66 FR 50397, October 3, 2001
                                                            A-834-806
                                               ADI: 04/01/00-09/30/00
                                                      Public Document
                                                        III / 9 / JHC
September 21, 2001
MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary
                 for Import Administration
FROM:          Joseph A. Spetrini
               Deputy Assistant Secretary
               AD/CVD Enforcement Group III
SUBJECT: Issues and Decision Memorandum for the Less Than Fair Value
Investigation of Hot-Rolled Carbon Steel Flat Products from Kazakhstan
SUMMARY:
We have analyzed the comments and briefs of interested parties in the
less than fair value ("LTFV") investigation of hot-rolled carbon steel
flat products from Kazakhstan. As a result of our analysis, we have made
changes from the Notice of Preliminary Determination of Sales at Less Than
Fair Value: Certain Hot-Rolled Carbon Steel Flat Products from Kazakhstan,
66 FR 22168 (May 3, 2001) ("Preliminary Determination"). The specific
programming changes can be found in our Analysis Memorandum for OJSC Ispat
Karmet: Final Determination in the Less Than Fair Value Investigation of
Hot-Rolled Carbon Steel Flat Products from Kazakhstan (September 21, 2001)
("Final Analysis Memo"). We recommend that you approve the positions
developed in the "Discussion of the Issues" sections of this Issues and
Decision Memorandum. Below is the complete list of the issues in this
investigation:
Market Oriented Industry Issue
     Comment 1: Market Oriented Industry
General Issues:
     Comment 2: Aberrational Surrogate Values
     Comment 3: Choice of Surrogate Values
     Comment 4: Double Counting Values
Verification Issues:
     Comment 5: Factors of Production Based on Thickness
     Comment 6: Dubai Sales Office
     Comment 7: Nominal Thickness
     Comment 8: Coil Protectors
     Comment 9: Inland Freight Distance
     Comment 10: Manganese Ore
     Comment 11: Packing Bands
     Comment 12: Sales to Ispat Sidbec
     Comment 13: Technical Water
     Comment 14: Silico-manganese
DISCUSSION OF THE ISSUES:
Marketed Oriented Industry Issue
Comment 1: Market Oriented Industry
Respondent OJSC Ispat Karmet ("Ispat") argues the Department should find
the hot-rolled carbon steel flat products industry in Kazakhstan to be a
market oriented industry ("MOI"). See Ispat's August 20, 2001 Case Brief
("Ispat's Brief"), at 2-5. Ispat addresses the criteria for MOI status,
noting it is the only steel producer in Kazakhstan and, thus, constitutes
the entire steel industry. Ispat argues it meets the criteria for private
or collective ownership, stating it is part of the LNM Group of privately-
owned steel companies, which bought the Karaganda Metallurgical Combine
from the Government of Kazakhstan, free of any government involvement or
encumbrances. Ispat then addresses the remaining two criteria, operating
with no government involvement in setting prices or production amounts for
subject merchandise, and payment of market-determined prices for all
significant inputs. First, Ispat asserts that nothing on the record
contradicts its claim that it follows normal business considerations to
set prices and production goals. Ispat states the government plays no part
in the sales agreements negotiated annually with international traders,
nor in the conditions set for each shipment through individual addenda.
Ispat posits that the letter from the Minister of Economy and Trade of
Kazakhstan confirms no government involvement in setting prices or
production. Ispat claims that sales documents examined during verification
demonstrate that negotiations on price, quantity and delivery are
conducted without government control, regulation or interference. Second,
Ispat claims it pays market determined prices for all significant inputs
Ispat notes that a "significant" portion of its inputs are from internal
sources. Ispat states that most of its coal and much of its iron ore are
from its own, or its subsidiary's, mines and the remainder are from
privately-owned sources in Kazakhstan. Ispat claims its response
demonstrated that its other purchased inputs are either from market
economy countries or paid for in U.S. dollars. Ispat claims three supplier
contracts submitted in its response demonstrate that its supply contracts
are freely negotiated without any government participation. Finally, Ispat
notes that internally-generated inputs cannot be under government price
control. Accordingly, Ispat asserts that the Department should find the
hot-rolled steel industry to be a MOI, and use Ispat's actual costs rather
than surrogate values in its margin calculation.
Co-petitioners Bethlehem Steel Corporation, LTV Steel Company, Inc.,
National Steel Corporation, and United States Steel LLC (1) (hereinafter
collectively "Co-petitioners") argue that Ispat has not met its burden of
proof in a MOI determination. Co-petitioners argue the Department has
stated that the test for a MOI finding begins:
     . . . with a strong presumption that such situations do not
     occur because nonmarket economies are riddled with distortions.
     The presumption against finding a market-oriented industry must
     prevail unless thorough and convincing evidence is presented on
     the record which demonstrates that the producers operate in an
     environment of market-based costs and prices and that bounties
     or grants bestowed on the subject merchandise can be reasonably
     discerned and measured.
Co-petitioners' August 20, 2001 Rebuttal Brief ("Co-petitioners'
Rebuttal") at 2, citing Notice of Final Determination of Sales at Less
Than Fair Value: Steel Concrete Reinforcing Bars from Moldova, 66 FR 33525
(June 22, 2001), and accompanying Issues and Decision Memorandum at
Comment 4 ("Rebar from Moldova Decision Memo"). Co-petitioners argue Ispat
has provided no such evidence on the record to rebut this presumption
against finding a MOI. See Co-petitioners' Rebuttal" at 1-7. Co-
petitioners argue Ispat has failed to meet two of the three criteria
necessary for a determination of MOI status: 1) no government involvement
in setting the prices or production amounts; and 2) market-determined
prices paid for all significant inputs, as well as for all but an
insignificant portion of the inputs accounting for the total value of the
merchandise under investigation. Co-petitioners' Rebuttal at 3, citing
Rebar from Moldova Decision Memo at Comment 4; Notice of Final
Determination of Sales at Less Than Fair Value: Freshwater Crawfish Tail
Meat from the People's Republic of China, 62 FR 41347, 41353 (August 1,
1997).
First, Co-petitioners assert Ispat has failed to provide objective
corroboration of no government involvement in setting prices or production
amounts for hot-rolled steel in Kazakhstan. See Co-petitioners' Rebuttal
at 3-5. Regarding Ispat's claim of no government involvement in
production, Co-petitioners point out the only information provided by
Ispat is a letter from the Ministry of Economy and Trade, which merely
cites the agreement of sale between Ispat and the government for the
plant. Co-petitioners note that while the Department requested
documentation or other support regarding Ispat's claim it was not subject
to governmental requirements or restrictions, Ispat provided none for the
record, stating it was "not aware" of any such statutes. As for Ispat's
claim of no government involvement in pricing, Co-petitioners argue the
only documentation or support provided by Ispat, aside from the Ministry
letter, are two "representative" supply contracts which fail to provide
"thorough and convincing" evidence of no government control over pricing.
Moreover, Co-petitioners claim Ispat has failed to demonstrate that its
suppliers' industries are not subject to government control and state-
required production levels, see Co-petitioners' Rebuttal at 3-5, citing
Chrome Plated Lug Nuts from the People's Republic of China; Final Results
of Antidumping Duty Administrative Review, 61 FR 58519, 58520 (November
15, 1996) ("Lug Nuts from China"), in support, wherein the Department
determined the respondent did not demonstrate its suppliers are free of
government control of production or prices, despite providing certificates
stating its suppliers are free of government control. Co-petitioners
discuss the country origins of the inputs, and point out Ispat has failed
to provide "thorough and convincing" evidence that a significant portion
of its supplier industries, either local or external, are free from
government control and state production levels.
Co-petitioners also claim Ispat has failed to provide objective
corroboration showing that its suppliers' prices are market-determined. Co-
petitioners argue that, as already discussed, Ispat has not shown that its
suppliers are free of its respective government's involvement or control,
thus, it has not shown the suppliers' prices are market-determined.
Furthermore, Co-petitioners argue that any inputs not purchased from
market economies strongly indicates they are not at market-determined
prices. In addition, Co-petitioners point out that the Kazakhstan
currency, the tenge, is not convertible outside of Kazakhstan, which also
strongly indicates any such inputs are not at market-determined prices.
Accordingly, Co-petitioners assert that the Department should dismiss
Ispat's request for MOI status, as it has failed to provide "thorough and
convincing" evidence on the record in support of its request, and thus
failed to meet all three prongs of the MOI test.
Department Position:
To identify those situations where we would apply a market-economy
methodology, as permitted by section 773(c)(1) of the Act, the Department
developed its "market-oriented industry" test. As noted in the Preamble to
our regulations (62 FR 27295, 27365), this test is not codified in our
regulations due to our concerns about the test.
As the Department has stated in the past, in order to make an affirmative
MOI finding, there must be: 1) virtually no government involvement or
state control over setting pricing or production amounts for subject
merchandise; 2) an industry characterized by private or collective
ownership; and 3) payment of market-determined prices for all significant
inputs, whether material or non-material (e.g. labor and overhead), and
for all but an insignificant proportion of all the inputs accounting for
the total value of the merchandise under investigation. See Lug Nuts from
China, 61 FR at 58816. As we stated in Rebar from Moldova Decision Memo at
Comment 4, there is a strong presumption that MOI situations do not occur,
which can only be overcome by thorough, convincing evidence.
Ispat has not demonstrated that it pays market-determined prices for all
significant inputs, and for all but an insignificant proportion of all the
inputs accounting for the total value of the merchandise under
investigation. While Ispat asserts that the prices paid for inputs are
market-determined, the only support provided is a list of the purchase
prices paid for the inputs (see Second MOI letter at 3-4) and
"representative supply contracts" for two of its numerous inputs (see
Supp. MOI letter at Exhibit 2). Further, most of Ispat's inputs are
purchased from non-market economy countries. In calculating surrogate
values for the factors of production, pricing data from non-market economy
countries are not taken into account. See Factor Valuation Memorandum
(April 23, 2001), at Attachments D and E. We note that we disagree with Co-
petitioners' reliance on the non-convertibility of the tenge. Currency
convertibility is not one of the MOI test criteria. See Lug Nuts from
China, 61 FR at 58816.
As noted above, the Department rarely grants MOI status. In this case,
there appears to be significant evidence that the Kazakhstan hot-rolled
carbon flat steel industry does not satisfy the third prong - - that
prices for virtually all inputs be market-determined. However, we also
note that a determination on the issue of whether Kazakhstan meets the
requirements for market-economy status is pending in the antidumping duty
investigation of silicomanganese from Kazakhstan (A-834-807). As a result,
while there does not appear to be sufficient evidence of a MOI in this
case, we intend to apply, as appropriate, the facts and information found
in this case in the determination concerning market-economy status in
silicomanganese from Kazakhstan.
General Issues
Comment 2: Aberrational Surrogate Values
Ispat alleges that the Department uses "aberrational" values as surrogate
values for the investigation. See Ispat's Brief at 5-11. Ispat states the
Department is under an obligation to select surrogate values as
representative of the NME country as possible. See Ispat's Brief at 5-6,
citing Freshwater Crawfish Tail Meat from the People's Republic of China:
Final Results of Administrative Antidumping Duty and New Shipper Reviews,
and Final Rescission of New Shipper Review, 65 FR 20948 (April 19, 2000).
Ispat notes that the inputs used in manufacturing hot-rolled carbon steel
products are uniform through the industry world-wide. As a result, Ispat
reasons that the Department's calculation of an average cost of raw
materials over $300/ton and an average normal value over $600/ton is
"irrational," claiming "no producer in the world is incurring material
costs alone of over $300 per metric ton" and pointing to the average total
cost of sales of $296 per ton for U.S. producers during the POI. See
Ispat's Brief at 6, citing USITC Publication 3381, in Inv. No. 701-TA-404-
408 and 731-TA-898-908, at C-8. Ispat asserts that differences in plant
efficiencies cannot account for the difference between the Department's
calculated cost and the average domestic cost, especially considering
Ispat's proximity to its most important raw materials and its very high
capacity utilization rate.
Ispat states that it is "well known" that Egypt, the surrogate country,
has few, if any, local raw materials for steelmaking and must import the
materials. Ispat then claims that the Egyptian import values used by the
Department "appear to include significant transport charges incurred to
bring the raw material from the source to Egypt." See Ispat's Brief at 7.
Ispat claims, in comparison, the Department verified Ispat is relatively
close to its raw material suppliers. Thus, Ispat argues, it has an
advantage over mills located further from raw material sources, arguing
that differences in the cost of materials are due to additional costs
incurred in transporting the materials to the mills. Ispat argues the
Department vastly overstated surrogate values by failing to deduct ocean
transportation costs for transport of material to Egypt, and further erred
by adding freight to the surrogate values.
Ispat argues that the Department should disregard aberrational surrogate
values for reasonable, reliable values. Ispat Karmet claims that the
Department has determined that a surrogate country's import data, based
primarily on imports from one country and low quantities, which differs
significantly from values reported for imports into other countries, is
not reliable, citing Notice of Final Determination of Sales at Less Than
Fair Value: Steel Concrete Reinforcing Bars from Belarus, 66 FR 33528
(June 22, 2001), and accompanying Issues and Decision Memorandum at
Comment 1. Ispat Karmet also cites Notice of Final Determination of Sales
at Less Than Fair Value: Steel Concrete Reinforcing Bars from the People's
Republic of China, 66 FR 33522 (June 22, 2001), and accompanying Issues
and Decision Memorandum at Comment 5 (Department rejected an aberrational
Indian surrogate value for water slag in favor of U.S. pricing data).
Ispat also states that the Department has compared import values from
different months and different countries and rejected aberrational values,
citing Final Results of Antidumping Duty Administrative Review: Chrome
Plated Lug Nuts from the People's Republic of China, 63 FR 53872 (Oct. 7,
1998) (Department excluded Indian imports of German steel from a
particular month that, compared to imports in other months and other
countries, were abnormally high). Ispat also cites Notice of Final
Determination of Sales at Less Than Fair Value: Partial Extension Steel
Drawer Slides with Rollers from the People's Republic of China, 60 FR
54472 (October 24, 1995), where the Department found the Indian import
value used unreliable after comparing it to other values on the record and
finding the Indian value much higher; and Notice of Final Determination of
Sales at Less Than Fair Value: Steel Wire Rope from the People's Republic
of China, 66 FR 12759 (Feb. 28, 2001), and accompanying Issues and
Decision Memorandum at section IV (Malaysian import values in the Indian
Import Statistics excluded because they were many times higher than the
import values from other countries, and not in line with other wire rod
prices on the record).
Ispat also argues that the Department relied on unit values calculated
from "abnormally low quantities" for limestone, scrap, ferromanganese,
aluminum, ferrotitanium, fuel oil, and nitrogen. See Ispat's Brief at 9.
Ispat asserts that unit values calculated from insignificant imports
cannot form the basis for a reasonable estimate of the surrogate cost of
production. Ispat points to Notice of Final Determination of Sales at Less
Than Fair Value: Certain Cased Pencils from the People's Republic of
China, 59 FR 55625 (Nov. 8, 1994), where the Department found Indian
factor values aberrational when compared to Pakistani (an alternate
surrogate country) and U.S. values. Ispat declares that the Department
must analyze public information to confirm the prices of the Egyptian
import statistics. Ispat argues that the raw materials used in steelmaking
"reflect their anticipated use in steel production," stating, as an
example, that iron ores prices are dictated by the percentage of iron
content in the ore, and argues that this applies to many other inputs used
in carbon steel manufacture. Ispat Brief at 10. Ispat claims this
demonstrates that the vast majority of the Department's values are
significantly overstated. Id. Ispat also argues that Ispat "is an
extremely efficient producer and operated at a very high rate during the
POI" which lowers operating costs. Ispat Brief at 11.
Accordingly, Ispat argues that "{b}ecause the prices of many of the raw
materials used in the production of steel are set in the international
marketplace and are essentially the same worldwide, the Department should
examine the Egyptian import statistics carefully before using them as a
basis for calculating Ispat's normal value." Ispat's Brief at 11. Ispat
then asks that the Department, at the very least, "use international
prices as a basis for adjusting Egyptian import values to eliminate ocean
transportation costs from the exporting country to Egypt." Id.
Co-petitioners argue that Ispat had opportunities in which to timely
submit alternative surrogate values throughout the investigation, and two
months after the deadline is too late. Co-petitioners also argue that the
mere fact that the surrogate values are not values preferred by Ispat does
not make them aberrational. See Co-petitioners' Rebuttal at 7-16. First,
Co-petitioners assert that Ispat's objection of the Department's surrogate
valuation methodology is untimely. Co-petitioners point out the numerous
opportunities provided by the Department inviting comment on the surrogate
country and factors of production values, including an invitation for
comments regarding the surrogate country selection and for submission of
public information to value the factors of production (see Department's
January 23, 2001 letter to the parties), as well as the notification that
"interested parties may submit publicly available information to value
factors of production within 40 days after the date of publication of the
preliminary determination" (see Preliminary Determination, 66 FR at
22172). While Co-petitioners took advantage of the opportunity to comment,
Ispat remained silent on the surrogate country selection and instead chose
to argue that the Department should not employ a non-market economy
methodology. Co-petitioners also point out that the only comment Ispat
chose to make regarding the surrogate values for the factors of production
was in opposition to the Co-petitioners' recommendation of a surrogate
value for iron ore pellets, and choice of financial statements from which
to calculate SG&A, interest, profit and overhead rates, issues which Ispat
does not address in its brief. See Ispat's letter to the Department (April
18, 2001).
As for Ispat's charge that the Department's calculated costs are
aberrational, Co-petitioners argue Ispat bases its argument on the
unsubstantiated assertion that inputs used to produce hot-rolled steel are
uniform throughout the industry. Co-petitioners allege that Ispat fails to
acknowledge the differences in manufacturing processes and input costs,
not only among different countries, but also among steel producers within
a country, using as an example the fact that Ispat uses ingot casting to
produce semifinished steel.
Co-petitioners observe that the Court of International Trade has
confirmed the Department's discretion in selecting surrogate values and
found that in determining what constitutes best available information,
"Commerce need not prove that its methodology was the only way or even the
best way to calculate surrogate values for factors of production as long
as it was a reasonable way." See The Coalition for the Preservation of
American Brake Drum and Rotor Aftermarket Manufacturers v. United States,
44 F. Supp. 2d 229, 258 (Ct. Int'l Trade 1999). Accordingly, while Ispat
argues that the limestone, ferromanganese, ferrotitanium, and nitrogen are
not reasonable, Co-petitioners argue that the Department correctly derived
its surrogate values from the United Nations Commodity Trade Statistics
("UNCTS") data regarding imports into the primary surrogate country,
Egypt, and the Philippines, when unable to obtain an Egyptian value.
Department Position:
We agree with Co-petitioners. There is no evidence on the record, nor has
Ispat pointed to any evidence on the record, that support's Ispat's
allegations of aberrational values or improper choice of surrogate
country. While Ispat raises objections to the choice of country and
valuations in its case brief, there is no evidence on the record to
support its allegations. The Department followed proper procedure in
selecting its surrogate countries, and used standard UNCTS data in valuing
the factors of production; nowhere in the record has the Department's
selection been shown to be unreasonable. We also note that parties were
given opportunity to provide information for the record and comment on the
Department's choice of a surrogate country and choice of surrogate factors
of production values. The Department first issued a letter on January 23,
2001, informing parties of the Department's surrogate country selection
(which listed Egypt, the Philippines, Morocco, Ecuador, and Algeria as
surrogate countries for Kazakhstan) and informing parties they may submit
comments on the surrogate country selection, or significant production in
the potential countries by February 6, 2001. The letter also informed the
parties that they may submit public information to value factors of
production either before, or no later than 40 days after, the Preliminary
Determination. While Co-petitioners commented on the Department's choice
of a surrogate country, and also provided public information to value the
factors of production, Ispat did not. In the period prior to the
Preliminary Determination, Ispat voiced no objection to the Department's
choice of surrogate countries. Instead, Ispat merely stated that it "does
not agree that the Department should employ a non-market economy
methodology in this investigation but, rather, should employ a market-
oriented industry analysis" in reference to its separate MOI request filed
on March 21, 2001. See Ispat's letter to the Department (April 18, 2001)
at 2. Ispat's only contribution to the valuation of the factors of
production was an objection to the Co-petitioners' suggested value for
iron pellets and choice of financial statements from which to value SG&A,
interest, profit and overhead rates. See Ispat's letter to the Department
(April 18, 2001).
Furthermore, Ispat did not comment on the surrogate country and factors
valuation in the provided forty day window of time after publication of
the Preliminary Determination, in accordance with 351.301(c)(3)(i) of the
Department's regulations. Ispat did file ministerial error allegations
regarding the valuations for coke and the cost of freight for scrap. See
Ispat's letter to the Department (April 30, 2001). However, Ispat voiced
no objection to the Department's use of Egypt (or in some instances, the
Philippines), as the surrogate country, and provided no comments on any of
the issues or valuations which it raises now in its case brief.
In conclusion, without any information on the record to support Ispat's
assertion that the Department's choice of country and surrogate values
were unreasonable or aberrational, Ispat has no basis on which it makes
its claims. Accordingly, the Department is using the same surrogate
country as it did in the Preliminary Determination, and the same surrogate
values, except those adjusted as discussed, infra, for this final
determination.
Comment 3: Choice of Surrogate Values
Ispat states that it is "apparent" the high coal value represents a
washed coal price, whereas the Department verified the reported input was
for unwashed coal. As washing the coal eliminates approximately 31 percent
in waste, Ispat asserts that the Department's valuation of coal is
overstated. Similarly, Ispat states it "appears" the Department is using
primary aluminum as a surrogate value, when Ispat reported it uses a
different aluminum, citing its Section D response, at Exhibit 4 (February
26, 2001). Additionally, Ispat makes the claim that the Department
verified lime and burnt dolomite are produced in-house from limestone and
dolomite, respectively, and argues that it is "irrational" for the
Department to have valued the processed materials of lime and burnt
dolomite at a lower value than the original raw material. Ispat also
argues that the Department's calculated coal costs "constitute 17 percent
of the total cost of manufacture, a level that is not remotely related to
coal costs incurred by any other steel producer." See Ispat's Brief at 8.
Ispat similarly argues that the fuel oil and nail costs, at 4 percent and
0.2 percent of the total cost of manufacture, respectively, could not
"conceivably contribute so significantly to the cost of hot-rolled steel."
Id.
Regarding freight, Co-petitioners argue that Ispat's contention that the
Department should exclude ocean freight costs included in the Egyptian
statistics, as well as the inland freight costs to Ispat added to the
value of the input, contradicts the Department's surrogate value
methodology. Co-petitioners maintain that the Department routinely relies
on UNCTS data, and that it is Department practice to include international
freight when determining surrogate values, citing UCF America Inc. v.
United States, 18 CIT 1074, 870 F. Supp. 1120, 1128 (Ct. Int'l Trade 1994)
in support (Commerce converted European Community data based on FOB values
into CIF (cost, insurance and freight) values for use as surrogate value).
Co-petitioners argue that by removing the shipping costs from the
surrogate country, the Department would essentially be basing the
surrogate values on the cost of the input for each country that delivers
to Egypt, rather than basing the values on Egypt itself, when Department
practice is to value inputs based on the identified surrogate country. Co-
petitioners then argue that it is also Department practice to include
inland freight costs to the producer, citing Sigma Corp. v. United States,
86 F. Supp. 2d 1344, 1348-49 (Ct. Int'l Trade 2000). Accordingly, Co-
petitioners state the Department should use the freight value from the
Preliminary Determination in making its final determination.
As for coal, aluminum, lime, burnt dolomite, fuel oil and nail costs, Co-
petitioners argue that is no record evidence to support Ispat's claims
that: 1) the surrogate coal value used is a washed coal price; 2) the
surrogate value used for aluminum is based upon primary aluminum; 3) the
surrogate values for lime and burnt dolomite are unreasonable; and 4) the
fuel oil and nail costs could not contribute as significantly as they do
to the cost of hot-rolled steel. Co-petitioners assert that there is no
evidence that any of the surrogate values used by the Department for these
factors are unreasonable. Without any information on the record to support
Ispat's argument that the surrogate value data is irrational, Co-
petitioners assert that the values used by the Department in the
Preliminary Determination were reasonable and reliable, and should be used
for the final determination.
Department Position:
We agree with Co-Petitioners. As discussed, supra, there is simply no
evidence on the record indicating that the Department's selection
surrogate values from the UNCTS data are unreasonable. While the
Department verified that Ispat uses raw coal mined from its Karaganda coal
mines as input (see Verification Report at 16), Ispat presented no
evidence on the record that the surrogate value for coal selected by the
Department was improper. Similarly, while Ispat identified aluminum other
than primary aluminum as an input (see Section D response, at Exhibit 4;
Verification Report at 17), there is no indication on the record that the
surrogate value chosen by the Department for aluminum was improper for the
reported aluminum. The Department notes that Ispat's claim that the
Department verified that lime and burnt dolomite are produced from
limestone and dolomite (see Ispat's Case Brief at 7) is unsupported by the
Verification Report. Finally, the Department agrees with Co-petitioners
argument and cases cited in support that it is long-standing practice for
the Department to include international freight and add inland freight to
surrogate values. Accordingly, as there is no evidence showing that the
Department's selection of these surrogate values for the Preliminary
Determination was improper or unreasonable, the Department is not changing
its valuation for these surrogate values for the final determination.
Comment 4: Double Counting Values
Ispat argues that the Department should set the value of the scrap and
coke inputs to zero. See Ispat's Brief at 11-12. First, Ispat claims there
was "confusion" on the Department's reporting requirements for scrap.
Ispat states that it initially reported introduced scrap, but later
included self-generated scrap at the Department's instructions. Ispat
states that it noted the revised amount included self-generated scrap,
citing its Supplemental Sections C and D response at Exhibit 6 (April 2,
2001) ("Supp. C/D response"). Ispat claims the Department verified the
amount for scrap was over-reported as it includes self-generated scrap.
Second, Ispat argues that the Department verified that coke is
manufactured from coal, and thus the reported factor for coal includes
coke.
Co-petitioners argue Ispat has provided no evidence on the record to
support its claim of "double counted" values. See Co-petitioners' Rebuttal
at 17-19. Co-petitioners point out that, while Ispat claims the Department
verified scrap consumption is over reported, Ispat offers no specific
citation to substantiate its claim. Co-petitioners observe that the
Department's verification report noted that Ispat's verification
statements varied from its submission responses, and the Department did
not accept certain information regarding scrap, as it constituted
unacceptable new information. See Verification Report at 20. Accordingly,
Co-petitioners argue there is insufficient information on the record to
support Ispat's claim regarding scrap. Similarly, Co-petitioners argue
that there is insufficient information on the record to support Ispat's
claim regarding coke. Co-petitioners argue that merely because coke is
manufactured from coal, it does not mean that valuing both coke and coal
results in double counting. Co-petitioners note that Ispat may have
consumed more coke than that which is generated in its coke batteries,
either from inventory or from outside suppliers. Co-petitioners argue it
is "unclear" whether Ispat's reported coke consumption is derived solely
from the coke produced from coal, thus, it is "reasonable" to conclude
Ispat consumed more coke than generated.
Department Position:
We agree with Co-petitioners in part, and respondent in part. We agree
with Co-petitioners regarding the issue of the alleged double counting of
scrap. In our verification report, we noted that our questionnaire had
twice requested that Ispat provide an explanation of its calculation for
scrap, and each time Ispat failed to discuss its calculation methodology.
See Verification Report at 20. As a result, when Ispat attempted to submit
alleged offsetting adjustments for byproduct scrap recovered in the
production of hot-rolled steel, the Department determined that it would
"not accept information regarding the 'offset' to scrap, as it constituted
significant new information of the type that may not be accepted at
verification." Id. Prior to verification, the Department informed Ispat
that we would be reviewing the "methodology used for calculating weight-
average factors of production. The Department considers appropriate
reporting of factor usage rates by control numbers to be central to the
calculation of a valuable margin and may not treat revisions to any
factors of production data as a minor change or correction." See
Verification Outline (June 11, 2001) at 9. Accordingly, there is no
information on the record to support Ispat's assertion that scrap has been
double counted; thus, we have not adjusted the figures used to calculate
scrap in the Preliminary Determination for this final determination.
However, we agree with Ispat regarding the issue of the alleged double
counting of coke. At verification, Ispat demonstrated that most of its
coal was from its Karaganda coal mines, while some gaseous coal was
purchased elsewhere. See Verification Report at 16. We toured Ispat's
steel plant and verified the per-unit calculations for coal. See
Verification Report at 7 and 21. We noted no discrepancies and found no
evidence to support Co-petitioners' assumption that Ispat may have
consumed more coke than that which is generated in its coke batteries,
either from inventory or from outside suppliers. Accordingly, as there is
evidence on the record to support Ispat's assertion that Ispat generates
the coke used in the production process, we are not separately valuing
coke for this final determination to prevent double-counting.
Verification Issues
Comment 5: Factors of Production Based on Thickness
Ispat takes issue with the Department's verification finding that Ispat
possessed documents that could have been used to allocate the factors of
production based on thickness. See Ispat's Brief at 12. Ispat argues that
it "reasonably relied on" records maintained in the ordinary course of
business, which do not account for differences in thickness, in reporting
its factors of production. Id. Ispat also points out that it adjusted the
data to account for different quality steels. However, Ispat then states
that the Department has data available to adjust for thickness, if it
chooses to do so, in the form of a study identifying efficiency
coefficients based on thickness ranges. See Verification Report at Exhibit
33; Ispat's Brief at Exhibit 2. On a related issue, Ispat also disagrees
with the Department's verification finding that Ispat reported a smaller
yield range ratio than actually experienced. Ispat reiterates it reported
its factors of production using its normal accounting records, which do
not differentiate by thickness, and stresses that the ratios provided at
verification were provided to support its contention that its factors of
production do not vary significantly due to differences in thickness.
However, Ispat notes the Department has the necessary information, if it
chooses to do so, to adjust the yield. See Ispat's Brief at 18.
Co-petitioners argue the information found at verification is new
information which the Department may disregard. See Co-petitioners'
Rebuttal at 19. However, because Ispat failed to provide such information
with its factors of production data, Co-petitioners argue the Department
should use the information if it "is detrimental to Ispat with respect to
differences in Ispat's costs associated with thickness," to encourage full
disclosure in future investigations. Co-petitioners also argue that if
there is insufficient information on the record to perform the
calculations, the Department should apply partial facts available, citing
Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled
Flat-Rolled Carbon-Quality Steel Products from the Russian Federation, 64
FR 38626, 38635 (July 19, 1999) (facts available applied where respondent
repeatedly failed to provide CONNUM-specific factors of production data,
and the data supplied did not reasonably reflect the actual costs of
producing subject merchandise during the POI). Co-petitioners did not
specifically address the issue of yield in its rebuttal brief.
Department Position:
We agree with Co-petitioners, in part. In Ispat's Section D response,
Ispat acknowledged that "the only characteristics which vary among the
products that Ispat sold to the United States during the period of
investigation are yield strength (which is defined by grade), thickness,
and width." See Ispat's Section D response (February 26, 2001) at 9.
However, Ispat claimed that "the consumption of input raw materials for a
particular grade does not vary meaningfully for different dimensions" and
chose not to report the factors of production by dimension. Id. Although
the Department requested that Ispat revise its factors of production
database, explaining that different product characteristics should be
reflected in the factors of production, Ispat once again stated that the
"quantity of inputs does not vary by dimension." See Ispat's Supplemental
Sections C and D response (April 2, 2001) at 6. The Department again
requested that Ispat revise its factors of production database to include
any yield loss differences due to variances by dimension. In response,
Ispat explained that "its submitted factors incorporate the average yield
loss experienced for the grade," again claiming that in its experience
"the difference in yield loss attributable to different dimension is so
small as to have no meaningful impact on the final product cost and
therefore no meaningful impact on the Department's analysis." See Ispat's
Supplemental Sections A, C and D response (April 13, 2001) at 5.
However, at verification, when the Department requested the weighted
average yield for three products of different dimensions, Ispat calculated
yield ratios which differed from each other by as much as over six
percentage points, suggesting a potential discernible difference in yield
for subject merchandise overall. See Verification Report at 18 and Exhibit
30. Later in the verification, the Department also discovered Ispat had a
report from the technical department, which broke down coefficients to be
applied to costs based on specific thickness ranges. See Verification
Report at 18-19 and Exhibit 33; see also Ispat's Brief at Exhibit 2. We
note that this report shows that Ispat itself recognizes in its own books
and records that product costs differ in relation to thickness.
Accordingly, we have revised Ispat's factor of production database by
applying the coefficients discovered at verification.
Comment 6: Dubai Sales Office
Ispat takes issue with the Department's verification finding that Ispat
failed to describe the corporate entities that make up its Dubai sales
office. See Ispat's Brief at 12-13. Ispat argues that this failure was "an
inadvertent and harmless error due to its unfamiliarity with the
Department's detailed reporting requirements." Ispat's Brief at 13. Ispat
points out that it identified its international sales office as relocated
to Dubai in April 2000, citing its Section A response at 8 (February 1,
2001) ("Section A response"). Ispat also argues that it described the
Dubai sales office's activities, citing its Sections A, C and D Second
Supplemental response at 4 (April 13, 2001) ("Second Supp. response").
Ispat states it did not realize it also needed to describe the legal
structure of the Dubai sales office in relation to Ispat Karmet. Ispat
argues this error does not impact the Department's analysis, arguing that
the Department verified that Ispat correctly reported the sales value of
the invoice to the unaffiliated customer, and verified the completeness of
Ispat's reported sales.
Co-petitioners argue that Ispat's failure to disclose the affiliated
party information was not a "harmless error." See Co-petitioners' Rebuttal
at 20-21. Co-petitioners point out that the Department's questionnaire
requires disclosure of affiliated entities involved in the sale of subject
merchandise, see e.g. Department's questionnaire at A-5 (January 4, 2001)
(requesting "the activities of each affiliated company, with particular
attention to those involved with the merchandise under investigation").
However, Co-petitioners assert that Ispat's responses gave no indication
of certain affiliated entities involved in the sales process. As a result,
Co-petitioners point out that the Department's investigation may have been
adversely affected in its selection of verification venue, and by a lack
of time to further explore the issue; thus, the impact on the margin
related to these unreported affiliates is unclear. Petitioners argue that
"nondisclosure warrants sanctions," and cites Notice of Final Results of
Antidumping Duty Administrative Review: Certain Welded Carbon Steel Pipes
and Tubes from Thailand, 62 FR 53808 (October 15, 1997) ("Pipes and Tubes
from Thailand") (Department applied total adverse facts available where
the respondent failed to identify affiliated producers and customers in
its responses), in support.
Department Position:
We agree with Co-petitioners. Ispat's failure to disclose the affiliated
parties involved in the sales of subject merchandise cannot be considered
a "harmless error." The Department specifically stressed the importance of
identifying the structure of the sales process in instructing Ispat on how
to respond to the questionnaire, including, but not limited to, stating in
the Corporate Structure and Affiliations section of the original
questionnaire that "it is particularly important that the description of
those units involved in the development, manufacture, sale and
distribution of the merchandise under investigation be sufficiently
detailed to provide the Department with a good working understanding of
how these units function within the company" (January 4, 2001 Antidumping
Duty Questionnaire at A-4); "Provide a list of all the manufacturing
plants, sales office locations, research and development facilities and
administrative offices involved in the manufacture and sale of the
merchandise under investigation operated by your company. Briefly describe
the purpose of each" (Id. at A-5); "Provide an organization chart and
description of your company's legal structure. In addition to the chart,
provide a list of all companies affiliated with your company through stock
ownership . . . Describe also the activities of each affiliated company,
with particular attention to those involved with the merchandise under
investigation" (Id. at A-5). In its response, Ispat asserted that "Ispat
does not have any affiliates involved in the production or sale of the
subject merchandise in the United States during the period of
investigation." See Section A response at A-11. When asked to reconcile
this statement with its consolidated financial statement which appeared to
indicate an affiliated party involved with production, Ispat never
addressed the existence of these other affiliated parties involved with
sales. See Supp. Section A response, at 5. Furthermore, while Ispat
identified an "international sales office" in Dubai (see Section A
response at A-8), nowhere in its response did it ever identify the
unreported affiliated parties, nor did it clarify that its "sales office"
actually consisted of two separate affiliated entities. Even when Ispat
replaced its original organizational chart for the LNM group structure
submitted with its Section A response at Exhibit 8, with the revised
organizational chart submitted in its Supp. Section A response at Exhibit
3, Ispat failed to include the two affiliated parties involved in the sale
of subject merchandise, which the Department discovered upon verification.
See Verification Report at 2, 4-5.
Without full disclosure, the Department was left with no knowledge of
these affiliates or of the extent of their sales activity in Dubai. Ispat
failed to provide the Department information that may have led us to
verify in Dubai or to inquire more in-depth on these affiliated entities,
and to examine whether there were selling expenses incurred by these
affiliated entities which should be deducted from U.S. price. Of
particular concern is the possibility that information on price
adjustments (e.g. credit notes) was contained at the Dubai office. By
failing to report the existence of this office, the Department was
prevented from verifying whether any such price adjustments were granted
by this office.
As a result, the Department is applying partial adverse facts available.
Section 776(a)(2) of the Act provides that "if an interested party or any
other person--(A) withholds information that has been requested by the
administering authority or the Commission under this title, (B) fails to
provide such information by the deadlines for submission of the
information or in the form and manner requested, subject to subsections
(c)(1) and (e) of section 782, (C) significantly impedes a proceeding
under this title, or (D) provides such information but the information
cannot be verified as provided in section 782(i), the administering
authority and the Commission shall, subject to section 782(d), use the
facts otherwise available in reaching the applicable determination under
this title." Use of facts available is warranted in this case because
Ispat failed to identify these affiliated parties involved in the sale of
subject merchandise. Section 776(b) of the Act provides that adverse
inferences may be used when a party has failed to cooperate by not acting
to the best of its ability to comply with a request for information. Ispat
knew who its sales affiliates were and therefore had the ability to
provide this information to the Department. By failing to identify these
affiliated parties in response to the Department's questionnaire and
supplemental questionnaires, with the sole explanation of an
"unfamiliarity with the Department's detailed reporting requirements,"
Ispat failed to act to the best of its ability. Accordingly, we have
determined that an adverse inference is warranted in selecting from among
the facts otherwise available. As an adverse inference, the Department has
presumed that credit notes issued by these affiliated entities have gone
unreported, and has calculated a weighted-average credit note amount to
deduct from those U.S. sales without a reported credit note.
Comment 7: Nominal Thickness
Ispat takes issue with the Department's Verification Report finding that
Ispat misreported thickness, in stating it reported nominal thickness when
sales documentation indicated it reported minimum thickness. See Ispat's
Brief at 13-16. Ispat argues that, other than instructing to report
nominal thickness, the Department's questionnaire offered no clarification
or explanation of the term. Ispat claims it is common in the steel
industry, and claims the Department verified, that customers specify a
"nominal" thickness, and tolerances, when ordering a product. Ispat states
that positive and negative tolerances range in combination, but "hot-
rolled and other products are typically ordered with equal negative and
positive tolerances, which are stated either on a percentage basis or on
an absolute basis." Ispat's Brief at 14. Ispat states a number of its
customers specified "-0/+x" thickness tolerances for the POI, thus
indicating identical nominal and minium thicknesses. Ispat declares that
it reasonably interpreted "nominal" thickness to mean the nominal
thickness as ordered by the customer and recorded on the invoice, and
accurately reported the thickness stated on the invoice. Ispat Brief at
15. Ispat argues that, while the packing lists reviewed by the Department
identified thickness as "minimum," the tolerances were "-0/+x," and the
thickness shown on the packing list was the same as the thickness on all
other sales documents reviewed. Thus, Ispat argues it did not
mischaracterize its reported minimum thickness as "nominal," but rather
both minimum and nominal thickness were identified and "nominal thickness"
reasonably reported. Ispat asserts that the Department "first clarified
during verification that it defined nominal thickness as the product's
target thickness" and argues it cannot be penalized for unclear
instructions. Ispat Brief at 15. However, Ispat states the Department can
use the field PRODCD1U and the analysis from verification, identifying how
codes would have been reported if target thickness was the bases for
reporting thickness, if it chooses to adjust the thickness codes to
reflect target thickness. See Verification Report at Exhibit 23.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
We disagree with respondent. The Department's letter issued with its
antidumping duty questionnaire clearly instructs that if Ispat has any
questions to contact the official in charge. See Department letter to
Ispat Karmet (January 4, 2001) at 2. Regardless of what Ispat claims is
"common to the steel industry" (without any support for this claim), the
Department would have requested minimum thickness if it was interested in
minimum thickness. We requested nominal thickness, i.e. target thickness,
which was not provided. Accordingly, we are applying the information found
at verification to adjust for nominal thickness.
Comment 8: Coil Protectors
Ispat argues that while the Verification Report notes Ispat failed to
report the protective strips used as part of packing for coils, they are
accounted for in the factors of production as they are made of galvanized
steel produced from Ispat's hot-rolled steel. Ispat argues reporting them
separately would result in double counting. See Ispat's Brief at 16.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
We disagree with respondent. While company officials for Ispat stated
that protectors are made in-house from its hot-rolled product (see
Verification Report at 8), we did not verify that the protectors are made
in-house, as doing so would have constituted significant new information
which should have been reported prior to verification. We previously
informed Ispat that "{n}ew information will be accepted at verification
only when (1) the need for that information was not evident previously,
(2) the information makes minor corrections to information already on the
record, or (3) the information corroborates, supports, or clarifies
information already on the record." See Verification Outline at 2. None of
these situations apply here. Accordingly, it would be appropriate to
assign a surrogate value for the coil protectors used in the packing of
subject merchandise. However, because we are unable to find an appropriate
surrogate value for coil protectors and, in addition, we note that coil
protectors appear to constitute an insignificant portion of the total cost
of production, we are not valuing this input for the final determination.
Comment 9: Inland Freight Distance
Ispat points out the Department verified that Ispat mistakenly reported
the round-trip distance as the distance from the plant to the railway.
Ispat states the Department should use the verified one-way distance for
the final determination, in keeping with Department practice. See Ispat's
Brief at 16.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
We agree with respondent. We noted at verification that the distance from
the plant to the railway was less than reported by Ispat. See Verification
Report at 15 and Exhibit 22. Accordingly, the Department is using the
verified one-way distance for this final determination.
Comment 10: Manganese Ore
Ispat states it mistakenly reported its manganese ore input as both iron
ore and manganese ore in its questionnaire response. Ispat claims that the
Department verified this, and that it should adjust its calculations to
properly reflect the input as manganese ore. See Ispat's Brief at 17.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
We agree with respondent. We are recalculating the transportation cost
from the supplier to Ispat to reflect transportation for manganese ore
instead of iron ore. However, because we have no appropriate surrogate
value on the record with which to value manganese ore, we are continuing
to apply the value of iron ore used in the Preliminary Determination to
value the input of manganese ore.
Comment 11: Packing Bands
Ispat noted the Verification Report's verification finding that Ispat
misreported the total quantity of packing bands purchased from market
economy suppliers. See Ispat's Brief at 17-18. Ispat then notes the
Verification Report's finding that Ispat misreported the price of packing
bands. Ispat argues that it "instructed its employee to report the average
prices for the POI, but apparently it reported the price at the end of the
POI." Ispat's Brief at 17. Accordingly, Ispat argues that the Department
should use the simple average of the reported price and verification price
for packing bands. Ispat does not further address the issue of the
misreported quantity.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
We disagree with respondent. At verification, we noted the monthly
statement for April 2000 indicated the cost of packing strips as lower
than reported in Ispat's Section D response. See Verification Report at 22-
23. However, in viewing a September purchase of packing bands, we noted
the price was similar to that reported in Ispat's Section D response. Id.
at 23. And in viewing the July purchases of packing bands, we noted that
while most of the quantity was at a price similar to that reported in
Ispat's Section D response, a small quantity was at a greater price. Id.
With the range of prices discovered, there is no evidence on the record
indicating that there is a need to average the reported price with the
lowest price for packing strips found at verification. Accordingly, we are
not changing the price for packing bands used in the Preliminary
Determination for the final determination.
We note that while Ispat addresses the misreported price, it fails to
further address the misreported quantity. We note that at verification, we
confirmed the purchase price reported was the per metric ton price from
the invoices. See Verification Report at Exhibit 28. Accordingly, our
verification finding that Ispat misreported the total quantity of packing
bands purchased from market economy supplier has no bearing on the per
unit metric ton price reported by Ispat. Furthermore, as a result, we note
that we erred in our calculation of per unit value for packing bands in
our Preliminary Determination. We mistakenly divided Ispat's reported per
unit value by the total quantity of packing bands, instead of merely
applying Ispat's reported per unit value for packing bands in our
calculation. Accordingly, we are correcting our calculations and using
Ispat's reported per unit value for packing bands, from its Section C and
D Supplemental Response (April 2, 2001) at Exhibit 5, for this final
determination.
Comment 12: Sales to Ispat Sidbec
Ispat argues that while it failed to report some sales were to its
affiliate, Ispat Sidbec, in Canada, the Department verified the sales went
on to a Canadian customer, and thus do not affect the Department's
analysis. See Ispat's Brief at 18.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
We disagree with respondent. While we did review invoices, purchase
orders, and dock receipts between Ispat's affiliate, Ispat Sidbec, and a
Canadian customer, we did not confirm that Ispat Sidbec did not make
downstream sales to the United States. See Verification Report at 12.
Because the information discovered at verification raises the question of
whether Ispat may have been deficient in reporting its downstream sales,
it would be appropriate to assign facts available to these sales. However,
because there are no facts on the record from which to assign facts
available, we have made no adjustments for the purposes of this final
determination. We note that if this issue arises again in future
administrative reviews of an antidumping order, in the event this
investigation yields an order, facts available may be applied, including
with an adverse inference, should we determine that subject merchandise
entered the United States and went unreported.
Comment 13: Technical Water
Ispat notes the Department's verification finding that Ispat treats its
water with chemicals for use in the blast furnace, and argues that it uses
"infinitesimal" chemical amounts to treat the water. See Ispat's Brief at
18. Nevertheless, Ispat points to a verification exhibit on the chemical
amounts for the Department to use, if it chooses, to adjust its factor
calculations. Id.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
While the chemicals used to treat the water for use in the blast furnace
is small in comparison to other inputs, they were still inputs that should
have been reported. Because natural salt, ferric sulphate, lime, and
katonite were used in the production of subject merchandise (see
Verification Report at 21 and Exhibit 35), we are modifying our factors of
production data to include these chemicals in the margin calculation. We
have assigned surrogate values for natural salt and lime for purposes of
this final determination. However, because we cannot find appropriate
surrogate values for ferric sulphate and katonite, and because we note
these chemicals appear to constitute an insignificant portion of the total
cost of production, we are not valuing these inputs for the final
determination.
Comment 14: Silico-manganese
Ispat notes the reported usage of silico-manganese for semi-killed
products was corrected at verification, and states the Department should
adjust its calculations to reflect this correction. See Ispat's Brief at
19.
Co-petitioners did not submit comment on this issue in their rebuttal
brief.
Department Position:
We agree with respondent. Accordingly, we are adjusting the silico-
manganese figure for semi-killed products to adjust for the corrected
figure from verification. See Verification Report at 20.
RECOMMENDATION:
Based on our analysis of the comments received, we recommend adopting the
above changes and positions, and adjusting the margin calculation program
accordingly. If accepted, we will publish the final determination in the
investigation and the final weighted-average dumping margin for the
investigated firm in the Federal Register.
AGREE___________ DISAGREE___________
__________________________________________
Faryar Shirzad
Assistant Secretary
  for Import Administration
__________________________________________
Date
________________________________________________________________________
footnotes:
1. On July 2, 2001, U.S. Steel Group, a unit of USX Corporation, changed
its name to United States Steel LLC. United States Steel LLC is a Delaware
limited liability company and the successor by merger to USX Corporation.