[Federal Register Volume 64, Number 137 (Monday, July 19, 1999)]
[Notices]
[Pages 38626-38642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18371]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-821-809]


Notice of Final Determination of Sales at Less Than Fair Value: 
Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From the Russian 
Federation

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

EFFECTIVE DATE: July 19, 1999.

FOR FURTHER INFORMATION CONTACT: Lyn Baranowski or Carrie Blozy, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 
20230; telephone: (202) 482-3208 or (202) 482-0165, respectively.

The Applicable Statute

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

Final Determination

    We determine that hot-rolled flat-rolled carbon-quality steel 
products (``hot-rolled steel'') from the Russian Federation 
(``Russia'') are being sold in the United States at less than fair 
value

[[Page 38627]]

(``LTFV''), as provided in section 735 of the Act. The estimated 
margins are shown in the ``Continuation of Suspension of Liquidation'' 
section of this notice.

Case History

    Petitioners in this investigation are Bethlehem Steel Corporation, 
U.S. Steel Group, a unit of USX Corporation, Ispat Inland Steel, LTV 
Steel Company, Inc., National Steel Corporation, California Steel 
Industries, Gallatin Steel Company, Geneva Steel, Gulf States Steel 
Inc., IPSCO Steel Inc., Steel Dynamics, Weirton Steel Corporation, the 
Independent Steelworkers Union, and the United Steelworkers of America.
    Respondents in this investigation are JSC Severstal 
(``Severstal''), Novolipetsk Iron & Steel Corporation (``NISCO''), and 
Magnitogorsk Iron & Steel Works (``MMK'').
    Since the Notice of Preliminary Determination of Sales at Less Than 
Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from 
the Russian Federation, 64 FR 9312 (February 25, 1999) (``Preliminary 
Determination''), the following events have occurred:
    On March 1 and March 2, 1999, respectively, respondents NISCO and 
MMK submitted letters informing the Department that they were 
withdrawing from further participation in the proceeding. On March 8, 
1999, NISCO submitted a letter alleging clerical errors in the 
preliminary determination.
    In April 1999, we conducted sales and factors of production 
verifications of Severstal's responses to the antidumping 
questionnaires (see Verification Report for Severstal dated April 14, 
1999 (``Verification Report'')). Petitioners and Severstal submitted 
case briefs on April 19, 1999, and rebuttal briefs on April 26, 1999.
    On April 12, 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, petitioners 
requested that certain ASTM A570-50 grade steel be excluded from the 
investigation. We adjusted the scope of this investigation pursuant to 
the decisions detailed in the Scope Amendments Memorandum, dated April 
28, 1999.
    On July 12, 1999, the Department signed a suspension agreement with 
the Ministry of Trade of the Russian Federation (the Agreement). If the 
ITC determines that material injury exists, the Agreement shall remain 
in force but the Department shall not issue an antidumping order so 
long as (1) the Agreement remains in force, (2) the Agreement continues 
to meet the requirements of subsections (d) and (l) of the Act, and the 
parties to the Agreement carry out their obligations under the 
Agreement in accordance with its terms.
    On July 7, 1999, we 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.

Scope of 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 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.
--------------------------------------------------------------------------------------------------------------------------------------------------------

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:

[[Page 38628]]



------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                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 silicon by weight, further characterized by 
either (i) tensile strength between 540 N/mm2 and 640 N/
mm2 and an elongation percentage  26 percent for 
thicknesses of 2 mm and above, or (ii) a tensile strength between 590 
N/mm2 and 690 N/mm2 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 January 1 through June 30, 
1998.

Nonmarket Economy Country Status

    The Department has treated Russia as a nonmarket economy (``NME'') 
country in all past antidumping duty investigations and administrative 
reviews (see, e.g., Titanium Sponge from the Russian Federation: Final 
Results of Antidumping Administrative Review, 64 FR 1599 (January 11, 
1999); Notice of Final Determination of Sales at Less Than Fair Value: 
Certain Cut-to-Length Carbon Steel Plate from the Russian Federation, 
62 FR 61787 (November 19, 1997); Notice of Final Determination of Sale 
at Less Than Fair Value: Pure Magnesium and Alloy Magnesium from the 
Russian Federation, 60 FR 16440 (March 30, 1995); Notice of Preliminary 
Determination of Sales at Less Than Fair Value and Postponement of the 
Final Determination: Ferrovanadium and Nitridid Vanadium from the 
Russian Federation, 60 FR 438 (January 4, 1995)). A designation as an 
NME remains in effect until it is revoked by the Department (see 
section 771(18)(C) of the Act). Therefore, for this final 
determination, the Department is continuing to treat Russia as an NME.

Separate Rates

    The Department presumes that a single dumping margin is appropriate 
for all exporters in an NME country. See Final Determination of Sales 
at Less Than Fair Value: Silicon Carbide from the People's Republic of 
China, 59 FR 22585 (May 2, 1994) (``Silicon Carbide''). The Department 
may, however, consider requests for a separate rate from individual 
exporters. Severstal, NISCO, and MMK have each requested a separate, 
company-specific rate. Because NISCO and MMK withdrew from this 
proceeding, we were only able to verify information provided by 
Severstal and thus, we are only considering granting Severstal's 
request for a separate rate for this final determination. To establish 
whether a firm is sufficiently independent from government control to 
be entitled to a separate rate, the Department analyzes each exporting 
entity under a test

[[Page 38629]]

arising out of the Final Determination of Sales at Less Than Fair 
Value: Sparklers from the People's Republic of China, 56 FR 20588 (May 
6, 1991) and amplified in Silicon Carbide. Under the separate rates 
criteria, the Department assigns separate rates in NME cases only if a 
respondent can demonstrate the absence of both de jure and de facto 
government control over export activities. For a complete analysis of 
separate rates, see Memorandum to Edward C. Yang from Lesley Stagliano 
Re: Separate Rates for Exporters that Submitted Questionnaire Responses 
(``Separate Rates Memo''), dated February 22, 1999.

1. Absence of De Jure Control

    An individual company may be considered for separates rates if it 
meets the following de jure criteria: (1) an absence of restrictive 
stipulations associated with an individual exporter's business and 
export licenses; (2) any legislative enactments decentralizing control 
of companies; and (3) any other formal measures by the government 
decentralizing control of companies.
    Severstal has placed on the administrative record a number of 
documents to demonstrate absence of de jure control. These documents 
include laws, regulations, and provisions enacted by the central 
government of Russia, describing the deregulation of Russian enterprise 
as well as the deregulation of the Russian export trade, except for a 
list of products that may be subject to central government export 
constraints. Severstal claims that the subject merchandise is not on 
this list. This information supports a final finding that there is an 
absence of de jure government control for Severstal. See Separate Rates 
Memo.

2. Absence of De Facto Control

    The Department typically considers four factors in evaluating 
whether each respondent is subject to de facto governmental control of 
its export functions: (1) whether the export prices (``EP'') are set by 
or subject to the approval of a governmental authority; (2) whether the 
respondent has authority to negotiate and sign contracts and other 
agreements; (3) whether the respondent has autonomy from the government 
in making decisions regarding the selection of management; and (4) 
whether the respondent retains the proceeds of its export sales and 
makes independent decisions regarding disposition of profits or 
financing of losses. Severstal has reported that it is a publicly-owned 
company and that there is not aggregate government ownership greater 
than 25 percent.
    Severstal has asserted that the company establishes its prices in 
negotiation with its customers, and that theses prices are not subject 
to review or guidance from any government organization. Furthermore, 
Severstal's management has the authority to negotiate and sign 
contracts, also without review or guidance from outside organizations. 
Severstal stated that it can retain all export earnings, and that there 
are no restrictions on the use of the company's export revenues or 
utilization of profits. Severstal further reported that its management 
is appointed by the company's shareholders, and that the government has 
no role in, and is not advised of, the selection of its management. At 
verification for Severstal, we verified reported information 
substantiating Severstal's separate rates claim (see Verification 
Report at 4-5).
    In addition, the respondent's questionnaire responses indicate that 
company-specific pricing during the POI does not suggest coordination 
among exporters. This information supports a final finding that there 
is an absence of de facto governmental control of the export functions 
of Severstal. Consequently, for this final determination, we determined 
that Severstal meets the criteria for application of a separate rate. 
For a further discussion of this issue, see Separate Rates Memo.

Russia-Wide Rate

    After sending questionnaires to the 16 companies identified as 
potential respondents in the petition, we received complete Section A 
responses from only three producers--Severstal, MMK and NISCO. In the 
Respondent Selection Memorandum from Edward Yang to Joseph Spetrini 
dated November 19, 1998, we limited our examination of producers of 
subject merchandise to these three companies. However, two of the 
companies (MMK and NISCO) subsequently withdrew from the investigation. 
Furthermore, U.S. import statistics indicate that the total quantity 
and value of U.S. imports of hot-rolled steel from Russia is greater 
than the total quantity and value of hot-rolled steel reported by 
Russian companies that submitted responses that were subsequently 
verified (see Memorandum on Final Determination of Critical 
Circumstances from Edward Yang to Joseph Spetrini dated July 12, 1999 
(``Final Critical Circumstances Memo'')). Accordingly, we are applying 
a single antidumping rate--the Russia-wide rate--to all exporters in 
Russia based on our presumption that those respondents who failed to 
respond to the initial questionnaire or withdrew from the investigation 
(i.e., MMK and NISCO) constitute a single enterprise under common 
control by the Russian government. See, e.g., Final Determination of 
Sales at Less Than Fair Value: Bicycles from the People's Republic of 
China, 61 FR 19026 (April 30, 1996) (``Bicycles''). The Russia-wide 
rate applies to all entries of subject merchandise except for entries 
from Severstal.

Application of Facts Available

    Section 776(a) of the Act provides that, if an interested party 
withholds information that has been requested by the Department, fails 
to provide such information in a timely manner or in the form or manner 
requested, significantly impedes a proceeding under the antidumping 
statute, or provides information which cannot be verified, the 
Department shall use, subject to sections 782(d) and (e) of the Act, 
facts otherwise available in reaching the applicable determination. 
Thus, pursuant to section 776(a) of the Act, the Department is required 
to apply, subject to section 782(d), facts otherwise available. 
Pursuant to section 782(e), the Department shall not decline to 
consider such information if all of the following requirements are met: 
(1) the information is submitted by the established deadline; (2) the 
information can be verified; (3) the information is not so incomplete 
that it cannot serve as a reliable basis for reaching the applicable 
determination; (4) the interested party has demonstrated that it acted 
to the best of its ability; and (5) the information can be used without 
undue difficulties.

Facts Available

Severstal
    Section 776(a)(2)(B) of the Act requires the Department to use 
facts available when a party does not provide the Department with 
information in the form and manner requested or when necessary 
information is not available on the record. In this case, we find that 
Severstal failed to provide the Department with normal value data in 
the form and manner requested and that factors of production (FOP) data 
for each specific control number (CONNUM) were not available on the 
record.
    As described below (see Comment 2), Severstal did not report 
CONNUM-specific FOP data as requested in the original and supplemental 
questionnaires and instead explained that the limitations of its 
accounting system prevented it from reporting FOPs

[[Page 38630]]

on a CONNUM-specific basis. Therefore, we find that the application of 
facts available for Severstal in the final determination is appropriate 
because Severstal's FOP data: (1) is not allocated sufficiently to 
discrete grades or qualities, resulting in NVs which are not accurate 
reflections of the grades to which they relate; and (2) does not 
measure the factors relevant to individual products actually being 
produced. We note that we were unable to adjust the reported FOPs due 
to the broad basis on which the costs were accumulated and the lack of 
information on the record on how to adjust these costs. As a result, 
the normal values calculated from Severstal's reported FOP database 
cannot serve as a reliable basis for reaching a final determination 
(see section 782(e)(3) of the Act), and we have instead relied on facts 
available for Severstal for this final determination.
    Although the reported FOPs were not on a CONNUM-specific basis, we 
found that the FOPs reported by Severstal were consistent with the data 
kept by the company in the normal course of business. Also, in the 
aggregate, we did not find any reason to suggest that the reported 
costs did not accurately reflect the costs associated with all subject 
merchandise in its entirety. Therefore, as facts available, we have 
calculated one weighted-average normal value and compared all U.S. 
prices to the single normal value.
    Notwithstanding the Department's decision to use Severstal's 
reported FOP data in this manner, this decision does not represent an 
endorsement by the Department of Severstal's methodology for reporting 
factor data. As explained in detail below in Comment 2, there are 
serious flaws in Severstal's methodology which render ineffective the 
Department's established methodology of calculating dumping margins on 
the basis of comparisons of sales prices for individual U.S. products 
to product-specific normal values. In particular, the Department is 
advising Severstal that the reporting methodology used in this 
investigation will be unacceptable for future segments of this 
proceeding. The use of Severstal's factor data in an administrative 
review, in which assessment rates for antidumping duties are 
calculated, could result in an understated margin due to the effects of 
averaging Severstal's FOP data into one normal value. In such future 
segments, Severstal risks the application of adverse facts available in 
the event that it fails to report FOP data that (1) is allocated 
sufficiently to discrete grades or qualities; (2) yields NVs which are 
reflective of the grades to which they relate; and (3) measures the 
factors of production of merchandise actually being produced.
Russia-Wide Rate
    Section 776(a)(2)(A) of the Act requires the Department to use 
facts available when a party withholds information which has been 
requested by the Department. Additionally, section 782(i)(1) of the Act 
provides that the Department must rely on verified information for 
making a final determination in an antidumping duty investigation. In 
this case, some exporters of the single enterprise failed to respond to 
the Department's request for information and MMK and NISCO withdrew 
from the investigation prior to verification of their questionnaire 
responses. Thus, consistent with section 782(e)(2) of the Act, we have 
declined to consider information submitted by either MMK or NISCO 
(including information regarding their eligibility for separate rates) 
because it could not be verified. Pursuant to section 776(a) of the 
Act, in reaching our final determination, we have used total facts 
available for the Russia-wide rate because certain entities did not 
respond and we could not verify MMK's and NISCO's questionnaire 
responses.

Adverse Facts Available

Russia-Wide Rate
    Section 776(b) of the Act provides that, in selecting from among 
the facts available, the Department may employ adverse inferences when 
an interested party fails to cooperate by not acting to the best of its 
ability to comply with requests for information. See also ``Statement 
of Administrative Action'' accompanying the URAA, H.R. Rep. No. 103-
316, 870 (``SAA''). The statute and SAA provide that such an adverse 
inference may be based on secondary information, including information 
drawn from the petition.
    Because certain exporters in the single entity did not respond to 
our questionnaire and others (i.e., MMK and NISCO) withdrew from this 
proceeding, we consider the single entity to be uncooperative. 
Therefore, the Department has determined that, in selecting from among 
the facts available, an adverse inference is appropriate. Consistent 
with Department practice in cases in which a respondent has been 
uncooperative, as adverse facts available, we have applied a margin 
based on information in the petition (see Comment 1 below and 
Initiation Checklist: Certain Hot-Rolled Flat-Rolled Carbon-Quality 
Steel Products from Japan, Brazil, and the Russian Federation, 
Attachment: Revised NVs and Margins for Russia (October 19, 1998) 
(``Initiation Checklist'')).
    Section 776(c) of the Act provides that, when the Department relies 
on secondary information, such as the petition, as facts available, it 
must, to the extent practicable, corroborate that information from 
independent sources that are reasonably at its disposal. The SAA 
clarifies that ``corroborate'' means that the Department will satisfy 
itself that the secondary information to be used has probative value 
(see SAA at 870). The SAA also states that independent sources used for 
corroboration may include, for example, published price lists, official 
import statistics and customs data, and information obtained from 
interested parties during the particular investigation (see id.).
    In order to determine the probative value of the petition margins 
for use as adverse facts available for the purposes of this 
determination, we have examined evidence supporting the petition 
calculations. In accordance with section 776(c) of the Act, to the 
extent practicable, we examined the key elements of the U.S. price and 
normal value calculations on which the petition margin was based. In 
corroborating U.S. price data, we compared the data used in the 
petition to the reported sales database of Severstal, the only Russian 
respondent whose questionnaire response was verified. In corroborating 
NV information, we made certain adjustments to account for surrogate 
values used in the final determination. Based on this analysis, we have 
corroborated the highest margin in the petition, as adjusted by the 
Department for this final determination. See Facts Available 
Corroboration Memorandum, date July 12, 1999.
    For these reasons, we have chosen the highest petition margin, as 
adjusted, as the basis for using total adverse facts available for the 
single Russian entity. See Facts Available Corroboration Memorandum. 
The revised highest petition rate, which we have used as the Russia-
wide rate, is 184.56 percent.

Fair Value Comparisons

    To determine whether sales of hot-rolled steel products from Russia 
to the United States by Severstal were made at less than fair value, we 
compared the EP to the NV, as described in the ``Export Price'' and 
``Normal Value'' sections of this notice.

Export Price

    For Severstal, we preliminarily calculated EP in accordance with 
section 772(a) of the Act because the subject merchandise was sold to 
the first

[[Page 38631]]

unaffiliated purchaser in the United States prior to importation and 
constructed export price (``CEP'') methodology was not otherwise 
indicated. In accordance with section 777A(d)(1)(A)(i) of the Act, we 
compared POI-wide weighted-average EPs to the NV based on factors of 
production.
    We calculated EP based on either packed FOB prices or FCA (free 
carrier) prices to unaffiliated trading companies. When appropriate, 
for FOB sales, we made deductions from the starting price for brokerage 
and handling. These services were assigned a surrogate value based on 
public information from Certain Circular Welded Carbon Steel Pipe and 
Tube from Turkey. See Memorandum to Edward C. Yang; Re: Factor 
Valuation for Severstal, MMK, and Novolipetsk (``Factor Valuation 
Memo''), dated February 22, 1999. We also made adjustments for foreign 
inland freight, which was valued using Polish transportation rates, 
since public information on Turkish values was unavailable. Because the 
mode of transportation reported by Severstal is proprietary, for a 
further discussion, see Factor Valuation Memo (proprietary version).
    In a pre-verification correction, Severstal reported that certain 
sales were erroneously included in the sales database due to miscoding 
of the specification date. For the final determination, we excluded 
these sales for purposes of our margin calculation. See Calculation 
Memorandum for the Final Determination for JSC Severstal from Lyn 
Baranowski to The File dated July 12, 1999 (``Final Calculation 
Memo'').

Normal Value

A. Factors of Production

    Section 773(c)(1) of the Act provides that the Department shall 
determine the NV using a factors-of-production methodology if: (1) the 
merchandise is exported from an NME country; and (2) the information 
does not permit the calculation of NV using home-market prices, third-
country prices, or constructed value under section 773(a) of the Act.
    Factors of production include: (1) hours of labor required; (2) 
quantities of raw materials employed; (3) amounts of energy and other 
utilities consumed; and (4) representative capital costs, including 
depreciation. We calculated NV based on factors of production reported 
by Severstal with the following exceptions: Severstal's ``charge by-
products,'' packing bands, and cleaning gas. For further discussions of 
these exceptions, see Factor Valuation Memo, Final Calculation Memo. We 
valued all the input factors using publicly available information as 
discussed in the ``Surrogate Country'' and ``Factor Valuations'' 
sections of this notice.
    At verification, we discovered that Severstal did not include labor 
costs for supervisors, specialists, and administrative personnel in 
their calculation of labor expenses. We also note that there is no 
indication that the overhead ratio derived from the Turkish data is 
inclusive of factory overhead that includes these kind of employees. As 
facts available, we have adjusted the reported labor factor in the 
manner explained in the Final Calculation Memo.
    At verification, we discovered that EAF slab inputs were 
overreported while BOF slab inputs were underreported at hot-shop two 
(see Verification Report at 16-17). We have determined that because the 
change has a minimal effect and the misreported slab inputs effectively 
offset one another, we will continue to value these inputs as reported. 
See Final Calculation Memo.
    At verification, we additionally found that Severstal underreported 
the amount of recycled materials at two shops: at hot-shop two for 
certain products and at the sintering shop (see Verification Report at 
17). We have continued to value the by-product as reported by 
Severstal, because the use of the reported values is conservative. See 
Final Calculation Memo.
    We also discovered at verification that Severstal excluded one 
supplier of iron ore from its calculation of iron ore usage at the 
sintering shop, thereby underreporting iron ore usage for every CONNUM 
(see Verification Report at 17). Because of the complex calculations 
this change involves and because of its minimal effect, we have used 
the reported iron ore usage rates. See Final Calculation Memo.
    We found at verification that Severstal underreported natural gas 
usage at hot-shop one (see Verification Report at 19), a change which 
affects all cost codes. As facts available, we recalculated natural gas 
usage for one cost code and applied the percent change for that cost 
code to all other cost codes for natural gas input. See Final 
Calculation Memo.
    We also found at verification that Severstal underreported the 
benzoil by-product credit at the coke furnace. Because of the complex 
calculations this change involves and its minimal effect, and because 
the use of the reported by-product credit is more conservative, we have 
used the reported benzoil by-product credit. See Final Calculation 
Memo.
    Finally, we note that in the preliminary determination, we included 
packing labor, as reported by Severstal, in overall packing cost. 
However, we have since found that Severstal included packing labor in 
the reported direct labor factor. Therefore, to avoid double-counting 
of packing labor, we reduced Severstal's direct labor factor by the 
packing labor factor. See Final Calculation Memo for additional 
details.

B. Factor Valuations

    In the preliminary determination, we used Turkey as the surrogate 
country but said that we would re-evaluate that choice for the final 
determination. Although there is now more Polish information on the 
record, we are continuing to use Turkey as the surrogate country (see 
Comment 4).
    The selection of the surrogate values was based on the quality and 
contemporaneity of the data. When possible, we valued material inputs 
on the basis of tax-exclusive domestic prices in the surrogate country. 
When we were not able to rely on domestic prices, we used import prices 
to value factors. When appropriate, we adjusted import prices to make 
them delivered prices. For those values not contemporaneous with the 
POI, we adjusted for inflation using producer or wholesale price 
indices, as appropriate, published in the International Monetary Fund's 
International Financial Statistics.
    To value coal, iron ore concentrate, iron ore pellets, recycled 
materials, and scrap, we used public information published by the 
United Nations Trade Commodity Statistics for 1997 (``UNTCS''). 
Severstal did not provide information on the record regarding iron 
content for iron ore pellets; however, we determined at verification 
the iron content of Severstal's iron ore. For the final determination, 
we have continued to value iron ore pellets based on the same data as 
was used for the preliminary determination, because the iron content of 
the pellets for this data is comparable to the iron ore pellets used by 
Severstal. See Factor Valuation Memo, Attachment 6.
    For limestone, coal tar, and kerosene, we used information from 
1996 UNTCS. For packing, Severstal reported that it uses a certain 
material for bands, and we discovered at verification that the same 
material is used for fasteners. Therefore, we have used the 1996 UNTCS 
data for valuing bands and fasteners for the final determination.
    We have valued by-products in the production of hot-rolled steel 
reported

[[Page 38632]]

by Severstal. We have valued non-solid by-products at their natural gas 
equivalents. We have valued solid by-products based on 1996 and 1997 
UNTCS data.
    For some of the energy inputs reported (natural gas, blast furnace 
gas, coke oven gas, and electricity), we relied on public information 
from ``Energy Prices and Taxes: 2nd Quarter 1998,'' published by the 
International Energy Agency, OECD.
    For movement, because we were unable to obtain publicly available 
Turkish values, we used Polish transport information to value 
transportation for raw materials. Since the mode of transportation 
reported by Severstal is proprietary, for a full discussion of this 
issue, see Factor Valuation Memo (proprietary version).
    For labor, we used the Russian regression-based wage rate at Import 
Administration's homepage, Import Library, Expected Wages of Selected 
NME Countries, revised in May 1999. Because of the variability of wage 
rates in countries with similar per capita gross domestic products, 
section 351.408(c)(3) of the Department's regulations requires the use 
of a regression-based wage rate. The source of this wage rate data on 
Import Administration's homepage is found in the 1998 Year Book of 
Labour Statistics, International Labour Office (``ILO'') (Geneva: 
1998), Chapter 5B: Wages in Manufacturing. This value differs from that 
used in the preliminary determination, because it reflects a more 
contemporaneous period.
    As in the preliminary determination, to value overhead, general 
expenses and profit, we used public information reported in the 1997 
financial statements of Eregli Demir ve Celik Fabrikalari TAS 
(``Erdemir''), a Turkish steel producer. We adjusted Erdemir's 
depreciation expenses for the effects of high inflation, and we reduced 
its financial expenses by including estimated short-term interest 
income and excluding estimated long-term foreign exchange losses. For a 
further discussion of this issue, see Attachment 10 of the Factor 
Valuation Memo.
    For the final determination, we adjusted Erdemir's profit ratio to 
account for the adjustment made to the financial expense ratio, as 
explained above. For a further explanation, see Comment 4 below and the 
Memorandum from Lyn Baranowski and Bill Jones to Rick Johnson dated 
July 12, 1999 (``Final Cost Memo'').

Verification

    As provided in section 782(i) of the Act, we verified the 
information submitted by Severstal for use in our final determination. 
We used standard verification procedures including examination of 
relevant accounting and production records and original source 
documents provided by respondents. Our findings are contained in the 
Verification Report.

Critical Circumstances

    Section 735(a)(3) of the Act provides that, in a final 
determination, 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.

1. History or Knowledge of Dumping and Material Injury

    In determining whether there is a history of dumping and material 
injury by reason of dumped imports, the Department considers evidence 
of an existing antidumping order on hot-rolled steel from Russia in the 
United States or elsewhere to be sufficient. In this case, petitioners 
alleged that Chile, Indonesia, and Mexico all have current antidumping 
duty orders covering hot-rolled steel from Russia. Our research shows 
that the Chilean antidumping order is no longer in effect; therefore, 
we are not considering it for purposes of this determination. However, 
presently, there are antidumping duty orders in effect in Indonesia and 
Mexico on Russian hot-rolled steel. As a result, we find that with 
respect to hot-rolled steel from Russia, there is a history of dumping 
causing material injury. Since we have found a history of dumping 
causing material injury with respect to Russia, there is no need to 
examine importer knowledge.

2. Massive Imports

    In order to determine whether imports of the merchandise have been 
massive over a relatively short period, in accordance with 19 CFR 
351.206(h), we consider: (1) volume and value of the imports; (2) 
seasonal trends (if applicable); and (3) the share of domestic 
consumption accounted for by the imports.
    When examining volume and value data, the Department typically 
compares the export volume for equal periods immediately preceding and 
following the filing of the petition. Consistent with 19 CFR 
351.206(h), unless imports in the comparison period have increased by 
at least 15 percent over the imports during the base period, we 
normally will not consider the imports to have been ``massive.'' In 
addition, pursuant to 19 CFR 351.206(i), the Department may use an 
alternative period if we find that importers, exporters, or producers 
had reason to believe, at some time prior to the beginning of the 
proceeding, that a proceeding was likely. In this case, petitioners 
argue that prior to the filing of the petition, importers, exporters, 
or producers of Russian hot-rolled steel had reason to believe that an 
antidumping proceeding was likely. We find that press reports, 
particularly in March and April 1998, indicate that, by the end of 
April 1998, importers, exporters, or producers knew or should have 
known that a proceeding was likely concerning hot-rolled products from 
Russia (see Final Critical Circumstances Memo). Therefore, to determine 
whether imports of subject merchandise have been massive over a 
relatively short period, we examined Severstal's export volumes from 
May-September 1998, as compared to December 1997-April 1998 and found 
that there were massive imports from Severstal over this period. 
Because this analysis involves proprietary information, see the Final 
Critical Circumstances Memo for additional details.
    Concerning seasonal trends, we have no reason to believe that 
seasonal trends affected the import levels in this case. Therefore, in 
determining whether imports were massive over the ``relatively short 
period,'' we did not analyze the affects of seasonal trends.
    When examining the share of domestic consumption accounted for by 
the imports from Severstal, we find that Severstal accounted for an 
increasing percentage of the U.S. market from the period December 1997-
April 1998 when compared to May 1998-September 1998. As this analysis 
involved proprietary information, please refer to the Final Critical 
Circumstances Memo for additional details.
    Based on the history of dumping causing material injury with 
respect to Russia and the massive imports noted above, the Department 
determines that critical circumstances exist for Severstal.

3. Russia-Wide Entity Results

    With respect to companies subject to the Russia-wide rate (which 
will apply to NISCO, MMK, and companies which

[[Page 38633]]

did not participate in the investigation), we have determined that 
there is a history of dumping and material injury by reason of dumped 
imports because we found evidence of existing antidumping duty orders 
on hot-rolled steel from Russia in Indonesia and Mexico (see discussion 
above). Since we have found a history of dumping causing material 
injury with respect to Russia, there is no need to examine importer 
knowledge.
    In order to determine whether imports of the merchandise have been 
massive over a relatively short period, in accordance with 19 CFR 
351.206(h), we have examined the volume and value of the imports in 
question in the manner described above and find that there was a 98 
percent increase in imports from the Russia-wide entity from May-
September 1998, as compared to December 1997-April 1998. See Final 
Critical Circumstances Memo for an additional description.
    Concerning seasonal trends, we have no reason to believe that 
seasonal trends affected the import levels in this case. Therefore, in 
determining whether imports were massive over the ``relatively short 
period,'' we did not analyze the affects of seasonal trends.
    When examining the share of domestic consumption accounted for by 
the imports from the Russian entity, we find that imports from Russia 
accounted for an increasing percentage of the U.S. market from the 
period December 1997--April 1998 when compared to May 1998-September 
1998. Based on our analysis of these criteria, we have determined that 
there were massive imports from the Russia-wide entity over this 
period.
    Based on the history of dumping causing material injury with 
respect to Russia and the massive imports noted above, the Department 
determines that critical circumstances exist for the Russia-wide 
entity.

Interested Party Comments

Comment 1: Adverse Facts Available for MMK and NISCO

    Petitioners assert that the Department should draw an adverse 
inference from MMK's and NISCO's withdrawal and base the final margins 
for these companies on the highest individual margins calculated for 
each in the Department's preliminary determination. Specifically, 
petitioners maintain that the statute requires that the Department 
``use the facts otherwise available in reaching the applicable 
determination'' when an interested party ``provides such [necessary] 
information but the information cannot be verified as provided in 
section 1677m(i) of this title.'' 19 U.S.C. 1677e(a) (section 776(a) of 
the Act). Likewise, citing the Notice of Final Determination of Sales 
at Less Than Fair Value: Steel Wire Rod from Venezuela, 63 FR 8946, 
8947 (February 23, 1998) (``Steel Wire Rod from Venezuela'') and Final 
Determination of Sales at Less Than Fair Value: Vector Supercomputers 
From Japan, 62 FR 45623, 45623, 45625-45 (August 28, 1997) (``Vector 
Supercomputers''), petitioners contend that it is the Department's 
longstanding practice to use total facts available to establish the 
dumping margin when the party prevents the Department from verifying 
its data and withdraws from participation in an investigation. Finally, 
petitioners argue that in its application of facts available, the 
Department should draw an adverse inference based on MMK's and NISCO's 
failure to cooperate to the best of their ability. They claim that the 
statute and Departmental practice support drawing an adverse inference 
when a respondent has withdrawn, citing 19 U.S.C. 1677e(b) (section 
776(b) of the Act); Steel Wire Rod from Venezuela at 63 FR 8947; and 
Vector Supercomputers at 62 FR 45625-45626. Also, petitioners maintain 
that central to the Department's use of facts available is the need to 
ensure that a respondent does not benefit from its refusal to 
cooperate. Citing Notice of Final Results and Partial Recission of 
Antidumping Duty Administrative Review; Roller Chain, Other than 
Bicycle, from Japan, 62 FR 60472, 60477 (November 10, 1997), 
petitioners assert that in considering whether the selected facts 
available are sufficiently ``adverse,'' one factor the Department 
considers is the ``extent to which a party may benefit from its own 
lack of cooperation.'' Without the application of adverse inferences, 
petitioners assert that MMK and NISCO stand to benefit from their 
refusal to cooperate.
    Respondents MMK and NISCO did not comment.
Department's Position
    We agree in part with petitioners. We find that, with respect to 
MMK and NISCO, for the reasons discussed above in the Facts Available 
section, we are applying facts available and have determined that an 
adverse inference is appropriate. However, we disagree with 
petitioners' proposal to use the highest individual margins calculated 
in the preliminary determination. Under section 782(i)(1) of the Act, 
the Department must rely on verified information for making a final 
determination in an antidumping duty investigation. MMK's and NISCO's 
withdrawal prior to verification of their questionnaire responses 
prevents the Department from using their information to calculate a 
weighted-average margin for our final determination. In addition, the 
Department does not normally use any of such information as facts 
available. We also note that because MMK's and NISCO's information 
could not be verified, they are not entitled to a separate rate in this 
proceeding. As such, MMK and NISCO are part of the Russia-wide entity, 
as explained above in the Facts Available section of this notice. 
Moreover, contrary to petitioners' claims, using MMK's and NISCO's 
unverified information as the basis for the final margin could 
potentially benefit them by assigning a margin lower than what would 
have been calculated using verified information. As noted above, in 
cases such as this one, the Department relies on the facts otherwise 
available, normally data from the petition, in making its 
determination. In this instance, we have no basis to depart from this 
practice. Therefore, we find that the highest rate alleged in the 
petition, as corroborated by the Department, is the appropriate facts 
available rate in this determination.

Comment 2: Severstal's Factors of Production Methodology

    Petitioners state that section 776 of the Act mandates that the 
Department employ total facts available if ``necessary information is 
not on the record,'' respondent's information ``cannot be verified,'' 
or if respondent ``fails to provide information...in the form and 
manner requested'' (see 19 U.S.C. 1677e(a)). Petitioners claim that in 
this proceeding, each of these statutory criteria is satisfied and the 
Department must employ facts available for Severstal as a result.
    First, petitioners claim that for some of its U.S. sales, Severstal 
failed to report yield strength, despite being instructed to do so 
twice by the Department (referencing Sections C and D Questionnaire 
(October 30, 1998) (Questionnaire) at C-10 and V-4 and the Sections C 
and D Supplemental Questionnaire (January 4, 1999) (Supplemental 
Questionnaire) at number 10). Petitioners argue that Severstal's 
explanation that yield strength was not reported when the relevant 
specification did not require yield strength is unpersuasive; a 
qualified metallurgist, they claim, could determine the likely yield 
strength of every ASTM grade reported by

[[Page 38634]]

Severstal. Alternatively, petitioners cite what they claim to be a 
standard reference work which would permit extrapolation of the yield 
strength of numerous steel products (Modern Steels and Their 
Properties: Carbon and Alloy Steel Bars, 6th Ed., Bethlehem Steel 
Corporation (1961)). Petitioners suggest applying facts available to 
Severstal's U.S. sales dataset by matching all sales where Severstal 
reported a ``4'' for yield strength to COSTCODE ``1,'' the COSTCODE 
which contains the highest reported factor usage amounts in the factors 
of production (FOP) database.
    Second, Severstal's failure to report CONNUM-specific (model-
specific) FOPs, as requested by the Department (see the Questionnaire 
at C-42 and D-3 and the Supplemental Questionnaire at number 38) merits 
facts available treatment, petitioners contend. Petitioners point out 
that products were assigned to seven cost codes based on broad 
categories which do not match the Department's model match criteria. 
Petitioners assert that Severstal's cost codes do not account for yield 
strength, width, pickling, or edge trimming. Additionally, petitioners 
contend that Severstal does not classify its products based on the 
characteristics of merchandise actually produced. Instead, products are 
classified on the basis of the requirements contained in the order 
specification and costed in this manner. Costs, therefore, reflect 
merchandise grouped together at the time the order is placed, and do 
not reflect the cost of the merchandise actually produced, which can 
vary from the original order.
    Petitioners assert that Severstal's claim that it was unable to 
report CONNUM-specific factors is unavailing. Petitioners state that 
most companies, in the normal course of business, do not maintain data 
that corresponds to the product groups identified by the Department for 
purposes of the margin calculation. Respondents routinely allocate 
costs maintained in their normal accounting records to CONNUMs, 
petitioners argue. According to petitioners, Severstal has made no 
attempt to allocate costs in this manner, and therefore the Department 
should not allow Severstal to be exempt from these fundamental 
reporting requirements. Petitioners assert that these requirements are 
consistent with instructions to every respondent in antidumping 
proceedings (citing Final Results of Antidumping Duty Administrative 
Review: Certain Cut-to-Length Carbon Steel Plate from Mexico, 64 FR 76, 
77-78 (January 4, 1999)).
    Petitioners argue that Severstal could have derived the total 
volume of each input used to produce subject merchandise and, using 
information on which CONNUMs require more or less of a given input, 
could have arrived at an allocation which would allow CONNUM-specific 
factor reporting. Severstal's failure to attempt this kind of exercise 
indicates that Severstal did not act to the best of its ability in 
reporting factors, petitioners assert.
    Another point raised by petitioners is that there are numerous 
inconsistencies with respect to Severstal's assignment of cost codes to 
CONNUMs. For example, petitioners assert that Severstal has assigned 
distinct grades and qualities of steel to the same cost code, 
indicating that the cost associated with producing each of these grades 
is the same. Additionally, petitioners contend that Severstal has 
assigned distinct grades to one CONNUM, indicating that the physical 
characteristics of these grades are the same. Petitioners also contend 
that the factor amounts (and resulting total manufacturing costs and 
normal values) reported by Severstal do not appear to bear any 
relationship to the products for which they were reported. Finally, 
petitioners maintain that Severstal's reporting of its internal product 
information is inconsistent between cost codes and the corresponding 
product codes.
    In summary, petitioners believe that 1) Severstal's reported 
factors and costs bear no relationship to CONNUMs; 2) Severstal has 
failed to provide information requested by the Department; and 3) the 
information that Severstal did provide is inconsistent, inaccurate, and 
unreliable. As a result, petitioners argue that the normal values 
derived from Severstal's factors ``cannot serve as a reliable basis for 
reaching the applicable determination'' and that the submitted costs 
cannot ``be used without undue difficulties'' (citing section 776 of 
the Act). Therefore, petitioners maintain that total adverse facts 
available is warranted for Severstal in this proceeding.
    Concerning the reporting of yield strength for U.S. sales, 
Severstal contends that reported yield strength plays no role in the 
calculation of Severstal's margin and, therefore, Severstal's failure 
to report yield strength for all sales does not effect the outcome of 
this proceeding. Severstal maintains that because U.S. sales are not 
matched to home market sales on the basis of physical characteristics 
in an NME case, precise reporting of all the product characteristics 
used to generate CONNUMs is not necessary. Severstal additionally 
states that the Department verified that yield strength plays no role 
in the calculation of FOPs and that Severstal did report yield strength 
to the best of its ability. Severstal states that although a 
metallurgist could have determined likely yield strength for the sales 
for which no yield strength was reported, Severstal, in accordance with 
the Department's instructions, reported yield strength only where there 
was documentary evidence for such an assignment, and not based on 
unverifiable estimates by Severstal personnel. As such, Severstal urges 
the Department to dismiss petitioners' request for facts available 
treatment due to the failure to report yield strength for all U.S. 
sales.
    Severstal claims that petitioners' second argument, that the 
Department should apply total adverse facts available to Severstal's 
cost system, should be rejected by the Department. Severstal first 
states that it reported its factors of production to the greatest level 
of detail permitted by the applicable Factory Cost Ledgers. Severstal 
asserts that it accurately assigned the factors to individual U.S. 
sales by identifying the physical characteristics of the merchandise 
sold against the definition of the products included within its product 
groups. Severstal states that it assigned FOPs to individual 
transactions on the basis of cost codes because that is most 
representative of the manner in which it conducts business. Severstal 
contends that it cannot allocate factors calculated according to the 
internal product groups to individual CONNUMs. Should the Department 
decide to calculate an average cost on the basis of CONNUM, Severstal 
argues that it would need only to calculate a simple average of the 
cost codes assigned to transactions with the same CONNUM in Severstal's 
U.S. sales database (consistent with the approach taken for the 
preliminary determination).
    Severstal argues that if petitioners are suggesting that a more 
complex method of allocating factors to individual CONNUMs is possible 
in this case, then petitioners misunderstand the record in this case. 
Severstal states that: (1) Its records permit it to identify the volume 
of inputs in each of the cost code groupings included in the Factory 
Cost Ledgers; (2) it does not know whether the production of certain 
CONNUMs requires more or less of a given output; and (3) it is 
impossible, based on their system, for the company to rank the factor 
inputs required to produce each of the reported CONNUMs. Severstal 
contends that petitioners offer many proposals concerning what 
Severstal should have done in the abstract, but do not offer any 
suggestions regarding how these proposals would be implemented. 
Severstal states that its cost system

[[Page 38635]]

simply does not have a framework that would allow it to allocate its 
factors to CONNUMs.
    Severstal states that the inconsistencies to which petitioners 
refer each have logical explanations. Where Severstal has assigned 
distinct grades and qualities to the same cost code, Severstal states 
that the Department verified that these grades are pooled within the 
same cost code category in the normal course of business. Where 
Severstal has assigned distinct grades to the same CONNUM, Severstal 
states that it is possible for different grades to have the same 
physical characteristics, which is the basis for assigned CONNUMs. 
Pursuant to petitioners' claim that the factor input amounts do not 
appear to have any relationship to the product to which they relate, 
Severstal asserts that its dataset reveals that some of the individual 
FOPs assigned to the cost codes do differ and that in these cases, the 
fact that the total manufacturing costs are similar is pure 
coincidence. Concerning petitioners' argument that there are 
inconsistencies in Severstal's reporting of cost codes and product 
codes, Severstal states that the inconsistency to which petitioners 
refer is simply caused by petitioners' misunderstanding of the cost 
code group to which they refer.
    In summary, Severstal argues that the Department should find that: 
(1) Severstal does not maintain FOP information on a CONNUM-specific 
basis; (2) it submitted factors data to the greatest level of detail 
permitted by its normal books and records; and 3) Severstal's reporting 
system is complete and reliable. As such, Severstal contends that the 
Department should reject petitioners' demand for adverse facts 
available treatment for Severstal in the final determination.
Department's Position
    We agree, in part, with petitioners and disagree with respondents. 
We determine that the application of facts available is appropriate, 
because Severstal repeatedly failed to provide CONNUM-specific FOP data 
and the data which it did supply did not reasonably reflect the actual 
costs of producing the subject merchandise during the POI.
    For purposes of calculating margins in an NME proceeding, the 
Department first calculates weighted-average U.S. prices by model 
(i.e., by CONNUM) and compares these prices to NVs by CONNUM created 
from a respondent's FOP data. The respondent's U.S. sales database 
includes product characteristic data, which the Department instructs 
respondent to use in reporting CONNUM-specific FOP data. In both the 
original and supplemental questionnaires in this proceeding, the 
Department instructed Severstal to report CONNUM-specific FOP data; 
however, Severstal stated that its accounting system did not allow it 
to develop CONNUM-specific FOP data. In fact, for 61 distinct CONNUMs 
(as defined in accordance with the Department's instructions), 
Severstal calculated only seven discrete sets of factors and assigned 
each CONNUM one (or more) of these seven sets of factors. At 
verification, the Department found that, even when using Severstal's 
own overly general FOP reporting methodology, Severstal could have 
calculated eleven discrete sets of factors based on the system it 
employed to report FOP data; however, Severstal chose to combine 
several of its internal product classification categories to report 
only seven.
    The Department's review of Severstal's accounting system revealed 
that the company does not assign product-specific costs to each of the 
models reported in the sales database. In order to comply with the 
Department's CONNUM-specific FOP reporting requirements, an allocation 
of usages to grades would have been necessary (although not necessarily 
sufficient). Severstal failed to develop a reasonable allocation 
methodology for purposes of this proceeding and instead reported FOPs 
based on internally recorded costs. Specifically, at verification, the 
team found that, in its normal course of business, Severstal pools its 
costs into broad categories. These categories do not correspond to 
international commercially-acceptable standards (upon which the 
Department's product concordance is based). For example, merchandise 
which was reported as ``commercial'' quality in Severstal's U.S. sales 
database is assigned to multiple sets of cost categories. The 
considerable overlap in Severstal's internal designations and 
Severstal's failure to develop a methodology to relate internal costs 
to the Department's product concordance characteristics (such as 
``quality'') resulted in FOP reporting which has little to do with the 
reported product characteristics for the U.S. sales. For an in-depth 
discussion of this issue, see Final Calculation Memo (proprietary 
version) and the attached tables. It is clear that a comparison of 
normal values calculated from overly general, and often inconsistent, 
factor information would result in an inaccurate margin calculation.
    Given the nature of the FOP data on the record, it is not feasible 
for the Department to develop accurate CONNUM-specific FOPs using 
Severstal's data. The normal values calculated for the preliminary 
determination, which are based on Severstal's reported factor 
information, are not accurate depictions of the costs for merchandise 
to which they purport to relate. Specifically, the Department's 
analysis of Severstal's normal values reveals anomalies in the relative 
costs, based on the steelmaking process. For specific examples of 
anomalies in the relative costs, see Final Calculation Memo 
(proprietary version). These anomalies result directly from the 
reported FOPs. This review of Severstal's normal values indicates that 
Severstal's cost reporting system did not accurately associate cost 
differences (and thus usages) to particular grades and qualities of 
steel.
    An additional problem is that Severstal's cost system does not 
track costs of merchandise actually produced; rather, it tracks the 
cost of merchandise as ordered by the customer. At verification, we 
found that when a product is ordered, it is assigned a product grouping 
and costed within the assigned grouping, regardless of the actual 
production or chemical composition of the finished product. 
Specifically, the Department verified one instance in which two 
customers ordered products which were categorized within separate cost 
categories. However, notwithstanding the merchandise's chemical 
composition at the time of production and shipment (the mill 
certificates indicate that the merchandise was, in all relevant 
aspects, identical), each product was costed within the product group 
it was assigned when the customer placed the order. See Final 
Calculation Memo. Therefore, we conclude that Severstal's reported 
``product-specific'' FOP data, do not reflect merchandise actually 
produced.
    In sum, Severstal did not report CONNUM-specific FOP data as 
requested in the original and supplemental questionnaires and instead 
explained that the limitations of their accounting system prevented 
them from reporting FOPs on such a basis. Severstal made no attempt to 
develop an alternative methodology that would allow the company to 
assign production factors on a more consistent, product-specific basis, 
despite the Department's expressed concern with the overly generalized 
FOP methodology used. Therefore, we find that the application of facts 
available for Severstal in the final determination is appropriate 
because Severstal's FOP data: (1) Is not allocated sufficiently to 
discrete grades

[[Page 38636]]

or qualities, resulting in NVs which are not accurate reflections of 
the grades to which they relate; and (2) does not measure the FOPs of 
merchandise actually being produced. As a result, the normal values 
calculated from Severstal's FOP database, as reported, cannot serve as 
a reliable basis for reaching a final determination (see 776(e)(3) of 
the Act), and we are instead relying on facts available for Severstal 
for this final determination in the manner described above (see Facts 
Available section of this notice).
    With respect to petitioners' argument that the Department should 
apply total adverse facts available, we find that the use of adverse 
facts available is not appropriate in this case notwithstanding the 
deficiencies in Severstal's Section D response. As stated above, the 
Department verified that, in its normal course of business, Severstal 
records costs on the basis of the above-described product groups. Thus, 
while necessary information is not available on the record to calculate 
CONNUM-specific normal values for Severstal, we cannot conclude that 
Severstal failed to cooperate by not acting to the best of its ability. 
That is, the Department finds no reason to conclude that Severstal did 
not make a good faith effort to report the requested FOP data utilizing 
an internal system which it believed to be adequate. As noted above, 
the need to resort to facts available stems from the fact that the data 
Severstal provided, calculated based on an inadequate internal 
accounting system, is unuseable.
    We also disagree with petitioners' argument that the Department 
should apply adverse facts available for those sales where there is no 
specified minimum yield strength by assigning to them the cost code 
with the highest reported factor of production inputs. As noted by 
Severstal, it relied on ASTM grade descriptions to determine the yield 
strength of the merchandise sold to the United States, and in cases 
where the ASTM description did not include a description of yield 
strength of the covered product, it coded those sales as having no 
specified yield strength. At verification, the Department asked 
Severstal personnel why there was no specified yield strength for the 
ASTM A-569 specification despite the fact that the ASTM book maintained 
by the Department specifies a yield strength for A-569. We verified 
that the ASTM A-569 specification used during the POI (1993 version) 
does not require yield strength. See Verification Report at pg. 10. 
Based on the above, we do not find that application of adverse facts 
available is appropriate for those sales with no specified yield 
strength. Furthermore, the Department's decision to calculate one 
weighted-average normal value renders the lack of a yield strength 
insignificant.

Comment 3: Surrogate Freight Value

    Petitioners argue that, should the Department not employ total 
adverse facts available for Severstal, then it must revise the 
surrogate rail freight information. Petitioners argue that due to the 
size of Russia as compared to Poland, a rate schedule for a country the 
size of Russia would include rates for distances greater than 1200 
kilometers. Accordingly, petitioners contend that it is inappropriate 
to base the freight rates for distances greater than 1200 kilometers on 
rates that reflect the limited traveling distances within Poland. For 
the final determination, petitioners urge the Department to recalculate 
the freight rate for distances exceeding 1200 kilometers by dividing 
the per-metric ton rate by 1200 and multiplying the resulting amount by 
the relevant distance.
    Severstal first argues that the tariff chart used to derive the 
freight rates clearly shows that as the distance over which freight is 
transported increases, the per-kilometer tariff rate decreases. 
Therefore, Severstal argues, the Department's use of the per-kilometer 
rate equivalent to 1200 kilometers used to value shipments which travel 
more than 1200 kilometers is appropriate; the incrementally smaller 
per-kilometer tariff for shipments at greater distances properly 
reflects the fact that as the distance increases, the shipping expense 
declines.
    Second, Severstal contends that to calculate and apply a per-
kilometer freight value to transportation in Russia based on the 
distance categories in Poland would improperly penalize Russia for its 
size. Severstal maintains that the Department should not assume that 
the per-kilometer freight cost incurred in the shorter distances in 
smaller countries would apply to the distances in Russia.
    Finally, Severstal argues that nothing in the information obtained 
from the Polish source suggests that if longer distances existed in 
Poland, the tariffs that would apply to shipments over those longer 
distances would be calculated as a straight per-kilometer amount based 
on the tariff for 1200 kilometer shipments. Severstal states that the 
evidence on the record suggests that for distances greater than 1200 
kilometers, the flat rate shown in the Polish tariff chart applies. In 
Severstal's opinion, the Department should maintain the methodology 
established for the preliminary determination in valuing surrogate 
freight expenses.
Department's Position
    We agree with respondents that our calculation of surrogate freight 
rates in the preliminary determination was appropriate based on the 
information on the record for this proceeding. Because none of the 
relevant distances exceed 1200 kilometers, this issue with respect to 
Severstal is moot (see Final Calculation Memo). For the final 
determination, we have continued to apply the same methodology adopted 
in the preliminary determination in valuing surrogate freight.

Comment 4: Surrogate Country Selection

    Severstal argues that the Department should use Poland as the 
primary surrogate country for the final determination in this 
proceeding. Severstal notes that in the preliminary determination, the 
Department relied on information from Turkey as the primary surrogate, 
stating that although Turkey and Poland are economically comparable and 
are both significant producers of subject merchandise, Turkey was 
preferable due to data (specifically, financial data) availability. 
Severstal notes that it submitted information clarifying the data from 
Poland on both February 2 and April 2, 1999. Additionally, the April 2, 
1999 submission contains a complete set of surrogate values which are 
reasonably contemporaneous and publicly available, Severstal maintains. 
Therefore, Severstal urges the Department to reconsider the selection 
of surrogate country.
    Severstal argues that Poland is superior to Turkey as a surrogate 
country when examining other criteria used by the Department in past 
cases. Specifically, Severstal contends that the distribution of the 
labor force in Poland is more similar to that in Russia than is the 
labor force distribution in Turkey.
    Moreover, Severstal maintains that financial data from Erdemir, 
upon which the Department relied in the preliminary determination, is 
flawed for a number of reasons. First, Severstal argues that the 
depreciation figure used is inflated because a substantial portion of 
the amortization amount resulted from the revaluation of assets 
required to counteract the impact of hyperinflation in 1997. Although 
the Department adjusted depreciation for the preliminary determination, 
Severstal contends that the Department should not burden itself with 
the complexities that arise from the use of a hyperinflationary economy 
like Turkey

[[Page 38637]]

as the primary surrogate when an alternative exists that meets all the 
criteria for an acceptable surrogate and is not hyperinflationary.
    Second, Severstal argues that the depreciation would need to be 
additionally reduced to account for an additional adjustment noted in 
the Auditor's Opinion of Erdemir's financials. Severstal notes that the 
Department instructed petitioners to recalculate depreciation to 
account for this reduction for the purposes of initiation (see 
Supplemental Questionnaire on Petition on Certain Hot-Rolled Carbon 
Steel Flat Products from the Russian Federation, 8-9 and Attachment L 
(October 9, 1998) (Supplemental Questionnaire on Petition)), and 
petitioners recalculated depreciation accordingly. However, for the 
preliminary determination, Severstal argues, the Department did not 
reduce depreciation to account for this reduction. Severstal argues 
that the Department's failure to do so should be corrected for the 
final determination.
    Additionally, Severstal contends that the financial ratio 
calculated by petitioners was ``swollen'' due to aberrational foreign 
exchange differences. Although Severstal admits that the Department 
corrected for this problem in the preliminary determination, Severstal 
again contends that the Department should not burden itself with the 
complexities that arise from the use of a hyperinflationary economy 
like Turkey as the primary surrogate when an alternative exists that 
meets all the criteria for an acceptable surrogate and is not 
hyperinflationary.
    Severstal also argues that the financing expenses portion of the 
financial ratio and the development expenses were aberrational due to 
the massive construction and development projects ongoing at Erdemir. 
Severstal contends that Erdemir is not an appropriate surrogate due to 
the fact that its productive assets are new and expanding while 
Severstal's assets are contracting. Erdemir's data, in Severstal's 
view, is aberrational when compared to the Russian industry and should 
therefore not be used for the final determination (citing Final 
Determination of Sales at Less Than Fair Value: Certain Cut-to-Length 
Carbon Steel Plate from Poland, 59 FR 37205, 37207 (July 9, 1993), 
Final Determination of Sales at Less Than Fair Value: Saccharin from 
the People's Republic of China, 59 FR 58818, 58820 (November 15, 1994), 
Final Determination of Sales at Less Than Fair Value: Certain Cut-to-
Length Carbon Steel Plate from the People's Republic of China, 62 FR 
61964, 61987 (November 20, 1997) and Final Determination of Sales at 
Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from 
Ukraine, 62 FR 61754, 61764 (November 19, 1997)).
    Severstal argues that the Department should not accept Erdemir's 
data for the overhead expense ratio calculation, because that 
calculation is based on what Severstal believes to be unsubstantiated 
and unaudited figures contained in a fax from Erdemir to counsel for 
petitioners. Severstal maintains that this overhead data does not meet 
the Department's preference for publicly available information.
    Severstal argues that the reliance on Erdemir's expense category 
for the overhead expense ratio calculation may double-count some of the 
expenses (all energy inputs other than natural gas, fuel oil, and 
electricity, which are broken out separately) that Severstal has 
reported as individual FOPs. Severstal speculates that the other energy 
types not specifically listed are included in either the ``general 
materials'' or ``other operating expenses'' figures in Erdemir's chart. 
Severstal contends that the inclusion of the entire amount of the two 
expense categories as well as Severstal's full range of energy factors 
would effectively double-count all of the energy categories listed by 
Severstal beyond the three mentioned in Erdemir's list (natural gas, 
fuel oil, and electricity).
    For the above reasons, Severstal urges the Department to select 
Poland as the primary surrogate country in this proceeding.
    Petitioners argue that the Department's use of Turkey as the 
surrogate country in this proceeding is within its statutory mandate, 
citing 19 U.S.C. 1677b(c)(4) (section 773(c)(4) of the Act). 
Specifically, petitioners submit that Turkey is: (1) at a level of 
economic development comparable to Russia; and (2) a significant 
producer of hot-rolled steel. Furthermore, data from Turkey is publicly 
available, fulfilling another of the Department's preferences in 
selecting surrogate values, petitioners claim.
    Petitioners maintain that Severstal's data supporting its argument 
that the distribution of Poland's labor force is more similar to 
Russia's than is Turkey's is unavailing. Specifically, they state that 
Severstal's argument that the Turkish economy is less developed than 
the Polish economy is contradicted by Severstal's statement that the 
Turkish steel industry is new and expanding.
    Concerning the merits of the financial data, petitioners believe 
that Erdemir's financial data is much more reliable than that of the 
Polish producer, Sendzimira. Petitioners submit that there is no 
indication that the untranslated Sendzimira financial report submitted 
on April 2, 1999 was ever made available to the public, raising the 
issue of whether the information contained therein is publicly 
available. Regardless of its availability, petitioners argue that there 
is no indication that any of the Sendzimira information was examined by 
an independent auditor and therefore there is no confirmation that the 
data conforms with Poland's generally accepted accounting principles 
(GAAP). Additionally, petitioners argue that the financial statements 
are not accompanied by notes, which are necessary to understand the 
methods used to derive the information provided in the financial 
statements.
    Third, petitioners point out that Sendzimira's financial 
information does not segregate the manufacturing and non-manufacturing 
components of expenses, and many of the expense accounts (such as labor 
and other operating costs) are incurred for both manufacturing and non-
manufacturing costs. Petitioners claim that it is necessary to 
segregate the manufacturing and non-manufacturing components because 
the depreciation, SG&A and interest expense ratios used by the 
Department are derived from only the manufacturing expenses (i.e., cost 
of sales) portion. An accurate calculation of financial ratios depends 
on accurate identification of the expenses, argue petitioners.
    In addition, petitioners argue that Severstal overstated 
manufacturing expenses and understated SG&A in the worksheets in which 
it calculated financial ratios. As a result, petitioners argue, 
Sendzimira's financial statements are inaccurate, incomplete, and 
invalid and should be rejected for the final determination.
    Unlike the Polish financial data, petitioners argue, Erdemir's 
financial data are audited, accompanied by notes, and separately 
identify many detailed accounts on the income statement. First, 
petitioners refute Severstal's argument that there are anomalies within 
Erdemir's financial data which render the data unuseable. Petitioners 
state that Erdemir's currency exchange losses and its adjustment of 
depreciable assets to account for inflation reflect ordinary financial 
activity, for which the Department made simple adjustments in the 
preliminary determination.
    Concerning the calculation of depreciation, petitioners state that 
the Department already adjusted Erdemir's depreciation ratio to account 
for the effects of inflation in the preliminary

[[Page 38638]]

determination. Petitioners also argue that the Department should not 
reduce Erdemir's depreciation expense to account for an item mentioned 
in the company's auditor's letter, as requested by Severstal. 
Petitioners contend that, as they informed the Department in the 
supplemental questionnaire response on the petition (see the submission 
dated October 9, 1998 at pp. 8-9), this item in the auditor's statement 
indicates that Erdemir's change in depreciation practice was not 
approved by the Turkish tax authorities and as a result, the lower 
depreciation figure was not employed in reporting depreciation on the 
financial statement. Petitioners, therefore, claim that Severstal's 
requested adjustment to depreciation is inappropriate.
    Concerning the calculation of financial expenses, petitioners state 
that the Department already adjusted Erdemir's financial expense ratio 
to account for non-current assets (principal foreign exchange 
differences) in the preliminary determination. Petitioners therefore 
claim that Severstal's requested adjustment to the financial expenses 
ratio is inappropriate.
    Concerning the calculation of overhead, petitioners contend that 
the information upon which the Department relied to calculate overhead 
in the preliminary determination is as publicly available as is the 
Polish financial information placed on the record by Severstal. 
Moreover, petitioners argue that this information is the only 
information on the record relating to factory overhead.
    With regard to Severstal's claim that the Department's overhead 
calculation may double-count energy costs, petitioners argue that there 
is no evidence that the ``other operating expenses'' category includes 
any additional sources of energy. Petitioners state that it is likely 
that Erdemir grouped the costs of all energy sources into three major 
categories (natural gas, electricity, and fuel oil), which it 
separately identified in its breakout of the components of cost of 
sales. Petitioners argue that natural gas, fuel oil, and electricty 
account for a substantial percent of energy costs included in the 
calculation of normal value and that the energy costs not broken out on 
Erdemir's financials could not exceed the remaining portion not 
accounted for in the cost buildup of NV.
    Finally, petitioners note that the Department should have made an 
upward adjustment to Erdemir's profit amount in the preliminary 
determination to offset the Department's downward adjustment to 
Erdemir's reported financial expense and request that the Department, 
to the extent that it makes a downward adjustment to Severstal's 
financial expense amount in the final determination, make a 
corresponding upward adjustment to Erdemir's profit amount.
Department's Position
    In determining a surrogate country for use in a NME proceeding, the 
Department, in accordance with section 773(c)(4) of the Act, shall 
value a respondent's factors of production at the prices or costs in a 
surrogate country that is at a comparable level of economic development 
and is a significant producer of comparable merchandise. In the event 
that more than one country satisfies both of the statutory criteria, 
the Department may choose a single country on the basis of data 
availability. For the preliminary determination in the instant case, we 
used Turkey as the primary surrogate country, stating that the data 
from Turkey is superior to that from Poland (see Preliminary 
Determination at 64 FR 9315). However, we stated in the Preliminary 
Determination that we would reexamine this issue for this final 
determination should parties submit additional information.
    Having examined the new information placed on the record concerning 
the Sendzimira financial statements, we have decided to continue to use 
Turkey as the primary surrogate country for the final determination. In 
this case, we find that the financial statements from the Turkish 
producer Erdemir are more reliable than those from the Polish producer 
Sendzimira.
    First, concerning the distribution of the labor forces, the 
Department considered all of the countries included in the Memorandum 
from Jeff May to Rick Johnson on Nonmarket Economy Status and Surrogate 
Country Selection dated December 21, 1998 (``Policy Surrogate Memo'') 
to be equally comparable in terms of economic development (see page 1 
of Policy Surrogate Memo). We did not determine any country included in 
the Policy Surrogate Memo to be preferable for surrogate country 
purposes to any other included therein on the basis of distribution of 
labor forces. Furthermore, as noted in the Surrogate Country Selection 
Memorandum dated February 22, 1999 (``Surrogate Country Selection 
Memo''), the Department finds that the fact that the World Bank did not 
indicate the percentage of the Russian labor force in agriculture in 
its World Development Report for 1998/99 to be a strong indicator of 
the lack of knowledge concerning the present labor distribution in 
Russia. See Surrogate Country Selection Memo.
    Concerning the Erdemir financial statements, we first note that 
many of the alleged problems with Erdemir's financial data that 
Severstal cites were remedied by the Department for the preliminary 
determination. Specifically, in the preliminary determination, the 
Department: (1) adjusted the depreciation figure to account for the 
revaluation of assets required to counteract the impact of 
hyperinflation in 1997; and (2) adjusted Erdemir's financial expense 
ratio to account for non-current assets (principal foreign exchange 
differences).
    Concerning Severstal's argument that depreciation should be further 
adjusted to account for an additional adjustment noted in the Auditor's 
Opinion, we agree with petitioners that although we adjusted 
depreciation in this manner for the initiation of this investigation, 
we now find that the statement in the Auditor's Opinion at issue 
indicates that Erdemir revised its useful life estimates in 1996 but 
then reverted to the original useful lives because it was unable to 
obtain approval from the Turkish tax authorities for the revision. 
Thus, we believe that the amount reported for depreciation on the 
financial statements reflects the useful lives of Erdemir's fixed 
assets. The depreciation expense listed on the financial statements, 
therefore, should not be reduced because Erdemir has not received 
approval for the revisions to the useful lives of its assets.
    We find that Severstal's argument that Erdemir is not an 
appropriate surrogate because its assets are expanding due to 
construction and development projects, and that this data, therefore, 
is aberrational, is unavailing. First, we note that whether a country's 
economy is growing or shrinking is one of the factors examined when 
developing a list of economically comparable countries. Additionally, 
there is no evidence on the record that the kinds of activities that 
Erdemir engaged in during 1997 are not representative of the kinds of 
activities that a steel producer in a country of Turkey's level of 
economic development would undertake in the normal course of business. 
Furthermore, nothing in the statute, the Department's regulations or 
past Department practice obligates the Department to consider the 
specific activities in which a producer engages for any given year when 
analyzing its data for purposes of surrogate country suitability. We 
also note that a review of the financial statements from Sendzimira 
shows that this company was also expanding, engaging in significant 
capital

[[Page 38639]]

investments in 1997. Specifically, the Financial and Economic Results 
portion of the financial statements (see the February 2, 1999 
submission) refers to ``very high costs of the on-going modernization'' 
and discusses construction and modernization projects completed in 
1997.
    Concerning the calculation of overhead and the Department's use of 
a fax from Erdemir to petitioners' counsel, we find that because it is 
the only source of information on the record which specifically breaks 
out factory overhead, it is appropriate to use this information for the 
final determination. We also note that the fax at issue comes directly 
from Erdemir, as certified by petitioners.
    Concerning the potential double-counting of energy expenses raised 
by Severstal, we find that there is no evidence that either ``other 
operating expenses'' or ``general materials'' contains costs for energy 
sources. Moreover, percent usage of all energy fields accounted for by 
natural gas, fuel oil, and electricity is further indication that any 
double-counting, if it exists, is negligible. See Final Calculation 
Memo for a further description, because this analysis involves 
proprietary information.
    With regard to the profit rate calculation, we agree with 
petitioners that because of the adjustment the Department made to the 
financial expense ratio, we should have taken this adjustment into 
account when calculating Erdemir's profit ratio, and have done so for 
the final determination. See Final Cost Memo for a further description 
of this adjustment.
    Concerning the relative useability of the Polish and Turkish 
financial data, although we believe that both sets of financial 
statements at issue are useable, we believe that Erdemir's are 
ultimately preferable given the following problems associated with the 
Polish financial data.
    First, neither the financial statements nor the detailed schedules 
in the Polish financial statements are audited, and thus, there is no 
confirmation that the data was prepared in accordance with Poland's 
GAAP. Although it is not required that financial statements be audited, 
the Department has established a clear preference to use audited 
financial statements when available (see, e.g., Notice of Final 
Determination of Sales at Less Than Fair Value: Certain Steel Concrete 
Reinforcing Bars from Turkey, 62 FR 9737, 9740 (1997) (noting 
Department's preference for audited financials over the same company's 
tax returns)).
    Second, neither the financial statements nor the detailed schedules 
in the Polish financial statements break out expenses between 
manufacturing and non-manufacturing (i.e., G&A) expenses. This 
methodology could result in some G&A expenses being classified by 
Sendzimira as cost of manufacturing (COM), thus understating G&A in the 
normal value calculation, since these G&A expenses would be excluded 
from the derivation of the G&A ratio.
    Third, Sendzimira was a government-owned and -operated entity for 
one third of the year, and, although the financial data breaks out 
amounts incurred before and after the government ceded control, we 
normally prefer to use a full year's worth of operations to calculate 
costs in order to eliminate fluctuations that may occur over shorter 
periods (see, e.g., Circular Welded Non-Alloy Steel Pipe and Tube from 
Mexico: Final Results of Antidumping Duty Administrative Review, 62 FR 
37014 (1997). We also note that the financial statements indicate that 
privatization is not yet complete.
    Therefore, for all of the above reasons, we are continuing to use 
Turkey as the surrogate country in this investigation.

Comment 5: Severstal's Pre-Verification Corrections

    Severstal argues that the Department should correct two clerical 
errors submitted at the beginning of verification. The first clerical 
error was one affecting the FOP calculations for two of the reported 
seven cost codes.
    Severstal argues that because the Department has accepted the 
underlying correction to the factual data (namely, revised Exhibit D-
7), the Department must make revisions in the calculation of the FOPs 
for both cost codes. Severstal alleges that the information it 
attempted to provide at verification (Exhibit D-9) was minor in nature 
because it provides corrected calculations of the FOPs based on 
mathematical manipulations of the data already submitted. Exhibit D-9, 
Severstal argues, serves as a ``bridge'' from the data submitted in 
various exhibits to the FOP information included on the Section D 
computer file. Severstal claims that the Department's refusal to accept 
the information violates the Court of Appeals' standard for accepting 
corrections submitted by respondents in NTN Bearing Corp. v. United 
States (74 F.3d 1204 (Fed. Cir. 1995) (NTN)). Severstal maintains that 
if the Department persists in its refusal to accept the revised Exhibit 
D-9 that Severstal attempted to submit at verification, then the 
Department must determine the impact that the March 24 correction has 
on the calculation of the FOPs for the two cost codes and create its 
own corrected version of Exhibit D-9 for the cost codes.
    Severstal contends that the Department should correct a second 
clerical error described by Severstal at the outset of verification, 
namely, the inclusion of data for two cost codes as one (reported 
aggregately as cost code 5). Severstal argues that information on the 
record clearly shows the error, no new information was submitted, and 
Exhibits D-7, D-8, and D-22 contain breakouts for the cost code which 
was inadvertently combined. Therefore, Severstal argues, only the 
mathematical manipulations necessary to generate the factors of 
production (Exhibit D-9) are required to calculate the FOPs for this 
cost code.
    Severstal contends that the identity of the CONNUMs affected by 
this error are readily identifiable in Severstal's sales database, 
because it would be impossible for sales of merchandise which was 
reported with the relevant product code to be combined with factors 
information for the relevant cost code.
    Severstal also maintains that the error in pooling the factor data 
for the cost code at issue was a result of the conditions surrounding 
this investigation, including the accelerated schedule imposed by the 
Department and the response deadlines. Severstal argues that the 
Department adopted this schedule in response to political pressures in 
the United States, which is inappropriate for the fundamental purpose 
underlying the antidumping process (see, e.g., D&L Supply Co. v. United 
States, 113 F.3d 1220, 1223 (Fed. Cir. 1997), Borlem S.A.--
Empreedimentos Industriais v. United States, 913 F.2d 933, 939 (Fed. 
Cir. 1990), NTN, and Rhone Poulenc, Inc. v. United States, 899 F.2d 
1185, 1191 (Fed. Cir. 1990)). Severstal suggests that should the 
Department refuse to accept this clerical error on the basis that it is 
not ``minor'' in nature, the Department will be compounding the 
difficulties imposed on the respondent by its artificially accelerated 
schedule.
    Petitioners argue that the Department was correct in rejecting 
Severstal's efforts to submit a substantially revised FOP dataset. 
Concerning the first clerical error, petitioners argue that Severstal's 
March 24, 1999 submission gave no indication that the error discovered 
in Exhibit D-7 affected more than just Exhibit D-7. At verification, 
petitioners argue, Severstal confronted the Department verifiers with a 
new

[[Page 38640]]

exhibit showing that the one number corrected in the March 24 
submission actually affected a huge range of other figures on the 
record (i.e., all the reported FOPs for cost codes 1 and 2). This 
correction, petitioners claim, would result in the revision of the 
normal values associated with many of Severstal's U.S. sales. 
Concerning the second clerical error, petitioners maintain that the 
creation of an entirely new cost code (and an eighth set of FOP data) 
would impact a significant portion of Severstal's U.S. sales.
    Petitioners argue that a major revision to most of Severstal's FOP 
data would render meaningless the Department's verification, since the 
Department would not have been able to examine the new calculations or 
data prior to its verification. Petitioners state that respondent bears 
the burden of preparing and providing the Department with an accurate 
submission within the statutory deadline (see NSK Ltd. v. United 
States, 825 F. Supp. 315, 318-319 (CIT 1993)) and cannot expect the 
Department to serve as a surrogate to guarantee the correctness of 
submissions (see Murata Mfg. Co., Ltd. v. United States, 820 F.Supp. 
603, 607 (CIT 1993)).
    Petitioners argue that the U.S. Court of Appeals, in NTN, 
considered three primary factors for determining whether to allow 
untimely clerical error corrections requested by respondents: first, 
the correction must not require the Department to begin anew, thus 
wasting effort; second, it must not delay the final determination; and 
third, the parties must have exercised due care during the course of 
the proceeding. Petitioners contend that Severstal meets none of these 
criteria. First, petitioners assert that the corrections would require 
much more than a mathematical adjustment, as Severstal claims. The 
effect of the change is significant and pervasive, in petitioners' 
opinion; such an effect would fundamentally change the Department's 
analysis and overall understanding of the dataset, requiring the 
Department to ``begin anew.'' Petitioners point out that Severstal 
devoted over a page in their case brief describing the calculations 
required to adjust the data for one single product.
    Second, petitioners argue that accepting the new FOP dataset would 
delay the final determination. Because the Department is required to 
verify information in an antidumping duty investigation, verification 
of this information would require the Department to re-verify 
Severstal's response once it had become familiar with the data, which 
is a time-consuming undertaking.
    Third, petitioners maintain that Severstal has not exercised due 
care in its preparation of questionnaire responses. Petitioners believe 
that Severstal's data contains inaccuracies and inconsistencies, and 
lacks specificity. In addition, petitioners contend that corrected data 
was not submitted until over two months after it was due under the 
Department's extended questionnaire deadline. In petitioners' opinion, 
Severstal should have evaluated its reported data well before its 
preparation for verification.
    Petitioners conclude that the Department was well within its 
statutory requirements to reject the revised Exhibit D-9 and new cost 
code information.
Department's Position
    We agree in part with both petitioners and respondents.
    Concerning Severstal's first clerical error, the error affecting 
the FOP calculations for two of the reported seven cost codes, we agree 
with respondent. The information (revised Exhibit D-7) affected two of 
the reported seven cost codes. This underlying error was obviously 
clerical in nature and represented a minor change to the pre-existing 
Exhibit D-7. We find that in this case, the change did not require the 
Department to begin anew and did not delay the final determination, and 
that Severstal informed the Department of this error prior to 
verification.
    As a result, we have used information on revised FOPs for cost 
codes 1 and 2 for our final determination. Please refer to the Final 
Calculation Memo for additional details.
    However, concerning Severstal's second clerical error, the 
inclusion of data for two cost codes as one, we agree with petitioners. 
We find that Severstal failed to provide the Department with necessary 
information related to components of each cost code to which this 
clerical error relates.
    In its original Section D response dated December 21, 1998, 
Severstal reported seven discrete cost codes and did not provide the 
Department with any narrative description of the reported cost code 
categories.
    The March 15, 1999 verification outline informed Severstal that 
``at verification, the Department cannot accept new information or 
revisions to previously submitted information which would substantially 
alter some or all of the questionnaire responses'' and that the 
Department considered appropriate reporting of FOP data, based on 
internal cost codes, to be central to the calculation of a valuable 
margin. Consequently, Severstal was made aware of the importance the 
Department placed on this issue prior to the deadline for submitting 
new factual information in this proceeding (under section 351.301(b)(1) 
of the Department's regulations, Severstal had until seven days before 
the date on which verification began, or March 29, 1999, to submit new 
factual information), and did not inform the Department at that time of 
any revisions to the factors associated with the cost code at issue. At 
verification, Severstal attempted to provide information to the 
Department which would have created an eighth cost code, which 
represented a major revision to Severstal's questionnaire response.
    Moreover, because Severstal did not provide the Department with 
both a narrative description of the cost code and the worksheets 
demonstrating the calculations needed to derive the factors associated 
with the cost code, it was impossible for the Department to determine 
that Severstal maintained an additional unreported cost code. As the 
Court held in NSK, ``an error in the original information submitted by 
a respondent must be obvious from the administrative record in 
existence at the time the error is brought to the ITA's attention.'' 
Unlike the clerical error discussed above, because information was not 
provided for the affected cost code, the correction respondent 
attempted to make was not obvious from the administrative record at the 
time the error was brought to the Department's attention.
    Moreover, we disagree with Severstal's argument that it is being 
unfairly penalized as a result of the ``artificially accelerated 
schedule.'' We note that the Department has acted in accordance with 
the governing statute and regulations in this case. Specifically, the 
Department has afforded respondent sufficient time, including several 
extensions, to answer its questionnaires, and also has afforded 
respondent the opportunity, as provided in section 782(d) of the Act of 
the statute, to address deficiencies.
    For the reasons discussed above, we have disallowed Severstal's 
reported clerical error, the inclusion of data for two cost codes as 
one, because the information included therein constituted substantial 
new factual information which was submitted in an untimely fashion. 
Additionally, because we verified that Severstal relied upon a complete 
universe of data relating to subject merchandise to report its FOPs, no 
adjustment is necessary to account for the unreported cost code 
described above, due to the Department's

[[Page 38641]]

calculation of normal value, as discussed above in Comment 2.

Comment 6: Preliminary Critical Circumstances Determination

    Severstal argues that because the Department's preliminary critical 
circumstances determination (see Preliminary Determination of Critical 
Circumstances: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel 
Products from Japan and the Russian Federation, 63 FR 65750 (November 
30, 1998) (``Preliminary Critical Circumstances Determination'')) was 
issued more than two months before the Department's preliminary 
determination in this proceeding, the Department was compelled to rely 
on information from a period long before the period used in every other 
antidumping investigation. As a result, Severstal contends that the 
Department's haste in issuing an early preliminary critical 
circumstances decision has generated an unlawful determination.
    Specifically, in examining whether there were massive imports, 
Severstal contends that the Department deviated from standard practice 
(to compare import volumes 90 days after the filing of the petition to 
the volume entered 90 days prior to filing of the petition) and instead 
accepted petitioners' urgings to use the end of April 1998 as the 
benchmark, thus comparing import volumes 5 months before and after 
April 30, 1998 to determine if the increase was ``massive.'' Severstal 
notes that the Department stated that the April 1998 date was selected 
based on the press coverage during that period, stating that there were 
significant increases in imports of hot-rolled steel from Russia and 
that an antidumping case might be filed by the domestic industry on 
hot-rolled steel. See Preliminary Critical Circumstances Determination. 
Severstal submits that the press reports do not form the basis upon 
which importers should have been aware of the likelihood of cases filed 
against hot-rolled steel from Russia. Similarly, the Department cannot 
assume, in Severstal's opinion, that the press reports themselves 
caused the massive imports (in the same way that a petition may trigger 
a sudden, massive increase). Severstal argues that the most the 
Department can deduce is that importers, exporters and foreign 
producers were aware that the U.S. industry was engaging in the common 
tactic of threatening future trade cases if market conditions did not 
improve. Severstal contends that these press reports are routinely used 
as a tactical weapon by competitors to gain market share. These kinds 
of press articles, Severstal maintains, cannot serve as a basis of 
legal liability under the critical circumstances element of the 
antidumping law.
    Furthermore, Severstal argues that the Department's action cedes a 
vital element of the critical circumstances determination to the 
domestic industry, which is now empowered to issue press reports in a 
strategic manner. Severstal asserts that these kinds of press reports 
are commonplace and often do not lead to the filing of an antidumping 
investigation. The critical circumstances provision of the antidumping 
law is too significant for the Department to permit petitioners to 
manipulate the temporal trigger for liability with press releases, 
argues Severstal. In its opinion, the Department should base a final 
critical circumstances determination on data before and after the date 
of the filing of the petition.
    Petitioners argue that the Department's determination of critical 
circumstances with respect to hot-rolled steel from Russia was anchored 
firmly in the Department's statutory and regulatory requirements. 
Petitioners additionally contend that the Department's analysis is in 
full accord with its legal mandates.
    In choosing to base its analysis of whether there were massive 
imports on a date earlier than the filing of the petition, the 
Department was well within its statutory and regulatory mandate. 
Specifically, petitioners cite section 351.206(i) of the Department's 
regulations, which state that ``if the Secretary finds that importers, 
or exporters or producers, had reason to believe, at some time prior to 
the beginning of a proceeding, that a proceeding was likely, then the 
Secretary may consider a period of not less than three months from that 
earlier time.'' Thus, according to petitioners, the Department's 
regulations are clear that the Department does not need to use the date 
the proceeding begins.
    Petitioners argue that there was a link between the news coverage 
regarding potential antidumping cases and the subsequent massive 
increase in Russian steel imports, as the Department acknowledged in 
its Preliminary Critical Circumstances Determination. For the above 
reasons, petitioners urge the Department to maintain its critical 
circumstances finding in the final determination.
Department's Position
    We agree with petitioners that in issuing an early preliminary 
critical circumstances determination, the Department acted within 
statutory and regulatory authority. As the statute (see sections 
705(a)(2)(B) and 735(a)(3)(B) of the Act), our regulations (see 19 CFR 
351.206(i)), and the Policy Bulletin (see Changes in Policy Regarding 
Timing of Issuance of Critical Circumstances Determinations, October 
15, 1998 (63 FR 55364)) make clear, the Department may issue a 
preliminary critical circumstances determination prior to making a 
preliminary determination of dumping, assuming adequate evidence of 
critical circumstances is available. Moreover, if the facts of a case 
show that importers, exporters, or producers had reason to believe that 
a case was likely to be filed, the regulations provide that an earlier 
base period can be used to measure the existence of massive imports.
    In this case, consistent with the above cited provisions, we have 
found that press articles from March and April 1998 indicated that a 
dumping investigation on hot-rolled steel from Russia was likely, thus 
giving importers, exporters, or producers reason to believe so. 
Therefore, we have measured imports using the April 30, 1998 date as 
the end of the benchmark period for purposes of determining whether 
there were ``massive imports.'' Consistent with this analysis, we found 
that there were massive imports after the April 30, 1998 date.
    In conclusion, we find that our analysis and resulting preliminary 
determination of critical circumstances was in full accord with both 
the governing statute and regulations.

Continuation of Suspension of Liquidation

    On July 12, 1999, the Department signed a suspension agreement with 
the Ministry of Trade of the Russian Federation (the Agreement). 
Therefore, we will instruct Customs to terminate the suspension of 
liquidation of all entries of hot-rolled steel from Russia. Any cash 
deposits of entries of hot-rolled steel from Russia shall be refunded 
and any bonds shall be released.
    On July 7, 1999, we 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:

------------------------------------------------------------------------
                                                               Margins
                          Company                             (percent)
------------------------------------------------------------------------
JSC Severstal..............................................        73.59
Russia-Wide Rate...........................................       184.56
------------------------------------------------------------------------


[[Page 38642]]

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
International Trade Commission (``ITC'') of our determination. Because 
our final determination is affirmative, the ITC will, within 45 days, 
determine whether these imports are materially injuring, or threatening 
material injury to, the U.S. industry. If the ITC determines that 
material injury, or threat of material injury does not exist, the 
Agreement will have no force of effect, and the investigation shall be 
terminated. See Section 734(f)(3)(A) of the Act. If the ITC determines 
that such injury does exist, the Agreement shall remain in force but 
the Department shall not issue an antidumping order so long as (1) the 
Agreement remains in force, (2) the Agreement continues to meet the 
requirements of subsections (d) and (l) of the Act, and the parties to 
the Agreement carry out their obligations under the Agreement in 
accordance with its terms. 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 12, 1999.
Bernard Carreau,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-18371 Filed 7-16-99; 8:45 am]
BILLING CODE 3510-DS-P