67 FR 3143, January 23, 2002
                                                               A-427-820
                                                           Investigation 
                                                         Public Document
                                                          IA/I/2/TRK/BCS

MEMORANDUM TO: Faryar Shizad
               Assistant Secretary
                 for Import Administration

FROM:          Richard W. Moreland
               Deputy Assistant Secretary
                 for Import Administration

SUBJECT: Issues and Decision Memorandum for the Final Determination of
the Antidumping Duty Investigation of Stainless Steel Bar from France -
October 1, 1999, through September 30, 2000

Summary

We have analyzed the comments of the interested parties in the
antidumping duty investigation of stainless steel bar from France. As a
result of our analysis of these comments, we have made changes in the
margin calculations as discussed in the "Margin Calculations" section of
this memorandum. We recommend that you approve the positions we have
developed in the "Discussion of the Issues" section of this memorandum.
Below is the complete list of the issues in this investigation for which
we received comments by parties:

Issue 1: Whether to Collapse the Sales Prices and Production Costs of two
Affiliates Across Countries

Issue 2: Defining Foreign Like Product for Making Product Comparisons 

Issue 3: Ranking "Peeled and Descaled" as a Final Finish Characteristic

Issue 4: Assigning Total Facts Available

Issue 5: Calculating the Dumping Margin

Issue 6: Level of Trade

Issue 7: Home Market Expenses Reported In Lieu of Commissions

Issue 8: Treatment of Movement and Selling Expenses Between Home Market
         Affiliates as Manufacturing Costs

Issue 9: Home Market Warranty Expenses

Issue 10: Treatment of UFS/U-SF's Restructuring Costs as Selling Expenses

Issue 11: U.S. Credit Expenses for Consignment Sales

Issue 12: Whether to Include Freight Revenue in Calculation Formulas Used
to Report Certain U.S. Discounts and Expenses

Issue 13: Treatment of the French Tax Provision 

Background

On August 2, 2001, the Department of Commerce ("the Department")
published the notice of preliminary determination of sales at less-than-
fair value and postponement of final determination of the antidumping duty
investigation of stainless steel bar ("SSB") from France. See Stainless
Steel Bar from France: Notice of Preliminary Determination of Sales at
Less-Than-Fair Value and Postponement of Final Determination, 66 FR 40201
(August 2, 2001) ("Preliminary Determination"). On August 28, 2001, Aubert
& Duval, S.A. ("A&D") notified the Department that it was no longer
participating in this investigation. Although the deadline for this
determination was originally December 17, 2001, in order to accomodate
certain verifications that were delayed because of the events of September
11, 2001, the Department tolled the final determination deadline in this
and the concurrent SSB investigations until January 15, 2001.

For purposes of this investigation, the term "stainless steel bar"
includes articles of stainless steel in straight lengths that have been
either hot-rolled, forged, turned, cold-drawn, cold-rolled or otherwise
cold-finished, or ground, having a uniform solid cross section along their
whole length in the shape of circles, segments of circles, ovals,
rectangles (including squares), triangles, hexagons, octagons, or other
convex polygons. Stainless steel bar includes cold-finished stainless
steel bars that are turned or ground in straight lengths, whether produced
from hot-rolled bar or from straightened and cut rod or wire, and
reinforcing bars that have indentations, ribs, grooves, or other
deformations produced during the rolling process. Except as specified
above, the term does not include stainless steel semi-finished products,
cut length flat-rolled products (i.e., cut length rolled products which if
less than 4.75 mm in thickness have a width measuring at least 10 times
the thickness, or if 4.75 mm or more in thickness having a width which
exceeds 150 mm and measures at least twice the thickness), products that
have been cut from stainless steel sheet, strip or plate, wire (i.e., cold-
formed products in coils, of any uniform solid cross section along their
whole length, which do not conform to the definition of flat-rolled
products), and angles, shapes and sections. The stainless steel bar
subject to this investigation is currently classifiable under subheadings
7222.11.00.05, 7222.11.00.50, 7222.19.00.05, 7222.19.00.50, 7222.20.00.05,
7222.20.00.45, 7222.20.00.75, and 7222.30.00.00 of the Harmonized Tariff
Schedule of the United States ("HTSUS"). Although the HTSUS subheadings
are provided for convenience and customs purposes, the written description
of the scope of this investigation is dispositive. The period of
investigation ("POI") is October 1, 1999, through September 30, 2000. 

We invited parties to comment on our preliminary determination. The
petitioners and the respondent, Ugine-Savoie Imphy, S.A. ("U-SI"),
submitted their case briefs on November 19, 2001. On November 27, 2001,
the parties submitted their rebuttal briefs. A hearing was held on
December 6, 2001. 

Margin Calculations

We calculated constructed export price ("CEP") and normal value ("NV")
using the same methodology stated in the preliminary determination, except
as follows: 

We determined that although there are but two levels of trade ("LOT") in
the home market, each of those LOTs were different from the U.S. LOT.
Therefore, we granted a CEP offset (see Comment 6). 

We treated expenses incurred by a home market affiliate, which acted as a
commission agent, as indirect selling expenses rather than direct selling
expenses (see Comment 7). 

We recalculated home market warranty expenses on a customer-specific
basis rather than on a general product basis and treated both the
respondent and its affiliate's home market warranty expenses as direct
selling expenses (see Comment 9). 

We treated the U.S. technical service expenses as an indirect rather than
as a direct selling expense. 

Discussion of the Issues

Comment 1: Whether to Collapse the Sales Prices and Production Costs of
two Affiliates Across Countries

The petitioners request that the Department collapse U-SI (the respondent
in the SSB from France investigation and Trafilerie Bedini, Srl ("Bedini")
(a respondent in the SSB from Italy investigation). The petitioners argue
that the Department should collapse U-SI and Bedini into a single entity
because they are affiliates and they satisfy the collapsing criteria in
section 351.401(f) of the Department's regulations. The petitioners
contend that U-SI and Bedini are significant SSB producers and would not
have to "substantially retool" their manufacturing facilities to shift
production. In addition, the petitioners allege that both U-SI and Bedini
can produce SSB in significant volumes and have the ability to manipulate
prices or production in an effort to evade the assessment of antidumping
duties. Furthermore, the petitioners assert that since it is common for
subject merchandise to be transferred between U-SI and Bedini and that all
U.S. sales for both companies are made through their U.S. affiliate, Ugine
Stainless and Alloys, Inc. ("US&A"), there is the chance that the origin
of the subject merchandise could also be easily manipulated. 

Furthermore, the petitioners argue that because U-SI and Bedini both sell
through US&A in the United States, the expenses incurred by US&A should be
calculated and reported in the same manner regardless if the expenses are
associated with U-SI or Bedini bar. However, in the current investigations
(1) U-SI and Bedini calculated identical expenses incurred by US&A using
different allocation methodologies. The petitioners argue that US&A is a
single company that maintains one set of accounting records and its use of
different allocation methodologies for different respondents is suspect.
The petitioners assert that this is an indication of the type of
manipulation that is possible if U-SI and Bedini are not collapsed.
Moreover, the petitioners argue collapsing U-SI and Bedini, and requiring
the same expenses to be calculated identically, regardless of whether the
bar originated from U-SI or Bedini would prevent any future distortion of
US&A's expenses. In addition, the petitioners assert the Department should
collapse all merchandise tolled by Bedini for U-SI into a single home
market database. However, if the Department decides not to collapse U-SI
and Bedini, it should at a minium insert the tolled sales into the French
database given that U-SI is the principal producer of the underlying
product, maintains title to the merchandise, and the finishing operations
performed by Bedini in this case have not been shown to be significant. 

Finally, the petitioners suggest that although the issue of whether to
collapse may not have been dealt with in a multinational situation in
prior cases, this should not preclude the Department from deciding to
collapse U-SI and Bedini because the Department clearly states that the
decision of whether or not to collapse affiliated producers should be
based solely on the conditions set forth in 19 C.F.R. 351.401(f).
Accordingly, the petitioners propose that the Department should require U-
SI and Bedini to submit their sales and cost databases on the record of
respective French and Italian investigations. Alternatively, the
petitioners request that the Department calculate separate margins for
each respondent and then calculate a single weighted-average margin to be
applied to both respondents.

The respondent argues that if the Department collapses the sales prices
and production costs of U-SI and Bedini and calculates a single dumping
margin, this would be contrary to the plain language of the antidumping
duty law. The respondent contends that the antidumping duty law operates
with regard to merchandise from a particular country and not from multiple
countries. (2) Furthermore, the respondent maintains that the plain
language of the antidumping duty law and the Department's regulations
reflect this one-country approach by requiring dumping petitions to "name
the country in which the subject merchandise is manufactured or produced,"
define the "foreign like product" in terms of merchandise that was
produced in the same country as the subject merchandise, and base normal
value on "the price at which the foreign like product is first sold . . .
in the exporting country." (3) The respondent maintains that collapsing
affiliated manufacturers is only permissible under the Department's
regulations in an antidumping proceeding, which, by its terms, can only be
with regard to a single country. Since U-SI's and Bedini's sales and cost
data relate to SSB manufactured in different countries, the respondent
contends that these two companies cannot be collapsed under the
antidumping duty law and treated as a single entity in the antidumping
proceeding involving SSB from France.

Department's Position:

We disagree with the petitioners. In an antidumping duty investigation,
the Department is charged with determining whether "a class or kind of
foreign merchandise is being, or likely to be, sold in the United States
at less than its fair value . . . ." Section 731 of Act. To offset
dumping, an antidumping duty is imposed equal to "the amount by which
normal value exceeds export price (or constructed export price) of the
merchandise." Id.

The Department, therefore, must make a comparison between export price or
constructed export price and normal value. Section 773(a) of the Act.
Normal value is defined as "the price at which the foreign like product is
first sold (or, in the absence of a sale, offered for sale) for
consumption in the exporting country . . . .". Section 773(a)(1)(B)(i) of
the Act. Or, normal value may be based on the price of the "foreign like
product" in a third country. Section 773(a)(1)(B)(ii) of the Act. In
certain instances, normal value may be based on constructed value. Section
773(a)(4) of the Act. In determining constructed value, the statute
instructs the Department to use the selling, general and administrative
expenses incurred in connection with "the production and sale of a foreign
like product . . . ". Section 773(e)(2)(A) of the Act. Thus, the
inescapable conclusion is that the Department must look to the foreign
like product when calculating normal value.

Section 771(16) of the Act gives a number of alternative definitions of
"foreign like product." In all of the alternative definitions, the foreign
like product must be produced in the "same country" as the subject
merchandise. "The term 'country' means a foreign country, a political
subdivision, dependent territory, or possession of a foreign country, and,
except for the purpose of antidumping proceedings, may include an
association of 2 or more foreign countries, political subdivisions,
dependent territories, or possessions of countries into a customs union
outside the United States." Section 771(3) of the Act. Therefore, in an
antidumping investigation, normal value can only be calculated by looking
to the subject merchandise in one country.

The regulations set forth the rules for collapsing. The regulations begin
by stating, "In an antidumping proceeding under this part, the Secretary
will treat two or more affiliated producers as a single entity where those
producers have production facilities for similar or identical products
that would not require substantial retooling of either facility in order
to restructure manufacturing priorities and the Secretary concludes that
there is a significant potential for the manipulation of price and
production." 19 CFR 351.401(f). Thus, the regulations make clear that
collapsing can only occur within "an antidumping proceeding". Because an
antidumping proceeding only involves the subject merchandise of one
country, this means that the Department cannot collapse producers across
country lines under 19 CFR 351.401(f).

The petitioners here have argued that the Department could calculate one
margin for U-SI in France, and one margin for Bedini in Italy, and then
calculate a weighted average of those margins to come up with one
antidumping duty margin to apply to both U-SI and Bedini. The petitioners,
however, have no statutory authority upon which to make this request.
Indeed, if the Department were to do so, the Department would be violating
its statutory mandate. In calculating such a weighted average of the
margins, the Department would be injecting into the calculation of normal
value the price of merchandise produced in a second country.

While the Department has used the information from two companies to
calculate a single weighted-average margin for those companies when it
determined collapsing was appropriate, the Department has done so only
within the confines of a single proceeding, which involved a single
country. See, e.g., Final Results of Antidumping Duty Administrative
Review: Gray Portland Cement and Clinker From Mexico, 66 FR 14889 (March
14, 2001). 

Finally with respect to the petitioner's request that the Department
include in this proceeding the SSB which was sold by the Italian
respondent Bedini in Italy but which was produced by U-SI, we do not
consider this merchandise to be subject to the either proceeding because U-
SI is not a respondent in the Italian SSB proceeding and Bedini is not a
respondent in the French SSB proceeding.

Comment 2: Defining Foreign Like Product for Making Product Comparison

The respondent contends that the model matching methodology used in the
preliminary determination was fundamentally flawed because it created
artificial distinctions between comparable products which skewed the fair
comparison between normal value and U.S. price. Specifically, the
respondent argues that the Department undermined the accuracy of the
dumping calculations by insisting that it report the foreign like product
based on specific size ranges for cost purposes and on exact sizes for
sales purposes. The respondent maintains that the antidumping duty law
precludes the Department from using a different definition of the foreign
like product for product matching purposes than what it uses for
determining costs. In support of its argument, the respondent cites to a
decision made in United States Court of Appeals for the Federal Circuit in
which the Court recently rejected the Department's use of inconsistent
foreign like product definitions (SKF USA Inc. v. United States, 263 F. 3d
1369, 1382 (CIT 2001) ("SKF")). The respondent contends that there is no
explanation or reasoning to justify the Department's use of an
inconsistent foreign like product definition for sales product matching
purposes, especially because the Department recognizes in this case that
minimal size variations within a specified range have no price effect. 

Moreover, the respondent argues that by adopting an inconsistent like
product definition for product matching purposes, the Department also
breached its obligation to make a fair comparison (i.e., comparing the
weighted-average prices of "comparable merchandise in the U.S. and home
markets). The respondent further argues that sections 351.414(d)(2) and
351.414(c) of the Department's regulations instruct it when applying the
average-to-average method to identify those sales of subject merchandise
to the United States that are comparable, and to include such sales in an
"averaging group." Moreover, the respondent maintains that the averaging
group is to consist of "merchandise that is identical or virtually
identical in all physical characteristics." The respondent contends that
the Department has already identified the comparable merchandise for
purposes of the proper averaging group, by way of its adoption of size
ranges for cost reporting purposes. By using size ranges, the respondent
states that the Department has treated SSB products within the specified
size ranges as identical or virtually identical and recognized that
minuscule size variations within a range are not meaningful physical
differences and do not affect price. Moreover, the respondent argues that
an analysis of the data submitted to the Department shows that, if all
home market sales of comparable products (i.e., otherwise wholly identical
products within a size range) were utilized for matching purposes, a
significant percent of viable home market sales would match to a
comparable U.S. product.

However, the respondent states, in the preliminary determination, the
Department's approach threw out a significant portion of possible matches
by restricting comparisons to exact size, and only a small percentage of U-
SI's home market sales were used in the preliminary determination. The
respondent maintains that product matching by exact size resulted in the
artificial division of individual products, which the Department has
recognized as identical for cost purposes. Additionally, the respondent
argues that the skewed results of the Department's exact size matching
approach is even more apparent when examining certain control numbers. The
respondent maintains that requiring certain control numbers to be reported
by exact size artificially dissected products otherwise identical in all
respects within a size range, with no real distinctions. Moreover, the
respondent alleges that some of the size differences were as small as one-
thousandth of a millimeter. Finally, the respondent contends that the
Department's exact size approach contradicts its own model matching
criteria. Specifically, the respondent argues that the Department's
approach restricted the scope of comparable products to which a product
might have been matched. For example, the respondent states that control
numbers (which were assigned exact sizes) were matched to products outside
their applicable size range, thereby turning the Department's product
matching on its head by matching to a different product even though sales
of comparable merchandise as defined by the Department were available. For
the final determination, the respondent requests that the Department
discard exact size matching and make comparisons by the size ranges which
it has established as representing comparable merchandise. The respondent
contends that only in this way can the fair comparison mandated by the
statute be achieved.

The petitioners maintain that the Department did not err in the
preliminary determination by using a different definition of foreign like
product for its model matching methodology. Moreover, the petitioners
argue that the respondent's reliance on a Federal Circuit opinion handed
down in SKF is misplaced. Specifically, the petitioners argues that in
SKF, the Court considered an appeal by respondents as to whether the
Department erred in defining the normal value on sales of identical
antifriction bearings ("AFBs") and sales of the same AFB family, while
defining the constructed value profit on all AFB products (regardless if
these products were identical or in the same family). The petitioners
maintain that in citing the complexity of the statute and the deference
provided by the Court to the Department, the Court remanded the issue back
to the Department for additional explanation of the factual settings for
the calculations at issue, and to explain exactly how those calculations
are made. The petitioners contend that as an initial point, the SKF appeal
does not offer any guidance by the Court as to how the Department must
interpret and apply the definition of foreign like product. In addition,
the petitioners argue that the Court in the SKF appeal did not address the
issue raised by the respondent in its case brief at to whether the
Department erred in its price-to-price comparisons vis-a-vis its below
cost test. Therefore, the petitioners contend that little if any weight
can be given to the Federal Circuit opinion in SKF. Furthermore, the
petitioners argue that the Department's definition of control number for
the sales and costs enable the Department to uphold its statutory
responsibility to calculate the most accurate dumping margin possible,
because those definitions appropriately reflect the unique nature of the
sales and production of SSB. The petitioners contend that in producing
SSB, the cost will generally vary by ranges of size, not by specific size,
because a factory will only retool if it is planning to change from one
size range to another size range. Therefore, the petitioners assert that
the cost should reflect the same fact pattern. In contrast, the
petitioners assert that the selling price of each product reflects the
actual size ordered. In similar fashion, the petitioners conclude that the
model matching methodology used for defining the sales should reflect this
market condition. The petitioners argue that it was necessary for the
Department to gather cost data in a manner that reflects the actual cost
of the product, and to define the product sold as it is priced in the
stainless steel market. 

Department's Position:

We disagree with the respondent that the Department has used different
definitions of foreign like product in the same proceeding and that we
should make the price comparisons based on the size product groupings used
for the cost of production analysis. Section 771(16)(A) of the Act defines
"foreign like product" as merchandise that is "identical in physical
characteristics." The Department reviewed comments by parties to this
investigation prior to defining six physical characteristics of stainless
steel bar that it considered appropriate for model matching criteria.
Section 777A(d)(1)A)(i) of the Act specifies that the Department compare
"the weighted average of the normal values to the weighted average of the
CEPs for comparable merchandise." In the Preliminary Determination, the
Department's price averaging groups were defined by the six physical
characteristics reported by the respondent, although some modifications
may have been made by the Department on a case-by-case basis. It is
significant to note that CEP and NV prices were defined by the exact same
physical characteristics reported by the respondent, meaning that the same
definition of foreign like product was used for both price averaging
groups.

With respect to the respondent's argument that different definitions were
used to define the "size" physical characteristic for price averaging and
cost reporting, we note that the preamble to the Department's regulations
(61 FR 7339) states that "the Department's practice is to calculate costs
consistent with the model matching criteria it develops at the outset of
an investigation or review, after having received the views of the
interested parties. The product categories developed in such fashion
generally account for significant differences in actual costs affecting
price. The Department intends to continue this practice because it
prevents any manipulation of the cost analysis through changes in internal
product classifications." Thus, while we take the model match (product
definition) criteria into account in determining the appropriate
methodology for reporting cost, this does not mean that in every case we
can or must calculate a unique cost for every unique product (CONNUM)
identified by our product definition criteria. Nor does it mean that if we
accept or adopt a cost methodology that yields the same cost for two
products, we must consider those two products to be a single product
(CONNUM), or a single foreign like product for model matching purposes. 

Finally, we disagree with the specific argument that the Department's use
of size ranges for cost reporting purposes results in or is based on the
use of a different definition of foreign like product. For purposes of
reporting costs, the Department instructed the respondent to follow the 3
size ranges proposed by the Department, with the significant caveat that
if the company's normal books and records differentiate the production
costs associated with size using slightly different ranges, and the
company wished to report cost using company-specific ranges, then they
should contact the Department. See Memorandum to Susan Kuhbach and Louis
Apple entitled, "Selection of Model Matching Criteria for Purposes of
Issuing the Antidumping Duty Questionnaire," dated February 20, 2001. The
Department initially created the 3 size ranges for reporting costs in
recognition of its experience in stainless steel bar cases that a
respondent may not keep its cost records by specific sizes and that costs
generally do not vary within specific ranges of sizes. The Department also
recognized that companies that do record their costs by internally unique
size ranges may use cost ranges different than those proposed by the
Department, thus the caveat that such companies "should contact the
Department." In other SSB cases, certain companies did indeed contact the
Department on this issue, which led the Department to revise its size
reporting requirements for those companies with respect to cost:

     The original cost questionnaire requested that parties contact 
     the Department if they planned to depart from the designated 
     size ranges. Therefore, for clarification and consistency between 
     companies we request the following. Your reported per-unit cost 
     of production ("COPs") and constructed value must account for 
     cost differences between shapes (e.g., rounds, flats, rectangles,
     etc.). For size differences within shapes, you must follow the 
     size categories from your normal books and records (i.e., inventory 
     valuation or existing cost accounting records). If you do not 
     differentiate costs by size in your normal books and records then 
     you must use the ranges identified by the Department in the original
     questionnaire.

See e.g., Letter dated May 24, 2001, to U-SI from Irene Darzenta Tzafolias

Thus, for cost reporting purposes, the respondent was advised to follow
the size categories maintained in its ordinary books and records. The
record in this investigation shows that the respondent complied with these
instructions by reporting its costs based the Department's size ranges.
Other respondents in the SSB investigations complied with these
instructions by reporting their costs based on exact sizes, company-
specific size ranges or the Department's size ranges. Unless adjustments
to a particular respondent's cost size ranges were warranted based on the
results of verification or other information on the record, it is
reasonable to conclude that the respondents (including U-SI) have reported
their costs for specific sizes on as specific a basis as possible for that
company, whether that is exact size, company size range, or the
Department's alternative size range. Thus, where a respondent reported
costs by size range, the cost for any specific size range corresponds to
the exact cost for any specific size within that range, and we have not
applied different definitions of foreign like product in defining price
averaging groups and in calculating cost.

Comment 3: Ranking "Peeled and Descaled" as a Final Finish Characteristic

The petitioners contend that the respondent's hierarchical coding for its
final finish operations is incorrect even though its reported coding is in
accordance with the Department's questionnaire instructions. The
petitioners reiterate their alternative proposal expressed prior to the
preliminary determination that for matching purposes the Department re-
code the reported final finishes by grouping together products that have
undergone similar degrees of finishing operations into the following four
groups: (1) basic finishing operations; (2) intermediate levels of
finishing; (3) basic cold finishing; and (4) more expensive cold finishing
operations. For example, the petitioners urge the Department to code and
group products together that underwent basic finishing operations (i.e.,
unannealed, pickled, etc) separately from products that underwent
intermediate levels of finishing (i.e., rough-turned, peeled and descaled,
etc.) and from products that either underwent basic cold finishing (i.e.,
cold-drawn) or more expensive cold finishing operations (i.e., turned and
burnished). In addition, the petitioners contend that because the peeled
and descaled operation is an intermediate level of finishing, it should be
coded as one but ranked after the rough-turned operation in terms of the
hierarchical coding employed for this model matching characteristic.

The respondent agrees that the peeled and descaled finish should be
assigned a separate final finish code but disagree with the petitioners
that it should be ranked after the rough-turned finishing operation in the
hierarchical order. Instead, the respondent requests that the Department
rank the peeled and descaled operation before the rough-turned operation.
The respondent provides no further explanation in support of its request.

Department's Position:

We disagree with the petitioners that we should be altering the
hierarchical ranking order utilized for the final finish model matching
characteristic in this case. Based on the data contained in this record,
we are not pursuaded that the petitioners' proposed changes mentioned
above are appropriate to incorporate in the final determination.
Specifically, we are unable to determine whether reordering the final
finish characteristic in the manner proposed by the petitioners yields
more accurate results than the method we employed in the preliminary
determination. Therefore, we have continued to employ in the final
determination the hierarchical ranking order and coding system used in the
preliminary determination for the final finish product characteristic. In
addition, although we recognize that the peeled and descaled operation is
a unique finish operation and have treated it as one in the final
determination, we do not find a sufficient basis for re-ranking this
characteristic in the hierarchical coding order. 

Comment 4: Assigning Total Facts Available

The petitioners argue that the Department should resort to total facts
available with respect to U-SI because the respondent failed to provide
certain unreported home market sales because of a computer programming
error until verification and the total quantity and value of these
unreported sales is significant in terms of the total reported quantity
and value of home market sales. In addition, the petitioners maintain that
by declaring these sales as a minor correction at the start of
verification, the respondent failed to notify the Department of these
missing sales in a timely manner or as soon as they were discovered by the
respondent and thus failed to cooperate to the best of its ability. 

In addition to this error, the petitioners maintain that the respondent
made several other errors in its sales reporting (i.e., finish and grade
coding errors, unreported and/or improper inclusion of sales of non-
subject merchandise by its home market affiliate resulting from country-of-
origin errors, and omission of sales based on improper date of sale
treatment) which in their totality bring into question the reliability of
the respondent's data and compel the Department to resort to total facts
available with respect to the respondent. At a minimum, the petitioners
request the Department to resort to partial facts available with respect
to the missing and/or erroneous data problems noted above given the
seriousness of these errors.

Alternatively, the petitioners contend in its December 7, 2001,
submission, filed in accordance with 19 CFR 351.301, that the home market
sales database submitted by the respondent on November 27, 2001, at the
request of the Department, contains new factual information and should not
be used by the Department in this determination. Specifically, the
petitioners maintain that the respondent added numerous expense, level-of-
trade, and customer data fields of information (including the date of
payment) applicable to the unreported sales which were not reflected as
minor corrections at the start of verification. As a result, the
petitioners argue that the home market sales database filed by the
respondent on November 27, 2001, should not be used by the Department.
Moreover, the petitioners allege that the total quantity and value of
unreported sales provided by the respondent at verification differs from
the total quantity and value corresponding to those sales in the November
27, 2001, home market sales database. Therefore, the petitioners argue
that the data the respondent did provide for the unreported sales is
incomplete, unreliable, and unuseable for the final determination. In
support of its argument, the petitioner cites to Tung Mung Development
Co., Ltd. and Yieh United Steel Corp. v. United States, Slip Op. 01-83
(July 3, 2001) (Court of International Trade) ("Tung Mung"). 

The respondent maintains that it has fully cooperated with every aspect
of the Department's investigation and has acted to the best of its ability
to comply with all the Department's requests for information before and
after verification. Specifically, the respondent claims that the
unreported sales (which resulted from a computer programming error) at
issue were discovered just prior to verification and were brought to the
Department's attention at the first opportunity to do so (i.e., the
beginning of verification). Moreover, the respondent maintains that the
Department thoroughly examined the programming error and tested the
accuracy of the data through sampling at verification. With respect to the
sales inclusion/exclusion corrections mentioned by the petitioners of
which U-SI informed the Department at the start of verification, the
respondent contends that it has provided the Department with accurate and
reliable data which was also examined by the Department at verification.
Moreover, with respect to not reporting certain sales based on its date of
sale methodology, the respondent maintains that the Department also
examined this issue at verification and found that its use of invoice date
as the date of sale for purposes of reporting all of its home market sales
was appropriate. Therefore, the respondent claims that the petitioners'
arguments for resorting to total or partial facts available are without
merit.

In its December 7, and 11, 2001 rebuttal submissions, which address the
inclusion of additional fields of information contained in its November
27, 2001, home market sales database submission, the respondent states
that the additional fields of information do not constitute new factual
information because they were furnished to the Department in accordance
with the Department's November 13, 2001, letter. Specifically, the
respondent maintains that the Department requested in that letter that it
provide a home market sales database which incorporated the results noted
in the October 25, 2001, sales verification report ("sales verification
report") and that these additional fields were covered by the Department's
request. For example, for the additional expense fields, the respondent
contends that the data contained in those fields of information are
derived using expense-specific calculation formulas which the Department
examined at verification. Therefore, the respondent contends that the data
provided for the expense fields are already on the record. With respect to
the remaining fields of information pertaining to the customer, level of
trade, and dates of payment and shipment, the respondent claims that these
fields were necessary in order to provide a complete record for each
transaction based on the Department's November 13, 2001, letter (which
instructed it to include the omitted sales in a home market sales database
which incorporated the results from verification). With respect to the
difference in total quantity and value referred to by the petitioners, the
respondent explains that the difference in quantity results from a slight
omission it made with respect to specific billing adjustment amounts
associated with certain sales included in the listing provided at
verification which it later corrected in the November 27, 2001, home
market sales database provided to the Department.

Department's Position:

We agree with the respondent. At verification, U-SI promptly alerted the
Department that it had made a programming error in determining which home
market sales made by its home market affiliate should have been included
in the home market sales database. The Department thoroughly examined the
nature of this error at verification and was able to ascertain the nature
and magnitude of the error based on the respondent's detailed explanation,
and based on the Department's testing of respondent's sales data during
the completeness portion of the verification (see U-SI exhibits 7A through
7G and pages 18 to 21 of the sales verification report). In addition, the
respondent provided the Department at verification with a listing of all
sales affected by the programming error which the Department sampled at
verification by examining sales invoices and country-of-origin
documentation. Based on our verification findings and an examination of
the respondent's list of corrections, we requested the respondent to
provide on November 27, 2001, revised sales and cost databases which
incorporated the findings listed in the verification report (see the
Department's November 13, 2001, letter to respondent, the sales
verification report, and the Department's November 6, 2001, cost
verification report). 

The petitioners are correct in that the fields of information the
respondent provided the Department at verification for these affected
sales numbered only 12, but these fields represented the most essential
fields of information for purposes of examining the sales transactions and
tracing the data from the sales listing to data contained in the sales
invoices. Expense fields were not included in the sales listing provided
to the Department at verification. However, most of those expense fields
(with the exception of credit, warranty, and inventory carrying expenses)
were derived by applying allocation formulas noted in the respondent's
response which the Department either examined at verification or elected
not to examine at verification. Therefore, the Department also examined
the expense fields at issue by virtue of examining the allocation formulas
used to derive the per-unit amounts in the fields of information contained
in the November 27, 2001, filing. For the remaining three expense fields
of data (i.e., credit, warranty, and inventory carrying expenses), and
additional fields of data included in the November 27, 2001, filing, but
not contained in the sales listing provided at verification (i.e., product
code, customer code, shipment date, level of trade), we consider these
fields of data related to the sales transactions and to the data fields
the Department requested U-SI to provide in its November 13, 2001, letter.
Moreover, since we are using the sales at issue in our analysis, the
additional fields of information are necessary in order to consider all of
the data which is relevant for those sales transactions at issue.
Therefore, we have also used the data provided for those other fields in
our analysis. For certain sales at issue and for other transactions as
well, we traced the data contained in these additional fields of
information to corresponding data contained in source documentation (i.e.,
sales invoices) (see U-SI exhibits 7F, and 9A through 9I of the sales
verification report). In very few instances did we find errors in the data
reported for the sales transactions we examined at verification. In
addition, verification is not intended to examine all data related to a
particular sales transaction in order determine the reliability of each
piece of data associated with a given sales transaction. 

Unlike the situation in Tung Mung, the Department has useable data on the
record of this proceeding for the sales at issue and is able to
incorporate this data into its analysis for the final determination.
Moreover, unlike Tung Mung, the Department has examined the usable data
through sampling techniques employed at verification and considers the
data contained in the extra fields of information for the sales at issue
to be reliable based on its examination of similar data for other sales
transactions sampled at verification.

With regard to the other errors mentioned by the petitioners with respect
to the respondent's sales reporting (i.e., finish and grade coding errors,
unreported and/or improper inclusion of sales of non-subject merchandise
by its home market affiliate resulting from country-of-origin errors),
these errors were thoroughly examined by the Department at verification
and the Department was able to ascertain through utilization of various
verification techniques that the errors were isolated and minor in nature
such that they did not as a whole bring into question the reliability of
the respondent's reported home market sales (see pages 16 and 19 of the
sales verification report).

With respect to certain sales not reported based on U-SI's date of sale
methodology, the Department finds that U-SI properly excluded those sales
from the home market sales database based on the fact that the blanket
order covering those affected sales only specified a base price for
certain products and not the quantity or alloy surcharge. Therefore, the
Department finds that U-SI was justified in reporting any sales covered by
that blanket order based on the date of invoice rather than the date of
the blanket order.

With respect to the slight difference in net quantity and value between
what was included in the listing provided at verification and what was
included in the November 27, 2001, submission, the Department finds the
difference has been sufficiently explained by the respondent in its
December 7, 2001, submission, and does not merit calling into question the
accuracy of the data contained in the November 27, 2001, submission.
Therefore, we are using all the data contained in the November 27, 2001,
submission in our analysis for the final determination.

Finally, we recognize that both the petitioners and the respondent filed
submissions on the issue of whether the Department should use the sales at
issue after they submitted their case briefs and after the respondent
submitted the revised database per the Department's request (which was due
about one week after the case briefs were due) (see November 19, 2001,
case briefs and November 27, 2001, revised database submission). In
accordance with 19 CFR 351.301, the Department normally does not allow
parties to submit arguments after the deadline for submitting case briefs.
However, in this case, because the revised database was due to the
Department after the case briefs were filed, this was the first
opportunity the petitioners had to comment on the updated information.
Therefore, we have allowed the petitioners' December 7, 2001 submission to
rebut the use of respondent's data to remain on the record pursuant to 19
CFR 351.301(c)(1) and responded to their argument in this memorandum. 

Comment 5: Calculating the Dumping Margin

The respondent alleged that in the preliminary determination the
Department inappropriately disregarded negative margin sales in
calculating its dumping margin, and this unfairly and inaccurately
inflated its overall dumping margin. In calculating the respondent's
dumping margin for the preliminary determination, the Department assigned
a zero to the transactions in which the U.S. price exceeded normal value.
The respondent argues that this practice violates U.S. and international
law, which requires that the Department must make a "fair comparison"
between the export price or constructed export price and normal value.
Moreover, the respondent argues that a recent WTO Appellate Body decision
(4) found that the practice of "zeroing," under which export sales made at
prices greater than normal value are assigned a zero dumping margin,
violates Article 2.4 of the WTO Antidumping Agreement. Furthermore, the
respondent argues that the Department's position in Final Determination of
Sales at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat
Products From the Netherlands, 66 FR 50408 (October 3, 2001) ("Hot-Rolled
from the Netherlands") in which it dismissed the applicability of the
Appellate Body's Bed Linen decision is incorrect, and should not be
followed. Contrary to the Department's position in Hot-Rolled from the
Netherlands that (1) the "zeroing methodology is "required by U.S. law"
(citing section 771(35)(A) of the Act); (2) even though the zeroing
methodology produces unfair results, it is nevertheless "reasonable"
especially in an investigation; and (3) U.S. law takes precedence over any
"potentially conflicting obligations under the Uruguay Round Agreements",
the respondent argues that no provision of U.S. law requires the
Department to ignore negative margin sales. Further, the respondent argues
that no methodology that fails to effectuate a "fair comparison" pursuant
to section 773(a) of the Act can be considered a reasonable methodology,
and where U.S. and international law obligations do not conflict it is
established that U.S. law is to be read in harmony with international
obligations. For these reasons, the respondent requests that for the final
determination the Department recalculate its margin to account for
negative margin sales.

The petitioners argue that the Department correctly disregarded negative
margin sales in the preliminary determination. The petitioners contend
that the Department explicitly found that the WTO's Bed Linen from India
decision does not apply to U.S. proceedings. See, e.g., Certain Preserved
Mushrooms from India: Final Results of Antidumping Duty Administrative
Review, 66 FR 42507 (August 13, 2001), and accompanying Issues and
Decision Memorandum at Comment 16 ("Mushrooms from India"). As the
Department noted in Mushrooms from India, the Bed Linen from India Panel
and Appellate Decision concerned a dispute between the EU and India. The
Department has no WTO obligations to act. Therefore, The Department has
continued the practice of using zero where the NV does not exceed the
export price or CEP in our calculations of overall margins for the final
results. The petitioners argue that the respondent's argument should be
similarly rejected in this investigation as well.

Department's Position:

We disagree with the respondent. As we have discussed in prior cases, our
methodology is consistent with our statutory obligations under the Act.
See, e.g., Hot-Rolled from the Netherlands, at FR 50408 (October 3, 2001),
and accompanying Issues and Decision Memorandum, at Comment 1. First,
sales that did not fall below normal value are included in the weighted-
average margin calculation as sales with no dumping margin. The value of
such sales is included in the denominator of the weighted-average margin
along with the value of dumped sales. We do not, however, allow sales that
did not fall below normal value to cancel out dumping found on other
sales. 

Second, the Act requires that the Department employ this methodology.
Section 771(35)(A) of the Act defines "dumping margin" as "the amount by
which the normal value exceeds the export price or constructed export
price of the subject merchandise." Section 771(35)(B) of the Act defines
"weighted-average dumping margin" as "the percentage determined by
dividing the aggregate dumping margins determined for a specific exporter
or producer by the aggregate export prices and constructed export prices
of such exporter or producer." These sections, taken together, direct the
Department to aggregate all individual dumping margins, each of which is
determined by the amount by which normal value exceeds export price or
constructed export price, and to divide this amount by the value of all
sales. The directive to determine the "aggregate dumping margins" in
section 771(35)(B) makes clear that the singular "dumping margin" in
section 771(35)(A) applies on a comparison-specific level, and does not
itself apply on an aggregate basis. At no stage in this process is the
amount by which EP or CEP exceeds normal value on sales that did not fall
below normal value permitted to cancel out the dumping margins found on
other sales. This does not mean, however, that sales that did not fall
below normal value are ignored in calculating the weighted-average rate.
It is important to note that the weighted-average margin will reflect any
"non-dumped" merchandise examined during the investigation, the value of
such sales is included in the denominator of the dumping rate, while no
dumping amount for "non-dumped" merchandise is included in the numerator.
Thus, a greater amount of "non-dumped" merchandise results in a lower
weighted-average margin. 

This is, furthermore, a reasonable means of establishing duty deposits in
investigations, and assessing duties in reviews. In an investigation such
as the present case, the deposit rate calculated must reflect the fact
that the Customs Service is not in a position to know which entries of
merchandise entered after the imposition of a dumping order are dumped and
which are not. By spreading the estimated liability for dumped sales
across all investigated sales, the weighted-average dumping margin allows
the Customs Service to apply this rate to all merchandise entered after an
order goes into effect. 

Finally, with respect to the respondent's WTO-specific arguments, we
believe U.S. law is consistent with our WTO obligations. Moreover, the Bed
Linen from India Panel and Appellate Body decisions concerned a dispute
between the European Union and India. We have no obligation under U.S. law
to act on this decision.

Comment 6: Level of Trade 

The petitioners argue that the Department should find that one level of
trade ("LOT") exists in the home market and that this LOT is comparable to
the LOT in the United States. Specifically, the petitioners requested that
for the final determination the Department find that ex-works sales
(Channel 2 sales) are also at the same LOT as ex-inventory sales (Channel
3 and 4 sales). The petitioners contend that to distinguish ex-works sales
(Channel 2) from ex-inventory sales (Channel 3 and 4) is nothing more than
an artificial segregation of the manufacturing process and this does not
constitute or support finding a difference in LOT between the two
channels. Furthermore, the petitioners contend that all of the ex-works
and ex-inventory sales are in reality mill direct sales to the customer
and the place of manufacture does not (and cannot) affect or advance the
LOT. Moreover, the petitioners contend that because the Department has
treated certain selling and movement expenses between U-SI and U-SI's
affiliate, Ugine France Service/Ugine-Savoie France ("UFS/U-SF"), as
manufacturing costs rather than as selling expenses, the Department is
essentially measuring net home market price for ex-inventory sales
(Channel 3 and 4) from UFS/U-SF's door. Hence, the petitioners contend
that the Department should treat these ex-inventory sales as mill direct
sales based on the rationale that the selling functions performed by both
U-SI and UFS/U-SF should be combined in the same manner as are the
manufacturing expenses for purposes of determining the total manufacturing
cost of SSB which UFS/U-SF further processed prior to sale to the
unaffiliated customer. For the reasons mentioned above, the petitioners
request that the Department find that there is a single LOT in the home
market and that this LOT is equal to the LOT in the United States.

The respondent argues that in the preliminary determination, the
Department erred in finding that U-SI's home market ex-works sales
(Channel 2) and its CEP sales were made at the same LOT, and that UFS/U-
SF's ex-inventory sales of standard SSB (Channel 3) and UFS/U-SF A.P's
sales of specialized SSB (Channel 4) were made at the same LOT. The
respondent contends that the Department's preliminary LOT analysis was
fundamentally flawed. Instead of specifically considering and evaluating
all the selling functions and expenses reported, the Department
generalized the respondent's 24 specific selling functions into four broad
categories. The respondent argues that by grouping distinct selling
functions together the Department diluted and masked the significant
differences that exist in the selling activities performed in the home
market LOTs and those selling activities performed for CEP sales. The
respondent maintains that its home market affiliated reseller, UFS/U-SF,
undertakes significantly more selling functions in the home market by
selling at more remote stages of distribution compared to U-SI's selling
functions for its CEP sales to US&A. In addition, the respondent argues
that the petitioners' assertion that one LOT exists in the home market
ignores the distinct stages of distribution represented in the
respondent's home market distribution network by treating the product U-SI
sold to UFS/U-SF through channels of distribution as semi-finished product
and considering the further processing services provided by UFS/U-SF as
manufacturing, rather than selling, in nature.

Furthermore, the respondent argues that in order to achieve a fair
comparison between CEP and normal value as required by the antidumping
duty law, the Department must make a LOT adjustment to normal value. The
respondent maintains that this LOT adjustment is necessary to account for
the significant extra layers of selling activities performed and
significant extra expenses incurred for home market sales vis-a-vis CEP
sales. Therefore, for the final determination, the respondent requests
that the Department find three distinct levels of trade in the home market
(i.e., direct ex-works sales (Channel 2), ex-inventory sales of standard
SSB (Channel 3), and ex-inventory sales of specialized SSB (Channel 4)),
each of which is at a more advanced stage of distribution than the
respondent's CEP sales. 

Department's Position:

We agree in part with the respondent. For the final determination, we
have continued to find that two levels of trade exist in the home market
but have determined that each of those levels of trade are distinct LOTs
which are different from the LOT which exists in the U.S. market. We
examined whether a LOT adjustment was appropriate by comparing the CEP
sales to home market sales at a different LOT. Since the data available
did not provide an appropriate basis to determine a LOT adjustment, we are
unable to make this adjustment. However, since the LOTs in France are a
more advance stage than the LOT of the CEP sales, a CEP offset is
appropriate. 

As we stated in the preliminary determination, in accordance with section
773(a)(1)(B) of the Act, to the extent practicable, we determine NV based
on sales in the comparison market at the same LOT as the CEP transaction.
The NV LOT is that of the starting-price sales in the comparison market.
For CEP, the U.S. LOT is also the level of the starting-price sale, which
is usually from the exporter to the U.S. affiliate. To determine whether
NV sales are at a different LOT than CEP, we examine stages in the
marketing process and selling functions (5) along the chain of
distribution between the exporter and the U.S. affiliated reseller. 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 CEP transaction, we make a LOT adjustment pursuant
to section 773(a)(7)(A) of the Act. Finally, for CEP sales only, if a NV
LOT is more remote from the factory than the CEP LOT and we are unable to
make a LOT adjustment, the Department shall grant a CEP offset, as
provided in section 773(a)(7)(B) of the Act (see Notice of Final
Determination of Sales at Less Than Fair Value: Certain Cut-to-Length
Carbon Steel Plate from South Africa, 62 FR 61731 (November 19, 1997)). 

In our preliminary determination, in reviewing the channels of
distribution, we determined that home market sales made by U-SI's
affiliate (i.e., UFS/U-SF) from its inventory (either through UFS/U-SF's
AP department or non-AP departments) were made at the same LOT because we
considered the upgrading and other special operations (6) performed by
UFS/U-SF's AP department not to be selling functions, and thus not
relevant to our LOT analysis. After further examining the functions the AP
department performs in making sales to its customer from inventory,
through review of source documentation at verification, we continue to
find that the extra operations which the AP department performs (which the
respondent claims translate into a LOT distinct from the affiliate's non-
AP department sales made from inventory) are manufacturing operations
which should not be taken into account in our LOT analysis (see U-SI
exhibits 6A, 9A through 9I, and page 12 of the sales verification report).
These manufacturing steps are no more selling functions than any of the
prior steps in the manufacturing process. We do recognize that in
arranging for these additional manufacturing operations, the AP department
needs to spend more time with the customer as a result of the need to
obtain in the majority of cases additional certifications through third
parties for any additional work performed on the SSB purchased sold
through the AP department. Nevertheless, for the reason previously
explained, we do not find that additional manufacturing and the need to
obtain certifications to complete such work a sufficient basis for
treating UFS/U-SF's ex-inventory non-AP sales and ex-inventory AP sales as
separate LOTs. Accordingly, we find that the selling functions for the two
channels of distribution are similar, if not identical. Therefore, for the
final determination, we continue to find that these two channels of
distribution represent one LOT.

With respect to the petitioners' contention that UFS/U-SF's ex-inventory
sales are at the same LOT as U-SI's ex-mill sales because the Department
has decided to group in the COP the costs associated with the
manufacturing operations (i.e., "selling" functions claimed by UFS/U-SF)
performed by UFS/U-SF with respect to those ex-inventory sales, we
continue to find that ex-mill sales were made at a different LOT than the
ex-inventory sales. Specifically, we continue to conclude that there are
two LOTs in the home market for the following reasons. First, there are
certain selling functions (i.e., inventory maintenance) performed for ex-
inventory sales but not for ex-mill sales. Although we do not consider the
manufacturing operations UFS/U-SF performs for its ex-inventory sales to
be selling functions and have treated the expenses associated with those
operations (i.e., the movement and claimed expenses between U-SI and UFS/U-
SF) as manufacturing costs rather then selling expenses, the treatment of
those costs is separate from how we determine LOTs with respect to the
expenses which UFS/U-SF incurred to make the sale to its customer and the
selling functions it performed which are associated with those expenses.
In this case, the maintenance of product inventory by UFS/U-SF prior to
sale to the customer indicates that the selling functions for sales
through this channel are significantly different from the selling
functions associated with ex-mill sales made by U-SI. For example, selling
products from inventory involves a greater degree of intensity in finding
the customer and in the overall sales effort than is the case for a
company that makes the product to order (i.e., ex-mill). Moreover, based
on our verification findings, we confirmed that the selling functions
(i.e., sales process/market research, sales calls, interactions with
customers, freight, technical advice and warranty servicing) that UFS/U-SF
provided for its ex-inventory sales were at a higher level of intensity
than the same selling functions U-SI provided for its ex-works sales (see
U-SI exhibit 6A of the sales verification report). Therefore, there is a
sufficient basis for finding that U-SI's ex-mill and ex-inventory sales in
the home market constitute two distinct LOTs and that U-SI's ex-inventory
sales are at a more advanced LOT than U-SI's ex-mill sales.

With respect to U-SI's sales to its U.S. affiliate, US&A, we stated in
the preliminary determination that these sales were made at the same LOT
as U-SI's direct ex-mill sales because we were not convinced that U-SI
perform different selling functions or selling functions at different
levels of intensity for its sales to US&A as it performed for its ex-mill
sales. However, after examining at verification data necessary for
determining whether or not these two levels were the same, we now
determine that there is a sufficient basis for finding that the U.S. LOT
is sufficiently different from the ex-mill sales LOT and thus should be
treated as different LOTs for the following reasons. Based on
documentation examined at verification (i.e., documents showing the sales
process from U-SI to its U.S. affiliate, corporate business plans prepared
by U-SI and US&A, and other documentation related to U.S. sales), it is
evident that U-SI has no significant role in performing any selling
functions in making sales to US&A for resale in the U.S. market. In fact,
U-SI's selling functions are limited to simply invoicing US&A, arranging
freight, and occasionally providing warranty services for the SSB it sells
to US&A (see US&A and U-SI exhibits 6A of the sales verification report).
On the other hand, for its ex-mill home market sales, U-SI performs
certain selling functions (i.e., marketing activities, and follow-up
customer support services such as technical services) which are not
performed by it when making its U.S. sales to US&A (see also US&A exhibit
6A and U-SI exhibit 6A of the sales verification report). Based on this
information, we find that the selling functions performed by U-SI on
behalf of its ex-mill sales are at a higher level of intensity and greater
in number than the selling functions it performs on behalf of its U.S.
sales to US&A. Therefore, for the final determination, we are treating the
home market ex-mill LOT and U.S. LOT as distinct LOTs. 

As a result, we now consider both the ex-mill and ex-inventory home
market LOTs to be distinct LOTs in the home market and each different from
the U.S. LOT. Therefore, because we compared the CEP sales to home market
sales at a different LOT, we examined whether a LOT adjustment was
appropriate. Since both home market LOTs are not the same as the U.S. LOT,
we are unable to determine whether the differences between the home market
LOTs affect price comparability, and thus unable to make an LOT
adjustment. However, since both LOTs in France are a more advanced stage
than the LOT of the CEP sales, we have granted a CEP offset as provided in
section 773(a)(7)(B) of the Act. In making our comparisons, since the ex-
mill home market sales are at a LOT that is less remote than the U.S. LOT,
we have first compared the ex-mill home market sales to U.S. sales. Where
such comparisons were not possible, we then compared U.S. sales to the
more remote home market LOT (i.e., ex-inventory sales). 

Comment 7: Home Market Expenses Reported In Lieu of Commissions 

In some situations, UFS/U-SF, U-SI's home market affiliate, acts as an
agent for U-SI by finding the home market customer for U-SI and directing
that customer to it so that U-SI can make the sale to that customer on an
ex-mill basis. UFS/U-SF reported in a separate field of information the
expenses it incurred acting as a commission agent for U-SI and claimed
these expenses in lieu of commissions. UFS/U-SF calculated these expenses
by allocating a portion of its total indirect selling expense to this
activity based on the total sales value associated with this activity. 

The petitioners argue that the Department should deny the respondent's
claim for a commission adjustment on home market sales because there is no
support for finding that the commissions U-SI paid its affiliate UFS/U-SF
were at arm's-length. The petitioners maintain that the Department's
practice is to deny this type of adjustment in situations where it cannot
test the arm's-length nature of the affiliated party commission. Moreover,
the petitioners argue that it is the Department's practice to allow an
adjustment for related party commissions made at arm's-length only if they
are tied directly to sales. Therefore, the petitioners argue that in the
final determination the Department should not adjust normal value for the
so-called commission paid between U-SI and UFS/U-SF. In support of its
position, the petitioners cite to the Final Determination of Sales at Less
Than Fair Value: Coated Groundwood Paper from Belgium, Finland, France,
Germany and the United Kingdom, 56 FR 56359 (November 4, 1991). 

The respondent maintains that it is not claiming that the actual
commissions U-SI paid to UFS/U-SF are at arm's-length or should be
deducted from normal value. Rather, the respondent argues that the
Department should subtract from normal value the expenses reported by
UFS/U-SF which it incurred acting as a commission agent for U-SI.
Moreover, the respondent contends that UFS/U-SF only incurs expenses
associated with this type of activity if U-SI actually pays UFS/U-SF a
commission after UFS/U-SF finds the customer for it and U-SI makes the
sale to that customer. As such, the respondent points out that UFS/U-SF
would not have incurred these type of expenses if it had not acted as a
commission agent on behalf of U-SI and U-SI did not make a sale through
this channel of distribution. Therefore, the respondent claims these
expenses bear a direct relationship to the particular sale in question
(i.e., the home market sales U-SI made on an ex-mill basis), and should be
treated as a direct selling expense. 

In addition, the respondent points out that the Department cannot offset
these home market expenses at issue by the amount of the U.S. commission
because the Department has already deducted U.S. commissions from the U.S.
gross unit price. Moreover, the respondent asserts that the home market
expenses at issue can not be offset by the amount of U.S. expenses which
were not incurred as a result of U.S. economic activity (i.e., indirect
selling and inventory carrying expenses incurred in the home market on
behalf of U.S. sales), because these U.S. expenses are not related to
activities for which commissions are being paid. Therefore, the respondent
requests that the Department consider the actual expenses associated with
U-SI's commissioned sales to be direct in nature and deduct such expenses
from normal value in the final determination. 

Department's Position:

We agree with respondent that the expenses incurred by UFS/U-SF should be
accounted for in the final determination but disagree with the respondent
that they should be treated as direct selling expenses based on the fact
those expenses are the same as other expenses reported as home market
indirect selling expenses and based on the fact that those expenses cannot
be linked directly to the sales at issue. Upon our examination of this
issue at verification, we found that these expenses were extracted by
UFS/U-SF from its total indirect selling expenses recorded in its
accounting records. The Department notes that in general UFS/U-SF took
into account the same expense items when it allocated its total pool of
indirect selling expenses over the sales made on behalf of U-SI and over
the sales it made from its inventory based on channel-specific sales
ratios used for this purpose (see U-SI exhibit 10D of the sales
verification report). Therefore, the Department concludes that the expense
items (which UFS/U-SF reported for this expense at issue) are incurred for
not only the sales it makes on behalf of U-SI but also for the sales it
makes on its own behalf. Therefore, these expenses are common to all sales
and accordingly should be treated as such. Therefore, the Department has
treated the expenses at issue as UFS/U-SF indirect selling expenses
associated with sales U-SI made on an ex-mill basis in the final
determination. We have also included these expenses in the pool of home
market expenses used to determine the CEP offset. 

Comment 8: Treatment of Movement and Selling Expenses Between Home Market
Affiliates as Manufacturing Costs 

The respondent argues that the Department erred in its preliminary
determination by treating U-SI's selling and movement expenses associated
with it sales of SSB to UFS/U-SF as production costs, instead of adjusting
normal value to account for these expenses. The respondent argues that the
antidumping duty law and the Department's regulations recognize that
manufacturers and their affiliated resellers incur separate and
independent selling expenses for their respective sales and that normal
value must be adjusted accordingly. The respondent further maintains that
the adjustment must account for additional costs, charges and expenses
incident to bringing the foreign product from the original place of
shipment to the place of delivery, which in its case, is UFS/U-FS's
warehouse. The respondent contends that the Department's preliminary
determination appeared to mischaracterize the product sold by U-SI to
UFS/U-FS as semi-finished rather than as finished SSB. The respondent
maintains that this treatment is contrary to the facts on the record and
what it demonstrated at verification. The respondent reiterates that U-SI
produces and sells finished SSB directly to unaffiliated parties in France
as well as to its affiliate UFS/U-SF. Furthermore, the respondent argues
that the Department has long recognized that affiliated resellers, like
UFS/U-SF, which function as steel service centers, represent a separate
and distinct step in the selling-distribution chain. Moreover, the
respondent maintains that the further processing operations performed by
UFS/U-SF (i.e., cutting, subcontracted grinding and certification) are
consistent with those activities considered by the Department to be within
the province of affiliated resellers and steel services centers. The
respondent argues that treatment of these entities as selling entities is
supported by the North American Industry Classification System (formerly
known as the "Standard Industrial Classification System"). Therefore, the
respondent contends that the Department's preliminary determination is
unsupported by law, fact or reason, and improperly disallowed U-SI the
statutorily prescribed adjustment to normal value and CEP. In support of
its argument, the respondent cites to the Amended Final Determination of
Sales at Less Than Fair Value and Antidumping Duty Order: Stainless Steel
Sheet and Strip in Coils from Germany, 64 FR 40557 (July 27, 1999) ("Sheet
and Strip from Germany"); Preliminary Determination of Sales at Less Than
Fair Value and Postponement of Final Determination: Stainless Steel Sheet
and Strip in Coils from the United Kingdom, 64 FR 85, 89 (January 4, 1999)
("Sheet and Strip from the United Kingdom"); and Preliminary Results of
Antidumping Administrative Review: Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products from the United Kingdom, 64 FR 68316, 68318
(December 7, 1999) ("Lead and Bismuth from the United Kingdom").

The petitioners argue that the Department should reject the respondent's
argument and continue to treat these expenses at issue as manufacturing
costs. The petitioners maintain that the respondent's premise that the
Department must adjust for expenses incurred from the original place of
shipment to the place of delivery has misconstrued the meaning of the
original place of shipment. The petitioners argue that the production of
the merchandise sold by UFS/U-SF takes place in two locations. The
petitioners maintain that the initial production of the merchandise takes
place at U-SI and that this product is semi-finished product. The
petitioner then contends that the semi-finished product U-SI sells to
UFS/UFS is then further processed by UFS/U-FS via cutting, grinding or
heat treatment operations and only then does it become finished product
which UFS/U-SF sells to its unaffiliated home market customers. The
petitioners conclude that, in this instance, the original place of
shipment occurs after the completion of the manufacturing of the product,
or shipment from UFS/U-SF to its customer. Therefore, the petitioners
argue that the movement and selling expenses incurred by U-SI in selling
its product to UFS/U-SF should be treated as manufacturing costs because
they are part of the cost of the semi-finished inventory that is
transferred to UFS/U-SF. Therefore, the petitioners request that, for the
final determination, the Department affirm its preliminary determination
and consider all intercompany transfer expenses as part of U-SI's cost of
manufacture ("COM"). 

Department's Position:

We agree with the petitioners and have continued to treat the movement
and selling expenses between U-SI and UFS/U-SF as expenses associated with
the cost of manufacturing the final product sold by U-SI's home market
affiliate to its customer in the final determination. Although the
respondent claims that the product sold to UFS/U-SF is finished SSB, UFS/U-
SF performs additional further processing operations on the product either
through subcontracting (i.e., grinding and/or heat treatment) or by
altering the product itself (i.e., cutting), which effectively transforms
the product prior to selling it to its customers. In this situation, U-SI
has not made the claim that its sales to its affiliate, UFS/U-SF, were
made at arm's length. Therefore, we have examined the issue in this case
in the context of the downstream sales made by U-SI's affiliate to its
customer. Because we view the downstream sale as one continuous sales
process, we appropriately are treating the intercompany expenses incurred
between U-SI and UFS/U-SF in making the sale to the first unaffiliated
home market customer as manufacturing costs rather than selling expenses,
irrespective of whether UFS/U-SF's customers request on occasion that some
further processing be performed to the SSB prior to their purchase.
Although the respondent maintains that further processing operations
performed by UFS/U-SF are minor in nature and do not encompass all of the
products UFS/U-SF sold to its customers, our analysis of certain
information requested at verification indicates that with respect to one
of the two channels of distribution UFS/U-SF claimed in the home market
(i.e., AP ex-inventory sales), a significant portion of the merchandise
sold through this channel of distribution further underwent heat treatment
and grinding (see U-SI exhibit 6A of the sales verification report). The
Department finds that these operations are significant, not minor,
manufacturing operations which substantially altered the product from what
U-SI originally sold to UFS/U-SF. In addition to these operations, a
significant portion of the product sold through this channel of
distribution underwent cutting. This operation also altered the product
prior to its sale to the first unaffiliated home market customer. With
respect to the other channel of distribution (i.e., non-AP ex-inventory
sales), the respondent has indicated that on occasion, UFS/U-SF will
perform cutting operations on the product sold through this channel as
well. The Department also examined this channel of distribution at
verification and determined that cutting, performed even on an occasional
basis, still constitutes an operation which transformed the product sold
between affiliated parties prior to its resale to the unaffiliated
customer.

Finally, with respect to the above-referenced cases cited by the
respondent, the Department finds that in two of those cases (i.e., Sheet
and Strip from the United Kingdom and Lead and Bismuth from the United
Kingdom), the issue of how to treat the movement and selling expenses
between the respondent and its affiliated reseller was not specifically
raised in the same context for Department consideration in those cases.
With respect to Sheet and Strip from Germany, where the Department
determined that it was inappropriate to adjust the respondent's COP for
certain products subjected to further processing by the affiliated home
market service center, we find that this decision was made as a result of
the Department incorrectly adding processing costs to certain sales for
which none were incurred and/or adding multiples of those costs to the
same sales where such costs were incurred (see "NSC's Processing Costs"
issue contained in the public version of the Ministerial Error Memorandum
titled "Allegations of Ministerial Errors - Final Determination in the
Investigation of Stainless Steel Sheet and Strip in Coils from Germany,"
dated July 23, 1999, which has been placed on the record of this
proceeding). 

Comment 9: Home Market Warranty Expenses 

The petitioners argue that the Department should not use U-SI's and UFS/U-
SF's reported home market warranty expenses because the respondent
continued to allocate these expenses over all of its sales instead of on a
customer-specific basis as requested by the Department in its May 21,
2001, supplemental questionnaire. Furthermore, the petitioners argue that
the Department noted in the sales verification report that both companies
could have reported their warranty expenses on a customer-specific basis
rather than over each companies' total home market sales, respectively. 

The respondent maintains that U-SI and UFS/U-SF reported their warranty
expenses on a product-specific basis, not over all of each company's
respective home market sales, based on instructions contained in the
Department's February 20, 2001, questionnaire. The respondent contends
that reporting this expense on a customer-specific basis fails to account
for the fact that it provides warranties to all customers even though only
some customers actually had filed warranty claims with the respondent
during the POI. In addition, the respondent argues that attempting to
relate particular warranty expenses to particular SSB purchases during the
POI does not improve the accuracy of this expense calculation. Moreover,
the respondent states that this expense is incurred by it after the sale
has been made and simply represents claims paid during the POI. Therefore,
the respondent asserts that the Department should accept its allocation
methodology for reporting this expense in the final determination. 

Department's Position:

We agree in part with the petitioners. In this case, U-SI and UFS/U-SF
each separately allocated the total expense it incurred in warranty claims
during the POI over all of its sales of the subject merchandise during the
POI. In this case, as requested by the Department, the respondent and its
affiliates have also provided the data for both the U.S. and home market
sales which would allow it to isolate and calculate this expense on a
customer-specific basis, rather than on a general product basis. In this
case, the respondent was able to provide lists of credit notes issued to
each customer for which a warranty expense was incurred and those credit
notes reflected the amount of subject merchandise returned to the
respondent and the amount credited to the customer for the defective
merchandise. We examined this customer-specific data at verification and
found it to be reliable (see U-SI exhibits 10B and 10F of the sales
verification report). 

We have the data necessary to identify the amount of this expense which
the respondent incurred on behalf of its sales to particular customers
rather than on a general product basis. Therefore, we have used this data
for purposes of determining the per-unit amounts for these expenses in the
final determination. Moreover, since we consider these expenses to be
directly related to sales made in both the U.S. and home markets, we are
treating this expense as a direct selling expense in both the home and
U.S. markets.

Comment 10: Treatment of UFS/U-SF's Restructuring Costs as Selling Expenses

The petitioners argue that the Department found at verification that a
portion of expenses attributable to layoffs, relocation, severance pay and
loss on fixed assets (i.e., restructuring expenses) as a result of UFS/U-
SF's closing certain of its sales offices were general and administrative
("G&A") expenses and not indirect selling expenses. Therefore, the
petitioners request that the Department treat these expenses as G&A
expenses in the final determination.

The respondent maintains that UFS/U-SF reported the expenses at issue as
indirect selling expenses associated with sales office rent and salesmen's
salaries incurred to sell the product in the foreign market based on
instructions contained in the Department's February 20, 2001,
questionnaire. Therefore, the respondent argues that the restructuring
expenses at issue are related to the cessation of selling activities due
to the closure of some UFS/U-SF's sales offices and reflect expenses
associated with sales office rent and salesmen's salaries. Therefore, the
respondent maintains that these expenses were properly reported as
indirect selling expenses and should be treated as such in the final
determination. 

Department's Position:

We agree with the respondent and have continued to treat the
restructuring expenses at issue as indirect selling expenses in the final
determination. The Department finds that the expenses associated with
closing down some of UFS/U-SF's sales offices and relocating its staff to
other sales offices a selling expense, not a G&A expense, because these
expenses were incurred as a result of UFS/U-SF transferring and/or
relocating its selling operations to other offices still in operation. In
addition, through an examination of these expenses at verification, we
found no evidence that these expenses were G&A expenses (see U-SI exhibit
10D of the sales verification report).

Comment 11: U.S. Credit Expense for Consignment Sales

The petitioners argue that the respondent in reporting its U.S. credit
expenses for US&A's consignment sales failed to consider the full credit
period from the date of shipment of the merchandise to the customer to the
date of payment. The petitioners argue that the respondent in its section
C supplemental questionnaire response reported the U.S. credit expenses to
reflect the time between the date of payment and the date of the
customer's withdrawal of merchandise from inventory. The petitioners
contend that this approach is wrong because it fails to consider the full
credit period when U-SI was incurring a cost associated with this
merchandise. The petitioners request that, for the final determination,
the Department correct the respondent's U.S. credit expenses for US&A's
consignment sales so that they reflect the full credit period. 

The respondent maintains that it calculated its U.S. credit expense in
accordance with the Department's questionnaire instructions and that the
Department found no discrepancies with respect to its date of sale
methodology at verification. Further, the respondent argues that the
expenses incurred by US&A for its consignment inventory up to the 15th day
of the month are fully accounted for in its U.S. inventory carrying cost
calculation.

Department's Position:

We disagree with the petitioners and have continued to accept U-SI's
reported U.S. credit expenses for consignment sales in the final
determination. As noted in the Department's questionnaire, it is the
Department's practice to calculate U.S. credit expense using the number of
days between date of shipment to the customer and date of payment. U-SI
has properly reported its credit expenses using this time period as part
of its calculation methodology. Moreover, as pointed out by U-SI, any
costs incurred with respect to consignment sales being held in inventory
prior to shipment to the customer are properly included in the reported
U.S. inventory carrying costs. The Department found no inconsistencies
with the reporting of either of these expense fields at verification (see
US&A exhibits 8A through 8K, 9B, and 9K of sales verification report).
Therefore, there is no need to revise the U.S. credit expense calculation
for consignment sales. 

Comment 12: Whether to Include Freight Revenue in Calculation Formulas
Used to Report Certain U.S. Discounts and Expenses

As a result of a correction to its data noted by the respondent at
verification, certain U.S. discount and expense fields of information
(i.e., early payment discounts, warranty, technical services, and indirect
selling expenses) were revised by U-SI in its November 27, 2001, U.S.
sales database so that the allocation factor derived for each adjustment
noted above was multiplied by the sum of gross unit price, billing
adjustments, and other revenue (i.e., net U.S. price) in order to arrive
at the per-unit amounts reported for each field of information. 

The petitioners argue that the Department should also include freight
revenue in the calculation of net U.S. price for purposes of deriving the
amounts reported for the fields of information noted above because like
other revenue, freight revenue is also a part of the net U.S. sales figure
contained in U-SI's U.S. affiliate's income statement. Moreover, the
petitioners contend that freight revenue should be included in net U.S.
price when calculating the fields of information noted above because
freight revenue also applies to the U.S. affiliate's sales to its
customers and is an integral part of the cost of the subject merchandise.

The respondent argues that applying the allocation formulas to a net U.S.
price (which includes freight revenue) in order to derive the per-unit
amounts for the fields of information noted above would generate expenses
in excess of the verified amounts actually incurred. In addition, the
respondent states that its U.S. affiliate does not record freight revenue
as sales revenue and that freight revenue should not therefore be included
in net U.S. price when calculating the per-unit amounts for the fields of
information noted above. 

Department's Position:

We agree with the respondent. Based on our verification findings, the
Department noted that freight revenue, unlike billing adjustments and
other revenue, is not normally a line item on the sales invoice (see US&A
exhibits 7A, 8F, and 8G of the sales verification report). In addition,
freight revenue is not generally a part of the total sales revenue amount
reflected in U-SI's U.S. affiliate's income statement (see also US&A
exhibits 7A , 8F, and 8G of the sales verification report). Therefore,
freight revenue was not included in the denominator of the allocation
ratio. The Department recognizes that on occasion U-SI's U.S. affiliate
includes an amount of freight revenue in the total invoice amount charged
to the customer, but those instances involved small quantities of
shipments and were therefore the exception rather than the rule based on
an examination of this issue at verification (see verification exhibit
11A). For this reason, the Department has not included freight revenue in
the calculations used to derive the per-unit amounts for the fields of
information noted above. 

Comment 13: Treatment of French Tax Provision 

The respondent claims that the Department incorrectly included the French
tax provision "Provision Pour Hausse de Prix" ("PHP") in the G&A ratio
calculation for the preliminary determination. The respondent states that
the PHP is a tax provision that reflects the capitalization of certain raw
material costs in the current year and a reversal of 1994's capitalized
raw material costs. The respondent argues that because these items are
recorded for income tax purposes only and do not reflect true costs, these
amounts should not be included in the G&A calculation.

The respondent also asserts that because consumable packing costs were
included in U-SI's reported COM, packing consumables should remain in the
cost of goods sold used in the denominator of the G&A calculation.

The petitioners argue that the PHP provision should be included in the
G&A calculation because it is related to changes in the material cost
valuation. The petitioners point out that the statute states at section
773(f)(1)(A) of the Act:

     Costs 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.

The petitioners claim that the PHP provision is acceptable under French
generally acceptable accounting provisions and should therefore be
included in the COM.

Department's Position:

We agree with petitioners and the respondent in part. The PHP provision
made by U-SI to adjust for price increases in raw materials should be
included in the reported costs. Consistent with section 773(f)(1)(A) of
the Act, it is the Department's practice to rely upon a company's normal
books and records when they are prepared in accordance with the country's
generally accepted accounting principles ("GAAP") and they reasonably
reflect the cost of producing and selling the subject merchandise. We
noted that in its normal books and records, U-SI included the net price

adjustment provision for its raw materials. However, we found that these
adjustments are not reflected in U-SI's reported costs. Additionally,
because raw material inventories are inputs into the cost of manufacturing
the merchandise under consideration, any write-downs of these amounts
should be included in determining the reported costs. See Notice of Final
Determination of Sales Less Than Fair Value: Stainless Steel Wire Rod from
Italy, 63 FR 40422, 40430 (July 29, 1998). Because the PHP provision
relates to the general operations of the company as a whole and cannot be
segregated between subject and non-subject merchandise we have included
the net provision in the calculation of the G&A expense ratio.

We agree with the respondent that because consumable packing costs were
included in U-SI's reported COM, the packing consumables should remain in
the cost of goods sold used in the denominator of the G&A calculation. 

Recommendation 

Based on our analysis of the comments received, we recommend adopting all
of the above positions. If these recommendations are accepted, we will
publish the final determination and the final weighted-average dumping
margin for the investigated firm in the Federal Register.

Agree____ Disagree____

______________________ 

Faryar Shirzad
Assistant Secretary
  for Import Administration

______________________ 
(Date) 

_________________________________________________________________________
footnotes:

1. Antidumping Duty Investigations of Stainless Steel Bar from France and
Italy. 

2. See Techsnabexport, Ltd. v. United States, 802 F. Supp. 469, 472 (CIT
1992) (Finding that antidumping duty "investigations are to focus on
merchandise from particular countries."). 

3. See 19 CFR 351.202(b)(6); section 771 of the Act. 

4. See European Communities - Anti-dumping measures on imports of cotton-
type bed linen from India, DS141/AB/R (2001) ("Bed Linen from India"). 

5. We have continued to organize the common SSB selling functions into
four major categories: (1) sales process and marketing support; (2)
freight and delivery; (3) inventory and warehousing; and (4) quality
assurance/warranty services. 

6. These operations included the following: (1) testing and
certifications; (2) upgrading (i.e., heat treatment, machining, drilling,
grinding); and (3) "other special" operations (i.e., special conditioning,
cutting, marking, and chamfering SSB).