64 FR 12927, March 16, 1999

DEPARTMENT OF COMMERCE

International Trade Administration

[A-580-815 & A-580-816]

Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products
From Korea: Final Results of Antidumping Duty Administrative Reviews

AGENCY: Import Administration, International Trade Administration,
Department of Commerce.

ACTION: Final results of antidumping duty administrative reviews.

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

SUMMARY: On September 9, 1998, the Department of Commerce (``the
Department'') published the preliminary results of the administrative
reviews of the antidumping duty orders on certain cold-rolled and
corrosion-resistant carbon steel flat products from Korea. These
reviews cover three manufacturers/exporters of the subject merchandise
to the United States and the period August 1, 1996, through July 31,
1997. We gave interested parties an opportunity to comment on our
preliminary results. Based on our analysis of the comments received,
we have changed the results from those presented in the preliminary
results of review.

EFFECTIVE DATE: March 16, 1999.

FOR FURTHER INFORMATION CONTACT: Juanita Chen (Dongbu), Becky Hagen
(POSCO), Cindy Sonmez (Union), Steve Bezirganian, or James Doyle, AD/
CVD Enforcement Group III--Office 7, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW, Washington, DC 20230, telephone
202/482-0409 (Chen), 202/482-1102 (Hagen), 202/482-0961 (Sonmez), 202/
482-0162 (Bezirganian), or 202/482-0159 (Doyle), fax 202/482-1388.

SUPPLEMENTARY INFORMATION:

Applicable Statute

    Unless otherwise indicated, all citations to the Tariff Act of 1930
(``the Act'') are references to the provisions effective January 1,
1995, the effective date of the amendments made to the Act

[[Page 12928]]

by the Uruguay Round Agreements Act (``URAA''). In addition, unless
otherwise indicated, all citations to the Department's regulations are
to the regulations at 19 CFR Part 351 (1998).

Background

    The Department published antidumping duty orders on certain cold-
rolled and corrosion-resistant carbon steel flat products from Korea on
August 19, 1993 (58 FR 44159). The Department published a notice of
``Opportunity to Request Administrative Review'' of the antidumping
duty orders for the 1996/97 review period on August 4, 1997 (62 FR
41925). On August 29, 1997, respondents Dongbu Steel Co., Ltd.
(``Dongbu'') and Union Steel Manufacturing Co., Ltd. (``Union'')
requested that the Department conduct an administrative review of the
antidumping duty order on corrosion-resistant carbon steel flat
products from Korea, and Pohang Iron and Steel Co., Ltd. (``POSCO'')
requested that the Department conduct administrative reviews of the
antidumping duty orders on cold-rolled and corrosion-resistant carbon
steel flat products from Korea. On September 2, 1997, petitioners in
the original less-than-fair-value (``LTFV'') investigations (AK Steel
Corporation; Bethlehem Steel Corporation; Inland Steel Industries,
Inc.; LTV Steel Company; National Steel Corporation; and U.S. Steel
Group--A Unit of USX Corporation) requested that the Department conduct
administrative reviews of the antidumping duty orders on cold-rolled
and corrosion-resistant carbon steel flat products from Korea with
respect to all three of the aforementioned respondents. We initiated
these reviews on September 19, 1997 (62 FR 52092--September 25, 1997).
    On August 31, 1998, the Department issued the preliminary results
of the these administrative reviews. See Certain Cold-Rolled and
Corrosion-Resistant Carbon Steel Flat Products From Korea: Preliminary
Results of Antidumping Duty Administrative Reviews, 63 FR 48173
(September 9, 1998) (``Korean Flat-Rolled 4th Reviews Prelim.''). The
Department has now completed these administrative reviews in accordance
with section 751 of the Act.

Scope of the Review

    The review of ``certain cold-rolled carbon steel flat products''
covers cold-rolled (cold-reduced) carbon steel flat-rolled products, of
rectangular shape, neither clad, plated nor coated with metal, whether
or not painted, varnished or coated with plastics or other nonmetallic
substances, in coils (whether or not in successively superimposed
layers) and of a width of 0.5 inch or greater, or in straight lengths
which, if of a thickness less than 4.75 millimeters, are of a width of
0.5 inch or greater and which measures at least 10 times the thickness
or if of a thickness of 4.75 millimeters or more are of a width which
exceeds 150 millimeters and measures at least twice the thickness, as
currently classifiable in the Harmonized Tariff Schedule (``HTS'')
under item numbers 7209.15.0000, 7209.16.0030, 7209.16.0060,
7209.16.0090, 7209.17.0030, 7209.17.0060, 7209.17.0090, 7209.18.1530,
7209.18.1560, 7209.18.2550, 7209.18.6000, 7209.25.0000, 7209.26.0000,
7209.27.0000, 7209.28.0000, 7209.90.0000, 7210.70.3000, 7210.90.9000,
7211.23.1500, 7211.23.2000, 7211.23.3000, 7211.23.4500, 7211.23.6030,
7211.23.6060, 7211.23.6085, 7211.29.2030, 7211.29.2090, 7211.29.4500,
7211.29.6030, 7211.29.6080, 7211.90.0000, 7212.40.1000, 7212.40.5000,
7212.50.0000, 7215.50.0015, 7215.50.0060, 7215.50.0090, 7215.90.5000,
7217.10.1000, 7217.10.2000, 7217.10.3000, 7217.10.7000, 7217.90.1000,
7217.90.5030, 7217.90.5060, 7217.90.5090. Included in this review are
flat-rolled products of nonrectangular cross-section where such cross-
section is achieved subsequent to the rolling process (i.e., products
which have been ``worked after rolling'')--for example, products which
have been beveled or rounded at the edges. Excluded from this review is
certain shadow mask steel, i.e., aluminum-killed, cold-rolled steel
coil that is open-coil annealed, has a carbon content of less than
0.002 percent, is of 0.003 to 0.012 inch in thickness, 15 to 30 inches
in width, and has an ultra flat, isotropic surface.
    The review of ``certain corrosion-resistant carbon steel flat
products'' covers flat-rolled carbon steel products, of rectangular
shape, either clad, plated, or coated with corrosion-resistant metals
such as zinc, aluminum,  or   zinc-, aluminum-, nickel- or iron-based
alloys, whether or not corrugated or painted, varnished or coated with
plastics or other nonmetallic substances in addition to the metallic
coating, in coils (whether or not in successively superimposed layers)
and of a width of 0.5 inch or greater, or in straight lengths which, if
of a thickness less than 4.75 millimeters, are of a width of 0.5 inch
or greater and which measures at least 10 times the thickness or if of
a thickness of 4.75 millimeters or more are of a width which exceeds
150 millimeters and measures at least twice the thickness, as currently
classifiable in the HTS under item numbers 7210.30.0030, 7210.30.0060,
7210.41.0000, 7210.49.0030, 7210.49.0090, 7210.61.0000, 7210.69.0000,
7210.70.6030, 7210.70.6060, 7210.70.6090, 7210.90.1000, 7210.90.6000,
7210.90.9000, 7212.20.0000, 7212.30.1030, 7212.30.1090, 7212.30.3000,
7212.30.5000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7212.60.0000,
7215.90.1000, 7215.90.3000, 7215.90.5000, 7217.20.1500, 7217.30.1530,
7217.30.1560, 7217.90.1000, 7217.90.5030, 7217.90.5060, 7217.90.5090.
Included in this review are flat-rolled products of nonrectangular
cross-section where such cross-section is achieved subsequent to the
rolling process (i.e., products which have been ``worked after
rolling'')--for example, products which have been beveled or rounded at
the edges. Excluded from this review are flat-rolled steel products
either plated or coated with tin, lead, chromium, chromium oxides, both
tin and lead (``terne plate''), or both chromium and chromium oxides
(``tin-free steel''), whether or not painted, varnished or coated with
plastics or other nonmetallic substances in addition to the metallic
coating. Also excluded from this review are clad products in straight
lengths of 0.1875 inch or more in composite thickness and of a width
which exceeds 150 millimeters and measures at least twice the
thickness. Also excluded from this review are certain clad stainless
flat-rolled products, which are three-layered corrosion-resistant
carbon steel flat-rolled products less than 4.75 millimeters in
composite thickness that consist of a carbon steel flat-rolled product
clad on both sides with stainless steel in a 20%-60%-20% ratio.
    These HTS item numbers are provided for convenience and U.S.
Customs purposes. The written descriptions remain dispositive.
    The period of review (``POR'') is August 1, 1996 through July 31,
1997. These reviews cover sales of certain cold-rolled and corrosion-
resistant carbon steel flat products by POSCO and the companies
collapsed with POSCO (referred to collectively as ``the POSCO Group''),
Dongbu, and Union.

[[Page 12929]]

Fair-Value Comparisons

    To determine whether sales of the subject merchandise from Korea to
the United States were made at less than fair value, we compared the
export price (``EP'') or constructed export price (``CEP'') of the
merchandise to normal value (``NV''), as described in Korean Flat-
Rolled 4th Reviews Prelim., modified as noted in this notice.

Verification

    We verified information provided by the POSCO Group with respect to
its costs, including on-site inspection of facilities, the examination
of relevant accounting and financial records, and selection of original
documentation containing relevant information. Our verification results
are outlined in the cost verification report. See Cost Verification
Report--Pohang Iron and Steel Company, Ltd., from Bill Jones and Symon
Monu to Christian Marsh (August 5, 1998).

Analysis of Comments Received

    We gave interested parties an opportunity to comment on the
preliminary results. We received comments and rebuttal comments from
the POSCO Group, Dongbu, Union, and petitioners. The POSCO Group and
petitioners requested a public hearing, which was held on October 29,
1998.

Comment 1: Home Market Credit Days

    While the Department's preference is to calculate shipment-specific
credit days based on the difference between shipment date and payment
date, when actual payment dates are not readily accessible in
respondents' accounting systems the Department may accept calculations
based on the average age of accounts receivable. In these reviews, as
in prior reviews of these antidumping duty orders, respondents'
calculations of customer-specific credit days are based on the average
age of receivables during the POR. Specifically, credit days for each
customer equals average monthly POR receivables for the customer
divided by average daily POR sales to the customer.
    Petitioners argue that respondents' methodology is inherently
flawed because it includes accounts receivable from prior periods as
well as from the POR, and allocates those receivables only over sales
made during the POR. Petitioners note that unless the volumes of sales
and payments are stable over time, this method will distort the
calculation of the credit period. Petitioners state that the potential
for manipulation is particularly high when the calculation of credit
expenses for U.S. sales is based on actual rather than estimated credit
periods.
    Petitioners argue that it is appropriate to analyze several years'
worth of accounts receivable and sales data to determine whether the
estimates are consistent with historical experience and, therefore,
accurate. Petitioners note that such analysis is typical for
calculations of warranty expenses, which are generally estimates of
actual warranty expenses. Petitioners state that for Dongbu and Union
the overall average credit period across all home market customers for
two years' worth of aggregate data on accounts receivable and sales
varied significantly from the overall average credit period across all
home market customers for just one years' worth of such data.
    Regarding the POSCO Group specifically, petitioners note that
despite POSCO's statements before the U.S. Securities Exchange
Commission regarding the importance of POSCO's stated credit terms, the
Department neither utilized those stated credit terms for its credit
days calculations nor explained why it did not. Petitioners argue that,
contrary to POSCO's statements, POSCO did not charge and receive
interest revenue in cases where customers substantially exceeded normal
payment terms.
    Petitioners argue that the Department should base the calculation
of credit days on one of two alternative methodologies proposed by
petitioners prior to the issuance of the preliminary results of these
reviews: (1) calculating the credit periods as done by respondents but
using several years' worth of data on accounts receivable and sales
rather than just the data for the POR; or (2) using the POR accounts
receivable and sales data, but excluding the accounts receivable
resulting from prior periods' sales. Petitioners also note that the
Department, in its preliminary results, rejected POSCO's arbitrary
selection of credit days for several customers, but did not make any
adjustments either for other aberrant calculations of credit days for
POSCO customers or those for Union and Dongbu customers. Petitioners
argue that if the Department chooses not to apply either of
petitioners' proposed methodologies, it should at the very least reject
calculated credit expenses based on aberrationally high credit days.
    The POSCO Group argues that its reported home market credit
expenses were based on the same methodology used for the calculation of
credit days in prior reviews. The POSCO Group argues that it did not
know the date of payment for each transaction, and that its credit days
methodology does not yield systematically overstated or aberrant
results. The POSCO Group argues that most customers maintain a fairly
constant level of sales and accounts receivable activity. Regarding
petitioners' allegations pertaining to the POSCO Group's stated credit
terms, the POSCO Group states that the record indicates that the use of
promissory notes for payment in Korea typically adds up to 30
additional days to a customer's payment terms and that, in any case,
the POSCO Group's transaction-specific payment terms are merely
guidelines and do not represent the actual payment dates for specific
transactions. The POSCO Group states that it is a commercial reality
that a company may not be able to charge, let alone collect, interest
revenue from all of its customers for late payment. The POSCO Group
notes that the Department's rejection of credit expenses for several
customers does not indicate that the POSCO Group's entire home market
credit methodology should be rejected.
    Dongbu and Union argue that the existence of long credit periods
for certain customers does not render their credit calculations
distortive and unreliable, and state that they reported home market
credit expenses based on the same credit days methodology in prior
reviews. Dongbu and Union note that receivables balances during the POR
may include unpaid balances from sales before the POR but, similarly,
there will be sales during the POR with outstanding receivables after
the POR. Dongbu and Union conclude that the balances brought into the
POR from sales prior to the POR will not be markedly dissimilar from
the balances carried forward from sales during the POR. Dongbu and
Union argue that while the Department has, at times, used historical
warranty figures because of the often periodic and intermittent nature
of those expenses, credit, by contrast, is extended to one degree or
another to most customers, and the Department does not compare POR
credit expenses to prior experience. Dongbu and Union argue that the
Department correctly noted, in its preliminary results, that the sample
of customers it analyzed included aberrationally high credit days, and
correctly did not apply a shorter period for those customers. Unlike
for the POSCO Group, for which the Department rejected certain
calculated credit days because they were arbitrarily selected by the
POSCO Group, all of the calculated credit days for Dongbu and Union
were based on the methodology as stated. Contrary to petitioners'

[[Page 12930]]

assertion, argue Dongbu and Union, there is no significant variation in
the average credit periods across all home market customers using two
years' worth of aggregate data on accounts receivable and sales
compared to just one years' worth of such accounts receivable and sales
data.
    Department's Position: In its preliminary results, the Department
recognized that respondents' methodology included accounts receivable
from prior periods as well as from the POR, and allocated those
receivables only over sales made during the POR. However, the
Department agrees with Dongbu and Union that this methodology also
includes sales during the POR with outstanding receivables after the
POR. Petitioners implicitly accept this point in their argument that
the methodology distorts the calculation of the credit period unless
the volumes of sales and payments are stable over time. While it is
certainly possible that for some customers the balances brought into
the POR from sales prior to the POR will be ``markedly dissimilar''
from the balances carried forward from sales during the POR, it is not
clear that any systematic credit-reporting distortion exists for the
respondents in these reviews. The Department requested documentation
from respondents supporting seemingly aberrant results for those
customers with particularly long credit periods. The information
provided by respondents, with one exception, indicates that respondents
utilized the methodology as stated in their initial questionnaire
responses and as employed in prior reviews. The only exception involved
those few customers for which the POSCO Group arbitrarily set credit
days equal to 365 days, in contradiction to its stated calculation
methodology as described above.
    Furthermore, the variation in average credit days for all customers
based on one years' worth of data versus two years' worth of data was
not significant enough to call into question the general reasonableness
of the methodology utilized. That variation also does not justify using
a non-customer specific calculation of credit days, given the
preference of the Department to calculate imputed credit on as specific
a basis as possible.
    Variation between POSCO's stated credit terms and the actual
calculated credit days for its customers may, and in fact did, provide
a basis for analyzing the nature of POSCO's relationships with its
customers. However, such variation does not justify using its credit
policy as the basis for the calculation of credit days, given that the
Department has accepted the inherent reasonableness of the respondents'
methodology and the accuracy (with the exception noted above) of the
data used as the basis for the calculation of credit days.
    For its final results, the Department has continued to utilize the
respondents' home market imputed credit expense methodology, and has
also continued to deny any credit expense for sales by the POSCO Group
to customers for which the POSCO Group arbitrarily assigned credit days
of 365.

Comment 2: Interest Expenses as Part of Indirect Selling Expenses

    Petitioners argue that the Department should deduct from CEP the
interest expenses incurred by the U.S. selling affiliates of the POSCO
Group, Union, and Dongbu. The statute requires that the Department
deduct from CEP all selling expenses, including indirect selling
expenses, defined as ``any selling expenses'' not deducted as
commissions, direct selling expenses, or selling expenses that the
seller pays upon behalf of the purchaser. See section 772(d) of the
Act. The Statement of Administrative Action explains further that
indirect selling expenses are expenses that ``would be incurred by the
seller regardless of whether the particular sales in question are made,
but reasonably may be attributed (at least in part) to such sales.''
See URAA Statement of Administrative Action, H.R. Doc. No. 103-316, at
824 (1994) (``SAA''). Petitioners argue that because a company incurs
interest expenses to finance its selling activities (separate from the
financing of accounts receivable), including interest expenses in the
indirect selling expenses calculation is appropriate. Petitioners cite
several cases in which the Department deducted from CEP interest
expenses incurred by U.S. sales affiliates. See Porcelain-on-Steel
Cookware from Mexico: Final Results of Antidumping Duty Administrative
Review, 63 FR 38373, 38381 (July 16, 1998) (``Cookware from Mexico'');
Certain Fresh Cut Flowers from Colombia; Final Results and Partial
Recission of Antidumping Duty Administrative Review, 62 FR 53287, 53294
(October 14, 1997); Certain Cold-Rolled Carbon Steel Flat Products from
Germany; Preliminary Results of Antidumping Duty Administrative Review,
60 FR 39355 (August 2, 1995), unchanged in Certain Cold-Rolled Carbon
Steel Flat Products from Germany; Final Results of Antidumping Duty
Administrative Review, 60 FR 65264, 65281 (December 19, 1995) (``Cold-
Rolled from Germany''); and Notice of Amended Final Results of
Antidumping Duty Administrative Reviews: Certain Cold-Rolled Carbon
Steel Flat Products from Korea; Certain Corrosion-Resistant Carbon
Steel Flat Products from Korea, 63 FR 20572, 20573 (April 27, 1998). In
Cookware from Mexico, 63 FR at 38381, the Department noted its practice
of deducting respondent's depreciation, financial and bad debt
expenses, which are considered related to respondent's sales of the
subject merchandise and thus deducted from CEP pursuant to section
772(d)(1)(D). In Cold-Rolled from Germany, 60 FR at 39355, petitioners
note, the Department included that portion of the interest expense
attributable to the U.S. selling affiliate in calculating the U.S.
indirect selling expense adjustment. In the present reviews, according
to petitioners, the respondents sold subject merchandise in the United
States through affiliated entities that performed various U.S. selling
functions and, in addition to incurring expenses that the Department
normally treats as indirect selling expenses, these affiliated entities
incurred interest expenses that were related to these selling
functions.
    Petitioners argue that respondents have not demonstrated how the
inclusion of interest expenses in indirect selling expenses would
``double-count'' the credit or inventory carrying cost deductions.
Petitioners state that respondents simply assert that because most, if
not all, of their U.S. affiliates' borrowing was short-term, their
loans cover the financing of in-transit inventory and accounts
receivable as well as activities unrelated to the sale of the subject
merchandise. Petitioners argue that respondents did not demonstrate
that the affiliates' borrowings covered such financing. Because money
is fungible, petitioners argue, these borrowings could have been used
for other purposes (e.g., payment of salaries of those involved with
U.S. sales of subject merchandise).
    Petitioners argue that the imputed credit expense and the interest
expenses of the affiliates are not equivalent because the imputed
credit expense adjustment is made to account for the time value of
money between shipment and payment independent of whether or not a
company incurs non-imputed interest expenses. Therefore, petitioners
argue, the interest expense figure cannot be automatically attributed
to the imputed credit expense, nor can the inclusion of interest
expenses in indirect selling expenses automatically be deemed to
constitute double-counting. Petitioners provide

[[Page 12931]]

calculations of the adjustments they claim are appropriate for the
POSCO Group, Dongbu, and Union, based on the assumption that the
interest expenses in total should be included in the calculation of the
indirect selling expenses deducted from CEP. Petitioners also state
that if the Department wrongly determines that some portions of these
interest expenses relate to the financing of accounts receivable or to
non-subject merchandise, then the Department must for each respondent
deduct from CEP the portion of the interest expenses that do not relate
to financing of accounts receivable or to non-subject merchandise.
Petitioners provide estimates for such alternative adjustments to the
reported indirect selling expenses of the U.S. affiliates of the POSCO
Group, Dongbu, and Union.
    The POSCO Group argues that the Department's standard practice is
not to include interest expenses in indirect selling expenses because
such inclusion would constitute double-counting. The POSCO Group cites
several cases, including Final Determination of Sales at Less Than Fair
Value: New Minivans from Japan, 57 FR 21937, 21956-57 (May 26, 1992)
(``Minivans from Japan''), which the POSCO Group states articulate the
Department's policy of not deducting U.S. affiliates' interest expenses
from CEP. The POSCO Group cites several other cases, including Certain
Cold-Rolled Carbon Steel Flat Products from the Netherlands: Final
Results of Antidumping Duty Administrative Review, 63 FR 13204, 13205
(March 18, 1998) (``Cold-Rolled from the Netherlands''), in which the
Department did not in fact deduct such expenses from CEP. The POSCO
Group argues that such a deduction would constitute double-counting,
given that imputed credit expenses are deducted from CEP. The POSCO
Group cites Antifriction Bearings (Other Than Tapered Roller Bearings)
and Parts Thereof From the Federal Republic of Germany; Final Results
of Antidumping Duty Administrative Review, 56 FR 31692, 31721 (July 11,
1991) (``AFBs from Germany'') as an example where the Department
reduced interest expenses from indirect selling expenses to account for
the portion of those expenses related to imputed credit and inventory
carrying cost.
    The POSCO Group characterizes the cases cited by petitioners as
``aberrant'' ones in which the direct issue of whether interest expense
should be deducted from the price in the United States was apparently
never briefed or litigated, or in which the deduction of interest
expenses involved use of facts available. Furthermore, the POSCO Group
notes that the Department determined in its preliminary results that
the interest expenses should not be included in indirect selling
expenses because virtually all of those interest expenses relate to the
financing of receivables or to borrowings involving non-subject
merchandise. The POSCO Group states that the interest rates it used to
calculate the imputed credit expenses for sales by the U.S. sales
affiliates reflect all of the short-term borrowings of the affiliates.
The POSCO Group states that the long-term interest expenses of POSAM
relate to enterprises not involved with entries of subject merchandise,
such as its joint venture with U.S. Steel. Furthermore, the POSCO Group
argues, the sales of such enterprises, contrary to petitioners'
assertion, are not included in the denominator used for the calculation
of the indirect selling expenses factor. Finally, the POSCO Group
argues that inclusion of the interest expenses of the U.S. affiliates
in indirect selling expenses would constitute double-counting because
POSAM's interest expenses are reflected both in POSCO's cost of
production (``COP'') and in the calculated total profit which is used
as a basis for the determination of CEP profit.
    Union argues that it demonstrated that the majority of the interest
expenses of its U.S. affiliate, DKA, are incurred on behalf of non-
subject merchandise, and that the remainder relate to the financing of
accounts receivable for subject merchandise. Union notes that there is
very little activity at DKA, beyond the inventory carrying and credit
periods that are separately included in the CEP calculation, that is
related to subject merchandise which could have been financed through
borrowings. Union argues that in Cookware from Mexico, the U.S.
affiliate only performed activities related to the sale of subject
merchandise, but that DKA was engaged in numerous other activities,
including exporting merchandise purchased in the United States. Union
argues that in its preliminary results the Department followed its
consistent practice, articulated in Minivans from Japan and reflected
in prior reviews of the order on certain corrosion-resistant carbon
steel flat products from Korea, of not including interest expenses when
calculating indirect selling expenses. Union argues that it has
demonstrated that DKA's interest expenses are primarily related to non-
subject merchandise and long-term interest, and that including the
remaining, small portion of U.S. interest expenses attributable to
financing accounts receivable would double-count these expenses as the
Department's imputed credit expense has already accounted for them.
    Dongbu argues that the interest rate used for the calculations of
imputed credit and inventory carrying cost were based on the interest
expenses incurred by Dongbu USA on its short-term borrowings in the
POR. Dongbu indicates that these expenses were incurred for financing
receivables and inventory, and that deductions from CEP for these
expenses were made through the imputed credit and the inventory
carrying cost variables.
    Department's Position: The Department disagrees with respondents'
assertions that the Department's policy is to exclude interest expenses
of U.S. sales affiliates from U.S. indirect selling expenses because
imputed credit and inventory carrying cost expenses are already
deducted from the U.S. starting price. As noted by petitioners, there
are various cases in which the Department has stated explicitly that it
was deducting both an amount of actual interest expenses and imputed
expenses. Furthermore, petitioners are correct in stating that the
Department deducts imputed credit expenses whether or not a company
incurs non-imputed interest expenses. This practice accords with
section 772(d)(1)(D) of the Act, which dictates that the Department
deduct from the CEP starting price ``any'' indirect selling expenses
associated with the sale of the subject merchandise in the United
States.
    The Department's decision in Minivans from Japan is consistent with
a general principle that the deduction of imputed and certain actual
interest expenses may constitute double-counting. However, interest
expenses incurred by sales affiliates may relate to activity other than
the financing of inventory or accounts receivable, and still be
associated with sales of subject merchandise. In AFBs from Germany,
cited by the POSCO Group, the Department indicated that it ``reduced
interest expenses on the firm's books for a portion of the expense
related to these activities {imputed credit and inventory carrying
cost} to avoid double-counting'' (emphasis added), as those imputed
credit and inventory carrying costs were being deducted from U.S.
starting price. See 56 FR at 31721. This indicates that any reduction
to actual interest expenses to avoid double-counting would not exceed
the amount of the imputed expenses. As we stated in the final results
of the prior reviews, ``{w}e do not agree with {respondent's}

[[Page 12932]]

argument that an imputed credit figure covering the entire credit
period inherently includes all credit/financing expenses.'' See Certain
Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from
Korea: Final Results of Antidumping Duty Administrative Reviews, 63 FR
13170, 13175 (March 18, 1998) (``Korean Flat-Rolled 3rd Reviews
Final'').
    The Department under appropriate circumstances excludes some
portion or all of a U.S. sales affiliate's interest expenses in its
calculation of indirect selling expenses (as, for example, in Cold-
Rolled from the Netherlands, 63 FR at 13205, which neither provides,
nor was meant to provide, an exhaustive list of what may be included in
indirect selling expenses). To the extent that a U.S. affiliate's
interest expenses are associated with non-subject merchandise, the
Department does not deduct them from the CEP starting price. We also
note that, because the activities of U.S. sales affiliates differ
considerably across cases, the Department must determine the
appropriate universe of CEP deductions on a case-by-case basis. In this
case, we excluded interest expenses associated with non-subject
merchandise. Further, we reduced the remaining amount of interest
expenses for an amount attributable to financing accounts receivable
and inventory, leaving nothing left to include in the calculation of
indirect selling expenses.

Comment 3: Movement Expenses and the Calculation of CEP Profit

    Petitioners argue that the Department must implement the Court of
International Trade (``CIT'') decision in U.S. Steel Group--A Unit of
USX Corp. v. United States, Slip Op. 98-96 (Ct. Int'l Trade, July 7,
1998) by excluding movement expenses from the total expenses
denominator used for the calculation of the CEP profit ratio.
Petitioners argue that the total expenses denominator, like the U.S.
expenses numerator of the CEP profit ratio, should only include
expenses pertaining to the production and sale of the subject
merchandise. Petitioners state that the calculation should not include
movement expenses, which are neither production expenses nor sales
expenses. Petitioners argue that this interpretation is consistent with
the statute (see sections 772(f)(2)(B) and (C) of the Act) and
supported by the legislative history (see SAA at 824) and the Senate
Report, S. Rep. No. 103-412 at 66 (1994). Petitioners indicate that the
very structure of the statute distinguishes between movement expenses
(see section 772(c)(2)(A)), selling expenses (see section 772(d)(1)),
and manufacturing expenses (see section 772(d)(2)).
    Petitioners cite several cases in which movement expenses are
distinguished from selling expenses. See, e.g., Notice of Final Results
of Antidumping Duty Administrative Review: Furfuryl Alcohol from the
Republic of South Africa, 62 FR 61084, 61091 (November 14, 1997).
Petitioners note that the Department, consistent with longstanding
practice, recognized these distinctions in these very reviews of steel
from Korea when defining groups of reported expenses for the sales
databases as movement or as selling expenses.
    Petitioners argue that the inclusion of movement expenses in the
total expenses denominator is unreasonable for the same reasons that
the CIT indicated in U.S. Steel Group: it conflicts with past
Department practice of distinguishing between movement expenses and
production or selling expenses; it does not provide proportionality
between the numerator and the denominator in the CEP profit ratio; and
it is unnecessary because the Department has never explained why total
actual expenses for determining total actual profit (the amount by
which the CEP profit ratio is multiplied to determine total CEP profit)
must be defined in the same manner as total expenses used in the
denominator of the CEP profit ratio.
    Finally, petitioners note that the Department deducts movement
expenses from net price in calculating the gross amount of constructed
value (``CV'') profit, but does not include movement expenses either in
total COP (by which CV profit is divided to arrive at the CV profit
ratio) or in total CV (by which the CV profit ratio is multiplied to
arrive at the CV profit amount). Accordingly, petitioners note, the
treatment of movement expenses in the derivation of the CV profit
amount is in fact entirely consistent with the treatment of movement
expenses in the calculation of CEP profit mandated by U.S. Steel Group.
    The POSCO Group argues that the single CIT case that petitioners
rely on is not binding on the Department, and is apparently wrongly
decided. The POSCO Group asserts that it is the Department's consistent
and standard policy to include movement expenses in the total U.S.
expenses denominator of the CEP profit ratio. The POSCO Group states
that the statute requires that all expenses be used in the ``total
expenses'' calculations, and that the term ``production and sale'' is
not a limiting term because no broader term could have been used. The
POSCO Group argues that the U.S. Congress would have explicitly
excluded movement expenses from the total expenses definition if it had
intended that such a radical reading be given to the term ``total
expenses.'' The POSCO Group states that, given that the subject
merchandise must be moved to the United States in order to be sold, it
makes sense to include those movement expenses in the CEP calculation.
    Union and Dongbu argue that neither the statute nor the legislative
history defines ``total expenses.'' Union and Dongbu note that the CIT,
in U.S. Steel Group, held that the language defining total expenses is
not entirely clear as to whether movement expenses should be included
in the ``total expenses'' denominator. Union and Dongbu argue that if
the Department seeks to determine what percent of ``total expenses'' is
represented by the U.S. expenses, that total expenses amount must
include all expenses, and not some subset of expenses. Union and Dongbu
argue that the plain language of section 772(f)(2)(C) of the Act
defines ``total expenses'' as ``all expenses,'' and that the statute
assigns the profit to the additional CEP expenses only. Union and
Dongbu note that petitioners do not object to other elements of cost,
such as cost of manufacture (``COM'') and pre-import selling expenses,
bearing their share of profit. Union and Dongbu state that movement
expenses, like these other elements of cost (e.g., COM and pre-import
selling expenses), should not be assigned the CEP profit. In other
words, Union and Dongbu reiterate, the statute seeks to deduct profit
from the U.S. starting price only on those expense components that it
has defined as additional CEP expenses. Union and Dongbu argue that the
fact that the ``total expenses'' denominator is not defined
specifically by the statute indicates that the prescription to include
``all expenses'' should be interpreted to mean just that. Furthermore,
Union and Dongbu argue, the plain reading of ``all expenses * * * with
respect to the production and sale'' would certainly include movement
expenses, since transport of the merchandise is part of the sale.
    Finally, Union and Dongbu state that the Department recognizes
movement expenses as a cost in the calculation of CV profit, by either
reducing the sales revenue by the amount of the freight and not
including freight in the cost, or by leaving the sales price untouched
and including freight in the COP. Union and Dongbu argue that the same
principle applies to the calculation of CEP profit: movement expenses
must

[[Page 12933]]

either be deducted from the sales prices in both markets or added to
the COP in both markets.
    Department's Position: We agree with respondents. The Department is
currently appealing the CIT's decision in U.S. Steel Group, and will
continue to follow its policy of including movement expenses in the
denominator of the CEP profit ratio in accordance with its
interpretation of section 772(f) of the Act. See Policy Bulletin 97.1,
``Calculation of Profit for Constructed Export Price Transactions''
(Sept. 4, 1997).
    Nothing in the statute or its legislative history requires the
Department to calculate a CEP profit ratio in the manner suggested by
petitioners (i.e., a ratio of total United States expenses to total
expenses). To the contrary, the statute narrowly defines ``total United
States expenses'' (the numerator) to include only commissions, direct
and indirect selling expenses, expenses assumed by the seller on behalf
of the purchaser, and the cost of further manufacturing.'' See sections
772(f)(2)(B) and (d)(1) and (2) of the Act. Because movement expenses
may only be deducted from the U.S. starting price pursuant to section
772(c)(2)(A), the statute effectively prohibits their inclusion in the
buildup of total United States expenses for purposes of the CEP profit
ratio. The statute similarly excludes other types of expenses (e.g.,
U.S. import duties) from the total United States expenses numerator
because they are deducted under section 772(c) rather than section
772(d). See section 772(c)(2)(A) of the Act.
    Unlike the definition of ``total United States expenses,'' the
statute does not further define ``total expenses'' (the denominator)
incurred in the production and sale of the merchandise. In fact, the
CIT specifically acknowledged that ``the language defining total
expenses is not entirely clear as to whether movement expenses should
be included in the total expenses denominator.'' U.S. Steel Group, Slip
Op. 98-96, at 14. However, section 772(f) of the Act requires the
Department to use ``total actual profit'' in calculating the total CEP
profit amount. Thus, to the extent that a producer/exporter and its
U.S. affiliate incur movement expenses to deliver the merchandise to
customers, these expenses must be included in total expenses in order
to calculate actual profit. Indeed, this interpretation is based on the
axiom that total profit equals total revenue minus total expenses, and
resolves any confusion surrounding the definition of total expenses in
favor of the inclusion of movement expenses. Accordingly, petitioners'
argument that the Department distinguishes between movement and selling
expenses in other aspects of the antidumping analysis is not
persuasive. In short, all movement expenses incurred by the seller must
be included in total expenses in order to calculate total profit
accurately.
    Petitioners' argument that including movement expenses in the
denominator of the CEP profit ratio is unreasonable because it does not
provide ``proportionality'' has no merit. The ratio is by definition
the proportion of total expenses represented by total U.S. expenses, a
subset of total expenses. In fact, the Department has properly
calculated this proportion.
    Further, we do not believe it is reasonable, as petitioners
suggest, to interpret ``total expenses'' one way in calculating a
respondent's actual profit, and another way in summing expenses for the
denominator of the CEP profit ratio. Rather, the more reasonable
approach is a unified reading of the CEP profit provisions in which the
meaning of ``total expenses'' does not vary. Finally, petitioners'
comparison of the Department's CV profit methodology with their
proposed interpretation of the CEP profit calculation is unavailing.
These calculations are performed under entirely different statutory
provisions that involve different definitions. The essential question
here is how reasonably to interpret the definition of total expenses
for purposes of the CEP profit calculation. Because the statutory goal
of accurately calculating total profit and allocating a portion of the
total profit to CEP sales is served by the Department's current CEP
profit methodology, we have continued to apply the methodology
established in Policy Bulletin 97.1.

Comment 4: U.S. Date of Sale

    The Department noted in its preliminary results that while it may
use as date of sale a date other than the invoice date if it is
satisfied that a different date better reflects the date on which the
exporter or producer establishes the material terms of sale, it
preliminarily determined that there is no reason to depart from the
Department's normal practice of using the invoice date. Accordingly,
the Department used as date of U.S. sale the reported date of invoice
from the U.S. sales affiliate to the first unaffiliated U.S. customer,
and characterized this as typical for CEP sales. See Korean Flat-Rolled
4th Reviews Prelim., 63 FR at 48176.
    Petitioners argue that the Department should determine that the
contract date was the date of sale because the material terms of sale
became final at that date. Petitioners also argue that the Department
was incorrect in indicating that it has a distinct CEP date of sale
methodology.
    Petitioners state that the Department should not accept the
separate date-of-sale methodology for EP and CEP sales urged by Union
and Dongbu in its earlier responses (which was to adopt date of invoice
to the U.S. affiliate as date of sale if the sale was classified as an
EP transaction, and to adopt date of invoice by the U.S. affiliate to
the unaffiliated U.S. customer if the sale was classified as a CEP
transaction). Petitioners note that, in the third administrative
reviews of these antidumping duty orders, the Department indicated that
changing the classification of U.S. sales from EP to CEP transactions
had no effect on the date of sale, and that there is no EP date-of-sale
methodology, as claimed by respondents. See Korean Flat-Rolled 3rd
Reviews Final, 63 FR at 13174.
    Petitioners note that CEP sales can be made either before or after
the date of importation (see section 772(b) of the Act). As such,
petitioners state, there is no reason to assume that the CEP sale was
made after importation. Petitioners also state that assuming that the
CEP sale was made after importation would violate the rule that the
date of sale cannot occur after the date of shipment to the ultimate
customer. Petitioners assert that the Department's general preference
for using the invoice date as the date of sale is predicated on the
assumption that the invoice date falls close to the date of shipment.
In fact, in the third reviews of these orders, the Department
determined that the shipment date relevant in this regard was the date
of shipment from the factory in Korea, and not shipment from the U.S.
port.
    Petitioners state that the Department recently exercised its
discretion to use a date other than invoice date as the date of sale in
a case where the respondents' home market and U.S. sales processes
appear to have been the same as those of Union, Dongbu, and the POSCO
Group in these reviews. With regard to the appropriate date of sale for
these sale processes, the Department stated:

``invoice'' dates in both markets, while the same in name, are
materially quite different for purposes of determining price
discrimination simply because the sales processes for the two
markets are quite different. If we were to use invoice date as the
date of sale for both markets, we would effectively be comparing
home market sales in any given month to U.S. sales whose

[[Page 12934]]

material terms were set months earlier--an inappropriate comparison
for purposes of measuring price discrimination in a market with less
than very inelastic demand.

See Circular Welded Non-Alloy Steel Pipe from the Republic of Korea;
Final Results of Antidumping Duty Administrative Review, 63 FR 32833,
32835-6 (June 16, 1998) (``Pipe from Korea''). As in that case,
petitioners argue, the Department should determine that for the POSCO
Group, Dongbu, and Union the only dates which are substantively
equivalent for purposes of measuring price discrimination are the
invoice date in the home market and the contract date in the U.S.
market. All three respondents reported that their U.S. sales are made
to order, and that once the order is confirmed, the U.S. affiliate
issues a sales contract or order confirmation setting forth the
essential terms of sale. The merchandise is then produced to order and
shipped to the U.S. customer. For all three respondents, there are
typically delays of several months between the contract date and the
date of invoice to the unaffiliated U.S. customer. The sample sales
documents in the responses indicate that there were no material changes
to the terms of sale after issuance of the sales contract. In the home
market, however, as with the respondent in Pipe from Korea, the sales
of Union and Dongbu are from inventory, and once the order is received
the merchandise is shipped and the invoice issued almost immediately.
    Petitioners argue that because the respondents did not report the
contract date for their U.S. sales, the Department should resort to
facts available to estimate a contract date. Petitioners state that for
all three respondents the reported date of shipment from Korea is
generally the closest reported date to the contract date.
    The POSCO Group notes that the Department used date of invoice as
date of sale in the final results of the third reviews of these orders,
that petitioners stated explicitly on the record of the fourth reviews
that they were not questioning POSCO's date of sale methodology in the
fourth reviews, and at no time in these fourth reviews did the
Department or petitioners suggest that POSCO should report the
contract/order confirmation as date of sale. The POSCO Group argues
that use of invoice date as date of sale is consistent with Department
regulations. The POSCO Group argues that the Department's proposed
regulations (see Antidumping Duties; Countervailing Duties: Notice of
Proposed Rulemaking and Request for Public Comments, 61 FR 7308, 7330-1
(February 27, 1996) (``Proposed Regulations'')) and the Department's
original questionnaire in these fourth reviews (at page 4 of Appendix
I) indicate there are generally two exceptions to the Department's
preference for invoice date as date of sale: (1) if a sale is made
pursuant to a long-term contract; and (2) if an exceptionally long
period of time passes between the invoice date and shipment date. The
POSCO Group notes that the Department applies a different date of sale
in such cases only when the different date of sale ``better reflects
the date on which the exporter or producer establishes the material
terms of sale.'' See 19 CFR 351.401(i).
    The POSCO Group also argues that use of invoice date as date of
sale is consistent with Department practice. In addition to the
Department's use of invoice date as date of sale in the third reviews
of these orders, the Department also used invoice date in other recent
cases where various petitioners argued that agreement dates were more
appropriate: Brass Sheet and Strip from the Netherlands: Notice of
Preliminary Results of Antidumping Duty Administrative Review, 63 FR
25821, 25822 (May 11, 1998) (``Brass from the Netherlands''); Certain
Welded Carbon Steel Pipes and Tubes from Thailand: Final Results of
Antidumping Duty Administrative Review, 63 FR 55578, 55588 (October 16,
1998) (``Pipe from Thailand''); Certain Steel Wire Rope from Mexico;
Final Results of Antidumping Duty Administrative Review, 63 FR 46753,
46755 (September 2, 1998) (``Wire Rope from Mexico''); Notice of
Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Fresh Atlantic Salmon from Chile,
63 FR 2664, 2667 (January 16, 1998) (``Salmon from Chile''); and
Certain Stainless Steel Wire Rod from India; Final Results of New
Shipper Antidumping Duty Administrative Review, 62 FR 38976, 38978-89
(July 21, 1997) (``Wire Rod from India'').
    The POSCO Group argues that the Department cannot use facts
available against a respondent where the Department never requested the
information, and that it would be unfair to POSCO to seek a change in
the date of sale for the first time as a result of arguments in
petitioners' brief because there is not adequate time for POSCO to
provide information in order for the Department to fully analyze this
issue. For these reasons alone, the POSCO Group argues, petitioners'
arguments on date of sale should be rejected.
    The POSCO Group argues that petitioners' apparent proposal to use
two different dates of sale for the two markets would directly
contradict the Department's finding in a recent case, in which the
Department rejected petitioners' argument for use of confirmation date
as U.S. date of sale because to do so would have established different
bases for date of sale in the U.S. and home markets, and because the
terms of sale in the United States could change after the order
confirmation date. See Small Diameter Circular Seamless Carbon and
Alloy Steel Standard, Line and Pressure Pipe from Germany: Final
Results of Antidumping Duty Administrative Review, 63 FR 13217, 13226
(March 18, 1998) (``Small Pipe from Germany''). For one of the U.S.
sales for which the POSCO Group provided sales documentation, the POSCO
Group notes that the quantity ultimately shipped to the customer varied
enough from the originally ordered quantity to reflect a change in the
terms of sale. This distinguishes these reviews from the sole precedent
cited by petitioners, Pipe from Korea.
    Finally, the POSCO Group agrees with petitioners that there is no
CEP date of sale methodology, but notes there is no evidence that the
Department used any such methodology in its preliminary results.
Rather, the POSCO Group argues, the Department simply followed its
normal practice of using invoice date as date of sale, a practice
developed to foster predictability of outcomes and ease in reporting
and verifying information.
    In their rebuttal briefs, Union and Dongbu state that in the third
reviews of these orders the Department ``used the date of invoice to
the first unaffiliated purchaser in the United States as the date of
sale,'' and that in the preliminary results of these fourth reviews the
Department again decided to use the date of invoice from the U.S. sales
affiliate to the first unaffiliated U.S. customer. Union and Dongbu
argue that the preamble to the Department's final regulations note that
this date-of-sale methodology promotes predictability of outcomes, and
that invoice date is the best indicator of the date of sale because the
terms are fixed when the seller demands payment (i.e., when the sale is
invoiced). Union and Dongbu argue that the fact that sales terms are
rarely altered after the initial agreement is quite distinct from a
finding that they are ``finally established'' at that date. Whether
they are rarely or frequently changed does not diminish the fact that
they could, and sometimes do, change, which means that they are not
finally established as of the date of contract. Furthermore, Union and
Dongbu argue,

[[Page 12935]]

it is burdensome to both respondents and the Department to report and
verify contract dates.
    Union and Dongbu argue that if the Department follows the precedent
of Pipe from Korea because the sales processes in that case were
comparable to those in these reviews, then it should also classify the
U.S. sales of the three respondents in these reviews as EP sales, given
that the U.S. sales of the respondent in the pipe case were classified
as EP sales. Furthermore, Union and Dongbu note that the Department
only requested that Union provide contract dates in its sales
databases. Union notes that use of these dates would contradict the
date of sale methodology used in the final results of the prior review,
where the same fact pattern existed. Dongbu notes that facts available
cannot be used for its date of sale because the Department did not ask
it to report contract dates.
    Finally, Union and Dongbu argue that the Department did not employ
a new CEP date of sale methodology in its preliminary results but,
rather, simply noted that it was typical for the date of sale of CEP
sales to be the date of the invoice to the unaffiliated U.S. customers.
    Department's Position: While we agree with respondents that it is
the Department's normal practice to use invoice date as date of sale,
we disagree with the respondents' assertions regarding the
circumstances in which the Department is to resort to use of invoice
date as date of sale. Long-term contracts and exceptionally long
periods of time between invoice date and shipment date are examples of
situations where reliance upon invoice date as date of sale would be
inappropriate as date of sale, regardless of convenience. In most of
the cases cited by the POSCO Group (Brass from the Netherlands, 63 FR
at 25822; Pipes from Thailand, 63 FR at 55587-88; Wire Rope from
Mexico, 63 FR at 46755; and Wire Rod from India, 62 FR at 38979), the
Department indicated that it was using invoice date as date of sale
because it had no reason to believe that the terms of sale were
established on some other date. In Salmon from Chile, no clear reason
for use of date of invoice is indicated, but it is evident that use of
the date of invoice was in accordance with policy, and no party
suggested otherwise.
    Nevertheless, even if documentation from a few sample U.S. sales
suggests that essential terms of sale did not change after initial
contract date, this does not demonstrate that essential terms of sale
were not subject to change after initial contract date, or that
essential terms of sale did not in fact change after initial contract
date for significant numbers of sales. The Department has no basis to
conclude that essential terms of sale were set and not subject to
change at the initial contract date. Consequently, we do not agree with
petitioners' assertion that the appropriate U.S. date of sale, for
these reviews, is contract date. While we agree with petitioners that
the Department has no CEP-specific date-of-sale methodology, and that
the determination that the U.S. sales were CEP sales does not preclude
a date of sale prior to invoice date to the unaffiliated U.S. customer,
we have determined that it would not be appropriate to consider
contract date as U.S. date of sale for the reasons noted above.
    However, it is clear that for U.S. sales, unlike home market sales,
a significant amount of time may elapse between shipment from Korea and
invoicing of the unaffiliated customer. There is also nothing on the
record to suggest that terms of sale were subject to change after the
merchandise was shipped from Korea. Neither petitioners nor respondents
have asserted that the essential facts relating to date of sale have
changed between the third and fourth administrative reviews of these
orders, and respondents in fact refer to the appropriateness of the
Department's U.S. date-of-sale determination in the third reviews in
their arguments pertaining to the fourth reviews. The Department stated
in its final results for the third reviews that ``we used the date of
the invoice to the first unaffiliated purchaser in the United States as
the date of sale, except for transactions where the date of invoice
occurred after the date of shipment, in which case we used the date of
shipment as the date of sale'' (see Korean Flat-Rolled 3rd Reviews
Final, 63 FR at 13172-73). This methodology was consistent with the
Department's general use of invoice date as date of sale, and its
recognition that both the setting of essential terms of sale and the
amount of time between shipment and invoicing are also relevant. There
is no evidence on the record that terms of sale were subject to change
after the invoicing of the U.S. customers by the U.S. affiliates, but
this date in certain instances can be considerably later than the
shipment date from Korea. Therefore, in these final results we have
followed the Department's methodology from the final results of the
third reviews, and have based date of sale on invoice date from the
U.S. affiliate, unless that date was subsequent to the date of shipment
from Korea, in which case that shipment date is the date of sale.
Consistent with this approach, we have calculated imputed credit for
U.S. sales based on the length of time between shipment from Korea and
payment by the unaffiliated U.S. customer.

Comment 5: Exporter Price (``EP'') vs. Constructed Export Price
(``CEP'')

    The POSCO Group argues that the Department erred in categorizing
its U.S. sales as CEP sales. The POSCO Group argues that such
classification is unsupported by the record evidence and contrary to
consistent Department practice. The POSCO Group indicates that the
functions of the U.S. affiliates were limited to those of processors of
sales-related documentation and communications links with the
unaffiliated U.S. buyers, and that their role was only ancillary in the
sales process. The POSCO Group argues that POSCO and POCOS approved or
disapproved primary terms of sale for U.S. customers, and that the U.S.
affiliates did not set prices with those unaffiliated U.S. customers.
The POSCO Group argues that the Department's findings in the second
reviews of these orders, in which the Department treated its U.S. sales
as EP sales, are consistent with this description of the limited role
of the U.S. affiliates.
    The POSCO Group states that its U.S. sales meet the three-part
criteria considered by the Department in classifying transactions as EP
sales: (1) the merchandise was shipped directly from the manufacturer
to the unaffiliated U.S. customer; (2) this was the customary
commercial channel of trade between the parties involved; and (3) the
U.S. sales affiliates were mere processors of sales related
documentation and communications links with unaffiliated customers in
the United States. The POSCO Group argues that since they have met the
Department's three-part test, there is a long line of Department and
court precedent classifying these transactions as EP sales and the
Department should reclassify POSCO's and POCOS's U.S. sales as EP
sales. The POSCO Group cites Independent Radionic Workers of America v.
United States, 19 CIT 375 (1995); Zenith Electronics Corp v. United
States, 18 CIT 870, 873-75 (1994); Industrial Phosphoric Acid from
Belgium, 63 FR 25830, 25831 (May 11, 1998); and Circular Welded Non-
Alloy Steel Pipe from Korea, 62 FR 55574, 55579 (October 27, 1997).
    While the POSCO Group acknowledges that the Department found the
U.S. sales of its affiliates to be CEP sales in the final results of
the third

[[Page 12936]]

reviews of these orders, the POSCO Group contends that finding was
incorrect. Furthermore, the POSCO Group states that the fourth reviews
are distinguished from the third reviews in that sample documentation
for a fourth review period POSCO U.S. sale indicates that the customer
contacted POSCO directly, and that POSCO itself rejected price terms.
The POSCO Group also notes that sample documentation for a fourth
review period POCOS U.S. sale indicates that the sale did not proceed
until POCOS's confirmation of the customer's inquiry. The POSCO Group
also argues that there is no evidence in the fourth reviews indicating
that the U.S. affiliates had any input on the price charged to U.S.
customers, which the Department incorrectly asserted did exist in the
record of the third reviews (see Korean Flat-Rolled 3rd Reviews Final,
63 FR at 13183). The POSCO Group also notes that, unlike in the third
reviews, in the fourth reviews it provided all of the direct and
indirect selling expenses incurred by the U.S. sales affiliates, and
the POSCO Group argues that these expenses clearly show that the levels
of SG&A attributable to sales of subject merchandise through those
affiliates are an insignificant portion of total SG&A of those
affiliates.
    The POSCO Group notes that the Department treated as EP
transactions sales made by POSAM in Notice of Final Determination of
Sales at Less than Fair Value: Stainless Steel Wire Rod from Korea, 63
FR 40404 (July 29, 1998) (``Wire Rod from Korea''). In that case, the
Department found: that ``POSAM had no substantial involvement in the
sales process, such as sales negotiation, providing technical support,
or handling warranty claims, with respect to subject merchandise;''
that ``POSAM does not negotiate sales terms with U.S. customers, but
rather relays pricing information'' between the Korean producer and the
U.S. customer; that for each sale examined at verification the Korean
producer ``ultimately accepted or rejected the sales price;'' and
evidence of indirect contact between the Korean producer and the U.S.
customer (see id. at 40419). The Department found that the functions
performed by POSAM, ``document processing and other ancillary
activities related to the sales of subject merchandise to the U.S.
customer (e.g., clearing customs, arranging for U.S. transportation,
issuing invoices, and collecting payment),'' were consistent with a
classification of sales as EP sales, and that ``POSAM had no
substantial involvement in the sales process.'' Id. The POSCO Group
argues that this analysis is consistent with that for the U.S.
affiliates in these reviews, given that they did not negotiate prices
but merely relayed pricing information, and that they did not provide
technical support, handle warranty claims, or accept or reject the
price for all sales of subject merchandise.
    The POSCO Group also notes that the Department treated as EP
transactions sales made under similar circumstances in Certain Welded
Stainless Steel Pipe from Taiwan; Final Results of Administrative
Review, 63 FR 38382 (July 16, 1998) (``Pipe from Taiwan''). In that
case, the POSCO Group notes, the U.S. affiliate did not play a major
role in the sales negotiation process or the selling activities, was
not responsible for setting the prices of U.S. sales, and did not
control the markup it earned on the resale of the goods purchased in
back-to-back deals for the foreign parent (id. at 38385). The
Department found that the functions performed by the U.S. affiliate in
that case, ``issuing invoices, collecting payment, paying antidumping
duty deposits, and taking title to the subject merchandise after entry
into the United States' (id. at 38386) were consistent with the
classification of the sales as EP sales, and these functions were the
same as those performed by the U.S. affiliates in these fourth reviews.
    Finally, the POSCO Group cites several cases in which it claims
that the U.S. affiliates were more involved in the sales process than
the affiliates in these fourth reviews, but for which the U.S. sales
were classified as EP sales. Some of the additional functions performed
by the affiliates in those cases included limited advertising,
processing certain warranty claims, warehousing, and provision of
technical services.
    Union argues that the facts surrounding the activities undertaken
by Union's U.S. affiliate have not changed from the third reviews and
are not in dispute. Union attached to its brief pages from the third
review verification reports as evidence of the limited role played by
its U.S. affiliate, noting that verifications were not conducted for
the fourth reviews. Union disagrees with the Department's decision in
the final results of the third reviews to treat its U.S. sales as CEP
sales, and argues that the Department must reclassify its fourth review
U.S. sales as EP sales.
    Dongbu argues that the facts surrounding the activities undertaken
by its U.S. affiliate have not changed from the third reviews. Dongbu
attached to its brief pages from the third review verification reports
as evidence of the limited role played by its U.S. affiliate. Dongbu
argues that should the CIT agree that the Department erred in its
classification of Dongbu's sales in the third review as CEP sales, the
Department will likewise have to reclassify its fourth review U.S.
sales as EP sales.
    Petitioners note that Union and Dongbu present no new argument why
their U.S. sales should be treated as EP sales rather than CEP sales,
and that they accept that the nature of the transactions in this regard
was the same as in the third reviews, in which the Department found
that the U.S. sales were in fact CEP sales.
    Regarding the POSCO Group, petitioners note that the Department
found its U.S. sales in the third reviews to have been CEP sales, and
that the POSCO Group, like Union and Dongbu, had stated affirmatively
on the record of the fourth reviews that its U.S. affiliates performed
the same functions during the fourth review period as they did during
the third review period. Furthermore, the Department had conceded as
erroneous its determination in the second reviews that the POSCO
Group's U.S. sales were EP sales rather than CEP sales in the appeal
process before the CIT. Petitioners note that the Department even prior
to its preliminary determinations in these fourth reviews, in its April
10, 1998, supplemental questionnaire, had instructed the POSCO Group to
report its U.S. sales as CEP transactions.
    Petitioners argue that the POSCO Group misstates the Department's
CEP test when it implies that its U.S. sales are EP because its
affiliates do not independently negotiate or approve sales to
unaffiliated customers. Rather, the Department analyzes whether or not
the role played by the U.S. affiliates was ``ancillary'' in the sales
process. As long as the U.S. affiliate plays an active role in bringing
about the U.S. sale, that sale will be classified as a CEP transaction
even if the foreign parent does play some role in the sales process.
Petitioners note that even if POSCO had some contact with a U.S.
customer in a particular sale, which they assert is not established by
the record, it does not demonstrate that POSAM was not involved in
negotiating price terms for the underlying sale, or that POSAM was not
involved in the sales process in more than an ``ancillary'' way more
generally for U.S. sales. Petitioners note that the POSCO Group does
not even argue that POCOS had direct contact with any of its customers.
    Petitioners distinguish between the sales processes in these
reviews and those in the other cases cited by the

[[Page 12937]]

POSCO Group. Petitioners note that in Wire Rod from Korea, 63 FR at
40418, the Department indicated that the Korean exporter had direct and
substantive contact with U.S. customers (export strategy meetings
wherein substantive terms of sale, payment and delivery terms were
discussed and from which the exporter established its quarterly price
lists). Petitioners note that in Pipe from Taiwan, 63 FR at 38385-6,
the Department indicated that the respondent's customers had frequent
direct contact with the producer in Taiwan, and that the producer
itself responded directly to customers' price inquiries. Petitioners
state that these aspects of the aforementioned two cases were not
present in the reviews at issue here.
    Petitioners argue that the level of general expenses incurred for
subject vs. non-subject merchandise is not relevant for determining the
importance of the U.S. affiliates in the sales process for subject
merchandise and, given that the POSCO Group reported indirect selling
expenses by dividing all such expenses by total sales, the percentage
of indirect selling expenses borne by all of the affiliates' U.S.
sales, subject or non-subject, will be the same. Furthermore, the
functions performed by the U.S. sales affiliates for non-subject
merchandise sales are not relevant in this context, either. Rather, the
more appropriate comparison would be of indirect selling expenses
incurred by POSCO and POCOS vs. those incurred by the U.S. affiliates
for the same sales.
    Department's Position: We agree with petitioners that the U.S.
sales of Dongbu, the POSCO Group, and Union during the POR should be
classified as CEP, rather than EP, transactions.
    As noted by petitioners and all three respondents, the essential
facts surrounding the activities of respondents' U.S. sales affiliates
did not change from the third to the fourth administrative review
periods. In the third reviews, based in part upon extensive
verifications of the U.S. sales affiliates of Dongbu, POCOS, POSCO, and
Union, the Department determined that U.S. sales for these companies
were properly classified as CEP, rather than EP, transactions.
Specifically, the Department concluded:

    In these cases, the record clearly establishes that the
respondents' affiliates in the United States were in most instances
the parties first contacted by unaffiliated U.S. customers desiring
to purchase the subject merchandise and also that the sales
affiliates in question signed the sales contracts and engaged in
other sales support functions. These facts indicate that the subject
merchandise is first sold in the United States by or for the account
of the producer or exporter, or by the affiliated seller, and that
the sales in question are therefore CEP transactions.

Korean Flat-Rolled 3rd Reviews Final, 63 FR at 13172.
    In continuing to find that CEP classification is appropriate, and
as petitioners note, U.S. sales affiliates need not be determined to
have independently set U.S. prices and other terms of sale for those
affiliates' involvement to be deemed more than ancillary. Rather, the
Department must examine the totality of the circumstances surrounding
the U.S. sales process, and assess whether the reviewed sales were
effectively made ``in the United States'' for purposes of section
772(b) of the Act. Accordingly, in this analysis, neither the magnitude
of indirect selling expenses incurred, nor the performance of a
specific sales function--such as actual negotiation--is controlling. We
stress that the Department's approach does not constitute a departure
from its practice, or abandonment of the three-part sales
classification test. Rather, this approach gives effect to the third
prong of the test--whether the U.S. affiliate is more than a mere
processor of sales-related documentation and communication link.
    Turning to the evidence in this case, the U.S. affiliates: (1) Take
title to the subject merchandise; (2) invoice and receive payment from
their unaffiliated U.S. customers; (3) arrange for other aspects of the
transactions, including Customs clearance, brokerage, and freight; and
(4) serve as a source of information about the producer/exporters'
products.
    More specifically, the POSCO Group notes that its U.S. sales
affiliates assist in the negotiations between the manufacturer and the
unaffiliated U.S. customers, and U.S. customers contact POSAM to
initiate discussions concerning the base price and total quantity.
POSCO and POCOS provide the U.S. affiliates quarterly base prices for
U.S. sales. The POSCO Group's U.S. sales affiliates also arrange for
various functions related to transporting the merchandise to the
unaffiliated U.S. customer. While those U.S. sales affiliates may not
incur expenses for the publication of product brochures/catalogues,
those items are made available to U.S. customers at the offices of the
U.S. affiliates. Additionally, POSAM performs certain unspecified
procurement services in the United States for certain specialized
purchases. As we stated in the final results of the previous reviews,
``it is POSCO's and POCOS's roles that may be ancillary to the sales
process . . ., and that in any case the record does not demonstrate
that the U.S. affiliates' involvement in making the sales were
incidental or ancillary.'' Id. at 13183.
    With respect to Dongbu, the organizational structure of its U.S.
affiliate, Dongbu USA, indicates that Dongbu USA staff are involved
with selling subject merchandise. Dongbu USA issues sales contracts to
the U.S. customers. Dongbu USA also processes shipment-related
documentation and arranges for the U.S. broker to enter the
merchandise, thereby incurring costs associated with these functions.
It is also solely responsible for payment of antidumping and
countervailing duty deposits. While Dongbu Steel may arrange for
publication of product brochures and other company literature, these
items are available at Dongbu USA. As we stated in the final results of
the previous reviews, ``the totality of the evidence regarding Dongbu's
sales process demonstrates that {Dongbu USA's} role is more than
ancillary to the sales process.'' Id. at 13177.
    With respect to Union, its U.S. affiliate, Dongkuk International
(``DKA''), arranges with commissioned agents in the United States to
refer customers to DKA. The initial discussion regarding customer
orders is generally conducted over the phone between DKA and the
customers. DKA advises the U.S. customers about Union prices based on
information DKA receives from Union. Union employees at DKA may also
offer comments to Union in Korea about the circumstances relevant to a
particular sale. DKA issues sales contracts to the U.S. customers. DKA
also arranges for banking services that relate to the U.S. sales
process. Furthermore, DKA processes warranty claims, arranges
warehousing and transportation at the customer's request, and prepares
for the release of the merchandise to the customer when it arrives at
the U.S. port. As we stated in the final results of the previous
reviews, ``{t}he totality of the evidence regarding Union's sales
process demonstrates it is Union's role that is ancillary to the sales
process, and not that of {DKA}.'' Id. at 13190.
    Importantly, no record evidence shows that the Korean
manufacturers/exporters in this case were involved in the U.S. sales
processes to the extent the respondents were in cases in which we have
found EP treatment appropriate. See, e.g., Pipe from Taiwan, 63 FR at
38386 (unaffiliated U.S. customers maintained direct contact with the
foreign exporter or producer); Wire Rod from Korea, 63 FR at 40418
(producer held an export strategy meeting with its

[[Page 12938]]

U.S. customers wherein substantive terms of sale, payment, and delivery
terms were discussed, and during which the producer established its
pricing policy based on quarterly price lists); and Korean Flat-Rolled
3rd Reviews Final, 63 FR at 13183 (POSCO had substantive direct
involvement in the sales to one U.S. customer, while POSAM's role was
very limited). Rather, the only inference supported by the record is
that, in virtually all instances, the producer/exporters' export
departments merely approved sales offers forwarded by their U.S.
affiliates. That the Korean export departments theoretically could have
intervened to a greater extent does not alter the conclusion that,
during the POR, a substantial portion of the sales process occurred in
the United States. Therefore, U.S. sales during the fourth POR are
properly treated as CEP sales.

Comment 6: U.S. Sales Universe

    Dongbu contends that the Department incorrectly excluded certain
U.S. sales made outside the POR, but entered during the POR, from its
margin calculation. Dongbu argues that the Department requested all of
Dongbu's U.S. sales entered during the POR and thus should include all
reported sales in its final margin calculation. Dongbu argues that the
CIT has upheld the practice of reviewing and assessing dumping duties
on all entries of the merchandise made during the POR, regardless of
when the entered merchandise was sold, in Helmerich & Payne, Inc. v.
United States, Slip Op. 98-134 (Ct. Int'l Trade Sept. 17, 1998). Dongbu
notes that while the Department will only use sales within the POR to
calculate dumping duties in CEP situations where sales cannot be tied
to entries, this situation does not exist in this case as Dongbu can
tie its U.S. sales to entries. Dongbu also argues that consistency in
the Department's reporting requirements will avoid confusion in the
fifth administrative review.
    Petitioners state that they take no position on the issue. However,
petitioners argue that if the Department decides to include all of
Dongbu's U.S. entries for the POR, the Department must do the same for
the POSCO Group and Union as well. Petitioners assert that while the
POSCO Group has reported the necessary information for such an
analysis, Union has not. Petitioners note that Union has not provided
contemporaneous home market sales for most of the U.S. sales of
merchandise that entered during the POR which had a date of sale after
the POR. In such an instance, the Department would be required to use
facts available for all of Union's unmatched U.S. sales. Petitioners
argue that if the Department decides to review all entries during the
POR, then the Department should resort to adverse facts available for
Union and apply the 10.74 percent rate assigned to Union in the first
administrative review. Certain Corrosion-Resistant Carbon Steel Flat
Products from Korea, 61 FR 18457, 18568 (April 26, 1996).
    Department's Position: We agree with Dongbu that we should base our
analysis on entries during the POR, although we note that the CIT
decision in Helmerich & Payne does not mandate such a methodology.
Rather, that decision stands for the proposition that the Department
has discretion in EP situations to review and assess duties on entries
within the POR, regardless when the corresponding sales occurred.
Helmerich & Payne, Slip Op. 98-134, at 18-21. We also agree with
petitioners that we should apply this methodology to the analysis for
all respondents in these reviews. Where it is possible, and not
excessively burdensome to respondents, to tie sales made prior to entry
to entries, as in these reviews, the Department generally prefers to
conduct its reviews based on POR entries, even if this means reviewing
some sales made outside the POR.
    Furthermore, we reject petitioners' contention that facts available
must be applied for Union in this context. Given the date-of-sale
methodology outlined earlier in this notice, there are no U.S. sales
for which Union has failed to report contemporaneous home market sales.

Comment 7: Overruns

    Petitioners argue that the Department should exclude certain low-
priced home market sales of Dongbu in the final results as overruns.
Petitioners argue that although Dongbu did not identify its overrun
sales, it essentially admitted that it has such sales in correspondence
to the Department in a letter from Dongbu's attorneys dated March 9,
1998. Petitioners argue that while Dongbu had notice that the
Department requires overrun information, Dongbu intentionally failed to
provide overrun information by eliminating its ability to identify
overruns when installing its new computer system during the prior POR.
In support of this argument, petitioners cite to Dongbu's May 18, 1998
submission, in which Dongbu states that it eliminated its overrun
indicator because it felt the figure was not commercially significant
and had no purpose.
    Petitioners argue that the Department is required by the statute to
rely on facts available when necessary or requested information is
missing from the record. Petitioners argue that because Dongbu failed
to report its overrun sales, which are necessary for proper price
comparisons and analysis, the Department should rely on the facts
available to calculate a figure for Dongbu's overruns. Petitioners note
that the Department has previously used partial facts available where
Dongbu has failed to report the necessary data. Petitioners reference
the third administrative review where, when Dongbu reported the bill of
lading date instead of the required date of shipment from the factory,
the Department used a date closer to the date of shipment from the
factory, rather than the date offered by Dongbu. See Korean Flat-Rolled
3rd Reviews Final, 63 FR at 13178. Petitioners suggest that the
Department categorize a percentage of Dongbu's lowest-priced home
market sales as overruns, and base that percentage upon the percentage
of POSCO's total sales that were classified as overruns, and exclude
those newly classified overrun sales as outside the ordinary course of
trade. Petitioners note that the Department excluded other sales
because they ``resemble sales excluded by the Department in prior
reviews as overruns'' (see the August 31, 1998 Memorandum from Lisette
Lach to the File (``Dongbu Prelim. Analysis Memo'') and Certain Cold-
Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea:
Final Results of Antidumping Duty Administrative Reviews, 62 FR 18404,
18441 (April 15, 1997) (``Korean Flat-Rolled 2nd Reviews Final'').
    In rebuttal, Dongbu argues that the Department correctly rejected
petitioners' request to exclude certain Dongbu sales as overruns.
Dongbu argues that the statement from the Department's preliminary
determination relied upon by petitioners, stating that the Department
had in past reviews excluded overruns for Dongbu, is factually
incorrect. Dongbu asserts that the Department has never excluded
Dongbu's prime grade overruns as outside Dongbu's ordinary course of
trade. Dongbu argues that Petitioners have no legal support for
suggesting that the Department similarly exclude overrun sales for
Dongbu as it has excluded overrun sales for POSCO and Union. Dongbu
argues that the Department's ordinary course of trade analysis focuses
on the particular company. See Gray Portland Cement and Clinker from
Mexico: Final Results

[[Page 12939]]

of Antidumping Duty Administrative Review, 63 FR 12764, 12772 (March
16, 1998) (``Cement from Mexico--March 1998''). Dongbu also argues that
determinations on overrun sales for other companies have no bearing on
the determination for Dongbu. See 19 CFR 351.102 (definition of
ordinary course of trade).
    Dongbu asserts that it produces almost exclusively for inventory in
the home market, and, therefore, the only possible overruns arise from
made-to-order production for export. Dongbu argues its product coding
system has never had an overrun category. Dongbu explains that its
previous product coding included a digit identifying the market for
which unpainted galvanized products were produced, making it possible
to identify which ones were produced for export that were sold in the
home market. However, Dongbu argues that identification of overrun
sales of these products had no bearing on the sales, because it was the
quality and condition of the merchandise that was significant with
respect to the conditions under which they were sold. Dongbu claims
that the Department acknowledged this by never excluding Dongbu's sales
of prime grade unpainted galvanized product overruns. In 1995, Dongbu
eliminated the digit because it found the digit served no useful
commercial purpose and the quantities involved did not justify the cost
of tracking the information. Dongbu argues that petitioners' claim that
Dongbu deliberately eliminated the digit to avoid having to report
overrun sales is unsupported, as the Department has always determined
that Dongbu's prime grade sales of overrun material were within
Dongbu's ordinary course of trade.
    Dongbu points out that even without an overrun category, the
information needed to code home market sales of export specification
material is on the record. Dongbu explains that if the second digit of
the code is other than K or D, the sale of unpainted galvanized product
is of export specification material. Dongbu states that there is no
overlap between such sales and the ones petitioners request to be
excluded. Dongbu also argues it has shown such sales are within the
ordinary course of trade by demonstrating that: (1) with few exceptions
the same customers purchased sales of export and domestic specification
material; (2) the average quantity of the sale of export material was
the same or higher than the quantity of domestic specification
material; and (3) there is no definitive trend in the prices and profit
ratios for domestic specification versus export specification material.
See Dongbu's Supplemental Response, B-2 and B-3, and Attachment B-34
(May 18, 1998). Dongbu argues that this three-step analysis must be
followed if the Department intends to exclude Dongbu's sales of overrun
material. Laclede Steel Co. v. United States, 18 CIT 965 (Ct. Int'l
Trade 1994).
    Department's Position: We have determined that none of Dongbu's
sales should be classified as overruns for purposes of the Department's
analysis in these reviews. We find no basis for excluding a block of
home market sales from the analysis simply because they are the lowest
priced sales, and petitioners have not presented sufficient reasons for
determining any of the sales in question were overruns, and therefore
excludable as outside the ordinary course of trade. In its May 18, 1998
submission, Dongbu indicated that it did not have a separate
classification for overrun material, and that the eliminated indicator
presumably recorded whether or not the product was originally produced
for the export market. Even if the information that Dongbu eliminated
from its coding system might have enabled an educated guess as to what
home market sales were of overruns, which has not been established by
the record, there is no evidence on the record that Dongbu changed its
coding system to avoid having to report overruns.

Comment 8: Certain Sales Outside the Ordinary Course of Trade

    Petitioners argue that if the Department does not exclude Dongbu's
low-priced sales as overruns, it should exclude what petitioners have
identified as Dongbu's aberationally priced sales. Petitioners state
that in its preliminary results, the Department excluded certain Dongbu
home market sales as outside the ordinary course of trade, based on two
factors: (1) the sales were made at aberrational prices; and (2) Dongbu
characterized the sales as insignificant quantities and related to slow
moving merchandise. See Korean Flat-Rolled 4th Reviews Prelim, 63 FR at
48174-75. Based on these two factors, petitioners identified over one
thousand Dongbu home market sales with prices which petitioners argue
are significantly less than Dongbu's POR weighted-average sales price.
Petitioners state that the Department only excluded a few of these
aberrational sales even though Dongbu itself, in its July 6, 1998
submission, identified the sales as ``insignificant quantities'' of
``slow moving prime grade material.'' Petitioners argue that, based on
the Department's factors for exclusion of home market sales, and based
on Dongbu's own characterization of the sales, all of the over one
thousand sales in question should be excluded from the analysis.
    Dongbu argues that the Department was correct not to exclude the
other home market sales identified by petitioners as outside the
ordinary course of trade. Dongbu argues that the Department has already
concluded that it would be inappropriate to remove a broad portion of
Dongbu's low-priced sales from the dumping analysis (see Korean Flat-
Rolled 4th Reviews Prelim, 63 FR at 48174). Dongbu argues that price
alone cannot be the dispositive factor. Dongbu points out that in
petitioners' example, where the Department excluded certain low-priced
sales for Union, such exclusions were of sales which Union made in
place of a credit adjustment. Dongbu argues that Dongbu's low-priced
sales were not made in place of a credit adjustment. Dongbu also argues
that if Dongbu's low-priced sales are to be excluded, then so must its
high-priced sales, as they also deviate from Dongbu's average home
market price. Finally, Dongbu argues that exclusion of home market
sales identified by petitioners as aberrationally low-priced amounts to
rejection of the sales-below-cost test.
    Dongbu applies a similar rationale in arguing that the Department
erred in its exclusion of four sales from its preliminary analysis.
Dongbu takes issue with the Department excluding four of its home
market sales as outside the ordinary course of trade. Dongbu argues
that the sales were identical in nature to over one thousand home
market sales that petitioners suggest should be excluded but which the
Department chose not to exclude in its preliminary results. Dongbu
argues that the four sales failed neither the cost test nor the arm's-
length test. Dongbu also argues that the excluded sales do not fall
under the other circumstances in which the Department has excluded
sales as outside the ordinary course of trade (such as overruns,
different types of product, or unusual or unique sales). Laclede Steel
Co. v. United States, 19 CIT 1076 (1995); Cement from Mexico--March
1998, 63 FR 12770-72; Thai Pineapple Public Co. v. United States, 946
F. Supp. 11, 15-17 (Ct. Int'l Trade 1996). Dongbu argues that the
purpose of the ordinary course of trade provision was to prevent
unrepresentative or irrational dumping margins. SAA at 834. While
Dongbu concedes that the four exclusions are significant for Dongbu
because, as a result of the exclusion, the weighted-average dumping
margin increased to above de

[[Page 12940]]

minimis, Dongbu argues that the roughly one percentage point increase
is neither an unrepresentative nor an irrational result.
    Dongbu argues that the four excluded sales were not of overrun
material nor similar to overrun sales, stressing that overrun material
is basically excess material produced as part of a specific order.
Dongbu asserts that the excluded sales consist of material with Korean,
not U.S., specifications, and were produced for inventory, not to
order. Dongbu argues that, contrary to the Department's comparison in
its analysis memorandum, such sales do not compare with low-priced
sales excluded for another respondent in an earlier review. See Dongbu
Prelim. Analysis Memo at 9-10. In that earlier review, the merchandise
was found to be obsolete, thinner than planned, or priced especially
low to compensate a customer for previous payments. See Korean Flat-
Rolled 2nd Reviews Final, 62 FR at 18441. Dongbu argues that the
Department's comparison fails because Dongbu's sales do not have any of
said characteristics, and thus the sales should not be excluded. Dongbu
argues that, furthermore, a determination of what is outside the
ordinary course of trade for another respondent is irrelevant in
analyzing Dongbu's sales because the Department has stated that ``[i]n
an ordinary course of trade inquiry, the pertinent issue is whether the
conditions and practices are normal for the company in question.'' See
Cement from Mexico--March 1998, 63 FR at 12772.
    Dongbu also argues that merely because the sales were below the
average per unit price and below the cost of production (see Dongbu
Prelim. Analysis Memo at 10) does not make them aberrational; the low-
priced sales merely reflect an unremarkable statistical fact. Dongbu
argues that the sales already survived the cost test in section
773(b)(1) of the Act, which identifies sales below cost. Under the cost
test, the sales were not disregarded as below COP because they were not
made in substantial quantities (20 percent or more of Dongbu's home
market sales of the product). Dongbu complains that the Department
cannot then apply a second cost test which excludes sales for being
made in insignificant volumes.
    Dongbu argues that the Department has never rejected Dongbu's
classification system, which classified the sales at issue as prime
merchandise. Dongbu further asserts that it demonstrated, in its July
6, 1998 submission, that the merchandise sold had no defects, and that
the merchandise was not overrun material. Dongbu argues that the
merchandise was slow-moving because of its color, that it is common
business practice to sell the merchandise at a reduced price, and that
such transactions are not extraordinary. Dongbu argues that both the
Department and petitioners acknowledged that there were over one
thousand of these sales during the POR. Dongbu argues that while the
Department concluded that it would be inappropriate to exclude such a
broad portion of relatively low-priced Dongbu home market sales as
overruns, neither could such a large number of sales be excluded as
outside the ordinary course of trade other than by failing the cost
test. Dongbu complains that the Department concluded that the four
sales used by petitioners as examples were made under unusual
circumstances, when over one thousand sales were made under the same
circumstances. Dongbu argues that in doing so, the Department is
following the petitioners' agenda for arbitrary margin creation.
    Dongbu argues that there are sales which are the same percentage
above the average price as the excluded sales are below the average
price. Dongbu asserts that if petitioners' argument--that the low-
priced sales should be excluded because they are likely matches for
U.S. sales--is accepted by the Department, then the Department should
also exclude Dongbu's high-priced sales as well as they are also likely
matches for U.S. sales. Dongbu notes that the Department has declined
to exclude high-priced sales in the past, because the respondents
therein did not explain the unique, unusual or extraordinary
circumstances placing the sales outside the ordinary course of trade.
See Industrial Nitrocellulose from France: Final Results of Antidumping
Duty Administrative Review, 63 FR 49085, 49087 (September 14, 1998);
Notice of Final Results of Antidumping Duty Administrative Review:
Granular Polytetrafluoroethylene Resin from Italy, 63 FR 49080, 49082
(September 14, 1998). In applying the same standard to its low-priced
sales, Dongbu argues that the over one thousand sales cited by
petitioners, including the four excluded by the Department in its
preliminary analysis, are not extraordinary or unique under common
sense and ordinary business practice. In arguing that the Department
has taken two different standards for excluding low and high-priced
sales, Dongbu notes that the CIT has stated that the Department may not
impose arbitrary standards in its ordinary course of trade analysis.
Koenig & Bauer-Albert v. United States, Slip Op. 98-83, at 40, n. 8
(Ct. Int'l Trade June 23, 1998). Dongbu argues that by ignoring
Dongbu's classification of the four sales as prime grade material, the
Department has created an artificial category of only the four sales.
Dongbu argues that by doing so, the Department is establishing a
precedent under which parties can cherry-pick a database to identify
sales that create or eliminate margins.
    In their rebuttal, petitioners state that the Department correctly
excluded four of Dongbu's low-priced sales as outside the ordinary
course of trade. Petitioners argue that the Department made the
exclusions in accordance with the law. Petitioners assert that the SAA
and legislative history support a finding that Congress and the
Administration intended for the ordinary course of trade provision to
apply to more than just below cost sales. SAA at 834; H.R. Rep. No.
103-826(I), at 76 (1994); S. Rep. No. 103-412, at 61 (1994); Gray
Portland Cement and Clinker from Mexico: Final Results of Antidumping
Duty Administrative Review, 62 FR 17148, 17153 (April 9, 1997)
(``Cement from Mexico--April 1997''). Petitioners argue that Dongbu
incorrectly limits the scope of the ordinary course of trade provision
to below-cost sales and affiliated customer sales. Petitioners argue
that, unlike Dongbu, the Department properly applied the legal standard
providing for exclusion of transactions sold at aberrational prices in
order to avoid basing normal value on sales which are extraordinary for
the market in question, particularly when the use of such sales would
lead to irrational or unrepresentative results. SAA at 834; S. Rep. No.
103-412, at 61 (1994); and Cement from Mexico--April 1997 at 17154.
    Petitioners also argue that Dongbu fails to address, or addresses
in an insufficient context, many of the factors on which the Department
based its decision. The Department excluded Dongbu's sales because the
sales: (1) were aberrationally low-priced compared to other sales of
the same CONNUMH; (2) were made at prices comparable to Dongbu's non-
prime merchandise; (3) were made at prices below the average cost of
Dongbu's steel inputs; (4) had characteristics similar to overruns; and
(5) were of insignificant quantities and involved slow moving
merchandise. See Korean Flat-Rolled 4th Reviews Prelim, 63 FR at 48175.
    Petitioners disagree with Dongbu's claim that the Department
created an artificial category in order to make the exclusions.
Petitioners argue that the Department merely found the low-

[[Page 12941]]

priced sales to have characteristics similar to overruns excluded in
prior reviews. Petitioners also argue that Dongbu mistakes a factor in
the Department's ordinary course of trade analysis as a second cost
test. Petitioners argue that the Department did not create a second
cost test, but, rather, the Department merely considered the sales of
merchandise at below substrate costs as one factor in the total
circumstances considered under the ordinary course of trade provision.
Petitioners argue that Dongbu's blank assertion that the excluded sales
were in its ordinary course of trade is unsupported by the evidence on
the record and identified by the Department. Petitioners also argue
that rather than ignoring Dongbu's classification system of prime and
non-prime merchandise, the Department followed the classifications in
finding that the price of the excluded prime sales were comparable to
prices of Dongbu's sales of non-prime merchandise. Petitioners argue
that such comparable pricing supports a finding that the sales were
aberrational and properly determined to be outside the ordinary course
of trade.
    Petitioners take issue with Dongbu's accusation that petitioners
are margin shopping, and note that aberrationally low-priced home
market sales of Dongbu were in months which affect the matching to U.S.
sales. Petitioners argue that excluding the sales follows Congressional
intent and avoids irrational or unrepresentative results. Petitioners
note that Dongbu had more than one hundred thousand home market sales
of corrosion-resistant merchandise, yet exclusion of only four such
sales raised the dumping margin from 0.13 percent to 1.47 percent.
Thus, petitioners argue, the inclusion of such sales in the margin
calculation would lead to unrepresentative results.
    Petitioners also assert that Dongbu incorrectly states that the
Department excluded only the four sales used by petitioners as examples
when, in fact, petitioners did not identify one of the four sales
excluded by the Department (see petitioners' August 7, 1998 submission
at 2-6). Additionally, Petitioners argue that Dongbu fails to support
its argument that if the Department excludes low-priced sales, it
should similarly exclude high-priced sales. Petitioners argue that
Dongbu did not identify the sales to be excluded and that no evidence
exists to show that any high-priced sales were made outside the
ordinary course of trade.
    While Dongbu takes the position that the four sales were improperly
excluded when there were over one thousand similarly low-priced sales
which were not excluded, petitioners, as noted above, argue that the
four sales were properly excluded and that the Department should
exclude the other approximately one thousand sales as well. Petitioners
note that those additional sales represent less than one percent of
Dongbu's total home market sales. Petitioners also note that while
Dongbu claims that the Department concluded that it would be
inappropriate to exclude such a broad portion of relatively low-priced
Dongbu home market sales as overruns, the referenced statement had
nothing to do with the Department's exclusion of Dongbu's
aberrationally low-priced sales. See Korean Flat-Rolled 4th Reviews
Prelim, 63 FR at 48174. For these reasons, petitioners argue that
Dongbu fails to address and refute the facts relevant to the
Department's proper determination that the sales were outside Dongbu's
ordinary course of trade.
    Department's Position: We agree with petitioners that the four
sales the Department excluded from its preliminary analysis should
continue to be excluded because they were outside the ordinary course
of trade. However, we disagree with petitioners regarding the
additional approximately one thousand sales.
    As an initial matter, contrary to claims of both Dongbu and
petitioners, the four sales in question are not comparable to the other
approximately one thousand sales cited by petitioners because there is
significantly greater information on the record regarding the unusual
nature of the four sales than there is regarding the approximately one
thousand other sales. Petitioners asserted in their case brief that
these other sales, like the four sales in question, involved
insignificant quantities of slow-moving merchandise sold at
aberrational prices, but in fact the Department's analysis of the four
sales in question, both in Dongbu Prelim. Analysis Memo and as noted
below, went beyond those factors, in part because of the greater
information on the record for those four sales. Similarly, while Dongbu
in its case brief proposed equivalent treatment between the four low-
priced sales and an unspecified group of high-priced sales, we note
that the paucity of information on the record regarding the claimed
high-priced sales would have precluded any analysis of whether those
sales were outside the ordinary course of trade. Our analysis in the
preliminary results focused on more than just relative prices, as does
the additional analysis provided below.
    We also disagree with Dongbu's assertion that the Department's
preliminary analysis applied a second cost test. The analysis below
also clearly accounts for costs in a way consistent with other ordinary
course of trade analyses that is independent of the Department's cost
test and, furthermore, it clearly examines several factors in addition
to cost considerations. Also, contrary to Dongbu's assertions, our
analysis was specific to Dongbu's circumstances and not based on any
conclusion that the four sales in question constituted non-prime
merchandise or overrun merchandise. The analysis below is comparable in
these respects and in accordance with the the Department's regulation
pertaining to ordinary course of trade, which indicates that examples
of sales that the Department might consider as being outside the
ordinary course of trade are sales or transactions sold at aberrational
prices. See 19 CFR 351.102.
    In reviewing our preliminary conclusions for the final
determination, we have analyzed factors we presented in detail in
Korean Flat-Rolled 2nd Reviews Final, 62 FR at 18437 with respect to
sales outside the ordinary course of trade. That analysis specifically
related to production overruns and the determination of whether sales
identified as overruns were outside the ordinary course of trade, and
was based on various precedents. See, e.g., Certain Corrosion-Resistant
Carbon Steel Flat Products From Australia; Final Results of Antidumping
Duty Administrative Reviews, 61 FR 14049, 14050-51 (March 29, 1996)
(``Australian Corrosion-Resistant Steel''), and Certain Welded Carbon
Steel Standard Pipes and Tubes From India, Final Results of Antidumping
Duty Administrative Reviews, 56 FR 64753, 64755 (December 12, 1991).
    Although that analysis concerned production overruns, this test is
also useful in evaluating the fact pattern for the four Dongbu sales in
question because the test provides objective factors which are
revealing as to whether certain sales are so unusual as to be outside
the ordinary course of trade. Those factors are: (1) whether the home
market sales in question did in fact consist of production overruns;
(2) whether differences in physical characteristics, product uses, or
production costs existed between overruns and ordinary production; (3)
whether the price and profit differentials between sales of overruns
and ordinary production were dissimilar; and (4) whether the number of
buyers of overruns in the home-

[[Page 12942]]

market and the sales volume and quantity of overruns were similar or
dissimilar in comparison to other sales. Again, while we have not
concluded that the four Dongbu sales in question were overruns, in this
instance there cannot be any ``overruns'' per se because of the
limitations of Dongbu's internal classification system. In any case,
though, the statute does not require that sales be categorized as
overruns, or any other particular designation, in order to be found as
outside the ordinary course of trade. Therefore, we examined the last
three of the critical factors noted above.
    Regarding differences between the four Dongbu sales in question and
Dongbu's other sales with respect to physical characteristics, product
uses, or production costs, Dongbu has clearly indicated that it was an
unpopular paint color that distinguished these sales from other sales
of painted corrosion-resistant merchandise. Paint color is obviously a
physical characteristic, though not one acknowledged in the
Department's model matching hierarchy. Furthermore, if the color were
so unpopular that Dongbu had to price the merchandise at extremely low
prices in order to find buyers, it is reasonable to presume that the
buyer intended to use the product in a way that differed from that of
the vast majority of customers who were not interested in that color.
Furthermore, in regard to price and profit differentials, the prices of
the four sales were: (1) Well below those of other home market prime
sales of the CONNUMs in question; (2) comparable to prices of Dongbu's
non-prime merchandise, which by definition possessed some type of
physical imperfections; and (3) well below even the cost of Dongbu's
hot-rolled steel inputs, which, to be transformed into the painted
corrosion-resistant merchandise had to undergo various costly
processes, including cold-rolling, coating with metal, and painting
(which are the most important product characteristics in the
Department's model matching hierarchy for corrosion-resistant carbon
steel flat products). Consequently, consistent with the detailed
analysis in the Dongbu Prelim. Analysis Memo at 9-10, very large price
and profit differentials exist between the sales in question and other
prime sales of the CONNUMs in question. Finally, the quantity of sales
and number of customers in question constitute a small fraction of the
corresponding totals for Dongbu's sales as a whole. Regarding the four
Dongbu sales in question, the unpopularity of the paint color is itself
an indication of how such merchandise, even at rock-bottom prices,
could only attract limited customers.
    In conclusion, the fours sales in question were sufficiently
unusual, according to the standards indicated above, to be
characterized as outside the ordinary course of trade. Consequently,
the Department has continued to exclude them from its analysis.

Comment 9: Dongbu Express Home Market Freight Expense

    Dongbu reported the amount it is charged by its affiliate, Dongbu
Express Co., Ltd. (``Dongbu Express''), as home market freight expense.
Petitioners point out that this amount includes not only the
unaffiliated trucking companies' charge to Dongbu Express, but also a
markup of Dongbu Express' estimated overhead and profit. Petitioners
point out that the Department made an adjustment for such a markup in
the previous administrative review by deducting the markup from
Dongbu's reported home market freight expense. Petitioners point out
that the Department did not make such an adjustment in this
administrative review when calculating its preliminary results.
Petitioners assert that the Department should make an adjustment in its
final determination in order to be consistent with the prior review.
Petitioners suggest that the Department divide Dongbu's reported home
market freight expense by one plus a factor reflecting the markup.
    Dongbu argues that the Department was correct not to adjust
Dongbu's inland freight cost for the markup of Dongbu Express. While
Dongbu recognizes the Department made adjustments in the third
administrative review, Dongbu states that the circumstances in the
third review do not exist in the fourth review. Dongbu points out that
in the third review, the Department was concerned that similar mark-ups
for services on export sales were excluded from the analysis. Dongbu
argues that the Department has determined in this fourth review that
all relevant mark-ups were included. Dongbu also points out that the
Department made no such adjustment for the first or second
administrative reviews. Dongbu notes that in those reviews, Dongbu
Express worked only for Dongbu. Because Dongbu could not show
transactions with unaffiliated customers, Dongbu compared Dongbu
Express' mark-up for export sales to those for domestic sales to show
the affiliated party transactions were at arm's length. In the third
review, Dongbu was able to provide evidence, along with the mark-up
data, that Dongbu and unaffiliated customers pay the same price to
Dongbu Express. However, Dongbu felt that the focus remained
``inexplicably'' on the mark-up.
    In the fourth review, Dongbu asserts that it has again presented
evidence that it pays Dongbu Express the same price for freight as
unaffiliated companies. Dongbu's November 14, 1997 Response at 27 and
Attachment B-9. Dongbu notes that a preferred method of the Department
in testing the arms-length nature of transactions is comparing prices
charged to affiliated and unaffiliated parties. While Dongbu feels the
relevance of the mark-up is moot, Dongbu nevertheless argues that the
mark-up data affirms an arms-length transaction, as the mark-up on
export transactions is higher than the mark-up for domestic
transactions. Dongbu's March 9, 1998 Supplemental Response at
Attachment B-30. Dongbu also argues that all similar mark-ups have been
included in the deductions to CEP. For these reasons, Dongbu argues
that the Department properly deducted the total freight cost reported
by Dongbu for home market and export sales.
    Department's Position: While it is true that Dongbu Express is
affiliated with Dongbu, the reported Korean inland freight expenses for
both home market and U.S. sales include the Dongbu Express markups. In
response to a Department request for additional information, Dongbu
provided markup data in its March 9, 1998, supplemental questionnaire
response. That information suggests that the markups for export sales
were not significantly lower than those for domestic sales, and that on
a percentage basis they were higher for export sales than for domestic
sales. To the extent, if any, that Dongbu Express' markups were not at
arm's-length, it appears that the magnitude of the markups were
comparable for both home market and U.S. sales. Consequently, it does
not appear that the magnitude of the markups has a systematically
biased effect on the results, and we have not adjusted our calculations
of the home market freight expenses.

Comment 10: Inventory Carrying Costs

    Petitioners argue that the Department inadvertently set its margin
program to read inventory carrying costs as zero, which resulted in a
program failure to deduct inventory carrying costs from the calculation
of net U.S. price. Dongbu argues that the costs at issue arise from
holding the merchandise between production in Korea and shipment to the
U.S., and from when the merchandise was on the water. Dongbu states
that it reported these expenses as

[[Page 12943]]

inventory carrying costs incurred in the country of exportation, as
required by the Department.
    Department's Position: We agree with the respondent that the
inventory carrying costs in question relate to time prior to entry into
the United States, and are not to be deducted from the CEP starting
price. However, as noted elsewhere in this notice, the period in
question (e.g., between shipment from Korea and entry into the United
States) is treated as part of the period in which imputed credit costs
are incurred. As stated at 19 CFR 351.402(b), the Department ``will not
make an adjustment for any expense that is related solely to the sale
to an affiliated importer in the United States.''

Comment 11: U.S. Indirect Selling Expenses

    Petitioners argue that the Department incorrectly applied an
adjustment designed to revise the reported indirect selling expenses
for U.S. sales incurred in the United States (variable ``INDIRSU'') to
the reported indirect selling expenses for U.S. sales incurred in
Korea. Petitioners also argue that the allocation used to determine the
amount of U.S. indirect selling expenses does not appear to be derived
from any specific source, and petitioners propose a corrected revised
ratio based on their August 7, 1998 submission at 22. Petitioners also
argue that the denominator of the correction factor used by the
Department in its preliminary results is not consistent with the data
that were reported in the Dongbu's U.S. sales database; petitioners
cite the factor that was actually used by respondent for the reported
INDIRSU, and state that the Department should incorporate this factor
as part of the basis for the recalculation of INDIRSU.
    Dongbu agrees with the petitioners that the Department did not
apply the adjustment to INDIRSU, but, rather, to indirect selling
expenses incurred in Korea. Dongbu states that the latter expenses are
incurred by Dongbu in selling to its subsidiary and should not be
deducted from the U.S. starting price, as such expenses are not related
to the economic activity in the United States (see Antifriction
Bearings (Other Than Tapered Roll Bearings) and Parts Thereof from
France, Germany, Italy, Japan, Singapore and the United Kingdom; Final
Results of Antidumping Duty Administrative Reviews, 62 FR 54043, 54054
(October 17, 1997)). Dongbu also agrees with petitioner that the
denominator of the correction factor used by the Department in its
preliminary results was not consistent with the data that were reported
in its U.S. sales database, and Dongbu agrees with petitioners on the
actual correct factor.
    In any case, though, Dongbu states that no adjustment to INDIRSU
should have been made. Dongbu notes that the Department decided an
adjustment was required because it believed certain expenses, such as
freight, should be deducted from the denominator used to derive the
portion of common expenses to be allocated to subject merchandise.
Dongbu argues that these expenses, such as the salaries of people
arranging freight, are included in the common expense salaries, and
that the fact that these expenses related in large part to products
other than flat-rolled does not take away from the fact that the common
expenses related to these categories.
    Furthermore, Dongbu argues that petitioners' proposed change to the
allocation ratio used to determine the total amount of U.S. indirect
selling expenses reflects petitioners' desire to calculate the indirect
selling expense ratio solely on the basis of sales value. Dongbu argues
that using a straight sales value approach, which would assign expenses
solely on the basis of price, is not indicative of the efforts made by
Dongbu USA for the merchandise in question, and that the Department has
recognized that when it is necessary to split common expenses among
products that the allocation key should be in relation to the expenses
being allocated (see Pipe from Korea, 63 FR at 32846-47.
    In rebuttal, petitioners argue that Dongbu has shown no correlation
between direct expenses and indirect expenses such that direct expenses
incurred should serve as an allocation methodology for common indirect
selling expenses related to all products. Petitioners also argue that,
were there such a correlation, such expenses would not be indirect
selling expenses as they could be assigned to products based on a
direct identification methodology. Petitioners also argue that Dongbu's
assertion that the common expenses being allocated by the derived ratio
relate in part to these direct expenses is unsupported. Petitioners
argue that Dongbu USA's financial statements do not provide any
description about the majority of the common indirect selling expenses
at issue.
    Department's Position: We agree with both petitioners and
respondent that the incorrect denominator was used for the adjustment
factor developed by the Department for its preliminary results and that
the Department applied the adjustment factor to the wrong variable in
its preliminary results. We agree with Dongbu that we should not have
deducted indirect expenses incurred in Korea from U.S. starting price.
We have corrected our programming accordingly.
    Regarding the calculation of the numerator of the adjustment
factor, the Department presented its methodology in the Dongbu Prelim.
Analysis Memo at 3 and in the two pages of the ``Worksheet for DONGBU
USA Indirect Selling Expense Ratio'' attachment to that memorandum. The
Department used Dongbu's basic methodological approach, as outlined in
Exhibit C-37 of its May 18, 1998 submission, which accounted for
portions of total expenses it characterized as indirect selling
expenses that could be assigned to flat-rolled steel (including subject
merchandise), those that could be assigned to other products, and those
which were common to all products. We disagree with petitioners'
assertion that an ability to attribute certain expenses to a type of
product implies that such expenses must be direct, rather than
indirect, expenses; for example, the salary of a secretary devoted only
to work pertaining to subject merchandise could be attributed to
subject merchandise, but would not under normal circumstances be
categorized as a direct expense. However, as discussed below, the
Department excluded certain expenses (``freight-out,'' ``warehousing,''
``packing,'' and ``insurance (Transportation)'') from the calculations
of flat-rolled indirect expenses and of other product indirect
expenses. Those expenses are typically categorized by the Department as
other than indirect selling expenses, and it is not clear from the
record the extent to which a portion of those costs cited by Dongbu
reflect expenses that could be categorized as indirect selling expenses
(e.g., salaries of those arranging for freight). As a result, the
Department derived a different factor than Dongbu to use as the basis
for allocating a portion of total common expenses to flat-rolled
products.
    Dongbu did not demonstrate that there are expenses associated with
the excluded categories, such as for salaries of personnel arranging
freight, in the common expenses. Dongbu had not reported INDIRSU in its
November 14, 1997 questionnaire response, and in response to the
Department's supplemental follow-up question regarding indirect selling
expenses, Dongbu indicated that it provided worksheets for the
additional expenses, but did not elaborate on the content of those
worksheets (see page A-7 of Dongbu's May 18, 1998 submission). The
worksheets did not indicate any

[[Page 12944]]

common expenses associated with the expenses in question (e.g.,
freight-out, etc.), and Dongbu did not demonstrate that there is any
correlation between the direct expenses in question and common indirect
selling expenses related to all products. Consequently, we are
continuing to exclude those expenses not appropriately characterized as
indirect expenses from the calculations, and thus have continued to use
the numerator of the adjustment factor that we calculated in our
preliminary results.

Comment 12: Depreciation

    Union argues that the Department should accept Union's reported
depreciation expenses based on net asset value (original acquisition
cost less accumulated depreciation), as this is in accordance with
Korean GAAP. Regarding the method of depreciation, Union argues that
the Department retroactively applied the straight-line method to the
original acquisition cost less salvage value, which resulted in a
distortion of the depreciation expense for the current POR. Union
further explains that the Department's present application of the
straight-line method is distortive in that the Department double-counts
a portion of the previously recognized depreciation. Union asserts that
unlike Final Determination of Sales at Less than Fair Value: Dynamic
Random Access Memory Semiconductors of One Megabit and Above from the
Republic of Korea, 58 FR 15467, 15470 (March 23, 1993) (``DRAMs from
Korea''), the Department in this proceeding captured a higher
depreciation expense in the first and second reviews resulting from
Union's use of double-declining balance method in those two reviews.
For this reason, Union argues, the Department should accept Union's
reported depreciation expense with net asset value (original
acquisition cost less accumulated depreciation to date) as a
depreciable base. By accepting Union's reported depreciation expense,
the Department avoids double-counting and only accounts for
depreciation that has not been formerly recognized in previous reviews.
    Second, Union asserts that the only plausible reason for the
Department to reject Union's reported depreciation costs is the
nonconformance of Union's treatment of depreciation to U.S. GAAP. Union
disputes the Department's possible stand on this issue by claiming that
the determining factor for acceptance of a cost accounting methodology
is whether the methodology is in accordance with local GAAP, even if
the local GAAP proves to be at times contradictory to the U.S. GAAP.
    Finally, Union asserts that the Department's treatment of Union's
depreciation is also not in accordance with U.S. GAAP, as it creates
inconsistency between the balance sheet and income statement. In
applying a straight-line methodology to Union's asset values, the
Department increased Union's assets without a simultaneous adjustment
to Union's income statement. Therefore, in order to maintain
consistency with the balance sheet and income statement under the
present approach, the Department should perform an upward adjustment to
Union's stated income (an adjustment equal to the sum effects of the
restatements of depreciation from double-declining balance to straight-
line depreciation).
    Petitioners assert that the Department should sustain its
preliminary determination on this issue of depreciation in the final
results, as the Department properly adjusted Union's reported
depreciation expenses in those preliminary results. Petitioners state
that the Department's adjustments in the preliminary results were made
in a way consistent with its adjustments in Korean Flat-Rolled 3rd
Reviews Final. Petitioners note that in the third reviews, the
Department rejected Union's methodology because of its distortive
effect on the margin analysis. See Korean Flat-Rolled 3rd Reviews
Final, 63 FR at 13191. Petitioners allude to ``Use and Measurement of
Costs Under U.S. Antidumping Law,'' International Trade Resources, 24
(1995), by Christian Marsh and John Miller in support of their position
that the Department relies on U.S. GAAP when evaluating exporter's
reported costs to determine whether these costs truly reflect costs
associated with the production and sale of the merchandise. Petitioners
further argue that the Department should reject Union's application of
the straight-line methodology on its face, as this accounting
methodology uses the net value of the asset rather than the original
acquisition cost as the depreciable base, resulting in an inconsistency
with U.S. GAAP.
    Petitioners cite the similar fact pattern in DRAMs from Korea as a
basis for rejecting Union's claimed depreciation expenses. Petitioners
state that the Department's method does not count depreciation expenses
reported in previous reviews in the present review but, rather, it
accurately measures the current period's depreciation expenses based on
the original cost of assets and their useful lives.
    Department's Position: We agree with petitioners that Union's
change in depreciation methods from double-declining to straight-line
understates overhead and distorts our margin analysis. As in Korean
Flat-Rolled 3rd Reviews Final and in the preliminary results of these
reviews, we continue to reject Union's use of a straight-line method of
depreciation using the net asset value as the depreciable base. Union's
1996 financial statements include a special note referring to the shift
to straight-line depreciation, indicating that it constitutes an
explicit change to Union's depreciation methodology rather than a
development of its pre-existing depreciation methodology. See Exhibit
A-11 of Union's October 8, 1997 Section A response at 16. Even if a
change in depreciation methodology is consistent with local accounting
standards, the Department may reject the change due to its distorting
effect in our margin analysis. In regard to Union's argument that an
offset be made to the Union income statement, see Comment 14, below.

Comment 13: Restatement of the Useful Lives of Certain Assets

    Union argues that the Department should accept the longer useful
lives of its certain assets for the calculation of depreciation
expense, as such a change is in accordance with the Korean GAAP and the
company's actual financial structure. Union claims that by not
recognizing the longer useful lives of assets, the Department uses a
``front-loaded'' depreciation calculation methodology in which the
Department attributes a higher depreciation expense to the current POR
rather than attributing those very depreciation expenses to later years
when Union actually incurs them. Union argues that Department's non-
recognition of Union's extended useful lives of its assets leads to a
distortion as the Department deviates from the use of respondent's
financial statements and rather establishes a methodology applicable
only for purposes of the antidumping order.
    Petitioners argue that the Department properly rejected Union's
estimates of the useful lives of assets. According to the petitioners,
respondents failed to justify the change in the useful lives of assets
other than to state that the change in question is in accordance with
the relevant provisions of the Korean Corporate Tax Law. Petitioners
noted similar cases in which the Department found this justification
meager in nature (see, e.g., 64K Dynamic Random Access Memory
Components (64K DRAM's)

[[Page 12945]]

from Japan: Final Determination of Sales at Less Than Fair Value, 51 FR
15943, 15944 (April 29, 1986)); and, Erasable Programmable Read Only
Memories (EPROMs) from Japan; Final Determination of Sales at Less than
Fair Value, 51 FR 39680, 39684-86 (Oct. 30, 1986)). Finally,
petitioners argue that the number of years for which assets are
depreciated under specific tax purposes may not accurately reflect the
actual useful lives of the assets in question.
    Department's Position: We agree with petitioners. We decline
Union's revised useful lives of its assets in the absence of sufficient
justification for the extension in the useful lives of Union's assets
other than that the change in the useful lives of assets is in
accordance with the Korean tax laws. The Department considers Union's
original useful lives of its assets to be the proper estimation of
Union's useful lives of its assets and therefore continues to calculate
Union's depreciation costs on the basis of Union's original useful
lives of assets.

Comment 14: G&A and Financing Expenses Reflecting Depreciation
Adjustment

    Union argues that if the Department intends to use its current
depreciation methodology in its final margin calculations, then the
Department should make a corresponding reduction to the G&A and
financing expense ratios to reflect the greater COM that results from
the increased depreciation expense. In doing so, the Department should
change the G&A and financial expense ratios calculated from the
financial statements by increasing the COM denominator by the
percentage increase in the unit COMs. Petitioners did not comment on
this issue.
    Department's Position: We agree with respondents that an adjustment
to the COM value used to calculate G&A and interest expenses is
required for consistency with the depreciation methodology followed by
the Department in its preliminary results. G&A and interest expenses
are calculated by multiplying COM by distinct G&A and interest expense
factors. Those factors, in turn, are based on the expenses in question
(G&A or interest) divided by cost of goods sold (``COGS''). For Union
for the final results of these reviews, we have implemented Union's
suggestion by using the unrevised Union COM values as the basis for
calculation of G&A and interest expenses. Alternatively, we could have
used the adjusted COM values (reflecting the recalculation of
depreciation) and attempted a corresponding upward adjustment to the
COGS denominator of the factors, but the effects of such adjustments
would be offsetting. The Department's methodology is simpler, and the
effects are comparable to those of the more complicated alternative
approach just described.

Comment 15: Home Market Warehousing Expense

    Union argues that the Department should treat home-market
warehousing as a movement expense rather than an indirect selling
expense. In this current review, Union states that it reported
warehousing expenses in a single field in accordance with the
Department's questionnaire instructions, rather than in separate fields
as pre-sale and post-sale warehouse which would have been consistent
with the first and second reviews. Union asserts that the Department
should follow its practice in the former review and its intended policy
as contemplated in the URAA by deducting warehousing expenses from
home-market price rather than performing a circumstance of sale
adjustment. See SAA at 827.
    Petitioners also state that the home market warehousing is properly
treated as a movement expense rather than as an indirect selling
expense. Petitioners assert that it is the Department's longstanding
practice to differentiate among expenses related to production, selling
and movement expenses. Therefore, for the above stated reason,
warehousing expenses categorized as movement expenses should not be
included in the total expense denominator of the Department's CEP
profit calculation.
    Department's Position: Dongbu indicated in its November 14, 1997
Section B response at 24 that for most home market sales involving
warehousing, the customers would request that a shipment from the Pusan
factory be temporarily stored at the warehouse. While for some sales
the warehousing appears to have been prior to sale, the Department's
original questionnaire did not distinguish pre-sale from post-sale
warehousing, and the Department did not subsequently request additional
information in this regard. We have determined that the warehousing
expenses in question are best characterized as post-sale movement
expenses, and have adjusted our programming to reflect this
determination. Regarding petitioners' arguments pertaining movement
expense and CEP profit, this issue is addressed elsewhere in this
notice (see Comment 3).

Comment 16: POSCO Representative Product Group (``RPG'') Costs and Use
of Facts Available

    While petitioners agree with the Department's preliminary
conclusion that the POSCO Group's submitted costs should be rejected,
they argue that the Department incorrectly relied on a non-adverse
approach to apply facts available in deriving its COM. Petitioners
argue that, given the POSCO Group's repeated false and misleading
statements regarding its cost and production records, the Department
should have applied an adverse inference in its selection of facts
available. Petitioners claim that the Department should use as total
adverse facts available the highest rates previously calculated for
this respondent, 17.70 percent and 14.44 percent ad valorem for
corrosion-resistant and cold-rolled products, respectively.
    Petitioners assert that the POSCO Group failed to act to the best
of its ability and, pursuant to Department practice, it is irrelevant
whether or not the POSCO Group intended to mislead the Department. See
Elemental Sulphur from Canada: Final Results of Antidumping Duty
Administrative Review, 62 FR 37958, 37968 (July 15, 1997) (``Sulphur
from Canada''). In the cited case, the Department made no pronouncement
on respondent Mobil's intentions while assigning adverse facts
available for respondent's failure to cooperate to the best of its
ability. Petitioners claim that the following statements made by the
POSCO Group were misleading: (1) That its submitted costs reflect
actual production quantities; (2) that it lacks and does not maintain
production data necessary to allocate POSCO production quantities to a
single, specific control number (``CONNUM''); (3) that it may not
retain detailed production data once production is completed, and (4)
that its production records do not identify all relevant product
characteristics and thus do not allow production quantities to be
assigned to single specific CONNUMs. Petitioners claim that the
Department's cost verification report provides evidence that these
POSCO Group statements were inaccurate. Petitioners argue that the
POSCO Group impeded the Department's ability to conduct this review by
not disclosing until verification that it generated and maintained
detailed production records. Petitioners claim that the POSCO Group's
failure to inform the Department of its detailed production data
prevented the Department from obtaining the correct weighting factors

[[Page 12946]]

for POSCO's RPG costs, and properly requesting and then verifying
revised costs based on the correct weighting factors. Petitioners argue
that the situation in the instant case is analogous to that encountered
by the Department in Sulphur from Canada and Certain Cut-to-Length
Carbon Steel Plate from Mexico: Preliminary Results of Antidumping Duty
Administrative Review, 63 FR 48181, 48182 (September 9, 1998) (``Steel
Plate from Mexico''). In both of those cases, petitioners note, the
respondent withheld critical information until verification, which
prevented the Department from performing adequate testing and
quantifying the magnitude of any distortion present in the reported
costs.
    Petitioners argue that the three reasons cited by the Department
for using a non-adverse approach are all fatally flawed, and not
supported by substantial evidence. First, petitioners claim that,
contrary to the Department's conclusion, POSCO's submitted costs have
never been reconciled to its books and records. Petitioners argue that
the Department reconciled POSCO's RPG costs, rather than the submitted
costs, to the company's financial statements. As a result, petitioners
argue, the submitted costs could be significantly understated because
of the distortive weight-averaging methodology employed by the POSCO
Group to report costs. Second, petitioners argue that POSCO's
methodology results in a systematic overstatement of POSCO's production
quantities, relative to its affiliates, and thus resulting in an
understatement of reported costs for the POSCO Group. Petitioners also
argue that, by assigning the total production quantity of certain RPGs
to multiple CONNUMs, the POSCO Group's submitted costs are understated
because the weighting of RPGs within a CONNUM is distorted. Third,
petitioners argue that the allocation methodology relied upon for facts
available by the Department (``the matrix'') is demonstrably distorted
and incorrect. Petitioners note that the allocation methodology of the
matrix excluded sales to the United States and third countries, and
thus the sales quantities used in the matrix for weighting did not
approximate actual production. Finally, petitioners argue, the
Department must find another source of facts available for POSCO's
affiliated companies. The costs of manufacturing for these affiliates
are based in large part on POSCO's costs, which the Department has
rejected, and the allocation methodology used for the preliminary
results did not adjust these costs.
    The POSCO Group argues that its submitted cost methodology is
reasonable and that the Department properly rejected petitioners'
arguments to use adverse facts available in the preliminary results.
The POSCO Group asserts that its methodology is neutral, mechanical,
objective, and reports costs to the greatest level of detail permitted
by the RPG system, the company's normal cost accounting system. The
POSCO Group argues that its submitted cost methodology was used and
verified by the Department, without exception, in all prior
administrative reviews. The POSCO Group also claims that neither
petitioners nor the Department have ever raised any question with
regard to the POSCO Group's weighting methodology in prior reviews. The
POSCO Group notes that its methodology was necessary since the RPG
physical characteristics do not correspond exactly to those in the
Department's questionnaire.
    The POSCO Group claims that it cooperated fully with the Department
during this review and that adverse facts available is not warranted.
The POSCO Group argues that its initial submission accurately described
its reporting methodology and its use of actual production quantities
to calculate CONNUM-specific costs. The POSCO Group claims that it
properly informed the Department that its records would not allow it to
comply with the Department's request to allocate production quantities
to a single, specific CONNUM. The POSCO Group argues that its statement
that actual production data do not identify all physical
characteristics referred to its production records maintained in the
ordinary course of business (i.e., its mill certificate database). The
POSCO Group claims that, as the Department verified, it was unable to
use raw production data in its existing form due to the massive size of
the database which is in storage on computer tape. The POSCO Group
asserts that raw production data are only maintained for use in the
rare instances that a warranty claim is made, and that such data are
generally not accessed even in those instances. The POSCO Group
reiterates that it would be practically impossible to use its raw
production data to identify CONNUM characteristics and calculate
relevant production quantities. Because of the enormous burden of work
that would be required to use raw production data, the POSCO Group
argues, it has answered truthfully that its production records do not
allow it to assign production quantities to specific CONNUMs.
    The POSCO Group argues that the cases cited by petitioners are
inapposite and that the respondents in those cases withheld from the
Department the existence of actual substantive cost data and entire
cost systems upon which a cost response could be constructed. In this
case, the POSCO Group claims, the Department properly found that the
POSCO Group cooperated and acted to the best of its ability in
supplying information requested by the Department. In the case of
Sulphur from Canada, the POSCO Group asserts that the respondents
therein failed to disclose critical facts regarding the existence of an
entire cost system that could have been used to calculate costs.
Moreover, the POSCO Group states that the Department concluded that the
respondents' data ``did not verify,'' while claiming that its own data
were fully verified. In the case of Steel Plate from Mexico, the POSCO
Group argues that the respondent failed to provide cost data from its
normal accounting system, failed to include significant costs for
various cost centers, and failed to reconcile submitted costs to its
financial accounting system. The POSCO Group argues that none of these
deficiencies applies in the instant case. The POSCO Group also notes
that it, by contrast, included all relevant production costs,
reconciled its submitted costs to its financial accounting system, and
the Department was able to fully verify its submitted information.
Because the facts in the cited cases are so different from those in the
instant case, the POSCO Group argues that adverse facts available is
not appropriate.
    In addition, the POSCO Group claims that the matrix prepared before
the cost verification addressed and resolved the problem of POSCO's
costs being overstated relative to its affiliates. The POSCO Group
argues that petitioners' criticisms of the matrix are groundless. The
POSCO Group asserts that the matrix methodology was designed by the
petitioners to ensure that each ton of production would only receive a
weight of one, even though an individual RPG was assigned to multiple
CONNUMs. The POSCO Group claims that the matrix methodology meets that
objective and ensures that POSCO is not given undue weight in averaging
its production costs with those of its affiliates. The POSCO Group
asserts that the fact that the matrix methodology produces results
entirely consistent with its submitted methodology confirms that there
is no distortion arising from any differential in costs among the POSCO
Group companies. The POSCO Group argues that, in preparing the matrix,
the use of

[[Page 12947]]

home market sales is more than representative, since the home market
constitutes more than seventy percent of total company sales. The POSCO
Group asserts that the submitted matrix provides an accurate analysis
of the distribution of production quantities relative to CONNUMs. The
POSCO Group argues that the inclusion of third country sales in the
matrix would have presented a massive burden on POSCO that the
Department could not reasonably expect POSCO to bear. The POSCO Group
also claims that the inclusion of U.S. sales would not have changed the
results of the matrix in a meaningful way.
    Department's Position: We have reconsidered our position in the
preliminary results and, in accordance with section 776(b) of the Act,
we have applied adverse facts available to calculate the POSCO Group's
COM in these final results. We agree with petitioners that the POSCO
Group failed to act to the best of its ability by making misleading
statements and by failing to cooperate fully with the Department during
this proceeding. The most critical instance of this occurred when the
POSCO Group, in response to a specific and direct question, did not
reveal its ability to report production quantities on a CONNUM-specific
basis. As a result, the Department did not learn until the cost
verification that POSCO generates and maintains detailed production
records which identify all relevant product characteristics.
Furthermore, we agree with petitioners that if the availability of this
data had been disclosed by the POSCO Group when the Department inquired
as to its availability, the Department would have had the opportunity
to request that the POSCO Group provide corrected COP and CV data.
    In reconsidering our position in the preliminary results, we have
performed a more detailed analysis to measure the potential distortion
inherent in the POSCO Group's submitted cost methodology. We have now
concluded that the POSCO Group's reported costs could potentially be
understated by a substantial amount and the amount of this potential
understatement cannot be estimated with much precision.
    Section 776(a)(2)(A) of the Act directs the Department to apply
facts available in instances where the respondent has withheld
information requested by the Department. In a supplemental
questionnaire issued by the Department on March 13, 1998, we did not
restrict our inquiry to POSCO's mill test certificate database, but
rather stated, ``[e]xplain whether POSCO's production records allow
production quantities to be assigned to a single specific CONNUM, as
defined by the Department'' (emphasis added). We also asked, ``[a]re
POSCO production quantities available at a greater level of detail than
the level at which costs are maintained in the* * *RPG cost accounting
systems?'' We then requested that the POSCO Group use such detailed
production quantities, if available, to recalculate its COP and CV. In
response to these inquiries, the POSCO Group stated in its May 8, 1998
submission that ``while a company such as POSCO may have data on
certain product characteristics during the production process itself,
once production is completed, all of the detailed data may no longer be
retained. Finally, not all of the product characteristics required by
the Department may be identified by using actual production data.''
See, cost supplemental response at 10. Also, the POSCO Group stated on
page 11 of that response that the company ``is unable to report
production quantities on a CONNUM-specific basis.'' The direct,
specific responses above indicated that POSCO does not generate, and
does not have in its possession, any records which would allow it to
identify production quantities using the Department's selected product
characteristics (i.e., on a CONNUM-specific basis). At the cost
verification, however, the POSCO Group revealed that such records are
actually generated at the time of production and these detailed records
are retained on computer tape after they are downloaded from POSCO's
production control computer system. As noted in the Department's cost
verification report from Bill Jones and Symon Monu to Christian B.
Marsh, dated August 5, 1998: ``Company officials explained that the
production database maintains production data at a very detailed level,
including all of the physical characteristics identified by the
Department.'' See, cost verification report at 9. When Department
verifiers inquired as to why such information had not been used to
report costs, POSCO officials stated that it was not possible to access
production data for the entire 12-month review period due to capacity
limits on their computer systems. In its case brief, the POSCO Group
asserts that the Department verified its inability to use raw
production data in its existing form, due to the size of the stored
database. This, however, is an incorrect statement. Because we did not
learn of the existence of POSCO's detailed production data before
verification, we were unable to design verification procedures to
determine whether or not the company was capable of accessing and using
such data to report costs.
    The detailed production data are of major importance in this case
because they could have been used to allocate the company's production
costs, which are maintained at the RPG level, to the CONNUMs that are
determined using the Department's selected physical characteristics.
Products recorded within an RPG often have different physical
characteristics and therefore would be classified under multiple
CONNUMs. We noted that the average costs of different RPGs within a
single CONNUM can vary by a substantial amount, and therefore the
weighting of RPGs can have a material impact on the company's reported
costs.
    We agree with petitioners' claim that the matrix, or allocation
methodology relied upon by the Department for the preliminary results,
is substantially flawed and therefore should not be relied upon for the
final results. As noted by petitioners, the matrix prepared by the
POSCO Group did not use worldwide sales quantities to allocate its RPG
costs to CONNUMs; instead, the POSCO Group used only home market sales
quantities to prepare the matrix. As a result, sales to the United
States and third countries were not used in any way to allocate RPG
costs. While POSCO claims that it does not have shipment quantities for
sales to third countries, and therefore was not able to include such
sales in preparing the matrix, nonetheless the absence of these sales
renders the matrix unusable. As noted by POSCO, nearly thirty percent
of company sales were made outside the home market and the exclusion of
such sales means that the shipment quantities used in the matrix are
not a reasonable surrogate for total production quantities.
    We agree with petitioners that the determining factor in our
assignment of adverse facts available should be the POSCO Group's
failure to act to the best of its ability. As we stated in Sulphur from
Canada, 62 FR at 37968, our application of adverse facts available is
``not based in any manner on any belief in this company's intentions.''
The POSCO Group claims that it was referring to the production records
maintained in the ordinary course of business, such as the mill
certificate database, when it stated that actual production data did
not identify all physical characteristics. Such a qualifying statement,
however, was not present in the POSCO Group's response and, thus, we
believe it was impossible

[[Page 12948]]

to know or assume that the POSCO Group's response was limited in the
manner described. As noted, the supplemental cost questions posed by
the Department did not indicate that we were referring only to the mill
certificate database and detailed production data are, in fact,
maintained by the company.
    We disagree, however, with petitioners' assertion that we should
apply total adverse facts available in calculating the POSCO Group's
dumping margin. Aside from its misleading statements relating to the
existence of detailed production records, the POSCO Group appears to
have been cooperative with the Department throughout the rest of the
proceeding. We disagree with petitioners' assertion that the Department
never reconciled POSCO's submitted costs to its books and records. With
the exception of the weight-averaging problem identified by the
Department, POSCO's RPG costs reconciled to its books and records. The
purpose of our reconciliation procedures is to ensure that all costs
from the company's normal accounting system have been captured in the
company's reported costs. As outlined in the cost verification report
and noted in the preliminary results, we performed verification testing
to satisfy ourselves that this objective was met. The issue at hand
relates specifically to the weight-averaging of these costs in deriving
CONNUM-specific costs. Although we agree with petitioners' assertion
that the POSCO Group's reporting methodology results in an
overstatement of POSCO's production quantities, relative to its
affiliates, we do not agree that this necessarily results in a
systematic understatement of costs. This would only be the case if, for
each CONNUM, POSCO's costs were lower than its affiliates' costs, and
we found that this is not true in every instance. Moreover, the POSCO
Group is correct in that the submitted allocation methodology had been
used by the POSCO Group and accepted by the Department in previous
reviews. For the above reasons, we have concluded that adverse facts
available should be used, but total adverse facts available is not
warranted.
    To apply adverse facts available to the weight-averaging problem,
we calculated adjustments to the COM for CONNUMs for which we have
detailed RPG data, and then applied those adjustment factors to the
COMs for the rest of the CONNUMs in the COP and CV databases. For the
CONNUMs for which we have detailed RPG detail, although we do not know
POSCO's third country sales quantities, the company's POR home market
and U.S. sales quantities are on the record. The combined sales of each
CONNUM to the home market and the United States during the POR
represents the minimum quantity produced by POSCO of that CONNUM. We
assigned the most costly RPGs to the weighted-average cost calculation
of each CONNUM to the extent of home market and U.S. sales quantities.
We then re-weighted POSCO's costs with the other producers using
POSCO's home market and U.S. sales quantity. The resulting adjusted
COMs for those CONNUMs, compared to the reported COMs for them, result
in adjustment factors that we applied to the COMs for the remaining
CONNUMs in the COP and CV databases. See the March 8, 1999, Final Cost
Calculation Memorandum from William Jones to Neal Halper.

Comment 17: Major Input Rule

    Petitioners argue that the Department inappropriately failed to
apply the major input rule (section 772(f)(3) of the Act) to
transactions between POSCO and its affiliated parties. Petitioners
state that the Department, in its antidumping duty questionnaire, asked
POSCO to provide information on transfer price, cost of production, and
fair value for major inputs transferred between affiliated parties.
Petitioners note that two of POSCO's affiliates, POCOS and PSI,
purchased major inputs from POSCO during the review period, and thus
the major input rule must be applied to these transfers. Petitioners
also argue that, since the POSCO Group failed to provide the requested
information, the Department should use facts available to value
transfers between POSCO and its affiliates.
    The POSCO Group argues that, in this and the two prior reviews, the
Department has already rejected petitioners' arguments to apply the
major input rule. See, e.g., Korean Flat-Rolled 3rd Reviews Final. The
POSCO Group states that the Department has ``collapsed'' POSCO, POCOS,
and PSI into a single entity for the third successive review,
indicating that it is now well-settled Department practice to not apply
the major input rule to transactions within a single collapsed entity.
The POSCO Group argues that, in such circumstances, it is consistent
with the statute to not apply the major input rule because the statute
requires application of the rule only to transactions between persons.
    Department's Position: We agree with the POSCO Group. It is now
well-settled Department practice not to apply section 773(f) to
transfers within a collapsed entity. Rather, because we are treating
POSCO and its affiliated producers as a single producer for purposes of
the antidumping analysis, we find it appropriate to value the substrate
inputs at issue according to POSCO Group-wide weighted-average costs,
just as we attribute all POSCO Group home market and U.S. sales to the
entity as a whole. As the Department stated in the third reviews, ``the
decision to treat affiliated parties as a single entity necessitates
that transactions among the parties also be valued based on the group
as a whole and, as such, among collapsed entities the fair-value and
major-input provisions are not controlling.'' Korean Flat-Rolled 3rd
Reviews Final, 63 FR at 13185. See also Stainless Steel Wire Rod from
Korea; Final Determination of Sales at Less Than Fair Value, 63 FR
40408, 40419-21 (July 29, 1998). The POSCO Group did not provide the
data related to the major input issue in response to the Department's
original generic questionnaire, and the Department did not request that
information in its supplemental questionnaires, consistent with the
Department's determination in Korean Flat-Rolled 3rd Reviews Final that
such information was not needed. The CIT recently affirmed this
practice, holding that ``Commerce reasonably determined that it should
act consistently with its collapsing determination and not apply
inconsistent solitary provisions, thereby arbitrarily increasing
respondents' liability.'' AK Steel Corp. et al. v. United States, Slip
Op. 98-159 (Ct. Int'l Trade Nov. 23, 1998), at 28.

Comment 18: Arm's Length Nature of Post-Sale Warehousing

    The POSCO Group argues that the Department erred in reducing
POSCO's post-sale warehousing expenses for certain home market sales.
The POSCO Group states that the Department incorrectly concluded that
the rental payments made to an affiliated party for use of a warehouse
owned by that party were not at arm's length. The POSCO Group argues
that it did provide specific evidence that said rental payments were at
arm's length.
    Petitioners argue that the Department appropriately reduced the
POSCO Group's reported post-sale warehousing expense, as the POSCO
Group never provided the underlying studies upon which its claim was
based. Therefore, the Department had no choice but to adjust the
submitted expense.
    Department Position: We agree with petitioners that the POSCO Group
did not establish that the payments in question were at arm's length.
In its July 31, 1998 supplemental questionnaire

[[Page 12949]]

response, the POSCO Group stated that in establishing charges for the
facility, the owner considered such factors as rental rates charged at
similar facilities (as identified from government studies); however,
the POSCO Group did not provide the information from those government
studies. The POSCO Group also stated in that response that Exhibit S-11
contains internal documentation identifying the factors used to
establish the rental rates for the facility, documentation supporting
the relevant criteria considered, and the relevant pages of the written
rental contract between POSCO and the affiliated party in question.
However, it is not clear how the information in the exhibit relates to
the establishment of arm's-length prices or what the relevant criteria
are; furthermore, the POSCO Group failed to provide translations for
large portions of the submitted contract. As a consequence, we sustain
our preliminary determination that the POSCO Group has failed to
adequately support its claim that the warehousing payments in question
were at arm's length.

Comment 19: Adjustments to Costs for Coating Weight and Quality

    The POSCO Group argues that the Department erred in adjusting its
reported costs to account for differences in product coating weight and
substrate quality. The POSCO Group claims that, consistent with its
normal cost accounting system, POSCO submitted costs that reflect the
average costs for products with different coating weights. Similarly,
the POSCO Group states, POCOS submitted costs that reflect the average
costs for products with different substrate qualitites, consistent with
its normal accounting records. The POSCO Group argues that the
Department should accept the averaging of coating weight and substrate
quality costs since general and administrative costs are applied as an
average and the labor and overhead costs for POCOS and PSI are
calculated as an average, and these methodologies are accepted by the
Department. The POSCO Group argues that the Department inappropriately
applied facts available simply because POSCO and POCOS do not maintain
records that account for the specific differences in coating weight and
substrate quality, respectively. The POSCO Group cites a previous case
in which the Department declined to penalize a company for failing to
maintain its accounting records in a particular manner. See Certain
Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-
Length Carbon Steel Plate from Canada; Final Results of Antidumping
Duty Administrative Reviews, 61 FR 13815, 13820 (March 28, 1996). In
the cited case, the Department allowed the respondent to report costs
for one production location as a proxy for costs at a different
location. The POSCO Group argues that the same factors which led the
Department to accept that respondent's costs, including that
respondent's verified inability to determine specific costs, are
present in the instant case. The POSCO Group argues that the Department
has previously adjusted a respondent's submitted costs, based on its
normal accounting practices, only where the Department has determined
that such normal practices resulted in an unreasonable allocation of
production costs. See DRAMs from Korea at 15472.
    Petitioners argue that the Department properly adjusted the POSCO
Group's submitted costs to account for differences in coating weight
and substrate quality. Petitioners state that the POSCO Group's
arguments regarding this issue are essentially identical to those
raised in prior reviews. See Korean Flat-Rolled 3rd Reviews Final, 63
FR at 13201. Petitioners argue that, as in the prior reviews, the
Department should reject the POSCO Group's claims and adjust the
submitted costs to account for cost differences associated with these
physical characteristics.
    Department's Position: We agree with petitioners. It is appropriate
for the Department to account for significant cost differences
associated with differences in physical characteristics. The coating
weight and quality characteristics are relatively high in the
Department's model-matching hierarchy, and the POSCO Group companies
distinguish these characteristics in their selling practices. Although
the POSCO Group suggested an alternative methodology at verification,
its submitted costs did not reflect the differences associated with
these two characteristics. The adjustments made by the Department for
coating weight and quality reflect a methodology comparable to that
used in the final results of the second and third administrative
reviews. Furthermore, regardless of the POSCO Group's characterization
of this adjustment as adverse facts available, we have simply adjusted
the POSCO Group's reported costs to more accurately reflect the costs
of producing the products. As in the previous two reviews, the
Department has relied upon the respondent's normal accounting systems,
except to the extent that doing so would result in an unreasonable
allocation of production costs and a possible distortion of the dumping
margin. The non-adverse nature of these adjustments is demonstrated by
the fact that the methodology results in a decrease in the costs of
some products, while increasing the costs of other products.
Furthermore, the use of POCOS data to adjust the costs of POSCO
production for coating weight, and the use of POSCO data to adjust the
costs of POCOS production for quality, is reasonable because they are
sister companies within the same collapsed group.
    We note that we have made a slight adjustment to our recalculations
of these adjustments to reflect the fact that we are no longer using
the matrix utilized to adjust POSCO costs. See the March 8, 1999, Final
Cost Calculation Memorandum from William Jones to Neal Halper.

Comment 20: Startup Adjustment

    The POSCO Group claims that the Department erroneously failed to
grant, or even to consider, its requested startup adjustment because
the Department claimed its effect was insignificant. The POSCO Group
argues that the Department should address the merits of its startup
adjustment claim and should grant its request. The POSCO Group argues
that record evidence supports its assertion that it has satisfied the
requirements for a startup adjustment, as defined in section
773(f)(1)(C)(ii) of the Act. Specifically, the POSCO Group claims that
abnormally high production costs were incurred at a new facility during
the review period due to startup operations, and that these higher
costs resulted from production levels that were limited by technical
factors associated with the initial phase of commercial production. The
POSCO Group claims that establishing its new production line required
substantial effort and investment, and that the new line was still in
the startup phase from July through October 1996. The POSCO Group
asserts that the new production line enabled it to produce merchandise
in new dimensions, and alluded to the Department's alleged awareness of
width as one of the most important characteristics of flat-rolled steel
products. During this initial phase, the POSCO Group argues that it was
necessary to carefully monitor and analyze the output from its new line
to ensure that quality standards were met, before increasing to
commercial production levels. The POSCO Group notes that it limited
production well below the line's normal capacity during the startup
period to permit such monitoring and to allow calibration of

[[Page 12950]]

the new equipment to avoid output variations. According to the POSCO
Group, this limiting of production levels reflects the impact of
technical factors as defined in the Act. The POSCO Group claims that
record evidence also demonstrates that the new line's production levels
were not limited by any factors other than startup, since demand for
its products was strong, no chronic production difficulties were
experienced, and operating performance on the new line improved
steadily throughout and subsequent to the startup period. Finally, the
POSCO Group argues that the effect of its requested startup adjustment
was not ``insignificant,'' as characterized by the Department in its
preliminary results. The POSCO Group argues that the Department's
regulations define an insignificant adjustment as, ``any individual
adjustment having an ad valorem effect of less than 0.33 percent* * *of
the export price, constructed export price, or normal value, as the
case may be.'' See 19 CFR 351.413. Therefore, the POSCO Group claims,
the Department erred when it measured the startup adjustment's impact
on the overall dumping margin. The POSCO Group points out that the
Department's cost verification report indicates that the startup
adjustment would reduce submitted normal values by more than 0.33
percent. The POSCO Group further notes that the Department allowed
adjustments in this instant case with an even smaller impact than the
requested startup adjustment.
    Petitioners argue that the Department properly rejected the POSCO
Group's startup adjustment claim in its preliminary results.
Petitioners assert that the startup adjustment claim should continue to
be rejected because the Department rejected the POSCO Group's startup
adjustment claim in the prior review for the very same production line,
finding that the startup adjustment requirements had not been met, and
because the POSCO Group has not submitted any new evidence to support
its claim in the instant review. Petitioners further argue that the
POSCO Group has admitted to beginning commercial production before the
current review period and that, according to the legislative history,
the startup period ends when commercial production begins.
    Department's Position: We have conducted an analysis of the POSCO
Group's startup adjustment claim for the final results. In its
preliminary results, the Department asserted that the startup claim
would have an insignificant impact on the dumping margin and,
therefore, it was not necessary to consider the startup adjustment
claim. We agree with the POSCO Group that this conclusion was
inappropriate because, as POSCO notes, our regulations define an
insignificant adjustment as, ``having an ad valorem effect of less than
0.33 percent* * *of the export price, constructed export price, or
normal value, as the case may be.'' See 19 CFR 351.413. Since the
startup adjustment would, if granted, reduce the COM for certain
products by more than 0.33 percent, we have considered the
appropriateness of the POSCO Group's startup adjustment claim.
    We have determined, however, that the statute's requirements for
granting a startup adjustment have not been met by the POSCO Group, and
we therefore have not applied the startup adjustment to calculate the
POSCO Group's COP and CV. In this case, the POSCO Group has claimed
that the installation of a new production line at one of its two works
constitutes a new facility at which new products are manufactured, and
that the claimed startup adjustment should be applied to products
manufactured on this new line. The POSCO Group also claimed a startup
adjustment for this same production line in the previous review. As in
that review, we find that this new line does not produce a ``new
product,'' and does not constitute a ``new production facility,'' as
required by the startup adjustment provision. See section
773(f)(1)(C)(ii)(I) of the Act.
    The line produces merchandise similar to that manufactured on
numerous other lines by the POSCO Group. Contrary to the POSCO Group's
claim that the Department is aware that width is one of the most
important characteristics of flat-rolled steel products, width is not
among the most important characteristics indicated in the Department's
product characteristic hierarchy. More importantly, POSCO Group product
brochures, submitted in Exhibit 8A in its October 10, 1997 Section A
response, indicate a similar range of widths produced on other lines.
Furthermore, virtually all of the alleged addition in width range
provided by the new line falls within a single broader width range
defined by the Department's product characteristic hierarchy and in
which most of the overall width range of the lines in question fall.
Finally, we disagree with the POSCO Group's assertion that the output
of the line in question constitutes a new product even in the POSCO
Group's narrow definition of the term, given that the POSCO Group
already possessed the capability of slitting wider coils to the
allegedly narrower widths that can be processed on the line in
question.
    As to a new production line constituting a new facility, the SAA
sets a high standard for startup adjustment claims when it states that,
`` `New production facilities' includes the substantially complete
retooling of an existing plant. Substantially complete retooling
involves the replacement of nearly all production machinery or the
equivalent rebuilding of existing machinery.'' SAA at 836 (emphasis
added). The SAA clearly states, therefore, that the startup adjustment
should only be applied when substantial modifications have been made to
an entire production plant. When determining whether substantial
modifications have been made the Department must consider, along with
other factors, the extent to which the improvements relate to the total
production process. In the instant case, the new line is but one of
many processing steps necessary to produce corrosion-resistant products
performed by the POSCO Group. We also note that, although the equipment
in question is large and expensive, its relative size to the other
production equipment involved in the production of corrosion-resistant
products at the POSCO Group is small. Therefore, we do not believe that
the installation of this equipment constitutes the substantial
retooling of one of the POSCO Group's facilities and, therefore, does
not meet the standard established in the SAA.
    Regarding the second prong of the startup test (see section
773(f)(1)(C)(ii)(I) of the Act), we note that POSCO officials did, as
revealed in the cost verification report, discuss alleged technical
factors associated with the initial phase of commercial production.
However, because the POSCO Group did not satisfy the first prong of the
statutory test, we are precluded from granting the claimed startup
adjustment.

Final Results of Reviews

    As a result of these reviews, we have determined that the following
margins exist for the period August 1, 1996 through July 31, 1997:

------------------------------------------------------------------------
                                                              Weighted-
               Producer/manufacturer/exporter                  average
                                                                margin
------------------------------------------------------------------------
             Certain Cold-Rolled Carbon Steel Flat Products
------------------------------------------------------------------------
Dongbu.....................................................      No U.S.
                                                              entries in
                                                                     POR
POSCO......................................................         0.00

[[Page 12951]]

Union......................................................      No U.S.
                                                              entries in
                                                                     POR
------------------------------------------------------------------------
         Certain Corrosion-Resistant Carbon Steel Flat Products
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Dongbu.....................................................         1.49
POSCO......................................................         0.16
Union......................................................         0.14
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    The Department shall determine, and the U. S. Customs Service shall
assess, antidumping duties on all appropriate entries. We have
calculated an importer-specific duty assessment rate based on the ratio
of the total amount of antidumping duties calculated for the examined
sales to the total entered value of the same sales. The rate will be
assessed uniformly on all entries of that particular company made
during the POR. The Department will issue appraisement instructions
directly to the U.S. Customs Service.
    Furthermore, the following deposit requirements shall be effective
upon publication of this notice of final results of review for all
shipments of certain cold-rolled and corrosion-resistant carbon steel
flat products from Korea entered, or withdrawn from warehouse, for
consumption on or after the publication date, as provided for by
section 751(a)(1) of the Act: (1) the cash deposit rates for the
reviewed companies named above will be the rates for those firms as
stated above, except for POSCO (and its collapsed affiliates) and
Union, which had de minimis margins, and whose cash deposit rates are
therefore zero; (2) for previously investigated companies not listed
above, the cash deposit rate will continue to be the company-specific
rate published for the most recent period; (3) if the exporter is not a
firm covered in these reviews, or the original LTFV investigations, but
the manufacturer is, the cash deposit rate will be the rate established
for the most recent period for the manufacturer of the merchandise; and
(4) if neither the exporter nor the manufacturer is a firm covered in
these reviews, the cash deposit rate will continue to be 14.44 percent
(for certain cold-rolled carbon steel flat products) and 17.70 percent
(for certain corrosion-resistant carbon steel flat products), which
were the ``all others'' rates in the LTFV investigations. See Final
Determinations of Sales at Less Than Fair Value: Certain Hot-Rolled
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat
Products, Certain Corrosion-Resistant Carbon Steel Flat Products, and
Certain Cut-to-Length Carbon Steel Plate From Korea, 58 FR 37176 (July
9, 1993), as amended by Amendment of Final Determinations of Sales at
Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products,
Certain Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-
Resistant Carbon Steel Flat Products, and Certain Cut-to-Length Carbon
Steel Plate From Korea, 58 FR 41083 (August 2, 1993).
    Article VIpara. 5 of the GATT (cited earlier) provides that ``[n]o
product * * * shall be subject to both antidumping and countervailing
duties to compensate for the same situation of dumping or export
subsidization.'' This provision is implemented by section 772(d)(1)(D)
of the Act. Since antidumping duties cannot be assessed on the portion
of the margin attributable to export subsidies, there is no reason to
require a cash deposit or bond for that amount. Accordingly, the level
of export subsidies as determined in Final Affirmative Countervailing
Duty Determinations and Final Negative Critical Circumstances
Determinations; Certain Steel Products from Korea, 58 FR 37328, 37350
(July 9, 1993) will be subtracted from the cash deposit rate for
deposit purposes.
    The deposit requirements, when imposed, shall remain in effect
until publication of the final results of the next administrative
reviews.
    This notice serves as a final reminder to importers of their
responsibility under 19 CFR 351.402(f) to file a certificate regarding
the reimbursement of antidumping duties prior to liquidation of the
relevant entries during this review period. Failure to comply with this
requirement could result in the Secretary's presumption that
reimbursement of antidumping duties occurred and the subsequent
assessment of double antidumping duties.
    This notice also serves as a reminder to parties subject to
administrative protective order (``APO'') of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with section 351.306 of the Department's regulations.
Timely notification of return/destruction of APO materials or
conversion to judicial protective order is hereby requested. Failure to
comply with the regulations and the terms of an APO is a sanctionable
violation.
    These administrative reviews and notice are in accordance with
sections 751(a)(1) and 777(i)(1) of the Act.

    Dated: March 8, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-6279 Filed 3-15-99; 8:45 am]
BILLING CODE 3510-DS-P