[Federal Register Volume 64, Number 61 (Wednesday, March 31, 1999)]
[Notices]
[Pages 15476-15493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7537]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-423-808]
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Plate in Coils From Belgium
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: March 31, 1999.
FOR FURTHER INFORMATION CONTACT: Abdelali Elouaradia or Steve
Bezirganian, Import Administration, International Trade Administration,
U.S. Department of Commerce, 14th Street and Constitution Avenue, NW,
Washington, DC 20230; telephone: (202)
[[Page 15477]]
482-2243 or (202) 482-0162, 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 of Commerce
(``Department'') regulations are to the regulations at 19 CFR part 351,
62 FR 27296 (May 19, 1997).
Final Determination
We determine that stainless steel plate in coils (``SSPC'') from
Belgium is being sold in the United States at less than fair value
(``LTFV''), as provided in section 735 of the Act. The estimated
margins are shown in the ``Continuation of Suspension of Liquidation''
section of this notice.
Case History
Since the preliminary determination (Notice of Preliminary
Determination of Sales at Less Than Fair Value: Stainless Steel Plate
in Coils from Belgium, 63 FR 59532, November 4, 1998) (``Preliminary
Determination''), the following events have occurred:
During November 1998, ALZ submitted responses to the sales and cost
supplemental questionnaires issued by the Department. On November 20,
1998, petitioners submitted comments regarding the issue of date of
sale and the Department's Belgium sales verification. On November 23,
1998, ALZ submitted corrections presumably discovered while preparing
for the sales verification in Belgium. On November 30, 1998, ALZ
submitted pre-verification changes and new factual information to
supplement its cost of production (``COP'') and constructed value
(``CV'') information. On December 3, 1998, petitioners submitted
comments on ALZ's November 23, 1998, revised section B and C
submission, and on ALZ's November 23 and 30, 1998 supplemental section
D questionnaire responses. On January 6, 1999, ALZ submitted certain
``corrections'' to the U.S. sales database discovered while preparing
for the U.S. sales verification of its U.S. sales affiliate,
TrefilARBED, Inc. (``TrefilARBED''). On January 11, 1999, petitioners
submitted comments regarding the Department's U.S. sales verification
of TrefilARBED. Finally, on January 21, 1999, ALZ submitted new
computer U.S. sales listings, which included data changes identified at
the outset of the U.S. sales verification.
During December 1998 and January 1999, we conducted sales and cost
verifications of ALZ's responses to the antidumping questionnaire. On
January 13, 1999, we issued our cost verification report (see
Memorandum to Neal Halper, Acting Director, Office of Accounting:
Verification of Cost of Production and Constructed Value Data--ALZ,
N.V.) (``ALZ Cost Verification Report''). On January 27, 1999, we
issued our sales verifications reports (see Memorandum to the File:
Verification of ALZ, N.V.) (``ALZ Sales Verification Report'') and
Memorandum to the File: U.S. Sales Verification Report (TrefilARBED/
ALZ) (``TrefilARBED Sales Verification Report'').
Petitioners and ALZ submitted case briefs on February 8, 1999, and
rebuttal briefs on February 16, 1999. On February 12, 1999, petitioners
withdrew their request for a public hearing.
Scope of Investigation
For purposes of this investigation, the product covered is certain
stainless steel plate 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 plate
products are flat-rolled products, 254 mm or over in width and 4.75 mm
or more in thickness, in coils, and annealed or otherwise heat treated
and pickled or otherwise descaled. The subject plate may also be
further processed (e.g., cold-rolled, polished, etc.) provided that it
maintains the specified dimensions of plate following such processing.
Excluded from the scope of this petition are the following: (1) Plate
not in coils, (2) plate that is not annealed or otherwise heat treated
and pickled or otherwise descaled, (3) sheet and strip, and (4) flat
bars.
The merchandise subject to this investigation is currently
classifiable in the Harmonized Tariff Schedule of the United States
(HTS) at subheadings: 7219.11.00.30, 7219.11.00.60, 7219.12.00.05,
7219.12.00.20, 7219.12.00.25, 7219.12.00.50, 7219.12.00.55,
7219.12.00.65, 7219.12.00.70, 7219.12.00.80, 7219.31.00.10,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.11.00.00, 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, 7220.90.00.10,
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
written description of the merchandise under investigation is
dispositive.
Period of Investigation
The period of investigation (``POI'') is January 1, 1997, through
December 31, 1997.
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 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 listed in the Department's
May 27, 1998 antidumping duty questionnaire and reporting instructions
(``Original Questionnaire'').
Fair Value Comparisons
To determine whether sales of SSPC from Belgium to the United
States were made at LTFV, we compared constructed export price
(``CEP'') to the Normal Value (``NV''), as described in the
``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 CEPs for comparison to weighted-average
NVs .
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 CEP transaction. The
NV LOT is that of the starting price sales in the comparison market or,
when NV is based on CV, that of the sales from which we derive selling,
general and administrative expenses (``SG&A'') and profit. 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 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
[[Page 15478]]
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). See Notice of Final Determination of Sales at Less Than
Fair Value: Certain Cut-to-Length Carbon Steel Plate from South Africa,
62 FR 61731 (November 19, 1997).
We applied the aforementioned criteria in our preliminary results,
and indicated that the information on the record does not reveal
meaningful differences between selling functions performed in the U.S.
and Belgian markets (Preliminary Determination at 59533-34). As we
further explain this issue in response to Comment 2, below, we continue
to find that there is no basis for determining different levels of
trade in the two markets and, therefore, we have continued to treat all
of ALZ's home market and U.S. sales at a single level of trade.
Accordingly, we have not made a LOT adjustment or CEP offset in this
final determination.
Constructed Export Price
We calculated CEP in accordance with section 772(b) of the Act
because sales to the first unaffiliated purchaser took place after
importation into the United States.
We calculated CEP based on the same methodology used in the
preliminary determination, except as noted below in ``Comments'' and in
the Final Sales Analysis Memorandum from Abdelali Elouaradia to Steven
Presing, dated March 19, 1999 (``Final Sales Analysis Memorandum'').
Normal Value
After testing home market viability and whether home market sales
were at below-cost prices, we calculated NV as noted in the ``Price-to-
Price Comparisons'' and ``Price-to-CV Comparisons'' sections of this
notice, below.
1. Home Market Viability
As discussed in the preliminary determination, we determined that
the home market was viable. See Preliminary Determination at 59532. The
parties did not contest the viability of the home market. Consequently,
for the final determination, we have based NV on home market sales.
2. Cost of Production
In accordance with section 773(b)(3) of the Act, we calculated the
weighted-average COP, by grade, based on the sum of ALZ's cost of
materials, fabrication, general expenses, and packing costs. We relied
on ALZ's submitted COPs, except in the following specific instances
where the submitted costs were not appropriately quantified or valued.
(a) As facts available (``FA'') for ALZ's undisclosed purchases of
scrap and alloys from affiliated suppliers, we applied the highest cost
reported for these materials within each grade, to the control numbers
(``CONNUMs'') which represent that particular grade. We address this
issue further in our response to comment 13 in the ``Interested Party
Comments'' section of the notice.
(b) We revised ALZ's general and administrative (``G&A'') expenses
to exclude an offset for net exchange gains. We also included exchange
gains and losses related to purchases and accounts payable, consistent
with our general practice in the calculation of G&A expenses. See
Memorandum from Taija Slaughter to Neal Halper: Final Cost Analysis,
dated March 19, 1999 (``Final Cost Analysis Memorandum'').
(c) We revised ALZ's financial expense ratio using the parent
company's consolidated financial statements. See Final Cost Analysis
Memorandum at 1.
We conducted our sales below cost test in the same manner as that
described in our Preliminary Determination at 59534. As with the
preliminary determination, we found that for certain models of SSPC,
more than 20 percent of ALZ'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.
3. Calculation of Constructed Value
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of ALZ's cost of materials, fabrication, SG&A
expenses, profit, and U.S. packing costs. We relied on the submitted
CVs, except for the specific instances noted in the ``Cost of
Production'' section, above.
Price-to-Price Comparisons
For those product comparisons for which there were sales at prices
above the COP, we based NV on prices to home market customers, none of
which we found to be affiliated with ALZ. We made adjustments, where
appropriate, for physical differences in the merchandise in accordance
with section 773(a)(6)(C)(ii) of the Act. We made deductions for
billing adjustments (i.e., adjustment for transportation, when customer
picks up the merchandise, invoice correction, and alloy surcharge),
early payment discounts, inland freight, and inland insurance. In
addition, we made circumstance-of-sale adjustments for credit, where
appropriate. In accordance with section 773(a)(6), we deducted home
market packing costs and added U.S. packing costs.
Price-to-CV Comparisons
For price-to-CV comparisons, we made adjustments to CV in
accordance with section 773(a)(8) of the Act. We deducted from CV the
amount of indirect selling expenses capped by the amount of the U.S.
commissions.
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 of the
Act.
Verification
As provided in section 782(i) of the Act, we verified the
information submitted by the respondent 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 ALZ.
Interested Party Comments
Comment 1: Date of Sale. Citing Certain Welded Carbon Steel Pipes
and Tubes from Thailand: Final Results of Administrative Review, 63 FR
55578, 55587 (October 16, 1998) (``Pipes and Tubes from Thailand''),
petitioners argue that the Department considers date of sale to be a
factual issue, decided on a case-by-case basis. According to
petitioners, the Department utilizes invoice date as date of sale only
if the material terms of sale, i.e., price and quantity, are not
established on a different date. Petitioners note that in Circular
Welded Non-Alloy Steel Pipe From the Republic of Korea, 63 FR 32833,
32836 (June 16, 1998) (``Steel Pipe from Korea''), the Department found
that the use of a date other than invoice date as date of sale is
appropriate due to prior setting of terms of sale, even if that may
involve basing date of sale differently in different markets, where the
sales processes are quite different.
[[Page 15479]]
Petitioners note that, in ALZ's February 8, 1999, brief at 2, ALZ
acknowledged that the invoice date is the correct date of sale for U.S.
sales unless a different date better reflects the sale. Petitioners
point out that ALZ's references to the Department's TrefilARBED Sales
Verification Report, as evidence that terms of sale frequently change
subsequent to the submission of the purchase order, are actually
references to statements made by the respondent at verification and
recorded in the report, rather than conclusions made by the verifiers.
Petitioners point to ALZ Sales Verification Report at 6, referring
to ALZ's comment made during verification, as confirmation of the
overriding significance of order date in the context of date of sale:
(1) ALZ production is always order driven; (2) customers' order
information is closely reviewed by the sales and production planning
departments before production and order confirmation; and (3) order
confirmation is always sent to the customer. Petitioners reject, as
unverified and contrary to industry practice, TrefilARBED's assertion
that, in some instances, rather than submitting a purchase order, U.S.
customers might have entered into a verbal agreement with respect to
terms of sale with TrefilARBED. Petitioners also note that the
respondent failed to provide purchase order numbers for most of the
sales in the U.S. sales database, despite the Department's request for
that information. Furthermore, petitioners state that TrefilARBED Sales
Verification Report, at 11, indicates that ALZ made efforts to limit
the fluctuation of prices for the U.S. market.
Petitioners next indicate that a long time lag exists between order
and invoice date across all U.S. sales, and that this time lag is
considerably greater, on average, for U.S. sales than for home market
sales. Petitioners note that, for U.S. further-manufactured sales, an
even longer time elapses between order date and invoice date because of
the additional processing involved; thus, the use of invoice date as
date of sale for such transactions would be especially distortive.
Petitioners point to the absence of changes in price and quantity
between the final order date (whether it be the original one or the
final change order), and assert, citing Final Determinations of Sales
at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products,
Certain Cold-Rolled Carbon Steel Flat Products, and Certain Cut-to-
Length Carbon Steel Plate from Belgium, 58 FR 37083, 37090 (July 9,
1993), that the Department considers invoice date to be inappropriate
as date of sale if the order confirmation date, or in some instances,
the change order date, was the time during which the terms of sale were
set. Petitioners state that the sales trace documentation provided by
ALZ was incomplete and insufficient. Moreover, when a specific sale
record only shows the final ALZ/TrefilARBED invoice, the petitioners
assert that the Department must assume that the material terms of sale
remained the same from order to invoice. Petitioners note that
TrefilARBED acknowledged that multiple invoices are routinely used to
fill orders, which explains why ordered and invoiced quantities may
vary. Petitioners also note that ALZ's mill test certificates indicate
quantities, so quantities shipped would clearly be known prior to
actual shipment.
Petitioners further argue that the record does not demonstrate that
there was a change in material terms between order date and invoice
date for a number of verified U.S. sales. Regarding several other U.S.
sales, mentioned by ALZ in its brief as examples of changes between
order and invoicing, petitioners argue that, for U.S. sale observations
#734 and #735, the changes in quantity and price occurred soon after
the original order, but long before the final invoicing. For U.S. sale
observations #532 and #537, the change in quantity is handwritten on
the order itself, which is dated several months before the invoice.
Finally, petitioners note that the change in unit price from the
purchase order to the invoice for U.S. sale #329 did not reflect a
change in a material term but, rather, as noted in TrefilARBED Sales
Verification Report at 37, TrefilARBED happened to record in its gross
unit price a change in delivery terms that occurred subsequent to the
purchase order. Petitioners indicate that such a change would normally
have been recorded as a billing adjustment and, as such, it should not
be considered a change in the material terms (i.e., in price and
quantity) of this sale. Petitioners conclude that all of the U.S. sales
cited by ALZ in support of invoice date as date of sale actually
support use of order date/change order date as the proper date of sale.
Petitioners argue that the information in the record does not
demonstrate that, for various verified home market sales, any changes
to the terms of sale have actually occurred between order date and
invoice date. Rather, in those instances, the time lag between order
and invoice date is very short, often only a few days. Regarding
several other home market sales, mentioned by ALZ in its brief as
examples of changes between order and invoicing, petitioners argue that
for home market sale observations #77 and #78, although nominal changes
were observed in the manner of calculating the alloy surcharge, the
final alloy surcharge was consistent with that anticipated by the
original order. Also, for home market sale #77 and #78, petitioners
argue that the addition of specifications to which the product should
be made, up through the day of invoicing, constitutes a change in ALZ's
grade and clarifies the unusually long lag period between original
order date and invoice date for the above-referenced home market sale
observations, even if these changes do not change the classification of
the product for Department purposes. Likewise, for home market sale
observation #225, petitioners argue that the change in the number of
standards to which the product should be made constitutes a change in
the product itself, which explains the long lag between original order
date and invoice date. For home market sale observation #232,
petitioners note that the alloy surcharge was changed the day of
invoicing, so that the invoice serves as the change of order and
explains the lag of a few months between the order date and the invoice
date.
Petitioners also discuss possible changes from the order date that
are not mentioned by the respondent. Petitioners note that home market
sale observation #50 appears to reflect a change in product dimension
from the original order to the invoiced product which, while not
referenced in the report and not significant enough to change the
CONNUM for the sale, would constitute an actual change in terms, which
helps explain the long time lag between the original order date and the
invoice date. Petitioners add that home market sale observations #227
and #228 appear to be sales destined for export through trading
companies, with ALZ's knowledge. Therefore, these sales are irrelevant
in the context of home market date of sale because they are properly
categorized as export sales. According to petitioners, this confusion
demonstrates the unreliability of the database and is grounds for use
of adverse FA across the entire home market database. Petitioners note
that ALZ's statement at verification that there are quantity tolerances
for sales is in stark contrast with ALZ's repeated assertions, prior to
verification, that there were no quantity tolerances. Petitioners also
note that ALZ's characterization of BILLAD2U as a field containing
adjustments related to customer claims. Petitioners also assert
[[Page 15480]]
that another reported billing adjustment, BILLAD1U, must relate to
errors in invoicing, even though it was characterized by ALZ as freight
revenue obtained from U.S. customers and that, contrary to ALZ's
assertion that it reported this value as a negative number because it
increases sales revenue, they in fact reported this value as a positive
number in some instances. Moreover, petitioners characterize ALZ's
claim at verification (see ALZ Sales Verification Report at 21) that it
``may even agree to renegotiate the {alloy} surcharge if it had agreed
to ship and invoice the merchandise in one month, but ended up doing so
in the following month,'' as an unproven assertion.
Petitioners conclude that ALZ failed to (1) provide order
confirmation numbers for U.S. sales; (2) report the change order
information when terms changed after the original order; (3) admit,
until verification, that quantity tolerances were used; (4) provide the
general terms of its U.S. and home market order confirmations (on the
un-copied back of documents it copied for submission); (5) limit its
home market sales database to exclude export sales; (6) provide correct
home market order/invoicing time lags in various ways (such as false
classification changes); (7) explain its change to home market billing
adjustment BILLAD1U; and (8) fully translate documentation prepared for
verification.
Citing the Department's regulations at 19 CFR 351.401(i) (1998),
ALZ argues that the invoice date should be used as date of sale unless
the Department is satisfied that a different date better reflects the
date on which the exporter or producer establishes the material terms
of sale. ALZ notes that the preamble to the Department's final
regulations explains that the reason for normally using invoice date as
date of sale is to simplify the reporting and verification of
information. ALZ further indicates that, as a matter of commercial
reality, the date on which the terms of a sale are first agreed to is
not necessarily the date on which those terms are finally established.
ALZ also points out that, in Certain Cold-Rolled and Corrosion-
Resistant Carbon Steel Flat Products From Korea: Final Results of
Antidumping Duty Administrative Reviews, 63 FR 13170, 13194 (March 18,
1998), the Department confirmed its general practice of using the date
of invoice as the date of sale unless there is a compelling reason to
do otherwise. ALZ argues that such compelling reasons exist only for
more complex sales processes (e.g., sales involving long-term
contracts, or sales of large, custom-made merchandise), rather than
simple submissions of purchase orders and issuances of invoices, as in
this investigation. ALZ notes that the Original Questionnaire indicated
that the Department ``will normally use the date of invoice, as
recorded in the exporter's or producer's records kept in the ordinary
course of business,'' as the date of sale. ALZ asserts that the invoice
date ties easily to the financial records and thus simplifies
verification. Moreover, ALZ claims that the record of this
investigation shows that the invoice date is the only date that
establishes the material terms of sale for ALZ's sales in Belgium and
TrefilARBED's sales in the United States. ALZ argues that, in Certain
Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-
Length Carbon Steel Plate From Canada, 64 FR 2173, 2178 (January 13,
1999), the Department used invoice date as date of sale, where the
respondent demonstrated at verification that there were changes in
quantity between the order date and the invoice date. ALZ further notes
that petitioners incorrectly cite to Certain Hot-Rolled Carbon Steel
Flat Products, Certain Cold-Rolled Carbon Steel Flat Products, Certain
Corrosion-Resistant Carbon Steel Flat Products, and Certain Cut-to-
Length Carbon Steel Plate from Belgium, 58 FR 37083 (July 9, 1993), to
demonstrate that the Department found in previous cases that the terms
of sale were established on the order confirmation or the change order
date. This determination, ALZ notes, was made prior to the Department's
change in regulations regarding date of sale, and, thus, is irrelevant
to this case.
ALZ observes that the Department acknowledged in ALZ Sales
Verification Report, at 24, that the company official made statements
regarding changes in terms of sale involving quantity, base price,
alloy surcharge price, delivery terms, or changes in grade. ALZ states
that these changes were obvious in the sales traces selected by the
Department: two sales observations with changes involving specification
and alloy surcharge, one involving changes in specification, and one
involving changes in delivery terms.
ALZ also notes that TrefilARBED Sales Verification Report at 15
notes that ``there are often changes in price'' and that ``it is not
unusual for there to be changes in quantities from the original amount
ordered, that fall outside of the tolerances of the original ordered
quantity.'' ALZ asserts that the verification report alludes to two
U.S. sales observations with distinct changes to ordered quantity and
to ordered unit price (#734 & #735), two with changes only in quantity
(#532 & #537), and one with a change in unit price (reflecting a change
in delivery terms which TrefilARBED recorded in a revised unit price).
ALZ asserts that the record shows, and petitioners acknowledge,
that the material terms of ALZ's Belgian sales and TrefilARBED's U.S.
sales frequently change after the initial purchase order. ALZ argues
that petitioners' attempts to establish the date of sale as the date of
the final purchase order (i.e., the initial one, if unchanged until
invoice, or otherwise the final change order) are meaningless, as
evidenced by U.S. sales observations #734 & #735. According to ALZ,
although one change order for those sales resulted in new terms, they
were not the final terms, because there was another change subsequent
to that. ALZ asserts that, even though in this instance the final
change order was approximately three months before the invoice date,
the fact remains that the terms of sale could have changed at any time
until the invoice date. ALZ states that the Department observed at the
home market verification that an entire order may be cancelled while
the shipment is on the ocean en route to the customer.
ALZ further argues that, in Steel Pipe from Korea, the Department
determined, on the basis of verified information, that the material
terms of sale in the U.S. were set on contract date and any subsequent
changes were usually immaterial in nature (or, if material, they rarely
occurred). According to ALZ, Steel Pipe from Korea differs from this
case, where the Department verified that changes were of material
nature and occurred on many U.S. sales.
ALZ also disagrees with petitioners' argument that purchase order
date should be used as date of sale for U.S. sales simply because there
was a longer time lags between the purchase order date and the invoice
date, as compared to home market sales where this time lag was shorter.
ALZ notes that, in Steel Pipe from Korea, the Department used the
purchase order date because of a long time lag. However, ALZ notes
that, in that case, the respondent's sales process in the home market
was to sell out of inventory. ALZ's sales in the home market, on the
other hand, are made to order and, therefore, according to ALZ, the gap
between the purchase order date and invoice date was longer in Steel
Pipe from Korea than the gap between order date and invoice date for
ALZ's home market and U.S. sales. Furthermore, ALZ argues that
petitioners' calculations of the average differences in time lags
between purchase order and invoice dates between U.S. and home market
sales are
[[Page 15481]]
flawed because they employ weight-averaging, which gives more weight to
back-to-back sales than inventory sales, thereby producing a longer
overall average difference.
ALZ also questions petitioners' claim that certain ALZ home market
time lags are ``aberrationally long,'' and thus not representative,
without considering certain U.S. sale time lags as similarly long. ALZ
proposes to eliminate sales with aberrtionally long time lags from both
the U.S. and home market sales data base, noting that the difference in
average time lags for U.S. sales versus home market sales is reduced
even further if sales with aberrationally long time lags are eliminated
from the calculations.
Further, ALZ notes that Steel Pipe from Korea was an administrative
review, in which the Department is more concerned with time lags than
in investigations. In reviews, the Department makes weight-averaged
comparisons on a monthly basis, but in an investigation it does so on
an annual basis. According to ALZ, in Steel Pipe from Korea, at 32836,
the Department explicitly noted the importance of monthly comparison in
reviews, stating that ``{i}f we were to use invoice date as the date of
sale for both markets, we would effectively be comparing home market
sales in any given month to U.S. sales whose material terms were set
months earlier.'' Citing Pipes and Tubes from Thailand, ALZ notes that,
even in reviews, the Department has used invoice date as date of sale
when respondents are able to demonstrate that changes to the material
terms of sale occur between the order date and the invoice date. ALZ
states that, in that case, as in this investigation, the respondent's
U.S. sales were made to order, indicating a longer time lag between
purchase order and invoice for U.S. sales than home market sales for
the Thai respondent.
Finally, ALZ disagrees with petitioners' assertion that it
systematically refused to provide the purchase order numbers for
certain U.S. sale observations. ALZ alleges that the Department never
asked ALZ and TrefilARBED to submit purchase order numbers for U.S.
sales but; rather, the Department simply requested that the company add
a field to the sales databases to report the purchase order date. ALZ
states that it voluntarily submitted the purchase order numbers for
home market sales, but was unable to do so for U.S. sales as a result
of the tremendous burden placed on TrefilARBED to respond to the
Department's October 8, 1998, request for additional information. ALZ
asserts that the exclusion of the order number did not impede or hinder
the Department's verification at TrefilARBED.
Department's Position: We agree with both petitioners and ALZ that
invoice date is the correct date of sale for ALZ's home market sales.
However, we disagree with petitioners that the appropriate date of sale
for the U.S. market is order date.
Under our current practice, as codified in the Department's Final
Regulations at Sec. 351.401(i), in identifying the date of sale of the
subject merchandise, the Department will normally use the date of
invoice, as recorded in the producer's records kept in the ordinary
course of business. See Pipes and Tubes from Thailand at 55587.
However, in some instances, it may not be appropriate to rely on the
date of invoice as the date of sale, where the evidence indicates that
the material terms of sale were established on some date other than
invoice date. See Preamble to the Department's final regulations at 19
CFR part 351, 62 FR 27296 (May 19, 1997). Thus, despite the general
presumption that the invoice date constitutes the date of sale, the
Department may determine that this is not an appropriate date of sale,
where the evidence of the respondent's selling practice points to a
different date on which the material terms of sale were set.
In this investigation, in response to the Original Questionnaire,
ALZ reported invoice date as the date of sale. To ascertain whether ALZ
accurately reported the date of sale, the Department included in its
October 8, 1998 supplemental questionnaire, a request for additional
information regarding changes in terms of sale subsequent to order
date. In its October 23, 1998 response, ALZ indicated that there were
numerous instances in which terms such as price, quantity, product
specification, and/or alloy surcharges changed subsequent to the
original orders in the U.S. and home markets. ALZ cited specific
figures for each type of change. For purposes of our preliminary
determination, we accepted the date of invoice as the date of sale
subject to verification. See Preliminary Determination at 59535.
At verification, we carefully examined ALZ's selling practices,
namely, the manner in which ALZ records the sales in its financial
records by date of invoice. For the home market, we reviewed several
sales observations for which the product specifications (i.e., later
requests that the steel meet additional standard specifications)
changed subsequent to the original order (see ALZ Sales Verification
Report at 22-23 and at Verification Exhibit 27), and one sale
observation for which there was a change in price at the time of
invoicing (id. at 33-34). For many of the other home market sales we
reviewed, the time lag between the order date and the invoice was just
a few days, and, consequently, for those transactions there is no
substantive difference between those dates for analytical purposes.
For the U.S. market, we reviewed several instances in which terms
of sale changed subsequent to the original order. For two sale
observations, for example, there were two changes--one to quantity
(outside the standard tolerance), and one to price--spanning a period
of several weeks after the original order (see TrefilARBED Sales
Verification Report at 34). For several other sale observations, we
noted two distinct changes to quantity subsequent to the original order
(id. at 37), while for other sale observations there was a single
change to quantity (id. at 36). For two additional sale observations,
there was a change in price incorporated in the invoice, although this
simply reflected a late change in delivery terms (id. at 37). Based on
ALZ's representations, and as a result of our examination of ALZ's
selling records kept in the ordinary course of business, we are
satisfied that the date of invoice should be used as the date of sale
because it best reflects the date on which material terms of sale were
established for ALZ's U.S. and home market sales.
Consequently, we disagree with the petitioners' claim that the
order date (or the final change order date) is the most appropriate
date of sale for ALZ's U.S. sales because the terms would not change
after that date. The fact that terms were often changing subsequent to
the original order, and even after an initial change order, suggests
that terms may continue to change, in some instances as late as the
invoice date. For sales that we reviewed, we found this to be true for
basic terms of sale such as price, quantity, and product specification.
See TrefilARBED Sales Verification Report at 32-37.
The Department has indicated that time lags between order date and
invoice date may be a factor used in its analysis of the
appropriateness of invoice date as date of sale. See Steel Pipe from
Korea, at 32835. However, the circumstances in Steel Pipe from Korea
differ markedly from those in this case. In Steel Pipe from Korea,
``{t}he material terms of sale in the United States are set on the
contract date and any subsequent changes are usually
[[Page 15482]]
immaterial in nature or, if material, rarely occur.'' Id. at 32836. In
this case, ALZ reported that there were numerous instances of changes
in terms of sale after the initial order date, and, as noted above, we
observed many such instances at verification.
We further disagree with the petitioners' reliance on Steel Pipe
from Korea to support its argument that the longer time lag between the
date of purchase order and the date of invoice for U.S. market, as
compared to the time lag on the home market, justifies the use of order
date as the date of sale. First, as noted above, in Steel Pipe from
Korea, the Department verified that the changes to terms of sale were
infrequent and not material in nature. Second, unlike this case, Steel
Pipe from Korea involved an administrative review, where the Department
makes monthly (rather than annual) weighted-average comparisons.
Consequently, the differences in time lags between the markets were
significant for comparison purposes. Id. In this case, the main impact
of using a different date of sale would be on the number of U.S. sales
analyzed.
Finally, we disagree with petitioners' assertion that ALZ's
reported sales information was inaccurate and incomplete. During the
course of sales verifications, the Department requested specific
documentation from ALZ in support of its claim that the date of invoice
should be used as the date of sale. ALZ complied with the verifiers'
request for sales trace documentation (see, e.g., TrefilARBED Sales
Verification Report at 15 and 32-37), and the Department utilized the
purchase order, change order, and invoice information provided by ALZ
as part of the basis for its decision on this issue. It is true that
the use of quantity tolerances was only clarified at verification, but
the lateness of this clarification did not in this instance hinder the
Department's analysis with respect to date of sale. Furthermore, we do
not observe any remaining ambiguities pertaining to ALZ descriptions of
time lags between home market orders and invoices that would hinder our
analysis in any way.
Regarding missing U.S. order confirmation numbers, the Department
did not request such information in its October 8, 1998 supplemental
questionnaire and, thus, it would not be reasonable to expect that ALZ
must report it. As to the reporting of change order information, the
record evidence indicates that ALZ did report the finalized order in
its U.S. sales database (see TrefilARBED Sales Verification Report at
34, which indicates that for a sale involving a change order, the
company reported the date of this final purchase order in the field
ORDERDTE).
Regarding certain third country sales that respondent mistakenly
reported in its home market sales database, we reject petitioners'
assertion that this minor overreporting by ALZ constitutes grounds for
adverse FA across the entire home market database. Neither the ALZ
Sales Verification Report nor Verification Exhibit 6 suggests that more
than a small portion of ALZ's total sales involved such arrangements,
and we did not observe any indication at verification that other such
third country sales had been included in the home market sales
database. We have thus excluded home market sale observations #227 and
#228 from the home market sales database.
Finally, no significant ambiguities remain with respect to U.S.
billing adjustments reported by ALZ, and the Department has fully
accounted for those adjustments in its calculations. See, e.g., Final
Sales Analysis Memorandum at 4.
Comment 2: Level of Trade/CEP Offset. ALZ argues that the
Department should reverse its preliminary decision to deny ALZ's claim
for a CEP offset. ALZ notes that, pursuant to section 773(a), the
Department will, to the extent practicable, base NV at the same level
of trade as the EP and CEP. ALZ claims that in the case of CEP sales,
the level of trade is based on the sale from the exporter to the
affiliated importer, and that when U.S. sales and home market sales are
not made at the same level of trade, an adjustment may be made to
account for price differences between the levels of trade. ALZ notes
that, because this difference cannot be quantified based on data on the
record, the Department should grant ALZ a CEP offset.
ALZ states that, to evaluate differences in level of trade, the
Department examines selling functions and the stages in the marketing
process at each level of trade. ALZ asserts that the record of this
investigation confirms that ALZ performs more selling functions on
sales to its home market customers than to TrefilARBED (see ALZ's June
24, 1998, Section A response (``Section A Response'') at A-14, A-15,
and Exhibit A/3.c, and its October 7, 1998, supplemental questionnaire
response (``October Supplemental Response'') at Exhibit S2/17.a.). ALZ
asserts that the Department was mistaken to conclude that ALZ's selling
functions performed in connection with its sales to TrefilARBED are
similar to functions performed by ALZ in connection with its sales to
home market customers. ALZ also argues that its sales to its home
market customers were at a more advanced stage of the marketing process
than its sales to TrefilARBED, and that its indirect selling expenses
for the former are higher than for the latter.
ALZ argues that page 6 of ALZ Sales Verification Report establishes
that the most resource-intensive selling function, namely, sales
negotiation with the final customer, is performed by ALZ for home
market sales but not for U.S. sales. ALZ notes that page 11 of
TrefilARBED Sales Verification Report indicates that ALZ and
TrefilARBED agree on a certain aspect of the sales to the final
customer, and this aspect is revised occasionally based on discussions
between TrefilARBED and ALZ. ALZ states that Exhibit 12 from the ALZ
Sales Verification Report demonstrates that ALZ's domestic sales
department is larger and costlier than its non-EU export sales
department.
ALZ further contends that it is responsible for handling customer
claims for sales to home market customers, but generally it is not
responsible for sales to TrefilARBED. ALZ states that, although its
Section A Response at A-14 and Exhibit A/3.c indicate that ALZ handles
all aspects of customer claims by Belgian customers, including the
physical inspection of the merchandise and the negotiation and
resolution of the claim, the TrefilARBED Sales Verification Report at 5
indicates that on U.S. sales, customer claims handled by TrefilARBED
are negotiated with the customer by TrefilARBED.
Pointing to its Section A Response at A-14, A-15 and Exhibit A/3.c,
ALZ also contends that it provides its home market customers with
technical assistance and product instruction, which it does not provide
to TrefilARBED. ALZ claims that, for U.S. sales, TrefilARBED assumes
this function.
ALZ argues that the Department's preliminary analysis was based, in
part, on an erroneous assumption that ALZ's selling expenses on sales
to TrefilARBED were higher, on a per-kilogram basis, than its selling
expenses on home market sales. ALZ asserts that this erroneous
assumption was based on two factors. First, the Department's
calculation was made on a per-kilogram basis rather than on a value
basis. ALZ notes that it reported its indirect selling expenses on the
value basis, and information on the record indicates that the expenses
incurred by ALZ on home market sales were 22 percent higher than those
incurred on U.S. sales. Second, ALZ argues that the Department's
calculations incorporated
[[Page 15483]]
an error in ALZ's questionnaire responses, which the Department noted
at verification; namely that the transfer price between ALZ and
TrefilARBED, the value on which the expense was calculated in the
earlier submissions, was actually stated in U.S. dollars per hundred
weight rather than in Belgian francs per kilogram. ALZ states that,
when this error is corrected, the average indirect selling expenses for
ALZ's home market sales is higher than that for its U.S. sales, even
when employing the Department's aforementioned flawed per-kilogram
basis methodology.
Petitioners argue that ALZ did not demonstrate that the Department
should reverse its preliminary decision that different LOTs do not
exist in the home and U.S. markets. Petitioners state that, as the
Department concluded prior to the preliminary determination, no
meaningful differences in selling functions performed in the U.S. and
Belgium exist and, therefore, no LOT adjustment is warranted.
Petitioners note that TrefilARBED Sales Verification Report at 7
contains ALZ's admission that ``[f]or TrefilARBED, very much the same
process as for Belgian customers occurs through the invoicing stage* *
*.'' Petitioners contend that ALZ conducts oversight of TrefilARBED's
negotiations with U.S. customers, and TrefilARBED provides information
about its pricing to ALZ. ALZ, petitioners argue, has U.S. selling
functions in its fulfillment of TrefilARBED's orders to ALZ, its
continuous communications with TrefilARBED, and its monitoring of
intra-company marketing agreements. Petitioners challenge ALZ's
assertion that it has fully transferred to TrefilARBED responsibility
for handling claims on U.S. sales, noting that when a quality claim is
filed by U.S. customers, although the process is initiated at
TrefilARBED, it is ALZ that must trace the particular shipment, skid
and heat that resulted in the problems that U.S. customers report, and
it is ALZ that must account for the validity of a given claim and take
corrective measures where its production is found to be at fault.
Petitioners further state that ALZ failed to provide the requested
level of detail with respect to the extent of differences among various
selling functions, such as a designation of ``high,'' ``medium,'' or
``low'' levels as well as explanation and support for such
designations. Petitioners add that ALZ, in its case brief, has
misleadingly attempted to re-characterize undocumented assertions by
its case officials at verification to make a pretense that new material
evidence of significantly different selling functions was verified by
the Department at verification.
Regarding ALZ's quantitative analysis of the relative levels of
indirect selling expenses incurred by ALZ with respect to both markets,
petitioners categorize respondent's methodology as flawed. First,
petitioners argue that absolute values do not constitute an appropriate
basis for this comparison because at issue in this case is the
relationship between expenses and the activities. Second, petitioners
argue that the values cited by ALZ for the respective home market and
U.S. sales are incorrect. Petitioners contend that ALZ limited the U.S.
value to the general wages element of indirect selling expenses, while
ALZ derived the home market value by including such items as cars and
other expenses that are applicable to U.S. sales, in whole or in part.
Petitioners also note that the total invoice value used in the
denominator of the calculation of the indirect selling expense factor
for home market sales includes values for unreported transactions
(i.e., those invoiced to parties in Belgium, but shipped outside of
Belgium). Petitioners also state that ALZ's calculations of the
indirect selling expense factors were based on inconsistent numerators
and denominators: ALZ divided SSPC-specific expenses by all-product
invoice values, when it should have divided all-product expenses by
all-product invoice values. The lack of verified, accurate SSPC-
specific numerators and denominators, petitioners note, prevents an
SSPC-specific calculation of the factors in question. Petitioners state
that when value-based ratios are re-calculated based on total expenses
over total turnover, the indirect selling expense ratio for U.S. sales
is greater than that for home market sales.
Finally, with respect to ALZ's indirect selling expense factor
calculations, the only expenses ALZ lists that relate to home market
sales but not to U.S. sales involve two rental cars and annual guest
passes to the ALZ soccer box in Genk. Petitioners state that these
items cannot constitute the basis for more advanced selling functions,
and by extension, the basis for a more advanced stage of marketing in
Belgium.
Department's Position: The Department addressed, in detail, the
alleged differences in selling functions claimed by ALZ in the
Department's CEP Memorandum, dated October 27, 1998, which was prepared
for purposes of the preliminary determination. ALZ has not attempted to
refute the Department's evaluations of those alleged differences,
except as indicated below. In its case brief, ALZ claims that
differences pertaining to the extent of its involvement in sales
negotiation, claims, and technical assistance in the two markets
establish that its home market sales are at a different and more
advanced level of trade than its U.S. sales. We reject this conclusion
for the reasons described below.
Regarding differences in sales negotiation, we found that ALZ's
sales process for its home market customers is very similar to its
sales process for TrefilARBED. See ALZ Sales Verification Report at 7.
We noted at verification that ALZ negotiates contracts with TradeARBED
Luxembourg governing the relationship between ALZ and TrefilARBED, and
that these contracts are subject to renewal and revision. See ALZ Sales
Verification Report at 7. In addition, according to TrefilARBED, there
are occasional revisions to base prices and extras prices for
transactions between ALZ and TrefilARBED, and that sometimes such
revisions result from discussions between ALZ and TrefilARBED. See
TrefilARBED Sales Verification Report at 13. Furthermore, because
TrefilARBED buys subject merchandise from sources other than ALZ (see,
e.g., id. at 12), it is reasonable to assume that ALZ makes some effort
to encourage TrefilARBED to purchase from ALZ.
We found that ALZ is involved not only with sales negotiation for
transactions between itself and TrefilARBED, but also with
TrefilARBED's sales to unaffiliated U.S. customers. This involvement
appears to be critical. As noted by ALZ in its case brief at 6,
TrefilARBED and ALZ agree on a certain aspect of TrefilARBED's U.S.
sales which, if made public, according to the respondent, ``would cause
substantial harm to ALZ's competitive position'' (see the cover letter
to ALZ's Case Brief of February 8, 1999).
Finally, any difference in size between the non-EU export sales
department (which handles U.S. sales) and the domestic sales department
(which handles home market sales) is not directly relevant to our
analysis, given that it does not demonstrate different levels of
activity for particular home market and U.S. sales.
In conclusion, we find that ALZ is involved in comparable levels of
sales negotiation activity for its sales of SSPC to TrefilARBED as it
is for its sales of SSPC to home market customers.
With respect to ALZ's argument that customer claims handled by
TrefilARBED are negotiated with the customer by TrefilARBED, the
[[Page 15484]]
information first submitted by ALZ in its Section A Response at Exhibit
A/3.c suggests that some claims made by U.S. customers could be made
with ALZ, and that TrefilARBED may make claims with ALZ.
Regarding technical assistance, ALZ has not provided information
with respect to the differences in the level of assistance provided to
home market customers. ALZ's admissions that (1) it does not maintain
any type of relationship with its customers (see page B-10 of ALZ's
September 4, 1998, submission (``September Supplemental Response'')),
and (2) it maintains a relationship with its customers with respect to
customer category or end-use only to the extent that the customer will
state what it will usually do with the material when first ordering
from ALZ (see October Supplemental Response at 4-5) indicate that the
level of technical assistance is not big. ALZ Sales Verification Report
at 6 indicates that ALZ creates a customer-specific technical sheet for
new customers, but it is not clear from the record that this function
requires substantial effort or, furthermore, how typical it is for ALZ
to gain new customers.
We agree with petitioners that there are a few categories of
indirect selling expenses which ALZ includes in the buildup for its
home market expenses but not for its U.S. sales. However, we disagree
that the record evidence indicates that we should consider these
expenses (i.e., costs in connection with car rentals and a box at the
local soccer stadium) as applicable to U.S. as well as home market
sales. We consider these factors to be of minimal importance with
regard to distinctions between levels of trade between markets.
ALZ argues that an error that it incorporated into its submission
resulted in an overstatement of the ratio of ALZ U.S. indirect selling
expenses to total U.S. sales (value or quantity), and that when this is
accounted for, the revised ratio is less than the ratio of ALZ's home
market indirect selling expenses to total home market sales (value or
quantity). However, even if we were to correct such an error and
utilize ALZ's methodology, we could not determine that different LOTs
exist on this basis alone. First, ALZ's analysis is distorted because
(1) it compares SSPC-specific indirect selling expenses to total (SSPC
and non-SSPC) invoice values, and (2) it includes in total invoice the
values associated with products invoiced in Belgium but shipped outside
of Belgium. More importantly, even if a 22 percent difference existed,
it would not be sufficient to warrant a determination of different
LOTs, given that ALZ merely alleged that differences in numerous
selling functions existed between both markets, but failed to
demonstrate the relative magnitude of those differences or, in most if
not all instances, that any differences existed at all. Consequently,
ALZ failed to support its contention that different LOTs exist. Thus,
consistent with our preliminary determination, we find that a CEP
offset is unwarranted.
Comment 3: Foreign Brokerage/Handling and International Freight for
U.S. Sales. Petitioners assert that ALZ had misreported its
relationship to Transaf N.V. (``Transaf''). Petitioners note that,
while ALZ falsely reported at page C-10 of September Supplemental
Response, that it was not affiliated with Transaf, the Department
verified that Transaf is five percent owned by ARBED and 95 percent
owned by TradeARBED Luxembourg. Petitioners further indicate that,
according to ALZ's submission, Transaf is primarily responsible for
both foreign brokerage/handling and international freight for shipments
to the Chicago area. Petitioners identify certain U.S. sales that were
clearly destined to the Chicago area, based on the destination
information provided in the U.S. sales database for various sales.
Petitioners also note that the respondent did not provide the requested
destination information for numerous U.S. sales, and that it is almost
certain that Transaf was the broker for a significant portion of these
sales as well. Petitioners indicate that the average freight charge of
sales not identifiable as to the Chicago area is considerably above the
average freight charge for virtually all sales identifiable as to the
Chicago area, even though charges for transportation to Chicago, which
is an inland destination, should be significantly higher than similar
charges for east coast shipment. Consequently, petitioners argue, the
misreporting of ALZ's relationship with Transaf provides grounds for
the use of adverse FA, and petitioners state that the highest reported
per kilogram expense for the field in question should be applied to all
U.S. sale observations.
ALZ argues that petitioners have provided no support for their call
for the application of adverse FA for ALZ's international freight and
brokerage charges. ALZ contends that petitioners have exaggerated
Transaf's role in U.S. sales. ALZ notes that it explained to the
Department the reasons why only certain U.S. shipments were handled by
Transaf. ALZ contends that petitioners are incorrect to assume that
every sale to Chicago was shipped via Transaf when, in fact, not every
sale in Chicago involved Transaf. Furthermore, ALZ argues, petitioners
provide no support for their assertion that it is almost certain that
Transaf was the broker for a significant portion of the sales for which
no destination was reported. ALZ argues that the petitioners' arm's-
length test is flawed because it is based on the assumption that the
brokerage for all Chicago sales was done by an affiliated party.
Furthermore, ALZ argues that the record demonstrates that shipments
involving Transaf cannot be compared to other sales. ALZ states that
the Department verified that most of Transaf's shipments are bulk
shipments, while container shipments are not Transaf's primary concern.
ALZ also states that the Department noted in ALZ Sales Verification
Report at 28 that shipments to Chicago through Transaf were made in
bulk shipments, typically without pallets. Therefore, ALZ concludes,
the cost basis for shipments through Transaf were radically different
from the cost basis for other shipments, both with respect to
quantities shipped and with respect to packing materials.
Department's Position: We agree with the petitioners. In the
Department's Original Questionnaire at A-4, we asked ALZ to report all
of its affiliates, in addition to describing the nature of each
affiliate's involvement with the product under investigation. In
response, ALZ did not indicate that it was in any way affiliated with
Transaf, a company from the same ARBED Group, which handles foreign
brokerage and international freight for ALZ's U.S. sales. Subsequently,
in its response to the Department's supplemental questionnaire, ALZ
informed us that it was not affiliated with Transaf. See September
Supplemental Response at C-10. ALZ reiterated this assertion at the
outset of verification. See ALZ Sales Verification Report at 3.
However, in the course of verification, when asked about the reference
to Transaf on ARBED's website, ALZ finally admitted that it is
affiliated with Transaf. Id. at 3-4. Because the record evidence is not
clear to what extent brokerage/handling and international freight
services were handled by Transaf, as opposed to other brokers, the
Department is unable to identify with certainty the Transaf-related
U.S. sale observations.
Section 776(a) of the Act provides that if an interested party
withholds information that has been requested by the Department, fails
to provide such information in a timely manner or in the form or manner
requested, significantly impedes a proceeding under the antidumping
statute, or provides information which cannot be verified, the
Department shall use, subject to
[[Page 15485]]
subsection 782(d) and (e), facts otherwise available in reaching the
applicable determination. In addition, section 776(b) provides that an
adverse inference may be used against a party that has failed to
cooperate by not acting to the best of its ability to comply with
requests for information.
As detailed above, ALZ withheld information concerning its
affiliation with Transaf, a company in charge of various brokerage/
handling and international freight services for ALZ's U.S. sales.
Moreover, ALZ did not admit that it was affiliated with Transaf until
verification, when this relationship was established by the Department
officials, as described in the verification report. See ALZ Sales
Verification Report at 3. Moreover, contrary to ALZ's assertion, the
Department did not verify that most of Transaf's shipments are bulk
shipments or that container shipments are not Transaf's primary
concern. Furthermore, the record does not demonstrate the extent to
which certain pallets were used for shipments handled by affiliated
brokers, as opposed to those handled by unaffiliated brokers, or the
full extent to which variations in reported costs could reflect pallets
or containerization costs. Claims relating to these issues were raised
as late as verification and, thus, any supporting information in this
connection would have been untimely under Sec. 351.301(b)(1) of the
Department's regulations. As a result, ALZ could not demonstrate, in a
timely fashion, that (1) other brokers handled the brokerage/handling
and international freight to the Chicago area, (2) Transaf was not
involved with shipments to other destinations, or (3) Transaf charges
to ALZ were at arm's length.
Under these circumstances, we were unable to identify which U.S.
sale observations were handled by Transaf, and the absence of
destination information for many of the sales further inhibits our
effort to limit the application of FA to only a portion of the U.S.
sales database. Furthermore, because ALZ failed to provide accurate and
timely information regarding its affiliation with Transaf, despite our
explicit requests, we find that it failed to cooperate to the best of
its ability in providing this information and, therefore, an adverse
inference is warranted. This is consistent with the Department's
practice of applying adverse FA when certain requested information is
withheld by an interested party in its questionnaire response, but
discovered at verification. See, e.g., Notice of Final Determination of
Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile,
63 FR 56613, 56620 (October 22, 1998); Notice of Final Determination of
Sales at Less Than Fair Value: Stainless Steel Wire Rod from Spain, 63
FR 40391, 40396 (July 29, 1998). As partial adverse FA, we have
assigned the highest reported per hundred weight brokerage/handling and
international freight expense for the U.S. sales which can reasonably
be assumed to have involved shipments to the Chicago area. For further
explanation of the Department's methodology for this issue, see Final
Sales Analysis Memorandum at 3.
Comment 4: Missing U.S. Warehouse Expenses. Petitioners allege that
ALZ failed to report the U.S. warehouse expenses for some U.S. sales.
According to petitioners, ALZ reported that TrefilARBED did not incur
any warehousing for further-processed material during the POI.
Petitioners observe, however, that if the merchandise leaves the
warehouse without further manufacturing, ALZ is charged for storage. In
addition, petitioners argue that the above sales have no reported
warehouse expense, even though the data show that there were
warehoused, rather than further manufactured. Consequently, petitioners
argue, the Department should apply, as adverse FA, the highest single
charge reported under the U.S. warehouse expense.
ALZ points to the Department's verification report which notes that
when material is transferred to a customer at the warehouse/processing
facility, TrefilARBED does not incur the warehousing expense. ALZ
argues that if the Department uses FA, it should apply the average of
all reported warehousing.
Department's Position: We partially agree with petitioners. While
ALZ has indicated that there are circumstances in which TrefilARBED is
not charged for warehousing, it is not clear that those circumstances
were applicable to certain U.S. sales observations without a reported
warehousing expense.
At the U.S. sales verification, TrefilARBED reiterated its
explanations of U.S. warehousing expenses that had been originally
provided in ALZ's questionnaire responses. See TrefilARBED Sales
Verification Report at 12-13. TrefilARBED noted that, for certain
warehousing locations, if the merchandise leaves the warehouse without
having been further processed, TrefilARBED is charged a set per coil
warehousing expense if it is shipped to the customer without further
processing. If title to the merchandise is transferred by TrefilARBED
to the customer at these facilities, TrefilARBED does not incur
warehousing charges. Finally, if the merchandise at warehouses is
further processed, TrefilARBED is not charged for warehousing.
For the few sale observations at one of the warehouses in question
that did not involve steel that was further processed, and for which no
warehousing expenses were reported, the record does not establish that
title was transferred to the customer prior to leaving the warehouse.
Consequently, to account for the missing warehouse expenses, we have
decided to apply the set per coil fee amount for the warehouse in
question as the basis for the unreported expense. Furthermore, in one
instance involving a sale of unprocessed steel from a warehouse
location not even covered by the aforementioned ALZ explanation
regarding transfer of title, we have decided to apply a per pound
storage expense charged by the warehouse in question for another
transaction (see page 9 of Verification Exhibit 4 from the TrefilARBED
sales verification).
Comment 5: Packing Costs. Petitioners argue that ALZ, despite
repeated inquiries by both petitioners and the Department, reported and
maintained distorted U.S. packing cost data in its U.S. sales
databases, until the outset of verification, in an effort to minimize
its preliminary duty rate. Petitioners state that ALZ was aware of the
fact that ocean-going coils would require more expensive packing than
those shipped to domestic customers.
According to petitioners, although ALZ acknowledged at the outset
of verification that it had understated its U.S. unit packing costs
(due to having characterized the reported figures as on a per kilogram
basis when they in fact had been on a per pound basis), ALZ's reporting
methodology continues to be flawed. Petitioners argue that ALZ
calculated an average skid cost and divided it by the quantity of the
particular product invoiced. Under this methodology, petitioners
assert, the larger the coils packed, the less packing material and
labor is absorbed. Petitioners note that larger coils would require
more labor and material; thus, the use of an average skid cost is
inappropriate.
Furthermore, petitioners argue that for U.S. sales, U.S. packing
costs, for the most part, cannot be tied to values examined at
verification. In addition, petitioners question why a particular sea-
packing code does not apply to a single U.S. sale, and assert that
certain calculated packing costs are nonsensical. Based on ALZ's
assertion at verification (see ALZ Sales Verification Report at 28)
petitioners
[[Page 15486]]
also question whether or not Transaf has passed along skid charges to
ALZ. Assuming it has, petitioners query on what basis such charges
could be presumed to have been at arm's-length. Finally, petitioners
dispute ALZ's assertion that a certain packing type did not involve
pallet costs.
Petitioners state that, given the small number of sales
observations, ALZ could have provided transaction-specific packing
costs. Petitioners state that, in light of ALZ's illogical constant-to-
weight based allocations, its systematic misreporting of U.S. packing
charges, its failure to report its affiliation with Transaf, and its
unsupported claims regarding lack of pallet costs, the Department
should apply adverse FA to all U.S. packing costs. Petitioners state
that this should be based on the highest single reported U.S. packing
charge. Alternatively, the Department should, at the least, apply that
charge to all sales packed with no pallet costs and to all sales for
which ALZ failed to report a packing type (i.e., those ordered in 1997
but invoiced thereafter).
ALZ argues that its packing cost calculation methodology provides
the most accurate measure of per-unit packing costs allowed by ALZ's
records and accounting system, and accounts for cost differences
between export and home market packing methods. Furthermore, ALZ states
that the Department tied all of the reported packing costs directly to
ALZ's income statement.
ALZ also argues that, when transaction-specific reporting is not
feasible, the Department's regulations at section 351.401(a)(1) allow
for expenses and price adjustments on an allocated basis. In addition,
ALZ states that the Department neither requested transaction-specific
packing costs, nor expressed any concern that the allocation
methodology used by ALZ produced distorted results.
In addition, ALZ notes that, during verification, the company
explained that the slight variation observed by the Department between
reported and verified packing expenses was due to the truncation of the
original per-unit packing expenses prior to their conversion to per-
kilogram amounts.
Furthermore, ALZ argues that petitioners mistakenly infer which
packing methods used include skids. Finally, ALZ asserts that for
shipments made through Transaf, ALZ did not incur costs for pallets
because shipments via Transaf are made in bulk.
Department's Position: We disagree with petitioners. First, the
petitioners' assertion that ALZ intentionally understated its U.S.
packing expenses in its initial responses in order to minimize the
preliminary margin rate is unsubstantiated. The record evidence does
not support the petitioners' claim that ALZ employed such a strategy,
or that the magnitude of the initial understatement was such that it
would have a major effect upon the margin.
Second, ALZ described its basic methodology for reporting packing
expenses in its questionnaire responses, and the Department has found
no grounds for rejecting either that methodology or the reported
expenses specifically derived from that methodology. See Section B
Response at 47. The Department conducted a thorough review of those
reported expenses. At verification, the Department found no evidence
that, for a given packing type, significantly greater labor or material
expenses would be incurred for larger coils compared to smaller coils.
See ALZ Sales Verification Report at 27. Contrary to petitioners'
assertion, U.S. packing costs did, in fact, tie to values examined at
verification, and the Department did not find any evidence of miscoding
of packing type for U.S. sales. Id. at 28.
Moreover, contrary to the petitioners' allegation, there is no
evidence on the record that any reported packing expenses for U.S.
sales are understated. For almost all U.S. sale observations, the total
reported packing expenses (kilograms times cost per/kg) is within the
range of total per coil packing expenses. The only discrepancy in
reported U.S. packing noted at verification involved rounding of
numbers and, as such, it was minimal (see ALZ Sales Verification Report
at 21). The remaining few U.S. sales observations with reported packing
expenses outside the range of total per coil packing expenses involve
disproportionately small quantities which may have been a fraction of
an individual shipped coil and, therefore, would only absorb a portion
of the total coil packing expenses.
Finally, the Department never requested that ALZ report
transaction-specific packing expenses, and the petitioners provided
neither rationale nor precedent for such reporting. With respect to any
packing expenses that might have been incurred by Transaf in its
brokering arrangements for ALZ, the Department has addressed Transaf-
related expenses in Comment 3. Consequently, the Department has made no
additional adjustments to ALZ's reported packing expenses.
Comment 6: Sales with no Reported Warehouse/Vendor Identification.
Petitioners argue that ALZ did not report the warehouse location for a
number of observations. Thus, none of the discussions and documentation
for warehousing in the U.S. verification report could be tied to the
U.S. sales database. As a result, the petitioners argue that the
Department should apply to these sales, as adverse FA, the highest
single charge reported under U.S. warehouse expense.
ALZ argues that (1) the information on the field WARELOCU is not a
factor in the Department's antidumping duty calculation, and (2) the
missing information did not hinder the Department's ability to verify
the per-unit warehousing expenses for the selected sales.
Finally, ALZ states that the Department verified that TrefilARBED
accurately reported the per-unit warehousing expense for two
observations with no warehouse location. According to ALZ, FA is not
warranted for TrefilARBED's warehousing expenses.
Department's Position: The Department agrees with petitioners that
for some U.S. sale observations the warehouse location is missing.
However, the Department did verify some sales for which the warehouse
location was not reported and found no major discrepancies. See
TrefilARBED Sales Verification Report at 36. Therefore, the Department
will not use FA for sales with no warehouse location, but where a
positive U.S. warehouse expense was reported.
As noted in Comment 4, ALZ provided two explanations for instances
in which TrefilARBED would not have been charged for warehousing: if
the material was further manufactured or if title to the material was
transferred to the customer at the warehouse. However, we note that
those explanations related only to warehousing performed by a
particular company. Various U.S. sale observations involve merchandise
that was warehoused, but for which ALZ failed to identify the warehouse
location. While ALZ indicated that TrefilARBED did not incur any
warehousing expenses for further processed material during the POI (see
September Supplemental Response at 16), it did not state that transfer
of title was relevant in the context of warehousing charges other than
for the one particular warehousing company. Furthermore, no information
exists on the record to indicate when title was transferred to the
final customer.
Section 776(a) of the Act provides that if an interested party
withholds information that has been requested by the Department, fails
to provide such
[[Page 15487]]
information in a timely manner or in the form or manner requested,
significantly impedes a proceeding under the antidumping statute, or
provides information which cannot be verified, the Department shall
use, subject to subsection 782(d) and (e), facts otherwise available in
reaching the applicable determination. In addition, section 776(b)
provides that an adverse inference may be used against a party that has
failed to cooperate by not acting to the best of its ability to comply
with requests for information.
Despite having been given several opportunities, prior to
verification, to explain its warehousing expenses in detail (see the
Original Questionnaire under the U.S. warehousing expense field; the
August 11, 1998 supplemental questionnaire at question 34; and the
September 25, 1998 supplemental questionnaire at question 9), ALZ chose
not to explain those charges for all of the warehouses it utilized.
Moreover, the Department indicated in its U.S. sales verification
outline that it was willing to review information regarding how the
reported charges for warehousing of material not further processed were
determined by the respondent for each of the six warehouses (see, e.g.,
TrefilARBED Sales Verification Report at 28). However, at verification,
TrefilARBED failed to provide such information. In light of ALZ's
failure to report the information repeatedly requested by the
Department, we have determined that ALZ did not act to the best of its
ability, and have assigned, as partial adverse FA, the highest reported
U.S. warehousing expense to U.S. sales observations involving
merchandise that was warehoused at an unidentified location, but for
which no warehousing expense was reported. However, because ALZ stated
that TrefilARBED did not incur any warehousing expenses for further
processed material, we have not assigned any warehousing expenses to
any such U.S. sale observations for which further manufacturing
expenses were reported.
Comment 7: U.S. Brokerage and Handling Charges. Petitioners argue
that, according to documentation examined by the Department, the value
reported for U.S. brokerage and handling, for U.S. sales observation
#30, was incorrectly derived. In addition, there is no discussion
regarding the extent of the under-reporting. Therefore, petitioners
argue that the Department should correct all of the reported U.S.
brokerage and handling charges to reflect the under-reporting found in
U.S. sales observation #30.
ALZ argues that the TrefilARBED Sales Verification Report provides
no further discussion regarding the extent of the error found in U.S.
sales observation #30, because the error was limited to this one sale.
Furthermore, ALZ states that, at verification, the Department performed
complete sale traces on 14 U.S. sale observations, where many charges
including U.S. brokerage and handling charges were verified.
Consequently, considering that the Department found only one
discrepancy related to these charges, the application of FA of any kind
is unwarranted.
Department's Position: We agree with ALZ that the use of FA is
unwarranted for this expense. The Department reviewed numerous other
sales traces and cited no discrepancies for those reported expenses.
See TrefilARBED Sales Verification Report at 32-37. Consequently, the
Department finds that petitioners' allegation is unsupported by record
evidence and our verification findings. Therefore, the use of FA is
unwarranted.
Comment 8: U.S. Indirect Selling Expenses. Petitioners argue that
ALZ's calculation of the U.S. indirect selling expenses of its
affiliate, TrefilARBED, is methodologically wrong. Petitioners assert
that ALZ calculated these expenses using quantity as a basis, while the
Department's questionnaire specifies that allocations should be based
on the manner in which the seller incurs a given expense in the
ordinary course of business. Petitioners assert that the rationale for
a value-based calculation is that a higher-value product absorbs a
greater absolute amount of costs. In support of this position,
petitioners cite the following Department precedent: Pure Magnesium
From the People's Republic of China: Final Results of Antidumping Duty
New Shipper Administrative Review, 63 FR 3085, 3088 (January 21, 1998)
(``Magnesium from China''); Notice of Final Determination of Sales at
Less Than Fair Value: Certain Carbon Steel Butt-Weld Pipe Fittings from
India, 60 FR 10545, 10547 (February 27, 1995); Notice of Final
Determination of Sales at Less Than Fair Value: Brake Drums and Brake
Rotors From the People's Republic of China, 62 FR 9160, 9164 (February
28, 1997); and Frozen Orange Juice Concentrate from Brazil; Final
Results of Antidumping Duty Administrative Review, 55 FR 26721, 26723
(June 29, 1990). Petitioners note that a respondent must calculate G&A
expenses on an annual basis as a ratio of total G&A expenses divided by
cost of sales, and such methodology logically applies to the reporting
of SG&A by a sales affiliate. Therefore, petitioners argue,
TrefilARBED, the selling agent, must report its total SG&A expenses on
the basis of value of its merchandise, just as ALZ as a factory reports
its G&A expenses on the same basis.
Petitioners also note that ALZ, when given the opportunity to
explain its allocation of indirect selling expenses by quantity rather
than value, only stated that a value-based allocation would result in a
disproportionate allocation to SSPC relative to other products.
Petitioners argue that this claim is unsupported by any findings at
verification or elsewhere on the record.
In addition, petitioners challenge the completeness of the reported
total TrefilARBED indirect selling expenses. Petitioners state that ALZ
based part of its argument for not including TrefilARBED's net interest
expenses in the TrefilARBED indirect selling expense calculation on the
fact that all of TrefilARBED's financial expenses pertain to short-term
debt. See September Supplemental Response at C-23 and C-24. Petitioners
argue that because the Department found at verification that only a
portion of TrefilARBED's interest expenses pertained to short-term debt
(see TrefilARBED Sales Verification Report at 29), the Department
should include in TrefilARBED's indirect selling expenses, as partial
adverse FA, the entire interest expense. Alternatively, petitioners
argue that the Department should include in TrefilARBED's indirect
selling expenses, as non-adverse FA, the portion of TrefilARBED's
interest expenses that cannot be classified as short-term interest
expenses.
ALZ asserts that quantity is properly used to determine the correct
amount of SG&A expenses to include in the calculation. ALZ adds that a
comparison of the indirect selling expenses reported for U.S.
observations 13 and 18 clearly demonstrates that, under TrefilARBED's
value-based methodology, higher value sales do absorb a greater amount
of selling expenses.
ALZ states that the Department verified that TrefilARBED's sales
department is organized by product line (see TrefilARBED Sales
Verification Report at 2), and argues that TrefilARBED's resources are
not applied to the sales value of specific product lines, but rather on
the need to handle the tonnage sold of a particular line. For example,
ALZ notes, the resources needed for selling stainless steel plate in
coils are not determined by the value of the product, but by the need
to meet the customer's demands in terms of quantity. Consequently, the
most appropriate method to allocate a portion
[[Page 15488]]
of TrefilARBED's total SG&A expenses to subject merchandise, ALZ
argues, is to use quantity as the allocation factor.
Regarding interest expenses incurred by TrefilARBED, ALZ argues
that the Department does not request or use such expenses in its
calculations of U.S. affiliate indirect selling expenses, and that it
is, in fact, the Department's stated practice to exclude all types of
interest expenses from the calculation of SG&A. See Final Determination
of Sales at Less Than Fair Value: New Minivans from Japan, 57 FR 21937,
21956 (May 26, 1992). Furthermore, ALZ argues that there is no evidence
on the record indicating that items excluded from the interest rate
calculation were long-term in nature, and the other interest expenses,
as explained at verification, do not pertain to short-term loans (see
TrefilARBED Sales Verification Report at 29-30), but they refer almost
entirely to other short-term financing expenses. ALZ argues that, if
the Department erroneously chooses to include some portion of
TrefilARBED's interest expenses in the calculation of indirect selling
expenses, it should limit that amount to total interest expenses minus
total interest expenses on short-term loans used in the interest rate
calculation. ALZ provides a calculation of this remainder, and an
allocation of that amount to subject merchandise.
Department's Position: We agree with petitioners that the
Department should use a value-based allocation rather than a quantity-
based one. ALZ was given ample opportunity to explain its allocation
methodology prior to verification, and the information provided did not
justify the calculation of the indirect selling expense factor based on
quantity. The initial Section C Response at Exhibit C/48.2 simply
presented the quantity-based calculation. When asked why it employed
such an allocation methodology, ALZ stated that allocating the expenses
based on value would result in an ``artificially high'' allocation to
SSPC and ``would not be proportionate'' to the company's expenses in
terms of other products. However, ALZ did not explain the basis for
these assertions. See September Supplemental Response at C-22. When
asked further about the rationale for its quantity-based allocation
methodology, ALZ stated that the amount of selling expenses incurred by
TrefilARBED bears no relation to the sales value of any particular
product line. ALZ noted that salaries, the largest component of
TrefilARBED's SG&A, are not determined or paid according to product
line, and that some salaries are paid to personnel not even involved
with sales. See October Supplemental Response at 9. ALZ indicated that
the same holds for all of the other SG&A expenses, such as rent,
management fees, medical insurance, etc., and concluded that
``[b]ecause all of TrefilARBED's sales are based on weight, quantity is
the most accurate factor to use to allocate total SG&A expenses between
subject and non-subject merchandise.'' Id. at 9-10.
As we explained in Magnesium from China at 3088, the Department's
normal practice is to base calculations of SG&A factors based on value
(cost), and ALZ has not provided a credible explanation of why the
Department should utilize a quantity-based methodology in this
instance. First, because it is clear that TrefilARBED's sales are based
on price and value as much as they are on quantity, we find that ALZ's
basic premise provides no basis for the use of a quantity-based
allocation. Second, the fact that TrefilARBED's sales department is
organized by product line does not demonstrate that a quantity-based
allocation is appropriate. Finally, the record evidence does not
demonstrate that TrefilARBED's resources are applied based on the need
to handle the tonnage sold of a particular line. We note that ALZ's
reference to U.S. sale observations #13 and #18 only shows that when a
given indirect selling expense factor is applied to two sales, a higher
indirect selling expense figure is calculated for the sale with the
higher price. This does not negate the fact that the factor calculated
by ALZ was based on a quantity-based allocation, rather than a value-
based one. In conclusion, we agree with petitioners that the allocation
should be based, in its entirety, upon value.
We disagree with ALZ that we do not include U.S. affiliate interest
expenses in the calculation of indirect selling expenses. As the
Department recently explained, it will include such interest expenses
in the calculation of total indirect selling expenses to the extent
that such expenses do not reflect the financing of inventory or
accounts receivable, which would be reflected for reported sales in the
imputed inventory carrying cost and imputed credit expense fields, and
do not relate to non-subject merchandise. See, also, Certain Cold-
Rolled and Corrosion-Resistant Carbon Steel Flat Products From Korea:
Final Results of Antidumping Duty Administrative Reviews, 64 FR 12927,
12931-32 (March 16, 1999) (``Korean Flat-Rolled Steel''). See, e.g.,
Certain Fresh Cut Flowers from Colombia; Final Results and Partial
Recission of Antidumping Duty Administrative Review, 62 FR 53287, 53294
(October 14, 1997); Certain Cold-Rolled Carbon Steel Flat Products from
Germany; Preliminary Results of Antidumping Duty Administrative Review,
60 FR 39355 (August 2, 1995), unchanged in Certain Cold-Rolled Carbon
Steel Flat Products from Germany; Final Results of Antidumping Duty
Administrative Review, 60 FR 65264, 65281 (December 19, 1995); and
Notice of Amended Final Results of Antidumping Duty Administrative
Reviews: Certain Cold-Rolled Carbon Steel Flat Products from Korea;
Certain Corrosion-Resistant Carbon Steel Flat Products from Korea, 63
FR 20572, 20573 (April 27, 1998).
In this case, the interest expenses cannot be determined to have
reflected the financing of inventory or accounts receivable, and are
not identifiable as related solely to non-subject merchandise. In our
September 25, 1998 supplemental questionnaire we requested that ALZ
``explain the extent to which the interest expenses incurred by
TrefilARBED were associated with the financing of receivables, and the
extent to which the interest expenses incurred by TrefilARBED were
associated with non-subject merchandise.'' ALZ responded that most of
the interest expense involves non-subject merchandise, but that it
could not at that time indicate the extent to which these expenses
related to subject merchandise. See October Supplemental Response at
11. Thus, in accordance with our practice, we decided to include them
in the calculation of U.S. indirect selling expenses. However, because
the Department did not find evidence that TrefilARBED's interest
expenses related disproportionately to SSPC or to non-subject
merchandise, we have concluded that these expenses, like other indirect
selling expenses, should be allocated to SSPC based on the ratio of
SSPC value to total product value.
We disagree with ALZ's assertion that interest expenses should not
be included in the calculation of indirect selling expenses because of
double-counting. As noted above, the Department has included U.S.
affiliate interest expenses in the calculation of U.S. indirect selling
expenses independent of our calculation of imputed credit expenses,
even if the interest expenses in question constituted part of the basis
for determining the interest rate used to calculate the imputed credit
expenses. Regarding ALZ's assertion that virtually all of TrefilARBED's
expenses involved short-term debt and, therefore, they should not be
considered for inclusion in the calculation of indirect selling
expenses, we note that the record evidence is not clear these interest
[[Page 15489]]
expenses reflected short-term debt. More importantly, the short-term or
long-term nature of the debt is irrelevant in this context, given that
either type may relate to subject merchandise and involve activities
other than financing of inventory or receivables. Despite our request
for more detail, the breakdown of the TrefilARBED interest expenses
provided in the October Supplemental Response at Exhibit S2/13 does not
indicate what portion of these expenses related to financing inventory
or accounts receivable. Consequently, we agree with petitioners that we
should include the entire interest expense figure in the calculation of
total TrefilARBED indirect selling expenses, and have allocated them to
subject merchandise on the same value-basis as that indicated above.
Finally, as noted in TrefilARBED Sales Verification Report at 2,
some additional TrefilARBED expenses (related to insurance) should be
included in the calculation of total indirect selling expenses. Those
expenses have been included in the Department's recalculation for the
final results.
Comment 9: Credit and Inventory Carrying Costs in Constructed
Value. ALZ asserts that the Department inadvertently included credit
and inventory carrying in its calculation of CV. ALZ notes that the
statue directs the Department to calculate selling costs for CV value
based upon the actual expenses of the company.
Petitioners did not comment on this issue.
Department's Position: We agree with ALZ. In accordance with
section 773(e)(2)(A) of the Act, the calculation of CV should not
include additions for imputed expenses. Consequently, we have changed
our CV accordingly.
Comment 10: Changes to the Department's SAS Computer programing.
First, petitioners assert that the kilogram/hundred weight conversion
factor used in the preliminary determination margin calculation,
45.3579, should in fact be 45.3597.
Second, petitioners note that the Department should adjust its
margin calculations to account for billing adjustment 3, which ALZ
reported for the first time in its November 13, 1998 submission, but
which was not used in the preliminary calculations. Petitioners state
that this expense was reported as a negative value. Because it relates
to further manufacturing the billing adjustment should be subtracted
from (thereby increasing) the further manufacturing expense.
Third, petitioners assert that the Department should adjust its
margin calculation program so that billing adjustments 1 and 2 are
utilized in the calculation of net price for further manufacturing
sales.
ALZ did not comment on the above issues.
Department's Position: We agree with petitioners, and have made the
adjustments. However, we note that the formula cited by petitioners
regarding the third change is not utilized in our calculations because
ALZ coded all U.S. sales, whether or not further manufactured, as CEP
sales, and adjustment for further manufacturing expenses is made in the
CEP net price calculations.
In addition, the Department has also made changes pursuant to
previous comments indicated above, and has also made some adjustments
based on information noted at the sales verifications (see the Final
Sales Analysis Memorandum). Adjustments to costs are discussed below
and in the Final Cost Analysis Memorandum.
Comment 11: Unreported U.S. Sale. Petitioners argue that, as the
Department noted during the TrefilARBED verification, ALZ failed to
report one sale during the POI. Therefore, the Department should apply,
as FA, the highest margin to the quantity of this sale.
ALZ argue that the Department should not apply adverse FA on the
one unreported sale. ALZ notes that, if the Department uses invoice
date as the date of sale, then this one sale will not be part of the
POI. However, ALZ notes that if the Department decides to use order
date as the date of sale, the Department should not apply FA for this
one sale because the quantity and value are very small relative to the
entire U.S. sales universe, and because ALZ has cooperated with the
Department's requests for information throughout the investigation.
Department's Position: The Department has decided to use invoice
date as date of sale in this case (see Comment 1). We verified that the
one sale in question, which TrefilARBED identified at the outset of the
TrefilARBED verification, was invoiced after the POI. See TrefilARBED
Sales Verification Report at 3. Consequently, the sale in question is
not needed for our analysis.
Comment 12: Major Inputs. ALZ argues that the hot rolling services
provided by SwB, an affiliated company, occurred at prices that were
above market prices and its affiliate's COP. Thus, according to ALZ,
the Department has no grounds to adjust such transfer prices in
accordance with sections 773(f)(2) and (3) of the Act. According to
ALZ, the transactions used by the Department to determine market prices
for the preliminary determination were not representative of those
transactions with SwB. ALZ states that these transactions are not
comparable because ALZ benefits from a large quantity contract with SwB
for hot rolling services, while the unaffiliated customers use SwB's
hot rolling services for small quantities only. According to ALZ, the
appropriate market price is the price charged by its unaffiliated
supplier, who performed the same hot rolling services as SwB for
comparable quantities.
ALZ asserts that, if the Department continues to inflate ALZ's hot
rolling service costs for the final determination, the percentage used
to increase the costs should not be applied to the hot rolling fixed
overhead field, the transportation costs within the hot rolling
variable overhead field, or the percentage of merchandise hot-rolled by
the unaffiliated party.
The petitioners contend that the Department correctly adjusted
ALZ's affiliated hot rolling transactions for the preliminary
determination. According to petitioners, to determine whether the
transfer prices reflect arm's-length prices, the Department normally
compares the transfer price to (1) the prices related suppliers charge
to unrelated parties, or (2) the prices charged by unrelated suppliers
to the respondent. Thus, the Department's reliance on prices SwB
charges unaffiliated purchasers for its services is fully in accordance
with its practice and the law. Petitioners claim that the best measure
of market value for services SwB provided to its affiliate, ALZ, is in
fact prices SwB charged unaffiliated customers for those same services.
Petitioners contend that ALZ's claim that SwB hot rolled an
uncomparable volume of material for unaffiliated customers is without
merit. Petitioners maintain that the volume of material hot rolled by
SwB for unaffiliated customers is commercially significant.
Department's Position: We agree with ALZ that the hot rolling
services provided by its affiliate, SwB, occurred at above market
prices and its affiliate's COP. Accordingly, we agree with ALZ that no
adjustment is necessary. Section 773(f)(2) of the Act directs the
Department to disregard transactions between affiliated parties if such
transactions do not fairly reflect amounts usually reflected in sales
of merchandise under consideration in the market under consideration.
We consider the prices ALZ paid to its
[[Page 15490]]
unaffiliated supplier of hot rolling services to be the best indicator
of market prices in this case. These prices are for comparable services
provided by SwB, and are reflective of the market under consideration.
Because we found, during verification, that sales between SwB and its
unaffiliated customers represent sales to foreign customers (see ALZ
Cost Verification Report at 18), we consider them not to be reflective
of the market under consideration.
Comment 13: Affiliated Party Purchases. The petitioners argue that
adverse FA should be applied to ALZ's COP due to ALZ's failure to
disclose affiliated party purchases of certain raw materials it deems
to be major inputs. According to petitioners, even though ALZ had over
seven months to disclose that it purchased raw materials from
affiliates, it was not until verification that this information was
disclosed. Thus, according to petitioners, the Department was unable to
adequately test these affiliated party raw material purchases to ensure
that they occurred at arms-length prices and above its affiliated
suppliers' actual COP. Given ALZ's numerous deficiencies, petitioners
contend that the use of total FA is fully warranted. If the Department
does not agree to apply total FA, petitioners propose the application
of adverse FA on a product-specific basis. As adverse FA, petitioners
contend that the Department should apply the highest reported cost for
scrap and alloys by grade to all CONNUMs within that particular grade.
As further support for the application of adverse FA, petitioners
claim that the undisclosed affiliated party purchases are major inputs
as defined in the Final Determination of Sales at Less than Fair Value:
Large Newspaper Printing Presses and Components Thereof, Whether
Assembled or Unassembled, from Japan, 61 FR 38139, 38162 (July 23,
1998), (``LNPP's from Japan''). According to petitioners, as set forth
in LNPP's from Japan, a major input in this investigation accounts for
five percent or more of any individual production stage, and any input
that accounts for two percent of more of the total COP of the plate in
coils.
For the final determination, ALZ argues that the Department should
not consider the quantities of scrap and ferroalloys supplied by
affiliated parties as representative amounts of a major input. ALZ
contends that the amount of scrap and ferroalloys provided by
affiliated suppliers for the subject merchandise is not a
representative amount; therefore, ALZ did not disclose them as major
input as requested by the Department's questionnaire.
Further, ALZ asserts that, for the final determination, if the
Department decides to apply the major input rule to the affiliated
purchases of raw materials, it should compare the transfer price to the
market price. According to ALZ, at verification the Department had the
opportunity to compare the transfer price to the market price,
concluding that there were minimal or no differences between the prices
charged by affiliated and unaffiliated suppliers. In addition, ALZ
argues that, to compare scrap and ferroalloy prices for the same
elements, the Department must take the price fluctuations into account
and compare materials with similar chemical compositions.
With respect to the application of FA, ALZ maintains that, if the
Department determines that FA must be applied, the FA adjustment should
only be applied to the raw material inputs purchased from affiliated
suppliers. ALZ notes that, for instance, in Notice of Final
Determination of Sales at Less Than Fair Value: Freshwater Crawfish
Tail Meat From the People's Republic of China, 62 FR 41347, 41356
(August 1, 1997), the Department decided that, because the respondent
was cooperative in all other regards, it applied adverse FA only to one
or two items. ALZ asserts that it has complied fully with all the
Department's requests throughout the investigation. Thus, if the
Department decides to apply FA, it should only be with respect to the
raw material costs that are deemed deficient.
Department's Position: We agree with petitioners. In section D of
the Original Questionnaire, we specifically instructed ALZ to identify
all inputs obtained from affiliated parties. See Section D of the
Original Questionnaire, at II.A.5. In its questionnaire response, ALZ
stated that ``it receives inputs from two affiliated parties for the
production of subject merchandise : Stahlwerke Bremen (hot-rolling
mill) and ALBUFIN (annealing and pickling of hot-rolled coils).'' See
ALZ's July 27, 1998, Section D response at 9. Subsequently, during the
cost verification at ALZ's production facilities, the Department
discovered that the company purchased raw materials from affiliated
parties. See ALZ Cost Verification Report at 2. As a result of this
untimely disclosure, the Department was not able to adequately test the
affiliated party raw material purchases to ensure that they occurred at
arm's-length prices and above the affiliated suppliers' actual COP.
Section 773(f)(3) of the Act provides that, where transactions
between affiliated parties involve a major input, the Department may
value the major input based on the COP if the cost is greater than the
amount (higher of transfer price or market price) that would be
determined under section 773(f)(2). Under this provision, the
Department is required to review purchases from affiliated parties of
major inputs in order to determine that they reasonably reflect a fair
market value. In this instance, ALZ failed to provide in its
questionnaire responses information regarding the company's purchases
of raw materials from its affiliated supplier, thereby precluding the
Department from adequately addressing this issue prior to verification.
Furthermore, at verification, we obtained some raw material purchase
price information from non-affiliates for certain raw materials. This
information provided an idea of the significance of the unreported
affiliated party raw material purchases; however, it was insufficient
to verify that ALZ's purchases of these products from the affiliate
were at fair market value.
Section 776(a) of the Act provides that if an interested party
withholds information that has been requested by the Department, fails
to provide such information in a timely manner or in the form or manner
requested, significantly impedes a proceeding under the antidumping
statute, or provides information which cannot be verified, the
Department shall use, subject to subsection 782 (d) and (e), facts
otherwise available in reaching the applicable determination. In
addition, section 776(b) provides that an adverse inference may be used
against a party that has failed to cooperate by not acting to the best
of its ability to comply with requests for information.
As detailed above, ALZ withheld information concerning its
purchases of raw materials from an affiliated party in its
questionnaire responses. It was not until verification that the
affiliated nature of the supplier relationship was discovered by the
Department verifiers, as described in the verification report. See ALZ
Cost Verification Report at 2. Under these circumstances, we were
unable to obtain information needed to test affiliated party purchases
because the data available to the Department did not allow the
Department to isolate identical types of scrap and ferro-alloy
purchases, in their entirety for the POI, to allow for a meaningful
market value analysis. As a result, the Department is unable to
determine whether the reported transfer prices for certain raw
materials occurred at arm's-length prices. Thus, we determine that use
of partial FA is appropriate in valuing the cost of certain raw
materials in our calculation of the COP and CV.
[[Page 15491]]
Furthermore, in light of ALZ's failure to provide the data
regarding purchases of inputs from affiliated parties, despite our
specific instructions, we find that the company failed to cooperate to
the best of its ability in providing this information and, therefore,
adverse inferences in applying FA are warranted. This is consistent
with the Department's practice of applying adverse FA when certain
requested information is withheld by an interested party in its
questionnaire response, but discovered at verification. See, e.g.,
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Preserved Mushrooms from Chile, 63 FR 56613, 56620 (October 22, 1998);
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Wire Rod from Spain, 63 FR 40391, 40396 (July 29,
1998). As partial adverse FA, we have applied the highest cost for
scrap and alloys reported within each grade, to its respective
materials fields in the COP and CV databases, for CONNUMs with the
particular grade. See Final Cost Analysis Memorandum at 1.
Because we cannot adequately evaluate whether the unreported
transactions with ALZ's affiliates occurred at market prices, we are
unable to reach the question of whether the affiliated party purchases
of raw materials constitute major inputs. It should be noted, however,
that we disagree with petitioners' characterization that the
Department's threshold for what constitutes a major input is outlined
in LNPPs from Japan, (i.e., an input that represents at least two
percent of cost of manufacturing (``COM'')). As stated in LNPPs from
Japan, in a typical case in which subject merchandise only requires a
few inputs, a threshold of two percent for defining a major input may
be low. However, in that case, the product required thousands of inputs
with no single input representing a large share of the total product
cost. In addition, the company involved in the LNPP investigation
obtained numerous inputs from affiliated suppliers, the sum of which
represented a substantial portion of the total COM of LNPP. Thus, as
the Department explained in LNPP's from Japan, the product under
investigation in that case is very unique and our determination in that
case should not be used as precedent for the major input rule. As we
explained in the Preamble to the Departments regulations, the
determination of whether an affiliated party input constitutes a
``major input'' is made on a case-by-case basis, and the decision
depends on the nature of the input, the product under investigation,
and the nature of the transactions and operations between the producer
and the affiliated suppliers. See Preamble at 351.407.
Comment 14: Non-Prime Products. ALZ argues that the Department
should accept the revised costs for non-prime products, which according
to ALZ, accurately reflect the actual costs incurred to produce these
products. ALZ stated that, originally, it incorrectly reported only the
direct materials costs associated with the production of non-prime
products. According to ALZ, it is the Department's practice to assign
the same cost to prime and non-prime merchandise. As evidence of this,
ALZ points to Polyethylene Terephthalate Film, Sheet, and Strip from
the Republic of Korea; Final Determination of Sales at Less than Fair
Value, 61 FR 35177, 35182, (July 5, 1996) (``PET film from Korea''), in
which the Department relied on equal costing for the production of
prime and off-grade film. Thus, according to ALZ, for the final
determination, the Department should use the revised COP and CV
databases submitted by ALZ for non-prime merchandise.
Petitioners contend that ALZ succeeded in ``capping'' its
preliminary rate by intentionally misreporting costs for non-prime
merchandise. However, to avoid the use of FA for the final
determination, ALZ reported actual non-prime costs, which will lower
the overall profit level. Therefore, petitioners assert that the
Department should consider the impact of ALZ's preliminary and
intentional misreporting of non-prime costs in its final determination.
Department's Position: We agree with ALZ that non-prime products
should reflect the actual costs incurred to produce the products. The
Department recognizes that the same costs are incurred to produce non-
prime and prime products of the same chemical composition. As stated in
PET Film from Korea at 35182, the only difference between prime and
non-prime products is that at the end of the production process the
products are classified. Since we have found no problems with the
revised reported costs for non-prime merchandise, for the final
determination, we used the revised COP and CV databases for non-prime
products. We note that there is no support on the record for
petitioners' claim that ALZ intentionally misreported its costs for
non-prime merchandise.
Comment 15: Depreciation. ALZ alleges that, in the preliminary
determination, the Department double-counted depreciation expense in
its cost calculation. According to ALZ, the Department included the
field for depreciation in the cost calculation even though this field
was already captured in the fixed overhead field. ALZ asserts that, for
the final determination, the Department should correct the double-
counting of depreciation by excluding the depreciation variable in the
calculation of COP and CV.
Petitioners contend that ALZ's argument rests on the assumption
that the values in the depreciation field for COP and CV duplicate the
depreciation elements in each fixed overhead field. According to
petitioners, ALZ did not apply the depreciation ratio to the ``other
variable overhead'' costs. Petitioners claim that ALZ changed without
explanation, the ratio applied to ``other variable overhead'' between
the first COP and CV databases submitted and the latest cost
submissions. Given that ALZ changed its methodology without informing
the Department, petitioners submit that adverse FA should be used to
calculate depreciation in the final determination. Moreover,
petitioners assert that, if the Department determines that the use of
adverse facts available is not warranted, at minimum, the Department
should use the COP and CV databases which conform with the narrative
submitted by ALZ.
Department's Position: We agree with ALZ that the depreciation
fields in the COP and CV databases should be excluded from the cost
calculation. At the preliminary determination, the Department was
unable to thoroughly evaluate whether all of ALZ's depreciation costs
were fully captured . However, at verification, the Department reviewed
several cost build-ups for selected products (see ALZ's Cost
Verification exhibits 12, 13, and 14) and determined that the
depreciation costs were included in the fixed overhead field.
The petitioners' argument that ALZ changed the ratio which was
applied to other variable overhead is without merit. As the Department
examined at verification, and as ALZ demonstrated in its exhibits, the
depreciation ratio was properly applied to the variable processing
costs within the ``other variable overhead'' field (see ALZ's Cost
Verification exhibits 12, 13, and 14).
Comment 16: Extraordinary Costs. ALZ argues that the Department
should revise its costs for a certain product to exclude extraordinary
costs incurred outside the ordinary course of business. Specifically,
ALZ points to the fact that in order to comply with customer
specifications, which were not known at the time the production of the
product
[[Page 15492]]
began, the merchandise had to be sent to an outside processor, thus
causing ALZ to incur extraordinary costs for this product. ALZ states
that in the ordinary course of business it would not incur the extra
costs to produce the coil. In support of its position ALZ cites section
773 (b)(3)(a) of the Act, in which it notes the Department is required
by the statute to rely on costs that ordinarily permit the production
of the product in the ordinary course of business. In addition, as
evidence of this ALZ points to Stainless Steel Wire Rod from Taiwan;
Final Determination of Sales at Less than Fair Value, 63 FR 40461,
40467, (July 29, 1998) (``Wire Rod from Taiwan'') and LNPP's from
Japan, 61 FR at 38153, in which the Department chose to exclude costs
associated with unforseen events.
Petitioners contend that the Department should dismiss ALZ's claim
of extraordinary costs and, instead, apply adverse facts available.
Petitioners point out that, LNPP's from Japan and Wire Rod from Taiwan,
the two cases cited by ALZ, dealt with accidents that were unexpected
and unforeseen. Further, petitioners cite Floral Trade Council v.
United States, 16 CIT 1014 (1992), under which the court established a
two-prong test defining ``extraordinary'' events, namely, these events
must be (1) infrequent in nature, and (2) unusual in occurrence.
Petitioners argue that ALZ's series of business decisions giving rise
to the additional costs do not rise to the general level of potential
unpredictability of accidents, and have no credibility as unforseen,
unpreventable and infrequent events.
Furthermore, petitioners argue that the Department should apply
total adverse FA to ALZ's total costs or adverse FA to certain
proprietary cost for ALZ, due to its failure to timely report
affiliated party purchases for the extraordinary costs incurred by ALZ.
Department's Position: We agree with petitioners that the costs
incurred by ALZ for outside processing are not extraordinary in nature.
The Statement of Administrative Action (the SAA) at 832 states that
``when an unforeseen disruption in production occurs which is beyond
management's control * * * (the Department) will continue its current
practice such as using the costs incurred for production prior to such
unforeseen event.'' The Department's long-standing practice with regard
to ``unforeseen events'' is to treat expense items as extraordinary
only when they are both unusual in nature and infrequent in occurrence.
See, e.g., Notice of Final Determination of Sales at Less Than Fair
Value: Certain Preserved Mushrooms from India, 63 FR 72246, 72251
(December 31, 1998) (the Department determined that death of the
manager, flooding and crop disease were not extraordinary or
unforeseen); Notice of Final Determination of Sales at Less Than Fair
Value: Static Access Memory Semiconductors from Taiwan, 63 FR 8909,
8932-33 (February 23, 1998) (the Department denied a claim for an
offset due to losses incurred because of a fire); and Notice of Final
Determination of Sales at Less Than Fair Value: Oil Country Tubular
Goods from Argentina, 60 FR 33539, 33549 (June 28, 1998) (the
Department rejected respondent's claim for an offset due to
restructuring costs). Because adjustments of this type are, by
definition, extraordinary, the Department makes its decisions regarding
extraordinary costs on a case-by-case basis.
In this case, ALZ needed services from an outside processor in
order to meet special requirements of one of its customers. The
decisions to use an outside processor to do what was needed to meet the
requirements of its customer was a business decision, not an
extraordinary expense. ALZ's claim that it does not normally use
outside processors to perform the service at issue does not make it an
extraordinary event. As the court held in Floral Trade Council v.
United States 63 F.3d 318 (Fed. Cir. 1995), extraordinary events must
be infrequent in nature and unusual in occurrence. We do not consider a
steel company needing specialized services from an outside processor to
be infrequent in nature or unusual in occurrence. In fact, we consider
this to be a routine event for a company in the steel industry.
Furthermore, ALZ's reliance on section 773(b)(3)(a)'s requirement that
the Department must rely on costs that permit the production of the
product in the ordinary course of business is misplaced. We do not
agree that the outside processing cost incurred by ALZ in order to meet
its customer's requirements was outside the ordinary course of
business. The obligation to comply with customer specifications
throughout a production process is a normal part of doing business and
does not place it outside of the ordinary course of business. Thus, for
the final determination, we are not excluding the outside processing
costs incurred to produce the product in question.
We disagree with the petitioners' assertion, however, that we
should apply total adverse FA in calculating ALZ's dumping margin as a
result of ALZ's acquiring these proprietary services from an affiliate.
The Department was informed within a week prior to verification that
the extraordinary costs incurred by ALZ were performed by an affiliated
party. We have no reason to believe that the transfer price between ALZ
and its affiliate for these services did not occur at arm's-length
prices. The same affiliate that provided ALZ with hot rolling services
also provided the proprietary service at issue. At verification we
tested the appropriateness of the transfer prices between ALZ and its
affiliate for the hot rolling services, noting that no adjustment was
necessary (see Comment 12 above and ALZ Cost Verification Report at
18). We do not consider it necessary to test every transaction with an
affiliate in order to conclude that all transactions with the affiliate
can be relied upon. In this case, based on our findings at
verification, we conclude that the transfer prices between ALZ and its
affiliate for the proprietary services at issue can be relied upon
based on the results of our testing of the hot rolling transfer prices
between ALZ and the same affiliated supplier (id.).
Continuation of Suspension of Liquidation
In accordance with section 735(c)(1)(B) of the Act, we are
directing the Customs Service to continue to suspend liquidation of all
entries of subject merchandise from Belgium that are entered, or
withdrawn from warehouse, for consumption on or after November 4, 1998
(the date of publication of the preliminary determination in the
Federal Register). The Customs Service shall continue to require a cash
deposit or posting of a bond equal to the estimated amount by which the
normal value exceeds the U.S. price as shown below. These suspension of
liquidation instructions will remain in effect until further notice.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-
average
Exporter/manufacturer margin
percentage
------------------------------------------------------------------------
ALZ, N.V................................................... 9.86
All Others................................................. 9.86
------------------------------------------------------------------------
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (``ITC'') of our determination. As our
final determination is affirmative, the ITC will, within 45 days,
determine whether these imports are materially injuring, or threaten
material injury to, the U.S.
[[Page 15493]]
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.
This determination is issued and published in accordance with
sections 735(d) and 777(i)(1) of the Act.
Dated: March 19, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-7537 Filed 3-30-99; 8:45 am]
BILLING CODE 3510-DS-P