65 FR 81825, December 27, 2000

                                                    A-557-809
                                                    Investigation
                                                    Public Document
                                                    DAS III / 9 / JHC
                                                    December 15, 2000

MEMORANDUM TO: Troy H. Cribb
               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 Stainless Steel Butt-Weld Pipe 
               Fittings from Malaysia: October 1, 1998 through 
               September 30, 1999

SUMMARY:

We have analyzed the comments and briefs of interested parties in the
less than fair value ("LTFV") investigation of stainless steel butt-weld
pipe fittings from Malaysia. As a result of our analysis, we have made
changes from the Notice of Preliminary Determination of Sales at Not Less
Than Fair Value and Postponement of Final Determination: Stainless Steel
Butt-Weld Pipe Fittings from Malaysia, 65 FR 47398 (August 2, 2000)
("Preliminary Determination"). The specific programming changes can be
found in our Analysis Memorandum for Kanzen Tetsu Sdn. Bhd.: Final
Determination in the Less Than Fair Value Investigation of Stainless Steel
Butt-Weld Pipe Fittings from Malaysia (December 15, 2000) ("Final Analysis
Memo"). We recommend that you approve the positions we have 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:

1. General Issues
   Comment 1: Ministerial Errors From the Preliminary Determination

2. General Sales Issues
   Comment 2: Date of Sale/Market Viability
   Comment 3: Bank Charges

3. U.K. Sales Issues
   Comment 4: Domestic Inland Freight
   Comment 5: Credit Period
   Comment 6: FOB v. CIF
   Comment 7: Early Payment Discount

4. U.S. Sales Issues
   Comment 8: Marine Insurance Expense
   Comment 9: Marine Insurance Expense Discount and Denomination
   Comment 10: Returns
   Comment 11: Miscellaneous Bank Charges
   Comment 12: Unreported U.S. Sales
   Comment 13: Unshipped Sale
   Comment 14: Inland Freight

5. Cost issues
   Comment 15: Total Adverse Facts Available
   Comment 16: Allocation of Cost Variances
   Comment 17: Standard Cost Reduction Factor for Pipes Used for Fittings
   Comment 18: Cost of Fittings Made of Finished Pipes
   Comment 19: G&A Expense Ratio

DISCUSSION OF THE ISSUES:

1. General Issues

Comment 1: Ministerial Errors From The Preliminary Determination

After the Preliminary Determination, the Department issued a ministerial
error memorandum discussing four issues which petitioners alleged as
requiring corrections. See Ministerial Error Memorandum for the
Preliminary Determination of Sales at Not Less Than Fair Value (August 17,
2000) ("Ministerial Error Memo"). We agreed with petitioners on three of
the four issues, that we should: 1) convert the indirect selling expenses
from Malaysian ringgits to U.S. dollars to be consistent with all other
expense elements; 2) reassign certain weighting codes to properly match
products; and 3) correct the foreign unit price expressed in dollars
("FUPDOL") calculation to properly add the difference in merchandise
adjustment ("DIFMER") and U.S. packing expenses to normal value ("NV").
However, as correcting the ministerial errors would not result in a change
of at least five absolute percentage points in the weighted-average
dumping margin, nor a weighted-average dumping margin of greater than de
minimis, we chose not to make corrections at that time, but stated that we
would do so, if it continued to be appropriate, for the Final
Determination. Petitioners urge that the Department correct the
ministerial errors for purposes of the Final Determination. See
Petitioners' Case Brief at 59 (November 13, 2000) ("Petitioners' Brief").
Kanzen Tetsu Sdn. Bhd. ("Kanzen" or "respondent") did not submit comment
on this issue in its rebuttal brief. See Rebuttal Brief of Kanzen Tetsu
Sdn. Bhd. (November 20, 2000) ("Kanzen Rebuttal").

Department Position:

We agree with petitioners that we should make corrections to these
ministerial errors, as discussed in the Ministerial Error Memo. Without
these corrections, we cannot properly match sales nor can we properly
calculate the margin. Pursuant to 19 C.F.R. 351.224(e), the Department
will, "if appropriate, correct any significant ministerial error by
amending the preliminary determination, or correct any ministerial error
by amending the final determination . . .{and} publish notice of such
corrections in the Federal Register." In accordance with our regulations,
we have edited the model match and margin calculation programs to reflect
these corrections.

2. General Sales Issues

Comment 2: Date of Sale/Market Viability

Petitioners argue that the U.K. is not the proper market on which the
Department should base NV. Instead, petitioners assert that the Department
should base NV on the Malaysian home market. See Petitioners' Brief at 6-
15. Petitioners argue that the U.K. is not the proper comparison market
for four reasons: 1) improper choice for date of sale; 2) anomalous sales
in the U.K. market; 3) questionable reporting of Malaysian sales; and 4)
questionable reporting of U.S. sales.

First, petitioners argue that while invoice date is the customary choice
for date of sale, Kanzen pointed to two other dates, purchase order date,
and order confirmation date, in arguing that the U.K. is a viable market
for sales comparisons to the U.S. during the period of investigation
("POI"). Petitioners argue Kanzen initially used purchase order date as
date of sale, but after it was noted that the purchase order date of
Kanzen's largest U.K. sale fell outside the POI, Kanzen instead claimed it
used order confirmation date (hereinafter also referred to as "contract
date") as date of sale. Petitioners argue that if the Department accepts a
date other than invoice date, purchase order date is more appropriate.
Petitioners claim that, according to Kanzen's description of its sales
process, the material terms of sale are established in the purchase order;
the order confirmation/contract merely confirms established terms.
Petitioners point out that considerable negotiation goes on between Kanzen
and its customers before issuance of the purchase order. Petitioners
assert that a comparison of material changes in the terms of sale between
purchase order and order confirmation/contract, against material changes
after order confirmation further supports their position. Additionally,
Kanzen has stated that it rarely changes sales terms after the order
confirmation/contract, other than delivery dates and, in virtually all
cases, does not revise price and quantity after the order
confirmation/contract (petitioners did question some unusual post-sale
adjustments to the U.K. sales, as further discussed, infra). Petitioners
cite to 19 C.F.R. 351.401(i), which states that "{i}n identifying the date
of sale of the subject merchandise . . . the Secretary normally will use
the date of invoice, as recorded in the exporter or producer's records
kept in the ordinary course of business. . . . {h}owever, the Secretary
may use a date other than the date of invoice if the Secretary is
satisfied that a different date better reflects the date on which the
exporter or producer establishes the material terms of sale." Accordingly,
petitioners argue that if the Department uses a date other than invoice
date, it should use the purchase order date, as it is the date on which
the material terms of sale were established, and not the contract date,
the date on which sales terms were recorded and confirmed. Furthermore, if
the Department uses purchase order date, petitioners argue that Kanzen's
U.K. sales would fall below five percent of the U.S. sales in quantity,
rendering the U.K. market unsuitable as the comparison market. See
Petitioners' Brief at 6-10.

Second, petitioners question Kanzen's sales to the U.K. market.
Petitioners point out that the U.K. sales during the POI were made to a
single customer. Petitioners also assert that regardless of the
Department's choice for date of sale, in reaching the threshold for a
viable market, the U.K. sales quantity is problematic. Petitioners argue
that Kanzen's reported gross unit prices for its U.K. sales differ greatly
from the average import value compiled in the publicly available official
U.K. import statistics. Additionally, while Kanzen has stated that it
rarely changes sales terms after order confirmation/contract, the evidence
suggests that this was not so for sales to the U.K. customer during the
POI. Petitioners point out that Kanzen offered unusual post-sale price
adjustments for the customer, including offering a price reduction against
increased freight charges borne by the customer even though the sale term
was FOB Malaysian port, and accepting a claim by the customer involving a
rare issue. Petitioners also argue that payment terms for U.K. sales were
more favorable than the same terms for U.S. sales, mentioning U.K.
customers' ability to view the merchandise before payment while U.S.
customers purchase the merchandise sight unseen, and also mentioning the
longer credit period for U.K. customers, as examples. Petitioners also
note that the sales term for one of the U.K. sales changed from FOB to
CIF, although FOB is the customary sales term. Additionally, while Kanzen
offered an early payment discount on a U.K. sale, petitioners note that
the invoice had been paid under the terms agreed upon by the parties and
was not paid particularly early. Petitioners argue that Kanzen may have
offered these unusual post-sale price adjustments to lower the selling
prices for its U.K. market. See Petitioners' Brief at 10-12.

Third, petitioners question Kanzen's reporting of Malaysian sales for the
POI, which Kanzen claimed are below five percent of the U.S. sales in
quantity. Petitioners question why Kanzen did not report its sales by
invoice date, when its financial data are based on invoice date pursuant
to generally accepted accounting principles ("GAAP"), thus creating more
work for itself in reconciling its sales to its financial data.
Petitioners also question why Kanzen changed its Malaysian invoice
numbering system, noting that it made the same changes to its Singapore
invoice numbering system and questioning how Kanzen could consider the
Singapore sales as "local" in its invoicing system. Petitioners also note
that Kanzen stated that it was unlikely that material sold to Singapore
would be purchased back into Malaysia due to a 30% duty, yet Kanzen
reported no import duties for input materials during the POI.
Additionally, petitioners argue that Kanzen's preparedness for
verification, in binding its documents by POI when such documents are
usually bound by fiscal year, implies Kanzen selectively chose information
for the Department. See Petitioners' Brief at 13-14.

Fourth, petitioners question Kanzen's reporting of U.S. sales for the
POI. Petitioners argue that certain documents from the sales verification
indicate Kanzen may have included sales transshipped to a third country
via the United States in its U.S. sales database. Petitioners argue that
such sales should be excluded from the U.S. database, and such an
exclusion could change the viability of the home market. See Petitioners'
Brief at 14-15.

Kanzen asserts that the U.K. market is a proper, viable market for
calculating normal value. Kanzen disagrees with petitioners' arguments
regarding date of sale and the reliability of Kanzen's U.K. sales. First,
Kanzen argues that contract date is the correct date to use as date of
sale, in accordance with Department practice and the Department's
instructions. Kanzen points out that the Department's choice of date of
sale is to increase predictability and accuracy, while remaining
consistent with industry norms. Kanzen explains that it used contract date
as the date of sale because: 1) it is verifiable, as Kanzen uses contract
date as an integral part of its sales system; 2) the contract establishes
the terms of sale; 3) the contract is legally binding and material
revisions require written amendments accepted by both parties; and 4) the
contract is a normal part of the sales and production system in the
industry, as butt-weld pipe fittings are a time-consuming product that
must be produced to order in almost all cases. Kanzen asserts that
purchase order date is inappropriate because purchase orders are merely
proposals, and that Kanzen will not agree to produce for a particular sale
until it issues a contract. Kanzen notes the Department has recognized
purchase order confirmation date as the appropriate date of sale in other
cases, citing Certain Corrosion-Resistant Carbon Steel Flat Products from
Japan: Final Results of Antidumping Duty Administrative Review, 64 FR
12951, 12957-58 (March 16, 1999) and Notice of Final Determination of
Sales at Less Than Fair Value: Polyvinyl Alcohol from Taiwan, 61 FR 14064,
14067 (March 29, 1996). Kanzen continues that, as confirmed at the sales
verification, it applied the same sales process for both the U.S. and U.K.
markets. Kanzen believes the use of order confirmation date as date of
sale is supported in both markets, noting that many purchase orders
contain no prices or request material not available at Kanzen, and noting
that because Kanzen can reject the purchase order, it cannot be considered
as establishing the material terms of sale. Kanzen argues that, despite
petitioners' protestations, using order confirmation/contract date as the
date of sale was not difficult, as Kanzen records and uses contract date
in its sales information recording system in the ordinary course of
business, as well as for production planning and purchasing. Finally,
Kanzen argues there are virtually no material revisions to the contract
once the contract is issued and, while minor deviations are acceptable,
any major changes after contract date usually resulted in the issuance of
a revised contract or other documentation evidencing mutual agreement,
supporting the contract as establishing the terms of sale. See Kanzen
Rebuttal at 3-7.

Second, regarding the viability and reliability of the U.K. market as a
comparison market, Kanzen argues that petitioners have offered no support
for their argument against using the U.K. market as a comparison market.
Kanzen asserts that: 1) the U.K. sales were valid export sales made to an
unaffiliated customer in the ordinary course of business, as confirmed in
the sales verification; 2) these sales account for more than five percent
of U.S. sales, regardless of whether contract date or invoice date is used
as the date of sale; 3) it sold the same type, grades, and ranges of
merchandise in both the U.S. and U.K. markets; 4) its sales processes were
identical for both markets; 5) the customer type (distributors) was the
same for both markets; 6) the sales patterns of its U.S. and U.K.
customers were the same; and 7) the volume of sales in the two markets, in
terms of each individual shipment and overall purchases during the POI,
were comparable. Kanzen also dismisses petitioners' allegations of
transshipments to a third country via the United States as unfounded.
Kanzen argues that the customer clearly indicated shipment destination in
the order, and the bill of lading and other documentation supported the
destination city, as reviewed by the Department during verification. If
any merchandise was resold to a third country, Kanzen stated it would have
no knowledge of this at the time of sale. Kanzen also maintains that its
differences in U.K. sales price levels, as compared to the prices
indicated by U.K. import statistics, are understandable because government
import statistics are reported on a landed basis, whereas Kanzen's U.K.
sales were made on an FOB basis. As for other supposedly "unique" factors
pointed to by petitioners, Kanzen asserts that such factors existed in
both markets during the POI, were otherwise in accordance with reasonable
practices in the butt-weld pipe fitting industry or were reflective of
norms in the European market, and do not indicate any special or unique
preferential treatment provided to the U.K. customer. Finally, Kanzen
argues that two specific circumstances referenced by petitioners (i.e.,
payment for ocean freight on one shipment, and an early payment discount)
were both verified by the Department and are not reasons to reject the use
of the U.K. market. See Kanzen Rebuttal at 7-9.

Department Position:

We agree with petitioners, in part and with respondent, in part. We agree
with petitioners that invoice date is the proper date to use in this
investigation as date of sale for the comparison market. As pointed out by
petitioners, it is Department practice "to use the date of invoice as the
date of sale unless there is a compelling reason to do otherwise." See
Final Determination of Sales at Less Than Fair Value: Stainless Steel
Sheet and Strip in Coil from Germany, 64 FR 30710, 30719-721 (June 8,
1999). Although Kanzen emphasizes that order confirmation/contract date is
the date on which the material terms of sale are established, the
Department ascertained at verification that changes and adjustments were
made to a significant portion of U.K. sales after the order
confirmation/contract date, including changes in price and terms. See
Sales Verification Report at 2-3. Such changes and adjustments suggest
that the material terms of sale for sales to the U.K. market are not
necessarily established at confirmation/contract date, but rather remain
alterable by the parties. Therefore, the evidence on the record supports a
finding that, although the contract nominally appears to establish the
material terms of sale, in fact, the material terms of sale in the U.K.
market were subject to change up to the date of issuance of the invoice.
Accordingly, the information on the record suggests that for the U.K.
market, the invoice is the best indication of the final terms of sale
established by the parties. Thus, the Department is using invoice date as
the date of sale for the comparison market, but maintaining contract date
as the date of sale for the U.S. market, in the final determination. In
this regard, we note that, in contrast to the U.K. market sales, the
circumstances surrounding Kanzen's sales to the U.S. during the POI do not
indicate that Kanzen's contracts for the U.S. market sales were subject to
changes in their material terms of sale after the contract date.

As to choice of comparison market, however, we agree with Kanzen that the
U.K. market is a viable market and proper to use as the comparison market
in the investigation. We conducted full quantity and value reconciliations
of Kanzen's U.K., U.S., and home market sales at the sales verification
and noted no discrepancies which would alter Kanzen's assertions regarding
market viability. See Sales Verification Report at 12-17. For instance, in
our verification of Kanzen's U.S. sales, we turned up no evidence of any
transshipments, as alleged by petitioners, nor of any evidence that Kanzen
had any knowledge that any transshipments occurred. Neither did we find
any evidence that Kanzen had any knowledge that merchandise it sold to
Singapore was resold to Malaysian customers (in this regard, we note that
Kanzen explained at the sales verification that Singapore sales were not
labeled "export" sales due to the structure of Kanzen's sales division).
See Sales Verification Report at 14. As for the substantial changes which
petitioners claim render the U.K. market an improper comparison market,
while such changes serve to justify the choice of invoice date as the date
of sale, they are not so problematical or anomalous as to place the
viability of the U.K. market in question. In fact, Kanzen provided at
verification full documentation regarding these changes. This
documentation supports a conclusion that these circumstantial changes were
made in the ordinary course of business, and do not support petitioners'
assertion that these constituted "unique" post-sale adjustments
specifically designed "to lower the selling price for it's {sic} U.K.
market." See Petitioners' Brief at 12.

As a result, the Department shall continue to use the U.K. market as the
comparison market as we did in our preliminary determination for this
investigation. See Notice of Preliminary Determination of Sales at Not
Less Than Fair Value and Postponement of Final Determination: Stainless
Steel Butt-Weld Pipe Fittings from Malaysia, 65 FR 47398, 47399 (August 2,
2000) ("Preliminary Determination").

Comment 3: Bank Charges

During verification of the foreign exchange loss used in Kanzen's direct
selling expense calculation for U.S. and U.K. sales, we discovered that
Kanzen tied the expenses to specific invoices, affecting the direct
selling expense for both U.S. and U.K. sales. See Sales Verification
Report at 2. Kanzen submitted a correction to its U.K. bank charges at the
start of the sales verification, for failing to report a bank charge
representing the exchange loss or gain associated with the time involved
between booking the sale in the company's accounting system and the bank's
receipt of payment for the sale. See Sales Verification Report at 4.
Petitioners argue that Kanzen's new allocation methodology is
unsubstantiated and its U.K. bank charge calculations remain grossly
inaccurate. Petitioners assert that a comparison of the invoices examined
at verification demonstrate their point, and argue that because bank
charges go into direct selling expense, Kanzen's reported U.K. direct
selling expenses are affected. See Petitioners' Brief at 15-17.

Petitioners point out that Kanzen acknowledged that its methodology for
allocating "hedging costs" (Kanzen's terminology for foreign currency
exchange costs) was flawed, after the sales verification revealed that the
bank's converted U.S. dollar amount did not correspond to the invoices'
U.S. dollar amounts, even though the "hedging costs" should have accounted
for the difference between the invoice and bank payment values.
Petitioners argue the discrepancies may have been caused by other
reporting errors and omissions, such as an extended credit period for
certain sales. Petitioners argue that because "hedging costs" account for
the exchange losses between the sales record date and the payment date,
use of an incorrect payment date resulted in the use of an incorrect
exchange rate to convert the payment amount. Petitioners also question the
original denomination of Kanzen's U.K. sales. Kanzen reported that its
U.K. sales were denominated in U.S. dollars, but petitioners note
references in the sales verification exhibits that make it appear
otherwise, and argue that it is likely that a currency other than U.S.
dollars or Malaysian ringgits was involved during the U.K. sales process.
Petitioners argue that an additional currency conversion would generate
additional exchange losses and/or gains, contributing to the difference
between the sales value booked and the actual payment received.
Accordingly, petitioners argue that the Department cannot rely on Kanzen's
reported bank charges, and should not allow any deduction of U.K. bank
charges in the price-to-price margin analysis but should use Kanzen's
revised U.K. bank charges for purposes of the cost test. See Petitioners'
Brief at 17-19.

Finally, petitioners note that Kanzen failed to correct or even identify
the allocation methodology used to calculate U.S. bank charges.
Petitioners further note that the exact impact of Kanzen's flawed
calculation methodology on reported U.S. bank charges is not specified in
the Sales Verification Report. Accordingly, petitioners argue that there
is insufficient information on the record for the Department to adjust
Kanzen's reported bank charges to reflect actual "hedging costs." As a
result, petitioners argue that applying adverse facts available is
warranted and the Department should apply the highest unit bank charges
reported by Kanzen for its U.S. sales. See Petitioners' Brief at 19-20.

Kanzen argues the Department confirmed at the sales verification that
Kanzen reported bank charges in the same way for both markets. Therefore,
Kanzen maintains that the Department should treat these claimed
adjustments in the same manner for both markets. Kanzen argues that these
charges were reported "out of a superabundance of caution"; however,
Kanzen asserts that the Department's policy is to exclude foreign exchange
gains and losses related to sales as they are not a cost. Because the
Department applies its own exchange rates to sales in its antidumping
analysis, Kanzen maintains that any exchange gain or loss incurred by the
company on its sales is irrelevant. Thus, Kanzen argues that the
Department should disregard these expenses for both U.K. and U.S. sales,
for the purpose of calculating NV and EP, and for the purpose of the sales-
below-cost analysis. See Kanzen's Rebuttal at 10-11.

Department Position:

We agree with respondent, in part. Kanzen attempted to submit a
correction to its reported bank charge at the outset of the sales
verification. However, when reviewing Kanzen's correction for exchange
gain or loss, we determined that Kanzen did not properly allocate the
foreign currency exchange costs according to their respective invoices.
Rather, Kanzen inappropriately and selectively matched exchange rates to
separate invoices. See Sales Verification Report at 4. As a result, we are
disallowing these bank charges on direct selling expenses for Kanzen's
U.K. sales; however, we have determined that we should use facts available
for Kanzen's U.S. sales, as further discussed, infra.

For the U.K. sales, not only did Kanzen submit a correction that involved
improper allocation of the foreign currency exchange costs, Kanzen also,
as discussed, supra, reported at the sales verification that it originally
failed to report a bank charge for exchange gain or loss on its U.K.
sales. Id. Therefore, because Kanzen had not previously attempted to
include these charges in its reported direct selling expenses prior to
verification, and because we found at the sales verification that Kanzen's
allocation methodology was flawed, we are disallowing these bank charges
for the final determination with respect to its U.K. sales.

As for Kanzen's U.S. sales, while petitioners advocate the application of
adverse facts available and the use of the highest unit bank charges
reported by Kanzen for its U.S. sales, we feel this is unwarranted. There
is no evidence to suggest that Kanzen did not cooperate to the best of its
ability. First, we note that, in contrast to Kanzen's U.K. sales market,
Kanzen did report these charges, as it had indicated in its questionnaire
response. See Kanzen's May 1, 2000, Section C Questionnaire Response, at C-
36. Furthermore, as demonstrated through its effort to offer a correction,
Kanzen attempted to revise and clarify its allocation at the outset of the
sales verification. We cannot use the correction submitted by Kanzen at
the outset of the sales verification, due to the improper allocation of
the foreign currency exchange costs. However, section 776(a) of the Tariff
Act of 1930, as amended ("Act"), states that when necessary information is
not available on the record, the Department will, subject to section
782(d) of the Act, use facts otherwise available. Here, there is other
information on the record which was verified (see section 782(e) of the
Act) and that can be used by the Department to calculate an average unit
bank charge per ton for Kanzen's U.S. sales. Accordingly, we are applying
facts available and calculating an average unit bank charge per ton for
Kanzen's U.S. sales for the final determination. The calculation of this
bank charge is described in detail in the Analysis Memo.

3. U.K. Sales Issues

Comment 4: Domestic Inland Freight

At the sales verification, we discovered that for domestic inland
freight, Kanzen mistakenly calculated U.K. sales by value, when it should
have calculated the sales by weight. See Sales Verification Report at 2,
18-19. Petitioners argue this miscalculation is significant and the
Department should not rely on Kanzen's reported domestic inland freight
for U.K. sales. Petitioners question how Kanzen could have applied an
incorrect allocation methodology, arguing that the Department's
questionnaire clearly sets forth the correct methodology for inland
freight, and noting that Kanzen's own response indicates that it used a
weight-based allocation methodology, dividing total freight charges by
total sales quantity to calculate per unit inland freight, citing Kanzen's
May 1, 2000 Questionnaire Response at Exhibit 2. Petitioners point out
that the Department normally deducts inland freight from gross unit price
for comparison market sales to arrive at NV. Petitioners suggest that
Kanzen's error could result in a more favorable weighted average dumping
margin for Kanzen. Petitioners argue that Kanzen failed to cooperate to
the best of its ability, by knowingly misrepresenting its reporting
methodology and waiting until the sales verification to disclose its
incorrect methodology. Accordingly, petitioners argue that the Department
should apply adverse facts available, by denying the deduction of inland
freight and using the lowest verified per unit inland freight amount
instead to calculate Kanzen's comparison market prices, and by using the
highest reported per unit inland freight or, alternatively, the per unit
inland freight for each invoice as reported by Kanzen, in the final cost
analysis. See Petitioners' Brief at 20-23.

Kanzen argues that the Department should not reject Kanzen's reported
domestic inland freight for simple clerical errors in its calculation.
While Kanzen acknowledges its erroneous calculation, it notes that at the
sales verification, the Department reviewed all of the shipments reported
in the U.K. sales database, and therefore has the information available to
determine the correct domestic inland freight adjustments and, in fact,
already made such recalculations at the sales verification (see Sales
Verification Report at 19-20). Kanzen maintains that, in this regard, no
adverse inference is warranted as substantial record evidence shows that
Kanzen has been a cooperative participant. See Kanzen's Rebuttal at 11-12.

Department Position:

We agree with respondent. We reviewed all of Kanzen's U.K. invoices at
the sales verification and, in the process, determined the correct
domestic inland freight that should have been reported. Because we have
the proper information already available to us, and because the
discrepancy is relatively minor (see Sales Verification Report at 18-20),
application of adverse facts available is not warranted in this instance.
See Final Analysis Memo. Accordingly, we are adjusting our programming to
include the corrected domestic inland freight amounts, to replace the
figures reported by Kanzen.

Comment 5: Credit Period

During verification of Kanzen's U.K. sales, the Department discovered
that Kanzen reported May 6, 1999 as payment date for certain sales
observations, when actual documentation indicated payment date as March
22, 1999. See Sales Verification Report at 2, 19. Petitioners suggest that
Kanzen intentionally misreported payment date in order to inflate credit
expense for comparison market sales. Petitioners note that the Department
uses credit period to calculate imputed credit expenses: the longer the
credit period, the larger the imputed credit expenses, which are then
deducted from NV. Petitioners argue the Department can draw an adverse
inference from the fact that Kanzen could not explain its error in
reporting, and that the error was frequent in its U.K. sales. Accordingly,
petitioners assert the Department should apply adverse facts available and
reduce Kanzen's reported credit expenses for all sales with the March 6,
1999 payment date. See Petitioners' Brief at 23-24.

Kanzen argues that petitioners have engaged in unnecessary speculation
and extrapolation with regard to payment date. While Kanzen agrees that
payment date was misreported for certain observations, it maintains this
error does not warrant a revision of all payment dates. Specifically,
Kanzen notes that, at the sales verification, the Department in fact
reviewed the payment dates for all sales made to the U.K. during the POI
and found no other discrepancies in date; therefore, no additional
adjustment is necessary. See Kanzen's Rebuttal at 12.

Department Position:

We agree with respondent. We reviewed all of Kanzen's U.K. invoices at
the sales verification and, in the process, found no other such error in
reporting payment date. Because the payment date has been fully verified,
and because the discrepancy is relatively minor, application of adverse
facts available is not warranted. Accordingly, we are adjusting our
programming to correct the misreported date of May 6, 1999 and replacing
the date to use March 22, 1999 as payment date for the appropriate sales
observations.

Comment 6: FOB v. CIF

Kanzen submitted a correction to one of its U.K. invoices at the start of
the sales verification, stating that although it had not reported freight
payment for that particular sale, it had changed the sale term from FOB to
CIF after the contract date. See Sales Verification Report at 2-3.
Petitioners note at the outset that the Department would not accept
information at verification regarding the precise amount paid for movement
as this constituted significant new information. See Sales Verification
Report at 3. More importantly, petitioners argue there was no actual
change in the sale term. Rather, petitioners assert that the "freight
payment" on the U.K. invoice was actually a payment agreed upon by the
parties to compensate for a previous shipment, wherein two containers of
non-subject merchandise were underutilized. In support, petitioners note
that despite Kanzen allegedly paying freight on the invoice, the sale term
on the invoice remained FOB. Petitioners also note that such a change in
the sales term is inconsistent with Kanzen's stated practice of rarely
changing terms of sale after order confirmation. Petitioners argue that
the clearest indication that both Kanzen and the customer considered the
sale term as FOB is the fact that the customer later requested a post-sale
price adjustment to compensate for an unexpected increase in freight
costs, a cost which was borne by the U.K. customer. With the record
evidence, petitioners argue that it is obvious that Kanzen's "freight
payment" was actually compensation on a previous shipment, and not payment
on the invoice Kanzen offered for correction purposes. Accordingly,
petitioners argue that the Department should reject Kanzen's change in
sale term. See Petitioners' Brief at 25-26.

Kanzen did not submit comment on this issue in its rebuttal brief.

Department Position:

We disagree with petitioners. Regardless of how petitioners characterize
the payment on the invoice, be it freight payment or compensatory payment,
it is clear that the payment necessitated a change in a sale term on the
invoice, which effectively lowered the selling price for the merchandise
at issue. The terms of sale were originally FOB and were later changed to
CIF after the contract date. This further supports our basis for using
invoice date as the date of sale in the comment section on "Market
Viability," supra, and our determination that the material terms of sale
for the U.K. market during the POI were not necessarily established at
confirmation/contract date, but rather remained alterable by the parties
after that time. While Kanzen did not physically change the terms of sale
on the invoice, verification of its records tied the payment to the
invoice, confirming that there was a change in the terms of sale for the
invoice. Accordingly, we are making no changes or adjustments to our
programming regarding Kanzen's change in the terms of sale.

Comment 7: Early Payment Discount

Kanzen submitted a correction on one of its U.K. invoices at the start of
the sales verification, stating that while it reported no discounts for
the POI, it requested early payment on that particular sale because the
customer's account was overdrawn and gave the customer an early payment
discount. See Sales Verification Report at 2-3. Petitioners argue that
because Kanzen maintains customer-specific accounts and has no stated
early payment policy for sales of subject merchandise, the Department
should not treat the discount as solely associated with sales of subject
merchandise under the identified invoice. Petitioners argue that the
Department should instead treat the discount as an indirect selling
expense and allocate it to Kanzen's total sales of subject and non-subject
merchandise. However, petitioners contend that the record is not
sufficiently developed on the total early discounts offered to the U.K.
customer during the POI due to the customer's overdrawn account.
Furthermore, petitioners argue, the record contains no information on the
total POI sales to the same customer, so calculating the early payment
discount applicable to Kanzen's POI sales of subject merchandise is not
possible. Accordingly, petitioners argue that the Department should not
accept Kanzen's correction to the invoice concerning the early payment
discount. See Petitioners' Brief at 27-28.

Kanzen argues the Department should accept and use the early payment
discount information Kanzen reported for its U.K. sales, noting that the
Department accepted this correction offered at sales verification, in
accordance with the Department's established practice of accepting minor
clerical corrections at the beginning of verification. Furthermore, Kanzen
argues that this discount was granted on and associated with a specific
invoice for a U.K. sale during the POI, and was calculated based on the
amount and days outstanding for that sale; hence, Kanzen claims the
discount is a price adjustment to be reflected in the Department's
calculation of normal value, and is not an indirect selling expense. See
Kanzen's Rebuttal at 13.

Department Position:

We agree with respondent. Contrary to petitioners' contention that the
record is not sufficiently developed on the total early discounts offered
to the U.K. customer during the POI due to the customer's overdrawn
account, we noted at the sales verification that "Kanzen stated that this
situation only arose once in the POI for subject merchandise and only in
relation to that customer." See Sales Verification Report at 2. The record
is clearly developed from the sales verification as to establish that the
early payment discount was applied only to a specific invoice for a U.K.
sale, and was specifically calculated according to the details and
circumstances of that sale. Furthermore, we reviewed at the sales
verification Kanzen's accounts "to confirm that Kanzen incurred no
expenses pertaining to . . . discounts . . . (other than those already
reported) on U.S. and U.K. sales of subject merchandise during the POI"
and found no other early payment discounts during the POI. See Sales
Verification Report at 24. We are properly treating the discount as a post-
sale price adjustment (see 19 C.F.R. 351.401(c)) addressed in our normal
value calculation. See Final Analysis Memo.

4. U.S. Sales Issues

Comment 8: Marine Insurance Expense

Petitioners argue that while Kanzen stated that it pays freight and
insurance on its U.S. sales because they are on a CIF basis, petitioners
observe that Kanzen fails to report freight and insurance amounts for a
number of its U.S. sales. Petitioners argue that for those sales, the
Department should use adverse facts available, and apply the highest
amount for marine insurance reported by Kanzen for products with identical
product characteristics as those U.S. sales. Petitioners argue such an
application is reasonable because marine insurance as other types of
insurance, is calculated based on the value of the goods insured, and
identical products tend to have comparable values. See Petitioners' Brief
at 28-29.

Kanzen argues that the Department should not deduct marine insurance
expenses where none were incurred, noting that, for a number of the
contested sales, Kanzen properly reported the sales as CNF (cost and
freight) sales for which no marine insurance costs were incurred. Kanzen
also points to the fact that the Department noted no discrepancies with
regard to marine insurance in its sales verification. As such, Kanzen
argues that the Department should continue to apply no marine insurance
costs for those CNF sales. See Kanzen's Rebuttal at 14-15.

Department Position:

We agree with respondent, in part. For those sales reported as CNF sales,
Kanzen incurred no marine insurance costs and properly reported no marine
insurance costs. The Department, therefore, will not apply marine
insurance costs for those sales. However, not all sales without marine
insurance expenses were CNF sales. For these remaining sales, which were
reported as CIF (cost, insurance and freight) sales, Kanzen should have
reported a marine insurance amount but did not.

In reviewing Kanzen's database, it appears that some of these omissions
were inadvertent, as Kanzen did in fact report marine insurance for other
sales with the same invoice number. Due to these omissions, the Department
must resort to the use of facts available, pursuant to section 776(a) of
the Act, as Kanzen failed to provide the requested information which would
permit the Department to calculate the marine insurance amount Kanzen
should have reported. However, in this instance, because we find the
omissions to be inadvertent, we determine that an adverse inference is not
warranted. Here, there is other information on the record which was
verified (see section 782(e) of the Act), that can be used by the
Department to make these calculations. By reviewing other sales in the
U.S. database with the same invoice number, we divided marine insurance by
gross unit price to determine the applicable marine insurance rate for the
invoice. We then multiplied the gross unit price on those CIF sales with
unreported marine insurance by the applicable marine insurance rate to
determine the unreported marine insurance on the sale. For the remaining
CIF sales, where no marine insurance was reported for any of the sales on
the invoice, there are no sales on the invoice from which the Department
can determine an applicable percentage of marine insurance for the
invoice. Therefore, we are instead applying the weighted average per unit
marine insurance from Kanzen's U.S. sales as facts available, for
calculating marine insurance on those sales.

Comment 9: Marine Insurance Expense Discount and Denomination

Kanzen submitted a correction to its marine insurance at the start of the
sales verification, stating that while it reported marine insurance on
U.S. sales on an average basis, it gave discounts on a number of invoices
so the customer could purchase marine insurance itself. See Sales
Verification Report at 3. Petitioners note that Kanzen's reported discount
and total invoice value were denominated in U.S. dollars, and suggest that
applying the discount ratio to related U.S. sales necessarily results in a
marine insurance amount denominated in U.S. dollars. Petitioners note that
Kanzen's initial questionnaire response stated that marine insurance is
denominated in U.S. dollars (and petitioners imply the Department erred in
taking the attached computer file layout, which reported the denomination
as Malaysian ringgits, at face value). Petitioners argue that if the
Department accepts Kanzen's changes, denominated in U.S. dollars, to its
reported discount ratio for marine insurance, the Department must
recognize that Kanzen's reported marine insurance expenses are denominated
in U.S. dollars. Accordingly, petitioners maintain that the Department
should revise its programming to reverse its currency conversion made in
the Preliminary Determination and correct the currency denomination for
the final margin analysis. See Petitioners' Brief at 29-30.

Kanzen did not submit comment on this issue in its rebuttal brief.

Department Position:

We agree with petitioners. In order to properly calculate the margin, our
programming must reflect the proper denominations in the calculations.
Accordingly, in addition to making corrections to those U.S. sales
invoices on which Kanzen provided discounts so the customer could purchase
marine insurance itself, we have edited the margin calculation program to
correctly reflect the reported denomination of marine insurance in U.S.
dollars.

Comment 10: Returns

Kanzen reported no warranty expenses or costs for returned or under-
shipped merchandise and, at the sales verification, reported one post-POI
return on a pre-POI sale. However, petitioners argue that Kanzen had
returns during the POI, pointing out that returns associated with POI
sales could occur long after the POI, and pointing to verification
exhibits which indicate U.S. sales returns during the POI. In further
support, petitioners repeat Kanzen's explanation that its reported
negative production quantities were due to returns of items that it did
not produce during the POI. Additionally, petitioners question Kanzen's
inability to provide the original U.S. sales order for which Kanzen
eventually shipped replacement pieces. At the sales verification, Kanzen
stated it could not trace the documentation back to the original order,
but did provide correspondence on the request for replacement. See Sales
Verification Report at 22. Petitioners also argue that because a
customer's warranty claim must occur after receipt of the merchandise,
whether the credit notes applied to sales prior to the POI does not mean
that Kanzen did not incur any warranty expenses for its POI sales.
Petitioners assert that Kanzen had to incur additional costs for returned
and replaced goods, but such costs do not appear in Kanzen's U.S. sales
database. Accordingly, petitioners contend that Kanzen did not completely
report its U.S. expenses, and requests that the Department calculate an
estimated warranty expense to account for the costs incurred for the
returned and replaced merchandise. Petitioners suggest using the
percentage of returns from the sales verification to calculate a warranty
factor, or that the Department calculate a monthly warranty factor for
each of the months during the POI in which Kanzen's U.S. customers made
returns. See Petitioners' Brief at 31-33.

Kanzen argues that it accurately reported warranty expenses associated
with POI sales to the U.S. and the U.K. and, therefore, any additional
deduction of warranty expenses based on data from other periods would
result in double-counting. Kanzen declares that it is customary in the
butt-weld pipe fittings industry for warranty-type claims to be resolved
through credit notes and returns. Kanzen contends it was able to identify
such credit notes and returns related to its POI sales to the U.S. and the
U.K., and therefore reported them on a sales-specific basis in its
databases. Kanzen notes that, in such circumstances, the Department will
accept such a reporting methodology, citing Final Determination of Sales
at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From
Taiwan, 64 FR 30592, 30611 (June 8, 1999) ("SSSS From Taiwan Final"). As
Kanzen's reporting is consistent with Department's methodology, Kanzen
asks that the Department reject petitioners' request to use an allocation
ratio. See Kanzen's Rebuttal at 15-16.

Department Position:

We agree with petitioners. Record evidence shows that warranty returns
were made during the POI, which indicates that certain expenses were
incurred. In this case, recognizing only warranty expenses incurred in the
POI on sales in the POI would mean that certain warranty expenses would
never be accounted for. Therefore, we must consider all expenses incurred
in the POI. Because Kanzen did not report any warranty expenses, we must
use the facts available for these expenses. Accordingly, as facts
available, we multiplied the average charge for the transportation
variables (international freight and marine insurance) to the quantity of
returns identified at the sales verification (see Sales Verification
Exhibit 6e), then divided the total by the total U.S. sales quantity, to
calculate a warranty factor to apply to Kanzen's U.S. sales for the POI.

Comment 11: Miscellaneous Bank Charges

Petitioners take issue with Kanzen's unreported miscellaneous bank
charges found under a separate account number. Kanzen stated at the sales
verification that it did not include a number of these charges in its
direct selling expenses or G&A. See Sales Verification Report at 24.
Petitioners argue the Department must draw an adverse inference from
Kanzen's failure to report these charges, and adjust Kanzen's reported
unit price for U.S. sales and revise the calculations for U.S. total
direct selling expense to reflect this omission. In so doing, petitioners
argue it is reasonable to assume that all expenses recorded in the account
were for U.S. sales, given the volume of Kanzen's U.S. sales compared to
its total sales of subject merchandise during the POI, and given the extra
arrangements that Kanzen took for its U.S. sales. Such "extra"
arrangements include the fact that Kanzen's U.K. sales terms were FOB
whereas its U.S. sales terms were CIF, and that Kanzen uses freight
forwarders to move the merchandise from the U.S. ports to its U.S.
customers, which petitioners suggest resulted in the "telex charges"
recorded in the account. See Petitioners' Brief at 33-34.

Kanzen argues that petitioners' proposal for allocating the miscellaneous
bank charges to inflate Kanzen's direct selling expenses is inaccurate.
Kanzen notes that the Department collected information on this account for
the entire POI; the Department confirmed that the expenses in this account
are associated with export sales; and the total amount of these charges
for the POI is extremely small in relation to the total export sales.
Notwithstanding this, however, Kanzen asserts that if the Department wants
to account for these costs, it can simply allocate the total charges for
the POI over the total export sales during the POI. See Kanzen's Rebuttal
at 16.

Department Position:

We agree with respondent. Contrary to petitioners' argument, it is not
reasonable to simply assume that all the unreported miscellaneous expenses
in the account were for U.S. sales, merely on the basis of a greater
volume of sales in the U.S. Kanzen has many markets for its merchandise;
even with any purportedly "extra" arrangements for Kanzen's U.S. sales,
this is not sufficient justification to assume that these unreported bank
charges must apply solely to U.S. sales rather than to any other sales. We
also note that the overall amount of bank charges incurred during the POI
accounts for an extremely minor percentage of the sales value. See Sales
Verification Report at Exhibit 31. Accordingly, using the information we
have available, the Department is calculating the percentage, by value, of
market share for Kanzen's U.S. and U.K. sales for the POI, and allocating
the total value of the unreported miscellaneous bank charges to the U.S.
and U.K. markets according to that percentage. See Final Analysis Memo.

Comment 12: Unreported U.S. Sales

During the sales verification, the Department requested a printout of
sales after the POI and discovered that contract date was misreported for
one of the U.S. sales, which actually fell within the POI. See Sales
Verification Report at 15. Petitioners point out that if the Department
maintains contract date as the date of sale for the U.S. market, we must
include all U.S. sales with a contract date falling within the POI in the
final margin analysis. Petitioners argue that because Kanzen did not
report this sale in its U.S. sales listing, the Department should apply
the highest calculated individual margin for Kanzen's reported U.S. sales
to the unreported U.S. sale as partial adverse facts available. See
Petitioners' Brief at 34-35.

Kanzen argues that the Department should not apply adverse facts
available for a single unreported U.S. invoice, contending that Kanzen
inadvertently omitted this sale from its U.S. database due to a computer
programming error in the collection of the sales information, and
asserting that the Department has complete information for the two items
contained in this invoice to perform a margin calculation on these sales.
See Kanzen's Rebuttal at 14.

Department Position:

We agree with petitioners. The Department requested in Section C of the
antidumping duty questionnaire that Kanzen report all its U.S. sales made
during the POI. The unreported sale which we discovered at the sales
verification involved two unreported items of an invoice, yet the other
four items on the same invoice were reported by Kanzen. In our
questionnaire, we state that "{f}or sales of merchandise that has been
shipped to the customer and invoiced by the time this response is
prepared, each 'record' in the computer data file should correspond to an
invoice line item (i.e., each unique product included on the invoice). See
Antidumping Duty Questionnaire, Section C (Sales to the United States), at
C-1. Kanzen's reporting of other line items on the invoice indicates that
it had the opportunity to discover its omission. Likewise, Kanzen
submitted four supplemental responses, and three subsequent databases,
pertaining to its U.S. sales, all opportunities in which Kanzen could have
discovered its omission. Moreover, the Department's questionnaire
requires, prior to verification, that respondent "provide a complete
package of documents and worksheets demonstrating how you identified the
sales you reported to the Department and reconciling the reported sales to
the total sales listed in your general ledger." See Antidumping Duty
Questionnaire, Section A (Organization, Accounting Practices, Markets and
Merchandise), at A-3. However, despite being required to submit
documentation which reconciled its financial statements with its reported
Section C database, Kanzen failed to identify the transactions in
question. In response, Kanzen provided sales reconciliation worksheets
that theoretically reconciled, yet did not identify the omission.

Due to this omission, the Department must resort to the use of facts
available, pursuant to section 776(b) of the Act, as Kanzen failed to
provide the requested information for the Department in the form of an
accurate U.S. sales database. In this instance, because the omission was
not discovered until the sales verification, the Department had no
opportunity to note this deficiency and provide Kanzen with an opportunity
to correct it. See section 782(d) of the Act. As discussed, supra, Kanzen
was well aware of the Department's reporting requirements regarding all
U.S. sales, and had the opportunity to discover the omission in compiling
its sales reconciliation worksheets. Given its understanding of the
Department's reporting requirements for U.S. sales, its numerous
opportunities to submit supplemental information, and the fact that the
Department was only able to discover this deficiency at the sales
verification, we find, pursuant to section 776(b) of the Act, that Kanzen
failed to cooperate by not acting to the best of its ability to comply
with a request for information from the Department. Therefore, we are
applying the highest calculated unit margin to this unreported U.S. sale.

Comment 13: Unshipped Sale

Kanzen previously explained that for sales which had not been shipped as
of the date of the submitted database, it had reported the shipment
quantity as zero, but revised the data with each successive database. See
Kanzen's August 15, 2000 Supplemental Questionnaire Response at 2.
Petitioners argue the Department should include an unshipped sale made
during the POI, for which Kanzen reported a zero shipment quantity, in the
final margin analysis. Petitioners state that it is Department practice to
include unshipped merchandise in its margin analysis, as long as the sale
is made within the POI, based on the chosen date of sale methodology.
Petitioners argue that because Kanzen gave no indication whether the
unshipped sale was cancelled after the purchase order/contract date, it is
thus appropriate to include the sale in the final margin analysis. See
Petitioners' Brief at 35.

Kanzen did not submit comment on this issue in its rebuttal brief.

Department Position:

We agree with petitioners. As mentioned in our "Date of Sale" section,
supra, we are retaining order confirmation/contract date as date of sale
for U.S. sales. As such, the date of sale for the unshipped sale falls
within the POI. Accordingly, we are using the reported sales quantity and
including the sale, reported by Kanzen as unshipped, in our final margin
analysis. Because Kanzen has not reported actual numbers for DINLFTPU,
INTNFRU, MARNINU, CREDITU, DIRSELU1, and DIRSELU2, we are applying facts
available for these variables, using the weighted average amounts for
other sales of that CONNUM, in our calculation.

Comment 14: Inland Freight

During the Department's verification of the per unit inland freight on a
pre-selected U.S. sales observation, the Department calculated a slightly
different freight forwarder charge than reported by Kanzen, but noted the
difference was negligible. See Sales Verification Report at 21.
Petitioners disagree. While the calculated unit expenses for DINLFTPU and
MARNINU were not affected, petitioners believe the overall quantity of
sales were affected, noting that other sales fell under the same invoice
number as the observation examined by the Department, many of which
expenses could be affected by the difference in forwarder charge.
Accordingly, petitioners assert that the Department should adjust Kanzen's
reported DINLFTPU and MARNINU for the pertinent invoice in order to
completely capture the expenses incurred by Kanzen for its U.S. sales. See
Petitioners' Brief at 35-36.

Kanzen argues that petitioners' request for adjusting all of Kanzen's
Malaysian inland freight and marine insurance expenses is based on a
single calculation error on a single sales trace. Kanzen argues the error
made no difference between the reported and corrected value, and noted
this was the only sale with discrepancies, out of a total of ten sales
traces reviewed by the Department. Kanzen asserts that a single error of
this size does not justify a complete revision. See Kanzen's Rebuttal at
14-15.

Department Position:

We agree with respondent. This was the only sale out of the ten sales we
reviewed at verification where we found any discrepancy regarding inland
freight, and that discrepancy amounted to such a slight difference in the
reported forwarder charge that it made a negligible difference in Kanzen's
reported per unit inland freight. See Sales Verification Report at 21.
Accordingly, we find no reason to make the extensive revisions to Kanzen's
reported Malaysian inland freight and marine insurance expense requested
by petitioners. Therefore, we are making no changes in relation to this
issue.

5. Cost Issues

Comment 15: Total Adverse Facts Available

Petitioners assert that the Department, in its final margin calculations,
cannot rely on Kanzen's submitted cost data and should, instead, resort to
total facts otherwise available due to the following problems: 1) Kanzen,
while claiming that it attempted to allocate its manufacturing variances
on a more product-specific basis than Kanzen maintains in the normal
course of business, in fact, tried to redistribute its production costs
away from the merchandise under consideration (see Petitioners' Brief at
37-38); 2) petitioners dispute the amount the standard cost of finished
pipe is reduced by in order to obtain the standard cost of semi-finished
pipes used for butt-weld fittings, and question whether the cost of
fittings made of purchased pipes should include any allocation of the cost
variances and scrap offsets related to self produced pipe (see
Petitioners' Brief at 38-40); 3) due to the late disclosure of the two
additional affiliated companies it is impossible to estimate the degree of
their involvement and the arm's length nature of the services provided by
these affiliates (see Petitioners' Brief at 40-41); 4) because certain
CONNUMs were reported with negative production quantities the total
reported costs allocated to individual products are understated (see
Petitioners' Brief a 42-43); and 5) Kanzen grossly understated its
calculated G&A expenses by including reversals of prior period provisions
(see Petitioners' Brief at 43-44).

Petitioners claim that these items demonstrate that Kanzen failed to
cooperate with the administering authority to the best of its ability by
failing to provide accurate, credible, and verifiable data in a timely
manner. Petitioners argue that the Department offered Kanzen numerous
opportunities to submit accurate and verifiable data in a timely manner.
In addition, petitioners argue that Kanzen first delayed any revisions to
its reported cost data before the Department's preliminary determination
in order to secure a de minimis preliminary margin, and then submitted two
sets of revised COP and CV data which continued to include glaring flaws.
See Petitioners' Brief at 36-37 and 44-46.

Kanzen contends that petitioners' arguments for the application of
adverse facts available are inconsistent with the Department's findings at
verification. Therefore, Kanzen argues that the Department should rely on
Kanzen's submitted data for the final determination. Kanzen maintains that
it was fully cooperative throughout this investigation and has made every
effort to provide information requested on a timely basis. Kanzen points
out that the variance allocation methodology in question, which it does
not use in the normal course of business, was developed in an attempt to
calculate more accurate costs. According to Kanzen, its normal accounting
practice does not apply the variance back to the products, but rather
applies total variances to the total standard costs of each section to
determine the profitability of each section. Kanzen claims that these
total variances were verified by the Department and can be easily applied
to Kanzen's reported costs. See Kanzen's Rebuttal at 17-19.

Kanzen contends that petitioners' argument to apply adverse facts
available is contrary to law and the Department's practice. Kanzen argues
that the Department's practice is not to apply adverse facts available to
a respondent that is otherwise cooperative. Kanzen refers to the Notice of
Final Determination of Sales at Less Than Fair Value: Certain Cut-to
Length Carbon Quality Steel Plate Products from Indonesia, 64 FR 73164,
73167 (December 29, 1999) ("because the company was otherwise cooperative,
the Department has not drawn the most adverse reference"), as well as
other cases as having similar circumstances and outcomes: Mannesmannrohren-
Werke AG, et. al. v. United States, 77 F. Supp. 2d 1302, 1315 (CIT 1999),
Notice of Final Determination of Sales at Less Than Fair Value: Steel Wire
Rod from Germany, 63 FR 8953, 8955 (February 23, 1998), and Krupp Stahl AG
v. United States, 822 F. Supp. 789, 793 (Ct. Int'l Trade 1993). See
Kanzen's Rebuttal at 18.

Addressing the purchased and self-produced finished pipe issues, Kanzen
claims that it appropriately incorporated all of the butt-weld material
costs into the per-unit cost data submitted to the Department. Kanzen
argues that petitioners selectively examined only one month of the POI
and, therefore, their estimated amount by which to reduce standard pipe
costs are not reflective of the entire POI. See Kanzen's Rebuttal at 19-20.

As to the issue of affiliated suppliers identified at the cost
verification, Kanzen argues that the Department easily calculated the
degree of each one's involvement and relationship to Kanzen during the
verification. Kanzen argues that the charges paid to the two affiliates in
question were insignificant to Kanzen's total costs and were reported
consistent with the Department's practice of including in costs charges
paid to affiliated parties for outside services, and cites Rubber Thread
From Malaysia; Final Results of Antidumping Duty Administrative Review, 64
FR 12967, 12975 (March 16, 1999) as having similar circumstances and
outcome. See Kanzen's Rebuttal at 20-21.

Kanzen argues that petitioners' allegations regarding negative production
quantities are based on a misunderstanding and should be rejected. Kanzen
maintains that it followed its normal accounting system to report
production quantities in its submitted cost data. Kanzen argues that it
has consistently explained that the negative production quantities are the
result of internal transfers and reclassification of merchandise from
finished goods inventory to WIP inventory for reworking (i.e., negative
production quantity occurs when total rework quantity exceeds total actual
production quantity). See Kanzen's Rebuttal at 21-22.

Finally, Kanzen points out that the Department verified Kanzen's reported
G&A calculation, and, according to the company, if the Department decides
not to include in Kanzen's G&A calculations the reversals of prior period
provisions, it does not affect the accuracy and credibility of the other
G&A expenses reported by Kanzen and verified by the Department. See
Kanzen's Rebuttal at 22.

Department Position:

We agree with respondent. While some of the issues listed by petitioners
represent valid concerns, and will require certain adjustments in order to
properly reflect Kanzen's cost of production during the POI, we disagree
with petitioners that the application of total adverse facts available in
this case is warranted. For a discussion on each of the issues raised by
petitioners see each individual issue discussed below. We agree with
Kanzen that the minor services provided by the two affiliates were
reported properly at the transfer price. Finally, we agree with Kanzen
that the insignificant negative production quantities referred to by
petitioners were recorded in accordance with Kanzen's normal records,
verified by the Department, and found not to distort the reported costs.

Comment 16: Allocation of Cost Variances

Petitioners point out that Kanzen revised its variance allocation
calculations several times in the course of the investigation. They
contend that, in each of these revisions, Kanzen attempted to shift costs
away from the merchandise under consideration. According to petitioners,
the Department should not accept such material changes, which constitute
new factual information after the deadline for such information. See
Petitioners' Brief at 46-49.

In addition, petitioners argue that Kanzen's variance allocation
methodology contains other serious flaws. In particular, they argue that
it is inaccurate to allocate some of the pipe making cost variances to all
butt-weld fittings, because some of those fittings were produced from pipe
purchased from outside vendors. Petitioners also attempt to rebut Kanzen's
statement that the transfers to the fitting section figure used as the
numerator in the calculation of this allocation does not include the cost
of the post-sizing processes, thus understating the allocation. They refer
to Kanzen's statements showing that all the pipes are transferred to the
fitting section at the standard cost of finished pipes which includes the
cost of the post-sizing processes. Furthermore, petitioners contend that
the pipe making conversion cost variance, as well as piping unrealized
stock revaluations, should be allocated to butt-weld pipe fittings along
with the raw material portion of the total pipe making cost variance. See
Petitioners' Brief at 49-50.

Finally, petitioners claim that in its attempts to assign the variances
on a more product-specific basis, Kanzen departed from its normal books
and records, and that this allocation methodology has never been fully
disclosed in its responses. This, according to petitioners, constitutes
Kanzen's failure to provide credible, accurate and verifiable information
and failure to cooperate to the best of its ability. Therefore,
petitioners contend that, for its final determination, the Department
should apply partial adverse facts available. Petitioners cite Static
Random Access Memory Semiconductors From Taiwan; Final Results and Partial
Rescission of Antidumping Duty Administrative Review, 65 FR 55005
(September 12, 2000) and the accompanying Issues and Decision Memorandum
at Comment 1 ("SRAMs" from Taiwan"), as having similar circumstances and
outcome. See Petitioners' Brief at 50-53.

Kanzen argues that the Department did verify Kanzen's total actual costs,
standard costs, and the total variances of each production section, and
found no discrepancies. Therefore, according to Kanzen, if the Department
decides in the final determination not to use the detailed breakdowns of
variance ratios, this does not affect the credibility of calculating
variances on a production section basis. Kanzen maintains that these
production section specific variances are the most credible and reliable
evidence on record available to the Department. See Kanzen's Rebuttal at
23-24.

Department Position:

Section 773(f)(1)(A) of the Act states that costs shall normally be
calculated based on the records of the exporter or producer of the
merchandise, if those records are kept in accordance with generally
accepted accounting principles of the exporting country and reasonably
reflect the costs associated with the production of the merchandise under
consideration. Section 773(f)(1)(A) further directs the Department to rely
on cost allocations when they have historically been used by the producer.
The Department found that in the normal course of business Kanzen only
calculates total variances for each production section and applies them at
year-end to the corresponding total standard costs in order to monitor the
profitability of each section.

However, for the reported costs, Kanzen attempted to allocate the general
ledger total variances on a more specific basis (e.g., material cost by
grade, conversion cost, etc.) using the information which, according to
Kanzen, is maintained in its cost accounting system. The effect of the
more detailed computation was to reduce the costs assigned to the
merchandise under consideration. Even though it made several attempts,
Kanzen was unable to produce reliable calculations allocating the total
variances. Kanzen revised several times its variance allocation
calculations, and submitted four different versions of the same schedule,
each time claiming it found new mistakes and inaccuracies in the breakdown
of the total variances. Furthermore, Kanzen's fourth attempt to submit a
new version of its variance allocation calculations was made late at the
verification. Because this revision was submitted well after the deadline
for submitting new factual information, we declined to accept the new
revision, pursuant to section 351.301(b)(1) of the Department's
regulations. As a result, we did not verify Kanzen's computation of
variances on a more detailed basis and, thus, only the broader production
section variances were verified.

We agree with respondent that the Department's decision not to accept
Kanzen's product-specific variance allocation calculations does not affect
the credibility of production section total variances that Kanzen
calculates in the normal course of business. Furthermore, we disagree with
petitioners that SRAMs from Taiwan is applicable to this case. In SRAMs
from Taiwan, the respondent abandoned its normal cost accounting system
and created a completely new system for reporting purposes. Kanzen
reported its costs based on the standard costs normally used in its cost
accounting system, but departed from that system only for the purpose of
attempting to calculate a variance that was more specific to the
merchandise under consideration as requested by the Department. 

We agree with petitioners that there is an inconsistency between the
calculations related to the allocation of piping section variances to the
fitting section costs. Specifically, Kanzen used the actual costs for the
piping section as the denominator, but standard costs for internal
transfers from the piping to the fitting section as the numerator. We also
found that, consistent with Kanzen's description of its cost accounting
system, the transfers to the fitting section figure used as the numerator
in the calculation of this ratio does include the cost of the post-sizing
processes. We also agree with petitioners that the piping conversion cost
variance as well as the piping unrealized stock revaluations should be
allocated to fittings along with the raw material portion of the total
piping variance. 

However, we disagree with petitioners that the information on the record
does not allow the Department to measure and verify the exact impact of
these items on the reported costs. Consistent with sections 776(a) and
782(e) of the Act, there is enough verified information on the record that
can be used as facts available to correct each of the inaccuracies. In
this instance, we calculated two variance allocation ratios: one for
fittings made of purchased pipes that is based only on the total fitting
variance, and another one for all other fittings which is based on the
total fitting variance plus an allocated portion of piping variance. As
facts available, we used in our calculations the verified total variances
for each production section as determined by Kanzen in the normal course
of business. We incorporated in this calculation the corrections to each
of the inaccuracies discussed above.

Comment 17: Standard Cost Reduction Factor for Pipes Used for Fittings

Petitioners claim that the extent of the reduction Kanzen applies to the
standard costs of finished pipes to bring them down to the cost of semi-
finished pipes used for fittings is not accurate. Petitioners argue that
according to their calculations the average percentage of post-sizing
processing costs in the per-unit standard cost of finished pipes is
different from the one applied by Kanzen in the normal course of business,
and, therefore, should be adjusted. See Petitioners' Brief at 53-54.

Kanzen claims that the methodology used by petitioners is not consistent
with Kanzen's normal accounting practices. Kanzen maintains that its
normal accounting practice provides an accounting treatment that
reasonably reflects the cost difference between different pipes going
through different production processes, which, according to Kanzen, was
verified by the Department. Therefore, Kanzen argues that, in the final
determination, the Department should use the reduction factor that is used
in Kanzen's normal accounting practices. See Kanzen's Rebuttal at 24-25.

Department Position:

We agree with respondent. The methodology petitioners used to test the
accuracy of the reduction ratio applied by Kanzen to the standard costs of
finished pipes to bring them down to the cost of semi-finished pipes used
for fittings is not consistent with Kanzen's normal accounting practices.
Petitioners' calculations are based on the standard cost build-ups for a
limited sample of pipes that was not intended to and does not represent
the entire population of the pipes produced by Kanzen. Furthermore, it
includes pipes that Kanzen does not use for fittings because fitting
production specifications require only pipes of certain standard length.
In addition, the Department found that this reduction ratio was the result
of an estimate on the part of Kanzen intended only to approximate the
percentage of post-sizing costs in the total cost of pipes, and the
accuracy of this estimate was tested by the Department verifiers to their
satisfaction.

Moreover, conceptually, under a standard cost system, any adjustment to
standard costs has to be followed by an offsetting adjustment to the
variances, which eliminates the effect of such an adjustment on total
costs. This kind of adjustment basically reallocates the costs which may
affect product-specific costs. However, if the adjustment is small (which
is the case in this instance), the effect on product-specific costs will
be negligible. Therefore, in our final determination, we did not adjust
the reported reduction factor historically used by Kanzen in its standard
cost calculations in the normal course of business.

Comment 18: Cost of Fittings Made of Finished Pipes

Pipe intended for production of the butt-weld fittings pass through fewer
finishing processes than pipe produced for sale. To calculate the standard
cost of pipe entering the butt-weld fittings section, Kanzen reduced the
standard cost of finished pipe (i.e., the standard cost of pipe sold to
outside parties) by an estimated ratio representing the finishing
processes which these pipes did not receive. However, petitioners argue
that the reduction ratio Kanzen applied to the standard cost of finished
pipes does not address the situation when internally produced finished
pipes, rather than semi-finished pipes, are used to produce fittings.
Petitioners contend that the Department should adjust Kanzen's reported
standard cost of materials to correct this deduction. See Petitioners'
Brief at 54-55.

Petitioners also raise issues related to the cost of fittings made of
purchased pipes. Petitioners assert that according to their calculations,
Kanzen's statement that it does not apply the reduction ratio to the
standard cost build-ups of large diameter fittings because they are made
of purchased (i.e., finished) pipes appears to be untrue. Accordingly,
petitioners suggest the reduction should be reversed (see Petitioners'
Brief at 55-57). Petitioners also contend that no piping section variances
and scrap revenue offset should be applied to the cost of the fittings
made of purchased pipes (see Petitioners' Brief at 57). They point out
that, since these pipes were not made by Kanzen in its production
facility, no variances and no scrap generated by Kanzen's piping section
could be attributed to the fittings made of these purchased pipes (see
Petitioners' Brief at 57). 

Kanzen contends that, in the final determination, the Department should
not adjust the costs of fittings made from finished pipes. However, if the
Department were to adjust the costs of fittings made from finished pipes,
this adjustment, according to Kanzen, should not include the pipes
purchased from outside suppliers because the standard cost of such
purchased pipes is not reduced by the average post-sizing cost percentage.
See Kanzen's Rebuttal at 25.

Kanzen argues that a portion of the piping variance should be allocated
to all fittings, including the ones made of purchased pipes, because,
according to Kanzen, the allocation ratio calculated by Kanzen does not
include the portion of pipes transferred from finished goods inventory to
the fitting section. Therefore, Kanzen claims that it did not overstate
the allocation ratio and the Department should apply this ratio to all
fittings. See Kanzen's Rebuttal at 25.

Kanzen claims that the Department should apply the full amount of scrap
offset reflecting both piping and fitting production related scrap
revenues to all fittings, including the ones made of purchased pipes.
According to Kanzen, regardless of whether the scrap is generated from
pipe manufactured by Kanzen or pipe purchased by Kanzen, the scrap revenue
is recovered from the production process at Kanzen. See Kanzen's Rebuttal
at 26.

Department Position:

We agree with petitioners in part that there are certain inaccuracies
related to Kanzen's methodology that need to be corrected. However, we
disagree with the adjustment to the standard cost of fittings made from
internally produced finished pipes as proposed by petitioners. Even if we
were to make this adjustment as petitioners suggested, we would then have
to adjust the variance correspondingly, which would have made the net
amount of this adjustment negligible even at the CONNUM-specific level.

We also disagree with petitioners' assertion that Kanzen does, in fact,
apply the reduction ratio to the standard cost build-ups of the fittings
made of purchased pipes. Petitioners based their assertion on the analysis
of the standard cost build-up of a pipe that Kanzen does not use to
produce fittings, and therefore, can not be traced to a fitting standard
cost build-up. In addition, the Department's verifiers discussed this
issue with Kanzen officials and did not note any discrepancies. See Cost
Verification Exhibit at 15.

However, we do agree with petitioners that none of the piping section
variances should be allocated to the fittings made of purchased pipes. We
disagree with Kanzen that simply because the ratio allocating the piping
variance to fittings calculated by Kanzen is not overstated, the allocated
portion of piping variance should be applied to all fittings. The ratio in
question was calculated by dividing the total internal transfers of pipes
to the fitting section by total production of pipes, i.e., neither the
numerator nor denominator includes purchased pipes because, according to
Kanzen, these pipes are never recorded in the piping section accounts but
rather are entered as raw materials for the fitting section. Therefore, it
would not be appropriate to allocate any portion of the piping variance to
the fittings made of purchased pipes.

We also agree with petitioners that no piping scrap revenue offset should
be applied to the cost of fittings made of purchased pipes. We agree that
because none of these pipes were made by Kanzen in its piping facility, no
scrap generated by Kanzen's piping section could be attributed to the
fittings made of these purchased pipes. We disagree with Kanzen's position
which seems to suggest that there does not have to be a connection between
the scrap revenues and the production of merchandise under consideration
in order to claim a scrap offset. The scrap revenues reduce direct
material cost of the merchandise under consideration and should be as
product-specific as Kanzen's reporting system would allow. We have
continued to allow an offset to purchased and internally produced pipe for
fitting scrap revenue consistent with this approach.

Comment 19: G&A Expense Ratio

Petitioners contend that the Department should disallow the reversals of
prior year provisions that Kanzen used to offset its G&A expenses, and
instead add the actual amounts recognized by Kanzen during FY1999.
Petitioners also argue that the Department should include the foreign
exchange losses classified as "Other" by Kanzen as those losses were
generated by the foreign exchange contracts related to purchases.
Petitioners also claim that because the Department's normal practice is to
include in G&A calculations foreign exchange gains and losses on accounts
payable at the non-consolidated level, the Department should use these
foreign exchange gains recorded at Kanzen's level instead of the parent
company's level. In addition, petitioners argue that the Department should
include waste treatment expenses that Kanzen incurred in FY1999. See
Petitioners' Brief at 58-59.

Kanzen did not comment on the specific adjustments to G&A expense ratio
calculations suggested by petitioners.

Department Position:

We agree with petitioners on the items they claim require adjustment in
order to properly calculate Kanzen's G&A expense ratio. We agree that
current period expenses should be included in the reported costs, while
reversals of prior period provisions do not relate to the current period.
We also agree that foreign currency exchange gains and losses generated by
accounts payable should be included in the reported costs as they relate
to purchases of materials and other services. Therefore, we have made the
appropriate adjustments for the final determination. 

RECOMMENDATION:

Based on our analysis of the comments received, we recommend adopting all
of the above changes and positions, and adjusting the model match and
margin calculation programs accordingly. If accepted, we will publish the
final results of the investigation and the final weighted-average dumping
margin for the investigated firm in the Federal Register.

AGREE___________ DISAGREE___________

__________________________________________

Troy H. Cribb
Assistant Secretary 
  for Import Administration

__________________________________________
Date