67 FR 3152, January 23, 2002
                                                            A-583-836
                                                        Investigation
                                                      Public Document
                                                    I/1: B. Ziv x4207

MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary
                 for Import Administration 

FROM:          Richard W. Moreland
               Deputy Assistant Secretary, Group I 
               Import Administration

DATE: January 15, 2002

SUBJECT: Issues and Decision Memorandum for the Final Determination of
the Investigation of Stainless Steel Bar from Taiwan 

--------------------------------------------------------------------------

SUMMARY 

We have analyzed the briefs and rebuttal briefs of interested parties in
the antidumping duty investigation of stainless steel bar from Taiwan. As
a result of our analysis, we have made changes to the margin calculations.
We recommend that you approve the positions we have developed in the
Discussion of Issues section of this memorandum. Below is a complete list
of the issues in this investigation for which we received comments and
rebuttal comments from parties:

Comment 1: Gloria's Direct Material Costs

Comment 2: Gloria's Grade Designations

Comment 3: Cost Data with Zero Production Quantities

Comment 4: Golden Win's G&A

Comment 5: Interest Expense Calculation

Comment 6: Credit Expenses

Comment 7: Additional U.S. Sales

Comment 8: Packing

Comment 9: Variable and Fixed Overhead Adjustment


I. BACKGROUND

The preliminary determination in this investigation was issued on July
26, 2001. See Notice of Preliminary Determinations of Sales at Not Less
Than Fair Value: Stainless Steel Bar from Taiwan, 66 FR 40198 (August 2,
2001) ("Preliminary Determination"). Since the Preliminary Determination,
the following events have occurred: 

On July 27, 2001, the Department solicited additional information from
the respondent Gloria Material Technology Corporation and its domestic
affiliate Golden Win Steel Corporation ("Golden Win") (collectively,
"Gloria"). On August 6, 2001, we received a response, including revised
cost of production and constructed value databases.

Verification of the response submitted by Gloria took place from August
12 through 23, 2001. On November 14, 2001, the petitioners in this case
(i.e., Carpenter Technology Corp., Crucible Specialty Metals, Electralloy
Corp., Empire Specialty Steel Inc., Slater Steels Corp., and the United
Steelworkers of America) and Gloria submitted case briefs. The petitioners
and Gloria submitted rebuttal briefs on November 19, 2001. At the request
of the petitioners, the Department held a hearing on November 28, 2001.

The period of investigation ("POI") is October 1, 1999, through September
30, 2000. 



II. DISCUSSION OF ISSUES

Comment 1: Gloria's Direct Material Costs

The petitioners argue that the Department should recalculate Gloria's
direct material costs to correspond to the Department's model match
criteria for grade. The petitioners contend that while Gloria collapsed
certain products under the same grade code for reporting sales of a
particular control number ("CONNUM"), it has incorrectly reported distinct
raw material costs within the same grade code. To support their argument
that respondents cannot report costs in a manner inconsistent with the
model matching methodology, petitioners cite to Brass Sheet and Strip from
Canada; Final Results of Antidumping Duty Administrative Review and Notice
of Intent Not to Revoke Order in Part, 63 FR 33037, 33039 (June 17, 1998)
("Brass Sheet and Strip"). According to the petitioners, in that case, the
Department rejected the respondents' efforts to create separate costs and
separate CONNUMs for two products based on claims that some of the
products went through a different manufacturing step than other goods.

The petitioners also cite to Notice of Final Determination of Sales at
Less Than Fair Value; Stainless Steel Wire Rod from Japan, 63 FR 40434,
40438 (July 29, 1998) ("Stainless Steel Wire Rod from Japan"). In that
case, the Department rejected the respondent's attempt to report separate
costs for a particular CONNUM for different production operations based on
the respondent's claim that "its proprietary rod has different product
characteristics than the other products initially included within the same
control number." 

The petitioners contend that the Department's model match methodology
does not permit different cost structures for products that are deemed to
be the same. Therefore, the petitioners conclude that the Department
should correct this error in Gloria's cost database by finding a single,
weighted-average raw material cost for all products within the same grade
code. 

The respondent counters that the petitioners' argument is meritless and
should be rejected. First, Gloria asserts that it followed the
Department's instructions to revise reported costs to account for grade
specific cost differences between each CONNUM. Gloria further states that
the revised costs were verified by the Department without discrepancies.
See the Department's November 6, 2001 Verification Report for Gloria
("Verification Report") at pp. 49-52. 

Gloria argues that differentiating raw material costs between different
CONNUMs is fully in compliance with the Department's instructions because
the remelting process (i.e., ESR, VAR) is one of the product
characteristics established by the Department for the build-up of model
match criteria. Therefore, products with or without the remelting process
will be defined as different CONNUMs which represent different products. 

Finally, Gloria argues that the cases cited by the petitioners do not
support their argument and are contrary to the facts in this
investigation. Gloria contends that the cases cited by the petitioners
represented situations where different costs were being reported for the
same CONNUM. Gloria, however, maintains that it reported different costs
for different CONNUMS as instructed by the Department. 

Department's Position: We agree with the petitioners. Gloria should not
have reported separate costs for raw materials which fall under the same
grade code in the Department's model match methodology. The Department's
June 11, 2001 questionnaire instructed Gloria to calculate reported cost
of production ("COP") and constructed value ("CV") figures "based on the
weighted average cost of those internal product codes included within that
grade." See the Department's June 11, 2001 Questionnaire at page 2. 

We agree with Gloria that products with or without the remelting process
will be defined as different CONNUMs which represent different products.
However, further processing, such as "remelting," is a manufacturing
process and does not affect the grade of the raw material input. Gloria
has not demonstrated that the manufacturing process undergone (e.g., ESR
or VAR) requires certain chemical properties at the raw material input
stage. Therefore, we have combined Gloria's raw material costs into a
single weight-averaged cost for each grade designation under the
Department's model matching methodology. See the January 15, 2002 Final
Calculation Memorandum for Gloria Material Technology Corporation and
Golden Win Steel Corporation ("Calculation Memorandum"). 

Comment 2: Gloria's Grade Designations

The petitioners argue that for the final determination, the Department
should combine grade codes 32, 33, 52, and 53 into the single grade code
32. While minor differences in the chemical composition may exist, the
petitioners contend that based on the overall similarity in chemical
composition and steel classification (i.e., martensitic, ferritic, etc.),
all of these products should be combined into a single grade code 32.
Moreover, the petitioners argue that Gloria created separate grade codes
for these products in part, based on whether the product has undergone a
remelting process (i.e., ESR or VAR) rather than on the chemical
properties. According to the petitioners, the type of production process
is a separate model matching criterion that is lower in the model matching
hierarchy than grade. Therefore, the petitioners assert that the only
physical feature that should be relied upon for grade designation and
selecting the most similar grade is chemical composition, not production
process. 

Gloria responds that the petitioners' argument is an attempt to
manipulate grade designation criteria to inflate margins and is
contradicted by the evidence on the record. Gloria contends that the
Department did not request model matching criteria based on steel types,
but on chemical composition. Furthermore, Gloria states that the
Department's Verification Report confirms that, "they reported most
similar grades based on the chemical composition of each grade." See the
Verification Report at p. 24. 

Department's Position: We agree with the petitioners in part. According
to the Department's instructions, Gloria should have reported a separate
grade designation in lieu of a standard AISI classification, only when the
composition of the internal SSB grade was inconsistent with AISI
specifications. A review of the information on the record indicates that
Gloria properly classified grade codes 32 and 33 within the appropriate
grade designations. Based on the chemical compositions reported, however,
grade code 52 should also have been combined with grade codes 32 and 33.
The chemical composition of products with a grade code 52 had similar
nickel and chromium content and identical molybdenum and carbon content.
With respect to grade code 53, the information on the record concerning
chemical composition does not support combining grade code 53 with codes
32, 33 and 52. The chemical composition of products with a grade code 53
had similar chromium content but varying nickel, molybdenum and carbon
content. Therefore, we have maintained grade code 53 as a separate grade
code for the final determination. 

Comment 3: Cost Data with Zero Production Quantities

The petitioners argue that the Department should apply partial adverse
facts available for each of the products for which Gloria reported a zero
production quantity. The petitioners assert that under the Department's
model matching methodology, Gloria had a "more similar" product than the
ones reported. For other products, the petitioners contend that while
Gloria provided costs of similar products, they failed to explain the
basis for the substituted costs. Furthermore, the petitioners argue that
because cost differences are likely to exist between two products given
the different characteristics, there is no information on the record that
the Department could use to adjust for these differences. To support their
argument, the petitioners cite Gray Portland Cement and Clinker From
Mexico; Final Results of Antidumping Duty Administrative Review, 64FR
13148, 13158 (March 17, 1999) ("Cement from Mexico"). In that case, the
petitioners note that the evidence on record demonstrated affirmatively
that physical differences between similar types of product contributed to
different production costs. The petitioners further cite to section
773(a)(6)(C)(ii) of the Act, which directs the Department to "make an
adjustment to normal value to account for differences in the physical
characteristics of merchandise where similar products are compared." The
petitioners argue that Gloria's omission and understatement of costs, and
failure to cooperate by not acting to the best of its ability to comply
with the Department's request for information, warrants the application of
partial adverse facts available. As partial facts available, the
petitioners assert that the Department should assign the highest margin to
any U.S. sale with a CONNUM for which Gloria has reported a zero
production quantity.

Gloria counters that the petitioners' argument is contrary to the facts
in the record of this investigation and should be rejected. Gloria argues
that there is no basis to apply adverse facts available when parties are
cooperative and the information submitted has been verified without
discrepancies. Gloria notes that in its August 6, 2001 Section D
supplemental questionnaire response, it clearly stated that "For the
CONNUMs sold but not produced during the POI, Gloria has either 1)
reported the acquisition costs of purchased SSB, or 2) reported, in the
absence of such purchases during the POI, Gloria's production costs for
similar products manufactured by Gloria on a grade-specific basis."
According to Gloria, it reported the per-unit acquisition costs in the raw
material cost field for those CONNUMS that were purchased and sold, but
not produced during the POI. Gloria continues that it provided the costs
of the most similar products only for those CONNUMs that were sold, but
not purchased or produced during the POI. Moreover, Gloria asserts that
the Department's verification report indicated that its selection of the
most similar product was accurate and reliable. 

Department's Position: Gloria reported zero production quantities in two
instances: 1) for products it sold but did not produce (i.e., products
Gloria purchased from other manufacturers and sold during the POI); and 2)
for products it sold but did not purchase or produce during the POI (i.e.,
products sold during the POI that Gloria produced prior to the POI).
Concerning products produced by other manufacturers and resold by Gloria,
section 773(a)(1)(B)(i) of the Act incorporates, by reference, the
definition of foreign like product in section 771(16) of the Act.
Therefore, consistent with Department practice, we have excluded from our
analysis sales of merchandise not produced by Gloria because no such
products were sold to the United States (see Notice of Final Determination
of Sales at Less Than Fair Value: Certain Pasta from Italy, 61 FR 30326,
30333 (June 14, 1996)). We have also excluded all costs associated with
these products from our cost calculations. 

For the products reported sold but not purchased or produced during the
POI, Gloria provided costs of similar products for these CONNUMs. However,
Gloria did not provide costs for the most similar product according to the
Department's model matching requirements. While CONNUM1H is based on
Gloria's internal product coding system, CONNUM2H is based on the
Department's model matching requirements. Gloria reported the most similar
based on CONNUM1H but should have based its most similar on CONNUM2H.
Therefore, we have reassigned the appropriate costs to the next most
similar grade based on a more appropriate match than those reported by
Gloria (i.e., based on CONNUM2H). For further discussion, see the
Calculation Memorandum.

We disagree with the petitioners' assertion that facts available is
warranted in this instance. Gloria has cooperated in attempting to provide
the Department with the requested information for merchandise not produced
or purchased by Gloria during the POI. While Gloria did not provide the
most appropriate cost match, the methodology of applying the costs of the
most similar product in the absence of actual production costs was
reasonable. Further, as stated above, we were able to assign a more
appropriate cost match based on information on the record. Concerning the
petitioners' assertion that Gloria should have reported a difference in
merchandise adjustment, adjustments for product differences were not
necessary because these CONNUMs were not matched to U.S. sales. 

Comment 4: Golden Win's G&A 

The petitioners assert that the Department should revise Golden Win's
(Gloria's domestic affiliate) G&A expenses because the reported expenses
do not include all of the G&A costs incurred by Golden Win. Moreover, the
petitioners argue that the total G&A expenses and the total cost of goods
sold ("COGs") do not correspond to the "operating expenses" reported in
Golden Win's financial statements. Citing to the cost reconciliation
portion of the Verification Report, the petitioners state that although
Golden Win's cutting expenses were included in its operating expenses,
none of the G&A expenses reported appear to include these type of
expenses. Furthermore, the petitioners argue that Gloria also failed to
include other relevant expenses in Golden Win's G&A calculation that were
listed in Golden Win's financial statements. As a result, the petitioners
assert that as partial facts available, the Department should rely on the
data submitted in Golden Win's financial statements to calculate G&A
expenses. 

Gloria counters that the petitioners' argument should be rejected because
it is contrary to the Department's findings as noted in the Verification
Report. Gloria argues that the evidence collected at verification shows
that all of Golden Win's G&A expenses were properly accounted for and
reported accordingly. Gloria notes that the Department not only reconciled
the total reported G&A expenses to Golden Win's financial statements, but
also randomly selected several accounts to review the source
documentation. In addition, Gloria states that the reported G&A amount
included all expenses incurred by Golden Win during the POI and this
reported amount reconciled to the account "operating expenses" of the
company's audited financial statements. 


Department's Position: We agree with petitioners that the calculation of
Golden Win's G&A expenses should be based on its financial statements. The
Department's February 20, 2001 questionnaire instructed Gloria to
calculate G&A using the full-year G&A expense and COGS reported in its
audited financial statements for the fiscal year that most closely
correspond to the POI. See the Department's February 20, 2001
Questionnaire at page D-14. Gloria, however, incorrectly reported Golden
Win's G&A expenses based on expenses incurred during the POI. The
Department's accepted practice is to use the audited fiscal year financial
statements that most closely corresponds to the POI to calculate period
expense ratios such as G&A. See Final Results of Antidumping Duty
Administrative Review: Silicon Metal From Brazil, 63 FR 6900 (February 11,
1998) ("Silicon Metal"). As noted in Silicon Metal, period expense
categories such as G&A capture all expenses incurred during a company's
standard reporting period, i.e., its fiscal year. The Department normally
does not adjust these period expenses to account for certain expenses
which were incurred at a particular point in time during the period of
investigation. Thus, the methodology used in calculating Golden Win's
reported G&A expenses (i.e., based on the POI) is inconsistent with
Department policy, and does not accurately reflect expenses realized
during the most recent fiscal year for which financial statements were
available.


Concerning Gloria's contention that the reported expense was verified,
the information examined by the Department at verification established
that the numbers reported were accurate, not that the methodology reported
was necessarily correct. Further, based on our review of the year-end CPA
adjustments at verification, we noted an adjustment for "bad debt loss"
related to accounts receivable. It is the Department's normal practice not
to include losses resulting from bad debt related to accounts receivable
in the calculation of G&A expenses. Therefore, we have recalculated Golden
Win's G&A expense ratio based on its financial statements with the
exclusion of the "bad debt loss" noted in the CPA adjustment. For further
discussion, see the January 15, 2002 Calculation Memorandum.


Comment 5: Interest Expense Calculation

The petitioners argue that Gloria's foreign exchange losses related to
cash amounts should be included in the company's interest expense
calculation. According to the petitioners, any possible gains or losses
are generated as a result of a company's investments in foreign
currencies, currency hedgings or from a company's financing activities.
The petitioners point out that Gloria's year 2000 Consolidated Statement
of Cash Flow indicates that the company incurred losses related to the
company's financing activities. The petitioners contend that it is the
Department's practice to include exchange gains and losses from financing
operations in the calculation of the financial expense ratio. To support
their contention, the petitioners cite a decision in the Notice of Final
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Flat-
Rolled Carbon Quality Steel Products from Brazil, 64 FR 38765, 38786 (July
19, 1999) (Hot-Rolled Steel from Brazil). 

According to Gloria, the petitioners' argument is based on a
misunderstanding of the evidence on the record and should be rejected.
Gloria argues that while the amount cited by the petitioners that appears
on its financial statements relates to financing activities, the amount
has nothing to do with exchange losses related to cash. Rather, Gloria
contends that the amount cited by petitioners was incurred from "increase
in short-term debts," "decrease in short-term bills payable," "decrease in
bonds payable," "increase (decrease) in long-term debts," and "increase in
guaranty deposits received." Gloria asserts that the petitioners' argument
is misleading because they cite to a broader category reported in Gloria's
consolidated financial statements rather than the amount reported by
Gloria for exchange losses related to cash. Furthermore, Gloria states
that the reported exchange gains and loses were verified by the Department
as complete and accurate without discrepancies. 

Department's Position: We agree with the petitioners that it is the
Department's normal practice to include exchange gains and losses
associated with finance transactions in the calculation of the interest
expense rate. Gloria's explanation with respect to the amount cited by the
petitioners is not supported by evidence on the record. On the contrary,
while Gloria listed "exchange loss from notes payable" in its interest
expense calculation, there were no amounts reported. See Gloria's April
17, 2001 Questionnaire Response at Exhibit 8-1, 8-2. Therefore, we find
that the information on the record supports the petitioners' argument and
have recalculated the interest expense ratio accordingly. For further
discussion, see the January 15, 2002 Calculation Memorandum.

Comment 6: Credit Expenses

The petitioners contend that Gloria misreported its U.S. credit expenses.
According to the petitioners, because Gloria used the first payment field
(i.e., "PAYDAT1U") and excluded the second and third payment fields when
it calculated its credit expenses, Gloria understated its U.S. credit
expenses. The petitioners further contend that because Gloria did not
provide information on the percentages of payment made at each of the
payment dates, the Department should recalculate these expenses for the
final determination based on the final date payment was received.


Gloria counters that the Department verified its reported credit expenses
without discrepancies. Gloria contends that it did not receive any benefit
based on how it calculated its reported U.S. credit expense because it
applied the same methodology to calculate home market credit expenses.
Therefore, Gloria concludes that the methodology applied to both the U.S.
and home markets is reasonable and does not distort the margin calculation
since any understatement of credit expenses would occur on both home
market and U.S. sales. Furthermore, Gloria states that the sales with
multiple payment installments account for a very small percentage of the
total U.S. sales. 

Department's Position: We agree with the petitioners that Gloria has
understated its U.S. credit expenses. While Gloria reported several
payment fields, it calculated credit expenses based only on the first
payment field. This methodology does not accurately reflect U.S. credit
expenses incurred by Gloria. As noted by the petitioners, Gloria has not
provided information on the payment made on each of the payment dates
reported. Therefore, we recalculated U.S. credit expenses using the last
payment date reported. We did not make changes to credit expenses for home
market sales.

Comment 7: Additional U.S. Sales

The petitioners contend that the Department should include the additional
U.S. sales provided by Gloria at verification in the final margin
calculation because they were sales shipped during the POI. Furthermore,
the petitioners contend that a facts available dumping margin should be
applied because sufficient information was not submitted to calculate
actual margins. 

Gloria did not comment on this issue.

Department's Position: We agree with the petitioners that the additional
U.S. sales provided by Gloria at verification should be included in our
final calculations. However, we disagree with the petitioners that the
application of a facts available margin is warranted in this instance.
Gloria has cooperated in this investigation in attempting to provide the
Department with the requested information which was sufficient to
calculate margins. The Department has reconsidered what should be the
appropriate date of sale with respect to Gloria's U.S. sales. For certain
U.S. sales, Gloria does not issue the invoice until after the merchandise
has been shipped. Based on this practice, and in order to ensure that date
of sale does not occur after date of shipment, we find that date of
shipment is the more appropriate date of sale with respect to Gloria's
U.S. sales. 

Comment 8: Packing 

Gloria argues that in order to avoid double-counting, its COM and CV data
should be adjusted to exclude packing costs. To support its argument,
Gloria cites to the Verification Report, which confirmed that the reported
packing costs were included in Gloria's ordinary cost of manufacturing.
Gloria concludes that because packing costs had been reported both in the
PACKH/PACKU fields of its sales databases and in its reported COM, the
total reported packing costs should be deducted from its COP and CV data. 

The petitioners counter that Gloria's claim that its packing costs have
been double-counted is not substantiated by any information on the record.
The petitioners contend that the Verification Report demonstrates only
that Gloria properly reported its overhead costs. The petitioners argue
that there should be no adjustments made to Gloria's reported COP and CV
data because Gloria has not sufficiently demonstrated that it included
packing costs in its reported VOH/VOHCV fields. The petitioners add that
if the Department were to accept Gloria's unsubstantiated claim that
packing costs were being double-counted, corrections should be made in the
PACKH/PACKU fields. The petitioners further assert that any adjustments
made to TOTCOM should be limited to the amount of packing costs claimed by
Gloria in its sales databases rather than the amount claimed by Gloria in
its financial statements. 

Department's Position: As noted in the Verification Report, "the packing
costs were double-counted because in addition to reporting packing costs
in the PACKH/PACKU fields, they were also included in the variable
overhead amounts reported in the COP/CV data (VOH, VOHCV)." See the
Verification Report at p. 34. 

We agree with the petitioners that the adjustments made to TOTCOM should
be limited to the total packing costs reported by Gloria in its U.S. and
home market sales databases, rather than the amount claimed by Gloria in
its financial statements. In its June 5, 2001, supplemental questionnaire
response, Gloria stated that packing costs were calculated "based on the
actual packing type prepared for the SSB sales during the POI, including
both domestic and export sales" (at page 15). Based on this statement, it
appears that the total packing cost figure based on the financial
statements and reported by Gloria for purposes of adjusting TOTCOM may not
be limited to actual packing expenses associated with U.S. and home market
sales during the POI, but may include packing costs related to sales to
other export markets. However, the expenses reported by Gloria in the
PACKH/PACKU fields were verified and reflect actual costs of packing the
subject merchandise during the POI. Therefore, we have adjusted TOTCOM by
deducting the total packing expense as reported by Gloria in its U.S. and
home market sales databases.

. 

Comment 9: Variable and Fixed Overhead Adjustment


Gloria argues that there should be no upward adjustment to its variable
and fixed overhead costs as made in the preliminary determination. To
support its claim, Gloria cites to the Verification Report which confirmed
that Gloria did not understate variable and fixed overhead costs, but had
accurately reported all the costs in its reported COM.

The petitioners did not comment on this issue. 

Department's Position: We agree with Gloria and are not making an upward
adjustment to Gloria's variable and fixed overhead costs for the final
determination.





_______  ________ 
Agree    Disagree 


_______________________________

Faryar Shirzad
Assistant Secretary 
  for Import Administration


(Date)