[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40404-40422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20017]
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DEPARTMENT OF COMMERCE
International Trade Administration
(A-580-829)
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Wire Rod From Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 29, 1998.
FOR FURTHER INFORMATION CONTACT: Cameron Werker or Frank Thomson,
Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW,
Washington, DC 20230; telephone: (202) 482-3874 or (202) 482-5254,
respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (the Act), are references to the provisions effective
January 1, 1995, the effective date of the amendments made to the Act
by the Uruguay Round Agreements Act (URAA). In addition, unless
otherwise indicated, all citations to the Department's regulations are
to the regulations at 19 CFR part 351, 62 FR 27296 (May 19, 1997).
Final Determination
We determine that stainless steel wire rod (SSWR) from Korea is
being 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
The preliminary determination in this investigation was issued on
February 25, 1998. See Notice of Preliminary Determination of Sales at
Less Than Fair Value and Postponement of Final Determination: Stainless
Steel Wire Rod from Korea, 63 FR 10825 (March 5, 1998) (Preliminary
Determination). Since the preliminary determination, the following
events have occurred:
In March 1998, we issued supplemental questionnaires to and
received responses from three respondents in this case, Changwon
Specialty Steel Co., Ltd. (Changwon), Dongbang Special Steel Co., Ltd.
(Dongbang), and Pohang Iron and Steel Co., Ltd. (POSCO).
In April 1998, we verified the sales and cost questionnaire
responses of these three companies. In June 1998, Changwon submitted a
revised U.S. sales database at the Department's request.
The petitioners (i.e., AL Tech Specialty Steel Corp., Carpenter
Technology Corp., Republic Engineered Steels, Talley Metals Technology,
Inc., and the United Steel Workers of America, AFL-CIO/CLC) and the
respondents submitted case briefs on June 5, 1998, and rebuttal briefs
on June 10, 1998. At the request of all parties, the public hearing
scheduled for June 11, 1998, was canceled.
Scope of Investigation
For purposes of this investigation, SSWR comprises products that
are hot-rolled or hot-rolled annealed and/or pickled and/or descaled
rounds, squares, octagons, hexagons or other shapes, in coils, that may
also be coated with a lubricant containing copper, lime or oxalate.
SSWR is made of alloy steels containing, by weight, 1.2 percent or less
of carbon and 10.5 percent or more of chromium, with or without other
elements. These products are manufactured only by hot-rolling or hot-
rolling, annealing, and/or pickling and/or descaling, are normally sold
in coiled form, and are of solid cross-section. The majority of SSWR
sold in the United States is round in cross-sectional shape, annealed
and pickled, and later cold-finished into stainless steel wire or
small-diameter bar.
The most common size for such products is 5.5 millimeters or 0.217
inches in diameter, which represents the smallest size that normally is
produced on a rolling mill and is the size that most wire-drawing
machines are set up to draw. The range of SSWR sizes normally sold in
the United States is between 0.20 inches and 1.312 inches diameter. Two
stainless steel grades, SF20T and K-M35FL, are excluded from the scope
of the investigation. The chemical makeup for the excluded grades is as
follows:
SF20T
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.05 max.
Manganese................................. 2.00 max.
Phosphorous............................... 0.05 max.
Sulfur.................................... 0.15 max.
Silicon................................... 1.00 max.
Chromium.................................. 19.00/21.00
Molybdenum................................ 1.50/2.50
Lead...................................... added (0.10/0.30)
Tellurium................................. added (0.03 min)
------------------------------------------------------------------------
K-M35FL
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.015 max.
Silicon................................... 0.70/1.00
Manganese................................. 0.40 max.
Phosphorous............................... 0.04 max.
Sulfur.................................... 0.03 max.
Nickel.................................... 0.30 max.
Chromium.................................. 12.50/14.00
Lead...................................... 0.10/0.30
Aluminum.................................. 0.20/0.35
------------------------------------------------------------------------
The products under investigation are currently classifiable under
subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and
7221.00.0075 of the Harmonized Tariff Schedule of the United States
(HTSUS). Although the HTSUS subheadings are provided for convenience
and customs purposes, the written description of the scope of this
investigation is dispositive.
Period of Investigation
The period of investigation (POI) is July 1, 1996, through June 30,
1997.
Affiliation and Collapsing of Respondents
For the reasons stated in the Preliminary Determination, we have
continued to collapse POSCO and Changwon as affiliated producers in
accordance with section 351.401(f) of our regulations. Furthermore, as
stated in the Preliminary Determination, we examined more closely at
verification
[[Page 40405]]
the issue of affiliation between POSCO/Changwon and Dongbang,
particularly with respect to the factors surrounding a close supplier
relationship between the entities. As a result of our analysis, we
determined that these companies are affiliated within the meaning of
section 771(33)(G) of the Act and section 351.102(b) of the
Department's regulations through a close supplier relationship in which
POSCO/Changwon is operationally in a position to exercise restraint or
direction over Dongbang. Moreover, we found that these producers have
production facilities for identical or similar products that would not
require substantial retooling of either facility in order to
restructure manufacturing priorities, and that there is significant
potential for the manipulation of price and production. Therefore, in
accordance with section 351.401(f) of our regulations, we collapsed
POSCO/Changwon and Dongbang as a single entity for purposes of our
final dumping analysis. For further discussion, see POSCO Comment 2 in
the ``Interested Party Comments'' section of this notice. We note that
prior to collapsing these entities, it was necessary to make certain
adjustments to each of the individual companies' submitted data, based
on verification findings and our positions discussed in this notice.
These adjustments are discussed below in the appropriate sections of
this notice.
Fair Value Comparisons
To determine whether sales of SSWR from Korea to the United States
were made at less than fair value, we compared the Export Price (EP) to
the Normal Value (NV). Our calculations followed the methodologies
described in the preliminary determination, except as noted below and
in company-specific analysis memoranda dated July 20, 1998.
On January 8, 1998, the Court of Appeals for the Federal Circuit
issued a decision in CEMEX v. United States, 133 F.3d 897 (Fed
Cir.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 below cost. See Section 771(15) of the Act.
Consequently, the Department has reconsidered its practice in
accordance with this court decision and has determined that it would be
inappropriate to resort directly to CV, in lieu of foreign market
sales, as the basis for NV if the Department finds foreign market sales
of merchandise identical or most similar to that sold in the United
States to be outside the ``ordinary course of trade.'' Instead, the
Department will use sales of similar merchandise, if such sales exist.
The Department will use CV as the basis for NV only when there are no
above-cost sales that are otherwise suitable for comparison. Therefore,
in this proceeding, when making comparisons in accordance with section
771(16) of the Act, we considered all products sold in the home market
as described in the ``Scope of Investigation'' section of this notice,
above, that were in the ordinary course of trade for purposes of
determining appropriate product comparisons to U.S. sales. Where there
were no sales of identical merchandise in the home market made in the
ordinary course of trade to compare to U.S. sales, we compared U.S.
sales to sales of the most similar foreign like product made in the
ordinary course of trade, based on the characteristics listed in
Sections B and C of our antidumping questionnaire. We have implemented
the Court's decision in this case, to the extent that the data on the
record permitted.
We made product comparisons based on the same characteristics and
in the same general manner as that outlined in the preliminary
determination. As in the preliminary determination, in instances where
a respondent has reported a non-AISI grade (or an internal grade code)
for a product that falls within an AISI category, we have used the
actual AISI grade rather than the non-AISI grade reported by the
respondents for purposes of our analysis. In instances where the
chemical content ranges of a reported non-AISI grade (or an internal
grade code) are outside the parameters of an AISI grade, we have used
the internal grade code reported by the respondents for analysis
purposes. However, in instances in which an internal grade matches all
the specified chemical content tolerance ranges of an AISI grade, but
the internal grade also contains amounts of chemicals that are not
otherwise specified as being included in the standard AISI designation,
we have used the corresponding AISI grade rather than the internal
grade. For further discussion, see General Comment 1 in the
``Interested Party Comments'' section of this notice.
In addition, since we have determined that Dongbang, Changwon, and
POSCO comprise one entity for this final determination, consistent with
Certain Cold-Rolled and Corrosion-Resistant Carbon Flat Products from
Korea, 62 FR 18417 (April 15, 1997) (1997 Flat Products from Korea), we
have treated any sales made between the parties comprising the single
entity as intra-company transfers, and have disregarded them from our
analysis accordingly.
Export Price
We used EP methodology as defined in section 772(a) of the Act. See
Changwon Comment 4 in the ``Interested Party Comments'' section of this
notice for a discussion regarding the classification of U.S. sales
reported by Changwon. We calculated EP based on the same methodology
used in the preliminary determination, with the following exceptions:
A. Data Reported by Changwon
1. We corrected for certain clerical errors found during
verification with respect to: 1) the ocean freight expense for six U.S.
sales and 2) the packing costs for the export (Hessian) packing type.
2. We recalculated duty drawback based on rebates which had
actually been received by Changwon, as explained in Changwon Comment 6
in the ``Interested Party Comments'' section of this notice.
B. Data Reported by Dongbang
1. In accordance with the Department's position in General Comment
1 in the ``Interested Party Comments'' section of this notice, we
reclassified internal grade XM-7 as AISI grade 302, given that the
chemical content tolerances for grade XM-7 fell within those for AISI
grade 302.
2. We corrected for clerical errors found during verification
regarding the actual bank charges for seven U.S. sales.
3. We corrected for errors in Dongbang's brokerage charges, as
explained in Dongbang Comment 8 in the ``Interested Party Comments''
section of this notice.
Normal Value
We used the same methodology to calculate NV as that described in
the preliminary determination, with the following exceptions:
A. Data Reported by Changwon
1. In accordance with the Department's position in General Comment
1 in the ``Interested Party Comments'' section of this notice, we
reclassified internal grades SUS 304HC and AISI 304HC as AISI grade
304, given that the content tolerances for
[[Page 40406]]
grades SUS 304HC and AISI 304HC fell within those for AISI grade 304.
2. We corrected for certain clerical errors found during
verification with respect to: (1) the average credit period (i.e.,
accounts receivable turnover period) for seven home market customers,
(2) the warranty expense for one home market sale, and (3) the packing
costs for domestic (Hessian) and domestic (Bare) types of home market
packing.
3. We recalculated duty drawback for home market local sales (i.e.,
domestic sales to customers who consume the merchandise in Korea in the
production of finished goods for export, the destination of which is
unknown to Changwon at the time of sale) based on rebates which had
actually been received by Changwon, as explained in Changwon Comment 6
in the ``Interested Party Comments'' section of this notice.
B. Data Reported by Dongbang
1. In accordance with the Department's position in General Comment
1 in the ``Interested Party Comments'' section of this notice, we
reclassified internal grade XM-7 as AISI grade 302, given that the
chemical content tolerances for grade XM-7 fell within those for AISI
grade 302.
2. We corrected for certain clerical errors found during
verification, including (1) the date of payment for three home market
local sales, (2) the average credit period for one home market
customer, and (3) the interest revenue for three home market customers
and the interest revenue ratio applicable to three other home market
sales.
Cost of Production
Before making any fair value comparisons, we conducted the cost of
production (COP) analysis for the reasons stated in the Preliminary
Determination. Based on our decision to collapse POSCO, Changwon, and
Dongbang as a single entity, we calculated the weighted-average COP, by
model, based on the sum of each respondent's cost of materials and
fabrication for the foreign like product at the level in which each
respondent was responsible for manufacturing operations. In addition,
we included amounts for home market selling, general, and
administrative (SG&A) expenses for each company involved in the
manufacture of each given product, and packing costs in accordance with
section 773(b)(3) of the Act. We relied on the submitted COPs except in
the following specific instances where the submitted costs were not
appropriately quantified or valued:
A. Data Reported by Changwon
1. As stated above, we computed the weighted-average COP, by model,
based on the sum of each respondent's cost of materials and fabrication
for the foreign like product at the level in which each respondent was
responsible for manufacturing operations. Therefore, for products
produced by Changwon which included material inputs from POSCO, the COP
was calculated by adding POSCO's applicable cost of manufacturing (COM)
and general expenses to Changwon's applicable costs.
2. In accordance with the Department's position in General Comment
1 in the ``Interested Party Comments'' section of this notice, we
reclassified internal grades SUS 304HC and AISI 304HC as AISI grade 304
given that the chemical content tolerances for grades SUS 304HC and
AISI 304HC fell within those for AISI grade 304.
3. As stated in Changwon Comment 2 in the ``Interested Party
Comments'' section of this notice, we increased Changwon's reported
indirect selling expenses by the unreported recognized bad debt
expenses. We also increased Changwon's reported general and
administrative (G&A) expenses for foundation, business start-up, and
stock issuance expenses.
4. We used G&A and interest expense data from POSCO's 1996
financial statements and G&A expense data from Changwon's 1997
financial statements in the calculation of COP. See Changwon Comment 3
in the ``Interested Party Comments'' section of this notice.
B. Data Reported by Dongbang
1. As stated above, we computed the weighted-average COP, by model,
based on the sum of each respondents' cost of materials and fabrication
for the foreign like product at the level in which each respondent was
responsible for manufacturing operations. Therefore, for products
produced by Dongbang which included material inputs from POSCO, the COP
was calculated by adding POSCO's applicable COM and general expenses to
Dongbang's applicable costs. In attempting to merge the cost data
provided by POSCO and Dongbang for COP calculation purposes, we found
that for three steel grades sold by Dongbang and POSCO with the same
internal codes, the chemical specifications were slightly different.
Company officials stated at verification that Dongbang's internal grade
codes are the same as POSCO's for reasons of efficiency in ordering and
production (see Memorandum for Holly Kuga from Cameron Werker and Frank
Thomson Re: Verification of the Responses of Dongbang Special Steel
Co., Ltd. in the Antidumping Duty Investigations of Stainless Steel
Wire Rod from the Republic of Korea, dated May 29, 1998 at page 5).
Therefore, in order to assign the POSCO cost portion of the COP of
these three products, we applied facts otherwise available in
accordance with section 776(a) of the Act. As facts available, we used
POSCO's reported costs for the same internal grade code (see Sales,
Cost of Production (``COP''), and Constructed Value (``CV'') Adjustment
Calculations in the Final Determination of Stainless Steel Wire Rod
from the Republic of Korea--Changwon Specialty Steel Co., Ltd.,
Dongbang Special Steel Co., Ltd., and Pohang Iron and Steel Co., Ltd.
(POSCO), dated July 20, 1998) (Final Determination Calculation
Memorandum).
2. In accordance with the Department's position in General Comment
1 in the ``Interested Party Comments'' section of this notice, we
reclassified internal grade XM-7 as AISI grade 302 given that the
chemical content tolerances for grade XM-7 fell within those for AISI
grade 302.
3. As stated in Dongbang Comments 3 and 4 in the ``Interested Party
Comments'' section of this notice, we increased Dongbang's G&A expenses
for recognized net foreign exchange losses related to accounts except
accounts receivable, and excluded from Dongbang's G&A calculation the
disputed reversal of bad debt allowance.
We conducted our sales-below-cost test in the same general manner
as that described in our preliminary determination. However, for
purposes of the final determination, given that we collapsed POSCO/
Changwon and Dongbang, the sales-below-cost test was conducted on
Changwon's and Dongbang's home market sales on a consolidated basis. As
in the preliminary determination, we did not include POSCO's home
market sales of black coil for product comparison purposes, and,
therefore, these sales were excluded from the sales-below-cost test.
We found that, for certain models of SSWR, more than 20 percent of
Dongbang's and Changwon's home market sales within an extended period
of time were at prices less than the COP. Further, the prices did not
provide for the recovery of costs within a reasonable period of time.
We therefore disregarded the below-cost sales and used the remaining
above-cost sales as the basis
[[Page 40407]]
for determining NV, in accordance with section 773(b)(1). For those
U.S. sales of SSWR for which there were no comparable home market sales
in the ordinary course of trade, we compared EPs to CV in accordance
with section 773(a)(4) of the Act.
Constructed Value
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of the respondents' cost of materials and fabrication
for the U.S. products at the level in which each respondent was
responsible for manufacturing operations. We also included appropriate
amounts for G&A expenses, U.S. packing costs, direct and indirect
selling expenses, interest expenses, and profit. We relied on the
submitted CVs except for specific changes described above in the ``Cost
of Production'' section. In addition, for Dongbang, in accordance with
the Department's position in General Comment 1 in the ``Interested
Party Comments'' section of this notice, we have reclassified internal
grade XM-7 as AISI grade 302 given that the chemical content tolerances
for grade XM-7 fell within those for AISI grade 302.
Price-to-Price Comparisons
We made price-to-price comparisons using the same methodology as
that described in the preliminary determination.
Price-to-CV Comparisons
We made price-to-CV comparisons using the same methodology as that
described in the preliminary determination.
Currency Conversion
As in the preliminary determination, we made currency conversions
into U.S. dollars based on the exchange rates in effect on the dates of
the U.S. sales as certified by the Federal Reserve Bank in accordance
with Section 773A of the Act.
Interested Party Comments
General
Comment 1: Product Codes
Petitioners state that the Department should ensure that all
product codes designated by respondents correspond to standard AISI
codes for matching purposes. Petitioners maintain that respondents
should not be permitted to rely on internal grade designations for
products that would otherwise fit within a standard AISI grade simply
because they have added small amounts of chemicals (e.g., copper or
molybdenum) that are not otherwise specified as being included in the
standard AISI grade designation.
Petitioners urge the Department to ensure that all internal product
codes designated by the respondents in their questionnaire responses
correspond to a standard AISI code for matching purposes. Otherwise,
the petitioners assert, the methodology of relying on internal grade
designations for products that are only sold in the home market
impermissibly allows respondents to exclude certain high-priced sales
in the home market from the model match process simply by giving
selected internal grade designations a special code in the model match
process that would never then be compared to a U.S. sale of a similar
product with a different grade code.
Changwon and Dongbang argue that if an internal grade does not fall
within the chemical content ranges of an AISI grade, there is no basis
to conclude that the merchandise within the internal grade has similar
component materials, commercial value, or uses as the merchandise
within an AISI grade. Changwon and Dongbang state that petitioners'
argument is unreasonable and speculative. Changwon and Dongbang state
that the Department should continue to apply its model match
methodology from the Preliminary Determination.
DOC Position
We agree with both petitioners and respondents, in part. We agree
with respondents regarding the designation of internal grade codes for
model matching purposes. As in the preliminary determination, we have
continued to utilize a methodology in which we reclassified any
internal grade code as an AISI grade if it fell within the chemical
content tolerance ranges provided by internationally-accepted
standards. In instances in which the properties of an internal grade
did not match the specified chemical content tolerance ranges of any
AISI grade, we have continued to recognize the internal grade as the
appropriate grade for product comparison purposes.
However, we also agree with petitioners that in instances in which
an internal grade matches all the specified chemical content tolerance
ranges of an AISI grade, but that the internal grade also contains
amounts of chemicals (e.g., copper or molybdenum) that are not
otherwise specified as being included in the standard AISI designation,
it is appropriate to classify the internal grade as the AISI grade.
Therefore, we have reclassified all such internal grades as AISI grades
accordingly. See Final Determination Calculation Memorandum) for
further discussion of the models that were reclassified.
POSCO
Comment 1: POSCO's Cost Verification
Petitioners argue that it is clear from the record that POSCO
failed its cost verification because the Department was unable to
verify POSCO's cost of production submissions. Specifically,
petitioners maintain that POSCO officials deliberately withheld POSCO's
actual trial balance with account codes from the verification team.
Petitioners interpret the cost verification report to mean that POSCO
company officials denied the existence of a trial balance which
contained account codes when one was requested by the verification
team. Petitioners maintain that the verification team learned from
POSCO's independent auditors that such a trial balance did exist.
Petitioners further maintain that POSCO's failure to provide a proper
trial balance prevented the Department from reconciling POSCO's overall
costs and also prevented the Department from verifying the cost
information submitted by POSCO. Petitioners state that POSCO's failure
to present usable 1996 and 1997 trial balances to reconcile POI COM
costs, as requested by the Department, forced the Department to review
instead the inventory ledger and attempt to reconcile it to the COM for
the POI. As a result, petitioners assert that POSCO failed its cost
verification. Petitioners argue that POSCO's decision not to cooperate
with the verification team means that POSCO withheld information
requested by the Department, and failed to provide information in the
form and manner requested, with the result that POSCO significantly
impeded the proceeding.
Petitioners further argue that because POSCO failed to cooperate by
not acting to the best of its ability to comply with a request for
information, the Department should use an adverse inference in
determining the facts available for POSCO's unverified cost
information. Petitioners cite several cases in which the Department has
resorted to total adverse facts available when the Department was
unable to verify costs and other significant information (e.g., Certain
Welded Carbon Steel Pipes and Tubes from Thailand (62 FR 53808, October
16, 1997) and Certain Cut-to-Length Carbon Steel Plate from Sweden (62
FR 18396, April 15, 1997)).
Furthermore, petitioners maintain that because Changwon, POSCO's
wholly-owned subsidiary, and POSCO
[[Page 40408]]
are collapsed for sales and margin purposes for this investigation, and
because POSCO failed verification, the combined POSCO/Changwon entity
has failed verification and, therefore, total adverse facts available
should be applied to the combined entity.
In the alternative, petitioners argue that if the Department does
not collapse Changwon and POSCO for the final determination, as a
surrogate for POSCO's COP, the Department should choose the higher of
the following two measures: (1) The total of the highest amounts paid
by Changwon for each element in its COP for subject merchandise, or (2)
the highest NV from the petition.
Moreover, if the Department determines that POSCO and Changwon
should not be collapsed, petitioners maintain that the Department
should apply the ``major input'' rule and the ``transactions
disregarded'' rule to the transfers between POSCO and Changwon, using
the higher of the two surrogates described above as a proxy for POSCO's
COP and then comparing that proxy with the market price and the
transfer price to determine which is higher. Moreover, petitioners
contend that because black coil is within the scope of this
investigation, the prices for transfers of black coil from POSCO to
Changwon should be subject to the arm's-length test.
Changwon and POSCO (Changwon/POSCO) jointly state that the
Department has fully verified the actual COM inputs transferred from
POSCO to Changwon. Changwon/POSCO claim that, while the Department's
cost verification report asserts that the Department was unable to
reconcile the trial balance to the audited financial statements in the
manner it originally intended, the report indicates that the Department
successfully reconciled the trial balance to the audited financial
statements. Specifically, Changwon/POSCO state that POSCO initially
provided the Department with its trial balance (without account codes)
maintained in the ordinary course of business. At the Department's
request, POSCO also created a trial balance that contained account
codes. The Department examined the trial balance, compared it to the
trial balance used by POSCO's auditors, and confirmed that the trial
balance reconciled to the audited financial statements.
Changwon/POSCO next address the section of the cost verification
report that states that POSCO officials did not provide either a
reconciliation from the cost accounting system to the costs recorded in
the trial balance, or schedules showing the activity for each home base
product group (HBPV) (also called home base product value), i.e., the
beginning balance, the current period's manufacturing costs, the value
of the product removed from inventory, and the ending balances of the
HBPG. Changwon/POSCO disagree, stating that POSCO did provide a
reconciliation of the costs recorded in POSCO's cost accounting system
and the audited financial statements, and that the trial balance
likewise reconciles to the costs recorded in the cost accounting
system. Changwon/POSCO add that POSCO did not provide separate
schedules showing the activity for each HBPG but, as is described in
the verification report, all of the requested information was available
directly from the inventory ledgers themselves.
Changwon/POSCO assert that the Department fully verified the
reported control number-specific costs by successfully reconciling the
representative product group values used to calculate the control
number-specific costs to the corresponding HBPG's, and reconciling
these values to the audited financial statements. Changwon/POSCO state
that this is demonstrated in the Department's verification report.
Furthermore, Changwon/POSCO refute petitioners argument that the
Department was unable to perform an overall reconciliation, asserting
that nowhere in the verification report does the Department indicate
that POSCO's reported costs could not be traced to the costs recorded
in POSCO's financial and cost accounting systems.
Changwon/POSCO assert that POSCO has cooperated fully with the
Department and that, contrary to petitioners' allegations, POSCO has
been fully responsive to the Department's requests for information.
Changwon/POSCO also state that POSCO did not withhold documents from
the Department at the cost verification and argue that the cost
verification report confirms this fact.
Changwon/POSCO maintain that, if the Department were to find that
it was dissatisfied with POSCO's reconciliation of its reported costs,
application of total adverse facts available to the collapsed entity
would be unwarranted. Changwon/POSCO contend that the Department may
only apply total facts available to a respondent if it finds that the
entire response is no longer usable, which according to respondents, is
not the case in this situation. Changwon/POSCO argue that if the
Department were to make an adjustment to POSCO's reported costs, it
would be confined to modifying the adjustment factor applied to
Changwon's COM.
Finally, Changwon/POSCO maintain that the cases cited by
petitioners in support of their argument for adverse facts available
are irrelevant in this case because the Department has fully verified
POSCO's submitted costs and the facts of those cases are totally
distinguishable from those in this case.
DOC Position
We disagree with petitioners. POSCO did not fail its cost
verification, as we were able to successfully verify POSCO's COP
submissions. Contrary to petitioners' interpretation of the cost
verification report, we do not agree that POSCO's failure to provide a
trial balance with account codes prevented the Department from
reconciling POSCO's overall costs and that it also prevented the
Department from verifying the cost information submitted by POSCO. Upon
request, POSCO provided two separate trial balances; one with account
codes and one with account names. The trail balance with only account
names was maintained in the ordinary course of business. The balances
on these two trial balances were equal and reconciled to the financial
statements. We also do not agree with petitioners that POSCO failed to
cooperate with the Department in a manner that significantly impeded
the verification proceeding. In fact, we were able to perform several
additional procedures, including a reconciliation of the inventory
ledger, from which the reported per-unit costs were derived, to the
financial statements. See Memorandum from Michael Martin and Cameron
Werker to Irene Darzenta Re: Verification Report on the Cost of
Production and Major Input Cost Data submitted by Pohang Iron and Steel
Co., Ltd. Therefore, we have accepted POSCO's reported cost information
for purposes of this final determination. Regarding the portion of
petitioners argument pertaining to collapsing of POSCO and Changwon,
see POSCO Comment 2 in the ``Interested Party Comments'' section of
this notice.
Comment 2: Affiliation between POSCO and Dongbang
Petitioners claim that the relationship between Dongbang and POSCO
satisfies all of the statutory and regulatory requirements necessary
for the Department to find that these two companies are affiliated.
Petitioners cite section 771(33)(G) of the Act, which states that ``a
person shall be considered to control another person if the person is
legally or operationally in a position to exercise restraint or
direction over the
[[Page 40409]]
other person.'' Petitioners note that actual restraint or direction
need not have been exercised in a relationship, only that one person is
``in a position'' to exercise restraint or direction over another.
Petitioners further state that section 351.102(b) of the Department's
regulations states that the Department will not find control based on
factors such as the existence of franchise or joint venture agreements,
debt financing, and close supplier relationships in determining the
existence of control ``unless the relationship has the potential to
impact decisions concerning the production, pricing, or cost of the
subject merchandise or foreign like product.'' Petitioners stress that
the potential impact on the decision-making process is the key
criterion, not actual exercise of that potential.
Petitioners argue that POSCO exercises control over Dongbang
primarily through a close buyer-supplier relationship. Petitioners
state that in Open-End Spun Rayon Singles Yarn from Austria (62 FR
43707, August 15, 1997) (Yarn from Austria), the Department focused on
a ``majority of sales'' rule in determining whether a close supplier
relationship existed, not whether the supplier could be replaced.
Petitioners maintain that the POSCO/Changwon collapsed entity is a
supplier of Dongbang's input and has the ability to control Dongbang by
threatening to slow or stop deliveries, threatening to increase prices,
or actually taking these steps. Petitioners argue that the Department's
verification confirmed the cohesive nature of the buyer-supplier
relationship between POSCO and Dongbang. Specifically, petitioners
state that POSCO's recent decision to stop production of black coil has
no effect on this relationship given that Changwon, which is collapsed
with POSCO, ``assumed the responsibility of producing black coil for
the POSCO Group.'' Moreover, petitioners state, POSCO/Changwon's status
as the only supplier of black coil in Korea enhances its control of
Dongbang. Petitioners assert that as a result of the level of control
POSCO maintains over Dongbang, the two companies must be deemed
affiliated parties.
In addition to the close supplier relationship, petitioners argue
that a variety of other indicia of control, when considered
cumulatively, demonstrate that POSCO controls Dongbang. For example,
petitioners contend POSCO may exercise indirect control of more than
five percent of the voting stock of Dongbang through POSCO's
relationship with POSTECH. Petitioners also state that POSCO's
interlocking directorate scheme with POSTECH, donations to POSTECH,
their co-location, and other indicia of control add overwhelming
evidence of POSCO's effective, albeit extralegal, control of Dongbang.
Petitioners further argue that the Department's regulations and
past cases demonstrate that more than one company can exercise control
over another and, thus, Dongbang's membership in the Dongbang group
does not preclude POSCO from exercising control over Dongbang (see
Welded Carbon Steel Pipes and Tubes from Thailand (62 FR 53814, October
16, 1997)).
Petitioners also argue that because POSCO and Dongbang are
affiliates, the Department should invoke the major input rule in
evaluating the sale of black coil, which is the foreign like product,
from POSCO to Dongbang.
In determining whether two parties are affiliated based on a buyer-
supplier relationship, Dongbang argues that the Department must find
that one of the parties is in fact reliant upon the other, as stated in
the Statement of Administrative Action (SAA). Dongbang further argues
that section 351.102(b) of the Department's regulations indicates that
one of the parties must have the ``potential to impact the other
party's decisions concerning production, pricing, or cost of the
subject merchandise.'' Dongbang maintains that the term ``potential''
indicates that not only must there be a possibility that a party will
exert control over the other party, but that there is an inherent
likelihood that control could be exerted. Citing 1997 Flat Products
from Korea, Dongbang asserts that the Department must find significant
indicia of control and the standard is not whether one company might be
in a position to become reliant upon another by means of a supplier-
buyer relationship, but that the buyer has, in fact, become reliant
upon the seller, or vice versa. As a result, Dongbang maintains that
only after an initial finding that a buyer or supplier has become
reliant upon the other can the Department examine whether a realistic
potential for control, whereby one of the parties is in a position to
exercise restraint or control over the other, exists based upon that
actual reliance.
Dongbang maintains that the fact that petitioners were unable to
cite a single case in which the Department found that a buyer-supplier
relationship constituted sufficient potential control to support a
finding of affiliation, confirms that the Department is applying the
buyer-supplier relationship provision cautiously to stay mindful of the
commercial and business realities of the marketplace. Dongbang
maintains that even though the Department indicated in Yarn from
Austria that a close buyer-supplier relationship may occur if a
majority of a supplier's sales are to one customer, the Department
determined that the existence of this situation does not alone support
the finding of affiliation. Likewise, Dongbang notes that in Furfuryl
Alcohol from the Republic of South Africa, 62 FR 61086 (November 14,
1997) (Furfuryl Alcohol from South Africa), the Department determined
that the fact that there was only one manufacturer of the subject
merchandise in South Africa was insufficient to find that the
manufacturer and its customers were affiliated.
In this instance, Dongbang argues that there is no evidence on the
record that Dongbang is reliant upon POSCO to the extent necessary to
support an affiliation finding. Dongbang contends that petitioners have
only speculated that it is possible that POSCO could control Dongbang
through threats of stopping deliveries or increasing prices. However,
Dongbang maintains that there is no evidence that POSCO could or has
exerted such control. Dongbang further maintains that the record
demonstrates that it has alternate sources of black coil, as black coil
is a commodity product produced by numerous suppliers around the world.
In addition, Dongbang asserts that there are no long-term supply
contracts or exclusive relationship commitments between Dongbang and
POSCO, nor is there evidence of any law or regulation prohibiting
Dongbang from purchasing black coil from any source that it desires.
Dongbang argues that this fact pattern led the Department to find that
POSCO and Union were not affiliated in the 1997 Flat Products from
Korea case and that the same logic applies to the instant case.
Dongbang further states that petitioners have failed to present any
evidence to contradict the proposition that Dongbang's purchases of a
majority of its black coil requirements from POSCO was the result of
POSCO's comparative advantages, location, product quality, and other
circumstances, rather than a ``special control relationship between
POSCO and Dongbang.'' Dongbang again cites 1997 Flat Products from
Korea where the Department reasoned that POSCO and Union were not
affiliated despite a buyer-supplier relationship, in part because, it
made commercial and business sense for Union to purchase from POSCO
given POSCO's
[[Page 40410]]
``comparative advantages'' in the marketplace.
Moreover, Dongbang disputes petitioners' other allegations that
POSCO controls Dongbang. First, Dongbang maintains that the evidence on
the record shows that Dongbang is under the complete and effective
control of the Dongbang Group. Dongbang argues that even if POSCO
controls POSTECH, which Dongbang maintains it does not, POSTECH could
not control Dongbang through its partial ownership of Dongbang given
the Dongbang Group's majority ownership in Dongbang and thus its active
control over Dongbang. In addition, Dongbang notes that the Department
confirmed at verification that POSTECH's shares in Dongbang are non-
voting. Therefore, Dongbang argues, the Dongbang Group's complete
ownership of 100 percent of Dongbang's voting stock, coupled with its
supervision over Dongbang's operations, precludes POSCO from having
control over Dongbang.
Second, Dongbang maintains that POSCO does not control POSTECH.
Among other things, Dongbang asserts that POSTECH is not part of
POSCO's interlocking directorship. Furthermore, Dongbang notes that the
Department found at verification that POSTECH's board of directors
operates on a majority-rule basis and that, as a result, POSCO
officials cannot unilaterally control POSTECH's decision-making.
Lastly, Dongbang states that the Department found at verification that
the revenue POSTECH earns from POSCO is comparable to its percentage of
revenue from other companies.
Therefore, Dongbang argues that the Department should reject
petitioners' argument that Dongbang and POSCO are affiliated parties.
DOC Position
We agree with petitioners and have considered POSCO and Changwon to
be affiliated with Dongbang, within the meaning of section 771(33)(G)
of the Act and section 351.102(b) of the Department's regulations, for
purposes of the final determination. The Department has stated in past
cases that the term ``affiliated parties,'' as defined in the preamble
to our proposed regulations which states that ``business and economic
reality suggest that these relationships must be significant and not
easily replaced,'' suggests that the Department must find significant
indicia of control (see 1997 Korean Steel). The Department has also
stated that it may consider close supplier relationships as a
sufficient basis for a finding of affiliation. See Large Newspaper
Printing Presses and Components Thereof from Japan, 61 FR 38139 (July
23, 1996) (LNPP). Further, we stated in LNPP that the Department would
make its affiliated party determinations after taking ``into account
all factors which, by themselves, or in combination, may indicate
affiliations.''
The facts on the record in the instant case are unlike past cases
such as Yarn from Austria, Furfuryl Alcohol from South Africa, and 1997
Korean Steel, in which the Department did not find enough evidence on
the record to determine that the buyer had become reliant upon the
seller, or vice versa, and therefore, did not find a close supplier
relationship. In the instant case, we found that not only is POSCO/
Changwon the sole supplier and Dongbang the sole Korean buyer of black
coil (the major input in the production of finished SSWR), but that
Dongbang, by its own admission, has been unable to develop an
alternative source of supply of black coil. Thus, the business and
economic reality is that the relationship between the parties is
significant and, as demonstrated by evidence on the record, not easily
replaced. Furthermore, as stated above, Dongbang's business operations
are almost exclusively dependent on the production of finished SSWR.
The production processes performed by POSCO, Changwon, and Dongbang
are also important in determining whether or not POSCO has control over
Dongbang. POSCO has the facilities to produce SSWR from the beginning
of the process through the black coil production stage. Changwon is a
fully integrated SSWR producer that has the capability to produce SSWR
from start to finish. Dongbang, on the other hand, only has the
facilities to finish black coil (i.e., can only perform annealing and
pickling functions). If POSCO/Changwon were to cut off the supply of
black coil to Dongbang, Dongbang would not be able to produce SSWR
without alternative sources of supply, which do not seem to exist for
Dongbang. POSCO/Changwon indeed has greater leverage over the
production of SSWR due to the fact that it bears a portion of the costs
of producing the SSWR and has the facilities to perform the necessary
finishing activities upon the black coil.
Given the interdependent production operations of POSCO/Changwon
and Dongbang and Dongbang's inability to obtain suitable black coil
from alternative sources, it is reasonable to assume that Dongbang
would suffer economic hardship if POSCO/Changwon ceased to supply black
coil to Dongbang. In this instance, as opposed to the past cases cited
by Dongbang, Dongbang is actually reliant on POSCO/Changwon such that
POSCO/Changwon is in a position of control (i.e., can operationally
exercise restraint or direction) over Dongbang. Moreover, given the
importance of black coil to the production of SSWR, the relationship in
question has the potential to impact decisions concerning the
production, pricing or cost of the subject merchandise or the foreign
like product under investigation.
Based on our review of the record evidence, including our findings
at verification, we have determined that POSCO/Changwon are affiliated
with Dongbang through a close supplier relationship in which actual
reliance exists such that POSCO/Changwon is in a position of control
over Dongbang (i.e., can exercise restraint or direction over
Dongbang).
Given that we determined POSCO/Changwon and Dongbang share a close
supply relationship and are, therefore, affiliated in accordance with
section 771(33) of the Act and section 351.102(b) of the Department's
regulations, we then analyzed the collapsing criteria enumerated in
section 351.401(f) of the Department's regulations. Both POSCO/Changwon
and Dongbang have production facilities (i.e., similar finishing
production equipment) which can produce identical or similar SSWR. The
difference in SSWR production facilities between the two entities is
essentially that Dongbang has the ability to anneal and pickle the
black coil purchased from POSCO/Changwon to produce finished SSWR.
POSCO/Changwon has the ability to perform all processes in the
production of finished SSWR, including annealing and pickling. Because
POSCO/Changwon has the capability and expertise to perform all
processes in the production of finished SSWR and in fact already
produces subject merchandise (i.e., black coil and finished SSWR), we
believe that the companies would not need to engage in major retooling
to shift production of the subject merchandise from one company to
another. Further, although the record of this investigation
demonstrates that POSCO/Changwon do not have common ownership or share
common interlocking officers or directors with Dongbang, the record
does indicate that there is a significant potential for price or cost
manipulation among these companies given their interdependent
operations, as discussed above in the affiliation analysis section.
For these, we have determined it appropriate to collapse all three
producers into one entity for purposes
[[Page 40411]]
of our final analysis, in accordance with section 351.401(f) of the
Department's regulation. For a full discussion, see the Memorandum from
the Team to Holly Kuga regarding: ``Whether Pohang Iron and Steel Co.,
Ltd. (POSCO), and its subsidiary Changwon Specialty Steel Co., Ltd.
(Changwon), are affiliated with Dongbang Special Steel Co., Ltd.
(Dongbang). Whether to collapse Dongbang with the already collapsed
entity POSCO/Changwon for antidumping analysis purposes,'' dated July
20, 1998.
Comment 3: POSCO's Costs of Production Used in Calculations for
Changwon and Dongbang
Petitioners maintain that both Changwon and Dongbang purchased
significant amounts of their input materials from POSCO. Petitioners
state that Dongbang purchases all its black coil for the production of
finished SSWR and that POSCO and its wholly-owned subsidiary, Changwon,
supply Dongbang with this black coil. Furthermore, petitioners state
that Changwon purchased blooms, billets, and black coil from POSCO.
Petitioners maintain that these major inputs, especially black coil,
account for the vast majority of the COP of finished SSWR. Petitioners
argue that in light of the importance of the raw material inputs
sourced from POSCO and the fact that the Department now lacks the
ability to validate these input prices and costs (see POSCO Comment 1
in the ``Interested Party Comments'' section of this notice), the
Department should choose the higher of the two measures of facts
available for POSCO's COP as described in POSCO Comment 1 in the
``Interested Party Comments'' section of this notice.
DOC Position
We disagree with petitioners. As stated in the DOC Position to
POSCO Comment 1 in the ``Interested Party Comments'' section of this
notice, POSCO did not fail its cost verification. Therefore, we have
used POSCO's actual costs, as appropriate, for both Changwon and
Dongbang, given that we have collapsed POSCO, Changwon, and Dongbang
into one entity for final margin calculation purposes. See also
Changwon Comment 7 in the ``Interested Party Comments'' section of this
notice for discussion of the inapplicability of the major input and
fair value rules in this case.
Comment 4: Corrections to POSCO's Sales Database Based on Findings at
Verification
Petitioners state that the Department should use the correct short-
term interest rate found at verification. Petitioners also state that
the Department should correct the amount of fees POSCO paid to outside
research entities in 1997, as provided by POSCO at verification.
Furthermore, petitioners contend that the Department should correct the
misreported amounts for other revenue and total revenue for POSCO's
1996 Description of Revenue of POSTECH.
DOC Position
We have corrected all errors found at verification for purposes of
the final determination and have considered them in our final analysis,
where appropriate.
Dongbang
Comment 1: Accuracy of Dongbang's Cost Reporting
Dongbang maintains that the Department thoroughly verified and
confirmed the accuracy of its reported cost information. Dongbang notes
that the minor differences found by the Department between the reported
per-unit costs and Dongbang's inventory values resulted from the fact
that Dongbang's financial accounting system accounts for costs only by
steel grade. Dongbang asserts that in order to develop control number-
specific costs which accurately reflected the Department's product
characteristics, it relied on source data used in preparing its
financial statements. Dongbang maintains that the Department verified
the accuracy of its methodology and therefore should use its reported
data in the final determination.
Regarding the accuracy of Dongbang's reported cost information,
petitioners note that the cost verification report states that the
Department has not determined, as of the date of the report, whether
the cost calculation methodologies used by Dongbang were appropriate.
Petitioners further note that the cost verification report states that
Dongbang allocated its fabrication costs using ``alternative allocation
bases, rather than those used in its normal costs system.'' Petitioners
maintain that Dongbang's deviations from its cost system were not
necessitated by the questionnaire's requirement to provide control
number-specific costs, but rather for self-serving purposes.
Petitioners contend that the Department verified that Dongbang's new
allocation methods effectively reduced the COMs for products examined.
Therefore, given that Dongbang deviated from its normal cost accounting
system without approval from the Department and without presenting
information on the record to justify the deviation, petitioners argue
that the Department should disallow Dongbang's submitted methodology
for calculating its COP and CV. However, petitioners maintain that if
the Department decides to use Dongbang's submitted costs, it should
increase all reported COMs by the maximum percentage by which the
Department found Dongbang's methodology reduced the COMs for products
examined.
DOC Position
We agree with Dongbang. The Department fully verified the accuracy
of Dongbang's cost reporting methodology. We found at verification that
Dongbang's financial accounting system did not record costs at the
level of detail requested by the Department. The Department has
determined in several past cases that respondents can allocate costs to
a more detailed product-specific level than their normal cost
accounting methodology in order to report costs on a control number-
specific basis, as required by the Department, provided that the
methodology used is reasonable. See, e.g., 1997 Flat Product from Korea
and Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat
Products from Korea, 63 FR 13170 (March 18, 1998) (1998 Flat Products
from Korea).
Comment 2: Dongbang's Direct and Indirect Cost Allocation Methodology
Petitioners maintain that, as stated in the Department's cost
verification report, Dongbang submitted a cost allocation methodology
for its direct fabrication cost centers that deviates from its normal
cost system. In addition, petitioners maintain that Dongbang's
methodology for allocating indirect costs as submitted for this
investigation also deviates from its normal cost accounting practices
and therefore should be rejected. Specifically, petitioners argue that
two specific indirect costs were allocated on the basis of direct cost
amounts and depreciation costs for each cost center, rather than on the
basis of production quantities, which is Dongbang's normal methodology.
Petitioners argue that Dongbang has not placed information on the
record to justify the deviation from the normal accounting methodology
and that this selected methodology is inherently less precise than the
use of production quantities. Petitioners state that the cost
verification report shows
[[Page 40412]]
that the Department found that the net effect of Dongbang's new
allocation methods was that the reported COMs for the three products
examined were lower than the values contained in Dongbang's inventory
ledger.
As a result, petitioners argue that, while the Department should
dismiss Dongbang's submitted COP and CV data in their entirety and that
adverse facts available be applied (see Dongbang Comment 1), if the
Department decides to use Dongbang's submitted costs, it should
increase all reported COMs by a minimum of the highest percentage
deviation found by the Department between the reported COMs and the
values contained in Dongbang's inventory ledger.
Dongbang maintains that it did not unilaterally depart from its
normal cost accounting system without fully informing the Department,
and that it demonstrated that its normal methods were inaccurate for
the Department's purposes. Dongbang maintains that it notified the
Department in advance by telephone that it intended to deviate from its
normal accounting system in order to report costs on a product-specific
basis and described its reporting methodology in its questionnaire and
supplemental questionnaire responses. Dongbang further states that the
Department fully verified both the accuracy of Dongbang's costs and the
reasonableness of its allocation methodologies.
Dongbang states that it relied on costs recorded in its normal cost
accounting system, which accurately identifies and captures costs by
production process, and only modified those costs in two instances in
which Dongbang's cost accounting system is distortive for antidumping
purposes. Dongbang maintains that the first aspect of the normal
accounting system that was modified, i.e., its methodology for
allocating costs to specific products based on the Department's product
comparison criteria, because its system does not account for
differences in grade and diameter, was not disputed by petitioners.
Dongbang states that petitioners' only dispute relates to Dongbang's
reallocation of indirect costs to direct centers. Regarding the
indirect costs in question, Dongbang states, as verified by the
Department, that these indirect costs are normally allocated based on
production quantities. However, Dongbang asserts also, as verified by
the Department, that its cost system does not track production
quantities at all direct cost centers, and as a result, the cost system
does not allocate indirect costs to all cost centers. Dongbang argues
that given that all direct cost centers benefit from the indirect costs
in question, all the direct cost centers should bear a portion of these
costs. However, Dongbang also argues that it would be distortive to
allocate these indirect costs based on production quantities for all
cost centers as not all cost centers incur the same costs, on a per
metric ton basis, for the activities associated with the indirect costs
in question. Dongbang notes that the allocation of these indirect costs
based solely on production quantities fails to capture significant
differences in production processes and results in the under-allocation
of the indirect costs to specialty steel products.
Dongbang states that the indirect cost associated with a particular
cost center identified by petitioners is only a very small portion of
the total COM. Dongbang further states that the difference between
Dongbang's cost accounting system and its reporting methodology for
indirect costs for this cost center was very small and the impact on
the total COM minimal. Dongbang argues that given that the Department
has verified the accuracy and reasonableness of its accounting system,
no adjustments are required or necessary.
DOC Position
We agree with Dongbang. Dongbang's financial accounting system does
not record costs at the level of detail requested by the Department. As
a result, Dongbang deviated from its normal accounting methodology in
order to conform to the requests of the Department. Furthermore,
Dongbang's questionnaire responses reported the deviation from its
normal accounting system. After reviewing Dongbang's methodology, we
determined, for the reasons stated in our position to Dongbang Comment
1, that the cost reporting methodology utilized by Dongbang, including
its indirect cost allocation methodology, was reasonable and accurate.
Therefore, we have accepted Dongbang's submitted and verified cost
methodology for use in the final determination.
Comment 3: Foreign Exchange Losses
Dongbang notes that the Department confirmed that Dongbang
submitted its interest expense based on Dongbang Transport and
Logistics' consolidated statements. Moreover, Dongbang states that the
Department verified that the amount of foreign exchange losses occurred
in 1996 attributable to financing expense were very minor. Dongbang
notes that the Department routinely ignores adjustments such as these
that are so minor as to have no impact on the analysis.
Petitioners note that Dongbang did not include any of its gains or
losses on foreign currency transactions and translations in its
reported G&A expenses. Petitioners argue that given that the
Department's normal practice is to include in G&A expenses for foreign
exchange gains and losses other than those related to accounts
receivable, Dongbang's net losses should be included in its reported
G&A expenses.
Petitioners also note that the cost verification report states that
Dongbang did not allocate net loss from foreign exchange translation
which was deferred in its 1996 financial statements in its reported
interest expense. Petitioners argue that given that this deferred
capital adjustment was not reflected in the income statement, it should
properly be allocated to Dongbang's reported financial expense in the
cost response. Therefore, petitioners maintain that the Department
should correct Dongbang's reported interest expense accordingly in the
final determination.
DOC Position
We agree with petitioners regarding Dongbang's G&A expenses and
have included the unreported recognized net foreign exchange losses
related to all accounts except accounts receivable in Dongbang's G&A
expenses. However, we agree with Dongbang that its submitted interest
expense was based on Dongbang Transport and Logistics' consolidated
financial statements. Therefore, the amortized portion of the net
losses from long-term foreign exchange translation which was deferred
in Dongbang's 1996 financial statements is moot given that we are not
using Dongbang's 1996 financial statements, but rather, we have used
Dongbang Transport and Logistics' 1996 consolidated financial
statements.
Comment 4: Reversal of Allowance for Bad Debt
Petitioners note that Dongbang subtracted an amount for a reversal
of allowance for bad debts from its reported G&A expenses. Citing the
cost verification report, petitioners state that Dongbang itself
acknowledged that it ``over-estimated the bad debts allowance in the
previous years and that the difference was reversed when it re-
estimated the allowance in 1996.'' Petitioners maintain that the
reversal of allowance for bad debt was a bookkeeping exercise related
to years previous to the POI. Therefore, petitioners argue that
Dongbang's reversal of allowance for bad debt
[[Page 40413]]
cannot be considered an expense related to production during the POI
and should not be netted out from Dongbang's reported G&A expenses.
Regarding petitioners argument that the Department exclude from
Dongbang's G&A calculation the reversal of bad debt allowance, Dongbang
maintains that it appropriately included this line item in its
calculation of bad debt allowance. Dongbang states that its methodology
is consistent with the Department's practice, and cites SRAMS from
Korea as a case in which bad debt was properly classified as a non-
operating general expense.
DOC Position
We agree with petitioners and have excluded from Dongbang's G&A
calculation the reversal of bad debt allowance at issue. Dongbang is
incorrect in stating that its methodology is consistent with the
Department's past practice in SRAMS from Korea. Specifically, in SRAMS
from Korea, respondents made a reversal of allowance for bad debt to
correct for a previously made error. In the instant case, the allowance
estimated for previous years was reversed and reflected in the current
year. Because this practice will distort the expense incurred for the
current year, we excluded from Dongbang's G&A calculation the reversal
of bad debt allowance.
Comment 5: 1996 versus 1997 Annual Data as the Basis for G&A.
Petitioners state that Dongbang reported its G&A expenses for
purposes of its COP and CV on the basis of its audited 1996 financial
statements. Petitioners note that, at verification, Dongbang presented
the Department with its audited 1997 financial statements. Petitioners
argue that given that it is the Department's normal practice to rely
upon the most recent set of audited financial statements in calculating
G&A percentages, the Department should rework Dongbang's G&A expenses
on the basis of its 1997 financial statements which are similar to
those reported in its 1996 financial statements. Petitioners provide a
recommendation for a conservative, shortcut method of estimating the
effect of the changes in Dongbang's net foreign exchange losses on
transactions and translations in 1997 compared to those in 1996.
Dongbang refutes petitioners' assertion that the Department should
use its 1997 annual data for G&A expenses as opposed to the 1996 data
reported by Dongbang. Dongbang argues that it is the Department's clear
practice to calculate G&A expenses based on annual data which most
closely corresponds to the POI in order to eliminate distortions that
are caused by periodic expenses which may fluctuate dramatically during
the fiscal period, but which are otherwise representative of a
company's experience.
Dongbang maintains that in this case, the use of 1996 annual data
is more appropriate, as reliance on the 1997 annual data would result
in distortions to the Department's analysis. Specifically, Dongbang
argues that there is no significant difference in G&A expenses between
1996 and 1997, and that the significant difference between the two
periods for non-operating expenses is due entirely to foreign exchange
losses. Dongbang contends that these losses are unrelated to production
or sales of subject merchandise during the POI. Dongbang states that as
of 1997, under Korean GAAP, Korean companies must analyze outstanding
long-term debt as of the end of the fiscal year (December 31 for
Dongbang) and must amortize the foreign exchange translation losses
relating to that debt based on the life of the loans. As a result,
Dongbang maintains that its 1997 year-end financial statements show
large foreign exchange translation losses based on the artificial use
of December 31, 1997, when the Korean won underwent significant
devaluation, as the point in time when these losses are measured for
accounting purposes. Dongbang states that in Oil Country Tubular Goods
from Mexico, 60 FR 33572 (June 28, 1995), the Department, given very
similar facts, declined to rely on 1994 annual financials statements
for the calculation of interest expense, as urged by petitioners,
because Mexico experienced severe devaluation of its currency in
December of 1994, which the Department stated made the 1994 financial
statements unrepresentative of the POI and severely distortive.
Moreover, regarding the foreign exchange losses which represent the
significant difference between the 1996 and 1997 annual data, Dongbang
maintains that the Department considers such gains and losses an
element of interest expense, and cites SRAMS from Korea to support its
argument. Dongbang asserts that it properly based its interest expense
on the experience of its consolidated parent, Dongbang Transport and
Logistics. Dongbang further maintains that including exchange gains and
losses in G&A, therefore, would double-count these expenses, once as an
element of G&A and once as an element of interest expense. However,
Dongbang does not dispute petitioners' proposition that the Department
include foreign exchange gains and losses attributable to accounts
payable in the calculation of G&A expense.
Therefore, Dongbang argues that the Department should reject
petitioners' argument to rely on 1997 data or to add elements of the
1997 foreign exchange losses to 1996 expenses.
DOC Position
We have continued to use Dongbang's reported G&A expenses derived
from the 1996 annual data. We note that it is the Department's practice
to use G&A expenses based on annual data which most closely corresponds
to the POI. In this instance, given that the POI covers a six month
period in both 1996 and 1997, both years' financial data equally
correspond to the POI. However, although Dongbang submitted its 1997
audited financial statements at verification, we used the audited 1996
financial statements for our reconciliations and other verification
procedures since all submitted G&A expense rate data was based on the
1996 financial statements. In this case, given that all parties agree
that Dongbang's G&A expenses from both 1996 and 1997 are similar with
the exception of the foreign exchange losses related to long-term debt,
which impacts the interest expense calculation rather than G&A expense
calculation, we used Dongbang's 1996 annual data. In addition, we
continued to use Dongbang Transport & Logistics' consolidated 1996
financial statements for the interest expense calculation. We found
that the devaluation of the Korean won began in earnest near the end of
August 1997 and continued through the remainder of the year and into
1998 (see Federal Reserve exchange rates). Since the use of Dongbang
Transport & Logistics' consolidated 1997 financial statements for
interest expense would incorporate this post-POI devaluation, we have
considered it more appropriate to rely on Dongbang Transport &
Logistics' consolidated 1996 financial statements.
Comment 5: Dongbang's Local Sales.
Petitioners contend that although Dongbang's home market sales
listing shows prices for local sales both in terms of U.S. dollars and
Korean won, Dongbang has suggested throughout this investigation that
these sales are actually denominated in U.S. dollars. Petitioners
maintain that it is the Department's longstanding practice that the
respondent should report expenses and revenues in the currencies in
which they are incurred. As a result,
[[Page 40414]]
petitioners maintain that the Department should use the U.S. dollar
prices provided in Dongbang's home market sales database.
DOC Position
We agree with petitioners regarding the Department's longstanding
practice that the respondent should report expenses and revenues in the
currencies in which they are incurred. While it appears that Dongbang's
home market local sales are incurred in U.S. dollars, the evidence on
the record is inconclusive as to whether freight income is included in
the reported dollar-denominated gross unit price field on Dongbang's
sales listing. Furthermore, at verification, we verified the Korean won
prices and traced these Korean won prices through Dongbang's accounting
system and to payment records. Therefore, although it is our preference
to recognize prices, expenses, and revenues in the currency in which
they are incurred, we have continued to use the reported Korean won
prices in our final analysis given the information on the record in
this case.
Comment 6: Clarifications to the Dongbang Verification Report.
Dongbang notes that although the Department's sales verification
report indicates that a single interest rate was used by Dongbang for
reporting its home market bank credit charges, a review of the sales
listing shows that this credit expense reflects the November 1996
interest rate change. Dongbang also states that it reported its sales
prices for local export sales in U.S. dollars, not Korean won as
indicated by the Department's verification report. Petitioners did not
address these issues.
DOC Position
We agree with Dongbang that there were no errors in Dongbang's
reported home market bank credit charges or its U.S. sales reporting
with regard to local export sales.
Comment 7: ``Prime 2'' Merchandise.
Petitioners maintain that the discovery of the existence of ``prime
2'' merchandise during verification constitutes new information for
which Dongbang had never before provided any explanation. Petitioners
state that company officials informed Department verifiers that while
Prime 1 products are produced to strict quality controls as per
specific customers' requests and can be sold to all customers, prime 2
products are SSWR produced to Dongbang's own quality standards and,
thus, cannot be sold to prime 1 customers. Petitioners contend that
there is nothing on the record of this proceeding to clarify the
distinction between prime 1 and prime 2 products and to indicate
whether it is even possible to distinguish between the two types of
products in Dongbang's sales or cost files. Petitioners argue that
since prime 2 product cannot be sold to prime 1 customers and because
there is no clear way to distinguish the prime 2 product and remove it
from Dongbang's home market sales database, the Department should
assume that all products in the home market database is of prime 2
quality, and that such products sell at a relative price discount.
Therefore, petitioners contend that the Department should use the
highest sales price within each control number as the weighted-average
price for that particular control number as a means of adjusting the
reported sales data.
Dongbang states that, in its responses, it indicated that there are
two internal codes for prime merchandise. Dongbang asserts that prime 2
merchandise is prime merchandise and should continue to be treated as
such. According to Dongbang, prime 2 merchandise meets all of
Dongbang's quality standards, is not sold at a discount, and does not
contain the surface defects that characterize non-prime merchandise.
Dongbang further states that there is no price difference between the
two product classifications.
Dongbang argues that because both of these internal codes reflect
prime merchandise, they are comparable for the Department's purposes.
Dongbang states that petitioners cite no cases to the contrary.
Moreover, Dongbang states that in past cases involving steel products,
the Department has treated all types of prime products equally as prime
merchandise. For example, Dongbang cites the Notice of Final
Determination of Sales at Less Than Fair Value: Steel Wire Rod from
Trinidad and Tobago, 63 FR 9177, 9180 (February 24, 1998) (Wire Rod
from Trinidad and Tobago) in which the Department treated two types of
merchandise as prime merchandise because both types were identical
under the Department's matching characteristics, and were purchased and
used by customers as prime merchandise. Dongbang further notes that it
is common industry practice to have multiple internal codes for prime
merchandise, and that in past cases the Department has treated all
types of prime products as prime merchandise.
DOC Position
We disagree with petitioners that the existence of prime 2
merchandise constitutes new information. As noted in its rebuttal
brief, Dongbang previously reported in its latest supplemental
questionnaire response that prime merchandise is identified by two
internal codes. Furthermore, while at verification, we substantiated
Dongbang's assertion that it maintains separate codes for prime
merchandise. Regarding petitioners' contention that there is no way to
distinguish prime 1 merchandise from prime 2 merchandise in the sales
and cost files, we confirmed at verification that both prime 1 and
prime 2 products meet the chemical content tolerances of
internationally-recognized grade standards and that neither type of
prime product contained the surface defects inherent in non-prime
products. Although, as petitioners contend, we are unable to determine
from a review of the sales listings or questionnaire responses whether
prime 2 products are sold at a discount from prime 1 products, we found
no physical differences between the two prime products that would lead
us to believe that prime 1 and prime 2 products are not comparable in
price or cost. We agree with Dongbang that the facts in this case are
consistent with those in Wire Rod from Trinidad and Tobago, in which
the Department determined that products that were verified to be
identical in every way to prime merchandise within each control number
and within the meaning of the statute and the Department's product
matching hierarchy should be treated as prime merchandise. Moreover,
contrary to petitioners' proposition that all home market sales should
be assumed to be prime 2 merchandise absent evidence distinguishing
sales of prime 1 from sales of prime 2 merchandise, our sales
verification exhibit on this topic demonstrates that prime 1
merchandise comprises the majority of both home market and U.S. sales.
(See Sales Verification Exhibit 17.) Therefore, we find no basis for
determining that prime 1 merchandise and prime 2 merchandise are not
comparable. Consequently, we have rejected petitioners' argument that
we use the highest sales price within each control number as the
weighted-average price for that particular control number as a means of
adjusting the reported sales data.
Comment 8: Brokerage Charges for Dongbang's U.S. Sales.
Petitioners argue that the Department should review Dongbang's U.S.
sales listing and set all brokerage charges that are less than 12,000
won per shipment to 12,000 won given that the Department found at
verification that Dongbang incurs minimum brokerage charges on its U.S.
sales of the greater of 0.08 percent of the FOB sales value
[[Page 40415]]
of the shipment or 12,000 won per shipment.
Dongbang acknowledges that it did not utilize the 12,000 won
minimum brokerage charge in its brokerage expense methodology for five
U.S. sales. However, Dongbang states that the Department should not
apply the full 12,000 won to each of these sales. Dongbang argues that
since the 12,000 won minimum applies to a shipment, not each individual
sale, this method would be distortive and unreasonable in cases where
more than one sale is included in a shipment.
Dongbang also states that it reported a per-unit brokerage charge
in its sales listing (i.e., brokerage charge for the shipment divided
by the sales quantity), not the entire expense. Dongbang therefore
argues that if the Department chooses to utilize the 12,000 won minimum
brokerage charge for these five sales, it should divide this charge by
the sales quantity to arrive at the per-unit brokerage charge.
DOC Position
We agree with petitioners' assertion that the Department should
review Dongbang's U.S. sales listing for sales that do not reflect the
12,000 won minimum brokerage charge applied to Dongbang's shipments of
SSWR. We performed this exercise at verification and confirmed that
Dongbang under-reported brokerage charges for five U.S. sales, in
accordance with the reporting methodology described by Dongbang.
However, we also agree with Dongbang in that the Department should
not apply the full 12,000 won to each of the five sales at issue for
two reasons. First, we agree with Dongbang that it reported a per-unit
brokerage charge (i.e., brokerage charge for the shipment divided by
the sales quantity), not the entire expense. We also agree with
Dongbang's argument that since the 12,000 won minimum is applied to a
shipment and not each individual sale, the 12,000 won minimum should be
allocated over all sales in the shipment.
In attempting to revise the brokerage expenses reported for the
five sales in question to account for the 12,000 won minimum charge, we
found that the evidence on the record only allowed us to recalculate
brokerage for two of the five sales that have been under-reported.
Therefore, in accordance with section 776(a) of the Act, which allows
the Department to use facts available when information necessary to the
Department's analysis is not available, we applied the weighted-average
brokerage adjustment calculated for these two sales to the remaining
three sales, as facts available, to arrive at an appropriate per-unit
brokerage charge for all affected transactions.
Comment 9: Duty Drawback.
Petitioners argue that Dongbang fails to qualify for a duty
drawback adjustment because Dongbang has not provided an explanation
for why it has sales of identical products in the home market and U.S.
market for which its duty drawback amounts are different. As a result,
petitioners contend that Dongbang has not met the Department's two-
prong test in that it has not been able to demonstrate that there is a
direct link between the import duty and the rebate granted.
Therefore, petitioners argue that the Department should deny a duty
drawback adjustment to U.S. price as it did in Stainless Steel Bar from
India 63 FR 13622, 13625 (March 20, 1998) (Steel Bar from India).
Dongbang asserts that it reported duty drawback amounts for U.S.
sales by dividing the total duty drawback actually received for each
sale by the quantity of the sale. Dongbang states that its per-unit
duty drawback amounts vary from sale to sale because of this
transaction-specific methodology. Dongbang maintains further that two
sales of the same grade of SSWR may result in different duty drawback
payments because the amount of duty drawback in a sale reflects the
specific composition of imported raw materials for that sale. Dongbang
also asserts that the Department noted no discrepancies regarding duty
drawback in its verification report and should apply Dongbang's
reported duty drawback amounts in the final determination.
DOC Position
We disagree with petitioners that Dongbang should not be entitled
to the claimed duty drawback adjustment. Section 772(c)(1)(B) of the
Act provides for adjustment for duty drawback on import duties which
have been rebated (or which have not been collected) by reason of the
exportation of the subject merchandise. In accordance with this
provision, we will grant a duty drawback adjustment if we determine
that 1) import duties and rebates are directly linked to and are
dependent upon one another, and 2) the company claiming the adjustment
can demonstrate that there are sufficient imports of raw materials to
account for the duty drawback received on exports of the manufactured
product. See e.g., Steel Wire Rope from the Republic of Korea; Final
Results of Antidumping Administrative Review, 61 FR 55965 (October 30,
1996) (Rope from Korea). The first prong of the above test requires the
Department to analyze whether the foreign country in question makes
entitlement to duty drawback dependent upon the payment of import
duties (see Far Eastern Machinery 699 F. Supp. 309, 311 (Ct. of Int'l
Trade 1988)). This ensures that a duty drawback adjustment will be made
only where the drawback received by the manufacturer is contingent on
import duties paid or accrued. The second prong requires the foreign
producer to show that it imported a sufficient amount of raw materials
(upon which it paid import duties) to account for the exports, based on
which it claimed rebates. Id.
We are satisfied that under the duty drawback method reported by
Dongbang, the Korean Government makes entitlement to duty drawback
dependent upon the payment of import duties, which satisfies the first
prong of the duty drawback test. In addition, we are satisfied that
Dongbang is required by the Korean government to provide adequate
information that shows that it had sufficient imports of raw materials
to account for the duty drawback received on exports of the
manufactured product. This satisfies the second prong of the duty
drawback test. (See Rope from Korea). Furthermore, our review of
selected transactions in both the home and U.S. markets during
verification indicated that there were no discrepancies with the duty
drawback amounts reported by Dongbang. Therefore, we have accepted
Dongbang's reported duty drawback for purposes of the final
determination.
Changwon
Comment 1: Changwon's Reported Interest Revenue.
Petitioners assert that the Department should not include
Changwon's reported interest revenue in the calculation of net U.S.
prices. Petitioners argue that Changwon incorrectly calculated the per-
unit interest revenue based on interest revenue to be received from its
customers. Petitioners next argue that the total Pohang Steel America
Corporation (POSAM) invoice amounts for value and quantity, upon which
the reported interest revenue was calculated, include sales of non-
subject merchandise. Thus, petitioners maintain, Changwon failed to
provide evidence that it in fact received the interest revenue for
sales of SSWR during the POI.
Petitioners further contend that even if Changwon did charge
interest to its customers for late payments, Changwon failed to tie the
interest revenues that it charged to its customers to the subject
merchandise. Petitioners cite Tapered
[[Page 40416]]
Roller Bearings and Parts Thereof, Finished or Unfinished, From Japan,
and Tapered Roller Bearings, Four Inches or Less in Outside Diameter,
and Components Thereof From Japan, 63 FR 20,585 20,602 (April 27, 1998)
(TRBs from Japan), as a case in which the Department disallowed the
respondent's claimed amounts for discounts, rebates, and other post-
sale adjustments as direct deductions to the home market sales prices,
on the grounds that the respondent failed to tie the adjustments
directly to the sales of subject merchandise.
Changwon argues that it reported the actual interest revenue
received from U.S. customers for late payments. Further, Changwon
states that the reported interest revenue is directly tied to each sale
of subject merchandise. Changwon asserts that petitioners' allegation
that the calculation of interest revenue includes sales of non-subject
merchandise is wrong. Changwon states that every sale contained in the
invoices upon which the interest revenue was allocated was a sale of
subject merchandise and, thus, the portion of interest revenue
allocated to a sale is the actual amount of interest revenue earned on
that sale.
Changwon also argues that petitioners' citation to TRBs from Japan
actually supports Changwon's position because, in that case, the
Department stated that it treats an allocated adjustment as the actual
amount associated with a sale if the adjustment was ``granted as a
fixed and constant percentage of the sale price of all transactions for
which it was reported and to which it was allocated.'' Changwon states
that it in fact based its allocation on applying a fixed and constant
percentage to the price for each sale on the invoice. For these
reasons, Changwon argues that the Department should adjust U.S. sales
prices for the reported interest revenue in the final determination.
DOC Position
We agree with Changwon and have adjusted U.S. sales prices for the
reported interest revenue, where appropriate. We disagree with
petitioners' arguments regarding Changwon's reporting of interest
revenue. First, we found at verification that, contrary to petitioners'
allegation, the interest revenue reported by Changwon had in fact been
received by Changwon from its U.S. customers for late payments.
Second, we find petitioners' allegation that sales of non-subject
merchandise were included in the invoices upon which the interest
revenue calculation was based to be incorrect. Our findings at
verification for selected invoices confirmed that the sales comprising
each invoice upon which the interest revenue calculations were based,
were sales of subject merchandise.
Third, petitioners' contention that Changwon failed to tie the
interest revenues that it charged to its customers to the subject
merchandise is also incorrect. As noted above, we confirmed at
verification that all sales included in the interest revenue
calculation were of subject merchandise and that the interest revenue
reported was directly tied and properly allocated to these sales. (See
TRBs from Japan.)
For the reasons stated above, we have included Changwon's reported
interest revenue relevant to its U.S. sales in our EP calculations.
Comment 2: Changwon's G&A Expenses.
Petitioners state that the Department should revise Changwon's
reported G&A expense ratio to include bad debt expenses, amortization
for foundation expenses, business start-up expenses and stock issuance
expenses that were not previously included in the G&A ratio.
Petitioners argue that these expenses were incurred by Changwon during
the POI and all such expenses were period expenses, and, therefore,
should be included as part of the expenses for the period.
Petitioners maintain that the bad debt expenses which the company
recognizes during the fiscal period and were reported in Changwon's
financial statements should be included in its G&A calculation.
Petitioners contend that after the POI, some percentage of accounts
receivable on subject merchandise sold within the POI would undoubtably
be reclassified as bad debt. Therefore, petitioners argue that
Changwon's 1997 financial statements do not reflect any bad debt
because, due to the fact that the company was established in February
1997, the company had no previous bad debt experience to carry over
from 1996.
Petitioners also argue that the bad debt reported in Changwon's
financial statements which it classified as non-operating expense
``related only to tax law'' in accordance with Korean GAAP, and
excluded from the G&A calculation, should also be included in its G&A
calculation. Petitioners state that Changwon has placed nothing on the
record to substantiate its claim that this bad debt relates only to tax
law. Petitioners argue that absent evidence to back up this contention,
it must be assumed that the GAAP-accepted practice reported by Changwon
relates to a meaningful expense from the accounting period and, thus,
this bad debt expense should be included in the G&A calculation.
Petitioners assert that these expenses should be characterized as G&A
rather than selling expenses because Changwon was not created until the
second half of the POI thus no previous fiscal year exists from which
to develop bad debt.
Furthermore, petitioners state that it is the Department's normal
practice not to include foreign exchange losses and gains related to
accounts receivable, but to include other types of exchange gains and
losses in the calculations for G&A. Petitioners state that Changwon's
reporting methodology is inaccurate in that it excluded from its G&A
calculation any gains and losses that were related to short-term
borrowings and deposits, but included gains and losses related to
accounts receivable. Petitioners state that the Department should
adjust Changwon's G&A calculation in accordance with its normal
practice.
Changwon states that its financial statements identify two types of
bad debt: the first type represents the company's recognition of bad
debt during the fiscal period, and the second type of bad debt is an
accrual that does not reflect an actual expense, but is an allowance
under Korean GAAP that is recorded for income tax purposes. Changwon
notes that it erroneously indicated in its responses that the first
type of bad debt expense had been included in the calculation of direct
selling expenses. Changwon clarifies that it actually did not incur
this type of bad debt expense during the POI and thus did not report it
as a selling expense or in its G&A calculation.
Changwon also states that it properly excluded the second type of
bad debt expense because this expense relates solely to tax law and
represents no real cost to Changwon. In fact, Changwon maintains that
to include these costs would be distortive for antidumping purposes
because they relate solely to taxes. Changwon cites Stainless Steel
Angles from Japan, 60 FR 16608, 16617 (March 31, 1995) and Fresh and
Chilled Atlantic Salmon from Norway, 58 FR 37912, 37915 (July 14,
1993), among other cases, in support of its argument that the
Department has, in the past, disregarded costs reported solely for tax
purposes.
Changwon also argues that it correctly excluded amortization
expenses, business start-up expenses, and stock issuance expenses from
its G&A calculation because these were extraordinary, one-time expenses
and were not related to the subject
[[Page 40417]]
merchandise. Changwon states however, that if the Department were to
include these expenses in the G&A calculation, it should include only
the portion of the expenses appropriately attributable to the reporting
period (i.e., amounts amortized in accordance with Korean GAAP).
Changwon also states that, with regard to foreign exchange gains
and losses, the Department considers these gains and losses to be an
element of interest expense (see SRAMS from Korea), so to include them
in the G&A calculation would double-count these expenses.
DOC Position
We agree with petitioners. Both types of allowance for bad debt
expenses are actual costs recognized in the respondent's financial
records, whether they are actually incurred or not, based on Korean
GAAP. All of the other mentioned amortization expenses are also
recognized expenses in the financial statements and only the amortized
portion was reflected in the Changwon's 1997 financial statements.
Contrary to Changwon's assertions that these expenses should not be
included because they either relate solely to tax law or that they were
extraordinary, one-time expenses, we found that the amortized portions
were actually recorded in Changwon's accounting system and its
financial statements and therefore represent costs related to
operations. In addition, we find nothing extraordinary about these
expense items (i.e., they are neither unusual in nature or infrequent
in occurrence). Therefore, the Department included all types of bad
debt expense in the reported indirect selling expenses, and
amortization for foundation expenses, business start-up expenses and
stock issuance expenses, in the reported G&A expenses.
Comment 3: Changwon's Interest Expense Reporting Period.
Changwon states that the Department properly utilized its reported
interest expense based on the most recently completed fiscal year.
Changwon states that its reported interest expense was based on POSCO's
consolidated information for 1996, which is the period that most
closely corresponds to the POI and is in accordance with the
Department's policy to rely on the interest expense based on the prior-
year consolidated financial statements, so long as the interest expense
reasonably reflects the current financial situation. Changwon claims
that this is the case because the prior year is assumed to be
reasonably representative of the company's normal experience. Changwon
cites Certain Hot-Rolled Carbon Steel Flat Products from France, 58 FR
37125, 37135 (July 9, 1993) (Flat Products from France) in support of
its position.
Changwon also states that even in the isolated cases in which the
Department has deviated from this policy, financial statements that
cover a period subsequent to the POI are not utilized. For example,
Changwon cites Certain Corrosion-Resistant Carbon Steel Flat Products
and Certain Cut-to-Length Carbon Steel Plate from Canada, 61 FR 13815,
13829 (March 28, 1996), where the Department accepted interest expense
based on the full year 1993 and the first half of 1994, rather than
exclusively the 1993 figures (the POI was February 1993 through July
1994).
Changwon maintains that use of the 1997 data on interest expense
would be distortive because it includes substantial foreign exchange
losses that occurred at year-end 1997 which were due to the rapid
depreciation of the won in December 1997, subsequent to the POI.
Changwon argues that the economic crisis that precipitated the currency
depreciation was in no way related to the production or sale of the
subject merchandise during the POI and, thus, to include these losses
would be distortive. Changwon asserts that, under similar
circumstances, the Department has declined to utilize a time period
which included a severe devaluation of a currency in past cases such as
Oil Country Tubular Goods from Mexico, 60 FR 33567, 33572 (June 28,
1995). Changwon argues that should the Department determine that 1996
is not representative, it should limit any adjustments to the interest
expense ratio to changes in the exchange rate which occurred during the
POI.
Petitioners contend that Changwon's interest expenses should be
based on POSCO's 1997 financial statements. Petitioners state that
Changwon should be consistent in its choice of financial statements
from which to draw its expense ratios since it reported G&A on the
basis of its financial statements for 1997 but employed POSCO's
consolidated 1996 financial statements for purposes of reporting its
interest expense ratio. Given that 1997 is the most recent year for
which financial statements are available, it would be logical for both
G&A and interest expense to be derived from 1997 figures.
Petitioners argue that the cases cited by Changwon do not support
Changwon's position, but instead indicate a preference to use the
closest corresponding fiscal year financial statements. For example, in
Silicon Metal from Brazil, 63 FR 6899, 6906 (February 11, 1998), the
Department stated that it normally uses the ``financial statement that
most closely corresponds to the POI.'' Also, in Flat Products from
France, the Department noted that its ``normal methodology is to
calculate G&A expenses based on the audited annual financial statements
which most closely correspond to the period of investigation.'' Only in
cases in which ``such financial statements are not available, the
Department has relied on financial statements from the fiscal year
prior to the POI, when such statements provide a reasonable
approximation of the company's current financial position.''
Petitioners further argue that since 1997 is the most recent year
for which audited financial statements are now available, is the year
that Changwon came into existence, and includes the entire part of the
POI during which Changwon produced and sold the subject merchandise,
1997 is the logical choice on which to base Changwon's interest
expenses.
DOC Position
We disagree with petitioners, and have used POSCO's 1996
consolidated financial statements as the basis for Changwon's interest
expense. In this case, it is our preference to use the 1996 financial
statement data for the reasons similar to those stated in Dongbang
Comment 5 of the ``Interested Party Comments'' section of this notice.
However, unlike Dongbang, Changwon was not in existence in 1996 and,
therefore, we have no alternative but to use Changwon's 1997 financial
statements for purposes of calculating G&A expenses.
Comment 4: EP vs. CEP Sales Classification.
Petitioners argue that the Department should determine that
Changwon's sales through POSAM are CEP sales. Petitioners cite 1998
Flat Products from Korea, a decision in which the Department found, in
contrast to several previous determinations, that POSCO's sales in the
United States through POSAM should be classified as CEP sales.
Petitioners argue that the facts in the 1998 Flat Products from Korea
case regarding the classification of U.S. sales are virtually identical
to those in this case.
Petitioners maintain that the record does not demonstrate that the
U.S. affiliate's involvement in making the sales was incidental or
ancillary. Petitioners assert that Changwon seldom had contact with
U.S. customers, that typically POSAM was directly contacted by
unaffiliated U.S. customers that wished to purchase the subject
[[Page 40418]]
merchandise, and that POSAM signed the sales contract. Petitioners
claim that POSAM also plays a central role in sales activities after
merchandise arrives in the United States. Petitioners also question
respondent's claim that the U.S. affiliate had no role in price
negotiation by stating that Changwon did not provide tangible proof
that it had rejected prices for sales organized by POSAM (which,
according to petitioners, is a critical test of the involvement of the
Korean producer in price setting.) Petitioners further argue that POSAM
and POSTEEL are more than just mere paper processors based on
proprietary evidence found by the Department at verification.
Changwon argues that its U.S. sales should be treated as EP
transactions because they pass the Department's criteria for EP sales:
the subject merchandise is shipped directly from the manufacturer to
the unaffiliated buyer, such direct shipments to the unaffiliated buyer
are a customary channel of trade, and the U.S. affiliate only acts as a
processor of sales-related documents and a communication link with the
unaffiliated buyer. Changwon claims that POSAM is merely a
communications link, does not have independent sales negotiation
authority, and holds no inventory.
Changwon states that, at verification, the Department established
that Changwon initiated contact with its U.S. customers and met with
these customers to discuss its export strategy and determine the
substantive terms of sale with them. Moreover, Changwon asserts, it was
at these meetings that Changwon established its pricing policy based on
quarterly price lists. Changwon also states that, at verification, the
Department confirmed the U.S. sales process by which orders flow from
the U.S. customer through POSAM and POSTEEL to Changwon and back the
same route to the U.S. customer. Changwon asserts that POSAM merely
transfers pricing information from customers to Changwon, and that
Changwon reviews and has final approval of all sales.
Changwon refers to sales examined at verification to further its
argument that it is the sole authority for approving its U.S. sales. It
notes that POSAM indicates in its faxes to Changwon that the sale offer
is ``for your {Changwon's} review'' and that Changwon's response to
POSAM refers to ``{confirmation of} our {Changwon's/POSAM's} offer'' to
the customer. Also, Changwon notes a sale in which Changwon initially
rejected, but then ultimately accepted, a customer's price offer that
differed from its price list. Based on these facts, Changwon argues
that it is clear that POSAM's only role in this situation was that of a
communication link.
Changwon refutes petitioners' argument that POSAM plays a central
role in Changwon's activities because it provides such services as
invoicing Changwon's customers and arranging for transportation.
Changwon maintains that the Department has, in numerous past cases,
deemed these types of sales activities as ancillary, and that they are
not a sufficient basis for classifying sales as CEP transactions.
Changwon rejects, as mere speculation, petitioners' argument that
because it did not present at verification an example of a sale in
which it rejected an offer made by the customer, Changwon may not have
the final authority on sales prices. Finally, Changwon states that
petitioners' assertion that POSAM or POSTEEL distributed Changwon's
product brochures and conducted certain activities in the United States
for Changwon is incorrect. Changwon asserts that it, in fact, performed
these activities.
DOC Position
We agree with Changwon that its U.S. sales were properly classified
as EP sales, and have continued to treat Changwon's U.S. sales as EP
sales in the final determination. At verification we confirmed
Changwon's assertions that POSAM is not in a position to negotiate,
confirm, or reject prices without approval from Changwon. We further
found that Changwon issues quarterly price lists for U.S. sales which
POSAM uses in the U.S. sales process. We disagree with petitioners'
contention that POSAM acts as anything but a communications link in
this instance.
Section 772(b) of the Act, as amended, defines CEP as ``the price
at which the subject merchandise is first sold (or agreed to be sold)
in the United States before or after the date of importation by or for
the account of the producer or exporter of such merchandise or by a
seller affiliated with the producer or exporter, to a purchaser not
affiliated with the producer or exporter, as adjusted.'' Section 772(a)
of the Act defines EP as ``the price at which the subject merchandise
is first sold (or agreed to be sold) before the date of importation by
the producer or exporter of the subject merchandise outside of the
United States to an unaffiliated purchaser in the United States, or to
an unaffiliated purchaser for exportation to the United States, as
adjusted.'' When sales are made prior to importation through an
affiliated or unaffiliated U.S. sales agent to an unaffiliated customer
in the United States, our practice is to examine several criteria for
determining whether the sales are EP sales. Those criteria are: (1)
Whether the merchandise was shipped directly from the manufacturer to
the unaffiliated U.S. customer; (2) whether this was the customary
commercial channel between the parties involved; and (3) whether the
function of the U.S. selling agent was limited to that of a ``processor
of sales-related documentation'' and a ``communications link'' with the
unaffiliated U.S. buyer. Where all three criteria are met, indicating
that the activities of the U.S. selling agent are ancillary to the
sale, the Department has regarded the routine selling functions of the
exporter as merely having been relocated geographically from the
country of exportation to the United States where the sales agent
performs them, and has determined the sales to be EP sales. Where one
or more of these conditions are not met, indicating that the U.S. sales
agent is substantially involved in the U.S. sales process, the
Department has classified the sales in question as CEP sales. (See,
e.g., 1998 Flat Products from Korea and Viscose Rayon Staple Fiber from
Finland, 63 FR 32820 (June 16, 1998).)
In the instant investigation the sales in question were made prior
to importation through Changwon's affiliated Korean trading company,
POSTEEL, and its affiliated U.S. trading company, POSAM, to an
unaffiliated customer in the United States. The record in this case
indicates that the subject merchandise was shipped directly from
Changwon to the unaffiliated U.S. customers and that this was the
customary commercial channel between these parties. The remaining issue
is whether POSAM's role in the sales process was limited to that of a
``processor of sales-related documentation'' and a ``communications
link.'' The record shows that the U.S. sales process, beginning with
the establishment of Changwon during the POI, includes the following
events: (1) Changwon held an export strategy meeting in March 1997 with
potential U.S. customers (these were the same customers Changwon sold
to during the POI) wherein substantive terms of sale, payment, and
delivery terms were discussed. Changwon also established its pricing
policy based on quarterly price lists during this meeting; (2) For the
remaining three months of the POI, U.S. customers contacted POSAM to
inquire about purchasing Changwon's SSWR. However, POSAM did not
actively advertise for Changwon in the United States and did not
solicit business on
[[Page 40419]]
behalf of Changwon. Changwon itself contacted its potential U.S.
customers, as evidenced by the above-referenced export strategy
meeting; (3) POSAM does not negotiate sales terms with Changwon's U.S.
customers. POSAM relays information through POSTEEL between Changwon
and its U.S. customers. Correspondence by faxes reviewed at
verification confirmed Changwon's assertion that POSAM may not accept
the customer's order without Changwon's final approval; (4) After an
order is accepted by Changwon, POSAM transmits the order acceptance
from POSTEEL to the U.S. customer; (5) After Changwon has produced the
order, it sells the subject merchandise to POSTEEL, who then sells it
to POSAM in a back-to-back transaction wherein title to the goods is
transferred between the parties; (6) POSTEEL arranges transportation of
the subject merchandise to the United States; (7) POSAM arranges to
move the subject merchandise through U.S. Customs and to transport it
to U.S. customers; (8) POSAM invoices U.S. customers; (9) U.S.
customers remit payment to POSAM, which subsequently transfers the
payment to POSTEEL, which, in turn, transfers it to Changwon.
These facts show that the extent of POSAM's involvement in the
sales process is indicative of the ancillary role normally played by a
``processor of sales-related documentation'' and a ``communications
link.'' While POSAM was involved in document processing and other
ancillary activities related to the sales of subject merchandise to the
U.S. customer (e.g., clearing customs, arranging for U.S.
transportation, issuing invoices, and collecting payment), POSAM had no
substantial involvement in the sales process, such as sales
negotiation, providing technical support, or handling warranty claims,
with respect to subject merchandise. POSAM does not negotiate sales
terms with U.S. customers, but rather relays pricing information
between Changwon and the U.S. customer. We disagree with petitioners'
assertion that Changwon does not have final authority over the sale
based on our findings at verification. For each of the sales examined
at verification, we found that Changwon ultimately accepted or rejected
the sales price. See Changwon Sales Verification Report at Exhibit 17.
Furthermore, although Changwon did not have direct contact with its
U.S. customers on a daily basis during the POI, the export strategy
meeting served to lay out the substantive terms of delivery, sale, and
payment and established Changwon's general pricing policy. With these
terms explicitly stated, it is reasonable to assume that there was
little need for direct contact between Changwon and its U.S. customers
during the remaining three months of the POI. Indirect contact,
however, still continued. In fact, we observed at verification that all
correspondence examined between Changwon and the U.S. customers was
relayed through POSTEEL/POSAM.
The nature of Changwon's initial and ongoing involvement in the
sales process and POSAM's ancillary role in the sales process lead us
to conclude that the sales took place before the date of importation by
the producer of the subject merchandise outside of the United States to
an unaffiliated purchaser in the United States. Therefore, in
accordance with Section 772(a) of the Act we have continued to classify
Changwon's U.S. sales as EP sales for the final determination.
Comment 5: Corrections for Clerical Errors Found at Verification.
Petitioners state that the Department should allocate Changwon's
indirect selling expenses incurred by POSTEEL in Korea for U.S. sales
based on sales value rather than sales quantity, and that the
Department make any corresponding changes in its calculations since
Changwon recalculated its indirect selling expenses incurred from
fiscal year 1996 to 1997.
Petitioners agree that the VAT total account receivable figures for
certain customers should be corrected in order to properly decrease the
average credit period for seven customers.
Petitioners state that the Department should use the corrected
warranty expense for home market observation 59 and revised ocean
freight for U.S. observations 17 through 21.
Petitioners state that the Department should correct the product
characteristics that were misreported by Changwon for grades SUS 304L,
SUSY 308, SUSY 308L, AWSER 308L, AWSER316L, SUS XM7, and ER 309L. They
also state that in correcting these items, the Department should use
the actual chemical composition of the products for product-matching
purposes.
Changwon did not comment on this issue.
DOC Position
We agree with petitioners in part. As noted above in the ``Export
Price'' and ``Normal Value'' sections of this notice, we have made
appropriate revisions for all errors found at verification. However, we
disagree with petitioners' statement that we should use the actual
chemical compositions of the products in our analysis. For the reasons
stated in the December 18, 1997, Memorandum to Holly Kuga from the Team
Re: Whether to Reconsider the Department's Model Match Methodology for
this Product and the Preliminary Determination, the Department has
rejected the use of actual chemical composition as a product
characteristic for product comparison purposes.
Comment 6: Changwon's Duty Drawback Adjustment.
Petitioners argue that Changwon does not qualify for a duty
drawback adjustment to U.S. price. Petitioners state that Changwon has
failed to meet the Department's two-part test which requires that (1)
import duties and rebates are directly linked to and are dependent upon
one another, and (2) the company claiming the adjustment can
demonstrate that there are sufficient imports of raw materials to
account for the duty drawback received on exports of the manufactured
product.
Petitioners refer to Changwon's November 10, 1997 response, in
which Changwon gave a ``best estimate'' of duty drawback because its
system for reporting duty drawback was not yet fully operable.
Petitioners believe that this fact alone justifies a denial of a duty
drawback adjustment. Petitioners cite Steel Bar from India as a
situation in which the Department denied a duty drawback adjustment to
a respondent that based its duty drawback calculations on theoretical
amounts of an input product, rather than on amounts of raw materials
that were actually imported for use in the subject merchandise.
Petitioners state that the facts in this case (whereby the drawback
credits were not calculated based on the product actually imported) are
similar to those in Steel Bar from India.
Petitioners contend that another reason Changwon should be denied a
duty drawback adjustment is the fact that, at verification, the
Department found that ``Changwon cannot track imported raw material
used in the production of finished product to the specific export
sale.'' Petitioners assert that Changwon's reliance on the ``standard
government calculation for each applicable raw material'' to claim duty
drawback is unacceptable, because, among other reasons, there is no
means by which the Department can determine whether the respondent is
claiming more drawback than that to which it is entitled. Petitioners
also point out that Changwon's claim also fails because it is
apparently not able to track imported raw material usage to U.S.
exports of the subject merchandise, and drawback is not being claimed
on amounts of imported materials actually being used.
[[Page 40420]]
Petitioners state that there is no direct link between the import duty
and rebate granted, and that there were not sufficient imports of raw
materials used in the production of the final exported product to
account for the drawback on the exported product.
Petitioners assert that, even if the above described problems did
not exist, Changwon would not be eligible for an adjustment because it
did not actually receive any duty drawback during the POI. Petitioners
state that any adjustment for duty drawback must be based on drawback
payments actually received during the POI or review period. Petitioners
cite Final Determination of Sales at Less Than Fair Value: Canned
Pineapple Fruit from Thailand, 60 FR 29553, 29566 (June 5, 1995) and
Final Results of Countervailing Duty Administrative Review: Certain
Iron-Metal Castings from India, 56 FR 52521, 52527 (October 21, 1991)
as examples whereby the Department has recognized that refunds should
be taken into account for the period in which they are received.
Petitioners also refute Changwon's claims that the Department fully
verified Changwon's duty drawback adjustment and that the Department's
``standard practice'' is to recognize adjustments that are accrued by a
company such as volume rebates. Petitioners state that while the
Department was able to verify some information regarding the duty
drawback adjustment, it did not successfully verify the claims
themselves. Petitioners then argue that there is no ``standard
practice'' by which the Department would grant adjustments for duty
drawback when the duty drawback payments are not received by the
respondent during the POI or review period.
Furthermore, regarding Sammi-produced merchandise purchased by
Changwon, petitioners state that there is no information on the record
indicating that Sammi had imported materials for its production of the
SSWR. Similarly, petitioners state that there is no information that
indicates whether, if Sammi had imported materials for its production
of the SSWR, those import duties would satisfy the Department's two-
prong test for duty drawback adjustment. Furthermore, petitioners
contend that is no indication that the prices paid by Changwon for
Sammi-produced SSWR included import duties, and if so, whether Changwon
was entitled to get any duty drawback on those duties.
Changwon maintains that the Department's findings during
verification support the Department's preliminary decision to allow
Changwon's reported duty drawback adjustments. Changwon states that it
has demonstrated, and the Department has fully verified, that it
accurately reported the duty drawback incurred on its sales during the
POI. Changwon asserts that its most recent supplemental response
contained resubmitted duty drawback adjustments which incorporated the
actual amounts of duty drawback acquired by Changwon.
Changwon states that the Department confirmed during verification
that Changwon can claim a duty drawback only if the amount of raw
materials on an import certificate are sufficient to produce the
quantity of subject merchandise stated on an export certificate. This,
according to Changwon, fulfills the Department's requirements for a
duty drawback adjustment that the import duty and rebate are directly
linked and dependent on one another and that there were sufficient
imports of the raw materials to account for the duty drawback received.
Further, Changwon asserts that the accuracy of Changwon's reported duty
drawback was confirmed through the Department's trace of the reported
duty drawback amounts to its applications for duty drawback to the
Korean Government. Changwon also states that petitioners' allegation
that it did not report actual amounts of duty drawback is incorrect and
that the above-mentioned resubmitted duty drawback adjustments are in
fact based on actual amounts.
Changwon dismisses petitioners' argument that Changwon must tie its
receipt of duty drawback to U.S. exports. Changwon cites Laclede Steel
Co. v. United States, 18 CIT 965, 972-73 (1994) as a case in which the
Court of International Trade held that a respondent's reported duty
drawback adjustment may result in export sales receiving more or less
of an adjustment than was actually rebated is not a basis for rejecting
those adjustments.
Changwon refutes petitioners' argument that it did not show that it
had sufficient imports of raw materials to produce the quantity of
exports that incurred duty drawback by attributing the argument to a
misreading of Changwon's duty drawback exhibit. Changwon states that
the worksheets referred to by petitioners were merely examples and did
not represent all imported raw materials that were available for
producing the exported merchandise.
Changwon states that petitioners' argument regarding duty drawback
received on sales of Sammi-produced merchandise are also erroneous
because, as part of Changwon's acquisition of Sammi, the company
assumed Sammi's duty liability for imported merchandise and Sammi's
import certificates were transferred to Changwon. This allowed Changwon
to properly receive duty drawback on the export of Sammi-produced
merchandise.
Changwon argues that it properly included duty drawback received
after the end of the POI because its normal business practice is to
record its duty drawback payments on an accrual basis. Changwon states
that it is the Department's practice to accept a company's sales
expenses and adjustments that are reported consistently with its normal
accounting practices. Changwon asserts that there is no evidence on the
record that contradicts the fact that Changwon applies for duty
drawback as a normal part of its business practice and that it fully
receives the amount of duty drawback claimed.
DOC Position
We agree, in part, with both parties. First, contrary to
petitioners allegation regarding Changwon's explanation of its duty
drawback reporting methodology, we agree that Changwon revised its duty
drawback adjustments to reflect the actual amounts of duty drawback in
its most recent supplemental response. Furthermore, we disagree with
petitioners that Changwon is required to trace imported raw materials
to export sales. In fact, the Department's practice is not that a
company must trace imported input directly from importation through
exportation, but rather, that a company must satisfy the two-prong test
described in Dongbang Comment 9, above. In this regard, we are
satisfied that Changwon has met each of the two prongs of this test for
reasons similar to those explained above for Dongbang. However, in
accordance with section 772(c)(1)(B) of the Act, which requires the
Department to increase starting price for EP and CEP by the amount of
any import duties ``imposed by the country of exportation which have
been rebated, or which have not been collected by reason of the
exportation of the subject merchandise to the United States,'' we have
recalculated Changwon's reported duty drawback to reflect only those
amounts actually rebated. Regarding duty drawback on Sammi-produced
merchandise which was sold by Changwon, the information provided by
Changwon is inconclusive as to whether Changwon is entitled to duty
drawback on this merchandise. However, given that we have calculated
duty drawback only on rebates actually received by
[[Page 40421]]
Changwon, this issue is moot. See Final Determination Calculation
Memorandum, for further discussion.
Comment 7: Transactions-Disregarded and Major-Input Rules.
Changwon argues that if the Department continues to collapse
Changwon and POSCO as a single producer for the final determination,
the Department should not apply the transactions-disregarded and major-
input rules under section 773(f)(2) and (3) in determining the value of
inputs provided by POSCO to Changwon. Changwon notes that the
Department has stated that once it collapses two companies, it no
longer applies the major-input or transactions-disregarded rules for
valuing transfers of products from one part of the entity to another.
Changwon cites 1997 Flat Products from Korea where the Department
determined that the POSCO group (encompassing three separate producers:
POSCO, Pohang Coated Steel (POCOS) and Pohang Steel Industries (PSI))
represents one producer of certain cold-rolled steel flat products and
that as such, transactions among the parties be valued based on the
group as a whole. It further states that since the POSCO group was
considered one entity, the major-input rule and transactions-
disregarded provisions of the Act were not applied because there are no
transactions between affiliated persons. Changwon notes that the
Department reaffirmed its clear position on this issue in 1998 Flat
Products from Korea.
In support of the above argument, Changwon states that it has
submitted and the Department has verified Changwon's costs, adjusted to
reflect POSCO's actual cost of manufacturing transferred inputs. After
the preliminary determination and learning of the Department's decision
to collapse Changwon and POSCO, Changwon submitted cost data that was
consistent with the Department's collapsing decision. Changwon asserts
that semi-finished products should be treated as transfers among
factories or divisions within the same company, and should be valued
within the single entity at the actual cost of manufacturing the input.
This policy avoids double counting of POSCO's G&A, and avoids including
POSCO's internal profit earned on the input. Specifically, the
Department should use the COM to value the inputs rather than the
transfer price.
Petitioners contend that the Department should continue to apply
the major-input rule and transactions-disregarded rule in valuing
inputs received by Changwon from POSCO. Petitioners explain that the
major-input rule and transactions-disregarded rule have a specific
purpose that is separate and distinct from the purpose of the
collapsing test. Petitioners note that statutes always take precedence
over regulations, and that the major-input rule and transactions-
disregarded rule are statutory, while the collapsing analysis is
performed pursuant to the Department's regulations. Petitioners further
assert that the statute does not provide for an exception to the
application of these rules in the case of collapsed parties, and thus
the Department should enforce the statute in applying these rules.
Petitioners maintain that the Department would be writing out of
existence the statutory major-input rule and transactions-disregarded
rule based on its interpretation of a regulation if it were to collapse
POSCO and Changwon for input cost purposes.
Petitioners assert that Congress intended that the application of
the major-input rule and collapsing test remain independent of each
other, citing the SAA for support. Petitioners assert that by listing
price issues separate from cost issues in its explanation of the major-
input rule and transactions-disregarded rule, the drafters of the SAA
did not intend affiliation price and cost issues to be lumped together,
but to be considered separately. Petitioners argue that the legislative
history would have suggested that these rules for calculating cost be
combined with the collapsing test in connection with circumvention and
price issues if the drafters intended this. Instead, petitioners state
that the SAA focuses exclusively on cost issues in its explanation of
the major-input rule and transactions-disregarded rule. Petitioners
assert further that the statutory provisions of the major input rule
and transactions disregarded rule focus clearly on cost input issues
that are not affected by the collapsing of producers to prevent
circumvention, and the Department should thus continue to apply these
rules in valuing inputs sold from POSCO to Changwon.
DOC Position
We agree with respondent. The facts in this case are similar to
those present in 1997 Flat Products from Korea wherein the Department
held that treating affiliated producers as a single entity for dumping
purposes obviates the application of the major-input rule and
transactions-disregarded rule because there are no transactions between
affiliated persons. As stated in 1997 Flat Products from Korea at
18430, 18431: the POSCO group {encompassing three separate producers:
POSCO, Pohang Coated Steel (POCOS) and Pohang Steel Industries (PSI)}
represents one producer of certain cold-rolled steel flat products * *
* We have determined that a decision to treat affiliated parties as a
single entity necessitates that transactions among the parties also be
valued based on the group as a whole. * * * With regard to transfers of
inputs among the POSCO group companies we have valued transfers of
substrate between the companies as the cost of manufacturing of the
substrate {i.e., a major input, also subject merchandise, further
manufactured and then resold.} * * * Since we have determined that the
POSCO Group is one entity for these final results, {the major input
rule and fair value provisions} of the Act cannot apply because there
are no transactions between affiliated persons.
As noted by Changwon, the Department reaffirmed its clear position
on this issue in 1998 Flat Product from Korea at 13185, stating that:
because we are treating these companies {POSCO, POCOS, and PSI} as one
entity for our analysis, intra-company transactions should be
disregarded. * * * {T}he decision to treat affiliated parties as a
single entity necessitates that transactions among the parties also be
valued based on the group as a whole and as such, among collapsed
entities the fair-value and major-input provisions are not controlling.
As a result, we have used actual costs in determining the COM for
Changwon as well as Dongbang in the final determination.
Comment 8: Changwon's Methodology To Identify the Manufacturer.
In regard to the Department's sales verification report, Changwon
states that the Department properly noted that Changwon has reported
itself as the manufacturer where appropriate. Changwon states that this
is in accordance with the Department's practice to treat the last
company involved in the production process as the manufacturer of the
resulting merchandise. For example, in Corrosion-Resistant Carbon Steel
Flat Products and Certain Cut-to-Length Carbon Steel Plate from Canada,
61 FR 13815, 13821 (March 28, 1996), the Department treated Continuous
Color Coat, Inc. (``CCC'') as the manufacturer of the subject
merchandise sold by CCC, even though CCC purchased the subject
merchandise and then performed either painting or galvanizing
functions. Similarly, in Circular Welded Non-Alloy Steel Pipe from the
Republic of Korea, 62 FR 64559, 64561 (Dec. 8, 1997), some of the
respondent companies purchased subject merchandise from third parties
[[Page 40422]]
and performed minor further manufacturing activities to produce
merchandise that was still within the scope of the review. Changwon
claims that the above determinations are indistinguishable from the
facts pertaining to Changwon and, thus, the Department should continue
to utilize Changwon's reported manufacturer for each sale.
Petitioners did not comment on this issue.
DOC Position
We agree with Changwon and given there are no arguments or evidence
on the record to suggest otherwise, we have continued to use Changwon
as the manufacturer, as reported, where appropriate.
Continuation of 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
SSWR from Korea 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 shall continue to require a cash
deposit or posting of a bond equal to the estimated amount by which the
normal value exceeds the U.S. price as shown below. These suspension of
liquidation instructions will remain in effect until further notice.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-
average
Exporter/manufacturer margin
percentage
------------------------------------------------------------------------
Dongbang Special Steel Co., Ltd./ Changwon Specialty Steel
Co., Ltd./ Pohang Iron and Steel Co., Ltd................. 3.18
Sammi Steel Co., Ltd....................................... 28.44
All Others................................................. 3.18
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded the margins determined entirely under section 776 of the Act
(facts available) from the calculation of the ``All Others Rate.''
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (ITC) of our determination. As our final
determination is affirmative, the ITC will, within 45 days, determine
whether these imports are materially injuring, or threaten material
injury to, the U.S. industry. If the ITC determines that material
injury, or threat of material injury does not exist, the proceeding
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 an antidumping duty order directing Customs
officials to assess antidumping duties on all imports of the subject
merchandise entered for consumption on or after the effective date of
the suspension of liquidation.
This determination is published pursuant to section 777(i) of the
Act.
Dated: July 20, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-20017 Filed 7-28-98; 8:45 am]
BILLING CODE 3510-DS-P