[Federal Register Volume 64, Number 59 (Monday, March 29, 1999)]
[Notices]
[Pages 14865-14872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7526]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[A-580-833]
Notice of Final Determination of Sales at Less Than Fair Value:
Emulsion Styrene-Butadiene Rubber From the Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: March 29, 1999.
FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or James Nunno, AD/CVD
Enforcement Group II, Office V, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
2613 or (202) 482-0783, respectively.
Applicable Statute and Regulations
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 of Commerce's (the
Department's) regulations are references to 19 CFR Part 351 (April 1,
1998).
Final Determination
We determine that emulsion styrene-butadiene rubber (ESBR) from the
Republic of 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 of sales at LTFV are shown in the ``Continuation of Suspension
of Liquidation'' section of this notice, below.
Case History
Since the preliminary determination in this investigation on
October 28, 1998 (see Notice of Preliminary Determination of Sales at
Less Than Fair Value and Postponement of Final Determination: Emulsion
Styrene-Butadiene Rubber from the Republic of Korea, 63 FR 59514
(November 4, 1998) (Preliminary Notice)), the following events have
occurred:
In November 1998, we received a supplemental response to Section D
of the Department's antidumping questionnaire from Korea Kumho
Petrochemical Co. Ltd. (KKPC).
In January 1999, we verified the questionnaire responses of KKPC.
In February 1999, we issued our verification reports for KKPC. Also in
February 1999, KKPC submitted a revised sales database, reflecting
verification revisions, at the Department's request.
On February 16, 1999, the petitioners (i.e., Ameripol Synpol
Corporation and DSM Copolymer), and KKPC submitted case briefs. On
February 22, 1999, the petitioners and KKPC submitted rebuttal briefs.
The Department held a public hearing on February 25, 1999.
Scope of Investigation
For purposes of this investigation, the product covered is ESBR.
ESBR is a synthetic polymer made via free radical cold emulsion
copolymerization of styrene and butadiene monomers in reactors. The
reaction process involves combining styrene and butadiene monomers in
water, with an initiator system, an emulsifier system, and molecular
weight modifiers. ESBR consists of cold non-pigmented rubbers and cold
oil extended non-pigmented rubbers that contain at least one percent of
organic acids from the emulsion polymerization process.
ESBR is produced and sold, both inside the United States and
internationally, in accordance with a generally accepted set of product
specifications issued by the International Institute of Synthetic
Rubber Producers (IISRP). The universe of products subject to this
investigation are grades of ESBR included in the IISRP 1500 series and
IISRP 1700 series of synthetic rubbers. The 1500 grades are light in
color and are often described as ``Clear'' or ``White Rubber.'' The
1700 grades are oil-extended and thus darker in color, and are often
called ``Brown Rubber.'' ESBR is used primarily in the production of
tires. It is also used in a variety of other products, including
conveyor belts, shoe soles, some kinds of hoses, roller coverings, and
flooring.
Products manufactured by blending ESBR with other polymers, high
styrene resin master batch, carbon black master batch (i.e., IISRP 1600
series and 1800 series) and latex (an intermediate product) are not
included within the scope of this investigation.
The products under investigation are currently classifiable under
subheading 4002.19.0010 of the Harmonized Tariff Schedule of the United
States (HTSUS). Although the HTSUS subheading is 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 April 1, 1997, through March
31, 1998.
[[Page 14866]]
Facts Available
The petition in this investigation named both KKPC and Hyundai
Petrochemical Co., Ltd. (Hyundai) as producers/exporters of ESBR from
Korea to the United States. On May 8, 1998, Hyundai requested that it
be excluded from participation as a mandatory respondent. On May 12,
1998, the petitioners submitted a letter to the Department opposing
Hyundai's exclusion from this proceeding. On May 13, 1998, the
Department notified Hyundai that it was selected as a mandatory
respondent. On May 21, 1998, the Department issued the antidumping duty
questionnaire to both companies. Hyundai did not submit a response to
the questionnaire. Consequently, for purposes of the preliminary
determination, the Department based the antidumping margin for Hyundai
on facts otherwise available and assigned it a margin of 118.88
percent, which was the higher of either the highest margin in the
petition or the highest margin calculated for a respondent. See
Preliminary Notice. Hyundai did not submit comments on the Department's
preliminary determination and, thus, has continued not to participate
in this investigation. Accordingly, for the final determination, the
Department has continued to base the antidumping margin for this
company on facts otherwise available and assigned it a margin of 118.88
percent, which was the higher of either the highest margin in the
petition or the highest margin calculated for a respondent.
Product 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.
Fair Value Comparisons
To determine whether sales of ESBR 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 under
the ``Export Price'' and ``Normal Value'' sections of the notice.
Level of Trade
For purposes of the preliminary determination, we conducted a level
of trade analysis for KKPC, and determined that the level of trade for
all EP sales is the same as that of the home market sales. See
Preliminary Notice. Based on our findings at verification, we find no
indication that the level of trade for EP sales is different from that
of the home market sales. Furthermore, neither the petitioners nor KKPC
commented on the Department's level of trade determination. Therefore,
for purposes of the final determination, we have continued to hold that
a level of trade adjustment is not warranted for KKPC.
Export Price
In accordance with section 772(a) and (c) of the Act, we used EP
methodology for KKPC because the subject merchandise was sold directly
to the first unaffiliated purchaser in the United States prior to
importation and CEP methodology was not otherwise indicated.
We calculated EP based on the same methodology used in the
preliminary determination, with the following exceptions: (1) we
recalculated U.S. credit expenses using the average short-term lending
rates calculated by the Federal Reserve (see Calculation Memorandum for
the Final Determination for Korea Kumho Petrochemical Co., Ltd. dated
March 19, 1999 (Final Calculation Memorandum)); and (2) we adjusted the
reported amounts for U.S. bank charges and packing expenses based on
corrections presented at the start of verification.
Normal Value
We used the same methodology to calculate NV as that described in
the preliminary determination, with the following exceptions: (1) we
used the February 12, 1999, home market sales listing reflecting
verification revisions, submitted at the Department's request; (2) we
adjusted the reported amounts for home market inland freight charges
and packing expenses based on corrections presented at the start of
verification; and (3) we recalculated home market credit expenses
denominated in U.S. dollars using the average short-term lending rates
calculated by the Federal Reserve (see Final Calculation Memorandum).
We continued to make no adjustment for imputed credit expenses related
to the payment of value-added taxes (VAT), in accordance with our long-
standing practice (see Comment 2 below). In those instances where KKPC
did not report payment dates, we recalculated reported credit expenses
using the date of the last day of the sales verification as the payment
date.
Cost of Production
We calculated the cost of production (COP) based on the sum of
KKPC's cost of materials and fabrication for the foreign like product,
plus amounts for home market selling, general and administrative (SG&A)
expenses and packing costs, in accordance with section 773(b)(3) of the
Act. We relied on the submitted COPs, except for the following specific
instances where we modified the margin calculation program to correct
for certain adjustments and updated cost data based on verification
findings (see Final Calculation Memorandum): (1) based on information
obtained at verification, we adjusted KKPC's reported cost of
manufacturing (COM) to reflect the POI costs (see Comment 5 below); (2)
we recalculated KKPC's financial expense ratio used in the calculation
of COP and CV on a consolidated basis (see Comment 6 below), and
additionally, in accordance with Department practice to exclude
exchange gains and losses from accounts receivable (see Comment 7
below, and Notice of Final Determination of Sales at Less Than Fair
Value: Stainless Steel Wire Rod from Korea, 63 FR 40404, 40416 (July
29, 1998)); and (3) based on our analysis of KKPC's supplemental
response to Section D of the Department's antidumping questionnaire, we
determined that an adjustment to the direct labor costs reported in
KKPC's COP and CV databases was unwarranted (see Comment 8 below).
We also conducted our sales below cost test in the same manner as
that described in our preliminary determination. As with the
preliminary determination, we found that, for certain grades of ESBR,
more than 20 percent of KKPC's home market sales were at prices less
than the COP within an extended period of time. See Section
773(b)(1)(A) of the Act. 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 for determining NV, in accordance with section
773(b)(1) of the Act.
Constructed Value
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of KKPC's cost of materials, fabrication, SG&A
expenses, profit, and
[[Page 14867]]
U.S. packing costs. We relied on the submitted CVs, except in the
specific instance noted in the ``Cost of Production'' section above.
Currency Conversion
As noted in the Preliminary Notice, our preliminary analysis of
Federal Reserve dollar-won exchange rate data showed that the won
declined rapidly at the end of 1997, losing over 40 percent of its
value between the beginning of November and the end of December. The
decline was, in both speed and magnitude, many times more severe than
any change in the dollar-won exchange rate during the previous eight
years. Had the won rebounded quickly enough to recover all or almost
all of the initial loss, the Department might have been inclined to
view the won's decline at the end of 1997 as nothing more than a
sudden, but only momentary drop, despite the magnitude of that drop. As
it was, however, there was no significant rebound. We continue to
determine that the decline in the won at the end of 1997 was so
precipitous and large that the dollar-won exchange rate cannot
reasonably be viewed as having simply fluctuated during this time,
i.e., as having experienced only a momentary drop in value. Therefore,
for purposes of the final determination, the Department continued to
use daily rates exclusively for currency conversion purposes for home
market sales matched to U.S. sales occurring between November 1 and
December 31, 1997. For sales occurring after December 31, but before
March 1, 1998, the Department continued to rely on the standard
exchange rate model, but used as the benchmark rate a (stationary)
average of the daily rates over this period. In this manner, we used an
``up-to-date'' (post-precipitous drop) benchmark, but at the same time
avoided undue day-to-day fluctuations in the exchange rates used. For
sales occurring after March 1, the standard model and standard
(rolling, 40-day) benchmark rate were used (see Comment 1 below).
Critical Circumstances
On September 24, 1998, the petitioners alleged that there is a
reasonable basis to believe or suspect that critical circumstances
exist with respect to imports of ESBR from Korea. Section 733(e)(1) of
the Act provides that the Department will determine that there is a
reasonable basis to believe or suspect that critical circumstances
exist if: (A)(i) there is a history of dumping and material injury by
reason of dumped imports in the United States or elsewhere of the
subject merchandise, or (ii) the person by whom, or for whose account,
the merchandise was imported knew or should have known that the
exporter was selling the subject merchandise at less than its fair
value and that there was likely to be material injury by reason of such
sales, and (B) there have been massive imports of the subject
merchandise over a relatively short period.
For purposes of the preliminary determination, we found that no
critical circumstances existed because there was no history of dumping,
and the preliminary margins were insufficiently high to impute
knowledge of dumping to exporters, producers, or importers of the
subject merchandise. Because the margin remains insufficiently high to
impute such knowledge, our final determination of critical
circumstances remains negative (see Comment 4 below).
Verification
As provided in section 782(i) of the Act, we verified the
information submitted by KKPC for use in our final determination. We
used standard verification procedures, including examination of
relevant accounting and production records, and original source
documents provided by KKPC.
Interested Party Comments
General Issues
Comment 1: Exchange Rate Methodology
The petitioners argue that the Department did not fully analyze its
methodology for currency conversion used in the preliminary
determination in which it modified the exchange rate database by using
the actual daily exchange rates during the period of devaluation,
November 1, 1997-December 31, 1997, to convert prices denominated in
Korean won into U.S. dollars. The petitioners contend that the
Department neither explained how it identified the devaluation of the
Korean won as too precipitous and large to represent a fluctuation, nor
did it cite any support for its decision to use a modified benchmark
for sales after January 1, 1998, which provided no clear notice to
interested parties as to what the official exchange rate would be on a
particular date of sale. The petitioners argue that the Department's
methodology used for the preliminary determination, in addition to
being unnecessarily complex and unpredictable, is inconsistent with
Congressional intent that the currency conversion process not distort
dumping margins, and should, therefore, not be used for purposes of the
final determination.
The petitioners contend that the Department should, instead, use
its standard exchange rate model, which would treat the won as a
fluctuating currency. As an alternative, the petitioners suggest that
the Department apply its existing ``sustained movement'' analysis (used
for situations in which a foreign currency appreciates against the U.S.
dollar) to the period of devaluation in Korea. The petitioners claim
that using this approach would deny an exporter the benefit of lower
dumping margins when it is selling products in the United States at
less than fair value, and would also provide a consistent treatment of
both increases and decreases in the value of the foreign currency.
Finally, the petitioners suggest that, as a third option, the
Department limit the POI to the seven months preceding the devaluation
of the won.
KKPC argues that the depreciation in the Korean won cannot be
considered a ``fluctuation'' because its value at the end of March
1998, three months after the period of devaluation, was still 50
percent less than what it had been in October 1997, which is contrary
to the definition of a fluctuation. Further, KKPC asserts that the
Department's ``sustained movement'' analysis is designed to prevent
artificial dumping margins created by appreciations in the foreign
currency in situations in which there would ordinarily be no margins.
KKPC contends that if the Department were to implement a ``sustained
movement'' policy to devaluating currency situations, it would apply an
exchange rate reflective of the pre-devaluation period to prices
reflective of the won's devaluation, and would, thus, penalize
exporters that immediately adjust their prices when the foreign
currency depreciates in value instead of waiting to adjust prices until
after the won rebounds in value. KKPC cites to recent cases involving
currency depreciations in which the Department chose not to follow this
approach (e.g., Final Determination of Sales at Less Than Fair Value:
Certain Preserved Mushrooms from Indonesia, 63 FR 72268, 72269
(December 31, 1998)). Moreover, KKPC argues that the Department should
not alter the POI because the Department's regulations require that the
Department investigate sales during the four fiscal quarters prior to
the filing of the petition. KKPC asserts that the petitioners had
knowledge of the currency devaluation in Korea before filing the
antidumping petition, and could have avoided a POI including the
devaluation of the won by filing their petition at an earlier date.
[[Page 14868]]
DOC Position
We have continued to use the currency conversion methodology used
for purposes of the preliminary determination, for the reasons
explained in the Preliminary Notice. Although neither party requested
that we use separate averaging periods, the petitioners did request
that we consider using a truncated POI. Under section 777A(d)(1)(A) of
the Act, the Department has wide latitude in calculating the average
prices used to determine whether sales at less than fair value exist.
More specifically, under 19 CFR 351.414(d)(3), the Department may use
averaging periods shorter than the POI where NV, EP, or constructed
export price varies significantly over the POI. In the instant case, NV
(in dollars) in the last five months of the POI differs significantly
from NV earlier in the POI due primarily to a significant change in the
underlying dollar value of the won. In this case, the change is
evidenced by the precipitous drop in the won's value that occurred in
November and December 1997, without a quick, significant rebound. The
won's value decreased by more than 40 percent in relation to the dollar
in the span of these two months and remained substantially at this new
lower value for the remainder of the POI. While we do not believe that
it is appropriate in this case to ignore sales that occurred in the
latter five months of the POI, and, thus, truncate the POI as the
petitioners have proposed, it is appropriate to use two averaging
periods to avoid the possibility of a distortion in the dumping
calculation. Therefore, we have used two averaging periods for purposes
of the final determination: April through October 1997, and November
1997 through March 1998.
We disagree with the petitioners' claim that we should not have
modified the currency conversion model, as was done for purposes of the
preliminary determination. As the petitioners themselves have
acknowledged, ``whenever the decline in the value of a foreign currency
is so precipitous and large as to reasonably preclude the possibility
that it is only fluctuating, the lower actual daily rates will be
employed from the time of the large decline.'' Exchange Rate
Methodology, Policy Bulletin, March 4, 1996. The petitioners dispute
our interpretation of the movement in the dollar-won exchange rate
during November and December of 1997 as so precipitous and large as to
reasonably preclude the possibility that it was only fluctuating.
However, as KKPC points out in its case brief, within an approximately
two-month period, the won's value fell from 920 per U.S. dollar to 1700
per U.S. dollar. In addition, while the won recovered slightly after
the rapid two-month decline, it did not regain its value of the period
prior to the rapid devaluation. A devaluation of almost 50 percent over
a period of two or three months cannot reasonably be seen as a mere
fluctuation. Accordingly, the Department continued to apply the
currency conversion methodology outlined above in the ``Currency
Conversion'' section, and divided the POI into two separate averaging
periods for purposes of the final determination.
Sales Issues
Comment 2: Calculation of Home Market Credit Expenses
According to KKPC, the Department erred in its decision to not
include home market VAT in the price used as the basis for the
calculation of home market credit expenses. KKPC explains that the
purpose of calculating credit expenses is to determine the economic
cost to the seller when it decides to allow the customer to delay its
payment. KKPC asserts that the Department should calculate credit
expenses based on the total price actually paid by the customer,
because the cost to KKPC of the delayed payment must be measured by the
total amount on which payment was delayed, which includes the tax-
exclusive price, plus VAT. KKPC argues that calculating credit expenses
on a tax-exclusive basis understates the economic effect of its
decision to extend credit.
Furthermore, KKPC states that calculating credit expenses net of
only VAT, without also deducting other costs borne by the seller, is
incongruent with the Department's stated methodology in Final
Determination of Sales at Less Than Fair Value: Sulfur Dyes, Including
Sulfur Vat Dyes, From the United Kingdom, 58 FR 3253 (January 8,
1993)(Sulphur Vat Dyes). KKPC argues that the treatment of VAT should
not differ from the treatment of other costs that the seller pays from
the proceeds of the sale (e.g., commissions), and asserts the
Department has never calculated credit expenses net of such other
costs.
KKPC cited cases in which the Department calculated credit expenses
based on prices that include taxes (e.g., Notice of Final Determination
of Sales at Less Than Fair Value: Circular Welded Non-Alloy Steel Pipe
From Mexico, 57 FR 42953 (September 17, 1992); Notice of Final
Determination of Sales at Less Than Fair Value: Silicon Metal From
Brazil, 56 FR 26977 (June 12, 1991); and Notice of Final Results of
Administrative Review of Antidumping Duty Order: Color Television
Receivers from Korea, 49 FR 50420 (December 28, 1984). KKPC contends
that the Department's past practice on calculating credit expenses has
been inconsistent, and that there is no rationale for excluding VAT
from the total price paid by the customer.
The petitioners state that such a circumstance-of-sale adjustment
for credit expenses relating to VAT is not warranted by the
Department's regulations, and refer to the stated methodology
concerning credit expense calculations in Notice of Final Determination
of Sales at Not Less Than Fair Value: Stainless Steel Bar from Italy,
59 FR 66921 (December 28, 1994), in which the Department explained that
the regulations contain no indication that an adjustment should be
granted for a government imposed tax such as VAT, or for any type of
so-called ``opportunity cost.'' The petitioners assert that KKPC did
not support its argument with any statutory or regulatory basis. In
addition, the petitioners argue that KKPC supports its argument with
cases that are outdated, and that the Department has since then
reflected on the treatment of VAT for credit expense calculations and
concluded that it should not make a circumstance-of-sale adjustment for
imputed interest expenses related to the payment of VAT. Finally, the
petitioners assert that the Department should continue to calculate
credit expenses net of VAT, because these expenses do not bear a
``direct relationship'' to the sales in question, as defined by the
Department's regulations.
DOC Position
We agree with the petitioners. As the petitioners noted, we have
evaluated this issue in past cases, and have come to the conclusion
that our regulations do not imply that we should treat the payment of
VAT as an opportunity cost to the seller on behalf of the buyer (See
Sulfur Vat Dyes). Furthermore, no statute or regulation requires us to
include VAT in the home market credit expense calculation (see Circular
Welded Non-Alloy Steel Pipe and Tube from Mexico: Final Results of
Antidumping Duty Administrative Review, 63 FR 33041, 33050 (June 17,
1998)). As the Statement of Administrative Action accompanying the
Uruguay Round Agreements Act, H.R. Doc. No. 103-316, vol. 1 (1994)
(SAA) states at page 827, ``[t]he deduction from normal value for
indirect taxes constitutes a change from the existing statute. The
change is intended to ensure that dumping
[[Page 14869]]
margins will be tax-neutral.'' Thus, Congress specifically intended for
normal value to be tax-neutral. Accordingly, computing imputed credit
expenses on a price that specifically includes an indirect tax such as
the VAT, as KKPC insists that we do, would be clearly inconsistent with
Congressional intent on this subject. For the final determination, we
are following our established practice of excluding VAT from home
market credit expense calculations for purposes of the final
determination (see Frozen Concentrated Orange Juice From Brazil:
Preliminary Results and Partial Rescission of Antidumping Duty
Administrative Review, 64 FR 5767, 5769 (February 5, 1999)).
Comment 3: Home Market Date of Sale
The petitioners argue that the Department should not use KKPC's
invoice date as the date of sale for its larger home market customers,
because the terms of sale are established at an earlier date (i.e., the
order date). The petitioners cite past cases in which the Department
used a date other than the invoice date for the respondent's date of
sale, and assert that the Department can appropriately use KKPC's order
date as the date of sale. The petitioners state that at a minimum,
because KKPC's order dates are not on the record, the Department should
use KKPC's date of shipment as the date of sale, since this information
is on the record of this proceeding. The petitioners explain that
because of the currency crisis in Korea, the order date during this
time period may precede the invoice date by more than a month, which
can have a significant effect on the calculation of dumping margins.
KKPC asserts that it properly reported the invoice date as the date
of sale for all sales to its larger home market customers, because in
the normal course of business, such customers place orders and receive
shipments throughout the month. KKPC maintains that it recognizes home
market sales, and records them as sales in its accounting records, when
it issues the invoice to the customer. In addition, KKPC states that
reporting the shipment date for these sales based on the month-end
invoice date understates the number of days between shipment and
payment, reduces the amount of credit expense relating to the sale, and
overstates the resulting dumping margin calculated for KKPC, since the
average shipment date would be at the middle of the month. KKPC argues
that the petitioners' allegation is untimely, because they had not
contended its use of the invoice date as the date of sale until their
case brief. Further, KKPC contends that using the invoice date is
consistent with the Department's regulations, and that the petitioners
did not provide a sufficient basis to use a different date. Finally,
KKPC contests that, although the sales quantity can be tied to its
transaction statements that are prepared for each shipment prior to
invoicing, the invoice itself is the first document generated in its
sales process which provides written evidence of the sales price
charged to the customer. KKPC explains that the transaction statement
and invoice relating to a specific shipment are always generated in the
same month that the shipment is made, and, therefore, all of its
relevant sales were included in the sales listing reported to the
Department.
DOC Position
We agree with KKPC. The Department's current practice is to use
invoice date as the date of sale, unless record evidence demonstrates
that the material terms of sale, i.e., price and quantity, are
established on a different date. See 19 CFR 351.401(i). The Department
explained in the preamble to its regulations at 62 FR 27348 (May 19,
1997):
* * * as a matter of commercial reality, the date on which the
terms of a sale are first agreed is not necessarily the date on
which those terms are finally established. In the Department's
experience, price and quantity are often subject to continued
negotiation between the buyer and the seller until a sale is
invoiced.
As noted in its responses to Sections A, B, and C of our
questionnaire, KKPC explained its above-stated invoicing methodology
for its home market customers. Furthermore, we noted ``* * * no
inconsistencies between the information concerning the date of sale
methodology in the company responses and the information gathered at
verification.'' See Sales Verification Report, dated February 15, 1999,
at page 9. During the course of this investigation, we found no
indication that a different date is more suitable as a date of sale. We
find that KKPC accurately reported the invoice date as the appropriate
date of sale because the invoice date best reflected the date on which
the essential terms of the sale were established.
Comment 4: Critical Circumstances
The petitioners request the Department reconsider their critical
circumstances allegation, should it calculate a final dumping margin
greater than 25 percent.
KKPC argues that even if the final calculated dumping margin, if
any, exceeds 25 percent, there is no way that an importer knew or
should have known that the subject merchandise was being sold at less
than fair value. KKPC asserts that it is unfair for the Department to
penalize importers with a retroactive assessment of duties when it
changes its methodologies from the preliminary determination, which
might cause the margin to exceed 25 percent, because an importer has
limited information.
DOC Position
As stated above in the ``Critical Circumstances'' section of this
notice, KKPC's margin does not exceed 25 percent for EP sales, and
there are no CEP sales in this investigation. Therefore, we find both
the petitioners' and KKPC's arguments to be moot in this case.
Cost Issues
Comment 5: Use of Fiscal Year Costs Versus POI Costs
According to KKPC, it correctly reported its costs based on the
fiscal year (i.e., January 1 through December 31, 1997) and not based
on the POI, because, although KKPC calculates monthly ESBR
manufacturing costs on a product-specific basis, the costs for certain
expenses, such as severance and depreciation costs, are based on
estimates. In addition, KKPC explains that its monthly ESBR
manufacturing costs for materials and inventories are valued using a
monthly moving average method, while the annual cost calculations use
an annual average method. As a result, the summation of KKPC's monthly
costs do not reconcile directly to the annual costs because the
differences between the monthly costs through November and the annual
costs are recorded as year-end adjustments to the December costs, which
can lead to aberrant December costs.
Moreover, KKPC argues that the Department has allowed respondents
to report fiscal year costs when the POI and fiscal year do not differ
by more than a few months, citing Certain Corrosion-Resistant Carbon
Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From
Canada: Final Results of Antidumping Duty Administrative Reviews, 63 FR
12725, 12734 (March 16, 1998), in which the Department granted the
respondent's request to base its reported costs on its fiscal period
rather than the period of review. KKPC asserts that it indicated its
use of fiscal year data in its September 18, 1998, response to the
Section D questionnaire, and that, although the petitioners asked the
[[Page 14870]]
Department to require KKPC to report POI costs, the Department did not
request POI costs until verification. According to KKPC, it would be
inappropriate for the Department to use the monthly POI costs now on
the record, because the fiscal year 1997 covers nine months of the POI,
and the monthly costs cannot be tied directly to its annual costs or to
KKPC's financial statements.
The petitioners argue that, although KKPC has maintained that only
its annual costs could be reconciled to its audited financial
statements, information gathered at verification proves that the
monthly cost statements could be reconciled to its financial
statements. In support of its argument, the petitioners refer to the
following items noted in the Department's Cost Verification Report,
dated February 7, 1999: (1) KKPC's cost accounting system is integrated
with its financial accounting system; (2) KKPC produces monthly trial
balances, income statements, and COM statements; and (3) the unit costs
calculated in the monthly COM statements match the unit costs as
calculated in KKPC's reconciliation of reported costs to its annual COM
statement. The petitioners assert that the monthly cost information
reported to the Department at verification could have been provided at
an earlier date, and that the Department should, therefore, consider
the information to be submitted in an untimely fashion. In addition,
the petitioners argue that in light of the increase in the COM during
the first quarter of 1998, as noted in the Cost Verification Report,
KKPC's decision to report fiscal year costs and not POI costs was
intended to minimize its costs of production. The petitioners suggest
that, consequently, the reported COMs should be rejected, and the
Department should apply adverse facts available, using the rate of
118.88 percent for KKPC's sales of subject merchandise, as was applied
to Hyundai.
The petitioners argue that if the Department decides not to reject
KKPC's reported COMs, it should, at a minimum, adjust KKPC's reported
COPs to reflect the differences in COM between the fiscal year 1997 and
the POI. However, the petitioners state that an upward adjustment based
on the percentage difference should not be used because of the
devaluation of the Korean won at the end of the POI, which would
benefit KKPC rather than penalize it. As an alternative, the
petitioners suggest that, as adverse facts available, the Department
should either: (1) limit the POI to the seven months prior to the
devaluation of the won (see Comment 1 above); or (2) convert HM prices
denominated in U.S. dollars to won both for purposes of the cost test,
as well as for calculating NV. The petitioners explain that although
KKPC has HM sales denominated in U.S. dollars, these US dollar prices
reflect won-based prices that were converted to U.S. dollars for the
convenience of KKPC's customers. The petitioners state that converting
all HM prices into won would, therefore, be consistent with KKPC's
pricing practice.
DOC Position
We disagree with the petitioners that we should reject KKPC's
response in toto and apply total facts available for purposes of the
final determination. We note that although the Department, in its May
21, 1998, Section D questionnaire at D-3, instructed KKPC to report its
costs based on the costs incurred during the POI, KKPC reported its
costs to the Department based on its fiscal year 1997. In its September
18, 1998, Section D response, KKPC stated that the company's cost
accounting system calculates costs on an annual basis at the end of
each fiscal year and these annual figures are the only calculations
that reconcile to KKPC's audited financial statements (See pages 24 and
25 at footnote 9). KKPC further stated that while the company also
calculates monthly product costs for management purposes, using the
same methodologies used in the company's normal cost accounting system,
these monthly management cost calculations are not used in KKPC's
accounting systems and do not reconcile directly to the company's
audited financial statements. Based on such claims, the Department did
not require KKPC to report POI cost data subsequent to its September
18, 1998, submission. We note that the Department does allow a
respondent to report fiscal year costs where there is only a few months
difference between the POI and the company's fiscal year. In such
instances, the Department will test the impact of the shift in the cost
reporting period to ensure that the use of fiscal year costs is not
distortive for purposes of our COP and CV analysis.
At the start of verification, contrary to its statements in its
questionnaire responses, KKPC disclosed to Department officials that
KKPC does, in fact, record monthly cost data in its accounting system.
Consequently, we requested and reviewed KKPC's monthly cost data,
noting that the monthly costs do reconcile to the company's audited
financial statements, after accounting for year-end adjustments for
certain expenses. During verification, we tested and compared the POI
costs based on the monthly cost data to the reported fiscal year costs
and noted that the per-unit COMs for each grade of ESBR for the POI
were higher than the per-unit COMs for the fiscal year (see Cost
Verification Report at pages 7 and 8 for a detailed discussion). Thus,
in this instance, because the Department originally requested POI cost
data, and our verification findings indicate that the use of the
reported fiscal year cost data is distortive, we have used the verified
POI cost data for purposes of the final determination, as facts
available, in accordance with section 776(a) of the Act (see Cost of
Production and Constructed Value Calculation Adjustments for the Final
Determination Memorandum, dated March 19, 1999). See e.g., Final
Determination of Sales at Less Than Fair Value: Canned Pineapple Fruit
from Thailand, 60 FR 29553, 29568 (June 5, 1995) (where the Department
disagreed with the respondent's reporting period for cost data, and
used the costs obtained during the verification for purposes of the
final determination).
Comment 6: Allocation of Financial Expenses to Investment Activities
KKPC argues that the Department erred in its calculation of
financial expenses for purposes of the preliminary determination. KKPC
calculated its financial expenses reported in the COP and CV data by
allocating its total financial expenses between its investment
activities and its manufacturing and sales activities, based on the
ratio of the income generated by each of these lines of business. For
purposes of the preliminary determination, the Department rejected
KKPC's methodology and recalculated KKPC's financial expenses by
allocating the company's total financial expenses over its cost of
goods sold (see Preliminary Notice at 59517). KKPC, citing Final
Determination of Sales at Less than Fair Value: Sweaters Wholly or in
Chief Weight of Man-Made Fiber from Korea, 55 FR 32659, 326678 (August
10, 1990) (Sweaters from Korea) and Porcelain-on-Steel Cooking Ware
from Mexico: Final Results of Antidumping Duty Administrative Review,
58 FR 32095 (June 8, 1993), argues that the methodology adopted by the
Department for its preliminary determination is not consistent with
established Department practice. KKPC contends that, as the Department
recognized in Sweaters from Korea, financial expenses incurred by a
company relate both to the company's investment activities and to its
[[Page 14871]]
manufacturing and sales activities. Thus, KKPC asserts that an
allocation that assigns all of the financial expenses to the company's
manufacturing and sales activities is incorrect and urges the
Department to revise its calculation of financial expenses for the
final determination.
The petitioners argue that KKPC offers no compelling reason for the
Department to deviate from its long-standing practice of allocating a
company's total financial expenses over its cost of goods sold, and,
therefore, urge the Department to deny KKPC's request for reallocation
of its financial expenses to the company's investment activities.
DOC Position
We disagree with KKPC that we erred in rejecting its method of
allocating interest expenses. As the Department has repeatedly stated,
and the Court of International Trade has upheld, we
recognize the fungible nature of a corporation's invested capital
resources, including debt and equity, and we do not allocate
corporate financing expenses to individual divisions of a
corporation on the basis of sales per division. Instead, we allocate
the interest expense related to the debt portion of the
capitalization of the corporation, as appropriate, to the total
operations of the consolidated corporation. More importantly, our
established practice of requiring the use of consolidated financial
statements recognizes: (1) the fungible nature of invested capital
resources such as debt and equity of the controlling entity within a
consolidated group of companies; and (2) that the controlling entity
within a consolidated group has the power to determine the capital
structure of each member company within its group (see, e.g., Aramid
Fiber Formed of Poly Para-Phenylene Terephthalamide From the
Netherlands; Final Results of Antidumping Administrative Review, 62
FR 38058 (July 16, 1997)).
E.I. Du Pont de Nemours & Co. v. U.S., SLIP OP. 98-7 (CIT 1998).
In this instance, KKPC is asking that the Department deviate from
its established practice of allocating financial expenses to the
merchandise under investigation using consolidated results of
operations (due to the proprietary nature of this issue, for a full
explanation, please see Memorandum to Louis Apple, Office Director,
from Team, dated March 19, 1999). Accordingly, for purposes of the
final determination, we continued to rely on the interest expense
calculation methodology used for purposes of the preliminary
determination.
Comment 7: Treatment of Exchange Gains and Losses on Sales
KKPC argues that foreign exchange gains and losses arising from
sales transactions should be included in the calculation of COP and CV.
KKPC asserts that foreign exchange gains and losses on sales
transactions relate to a company's general operations and, as such,
should be included as part of the financial expense of the company.
Furthermore, KKPC maintains that the treatment of exchange gains and
losses on sales transactions as a cost of financing sales is
inconsistent with the fundamental principle that money is fungible.
Accordingly, KKPC argues that the Department's financial expense
calculation should include all exchange gains and losses, including
gains and losses that arise from sales transactions.
The petitioners maintain that KKPC presents no compelling
justification for the Department to deviate from its long-standing
policy of excluding exchange gains and losses on sales transactions
from the calculation of COP and CV.
DOC Position
We disagree with KKPC. The Department typically only includes
foreign exchange gains and losses in a respondent's financial expense
if such gains and losses are related to the cost of acquiring debt.
Moreover, it is the Department's normal practice to distinguish between
exchange gains and losses realized or incurred in connection with sales
transactions and those associated with purchase transactions. See,
e.g., Notice of Final Determination of Sales at Less Than Fair Value:
Steel Wire Rod from Trinidad and Tobago, 63 FR 9177, 9181 (February 24,
1998) (Steel Wire Rod from Trinidad and Tobago). The Department
normally includes in its calculation of COP and CV foreign exchange
gains and losses resulting from transactions related to a company's
manufacturing activities (e.g., purchases of inputs). We do not
consider exchange gains and losses from sales transactions to be
related to the manufacturing activities of the company. See, e.g.,
Steel Wire Rod from Trinidad and Tobago, 63 FR at 9181 and Notice of
Final Determination of Sales at Less Than Fair Value: Fresh Atlantic
Salmon from Chile, 63 FR 31411, 31430 (June 9, 1998). Accordingly, for
purposes of the final determination, we disallowed exchange gains and
losses arising from sales transactions in the COP and CV calculation.
Alleged Clerical Errors Made in the Preliminary Determination Margin
Calculation Program
Comment 8: Corrections to KKPC's Direct Labor Costs
In the preliminary determination, we recalculated KKPC's reported
direct labor cost, because, based on information on the record at the
time, we could not reconcile KKPC's reported direct labor costs to its
total labor costs. KKPC notes that, subsequent to the Department's
preliminary determination, the company provided a reconciliation of its
direct labor costs to its total labor costs in its November 2, 1998,
response to the Department's section D supplemental questionnaire. In
addition, KKPC states that the Department verified that the direct
labor costs were calculated correctly. Therefore, KKPC asserts that the
Department should accept the reported direct labor costs and should,
accordingly, correct the margin program.
DOC Position
We agree. We have made the appropriate corrections for purposes of
the final determination.
Comment 9: Product Characteristics Used for Purposes of Model Matching
The petitioners argue that, for purposes of the preliminary
determination, the Department improperly excluded grade as one of the
matching criteria in performing its model matching. In addition, the
petitioners claim that by excluding grade, the Department assigned one
control number to two different ESBR products (i.e., ESBR grades 1502
and 1507).
KKPC asserts that the Department clearly stated its intention to
not include grade as a matching criterion, and that by not doing so,
two products are treated as one product. KKPC argues that these do not
constitute inadvertent or clerical errors, and that there is no basis
for changing the matching criteria.
DOC Position
We agree with both the petitioners and KKPC, in part. In response
to our April 28, 1998, letter to interested parties, in which we
requested information concerning the product characteristics, the
petitioners stated that ``* * * any product matching that relied simply
on the IISRP grading system as product matching criteria, rather than
on the essential physical characteristics of ESBR product, would
necessarily fail to match certain product sales that properly should be
included
[[Page 14872]]
in the Department's matching analysis.'' We, therefore, used the
product characteristics attached to the petitioners' aforementioned
response as our matching criteria, and did not include grade as a
product characteristic. Excluding the grade from the matching criteria
was, therefore, not an inadvertent or clerical error.
However, based on the arguments raised in this proceeding, we have
reexamined our matching criteria. We note that indeed two of KKPC's
reported products are assigned one control number based on our matching
criteria, as verified. Sales Verification Report at page 6. Based on
KKPC's written description of ESBR grades 1502 and 1507, as noted in
its June 18, 1998, response to Section A of the Department's
questionnaire, grade 1507 has a ``* * * lower mooney viscosity than the
1500 and 1502 grades.'' Based on our review of the record in this case,
we find that the ranges for mooney viscosity, as defined by KKPC's
standard specifications (and also reflected in the IISRP's The
Synthetic Rubber Manual), are different for grades 1502 and 1507. In
addition, there are cost and price differences between these two grades
based on KKPC's submitted COPs and sales listings. Therefore, we
recognize that mooney viscosity is an essential product characteristic
that defines the grade, and conclude that KKPC's sales of grades 1502
and 1507 should be treated as two separate products for purposes of the
final determination (see Notice of Final Results and Partial Recission
of Antidumping Duty Administrative Review: Roller Chain, Other than
Bicycle, from Japan, 62 FR 60472, 60475 (November 10, 1997) (where the
Department used additional product characteristics for the final
results in order to prevent grouping of physically diverse chain as
identical or similar merchandise)). In addition, for purposes of any
future administrative reviews, the Department intends to include mooney
viscosity as a product characteristic for matching purposes (see Final
Calculation Memorandum).
Comment 10: Quantity Variable Used in the Margin Program
The petitioners argue that the Department made a certain
inadvertent programming error in its preliminary margin calculation,
and that the Department should correct this error for purposes of the
final determination. Specifically, the petitioners note that the
Department overstated the U.S. sales quantity by using an incorrect
quantity variable.
DOC Position
We agree. We have made the appropriate corrections for purposes of
the final determination (see Final Calculation Memorandum).
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
ESBR from Korea that are entered, or withdrawn from warehouse, for
consumption on or after November 4, 1998, the date of publication of
our preliminary determination in the Federal Register. The Customs
Service shall continue to require a cash deposit or the posting of a
bond equal to the weighted-average amount by which the normal value
exceeds the U.S. price, as indicated in the chart 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
------------------------------------------------------------------------
Korea Kumho Petrochemical Co., Ltd.......................... 16.65
Hyundai Petrochemical Co., Ltd.............................. 118.88
All Others.................................................. 16.65
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded any zero and de minimis margins, and any margins determined
entirely under section 776 of the Act, from the calculation of the
``All Others Rate.''
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. As our final determination is affirmative,
the ITC will, 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, or withdrawn from
warehouse, for consumption on or after the effective date of the
suspension of liquidation.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to
Administrative Protective Order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to
comply is a violation of the APO.
This determination is published pursuant to section 777(i) of the
Act.
Dated: March 19, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-7526 Filed 3-26-99; 8:45 am]
BILLING CODE 3510-DS-P