[Federal Register Volume 64, Number 1 (Monday, January 4, 1999)]
[Notices]
[Pages 124-130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34465]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-201-822]


Notice of Preliminary Determination of Sales at Less Than Fair 
Value and Postponement of Final Determination: Stainless Steel Sheet 
and Strip in Coils from Mexico

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

EFFECTIVE DATE: January 4, 1999.

FOR FURTHER INFORMATION CONTACT: Fred Baker or Martin Odenyo, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 
20230; telephone: (202) 482-2924 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).

Preliminary Determination

    We preliminarily determine that stainless steel sheet and strip in 
coils (SSSS) from Mexico is being, or is likely to be, sold in the 
United States at less than fair value (LTFV), as provided in section 
733(b) of the Act. The estimated margins of sales at LTFV are shown in 
the ``Suspension of Liquidation'' section of this notice.

Case History

    On June 30, 1998, the Department initiated antidumping duty 
investigations of imports of SSSS from France, Germany, Italy, Japan, 
Mexico, South Korea, Taiwan, and the United Kingdom. See Initiation of 
Antidumping Duty Investigations: Stainless Steel Sheet and Strip in 
Coils From France, Germany, Italy, Japan, Mexico, South Korea, Taiwan, 
and the United Kingdom, 63 FR 37521 (July 13, 1998) (Initiation 
Notice). Since the initiation of this investigation the following 
events have occurred.
    In the Initiation Notice, the Department set aside a period for all 
interested parties to raise issues regarding product coverage. On July 
29, 1998, petitioners (Allegheny Ludlum Corp.; J&L Specialty Steel, 
Inc.; Washington Steel Division of Bethlehem Steel Corporation; United 
Steelworkers of America, and AFL-CIO/CLC) filed comments proposing 
clarifications to the scope of these investigations. Also, from July 
through October 1998, the Department received numerous submissions from 
petitioners and respondents concerning product coverage.
    Petitioners identified Mexinox S.A. de C.V (Mexinox) as the sole 
producer of the subject merchandise in Mexico. Thus Mexinox is the sole 
respondent in this investigation. See Memorandum to Joseph Spetrini, 
dated September 21, 1998, Attachment 7 (Selection of Respondents Memo). 
On July 21, 1998, the Department also requested comments from 
petitioners, Mexinox, and the Embassy of Mexico regarding the criteria 
to be used for model matching purposes. On July 27 and December 3, 
1998, Mexinox and petitioners submitted comments on our proposed model 
matching criteria.
    Also, on July 24, 1998, the United States International Trade 
Commission (the ITC) notified the Department of its affirmative 
preliminary injury determination in this case.
    The questionnaire is divided into five parts; Section A (general 
information, corporate structure, sales practices, and merchandise 
produced), Section B (home market or third-country sales), Section C 
(U.S. sales), Section D (cost of production/constructed value), and 
Section E (further manufacturing in the United States). The Department 
issued its antidumping questionnaire to Mexinox on August 3, 1998, 
requesting that Mexinox respond to Sections A-D. On October 14, 1998, 
we instructed Mexinox to respond to Section E of the questionnaire.
    Mexinox submitted its response to Section A of the questionnaire on 
September 8, 1998; Mexinox's responses to Sections B through D followed 
on September 29, and to Section E on November 10, 1998. Petitioners 
filed comments on Mexinox's Sections A through D responses on October 
13, and October 21, 1998. We issued supplemental questionnaires for 
Section A to Mexinox on October 14, October 29, and November 5, 1998, 
and for Sections B and C on October 29, 1998. Mexinox responded to our 
supplemental questionnaires for Section A on October 29, and November 
17, 1998, and to our supplemental questionnaires for Sections B and C 
on November 17, 1998.
    On October 6, 1998, petitioners made a timely request for a thirty-
day postponement of the preliminary determination pursuant to section 
733(c)(1)(A) of the Act. On October 23, 1998, we postponed the 
preliminary determination until no later than December 17, 1998. See 
Stainless Steel Sheet and Strip in Coils From Italy, France, Germany, 
Mexico, Japan, Republic of Korea, United Kingdom, and Taiwan; Notice of 
Postponement of Preliminary Determinations in Antidumping Duty 
Investigations, 63 FR 56909 (October 23, 1998).

Scope of the Investigations

    For purposes of this investigation, the products covered are 
certain stainless steel sheet and strip in coils. Stainless steel is an 
alloy steel containing, by weight, 1.2 percent or less of carbon and 
10.5 percent or more of chromium, with or without other elements. The 
subject sheet and strip is a flat-rolled product in coils that is 
greater than 9.5 mm in width and less than 4.75 mm in thickness, and 
that is annealed or otherwise heat treated and pickled or otherwise 
descaled. The subject sheet and strip may also be further processed 
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that 
it maintains the specific dimensions of sheet and strip following such 
processing.
    The merchandise subject to this investigation is classified in the 
Harmonized Tariff Schedule of the United States (HTSUS) at subheadings: 
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80, 
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05, 
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36, 
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05, 
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36, 
7219.33.00.38, 7219.33.00.42,

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7219.33.00.44, 7219.34.00.05, 7219.34.00.20, 7219.34.00.25, 
7219.34.00.30, 7219.34.00.35, 7219.35.00.05, 7219.35.00.15, 
7219.35.00.30, 7219.35.00.35, 7219.90.00.10, 7219.90.00.20, 
7219.90.00.25, 7219.90.00.60, 7219.90.00.80, 7220.12.10.00, 
7220.12.50.00, 7220.20.10.10, 7220.20.10.15, 7220.20.10.60, 
7220.20.10.80, 7220.20.60.05, 7220.20.60.10, 7220.20.60.15, 
7220.20.60.60, 7220.20.60.80, 7220.20.70.05, 7220.20.70.10, 
7220.20.70.15, 7220.20.70.60, 7220.20.70.80, 7220.20.80.00, 
7220.20.90.30, 7220.20.90.60, 7220.90.00.10, 7220.90.00.15, 
7220.90.00.60, and 7220.90.00.80. Although the HTS subheadings are 
provided for convenience and Customs purposes, the Department's written 
description of the merchandise under investigation is dispositive.
    Excluded from the scope of this investigation are the following: 
(1) Sheet and strip that is not annealed or otherwise heat treated and 
pickled or otherwise descaled; (2) sheet and strip that is cut to 
length; (3) plate (i.e., flat-rolled stainless steel products of a 
thickness of 4.75 mm or more); (4) flat wire (i.e., cold-rolled 
sections, with a prepared edge, rectangular in shape, of a width of not 
more than 9.5 mm); and (5) razor blade steel. Razor blade steel is a 
flat rolled product of stainless steel, not further worked than cold-
rolled (cold-reduced), in coils, of a width of not more than 23 mm and 
a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5 
percent chromium, and certified at the time of entry to be used in the 
manufacture of razor blades. See Chapter 72 of the HTSUS, ``Additional 
U.S. Note'' 1(d).
    In response to comments by interested parties the Department has 
determined that certain specialty stainless steel products are also 
excluded from the scope of this investigation. These excluded products 
are described below.
    Flapper valve steel is defined as stainless steel strip in coils 
containing, by weight, between 0.37 and 0.43 percent carbon, between 
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent 
manganese. This steel also contains, by weight, phosphorus of 0.025 
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur 
of 0.020 percent or less. The product is manufactured by means of 
vacuum arc remelting, with inclusion controls for sulphide of no more 
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper 
valve steel has a tensile strength of between 210 and 300 ksi, yield 
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a 
hardness (Hv) of between 460 and 590. Flapper valve steel is most 
commonly used to produce specialty flapper valves for compressors.
    Also excluded is a product referred to as suspension foil, a 
specialty steel product used in the manufacture of suspension 
assemblies for computer disk drives. Suspension foil is described as 
302/304 grade or 202 grade stainless steel of a thickness between 14 
and 127 microns, with a thickness tolerance of plus-or-minus 2.01 
microns, and surface glossiness of 200 to 700 percent Gs. Suspension 
foil must be supplied in coil widths of not more than 407 mm, and with 
a mass of 225 kg or less. Roll marks may only be visible on one side, 
with no scratches of measurable depth. The material must exhibit 
residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm 
over 685 mm length.
    Certain stainless steel foil for automotive catalytic converters is 
also excluded from the scope of this investigation. This stainless 
steel strip in coils is a specialty foil with a thickness of between 20 
and 110 microns used to produce a metallic substrate with a honeycomb 
structure for use in automotive catalytic converters. The steel 
contains, by weight, carbon of no more than 0.030 percent, silicon of 
no more than 1.0 percent, manganese of no more than 1.0 percent, 
chromium of between 19 and 22 percent, aluminum of no less than 5.0 
percent, phosphorus of no more than 0.045 percent, sulfur of no more 
than 0.03 percent, lanthanum of between 0.002 and 0.05 percent, and 
total rare earth elements of more than 0.06 percent, with the balance 
iron.
    Permanent magnet iron-chromium-cobalt alloy stainless strip is also 
excluded from the scope of this investigation. This ductile stainless 
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10 
percent cobalt, with the remainder of iron, in widths 228.6 mm or less, 
and a thickness between 0.127 and 1.270 mm. It exhibits magnetic 
remanence between 9,000 and 12,000 gauss, and a coercivity of between 
50 and 300 oersteds. This product is most commonly used in electronic 
sensors and is currently available under proprietary trade names such 
as ``Arnokrome III.'' 1
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    \1\ ``Arnokrome III'' is a trademark of the Arnold Engineering 
Company.
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    Certain electrical resistance alloy steel is also excluded from the 
scope of this investigation. This product is defined as a non-magnetic 
stainless steel manufactured to American Society of Testing and 
Materials (ASTM) specification B344 and containing, by weight, 36 
percent nickel, 18 percent chromium, and 46 percent iron, and is most 
notable for its resistance to high temperature corrosion. It has a 
melting point of 1390 degrees Celsius and displays a creep rupture 
limit of 4 kilograms per square millimeter at 1000 degrees Celsius. 
This steel is most commonly used in the production of heating ribbons 
for circuit breakers and industrial furnaces, and in rheostats for 
railway locomotives. The product is currently available under 
proprietary trade names such as ``Gilphy 36.'' 2
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    \2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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    Certain martensitic precipitation-hardenable stainless steel is 
also excluded from the scope of this investigation. This high-strength, 
ductile stainless steel product is designated under the Unified 
Numbering System (UNS) as S45500-grade steel, and contains, by weight, 
11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon, 
manganese, silicon and molybdenum each comprise, by weight, 0.05 
percent or less, with phosphorus and sulfur each comprising, by weight, 
0.03 percent or less. This steel has copper, niobium, and titanium 
added to achieve aging, and will exhibit yield strengths as high as 
1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after 
aging, with elongation percentages of 3 percent or less in 50 mm. It is 
generally provided in thicknesses between 0.635 and 0.787 mm, and in 
widths of 25.4 mm. This product is most commonly used in the 
manufacture of television tubes and is currently available under 
proprietary trade names such as ``Durphynox 17.'' 3
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    \3\ ``Durphynox 17'' is a trademark of Imphy, S.A.
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    Finally, three specialty stainless steels typically used in certain 
industrial blades and surgical and medical instruments are also 
excluded from the scope of this investigation. These include stainless 
steel strip in coils used in the production of textile cutting tools 
(e.g., carpet knives).4 This steel is similar to ASTM grade 
440F, but containing, by weight, 0.5 to 0.7 percent of molybdenum. The 
steel also contains, by weight, carbon of between 1.0 and 1.1 percent, 
sulfur of 0.020 percent or less, and includes between 0.20 and 0.30 
percent copper and between 0.20 and 0.50 percent cobalt. This steel is 
sold under proprietary names such as ``GIN4 Mo.'' The second excluded 
stainless steel strip in coils is similar to AISI 420-J2 and contains, 
by weight, carbon of between 0.62 and 0.70 percent, silicon of between 
0.20 and

[[Page 126]]

0.50 percent, manganese of between 0.45 and 0.80 percent, phosphorus of 
no more than 0.025 percent and sulfur of no more than 0.020 percent. 
This steel has a carbide density on average of 100 carbide particles 
per square micron. An example of this product is ``GIN5'' steel. The 
third specialty steel has a chemical composition similar to AISI 420 F, 
with carbon of between 0.37 and 0.43 percent, molybdenum of between 
1.15 and 1.35 percent, but lower manganese of between 0.20 and 0.80 
percent, phosphorus of no more than 0.025 percent, silicon of between 
0.20 and 0.50 percent, and sulfur of no more than 0.020 percent. This 
product is supplied with a hardness of more than Hv 500 guaranteed 
after customer processing, and is supplied as, for example, 
``GIN6''.5
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    \4\ This list of uses is illustrative and provided for 
descriptive purposes only.
    \5\ ``GIN4 Mo'', ``GIN5'' and ``GIN6'' are the proprietary 
grades of Hitachi Metals America, Ltd.
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Period of Investigation

    The period of investigation (POI) is April 1, 1997 through March 
31, 1998.

Postponement of Final Determination and Extension of Provisional 
Measures

    Pursuant to Section 735(a)(2) of the Tariff Act, on December 14, 
1998, Mexinox requested that, in the event of an affirmative 
preliminary determination in this investigation, the Department 
postpone its final determination until not later than 135 days after 
the date of the publication of an affirmative preliminary determination 
in the Federal Register, and extend the provisional measures to not 
more than six months. In accordance with 19 CFR 351.210(b), because: 
(1) our preliminary determination is affirmative; (2) Mexinox accounts 
for a significant proportion of exports of the subject merchandise; and 
(3) no compelling reasons for denial exist, we are granting the 
respondent's request and are postponing the final determination until 
no later than 135 days after the publication of this notice in the 
Federal Register. Suspension of liquidation will be extended 
accordingly.

Affiliation

    We have preliminarily determined that Mexinox is affiliated with 
Thyssen Stahl AG (Thyssen Stahl) and Thyssen AG (Thyssen). Section 
771(33)(E) of the Act provides that the Department shall consider 
companies to be affiliated where one owns, controls or holds, with the 
power to vote, five percent or more of the outstanding voting stock or 
shares of any other company. Where the Department has determined that a 
company directly or indirectly holds a five percent or greater equity 
interest in another company, the Department has deemed these companies 
to be affiliated.
    We have preliminarily determined that Mexinox is affiliated with 
Thyssen and Thyssen Stahl because these two companies indirectly own 
and control 36 percent of Mexinox's outstanding stock. We examined the 
record evidence to evaluate the nature of Mexinox's relationship with 
Thyssen Stahl and Thyssen. Mexinox's Section A Questionnaire Response, 
dated September 8, 1998, states that Krupp Thyssen Stainless (KTS) is a 
joint venture entity owned 60 percent by Krupp and 40 percent by 
Thyssen Stahl, and that KTS owns 90 percent of Mexinox. The supporting 
exhibits to this submission confirm Thyssen Stahl's interest in KTS and 
KTS's 90 percent shareholder interests in Mexinox. In its submission 
dated December 9, 1998, the petitioners submitted to the Department 
publicly available data that confirmed not only the foregoing 
shareholding interests, but also confirmed that Thyssen Stahl is a 
wholly-owned subsidiary of Thyssen. Consequently, Thyssen, through 
Thyssen Stahl and KTS, indirectly owns 36 percent interest in Mexinox. 
Therefore, Mexinox, as the majority owned subsidiary of the joint 
venture entity KTS, is affiliated with the joint venturer Thyssen Stahl 
and its parent company, Thyssen, pursuant to section 771(33)(E) of the 
Act. See Steel Wire Rod From Sweden, 63 FR 40499, 40453 (July 29, 1998) 
(Wire Rod From Sweden).
    In addition, we have preliminarily determined that Mexinox is 
affiliated with Thyssen AG and its U.S. affiliates. Pursuant to section 
771(33)(F) of the Act, affiliation exists between a parent company and 
its various subsidiaries where the subsidiaries are under the common 
control of the ultimate parent company. The statute defines control as 
being in a position to legally or operationally exercise restraint or 
direction over the other entity. Actual exercise of control is not 
required by the statute. In this investigation, the nature and quality 
of corporate contact necessitate a finding of affiliation vis-a-vis the 
common control mechanism.
    Section 771(33)(F) of the Act and the Department's determinations 
in Certain Cut-to-Length Carbon Steel Plate From Brazil, 62 FR 18486, 
18490 (April 15, 1997), and Wire Rod From Sweden at 40452, support a 
finding that Mexinox, Thyssen Stahl and Thyssen's affiliates in the 
U.S. market are under the common control of Thyssen and, therefore, 
affiliated with Thyssen, and each other. The record evidence shows that 
Thyssen, as the majority equity holder and ultimate parent company of 
its various affiliates, is in a position to exercise direction and 
restraint over the Thyssen affiliates' production and pricing. The 
record evidence also shows that Thyssen indirectly holds a substantial 
equity interest in Mexinox and is in a position to legally and 
operationally exercise direction and restraint over Mexinox (see 
Memorandum to Joseph Spetrini, Mexinox Affiliation, December 17, 1998) 
(Affiliation Memo). The evidence, taken as a whole, strongly suggests 
that Thyssen has several potential avenues for exercising direction and 
restraint over Mexinox's production, pricing and other business 
activities. In sum, Thyssen's substantial equity ownership in both 
Mexinox and its Thyssen affiliates, in conjunction with the ``totality 
of other evidence of control,'' requires a finding that these companies 
are under the common control of Thyssen, and are therefore affiliated 
parties within the meaning of section 771(33)(F) of the Act.

Fair Value Comparisons

    To determine whether sales of SSSS from Mexico to the United States 
were made at less than fair value, we compared the export price (EP) or 
constructed export price (CEP) to the normal value (NV), as described 
in the ``export price and constructed export price'' and ``normal 
value'' sections of this notice, below. In accordance with section 
777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs and 
CEPs for comparison to weighted-average NVs.
    On January 8, 1998, the U.S. Court of Appeals for the Federal 
Circuit (CAFC) 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 CAFC 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.'' 
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

[[Page 127]]

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.

Transactions Investigated

    For its home market and U.S. sales, Mexinox reported the date of 
invoice as the date of sale, in keeping with the Department's stated 
preference for using the invoice date as the date of sale (section 19 
CFR 351.401 (i)). Mexinox further stated that the invoice date 
represented the date when the essential terms of sales, i.e., price and 
quantity, are definitively set, and that up to the invoice date, these 
terms were subject to change. However, petitioners have alleged that 
the sales documentation provided by Mexinox does not appear to support 
Mexinox's claims that price and quantity may change at any time between 
the order acceptance date (confirmation date) and the final invoice 
date. On October 29, 1998, the Department requested that Mexinox 
provide additional information concerning the nature and frequency of 
price and quantity changes occurring between the date of order and date 
of invoice. In addition, we requested that Mexinox report sales during 
the POI for which Mexinox had issued an order acceptance, in addition 
to those sales invoiced during the POI. Mexinox responded to our 
request on November 17, 1998. We have preliminarily determined that the 
date of invoice is the appropriate indicator of the actual date of sale 
because record evidence indicates that in a substantial number of 
instances the price and quantity changed between the date of the order 
acceptance and the date of invoice, thus substantiating Mexinox's claim 
that price and quantity terms are subject to negotiation until the date 
of invoice. See Mexinox's November 17, 1998 Submission, pages 5-6. We 
will examine this issue closely at verification. If we determine that 
order confirmation date is the more appropriate date of sale, to the 
extent that this information has not been provided we may resort to 
facts available for the final determination.

Product Comparisons

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

Level of Trade

    In accordance with section 773(a)(1)(B)(i) of the Act, to the 
extent practicable, we determine NV based on sales in the comparison 
market at the same level of trade (LOT) as the EP or CEP transaction. 
The NV LOT is that of the starting price of the comparison sales in the 
home market or, when NV is based on CV, that of the sales from which we 
derive selling, general, and administrative (SG&A) expenses and profit. 
For EP, the LOT is also the level of the starting price sale, which is 
usually from the exporter to the importer. For CEP, it is the level of 
the constructed sale from the exporter to the importer.
    To determine whether NV sales are at a different LOT than EP or CEP 
sales, we examine stages in the marketing process and selling functions 
along the chain of distribution between the producer and the 
unaffiliated customer. If the comparison market sales are at a 
different LOT, and the difference affects price comparability, as 
manifested in a pattern of consistent price differences between the 
sales on which NV is based and comparison market sales at the LOT of 
the export transaction, we make a LOT adjustment under section 
773(a)(7)(A) of the Act. Finally, for CEP sales, if the NV level is 
more remote from the factory than the CEP level and there is no basis 
for determining whether the differences in the levels between NV and 
CEP sales affect price comparability, we adjust NV under section 
773(A)(7)(B) of the Act (the CEP offset provision).
    In implementing these principles in this investigation, we asked 
Mexinox to identify the specific differences and similarities in 
selling functions and/or support services between all phases of 
marketing in the home market and the United States. Mexinox identified 
two channels of distribution in the home market: (1) distributors/
retailers and (2) end-users. For both channels, Mexinox performs 
similar selling functions such as pre-sale technical assistance and 
after-sales warranty services. Because channels of distribution do not 
qualify as separate LOTs when the selling functions performed for each 
customer class are sufficiently similar, we determined that there 
exists one LOT for Mexinox's home market sales. See Certain Stainless 
Steel Wire Rods from France: Final Results of Antidumping Duty 
Administrative Review, 63 FR 30185, 30190 (June 3, 1998).
    For the U.S. market, Mexinox reported in its original questionnaire 
response two LOTs: 1) EP sales consisting, in some cases, of sales made 
directly to unaffiliated U.S. customers, and in other cases of sales 
made from the merchandise finished goods stock held at the Mexican 
factory in San Luis Potosi (SLP Stock sales); and 2) CEP sales made 
through Mexinox USA's Brownsville warehouse to service centers and end 
users. The Department examined the selling functions performed by 
Mexinox for both EP and CEP sales (after deductions under 772(d)). 
These selling functions included customer sales contacts (i.e., 
visiting current or potential customers receiving orders and promotion 
of new products), technical services, inventory maintenance, and 
business system development. We found that Mexinox provided a 
qualitatively different degree of these services on EP sales than it 
did on CEP sales, and that the selling functions were sufficiently 
different to warrant a determination that two separate LOTs exist in 
the United States.
    When we compared EP sales to home market sales, we determined that 
both sales were made at the same LOT. For both EP and home market 
transactions, Mexinox sold directly to the customer, and provided 
similar levels of customer sales contacts, technical services, and 
inventory maintenance. For CEP sales as adjusted, Mexinox performed 
fewer customer sales contacts, technical services, inventory 
maintenance, and warranty services. In addition, the differences in 
selling functions performed for home market and CEP transactions 
indicate that home market sales involved a more advanced stage of 
distribution than CEP sales. In the home market, Mexinox provides 
marketing further down the chain of distribution by providing the range 
of customized downstream selling functions that are normally performed 
by service centers in the U.S. market (e.g., further processing of 
coils, inventory maintenance, just-in-time deliveries, technical 
advice, credit and collection, etc.)
    Based on the above analysis, we determined that CEP and the 
starting price of home market sales represent different stages in the 
marketing process, and are therefore at different LOTs. Therefore, when 
we compared CEP sales to home market sales, we examined whether a 
level-of-trade adjustment may be appropriate. In this case, Mexinox 
sold at one LOT in the home market; therefore, there is no basis upon 
which to determine whether there

[[Page 128]]

is a pattern of consistent price differences between levels of trade. 
Further, we do not have the information which would allow us to examine 
pricing patterns of Mexinox's sales of other similar products, and 
there are no other respondent's or other record evidence on which such 
an analysis could be based.
    Because the data available does not provide an appropriate basis 
for making a LOT adjustment and the level of trade in Mexico for 
Mexinox is at a more advanced stage than the level of trade of the CEP 
sales, a CEP offset is appropriate in accordance with section 
773(a)(7)(B) of the Act, as claimed by Mexinox. We based the CEP offset 
amount on the amount of home market indirect selling expenses, and 
limited the deduction for home market (HM) indirect selling expenses to 
the amount of indirect selling expenses deducted from CEP in accordance 
with section 772(d)(1)(D) of the Act. We applied the CEP offset to NV, 
whether based on home market prices or CV.
    In addition to the three channels of distribution contained in the 
two U.S. levels of trade Mexinox reported in its original questionnaire 
response, Mexinox reported (in response to the Department's request in 
a supplemental questionnaire) U.S. sales through two other channels of 
distribution: CEP sales through a U.S. affiliate of Krupp; and CEP 
sales through a U.S. affiliate of Thyssen AG. We do not at this time 
have the information on the record to enable us to make a LOT 
determination for these two channels of distribution. We are currently 
soliciting such information from Mexinox and will invite comment on the 
information we receive from interested parties. For the purposes of 
this preliminary determination, we treated both of these channels of 
distribution as equivalent to the CEP level of trade as described 
above.

Export Price and Constructed Export Price

    Mexinox reported its sales of subject merchandise sold to 
unaffiliated U.S. customers through its affiliated company, Mexinox 
USA, as EP transactions. For EP sales, the price terms were set by 
management in Mexico before importation into the United States, and the 
products were shipped directly to the customer through Mexinox USA 
without being introduced into U.S. inventory. Furthermore, we reviewed 
the information Mexinox submitted about the sales process for these 
sales and determined that the role Mexico USA played was ancillary at 
most. Mexinox reported as CEP transactions its sales of subject 
merchandise sold to Mexinox USA for its own account. Mexinox USA then 
resold the subject merchandise after importation to unaffiliated 
customers in the United States.
    We calculated EP, in accordance with section 772(a) of the Act, for 
those sales where the merchandise was sold to the first unaffiliated 
purchaser in the United States prior to importation and CEP methodology 
was not otherwise warranted, based on the facts of record. We based EP 
on packed prices to unaffiliated purchasers in the United States. We 
made deductions for discounts, rebates, and debit/credit rates. We also 
made adjustments for movement expenses in accordance with section 
772(c)(2)(A) of the Act; these included, where appropriate, foreign 
inland freight, foreign brokerage and handling, foreign inland 
insurance, U.S. inland freight, U.S. brokerage and handling, U.S. 
customs duty, and U.S. warehousing. We also added duty drawback to the 
starting price, in accordance with section 772(c)(1)(B) of the Act.
    We calculated CEP, in accordance with section 772(b) of the Act, 
for those sales to the first unaffiliated purchaser that took place 
after importation into the United States. We based CEP on packed prices 
to unaffiliated purchasers in the United States. We made adjustments 
for discounts, rebates, and debit/credit notes where applicable. We 
also made deductions for movement expenses in accordance with section 
772(c)(2)(A) of the Act; these included, where appropriate, U.S. 
customs duties, U.S. inland freight, foreign brokerage and handling, 
and foreign inland insurance. In accordance with section 772(d)(1) of 
the Act, we deducted those selling expenses associated with economic 
activities occurring in the United States, including direct selling 
expenses (credit costs and warranty expenses), inventory carrying 
costs, and other indirect selling expenses. We also made an adjustment 
for profit in accordance with section 772(d)(3) of the Act, and added 
duty drawback to the starting price in accordance with section 
772(c)(1)(B) of the Act. In addition, the U.S. entity affiliated with 
Mexinox through Thyssen AG (discussed above) performed some further 
manufacturing of some of Mexinox's U.S. sales. For these sales, we 
deducted the cost of further manufacturing in accordance with 772(d)(2) 
of the Act. In calculating the cost of further manufacturing from the 
Thyssen affiliate, we relied upon the further manufacturing information 
Mexinox provided except for general and administrative (G&A) expenses. 
Mexinox's reported G&A expenses included interest expense and G&A 
expense. Mexinox also included a separate amount for interest expense. 
Therefore, we deducted the interest expense from the total G&A expenses 
and we accounted for interest expenses as a separate item in our total 
cost calculation. Also, Mexinox calculated G&A using a ratio specific 
to stainless steel processing. We recalculated the ratio by dividing 
company-wide G&A expenses by total processing costs. See memorandum 
from Laurens Van Houten to Neal Halper regarding cost of production and 
constructed value calculation dated December 17, 1998.
    As indicated above under ``Level of Trade,'' Mexinox made some U.S. 
sales through an affiliate of Thyssen AG. In its November 17, 1998 
submission Mexinox reported (at page 20) that this affiliate 
subsequently resold a small amount of this merchandise to other Thyssen 
affiliates. On December 14, 1988 we requested that Mexinox report these 
downstream U.S. sales. We will receive Mexinox's response on January 4, 
1999, and will consider using the information for the final 
determination. However, section 776(a) of the Act requires the 
Department to resort to facts available if a party ``fails to provide 
[requested] information by the deadlines for submission of the 
information or in the form and manner requested, subject to subsections 
(c)(1) and (e) of section 782.'' Furthermore, section 776(b) of the Act 
authorizes the Department, if it finds that a party has failed to act 
to the best of its ability in complying with a request for information, 
to use an inference adverse to the interests of the party in selecting 
from among the facts otherwise available. We determine that by 
reporting in its November 17, 1998 submission its U.S. sales to 
affiliated customers, rather than to the first unaffiliated U.S. 
customer, Mexinox has failed to act to the best of its ability. 
Therefore, for purposes of this preliminary determination we assigned a 
margin to these sales based on the facts available, pursuant to section 
776(a) of the Act. As facts available, we assigned to these sales the 
highest margin we found for any of the sales made by the Thyssen AG 
affiliate to its unaffiliated U.S. customers

Normal Value

A. Selection of Comparison Market

    In order to determine whether there is a sufficient volume of sales 
in the home market to serve as a viable basis for calculating NV (i.e., 
the aggregate volume of home market sales of the foreign like product 
is greater than five

[[Page 129]]

percent of the aggregate volume of U.S. sales), we compared the 
respondent's volume of home market sales of the foreign like product to 
the volume of U.S. sales of the subject merchandise, in accordance with 
section 773(a)(1)(B) of the Act. Because the respondent's aggregate 
volume of home market sales of the foreign like product was greater 
than five percent of its aggregate volume of U.S. sales for the subject 
merchandise, we determined that the home market was viable.

B. Affiliated-Party Transactions and Arm's-Length Test

    Sales to affiliated customers in the home market not made at arm's-
length prices were excluded from our analysis because we considered 
them to be outside the ordinary course of trade. See 19 CFR 351.102(b). 
To test whether these sales were made at arm's-length prices, we 
compared on a model-specific basis the starting prices of sales to 
affiliated and unaffiliated customers minus all movement charges, 
direct selling expenses, and packing. Where, for the tested models of 
subject merchandise, prices to the affiliated party were on average 
99.5 percent or more of the price to the unaffiliated parties, we 
determined that sales made to the affiliated party were at arm's 
length. See 19 CFR 351.403(c). In instances where no price ratio could 
be calculated for an affiliated customer because identical merchandise 
was not sold to unaffiliated customers, we were unable to determine 
that these sales were made at arm's-length prices and, therefore, 
excluded them from our LTFV analysis. See, e.g., Notice of Preliminary 
Determination of Sales at Less Than Fair Value and Postponement of 
Final Determination: Emulsion Styrene-Butadiene Rubber from Brazil, 63 
FR 59509 (Nov. 8, 1998), citing to Final Determination of Sales at Less 
Than Fair Value: Certain Cold-Rolled Carbon Steel Flat Products from 
Argentina, 58 FR 37062 (July 9, 1993). Where the exclusion of such 
sales eliminated all sales of the most appropriate comparison product, 
we made a comparison to the next most similar model.

C. Cost of Production Analysis

    Based on the cost allegation contained in the petition, the 
Department found reasonable grounds to believe or suspect that sales in 
the home market were made at prices below the cost of producing the 
merchandise, in accordance with section 773(b)(1) of the Act. As a 
result, the Department initiated an investigation to determine whether 
the respondent made home market sales during the POI at prices below 
its cost of production (COP) within the meaning of section 773(b) of 
the Act (See Initiation Notice).
    We calculated the COP based on the sum of the respondent's cost of 
materials and fabrication for the foreign like product, plus amounts 
for SG&A and packing costs, in accordance with section 773(b)(3) of the 
Act.
    We used the respondent's reported COP amounts, adjusted as 
discussed below, to compute weighted-average COPs during the POI. We 
compared the weighted-average COP figures to home market sales of the 
foreign like product as required under section 773(b) of the Act, in 
order to determine whether these sales had been made at prices below 
COP. On a product-specific basis, we compared the COP to the home 
market prices, less any applicable movement charges and discounts.
    In determining whether to disregard home market sales made at 
prices below the COP, we examined in accordance with sections 773(b)(1) 
(A)&(B) of the Act: (1) Whether, within an extended period of time, 
such sales were made in substantial quantities; and (2) whether such 
sales were made at prices which permitted the recovery of all costs 
within a reasonable period of time in the normal course of trade.
    Where twenty percent or more of the respondent's sales of a given 
product were at prices below the COP, we found that sales of that model 
were made in ``substantial quantities'' within an extended period of 
time, in accordance with sections 773(b)(2) (B) and (C) of the Act. 
Based on our comparison of prices to the weighted-average per-unit cost 
of production for the POI, we determined whether the below-cost prices 
were such as to provide for recovery of costs within a reasonable 
period of time, in accordance with section 773(b)(2)(D) of the Act. 
Therefore, we disregarded below-cost sales in determining NV.
    Our cost test for Mexinox revealed that less than twenty percent of 
Mexinox's home market sales of certain products were at prices below 
Mexinox's COP. We therefore concluded that for such products, Mexinox 
had not made below-cost sales in substantial quantities. See section 
773 (b)(2)(C)(i) of the Act. We therefore retained all such sales in 
our analysis. For other products, more than twenty percent of Mexinox's 
sales were at below-cost prices. In such cases we disregarded the 
below-cost sales, while retaining the above-cost sales for our 
analysis. See Preliminary Determination Analysis Memorandum, December 
17, 1998, a public version of which is on file in room B-009 of the 
main Commerce building. We relied on the respondent's reported COP and 
CV amounts except as noted below.
    1. We revised the reported material cost obtained from affiliates 
to include the highest of cost of production, transfer price, or market 
price. We made this adjustment in accordance with section 773(f)(3) of 
the Act.
    2. We revised the reported G&A rate to include G&A expenses as 
reported in the financial statement without adjustment for expenses 
incurred on behalf of subsidiaries. Additionally, we applied the 
revised G&A rate to the cost elements on which the rate was based in 
order to ensure that we did not understate the total G&A expenses.
    3. We revised the reported net financing expense ratio to include 
an offset only for those items which we determined to be short-term 
interest income. This is consistent with our methodology for 
calculating financing expenses. See, e.g. Antifriction Bearings (Other 
Than Tapered Roller Bearings) and Parts Thereof From France, et al; 
Final Results of Antidumping Reviews, Partial Termination of 
Administrative Reviews, and Revocation Part of Antidumping Duty Orders, 
60 FR 10900, 10925 (February 28, 1998).

D. Constructed Value

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of the respondent's cost of materials, fabrication, 
SG&A expenses, profit, and U.S. packing costs. In accordance with 
section 773(e)(2)(A) of the Act, we based SG&A expenses and profit on 
the amounts incurred and realized by the respondent in connection with 
the production and sale of the foreign like product in the ordinary 
course of trade, for consumption in the foreign country. We deducted 
from CV the weighted-average home market direct selling expenses 
incurred on sales made in the ordinary course of trade.

E. Price-to-Price Comparisons

    We calculated NV based on prices to unaffiliated customers or 
prices to affiliated customers that we determined to be at arm's 
length. We made adjustments for debit/credit notes, interest revenue, 
discounts, rebates, insurance revenue, and freight revenue, where 
appropriate. We made deductions, where appropriate, for foreign inland 
freight, insurance, handling, and warehousing, pursuant to section 
773(a)(6)(B) of the Act. In addition, we made adjustments for 
differences in cost attributable to differences in physical 
characteristics of the merchandise pursuant to section 773(a)(6)(C)(ii) 
of the Act and 19 CFR

[[Page 130]]

351.411, as well as for differences in circumstances of sale (COS) in 
accordance with section 773(a)(6)(C)(iii) of the Act and 19 CFR 
351.410. We made COS adjustments for imputed credit expenses and 
warranty expenses. We also made an adjustment, where appropriate, for 
the CEP offset in accordance with section(a)(7)(B) of the Act. Finally, 
we deducted home market packing costs and added U.S. packing costs in 
accordance with sections 773(a)(6) (A) and (B) of the Act.

F. Price-to-CV Comparisons

    In accordance with section 773(a)(4) of the Act, we based NV on CV 
if we were unable to find a home market match of such or similar 
merchandise. Where appropriate, we made adjustments to CV in accordance 
with section 773(a)(8) of the Act. For comparisons to EP, we made COS 
adjustments by deducting home market direct selling expenses and adding 
U.S. direct selling expenses. Where we compared CV to CEP, we deducted 
from CV the weighted-average home market direct selling expenses. We 
also made an adjustment, where appropriate, for the CEP offset in 
accordance with section 773(a)(7)(B) of the Act.

Currency Conversion

    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(a) of the 
Act.

Verification

    As provided in section 782(i) of the Act, we will verify all 
information relied upon in making our final determination.

Suspension of Liquidation

    In accordance with section 733(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all imports of subject 
merchandise that are entered, or withdrawn from warehouse, for 
consumption on or after the date of publication of this notice in the 
Federal Register. We will instruct the U.S. Customs Service to require 
a cash deposit or the posting of a bond equal to the weighted-average 
amount by which the NV exceeds the export price, as indicated below. 
These suspension-of-liquidation instructions will remain in effect 
until further notice. The weighted-average dumping margins are as 
follows:

------------------------------------------------------------------------
                                                            Weighted-
                 Exporter/manufacturer                    average margin
                                                           (Percentage)
------------------------------------------------------------------------
Mexinox................................................            23.27
All Others.............................................            23.27
------------------------------------------------------------------------

Commission Notification

    In accordance with section 733(f) of the Tariff Act, we have 
notified the Commission of our determination. If our final 
determination is affirmative, the Commission will determine before the 
later of 120 days after the date of this preliminary determination or 
45 days after our final determination whether imports of stainless 
steel sheet and strip are materially injuring, or threaten material 
injury to, the U.S. industry.

Public Comment

    Case briefs or other written comments may be submitted to the 
Assistant Secretary for Import Administration no later than fifty days 
after the date of publication of this notice, and rebuttal briefs, 
limited to issues raised in case briefs, no later than fifty-five days 
after the date of publication of this preliminary determination. See 19 
CFR 351.309. A list of authorities used and an executive summary of 
issues should accompany any briefs submitted to the Department. This 
summary should be limited to five pages total, including footnotes. In 
accordance with section 774 of the Act, we will hold a public hearing, 
if requested, to afford interested parties an opportunity to comment on 
arguments raised in case or rebuttal briefs. See 19 CFR 351.310. 
Tentatively, any hearing will be held fifty-seven days after 
publication of this notice at the U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW, Washington, D.C. 20230, at a time 
and location to be determined. Parties should confirm by telephone the 
date, time, and location of the hearing 48 hours before the scheduled 
time.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, within 30 days of the date of publication of this notice. 
Requests should contain: (1) the party's name, address, and telephone 
number; (2) the number of participants; and (3) a list of the issues to 
be discussed. At the hearing, each party may make an affirmative 
presentation only on issues raised in that party's case brief, and may 
make rebuttal presentations only on arguments included in that party's 
rebuttal brief. See 19 CFR 351.310(c). We intend to issue our final 
determination in this investigation no later than 135 days after the 
publication of this notice in the Federal Register.
    This determination is issued and published in accordance with 
sections 733(d) and 777(i)(1) of the Act and 19 CFR 351.205 (c).

    Date: December 17, 1998.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-34465 Filed 12-31-98; 8:45 am]
BILLING CODE 3510-DS-P