a standard, line, or pressure pipe 
application. The respondent did not address the applications of the A-
333 sales during verification. Therefore, as facts available, we are 
assuming all unreported low temperature steel sales (sourced from the 
German producer) by MPS to be A-333 and, therefore, subject 
merchandise. We summed the total quantity of these sales from 
verification documents and applied Mannesmann's rate from the original 
investigation as facts otherwise available (see ``Use of Facts 
Otherwise Available'' section below).

Normal Value

    Based on a comparison of the aggregate quantity of home market and 
U.S. sales, we determined that the quantity of the foreign like product 
sold in the exporting country was sufficient to permit a ``fair'' 
comparison with the sales of the subject merchandise to the United 
States, pursuant to section 773(a) of the Act. Therefore, in accordance 
with section 773(a)(1)(B)(i) of the Act, we based NV on the price at 
which the foreign like product was first sold for consumption in the 
home market, in the usual commercial quantities and in the ordinary 
course of trade, at the same level of trade as the export price. See 
``Level of Trade'' section below.
    We excluded from our analysis negative quantity observations 
reported in the database, while leaving in the database the positive 
quantity observations on the same orders with the negative quantity 
observations. We found that the products in question would not likely 
be used in matching to U.S. sales. We also excluded from our analysis 
NV sales to affiliated home market customers where the weighted-average 
sales prices to the affiliated parties were less than 99.5 percent of 
the weighted-average sales prices to unaffiliated parties. See Usinor 
Sacilor v. United States, 872 F. Supp. 1000, 1004 (CIT 1994).
    On May 5, 1997, Mannesmann requested to be excused from reporting 
all ``downstream sales'' (sales by affiliated resellers to unaffiliated 
customers). It based its request on the fact that the sales to the 
affiliated resellers would pass the arm's-length test or would not be 
used in the Department's analysis. On May 14, 1997, the Department 
informed Mannesmann that, based on Mannesmann's portrayal of the 
information submitted, it did not have to report downstream sales at 
that time. We preliminarily find that sales to one affiliated reseller 
pass the arm's-length test, while sales to the other affiliated 
resellers do not pass the arm's-length test but would not be used for 
matching purposes.
    Where appropriate, we deducted credit expenses, warranties, 
packing, and certain discounts, and we added interest revenue. We 
rejected as unverifiable inland freight, ``other adjustments,'' and 
certain rebates and discounts (see Sales Verification Report). We 
denied deductions from the reported price for each of these items.
    The respondent reported credit expense based on a POR-average days 
outstanding for receivables (all customers) on all sales (including 
non-subject merchandise), since it indicated that it could only 
manually provide payment date information on all sales. We compared 
this overall average days of outstanding payment to the actual days 
payment was outstanding on the sales examined at verification. We found 
the actual days between shipment and payment to be consistently lower 
than the average days used. Therefore, we calculated a simple average 
days outstanding using actual shipment and payment dates from the sales 
examined at verification, and we recalculated credit expense using this 
average figure.
    We found that respondent paid commissions in the home market on the 
foreign like product to affiliated parties. Since there is no benchmark 
which can be used to determine whether affiliated party commissions are 
arm's-length values (i.e., the producer does not use an unaffiliated 
selling agent for sales of the foreign like product), we have assumed 
that affiliated party commissions were not paid on an arm's-length 
basis. As a result, we did not make a circumstance-of-sale adjustment 
for affiliated party commissions in the home market.
    For comparison to CEP, we increased NV by U.S. packing costs in 
accordance with section 773(a)(6)(A) of the Act. We made adjustments to 
NV for differences in cost attributable to differences in physical 
characteristics of the merchandise, pursuant to section 
773(a)(6)(C)(ii) of the Act.

Level of Trade

    In accordance with section 773(a)(1)(B)(i) of the Act and the 
Statement of Administrative Action (SAA) accompanying the URAA, to the 
extent practicable, the Department will calculate normal values based 
on sales at the same level of trade as the U.S. sales (either EP or 
CEP). When the Department is unable to find sales in the comparison 
market at the same level of trade as the U.S. sales, the Department may 
compare sales in the U.S. and foreign markets at different levels of 
trade, and adjust NV if appropriate. The NV level of trade is that of 
the starting-price sales in the home market. When NV is based on CV, 
the level of trade is that of the sales from which we derive selling, 
general and administrative expenses, and profit.
    As the Department explained in Gray Portland Cement and Clinker 
From Mexico: Final Results of Antidumping Duty Administrative Review, 
62 FR 17148, 17156 (April 9, 1997) (``Cement From Mexico''), for both 
EP and CEP, the relevant transaction for the level of trade analysis is 
the sale from the exporter to the importer. While the starting price 
for CEP is that of a subsequent resale to an unaffiliated buyer, the 
construction of the EP results in a price that would have been charged 
if the importer had not been affiliated. We calculate the CEP by 
removing from the first resale to an independent U.S. customer the 
expenses specified in section 772(d) of the Act and the profit 
associated with these expenses. These expenses represent activities 
undertaken by, or on behalf of, the affiliated importer. Because the 
expenses deducted under section 772(d) represent selling activities in 
the United States, the deduction of these expenses normally yields a 
different level of trade

[[Page 47450]]

for the CEP than for the later resale (which we use for the starting 
price).
    To determine whether home market sales are at a different level of 
trade than U.S. sales, we examine whether the home market sales are at 
different stages in the marketing process than the U.S. sales. The 
marketing process in both markets begins with the good being sold by 
the producer and extends to the sale to the final user. The chain of 
distribution between the producer and the final user may have many or 
few links, and each respondent's sales are generally to an importer, 
whether independent or affiliated. We review and compare the 
distribution systems in the home market and the United States, 
including selling functions, class of customer, and the extent and 
level of selling expenses for each claimed level of trade. Customer 
categories such as distributor, retailer or end-user are commonly used 
by respondents to describe level of trade, but without substantiation, 
they are insufficient to establish that a claimed level of trade is 
valid. An analysis of the chain of distribution and of the selling 
functions substantiates or invalidates the claimed customer 
categorization levels. Different levels of trade necessarily involve 
differences in selling functions, but differences in selling functions, 
even substantial ones, are not alone sufficient to establish a 
difference in the level of trade. Differences in levels of trade are 
characterized by purchasers at different stages in the chain of 
distribution and sellers performing qualitatively or quantitatively 
different functions in selling to them.
    When we compare U.S. sales to home market sales at a different 
level of trade, we make a level-of-trade adjustment only if the 
difference in level of trade affects price comparability. We determine 
any effect on price comparability by examining sales at different 
levels of trade in a single market, the home market. Any price effect 
must be manifested in a pattern of consistent price differences between 
home market sales used for comparison and sales at the equivalent level 
of trade of the export transaction. See Granular Polytetrafluorethylene 
Resin from Italy; Preliminary Results of Antidumping Duty 
Administrative Review, 62 FR 26283, 26285 (May 13, 1997); Cement From 
Mexico at 17156. To quantify the price differences, we calculate the 
difference in the average of the net prices of the same models sold at 
different levels of trade. We use the average percentage difference 
between these net prices to adjust NV when the level of trade of NV is 
different from that of the export sale. If there is a pattern of no 
price differences, then the difference in level of trade does not have 
a price effect and, therefore, no adjustment is necessary.
    Mannesmann sold to end-users and distributors in the U.S. market 
and in the home market. Mannesmann claimed that sales to end-users and 
distributors were at separate levels of trade. While Mannesmann's 
questionnaire response indicated that it provided higher levels of 
support to end-users than to distributors, Mannesmann did not explain 
what distinguished high from low support or support these claims at 
verification. At verification, when asked about levels of trade, 
Mannesmann merely provided an MWR organization chart, which showed that 
there was a different sales group for sales to end-users than for sales 
to distributors. This chart did not indicate a separate subdivision for 
U.S. sales. The respondent provided no support or information, as 
requested in the sales verification outline, regarding differences in 
selling functions for sales to end-users versus distributors and 
between sales to its home market customers and the CEP level of trade. 
Thus, our analysis of the information in this case leads us to conclude 
that sales within each market and between markets are not made at 
different levels of trade. Accordingly, we preliminarily find that all 
sales in the home market and the U.S. market are made at the same level 
of trade. Therefore, all price comparisons are at the same level of 
trade and no adjustment pursuant to section 773(a)(7) is warranted.

Use of Facts Otherwise Available

    We preliminarily determine, in accordance with section 776(a) of 
the Act, that the use of facts available is appropriate for certain 
aspects of Mannesmann's response as described in the ``Constructed 
Export Price'' and ``Normal Value'' sections above. We find that we 
were unable to verify certain information and that the respondent did 
not provide the information necessary to make a decision on whether 
certain unreported U.S. sales should have been reported under the scope 
of this review.
    Furthermore, we determine that, pursuant to section 776(b) of the 
Act, it is appropriate to make an inference adverse to the interests of 
this company because it failed to cooperate by not acting to the best 
of its ability in providing the Department with information. We found 
that Mannesmann did not act to the best of its ability by not providing 
information on the uses of certain U.S. sales (A-333 sales). Also, 
Mannesmann did not provide us with the majority of sales trace 
verification packages until late on the final day of the home market 
verification. These packages did not include any supporting 
documentation for numerous adjustments (as discussed under the ``Normal 
Value'' section above). Section 776(b) of the Act also authorizes the 
Department to use as adverse facts available information derived from 
the petition, the final determination, a previous administrative 
review, or other information placed on the record. In this case, as 
described above, we have used as facts available Mannesmann's rate from 
the original investigation, which was based on information from the 
petition. Although we have not fully corroborated this information in 
accordance with section 776 (c) of the Act, we will do so for the final 
results.

Cost of Production Analysis

    Petitioners alleged, on December 20, 1996, that Mannesmann sold 
small diameter circular seamless carbon and alloy steel standard, line 
and pressure pipe in the home market at prices below cost of production 
(COP). Based on this allegation, in accordance with Section 773(b) of 
the Act, the Department determined, on January 31, 1997, that it had 
reasonable grounds to believe or suspect that Mannesmann had sold the 
subject merchandise in the home market at prices below COP. See Letter 
to Mannesmann and Decision Memorandum (January 31, 1997). We therefore 
initiated a cost investigation with regard to Mannesmann in order to 
determine whether the respondent made home-market sales at prices below 
its COP within the meaning of section 773(b) of the Act. Before making 
any fair value comparisons, we conducted the COP analysis described 
below.

A. Calculation of COP

    We calculated the COP based on the sum of respondent's cost of 
materials and fabrication for the foreign like product, plus amounts 
for home market selling, general, and administrative expenses (SG&A) 
and packing costs in accordance with section 773(b)(3) of the Act. 
Based on our verification of Mannesmann's cost response, we adjusted 
Mannesmann's reported COP to reflect certain adjustments to cost of 
manufacturing and interest expense as described below. We also have 
denied a claimed start-up adjustment (as described below) and used 
reported costs without the start-up adjustment.

1. Major Inputs

    Mannesmann purchased the majority of its major inputs, billet 
rounds, for seamless pipe, from an affiliated party.

[[Page 47451]]

Sections 773(f)(2) and (3) of the Act specify the treatment of 
transactions between affiliated parties for purposes of reporting cost 
data (for use in determining both COP and CV) to the Department. 
Section 773(f)(2) indicates that the Department may disregard such 
transactions if the amount representing that element (the transfer 
price) does not fairly reflect the amount usually reflected (typically 
the market price) in the market under consideration (where the 
production takes place). Under these circumstances, the Department may 
rely on the market price to value inputs purchased from affiliated 
parties.
    Section 773(f)(3) indicates that, if transactions between 
affiliated parties involve a major input, then the Department may value 
the major input based on the COP if the cost is greater than the amount 
(higher of transfer price or market price) that would be determined 
under 773(f)(2). Section 773(f)(3) applies if the Department ``has 
reasonable grounds to believe or suspect that an amount represented as 
the value of such input is less than the COP of such input.'' The 
Department generally finds that such ``reasonable grounds'' exist where 
it has initiated a COP investigation of the subject merchandise.
    Because a COP investigation is being conducted in this case, the 
Department requested in its supplemental Section D questionnaire that 
Mannesmann provide cost of production information for the billet 
rounds. That cost information was provided by the affiliated party and 
was verified. In accordance with sections 773(f) (2) and (3), we used 
the highest of transfer price, cost of production or market value to 
value the billets. To determine the market value, we compared 
information on one grade of billets which was obtained from both 
affiliated and unaffiliated parties during the POR. We applied the 
percentage price increase paid to unaffiliated parties to affiliated 
party purchases to reflect market value (see Department's September 2, 
1997 Analysis Memorandum).

2. Financial (Interest) Expense

    In calculating net financial expense in its response, respondent 
subtracted what it claimed to be financial income from short-term 
sources. At verification, however, respondent failed to provide support 
that the income was, in fact, short term in nature (see Cost 
Verification Report). The Department considers financial income from 
long-term investments as not being related to the production activities 
of the company and, therefore, does not allow financial income from 
long-term investments as offsets to financial expense in calculating 
COP and CV. The Department only allows financial expense to be offset 
by interest income from short-term sources (i.e., working capital). We 
have therefore disallowed respondent's claimed offsets.

3. Start-Up Costs

    Respondent claimed a start-up adjustment for operations at the 
Zeithain plant during the first half of 1996. Specifically, these 
start-up operations were associated with the complete rebuilding and 
modernization of certain production equipment. Respondent claims that 
it is eligible for this adjustment because the project represented a 
major change in the production process and because output was adversely 
affected by the start-up operations in a manner unrelated to the 
pressures of market demand and seasonal factors.
    Under section 773(f)(1)(C)(ii) of the Act, Commerce may make an 
adjustment for start-up costs only if the following two conditions are 
satisfied: (1) A company is using new production facilities or 
producing a new product that requires substantial additional 
investment, and (2) production levels are limited by technical factors 
associated with the initial phase of commercial production.
    The SAA at 166 states that ``new production facilities'' includes 
the substantially complete retooling of an existing plant. 
Substantially complete retooling involves the replacement of nearly all 
production machinery or the equivalent rebuilding of existing 
machinery. The production machinery which was replaced represents only 
one process in multiple processes according to Mannesmann's internal 
documentation describing the production process (see Department's 
September 2, 1997 Analysis Memorandum). Thus, it does not meet the 
requirement that nearly all production machinery be replaced, and does 
not represent a substantial portion of the overall assets in the 
facility.
    Furthermore, Mannesmann did not demonstrate that production levels 
were limited by technical factors associated with the initial phase of 
commercial production. Company records indicate that production and 
manufacturing activity levels were substantially the same during the 
January to June 1995 time period as during the alleged start-up period 
of January to June 1996.
    Accordingly, we reject Mannesmann's claim for a start-up adjustment 
because it did not demonstrate that they were using new production 
facilities, including substantially complete retooling; nor did they 
demonstrate that production levels were limited by technical factors 
associated with the initial phase of commercial production.

B. Test of Home Market Prices

    We used the respondent's weighted-average COP, as adjusted (see 
above), for the period January 1, 1995 to July 31, 1996. We compared 
the weighted-average COP figures to home market sales of the foreign 
like product as required under section 773(b) of the Act. In 
determining whether to disregard home-market sales made at prices below 
the COP, we examined whether (1) Within an extended period of time, 
such sales were made in substantial quantities, and (2) such sales were 
made at prices which permitted the recovery of all costs within a 
reasonable period of time. On a product-specific basis, we compared the 
COP to the home market prices, less any applicable movement charges, 
rebates, and discounts.

C. Results of COP Test

    Pursuant to section 773(b)(2)(C), where less than 20 percent of 
Mannesmann's sales of a given product were at prices less than the COP, 
we did not disregard any below-cost sales of that product because we 
determined that the below-cost sales were not made in ``substantial 
quantities.'' Where 20 percent or more of respondent's sales of a given 
product during the POR were at prices less than the COP, we determined 
such sales to have been made in ``substantial quantities'' within an 
extended period of time in accordance with section 773(b)(2)(B) of the 
Act. We also determined that such sales were also not made at prices 
which would permit recovery of all costs within a reasonable period of 
time, in accordance with section 773(b)(2)(D) of the Act, and 
therefore, we disregarded the below-cost sales. Where all 
contemporaneous sales of a specific comparison product were at prices 
below the COP, we calculated NV based on CV.

D. Calculation of CV

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of Mannesmann's cost of materials, fabrication, SG&A, 
U.S. packing costs, and interest expenses as reported and a calculated 
profit. As noted above, we recalculated Mannesmann's cost of 
manufacturing, SG&A, and interest expense based on our verification 
results. In accordance with section 773(e)(2)(A) of the Act, we based 
SG&A and profit on the amounts incurred and realized by the respondent 
in connection with the production and sale of the foreign like product 
in the

[[Page 47452]]

ordinary course of trade, for consumption in the foreign country. For 
selling expenses, we used the weighted-average home market selling 
expenses.

Currency Conversion

    For purposes of the preliminary results, we made currency 
conversions based on the official exchange rates in effect on the dates 
of the U.S. sales as certified by the Federal Reserve Bank of New York. 
Section 773A(a) of the Act directs the Department to use a daily 
exchange rate in order to convert foreign currencies into U.S. dollars, 
unless the daily rate involves a ``fluctuation.'' In accordance with 
the Department's practice, we have determined as a general matter that 
a fluctuation exists when the daily exchange rate differs from a 
benchmark by 2.25 percent. The benchmark is defined as the rolling 
average of rates for the past 40 business days. When we determine a 
fluctuation exists, we substitute the benchmark for the daily rate.

Preliminary Results of the Review

    As a result of this review, we preliminarily determine that the 
following weighted-average dumping margin exists:

------------------------------------------------------------------------
                                                                Margin  
      Manufacturer/exporter                  Period            (percent)
------------------------------------------------------------------------
Mannesmannroehren-Werke AG.......  1/27/95-7/31/96..........       28.69
------------------------------------------------------------------------

    Parties to the proceeding may request disclosure within five days 
of the date of publication of this notice. Any interested party may 
request a hearing within 10 days of publication. Any hearing, if 
requested, will be held 44 days after the date of publication or the 
first business day thereafter. Case briefs from interested parties may 
be submitted not later than 30 days after the date of publication. 
Rebuttal briefs, limited to issues raised in those briefs, may be filed 
not later than 37 days after the date of publication of this notice. 
The Department will publish the final results of this administrative 
review, including its analysis of issues raised in the case and 
rebuttal briefs, not later than 120 days after the date of publication 
of this notice.
    The following deposit requirements will be effective upon 
publication of the final results of this antidumping duty review for 
all shipments of small diameter circular seamless carbon and alloy 
steel standard, line and pressure pipe, entered, or withdrawn from 
warehouse, for consumption on or after the publication date, as 
provided by section 751(a) of the Tariff Act: (1) The cash deposit rate 
for the reviewed company will be that established in the final results 
of review; (2) for exporters not covered in this review, but covered in 
the LTFV investigation or previous review, the cash deposit rate will 
continue to be the company-specific rate from the LTFV investigation; 
(3) if the exporter is not a firm covered in this review, a previous 
review, or the original LTFV investigation, but the manufacturer is, 
the cash deposit rate will be the rate established for the most recent 
period for the manufacturer of the merchandise; (4) the cash deposit 
rate for all other manufacturers or exporters will continue to be 57.72 
percent, the ``All Others'' rate made effective by the LTFV 
investigation. These requirements, when imposed, shall remain in effect 
until publication of the final results of the next administrative 
review.
    This notice serves as a preliminary reminder to importers of their 
responsibility under 19 CFR 353.26 to file a certificate regarding the 
reimbursement of antidumping duties prior to liquidation of the 
relevant entries 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 administrative review and notice are published in accordance 
with section 751(a)(1) of the Act and 19 CFR 353.22.

    Dated: September 2, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-23856 Filed 9-8-97; 8:45 am]
BILLING CODE 3510-DS-P