[Federal Register Volume 63, Number 36 (Tuesday, February 24, 1998)]
[Notices]
[Pages 9182-9198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4700]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-122-826]


Notice of Final Determination of Sales at Less Than Fair Value: 
Steel Wire Rod From Canada

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

ACTION: Notice of Final Determination of Sales at Less Than Fair Value.

EFFECTIVE DATE: February 24, 1998.

FOR FURTHER INFORMATION CONTACT: Alexander Braier at 202/482-3818, 
Lisette Lach 202/482-0190, Cindy Sonmez 202/482-0961 or Dorothy Woster 
at 202/482-3362, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, N.W., Washington, D.C. 20230.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the Tariff Act of 1930 
(``the Act'') as amended, are references to the provisions effective 
January 1, 1995, the effective date of the amendments made to the Act 
by the Uruguay Round Agreements Act (``URAA''). In addition, unless 
otherwise indicated, all citations to the Department's regulations are 
references to the provisions codified at

[[Page 9183]]

19 CFR part 353 (April 1997). Although the Department's new 
regulations, codified at 19 CFR 351 (62 FR 27296 (May 19, 1997)) do not 
govern these proceedings, citations to those regulations are provided, 
where appropriate, to explain current departmental practice.

Final Determination

    We determine that steel wire rod (``SWR'') from Canada is being, or 
is likely to be, sold in the United States at less than fair value 
(``LTFV''), as provided in section 735 of the Act. The estimated 
margins are shown in the ``Suspension of Liquidation'' section of this 
notice.

Case History

    Since the preliminary determination in this investigation (see 
Preliminary Determination of Sales at Less Than Fair Value and 
Postponement of Final Determination: Steel Wire Rod (``SWR'') from 
Canada, 62 FR 51572 (October 1, 1997) (``Preliminary Determination'')), 
the following events have occurred:
    In October and November 1997, we conducted verification of the 
responses of the following respondents: Sidbec-Dosco (Ispat) Inc. (now 
Ispat-Sidbec), Stelco, Inc. (``Stelco''), and Ivaco, Inc. (``Ivaco''). 
In November and December 1997, the Department instructed Ispat-Sidbec, 
Ivaco, and Stelco to resubmit their computer data which incorporated 
corrections made at verification. On December 2, 1997, Stelco submitted 
its revised computer data. On December 15, 1997, Ispat-Sidbec requested 
an extension of time to resubmit its data. On December 18, 1997, the 
Department granted Ispat-Sidbec an extension, until January 7, 1998, in 
which to resubmit its computer data. On December 12, 1997, Ivaco 
requested an extension of time for the case and rebuttal briefs, 
originally due December 23, 1997, and December 30, 1997, respectively. 
On December 18, 1997, the Department granted an extension of time for 
submission of case and rebuttal briefs to all interested parties. The 
new deadline for the case briefs was January 7, 1998, and rebuttal 
briefs, January 14, 1998. As none of the parties requested a public 
hearing, no such hearing was held.

Scope of Investigation

    The products covered by this investigation are certain hot-rolled 
carbon steel and alloy steel products, in coils, of approximately round 
cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch), 
inclusive, in solid cross-sectional diameter. Specifically excluded are 
steel products possessing the above noted physical characteristics and 
meeting the Harmonized Tariff Schedule of the United States (``HTSUS'') 
definitions for (a) stainless steel; (b) tool steel; (c) high nickel 
steel; (d) ball bearing steel; (e) free machining steel that contains 
by weight 0.03 percent or more of lead, 0.05 percent or more of 
bismuth, 0.08 percent or more of sulfur, more than 0.4 percent of 
phosphorus, more than 0.05 percent of selenium, and/or more than 0.01 
percent of tellurium; or (f) concrete reinforcing bars and rods.
    The following products are also excluded from the scope of this 
investigation:
     Coiled products 5.50 mm or less in true diameter with an 
average partial decarburization per coil of no more than 70 microns in 
depth, no inclusions greater than 20 microns, containing by weight the 
following: carbon greater than or equal to 0.68 percent; aluminum less 
than or equal to 0.005 percent; phosphorous plus sulfur less than or 
equal to 0.040 percent; maximum combined copper, nickel and chromium 
content of 0.13 percent; and nitrogen less than or equal to 0.006 
percent. This product is commonly referred to as ``Tire Cord Wire 
Rod.''
     Coiled products 7.9 to 18 mm in diameter, with a partial 
decarburization of 75 microns or less in depth and seams no more than 
75 microns in depth, containing 0.48 to 0.73 percent carbon by weight. 
This product is commonly referred to as ``Valve Spring Quality Wire 
Rod.''
     Coiled products 11 mm to 12.5 mm in diameter, with an 
average partial decarburization per coil of no more than 70 microns in 
depth, no inclusions greater than 20 microns, containing by weight the 
following: carbon greater than or equal to 0.72 percent; manganese 
0.50-1.10 percent; phosphorus less than or equal to 0.030 percent; 
sulfur less than or equal to 0.035 percent; and silicon 0.10-0.35 
percent. This product is free of injurious piping and undue 
segregation. The use of this excluded product is to fulfill contracts 
for the sale of Class III pipe wrap wire in conformity with ASTM 
specification A648-95 and imports of this product must be accompanied 
by such a declaration on the mill certificate and/or sales invoice. 
This excluded product is commonly referred to as ``Semifinished Class 
III Pipe Wrapping Wire.''
    The products under investigation are currently classifiable under 
subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030, 
7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the 
HTSUS subheadings are provided for convenience and customs purposes, 
our written description of the scope of this investigation is 
dispositive.

Exclusion of Pipe Wrapping Wire

    As stated in the Preliminary Determination, North American Wire 
Products Corporation (``NAW''), an importer of the subject merchandise 
from Germany, requested that the Department exclude SWR used to 
manufacture Class III pipe wrapping wire from the scope of the 
antidumping and countervailing duty investigations of SWR from Canada, 
Germany, Trinidad and Tobago, and Venezuela. Because petitioners did 
not agree to this scope exclusion, we did not exclude this merchandise 
in the preliminary determination. On December 22, 1997, NAW submitted 
to the Department a proposed exclusion definition. On December 30, 
1997, and January 7, 1998, the petitioners submitted letters concurring 
with the definition of the scope exclusion and requesting exclusion of 
this product from the scope of the investigation. We have reviewed 
NAW's request and petitioners' comments and have excluded SWR for 
manufacturing Class III pipe wrapping wire from the scope of this 
investigation. See Memorandum to Richard W. Moreland dated January 12, 
1998. Accordingly, on February 3, 1998, we instructed the U.S. Customs 
Service to terminate suspension of liquidation on all entries of Class 
III pipe wrapping wire from Canada.

Period of Investigation

    The period of investigation (``POI'') for all respondents is 
January 1, 1996 through December 31, 1996.

Fair Value Comparisons

    To determine whether sales of SWR sold by respondents to the United 
States were made at less than fair value, we compared the Export Price 
(``EP'') to the normal value (``NV''), as described in the ``EP and 
CEP'' and ``Normal Value'' sections of this notice below. In accordance 
with section 777A(d)(1)(A)(i), we calculated weighted-average EPs or 
CEPs for comparison to weighted-average NVs.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products produced by the respondents, covered by the description in the 
``Scope of Investigation'' section above, and sold in the home market 
during the POI, to be foreign like products for purposes of determining 
appropriate product comparisons to U.S. sales. Where there were no 
sales of identical merchandise

[[Page 9184]]

in the home market to compare to U.S. sales, we compared U.S. sales to 
the next most similar foreign like product on the basis of the 
characteristics listed in the antidumping duty questionnaire and the 
May 22, 1997, reporting instructions.
    Consistent with our practice, we compared prime merchandise sold in 
the United States to prime merchandise sold in the home market, and 
secondary merchandise to secondary merchandise. See e.g., Certain Cold-
Rolled Carbon Steel Flat Products from the Netherlands; Final Results 
of Antidumping Duty Administrative Review, 61 FR 48465 (Sept. 13, 
1996).
    On January 8, 1998, the Court of Appeals of the Federal Circuit 
issued a decision in Cemex, S.A. v. United States, No. 97-1151, 1998 WL 
3626 (Fed. Cir. Jan. 8, 1998). In that case, based on the pre-URAA 
version of the Act, the Court discussed the appropriateness of using 
constructed value (``CV'') as the basis for foreign market value when 
the Department finds home market sales to be outside the ordinary 
course of trade. This issue was not raised by any party in this 
proceeding. However, the URAA amended the definition of sales outside 
the ``ordinary course of trade'' to include sales disregarded as below 
cost. See section 771(15) of the Act. Because the Court's decision was 
issued so close to the deadline for completing this administrative 
review, we have not had sufficient time to evaluate and apply (if 
appropriate and if there are adequate facts on the record) the decision 
to the facts of this ``post-URAA'' case. For these reasons, we have 
determined to continue to apply our policy regarding the use of CV when 
we have disregarded below-cost sales from the calculation of NV.

Level of Trade

    In accordance with section 773(a)(1)(B) of the Act, to the extent 
practicable, we determine NV based on sales in the comparison market at 
the same level of trade (``LOT'') as the EP or CEP transaction. The NV 
LOT is that of the starting-price sales in the comparison market or, 
when NV is based on constructed value (``CV''), that of the sales from 
which we derive selling, general and administrative (``SG&A'') expenses 
and profit. For EP, the U.S. LOT is also the level of the starting-
price sale, which is usually from exporter to importer. For CEP, it is 
the level of the constructed sale from the exporter to the importer.
    To determine whether NV sales are at a different LOT than EP or 
CEP, we examine stages in the marketing process and selling functions 
along the chain of distribution between the producer and the 
unaffiliated customer. If the comparison-market sales are at a 
different LOT, and the difference affects price comparability, as 
manifested in a pattern of consistent price differences between the 
sales on which NV is based and comparison-market sales at the LOT of 
the export transaction, we make an LOT adjustment under section 
773(a)(7)(A) of the Act. Finally, for CEP sales, if the NV level is 
more remote from the factory than the CEP level and there is no basis 
for determining whether the difference in the levels between NV and CEP 
affects price comparability, we adjust NV under section 773(a)(7)(B) of 
the Act (the CEP offset provision). See Notice of Final Determination 
of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel 
Plate from South Africa, 62 FR 61731 (November 19, 1997).
    Ispat-Sidbec and Stelco did not claim a LOT adjustment. In the 
preliminary determination, for both respondents, we made no LOT 
adjustment, because we found all sales in the U.S. and home market to 
be at the same LOT. Our findings at verification do not warrant a 
change from our preliminary determination. Therefore, for the final 
determination, no LOT adjustment is warranted for Ispat-Sidbec and 
Stelco.
    Ivaco did claim a LOT adjustment for its sales. In the preliminary 
determination, we determined that a LOT adjustment was appropriate, 
because we found sales in the U.S. and home market to be at different 
LOTs. Our findings at verification do not warrant a change from the 
preliminary determination. Therefore, for the final determination, 
where applicable, we have made a LOT adjustment for Ivaco's sales.

Export Price (``EP'') and Constructed Export Price (``CEP'')

    We calculated EP and CEP, as appropriate, in accordance with 
subsections 772(a), (c) and (d) of the Act. The calculation for each 
respondent was based on the same methodology used in the preliminary 
determination.

Normal Value (``NV'')

    We calculated NV, in accordance with subsections 773(a) of the Act. 
The calculation for each respondent was based on the same methodology 
used in the preliminary determination.

Cost of Production Analysis

A. Calculation of COP

    The calculation for each respondent was based on the respective 
cost submissions for each respondent, with the following exceptions:
Ispat-Sidbec
    We adjusted Ispat-Sidbec's reported COP to include the consolidated 
financing cost of Ispat International N.V. We recalculated Walker 
Wire's further manufacturing COM to reflect the yield loss incurred 
during the production process. See Memorandum to Chris Marsh from Stan 
Bowen, dated February 13, 1998.
Ivaco
    We recalculated Ivaco's general and administrative amounts based on 
the expenses incurred by IRM, Sivaco Ontario, and Sivaco Quebec. We 
adjusted the cost of billets to account for Atlantic Steel's selling, 
general, and administrative costs. We recalculated further 
manufacturing general and administrative amounts to reflect Sivaco New 
York's verified expenses rather than IRM's expenses. We adjusted 
Ivaco's COM to reflect the green rod yield loss incurred during rod 
processing at Sivaco Ontario and Sivaco Quebec. See Memorandum to Chris 
Marsh from Art Stein, dated February 13, 1998.
Stelco
    We adjusted Stelco's reported COP to allocate ingot teeming costs 
only to the products manufactured from billets produced at the facility 
for which these costs were incurred. We subtracted Stelco McMaster 
Ltee's G&A expenses from Stelco's combined G&A expense calculation. 
Stelco McMaster Ltee's G&A expense was applied to the billet cost of 
only those CONNUMs that were produced using Stelco McMaster Ltee's 
billets. We recalculated Stelco's general and administrative amounts to 
exclude certain off-sets to research and development and capital tax 
expenses. See Memorandum to Chris Marsh from Stan Bowen, dated February 
13, 1998.

B. Test of Home Market Prices

    The calculation for each respondent was based on the same 
methodology used in the preliminary determination.

C. Results of the COP Test

    The calculation for each respondent was based on the same 
methodology used in the preliminary determination.

D. Calculation of Constructed Value (CV)

    The calculation for each respondent was based on the same 
methodology used in the preliminary determination. We used the cost 
information submitted by each respondent, except for the

[[Page 9185]]

adjustments noted above under ``Calculation of COP.''

Currency Conversion

    For purposes of the preliminary determination, we made currency 
conversions using the official daily exchange rate in effect on the 
date of the U.S. sales. These exchange rates were derived from actual 
daily exchange rates certified by the Dow Jones & Company, Inc. See 
Change in Policy Regarding Currency Conversions, 61 FR 9434 (March 8, 
1996).

Verification

    As provided in section 782(i) of the Act, we verified the 
information submitted by all respondents for use in our final 
determination. We used standard verification procedures, including 
examination of relevant accounting and sales/production records and 
original source documents provided by respondents.

Comments Related to U.S. Price

Comment 1: Ispat-Sidbec Freight Expenses

    Ispat-Sidbec contends that the Department should use Ispat-Sidbec's 
reported and verified freight expenses in its final determination. In 
the normal course of business, Ispat-Sidbec maintains all freight costs 
recorded in its accounting system in Canadian dollars, regardless of 
whether the original invoice was issued in U.S. or Canadian dollars by 
the shipper. Due to the large number of sales, and the fact that one 
sale may have multiple freight invoices, Ispat-Sidbec claims that it 
would be virtually impossible to report the freight expense for each 
sale in the currency in which the freight invoice was received. 
Moreover, Ispat-Sidbec states that the Department verified that the 
freight expenses had been properly converted to Canadian dollars, and 
that this is how these expenses are maintained in the company's 
internal accounting system. To support its position, Ispat-Sidbec 
claims that the Department recently reaffirmed its preference for the 
use of verified information maintained in a company's normal course of 
business, even when that information may not correspond exactly to that 
requested by the Department, citing Certain Cut-to-Length Steel Plate 
From the People's Republic of China: Final Determination of Sales at 
Less Than Fair Value, 62 FR 61964, 91991 (November 20, 1997).
    Petitioners counter that, pursuant to section 776(a)(2)(A), the 
Department should substitute the highest rate reported as adverse facts 
available for Ispat-Sidbec's U.S. freight costs because Ispat-Sidbec 
refused to submit freight expenses reported in the currency incurred, 
as requested by the Department. Petitioners argue that the Department 
must not accept Ispat-Sidbec's unilateral determination that the 
requested information is unnecessary. Petitioners claim that if the 
Department does not apply adverse inferences, Ispat-Sidbec will benefit 
from its own lack of candor and cooperation.

Department's Position

    Before applying facts available, section 782(e) of the Act permits 
the Department to consider the ability of an interested party to submit 
requested information if the party notifies the Department it cannot 
provide the necessary information and includes a full explanation and 
suggested alternatives. In its January 7, 1998 submission, Ispat-Sidbec 
notified the Department that to report freight expenses in the currency 
in which they were incurred would create an enormous burden requiring 
Ispat-Sidbec to review numerous sales individually. While the 
Department's standard questionnaire normally requires all parties to 
report expenses in the currency in which they were incurred, the 
Department verified that the expenses had been properly converted to 
Canadian dollars using the daily exchange rate, and that this is how 
the expenses were kept in the company's internal accounting system. In 
this case, we have continued to use Ispat-Sidbec's reported and 
verified freight expenses for these final results.

Comment 2: Ispat-Sidbec U.S. Selling Expenses

    Ispat-Sidbec claims that in converting Ispat-Sidbec's U.S. selling 
expenses to Canadian dollars for purposes of the CEP profit 
calculation, the Department incorrectly applied the exchange rate 
conversion to Ispat-Sidbec's inventory carrying cost in the country of 
manufacture, which was already reported in Canadian dollars.

Department's Position

    We agree with respondent and have corrected the CEP profit 
calculation for this final determination.

Comments Related to Normal Value

Comment 1: Ispat-Sidbec Home Market Rebates

    Ispat-Sidbec contends that the Department should continue to deduct 
both of its reported rebates on home market sales from NV in the final 
determination. Ispat-Sidbec claims that the Department verified the 
terms and conditions of one (REBATE2H), and that another (REBATE1H) 
clearly qualifies as a rebate under the Department's definition.

Department's Position

    We agree with respondent that the record evidence supports a 
deduction from NV for these rebates. In both instances, we verified the 
terms and conditions of REBATE1H and REBATE2H. See Verification of the 
Sales Data for Sidbec-Dosco (Ispat) Inc., December 18, 1997, at 12 and 
19. Therefore, we will continue to deduct both REBATE1H and REBATE2H 
from NV for purposes of this final determination.

Comment 2: Exclusion of Certain Stelco Home Market Sales

    Petitioners argue that Stelco has reported home market sales of 
subject merchandise that are neither made in commercial quantities nor 
made in the ordinary course of business. Petitioners contend that sales 
which do not meet Stelco's minimum order requirements are not sold in 
commercial quantities. Particularly, petitioners argue that Stelco's 
home market sale of a single coil was not made in commercial 
quantities, as confirmed by Stelco at verification. Petitioners reject 
Stelco's explanation that the sale at issue was made to fulfill a 
previous under-delivery, as consistent with the record evidence.
    Petitioners also argue that Stelco's sale of a single coil was not 
made in the ordinary course of trade. They insist that the sale of a 
single coil is aberrational in the wire rod industry and claim that 
sales of single coils are used for samples, testing purposes, or other 
aberrational circumstances. Petitioners allege that the preliminary 
determination produced an anomalous result in the model match, where 
Stelco's largest volume of U.S. sales was matched to the sale at issue. 
Therefore, petitioners contend that the Department should exclude this 
sale from the margin calculations, citing Nachi-Fujikoshi Corp. v. 
United States, 798 F. Supp. 716, 718 (CIT 1992); Stainless Steel Angle 
from Japan, 60 FR 16608, 16614 (March 31, 1995); Granular 
Polytetrafluoroethylene Resin from Japan, 60 FR 5622, 5623 (January 30, 
1995); Carbon Steel Plate from France, 58 FR 37125, 37126 (July 9, 
1993).
    Stelco urges the Department to reject petitioners' request to 
exclude certain home market sales made by Stelco. Respondent maintains 
that petitioners' arguments are meritless, because they rely primarily 
on one sale made by

[[Page 9186]]

Stelwire. Stelco asserts that this sale of one coil is a perfectly 
normal sale because it was part of shipment of multiple products, all 
of which constituted a complete truckload.
    Stelco also asserts that it included this sale, along with other 
sales made by Stelwire, in the sales listings at petitioners' 
insistence. It excluded this sale in the original response because the 
sale at issue was a sale to an affiliated party. However, upon the 
request of petitioners and the Department, Stelco included sales to 
affiliates in its supplemental submissions to the Department. 
Consequently, the sale of one coil was included in Stelco's subsequent 
submissions of the sales tapes.
    Moreover, Stelco insists that petitioners misinterpret Department 
practice with respect to sales outside the ordinary course of trade. 
Stelco alleges that petitioners have cited to court cases and 
Department determinations arguing for, rather than against, the 
inclusion of the sale at issue. First, respondent asserts that the 
court case, Nachi-Fujikoshi Corp. v. United States, involved a decision 
in which the Court upheld the Department's decision not to exclude a 
sample sale from its LTFV comparisons as outside the ordinary course of 
trade. Second, with regard to petitioners' cite to Stainless Steel 
Angles from Japan, Stelco contends that petitioners fail to acknowledge 
that, in that case, the Department rejected requests from both 
petitioners and respondents to exclude certain sales as outside the 
ordinary course of trade. Instead, the Department included in its 
dumping comparisons the sales which parties argued were outside the 
ordinary course of trade. Finally, Stelco asserts that Granular 
Polytetrafluoroethylene Resin from France, and Carbon Steel Flat 
Products from France, also do not support petitioners' argument. 
Respondent maintains that, in both those cases, the Department decided 
to exclude sales from its dumping comparisons because they were samples 
and sales of seconds. Since petitioners have not alleged the sale at 
issue is a sample sale, Stelco argues that these decisions are not 
relevant to this investigation.

Department Position

    We disagree with petitioners that certain Stelco home market sales, 
including the sale of the single coil they reference, should be 
excluded as sales not in ``usual commercial quantities'' and not in the 
ordinary course of trade. First, we note that, while petitioners refer 
to ``certain sales'' their arguments exclusively address Stelco's sale 
of a single. With respect to petitioners' claim that this sale was made 
in a non-commercial quantity, we reviewed the volumes, values, and 
prices of Stelco's home market sales and found no evidence on the 
record that this sale was not sold in ``usual commercial quantities'' 
within the meaning of section 771(17) of the Act. The record evidence 
demonstrates that over 10% of the number of Stelco's home market sales, 
to affiliated and unaffiliated customers, is comprised of quantities 
comparable to the sale of the single coil. The prices of these sales, 
including the price of the sale of the single coil, fall very close to 
the midpoint of the price range of both Stelco's home market affiliated 
and unaffiliated sales. Moreover, based upon the particular facts of 
this case, we do not consider Stelco's minimum order practices as 
determinative of whether these sales are within ``usual commercial 
quantities'' because the record evidence demonstrates that Stelco made 
a large number of sales of SWR in quantities below the volume orders, 
and we have discovered nothing aberrational concerning these sales.
    We also found the sale of the single coil to be within the ordinary 
course of trade under section 771(15) of the Act. The Department 
considers sales outside the ordinary course of trade to have 
extraordinary characteristics for the market in question. 19 CFR 
351.102, 62 FR at 27381. An ordinary course of trade determination 
requires evaluation of sales on ``an individual basis taking account 
all of the relevant facts of each case.'' Nachi-Fujikishi Corp. v. 
United States, 798 F. Supp. 716, 719 (CIT 1992). This means that the 
Department must review all circumstances particular to the sales in 
question. See Gray Portland Cement and Clinker From Mexico: Final 
Results of Antidumping Duty Administrative Review, 62 FR 17153 (April 
9, 1997). The particular facts of this case do not support a finding 
that the sale of the single coil was an extraordinary transaction in 
relation to other home market sales transactions. First, during the 
POI, the sale of the single coil was shipped as a line item in an 
invoice including more than one type of subject merchandise, consistent 
with the vast majority of Stelco's sales, and was shipped pursuant to 
Stelco's regular shipping procedures. See Stelwire verification Exhibit 
3. Second, Stelco had many similar sales of similar volumes in the home 
market to both affiliated and unaffiliated customers. Third, as noted 
above, the price of the sale at issue is near the midpoint of the price 
range of Stelco's home market sales, and there is no evidence that the 
price was aberrational. Fourth, there were no special handling or 
shipping arrangements made for this particular coil. In sum, we have 
found no record evidence demonstrating any significant distinctions 
between the sale of the single coil and Stelco's other home market 
sales. Therefore, since this sale was made in usual commercial 
quantities and in the ordinary course of trade, we will not exclude it 
from the home market sales listing.

Comments Related to Cost of Production

Comment 1: Ivaco Deferred Pre-Production Costs

    Petitioners claim that the Department should deny Ivaco's deferral 
of ``start-up'' costs associated with its furnace conversion. 
Petitioners assert that the circumstances involving the furnace upgrade 
fail to satisfy the statutory and regulatory standards for a start-up 
cost adjustment because the furnace upgrade did not constitute a new 
production facility or the replacement or rebuilding of nearly all 
production machinery. Petitioners concede that the Department may rely 
on records kept by the respondent in the normal course of business if 
those accounts are in accordance with the home country GAAP and 
reasonably reflect the costs associated with the production of the 
subject merchandise. Petitioners argue that in this case, however, 
Canadian GAAP distorts actual costs. Petitioners, citing Final 
Determination: Certain Pasta from Italy, 62 FR 3026, 30355 (June 14, 
1996) and Micron Technology, Inc. v. United States, 893 F. Supp. 21, 34 
(CIT 1995), aff'd 117 F.3d 1386 (Fed. Cir. 1997), contend that because 
the furnace upgrade costs were incurred during the POI, they should be 
matched to the sales of the same period, and therefore, included in the 
POI production costs.
    Ivaco asserts that it never requested a ``start-up adjustment under 
the statute,'' but that it deferred these expenses in its own books. 
Respondent claims that the upgrades implemented during the furnace 
conversion were extensive in nature and constituted major production 
changes. Ivaco states that its external auditors approved its deferral 
of its pre-production costs, as disclosed in notes (2) and (5) of IRM's 
1996 audited financial statements. Ivaco argues that if the Department 
chooses to disallow Ivaco's methodology of deferring and amortizing its 
pre-production costs, then the Department must net out the pre-
production costs that Ivaco

[[Page 9187]]

capitalized prior to 1996 and amortized in 1996.

Department's Position

    We agree with Ivaco that it properly deferred and amortized its 
pre-production costs associated with its furnace conversion. Section 
773(f) of the Act directs the Department to calculate costs based upon 
the respondent's records, provided that such records are kept in 
accordance with respondent's home country GAAP and reasonably reflect 
the costs associated with the production of the merchandise. In this 
case, Ivaco is not claiming a start-up adjustment in accordance with 
section 773(f)(1)(C) of the Act. Rather, Ivaco, in the ordinary course 
of business, capitalized certain costs related to its conversion of a 
furnace. Ivaco's methodology of capitalizing and amortizing certain 
pre-production costs over periods of up to five years is consistent 
with Canadian GAAP and was approved by the company's auditors, as 
evidenced by the disclosures in notes (2) and (5) of IRM's 1996 audited 
financial statements.
    Additionally, we consider it reasonable in this instance for Ivaco 
to spread the furnace upgrade costs over future periods because these 
costs will benefit the company's future operations through higher, more 
efficient production levels. Ivaco has demonstrated this, having 
deferred similar costs in past accounting periods. In fact, the 
amortization recognized by Ivaco this year with respect to such 
deferred costs from previous years approximates the total amount of 
furnace upgrade costs that Ivaco deferred in the current year. Thus, we 
find no reason to determine that such a methodology distorts the costs 
associated with the production of the merchandise. Because we have 
accepted Ivaco's methodology, the issue of netting out pre-production 
costs capitalized prior to 1996 is moot.

Comment 2: Ivaco Deferred Foreign Exchange Costs

    Petitioners assert that the full amount of the POI foreign exchange 
losses should be included in the POI costs. Petitioners claim that 
Department precedent is to treat foreign exchange gains and losses as 
current period income or expenses, regardless of home country GAAP. 
According to petitioners, the Department may rely on records kept by 
the respondent in the normal course of business if those accounts are 
in accordance with the home country GAAP and reasonably reflect the 
costs associated with the production of the subject merchandise. 
Petitioners maintain that Canadian GAAP distorts actual costs in this 
situation. Petitioners cite Certain Pasta from Italy, where the 
Department stated that the extinguishment of debt caused a foreign 
exchange loss which represents a cost that provides no future benefit 
and that if the current foreign exchange losses were deferred they 
would not be properly matched against the sales of the period. 
Petitioners also cite Micron Technology, Inc. v. U.S., an appeal from 
the Department's determination in DRAMS from Korea, in which it was 
ruled that if the foreign exchange translation gains and losses on 
outstanding foreign currency monetary assets and liabilities were 
deferred, the costs would not be appropriately matched to the sales of 
the company during the POI.
    Ivaco justifies its practice of deferring foreign exchange gains 
and losses arising from non-current monetary items (i.e., payments to 
be made after December 31, 1997) and amortizing those gains and losses 
over the payment of the debt, as being consistent with Canadian GAAP. 
Ivaco argues that this case differs from Certain Pasta from Italy 
because, in that case, the respondent sought to defer current foreign 
exchange gains and losses related to debt that had already been 
extinguished. Ivaco claims that it has deferred only those foreign 
exchange losses related to loans that were not extinguished, and that 
it has expensed all foreign exchange losses related to extinguished 
loans. Ivaco asserts that its methodology does not conflict with the 
decision in Micron Technology, Inc. v. United States, where the Court 
ruled that foreign exchange losses should be matched to the period in 
which the loss occurred. Ivaco maintains that all its foreign exchange 
losses related to loan repayments made in 1996 and projected loan 
repayments to be made in 1997 were expensed in 1996 and included in its 
COP, and that it deferred only those unrealized foreign exchange losses 
related to the non-current portion of its loans as of December 31, 
1996. Finally, Ivaco makes the same consistency argument it made 
regarding its accounting for pre-production costs. Ivaco asserts that 
if the Department chooses to disallow the deferral of the foreign 
exchange losses, it should exclude the current period amortization of 
foreign exchange costs that were deferred from prior years. Ivaco 
claims that such treatment would result in a minimal difference in 
Ivaco's costs.

Department's Position

    We agree with Ivaco that it properly amortized foreign exchange 
losses related to loans that were not extinguished during the POI. In 
this instance, there is little difference between its method of 
accounting for foreign exchange gains and losses and the method of 
amortizing deferred exchange gains and losses used by the Department in 
past cases. The Department normally relies upon the respondent's 
records, provided that such records are kept in accordance with 
respondent's home country GAAP and reasonably reflect the costs 
associated with the production of the merchandise. Ivaco demonstrated 
that its methodology of capitalizing non-current foreign exchange 
gains/losses attributable to its outstanding debt and amortizing the 
gains/losses over the payment of the debt is consistent with Canadian 
GAAP and was approved by its auditors, as disclosed in notes (1) and 
(6) of Ivaco Inc.'s 1996 audited financial statements. The Department's 
position, established in recent cases, is that exchange gains/losses 
should be amortized over the remaining life of the respondent's loans. 
See Notice of Final Determination of Sales at Less Than Fair Value: 
Fresh Cut Roses from Ecuador, 24 FR 7019, 7039 (February 6, 1995) and 
Notice of Final Determination of Sales at Less Than Fair Value: Certain 
Steel Concrete Reinforcing Bars from Turkey, 42 FR 9737, 9743 (March 4, 
1997). In this case, the impact of the difference between Ivaco's 
methodology of deferring and amortizing exchange gains/losses on only 
the non-current portion of long term debt and the Department's 
preferred methodology of deferring and amortizing exchange gains/losses 
over the remaining life of the debt is immaterial. Therefore, we find 
Ivaco's methodology acceptable because it reasonably reflects the costs 
associated with the production of the subject merchandise.

Comment 3: Sivaco Ontario and Quebec Yield Cost

    Ivaco claims that it explained in its cost submissions and at 
verification that because Sivaco Ontario's cost computation is based on 
the volume produced at each production stage, its computation properly 
accounts for the yield loss associated with the green rod. Ivaco 
asserts that the yield losses are accurately reflected because the 
denominator used to compute the per unit costs is the produced volume, 
net of the yield loss.

Department's Position

    We disagree with Ivaco that its methodology properly accounts for 
yield loss, and therefore, reflects the actual cost of production of 
SWR as

[[Page 9188]]

required by section 773(b)(3) of the Act. Although Sivaco Ontario and 
Sivaco Quebec properly accounted for the heat treating and cleaning/
coating materials and processing costs associated with the rod lost 
during their processing, the companies failed to include such costs 
associated with the green rod received from IRM. We therefore 
calculated a weighted average yield loss percentage for the rod used in 
production at Sivaco Ontario and Sivaco Quebec. We based our 
calculation on the yields reported in Ivaco's submissions and the 
production volumes reported at verification. We then applied the yield 
loss percentage to the cost of the green rod.

Comment 4: Sivaco New York Further Manufacturing G&A Calculation

    Ivaco states that the Department should use the reported further 
manufacturing data and G&A denominator in computing the further 
manufacturing G&A rate for Sivaco New York. Ivaco claims that the 
Sivaco New York cost of sales figure reported in the company's Section 
D submission is based on Sivaco New York's audited financial statement. 
Ivaco notes, however, that the cost of sales figure reported at 
verification is based on Sivaco New York's internal financial 
statement. Ivaco asserts that the cost of sales per Sivaco New York's 
audited financial statement exceeds the cost of sales per its internal 
financial statement by the sum of its shipping department and certain 
freight-in costs (for returning damaged or defective merchandise or 
racks). According to Ivaco, because these shipping department and 
certain freight-in costs are included in Sivaco New York's submitted 
further manufacturing costs, these costs must be included in the cost 
of sales figure used as the denominator in computing Sivaco New York's 
further manufacturing G&A rate.

Department's Position

    We agree with Ivaco's contention that the cost of sales figure 
reported at verification was based on Sivaco New York's internal 
financial statement and excludes its shipping department and certain 
freight-in costs. We also agree with Ivaco that these costs were 
included in Sivaco New York's submitted further manufacturing costs. 
However, the difference between the cost of sales figure reported in 
the Section D submission and the cost of sales figure reported at 
verification is slightly larger than the sum of the shipping department 
and freight-in costs. We therefore adjusted the cost of sales figure 
reported at verification to include these costs and recalculated 
Ivaco's further manufacturing G&A rate for our final determination.

Comment 5: Ispat-Sidbec Interest Expense

    Ispat-Sidbec contends that it is inappropriate for the Department 
to request that the company use an interest expense factor that is 
based on a reorganization that occurred after the POI. Ispat-Sidbec 
maintains that the company derived the revised interest expense factor 
solely for the Department's investigation and that it is not based on 
POI data maintained by Ispat-Sidbec in the ordinary course of business. 
According to Ispat-Sidbec, the statute requires the Department to 
calculate costs based on a company's normal records if the respondent 
maintains those records in accordance with GAAP. Ispat-Sidbec further 
notes that in Aramid Fiber Formed of Poly-Phenylene Terephthalamide 
from the Netherlands, 59 FR 23684, 23688 (May 6, 1994), the Department 
declined to calculate interest expense based on consolidated data, when 
the corporate restructuring did not occur until after the POI. Thus, 
Ispat-Sidbec argues that the Department should accept its interest 
expense factor as originally calculated based on the company's 1996 
consolidated financial statements in accordance with Canadian GAAP.
    Petitioners respond that for corporate groups, such as Ispat 
International and its subsidiaries, the Department generally calculates 
interest expense based on the consolidated financial results of a 
parent corporation and its subsidiaries, whether or not the respondent 
normally maintains such information in the ordinary course of business. 
Petitioners state that the Department's policy is ``based on the fact 
that the group's parent, primary operating company, or other 
controlling entity . . . because of its influential ownership interest, 
has the power to determine the capital structure of each member company 
within the group.'' New Minivans from Japan, 57 FR 21937, 21946 (May 
26, 1992). Petitioners also note that Ispat-Sidbec's argument that this 
interest information as derived solely for the investigation is flawed 
because Ispat International's consolidated financial statements for 
1994 through 1996 were part of the record.

Department's Position

    We agree with petitioners that it is the Department's long-standing 
practice to calculate interest expense for COP and CV purposes based on 
the borrowing costs incurred at the consolidated group level. This 
methodology, which has been upheld by the CIT in Camargo Correa Metals, 
S.A. v. U.S., No. 91-09-00641, Slip Op. 93-163 (CIT August 13, 1993), 
is based on the fact that the consolidated group's controlling entity 
has the power to determine the capital structure of each member of the 
group. Thus, financial expenses at the group consolidation level must 
reasonably reflect the borrowing costs incurred by each member of the 
group. In this instance, prior to the POI, Ispat-Sidbec was a wholly-
owned subsidiary within a large group of companies. Although these 
companies would normally prepare consolidated financial statements at 
the group level, it was unnecessary for them to do so because they were 
privately owned. Shortly after the POI, the Ispat Group reorganized its 
operations, eliminating certain holding companies as well as making 
other changes to its overall corporate structure. As part of the 
reorganization, Ispat International N.V. emerged as the lead entity of 
the former Ispat Group. Ispat International prepared consolidated 
financial statements for the group, including statements covering the 
POI.
    Contrary to respondents arguments, this situation differs from that 
in Aramid Fiber Formed of Poly-Phenylene Terephthalamide from the 
Netherlands, 59 FR 23684, 23688 (May 6, 1994). In that instance, the 
Department did not compute interest expense at the consolidated level 
because the equity ownership in the respondent did not meet the 
requirements for consolidation until the post POI reorganization. 
However, in this case, Ispat-Sidbec was a member of the same group of 
consolidating companies both prior to and after the reorganization. 
Therefore, we will continue to use the Ispat Group's consolidated 
interest expense factor for purposes of this final determination.

Comment 6: Walker Wire Further Manufacturing Yield Loss

    Ispat-Sidbec states that the Department should accept the yield 
loss reported in Walker Wire's further manufacturing Section E 
questionnaire. Ispat-Sidbec claims that Walker Wire submitted the yield 
loss that it normally calculates. Respondent maintains that Walker 
Wire's cost accounting system appropriately tracks all costs, including 
yield loss. In addition, Ispat-Sidbec asserts that the method used to 
allocate yield loss to merchandise is appropriate and reasonable.

Department's Position

    We disagree with Ispat Sidbec that Walker Wire's reported costs 
adequately

[[Page 9189]]

accounts for yield loss associated with the further manufacture of the 
subject merchandise. Walker Wire's reported yield loss accounts only 
for a portion of its total yield loss because the company determined 
the reported loss based on the quantity of raw material recovered and 
sold for scrap. The company's methodology does not account for loss 
that it never recovers. Secondly, Walker Wire's reported conversion 
costs fail to account for yield loss incurred during production, which 
understates Walker Wire's conversion costs. Finally, Walker Wire 
uniformly allocates its yield loss to all products sold. Walker Wire 
allocated yield loss to merchandise bought for resale that required no 
fabrication and to customer-owned material that it fabricated. Neither 
of these items should incur the yield loss associated with Walker 
Wire's processing of its own materials. Therefore, for this final 
determination, we have increased Walker Wire's reported costs to 
account for the company's total yield loss.

Comment 7: Stelco Allocation of Excess Cost of Ingot Teeming

    Stelco argues that it properly allocated the excess cost of ingot 
teeming (i.e., the cost of ingots that are not required by Stelco's 
internal order practice) to only round products produced during the 
POI. Stelco notes that in its normal books and records it allocates 
these costs to all products produced, both flat-rolled and round 
products. However, in its submitted COP and CV data, Stelco allocated 
its ingot teeming costs to only round products produced since it cannot 
use ingots to produce flat-rolled products. Stelco contends that the 
Department should accept this allocation methodology because, in 
accordance with section 773(f) of the Act, it is the closest to 
Stelco's normal accounting procedures and because it reasonably 
reflects the actual cost of producing subject merchandise. Stelco 
further supports this argument by stating that the company can produce 
all of its round (i.e., rod and bar) products from either ingot steel 
or cast steel.
    Stelco further argues that if the Department does not accept its 
methodology of allocating excess ingot teeming costs to all round 
products, the Department should allocate these costs to those products 
that, because of customer requirements, could only be manufactured 
using ingots. Stelco maintains that during the POI, while no customers 
specifically required that only ingot steel be used in their orders, 
some customers required cast steel only.
    Petitioners argue that the Department should reject Stelco's COP 
and CV data and apply total adverse facts available for the final 
determination because Stelco has repeatedly misreported its costs 
incurred on the teeming of ingots. Petitioners claim that Stelco incurs 
these costs on specific products and had the ability to assign its 
ingot teeming costs in a product-specific manner. Petitioners contend, 
however, that Stelco did not allocate its ingot teeming costs to 
specific products produced from ingots but, instead, allocated these 
costs over products that it claims could potentially be produced from 
ingots. Petitioners argue that this allocation methodology is 
unacceptable because the statute and the Department's long-standing 
practice require product-specific cost reporting. Petitioners cite 
Final Results of Antidumping Duty Administrative Review: Gray Portland 
Cement and Clinker from Mexico, 58 FR 25803, 25809 (April 28, 1993), as 
precedent for use of best information available, in this case, when the 
respondent does not report product-specific materials costs.
    Petitioners also assert that Stelco's submitted costs are not based 
on its books and records maintained in the normal course of business 
and argue that neither of Stelco's various cost submissions reasonably 
reflect the costs associated with the production and sale of subject 
merchandise. Petitioners claim that because Stelco's submitted 
methodologies do not assign costs only to the products for which those 
costs were incurred, Stelco diluted the dumping margins on ingot-teemed 
products, while reducing its profit margins on non-ingot teemed 
products. Petitioners further argue that since there is no verified 
evidence on the record demonstrating which specific CONNUMs are ingot-
teemed products, the Department does not have the ability to correct 
Stelco's reported costs. Thus, petitioners urge the Department to 
reject Stelco's reported costs in their entirety and apply total 
adverse facts available, using either the dumping margin alleged in the 
petition for a Canadian respondent, or the highest dumping margin 
generated on any sale reported in Stelco's questionnaire response.

Department's Position

    We disagree with petitioners that because Stelco was unable to 
allocate ingot teeming costs only to those products manufactured from 
ingot-produced billets, the Department should reject Stelco's reported 
costs in their entirety and resort to total adverse facts available. 
First, we do not find that Stelco's cost submissions are totally flawed 
and rendered unusable for the final determination under section 782(e) 
of the Act. Stelco submitted its cost data in a timely manner, we were 
able to verify significant elements of its COP and CV data, and as 
discussed below, we were able to use the cost data without undue 
difficulties. Thus, the facts in this case, do not support rejection of 
the entire cost submission. See e.g., Certain Welded Carbon Steel Pipes 
and Tubes from Thailand: Final Results of Antidumping Duty 
Administrative Review, 62 FR 53808, 53819-20 (Oct. 16, 1997) (resorting 
to total adverse facts available because the respondent's cost 
submission was unverifiable). In addition, we do not find a sufficient 
basis to apply adverse inferences in accordance with section 776(b) of 
the Act because we determine that Stelco reported these costs to the 
best of its ability. Although Stelco did not report product-specific 
costs for all subject merchandise that used ingot steel, we confirmed 
at verification Stelco's claim that its computerized production records 
do not permit it to identify when a product is made using ingot steel. 
Based on this examination, we consider it acceptable for Stelco to 
allocate ingot teeming costs using an alternative methodology that 
reasonably reflects the costs associated with producing the subject 
merchandise.
    However, we find neither of Stelco's alternative methodologies 
acceptable for the final determination. Because Stelco McMaster Ltee 
does not produce billets from ingots, allocating the ingot teeming 
costs incurred at the Hilton Works facility to all round products, 
including those made from billets manufactured at Stelco McMaster Ltee, 
unreasonably understates ingot teeming costs. Also, allocating ingot 
costs only to products that may be produced from ingots in the absence 
of actual production records unreasonably relies upon unsubstantiated 
costs. Therefore, we find that because Stelco states that it teems 
ingot to allow maximum utilization of available steel in the Hilton 
Works' ladles and that all round products can be produced using ingot 
steel, a reasonable methodology is to allocate ingot teeming costs to 
all products which used Hilton Works billets. Accordingly, for the 
final determination, we allocated ingot teeming costs incurred at the 
Hilton Works facility to all products manufactured from billets 
produced at this facility.

Comment 8: Inclusion of Stelco Capital Tax Credit in the G&A 
Expense Calculation

    Stelco argues that its capital tax credit should be included in the 
general and administrative (``G&A'') expense

[[Page 9190]]

calculation. Stelco cites Final Results of Antidumping Duty 
Administrative Reviews: Certain Corrosion-Resistant Carbon Steel Flat 
Products and Certain Cut-to-Length Carbon Steel Plate from Canada, 62 
FR 18448, 18465 (April 15, 1997) (``Carbon Steel from Canada''), as 
precedent for classifying capital taxes as a G&A expense. Stelco 
contends that because capital tax is a G&A expense, it properly offset 
the capital tax credit against G&A expenses. Furthermore, Stelco notes 
that the Department's practice is to include income items that are 
properly a part of G&A in the G&A expense calculation. To support this 
argument, Stelco cites Notice of Antidumping Duty Order and Amended 
Final Determination: Canned Pineapple Fruit from Thailand, 60 FR 36775, 
36776 (July 18, 1995), in which the Department states it inadvertently 
relied on the gross, rather than the net, G&A expenses of the company 
in the calculations of COP and CV. Stelco maintains that the full 
amount of the credit relates to the POI, and not to prior years.
    Stelco further argues that if the Department accepts expense items 
which relate to non-POI periods because they are recorded in the 
company's normal books and records for the period, the Department 
should accept income items which relate to non-POI periods if they are 
recorded in the company's normal books and records in accordance with 
GAAP. Stelco cites Final Results of Antidumping Duty Administrative 
Review: Certain Cold-Rolled Carbon Steel Flat Products from Canada, 58 
FR 37099, 37120 (July 9, 1993), in which the Department determined that 
because the respondent chose to expense the entire amount of certain 
expenses which related to future periods in the current period, the 
total expense was included in the calculation of COP and CV. Therefore, 
Stelco argues that even if the costs did relate to prior POI events, 
section 773(f) of the Act and the Department's long-standing policy 
require that costs be included in the calculation of COP and CV in the 
year those costs are recorded in a company's books, if those records 
are in accordance with GAAP and reasonably reflect the costs associated 
with the production and sale of the merchandise. Thus, Stelco maintains 
that its capital tax credit should be included in the calculation of 
G&A expenses for the final determination because it is recorded in 
Stelco's normal books and records in accordance with GAAP and 
reasonably reflects COP.
    Petitioners urge the Department to exclude Stelco's capital tax 
offset from its G&A expense calculation. Petitioners argue that 
Stelco's credit to G&A expenses is improper because the Department does 
not normally include income taxes in its COP and CV calculations and 
because it does not relate to the POI since Stelco recorded this credit 
to reverse an overstated accrued liability from 1991. Petitioners state 
that, contrary to Stelco's claim, the Department does not have a long-
standing policy of accepting such credits, particularly from prior 
years. To support this argument, petitioners cite Final Results of 
Antidumping Duty Administrative Review: Fresh Kiwifruit from New 
Zealand, 57 FR 13695, 13702 (April 17, 1992), in which the Department 
determined that ``tax recoveries cannot be used to offset costs.'' In 
addition, petitioners argue that while the Department often accepts 
costs in the year they are recorded in a company's books, the statue 
specifically notes that COP shall be based on those records only when 
they reasonably reflect the costs associated with the production and 
sale of the merchandise. Thus, petitioners maintain that Stelco's 
capital tax credit should be excluded from the G&A expense calculation 
because it artificially and improperly lowers G&A expenses for the POI.

Department's Position

    We agree with Stelco that the capital tax, which is a non-income-
based tax, is a G&A expense item and, therefore, credits to capital tax 
should be offset to G&A expenses. See e.g., Oil Country Tubular Goods 
From Canada; Final Determination of Sales at Less Than Fair Value, 51 
FR 15029 (April 22, 1986) and Certain Steel from Canada, 62 FR at 
18465. However, we disagree with Stelco that the total amount of the 
capital tax credit should be included in the calculation of G&A 
expenses. While it is reasonable to offset Stelco's capital tax expense 
with its capital tax credit, it is not reasonable to offset other G&A 
expenses by the amount of the credit that exceeds the amount of the 
capital tax expense. Specifically, because the credit represents a 
reduction in the amount of capital taxes due by the company, it is 
unreasonable to offset unrelated G&A expenses, such as administrative 
salaries, professional fees, and office supplies. Therefore, for the 
final determination, we are including in Stelco's calculation of G&A 
expenses its capital tax credit only to the extent of its current 
capital tax expenses.

Comment 9: Inclusion of Stelco Tax Credit in G&A Expense Calculation

    Stelco asserts that its investment tax credit should be included as 
a reduction to the company's G&A expenses. Stelco maintains that the 
credit is a reimbursement by the Canadian government of research and 
development (``R&D'') expenses and, therefore, the company properly 
offset this credit to the R&D expenses it included as part of the total 
G&A expense. Stelco explains that although the Canadian government 
reimburses the company through a reduction of its income tax payable, 
the credit is not an income tax benefit. To support its argument that 
it properly recorded the credit as an offset to G&A expenses, Stelco 
cites the Canadian Institute of Chartered Accountants (``CICA'') 
Handbook, the Canadian equivalent of U.S. GAAP. The Handbook states, 
where the investment tax credit relates to R&D costs, it should be 
accounted for using the cost reduction approach by including it in the 
period's net income if it relates to current expenses. If on the other 
hand, the ITC relates to fixed asset purchases, it may be accounted for 
either, by deducting the credit from the related assets and calculating 
depreciation expense on the net basis of the asset, or by deferring it 
if it relates to the acquisition of assets and amortizing it to income. 
The Handbook, however, states that ``when the investment tax credits 
are not accrued in the year in which the qualifying expenditures are 
made because there is no reasonable assurance that the credit will be 
realized, such credits should be accrued in the subsequent year in 
which reasonable assurance of realization is first obtained.'' Stelco 
contends that reasonable assurance occurred in 1996 when the company 
had sufficient net income taxes payable to apply the investment tax 
credit. Stelco further argues that the Department's long-standing 
policy is to calculate COP and CV using net G&A expenses. Stelco 
maintains that the full amount of this credit should be included in the 
calculation of G&A expenses for the final determination. However, 
Stelco states that if the Department rejects its argument, it should at 
a minimum allow a full offset to Stelco's R&D expenses for the POI.
    Petitioners counter that the Department should exclude Stelco's 
investment tax credit from the G&A expense calculation because the 
Department normally does not include income taxes in its COP and CV 
calculations. Petitioners cite Statement of Financial Accounting 
Standards No. 109: Accounting for Income Taxes to show that U.S. GAAP 
provides that investment tax credits be recorded as a reduction to 
income tax expense.

[[Page 9191]]

Petitioners respond that since Stelco concedes that the method of 
payment by the government is a reduction of income tax payable, the 
Department should adopt the approach that if a tax credit (such as an 
investment tax credit) results in an income tax reduction, it should be 
considered as an income tax item and thus excluded from G&A. 
Petitioners further argue that the credit should be excluded because 
portions of the credit may relate to R&D costs from previous years, or 
the credit may be calculated based on the purchase of equipment that is 
to be depreciated over future years. Petitioners allege that Canadian 
companies would receive an unfair advantage if the Department allows 
this credit to be classified as a reduction of cost of production 
instead of a reduction to income tax expense. Finally, petitioners 
claim that Stelco did not adequately support its classification of this 
credit to G&A expenses. They argue that the Department should reject as 
new factual information the CICA Handbook excerpts submitted by Stelco 
in its January 7, 1998, brief which relate to the timing of the receipt 
of the benefit, but do not address its classification. Petitioners 
conclude that Stelco's approach does not conform to Canadian GAAP 
because Stelco did not submit material to support its presentation and 
disclosure of the credit. Therefore, petitioners maintain that Stelco's 
investment tax credit should be excluded in the calculation of G&A 
expenses for the final determination.

Department's Position

    We disagree with petitioners that the excerpts from the CICA 
Handbook submitted by Stelco in its January 7, 1998, brief constitute 
untimely new factual information which should be rejected. Stelco 
previously provided this information during the cost verification to 
clarify and support information already on the record. See Stelco Cost 
Verification Exhibit 29 at 10. However, we agree with petitioners that 
the Department normally does not include income taxes in its COP and CV 
calculations. The CICA Handbook states that ``investment tax credits 
are a type of government assistance related to specific qualifying 
expenditures that are prescribed by tax legislation.'' These credits 
reduce the amount of income taxes Stelco pays. We do not consider it 
appropriate to offset production costs by the reduced income tax 
liability arising from tax legislation, because the Department does not 
include income taxes in the calculation of COP and CV. See e.g., Fresh 
Cut Flowers From Mexico; Final Results of Antidumping Duty 
Administrative Review and Revocation in Part of Antidumping Duty Order, 
61 FR 63822, 63824 (December 2, 1996). Thus, we are excluding Stelco's 
investment tax credit in the calculation of G&A expenses for the final 
determination.

Comment 10: Inclusion of Stelco Pension Expenses in the G&A Expense 
Calculation

    Stelco included in its G&A expenses an adjustment for the company's 
additional pension liability as of December 31, 1995, which resulted 
from a 1996 court decision to partially wind up the company's pension 
plan. Stelco notes that the company did not have any ``control'' over 
the events which triggered the applicability of its pension expense or 
its capital tax credit recorded during the POI. Stelco argues that if 
the Department excludes its capital tax and investment tax credits from 
its calculation of G&A expenses because these credits relate to prior 
years, the Department should also exclude this partial pension wind-up 
cost from the G&A calculation because it relates to prior years.
    Petitioners state that Stelco's recognition in the POI of pension 
costs from prior years was proper and should be included in the G&A 
expense calculation. Petitioners reason that Stelco should include this 
cost because, unlike Stelco's tax credits, this amount was not 
``controlled'' by Stelco, but by the Canadian courts. In addition, 
petitioners claim that, unlike the tax credits, the pension expense was 
recorded in accordance with both Canadian and U.S. GAAP which state 
that a liability contingent on a lawsuit's outcome is recorded only if 
the company is likely to lose the suit. Therefore, petitioners argue 
that the Department should include Stelco's pension cost expense 
related to prior years in the G&A expense calculation.

Department's Position

    We agree with petitioners that Stelco's partial pension wind-up 
costs should be included in the calculation of G&A expenses. In Final 
Results of Antidumping Duty Administrative Reviews: Certain Cold-Rolled 
and Corrosion-Resistant Carbon Steel Flat Products from Korea, 62 FR 
18404, 18443 (April 15, 1997), (``Carbon Steel Flat Products from 
Korea''), we determined that including prior-period expenses, such as 
severance benefits, as an element of COP and CV is appropriate to 
reasonably reflect the costs associated with the production and sale of 
the subject merchandise. We disagree with Stelco that if the Department 
excludes the company's capital tax and investment tax credits from the 
calculation of G&A expenses, we must also exclude these pension 
expenses. The Department considers each cost issue separately, based on 
the facts and circumstances surrounding each issue. Stelco did not 
recognize the pension expenses as a contingent liability in prior years 
because Stelco expected to successfully appeal the Canadian pension 
commissioner's ruling that employees terminated in the early 1990's 
were entitled to certain pension benefits. Stelco recognized these 
costs for the first time during the POI in accordance with GAAP after 
the Canadian Supreme Court denied Stelco's appeal. See Cost 
Verification Report, at 2-3. Consistent with Carbon Steel Flat Products 
from Korea, we determine that including Stelco's prior-period pension 
expenses as an element of COP and CV is appropriate to reasonably 
reflect the costs associated with the production and sale of the 
subject merchandise. Therefore, for the final determination, we have 
included Stelco's partial pension wind-up cost in the calculation of 
G&A expenses.

Comments Related to Other Issues

Comment 1: Whether a LOT Adjustment for Ivaco is Warranted

    Petitioners state that the Department should reverse its 
preliminary determination to grant a level of trade adjustment to 
Ivaco. Petitioners argue that when examining the way in which IRM and 
its affiliates do business, the record evidence demonstrates that no 
level of trade adjustment is applicable in this case.
    Petitioners first note that in its Level of Trade Memorandum (``LOT 
Memorandum'') and Preliminary Determination, the Department found that 
IRM and Sivaco both sell to the same category of customer, and that 
both sell green and processed rod. Petitioners then state that the 
Department also found that warranty and credit services were provided 
at the same level. Petitioners argue that based on these similarities 
in business practices, and without record evidence of any substantial 
differences in the selling functions offered by the companies, the 
Department must determine that an LOT adjustment is not warranted in 
this case.
    Petitioners then argue that the distinctions in selling functions 
between IRM and Sivaco, which Ivaco claims are indicative of different 
levels of trade, are instead simply a function of product mix, as IRM 
sells mostly green rod, while Sivaco, being a

[[Page 9192]]

processor, sells mostly processed rod. Petitioners argue that a 
comparison of IRM and Sivaco on a product-to-product basis would yield 
very similar selling practices and expenses. First, petitioners assert 
that IRM provides the same inventorying and JIT services that Sivaco 
provides through a certain type of IRM sale. They argue that this type 
of IRM sale is identical to a Sivaco sale from inventory, as in both 
types of sale, the seller incurs all opportunity costs up to the point 
of sale, and the customer purchases merchandise only when needed.
    Second, petitioners state that Ivaco's claimed differences in 
inventory carrying periods do not constitute evidence of substantially 
different selling activities but instead are largely attributable to 
product mix differences. Petitioners assert that the inventory periods 
for processed rod is similar for both entities. In addition, 
petitioners argue that the average inventory period verified by the 
Department does not include the inventory period of a particular type 
of IRM's sales. Petitioners point out that while it is true that Sivaco 
maintains green rod inventory for a different period than IRM, this is 
only logical since Sivaco's green rod typically must go through 
additional processing. Petitioners conclude that since IRM's sales of a 
particular type allow IRM to extend the same JIT services as Sivaco, 
both companies offer the same products and inventory services.
    Third, petitioners take issue with Ivaco's claims concerning 
differences in delivery terms, arguing that differences in shipment 
quantities are irrelevant to the level of trade analysis because both 
companies sell rod on a delivered basis, both deliver rod to the 
majority of their customers by truck, and both sell in truckload and 
less than truckload quantities. Finally, petitioners' comments also 
briefly addressed other selling function distinctions alleged by Ivaco. 
Petitioners claim that Sivaco's provision of bid assistance does not 
constitute a substantial difference between IRM and Sivaco, because 
Sivaco supplied this service to only a few of its customers, and 
because the provision of this service occupied a small percentage of 
the time of their employees. They state that the other alleged selling 
functions, (producing to order, small order processing, shipping in 
small quantities, and customer pick-up services) are all part of the 
services offered by both IRM and Sivaco and as such, do not constitute 
differences in levels of trade.
    In response, Ivaco notes that petitioners do not dispute the fact 
that IRM's sales are made at an earlier point in the chain of 
distribution than Sivaco's sales, which is the first criterion that 
must be established in order to qualify for an LOT adjustment. 
Petitioners' argument that the Department should look at the customer 
category is the old law standard. The new standard, citing Professional 
Electric Cutting Tools from Japan, is that ``* * * Differences in 
levels of trade are characterized by purchasers at different stages in 
the chain of distribution and sellers performing qualitatively or 
quantitatively different functions in selling to them.'' Ivaco Rebuttal 
Brief at 1. Ivaco notes that in the LOT Memorandum, the Department 
agreed with Ivaco on both these points.
    According to Ivaco, petitioners ignore one of the most important 
differences between IRM and Sivaco: the fact that Sivaco offers 
significant inventory services while IRM does not. Ivaco notes that in 
order to provide these services, Sivaco maintains a large uncommitted 
general inventory, whereas IRM maintains no general uncommitted 
inventory. Ivaco notes that in its verification report, the Department 
confirmed that Sivaco Ontario inventories green rod many times longer 
than IRM. Further, Ivaco asserts that Sivaco acts as a service center 
for rod, bar, and wire, and maintains a large uncommitted inventory in 
order to service its customers' requirements for: ``(i) small 
quantities of rod; (ii) inventory services; and/or (iii) JIT 
delivery.'' Ivaco Rebuttal Brief at 9. Ivaco goes on to cite several 
cases (Polyethylene Terephthalate Film, Sheet, and Strip from the 
Republic of Korea and Welded Carbon Steel Pipe and Tube from Turkey), 
in which the Department has recognized the importance of services 
associated with maintaining inventory as a factor in defining distinct 
levels of trade.
    Ivaco states that none of the arguments raised in petitioners' case 
brief alters the conclusion in the LOT memorandum, and confirmed by the 
Department's verification report and Preliminary Determination, that 
Sivaco offers significantly different services than IRM. Ivaco states, 
for example, that petitioners' contention that the difference in actual 
number of days of credit outstanding between IRM and Sivaco is not 
``particularly large'' is contradicted by the facts on the record which 
indicate the actual difference in average payment dates is almost 
double for Sivaco Ontario as compared to IRM. Further, Ivaco noted that 
the Department stated in its LOT Memorandum that ``IRM's customer's 
average payment period * * * reflects the greater liquidity of a larger 
company, whereas Sivaco's * * * reflects the generally smaller size of 
its customers.'' Ivaco Rebuttal Brief at 7.
    Ivaco states that petitioners' attempt to categorize the inventory 
services provided by Sivaco Ontario as a ``product-mix'' issue is 
without merit. The company asserts that petitioners' comparison of the 
quantity of processed rod sold by IRM versus Sivaco Ontario is 
misleading, because during the POR, processed rod as a percentage of 
IRM's total sales is extremely small, while for Sivaco Ontario, this 
percentage is a very high percentage of sales. Therefore, Ivaco 
concludes that petitioners' comparison of overall tonnage does not take 
into consideration the ``actual magnitude of sales or the business 
practices of either company.'' Ivaco Rebuttal Brief at 11.
    Ivaco asserts that petitioners' argument that Sivaco does not offer 
significantly different delivery services is without merit because 
IRM's delivery services are structured to serve high-volume customers, 
whereas Sivaco's delivery services are structured to serve smaller 
customers who do not have the inventory capacity or buying power of 
larger customers and therefore require JIT or short-lead time delivery 
capability. Accordingly, Ivaco states, IRM sales structure is organized 
around its quarterly rolling schedule, while Sivaco's sales structure 
is organized around its uncommitted green rod inventory. Sivaco 
delivery services are set up to accommodate routine customer pick-up, 
while IRM is set up to provide for train-load deliveries. Further, 
Ivaco states that the Department's LOT Memorandum and Verification 
report confirm that Sivaco and IRM offer significantly different 
delivery services.
    Ivaco also disagrees with petitioners' claim that IRM provides, for 
a particular type of sale, delivery services similar to those Sivaco 
provides its customers. Ivaco states that the only difference between 
its typical direct sales and this particular type of sale are the 
payment terms. Ivaco stresses that IRM provides no other services for 
this type of sale that are distinct from its other direct sales.

Department's Position

    We disagree with petitioners that Ivaco's sales are made at the 
same LOT, and therefore, a LOT adjustment is not warranted in this 
case. As detailed in the LOT Memorandum for the preliminary 
determination, we examined the selling functions performed by IRM and 
Sivaco at each stage in the marketing process and identified 
substantial differences in

[[Page 9193]]

services provided. We concluded that these differences were attributed 
to selling at different points in the chain of distribution, i.e., IRM 
primarily sells direct from the factory and Sivaco acts as a reseller 
of SWR. Our findings at verification confirmed this analysis, and 
petitioners have identified no record evidence to warrant changing our 
preliminary determination. For example, petitioners continue to assert 
that no LOT differences exist because both IRM and Sivaco sell to end-
users and provide the same type of warranty and credit services. 
However, customer category alone is not the determinative factor of 
establishing a level of trade. See e.g., Notice of Final Determination 
of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel 
Plate from South Africa, 62 FR 61731, 61732 (Nov. 19, 1997). Moreover, 
the mere fact that certain selling activities are performed in a 
similar manner does not refute a finding of different LOTs, rather, the 
Department considers the totality of the circumstances in evaluating 
whether qualitatively and quantitatively different selling functions 
are performed for purchasers at different places in the chain of 
distribution. In this instance, the record evidence supports our 
finding of significant differences in the selling activities performed 
by IRM and Sivaco and no substantiation of petitioners' claim that 
these differences are attributable to product mix.

Comment 2: Petitioners' LOT Adjustment Methodology

    Petitioners argue that if the Department does grant Ivaco a LOT 
adjustment, the Department should apply the cost test to the LOT-
adjusted home market sales prices, and remove those sales which fail 
from the margin calculation. Petitioners state that this proposed 
methodology is supported by the statute, which requires the Department 
to make ``due allowance'' for any differences in EP CEP and NV caused 
by a difference in levels of trade. They assert that section 773(b) 
states that where 20 percent or more of a respondent's sales of a given 
product during the POI are at prices less than COP, the Department 
should disregard the below cost sales in the determination of normal 
value. Petitioners also point out that the Statement of Administrative 
Action (SAA) states that ``[t]he Administration intends that Commerce 
will disregard sales [below cost] when the conditions in the law are 
met.'' See Petitioners Case Brief at 13. Petitioners argue that, when 
viewed together, these provisions establish a clear intention that the 
Department must not make ``due allowance'' for a level of trade 
adjustment when such adjustment would cause the home market normal 
value to fall below cost. Petitioners state that the importance of the 
below-cost principle to the Department is demonstrated in Large 
Newspaper Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, from Japan, 61 FR 38139, 38144 (July 23, 1996) (``Printing 
Presses from Japan''), in which the Department excluded below-cost 
sales from normal value, even though it did not initiate a below-cost 
investigation.
    Finally, petitioners assert that, after removing the sales with 
prices below the cost of production, the data available does not 
provide an ``appropriate basis'' to determine a level of trade 
allowance, and therefore the Department should deny a level of trade 
adjustment for CEP sales in this investigation. Petitioners note, 
however, that the Department may grant a CEP offset where a LOT 
adjustment is not warranted, and where the comparison sales are made at 
a more advanced level of trade than sales to the United States, in 
accordance with section 773(a)(7)(B) of the Act.
    Ivaco responds that petitioners' argument is specious, because it 
fails to take into account the fact that the sales used to calculate 
the LOT adjustment have already passed a below-cost test. As such, 
petitioners' cite to Newspaper Presses is not relevant, since, Ivaco 
claims, the issue there was whether the Department could use sales when 
no formal below-cost test was performed. In this case, the Department 
has already applied the below-cost test once; petitioners are 
requesting that it now be applied a second time. Ivaco states that 
petitioners, by contending that the LOT adjustment causes normal values 
to fall below cost, are asking the Department to: (1) Ignore the actual 
pricing differentials that exist between above cost sales at levels one 
and two; (2) perform a second below-cost test on home market sales that 
have already passed one below-cost test; and (3) perform a below-cost 
test on weighted-average normal values, which is contrary to the 
Department's practice for performing a below-cost test. Furthermore, 
Ivaco points out that it is just as likely that applying a difmer 
adjustment or a circumstances of sale (COS) adjustment might cause a 
given FUPDOL to be lower than the original home market sale's cost of 
production. Despite this fact, the Department has never thrown out such 
home market sales for failing the cost test. The reason, according to 
Ivaco, is obvious: the normal values in question have already passed a 
below-cost test.

Department Position

    We disagree with petitioners that the Department should only apply 
the cost test to LOT-adjusted home market sales. The statute directs 
the Department to determine NV based on the price at which the foreign 
like product is sold for consumption in the home market, in the normal 
commercial quantities, and in the ordinary course of trade. Section 
771(15) of the statute states that the sales which fail the cost test 
under section 773(b) are deemed to be outside the ordinary course of 
trade, and therefore should be excluded from the pool of home market 
sales used to determine NV. The statute contemplates that the remaining 
sales are suitable for purposes of determining NV. See section 
773(b)(1) of the Act. The Department appropriately applies the LOT 
methodology after the cost test is administered to those sales which, 
according to the statute, are suitable for establishing NV. Moreover, 
petitioners ignore the fact that LOT-adjusted home market sales that 
``fail'' the cost test do not do so because the actual selling prices 
are below cost, but do so as the result of other statutory adjustments 
to NV, which have nothing to do with determining COP. Thus, LOT-
adjusted sales are not made at prices below cost within the meaning of 
section 773(b) of the Act. Based on the above, the Department finds 
that the petitioners' proposed methodology is inconsistent with the 
statute, and will not be used for the final determination.

Comment 3: Ivaco's Proposed Level of Trade Methodology

    Ivaco asserts that the Department should use its proposed LOT 
methodology suggested in its pre-verification submissions. This 
methodology is to apply the Department's concordance program to the 
home market sales at level one and the home market sales at level two, 
and subsequently apply an appropriate difmer adjustment. Ivaco claims 
that this methodology allows the Department to analyze weight-averaged 
pricing for both identical and similar products, based on the same 
standard the Department uses for identifying similar products when 
comparing U.S. and home market sales. By employing this proposed 
methodology, the Department can assess the pricing differentials 
between levels one and two, rather than allowing a handful of products 
to determine the adjustment, as is currently the case. Furthermore, 
applying a difmer adjustment will

[[Page 9194]]

remove any distortions that would result from differences in the 
product mix at each level.
    Ivaco states that the SAA provides the Department with wide 
latitude in making a LOT adjustment, and does not mandate that the 
Department rely solely on home market sales of identical products. 
Ivaco asserts that the Department's methodology is inadequate to 
demonstrate a pattern of price differences because it takes into 
account a small percentage of possible comparisons, and accounts for 
less than 25 percent of the home market sales quantity. Ivaco states 
that by applying the Department's ``difmer'' adjustment to the home 
market sales listing, the Department would avail itself of all home 
market sales.
    Ivaco asserts that by using only identical sales to determine the 
amount of the adjustment, the Department failed to take into account 
most of the products sold in the home market, and that the identical 
matches used were of green rod, thus limiting the price comparison to 
products that are not representative of the Sivaco Ontario's overall 
business.

Department Position

    We disagree with Ivaco that a difmer adjustment should be used in 
our LOT methodology in this case. The SAA states that the Department 
will normally base the calculation on sales of the same product; 
however, if this information is not available, the adjustment may be 
based on sales of similar products by the same company. See The 
Statement of Administration Accompanying the URAA, H.R. Doc. 316, 
Vol.1, 103d Cong. 830 (1994). Consistent with the SAA, to the extent 
possible, the Department calculates the LOT adjustment based on 
identical merchandise to reasonably ensure that the LOT adjustment is 
isolated to differences in price between the two levels, and not other 
factors. See e.g., section 351.412 (d)(s) and (e), Final Rule, 62 FR 
27415 (May 19, 1997); Antifriction Bearings (Other Than Tapered Roller 
Bearings and Parts Thereof from France: Final Results of Antidumping 
Duty Administrative Review, 62 FR 2081, 2016 (Jan. 15, 1997).
    Moreover, we disagree that our standard LOT methodology results in 
distorted comparisons. Products sold at both home market LOTs account 
for nearly 25% of the quantity of Ivaco's home market sales. Ivaco's 
argument that over 98% of the home market control numbers were not used 
in this calculation does not diminish the fact nearly 25% of Ivaco's 
production was accounted for. Further, we note that the control numbers 
used in the LOT analysis were sold at both LOTs in sufficient 
quantities for a finding of a pattern of consistent price differences. 
Ivaco further argued that the Department based its adjustment only on 
green rod sales, and thus limited the price comparison to products that 
are not representative of Sivaco Ontario's overall business. Ivaco's 
assertion, although factually accurate, fails to address the underlying 
rationale for making a LOT adjustment. The Department's LOT adjustment 
is designed to isolate pricing differentials due to the provision of 
different services by comparing sales of identical products at 
different levels of trade. The LOT adjustment isolates pricing 
differentials which exist due to services provided to customers, and 
not to differences in products. Sivaco provided these services to all 
of its customers, irrespective of the control number associated with 
the products it sold them. The Department found a pattern of 
consistence during the POI. These pricing differentials, therefore, 
between sales of identical products sold by Sivaco and IRM, reflect 
these different services, and thus the different levels of trade. The 
Department's methodology reflects this principle, in that it calculates 
only one LOT adjustment percentage for each type of comparison of 
identical products at different levels of trade, irrespective of the 
control number of the products being compared.

Comment 4: Freight and Packing Calculation

    Ivaco states that the Department incorrectly allocated all freight 
and packing variables to U.S. and home market sales, when in fact some 
of these variables are cost items. Ivaco claims that in situations in 
which Sivaco Ontario, Sivaco Quebec, or Sivaco New York process on 
behalf of IRM or independently sell the rod themselves, IRM's freight 
or packing on the unfinished goods shipped to these entities should be 
part of the cost of production, constructed value and CEP profit.
    Petitioners disagree that all freight and packing expenses for 
movement of rod from IRM to Sivaco Ontario, Sivaco Quebec and Sivaco 
New York should be included in the cost of production. Citing Section 
773(a)(6)(B)(ii) of the Act, as well as several Department 
determinations, petitioners state that freight and packing expenses are 
charges deductible from the selling price of the subject merchandise, 
and the Department adjusts for freight as a COS adjustment where such 
adjustment constitutes a direct selling expense.

Department Position

    We agree with Ivaco, and petitioners in part. We agree with Ivaco 
that the Department incorrectly assigned all freight and packing 
expense variables to selling expenses, when in fact some of these 
variables are cost items. For Ivaco sales of processed rod, the packing 
and freight required to transport the rod from IRM to the processor is 
necessary to complete the production process and, as such, is a cost of 
production. See e.g., Final Determination of Sales at Less Than Fair 
Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-
Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon 
Steel Flat Products, Certain Cut-to-Length Carbon Steel Plate from 
Canada, 58 FR 37099, 37118 (Feb. 4, 1993). The exception to this 
practice is with regard to CEP transactions. Consistent with the URAA, 
for these transactions, all packing and freight expenses incurred in 
order to transport the subject merchandise to the U.S. processor are 
treated as further manufacturing expenses for the purpose of 
establishing the constructed export price and CEP profit. See sections 
772(d) and 772(f)(2)(B) of the Act. Freight and packing expenses 
incurred in order to transport the finished product in condition packed 
and ready for shipment to the place of delivery are deducted as 
movement expenses from EP and CEP and treated as direct selling 
expenses in the home market. See sections 772(c)(2)(A) and 773(a)(6)(B) 
of the Act. As petitioners have correctly noted, when appropriate, the 
Department adjusts for such direct expenses through a circumstances of 
sale adjustment to NV. Therefore, we have modified our programing for 
the final determination consistent with these principles.

Comment 5: Exclusion of Trials

    Ivaco states that the Department should exclude trial sales from 
its calculations. Petitioners disagree, arguing that the statute only 
allows the Department to exclude sales that are not within the usual 
commercial quantities . . . or . . . ordinary course of trade. 
Petitioners state that the gross weighted-average home market and U.S. 
prices for the sales Ivaco reported as trials are comparable to the 
average prices reported for Ivaco's non-trial sales, and that only a 
certain number of trial sales exceed a certain quantity of short tons 
in shipment size. Petitioners conclude from these facts that Ivaco's 
trial sales are ``clearly not aberrational and certainly fall within 
the ordinary course of trade. Accordingly, the Department

[[Page 9195]]

should retain these sales in the margin calculation, as well as other 
programs.

Department Position

    We disagree with Ivaco. An analysis of the sales Ivaco reported as 
trials indicates that the majority of these sales were made in the 
typical quantities and prices of Ivaco's other sales that were found to 
be in the normal course of trade. Therefore, for the final 
determination, the Department has continued to include trial sales in 
the margin calculations for Ivaco.

Comment 6: Clerical Errors in the Level of Trade Program

    Ivaco states that the pattern of price differences (LOT) program 
does not exclude Ivaco's sales of seconds, and sales of rod 
manufactured by other manufacturers. Petitioners did not comment on 
these items.

Department Position

    We agree with Ivaco and have modified program for the final 
determination accordingly.

Comment 7: Clerical Errors in the Arm's Length Program

    Ivaco claims that the Department's arm's length program does not 
exclude seconds, does not incorporate the LOT adjustment, and does not 
exclude sales of rod manufactured by other manufacturers. Petitioners 
did not comment on these items.

Department Position

    We agree with Ivaco and have modified the final determination 
accordingly.

Comment 8: Clerical Errors in the Concordance Program

    Ivaco claims the Department made several clerical errors in the 
concordance program used for the preliminary determination. First, 
Ivaco claims that the Department incorrectly applied the revised billet 
costs which overstated the reduction in the COM. Ivaco argues that this 
error artificially eliminates home market sales from comparison with 
U.S. sales. Ivaco contends that the revised billet costs should also be 
reflected in a revised value for variable COM. Second, Ivaco claims 
that the Department's concordance program failed to exclude sales of 
subject merchandise produced by other manufacturers, trial sales in the 
home and U.S. markets, and sales of secondary merchandise even though 
these categories of sales were excluded from the margin calculation 
program. Finally, Ivaco claims that the Department's concordance 
program improperly converted values for control numbers for U.S. sales 
to character values.

Department Position

    We agree with Ivaco that we inadvertently applied the incorrect 
amount to revised billet costs and inadvertently failed to make a 
corresponding correction to variable COM. We also agree that sales of 
subject merchandise produced by other manufacturers and sales of 
secondary merchandise should be excluded from the concordance program. 
As we stated in the preliminary determination, we concluded that sales 
of SWR produced by other manufacturers are outside the scope of this 
investigation. See Preliminary Determination, 62 FR at 51573. In 
addition, while the Department normally includes sales of secondary 
merchandise in its margin calculations, matching sales of secondary 
merchandise in the home market to sales of secondary merchandise in the 
U.S., the record evidence demonstrates that Ivaco had no U.S. sales of 
secondary merchandise during the POI; therefore, we have excluded home 
market sales of secondary merchandise from the concordance program. We 
have made all of the above changes to the concordance program for the 
final determination.
    We have not excluded trial sales from the concordance program 
because we have determined that these sales are properly included in 
the margin calculation, and we have corrected the program accordingly. 
(see Comment 5). Finally, we have also corrected the concordance 
program with respect to the assigned values to control numbers for U.S. 
sales.

Comment 9: Ivaco's U.S. Price Calculations

    Ivaco claims that the U.S. price calculation improperly calculates 
prices without considering levels of trade. Second, Ivaco contends that 
the Department's program improperly merged the revised further 
manufacturing data with the U.S. sales data set, causing numerous 
values to be uninitialized, including the value for revised total 
further manufacturing costs for all U.S. sales. Third, Ivaco asserts 
that the Department erred in calculating the indirect selling expenses 
incurred in Canada by expressing Sivaco Ontario's and IRM's indirect 
selling expenses as percentages even though Ivaco reported the figures 
as percentages and also failed to deduct amounts for credit 
adjustments. Fourth, Ivaco states the Department incorrectly calculated 
weighted-average U.S. prices by failing to combine EP and CEP sales in 
the weighted-average calculation. Fifth, Ivaco argues the Department 
incorrectly calculated direct U.S. selling expenses by adding the cost 
of further manufacturing on Ivaco's CEP sales to direct U.S. selling 
expenses rather than deducting further manufacturing costs from the net 
U.S. price of the specific CEP transactions which incurred the cost. 
Sixth, Ivaco claims the Department added rather than subtracted the 
credit adjustment amount in the calculation of home market revenue for 
CEP profit.

Department Position

    We disagree with Ivaco in part. The Department has properly 
calculated level of trade. We also disagree that EP and CEP sales 
should be combined in the weighted-average calculation. Section 
777A(d)(1)(A)(i) of the Act directs the Department to compare weighted-
average NVs to weighted-average EP or weighted-average CEP sales. See 
e.g., Notice of Final Determination of Sales at Less Than Fair Value: 
Certain Cut-to-Length Carbon Steel Plate From South Africa, 62 FR 
61731, 61732 (Nov. 19, 1997). Because different statutory adjustments 
are made to determine the net price of EP and CEP sales, combining 
these prices to calculate a single weighted-average price would distort 
the margin calculation. We agree, however, that the margin calculations 
contain the other clerical errors identified above and have corrected 
the calculations accordingly for the final determination. In addition, 
we have added amounts for credit to the calculation of U.S. direct 
selling expenses.

Comment 10: Clerical Errors in Ivaco's CV Calculations

    Ivaco asserts that the CV calculation contains the following 
clerical errors: (1) Direct and indirect selling expenses should be 
included in the calculation of net cost of production, (2) credit 
expenses should be excluded because they are imputed rather than actual 
expenses, (3) the CV calculation should be based upon selling expenses 
and profit for each LOT in the home market, (4) in calculating CV by 
LOT, the Department should correct the program to ensure that each U.S. 
sale will be matched to a constructed value at the same LOT, (5) 
variable credit expenses should be excluded from the CV calculations.

Department Position

    We agree with Ivaco that we inadvertently excluded indirect and 
direct selling expenses from the calculation of net price cost of

[[Page 9196]]

production and included credit and variable credit expenses in the CV 
calculations. We have corrected the margin calculations accordingly for 
the final determination. However, we disagree that CV should be 
calculated based upon LOT. As explained in the preliminary 
determination, our methodology is not to calculate CV based upon LOT. 
Rather, we calculate CV and then use the sales from which we derived 
selling expenses and profit in CV to determine the LOT of CV. The CV 
calculation program is consistent with the Department's standard 
methodology; therefore, we have not made Ivaco's suggested changes 
concerning LOT to the CV calculations.

Comment 11: Clerical Errors in Ivaco's CEP Calculations

    Ivaco contends that several clerical errors exist in the 
calculation of CEP and CEP profit. First, Ivaco asserts that after 
correcting the calculation of U.S. indirect selling expenses as 
discussed above, the Department should make appropriate corrections to 
the calculation of total selling expenses in the CEP profit 
calculation. Second, Ivaco claims that the calculation of U.S. direct 
selling expenses should exclude amounts for imputed expenses and 
expenses incurred in the country of manufacture. Third, inventory 
carrying costs incurred for U.S. sales was reported in Canadian 
currency, and therefore, should be converted into U.S. dollars. Fourth, 
the calculation of U.S. selling expenses should be corrected to reflect 
amounts only for indirect selling expenses. Fifth, the Department 
should revise the CEP selling expenses variable to include direct 
selling expenses for further manufacturing and indirect selling 
expenses incurred in the U.S., including imputed expenses. Sixth, the 
calculation of CEP net price should be corrected to reflect the changes 
made in direct and indirect selling expenses.
    Petitioners did not comment on any of these alleged clerical 
errors.

Department Position

    We agree with Ivaco and have modified the calculations for the 
final determination accordingly.

Comment 12: Clerical Errors in Ispat-Sidbec Sales Below Cost Test

    Ispat-Sidbec alleges that the Department made a clerical error in 
the sales below cost test. Ispat-Sidbec claims that the Department 
calculated the net price for each home market sale by deducting all 
movement, selling, and packing expenses from the gross unit price. The 
Department then compared this net price to a COP composed of the cost 
of manufacture, plus general and administrative expenses, net interest 
expense, plus selling expenses. Ispat-Sidbec claims that this results 
in an ``apples-to-oranges'' comparison, and that the Department should 
compare net price to a cost of production composed solely of total cost 
of manufacture, general and administrative expenses, and interest 
expenses. Ispat-Sidbec argues that the Department should change the 
margin calculation program accordingly for the final determination. 
Petitioners have no comment on this issue.

Department's Position

    We agree with Ispat-Sidbec and have modified the calculations 
accordingly.

Comment 13: Exclusion of Secondary and Non-Prime Sales in Ispat-Sidbec 
Arm's Length Test

    Ispat-Sidbec argues that the Department improperly excluded sales 
of secondary or non-prime merchandise from the arm's length test. 
Ispat-Sidbec contends that because the Department calculates dumping 
margins on sales of both prime and secondary merchandise, the 
Department's general practice is to include both types of merchandise 
in its arm's length test. To support its argument, respondent cites 
Certain Cold-Rolled Carbon Steel Flat Products from Argentina, 58 FR 
7066, 7069 (February 4, 1993), and Certain Cold-Rolled Carbon Steel 
Flat Products from Germany, 60 FR 65264, 65273 (December 19, 1995), in 
which an arm's length analysis was performed on all sales.
    Petitioners agree with Ispat-Sidbec that the Department's 
consistent practice for steel cases is to perform the arm's length test 
on all sales, including prime and secondary (non-prime) merchandise. 
However, petitioners also note that the Department recognizes the 
potential for distortion if sales of non-prime merchandise are compared 
to sales of prime merchandise. Therefore, argues petitioners, the 
Department must separate the non-prime from the prime merchandise 
before performing the arm's length test.

Department's Position

    We agree with respondent that the Department improperly excluded 
sales of non-prime merchandise from the arm's length test. We also 
agree with petitioners that sales of prime and non-prime merchandise 
must be separated before performing the arm's length test. As noted in 
Certain Cold-Rolled Carbon Steel Flat Products from Germany, in cases 
where sales of prime and secondary merchandise were reported together 
in the same CONNUM, the Department treated them as separate CONNUMs for 
purposes of the arm's length test. For purposes of the final 
determination, the arm's length test has been conducted on all of 
Ispat-Sidbec's home market sales, separating prime from non-prime 
merchandise.

Comment 14: Ispat-Sidbec Model Match

    Ispat-Sidbec argues that the model match hierarchy matched both 
non-AWS welding grades (GRDRANGH/U = `81') and products sold according 
to ASTM and CSA grades (GRDRANGH/U = `91') to the numerically closest 
ranges, instead of to the most similar match. Ispat-Sidbec argues that, 
for example, welding grades are most similar to each other, and AWS 
grades are most similar to non-AWS welding grades. Ispat-Sidbec 
proposes that the Department modify the model match hierarchy to 
produce the most similar matches.

Department's Position

    At the home market verification, we examined several sales of 
products classified as GRGRANGH/U = `81' and verified the 
appropriateness of the grade range classification. We agree with 
respondent that such non-AWS welding grade products should be matched 
to other welding grade products in the absence of an identical match, 
and have modified the model match hierarchy accordingly for purposes of 
the final determination. However, with respect to products classified 
as GRDRANGH/U = `91' (products sold according to ASTM and CSA grades) 
we do not accept Ispat-Sidbec's separate classification of these 
products. In general, such products should fall within the AISI grade 
ranges determined by the Department. No such products were examined at 
verification, and the Department does not have enough information to 
determine which AISI grade range is most appropriate for these ASTM and 
CSA grade products. We also note that only a small number of home 
market sales were classified as GRDRANGH = `91,' and that no products 
classified as GRDRANGU = `91' were sold in the U.S. market. Therefore, 
we have not used products with GRDRANGH = `91' in the margin 
calculation for the final determination.

Comment 15: Classification of Silicon-Killed Steel with Titanium 
Additives (``Grade X'')

    Stelco argues that the Department erroneously classified Stelco's 
product coding for one product sold by Stelco (e.g., silicon-killed 
steel with titanium additives or ``Grade X''). Stelco contends that 
this classification, which allegedly results in an inappropriate

[[Page 9197]]

product matching of dissimilar Grade X U.S. sales to dissimilar Grade X 
home market sales, is inconsistent with Department practice, court 
decisions, the underlying structure of the product matching hierarchy 
in this proceeding, and positions argued by petitioners at the outset 
of this investigation. Therefore, the Department should accept Stelco's 
revised product coding to ensure that Stelco's Grade X U.S. sales are 
matched only to Stelco's Grade X home market sales and accordingly 
revise the margin calculations of the final determination.
    Stelco argues that Grade X steel warrants a separate deoxidation 
category other than those deoxidation categories, as defined in the 
Department's May 22, 1997 letter to Stelco, which revised the product 
coding system. Respondent maintains that such steel is fine-grained 
because titanium (an element not defined in any of the deoxidation 
codes in the above-mentioned letter) is a grain refiner. Classifying 
Grade X under deoxidation code of ``2'' for ``silicon-killed'' is 
inappropriate because silicon-killing is a deoxidant for coarse-grained 
steel rather than fine-grained steel. Stelco insists that merging 
coarse-grained steels with fine-grained steels is inconsistent with 
Department practice and courts decisions. Citing NTN Bearing Corp. v. 
United States, 747 F. Supp. 726 (CIT 1990), Stelco asserts that the 
principal objective of the Department's model match program is to 
obtain the most useful comparison possible. Stelco also argues that in 
practice the Department will consider a respondent's internal product 
code system in developing its product matching hierarchy as set forth 
in 19 CFR 351 (62 FR 27296, 27378 (May 19, 1997)).
    Stelco contends that given the status of Grade X as a fine-grained 
steel, the Department should consider the most appropriate 
classification for Grade X steel. Stelco maintains that due to the 
physical, cost and price distinctions, this steel should not be 
classified under a deoxidation code of ``2'' for ``silicon-killed.'' 
Stelco claims that important physical differences exist between coarse-
grained, silicon-killed steel correctly classified as a deoxidation 
code of ``2'' and Grade X steel and that the most significant 
differences are the grain-refining process and the resulting grain 
size. Furthermore, it maintains that, as presented at verification, the 
current cost information for a standard coarse-grained, silicon-killed 
steel and a Grade X steel demonstrates a vast cost difference between 
the two products. It also maintains that a similar examination of the 
Section D cost information for the same two products evidences 
disparities in the costs for the two products. Therefore, Stelco urges 
the Department to not reclassify Grade X steel under the deoxidation 
code of 2 for ``silicon-killed.''
    Petitioners urge the Department to reject Stelco's request to 
reclassify Grade X steel. They argue that Stelco did not suggest that 
titanium had special properties that required a separate category 
during the product coding comment process at the outset of this 
investigation or for two months after the comment period, and that 
since that time, Stelco has presented no dispositive evidence to 
support its classification. Thus, petitioners maintain that Stelco's 
request to reclassify Grade X steel should be denied.
    First, petitioners assert that Stelco's request to reclassify Grade 
X steel under a separate model match was untimely. They state that the 
Department conducted a thorough inquiry on model match issues, 
providing an opportunity for parties to argue extensively over whether 
and how to categorize different deoxidation and grain refinement 
practices. Since Stelco did not comment on the impact of titanium in 
the deoxidation process during this period, petitioners argue that the 
Department did not address this issue in its revised reporting 
instructions for product characteristics. As a result, the Department 
only created five deoxidation categories.
    Second, petitioners insist that they have submitted reliable 
scientific evidence from multiple sources demonstrating that titanium 
is not a reliable grain refiner. They claim that they have shown that 
titanium grain refined is not a recognized industry product 
classification, and that purchasers generally do not specify titanium 
as a grain refiner. Petitioners refute respondent's claim that Grade X 
has fine-grain structure and that its customers requested the addition 
of titanium to produce fine-grain rods. Citing the Stelco Sales 
Verification Report, they argue that the first point is irrelevant, 
claiming that only specified physical characteristics matter. Given 
that Stelco provided the Department only ``hand-picked'' samples of 
Grade X steel, the existence of fine-grained steel is expected because 
titanium widely affects the grain structure. Therefore, petitioners 
reiterate that Stelco has failed to provide record evidence for its 
claim that titanium is a grain refiner. As such, they argue that the 
Department should classify Grade X steel as silicon-killed steel.

Department's Position

    The Department agrees with petitioners that reclassification of 
Stelco's Grade X steel is not warranted in this case. First, the 
Department's May 22, 1997, letter to respondents which revised the 
reporting instructions for product characteristics for this 
investigation was ``in response to interested party comments regarding 
modifications to the product characteristic reporting requirements.'' 
See May 22, 1997, letters to Ivaco, Sidbec and Stelco at 1-3. After 
careful review of the comments received from both petitioners and 
respondents, the Department ``modified the product reporting 
instructions,'' including a field for deoxidation practices. Id. As a 
result, the Department derived the various deoxidation codes, as 
identified in the above-cited letter. Thus, all interested parties had 
an opportunity to review and comment on the Department's product 
characteristic reporting requirements.
    Second, since the issue of titanium as a grain refiner was not 
addressed during the comment period and since the Department did not 
intend to account for every conceivable physical characteristic in the 
subject merchandise, the Department did not subdivide a separate 
category for silicon-killed with titanium additives. The Department 
bases the product matching criteria on commercially meaningful 
characteristics and on interested parties' comments, which permits the 
Department to draw reasonable distinctions between products for 
matching purposes, without attempting to account for every possible 
difference inherent in the merchandise. Through this process, the 
Department is able to match certain products as ``identical,'' 
consistent with section 771(16)(A) of the Act, even though they contain 
minor differences. See e.g., Final Determination of Sales at Less Than 
Fair Value; Gray Portland Cement and Clinker from Mexico, 55 FR 29244, 
29247-48 (July 18, 1990). Furthermore, the Department need not account 
for every conceivable physical characteristic of a product in its model 
matching hierarchy. As such, in creating the various deoxidation codes, 
which reflected parties' comments, the deoxidation code of ``2'' for 
``silicon-killed'' was intended to include all silicon-killed steels 
other than silicon-killed vanadium or niobium grain-refined steels. 
Since silicon-killed steel with titanium additives is not included 
among the five specific deoxidation codes, the Department has 
reclassified Grade X steels as Code ``2'' for ``silicon-

[[Page 9198]]

 killed.'' See Preliminary Determination of Sales at Less Than Fair 
Value and Postponement of Final Determination: Steel Wire Rod from 
Canada, 62 FR 51573 (October 1, 1997).

Comment 16: Rejection of Stelco Sales Data Due to Numerous Verified 
Changes

    Petitioners urge the Department to reject the changes made to 
Stelco's revised December 2, 1997, sales listing and to calculate U.S. 
price and NV based on the sales listing submitted prior to the above-
cited submission. They assert that Stelco's changes, as found by the 
Department at verification, affected a number of inputs to U.S. price 
and NV, including rebates, freight taxes, inventory carrying costs, 
packing costs and inland freight. Because these changes were presented 
at verification, petitioners claim that neither they nor the Department 
had the opportunity to verify thoroughly these significant changes. 
Furthermore, they argue that even at verification, the Department found 
several inaccuracies in the revised data and that they find it 
difficult to ascertain whether Stelco has actually corrected all the 
errors identified at verification. As such, for its final 
determination, the Department should reject these changes and calculate 
U.S. price and NV based on the sales tapes submitted prior to Stelco's 
December 2, 1997, submission.
    Stelco urges the Department to accept Stelco's verified 
information, insisting that petitioners are incorrect in alleging that 
Stelco's December 2, 1997, sales tapes contain last-minute revisions. 
Stelco states that respondents in an investigation are permitted by 
long-standing Department policy to present corrections to their 
response found when preparing for verification. In supporting its 
allegation, Stelco cites section 351.301(b)(1) of the Department's 
regulations. In addition, respondent asserts that it presented its list 
of corrections at the outset of verification, and that the corrections 
were minor. See Stelco Sales Verification Report at 1.

Department Position

    We agree with Stelco that it is appropriate to use its revised 
sales listings for purposes of this final determination. The 
Department's practice is to permit respondents to submit minor 
corrections to their submitted sales data prior to verification for use 
in the final determination. See e.g., Certain Cut-to-Lengths Carbon 
Steel Plate from the People's Republic of China, 62 FR 61996 (November 
20, 1997). At the outset of its verification, Stelco presented a list 
of corrections it found while preparing for verification. The 
Department's review of the corrections during the course of the 
verification indicates that they were caused by oversight or clerical 
error on the part of Stelco. See Stelco's Sales Verification Report at 
1. In addition, as a result of corrections found at the beginning of 
verification, the Department instructed Stelco to revise its sales 
listings. In previous cases, the Department has accepted such 
corrections for the final determination. Therefore, the Department 
disagrees with petitioners' request to reject Stelco's December 2, 
1997, sales tapes due to minor errors which allegedly affected a host 
of inputs to U.S. price and normal value and believes that Stelco's 
latest submission of sales data is the most appropriate version for the 
final margin calculations.

Suspension of Liquidation

    In accordance with section 733(d) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
steel wire rod from Canada, that are entered, or withdrawn from 
warehouse, for consumption on or after the date of publication of this 
notice in the Federal Register. The Customs Service will require a cash 
deposit or posting of a bond equal to the estimated duty margins by 
which the normal value exceeds the USP, as shown below. These 
suspension of liquidation instructions will remain in effect until 
further notice. The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                               Weight-  
                                                               average  
               Manufacturer/producer/exporter                   margin  
                                                              percentage
------------------------------------------------------------------------
Ispat-Sidbec Inc...........................................        11.94
Ivaco, Inc.................................................        11.47
Stelco, Inc................................................         0.91
All Others Rate............................................        11.62
------------------------------------------------------------------------

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determination. As our final determination is affirmative, 
the ITC will determine, within 45 days, whether these imports are 
causing material injury, or threat of material injury, to an industry 
in the United States. If the ITC determines that material injury, or 
threat of material injury, does not exist, the proceedings will be 
terminated and all securities posted will be refunded or canceled. If 
the ITC determines that such injury does exist, the Department will 
issue antidumping duty orders directing Customs officials to assess 
antidumping duties on all imports of the subject merchandise entered, 
or withdrawn from warehouse, for consumption on or after the effective 
date of the suspension of liquidation.
    This determination is published pursuant to section 735(d) of the 
Act.

    Dated: February 13, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-4700 Filed 2-23-98; 8:45 am]
BILLING CODE 3510-DS-P