63 FR 40434, July 29, 1998  Notices
DEPARTMENT OF COMMERCE
International Trade Administration
(A-588-843)
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Wire Rod from Japan
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
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EFFECTIVE DATE: July 29, 1998.
FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or John Maloney, Import
Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, NW, Washington, D.C.
20230; telephone: (202) 482-2613 or (202) 482-1503, respectively.
Applicable Statute and Regulations
    Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (the Act), are references to the provisions effective
January 1, 1995, the effective date of the amendments made to the Act
by the Uruguay Round Agreements Act (URAA). In addition, unless
otherwise indicated, all citations to the Department of Commerce's (the
Department's) regulations are to the regulations codified at 19 CFR
part 351, 62 FR 27296 (May 19, 1997).
Final Determination
    We determine that stainless steel wire rod (SSWR) from Japan is
being sold in the United States at less than fair value (LTFV), as
provided in section 735 of the Act. The estimated margins of sales at
LTFV are shown in the ``Continuation of Suspension of Liquidation''
section of this notice, below.
Case History
    Since the preliminary determination in this investigation on
February 25, 1998 (see Notice of Preliminary Determination of Sales at
Less Than Fair Value and Postponement of Final Determination: Stainless
Steel Wire Rod from Japan, 63 FR 10854 (March 5, 1998) (Preliminary
Determination)), the following events have occurred:
    In February 1998, we issued supplemental requests for information
to the three participating respondents in this case: Daido Steel Co.,
Ltd. (Daido); Nippon Steel Corp. (Nippon); and Hitachi Metals, Ltd.
(Hitachi) (collectively, the respondents). We received responses in
February and March 1998.
    In March 1998, we received revised cost data from Nippon reflecting
cost breakouts for ultra-fine (UF) rod, and we received revised sales
and cost information from Daido. In addition, on March 18, 1998, we
issued an amended preliminary determination in this investigation (see
Notice of Amended Preliminary Determination of Sales at Less Than Fair
Value: Stainless Steel Wire Rod from Japan, 63 FR 14066 (March 24,
1998)).
    In March and April 1998, we verified the questionnaire responses of
the respondents. In May and June 1998, the respondents submitted
revised sales databases, reflecting verification revisions, at the
Department's request.
    On June 1, 1998, the petitioners (i.e., AL Tech Specialty Steel
Corp., Carpenter Technology Corp., Republic Engineered Steels, Talley
Metals Technology, Inc., and the United Steel Workers of America, AFL-
CIO/CLC), and Nippon and Hitachi submitted case briefs. On June 8,
1998, the petitioners and the respondents submitted rebuttal briefs.
The Department held a public hearing on June 10, 1998.
Scope of Investigation
    For purposes of this investigation, SSWR comprises products that
are hot-rolled or hot-rolled annealed and/or pickled and/or descaled
rounds, squares, octagons, hexagons or other shapes, in coils, that may
also be coated with a lubricant containing copper, lime or oxalate.
SSWR is made of alloy steels containing, by weight, 1.2 percent or less
of carbon and 10.5 percent or more of chromium, with or without other
elements. These products are manufactured only by hot-rolling or hot-
rolling, annealing, and/or pickling and/or descaling, are normally sold
in coiled form, and are of solid cross-section. The majority of SSWR
sold in the United States is round in cross-sectional shape, annealed
and pickled, and later cold-finished into stainless steel wire or
small-diameter bar.
    The most common size for such products is 5.5 millimeters or 0.217
inches in diameter, which represents the smallest size that normally is
produced on a rolling mill and is the
[[Page 40435]]
size that most wire-drawing machines are set up to draw. The range of
SSWR sizes normally sold in the United States is between 0.20 inches
and 1.312 inches diameter. Two stainless steel grades, SF20T and K-
M35FL, are excluded from the scope of the investigation. The chemical
makeup for the excluded grades is as follows:
                                  SF20T
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon....................................  0.05 max.
Manganese.................................  2.00 max.
Phosphorous...............................  0.05 max.
Sulfur....................................  0.15 max.
Silicon...................................  1.00 max.
Chromium..................................  19.00/21.00.
Molybdenum................................  1.50/2.50.
Lead......................................  added (0.10/0.30.
Tellurium.................................  added (0.03 min).
------------------------------------------------------------------------
                                 K-M35FL
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon....................................  0.015 max.
Silicon...................................  0.70/1.00.
Manganese.................................  0.40 max.
Phosphorous...............................  0.04 max.
Sulfur....................................  0.03 max.
Nickel....................................  0.30 max.
Chromium..................................  12.50/14.00.
Lead......................................  0.10/0.30.
Aluminum..................................  0.20/0.35.
------------------------------------------------------------------------
    The products under investigation are currently classifiable under
subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and
7221.00.0075 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.
Period of Investigation
    The period of investigation (POI) is July 1, 1996, through June 30,
1997.
Facts Available
    In the preliminary determination, the Department found that Sanyo
Special Steel Co., Ltd. (Sanyo) and Sumitomo Electric Industries Ltd.
(SEI) failed to respond fully to our questionnaire. Accordingly, for
the preliminary determination, the Department based the antidumping
margins for these companies on facts otherwise available and assigned
them Daido's margin of 31.38 percent, which was the higher of either
the highest margin in the petition or the highest margin calculated for
a respondent. See Notice of Preliminary Determination of Sales at Less
Than Fair Value and Postponement of Final Determination: Stainless
Steel Wire Rod From Japan, 63 FR 10854, 10855 (March 5, 1998). Neither
company submitted comments on the Department's preliminary
determination to use facts available. Accordingly, for the final
determination, the Department has continued to base the antidumping
margins for these companies on facts otherwise available and assigned
them Daido's margin of 34.21 percent, which was the higher of either
the highest margin in the petition or the highest margin calculated for
a respondent.
Fair Value Comparisons
    To determine whether sales of SSWR from Japan to the United States
were made at less than fair value, we compared the Export Price (EP) or
Constructed Export Price (CEP) to the Normal Value (NV). Our
calculations followed the methodologies described in the preliminary
determination.
    On January 8, 1998, the Court of Appeals for the Federal Circuit
issued a decision in CEMEX v. United States, 1998 WL 3626 (Fed Cir.).
In that case, based on the pre-URAA version of the Act, the Court
discussed the appropriateness of using CV as the basis for foreign
market value (presently normal value) when the Department finds home
market sales to be outside the ``ordinary course of trade.'' This issue
was not raised by any party in this proceeding. However, the URAA
amended the definition of sales outside the ``ordinary course of
trade'' to include sales below cost. See Section 771(15) of the Act.
Consequently, the Department has reconsidered its practice in
accordance with this court decision and has determined that it would be
inappropriate to resort directly to CV, in lieu of foreign market
sales, as the basis for NV if the Department finds foreign market sales
of merchandise identical or most similar to that sold in the United
States to be outside the ``ordinary course of trade.'' Instead, the
Department will use sales of similar merchandise, if such sales exist.
The Department will use CV as the basis for NV only when there are no
above-cost sales that are otherwise suitable for comparison. Therefore,
in this proceeding, when making comparisons in accordance with section
771(16) of the Act, we considered all products sold in the home market
as described in the ``Scope of Investigation'' section of this notice,
above, that were in the ordinary course of trade for purposes of
determining appropriate product comparisons to U.S. sales. Where there
were no sales of identical merchandise in the home market made in the
ordinary course of trade to compare to U.S. sales, we compared U.S.
sales to sales of the most similar foreign like product made in the
ordinary course of trade, based on the characteristics listed in
Sections B and C of our antidumping questionnaire. We have implemented
the Court's decision in this case, to the extent that the data on the
record permitted.
    In instances where a respondent has reported a non-AISI grade (or
an internal grade code) for a product that falls within a single AISI
category, we have used the actual AISI grade rather than the non-AISI
grades reported by the respondents for purposes of our analysis.
However, in instances where the chemical content ranges of reported
non-AISI (or internal grade code) grades are outside the parameters of
an AISI grade, we have used, for analysis purposes, the grade code
reported by the respondents. For further discussion of this issue, see
Comment 1 in the ``Interested Party Comments'' section of this notice,
below.
Level of Trade
    In the preliminary determination, we conducted a level of trade
analysis for Daido, Hitachi, and Nippon. We determined that a level of
trade adjustment was not warranted for any of the respondents. See
Memorandum to the File from the Team regarding the Department's Level
of Trade Analysis, dated February 25, 1998. None of the respondents
commented on the Department's level of trade determination. In the
process of raising arguments on another issue, the petitioners claimed
that it may be necessary to reevaluate the level of trade analysis. We
have determined that this is not necessary. See Comment 5 in the
``Interested Party Comments'' section of this notice, below.
Accordingly, for purposes of the final determination, we have continued
to hold that a level of trade adjustment is not warranted for any of
the respondents.
Export Price/Constructed Export Price
    For Daido and Nippon, we used EP methodology, in accordance with
section 772(a) of the Act, because the subject merchandise was sold
directly to the first unaffiliated purchaser in the United States prior
to importation and CEP methodology was not otherwise indicated.
    For Hitachi, because sales to the first unaffiliated purchaser took
place after importation into the United States, we used CEP
methodology, in accordance with section 772(b) of the Act.
    We calculated EP and CEP based on the same methodology used in the
preliminary determination.
Normal Value
    We used the same methodology to calculate NV as that described in
the
[[Page 40436]]
preliminary determination, with the following exception:
Nippon
    We included bank charges incurred on U.S. sales to cash letters of
credit in the circumstance of sale adjustment along with credit and
warranty expenses.
Cost of Production
    We calculated the cost of production (COP) based on the sum of each
respondent's cost of materials and fabrication for the foreign like
product, plus amounts for home market selling, general and
administrative (SG&A) expenses and packing costs, in accordance with
section 773(b)(3) of the Act. We relied on the submitted COPs except in
the following specific instances where the submitted costs were not
appropriately quantified or valued:
A. Daido
    For the final determination, we have included an allocated portion
of bonus payments that Daido distributed from its retained earnings to
its board of directors and auditors, and excluded a portion of the
directors salaries which were allocated to Daido's subsidiaries in the
G&A expense variable used in the calculation of COP and CV. See
Comments 8 and 9 in the ``Interested Party Comments'' section of this
notice, below. In addition, we (1) recalculated Daido's fixed overhead
costs, used in the calculation of COP and CV, to account for plant
common variances; and (2) revised Daido's reported cost of manufacture
to include certain costs that had been erroneously excluded from this
variable. See Memorandum from Taija Slaughter to Chris Marsh, dated
July 20, 1998.
B. Hitachi
    For the final determination, we have adjusted Hitachi's further
manufacturing cost database to reflect one weighted-average cost for
each product. See Comment 16 in the ``Interested Party Comments''
section of this notice, below.
C. Nippon
    Pursuant to our findings at verification, we have revised Nippon's
G&A expenses to include certain non-operating income and expenses. See
Memorandum from Peter Scholl to Chris Marsh, dated July 20, 1998. In
addition, we have revised the costs of several products to include
certain costs associated with the production of UF SSWR which, for the
preliminary determination, had been allocated across all products. See
Comment 17 in the ``Interested Party Comments'' section of this notice,
below.
    We also conducted our sales below cost test in the same manner as
that described in our preliminary determination. As with the
preliminary determination, we found that, for certain models of SSWR,
more than 20 percent of the respondent's home market sales were at
prices less than the COP within an extended period of time. See Section
773(b)(1)(A) of the Act. Further, the prices did not provide for the
recovery of costs within a reasonable period of time. We therefore
disregarded the below-cost sales and used the remaining above-cost
sales as the basis for determining NV, in accordance with section
773(b)(1) of the Act.
Constructed Value
    In accordance with section 773(e) of the Act, we calculated CV
based on the sum of each respondent's cost of materials, fabrication,
SG&A expenses, profit, and U.S. packing costs. We relied on the
submitted CVs, except in the following specific instances noted in the
``Cost of Production'' section above.
Currency Conversion
    As in the preliminary determination, we made currency conversions
into U.S. dollars based on the exchange rates in effect on the dates of
the U.S. sales, as certified by the Federal Reserve Bank in accordance
with section 773A of the Act.
Interested Party Comments
General Issues
    Comment 1: Use of AISI Grade Designations for Product Matching.
    According to the petitioners, Daido and Nippon should not be
allowed to rely on internal grade designations for product matching
purposes. The petitioners claim that Daido and Nippon designated
special internal product codes for certain high-priced home market
sales of products that would, except for the addition of small amounts
of chemicals not typically found in standard AISI designations,
otherwise fit within a standard AISI grade designation. In Nippon's
case, the petitioners assert that two specific Nippon internal grades
should have been classified within certain AISI grades. The petitioners
argue that the Department should assign each of Daido and Nippon's
internal grades a standard AISI grade for matching purposes.
    Daido states that it only reported internal product codes where the
chemical compositions of those internal products were inconsistent with
standard AISI grade specifications. Nippon asserts that it reported the
AISI grade, rather than its internal grade, whenever the chemical
composition of the product at issue met the AISI requirements. Daido
and Nippon argue that the Department should continue to rely on
internal grade designations, as verified by the Department, for
matching purposes.
DOC Position
    We agree with Daido and Nippon. We examined their grade
classifications at verification and established that the companies
appropriately classified each of their internal SSWR grades into the
corresponding AISI category, where appropriate. See the Department's
May 13, 1998, Sales Verification Report for Daido at page 7 and the
Department's April 28, 1998, Sales Verification Report for Nippon at
page 4. We also confirmed that, per the Department's instructions,
Daido and Nippon reported their internal SSWR grade, in lieu of a
standard AISI classification, only when the composition of the internal
SSWR grade was inconsistent with AISI specifications. Regarding the
petitioners' claim that two specific Nippon internal grades should have
been reported within standard AISI grades, a review of the information
on the record indicates that Nippon properly classified those products
within the appropriate grade designations. Accordingly, we have
continued to accept Daido and Nippon's internal grade designations for
purposes of the final determination.
    Comment 2: Selling Expenses Incurred on behalf of End-Users.
    According to the petitioners, selling expenses incurred by Daido or
Nippon ``on behalf of'' end-users for sales made through unaffiliated
trading companies (i.e., downstream expenses) should be treated as
indirect selling expenses. The petitioners assert that the selling
expenses claimed by Daido and Nippon to be direct selling expenses did
not directly relate to the transactions with the unaffiliated trading
companies. In support of this argument, the petitioners cite
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden
and the United Kingdom: Final Results of Antidumping Duty
Administrative Reviews, 62 FR 54052, 54054 (October 17, 1997)
(Antifriction Bearings).
    Daido and Nippon argue that such expenses are directly related to
their sales to unaffiliated trading companies and, thus, should be
treated as direct selling expenses. Daido and Nippon assert that the
Department's
[[Page 40437]]
verifications confirmed that expenses such as freight and warehousing,
as well as any adjustments to the sales price, are directly related to
the particular sales transaction involved. Daido and Nippon cite
several cases purporting to establish that Department practice
considers such expenses to be direct selling expenses if they are
directly related to a particular sale.
DOCPosition
    We agree with Daido and Nippon. The information on the record and
the documents examined at verification confirmed that the downstream
selling expenses and adjustments at issue are directly related to the
transactions with the unaffiliated trading companies. See Daido's
October 27, 1997, section A response at page A-13, and the Department's
May 13, 1998, Sales Verification Report for Daido at pages 6-7;
Nippon's October 24, 1997, section A response at pages A-15 and A-29
and in Exhibit 20, and the Department's April 28, 1998, Sales
Verification Report for Nippon at pages 5-6. Therefore, in accordance
with the Department's practice, these expenses are appropriately
categorized as direct selling expenses. See, e.g., Final Determination
of Sales at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat
Products, Certain Cold-Rolled Carbon Steel Flat Products, and Certain
Corrosion-Resistant Carbon Steel Flat Products from Japan, 58 FR 37154,
37172-73 (July 9, 1993)(Carbon Steel Flat Products from Japan);
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts
Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden,
Thailand and the United Kingdom: Final Results of Antidumping Duty
Administrative Reviews and Revocation in Part of an Antidumping Duty
Order, 58 FR 39729, 39750 (July 26, 1993). Moreover, we note that the
case cited by the petitioners, Antifriction Bearings, supports this
determination. Specifically, in that case, the Department stated that
downstream expenses would be treated as direct expenses when a
respondent could directly tie those expenses to a particular sale. In
this case, Daido and Nippon have documented that the expenses at issue
are directly tied to a specific sale. See the Department's May 13,
1998, Sales Verification Report for Daido at pages 6-7 and the
Department's April 28, 1998, Sales Verification Report for Nippon at
pages 5-6. Accordingly, we have continued to treat these downstream
expenses as direct expenses for purposes of the final determination.
Company-Specific Issues
Daido Steel Co., Ltd.
    Comment 3: Collapsing of Daido's Reported Further Processing Codes.
    According to the petitioners, Daido reported more further
processing codes for purposes of product matching than it kept in the
ordinary course of business for cost purposes. The petitioners argue
that several of Daido's further processing codes fit within the same
standard cost code. As a result, the petitioners assert that the
Department should collapse Daido's further processing codes based on
the further processing groupings maintained by Daido for cost purposes
in the normal course of trade.
    Daido argues that the different further processing codes it
reported reflect different physical characteristics and that it
provided details on those differences, as requested by the Department's
questionnaire. Daido notes that the petitioners do not take issue with
the fact that Daido's different further processing codes reflect
different physical characteristics, only that several different further
processing codes are included in the same standard cost code. Daido
argues that the detail with which it reported its different further
processing codes allows the Department to appropriately match U.S.
products with home market products that have undergone the exact same
further processing. Accordingly, Daido urges the Department to continue
to distinguish between the different further processing codes reported
by Daido in conducting product matching for purposes of the final
determination.
DOC Position
    We agree with Daido. The Department's questionnaire instructed
Daido to report any and all further processing. While the Department
designated specific processes (i.e., ``hot-rolled,'' ``hot-rolled and
annealed,'' and ``hot-rolled, annealed, and pickled''), it also
requested that Daido report all other further processing methods. In
response, Daido reported various further processing methods which it
claims impart distinct physical characteristics on the wire rod. See
Daido's November 17, 1997, sections B and C response at Exhibit B-3.
The petitioners do not argue that the different further processing
methods fail to impart distinct physical characteristics on the wire
rod, only that they are included in the same standard cost code and,
therefore, should be grouped in the same further processing code.
However, this methodology is inconsistent with the Department's
practice, which is to rely on physical characteristics, rather than
cost groupings, for model matching purposes. See, e.g., Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom;
Final Results of Antidumping Duty Administrative Review, 63 FR 18879,
18881 (April 16, 1998) (Carbon Steel 1). Accordingly, we used the
further processing codes reported by Daido for purposes of the final
determination.
    Comment 4: Product Code Designation of Daido's Proprietary Wire
Rod.
    According to the petitioners, the cost information submitted by
Daido on its proprietary wire rod was untimely and should be rejected.
The petitioners argue that, in breaking out the cost for its
proprietary wire rod, Daido significantly reduced its reported costs of
production for all other products. The petitioners assert that these
changes affected all of Daido's cost data and were submitted after the
preliminary determination, thus denying the petitioners the ability to
comment on that new cost information in a meaningful way. The
petitioners urge the Department to reject the data as untimely and rely
on facts available.
    If the Department accepts Daido's data as timely, the petitioners
argue that the information should be rejected as an effort by Daido to
create an unauthorized matching criterion. The petitioners state that
Daido submitted this proprietary wire rod information to the Department
using a product code that included a new further processing
designation. The petitioners assert that the process used to make the
proprietary wire rod involved unique steps taken to manufacture the
billet, the raw material used to make wire rod, not any further
processing of wire rod. The petitioners argue that processes used to
manufacture the billet were not included as part of the matching
criteria in this investigation and cannot appropriately be
characterized as further processing. Thus, the petitioners contend that
this proprietary wire rod should not be given a unique product code for
matching purposes, because processes used to manufacture the billet
were not established as a matching criterion.
    Daido argues that it first submitted information on the record
highlighting its proprietary wire rod in January 1998, and that several
subsequent Daido submissions referenced the unique characteristics of
this product. According to Daido, those submissions provided the
petitioners ample opportunity to respond to the new information. In
addition, Daido asserts that there was no reallocation of costs
[[Page 40438]]
from all of its other products to its proprietary wire rod product.
Instead, Daido claims that, in breaking out costs for its proprietary
wire rod, it only removed costs from the control number in which that
product was previously included.
    Daido further asserts that it did not attempt to create an
unauthorized matching criterion. According to Daido, the Department's
questionnaire expressly allows a respondent to add additional product
characteristics to those requested by the Department, and that the
Department has permitted this practice in other cases. See, e.g., Final
Results of Antidumping Administrative Review of Solid Urea From the
Former German Democratic Republic, 62 FR 61271, 61275-76 (November 17,
1997) (Solid Urea).
    Daido also argues that its proprietary wire rod has different
product characteristics than the other products initially included
within the same control number. According to Daido, the substantial
difference is evidenced by the significant disparity in cost between
the proprietary wire rod and the other products within its former
control number. Daido asserts that treating its proprietary wire rod in
the same control number as the other products would distort the dumping
analysis, and that such a result is inconsistent with the Department's
practice. See, e.g., Notice of Final Results and Partial Recission of
Antidumping Duty Administrative Review: Roller Chain, Other Than
Bicycle From Japan, 62 FR 60472, 60474-75 (November 10, 1997) (Roller
Chain) and Solid Urea.
    Finally, Daido argues that the Department could not compare any of
Daido's U.S. sales with its home market sales of the proprietary wire
rod because of the large difference-in-merchandise (DIFMER) adjustments
that would be required. According to Daido, the resulting DIFMER
adjustment from any such comparison would exceed the twenty percent
limit established by the Department's policy and precedent. Thus, Daido
asserts that its proprietary wire rod should not be used in determining
NV. Daido claims that the Department's precedent establishes that
differences in merchandise can warrant the use of special product
control numbers for model matching purposes. To support this position,
Daido relies on Carbon Steel 1 at 18881, and Certain Hot-Rolled Lead
and Bismuth Carbon Steel Products from the United Kingdom; Final
Results of Antidumping Duty Administrative Review, 60 FR 44009, 44011
(August 24, 1995) (Carbon Steel 2).
DOC Position
    We agree with the petitioners. Daido's information on its
proprietary wire rod represented an attempt by Daido to distinguish
that product's characteristics from its other home market products for
matching purposes. The Department's questionnaire of September 19,
1997, indeed allowed for supplemental product characteristics, in
addition to those specified by the Department (i.e., grade, diameter,
further processing, and coating). However, the Department emphasized
that ``if you add characteristics not specified in the questionnaire,
describe in the narrative response why you believe that the Department
should use this information to define identical and similar
merchandise.'' See the Department's September 19, 1997, Questionnaire
at page B-6. Daido, however, never made a case for the addition of a
product characteristic not specified in the questionnaire. Rather,
Daido uniquely classified its proprietary wire rod by adding a further
processing code, a product characteristic established by the
Department, to the list of further processing codes that it had
previously submitted to the Department. However, the distinguishing
feature of Daido's proprietary wire rod appears to be its expensive
processing of the billet, the raw material used to make wire rod,
rather than further processing of the finished wire rod. Further
processing of wire rod can be defined as manufacturing processes
conducted on the wire rod after it is produced. Thus, the addition of a
unique ``further processing'' code by Daido to distinguish its
proprietary wire rod from its other products, based on an expensive
processing of the billet before it is hot-rolled into wire rod, was not
appropriate. Moreover, Daido's reliance on Solid Urea to support its
claim that the Department's practice is to allow for additional
matching criteria submitted by respondents is inappropriate. In Solid
Urea, the Department continued to accept the use of an additional model
match criterion submitted to the Department by the respondent prior to
the preliminary results of that review. See Solid Urea at 61275-76.
However, since Daido has not submitted an additional matching criterion
to the Department in this investigation, Solid Urea does not address
the issue raised in this investigation.
    The Department does not find that including Daido's proprietary
wire rod within its former control number will distort the dumping
analysis. Daido's proprietary wire rod and the other products within
its former control number have the same product characteristics, as
specified by the Department for matching purposes. Furthermore, Daido's
reliance on Roller Chain is misplaced. In Roller Chain, for the
preliminary determination, the Department deviated from its prior
practice of using ten criteria to match products and, instead, used
only three matching criteria. For the final determination, the
Department decided that it should return to the practice from previous
reviews of using ten matching criteria because of an overriding concern
that employing fewer matching criteria might result in grouping
physically diverse products as identical or similar merchandise. In
this investigation, however, Daido has not proposed additional matching
criteria for the Department's model match, nor has it argued that the
Department has improperly limited the number of matching criteria.
Instead, Daido has attempted to indirectly create a new matching
criterion by adding a new ``further processing'' code to a specific
product that has no unique further processing, as established by the
Department's description of its product matching characteristics.
    Moreover, Daido's argument that any comparison between its U.S.
sales and its proprietary wire rod would exceed the Department's DIFMER
adjustment limit relies on Daido's proprietary wire rod being
classified as a separate product with a unique control number. However,
the Department has determined, given the matching criteria in the
questionnaire, that it would not be appropriate to designate Daido's
proprietary wire rod with a unique control number, nor to separate its
costs from the other products in its original control number.
    Finally, we do not agree with the petitioners that Daido's
information on its proprietary wire rod was untimely. Daido first
provided information on its proprietary wire rod in its January 14,
1998, supplemental questionnaire response, two months prior to the
commencement of verification and, as such, was not untimely. See
section 351.301(b)(1) of the Department's regulations.
    For discussion of a similar issue, see Comment 17, below.
    Comment 5: Daido's Adjustment Claims for Warehousing and Freight
Expenses.
    The petitioners assert that, although the Department verified
Daido's reported channels of distribution and related selling functions
information, which included information on whether warehousing services
were provided by
[[Page 40439]]
Daido in each of its channels of distribution, the warehousing expenses
reported by Daido were inconsistent with Daido's description of the
services provided for sales in each of its home market channels of
distribution, as verified by the Department. Specifically, the
petitioners claim that Daido's modified explanation that shipment
route, as opposed to channel of distribution, determined whether
warehousing expenses were, in fact, incurred raises serious questions
about the reliability of Daido's reported warehousing expense
information. The petitioners assert that we should disregard Daido's
modified explanations, or, in the alternative, if such information is
accepted, we should revisit our level of trade analysis that depended
on Daido's channels of distribution information. The petitioners argue
that, if the Department disregards Daido's modified explanation of its
warehousing expenses, it should not accept any reported inland freight
or warehousing expenses for the five distribution channels in which
Daido indicated that sales were not distributed through warehouses.
    In addition, the petitioners allege that Daido failed to report
warehouse shipment dates in cases where warehousing expenses were
reported. According to the petitioners, in many cases this situation
occurred for channels of distribution in which Daido reported its sales
as not being shipped through warehouses. The petitioners argue that the
Department should not accept any warehousing expenses in such cases,
because the failure to report a shipment date from the warehouse
indicates that no warehousing expense was incurred by Daido.
    The petitioners also assert that, according to the verification
findings, the Department should disallow any reported warehousing
expenses whenever Daido reported the same dates for shipment to the
warehouse and shipment from the warehouse to the end-user. According to
the petitioners, since Daido overstated its expenses in such cases (see
the Department's May 13, 1998, Sales Verification Report for Daido at
pages 3-4), the Department should disallow these expenses in its final
margin analysis.
    Finally, the petitioners assert that Daido reported inland freight
expenses both for shipment to a warehouse (INLFTWH) and for shipment
from a warehouse to the customer (INLFTCH) in cases where the
merchandise was apparently not warehoused. The petitioners argue that
Daido's explanation that field INLFTWH represented either the cost of
shipment to the warehouse or to the customer directly was not
consistent with its reported expense information, and resulted in the
double reporting of freight expenses. As a result, the petitioners
assert that the Department should disallow any expense in field INLFTWH
for sales where Daido reported no warehousing expenses.
    Daido responds that the Department's Sales Verification Report
explained the relationship between its channels of distribution and
shipment route information, and its reported warehousing expenses. See
the Department's May 13, 1998, Sales Verification Report for Daido at
page 2. Daido asserts that the warehousing expense information
reflected in its discussion of channels of distribution was the
standard situation for transactions within each of the channels of
distribution. However, Daido argues that exceptions existed because of
the circumstances of individual sales transactions. As a result, Daido
explains that the reported shipment route ultimately determined whether
warehousing expenses were incurred on a sale-specific basis, regardless
of the standard established for the applicable channel of distribution.
    Regarding the petitioners' concern about Daido's lack of reported
warehouse shipment dates in cases where Daido reported a warehousing
expense, Daido answers that its submissions established that it was
unable to provide a warehouse shipment date for sales by Daido to
unaffiliated trading companies, despite the fact that such shipments
were made through a warehouse. Thus, Daido argues that the lack of a
warehouse shipment date in such instances does not determine that no
warehousing expenses were incurred.
    Responding to the petitioners' concerns about Daido's reported
warehousing expenses when the two shipment dates (i.e., the date of
shipment to the warehouse and the date of shipment from the warehouse
to the customer) were the same, Daido argues that it has adopted a
conservative approach, even more conservative than the petitioners'
recommendation, by reporting no warehousing expense when the difference
between the two shipment dates was less than or equal to two days.
    Finally, Daido asserts that the petitioners' concern about the
alleged double reporting of inland freight expenses was, in fact, the
result of Daido's sales to unaffiliated trading companies. In such
cases, Daido explains that it did not have information on the shipment
dates from the warehouse, which led the petitioners to believe that no
warehousing occurred. However, Daido claims that expenses were reported
in both freight data fields (i.e., INLFTWH and INLFTCH) only when the
merchandise was shipped through a warehouse.
DOC Position
    We disagree with the petitioners. At verification, the Department
confirmed that Daido's reported shipment route determined whether
Daido, in fact, incurred warehousing expenses on a transactions-
specific basis. To that end, we examined relevant freight and
warehousing documents at verification. See the Department's May 13,
1998, Sales Verification Report for Daido at page 3. Relying on such
documents, we confirmed that Daido incurred warehousing expenses (even
when the explanation for the reported channel of distribution did not
indicate warehousing) for sales where the reported shipment route
reflected shipment through a warehouse. In addition, at verification,
we found no cases where Daido reported warehousing expenses when the
corresponding shipment route indicated that shipment was not made
through a warehouse. Accordingly, the Department accepted Daido's
reported warehousing and inland freight (to the warehouse) expenses for
transactions where the reported shipment route indicated warehousing of
the merchandise, even when the reported standard distribution channel
did not indicate warehousing services.
    Contrary to the petitioners' contention, the documents examined by
the Department at verification did not raise questions about the
reliability of Daido's reported warehousing expense information.
Rather, they consistently showed that the reported shipment route was
the sale-specific key to whether warehousing, in fact, occurred. The
channels of distribution information submitted by Daido explained the
standard warehousing and freight services provided for each channel of
distribution, despite the fact that the shipment route determined
whether warehousing, in fact, occurred for specific sales transactions.
See the Department's May 13, 1998, Sales Verification Report for Daido
at page 16. The Department's verifiers found that, as a general rule,
the explanations of freight and warehousing services provided for each
channel of distribution were accurate and reliable. Therefore, the
Department did not disregard the channels of distribution information
reported by Daido, nor did it disregard Daido's modified
[[Page 40440]]
explanation that the reported shipment route is determinative as to
whether warehousing occurred. Thus, since Daido's channels of
distribution information was verified by the Department, the Department
has not reevaluated its level of trade analysis for purposes of the
final determination.
    In addition, the Department did not reject Daido's reported
warehousing expenses in cases where no shipment date from the warehouse
was reported. Daido explained, and the Department found, that Daido did
not have the information on the shipment date from the warehouse in
every case in which a shipment was, in fact, made through a warehouse,
particularly in cases where sales were made to unaffiliated trading
companies. See Daido's November 17, 1997, Sections B and C response, at
page B-19. Thus, the Department accepted Daido's reported warehousing
expenses for sales to unaffiliated trading companies when the warehouse
shipment date was blank, provided that the shipment route reported for
the specific transaction indicated shipment through a warehouse as
explained above.
    Furthermore, our examination of Daido's revised sales information
submitted on May 29, 1998, revealed that Daido reported no warehousing
expenses (neither storage nor handling) when the difference between the
shipment date to the warehouse and the shipment date from the warehouse
to the customer was less than or equal to two days. This is a
conservative methodology because Daido explained that in such cases it
still incurred some handling charges even where no storage expenses
were paid as a result of the short turnaround at the warehouse. Thus,
the Department accepted Daido's reported warehousing expense
information in such cases.
    Moreover, the Department did not disregard Daido's reported inland
freight expenses, both to the warehouse and from the warehouse to the
customer, in cases where the merchandise was actually warehoused, as
indicated by Daido's reported shipment route information. The
petitioners' concern that Daido had double reported its freight
expenses hinged on its belief that no warehousing occurred in cases
where Daido reported no date in the data field SHIPDT2H (shipment from
the warehouse). However, as explained above, Daido did not have the
information on shipment date from the warehouse (SHIPDT2H) in every
case where merchandise was actually shipped through a warehouse. Thus,
provided the reported shipment route indicated shipment through a
warehouse, the Department did not disregard the reported freight
expenses for shipment to a warehouse and from that warehouse to the
customer.
    Finally, the Department confirmed at verification that data field
INLFTWH (shipment to a warehouse or end-user) represented the expense
to deliver merchandise to the customer in cases where no warehousing
occurred. See the Department's May 13, 1998, Sales Verification Report
for Daido at page 13. Therefore, the Department did not disallow
expenses in field INLFTWH because no warehousing expense was reported
by Daido.
    In conclusion, although the freight and warehousing information
reported by Daido was intricate and required further clarification at
verification, our findings at verification indicate that Daido's
information was reliable. See the Department's May 13, 1998, Sales
Verification Report for Daido at pages 13-17. As a result, the
Department did not disregard the freight and warehousing information
reported by Daido in its May 29, 1998, submission. The Department used
that information, as verified by the Department and as explained above,
for purposes of the final determination.
    Comment 6: Corrections Arising from Verification.
    According to the petitioners, the Department should correct Daido's
reported COP/CV data based on the corrections made by Daido at the
outset of verification.
DOC Position
    We agree. We have made the appropriate corrections for purposes of
the final determination.
    Comment 7: Major Inputs.
    The petitioners argue that the Department should adjust the prices
paid by Daido for certain materials to affiliated trading companies to
reflect the market price. The petitioners assert that, consistent with
the Department's practice, purchase prices for identical inputs paid by
a producer to affiliated suppliers are compared first to prices paid to
unaffiliated suppliers. If the price paid to an affiliated supplier is
not an arm's-length transaction, the Department will adjust the price
based on the arm's-length prices paid to the unaffiliated supplier.
    Daido argues that the Department generally prefers the use of the
transfer price for inputs purchased from affiliated parties for the
calculation of COP and CV, provided that the transaction occurred at an
arm's-length price. According to Daido, input prices paid to its
affiliated trading company were generally comparable to prices paid to
its unaffiliated trading companies and, thus, should be acceptable for
the calculation of COP and CV.
DOC Position
    To the extent practicable, the Department generally will use the
transfer price of inputs purchased from affiliated suppliers in
calculating COP and CV, provided that the transactions at issue
occurred at arm's-length prices. See, e.g., Gray Portland Cement and
Clinker from Mexico: Final Results of Antidumping Duty Administrative
Review, 62 FR 17148, 17161 (April 9, 1997). At verification, we
examined the input prices Daido's affiliated trading company paid its
unaffiliated suppliers for certain inputs sold to Daido. We noted that,
on average, the transfer price between Daido and its affiliated trading
company exceeded the price paid by the affiliated trading company to
non-affiliated suppliers. See Daido's March 26, 1998, supplemental
section D questionnaire response at Exhibit SD-11. In addition, we
noted at verification that the transfer price paid by Daido to its
affiliated trading company exceeded the affiliated trading company's
fully loaded cost of production (i.e., cost of manufacturing plus
general expenses). See the Department's May 20, 1998, Cost Verification
Report for Daido at Exhibits 13 and 14. Therefore, in the final margin
analysis we relied on the transfer prices paid by Daido to its
affiliated trading company for the inputs at issue.
    Comment 8: G&A Expense Rate.
    The petitioners assert that, as in the preliminary determination,
the Department should continue to use Daido's unconsolidated cost of
sales to calculate the G&A expense rate. According to the petitioners,
Daido's reliance on consolidated cost of sales is inappropriate because
its consolidated financial statements include information for Daido's
affiliated companies that are not involved in the production and sale
of the subject merchandise.
    Daido contends that the functions performed at the head office
benefit all of its subsidiaries; thus, it is appropriate to use
consolidated cost of sales as the denominator for calculating the G&A
expense rate.
DOC Position
    We disagree with Daido. It's the Department's normal practice to
calculate the G&A expense rate based on the respondent company's
unconsolidated operations plus a portion of G&A expenses incurred by
affiliated companies on behalf of the
[[Page 40441]]
respondent. See Carbon Steel Flat Products from Japan, 58 FR 37154
(July 9, 1993). At verification, the only specific example Daido could
provide in support of its contention that it incurred G&A costs on
behalf of its subsidiaries related to salaries paid to its directors.
Thus, for the final determination, we allocated a portion of the
directors salaries to Daido's consolidated subsidiaries. However, in
computing Daido's G&A expense rate, we have continued to use Daido's
unconsolidated cost of sales as the denominator.
    Comment 9: Bonus adjustment.
    The petitioners argue that the Department should include bonuses
paid by Daido to its board of directors and auditors in its G&A
expenses. Referencing Notice of Final Determination of Sales at Less
than Fair Value: Static Random Access Memory Semiconductors from
Taiwan, 63 FR 8909, 8922 (February 23, 1998) (SRAMs from Taiwan), the
petitioners assert that bonuses paid by Daido to its board of directors
and auditors represents compensation to these individuals for the
services they rendered to the company and, accordingly, the expenses
should be included in the calculation of Daido's G&A expense rate.
    Daido contends that its G&A expense rate calculation is consistent
with its audited income statement, which records bonuses paid to
directors and auditors on its statement of retained earnings. Because
this adjustment is consistent with Daido's books and records in the
normal course of business, the Department should not recalculate the
G&A expense rate. Further, Daido argues that if the Department does
intend to include bonuses in the G&A expense rate calculation, it
should allocate the amount over Daido's consolidated cost of sales as
the amounts benefit all of its consolidated companies.
DOC Position
    In accordance with section 773(f)(1)(A) of the Act, we rely on the
respondent's normal books and records, provided that they comply with
the foreign country's Generally Accepted Accounting Principles (GAAP)
and reasonably reflect the company's costs of producing the subject
merchandise. In this instance, we agree with the petitioners that the
bonuses paid to Daido's board of directors and auditors, which Daido
distributed through its retained earnings, represent compensation for
services provided to the company. Therefore, we believe that it is
appropriate to include these amounts in the calculation of COP and CV
because they reasonably reflect the company's cost of producing the
subject merchandise, pursuant to section 773(f)(1)(A) of the Act.
Moreover, including this type of bonus payment in COP and CV is
consistent with our treatment of this type of retained earnings bonus
distribution. See, SRAMs from Taiwan at 8921. In that proceeding, we
determined that the amounts distributed by the respondents represented
compensation for services which the individuals had provided the
companies. Accordingly, for the final determination, we have included
an allocated portion of the bonus payments that Daido distributed from
its retained earnings to its board of directors and auditors in the
calculation of COP and CV.
    Comment 10: Exchange Gains.
    The petitioners argue that, consistent with the preliminary
determination, the Department should continue to disallow Daido's net
exchange gains offset to G&A expenses. According to the petitioners,
the Department's practice is not to include exchange gains or losses in
the calculation of COP if such gains and losses were related to
accounts receivables (Notice of Final Determination of Sales at Less
than Fair Value: Certain Pasta from Italy, 61 FR 30,326, 30363 (June
14, 1996)). The petitioners claim that, because Daido did not provide a
schedule which indicates the types of transactions generating the
company's exchange gains and losses, the Department is not able to make
a determination of the source which generated the exchange gain or
loss. Therefore, the net exchange gains should be disallowed as an
offset to Daido's G&A expenses.
    Daido did not comment on this issue.
DOC Position
    We agree with the petitioners. Daido provided a schedule indicating
that the foreign exchange gains relate to its accounts receivables.
Because our normal practice is to exclude exchange gains and losses
related to accounts receivable, we disallowed these gains as an offset
to G&A expenses.
Hitachi Metals, Ltd.
    Comment 11: Viability of Home Market.
    The petitioners argue that the Department erred in finding that
Hitachi's home market was not viable. The petitioners state that the
Statement of Administrative Action (SAA) makes it clear that the five
percent benchmark for viability may not be appropriate in all
instances. See SAA at 821. Accordingly, the petitioners argue that the
Department should have obtained Hitachi's home market sales information
and, based on that information, determined whether the home market was,
in fact, viable.
    Hitachi argues that the Department properly concluded that its home
market was not viable because the quantity of SSWR sold in Japan
constituted less than five percent of the quantity sold to the United
States. Hitachi argues that the Department fully verified its quantity
and value information as accurate and its determination of non-
viability is supported by the statute and the regulations. Hitachi
notes that the petitioners have not presented any reason why the
Department should ignore the verified information contained in the
record in this investigation and disregard its normal practice
regarding viability.
DOC Position
    We agree with Hitachi. The Department will consider a home market
``viable'' if the aggregate quantity of sales of the foreign like
product is five percent or more of the aggregate quantity of sales of
subject merchandise to unaffiliated buyers in the United States. See
section 773(a)(1)(B) of the Act and section 351.404(b)(2) of the
Department's regulations. In this case, the Department has verified
that the quantity of SSWR Hitachi sold in Japan constituted less than
five percent of the quantity of SSWR sold to the United States. See
Verification of the Questionnaire Responses of Hitachi Metals, Ltd.,
Memorandum to File from Barbara Wojcik-Betancourt and Sunkyu Kim
through James Maeder dated May 6, 1998, at pages 6-8; and Verification
of the Questionnaire Responses of Hitachi Metals America, Ltd.,
Memorandum to File from Barbara Wojcik-Betancourt through James Maeder
dated march 30, 1998, at pages 4-6.
    Furthermore, the petitioners' argument that the SAA ``makes clear
that the five percent benchmark for viability may not be appropriate in
all instances'' does not apply to the facts of this case. We note that
the SAA states that ``[t]he volume of sales in the home market normally
will be deemed insufficient, i.e., the home market will not be
considered usable if the quantity of sales by the exporter in the home
market is less than five percent.
.  .  .'' SAA at 821 (Emphasis added). The exception to this rule, on
which the petitioners mistakenly rely, pertains to ``some unusual
situation'' that would render the above application inappropriate. Id.
In this case, the Department verified that the quantity of
[[Page 40442]]
Hitachi's sales of the foreign like product in the home market was
below the five percent threshold. See the Department's May 6, 1998,
Sales Verification Report for Hitachi at pages 6-8. Moreover, the
petitioners did not point to any evidence contained in the
administrative record which would demonstrate some unusual
circumstances that would render the application of the usual five
percent test in any way inappropriate. Accordingly, for the final
determination, we continue to find that Hitachi's home market is not
viable and, therefore, we based the NV on the CV of the subject
merchandise.
    Comment 12: Errors Concerning Recalculated Further Manufacturing
Cost.
    Hitachi alleges that the Department made a ministerial error with
respect to the recalculated further processing cost. Specifically,
Hitachi alleges that the Department included U.S. repacking expenses
and the cost of U.S. inland freight in the further manufacturing field
subsequently deducted from the U.S. price. Hitachi argues that, because
U.S. repacking expenses and U.S. inland freight expenses are deducted
elsewhere in the Department's margin calculation, the Department's
inclusion of these expenses in the further manufacturing variable
results in these expenses being deducted twice from the gross unit
price.
DOC Position
    We agree with Hitachi and have corrected this error.
    Comment 13: Calculation of CEP Selling Expenses.
    The petitioners argue that, for purposes of the preliminary
determination, the Department failed to include repacking expenses as
part of the selling expenses for Hitachi's CEP sales. The petitioners
contend that repacking incurred by Hitachi for its U.S. sales is an
expense associated with the further manufacture of the merchandise and,
as such, is among the expenses deducted from the starting price under
section 772(d)(2) and for purposes of the allocation of profit under
772(d)(3). Accordingly, the petitioners argue that, for purposes of the
final determination, the Department should include repacking expense in
the calculation of CEP selling expenses.
    Hitachi asserts that, contrary to the petitioners' claim,
repackaging expenses were included in the calculation of Hitachi/HMA's
CEP selling expenses as part of the further manufacturing variable and,
therefore, no adjustment is necessary.
DOC Position
    We agree with the petitioners that repacking expenses should be
included in the calculation of CEP selling expenses. Hitachi does not
take exception with this argument, arguing instead that repacking
expenses are already included in CEP selling expenses as part of the
further manufacturing variable that is used in the calculation of CEP
selling expenses. However, Hitachi argues in Comment 12, and the
Department agrees, that repacking expenses should be deducted from the
calculation of the further manufacturing variable in order to avoid
deducting repacking expenses twice from the U.S. price. Once repacking
expense is deducted from the further manufacturing variable, the
petitioners' argument that it is not included in the calculation of CEP
selling expenses is a valid one. Accordingly, for the final
determination, the Department has deducted repacking expense from the
calculation of the further manufacturing expenses (as explained in
Comment 12) and added repacking expense to the calculation of CEP
selling expenses.
    Comment 14: Scope of the Investigation.
    Hitachi requests that the Department exclude grades 440 C SSWR and
proprietary grade X from this investigation. Hitachi asserts that grade
440 C SSWR should be excluded from this investigation because Hitachi
has not sold it in the United States during the POI or at any other
time. Moreover, according to Hitachi, the factors set forth in 19 CFR
351.225(k) clearly establish that grade 440 C SSWR should not be
included within the scope of this investigation. Hitachi notes that,
pursuant to section 351.225(k)(2), in determining whether merchandise
falls within the scope of an order, the Department will consider: (1)
the physical characteristics of the product; (2) the expectations of
the ultimate purchasers; (3) the ultimate use of the product; (4) the
channels of trade in which the product is sold; and (5) the manner in
which the product is advertised and displayed. Hitachi argues that the
different production process for grade 440 C SSWR, as compared to
standard SSWR, results in a very different product with distinct
physical and technical characteristics. Because of these distinct
physical and technical characteristics, Hitachi argues that the
ultimate expectations of the end-user are different than the
expectations for standard SSWR. In addition, Hitachi argues that,
because grade 440 C SSWR is captively consumed (i.e., 100 percent
consumed by Hitachi's U.S. affiliate), it is distributed only to
affiliated companies or consumed by the producer and, thus, is not
advertised or displayed. Based on the foregoing, Hitachi contends that
the Department should determine that grade 440 C SSWR is outside the
scope of the investigation.
    Hitachi next asserts that the other grade subject to its exclusion
request, proprietary grade X, should be excluded from the scope of the
investigation because it allegedly is not, and cannot be, manufactured
in the United States. In addition, Hitachi declares that it does not
intend to license production of this product to any U.S. company.
Hitachi further contends that, because there is no domestic industry
that produces grade X, the petition could not have been filed on behalf
of the domestic grade X industry within the provisions of the
antidumping law.
DOC Position
    We disagree with Hitachi. Hitachi's reliance on the factors set
forth in 19 CFR 351.222(k)(2) is misplaced. As the regulation
indicates, those criteria are used to clarify the scope of an existing
order where there is some ambiguity in the scope language, not to
determine the scope of an investigation. The scope of an investigation
is determined, in general, by the petition. The scope of this
investigation, as established in the petition, includes SSWR that is:
. . . made of alloy steels containing, by weight, 1.2 percent or
less of carbon and 10.5 percent or more of chromium, with or without
other elements. These products are manufactured only by hot-rolling
or hot-rolling, annealing, and/or pickling and/or descaling, and are
normally sold in coiled form, and are of solid cross-section.
See Petition at page I-11. The information submitted on grades 440 C
SSWR and grade X establish that these products are hot-rolled SSWR with
less than 1.2 percent carbon and more than 10.5 percent chromium, and
that these products otherwise meet the manufacturing specifications
outlined in the above-referenced scope language. Furthermore, it is
evident from the scope language that the only exclusions of SSWR
products intended by the petitioners pertained to SSWR grades SF20T and
K-M35FL. Hitachi has submitted no information to show that grade X does
not meet the specifications contained in the scope language and, in
fact, Hitachi concedes that grade 440 C SSWR meets the specifications
outlined in the petition. See Hitachi's September 15, 1997, submission
at page 1. The fact that a specific grade of SSWR is not currently
produced in the United States does not constitute grounds for
[[Page 40443]]
exclusion from the scope of the investigation. Therefore, there is no
basis to exclude grades 400 C and X from the scope of this
investigation.
    Comment 15: CEP Profit Rate for Hitachi.
    The petitioners argue that the Department's use of Hitachi Metals
America, Ltd.''s (HMA) financial statements and Yasugi Works' internal
financial statements to calculate Hitachi's CEP profit for purposes of
the preliminary determination resulted in a profit margin that was not
representative of the profit earned on sales of the subject
merchandise. The petitioners claim that, in accordance with section
772(f) of the Act, CEP profit for the U.S. sales should be based on the
``total actual profit'' which is defined as ``profit earned by the
foreign producers . . . with respect to the sales of the same
merchandise for which total expenses are determined.'' Further,
referencing the SAA at 824, the petitioners maintain that the profit
calculation must be based on the ``subject merchandise sold in the
United States and the foreign like product sold in the exporting
country.'' In order for the Department to comply with these
requirements, the petitioners contend that the Department should
calculate CEP profit based on the sum of Nippon's and Daido's weighted
average profit and the profit earned by Hitachi on its sales of subject
merchandise.
    Hitachi claims that the Department correctly calculated CEP profit
and should rely on the methodology used in the preliminary
determination. Hitachi states that sections 772(f)(2)(C) and (f)(2)(D)
of the Act, which outlines the methods for calculating CEP profit,
provides no guidance or support for the use of other producers' profits
when calculating CEP profit. Further, Hitachi contends that the
financial statements the Department used to calculate CEP profit
contain expenses incurred by the foreign manufacturer and exporter and
the affiliated U.S. company to the narrowest category of merchandise
sold in all countries, which includes the subject merchandise.
DOC Position
    We disagree with the petitioners that the Department should deviate
from the methodology used in the preliminary determination and,
instead, use Nippon and Daido's profit rates, as well as the CV data,
to calculate CEP profit. Section 772 (f)(2)(C) of the Act prescribes
three alternative methods for determining total expenses for purposes
of calculating CEP profit. The use of any of the methods depends on the
data available to the Department. See Policy Bulletin No. 97 (Sep. 4,
1997). The first alternative, section 772(f)(2)(C)(i), is not
applicable because Hitachi does not have a viable home market and the
statute does not require the company to submit cost data for the home
market solely for purposes of calculating CEP profit. The Department is
precluded from using the second alternative, section 772(f)(2)(C)(ii),
to calculate CEP profit because Hitachi does not prepare financial
reports that would include only merchandise sold in the United States
and the exporting country. By relying on both the Yasugi Works income
statement and the HMA income statement, the Department was able to
compute CEP profit in accordance with the third alternative under
section 772(f)(2)(C)(iii), which relies on sales prices and expenses
incurred with respect to the narrowest category of merchandise sold in
all countries which includes subject merchandise. See, e.g., Notice of
Final Results of Antidumping Administrative Review: Furfuryl Alcohol
From the Republic of South Africa, 62 FR 61084, 61090 (Nov. 14, 1997);
Preliminary Results of Administrative Review: Roller Chain, Other than
Bicycles from Japan, 62 FR 25165, 25170 (May 8, 1997). Accordingly, for
the final determination, we have continued to rely on Yasugi Works' and
HMA's income statements when calculating CEP profit.
    Comment 16: Weight Averaging of Further Manufacturing Costs.
    The petitioners argue that, with regard to Hitachi's further
manufacturing costs, a single weighted average cost should be
calculated for each product. The petitioners point out that Hitachi
reported specific further manufacturing costs for each sale made in the
United States. According to the petitioners, consistent with the
Department's established practice, COP and CV should be reported as a
single weighted average cost for each product.
    Hitachi contends that it appropriately reported its further
manufacturing costs. However, it does not object to the Department's
weight averaging of Hitachi's further manufacturing costs by product
code.
DOC Position
    We agree with the petitioners. Our practice is to calculate a
single weighted-average cost using production quantity as the weighting
factor for each product sold in the United States, as described in the
Department's section E questionnaire. See the Department's
Questionnaire at page E-2; see also, Notice of Final Determination of
Sales at Less Than Fair Value; Open-End Spun Rayon Singles Yarn From
Australia, 62 FR 43701, 43703 (Aug. 15, 1997). Accordingly, for the
final determination, we have adjusted Hitachi's further manufacturing
costs to calculate one weighted-average cost for each product.
Nippon Steel Corp.
    Comment 17: Ultra Fine Rod.
    In its questionnaire response, Nippon reported home market sales of
a particular type of SSWR which it terms ultra fine (UF) SSWR. The
Department used these sales in our analysis for purposes of the
preliminary determination. Nippon argues that, for the final
determination, the Department should exclude UF SSWR from the scope of
this investigation, claiming now that it is a unique product produced
by a manufacturing process distinct from that of other types of SSWR.
According to Nippon, the manufacture of UF SSWR includes expensive
processes (i.e., electron beam remelting and secondary forging) not
required for the production of other types of SSWR within this
investigation. Nippon asserts that these additional processes occur
after the billet is conditioned. In addition, Nippon points out that
the manufacturing costs for UF SSWR are significantly higher than its
other SSWR products. Therefore, Nippon contends that UF SSWR is not
subject merchandise.
    Nippon further asserts that the definition of subject merchandise
in the petition and the Department's preliminary determination excludes
UF SSWR. Nippon states that subject merchandise has been defined as
SSWR that is ''. . . manufactured only by hot-rolling or hot-rolling,
annealing, and/or pickling and/or descaling. . . .'' See Preliminary
Determination, 63 FR 10854, 10856 (March 5, 1998) (emphasis added by
Nippon). According to Nippon, UF SSWR is not manufactured only by hot-
rolling or hot-rolling, annealing, and/or pickling and/or descaling,
but is, in fact, manufactured by numerous processes beyond those listed
in the Department's initiation notice (see Initiation of Antidumping
Investigations: Stainless Steel Wire Rod From Germany, Italy, Japan,
Korea, Spain, Sweden, and Taiwan, 62 FR 45224 (August 26, 1997)) and
preliminary determination. Therefore, Nippon asserts that UF SSWR is
not within the scope and, thus, should be excluded from this
investigation.
    Additionally, Nippon contends that the Department's regulatory
criteria for determining whether a product constitutes the subject
merchandise support excluding UF SSWR from this investigation. Nippon
states that,
[[Page 40444]]
although this regulatory provision applies to post-order scope
inquiries, the criteria within the regulatory provision are instructive
to the Department's analysis and show that UF SSWR is different from
standard rod because its physical characteristics, purchasers'
expectations, ultimate use, channels of trade, and manner of
advertisement and display apply only to UF SSWR. Accordingly, Nippon
urges the Department to find that UF SSWR is outside the scope of this
investigation.
    Alternatively, if the Department finds that UF SSWR is subject
merchandise, Nippon argues that UF SSWR cannot be used in any product
matches if the Department accepts the unique further processing codes
for UF SSWR that were reported by Nippon. Nippon urges the Department
to accept the unique further processing codes Nippon assigned UF SSWR
in its databases because of the differences in the production process
between UF SSWR and standard SSWR and because the Department's
questionnaire asked Nippon to report ``any and all further processing''
without limiting ``further processing'' to post-production or finishing
operations. Nippon argues that accepting its distinct further
processing codes will, in turn, result in the Department assigning
separate product control numbers to UF SSWR. According to Nippon, this
will result in removing UF SSWR from all product matches because no
products with the distinct UF SSWR product control numbers were sold in
the U.S. market and the Department's matching operation should show
that UF SSWR cannot be most similar to any imported SSWR product. To
support its argument that UF SSWR is a unique product and, thus, should
be assigned its own product control number, Nippon cites Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products From the United Kingdom:
Final Results of Antidumping Duty Administrative Review, 63 FR 18879,
18881 (April 16, 1998), where the Department allowed for the use of
separate product control numbers, where there were differences in the
chemical compositions of the products in question, if such differences
were important to the respondent and its customers. In addition, Nippon
asserts that the Department considers whether product differences are
purposeful and commercially significant in determining whether an
assigned product control number is warranted. See Certain Hot-Rolled
Lead and Bismuth Carbon Steel Products From the United Kingdom: Final
Results of Antidumping Administrative Review, 60 FR 44009, 44011
(August 24, 1995).
    Finally, Nippon argues that UF SSWR cannot be used for any match
with standard SSWR because the resulting DIFMER adjustment would exceed
that allowed by the Department. See 19 CFR 351.411. According to
Nippon, any comparison between UF SSWR and standard SSWR sold in the
United States would exceed the DIFMER adjustment limit because of the
cost differences that result from the differences in the physical
characteristics of UF and standard SSWR. Accordingly, Nippon urges the
Department to exclude home market sales of UF SSWR from the final
antidumping margin calculations.
    The petitioners assert that UF SSWR is within the scope of this
investigation because, as established by the petition and by the
Department, it is a stainless steel product that is produced from a
billet and is hot-rolled. In response to Nippon's contention that UF
SSWR is outside the scope because it is subject to special processing
in addition to being hot-rolled, the petitioners argue that the
significance of the phrase ``hot-rolled only'' in the scope language is
to distinguish SSWR from products that are subject to a cold-drawing or
cold-finishing process after the billet is produced. The petitioners
argue that they never intended to exclude products based on any
particular production steps taken when producing the billet. Therefore,
the petitioners assert that UF SSWR is within the scope because it is
stainless steel that is made into a billet and is eventually hot-rolled
into wire rod, regardless of the type or types of billet processing.
    If the Department accepts Nippon's data on UF SSWR, the petitioners
argue that the Department should reject Nippon's efforts to create a
new matching criterion in this investigation. According to the
petitioners, Nippon characterizes a process used in the production of
the billet, the raw material used to manufacture wire rod, as ``further
processing'' of hot-rolled wire rod. The petitioners contend that the
processes used to refine the billet were not included as part of the
matching criteria in this investigation and that billet processing is
not a ``further processing'' step performed on wire rod. The
petitioners assert that ``further processing,'' included as part of the
matching criteria in this investigation, was intended to cover
finishing steps (i.e., annealing or pickling) conducted after the wire
rod had been hot-rolled. Therefore, according to the petitioners, since
billet processing is conducted before the wire rod is hot-rolled and is
not a finishing step, the Department should deny Nippon's submission of
unique further processing codes and separate costs to distinguish UF
SSWR.
DOC Position
    We disagree with Nippon that UF SSWR is not within the scope of the
investigation. As discussed in response to Comment 14, when the
Department considers whether a product is within the scope of an
investigation, the analysis focuses on the language of the scope
contained in the petition. The purpose of this analysis is to determine
the petitioner's intent with respect to the scope coverage. Minebea
Co., Ltd. v. United States, 782 F. Supp. 117, 120 (CIT 1992) (the
Department uses its ``broad discretion to define and clarify the scope
of an antidumping investigation in a manner which reflects the intent
of the petition''). If the scope language in the petition is ambiguous,
the Department examines additional evidence. Torrington Co. v. United
States, 786 F. Supp. 1021, 1026 (CIT 1992). In this case, the
petitioners proposed a definition of the scope of the investigation
that included wire rod products that are defined within the industry
as:
hot-rolled or hot-rolled annealed and pickled or descaled rounds,
squares, octagons, hexagons and shapes, in coils, for subsequent
cold-drawing or cold-rolling. Since stainless steel wire rod is only
manufactured by hot-rolling and is primarily sold in coiled form,
Petitioners believe that only HTS heading 7221 is applicable to
stainless steel wire rod. In addition, while stainless steel bar is
manufactured by both hot-rolling and cold-rolling processes, it is
always produced in straight lengths.
See Petition at page I-7 (quotation and footnotes omitted). The above-
referenced language was adopted by the Department in the scope
definition contained in the preliminary determination:
    For purposes of this investigation, SSWR comprises products that
are hot-rolled or hot-rolled annealed and/or pickled and/or descaled
rounds, squares, octagons, hexagons or other shapes, in coils, that
may also be coated with a lubricant containing copper, lime or
oxalate. SSWR is made of alloy steels containing, by weight, 1.2
percent or less of carbon and 10.5 percent or more of chromium, with
or without other elements. These products are manufactured only by
hot-rolling or hot-rolling, annealing, and/or pickling and/or
descaling, are normally sold in coiled form, and are of solid cross-
section. The majority of SSWR sold in the United States is round in
cross-sectional shape, annealed and pickled, and later cold-finished
into stainless steel wire or small-diameter bar.
[[Page 40445]]
See Preliminary Determination at 10,856.
    As the petitioners have stated on the record, their use of the
phrase ``only by hot rolling'' is meant to distinguish stainless steel
bar, a product that is manufactured both by hot-rolling and cold-
rolling processes, from SSWR, described as only manufactured by hot
rolling. Thus, the petitioners did not intend to exclude any SSWR
product in which the billet used to produce the product undergoes
additional processes prior to being hot rolled. The only express
exclusions of SSWR products contained in the petitions pertained to
SSWR grades SF20T and K-M35FL. Thus, contrary to Nippon's assertion,
because UF SSWR is stainless steel that is hot-rolled, annealed,
pickled and super finished, or hot-rolled, pickled and super-finished,
and otherwise meets the specifications in the scope language, it is
within the scope of the investigation.
    We also disagree with Nippon that the special processing of the
billet used in the production of UF SSWR should be considered a
separate, distinct, further processing operation. Contrary to Nippon's
assertion, the phrase ``further processing,'' as used by the Department
in its questionnaire, was not meant to include processing of the billet
prior to hot-rolling but, rather, was limited to the hot-rolling
process and subsequent finishing operations. The Department's
questionnaire, under the description of further processing, states the
following:
Report any and all further processing.
Show ``1'' for hot-rolled
Show ``2'' for hot-rolled, annealed
Show ``3'' for hot-rolled, annealed and pickled
Show ``4'' for other method (indicate method)
See the Department's September 19, 1998, antidumping questionnaire at
page C-7. In its response, Nippon reported eight different further
processing codes, all beginning with the hot-rolling process and
including one or more additional finishing processes (i.e., annealed
and/or picked, and/or super finished), which indicates that Nippon
understood the information requested by the Department. See Nippon's
December 15, 1998, Sections B and C questionnaire response at Appendix
26. This conclusion is supported by the fact that Nippon briefly
described the UF SSWR production process in its Section A questionnaire
response, but did not then include these additional processes in its
response to the request for information on further processing. See
Nippon's December 15, 1998, Section A questionnaire response at page A-
38 (``One kind of NSC's stainless steel wire rod, Ultra Fiber (``UF''),
undergoes a remelting or reheating process. By remelting twice, non-
metallic inclusion is reduced to the minimum, which enables the UF to
be drawn to extremely small diameters.''). It was only after the
preliminary determination that Nippon presented the argument that the
processing operations specific to UF SSWR should be included in the
further processing codes.
    For the final determination, the Department has continued to limit
``further processing'' operations to the hot-rolling and subsequent
finishing processes performed on the rod itself.
    With regard to Nippon's argument that the Department's practice
justifies assigning separate control numbers to UF SSWR and non-UF
SSWR, for the sole reason that UF SSWR undergoes additional processing
resulting in differences in chemical composition, we note that, from
the outset of this investigation, the Department has consistently held
that it would consider four criteria when designating control numbers:
grade, diameter, further processing, and coating. As in past
investigations involving steel products, we selected ``grade'' as a
matching criterion, in place of actual chemical content, because we
determined that grade sufficiently defines the chemical content of the
merchandise. See, e.g., Final Determination of Sales at Less Than Fair
Value: Certain Stainless Steel Wire Rods from France, 58 FR 68865 (Dec.
29, 1993). In fact, Nippon supported this decision and argued strongly
against the petitioners' request that the respondents report the actual
chemical content of each production heat. See Nippon's October 21,
1997, submission. The information on the record, and verified by the
Department, indicates that the chemical content of Nippon's UF SSWR
falls within the ranges of established standard AISI steel grades. The
fact that the billet used to produce UF SSWR undergoes certain
production processes that allegedly impart to it some particular
properties is irrelevant. The process does not alter the steel
chemically to the extent that it results in a unique grade of steel: it
continues to fall within standard AISI grade designations. Thus, for
purposes of the final determination, we continued to use the four
matching criteria, including grade, as outlined in our questionnaire,
when assigning control numbers to both UF and non-UF SSWR.
    We disagree with the petitioners, however, that we should reject
Nippon's cost allocation methodology (i.e., that we should continue to
allocate UF SSWR costs over all products). It is the Department's
longstanding practice to use a single-weighted average cost for all
products falling within a particular control number. See, e.g., Notice
of Final Determination of Sales at Less Than Fair Value; Open-End Spun
Rayon Singles Yarn From Australia, 62 FR 43701, 43703 (Aug. 15, 1997).
Specifically, the Department's questionnaire directed Nippon to report
``a single weighted-average cost for each unique product as represented
by a specific control number.'' See the Department's September 19,
1997, Questionnaire at page D-1. For the preliminary determination,
Nippon failed to allocate the cost of UF SSWR to the specific control
number that included UF SSWR. Following the preliminary determination,
Nippon submitted revised sales and cost data which assigned UF SSWR
separate control numbers depending on what Nippon defined as the
further processing of the billet. This revised cost data was
subsequently verified by the Department. In light of our determination
that UF SSWR should not be assigned a separate control number, and in
accordance with our practice of allocating costs on a control number-
specific basis, for the final determination, we have calculated a
single-weighted average cost for all products (UF SSWR and non-UF SSWR)
falling within a specific control number.
    Comment 18: Timeliness of Nippon's UF SSWR Submissions.
    The petitioners contend that Nippon's submitted information on its
UF SSWR should be rejected by the Department as untimely. According to
the petitioners, Nippon first claimed that its UF SSWR sales were
outside the scope of this investigation in its March 4, 1998,
supplemental questionnaire response. The petitioners assert that Nippon
did not submit special product code designations for UF SSWR in the
March 4, 1998, submission. The petitioners contend that Nippon did not
submit revised cost data to reflect the unique status of UF SSWR until
March 23, 1998. According to the petitioners, Nippon did not revise its
further processing codes to reflect UF SSWR until its March 25, 1998,
clerical errors submission. Finally, the petitioners point out that
Nippon submitted corrections to its March 23, 1998, revised cost data
submission on May 29, 1998. The petitioners argue that Nippon's
submissions, subsequent to the preliminary determination, violate the
Department's regulations (see 19 CFR section 353.301(b)(1)) and have
denied the petitioners an opportunity to adequately comment on the new
data. Accordingly, the petitioners urge the
[[Page 40446]]
Department to reject Nippon's data as untimely and, instead, rely on
facts available.
    Nippon argues that it is permitted to submit information at any
time in response to the Department's request. See 19 CFR 351.301(c)(2).
Nippon states that it initially provided information on its UF SSWR on
March 4, 1998, in response to the Department's February 25, 1998,
supplemental questionnaire, which included a request for information on
appropriate model matches. Nippon asserts that its cost data for UF
SSWR sales was provided to the Department on March 23, 1998, and was
referenced in its March 4, 1998, submission. Nippon further argues that
its subsequent submissions relating to UF SSWR (i.e., the March 25,
1998, and May 28, 1998, submissions referenced by the petitioners) were
merely corrections to clerical errors. Thus, according to Nippon, its
information on UF SSWR was not untimely under the Department's
regulations, providing the petitioners an opportunity to comment on
this issue since March 1998.
DOC Position
    We agree with Nippon that its information placed on the record
regarding UF SSWR was requested by the Department pursuant to 19 CFR
351.301(c)(2) and was not untimely filed. In its February 25, 1998,
supplemental questionnaire, the Department requested certain new
information on the method for model matching, which included a due date
of March 4, 1998. In responding to that supplemental questionnaire on
March 4, 1998, and providing the requested data, Nippon included a
request that its UF SSWR product be excluded from the investigation,
based on its analysis of the new information the Department requested.
Because Nippon's exclusion request was tied to the new information it
submitted at the request of the Department, we find that the submission
was received by the due date and, thus, was not untimely filed. See 19
CFR 351.301(c)(2). Subsequently, Nippon submitted cost data and revised
further processing codes to support its March 4, 1998, contention that
UF SSWR is outside the scope of this investigation. Because this
information was filed in response to the Department's request, we did
not reject it as untimely for purposes of the final determination.
    Comment 19: Appropriate Matching Hierarchy for Further Processing
Codes.
    Nippon argues that, in the preliminary determination, the
Department failed to take into account the similarity of different
types of further processing conducted on SSWR when determining the most
similar match for U.S. sales of SSWR. Nippon contends that the
Department selected the further processing code numerically closest to
that of the U.S. product as the most similar type of further processing
code, rather than the further processing code most similar in terms of
the actual process that is performed on the product. Nippon states
that, as a consequence of the methodology used, the Department's
preliminary determination program rejected, as matches, products with
further processing more similar to the U.S. product than those used in
the margin calculation.
    The petitioners argue that the Department properly matched further
processing codes for purposes of its preliminary determination and
should continue to use the same methodology in its final determination.
The petitioners contend that, if Nippon believed the Department should
change its methodology, Nippon should have submitted detailed cost data
supporting its argument (i.e., showing that the cost of annealed
products is not substantially greater than the cost of products that
were not annealed). The petitioners argue that, because Nippon failed
to do so, the Department's model match methodology properly compared
U.S. products that have been annealed to home market products that have
been both annealed and super finished. The petitioners state that the
annealing process is a critical and costly finishing operation that
significantly alters the merchandise; in contrast, the super finishing
operation is not typically as important as annealing. Thus, according
to the petitioners, products that are annealed and super-finished are
more similar to products that have been annealed than are products that
have not been annealed. The petitioners thus contend that the
Department's matching hierarchy for further processing was not simply
based on selecting the closest numerical code; rather, it properly
selected the next most similar product and, therefore, should not be
changed.
DOC Position
    We agree with the petitioners. Nippon has provided no support for
its claim that the Department rejected, as matches, products with
further processing operations more similar to the U.S. product than
those used in the margin calculation. For example, Nippon states that a
home market product that has been hot-rolled and pickled is a more
appropriate match to a U.S. product that has been hot-rolled, annealed,
and pickled than a home market product that has been hot-rolled,
annealed, pickled and super finished. However, Nippon does not explain
why hot-rolled and pickled is, in fact, a more similar further
processing match to hot-rolled, annealed and pickled than the
Department's selection of hot-rolled, annealed, pickled and super-
finished. Without a justification for a change in the methodology, the
Department is unable to make a determination as to the merits of
Nippon's argument. While Nippon has not provided an argument as to why
one methodology is more appropriate than another, the petitioners have
argued that the annealing process is a critical and costly finishing
operation that significantly alters the merchandise, while the super-
finishing operation is not typically as important a finishing operation
as annealing. Accordingly, for the final determination, the Department
has not altered its model matching methodology.
    Comment 20: Denomination of U.S. Sales Prices and the Proper
Borrowing Rate to Calculate U.S. Credit Expense.
    The petitioners argue that Nippon should have reported its U.S.
sales to Japanese trading companies in yen, not dollars, because Nippon
conducted its transactions with these customers exclusively in yen.
Given that Nippon did not follow the Department's original instructions
to report the prices in the currency in which the payment was made, the
petitioners argue that the Department should reject Nippon's data. At a
minimum, the petitioners urge the Department to make a downward
adjustment to Nippon's U.S. prices based on facts available.
    The petitioners also assert that, given that Nippon chose to report
its prices in U.S. dollars, it should not be permitted to benefit from
this misreporting by using a yen-based interest rate. Rather, the
petitioners argue that the Department should use the dollar-based
interest rate to calculate Nippon's U.S. credit expense.
    Nippon argues that, because it reported its net sales prices (i.e.,
gross unit price minus trading company discount) in yen, as well as the
gross price and trading company discount in U.S. dollars, the
petitioners' claim that Nippon did not report sales data in yen is
inaccurate. Accordingly, Nippon argues that, even if the Department
decides to use U.S. sales data in yen, the Department should use the
reported sales price, and not apply facts available. Further, if the
Department uses U.S. sales data in yen, Nippon asserts that the
petitioners' recommended methodology of using the yen-based U.S. price
and then converting it back into U.S. dollars
[[Page 40447]]
would require two currency exchanges using two different exchange
rates. Nippon explains that the Department uses the Federal Reserve
daily exchange rates, adjusted for fluctuations on the date of the U.S.
sale, and that Nippon uses forward exchange rate contracts set a number
of days after the shipment date. Accordingly, Nippon asserts that the
Department would need to incorporate both of these exchange rates into
any conversion of yen-based U.S. price back into U.S. dollars. Nippon
observes that this process would be distortive because of the
differences in exchange rates. Accordingly, the Department should
continue to use the dollar-based U.S. price because it does not require
a currency conversion that would distort the U.S. price. Nippon
concludes that, regardless of the Department's determination, the
Department should use the reported sales price in U.S. dollars for
sales made by Nittetsu Shoji because Nittetsu Shoji's sales to its U.S.
customers were transacted and billed in U.S. dollars.
    Nippon also argues that, while the amount reported on the invoice
was denominated in U.S. dollars, the amount it charged to the
unaffiliated trading company (i.e., the gross price less a standard
discount) was denominated in yen and, therefore, the Department should
use Nippon's yen-based borrowing rate when calculating its U.S. credit
expense, in accordance with its established practice. See Final
determination of Sales at Less Than Fair Value: Oil Country Tubular
Goods from Austria, 60 FR 33551, 33555 (June 28, 1995) and Policy
Bulletin No. 98.2 (February 23, 1998).
DOC Position
    We agree with Nippon. In the questionnaire sent to Nippon, the
Department instructed Nippon to report the gross unit price recorded on
the invoice. In this case, the gross unit price recorded on the invoice
is recorded in U.S. dollars. Also recorded on the invoice is the
percent discount applicable to the sale and the net price in yen
charged to the unaffiliated Japanese trading company. There is no gross
price in yen reported on the invoice. Rather, Nippon took the dollar
amount, subtracted a 2.5 percent trading company discount, and then
multiplied this amount by an exchange rate provided in the invoice.
Accordingly, since Nippon reported its sales in accordance with the
Department's instructions (i.e., it reported the gross unit price
recorded on the invoice), we have continued to use the information
provided by Nippon in the final determination.
    Additionally, Nippon provided a separate field in which it reported
the net unit price charged to the trading company, which it defined as
the gross price less the standard trading company discount converted to
yen using the exchange rate reflected on the invoice. We confirmed at
verification that Nippon received the yen-denominated amount from the
trading company. Therefore, in accordance with the Department's
practice, as outlined in Policy Bulletin No. 98.2 (February 23, 1998),
for the final determination, we used Nippon's yen-based borrowing rate
when calculating U.S. credit expenses. However, because sales by
Nittetsu Shoji to unaffiliated customers in the United States were
denominated in U.S. dollars, for the final determination, we continued
to use the dollar-based interest rate when calculating U.S. credit
expense for Nittetsu Shoji's U.S. sales.
    Comment 21: Time Period for Calculating Credit Expense.
    Nippon points out that, in the preliminary determination, in
calculating credit expense for Nittetsu Shoji, the Department used, as
the date of payment, the maximum number of days that Nittetsu Shoji
waited to exchange the letter of credit for such sales for cash, rather
than the average number of days. Nippon notes that the Department did
not use the average number of days reported by Nittetsu Shoji because
this number was unsubstantiated in the questionnaire responses. Nippon
now argues that, because actual payment dates were not readily
accessible in its accounting system, it followed the Department's
instructions and reported the average age of accounts receivables.
Nippon asserts that, at verification, the Department verified Nittetsu
Shoji's use of the average number of days in its reporting and
calculations. Nippon also notes that the Department specifically
reviewed the payment dates and found no discrepancies in Nittetsu
Shoji's calculation of the short-term interest rates. Accordingly, for
purposes of the final determination, Nippon urges the Department to use
the average number of days, rather than the maximum number of days that
a letter of credit was outstanding, when calculating Nittetsu Shoji's
U.S. credit expense.
    The petitioners counter that, while the Department found no
discrepancies in the interest rates, the Department did not verify the
accuracy of the payment periods reported by Nittetsu Shoji. In fact,
the petitioners argue that the Department found at verification that,
for at least one U.S. sale, Nittetsu Shoji had not reported the payment
dates accurately (i.e., Nittetsu Shoji understated the actual payment
period). Accordingly, given that Nippon failed to demonstrate at
verification that the payment periods were accurate, the petitioners
urge the Department to reject the payment periods reported by Nippon
and, instead, rely on the longest payment period reported for Nippon's
U.S. sales as facts available.
DOC Position
    We agree with Nippon. The payment period reported by Nittetsu Shoji
is an average payment period. As an ``average,'' this payment period
may be longer for some sales, as in the example cited by the
petitioners, while it may be shorter for other sales. Our questionnaire
permits the use of an average payment period where a respondent
asserts, and the Department verifies, that the actual payment dates are
not readily accessible in the respondent's accounting system. See
Questionnaire at page C-23. Moreover, at verification, while the
Department verified the payment dates of individual sales, it did not
verify the average number of days used in the credit calculation.
Because the range of payment dates analyzed at verification is
comparable with the range of payment dates reported by Nittetsu Shoji,
we have determined that, for the final determination, it is appropriate
to use the average number of payment days reported by Nittetsu Shoji
when calculating credit expense.
    Comment 22: Home Market Credit Expenses.
    The petitioners argue that Nippon's Verification Report at page 6
indicates that the payment terms reported by both Nippon and Nittetsu
Shoji do not properly reflect the actual credit expenses incurred.
Specifically, the petitioners note that the Department found at
verification that, for one of the home market sales traces, Nittetsu
Shoji received advance payment and, as a result, paid the customer
interest on that payment amount until the originally agreed upon
payment due date. The petitioners argue that credit expenses must be
reported based on the expenses actually incurred, not on Nippon's
estimation of what its credit expenses were. The petitioners contend
that, assuming that Nittetsu Shoji or Nippon actually paid their
customers interest on prepayments, Nippon should have reported the
actual payment dates and the amount of interest paid for all sales. The
petitioners state that, because Nippon failed to provide the
information requested by the Department, and did not demonstrate at
verification that the information
[[Page 40448]]
contained in its questionnaire response was correct, the Department
should reject Nippon's home market credit expense adjustment.
    Nippon counters that, because its reporting and calculation of home
market imputed credit expense was consistent with the Department's
instructions, and was subsequently verified, it should be used in the
final determination. First, Nippon argues that it would be unreasonable
for the Department to reject all of Nippon's credit expenses when the
alleged error related only to sales by Nittetsu Shoji, not Nippon.
Second, the petitioners' complaint that Nippon did not report actual
credit expenses should be disregarded because imputed expenses by their
nature are not actual expenses. Nippon explains that the imputed credit
expense requested from a respondent and used by the Department in its
margin calculations represents the theoretical opportunity cost to the
respondent for extending credit to its customers until the payment date
and, as such, is not an actual amount. In addition, Nippon states that
the sales trace noted by the petitioners represents an anomalous
payment of interest by Nittetsu Shoji to a customer who paid the
invoice before the due date. As such, while imputed credit expense is
the theoretical cost to Nittetsu Shoji of lending money to its customer
through extended payment terms, the sale noted by the petitioners
involves the opposite, a loan by the customer to Nittetsu Shoji with
the payment by Nittetsu Shoji to the customer representing a payment of
interest on the short-term loan. Therefore, Nippon contends that
Nittetsu Shoji's payment of interest to this one customer should have
no bearing on Nippon's imputed credit expense adjustment.
    Third, Nippon notes that, because the interest amount Nittetsu
Shoji paid to the customer on the prepayment was greater than the
average short-term interest rate used by Nittetsu Shoji to calculate
imputed credit expense, Nittetsu Shoji's methodology did not result in
a benefit to Nittetsu Shoji, but rather was a conservative methodology
for calculating imputed credit expense which followed the Department's
standard practice.
    Finally, Nippon argues that its reporting of home market imputed
credit expense was consistent with the Department's instructions.
Citing the Department's verification report for Nittetsu Shoji, Nippon
notes that the Department found no significant discrepancies or
inconsistencies with the questionnaire responses. Accordingly, Nippon
contends that the petitioners' argument that Nittetsu Shoji failed to
demonstrate at verification that the information contained in its
questionnaire response was correct is in direct conflict with the
Department's verification report.
DOC Position
    As noted by Nippon, imputed credit expenses represent the
opportunity cost to the respondent of extending credit to its customers
until the payment due date. As such, they are not actual expenses
incurred and recorded by a respondent. See, e.g., Certain Fresh Cut
Flowers from Colombia: Final Results of Antidumping Duty Administrative
Review, 63 FR 31724, 31727 (June 10, 1998). We use such opportunity
costs when there is no actual credit expense recorded on the books of
the respondent. When a customer pays a respondent for merchandise after
shipment of the merchandise, the opportunity cost to that respondent is
the number of days between shipment and payment times the respondent's
short-term borrowing rate applied to the gross unit price less any
discounts. See Policy Bulletin No. 98.2 (Feb. 23, 1998). However, when
a customer prepays for the merchandise, and then is paid interest on
that prepayment, the actual cost to a respondent for offering extended
payment terms is the amount of interest paid to the customer between
the date of payment and the agreed upon payment due date and there is
no need to calculate an opportunity cost. Accordingly, this is the
amount that should have been reported to the Department, along with the
date the customer paid for the merchandise and the agreed upon payment
due date. The methodology employed by Nittetsu Shoji in calculating
imputed credit expenses for the particular sale in question did not
accurately reflect its costs of extending credit to this customer.
    However, we note that this was the only verified instance in which
Nittetsu Shoji received prepayment and then paid interest to the
customer. See the Department's May 5, 1998, Sales Verification Report
for Nittetsu Shoji at pages 5-6. Moreover, we did not note any
instances in which Nippon received prepayment and then paid interest.
Therefore, we disagree with the petitioners that Nippon and Nittetsu
failed to demonstrate at verification that the information contained in
Nippon's questionnaire response was correct and that, therefore, the
Department should reject the home market credit expense claimed by
Nippon and Nittetsu Shoji. Moreover, Nippon stated that this prepayment
to Nittetsu Shoji was anomalous (i.e., not in accordance with its usual
practice), demonstrating that it would have been beneficial to Nittetsu
Shoji to report the interest it had paid in lieu of the imputed credit
expense it incurred.
    Accordingly, for the final determination, we have continued to use
the credit information provided by Nippon and Nittetsu Shoji.
Continuation of Suspension of Liquidation
    In accordance with section 733(d) of the Act, we are directing the
Customs Service to continue to suspend liquidation of all entries of
SSWR from Japan--except for merchandise produced and sold by Hitachi
Metals Ltd., which received a zero margin--that are entered, or
withdrawn from warehouse, for consumption on or after the date of
publication of this notice in the Federal Register. The Customs Service
shall continue to require a cash deposit or the posting of a bond equal
to the weighted-average amount by which the normal value exceeds the
U.S. price, as indicated in the chart below. These suspension-of-
liquidation instructions will remain in effect until further notice.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
                                                               Weighted-
                                                                average
                    Exporter/manufacturer                       margin
                                                              percentage
------------------------------------------------------------------------
Daido Steel Co. Ltd.........................................       34.21
Nippon Steel Corporation....................................       21.18
Hitachi Metals Ltd..........................................        0.00
Sanyo Special Steel Co., Ltd................................       34.21
Sumitomo Electric Industries, Ltd...........................       34.21
All Others..................................................       25.26
------------------------------------------------------------------------
    Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded any zero and de minimis margins, and any margins determined
entirely under section 776 of the Act, from the calculation of the
``All Others Rate.''
ITC Notification
    In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. As our final determination is affirmative,
the ITC will, within 45 days, determine whether these imports are
materially injuring, or threaten material injury to, the U.S. industry.
If the ITC determines that material injury, or threat of material
injury does not exist, the proceeding will be terminated and all
securities posted will be refunded or canceled. If the ITC determines
that such injury does exist, the Department will issue an antidumping
duty order directing Customs officials to assess antidumping
[[Page 40449]]
duties on all imports of the subject merchandise entered for
consumption on or after the effective date of the suspension of
liquidation.
    This determination is published pursuant to section 777(i) of the
Act.
    Dated: July 20, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-20020 Filed 7-28-98; 8:45 am]
BILLING CODE 3510-DS-P