[Federal Register Volume 64, Number 249 (Wednesday, December 29, 1999)]
[Notices]
[Pages 73196-73214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33234]


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DEPARTMENT OF COMMERCE

INTERNATIONAL TRADE ADMINISTRATION
[A-580-836]


Notice of Final Determination of Sales at Less Than Fair Value: 
Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea

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

EFFECTIVE DATE: December 29, 1999.

FOR FURTHER INFORMATION CONTACT: Howard Smith, Frank Thomson, or Lyman 
Armstrong, Office 4, Group II, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
5193, (202) 482-4793 or (202) 482-3601, respectively.

The Applicable Statute

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

Final Determination

    We determine that certain cut-to-length carbon-quality steel plate 
products (``CTL plate'') from Korea are being, or are likely to be, 
sold in the United States at less than fair value (``LTFV''), as 
provided in section 733 of the Act. The estimated margins of sales at 
LTFV are shown in the ``Suspension of Liquidation'' section of this 
notice.

Case History

    Since the preliminary determination in this investigation (Notice 
of Preliminary Determination of Antidumping Investigations: Certain 
Cut-To-Length Carbon-Quality Steel Plate from Korea, 64 FR 41224 ( July 
29, 1999) (``Preliminary Determination'')), the following events have 
occurred:
    In August, September, and October 1999, the Department conducted 
verifications of Pohang Iron & Steel Co., Ltd. (``POSCO'') and Dongkuk 
Steel Mill Co., Ltd. (``DSM''), the respondents in the instant 
investigation. A public version of our analysis and report of the 
results of this verification is on file in room B-099 of the main 
Department of Commerce building, under the appropriate case number.
    On October 15, 1999, and October 27, 1999, respondents submitted 
revised databases. Petitioners 1 and respondents submitted 
case briefs on November 12, 1999, November 15, 1999, and November 16, 
1999, and rebuttal briefs on November 22, 1999. On November 23, 1999, 
the Department held a public hearing concerning this investigation.
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    \1\ The petitioners are Bethlehem Steel Corporation, Gulf States 
Steel, Inc., IPSCO Steel Inc., Tuscaloosa Steel Corporation, the 
United Steelworkers of America, and the U.S. Steel Group (a unit of 
USX Corporation).
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    Subsequent to the hearing on November 29, 1999, petitioners 
submitted a letter alleging that respondents' rebuttal brief contained 
untimely filed new factual information that must be rejected. 
Specifically, petitioners stated that an opinion from an expert on 
accounting issues was new information. On December 3, 1999, respondents 
submitted a letter arguing that this opinion was not new factual 
information. The opinion in question is that of Dr. Charles T. 
Horngren, and was found at attachment 4 to respondent's cost rebuttal 
brief. We agree with petitioners that this opinion constitutes new 
factual information because it is offered as an ``expert opinion,'' and 
as such, constitutes testimony rather than a general opinion. 
Therefore, we find that the information in question is new factual 
information untimely submitted pursuant to section 351.301(b) of the 
Department's regulations. Normally such new factual information is 
returned to the submitter. However, given that this issue was raised so 
late in the proceeding--less than two weeks before the final 
determination--for administrative convenience we have not returned 
these data. We have not considered them in making our final 
determination in this case. Rather, all copies were removed from the 
record and destroyed, except that, pursuant to section 
351.104(a)(ii)(A), of the Act, we have kept one copy solely for the 
purpose of documenting the reason for rejecting the new information.

Scope of Investigation

    The products covered by the scope of this investigation are certain 
hot-rolled carbon-quality steel: (1) Universal mill plates (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 nominal or 
actual thickness of not less than 4 mm, which are cut-to-length (not in 
coils) and without patterns in relief), of iron or non-alloy-quality 
steel; and (2) flat-rolled products, hot-rolled, of a nominal or actual 
thickness of 4.75 mm or more and of a width which exceeds 150 mm and 
measures at least twice the thickness, and which are cut-to-length (not 
in coils). Steel products to be included in this scope are of 
rectangular, square, circular or other shape and of rectangular or non-
rectangular cross-section where such non-rectangular cross-section is 
achieved subsequent to the rolling process (i.e., products which have 
been ``worked after rolling'')--for example, products which have been 
beveled or rounded at the edges. Steel products that meet the noted 
physical characteristics that are painted, varnished or coated with 
plastic or other non-metallic substances are included within this 
scope. Also, specifically included in this scope are high strength, low 
alloy (``HSLA'') steels. HSLA steels are recognized as steels with 
micro-alloying levels of elements such as chromium, copper, niobium, 
titanium, vanadium, and molybdenum. Steel products to be included in 
this scope, regardless of Harmonized Tariff Schedule of the United 
States (``HTSUS'') definitions, are products in which: (1) Iron 
predominates, by weight, over each of the other contained elements, (2) 
the carbon content is two percent or less, by weight, and (3) none of 
the elements listed below is equal to or 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 0.10 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 
zirconium. All products that meet the written physical description, and 
in which the chemistry quantities do not equal or exceed any one of the 
levels listed above, are within the scope of these investigations 
unless otherwise specifically excluded. The following products are 
specifically excluded from these investigations: (1) Products clad, 
plated, or coated with metal, whether or not painted, varnished or 
coated with plastic or other non-metallic substances; (2) SAE grades 
(formerly AISI grades) of series 2300 and above; (3) products made to 
ASTM A710 and A736 or their proprietary

[[Page 73197]]

equivalents; (4) abrasion-resistant steels (i.e., USS AR 400, USS AR 
500); (5) products made to ASTM A202, A225, A514 grade S, A517 grade S, 
or their proprietary equivalents; (6) ball bearing steels; (7) tool 
steels; and (8) silicon manganese steel or silicon electric steel.
    The merchandise subject to these investigations is classified in 
the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030, 
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000, 
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045, 
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050, 
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000, 
7226.91.8000, 7226.99.0000.
    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, 1998, through 
December 31, 1998.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products produced by POSCO and DSM covered by the description in the 
``Scope of Investigation'' section, above, and sold in Korea during the 
POI to be foreign like products for purposes of determining appropriate 
product comparisons to U.S. sales. We compared U.S. sales to sales made 
in the home market, where appropriate. Where there were no sales of 
identical merchandise in the home market made in the ordinary course of 
trade to compare to U.S. sales, we compared U.S. sales to sales of the 
most similar foreign like product made in the ordinary course of trade. 
In making the product comparisons, we matched foreign like products 
based on the physical characteristics reported by respondents in the 
following order of importance (which are identified in Appendix V of 
the questionnaire): painting, quality, grade specification, heat 
treatment, nominal thickness, nominal width, patterns in relief, and 
descaling.
    Because neither POSCO nor DSM had sales of non-prime merchandise in 
the United States during the POI, we did not use home market sales of 
non-prime merchandise in our product comparisons. See, e.g., Final 
Determination of Sales at Less Than Fair Value: Stainless Steel Wire 
Rod from Sweden 63 FR 40449, 40450 (July 29, 1998) (``SSWR'').

Changes From the Department's Preliminary Determination

    The following is a summary of changes from the Department's 
Preliminary Determination. For a full explanation of DSM and POSCO 
sales, see Dongkuk Steel Mill Co., Ltd. Calculation Memorandum, dated 
December 13, 1999 and Pohang Iron & Steel Co., Ltd. Memorandum, dated 
December 13, 1999. For POSCO, the Department utilized the most recent 
affiliated service center data submitted. For DSM, the Department 
revised certain codes reported for PLQUAL2H/U in accordance with 
corrections submitted on July 16, 1999. Additionally, the Department 
made the following changes to DSM's sales database: for certain U.S. 
sales observations we revised the per-unit international freight as a 
result of verification, for a certain U.S. sales observation we revised 
the amount reported for other discounts, and for a certain U.S. sales 
observation we revised the order date.
    For DSM cost we made changes to the following general areas: scrap 
offset, affiliated input costs, start-up cost depreciation, inventory, 
and foreign exchange gains and losses. See Cost of Production and 
Constructed Value Calculation Memorandum, dated December 13, 1999.

Verification

    As provided in section 782(i) of the Act, we verified all 
information provided by POSCO and DSM with respect to its sales and 
costs, including on-site inspection of facilities, the examination of 
relevant accounting and financial records, and selection of original 
documentation containing relevant information. Our verification results 
are outlined in the cost verification and sales report. See Cost 
Verification Report--Pohang Iron and Steel Company, Ltd., from James 
Terpstra to Official File (November 4, 1999); Cost Verification 
Report--Dongkuk Steel Mill Co., Ltd., from Garri Gzirian and Lauren Van 
Houten to Neal Harper (October 21, 1999); Sales Verification Report--
Pohang Iron and Steel Company, Ltd. from Frank Thomson to James 
Terpstra (November 10, 1999); Sales Verification Report--Dongkuk Steel 
Mill Co., Ltd., from Howard Smith and Lyman Armstrong to James Terpstra 
(November 10, 1999).

Currency Conversion

    We made currency conversions into U.S. dollars based on the 
exchange rates in effect on the dates of the U.S. sales as certified by 
the Federal Reserve Bank.
    Section 773A(a) of the Act directs the Department to use a daily 
exchange rate in order to convert foreign currencies into U.S. dollars 
unless the daily rate involves a fluctuation. It is the Department's 
practice to find that a fluctuation exists when the daily exchange rate 
differs. When we determine a fluctuation to have existed, we substitute 
the benchmark rate for the daily rate, in accordance with established 
practice. Further, section 773A(b) of the Act directs the Department to 
allow a 60-day adjustment period when a currency has undergone a 
sustained movement. A sustained movement has occurred when the weekly 
average of actual daily rates exceeds the weekly average of benchmark 
rates by more than five percent for eight consecutive weeks. (For an 
explanation of this method, see Policy Bulletin 96-1: Currency 
Conversions 61 FR 9434 (March 8, 1996).

Particular Market Situation

    On October 8, 1999, petitioners submitted an allegation that a 
``particular market situation'' exists within the meaning of section 
773(a)(1)(C)(iii) of the Act. This allegation was based on a variety of 
information sources that, according to petitioners, show that the 
Government of Korea (``GOK'') controls the price of steel in the home 
market to such an extent that the prices cannot be considered to be 
competitively set, such that home market prices cannot be used as a 
basis for normal value. Petitioners supplemented this allegation on 
October 29, 1999.
    Petitioners provided four types of evidence to support their 
allegations: (1) Market research, including interviews with steel 
industry indicating GOK control of steel prices; (2) a time series of 
transaction prices showing flat prices (indicative of price controls 
according to petitioners); (3) a GOK document related to steel prices; 
and (4) a variety of media articles related to this topic.
    On October 19, 1999, respondents submitted a rebuttal to this 
allegation. Respondents asserted that the allegation was untimely and 
should be rejected. Respondents also stated that this allegation was 
fully evaluated in a previous case and found to be without merit. 
Finally, respondents submitted home market prices data for showing 
variation in home market prices, which

[[Page 73198]]

they claimed to be indicative of market forces operating freely.
    Regarding timeliness, 19 CFR 351.301(d)(1) requires that an 
allegation must be submitted within 40 days after the date on which the 
original questionnaire was transmitted, unless the Secretary extends 
the time limit. In this case, the questionnaire was transmitted on 
March 17, 1999, and thus this allegation would normally have been due 
on or before April 26, 1999.
    In considering whether to extend the deadline for this allegation, 
as permitted by the regulations, we consider, inter alia, how the 
allegation would affect the schedule of the case. See 19 CFR 
351.302(b). The regulations state that ``unless expressly precluded by 
statute, the Secretary may, for good cause, extend any time limit 
established by this part. Furthermore, with regard to the allegation 
itself, the regulations regarding this provision foresee that such an 
allegation would lead to the rejection of an otherwise viable home 
market in favor of sales to a third country as the basis for normal 
value. See 19 CFR 351.404(c)(1). As such, the deadlines are predicated 
on the assumption that we would need sufficient time to collect and 
analyze third country sales. Whatever the merits of the allegation in 
this case, the timing of petitioners allegation would not have allowed 
for sufficient time to collect and analyze third country sales data. 
Therefore, we have not extended the deadline for filing the allegation 
in this case. Consequently, we find petitioners allegation to be 
untimely filed and have not considered it in our final determination.

Analysis of the Comments Received

    We gave interested parties an opportunity to comment on the 
preliminary results. We received case and rebuttal briefs from 
petitioners and case and rebuttal briefs from respondents.

Home Market and U.S. Sales

DSM
    Comment 1: Physical Characteristics of Subject Merchandise
    Petitioners argue that the methodology DSM used for reporting its 
plate specification information is flawed and cannot be accepted. 
Petitioners state that DSM's claim of producing high-strength 
shipbuilding plate from ``general'' quality slabs demonstrates an error 
in the physical characteristics designated by either DSM's slab 
supplier or DSM itself. Under either scenario, petitioners feel that 
DSM's reported plate specification and quality information must be 
considered unreliable. Petitioners argue that the Department's sales 
verification report says nothing about manufacturing a high strength 
product from general quality slab. See Department's Sales Verification 
of DSM at 12. Petitioners contend that it is not possible to create a 
high-strength plate from non-high strength slab. Petitioners argue that 
all the chemical properties (such as carbon content) which engenders a 
CTL plate product with high-strength qualities are added prior to the 
production of slab. According to petitioners, while the subsequent 
rolling and finishing of a slab (in the production of CTL plate) may 
improve the mechanical attributes of the product, they cannot alter the 
chemical composition of the product. Given these assumptions, 
petitioners claim that the Department cannot have any confidence in any 
of the plate quality and specification information submitted by DSM.
    Petitioners also argue that DSM's claim that general quality plates 
are produced from high-strength shipbuilding slabs is inconsistent with 
the statute, the Department's questionnaire, and past practice. 
Petitioners claim that pursuant to 19 U.S.C. 1667b(a), the Department 
must compare products that are identical in physical characteristics, 
and not merely identical in the assigned product specification.
    In addition, petitioners contend that there is the potential for 
manipulation stemming from the use of a methodology that relies on 
something other than physical characteristics. Petitioners argue that 
if the Department were to determine that the actual physical 
characteristics of a finished product are not relevant and the only 
relevant information is the specification designated on the sales 
invoices, then companies could legally sell their products in the 
United States at the lesser specification, when in fact the products 
actually possess significantly different physical characteristics. 
Petitioners recommend that the Department use partial facts available 
given that DSM did not assign costs to the merchandise actually 
produced; but rather to the merchandise as ordered by the customer. 
According to petitioners, this would lead to a distorted comparison 
between home market sales and U.S. sales. Petitioners claim that, as 
partial facts available, the Department should designate all of DSM's 
U.S. sales as sales of high-strength shipbuilding plate, to account for 
the fact that under the flawed reporting methodology, any of the 
company's U.S. sales could actually be of a high-strength shipbuilding 
specification.
    DSM claims that they reported subject merchandise correctly and 
that the Department verified the information. DSM asserts that it 
seldom produces general quality plate using high strength slab, except 
in order to avoid delays in meeting a customer's order. Further, DSM 
states that a customer cannot use plate with a general quality 
certification for a high strength application. Citing the Verification 
Report, DSM argues that the Department randomly selected two months, 
June and July 1998, and found no instances in which general plate was 
produced using slabs that were not of general quality.

Department's Position

    We disagree with petitioners. During verification, Department 
officials found one instance where DSM used slabs that were certified 
to a general quality specification to produce plates that were 
certified to a high-strength specification. In addition, DSM reported 
that during the POI, it used both general quality and high-strength 
slabs to produce plates that were certified to a general quality 
specification. For the following reasons we have not rejected the 
reported product characteristics. First, the evidence on the record 
supports DSM's claim that it produced high-strength plates from slabs 
certified to a general quality specification, and that it properly 
reported the quality and specification of such plates. The Department 
verified that the slabs in question were certified to a general quality 
specification, and hence DSM classified them as general quality slabs 
in its inventory system. See Sales Verification Report at 9 and exhibit 
32. However, the mill test certificate for the slabs showed that their 
chemical characteristics satisfied the chemical standards of the high-
strength specification to which the plates were produced.2 
The fact that the slabs had only been tested in accordance with the 
general quality specification and, thus, only certified to that 
specification does not change the fact that, chemically, they also 
satisfied the requirements of a high-strength specification and were 
used to produce that specification. Moreover, the plates that were 
produced from these slabs were tested and found to meet the high-
strength specification that DSM reported to the Department. Thus, this 
method of production does

[[Page 73199]]

not demonstrate that DSM's submitted product characteristics are 
unreliable. Second, at verification the Department found no evidence to 
indicate that DSM had incorrectly reported the physical characteristics 
of the plates sold. Furthermore, it is inappropriate to conclude, based 
solely on the quality of the slabs, that plates that were produced from 
high-strength slabs and certified to a general quality specification 
are in fact high-strength plates. The record shows that the production 
of high-strength plates may involve special hot-mill processing which 
improves the mechanical properties of certain high-strength steels. 
Thus, additional factors must be considered before concluding that such 
plates are high-strength. Moreover, there is no information on the 
record to show that these products were marketed or sold as a 
specification other than that for which they were tested and to which 
they were certified. Finally, the record shows that only a very small 
percentage of the slabs that DSM used to produce general quality plates 
were high-strength slabs. For the foregoing reasons, we have accepted 
the product characteristics as reported.
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    \2\ At verification, DSM officials explained that they select 
the slabs to be used to produce a plate order based on similarities 
between the physical characteristics of the slab and the ordered 
plate irrespective of the quality assigned to the slab in DSM's 
inventory system.
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Comment 2: Commission Expense
    DSM focuses a statement in the Department's verification report 
that one of the selling agents received a lesser commission for each 
sale. While DSM admits this selling agent received less of a commission 
for each U.S. sale it was involved in, DSM argues that this agent also 
received a salary which was reported in DSM's indirect selling expense. 
This additional compensation was not considered in the Department's 
analysis.
    DSM argues that it is Departmental practice to report commissions 
paid to independent sales agents, as a direct selling expense and 
employee's salary, as an indirect selling expense. Accordingly, DSM has 
properly reported its commission expenses in the United States.
    Petitioners did not comment on this issue.

Department's Position

    We agree with DSM. We recognize that the sales agent in question 
received a salary in addition to his commission and that the amount of 
the salary was properly included in the reported indirect selling 
expense.
Comment 3: CEP Offset
    DSM argues that a CEP offset is warranted because (1) NV is 
established at a Level of Trade (``LOT'') which constitutes a more 
advanced stage of distribution than the LOT of the CEP; and (2) the 
data available do not provide an appropriate basis to determine a LOT 
adjustment. See 19 CFR 351.412(c)(2); Notice of Preliminary 
Determination of Stainless Steel Sheet and Strip from the United 
Kingdom, 64 FR 90 (January 4, 1999). At verification, DSM demonstrated, 
and the Department verified, that DKA, not DSM, was responsible for 
negotiating prices with customers and for invoicing customers in U.S. 
Channels 1 and 3. In those CEP channels, DSM argues that DKA was also 
responsible for market research and all interactions with the U.S. 
customers, including arranging for freight and delivery in the United 
States and, in Channel 1, U.S. Customs clearance. See Sales 
Verification Report at 8-9; Sales Verification Exhibit 9.
    Accordingly, DSM states that there is no reseller in Korea that 
fulfills the role on home market sales that DKA performs on U.S. sales 
in Channels 1 and 3. As a result, when DKA's selling activities are 
excluded for purposes of the LOT analysis (CEP LOT), the home market 
comparison price becomes incomparable because it included significant 
expenses, communication expenses, rent, and market research. As such, a 
CEP offset is warranted in this case.
    Petitioners claim that a CEP offset adjustment is not warranted in 
this case. First, petitioners argue that the record evidence fails to 
indicate that there are significant differences in selling functions 
between DSM's home market and CEP LOTs. Second, petitioners argue that 
there is no effect on price comparability on the LOT in this case. As 
such, the Department should uphold its preliminary determination that 
U.S. and home market sales were made at the same LOT.
    Petitioners claim that, in the event that the Department 
erroneously determines to make a CEP offset adjustment to normal value 
for home market sales matched to CEP sales, it must ensure any 
adjustment is properly applied and not double-counted with the 
commission offset adjustment. Citing Static Random Access Memory 
Semiconductors From Taiwan, 63 FR 8909 (February 23, 1998), petitioners 
argue that the Department must ``offset any commission paid on U.S. 
sale by reducing the NV by any home market indirect selling expense 
remaining after the deduction for the CEP offset, up to the amount of 
the U.S. commission.''

Department's Position:

    We agree with the petitioners. In accordance with section 
773(a)(1)(B)(i) of the Act, to the extent practicable, we determine NV 
based on sales in the comparison market at the same LOT as the EP or 
CEP transaction. The NV LOT is that of the starting-price of sales in 
the comparison market or, when NV is based on CV, that of the sales 
from which we derive selling general and administrative expenses and 
profit. For EP sales, the LOT is also the level of the starting-price 
sale which is usually from the exporter to the importer. For CEP sales, 
the Department makes its analysis at the level of the constructed 
export sale from the exporter to the affiliated importer.
    Because of the statutory mandate to take LOT differences into 
consideration, the Department is required to conduct a LOT analysis in 
every case, regardless of whether or not a respondent has requested a 
LOT adjustment or a CEP offset for a given group of sales. To determine 
whether NV sales are at a different LOT than EP or CEP sales, we 
examine stages in the marketing process and selling functions along the 
chain of distribution between the producer and the unaffiliated 
customer. If the comparison market sales are at a different LOT, and 
the difference affects price comparability, as manifested in a pattern 
of consistent price differences between the sales on which NV is based 
and comparison market sales at the LOT of the export transaction, we 
make a LOT adjustment under section 773(a)(7)(A) of the Act. Finally, 
for CEP sales, if the NV level is more remote from the factory than the 
CEP level and there is no basis for determining whether the differences 
in the LOTs between the NV and the CEP sales affects price 
comparability, we adjust NV under section 773(A)(7)(B) of the Act (the 
CEP offset provision). See Certain Cut-to-Length Carbon Steel Plate 
from South Africa, 62 FR 61731 (November 19, 1997).
    As stated in the preliminary determination notice, Dongkuk reported 
one channel of distribution in the home market through which it sold to 
distributors and affiliated and unaffiliated end-users. Dongkuk 
reported no appreciable differences in the functions performed in 
selling to different types of customers in the home market. Thus, sales 
to these customers constitute a single marketing stage and, therefore, 
we continue to find that all of DSM's home market sales were made at 
one LOT.
    In the U.S. market, DSM reported four sales channels: (1) CEP sales 
through Dongkuk Industries Co., Ltd. (``DKI''), Dongkuk's affiliated 
trading company in Korea, to Dongkuk International, Inc. (``DKA''), 
Dongkuk's U.S. affiliate, to unaffiliated customers; (2) EP sales 
through DKI, to unaffiliated customers;

[[Page 73200]]

(3) CEP sales through DKA, to unaffiliated customers; and (4) EP sales 
from Dongkuk to unaffiliated customers. After adjusting CEP sales in 
accordance with section 772(d) of the Act, we find no substantial 
differences in selling activities between EP and CEP sales. Moreover, 
in comparing home market sales to EP sales and CEP sales, as adjusted 
under 772(d), we find that DSM performs many of the same functions in 
selling to its U.S. and home market customers. Therefore, we find that 
there is no difference in the LOT for NV, EP, or CEP sales. Because 
there is no difference in the LOT for NV and CEP sales we have not 
granted DSM a CEP offset. See Dongkuk Steel Mill Co., Ltd: Level of 
Trade Analysis, dated December 13, 1999.
Comment 4: Minor Adjustments Made at the Preliminary Determination Are 
No Longer Needed
    DSM argues that minor adjusts to DSM's database made at the 
Preliminary Determination are no longer needed. First, the Department 
recalculated credit expense in the home market database because of a 
database programming error. At the start of verification, DSM corrected 
the programming that had resulted in incorrect payment dates for a 
number of their home market sales. See Sales Verification Report at 3. 
Second, the Department had found several missing payment dates and used 
the signature date as payment date for those sales. Again, at 
verification, DSM provided the correct payment dates for the invoices 
that were paid subsequent to the Preliminary Determination and the 
payment date for any remaining unpaid sales. As a result, DSM claims 
that the Department should have no need to create new payment dates or 
to make any other adjustments to the sales database.
    Petitioners did not comment on this issue.

Department's Position

    We agree with the DSM that the minor adjustments to its database 
are no longer needed. At verification, DSM provided the Department with 
the correct payment dates for the invoices that were paid subsequent to 
the Preliminary Determination and the payment date for any remaining 
unpaid sales. See Sales Verification Report at 3 and exhibit 1.
Comment 5: Gross Unit Price for Home Surprise Sales 6 and 7
    DSM argues that the verification report incorrectly stated that the 
prices for home market surprise sales 6 and 7 were understated. DSM 
argues that the value for freight revenue was not included in the 
variable gross unit price (GRSUPRH); rather for both sales this value 
was reported in freight revenue (FRTREVH) and was verified as such. See 
Sales Verification Report at Exhibit 24 and 25. However, in the normal 
course of business, freight revenue and gross unit price are recorded 
as a single line item in DSM's invoice. In its questionnaire response, 
DSM reported freight revenue separately from gross unit price and if it 
was included in gross unit price it would double the amount reported 
for freight revenue. DSM maintains that the freight revenue accounted 
for an insignificant percentage of the total value of sales for the two 
sales, and that the Department found no discrepancies in the reported 
sales values for the other sales reviewed at verification. As the 
Department also verified the total reported value and tested the 
accuracy of DSM's reported data in a variety of ways, DSM argues no 
adjustment is needed.
    Petitioners argue that when errors are discovered at verification, 
it is the Department's practice to adjust the untested portion of the 
data in line with the verified findings based on facts available. 
According to petitioners, these errors are fundamental to the 
Department's analysis as they relate directly to the prices charged for 
the foreign like product and as such the Department should increase the 
gross unit price for all home market sales.

Department's Position

    We agree with DSM that no adjustment is needed to the gross unit 
price of home market surprise sales 6 and 7. At verification we found 
that the value of freight revenue for both sales was captured in the 
variable FRTREVH rather than GRSUPRH. Moreover, this discrepancy does 
not necessitate the use of adverse facts available for all home market 
sales, as petitioners suggest. If the Department added the difference 
between the invoice gross unit price and the reported gross unit price, 
it would double the amount of freight revenue reported for each sale, 
as this is already captured in another variable, i.e., FRTREVH. 
Consequently, the Department has made no adjustment to home market 
surprise sales 6 and 7.
Comment 6: DSM's Model Matching Methodology
    Petitioners claim that a comparison of the plate specifications 
(i.e., PLSPECH) for the home market matching hierarchies to the plate 
specifications for the U.S. market (PLSPECU) submitted by DSM and POSCO 
revealed significant discrepancies in the two respondents' 
methodologies. These discrepancies indicate that DSM's and POSCO's 
respective specification concordances for ``similar'' products are 
unreliable. Therefore, the Department should rely on facts available in 
determining the margins for all U.S. sales not matched to identical 
PLSPECHs in the home market. Specifically, the Department should assign 
the highest reported home market price to all sales of non-identical 
PLESPECHs matching to U.S. sales.
    DSM contends that petitioners are most concerned that DSM and POSCO 
did not report the same suggested matching hierarchy in their 
questionnaire responses. DSM states that it is unaware of any 
requirement that respondents report identical matching hierarchies. 
Further, DSM argues that their company and POSCO were precluded from 
consulting with one another on this issue due to the proprietary nature 
of the information. Instead, the companies reviewed the physical 
characteristics guidelines in the Department's questionnaire; discussed 
it with their engineers; and made an informed assessment of the most 
reasonable hierarchy for all specifications sold in the home market.
    According to DSM, the hierarchy for the subject merchandise is 
moot. Both companies sold sufficient quantities of the identical 
merchandise above cost in the home market to eliminate the necessity of 
selecting the next most similar product. DSM states that the Department 
verified the underlying product characteristics associated with DSM's 
model matching hierarchy. Because this information has been verified as 
accurate, and because the Department has the discretion to alter the 
hierarchy, there is no basis for utilizing facts available.

Department's Position

    We disagree with petitioners that the reported model matching 
hierarchies proposed by DSM are flawed and must be rejected. The 
questionnaire in this case instructed respondents to identify, for 
every specification sold to the United States, the identical and four 
or five most similar specifications sold in the home market. In the 
questionnaire, respondents are requested to explain their identical and 
similar selections. The Department normally relies on this information 
in developing its model match concordance. However, if we disagree with 
any selection of similarity, we can rearrange this hierarchy as 
appropriate. In this case, petitioners, have not disputed any of these 
hierarchies at any time prior to the submission of case briefs. 
Moreover, we have not questioned either party on the

[[Page 73201]]

use of these hierarchies in any supplemental questionnaire or found 
specific faults with any chosen selection.
    We also note that the similarity in hierarchies can vary based on 
the fact that each company sells a different mix of specifications in 
the home market. Moreover, in this case, the great majority of all of 
the U.S. sales were matched to either identical, or functionally 
identical, home market specifications. Thus, for the majority of the 
reported U.S. transactions, second and third next most similar 
specifications were not relevant to the margin calculations, as they 
were not utilized as matches.
Comment 7: Application of Adverse Facts Available to DSM's Cost of 
Production Data
    Petitioners contend that the Department should apply total facts 
available with an adverse inference in making its final determination 
in this case. According to petitioners, the Department has resorted to 
the facts otherwise available in similar cases. See Final Results of 
Antidumping Duty Administrative Review: Fresh Cut Flowers from Mexico, 
60 FR 49569 (Sept. 26, 1995) (``Flowers from Mexico''); Final Results 
of Changed Circumstances Antidumping Duty Administrative Review: 
Sweaters Wholly or in Chief Weight of Man-Made Fiber from Taiwan, 58 FR 
32644 (June 11, 1993) (``Sweaters from Taiwan'').
    Petitioners assert that DSM's financial statements are materially 
misstated and, therefore, are unreliable. They question the credibility 
of DSM's auditors by citing articles published in 1999 in the Korean 
press, which indicate that this accounting firm ceased operations 
because of the repeated sanctions imposed by the Korean oversight 
authorities for poor audits of the companies it audited. Additionally, 
they claim that, in the course of this investigation, the Department 
has detected numerous examples where DSM's financial statements are 
either not compiled in accordance with Korean Generally Accepted 
Accounting Principles (GAAP), misrepresent relevant financial 
information, or utilize unreasonable accounting methods. According to 
petitioners, these problems demonstrate that DSM's financial statements 
are materially misstated and artificially understate the company's true 
costs and overstate its income. Furthermore, petitioners argue that 
these examples also indicate the unreliability of DSM's auditors and 
their audit report with respect to DSM's financial statements. 
Petitioners list four instances of such material misstatements:
    1. Petitioners argue that DSM violated Korean GAAP by materially 
overstating the value of its raw materials inventory. Specifically, DSM 
did not state raw materials inventory at the lower of cost or market 
value. Petitioners point out that DSM misstated its actual accounting 
practice in the footnotes to its audited financial statements, by 
stating that it had valued its inventories at the lower of cost or 
market value, when in fact it did not do so. To refute DSM's defense 
that the company's independent auditors did not require this 
adjustment, petitioners refer to the U.S. Securities and Exchange 
Commission's (``SEC'') pronouncements on the issue of materiality of 
misstatements in the financial statements. Petitioners claim that DSM's 
failure to write-down its raw materials inventory value constitutes a 
material misstatement.
    2. Petitioners argue that DSM, in its treatment and reporting of 
capitalized 1997 foreign exchange losses, misrepresented its accounting 
policies, mistranslated certain Korean text, violated Korean GAAP, and 
employed an unreasonable accounting practice. Specifically, petitioners 
point out that the company's 1998 financial statements footnote claimed 
that foreign exchange losses related to debt are amortized over the 
corresponding maturity periods. In 1998, however, the vast majority of 
these deferred expenses was transferred to fixed assets and subject to 
depreciation over asset lives. In addition, according to petitioners, 
DSM mistranslated Korean GAAP by omitting the fact that the 
capitalization of certain financial type expenses, other than interest 
expenses related to certain asset acquisitions, should be disclosed in 
the footnotes to the financial statements. Therefore, petitioners 
contend that by not disclosing the transfer of the capitalized foreign 
exchange losses to fixed assets DSM violated Korean GAAP.
    3. Petitioners assert that DSM, in its treatment and reporting of 
1998 foreign exchange gains, misrepresented its accounting policies, 
mislead the Department as to the information in the footnotes of the 
company's Korean financial statements, and employed an unreasonable 
accounting practice. Specifically, petitioners point out that the 
footnotes to the company's financial statements submitted to the 
Department claimed that foreign exchange gains and losses are amortized 
over the corresponding maturity periods. However, in fact, the gross 
amount of the gain was reported on the company's financial statements.
    4. Petitioners contend that DSM's extension of the useful lives of 
its asset represent an unreasonable accounting practice. They note that 
to support the reasonableness of adopting these asset lives, DSM 
referred the Department to several sources, none of which, provide an 
adequate justification for DSM's adoption of longer asset lives for its 
machinery and equipment.
    Petitioners summarize their arguments by asserting that each of the 
issues presented above represents a material misstatement and alone is 
a sufficient ground for not relying on DSM's financial statements. 
Moreover, the cumulative effect of each issue requires the Department 
to reject DSM's financial statements and to use total facts available. 
Petitioners argue that, if the Department found these material 
misstatements based on its limited examination, numerous other 
instances of material misstatement may also be present in DSM's 1998 
financial results. Petitioners contend that these issues demonstrate 
that DSM has failed to cooperate by not acting to the best of its 
ability to comply with a request for information, and, therefore, the 
Department should apply total adverse facts available.
    DSM argues that petitioners' request for the use of total adverse 
facts available is without merit, and should be rejected by the 
Department. According to DSM, it cooperated fully with the Department 
in this investigation, and its data submissions were fully verified by 
the Department. DSM contends that the alleged misstatements identified 
by petitioners are no more than instances in which petitioners are 
attempting to second-guess the interpretation and application of Korean 
GAAP. DSM maintains that the Department should rely on the certified 
Korean financial auditor's opinion that its financial statements were 
fairly stated. Furthermore, DSM argues that even if petitioners could 
identify misstatements in DSM's financial statements, the Department 
has held that such errors cannot form the basis for the use of adverse 
facts available absent a showing that the errors prevented the 
verification of submitted data or otherwise impeded the Department's 
investigation. DSM argues that no such showing has been, or can be, 
made in this investigation.
    DSM contends that the two cases cited by petitioners in support of 
their position (i.e., Flowers from Mexico and Sweaters from Taiwan) are 
far from being on point. According to DSM, in both cases the Department 
resorted to

[[Page 73202]]

facts available only where the Department had determined that the 
financial statements in question were unreliable, and that it was 
impossible to verify the accuracy of fundamental questionnaire response 
data. DSM claims that these cases stand in stark contrast to facts of 
record in this investigation because, according to DSM, the Department 
verified without exception each and every element of DSM's antidumping 
questionnaire responses. DSM contends that the Department was able to 
link DSM's reported data not only to its accounting ledgers and its 
audited financial statements and income tax return, but also to journal 
vouchers, invoices, mill certificates, sales order summaries, and other 
underlying source documents. Therefore, DSM claims that the Department 
may not resort to facts available in such a situation. See Sulfanilic 
Acid From the People's Republic of China; Final Results of Antidumping 
Duty Administrative Review, 61 Fed. Reg. 53711, 53713 (October 15, 
1996) (``Sulfanilic Acid from China'').
    DSM objects to petitioners attempt to impugn the legitimacy of its 
audit by noting that the accounting firm that performed DSM's audit was 
subsequently sanctioned by the Korean authorities for deficiencies in 
unrelated audits conducted for other companies. DSM calls this argument 
``guilt by association'', and asserts that the Department may not 
refuse to accept the professional opinion of DSM's auditor that DSM's 
financial statements were fairly stated under Korean GAAP in the 
absence of any indication of irregularities in its audit of DSM. It 
points out that the Korean Securities and Exchange Commission (KSEC) 
has never questioned the accuracy or validity of DSM's audited 
financial statements. DSM also notes that its financial statements were 
reconciled by the Department to DSM's income tax returns, which were 
accepted without adjustment by the Korean tax authorities.
    DSM rebuts each specific allegation of misstatement in the 
financial statements made by petitioners:
    1. DSM claims that its inventory was properly valued on its 
financial statements and no adjustment should be made to its costs on 
account of this issue. DSM argues that petitioners' claim is misguided, 
and is contradicted by the proper application of the lower-of-cost-or-
market rule, under both Korean and U.S. GAAP. DSM points out that its 
profits in the first-half 1999 are precisely opposite of the 
substantial losses that would have been incurred had DSM in fact 
overstated the value of its inventory on hand at the end of 1998.
    2. DSM argues that its deferral and transfer to fixed asset value 
of the 1997 exchange gains and losses associated with the financing of 
fixed assets was in accordance with Korean GAAP. According to DSM, 
prior to 1997, Korean GAAP required that foreign currency gains and 
losses incurred on long-term debt be fully recognized in the year they 
were incurred. Effective for fiscal year 1997, Korean Financial 
Accounting Standards were amended to provide that such gains and losses 
could be accounted for as deferred charges or credits and amortized. 
The company claims that it followed this accounting treatment in 1997 
and amortized both gains and losses on long-term foreign currency 
obligations in that year. DSM maintains that it also followed Korean 
GAAP when the deferred losses associated with the financing of capital 
assets were subsequently transferred to the capitalized cost of those 
assets when they were placed into service in 1998. The company cites 
relevant articles of Korean Financial Accounting Standards to support 
this treatment.
    DSM disagrees with petitioners assertion that DSM's accounting 
treatment of these items was not properly disclosed in DSM's audited 
financial statements. DSM also disagrees that the translation of the 
relevant section of the Korean GAAP prepared internally by DSM and 
submitted to the Department misstates the original text. DSM argues 
that Korean GAAP does not require a separate disclosure in the notes of 
the subsequent transfer of previously deferred charges (i.e., foreign 
exchange loss capitalized in 1997) from one balance sheet account 
(i.e., deferred charges account) to another (i.e., fixed assets 
account). Moreover, DSM argues that the issue of disclosure in the 
financial statements is simply irrelevant because, according to DSM, it 
fully disclosed to the Department the methodologies it used both in the 
financial statements and in its submitted data, and the Department 
verified both the methodologies and the underlying figures. DSM further 
points out that the Korean Securities and Exchange Commission has never 
questioned the adequacy of DSM's financial statement disclosure.
    3. DSM argues that its accounting treatment of 1998 exchange gains 
and losses was also in accordance with Korean GAAP. DSM points out that 
in 1998 the Korean Financial Accounting Standards were amended again, 
which allowed DSM to make an election to return to the previous rule 
which prescribed that foreign exchange gains and losses on long-term 
assets and liabilities ``shall be recognized in the current year.'' DSM 
claims that it followed this accounting treatment in its 1998 financial 
statements, and thus recognized the full amount the long-term foreign 
exchange gains and losses incurred during that year. Due to a 
translation error, however, according to DSM, the footnote to the 
English language version of the 1998/1997 unconsolidated financial 
statements failed to include a reference to this latter change in 
accounting standards. Thus, according to DSM, while long-term foreign 
exchange gains and losses were in fact accounted for differently in 
1998 than in 1997, this was due to a change in Korean Financial 
Accounting Standards and does not in any way call into question the 
consistency and reasonableness of DSM's choice of accounting policies.
    4. DSM argues that its useful lives for fixed assets are fully in 
accordance with Korean GAAP. It asserts that not only were the useful 
lives specifically concurred with by DSM's financial auditors, but they 
are supported by an appraisal performed by a certified appraisal firm, 
by a survey conducted by the Korean Iron & Steel Association, and by 
statements by the manufacturers of the equipment, all of which attest 
to the reasonableness of the useful lives adopted by DSM.

Department's Position

    We disagree with petitioners that the issues raised concerning 
DSM's audited financial statements warrant the application of total 
adverse facts available. The examples of alleged material misstatement 
cited by petitioners are issues of accounting conventions and 
principles adopted by company management, as opposed to the reliability 
of the underlying financial data. At verification, we noted no 
instances which raise doubts as to the reliability of DSM's underlying 
financial data. Although the Department agrees that an audit entails a 
much more thorough testing of the source financial data as compared to 
a verification, we noted no inconsistencies in the underlying cost 
information reviewed (e.g., financial accounting system, cost 
accounting system, and production records). While there are legitimate 
concerns about whether the specific accounting practices identified by 
petitioners result in unreasonable per unit costs for antidumping 
purposes, we find that after reviewing DSM's treatment, of the 
identified issues, DSM's management applied the requirements of Korean 
GAAP in a reasonable manner.

[[Page 73203]]

    Korean GAAP specifies that the market value of inventory as used in 
the lower-of-cost-or-market adjustment should be based on the net 
realizable value of the inventory. See DSM's Rebuttal Brief, 
Attachments 2. Korean GAAP is not clear as to whether the net 
realizable value should be determined based on the estimated sales 
value for the raw material in question or by starting with the 
estimated sales value of the finished goods the raw material will be 
used to produce. Specifically, it states that the net realizable value, 
``shall be determined as estimated selling price, less estimated 
expenses that can ordinarily be expected to occur.'' See Cost 
Verification Exhibit 25. We consider DSM's approach of starting with 
the estimated sales value of the finished goods a plausible 
interpretation of Korean GAAP because the ``estimated selling price'' 
referred to by Korean GAAP could be interpreted as being of the 
finished good as well as the raw material. Thus, we disagree with 
petitioners that DSM's decision not to make an adjustment to its 
inventory for the lower of cost or market supports the position that 
DSM's audited financial statements are unreliable.
    Effective for fiscal year 1997, Korean GAAP provided that all 
foreign exchange gains and losses related to long-term debt should be 
capitalized and amortized over the corresponding maturity period for 
the loans. Effective for fiscal year 1999 and 1998, if a company 
elected to do so (emphasis added), Korean GAAP provides that all 
foreign exchange gains and losses related to long-term debt may be 
recognized in full, in the year incurred. While we have concerns about 
the inconsistent treatment of the foreign exchange gains and losses in 
1998 (recognizing the gains over a shorter period than the losses) and 
its effect on the antidumping duty analysis (see Comment 9), the 
treatment of exchange gains and losses fall within the confines of 
Korean GAAP. That is, it appears that the capitalization of the foreign 
currency losses associated with acquisition of equipment and the 
subsequent depreciation of these losses over the life of the equipment, 
as opposed to the corresponding maturity period of the loans, is an 
acceptable interpretation of Korean GAAP.
    While we also have concerns about the timing and magnitude of 
useful life changes adopted by DSM during 1998, we do not consider 
these changes to constitute grounds for rejecting a company's audited 
financial statements in their entirety. The new useful lives adopted by 
DSM were largely approved by a certified independent appraiser and were 
fully disclosed by the company in its financial statements. While the 
Korean tax laws prescribe a rigid limit on depreciable lives, Korean 
GAAP does not set such strict constraints. Korean GAAP stipulates that 
companies may select estimated useful lives that differ from those in 
the tax law. It allows the management of a company to use its 
judgement, within certain guidelines, in determining useful life and 
depreciation methodology. Based on this, we do not find the new lives 
adopted by DSM necessarily conflict with Korean GAAP. See discussion in 
Comment 10.
    Lastly, we disagree with petitioners that the fact that DSM's 
auditors have ceased operations due to repeated sanctions imposed by 
the Korean oversight authorities for poor audits automatically 
impeaches the DSM audit. Despite the problems identified by the Korean 
oversight committee related to audits performed on other companies, 
there is no evidence that similar types of problems are present with 
regard to DSM's audit. Absent factual evidence specific to DSM, we have 
no grounds to reject their audited financial statements.
Comment 8: Ending Inventory Balance Valuation
    Petitioners assert that DSM has understated its true cost of 
production by failing to value ending inventory at the lower of cost or 
market value (which, according to Korean GAAP, should be determined at 
net realizable value). Petitioners also point out that the net 
realizable value as it is defined under Korean GAAP, would actually 
differ from the acquisition cost because it should be net of certain 
other costs (e.g., selling expenses). Therefore, petitioners argue, 
because the Department does not have information on how much DSM has 
understated its costs due to this particular error, the Department 
should apply the highest known difference between DSM's stated year-end 
inventory value and DSM's December acquisition cost to DSM's total 
year-end inventory value and allocate that calculated amount over costs 
of goods sold.
    Petitioners contend that DSM's suggested definition of the ``net 
realizable value'' of slab is unreasonable. According to petitioners, 
DSM's definition of the net realizable value of slab (a raw material 
input to the CTL plate under investigation) ignores the known market 
value of slab (i.e., the value of year-end purchases of slab by DSM 
from unaffiliated parties) and instead relies on a derivation involving 
several estimated values--the estimated value of the finished plates 
that will be produced from the particular slabs in inventory at the 
time of valuation, the estimated fabrication costs associated with 
producing those finished plates, and the estimated general expenses 
associated with producing those finished plates. Petitioners argue that 
the Department should not ignore the known market value of the raw 
material being valued and instead resort to a derived value based on 
estimates and presumptions. Petitioners also claim that DSM provides no 
reference to any authority supporting its slab valuation methodology.
    DSM contends that its inventories are appropriately valued in its 
audited financial statements, and, therefore, no adjustment to DSM's 
inventory value is required or permitted. DSM argues that the 
Department may not substitute its own judgment on the application of 
Korean GAAP for that of DSM's outside auditors. According to DSM, the 
purpose of verification is not to conduct a ``super audit'' of the 
company's financial statements, but rather to determine (1) that the 
submitted costs reconcile with the audited financial statements, and 
(2) that the resulting costs fairly reflect the actual unit costs of 
producing subject merchandise, as required for calculating COP and CV. 
DSM argues that any attempt on the part of the Department to override 
the accounting treatment specified in a company's audited financial 
statements is directly contrary to section 773(f)(1)(A) of the Act.
    DSM argues that any conclusion that DSM or its auditors failed to 
follow Korean GAAP in the valuation of DSM's raw materials inventory is 
unsupported by any information on the record in this investigation. 
According to DSM, under Korean GAAP, the correct valuation of raw 
materials inventory for purposes of applying the lower-of-cost-or-
market rule is net realizable value, and not the replacement value. The 
net realizable value, in turn, would be determined by calculating an 
estimated selling price for the finished product (i.e., plate) and 
subtracting fabrication and general expenses. DSM disagrees with the 
method where the average purchase price for slab in December of 1998 is 
used as raw material year-end inventory value because DSM is not in the 
business of selling slab. DSM claims that the year-end raw material 
inventory value when determined according to its method provides no 
grounds to conclude that there was a sharp decline in value that would 
have required a write-down under Korean GAAP. DSM argues that any 
decline in value of raw materials was due to the fact that the majority 
of DSM's slab was imported, and the fluctuation in the Korean won

[[Page 73204]]

and the general instability caused by the Asian crisis led to 
significant fluctuations in the won-denominated price for slabs. DSM 
asserts that, even assuming that the market value of its raw materials 
inventory had declined sharply as of the end of 1998, the decline would 
not produce a loss material enough to require an adjustment to 
inventory under Korean GAAP.
    DSM claims that the Department's normal policy regarding the 
treatment of inventory write-downs that have been made in a DSM's 
audited financial statements appears to be that such write-downs are 
normally included in cost of production for the period. At the same 
time, according to respondent, write-downs that are not reflected in 
the company's cost of goods sold for financial accounting purposes are 
not included in COP or CV. See Final Determination of Sales at Less 
Than Fair Value: Canned Pineapple Fruit From Thailand, 60 FR 29553, 
29571 (June 5, 1995) (``Pineapple from Thailand''); Antifriction 
Bearings (Other Than Tapered Roller Bearings) and Parts From France, 
Germany, Italy, Japan, Singapore, and the United Kingdom; Results of 
Antidumping Duty Administrative Reviews, 62 FR 2081, 2118 (January 15, 
1997) (``Antifriction Bearings-1997''); Antifriction Bearings (Other 
Than Tapered Roller Bearings) and Parts Thereof From France, Germany, 
Italy, Japan, Singapore, Sweden, and the United Kingdom; Final Results 
of Antidumping Duty Administrative Reviews and Partial Termination of 
Administrative Reviews, 61 FR 66472, 66495 (December 17, 1996) 
(``Antifriction Bearings-1996''). DSM argues that if the Department 
makes an inventory adjustment where no write-down was made for 
financial accounting purposes, this would violate the requirement that 
COP and CV be based on the actual costs of the company. See IPSCO, Inc. 
v. United States, 965 F.2d. 1056 (Fed. Cir. 1992).
    Finally, DSM claims that, even if the Department were to 
erroneously determine that some adjustment is appropriate to DSM's 
reported costs to account for an apparent decline in the value of DSM's 
raw materials inventory, the adjustment proposed by petitioners would 
wildly exaggerate any possible decline in inventory value and would 
amount to an unjustified and punitive overstatement of DSM's actual 
costs.

Department's Position

    We disagree with DSM that the Department's practice is to only 
consider the write-downs that are reflected in the company's cost of 
goods sold for financial accounting purposes. The antidumping law 
requires the Department to base its calculation of costs upon the costs 
recorded in respondent's books and records unless doing so would be 
distortive. Section 773(f)(1)(A) of the Act provides that for purposes 
of calculating COP and CV, ``[c]osts shall normally be calculated based 
on the records of the exporter or producer of the merchandise, if such 
records are kept in accordance with the generally accepted accounting 
principles of the exporting country (or the producing country, where 
appropriate) and reasonably reflect the costs associated with the 
production and sale of the merchandise.''
    In the instant case, Korean GAAP requires the application of the 
lower-of-cost-or-market rule to the company's inventory valuation. The 
purpose of this rule, which is also a part of the U.S. GAAP, and 
International Accounting Standards, as well as many other national 
accounting systems, is to comply with the one of the basic accounting 
measurement principals--the ``matching principle''. This accounting 
principle, in the context of inventory valuation, requires that a loss 
of inventory value be reflected as a charge against the revenues of the 
period in which it occurs. Different accounting systems, though, may 
differ on the specifics of the lower-of-cost-or-market rule, including 
the definition of the term ``market.'' The information on the record 
demonstrates that the Korean GAAP defines this term as ``net realizable 
value.'' However, as we noted above, Korean GAAP is not clear as to 
whether the net realizable value should be determined based on the 
estimated sales value for the inventory item in question (i.e., raw 
materials in this case), or by starting with the estimated sales value 
for the finished goods the raw material will be used to produce.
    We agree that choice of the method, just like the application of 
the lower-of-cost-or-market rule in general, may depend upon the 
specific facts and circumstances under consideration, and calls for the 
application of professional judgement. We believe that it is 
conceivable that both methods of calculating net realizable value may 
be acceptable under Korean GAAP. However, in this specific case, the 
method utilized by DSM distorts the costs because, the estimated future 
profits from the finished product sales mask the loss in raw materials 
inventory value that occurred during the POI. In the current case, we 
found that the method based on the sales value for raw materials is 
more appropriate because it more accurately reflects the costs the 
company incurred during the POI by utilizing the market prices readily 
available for this particular inventory item. Therefore, we adjusted 
DSM's costs to include the loss in raw materials inventory value that 
occurred during the period of investigation.
    Comment 9: Foreign Exchange Gains and Losses
    Petitioners argue that, while DSM's reclassification of 1997 long-
term foreign exchange losses incurred on monetary liabilities related 
to specific capitalized assets may be allowed under Korean GAAP, it 
nevertheless is unreasonable and distorts the company's costs. 
Accordingly, petitioners assert that reclassification should be 
rejected by the Department. They contend that gains or losses incurred 
on monetary liabilities such as loans (or financial obligations) should 
remain tied to those liabilities, rather than being re-assigned to non-
monetary assets. In addition, petitioners assert that DSM's treatment 
of its foreign exchange losses is inconsistent with its treatment of 
foreign exchange gains (i.e., DSM's foreign exchange gains are 
amortized over the terms of the underlying financial instruments while 
its foreign exchange losses are depreciated over the useful life of its 
assets). This, according to petitioners, may lead to miscalculation of 
carry forward amounts from prior years that should be reflected in the 
current year. Therefore, petitioners contend that, the Department does 
not have the information to make the treatment of its foreign exchange 
gains consistent with the treatment of its foreign exchange losses and 
cannot reasonably determine the accurate amount of foreign exchange 
gains and losses for the current year. Accordingly, petitioners argue 
that the Department should apply adverse facts available with respect 
to this claimed adjustment by disallowing any foreign exchange gains 
and assuming the largest amount of foreign exchange losses incurred in 
the current year. The petitioners contend that, at a minimum, the 
Department should assume that all of these foreign exchange losses 
relate to the current period, and increase DSM's submitted G&A costs by 
the full amount related to the reclassification.
    DSM argues that its accounting treatment of 1998 exchange gains and 
losses was in accordance with Korean GAAP. According to DSM, while 
long-term foreign exchange gains and losses were in fact accounted for 
differently in 1998 than in 1997, this was due to a change in Korean 
Financial Accounting Standards and does not in any way call into 
question the consistency and reasonableness of DSM's choice of

[[Page 73205]]

accounting policies. In addition, DSM argues that its deferral and 
transfer to fixed asset values of the 1997 exchange gains and losses 
associated with the financing of fixed assets was in accordance with 
Korean GAAP. DSM objects to petitioners suggestion that the gains or 
losses incurred on long-term obligations should remain tied to those 
liabilities as lacking any accounting authority, and points out that 
this treatment would not be supported by either Korean or U.S. GAAP. 
DSM points out that, notwithstanding the fact that DSM, in accordance 
with Korean GAAP, recognized the full amount of the long-term foreign 
currency gains and losses in its 1998 income statement, for purposes of 
the antidumping response, DSM amortized the gain over the remaining 
life of the underlying obligations and reported only the current 
portion of this gain as an offset to its reported interest expense for 
COP and CV.

Department's Position

    Section 773(f)(1)(A) of the Act requires the Department to base its 
calculation of costs upon the costs recorded in the books and records 
of the respondent, provided such records are kept in accordance with 
the local GAAP, unless doing so would be distortive. In the instant 
case, while we agree with DSM that its treatment of foreign exchange 
gains and losses for the purposes of financial reporting may be 
consistent with Korean GAAP, we consider the inconsistent treatment of 
foreign exchange gains and losses to be distortive.
    DSM's inconsistent treatment of foreign exchange gains and losses 
results in losses being amortized over the life of fixed assets, 
whereas the gains are being amortized over the life of loans. This 
inconsistency is of particular concern when the same loans which 
generated the 1997 foreign exchange losses assigned to fixed assets 
also generated a portion of the foreign exchange gains recognized in 
1998. As a result, the foreign exchange losses from those loans are 
being depreciated over a significantly longer period than the foreign 
exchange gains from the same loans. This results in the smoothing out 
of losses and the recording of gains (i.e. income) in the current 
period of time. In order to neutralize this inconsistent treatment, we 
consider it appropriate to amortize the foreign exchange losses in 
question over the life of the loans, as opposed to the life of the 
equipment. This treatment is both consistent with DSM's reported 
treatment of its 1998 foreign exchange gains and with the Department's 
preferred method for foreign exchange gains and losses related to long-
term debt.
Comment 10: Extension of Useful Lives of Depreciable Assets
    DSM contends that the Department erroneously overstated its 
depreciation expense in the preliminary determination. DSM states that 
the antidumping law requires the Department to base its calculation of 
costs (including depreciation expense) upon the costs recorded in the 
books and records of the respondent unless doing so would be 
distortive, citing Notice of Final Determination of Sales at Less Than 
Fair Value: Stainless Steel Sheet and Strip in Coils From France, 64 FR 
30820, 30836 (June 8, 1999) (``Sheet and Strip from France''); Silicon 
Metal from Brazil: Notice of Final Results of Antidumping Duty 
Administrative Review, 64 FR 6305, 6321 (February 9, 1999) (``Silicon 
Metal from Brazil'').
    DSM maintains that the equipment acquired for Plate Mill #2 had 
never been operated and remained in mint condition at the time DSM 
acquired it. DSM claims that petitioners' reliance on POSCO to define 
an industry practice is misplaced because the shorter useful lives used 
by POSCO reflect a different election under Korean GAAP, and not a 
different practice with respect to the determination of the actual, 
economic useful lives of the assets.
    DSM refers to Notice of Final Determination of Sales at less than 
Fair Value: Stainless Steel Sheet and Strip in Coils from the Republic 
of Korea, 64 FR 30664, 30684 (June 8, 1999) (``Sheet and Strip from 
Korea'') as having similar circumstances and outcome. DSM claims that 
in that case the Department accepted the respondent's depreciation 
expense as reflected on the audited financial statements, even though 
there has been a change in depreciation methodology and useful lives 
from prior periods, because the respondent in that case ``provided 
evidence that its change in depreciation methods and useful lives were 
reasonable, and that the change occurred in a time period prior to the 
initiation of the investigation.'' DSM contends that it, too, has 
demonstrated that the depreciation methodology and useful lives it has 
used are reasonable, and that the changes in question were adopted well 
before the POI and before the initiation of this antidumping 
investigation.
    DSM also claims that a major portion of the Department's adjustment 
to DSM's depreciation expense in the preliminary determination is 
unrelated to the determination of the appropriate useful lives for 
fixed assets. Rather, it relates to the change in depreciation 
convention used for determining the depreciation expense. Specifically, 
prior to 1998, DSM followed the ``six-month convention'' for 
determining depreciation. Beginning in 1998, however, DSM began 
calculating depreciation on a monthly basis, so that depreciation was 
determined with reference to the month the asset was actually placed 
into service. DSM argues that, while both conventions are permissible 
under Korean Financial Accounting Standards, the monthly convention 
applied by DSM is inherently more accurate than the six-month 
convention. DSM presents an example where, under the monthly 
convention, a machine installed in November of 1998 would be 
depreciated in 1998 only for the two months in which it was actually in 
service during the year. Under the six-month convention, however, the 
same machine would be depreciated for a full six months, as if it had 
been installed on July 1. Similarly, machinery installed in June of 
1998 would, under the six-month convention, be depreciated for a full 
year, as if it had been installed on January 1. DSM also points out 
that this change in depreciation convention was determined to be a 
reasonable change in accounting methodology for fiscal year 1998 by 
DSM's outside auditor.
    According to DSM, the Department's adjustment in the preliminary 
determination ignored the fact that DSM also revalued upward its fixed 
assets in 1998. This upward revaluation increased DSM's depreciation 
expense. DSM claims that if the Department intends to rely upon the 
previous useful life figures used by DSM prior to 1998, then it must 
also use the original asset values.
    In conclusion, DSM asserts that, for the reasons stated above, and 
consistent with the Department's decision in Sheet and Strip from Korea 
and long-standing precedents, the Department should eliminate the 
adjustment to DSM's depreciation expense made in the preliminary 
determination and instead use the actual depreciation expense for the 
subject merchandise reported by DSM and verified by the Department.
    Petitioners assert that DSM has massively understated its 
depreciation costs by extending the useful lives of depreciable assets, 
using new asset lives that are unreasonable. Petitioners argue that the 
revaluation of assets and the restatement of asset lives are not 
inextricably linked, but rather independent decisions having no direct 
bearing on one another. Therefore, according to petitioners, the 
Department

[[Page 73206]]

should reject DSM's extension of asset lives.
    Petitioners assert that claims by manufacturers of equipment that 
their machinery and equipment is still functional after 20 years are 
irrelevant because the functionality of equipment over an extended 
period relates to the magnitude of repair and maintenance performed. 
For the same reason, petitioners maintain, the KSA's survey is not 
relevant to the issue at hand, because different companies may have 
different policies on equipment maintenance. In addition, petitioners 
point out that the asset lives referred to by DSM relate to new assets, 
while most of the DSM's newly acquired assets had not been operated for 
fourteen years, and not been maintained for six years. They also note 
that it is unclear from the information provided by the respondent 
exactly which of the fourteen-year old equipment was in ``mint 
condition,'' and which had already been installed in Mexico by the 
previous owners.
    Petitioners argue that the finding of the certified appraiser that 
provided the basis for DSM's change in useful lives should be ignored 
because, the appraisal was not conducted with professional due 
diligence. Petitioners claim that the appraiser was unaware of the fact 
that the equipment in question spent over a decade in Mexico before it 
was purchased by DSM. They also contend that the appraiser did not 
examine any information on POSCO's plate equipment to compare it to 
DSM's equipment. Petitioners claim that DSM in several instances did 
not follow the useful lives guidelines established by the Korean 
Appraisal Board (``KAB''). Petitioners note that, for example, the 
lives assigned to certain equipment exceed the limits indicated in KAB 
guidelines.
    Petitioners claim that by adopting extended asset lives DSM 
violated a fundamental accounting convention. That convention, 
according to petitioners, is the practice of following particular 
accounting techniques applicable to the company's industry. 
Specifically, petitioners refer to useful lives used by POSCO (i.e., up 
to 9 years), which is the only other major producer of CTL plate in 
Korea, as being indicative of the useful lives that would have been 
used by other Korean producers of the same products.
    Petitioners also claim that, even though DSM changed its useful 
lives policy prior to the initiation of the case, it was already clear 
at that point to all the parties involved in the investigation, based 
on the statistics and dynamics of the DSM sales in the United States, 
that an antidumping investigation was practically unavoidable. 
Petitioners assert that this was at least one of the factors DSM 
considered in switching to an accounting policy reducing the reported 
costs.
    Petitioners contend that the cases cited by DSM in support of 
retaining the company's submitted depreciation expenses are 
distinguishable from the current situation. According to petitioners, 
in Sheet and Strip from France, Silicon Metal from Brazil and Sheet and 
Strip from Korea, the respondents' submitted costs were not found to be 
unreasonable (i.e., distorted), while in the instant investigation 
petitioners claim that DSM's submitted depreciation expenses do distort 
the company's actual costs.

Department's Position

    Sheet and Strip from Korea represents one of the most recent cases 
where the Department identified the factors it considers in deciding 
whether a change in an accounting method, or estimate, should be 
allowed for the purposes of COP and CV calculations. That is, the 
Department, while relying on a company's normal books and records, 
analyzes the reasonableness of the newly adopted accounting method, and 
considers if the fact, or an expectation, of being involved in an 
antidumping investigation might have played a role in the company's 
decision to change its accounting practice (see Sheet and Strip from 
Korea, 64 FR 30664, 30684 (June 8, 1999)). In the instant case, within 
months of initiation of the investigation, DSM made three changes 
affecting its depreciation expense calculations: revaluation of fixed 
assets, change in depreciation convention, and extension of useful 
lives.
    We agree with DSM that revaluation of fixed assets and a change in 
depreciation convention may result in more accurate cost reporting. The 
revaluation of fixed asset values restates amounts recorded in prior 
years to current currency levels. We also agree with DSM that the new 
month-of-acquisition convention for when to start depreciating an 
asset, being in conformity with Korean GAAP, reasonably reflects the 
costs, and is generally more accurate than the six-month convention 
previously used by the company. Therefore, we allowed these two changes 
to the company's depreciation methodology.
    However, we disagree with DSM's assertion that it has demonstrated 
that the new useful lives are reasonable. Pursuant to section 
773(f)(1)(A) of the Act, the Department ``shall consider all available 
evidence on the proper allocation of costs, * * *, if such allocations 
have been historically used by the exporter or producer in particular 
for establishing appropriate amortization and depreciation periods.'' 
(emphasis added) In 1998, DSM departed from its historical useful life 
policy by aggressively extending asset lives, which resulted in a 
dramatic reduction in depreciation expenses. This is distortive because 
it understates the actual depreciation expense incurred during the POI 
as well as understating the depreciation expense for the current fiscal 
year.
    DSM refers to useful life guidelines established by the Korean 
Appraisal Board (``KAB'') as support for the company's revised asset 
lives. However, we agree with petitioners that the useful lives DSM 
assigned to certain equipment exceed the limits indicated in KAB 
guidelines. Furthermore, the KAB guidelines require that the condition 
of the equipment in question should be taken into account when choosing 
an appropriate life within the established range. As we stated in our 
Cost Verification Report, all the opinions and guidelines provided by 
DSM to support the extended useful lives referred to the lives of new 
equipment. See Cost Verification Report at 12. However, it has been 
established in the course of investigation that the equipment DSM 
acquired for Plate Mill #2 was not new. The September 1998 article from 
Steel Times International supplied by DSM shows that some of the 
equipment was already installed by the Mexican company and had to be 
dismantled (see DSM's November 8, 1999, submission at Attachment 1). 
Therefore, we agree with petitioners that it is unclear from the 
information provided by DSM exactly which components of the fourteen-
year-old equipment were in ``mint condition.''
    Moreover, even if we were to assume that, as DSM claims, this 
equipment had never been operated, fourteen year old equipment is still 
subject to obsolescence, if not other factors commonly associated with 
a ``moth balled'' asset. Nevertheless, DSM assigned to these assets the 
useful lives that in certain cases even exceeded the upper limits 
established by KAB for these types of assets. See Cost Verification 
Exhibit 8. For these reasons, we believe that the longer useful lives 
distort the reported costs of production by allowing respondent to 
recognize a small amount of depreciation in a given year. The resulting 
distortion understates the true actual depreciation expense for the 
period, thereby resulting in lower reported total cost of production. 
Therefore, we have adjusted the new extended useful lives, and

[[Page 73207]]

applied to both the COP and CV calculations the lives historically used 
by the company because this approach more consistently and accurately 
captures the costs.
Comment 11: Startup Adjustment
    DSM argues that its audited financial statements reasonably 
accounted for the costs of construction, test, and start-up of Plate 
Mill #2. DSM claims that this is the accounting treatment followed by 
DSM for financial accounting purposes, which is in accordance with 
Korean GAAP, and which has been accepted by the Department in previous 
cases.
    DSM argues that it did not request the startup adjustment provided 
for in section 773(f)(1)(C) of the Act because, according to DSM, the 
purpose of section 773(f)(1)(C) is to adjust costs for purposes of 
calculating COP and CV under the antidumping statute when a 
respondent's normal accounting system fails to account for the effects 
of start-up operations. DSM contends that this is an exception to the 
general rule in section 771(f)(1)(A) that costs shall be calculated 
based on the books and records of the producer, when those books are 
maintained in accordance with GAAP. Therefore, according to DSM, 
because its normal costs already reasonably account for the effects of 
start-up operations, no adjustment to DSM's normal costs under section 
773(f)(1)(C) is necessary. See Notice of Final Determination of Sales 
at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of 
One Megabit and Above (``DRAMs'') From Taiwan, 64 FR 56308, 56318-
56319, (October 19, 1999) (``DRAMs from Taiwan''); Micron Technology, 
Inc. v. United States, 893 F. Supp. 21, 36 (CIT 1995); Notice of Final 
Determination of Sales at Less Than Fair Value: Steel Wire Rod From 
Canada, 63 FR 9182, 9186-9187 (February 24, 1998) (``Wire Rod from 
Canada''); and Micron Technology, Inc. v. United States, 893 F. Supp. 
21, 36 (Ct. Int'l Trade 1995).
    DSM also argues that even if the Department were to determine that 
the criteria for an adjustment under section 773(f)(1)(C) are relevant 
to this case, DSM's new plate mill clearly satisfies the criteria for 
startup operations under the statute (i.e., it is a new production 
facility and requiring substantial new investment). Furthermore, DSM 
asserts that it has demonstrated that its production levels at Plate 
Mill #2 during the first five months of 1998 were limited by technical 
factors uniquely associated with the start of commercial production. 
Therefore, DSM contends that no adjustment should be made to its 
reported costs, as reflected in DSM's audited financial statements.
    Petitioners contend that the Department should adjust DSM's COM to 
eliminate DSM's startup adjustment. Petitioners note that, according to 
19 U.S.C. Sec. 1677b(f)(1)(C)(ii), ``Adjustments shall be made for 
startup operations only where--(I) a producer is using new production 
facilities or producing a new product that requires substantial 
additional investment, and (II) production levels are limited by 
technical factors associated with the initial phase of commercial 
production.'' Petitioners argue that DSM did not satisfy the first 
prong of the statute because the opening of the Plate Mill #2 
production in the first half of 1998 represented simply an expansion of 
the capacity of an existing production line (i.e., extension of 
existing plate production in Pohang). With respect to the second prong, 
petitioners argue that DSM did not satisfy it either because: (a) DSM 
did not provide evidence demonstrating that production quantities were 
limited; (b) the company's operations were not limited by technical 
factors, but rather, were limited because its employees were on 
vacation; (c) the capacity utilization DSM defined as commercial was 
actually achieved in the middle of the claimed startup period; and, (d) 
DSM failed to link the three technical factors it claimed to have 
limited production levels with the production process, or explain how 
these factors actually limited the production. Therefore, according to 
petitioners, DSM has failed to satisfy either prong of the startup 
adjustment test under the statute and the Department should deny the 
claimed startup adjustment entirely.
    Petitioners disagree with DSM's position that the statutory 
criteria for a startup adjustment is not relevant and that the only 
criteria is whether the Plate Mill 2's treatment was consistent with 
Korean GAAP. Petitioners contend that, even if this is true, the 
Department must reject DSM' startup calculations, because DSM has not 
shown that the mill's treatment was in accordance with the Korean GAAP 
(which, according to petitioners, distinguishes the current case from 
DRAMs from Taiwan and Wire Rod from Canada cited by DSM) and that its 
treatment reasonably reflect DSM's actual costs.

Department's Position

    We agree with DSM, in part. Section 773(f)(1)(C) of the Act 
provides for a claimed start-up adjustment in cases where a respondent 
has not already done so in its normal books and records. Nevertheless, 
under section 773(f)(1)(A) of the Act, the Department is directed to 
follow the normal records of the exporter or producer if such records 
are kept in accordance with the producer's home country GAAP and 
reasonably reflect the costs associated with the production of the 
merchandise. Therefore, because DSM's normal records already accounted 
for the start-up operation, we must follow such treatment if it 
reasonably reflects the costs associated with the production of the 
merchandise.
    However, we have determined that the DSM's accounting method for 
startup period costs is distortive in two respects: First, it 
overstated the period of startup and, therefore, understated the 
reported costs. DSM asserted that its production levels at Plate Mill 
#2 were limited by technical factors uniquely associated with the start 
of commercial production during the first five months of 1998. However, 
at verification, we found that, from the end of March through May, the 
daily production quantities were relatively the same as the daily 
production levels for the three months subsequent to DSM's designated 
end to the start-up period. Therefore, we identified the point at which 
DSM reached normal production levels and have adjusted the start-up 
period costs accordingly.
    Second, under DSM's method, the company capitalized the startup 
period costs net of startup period sales. We agree that this approach 
may be acceptable for financial accounting purposes because, if a 
company does not include the same sales in its gross sales figure on 
its financial statements, the effect of such treatment on the company's 
net income figure is minimal. However, for COP and CV calculations, we 
consider this methodology to be distortive because the same startup 
period sales that are included in the home and U.S. sales files, are, 
at the same time, used as an offset to the costs. Therefore, in 
calculating our adjustment, we eliminated the effect of the startup 
period sales on the startup period costs. For further explanation of 
our findings at verification, see DSM Cost Verification Report, dated 
October 21, 1999. Consequently, we have adopted DSM's treatment of 
startup costs except for these two corrections, because its 
methodology, otherwise accurately reflects costs associated with 
production of the subject merchandise.
Comment 12: Transactions with Affiliated Entities
    DSM contends that, in the final determination, the Department 
should eliminate the adjustment it made in the

[[Page 73208]]

preliminary determination on purchases of slab through two affiliated 
trading companies, Dongkuk International, Inc. (``DKA'') and Dongkuk 
Corporation (``DKC''), and should base its valuation of DSM's slab 
costs on the prices reported by DSM for these slab purchases as 
reflected in DSM's normal cost accounting system. DSM argues that the 
major input rule does not apply to these slab purchases because DKA and 
DKC did not produce the slabs. According to DSM's interpretation of the 
Act, while section 773(f)(2) of the Act--the ``Transactions 
Disregarded'' rule applies to transactions between any affiliated 
persons, section 773(f)(3)--``the Major Input Rule'' applies only to 
situations when an affiliated person is involved in production of a 
major input to the merchandise. DSM cites section 773(f)(3) which 
refers to the case ``of a transaction between affiliated persons 
involving the production by one of such persons of a major input to the 
merchandise'' (emphasis added). DSM asserts that there is an apparent 
contradiction between this section of the Act and section 351.407(b) of 
the Department's antidumping regulations, which refer to ``a major 
input purchased from an affiliated person'' (emphasis added). DSM notes 
that, in the event of a conflict between section 773(f)(3) and the 
Department's regulations, the statutory language governs.
    DSM argues that the intent of major input rule, as explained in SAA 
to the Uruguay Round Agreement Act, is to prevent manipulation of costs 
between affiliated producers, and not just any affiliated parties. DSM 
disagrees with the Department's reasoning in such cases as Notice of 
Final Determination of Sales at Less Than Fair Value--Stainless Steel 
Round Wire from Canada, 64 FR 17324 (April 9, 1999) (``SSRW from 
Canada''), where the Department explained that the intent of major 
input rule and the related regulations is ``to account for the 
possibility of shifting costs to an affiliated party. This possibility 
arises when an input passes to the responding company through the hands 
of an affiliated supplier, regardless of the value added to the product 
by the affiliated supplier.'' DSM contends that the Department's 
decision in SSRW from Canada is directly contrary to the language and 
intent of section 773(f)(3) and should not be followed in this 
investigation. DSM further asserts that the statutory language with 
regard to the major input rule is unambiguous, and allows for only one 
interpretation: the affiliated person must be engaged in the 
``production'' of the merchandise, or the rule does not apply. As to 
the ``possibility of shifting costs to an affiliated party'', DSM 
claims that where the Department knows the actual price charged by an 
unaffiliated producer of the input (i.e., the market value), and where 
the affiliated supplier performs no substantive role in the 
transaction, such a possibility does not exist.
    DSM proceeds with an argument that DSM should be even entitled to 
value the purchases it made through DKA and DKC at the price paid by 
the affiliates to the unaffiliated suppliers, not the higher transfer 
price paid to DKA or DKC, and cites AK Steel Corporation v. United 
States, 34 F. Supp. 2d, 756, 765 (Ct. Int'l Trade 1998) (``AK Steel 
Corporation''), where the Court upheld the Department's determination 
not to apply 19 U.S.C. 617b(f)(2)-(3) to transactions between collapsed 
entities.
    DSM asserts that because DKA and DKC are not the manufacturers of 
the merchandise, the Department's calculations of their cost of 
production for the purposes of major input rule err by including costs 
and expenses incurred by these trading companies in unrelated lines of 
business. DSM also claims that, in fact, DKA and DKC simply provide a 
service to DSM which is limited to the resellers' minor commission or 
margin on the exchange and does not rise to the level required for an 
adjustment to be permitted under the major input rule. See Final 
Determination of Sales at Less Than Fair Value; Stainless Steel Sheet 
and Strip in Coils From Germany, 64 FR 30710, 30747 (Comment 29) (June 
8, 1999) (``Sheet and Strip from Germany'').
    Furthermore, DSM argues that no adjustment to the transfer prices 
reported by DSM is permitted under Section 773(f)(2) of the Act. DSM 
claims that if, however, the Department decides to disregard the 
transfer price in this situation, the price paid by DKA and DKC to its 
unaffiliated suppliers should be used by the Department as the amount 
that ``would have been if the transaction had occurred between persons 
who are not affiliated'' under the alternative valuation rule of 
Section 773(f)(2) of the Act. According to DSM, the Department should 
compare the price DSM paid to DKA or DKC (i.e., transfer price) to a 
``market value'' based on the actual price the affiliates paid to their 
unaffiliated slab suppliers for that particular slab, but not based on 
DSM's purchases of slabs from other suppliers. Finally, DSM argues that 
because the transfer price paid by DSM to its affiliates is greater 
than the price paid by the affiliates to their unaffiliated suppliers 
for those very slabs, there can be no basis for the Department to 
determine that the transfer price ``does not fairly reflect the amount 
usually reflected'' in sales of such slabs.
    Petitioners contend that the Department should follow its decision 
in SSRW from Canada and revise DSM's submitted costs to properly value 
its slab inputs that were purchased through its affiliates to reflect 
the higher of transfer price, cost of production, or market value. They 
argue that, just as in SSRW from Canada, the possibility of shifting of 
costs exists in this case because, while the price at which the 
affiliated party purchased the input from an unaffiliated party may 
represent a ``market'' value of the input, the transfer price may or 
may not reflect all costs related to the input.
    Petitioners contend that the Department should adjust it for the 
following items: (a) Indirect selling expenses of the affiliates should 
be included in their cost of production; (b) any offset for the 
interest income should be excluded from the affiliates' finance cost 
calculations since DSM improperly included long-term interest income in 
the offset amount; (c) interest expenses of DKA, which were included in 
DSM's consolidation, and were improperly excluded by the Department in 
its preliminary determination; and, (d) the highest of transfer price, 
cost of production, or market value, determined on quarterly basis.

Department's Position

    We disagree with respondents, in part. Section 773(f)(2) of the Act 
allows for the Department to disregard transactions between affiliates 
if the transfer price does not fairly reflect the amount usually 
reflected in sales of merchandise under consideration in the market 
under consideration. Because the affiliate is providing an input 
(slabs) into the production of subject merchandise, as well as services 
related to the acquisition of the slab input, the selling, general and 
administrative expenses (``SG&A'') of the affiliate must be included. 
We disagree with respondent that the trading company's overhead should 
not be added to its purchase price (i.e., its cost of sales) in 
determining the value of the input. The trading company purchases the 
material, takes title to the item, and provides for the sale and 
transport of the good to the affiliated respondent. All of these 
activities have costs associated with them that must be taken into 
account in order to calculate a total actual cost.
    Finally, we disagree with the respondent that in identifying a 
market value, the Department's preference

[[Page 73209]]

should be to look to the prices that the affiliated suppliers paid to 
their unaffiliated suppliers, and not to the prices paid by the 
respondent to its unaffiliated suppliers from whom it directly 
purchased the major input. Both sets of transactions may constitute a 
usable market value. Respondent seems to suggest that because the 
affiliated supplier's supplier is providing the specific input, the 
price between them would be the preferable standard. We disagree. The 
price that a respondent pays directly to a supplier might be preferable 
since the statute, at section 773(f)(2), specifically refers to 
transactions ``in the market under consideration.'' The prices paid by 
the respondent in an investigation by definition represent the market 
under consideration. Therefore, we have valued the inputs received from 
affiliates at the higher of the affiliate's average acquisition cost 
plus SG&A, average market price, or transfer price.
Comment 13: Production Quantities During ``Test'' Period
    Petitioners claim that while DSM did not include any production 
costs incurred in the ``test'' period, it did include the related 
production quantities. Petitioners argue that the Department should 
revise DSM's manufacturing costs to exclude these quantities from per-
unit cost calculations.
    DSM notes that it did include in the reported costs the material 
cost associated with the ``test'' period, as well as the related 
quantities. Only fabrication costs associated with this production were 
ultimately capitalized and added to Plate Mill #2 fixed assets. While 
DSM agrees that petitioners' argument has certain merit, it argues that 
the production quantities during the test period are so small as to 
have virtually no effect on the per-unit costs. DSM claims that it 
ignored the impact of these test period quantities and material costs 
simply as a matter of convenience and, also, to facilitate verification 
of total production quantity and total costs by remaining consistent 
with DSM's internal accounting treatment.

Department's Position

    We agree with DSM that although the production quantities during 
the test period were small, as noted in our Cost Verification Report at 
14, there is an inconsistency in DSM's treatment of the ``test'' period 
quantities and costs: all the quantities are included in the reported 
production quantity, only a portion of the related costs was included. 
Moreover, for accurate per-unit cost calculations, any exclusion of the 
production quantities should be accompanied by the exclusion of the 
related costs, which would result in an adjustment that has virtually 
no effect on the per-unit costs. Section 351.413 of the Regulations 
addresses the Department's authority to disregard insignificant 
adjustments under section 777A(a)(2) of the Act. ``[A]n ``insignificant 
adjustment'' is any individual adjustment having an ad valorem effect 
of less than 0.33 percent, or any group of adjustments having an ad 
valorem effect of less than 1.0 percent of the export price, 
constructed export price or normal value, as the case may be.'' See 19 
C.F.R. 351.413 (1997). In the instant case, the effect of the 
individual adjustment on an ad valorem basis is less than 0.33 percent 
of normal value (i.e., Constructed Value). See DSM Cost Verification 
Report; see also Final Cost of Production Analysis Memo, dated December 
13, 1999.
Comment 14: Gain from Disposal of Certain Fixed Assets
    DSM argues that the Department should not adjust its reported G&A 
expenses to eliminate gains from the disposal of fixed assets that 
included certain non-depreciable assets. According to DSM, it is the 
Department's long-standing policy that gains and losses on the disposal 
of fixed assets, including the sale of an entire manufacturing 
facility, should be included in COP and CV as part of G&A expenses, 
provided that these assets had been used to produce subject 
merchandise. See Antifriction Bearings (Other Than Tapered Roller 
Bearings) and Parts Thereof From France, Germany, Italy, Japan, 
Romania, Sweden, and the United Kingdom; Final Results of Antidumping 
Duty Administrative Reviews, 64 FR 35,590, 35,614 (July 1, 1999) 
(``Antifriction Bearings--1999''); Final Determination of Sales at Less 
Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR 7019, 7042 
(February 6, 1995) (``Roses from Ecuador'').
    Petitioners contend that the Department should continue to disallow 
DSM's offset to G&A expenses generated by the sale of the above 
mentioned fixed assets. They point out that DSM reported negative G&A 
expenses, based largely on the large gain the company received on the 
sale of certain non-depreciable fixed assets. See Certain Internal-
Combustion, Industrial Forklift Trucks from Japan; Final Results of 
Antidumping Duty Administrative Review, 57 FR 3167 (January 28, 1992) 
(comment 57) (``Forklift Trucks from Japan''). Petitioners, argue, as 
evidenced by the above-mentioned cases, that the Department has never 
allowed this type of negative SG& A reported in its calculation of COP.
    Petitioners assert that, according to Final Determination of Sales 
at Less Than Fair Value: Certain Welded Stainless Steel Pipe From the 
Republic of Korea, 57 FR 53693, 53704 (November 12, 1992) (``Stainless 
Steel Pipe from Korea''), the Department's practice on treatment of 
dispositions of fixed assets is that in order to be included in the 
reported costs, these dispositions should be a normal part of the 
company's operations and a routine disposition of fixed assets. 
Petitioners argue that in the current case, the sale of assets in 
question is outside of DSM's ordinary course of business and is not a 
``routine disposition'' of fixed assets, and the resulting gain is not 
income from activities related to the company's general operations. 
Petitioners argue that the cases cited by DSM (Antifriction Bearings--
1999, Roses from Ecuador, et al.) are easily distinguished from the 
present case because in those cases the Department found that the 
assets were used to manufacture the subject merchandise and their sale 
were a normal part of operations, or did not address whether the 
transaction at issue was routine.

Department's Position

    We disagree with DSM that the Department should include, as an 
offset to G&A expense, the gain incurred on the sale of certain non-
depreciable fixed assets. We also disagree that this asset's 
relationship to production is the standard for whether to include the 
gain in G&A expense. U.S. Steel Group v. United States, 998 F.Supp. 
1151 (CIT 1998). G&A expenses are those expenses which relate to the 
general operations of the company as a whole, rather than to the 
production process. Therefore, it is not relevant whether or not the 
particular asset was used to produce subject merchandise.
    In analyzing whether to include an item in G&A, the Department 
considers the nature of the activity and whether the activity is 
significant enough to be treated separately from the respondent's other 
business activities. ``[I]n determining whether it is appropriate to 
include or exclude a particular item from the G&A calculation, the 
Department reviews the nature of the G&A activity and the relationship 
between this activity and the general operations of the company.'' See 
Notice of Final Determination of Sales at Less Than Fair Value: Dynamic 
Random Access Memory Semiconductors of One Megabit and Above 
(``DRAMs'') From

[[Page 73210]]

Taiwan, 64 FR 56308, 56323 (October 19, 1999). In cases where the 
activity is comparatively small in relation to the company's primary 
activities, the Department has included the occasional miscellaneous 
gain or loss in G&A expense. However, at the point where an activity 
becomes significant enough to constitute a separate business activity, 
the Department treats it as such. ``However, the gain SMP is claiming 
as an offset to G&A expenses is related to the sale of a significant 
manufacturing plant and adjacent land area. This sales transaction is 
not a routine disposition of fixed assets' (emphasis added). Stainless 
Steel Pipe from Korea, 57 FR 53693, 53704 (November 12, 1992). See, 
also, Notice of Final Determination of Sales at Less Than Fair Value; 
Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From 
Brazil, 64 FR 38756, 38791 (July 19, 1999). In past cases, the portion 
of the sale of facilities related to certain non-depreciable fixed 
assets has not been specifically addressed, indicating that the 
particular treatment of those assets must not have been significant to 
the overall gain or loss. See, e.g., Roses from Ecuador, 60 FR 7019, 
7042 (February 6, 1995). In the instant case, the gain on the sale of 
these non-depreciable assets constitutes the bulk of the gain from the 
sale of the facility and, as noted above, is greater than DSM's entire 
G&A expense.
    A gain or loss on the sale of a non-depreciable asset, particularly 
one as significant as that incurred by DSM, warrants separate 
treatment. This is due to the fact that no depreciation expense 
associated with this asset were accounted for in the calculation of the 
cost of production. This is especially true in light of the fact that 
non-depreciable assets, which are not consumed in the production 
process and generally retain their value regardless of the state of a 
particular industry, are normally not treated as a depreciable asset. 
Depreciation expense is generally not calculated on these assets, which 
means that no costs associated with these expenses are included in COP 
or CV. Therefore, it would not be reasonable to include the associated 
gain or loss on disposal of this kind of assets when they are sold. As 
a result, we have continued to exclude the gain for the final 
determination.
POSCO
    Comment 1: Whether POSCO's home market and U.S. sales were made at 
a different LOT than sales by POSCO's affiliated service centers.
    POSCO asserts that, based on the information on the record, the 
Department should conclude that POSCO's home market sales are at a 
different LOT than the service centers' sales because each sells to 
purchasers at different stages in the chain of distribution and each 
performs qualitatively and quantitatively different selling functions. 
POSCO argues that the differences in the LOT between POSCO and the 
service centers is demonstrated by significant differences in their 
marketing positions, quantity sold, customer base, selling activities, 
warranty services, and sales expenses.
    POSCO states that it is an integrated manufacturer which produces a 
wide range of steel products, sells subject merchandise on a large 
scale, and has adapted its expense structure in order to maximize 
profit by selling on a large scale. On the other hand, according to 
POSCO, the service centers are small resellers which sell out of 
inventory on a much smaller scale.
    In addition, POSCO asserts that it sold significantly more subject 
merchandise than the service centers during the POI. According to 
POSCO, its customers are large end-users, resellers or wholesalers, and 
service centers that buy in large quantities and process the products. 
The service centers' customers, on the other hand, are typically small 
resellers and end-users who cannot hold inventory or shear products, 
and therefore, tend to order small quantities. POSCO argues that these 
differences in customer base and customer purchasing power are 
significant indications that POSCO sells merchandise at a different 
point in the distribution chain than the service centers and, thus, at 
a different LOT.
    POSCO states that the regulations, at 19 CFR 351.412(c)(2), require 
the Department to look for differences in selling activities when 
conducting a LOT analysis, and that the differences in the LOT between 
POSCO and service centers is demonstrated by significant differences in 
their selling functions. POSCO states that the service centers maintain 
inventory for sales of subject merchandise, while POSCO sells subject 
merchandise to order. Another difference, according to POSCO, is that 
it usually produces subject merchandise in standard lot sizes because 
its customers later process the merchandise, while the service centers 
typically process the merchandise into different sizes for small 
customers who are unable to perform this function. POSCO also states 
that it provides more delivery options and more differentiated freight 
arrangements than the service centers. POSCO argues that, while the 
company and the service centers do provide some similar delivery terms, 
the mere fact that certain selling activities are performed in a 
similar manner does not preclude a finding of different LOTs.
    POSCO argues that the Department has also emphasized differences in 
warranty services, technical services and other sales-related 
activities when examining LOTs, and cite Carbon Steel Products from 
Germany, 64 F.R. at 16,703, 16,705 (April 6, 1999); Steel Wire Rod from 
Canada, 63 F.R. at 9191-9193 (April 1, 1999); Stainless Steel Sheet and 
Strip in Coils from Mexico, 64 F.R. 30790, 30807-30810 (June 8, 1999). 
POSCO argues that while it provides warranty services for base metal 
and provides technical services to its customers, the service centers 
do not.
    POSCO next argues that the differences in the LOT between POSCO and 
the service centers is demonstrated by differences in their sales 
expenses. POSCO argues that its selling expense structure is very 
different from that of the service centers, in that it spends 
significantly more on sales expenses. POSCO further argues that the 
service centers assume the risk of finding a customer for the products 
they purchase from POSCO, while POSCO has a commitment from its 
customer before production. Respondent states that the Department noted 
no discrepancies in the data POSCO presented in support of POSCO's 
arguments regarding the different LOTs, and that the Department's 
findings at verification confirm its analysis.
    Petitioners argue that there is no significant difference between 
the levels of selling activity performed by POSCO and its affiliated 
service centers because, while the service centers may inventory 
products longer than POSCO, POSCO provides such selling functions as 
warranty, technical advice and market research for all customers.
    Petitioners claim that, contrary to POSCO's assertion, no 
significant difference exists between sales quantities and customer 
categories sold upstream and those downstream. Petitioners further 
argue that, in any case, differences in sales quantities and customer 
categories are irrelevant for purposes of determining separate LOTs. 
According to petitioners, without evidence that significant differences 
in selling functions exist between sales channels, there is no basis 
for the Department to determine that different LOTs exist.

Department's Position

    We agree with petitioners. In accordance with section 
773(a)(1)(B)(i) of the Act, to the extent practicable, we determine NV 
based on sales in the

[[Page 73211]]

comparison market at the same LOT as the EP or CEP transaction. The NV 
LOT is that of the starting price sales in the comparison market or, 
when NV is based on CV, that of the sales from which we derive SG&A and 
profit. For CEP sales, the Department makes its analysis at the level 
of the constructed export sale from the exporter to the affiliated 
importer. See sections 773 (a)(7)(A) and 772 (b) of the Act.
    Because of the statutory mandate to take LOT differences into 
consideration, the Department is required to conduct a LOT analysis in 
every case, regardless of whether a respondent has requested a LOT 
adjustment or a CEP offset for a given group of sales. To determine 
whether NV sales are at a different LOT than EP or CEP sales, we 
examine stages in the marketing process and selling functions along the 
chain of distribution between the producer and the unaffiliated 
customer. If the comparison market sales are at a different LOT, and 
the difference affects price comparability, as manifested in a pattern 
of consistent price differences between the sales on which NV is based 
and comparison market sales at the LOT of the export transaction, we 
make a LOT adjustment under section 773(a)(7)(A) of the Act. Finally, 
for CEP sales, if the NV level is more remote from the factory than the 
CEP level and there is no basis for determining whether the differences 
in the LOTs between the NV and the CEP sales affects price 
comparability, we adjust NV under section 773(A)(7)(B) of the Act (the 
CEP offset provision). See Certain Cut-to-Length Carbon Steel Plate 
from South Africa, 62 FR at 61731.
    In the Preliminary Determination, the Department found that there 
were no differences in LOT between POSCO's and the service centers' 
home market sales and, therefore, did not make any LOT adjustment to 
the normal value. See LOT Memo, dated July 19, 1999; Preliminary 
Determination, 64 FR at 41226-27. In order to determine whether NV was 
established at a different LOT than EP sales, we examined stages in the 
marketing process and selling functions along the chains of 
distribution between POSCO and its home market and U.S. customers. 
Based on our analysis of the chains of distribution and selling 
functions performed for EP sales in the U.S. market, we continue to 
determine that POSCO and its subsidiaries POSCO Steel Sales and Service 
Co., Ltd. (``POSTEEL''), the service centers, and POSAM (for EP sales) 
provided a sufficiently similar degree of services on sales to all 
channels of distribution, and that the sales made to the United States 
constitute one LOT. See LOT Memo, dated July 19, 1999; Preliminary 
Determination. 
    We find that the facts in this case are similar to those in Certain 
Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from 
Korea, 64 Fed. Reg. 48767, 48773 (Sept. 8, 1999). While different types 
of selling activities were performed by POSCO, POSTEEL, and the service 
centers, in examining the selling functions associated with various 
LOTs, the Department will compare the cumulative level of selling 
activity rather than simply collating specific activities. See LOT 
Memo, dated July 19, 1999; see generally, Certain Cut-to-Length Carbon 
Steel Plate from South Africa, 62 FR at 61731. In comparing the 
cumulative level of selling activity, we find that the differences in 
selling functions between POSCO's two claimed home market LOTs are not 
substantial. Accordingly, we find the U.S. sales and home market sales 
to be at the same LOT, such that no LOT adjustment under section 
773(a)(7)(A) of the Act is warranted.
Comment 2: Whether the Department should reclassify POSCO's U.S. sales 
as CEP transactions
    Petitioners contend that the Department should reclassify POSCO's 
U.S. sales as CEP transactions, and assert that record evidence 
demonstrates that POSAM sets prices in the United States and performs a 
number of significant selling functions.
    According to petitioners, POSAM was solely responsible for selling 
POSCO's product and keeping contact with POSCO's customers. Petitioners 
argue that U.S. customers initially contact POSAM, and POSCO has 
admitted that during the POI it did not send any sales personnel or 
senior managers to the United States. Petitioners also state that POSCO 
reported that POSAM employs numerous individuals in the United States 
responsible for various activities that are consistent with an active 
selling operation in the United States, not an operation whose only 
purpose is to process sales-related documentation. In addition, 
petitioners state that POSAM's financial statements indicate that POSAM 
extended credit for its customers' purchases of subject merchandise 
from POSCO and POSTEEL. Thus, according to petitioners, POSAM is 
undertaking the entire risk of these sales and, as such, is far more 
than a mere processor of sales-related documentation.
    POSCO argues that its sales through POSAM are properly treated as 
EP sales. Respondent states that the Department closely examined this 
issue at verification and found that POSAM merely functions as a 
forwarder of requests to POSCO, and that only POSCO can approve the 
price and terms of sale.
    POSCO maintains that the Department found at verification that all 
prices and terms of sale for U.S. sales are determined by POSCO or 
POSTEEL and not POSAM, and that POSAM's role was limited to that of a 
processor of sales-related documentation and providing a communication 
link. See Sales Verification Report, dated November 10, 1999. POSCO 
asserts that in no instance did POSAM have discretion to adjust prices 
or negotiate with the customer. Furthermore, according to POSCO, POSAM 
merely served as a communication link between POSCO and its U.S. 
unaffiliated customers due to the time difference and communication 
costs.
    POSCO also argues that POSAM employs few employees and that it 
would not be feasible for such a small number of employees to conduct 
and operate an ``active selling operation.'' Next, POSCO states that 
POSAM did not extend credit to POSCO's customers but merely received 
payment which it then transferred to POSCO. Finally, POSCO argues that 
the circumstances in the instant investigation are distinguishable from 
other proceedings before the Department. In prior cases such as 
Stainless Steel Wire Rod, Certain Cold-Rolled and Corrosion Resistant 
Carbon Steel Flat Products, and Stainless Steel Plate in Coils from the 
Republic of Korea, the circumstances were different and the factual 
basis for the Department's decisions also differed. In each of the 
above-mentioned cases, there was tangible evidence that POSAM did not 
change or reject prices; POSAM is not the importer of record for the 
overwhelming majority of sales; and POSAM did not provide any financing 
to the U.S. customers. Based on these factors, POSCO argues that there 
is nothing on the record to indicate that POSAM took steps beyond those 
necessitated for EP classification. Accordingly, POSCO requests that 
the Department continue to accord EP treatment to POSCO's U.S. sales 
through POSAM.

Department's Position

    We agree with POSCO that sales through POSAM are more appropriately 
treated as EP transactions. The facts in this investigation are similar 
to the facts in the Final Determination of Stainless Steel Wire Rod 
from the Republic of Korea 63 FR 40461 (July 29, 1998) cited by POSCO, 
and sufficient record evidence exists which leads the

[[Page 73212]]

Department to conclude that POSCO's U.S. sales through POSAM warrant 
classification as EP sales.
    The Department treats sales through an agent in the United States 
as CEP sales, unless the activities of the agent are merely ancillary 
to the sales process. Specifically, where sales are made prior to 
importation through a U.S.-based affiliate to an unaffiliated customer 
in the United States, the Department examines several factors to 
determine whether these sales warrant classification as EP sales. These 
factors are: (1) Whether the merchandise was shipped directly from the 
manufacturer to the unaffiliated U.S. customer without being introduced 
into the physical inventory of the affiliated selling agent; (2) 
whether this is the customary commercial channel between the parties 
involved; and (3) whether the function of the U.S. selling agent is 
limited to that of a ``processor of sales-related documentation'' and a 
``communication link'' with the unrelated U.S. buyer. Where the factors 
indicate that the activities of the U.S. selling agent are ancillary to 
the sale (e.g., arranging transportation or customs clearance), we 
treat the transactions as EP sales. Where the U.S. selling agent is 
substantially involved in the sales process (e.g., negotiating prices), 
we treat the transactions as CEP sales. See Certain Cut-to-Length 
Carbon Steel Plate from Germany: Final Results of Antidumping 
Administrative Review, 62 FR 18389, 18391 (April 15, 1997); see also 
Mitsubishi Heavy Industries v. United States, 15 F. Supp.2d 807, 811-12 
(CIT 1998).
    We note that neither party has disputed that POSCO's U.S. sales 
through POSAM meet the first two criteria of the Department's standard. 
Therefore, the determining factor in this case is the degree of 
involvement by POSAM in the sales process. In the Preliminary 
Determination, the Department based its EP classification of sales 
through POSAM on POSCO's statement that POSTEEL or POSCO determined 
price and terms of sale. See 64 FR at 41227-28. Based upon our findings 
at verification, it is clear that POSTEEL and/or POSCO perform almost 
all selling activities for U.S. sales through POSAM, including 
undertaking business trips to meet with potential U.S. customers of the 
subject merchandise. See Sales Verification Report at 11. The record 
further supports POSCO's assertion that POSAM is merely a processor of 
sales-related documentation. First, POSAM is only a point of contact 
via whom the U.S. unaffiliated customer ultimately contacts POSCO or 
POSTEEL. POSAM officials explained that because of the time zone 
difference and the cost of long distance, it would be expensive and 
inconvenient for the customer to contact POSTEEL directly. See Sales 
Verification Report, dated November 10, 1999. POSAM acts as merely a 
conduit between the unaffiliated U.S. customer and POSTEEL. See Sales 
Verification Report, dated November 10, 1999. POSAM merely collects 
payment from the customer and transfers this money to POSTEEL or POSCO. 
See Sales Verification Report, dated November 10, 1999. The functions 
performed by POSAM indicate that it is a mere facilitator and not a 
seller of subject merchandise. This selling arrangement between POSAM 
and POSTEEL is similar to the one between POSAM and Changwon, addressed 
in Stainless Steel Wire Rod, where the U.S. customers remit payment to 
POSAM, which subsequently transfers the payment to POSTEEL, which, in 
turn, transfers it to Changwon. See Stainless Steel Wire Rod From 
Canada, 64 FR at 40419. Furthermore, of the sales examined by the 
Department during the POSAM verification, we found no evidence that 
POSAM was given discretion in adjusting the price of the sale. See 
Sales Verification Report at 30. Thus, the record evidence demonstrates 
that POSAM has no sales negotiating authority with regard to U.S. 
sales. Therefore, because of the lack of significant risk incurred by 
POSAM, in addition to its lack of other selling activities, we find 
that POSAM's activities are merely ancillary to the sales process and 
have classified POSCO's U.S. sales through POSAM as EP transactions.
Comment 3: Whether the Department should disregard POSCO's model-
matching methodology
    Petitioners state that due to significant discrepancies between the 
model-matching reporting methodologies submitted by POSCO, the 
Department should disregard POSCO's model-matching methodology. 
Petitioners argue that for a U.S. specification, POSCO and Dongkuk 
assigned different home market specifications in the most similar model 
match chart. According to petitioners, this indicates that POSCO's and 
Dongkuk's specification concordances for similar products are 
unreliable. Petitioners argue that the Department should assign, as 
facts available, the highest reported home market price to all sales of 
non-identical home market specifications matching to U.S. sales.
    POSCO claims that its model match methodology was verified and is 
reliable. POSCO states that petitioners propose that the Department 
assign the highest reported home market price to all sales of non-
identical specifications matching to U.S. sales because POSCO did not 
report the same model matching hierarchy in the questionnaire 
responses. POSCO claims that it is not aware of any requirement that 
respondents report identical matching hierarchies. POSCO asserts that 
the Department verified POSCO's approach to model matching and the 
underlying information at verification. POSCO further argues that the 
issue of model match hierarchy is moot due to the fact that, for the 
specification at issue, the Department did not have to match to a 
similar product for POSCO. POSCO claims that both companies sold a 
sufficient quantity of the product above cost in the home market to 
eliminate the necessity of selecting the next most similar product.

Department's Position

    We disagree with petitioners that POSCO's reported model matching 
hierarchies are flawed and must be rejected. The questionnaire in this 
case instructed respondents to identify, for every specification sold 
to the United States, the identical and four or five most similar 
specifications sold in the home market. In the questionnaire, 
respondents are requested to explain their identical and similar 
selections. The Department normally relies on this information in 
developing its model match concordance. See Original Questionnaire 
Response: Section B, C and Appendix V (March 17, 1999). However, if we 
disagree with any selection of similarity, or if any petitioners raise 
any issues, we can and do rearrange this hierarchy in any way we deem 
appropriate. Prior to raising this issue in their case brief, 
petitioners did not dispute any of the hierarchies proposed by 
respondents.
    The Department verified the methodologies chosen by each of the 
responding companies, and we noted no discrepancies between the 
companies' records in the normal course of business and the 
characteristics reported to us. We also note that each company sells a 
different mix of specifications in the home market. Thus, the 
similarity hierarchies can vary based on this fact. Therefore, we find 
that the methodology used by POSCO to report physical characteristics 
and matching hierarchies is accurate and reasonable under the 
circumstances. In addition, in this case, the great majority of all of 
the U.S. sales were matched to either identical, or functionally 
identical, home market specifications. As a result, we have not

[[Page 73213]]

questioned the use of these hierarchies in supplemental questionnaires 
or found specific faults with any of POSCO's selections. Thus, the 
second and third choice for similar specifications are not relevant to 
the margin calculations because these categories were not used in 
matching.
Comment 4: Whether the Department should apply adverse facts available 
for POSCO's reported downstream sales in the home market.
    Petitioners claim that POSCO's reported sales and cost information 
for affiliated service centers is significantly flawed and, as a 
result, the Department should apply adverse facts available for POSCO's 
reported downstream sales in the home market. Petitioners argue that 
POSCO did not distinguish between prime and non-prime merchandise sold 
by its affiliated service centers despite the Department's explicit 
requests for that information. Petitioners state that the Department 
discovered that POSCO's reporting of the PRIMEH Fields for sales made 
by one service center was based entirely on the nature of the 
merchandise purchased from POSCO, rather than on the nature of the 
merchandise sold by the service center. Petitioners argue that while 
the merchandise purchased from POSCO by one service center was reported 
as prime material, that does not confirm the fact POSCO sold only prime 
merchandise. Petitioners claim that the merchandise could have been 
damaged during shipment or failed to meet customer-specified 
characteristics that would warrant the production of non-prime 
merchandise.
    Petitioners further claim that POSCO failed to report affiliated 
service centers' further processing costs for products produced by 
POSCO. Petitioners argue that POSCO reported variable costs for the 
affiliated service centers based solely on POSCO's own costs, as 
opposed to the combined manufacturing costs of POSCO and its affiliated 
service centers. Petitioners state that POSCO only provided cost 
information for the unique products produced by the affiliated service 
centers and did not provide the information requested by the Department 
for the common products produced by both POSCO and the affiliated 
service centers. Petitioners claim that POSCO withheld critically 
important information and did not fully cooperate with the Department's 
repeated requests and therefore, the Department should apply adverse 
facts available.
    POSCO argues that the Department verified the accuracy of its 
reported downstream sales information. POSCO claims that the service 
center's product code defines the merchandise that it is selling, not 
the merchandise that it purchased. POSCO argues that the second and 
third digits identify whether the merchandise was imported or purchased 
domestically and the fourth and fifth digits of the code identifies the 
specification of the merchandise being sold. Therefore, POSCO claims 
that the service center is able to demonstrate that its sales of second 
grade material were not from POSCO. POSCO states that it provided 
complete and accurate answers to the Department's questions on 
reporting the conditions of the merchandise.
    POSCO states that it fully explained the basis for its methodology, 
and the Department verified the accuracy of the reporting methodology. 
POSCO claims that the Department verified that the additional cost has 
a de minimis impact and is therefore, unnecessary for the service 
centers to be included in the analysis.

Department's Position

    We agree with POSCO. At verification, the Department conducted a 
detailed examination of the reported downstream sales to determine the 
accuracy of the reported characteristics and the methodology for 
reporting any additional processing costs and expenses. See Sales 
Verification Report, dated November 10, 1999, at 2. Therefore, we have 
used the reported downstream sales in our analysis.
    We agree with petitioners, in part, that POSCO failed to report the 
reseller's further processing costs on the COP computer tape. At 
verification, POSCO indicated that it did not include such costs in the 
reported COPs because they would be negligible when included and 
weight-averaged with POSCO's costs. See Cost Verification Report, dated 
November 4, 1999, at 7. We tested this at verification and found that 
POSCO's failure to include the resellers' further manufacturing costs 
resulted in a minor understatement of COP. See Cost Verification 
Report. We have increased the reported COP, based on our findings at 
verification, to account for this understatement.
    The Department normally requests responding companies to identify 
whether sales are of prime or secondary merchandise in both the home 
and U.S. markets to ensure that a proper comparison is made between 
sales in both markets. See Original Questionnaire Response: Section B 
and C (March 17, 1999). However, the Department will also consider the 
burden on the responding company, whether the information is retained 
in the normal course of business, and whether the requested information 
is retrievable without undue burden. In the instant case, the 
Department examined the records of the affiliated resellers which we 
visited. We verified that one reseller does not maintain a product code 
designation for non-prime or off-grade merchandise, thus rendering it 
impossible for that reseller to identify possible sales of non-prime 
merchandise. See Sales Verification Report, dated November 10, 1999 at 
22. For the other reseller with which we conducted verification, we 
noted no discrepancies in reviewing documentation to confirm its 
assertion that it had no sales of non-prime merchandise purchased from 
POSCO during the POI. See Sales Verification Report, dated November 10, 
1999, at 25.
    Based upon our examination of POSCO's records and its affiliated 
resellers' records, the Department finds that POSCO's information was 
properly reported to the Department as requested. Therefore, we have 
continued to use all of POSCO's downstream sales in our analysis.
Comment 5: Facts Available for Certain Unique Product Costs
    Petitioners argue that the Department should resort to adverse 
facts available in adjusting POSCO's reported costs for certain 
products. Petitioners claim that POSCO did not identify the unique 
costs associated with producing products to various specified widths. 
Petitioners state that POSCO indicated that it did not identify unique 
costs for the width characteristic for cut-to-length plate although it 
tracked the unique costs for hot-rolled plate and hot-rolled sheet 
products. Petitioners claim that the Department confirmed that for 
subject merchandise produced at the plate mill, POSCO's reported costs 
did not reflect the differences in width. Petitioners argue that width 
is an important physical characteristic in the Department's model match 
hierarchy and that POSCO failed to cooperate to the best of its ability 
to provide information requested by the Department.
    POSCO claims that, as verified by the Department, the costs 
associated with width are minor. POSCO states that width was not taken 
into account in the product definition for plate products. POSCO argues 
that the Department confirmed that any attempt to superimpose width as 
a cost allocator raises serious risk that other costs would be 
distorted in the process.
    Department's Position: We agree with POSCO that the cost 
differences associated with width are minor and that any attempt to 
adjust for these differences could be distortive. As detailed in the 
cost verification report,

[[Page 73214]]

we determined the minor cost differences associated with width (one of 
several relevant physical characteristics) and found a way to isolate, 
measure, and adjust for them. See Costs Verification Report, dated 
November 4, 1999, at 5. However, POSCO's reported costs differ for 
reasons unrelated solely to physical characteristics--POSCO's costs for 
different products vary based on which plate mill will produce the 
product as well as which blast furnace, steel making unit, and concast 
unit will produce the slab. See POSCO Cost Verification Report, dated 
November 10, 1999. Because each of these has different efficiencies and 
standard costs, the same product (not to mention products whose only 
difference is thickness) will have a different cost based on which mill 
in which it was produced. As a consequence, cost differences are not 
purely isolated to physical characteristics. Thus, applying an 
adjustment factor based solely on physical characteristics to the 
reported costs, which vary for reasons not associated with physical 
characteristics, may not increase the accuracy of the reported costs. 
We note that POSCO reported the actual costs it incurred to produce the 
subject merchandise. For COP purposes, these costs are accurate and 
reliable. However, for purposes of adjustments for physical differences 
in merchandise, these costs are somewhat problematic in that POSCO 
cannot always isolate cost differences purely associated with physical 
differences (e.g., when identical products are produced at separate 
facilities, production efficiencies become a factor in the calculation 
of the cost of the product). In this case, the vast majority of price-
to-price comparisons are of identical merchandise. Therefore, any 
adjustment would have a negligible effect.
Comment 6: Variable and Total Cost of Manufacture
    Petitioners argue that POSCO misstates the burden of producing 
complete and accurate data. They argue that the data provided to the 
Department and petitioners was not readable due to the existence of 
multiple VCOM values within a single CONNUM. Petitioners state that 
POSCO's revised table of ``cost by CONNUMU,'' attached to the July 16, 
1999 letter, is not an acceptable explanation of the previous 
inadequate submission. In all cases, most of the sales represented by 
the CONNUMU had been assigned one VCOM value, while other VCOM was 
assigned to a much smaller number of sales. In POSCO's revised table, 
the VCOM value which had previously been assigned to the smaller number 
of sales for each CONNUMU is now identified as being the actual VCOM 
value for all sales. Accordingly, petitioners feel that this is not a 
logical explanation of POSCO's previous submission. In light of these 
deficiencies in the database, petitioners recommend the Department 
apply, as partial facts available, the highest calculated margin for 
any CONNUM to each of these sales implicated by the deficiencies.
    POSCO claims that its reported variable and total cost information 
on the U.S. sales database is correct. POSCO asserts that an 
inadvertent error in creating files caused different values in variable 
costs for the same products in a previous submission. POSCO states that 
the error has been corrected and subsequent databases have reported a 
single variable cost and a single total cost of each unique CONNUM. 
POSCO claims that the costs were fully and successfully verified by the 
Department.

Department's Position

    We agree with POSCO. Upon review of the record, we found that the 
errors noted by petitioner made when POSCO filed its July 12, 1999, 
response appear to be inadvertent. Subsequently, at the request of the 
Department, POSCO corrected this error in its post-verification filing 
on October 27, 1999. The Department has utilized the database filed on 
October 27, 1999, with the unique variable cost of manufacturing and 
total cost of manufacturing in its final determination.
Comment 7: Home Market Viability
    Respondent claims that the issue regarding home market viability 
raised by petitioners should be rejected by the Department. Respondent 
argues that since petitioners did not raise that issue in their case 
briefs, they have waived the right for consideration of the issue by 
the Department.

Department's Position

    The Department has not considered or substantially addressed this 
issue in the instant final determination because petitioners 
allegations were untimely. For a full discussion, see Particular Market 
Situation, section, above.

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Act, we are 
directing the Customs Service to continue to suspend liquidation of all 
entries of subject merchandise from Korea that were entered, or 
withdrawn from warehouse, for consumption on or after July 19, 1999 
(the date of publication of the Department's preliminary determination) 
for DSM, and those companies which received the ``all others'' rate. 
POSCO's rate continues to be de minimis, as it was in the Preliminary 
Determination; therefore the Department will not suspend liquidation of 
these entries. The Customs Service shall continue to require a cash 
deposit or posting of a bond equal to the estimated amount by which the 
normal value exceeds the U.S. price as shown below. These suspension of 
liquidation instructions will remain in effect until further notice. 
The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                               Weighted-average margin
           Exporter/Manufacturer                     percentage
------------------------------------------------------------------------
Pohang Iron & Steel Co., Ltd..............  0.05 de minimis
Dongkuk Steel Mill Co., Ltd...............  2.98
All Others................................  2.98
------------------------------------------------------------------------

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 
proceeding will be terminated and all securities posted will be 
refunded or canceled. If the ITC determines that such injury does 
exist, the Department will issue an antidumping duty order directing 
Customs officials to assess antidumping duties on all imports of the 
subject merchandise entered, or withdrawn from warehouse, for 
consumption on or after the effective date of the suspension of 
liquidation.
    This determination is issued and published in accordance with 
sections 735(d) and 777(i)(1) of the Act.

    Dated: December 13, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-33234 Filed 12-28-99; 8:45 am]
BILLING CODE 33510-DS-P