[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Notices]
[Pages 30790-30819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13678]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-201-822]


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

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

EFFECTIVE DATE: June 7, 1999.

FOR FURTHER INFORMATION CONTACT: Fred Baker or Martin Odenyo, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 
20230; telephone: (202) 482-2924 or (202) 482-5254, respectively.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (the Act), are references to the provisions effective 
January 1, 1995, the effective date of the amendments made to the Act 
by the Uruguay Round Agreements Act (URAA). In addition, unless 
otherwise indicated, all citations to the Department's regulations are 
to the regulations codified at 19 CFR part 351 (1998).

Final Determination

    We determine that stainless steel sheet and strip in coils (SSSS) 
from Mexico are being, or is likely to be, sold in the United States at 
less than fair value (LTFV), as provided in section 735 of the Act. The 
estimated margins of sales at LTFV are shown in the ``Suspension of 
Liquidation'' section of this notice.

[[Page 30791]]

Case History

    We published in the Federal Register the preliminary determination 
in this investigation on January 4, 1999. See Notice of Preliminary 
Determination of Sales at Less Than Fair Value and Postponement of 
Final Determination: Stainless Steel Sheet and Strip in Coils from 
Mexico, 64 FR 125 (January 4, 1999) (Preliminary Determination). Since 
publication of the Preliminary Determination the following events have 
occurred:
    We received an allegation of ministerial errors from Allegheny 
Ludlum Corporation, J&L Specialty Steel, Inc., Washington Steel 
Division of Bethlehem Steel Corporation, the United Steelworkers of 
America, and AFL-CIO/CLC (petitioners) on December 28, 1998. We 
addressed those allegations in a memorandum to the file dated January 
28, 1999.
    On January 6, 1999, we issued a supplemental questionnaire to 
Mexinox S.A. de C.V. (Mexinox) regarding its section E (further 
manufacturing) response. In response Mexinox made two submissions, one 
on January 15, 1999, and the other on January 22, 1999.
    We verified Mexinox's sections A (General Information), B (Home 
Market Sales), and C (U.S. Sales) responses in San Luis Potosi, Mexico, 
from February 1 through February 5, 1999. See Memorandum to the File; 
``Verification of the Information Submitted by Mexinox S.A. de C.V.,'' 
March 5, 1999 (Mexinox sales verification report). We also verified 
Mexinox's section D (cost of production) response in San Luis Potosi 
from February 25 through February 29, 1999. See Memorandum to Neal 
Halper, Acting Director, Office of Accounting; ``Verification of the 
Cost of Production and Constructed Value Data,'' March 22, 1999 
(Mexinox cost verification report). Public versions of these and all 
other Departmental memoranda referred to herein are on file in room B-
099 of the main Commerce building.
    From February 24, 1999 through February 26, 1999, we verified the 
sales response of a U.S. entity we have determined to be affiliated 
with Mexinox (Reseller). See Memorandum to the File; ``Verification of 
the Information Submitted by Reseller;'' March 15, 1999 (Reseller sales 
verification report). We verified the section E (further manufacturing) 
response of Reseller from March 2, 1999 through March 4, 1999. See 
Memorandum to Neal Halper, Acting Director, Office of Accounting; 
``Verification of the Cost of Further Manufacturing,'' March 18, 1999 
(Reseller cost verification report).
    On January 22, 1999, and February 2, 1999, Mexinox and petitioners, 
respectively, requested a public hearing on this investigation. We 
received case briefs from petitioners and Mexinox on March 29, 1999; we 
received rebuttal briefs from petitioners and Mexinox on April 5, 1999. 
On April 14 and 15, 1999, petitioners and Mexinox, respectively, 
withdrew their requests for a hearing.

Scope of the Investigation

    We have made minor corrections to the scope language excluding 
certain stainless steel foil for automotive catalytic converters and 
certain specialty stainless steel products in response to comments by 
interested parties.
    For purposes of this investigation, the products covered are 
certain stainless steel sheet and strip in coils. Stainless steel is an 
alloy steel containing, by weight, 1.2 percent or less of carbon and 
10.5 percent or more of chromium, with or without other elements. The 
subject sheet and strip is a flat-rolled product in coils that is 
greater than 9.5 mm in width and less than 4.75 mm in thickness, and 
that is annealed or otherwise heat treated and pickled or otherwise 
descaled. The subject sheet and strip may also be further processed 
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that 
it maintains the specific dimensions of sheet and strip following such 
processing.
    The merchandise subject to this investigation is classified in the 
Harmonized Tariff Schedule of the United States (HTS) at subheadings: 
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80, 
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05, 
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36, 
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05, 
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36, 
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05, 
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35, 
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35, 
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60, 
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10, 
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 
7220.20.60.10, 7220.20.60.15, 7220.20.60.60, 7220.20.60.80, 
7220.20.70.05, 7220.20.70.10, 7220.20.70.15, 7220.20.70.60, 
7220.20.70.80, 7220.20.80.00, 7220.20.90.30, 7220.20.90.60, 
7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and 7220.90.00.80. 
Although the HTS subheadings are provided for convenience and Customs 
purposes, the Department's written description of the merchandise under 
investigation is dispositive.
    Excluded from the scope of this investigation are the following: 
(1) Sheet and strip that is not annealed or otherwise heat treated and 
pickled or otherwise descaled; (2) sheet and strip that is cut to 
length; (3) plate (i.e., flat-rolled stainless steel products of a 
thickness of 4.75 mm or more); (4) flat wire (i.e., cold-rolled 
sections, with a prepared edge, rectangular in shape, of a width of not 
more than 9.5 mm); and (5) razor blade steel. Razor blade steel is a 
flat rolled product of stainless steel, not further worked than cold-
rolled (cold-reduced), in coils, of a width of not more than 23 mm and 
a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5 
percent chromium, and certified at the time of entry to be used in the 
manufacture of razor blades. See Chapter 72 of the HTS, ``Additional 
U.S. Note'' 1(d).
    In response to comments by interested parties, the Department has 
determined that certain specialty stainless steel products are also 
excluded from the scope of this investigation. These excluded products 
are described below.
    Flapper valve steel is defined as stainless steel strip in coils 
containing, by weight, between 0.37 and 0.43 percent carbon, between 
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent 
manganese. This steel also contains, by weight, phosphorus of 0.025 
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur 
of 0.020 percent or less. The product is manufactured by means of 
vacuum arc remelting, with inclusion controls for sulphide of no more 
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper 
valve steel has a tensile strength of between 210 and 300 ksi, yield 
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a 
hardness (Hv) of between 460 and 590. Flapper valve steel is most 
commonly used to produce specialty flapper valves for compressors.
    Also excluded is a product referred to as suspension foil, a 
specialty steel product used in the manufacture of suspension 
assemblies for computer disk drives. Suspension foil is described as 
302/304 grade or 202 grade stainless steel of a thickness between 14 
and 127 microns, with a thickness tolerance of plus-or-minus 2.01 
microns, and surface glossiness of 200 to 700 percent Gs.

[[Page 30792]]

Suspension foil must be supplied in coil widths of not more than 407 
mm, and with a mass of 225 kg or less. Roll marks may only be visible 
on one side, with no scratches of measurable depth. The material must 
exhibit residual stresses of 2 mm maximum deflection, and flatness of 
1.6 mm over 685 mm length.
    Certain stainless steel foil for automotive catalytic converters is 
also excluded from the scope of this investigation. This stainless 
steel strip in coils is a specialty foil with a thickness of between 20 
and 110 microns used to produce a metallic substrate with a honeycomb 
structure for use in automotive catalytic converters. The steel 
contains, by weight, carbon of no more than 0.030 percent, silicon of 
no more than 1.0 percent, manganese of no more than 1.0 percent, 
chromium of between 19 and 22 percent, aluminum of no less than 5.0 
percent, phosphorus of no more than 0.045 percent, sulfur of no more 
than 0.03 percent, lanthanum of less than 0.002 or greater than 0.05 
percent, and total rare earth elements of more than 0.06 percent, with 
the balance iron.
    Permanent magnet iron-chromium-cobalt alloy stainless strip is also 
excluded from the scope of this investigation. This ductile stainless 
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10 
percent cobalt, with the remainder of iron, in widths 228.6 mm or less, 
and a thickness between 0.127 and 1.270 mm. It exhibits magnetic 
remanence between 9,000 and 12,000 gauss, and a coercivity of between 
50 and 300 oersteds. This product is most commonly used in electronic 
sensors and is currently available under proprietary trade names such 
as ``Arnokrome III.'' 1
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    \1\ ``Arnokrome III'' is a trademark of the Arnold Engineering 
Company.
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    Certain electrical resistance alloy steel is also excluded from the 
scope of this investigation. This product is defined as a non-magnetic 
stainless steel manufactured to American Society of Testing and 
Materials (ASTM) specification B344 and containing, by weight, 36 
percent nickel, 18 percent chromium, and 46 percent iron, and is most 
notable for its resistance to high temperature corrosion. It has a 
melting point of 1390 degrees Celsius and displays a creep rupture 
limit of 4 kilograms per square millimeter at 1000 degrees Celsius. 
This steel is most commonly used in the production of heating ribbons 
for circuit breakers and industrial furnaces, and in rheostats for 
railway locomotives. The product is currently available under 
proprietary trade names such as ``Gilphy 36.'' 2
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    \2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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    Certain martensitic precipitation-hardenable stainless steel is 
also excluded from the scope of this investigation. This high-strength, 
ductile stainless steel product is designated under the Unified 
Numbering System (UNS) as S45500-grade steel, and contains, by weight, 
11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon, 
manganese, silicon and molybdenum each comprise, by weight, 0.05 
percent or less, with phosphorus and sulfur each comprising, by weight, 
0.03 percent or less. This steel has copper, niobium, and titanium 
added to achieve aging, and will exhibit yield strengths as high as 
1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after 
aging, with elongation percentages of 3 percent or less in 50 mm. It is 
generally provided in thicknesses between 0.635 and 0.787 mm, and in 
widths of 25.4 mm. This product is most commonly used in the 
manufacture of television tubes and is currently available under 
proprietary trade names such as ``Durphynox 17.'' 3
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    \3\ ``Durphynox 17'' is a trademark of Imphy, S.A.
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    Finally, three specialty stainless steels typically used in certain 
industrial blades and surgical and medical instruments are also 
excluded from the scope of this investigation. These include stainless 
steel strip in coils used in the production of textile cutting tools 
(e.g., carpet knives).4 This steel is similar to AISI grade 
420, but containing, by weight, 0.5 to 0.7 percent of molybdenum. The 
steel also contains, by weight, carbon of between 1.0 and 1.1 percent, 
sulfur of 0.020 percent or less, and includes between 0.20 and 0.30 
percent copper and between 0.20 and 0.50 percent cobalt. This steel is 
sold under proprietary names such as ``GIN4 Mo.'' The second excluded 
stainless steel strip in coils is similar to AISI 420-J2 and contains, 
by weight, carbon of between 0.62 and 0.70 percent, silicon of between 
0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent, 
phosphorus of no more than 0.025 percent and sulfur of no more than 
0.020 percent. This steel has a carbide density on average of 100 
carbide particles per 100 square microns. An example of this product is 
``GIN5'' steel. The third specialty steel has a chemical composition 
similar to AISI 420 F, with carbon of between 0.37 and 0.43 percent, 
molybdenum of between 1.15 and 1.35 percent, but lower manganese of 
between 0.20 and 0.80 percent, phosphorus of no more than 0.025 
percent, silicon of between 0.20 and 0.50 percent, and sulfur of no 
more than 0.020 percent. This product is supplied with a hardness of 
more than Hv 500 guaranteed after customer processing, and is supplied 
as, for example, ``GIN6''.5
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    \4\ This list of uses is illustrative and provided for 
descriptive purposes only.
    \5\ ``GIN4 HI-C'', ``GIN5'' and ``GIN6'' are the proprietary 
grades of Hitachi Metals America, Ltd.
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Period of Investigation

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

Fair Value Comparisons

    To determine whether sales of SSSS from Mexico to the United States 
were made at LTFV, we compared the export price (EP) or constructed 
export price (CEP) to the normal value (NV), as described in the 
``Export Price and Constructed Export Price'' and ``Normal Value'' 
sections of this notice, below. In accordance with section 
777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs and 
CEPs for comparison to weighted-average NVs or constructed values 
(CVs).

Transactions Investigated

    For its home market and U.S. sales, Mexinox reported the date of 
invoice as the date of sale, in keeping with the Department's stated 
preference for using the invoice date as the date of sale. See 19 CFR 
351.401(i). As explained in response to comment 12 (below), for this 
final determination we have continued to rely upon Mexinox's invoice 
dates in the home and U.S. markets as the date of sale. However, should 
this investigation result in an antidumping duty order, we intend to 
scrutinize further this issue in any subsequent segment of this 
proceeding involving Mexinox.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products produced by the respondent covered by the description in the 
``Scope of the Investigation'' section, above, and sold in the home 
market during the POI, to be foreign like products for purposes of 
determining appropriate product comparisons to U.S. sales. Where there 
were no sales of identical merchandise in the home market to compare to 
U.S. sales, we compared U.S. sales to the next most similar foreign 
like product on the basis of the characteristics and reporting 
instructions listed in Appendix V of the Department's August 3, 1998 
antidumping questionnaire.

[[Page 30793]]

Level of Trade

    In our Preliminary Determination, we agreed with Mexinox that one 
level of trade (LOT) existed for Mexinox in the home market. 
Furthermore, we agreed with Mexinox that its U.S. EP and CEP sales 
constituted two distinct LOTs, and that a CEP offset to NV was 
warranted when comparing CEP to NV or CV. In their comments on the 
Preliminary Determination, petitioners challenged our LOT 
determination. However, based on our analysis of petitioners' comments 
and Mexinox's rebuttal comments, we have not changed our Preliminary 
Determination with respect to LOT. See comment 9 (below).

Export Price and Constructed Export Price

    In the Preliminary Determination, we used Mexinox's reported EP/CEP 
classification of its U.S. sales. In their comments on the Preliminary 
Determination, petitioners challenged our acceptance of Mexinox's EP/
CEP classification. However, based on our analysis of petitioners' 
comments and Mexinox's rebuttal comments, we have not changed our 
preliminary determination with respect to EP/CEP classification. See 
comment 8 (below).
    We calculated EP and CEP using the same methods employed in the 
Preliminary Determination except as noted below in the ``Department's 
Position'' portions of the ``Comments,'' section of this notice and in 
the Final Determination Analysis Memorandum from Fred Baker to John 
Kugelman, dated May 19, 1999.

Normal Value

Home Market Viability

    As discussed in the Preliminary Determination, in order to 
determine whether the home market was viable for purposes of 
calculating NV (i.e., the aggregate volume of home market sales of the 
foreign like product was equal to or greater than five percent of the 
aggregate volume of U.S. sales), we compared the respondent's volume of 
home market sales of the foreign like product to the volume of U.S. 
sales of the subject merchandise, in accordance with section 
773(a)(1)(B) of the Act. As Mexinox's aggregate volume of home market 
sales of the foreign like product was greater than five percent of its 
aggregate volume of U.S. sales of the subject merchandise, we 
determined that the home market was viable. Therefore, we based NV on 
home market sales in the usual commercial quantities and in the 
ordinary course of trade.

Cost of Production Analysis

    In response to a timely allegation filed by petitioners, we 
conducted an investigation to determine whether Mexinox made sales of 
the foreign like product during the POI at prices below its cost of 
production (COP). In accordance with section 773(b)(3) of the Act, we 
calculated the weighted-average COP based on the sum of Mexinox's cost 
of materials, fabrication, general expenses, and packing costs. We 
relied on respondent's COP and CV amounts except in the following 
instances:
    a. We made adjustments to the cost of inputs received from 
affiliates in accordance with sections 773(f)(2) and (3) of the Act.
    b. We revised the reported general and administrative expense to 
include the accrued sludge clean-up for 1997 and to exclude expenses 
incurred on behalf of subsidiaries.
    c. We recalculated Mexinox's general and administrative expense 
ratio based on the total cost of manufacturing.
    d. We revised the reported net financing expense ratio to exclude 
unsubstantiated foreign exchange gains.
    We compared the weighted-average COP for Mexinox to home market 
sales prices of the foreign like product, as required under section 
773(b) of the Act. In determining whether to disregard home market 
sales made at prices less than the COP, we examined whether such sales 
were made (i) in substantial quantities within an extended period of 
time and (ii) at prices which permitted recovery of all costs within a 
reasonable period of time. On a product-specific basis, we compared COP 
to home market prices, less any applicable movement charges, early 
payment and other discounts, and direct and indirect selling expenses.
    Pursuant to section 773(b)(2)(C)(i) of the Act, where less than 
twenty percent of a respondent's sales of a given product were at 
prices less than the COP, we do not disregard any below-cost sales of 
that product because we determined that the below-cost sales were not 
made in substantial quantities. Where twenty percent or more of a 
respondent's sales of a given product during the POI were at prices 
less than the COP, we determined such sales to have been made in 
substantial quantities, in accordance with sections 773(b)(2)(C)(i) and 
773(b)(2)(B) of the Act. Because we used POI average costs, in such 
cases, pursuant to section 773(b)(2)(D) of the Act, we also determined 
that such sales were not made at prices which would permit recovery of 
all costs within a reasonable period of time. Therefore, we disregarded 
the below-cost sales. Where all sales of a specific product were at 
prices below the COP, we disregard all sales of that product. When 
there were no home market sales of identical or similar merchandise to 
match to U.S. sales, we compared the U.S. sales to CV in accordance 
with section 773(a)(4) of the Act.
    Our cost test for Mexinox revealed that for certain products less 
than twenty percent of Mexinox's home market sales were at prices below 
Mexinox's COP. Therefore, we retained all sales of those products in 
our analysis. For other products, more than twenty percent of Mexinox's 
sales were at prices below COP. In such cases we disregarded the sales 
that failed the cost test, while retaining the remaining sales for our 
analysis. See Final Determination Analysis Memorandum dated May 19, 
1999.

Price-to-Price Comparisons

    For those products with home market sales that passed the cost 
test, we based NV on Mexinox's sales to unaffiliated home market 
customers and to affiliated home market customers who passed the 
Department's arms-length test. (For an explanation of the arms-length 
test, see the Preliminary Determination, 64 FR at 129.) We made 
adjustments, where appropriate, for physical differences in the 
merchandise in accordance with section 773(a)(6)(C)(ii) of the Act. 
Where appropriate, we deducted from NV the amount of indirect selling 
expenses capped by the amount of the U.S. commissions. We made a CEP 
offset due to differences in LOT (see ``Level of Trade'' section 
(above) and comment 9 (below)). We continued to make circumstance-of-
sale (COS) adjustments in accordance with section 773(a)(6)(c)(iii) of 
the Act.

Price-to-CV Comparisons

    In accordance with section 773(a)(4) of the Act, we based NV on CV 
if we were unable to find a home market match of identical or similar 
merchandise. We calculated CV based on the costs of materials and 
fabrication employed in producing the subject merchandise, SG&A, and 
profit. See section 773(e)(1) of the Act. In accordance with section 
773(e)(2)(A) of the Act, we based SG&A and profit on the amounts 
incurred and realized by the respondent in connection with the 
production and sale of the foreign like product in the ordinary course 
of trade for consumption in Mexico. We calculated the cost of 
materials, fabrication, and general expenses using the method described 
in the ``Cost of Production Analysis'' section (above).

[[Page 30794]]

For selling expenses, we used the weighted-average home market selling 
expenses. Where appropriate, we made adjustments to CV in accordance 
with section 773(a)(8) of the Act. We also made COS adjustments by 
deducting home market direct selling expenses from CV and adding U.S. 
direct selling expenses.

Facts Available

    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, or provides information 
which cannot be verified, the Department shall use, subject to sections 
782(d) and (e), the facts otherwise available in reaching the 
applicable determination. See, e.g., Roller Chain, Other Than Bicycle 
Chain, From Japan; Final Results and Partial Rescission of Antidumping 
Duty Administrative Review, 63 FR 63671, 63673 (November 16, 1998). In 
this investigation the Department has determined, for the reasons 
stated in detail below, that one of Mexinox's U.S. affiliates submitted 
information that could not be verified. Therefore, pursuant to section 
776(a) of the Act, we have determined that the use of the facts 
otherwise available is necessary in this instance.
    However, the statute requires that certain conditions be met before 
the Department may resort properly to the facts available. Where the 
Department determines that a response to a request for information does 
not comply with the request, section 782(d) of the Act provides that 
the Department will so inform the party submitting the response and 
will, to the extent practicable, provide that party the opportunity to 
remedy or explain the deficiency. If the party fails to remedy the 
deficiency within the applicable time limits, the Department may, 
subject to section 782(e), disregard all or part of the original and 
subsequent responses, as appropriate. Briefly, section 782(e) provides 
that the Department ``shall not decline to consider information that is 
submitted by an interested party and is necessary to the determination 
but does not meet all the applicable requirements established by [the 
Department]'' if the information is timely, can be verified, is not so 
incomplete that it cannot be used, and if the interested party acted to 
the best of its ability in providing the information. Where all of 
these conditions are met, and the Department can use the information 
without undue difficulties, the statute requires it to do so.
    Finally, in selecting from among the facts otherwise available, 
section 776(b) of the Act permits the use of an adverse inference if 
the Department also finds that an interested party failed to cooperate 
by not acting to the best of its ability to comply with the requests 
for information. Adverse inferences are appropriate ``to ensure that 
the party does not obtain a more favorable result by failing to 
cooperate than if it had cooperated fully.'' The Statement of 
Administrative Action (SAA) reprinted in H.R. Doc. 103-316 at 870 
(1994). Furthermore, ``an affirmative finding of bad faith on the part 
of the respondent is not required before the Department may make an 
adverse inference.'' Antidumping Duties; Countervailing Duties; Final 
Rule, 62 FR 27296, 27340 (May 19, 1997) (Final Rules). The statute 
continues by noting that in selecting from among the facts available 
the Department may, subject to the corroboration requirements of 
section 776(c), rely upon information drawn from the petition, a final 
determination in the investigation, any previous administrative review 
conducted under section 751 (or section 753 for countervailing duty 
cases), or any other information on the record.
    As explained in the Department's response to Comment 6 (below), we 
have determined that we must resort to the facts available with respect 
to the sales and further-manufacturing data submitted by the Reseller. 
At verification, we discovered numerous and systemic errors in the data 
used by the Reseller to report its costs of further manufacturing of 
subject merchandise. These errors included, inter alia, the failure to 
match properly input coils and output finished products, the allocation 
of processing costs to sales which had undergone no further processing 
whatever, and cases where the quantities of output goods exceeded the 
inputs. The vast majority of the subject merchandise sold through the 
Reseller was first further processed by this company; therefore, the 
deficiencies in its data affect a corresponding percentage of the 
Reseller's submitted sales data. Furthermore, the mis-allocations not 
only affected the Reseller's reported sales which had been subject to 
further processing, but tainted the non-further-processed portion of 
its database as well. In addition, the Reseller failed to identify the 
producer of a significant portion of its sales in the United States, 
and failed to report physical criteria vital to our model matching for 
certain other transactions. As the breadth and depth of the 
discrepancies leave us with no confidence in the underlying further-
processing data submitted by the Reseller, we have determined that 
these data cannot serve adequately in the calculation of Mexinox's 
overall weighted-average margin. Further, the record indicates that the 
Reseller could readily have discovered and corrected the majority of 
these errors prior to submitting its data to the Department and, at the 
latest, prior to verification. See comment 6 (below). Accordingly, as 
provided in section 776(b) of the Act, we find that the Reseller has 
failed to cooperate by not acting to the best of its ability in 
responding to the Department's requests for information. Therefore, we 
have relied upon adverse facts available for the entirety of the data 
submitted by the Reseller. As facts available we have assigned the 
highest non-aberrational margin calculated for this final determination 
to the weighted-average unit value for sales reported by the Reseller. 
To determine the highest non-aberrational margin we examined the 
frequency distribution of the margins calculated from Mexinox's 
reported data. We found that roughly ten percent of Mexinox's 
transactions fell within a range of 40 to 49 percent; we selected the 
highest of these as reflecting the highest non-aberrational margin. We 
then multiplied the resulting unit margin by the total quantity 
attributed to resales of subject merchandise by the Reseller. See also 
the Final Determination Analysis Memorandum, dated May 19, 1999. This 
total quantity includes the material affirmatively verified as being of 
Mexinox origin, as well as a portion of the merchandise of unidentified 
origin allocated to Mexinox. To apportion the unidentified sales among 
the investigations of stainless sheet in coil from Germany, Italy, and 
Mexico (see Comment 7, below) we have adjusted the quantity for each of 
the unidentified sales on a pro rata basis, using the verified 
percentages of the Reseller's merchandise supplied by each of the three 
respondent mills. We then applied the facts-available margin to these 
unidentified sales transactions as explained above.

Affiliation

    As explained in the Preliminary Determination and immediately 
below, we find that for purposes of this investigation Mexinox is 
affiliated with Thyssen Stahl and Thyssen AG (Thyssen) and, through 
them, their affiliated sellers and steel service centers in the United 
States. The Act defines ``affiliated persons'' at section 771(33). 
Included within that definition

[[Page 30795]]

are the following persons: family members, any organization and its 
officers or directors, partners, and employer and employee. See section 
771(33)(A) through (D) of the Act. The statute also considers as 
affiliated persons:

    (E) Any person directly or indirectly owning, controlling, or 
holding with power to vote, 5 percent or more of the outstanding 
voting stock or shares of any organization and such organization.
    (F) Two or more persons directly or indirectly controlling, 
controlled by, or under common control with, any person.
    (G) Any person who controls any other person and such person.

See section 771(33)(E) through (G) of the Act.
    ``Control'' is defined as one person being ``legally or 
operationally in a position to exercise restraint or direction over the 
other person.'' The SAA at 870 explained that including control in an 
analysis of affiliated parties ``permit[s] a more sophisticated 
analysis which better reflects the realities of the market place.'' The 
SAA continues, ``[t]he traditional focus on control through stock 
ownership fails to address adequately modern business arrangements, 
which often find one firm `operationally in a position to exercise 
restraint or direction' over another even in the absence of an equity 
relationship.'' Id. at 838.
    Finally, as the Department noted in its ``Explanation to the Final 
Rules'' (i.e., its regulations), ``section 771(33), which refers to a 
person being `in a position to exercise restraint or direction,' 
properly focuses the Department on the ability to exercise `control' 
rather than the actuality of control over specific decisions.'' Final 
Rules, 62 FR at 27348. Thus, the statute does not require that we find 
the actual exercise of control by one person over the other in order to 
find the parties affiliated; rather, the potential to exercise control 
is sufficient for such a finding.
    In this final determination, we continue to find that Mexinox is 
affiliated with Thyssen Stahl and Thyssen because Thyssen Stahl 
indirectly owns and controls, through Krupp Thyssen Stahl (KTS), 
thirty-six percent of Mexinox's outstanding stock. Thyssen, which 
wholly owns Thyssen Stahl, likewise indirectly owns and controls 
thirty-six percent of Mexinox. See Preliminary Determination, 64 FR at 
126 and Memorandum to Joseph Spetrini, Mexinox Affiliation, December 
17, 1998 (Affiliation Memo).
    In addition, we continue to find that Mexinox is affiliated with 
Thyssen's U.S. sales affiliates because the nature and quality of 
corporate contact establish this affiliation by virtue of Thyssen's 
common control of its affiliates and of KTS. The record demonstrates 
that Thyssen, as the majority equity holder in, and ultimate parent of, 
its various affiliates, is in a position to exercise direction and 
restraint over the affiliates' production and pricing. As we stated in 
the Preliminary Determination, ``Thyssen's substantial equity ownership 
in Mexinox and Thyssen's other affiliates, in conjunction with the 
`totality of other evidence of control' requires a finding that these 
companies are under the common control of Thyssen.'' Id. For a full 
discussion of Mexinox's affiliations see Comment 2 (below) and the 
Affiliation Memo.

Currency Conversion

    We made currency conversions into U.S. dollars in accordance with 
section 773A(a) of the Act based on the exchange rates in effect on the 
dates of the U.S. sales, as certified by the Federal Reserve Bank.

Analysis of Interested Party Comments

Issues Relating to Sales

Comment 1: Affiliation

    Mexinox argues that the Department erred in finding that it is 
affiliated with the Reseller, and in thus including the Mexinox-sourced 
U.S. sales by the Reseller in the margin calculation. It argues that 
under section 771(33) of the Act, the Department can find affiliation 
between Mexinox and the Reseller only if it finds either:
    1. A direct relationship between Mexinox and the Reseller whereby 
one company:
    a. Directly or indirectly owns, controls, or holds the power to 
vote five percent or more of the other company's outstanding voting 
shares (subsection (E)); or,
    b. Otherwise controls the other company (subsection (G)); or
    2. An indirect relationship between Mexinox and Reseller whereby 
the two companies directly or indirectly control, are controlled by, or 
are under common control with another party (subsection (F)).
    Regarding a possible direct relationship between Mexinox and the 
Reseller, Mexinox argues that the facts do not support such a finding 
because neither company directly or indirectly owns, controls, or holds 
the power to vote five percent or more of the other company's 
outstanding voting shares, and there is no direct bilateral 
relationship that allows one company to control the other. It states 
that while the Reseller's parent company, Thyssen AG (Thyssen), does 
indirectly own more than five percent of Mexinox through its ownership 
of Thyssen Stahl AG (Thyssen Stahl) (which, jointly with Fried. Krupp 
AG Hoesch-Krupp (Krupp), owns the entity Krupp Thyssen Stainless (KTS), 
Mexinox's immediate parent), the relationship that must be examined is 
that between Mexinox and the Reseller, and not that between Mexinox and 
Thyssen. The corporate relationships at issue in this investigation, 
Mexinox argues, are similar to those that existed in Certain Cold-
Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea; 
Final Results of Antidumping Duty Administrative Review, 62 FR 18404 
(April 15, 1997) (Steel from Korea). There respondent POSCO 
participated in a joint venture (the entity POCOS) involving DSM, a 
parent company of respondent Union. The Department concluded that 
despite the existence of the joint venture, POSCO and Union were not 
affiliated because (1) the two companies were separate operational 
entities with no overlapping stock ownership, and (2) nothing in the 
record indicated that either Union or POSCO was in a position to 
control, either legally or operationally, the other party. Mexinox 
argues that for the same reasons the Department must reach a similar 
conclusion here if it focuses on Mexinox and the Reseller, the entities 
at issue, rather than on Mexinox and Thyssen.
    Given the absence of a direct relationship between the parties at 
issue, Mexinox argues, Mexinox and the Reseller cannot be deemed 
affiliated unless, in accordance with subsection (F) of section 771(33) 
of the Act, they directly or indirectly control a third party, or are 
themselves controlled by, or under common control with, another party. 
Since neither Mexinox nor the Reseller control Thyssen, Mexinox states, 
and the three companies are not under the common control of another 
party, Mexinox cannot be deemed affiliated with the Reseller unless 
Thyssen also directly or indirectly controls Mexinox. Mexinox argues 
that despite the Department's preliminary determination, such is not 
the case. It cites Steel from Korea to demonstrate that the Department 
has held that the participation of two companies in a joint venture 
(such as is the case here with Thyssen and Krupp, which jointly own 
KTS, Mexinox's immediate parent) does not mean that the companies' 
respective subsidiaries are affiliated with each other. As explained 
above, in Steel from Korea, POSCO and DSM jointly owned the entity 
POCOS, and

[[Page 30796]]

DSM independently owned and controlled a subsidiary, Union, which had 
no operational or legal connection to POCOS. In response to 
petitioners' argument that POSCO and Union were affiliated, the 
Department stated, ``POSCO affiliation with DSM (through POCOS) and DSM 
control over Union do not add up to POSCO control of Union. The 
affiliation standard set forth in subsection (F) is thus not 
satisfied.'' See Steel from Korea, 62 FR at 18417. Using the same 
reasoning, Mexinox argues, the Department cannot find affiliation 
between Mexinox and the Reseller simply because Krupp and Thyssen 
jointly own KTS.
    Furthermore, Mexinox argues that in making its determination that 
Thyssen has the ability to control Mexinox and the Reseller (explained 
in a December 17, 1998 memorandum to Joseph Spetrini, available in the 
public file (Affiliation Memo)), the Department failed to consider both 
the applicable law and certain factual data indicating that no such 
control exists. 19 CFR Sec. 351.102(b)(1998) states that:

    In determining whether control over another person exists, * * * 
the Secretary will consider the following factors, among others: 
corporate or family groupings; franchise or joint venture 
agreements; debt financing; and close supplier relationships. The 
Secretary will not find that control exists on the basis of these 
factors unless the relationship has the potential to impact 
decisions concerning the production, pricing, or cost of the subject 
merchandise or foreign like product * * *

Furthermore, in the preamble to the final rules adopting this 
definition the Department stated that ``we will consider the full range 
of criteria identified in the SAA (Statement of Administrative Action), 
at 838, in determining whether control exists.'' See Final Rules, 62 FR 
at 27998. Moreover, Mexinox argues, the SAA admonishes that the 
determination of whether control exists must ``reflect the realities of 
the marketplace.'' See SAA at 838.
    Given these legal criteria, Mexinox argues, the Department's 
determination was flawed because it is Krupp, and not Thyssen, that 
controls the operations of KTS and Mexinox, including Mexinox's 
production, pricing, and cost decisions. Thyssen, Mexinox states, does 
not have the ``potential to impact'' such decisions. This ``marketplace 
reality'' is reflected in both a June 5, 1995 Krupp/Thyssen Stahl 
shareholders agreement and in the circumstances surrounding KTS's and 
Mexinox's operations. By its terms, this shareholders agreement, 
Mexinox argues, ensures that Thyssen does not have the ability to 
control KTS's operational decisions, and that the ability to make such 
decisions rests solely with Krupp. In the Affiliation Memo, Mexinox 
argues, the Department virtually ignored the provisions establishing 
Krupp's direct control over KTS, and focused instead on certain 
provisions that in principle allow Thyssen Stahl to exercise a degree 
of influence over KTS in certain limited circumstances. For example:

     The Department is correct that Thyssen was involved in 
defining the underlying purpose of the joint venture prior to the 
establishment of KTS, but the shareholders agreement in no way suggests 
that Thyssen enjoyed ongoing operational control over KTS during the 
POI. All joint venture partners enjoy freedom to contract at the outset 
of a project. In this case, Mexinox states, in consideration for giving 
up control over its stainless steel assets to Krupp through KTS, 
Thyssen gained Krupp's management expertise and experience in stainless 
steel manufacturing. From that point forward, Mexinox states, Thyssen 
by agreement became a passive partner in the management of KTS.
     The Department concluded from the shareholder's agreement 
that Thyssen Stahl retained ``the ability to affect KTS's stainless 
steel production and sales.'' However, Mexinox argues, the ability to 
affect a party is not tantamount to the ability to control the party. A 
finding of affiliation requires a showing of operational control, and 
not the ability to affect another.
     The Department, in stating that Thyssen Stahl's 40 percent 
holding in KTS is ``sufficient to block (i.e., restrain) certain KTS 
activities,'' shows that it is focusing on issues relating to the 
corporate structure of KTS (e.g., decision-making powers), rather than 
the operational matters that should be examined in an affiliation 
analysis (e.g., the ability of one party to influence the production, 
sales, or transfer pricing of the other).
     The Department's affiliation memo states that under the 
shareholders agreement specific powers and authority are accorded 
directly to Thyssen as part of the agreement. This statement, Mexinox 
argues, is a broad overstatement. The plain language of the 
shareholders agreement establishes a dominant role for Krupp in the 
formation and operation of the KTS management team and sharply limits 
Thyssen's operational powers and authority as a party to the agreement.
    Other examples Mexinox gives are not susceptible to public summary, 
and are discussed in its March 29, 1999 case brief at pages 16-18.
    For these reasons, Mexinox argues that the Department should 
disregard the Reseller sales data and should instead calculate a margin 
based on the arm's-length sales to the Reseller.
    Petitioners argue that the Department correctly determined that 
Mexinox and the Reseller are affiliated. First, they argue that Thyssen 
does not need to be a majority shareholder in a company for the 
Department to determine that control exists. As support for this 
proposition, they cite Plate from Brazil in which the Department 
stated,

The legislative history of the URAA make it clear that the statute 
does not require majority ownership for a finding of control. Even a 
minority shareholder interest, examined within the totality of other 
evidence of control, can be a factor that we consider in determining 
whether one party is in a position to control another.

    See Cut-to-Length Carbon Steel Plate from Brazil; Final Results of 
Antidumping Duty Administrative Review, 62 FR 18486, 18490 (April 15, 
1997) (Plate from Brazil).
    Furthermore, petitioners argue that contrary to Mexinox's 
arguments, evidence of actual control is not required under the statute 
to make a finding of control. Control is defined in terms of the 
ability to control, that is, having the power to restrain or direct 
another company's commercial activities. This does not require that the 
one company be in a position to exert absolute control over the other, 
either directly or indirectly. It is sufficient if the company merely 
has ``the potential to impact decisions concerning the production, 
pricing, or cost of the subject merchandise or foreign like product.'' 
See 19 CFR Sec. 351.102(b). Petitioners argue that the substantial 
shareholdings in Mexinox through KTS by Thyssen Stahl (and, by 
extension, its parent Thyssen) are only one important indicator of 
Thyssen's control over Mexinox. Another is that Mexinox is publicly 
described and well-known as a member of both the Krupp and Thyssen 
Groups. Still another is that the record clearly demonstrates that the 
two industrial groups have had a high--and increasing--degree of 
cooperation and coordination.
    Furthermore, petitioners argue that the fact that the shareholder's 
agreement nominally gives Krupp (rather than Thyssen) ``full 
operational and industrial control over KTS'' is not dispositive. The 
preamble to the Department's regulations makes clear, they argue, that 
the test is not whether a company has the ``enforceable ability to 
compel or restrain commercial actions,'' but whether one firm is ``in a 
position to exercise restraint or

[[Page 30797]]

direction'' (regardless of whether such control is actually exercised). 
See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 
27298 (May 19, 1997). Moreover, they state, the terms ``restraint and 
direction'' are not synonymous with ``absolute control,'' but rather 
are more suggestive of substantial ``influence'' over the other party's 
commercial decisions.
    Moreover, petitioners argue, the question is not which joint 
venture partner is dominant under the shareholders agreement or how 
disputes among the KTS directors are to be resolved under the 
agreement. They argue that the very nature of a joint venture is to 
operate a business for mutual benefit and with a least a large degree 
of consensus, whatever the relative equity interests of the parties. 
Clearly, Thyssen is participating in KTS because it hopes to benefit 
from the venture. It is extremely unrealistic to believe that Thyssen 
would take a forty percent stake in KTS and not expect that venture to 
be responsive to Thyssen's own commercial interests to at least some 
extent.
    Furthermore, petitioners argue that the recent full merger of Krupp 
and Thyssen confirms the closely allied interests of the two firms. 
While Krupp and Thyssen formally remained separate companies during the 
POI, their formal merger agreement in September 1998 only confirmed 
what was obviously a longstanding strategic alliance between the two 
firms, reflected most prominently in KTS. Between the KTS joint venture 
and the ongoing merger discussions between them, petitioners state, 
Thyssen and Krupp can reasonably be regarded as part of a single 
corporate grouping during the POI.
    Petitioners also argue that Mexinox's reliance on Steel from Korea 
is misplaced. The issue here is not, as in Steel from Korea, whether 
two parties who control a third party are themselves affiliated, but 
whether a person jointly controlled by two parties is affiliated with 
those parties' subsidiaries.
    Based on the foregoing analysis, petitioners argue that Mexinox is 
affiliated with Thyssen and that Thyssen has the ability to exercise 
restraint over Mexinox within the meaning of 19 USC Sec. 1677(33) of 
the Act. Moreover, given that Thyssen is affiliated with its 
subsidiaries and thus has the ability to control those subsidiaries, 
they argue that Mexinox is affiliated as well with the Thyssen 
subsidiaries under the combined provisions of 19 USC Secs. 1677(33)(F) 
and (G) of the Act.
    Department's Position: We disagree with Mexinox. As stated in our 
Preliminary Determination and Affiliation Memo, we have determined that 
Mexinox is affiliated with Thyssen Stahl and Thyssen. Section 
771(33)(E) of the Act provides that the Department shall consider 
companies to be affiliated where one company owns, controls, or holds, 
with the power to vote, five percent or more of the outstanding shares 
of voting stock or shares of any other company. Where the Department 
has determined that a company directly or indirectly holds a five 
percent or more equity interest in another company, the Department has 
deemed these companies to be affiliated.
    We examined the record evidence to evaluate the nature of Mexinox's 
relationship with Thyssen Stahl and Thyssen and have determined that 
Mexinox is affiliated with Thyssen and Thyssen Stahl. Thyssen Stahl 
indirectly owns and controls, through KTS, thirty-six percent of 
Mexinox's outstanding stock. Thus, Thyssen, which wholly owns Thyssen 
Stahl, likewise indirectly owns and controls thirty-six percent of 
Mexinox. Mexinox's Section A questionnaire response (p. A-12) dated 
September 8, 1998 (section A response), states that Mexinox is ninety-
percent owned by KTS. The supporting exhibits to this submission 
confirm Thyssen Stahl's interest in KTS and KTS's ninety-percent 
shareholder interest in Mexinox. In a submission dated December 9, 
1998, the petitioners placed on the record publicly available data that 
confirmed not only the foregoing shareholding interests, but also 
confirmed that Thyssen Stahl is a wholly-owned subsidiary of Thyssen. 
Consequently, Thyssen, through Thyssen Stahl and KTS, indirectly owns a 
thirty-six percent interest in Mexinox. Therefore, Mexinox as a 
subsidiary of the joint venture entity KTS, is affiliated with the 
joint venturer Thyssen Stahl and its parent company Thyssen pursuant to 
section 771(33)(E) of the Act. See Steel Wire Rod From Sweden; Notice 
of Final Determination of Sales at Less Than Fair Value, 63 FR 40449, 
40453 (July 29, 1998) (Rod from Sweden).
    In addition, we have determined that Mexinox is affiliated with 
Thyssen and its U.S. affiliates. Section 771(33)(F) of the Act provides 
that the Department shall consider companies to be affiliated where two 
or more companies are under the common control of a third company. The 
statute defines control as being in a position legally or operationally 
to exercise restraint or direction over the other entity. Actual 
exercise of control is not required by the statute. In this 
investigation the nature and quality of corporate contact necessitate a 
finding of affiliation by virtue of Thyssen's common control of its 
affiliates and of KTS. See Preliminary Determination 64 FR at 126 and 
the Affiliation Memo. Such a finding is consistent with the 
Department's determinations in Plate from Brazil (64 FR at 18490) and 
Rod from Sweden (63 FR at 40452).
    We also agree with petitioners that record evidence show that 
Thyssen, as the majority equity holder and ultimate parent company of 
its various affiliates, is in a position to exercise direction and 
restraint over the Thyssen affiliates' production and pricing. See 
Preliminary Determination 64 FR at 126 and the Affiliation Memo. 
Thyssen also holds indirectly a substantial equity interest in Mexinox, 
plays a significant role in Mexinox's operations and management, and 
thus enjoys several avenues for exercising direction and restraint over 
Mexinox's production, pricing and other business activities (see 
Affiliation Memo). In sum, Thyssen's substantial equity ownership in 
Mexinox and Thyssen's other affiliates, in conjunction with the 
``totality of other evidence of control,'' requires a finding that 
these companies are under the common control of Thyssen. Therefore, as 
in the Preliminary Determination, we continue to find that Mexinox is 
affiliated with Thyssen and Thyssen's U.S. subsidiaries, including the 
Reseller.

Comment 2: Overreporting of Sales

    Mexinox states that the Reseller over-reported resales of material 
purchased from Mexinox by including transactions that it subsequently 
traced to purchases of non-subject cut-to-length sheet. Mexinox argues 
that since this merchandise is not covered by the scope of the 
investigation, these non-subject sales should be excluded from the 
Reseller's sales database.
    Additionally, Mexinox separately listed at verification another 
much smaller number of transactions where the material sold by the 
Reseller was linked to non-subject cut-to-length metal purchased from 
Mexinox, but where the U.S. Reseller performed additional processing. 
Mexinox requests that this data set of non-subject merchandise also be 
excluded from the margin calculations for the final determination.
    Department's Position: We agree with Mexinox that information on 
the record indicates that the Reseller reported some sales that are not 
subject to the investigation. See the March 15, 1999 Reseller sales 
verification report, p. 4. In our calculation of facts available for 
the Reseller's sales in this final

[[Page 30798]]

determination, we have excluded the overreported volume of sales from 
the calculation.

Comment 3: Downstream U.S. Sales

    Mexinox argues that the Department erred in the Preliminary 
Determination by including in its calculations a set of sales made by a 
downstream reseller of the Reseller, and by applying a facts available 
rate to these sales that was aberrational. The Reseller resold a small 
amount of merchandise to another reseller of the Thyssen Group of 
companies in the United States (Reseller II) on the last day of the 
POI, and the first of this material was resold by U.S. Reseller II 
after the POI. Mexinox argues that since the first sale to an 
unaffiliated party occurred outside of the POI, none of these sales 
should be included in the investigation. The respondent further argues 
that it put forth its best effort to provide information about the 
Reseller to the Department, and objects to the Department's decision to 
resort to adverse facts available. Specifically, Mexinox disagrees with 
the Department's decision to apply a facts available rate derived from 
a sale of non-prime material. Finally, Mexinox believes that the 
Department made a clerical error in applying facts available that 
resulted in an overstatement of the margin for the sales at issue.
    Petitioners state that there is no basis for the respondent's 
objection to the Department's selection of facts available. They argue 
that it is not appropriate to assume that sales to which facts 
available are being applied are prime merchandise. They also restate 
that the respondent's non-prime designations were found to be 
completely unreliable at verification, and that the Department should 
continue to apply the highest transaction margin where it determines 
that facts available is appropriate for a quantity of U.S. sales.
    Department's Position: We agree with Mexinox that because the sales 
were sold to the first unaffiliated buyer in the United States after 
the end of the POI, they should not be included in the analysis for 
this determination. In our calculation of facts available for the 
Reseller's sales in this final determination, we have excluded the 
downstream volume of sales from the calculation.

Comment 4: Early Payment Discounts

    Mexinox contends that the Department should apply neutral, rather 
than adverse, facts available to the early payment discounts given by 
the Reseller that the Department discovered (after publication of the 
Preliminary Determination) at the Reseller verification. It states that 
the discounts were not identified prior to verification as a result of 
a misunderstanding on the part of company personnel. Furthermore, it 
argues that its volume of discounts was very small, and the Reseller 
would have gained no possible advantage by intentionally not reporting 
them. For these reasons, Mexinox argues, the Department should apply 
neutral facts available. It suggests applying a rate to all U.S. sales 
based on the value of early payment discounts as a share of total sales 
revenue.
    Petitioners state that should the Department decide to use the 
Reseller's sales listings, it would be appropriate for the Department 
to attribute to each U.S. sale the maximum early payment discount 
offered. Petitioners argue that because the respondent failed to report 
these discounts on a sale-specific basis, the impact of this adjustment 
is not negligible, but rather unknown. They argue further that the 
respondent's explanation of why the adjustment was unreported is 
irrelevant, and that the overall volume of omissions throughout the 
investigation process should compel the Department to apply facts 
available to the entire quantity of the Reseller's sales listing. 
However, petitioners argue that if the Department decides to use the 
Reseller's sales listing, it should attribute to each U.S. sale the 
maximum early payment discount offered.
    Department's Position: Because we have applied facts available to 
the Reseller's sales, this issue is moot.

Comment 5: Prime Merchandise

    Mexinox disputes the Reseller sales verification report's 
determination that some of the material shipped as non-prime 
merchandise was prime merchandise. Mexinox claims that of the six non-
prime transactions reviewed during verification, three had physical 
defects, one was mis-reported, and two involved obsolete products which 
remained in inventory for two years due to unusual product 
characteristics. Mexinox cites the existence of a Department memorandum 
which supports the definition of secondary merchandise as ``generally 
steel which has suffered some defect during the production process* * 
*'' (emphasis added). However, Mexinox argues that there are other 
circumstances, such as sales of obsolete inventory, `side strands,' 
`pup coils,' and the like which also call for non-prime designation of 
the material. In support of this argument, the respondent emphasizes 
that these sales were designated non-prime in the ordinary course of 
business before commencement of antidumping proceedings. Mexinox cites 
the existence of U.S. steel industry price lists which confirm that 
non-prime designations are not limited to products with surface damage 
or chemistries out of tolerance, but rather include products with 
unusual characteristics which make it impossible for the producer to 
sell the product as prime grade and at prime grade prices. Therefore, 
Mexinox argues, the Department should not presume that only products 
with specific physical damage or chemical irregularities are 
legitimately classified as secondary.
    Petitioners object to Mexinox's method of identifying non-prime 
merchandise, stating that the method used has one implication when used 
throughout the industry but a very different (and inappropriate) 
implication in the context of an antidumping analysis. Petitioners do 
not dispute the contention that for certain reasons an industry may on 
occasion designate a non-defective product as non-prime. However, they 
argue that for antidumping purposes, only verifiably defective 
merchandise can be considered non-prime. Petitioners state that only 
through this approach to classifying prime vs. non-prime merchandise 
can the Department verify the bona fide nature of such categories. 
Petitioners state that at a minimum, the Department should apply 
adverse facts available to the quantity of Reseller sales reported as 
non-prime (with the exception, perhaps, of the three sales that were 
found at verification to be correctly so designated). Petitioners 
further argue that the Department should state in its final 
determination that in any administrative review proceedings, only 
products with objective physical defects will be treated as non-prime.
    Department's Position: Because we have applied facts available to 
the Reseller's sales, this issue is moot.

Comment 6: Use of Facts Available for Reseller Based on Failure of 
Verification

    Mexinox reiterates its position regarding its affiliation with the 
Reseller, but insists that if the Department uses the Reseller's data 
in determining the final dumping margin, it use neutral facts available 
as a result of any unforeseen errors or omissions in the data. Mexinox 
claims that the use of adverse facts available would be inconsistent 
with Departmental policy, because (1) Mexinox acted to the best of its 
ability to respond to the Department's request for information, and (2) 
any deficiencies in the data provided by the Reseller are due to

[[Page 30799]]

circumstances beyond Mexinox's control because it is unaffiliated with 
the Reseller, and had no operational control over the Reseller. With 
respect to the latter point, Mexinox argues that the Department has in 
the past declined to use adverse facts available in cases where the 
respondent's inability to obtain the requested data is due to its lack 
of operational control over the reseller. In one instance where it did 
otherwise, the CIT reversed and remanded the Department's final 
determination applying adverse facts available to certain unreported 
downstream sales by secondary steel centers in which the respondent 
owned a minority interest. See Usinor Sacilor v. United States, 872 
F.Supp. 1000 (Ct. Int'l Trade 1994) (Usinor).
    Petitioners argue Mexinox has failed to make a case that the use of 
neutral facts available is appropriate in this case. They argue that 
particularly in light of Mexinox's affiliation with Thyssen and the 
Reseller (an indirect subsidiary of Thyssen), the Reseller's lack of 
cooperation should be imputed to Mexinox, and adverse facts available 
applied to the Reseller's response. Regarding Mexinox's argument that 
it cooperated to the best of its ability, petitioners state that the 
exceptional number and range of instances in which Mexinox has given 
incomplete and inaccurate data to the Department do not present the 
picture of a company that was truly intent on assisting the Department 
in the investigation. Had Mexinox straightforwardly wanted to give its 
unqualified cooperation to the Department, petitioners argue, Mexinox 
would have come forth with all of the Reseller's sales and would not 
have compiled such a spotty and unreliable record. Based on the record, 
they state, it is not reasonable to say that Mexinox has cooperated to 
the best of its ability, and adverse facts available are therefore 
appropriate.
    Regarding Mexinox's argument that it had no operational control 
over Reseller, petitioners argue that allowing a respondent 
automatically to escape adverse facts available on the ground that the 
respondent cannot secure information from another party is not an axiom 
that the Department should embrace. The fact that necessary information 
lies with even an unrelated third party is not a bar to application of 
adverse facts available. See Helmerich & Payne, Inc. v. United States, 
24 F.Supp. 2d 304, 308-309 n.6 (Ct. Int'l Trade 1998) (the Department 
may apply adverse facts available in its discretion even when the 
requested information is controlled by an uncooperative unrelated 
company); Asociacion Colombiana de Exportadores de Flores v. United 
States, 6 F.Supp. 2d 865, 887-88 (Ct. Int'l Trade 1998); Transacom, 
Inc. v. United States, 5 F.Supp. 2d 984, 990-91 (Ct. Int'l Trade 1998). 
Ultimately, therefore, whether or not the Department should resort to 
adverse facts available, petitioners argue, is a decision the 
Department has to make after having scrutinized the particular facts of 
a given case, including whether the respondent has cooperated to the 
best of its ability with the Department.
    Furthermore, petitioners argue that the holding in Usinor has no 
application here. First, the operative facts of Usinor were very 
different from those here. In the proceeding that gave rise to Usinor 
there was obviously an active discussion of limiting reporting 
requirements. By contrast, Mexinox did not even attempt to engage in a 
dialogue about reporting requirements, instead unilaterally conferring 
permission for limited reporting upon itself. Moreover, the limited 
reporting in question for Usinor dealt with 180,000 invoices that would 
have had to be manually traced to the supplier--a hundred-fold more 
than were at stake in Mexinox's situation. Finally, the question in 
Usinor--whether the respondent has operational control over its 
affiliated reseller--is clearly moot in this case because Mexinox's 
affiliated reseller did in fact respond to the Department's 
questionnaire in the instant proceeding (albeit incompletely).
    Moreover, petitioners argue that Mexinox's arguments are misplaced. 
The question at hand, they state, is not Mexinox's direct control over 
the Reseller, but Thyssen's control over both Mexinox and the Reseller, 
its indirect wholly-owned subsidiary. Had there been the will by 
Mexinox to be responsive, the means were at hand for it to secure the 
data through the intervention of Thyssen.
    Further, petitioners argue that the verification uncovered numerous 
significant errors that degrade the integrity of the sales listing, and 
that therefore adverse facts available is warranted. First, the 
Reseller never reported that it had granted early payment discounts on 
sales to U.S. customers. The Department discovered the existence of 
these discounts at the verification. (Petitioners also argue that if 
the Department does not apply facts available to all of the Reseller's 
U.S. sales, it should at least apply facts available to the early 
payment discounts.)
    Second, petitioners state that the Reseller improperly applied 
prime and non-prime designations to its reported sales. They state that 
the record does not support the Reseller's contention that it does not 
warrant non-prime merchandise. Furthermore, they argue, the 
verification report indicates that the Reseller acknowledged at the 
verification that some of the material it sells as non-prime actually 
has no physical defects. This admission is borne out, petitioners 
state, by the Department's attempt to verify the non-prime designation 
reported for specific sales. Of the six reported non-prime merchandise 
sales the Department examined at verification, only two actually 
consisted of defective merchandise. See Reseller sales verification 
report at 7. The danger presented by accepting without penalty what is 
at best a subjective designation by the Reseller is that it invites 
manipulation. Respondents will be free to label as non-prime any low-
priced sales that they would like to have matched to lower priced sales 
in the home market, thereby limiting the Department's ability to detect 
and quantify dumping that is actually occurring.
    Third, petitioners argue that there were numerous other errors in 
the sample sales selected for verification. These included:
     Misreported commission amounts;
      Misreported grades;
     Unreported further manufacturing charges;
     Misreported payment dates;
     Overstated gross prices;
     Misreported freight;
     Misreported quantities; and
     Misreported interest rates.

Petitioners argue that none of the four Mexinox observations examined 
by the Department came up ``clean.'' Even the overall quantity and 
value of sales reported to the Department could not be reconciled.
    Furthermore, petitioners argue that the reported further 
manufacturing costs were also inaccurate. Based on the cost 
verification report, they state that:
     The cost allocation method (based on standard ``quantity 
extras'') proved to be flawed;
     Data underlying product-specific yield ratios proved to be 
nonsensical in that output exceeded input;
     The overall reporting of finished goods was grossly 
overstated;
     costs of certain processes went unallocated; and
     Neither the outside processing costs nor the basis upon 
which the Reseller allocated these costs to subject merchandise could 
be substantiated.
    Petitioners argue that because of the last-mentioned point, if the 
Department decides not to use facts available for the

[[Page 30800]]

Reseller's entire sales database, it should at least use adverse facts 
available for the value-added adjustment.
    Mexinox argues that the Reseller did not fail verification. 
Although the Department did identify some errors at verification, they 
were isolated and did not undermine the basic integrity of the data.
    Regarding early payment discounts, Mexinox states that the failure 
to report this adjustment was caused by a misunderstanding on the part 
of Reseller officials, and was an isolated and discrete error that had 
no bearing on the accuracy or completeness of other portions of the 
reported data. Mexinox acknowledges that some form of partial facts 
available may be appropriate to fill in the gap in the data, but states 
it would be inappropriate and unfair to apply punitive adverse facts 
available.
    Regarding the designation of prime and non-prime merchandise, 
Mexinox admits that the Reseller does sell a small amount of material 
as second grade that does not have physical or chemical defects, but 
states that that material does contain other physical features 
rendering it unfit for sale as a prime product (e.g., unusual sizes, 
weights, and dimensions). Such non-standard material has lower value 
and more limited marketability because the material is either 
unsuitable for normal uses (such as where the coil is too small to be 
efficiently run through machinery) or must be further worked to become 
usable (such as where the material must be further slit, or cut to a 
standard size). Because of its limited commercial value, such material 
must be sold in the ordinary course of trade as non-prime products. The 
practice that the Reseller follows in this regard, Mexinox states, is 
no different from that followed by petitioner J&L Specialty Steel which 
publishes a price list for ``secondary'' products including prices for 
``sidestrands'' and ``excess prime.'' Furthermore, Mexinox argues that 
if the Department were to follow the narrow definition of ``non-prime'' 
advocated by petitioners it would be ignoring real physical differences 
in the material that limit its marketability and justify downgrading 
the material as non-prime. The Department would err by unjustifiably 
ignoring an established industry-wide practice followed by petitioners 
themselves. Finally, Mexinox argues that petitioners' objection that 
the designation of quality under these circumstances is subjective and 
therefore not to be trusted makes no sense in the context of this 
investigation. The Reseller's coding of non-prime products occurred 
before the filing of the antidumping petition and was carried out in 
the ordinary course of business. Therefore, Mexinox argues, whatever 
concerns petitioners may have about ``manipulation'' of quality 
designations to affect dumping comparisons in the future do not apply 
to this investigation.
    Regarding the numerous miscellaneous errors that petitioners cite, 
Mexinox states that though the Department did identify some small 
errors in the Reseller data during verification, the errors were not 
nearly as widespread or serious as petitioners would wish them to 
appear. Mexinox points out as a preliminary matter that the 
verification report indicates that some of the sales selected for 
tracing were selected because they had anomalous features. Thus, 
Mexinox argues, these sales transactions cannot be considered 
representative of the entire sales database. Furthermore, Mexinox 
states that the petitioners' summary of the other errors allegedly 
discovered in the Mexinox sample sales includes inaccuracies and 
exaggeration. For example:
     The ``misreported interest rates'' which petitioners cite 
actually refers to a first-day clerical correction, rather than an 
error discovered at verification.
     There were no unreported further manufacturing charges. 
The verification report clearly notes that a further manufacturing cost 
was reported for the transaction at issue.
     No freight was found to be misreported. The invoice 
presumably referred to by the petitioners was a transaction where the 
computer system did not include a standard freight amount. Rather than 
report zero freight for this transaction, the Reseller conservatively 
reported an average freight amount.
     The ``misreported payment dates'' and ``misreported 
commission amounts'' actually were not separate errors but instead were 
one isolated error in the reporting of payment date for a particular 
invoice which also affected the commission amount for that sale.
    Mexinox also disputes petitioners' statement that the ``overall 
quantity and value of sales reported to the Department could not be 
reconciled.'' Mexinox, assuming that petitioners are referring to the 
tiny difference between the quantity and value in the reporting 
database and the data contained in the company's invoice history file, 
states that the Reseller fully reconciled these amounts. The Reseller 
sales verification report states, ``Reseller was able to produce a list 
of all the invoices that account for these differences. It is contained 
in verification exhibit 16.'' See Reseller sales verification report at 
3.
    Furthermore, Mexinox disputes petitioners' claims with respect to 
the cost verification. It disputes petitioners' claim that the cost 
allocation method used to report further manufacturing costs was found 
to be flawed. Mexinox acknowledges that a discrete error in the 
programming logic was identified at the verification, but states that 
the effect of that error was very limited and Mexinox was able to 
account for and list all of the transactions affected.
    With respect to yield calculations, Mexinox states that there was 
no discrepancy in the quantity of finished goods used in the 
calculation as erroneously implied in the Reseller cost verification 
report. The Department perceived there to be a discrepancy only because 
the verifiers were comparing an incorrect figure submitted in the 
initial Section E response to the correct figure timely placed on the 
record before verification.
    Also contrary to petitioners claims, Mexinox argues, there is no 
finding in the Department's verification reports that ``costs for 
certain processes went unallocated.'' The closest thing to such a 
finding is the Department's observation that the computer program did 
not directly assign a standard cost for re-spinning processing. 
However, the costs of respinning were fully absorbed in the reported 
further-manufacturing expenses through the application of the variance. 
Thus, no processing costs remained unallocated.
    Finally, regarding the calculation of outside processing costs, 
Mexinox argues that it employed the best possible means of allocating 
outside processing costs for the combined processors given limitations 
in the available data. Similarly, although there may have been 
differences due to timing between the figures reported in the 
management reports used to report outside processing costs and the 
amounts booked, those differences were small and were not clearly 
biased in either direction. The Reseller's reporting method therefore, 
Mexinox states, was both reasonable and accurate.
    Based on the above information, Mexinox argues that, contrary to 
petitioners' claims, the limited errors identified in the Reseller's 
data do not come close to justifying the rejection of the entire 
database in favor of facts available. Furthermore, even if the 
Department deems it necessary to apply partial facts available with 
respect to sales transactions identified as having errors, the 
Department may not lawfully

[[Page 30801]]

apply an adverse inference with respect to those transactions absent a 
finding that the Reseller failed to act to the best of its ability. It 
argues that the conditions for the application of adverse facts 
available are not present here because it is clear that both Mexinox 
and the Reseller acted to the best of their abilities. Moreover, 
Mexinox argues, it is critically important for the Department to 
remember that the Reseller's data were compiled and presented by the 
Reseller, and not Mexinox (which, it states, has no operational control 
over the Reseller). Therefore, applying adverse facts available in this 
case would not further the Department's goal of encouraging future 
compliance because Mexinox simply lacks the ability to respond any more 
completely than it already has.
    Department's Position: We agree with petitioners that, pursuant to 
section 776(a) of the Act, total facts available are warranted with 
regard to sales through Mexinox's affiliated further manufacturer. In 
the instant case, the use of total facts available for the Reseller 
portion of Mexinox's section C response is warranted because the method 
and computer programming used by the Reseller to identify its products' 
physical characteristics and to match each of these products with its 
associated costs were found at verification to be accomplishing neither 
end consistently or accurately. Moreover, both the frequency of the 
errors and the absence on the record of information necessary to 
correct certain of these errors serve to undermine the overall 
credibility of the further-manufacturing response as a whole, thus 
compelling the Department to rely upon total facts available for the 
Reseller's database. Reliance upon total facts available is required 
for all further manufactured sales because the submitted data do not 
permit calculation of the adjustments required under section 772(d)(2) 
of the Act for ``the cost of any further manufacture or assembly 
(including additional material and labor) * * *''.
    We also find, as explained below, that the use of an adverse 
inference is appropriate in this case because the record established 
that the Reseller failed to cooperate with the Department by not acting 
to the best of its ability in responding to our requests for 
information. The manifest and manifold errors in the Reseller's 
response evidence a failure to conduct even rudimentary checks for the 
accuracy of the reported further-processing data. Indeed, a reasonable 
check by company officials could have shown that (i) products that 
underwent no further processing were being assigned further-processing 
costs, (ii) further-processed products were not being assigned their 
appropriate processing costs, (iii) coils passing through certain 
processes were not being allocated any cost for the process, and (iv) 
the output width of slit coils generated by a given master coil 
exceeded the original width of that input coil.
    While the Department frequently corrects reported costs or adjusts 
incorrect data with facts otherwise available in order to complete an 
investigation, it does so only when it is able reasonably to do so 
using information on the record, and when its knowledge of the 
company's records and the reasonableness and accuracy of the reporting 
method serve to establish the integrity of the underlying data. In this 
case, correction of the specific flawed data is not a viable option 
because of the high percentage of errors found through our testing 
(nearly 40 percent of the items tested were found to be in error). In 
addition, some of these errors cannot be corrected using information on 
the record. More importantly, the fundamental nature of these errors 
raises concerns as to the validity not only of the data subjected to 
direct testing, but of the remainder of the response as well.
    The Department's antidumping questionnaire put interested parties 
on notice that all information submitted in this investigation would be 
subject to verification, as required by section 782(i) of the Act, and, 
further, that pursuant to section 776 of the Act the Department may 
proceed on the basis of the facts otherwise available if all or any 
portion of the submitted information could not be verified. In 
addition, in letters dated February 17 and 23, 1999, the Department 
provided the Reseller with the sales and cost verification agendas it 
intended to follow, both of which repeated the warning that any failure 
to verify information could result in the application of facts 
available. The cost verification agenda identified nine transactions 
that the Department intended to test. The Reseller had a full week to 
gather supporting documentation for these nine transactions and to test 
for itself the accuracy of the further manufacturing data. Clearly, the 
Reseller did not avail itself of these opportunities, since our testing 
at verification revealed that costs for three of the nine selected 
transactions contained fundamental and significant errors. See Reseller 
cost verification report at 14 through 17. When the Department then 
selected nine additional transactions for review, four of these were 
also found to reflect significant errors. These included allocating 
processing costs to non-processed material (id. at 15), mis-allocating 
quantity surcharges (id.), and, more troubling, reporting finished 
weights which exceeded the weight of the input material (``[t]his is 
impossible and for this reason we could not verify the amount of 
processing for this observation.'' Id.).
    The first step identified in the Department's verification agendas 
calls for the respondent, at the outset of verification, to present any 
errors or corrections found during its preparation for the 
verification. As we stated above, none of the errors discussed here 
were presented by the Reseller at the outset of verification; many of 
them were manifestly apparent and the Reseller was obligated to notify 
the Department of these problems prior to verification.
    We disagree with Mexinox's assertion that the numerous errors 
identified by the Department affect only a small number of products out 
of the possible universe of transactions and that the effect of the 
errors is minuscule. As mentioned above, the Reseller created a 
computer program to respond to the Department's questionnaire which 
sought to match an input coil to each output coil sold and to assign a 
cost for each processing step through which the finished coil 
supposedly passed. When we tested this computer program at verification 
to assess its accuracy and reliability, we found that seven of eighteen 
tested transactions contained errors in either the allocation of 
processing costs or in the matching of input coils to output coils. In 
two of these cases, the Reseller had assigned processing costs to 
products which had, in fact, undergone no processing whatever. We note 
that this discrepancy arose from the input coils and output coils 
identified by the Reseller's own computer program. In another 
transaction, the combined widths of the finished products were greater 
than the original width of the input coil as identified by the system, 
an obvious physical impossibility that should have been identified by 
the Reseller as an error. The nature of these errors raises serious 
doubts as to the accuracy of the overall program used to match input 
master coils to output slit coils as sold. It also serves to undercut 
Mexinox's assertions that it acted to the best of its ability in 
compiling this portion of its section C response. Further, several of 
these errors served to understate the costs of further processing by 
shifting portions of these costs to non-further-processed merchandise. 
Since these errors affect the entire population of products sold (i.e., 
both processed and

[[Page 30802]]

unprocessed products), it is not possible for the Department to isolate 
the problems and adjust for the errors accordingly.
    The program also failed to assign properly certain finishing costs. 
Certain coils with a pre-buff finish applied to the underside had no 
finishing costs reported for the additional processing. Finally, other 
transactions contained errors in the application of surcharges for 
processing small quantity orders. In the samples tested, the Reseller 
had reported quantity extra charges in excess of what should have been 
reported. This error led to an understating of the variance between the 
costs as allocated for purposes of the response and the costs as 
maintained in the Reseller's financial accounting system. Once again, 
both errors reduced the costs allocated to further processed products, 
thus creating further doubts as to the accuracy of the underlying 
reporting method.
    We also find unpersuasive Mexinox's suggestion that because the 
Reseller had to develop the computer program as a result of the 
Department's highly detailed questionnaire it should therefore be held 
blameless for any errors arising from its implementation of its chosen 
computer logic. We must stress that every respondent in every 
antidumping investigation is faced with the question of how best to 
sort and retrieve the sales and cost data as maintained in its normal 
course of business to respond to our questionnaire. This necessarily 
entails the winnowing of its larger universe of sales to capture only 
that merchandise subject to our investigation, and the further creation 
of unique data fields to reflect the specific model-match criteria and 
the applicable expense adjustments set forth in the questionnaire. 
Finally, the resulting database must be refined to present the 
transaction-specific information on sales and adjustments in the 
precise formats required by the Department. That the Reseller, like 
virtually all respondents in antidumping proceedings, chose to rely 
upon a computer program as the easiest means to accomplish this end is 
unremarkable and in no way mitigates the failings found in this case. 
We note further that Mexinox itself largely succeeded in supplying data 
relating to sales, expenses, and COP in compliance with equally 
detailed reporting requirements. The surfeit of errors in the 
Reseller's data was not the result of any unduly burdensome reporting 
requirements imposed by the Department; rather, these shortcomings 
resulted in their entirety from the Reseller's reliance on faulty 
computer programming and data which the Reseller apparently failed to 
review prior to verification.
    Finally, we disagree with Mexinox's assertion that it was able to 
quantify the extent of the cost errors on the final day of 
verification. First, we note that the Reseller made no attempt to 
explain or quantify two of the errors discovered by the Department, the 
allocation of processing costs to unprocessed material and the 
misreporting of the small-quantity surcharge. More importantly, due to 
the volume of information that must be verified in a limited amount of 
time, the Department does not look at every transaction, but rather 
samples and tests the information provided by respondents. See, e.g., 
Bomont Industries v. United States, 733 F. Supp. 1507, 1508 (CIT 1990) 
([v]erification is like an audit, the purpose of which is to test 
information provided by a party for accuracy and completeness.'') and 
Monsanto Company v. United States, 698 F. Supp. 275, 281 
(``[v]erification is a spot check and is not intended to be an 
exhaustive examination of a respondent's business.''). It has been the 
Department's longstanding practice that if no errors are identified in 
the sampled transactions, the untested data are deemed reliable. 
However, if errors are identified in the sample transactions, the 
untested data are presumed to be similarly tainted. This is especially 
so if, as here, the errors prove to be systemic in nature. The fact 
remains unchallenged that for two days of a scheduled three-day 
verification we tested a number of further-manufactured transactions to 
assess the reliability of the Reseller's method for reporting costs and 
discovered numerous errors. The Reseller claimed on the last day of 
verification that it had reviewed its further-manufacturing data and 
isolated the magnitude of these errors. However, Mexinox's assertion in 
its case brief that the Reseller succeeded in identifying all of the 
errors is an unsubstantiated ipse dixit which could not be verified in 
the time remaining. The only way to test this eleventh-hour claim would 
have been to re-verify the entire further-manufacturing database. 
Moreover, the proper time for the Reseller to check the accuracy of its 
reported data was before these data were submitted, or, at the latest, 
prior to the start of the verification. We presented Mexinox and the 
Reseller with the cost verification agenda one week in advance 
precisely to allow them to prepare properly for verification. Had the 
Reseller reviewed the accuracy of the computer program used to report 
its further manufacturing costs prior to verification, it could have 
identified the errors and presented them to the Department on the first 
day of verification. We consider it inappropriate for respondents to 
expect the Department to retest the entire further manufacturing 
database on the last day of verification after the Department uncovers 
numerous errors as a result of its routine testing. Furthermore, the 
requirements of section 782(d) that the Department provide a respondent 
the opportunity to remedy such errors is inapplicable. Rather, as we 
stated in Certain Cut-to-Length Carbon Steel Plate from Sweden,

[w]e believe [respondent] SSAB has misconstrued the notice 
provisions of section 782(d) of the [Tariff] Act. Specifically, we 
find SSAB's arguments that the Department was required to notify it 
and provide an opportunity to remedy its verification failure are 
unsupported. The provisions of section 782(d) apply to instances 
where ``a response to a request for information'' does not comply 
with the request. Thus, after reviewing a questionnaire response, 
the Department will provide a respondent with notices of 
deficiencies in that response. However, after the Department's 
verifiers find that a response cannot be verified, the statute does 
not require, nor even suggest, that the Department provide the 
respondent with an opportunity to submit another response.

Certain Cut-to-Length Carbon Steel Plate from Sweden, 62 FR 18396, 
18401 (April 15, 1997).
    Finally, we reject Mexinox's arguments with respect to the 
propriety of drawing an adverse inference with respect to a respondent 
over whom they allegedly had no operational control. Mexinox goes to 
great pains to assert that it never had control over the data submitted 
by the Reseller; therefore, any lack of cooperation evinced by Reseller 
cannot be imputed to Mexinox. See, e.g., Mexinox's case brief at 5. 
Mexinox presents the issue as one in which Mexinox was at the mercy of 
recalcitrant parties, only some of whom could be persuaded to 
participate in the investigation: ``It is critically important in this 
regard for the Department to remember that the U.S. Reseller's data was 
compiled and presented by the U.S. Reseller--without the involvement of 
Mexinox or any other respondent in these proceedings. Mexinox has not 
even seen--let alone reviewed or prepared--the challenged data, and was 
therefore not in a position to affect what or how that information is 
compiled or presented.'' (Emphasis in original). See Mexinox's rebuttal 
brief at 25. However, Mexinox's protestations that its officials did 
not have the opportunity to review the Reseller's submitted data for 
accuracy beg the point. The Department has never suggested that Mexinox 
was

[[Page 30803]]

in a position to compel a reluctant Reseller to provide its sales and 
cost data to Mexinox; rather, the thrust of our affiliation 
determination has consistently been that Thyssen, not Mexinox, was in a 
position to direct its U.S. affiliates to provide complete and timely 
responses to the Department. For reasons beyond the Department's ken, 
the Reseller chose to submit responses under the guise of a cooperative 
respondent while withholding crucial information to make its responses 
usable for purposes of establishing statutory U.S. price.
    We note that throughout this investigation Mexinox has been 
represented by legal counsel who certified each of Mexinox's (and the 
Reseller's) submissions of fact in this case, claiming the counsel had 
read the submission and had ``no reason to believe [it] contains any 
material misrepresentation or omission of fact.'' See 19 CFR 
351.303(g). Similarly, on January 15, 1999, the Reseller certified that 
the responsible company official had read its submission and that the 
information therein was, to the best of the official's knowledge, 
complete and accurate. See, e.g., Mexinox's January 15, 1999 section E 
supplemental response. Finally, throughout the preparation for the 
Reseller verifications and the verifications themselves, counsel were 
present at all times in the conference room. The Reseller was also 
assisted by economic consultants retained by Mexinox specifically for 
purposes of preparing responses in this antidumping investigation. The 
fact remains that despite its disagreement with the Department's 
decision on affiliation, Thyssen succeeded in persuading the Reseller 
to submit a response; from that moment forward, it was incumbent upon 
the Reseller to submit complete and accurate responses to our 
questionnaires. It was the further responsibility of Mexinox's legal 
representatives, acting throughout this proceeding on Mexinox's behalf, 
to ensure that the data it helped prepare were reliable. Finally, the 
record does not reflect that after Mexinox was directed to submit the 
Reseller's sales and cost information it had trouble securing the 
Reseller's cooperation (aside from Mexinox's stated objections for the 
Department's legal reasoning). Had it been a case of Mexinox painfully 
and laboriously extracting each datum from a recalcitrant unaffiliated 
party, one would expect the record to reflect this in, for example, 
written pleas of an inability to submit the requested data, or appeals 
for modifications to reporting requirements in response to limited 
available data. Instead, there is silence on this point. Mexinox 
proceeded throughout the investigation as though the Reseller's full 
cooperation was a given, once the Department had notified Mexinox that 
the further-processed sales would be required for our analysis.
    Therefore, we find the record clearly indicates that Mexinox had 
the resources to secure the necessary level of cooperation from the 
Reseller. The record also indicates that the Reseller failed to 
cooperate by not acting to the best of its ability in compiling its 
further-manufacturing response. Moreover, because the information 
possessed by the Reseller is essential to the dumping determination, 
the use of adverse facts available is appropriate regardless of 
Mexinox's involvement in providing the information. See, e.g., Notice 
of Final Determination of Sales at Less Than Fair Value: Hot-Rolled 
Flat-Rolled Carbon Quality Steel Products from Japan, 64 FR 24329, 
24367 (May 6, 1999). Therefore, consistent with section 776(b) of the 
Act, we have drawn an adverse inference in selecting among the facts 
available for use in lieu of the Reseller's unverifiable data. As 
adverse facts available, we have assigned the highest non-aberrational 
margin calculated on Mexinox's properly reported U.S. sales. See the 
Final Determination Analysis Memorandum, dated May 19, 1999.

Comment 7: U.S. Sales of Unidentified Origin

    Petitioners argue that if the Department does not apply facts 
available to the Reseller's U.S. sales based on the results of 
verification, it should apply facts available to the Reseller's U.S. 
sales because Mexinox intentionally withheld until January 7, 1999 (six 
months after receiving the August 3, 1998 antidumping questionnaire and 
on the eve of verification) the existence of 2,000 (public version 
figure) U.S. sales made by the Reseller. These were sales of 
merchandise for which the Reseller claims it was unable to identify the 
supplier. Petitioners argue that Mexinox's failure to report these 
sales earlier than January 7, 1999 clearly demonstrates that Mexinox 
did not act to the best of its ability to provide information in a 
timely manner. Mexinox's tardiness in reporting these sales, 
petitioners argue, is all the more serious in light of the high volume 
they constitute as a percentage of Mexinox's reported total U.S. sales 
quantity. The Department should reject Mexinox's attempt to downplay 
the importance of these sales. Petitioners argue that the Department 
should reject as implausible Mexinox's claim that it could not identify 
the supplier of the merchandise. They argue that it is impossible that 
a supplier of stainless steel sheet and strip products in the United 
States would be unable to determine the origin of input coils in the 
event of a product liability claim or a tax audit. Moreover, 
petitioners argue, the listing was and remains irreparably incomplete 
in that Mexinox has continued to withhold the identity of the suppliers 
(despite the fact that the Department found at verification that 
suppliers could have been identified for several sales reported as 
``unidentified vendor'') and failed to provide important product 
characteristics for numerous sales. For all of these reasons, 
petitioners argue, the use of facts available is justified under 
section 776(a) of the Act which provides that if an interested party 
withholds information that has been requested, 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 section 782(d) and (e), facts otherwise available in 
reaching the applicable determination. In the alternative, petitioners 
argue that adverse facts available should at least be applied to the 
sales of unknown origin.
    Mexinox argues that petitioners' insinuation that Mexinox 
deliberately conspired to withhold information from the Department 
related to the unattributed sales is nonsense. It states that it could 
not have engaged in such a conspiracy because it had no direct 
involvement in the preparation of the Reseller's data, and had 
absolutely no knowledge of the content of the data.
    Mexinox also argues that petitioners are incorrect in 
characterizing the information as untimely. It states that the 
Department did not request the information in the August 3, 1998 
questionnaire, as petitioners suggest, but in an October 29, 1998 
supplemental questionnaire. Furthermore, they argue, under section 
351.301(b)(1) of the regulations, a respondent may submit factual 
information at any time up to seven days before verification. Moreover, 
Mexinox argues, petitioners cannot credibly claim that they were 
prejudiced by the timing of the submission, as evidenced by their 
multiple submissions commenting on the sales.
    Mexinox also contests petitioners' claim that it is implausible 
that the Reseller could not trace the origin of the material. It states 
that this issue was examined by the verifiers at both the

[[Page 30804]]

sales and cost verifications, and that the verification reports 
conclusively confirm that the Reseller's computer system could only 
trace the origin of the material as far back as its re-booking into 
inventory following transfer from another Reseller location. Because 
the rebooking identified the Reseller itself as the vendor in these 
circumstances, there was no computerized link available to the original 
supplier of the material. This, Mexinox argues, is indicated in the 
clearest terms in the Reseller cost verification report which states, 
``The system traces vendors from purchase orders (``P.O.s''). Transfers 
between warehouses have their own P.O.s, therefore, the Company is 
unable to identify their original source through the system.'' Given 
the nature of the Reseller's computer system, Mexinox argues, 
petitioners' suggestion that the Reseller should have manually traced 
the origin of all of these transactions is absurd. Such tracing, though 
physically possible, would have required searching by hand through 
multiple layers of internal paper transactions, inventory records, and 
sales records. While the Reseller can, and occasionally does, do this 
on an ad hoc basis to investigate individual claims, repeating that 
effort for every invoice and line item in the body of untraceable sales 
would have imposed an impossible burden.
    Finally, Mexinox takes issue with petitioners' charge that Mexinox 
is attempting to downplay the magnitude of the unattributed 
transactions. Mexinox states that the petitioners are exaggerating the 
magnitude of the sales by attributing 100 percent of the unattributed 
sales to Mexinox.
    Department's Position: We agree, in part, with petitioners and with 
Mexinox. In its January 7, 1999 supplemental response, Mexinox reported 
a large quantity of sales by the Reseller which lacked any information 
identifying the supplying manufacturer. As noted, Mexinox claimed that 
it had no immediate computer link to trace the origin of coils which 
had been transferred between the Reseller's different warehouses. Thus, 
it had included this unidentified mass of sales in each of the sales 
databases filed on the records of the investigations of stainless sheet 
in coils from Germany, Mexico, and Italy.
    As explained in response to comment 6 (above), we have determined 
that the errors affecting the Reseller's reported sales and cost data, 
including its failure to identify properly the supplier of a major 
portion of its sales, render these data unreliable in their entirety 
for purposes of our margin calculations. However, this conclusion does 
not dispose of the issue of the proper treatment of these unidentified 
transactions. For a significant portion of the Reseller's U.S. 
transactions during the POI the manufacturer is simply unknown. The 
absence of the supplying mill for this body of sales affects not only 
this investigation, but also those involving stainless steel sheet in 
coils from Germany and Italy. Furthermore, the absence of this 
elementary and critical information forecloses any attempt by the 
Department to apportion these sales accurately between merchandise 
which is subject to one of the three ongoing investigations and that 
which is properly considered non-subject merchandise because it was 
obtained from either a domestic or other foreign mill. Thus, this gap 
in the record is one of overarching importance, impinging upon our 
ability to calculate accurately the margins in three separate 
antidumping duty investigations.
    We cannot accede to Mexinox's suggestion that we exclude the 
unidentified transactions entirely from our calculations. While we are 
not able to state with precision which of these transactions represent 
subject stainless sheet in coils from Mexico, Mexinox has conceded that 
some are properly subject to this investigation (as, indeed, some are 
subject to the concurrent investigations involving Germany and Italy). 
The Act and the implementing regulations do envision a number of 
scenarios where the Department may disregard transactions in its 
analysis (sample transactions or sales of obsolete merchandise, for 
example, or when sampling transactions pursuant to section 777A of the 
Act). However, these exceptions all involve an independent analysis by 
the Department of the facts surrounding the proposed exclusions and its 
reasoned explanation on the basis of the record that the transactions 
at issue are either unnecessary or inappropriate for inclusion in our 
calculations. There are no provisions allowing the Department simply to 
ignore a significant portion of U.S. sales based on a reseller's 
putative inability to identify the affiliated respondent manufacturer.
    As for this claimed inability, Mexinox attempts to present as the 
Department's own conclusions what were, in fact, its reporting of 
Reseller explanation claims at verification. Thus, the Reseller sales 
verification report noted that ``Reseller explained that if material 
from its warehouse is sold to another location * * * the [receiving] 
warehouse subsequently will enter the merchandise into its own 
inventory by recording itself as the supplier.'' See Reseller sales 
verification report at 6. However, as we note on the previous page, 
``Reseller clarified that the original supplier's identification is 
traceable, but is not vital to its own needs.'' Id. at 5. Further, we 
found at verification that, notwithstanding the Reseller's 
protestations, in many cases it was possible through a rudimentary 
search of the Reseller's existing computerized records to identify the 
supplier. As petitioners note, of seven ``unidentified supplier'' 
transactions sampled at verification, we were able to trace immediately 
the outside supplier for three of these using nothing more than a 
personal computer in the Reseller's offices. See Reseller sales 
verification report at 10.
    Section 776(b) of the Act specifies that if the Department 
concludes that an interested party failed to act to the best of its 
ability to comply with a request for information, the Department ``may 
make an inference that is adverse to the interests of that party in 
selecting among the facts otherwise available.'' As noted above, we 
have determined that the use of facts available is appropriate for the 
sales and further-manufacturing data submitted by the Reseller. As for 
the unidentified body of sales, the Department also finds that the 
available computer records would allow the Reseller to trace with 
facility the supplier for nearly half of the sample transactions 
selected at verification. Had the Reseller made full use of its 
readily-available computer data, the effort required to identify the 
manufacturer for the remaining transactions would have been 
substantially less, thus largely attenuating the ``enormous amount of 
work'' involved in manual tracing ``* * * through several layers of 
internal paper transactions, inventory records, and sales records.'' 
Mexinox's Rebuttal Brief at 12. Accordingly, we find that the Reseller 
did not act to the best of its ability in compiling information 
essential to our analysis, such as the identity of the supplying mill, 
and thus the use of adverse facts available is appropriate.
    In selecting the appropriate facts available, we find that there is 
no record support for Mexinox's proposal that we allocate a portion of 
the unidentified-supplier sales to Mexinox based on the percentage of 
the Reseller's sales that is known to have been supplied by Mexinox; 
this approach would still result in the Department's disregarding over 
half of the unidentified-supplier transactions without any 
justification in the record. First, since by Mexinox's own admission 
some portion of the unidentified sales were supplied by Mexinox, the 
resulting percentage of merchandise identified as being of

[[Page 30805]]

Mexican origin is understated. In addition, we have no means of 
conducting an independent evaluation of this large body of sales to 
determine whether the patterns found for the identified universe of 
transactions would hold true for merchandise which, obviously, moved in 
different channels of distribution (e.g., through its transfer between 
or among the Reseller's locations). Thus, for purposes of this final 
determination we have adopted a variant of Mexinox's proposal. As an 
adverse inference, we are treating all of the unidentified merchandise 
as having originated with one of the three respondent firms in the 
concurrent investigations, rather than assuming that some of it may 
have originated from a producer other than AST, KTN, or Mexinox. To 
apportion the unidentified sales among the three investigations we have 
adjusted the quantity for each of the unidentified sales on a pro rata 
basis, using the verified percentages of the Reseller's merchandise 
supplied by each of the three respondents' mills. We have then applied 
a facts-available margin to these transactions, as explained above in 
response to Comment 6.

Comment 8: Classification of U.S. Sales as EP or CEP

    Petitioners argue that the Department should consider all of 
Mexinox's U.S. sales involving Mexinox USA as CEP sales, rather than EP 
sales. Mexinox reported two types of EP sales: Direct shipments (i.e., 
sales of merchandise produced to the customer's order and shipped 
through Mexinox USA's Brownsville, Texas, facility directly to the 
unaffiliated U.S. customer without remaining in Mexinox USA's warehouse 
for longer than four days) and San Luis Potosi (SLP) stock sales (i.e., 
sales of merchandise sold out of finished goods inventory held at the 
SLP factory and shipped through Mexinox USA's Brownsville, Texas, 
facility directly to the unaffiliated U.S. customer without remaining 
in Mexinox USA's warehouse for longer than four days). The record 
shows, petitioners state, that Mexinox's reported EP sales are 
virtually indistinguishable from its reported CEP sales.
    Petitioners state that in evaluating sales made prior to 
importation, it is the Department's practice to evaluate:
    1. Whether the merchandise is shipped directly to the unaffiliated 
buyer without being introduced into the physical inventory of the 
selling agent;
    2. Whether direct shipment to the unaffiliated buyer is the 
customary channel for sales of subject merchandise between the parties 
involved; and
    3. Whether the selling agent in the United States acts only as a 
processor of sales-related documentation and a communication link with 
the unaffiliated U.S. buyer.
    Petitioners argue that Mexinox's reported EP sales clearly meet the 
first of these criteria because Mexinox freely acknowledges that for 
direct shipments, the merchandise ``must pass through Mexinox USA's 
distribution facility in Brownsville (Texas) so that it can be 
transferred from the Mexican carrier to a U.S. carrier for further 
shipment.'' See Mexinox's section A response at A-16 (n.5). The same is 
true for Mexinox's sales of stock held in SLP. See section A response 
at A-17 (n.7). Thus, petitioners state, the first criterion is clearly 
met because the criterion contemplates only whether merchandise enters 
the affiliates' inventory, and not the length of time in inventory.
    Petitioners argue that the second criterion is met inasmuch as 
there is no reason to conclude that shipment through Mexinox USA's 
Brownsville warehouse is anything but the customary channel of 
distribution for Mexinox's reported EP sales.
    With respect to the third criterion, petitioners begin by stating 
that the Department has amplified its policy of evaluating the level of 
involvement of U.S. subsidiaries by determining that sales are 
appropriately classified as CEP sales where the U.S. subsidiary: (1) 
Was the importer of record and took title to the merchandise; (2) 
financed the relevant sales transactions; (3) arranged and paid for 
further processing; and (4) assumed the seller's risk. See Certain Cold 
Rolled and Corrosion Resistant Carbon Steel Flat Products from Korea; 
Preliminary Results of Antidumping Duty Administrative Reviews, 61 FR 
51882, 51885 (October 4, 1996) (Steel from Korea Preliminary Results). 
These facts are significant, petitioners state, because for all of 
Mexinox's reported EP sales Mexinox USA:

     Was the importer of record;
     Took title to the merchandise;
     Warehoused the merchandise after importation;
     Invoiced the U.S. customer; and
     Collected payment.

For direct sales, petitioners state, Mexinox USA also negotiates 
directly with U.S. customers and takes purchase orders. Furthermore, 
petitioners argue that even though Mexinox USA did not report any 
further processing after its importation of the subject merchandise, 
Mexinox USA was responsible for other post-importation services such as 
arranging customs clearance and U.S. freight, and it also assumed the 
financial risk associated with its U.S. sales. For all of these reasons 
petitioners conclude that it is evident that Mexinox USA is not merely 
a ``paper processor,'' but that it handles almost every aspect of 
making U.S. sales, and meets the criteria set forth in Steel from Korea 
with respect to its level of involvement in direct and SLP stock sales.
    Moreover, petitioners claim that contrary to Mexinox's statement 
that price terms are ultimately set by management in Mexico, there is 
no evidence that Mexinox USA's invoice prices reflect prices initially 
approved by Mexinox. Even if the Department is convinced that Mexico 
sets U.S. prices, petitioners argue, the Department must also consider 
other forms of the affiliate's involvement, such as contact with the 
U.S. customer, contacting the factory to arrange production and 
shipment, and issuing the final invoice to, and collecting payment 
from, the customer.
    Petitioners also argue that as a general guideline the Department 
should take the mere involvement of a U.S.-based subsidiary, 
particularly one comprised of a large staff that includes an active 
sales force, and billing and accounting staff, as a strong indication 
that the activity of the U.S. sales force must be significant. 
Otherwise a respondent would simply conduct operations from its home 
market. The degree of significance is determined by the per-unit amount 
of the indirect selling expenses. For example, a true paper-processing 
subsidiary would have an inexpensive office and a small, clerical staff 
with little more than telephone and facsimile equipment in order to 
communicate with the home office.
    Therefore, petitioners argue, because of Mexinox USA's extensive 
involvement in the selling process, the Department should deduct the 
indirect selling and operating costs of Mexinox USA from the starting 
prices for all U.S. sales involving Mexinox USA. In the alternative, 
petitioners state that if the Department determines that Mexinox USA's 
role in the direct and SLP sales does not cross the CEP threshold, the 
Department must recalculate the reported indirect selling expense ratio 
to allocate it only to CEP sales (and not EP sales) by Mexinox USA.
    Mexinox argues that the Department correctly determined that its 
direct shipment and SLP stock sales were EP sales. It bases this 
argument on the analysis of the three criteria identified by 
petitioners (cited above) that the Department uses in evaluating sales 
made prior to importation. Regarding the first criterion, Mexinox 
states that petitioners are factually incorrect in

[[Page 30806]]

saying that the direct shipment and SLP stock sale material enters 
Mexinox USA's inventory. It states that the Department verified through 
sample sales transactions the period of time between shipment to 
Brownsville and further shipment from Brownsville, and confirmed in 
each case that the period was less than four days. Mexinox also takes 
issue with petitioners' reading of the term ``whether'' as used in 
conjunction with the inventory prong of the Department's test for EP 
treatment. Petitioners' interpretation, Mexinox states, would mean that 
merchandise had been inventoried if it was physically on the premises 
of an affiliate for any length of time, presumably even for one minute. 
To be in an entity's inventory, Mexinox states, means the product must 
not merely be physically present on the premises, but must instead be 
considered part of the stock of the affiliate. As support for this 
distinction, Mexinox cites Steel from Korea, in which the Department 
said, ``While in some cases certain merchandise sold by [the foreign 
producer] was entered into [the U.S. affiliate's] inventory, this 
merchandise was sold prior to the importation of the merchandise, but 
not from [the U.S. affiliate's] inventory.'' See Steel from Korea, 62 
FR at 18439. This same distinction, Mexinox states, can be made with 
respect to Mexinox's sales at issue, where the material is not being 
sold out of Mexinox USA's general inventory, but rather directly from 
Mexinox's factory in SLP.
    Mexinox also argues that petitioners' interpretation of what 
constitutes inventory also ignores the reasons why the material was 
brought to Mexinox USA's distribution facility in the first place. It 
cites a portion of its October 28, 1998 supplemental questionnaire 
response in which it says that it had no choice:

    All shipments from Mexinox's factory in Mexico must stop in 
Brownsville for at least some period of time to allow for transfer 
to a US truck. This is because the United States, contrary to its 
obligations under the North American Free Trade Agreement, refuses 
to allow Mexican trucks access to US border states. Therefore 
uninterrupted shipment of the material from Mexico to the US 
customer is a practical impossibility and an incidental stop-over in 
Brownsville is unavoidably part of the direct shipment process.

See Mexinox's October 28, 1998 submission at 6-7. Mexinox argues that 
the brief period (no longer than four days) during which direct 
shipment or SLP stock material may have been held in the Brownsville 
distribution facility did not transform the material into inventory as 
petitioners would have the Department believe.
    Regarding the second criterion, Mexinox agrees with petitioners 
that shipment through Mexinox USA's Brownsville warehouse is the 
customary channel of distribution for Mexinox's direct and SLP stock 
sales.
    Regarding the third criterion, Mexinox does not dispute that 
Mexinox USA performs the selling activities that petitioners cite (with 
the exception of warehousing), but insists that these selling 
activities are consistent with EP treatment. It states that the Court 
of International Trade (CIT) has on many occasions upheld EP (formerly 
purchase price (PP)) classification where the U.S. affiliate engaged in 
activities that were at least equal to or exceeded those alleged to be 
conducted by Mexinox USA:
     PP classification was upheld where the U.S. affiliate 
first shipped merchandise to independent warehouses whose cost was 
borne by the U.S. affiliate, the U.S. affiliate was the importer of 
record, the U.S. affiliate paid estimated antidumping duties on the 
merchandise, the U.S. affiliate retained title prior to sale to the 
unrelated U.S. party, and the U.S. affiliate received commissions for 
its role in the transactions. Outokumpu Copper Rolled Products v. 
United States, 829 F. Supp. 1371, 1379-80 (Ct. Int'l. Trade 1993), 
appeal after remand dismissed, 850 F. Supp. 16 (Ct. Intl. Trade 1994).
     PP classification was upheld where the U.S. affiliate 
received purchase orders and invoiced the related customer, the U.S. 
affiliate was invoiced for and directly paid the shipping company for 
movement charges, the U.S. affiliate occasionally warehoused, at its 
own expense, and the U.S. affiliate received a substantial mark-up over 
the price at which it purchased from the exporter. E.I. DuPont de 
Nemours & Co. v. United States, 841 F. Supp. 1237, 1248-50 (Ct. Int'l. 
Trade 1993).
     PP classification was upheld where the U.S. affiliate 
invoiced customers, collected payments, acted as the importer of 
record, paid customs duties, and may have taken title to the goods when 
they arrived in the United States. Zenith Electronics Corp. v. United 
States, 18 CIT 870, 873-74 (Ct. Intl. Trade 1994).
     PP classification was upheld where the U.S. affiliate 
processed the purchase order, performed invoicing, collected payments, 
arranged U.S. transportation, and served as the importer of record. 
Independent Radionic Workers v. United States, CIT Slip Op. No. 94-45 
(Ct. Int'l Trade 1995).
    Furthermore, Mexinox argues that while these cases all pre-date the 
URAA, the SAA states that ``no change is intended in the circumstances 
under which export price versus constructed export price are used.'' 
See SAA at 152-53.
    Mexinox also disagrees with petitioners that Mexinox USA's selling 
activity in connection with these transactions ``meets the criteria set 
forth in Steel from Korea.'' It argues that the preliminary 
determination notice in that case classified as CEP only a sub-category 
of the respondent's sales ``where the merchandise was further processed 
by an outside contractor in the United States.'' See Steel from Korea 
Preliminary Results, 61 FR at 51885. Furthermore, in the final results 
in that case, the Department refused to extend CEP treatment to any of 
the other transactions, even though the U.S. affiliate's activities 
went beyond what petitioners would presumably deem acceptable for EP 
treatment. The Department stated:

    ``UA's (U.S. affiliate's) role, for example, in extending credit 
to U.S. customers, processing of certain warranty claims, limited 
advertising, processing of import documents, and payment of cash 
deposits on antidumping and countervailing duties, appears to be 
consistent with purchase-price classification. These selling 
services as an agent on behalf of the foreign producer are thus a 
relocation of routine selling functions from Korea to the United 
States. In other words, we determine that UA's selling functions are 
of a kind that would normally be undertaken by the exporter in 
connection with these sales.''

See Steel from Korea, 62 FR at 18439. Mexinox states that with the 
exception of a set of sales identified on the first day of verification 
(which Mexinox admits are CEP), no products were further-processed in 
the United States. Thus, Mexinox argues, Mexinox USA's activities do 
not meet the criteria laid out in Steel from Korea.
    Mexinox also disputes petitioners' contention that there is no 
evidence that price terms for U.S. sales are set by management in 
Mexico. It cites the sales verification report, which states, ``In both 
markets the final price paid is the ``price in effect,'' at the time of 
shipment. The ``price in effect'' is a customer-specific price 
determined by the commercial director based on prevailing market 
prices, and is negotiated with each customer.'' See Mexinox sales 
verification report at 6. Mexinox states that the commercial director 
referred to is a Mexinox official located in SLP. Mexinox also contests 
petitioners' attempt to downplay the significance of who sets the 
price,

[[Page 30807]]

stating that it is a very important factor, and in some cases has even 
been a decisive factor.
    Mexinox also urges the Department to reject petitioners' argument 
that sales should be classified as CEP based on ``mere involvement'' of 
a U.S. affiliate in the U.S. sales process. It states that following 
this very restrictive approach would conflict directly with the 
Department's three-part test which it has consistently applied, with 
express judicial sanction, since 1987.
    Finally, Mexinox disagrees with petitioners' argument that Mexinox 
USA's indirect selling expenses should be allocated solely to the 
reported CEP sales rather than to all U.S. sales handled by Mexinox 
USA. It states that Mexinox USA's indirect selling expenses relate to 
the affiliate's overall sales operations, and therefore cover expenses 
incurred by Mexinox USA in connection with both CEP and EP sales. 
Mexinox states that by allocating the indirect selling expenses only to 
CEP sales, as petitioners propose, the Department would overstate 
indirect selling expenses.
    Department's Position: We disagree with petitioners that Mexinox's 
reported EP sales should be reclassified as CEP sales. We find that 
Mexinox's reported EP sales pass the Department's three-prong test for 
evaluating sales made through affiliates prior to importation. 
Regarding the first criterion, we agree with Mexinox that the 
circumstances under which the imported merchandise passes through 
Mexinox USA's facility en route to the ultimate customer justify a 
determination that the merchandise did not enter Mexinox USA's 
inventory within the meaning of the Department's three-prong test. As 
Mexinox points out, the Department in Steel from Korea drew a 
distinction between (1) merchandise sold prior to U.S. entry that 
subsequently entered the inventory of the U.S. affiliate and (2 ) 
merchandise sold from the U.S. affiliate's inventory. We stated, 
``While in some cases certain merchandise sold by [the foreign 
producer] was entered into [the U.S. affiliate's] inventory, this 
merchandise was sold prior to the importation of the merchandise, but 
not from [the U.S. affiliate's] inventory.'' See Steel from Korea, 62 
FR at 18439. Where, as here, the merchandise (sold prior to 
importation) was situated at Mexinox USA's facility for the period of 
no more than four days and only for the necessary purpose of 
transferring to other trucks, we determine that the merchandise was not 
sold from the inventory of the U.S. affiliate.
    Regarding the second criterion, no party has disputed that this 
channel was Mexinox's customary channel of distribution for its U.S. 
sales.
    Regarding the third criterion, we agree with Mexinox that Mexinox 
USA's selling activities are comparable to those that have been upheld 
by the courts as consistent with EP treatment. Therefore, Mexinox USA's 
performance of these activities do not compel CEP classification for 
the sales at issue. Furthermore, our verification uncovered no evidence 
that conflicts with Mexinox's claims that the sales were made in 
Mexico, and petitioners have cited to none. Moreover, we agree with 
Mexinox that the facts of Steel from Korea differ from those present 
here in that in Steel from Korea the affiliate arranged for further 
manufacturing, whereas here no further manufacturing is performed for 
the sales at issue. For these reasons we have not reclassified 
Mexinox's EP sales in this final determination.
    Finally, we disagree with petitioners that all of Mexinox USA's 
reported indirect selling expenses should be attributed to CEP sales. 
Although we have determined that the direct sales and SLP stock sales 
are appropriately classified as EP sales, they do pass through Mexinox 
USA's facility and Mexinox USA performs some selling activities in 
connection with them. Therefore, it is appropriate that we allocate a 
proportionate share of indirect selling expenses to them.

Comment 9: Level of Trade

    Petitioners argue that the Department erred in its Preliminary 
Determination with respect to level of trade (LOT). In the Preliminary 
Determination, the Department determined that there was one LOT in the 
home market, that there were two LOTs in the U.S. market (corresponding 
to the EP and CEP sales channels), and that Mexinox's sales to its home 
market customers were at a LOT that was different and at a more 
advanced stage of distribution than were its sales to its affiliated 
customers in the United States (i.e., Mexinox USA, the Reseller, and 
the Krupp affiliate). Based on these determinations, it made a CEP 
offset for Mexinox's CEP sales in accordance with section 773(a)(7)(B) 
of the Act. Petitioners argue that there is only one LOT in the United 
States, and that it is more advanced than the home market LOT. Thus, 
they argue, no CEP offset is warranted. Furthermore, they argue that 
the Department should find that the sales to the Reseller and the Krupp 
affiliate are at the same LOT as Mexinox's EP sales because Mexinox did 
not even attempt to distinguish them as separate LOTs as it did for its 
CEP sales to Mexinox USA.
    Petitioners argue first that the list of selling activities Mexinox 
submitted to support its LOT adjustment claim exaggerates and distorts 
the activities, resulting in the creation of different LOTs where none 
exist. Specifically, they argue that Mexinox's list of seventeen 
selling activities should be condensed into a list of only seven 
activities. They argue:
    1. The first four activities on Mexinox's list (pre-sales technical 
assistance, sample analysis, prototypes and trial lots, and continuous 
technical assistance) really are only one activity, technical 
assistance.
    2. The next two activities (negotiating prices and processing 
customer orders) are really not properly included in the analysis 
because anyone selling a product performs these activities for all 
customers, regardless of market or affiliation.
    3. The next two activities (inventory maintenance and just-in-time 
delivery) are both essentially the same service.
    4. Two other activities (arranging freight services and shipment of 
small packages) should also be considered the same activity.
    5. The next two activities (making sales calls and traveling 
internationally) are the same activity.
    6. The ``further processing'' activity is a manufacturing activity 
and thus not properly included as a selling activity. Moreover, to the 
extent that it entails cutting to length, such activity is not even 
related to the sale of subject merchandise.
    7. The credit and collection activity is an activity that companies 
selling products routinely engage in with respect to most, if not all, 
customers and thus is not properly included in an LOT analysis.
    8. The last three activities (accepting currency risk, warranting 
merchandise, and accepting low-volume orders) can be considered 
distinct selling activities.
    Thus, the list of selling activities, as condensed by petitioners, 
amounts to:

    1. Technical service.
    2. Inventory maintenance.
    3. Freight services.
    4. Sales calls.
    5. Currency risks.
    6. Warranties.
    7. Low-volume orders.

    With regard to technical service, petitioners argue that although 
Mexinox purports to provide lower levels of technical service for most 
U.S. channels, the nature of manufacturing the subject merchandise 
requires uniformly high quality levels. Furthermore, petitioners state 
that evidence on the record (not susceptible to public summary) 
demonstrates that Mexinox affords

[[Page 30808]]

technical services directly or indirectly to both domestic and U.S. 
customers.
    With respect to inventory maintenance and freight services, 
petitioners argue that evidence on the record (not susceptible to 
public summary) demonstrates that these activities are equally 
pertinent to both EP sales and Mexinox's CEP sales to Mexinox USA.
    With respect to sales calls, petitioners point out that Mexinox has 
stated that ``this selling activity does not apply to the CEP 
transaction between Mexinox and Mexinox USA.'' See section A response 
at attachment A-4. Petitioners argue that the Department should not 
accept a representation that Mexinox does not need to be in contact 
with Mexinox USA because it is not plausible that Mexinox does not make 
telephonic and personal sales calls to Mexinox USA as it would with any 
other large customer.
    With respect to currency risks (a selling activity Mexinox 
associates only with home market sales, and not U.S. sales), 
petitioners argue that currency risk is normally associated with export 
sales, and not home market sales. Further more, during the POI the peso 
was remarkably steady. Thus, petitioners state, if this activity is a 
factor at all, it should be attributed to EP and CEP sales, but not to 
home market sales.
    Finally, with respect to warranty claims, petitioners argue that 
there is evidence on the record that Mexinox, not Mexinox USA, handles 
warranty claims. Furthermore, they argue that examination of Mexinox 
USA's itemization of selling expenses reflects nothing that would 
indicate that it handles this activity.
    Based on the above analysis, petitioners conclude that Mexinox 
clearly engages in the same type of selling activities in its dealings 
with Mexinox USA as it does with home market and U.S. EP customers. The 
only selling activity that petitioners recognize as being different 
between the U.S. and home markets is the acceptance of low-volume 
orders in the home market.
    Moreover, petitioners argue that the Department's preliminary 
determination with respect to this issue yields the implausible 
conclusion that every transaction between Mexinox and a customer in 
North America was at the same LOT except for Mexinox's transactions 
with its affiliated reseller. It is inconsistent for the Department to 
find that, on the one hand, sales to home market customers and EP sales 
to U.S. customers are at the same LOT but, on the other hand, that the 
EP sales that the Department has constructed using its CEP sales method 
(i.e., the sales between Mexinox and Mexinox USA) are not at the same 
LOT as the ``regular'' EP sales. The construction of hypothetical EP 
prices to Mexinox USA should, petitioners believe, make the CEP and EP 
transactions comparable and representative of the same LOT.
    Finally, petitioners argue that, in the alternative, if the 
Department continues to grant a CEP offset, it should correct the 
offset calculation which, they allege, contains three errors. First, 
petitioners claim that in calculating indirect selling expenses 
incurred in the United States, the Department incorrectly included 
expenses that Mexinox incurred in the home market. Second, the CEP 
offset should be the lesser of either: (1) The sum of home market 
indirect selling expenses (excluding inventory carrying costs (ICC)) 
and home market commissions or (2) U.S. ICC and indirect selling 
expenses. In the Department's calculation, the offset was the lesser of 
either (1) the sum of home market indirect selling expenses (excluding 
ICC) and home market commissions or (2) the sum of home market and U.S. 
ICC and home market and U.S. indirect selling expenses. Finally, 
petitioners argue, the Department failed to ensure that the combined 
amount of the deduction for the CEP offset and deductions for the 
commission offset do not exceed total U.S. incurred indirect selling 
expenses (including ICC).
    Mexinox argues that the Department was correct in its LOT 
determination and in granting a CEP offset to NV for the CEP LOT. It 
argues first that the petitioners' arguments are useless to the 
Department because their analysis focuses on the differences between EP 
and CEP LOTs, rather than the CEP LOT versus the home market LOT. It 
argues that it is this difference between the CEP LOT and the home 
market LOT that ultimately justifies the granting of a CEP offset.
    Mexinox next argues that its home market sales are at a more 
advanced stage in marketing than its U.S. sales. Its argument centers 
on the central role that service centers play in its U.S. chain of 
distribution both for EP and CEP sales, as distinguished from its home 
market chain of distribution in which Mexinox sells to no service 
centers. The reason service centers are important, Mexinox argues, is 
that they function by acting as intermediaries between the mills and 
the larger community of specialized end users. To do so, Mexinox 
states, service centers tend to purchase large master coils from the 
mills and then further process the material to make it possible for end 
users to use them. Service centers also generally provide their 
customers with a package of individualized selling services (e.g., 
just-in-time deliveries and other forms of inventory maintenance, 
technical advice, and flexible credit terms) that the foreign producer 
would otherwise be required to provide. Thus, selling to U.S. service 
centers allows Mexinox to concentrate on the production and sale of 
larger, higher-yield coils in standard grades, surface finishes, and 
dimensions, while the service center focuses on the next level of 
distribution to end-users. The sales to service centers encompass a 
smaller scope and intensity of selling activities precisely because the 
service center takes over the role of providing the specialized selling 
services that are requested by end users, such as flexible credit 
terms, pre-sale and post-sale technical advice, further processing, 
just-in-time delivery, and other specialized inventory requirements.
    Furthermore, Mexinox argues that the Department has in the past 
recognized that sales to service centers represent a different and less 
advanced stage in the marketing process than sales to customers further 
downstream. Thus, in the preliminary determination of SSSS from the 
United Kingdom the Department explained that, ``Normally, stages of 
marketing focus on whether sales are to service centers or end-users, 
in some instances taking into account whether or not sales are made 
through intermediate parties.'' See SSSS from United Kingdom, 
Preliminary Determination of Sales at Less Than Fair Value, 64 FR 85 
(January 4, 1999). Similarly, in Cold-Rolled Carbon Steel Flat Products 
from the Netherlands the Department determined that home market sales 
to service centers and sales to end users constituted entirely 
different LOTs. See Cold-Rolled Carbon Steel Flat Products from the 
Netherlands; Final Results of Administrative Review, 63 FR 13204 (March 
18, 1998). Mexinox acknowledges that the details of these cases may 
differ from the present investigation, but states that the observations 
the Department made are all generally consistent with the circumstances 
relating to Mexinox's sales in the U.S. and Mexican markets. The 
essential characteristic of Mexinox's sales, it states, is that it 
sells directly to service centers in the U.S. market and acts as a 
service center in the home market.
    Next, Mexinox argues that it performs far fewer selling functions 
in its CEP sales than it does in the home market where it acts as a 
service center. It states

[[Page 30809]]

that petitioners are correct that many of the selling activities that 
are associated with Mexinox's U.S. sales (whether EP or CEP) are 
carried out by Mexinox USA. However, to construct the CEP LOT, Mexinox 
states, all of these selling activities undertaken by Mexinox USA in 
the United States must be excluded in accordance with section 
772(d)(1)(D) of the Act and 19 CFR Sec. 351.412(c)(ii)(1998). When that 
is done, the CEP transactions between Mexinox and Mexinox USA involve 
relatively few selling functions at all. Essentially the only selling 
activities required in connection with the relevant transactions 
between the related parties is a low level of freight and delivery 
arrangements (via the same SLP-to-Brownsville trucking route) and order 
processing.
    Next, Mexinox discusses its reported selling functions. Regarding 
its reported selling activity ``small package size and low volume 
orders,'' Mexinox argues that this activity is fundamentally different 
in the home and U.S. markets. Because it sells to service centers in 
the United States, Mexinox states, it tends to sell larger coils in 
standard sizes, grades, and surface finishes which the service centers 
then cut. In the home market, Mexinox itself performs the service 
center function of cutting and slitting from master coils. Thus, the 
coils tend to be smaller. It also tends to sell in smaller lots, thus 
increasing the number of transactions and selling services required to 
be performed in the home market. Mexinox states that though arguably 
not a selling activity itself, average coil size is a compelling 
indicator both of the differences in selling functions performed by 
Mexinox as a home market service center and the intensity of those 
selling functions because many routine selling activities must be 
repeated for each transaction and therefore vary roughly in accordance 
with the number of transactions involved.
    With respect to further processing, Mexinox disagrees with 
petitioners' argument that further processing is a manufacturing 
activity and thus not properly included as a selling activity. It 
states that the Department has recognized the relevance of further 
processing to the LOT analysis in other cases, including the 
Preliminary Determination of this case. It argues that further 
processing of this kind must be recognized and taken into account as an 
integral part of the distinct bundle of selling services offered by 
Mexinox in the home market but not the U.S. market.
    With respect to technical services, Mexinox states that it provides 
no pre-sale technical analysis, sample analysis, prototypes and trial 
lots, or continuous technical service in connection with the CEP 
transactions between itself and Mexinox USA. Moreover, even if the 
Department were to look further downstream, the level of technical 
assistance provided in connection with U.S. sales is lower than in the 
home market. This is because service centers tend to buy large master 
coils in standard sizes, grades, and surface finishes, often without a 
specific end user in mind, thus limiting the need for pre- and post-
sale technical assistance, sample analysis, prototypes, or continuous 
technical assistance. Furthermore, when a downstream customer does seek 
technical assistance, it naturally turns first to the party that sold 
the material to him, which in this case is the service center and not 
Mexinox. Mexinox states that the opposite situation exists in the home 
market because Mexinox itself serves as the service center.
    With respect to inventory maintenance and just-in-time deliveries, 
Mexinox argues that it provides no inventory maintenance or just-in-
time delivery services in connection with the CEP transactions between 
itself and Mexinox USA. However, in keeping with its function as a 
service center in the home market, it offers a wide variety of 
inventory maintenance and just-in-time delivery services for home 
market customers.
    With respect to freight and delivery services, Mexinox states that 
the intensity of this activity is extremely low in connection with the 
CEP sales between itself and Mexinox USA because freight is exclusively 
limited to consolidated shipments over a single route between the 
factory in SLP and the distribution point in Brownsville, Texas. In 
contrast, freight arrangements in the home market involve smaller 
volumes and more frequent and varied deliveries from Mexinox's mill in 
SLP and from the various remote warehouses located throughout Mexico.
    With respect to the order processing, credit, and collection, 
Mexinox states that in connection with the CEP transactions between 
Mexinox and Mexinox USA, these activities are essentially automatic and 
risk free. Moreover, such order processing essentially involves a 
single point of contact for all sales. In contrast, Mexinox argues, the 
transactions at issue involve handling a full range of unaffiliated 
customers. Furthermore, because individual transaction volumes are 
smaller, the level of such activities is much higher on a per-ton basis 
in the home market than in the United States.
    With respect to price negotiation and sales calls, Mexinox states 
that these activities are logically more frequent in the home market 
because of the higher number and smaller per-transaction volume of 
sales in the home market.
    With respect to currency risk, Mexinox argues that petitioners have 
failed to properly evaluate the currency risk which Mexinox faces in 
selling stainless steel in the United States. All home market sales 
during the POI were in Mexican pesos. Therefore, because Mexinox 
extends credit to its home market customers, Mexinox assumes all 
currency risks associated with the peso during the credit period. 
Furthermore, Mexinox argues that contrary to the petitioners' comments, 
the peso was not remarkably stable during the POI, but instead 
depreciated 7.6 percent against the dollar between April 1, 1997 and 
March 31, 1998.
    Based on the above analysis, Mexinox states that the CEP LOT 
involves fewer and different selling functions and is less advanced 
than the home market LOT. Accordingly, the Department is required, if 
possible, to make a LOT adjustment when matching CEP to NV. Because 
there is only one LOT in the home market and it is therefore not 
possible to quantify a LOT adjustment, Mexinox states, the Department 
should grant a CEP offset.
    Finally, Mexinox disagrees with petitioners' contention that the 
Reseller and the Krupp affiliate should be deemed to be at the same LOT 
as EP sales. First, if the Department determines to use the resale 
prices from these entities in its analysis, there is no question that 
such sales are properly classified as CEP transactions because the 
relevant sales were made after importation. Second, because these sales 
are CEP transactions, the Department is required to exclude all selling 
functions carried out in the United States by both the reseller and 
Mexinox USA in determining the constructed LOT for these sales. 
Accordingly, under the Department's standard analysis, Mexinox states, 
selling functions associated with sales by these resellers and Mexinox 
USA must be backed out until all that is left is the bare transaction 
made between Mexinox and Mexinox USA. The LOT and the LOT analysis for 
these sales is exactly the same as for other CEP transactions, and a 
CEP adjustment is also justified for these sales.
    Department's Position: After careful review of the facts on the 
record, we have determined not to change our preliminary determination 
with respect to LOT. We agree with petitioners that some of the 
seventeen selling activities

[[Page 30810]]

that Mexinox reported could legitimately be collapsed, resulting in a 
shorter list of activities. Furthermore, some of the reported selling 
activities raise questions, and some more strongly support our 
determination than others.
    Nevertheless, we find that taken collectively the selling 
activities Mexinox reported and the way it performs these activities in 
the two markets support a finding that there is one LOT in the home 
market and two LOTs in the U.S. market. We also find that the EP and 
home market sales channels represent one stage of marketing and the 
U.S. CEP channel represents another, and that the home market LOT is 
more advanced than the CEP LOT. In its section A response, Mexinox 
provided the information that some activities are not performed or are 
performed at a low level of intensity with respect to the CEP 
transactions between itself and Mexinox USA (e.g., technical services, 
inventory maintenance, just-in-time delivery). See Mexinox's section A 
response, exhibit A-4 and its April 5, 1999 Rebuttal Brief, attachment 
1. Petitioners have put no information on the record to rebut Mexinox's 
representations.
    Furthermore, because of the smaller lots sold in the home market, 
we find that the home market order processing, price negotiation, and 
payment collection activities would be more expensive on a per-unit 
basis than for the CEP sales between Mexinox and Mexinox USA, and thus 
reflect a more advanced stage of marketing. Moreover, we agree with 
Mexinox that the freight and delivery service activity would likely be 
more routine in the CEP transactions between Mexinox and Mexinox USA 
than between Mexinox and its customers throughout Mexico, and thus also 
reflects a less advanced stage of marketing. Similarly, while 
petitioners are doubtless correct that Mexinox does make telephone 
calls to Mexinox USA, such calls between a parent and its foreign 
subsidiary are likely more routine than calls between a parent and its 
numerous unaffiliated home market customers. Further, we agree with 
Mexinox that the peso did decline by approximately 7.6 percent during 
the POI, and that therefore the peso was not, as petitioners have 
alleged, ``remarkably steady.'' Thus, Mexinox did incur some currency 
risk in the home market during the POI. For these reasons, we determine 
that there is no basis in the record for departing from our LOT 
determination as set forth in the Preliminary Determination and, thus, 
we have not changed it for this final determination.
    Furthermore, we agree with Mexinox that because the sales to the 
U.S. Krupp affiliate are CEP transactions sold through Mexinox USA, the 
relevant sales transactions we must examine in determining the correct 
LOT are those between Mexinox and Mexinox USA. There is therefore no 
reason to treat these sales differently than any other of Mexinox's CEP 
transactions. Therefore, in our calculations for the final 
determination we have continued to make a CEP offset for the sales to 
the U.S. Krupp affiliate as well as Mexinox's other CEP sales. With 
respect to the Reseller this question is moot because we have used 
total facts available.
    Finally, we agree with petitioners that the CEP offset calculation 
in the Preliminary Determination should be corrected for the three 
stated errors. We have done so in this final determination.

Comment 10: Downstream Home Market Sales

    Petitioners argue that the Department should never exclude from its 
analysis sales made through affiliated resellers (downstream sales) in 
the home market. (In the Preliminary Determination the Department did 
not require Mexinox to report its downstream sales in the home market 
because the sales to the affiliated resellers all passed the 
Department's arm's-length test.) Such a practice is bad policy, 
petitioners argue, because it invites the affiliate to mark up its 
resale prices and thereby mask true dumping. Furthermore, they argue 
that since the Department's arm's-length test is only applied to those 
particular products that were sold to unaffiliated parties, a 
respondent may wholly exclude high-priced home market sales from the 
Department's dumping analysis by selling them only through an 
affiliate. Petitioners stress that even small quantities can have an 
enormous impact that is completely disproportionate to their relative 
quantity because they may represent the sales that would be matched to 
U.S. sales in a LTFV analysis. Additionally, petitioners state that the 
existence of potential matches (even identical matches) among sales to 
non-affiliates is not necessarily of use because such sales may prove 
either unuseable by virtue of being outside the ordinary course of 
trade (e.g., below cost) and thus not under consideration in the LTFV 
analysis, or otherwise unrepresentative, particularly if they are below 
prices that a reseller is charging to its unaffiliated customers. For 
these reasons, petitioners argue that the Department should state for 
the record that its policy in the future, particularly for any 
administrative reviews of any order in this proceeding, will be to 
require the reporting of all downstream sales by affiliated home market 
customers.
    Mexinox disagrees with the petitioners' argument, but prefaces its 
counter-argument by stating that the appropriate forum for the 
petitioners' advisory comment is the rule-making process and not an 
antidumping investigation. In any event, it argues that for two reasons 
the petitioners' proposal cannot be sustained. First, it argues that 
the Department does not have the authority to completely ignore section 
351.403(d) of the Department's regulations, as petitioners have 
recommended, and that even if the Department agreed with the 
petitioners, it would be obligated to follow lawful administrative 
procedure to formally amend or repeal this section of its regulations.
    Second, Mexinox claims that the Department's downstream sales 
reporting requirements, and the arm's-length test in particular, 
already deal effectively with petitioners' concerns. It states that if 
it were to sell to affiliates at artificially lowered prices in order 
to manipulate the dumping margins, those sales would fail the arm's-
length test. Therefore, it argues, even if the petitioners can contrive 
an implausible scenario in which the affiliated party purchasing at 
arm's length could resell the merchandise at an even higher profit in a 
downstream sale, the fact remains that sales to the affiliates that 
pass the stringent arm's-length test would be completely reliable for 
the purpose of determining NV.
    Department's Position: We agree with Mexinox that the appropriate 
context for the petitioners' comment is the rule-making process. 
Furthermore, we will not use this final determination to promulgate 
announcements on reporting requirements for possible future segments of 
this proceeding. Such requirements are determined on a case-by-case 
basis based on the facts of each administrative review.
    In the preliminary determination of this investigation we performed 
an arm's-length test in accordance with 19 CFR Sec. 351.403(d). We 
found that all of Mexinox's home market sales to affiliated resellers 
were made at arm's-length prices. See the Department's preliminary 
determination analysis memorandum, dated December 17, 1998, p. 12, and 
the Preliminary Determination at 129. For this final determination we 
performed the same arm's-length test, and found the same results. 
Therefore, we have not required Mexinox to report its downstream home 
market sales.

[[Page 30811]]

Comment 11: Arm's-Length Test

    Petitioners argue that for this and future proceedings the 
Department should permanently revise its arm's-length test by comparing 
all prices to affiliates against prices charged to unaffiliated 
customers. The Department's current practice, petitioners state, is to 
test only prices for which identical products were also sold to 
unaffiliated customers, and then to apply the result to all sales to 
the affiliate. This ``identicals-only'' arms-length test, petitioners 
state, was developed before the Department began running its own model 
match concordance program. They argue that in light of the Department's 
now longstanding practice of itself determining all product matches for 
the antidumping analysis, there is no technical obstacle or policy 
reason preventing the Department from applying the same method in the 
arm's-length test. In other words, the Department should analyze all 
models sold to affiliates, whether or not matched to identical models 
sold to unaffiliated parties. Petitioners state that doing so would 
reduce the risk of a manipulated arm's-length test result that in turn 
would distort the margin analysis.
    Mexinox states that the burden of proof rests with the petitioners 
to demonstrate to the Department that the arm's-length test has been 
manipulated or is in some way distorting the margin analysis of this 
investigation, and that the petitioners have failed in this regard. 
Respondent states that where petitioners fail to support assertions 
against the arm's-length test, the Department's practice is to maintain 
its position and use of the arm's-length test method. See Tapered 
Roller Bearings and Parts Thereof, Finished and Unfinished, from Japan, 
and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, 
and Components Thereof, From Japan; Final Results of Antidumping Duty 
Administrative Review and Termination in Part, 63 FR 20585 (April 27, 
1998) (Tapered Roller Bearings). Mexinox also states that courts have 
consistently supported the Department in its defense of the arm's-
length test. Thus, in Tapered Roller Bearings, when presented with lack 
of evidence of any distortion of price comparability, the CIT found the 
application of the Department's arm's-length test reasonable. See 
Tapered Roller Bearings, 63 FR at 20592. Thus, Mexinox argues that the 
Department should decline to consider modifications to the arm's-length 
test given that petitioners cannot point to any information on the 
record to suggest that the arm's-length test is distortive and 
unreasonable.
    Department's Position: We disagree with petitioners. Without a 
match of an identical product sold to an unaffiliated party, the 
Department has nothing against which to test the sale to the affiliated 
party. Thus, to implement the petitioners' suggestion, we would have to 
conduct the arms'-length test using similar, rather than identical, 
merchandise. Doing so would result in a less accurate measure of the 
effect of affiliation on pricing. In the absence of any evidence that 
the present arms'-length test is distortive, for our purposes of 
determining comparability within the meaning of 19 CFR Sec. 351.403(d), 
we would have no reason to implement a new method that could result in 
a less accurate result.

Comment 12: Date of Sale

    Petitioners argue that the Department erred in the Preliminary 
Determination by using the invoice date, rather than the contract or 
change order date, as the date of sale. They argue that although the 
regulations state that the Department will normally use the date of 
invoice as the date of sale (see 19 CFR Sec. 351.401(i)), the evidence 
of record in this case supports the use of the date of order 
confirmation or change order as the date of sale. They cite the final 
results of review of circular welded non-alloy steel pipe from the 
Republic of Korea as support. There, the Department articulated that it 
evaluates the correct date of sale selection on a case-by-case basis in 
light of all relevant facts. The Department stated, ``* * * while we 
agree with the respondents that the Department prefers to use invoice 
date as the date of sale, we are mindful that this preference does not 
require the use of invoice date if the facts of a case indicate a 
different date better reflects the time at which the material terms of 
sale were established.'' See Final Results of Antidumping Duty 
Administrative Review: Circular Welded Non-Alloy Steel Pipe from the 
Republic of Korea, 63 FR 32833 (June 16, 1998) (Pipe from Korea). Based 
on the facts of that case, the Department used invoice date as the date 
of sale in the home market and contract date as the date of sale in the 
U.S. market (except for CEP sales made out of inventory) because:
    1. Sales in the home market were typically out of inventory with 
the purchase order/contract, invoice, and shipment dates all occurring 
within a relatively short period of time. In contrast, U.S. sales terms 
were set on the contract date and any subsequent changes were usually 
immaterial in nature or, if material, rarely occurred.
    2. Due to the made-to-order nature of U.S. transactions, there was 
a very long period of time between the contract date and the subsequent 
shipment and invoicing of the sale.
    3. There was no information on the record indicating that the 
material terms of sale changed frequently enough between contract date 
and invoice date on U.S. sales to give both buyers and sellers any 
expectation that the final terms would differ from those agreed to in 
the contract.
    The Department explained:

    As can be seen from the foregoing, ``invoice'' dates in both 
markets, while the same in name, are materially quite different for 
purposes of determining price discrimination simply because the 
sales processes for the two markets are quite different. If 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--an 
inappropriate comparison for purposes of measuring price 
discrimination in a market with less than very inelastic demand.

See Pipe from Korea, 63 FR at 32836.
    Petitioners argue that the facts in the instant investigation 
parallel the facts in Pipe from Korea, particularly for those sales 
Mexinox reported as EP direct sales, in that sales tend to be on a 
made-to-order basis, and there can be a long period of time between the 
contract date and the date of shipment and invoicing. Moreover, some 
changes in quantity are usually envisioned by the sales contract, and 
the parties are free to divide orders over more than one shipment; 
hence, changes in quantity do not necessarily give rise to changes in 
the agreed price (and a new ``sale''). Accordingly, petitioners argue, 
the Department should use the date of order confirmation (or the date 
of any subsequent change order) as the date of sale.
    Mexinox argues against the use of order date for the date of sale 
in both markets, and states that the petitioners ignore factual 
information verified by the Department regarding the frequency of 
changes in price and quantity between order and invoice date. It cites 
Department regulations (19 CFR Sec. 351.401(i)) which support the use 
of invoice date as the presumptive date of sale unless the record 
evidence demonstrates that the material terms of sale, i.e., price and 
quantity, are established on a different date. Furthermore, Mexinox 
argues that petitioners have not provided evidence in support of their 
position, other than the unsubstantiated claim that the case

[[Page 30812]]

parallels the facts in Pipe from Korea. Mexinox states that these two 
antidumping cases differ in the sense that in the present case, the 
Department extensively verified that in both markets price and quantity 
were subject to change up until the date of invoice and frequently did 
change during the POI. Moreover, Mexinox disagrees with petitioners' 
comment that ``changes in quantity do not necessarily give rise to 
changes in agreed price (and a `new sale'),'' stating that if 
petitioners are suggesting that a material change in quantities 
exceeding the normal /-10 percent delivery tolerance does 
not change the date of sale, they are arguing for new law. Mexinox 
claims that it has submitted documents on the administrative record in 
this case pertaining to this issue, and that the minuscule number of 
sales in which the order date terms of sale remain intact is 
overwhelmed by the large number of verified instances where the final 
terms of sale were not established until the invoice date.
    Department's Position: We agree with Mexinox that petitioners have 
not provided a compelling reason to deviate from our practice of using 
the invoice date as the date of sale, as established by our 
regulations. See 19 CFR Sec. 351.401(i). In this investigation there is 
evidence on the record that in a significant number of instances there 
are changes to the material sales terms of price or quantity between 
the order date and the invoice date. See Mexinox's November 17, 1998 
submission, p. 5. At the Mexinox sales verification, Mexinox 
substantiated this evidence and the Department noted no discrepancies. 
See Mexinox sales verification report, p. 6. Thus, in this case, unlike 
Pipe from Korea, there is information on the record indicating that 
material terms of sale changed frequently enough between contract date 
and invoice date on U.S. sales to give both buyers and sellers the 
expectation that the final terms might differ from those agreed to in 
the contract. For this reason, we will not deviate from the regulatory 
presumption that the invoice date is the appropriate date of sale.

Comment 13: New Information Given at Verification

    Petitioners argue that the Department should apply adverse facts 
available for a group of U.S. sales Mexinox did not report to the 
Department until the verification. Petitioners argue that it is the 
Department's longstanding policy not to accept the submission of new 
information at verification unless: (1) The need for that information 
was not evident previously, (2) that information makes minor 
corrections to information already on the record, or (3) that 
information corroborates, supports, or clarifies information already on 
the record. Because, petitioners argue, no party contends that the need 
to report these sales was not evident previously or that the 
information was to corroborate information already on the record, the 
only question is whether the disclosure of these sales constitutes 
minor correction to information already on the record. In petitioners' 
view, given the volume of sales at issue, the answer is no.
    Furthermore, petitioners argue that the sheer number of 
transactions made it impossible for the Department to be sure that the 
information Mexinox provided was complete; thus, including the sales 
without penalty would be inappropriate because the information had not 
been verified. Additionally, petitioners state, there is an important 
principle at stake: Mexinox's failure to include these sales in the 
questionnaire response precluded the Department and petitioners from 
being able to engage in pre-verification analysis of a complete sales 
listing in order to focus efforts on areas of potential concern going 
into verification. The Department should send a message that 
withholding such information will not be tolerated no matter what the 
reason.
    Mexinox disagrees with the petitioners' argument that adverse facts 
available should be applied to the unreported sales identified by 
Mexinox at verification. Respondent states that there is no basis to 
the petitioners' claim because: (1) Staff preparing the data 
submissions did not discover the coils at issue here until shortly 
before verification; (2) the unreported sales were relatively few and 
represented an insignificant proportion of Mexinox's overall sales; (3) 
the sales were voluntarily provided by Mexinox on the first day of 
verification; (4) the Department has in the past accepted new sales at 
verification even where the respondent failed to reveal them 
voluntarily at the start of verification (see e.g., Disposable Pocket 
Lighters from the People's Republic of China; Final Determination of 
Sales at Less Than Fair Value, 60 FR 22359 (May 5, 1995)) (Pocket 
Lighters from China). In fact, the Department's 1998 Antidumping Manual 
provides for the acceptance of new sales data on a case-by-case basis 
(Chapter 13 at 30); and, 5) four of the sales in question were 
successfully verified by the Department, contrary to petitioners' 
assertion that the information had not been verified.
    Department's Position: We disagree with petitioners that the use of 
adverse facts available is warranted. We have no reason to believe that 
Mexinox intentionally withheld from the Department the sales at issue 
here. Mexinox provided them on the first day of verification and the 
volume of sales is very small as a percentage of Mexinox's total U.S. 
sales volume. Furthermore, the Department did verify four of the sales. 
Moreover, as in Pocket Lighters from China, ``we are satisfied that the 
record is now complete and accurate regarding this company's sales of 
subject merchandise during the POI.'' See Pocket Lighters from China, 
60 FR at 22365. For these reasons, we have determined not to resort to 
facts available for these sales, but to treat them the same as 
Mexinox's other reported sales.

Comment 14: Classification of Merchandise as ``Non-Prime Merchandise'

    Petitioners argue that the Department should treat all Mexinox's 
merchandise as prime unless it has been clearly shown to be defective. 
With respect to Mexinox, petitioners argue that Mexinox admitted at 
verification that its sidestrand designation (which, they state, 
Mexinox apparently equates with non-prime in some cases) had nothing to 
do with the physical characteristics of the merchandise, and was a 
function of whether the product in question had been made to order (in 
which case it was not labeled sidestrand). With respect to the 
Reseller, petitioners argue that the Reseller's verification showed 
that it designated some material as non-prime that it was simply trying 
to move from inventory. As with sidestrand, designating such material 
as non-prime is simply, in petitioners' view, a question of semantics 
rather than a true indicator of defectiveness. There is no physical 
difference, they state, between ``prime merchandise,'' ``seconds,'' 
``sidestrand,'' and ``non-sidestrand'' (at least the way Mexinox uses 
those terms). To allow such arbitrary distinctions into the dumping 
analysis, petitioners argue, would open the door for Mexinox to reduce 
its duty exposure simply by designating its low-priced U.S. sales as 
non-prime. Accordingly, petitioners argue that the Department should 
serve notice in its final determination that henceforth sidestrand with 
no defects must be considered prime merchandise for matching purposes. 
They also argue that to the extent the Department uses the sales by the 
Reseller, it should at a minimum reclassify as prime all of the 
Reseller's merchandise reported as seconds because verification 
revealed that most of the merchandise reported

[[Page 30813]]

as seconds was actually prime merchandise.
    Mexinox disagrees with the petitioners and urges the Department to 
accept Mexinox's classification of sidestrands as secondary on the same 
basis as any other non-prime sales made by Mexinox. For the record, 
Mexinox does not agree that only products with defects in surface 
finish or chemistry should be classified as non-prime, citing that it 
is industry practice, based on real physical differences in the 
material, to classify sidestrands as non-prime material products. 
However, Mexinox claims that the petitioners' assertion that the 
Department should treat Mexinox's sidestand sales as prime unless the 
merchandise has been shown to be defective is a hollow argument since 
Mexinox in fact only graded sidestrands as second grade if they were 
defective, and that all other sidestrands were graded and sold as prime 
grade, as confirmed at verification. Respondent emphasizes that the 
non-prime merchandise in every transaction examined by the Department 
at verification was shown to have a physical defect.
    Department's Position: With respect to the Reseller, the issue is 
moot because, as indicated above, we have applied total facts available 
to the Reseller's sales. With respect to Mexinox, we verified Mexinox's 
reporting of non-prime merchandise (including some examples of 
sidestrand non-prime merchandise) at the sales verification in SLP. We 
found no evidence that it misclassified any of its non-prime 
merchandise. See the Mexinox sales verification report, p. 8. 
Furthermore, petitioners have cited to no evidence that Mexinox 
misclassified any of its sidestrand merchandise.

Comment 15: Miscoding of Prime Merchandise

    Petitioners argue the Department should correct the miscoding of 
Mexinox's SLP stock sales by assuming that all SLP stock sales were of 
prime merchandise.
    Mexinox argues that petitioners cannot provide any evidence to 
illustrate why all SLP stock sales should be re-coded as prime 
products.
    Department's Position: Evidence on the record indicates that some 
SLP stock sales were incorrectly reported as secondary merchandise 
rather than prime merchandise. See Mexinox sales verification exhibit 
1, p. 1. However, we do not agree with petitioners that there is any 
need to assume that all SLP stock sales were prime merchandise. 
Instead, we have recoded the SLP stock sales in accordance with 
information Mexinox gave on its list of corrections on the first day of 
verification. See Mexinox sales verification exhibit 1, p. 1.

Comment 16: Duty Drawback

    Petitioners argue that the Department should disallow Mexinox's 
claimed duty drawback adjustment. They base this argument on 19 USC 
Sec. 1677a(c)(1)(B) (section 772(c)(1)(B) of the Act) which states that 
EP shall be increased by ``the amount of any import duties imposed by 
the country of exportation which have been rebated, or which have not 
been collected, by reason of exportation of the subject merchandise to 
the United States' (emphasis added). In its questionnaire response, 
Mexinox reported that ``import duties on hot-rolled stainless steel 
into Mexico are 0%.'' See Mexinox's November 17, 1998 submission, p. 
114. Petitioners state that the fee that Mexinox allegedly pays is not 
a duty, and thus should not be allowed as a drawback adjustment. They 
argue that if the Department does grant the adjustment, the reported 
adjustment should be corrected to reflect the amount that Mexinox's 
cost verification exhibit 16 demonstrates was the actual fee recorded 
by Mexinox.
    Mexinox disagrees with the petitioners' assertion that the 0.8 
percent fee paid by Mexinox is not a duty, and that the fee should thus 
not be allowed as a drawback adjustment under section 772(c)(1)(B) of 
the Act. In support of its position, Mexinox states that the U.S. 
Customs Service regulations define a duty as ``Customs duties and any 
internal revenue taxes which attach upon importation'' (19 CFR 
Sec. 101.1 (1998)). Furthermore, the questionnaire issued in this 
investigation, in defining what is to be reported as the U.S. customs 
duty, specifically includes ``the unit cost of the U.S. customs 
processing fee.'' Thus, Mexinox states, it is clearly the Department's 
practice to consider ad valorem fees such as these as duties for the 
purposes of duty drawback. Indeed, respondent states, the Mexican 
processing fee is analogous to the U.S. merchandise processing fee, 
which is considered part of U.S. duties. Moreover, Mexinox argues that 
the Department should allow its claimed duty drawback adjustment 
because such an adjustment is necessary to ensure a fair price 
comparison. Because this fee is levied only on home market sales, to 
include the fee in home market prices without adding a corresponding 
amount to the U.S. price pursuant to section 772 (c)(1)(B) of the Act 
would violate the underlying objective of fair comparisons between NV 
and U.S. price.
    Finally, Mexinox argues that petitioners erred in insinuating that 
Mexinox may have incorrectly overstated its adjustment. It states that 
the cost verification exhibit mentioned by the petitioners as 
containing an alternate standard processing fee actually relates to 
private customs brokers' fees, not the processing fees paid to the 
government.
    Department's Position: We agree with Mexinox that the customs 
processing fees at issue qualify for a duty drawback adjustment. 
Mexinox claimed this adjustment under article 49 of the Mexican Federal 
Law of Rights. See Mexinox November 17, 1998 submission, p. 25. That 
statute refers to the customs processing fee at issue here as a 
``general importation tax.'' See Mexinox sales verification exhibit 36, 
p. S3032. As an ``importation tax'' it is an import duty within the 
meaning of section 772(c)(1)(B) of the Act. Therefore, in this final 
determination, as in the Preliminary Determination, we made a duty 
drawback adjustment.
    Regarding the calculation of the adjustment, article 49 of the 
Federal Law of Rights indicates that the 0.8 percent rate that Mexinox 
used in its computation of the duty drawback adjustment was the correct 
rate. See Mexinox sales verification exhibit 36, p. S3032 and Mexinox's 
section C response, p. 73. Further, petitioners have cited to no 
information on the record to establish that the line item from cost 
verification exhibit 16 to which they refer can only be a fee paid to 
the government, and not customs brokers' fees as Mexinox asserts. In 
the absence of any evidence that Mexinox recorded its customs 
processing fees differently in its books than how it reported them to 
us in its duty drawback calculation, we have accepted Mexinox's 
calculation.

Comment 17: U.S. Brokerage

    Petitioners argue that the Department should correct Mexinox's 
reported U.S. brokerage because, due to a rounding error discovered at 
verification, Mexinox's reported U.S. brokerage expense is overstated. 
See Mexinox sales verification report at 17.
    Department's Position: We agree and have made this correction in 
this final determination.

Comment 18: Model Match

    Petitioners argue that the Department should explain for the record 
the manner in which grades have been matched (i.e., how the weights 
were assigned for the model match program). They state that the 
Department's matching should reflect an objective

[[Page 30814]]

selection process that can be applied if different grades become 
involved in any administrative review.
    Mexinox agrees that the Department should disclose the manner in 
which goods are matched in the model match program.
    Department's Position: We assigned individual weighting factors to 
reported grades provided they were recognized American Iron and Steel 
Institute (AISI) grades. We also assigned unique factors to reported 
proprietary grades or foreign grade specifications if the chemical 
content was sufficient to distinguish them from any AISI grade to which 
we already had assigned a ranking factor in our matching hierarchy 
(e.g., DIN specification 1.4462). Where a proprietary or foreign grade 
specification was similar in chemical composition to an AISI grade, we 
did not assign a unique weighting factor to that particular grade. 
Rather, we assigned it the same weight as the comparable AISI grade. We 
also did not assign unique weights to certain ``sub'' grades (e.g., 
304DDQ) because the percentage ranges of chromium, carbon, nickel, and 
molybdenum do not differ from the broader AISI grade.
    After deciding which grades to assign unique weighting factors, we 
established a linear weighting system designed to search for matches 
within the general classes of stainless steel (e.g., the chromium-
nickel series, the straight chromium (hardenable) series, and the 
straight chromium (non-hardenable) series). In addition to ensuring 
matches within the general classes or families of stainless steel, our 
weighting system is designed to match grades in the same family based 
on chemical composition. For example, within the chromium-nickel 
series, where an identical match is not possible, our preference is to 
pair grades containing molybdenum (e.g., 316, 317) with each other 
before searching for a grade with no molybdenum (e.g., 302, 304).

Comment 19: Business Proprietary Information

    Petitioners argue that the names of Mexinox's home market and U.S. 
affiliated customers should be publicly released or at least be 
released under administrative protective order (APO). In the latter 
respect, they state, there is no clear and compelling need to withhold 
the names of these affiliated parties from APO disclosure. They argue 
that the record in this investigation shows that (1) the parties in 
question are affiliated distributors and not Mexinox's customers, and 
(2) the identities of these parties are not even proprietary, but have 
long been in the public domain.
    Petitioners argue that in this investigation Mexinox's home market 
and U.S. affiliates do not constitute customers in the true sense of 
the word. Instead, they are affiliated distributors or resellers that 
form Mexinox's corporate chain of distribution. In contrast, actual 
customers are those unaffiliated companies that purchase subject 
merchandise. Petitioners argue that this distinction is especially 
clear with respect to Mexinox's activities in the United States because 
a respondent's affiliated U.S. resellers of merchandise are not 
considered bona fide customers of that respondent under the statute. 
Thus, whereas companies in the home market that purchase and consume 
foreign like product from an affiliated respondent can be treated as 
that respondent's customers if the sales are shown to have been at 
arm's-length, a respondent's affiliated parties in the United States 
are not treated as a respondent's customers, and sales by a respondent 
to its U.S. affiliated resellers are not subject to the arm's-length 
test. Therefore, petitioners argue, these U.S. affiliates are not 
customers for purposes of the statute whose identities can properly be 
withheld from disclosure.
    Mexinox argues that the Department has already considered this 
issue and issued its determination in a December 4, 1998 letter in 
which it asked Mexinox to revise its earlier filings in this proceeding 
and to provide codes for all double-bracketed U.S. and home market 
customers that were, or were argued to be, affiliated with Mexinox. 
Mexinox complied with the Department's request and resubmitted its 
questionnaire responses on December 15, 1998, with codes that represent 
the identities of the allegedly affiliated customers. Given that the 
Act expressly allows respondents to protect customer names under APO 
(without regard to whether those customer are affiliated), Mexinox 
argues, the December 15, 1998 coded responses reflect a more detailed 
response than that to which the petitioners are entitled.
    Furthermore, Mexinox argues that the petitioners' request that the 
Department order Mexinox to release the identification of all 
affiliated customers is incorrect as a matter of law. Section 
777(c)(1)(A) of the Act provides that:

    ``Customer names obtained during any investigation which 
requires a determination under section 1671d(b) or 1673d(b) of this 
title may not be disclosed by the administering authority under 
protective order until either an order is published under section 
1671e(a) or 1673e(a) of this title as a result of this investigation 
or the investigation is suspended or terminated.''

See 19 U.S.C. Sec. 1677f(c)(1)(A). Mexinox argues that there is no 
ambiguity in the language of this prohibition. There is no 
qualification, implied or express, of the right to non-disclosure of 
the word ``customer.'' Any acquiescence in petitioners'' request for 
disclosure of Mexinox's customer names by the Department, Mexinox 
argues, would therefore be contrary to the statute.
    Furthermore, Mexinox argues that petitioners' argument that 
affiliated distributors are not bona fide customers under the statute 
is patent nonsense. Even if the entities at issue were determined to be 
affiliated distributors, they are also customers, and as such fall 
squarely within the protection of section 777(c)(1)(A) of the Act. 
Mexinox states that there is no definitional provision in either the 
Act or the Department's regulations that qualifies the common 
definition of the word ``customer'' or lends support to petitioners' 
claims that affiliated companies are not ``customers'' within the 
meaning of the statute.
    Furthermore, Mexinox dismisses petitioners' circular argument that 
because the identities of Mexinox's customers are otherwise publicly 
known their identities as customers of Mexinox are not protected from 
disclosure. It states that it is not the existence of a company that is 
a customer that is protected from disclosure under 19 U.S.C. 
Sec. 1677f(c)(1)(A) of the Act, but rather the fact that the company in 
question was, or is, a customer of Mexinox.
    Finally, Mexinox argues that given the clarity of the law on the 
protection of customer names from APO disclosure, petitioners' repeated 
attempts to persuade the Department to violate the protection afforded 
to Mexinox's customers' identities under the statute approaches an 
abuse of the Department's processes. The participation of respondents 
in antidumping investigations, Mexinox states, was never intended as a 
means for petitioners to gain access to proprietary information to 
which they are not entitled. Petitioners' repeated demands that the 
Department require Mexinox to disclose its customer names, arguments 
that are not accompanied by citations to any legal authority or 
justified by any need, are not only baseless, but they have also proven 
to be extremely disruptive to the investigation procedure.
    Department's Position: We disagree with petitioners. From the onset 
of this investigation, Mexinox has not released

[[Page 30815]]

the names of its affiliates in the U.S. or home markets under APO and, 
thus, has double-bracketed the names of its affiliates. On October 13, 
1998, petitioners wrote the Department requesting that Mexinox be 
required to replace double-bracketed affiliated party names with 
affiliate codes that would permit the consistent and reliable tracking 
of affiliations throughout the investigation. On November 5, 1998, 
respondents in the SSSS from Germany, Italy, and Mexico investigations 
submitted a letter to the Department arguing that in accordance with 
section 777(c)(1)(A) of the Act, they should not be forced to disclose 
their customers to counsel for petitioners. In response, on November 
12, 1998, petitioners submitted onto the record of the SSSS from 
Germany investigation documentation which it believed supported its 
assertions that the respondent had publically released its affiliates' 
names which it had double-bracketed for the instant proceeding. 
(Petitioners submitted this same document for the record of the SSSS 
from Mexico investigation on December 11, 1998.) After a thorough 
review of the record, on December 4, 1998, the Department issued a 
letter to Mexinox stating that ``* * * we will permit the double 
bracketing of all customers in both the home market and U.S. market. We 
require however, that you code the affiliated customers in both 
markets.'' 6 On December 15, 1998, Mexinox submitted such 
coding. Further, on March 17, 1999, petitioners placed information on 
the record in support of a new argument that the identity of Mexinox's 
U.S. affiliates should be treated as public information.
---------------------------------------------------------------------------

    \6\ See Letter from Ann Sebastian, Senior APO Specialist, to 
Hogan and Hartson, December 4, 1998.
---------------------------------------------------------------------------

    Section 777(c)(1)(A) of the Act states that ``[c]ustomer names 
obtained during any investigation which requires a determination under 
section 705(b) or 735(b) may not be disclosed by the administering 
authority under protective order until either an order is published 
under section 706(a) or 736(a) as a result of an investigation or the 
investigation is suspended or terminated.'' See 19 U.S.C. 
Sec. 1677f(c)(1)(A). Further, section 351.304(a)(2)(i) of the 
Department's regulations states that the Secretary will require that 
all business proprietary information presented to, or obtained or 
generated by, the Secretary during a segment of a proceeding be 
disclosed to authorized applicants, except customer names submitted in 
an investigation.
    Based on the statute and our regulations, we have concluded that 
Mexinox was entitled to withhold from release the names of its 
customers in the U.S. or home market under APO during this proceeding. 
We agree with respondent that it is not the company name in the sense 
of the company's existence that it is protected under the statute and 
the implementing regulation. Rather, it is the relationship of a 
respondent to that company as a customer of the respondent that is the 
protected information. This is the case regardless of whether the 
company in question is a customer in the U.S. market or in the home 
market. While petitioners provided voluminous submissions arguing that 
Mexinox's affiliates' names had been available publicly during the POI, 
due to the sensitive nature of this issue we have determined that the 
documentation does not demonstrate that they were indeed customers of 
Mexinox. Requiring Mexinox to release publicly such information without 
conclusive evidence could cause potential competitive harm to Mexinox. 
Further, it is important to note that as stated above, the Department 
instituted one of the petitioners' proposed methods by requiring 
Mexinox to provide codes for its affiliates which were then made part 
of the public record. Therefore, for this final determination we have 
not altered our treatment of respondents' customers' names.

Comment 20: Customs Classification

    Petitioners argue that HTS subheading 9802.00.60 should be listed 
in the scope of the investigation. They argue that it is the 
Department's policy that antidumping duties apply to the full value of 
entries under subchapter 9802 of the HTS, covering U.S. goods exported 
and returned. To reduce the chance of errors by the U.S. Customs 
Service in implementing this policy and to ensure that full duties are 
collected, the Department, petitioners argue, should include in the 
instructions accompanying any antidumping order in this case clear 
statements that (1) subject merchandise may enter the United States 
under HTS subheading 9802.00.60 in addition to its regular HTS 
subheadings, (2) that such merchandise is covered by the order, and (3) 
that the antidumping duty deposit rate is to be applied to the full 
value of the merchandise (i.e., including the U.S. value).
    Mexinox opposes petitioners' recommendation for an amendment to the 
scope description as described above. Respondent acknowledges that it 
is possible for subject merchandise to enter under HTS 9802.00.60, but 
argues that such an amendment is more likely to create confusion and 
increase the likelihood of errors. Since any metal article from pipe to 
hubcaps that otherwise meets the requirements may be imported from 
Mexico under HTS 9802.00.60, if the Department includes this 
designation in the scope description and issues instructions to the 
U.S. Customs Service which include that tariff category, there is a 
significant risk that the Customs Service staff will inadvertently 
suspend liquidation of a whole range of non-subject articles from 
Mexico and disrupt legitimate trade.
    Respondent also questions the need for such instructions when it is 
already not disputed that (1) any subject material will be entered 
concurrently under one of the previously listed tariff numbers and 
therefore will be already appropriately ``flagged'' by Customs, and (2) 
the tariff categories in any event are not themselves dispositive--only 
the written scope description is.
    Department's Position: We agree with Mexinox that it is not 
necessary to amend the scope language on the HTS numbers under which 
subject merchandise enters. The U.S. Customs Service is aware through 
the identification system already in place that merchandise subject to 
antidumping duty orders may be entered under HTS 9802.00.60. It is also 
already aware through prior practice that the antidumping duty deposit 
rate is to be applied to the full value of the merchandise, including 
the U.S. value. As Mexinox has argued, to include petitioners' 
recommended language in the scope description and instructions to 
Customs could result in suspension of liquidation of non-subject 
merchandise. Therefore, we believe it unnecessary to amend the scope.

Issues Related to Cost

Comment 21: Major Inputs

    The following comments relate to the cost of production of inputs 
received from Krupp KTN, Acerinox S.A. (Acerinox), and AST. (Both AST 
and KTN cost verification exhibits were submitted to the record for 
SSSS from Mexico on May 13, 1999.) Each of these companies provided 
black band and white band to Mexinox which is an input used in the 
production of subject merchandise. Both petitioners and the respondent 
provided comments on the proper treatment of the cost of these inputs.
    (a) Arm's-length transfer prices.
    Mexinox maintains that the transfer prices from affiliated parties 
KTN and

[[Page 30816]]

AST represent arm's-length prices and should be accepted by the 
Department.
    Petitioners state that the transfer prices from affiliated parties 
do not represent arm's-length prices and the Department should apply 
its major input rule in valuing the inputs from affiliates.
    Department's Position: We agree with petitioners that the reported 
transfer prices for these inputs between Mexinox and its affiliated 
suppliers were below market prices. Therefore, in accordance with 
section 773(f)(2) of the Act, we have used the higher of transfer price 
or market price in valuing these inputs.
    (b) Inputs from Acerinox.
    Petitioners state that Mexinox failed to report the actual COP data 
for inputs obtained from its affiliate Acerinox. Therefore, petitioners 
claim that the Department should resort to facts available to value 
these inputs and apply an adverse inference.
    Mexinox states that it should not be penalized for its inability to 
obtain COP data from Acerinox.
    Department's Position: We agree with the petitioners, in part, that 
the value of inputs received from Acerinox should be adjusted. While 
Mexinox was unable to supply the COP of this input, we do not consider 
purchases from Acerinox to be a major input in accordance with section 
773(F)(3) of the Act due to the insignificant quantity obtained from 
Acerinox. For the final determination we have adjusted Acerinox's 
transfer price to reflect the higher market price in accordance with 
section 773(f)(2) of the Act.
    (c) Inputs from KTN.
    Petitioners argue that the reported COP for inputs obtained from 
KTN could not be substantiated. In calculating the COP of the inputs 
obtained from KTN, petitioners argue that the Department should adjust 
KTN's financial expense factor to include total foreign exchange losses 
and exclude total foreign exchange gains. Regarding G&A included in the 
COP of the inputs obtained from KTN, petitioners state that Mexinox has 
not supported its position that international project expenses and 
year-end adjustment for pensions and social expenses and accruals for 
legal liabilities were properly excluded from KTN's G&A expenses. 
Petitioners argue that these should be included in KTN's G&A ratio 
because these costs are recognized in KTN's financial statements.
    Mexinox argues that the Department should not adjust KTN's 
financial expense factor to include foreign exchange losses and exclude 
total foreign exchange gains in calculating the COP of the inputs 
obtained from KTN. Mexinox states that it was cooperative and acted to 
the best of its ability to provide the information requested and that 
the Department should not make an adverse inference and exclude the 
exchange gains. Regarding G&A included in the COP of the inputs 
obtained from KTN, Mexinox argues that no adjustment should be made for 
international project expenses because these expenses are not related 
to the production and sale of subject merchandise. Mexinox argues that 
the accrual of severance payments was made for the anticipated 
downsizing of the company, but that these personnel are still employed 
and no severance payments have been made. Therefore, it argues, these 
expenses should also be excluded from KTN's G&A.
    Additionally, Mexinox argues that its allocation of KTN's G&A (used 
in calculating KTN's COP) based on processing costs is correct. It 
maintains that the Department's regulations authorize discretion 
regarding allocation methods. See, e.g., Notice of Final Determination 
of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel 
Plate From South Africa, 62 FR 61731, 61736 (November 19, 1997). 
Mexinox argues that allocating G&A expenses based on total cost of 
manufacturing (COM) would overstate the per-ton G&A of control numbers 
(CONNUMs) with high COMs. Mexinox argues that the G&A activities 
performed by KTN for each category of merchandise is the same for each 
ton of steel and do not vary with the steel grade. However, they argue 
that it is reasonable to assign a higher G&A cost to a product that 
undergoes more processing.
    Department's Position: We agree with the petitioners that the COP 
and CV for KTN are incorrect and require adjustment. In calculating the 
COP of the inputs received from KTN, we adjusted the submitted input 
cost to reflect KTN's adjustments to G&A. With regard to G&A included 
in the COP of the major input, we agree with petitioners that the costs 
associated with international projects and year-end adjustments should 
be included in the G&A because they relate to the operations of the 
company as a whole. Since emerging international projects are a normal 
part of KTN's business, we have included the related costs in KTN's G&A 
expense ratio calculation. Throughout the investigation we received 
conflicting reports as to the nature of the year-end adjustments. At 
verification we determined that the majority of KTN's year-end 
adjustments were for severance accruals. We consider severance costs to 
be expenses that relate to the general operation of a company as a 
whole and they directly affect the KTN world wide manufacturing scheme. 
By setting up a severance accrual, KTN is reasonably certain that it 
will make severance payments for workers currently employed by the 
company in the near future. These costs were recognized during the 
current year and directly relate to the company's current employees. 
Accordingly, we consider it appropriate to include these year-end 
adjustments in KTN's G&A calculation.
    We disagree with petitioners' assertion regarding the financial 
expenses in the COP of the major inputs. Because all three entities are 
members of the same consolidated group, Fried. Krupp, we did not 
include the financial expenses in the COP of the inputs. If we included 
financial expenses in the COP build-up of the input and again in the 
COP or CV of the subject merchandise, we would double-count the 
financial expenses.
    We agree with petitioners that KTN's G&A expenses should be 
allocated as a percentage of the total COM, as opposed to KTN's 
assertion that they should be allocated as a percentage of processing 
costs. As set forth in the Department's Final Determination: Certain 
Carbon and Steel Wire Rod from Canada, 59 FR 18791, 18795 (April 20, 
1994) and 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, 38149 (July 23, 1996) our normal 
method for allocating G&A expenses is to apply these types of costs as 
a percentage of total manufacturing cost (i.e., materials, labor and 
overhead). We use this method in recognition of the fact that G&A 
expenses consist of a wide range of costs which are indirectly related 
to the production process and that any allocation based on a single 
factor (e.g., processing costs) is purely speculative. The Department's 
normal method for allocating G&A costs based on the total manufacturing 
cost takes into account all production factors (i.e., materials, labor, 
and overhead) rather than a single arbitrarily chosen factor. By 
consistently allocating G&A over the total manufacturing costs, the 
Department attempts to minimize discriminatory cost allocations. In 
addition, G&A expenses are period costs, not product costs, and, as 
such, they should be spread proportionately over all merchandise 
produced in the period. By computing G&A based on a percentage of total 
manufacturing costs, a product absorbs the same proportional amount

[[Page 30817]]

of G&A expenses relative to its total cost. Therefore, this method 
avoids distortions to the price or cost analysis that would result if 
lower-cost products are overburdened with a higher percentage of 
processing costs.
    (d) Inputs from AST.
    Mexinox argues that the Department's claim that there was a 
discrepancy between the variable COM reported by AST for a particular 
grade of material (see Mexinox cost verification report, p. 22) is 
incorrect. Additionally, Mexinox states that the Department's claim, 
that AST's ``variable COM percentage of standard'' and the ``fixed 
overhead percentage of DirLab and VOH'' could not be supported (see 
Mexinox cost verification report, p. 22), is not valid. Mexinox states 
that it provided the support for the information in materials which, 
though presented to the Department at the cost verification, were not 
taken as exhibits.
    Petitioners argue that the worksheet Mexinox included in its case 
brief (which Mexinox claims was presented at the verification) 
constitutes new, untimely information in violation of the Department's 
regulations, and it should be removed from the record. Moreover, they 
argue that the Department must uphold the principle that it, as 
arbiter, decides what information is to be included in the record and 
what conclusions are to be made following verification.
    Department's Position: We determined that there was no discrepancy 
between the variable COM reported by AST at verification and the 
January 7, 1999 data submitted by Mexinox. Furthermore, we determined 
that the worksheet Mexinox used in support of its position does not 
constitute new, untimely information because all of the information 
contained in the worksheet can be linked to page S3883 of verification 
exhibit 33.
    (e) Equalized costs.
    Petitioners argue that the Department should reject Mexinox's 
contention that hot-band prices should be ``equalized'' to account for 
alleged differences in market conditions, and should continue to rely 
on the per-unit material costs recorded in Mexinox's accounting 
records. Petitioners state that Certain Porcelain-on-Steel Cookware 
from Mexico: Final Results of Antidumping Duty Administrative Review, 
62 FR 42496, 42508 (August 7, 1997), (POS Cookware from Mexico), cited 
by Mexinox in support of its position, involved a comparison of the 
affiliated supplier's price to the respondents and to unaffiliated 
customers. Petitioners argue that in this case Mexinox did not provide 
this analysis for KTN, AST, and Acerinox.
    Mexinox argues that if the Department decides to adjust Mexinox's 
material costs based on the major input rule, the Department should use 
``equalized'' prices. According to Mexinox, using ``equalized'' prices 
is consistent with POS Cookware from Mexico.
    Department's Position: We agree with Mexinox that an equalization 
adjustment should be applied in order to perform adequately a fair 
price comparison. That is, in making the comparison of transfer price 
to market price, we adjusted for differences in the specifics of the 
transactions between the affiliated and unaffiliated suppliers.
    (f) COP for black band.
    Petitioners argue that Mexinox failed to report the COP for one 
grade of black band from KTN.
    Mexinox states that it did not withhold relevant cost information 
for one grade of black band. Mexinox states that it did not report this 
data because it did not purchase that particular grade of black band 
from KTN during the POI.
    Department's Position: We found that Mexinox did not withhold 
relevant cost information for one grade of black band as alleged by the 
petitioners. Mexinox did not report this data because it did not 
purchase that particular grade of black band from affiliates during the 
POI.

Comment 22: Consulting Fees

    Petitioners argue that Mexinox should increase its G&A expenses to 
include the administrative, consulting, and technical assistance 
provided by KTN.
    Mexinox states that the KTN consulting fees are already included in 
Mexinox's reported G&A expenses. Accordingly, Mexinox argues that, if 
the Department accepts the petitioners' proposal, expenses would be 
double-counted.
    Department's Position: We agree with Mexinox that the consulting 
fees were included in Mexinox's reported G&A, and as a result no 
adjustment is necessary.

Comment 23: Depreciation

    Petitioners argue that Mexinox understated its depreciation 
expenses. They state that Mexinox's 1997 financial statement indicates 
that Mexinox revised its method of valuing assets and the estimated 
useful lives of assets during 1997. As a result, petitioners contend 
that the Department should apply the 1996 depreciation amount for the 
POI depreciation. Additionally, petitioners argue that if the 
Department excludes depreciation attributable to Tuberias ASPE from the 
numerator of the depreciation expense rate, the corresponding 
``transformation expenses'' must also be removed from the denominator 
to ensure that the ratio is correct.
    Mexinox argues that it did not under-report depreciation. It states 
that the petitioners were comparing the accumulated depreciation by 
year-end 1996 to the depreciation for 1997. Mexinox further argues that 
its reported depreciation is slightly overstated because it includes 
the depreciation for equipment located at Tuberias ASPE in its total 
depreciation amount.
    Department's Position: We agree with Mexinox that its depreciation 
was reported correctly.
    Petitioners were comparing the accumulated depreciation amounts, 
rather than the depreciation expense for 1996, to the depreciation for 
1997. We disagree with petitioners' assessment that Mexinox changed the 
useful lives of assets and its method of valuing the assets. The 
footnote to the financial statements which petitioners referenced 
indicated that Mexican generally accepted accounting principles (GAAP) 
changed with respect to the method required to revalue assets to 
reflect the effects of inflation. It was not a change in the valuation 
of the assets. The change was to allow the application of an index 
rather than to require companies to have all assets appraised. We note 
that the footnote indicated that the prescribed GAAP method to 
determine the useful lives of assets changed as well. However, the 
useful life change is a prospective change and does not affect the 
useful lives of the assets already in service. Therefore, there is no 
need to adjust the reported depreciation.

Comment 24: Sludge Clean-up

    Petitioners argue that reported costs should be increased by the 
amount accrued for the clean-up of old sludge. They argue that in its 
financial statements Mexinox spreads the cost of the sludge clean-up 
over three years, and the fact that the 1997 expense was accrued to 
adjust prior years' accruals is no reason to ignore the 1997 expense. 
Petitioners therefore contend that the increase in the 1997 accrual 
should be included in Mexinox's reported costs. Petitioners argue that 
the Department normally includes accrued amounts recognized in the 
financial statements in general corporate expenses as it did in the 
Final Determination of Sales at Less Than Fair Value: Fresh Atlantic 
Salmon From Chile, 63 FR 31411, 31425 (June 9, 1998) (Salmon from 
Chile). Petitioners argue that Mexinox did not retroactively charge the 
sludge clean-up

[[Page 30818]]

expenses to periods dating back to 1978 but instead recorded a reserve 
shown in the 1996 financial statements and subsequent periods. 
Therefore, according to the petitioners, the increase to the reserve 
account which was recorded during the POI must be included in the G&A 
even if Mexinox did not spend the full amount.
    Mexinox claims that there is no basis for an adjustment to the 
reported sludge clean-up costs. According to Mexinox, it properly 
excluded from the reported costs the increase in the reserve account 
shown on the income statement because the amount is a provision and not 
a period expense. Mexinox asserts that all clean-up expenses for 
current sludge generated were included in the reported costs. It argues 
that the increase in the reserve for clean-up is not an expense that 
was incurred during the POI, but instead is an accounting provision 
booked at the end of 1997 to account for the revised estimate of the 
clean-up expenses.
    Department's Position: We agree with petitioners. These expenses 
relate to the clean-up of sludge generated from 1978 through the 
present time. Mexinox set up a reserve in 1996 to account for the 
sludge clean-up. Reserve accounting dictates that amounts expended for 
the clean-up are offset to the reserve account but not recognized as an 
expense during the year. Periodically, the reserve is replenished with 
any increase recognized as an expense on the income statement during 
the year. This expense amount is a period cost which is properly 
included in G&A expenses.

Comment 25: Inventory Reconciliation

    Petitioners argue that the COM should be adjusted to reflect the 
average difference between the reported COM and the value recorded in 
Mexinox's inventory system.
    Mexinox argues that the COM should not be adjusted to reflect this 
difference. Mexinox argues that comparisons between inventory values 
and reported cost are not meaningful because its inventory system is 
less product-specific than the reported costs.
    Department's Position: We agree with Mexinox and have not adjusted 
the COM for the difference between the reported values and the 
inventory value. Values in Mexinox's inventory are less specific than 
the amounts reported to the Department. The amounts in the inventory 
system are for groups of products while the reported values are 
specific to the product characteristics designated by the Department.

Comment 26: Scrap Revenue

    Petitioners state that Mexinox reported material costs net of scrap 
revenue and that it is the Department's practice to apply scrap revenue 
as an offset to G&A expenses.
    Mexinox states that its scrap revenue was properly applied as an 
offset to material costs. Mexinox argues that scrap is generated from 
direct materials, a component of COM. Therefore, the revenue generated 
should be used to offset COM.
    Department's Position: We agree with Mexinox. Mexinox only included 
the scrap generated from the production of subject merchandise as a 
reduction of the direct materials costs. This is consistent with the 
Department's normal practice. See, e.g., Notice of Final Determination 
of Sales at Less Than Fair Value: Collated Roofing Nails From Taiwan, 
62 FR 51427, 51431 (October 1, 1997).

Comment 27: Expenses Incurred on Behalf of Subsidiaries

    Mexinox argues that the Department should not include expenses it 
incurred on behalf of its subsidiaries in the G&A expense ratio. 
According to Mexinox, these expenses are properly classified as selling 
expenses because they are the salaries and employee benefits for 
personnel that were employed at Mexinox's sales subsidiaries.
    Department's Position: We agree with Mexinox that the expenses 
incurred on behalf of the selling subsidiaries should not be included 
in the calculation of the G&A expense ratio. In this final 
determination we have removed them from the computation of total G&A 
expenses.

Comment 28: Financial Expense

    Mexinox states that the Department should allow exchange gains to 
offset exchange losses even though it was unable to substantiate the 
exchange gains. Mexinox states that if the Department disallows its 
exchange gains because Mexinox could not substantiate the amounts on 
the submitted schedule, it would amount to the application of adverse 
facts available when it was cooperative and acted to the best of its 
ability.
    In addition, Mexinox also states that short-term interest income 
should be allowed as an offset to financial expenses. Mexinox maintains 
that at verification the Department found sufficient evidence to 
distinguish between short-term and long-term interest on Fried. Krupp's 
1997 consolidated financial statements.
    Petitioners state that since the Department was unable to reconcile 
the schedule of foreign exchange gains and losses to the audited 
financials of Fried. Krupp it should include total foreign exchange 
losses and exclude the total foreign exchange gains in calculating the 
net financial expenses.
    Department's Position: We agree with petitioners and Mexinox, in 
part. The Department requested in two questionnaires and again at 
verification that Mexinox provide information to support the inclusion 
of Fried. Krupp's exchange gains and exclusion of its exchange losses 
from the interest expense computation. Mexinox, however, failed to 
provide any supporting information. Mexinox has the ability and 
responsibility to support its claim for the inclusion of these exchange 
gains or the exclusion of the exchange losses. Thus, we agree with 
petitioners that since Mexinox failed to provide support to justify the 
inclusion of Fried. Krupp's exchange rate gains and the exclusion of 
its exchange rate losses from the financial expense ratio calculation, 
we should include Fried. Krupp's exchange rate losses but exclude its 
exchange rate gains from the financial expense ratio calculation. We 
have done so in this final determination.
    We agree with Mexinox that, based on our findings at verification, 
the interest income used as an offset to financial expenses was 
appropriately classified as short-term. Fried. Krupp's 1997 
consolidated financial statement does distinguish between interest 
earned from long-term financial assets and short-term assets. 
Accordingly, we included this interest income earned from short-term 
assets, less the amounts relating to trade receivables, as an offset to 
financial expenses.

Comment 29: Allocation Base for G&A Expenses

    Mexinox argues that it should be allowed to allocate its G&A based 
on processing costs because the regulations allow the Department some 
discretion in determining appropriate allocation bases. Mexinox argues 
that allocating G&A expenses based on total COM would overstate the 
per-ton G&A of CONNUMs with high COMs. Mexinox argues that the G&A 
activities performed by Mexinox for each category of merchandise is the 
same for each ton of steel and do not vary with the steel grade. 
However, it argues that it was reasonable to assign a higher G&A cost 
to a product that undergoes more processing.
    Petitioners assert that the Department should follow its normal 
practice of allocating G&A expenses on the basis of cost of sales. They 
state that while they do not dispute Mexinox's contention

[[Page 30819]]

that regulatory discretion exists in this area, such discretion is 
conferred on the Department rather than a respondent.
    Department's Position: We agree with petitioners. The Department's 
normal method, as set forth in Large Newspaper Printing Presses and 
Components Thereof, Whether Assembled or Unassembled, From Japan; Final 
Determination of Sales at Less Than Fair Value, 61 FR 38139, 38150 
(July 23, 1996), allocates G&A expenses based on cost of sales. We use 
this method in recognition of the fact that the G&A expense category 
consists of a wide range of different types of costs which are so 
unrelated or indirectly related to the immediate production process 
that any allocation based on a single factor (e.g., head counts, fixed 
costs, or transformation costs) is purely speculative. The Department's 
normal method for allocating G&A costs based on cost of sales takes 
into account all production factors. Therefore, for this final 
determination we have allocated G&A based on the total manufacturing 
costs.

Comment 30: Yield Ratio

    Petitioners argue that Mexinox's U.S. Reseller incorrectly 
calculated its scrap yield ratio. The amount of further processed 
stainless steel used as the denominator in determining the yield ratio 
includes both internally processed and externally processed stainless 
steel. Petitioners assert that the numerator of stainless steel scrap 
sold appears to relate only to internally processed stainless steel; 
thus, the denominator should only include internally processed 
stainless steel. This would result in a higher scrap yield ratio to be 
applied to internally processed products. Mexinox did not address the 
inclusion of externally processed stainless steel in the scrap ratio 
denominator.
    Department's Position: Because we have determined it appropriate to 
resort to total facts available for sales by the Reseller, this issue 
is moot.

Comment 31: Outside Processing Costs

    Petitioners argue that outside processing costs of slitting and 
finishing applicable to the Reseller could not be verified. Petitioners 
state that the Reseller failed to show that the percentage used to the 
allocate costs for processors of all materials reasonably reflects the 
true amounts of outside processing. Also, petitioners claim that 
because the Department found that the management reports used to 
establish the calculated processing costs were understated in 
comparison to the financial accounting records, and the invoices 
sampled indicated a further understatement of costs, the management 
report used for the submission is unreliable and unverifiable.
    Mexinox maintains that the information necessary to directly 
identify the specific portion of charges from combined processors that 
related to stainless steel alone was not available in the Reseller's 
computer system; thus, it is simply not possible to specifically 
identify those costs. Additionally, Mexinox argues that the combined 
processors at issue represent a small minority of the total outside 
processing expenses. Mexinox contends that the method used to allocate 
the combined processors was reasonable because it reflected the 
Reseller's actual experience with respect to the proportion of 
stainless and non-stainless materials taken from its stock that 
required further processing. The Reseller claims the financial 
accounting system used in the comparison was not available until 
January 1998; thus, the management reports used for reporting purposes 
were the only available source of information on processor-specific 
outside processing costs covering the entire POI. Additionally, the 
discrepancies noted by the Department were isolated and would average 
out over the entire POI. Furthermore, a sample of only one month is not 
reflective of the costs reported for the entire POI.
    Department's Position: Because we have determined it appropriate to 
resort to total facts available for sales to the Reseller, this issue 
is moot.

Comment 32: Financial Statements

    Petitioners assert that the review of the Reseller's financial 
statements by outside auditors showed serious discrepancies. The 
outside auditors discovered that cost of sales as recorded by the 
reseller were overstated, net SG&A expenses were understated, and 
interest expenses were understated.
    Mexinox's affiliate argues that the financial statements prepared 
by outside auditors were created to put the Reseller's accounts into a 
pre-determined format conforming to the further manufacturer's parent 
company for purposes of consolidation. Mexinox states that the 
reclassifications had nothing to do with correcting information or 
conforming internal statements to GAAP.
    Department's Position: Because we have determined it appropriate to 
resort to total facts available for sales to the Reseller, this issue 
is moot.

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Act, we are 
directing the U.S. Customs Service to continue to suspend liquidation 
of all imports of subject merchandise that are entered, or withdrawn 
from warehouse, for consumption on or after January 4, 1999, the date 
of publication of the Preliminary Determination in the Federal 
Register.
    We will instruct the U.S. Customs Service to require a cash deposit 
or the posting of a bond equal to the weighted-average amount by which 
the NV exceeds the EP or CEP as indicated below. These suspension-of-
liquidation instructions will remain in effect until further notice. 
The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                             Weighted-
                  Exporter/manufacturer                   average margin
                                                           (percentage)
------------------------------------------------------------------------
Mexinox.................................................           30.86
All Others..............................................           30.86
------------------------------------------------------------------------

International Trade Commission Notification

    In accordance with section 735(d) of the Act, we have notified the 
International Trade Commission (the Commission) of our determination. 
As our final determination is affirmative, the Commission will 
determine within 45 days after our final determination whether imports 
of stainless steel sheet and strip from Mexico are materially injuring, 
or threaten material injury to, the U.S. industry. If the Commission 
determines that material injury, or threat thereof, does not exist, the 
proceeding will be terminated and all securities posted will be 
refunded or canceled. If the Commission 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 
section 735(d) and 777(i)(1) of the Act.

    Dated: May 19, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-13678 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P