[Federal Register Volume 63, Number 4 (Wednesday, January 7, 1998)]
[Notices]
[Pages 781-805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-276]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-580-815]
Certain Cold-Rolled Carbon Steel Flat Products From Korea: Final
Results of Antidumping Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Final results of antidumping duty administrative review.
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SUMMARY: On December 19, 1995, the Department of Commerce (``the
Department'') published the preliminary results of the administrative
review of the antidumping duty order on certain cold-rolled carbon
steel flat products from Korea. This review covers two manufacturers/
exporters of the subject merchandise to the United States and the
period August 18, 1993, through July 31, 1994. We gave interested
parties an opportunity to comment on our preliminary results. Based on
our analysis of the comments received, we have changed the results from
those presented in the preliminary results of review.
EFFECTIVE DATE: January 7, 1998.
FOR FURTHER INFORMATION CONTACT: Charles Rast (Dongbu), Alain Letort
(Union), or Linda Ludwig, Office of Agreements Compliance, Import
Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230, telephone (202) 482-3793 or fax (202) 482-1388.
SUPPLEMENTARY INFORMATION:
Background
On July 9, 1993, the Commerce Department published in the Federal
Register (58 FR 37176) the final affirmative antidumping duty
determination on certain cold-rolled carbon steel flat products from
Korea, for which we published an antidumping duty order on August 19,
1993 (58 FR 44159). On August 3, 1994, the Department published the
``Notice of Opportunity to Request an Administrative Review'' of this
order for the period August 18, 1993 through July 31, 1994 (59 FR
39543). We received a request for an administrative review from Dongbu
Steel Co., Ltd. (``Dongbu'') and Union Steel Manufacturing Co., Ltd.
(``Union''). We initiated the administrative review on September 8,
1994 (59 FR 46391).
In a letter dated February 1, 1995, petitioners formally requested
that the
[[Page 782]]
Department consider Union and Dongkuk Industries Co., Ltd. (``DKI''),
which was not a respondent initially, as related parties and
``collapse'' them as a single producer of cold-rolled carbon steel flat
products. On May 22, 1995, the Department decided to ``collapse'' Union
and DKI for purposes of this review. (See the Department's internal
memorandum from Joseph A. Spetrini to Susan G. Esserman, dated May 22,
1995.) Unless otherwise indicated, all references to Union in this
notice include DKI.
On December 19, 1995, the Department published in the Federal
Register the preliminary results of the first administrative review of
the antidumping duty order on certain cold-rolled carbon steel flat
products from Korea (60 FR 65284). The Department has now completed
this administrative review in accordance with section 751 of the Tariff
Act of 1930, as amended (``the Act'').
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and to the
Department's regulations are references to the provisions as they
existed on December 31, 1994.
Scope of the Review
These products include 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
HTS under item numbers 7209.11.0000, 7209.12.0030, 7209.12.0090,
7209.13.0030, 7209.13.0090, 7209.14.0030, 7209.14.0090, 7209.21.0000,
7209.22.0000, 7209.23.0000, 7209.24.1000, 7209.24.5000, 7209.31.0000,
7209.32.0000, 7209.33.0000, 7209.34.0000, 7209.41.0000, 7209.42.0000,
7209.43.0000, 7209.44.0000, 7209.90.0000, 7210.70.3000, 7210.90.9000,
7211.30.1030, 7211.30.1090, 7211.30.3000, 7211.30.5000, 7211.41.1000,
7211.41.3030, 7211.41.3090, 7211.41.5000, 7211.41.7030, 7211.41.7060,
7211.41.7090, 7211.49.1030, 7211.49.1090, 7211.49.3000, 7211.49.5030,
7211.49.5060, 7211.49.5090, 7211.90.0000, 7212.40.1000, 7212.40.5000,
7212.50.0000, 7217.11.1000, 7217.11.2000, 7217.11.3000, 7217.19.1000,
7217.19.5000, 7217.21.1000, 7217.29.1000, 7217.29.5000, 7217.31.1000,
7217.39.1000, and 7217.39.5000. Included are flat-rolled products of
nonrectangular 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
bevelled or rounded at the edges. Excluded 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 0.003
to 0.012 inch in thickness, 15 to 30 inches in width, and has an ultra
flat, isotropic surface. These HTS item numbers are provided for
convenience and customs purposes. The written description remains
dispositive.
The period of review (``POR'') is August 18, 1993 through July 31,
1994. This review covers sales of certain cold-rolled carbon steel flat
products by Dongbu and Union.
Verification
As provided in section 776(b) of the Act, we verified information
provided by Dongbu and Union using standard verification procedures,
including the examination of relevant sales and financial records, and
selection of original source documentation containing relevant
information.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received comments and rebuttal comments from
Dongbu Steel Co., Ltd. (``Dongbu'') and Union Steel Manufacturing Co.,
Ltd. (``Union''), exporters of the subject merchandise
(``respondents''), and from Bethlehem Steel Corporation, U.S. Steel
Group--a Unit of USX Corporation, Inland Steel Industries, Inc., Gulf
States Steel Inc. of Alabama, Sharon Steel Corporation, Geneva Steel,
and Lukens Steel Company (``petitioners''). Petitioners requested a
public hearing, but subsequently withdrew their request in a timely
manner.
Petitioners' Comments
Comment 1
Petitioners argue that the Department should use alternative
information on the record to determine the market value of transaction
handling fees that Dongbu paid to a related party for imported raw
materials. Petitioners contend that Dongbu did not provide substantive
evidence to support its claim that the transfer prices paid to the
related party were at arm's-length or at least equal to the related
party's actual costs for providing the services. Moreover, the
petitioners argue that since the Department was unable to test the
transfer price at verification, the possibility exists that Dongbu may
have selectively structured these related-party transactions to
maximize adjustments that would lower Dongbu's production costs of the
subject merchandise. Thus, the petitioners state that the Department
should make an adverse inference and increase the costs of raw
materials based on the comparison of similar arm's-length transaction
handling fees charged by unrelated parties that Dongbu's U.S. sales
affiliate (``DBLA'') used to import subject merchandise into the United
States.
Dongbu contends that there is no basis for adjusting its raw
material costs to account for transaction fees paid to a related party
as suggested by the petitioners. Dongbu states that the services this
related party provides to the company are not of any tangible economic
value other than lending its internationally recognized name to the
transaction. Dongbu additionally states that the arrangement between
the related party and itself simply reflects an intra-company transfer
that benefits the related party and its shareholders. Therefore, Dongbu
believes that the Department should accept the submitted transaction
fees that the related party charged the company.
Department's Position
For the final results, we accepted Dongbu's submitted transaction
fees that were paid to a related party. The transaction fees in
question were for assistance in handling and processing the related
paperwork created by the importation of the material. See Dongbu's
February 21, 1995 submission at page 12. The value of the service was
based on a constant percentage of the acquisition price of the input.
Dongbu was unable to substantiate that the submitted transaction fees
reflected the market value of the service provided. At verification,
company officials stated that they did not obtain similar services for
the importation of inputs from any other party, nor did the related
party provide this service to any other entity. See Cost Verification
Report of Dongbu Steel Co., Ltd. (May 19, 1995) at page
[[Page 783]]
12. However, after further review of information on the record, we have
concluded that the transfer prices submitted by Dongbu did fairly
represent the amount usually reflected for such services. This
determination was made by comparing Dongbu's submitted transaction fees
(expressed as a percentage of the purchase price) to the weighted-
average cost (also expressed as a percentage of the purchase price) of
similar arm's-length transaction fees charged by unrelated parties that
DBLA used to import subject merchandise into the United States. This
comparison showed that the submitted transaction fees were above the
weighted-average amount charged by unrelated parties. We therefore
accepted the submitted transaction fees that were paid to a related
party because they reasonably reflected a market value.
Comment 2
Petitioners contend that the costs submitted by Dongbu for its
research and development (``R&D'') department, raw material department,
quality control department, and procurement department should be
included in Dongbu's manufacturing costs rather than in its general
expenses. The petitioners argue that Dongbu's submitted description of
the functions performed by these departments sufficiently demonstrates
that they are manufacturing costs. They add that neither the cost
verification report nor the accompanying exhibits contained any
indication that Dongbu attempted to provide additional explanations,
documentation, or schedules to support its claim that the expenses were
general in nature. Therefore, the petitioners believe that the
Department should include all general expenses that are not
attributable to Dongbu's sales department in the company's cost of
manufacturing.
Dongbu believes that its submitted classification of these
departmental costs as general expenses is appropriate. The company
argues that these costs were classified as general expenses on its
audited income statement because they benefit the entire company as a
whole. This fact was confirmed by the Department at verification.
Furthermore, the company argues that reclassifying these as
manufacturing costs would have an inconsequential effect, if any, on
its cost of production (``COP'').
Department's Position
We agree with respondent. In this specific case, we are satisfied
that the costs in question were properly classified as general
expenses. For the final results, we accepted Dongbu's inclusion of
costs from its R&D department, raw material department, quality control
department, and procurement department as general expenses. At
verification, the Department reviewed Dongbu's source documentation and
noted that these costs were general in nature and related to all
merchandise sold during the POR. Furthermore, we noted that these
expenses were reported as general expenses on the company's audited
income statement and not as a part of its cost-of-sales. Nor were these
costs included as part of the inventoried costs reported in Dongbu's
finished product inventory ledgers. See Final Determination of Sales at
Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products,
Certain Corrosion-Resistant Carbon Steel Flat Products, and Certain
Cut-to-Length Carbon Steel Plate from Korea, 58 FR 37176, 37191 (July
9, 1993).
Comment 3
Petitioners argue that the Department should include foreign
exchange losses among Dongbu's manufacturing costs to ensure that the
cost of production is calculated accurately and that the statutory
minimum amounts for general expenses and profit are properly computed
for constructed value (``CV''). The petitioners state that it is the
Department's normal practice to include foreign exchange gains and
losses related to the production of subject merchandise in the cost of
manufacturing and not as G&A expenses.
Dongbu believes that its net foreign exchange losses were
appropriately submitted as general expenses and not as costs of
manufacturing. Dongbu states that it recognizes that it is the
Department's normal practice to include foreign exchange gains and
losses related to material purchases in the cost of manufacturing.
However, Dongbu states that its submitted methodology is consistent
with the classification of those expenses on its audited income
statement, and that such an adjustment would needlessly result in a
deviation from the company's normal accounting records. Furthermore,
Dongbu argues that an adjustment to reclassify the costs is needless.
Department's Position
We agree, in part, with both petitioners and respondent. Foreign
exchange losses arising from the purchase of raw materials normally
should be included in material cost because this is a component of the
cost of manufacturing. However, in this particular instance we have not
reclassified these losses from general expenses to cost of
manufacturing as it would have no impact on the submitted cost of
production. See 19 CFR Sec. 353.59(a). The slight increase in
manufacturing costs the reclassification creates is offset by
coinciding decreases in G&A and financing costs. See Final
Determination of Sales at Less Than Fair Value: Dynamic Random Access
Memory Semiconductors of One Megabit and Above from the Republic of
Korea, 54 FR 15467, 15475 (March 23, 1993).
Comment 4
Petitioners contend that the Department should deny all of the
claimed miscellaneous income offsets (e.g., dividends, gains on
investments) that were applied against Dongbu's submitted G&A costs.
The petitioners argue it is not the Department's practice to allow a
reduction of G&A costs unless it can be substantiated that the
offsetting income can be tied to specific expenses related to
production. The petitioners contend that Dongbu failed to do both of
these steps and, therefore, the Department should deny all of Dongbu's
claimed offsetting adjustments to G&A costs.
Dongbu contends that it properly offset G&A costs with its various
miscellaneous income items. Dongbu states that it submitted a complete
list of miscellaneous income items used to offset G&A costs and that
the Department reviewed each of these items during verification.
Therefore, the company believes that the Department should ignore the
petitioners' request and allow the miscellaneous income offsets to G&A
costs.
Department's Position
For the final results, we continue to disallow certain non-
production-related income offsets to Dongbu's G&A costs. At
verification, we reviewed source documentation and obtained
explanations from company officials on all the income items that were
used to offset Dongbu's G&A expense. We disallowed certain offsetting
income from the calculation of G&A expense because Dongbu could not
substantiate that they related to the production of subject
merchandise. Consequently, the offsetting revenue we disallowed
included income received from investments (e.g., dividends, gain on
investments) because it related to investments, and not to the
production of subject merchandise. See Final Determination of Sales at
Not Less Than Fair Value: Saccharin from Korea, 59 FR 58826, 58828
(November 15, 1994).
[[Page 784]]
Comment 5
Petitioners contend that the Department should exclude Dongbu's
duty payments from the calculation of the company's G&A and interest
expense factors. According to the petitioners, the addition of the duty
to the cost-of-sales figure inappropriately overstates the figure. The
petitioners argue that Dongbu's duty drawbacks represent a refund of
import duties incurred in the production of finished merchandise that
is subsequently exported. Therefore, the cost-of-sales figures in
Dongbu's audited income statements, which is net of import duties
refunded on certain export sales, accurately represented Dongbu's final
cost of manufacturing. Petitioners continue this argument by stating
that duties paid on imports used to produce merchandise sold in Korea
are not refunded, and are included in both the net cost of sales and
Dongbu's domestic sales price. Thus, using the net cost of sales to
allocate general expenses and interest results in an appropriate
comparison of prices and costs that reflect import duties.
Dongbu believes that it properly increased its cost-of-sales figure
to include the duty in order to calculate G&A and interest expense
factors. Dongbu contends that the increase to its cost-of-sales is
necessary in order to ensure comparability. Dongbu notes that its
audited income statement cost-of-sales figure is net of duty drawback,
while its submitted costs of manufacturing figures include the duty
because the Department requested that it be submitted in this manner.
Therefore, the respondent states that any G&A or interest factor that
is applied to its duty-inclusive cost of manufacturing must itself be
determined on a duty-inclusive basis.
Department's Position
For the final results, the Department added the import duties paid
by Dongbu to the cost of sales, which was used as the denominator in
calculating G&A and interest expense factors. The cost of sales in
Dongbu's audited income statement was net of import duty drawback,
while the Korean and U.S. cost of manufacturing submitted by Dongbu
included the cost of import duties. Thus, the cost of sales and the
cost of manufacturing were not reported on a consistent basis.
Therefore, Dongbu appropriately determined the interest and G&A factor
on a duty-inclusive basis because the submitted cost of manufacturing
included import duties.
Comment 6
Petitioners assert that the Department's analysis must account for
the difference between U.S. sales by Dongbu and its U.S. sales
affiliate, DBLA. They argue that the Department is in error in its
treatment of DBLA's and Dongbu's sales and requests that DBLA's sales
be treated as exporter's sales price (``ESP'') sales. Petitioners note
that Dongbu makes sales to the United States through three separate and
distinct channels: directly to customers in the United States; through
related and unrelated trading companies in Korea; and through its
affiliate in the United States, DBLA, which purchases subject
merchandise from Dongbu and resells it to unrelated customers in the
United States. Petitioners assert that Dongbu is incorrect in claiming
that sales made through each of these channels are purchase-price
sales. They state that Dongbu's contention implies that if sales
through each of these channels are treated as such, the U.S. prices
calculated by the Department will represent prices at the same point in
the chain of commerce in all cases, and thus implying that the charges
by DBLA to the first unrelated customer in the United States represent
the arm's-length prices that Dongbu would charge for the same
merchandise if sold directly to an unrelated U.S. customer, without the
involvement of DBLA. Petitioners claim that Dongbu's own sales data
indicate that there is a systematic and significant difference between
Dongbu's and DBLA's pricing structure which is the result of the fact
that DBLA's involvement in the sale of subject merchandise results in
significant costs which are included in the prices it charges its U.S.
customers.
Petitioners also argue that because DBLA's selling prices are
distinct from Dongbu's, the Department must analyze DBLA's sales
differently from Dongbu's sales in order to ensure consistency with the
fundamental purpose of the Tariff Act regarding the calculation of
United States price. They argue that the Tariff Act identifies two
types of U.S. sales, purchase price (``PP'') and ESP, and mandates
different adjustments to each so that United States price is
reconstructed at the same point in the chain of commerce regardless of
whether a U.S. affiliate of the manufacturer or exporter is involved in
the transaction. Citing 19 U.S.C. 1677a(b), petitioners contend that
the Tariff Act defines purchase price as the price at which merchandise
is purchased, or agreed to be purchased, prior to the date of
importation, from either a reseller, manufacturer, or producer of the
merchandise for exportation to the United States. Conversely, say
petitioners, ESP is defined as the price at which merchandise is sold
or agreed to be sold in the United States, prior to or after
importation by or for the account of the exporter. See 19 U.S.C.
1677a(c). Thus, ESP is typically used when an affiliate of the
manufacturer or exporter imports merchandise into the United States.
Also, petitioners cite Smith Corona Group v. United States, 713 F.2d
1568, 1571-72 (Fed. Cir. 1983), in arguing that when a U.S. affiliate
of a foreign respondent imports merchandise in question, all costs and
expenses incurred by the affiliate must be deducted from the
affiliate's resale price in order to derive a United States price
(``USP'') that reflects the price that the merchandise would command in
an arm's-length transaction. They further state that this is the case
whether the sales are from the importer to an independent retailer or
directly to the public, as if the affiliate had no role in the
transaction. Petitioners note that DBLA's role in selling subject
merchandise results in selling prices that are distinct from Dongbu's
prices for the same product, and that as a result, DBLA's role in
selling subject merchandise creates the type of bias that is addressed
by the provisions of the Tariff Act regarding United States price.
Petitioners also contend that Dongbu's sales through DBLA do not
meet the statutory definition of purchase price. They argue that the
Department utilizes a three-part test to determine whether ESP or
purchase price should be used to determine USP when the sale is made
prior to the date of importation; and the focus must be on the third
factor in this test; that is, that if the related party in the United
States only acts as a conduit between the first unrelated purchaser and
the seller, the resulting sale is a sale for export to the United
States. Petitioners contend, however, that before the Department can
accurately determine that the related party is just a processor of
documentation, there must be evidence on the record supporting that
conclusion. They argue that documents submitted by Dongbu, which
include DBLA's sales contracts and production order requests, do not,
by themselves establish that Dongbu sets the essential terms of sale in
Korea. Petitioners maintain, rather, that there is no documentary
evidence in the record in support of Dongbu's contention. Citing to
Creswell Trading Co., et al. v. United States, 15 F.3d 1054 (Fed. Cir.
1994) (``Creswell''), petitioners claim that Dongbu has the burden of
[[Page 785]]
producing information that proves its point, which it has not done; and
in the absence of such information, the Department cannot conclude that
the indirect PP sales at issue were made in Korea by Dongbu for
exportation to the United States. Instead, petitioners conclude that
the Department must determine that the sales were made in the United
States by DBLA, and that they must be treated as ESP sales.
Petitioners further argue that the price at which DBLA sells
subject merchandise to the unrelated purchaser is different from the
price at which DBLA purchases it from Dongbu. They contend that these
prices reflect the fact that DBLA performs significant selling
activities in the United States which require the Department to treat
the sales in question as ESP sales. Petitioners note also that DBLA
extends credit to certain customers by permitting them to delay payment
for subject merchandise; that DBLA identifies customers, negotiates
prices, and provides some warranty-related services; and that DBLA is
engaged in marketing activities that include development of downstream
applications for subject merchandise. Petitioners contend that another
significant selling function performed by DBLA is the posting of cash
deposits of antidumping and countervailing duties on behalf of its U.S.
customers. They argue that in a typical purchase price transaction, the
U.S. customer, as the importer of record, would be required to deposit
cash deposits with the U.S. Customs Service upon importation of the
merchandise, resulting in additional costs. In ESP transactions,
however, the customer is relieved of this burden and of the risks of
uncertain future liabilities. Petitioners contend that DBLA's selling
activities can be demonstrated in several ways. First, the activities
performed by DBLA are significant in the context of the totality of
activities required to sell subject merchandise. In other words, DBLA
performs all of the functions required to sell subject merchandise in
the United States. Second, the significance of DBLA's selling
activities, and the economic benefit these provide to DBLA's customers,
is reflected in DBLA's prices. Finally, petitioners cite declarations
made by DBLA on Customs Form 7501 which indicate that it was more that
a processor of sales related documentation.
Respondent counters these arguments by stating that Dongbu's sales
through DBLA meet the statutory definition of PP sales, and that
petitioners even concede that Dongbu satisfies the first two prongs of
the test: (1) Dongbu's sales through DBLA are shipped directly from
Dongbu to the unrelated buyer without being introduced into DBLA's
inventory, and (2) such shipment is customary in the industry.
Respondent notes that the sole issue thus raised by petitioners is
whether Dongbu USA satisfies the third prong of the test (i.e., does
Dongbu USA act solely as a processor of sales-related documentation and
a communication link with its unrelated U.S. buyers). Respondent
contends, however, that verification reports and associated documents
confirm that sales through DBLA meet the third requirement of the test,
and that DBLA played only a limited role as a processor of sales
related documentation and as a communications link to the customer.
Respondent argues that all of the selling activities carried out by
Dongbu USA in connection with these sales are within the range of
activities determined by the Department and the Court of International
Trade (``CIT'') to be consistent with purchase price classification.
Respondent notes further that petitioners make the same argument here
that they made during the original less-than-fair-value (``LTFV'')
investigation with respect to sales of cut-to-length plate made by
Dongkuk Steel Mill Co., Ltd. through its affiliated selling agent in
the United States. In that case, as with Dongbu, the U.S. affiliate was
responsible for payment of customs duties and brokerage and handling
charges, invoicing and collecting payment, and financing accounts
receivable. Respondent states that the Department in that case
determined that all of the functions identified by petitioners were
within the scope of activities consistent with a purchase price
classification. See letter from Morrison & Foerster to the U.S.
Department of Commerce (June 8, 1995) at 11-13; concurrence memorandum
in Cut-to-Length Carbon Steel Plate from Korea, Inv. A-580-817 (January
20, 1993) at 13. Respondent notes that DBLA facilitates the sales by
processing the documents needed to ensure that the merchandise is
delivered in accordance with the negotiated sales terms: that is,
delivery to the customer after clearance through U.S. Customs and
payment of brokerage and related charges. In detailing these functions,
respondent argues that all of the selling activities carried out by
DBLA in connection with these sales are within the range of activities
determined by the Department to be consistent with purchase price
classification in previous cases.
Regarding petitioners' argument that the Department should classify
sales through DBLA based upon comparative pricing patterns, respondent
counters that there is no legal or factual basis for reclassifying
these sales as ESP. Respondent contends that selling functions, not
selling prices, are the basis for the Department's classification of
sales as purchase price or ESP. With regard to Dongbu's sales through
DBLA, respondent argues that the Department must consider DBLA's
selling functions in connection with the fact that these products are
sold to the unrelated U.S. customer on an ex-dock duty-paid basis and
must thus be delivered to the possession of the customer after
clearance through U.S. Customs. Respondent notes that in this case,
Dongbu has simply transferred these routine selling functions to a
related selling agent in the United States, and that the substance of
the transaction is not changed, which is that they are purchase price
rather than ESP.
Department's Position
We have determined that purchase price is the appropriate basis for
calculating USP. Typically, whenever sales are made prior to the date
of importation through a related sales agent in the United States, we
conclude that purchase price is the most appropriate determinant of the
USP if the following factors exist: (1) the merchandise in question was
shipped directly from the manufacturer to the unrelated buyer, without
being introduced into the inventory of the related shipping agent; (2)
direct shipment from the manufacturer to the unrelated buyers was the
customary commercial channel for sales of this merchandise between the
parties involved; and (3) the related selling agent in the United
States acted only as a processor of sales-related documentation and a
communication link with the unrelated U.S. buyers. See, e.g., Certain
Stainless Steel Wire Rods from France: Final Determination of Sales at
Less that Fair Value, 58 FR 68865, 68868-9 (December 29, 1993);
Granular Polytetrafluoroethylene Resin from Japan: Final Results of
Antidumping Duty Administrative Review, 58 FR 50343-4 (September 27,
1993). This test was first developed in response to the Court of
International Trade's decision in PQ Corporation v. United States, 652
F. Supp. 724, 733-35 (CIT 1987). It has also been used to uphold
indirect purchase-price transactions involving exporters and their U.S.
affiliates. See, e.g., Zenith Electronics Corp. v. United States,
Consol. Ct. No. 88-07-00488, Slip Op. 94-146 (CIT 1994).
We disagree with petitioners' argument in citing to Creswell that
Dongbu has not met the burden of
[[Page 786]]
producing information that demonstrates that the related party in the
United States functions only as a processor of documentation. Dongbu
has placed information on the record which we have verified describing
the functions of its related party. Furthermore, the Department has
recognized and classified as indirect PP sales transactions involving
selling activities similar to those of DBLA's in other antidumping
proceedings involving Korean manufacturers and their related U.S.
affiliates. See, e.g., Final Determination of Sales at Less Than Fair
Value; Circular Welded Non-Alloy Steel Pipe from the Republic of Korea,
57 FR 42942, 42950-1 (September 17, 1992). In the present review, we
found that: (1) Dongbu's sales though DBLA, its related sales agent in
the United States, are shipped directly from Dongbu to the unrelated
buyer without being introduced into DBLA's inventory; (2) such
shipments are the customary channel of distribution for the parties
involved; and (3) DBLA performed limited liaison functions in the
processing of sales-related documentation and a limited role as a
communication link in connection with these sales.
When all three of the criteria described above are met, we consider
that the exporter's selling functions have been relocated
geographically from the country of exportation to the United States,
where the sales agent performs them. We determine that DBLA's selling
functions are of a kind that would normally be undertaken by the
exporter in connection with these sales. Furthermore, we conclude that
DBLA's role in the payment of cash deposits of antidumping and
countervailing duties, extension of credit to U.S. customers, the
processing of certain warranty claims, and project development does not
involve the development of downstream applications for subject
merchandise; rather, DBLA's role is not in consistent with purchase
price classification and is a relocation of routine selling functions
from Korea to the United States.
Comment 7
According to petitioners, the Department is required by law to
deduct the cost of ``actual'' antidumping and countervailing duties
from USP when the record demonstrates that those costs are included in
the prices paid by the first unrelated purchaser. Petitioners contend
that these duties are costs to Dongbu and must be deducted from the
price paid by the first unrelated purchaser in order to obtain a fair
comparison between USP and foreign market value (``FMV'').
Petitioners assert that the statute provides authority for
deducting the cost of actual antidumping and countervailing duties
incorporated in the price used to establish USP. Citing 19 U.S.C.
Sec. 1677a(d)(2)(A), they argue that USP shall be reduced by ``the
amount, if any, included in such price which is attributable to
additional costs, charges, and expenses, and United States import
duties, incident to bringing the merchandise into the United States.''
The costs of antidumping and countervailing duties thus fall within the
scope of this provision as costs, charges, and expenses or as U.S.
import duties. The former, petitioners note, is a subset of the latter,
and as a matter of law they must be deducted from the price to the
first unrelated purchaser. The also argue that the statute provides
that USP shall be increased by the amount of any countervailing duty
imposed to offset an export subsidy.
According to petitioners, in order to prevent double-counting, the
Department must deduct the full amount of the countervailing duties
paid by Dongbu for those entries covered by the first and second annual
reviews of the countervailing duty order. They claim that none of the
arguments for not deducting the estimated antidumping duties applies in
the case of the countervailing duty payments. First, petitioners argue
that Dongbu has presented evidence that DBLA paid those duties and that
they have an impact on the price. Second, they contend, there is no
danger of double-counting since the countervailing duties are not paid
to offset past price discrimination. In this case, the countervailing
duties are paid to offset domestic subsidies and have nothing to do
with Dongbu's price discrimination practices. Thus, petitioners assert
that the countervailing duties are a cost separate from the payment of
antidumping duties and should be treated as normal customs duties.
Also, petitioners claim that since no party requested a review of the
countervailing duty order at the time of the first or second
anniversary, those duties have become final duties. They also assert
that the Department must deduct the cost of antidumping duties equal to
the amount of the calculated margin in this review. Petitioners note
that the court acknowledged in Zenith Elec. Corp. v. United States, 18
CIT __ Slip Op. 94-146 (September 19, 1994) that the deduction from USP
of actual antidumping duties remains an open issue. Accordingly,
contend petitioners, the court expects that the Department will
approach the payment of actual antidumping duties differently than it
does the payment of estimated antidumping duties.
Respondent argues that in the absence of reimbursement, it is
unlawful and contrary to Department practice to deduct antidumping and
countervailing duties from USP. Respondent contends that petitioners'
reading of the statute is contradicted by both long-standing
administrative and judicial precedent. See, e.g., Final Results of
Antidumping Duty Administrative Review: Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products from the United Kingdom, 60 FR 44009
(August 24, 1995), Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from France, et al.; Final Results of
Antidumping Administrative Reviews, 60 FR 10900, 10907 (February 28,
1995), PQ Corp. v. United States, 652 Supp. 724, 735-37 (CIT 1987),
Federal-Mogul Corp. v. United States, 813 F. Supp. 856, 872 (1993), and
Torrington Co. v. United States, 881 F. Supp. 622 (CIT 1995. Respondent
further argues that the Department and the courts have long since
recognized that such deductions are not authorized under the
antidumping laws because they are, inter alia, not ``selling expenses''
within the meaning of the statute. Respondent notes that making the
required adjustment would unlawfully result in the double-counting of
dumping duties, and would perpetuate dumping orders thereby violating
both the letter and remedial purposes of the statute. They also state
that Congress has refused to yield to lobbying by the U.S. steel
industry for the enactment of legislation that would for the first time
authorize such a deduction.
Respondent asserts that petitioners are incorrect in their argument
that the issue of deducting antidumping and countervailing duties
should be considered differently in this case because the Department is
determining ``actual'' rather than ``estimated'' antidumping duties.
Respondent also states that petitioners are wrong in their extension of
this argument to Dongbu's countervailing duty deposits on the theory
that such deposits represent ``actual'' duties because the amounts
deposited are ``conclusive'' since no party requested an administrative
review. Respondent notes that the countervailing duty order is
currently on appeal to the Court of International Trade and liquidation
of these entries has been suspended pending the outcome of that appeal.
[[Page 787]]
By assessing duties beyond the actual margins of dumping, according
to respondent, petitioners' recommended deduction would also violate
international law as embodied in the World Trade Organization's
antidumping agreement. See Final Act Embodying the Results of the
Uruguay Round of Multilateral Trade Negotiations, April 15, 1994, and
Agreement on Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994, article 2para. 4.
Respondent claims that petitioners are incorrect in arguing that
their proposal will not result in a double-counting of antidumping
duties. Rather, respondent asserts it is a ``mathematical certainty''
that this will be the result. Respondent argues that if petitioners'
suggestion were followed, it would be impossible for a company engaged
in indirect PP sales to ever eliminate its margins. Respondent
concludes its argument by stating that petitioners have provided no
legal support for their position either in the language of the statute,
legislative history, court decisions, international law or the
Department's historical interpretation of the law.
Department's Position
We disagree with petitioners. In Final Results of Antidumping Duty
Administrative Review: Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from the United Kingdom (``UK Lead and Bismuth''), 60 FR
44009, 44010 (August 24, 1995), petitioners made arguments similar to
those presented here `` that ``actual'' antidumping duties are a
``selling expense'' and that the Department has not previously
considered whether to deduct ``actual'' expenses under section 772
(d)(2)(A). In UK Lead and Bismuth, we responded that ``[a]ntidumping
duties are intended to offset the effect of discriminatory pricing
between the two markets. In this context, making an additional
deduction from USP for the same antidumping duties that correct this
price discrimination would result in double-counting. Therefore, we
have not treated cash deposits of estimated antidumping duties as
direct selling expenses.'' Id. at 44010. See also Color Television
Receivers from the Republic of Korea, Final Results of Administrative
Review, 58 FR 50333, 50337 (September 27, 1993); and Antifriction
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from
France, et al.; Final Results of Antidumping Administrative Reviews, 60
FR 10900, 10906 (February 28, 1995). This same reasoning would also
hold where ``actual'' antidumping duties are known. The fallacy of
petitioners'' argument for treating antidumping duties as a cost is
that antidumping duties, although paid by an importer, are not selling
expenses, nor are they normal customs duties. Antidumping duties are
unique in that they represent antidumping duty margins--a measure of
price discrimination between FMV and USP. The statutory remedy for such
unfair price discrimination is to assess antidumping duties against the
imported merchandise in an amount equal to the amount by which the FMV
exceeds the USP for the merchandise. 19 U.S.C. 1673. To then subtract
this amount from USP in order to recalculate a supra-antidumping duty
margin would be creating additional price discrimination that did not
exist. This is the same as saying that dumping margins must be adjusted
to account for dumping margins. Such double counting of antidumping
duties is contrary to the Act, which is designed to comport with
Article 8para. 2 of the Agreement on Implementation of Article VI of
the General Agreement on Tariffs and Trade (``GATT'') 1994 in that the
duty collected must not exceed the margin of dumping.
We also disagree with petitioners' extension of their argument to
Dongbu's countervailing duty deposits on the basis that the amounts
deposited are ``conclusive'' since no party has requested an
administrative review. Even though the countervailing duty order is
currently on appeal to the Court of International Trade and liquidation
of these entries has been suspended pending the outcome of that appeal,
we still would not deduct the actual duties from USP for the reasons
outlined above.
Comment 8
Petitioners note that in the preliminary results of this review,
the Department calculated Dongbu's dumping margins using Dongbu's
reported U.S. credit expenses. However, at verification, the Department
determined that Dongbu's short-term interest rate during the period of
review should be revised upward.
Department's Position
We agree with petitioners. The Department recalculated Dongbu's
credit expenses using the revised interest rate as determined at
verification for the final results of this review.
Comment 9
Petitioners argue that Dongbu's freight charges for home-market
sales should be reduced by the amount of the intra-company transfer of
funds between Dongbu and Dongbu Express. They assert that
transportation services for Dongbu's home-market sales are provided by
unrelated trucking companies pursuant to contracts with Dongbu's
wholly-owned subsidiary, Dongbu Express; and that as such, Dongbu's
payment to Dongbu Express for those services is nothing more than ``an
internal price constructed for bookkeeping purposes.'' Petitioners
contend that the Department should revise these expenses to exclude
markups charged by Dongbu Express on the grounds that such markups
represent intra-company transfers of funds. They cite Final
Determination, Rescission of Investigation, and Partial Dismissal of
Petition High Information Content Flat Panel Displays and Display Glass
Therefor from Japan, 56 FR 32376 (July 16, 1991), and Final Results of
Antidumping Duty Administrative Review: Color Picture Tubes from Japan,
55 FR 37915 (September 14, 1990), in arguing that the Department has
previously disregarded the same type of markup paid to Dongbu Express
when calculating adjustments to FMV, and that the Department attempts
to value sales-related services at actual market rates, rather than at
the rates established between related parties.
Respondent counters that payment of a markup for such valuable
services in this case is consistent with commercial considerations.
Respondent argues that the Department has similarly acknowledged and
accepted that an administration fee paid by a respondent to its related
shipper reflected additional services which would have to be assumed by
either another trucking company or the respondent itself. According to
respondent, there is no dispute regarding the services covered by the
markup (i.e., that Dongbu Express acts as a freight forwarder in
arranging for and subcontracting trucking services for Dongbu).
Respondent states that Dongbu has also demonstrated that the markup
reasonably reflects the value of those services.
Dongbu states that it has shown that, on average, the percentage of
Dongbu Express' general expenses to its cost of sales is equal to the
profit it earns. The sum of these two elements equals the markup to the
cost from the unrelated freight company charged to Dongbu. Thus,
according to respondent, to ensure that the reported freight amounts
accurately reflect market rates, the Department must use the price from
Dongbu Express to Dongbu.
[[Page 788]]
Department's Position
We disagree with petitioners. We find that the markups charged by
Dongbu Express to Dongbu were commercially reasonable charges for the
services provided by Dongbu Express. Although the Department does not
have a standard policy requiring it to deduct related-party markups in
all cases, in Final Determination, Rescission of Investigation, and
Partial Dismissal of Petition: High Information Content Flat Panel
Displays and Display Glass Therefor from Japan, 56 FR 32376, 32393
(July 16, 1991), the Department rejected the price between related
parties not because there was a markup, but because it was determined
that the reported amount reflected a price constructed for ``internal
bookkeeping purposes'' rather than a market value. Also, in Final
Results of Antidumping Administrative Review: Color Picture Tubes from
Japan, 55 FR 37915, 32922-23 (September 14, 1990), the Department
acknowledged and accepted the respondent's argument that an
administrative fee paid by the respondent to its related shipper
reflected additional services that would have been sustained by either
another trucking company or the respondent directly. In the present
review, we verified the arm's-length nature of Dongbu's freight charges
and found no basis for reducing home-market inland freight charges. We
agree with respondent that Dongbu has demonstrated that: (a) on
average, the percentage of Dongbu Express's general expenses to cost of
sales is equal to the profit Dongbu Express earns; (b) the sum of these
two items equals the markup to the cost from the unrelated freight
company to Dongbu; and (c) the prices charged to Dongbu by Dongbu
Express accurately reflect market rates.
Comment 10
According to petitioners, the amounts reported by Dongbu and used
by the Department to determine the market rates for Dongbu's foreign
brokerage and handling charges are incorrect. They reject the amounts
used for the following reasons: (1) the evidence presented by Dongbu
that freight charges are provided at arm's-length rates is irrelevant
to whether the same company also provides unloading charges at arm's-
length rates, and (2) Dongbu has not demonstrated that Dongbu Express
provides freight services at arm's-length rates. On this basis, argue
petitioners, the Department must determine the value of unloading
charges incurred in Korea using alternative information, specifically,
the highest reported brokerage and handling charge for any U.S. sale as
the adjustment for all of Dongbu's U.S. sales.
Respondent argues that the record demonstrates that the charges
Dongbu reported in connection with related party transactions are at
arm's-length, and that the small amounts reported which reflect Korean
unloading charges are for a service performed solely by Dongbu Express
and provided solely for Dongbu. Respondent argues that Dongbu has shown
that other, more valuable and significant services provided by Dongbu
Express (i.e., inland freight charges, both to the United States and in
the home market) are on an arm's-length basis. Respondent also notes
that it is a matter of record that Dongbu Express was profitable
throughout the review period. Accordingly, states respondent, this
evidence provides a sufficient and reasonable basis to conclude that
the transactions for relatively small brokerage and handling charges
are also at arm's length.
Department's Position
We disagree with petitioners. Although the Department generally
prefers to demonstrate that a related-party service was provided at
arm's length by comparing those rates with charges for similar services
provided by unrelated companies, the Department does not automatically
resort to best information available when that methodology is
unavailable. Verification is the Department's means of testing
information; it is not intended, nor is it possible, that every single
item be examined during verification. See Monsanto Co. v. U.S., 698 F.
Supp. 275, 281 (CIT 1988). As our verification report indicates, we
performed an arm's-length test on Dongbu's related party, Dongbu
Express. We reviewed invoices from an unrelated trucking company to
Dongbu Express, and found that inland freight charged by the unrelated
party in question was lower than that charged by Dongbu Express. On the
basis of this verification, we have no reason to believe that Dongbu's
brokerage and handling expenses are not also at arm's length.
Comment 11
Petitioners contend the Department should have applied total BIA to
Union because of the respondent's inability, at verification, to
properly document home-market product characteristics. As a consequence
of the flawed verification, petitioners believe that the Department
cannot be confident that (1) it is matching U.S. sales to the proper
home-market transactions in price-to-price comparisons; (2) it is
matching the COP assigned to a home-market model to the proper home-
market price in the sales-below-cost test; and (3) it is properly
resorting to CV in cases where there is no similar, contemporaneous
home-market product or the home-market sale price is below the COP.
Petitioners also argue that failure to verify Union's product
characteristics taints not only Union's product comparisons, but also
Union's COP and CV data, since those data are reported on the basis of
specific control numbers, and each control number (``CONNUM'') is
defined by a unique set of unverified product characteristics. To
derive the per-ton cost of each CONNUM reported in its response,
petitioners state that Union allocated costs on the basis of the total
quantity produced of that CONNUM. If the home-market product
characteristics used as a basis for defining CONNUMs are suspect,
according to petitioners, then the production quantities and cost
allocations based on those CONNUMs are unreliable.
Petitioners claim that, in a number of cases where the use of
unverified data would have rendered meaningless any calculation
employing that data, or where the Department was unable to verify a
respondent's home-market product characteristics, the Department has
resorted to total, rather than partial, BIA. In addition, petitioners
note that the Department has routinely resorted to total BIA where a
respondent has destroyed, or has been unable to produce, documents
supporting critical aspects of its submitted data. Petitioners point
out that the CIT has recognized that parties who initiate unfair trade
proceedings--as did Union by requesting this review--bear the burden of
maintaining and retaining records relevant to the proceeding. See,
e.g., Krupp Stahl AG v. United States, 822 F. Supp. 789 (CIT 1993)
(``Krupp Stahl''). Indeed, petitioners note, even DKI, a company that--
unlike Union--did not anticipate being reviewed in this proceeding,
retained production records and other customer correspondence relevant
to home-market sales during the POR. Petitioners contend that Union's
data deficiency, which was caused by its failure to retain relevant
production records and customer correspondence in a review that it
requested, is every bit as pervasive and significant as in prior cases
where the Department has resorted to BIA. According to petitioners,
when this data deficiency is combined with the Department's inability
to verify the accuracy of Union's home-market date of sale and Union's
failure to report
[[Page 789]]
accurate dates of sale for a significant percentage of its U.S. sales,
the Department has no alternative but to resort to total BIA in its
final results in petitioners' view.
Petitioners cite Krupp Stahl in support of their contention that
the choice of which information to use as BIA must not reward a
respondent. Because it applies only to price-to-price comparisons,
petitioners argue that the Department's BIA methodology rewards Union
Steel by failing to account for the possibility that costs assigned to
a particular CONNUM might not be matched to the correct home-market
price in the sales-below-cost test, or that the use of CV as a result
of home-market sales falling below COP or the lack of a home-market
match would be improper. It also fails to address the possibility that
Union's reported COP/CV amounts do not correspond to the product to
which they are assigned. Petitioners also take issue with the
Department's presumption that the largest possible adjustment to the
prices of comparable products is no more than 20 percent of the cost of
manufacturing (``COM'') of that product. Petitioners claim that the
Department can have no idea of the extent to which improper matches may
understate FMV because some or all home-market products may be
improperly matched. Therefore, petitioners state, any sales of any
product in Union's home-market database could theoretically be compared
to U.S. price, and the record shows that price differences between U.S.
and Korean sales are in fact far greater than the adjustment
preliminarily used by the Department. According to petitioners, the
Department has therefore rewarded, rather than penalized, Union for its
improper record-keeping procedures. Should the Department fail to use
total BIA in its final results, the Department will invite manipulation
and circumvention of the antidumping process by respondents,
petitioners say.
Under the partial BIA methodology employed by the Department,
petitioners claim a respondent could request a review and then destroy
critical supporting documentation associated with any sale under the
guise that such destruction is its normal business practice and assign
to such sales the product characteristics it desires to ensure the most
favorable price-to-price comparisons and sales-below-cost test result,
secure in the knowledge that the Department will cap any BIA adjustment
at a mere 20 percent of the product's COM. Similarly, petitioners
argue, knowing that reported COP/CV amounts will not be adjusted
despite the Department's inability to verify home-market product
characteristics, respondents could simply assign costs to specific
CONNUMS as they desire to ensure the most favorable outcome. The
Department's inability to verify Union's home-market product
characteristics taints price-to-price comparisons, the sales-below-cost
test, and the decision to resort to CV, as well as Union's submitted
COP/CV data.
The Department stated that its BIA methodology was designed to
address the possibility that (1) ``U.S. sales are not being compared to
sales of the most similar home-market models' and (2) ``reported costs
of home-market models may not correspond to the costs of the home-
market products that were actually shipped.'' (Department's internal
memorandum from Joseph A. Spetrini to Susan G. Esserman, ``Treatment of
Union Steel With Respect to Certain Corrosion-Resistant Carbon Steel
Flat Products from Korea,'' dated August 8, 1995. Because the
Department's partial BIA methodology assigns a 20 percent COM
adjustment to FMV used only in price-to-price comparisons, does not
contain any adjustment to Union's COP/CV data, or affect the sales-
below-cost test and the basis for resorting to CV, it fails to account
for the latter. For all of the above reasons, petitioners urge the
Department to apply total BIA to Union for the final review results.
Respondent rejects both petitioners' claim that there are pervasive
and significant data deficiencies sufficient to warrant total BIA and
the Department's use of partial BIA. Union states that the Department
verified home-market date of sale and that the Department has already
adjusted the data with regard to U.S. date of sale. Union contends that
there is no evidence on the record indicating that the home-market
codes are wrong. It notes that product code questions for home-market
sales have no implications for any of the cost data.
Respondent states that petitioners' reliance on Cold-Rolled
Stainless Steel Sheet from Germany and Krupp Stahl is misplaced. In
that case, Union states, all records had been destroyed, preventing it
from preparing a response to the Department's questionnaire and
preventing the Department from conducting a verification. In this case,
Union claims only two types of documents are at issue: mill
certificates and customer correspondence. In Union's view, it had no
reason to suspect that these documents, which it does not normally
retain, would be deemed necessary at verification. Union concludes that
the precedents ``underscore that the use of total BIA is appropriate
only for a noncooperative respondent or a respondent whose submission
is so fundamentally flawed that it cannot be used even with partial
BIA.'' See, e.g., Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from France, 60 FR 10900. Thus, respondent
states that the Department must reject petitioners' request to use
total BIA.
Respondent notes that the statement in the verification report that
the Department was ``unable to verify the accuracy of the product code
system for [Union's] home-market sales, or determine the basis behind
Union's coding of certain model-match characteristics,'' upon which
petitioners rest their claim for application of total BIA, is
contradicted by factual evidence on the record. Union asserts that, as
part of the verification, the Department: (1) Repeatedly tied the
product codes reported on Union's tape to the product codes used on
commercial invoices maintained in the normal course of business; (2)
traced the reported invoice data, including the product code, from the
commercial invoice to Union's sales ledgers, and thus to the audited
financial accounting system; (3) compared the product codes with
Union's product manual, and found no discrepancies; and (4) repeatedly
checked product codes for U.S. sales (which are the same product codes
used in the home-market) against mill certificates. Union also asserts
that the decision memorandum forwarded to the Assistant Secretary
failed to mention the first three of these facts. Rather, Union avers,
the Department's memorandum gives central status to two types of
documents--mill certificates and customer notifications--on no basis
other than the fact that these documents were not retained. Union also
claims that, by not notifying the company during verification of its
concerns with regard to product characteristics, the Department
deprived Union of an opportunity to address those concerns.
Union, citing recent cases (see, e.g., Brass Sheet and Strip from
Canada, and Oil Country Tubular Goods from Korea), argues that the
Department routinely relies on commercial documentation, such as
invoices and sales ledgers, to verify internal product codes, and does
not normally trace product codes to production records.
Union maintains that there exists on the record production
information, viewed by the Department at verification, supporting its
internal product characteristics. The Department, according to Union,
examined post-POR mill certificates. In
[[Page 790]]
addition, Union claims that the Department's cost verifiers ascertained
that Union used a single product coding system, which enabled them to
test the quality and specifications of input materials to the quality
and specifications of the finished product. It is Union's view that the
Department's verifiers could have tied Union's product codes to its
inventory withdrawal records and to entries into the finished goods
inventory, which in turn could have been tied to other production
records, but they did not do so. Alternatively, Union suspects the
Department could have reconciled total sales to total inventory entries
or withdrawals, thereby confirming that the amount sold of a given
product matched the total amount produced and entered into finished
goods inventory, but it did not.
Respondent reiterates that there is only one internal product
coding system used for home-market sales, U.S. sales and cost of
manufacturing. Respondent claims it is beyond dispute that the
Department verified both the U.S. sales data and cost data, which
confirms the integrity of the entire internal product coding system,
even if the Department was not fully satisfied that it could tie home-
market sales to mill certificates or customer correspondence.
Union also asserts that its recordkeeping practices do not differ
significantly from Dongbu's, which, like Union, did not retain home-
market mill certificates or customer correspondence. Even if Union had
kept records in a significantly different manner from Dongbu's, Union
cites Coated Groundwood Paper from Finland; Final Determination of
Sales at Less Than Fair Value (56 FR 56363--November 4, 1991) as an
example where the Department relied on very different documentation to
verify two respondents' respective product characteristics. In that
case, Union claims that the Department relied upon respondent Metsa-
Serla's product coding sheet to verify Metsa-Serla's product
characteristics. It says Metsa-Serla was not penalized because it was
unable to provide mill orders and the other respondent, UPM/Rupola,
was. Union maintains that the context in which the Department examined
certain documents at verification is irrelevant; the key point is that
the Department routinely uses commercial documentation as satisfactory
evidence of the accurate reporting of product codes and
characteristics.
Union disputes the Department's assertion that a majority of
Union's reported home-market characteristics--derived from the internal
product code--did not identify such characteristics, and therefore did
not support respondent's conclusion with record evidence.
Union states that the record of this review does not provide any
explanation or reasoned basis for the Department's product hierarchy.
Under those circumstances, it is Union's opinion that the Department
may not lawfully use partial BIA even if Union fails to support its
product distinctions sufficiently.
Even assuming certain product characteristics could not be
verified, Union argues, the Department's conclusion that the maximum
possible adjustment for differences in physical characteristics of the
merchandise (``difmer'') is necessary to account for the worst case is
unwarranted. The Department could have drawn an adverse inference with
respect to the specific product characteristics at issue.
Union asserts that information on the record of the cost
investigation allows the Department to limit its use of partial BIA to
only those product characteristics that the Department erroneously
considers not to be verified. Union suggests that the Department could
allow those product characteristics dependent on the product code to
vary to determine the maximum possible universe of products for each
reported product code. The Department could then choose the highest
home-market variable cost of manufacture (``VCOMH'') for each such
universe and use it to calculate the difmer (subject, of course, to the
20 percent difmer cap). Union suggests even if the Department finally
concluded that the product codes were not verified, it could still
calculate a margin based on submitted data.
Union also rejects the idea that its COP and CV data are tainted by
the alleged failed verification of home-market product characteristics.
Union claims that the Department never expressed any concern that the
post-verification issue of product characteristics extends to the
calculation of Union's production costs. Indeed, Union asserts, its
costs were developed on the basis of withdrawals from materials
inventory and pass-through quantities, which are entirely independent
from the quantity of product shipped. Union claims that the cost
verification report and exhibits demonstrate that the Department could
trace any product's characteristics back to the daily line production
reports for the final stage of processing; that these reports indicate
the internal product code and the nature of the final stage of
processing; and that the product could be traced back through the
production process based on the mill order number. The Department's
verifiers, Union maintains, identified the input coils and determined
the chemistry of the input coils from the suppliers' mill certificates.
Union finally notes that, in the parallel review of Union's
corrosion-resistant products, petitioners explicitly conceded that
Union has a single product coding system in both the U.S. and home
markets. Therefore, to the extent that the product coding system was
verified in one market, it was verified generally.
Union protests that petitioners' alleged claim that the
Department's final determination is driven by a single sentence in the
verification report makes a ``mockery'' of the antidumping law and
procedures in general and of this proceeding in particular. Union
states that in petitioners' view the final decision in this case was
effectively made on May 16, 1995, by the authors of the verification
report when they inserted the allegedly damning sentence into the
record. Union further notes that petitioners portray that one sentence
as ``handcuff[ing]'' the Department without regard to any analysis of
all the other information on the record of this proceeding. As a matter
of law, Union avers, the Department's preliminary and final
determinations must be based upon a comprehensive analysis of the total
record of the proceeding. Union contends that conclusory statements in
internal Department memoranda are of value only if supported by the
record.
Union argues that the Department's preliminary determination that
Union's home-market product characteristics were not fully verified was
based on an incomplete and erroneous presentation of the facts on the
record. Union claims that the decision memorandum elevates two
potential ancillary means of verification (mill certificates and
customer notifications) to central status on no basis other than the
fact that these documents were not retained. Union claims the
Department verified the accuracy of Union's home-market product
characteristics through other means, and had many others available.
Union also takes issue with the verifiers not having advised Union at
verification of any outstanding concerns over product characteristics
based on product codes. Had the Department expressed any such concerns,
Union argues it could have suggested additional ways to verify its
data, but was denied the opportunity.
Petitioners protest what they term Union's ``eleventh-hour attempt
to ``clarify,''' long after its May 23, 1995,
[[Page 791]]
submission purporting to correct certain aspects of the Department's
sales verification report, the sentence in that report which stated
that the Department was unable to verify Union's home-market product
characteristics, by saying the sentence ``[was] in error or [ . . . ]
misleading because overly broad when written.'' Petitioners argue that
Union should not be allowed, at this late date in the proceeding, to
assert that the report was inaccurate in this regard when it could have
raised this concern long ago but elected not to do so. Union,
petitioners state, simply failed to present to the Department during
verification any documentation supporting the premise that Union's
home-market product characteristics had accurately been verified.
Petitioners dispute Union's suggestion that only a minority of
product characteristic variables were derived from the internal product
code. Petitioners point out that the verification report specifically
says the opposite in three different places, and that Union never
attempted to clarify or rebut these statements. Union's claim that
certain product characteristics were derived from the product's name is
a non sequitur in petitioners' view. They argue that while these
physical characteristics may be associated with the product name, that
claim in no way demonstrates that the product actually produced and
sold possesses the physical characteristics attributable to it by
virtue of its product name. Petitioners add that such a demonstration
could only have been effected by providing the Department with
production records indicating the physical characteristics of the
products produced and sold (e.g., production orders or mill
certificates), which Union failed to do. In any event, petitioners
argue, even if a minority of Union's reported product characteristics
were derived from its internal product code, it would be unreasonable
to limit application of partial BIA to specific product
characteristics, because Union's home-market sales, cost, and CV data
would still be tainted. Petitioners suggest that the Department, if it
persists in applying partial BIA to Union, could use as partial BIA the
highest VCOMH reported in Union's database for purposes of calculating
the difmer adjustment as well as COP and CV.
Respondent denies that the Department's preliminary results reward
Union and urges the Department to reject the notion that, absent any
evidence of manipulation, a 20 percent difmer adjustment would provide
future respondents with an incentive to manipulate the model-match
process.
Union argues that even if the Department justifiably determined
that Union's product characteristics had inadequately been verified,
its decision to resort to partial BIA was wrong, since the statute
affords the Department broad discretion to base FMV on CV. Because
Union's CV data was verified and reflects the cost of the products sold
in the United States, and the Department's stated policy is to use as
much of a respondent's data as possible, the Department had a
responsibility to use Union's own, verified data rather than using a
flat, across-the-board difmer of 20 percent as BIA. Respondent notes
that a comparison of U.S. price to CV is totally unaffected by the
perceived problems with the verification of product characteristics and
suggests that in light of the Department's concerns, the use of CV is
``the obvious alternative.''
Petitioners counter that Union's CV database is just as tainted by
the failure adequately to verify product characteristics as Union's
sales database. Union, they claim, mistakenly believes that, because
the product characteristics associated with the merchandise sold by
Union in the U.S. market are not in dispute, the costs associated with
producing that merchandise are also not in dispute. Petitioners state
that, due to the Department's inability to verify the accuracy of Union
Steel's reported home-market product characteristics, the physical
characteristics of the products whose production levels Union used in
calculating the unit cost of each given product are either unknown or
unreliable.
Petitioners argue further that even if the per-unit costs used to
calculate CV are not tainted by the product-characteristic deficiency,
CV is nevertheless unreliable because the home-market profit component
of CV is tainted by that deficiency. The profit component of CV is
based on the weighted-average profit made on home-market sales. Since
the Department cannot be certain that the reported COP of home-market
products is being compared to the proper home-market sales and prices,
the Department cannot be certain that the profit component of Union's
CV is accurate. This deficiency, petitioners contend, renders the
reported CV amounts unreliable.
Petitioners also affirm that the statute does not give the
Department discretion to use CV as FMV when home-market sales data is
not verified. They note the statute provides that the Department may
use CV when home-market sales are found to be below cost in significant
numbers and when there are no matchable numbers in the home-market
because they exceed the 20 percent difmer test. In those situations,
petitioners observe, the Department has before it otherwise usable and
properly verified data which cannot be used in margin calculations. In
this case, however, the Department did not have home-market sales data
that was otherwise usable according to petitioners. Petitioners argue
that when the Department is unable to verify submitted data, as it was
in this case, the statute requires the Department to resort to BIA,
which is always an adverse inference. In this case, they claim using
Union's CV data is not adverse to Union and would reward Union.
Petitioners counter that the record is unclear as to whether the
Department ``repeatedly'' tied the product codes to sales and
production documents, as claimed by Union. Even if the Department did
repeatedly perform each of these tasks cited by Union, petitioners
argue that none of these tasks (i.e., tying product codes from sales
invoice to sales tape, tracing invoice data to sales ledgers, checking
product codes against a product code key, checking U.S. product
characteristics against mill test certificates) in any way confirmed
that products sold in the home-market possessed the physical
characteristics reported by Union.
Petitioners claim that the statute requires the Department to
verify the accuracy of the data submitted, not some proxy thereof. They
note that Union has admitted on the record that its home-market
customers are somewhat less concerned than U.S. customers with the
accuracy of product specifications. Therefore, petitioners argue,
verification of U.S. product characteristics cannot serve as proxy or
surrogate for verification of home-market product characteristics.
Petitioners allege that, to the extent that the internal product code
was the basis for matching home-market products to U.S. products, Union
had an incentive to ensure that the product code assigned to an
individual home-market sale resulted in the most favorable match.
Petitioners claim that Union does not seem to recognize that submitted
data must be verified not to its own satisfaction, but to the
Department's.
Petitioners also argue that the verification reports cited by Union
as evidence that the Department normally applies a lower standard for
verification of product characteristics than was the case here are all
inapposite. In those
[[Page 792]]
cases, petitioners claim, the Department was not verifying the accuracy
of product characteristics as reflected by product codes, but rather
whether the merchandise was in-scope versus out-of-scope, or whether
the respondent had completely reported all sales of the subject
merchandise. In those cases, according to petitioners, the Department
was provided with other documentation, including documentation
furnished by the customer, such as purchase orders and order
confirmations.
Petitioners contend there is a critical distinction between, on the
one hand, verifying whether merchandise is in-scope or whether all
sales of the subject merchandise during the POR were reported, and, on
the other hand, whether the reported products actually possess the
physical characteristics reported. The former is a preliminary, general
inquiry which is designed to ascertain whether all sales have been
reported, while the latter is a separate, detailed inquiry designed to
ensure that the physical characteristics of comparison products were
accurately reported. In this case, petitioners assert, the Department
was unable to verify the accuracy of Union Steel's reported home-market
product characteristics in the context of the latter inquiry.
Further, as Union has conceded, the verification techniques
employed in a given instance are dependent on the specific facts of
each case. Petitioners state that the Department has considerable
latitude in conducting verification and ``[t]he decision to select a
particular method of verification rests solely within [the
Department's] sound discretion.'' See Floral Trade Council v. United
States, 822 F. Supp. 766 (CIT 1993). Petitioners stress that Union, as
the requester of the review, has only itself to blame for not
preserving vital documentation months after the review had started. In
addition, petitioners note that Union gave the Department reason to
distrust the company's reported product characteristics by placing on
the record a report, prepared by a private consulting firm in Union's
employ, which stated that the respondent was incapable of tracing its
production records to individual shipments.
Petitioners claim that Union's post hoc explanation of the
production records it allegedly maintained does not demonstrate the
accuracy of its reported home-market product codes. Petitioners allege
that the explanation furnished by Union with regard to post-POR records
allegedly examined by the Department's verifiers constitutes new
factual information that should be stricken from Union's case brief.
Petitioners argue that explanation does not exist anywhere on the
record, nor is it clear that verification reports or exhibits support
that purported explanation. Consequently, petitioners request that this
explanation be stricken from the record and ignored on the grounds that
it is untimely submitted. In any event, these materials were examined
by petitioners for the limited purpose of ascertaining the accuracy of
Union's reported date of sale in the home-market. Therefore,
petitioners claim any assertion that these materials support home-
market product characteristics is post hoc and unverified.
Petitioners also deny that the cost verification supports the
validity of Union's internal product coding system. They claim that the
cost verifiers did not ascertain whether the reported internal codes
accurately reflected the characteristics of products produced and sold.
Rather, petitioners say, the verifiers tested input costs on the basis
of the specifications of Union's internal product code and physical
dimensions. It is unclear, petitioners note, whether the products that
Union reported as coming off its production line actually possessed the
physical characteristics represented by the internal product code
assigned to them in the accounting records maintained with respect to
production. Finally, petitioners argue, the fact that the accuracy of
the internal code may have verified with respect to one market (the
United States) does not mean it verified with respect to the other
(Korea). Even if the Department incorrectly concluded that the accuracy
of Union's internal product code with respect to products produced for
the home-market was verified, the accuracy of the codes appearing on
self-generated commercial invoices for home-market sales remains
unverified. Petitioners object to Union's suggestion that the
Department could have employed alternative verification techniques,
thereby trying to usurp the Department's role. They note that the
verification outline clearly put the respondent on notice as to the
goals of the verification and as to the type of supporting
documentation Union would be required to produce. It was therefore
``unconscionable'' for Union to destroy records that would have allowed
the Department to verify the accuracy of the most critical component of
antidumping analysis--the product characteristics assigned to each
control number, according to petitioners. It is incumbent upon a
respondent to volunteer to the Department's verifiers information as to
what sort of documentation is available to permit verification. It
would appear that by inserting the consulting firm's report on the
record of the verification, Union was fully aware of the problem posed
by verifying home-market product characteristics. Yet it was not until
the case brief that Union volunteered the existence of documents which
Union claims would have permitted such a verification. Union had
repeatedly denied that production records could be tied to shipment
records. Union also suggests post hoc that inventory records could have
been used to verify product characteristics, yet the consulting firm's
report states outright that these records are inaccurate. If the
product code could not be verified for home-market sales, petitioners
suggest, it is doubtful that the accuracy of the product codes in the
inventory records could have been verified. Petitioners affirm that
there is no requirement that the Department inform a respondent, during
verification, of errors and deficiencies discovered during same.
Petitioners dispute Union's contention that the Department's
preliminary decision to use BIA was arbitrary because it was based on a
comparison of Union's recordkeeping practices with those of Dongbu.
Petitioners find this ``strange,'' since in its case brief, Union
itself compared its recordkeeping practices to those of other
respondents in non-flat-rolled-steel cases in an attempt to demonstrate
the validity of its records. As to Union's contention that, in fact,
its recordkeeping practices differ little from Dongbu's, petitioners
point out that Union officials or counsel were not present at Dongbu's
verification, that Dongbu never asserted (as Union did) that it was
incapable of tracing production to shipment, that it was able to show
certain production records to the Department, and that Dongbu had not
destroyed all of its home-market production records relating to the
POR.
Department's Position
We disagree with petitioners that the Department should have
applied total BIA to Union. The Department applies total BIA when a
respondent refuses to provide the information requested in a timely
manner or in the form required, or otherwise significantly impedes a
proceeding. See Antifriction Bearings (Other than Tapered Roller
Bearings) and Parts from France, et al.; Final Results of Antidumping
Administrative Reviews, 60 FR 10900, 10908 (February 28, 1995), Allied-
Signal Aerospace Co. v. United States, 996 F.2d 1185 (Fed. Cir. 1993);
NTN Bearing Corp. of America v. United States, Slip Op. 93-
[[Page 793]]
129 (CIT July 13, 1993). The Department considers the errors and
inconsistencies in Union's submission to be of such a nature that they
do not warrant the use of BIA, as discussed below. With respect to U.S.
date of sale discrepancies, we agree with respondent that this has
already been addressed in the preliminary results by using date of
shipment as date of sale.
We agree with respondent that the cases cited by petitioners
regarding the destruction of records are not applicable to this
instance. In Krupp Stahl AG v. United States, 822 F. Supp. 789 (CIT
1993), for instance, respondent purposefully destroyed all records for
the POR, making it impossible for them to respond to our questionnaire
or enable us to verify any submitted information. That is not the case
with Union. Following its normal procedures, Union did not retain mill
certificates or other documents needed to verify home-market product
characteristics. However, all other documentation was maintained and
there is no evidence that respondent's failure to retain certain
records was intended to impede our ability to conduct this proceeding.
Although we reassert our determination that applying only partial
BIA to Union is warranted, after analyzing all comments received and
re-evaluating the information on the record, we are modifying our
application of partial BIA compared to the preliminary results. Because
Union's reported home-market product characteristics were not
verifiable, it was not possible for the Department to make reliable
price-to-price comparisons. Such deficiencies may warrant the use of
total BIA in many circumstances. In this particular case, however, the
Department has concluded that the use of total BIA is unwarranted for
the following reasons:
Union's normal business practice at the time was not to
retain certain production records, such as mill certificates;
there is no evidence on the record that Union deliberately
refrained from retaining those records with the purpose of impeding the
Department's ability to conduct this proceeding;
we were able to verify product characteristics of the
merchandise sold in the U.S. market and to link specific U.S. sales to
control numbers; and
CV was associated with specific control numbers.
In light of the above, and because the Department is treating Union and
DKI as a single producer of certain cold-rolled carbon steel flat
products for purposes of this review, we determined to use DKI's home-
market sales and our usual below-cost sales test as bases for
comparison in cases where U.S. sales by Union were matched to similar,
contemporaneous sales by DKI in the home market. Where Union's U.S.
sales could not be matched to similar, contemporaneous DKI transactions
in the home market, or where such DKI transactions failed the below-
cost test, we determined that basing FMV on CV, in accordance with
section 773(a)(2) of the Act, was warranted. While we were able to
match all of Union's U.S. sales to similar, contemporaneous, DKI
transactions in the home market, all of these DKI transactions were
below cost, which caused CV to be used as the basis for FMV in all
instances.
Section 773(e)(1)(B)(ii) of the Act requires that, as a component
of CV, an amount for profit shall be used that is equal to that usually
reflected in the sales of the merchandise made by producers in the
country of exportation, except that the amount of profit shall not be
less than 8 percent of the sum of such general expenses and cost. In
this instance we were unable to determine the actual amount of Union's
profit because the profit component of Union's reported CV data is
derived from Union's home-market COP database, which, as we explained
above, is not usable because we could not verify Union's home-market
sales product characteristics. Because these product characteristics
could not be verified, we were unable to match specific sales to
specific costs; thus, it was not possible to determine the actual
profit for specific products based on a transaction-by-transaction
analysis. Consequently, because of this failure of verification, the
Department, pursuant to section 776(c) of the Act, resorted to the use
of BIA in order to determine the profit component to be used in
calculating CV. As partial BIA, we have used the higher of the
weighted-average profit for all of Union's above-cost home-market sales
or the statutory 8 percent profit.
In order to determine which of Union's sales were made at prices
above the COP, we calculated a simple average of all COPs reported by
Union. We were unable to calculate a weighted-average COP because we
could not link Union's COP database to individual home-market sales as
Union's home-market sales product characteristics could not be
verified. After calculating the simple average COP, we compared that
cost to each individual home-market sale to determine which sales were
made at prices above the average COP.
Once we had determined which home-market transactions were made at
prices above the simple average COP, we calculated the transaction-
specific profit on each of those sales. This was done by first
calculating the sales value of each individual home-market transaction
(i.e., net price times sales quantity). From each sales value we
subtracted the value of the COP for that particular transaction to
determine the transaction-specific profit (i.e., sales value minus
simple average COP times sales quantity). Finally, we weight-averaged
the transaction-specific profits for purposes of deriving an overall
profit percentage for use in the CV calculation. We were able to
weight-average profit because we verified the quantities and prices of
Union's individual home-market sales transactions.
Given Union's home-market data deficiencies, we determined that
this approach was a reasonable means to calculate the profit component
of CV. We used as much of Union's verified data as possible. However,
where verified data were not available, we resorted to partial BIA,
still using Union's data but in a more adverse manner than if the data
in question had not failed to verify. We concluded that adopting this
partial BIA approach, rather than using the statutory minimum profit,
comported with the statute, the Department's practice, and with Court
precedent. As the Department has previously noted, ``the noncomplying
respondent cannot find itself in a better position as a result of
failing to comply with the Department's information request than had
the respondent provided the Department with complete, accurate and
timely data.'' Replacement Parts for Self-Propelled Bituminous Paving
Equipment From Canada; Final Results of Antidumping Duty Administrative
Review, 56 FR 47451, 47453 (September 19, 1991). See also National
Steel Corp., et al. v. United States, 870 F. Supp. 1130, 1135 (CIT
1994) (approving use of adverse partial BIA when only part of the
submitted information is deficient). Because the calculated weight-
averaged profit was lower than 8 percent, however, we used the
statutory minimum profit for CV purposes.
In any future review of this order, however, the Department expects
Union to retain any and all records, including production records,
necessary to permit the Department to verify Union's home-market
product characteristics.
Union argued that use of even partial BIA by the Department was
inappropriate for the following reasons. Union claimed that the
difficulty in verifying home-market product characteristics was limited
to those defined by the internal product code,
[[Page 794]]
which is only partially correct. The internal product code did serve as
the basis for categorizing many of the cold-rolled model-match
variables; however, it was the basis for a majority of the variables,
rather than just the five referenced by respondent. In fact, five of
the six most important variables in the model-match hierarchy were
derived from the internal product code, and Union's methodology for
categorizing an additional variable (yield strength) on specific sales
was not explained to the Department. Since Union did not maintain
records of any correspondence with its home-market customers prior to
shipment indicating the product being sought, and the description of
products sold in the home market and appearing on the commercial
invoices was only the internal product code, with the exception of
thickness and width, the Department could not verify that the product
code represented an accurate reflection of the product sold and
shipped. The fact that Union did not preserve production records for
its home-market sales, such as mill certificates, which would provide
this detailed information on products produced and which would link
these products to specific sales, prevented the Department from
determining the accuracy of this system.
With respect to Union's claims that the Department relies on
commercial documentation, such as invoices and sales ledgers, to verify
internal product codes, we note that Union's invoices--unlike those for
many companies--do not contain a detailed product description of the
product sold. Neither did Union maintain any customer correspondence or
any documentation which contained such a detailed product description.
With respect to the cases cited by Union, we note that the reference in
Brass Sheet and Strip from Canada was not relevant to verifying product
characteristics as it involved a volume and value trace. The reference
to Small Diameter Circular Seamless Carbon and Alloy Steel Standard,
Line and Pressure Pipe from Brazil and Germany was also not relevant to
the present case, as that case involved the use of industry-wide
product codes. No such claim was made by Union; indeed Union
consistently referred to its codes as ``internal'' product codes.
Union also alleges that the internal product code was the same as
that used for U.S. sales and the Department was able to verify its
accuracy. Products sold in the United States, however, had commercial
invoices with detailed descriptions of the product sold, and the
necessary mill certificates that could be used to confirm these product
descriptions. In addition, products sold in the two markets possess
different physical and mechanical characteristics, are made to
different specifications, and are coded differently in the internal
product code.
We note that Union, in its case brief of October 2, 1995 (at 15 et
seq.), almost seven months after the verification and five months after
the sales verification report (``SVR'') was issued, suggests that the
Department could have used alternative verification techniques to
verify Union's home-market product characteristics. If that were true,
respondent could have suggested these techniques during the
verification itself, but did not do so. Only the respondent is in a
position to know what documentary evidence there exists in its
possession; it is the respondent's responsibility to determine, prior
to the verification, what documentary evidence exists in its records
which supports the information previously supplied to the Department,
and to provide such documentary evidence to the Department's verifiers.
It is not the responsibility of the Department's verifiers to guess
what records might be in the respondent's possession and to suggest to
the respondent how it might best document the information provided in
the questionnaire responses. We note further that, at verification,
Union entered as a verification exhibit a consulting report stating
that Union's production and inventory records are inaccurate. See
Union's SVR of May 16, 1995, at 10. This calls into question the
possibility of successfully employing the alternative techniques Union
is now advocating. Finally, contrary to Union's claim, the Department
did not examine at verification post-POR mill certificates as well as
``factory inspection cards'' for certain home-market sales within the
POR.
Union's assertion that its recordkeeping practices do not differ
significantly from Dongbu's is also incorrect. Dongbu, like most other
parties in these flat-rolled steel proceedings, did maintain mill
certificates on at least some of its home-market sales during the POR.
Dongbu also retained various customer correspondence containing product
descriptions. While it is not the Department's practice to mandate that
respondents keep their records in a particular manner, in this case all
of this information, as well as any alternative documentation which
could have served to verify reported product characteristics, was
lacking for Union, or not brought to the Department's attention.
We disagree in part with petitioners' assertion that the CV cost
data are not viable because production quantities were used to allocate
costs. While it is true that the quantities of each control number sold
were used to reconcile total costs to respondent's financial
statements, these quantities were not used to build up individual costs
by control number. Instead, Union used average material costs based on
withdrawals from inventory. The weighted-average costs were then
applied to a specific control number, and therefore, the final
production quantity of that control number was not relevant. For
fabrication costs, Union used the pass-through quantities for each
process to accumulate and allocate costs to a specific control number.
Again, the final production quantity was not used to allocate costs,
and therefore, is irrelevant. Thus, we are satisfied that Union's
method of assigning a cost to a specific control number is reasonable
and that total costs (i.e., materials, labor, overhead) were allocated
to either home-market, third-country, or U.S. merchandise.
We agree with petitioners that the explanation in Union's case
brief with regard to post-POR records examined by the Department's
verifiers does not exist anywhere on the record and that the
verification reports or exhibits do not support that explanation. In
fact, we had already requested that the parties delete this information
from their briefs, on the grounds that it was untimely submitted. This
information, therefore, is no longer on the record.
As we are not using total BIA, comments regarding the choice of a
total BIA margin are moot.
Comment 12
Petitioners contend that Union Steel's submitted COP and CV data
must be revised to reflect product-specific costs. According to
petitioners, Union improperly assigned the same cost of manufacturing
to multiple products in its COP and CV databases when these products'
physical characteristics differed in yield strength, width, temper-
rolling, annealing, and/or surface finish in its home-market sales
listing, and differed in thickness tolerance in its U.S. sales listing.
The petitioners argue that products with such differences in physical
characteristics are not identical and have distinct production costs.
For example, producing a product to a smaller tolerance, temper-rolling
or annealing a product, or adding various surface finishes all require
further processing and, consequently, entail additional costs. Union,
therefore,
[[Page 795]]
should not have reported these products as having the same COM. Even
more troubling, according to petitioners, is the fact that Union
reported different COMs for certain products possessing identical
physical characteristics with the exception of width. Thus, to avoid
any manipulation of cost, the petitioners request that the Department
adjust Union's cost data to eliminate the distortion caused by
inappropriate cost allocations.
Union contends that its cost data were reported to an appropriate
degree of specificity. Union states that the petitioners claim is made
without any substantial support because the Department's hierarchy is
not based on physical characteristics alone, and that there are no
reasons to expect any given company to track possible small differences
in costs that may be associated with different classifications in the
hierarchy. Additionally, the Department's hierarchy classification
chose to conform to commercial practices rather than production
characteristics which cause some products to have similar costs of
manufacturing. Furthermore, Union states the Department thoroughly
verified product costs by control number and found no discrepancies.
Department's Position
For the final results, we accepted Union's CONNUM-specific costs.
We found that Union's cost data were allocated to a sufficient level of
product detail following the Department's section D questionnaire
instructions. Following these instructions, it is possible for some of
Union's control numbers to have identical COMs for products that varied
only in yield strength and width. Specifically, a product's yield
strength is based mainly on the carbon content and, to some extent,
micro alloying elements of the raw-material input. A raw material input
with a higher carbon level will produce a product with a higher yield
strength. However, even though raw-material inputs may vary in carbon
content, their acquisition cost can be identical. Additionally, Union
weight-averaged its raw materials based on characteristics of the
material other than the carbon content (i.e., commercial quality,
drawing quality, and ASTM grade). Hence, it is possible for some of
Union's products that are in different strength bands to have no cost
differential. As for petitioners' concern that the cost of
manufacturing should differ for products with different width, we are
satisfied that the respondent reasonably allocated costs associated
with width differentials. For certain types of cost, Union used
processing times to allocate fabrication costs by deriving an average
cost. This average cost was then applied to specific control numbers.
Therefore, due to this averaging it is possible for identical products,
with the exception of width, to have the same cost of manufacturing.
Comment 13
Petitioners contend that the conversion factor used by Union to
convert home-market sales of sheet reported in theoretical-weight terms
to actual-weight terms was flawed, because Union was unable to document
the basis for its formula at verification and because the formula, by
Union's own admission, was based on incomplete data covering only a
portion of the POR. Petitioners suggest instead that the Department
apply a conversion factor derived from the lowest ratio experienced by
Union on the basis of information on the record.
Respondent counters that the Department was able to verify the
theoretical-to-actual weight conversion factor. Union states that the
sales verification report was inaccurate on this point, and that it
explained the nature of the discrepancy immediately following the
issuance of the report.
Department's Position
Because none of Union's home-market sales were used in our FMV
calculations, and all of DKI's sales were in coil (rather than sheet)
form, this comment is moot.
Comment 14
Petitioners argue the Department should deny Union's claimed
circumstance-of-sale adjustment for inventory carrying costs, since
during verification Union prevented the Department's staff from
actually examining the area in the mill where the physical inventory is
stored. Petitioners claim that allowing the claimed adjustment would
only reward Union's obstructiveness.
Respondent retorts that these costs were fully verified. Union
notes that it does not have a distinct warehouse for finished goods,
and the verification team did examine inventory areas at the mill.
Department's Position
We disagree with petitioners. During the sales verification, the
Department's verifiers were given to understand that there was a
separate area in Union's mill dedicated to storing inventory, but did
not in fact see this area, despite their request to do so. The cost
verifiers, however, ascertained that steel coils were being stored on
the mill floor. The Department also verified Union's calculation of
inventory carrying costs and traced the figures to Union's accounting
records. Accordingly, there is sufficient information on the record in
support of this adjustment.
Comment 15
Petitioners contend that in calculating Union's USP, the Department
must deduct actual countervailing and antidumping duties when they are
paid by the respondent or related parties because (1) the plain
language of the statute requires this conclusion; (2) court decisions
are also consistent with this conclusion; and (3) the record evidence
demonstrates that Union America (``UA'') is paying for countervailing
and antidumping duties on behalf of Union's U.S. sales and that those
costs are included in the price to the first unrelated party.
With respect to the first point, petitioners cite section 772(d)(2)
of the Act, which provides in relevant part that ``the purchase price
and the exporter's sales price shall be * * * reduced by--except as
provided in paragraph (1)(D), * * * United States import duties,
incident to bringing the merchandise from the place of shipment in the
country of exportation to the place of delivery in the United States''
(19 U.S.C. Sec. 1677a(d)). Antidumping and countervailing duties are
plainly import duties ``incident to bringing the merchandise from the
place of shipment in the country of exportation to the place of
delivery in the United States.'' The language of the statute does not
indicate that antidumping and countervailing duties are to be excluded
from the phrase ``import duties.'' Moreover, petitioners say, when this
provision is read in conjunction with section 772(d)(1)(D) of the Act,
the conclusion that antidumping and countervailing duties constitute
``import duties'' under section 772(d)(2)(A) is inescapable. Section
772(d)(1)(D) provides that USP shall be increased by the amount of any
countervailing duty imposed to offset an export subsidy. By including
the phrase ``except as provided in paragraph (1)(D)'' in section
772(d)(2)(A), the drafters clearly understood the subsection's
reference to ``import duties'' as including countervailing duties
imposed to offset an export subsidy. This exception was necessary to
ensure that the statute was consistent with Article VIpara. 5 of the
GATT, which prohibits the assessment of both antidumping and
countervailing duties to compensate for the same cause of unfairly low-
priced imports, whether by dumping or as a result of an export
[[Page 796]]
subsidy. Had the exception not been inserted, an amount would be added
to USP by section 772(d)(1)(D) and deducted by section 772(d)(2)(A).
Therefore, petitioners believe, Congress contemplated that antidumping
and countervailing duties were to be treated as ``import duties'' and
deducted from USP.
With respect to the second point, petitioners argue that the
Department must also deduct the cost of antidumping duties equal to the
amount of the calculated margin for the period being reviewed. In
Federal-Mogul Corp. v. United States, 813 F. Supp. 856, 872 (CIT 1993),
according to petitioners, the court recognized that section
772(d)(2)(A) of the Act requires the Department to deduct any import
duties that can accurately be determined at the time the Department is
calculating the current dumping margins. In this case, once the final
results are issued, Union's antidumping duties will actually be
determined. Therefore, petitioners urge the Department, in its final
results, to deduct the difference between FMV and USP (i.e., the actual
duty amount) from USP before the final margin is calculated.
With respect to the third point, petitioners cite the verification
report as evidence that UA is incurring the cost of antidumping and
countervailing duties on behalf of Union, and that those costs are
passed on to the first unrelated purchaser in the United States.
Petitioners state that the Department must deduct the full amount
of the countervailing duties paid by UA for those entries covered by
the first administrative review of the countervailing duty order on the
subject merchandise. Since no party requested a review of this order,
those duties have become final and they represent a calculable cost to
Union apart from the payment of the estimated antidumping duty deposit.
Therefore, petitioners claim, the payment of countervailing duties must
be treated as actual import duties for purposes of calculating Union's
dumping margin.
Union replies that the Department has repeatedly rejected the
notion of treating AD/CVD duties as expenses to be deducted from U.S.
price. Union adds that, in Antifriction Bearings (Other Than Tapered
Roller Bearings) and Parts Thereof from France, et al.; Final Results
of Antidumping Duty Administrative Reviews, Partial Termination of
Administrative Reviews, and Revocation in Part of Antidumping Duty
Orders, 60 FR 10900 (February 28, 1995), the Department stated as
follows:
We agree with respondents that making an additional deduction
from USP for the same antidumping duties that correct for price
discrimination between comparable goods in the U.S. and foreign
markets would result in double-counting. Thus, we have not deducted
antidumping duties or antidumping duty-related expenses from ESP in
this case.
Union states that the Department disagreed with petitioners' claim that
antidumping duties constitute a selling expense, and notes that the
Department's practice has been upheld by the courts. Finally, Union
denies that the intent of Congress has been that AD/CVD duties be
deducted from USP, citing the Statement of Administrative Action that
accompanied the URAA that the law ``is not intended to provide for the
treatment of antidumping duties as a cost.''
Department's Position
We agree with respondent. See DOC Position to Petitioners' Comment
7 supra.
Comment 16
Because on three separate occasions the Department requested
information from Union regarding its early-payment discount policies
for U.S. customers, and Union failed to provide the requested
information, petitioners argue that the Department should adopt BIA
with respect to those discounts. Petitioners suggest, as a reasonable
adverse inference, that the Department assume that Union granted an
early-payment discount on any transaction where payment was received
before the due date.
Union claims that it was fully responsive to the Department with
regard to information about this discount and that it was fully
verified. Union states that its discount ``policy'' does not matter;
all that matters is that it did extend early-payment discounts, that it
did report them, and that they were verified.
Department's Position
We agree with respondent. Although Union did not explain its policy
with respect to early-payment discounts in the U.S. market, the
Department was able to ascertain that Union in fact extended certain
early-payment discounts, and to verify to its satisfaction the amount
of such discounts. See Union's SVR of May 16, 1995, at 33.
Comment 17
Petitioners argue that the Department must revise Union's reported
G&A expenses to account for expenses incurred by the Dongkuk Steel Mill
(``DSM'') group as a whole. As part of its decision to collapse Union
and DKI, the Department determined that neither Union nor DKI operates
as a single independent entity, but rather as interrelated entities
both under the control of the Chang family through its ownership in
DSM. In prior cases, the Department has adjusted a respondent's
submitted data to include an allocated portion of the parent company's
expenses. The record in this case, petitioners assert, clearly
indicates that expenses were incurred at the headquarters or DSM group
level (e.g., chairman's salary, group product brochures, group training
center, and personnel welfare center, office costs, security expenses,
entertainment expenses, etc.).
Since Union failed to furnish complete information regarding these
expenses, petitioners argue that the Department should, as BIA,
increase Union's calculated G&A expense by the ratio of all G&A
expenses incurred at DSM over the consolidated DSM group's cost-of-
sales.
Union contends that the Department should reject the petitioners
proposed combination of DSM's and Union's G&A expenses. Union argues
that there is no parent-subsidiary relationship between the two
entities and that there are no DSM general expenses to attribute to
Union's activities. Union also counters that Dongkuk Steel Mill was a
respondent in the 1993 antidumping investigation of Certain Cut-to-
Length Carbon Steel Plate from the Republic of Korea, and in that case
the Department concluded that Dongkuk Steel Mill's G&A expenses were
appropriately allocated to Dongkuk Steel Mill's activities and not to a
group.
Department's Position
We disagree with petitioners. For the final results, we did not
combine Dongkuk Steel Mill and Union's general and administrative
costs. It is the Department's normal practice to include a portion of
the G&A expense incurred by affiliated companies on the reporting
entity's behalf in total G&A expenses for COP and CV purposes. However,
in this specific case, we did not identify any allocable parent company
costs after reviewing the information on the record. See, e.g., Final
Determination of Sales at Less Than Fair Value: Small Diameter Circular
Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from
Italy, 60 FR 31981, 31992 (June 19, 1995); Final Determination of Sales
at Less Than Fair Value: Welded Stainless Steel Pipe from Malaysia, 59
FR 4023, 4027 (January 28, 1994).
[[Page 797]]
Comment 18
Petitioners contend that, in contrast with the preliminary results
in the parallel administrative review of certain corrosion-resistant
carbon steel products from Korea, the Department's ``model-match''
computer program accidentally eliminated the fixed 20 percent BIA
difmer adjustment with respect to Union's price-to-price sales
comparisons. Petitioners request that, if the Department does not
revise its BIA methodology as discussed above, the Department at the
very least make the cold-rolled model-match program conform with the
corrosion-resistant model-match program in order to ensure that the BIA
difmer methodology is correctly applied.
Union counters that petitioners are themselves in error when they
claim the Department's model-match program contains an error. Union
believes that the lines questioned by petitioners set the limits on
permissible matches in the home market. Without them, any given U.S.
sale could be matched to any home-market sale, which was clearly not
the Department's intention in the preliminary results. Union states
that the Department's preliminary methodology was to set Union's difmer
at 20 percent for the margin calculation, but only after a proper model
match had been conducted to exclude comparisons resulting in a difmer
of more than 20 percent. The model-match program exactly reflects that
intention, according to Union.
Department's Position
This comment is rendered moot as the Department is applying a
different partial BIA methodology, which does not comprise a flat 20
percent difmer adjustment, for purposes of these final results. Where
DKI sales are used as a basis for comparison, the Department is using
the difmers reported by DKI, capped at 20 percent of the cost of
manufacture of the U.S. product, which is the Department's usual
practice. Because none of DKI's above-cost home-market sales were
similar to any of Union's U.S. sales, the Department based FMV on CV
(see the Department's response to Petitioners' Comment 11 supra).
Comment 19
Petitioners assert, and Union concurs, that, although the
Department correctly created a new, ``other'' thickness tolerance
category to account for home-market sales by DKI, it failed to adjust
the numerical weighting factors associated with Union's U.S. sales to
conform with the weighting factors associated with DKI's home-market
sales, thereby making it impossible for any home-market sale to be
considered an identical match to a U.S. sale, even though the home-
market product may in fact be identical. This error also allegedly
undermines the accuracy of the selection of most similar home-market
matches. Petitioners and Union request that the Department correct this
ministerial error in the model-match program for purposes of the final
results.
Union adds that code 16, created for the new, ``other'' thickness
tolerance category, should be corrected to one of the other codes, if
necessary on a sale-by-sale basis. Otherwise, the problem identified by
petitioners remains, in that ``identical'' products are not compared.
Union presumes that the Department did not intend for all DKI sales to
be within a single hierarchy category differentiated from those already
defined. If the Department were to modify its model-match hierarchy to
make DKI sales a category unto themselves, Union argues, the Department
would need to explain its reasons for such a change.
Department's Position
We agree in part with both petitioners and respondent. For purposes
of these final results, we have harmonized the format of the numerical
weighting factors for thickness tolerance in the model-match programs,
thereby insuring that the program will function as intended. In
addition, we have coded DKI material so that it most closely
approximates half-mill-tolerance material produced and sold by Union in
the U.S. market. The necessity for this additional thickness-tolerance
category (``16'') arises from differences in thickness tolerance
between Union's ``standard'' and ``half-mill'' material and that of
DKI.
Because the only price-to-price comparisons we are making for
purposes of these final results are those involving home-market sales
by DKI, none of which are identical in physical characteristics to any
U.S. sale by Union, petitioners' comment regarding the impossibility
for any home-market sale to be considered an identical match to a U.S.
sale is moot. By harmonizing the format of the weighting factors, DKI
sales of similar, contemporaneous merchandise will now be matched to
U.S. sales by Union, as the Department originally intended.
Union's presumption that the Department did not intend for all DKI
sales to be within a single hierarchy category differentiated from
those already defined is, in fact, incorrect. DKI reported only one
thickness tolerance, which it categorized as ``standard,'' but provided
no record evidence of any thickness-tolerance differences that may have
existed during the review period. It was, and still is, the
Department's intention to modify its model-match hierarchy to make DKI
sales a category unto themselves. As the Department stated in its
preliminary sales analysis memo dated September 21, 1995,
We disagree, however, with DKI's categorization of its thickness
tolerances as ``standard.'' Based on the Department's model-matching
criteria, we have concluded that, DKI's thickness tolerances are
much closer to U.S. ``half-mill'' tolerances than to Union's
``standard'' tolerances. We have therefore created a new category of
thickness tolerance--called ``other''--for DKI, permitting the
comparison of Union's U.S. sales of ``half-mill'' to DKI's home-
market sales.
Since the verification, Union has not submitted any record evidence
that would lead the Department to change its analysis. Therefore, we
have maintained the new, ``other'' thickness tolerance category (coded
``16'') in the model-match program.
Comment 20
Petitioners allege that section 2 of the Department's margin
calculation program regarding Union accidentally created additional
U.S. observations, or ``clones,'' which were inadvertently included in
the Department's analysis. The problem arises when two products are
sold in the home market that are equally similar to the comparison U.S.
product. In such cases, the program weight-averages the prices of the
two home-market products and calculates a single transaction specific
margin (``UMARGIN'') by comparing that weighted-average home-market
price to the U.S. price. However, where one of the equally similar
home-market products fails the cost test, but the other does not, the
program inadvertently calculated two-transaction specific margins using
the same U.S. sale. Specifically, for the same U.S. transaction, the
program calculated one price-to-price margin using the weighted average
home-market price of the equally similar product that does not fail the
cost test, and another price-to-CV margin to account for the equally
similar product that failed the cost test. The net effect of this
inadvertent programming error is to reduce Union Steel's calculated
margin. Petitioners therefore request that the Department correct this
ministerial error and eliminate the second transaction specific price-
to-CV margin for purposes of the final results.
[[Page 798]]
Union agrees with petitioners with regard to the problem but not to
the solution. According to Union, the Department's rule in cases in
which there are two equally similar products is to use an average of
both in the calculation of FMV, regardless of the basis of computation
for FMV. If the Department incorrectly calculated separate margins with
respect to each of the home-market products where one of the products
was below cost, Union argues, then to remedy this error the Department
should average the two FMVs.
Petitioners, according to Union, would have the Department change
its policy and base its margin calculation only on the price-based FMV,
without providing any compelling reasons to do so. Indeed, Union
asserts, the Department has a well established policy of using the most
similar product comparisons, regardless of whether the basis for FMV is
price or CV. Ironically, Union avers, for years respondents have argued
that the Department not rely on CV when a similar home-market product
would permit a price comparison--but U.S. producers have steadfastly
opposed such a notion, and the Department has consistently sided with
the latter. In this instant case, Union contends, the Department's
policy leads to two equally similar comparison products, and consistent
with its policy, the Department should average the two FMVs.
Department's Position
We agree with petitioners and have fixed this programming error for
the final results. It is the statutory preference to calculate FMV
based on home-market sales rather than CV. As noted in the Department's
position on Comment 11, it is our preference based on the facts of this
case to match U.S. sales to DKI's home-market sales whenever there are
appropriate matches. Accordingly, in any instances in which there are
equally similar comparison products, and certain of these comparisons
would result in using FMV based on a DKI price-to-price comparison and
others would result in FMV based on CV, we have chosen the match or
matches based on price-to-price comparisons.
Comment 21
Petitioners claim that the Department should treat Union's U.S.
sales through UA as ESP transactions for purposes of the final results.
Petitioners base this claim on three broad reasons: (1) Union's U.S.
sales through UA do not meet the statutory definition of purchase-price
transactions; (2) the limited factual information on the record only
supports a conclusion that the subject sales are ESP transactions; and
(3) declarations made on Customs form 7501 clearly indicate that UA is
the purchaser of the imported merchandise.
In determining whether a U.S. sales transaction meets the statutory
definition of purchase price, the Department looks at whether (a) the
merchandise was shipped directly from the manufacturer to the first
unrelated purchaser in the United States, without being introduced into
the inventory of the related shipping agent; (b) direct shipment from
the manufacturer to the unrelated parties was the customary commercial
channel for sales of the merchandise between the parties involved; and
(c) the related selling agent in the United States acted only as a
processor of sales-related documentation and a communications link with
the unrelated U.S. buyers. Petitioners claim that the first two factors
may be indicia pointing to the conclusion that sales took place in a
foreign country for exportation to the United States, but are not
dispositive of the issue. In the steel industry, petitioners contend,
these factors are not informative because most international shipments
are shipped directly to the customer and not carried in inventory.
Therefore, even if the merchandise is shipped directly to the customer
and not placed in inventory in the United States, more evidence is
needed to conclude that a sale is a purchase-price transaction,
according to petitioners. Under the circumstances, they argue, the
focus must be on the third factor of the Department's test.
Petitioners contend that the record evidence demonstrates that UA
acts as more than a mere processor of sales-related documentation on
behalf of Union's U.S. purchasers. They state that UA is involved in
the following activities: the arrangement and payment for warehousing
expenses on U.S. sales; the financing of U.S. sales; and the hiring of
commission agents and entrance into commission arrangements with same.
Petitioners state that UA reported substantial inventories of steel
products in 1993, and that UA will, for certain warranties,
independently authorize a compensatory cash discount without contacting
Union. Petitioners further emphasize that:
UA has the authority to grant rebates;
UA is engaged in advertising on behalf of Union;
UA assumes the seller's risk pursuant to the terms of the
invoices issued to U.S. customers;
UA is the carrier of Union's marine insurance policy and
pays the premium for that insurance;
UA is the importer of record and pays U.S. duties,
brokerage, and handling on U.S. sales;
UA pays Union the transfer price for the merchandise and
in turn is paid by the U.S. customer, thereby bearing the risk of non-
payment by U.S. customers; and
UA takes title to the merchandise at the time it is loaded
in Korea.
Petitioners assert that UA repeatedly declared on Customs form 7501
(``Entry Summary'') that it purchased the merchandise. Therefore, the
transaction between Union and UA is a purchase ``for export to the
United States,'' so that the transactions between UA and its unrelated
purchasers are necessarily sales ``in the United States'' meeting the
definition of ESP transactions, in petitioners' view. They add that UA
entered the merchandise in question for appraisement at its
``transaction value,'' which is defined as ``the price actually paid or
payable for the merchandise when sold for exportation to the United
States.'' If the importer of record (UA) has entered the merchandise at
the price established between the related parties as the transaction
value, then by definition the sale was for export to the United States
and the sale between UA and the first unrelated U.S. purchaser cannot
also be the sale for export to the United States. It follows, say
petitioners, that the latter sale must be an ESP transaction.
Respondent answers that the Department properly treated the vast
majority of Union's U.S. sales through UA as PP sales. The terms of
sales are set prior to importation. Union claims that petitioners
concede that the merchandise in question was shipped directly from the
manufacturer to the unrelated buyer, without being introduced into
inventory of the related shipping agent, and direct shipment was the
customary channel of distribution.
With regard to whether UA acted only as a processor of sales-
related documentation and a communications link, Union points outs the
following:
UA does not warehouse the imported merchandise;
UA does not sell from inventory;
UA does not finance U.S. sales;
UA does not have the authority to authorize a cash
discount for warranty claims;
Union sets guidelines for hiring of any commission agents;
UA does not enter into rebate agreements;
[[Page 799]]
UA does not engage in any significant advertising on
behalf of Union;
Union ultimately assumes the seller's risk pursuant to the
terms of the invoices issued to U.S. customers;
UA's procurement of marine insurance is a normal function
of a related selling agent; and
UA's role as the importer of record and payment of U.S.
duties, brokerage, and handling on U.S. sales is a normal function of a
related selling agent.
Union further states that although UA issues commercial invoices as
Union's proxy, it merely processes sales-related documentation, Union
Steel bearing the final responsibility for the transaction. Union notes
that whether or not UA takes title to the merchandise at the time of
loading in Korea is irrelevant, since it must take title of the
merchandise in order to resell it to an unrelated customer in the
United States. Thus, in respondent's view, Union has strictly limited
the role of UA to that of a conduit for Union's sales and processors of
sales-related documentation and these sales should be treated as
purchase price.
Department's Position
We agree with respondents. We determined that purchase price was
the appropriate basis for calculating USP. Typically, whenever sales
are made prior to the date of importation through a related sales agent
in the United States, we conclude that purchase price is the most
appropriate determinant of the USP based upon the following factors:
(1) the merchandise in question was shipped directly from the
manufacturer to the unrelated buyer, without being introduced into the
inventory of the related shipping agent; (2) direct shipment from the
manufacturer to the unrelated buyers was the customary commercial
channel for sales of this merchandise between the parties involved; and
(3) the related selling agent in the United States acted only as a
processor of sales-related documentation and a communication link with
the unrelated U.S. buyers. See, e.g., Certain Stainless Steel Wire Rods
from France: Final Determination of Sales at Less than Fair Value, 58
FR 68865, 68868-9 (December 29, 1993); Granular Polytetrafluoroethylene
Resin from Japan: Final Results of Antidumping Duty Administrative
Review, 58 FR 50343-4 (September 27, 1993). These criteria were first
developed in response to the Court of International Trade's decision in
PQ Corporation v. United States, 652 F. Supp. 724, 733-35 (CIT 1987).
These criteria have also been considered in cases with indirect
purchase-price transactions involving exporters and their U.S.
affiliates. See, e.g., Zenith Electronics Corp. v. United States,
Consol. Ct. No. 88-07-00488, Slip Op. 94-146 (CIT 1994).
Furthermore, the Department has recognized and classified as
indirect PP sales transactions involving selling activities similar to
those of UA's in other antidumping proceedings involving foreign
manufacturers and their related U.S. affiliates. See, e.g., Final
Determination of Sales at Less Than Fair Value; Circular Welded Non-
Alloy Steel Pipe from the Republic of Korea, 57 FR 42942, 42950-1
(September 17, 1992). In the present review, for sales considered to be
purchase price in the preliminary results we found that: (1) Union's
sales through UA, its related sales agent in the United States, are
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, is consistent with a 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 purchase price or ESP. While in some cases certain
merchandise sold by Union was entered into UA's inventory, this
merchandise was sold prior to the importation of the merchandise, but
not from UA's inventory. When all three of the factors already
described for sales made prior to the date of importation through a
related sales agent in the United States are met, we regard those
selling functions of the exporter as having been relocated
geographically from the country of exportation to the United States,
where the sales agent performs them on behalf of the exporter. 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.
Respondents' Comments
Dongbu: Comment 1
According to respondent, the Department is required to make an
additional upward adjustment to USP to account for export subsidies
subject to countervailing duties. Citing Article VIpara. 5 of the
General Agreement on Tariffs and Trade (Uruguay Round Agreements Act,
Pub. L. 103-465, Th. Sec. 101 (approving the Final Act Embodying the
Results of the Uruguay Round of Multilateral Trade Negotiations, Annex
1A 1(a)), respondent states that it provides that ``[n]o product * * *
shall be subject to both antidumping and countervailing duties to
compensate for the same situation for dumping or export
subsidization.'' This provision was implemented into U.S. law by
section 772(d)(1)(D) of the Tariff Act of 1930, amended, 19 U.S.C.
Sec. 1677a(d)(1)(d). Thus, argues respondent, purchase price and
exporter's sales price shall be increased by the amount of any
countervailing duty imposed on the merchandise to offset the export
subsidy. Respondent also asserts that, during the original LTFV
investigation of flat-rolled carbon steel products from Korea, the
Department made upward adjustments to USP of this type. See Final
Determinations of Sales at Less Than Fair Value; Certain Hot-Rolled
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat
Products, Certain Corrosion-Resistant Carbon Steel Flat Products, and
Certain Cut-to-Length Carbon Steel Plate from Korea, 58 FR 37176, 37191
(1993). Dongbu states that such an adjustment is required both for
assessment purposes and for purposes of determining the cash deposit
rate applicable to future entries. As reported in the Final
Determinations, the level of export subsidies determined in the final
countervailing duty determination for cold-rolled products was 0.05
percent ad valorem. Because Dongbu has made deposits reflecting these
amounts in conjunction with the entries of cold-rolled flat products
under review in this proceeding, Dongbu claims it is therefore entitled
to a further adjustment of USP in this amount.
Petitioners agree with respondent provided that the Department
fully
[[Page 800]]
implements the statute, which they assert also requires under section
772(d)(2)(A) of the Act that USP also be reduced by ``(A) except as
provided in paragraph (1)(D), the amount if any, included in such
price, attributable to any additional costs, charges and expenses, and
United States import duties, incident to bringing the merchandise from
the place of shipment in the country of exportation to the place of
delivery in the United States' (19 U.S.C. Sec. 1677a(d)). Thus,
petitioners argue that if the Department adds the amount of the export
subsidy to USP, it should also treat the remaining part of the
countervailing duties paid on those shipments as costs, charges and
expenses, and United States import duties in accordance with the
statute. Thus, petitioners agree with respondent that the amount of the
export subsidy should be added to USP, but only if the Department also
treats the countervailing duties paid on those shipments as costs,
charges and expenses, and U.S. import duties, as defined by the
statute. Petitioners conclude by stating that for Dongbu's direct PP
sales, any export subsidy adjustment should be calculated against the
reported gross unit price net of any movement charges incurred outside
Korea, and exclusive of any duty drawback and value-added (``VAT'')
adjustments. For indirect PP sales, petitioners state that the
appropriate base for calculating the export subsidy adjustment is the
entered value of the subject merchandise, which reflects the f.o.b.
(freight-on-board) foreign port price of the merchandise.
Department's Position
We agree with petitioners and respondent in their arguments that
Dongbu is entitled to a 0.05 percent ad valorem adjustment to the USP.
However, we disagree with petitioners regarding their contention that,
if the portion of the countervailing duties attributable to export
subsidies is added to USP, any remaining countervailing duties paid on
those shipments must also be treated as costs, charges and expenses,
and United States import duties. As noted earlier in our comments, we
determined in Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
from the United Kingdom; Final Results of Antidumping Duty
Administrative Review (60 FR 44009, 44010--August 24, 1995) that making
an additional adjustment to USP for the same antidumping duties that
correct the price discrimination between the U.S. and home markets
would result in double-counting, and inconsistency with administrative
and judicial precedent. The same principle applies with regard to
countervailing duties. Article VIpara. 5 of the General Agreements on
Tariffs and Trade (``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.'' Section
772(d)(1)(D) of the Act implements this provision.
Comment 2
Respondent argues that the Department erred by including imputed
inventory carrying expenses in the selling expenses used to calculate
CV for the preliminary results of this review. Respondent notes that
the Department included imputed credit expenses and inventory carrying
expenses in CV, and that while this methodology might be acceptable if
the comparison were being made to ESP, the inclusion of imputed
inventory carrying expenses in CV is contrary to long-standing practice
at the Department when the comparison is being made to purchase price
rather than ESP sales. Specifically, respondent notes that despite its
inclusion of inventory carrying expenses in CV for the preliminary
results of this review, the Department did not make an additional
adjustment to the interest rate factor for CV to account for interest
expenses associated with the carrying of inventory. They contend that
this is contrary to long-standing precedent and leads to double-
counting of inventory carrying expenses. Respondent asserts that should
the Department improperly include an amount for inventory carrying
expenses in CV, it must also make an additional adjustment to the
interest rate factor to account for inventory carrying expenses. The
proper approach to these errors is to simply exclude imputed inventory
carrying expenses from the CV calculations consistent with long-
standing practice.
Petitioners counter that the Department appropriately included in
CV the sale-specific inventory carrying charges reported by Dongbu,
whether Dongbu's sales are classified as either PP sales or ESP sales.
They state that during this review, Dongbu incurs inventory carrying
costs for home-market sales of subject merchandise, and that it
reported sales-specific inventory carrying costs in its February 15,
1995 response. See Letter from Morrison & Foerster to the U.S.
Department of Commerce, Case No. A-580-814 at 15 and Exh. B-40 (Feb.
15, 1995). Thus, according to petitioners, the Department included the
sale-specific inventory carrying costs in CV in the preliminary results
of this review, and given that the sale-specific amounts reported by
Dongbu provide the most accurate measure of Dongbu's costs of holding
subject merchandise in inventory, the Department should continue to use
the sale-specific inventory carrying charges reported by Dongbu in
calculating CV for the final results of this review. Petitioners
further argue that since the Department's practice has been to reduce
the respondent's reported financing costs by an amount that reflects
the interest costs associated with holding inventory, the Department
should revise its calculation of Dongbu's financing costs to eliminate
the double-counting of inventory carrying charges in CV for the final
results.
Department's Position
We agree with respondent. For the final results, we have excluded
imputed inventory carrying costs from Dongbu's CV calculation, because
Dongbu reported only PP sales. The Department normally includes
inventory carrying costs as an indirect expense in cases involving ESP
transactions. In ESP transactions, the imputed inventory carrying costs
consist of the cost of financing the inventory from the time the
merchandise leaves the production line at the factory to the time the
goods are shipped to the first unrelated customer. To avoid the double
counting of interest expense, we allow the respondent to offset its CV
interest expense by the imputed inventory carrying costs. However, the
Department does not normally include this cost or the related offset in
PP sales.
Comment 3
Respondent contends that for purposes of the preliminary results of
this review, the Department erred by excluding certain adjustments from
the gross unit price used to determine VAT on home-market sales.
Respondent argues that although the Department followed the newly
adopted ``Zenith footnote 4'' methodology for determining adjustments
to USP for home-market consumption taxes (see Federal Mogul Corp. v.
United States, 63 F. 3d 1572 (Fed. Cir. 1995)), the Department made an
error in determining the absolute amount of VAT paid on home-market
sales where the customer was subsequently granted this adjustment.
Specifically, respondent notes, the Department improperly calculated
the amount of VAT paid on home-market sales by applying the statutory
10 percent rate to a gross unit price net of applicable adjustments
when, in fact, according to
[[Page 801]]
the Korean law and practice, VAT must be paid on the full gross unit
price.
Petitioners argue that in calculating VAT taxes for the preliminary
results of this review, the Department has appropriately deducted
certain adjustments from the gross unit price used to determine the tax
base. According to petitioners, at the time Dongbu's sales transactions
occur, these adjustments are not known and should therefore not be
deducted from the tax base at the time of the transaction. They contend
that although these adjustments may not be deducted from the VAT base
at the time of sale, it is not clear whether the VAT paid by Dongbu's
customers ultimately is net of the same adjustments. Petitioners argue
that if the VAT paid on the amount of the adjustment were not refunded
to the customer, the effective tax rate incurred by the customer would
be in excess of the statutory rate of 10 percent; and that the payment
of these adjustments therefore would be accompanied by a refund of the
VAT amounts associated with the adjustment.
Department's Position
We agree with respondent. Dongbu has provided information
indicating that under Korean law, VAT taxes associated with home-market
sales are assessed based on the price of goods and services at the time
of delivery, and that certain adjustments made to the price after the
goods and services have already been delivered do not result in
adjustments to VAT taxes already paid.
Union: Comment 1
Union contends that the Department's decision to collapse Union and
DKI in the instant review is contrary to the Department's practice. Not
only does a strong possibility of price manipulation not exist,
according to Union, but the Department's standard of a strong
possibility of price manipulation per se violates respondents' right to
due process. In determining whether two companies should be collapsed,
the Department should look to evidence of actual manipulation, rather
than to suspicion or speculation of possible manipulation at an
unspecified future time. If the Department is concerned about the
possibility of price manipulation in the future, it should consider any
evidence of such manipulation in future reviews.
Petitioners assert that the Department's decision to collapse the
two entities is entirely consistent with record evidence. Petitioners
object to Union's statement, for the first time on the record of this
proceeding, in its case brief that ``the Department's standard of
`strong possibility of price manipulation' violates respondent's right
of due process.'' In not one of its four submissions contesting
petitioners' collapsing request did Union ever claim that the
Department's standard for collapsing related parties violates
respondents' due process rights. If anything, petitioners assert, Union
explicitly endorsed the Department's standard by not contesting it
directly and addressing each of the four criteria used to ascertain
whether the standard has been met. Petitioners strongly protest Union's
eleventh-hour raising of this due process argument nine months after
the collapsing decision was made and request that the Department
dismiss it outright. In any event, petitioners maintain, the
Department's four-point standard is entirely reasonable and has been
applied by the CIT. See, e.g., Nihon Cement Co. v. United States, Slip
Op. 93-80 at 48-54 (CIT May 25, 1993). To require parties to
demonstrate actual price or production manipulation would impose a
quasi-insurmountable burden on petitioners.
Department's Position
The Department's practice of collapsing affiliated parties if the
record evidence indicates a strong possibility of price manipulation is
longstanding and was upheld by the CIT in Nihon Cement Co. v. United
States, Slip Op. 93-80 at 48-54 (CIT May 25, 1993). Therefore, Union's
argument that the Department's test is legally deficient is unfounded.
Moreover, Union has in no way been denied due process in this
determination. Throughout the course of this proceeding, Union had
ample opportunity to submit evidence and arguments with regard to this
issue. We note that at no time during the period between the
Department's decision to collapse (May 22, 1995) and the preliminary
review results (December 15, 1995) did Union ever challenge the
Department's collapsing test.
Comment 2
Union claims that the Department erred in (1) concluding that Union
had understated its U.S. credit expenses by not including bank charges
therein, and (2) increasing Union's U.S. credit expenses by the amount
of those charges. In fact, Union maintains, it included its U.S. bank
charges in U.S. brokerage and handling expenses, so that they were
double-counted by the Department. In addition, Union claims, the
Department compounded its error by mistakenly dividing two years' worth
of interest expenses by 18 months' worth of short-term borrowings.
Union urges the Department, for purposes of the final results, to
follow its own practice and treat bank charges as selling expenses.
Union claims to have reported its bank charges on a sale-by-sale basis,
which is the most accurate form of reporting. Also, respondent asserts,
including bank charges in an interest-rate calculation is illogical,
since a bank charge need not be connected to the time value of money,
but can simply consist of a flat fee for services rendered.
Petitioners reply that Union's claims regarding double-counting are
unsubstantiated. Petitioners note that Union's claims that it included
transaction-specific bank charges in its reported U.S. brokerage and
handling expenses is not supported by any sample calculations or
documents. Petitioners state that it is the Department's practice to
include bank charges in credit expenses when they are not elsewhere
reported. Because of the absence of specific data pertaining to bank
charges alone, petitioners agree that the Department had no alternative
but to use Union's combined interest and bank charge data for the two
fiscal years.
Department's Position
We agree in part with both petitioners and respondent. As there is
no evidence on the record supporting Union's claims that it included
bank charges in its reported brokerage and handling expenses, we have
increased Union's reported credit expenses to account for these bank
charges. We acknowledge our error, however, in dividing two years'
worth of interest expenses by 18 months' worth of short-term
borrowings, and have corrected this error for purposes of these final
results by prorating the short-term borrowings used in the denominator
to 24 months.
Comment 3
Union disagrees with the Department's treatment of its home-market
warehousing expenses as indirect selling expenses, and contradicts the
Department's statement that these expenses were evenly allocated
across-the-board to all home-market sales. In fact, Union affirms that
all warehousing expenses other than labor were traced to the particular
areas devoted to subject and non-subject merchandise, because Union
separates warehouses subject and non-subject merchandise, and thus can
determine the proportion of warehousing expenses attributable to each.
Union also maintains that a selling expense is not indirect simply
because it occurs prior to sale. For these reasons, and because
[[Page 802]]
the warehousing expenses in question are attributable to a later sale
of the subject merchandise, Union requests that the Department treat
these warehousing expenses as direct for purposes of the final results.
Petitioners respond that Union stores three broad, distinct types
of merchandise in the same warehouse--cold-rolled, corrosion-resistant,
and pipe products. Petitioners state that Union did not link specific
warehousing charges to specific sales, but rather allocated costs based
on the square footage dedicated to each product type and on the total
quantity of each product type warehoused. Petitioners believe that the
Department's preliminary results correctly denied Union's claim that
these expenses be classified as direct.
Department's Position
We agree with petitioners. Union did not tie warehousing expenses
to specific sales, but merely allocated them. The amount reported by
Union on its computer tape for this expense in Korean won is identical
for all sales transactions where a warehousing expense was claimed,
regardless of the length of time the merchandise was actually
warehoused. Therefore, we do not consider these expenses to be direct.
Comment 4
Union disagrees with the Department's treatment of pre-sale inland
freight expenses in the home market as indirect. Union argues that the
Department must examine the facts of each case to determine whether
warehousing and pre-sale freight are so linked that they must
necessarily be treated in the same fashion. In the final results of
redetermination on remand (January 5, 1995) pursuant to The Ad Hoc
Committee of AZ-NM-TX-FL Producers of Gray Portland Cement v. United
States, Slip Op. 94-151 (1994), the Department noted that ``warehousing
and movement expenses are, for analytical purposes, inextricably
linked'' and ``if pre-sale warehousing is an indirect expense, then, in
the absence of contrary evidence, pre-sale movement expenses should
also be treated as an indirect expense.'' Earlier in the case, the
Court had stated that ``if the pre-sale warehousing expense in this
case is not shown to be a direct expense, then it follows that the cost
of transporting the cement to the warehouse is also not shown to be a
direct expense.''
Union argues that in this case, pre-sale freight and warehousing
are not inextricably linked. Union claims that pre-sale freight was
constant, since the merchandise was moved over the same route for all
sales. Therefore, each ton sold from the warehouse led to an exactly
identified increment to costs--the amount of the pre-sale freight--and
the expense was incurred on a one-on-one basis with each unit of
subject merchandise sold. Therefore, Union maintains the expense in
question is clearly direct.
Petitioners respond that the Department correctly determined that
Union's pre-sale freight expenses were indirect. Petitioners state that
the Department's standard is clear: pre-sale warehousing and freight
expenses are inextricably linked; thus, in the absence of contrary
evidence, if pre-sale warehousing is an indirect expense, so too must
be pre-sale freight. Petitioners note that it is always true that each
ton shipped leads to an additional charge for freight, but this does
not mean that pre-sale freight is always a direct selling expense.
Department's Position
In the preliminary review results, the Department stated that it
``considers pre-sale movement expenses as direct selling expenses only
if the movement expenses in question are directly related to the home-
market sales under consideration. In order to determine whether pre-
sale movement expenses are direct under the facts of a particular case,
the Department examines the respondent's pre-sale warehousing expenses,
since the pre-sale movement charges incurred in positioning the
merchandise at the warehouse are, for analytical purposes, inextricably
linked to pre-sale warehousing expenses. If the pre-sale warehousing
constitutes an indirect expense, the expense involved in getting the
merchandise to the warehouse must also be indirect. Conversely, a
direct pre-sale warehousing expense necessarily implies a direct pre-
sale movement expense. We note that, although pre-sale warehousing
expenses in most cases have been found to be indirect selling expenses,
these expenses may be deducted from FMV as a circumstance-of-sale
adjustment in a particular case if the respondent is able to
demonstrate that the expenses are directly related to the sales under
consideration.'' See Preliminary Results of Review; Certain Cold-Rolled
Carbon Steel Flat Products from Korea (60 FR 65284, 65287--December 19,
1995). The Department is continuing to treat Union's pre-sale home-
market inland freight expenses as indirect, because Union did not
distinguish between pre- and post-sale warehousing expenses or
demonstrate that these expenses were directly related to the sales
under consideration.
Comment 5
Union argues that the Department should differentiate Union's
painted products according to specific paint types, because (1) there
are significant cost, price, and commercial differences among Union's
painted products; (2) these differences demonstrate that Union's
customers perceive significantly different applications for such
products; and (3) if the Department compares different paint types, it
must make an appropriate difmer adjustment.
Petitioners state the Department was correct not to revise the
existing paint categories for the preliminary results of this review
and should also reject this argument for the final results. Petitioners
note that Union's arguments do not address the criteria used by the
Department to establish categories of products and determine whether
certain products may be compared and are not supported by the record
evidence. Petitioners state that Union ignores that the primary basis
for creating product categories is physical characteristics. Thus,
according to petitioners, the Department can accept Union's proposed
paint categories only if Union demonstrates that the physical
characteristics of the various paint types are so dissimilar that the
paint types cannot be compared--which Union has not done. Petitioners
cite Koyo Seiko Co. v. United States, Slip Op. 94-1363 at 15 (Fed. Cir.
Sept. 20, 1995) which states that products with significant physical
similarities need not be ``technically substitutable, purchased by the
same types of customers, or applied to the same end use'' in order to
be compared. Petitioners add that the record does not support Union's
contention that its different paint types exhibit significant
differences in cost or price.
Petitioners reject the notion of making a difmer adjustment for
differences in paint types. Petitioners state that it is the
Department's position in these flat-rolled proceedings that it will not
make adjustments to account for differences between physical
characteristics of U.S. and home-market products when the products are
identified by the same control number. If products have the same
control number, according to petitioners, they are in effect identical
for purposes of this review and no difmer adjustment should be granted.
Department's Position
We agree with petitioners. As stated in our memorandum to the file
of August 10, 1995, discussing our preliminary results of review, Union
[[Page 803]]
provided insufficient and non-compelling information to support the
necessity for differentiating additional types of painted products.
Union did not demonstrate how each of the proposed additional paint
types possesses physical characteristics that are significantly
different from those of the other proposed paint types, and how each
paint type is intended for significantly different applications and
uses. Therefore, we did not create additional paint categories for
purposes of these final results.
Comment 6
Union argues that the Department should not combine the financing
expenses of Union and DKI with those of other member companies of the
Dongkuk group because this collapsing of interest expense is entirely
at odds with the Department's practice. Union states that it is the
Department's established policy to calculate interest expense from the
costs of borrowing incurred by the respondent and its related parties
only when the companies are consolidated in the normal course of
business. Union states that there are two fundamental reasons for this.
First, the accounting practicality of consolidating different
companies, particularly with respect to cost of goods sold, demands
that an audited consolidated statement be generated in the normal
course of business. Second, the parent into which the subsidiary is
consolidated is assumed to control the financing decisions of the
subsidiary. See Final Determination of Sales at Less Than Fair Value;
Small Diameter Circular Seamless Carbon Alloy Steel, Standard, Line and
Pressure Pipe from Italy (60 FR 31981, 31990 June 19, 1995).
In the instant review, according to Union, neither of the two
standards articulated above applies to Union or DKI. Union states that
the financial statements of Union and DKI are not consolidated into
those of DSM. Union also states that no evidence on the record suggests
that the financial decisions of Union and DKI are controlled by DSM.
Just because two entities have been collapsed, Union claims, is not
necessarily a reason to calculate circumstance-of-sale adjustments or
cost adjustments on a collapsed basis. For example, selling expenses
are not calculated for the group as a whole, but specifically; the COM
is calculated on a company-specific basis, unless the collapsed
entities have identical control numbers, which they do not; general
expenses reasonably associated with the COM remain company specific.
Likewise, Union argues, there is no reason to combine interest
expenses, which are properly allocated on a company-specific basis.
Union cites to our Final Determination of Sales at Less Than Fair
Value: Dynamic Random Access Semiconductors of One Megabit and Above
from the Republic of Korea (58 FR 15467, 15475--March 23, 1993)
(``Korean DRAMS''), where the financial statements of two companies
that were members of the same chaebol were not consolidated in the
normal course of business, and where the Department did not require the
respondent to submit a combined interest rate. Indeed, Union asserts,
when the respondent sought to persuade the Department to use the
interest expense for the group as a whole, the Department rejected the
idea on the grounds that ``[t]he Department does not perform an audit
at verification; rather, verification relies on audited records.''
Similarly, Union points out that in its Final Determination of Sales at
Less Than Fair Value: Polyethylene Terephthalate Film, Sheet, and Strip
from the Republic of Korea (56 FR 16305, 16313 `` April 22, 1991)
(``Korean PET Film'') the Department held that, absent evidence of
inter-company production financing arrangements, a respondent's own
financial statements provide the most accurate picture of its financing
activities for the production of subject merchandise.
Additionally, Union states that the Department's calculation of its
financing factor was incorrect because it failed to offset DKI and
DSM's financing costs with short-term interest income. The respondent
argues that the Department's calculation only offset Union's financing
costs with short-term interest income. Therefore, the Department's
calculation did not make an appropriate ``apples-to-apples''
comparison.
Petitioners contend that the Department properly combined Union's
interest expense with the interest expense of other members of the
Dongkuk group. Petitioners state that this decision is consistent with
the Department's normal practice because the companies are under common
control and produce similar subject merchandise. Petitioners contend
that capital acquisition costs are fungible and that any borrowing by
Union, DKI, or DSM may be used for a variety of beneficial purposes for
the group as a whole. Therefore, petitioners believe that the
Department should continue to use the combined interest expenses of
Union, DKI and DSM in its calculation for the final results of this
instant review.
In fact, petitioners claim, contrary to Union's statements, the
Department did reduce both DKI's and DSM's reported interest expense by
each company's respective short-term interest income. Accordingly, the
Department should simply ignore Union Steel's comments with respect to
this issue.
Petitioners also state that the Department deducted an appropriate
short-term interest income figure in its net financing factor
calculation. Furthermore, they state that the respondent's argument of
requiring an apples-to-apples comparison is inappropriate in this
circumstance because symmetrical results are not necessary in this step
of the net financing calculation.
Department's Position
For the final results, we calculated a combined net interest factor
using Union's, DSM, and DKI's audited financial figures obtained from
verification exhibits, respondent's submissions and public records.
This methodology of calculating a single net interest factor is
consistent with our longstanding practice for computing interest
expense in cases involving parent-subsidiary corporate relationships.
DSM's ownership interest in Union and DKI places the parent in a
position to influence Union's financial borrowing and overall 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, it is difficult to see how Union's operations are
independent of its parent to such an extent that we should ignore our
normal practice of computing interest. See Final Determination of Sales
at Less Than Fair Value; Certain Carbon Steel Butt-Weld Pipe Fittings
from Thailand (60 FR 10552, 10557--February 27, 1995). Additionally, we
find it appropriate to collapse the financing costs of these three
companies in this instant review because we consider that the financing
costs of the parent and its subsidiaries to be fungible.
Furthermore, the facts of this instant review differ from both the
Korean DRAMS and Korean PET Film with regard to combining interest
expense factors. In Korean DRAMS and Korean 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, the Department determined that a consolidated group-
level interest factor was inappropriate because, while the respondents'
own financial statements were audited, those of the sister
[[Page 804]]
companies and the group-level financial statements were unaudited. As
the Department stated in Korean DRAMS, ``[a]bsent detailed testing
usually associated with an audit, the Department cannot rely on the
statements as submitted.'' See DOC Position on Comment 24, 58 FR 15475.
Not only, therefore, would consolidating the entities in question have
placed an undue burden on the Department to review unaudited
information, but the respondents' own audited financial statements
provided the most accurate reflection of the cost of financing the
production of subject merchandise. 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.
Additionally, we agree with the respondent in that it is the
Department's practice to allow a respondent to offset financial
expenses with interest earned from the general operations of the
company. See, e.g., Timken v. United States, 852 F. Supp. 1040, 1048
(CIT 1994). The Department does not, however, offset interest expense
with interest income earned on long-term investments. See Final
Determination of Sales at Less Than Fair Value; Small Diameter Circular
Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from
Italy (60 FR 31981, 31991--June 19, 1995). Therefore, for the final
results we offset the combined financing costs by the respective short-
term interest income of the three entities.
Comment 7
Union argues that the Department should not include the company's
``special depreciation'' that was reported as an extraordinary item on
its audited financial statement in the cost of production of subject
merchandise. Union contends that the Department's established policy
with respect to this kind of expense is to exclude the cost because it
relates solely to tax law and represents no real additional cost to the
company. See Final Determination of Sales at Less than Fair Value;
Stainless Steel Angles from Japan (60 FR 16608, 16617--March 31, 1995)
(``Angles''). Therefore, Union believes that the Department should
follow the precedent established in that determination and remove the
special depreciation from Union's production costs.
Petitioners argue that the Department should continue to include
Union Steel's accelerated depreciation costs in its calculation of the
company's COP and CV. Petitioners contend the Department does not have
an established policy of excluding accelerated depreciation as a cost
of production. To support their argument, petitioners state that in
recent determination the Department rejected a similar contention made
by the respondent and included the company's accelerated depreciation
charges in the calculation of COP and CV. See Final Determination of
Sales at Less Than Fair Value; Canned Pineapple Fruit from Thailand (60
FR 29553, 29560--June 5, 1995). Furthermore, petitioners contend that
the cost should be included in COP and CV because it is reported on
Union's financial statements that are in accordance with generally
accepted accounting principles (``GAAP'') in Korea.
Department's Position
We disagree with the respondent and have included Union's entire
special depreciation as a production cost for these final results.
Unlike the situation in Angles, where the respondent company used
special financial accounting treatment to reflect only its regular
depreciation (i.e., non-tax depreciation) as a cost in its audited
income statements for that year, Union recorded the full special
depreciation charge as a cost in its audited income statement in
accordance with Korean GAAP. We note that it is the Department's normal
practice to use costs recorded in normal books and records of the
respondent unless it can be shown that such costs do not reasonably
reflect the amounts incurred to produce the subject merchandise. See,
e.g., Final Determination of Sales at Less Than Fair Value; Oil Country
Tubular Goods from Argentina (60 FR 33539, 33548--June 28, 1995); High-
Tenacity Rayon Filament Yarn from Germany; Final Results of Antidumping
Duty Administrative Review (59 FR 15897, 15898--March 28, 1995).
Final Results of Review
As a result of this review, we have determined that the following
margins exist for the period August 18, 1993, through July 31, 1994:
Certain Cold-Rolled Carbon Steel Flat Products
------------------------------------------------------------------------
Weighted-
Producer/manufacturer/exporter average
margin
------------------------------------------------------------------------
Dongbu..................................................... 6.07 %
Union...................................................... 1.08 %
------------------------------------------------------------------------
The Department shall determine, and the U. S. Customs Service shall
assess, antidumping duties on all appropriate entries. The Department
shall issue appraisement instructions directly to the Customs Service.
Furthermore, the following deposit requirements shall be effective
upon publication of this notice of final results of review for all
shipments of certain cold-rolled 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 Tariff
Act: (1) the cash deposit rates for the reviewed companies named above
which have separate rates will be the rates for those firms as stated
above; (2) for previously investigated companies not listed above, the
cash deposit rate will continue to be the company-specific rate
published for the most recent period; (3) if the exporter is not a firm
covered in this review, or the original LTFV investigation, but the
manufacturer is, the cash deposit rate will be the rate established for
the most recent period for the manufacturer of the merchandise; and (4)
if neither the exporter nor the manufacturer is a firm covered in this
review, the cash deposit rate for this case will continue to be 14.44
percent, which is the ``all others'' rate in the LTFV investigation.
See Final Determination of Sales at Less Than Fair Value: Certain Cold-
Rolled Carbon Steel Flat Products from Korea, 58 FR 37176 (July 9,
1993).
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 or bonding purposes.
The deposit requirements, when imposed, shall remain in effect
until publication of the final results of the next administrative
review.
This notice serves as a final reminder to importers of their
responsibility under 19 CFR 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
[[Page 805]]
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. Sec. 1675(a)(1)) and section
353.22 of the Department's regulations.
Dated: December 29, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-276 Filed 1-6-98; 8:45 am]
BILLING CODE 3510-DS-P