66 FR 33522, June 22, 2001
                                                            A-570-860
                                                        Investigation
                                                      Public Document
                                                    GRP II Off. 5: CH

MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary
                 for Import Administration

FROM:          Bernard T. Carreau
               Deputy Assistant Secretary 
                 for Group II, Import Administration

SUBJECT:       Issues and Decision Memorandum for the Final Determination
               in the Antidumping Duty Investigation of Steel Concrete 
               Reinforcing Bars from the People's Republic of China

Summary

We have analyzed the comments and rebuttal comments of interested parties
in the antidumping duty investigation covering steel concrete reinforcing
bars from the People's Republic of China. We recommend that you approve
the position we have developed in the Discussion of the Issues section of
this memorandum. 

Background

On January 30, 2001, the Department of Commerce (the Department)
published the preliminary determination in the antidumping duty
investigation of steel concrete reinforcing bars from the People's
Republic of China (PRC). The period of investigation (POI) is October 1,
1999, through March 30, 2000. We invited parties to comment on the
preliminary determination. 

List of Comments in the Issues and Decision Memorandum

Comment 1: Value of Iron Ore Inputs
Comment 2: Actual vs. Theoretical (Nominal) Weight
Comment 3: Calculation of SG&A and Factory Overhead
Comment 4: Application of Factory Overhead Ratio to the Upstream Stages
           of Production
Comment 5: Appropriate Surrogate Values and Treatment for Certain
           Material Inputs
Comment 6: Ocean Freight
Comment 7: Re-calculating Overhead to Include the Cost of Minor Materials 
Comment 8: Basis for Financial Ratios
Comment 9: Clerical Errors
Comment 1: Value of Iron Ore Inputs

The petitioner argues that the Department should use adverse facts
available to value all of the iron ore concentrate, lumps and fines used
in the production of rebar by Laiwu Steel Corporation and exported by
Laiwu Steel Group (collectively, Laiwu). To support this argument, the
petitioner first asserts that Laiwu withheld information about its iron
ore concentrate transaction with a market-economy supplier. The petitioner
maintains that the document Laiwu submitted to the Department regarding
the import of iron ore concentrate was the only one of the related sales
documents that did not include the cost of ocean freight. The petitioner
adds that, at verification, Laiwu officials stated that the company's only
market-economy purchase of iron ore concentrate was made under unusual
circumstances, a fact which had not been previously reported to the
Department. Second, the petitioner asserts that the Department found for
the first time at verification that three Laiwu divisions produced iron
ore fines and concentrates for Laiwu during the POI, and that Laiwu did
not provide factors of production for the iron ore produced by these
divisions. Therefore, the petitioner concludes, the Department should use
an adverse inference in determining the value of all iron ore inputs, and
use the highest value on the record, pointing to the 1998 rate from the
United Nations Handbook of World Mineral Statistics 1998 import statistics
for India.

Further, the petitioner argues that if the Department does decide to use
Laiwu's market-economy import price for iron ore concentrate, it should
use the import price only to the extent that imported iron ore concentrate
was used by Laiwu, because the imports do not constitute a significant
amount of the iron ore concentrate used by Laiwu during the POI. 

Laiwu maintains that it did not withhold information from the Department.
Laiwu points out that its original submission stated that the purchases of
iron ore concentrate from a market-economy supplier were on a f.o.b.
basis. Laiwu subsequently provided, on February 26, 2001, the related
shipping documents, showing an additional charge for freight in addition
to the f.o.b. price on the invoice. In addition, Laiwu argues that the
price it paid for iron ore concentrate from a market-economy supplier was
not aberrational. According to Laiwu, the fact that it normally purchases
this product domestically does not change the fact that it paid a fair
market value for the imported iron ore concentrate. Laiwu states that the
price was negotiated at arm's length between a willing buyer and seller
and that this price is much higher than the average cost of iron ore that
can be deduced from The Tata Iron and Steel Company Limited's (Tata)
financial statements. (1)

With regard to purchases from affiliated suppliers, Laiwu states that it
reported in its response that it had made such purchases of iron ore and,
therefore, cannot be said to have withheld this information from the
Department. That the Department did not request factors of production from
these affiliates is, according to Laiwu, consistent with the Department's
normal non-market-economy methodology. 

Laiwu did not comment on the petitioner's claim that Laiwu's market-
economy inputs of iron ore concentrate did not constitute a significant
amount of the iron ore concentrate used by Laiwu during the POI.

Department's Position

To address these arguments, it is first necessary to understand that
Laiwu is an integrated steel producer. It mines a portion of its iron ore
inputs and purchases the remainder. Laiwu reported the factors of
production for each stage of rebar production, with the exception of the
mining stage. For rebar produced from purchased iron ore, it is not
necessary to examine the factors of production that went into producing
the iron ore. However, for the intermediate inputs produced from ore mined
by Laiwu, the relevant factors include all of the factors that went into
producing the iron ore. Given this analysis, we do not agree with the
petitioner that adverse facts available is warranted with regard to all of
the iron ore inputs used by Laiwu; rather, any consideration of facts
available must be evaluated in the context of whether the iron ore was
purchased or self-produced.

The one purchase of iron ore concentrate from a market-economy country,
our verification findings show that it constituted an unusual transaction,
and that the iron ore concentrate purchased was not comparable to that
normally purchased by Laiwu from domestic suppliers. See Memorandum to
Gary Taverman from Magd Zalok and Constance Handley: Sales and Factors of
Production Verifications in Laiwu, the People's Republic of China (PRC),
of the Questionnaire Responses of Laiwu Steel Group, Ltd. and Laiwu Steel
Corporation in the Antidumping Duty Investigation of Steel Concrete
Reinforcing Bars from the PRC dated April 23, 2001 (Verification Report)
at 8. Further, the amount of this purchase does not constitute a
significant portion of the iron ore concentrate purchased by Laiwu during
the POI. Therefore, for this final determination, we are not using the
market-economy price from the transaction in question for the value of
iron ore concentrate when that input is purchased (as opposed to produced)
by Laiwu. We were also unable to use the market-economy price for the
amount of iron ore concentrate purchased in the transaction in question
because of the unusual nature of the transaction. For a further discussion
of this issue, which includes proprietary information that cannot be
discussed here, see Memorandum To the File, Analysis Memorandum for Laiwu
Steel Group Ltd. and Laiwu Steel Corporation re: Final Determination
(Analysis Memorandum), dated June 14, 2001. 

Thus, for the iron ore concentrate which Laiwu purchased (all of which
was from domestic suppliers, once the aberrational market-economy
transaction is disregarded), we are not using facts available. Instead, we
valued this input using the non-agglomerated iron ore price of 1998
Philippine imports. (2) The value of iron ore from the Philippines was the
only useable value on the record from one of the five primary surrogate
countries. The other potential surrogate countries, India, Indonesia, Sri
Lanka and Pakistan, imported no non-agglomerated iron ore or an
insignificant quantity. 

The next issue involves the fact that Laiwu reported that it purchased a
portion of its iron ore concentrate and iron ore fines from two partially-
owned affiliates. We found at verification that, during the POI, the two
iron-ore suppliers reported as partially-owned by Laiwu, plus a third mine
not previously identified as owned by Laiwu, were not separate legal
entities but, rather, were operating divisions of Laiwu. That is, Laiwu
did not purchase iron ore; the iron ore was self-produced by the
integrated company. See Verification Report at 3. If we had been made
aware of this in a timely manner prior to verification, we would have
requested the factors of production for that portion of the iron ore
concentrate and iron ore fines which was produced by Laiwu. Because Laiwu
misreported its relationship with the iron-ore producing entities, we did
not request the factors information. Therefore, we determine, in
accordance with section 776(b) of the Tariff Act of 1930, as amended (the
Act), that Laiwu did not cooperate to the best of its ability and that an
adverse inference is warranted with respect to the self-produced iron ore
concentrate and iron ore fines. 

The petitioner has suggested that the Department use, as adverse facts
available, an Indian import rate for iron ore concentrate. However,
information on the record (3) shows that 100 percent of the ore imported
into India from April 1998 - March 1999 consisted of agglomerated ore in
the form of iron ore pellets. In addition, United Nations (U.N.) data
shows that all of the iron ore imported into India during 1998 was
agglomerated ore. (4) Laiwu is using iron ore concentrate to produce iron
ore pellets. It would be inappropriate to assign an iron ore value based
on information which we do not believe reflects Laiwu's input. 

Consequently, to obtain an adverse facts available value for Laiwu's self-
produced iron ore concentrates and fines, we expanded the list of
potential surrogates to include the five countries which are the next
closest to the PRC in terms of GDP after the first five preferred
surrogate countries, (5) since it would be inappropriate to use the
Philippine input value here as adverse facts available. Only one of the
next five countries, Egypt, was a significant importer of non-agglomerated
iron ore. Therefore, for the self-produced iron ore concentrate and fines,
we are using the 1998 Egyptian value of non-agglomerated ore, a higher
value than the Philippines value, from the Handbook of World Mineral Trade
Statistics 1993-1998. 

With regard to the purchased iron ore fines and iron ore lump, we have
found that the amount of those two types of iron ore imported from a
market economy country constituted a significant portion of the total
consumed. Thus, in accordance with 19 CFR 351.408(c)(1), we have continued
to use the market-economy price for Laiwu's purchases of these two types
of iron ore inputs in this final determination. 

Comment 2: Actual vs. Theoretical (Nominal) Weight

The petitioner contends that the Department should adjust all factors of
production based on the differences between the actual production weights
discovered at verification and the theoretical production weights used by
Laiwu to allocate the factors of production for rebar. According to the
petitioner, because the nominal rate of rebar produced was higher than the
actual weight, the total amount of each factor was understated.

Laiwu argues that spreading the total amount of each factor consumed over
nominal production weight was consistent with the fact that it reported
its sales on a nominal-weight basis. According to Laiwu, comparing the
cost per actual ton to sales per nominal ton would result in a distorted
comparison. Therefore, Laiwu contends that the Department should not make
any adjustment to the factor usage data.

Department's Position

We disagree with the petitioner. As noted in the Department's
verification report of Laiwu's questionnaire responses, Laiwu does not
maintain, in its normal course of business, a complete record of its
actual production weight of rebar. Instead, the company randomly measures
the actual weight of the finished rebar production to determine whether
the actual weight is within the tolerance level specified in the ASTM
standards. For this reason, Laiwu reported the nominal weight of rebar for
U.S. sales and used the nominal weight of rebar as a basis for allocating
the factors of production. 

While Laiwu's allocation of actual inputs over the nominal weight of
rebar production underestimates the per-unit consumption factors, because
the total nominal weight of rebar produced during the POI was higher than
the actual weight, the nominal weight of rebar was used as a basis for
calculating both the factors of production and the U.S. price. Therefore,
Laiwu's using the nominal weight to allocate the factors of production is
consistent with the fact that Laiwu's reported U.S. sales are based on the
nominal weight of rebar. Accordingly, we found Laiwu's method of
allocating the factors of production to be reasonable and consistent with
the manner in which the company maintains its production and sales
records. 

Comment 3: Calculation of SG&A and Factory Overhead

The petitioner argues that the Department made clerical errors in
calculating the factory overhead and SG&A ratios used in the preliminary
determination. According to the petitioner, the Department did not sum all
of the figures in each column of the SG&A worksheet, which resulted in the
ratios being understated.

The petitioner next contends that the Department should not have
excluded, from the calculation of the factory overhead ratio, the item in
Tata's financial statements labeled "freight and handling" expenses,
because that item could have just as easily have included freight charges
on incoming raw materials or on movement of materials within the plant as
on outgoing finished products. Therefore, the petitioner requests that the
Department include all or part of this expense as factory overhead in the
numerator of the calculation of the ratio.

Finally, with regard to the calculation of the SG&A and factory overhead
ratios, the petitioner argues that labor should not have been included in
the denominator, and that ratios net of labor should be applied to the
cost of materials and energy. The petitioner contends that this
methodology would be consistent with recent practice. (6) The petitioner
also contends that it is consistent with the Department's use of
regression-based wage rates in non-market economies. Further, the
petitioner states that the cost of labor in the Indian financial
statements includes non-wage contributions which are not included in the
Department's regression-based wage rates. Therefore, the petitioner
asserts that in order to make an accurate comparison, labor should be
removed from the denominator in the calculation of SG&A and factory
overhead.

In response, Laiwu argues that, with regard to freight expense, the
Department's normal practice, as outlined in its standard questionnaire,
is to treat in-bound freight costs on raw materials as part of the cost of
raw materials, not factory overhead. Therefore, Laiwu contends, if the
Department were to concur that all or part of the freight and handling
expense in Tata's financial statements was attributable to in-bound
freight, that amount should be added to the denominator in the SG&A and
factory overhead ratio calculations, thus lowering the ratios.

With regard to the inclusion of labor in the denominator of the
calculation of the SG&A and factory overhead ratios, Laiwu argues that
excluding labor from the calculation would result in a distorted
calculation, as the resulting ratio is being applied to materials, energy
and labor. According to Laiwu, in the case cited by the petitioner,
Manganese Metal I, labor was excluded from the calculation due to unusual
circumstances which do not exist here. Therefore, Laiwu contends, the
Department should continue to include labor in the denominator of the SG&A
calculation.

Department's Position

We agree with the petitioner with regard to the spreadsheet error. An
error was made in totaling the columns, and has been corrected. 

With regard to the exclusion of freight from the calculation of the
factory overhead ratio, Tata's financial statements do not contain
specific information showing whether any of the freight cost was incurred
on incoming raw materials. Because we were unable to determine whether any
of the freight costs were unrelated to sales, we have continued to exclude
the cost of freight from our factory overhead calculation. 

Finally, we do not agree with the petitioner that labor should not be
included in the denominator of the factory overhead and SG&A ratios. In
calculating the ratios for factory overhead and SG&A, it is important that
the ratios be calculated and applied consistently. In this case, we
divided amounts for factory overhead and SG&A costs, net of labor, by the
sum of materials, labor and energy, and applied the resulting ratio to the
sum of Laiwu's valued materials, labor and energy. The sum of materials,
labor and energy is, in general, a good proxy for the overall scale of the
operation, and we believe that factory overhead and SG&A tend to be a
function of the overall scale of the operation rather than a function of
just the sum of materials and energy.

While we recognize that labor has been excluded from the calculation in a
limited number of recent cases, such as Manganese Metal I, we are not
doing so in this case. As stated in Manganese Metal I, whether or not to
exclude labor in deriving the factory overhead and SG&A ratios is a
methodological issue specific to each case. In cases where labor was
excluded from the denominator, it was possible to do so without causing
distortions in the result. However, in this case, excluding labor from the
denominator causes a significant upward skewing of the overhead and SG&A
costs. This skewing results from the differences in the relative amount of
Tata's labor input as compared to the relative amount of Laiwu's labor
input. Therefore, consistent with recent cases such as Certain Small
Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from
Romania, (7) we have continued to include labor in our factory overhead
and SG&A calculations. 

With regard to the petitioner's argument about the regression-based NME
wages used in our determination, we find it to be misplaced. These wage
rates represent "fully-loaded" wages (8) (i.e., inclusive of all bonuses,
overtime, etc). Therefore by including in the labor amount the benefits
paid by Tata, we are in fact making an equal comparison. This argument,
therefore, does not provide a reason to exclude labor from the
denominator. 

Comment 4: Application of Factory Overhead Ratio to the Upstream Stages
of Production 

The petitioner argues that, because of the complex nature of Laiwu's
production process, the factory overhead ratio should be applied to each
of the upstream stages of production. According to the petitioner, the
methodology used in the preliminary determination, applying the factory
overhead ratio to only the last stage of production, fails to capture
Laiwu's total expenses incurred to produce all the major inputs. The
petitioner maintains that Tata's financial data reflect fewer production
stages than the number found at Laiwu. Therefore, the petitioner contends,
in order to capture Laiwu's additional expenses, the Department should
apply the factory overhead ratio to all stages of production. In support
of its argument, the petitioner cites to Final Determination of Sales at
Less Than Fair Value: Bulk Aspirin From the People's Republic of China, 65
FR 33805 (May 25, 2000) (Bulk Aspirin), where the Department applied a
factory overhead ratio based on the average of three input producers to
each upstream stage of the production and again to the aspirin-processing
stage of production. 

Laiwu contends that there is no evidence on the record to suggest that
Tata's production process is less complicated than that of Laiwu. On the
contrary, Laiwu argues, Tata is an integrated producer that operates iron
and coal mines, as well as produces steel, and that such operations cannot
be done without all of the same production processes used by Laiwu. Laiwu
argues that the facts in this case are different from Bulk Aspirin in that
the Department in this case calculated overhead based on the experience of
an Indian producer of the finished merchandise; in Bulk Aspirin, in
contrast, the Department calculated factory overhead ratios based on the
experience of input suppliers and applied these ratios to the
corresponding input stages of the production process. Therefore, Laiwu
maintains that petitioner's attempt to inflate the cost calculation by
separately applying the overhead rate of an integrated Indian steel
producer to each stage of Laiwu's production is a distortion of the facts
and the law. 

Department's Position 

There is no evidence on the record to substantiate the petitioner's claim
that Tata's stages of production are fewer in number, or less complex,
than those of Laiwu, or that the factory overhead expenses reported in
Tata's financial statements are an inappropriate surrogate for the factory
overhead expenses Laiwu incurred to produce all major inputs. Tata's
annual report indicates that it is an integrated steel producer that
produces, among other things, a range of steel products similar to those
produced by Laiwu. This clearly indicates that Tata, as an integrated
steel producer, which produces steel beginning at the iron ore mining
stage, employs similar production processes to those of Laiwu. See page 59
of Tata's 1999 -2000 financial statements provided in the petitioner's
October 16, 2000 submission.

We agree with Laiwu that the facts of this case are different from the
facts in Bulk Aspirin, where the Department was unable to find an Indian
producer that reflected the degree of integration represented by the PRC
respondents. See Bulk Aspirin and the accompanying Decision Memorandum at
Comment 4. Because Tata is an integrated steel producer, employing similar
production processes to those of Laiwu, we continued to apply, for
purposes of the final determination, Tata's overall overhead ratio to
Laiwu's final stage of production, not to each of Laiwu's upstream stages
of production. 

Comment 5: Appropriate Surrogate Values and Treatment for Certain
Material Inputs

Scrap 

The petitioner contends that the Monthly Statistics of Foreign Trade of
India, used in the preliminary determination, was not the best source of
information for steel scrap prices, as it does not contain the most
current data and does not contain domestic as well as import prices. A
better source, the petitioner believes, is the data from the Government of
India website submitted by the petitioner on November 8, 2000. The
petitioner states that these data are more contemporaneous with the POI
and would be more appropriate for the final determination because they
contain both domestic and import prices.

Laiwu argues that the values used by the Department in the preliminary
determination overstate the value of the scrap used by Laiwu. In support
of its argument, Laiwu contends that the average price for all types of
scrap according to the financial statements of the Indian Iron & Steel Co.
Ltd. (9) (IISCO) is more reflective of the actual price paid by Indian
steel producers. Therefore, Laiwu requests that the Department revise its
calculation to value steel scrap on this basis.

The petitioner maintains that since IISCO is a subsidiary of an
integrated steel producer, Steel Authority of India' (SAIL), it is unclear
whether its scrap prices represent market prices and, therefore, these
prices should not be used as a surrogate value in the final determination.

Department's Position

We disagree with the petitioner that the data from the Government of
India website, submitted by the petitioner on November 8, 2000, are better
than the data obtained from the Monthly Statistics of Foreign Trade of
India. While the data the petitioner obtained from the Government of India
website are more contemporaneous with the POI than the data obtained from
the Monthly Statistics of Foreign Trade of India, such data reflect prices
that depend on incidences of duties, levies, and taxes. Since it is the
Department's practice to use surrogate country pricing data net of duties,
levies or taxes, we have not used the data from the Government of India
website to value the factor for scrap.

We have also not adopted Laiwu's suggestion that we value scrap based on
IISCO's financial statements. It is the Department's preference to use a
publicly available price that reflects numerous transactions between many
buyers and sellers, because the experience of a single producer is less
representative of the cost of an input in the surrogate country. 

Given the fact that the pricing data obtained from the Monthly Statistics
of Foreign Trade of India are net of taxes, levies and duties, adjusted
for inflation to ensure contemporaneity with the POI, and do not reflect
aberrational prices, we have continued to use this source of information
to value the factor for scrap. 

Water Slag and Oxide Iron Skin 

The petitioner argues that the value used in the preliminary
determination for the by-product water slag was aberrational, as evidenced
by a recent case where Indian slag values were preliminarily found to be
unreliable. (10) Further, the petitioner argues that the value used in the
preliminary determination for water slag was for the HTS category for
granulated, or sand slag, and that water slag is likely to have a lower
value. Finally, the petitioner notes that the import statistics used to
value water slag reflect only a small volume from three countries.

In addition, the petitioner contends that the value used for oxide skin
was also unrealistically high when compared to the value of the finished
product. The petitioner further states that the HTS Indian import
statistics for oxide iron skin, corresponding to the HTS number in
question, reflect imports from only one country at relatively low volumes.
For these reasons, the petitioner concludes that the Department should not
use the Indian values for either of these by-products in the final
determination.

Laiwu contends that the data the Department used to value water slag and
oxide iron skin in the preliminary determination are not aberrational, but
are simply larger than the petitioner would like them to be. Laiwu argues
that because there is no evidence that the Indian producers can, in fact,
purchase these goods at a lower price, the Department should continue to
use the same values in the final determination.

Department's Position:

We agree with the petitioner that the values used for water slag and
oxide iron skin in the preliminary determination were aberrational. Upon
reviewing the Monthly Statistics of the Foreign Trade of India and the
U.N. Commodity Trade Statistics, we note that the Indian value used for
oxide iron skin not only represents a small quantity of this product,
imported from one country, but is also exceptionally higher than the
average value of imports into Indonesia and the United States from various
countries during a similar time period. For these reasons, we have
recalculated the value for oxide iron skin based on the U.N. Commodity
Trade Statistics for Indonesia, which reflects a much larger import
quantity than that of India and an average price that seems to be
representative of the market value for iron skin. For further details, see
the concurrent Analysis Memorandum.

With respect to water slag, we also agree with the petitioner that the
value for slag based on the Monthly Statistics of the Foreign Trade of
India appears to be aberrational, given the fact that slag has a
relatively low value compared to the price of rebar. In Cold-Rolled Steel
Products, we did indeed find the Indian value for slag to be unreliable
because the value for slag was unusually high compared to the price of the
subject merchandise. Similar to Cold-Rolled Steel Products, we have
recalculated the value of water slag, for purposes of the final
determination, based on pricing data provided in the U.S. Geological
Survey, Minerals, Commodities Summaries from 1998. For further details,
see the Analysis Memorandum. 

C. Offset for Iron Scrap, Ammonia Water, Oxide Iron Skin and Water Slag

The petitioner argues that the Department should not grant an offset to
the cost of production for by-products that Laiwu was unable to
demonstrate were sold. The petitioner claims that the verification report
shows that the iron scrap was, in fact, used in production, rather than
sold. In addition, petitioner points out that the verification report
states that, while Laiwu claims to have sold the ammonia water to local
farmers, it was unable to provide any receipts for the sales. With regard
to oxide iron skin, the petitioner claims that Laiwu was unable to
demonstrate that it was actually obtained as a by-product of rebar
production. Finally, referring to verification Exhibit 12, the petitioner
asserts that at verification, the Department found that water slag was not
sold. 

Laiwu argues that all by-products generated in the production process
have commercial value which should be recognized. With regard to the iron
scrap specifically, which was not sold to an outside party, Laiwu argues
that, because the iron scrap was used in the production of non-rebar
products, it should continue to receive an offset. With regard to the
other by-products, Laiwu claims that the Department verified that they
were, in fact, sold by Laiwu.

Department's Position:

We agree with the petitioner in part. During verification, Laiwu was
unable to present evidence that ammonia water was sold to unaffiliated
customers or that this by-product was of a commercial value, and had been
reintroduced in the production process of Laiwu's other non-subject
products. See Verification Report, at page 19. For this reason, we did not
offset the normal value for this by-product in the final determination. 

However, we disagree with the petitioner with respect to the treatment of
oxide iron skin, water slag, and iron scrap. During verification, we
established that oxide iron skin and water slag were in fact sold to
outside customers. We disagree with petitioner's statement that Laiwu was
unable to demonstrate that oxide iron skin was actually generated as a by-
product of the rebar production. In the Department's Verification Report,
we clearly stated that all of the oxide iron skin obtained from the
forging plant, which includes the rolling mills, where rebar is produced,
is sold to the materials department, which in turn sold it to unaffiliated
customers. The value of the iron oxide skin was allocated by the
proportion of the main product produced, based on size. See Verification
Report, at 15. 

With regard to water slag, we note that the support documentation
provided in Verification Exhibit 12 show that water slag was indeed sold
to outside customers. For these reasons, we continue to offset the normal
value by the values of water slag and oxide iron skin. Finally, the iron
scrap generated in the production process of rebar, while not sold to
outside customers, had commercial value, as evidenced by sales
transactions between Laiwu's production divisions, and was reintroduced in
the production of Laiwu's non-subject products. For this reason, we
continue to offset Laiwu's normal value by the value this by-product.

D. Minor Inputs Discovered at Verification

The petitioner contends that all of the unreported minor inputs
discovered at verification should be treated as direct material inputs,
because they were treated as direct materials in Laiwu's books. Because
these inputs were not reported to the Department, the petitioner argues,
the Department should use, as adverse facts available, the highest
surrogate value for any input on the record of the investigation.

Laiwu argues that all of the minor materials are classified as indirect
materials in Laiwu's financial statements and were treated as such in
Laiwu's response. Since, according to Laiwu, it is the Department's
practice to assign value only to direct materials, and classify indirect
ones as factory overhead, the Department should not assign these materials
a value in the final determination. In addition, Laiwu notes that
materials which are part of Tata's overhead, should not be assigned a
value. Laiwu maintains that Tata's raw material costs include only certain
major direct materials. 

Department's Position

We agree with Laiwu that the minor materials should be classified as
factory overhead, not direct material inputs. The minor materials to which
the petitioner refers, discovered at the verification of Laiwu's
questionnaire responses, are primarily refractory/lining materials that
are used for the machinery used to produce rebar or indirect materials
that are properly classified as factory overhead. In Tata's financial
statements, the cost of such materials are classified as factory overhead
and are reflected in the calculated surrogate overhead.

Revised HTS numbers 

Laiwu requests that the Department use the revised HTS numbers for coal
and briquetting scrap included in its February 26, 2001, submission. A
correction to a typographical error in that submission was made in Laiwu's
case brief. In addition, Laiwu claims that it provided the Department
verifiers with detailed information which should allow the Department to
identify the correct HTS codes for most of the inputs Laiwu purchased from
domestic suppliers. 

The petitioner argues that, since Laiwu itself admitted that it does not
normally record HTS codes for items purchased locally, the Department
should give little, if any, weight to Laiwu's suggested HTS codes, and
should not use any new factual information that may have been provided at
verification.

Department's Position

At verification, we reviewed information regarding the chemical
composition of some of Laiwu's inputs. Although we did not accept any of
the information presented by Laiwu at verification, and we are not basing
our final determination on any of that information, we found nothing at
verification to indicate that the HTS information placed on the record by
Laiwu prior to verification was inaccurate. We agree with Laiwu that a
typographical error exists in its February 26, 2001 submission and that
its coal should be properly identified as HTS number 2701.12, bituminous
coal. The one exception to this is coal fines, which are clearly
identified as anthracite coal in Verification Exhibit 8. Further, we did
not find anything in Laiwu's information to indicate that the corrected
HTS number supplied for briquetting scrap (which corresponds to cast iron
scrap) is not the appropriate number. Therefore, for coal and briquetting
scrap we are using the HTS number in Laiwu's February 26, 2001 submission
in the final determination. For coal fines we are using the HTS number
corresponding to anthracite coal. We have not changed any of the HTS
numbers based on new information presented at verification. 

Expanded Clay 

Laiwu claims that the expanded clay used in production is such a low-
value product that it should not be assigned surrogate value. In addition,
Laiwu argues that because this product is not included in the list of raw
materials in Tata's financial statements, it should be considered as part
of factory overhead.

The petitioner counters that there is no evidence, in the verification
report or elsewhere in the record, that expanded clay was over-valued in
the preliminary determination. Further, the petitioner states that at no
time did Laiwu avail itself of the opportunity to place on the record a
value that it considered more appropriate. The petitioner points out that
the Department already valued this input conservatively, as it rejected
the value provided by the petitioner from Monthly Statistics of the
Foreign Trade of India. 

Department's Position

We agree with the petitioner. There is no information on the record that
would indicate that any HTS number other than the one used is more
appropriate for valuing expanded clay. Laiwu did not present definitive
information on this product either prior to or during verification and,
therefore, we are continuing to use the HTS number used in the preliminary
determination. Further, expanded clay is treated by Laiwu as a raw
material input, and there is no evidence on Tata's financial statements
that would indicate that it is classified as factory overhead rather than
as one of the "other raw materials." Therefore, we are continuing to
assign a value to this input.

Alkali and Acid 

Laiwu contends that the HTS values used for these factors in the
preliminary determination were for full strength sodium hydroxide (alkali)
or hydrogen chloride (acid), although Laiwu does not use these products
undiluted. Therefore, Laiwu argues that the concentration of the acid and
alkali should be taken into consideration when valuing these inputs. In
addition, Laiwu argues that, as with expanded clay, these minor inputs are
not included in Tata's list of raw materials and should, therefore, be
considered to have been counted as part of factory overhead.

The petitioner believes that acid and alkali were valued conservatively
in the preliminary determination. Further, the petitioner argues that it
is the Department's practice to not make adjustments for chemical purity,
where information regarding the level of chemical concentration is
insufficient. (11) 

In this case, information on concentration is not available and,
therefore, the petitioner contends that the Department should not modify
the value used in the preliminary determination.

Department's Position

We agree with the petitioner. The U.N import statistics used to value
this input have no information regarding the chemical concentration of
these products. Rather, the categories refer only to hydrochloric acid and
sodium hydroxide in aqueous solution, without any further details as to
concentration. Consistent with Manganese Metal II, we have not adjusted
for any differences in chemical purity.

Hoist Link 

Laiwu states that the value assigned to hoist links in the preliminary
determination was overstated because it does not take into account the
fact that Laiwu provides the raw material for the hoist links, and that
the company producing the hoist links merely bends pieces of rebar into
simple loops. Laiwu points out that the value assigned to hoist links was
approximately 10 times that determined for the rebar itself. Therefore,
Laiwu contends that the Department should use a lower value for the hoist
links or assign a higher value to the scrap used in making them.

The petitioner states that it does not object to a reasonable
modification of the surrogate value for hoist link, but that value should
include both a scrap component and a labor component. With regard to the
labor component, the petitioner contends that the component is substantial
and Laiwu has not provided any factors that could be used to determine the
labor or energy used to produce hoist link. The petitioner adds that,
until its case brief, Laiwu did not report that there were additional
factors used to make hoist-link. 

Department's Position

The circumstances surrounding the purchase of hoist link were reported by
Laiwu in its December 12, 2000, submission. Therefore, the information
regarding how Laiwu provided scrap to the hoist link supplier is not new
information. However, with the information on the record, we have no means
of quantifying the value added by the outside company. For the final
determination, we will continue to use the hoist link value used in the
preliminary determination; however, we are granting Laiwu an offset to the
cost of the hoist links equal to the value of the ingoing end-cutting
scrap. 

Comment 6: Ocean Freight

Laiwu states that, as determined at verification, its shipments of rebar
to the United States were made by charter party agreements, whereby Laiwu
chartered an entire vessel from a Chinese freight company to carry rebar
in bulk. In the preliminary determination, the Department used a freight
rate based on the cost of transporting rebar in twenty-foot containers.
Laiwu argues that the per-ton cost of charter-party shipments is
substantially less than the per-ton cost of shipment by container.
Therefore, Laiwu believes that the Department should use a more realistic
ocean freight rate in the final determination.

The petitioner argues that the Department cannot use the ocean freight
rate from the Chinese carrier. Further, the petitioner points out that
Laiwu did not provide, in a timely manner, an alternative to the container
price used by the Department, nor did it demonstrate that the prices for
containers are normally higher than for bulk shipments. The petitioner
contends that the Department should continue to use the freight rate used
in the preliminary determination.

Department's Position

While we agree with Laiwu that its shipments of rebar were made in bulk,
not containers, we were unable to find ocean freight rates from a market-
economy ocean freight company for shipments in bulk from the PRC to the
United States. We note that neither the petitioner nor Laiwu submitted for
consideration by the Department ocean freight rates for bulk shipments
from the PRC. The only available surrogate value on the record for ocean
freight is the rate for shipments in containers, which we used in the
preliminary determination. For this reason, for purposes of the final
determination, we continued to use the ocean freight rate applicable to
shipments in containers as a surrogate for Laiwu's ocean freight expenses.

Comment 7: Re-calculating Factory Overhead to Include the Cost of Minor
Materials

Laiwu argues that the Department double-counted the cost of certain items
in the calculation and application of the overhead ratio. Specifically,
Laiwu contends that minor materials and the generation of utilities such
as water, softened water, steam, compressed air and oxygen were not
included in the denominator when calculating the factory overhead ratio.
The Department used Tata's cost of raw materials, labor, and energy in the
denominator. Laiwu claims that, in Tata's financial statements, the sum of
the cost of raw materials, labor and energy did not include the
aforementioned materials. Therefore, Laiwu believes that the Department
should recalculate the factory overhead ratio to either include the cost
of minor materials and utility generation in the denominator, or exclude
the cost of minor materials and utility generation from the cost of
manufacturing (COM) for rebar.

The petitioner argues that Laiwu is misreading Tata's financial
statements. According to the petitioner, the financial statements have a
line item for "spelter, sulphur and other materials" which could be
assumed to include all of the minor materials. Further, the petitioner
points out that the Tata financial statements have a line item for
"purchase of power;" but because it does not state what types of power
were purchased, according to the petitioner, the line item should not be
assumed to mean only electricity. Therefore, the petitioner maintains that
nothing was double-counted in the calculation and application of the
factory overhead ratio, and the same methodology should be used in the
final determination.

Department's Position

We agree with the petitioner. The Tata financial statement includes these
line items: "other materials" and "purchase of power." We believe that
these line items include minor materials and utilities such as water,
softened water, steam, compressed air and oxygen. Therefore, since the
denominator includes these items, we have continued to include the cost of
these minor inputs and utilities in the COM for rebar and have applied the
factory overhead ratio to the total COM.

Comment 8: Basis for Financial Ratios

Laiwu contends that the Department should not base ratios for SG&A,
overhead and profit on Tata's financial statements, because it is not an
appropriate surrogate for a Chinese rebar producer. According to Laiwu,
Tata operates numerous lines of business, including mining, and the
production of a wide range of steel products and cement. Therefore, Laiwu
argues that Tata's financial ratios reflect the costs of all of those
lines of business, not just those related to the production of rebar and
related products. Laiwu maintains that the Department should use the
financial statements of Bellary Steel & Alloys Ltd. (Bellary), an Indian
producer whose operations are more narrowly focused on rebar and similar
products. If the Department continues to use the financial statements of
an integrated producer, Laiwu argues that it should include information
from the SAIL financial statements as well as those of Tata in the
calculation. 

The petitioner argues that Bellary's financial statements should not be
used because they are not contemporaneous with the POI and Bellary is not
an integrated producer, as are Laiwu and Tata. With respect to the SAIL
financial statements, the petitioner contends that they should not be used
because SAIL was recently found to be the recipient of a substantial
government subsidy during the POI. See Preliminary Affirmative
Countervailing Duty Determination and Alignment of Final Countervailing
Determination With Final Antidumping Duty Determinations: Certain Hot-
Rolled Carbon Steel Flat Products From India, 66 FR 20240, 20248 (April
20, 2001). In addition, the petitioner points out that SAIL had no profit
during the POI.

Department's Position

We agree with Laiwu in part, and the petitioner in part. Bellary is not
an integrated steel producer, as are Laiwu and Tata. Therefore, its
financial statements are not as appropriate as Tata's for use as a
surrogate for Laiwu. With regard to including SAIL's financial ratios, we
find that SAIL is an appropriate surrogate because it is fully integrated
from the mining stage. (12) The fact that it has been preliminarily
determined to be receiving government subsidies does not necessarily mean
that its financial ratios are skewed to the point of being unuseable. In
fact, Tata is a respondent in the same countervailing duty case.
Therefore, for the final determination, we have used a simple average of
SAIL's and Tata's financial statements to calculate the financial ratios
for SG&A and overhead. 

We calculated profit based only on Tata's financial statement because the
financial statements for SAIL indicate that it incurred a loss. Although
in some past cases we have averaged in a loss as zero profit, we believe
that a better approach is found in Certain Fresh Cut Flowers From Ecuador:
Preliminary Results and Partial Rescission of Antidumping Duty
Administrative Review, 64 FR 18878 (April 16, 1999) (Flowers from
Ecuador), which disregards financial statements showing a loss for
purposes of calculating the profit component of constructed value under
Section 773(e)(2) of the Act in market economy cases. The same principles
applied in Flowers from Ecuador are reasonably applied in a non-market
economy case. Here, disregarding SAIL's financial statements enabled us to
derive an "element of profit" as intended by the Statement of
Administrative Action (SAA) accompanying the Uruguay Round Agreements Act.
(13) See SAA at 839. As the SAA explains, "in most cases, Commerce would
use profitable sales as the basis for calculating profit for the purposes
of constructed value." Id. at 840. The Department, therefore, "may ignore
sales that it disregards as a basis for normal value, such as those
disregarded because they were made at below cost prices." Id. at 839.

Comment 9: Clerical Errors

The petitioner states that the Department should correct three additional
clerical errors: 1) the brokerage and handling inflator should reflect the
period of the new shipper review of stainless steel wire rode from India
(14) from February 1997 through January 1998; 2) the quantity of
ferrosilicon imported from non-market economies should be revised in the
calculation determining the value of that input; and 3) the quantity of
aluminum manganese imported from non-market economies should be revised in
the calculation determining the value of that input.

With regard to the inflator for brokerage and handling, Laiwu contends
that it should not be changed because, given the nature of new shipper
reviews, it is likely that the shipment under review was made at the end
of the new shipper review period, and that the date of the submission is
the only date that is supported on the record. Laiwu did not comment on
the petitioner's two other clerical error assertions.

Department's Position

Upon reconsideration of the inflator used to adjust the rate of brokerage
and handling for inflation, we agree with the petitioner that the inflator
should reflect the period February 1997 through January 1998, which
coincides with the new shipper review for Wire Rod from India. Because
there is no information on the record with regard to the time of shipment
in that review, we have recalculated the inflator for the period on which
the shipment data were reported in that new shipper review. 

With respect to the surrogate value calculation for ferrosilicon and
aluminum manganese, we agree with the petitioner that, in the preliminary
determination, we made minor, inadvertent clerical errors in the
calculation of those values by not deducting the quantity for certain non-
market economy countries from India's world-wide import quantity. We have
corrected those errors for purposes of the final determination. This
correction is consistent with our practice of excluding the value and
quantity for non-market economies from the surrogate value calculation.
For further details on the corrections made, please see the concurrent
Analysis Memorandum.

Agree__________ Disagree__________ Let's Discuss__________

_____________________ 

Faryar Shirzad
Assistant Secretary
  for Import Administration

_____________________ 
Date 

____________________________________________________________________
footnotes:

1. The Tata financial statements were used to calculate the financial
ratios in the preliminary determination. 

2. Handbook of World Mineral Trade Statistics 1993-1998. 

3. Monthly Statistics of the Foreign Trade of India dated March 1999,
placed on the record by the Department on April 24, 2001. 

4. Handbook of World Mineral Trade Statistics 1993-1998, placed on the
record by the Department on April 24, 2001. 

5. The second group of countries consists of Egypt, Nicaragua, Syria,
Ghana and Kenya. 

6. The petitioner cites to Manganese Metal from the People's Republic of
China; Final Results of Antidumping Duty Administrative Review, 65 FR
30067 (May 10, 2000) and accompanying Decision Memorandum at Comment 10:
Excluding Labor from Factory Overhead and SG&A ratios (Manganese Metal I). 

7. See Final Determination of Sales at Less Than Fair Value: Certain Small

Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe From
Romania, 65 FR 39125 (June 23, 2000) and accompanying, Memorandum to Gary
Taverman from Case Analysts, Factors of Production Valuation for Final
Determination, dated June 23, 2000, at Exhibit 4. 

8. See, e.g., Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, From the People's Republic of China; Final Results of 1997-
1998 Antidumping Duty Administrative Review and Final Results of New
Shipper Review, 64 FR 61837, 61842 (November 15, 1999). 

9. See letter from Laiwu to the Department re: Steel Concrete Reinforcing
Bars from China, dated March 12, 2001. 

10. See Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Certain Cold-Rolled Flat-Rolled
Carbon Quality Steel Products From The People's Republic of China, 65 FR
1117, 1126, (January 7, 2000) (Cold-Rolled Steel Products). 

11. The petitioner cites to Manganese Metal from the People's Republic of
China; Final Results of Antidumping Duty Administrative Review, 66 FR
15076 (March 15, 2001) and accompanying Decision Memorandum at comment 7
(Manganese Metal II).

12. See SAIL's 1999-2000 Annual Report (at 3), provided by Laiwu in its
March 12, 2001 submission. 

13. See e.g., Preliminary Determination of Sales at Less Than Fair Value:
Certain Hot-Rolled Carbon Steel Flat Products From the People's Republic
of China 66 FR 22183, 22193 (May 3, 2001); see also Preliminary
Determination of Sales at Less Than Fair Value and Postponement of Final
Determination: Certain Small Diameter Carbon and Alloy Seamless Standard,
Line and Pressure Pipe From Romania, 65 FR 5594, 5598 (February 4, 2000) 

14. See Certain Stainless Steel Wire Rod from India; Preliminary Results
of Antidumping Duty Administrative Review and New Shipper Reviews 63 FR
48184 (September 09, 1998) (Wire Rod from India)