[Federal Register Volume 64, Number 137 (Monday, July 19, 1999)]
[Notices]
[Pages 38756-38792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18225]



[[Page 38756]]

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DEPARTMENT OF COMMERCE

International Trade Administration
[A-351-828]


Notice of Final Determination of Sales at Less Than Fair Value; 
Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From 
Brazil

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

ACTION: Notice of final determination of sales at less than fair value.

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EFFECTIVE DATE: July 19, 1999.

FOR FURTHER INFORMATION, CONTACT: Maureen McPhillips at 202-482-0193 
for CSN, Barbara Chaves at 202-482-0414 or Samantha Denenberg at 202-
482-1386 for USIMINAS/COSIPA, or Linda Ludwig at 202-482-3833, 
Antidumping and Countervailing Duty Enforcement Group III, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 
20230.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (the Act), are 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 (1999).

Final Determination

    We determine that certain hot-rolled flat-rolled carbon-quality 
steel products (hot-rolled steel) from Brazil are being, or are 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.

Case History

    We published in the Federal Register the preliminary determination 
in this investigation on February 19, 1999. See Notice of Preliminary 
Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled 
Carbon-Quality Steel Products from Brazil, 64 FR 8299 (Feb. 19, 1999) 
(Preliminary Determination). Since the publication of the Preliminary 
Determination the following events have occurred:
    The respondents in this investigation: Companhia Siderurgica 
Nacional (CSN); Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS); 
and Companhia Siderurgica Paulista (COSIPA) requested postponement of 
the final determination in accordance with Section 735(a)(2) of the Act 
on February 2, 1999. Accordingly, we postponed the final determination 
in this investigation on February 18, 1999 for 30 days. See 
Postponement of Final Determination of Antidumping and Countervailing 
Duty Investigations of Hot-Rolled Flat-Rolled Carbon-Quality Steel 
Products from Brazil, 64 FR 9475 (February 26, 1999).
    The Department verified sections A (General Information), B (Home 
Market Sales) and C (U.S. Sales) of CSN's responses on March 8 through 
March 12, 1999. The Department verified section D (Cost) of CSN's 
response on March 15 through March 19, 1999. These verifications were 
performed at CSN's production facility in Volta Redonda. See Memorandum 
to the File; ``Sales Verification Report of Companhia Siderurgica 
Nacional (CSN),'' April 7, 1999, (CSN's Sales Verification Report) and 
Memorandum to Neal Halper, Acting Director, Office of Accounting; 
``Verification of the Cost of Production and Constructed Value Data--
CSN,'' April 7, 1999, (CSN's 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.
    The Department verified sections A-C of USIMINAS' responses on 
March 15 through March 20, 1999 at USIMINAS' corporate headquarters in 
Belo Horizonte and its production facility in Ipatinga, Brazil. The 
Department verified section D of USIMINAS' response on March 22 through 
March 26, 1999 at USIMINAS'' production facility in Ipatinga, Brazil. 
See Memorandum For the File; ``Sales Verification of Sections A-C 
Questionnaire Responses Submitted by Usinas Siderurgicas de Minas 
Gerais, S.A. (USIMINAS),'' April 9, 1999 (USIMINAS' Sales Verification 
Report) and Memorandum to Neal Halper, Acting Director, Office of 
Accounting; ``Verification of the Cost of Production and Constructed 
Value Data--USIMINAS,'' April 9, 1999 (USIMINAS' Cost Verification 
Report).
    The Department verified section D of COSIPA's response on March 15 
through March 19, 1999 at COSIPA's production facility in Cubatao, 
Brazil. The Department verified sections A-C of COSIPA's responses on 
March 22 through March 27, 1999 at COSIPA's production facility in 
Cubatao, Brazil. See Memorandum to Neal Halper, Acting Director, Office 
of Accounting; ``Verification of the Cost of Production and Constructed 
Value Submissions of Companhia Siderurgica Paulista,'' April 8, 1999 
(COSIPA's Cost Verification Report) and Memorandum For the File; 
``Sales Verification of Sections A-C Questionnaire Responses Submitted 
by Companhia Siderurgica Paulista (COSIPA),'' April 9, 1999 (COSIPA's 
Sales Verification Report).
    On March 22, 1999, CSN, USIMINAS, and COSIPA (respondents) 
requested a public hearing in this case. California Steel Industries, 
Gallatin Steel Company, Geneva Steel, Gulf States Steel, Inc., IPSCO 
Steel Inc., Steel Dynamics, Inc., Weirton Steel Corporation, Bethlehem 
Steel Corporation, U.S. Steel Group, a unit of USX Corporation, Ispat 
Inland Steel, LTV Steel Company, Inc., National Steel Corporation, 
Independent Steelworkers Union, and United Steelworkers of America 
(petitioners) also requested a public hearing on March 22, 1999. On 
April 16, 1999, petitioners and respondents in this investigation filed 
case briefs. We received rebuttal briefs from petitioners and 
respondents on April 26, 1999. On April 22, 1999, the Department sent a 
request to USIMINAS and COSIPA to report further information identified 
at the verifications. The Department received this information on April 
28, 1999.
    In addition, on April 15, 1999, General Motors Corporation (``GM'') 
requested a scope exclusion for hot-rolled carbon steel that both meets 
the standards of SAE J2329 Grade 2 and is of a gauge thinner than 2 mm 
with a 2.5 percent maximum tolerance. On April 22, 1999, the 
petitioners requested that certain ASTM A570-50 grade steel be excluded 
from the investigation. For a more detailed discussion of scope issues, 
please see Scope Amendments Memorandum (April 28, 1999).
    On May 5, 1999, the respondents and counsel for petitioners 
withdrew requests for a hearing, and therefore, there was no hearing 
for in this investigation. On, May 6, 1999, the Department published 
Postponement of Final Determination of Antidumping and Countervailing 
Duty Investigations of Hot-Rolled Flat-Rolled Carbon-Quality Steel from 
Brazil, 64 FR 24321, further extending the deadline for this 
investigation.

Scope of the Investigation

    For purposes of this investigation, the products covered are 
certain hot-rolled flat-rolled carbon-quality steel products of a 
rectangular shape, of a width of 0.5 inch or greater, neither clad, 
plated, nor coated with metal and whether or not painted, varnished, or 
coated with plastics or other non-metallic

[[Page 38757]]

substances, in coils (whether or not in successively superimposed 
layers) regardless of thickness, and in straight lengths, of a 
thickness less than 4.75 mm and of a width measuring at least 10 times 
the thickness. Universal mill plate (i.e., flat-rolled products rolled 
on four faces or in a closed box pass, of a width exceeding 150 mm, but 
not exceeding 1250 mm and of a thickness of not less than 4 mm, not in 
coils and without patterns in relief) of a thickness not less than 4.0 
mm is not included within the scope of these investigations.
    Specifically included in this scope are vacuum degassed, fully 
stabilized (commonly referred to as interstitial-free (``IF'')) steels, 
high strength low alloy (``HSLA'') steels, and the substrate for motor 
lamination steels. IF steels are recognized as low carbon steels with 
micro-alloying levels of elements such as titanium and/or niobium added 
to stabilize carbon and nitrogen elements. HSLA steels are recognized 
as steels with micro-alloying levels of elements such as chromium, 
copper, niobium, titanium, vanadium, and molybdenum. The substrate for 
motor lamination steels contains micro-alloying levels of elements such 
as silicon and aluminum.
    Steel products to be included in the scope of this investigation, 
regardless of HTSUS definitions, are products in which: (1) Iron 
predominates, by weight, over each of the other contained elements; (2) 
the carbon content is 2 percent or less, by weight; and (3) none of the 
elements listed below exceeds the quantity, by weight, respectively 
indicated:

1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.012 percent of boron, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent of zirconium.

    All products that meet the physical and chemical description 
provided above are within the scope of this investigation unless 
otherwise excluded. The following products, by way of example, are 
outside and/or specifically excluded from the scope of this 
investigation:
     Alloy hot-rolled steel products in which at least one of 
the chemical elements exceeds those listed above (including e.g., ASTM 
specifications A543, A387, A514, A517, and A506).
     SAE/AISI grades of series 2300 and higher.
     Ball bearing steels, as defined in the HTSUS.
     Tool steels, as defined in the HTSUS.
     Silico-manganese (as defined in the HTSUS) or silicon 
electrical steel with a silicon level exceeding 1.50 percent.
     ASTM specifications A710 and A736.
     USS Abrasion-resistant steels (USS AR 400, USS AR 500).
     Hot-rolled steel coil which meets the following chemical, 
physical and mechanical specifications:

--------------------------------------------------------------------------------------------------------------------------------------------------------
              C                       Mn                 P                 S                Si                Cr               Cu               Ni
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.10-0.14%...................  0.90% Max.......  0.025% Max......  0.005% Max......  0.30-0.50%......  0.50-0.70%.....  0.20-0.40%.....  0.20% Max.
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Width = 44.80 inches maximum; Thickness = 0.063--0.198 inches;
Yield Strength = 50,000 ksi minimum; Tensile Strength = 70,000--88,000 
psi.

     Hot-rolled steel coil which meets the following chemical, 
physical and mechanical specifications:

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                C                         Mn                   P                   S                  Si                  Cr                  Cu                  Ni                  Mo
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.10-0.16%......................  0.70-0.90%........  0.025% Max........  0.006% Max........  0.30-0.50%........  0.50-0.70%........  0.25% Max.........  0.20% Max.........  0.21% Max
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi 
Aim.

     Hot-rolled steel coil which meets the following chemical, 
physical and mechanical specifications:

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
               C                       Mn                 P                 S                Si                Cr                Cu                Ni              V(wt.)              Cb
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.10--0.14%...................  1.30-1.80%......  0.025% Max......  0.005% Max......  0.30-0.50%......  0.50-0.70%......  0.20-0.40%......  0.20% Max.......  0.10 Max........  0.08% Max
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi 
Aim.
Hot-rolled steel coil which meets the following chemical, physical and 
mechanical specifications:

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                C                         Mn                   P                   S                  Si                  Cr                  Cu                  Ni                  Nb                  Ca                  Al
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.15% Max.......................  1.40% Max.........  0.025% Max........  0.010% Max........  0.50% Max.........  1.00% Max.........  0.50% Max.........  0.20% Max.........  0.005% Min........  Treated...........  0.01-0.07%.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Width = 39.37 inches; Thickness = 0.181 inches maximum;
Yield Strength = 70,000 psi minimum for thicknesses 0.148 
inches and 65,000 psi minimum for thicknesses >0.148 inches; Tensile 
Strength = 80,000 psi minimum.

     Hot-rolled dual phase steel, phase-hardened, primarily 
with a ferritic-martensitic microstructure, contains 0.9 percent up to 
and including 1.5 percent

[[Page 38758]]

silicon by weight, further characterized by either (i) tensile strength 
between 540 N/mm \2\ and 640 N/mm \2\ and an elongation percentage 
26 percent for thicknesses of 2 mm and above, or (ii) a 
tensile strength between 590 N/mm \2\ and 690 N/mm \2\ and an 
elongation percentage 25 percent for thicknesses of 2mm and 
above.
     Hot-rolled bearing quality steel, SAE grade 1050, in 
coils, with an inclusion rating of 1.0 maximum per ASTM E 45, Method A, 
with excellent surface quality and chemistry restrictions as follows: 
0.012 percent maximum phosphorus, 0.015 percent maximum sulfur, and 
0.20 percent maximum residuals including 0.15 percent maximum chromium.
     Grade ASTM A570-50 hot-rolled steel sheet in coils or cut 
lengths, width of 74 inches (nominal, within ASTM tolerances), 
thickness of 11 gauge (0.119 inch nominal), mill edge and skin passed, 
with a minimum copper content of 0.20%.
    The merchandise subject to these investigations is classified in 
the Harmonized Tariff Schedule of the United States (``HTSUS'') at 
subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00, 
7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60, 
7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60, 
7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30, 
7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90, 
7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00, 
7208.90.00.00, 7210.70.30.00, 7210.90.90.00, 7211.14.00.30, 
7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00, 
7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60, 
7211.19.75.90, 7212.40.10.00, 7212.40.50.00, 7212.50.00.00. Certain 
hot-rolled flat-rolled carbon-quality steel covered by this 
investigation, including: Vacuum degassed, fully stabilized; high 
strength low alloy; and the substrate for motor lamination steel may 
also enter under the following tariff numbers: 7225.11.00.00, 
7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00, 
7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60, 
7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00, 
7226.91.80.00, and 7226.99.00.00. Although the HTSUS subheadings are 
provided for convenience and Customs purposes, the written description 
of the merchandise under investigation is dispositive.

Period of Investigation

    The period of investigation (POI) is July 1, 1997 through June 30, 
1998.

Facts Available

    Section 776(a)(2) of the Act provides that ``if an interested party 
or any other person--(A) withholds information that has been requested 
by the administering authority; (B) fails to provide such information 
by the deadlines for the submission of the information or in the form 
and manner requested, subject to subsections (c)(1) and (e) of section 
782; (C) significantly impedes a proceeding under this title; or (D) 
provides such information but the information cannot be verified as 
provided in section 782(i), the administering authority shall, subject 
to section 782(d), use the facts otherwise available in reaching the 
applicable determination under this title.''
    The statute requires that certain conditions be met before the 
Department may resort 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.
    In addition, section 776(b) of the Act provides that, if the 
Department finds that an interested party ``has failed to cooperate by 
not acting to the best of its ability to comply with a request for 
information,'' the Department may use information that is adverse to 
the interests of the party as the facts otherwise available. 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.'' See Statement of Administrative Action (SAA) accompanying the 
URAA, H.R. Doc. No. 316, 103d Cong. 2nd Sess. (1994), at 870. 
Furthermore, ``an affirmative finding of bad faith on the part of the 
respondent is not required before the Department may make an adverse 
inference.'' Final Rule, 62 FR at 27340. The statute notes, in 
addition, 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.

CSN

    We are applying adverse facts available where the criteria laid out 
in section 776(a)(2) of the Act are present. For this final 
determination, we have applied facts available to account for those 
unreported U.S. sales where the nota fiscal date--the date of sale--was 
within the POI but the commercial invoice date (the date of sale 
reported by CSN) fell outside the POI. Please see Comment 5 for a more 
detailed explanation of this issue.

USIMINAS/COSIPA

    In March, 1999, the Department conducted verifications of USIMINAS 
and COSIPA and was unable to verify various issues. As noted in 
USIMINAS'' Sales Verification Report, COSIPA's Sales Verification 
Report, and the respective Cost Verification Reports, respondents were 
either unprepared, unwilling, or unable to review certain issues at the 
verifications. When the material remained unverified, but respondents 
exhibited cooperation in supplying at least a basic level of 
information, the Department applied facts available in accordance with 
section 776(a) of the Act. This was the case in the Department's 
application of facts available for USIMINAS'' costs. USIMINAS deviated 
from its normal allocation system in reporting its product-specific 
costs. As a result, it failed to pick up all costs captured in its 
financial accounting records. As facts available, the Department 
adjusted USIMINAS'' reported costs to coincide with its normal 
accounting records. See Comment 47. The Department also used facts 
otherwise available in its determination of critical circumstances. See 
the Critical Circumstances section below.
    In several other instances, the respondent failed to cooperate to 
the

[[Page 38759]]

best of its ability. In these cases the Department asked repeatedly to 
cover certain issues, but respondents declined and they remained 
outstanding at the end of verification. Therefore, in accordance with 
section 776(b) of the Act, we have determined that adverse inferences 
are warranted for USIMINAS'' unreported U.S. sales where the nota 
fiscal date--the date of sale--was within the POI but the commercial 
invoice date (the date of sale reported by USIMINAS) fell outside the 
POI. See Comment 19. We have also determined that adverse inferences 
are warranted for the following items: downstream sales data, USIMINAS' 
home market inland freight, USIMINAS' U.S. inland freight, USIMINAS' 
warranty expense, COSIPA's home market inland freight, COSIPA's 
brokerage and handling expenses, COSIPA's packing, and USIMINAS' 
failure to report its affiliated supplier's actual cost of production 
(COP),. See Comments 18, 25, 26, 30, 34, 35, 40, and 49. See also 
Notice of Final Determination of Sales at Less Than Fair Value: Certain 
Pasta from Turkey, 61 FR 30309, 30310 (June 14, 1996).

Critical Circumstances

    In our preliminary determination, the Department found that there 
was no reasonable basis to believe or suspect that critical 
circumstances exist with respect to imports of hot-rolled steel from 
Brazil. In this final determination, the Department finds the same to 
be true. In accordance with section 735(a)(3) of the Act, if a 
petitioner alleges critical circumstances, the Department will 
determine whether: (A)(i) There is a history of dumping and material 
injury by reason of dumped imports in the United States or elsewhere of 
the subject merchandise, or (ii) the person by whom, or for whose 
account, the merchandise was imported knew or should have known that 
the exporter was selling the subject merchandise at less than its fair 
value and that there would be material injury by reason of such sales, 
and (B) there have been massive imports of the subject merchandise over 
a relatively short period.
    As in the Preliminary Determination, the Department finds that the 
first criterion has been met since Mexico has an antidumping duty order 
on hot-rolled steel from Brazil. This shows a history of dumping and 
material injury by reason of dumped imports of the subject merchandise. 
To determine whether the second criterion is met, i.e. whether imports 
were massive over a relatively short time period, the Department 
typically compares the import volume of the subject merchandise for at 
least three months immediately preceding and following the filing of 
the petition. See 19 CFR 351.206(i). The Department, therefore, 
requested on February 9, 1999, that respondents submit monthly U.S. 
shipment data from January 1997 through January 1999. COSIPA submitted 
this data on February 19, 1999; USIMINAS on March 1, 1999; and CSN on 
February 22, 1999. In the Department's verification outlines and at 
verification, the Department requested that respondents demonstrate 
their methodology in reporting the monthly U.S. shipment data. CSN's 
monthly shipment data was verified, but USIMINAS and COSIPA's was not. 
See USIMINAS' Sales Verification Report, page 59 and COSIPA's Sales 
Verification Report, page 45.
    Pursuant to 19 CFR 351.206(h)(2), the Department will consider an 
increase of 15 % or more in the imports of the subject merchandise over 
the relevant period to be massive. CSN's verified data demonstrates 
that the threshold needed to find critical circumstances was not met 
since a comparison of shipments immediately preceding and following the 
filing of the petition did not reflect an increase of more than 15%. 
See Exhibit 5 of CSN's February 22, 1999 submission of monthly U.S. 
shipment data. We were unable to verify USIMINAS/COSIPA's shipment 
data, and therefore, are not using it in making our final critical 
circumstances determination. However, based on information available to 
the Department including official Census statistics, verified data for 
CSN, and the fact that CSN, USIMINAS, and COSIPA are the only known 
producers/exporters of the subject merchandise to the United States, we 
have determined that imports of the subject merchandise produced by 
USIMINAS/COSIPA did not increase by 15%. See Memorandum to the File: 
``Analysis for Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) / 
Companhia Siderurgica Paulista (COSIPA) for the Final Determination of 
the Antidumping Duty Investigation of Certain Hot-Rolled Flat-Rolled 
Carbon-Quality Steel Products from Brazil for the period July 1, 1997 
through June 30, 1998,'' July 6, 1999, (USIMINAS/COSIPA's Analysis 
Memo). Therefore, the threshold for critical circumstances was not met.

Fair Value Comparisons

    To determine whether sales of hot-rolled steel from Brazil to the 
United States were made at LTFV, we compared export price (EP) to the 
normal value (NV), as described in the ``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 export 
prices for comparison to weighted-average normal values or constructed 
values.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products produced by the respondents 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 comparisons to U.S. sales. Where there were no 
sales of identical merchandise in the home market to compare to U.S. 
sales, we compared U.S. sales to the next most similar foreign like 
product on the basis of the characteristics and reporting instructions 
listed in the Department's questionnaire. If there were no home market 
foreign like products to compare to a U.S. sale, we used constructed 
value (CV).

Affiliated Respondents

    In our preliminary determination, we determined that USIMINAS and 
COSIPA were affiliated parties, and we collapsed these entities. See 
Collapsing Memorandum to Joseph A. Spetrini from Richard Weible, 
December 22, 1998 (Collapsing Memo). For the purpose of this 
investigation, we continue to consider these two respondents as a 
single entity. See Comment 17 below for a further discussion of this 
issue. Petitioners also argue that all three respondents are affiliated 
and should be collapsed. For this final determination, the Department 
determined that there is insufficient evidence on the record to warrant 
a collapsing of all three respondents. See Comment 1 below for a 
further discussion of this issue. However, should this investigation 
result in an antidumping duty order, we intend to scrutinize this issue 
in any subsequent segment of this proceeding.

Level of Trade

CSN
    In our preliminary determination we agreed with CSN that one level 
of trade (LOT) existed for CSN in the home market. Furthermore, we 
agreed with CSN that its EP sales in the United States were at a single 
LOT, and that CSN's sales in both markets were at the same LOT (see 
Preliminary Determination, 64 FR 8302). During verification, in the 
course of reviewing

[[Page 38760]]

CSN's sales process, accounting system, and sales documentation for 
both home market and U.S. customers, we found no evidence of different 
selling functions based on customer category, distribution channels, or 
market (see CSN's Sales Verification Report, p. 15).
    No party to this investigation commented on this issue relative to 
CSN and the Department has no new evidence that would warrant altering 
our preliminary determination. Therefore, as in the preliminary 
determination, we find that CSN's sales within or between markets were 
made at the same LOT and, therefore, a LOT adjustment pursuant to 
section 773(a)(7)(A) of the Act is not appropriate.
USIMINAS/COSIPA
    In our preliminary determination, the Department found that two 
LOTs existed in the home market, one to affiliated resellers and the 
other to all other types of customers which we termed mill direct 
sales. In the U.S. market, the Department determined that there was one 
LOT, and that the U.S. LOT was equivalent to all types of home market 
sales except those to affiliated resellers. However, we were unable to 
verify USIMINAS/COSIPA's LOT claims. Therefore, for this final 
determination we are considering all U.S. and home market sales to be 
at the same LOT. See Comment 18 below.

Export Price

    The Department based its calculations on EP in accordance with 
section 772(a) of the Act, because the subject merchandise was sold by 
the producer or exporter directly to the first unaffiliated purchaser 
in the United States prior to importation. The Department calculated EP 
based on packed prices charged to the first unaffiliated customer in 
the United States.
    We calculated EP for CSN and USIMINAS/COSIPA based on the same 
methodology employed in the Preliminary Determination, except as noted 
in the Comment section below. See Memorandum to the File: ``Analysis 
for Companhia Siderurgica Nacional (CSN) for the Final Results of the 
Antidumping Duty Investigation of Certain Hot-Rolled Flat-Rolled 
Carbon-Quality Steel Products from Brazil for the period July 1, 1997 
through June 30, 1998,'' (July 6, 1999), (CSN's Analysis Memo), and 
USIMINAS/COSIPA's Analysis Memo.

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 respondents' 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)(C) of the Act. As CSN's and USIMINAS/COSIPA's aggregate 
volumes of home market sales of the foreign like product were greater 
than five percent of these companies' aggregate volumes of U.S. sales 
of the subject merchandise, we determined that the home market was 
viable for both CSN and USIMINAS/COSIPA. Therefore, we based NV on home 
market sales in the usual commercial quantities and in the ordinary 
course of trade.

Affiliated-Party Transactions and Arm's Length Test

    Sales to affiliated customers in the home market not made at arm's 
length prices (if any) were excluded from our analysis because we 
consider them to be outside the ordinary course of trade. See 19 CFR 
351.102. To test whether these sales were made at arm's length prices, 
we compared, on a model-specific basis, the prices of sales to 
affiliated and unaffiliated customers, net of all movement charges, 
direct selling expenses, and packing. Where, for the tested models of 
subject merchandise, prices to the affiliated party were on average 
99.5 % or more of the price to unaffiliated parties, we determined that 
sales made to the affiliated party were at arm's length. See 19 CFR 
351.403(c). In instances where no price ratio could be constructed for 
an affiliated customer because identical merchandise was not sold to 
unaffiliated customers, we were unable to determine that sales to that 
affiliated customer were made at arm's length prices and, therefore, we 
excluded them from our LTFV analysis. See, e.g., Final Determination of 
Sales at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat 
Products from Argentina, 58 FR 37062, 37077 (July 9, 1993).
    Where the exclusion of such sales eliminated all sales of the most 
appropriate comparison product, we made a comparison to the next most 
similar model.

Cost of Production Analysis

    Petitioners provided reasonable grounds to believe or suspect that 
CSN and USIMINAS/COSIPA's sales of the foreign like product under 
consideration for determining NV may have been at prices below the cost 
of production (COP), as provided in section 773(b)(2)(A)(ii) of the 
Act. Therefore, pursuant to section 773(b)(1) of the Act, we initiated 
a COP investigation of sales by the respondents in this investigation.
    In accordance with section 773(b)(3) of the Act, we calculated the 
weighted-average COP based on the sum of respondents' cost of 
materials, fabrication, general expenses, and packing costs. We relied 
on CSN's and USIMINAS/COSIPA's submitted COP, except in the following 
specific instances:
CSN
    1. We revised COP and CV to include the identified reconciliation 
items and minor corrections, presented on the first day of 
verification, which were not included in CSN's reported costs. See 
Comment 43.
    2. We revised CSN's selling, general and administrative (SG&A) 
expense rate in order to include the net exchange loss and the 
amortization of goodwill. See Comment 44.
    3. We recalculated CSN's financial expense rate to include certain 
net exchange losses which were financial in nature. We also revised the 
long-term financial income amount based on consolidated statement 
figures instead of company-specific figures. See Comment 44.

USIMINAS

    1. We adjusted the reported cost of manufacturing (COM) for each 
CONNUM to coincide with its normal accounting records. See Comment 47.
    2. Where different COM's were reported for the same CONNUM, we used 
the higher amount. See Comment 48.
    3. We adjusted the transfer price for iron ore and coal obtained 
from an affiliated supplier in accordance with the major input rule. 
See Comment 49.
    4. We computed the interest income offset using data from the 
USIMINAS unconsolidated entity. See Comment 51.
    5. We adjusted the G&A rate calculation to exclude those expenses 
which directly relate to revenue received from non-operational 
activities. See Comment 52.
COSIPA
    1. We revised the cost of iron ore to reflect the market value of 
this input. See Comment 54.

[[Page 38761]]

    2. We revised COSIPA's G&A expense rate calculation to reflect 
amounts from the 1997 financial statements and disallowed income 
resulting from rescheduling of ICMS payments to offset general and 
administrative expenses. See Comment 55.
    3. We revised the interest expense rate to use USIMINAS's revised 
rate. See Comment 51.

Price-to-Price Comparisons

CSN
    For those product comparisons for which there were sales at home 
market prices at or above the COP, we based NV on CSN's sales to 
unaffiliated home market customers or sales to affiliated customers 
that we determined to be at arm's length. We made adjustments for U.S. 
packing expenses. We made deductions, where appropriate, for movement 
expenses, taxes, and home market packing pursuant to section 
773(a)(6)(B) of the Act. In addition, we made adjustments, where 
appropriate, for physical differences in the merchandise in accordance 
with section 773(a)(6)(C)(ii) of the Act. We made circumstance-of-sale 
(COS) adjustments for warranty expenses, credit, and interest revenue 
in accordance with section 773(a)(6)(C)(iii) of the Act.
USIMINAS/COSIPA
    For those product comparisons for which there were sales at home 
market prices at or above the COP, we based NV on USIMINAS/COSIPA's 
sales to unaffiliated home market customers or prices to affiliated 
customers that we determined to be at arm's length prices. We made 
adjustments for selling expenses, discounts, movement expenses, packing 
and taxes in accordance with section 773(a)(6) of the Act. We made 
adjustments, where appropriate, for physical differences in the 
merchandise in accordance with section 773(a)(6)(C)(ii) of the Act. In 
addition, we made COS adjustments for warranty expenses, credit, and 
interest revenue in accordance with section 773(a)(6)(C)(iii) of the 
Act.

Price-to-Constructed Value 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). In accordance with section 773(e)(2)(A) 
of the Act, we based SG&A expense 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 Brazil. We calculated the cost of materials, 
fabrication, and general expenses based upon the methodology described 
in the ``Cost of Production Analysis'' section above. 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 made COS adjustments by deducting home market 
direct selling expenses from NV and adding U.S. direct selling 
expenses.

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

I. Sales Issues pertaining to all three respondents

    Comment 1: Whether to collapse USIMINAS/COSIPA with CSN. 
Petitioners assert that in addition to collapsing USIMINAS and COSIPA, 
all of the respondents should be collapsed into a single entity for 
purposes of this investigation. They argue that CSN and USIMINAS/COSIPA 
produce the same products, share common directors, and have intertwined 
operations, all of which create the potential for the manipulation of 
price or production. Referring to the Letter from Dewey Ballantine LLP 
to the U.S. Department of Commerce, Case No. A-351-828 (March 11, 1999) 
(Collapsing Comments), petitioners argue that the linkages between all 
three respondents clearly satisfy the affiliation and collapsing 
criteria set out in the Department's regulations.
    Petitioners cite to the definition of affiliated parties in section 
771(33) of the Act. Petitioners maintain that CSN, in conjunction with 
Companhia Vale do Rio Doce (CVRD) and other affiliated companies, or 
the ``CSN/CVRD group,'' is affiliated with USIMINAS/COSIPA as evidenced 
by (1) the CSN/CVRD group sharing equity and managerial relationships 
which petitioners claim establish an integrated unit under the control 
of Benjamin Steinbruch and his family; (2) the ``CSN/CVRD group'' 
sharing board members with USIMINAS; and (3) the CSN/CVRD group holding 
significant equity interest in USIMINAS.
    Petitioners first argue that CSN and CVRD should be treated as a 
single entity, and that this ``CSN/CVRD'' entity is affiliated with 
USIMINAS by virtue of the alleged control of both by Mr. Steinbruch. In 
support of this theory, petitioners note that Mr. Steinbruch is the 
head of the Vicunha Group, or Steinbruch family business, which owns 
14.1% of CSN through Textilia. Textilia is a member of CSN's 
shareholders' agreement (a group of minority shareholders which vote as 
a block and together control 64.3% of the voting shares) and has two 
representatives on CSN's board, including Mr. Steinbruch. Mr. 
Steinbruch is chairman of both CSN and CVRD's boards, and petitioners 
cite Business Week and Financial Times articles referring to Mr. 
Steinbruch as controlling the ``CSN/CVRD group.'' In fact, petitioners 
claim that CSN's stake in CVRD through its 31% ownership of Valepar, 
S.A. (Valepar) (which owns 27% of CVRD) and CVRD's stake in CSN through 
its 96.84% ownership of Vale do Rio Doce Navegacao (Docenave)(which, in 
turn, owns 25.2% of CSN), effectively makes CSN and CVRD a single 
business entity. In quoting the Financial Times, petitioners state that 
Mr. Steinbruch's reorganization of CVRD strengthened his control of 
this company beyond what CSN's ownership would imply.
    Petitioners believe that the directors and officers shared by CVRD 
and Valepar and by CSN and CVRD further solidify Mr. Steinbruch's 
control over the companies, and ``provide a ready means for the 
companies to act in concert (e.g., planning and pricing decisions).'' 
Petitioners point out that Gabriel Stoliar, a director of CVRD, sits on 
CSN's and USIMINAS'' board of directors. On the subject of board 
members, petitioners take issue with the different explanations by 
USIMINAS and CSN of the function of a board of directors. They state 
that USIMINAS compares the function of the ``Administrative Council'' 
to a U.S. board of directors and the ``Board of Directors'' to a 
company's management, while CSN makes no such distinction. Therefore, 
when petitioners use the term ``Board of Directors'' they intend it to 
mean ``the entity controlling the company.''
    Second, petitioners claim that because of CSN's equity interest in 
CVRD, which in turn owns a 23% interest in USIMINAS, CSN has more than 
5% of the outstanding stock in USIMINAS. They believe that this factor 
demonstrates CSN's ability to exercise restraint or direction over 
USIMINAS and is sufficient grounds for finding affiliation between CSN 
and USIMINAS.

[[Page 38762]]

    Third, petitioners argue that CSN and USIMINAS are affiliated based 
on common ties to the Caixa de Previdencia dos Funcionarios do Banco do 
Brasil (Previ) (employee pension fund of the Bank of Brazil). They 
believe that CSN has a close relationship with Previ and acts in 
concert with it to acquire and control various companies, including 
USIMINAS. They argue that Previ is not a passive investor of pension 
funds but an important source of capital for Mr. Steinbruch's 
investments. Petitioners state that Previ is a member of CSN's 
shareholders agreement, directly owns 13.8% of the company, and 
together with CSN, submitted the winning bid in the privatization of 
CVRD. According to petitioners, Previ and CSN together maintain 30 or 
38% of the outstanding voting stock of CVRD. They also point out that 
Previ is the third largest shareholder in USIMINAS, and while not a 
member of its shareholders' agreement, has two employees from the Banco 
do Brasil on USIMINAS' Board of Directors. Petitioners argue that 
Previ's ownership in CSN, CVRD, and USIMINAS and its joint interests 
and activities with CSN demonstrate that Previ and CSN together are 
affiliated with USIMINAS.
    Having explained their arguments for affiliation, petitioners next 
argue that CSN's legal, organizational, and operational ties with 
USIMINAS/COSIPA also satisfy the Department's other criteria for 
collapsing. Petitioners note that, pursuant to Sec. 351.401(f)(1) of 
the Department's regulations, affiliated producers will be treated as a 
single entity if (1) the producers have production facilities for 
similar or identical products that would not require substantial 
retooling of either facility in order to restructure manufacturing 
priorities, and (2) the Department concludes that there is a 
significant potential for the manipulation of price or production.
    Petitioners believe that CSN and USIMINAS/COSIPA are capable of 
easily shifting production of identical or similar products among 
themselves, as evidenced by similar production facilities and similar 
products. In discussing the ``significant potential'' criterion, 
petitioners quote Sec. 351.401(f)(2), which explains that the 
Department examines the following factors, among others: (i) The level 
of common ownership; (ii) the extent to which managerial employees or 
board members of one firm sit on the board of directors of an 
affiliated firm; and (iii) whether operations are intertwined, such as 
through the sharing of sales information, involvement in production and 
pricing decisions, the sharing of facilities or employees, or 
significant transactions between the affiliated producers.
    Petitioners cite cases (see FAG Kugelfischer v. United States, 932 
F. Supp. 315 (CIT 1996); Nihon Cement Co., Ltd. v. United States, 17 
CIT 400 (1993); Queen's Flowers de Colombia, et al., v. United States, 
981 F. Supp. 617 (CIT 1997), in which the U.S. Court of International 
Trade (the Court) upheld the Department's articulation of these 
collapsing criteria. Petitioners believe that the central issue 
according to the Court is ``whether parties are sufficiently related to 
present the possibility of price manipulation.'' Petitioners believe 
there is significant potential for manipulation of price or production 
between CSN and USIMINAS/COSIPA. Petitioners state that this potential 
stems from the high level of common ownership, common members on the 
boards of directors, and intertwined operations, and is reflected in 
the ongoing price fixing investigation of CSN, USIMINAS and COSIPA by 
the Brazilian government (see USIMINAS' Sales Verification Report, page 
9 and COSIPA's Sales Verification Report, pages 5-6 for a discussion of 
the ongoing price-fixing investigation).
    With respect to intertwined operations, petitioners cite several 
factors. They argue that there is a connection between USIMINAS and CSN 
through a third company in the United States. CSN is affiliated with 
this third company by way of two companies in which it has equity. 
USIMINAS also has a relationship with this third U.S. company through a 
commercial agreement. Petitioners believe there is potential for CSN 
and USIMINAS to use this common tie to manipulate U.S. prices. 
Additionally, petitioners believe that respondents' joint purchase of 
coal, common ownership in MRS Logistica (a railroad transport company), 
and a common source of inputs demonstrate operational links. 
Petitioners include iron ore among the common inputs, arguing that just 
as USIMINAS/COSIPA purchases iron ore from CVRD, a statement by Mr. 
Steinbruch in ``CSN Denies Cartel Charges,'' American Metal Market 
(March 1, 1999) indicates that CSN does so as well.
    In conclusion, petitioners argue that respondents' nearly identical 
production facilities and products, common equity ownership, shared 
board members, the on-going price-fixing investigation, and intertwined 
operations all indicate that there is a significant potential for price 
or production manipulation. Petitioners also believe that these factors 
are similar to those relied upon in prior determinations such as Final 
Results of Antidumping Duty Administrative Review: Certain Fresh Cut 
Flowers from Columbia, 61 FR 42833, 42853, (August 19, 1996), (Fresh 
Cut Flowers) and Final Results of Antidumping Duty Administrative 
Review: Gray Portland Cement and Clinker from Mexico, 64 FR 13148, 
13151 (March 17, 1999) and Final Determination of Sales at Less than 
Fair Value: Stainless Steel Wire Rod from Sweden, 63 FR 40449, 40453-54 
(July 29, 1998) in which the Department collapsed respondents.
    While respondents did not address the issue of collapsing CSN with 
USIMINAS/COSIPA, they did argue that USIMINAS and COSIPA should not be 
collapsed for this investigation. See Comment 17.
    Department's Position: The Department has determined that USIMINAS 
and COSIPA should be collapsed for margin calculation purposes (see 
Comment 17). To collapse CSN with USIMINAS/COSIPA, as petitioners 
suggest, requires that we first find that CSN and USIMINAS/COSIPA are 
affiliated parties within the meaning of section 771(33) of the Act. 
Because we find that USIMINAS/COSIPA is not affiliated with CSN, we 
have not collapsed these entities for purposes of this investigation.
    The issue of whether CSN is affiliated with USIMINAS/COSIPA, is 
governed by section 771(33) of the Act, which deems the following 
persons to be affiliated: (A) Members of a family; (B) any officer or 
director of an organization and such organization (C) partners; (D) 
employer and employees; (E) any person directly or indirectly owning, 
controlling, or holding with power to vote, 5% 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; 
and (G) any person who controls any other person and such other person. 
For purposes of this provision, a person controls another person if the 
person is in a position to exercise restraint or direction over the 
other person. Petitioners arguments for finding USIMINAS/COSIPA and CSN 
affiliated appear to be based on subparagraphs (E), (F) and (G) of 
section 771(33) of the Act.
    Pursuant to section 771(33)(E), the Department examined CSN's 
ownership interest, direct or indirect, in USIMINAS (USIMINAS/COSIPA 
does not own or control any shares in CSN). CSN owns a 31% equity 
interest in

[[Page 38763]]

Valepar, which owns 27%, 42%, or 52% of CVRD, depending on which of the 
sources submitted in this investigation is used. Throughout the POI, 
CVRD, in turn, had a 15.48% interest in USIMINAS. Even assuming the 
highest possible percentages of equity ownership by CSN in Valepar, by 
Valepar in CVRD, and by CVRD in USIMINAS, CSN would own well under 5% 
of USIMINAS. Based on this evidence, CSN and USIMINAS/COSIPA are not 
affiliated within the meaning of section 771(33)(E) of the Act.
    With respect to affiliation based on control, petitioners have not 
clearly identified which entities they believe are in a position to 
exercise control over CSN and USIMINAS (or USIMINAS/COSIPA) or on which 
specific subparagraph (F or G) of section 771(33) they are relying in 
their analysis. Therefore, we have analyzed petitioners comments under 
both section 771(33)(F) and (G).
    In accordance with section 771(33)(F), we first examined whether 
the record establishes common control over these entities by Mr. 
Steinbruch, CVRD, or Previ as separate entities. Assuming arguendo that 
we were to conclude that Mr. Steinbruch, as chairman of CSN's board of 
directors, controls CSN, the record contains no evidence that he 
controls USIMINAS.
    CVRD is affiliated with both CSN and USIMINAS under section 
771(33)(E). CVRD directly owns more than 5% of USIMINAS (15.48% of the 
voting shares) and indirectly owns, through its holdings in Docenave, 
more than 5% of CSN (10.3% of the voting shares). However, CVRD does 
not control both CSN and USIMINAS. Mr. Gabriel Stoliar, the CEO of 
CVRD, serves on the eight-to-ten-member boards of both CSN and 
USIMINAS. In addition, CVRD appoints an additional board member at 
USIMINAS and through Docenave (in which CVRD is the majority 
stockholder), appoints one at CSN. However, Brazilian law prohibits 
board members from representing any other company's interests while 
serving on the board of a different company. See USIMINAS' Sales 
Verification Report at 5-6 and COSIPA's Sales Verification Report at 2. 
In addition, the record indicates that the USIMINAS board of directors 
(the ``administrative council'') is responsible for macroeconomic 
issues such as large investment matters and does not control daily 
operations. See USIMINAS' Sales Verification Report, at 5. Finally, 
CVRD is not a member of the USIMINAS shareholder's agreement, whose 
members control 53% of the voting stock of that company. The Department 
finds that, under the circumstances of this case, CVRD is not in a 
position to control USIMINAS within the meaning of section 771(33) of 
the Act. Because CVRD does not control USIMINAS, it cannot exercise 
common control over both CSN and USIMINAS within the meaning of 
subsection (F). Therefore, the issue of whether CVRD controls CSN is 
moot for purposes of this analysis.
    Previ, like CVRD, is affiliated with both CSN and USIMINAS through 
equity ownership. However, subsection (F) requires a finding of common 
control, not merely of common affiliation. Previ is not a member of the 
USIMINAS shareholders' agreement, which controls 53% of the voting 
stock of that company. Nor is there other evidence that Previ is in a 
position to control USIMINAS. Because the record evidence does not 
establish that Previ is otherwise in a position to control USIMINAS, we 
find that CSN and USIMINAS are not affiliated by virtue of common 
control by Previ.
    The SAA recognizes that, even in the absence of an equity 
relationship, control may be established ``through corporate or family 
groupings'' (see SAA at 838), i.e., a corporate or family group may 
constitute a ``person'' within the meaning of section 771(33) of the 
Act. See Ferro Union v. United States, Slip Op. 99-27 (Ct. of Int'l 
Trade, March 23, 1999). In such a case, the control factors of 
individual members of the group (e.g., stock ownership, management 
positions, board membership) are considered in the aggregate. 
Accordingly, the Department considered whether USIMINAS and CSN are 
affiliated by virtue of common control by a corporate or family group.
    Petitioners allege that the Steinbruch family controls the ``CSN/
CVRD group.'' However, there is no record evidence that the family 
controls USIMINAS. Therefore, there is no basis to find CSN and 
USIMINAS affiliated through common control by the Steinbruch family.
    What constitutes a ``corporate group'' for purposes of the 
affiliation analysis is not defined; the Department must address the 
issue on a case-by-case basis. The cases in which the Department has 
recognized that affiliation exists by virtue of participation in the 
same corporate or family group involved common control of the firms at 
issue by members of the same family, the same group of investors, or 
the same group of corporations. In other words, the ``control group'' 
language in the SAA does not add a new criterion to the statutory 
definition of ``affiliation.'' It merely acknowledges that the 
controlling entity of the ``common control'' provision can be something 
other than a physical or legal person, and can exercise that common 
control by means other than equity ownership. It does not allow for 
treating all affiliation relationships as if they created new ``control 
groups.'' With respect to USIMINAS and CSN, there is no such pattern of 
common control. Although petitioners reference a variety of connections 
between various other entities and CSN and USIMINAS, they do not 
identify, nor do we find, any definable corporate group that controls 
both CSN and USIMINAS. Thus, we do not have a basis in the record to 
find affiliation under section 771(33)(F) of the Act.
    With respect to section 771(33)(G) of the Act, petitioners have 
again failed to clearly identify a basis for finding that CSN controls 
USIMINAS (or USIMINAS/COSIPA), or vice versa. Petitioners appear to 
argue that CSN and CVRD are a ``corporate group'' for purposes of the 
affiliation analysis. While we agree that CSN and CVRD are affiliated, 
that by itself is not sufficient to consider them a ``corporate group'' 
for purposes of an affiliation analysis. Moreover, even if the 
Department were to treat CSN and CVRD as a corporate group, there is no 
evidence that the alleged ``CSN/CVRD group'' controls USIMINAS within 
the meaning of section 771(33)(G) of the Act. In some instances 
petitioners appear to suggest that the corporate group includes not 
only CSN and CVRD, but also Previ. However, we do not find a sufficient 
basis in the record to treat CSN, CVRD and Previ as a corporate group 
for purposes of the affiliation analysis.
    Because the record evidence does not support a finding that 
USIMINAS (or USIMINAS/COSIPA) and CSN are affiliated under any 
provision of section 771(33), there is no basis to apply the collapsing 
criteria in Sec. 351.401(f). Therefore, the Department has continued to 
treat CSN and USIMINAS/COSIPA as separate entities for the purposes of 
this investigation.
    Comment 2: PIS/COFINS Taxes. To avoid duplication, USIMINAS/COSIPA 
and CSN prepared a joint description of their PIS/COFINS tax argument 
in CSN's Case Brief of April 16, 1999 (CSN's Case Brief). In their 
argument, respondents note that section 773(a)(6)(B)(iii) of the Act 
(``the tax adjustment provision''), as amended, ensures that the 
Department makes a tax-neutral comparison when comparing normal value 
to export price. This section of the statute achieves this end by 
requiring the Department to adjust normal value by the amount of any

[[Page 38764]]

indirect taxes imposed on home market sales, but not on export sales. 
Respondents state that, until recently, the Department considered 
Brazil's Programa de Integracao Social (PIS) and Contribuicao do Fin 
Social (COFINS) taxes to be indirect taxes that fall within the meaning 
of the tax adjustment provision. The Department's change in its 
treatment of these taxes, according to respondents, is based on a 
factually incorrect assumption that these taxes apply to total gross 
revenue and on a legally improper understanding of what indirect taxes 
are.
    Respondents point out that the statute and prior case law make 
clear that three circumstances must exist for the tax adjustment 
provision to apply to a particular tax. First, the tax must be 
``directly'' imposed on the home market product. Second, it must be 
rebated or not collected on export sales. Third, it must be added to or 
included in the price of the home market sale. The fact that these 
taxes are not imposed on exports has never been an issue. Thus, 
respondents state that the only requirements of significance in this 
review are the first and third requirements.
    In failing to adjust respondents' home market price for Brazil's 
PIS/COFINS taxes in the Preliminary Determination, respondents argue 
that the Department incorrectly determined that ``these taxes are 
levied on total revenues.'' Respondents state that until recently, the 
Department consistently held that PIS/COFINS fall within the meaning of 
the tax adjustment provision. Respondents cite numerous antidumping 
cases from Brazil in support of their position that PIS and COFINS 
should be deducted from home market price. See CSN's Case Brief, p. 7.
    Respondents contend that in the Final Administrative Review of 
Silicon Metal from Brazil, 62 FR 1970 (January 14, 1997)(Silicon Metal 
from Brazil, 1997), the Department erroneously determined that PIS/
COFINS are analogous to two Argentine taxes previously determined not 
to be indirect taxes within the meaning of the tax adjustment 
provision. Respondents state that in the Final Determination of the 
Less-Than-Fair Value Investigation of Silicon Metal from Argentina, 56 
FR 37891 (August 9, 1991) (Silicon Metal from Argentina), the 
Department refused to make an upward adjustment to U.S. price for two 
Argentine taxes because these taxes were based on non-sales revenue as 
well as sales revenue. The Department concluded that these taxes were 
not ``directly'' imposed on Argentine sales within the meaning of 
section 773(a)(6)(B)(iii) of the Act.
    According to respondents, petitioners in Silicon Metal from Brazil, 
1997 glossed over the fact that Brazilian and Argentine taxes are, in 
fact, vastly different and asserted that PIS/COFINS are ``almost 
identical'' to the two Argentine taxes. Respondents state that PIS/
COFINS are imposed only on a company's total domestic sales. 
Respondents assert that CSN's Sales Verification Report and Exhibit 28 
of the Report demonstrate that the basis for both PIS and COFINS is 
gross sales (Receita Bruta de Vendas), minus credit billing 
adjustments, canceled sales, and IPI, plus ``other'' sales revenue. 
Respondents state that the accounting documents in Exhibit 28 further 
demonstrate that it calculates its PIS and COFINS tax liability on 
sales revenue alone. Moreover, respondents note that Brazilian law 
specifies that the COFINS tax ``shall be two percent and charged 
against monthly billing, that is gross revenues derived from the sale 
of goods and services of any nature.'' (emphasis added). See CSN's 
Supplemental Response--Sections B and C at Exhibit 9 (January 25, 
1999). Likewise, the PIS tax represents 0.65% of invoicing--
``invoicing'' being defined as the ``gross revenue* * *originating from 
the sale of goods from own account (sic), from the price of the 
services rendered and from the result obtained from alien's (i.e., 
consignees) account.'' See Supplementary Law No. 70 of September 7, 
1970. Since neither tax is based on non-sales revenue, respondents 
maintain that PIS/COFINS are not ``gross revenue taxes'' and, 
therefore, not analogous to the Argentine taxes in Silicon Metal from 
Argentina.
    In addition, respondents claim that the Department's decision not 
to make an adjustment for PIS and COFINS is unsupported by any 
accounting or economic analysis. The fact that PIS and COFINS sales 
taxes are calculated on an aggregate basis as opposed to an invoice-
specific basis is irrelevant--the tax liability is the same. In 
respondents' view, no basis exists to conclude that the manner of 
calculating a tax disqualifies a tax from an adjustment under section 
773(a)(6)(B)(iii) of the Act.
    Respondents state that the Department has not, in any of its 
decisions relating to this issue, identified any support for its 
classification of a sales tax as a ``gross revenue tax'' simply because 
it is calculated on an aggregate basis. As a result, respondents 
reiterate that the taxes are based exclusively on home market sales and 
for this reason the Department for almost two decades found these taxes 
to qualify for a COS adjustment.
    The third prong, inclusion of the taxes in the home market price, 
is satisfied in the instant case--the Department has never based its 
denial of the PIS/COFINS adjustment on a specific or explained finding 
that the taxes were not included in the price and passed through to the 
home market customer. Respondents note that in the Final Administrative 
Review of Color Television Receivers from Korea, 49 FR 50420 (December 
28, 1984), the Department made an adjustment for home market taxes 
based on the conclusion that the taxes were fully passed through to the 
home market customers. The ensuing court appeals upheld the 
Department's practice of making an adjustment for home market taxes 
under section 772(d)(1)(C) of the Act. See American Alloys, Inc. v. 
United States, 810 F3d.1469, 1475 (Fed. Circ., 1994). Therefore, 
respondents urge the Department to determine that PIS and COFINS are 
included in the home market price, and passed through to home market 
customers. In addition, respondents assert that in the Preliminary 
Determination, the Department did not cite to any record evidence that 
there is no pass-through. Nor did it prepare any questions related to 
the pass-through aspect of these taxes in its questionnaires or at 
verification. Since the Department never asked respondents to rebut any 
newfound presumption that these taxes were not included in the home 
market price to the customers, respondents believe the Department is 
not justified in finding no pass-through in this investigation.
    If the Department were to argue that PIS and COFINS are not 
included in the price because they are not itemized on the invoice 
(like the IPI and ICMS taxes), respondents maintain that it would be 
wrong for two reasons: (1) PIS and COFINS were not itemized on the 
Brazilian invoices in all the Department's previous investigations, yet 
it always found that these taxes were included in the home market 
price, and qualified for an adjustment. (2) Whether or not the tax is 
itemized on the invoice is irrelevant to a pass-through finding. If the 
tax is not itemized, it is included in the gross unit price. 
Itemization on the invoice only indicates how the tax is calculated in 
the accounting records of the company.
    Respondents conclude that there is no justification for the 
Department's preliminary decision to ignore the necessary deduction for 
PIS and COFINS. The PIS/COFINS adjustment is consistent with Department 
findings (except for recent erroneous decisions),

[[Page 38765]]

and decisions by the Courts. Moreover, there is no evidence on the 
record to support a Department presumption that PIS/COFINS are not 
included in the home market price. The PIS/COFINS adjustment is 
required to ensure that the Department's LTFV comparisons are tax 
neutral, as contemplated by the U.S. dumping law and Article 2.4 of the 
WTO Antidumping Agreement.
    Petitioners counter that the statute and the SAA clearly state that 
downward adjustments to normal value may only be made for tax amounts 
directly imposed upon sales of the foreign like product. See section 
773(a)(6)(B)(iii) of the Act and SAA, pp. 827-828. In this case, 
neither the PIS nor the COFINS is directly imposed on sales of the 
foreign like product. To the contrary, petitioners maintain that these 
taxes are based on income, not sales prices, and are imposed on all of 
the company's domestic sales revenue, including service revenue, on an 
aggregate basis. In fact, petitioners contend that neither PIS nor 
COFINS appears to be a simple aggregation of sales revenue, as 
suggested by respondents. COFINS tax liability is net of the ``tax on 
industrialized goods,'' and as to PIS, it is not clear that PIS is 
levied on sales revenues and exclusive of financial revenue. See 
Rebuttal Brief of Schagrin Associates, p. 3, April 27, 1999.
    According to petitioners, respondents bear the burden of creating a 
record sufficient to support findings made by the Department. 
Petitioners claim that the record in the instant case is devoid of 
evidence that PIS and COFINS are fully passed through to purchasers.
    Contrary to respondents' suggestion that the Department lacks an 
understanding of indirect taxes, petitioners state that the Department 
is ``intimately familiar with the way the PIS/COFINS taxes are imposed 
and collected,'' and since mid-1997 has consistently disallowed claimed 
adjustments to normal value for these taxes. See footnote no. 10, p. 4 
of Dewey Ballantine Rebuttal Brief, April 26, 1999. Petitioners urge 
the Department not to disturb its settled practice on this issue.
    Department's Position: Petitioners are correct in stating that 
since mid-1997 the Department has consistently disallowed claimed 
adjustments to normal value for these taxes. Pursuant to section 
773(a)(6)(B)(iii) of the Act, normal value of the merchandise will be 
reduced by the amount of any taxes imposed directly upon the foreign 
like product or components thereof which have been rebated, or which 
have not been collected, on the subject merchandise, but only to the 
extent that such taxes are added to or included in the price of the 
foreign like product.
    Respondents have not provided any evidence to support their claim 
that the Department incorrectly concluded that the PIS and COFINS taxes 
are taxes on gross revenue exclusive of export revenue and, thus, are 
not imposed specifically on the merchandise or components thereof. 
Information on the record demonstrates that the PIS and COFINS taxes 
are taxes on gross revenue exclusive of export revenue. These taxes do 
not appear to be imposed on the subject merchandise or components 
thereof, and therefore, we have no statutory basis to deduct them from 
NV. As in the most recent review of Silicon Metal from Brazil, 64 FR 
6318 (February 19, 1999), (Silicon Metal from Brazil, 1999), the 
Department has determined that a deduction of the PIS and COFINS taxes 
is not correct in the calculation of NV because these taxes are levied 
on total revenues (except for export revenues), and thus the taxes are 
direct, similar to taxes on profit or wages. Therefore, we made no 
adjustment for PIS/COFINS taxes in the calculation of the dumping 
margin for this final determination.
    Comment 3: Input Tax Credit. While petitioners made this comment 
with respect to CSN, it also applies to USIMINAS/COSIPA. According to 
petitioners, the Department inappropriately deducted the gross ICMS and 
IPI tax amounts shown on CSN's sales invoices from CSN's reported home 
market gross unit price. Petitioners believe that for the final 
determination, the Department should deduct only the actual net ICMS 
and IPI payments made by CSN to the state and federal governments from 
CSN's reported home market gross unit prices. Petitioners cite the 
statute, which states that normal value shall be reduced by ``the 
amount of any taxes imposed directly upon the foreign like product* * 
*, but only to the extent that such taxes are added to or included in 
the price of the foreign like product.'' See section 773(a)(6)(B)(iii) 
(emphasis added). The SAA reiterates petitioners' position: ``It would 
be inappropriate to reduce a foreign price by the amount of the tax, 
unless a tax liability had actually been incurred on that sale.'' See 
Uruguay Round Agreements Act, Statement of Administrative Action, H.R. 
Doc. No. 103-516, 103d Cong., 2d Sess. at 827-828. (emphasis added).
    Petitioners argue that the actual net ICMS and IPI payments made by 
CSN to the state and federal governments were significantly less than 
the amounts reported by CSN in its home market database. First, 
petitioners aver that CSN clearly stated in its Section B Response that 
``the net liability is the amount of the IPI and ICMS owing on the sale 
of the finished product, minus the credit for ICMS and IPI paid on raw 
materials.'' (CSN Section B Response at B-23) (emphasis added). Second, 
petitioners point out that both ICMS and IPI are value-added taxes 
(VAT), meaning that they are intended to tax the value added by each 
producer, not the full amount of the producer's sales value. 
Petitioners suggest that CSN does not understand the nature of a VAT. 
Finally, petitioners state that the Department's Sales Verification 
Report clearly indicates that the actual ICMS and IPI tax payments made 
by CSN to the state and federal governments were significantly less 
than the gross tax amounts reported in the TAX1 and TAX2 fields of 
CSN's home market database. Petitioners provide specific examples from 
the Department's CSN Sales Verification Report at 35 to support this 
conclusion.
    CSN counters that petitioners' arguments for reducing the amount of 
the adjustment to home market prices for ICMS and IPI taxes to account 
for the credit received by manufacturers for ICMS and IPI paid on 
inputs, are wrong both as a matter of fact and of law. CSN cites 
section 773(b)(6)(B)(iii) of the Act and Daewoo Electronics Co. v. 
United States, 6 F.3d 1511, 1513-14 (Fed. Cir. 1993) (Daewoo 
Electronics) in support of its position that the statute requires an 
adjustment ``to the extent to which the company bears the burden of 
such taxes.'' The Court of Appeals of the Federal Circuit (CAFC) 
stated:

    To prevent the creation of dumping margins merely because the 
country of exportation taxes home market sales but not exports, the 
antidumping law provides an offsetting adjustment to the sales price 
of the goods. . . . (emphasis added).

CSN notes that the court refused to engage in an inquiry into the 
extent that the tax is ``passed through'' to the customer; if it is 
imposed on the home market sale but not on the U.S. sale, it is fully 
deductible.
    CSN claims that the petitioners were selective in their reading of 
the SAA. CSN states that according to petitioners, the quoted language 
seeks only to distinguish between sales which incur a tax liability and 
those which do not. CSN, however, maintains that the clear language of 
the statute is to make sure that a fair comparison be made between 
prices on the same basis. CSN concludes that there is nothing in either 
the statute or the legislative history which requires

[[Page 38766]]

any inquiry into the amount of payment actually remitted by the 
manufacturer.
    However, CSN emphasizes that the steel companies, in fact, do incur 
the full amount of ICMS and IPI imposed on the sale of their products. 
In order to prevent the ``cascading'' of a tax, each processor is given 
a credit for the tax it pays on the inputs it uses to produce the 
product, so the tax that the manufacturer pays is no more than the tax 
that is incident on the sale of the finished product. Citing the 
antidumping statute, CSN notes that the tax is limited to ``the extent 
that such taxes are added to or included in the price of the foreign 
like product.''
    According to CSN, petitioners are wrong in implying that value-
added taxes are somehow different from excise taxes when in fact the 
courts have made clear that value-added taxes are to be treated in the 
same manner as excise taxes when it comes to granting the adjustment 
for indirect taxes. See Daewoo Electronics at 1517. In addition, CSN 
maintains that petitioners' ultimate conclusion is wrong in that value-
added taxes do not ensure that a company's liability is less than the 
amount of the tax on the product; on the contrary, it is only by the 
credit against taxes paid on the inputs that the value-added tax 
ensures that the manufacturer's liability is equal to the amount of the 
tax on the product it manufactures.
    Department's Position: We agree with CSN. To prevent the creation 
of dumping margins merely because the country of exportation taxes home 
market sales but not exports, the antidumping law provides an 
offsetting adjustment to the sales price of the goods in the United 
States. See section 773(a)(6)(B)(iii) of the Act.
    The CAFC in Daewoo Electronics concluded that ``[i]f an exporter's 
records show that a tax was either a separate ``add on'' to the 
domestic price or, although not separately stated, was, in fact, 
included in the price and that the taxes were paid to the government, 
that satisfies the tax inquiry required by the statute for an 
adjustment of the U.S. price.'' The CAFC further stated that the 
statute does not speak to tax incidence, shifting burdens, or pass-
through, nor does it contain any hint that an econometric analysis must 
be performed. The statutory language does not mandate that the ITA look 
at the effect of the tax on consumers rather than on the . . . company. 
The CAFC reasoned that as an unavoidable incident of any sale by the 
company, these taxes can only be recouped in their entirety from 
purchasers. Id. at 1517.
    Section 773 (a)(6)(B)(iii) of the Act requires the deduction from 
NV of any taxes imposed directly upon the foreign like product or 
components thereof which have been rebated or which have not been 
collected on the subject merchandise, but only to the extent that such 
taxes are added to or included in the price of the foreign like 
product. The SAA (see, Section B.2.c.(2), at 157)) explains that the 
deduction of indirect taxes from NV constitutes a change from the 
existing statute, which required the addition of the tax amount to the 
U.S. price. The requirement that the home-market consumption taxes in 
question be ``added to or included in the price'' of the foreign-like 
product is intended to ensure that such taxes actually have been 
charged and paid on the home market sales used to calculate NV, rather 
than charged on sales of such merchandise in the home market generally. 
As the SAA states, ``[it] would be inappropriate to reduce a foreign 
price by the amount of the tax, unless a tax liability had actually 
been incurred on that sale.'' At verification, we verified the amount 
of ICMS and IPI taxes CSN reported for home market sales used to 
calculate NV. Besides tracing CSN's monthly payments to the government 
for these taxes from CSN's fiscal accounts to the proof of payment 
form, in the course of our home market sales traces, we verified that 
the ICMS and IPI taxes were included on each home market sale invoice. 
See Exhibits 25 and 29 of CSN's Sales Verification Report.
    In sum, the Department is treating consumption taxes in a manner 
consistent with its longstanding policy (i.e., calculating tax-neutral 
dumping margins), and in conformity with the statute as amended by the 
URAA. Since the reported home market gross unit price includes ICMS and 
IPI taxes, as demonstrated at verification, we have continued to deduct 
the full amount of these taxes from the home market price in order to 
achieve parity between the reported U.S. price, exclusive of taxes, and 
the NV of the comparison model.
    Comment 4: Quality Designations. Though petitioners commented on 
CSN's quality designations, USIMINAS/COSIPA also submitted additional 
quality fields. Therefore, in the Department's Position below, we have 
addressed both companies' quality designations.
    In petitioners' opinion, the Department should not allow CSN to 
adopt two additional quality designations: American Petroleum Institute 
(API) quality (code 9) and automotive wheel quality (code 10). 
According to CSN, code 9 is produced to API standards for oil 
pipelines, has a high silicon content, and very clean edges to ensure a 
tight weld. Petitioners note that end use is irrelevant and the limited 
information on the record indicates that this quality of steel is 
already identified by the Department's quality designation ``1'' (i.e., 
``High Strength Low Alloy''). According to petitioners, the American 
Society of Testing and Materials (ASTM) specification A 572 is within 
quality code ``1'' and contains the ``high silicon content'' that CSN 
claims is limited to its API quality products. Moreover, petitioners 
state that CSN's claims regarding the ``very clean'' or ``purified'' 
nature of this quality steel is equally inappropriate for requiring a 
separate quality designation. They state that CSN's claim that all its 
products are ``either aluminum killed or a combination of aluminum 
killed and silicon'' applies equally to the ASTM A 572 family of 
steels.
    With respect to CSN's claims regarding the need for an automotive 
wheel quality designation (code ``10''), petitioners assert that this 
separate designation is based on end use and the Department's existing 
quality designations confirm that application or use is not the 
determining factor in distinguishing quality designations. Furthermore, 
petitioners state that steel products with these characteristics are 
already separately identified in quality code ``6'' (i.e., deep 
drawing, whether or not fully stabilized (interstitial-free) or special 
killed; pressure vessel) is comprised almost exclusively of steels with 
low silicon content, mechanical strength, and formability.
    For the foregoing reasons, petitioners recommend that the 
Department revise CSN's quality designations so that quality 
designation ``9'' is revised to ``1'' and quality designation ``10'' is 
revised to ``6''. Furthermore, they state that the cost dataset should 
be revised to weight-average the cost of CONNUMS that are identical but 
for quality code ``1'' and ``9'', and ``6'' and ``10,'' respectively. 
If this approach proves too difficult to program, petitioners recommend 
that the Department use the higher of the two reported cost amounts.
    Respondents did not comment on this issue.
    Department's Position: We agree with petitioners. We believe that 
the quality codes designated by the Department in its initial 
questionnaire to the respondents adequately cover the different 
classifications possible for hot-rolled flat-rolled carbon-quality 
steel products. Therefore, we have designated the quality code ``9'' as 
quality code ``1'' and quality code ``10'' as quality code

[[Page 38767]]

``6'') and adjusted the cost of the CONNUMS accordingly. See Analysis 
Memo for CSN.
    USIMINAS/COSIPA also adopted four additional quality designations 
which we believe are adequately covered by the codes designated by the 
Department in its initial questionnaire. We have changed the new codes 
created by them and matched each one to the correct code among the 
eight originally designated by the Department. We have, therefore, 
changed codes ``9'' and ``11'' to code ``3'' and codes ``10'' and 
``12'' to code ``4'' and adjusted the cost of the CONNUMS accordingly. 
See USIMINAS/COSIPA's Analysis Memo.

II. Company Specific Sales Comments

    CSN
    Comment 5: Date of Sale. Petitioners argue that for sales to the 
United States, the commercial invoice date is not an appropriate date 
of sale for CSN in this investigation. Rather, the record in this case 
overwhelmingly indicates that the date of the order confirmation is the 
date when the material terms of sale are established and, therefore, 
should be used as the date of sale.
    Although the Department's regulations provide that the date of sale 
will normally be the invoice date, petitioners state that, as a general 
rule, the date of sale may not occur after the date of shipment (see 
Department Questionnaire, B-16, n.7 (``no date occurring after the date 
of shipment, including invoice may be used as the ``date of sale'''). 
Moreover, petitioners note that a date other than invoice date may be 
used where ``a different date better reflects the date on which the 
exporter or producer establishes the material terms of sale.'' See 
Preliminary Results of Antidumping Duty Administrative Review of 
Circular Welded Non-alloy Steel Pipe from Korea, 62 FR 64559, 64560 
(December 8, 1997).
    Petitioners point out that in its Preliminary Determination the 
Department stated that ``in most cases, the U.S. date of sale reported 
by respondents is after the date of shipment of the product from the 
factory. Because it is the Department's practice to use shipment date 
as the latest date of sale, the Department is using the ex-factory 
shipment date as the date of sale for U.S. sales in those cases in 
which the commercial invoice date is later.'' See Preliminary 
Determination, p. 8304. Petitioners term the Department's practice of 
not using a date of sale after shipment as ``appropriate,'' because it 
reflects the common sense notion that a producer does not ship a 
product, particularly one made to order, without agreement on the 
material terms of sale.
    Petitioners term the selection of the date of the ``nota fiscal'' 
(i.e., the ex-factory date) as the Department's ``default'' date of 
sale methodology. However, in petitioners'' view, the ex-factory date 
evinces no particular establishment of the material terms of sale. 
According to petitioners, the record in this investigation indicates 
that the material terms for CSN's U.S. sales were established at the 
order confirmation date. To support their position, petitioners cite 
CSN's Section A submission, which states that the order confirmation is 
computer generated and ``sets forth the general terms of sale, and 
specifies...the product type, weight, weight tolerance, price, 
delivery, destination and other terms and conditions for sale.'' See 
Section A of CSN's Questionnaire Response (November 11, 1998), p. 27. 
Moreover, petitioners note that a discussion of the sales process with 
company personnel at verification confirmed that material terms of sale 
are established by negotiation of price and quantity, the specific 
terms of which are confirmed by fax to the customer. See CSN's Sales 
Verification Report, p. 9).
    CSN's U.S. shipment data also supports order confirmation as the 
date of sale, according to petitioners. They point out that for a large 
majority of CSN's U.S. sales, the quantities shipped met the order 
confirmation terms, and even where the quantities shipped exceeded 
contract quantity tolerances, there appeared to be no change in the 
unit price for the merchandise. Petitioners note that order date is 
available for most CSN sales and non-adverse facts available can be 
used for those instances where the date is not available.
    Petitioners conclude that invoice date is not an acceptable date of 
sale and shipment date is simply an arbitrary construction which does 
not reflect the evidence of record. Therefore, the Department should 
use order confirmation date as the date of sale for CSN's sales to the 
United States.
    CSN maintains that the Department should continue to use the nota 
fiscal date as the home market date of sale and use the commercial 
invoice date as the U.S. date of sale. CSN notes that petitioners seem 
to acquiesce in the use of nota fiscal date as the date of sale for 
home market sales. It is CSN's opinion that petitioners are briefing 
the U.S. date of sale because (a) an earlier U.S. date of sale will 
move the universe of POI sales to the United States forward so as to 
capture invoices issued after the POI and (b) CSN's failure to report 
sales with nota fiscal or commercial invoice dates outside the POI 
could result in application of facts available.
    CSN states that the commercial invoice date is the only appropriate 
date of sale for U.S. sales because it is the earliest date by which 
the material terms of sale are finalized. To support its position CSN 
notes the following: (1) The fact that quantity tolerances are often 
exceeded is enough to establish a post-order confirmation date of sale 
(see, e.g., Final Results of Administrative Review of Certain Welded 
Carbon Steel Pipes and Tubes from Thailand, 63 FR 55578, 55588 (October 
16, 1998)); (2) use of the order confirmation date is not practicable 
for CSN because it is not maintained in the computer system for more 
than a few months, after which point, the numbers are reused; (3) the 
only purpose of the nota fiscal is to accompany the over-land shipment 
from the mill to the port, in conformity with Brazilian law; (4) once 
at the port, a product originally destined for one market can be 
diverted to another market; and (5) as verified by the Department, 
``the commercial invoice is issued after the coils are in the hold of 
the ship and, therefore, at that time it is definitely an export 
sale.'' See CSN's Sales Verification Report, p. 9.
    CSN, therefore, stands by its position that the only appropriate 
U.S. date of sale is the date of the commercial invoice. To the extent 
that the commercial invoice date is after the ex-port shipment date, 
CSN suggests that the Department use the ex-port shipment date as an 
alternative date of sale.
    In an issue related to the selection of the date of the U.S. sale, 
petitioners believe that the Department should apply facts available to 
those sales CSN failed to report based on the date of shipment from the 
factory. Although CSN claimed that the date of invoice from its 
affiliate CSN Cayman/Overseas was the most appropriate date for 
determining date of sale, petitioners note that the Department used the 
date of shipment from the mill as the date of sale in its Preliminary 
Determination. Petitioners state that this information was obtained as 
a result of a request in the Department's supplemental questionnaire.
    Petitioners claim that the Department discovered at verification 
that CSN had failed to report all sales based on date of shipment from 
the factory, and subsequently requested that CSN provide the additional 
sales information. Petitioners argue that because this information was 
provided late and contains fundamental flaws (i.e.

[[Page 38768]]

lack of CONNUM designation, price adjustment amounts), the Department 
should reject it and employ the highest calculated margin to these 
sales. See section 776(a)(1995) of the Act.
    Department's Position: We agree with CSN that the order 
confirmation date is not the appropriate date of sale. We have 
determined that the nota fiscal date is the home market date of sale. 
For U.S. sales, we have continued to use the ex-factory shipment date 
as the date of sale because the commercial invoice date, the date CSN 
reported as the date of sale, is after shipment from the factory.
    The Department considers the date of sale to be the date on which 
all substantive terms of sale are agreed upon by the parties. This 
normally includes the price, quantity, delivery terms and payment 
terms. In accordance with 19 CFR 351.401(i), the date of sale will 
normally be the date of the invoice, as recorded in the exporter's or 
producer's records kept in the ordinary course of business, unless 
satisfactory evidence is presented that the exporter or producer 
establishes the material terms of sale on some other date. In some 
instances, it may not be appropriate to rely on the date of invoice as 
the date of sale, because the evidence may indicate that the material 
terms of sale were established on some date other than the invoice 
date. See Preamble to the Department's Final Regulations at 19 CFR part 
351 (``Preamble''), 62 FR 27296 (1997); Final Determination of Sales at 
Less Than Fair Value; Polyvinyl Alcohol from Taiwan, 61 FR 14067 (March 
29, 1996). Further, in submissions throughout this investigation, CSN 
has reiterated the fact that the date of the order confirmation is not 
maintained in its computer system, hard copies are not always kept, and 
the order confirmation numbers are reused after a few months. 
Department staff verified the accuracy of these statements (see CSN's 
Sales Verification Report, pp. 9-11).
    The Department does not consider dates subsequent to the date of 
shipment from the factory as appropriate for date of sale. We also 
disagree with CSN's assertion that invoice date or export shipment date 
most appropriately represent date of sale. Because the commercial 
invoice date reported by CSN as its U.S. date of sale falls after the 
date of shipment of the product from the factory, the Department is 
continuing to use the ex-factory shipment date as the date of sale for 
its U.S. merchandise. CSN reported the date of the nota fiscal (i.e., 
the ex-factory shipment date) of its U.S. sales in its supplemental 
submission. However, although we gave CSN ample opportunity to report 
the dates of all potential dates of sale, including order confirmations 
and notas fiscais issued during the POI, CSN elected not to submit the 
requested data in its entirety.
    In our supplemental questionnaire to CSN's Section A Response 
(December 4, 1998), we requested that CSN report:

all sales for which ``the order confirmation date (or comparable 
date if data on order confirmation does not exist) was within the 
POI. If you believe another date is a more appropriate date of sale, 
you should provide all sales during the POI based on order 
confirmation date, using alternative production or accounting 
records, and the other date (provided the other date is not after 
the merchandise is shipped from the plant). (emphasis added)

    In our January 4, 1999 Supplemental Questionnaire to Sections BCD, 
we repeated this question and added:

    If CSN chooses not to report order confirmation date, and we 
determine at verification that this information is available and is 
a more appropriate date of sale than that reported, CSN may be 
subject to the use of adverse facts available pursuant to section 
776 of our statute.

    In its response to this submission (January 25, 1999), CSN did 
provide the dates of the U.S. notas fiscais, but only those dates 
associated with the commercial invoices issued during the POI. In their 
pre-verification comments, petitioners requested that at verification 
the Department examine those sales shipped from the factory, but not 
invoiced during the POI (see, Dewey Ballantine's Letter to the 
Secretary, March 8, 1999). Accordingly, the Department specifically 
requested this information in its verification outline. At 
verification, CSN prepared a printout of the quantity and value of 
those U.S. sales which left the mill (i.e., which had a nota fiscal 
date) during the POI, but were not invoiced until after the POI (see 
Exhibit 27 of CSN's Sales Verification Report), which represent 
unreported U.S. sales.
    Since CSN failed to follow explicit instructions in the 
questionnaire, or to contact the Department to determine whether an 
alternate reporting basis was appropriate, we find that CSN did not 
cooperate to the best of its ability. Therefore, as adverse facts 
available, we are applying the highest calculated margin to those U.S. 
sales. The Department finds that this margin is indicative of CSN's 
customary selling practices and is rationally related to the 
transactions to which the adverse facts available are being applied.
    Comment 6: Affiliation. Petitioners contend that despite explicit 
instructions in the Department's questionnaire to report U.S. prices 
that are ``calculated from the price at which the subject merchandise 
is first sold to a person not affiliated with the foreign producer or 
exporter,'' CSN inappropriately reported as its ultimate U.S. price the 
transaction between itself and a trading company to which CSN has 
numerous connections. Petitioners note that in response to the 
Department's request for additional information on the relationship 
between CSN and this customer, CSN stated that its customer is ``simply 
a trading company that receives a commission from its suppliers.'' See 
Section A of CSN's Supplemental Response, January 19, 1999, p. 41.
    Petitioners claim that CSN failed to inform the Department that the 
person who manages the trading company's daily operations is also a 
board member of both CSN and the trading company's controlled 
subsidiary, Emesa, which, petitioners point out, CSN acknowledges as a 
``related party.'' According to petitioners, the fact that the manager 
of the trading company's operations is ``required by law to act in the 
best interest of CSN'' further demonstrates an affiliation between the 
two parties. Petitioners assert that, faced with similar circumstances 
in the past, the Department not only deemed companies to be affiliated, 
but also collapsed companies, based on overlapping board involvement by 
senior managers. In support of their position, petitioners cite the 
Final Results of New Shippers Antidumping Duty Administrative Review of 
Certain Welded Carbon Standard Steel Pipes and Tubes From India, 62 FR 
47632, 47639 (September 10, 1997) (Steel Pipes and Tubes From India).
    In addition, petitioners note that CSN's Sales Verification Report 
reveals a surprising similarity in terminology between Brazilian GAAP's 
definition of a related party and the Act's definition of an affiliated 
entity (see Exhibit 2a, p. 4 and 771(33) (1995) of the Act). As stated 
under Brazilian GAAP, petitioners claim that CSN's transactions with 
the trading company should also be described as ``lacking the 
independence that characterizes the transactions with independent third 
parties.'' Ibid. Petitioners also contend that the language of the 
Brazilian GAAP suggests other undisclosed links between the two 
parties. For example, even though CSN has stated that there is no 
controlling relationship between itself and the trading company's 
subsidiary, Emesa, CSN's 1998 Financial Statement indicates that Emesa 
is related to CSN. Moreover, petitioners note that CSN's disclosure of

[[Page 38769]]

the trading company's subsidiary as a related party is in isolation. 
The important point, according to petitioners is that the subsidiary is 
defined as a related party even though CSN did not fully disclose why 
it was deemed a related party.
    Petitioners conclude that the evidence on the record indicates that 
the Department should not base its final determination on the reported 
transaction prices between CSN and the trading company. Rather, the 
Department should resort to adverse facts available and apply the 
highest transaction margin in the petition or the highest calculated 
transaction margin to these sales.
    CSN rejects petitioners' conclusion that the trading company and 
CSN are affiliated because a customer of CSN owns a percentage of 
Emesa, which in turn owns 1.1% of CSN. The fact that one of the 
officers of the trading company sits on the boards of both Emesa and 
CSN is equally unconvincing in CSN's view.
    CSN contends that petitioners' reasoning cannot possibly lead to a 
determination that Emesa, with only 1.1% of CSN shares, controls CSN. 
Moreover, CSN notes that Emesa must vote with the majority of the 
parties to the shareholders' agreement and consequently has as little 
power as other shareholders with similar percentage holdings in CSN.
    According to CSN, the critical question regarding Mr. Netto's 
position as an officer of the trading company and a member of CSN's 
board, is whether Mr. Netto is in a position to control both companies. 
While Mr. Netto may be able to control the trading company, CSN 
maintains that he has no ability to control CSN because Emesa, the 
company he represents, holds only 1.1 % of CSN shares.
    Furthermore, CSN argues that evidence on the record shows that CSN 
board members play no role in setting prices (see CSN's Sales 
Verification Report, pp. 4-5). To confirm this statement, CSN ran the 
traditional arm's length test used by the Department and found that 
sales to this customer passed the test, i.e., the prices charged to 
this company were not lower than the prices charged to its other U.S. 
customers.
    For all the above reasons, CSN urges the Department to use the U.S. 
sales data as reported by CSN (i.e., CSN's sales to the trading 
company) and not require CSN to report the resales of the trading 
company.
    Department's Position: We agree with CSN. Section 771(33) of the 
Act provides that the following persons are affiliated: (A) Members of 
a family; (B) any officer or director of an organization and such 
organization; (C) partners; (D) employer or employee (E) any person 
directly or indirectly owning, controlling, or holding with power to 
vote, 5% 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 other 
person.
    An examination of each of these criteria results in the conclusion 
that the trading company and CSN are not affiliated pursuant to section 
771(33) of the Act. The relationships among the trading company, Emesa, 
and CSN, and the connection that Mr. Netto has to each as a board 
member of CSN and a corporate officer of the trading company and of 
Emesa provide, the basis for petitioners' conclusion that CSN and the 
trading company are affiliated. First, section 771(33)(A) of the Act is 
inapplicable because evidence on the record does not reveal any 
familial ties among the three entities and Mr. Netto. Nor is the 
relationship between CSN and its customer, the trading company, one of 
a partnership or employer or employee within the meaning of sections 
771(33)(C) and (D) of the Act.
    As a corporate officer of the trading company and a member of CSN's 
board, the Department considers Mr. Netto affiliated to the trading 
company and CSN pursuant to section 771(33)(B) of the Act. As a 
corporate officer of the trading company, Mr. Netto may be able to 
control that entity within the meaning of section 771(33), but he is in 
no position to control CSN because Emesa, the company he represents on 
CSN's board, holds only 1.1% of CSN's shares. We find this percentage 
ownership, even with Emesa's participation in CSN's shareholders 
agreement, insufficient to establish that Emesa is in a position to 
control CSN, as required under section 771(33)(F) or (G) of the Act. 
Moreover, Mr. Netto is obligated to vote with the majority of the 
parties to the shareholders' agreement and has little say in the 
operations of CSN. Mr. Netto's affiliation with the trading company and 
CSN does not put him in a position to control CSN or Emesa, even though 
he is on the board of each of these companies.
    Finally, section 771(33)(E) of the Act, which considers any persons 
or parties affiliated if they directly or indirectly own, control, or 
hold with power to vote 5% or more of the outstanding votes in a 
company, does not apply. Although Emesa is considered a subsidiary of 
the trading company, its 1.1% voting share in CSN's stock does not meet 
the statutory criteria.
    In conclusion, we find no basis for affiliation between CSN and its 
customer, the trading company. Petitioners' reliance on the similarity 
between the Brazilian GAAP's definition of a ``related party'' and the 
Act's definition of an ``affiliated party'' is irrelevant. A similarity 
in the definition of two words does not necessarily give them the same 
meaning, especially when applied in different circumstances. 
Petitioners provide no support for their conclusion that CSN's dealings 
with the trading company ``lack independence.'' Finally, the fact that 
CSN's 1998 financial statement indicates that Emesa is related to CSN 
does not establish that CSN is affiliated with the trading company 
within the meaning of section 771(33) of the Act.
    Therefore, for this final determination, we are using the U.S. 
sales between CSN and the trading company as reported by CSN.
    Comment 7: Commissions. Petitioners object to CSN's 
characterization of a certain payment directly to CSN's customer as a 
``commission,'' when, in fact, it is a rebate or discount. According to 
petitioners, when customers receive payments from suppliers, those 
payments cannot be classified as commissions unless the party that 
receives the payment is functioning solely as a commissionaire and not 
as a purchaser--which is not the case in this instance. Petitioners 
state that there is no dispute in this investigation that the so-called 
``commission agent'' is affiliated with the U.S. customer. Therefore, 
petitioners contend that the Department should follow its practice of 
treating payments made directly to the U.S. customer or to a customer's 
affiliate as a rebate or discount, not a commission. Petitioners cite 
the Preliminary Determination of Sales at Less-than-Fair-Value; Open-
End Spun Rayon Singles Yarn from Austria, 62 FR 14399, 14401 (March 26, 
1997), (Preliminary Determination of Spun Rayon Singles Yarn) in 
support of their position.
    CSN claims that petitioners' reading of this case improperly 
suggests that the Department's analysis focuses entirely on whether an 
unaffiliated purchaser resells subject merchandise to a party with whom 
that purchaser is affiliated. CSN notes that petitioners conceded that 
the Department reversed its preliminary determination to treat the 
commission as rebates in the Final Determination of Sales at Less Than 
Fair Value of Open-End Spun Rayon Singles

[[Page 38770]]

Yarn From Austria, 62 FR 43708-09 (August 15, 1997) (Final 
Determination of Spun Rayon Singles Yarn) after it learned that the 
unaffiliated purchaser indeed acted as a commissionaire. CSN claims 
that contrary to what petitioners suggest, the Department did not 
reverse its treatment of the commission from the Preliminary 
Determination to the Final Determination of Spun Rayon Singles Yarn 
solely because the selling agent and the selling agent's customer were 
unaffiliated, but because the unaffiliated selling agent ``performed 
the functions of a commission agent'' and because the respondent made 
``payments directly to the selling agent for services rendered in the 
sales transaction'' See Id.
    CSN states that it pays a commission directly to the affiliate of 
its ultimate customer, not to these companies' customers, for the 
selling services these companies perform for CSN (e.g., handling the 
paperwork involved in a sale). Moreover, CSN directly invoices the 
ultimate customers and consistently refers to the payments it makes to 
these two parties as commissions in its accounting records.
    CSN also rejects petitioners' claim that its payments to another 
customer for sales services are rebates because the party is a 
customer, not a commissionaire. According to CSN, this party earns the 
commission by establishing a portion of CSN's export business in the 
United States and handling sales paperwork and claims that arise from 
that portion of CSN's export business. For these reasons, and the fact 
that CSN refers to these payments as commissions in its questionnaire 
responses and its accounting records, CSN maintains that the Department 
was correct in treating these payments as commissions.
    Department's Position: We agree with CSN. Generally speaking, a 
commission is a payment to a sales representative for engaging in sales 
activity. See, e.g., Antifriction Bearings (Other Than Tapered Roller 
Bearings) and Parts Thereof From France, et al.; Final Results of 
Antidumping Duty Administrative Reviews, and Revocation in Part of the 
Antidumping Duty Orders, 60 FR 10900, 10914 (February 28, 1995). A 
discount is a reduction in price to a customer, while a commission is a 
form of payment for services. Therefore, the issue is not whether or 
not the trading company is affiliated with the customer but whether 
there was one transaction between CSN and the ultimate customer in 
which the trading company acted as sales agents for a commission; or 
whether there were two transactions, one in which the trading company 
bought from CSN and received a discount on the price for that initial 
sale and subsequently resold the merchandise to the ultimate purchaser. 
See Certain Cold-Rolled Carbon Steel Flat Products from Germany; Final 
Results of Antidumping Duty Review 60 FR 65264, 65277-8 (December 19, 
1995); Certain Carbon Steel Products from Austria; Final Determination 
of Sales at LTFV, 50 FR 33365 (August 19, 1985).
    The general purpose and administration of the payments at issue is, 
in most instances, consistent with the characteristics of commissions 
to trading companies outlined in the Final Determination of Sales at 
Less-Than-Fair Value: Stainless Steel Angle from Japan, 60 FR 16608, 
16611 (March 31, 1995): The Department has recognized that commissions 
paid to trading companies have certain characteristics: (1) They are 
agreed upon in writing, (2) they are earned directly on sales made, 
based on flat rates or percentage rates applied to the value of 
individual orders, (3) they take into consideration the expenses which 
a trading company incurs, and (4) they take into consideration the 
sales and marketing services performed by a trading company in lieu of 
an exporter/manufacturer establishing its own larger sales force. See 
Gray Portland Cement and Clinker From Japan; Final Results of 
Antidumping Duty Administrative Review, 61 FR 67308-67318 ( December 
20, 1996) and Oil Country Tubular Goods from Austria, 60 FR 33551 (June 
28, 1995) (OCTG from Austria).
    Although CSN does not maintain general commission agreements with 
either the agents or with the trading companies it uses, the commission 
rate is negotiated on a sale-by-sale basis and is referenced on the 
``production order'' that CSN issues upon receiving an order from a 
client. See Document B in Exhibit 5 of CSN's Section A Response.
    Commissions are normally set at given rates prior to sale. During 
the POI, CSN's commission rate remained constant, regardless of the 
price of the individual sale or the trading company involved. The 
trading companies used for sales of the subject merchandise performed 
the functions of a commission agent. CSN characterizes its payments to 
these trading companies as recognition for services performed in the 
sales process. As such, they are by nature sales commissions (see OCTG 
From Austria).
    Each U.S. sale involved one transaction between CSN and its U.S. 
customer. CSN, through CSN Overseas or CSN Cayman, invoiced the U.S. 
customer directly. The U.S. customer, not the selling agent, paid for 
the merchandise. If CSN had paid the ``commission'' to the ultimate 
unaffiliated U.S. customer the expense would be considered a discount 
on the price between the U.S. customer and CSN. CSN paid the trading 
companies a commission in a separate transaction for services rendered. 
Moreover, at verification we established that the payments CSN made to 
the trading companies during the POI were administered and documented 
as commissions in CSN's accounting records. See CSN's Section A 
Response to the Department's Questionnaire, Exhibit 5.
    Comment 8: Overruns. Petitioners maintain that, consistent with its 
prior practice, the Department should not include overrun sales in its 
calculation of normal value because these sales are not in the ordinary 
course of trade.
    In CSN's opinion, the fact that these products are sold out of 
inventory does not make them a different product from that which is 
produced to order. CSN concedes that if the product were non-prime 
quality, petitioners would have a good argument. However, CSN states 
that these products are mostly prime-quality merchandise. CSN maintains 
that the fact that these products are sometimes sold at a discount is 
no reason to exclude them.
    Department's Position: We agree with respondent. To determine if 
sales or transactions are outside the ordinary course of trade, the 
Department evaluates all of the circumstances particular to the sales 
in question. Examples of sales that we might consider outside the 
ordinary course of trade are sales involving off-quality merchandise or 
merchandise produced according to unusual product specifications, 
merchandise sold at aberrational prices or with abnormally high 
profits, merchandise sold pursuant to unusual terms of sale, or 
merchandise sold to an affiliated party at a non-arm's length price. 
See 19 CFR 351.102.
    In its questionnaire response, CSN stated that it generally 
produces to order. Sometimes, however, the company runs coil that 
weighs more than the customer will accept or is of a quality that meets 
the necessary specifications but does not meet the customer's 
particular quality expectations. The product is set aside to be sold 
out of inventory to other customers that will accept it. CSN then 
assigns an order confirmation number identifying the sale as an 
overrun. At verification we learned that overruns, like any of the 
merchandise produced by CSN can occasionally be judged as off-quality 
by a committee of production engineers, be placed in inventory, and

[[Page 38771]]

subsequently sold as non-prime product. However, the merchandise can 
just as readily involve the wrong dimensions for a specific customer's 
order and continue to be sold as prime merchandise.
    Moreover, CSN did not produce any of the subject merchandise 
according to unusual specifications. Nor were any of CSN's products 
sold at aberrational prices, with abnormally high profits, or sold 
pursuant to unusual terms of sale.
    Finally, at verification we determined that those sales classified 
as overruns by CSN were only sold in the home market and represent such 
an insignificant portion of total home market sales during the POI that 
their effect on the margin, if any, would be negligible (see Exhibit 9 
(c) of CSN's Sales Verification Report). Since the factors that the 
Department considers in determining if merchandise is outside the 
ordinary course of trade are not germane to the sales CSN classifies as 
overruns, we do not think they warrant exclusion from the home market 
database.
    Comment 9: Duty Drawback. Since CSN failed to present the requested 
information on duty drawback at verification, petitioners state that 
consistent with the Act and Department practice regarding information 
that is unverified, the Department should disallow any duty drawback 
adjustment for purposes of this final determination.
    CSN counters that it is not uncommon for the Department to decline 
to verify several items during the course of a verification. In fact, 
CSN notes that this practice is specifically endorsed in the 
Department's Antidumping Manual (see Chapter 13, pp. 5-6, January 22, 
1998). CSN states that since this item has a relatively small impact on 
the antidumping margin and verification of duty drawback adjustments 
can take an inordinate amount of time, the Department elected not to 
verify CSN's duty drawback adjustment. CSN concludes that denial of 
this adjustment would be inconsistent with Department policy and would 
set a bad precedent for future cases.
    Department's Position: We disagree with petitioners. The 
petitioners are incorrect in stating that it is consistent with the Act 
and Department practice to disallow any unverified adjustment. In 
Monsanto v. United States, 698 F. Supp 275, 281 (CIT 1988) the Court 
upheld the Department's discretion to pick and choose which items it 
wants to examine in detail. The Court stated that ``verification is a 
spot check and is not intended to be an exhaustive examination of the 
respondent's business.'' Id. In addition, in the Department's 
Antidumping Duty Manual we state the following:

    Usually, it is not necessary, nor is there time to verify every 
bit of data in the questionnaire response. Therefore, it is critical 
to rank your verification topics in priority . . . . The fact that 
an item was not actually verified will not mean that the item is 
unverified. Verifications involve a great deal of sampling. 
Consequently, assumptions about items not selected for verification 
will depend on how the verification went for the selected items . . 
. .

    Due to time constraints and the relatively small impact of the duty 
drawback adjustment on the dumping margin, it was mutually agreed that 
other adjustments (e.g., interest rate for imputed credit) were of 
greater significance. Therefore, we did not examine the documentation 
relating to CSN's duty drawback adjustment. We have continued to adjust 
U.S. price for duty drawback in this final determination.
    Comment 10: Inland Freight Costs. Petitioners cite a number of 
instances in the Department's Verification Report where it was unable 
to verify CSN's reported home market and U.S. inland freight costs. 
Moreover, petitioners note that the Department was unable to verify the 
arm's length nature of CSN's freight expenses with MRS and FCA, both 
rail companies in which CSN owns shares.
    Accordingly, petitioners maintain that the Department should not 
rely on CSN's reported amounts, but rather should resort to (adverse) 
facts available, using either zero or the lowest amount reported for 
home market sales and the highest amount reported for all U.S. sales.
    CSN strongly objects to petitioners' recommendation that the 
Department use adverse facts available for its home market and U.S. 
inland freight expenses. CSN points out that for each of the many 
shipments which leave its mill every day, it receives an invoice from 
the transportation company, the amounts of which are input manually 
into CSN's nota fiscal database. According to CSN, since verification 
of these amounts involved searching manually for the transportation 
invoice(s) associated with each selected sale, time did not permit 
finding all of the documentation for the pre-selected and surprise 
sales chosen by the Department.
    In response to petitioners' claim that CSN could not establish the 
arm's length nature of its rail expenses, CSN states that MRS's 
financial statements during the POI demonstrate its profitability. CSN 
also showed the arm's length nature of its purchase of transportation 
services from FCA by comparing the rates charged to CSN with the rates 
charged to unaffiliated customers for similar distances and similar 
products.
    CSN points out that it did not provide documents showing that the 
reported inland freight amounts were wrong. It simply did not have 
enough time. CSN concludes that since the integrity of the reported 
amounts was never questioned, the Department should find CSN's 
methodology for reporting inland freight to be reasonable and accurate. 
If the Department determines otherwise, CSN suggests the following: an 
alternative combined port expense/inland freight adjustment (see CSN's 
Sales Verification Report, p. 29 and Exhibit 23) for U.S. sales; use 
the amount in CSN's income statement for the POI for freight and divide 
by the POI sales value for a factor to be applied to the gross unit 
price).
    Department's Position: We agree with CSN. At verification we 
determined that CSN used the actual freight expenses incurred for its 
home market inland freight expenses. We were able to trace these 
amounts to CSN's nota fiscal database. For U.S. inland freight 
expenses, the only error as noted by CSN during verification was the 
incorrect coding of a U.S. shipment by truck when, in fact, the 
merchandise was shipped by rail. Since trucking is more expensive than 
rail, this error was not to CSN's advantage.
    In addition, we cannot accept petitioners' claim that CSN's freight 
expenses were not made at arm's length. MRS' financial statements 
during the POI indicate that the rail company sold above its cost of 
production and the Department's cost verifiers noted its net 
profitability in its financial statements covering the POI (see Exhibit 
14 of CSN's Section A Response, November 16, 1998 and CSN's Cost 
Verification Report, April 8, 1999, p. 14). In addition, in its 
Supplemental Section BCD Response, CSN demonstrated the arm's length 
nature of its purchase of FCA transportation services, showing CSN's 
expenses as greater than the average rate charged to other FCA 
customers.
    We are satisfied that CSN demonstrated the integrity of its home 
market and U.S. inland freight expenses. Moreover, CSN showed that its 
transactions with the affiliated rail companies were arm's length in 
nature. Therefore, we have accepted CSN's freight expenses as reported 
for the final determination.
    Comment 11: Imputed Credit. According to CSN, the Department erred 
in its calculation of both U.S. and home market imputed credit in the

[[Page 38772]]

Preliminary Determination. CSN objects to the Department's use of the 
period between the ex-factory date and date of payment by the customer 
in calculating U.S. credit. In its calculation of home market credit, 
CSN contends that the Department should use the gross unit price, 
inclusive of ICMS and IPI, and not the net unit price.

U.S.

    CSN argues that the ex-port shipment date more accurately reflects 
the theory behind the U.S. imputed credit adjustment. According to CSN, 
under the time value of money theory, a seller begins losing money the 
day the product is released from its possession for delivery to a 
customer until the day the seller receives payment from the customer. 
To support its opinion, CSN cites the CAFC in LMI-LaMetalli Industriale 
v. United States, 912 F.2d 455, 460-61 (Fed. Cir. 1990)(LMI-LaMetalli), 
which stated that the imputation of credit costs ``must correspond to a 
. . . figure reasonably calculated to account for such value during the 
gap between delivery and payment.''
    CSN asserts that the Department determined during verification that 
shipment of the product to the port simply represents the day the 
product leaves the mill for the port, where it may or may not be placed 
on a ship for export. CSN notes that the nota fiscal, not the 
commercial invoice, accompanies the merchandise to the port, where it 
can then be diverted to other markets, including the home market. CSN 
states that since ``delivery'' can only be deemed to begin when the 
product leaves the port, the Department should use ex-port date to 
calculate U.S. imputed credit expenses.
    Petitioners point out that CSN recognizes that the appropriate 
calculation of U.S. credit is inextricably linked to the issue of the 
appropriate U.S. date of sale. Since the Department correctly used the 
date of the nota fiscal as the date of sale in the Preliminary 
Determination, petitioners believe the U.S. imputed credit should be 
calculated from this date to the date of payment by the customer.
    Petitioners note that CSN has reported that the vast majority of 
its U.S. sales are produced to order. Therefore, they conclude that CSN 
knows that the product is destined for the United States in most 
instances. As support for their argument, petitioners point out that 
the Department verified that the only merchandise diverted to the home 
market is damaged merchandise. See CSN's Sales Verification Report, p. 
9. In petitioners' opinion, CSN is asking the Department to determine 
the date of sale, and thereby, the appropriate date for calculating 
imputed credit costs, on exceptional cases rather than on the vast 
majority of sales.
    Moreover, regardless of its destination, petitioners contend that 
the product, once it leaves the factory, incurs an imputed credit cost. 
This, according to petitioners, is the ``commercial reality'' which 
must be reflected in the Department's calculations. See, LMI-LaMetalli 
v. United States, 912 F.2d 455 (Federal Circuit 1990); cf CSN's Case 
Brief, p. 5.
    Alternatively, petitioners state that if no credit cost is incurred 
until shipment from the port, then CSN must incur an inventory carrying 
cost for the time between shipment from the factory and shipment from 
the port.

Home Market

    CSN views the Department's calculation of the home market imputed 
credit adjustment net of ICMS and IPI taxes as inappropriate because 
the money lost as a result of the passage of time between shipment to 
the customer and the receipt of payment from the customer is the entire 
amount of the payment due on the invoice (i.e., inclusive of on-invoice 
taxes).
    CSN states that it is required to pay the government each month for 
the amount of the invoiced ICMS and IPI it collects (net of credit for 
taxes paid on inputs). CSN emphasizes that it alone is responsible for 
any time value of money losses it incurs as a result of extending its 
customers' credit terms. Therefore, CSN asserts that the basis for the 
calculation of home market credit should be the gross unit price, 
inclusive of taxes.
    To support its position, CSN cites the final LTFV determination in 
Silicon Metal from Brazil, 56 FR 26982 (June 12, 1991) as precedent for 
this approach: ``The ICMS incident to a home market sale is outstanding 
until the time that the customer pays for its merchandise. Until the 
customer pays . . . the (producer) cannot use the ICMS collected on the 
sale to offset the ICMS it has paid on purchases of materials used in 
the production of the subject merchandise * * * . Therefore, we have 
included the ICMS in the home market price when calculating imputed 
credit expenses.'' The respondent also cites the CAFC, in LMI-LaMetalli 
v. United States, which stated that the imputation of credit cost, as 
``a reflection of the time value of money, * * * must correspond to a * 
* * figure reasonably calculated to account for such value during the 
gap between delivery and payment,'' and that it should conform with 
``commercial reality.'' 912 F.2d at 460-61.
    CSN concludes that the VAT taxes in Brazil, which are included on 
each invoice, are a part of the time value losses incurred by Brazilian 
companies when extending credit terms to their customers. Therefore, it 
reflects commercial reality to include these taxes in the home market 
imputed credit adjustment.
    Petitioners argue that the Department correctly calculated home 
market credit expenses using a price net of ICMS and IPI taxes. 
(Petitioners noted that although the Department intended to calculate 
home market credit expenses net of taxes, it inadvertently failed to do 
so in the computer programming.) They maintain that there are no credit 
costs associated with the ICMS and IPI payments to the government 
because CSN admits that it does not pay these taxes until it collects 
from its customers. Petitioners state that even if CSN pays the 
government on an invoice-specific basis, these taxes are only paid once 
a month. Moreover, the record contains no data which correlates 
shipments, customer payments to CSN, and CSN's payment of VAT taxes to 
the government, which would permit the accurate calculation of the 
claimed imputed credit cost adjustment.
    Regarding CSN's contention that an imputed credit cost inclusive of 
ICMS and IPI taxes is warranted because the producer cannot use the 
ICMS collected on the sale to offset the tax paid on raw materials used 
in the production of the merchandise, petitioners argue that the 
imputed credit costs would be incurred only on the amount of the VAT on 
the raw material costs and not on the finished product. Furthermore, 
petitioners maintain that this imputed credit cost would have to 
reflect the CSN payment period on raw material purchases for both home 
market and exported merchandise. Petitioners add that even if CSN did 
pay the VAT on the final product prior to payment from CSN's customer, 
the period for home market imputed credit costs would be the date of 
payment to the government, not the date of shipment.
    Petitioners note in the Final Results of the Antidumping 
Administrative Review of Certain Cut-to-Length Carbon Steel Plate from 
Brazil, 62 FR 18486, 18488 (April 15, 1997), the Department stated that 
there is no statutory or regulatory requirement for making this 
adjustment. According to petitioners, to allow the type of credit 
adjustment suggested by the respondents would imply that in the future 
the Department would be faced with the virtually impossible task of 
trying to determine

[[Page 38773]]

the potential opportunity cost or gain of every charge and expense 
reported in respondents' home market and U.S. databases.
    Therefore, petitioners conclude that the Department should continue 
to use its well-supported and consistent practice of calculating 
imputed home market credit expenses net of ICMS and IPI taxes.
    Department's Position: Both petitioners and the respondent are 
incorrect in their contention that the credit period is inextricably 
linked to the date of sale. As cited by petitioners, the seller begins 
losing money the day the product is released from its possession for 
delivery to a customer until the day the seller receives payment from 
the customer. This period comprises the imputed credit period. It is 
the Department's longstanding policy when calculating imputed credit to 
use the period between the date of shipment from the factory and the 
date of payment by the customer. See Notice of Final Results of 
Antidumping Duty Administrative Review; Ferrosilicon From Brazil, 62 FR 
43508 (August 14, 1997).
    CSN's characterization of the ex-factory date as ``simply the day 
the product leaves the mill for the port, where it may or may not be 
placed on a ship for export'' is misleading. The ex- factory date is 
the date marking the commencement of delivery of an order to a specific 
customer. The imputation of credit costs ``must correspond to a * * * 
figure reasonably calculated to account for such value during the gap 
between delivery and payment.'' See LMI-LaMetalli, 912 F.2d at 460-61.
    Since the vast majority of CSN's sales are produced to order, CSN 
knows which products are destined for the United States when the 
product leaves the factory. Diverting an order of merchandise destined 
for export to a home market customer because of damage or some other 
reason is certainly the exception, not the rule, as CSN seems to 
characterize it.
    CSN itself characterized the calculation of the imputed credit 
adjustment as ``the difference between ex-factory shipment date and 
payment date divided by 365 multiplied by the interest rate multiplied 
by the gross unit price. See CSN's Section C Response to the 
Department's Questionnaire, p. C-34.
    Therefore, we have continued to use the day the product leaves the 
factory for delivery to a customer until the day the seller receives 
payment from the customer as the period for the calculation of both 
home market and U.S. imputed credit.
    With regard to CSN's contention that home market imputed credit 
should be calculated using a gross price, the Department agrees with 
petitioners that home market imputed credit expense should be 
calculated using the price net of taxes, rather than the gross unit 
price. It is the Department's practice not to impute credit expenses 
related to VAT payments. Nor is there any statutory or regulatory 
requirement for making the adjustment proposed by the respondent.
    While there may be an opportunity cost associated with the 
respondents' prepayment of the VAT, this fact alone is not a sufficient 
basis for the Department to make an adjustment in price-to-price 
comparisons. Virtually every charge or expense associated with price-
to-price comparisons is either prepaid or paid for at some point after 
the cost is incurred. Consequently, there is potentially an opportunity 
cost or gain associated with each expense. To allow the type of credit 
adjustment suggested by CSN would imply that the Department would have 
the impossible task of trying to determine the opportunity cost or gain 
of every charge and expense reported in the respondent's U.S. and home 
market databases. Therefore, we have changed the computer program for 
this final determination to reflect our intention in the Preliminary 
Determination of calculating home market imputed credit expenses using 
the price net of VAT taxes. See Certain Cut-to-Length Carbon Steel 
Plate from Brazil, 62 FR 18488, (April 15, 1997); Notice of Final 
Determination of Sales at LTFV: ESBR from Korea, 64 FR 14865, 14868-69 
(March 29, 1999).
    Comment 12: Late Payment Fee. CSN objects to the Department 
imputing a late payment fee on CSN's home market sales when payment had 
not been received by the date of CSN's January 25, 1999 submission. CSN 
notes that imputing such late payment fees for these sales is 
inappropriate because the Department discovered at verification that 
CSN does not always charge its customers with these late payment fees. 
The Department, therefore, should not add the imputed fees to CSN's 
home market price.
    Petitioners, however, maintain that in the Preliminary 
Determination the Department correctly imputed late payment fees for 
home market sales with missing payment dates because this reflects 
commercial reality, and CSN's stated policy. Since the Department found 
at verification that it was CSN's practice to charge late payment fees, 
petitioners state that it is only logical to impute late payment fees 
for sales that have missing payment dates. The burden was on CSN to 
provide specific information on those sales exempt from a late payment 
fee. In fact, petitioners note that it is the Department's practice to 
supply facts available data where the information on the record is 
missing or inadequate. See Final Determination of Sales at Less Than 
Fair Value; Certain Preserved Mushrooms from Chile, 63 FR 56613, 56622 
(October 22, 1998). Given that it is CSN's practice to charge late 
payment fees and CSN failed to report payment dates on a number of 
sales, petitioners believe the Department's decision to impute late 
payment fees was reasonable and in accordance with commercial reality. 
Moreover, the burden was on CSN to provide specific information on 
those sales exempt from late payments.
    Department's Position: We agree with petitioners. Although CSN's 
statement that late payment fees on home market sales were not always 
assessed was borne out at verification, it is CSN's general policy to 
require a late payment fee. In fact, in the course of the sales 
verification, we noted that specific rates for late payments appeared 
on the invoices of some of the customers. Absent any specific 
information which would indicate which sales were exempt from payment 
of a late fee, for this final determination, the Department has assumed 
that CSN assesses a late payment fee on home market sales under the 
contractual sales terms.
USIMINAS/COSIPA
    Comment 13: What Constitutes Verification. In several comments, 
respondents disagree with the Department's assessment in USIMINAS'' and 
COSIPA's Sales Verification Reports of what constitutes a verified 
item. Specifically they dispute the use of terms such as ``spot-
checking,'' ``unable to fully review,'' and ``unverified.'' They 
particularly disagree with the Department's assessment in the USIMINAS 
and COSIPA verification reports that several items were deemed 
unverified ``because the Department has not reviewed that item, or not 
reviewed all accounting records related to that document or 
transaction.'' They find the Department's practices in several 
instances to not be in keeping with Chapter 13 of the Department's 
Antidumping Manual. Furthermore, respondents argue that the vast 
majority of their fundamental sales and cost data verified.
    In referring specifically to certain home market sales trace 
packets, respondents disagree with the term ``spot checking,'' since 
they believe that

[[Page 38774]]

the documents reviewed in fully verified traces were similar to those 
reviewed in spot checks. Respondents believe that both types of checks 
included the documents of internal order allocation screen, nota 
fiscal, order confirmation sheet, mill certificate, and the bill of 
lading. USIMINAS states that the only additional documents found in a 
fully verified trace were bank documents, accounting ledgers, and 
payment advices. Additionally, respondents argue that checking every 
document for every field in order to consider them fully verified 
contradicts Department practice as noted in the Antidumping Manual, 
Chapter 13, 47-50. They note that this section of the manual says the 
goal of this phase of verification is to verify the details of each 
sale, such as date of sale, product description, customer, destination, 
date of invoice, date of shipment, quantity, price, credit terms, and 
date of payment.
    USIMINAS also disagrees with the Department's use of the expression 
``unable to fully review'' in referring to a sales trace and dispute 
the accuracy of this phrase. Respondents also do not believe that they 
suggested that the Department ``spot check'' sales traces but rather 
insisted that the Department ``move on and verify the items that are 
most important to the verification'' so as not to spend an ``inordinate 
amount of time verifying such insignificant expenses'' as had been 
verified in previous sales traces. USIMINAS cited the length of the 
COSIPA inland insurance and the USIMINAS indirect selling expense 
exhibits, noting the insignificance of these adjustments.
    Petitioners argue that the Department should stand by its verified 
sales findings in the final determination. They believe that 
respondents were ``woefully unprepared'' for verification and little of 
the submitted information could be verified. In citing Chapter 13 of 
the Antidumping Manual, petitioners note that the Department's 
verifiers correctly followed Departmental practice by examining source 
documents ``rather than simply accepting `explanations' '' offered by 
respondents. Petitioners note that in respondents' first example of a 
spot-checked sales trace, they mistakenly appear to be comparing a home 
market with a U.S. sales trace. Petitioners also argue that absent 
proof of payment and proof of receipt of payment, a sales trace is 
incomplete and cannot be considered ``verified.'' They subsequently 
quote eleven statements in the verification reports that they believe 
demonstrate USIMINAS and COSIPA's general lack of preparation in 
providing fundamental verification documentation. In petitioners' view, 
this lack of preparation and uncooperative behavior call for the 
application of total adverse facts available in the final 
determination.
    Department's Position: As indicated by the USIMINAS and COSIPA 
verification reports, respondents either said they were unprepared or 
preferred to cover other topics at each point when items requested by 
the Department were left unaddressed. In the Department's March 8, 1999 
verification outline sent to USIMINAS and the March 11, 1999 outline 
sent to COSIPA, we stated, ``If your clients are not prepared to 
support or explain a response item at the appropriate time, the 
verifiers will move on to another topic. If, due to time constraints, 
it is not possible to return to that item, we may consider the item 
unverified. Furthermore, if information requested for verification is 
not supplied, or is unverified, pursuant to section 776(a) of the Act, 
we may use facts available for our final determinations, which may 
include information supplied by the petitioners.'' Respondents were 
fully aware that failure to cover items requested by the Department 
could result in these items being considered unverified. The Department 
sought to verify each of the items at issue, but these items were not 
addressed by the company at the time of the request. Further, the 
verification procedures and verification reports were in compliance 
with Departmental procedures laid out in Chapter 13 of the Antidumping 
Manual.
    At the same time, most of the items that Commerce was unable to 
verify are relatively minor and the most essential components of 
verification were successfully completed. The Department, therefore, 
does not agree with petitioners that the use of total adverse facts 
available is warranted. The Department is, instead, applying partial 
facts available where necessary and using an adverse inference where 
appropriate under section 776(b) of the Act. See the Facts Available 
section of this notice and the treatment of specific issues in the 
comments.
    Comment 14: Prioritization and Volume of Material Covered. 
USIMINAS/COSIPA generally argue that the large volume of material the 
Department attempted to review in one week and the time the Department 
spent reviewing ``many items in detail'' did not permit certain items 
to be verified. They disagree with the manner in which the Department 
conducted verification and do not believe the Department followed 
proper time management and prioritization procedures as outlined in 
Chapter 13 of the Antidumping Manual. Respondents had four specific 
comments related to prioritization and time management.
    USIMINAS believes that the Department's attempt to review USIMINAS 
and its downstream affiliates, Rio Negro and Fasal, within one week was 
misguided. It argues that the Department sought to review in detail 
each company's accounting practices, corporate structure, sales 
process, quantity and value, and sales trace documents. The respondent 
believes that this was too difficult and time consuming a task and 
notes that the review of Fasal as discussed in the USIMINAS 
Verification Report took nearly a full day of the USIMINAS 
verification.
    Respondents claim that the Department sought to verify ``numerous 
time consuming and contentious issues'' such as date of sale, order 
confirmation, CONNUM methodologies, and production and cost 
information. Respondents argue that the Department should have allotted 
extra time for the verification, given the level of complexity and 
detail with which the Department reviewed these items.
    Respondents state that the Department requested twenty preselected 
sales traces, fourteen partial sales traces for specific issues in the 
verification report, ten surprise sales traces on the first day of 
verification, and twenty more surprise ``date of sale'' sales traces. 
They argue that retrieving and compiling all the source documents for 
these sales was unduly burdensome for USIMINAS staff to prepare, review 
for accuracy, and present to the Department.
    Lastly, respondents argue that the Department sought to verify each 
item of a sales trace in detail regardless of its importance to the 
Department's calculations. For instance, they believe that the 
Department spent ``hours verifying USIMINAS' inland insurance'' and 
that the length of COSIPA's exhibit on inland insurance demonstrates 
the Department's overemphasis on the issue. Respondents quote sections 
of Chapter 13 of the Department's Antidumping Manual to demonstrate 
that the Department should not ``spend one day verifying inland 
insurance'' and that verifiers should not treat all information with 
the same importance.
    Petitioners argue that the Department did prioritize issues but 
USIMINAS and COSIPA prevented the verifiers from verifying those 
issues. As noted in Chapter 13 of the Antidumping Manual, petitioners 
state that setting priorities is the responsibility of the verifiers, 
not

[[Page 38775]]

the respondents. They argue that the verifiers' efforts to keep the 
verification moving and to set priorities were constantly challenged by 
respondents. They cite thirteen quotations from the verification report 
which they believe support this claim. An example of such a quote is, 
``Although we asked for documentation regarding Dufer's sales process, 
COSIPA requested that we move on to verify other verification subjects, 
and return to Dufer. We never returned to this issue.'' Petitioners 
argue that if USIMINAS and COSIPA could dictate which issues could be 
verified and how deeply, they would be able to ``manipulate the outcome 
of the verification.''
    Petitioners state that ``the verification agenda is not to blame 
for the fact that USIMINAS and COSIPA were unprepared for 
verification.'' They disagree that the ``large volume of material the 
Department attempted to verify'' or the ``considerable time'' the 
Department spent reviewing items were responsible for USIMINAS and 
COSIPA's performance at verification. Petitioners note that the 
Department issues a similarly detailed verification agenda in virtually 
every proceeding and that respondents never complained to the 
Department prior to verification. Petitioners contradict respondents' 
assumption that more time would have allowed verifiers to consider each 
issue by stating that ``virtually no issue could be verified, 
regardless of the amount of time devoted to it.'' For example, 
petitioners note that the Department was unable to verify Fasal's 
quantity and value despite the amount of time spent reviewing Fasal. 
Instead, petitioners argue that respondents were unprepared and 
uncooperative and the Department should apply total adverse facts 
available in the Final Determination.
    Department's Position: In the Department's verification agendas, we 
informed respondents to contact the Department ``[I]f you have any 
questions regarding this verification or if you believe any of the 
verification procedures cannot be performed.'' The Department did not 
receive any submissions from respondents regarding the length or 
breadth of the outline prior to verification. The outlines given to the 
companies were based on Departmental standards with the exception of 
downstream data, a topic only covered when merited by the facts of a 
case. The Department disagrees with respondents' description of the 
amount of time it took to review certain topics such as USIMINAS' 
corporate structure and inland insurance, and notes that the length of 
time it took to cover other topics such as quantity and value was left 
unaddressed by respondents. The verification exhibits themselves 
demonstrate one factor that contributed to the slow pace of 
verification--the number of untranslated pages.
    The Department recognizes that, like many verifications, there was 
a significant amount of material to cover. However, it is the 
Department's responsibility to set priorities and to determine the 
amount of time spent on topics to ensure that the verification moves 
forward. As noted in the Department's verification outline, it is the 
responsibility of the respondents to be prepared for verification to 
allow this information to be covered expeditiously. The Department 
believes that it met its responsibilities and that the time spent 
reviewing certain fundamental issues, such as downstream affiliates, 
date of sale, order confirmation, and CONNUM methodologies was 
appropriate for information essential to this investigation.
    Comment 15: Use of Total Facts Available. Petitioners state that, 
based on multiple problems with USIMINAS' sales verification, the 
Department should apply total adverse facts available. Petitioners 
specifically reference the Department's inability to complete all of 
the pre-selected and surprise sales trace examinations in the home 
market and the U.S. market during its verification of USIMINAS. Based 
on the problems noted in the USIMINAS' Sales Verification Report, 
petitioners question the reliability and accuracy of the following 
reported information in the home market: Taxes, billing adjustments, 
quantity discounts, other discounts, inland freight, inland insurance, 
payment date, credit expense, interest revenue, warranty expense, 
indirect selling expenses, inventory carrying costs, packing expenses, 
and variable cost of manufacture. Petitioners also question, in most 
instances, the reliability of the following reported information in the 
U.S. market: Product characteristics, customer name, date of payment, 
sales terms, terms of payment, level of trade, domestic inland freight, 
domestic brokerage and handling, international freight, destination, 
credit expense, interest revenue, warranty expense, indirect selling 
expenses, packing expenses, and variable costs. Petitioners recommend 
that the Department apply as total adverse facts available, the highest 
rate calculated in the petition, 85.71%.
    Petitioners likewise state that based on multiple problems with 
COSIPA's sales verification, the Department should apply total adverse 
facts available. Petitioners specifically reference the Department's 
inability to complete all of the pre-selected and surprise sales trace 
examinations in the home market and the U.S. market. Petitioners 
question the reliability and accuracy of the following reported 
information in the home market: value-added tax credits on production 
inputs, billing adjustments, quantity discounts, other discounts, 
inland freight, inland insurance, payment date, credit expense, 
interest revenue, warranty expenses, indirect selling expenses, 
inventory carrying costs, packing expenses, and variable cost of 
manufacture. Petitioners question, in most instances, the reliability 
of the following reported information in the U.S. market: product 
characteristics, customer name, order date, sale date, date of 
shipment, date of payment, sales terms, terms of payment, quantity, 
level of trade, domestic inland freight, domestic brokerage and 
handling, destination, credit expense, interest revenue, warranty 
expense, indirect selling expense, packing expense, and variable costs.
    As further argument that the Department should apply total adverse 
facts available in this case, petitioners state that the Department was 
unable to verify the accuracy of the date of sale reported by COSIPA 
for home market sales. Petitioners refer to the COSIPA verification 
where the Department requested specific documents for ten additional 
home market sales. Petitioners state that since the Department only 
received one document for a limited number of the requested sales, that 
the Department cannot be confident that the appropriate date of sale 
was reported for home market sales. Petitioners also maintain that 
other problems discovered at verification are cause to use total facts 
available. Petitioners refer to COSIPA's omission of supplementary 
notas fiscais issued during the period of investigation, the 
Department's inability to verify the reported order confirmation date, 
and instances where the Department requested but did not receive sales 
process information and documentation. Furthermore, petitioners refer 
to problems with verification of COSIPA's quantity and value. 
Petitioners highlight instances where the company neglected to report 
certain home market sales to the Department for more than one customer. 
Petitioners recommend that the Department apply as total adverse facts 
available, the highest rate calculated in the petition, 85.71%.
    Respondents do not feel that the information willingly submitted by

[[Page 38776]]

USIMINAS and COSIPA satisfies the high threshold for the application of 
total adverse facts available. Respondents refer to Borden, Gooch Foods 
and Hershey Foods v. United States, 4 F. Supp. 2d. 1221, 1244 (CIT 
1998) (Borden Foods), to support their opinion that it is not proper 
for the Department to apply total adverse facts available in this 
investigation. Respondents provide several facts to support their claim 
that they cooperated fully in these proceedings. First, respondents 
point to the number of questionnaire and supplemental questionnaire 
responses that they have submitted in this investigation as evidence 
that they have fully cooperated. In addition to the numerous 
questionnaire responses, respondents note the refinements to submitted 
data that were researched by hand, such as multiple payment dates, 
calculating actual freight amounts, creating additional CONNUMS for 
unique qualities, creating additional methodologies to report missing 
carbon and yield strengths, and designing and implementing complicated 
computer programs to extract scope merchandise based on chemical 
composition. Respondents refer to NSK Ltd. and NSK Corp. v. United 
States, 919 F. Supp. 422, 448 (CIT 1996) (NSK Ltd.) and Ferro Union v. 
United States, Slip Op. 99-27 (CIT March 23, 1999) (Ferro Union), as 
support for their argument that the Department should not accept 
petitioners' suggestion that it disregard months of work on USIMINAS' 
and COSIPA's parts in lieu of total facts available since they 
cooperated throughout the proceeding. Second, respondents state that 
the USIMINAS and COSIPA opened up company books, records, and computer 
systems to Department officials during verification. Respondents state 
that they brought representatives of the affiliated resellers to their 
own locations to provide source documentation and maintain that they 
prepared volumes of information for verification. Respondents argue 
they did not hamper the investigation in any way and state that it was 
only when the companies were faced with unrealistic demands at 
verification that they were unable to provide all the information 
sought by the Department.
    Respondents refute petitioners' claim that much of the submitted 
data was unverified, claiming that value and volume, product 
characteristics, date of sale, sales processes, accounting processes, 
corporate structures, and production processes were fully verified. 
Respondents assert that quantity and value were verified and that any 
discrepancies were either noted at the beginning of verification, or 
minor errors discovered during the course of verification. Respondents 
state that petitioners did not allege any significant errors regarding 
the quantity and value of respondents' reported sales. Respondents 
maintain that the Department reviewed and verified the sales processes 
of the companies and that the verification reports did not note 
significant discrepancies. Respondents believe that the verification 
reports substantiate respondents' claims that order date should not be 
used for date of sale purposes. Respondents point out that no 
discrepancies were noted in the verification reports regarding the 
Department's review of production processes and facilities, the 
explanation of the classification of products, and plant tours. 
Respondents cite Asociacion Colombiana de Exportadores v. United 
States, 704 F. Supp. 1114, 1117 (CIT 1989) (Asociacion Colombiana) as 
further evidence that the verification deficiencies of minor expenses 
are not enough to justify the use of total adverse facts available.
    Respondents state that petitioners' claim that Department verifiers 
were unable to verify USIMINAS' and COSIPA's sales data is incorrect. 
Respondents maintain that the Department's sampling of the selected 
sales traces was reasonable and therefore, the sales information should 
be considered verified. Respondents point to the number of home market 
sales traces that were completed by the Department and state that the 
spot checks of the other traces in conjunction with the separate 
verification of the allocated expenses constitute verification of sales 
data.
    Respondents also state that petitioners do not point to basic 
problems or flaws with the sales data actually reviewed. Respondents 
assert that petitioners focus on the Department's inability to review 
information at verification, and that it would be inconceivable for the 
Department to apply total facts available simply because the Department 
did not review all the fields of all of the sales traces. Respondents 
state that petitioners incorrectly make the assumption that the 
Department's inability to verify certain subjects means that those 
subjects were not considered verified. Respondents maintain that the 
Department's failure to review an item does not mean that the item is 
not verified.
    Respondents also state that petitioners are incorrect in asserting 
that COSIPA did not report certain home market sales. COSIPA maintains 
that these sales had been previously reported, but had been 
inadvertently omitted from the March 1, 1999 submission of data. COSIPA 
states that these sales were corrected and reported at verification.
    Department's Position: The Department disagrees with petitioners' 
call for total adverse facts available for USIMINAS and COSIPA. While 
the Department acknowledges that there were multiple problems at the 
sales verifications of USIMINAS and COSIPA, the nature and extent of 
these problems do not support the use of total facts available. The 
Department agrees with respondents that the major components of 
verification verified. These include quantity and value, production 
characteristics, and sales and accounting processes. By contrast, the 
majority of the information that did not verify generally constituted 
relatively minor issues and adjustments. The Department does not find 
that the inability to complete all of the pre-selected and surprise 
sales traces is substantial enough in this case to necessitate the use 
of total facts available.
    Respondents' reference to Borden Foods, however, is off point. In 
the Borden Foods case, the Court did not disagree with the Department's 
use of total adverse facts available. Instead, that case dealt with the 
subject of corroboration of the facts available margin imposed in that 
proceeding.
    Further, the Department disagrees with respondents' assumption that 
the Department's failure to review certain items at verification 
equates to the verification of those items. As stated in USIMINAS' and 
COSIPA's Sales Verification Reports, there were numerous instances in 
which the Department sought to cover certain items, and the respondents 
declined for reasons described in the report. These items do not have 
the same status as items which the Department chooses not to raise at 
verification. The Department considers these items which were raised by 
the Department, but not addressed by the respondents, to be unverified. 
Please see Comment 13 on What Constitutes Verification for a complete 
discussion of this issue.
    While the Department does not find the use of total facts available 
appropriate in this investigation, there were several instances which 
merited the use of partial facts available. See the comments below for 
specific applications of facts available.
    Comment 16: Use of Facts Available. Petitioners state that if the 
Department decides to accept USIMINAS and COSIPA's questionnaire 
responses, facts available must be applied in certain

[[Page 38777]]

instances as described in several comments below.
    Respondents refer to Borden Foods in asserting that the Department 
must use caution in applying facts available, but respondents suggest 
that the Department use facts available in certain instances as 
described in specific comments below. Respondents also refer to 
National Steel in stating that the Department should not make adverse 
inferences where respondents have acted to the best of their ability 
and the error is minor.
    To support their claim that verification problems were 
insignificant, respondents cite NSK Ltd., which in turn cites Ad Hoc 
Comm. Of AZ-NM-TX-FL Producers of Gray Portland Cement v. United 
States, 865 F. Supp. 857, 866, (CIT 1994), stating, ``Neutral BIA is 
`applied only to a respondent who has substantially complied and there 
is also an inadvertent or unavoidable gap in the record, or when a 
minor or insignificant adjustment is involved.' '' 919 F. Supp. at 448.
    Department's Position: As discussed in the Facts Available section 
above, the Department has determined that facts available should be 
applied for certain sales adjustments and expenses. The Department gave 
USIMINAS and COSIPA substantial opportunity to verify multiple 
outstanding issues at the sales verification. As noted in the Sales 
Verification Reports for both companies, respondents were either unable 
to or unwilling to verify these issues. The agendas were provided to 
respondents prior to verification, and the information was repeatedly 
requested by the Department officials at the verification. In instances 
in which the material remained unverified, the Department applied facts 
available. In several instances, because the respondents failed to 
cooperate to the best of their abilities, the Department applied 
adverse facts available in accordance with section 776(b) of the Act. 
See the individual comments below for specific applications of facts 
available and adverse facts available.
    In reference to Borden Foods and National Steel, the Department 
notes that these cases were not governed by the current statute, and 
the use of adverse inferences is now governed by section 776(b) of the 
Act. Moreover, respondents' reference to Borden Foods is off point. See 
Comment 15 above. In addition, respondents' reliance on National Steel 
in asserting that the Department should not make adverse inferences in 
the application of facts available is misplaced. Further examination of 
National Steel supports the use of partial facts available ``when only 
part of the submitted information is deficient,'' and the use of an 
adverse inference ``depend[ing] on the level of sufficiency of the 
information provided.'' 919 F. Supp. at 442.
    Comment 17: Collapsing USIMINAS AND COSIPA. Respondents assert that 
the Department's decision to collapse USIMINAS and COSIPA into a single 
company for purposes of calculating dumping margins, a single average 
cost of production and unified average prices was incorrect. 
Respondents do not dispute two of the criteria used by the Department 
in making this determination: (1) The two companies manufacture 
substantially similar products and (2) USIMINAS has a high level of 
direct ownership in COSIPA. They do, however, dispute the Department's 
determination that there is some intertwining of operations and do not 
believe that USIMINAS is in a position to manipulate COSIPA's prices or 
production. Though USIMINAS is the largest shareholder in COSIPA and 
appoints two members to its Administrative Council, respondents argue 
that USIMINAS'' influence is limited. Respondents state that the 
Administrative Council focuses on ``large-impact corporate decisions'' 
and not pricing. They also indicate that each company's Directorate, 
where pricing and sales policies are discussed, is composed entirely of 
its own employees with neither company appointing directors of the 
other. Citing their letter of February 9, 1999, respondents note that 
the companies maintain separate and distinct sales staff and offices, 
do not make joint sales calls, meet with their own customers, and 
determine prices separately.
    Respondents contest the Department's view that USIMINAS and COSIPA 
have some intertwining of operations as shown by the supply of 
technology from USIMINAS to COSIPA. They state that this supply has to 
do with the sale of computer programs and discussions on optimizing 
productivity of equipment, but nothing to do with the pricing or 
marketing of products. For all these reasons, respondents do not 
believe that there is a basis for collapsing USIMINAS and COSIPA to 
determine dumping margins.
    Petitioners disagree with respondents' argument that USIMINAS'' and 
COSIPA's operations are not sufficiently intertwined to justify 
collapsing the two companies. First, they cite the Preliminary Results 
and Partial Rescission of Antidumping Administrative Review of 
Sulfanilic Acid from the People's Republic of China, 61 FR 29073, 29075 
(June 7, 1996) and the Fresh Cut Flowers, 61 FR 42833, 42853, arguing 
that substantial intertwining of operations is not a necessary 
precondition to collapsing where evidence on the other collapsing 
factors is sufficient to indicate a significant possibility of price 
manipulation and where determinations are made based on the totality of 
the circumstances. Secondly, petitioners refer again to Fresh Cut 
Flowers in arguing that the lack of current intertwining of operations 
does not establish that there is no potential that such will occur. 
They believe that the circumstances of this case indicate the 
significant potential for such intertwining to occur.
    Petitioners contest respondents' assertion that USIMINAS and COSIPA 
were improperly collapsed for this investigation. Citing the 
Department's findings in the U.S. Department of Commerce Internal 
Memorandum from R. Weible for J. Spetrini, Case No. A-351-828 (December 
22, 1998) (``Collapsing Memorandum''), petitioners state that the first 
prong of the collapsing test, that both companies' facilities and 
products were similar enough so as not to require substantial retooling 
in order to restructure manufacturing priorities, had been met. 
Regarding the second prong of the test, in which the Department 
examines the potential for price manipulation or production, 
petitioners state that there are three relevant factors the Department 
considers as listed in the Collapsing Memorandum. They note that all 
three factors need not be present in order to find significant 
potential for price or production manipulation. Petitioners point out 
that respondents conceded that the first two factors, a high level of 
common ownership and common employees or board members, are present in 
this case. They also refer to the Collapsing Memorandum, in which the 
Department found that the third criterion of intertwined operations was 
met by virtue of transferred technology. Petitioners reiterate that 
even though all three factors need not be present, the Department's 
findings and the record show that all three are present and 
sufficiently demonstrate the significant potential for price or 
production manipulation.
    Department's Position: The Department agrees with petitioners. On 
December 22, 1998, the Department outlined in its Collapsing Memorandum 
referenced above its decision to collapse USIMINAS and COSIPA. For this 
final determination, we have continued to collapse these two companies. 
Because the Department is concerned with price and cost manipulation, 
it must ensure that reviewed companies ``constitute

[[Page 38778]]

separate manufacturers or exporters for purposes of the dumping law.'' 
See, Final Determination of Sales at Less than Fair Value; Certain 
Granite Products from Spain, 53 FR 24335, 24337 (June 28, 1988). Where 
there is evidence indicating a significant potential for the 
manipulation of price and production, the Department will ``collapse'' 
related companies; that is, the Department will treat the companies as 
one entity for purposes of calculating the dumping margin.
    Before considering whether companies should be collapsed, the 
Department must first find that the companies in question are 
affiliated within the meaning of section 771(33) of the Act. As 
outlined in the Department's Collapsing Memorandum, USIMINAS and COSIPA 
meet the criteria for affiliation which is undisputed by respondents. 
Under Sec. 351.401(f)(1) of the Department's regulations, to determine 
whether to collapse, we examine whether the affiliated producers have 
similar production facilities, such that retooling would not be 
required to shift production from one company to another, and if there 
is significant potential for the manipulation of prices or production. 
USIMINAS and COSIPA meet the first prong of this test since they are 
both fully integrated producers of steel offering a similar range of 
products. See the Collapsing Memorandum for further discussion of this 
issue. In examining the potential for the manipulation of price or 
production, the Department considers the following: (1) The level of 
common ownership; (2) the existence of interlocking officers or 
directors; and (3) the existence of intertwined operations. The 
Department notes that section 351.401(f)(2) states that all three 
factors need not be present to find a significant potential for the 
manipulation of price or production.
    Since USIMINAS is the largest single shareholder in COSIPA, owning 
49.79% of its voting stock, the level of common ownership is 
significant. USIMINAS' Chairman of the Board (or Administrative 
Council) and USIMINAS' Director both serve on COSIPA's board of 
directors. See COSIPA Verification Exhibit 1 at 7 and USIMINAS 
Verification Exhibit 2 at 6. Regarding intertwined operations, as noted 
in the Collapsing Memorandum, Brazil's Securities Commission reports 
that USIMINAS has supplied COSIPA with technology. USIMINAS and COSIPA, 
together with CSN, also joined in a consortium to buy a controlling 
interest in MRS Logistica, a rail transport company. Additionally, 
USIMINAS, COSIPA, and CSN cooperate in the buying of imported coal.
    Even if the degree of intertwined operations between USIMINAS and 
COSIPA is insufficient by itself to find a potential for the 
manipulation of prices or production, we rely on the totality of the 
circumstances in deciding this issue. See Final Determination of Sales 
at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, 
Certain Cold-Rolled Carbon Steel Flat Product, and Certain Corrosion-
Resistant Carbon Steel Flat Products from Japan, 58 FR 37154, 37159 
(July 9, 1993), (Japanese Steel). The Department finds that the 
preponderance of evidence on the record indicates a significant 
potential for USIMINAS and COSIPA to manipulate prices or production. 
Since the criteria outlined in Sec. 351.401(f)(1) of the Department's 
regulations have been met, the Department is continuing to collapse 
USIMINAS and COSIPA in this final determination.
    Comment 18: Downstream Sales/Level of Trade. Petitioners state that 
due to the Department's inability to verify downstream sales data, 
facts available should be applied for the final determination. 
Petitioners recall that in the Preliminary Determination, the 
Department used facts available because the reported downstream sales 
data was incomplete and not useable. Petitioners state that problems 
with the verification of downstream data (e.g., the Department was 
unable to verify quantity and value for the downstream companies, 
USIMINAS was unable to provide information requested by the verifiers 
regarding the completeness of sales through one of the downstream 
companies, and the Department's inability to verify the sales process 
of some downstream companies) necessitate the use of facts available. 
Petitioners also maintain that the Department's inability to verify the 
respondents' LOT claims make it impossible to determine if different 
levels of trade exist. Petitioners state that because of these 
problems, the Department must resort to facts available. As facts 
available, the petitioners recommend that the Department apply the same 
facts available methodology that was applied in the Preliminary 
Determination.
    Respondents believe that the Department inaccurately portrayed the 
fact that the Rio Negro was not verified by making the statement, 
``USIMINAS said it preferred to review other topics instead.'' They 
argue that a more accurate representation is that the Department's 
verification methods prevented respondents from presenting all 
information requested in the outline in the manner desired by the 
Department. These methods included spending a ``full day and a half 
reviewing USIMINAS' corporate structure and price fixing allegations,'' 
a full day reviewing USIMINAS' other downstream affiliate, Fasal, and 
not following the recommendation in Chapter 13 of its Antidumping 
Manual on setting verification priorities. Moreover, respondents 
suggested that the verification of Rio Negro take place at COSIPA's 
offices because USIMINAS and COSIPA were collapsed for this 
investigation, because it would save time at USIMINAS, and because Rio 
Negro's facilities were closer to COSIPA. For all of these reasons, 
respondents made clear that it preferred to move on to topics other 
than Rio Negro.
    Respondents maintain that the petitioners overstate claims that the 
Department's verification reports note several flaws and problems with 
the USIMINAS and COSIPA verifications. Respondents state that 
petitioners focus too much emphasis on respondents' downstream sales 
data, and that petitioners misquote portions of the verification 
reports. Respondents state that many of the flaws pointed out by 
petitioners are not flaws, but rather items that the Department was not 
able to verify because of time constraints.
    Respondents state that the Department should disregard petitioners 
calls for the use of facts available in lieu of respondents' downstream 
sales data. While the respondents agree that the Department officials 
were unable to review much of the affiliates' downstream sales data, 
they state that there was not enough time allotted to the verification 
to allow for the review of the downstream data. Respondents maintain 
that it would be incorrect for the Department to resort to facts 
available based on the fact that all downstream sales data were not 
verified. Respondents have maintained throughout the proceeding that 
the Department should not use downstream data in calculating margins 
since these sales account for a small percentage of the respondents' 
home market sales, are physically different products, and are made at a 
different LOT. Respondents also note that it was very difficult for the 
companies to gather the downstream data as requested by the Department. 
Respondents maintain that based on the facts listed above, the 
Department should simply disregard downstream sales. Respondents state 
that if the Department does not choose to disregard these sales, facts 
available should not be used. Rather, respondents suggest the 
Department should use the

[[Page 38779]]

downstream information reported because the downstream companies 
provided this information to the best of their abilities. Respondents 
state that section 782 of the Act provides that the Department should 
not disregard the information submitted by an interested party if it 
has acted to the best if its ability, and that the Department should 
take into consideration any difficulties experienced by interested 
parties in providing information to the Department.
    Department's Position: The Department agrees in part with both 
petitioners and respondents. At verification, the Department requested 
to cover LOT, but respondents indicated they preferred to move on to 
other topics. We repeatedly asked to return to this issue, but were 
unsuccessful. Because respondents showed no cooperation in verifying 
this topic and the burden is on respondents to support all LOT claims, 
we are not making an LOT adjustment. See Cold-Rolled Carbon Steel Flat 
Products from the Netherlands; Final Results of Antidumping Duty 
Administrative Review, 63 FR 13205, 13206 (March 18, 1998) (``the 
burden is on a respondent to demonstrate that its categorizations of 
LOT are correct.'')
    The Department was also unable to verify most issues regarding the 
affiliated downstream companies. We were unable to verify quantity and 
value for any downstream entity. We were only able to verify portions 
of one sales trace and product characteristics for one downstream 
company. There were many variables for this sales trace that we could 
not verify. Therefore, pursuant to section 776(a)(2)(D) of the Act, we 
must us the facts available. Respondents suggest that the verification 
of downstream companies was burdensome, but upon receiving the 
verification outline, they did not indicate that they were unable to 
comply with this section. See section 782(c)(1) of the Act. The 
Department made repeated attempts to verify downstream sales 
information, but respondents declined to cover these topics. For these 
reasons we find that respondents failed to cooperate to the best of 
their abilities and pursuant to section 776(b) of the Act, the 
Department is applying adverse facts available to downstream sales.
    As adverse facts available, the Department used the downstream data 
reported by USIMINAS and COSIPA for CONNUM matching purposes only. In 
cases in which the best match is to a downstream home market sale, we 
applied as adverse facts available the highest calculated margin for 
any USIMINAS/COSIPA CONNUM. The Department finds that this margin is 
indicative of USIMINAS/COSIPA's customary selling practices and is 
rationally related to the transactions to which the adverse facts 
available are being applied.
    The approach proposed by petitioners--using only identical matches 
at the same LOT--is not appropriate for several reasons. First, as 
noted above, because respondent did not support its claims for multiple 
LOTs, we are determining there is a single LOT for all U.S. and home 
market sales for this final determination. Second, we are able to 
calculate difference in merchandise adjustments for this final 
determination, because the deficiencies in the cost data at the time of 
the preliminary determination have been subsequently remedied.
    Comment 19: Date of Sale. Petitioners assert that the verifications 
of USIMINAS and COSIPA establish that documents issued long before the 
commercial invoice memorialize the agreed terms of sale. USIMINAS sends 
the customer an export contract which sets out the general terms of 
sale, including price and quantity. The attached order confirmation 
specifies quantity, price, tolerances, order date, and expected 
delivery date. Similarly, COSIPA's export contract specifies the 
estimated delivery time, sales conditions, payment terms, and the date 
of issuance. Attachments to this document specify dimensions, price, 
quantity, and tolerances. See USIMINAS'' Sales Verification Report, p. 
15 and COSIPA's Sales Verification Report, p.10.
    Petitioners maintain that USIMINAS'' and COSIPA's shipment data 
likewise indicate no change in material terms which invalidate order 
confirmation or export contract date as the date of sale. In the great 
majority of instances, petitioners argue that shipments were within 
contract tolerances. Even where quantity tolerances are not met, 
petitioners note that the price was unaffected. Petitioners conclude 
that invoice date is not acceptable as the date of sale for USIMINAS 
and COSIPA. Therefore, the Department should use the order confirmation 
date, or alternatively, the export contract date, which is available 
for most U.S. sales.
    Respondents counter that the Department was correct in using the 
date of nota fiscal as the date of sale for home market sales and 
relying on the commercial invoice date for USIMINAS and the nota fiscal 
date for COSIPA in its Preliminary Determination. According to 
USIMINAS/COSIPA, the Department's regulations make clear that the 
``invoice'' date is the preferred sale date because it simplifies 
reporting and verification of information and accommodates changes that 
often occur up to the invoice date. In support of this argument, they 
cite the Department's Antidumping Regulations, 62 FR 27296, 27348 (May 
19, 1997). Moreover, USIMINAS and COSIPA state that their sales terms 
are not set with finality until the invoice date. Respondents assert 
that Department verifiers were unable to locate any retrievable date to 
use as the ``order'' date. (See USIMINAS'' Sales Verification Report, 
pp. 12-16.) Therefore, the Department should continue to use the 
invoice date as the date of sale for the final determination.
    Respondents also raise several issues related to the Department's 
methodology in verifying date of sale and the discussion of the issue 
in the USIMINAS and COSIPA verification reports. They dispute the 
Department's phrasing that ``it was not possible to verify USIMINAS'' 
order dates due to the apparent unavailability of certain documents.'' 
They believe that a more accurate statement would have been that 
respondents ``do not reliably keep order confirmation date information 
in their normal course of business.'' Respondents assert that they made 
clear in prior submissions that they could not provide this information 
because they do not reliably keep such records in their normal course 
of business. They also state that the Department spent significant time 
at verification searching for order date information and that the 
Department's verification report supports their claim that these 
documents are elusive, not that they are not verified.
    USIMINAS points out that while the Department did not receive 
alteration history screens for all sales traces as requested, it did 
receive printouts of this document for ``nearly all'' of the sales 
traces. It adds that copies of the screens were presented on the last 
day of COSIPA's verification, but the Department did not choose to take 
all of them. Additionally, USIMINAS states that the computer screens 
themselves, if not actual copies, were available to the verifiers. 
Respondents argue that the Department spent ``considerable time 
reviewing information that appears to be more relevant to costs than to 
sales.'' They find it conceivable that the Department originally sought 
this information to address the order date issue, but believe that the 
Department's focus was more on production and cost information. 
Respondents cite as evidence of this that the Department insisted on 
visiting the control tower, witnessing the types of computer

[[Page 38780]]

reports used to generate production reports, and later meeting with 
production planning staff.
    Respondents believe that the amount of time devoted to the order 
confirmation and date of sale issues and the level of detail sought by 
the Department limited the amount of time that could be devoted to 
other topics. Respondents note the number of pages written by the 
Department about the topic and comment that the discussions included 
details about their price circulars, location and responsibilities of 
each sales office, the method by which the mill is contacted, time and 
manner of computer record keeping, and the frequency of internal sales 
meetings. Respondents argue that despite their indications that order 
confirmation information was not stored in the computers in any 
organized fashion, the Department spent considerable time at both 
USIMINAS and COSIPA learning more about the order confirmation process, 
reviewing computer records, and asking for production records.
    Department's Position: The Department disagrees in part with both 
petitioners and the respondents. The date of sale is the date on which 
all substantive terms of sale are agreed upon by the parties, including 
the price, quantity, delivery and payment terms. In accordance with 19 
CFR 351.401(i), the date of sale will normally be the date of the 
invoice, as recorded in the exporter's or producer's records kept in 
the ordinary course of business, unless satisfactory evidence is 
presented that a different date better reflects the date on which the 
exporter or producer establishes the material terms of sale. For 
example, in Final Determination of Sales at Less Than Fair Value; 
Polyvinyl Alcohol from Taiwan, 61 FR 14067 (March 29, 1996), the 
Department used the date of the purchase order as the date of sale. In 
addition, it is the Department's practice not to use a date of sale 
that falls after the shipment of the product from the factory for 
delivery, e.g. an ex-port shipment date. This practice is dictated by 
the fact that a customer's price and quantity would rarely, if ever, 
change after a delivery has commenced.
    The Department agrees with the respondents that the nota fiscal is 
the correct date of sale in the home market. The nota fiscal represents 
the first point at which USIMINAS'' and COSIPA's records can establish 
that the material terms of sale are set, it is issued as products leave 
the factory, and it serves as the invoice. For this final 
determination, the Department will continue to use the nota fiscal as 
the date of sale in the home market for both USIMINAS and COSIPA.
    For COSIPA's U.S. date of sale, the Department agrees with the 
respondent that the commercial invoice represents the correct date of 
sale. The terms of sale are set at this point, and the commercial 
invoice is generally issued at the same time that the subject 
merchandise leaves COSIPA's factory. See COSIPA's Sales Verification 
Report, p. 11.
    For USIMINAS, the Department disagrees with the respondent that the 
commercial invoice represents the correct date of sale in the U.S. 
market. The commercial invoice is issued when the merchandise is 
shipped from the port. As noted below, we explicitly instructed 
USIMINAS that date of sale may not be after the merchandise was shipped 
from the factory. Because the terms of sale are set at the issuance of 
the nota fiscal (as acknowledged by USIMINAS on page 32 of the November 
16, 1998 Section A Response and verified by the Department) and the 
nota fiscal represents an ex-factory, not ex-port shipment date, the 
Department finds that nota fiscal is the correct U.S. date of sale.
    The Department notes that petitioners argue that order confirmation 
is the correct date of sale in both the home and U.S. markets. However, 
as indicated in USIMINAS' Sales Verification Report at 15 and Exhibit 7 
of the January 19, 1999 Supplemental Section A Response, there is 
evidence of significant change in the terms of sale, specifically 
quantities exceeding tolerances, between the issuance of the order 
confirmation and the nota fiscal. The Department was also able to 
verify respondent claims that they are unable to reliably report order 
confirmation as their U.S. or home market date of sale. See USIMINAS 
Sales Verification Report at 18 and COSIPA Sales Verification Report at 
14. Since the record does not establish that order confirmation best 
reflects the date at which the terms of sale are set, and it is 
difficult or impossible for respondents to report this date, the 
Department does not consider order confirmation the appropriate date of 
sale.
    In reference to USIMINAS' U.S. date of sale, the Department 
specifically requested in its supplemental questionnaire to USIMINAS' 
Section A Response (December 4, 1998) that USIMINAS report:

all sales for which ``the order confirmation date (or comparable 
date if data on order confirmation does not exist) was within the 
POI. If you believe another date is a more appropriate date of sale, 
you should provide all sales during the POI based on order 
confirmation date, using alternative production or accounting 
records, and the other date (provided the other date is not after 
the merchandise is shipped from the plant). (emphasis added)

    In our January 4, 1999 Supplemental Questionnaire to Sections BCD, 
we repeated this question and added:

If USIMINAS chooses not to report order confirmation date, and we 
determine at verification that this information is available and is 
a more appropriate date of sale than that reported, USIMINAS may be 
subject to the use of adverse facts available pursuant to section 
776 of our statute.

USIMINAS, however, continued to report the commercial invoice date as 
the date of sale even though this date is after shipment from the 
factory, and it did not report all sales during the POI based on an ex-
factory date of sale. Since USIMINAS failed to follow explicit 
instructions in the questionnaire, or to contact the Department to 
determine whether an alternate reporting basis was appropriate, we find 
that USIMINAS did not cooperate to the best of its ability. Therefore, 
we are applying adverse facts available for the sales that were not 
reported based on an ex-factory date of sale. For the unreported sales 
we estimated the average number of days between the ex-factory shipment 
date and the commercial invoice date, using USIMINAS' submitted data. 
We then estimated the value of USIMINAS' unreported sales for the 
estimated amount of time using the data USIMINAS submitted for purposes 
of our critical circumstances analysis. See USIMINAS/COSIPA's Analysis 
Memo. We applied the highest margin calculated for any CONNUM to this 
value. The Department finds that this margin is indicative of USIMINAS/
COSIPA's customary selling practices and is rationally related to the 
transactions to which the adverse facts available are being applied.
    In reference to respondents' general comments regarding date of 
sale issues discussed in the Department's verification reports, the 
Department did seek information on production in order to understand 
the order confirmation process. Both respondents and petitioners in 
this investigation have spent considerable time analyzing and writing 
about date of sale. Date of sale is an important issue in this 
investigation and the amount of time spent reviewing the topic was 
merited and within Departmental practices.
    Comment 20: Contracts with affiliated suppliers--USIMINAS. The 
respondent believes that the statement, ``USIMINAS did not provide any 
contracts with

[[Page 38781]]

affiliated suppliers'' should have been further explained. USIMINAS 
argues that its rail contracts were not presented because they do not 
exist. They further assert that the Department acknowledged this by 
saying, ``USIMINAS stated that Rios Unidos does not have exclusive 
agreements with any of these companies'' and ``USIMINAS said that CVRD 
negotiates and sells separately to its customers and they do not have 
any special buying arrangements together with CSN and COSIPA.''
    Petitioners believe that the Department's conclusion that USIMINAS 
failed to provide the requested documentation was correct. Petitioners 
argue that statements asserting that such contracts do not exist do not 
constitute verification. Furthermore, they note that the lack of 
``exclusive agreements'' does not demonstrate that USIMINAS had no 
contracts whatsoever with affiliated suppliers. Petitioners believe it 
is also unclear how the stated absence of a ``special buying 
arrangement'' between CVRD, CSN, and COSIPA indicates that USIMINAS had 
no contract with CVRD. Petitioners maintain that because USIMINAS did 
not provide the requested contracts with affiliated suppliers, the 
Department should make an adverse inference with respect to the costs 
of materials purchased from affiliated suppliers such as iron ore and 
coal. Petitioners state that the respondent's cost of production should 
be increased as facts available.
    Department's Position: The two statements about USIMINAS' contracts 
with Rios Unidos and CVRD were taken out of context. These sentences 
referred to contractual agreements between all three of the respondents 
(CSN, COSIPA, USIMINAS) and affiliated suppliers, and not to individual 
contracts USIMINAS had with affiliated suppliers. Furthermore, the fact 
that USIMINAS asserted that it did not have any special or exclusive 
buying relationship in concert with all respondents or individually is 
not the same thing as saying that it had no contract with its 
affiliated suppliers. See Comments 49 and 50 for a complete discussion 
of the costs of iron ore and coal.
    Comment 21: Fasal's Commissions--USIMINAS. Petitioners state that 
since the Department was not able to verify the reported commission for 
Fasal's (one of USIMINAS/COSIPA's affiliated resellers) home market 
sales, the Department should deny the commission adjustment as facts 
available.
    Department's Position: Because the Department was unable to verify 
downstream sales, including Fasal's sales, we have based the margin for 
all U.S. sales matching to any of respondent's downstream sales solely 
on adverse facts available. Therefore, we need not reach the question 
of commission adjustments. See Comment 18 on Downstream Sales/Level of 
Trade for a complete discussion of the downstream sales issue.
    Comment 22: Fasal's Inventory Carrying Costs--USIMINAS. Petitioners 
state that the Department's inability to verify Fasal's reported 
inventory carrying cost necessitates that the Department apply adverse 
facts available.
    Department's Position: We are not using inventory carrying costs in 
our analysis because in this investigation, we are not analyzing CEP 
sales and do not have to calculate a CEP offset. Additionally, we are 
not calculating a commission offset. Therefore, this issue is moot.
    Comment 23: Theoretical weight sales--USIMINAS. The respondent 
disagrees with the Department's conclusion that the gross unit price 
calculations for a small number of sales made on a theoretical weight 
basis is unverified. USIMINAS does not dispute that it made a clerical 
error in its calculation and reporting of these sales, and that this 
error was discovered during verification, not at the beginning of it. 
However USIMINAS states that it provided the Department with a 
reconciliation worksheet correcting the prices and quantities. The 
respondent points out that the impact of the error is minuscule, the 
Department is emphasizing a clerical error, and USIMINAS found the 
error in a voluntary attempt to revise unusual transactions in its 
database.
    Petitioners argue that all U.S. sales made on a theoretical weight 
basis had incorrectly calculated gross unit prices. Petitioners state 
that theoretical weight sales were only made in the United States. 
Petitioners feel that the Department should apply facts available to 
all U.S. sales made on a theoretical weight basis by assigning the 
highest margin alleged in the petition, 85.71%.
    Department's Position: Regarding USIMINAS' U.S. sales made on a 
theoretical weight basis, we agree with respondents. At verification, 
USIMINAS realized that a clerical error had been made in the 
computation of gross unit prices on this small number of sales. 
USIMINAS presented the Department with a list of revised gross unit 
prices during the verification. Given the nature and extent of the 
error, the Department accepted these revised prices and has used them 
in the final calculations. See USIMINAS' Sales Verification Report, 
Exhibit 31, and USIMINAS/COSIPA's Analysis Memo.
    Comment 24: Indirect Selling Expenses--USIMINAS. USIMINAS believes 
that the Department's statement that it was unable to verify indirect 
selling expenses for a certain transaction because of mistakes 
discovered at verification is a mischaracterization that is 
contradicted by the Department's report. It argues that this shows the 
Department does not realize this is an allocated expense which is 
applied across the board to all sales. Respondents also state that the 
Department verified indirect selling expenses on page 58 of the 
verification report.
    Petitioners state that based on errors in the calculation of U.S. 
indirect selling expenses found at verification, the Department should 
apply as facts available the highest indirect selling expense amount 
reported on the USIMINAS U.S. or home market sales databases.
    Respondents dispute petitioners' proposal for facts available and 
state that a reasonable facts available approach would be to use 
COSIPA's indirect selling expenses for USIMINAS since the two companies 
are collapsed for the purpose of this investigation.
    Department's Position: We are not using indirect selling expenses 
in our analysis, because in this investigation, we are not analyzing 
CEP sales and do not have to calculate a CEP offset. Additionally, we 
are not calculating a commission offset. Therefore, this issue is moot.
    Comment 25: Home Market Inland Freight--USIMINAS. USIMINAS believes 
the Department made a false statement in saying that USIMINAS did not 
have anything prepared to prove that transactions with affiliated rail 
companies were at arm's length. The respondent argues that the 
Department contradicts this assertion with two statements: ``USIMINAS 
stated that CVRD and MRS have no preferential arrangement with it even 
though they are affiliated parties'' and ``USIMINAS also stated that it 
is difficult to prove this issue because some of the rail companies 
provide transportation for routes that no other rail company 
services.'' With these statements, USIMINAS feels it explained this 
situation and the Department's findings were false.
    Petitioners assert that USIMINAS' statements made at verification 
do not constitute demonstration of a claim. They further note that if 
verbal

[[Page 38782]]

explanations rather than concrete documentation were all that was 
required, there would be no point in conducting verifications.
    Petitioners maintain that because the Department was not presented 
with requested proof that freight transactions with affiliated trucking 
or rail companies were made at arm's length, the Department should deny 
the inland freight adjustment for all home market sales.
    Respondents reply that petitioners are incorrect and that USIMINAS 
has no contracts with these affiliated companies and that USIMINAS 
staff presented oral testimony that the company does not receive 
preferential treatment from affiliated transportation companies. 
Respondents state that the Department should reject petitioners' facts 
available suggestion because it is excessively punitory. Furthermore, 
respondents claim that since the Department verified the arm's length 
nature of COSIPA's affiliated freight transactions and since the 
Department has collapsed USIMINAS and COSIPA, the Department should 
assume that USIMINAS' affiliated freight transactions were also made at 
arm's length. Respondents suggest that should the Department reject 
USIMINAS' reported freight expenses and apply facts available, COSIPA's 
freight rates should be used as surrogate values for USIMINAS' freight 
expenses.
    Department's Position: The Department agrees in part with 
petitioners. USIMINAS' assertion that it has no preferential 
arrangements with CVRD and MRS does not constitute proof that it has no 
arrangement or contract with these affiliated rail companies or that 
transactions were at arm's length. As noted in USIMINAS' Sales 
Verification Report, p. 50, we requested information from USIMINAS 
showing that its rail and trucking freight transactions were at arm's 
length. We reminded respondents that an alternative way to demonstrate 
arm's length transactions to affiliated companies is to show that the 
transactions were above those companies' costs or that the companies 
were profitable. Nevertheless, USIMINAS had nothing prepared to 
demonstrate that the freight charges were at arm's length. After 
several attempts to verify the arm's length nature of USIMINAS' 
transactions with affiliated transportation companies, we determined 
that the USIMINAS claim that these sales are made at arm's length had 
not been substantiated or verified.
    USIMINAS made no attempt to establish that its inland freight 
transactions were at arm's length, despite the Department's repeated 
attempts to verify this issue. Further, the Department offered 
alternative solutions for verifying this topic in accordance with 
section 782(c)(2), but USIMINAS made no attempt to provide verifying 
information. Therefore, the Department is applying adverse facts 
available to USIMINAS' home market inland freight. Accordingly, for 
sales in which USIMINAS incurred a freight expense, the Department used 
the lowest value for inland freight reported by USIMINAS. Because we 
are already making an adverse assumption in assigning inland freight 
expenses, we are not making an additional adjustment for VAT taxes. See 
USIMINAS/COSIPA's Analysis Memo.
    Comment 26: U.S. Inland Freight--USIMINAS. Petitioners maintain 
that since the Department was only able to verify the reported inland 
freight for one U.S. sale, as facts available, the Department should 
apply to all U.S. sales the highest reported inland freight expense.
    Respondents state that petitioners' call for facts available for 
the inland freight value associated with USIMINAS' U.S. sales should be 
rejected. Respondents claim that petitioners acknowledge in their case 
brief that the Department verified USIMINAS' inland freight 
adjustments, and therefore, the Department should use USIMINAS' 
reported U.S. inland freight expense.
    Department's Position: We agree with petitioners that adverse facts 
available should be applied to USIMINAS' reported U.S. inland freight 
expenses. Respondents mis-characterize petitioners' brief by stating 
that the petitioners asserted that the Department was able to verify 
this adjustment, when in fact, the brief suggests that the Department 
was only able to review the U.S. inland freight adjustment for one 
observation, and the reported amount for that observation did not 
reconcile to company records. We note that it is not necessary for the 
Department to verify more than one example of an expense to consider 
the expense to be verified. See Monsanto v. United States. However, the 
reported expense for the sale we examined did not agree with the actual 
expense. (See Verification Exhibit 36). Therefore, we have rejected 
USIMINAS' inland freight adjustments due to failure of this data to 
verify and instead have used the facts available, pursuant to section 
776(a)(2)(D) of the Act. The unexplained failure of this data to verify 
demonstrates that USIMINAS failed to cooperate to the best of its 
ability in responding to our request for inland freight data. 
Therefore, we are applying as adverse facts available USIMINAS' highest 
reported amount for inland freight. See USIMINAS/COSIPA's Analysis 
Memo.
    Comment 27: Warehousing Expense--USIMINAS. Petitioners state that 
since the Department was unable to verify USIMINAS' U.S. warehousing 
expenses, facts available should be applied. Petitioners argue that 
since USIMINAS claims to have reported these expenses with the indirect 
selling expenses that as adverse facts available, the Department should 
treat all of USIMINAS' reported indirect selling expenses as direct 
selling expenses.
    Department's Position: We disagree with petitioners. Respondent 
consistently told the Department that it was unable to segregate 
warehousing expenses from its indirect selling expenses and that it had 
reported warehousing as part of these expenses. See USIMINAS' Section B 
response at B-41 and Section C response at C-38 (December 21, 1998). 
Therefore, we have accepted respondent's data, as reported, and are not 
reclassifying respondent's indirect selling expenses as direct selling 
expenses for this final determination.
    Comment 28: Inland Insurance--USIMINAS. In referring to inland 
insurance for home market sales, petitioners state that since the 
Department was not able to completely verify the reported amounts, for 
all home market sales, the inland insurance adjustment should be denied 
as adverse facts available.
    Department's Position: We disagree with petitioners that adverse 
facts available should be applied to USIMINAS' reported inland 
insurance expenses. At verification, the Department verified USIMINAS' 
nominal rate, discount rate, and reported rate. We were satisfied with 
the verification of USIMINAS' reported expense. In an April 22, 1999 
letter to respondents, we requested that USIMINAS correct the reported 
inland insurance amount to include IOF taxes and fees. We accept the 
reported amount and adjusted for the inland insurance amount 
accordingly.
    Comment 29: Billing Adjustments--USIMINAS. Petitioners maintain 
that USIMINAS incorrectly included canceled sales (sales in which the 
billing adjustment is equal to the gross unit price) within the billing 
adjustment field of its home market database. Petitioners state that 
these sales should be removed. Petitioners also reference an error 
discovered at verification in which the reported billing adjustment for 
observation 52003 was incorrectly reported. Petitioners state that the

[[Page 38783]]

adjustment for this transaction should be denied.
    Department's Position: We agree with petitioners that canceled 
sales should be removed from the database and have done so for this 
final determination. We also agree that there was an error with respect 
to the observation cited by petitioners and the billing adjustment 
should be denied for this sale.
    Comment 30: Warranty Expense--USIMINAS. Petitioners maintain that 
because the Department was unable to verify USIMINAS' warranty expense, 
the Department should apply adverse facts available and deny the 
adjustment in its entirety.
    Department's Position: We determine that adverse facts available 
should be applied to USIMINAS'' reported warranty expense. As noted in 
USIMINAS'' Sales Verification Report, at 57, we requested to verify 
warranty expenses several times but USIMINAS asked to skip this topic. 
Thus, despite our repeated attempts to verify this data, we were unable 
to do so. By declining our request to verify warranty expenses, 
USIMINAS did not cooperate to the best of its ability. Therefore, as 
adverse facts available, we are denying the warranty expense adjustment 
for all of USIMINAS'' home market sales. Since USIMINAS did not report 
any warranty expenses for U.S. sales, we are not making any changes to 
these sales. See USIMINAS/COSIPA's Analysis Memo.
    Comment 31: Packing Expenses--USIMINAS. Petitioners state that 
since the verification of U.S. and home market packing expenses was not 
completed, the Department should use the highest reported packing 
expense on the USIMINAS U.S. sales database as the packing adjustment 
for all U.S. sales. Petitioners then state that for home market sales, 
the packing adjustment should be set equal to zero.
    Respondents disagree with petitioners suggestions for facts 
available with regard to USIMINAS'' packing expenses. Respondents state 
that the Department should accept USIMINAS'' reported packing expenses. 
Respondents maintain that USIMINAS presented information to Department 
officials at the mill, and that Department staff preferred to return to 
the head office and after they returned, discovered that they had more 
questions about the packing expense. Respondents further state that 
USIMINAS made the packing expense information available to the cost 
verification team, but that the cost verifiers elected not to examine 
the documents. USIMINAS maintains that since USIMINAS presented the 
packing information to the Department, and since verifiers elected not 
to review the information, the Department should consider the packing 
expenses verified for USIMINAS.
    Department's Position: The Department disagrees with petitioners 
that facts available should be applied to USIMINAS'' reported packing 
expenses. Respondent presented information about packing to the 
verification team at the mill and, subsequent to leaving the mill, the 
team asked for additional information. We were not able to review this 
additional information, and requested that the cost verification team 
review this issue. Due to time constraints, the cost verification team 
was not able to verify the outstanding questions regarding packing 
because the Department determined that other issues were more important 
to verify in the remaining time period. We are therefore accepting 
USIMINAS'' submitted packing information in this final determination.
    Comment 32: Inland Insurance--COSIPA. Petitioners state that, due 
to errors in the verification of COSIPA's inland insurance, the 
Department should apply adverse facts available and not make an 
adjustment for home market inland insurance.
    Department's Position: The Department disagrees with petitioners 
that adverse facts available should be applied to COSIPA's reported 
inland insurance expenses. At verification, we verified COSIPA's 
nominal rate, discount rate and reported rate. In an April 22, 1999 
letter to respondents, we requested that COSIPA correct the reported 
inland insurance amount to include certain taxes and fees. We accept 
the reported amount and adjusted for the inland insurance amount 
accordingly.
    Comment 33: IPI Tax--COSIPA. Petitioners state that due to problems 
with the verification of the IPI tax, as adverse facts available, the 
reported tax amounts should be revised downward to reflect the actual 
amounts paid to the federal government.
    Department's Position: We disagree with petitioners that adverse 
facts available should be applied to COSIPA's reported IPI tax. 
Although the verification did reveal a clerical error on the part of 
COSIPA in calculating the IPI tax paid to the government for one month 
of the period of investigation, we do not believe that this error 
justifies the use of adverse facts available. See COSIPA's Sales 
Verification Report at 31. The Department is generally satisfied with 
the verification of the IPI tax. We accept the reported amount and 
adjusted for the tax accordingly.
    Comment 34: Home Market Inland Freight--COSIPA. Petitioners 
maintain that because COSIPA failed to demonstrate that freight 
services provided by affiliated parties were made at arm's length 
prices, the inland freight adjustment should be denied for home market 
transactions, and for U.S. transactions, the highest reported expense 
should be applied as domestic inland freight.
    Respondents state that COSIPA established the arm's length nature 
of its transactions with affiliated transportation companies. 
Respondents state that the Department should reject petitioners' facts 
available suggestion because it is excessively punitory.
    Department's Position: The Department agrees in part with 
petitioners. The respondent was able to demonstrate that transactions 
with one of its two affiliated trucking companies were at arm's length. 
See COSIPA's Sales Verification Report at 39. However, despite the 
Department's repeated attempts to verify the arm's length nature of 
transactions with affiliated rail companies including offering 
alternative solutions for verifying this topic, the respondent failed 
to cooperate with our verification efforts. Therefore, in accordance 
with section 782(c)(2), the Department is applying adverse facts 
available to COSIPA's home market inland freight. Accordingly, for 
sales in which COSIPA incurred a freight expense, the Department used 
the lowest value for inland freight reported by COSIPA. Because we are 
already making an adverse assumption in assigning inland freight 
expenses, we are not making an additional adjustment for VAT taxes. See 
USIMINAS/COSIPA's Analysis Memo.
    Comment 35: Brokerage and Handling--COSIPA: Petitioners state that 
because the Department was unable to verify the reported brokerage and 
handling expenses, the reported amount should be doubled as facts 
available for all U.S. sales.
    Respondents dispute petitioners' interpretation of COSIPA's Sales 
Verification Report. Respondents interpret the Department's inability 
to verify the reported brokerage and handling expenses as an indication 
that the Department simply ran out of time and was therefore unable to 
review the information. Respondents claim that the Department should 
consider COSIPA's reported brokerage and handling expenses verified. 
However, respondents do suggest that the Department use USIMINAS' 
verified brokerage and handling expenses as facts available for COSIPA 
in the event that the Department does not consider the COSIPA expense 
to be verified.

[[Page 38784]]

    Department's Position: Since the Department repeatedly attempted to 
verify brokerage and handling, COSIPA declined to review this item 
within the time frame allotted for verification (see COSIPA's Sales 
Verification Report at 41), and there is no indication that the 
reported amounts are accurate, the Department is applying adverse facts 
available to COSIPA's reported U.S. brokerage and handling. As adverse 
facts available, we are using the highest reported brokerage and 
handling amount for all U.S. sales. See USIMINAS/COSIPA's Analysis 
Memo.
    Comment 36: Home Market Credit--COSIPA. Petitioners maintain that 
due to the Department's inability to verify the reported home market 
credit expense, as adverse facts available, it should deny the 
adjustment.
    Department's Position: We disagree with petitioners that adverse 
facts available should be applied to COSIPA's reported home market 
credit expense. As is discussed in the verification report, COSIPA 
intended to calculate the reported credit expense using the same 
formula and interest rates as did USIMINAS; however, a clerical error 
was made by COSIPA when the expense was calculated, and the incorrect 
factors were input into the credit formula. The Department verified 
that USIMINAS correctly calculated its credit expense. Furthermore, the 
Department agrees with USIMINAS and COSIPA that the financing rates 
received by USIMINAS would be much more conservative than those 
received by COSIPA or any of the other downstream companies. This can 
be illustrated by the Brazilian publications of lending rates supplied 
to the Department by USIMINAS at verification. See USIMINAS' Sales 
Verification Report and Exhibits 23 and 43. Therefore, the Department 
recalculated COSIPA's home market credit expense by using the interest 
rates supplied by USIMINAS to correct for the clerical error discovered 
at verification. See USIMINAS/COSIPA's Analysis Memo.
    Comment 37: Interest Revenue--COSIPA. Petitioners state that 
because COSIPA did not provide certain documentation at verification, 
the reported interest revenue (INTREV1H) is called into question, and 
as adverse facts available, the Department should apply the highest 
reported amount of interest revenue to all home market sales where 
interest revenue was reported.
    Respondents state that the Department should disregard petitioners' 
call for facts available for this issue. Respondents' interpretation of 
the verification report is that the interest revenue amount reported in 
the INTREV1H field was verified. Respondents state that the 
verification report indicates that only the highest interest rate used 
to calculate interest revenue was not documented, and claim that this 
documentation was not provided because it was not requested.
    Department's Position: We disagree with petitioners that adverse 
facts available should be applied to COSIPA's reported interest revenue 
expense. As is discussed in the verification report, COSIPA stated at 
the verification that the Department should not adjust for the second 
interest revenue field (INTREV2H) because COSIPA incorrectly reported 
the additional interest revenue field. COSIPA explained that the 
interest rate is negotiated on a sale by sale basis with customers 
depending on the risk factor associated with the customer. The 
verification report also notes that COSIPA was unable to provide 
documentation illustrating the highest interest revenue percentage that 
COSIPA might assign to any sale. However, the Department did not review 
any documentation or information that would alter its position in the 
Preliminary Determination. Based on information reviewed at COSIPA, we 
consider its reported interest revenue (INTREV1H) to be verified. See 
COSIPA's Sales Verification Report at 43. We are, therefore, accepting 
the reported amount for INTREV1H, setting INTREV2H equal to zero, and 
adjusting for interest revenue as appropriate. For sales with 
unreported payment dates, we are continuing as we did in the 
Preliminary Determination to calculate an imputed interest revenue 
expense for both COSIPA and USIMINAS. See USIMINAS/COSIPA's Analysis 
Memo.
    Comment 38: Inventory Carrying Costs--COSIPA. Petitioners feel that 
because the Department was unable to verify the reported inventory 
carrying costs, which were only reported for home market sales, the 
Department should deny the adjustment as adverse facts available.
    Department's Position: We are not using inventory carrying costs in 
our analysis, because in this investigation, we are not analyzing CEP 
sales and do not have to calculate a CEP offset. Additionally, we are 
not calculating a commission offset. Therefore, this issue is moot.
    Comment 39: Indirect Selling Expenses--COSIPA. Petitioners state 
that COSIPA reported a higher unit value indirect selling expense than 
the amount discovered at verification. They therefore argue that the 
Department should apply as adverse facts available the reported 
indirect selling expenses discovered at the verification.
    Department's Position: We are not using indirect selling expenses 
in our analysis, because in this investigation, we are not analyzing 
CEP sales and do not have to calculate a CEP offset. Additionally, we 
are not calculating a commission offset. Therefore, this issue is moot.
    Comment 40: Packing--COSIPA. Petitioners maintain that since the 
reported packing expenses were unverified, the Department should apply 
facts available as follows: in the home market, the packing expense 
adjustment should be denied; in the U.S. market, the highest reported 
packing expense should be applied to all U.S. sales.
    Respondents state that as facts available, the Department should 
employ USIMINAS' packing expenses to COSIPA on a CONNUM specific basis 
as a surrogate value. Respondents also state that for any COSIPA CONNUM 
that does not have a packing expense, the Department should use an 
average of USIMINAS packing expenses.
    Department's Position: We agree with petitioners that adverse facts 
available should be applied to COSIPA's reported packing expenses. 
Since the Department repeatedly attempted to verify packing, COSIPA 
declined to review this item within the time frame allotted for 
verification (see COSIPA's Sales Verification Report at 45), and there 
is no indication that the reported amounts are accurate, the Department 
is applying adverse facts available to COSIPA's packing expenses. As 
adverse facts available, we are applying the highest reported packing 
amount to all U.S. sales, and we are denying the packing adjustment in 
the home market. See USIMINAS/COSIPA's Analysis Memo.
    Comment 41: Corporate Structure. USIMINAS disagrees with the use of 
the phrase ``exercises control'' in the statements ``CVRD is the 
largest single shareholder in USIMINAS and exercises control in 
USIMINAS as such'' and ``Previ is the third largest shareholder in 
USIMINAS * * * and exercises control over USIMINAS by utilizing its 
voting share as a shareholder.'' Respondents believe that there is no 
factual evidence to support this language. Since USIMINAS' group of 
shareholders that vote as one block have 53% of the voting capital and 
CVRD and Previ have 23.14% and 15% respectively, respondents do not 
believe these companies can be said to ``exercise control'' over 
USIMINAS.
    Department's Position: The Department does not believe that this 
clarification adds to or subtracts from its

[[Page 38785]]

determination regarding collapsing USIMINAS/COSIPA with CSN. See 
Comment 1 for a complete discussion of the collapsing issue .
    Comment 42: U.S. Sales Processes for USIMINAS and COSIPA. USIMINAS 
states that the Department incorrectly referred to a U.S. company that 
buys the respondent's products from one of its customers as USIMINAS' 
customer. USIMINAS pointed out that its contractual relationship is 
with its own customer, not its customer's customer. Similarly, COSIPA 
believes that the Department was mistaken in saying that its product is 
shipped to COSIPA's contractual customer which is a company in the 
Cayman Islands that facilitates international transactions. COSIPA 
states that the Department did however correctly describe its U.S. 
sales process when it stated that ``such sales have `two financial 
paths, a financial flow of documents and a physical flow of products.''
    Department's Position: The Department agrees with respondents. We 
recognize that USIMINAS's contractual relationship is with its own 
customer, not its customers' customers. The Department also recognizes 
that COSIPA's products are not shipped to the Cayman Island company but 
wherever the contractual customer directs them to ship the products.

III. Cost Issues

CSN

    Comment 43: Adjustments Identified in the Overall Cost 
Reconciliation. CSN argues that the Department should not adjust the 
company's reported COP and CV amounts to include the reconciling items 
shown in the cost reconciliation. Specifically, CSN states that the 
first reconciling item in question relates to the company's discovery 
of an overstatement of its inventory values in the normal course of 
business. This overstatement was found when the company switched to a 
new financial accounting system in 1997. According to CSN, the company 
did not reflect this adjustment in its cost accounting system until the 
new cost accounting systems became fully functional in 1999. Moreover, 
CSN claims that since the adjustment did not affect monthly POI cost or 
POI inventory levels it does not impact the reported costs. As for the 
second reconciling item in question, CSN states that this item relates 
to the total adjustment needed to reconcile the submitted costs to the 
costs of goods sold reported on the financial statements. According to 
the company, this reconciling item is negligible and does not cast 
doubt on the submitted costs. Moreover, the time and effort required to 
determine what this small amount represents is simply unreasonable in 
light of its insignificance. Therefore, CSN argues that no adjustment 
to the reported costs is necessary.
    According to the petitioners, CSN has inappropriately excluded 
certain costs from the calculation of COP and CV even though they 
relate to the production of the subject merchandise. The petitioners 
argue that the Department normally requires respondents to include 
these types of reconciling items in the reported costs. To support 
their position, the petitioners cite the Final Determination of Sales 
at Less Than Fair Value: Certain Stainless Steel Wire Rod from France, 
58 FR 68865, 68873 (December 29, 1993), in which the Department 
included similar reconciling items.
    Department's Position: We agree with petitioners that we should 
include certain reconciling items in the calculation of COP and CV. As 
noted by CSN, the first reconciling item in question relates to a 
difference in production costs that exists between CSN's cost 
accounting system and financial accounting system. Specifically, the 
financial accounting system reflects a loss realized on missing raw 
materials while the cost accounting system does not. Thus, CSN's cost 
accounting system and financial accounting system generate different 
results due to this inventory adjustment. (For submission purposes, CSN 
relied on its cost accounting system to calculate the reported costs.) 
In such instances where the total costs reported in the cost accounting 
system differ from the total costs reported on the financial 
statements, we typically rely on the amounts reported on a company's 
audited financial statements prepared in accordance with generally 
accepted accounting principles (``GAAP''), provided that it does not 
result in distorted per-unit costs. In this instance, we do not find it 
unreasonable to include raw material write-offs in the reported costs. 
This practice has been upheld by the Court (see, FAG U.K. Ltd. v. 
United States, 945 F. Supp. 260, 271 (CIT 1996) (upholding the 
Department's reliance on a firm's expense as recorded on the firm's 
financial statements.) and Hercules, Inc. v. United States, 673 F. 
Supp. 454 (CIT 1987) (upholding the Department's reliance on COP 
information from the respondent's normal financial statements 
maintained in conformity with GAAP).
    As for the second reconciling item, which relates to the 
unreconcilable difference that cannot be explained by CSN, we note that 
our normal practice is to include such items in the calculation of COP 
and CV unless respondent can identify and document why such amount does 
not relate to the merchandise under investigation. See, Notice of Final 
Determination of Sales at Less Than Fair Value: Stainless Steel Plate 
in Coils from Taiwan, 64 FR 15493, 15498 (March 31, 1999). (The 
Department determined that the respondent should include the 
unreconciled difference between amounts in the accounting records and 
reported costs in reported costs.) In this case, CSN failed to do so.
    Comment 44: Including Foreign Exchange Gains and Losses in SG&A and 
Interest Expense. The petitioners argue that CSN's exchange gains and 
losses related to accounts payable for the POI should be included in 
the company's SG&A expense rate calculation. Citing Notice of Final 
Determination of Sales at Less Than Fair Value: Stainless Steel Round 
Wire from Canada, 64 FR 17324, 17334 (April 9, 1999) (Comment 16), 
petitioners assert that exchange gains and losses for accounts payable 
are related to purchases of raw materials, and that therefore, the 
Department normally includes them in the COP and CV calculations. In 
addition, petitioners argue that the Department should include all 
exchange losses that relate to financing transactions in CSN's 
financial expense rate calculation.
    CSN, on the other hand, claims that exchange gains and losses that 
relate to both accounts payable and accounts receivable should be 
included in the company's G&A expense rate calculation. CSN realizes 
that the Department's normal practice is to include in COP net exchange 
gains and losses associated with accounts payable but not accounts 
receivable. However, it contends that the Department should reconsider 
this policy because no adjustment is ever made to gross unit prices 
under the antidumping law to account for exchange gains or losses on 
sales. As an alternative to reconsideration of including gains and 
losses associated with accounts receivables CSN claims that the 
Department should simply not adjust the company's price of inputs for 
exchange gains and losses incurred on accounts payable. Therefore, CSN 
requests that the Department use the G&A rate presented at 
verification, exclusive of exchange gains and losses related to 
accounts receivable and accounts payable, in calculating COP and CV. As 
for net exchange losses that relate to debt, CSN argues that it has 
included them in the calculation of

[[Page 38786]]

G&A. Thus, the Department would double-count this expense if it also 
included them in the calculation of the financial expense rate.
    Department's Position: We disagree with respondent that exchange 
gains and losses related to accounts payable should not be included in 
CSN's G&A rate calculation. We also disagree with CSN that the 
calculation of COP and CV should reflect exchange gains and losses 
realized on accounts receivables. As the Department has repeatedly 
stated, our normal practice is to include a portion of the respondent's 
foreign-exchange gains and losses in the calculation of COP and CV. 
Specifically, it is our normal practice to distinguish between exchange 
gains and losses realized or incurred in connection with sales 
transactions and those associated with purchase transactions. (See, 
e.g., Notice of Final Determination of Sales at Less Than Fair Value: 
Stainless Steel Round Wire from Canada, 64 FR 17324, 17334 (April 9, 
1999) (Comment 16); Notice of Final Determination of Sales at Less Than 
Fair Value: Emulsion Styrene-Butadiene Rubber From the Republic of 
Korea (``ESBR''), 64 FR 14865, 14871 (March 29, 1999) (Comment 7); 
Notice of Final Determination of Sales at Less Than Fair Value: Fresh 
Atlantic Salmon from Chile, 63 FR 31411, 31430 (June 9, 1998) and 
Notice of Final Determination of Sales at Less Than Fair Value: Steel 
Wire Rod from Trinidad and Tobago, 63 FR 9177, 9181 (February 24, 
1998)). We normally include in the calculation of COP and CV the 
foreign-exchange gains and losses that result from the transactions 
related to a company's manufacturing activities. We do not consider 
exchange gains and losses from sales transactions to be related to the 
manufacturing activities of the company. Accordingly, for purposes of 
the final determination, we have included all foreign-exchange gains 
and losses in the G&A rate calculation, except for those related to 
accounts receivable and debt.
    As for exchange gains and losses associated with financing 
transactions (i.e., debt), we agree with the petitioners that the 
respondent should include them in the calculation of the financial 
expense rate. We normally include the foreign exchange gains and losses 
resulting from debt in the calculation of the financial expense rate 
(see, ESBR). For the final determination, we included the exchange 
gains and losses generated from financial transactions in the 
calculation of the financial expense rate and included the exchange 
gains and losses generated from accounts payable in the calculation of 
the G&A expense rate.
    Comment 45: Unreported COP/CV Data. CSN states that the Department 
should not apply adverse facts available to those CONNUMS for which 
they did not provide COP data as of the date of the preliminary 
determination. CSN notes that it submitted the missing data to the 
Department following the preliminary determination, which the 
Department verified during the cost verification.
    Petitioners had no comment on this issue.
    Department's Position: We agree with CSN. For the preliminary 
determination, we applied adverse facts available for those CONNUMS for 
which CSN failed to provide a cost. Following the preliminary 
determination, CSN submitted revised cost files at our request. CSN 
filed these cost files on a timely basis and we verified the 
information contained in these files. As a result, we have used CSN's 
data.
    Comment 46: Major Input Rule in Relation to Electricity Costs. CSN 
contends that the Department should not increase COP and CV for the 
difference between the energy costs it incurred and its affiliated 
suppliers total per-unit COP. According to CSN, the Department 
overlooked the fact that the company's affiliation to its energy 
supplier (i.e., Light-Servicios de Electricidade S.A. (``Light'')) has 
no bearing on prices which Light charges to CSN because the Brazilian 
government prohibits Light from deviating from the regulated rates. 
Consequently, CSN claims that it is not reasonable for the Department 
to compare the transfer price with either the COP or the market price 
because of the regulatory aspect involved. CSN further notes that it is 
quite common throughout the world for electricity companies to charge a 
broad range of rates to different types of customers. For example, 
utility companies typically charge residential customers a higher rate 
than industrial users because they require additional lines and 
converters to supply the electricity. As for Light's reported COP, CSN 
claims that Light's overall profit recorded on its financial statement 
proves that the company is not losing money on larger users like CSN. 
Therefore, the Department should not rely on Light's COP in this 
instance. CSN also argues that the Department has the discretion to not 
apply the major input rule (i.e., higher of COP, market value, or 
transfer price) in this case. Thus, the company concludes that the 
Department should not apply the major input rule in this instance.
    Petitioners state that the Department should revise CSN's reported 
electricity costs from transfer prices to the affiliate's average COP 
as done in the preliminary determination. In addition, the petitioners 
disagree with CSN's arguments that the Department should not adjust the 
cost for the following reasons. First, petitioners note that CSN's 
argument that it costs more to supply electricity to residential 
customers than to industrial users is not supported by the respondent's 
submitted data. Second, petitioners dispute that the company's overall 
profitability does not provide any support for the transfer prices to a 
specific entity. Finally, petitioners maintain that the statute does 
not specify that inputs which are charged at government rates are 
exempt from the major input rule (see section 773(f)(3) of the Act). 
Petitioners further argue that the Department only ignores the major 
input rule when it involves collapsed entities. Since CSN and Light are 
not collapsed entities, petitioners conclude that the Department should 
continue to apply the major input rule to CSN's electricity costs as it 
did in its preliminary determination.
    Department's Position: We agree with respondent that it is 
inappropriate to apply the major input rule in this instance. The price 
charged by Light to CSN for electricity is set by the Brazilian 
government. Accordingly, we have not disregarded the transaction prices 
between CSN and Light because they are government regulated prices that 
cannot be affected by the relationship between the parties. As such, 
the regulated price charged to CSN by Light, which is the same rate 
charged to other companies in the same general industry, fairly 
represents market value.

USIMINAS/COSIPA

    Comment 47: USIMINAS'' Reported Cost Methodology. Petitioners argue 
that the Department should resort to total facts available because 
USIMINAS failed to provide cost data from its normal cost accounting 
system. Petitioners claim that the system used to derive the cost data 
(i.e., USIMINAS'' ``Dumping Matrix'') does not calculate costs on a 
more specific level than the normal cost accounting system. Petitioners 
assert that the Dumping Matrix results in a loss of product specificity 
because the system begins with the average slab cost for all grades and 
sizes of steel, whereas the normal cost accounting system calculates 
costs at a level of detail which accounts for these differences.
    According to petitioners, there were significant differences 
between the submitted product-specific costs from the Dumping Matrix 
and product-specific costs from the normal cost

[[Page 38787]]

accounting system. Petitioners note that all the transformation costs 
for the selected products were lower in the Dumping matrix system 
compared to the costs in the normal cost accounting system. Petitioners 
argue that the total cost captured by the Dumping Matrix system for 
subject merchandise was less than the total cost captured in the normal 
cost accounting system, and that thus, the costs could not be tied to 
the financial accounting system. The petitioners further note that 
USIMINAS did not provide documentation for the revisions to its 
standard costs and therefore, the Department could not verify the 
reasonableness of the standards. Petitioners argue that since the 
Department was not able to verify these critical data, the Department 
has no choice but to apply facts available as mandated by the statute. 
Finally, petitioners argue that the Department is not obligated to 
accept an incorrect methodology and perpetuate a mistake because it was 
accepted in a prior review, as suggested by USIMINAS. Petitioners note 
that in Final Results of Antidumping Administrative Reviews: Certain 
Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from 
Korea, 64 FR 12927, 12945-48 (March 16, 1999), the Department applied 
facts available to adjust for reporting errors despite the fact that 
the Department had accepted an identical cost system in every other 
case involving the respondent.
    USIMINAS states that the Department should accept the costs as 
submitted and not resort to facts available. USIMINAS maintains that 
the cost verification report wrongly criticizes the integrity of the 
Dumping Matrix. USIMINAS states that the Department's concern about the 
Dumping Matrix methodology was first raised in the cost verification 
report. USIMINAS asserts that the cost verification report inaccurately 
says that ``the Dumping Matrix does not distinguish between grade, 
width, thickness and process.'' According to USIMINAS, once an 
adjustment factor is applied to the Dumping Matrix cost then these 
differences are accounted for.
    USIMINAS believes that the Department's concerns about its 
reporting methodology are based solely on the results of the 
reconciliation which showed overall hot rolling costs were less in the 
Dumping Matrix than in the cost accounting system. USIMINAS claims that 
the cost verification report leaves the wrong impression that the 
identified methodological difference was for subject merchandise only. 
USIMINAS claims that the Department did not find that the global costs 
were wrong in the Dumping Matrix.
    USIMINAS argues that it used the Dumping Matrix system in the 1995/
1996 cut-to-length plate review and the Department did not question the 
methodology. USIMINAS asserts that the Department should rely on the 
Dumping Matrix based on its prior use of the system. USIMINAS alleges 
that the Department never asked it to resubmit its costs using the 
financial-cost accounting system and there is nothing in the report 
that indicates that the Department found methodological differences 
between the Matrix system and the financial cost accounting system.
    USIMINAS contends that the financial-cost accounting system has 
several shortcomings. The largest is that variances and depreciation 
are allocated on a factory-wide basis. USIMINAS states that the Matrix 
system is the only system that correctly assigned variances and 
depreciation to products. Therefore, it had to resort to the usage of 
the Dumping Matrix.
    Department's Position: We agree with petitioners, in part. We agree 
that USIMINAS did not use its normal cost accounting system to derive 
the reported costs and, as a result, it understated its submitted 
costs. However, because we were able to adjust for the understatement 
of reported costs, it was not necessary to resort to total facts 
available.
    Because of the ambiguity and numerous inconsistences in USIMINAS' 
responses regarding its multiple costing systems, we were not able to 
discern the differences between these systems until the cost 
verification. At verification we learned that the normal cost 
accounting system was fully integrated with USIMINAS' financial 
accounting system. USIMINAS' normal cost accounting system which was 
used to prepare the audited financial statements was a process cost 
accounting system based on standards. Even though USIMINAS' cost 
accounting system calculated product-specific costs which accounted for 
the differences in steel grade, width, thickness and process, USIMINAS 
did not rely on it to prepare the submitted COP and CV data. We do not 
find persuasive USIMINAS' claim that its normal cost accounting system 
did not contain the level of cost detail requested by the Department. 
The normal cost accounting system utilized a twenty-seven digit product 
coding scheme with the various product characteristics accounted for. 
The underlying cost detail remained despite the fact that USIMINAS 
averaged multiple products together for inventory valuation while 
preparing the financial statements. Thus, the normal cost accounting 
system was sufficient for Department cost reporting purposes. See, 
Memorandum from Laurens van Houten, et al. to Neal Halper--Verification 
of the Cost of Production and Constructed Value Data, April 9, 1999 
(Cost Verification Report).
    Despite the existence of a detailed cost accounting system, 
USIMINAS used its dumping matrix system, which was outside its normal 
cost and financial accounting system, to calculate the reported costs. 
The dumping matrix is not audited by the independent auditors, nor did 
the independent auditors opine as to whether the principles used by the 
matrix were in accordance with Brazilian generally accepted accounting 
principles (GAAP). The USIMINAS dumping matrix system reallocates costs 
to broad product groups and does not account for the physical 
characteristics defined by the Department. This is undisputed by 
USIMINAS. In an attempt to differentiate costs for each CONNUM's 
physical characteristics, USIMINAS applied a correction factor to the 
cost calculated by the dumping matrix. The correction factor was the 
ratio of the product specific cost from the normal cost accounting 
system to the average group cost from the normal cost accounting 
system.
    There were numerous problems with the methodology employed by 
USIMINAS to develop the reported costs. First and foremost, USIMINAS 
failed to use its normal cost accounting system to prepare the reported 
costs. Section 773(f)(1)(A) of the Act specifically requires that costs 
be calculated based on the records of the exporter or producer of the 
merchandise, if such records are kept in accordance with the GAAP of 
the exporting country and reasonably reflect the costs associated with 
the production and sale of the merchandise. In accordance with the 
statutory directive, the Department will accept costs of the exporter 
or producer if they are based on records kept in accordance with GAAP 
of the exporting country and reasonably reflect the costs associated 
with the production and sale of the merchandise (i.e., the cost data 
can be reasonably allocated to subject merchandise). In determining 
whether the costs were reasonably allocated to all products the 
Department will, consistent with section 773(f)(1)(A) of the Act, 
examine whether the allocation methods are used in the normal 
accounting records and whether they have been historically used by the 
company. As demonstrated by the

[[Page 38788]]

record evidence in this case (see, e.g., Cost Verification Report), the 
normal cost accounting system was based on records kept in accordance 
with GAAP of the exporting country and reasonably reflected the costs 
associated with the production and sale of the merchandise (i.e., the 
costs were reasonably allocated to subject merchandise). Because 
USIMINAS' normal cost accounting system was maintained in accordance 
with Brazilian GAAP and reasonably reflected the costs associated with 
the production and sale of subject merchandise, USIMINAS should have 
reported the costs from its normal cost accounting system.
    We allow companies to deviate from their normal cost accounting 
system when that system does not appropriately allocate costs to 
specific products. See, e.g., Certain Cut-to-Length Carbon Steel Plate 
From Mexico: Final Results of Antidumping Duty Administrative Review 64 
FR 76, 80 (January 4, 1999). This is not the case here. In the instant 
case, USIMINAS normal cost accounting system calculated costs at a much 
greater level of detail than the dumping matrix. Therefore, contrary to 
USIMINAS' claim, it was not necessary for it to resort to the dumping 
matrix to develop the reported costs.
    Another shortcoming of USIMINAS' reporting methodology is that the 
product costs in the dumping matrix are based on a single average cost 
for slab. That is, USIMINAS used the average cost of all slab 
regardless of the grade or quality of the steel. Hence, in the dumping 
matrix there is no cost differentiation for grade or quality of steel. 
USIMINAS claims to have accounted for this difference in the reported 
costs by applying a correction factor to the dumping matrix costs. 
However, USIMINAS calculated the correction factor based on the ratio 
of a product-specific slab cost to the group-specific cost it relates 
to and applied the factor to the company-wide average slab cost (which 
is an average of numerous product groups). As a result, the ratio used 
to compute the slab cost adjustment has nothing to do with the average 
slab cost to which it is applied. Thus, this methodology does not 
appropriately allocate slab costs to the specific product.
    In order to test the reported product-specific costs, we compared 
the reported costs for several products to the product-specific costs 
recorded in the normal cost accounting system. We found that the 
dumping matrix costs, even after they were adjusted by the ``correction 
factor,'' were consistently lower than the costs recorded in the normal 
cost accounting system used to prepare the audited financial 
statements. Additionally, during our testing we noted that the dumping 
matrix allocated process center costs to products on a basis different 
from that used in the normal cost accounting system to allocate these 
costs. Therefore, the allocation methods used for the reported costs 
were not those historically used by the company as required by section 
773(f)(1)(A).
    Before the Department can assess the reasonableness of a 
respondent's cost allocation methodology, it must ensure that the 
aggregate amount of the reported costs captures all costs incurred by 
the respondent in producing the subject merchandise during the period 
under examination. This is done by performing a reconciliation of the 
respondent's submitted COP and CV data to the company's audited 
financial statements, when such statements are available. Because of 
the time constraints imposed on verifications, the Department generally 
must rely on the independent auditor's opinion concerning whether a 
respondent's financial statements present the actual costs incurred by 
the company, and whether those financial statements are in accordance 
with GAAP of the exporting country. In situations where the 
respondent's total reported costs differ from amounts reported in its 
financial statements, the overall cost reconciliation assists the 
Department in identifying and quantifying those differences in order to 
determine whether it was reasonable for the respondent to exclude 
certain costs for purposes of reporting COP and CV. Although the format 
of the reconciliation of submitted costs to actual financial statement 
costs depends greatly on the nature of the accounting records 
maintained by the respondent, the reconciliation represents the 
starting point of a cost verification because it assures the Department 
that the respondent has accounted for all costs before allocating those 
costs to individual products.
    In performing this reconciliation, at verification USIMINAS 
provided a reconciling schedule which indicates an amount which was 
identified as that corresponding to the methodological difference 
between the normal cost accounting system and the reported costs. The 
amount of the overall reconciliation difference was consistent with the 
highest difference we found when we compared the reported product-
specific costs to the product-specific costs in the normal cost 
accounting system. Therefore, to correct USIMINAS' mis-allocation of 
costs and its failure to use its normal cost accounting system as 
required by section 773(f)(1)(A), as facts available we increased the 
reported costs for all products by the largest reconciliation 
difference we found between the reported product-specific costs from 
the dumping matrix and the product specific costs in the normal cost 
accounting system.
    Section 776(a) of the Act provides that, if an interested party 
withholds information that has been requested by the Department, fails 
to provide such information in a timely manner or in the form or manner 
requested, significantly impedes a proceeding under the antidumping 
statute, or provides information which cannot be verified, the 
Department shall use, subject to sections 782(d) and (e), facts 
otherwise available in reaching the applicable determination. In this 
case USIMINAS failed to provide COP and CV data in the form and manner 
requested, i.e., based on its normal cost accounting system as required 
by section 773(f)(1)(A). Since USIMINAS failed to provide the necessary 
information in the form and manner requested, and in some instances the 
submitted information was found to be inaccurate, we conclude that, 
pursuant to section 776(a) of the Act, use of facts otherwise available 
is appropriate.
    Section 776(b) of the Act provides that adverse inferences may be 
used when an interested party has failed to cooperate by not acting to 
the best of its ability to comply with requests for information. As 
discussed above and in the verification report, USIMINAS failed to use 
its normal cost accounting system to report the submitted COP and CV 
data and, as a result, failed to reconcile the reported costs to its 
normal cost accounting system. In this case, however, an adverse 
inference is not warranted. The Department has applied the 
reconciliation difference to correct the submitted cost data. As 
explained above, the Department determined at verification that this 
reconciliation difference accurately represents the actual variation 
between product-specific costs generated by the dumping matrix and 
product-specific costs generated by the normal cost accounting system.
    We also disagree with USIMINAS' claim that the Department should 
have relied on its dumping matrix because it had done so in a previous 
review. As articulated in Final Results of Antidumping Administrative 
Reviews: Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat 
Products from Korea, 64 FR 12927, 12945-48 (March 16, 1999), the 
Department is not

[[Page 38789]]

obligated to accept an incorrect methodology and perpetuate a mistake 
because it was accepted in a prior review, as suggested by USIMINAS.
    We disagree with USIMINAS' claim that it had to use the dumping 
matrix because it was the only system that correctly allocated 
variances and depreciation. In its normal cost accounting system, 
USIMINAS did not allocate these costs to specific products. However, 
USIMINAS allocated them to the cost of goods sold and the cost of 
inventory based on the standard costs. In its normal accounting system, 
USIMINAS recognizes that standard cost is the appropriate allocation 
base for variances and depreciation. As this allocation methodology 
factors in the cost drivers of the variances and depreciation (e.g. 
machine time, labor hours, direct and indirect material cost and usage, 
energy cost and usage, other variable costs, maintenance, and other 
services) it would have been a reasonable method to report costs for 
Department purposes. Therefore, we disagree that the dumping matrix was 
the only system that correctly accounted for these costs.
    Comment 48: USIMINAS' Different COP and CV values. Petitioners 
argue that the Department should employ as facts available the higher 
of the COP or CV when the COP and CV differ for an identical CONNUM. 
Petitioners argue that USIMINAS did not calculate a weight-averaged 
cost based on global sales quantities for each product as instructed by 
the Department. Petitioners argue that it is impossible to fix this 
error with either of the remedies suggested by USIMINAS. Petitioners 
argue that without the sales quantity for each 27-digit product in a 
CONNUM, the Department cannot correct the error.
    USIMINAS maintains that the existence of different CONNUM-specific 
costs in the COP and CV files is not a problem. USIMINAS argues that 
the submitted global cost file provides the cost for each CONNUM, 
segregated by product groups, which the Department may use to calculate 
a unique cost for each CONNUM. In addition, USIMINAS states that, in 
the event the Department elects to collapse USIMINAS and COSIPA, the 
Department will ultimately rely on the consolidated cost file provided 
for USIMINAS and COSIPA. USIMINAS claims that in this file USIMINAS and 
COSIPA have provided unique costs for each CONNUM and, as a result, the 
Department's observation about a distinct CONNUM cost in the USIMINAS-
specific COP and CV file should have no impact on the Department's 
calculations in this investigation.
    Department's Position: We agree with petitioners. USIMINAS 
calculated a COM for COP purposes which was different from the COM it 
calculated for CV purposes for identical CONNUMS. Because the COM for a 
given CONNUM is the weighted average cost of producing that CONNUM, at 
least one of the reported COMs for each such ``two-value'' CONNUMS is 
incorrect. Although USIMINAS has provided a ``global'' file that 
consolidates COM (for both COP and CV) for both USIMINAS and COSIPA on 
a per-CONNUM basis, this global figure is not sufficient for the 
Department's needs. Specifically, the Department needs an accurate 
USIMINAS-specific COM for each CONNUM in order to make USIMINAS-
specific adjustments to that COM before it is averaged with the COSIPA-
specific COM data, to which COSIPA-specific adjustments have been made.
    The apparent reason why there are different USIMINAS COMs for COP 
and CV is that the former represents the COM of units sold in the home 
market, whereas the latter represents the COM of units sold to the 
United States. Instead, the Department's practice is to calculate COM 
values (for both COP and CV) for each CONNUM (which in this case is a 
group of multiple discrete products, each represented by a 27-digit 
product code) based on production of that CONNUM for sale to the 
worldwide market. The Department repeatedly requested that USIMINAS 
provide a single, weighted average COM for each USIMINAS CONNUM, but 
USIMINAS failed to provide this. Furthermore, the Department is unable 
to calculate such a COM from the data supplied by USIMINAS because it 
does not have the sales quantity data for each 27-digit product code 
needed to calculate the CONNUM-specific average across production for 
world-wide sale. Because USIMINAS has not provided the USIMINAS-
specific weighted average COM for each CONNUM, the Department must use 
the facts otherwise available for this information. Therefore, when the 
COM reported for COP purposes and the COM reported for CV purposes 
differed for any USIMINAS CONNUM, we have used the higher of the two 
figures as the COM value for that CONNUM.
    Comment 49: USIMINAS' Major Inputs from CVRD. Petitioners argue 
that iron ore is a major input and that since USIMINAS failed to 
provide the COP information for iron ore purchased from its affiliate 
Companhia do Vale Rio Doce (``CVRD''), the Department should use facts 
available to value this input.
    USIMINAS argues that Department should accept the iron ore transfer 
price from CVRD, as the Department has done in a prior administrative 
review because the iron ore prices charged by CVRD were above the price 
charged by unaffiliated companies. USIMINAS argues that the 
circumstances in this case are identical to that in a prior review in 
which the Department made no adjustment. In addition, USIMINAS 
maintains that the Department has confirmed that the iron ore prices 
charged by CVRD are above the prices charged by unaffiliated suppliers. 
USIMINAS argues that it could not compel CVRD to provide its COP of 
iron ore.
    USIMINAS states that the Department overestimated the percentage of 
CVRD's iron ore in the total cost of manufacturing in its verification 
report. USIMINAS argues that the Department's calculation incorrectly 
assumes that the entire cost of sinter is equivalent to iron ore, 
whereas sinter is a value-added product in which iron ore is one input. 
USIMINAS argues that cost verification exhibit C-15 shows that the 
monthly consumption of iron ore is less than half of the amount assumed 
by the Department. USIMINAS states that when the correct monthly cost 
of iron ore is used in the Department's methodology, the cost of iron 
ore is a much lower percentage of the total cost of manufacturing.
    Department's position: We have applied the major input rule in 
accordance with section 773(f)(3) of the Act in valuing the iron ore 
received from CVRD. In doing so, we have used, as facts available, the 
COP information provided in the September 30, 1998 petition as the COP 
of iron ore from CVRD since USIMINAS did not provide the COP 
information as requested by the Department.
    We consider iron ore to be a major input in accordance with section 
773(f)(3) of the Act. Section 773(f)(2) allows the Department to test 
whether transactions between affiliated parties involving any element 
of value (i.e., major or minor inputs) are at prices that ``fairly 
reflect the market under consideration.'' Section 773(f)(3) allows the 
Department to test whether, for transactions between affiliated parties 
involving a major input, the value of the major input is not less than 
the affiliated supplier's COP where there is reasonable cause to 
believe or suspect the price is below COP. In other words, if an 
understatement in the value of an input would have a significant impact 
on the reported cost of the subject merchandise, the law allows the 
Department to insure that the transfer price or market price is not 
below cost. We consider the initiation of a sales-

[[Page 38790]]

below-cost investigation reasonable grounds to believe or suspect that 
major inputs to the foreign like product may also have been sold at 
prices below the COP within the meaning of section 773(f)(3) of the Act 
(see e.g., Final Results of Antidumping Administrative Review: 
Silicomanganese from Brazil, 62 FR 37871 (July 15, 1997)).
    In determining whether an input is considered major, among other 
factors, the Department considers both the percentage of the input 
obtained from affiliated suppliers (versus unaffiliated suppliers) and 
the percentage the individual element represents of the product's COM. 
Even though we agree with USIMINAS that the Department overestimated 
the percentage of CVRD's iron ore in USIMINAS's total COM in the 
USIMINAS cost verification report, we still determined in this case 
that iron ore represents a significant percentage of the total cost of 
manufacturing and that USIMINAS receives a significant portion of its 
iron ore from its affiliate CVRD. The combination of the significant 
amounts of the inputs obtained from CVRD and the relatively large 
percentage the iron ore represents of the product's COM increases the 
risk of misstatement of the subject merchandise's costs to such a 
degree that we have determined that section 773(f)(3) of the Act 
applies to this input.
    Because we have determined that iron ore purchased from an 
affiliate is a major input in USIMINAS' production of carbon steel, the 
statute requires that, for the dumping analysis, the major input should 
be valued at the higher of transfer price, market price or COP. See 
Notice of Final Determination of Sales at Less Than Fair Value: 
Stainless Steel Round Wire from Canada, 64 FR 17324, 17335 (April 9, 
1999). In accordance with sections 773(f)(2) and (3) of the Act, we 
attempted to compare the transfer price for iron ore purchased from 
USIMINAS' affiliated supplier to the supplier's COP and a market price. 
Even though the Department requested that USIMINAS provide its 
affiliated supplier's actual COP for iron ore in the original section D 
questionnaire, the supplemental questionnaires and at verification, 
USIMINAS failed to do so.
    Section 776(a) of the Act provides that, if an interested party 
withholds information that has been requested by the Department, fails 
to provide such information in a timely manner or in the form or manner 
requested, significantly impedes a proceeding under the antidumping 
statute, or provides information which cannot be verified, the 
Department shall use, subject to sections 782(d) and (e), facts 
otherwise available in reaching the applicable determination. Section 
776(b) of the Act provides that, if the administering authority ``finds 
that an interested party has failed to cooperate by not acting to the 
best of its ability to comply with a request for information,'' then in 
determining the applicable facts available it ``may use an inference 
that is adverse to the interests of that party in selecting from among 
the facts otherwise available.''
    In the instant case, the use of facts available is warranted 
because USIMINAS failed to provide the COP of iron ore received from 
its affiliated supplier. Because USIMINAS failed to respond to repeated 
requests for this information, as adverse facts available, we have 
relied on the COP provided in the September 30, 1998 petition. For the 
final determination, we adjusted the transfer price of the iron ore 
inputs received from CVRD to reflect the higher COP in the petition.
    Comment 50: USIMINAS' Major Inputs from USIMPEX. Petitioners note 
that USIMINAS purchases the majority of its coal from an affiliate, 
USIMINAS Importacao e Exportacao S.A. (``USIMPEX''). Petitioners argue 
that USIMPEX's COP for coal was higher than the market value and the 
transfer price used to establish the COP and CV. Petitioners contend 
that since coal is a major input, the Department should apply the major 
input rule and use the higher of market value, transfer price or COP.
    USIMINAS argues that the Department incorrectly calculated the 
amount of USIMPEX's 1997 loss and USIMPEX actually had a gross profit. 
USIMINAS argues that the amount the Department stated was USIMPEX's 
negative gross profit was the company's net operating expenses. 
USIMINAS argues that because USIMPEX had a gross profit in 1997 its 
sales prices were above its costs. USIMINAS further argues that if the 
Department were to subtract USIMPEX's SG&A expenses, there is still no 
indication that USIMPEX is selling below its costs because the 
resulting loss is insignificant and would show that it was essentially 
operating at the break-even point.
    Department's position: As it relates to the facts of this case, we 
consider coal to be a major input in the production of carbon steel in 
accordance with section 773(f)(3) of the Act (see response to Comment 
49).
    Because we have determined that coal purchased from an affiliate is 
a major input in USIMINAS' production of carbon steel in this case, the 
statute requires that, for the dumping analysis, the major input should 
be valued at the higher of transfer price, market price or COP. See 
Notice of Final Determination of Sales at Less Than Fair Value: 
Stainless Steel Round Wire from Canada, 64 FR 17324, 17335 (April 9, 
1999). In accordance with section 773(f)(2) and (3) of the Act, we 
compared the transfer price to the affiliated supplier's COP and the 
market price (i.e., prices from un-affiliated suppliers) and found that 
the market price was greater than both the transfer price and the COP. 
Thus, for the final determination we have adjusted the reported cost 
for coal purchases from USIMINAS' affiliated supplier to reflect the 
higher market price.
    Comment 51: USIMINAS' Interest Revenue Offset. Petitioners argue 
that the Department should deny USIMINAS' claimed interest income 
offset in its entirety because USIMINAS was unable to segregate the 
long- and short-term components of the consolidated interest revenue. 
Petitioners argue that the segregation of long- and short-term interest 
revenue for the producing entity alone is inappropriate because the 
producer's interest income may include amounts derived from affiliated 
party transactions which would be eliminated in the preparation of 
consolidated financial statements.
    USIMINAS argues that if the Department does not accept USIMINAS' 
submitted short-term financial income values identified in the 
response, the Department should use the ratio between USIMINAS' short-
term and long-term financial income as a surrogate to derive short-term 
income from the total consolidated financial income for USIMINAS 
companies. USIMINAS notes that the Department examined USIMINAS' 
interest income for the purposes of distinguishing short-term and long-
term portions. USIMINAS argues that the Department must allow interest 
on accounts receivable and accounts receivable discounts as an offset 
to interest expense because these two items are short-term in nature. 
In addition, USIMINAS argues that given the sizable increase in total 
financial income from the USIMINAS parent company to the USIMINAS 
consolidated entity, the Petitioners' theory, that the short-term 
financial income may include revenue derived from affiliated party 
transactions, has no merit.
    Department's position: We agree with USIMINAS that it is reasonable 
to use the USIMINAS company-specific short-term to long-term financial 
income ratio as a surrogate to derive the short-term portion of total 
interest income from the USIMINAS consolidated financial

[[Page 38791]]

statements. While USIMINAS was unable to document the short-term 
portion of interest income for the consolidated entity, we found that 
the USIMINAS company-specific interest income represented the majority 
of the consolidated entity's interest income. Therefore, we have found 
it reasonable to use the USIMINAS company-specific short-term to long-
term financial income ratio as a surrogate to derive the short-term 
interest income from the total USIMINAS consolidated financial income.
    We disagree with USIMINAS that interest income earned on accounts 
receivable and accounts receivable discounts should be included as an 
offset to interest expense. Interest charged to customers relating to 
specific sales are more appropriately treated as sales revenue. In 
fact, there is a separate field identified in the section B and C 
questionnaires in which this revenue is to be reported (i.e., INTREVH 
for home market sales and INTREVU for U.S. sales). Accordingly, we have 
disallowed this interest income on accounts receivable and accounts 
receivable discounts as an offset to interest expense.
    Comment 52: USIMINAS' SG&A. USIMINAS argues that the Department 
incorrectly excluded the income from certain USIMINAS operations, while 
including the associated expenses (for example USIMINAS ownership of 
the Ipatinga airport) in the preliminary determination. USIMINAS argues 
that if Department excludes the income from any non-operational 
activity, it should also exclude the expense associated with that 
activity.
    Petitioners argue that USIMINAS has not demonstrated that the 
revenue in question is related to operations for which SG&A expenses 
were reported. Petitioners further argue that it would be improper to 
use revenue as an offset if no related expenses were included in the 
SG&A, thus, USIMINAS does not qualify for an offset to its SG&A 
expenses.
    Department's position: We agree with USIMINAS. In the preliminary 
determination we excluded the income from certain USIMINAS operations, 
while including the associated expenses (for example USIMINAS ownership 
of the Ipatinga airport). At verification, we reviewed source documents 
and obtained explanations from company officials on all the income 
items that were used to offset USIMINAS' SG&A costs. We found that 
certain revenue items (e.g., airport leases and rent) were related to 
investments, and not to the general operations of the company as a 
whole. In addition, we found that certain expense items related to the 
activities which produced this income were included in the SG&A 
calculation. For the final determination we have excluded the expenses 
which directly relate to the excluded revenues.
    Comment 53: COSIPA's Errors in Reporting Sales Quantities. 
Petitioners argue that errors in COSIPA's calculation of sales quantity 
result in an understatement of the total cost of manufacturing which 
requires the use of facts available. Petitioners assert that to correct 
this error the Department should increase the total cost of 
manufacturing for each product by the same percentage since the 
product-specific impact of these errors is not known.
    COSIPA retorts that the errors in sales quantity as originally 
submitted do not result in an understatement of the total cost of 
manufacturing but an overstatement of costs. COSIPA argues that 
petitioners' justification for using facts available is flawed since 
the product-specific corrections were submitted at the Department's 
request.
    Department's Position: We agree with COSIPA. The sales quantities 
as originally reported overstated the total cost of manufacturing. The 
Department obtained at the first day of verification an exhibit 
explaining the error in sales quantities and in the provisions account. 
We verified the accuracy and impact of the product-specific corrections 
and obtained revised databases. As a result, no additional adjustment 
as a result of this correction is necessary.
    Comment 54: COSIPA's Iron Ore Purchases from Affiliates. 
Petitioners argue that COSIPA failed to provide CVRD's COP for the 
major input iron ore, despite repeated requests from the Department 
throughout the course of this investigation. Petitioners advocate the 
use of facts available to value iron ore.
    COSIPA argues that the Department should accept the iron ore costs 
based on the transfer price because COSIPA acted to the best of its 
ability to obtain cost information from CVRD but were unable to do so 
because of the nature of affiliation with CVRD. COSIPA also states that 
the affiliated prices from CVRD are higher than iron ore prices from 
unaffiliated suppliers. COSIPA claims that this would be consistent 
with the Final Results of Antidumping Duty Administrative Review: 
Certain Cut-to-Length Carbon Steel Plate from Brazil 63 FR 12744, 12751 
(March 16, 1998) where the Department decided to accept COSIPA's 
submitted iron ore costs from CVRD.
    Department's Position: In determining whether an input is 
considered major in accordance with section 773(f)(3) of the Act, among 
other factors, the Department considers both the percentage of the 
input obtained from affiliated suppliers (versus un-affiliated 
suppliers) and the percentage the individual element represents of the 
product's total cost of manufacturing. COSIPA purchased iron ore from 
an affiliate, CVRD. We have determined that the quantity and value of 
iron ore purchased during the POI from CVRD are not of enough 
significance to be considered a major input in accordance with section 
773(f)(3). However, pursuant to section 773(f)(2) of the Act, the 
Department may disregard the transfer price from an affiliated supplier 
if it is less than the market price for the same input. We compared the 
transfer price of iron ore purchased from CVRD to the market price 
(i.e., prices for purchases from unaffiliated suppliers) and found that 
the market price was higher. Therefore, for the final determination, we 
adjusted the submitted iron ore costs to reflect a market price.
    Comment 55: COSIPA's Coal Purchases from Affiliates. Petitioners 
assert that the cost of coal obtained by COSIPA from affiliated parties 
is undervalued, requiring the use of facts available. Petitioner states 
that coal is a major input and since the affiliate's cost, excluding 
freight, is higher than the price charged to COSIPA, the Department 
should increase the reported value for coal by the percentage 
difference between the cost and the transfer price.
    In comparing transfer price to cost, respondents state that the 
petitioners' analysis is flawed due to double-counting of COSIPA 
expenses. Respondents argue that it is incorrect to include any of 
COSIPA Overseas' financial expenses as a cost because these expenses 
are already captured in the consolidated financial expenses for COSIPA 
using the COSIPA/USIMINAS consolidated financial statement. Second, 
respondents state the inclusion of SG&A expenses of COSIPA Overseas is 
also incorrect, as the SG&A used by the Department in the preliminary 
determination was apparently the consolidated SG&A for both COSIPA and 
COSIPA Overseas.
    Department's Position: COSIPA purchased coal from an affiliate, 
COSIPA Overseas. We have determined that the quantity and value of coal 
purchased during the POI from the affiliate were significant. Pursuant 
to sections 773(f)(2) and (3) of the Act, the Department may value 
major inputs purchased from affiliated suppliers at the higher of 
market value, transfer

[[Page 38792]]

price or the affiliated supplier's COP. See Comment 49.
    In accordance with sections 773 (f)(2) and (3) of the Act we 
attempted to compare the transfer price of the coal purchased from the 
affiliated supplier to the market price for coal and to the affiliate's 
COP. Since COSIPA did not purchase coal from any other supplier nor did 
the affiliate sell coal to another customer during the period of 
investigation, we were unable to establish a market price for coal. We 
agree with the respondent's assertion that the Department's cost 
verification report double counted financial expenses in calculating 
the affiliate's COP. The double counting occurred as a result of 
consolidating the affiliate's expenses into COSIPA's financial 
statements. After adjusting for this duplication, the transfer price 
from the affiliate is higher than the affiliate's calculated COP. Since 
our testing indicated that the transfer price between COSIPA and its 
affiliate was higher than COP, no adjustment was necessary. We disagree 
with respondent's contention that we used the consolidated SG&A for the 
preliminary determination. In fact we used the unconsolidated COSIPA 
SG&A expenses.
    Comment 56: COSIPA's SG&A Expenses. Petitioners state that COSIPA's 
SG&A rate was understated and must be revised to reflect all related 
expenses. Petitioners point out that COSIPA failed to include expenses 
related to the depreciation and amortization on administrative assets 
in its SG&A rate calculation. Petitioners also point out that accruals 
for lawsuit contingencies were omitted. Petitioners argue these amounts 
should be included in the SG&A rate calculation.
    The respondent did not comment on this issue.
    Department's Position: We agree with petitioners that the costs 
associated with depreciation and amortization on administrative assets 
and accruals for lawsuit contingencies should be included in COSIPA's 
SG&A expense rate calculation. We consider these costs to be related to 
the general operations of the company as a whole. We have therefore 
revised COSIPA's SG&A calculation to include these costs. Since we did 
not include ICMS taxes in the COP and CV computations, we did not allow 
income recognized from rescheduling of ICMS taxes as an offset to SG&A 
expense.
    Comment 57: Dufer's Further Processing Costs. Petitioners argue 
that the Department should use facts available to determine the cost of 
further processing at Dufer because Dufer has no product-specific cost 
records.
    Respondents argue that Dufer has no basis for determining product-
specific costs as required by the Department. Respondents state that 
Dufer is a small company and cooperated to the best of its ability by 
providing all of the information it could to the Department. 
Respondent's cite Annex II of the 1994 Agreement on Implementation of 
Article VI of the GATT in arguing that the Department should use 
information provided to it by respondents, ``provided the interested 
party has acted to the best of its ability.'' In the instant case, 
respondents argue that Dufer provided all of the information it had to 
the best of its ability and fully cooperated with the Department at 
verification, and thus there is no basis for the Department to use 
facts available to determine Dufer's costs.
    Department's Position: These comments on Dufer's cost issues are 
moot due to the Department's decision to use adverse facts available 
for sales from Dufer. See Comment 18.

Suspension of Liquidation

    On July 6, 1999, the Department signed a suspension agreement with 
CSN, USIMINAS, and COSIPA suspending this investigation. Pursuant to 
section 734(f)(2)(A) of the Act, we are instructing Customs to 
terminate the suspension of liquidation of all entries of hot-rolled 
flat-rolled, carbon-quality steel products from Brazil. Any cash 
deposits of entries of hot-rolled flat-rolled, carbon-quality steel 
products from Brazil shall be refunded and any bonds shall be released.
    On July 2, 1999, the Department received a request from petitioners 
requesting that we continue the investigation. Pursuant to this 
request, we have continued and completed the investigation in 
accordance with section 734(g) of the Act. We have found the following 
weighted-average dumping margins:

------------------------------------------------------------------------
                                                              Weighted-
                                                               average
                   Exporter/manufacturer                        margin
                                                              (percent)
------------------------------------------------------------------------
CSN........................................................        41.27
USIMINAS/COSIPA............................................        43.40
All Others.................................................        42.12
------------------------------------------------------------------------

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determination. As our determination is affirmative, the ITC 
will determine, within 45 days, whether these imports are causing 
material injury, or threat of material injury, to an industry in the 
United States. If the ITC's injury determination is negative, the 
agreement will have no force or effect, and the investigation will be 
terminated (see section 734(f)(3)(A) of the Act). If the ITC's 
determination is affirmative, the Department will not issue an 
antidumping duty order as long as the suspension agreement remains in 
force (see section 734(f)(3)(B) of the Act).
    This determination is issued and published in accordance with 
sections 735(d) and 777(i)(1) of the Act.

    Dated: July 6, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-18225 Filed 7-16-99; 8:45 am]
BILLING CODE 3510-DS-P