65 FR 39358 June 26, 2000
                                                  A-201-827
                                                  Investigation
                                                  Public Document
                                                  Grp. II/VI: RM/GC
MEMORANDUM TO: Richard W. Moreland
               Acting Assistant Secretary
                 for Import Administration

FROM:          Holly A. Kuga
               Acting Deputy Assistant Secretary
                 for Import Administration


SUBJECT: Issues and Decision Memorandum for the Final Determination in
the Antidumping Duty Investigation of Certain Large Diameter Carbon and
Alloy Seamless Standard, Line and Pressure Pipe from Mexico - April
1,1998, through March 31, 1999 

SUMMARY:

We have analyzed the case and rebuttal briefs submitted by interested
parties in the antidumping duty investigation of certain large diameter
carbon and alloy seamless standard, line and pressure pipe ("large
diameter seamless pipe") from Mexico. As a result of our analysis of the
comments, we have made changes in the margin calculations. Below is the
complete list of the issues in this investigation for which we received
comments from the parties: 

Comment 1: Coding of U.S. Market Products 
Comment 2: Date of Sale Methodology
Comment 3: Variable Cost of Manufacture
Comment 4: Direct Selling Expenses
Comment 5: Merchandise Processing Fee
Comment 6: U.S. Inland Freight Expenses
Comment 7: Unreported U.S. Sales 
Comment 8: Short-Term Borrowing Rate
Comment 9: Calculation of Credit Expense
Comment 10: Export Price ("EP")/Constructed Export Price("CEP") Sales
            Classification
Comment 11: CEP Profit Calculation


We recommend that you approve the positions we have developed in the
Discussion of the Issues section of this memorandum. 

BACKGROUND:

On February 4, 2000, the Department of Commerce (the "Department")
published the preliminary determination in this investigation. See Notice
of Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Certain Large Diameter Carbon and
Alloy Seamless Standard, Line and Pressure Pipe From Mexico, 65 FR 5587
(February 4, 2000)("Preliminary Determination"). 


The period of investigation ("POI") is April 1, 1998, through March 31,
1999. The investigation covers large diameter seamless pipe sales made by
one manufacturer/exporter, Tubos de Acero de Mexico ("TAMSA"). We invited
parties to comment on our Preliminary Determination. We received case
briefs from TAMSA and the petitioners (1) on May 1, 2000 and rebuttal
briefs from both parties on May 8, 2000. There was no public hearing.


Scope of Investigation


The products covered are large diameter seamless carbon and alloy (other
than stainless) steel standard, line, and pressure pipes produced, or
equivalent, to the American Society for Testing and Materials ("ASTM") A-
53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-589, ASTM A-795, and the
American Petroleum Institute ("API") 5L specifications and meeting the
physical parameters described below, regardless of application, with the
exception of the exclusions discussed below. The scope of this
investigation also includes all other products used in standard, line, or
pressure pipe applications and meeting the physical parameters described
below, regardless of specification, with the exception of the exclusions
discussed below. Specifically included within the scope of this
investigation are seamless pipes greater than 4.5 inches (114.3 mm) up to
and including 16 inches (406.4 mm) in outside diameter, regardless of wall-
thickness, manufacturing process (hot finished or cold-drawn), end finish
(plain end, beveled end, upset end, threaded, or threaded and coupled), or
surface finish.


The seamless pipes subject to this investigation are currently
classifiable under the subheadings 7304.10.10.30, 7304.10.10.45,
7304.10.10.60, 7304.10.50.50, 7304.31.60.50, 7304.39.00.36 7304.39.00.40,
7304.39.00.44, 7304.39.00.48, 7304.39.00.52, 7304.39.00.56, 7304.39.00.62,
7304.39.00.68, 7304.39.00.72, 7304.51.50.60, 7304.59.60.00, 7304.59.80.30,
7304.59.80.35, 7304.59.80.40, 7304.59.80.45, 7304.59.80.50, 7304.59.80.55,
7304.59.80.60, 7304.59.80.65, and 7304.59.80.70 of the Harmonized Tariff
Schedule of the United States ("HTSUS").


Specifications, Characteristics, and Uses: Large diameter seamless pipe
is used primarily for line applications such as oil, gas, or water
pipeline, or utility distribution systems. Seamless pressure pipes are
intended for the conveyance of water, steam, petrochemicals, chemicals,
oil products, natural gas and other liquids and gasses in industrial
piping systems. They may carry these substances at elevated pressures and
temperatures and may be subject to the application of external heat.
Seamless carbon steel pressure pipe meeting the ASTM A-106 standard may be
used in temperatures of up to 1000 degrees Fahrenheit, at various American
Society of Mechanical Engineers ("ASME") code stress levels. Alloy pipes
made to ASTM A-335 standard must be used if temperatures and stress levels
exceed those allowed for ASTM A-106. Seamless pressure pipes sold in the
United States are commonly produced to the ASTM A-106 standard.


Seamless standard pipes are most commonly produced to the ASTM A-53
specification and generally are not intended for high temperature service.
They are intended for the low temperature and pressure conveyance of
water, steam, natural gas, air and other liquids and gasses in plumbing
and heating systems, air conditioning units, automatic sprinkler systems,
and other related uses. Standard pipes (depending on type and code) may
carry liquids at elevated temperatures but must not exceed relevant ASME
code requirements. If exceptionally low temperature uses or conditions are
anticipated, standard pipe may be manufactured to ASTM A-333 or ASTM A-334
specifications.


Seamless line pipes are intended for the conveyance of oil and natural
gas or other fluids in pipe lines. Seamless line pipes are produced to the
API 5L specification. 


Seamless water well pipe (ASTM A-589) and seamless galvanized pipe for
fire protection uses (ASTM A-795) are used for the conveyance of water.


Seamless pipes are commonly produced and certified to meet ASTM A-106,
ASTM A-53, API 5L-B, and API 5L-X42 specifications. To avoid maintaining
separate production runs and separate inventories, manufacturers typically
triple or quadruple certify the pipes by meeting the metallurgical
requirements and performing the required tests pursuant to the respective
specifications. Since distributors sell the vast majority of this product,
they can thereby maintain a single inventory to service all customers.


The primary application of ASTM A-106 pressure pipes and triple or
quadruple certified pipes in large diameters is for use as oil and gas
distribution lines for commercial applications. A more

minor application for large diameter seamless pipes is for use in
pressure piping systems by refineries, petrochemical plants, and chemical
plants, as well as in power generation plants and in

some oil field uses (on shore and off shore) such as for separator lines,
gathering lines and metering runs. These applications constitute the
majority of the market for the subject seamless pipes. However, ASTM A-106
pipes may be used in some boiler applications.


The scope of this investigation includes all seamless pipe meeting the
physical parameters described above and produced to one of the
specifications listed above, regardless of application, with the exception
of the exclusions discussed below, whether or not also certified to a non-
covered specification. Standard, line, and pressure applications and the
above-listed specifications are defining characteristics of the scope of
this investigation. Therefore, seamless pipes meeting the physical
description above, but not produced to the ASTM A-53, ASTM A-106, ASTM A-
333, ASTM A-334, ASTM A-589, ASTM A-795, and API 5L specifications shall
be covered if used in a standard, line, or pressure application, with the
exception of the specific exclusions discussed below.


For example, there are certain other ASTM specifications of pipe which,
because of overlapping characteristics, could potentially be used in ASTM
A-106 applications. These specifications generally include ASTM A-161,
ASTM A-192, ASTM A-210, ASTM A-252, ASTM A-501, ASTM A-523, ASTM A-524,
and ASTM A-618. When such pipes are used in a standard, line, or pressure
pipe application, such products are covered by the scope of this
investigation.


Specifically excluded from the scope of this investigation are: 


A. Boiler tubing and mechanical tubing, if such products are not produced
to ASTM A-53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-589, ASTM A-795,
and API 5L specifications and are not used in standard, line, or pressure
pipe applications.


B. Finished and unfinished oil country tubular goods ("OCTG"), if covered
by the scope of another antidumping duty order from the same country. If
not covered by such an OCTG order, finished and unfinished OCTG are
included in this scope when used in standard, line or pressure
applications.


Products produced to the A-335 specification unless they are used in an
application that would normally utilize ASTM A-53, ASTM A-106, ASTM A-333,
ASTM A-334, ASTM A-589, ASTM A-795, and API 5L specifications. 


Line and riser pipe for deepwater application, i.e., line and riser pipe
that is (1) used in a deepwater application, which means for use in water
depths of 1,500 feet or more; (2) intended for use in and is actually used
for a specific deepwater project; (3) rated for a specified minimum yield
strength of not less than 60,000 psi; and (4) not identified or certified
through the use of a monogram, stencil, or otherwise marked with an API
specification (e.g., "API 5L"). 


With regard to the excluded products listed above, the Department will
not instruct Customs to require end-use certification until such time as
petitioner or other interested parties provide to the Department a
reasonable basis to believe or suspect that the products are being
utilized in a covered application. If such information is provided, the
Department will require end-use certification only for the product(s) (or
specification(s)) for which evidence is provided that such products are
being used in a covered application as described above. For example, if,
based on evidence provided by petitioner, the Department finds a
reasonable basis to believe or suspect that seamless pipe produced to the
A-335 specification is being used in an A-106 application, it will require
end-use certifications for imports of that specification. Normally the
Department will require only the importer of record to certify to the end-
use of the imported merchandise. If it later proves necessary for adequate
implementation, the Department may also require producers who export such
products to the United States to provide such certification on invoices
accompanying shipments to the United States.


Although the HTSUS subheadings are provided for convenience and Customs
purposes, our written description of the merchandise subject to this scope
is dispositive.


Discussion of the Issues


Comment 1: Coding of U.S. Market Products 


The petitioners contend that TAMSA erred when it reported the
specification code for a sale to its largest U.S. customer, Company A. The
petitioners assert that the specification code for this sale to Company A
should be reclassified as code 7 for sour service pipe, rather than code 6
for standard pipe. The petitioners note that certain TAMSA sales
documentation (e.g., sales invoice and sales acknowledgment) and
production records (e.g., quality control and manufacturing plans)
identify the pipe in this sale as sour service pipe, or pipe intended for
sour service applications. Accordingly, the petitioners request that the
Department reclassify this sale as code 7 sour service pipe in order to
ensure that this sale is appropriately matched to code 7 home market sales
of pipe with the same sour service specification. 


Finally, the petitioners contend that since TAMSA misreported the
specification for sales to Company A and examples of sales documentation
were not available to determine whether similar errors occurred for the
remaining U.S. sales, the Department should use facts available in
reaching its determination. For the remaining U.S. sales, petitioners urge
the Department to apply adverse facts available by changing the gross unit
price of the home market sales that Commerce matches to U.S. sales by an
amount equal to the price differential between sour and standard pipe. 


TAMSA refutes the petitioners' assertion that TAMSA should have
classified the pipe sold to Company A as sour service pipe. TAMSA states
that the record is clear that TAMSA produced the merchandise as standard
pipe rather than sour service pipe and therefore they properly reported
the product characteristics on an "as produced" basis. It further noted
that this practice of reporting the merchandise "as produced," rather than
on an "as sold" basis is consistent with Department precedent. See Gray
Portland Cement and Clinker from Mexico: Final Results of Antidumping
Review, 64 FR 13148, 13153-4 (March 17, 1999) ("CEMEX") (Department
determined that product matching is done on an "as produced" basis, not an
"as sold" basis). Specifically, TAMSA notes that the accompanying mill
test certificate for this sale indicates that the steel specification is
for standard pipe, not sour service pipe. The mill test certificate for
this sale does not carry either of TAMSA's internal codes for sour service
pipe (e.g., SA or SS), which do appear on the mill certificates for other
sales the Department examined during verification that TAMSA reported as
sour service pipe.


Finally, the respondent rebuts the petitioners' assertion that partial
adverse facts available should be applied for the remaining U.S. sales
because it properly classified sales to Company A.


Department's Position: 


We agree with TAMSA that it properly classified the product in the sale
to Company A as code 6 standard pipe. First, we note that although certain
sales and production records do indicate that the pipe sold to Company A
may have some form of sour service pipe application, other sales and
production records (e.g., purchase order and mill test certificate) make
no such reference. Indeed, the purchase order from Customer A only
specifies certain types of additional quality testing for the standard
line pipe ordered. Information on the record does not demonstrate that
this testing, for which the customer is separately charged, is the type of
testing used to define a pipe for sour service applications.


More significant to this issue is our reliance on TAMSA's internal
production records to verify the product specification, as well as other
product characteristics, for all sales examined during verification. The
mill test certificate, which is the ultimate indicator relied upon by both
the producer and customer to define the merchandise actually produced,
indicates that TAMSA produced the pipe for this sale as standard pipe
rather than sour service pipe. We did confirm that TAMSA does have
specific product code identifiers for sour service pipe and that when it
produces sour service pipe, TAMSA does specify this product code on mill
certificates. The mill certification for the sale in question did not
carry the TAMSA product code identifier for sour service pipe.


Moreover, we agree with the respondent that there is no basis for
applying adverse facts available. TAMSA properly classified the sales to
Company A as standard pipe. Thus, there is no reason to assume that the
specification code was misreported for the remaining U.S. sales. 


Comment 2: Date of Sale Methodology


The petitioners argue that the Department should not accept TAMSA's
methodology of reporting the date of sale in both markets based on the
date of the sale acknowledgment, but rather should use the sale invoice
date. The petitioners note that TAMSA acknowledged that changes do take
place when it stated that "changes to price and quantity rarely occur
after issuance of the sales acknowledgment." Further, the petitioners note
that the Department's verification of TAMSA's sales process identified
material changes after the issuance of the sales acknowledgment.


The petitioners contend that the Department's regulations establish a
presumption that the invoice date will be used to determine the date of
sale (see 19 C.F.R. 351.401(i)), and that the U.S. Court of International
Trade ("CIT") recently has specified that this presumption may not easily
be disregarded. See Thai Pineapple Canning Industry Corp. v. United
States, Slip. Op. 00-17 (CIT Feb. 10, 2000) ("Thai Pineapple II"). The
petitioners note that in Thai Pineapple II , the CIT held that invoice
date, rather than contract date, had to be used to determine date of sale
where there were post-contract changes in the sale terms and that, even
though changes after the contract date may have occurred only in "rare
instances," this was not a "substantial reason to abandon the invoice date
presumption."


TAMSA contends that it followed the Department's instructions for
identifying the correct date of sale because the line pipe sold in both
markets is sold pursuant to a bidding process and the agreed material
terms are first reported in the sales acknowledgment, not the invoice.
Moreover, TAMSA notes that if any material changes occur between the time
that the sale is first entered into TAMSA's records as the sales
acknowledgment, TAMSA reports the date of the second sales adjustment as
the reported date of sale. 


Department's Position: 


While we agree with the petitioners that the Department's regulations
create a rebuttable presumption in favor of the invoice date as the date
of sale, we are mindful that this presumption does not require the use of
invoice date if the facts of a case indicate a different date better
reflects the time at which the material terms of sale were established. In
this investigation, the sales acknowledgment, rather than commercial
invoice, better reflects the date on which the material terms of sale for
both markets are established. See 19 C.F.R. 351.401(i). Although TAMSA
stated that "changes may occur after the issuance of the sales
acknowledgment," our analysis of TAMSA's sales processes in both markets
has led us to conclude that sales acknowledgment date is the more
appropriate date of sale, as opposed to the invoice, because the invoice
is reflective of the material terms identified on the sales acknowledgment
form that is generated before the invoice.


During verification of TAMSA's sales response, the Department reviewed
sales-related documentation (e.g., sales acknowledgment and invoices) from
TAMSA's largest U.S. customer (who accounts for a significant portion of
reported quantity) indicating that there was a slight change in the
quantity shipped between the sales acknowledgment date and the invoice
date. This adjustment in quantity is not a substantial change to the
material terms of sale. The discrepancy in the quantity listed on the
sales acknowledgment and the invoice was less than 0.5 percent of the
total quantity shipped, which falls within the over-under thresholds
allowed by the customer. Concerning the home market sales, TAMSA
identified the "orden de surtimiento" for Pemex Exploracion y Produccion
("PEP") transactions and the sales acknowledgment for non-PEP transactions
as the reported date of sale. The Department did not identify any material
changes in the home market between the sales acknowledgment, "orden de
surtimiento" and the invoice.


In sum, because there were no material changes in the home market sales
and only one minor change in quantity in U.S. sales between the sales
acknowledgment date and invoice date, it is appropriate for us to conclude
that the material terms of the sale were established on the sales
acknowledgment date.


We note that in Thai Pineapple II, the CIT held that the invoice date,
rather than contract date, should be applied to determine the date of sale
where there were few changes in the terms of sale between contract date
and invoice date. The CIT further held that in that case the Department
did not adequately explain why those changes were not sufficient to cause
the Department to follow its presumption in favor of invoice date. The
Department believes, however, that its determination in this case is both
consistent with its regulation and with the CIT's finding in Thai
Pineapple II because there were no material changes between the sales
acknowledgment and the invoice date.


Comment 3: Variable Cost of Manufacture


The petitioners note that TAMSA omitted the calculated variance in its
variable cost of manufacturing and urge the Department to increase the
variable cost of manufacturing equal to the variance. TAMSA agrees with
the petitioners.


Department's Position: 


We agree with the petitioners and adjusted the variable cost of
manufacturing expense to account for the omitted variance. See Final
Results Calculation Memorandum - Tubos de Acero de Mexico, dated June 16,
2000, public version ("Final Calculation Memo") on file in the Central
Records Unit ("CRU") of the main Department building, Room B-099.


Comment 4: Direct Selling Expenses


The petitioners argue that the respondent did not accurately report
certain direct selling expenses directly related to sales to U.S.
customer, Company A. According to the petitioners, the respondent reported
a significantly lesser amount in direct selling expenses (e.g. wharfage
and stevedoring charges) for certain sales to Company A compared to the
reported direct selling expense for the remaining sales to Company A,
despite the fact that all sales had the same terms of sale, destination,
and involved identical merchandise. The petitioners claim that the
explanation provided by respondents why a large disparity exists in direct
selling expense is contradicted by the record. Therefore, petitioners urge
the Department to apply adverse facts available for the direct selling
expenses for the U.S. sales in question. 


TAMSA argues that it correctly reported these direct selling expenses for
sales to Company A, and notes that the reported direct selling expense was
less for certain sales because the merchandise was shipped directly to the
customer. In contrast to the sales with a minimal amount for direct
selling expense, TAMSA transported the merchandise related to the other
sales to Company A via an intermediary port where the pipe was unloaded
and thus, incurred a wharfage and stevedoring expense which respondent
reported as part of the direct selling expense. 


Department's Position: 


We agree with TAMSA. At verification, we reviewed supporting shipping and
sales documentation demonstrating that, for the sales for which TAMSA
reported a lesser amount in direct selling expense, TAMSA shipped the pipe
directly to the customer. See Supplemental Section A at Attachment A-27
(e.g., purchase order) dated October 12, 1999 (for a thorough explanation,
see Business Proprietary Version). The other sales to Company A had the
same terms of sale and destination, and involved the identical
merchandise, but this merchandise was ultimately unloaded at an
intermediary port before being shipped to the customer. The additional
amount for direct selling expenses reflects the fees charged to TAMSA for
unloading the merchandise at the intermediary port.


Comment 5: Merchandise Processing Fee


Petitioners argue that despite the Department's instructions at
verification to report a merchandise processing fee ("MPF") for all sales
through TAMSA's U.S. selling affiliate, Siderca Corp. ("Siderca"), where
Siderca is the importer of record, TAMSA's revised Section C database did
not contain a MPF for all such sales. TAMSA agrees with petitioners and
states that certain values for the MPF were inadvertently omitted from the
revised database. 


Department's Position: 


We revised the U.S. sales database by applying the MPF to all of the
appropriate sales. See Final Calculation Memo.


Comment 6: U.S. Inland Freight Expenses


The petitioners argue that TAMSA should have reported inland freight
expense (port to warehouse) for all transactions related to a specific
invoice to the same customer but erred when it only reported the freight
expense on four of the five transactions. Petitioners urge the Department
to correct the omitted freight expense by using the data reported in that
field for the other sales to that customer.


TAMSA agrees with the petitioner that an inland freight expense should
have been reported for the particular observation in question. TAMSA
explains that the freight on these 5 transactions was presented to the
Department as a clerical error on the first day of verification but the
format they used to present the data to the Department was in error
because it referred to the incorrect database observation number. TAMSA
contends that they properly reported an inland freight expense for all
five transactions and that the error can be easily corrected by referring
to the list of correct observation numbers they have provided to the
Department. 


Department's Position: 


We agree with the petitioner, in part. TAMSA did report the inland
freight expense related to these transactions as a clerical error at
verification and we observed during the course of verification that all
transactions related to this invoice incurred a freight charge. We agree
that TAMSA's clerical error submission incorrectly assigned the freight
expense to the observation of one transaction covered by another invoice.
However, we are satisfied that adjusting the observation numbers in the
manner suggested by TAMSA results in the correct freight being applied to
the appropriate transactions. Consequently, we have revised the U.S.
database using the list provided by TAMSA which identifies the inland
freight with the correct observation number. See Final Calculation Memo.


Comment 7: Unreported U.S. Sales


The petitioners urge the Department to apply partial adverse facts
available to two previously unreported U.S. sales by one of TAMSA's U.S.
affiliated selling agents that TAMSA presented to the Department as
clerical errors at the outset of verification. The petitioners note that
the Department has repeatedly declared that the failure of a respondent to
report U.S. sales is "one of the most serious errors a respondent can
commit." See Notice of Final Determination of Sales at Less Than Fair
Value: Stainless Steel Sheet and Strip in Coils from Italy, 64 FR 30757
(June 8, 1999) ("Coils from Italy") The petitioners argue that TAMSA
repeatedly failed to include these sales in its U.S. sales database that
was submitted on three separate occasions prior to verification. The
petitioners cite to numerous cases where the Department applied partial
adverse facts available for those sales that were not reported prior to
verification or on the first day of verification (see i.e., Coils from
Italy, 64 FR at 30757; Notice of Final Determination of Sales at Less Than
Fair Value: Stainless Steel Sheet and Strip in Coils from Germany, 64 FR
30710, 30732 (June 8, 1999) ("Coils from Germany"); Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod
from Spain, 63 FR 40391, 40397 (July 29, 1998) ("Wire Rod from Spain");
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Helical Spring Lock Washers from the People's Republic of China, 58 FR
48833, 48835 (September 20, 1993) ("Washers from the PRC")).


Secondly, the petitioners contend that the Department has applied adverse
facts available to unreported U.S. sales where the omission consisted of a
single sale or the quantity of the unreported sales is considered to be
small. See Coils From Germany, 64 FR 30732 (applying adverse facts
available despite the respondent's argument that its omitted sales were
not "significant"); Wire Rod From Spain, 63 FR 40396-97 (applying adverse
facts available to a "small quantity" of omitted U.S. sales); and Washers
From the PRC, 58 FR 48835 (applying adverse facts available to a single
missing U.S. sale). The petitioners in the instant investigation state
that the two omitted sales follow similar circumstances of the cases cited
above. 


Third, the petitioners assert that the Department cannot accept TAMSA's
sales information as a "minor correction" of a clerical error. The
petitioners note that to qualify as an acceptable "minor correction," the
Department has identified six criteria under which it will accept
corrections of clerical errors. See Certain Fresh Cut Flowers From
Colombia: Final Results of Antidumping Duty Administrative Reviews, 61 FR
42833, 42834 (August 19, 1996) ("Flowers from Colombia"). The petitioners
assert that the sales in question do not meet the Department's test,
specifically the criterion "{t}he error in question must be demonstrated
to be a clerical error, not a methodological error, an error in judgment,
or a substantive error." The petitioners note that TAMSA's failure to
report the U.S. sales was not a clerical error; rather, it was based on
TAMSA's selection criteria for identifying the date of sale for those
sales which fell within the POI.


TAMSA contends that the petitioners' reliance on Coils from Italy, Coils
from Germany, and Wire Rod from Spain is misplaced. The facts in those
cases, TAMSA argues, are not remotely comparable to the facts in the
instant investigation. In Coils from Italy, the Department applied partial
facts available for U.S. sales reported prior to verification, stating
that "[f]ailure to report . . . U.S. sales data, indicates a lack of best
efforts, unless there are extenuating circumstances that explain the
failure." The Department found no evidence of extenuating circumstances
because the respondent "stated at verification that it did not know the
reasons why these sales were excluded." In contrast, TAMSA asserts that it
demonstrated to the Department at verification precisely how these sales
were identified and explained why they should be included, and that no
other sales had been excluded. In Coils from Germany, the Department
discovered five unreported sales during the U.S. sales verification. In
contrast, in this case, TAMSA brought the two sales to the Department's
attention in its list of corrections on the first day of verification.
Finally, in another case the petitioners cite, Wire Rod from Spain, the
Department applied facts available for U.S. sales that a respondent failed
to report where it provided only the quantity and the gross unit price for
the unreported sales. TAMSA asserts that it provided the Department with
complete information related to these sales in its post verification
revised Section C database that was submitted to the Department on March
24, 2000.


Conversely, TAMSA notes that in a recent investigation, Notice of Final
Determination of Sales at Less Than Fair Value: Certain Cut-To-Length
Carbon-Quality Steel Plate Products from Japan, 64 FR 73215 (March 16,
1999) ("Japanese Plate"), Department included in its margin analysis for
the final determination information that the Department accepted at
verification concerning three unreported sales related to a single invoice
that were disclosed during verification. Unlike the fact pattern in
Japanese Plate, TAMSA claims that it immediately, and voluntarily, brought
these sales to the Department's attention on the first day of
verification. 


TAMSA notes that the missing sale was first identified just prior to
verification in the course of preparing for its reconciliation of its
reported sales to its internal records. Moreover, TAMSA argues that these
sales, which are actually part of one invoice, represent an insignificant
portion of TAMSA's U.S. sales transactions and that its failure to report
them is simply a clerical error. TAMSA states that these two transactions
represent a minor correction (less than one percent of the U.S. sales
database by volume) to information already on the record. 


Department's Position:


We agree with TAMSA that the information related to these sales that was
presented to the Department as a clerical error at verification
constitutes a minor correction to information already on the record.
Therefore, we have included these two sales in our margin analysis for the
final determination. 


With respect to the reporting of new sales, the decision of the
Department whether to accept new sales at verification is to be made on a
case-by-case basis and depends on the significance of the new information.
See, The Coalition for the Preservation of American Brake Drum and Rotor
Aftermarket Manufacturers v. United States, 44 F. Supp. 2d 229 (CIT 1999);
see also Department's 1998 Antidumping Manual at Chapter 13 at page 30.
The Department's practice is to accept new information during verification
only when that information constitutes minor corrections to information
already on the record, or when that information corroborates, supports, or
clarifies information already on the record. See, Japanese Plate, 64 FR at
73234. 


At the outset of verification, TAMSA voluntarily disclosed to Department
officials the nature of the previously unreported sales to the United
States made by its U.S. affiliated selling agent. As noted in the
verification report and confirmed in Comment 3 above, TAMSA's reported
date of sale methodology for both markets was the sales acknowledgment
date, not the invoice date. The omitted sales in question originated from
TAMSA's computer system identifying subject merchandise sales in both
databases dependent on the last date identified on the sales
acknowledgment form, not the original entered date. As noted in the
verification report, there did exist in both markets a few instances where
the sales acknowledgment was modified and the subsequent date of
modification was reported as the date of sale. (2) As a result, TAMSA's
computer-generated query for sales during the POI did not identify these
sales because it queried possible sales of subject merchandise based upon
the last adjusted date, not the original date. As noted in the
verification report, the sales acknowledgment for this transaction was
originally generated during the POI, but subsequent modifications after
the POI caused the date of sale to fall outside the POI. During
verification, Department officials verified the excluded sales'
documentation (e.g., sales acknowledgment and invoice) and the nature of
the excluded sales from the Section C database. Moreover, during
verification TAMSA provided quantity and value information to support its
assertion that there were no additional unreported U.S. sales, and the
Department was satisfied that there were no additional unreported U.S.
sales. (3) 


We have no reason to believe that TAMSA intentionally withheld from the
Department these sales, which constituted a very minor percentage of total
U.S. sales, and are satisfied that the record is now complete and accurate
regarding this company's sales of subject merchandise during the POI.
Furthermore, the facts of the instant investigation are similar to
Japanese Plate where the Department determined to accept the additional
sales disclosed at verification because they were minor corrections to
information already on the record. 


Comment 8: Short-Term Borrowing Rate


TAMSA contends that a Mexican peso-based short-term borrowing interest
rate instead of a U.S. dollar-based interest rate should be applied when
calculating the home market imputed credit expense even though TAMSA does
not have any peso-denominated financing and its sales in the home market
are denominated in U.S. dollars. TAMSA asserts that in cases where the
producer has no local currency-based financing, the Department has
accepted the prevailing short-term interest rate in the country where the
sale occurs (e.g., peso-denominated interest rate). (4) 


The petitioners state that home market credit expense was correctly
calculated using a U.S. dollar-denominated interest rate. Further, the
petitioners refute the respondent's interpretation of the Department's
policy concerning the application of the short-term interest rate based
upon where the sales occur. The petitioners note that the Department's
policy actually states that in cases where the respondent does not have
local currency-based financing, the Department should tie the interest
rate to the currency in which the home market sales were made. See Import
Administration Policy Bulletin 98-2 "Imputed Credit Expenses and Interest
Rates"("Policy Bulletin 98.2"), dated February 23, 1998. The petitioners
argue that the record demonstrates that TAMSA invoiced the customer and
received payment in U.S. dollars. Thus, the Department should calculate
the credit expense using a U.S. dollar-based interest rate.


Department's Position:


We agree with the petitioners. We use a short-term interest rate tied to
the currency of the transaction. See Policy Bulletin 98.2 The prices fixed
on the date of sale are in U.S. dollars, and TAMSA invoiced and received
payment for the sales in question in the same U.S. dollar amounts.
Therefore, the appropriate short-term interest rate is U.S. dollar
denominated. The respondent incorrectly interprets Policy Bulletin 98-2 to
support its argument that we should use a peso-based interest rate.


Comment 9: Calculation of Credit Expense


The petitioners argue that the Department should recalculate TAMSA's home
market imputed credit expense by first adjusting the gross unit price by
any relevant billing adjustments, and then calculating the imputed credit.


TAMSA concurs with the petitioners that when calculating imputed credit,
gross unit price should be adjusted for any billing adjustments. However,
TAMSA notes that it did calculate its home market imputed credit expense
net of billing adjustments. 


Department's Position: 


We agree with both the respondent and petitioners that it is our policy
to calculate imputed credit expense net of billing adjustments. See Final
Results of the Third Administrative Review: Certain Pasta from Italy, 65
FR 7349 (February 14, 2000). During verification, we confirmed that TAMSA
properly adjusted for billing adjustments when calculating its home market
imputed credit expense. Therefore, we have not made any changes to this
calculation. 


Comment 10: Export Price ("EP") /Constructed Export Price ("CEP")
Classification


TAMSA contends that in the Preliminary Determination, the Department
should not have reclassified all of TAMSA's reported EP sales through
Siderca, TAMSA's affiliated U.S. selling agent, as CEP sales. According to
TAMSA, the Department appropriately applied the "three prong" test derived
from PQ Corp. v. United States (5) (the "PQ Test"), but was incorrect when
it concluded that Siderca, acted as more than simply a "processor of sales-
related documentation" or a "communication link." For a further
discussion, see "Certain Large Diameter Carbon and Alloy Seamless Standard
Line and Pressure Pipe from Mexico" dated January 28, 2000", public
version on file in the CRU of the main Department building, room B-099
("EP/CEP Memorandum). TAMSA argues that the record clearly demonstrates
that Siderca's role is merely "ancillary" and, therefore, satisfies the
"three prong" test with respect to these sales. Accordingly, for the final
determination, the Department should reclassify these sales transactions
as EP sales, as originally reported by TAMSA. TAMSA further urges the
Department to continue applying the three prong test until a recently
issued decision by the Court of Appeals for the Federal Circuit ("CAFC"),
AK Steel Corp. v. United States ("AK Steel"), (6) becomes final. 


Conversely, if the Department elects to adhere to the AK Steel decision,
TAMSA contends that at least its sales to end-users through Siderca should
be treated as EP transactions. TAMSA states that the critical negotiation
of sales to these end-users (e.g., quality specifications, price, quantity
and terms of delivery) are defined by TAMSA in Mexico via negotiations
between TAMSA and the unaffiliated U.S. customer, not Siderca.


The petitioners note that the Department recently applied AK Steel in a
review with similar fact patterns (7) and urge the Department to continue
applying AK Steel. The petitioners assert that Commerce should continue to
treat the sales at issue as CEP sales because Siderca invoices and
receives payments from the unaffiliated U.S. customers. Specifically, the
petitioners note that AK Steel stated: "If the contract for sale was
between a U.S. affiliate of a foreign producer and an unaffiliated U.S.
purchaser, then the sale must be classified as a CEP sale." AK Steel, 203
F. 3d at 1341. The petitioners argue that the "contract for sale" is the
invoice and receipt of payment between Siderca and the unaffiliated
customer. Conversely, the petitioners note that if the Department does not
apply AK Steel, the Department should continue to classify all of
Siderca's sales as CEP transactions because the selling process in the
United States by Siderca does not meet the third criterion of the PQ Test,
meaning the role of Siderca is not merely "ancillary." Specifically, the
petitioners assert that Siderca sets the price, solicits sales, and
obtains customer approval regarding sale terms. More importantly,
petitioners note that the Sales and Marketing Agreement between TAMSA and
Siderca clearly outlines Siderca's functions and is conclusive evidence
that Siderca's role is not simply a "communications link." 


Department's Position: 


We agree with petitioners that all of TAMSA's sales should be classified
as CEP transactions. Section 772(a) of the Act states that EP is the price
at which the subject merchandise is first sold (or agreed to be sold)
before the date of importation by the producer or exporter of the subject
merchandise outside of the United States to an unaffiliated purchaser in
the United States. Section 772(b) of the Act states that CEP is the price
at which the subject merchandise is first sold (or agreed to be sold) in
the United States before or after the date of importation by or for the
account of the producer or exporter of such merchandise or by a seller
affiliated with the producer or exporter, to a purchaser not affiliated
with the producer or exporter. 


In this case, the agreement for sale is made in the United States between
Siderca, TAMSA's U.S. selling affiliate, and the unaffiliated U.S.
customer. While a quality control meeting is held at TAMSA's facilities in
Mexico for certain sales to end-users, the essential terms of the sale
(e.g. price and quantity) are set in the United States prior to these
meetings. The purpose of the quality control meeting in Mexico is merely
"to allow all parties {unaffiliated U.S. customer, Siderca, and TAMSA} to
fully understand one another's expectations and responsibilities in the
sales process." See Verification Report at Section II, p. 7. Virtually all
sales contacts are between Siderca and the unaffiliated US customer.
Siderca receives the purchase order from the unaffiliated U.S. customer,
confirms the purchase order with a sales acknowledgment, invoices the
unaffiliated U.S. customer, and receives payment. Moreover, sales through
Siderca are made through a series of back-to-back transactions in which
Siderca takes title to the merchandise prior to forwarding the title to
the U.S. customer. Accordingly, the Department determines that TAMSA's
sales through Siderca are CEP sales.


Comment 11: CEP Profit Calculation


Petitioners argue that movement expenses should be removed from the
denominator of the CEP profit ratio. The petitioners note that the CIT
ruled that "movement expenses may not be included in the denominator of
the ratio to be applied to actual total profit." U.S. Steel Group, a Unit
of USX Corporation v. United States 15 F. Supp.2d 892, 898 (CIT 1998).
Furthermore, the CIT has reaffirmed this holding twice. See, Thai
Pineapple Canning Indus. Corp. v. United States 1999 Ct. Int'l Trade LEXIS
32, 1999 WL 288772 (Ct. Int'l Trade May 5, 1999); see also, Pohang Iron
and Steel Co., Ltd. 1999 Ct. Int'l Trade LEXIS 105 (Ct. Int'l Trade Oct.
20, 1999). TAMSA refutes the petitioners assertion and argues that the
Department should include movement expenses in the denominator for
calculating CEP profit because it is consistent with Department policy and
in accordance with the statute.


Department's Position: 


We agree with TAMSA. It is the Department's policy to include movement
expenses in "total expenses," the denominator for the CEP profit ratio.
See, Import Administration Policy Bulletin 97-1, "Calculation of Profit
for Constructed Export Price Transactions" dated September 4, 1997. The
Department is currently appealing the CIT decision in U.S. Steel Group,
and has emphasized in recent cases that it will continue to follow its
policy of including movement expenses in the denominator of the CEP profit
ratio in accordance with the Department's interpretation of section 772(f)
of the Act. See "Issues and Decision Memorandum for the Administrative
Review of Gray Portland Cement and Clinker from Mexico" dated March 15,
2000; see also, Korean Steel.


RECOMMENDATION:


Based on our analysis of the comments received, we recommend adopting all
of the above positions. If these recommendations are accepted, we will
publish the final results of review and the final weighted-average dumping
margin for the reviewed firm in the Federal Register.

Agree         Disagree 

Richard W. Moreland
Acting Assistant Secretary
  for Import Administration

Date 


_________________________________________________________________________
footnotes:


1. The petitioners in this investigation are: U.S. Steel Group, Lorain
Tubular Co. LLC (both units of USX Corp.), and the United Steel Workers of
America 

2. No material changes were made between sales acknowledgment and invoice
date as discussed in Comment 3. Generally, these changes were minor
changes in addresses or destination points. 

3. To test whether TAMSA captured all sales acknowledgment forms
originally generated during the POI, and subsequently modified after the
POI, we tested TAMSA's date of sale methodology, reviewed computer program
language delineating the dates, and reviewed sales acknowledgments amended
before and after the POI. See Verification of the Sales Response of Tubos
de Acero de Mexico in the Antidumping Duty Investigation of Certain Large
Diameter Carbon and Alloy Seamless, Standard, Line and Pressure Pipe from
Mexico ("Verification Report"), dated April 19, 2000, Section II, at p.
15. 

4. See Import Administration Policy Bulletin 98.2 "Imputed Credit
Expenses and Interest Rates"("Policy Bulletin 98.2"), dated February 23,
1998 and Silicon Metal from Brazil; Final Results of Antidumping Duty
Administration Review, 61 FR 46763, 46774 (September 5, 1996) 

5. 652 F. Supp. 724, 733-35 (CIT 1987) 

6. 203 F. 3d 1330 (Fed. Circ. 2000) 

7. Petitioners state that the Department applied AK Steel in the final
results of the fifth administrative review of Certain Cold-Rolled and
Corrosion-Resistant Carbon Steel Flat Products from Korea: Final Results
of Antidumping Duty Administrative Review, 65 FR 13359, 13361 (March 13,
2000) ("Korean Steel")