64 FR 30710, June 8, 1999

DEPARTMENT OF COMMERCE

International Trade Administration
[A-428-825]


Final Determination of Sales at Less Than Fair Value; Stainless
Steel Sheet and Strip in Coils From Germany

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

ACTION: Notice of final determination of sales at less than fair value.

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

EFFECTIVE DATE: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Charles Ranado, Stephanie Arthur, or
Robert James at (202) 482-3518, (202) 482-6312, or (202) 482-5222,
respectively, Antidumping and Countervailing Duty Enforcement Group
III, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW,
Washington, DC 20230.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (the Tariff Act), are to the provisions effective
January 1, 1995, the effective date of the amendments made to the
Tariff Act by the Uruguay Round Agreements Act (URAA). In addition,
unless otherwise indicated, all citations to the Department of
Commerce's (the Department's) regulations are to the regulations
codified at 19 CFR Part 351 (April 1, 1998).

Final Determination

    We determine that stainless steel sheet and strip in coil
(stainless sheet in coil) from Germany are being, or are likely to be,
sold in the United States at less than fair value (LTFV), as provided
in section 735 of the Tariff Act. The estimated margins of sales at
LTFV are

[[Page 30711]]

shown in the ``Suspension of Liquidation'' section of this notice.

Case History

    We published in the Federal Register the preliminary determination
in this investigation on January 4, 1999. See Notice of Preliminary
Determination of Sales at Less Than Fair Value: Stainless Steel Sheet
and Strip in Coils From Germany, 64 FR 92 (Preliminary Determination).
Since the December 18, 1998 disclosure of the Preliminary Determination
the following events have occurred:
    On December 28, 1998, KTN timely submitted an allegation of
significant ministerial errors with respect to the preliminary
determination. Petitioners (Allegheney Ludlum Corp., Armco, Inc., J&L
Specialty Steel, Inc., Washington Steel Division of Bethlehem Steel
Corp., United Steelworkers of America, AFL-CIO/CLC, Butler Armco
Independent Union, and Zanesville Armco Independent Organization) also
alleged a single significant ministerial error on December 29, 1998.
Both interested parties requested that we correct the errors and
publish a notice of amended preliminary determination in the Federal
Register. See 19 CFR 351.224(e). After reviewing both parties'
allegations we determined that the errors, considered collectively,
were not significant, as defined at 19 CFR 351.224(g) of the
Department's regulations. See Memorandum For the File; ``Antidumping
Duty Investigation of Stainless Steel Sheet and Strip in Coils From
Germany; Analysis of Ministerial Error Allegations,'' January 15, 1999
(Ministerial Errors Memorandum), on file in room B-099 of the main
Commerce building. We have addressed the specific errors under ``Facts
Available'' and Comment 31, below.
    KTN submitted supplemental questionnaire responses on January 6,
1999 (sections B and C), January 15, 1999 (section E), January 22, 1999
(section E), and February 17, 1999 (section C).
    The Department verified sections A (General Information), B (Home
Market Sales) and C (U.S. Sales) of KTN's response January 18 through
22, 1999 at KTN's headquarters in Bochum, Germany. See Memorandum for
the File; ``Home Market Sales Verification of Krupp Thyssen Nirosta,
GmbH (KTN)'', March 1, 1999 (KTN Sales Verification Report). Between
January 25 and January 29, 1999, we verified KTN's section D (Cost of
Production) questionnaire response; see Memorandum to Neal Halper,
Acting Director, Office of Accounting; ``Verification of the Cost of
Production and Constructed Value Submissions of Krupp Thyssen Nirosta
GmbH,'' March 15, 1999 (KTN Cost Verification Report). Public versions
of these, and all other Departmental memoranda referred to herein, are
on file in room B-099 of the main Commerce building.
    We also conducted verification of KTN's Section C response at the
offices of its wholly-owned U.S. affiliate, Krupp Hoesch Steel
Products, Inc. (KHSP) in Atlanta, Georgia from February 8 through 11,
1999. See Memorandum to the File; ``U.S. Verification of Krupp Thyssen
Nirosta (KTN),'' March 5, 1999 (KHSP Verification Report). Finally, we
verified the Section C and Section E (Further Manufacturing)
information submitted by KTN's affiliated U.S. processor and reseller.
As the firm's identity and location have been afforded business
proprietary status by the Department, we refer to this entity herein as
``U.S. Reseller.'' See Memorandum to the File; ``Verification of the
Information Submitted by * * * (Reseller),'' March 15, 1999 (Reseller
Sales Verification Report), and Memorandum to Neal Halper;
``Verification of the Cost of Further Manufacturing performed by [U.S.
Reseller],'' March 18, 1999 (Reseller Cost Verification Report).
    On March 23, 1999, the Department requested historical data on
KTN's monthly shipments of subject stainless sheet in coil into the
United States to assist in rendering our final determination of
critical circumstances (see below). KTN submitted the requested
information on April 2, 1999.
    KTN and petitioners both requested a public hearing in this case
(on January 22, 1999, and February 3, 1999, respectively). On March 23,
1999, petitioners and KTN filed their case briefs in this matter; both
parties filed rebuttal briefs on March 30, 1999. The Department
conducted a public hearing on April 9, 1999, a transcript of which is
on file in the Central Records Unit.

Scope of the Investigation

    We have made minor corrections to the scope language excluding
certain stainless steel foil for automotive catalytic converters and
certain specialty stainless steel products in response to comments by
interested parties.
    For purposes of this investigation, the products covered are
certain stainless steel sheet and strip in coils. Stainless steel is an
alloy steel containing, by weight, 1.2 percent or less of carbon and
10.5 percent or more of chromium, with or without other elements. The
subject sheet and strip is a flat-rolled product in coils that is
greater than 9.5 mm in width and less than 4.75 mm in thickness, and
that is annealed or otherwise heat treated and pickled or otherwise
descaled. The subject sheet and strip may also be further processed
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that
it maintains the specific dimensions of sheet and strip following such
processing.
    The merchandise subject to this investigation is classified in the
Harmonized Tariff Schedule of the United States (HTS) at subheadings:
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,
7220.20.60.10, 7220.20.60.15, 7220.20.60.60, 7220.20.60.80,
7220.20.70.05, 7220.20.70.10, 7220.20.70.15, 7220.20.70.60,
7220.20.70.80, 7220.20.80.00, 7220.20.90.30, 7220.20.90.60,
7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and 7220.90.00.80.
Although the HTS subheadings are provided for convenience and Customs
purposes, the Department's written description of the merchandise under
investigation is dispositive.
    Excluded from the scope of this investigation are the following:
(1) Sheet and strip that is not annealed or otherwise heat treated and
pickled or otherwise descaled, (2) sheet and strip that is cut to
length, (3) plate (i.e., flat-rolled stainless steel products of a
thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled
sections, with a prepared edge, rectangular in shape, of a width of not
more than 9.5 mm), and (5) razor blade steel. Razor blade steel is a
flat-rolled product of stainless steel, not further worked than cold-
rolled (cold-reduced), in coils, of a width of not more than 23 mm and
a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5
percent chromium, and certified at the time of entry to be used in the
manufacture of razor blades.

[[Page 30712]]

See Chapter 72 of the HTS, ``Additional U.S. Note'' 1(d).
    In response to comments by interested parties the Department has
determined that certain specialty stainless steel products are also
excluded from the scope of this investigation. These excluded products
are described below:
    Flapper valve steel is defined as stainless steel strip in coils
containing, by weight, between 0.37 and 0.43 percent carbon, between
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent
manganese. This steel also contains, by weight, phosphorus of 0.025
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur
of 0.020 percent or less. The product is manufactured by means of
vacuum arc remelting, with inclusion controls for sulphide of no more
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper
valve steel has a tensile strength of between 210 and 300 ksi, yield
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a
hardness (Hv) of between 460 and 590. Flapper valve steel is most
commonly used to produce specialty flapper valves in compressors.
    Also excluded is a product referred to as suspension foil, a
specialty steel product used in the manufacture of suspension
assemblies for computer disk drives. Suspension foil is described as
302/304 grade or 202 grade stainless steel of a thickness between 14
and 127 microns, with a thickness tolerance of plus-or-minus 2.01
microns, and surface glossiness of 200 to 700 percent Gs. Suspension
foil must be supplied in coil widths of not more than 407 mm, and with
a mass of 225 kg or less. Roll marks may only be visible on one side,
with no scratches of measurable depth. The material must exhibit
residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm
over 685 mm length.
    Certain stainless steel foil for automotive catalytic converters is
also excluded from the scope of this investigation. This stainless
steel strip in coils is a specialty foil with a thickness of between 20
and 110 microns used to produce a metallic substrate with a honeycomb
structure for use in automotive catalytic converters. The steel
contains, by weight, carbon of no more than 0.030 percent, silicon of
no more than 1.0 percent, manganese of no more than 1.0 percent,
chromium of between 19 and 22 percent, aluminum of no less than 5.0
percent, phosphorus of no more than 0.045 percent, sulfur of no more
than 0.03 percent, lanthanum of less than 0.002 or greater than 0.05
percent, and total rare earth elements of more than 0.06 percent, with
the balance iron.
    Permanent magnet iron-chromium-cobalt alloy stainless strip is also
excluded from the scope of this investigation. This ductile stainless
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10
percent cobalt, with the remainder of iron, in widths 228.6 mm or less,
and a thickness between 0.127 and 1.270 mm. It exhibits magnetic
remanence between 9,000 and 12,000 gauss, and a coercivity of between
50 and 300 oersteds. This product is most commonly used in electronic
sensors and is currently available under proprietary trade names such
as ``Arnokrome III.'' <SUP>1</SUP>
---------------------------------------------------------------------------

    \1\ ``Arnokrome III'' is a trademark of the Arnold Engineering
Company.
---------------------------------------------------------------------------

    Certain electrical resistance alloy steel is also excluded from the
scope of this investigation. This product is defined as a non-magnetic
stainless steel manufactured to American Society of Testing and
Materials (ASTM) specification B344 and containing, by weight, 36
percent nickel, 18 percent chromium, and 46 percent iron, and is most
notable for its resistance to high temperature corrosion. It has a
melting point of 1390 degrees Celsius and displays a creep rupture
limit of 4 kilograms per square millimeter at 1000 degrees Celsius.
This steel is most commonly used in the production of heating ribbons
for circuit breakers and industrial furnaces, and in rheostats for
railway locomotives. The product is currently available under
proprietary trade names such as ``Gilphy 36.'' <SUP>2</SUP>
---------------------------------------------------------------------------

    \2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
---------------------------------------------------------------------------

    Certain martensitic precipitation-hardenable stainless steel is
also excluded from the scope of this investigation. This high-strength,
ductile stainless steel product is designated under the Unified
Numbering System (UNS) as S45500-grade steel, and contains, by weight,
11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon,
manganese, silicon and molybdenum each comprise, by weight, 0.05
percent or less, with phosphorus and sulfur each comprising, by weight,
0.03 percent or less. This steel has copper, niobium, and titanium
added to achieve aging, and will exhibit yield strengths as high as
1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after
aging, with elongation percentages of 3 percent or less in 50 mm. It is
generally provided in thicknesses between 0.635 and 0.787 mm, and in
widths of 25.4 mm. This product is most commonly used in the
manufacture of television tubes and is currently available under
proprietary trade names such as ``Durphynox 17.'' <SUP>3</SUP>
---------------------------------------------------------------------------

    \3\ ``Durphynox 17'' is a trademark of Imphy, S.A.
---------------------------------------------------------------------------

    Finally, three specialty stainless steels typically used in certain
industrial blades and surgical and medical instruments are also
excluded from the scope of this investigation. These include stainless
steel strip in coils used in the production of textile cutting tools
(e.g., carpet knives).<SUP>4</SUP> This steel is similar to AISI grade
420 but containing, by weight, 0.5 to 0.7 percent of molybdenum. The
steel also contains, by weight, carbon of between 1.0 and 1.1 percent,
sulfur of 0.020 percent or less, and includes between 0.20 and 0.30
percent copper and between 0.20 and 0.50 percent cobalt. This steel is
sold under proprietary names such as ``GIN4 Mo.'' The second excluded
stainless steel strip in coils is similar to AISI 420-J2 and contains,
by weight, carbon of between 0.62 and 0.70 percent, silicon of between
0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent,
phosphorus of no more than 0.025 percent and sulfur of no more than
0.020 percent. This steel has a carbide density on average of 100
carbide particles per 100 square microns. An example of this product is
``GIN5'' steel. The third specialty steel has a chemical composition
similar to AISI 420 F, with carbon of between 0.37 and 0.43 percent,
molybdenum of between 1.15 and 1.35 percent, but lower manganese of
between 0.20 and 0.80 percent, phosphorus of no more than 0.025
percent, silicon of between 0.20 and 0.50 percent, and sulfur of no
more than 0.020 percent. This product is supplied with a hardness of
more than Hv 500 guaranteed after customer processing, and is supplied
as, for example, ``GIN6''.<SUP>5</SUP>
---------------------------------------------------------------------------

    \4\ This list of uses is illustrative and provided for
descriptive purposes only.
    \5\ ``GIN4 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary
grades of Hitachi Metals America, Ltd.
---------------------------------------------------------------------------

Period of Investigation

    The period of investigation (POI) is April 1, 1997 through March
31, 1998.

Critical Circumstances

    Section 733(e)(1) of the Tariff Act provides that if a petitioner
alleges critical circumstances, the Department will determine, on the
basis of the information available to it at the time, whether there is
a reasonable basis to believe or suspect that (i) there is a history of
dumping and material injury by reason of dumped imports in the United
States or elsewhere of the subject merchandise, or (ii) the person by
whom, or for whose account, the merchandise was imported knew or should
have known that the exporter was selling the subject merchandise at

[[Page 30713]]

less than its fair value and that there would be material injury by
reason of such sales (see 733(e)(1)(A)(i) and (ii), and there have been
massive imports of the subject merchandise over a relatively short
period (733(e)(1)(B)).
    In the Preliminary Determination we found that both criteria, i.e.,
knowledge of dumping and material injury and massive imports of subject
merchandise, had been met by KTN and preliminarily found that critical
circumstances exist. We have reconsidered our determination of critical
circumstances as set forth in the Preliminary Determination, however.
While we still find reasonable grounds to impute knowledge of less-
than-fair-value sales to the importer, we have amended our calculation
of massive imports from that applied for the Preliminary Determination.
As explained in detail below, for purposes of this final determination
we are no longer relying upon the publicly-available data on imports of
subject merchandise from Germany as a whole supplied by the Census
Bureau. Rather, we have relied upon the company-specific shipment data
supplied by respondent KTN. Based on this information we find that
there were not massive imports and, therefore, that critical
circumstances do not exist. See our response to Comment 4, below.

Affiliation

    As explained in the Preliminary Determination and immediately
below, we find that for purposes of this investigation KTN is
affiliated with Thyssen Stahl and Thyssen AG (Thyssen) and, through
them, their affiliated sellers and steel service centers in Germany and
the United States. The Tariff Act defines ``affiliated persons'' at
section 771(33). Included within that definition are family members,
any organization and its officers or directors, partners, and employer
and employee. See section 771(33)(A) through (D). The statute also
considers as affiliated persons--

    (E) Any person directly or indirectly owning, controlling, or
holding with power to vote, 5 percent or more of the outstanding
voting stock or shares of any organization and such organization.
    (F) Two or more persons directly or indirectly controlling,
controlled by, or under common control with, any person.
    (G) Any person who controls any other person and such person.

Id.
    ``Control'' is defined as one person being ``legally or
operationally in a position to exercise restraint or direction over the
other person.'' The Statement of Administrative Action (SAA) which
accompanied the Uruguay Round Agreements Act (see H. Doc. 316, Vol. 1,
103d Cong., 2d Sess. (1994)) explained that including control in an
analysis of affiliated parties ``permit[s] a more sophisticated
analysis which better reflects the realities of the market place.'' The
SAA continues, ``[t]he traditional focus on control through stock
ownership fails to address adequately modern business arrangements,
which often find one firm `operationally in a position to exercise
restraint or direction' over another even in the absence of an equity
relationship.'' Id. at 838.
    Finally, as the Department noted in its ``Explanation to the Final
Rules'' (i.e., its regulations), ``section 771(33), which refers to a
person being `in a position to exercise restraint or direction,'
properly focuses the Department on the ability to exercise `control'
rather than the actuality of control over specific decisions.''
Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27295,
27348 (May 19, 1997) (Final Rule)  (emphasis added). Thus, the statute
does not require that we find the actual exercise of control by one
person over the other in order to find the parties affiliated; rather,
the potential to exercise control is sufficient for such a finding.
    In this final determination we continue to find that KTN is
affiliated with Thyssen Stahl and Thyssen because Thyssen Stahl
indirectly owns and controls, through Krupp Thyssen Stahl (KTS), forty
percent of KTN's outstanding stock (the remaining sixty percent are
controlled by Thyssen's joint-venture partner, Fried. Krupp. AG Krupp-
Hoesch (Fried. Krupp)). Thyssen, which wholly owns Thyssen Stahl,
likewise indirectly owns and controls forty percent of KTN. See
Preliminary Determination, 64 FR at 95 and Memorandum to the File;
``Affiliated Party Sales,'' October 28, 1998 (Affiliation Memorandum).
    In addition, we continue to find that KTN is affiliated with
Thyssen's home market and U.S. sales affiliates because the nature and
quality of corporate contact establish this affiliation by virtue of
Thyssen's common control of its affiliates and of KTS. The record
demonstrates that Thyssen, as the majority equity holder in, and
ultimate parent of, its various affiliates, is in a position to
exercise direction and restraint over the affiliates' production and
pricing. As we stated in the Preliminary Determination, ``Thyssen's
substantial equity ownership in KTN and Thyssen's other affiliates, in
conjunction with the `totality of other evidence of control' requires a
finding that these companies are under the common control of Thyssen.''
Id. For a full discussion of KTN's affiliations see Comment 2, below,
the Affiliation Memorandum, and Memorandum For the File; ``Antidumping
Duty Investigation on Stainless Steel Sheet and Strip in Coils from
Germany--Final Determination Analysis for Krupp Thyssen Nirosta,
GmbH,'' May, 19, 1999 (Final Analysis Memorandum).

Facts Available

    Section 776(a) of the Tariff Act provides that if an interested
party withholds information that has been requested by the Department,
fails to provide such information in a timely manner or in the form or
manner requested, significantly impedes a proceeding, or provides
information which cannot be verified, the Department shall use, subject
to sections 782(d) and (e), the facts otherwise available in reaching
the applicable determination. See, e.g., Roller Chain, Other Than
Bicycle Chain, From Japan, 63 FR 63671, 63673 (November 16, 1998). In
this investigation the Department has determined, for the reasons
stated in detail below, that KTN or its affiliates failed to provide
necessary information and, in some instances, that the submitted
information could not be verified. Therefore, pursuant to section
776(a) of the Tariff Act, we have determined that the use of the facts
otherwise available is necessary in these instances.
    However, the statute requires that certain conditions be met before
the Department may resort properly to the facts available. Where the
Department determines that a response to a request for information does
not comply with the request, section 782(d) of the Tariff Act provides
that the Department will so inform the party submitting the response
and will, to the extent practicable, provide that party the opportunity
to remedy or explain the deficiency. If the party fails to remedy the
deficiency within the applicable time limits, the Department may,
subject to section 782(e), disregard all or part of the original and
subsequent responses, as appropriate. Briefly, section 782(e) provides
that the Department ``shall not decline to consider information that is
submitted by an interested party and is necessary to the determination
but does not meet all the applicable requirements established by [the
Department]'' if the information is timely, can be verified, is not so
incomplete that it cannot be used, and if the interested party acted to
the best of its ability in providing the information. Where all of
these conditions are met, and the Department

[[Page 30714]]

can use the information without undue difficulties, the statute
requires it to do so.
    Finally, in selecting from among the facts otherwise available,
section 776(b) of the Tariff Act permits the use of an adverse
inference if the Department also finds that an interested party failed
to cooperate by not acting to the best of its ability to comply with
the request for information. Adverse inferences are appropriate ``to
ensure that the party does not obtain a more favorable result by
failing to cooperate than if it had cooperated fully.'' SAA at 870.
Furthermore, ``an affirmative finding of bad faith on the part of the
respondent is not required before the Department may make an adverse
inference.'' Final Rule, 62 FR at 27340. The statute continues by
noting that in selecting from among the facts available the Department
may, subject to the corroboration requirements of section 776(c), rely
upon information drawn from the petition, a final determination in the
investigation, any previous administrative review conducted under
section 751 (or section 753 for countervailing duty cases), or any
other information on the record.
    In accordance with section 776(a) of the Tariff Act, we have
continued to use partial facts available in instances where KTN failed
to provide the Department with requested sales information concerning
certain affiliated resellers in the home market. See Preliminary
Determination, 64 FR at 95 and 96. Further, pursuant to section 776(b)
we find that KTN failed to cooperate to the best of its ability because
it did not supply missing sales data, as demonstrated by its selective
submission of Thyssen affiliates' data. Therefore, as adverse facts
available for this final determination, as in the Preliminary
Determination, we based normal value upon the highest reported gross
unit price for each product sold to the affiliated parties, in lieu of
the missing prices on downstream sales from the affiliated resellers to
unaffiliated customers. We calculated the highest normal value (NV)
reported by control number (CONNUM) in KTN's home market database and
applied it to KTN's sales to its affiliates for which KTN did not
report home market downstream sales. See Memorandum For the File; ``KTN
Preliminary Analysis Memorandum,'' December 17, 1998 (Preliminary
Analysis Memorandum).
    With respect to sales in the United States, we have determined that
in accordance with section 776(b) of the Tariff Act the use of adverse
facts available is appropriate for five previously unreported U.S.
sales KTN disclosed to the Department during the verification of KHSP
(see Comment 10, below). As adverse facts available we assigned the
highest non-aberrational margin (as explained immediately below) to
these transactions.
    In addition, as explained in response to Comments 19 and 20, we
have determined that we must resort to the facts available with respect
to the sales and further-manufacturing data submitted by U.S. Reseller.
At verification we discovered numerous and systemic errors, some of
which cannot be corrected, in the data used by U.S. Reseller to report
its costs of further manufacturing of subject merchandise. These errors
included, inter alia, the failure to match properly input coils and
output finished products, the allocation of processing costs to sales
which had undergone no further processing whatever, and cases where the
quantities of output goods exceeded the inputs. The vast majority of
the subject merchandise sold through U.S. Reseller was first further
processed by this company; therefore, the deficiencies in its data
affect a corresponding percentage of U.S. Reseller's submitted sales
data. Furthermore, the mis-allocations not only affected U.S.
Reseller's reported sales which had been subject to further processing,
but through the allocation of processing costs to the non-further-
processed sales tainted this portion of its database as well. In
addition, U.S. Reseller failed to identify the producer of a
significant portion of its sales in the United States, and failed to
report physical criteria vital to our model matching for certain other
transactions. As the breadth and depth of the discrepancies leave us
with no confidence in the underlying further-processing data submitted
by the U.S. Reseller, we have determined that these data cannot serve
adequately as a basis for calculating KTN's overall weighted-average
margin. Further, the information required to correct the flaws in U.S.
Reseller's data is not on the record of this proceeding; therefore, the
use of total facts available is necessary (see section 782(e)).
Finally, the record indicates that U.S. Reseller could readily have
discovered and corrected the majority of these errors prior to
submitting its data to the Department and, at the latest, prior to
verification.
    Accordingly, as provided in section 776(b) of the Tariff Act, we
find that U.S. Reseller has failed to cooperate by not acting to the
best of its ability in responding to the Department's requests for
information. Therefore, we have drawn an adverse inference for the
entirety of the data submitted by U.S. Reseller. As adverse facts
available we have assigned the highest non-aberrational margin
calculated for this final determination, to the weighted-average unit
value for sales reported by U.S. Reseller. To determine the highest
non-aberrational margin we examined the frequency distribution of the
margins calculated from KTN's reported data. We found that the margins
for nearly 10 percent of KTN's transactions fell within a specific
range of percentages (see the Final Analysis Memorandum for the exact
figures); we selected the highest of these as reflecting the highest
non-aberrational margin. We then multiplied the resulting unit margin
by the total quantity of resales of subject merchandise by U.S.
Reseller. See the Final Analysis Memorandum. This total quantity
includes that material affirmatively verified as being of KTN origin,
as well as a portion of the merchandise of unidentified origin
allocated to KTN. To apportion the unidentified sales among the
investigations of stainless sheet in coil from Germany, Italy and
Mexico (see Comment 20, below) we have adjusted the quantity for each
of the unidentified sales on a pro rata basis, using the verified
percentages of U.S. Reseller's merchandise supplied by each of the
three respondent mills. We then applied the facts-available margin to
these unidentified sales transactions as explained above.
    Finally, as we explained in our Ministerial Errors Memorandum, we
inadvertently relied upon a home market sales data base which did not
include the gross unit prices recalculated as facts available for sales
to certain affiliated home market resellers. Thus, the decision to rely
on facts available with respect to KTN's home market downstream sales
had no effect in the Preliminary Determination. Therefore, we have
corrected the programming language to include the gross unit prices
adjusted for the application of facts available in our final
calculations. See Ministerial Errors Memorandum at 3 and 4.

Fair Value Comparisons

    To determine whether KTN's sales from Germany to the United States
were made at less than fair value, we compared the export price (EP) or
constructed export price (CEP) to the NV, as described in the ``Export
Price and Constructed Export Price'' and ``Normal Value'' sections of
this notice, below. In accordance with section 777A(d)(1)(A)(i) of the
Tariff Act, we calculated weighted-average EPs and CEPs for comparison
to weighted-average NVs.

[[Page 30715]]

Transactions Investigated

    In the Preliminary Determination we relied upon KTN's invoice date
as the date of sale in both markets, in keeping with the regulatory
preference for using the invoice date as the date of sale and because
there were no facts in this investigation that would warrant selection
of a different date. See 19 CFR 351.401(i). As explained in response to
Comment 1, below, for this final determination we have continued to
rely upon KTN's invoice dates as the date of sale in both the home and
U.S. markets.

Level of Trade

    In accordance with section 773(a)(1)(B)(i) of the Tariff Act, and
as explained in the Preliminary Determination, we determine that one
level of trade (LOT) exists in the home market for KTN's sales. We also
have determined that KTN's U.S. sales take place at two LOTs, one
comprising KTN's factory-direct EP sales, and the other KTN's three
channels of distribution for its CEP sales (i.e., ``back-to-back''
sales through KHSP, consignment sales through KHSP, and sales of
``secondary quality'' merchandise, also through KHSP).
    In addition, we continue to find that KTN's EP sales and its home
market sales were at the same LOT, while KTN's CEP sales were at a
different LOT. Because these CEP sales were at a different LOT than
KTN's home market sales, we examined whether a LOT adjustment may be
appropriate. However, as KTN sold to a single LOT in the home market,
we have no basis upon which to determine whether there is a pattern of
consistent price differences between levels of trade. Further, we do
not have the information which would allow us to examine pricing
patterns of KTN's sales of other similar products and there is no other
record evidence upon which such an analysis could be based. Therefore,
we have continued to allow a CEP offset, in accordance with section
773(a)(7)(B) of the Tariff Act. See Preliminary Determination, 64 FR at
97.

Export Price and Constructed Export Price

    KTN reported as EP transactions certain sales of subject
merchandise sold to unaffiliated U.S. customers prior to importation
without the involvement of its affiliated company, KHSP. KTN reported
as CEP transactions its sales of subject merchandise sold to KHSP for
its own account. KHSP then resold the subject merchandise after
importation to unaffiliated customers in the United States.
    Also, because KTN was unable to demonstrate for the record that it
was not in the position to collect downstream sales information from
its U.S. affiliates, based on record evidence we requested that KTN
report its downstream sales made in the United States (see Memorandum
to Richard Weible, ``Limited Reporting of Home Market and United States
Sales,'' November 13, 1998) (Limited Reporting Memorandum).
    We calculated EP in accordance with section 772(a) of the Tariff
Act for those sales where the merchandise was sold to the first
unaffiliated purchaser in the United States prior to importation and
where CEP methodology was not otherwise warranted based on the facts of
record. We based EP on the packed, delivered, tax and duty unpaid price
to unaffiliated purchasers in the United States. We made deductions for
billing adjustments and movement expenses in accordance with section
772(c)(2)(A) of the Tariff Act; these included, where appropriate,
foreign inland freight, foreign brokerage and handling, international
freight and foreign inland insurance.
    We calculated CEP, in accordance with subsections 772(b) of the
Tariff Act, for those sales to the first unaffiliated purchaser that
took place after importation into the United States. We based CEP on
the packed, delivered, duty paid or delivered prices to unaffiliated
purchasers in the United States. We made adjustments for price-billing
errors, where applicable. We also made deductions for movement expenses
in accordance with section 772(c)(2)(A) of the Tariff Act; these
included, where appropriate, foreign inland freight, marine insurance,
U.S. customs duties, U.S. inland freight, foreign brokerage and
handling, international freight, foreign inland insurance, and U.S.
warehousing expenses. In accordance with section 772(d)(1) of the
Tariff Act, we deducted those selling expenses associated with economic
activities occurring in the United States, including direct selling
expenses (credit costs, warranty expenses and other direct selling
expenses), inventory carrying costs (ICCs), and indirect selling
expenses (ISEs). We offset credit expenses by the amount of interest
revenue on sales. For CEP sales, we also made an adjustment for profit
in accordance with section 772(d)(3) of the Tariff Act.
    Finally, we made the following changes in our calculation of EP and
CEP in the Preliminary Determination based on information discovered at
verification or after analysis of comments by the interested parties:
    We recalculated marine insurance, foreign inland insurance, other
transportation charges, and U.S. duty expenses to reflect corrections
presented at the start of verification. See KTN Verification Report at
2 and KHSP Verification Report at 1 and 2. We also adjusted ocean
transportation for shipments to specific points by an affiliated
carrier to reflect arm's-length freight rates (see Comment 16, below).
In addition, we made a number of changes to our calculation of U.S.
credit expenses and inventory carrying costs to reflect the verified
interest rates, to ensure use of the proper shipment date for certain
CEP re-sales, and to correct the time in inventory to capture the time
the merchandise was at sea (see Comments 12, 13, and 14). We adjusted
indirect selling expenses (ISEs) for certain U.S. sales made through an
affiliated reseller located in Germany (see Comment 11). We also
adjusted ISEs for CEP sales through KHSP to reflect its correction at
verification (see KHSP Verification Report at 2 and Exhibits 1 and 8).
Finally, we reclassified specific observations from KTN's CEP and its
``non-U.S.'' sales listings, as appropriate, to include U.S. sales or
exclude transshipments. Id.
    With respect to subject merchandise to which value was added in the
United States by U.S. Reseller prior to sale to unaffiliated customers,
as explained above, we have applied the facts available in accordance
with section 776(b) of the Tariff Act.

Affiliated-Party Transactions and Arm's-Length Test

    We excluded from our analysis any sales to affiliated customers in
the home market not made at arm's-length prices because we considered
them to be outside the ordinary course of trade. See 19 CFR 351.102. To
test whether these sales were made at arm's-length prices, we compared
on a model-specific basis the starting prices of sales to affiliated
and unaffiliated customers net of all movement charges, direct selling
expenses, and packing. Where prices to the affiliated party were on
average 99.5 percent or more of the price to the unaffiliated parties,
we determined that sales made to the affiliated party were at arm's
length. See 19 CFR 351.403(c). In instances where no price ratio could
be calculated for an affiliated customer because identical merchandise
was not sold to unaffiliated customers, we were unable to determine
that these sales were made at arm's-length prices and, therefore,
excluded them from our LTFV analysis. See, e.g., Certain Cold-Rolled

[[Page 30716]]

Carbon Steel Flat Products from Argentina, 58 FR 37062, 37077 (July 9,
1993). Where the exclusion of such sales eliminated all sales of the
most appropriate comparison product, we made a comparison to the next
most similar model.

Normal Value

    In order to determine whether there was a sufficient volume of
sales in the home market to serve as a viable basis for calculating NV
(i.e., the aggregate volume of home market sales of the foreign like
product was equal to or greater than five percent of the aggregate
volume of U.S. sales), we compared the respondent's volume of home
market sales of the foreign like product to the volume of U.S. sales of
the subject merchandise, in accordance with section 773(a)(1)(B)(i) of
the Tariff Act. As KTN's aggregate volume of home market sales of the
foreign like product was greater than five percent of its aggregate
volume of U.S. sales of the subject merchandise, we determined that the
home market was viable. Therefore, we have based NV on home market
sales in the usual commercial quantities and in the ordinary course of
trade.
    We made a number of changes to our calculation of NV from the
Preliminary Determination either based upon our findings at
verification or in response to comments by the interested parties. At
verification we found that KTN had understated its home market early
payment discounts; we adjusted the discounts accordingly (see KTN Sales
Verification Report at 1. KTN also indicated that it had inadvertently
understated home market warranty expenses by a factor of 10 (see id.);
we have recalculated these expenses to correct the error. We also
corrected KTN's technical service expenses for sales of precision strip
sales to apply the expense ratio calculated for precision strip
products. In addition, we recalculated rebates for sales by NSC using
the corrected percentage supplied at verification (id., see also
Comment 9, below). NSC also overstated its average days in inventory in
calculating ICCs; we adjusted this calculation appropriately.
Furthermore, we corrected the reported sale dates for certain NSC
transactions. See KTN Sales Verification Report at 1. Finally, we
amended our model-match language to correct a ministerial error in
reading KTN's reported finish and gauge codes (see Comment 31).

Cost of Production (COP) Analysis

    Based on a cost allegation filed by the petitioners, the Department
investigated whether KTN's sales of the foreign like product were made
at prices which represent less than the cost of production. In
accordance with section 773(b)(3) of the Tariff Act, we calculated the
weighted-average COP based on the sum of KTN's cost of materials and
fabrication for the foreign like product, plus amounts for selling and
general and administrative (G&A) expenses and packing costs. In
response to comments of the interested parties, we made the following
changes to KTN's COP data:
    We adjusted KTN's G&A expense rate by including the costs of
international projects, year-end adjustments, and personnel costs of
KTN's affiliated home market processor and reseller, Nirosta Service
Center (NSC) (see Comment 23). In addition, we based our allocation of
G&A expenses on KTN's total cost of manufacture (TCOM), rather than on
processing costs alone, as reported by KTN (see Comment 24).
    In calculating KTN's financial expenses we included exchange rate
losses of Fried. Krupp, while excluding its exchange rate gains; we
also included an offset to total interest expenses of Fried. Krupp's
short-term interest income less the amount attributable to trade
receivables (see Comment 25).
    Where KTN's reported transfer prices for purchases of nickel from
an affiliated party were not at arm's length, we increased these prices
to represent prevailing market prices (see Comment 27).
    Finally, we disallowed KTN's claim to treat NSC's processing costs
as a direct selling expense, treating these instead as a component of
KTN's fully-captured variable cost of manufacture (VCOM); accordingly,
the processing costs reported for sales by NSC have been included in
KTN's COP, rather than deducted from NV as selling expenses (see
Comment 6).
    Where possible, we used KTN's reported COP amounts, adjusted as
discussed above, to compute weighted-average COPs during the POI. We
compared the product-specific weighted-average COP figures to home
market sales of the foreign like product, as required under section
773(b) of the Tariff Act, in order to determine whether these sales had
been made at prices below COP. We compared the COP to the home market
prices, less any applicable movement charges and discounts. In
determining whether to disregard home market sales made at prices less
than the COP, we examined whether such sales were made (i) in
substantial quantities over an extended period of time, and (ii) at
prices which permitted the recovery of all costs within a reasonable
period of time.
    Pursuant to section 773(b)(2)(C)(i) of the Tariff Act, where less
than twenty percent of KTN's sales of a given product were at prices
less than the COP, we did not disregard any below-cost sales of that
product because we determined that the below-cost sales were not made
in ``substantial quantities.'' Where twenty percent or more of its
sales of a given product during the POI were at prices less than the
COP, we determined such sales to have been made in substantial
quantities within an extended period of time, in accordance with
sections 773(b)(2)(C)(i) and 773(b)(2)(B) of the Tariff Act. Because we
used POI average costs, pursuant to section 773(b)(2)(D) of the Tariff
Act, we also determined that such sales were not made at prices which
would permit recovery of all costs within a reasonable period of time.
Therefore, we disregarded the below-cost sales. Where all sales of a
specific product were at prices below the COP, we disregarded all sales
of that product. When there were no home market sales of identical or
similar merchandise in the home market available to match to U.S.
sales, we compared the CEP to CV in accordance with section 773(a)(4)
of the Tariff Act.
    Our cost test for KTN revealed that less than twenty percent of
KTN's home market sales of certain products were at prices below KTN's
COP. Therefore, we retained all such sales in our analysis. For other
products, more than twenty percent of KTN's sales were at below-cost
prices. In such cases we disregarded the sales that failed the cost
test, while retaining the above-cost sales for our analysis. See KTN
Final Analysis Memorandum.

Constructed Value

    In accordance with section 773(e)(1) of the Tariff Act, we
calculated CV based on the sum of respondent's cost of materials,
fabrication, SG&A, interest expenses, profit, and U.S. packing costs.
In accordance with section 773(e)(2)(A) of the Tariff Act, we based
SG&A and profit on the amounts incurred and realized by KTN in
connection with the production and sale of the foreign like product in
the ordinary course of trade for consumption in the foreign country. We
used the CV data KTN supplied in its section D supplemental
questionnaire response, except for the adjustments made for COP,
described above.

Price-to-Price Comparisons

    We calculated NV based on FOB or delivered prices to unaffiliated

[[Page 30717]]

customers or prices to affiliated customers that we determined to be at
arm's-length prices. We made adjustments for price billing errors,
where appropriate. We made deductions, where appropriate, for foreign
inland freight, pursuant to section 773(a)(6)(B) of the Tariff Act. In
addition, we made adjustments for differences in cost attributable to
differences in physical characteristics of the merchandise pursuant to
section 773(a)(6)(C)(ii) of the Tariff Act, as well as for differences
in circumstances of sale (COS) in accordance with section
773(a)(6)(C)(iii) of the Tariff Act and 19 CFR 351.410. We made COS
adjustments for imputed credit expenses. Finally, we deducted home
market packing costs and added U.S. packing costs in accordance with
section 773(a)(6)(A) and (B) of the Tariff Act.
    To the extent practicable, we based NV on sales at the same level
of trade as the EP or CEP transactions. Finally, because KTN's sales to
its home market affiliates represented more than five percent of its
total home market sales, for certain of its home market affiliates we
requested that KTN report its affiliates' downstream sales (i.e., sales
made by the affiliate). See Limited Reporting Memorandum.

Price-to-CV Comparisons

    In accordance with section 773(a)(4) of the Tariff Act, we based NV
on CV if we were unable to find a home market match of identical or
similar merchandise. Where appropriate, we made adjustments to CV in
accordance with section 773(a)(8) of the Tariff Act. For comparisons to
EP, we made COS adjustments by deducting home market direct selling
expenses and adding U.S. direct selling expenses. Where we compared CV
to CEP, we deducted from CV the weighted-average home market direct
selling expenses.

Currency Conversion

    We made currency conversions into U.S. dollars in accordance with
section 773A(a) of the Tariff Act based on the exchange rates in effect
on the dates of the U.S. sales, as certified by the Federal Reserve
Bank.

Analysis of Interested Party Comments

Comment 1: Date of Sale

    In the Preliminary Determination the Department relied upon KTN's
invoice date as the date of sale in both the home and U.S. markets, in
keeping with the Department's regulatory preference for using the
invoice date as the sale date absent evidence ``that a different date
better reflects the date on which the exporter or producer establishes
the material terms of sale.'' 19 CFR 351.401(i). Petitioners and KTN
both presented direct arguments in their respective case briefs
concerning the proper date of sale for this final determination.
    KTN urges the Department to continue using the invoice date as the
date of sale. Such a position, KTN submits, would be consistent with
the Department's clear policy to rely upon the invoice date, a policy
articulated in several cases including Carbon Steel Pipes and Tubes
From Thailand, 63 FR 55578, 55587 (October 16, 1998) (Pipes From
Thailand). KTN insists that it has provided compelling data in support
of using the invoice date as date of sale. According to KTN, these data
include precise figures on the frequency of changes to the essential
terms of sale (including price and quantity) following the order
confirmation date. KTN insists further that it provided supporting
documentation of these claims during the Department's home market and
U.S. verifications, and asserts that the Department reviewed this
documentation at verification noting no discrepancies. ``In contrast,''
KTN concludes, ``[p]etitioners have failed to provide any evidence to
support their argument that order confirmation date would be a more
appropriate date to use for the date of sale.'' KTN's Case Brief at 40.
    Petitioners assert that the proper date of sale is the order
confirmation or, if available, the change order date. Petitioners
insist that KTN has not established that the invoice date should serve
as the date of sale in this proceeding, relying instead upon an ``over-
simplification'' of the Department's regulations on this issue.
Petitioners Case Brief at 3. Citing Pipes From Thailand and Circular
Welded Non-Alloy Steel Pipe From the Republic of Korea, 63 FR 32833
(June 16, 1998) (Korean Steel Pipe), petitioners note that the
Department is afforded great latitude in selecting a sale date other
than the invoice date if ``the record evidence demonstrates that the
material terms of sale, i.e., price and quantity, are established on a
different date.'' Id., quoting Pipes From Thailand. In an industry
where merchandise is produced to order, petitioners argue, and where
significant lag times separate the order date and the subsequent
invoice date, the Department's date-of-sale determination can have a
critical impact upon the dumping calculations. The vast majority of
KTN's sales, petitioners note, were produced to order.
    Petitioners dismiss KTN's documentation supporting the use of
invoice date as either unsubstantiated or indefensible. Id. at 5. For
example, petitioners dismiss as unsupported by record evidence KTN's
claims concerning changes in quantity between the original order date
and the invoice date. As a preliminary matter, petitioners accuse KTN
of concealing its practices with respect to ``delivery tolerances''
(i.e., pre-determined levels by which the weight of a shipment may fall
above or below the ordered quantity and still satisfy the contractual
terms of sale) in order to exaggerate the frequency of changes in
quantity between the original order date and invoice date. According to
petitioners, KTN first denied its use of delivery tolerances
altogether, only to acknowledge at the Department's various sales
verifications that, in fact, it relies upon an ``industry standard''
delivery tolerance of plus or minus ten percent of the ordered mass.
Petitioners' Case Brief at 7. More to the point, petitioners aver, a
standard ten percent tolerance cannot serve as a meaningful benchmark
for measuring changes in quantity because common practice in the steel
industry allows for negotiated tolerances in excess of the standard ten
percent. Petitioners point to a statement by KTN's sister company
Mexinox, a respondent in the companion investigation of stainless steel
sheet and strip in coils from Mexico (investigation number A-201-822)
that customers may agree to accept quantities above or below those
called for under the nominal delivery tolerance. Id. at 8, citing
Mexinox's October 29, 1998 supplemental questionnaire response at 17.
Petitioners suggest that because KTN uses both standard and special
negotiated delivery tolerances in its normal course of business, any
claims concerning quantity changes which fail to account for the latter
are without merit, as such changes were clearly anticipated in the
original sales agreement. Petitioners' Case Brief at 10.
    That issue aside, petitioners continue, KTN's purported analysis of
data from its U.S. sales affiliate KHSP concerning changes in the
essential terms of sale does not withstand scrutiny. Petitioners accuse
KTN of building its case by means of data riven with a ``lack of proven
representativeness, internal inconsistencies, citation to changes in
items other than essential terms of sale, missing documentation, and a
complete lack of discussion regarding the role of change orders.''
Petitioners' Case Brief at 10. First, petitioners aver, the Department
did not select the January

[[Page 30718]]

1998 sales used by KTN for its analysis and did not select any other
month for comparison. Therefore, the Department cannot accept KTN's
sample as representative of the entire POI. Second, claim petitioners,
the data include numerous internal discrepancies including conflicting
or truncated order and invoice numbers that preclude tying the
proffered order documentation to specific reported transactions. Third,
petitioners contend, KTN's analysis included changes that, by
definition, did not affect the essential terms of sale, i.e., price and
quantity, including changes in payment terms. Further, petitioners
maintain that other so-called changes included in KTN's analysis do not
represent changes to an existing order but, rather, entirely new orders
for completely different products. Petitioners Case Brief at 13.
Fourth, petitioners suggest that many of KTN's claimed changes lack
critical documentation, with conflicting order numbers and invoice
numbers. Petitioners accuse KTN of mixing the orders and invoices
between and among various sales to build its case that changes, in
fact, took place. Id. at 14. More fundamentally, suggest petitioners,
KTN's analysis of KHSP's January 1998 transactions inexplicably
includes sales which are not included in KTN's CEP sales listing; other
January 1998 transactions reported in KTN's CEP sales data are
curiously absent from KTN's date-of-sale analysis. Petitioners accuse
KTN of submitting an incomplete listing of its U.S. sales, further
undermining the credibility of KTN's data. Id. at 15.
    Citing a list of KTN's claimed changes in quantities, petitioners
assert that the data indicate that these variances stemmed not from
changes between order and invoice, as claimed by KTN but, rather, (i)
previously-negotiated delivery tolerances in excess of the standard ten
percent, (ii) partial shipments made whole by a subsequent shipment of
the balance of the order, or (iii) unreported change orders which
served to modify and, thus, supercede the original order. Petitioners
point to the Department's KHSP Sales Verification Report as
demonstrating that KTN often met customer orders by shipping a portion
of the order under one invoice number and completing the original order
with a subsequent shipment issued under a second invoice. Petitioners
suggest that KTN has represented as changes in quantity what, in fact,
were merely partial or multiple shipments of the originally-ordered
quantity, ``a pervasive and industry-wide practice.'' Petitioners' Case
Brief at 19.
    Petitioners further insist that without any explanation or
quantification of change orders, KTN's statistics concerning the
frequency of changes between order and invoice dates are meaningless.
Id. at 20, citing 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 Belgium, 58 FR 37083, 37090 (July 9, 1993) (Belgian
Carbon Steel Flat Products). Despite KTN's efforts to gloss the role of
change orders, petitioners continue, the record clearly indicates that
KTN relies upon change orders in its normal course of business and that
KTN failed to consider these in pressing its case that the invoice date
represents the only date when the essential terms of sale are
conclusively known. According to petitioners, the Department recently
addressed the importance of change orders in Certain Corrosion-
Resistant Carbon Steel Flat Products From Japan, 64 FR 12951, 12957
(March 16, 1999) (Flat Products From Japan). In that case, petitioners
suggest, the Department relied upon the respondent's order confirmation
date as the date of sale, noting that any changes in the essential
terms of sale were memorialized through the subsequent issuance of a
revised order confirmation.
    Even if one accepts KTN's self-selected and incomplete data for
January 1998, petitioners aver, for a majority of these transactions
the essential terms were, in fact, set at the order date; thus, ``the
order confirmation date, and not the shipment date, best reflects when
material terms of sale usually are established.'' Id. at 25, quoting
Flat Products From Japan, 64 FR at 12958. As in Korean Steel Pipe,
petitioners contend, KTN produces merchandise to order in the vast
majority of cases; subsequently, there are significant lags between the
order date and the eventual invoice date. Reliance upon KTN's reported
invoice date, assert petitioners, would result in the Department's
``comparing home market sales in any given month to U.S. sales whose
material terms were set months earlier--an inappropriate comparison for
purposes of measuring price discrimination in a market with less than
very inelastic demand.'' Id., quoting Korean Steel Pipe.
    Petitioners point to other perceived problems with KTN's reported
sales, accusing KTN of including in its home market sales data
transactions with ``impossibly old'' order dates, some of which
preceded the POI by many years. Petitioners insist that such
transactions arose from long-term or ``periodic requirements''
contracts. However, as the record does not include any detail
concerning KTN's contractual obligations, petitioners argue, the
Department ``should resolve the confusion caused by KTN by concluding
that order date, not invoice date, should serve as the date of sale * *
*''. Petitioners blame KTN for sowing this confusion by reporting
improperly the date of the original order as its order date, rather
than the final order confirmation issued by KTN. Id. at 32 and 33.
    Further distorting the Department's sales analysis, petitioners
contend, is KTN's basing order dates on disparate events in the home
and U.S. markets, relying upon the date of the customer's original
purchase order for home market transactions, while using the later
confirmation date for purposes of reporting U.S. order dates. This has
the effect of further exaggerating the alleged lag between home market
order date and confirmation date.
    Once aberrant transactions, partial shipments, and changes
involving non-essential terms of sale are disregarded, petitioners
argue, KTN's own data indicate that changes occur in far fewer
transactions than originally claimed by KTN. Given the gaps in the
record, petitioners insist, the Department cannot accept KTN's
proffered data as bona fide evidence that the invoice date should serve
as date of sale. Petitioners' Case Brief at 26. Petitioners list the
perceived failures in KTN's date-of-sale arguments, contending that the
lack of credibility inherent in KTN's reporting requires the use of
total adverse facts available. In the alternative, petitioners suggest,
KTN's order confirmation date in both the home and U.S. markets should
serve per se as the date of sale for this final determination. Id. at
37 through 40.
    In rebuttal, KTN accuses petitioners of relying upon ``fabricated
theories'' and mischaracterizations of KTN's business practices in
their effort to undermine the integrity of the data provided by KTN to
substantiate the use of invoice date as the date of sale. See
``Rebuttal Brief of Krupp Thyssen Nirosta GmbH, Krupp Hoesch Steel
Products Inc.'' (KTN Rebuttal Brief), March 30, 1999, at 7. According
to KTN, petitioners' arguments do not hold up in light of the record
evidence; even if they did, KTN avers, the record would still support
the use of invoice date as the date of sale. KTN insists that it has
provided reliable and compelling evidence that the

[[Page 30719]]

material terms of sale change frequently prior to the issuance of the
invoice.
    While stating that the burden of proof on this issue rests with
petitioners, KTN nevertheless maintains that its sales data demonstrate
that either price or quantity changed in a significant percentage of
the U.S. sales included in its analysis of January 1998 transactions.
The Department, KTN notes, reviewed these data at the verification of
KHSP and noted no discrepancies. In their efforts to attack the
credibility of the January 1998 analysis, KTN contends, petitioners
cited examples of discrepancies without providing any context and have
stretched these ``piecemeal arguments'' to substantiate spurious
conclusions. KTN Rebuttal Brief at 10. As a preliminary matter, KTN
insists that throughout this investigation it has not relied upon
changes in alloy surcharges or quantities falling within the industry
standard plus-or-minus 10 percent in its arguments for using the
invoice date, thus rendering petitioners' comments both inaccurate and
irrelevant. KTN also defends its use of KHSP's January 1998 sales data
as especially suitable, claiming that it provided the largest sample
for any month of the POI and because it fell late in the POI, thus
allowing analysis of transactions where both the invoice and the order
confirmation fell within the POI.
    Furthermore, KTN continues, many of the perceived inconsistencies
in KHSP's information stem from the latter's installation of a new
computer system which became operational on January 1, 1998. Thus, all
sales prior to January 1 reflect a customer invoice number identical to
the invoice number issued by KTN's German affiliate Krupp Nirosta
Export, GmbH (KNE) to KHSP, whereas order confirmation numbers
reflected certain product codes. KTN's Rebuttal Brief at 15. Once
KHSP's new SAP software was in place, KTN submits, all invoices bore a
sequential number unique to KHSP; order confirmations numbers issued
prior to January 1, but invoiced after January 1, would have the old
numbering protocol overwritten by the new sequential SAP numbering
system. KTN argues that ``[t]he numbering mechanisms, while different,
are internally consistent and permit the tracing of sales
transactions.'' Id. at 16 and 17.
    KTN also rejects petitioners' charge that it included partial
shipments against a single order in its reporting of changes in
quantity. According to KTN, while the weights for individual coils
posited by petitioners approximate the weight of coils shipped by KHSP
to customers, the input master coil produced by KTN in Germany is twice
as heavy. Thus, if available material to fill an order was short by as
much as 10,000 pounds, KTN suggests, KHSP would negotiate with the
customer to consider the order filled, rather than forcing KTN to roll
an entire master coil to make up such a small difference. KTN Rebuttal
Brief at 18 and 19.
    With respect to KHSP's use of change orders, KTN contends that it
has provided a copy of each existing change order applicable to any
sale traced at verification or included in the January 1998
transactions (see KHSP Verification Exhibit 23). More importantly,
claims KTN, not every change in the material terms of sale is
memorialized through issuance of a new order confirmation. In some
cases, changes in the terms of sale made after the order confirmation
date are simply reflected in the invoice without the issuance of a
change order. KTN Rebuttal Brief at 21. According to KTN, the sole case
cited by petitioners as addressing the importance of change orders,
Belgian Carbon Steel Flat Products, involved a fact pattern that was
the polar opposite of KHSP's, where the Department only discovered at
verification that where the essential terms of sale were altered after
the initial confirmation, the respondent routinely issued change orders
firmly establishing the terms of sales. Id. In contrast, argues KTN, at
its U.S. verification the Department reviewed KHSP's ``compelling
evidence'' concerning quantity and price changes and noted no
discrepancies. Id.
    Assuming that each of petitioners' contentions has merit, KTN
continues, the remaining percentage of sales exhibiting changes in the
material terms of sale would still be more than sufficient to warrant
relying on the invoice date as date of sale. In Certain Internal
Combustion Industrial Forklift Trucks From Japan, 62 FR 5592, 5611
(February 6, 1997), KTN suggests, the Department found that the invoice
date best approximated the point at which material terms of sale were
set in light of evidence of changes in only 4.3 to 7.5 percent of the
respondent's transactions. KTN argues that even given petitioners'
adverse assumptions the essential terms of KTN's sales changed with far
greater frequency in the instant investigation. Furthermore, continues
KTN, the Department cited the mere potential for changes as militating
for the use of the invoice date. Therefore, KTN maintains, even if each
of petitioners' arguments are on point, the Department's precedent
favors continued reliance on the invoice date.
    With respect to home market date of sale, KTN dismisses the
allegedly aberrational lag times found in its home market sales
listing, noting that for a significant majority of KTN's home market
sales less than six months passed between the customer's order and the
invoice date. KTN asserts that in a business where a customer places an
order for shipments to be made at different times during the year, such
lag times should be expected. KTN's Rebuttal Brief at 25.
    In addition to its factual arguments, KTN contends that case
precedent similarly supports the use of invoice date. For example,
continues KTN, in Korean Steel Pipe, a case cited by petitioners, the
Department noted the markedly different sales processes for U.S. and
home market sales as supporting the use of the contract date over
invoice date. KTN suggests that the instant case is easily
distinguishable from Korean Steel Pipe; unlike the latter case, KTN's
sales practices in both markets are essentially the same, with most
transactions in both markets involving made-to-order merchandise. KTN's
Rebuttal Brief at 27. KTN claims that other case precedent similarly
supports use of invoice date. In Certain Corrosion-Resistant Carbon
Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate from
Canada, 64 FR 2173 (January 13, 1999) (Flat Products From Canada), the
Department opted for invoice date in light of quantity changes for a
number of sales. The Department reached the same conclusion in Pipes
From Thailand, KTN notes, owing once again to quantity changes between
order and invoice dates. These precedents, KTN concludes, support the
use of KTN's reported invoice date as the date of sale.
    Department's Position: After a thorough review of the record we
conclude that while petitioners raise a number of cogent arguments for
using the order confirmation date as the date of sale, the weight of
the record evidence supports using KTN's reported date of invoice as
the date of sale for purposes of this final determination. The
Department's regulations state that the invoice date will serve as the
date of sale unless record evidence demonstrates ``that a different
date better reflects the date on which the exporter or producer
establishes the material terms of sale.'' 19 CFR 351.401(i). ``Our
current practice, in a nutshell, is to use the date of invoice as the
date of sale unless there is a compelling reason to do otherwise.''
Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products From
Korea, 63 FR 13170, 13194 (March 18, 1998)

[[Page 30720]]

(Flat Products From Korea II). Furthermore, as the Department has
noted, ``price and quantity are often subject to continued negotiation
between the buyer and the seller until a sale is invoiced. * * * [a]s a
practical matter, customers frequently change their minds and sellers
are responsive to those changes.'' Final Rule, 62 FR at 27348. The
Department further recognized that the buyer and seller themselves will
often disagree as to when, precisely, the terms of sale were set:
``this theoretical date usually has little, if any, relevance. From
their perspective, the relevant issue is that the terms be fixed when
the seller demands payment (i.e., when the sale is invoiced).'' Id. at
27349.
    Petitioners note correctly that the respondent is a mill which
largely produces the merchandise under investigation to fill specific
orders. Therefore, as petitioners see it, once the mill has scheduled
the casting of stainless slab for rolling to a given stainless coil,
little room remains for altering the essential terms of sale.
Furthermore, as detailed below, petitioners point to lacunae in the
evidence KTN has introduced to support the use of invoice date.
    KTN, in turn, has provided evidence that the material terms of sale
are subject to change at any time between the order confirmation and
invoice dates and has indicated that not all such changes would be
reflected in KTN's order confirmation. This is especially true of home
market sales, where KTN's computerized production control system allows
for entry of corrections to orders without generating new order
confirmations. In addition, KTN has submitted for the record evidence
of actual changes in the essential terms of sale between its written
order confirmation and the subsequent invoice date.
    We conclude that the record evidence in the instant proceeding
supports use of the invoice date. First, it is clear that KTN's records
and financial statements kept in its normal course of business do not
recognize a sale until the invoice is issued and payment is demanded.
See, e.g., the quantity and value sections of the KTN Sales
Verification Report and KHSP Verification Report. Further, and perhaps
more to the point, KTN presented numerous examples during the POI where
either quantity or price or both changed after the order confirmation
had been issued, but prior to the invoice date. See Home Market
Verification Report at 32 and Exhibit 6-IV-A, and KHSP Verification
Report at 17 and Exhibit 23. Thus, as we concluded in Flat Products
From Korea II, ``there is no record evidence indicating that a date
other than the invoice date is the date after which the essential terms
of sale could not be changed.'' Id., 63 FR at 13195 (emphasis added).
    Although petitioners have raised various concerns about KTN's date-
of-sale data (see immediately below), we find, however, that even after
considering these issues the totality of record evidence still suggests
that KTN's invoice date is the appropriate date of sale, as it best
represents the point at which the essential terms of sale ``are firmly
established and no longer within the control of the parties to alter
without penalty.'' Large Newspaper Printing Presses and Components
Thereof, Whether Assembled or Unassembled, From Germany, 61 FR 38166,
38182 (July 23, 1996).
    Turning now to the parties' specific comments, we do not subscribe
to petitioners' views concerning the alleged ``unrepresentativeness''
of respondent's data. In our October 9, 1998 section A supplemental
questionnaire we asked that KTN ``indicate the frequency of price,
quantity, material specification, delivery terms and alloy surcharge
changes between confirmation and final invoice.'' \6\ When KTN
responded it elected to rely upon a sampling of its home market and
U.S. sales, describing its sampling methodology in detail. See KTN's
October 23, 1998 section A supplemental response at 14. Sampling was
necessary, KTN explained, given the burden of tracking each line item
of each incoming order to its corresponding final invoice. To this end
KTN selected the first quarter of 1998 for both home market and U.S.
sales, and presented a further detailed analysis of each specific
change involving its U.S. sales during the sample month of January
1998. We reviewed the documentation for both the U.S. and home market
sales samples at verification and noted no discrepancies. See, e.g.,
KHSP Verification Report at 17.
---------------------------------------------------------------------------

    \6\ Although the Department customarily equates ``essential
terms of sale'' with price and quantity, it should be noted that
this questionnaire included within the meaning of ``essential terms
of sale,'' inter alia, delivery and payment terms.
---------------------------------------------------------------------------

    Having raised no objections to the methodology adopted by KTN to
address this issue, and having accepted and verified the proffered
samples, it would be inappropriate for the Department at this point to
reject these data and make assumptions adverse to KTN's interests
because the Department failed to request that KTN provide an analysis
of a different universe of transactions. Furthermore, and more
importantly, we have no reason in this case to suspect that an analysis
of a full quarter's sales in the home and U.S. markets, coupled with
the line-item-by-line-item analysis of one month's sales in the U.S.
market would not capture accurately KTN's experience throughout the
POI. There are no factors such as, for example, a period of hyper-
inflation during the POI, or an analysis of an industry subject to
sharp seasonal fluctuations in sales, which would call into question
the representativeness of the samples.
    Petitioners assail the reliability of KTN's evidence of claimed
quantity changes. In response to our direct question concerning the use
of delivery tolerances KTN responded unequivocally that ``KTN's sales
orders in the United States and KHSP's sales orders in the United
States do not include pre-determined weight tolerances.'' KTN's October
23, 1998 section A supplemental response at 15 (emphasis added).
However, record evidence indicates that KTN does, in fact, rely upon
specific delivery tolerances which are subject to negotiation. KTN has
consistently affirmed, and the Department has verified, that it did not
include any quantity deviations falling within the standard plus-or-
minus 10 percent range as constituting a change in quantity for
purposes of its date-of-sale analysis. Nevertheless, the significance
of that fact is attenuated if the negotiated tolerances for KTN's sales
exceeded the 10 percent mark.
    That said, however, because the record also does not indicate
whether any sales analyzed for changes in quantity did involve
negotiated tolerances in excess of the 10 percent standard, we have no
evidentiary basis to disregard KTN's verified data or to assume that
the claimed quantity changes arose, in whole or in part, from
specially-negotiated quantity tolerances exceeding the standard plus-
or-minus 10 percent threshold.
    Petitioners' argument that at least some of the claimed changes in
quantity arose from partial shipments against an order, rather than a
change in quantity, has merit. KTN's rebuttal brief fails to address
this charge head on. KTN points to a specific order-invoice combination
drawn from its U.S. sales during the POI and suggests that the customer
would agree to accept less than one half of the ordered quantity as
fully satisfying the contractual terms of the original sales agreement.
However, KTN does not claim that this is what happened with the
specific transaction. Rather, KTN concludes that ``[t]his is precisely
the

[[Page 30721]]

type of situation where KTN would agree with the customer to view the
order as filled.'' KTN's Rebuttal Brief at 19 (emphasis added). KTN has
presented no evidence of any transaction where a customer actually
released KTN from its obligation to supply the contractually agreed-
upon quantity of merchandise, as stipulated in the original sales
agreement. KTN's assertion that a customer would order a large quantity
of merchandise, presumably in anticipation of its needs, and then
accept less than half that amount as fully satisfying the original
sales contract, is unsupported by record evidence. Furthermore, KTN's
comments with respect to master coils versus slit coils are entirely
inapposite with respect to the question of partial shipments by KHSP.
The sales subject to our analysis involve the smaller coils cited by
petitioners in their case brief, i.e., ``the coils that are sent to
customers,'' not the much larger master coils produced by KTN in
Germany. See KTN's Rebuttal Brief at 18. Thus, KTN's assertion that KTN
in Germany would not roll a new master coil to fill an under-shipment
of as much as 8,000 or 10,000 pounds sheds no light at all on whether
or not KHSP would make good the shortfall by means of a second shipment
of the outstanding quantity. This distinction is critical to KTN's
rebuttal argument that the evidence supplied at Exhibit 23 did not
include instances wherein KHSP filled an order by means of two or more
shipments issued under separate invoices.
    With respect to the role of change orders, however, we find
petitioners' assertions are not borne out by the record evidence in
this case. Petitioners' reliance upon Flat Products From Japan as
supporting the use of order confirmation dates is misplaced. In Flat
Products From Japan, the petitioners, in supporting the Department's
use of respondent NSC's order confirmation date, noted that ``the
record clearly shows that to the extent NSC and its customer made a
significant revision to any material term of sales, there is an
established mechanism for accomplishing the revision; specifically, * *
* NSC issues a new or revised order confirmation.'' The Department
agreed: ``[v]erification results indicate that the material terms of
sale were established on the date of the order confirmation.
Additionally, among the sales examined, we found no material changes to
the order confirmation terms.'' Flat Products From Japan, 64 FR at
12958.
    In contrast, in the instant investigation the Department confirmed
at verification that many changes to the terms of KTN's sales,
including changes involving price and quantity, are not memorialized
through the generation of a new order confirmation or change order; KTN
``will not generate a second order confirmation unless (i) the customer
requests it, or (ii) the change was ``substantial'.'' KTN Sales
Verification Report at 32. Given the fluid nature of KTN's ordering
system, which often allows changes to simply over-write the original
terms, the record of this investigation does not suggest any discrete
event, be it the original order confirmation or some other event prior
to invoice date, where the essential terms of sale are conclusively
known. Rather, the record indicates that the essential terms of sale
can and do change subsequent to KTN's issuance of the original order
confirmation, and that KTN employs no systematic means of capturing and
documenting changes to its customers' orders. Contrast Belgian Carbon
Steel Flat Products, 58 FR at 37090 (``[f]or only two of the 20
selected sales was there no order confirmation, thus calling into
question Sidmar's claim that order confirmation records are not
maintained''). As the Department has noted, ``the negotiation of a sale
can be a complex process in which the details often are not committed
to writing. In such situations, the Department lacks a firm date on
which the terms became final.'' Final Rule, 62 FR at 27349. A similar
situation obtains here where terms of sale are subject to changes which
are not necessarily documented through issuance of an amended
confirmation order.
    Finally, even accepting petitioners' assertions and disregarding
all claimed quantity changes as unsupported by the record evidence, the
record evidence still supports the use of invoice date as the date of
sale. KTN has presented evidence--impeached neither by petitioners nor
by the Department's verifications--that price changes can and did occur
with some regularity between the order confirmation date and the
invoice date. Thus, while we agree with petitioners that not each
instance cited by KTN as representing a change in the essential terms
of sale is borne out by the record evidence, the Department did verify
a significant number of instances of changes in price or quantity
between the order confirmation and the invoice date. As we concluded in
Flat Products From Korea II ``[t]he Department has no basis to conclude
that essential terms of sale were set and not subject to change at the
initial contract date.'' Id., 64 FR at 12956. Thus, the totality of the
evidence in this case militates against petitioners' suggestion that we
abandon the presumptive date of sale identified in the Department's
regulations in favor of using KTN's order acceptance date. Rather, the
record indicates that the essential terms of sale can and do change
subsequent to KTN's issuance of its original order confirmation, and
that KTN employs no systematic means of capturing and documenting these
changes. For this reason, and because KTN's internal records kept in
its normal course of business do not recognize a sale until the invoice
is issued, we have continued to rely upon KTN's reported invoice dates
in both markets as the dates of sale for this final determination. In
the event this investigation should result in the publication of an
antidumping duty order we intend to re-examine this issue thoroughly in
any subsequent review involving KTN, especially with respect to
quantity tolerances and change orders.

Comment 2: Affiliation

    KTN contends that the Department incorrectly concluded that it was
affiliated with Thyssen and its U.S. and home market affiliates
pursuant to section 771(33)(F) of the Tariff Act based on the
conclusion that Thyssen is in the position to exercise direction and
restraint over both KTN and Thyssen's own affiliates. KTN argues that
in order for KTS to be affiliated with Thyssen and its subsidiaries
within the meaning of 771(33), both parties must have either a direct
relationship with each other (as described in paragraphs 771(33)(A)
though (E) and (G)), or an indirect relationship ``through which one
party, though not directly related, is nevertheless in the position to
control the other (as described in paragraph (F)).'' KTN's Case Brief
at 7.
    Under the terms of the statute, asserts KTN, Thyssen's subsidiaries
and the KTS companies cannot be deemed affiliated on the basis of a
direct relationship for they share no family relationships, board
members or officers, partnership relations, or hold equity positions in
one another. See section 771(33)(A) through (E). KTN also argues that
Thyssen's subsidiaries and the KTS companies are not affiliated under
771(33)(G), for Thyssen's subsidiaries are not in the direct bilateral
control relationship envisioned in this section. Citing Certain Cold-
Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea,
62 FR 18404 (April 15, 1997) (Flat Products From Korea I), KTN contends
that POSCO, a respondent in the review, participated with DSM in a

[[Page 30722]]

joint-venture firm, POCOS. DSM, in turn, wholly-owned a subsidiary
company, Union (also a respondent in the review). KTN notes that in
Flat Products From Korea I the Department concluded that POSCO and
Union were not affiliated under section 771(33)(G) because the two
companies were separate operational entities with no overlapping stock
ownership and that nothing in the record indicated that either Union or
POSCO was legally or operationally in a position to control the other
party. As in Flat Products From Korea I, KTN maintains, Thyssen's
subsidiaries and the KTS companies have neither overlapping stock
ownership nor operational or legal control over each other. KTN's Case
Brief at 9.
    In addition, KTN claims that Thyssen's subsidiaries and the KTS
companies are not under the common control of Thyssen, and therefore
are not indirectly affiliated pursuant to section 771(33)(F) of the
Tariff Act. KTN argues that under section 771(33)(F), a determination
of control ``calls for a comprehensive and multi-factored analysis of
the particular facts of each case in the context of the industry at
issue, including the history of the parties, and the course of their
dealings with one another.'' KTN's Case Brief at 10. Further, KTN
points out that in accordance with 19 CFR 351.102, in order to find
affiliation the Department must first determine that one party is in a
position to exercise control over the ``production, pricing, or cost of
the subject merchandise or foreign like product'' of the other party.
Id., quoting 19 CFR 351.102. KTN contends that the Thyssen
subsidiaries, and KTS or the KTS companies, are not in a position to
exercise such control over each other.
    According to KTN, the reality of the KTS shareholders' agreement is
that Thyssen does not control KTS or the KTS companies. The
shareholders' agreement, KTN insists, was structured ab initio to place
the ability to influence KTS's operational decisions solely with Fried.
Krupp, with the intention of consolidating Fried. Krupp's stainless
steel operations. KTN asserts that Fried. Krupp's operational control
over KTS is further reflected by the provision in the shareholders'
agreement for Fried. Krupp to buy out Thyssen's interests in the firm
in the event Fried. Krupp's and Thyssen's interests diverge. Therefore,
KTN claims, KTS's production, pricing, and cost decisions are
controlled by Fried. Krupp, not Thyssen. KTN's Case Brief at 12.
    Further, KTN contends that petitioners have cited incorrectly
Mitsubishi Heavy Industries, Ltd. v. United States, 15 F. Supp. 2d 807
(CIT 1998) (Mitsubishi) as supporting the proposition that ``when two
companies participate in a joint venture, it is `impossible' that the
respective subsidiaries of those two companies are not affiliated.''
Id., citing petitioners' September 25, 1998 submission on affiliation
(KTN's emphasis). Even if petitioners' interpretation of this case is
accurate, KTN argues, Mitsubishi does not reach the facts before the
Department in this investigation. KTN asserts that in Mitsubishi the
Court of International Trade (the Court) did not address whether
subsidiaries of companies that participate in a joint venture were in
turn affiliated but, rather, held that the two parent companies were
affiliated under section 771(33)(F) by virtue of their joint-venture
ownership of a third party. KTN notes that the issue in this proceeding
is not whether the ultimate parent companies, Fried. Krupp and Thyssen,
are affiliated, but whether various Thyssen affiliates in Germany and
the United States are affiliated with the KTS companies. ``Contrary to
petitioners' assertion,'' contends KTN, ``the Department has clearly
stated that affiliation between parent companies by virtue of a joint
venture is not a `vehicle' through which the Department will find
affiliation between other companies that are controlled by those parent
companies.'' Id. Any affiliation between Fried. Krupp and Thyssen,
asserts KTN, would not reach the companies' respective subsidiaries.
Id. citing Flat Products From Korea I, 62 FR at 18418. Therefore, KTN
concludes that Thyssen's subsidiaries cannot be considers affiliated
with the KTS companies controlled by Fried. Krupp merely by virtue of
the joint venture between Fried. Krupp and Thyssen.
    Petitioners maintain that the Department properly determined that
KTN is affiliated with Thyssen and Thyssen Stahl AG, one of KTN's two
joint-venture parents, and with the member companies of the Thyssen
Corporate Group. In addition, petitioners support the Department's
decision to use adverse facts available in those instances where the
respondent failed to cooperate fully in providing the sales data
requested of these various affiliates by the Department.
    Petitioners note that section 351.102(b) of the Department's
regulations provides that in finding affiliation based on control, the
Department will consider (i) corporate or family groupings, (ii)
franchise or joint venture agreements, (iii) debt financing, and (iv)
close supplier relationships, among other factors. Petitioners note
further that under this same regulatory provision control will not be
found to exist using these factors unless ``the relationship has the
potential to have an impact on decisions concerning production,
pricing, or cost of the subject merchandise or foreign like product.''
Petitioners' Rebuttal Brief at 6 and 7, citing 19 CFR 351.102(b).
    Applying each of these factors in turn to this case, petitioners
contend that a general pattern of corporate groupings between Fried.
Krupp and Thyssen suggest that these persons are affiliates within the
meaning of section 771(33). Petitioners assert that the ``massive
cooperation'' between Fried. Krupp and Thyssen is recognized in the
parent's respective annual reports. For example, petitioners argue,
Thyssen's September 1997 annual report at note 23 states that ``[i]n
the year under review, the income/loss from associated affiliates is
mainly due to the transfer of only a one-digit million DM prorated
profit from Krupp Thyssen Stainless.'' Thus, petitioners contend that
Thyssen and its affiliates recognize that the group's consolidated
stainless steel flat products activities are centered in KTS and its
manufacturing company, KTN. According to petitioners, the establishment
of KTS and Thyssen Krupp Stahl (TKS) represents an arrangement whereby
the two corporate groups have intertwined their steel production and
marketing activities well in advance of the pending merger between
Fried. Krupp and Thyssen. Id. at 9.
    Petitioners also argue that KTN's advertising and marketing
strategies also recognize the interconnections between Fried. Krupp and
Thyssen. Petitioners maintain that KTN was conceived with the express
intent of both Fried. Krupp and Thyssen to establish one unified
speciality steel producer that customers worldwide would perceive as
being both a Krupp and Thyssen company. Further, petitioners assert
that Thyssen and Krupp opened their respective channels of distribution
to KTN's stainless steel products, a fact recognized in the
marketplace. Petitioners' Rebuttal Brief at 9.
    Second, petitioners allege that KTN, as a joint venture owned by
the Krupp and Thyssen groups is both a party controlled by two other
parties pursuant to 771(33)(F) and a joint venture per se as defined at
19 CFR 351.102(b). Citing Certain Cut-to-Length Carbon Steel Plate from
Brazil, 63 FR 18486, 18490 (April 15, 1997) (Carbon Steel Plate From
Brazil), petitioners assert that Thyssen's 40 percent ownership in KTS
is more than sufficient to place it in a position of control over KTN.
As in that case, petitioners contend, ``[e]ven a minority

[[Page 30723]]

shareholder interest, examined within the totality of other evidence of
control, can be a factor that we [the Department] consider in
determining whether one party is in the position to control another.''
Petitioners' Rebuttal Brief at 11, quoting Carbon Steel Plate From
Brazil. Additionally, petitioners argue that contrary to KTN's
arguments, evidence of actual control is not required under the statute
in order to make a finding of control. Rather, control is defined as
merely the ability to control, i.e., the power to restrain or direct a
company's activities. Id.
    According to petitioners, KTN's reliance upon Flat Products From
Korea I is misplaced. Petitioners assert that KTN's argument that the
Department found that POSCO and Union were not affiliated in the
absence of direct equity ownership or a finding of control, in essence,
negates section 771(33)(F), which defines as affiliated persons two or
more persons directly or indirectly controlling any person. Petitioners
contend that the issue is not whether two parties who control a third
party are affiliated to each other, but whether a person jointly
controlled by two parties is affiliated with the parent companies'
subsidiaries. Instead, petitioners argue that the pattern of
affiliations in this case mirrors that found in Stainless Steel Plate
in Coils From Belgium, 64 FR 15476 (March 31, 1999) (Belgian Stainless
Plate in Coils) in which the Department determined that because ALZ and
TrefilARBED were two persons established to be directly or indirectly
controlled by ARBED, ALZ's sales through TrefilARBED were treated as
affiliated-party sales. Thus, pursuant to 771(33)(F), petitioners claim
that where KTS is under common control by Krupp, and Thyssen Stahl and
Thyssen, KTS is affiliated with both Krupp and Thyssen. Also, pursuant
to 771(33)(G), petitioners argue that because KTS controls KTN, KTN is
affiliated to Thyssen through KTS and that because Thyssen controls its
affiliates, then KTN is affiliated to those affiliates through Thyssen.
Therefore, petitioners contend that KTS and KTN and the Thyssen
subsidiaries are two or more persons directly or indirectly controlled
by Thyssen, and so, are affiliated.
    Further, petitioners argue that as recognized by the Department in
its December 16, 1998 Affiliation Memorandum, the shareholders'
agreement between the Krupp and Thyssen groups indicates that Thyssen,
through Thyssen Stahl, has the indirect ability to control the
activities of KTN through KTS. Petitioners assert that by means of the
shareholders' agreement Fried, Krupp, and Thyssen (i) committed their
respective families of companies to having all stainless activities
reside in KTS and KTN, (ii) set forth the parties' power to amend or
supplement the Industrial Concept governing KTS's operations, (iii)
recognized the sales and distribution functions of the Thyssen
affiliates, (iv) afforded Thyssen the ability to direct KTS through the
operation of the Supervisory Board, (v) provided for Thyssen's
participation in the activities of KTS and KTN through membership in
the KTS Management Board, (vi) afforded Thyssen an additional avenue of
direction or restraint of KTS (and thus KTN) through the Shareholder
Committee, (vii) established a ``super-majority'' requirement for votes
involving certain business transactions, including appointments to
KTS's managerial board, giving Thyssen effective veto power over
critical KTS activities, and (viii) established an arbitration
committee to mediate any disputes between Fried. Krupp and Thyssen over
KTS's activities. Petitioners' Rebuttal Brief at pages 17 through 22.
Therefore, petitioners assert, the shareholders' agreement clearly
articulates Thyssen's ability to exercise indirect control over KTN via
KTS.
    Third, petitioners contend that the legal framework established by
the shareholders' agreement provides both de jure and de facto bases
for a close supplier relationship between KTN and a certain Thyssen
affiliate. In fact, according to petitioners, KTN is entirely dependant
upon this Thyssen entity for the hot-rolling of the stainless steel
cast in KTN's melt shop. Similarly, petitioners note, this entity
``does not provide stainless steel hot-rolling services to any entity
other than KTN.'' Petitioners' Rebuttal Brief at 24, quoting KTN's
December 17, 1998 section D supplemental response at D-3. Petitioners
argue that this level of mutual dependency clearly qualifies as a
``close supplier relationship'' within the meaning of both 19 CFR
351.102(b) and the SAA at 838 which refers to a ``close supplier
relationship in which the supplier or buyer becomes reliant upon the
other.'' Id.
    Therefore, petitioners conclude, these facts leave ``no reasonable
room for any doubt that KTN is affiliated with Thyssen within the
meaning of [section 771(33) of the Tariff Act].'' Id. Thus, as Thyssen
is affiliated with its subsidiaries and has the ability to control
those subsidiaries, KTN is affiliated with the Thyssen subsidiaries as
well under the combined provisions of sections 771(33)(F) and (G).
    Department's Position: We disagree with KTN. As we stated at length
in our Preliminary Determination and the accompanying Affiliation
Memorandum, we have determined that KTN is affiliated with Thyssen
Stahl and Thyssen. Section 771(33)(E) provides that the Department
shall consider companies to be affiliated where one company owns,
controls, or holds with the power to vote, five percent or more of the
outstanding shares of voting stock of the other company. Where the
Department has determined that a company directly or indirectly holds a
five percent or more equity interest in another company, the Department
has deemed these companies to be affiliated.
    We examined the record evidence to evaluate the nature of KTN's
relationship with Thyssen Stahl and Thyssen and have determined that
KTN is affiliated with Thyssen and Thyssen Stahl. Thyssen Stahl
indirectly owns and controls, through KTS, forty percent of KTN's
outstanding stock and Thyssen, which wholly owns Thyssen Stahl,
likewise indirectly owns and controls a forty percent interest in KTN.
KTN's section A questionnaire response acknowledges that KTN is a
wholly-owned subsidiary of KTS. KTS formed KTN in 1997 to handle its
stainless steel production and sales. The supporting exhibits to this
submission further confirm Thyssen Stahl's interest in KTS and KTS's
100-percent interest in KTN. In a submission dated October 20, 1998,
petitioners placed on the record publicly available data that confirmed
both the foregoing shareholding interests and that Thyssen Stahl is a
wholly-owned subsidiary of Thyssen. Consequently, KTN, as the wholly-
owned subsidiary of KTS, is affiliated with the joint venture partner
Thyssen Stahl and its parent company Thyssen pursuant to section
771(33)(E) of the Tariff Act. See Stainless Steel Wire Rod From Sweden,
63 FR 40449, 40453 (July 29, 1998).
    In addition, we have determined that KTN is affiliated with Thyssen
and its U.S. and home market affiliates. Section 771(33)(F) provides
that the Department shall consider companies to be affiliated where two
or more companies are under the common control of a third company. The
statute defines control as being in a position legally or operationally
to exercise restraint or direction over the other entity. Actual
exercise of control is not required by the statute. In this
investigation, the nature and quality of corporate contact necessitate
a finding of affiliation by virtue of Thyssen's common control of its
affiliates and of KTS. See Preliminary Determination, 64 FR at 95 and
the Affiliation Memorandum. Such a finding is

[[Page 30724]]

consistent with the Department's determinations in Carbon Steel Plate
From Brazil, 62 FR at 18490 and Stainless Steel Wire Rod From Sweden,
63 FR at 40452.
    We also agree with petitioners that record evidence demonstrates
that Thyssen, as the majority equity holder and ultimate parent company
of its various affiliates, is in a position to exercise direction and
restraint over these affiliates' production and pricing. Thyssen also
holds indirectly a substantial equity interest in KTN, plays a
significant role in KTS's operations and management and, thus, enjoys
several avenues for exercising direction or restraint over KTN's
production, pricing and other business activities (see the Affiliation
Memorandum). In sum, Thyssen's substantial equity ownership in KTN and
Thyssen's other affiliates, in conjunction with the ``totality of other
evidence of control'' requires a finding that these companies are under
the common control of Thyssen. Accordingly, for this final
determination we continue to find KTN is affiliated with Thyssen,
Thyssen Stahl, and Thyssen's U.S. and home market affiliates.

Comment 3: Facts Available for Unreported Downstream Sales

    If the Department persists in finding affiliation between the two,
KTN avers, the use of adverse facts available is, nevertheless,
inappropriate, as was the Department's method of applying adverse facts
available for sales involving Thyssen's subsidiaries in the home
market. The Department, notes KTN, used the highest normal value
reported by control number in KTN's home market database. KTN claims
that under section 776(b) prior to relying upon adverse facts
available, the Department ``must produce substantial evidence that
respondents refused to cooperate or significantly impeded its review.''
KTN's Case Brief at 15, quoting Queen's Flowers de Columbia v. United
States, 981 F. Supp. 617,629 (CIT 1997). KTN contends that it
cooperated with the Department to the best of its ability and
substantially responded to the Department's request for information,
and that any failure to supply data arose not from an unwillingness to
cooperate, as suggested in the Preliminary Determination, but from
KTN's inability to secure the requested data from the Thyssen
affiliates. KTN cites, inter alia, Usinor Sacilor v. United States, 872
F. Supp. 1000 (CIT 1994) (Usinor), in which the Court remanded the
Department's final determination applying adverse facts available to
certain unreported downstream sales, stating that:

    [i]f Commerce finds that Usinor did not have operational
control, Commerce is directed to select the weighted average
calculated margin as BIA. If Commerce finds Usinor maintained
operational control, Commerce may reapply the highest non-aberrant
margin as BIA in a manner consistent with the court's decision in
National Steel Corp. v. United States.

KTN's Case Brief at 17 (original citation omitted).
    KTN argues that, as Usinor suggests, KTN's failure to provide
information regarding its downstream resellers was not the result of
deliberate recalcitrance but, rather, KTN's lack of operational control
over those affiliates and its inability to obtain the information. KTN
points out that it was able to gain the complete cooperation of three
Thyssen affiliates located in the United States despite the absence of
any operational control over these companies. KTN submits that while
the Department's preliminary determination that KTN was affiliated with
Thyssen's resellers because of Thyssen's potential control over both
KTN and its own affiliates may be sufficient as a legal standard, it
does not support the obverse conclusion that KTN had the ability to
control the activities of Thyssen's affiliates and could demand their
proprietary sales data. According to KTN, it had to ``rely on
persuasion, not control, to access the information requested by the
Department.'' KTN's Case Brief at 19.
    In addition, KTN objects to the Department's characterization in
the Preliminary Determination of KTN's cooperation with the Department
during October and early November 1998. KTN claims that the
Department's November 17, 1998 request for the reseller sales
information ``mischaracterizes, and in some cases misstates, the dialog
between the Department and KTN.'' Id. at 20. KTN asserts that the
Department acknowledged as much by the significant deletion of the
reference to the Department's ``three official requests'' for the
information included in the November 17, 1998 letter's original
language as this letter was paraphrased in the Preliminary
Determination. KTN complains that the November 17 letter, which
included a warning that adverse facts available might be used, preceded
the Department's November 18 memorandum which set forth the
Department's reporting requirements for downstream sales by Thyssen
affiliates. Therefore, KTN argues, while ultimately KTN was unable to
provide all of the requested downstream sales data, the Preliminary
Determination fails to consider the overall cooperation shown by KTN
throughout this proceeding, including its numerous timely responses to
questionnaires, and participation in two home market and three U.S.
verifications. Accordingly, KTN submits, should the Department
determine that Thyssen's affiliates are affiliates of KTN, the
Department must use non-adverse facts available for the two Thyssen
resellers, rather than adverse facts available, as in the Preliminary
Determination. KTN's Case Brief at 21 and 22.
    Assuming that the Department proceeds with its use of facts
available, KTN recommends that the Department apply facts available for
sales to the home market resellers by adjusting these prices upward to
reflect arm's length prices. KTN claims that in determining NV the
Department's practice is to accept a respondent's home market sales to
its affiliates, rather than sales by its affiliates, where the
Department determines that the affiliated-party sales were made at
arm's-length prices. KTN's Case Brief at 22, citing Antifriction
Bearings (Other than Tapered Roller Bearings) and Parts Thereof from
France, et al. (AFBs), 63 FR 33320, 33341 (June 18, 1998). If KTN's
prices to its two German resellers had passed the arm's length test,
the Department might have accepted those sales in lieu of sales by the
affiliates to unaffiliated customers. Id. Therefore, KTN claims that
rather than calculating an ``arbitrary price,'' the Department could
apply facts available for the missing sales by simply adjusting KTN's
prices to its affiliates upward to a level which would satisfy the
Department's arm's-length test.
    That failing, KTN continues, the Department may not use facts
available that are excessively punitive or aberrant and ``demonstrably
less probative of current conditions.'' KTN's Case Brief at 23, quoting
National Steel Corp. v. United States, 913 F. Supp. 593, 596 (CIT 1996)
(National Steel). While KTN concedes that the Department has not
established a bright-line test for identifying and selecting non-
aberrant data, KTN insists the Department articulated two guidelines in
response to National Steel:

    (1) the data should be sufficiently adverse so as to effectuate
the statutory purposes of inducing respondents to provide the
Department with complete and accurate information in a timely
manner;
    (2) the data should be indicative of the respondent's customary
selling practices and rationally related to the transactions to
which the adverse facts available are being applied.

See National Steel at 913 F. Supp. 596.

[[Page 30725]]

    KTN believes that in its Preliminary Determination the Department
applied aberrant facts available to KTN's sales to the two home market
resellers by replacing KTN's prices to these two customers with prices
that are not remotely related to a vast majority of these transactions.
KTN cites where, in KTN's view, the Department's methodology causes
aberrant results by, for example, applying prices that are double the
average price and, in some cases, exceed the average price by 500
percent. KTN's Case Brief at 25 through 27. Therefore, KTN argues, if
the Department chooses to apply adverse facts available it must alter
its approach to exclude the use of aberrant data.
    First, KTN proposes adjusting an arm's-length price factor upward
by 2.65 percent to account for the potential additional profit earned
by the two Thyssen resellers. KTN's Case Brief at 28, basing the profit
calculation on Thyssen's 1997-1998 Annual Report. In the alternative,
KTN argues, the Department may rely on its own calculation of KTN's
profit on home market sales of the foreign like product. By using the
CEP profit rate calculated for the Preliminary Determination, KTN
claims that the Department can incorporate an additional adverse
element into its application of adverse facts available. KTN maintains
that either of these two methods is adverse while remaining indicative
of profit levels in the German steel industry. If the Department
determines that neither of these profit calculations is sufficiently
``punitive,'' the Department could rely upon the profit level
calculated in the Preliminary Determination for calculating constructed
profit (based on KTN's sales made in the normal course of trade). KTN's
Case Brief at 31.
    If the Department insists on finding KTN affiliated with the
Thyssen affiliates as it did in the Preliminary Determination, KTN
argues, it must apply facts available for the missing home market
downstream sales by selecting prices for each CONNUM which exclude
aberrant prices. KTN believes that this would have the dual effect of
employing data that is adverse to KTN while at the same time avoid
using aberrant data. According to KTN, this methodology would employ a
``well-accepted statistical principle'' that for a normal distribution,
more than 95 percent of all observations will fall within two standard
deviations of the mean. KTN's Case Brief at 32. This ``95 percent
confidence interval,'' KTN suggests, would serve to cap the permissible
highest price applicable to each CONNUM, thereby foreclosing the
application of outlier prices.
    Additionally, KTN argues that the Department should not apply
adverse facts available to sales by KTN's wholly-owned home market
subsidiary, Nirosta Service Center (NSC), to one of Thyssen's resellers
(Reseller 2) because those sales pass the arm's-length test. Based on
the Department's own results from the preliminary determination arm's-
length computer program, KTN maintains that the weighted-average prices
for sales from NSC to Reseller 2 was 105.276 percent of the weighted-
average prices to unaffiliated customers. KTN asserts that this ratio
is well above the Department's threshold of 99.5 percent for finding
sales at arm's length; therefore, the Department should use these
arm's-length prices rather than facts available. Finally, KTN alleges
that the Department calculated adverse facts available prices for
certain sales to the two German resellers that were ordered but not
invoiced during the POI; assuming the Department uses KTN's reported
invoice dates as the date of sale, it should therefore remove these
transactions from its margin analysis.
    Petitioners agree with the Department's application of adverse
facts available for those home market downstream sales unreported by
KTN. KTN's suggestion that its participation in this proceeding thus
far demonstrates that it cooperated to the best of its ability is not,
petitioners insist, persuasive. Petitioners point to KTN's ability to
report the its U.S. resellers' downstream sales as evidence that it
should and could have reported its home market resellers' downstream
sales as well. Petitioners' Rebuttal Brief at 25.
    KTN's ``second line of defense,'' continue petitioners, is
similarly unavailing. Accepting KTN's suggestion that it should not be
subject to facts available because it could not secure requested
information from an affiliate, petitioners caution, ``is not an axiom
that should be embraced by the Department.'' Petitioners' Rebuttal
Brief at 27. Petitioners point to, inter alia, Helmerich & Payne, Inc.
v. United States, in which, petitioners suggest, the Court sustained
the Department's application of adverse facts available where requested
information was controlled by an uncooperative unrelated company.
Furthermore, petitioners suggest that KTN's argument is misplaced, for
the question at hand is not KTN's direct control over Thyssen's
affiliates but Thyssen's role as a parent company over both its own
affiliates and KTN. According to petitioners, KTN's submission of the
U.S. resellers' downstream sales is, at the least, evidence of
Thyssen's control of these affiliates; otherwise, this represents prima
facie evidence of KTN's control of these parties. Petitioners suggest
that it is obvious that Thyssen chose to direct compliance only of its
U.S. affiliates in an attempt to distort the dumping analysis. By
capturing U.S. transactions further along the distribution chain, but
withholding this same information regarding home market sales,
``Thyssen managed to cap normal value while incorporating U.S.
transactions that, by their very nature, should incorporate price-
markups that increase U.S. price.'' Petitioners' Rebuttal Brief at 28.
    Petitioners also disagree with KTN's suggestion that the Department
could effectively apply facts available to the unreported downstream
sales by adjusting the prices of KTN's sales to the affiliated
resellers upward to prices which would pass the arm's length test.
Petitioners contend that this approach might have some merit if the
Department were using non-adverse facts available. Rather, petitioners
believe that the Department has correctly determined that KTN's failure
to report home market downstream sales warrants an adverse assumption;
``KTN's suggestion would be a de facto concession to its incorrect
premise that the arm's-length test makes unnecessary the collection of
downstream home-market data.'' Petitioners Rebuttal Brief at 29.
Petitioners argue that KTN's failure to report the downstream sales by
two of Thyssen's home market affiliates in response to the Department's
repeated requests calls for the application of adverse facts available.
These requests, petitioners note, were based on the statutory and
regulatory provisions governing the collection of sales data. Id. at
31.
    After detailing the history and regulatory backing for the
Department's various decisions both to excuse KTN from reporting
certain home market sales and to require certain home market and U.S.
downstream sales data, petitioners then turn to KTN's comments
concerning the application of adverse facts available. Petitioners
dismiss KTN's complaint that the preliminary application of adverse
facts available used data that are excessively punitive and aberrant as
specious. Rather, insist petitioners, the chosen facts available
reflect data that are both sufficiently adverse to encourage future
cooperation from the respondent, and indicative of that respondent's
customary selling practices.
    First, petitioners maintain that KTN confuses the necessary level
of adverse inference imputed to missing data.

[[Page 30726]]

Citing Certain Helical Spring Lock Washers from the People's Republic
of China, 58 FR 48833, 48839 (September 20, 1993) (Lock Washers),
petitioners note that where a respondent cooperated generally but
inadvertently failed to provide a relatively insignificant amount of
data, the Department often assigns the highest non-aberrational margin
calculated for a single sale to the missing data. However, petitioners
insist, in the instant case the failure by KTN was one of cooperation,
not an inadvertent failure, and that the data requested were critical
due to the magnitude of missing downstream sales data and the
importance of comparing U.S. downstream sales to a complete and
accurate set of home market downstream sales. Petitioners' Rebuttal
Brief at 43. '
    Second, petitioners allege that KTN's argument fails to consider
that adverse facts available in the instant case is not a corrective
measure among sales within KTN's and NSC's home market databases, but a
surrogate for entirely missing downstream sales. Petitioners concede
that KTN's elimination of so-called ``outliers'' among the reported
sales could, potentially, be applicable if the task were simply to
correct for missing data within a given universe of sales. However,
petitioners contend, KTN fails to recognize that, once appropriate
distinctions are made, the general conclusions in National Steel
support the Department's current approach in this investigation.
According to petitioners, in National Steel the Court addressed the
appropriateness of determining ``the highest non-aberrational margin''
calculated. This ruling, petitioners insist, did not challenge the
Department's criteria, nor even its selection of adverse data per se.
Rather, the decision questioned the Department's failure to provide
reasoned explanation as to how and why the particular adverse data were
used. Petitioners' Rebuttal Brief at 44, citing National Steel 913 F.
Supp. at 596.
    Here, petitioners claim, the Department is not using the highest
margin calculated to correct for a missing segment of the first-level
sales by KTN and NSC but, rather, the highest NVs as surrogates, with
appropriate adverse inferences, for the entirely missing downstream
sales. Petitioners suggest that it is reasonable to expect that the
pricing patterns for these missing transactions would be significantly
higher in contrast to the affiliated-party transfer prices between KTN
and NSC and the respective affiliated resellers. KTN's failure to
report the relevant downstream sales has deprived the Department of the
means of testing precisely how much greater the downstream sales prices
would be, petitioners continue. Thus, petitioners argue KTN's
benchmarks for finding ``outliers'' pertain to the wrong universe of
sales, and the correct set of sales from which potential benchmarks
could be determined are missing due to KTN's lack of cooperation in the
first place. Petitioners' Rebuttal Brief at 45.
    One available alternative benchmark the Department could use,
suggest petitioners, is the measurable percentage difference between
the transfer prices and downstream prices reported for KTN's downstream
U.S. sales. While those sales are in the United States, rather than the
comparison market, argue petitioners, they become the best information
reasonably available to suggest what the difference should be in the
home market, in light of KTN's failure to provide repeatedly requested
downstream sales information. Petitioners claim that, based on KTN's
own information, KTN exaggerates the magnitude of the markups from
average to highest home market prices; KTN's actual experience in the
United States indicates the difference would be significantly less. If
anything, petitioners continue, the divergence between transfer and
downstream prices in the home market would be even higher than in the
United States, given Fried, Krupp's and Thyssen's ascendency as the
only primary steel manufacturers in Germany and given the history of
anticompetitive practices in the domestic stainless steel markets by
Fried, Krupp and Thyssen. Petitioners' Rebuttal Brief at 46.
    Petitioners also dismiss KTN's claim that so-called aberrational
prices arise from sales of relatively smaller quantities. Petitioners
note that the nature of downstream sales is such that larger quantities
sold to an affiliate typically result in smaller discrete sales made
from that reseller to its downstream customers. As evidence of this
phenomenon, petitioners point to the transformation of a relatively
small set of sales to U.S. resellers that evolved into a much larger
set of resales through U.S. resellers to unaffiliated customers. Id.
    Finally, petitioners take issue with KTN's contention that transfer
prices from NSC to Reseller 2 are at arm's-length and that the
Department should therefore not apply adverse facts available to sales
made through that reseller. Irrespective of whether a particular subset
of sales may or may not be at arm's-length, petitioners aver, KTN's
failure to provide requested resale data through affiliated parties
caused the Department to apply adverse facts available for the missing
downstream sales. Therefore, petitioners insist that the Department
acted appropriately in the Preliminary Determination, and that no
changes are necessary for the final determination.
    Department's Position: We agree with petitioners that our use of
adverse facts available was appropriate in the instant case. In
accordance with section 776 of the Tariff Act, we have used partial
adverse facts available where KTN failed to provide us with certain
sales information concerning two of KTN's resellers sales in the home
market. In contrast to KTN's attempts to portray itself as a
cooperative respondent which was never adequately apprised of the
Department's requirements, we offer the following narrative history of
this proceeding:
    On August 3, 1998, the Department issued to KTN its antidumping
questionnaire, which instructed KTN to report affiliates' resales to
unaffiliated customers in both the home and U.S. markets. We also
directed KTN to contact the agency official in charge if sales to
affiliated parties represented a ``relatively small part'' of its total
sales, or if KTN was unable to collect the necessary information. Our
October 9, 1998 section A supplemental questionnaire reiterated this
instruction (see question 1.c) and further directed KTN to report the
sales of subject merchandise in the home and U.S. market by the
specific subsidiaries of Thyssen identified in KTN's section A
questionnaire response. Finally, on October 27, 1998, Department
personnel contacted KTN's counsel and once again requested a detailed
explanation of KTN's reporting of sales to affiliated and unaffiliated
customers. During that conversation we instructed KTN to report the
downstream sales of certain affiliates and, if it was unable to do so,
to provide the Department with a detailed explanation as to why it was
unable to report such sales (see Memorandum to the File, ``Affiliated
Party Sales,'' October 28, 1998).
    On October 28, and November 4, 1998, KTN submitted comments and
additional information regarding its downstream sales. KTN indicated in
both of these submissions that, in accordance with the Department's
instructions, it intended to report downstream sales information by
certain home market affiliates and U.S. affiliated resellers, but for
assorted other reasons, it did not intend to report its remaining
affiliates' resales.

[[Page 30727]]

    After a thorough review of the record the Department notified KTN
that it was still required to report downstream and reseller sales by
additional home market and U.S. affiliates (see Memorandum to the File,
``Downstream Sales,'' November 6, 1998). In addition, the Department
granted in full KTN's request for an extension of time to submit the
required data.
    KTN's November 16, 1998, section B and C supplemental responses
failed to include the requested reseller sales information requested by
the Department. On November 17, 1998, we issued a letter to KTN stating
the Department would apply adverse facts available to the missing sales
information if we did not receive it by November 23, 1998. On that
date, KTN submitted additional affiliated reseller sales information,
but again failed to provide the Department with a majority of the
requested downstream and reseller sales information.
    Therefore, as explained in detail in the ``Affiliation'' portion of
the Preliminary Determination, we also agree with petitioners that it
is appropriate to make inferences adverse to KTN's interests pursuant
to section 776(b) of the Tariff Act because KTN did not cooperate by
responding fully to the Department's repeated requests for specific
sales information. We have examined whether KTN acted to the best of
its ability in responding to our requests for information. As the
chronology presented above and the Preliminary Determination suggest,
KTN was instructed in the original questionnaire to contact the
official in charge immediately if it had downstream sales to affiliated
parties. Therefore, KTN's failure to comply with the Department's
instructions led it to report one home market database which included
sales to NSC instead of sales by NSC. Based on the facts presented
above we determine that KTN had sufficient time to prepare the
requested information. Both our original August antidumping
questionnaire and our subsequent supplemental questionnaires explicitly
directed KTN to report its downstream sales by named affiliates in the
home market. While we did eventually conclude that KTN was not required
to report certain resales by certain affiliates, from the time of our
initial questionnaire, KTN was required to gather all affiliated
reseller information.
    In addition, KTN posits erroneously the standard that because KTN
was unable to convince Thyssen's home market resellers to comply with
the Department's request for information it is somehow exempt from the
application of facts available. However, based on the fact that we have
found KTN to be affiliated with Thyssen (as stated above), it is
unreasonable to assume that Thyssen was unable to compel its own
resellers to provide the Department with the specific information
requested. In addition, we note, as do petitioners in their case brief,
that Thyssen encountered no apparent difficulty in persuading its U.S.
affiliates to comply with these same requests for reseller information.
It is reasonable to assume that Thyssen could have prevailed upon its
home market resellers to comply in like fashion with the Department's
requests for downstream sales information. Thus, KTN's contention that
it acted to the best of its ability and, thus, should not be subject to
adverse facts available is unconvincing.
    Further, we disagree with KTN's proposed alternatives to the
Department's application of adverse facts available. We find misplaced
KTN's reliance on National Steel to support its claim that the
Department's use of adverse facts available in the Preliminary
Determination produced aberrant results. Rather, we agree with
petitioners that in citing National Steel KTN confuses the necessary
level of adverse inference imputed to missing data and fails to
consider that adverse facts available in the instant case are not
applied as a corrective measure among sales within KTN's and NSC's
properly-reported home market databases, but represent an adverse
surrogate for downstream sales data that are missing in their entirety
owing solely to KTN's failure to respond.
    In National Steel the Department applied adverse facts available to
certain sales unreported by the respondent in the case, Hoogovens. The
Court sustained the criteria used by the Department in selecting among
the facts available, i.e., that the margin be sufficiently adverse to
induce future cooperation yet also be indicative of current conditions,
but reversed the Department's application of these criteria to
Hoogovens absent a more reasoned explanation. While the instant case
bears superficial resemblance to National Steel, the fact patterns for
the two cases are quite different. In National Steel Hoogovens failed
to report a small number of sales while in the instant case KTN failed
to report entire databases for two of its home market affiliates,
thereby sharply limiting the record information from which to select
among adverse facts available. KTN's failure to report fully the
requested downstream sales data serves to undercut whatever merit its
argument might carry precisely because this failure precluded an
independent analysis which would allow the Department to establish
current conditions for either of the resellers in question. The missing
data in this case are of greater significance to our analysis than was
the case in National Steel for they represent a large volume of KTN's
home market sales and would allow us to compare home market downstream
sales with U.S. reseller sales. Therefore, by failing to report such
sales, the respondent has limited the information available to the
Department for review in applying adverse facts available. Thus, as
articulated in National Steel, because KTN should not be rewarded for
providing inaccurate or incomplete data when it is to its advantage to
do so, we have selected the only reasonable means available in our
application of adverse facts available. As in the Preliminary
Determination, we have selected the highest NVs per control number
located in either the KTN or NSC databases, and have applied these
model-specific NVs to the appropriate sales to the two resellers in
question. While KTN contends that our application of adverse facts
available produces aberrant results, by failing to report the
downstream sales requested KTN has precluded the Department's testing
the missing downstream sales prices and, possibly, selecting a
different benchmark. As petitioners note, given the market realities of
advancing through a chain of affiliated resellers, the prices for
downstream sales from the affiliates to the first unaffiliated customer
would be higher than the reported transfer prices from KTN or NSC to
the affiliated parties. Thus, KTN's arguments that our application of
adverse facts available produced aberrant results are based on
conjecture, given the absence of the requested and relevant downstream
sales data. Therefore, for these final results we have continued to
apply adverse facts available in the same manner as our Preliminary
Determination.
    In addition, we also disagree with KTN's assertion that the
transfer prices from NSC to Reseller 2 are at arm's length and that the
Department should therefore not apply adverse facts available to sales
made through that reseller. Our Limited Reporting Memorandum indicated
that we would require the requested downstream sales data for the
resellers in question since we had determined that they were not at
arm's length. We based this decision on our analysis of KTN's home
market database which included KTN's sales to

[[Page 30728]]

NSC. It was not until KTN's November 16, 1998 supplemental response
that it first reported NSC's downstream sales information and, thus,
NSC's sales to Reseller 2. However, the question is not whether a
specific subset of KTN's sales to NSC are or are not at arm's length;
rather, it is KTN's failure to provide requested data on downstream
sales through affiliated parties which caused us to apply adverse facts
available. Therefore, because our original decision was based on
available record evidence and because we do not conduct our arm's-
length test on subsets of sales to any specific customer, we have
continued to apply adverse facts available for sales by NSC to Reseller
2.
    We agree with KTN, however, that as we have determined that the
invoice date is the appropriate date of sale for this final
determination (see Comment 1), we incorrectly calculated adverse facts
available prices for certain sales to two resellers in the home market
which were ordered during the POI, but invoiced after the POI. Thus, we
have removed from our calculations all sales with invoice dates falling
outside the POI.
    For this final determination we have continued to calculate the
highest NV reported by control number in KTN's and NSC's home market
database and have applied these to KTN's and NSC's sales to its
affiliates for which KTN did not report home market downstream sales.

Comment 4: Critical Circumstances

    According to KTN, the Department erred in concluding in the
Preliminary Determination that critical circumstances exist. KTN claims
that the Department (i) examined an inappropriate period in finding
``massive imports,'' (ii) based the pre-and post-petition periods on
the incorrect months, (iii) relied upon data drawn from an incomplete
list of HTS item numbers, thus inappropriately excluding certain
imports of subject stainless sheet in coil, and (iv) did not review
import trends over a sufficient period of time.
    KTN notes that in making its critical circumstance decision the
Department compared the volume of imports during the pre-petition
period of April through June 1998 to the post-petition period of July
through September 1998. KTN contends that, as in Certain Steel Concrete
Reinforcing Bars from Turkey 62 FR 9737, 9746 (March 4, 1997) (Re-Bar
From Turkey), the date on which the petition is filed determines
whether the month of filing will be included in the pre- or post-
petition period, and that where the petition is filed during the first
half of a month, the month of filing is treated as part of the post-
petition period. KTN's Case Brief at 42, citing the Department's
Antidumping Manual, Chapter 10 at 4. KTN argues that since the petition
was filed on June 10, 1998 (i.e., the first half of the month), June
should be included in the post-petition period.
    Furthermore, in making a final determination as to whether an
increase in imports since the filing of the petition is massive, KTN
argues, the Department must utilize all of the data reasonably
available. KTN asserts that it is the Department's well-established
practice to base its analysis on the longest period for which
information is available, beginning at the date the petition was filed
and ending with the effective date of the preliminary determination.
KTN's Case Brief at 43, citing, e.g., Re-Bar From Turkey, 62 FR at 9746
and Brake Drums and Brake Rotors From the People's Republic of China,
62 FR 9160, 9165 (February 28, 1997) (Brake Drums II), both of which
used comparison periods of seven months. Thus, KTN avers, while the
Department's regulations state only that the period of comparison must
be at least three months in duration, the Department has frequently
utilized a comparison period of up to seven months. Therefore, KTN
maintains that the Department must utilize a seven-month comparison
period of June through December 1998 (based on the publication of the
preliminary determination on January 4, 1999). Using this comparison
period, KTN claims that imports of subject merchandise from Germany
increased by only 7.85 percent during the post-petition period over a
similar seven-month pre-petition period of November 1997 through May
1998. KTN's Case Brief at 44 and Exhibit 6, citing data drawn from the
Census Bureau's ``Trade Information On-Line Service.''
    In addition, KTN asserts that in determining whether critical
circumstances exist, the Department must examine trends over a period
of time to determine whether import volumes are subject to seasonal
fluctuations which could taint the results. KTN acknowledges that while
there may not be a direct correlation between the volume of stainless
steel imports and the season, historical data clearly indicate that the
level of imports fluctuates greatly from one month to the next.
Therefore, KTN maintains, the Department's findings are likely to be
significantly skewed if it considers a brief post-petition period of
just three months.
    Finally, KTN argues in a footnote to its case brief that the
Department failed to review the full range of HTS numbers which include
subject merchandise. KTN takes issue with the Department's
characterization of this methodological choice as producing
conservative estimates, because the so-called clean HTS numbers (those
restricted by definition to subject stainless sheet in coil) do not
capture all imports of subject merchandise. That the HTS numbers used
``are under-inclusive,'' KTN notes, ``provides no indication as to the
direction in which the flaw will skew the critical circumstances
estimate.'' KTN's Case Brief at 41, n. 43.
    Petitioners argue that in its Preliminary Determination the
Department justifiably concluded that there was a reasonable basis to
believe or suspect that (i) the importer knew or should have known that
the exporter was selling subject merchandise at less than fair value
and (ii) there had been massive imports over a relatively short period,
thus satisfying both the second and third criteria of section 733(e)(1)
of the Tariff Act. Accordingly, petitioners maintain, the Department
appropriately made an affirmative preliminary determination of critical
circumstances as to KTN.
    In analyzing whether imports of subject merchandise had been
massive over a relatively short period of time, petitioners aver, the
Department correctly calculated that subject imports had increased by
67.74 percent during the post-petition period scrutinized at the time
of the Preliminary Determination. Further, and contrary to KTN's
assertions, petitioners contend that the Department correctly excluded
certain HTS items which might cover some quantity of in-scope
merchandise from its calculations of massive imports, and properly
included the month of June 1998 in the pre-petition period. Petitioners
argue that the Department made a conservative estimate in calculating
whether imports were massive by scrutinizing imports falling under HTS
categories that only include sheet and strip in coil form, and by
excluding those HTS basket categories which do not indicate whether or
not the sheet and strip are in coils. In so doing, petitioners claim,
the Department acted properly to exclude potentially out-of-scope
merchandise, such as cut-to-length stainless sheet and strip, from its
analysis. Moreover, petitioners contend that the excluded HTS
categories account, on average, for less than 20 percent of total
imports in 1998 of all in-scope merchandise. By including the HTS
categories in question, argue petitioners, the critical circumstances
analysis would be skewed, and would lead to imprecise

[[Page 30729]]

results. Petitioners' Rebuttal Brief at 66 and 67.
    Petitioners also insist that the Department properly included the
month of June in the pre-petition period. Petitioners maintain that
June should be included in the pre-petition period since entries of
subject merchandise from Germany during June were almost certainly
exported from Germany prior to the petition's filing on June 10.
Therefore, suggest petitioners, since the entries in June were the
result of KTN's commercial behavior before the petition was filed, June
should be included as part of the pre-petition period. Petitioners aver
that 19 CFR 351.206(h)(2)(i) allows for such an adjustment of the base
and comparison periods where the data are available and the commercial
realities of the marketplace so dictate. Petitioners' Rebuttal Brief at
68 and n. 5, citing Uranium From Ukraine and Tajikistan, 58 FR 36640,
36645 (July 8, 1993).
    Further, petitioners disagree with KTN's assertion that the
Department must use data through December 1998 in making its final
critical circumstances determination, arguing that each case must be
decided according to its own facts, as suggested by the Department's
regulations at section 351.206(h)(2) and (i). However, petitioners
maintain, if Census Bureau data again serve as the basis for the final
determination, consideration of the months through December 1998 as
well as the inclusion of June 1998 in the post-petition period, still
indicates that imports of subject merchandise during the relevant
periods were massive (i.e., an increase of 21.46 percent). Petitioners'
Rebuttal Brief at 69. Therefore, petitioners conclude, irrespective of
the periods analyzed, the Department must continue to find that
critical circumstances exist with respect to KTN.
    Department's Position: We agree in part with KTN and find, pursuant
to section 735(a)(3) of the Tariff Act, that critical circumstances do
not exist with respect to KTN. While we do find that the person by
whom, or for whose account, the merchandise was imported knew or should
have known that the exporter was selling the subject merchandise at
less than its fair value and that there would be material injury by
reason of such sales (see Preliminary Determination 64 FR at 99), we
have determined that imports for KTN have not been massive.
Consequently, the second of the two criteria required for a finding of
critical circumstances has not been met.
    On March 23, 1999, we requested that KTN provide the Department
with monthly shipment data for 1996 through 1998. In response KTN
submitted monthly shipment data for October 1995 through December 1998.
Because it is the Department's practice to use company-specific
information where available (see, e.g., Re-bar From Turkey, and Certain
Cased Pencils From the People's Republic of China, 59 FR 55625
(November 8, 1994)), we have based our final determination on KTN's
monthly shipment data, rather than the Census Bureau data used for the
Preliminary Determination.
    We also agree with KTN that we incorrectly included June in the
pre-petition period. As stated in Re-bar From Turkey, where the
petition is filed during the first half of a month, the month of filing
is treated as part of the post-petition period. Since the petition in
this case was filed on June 10, 1998, we have concluded that June
should be included in the post-petition period. Further, we agree with
respondent that it is our normal practice to include in our analysis
data concerning the respondent's imports of subject merchandise up to
the date of the preliminary determination, where such data are
available. See, e.g., Aramid Fiber of Poly-Phenylene Terephthalamide
From the Netherlands, 59 FR 23684 (May 6, 1994). In the instant
investigation the most reliable data available concern KTN's shipments
of subject merchandise, rather than imports into the United States,
because the former are limited to the respondent KTN and, unlike the
Census data, are limited to merchandise subject to this investigation.
    However, we disagree with KTN that it would be appropriate to
broaden our analysis to include data through December 1998. Although
the ``effective date'' of the Preliminary Determination fell on January
4, 1999, the date of its publication in the Federal Register, the
actual date of this determination is December 17, 1998. Because the
Preliminary Determination fell in the middle of the month of December,
we believe it would be inappropriate to include data for the full month
of December in our analysis, as this would mean including data on
imports after the Preliminary Determination in our analysis of
``massive imports.'' Accordingly, we have determined that for the
purpose of our critical circumstances determination it is appropriate
to compare KTN's shipment data for a six-month pre-petition period of
December 1997 through May 1998 to a six-month post-petition period of
June 1998 through November 1998. Based on this comparison we have
concluded that imports of subject merchandise decreased by 2.5 percent.
Clearly, then, there was no increase in KTN's imports of subject
merchandise during the post-petition period.
    With respect to all other exporters who were not subject to this
investigation, it is the Department's normal practice to conduct its
analysis based on the experience of the investigated companies. See,
e.g., Re-bar From Turkey. In Re-bar From Turkey the Department found
critical circumstances for the ``All Others'' category because it found
critical circumstances for three of the four companies investigated.
However, as we recently determined in Hot-Rolled Flat-Rolled Carbon-
Quality Steel Products From Japan, 64 FR 24329 (May 6, 1999) (Hot-
Rolled Steel From Japan), we are concerned that a literal application
of this approach could produce anomalous results given certain
circumstances. Therefore, we believe it is appropriate in this case to
apply the traditional critical circumstances criteria to the ``All
Others'' category. First, in determining knowledge of dumping, we look
to the ``All Others'' rate, which is based on the weighted-average
margins of all investigated companies. In this case such a weighted-
average rate must, of needs, be based on the individual rate of KTN,
the sole respondent in this investigation. KTN's rate applied to ``All
Others'' is 25.84 percent. In addition, the Department normally
considers a preliminary International Trade Commission (Commission)
determination of material injury sufficient to impute knowledge of
likelihood of resultant material injury. The Commission preliminarily
found material injury to the domestic industry due to imports of
stainless sheet in coil from Germany and, on this basis, the Department
may impute knowledge of likelihood of injury to all other exporters.
See Preliminary Determination of the Commission of Certain Stainless
Steel Sheet and Strip from France, Germany, Italy, Japan, the Republic
of Korea, Mexico, Taiwan, and the United Kingdom, 63 FR 41864 (August
5, 1998). However, while we have sufficient evidence to impute
knowledge of dumping and material injury to the ``All Others''
category, we also must also evaluate the second criterion required by
the statute in making a critical circumstances determination: whether
there have been ``massive imports'' for the ``All Others'' category. In
making this determination we examined the company-specific shipment
data provided by KTN, which, as noted, indicate a decrease of 2.5
percent during the post-petition period.

[[Page 30730]]

We found, accordingly, that KTN's data provide no evidence of massive
imports. Based on that finding we likewise determine that imports from
uninvestigated exporters were also not massive during the relevant
comparison periods. We also examined U.S. Customs data in an attempt to
analyze overall imports from Germany of the subject merchandise.
Contrary to our approach in the Preliminary Determination, we examined
entries classified under the full range of HTS items which are listed
in the ``Scope of the Investigation'' section, above. These data
indicate that imports of subject stainless sheet in coil for Germany as
a whole increased by 8.9 percent, still well below the 15 percent
threshold for an affirmative finding of ``massive imports.'' However,
since the full range of HTS items includes both subject and non-subject
merchandise, we believe it is inappropriate to base our critical
circumstances finding on these data which are overly broad. We are
relying, therefore, upon the scope-specific data supplied by KTN. We
find, therefore, that imports from all other exporters were not massive
during the relevant period. Based on these factors the Department
determines that there are no critical circumstances with regard to
imports of subject merchandise from all other exporters in Germany.

Adjustments to Normal Value

Comment 5: Proper Application of Facts Available

    Petitioners suggest that the series of customer codes the
Department used in its preliminary margin program to identify sales
through Thyssen and Krupp affiliates is not complete. With respect to
sales through NSC, petitioners identify several customer codes used by
NSC which, petitioners assert, the Department did not include in its
preliminary margin program. In addition, petitioners argue, certain of
KTN's customer codes are reported as Thyssen and Krupp affiliates which
were not identified by the Department in its preliminary margin
program.
    KTN counters that petitioners have cited erroneously to the model-
match program whereas the customers are coded correctly in the separate
arm's-length test program. According to KTN, the program language cited
by petitioners applies only to the application of adverse facts
available to unreported downstream sales. KTN concludes that, aside
from what KTN terms the inadvertent inclusion of affiliated-party sales
that passed the arm's-length test, the model match program is correct
and need not be changed.
    Department's Position: We disagree with petitioners. To apply
adverse facts available with respect to two home market resellers for
which KTN failed to provide downstream sales data (see Comments 2 and
3), we included language in our model match program that aggregated all
customer codes used by KTN or NSC for sales to these two resellers in
their respective sales databases. Although petitioners argue that our
list is not exhaustive based on an analysis of customer codes
identified in the home market sales files as pertaining to ``Thyssen''
affiliates (i.e., where CUSRELH equals 3), we determined that no
additional codes need to be added to the program, as the additional
codes cited by petitioners identify Thyssen affiliates for whom we did
not request downstream sales information. Thus, no modification is
necessary to this programming language for the final determination. See
Limited Reporting Memorandum for further information.

Comment 6: Adjusting for NSC's Processing Costs

    Petitioners point out that in the KTN Sales Verification Report the
Department indicated that it ``[was] unable to trace any expenses
related to slitting for FY 1997 because NSC stated that it did not
produce cost center reports during this period'' and that ``NSC was
unable to provide any supporting documentation for either the slitting
cost or total slitting tonnage.'' Petitioners' Case Brief at 77,
quoting the KTN Sales Verification Report at 56 and 57. Petitioners
assert that the Department should accordingly deny KTN's claimed direct
adjustments for NSC's slitting costs.
    KTN responds that the Department should accept as direct selling
expenses NSC's reported slitting costs for 1998 for slitting master
coils to customers' orders, and adjust home market prices accordingly.
According to KTN, the Department was able successfully to verify these
expenses.
    Department's Position: We disagree with petitioners and KTN. With
respect to NSC's slitting operations, we have determined that the
claimed expenses represent direct processing costs which are accurately
treated as components of KTN's variable cost of manufacture and COP for
the finished products sold to the first unaffiliated customers.
Accordingly, for this final determination we have increased COP by
NSC's 1998 slitting costs as described in our Final Results Analysis
Memorandum and have denied KTN's claim that these costs are direct
selling expenses. Because we were unable to verify NSC's fiscal 1997
slitting costs, we have used the verified figures for fiscal 1998 for
all relevant slitting costs during the POI.

Comment 7: Early Payment Discounts

    Petitioners argue that many of KTN's home market sales appear not
to have warranted early payment discounts based on the reported terms
of sale. According to petitioners, the time between invoicing and
payment for many transactions seemingly precludes such discounts.
Petitioners suggest that this fact pattern is contrary to the
discussion of early payment discounts in the Department's KTN Sales
Verification Report, wherein the Department observed that ``KTN stated
that as a policy it does not allow customers to take early payment
discounts where they fail to meet stated terms, but that on rare
occasions, early payment discounts will be granted even though a
customer pays late.'' Petitioners' Case Brief at 78, quoting the KTN
Sales Verification Report at 33 (petitioners' emphasis). Petitioners
assert that the Department should disallow all home market early
payment discounts as adverse facts available or, at a minimum, disallow
those early payment discounts where reported dates of invoicing and
payment did not qualify KTN's customer for such a discount.
    KTN responds that the Department successfully verified its
calculation of early payment discounts and argues that the application
of facts available is not warranted. KTN argues that in each case in
which KTN reported early payment discounts in its sales file, the sales
documentation confirmed that the customer had in fact taken the
discount. KTN asserts that while the customer may not have qualified
for the discount for three of the five sales traces which indicated a
discount was given, the actual terms of payment were verified in each
case. KTN argues that, as verified by the Department, the date of
payment was the date that KTN booked the payment into its accounts
receivable system. Therefore, argues KTN, it is possible that a
customer sent a payment within the time allowed for qualifying for an
early payment discount, but that the payment was not booked into KTN's
accounting system for several days.
    Department's Position: We agree with respondent. During our home
market verification of KTN we conducted thorough sales traces which
included ensuring the accuracy of KTN's reported payment and invoice
dates. We found no discrepancies in any of KTN's reported payment or
invoice dates.

[[Page 30731]]

Furthermore, while the time lag between the verified invoice and
payment dates might not have appeared to warrant an early payment
discount for these transactions, we were satisfied that for those
transactions reviewed which included early payment discounts, the
customer in fact claimed these discounts and KTN granted them. See,
e.g., KTN Sales Verification Report at 59. Therefore, we have continued
to allow an adjustment to NV for KTN's reported early payment
discounts.

Comment 8: Advertising Expenses

    In its opening-day correction letter presented at the KTN sales
verification KTN noted that it had incorrectly double-counted expenses
attributable to advertising by including them in its ISEs and also
reporting them as direct expenses. KTN suggested removing advertising
expenses from its ISEs to correct this error. Petitioners claim,
however, that information on the record establishes that the remedy
suggested by KTN is unacceptable. Petitioners point to the discussion
of advertising activities in the KTN Sales Verification Report,
specifically the description of these expenses:

    [f]or advertising expenses, KTN explained that
Informationsstelle Edelstahl Rostfrei (ISER) is the industry
association which conducts a variety of activities to study and
promote the uses of stainless steel. KTN presented a list of the
association's activities in 1997 and 1998, including brochures and
publications, seminars, fairs * * *

Petitioners' Case Brief at 80, quoting the KTN Sales Verification
Report at 45.
    Petitioners argue that ISER's activities are directed at KTN's
current and prospective customers of stainless steel products, not at
the customer's customers. Accordingly, claim petitioners, any expenses
incurred by KTN related to its membership in ISER (i.e., the
association dues) are correctly accounted for as part of ISEs, both for
the home market and the United States. Petitioners further assert that
if the Department instead decides to take the approach suggested by KTN
(i.e., to reduce ISEs by the amount of ISER dues), these expenses
should also be reported as direct expenses in the United States.
    KTN counters that the Department should continue to treat KTN's
reported home market advertising expenses as direct selling expenses.
ISER, KTN asserts, undertook promotional and advertising campaigns
directed at KTN's customers' customers in the German market. KTN argues
that, accordingly, home market advertising expenses qualify as direct
selling expenses.
    Department's Position: We agree with petitioners that KTN's home
market advertising expenses are properly classified as ISEs. The
Department has articulated its views with respect to the proper
treatment of advertising expenses in, e.g., Gray Portland Cement and
Clinker from Mexico, 64 FR 13148, 13169 (March 17, 1999) and Fresh
Atlantic Salmon from Chile, 63 FR 31411, 31424 (June 9, 1998). The
Department normally considers as direct selling expenses those expenses
that result from, and bear a direct relationship to, the particular
sales in question. In the case of advertising expenses, to qualify as a
direct adjustment, these expenses must also be assumed on behalf of a
customer and must be associated specifically with sales of subject
merchandise. ISER's activities, however, are aimed at promoting the use
of stainless steel in general but not subject merchandise specifically.
The expenses incurred for KTN's membership in ISER are not directly
related to particular sales by KTN of subject merchandise. As indicated
in our KTN Sales Verification Report at 45, ISER conducted activities
to study and promote the use of stainless steel generally (i.e., the
activities were not limited to stainless steel sheet and strip which is
the subject of this investigation). Furthermore, there is no record
evidence supporting KTN's claim that ISER's activities give rise to
expenses assumed by KTN on behalf of its customers. Therefore, for this
final determination, we consider KTN's home market advertising expenses
to be indirect in nature. We have denied KTN's claim that these are
direct selling expenses, but we have included these expenses in KTN's
home market ISEs.

Comment 9: Rebates

    As indicated in the KTN Sales Verification Report, NSC's rebates to
a particular customer were granted at a given percentage even though
NSC had initially reported a different figure in its response.
Petitioners urge the Department to apply the corrected rebate
percentage for 1998 sales (NSC noted that the rebates at issue applied
only to sales in 1998) and to allow no rebates for the items invoiced
to this customer during 1997.
    Department's Position: For this final determination we have applied
the corrected rebate percentage to NSC's eligible 1998 sales, as
suggested by petitioners.

Adjustments to United States Price

Comment 10: Unreported U.S. Sales

    Petitioners urge the Department to apply partial adverse facts
available to five previously unreported U.S. sales discovered by the
Department during the verification of KHSP. Petitioners argue that KHSP
never included these sales in its list of corrections, nor did it
provide the total quantity and value of these missing transactions in
its opening-day corrections letter. The unreported U.S. sales,
petitioners maintain, do not constitute minor corrections but instead
new information that should be rejected by the Department and removed
from the record of this investigation.
    As stated in Lock Washers (58 FR at 48835), aver petitioners, the
Department's policy concerning unreported sales discovered at
verification is to accept for the record only that information
necessary to establish the magnitude of any omissions. In Lock Washers,
petitioners point out, the Department returned sales documentation
concerning the unreported sales identified at verification. Petitioners
also point to the investigation on Belgian Stainless Plate in Coils, in
which the Department refused to take or even review complete sales data
(other than the invoice) for a single unreported sale.
    Petitioners assert that it is the Department's established practice
to apply total facts available to missing sales information if the
missing data constitute five percent or more of a sales database, or
partial facts available when the missing or unreported data make up
less than five percent of a given sales database. Petitioners suggest
that the Department, in a manner consistent with Lock Washers (in which
it resorted to partial facts available for the respondent's unreported
sales data), should apply as partial adverse facts available the
highest margin from the petition or, at a minimum, the highest margin
calculated for a single sale based on the correctly reported CEP
transactions. Petitioners contend that judicial precedent further
supports the application of facts available with respect to the KHSP
sales at issue. Petitioners emphasize that in Persicio Pizzamiglio,
S.A. v. United States, 18 CIT 299 (1994), the Court upheld the
Department's use of facts available based on unreported home market and
U.S. sales.
    KTN responds that the Department's acceptance at verification of
the previously unreported U.S. sales was appropriate. KTN argues that
petitioners' reliance on Lock Washers is

[[Page 30732]]

misplaced. The facts in that case, KTN argues, are not remotely
comparable to the facts of this case. Citing a June 7, 1993 letter to
respondent's counsel in the Lock Washers proceeding, KTN notes that the
Department rejected the sales documentation at issue because it
reflected ``entirely new contracts covering a significant portion of
total U.S. sales quantity and value.'' KTN's Rebuttal Brief at 29.
However, KTN argues, the new KHSP sales identified at verification were
neither significant nor entirely new. KTN asserts that KHSP had simply
misclassified four of the five previously unreported sales as non-
subject merchandise and that only one was entirely new and previously
unidentified. Furthermore, argues KTN, the sales at issue can hardly be
considered significant given the number of U.S. transactions. KTN also
disputes petitioners' claimed parallels between this case and Belgian
Stainless Plate in Coils, claiming the Department has yet to issue a
final determination; thus, KTN insists, there is no ``precedential
authority contained in a verification report in a different
investigation with different facts.'' KTN's Rebuttal Brief at
30.<SUP>7</SUP>
---------------------------------------------------------------------------

    \7\ The Department's final determination in Belgian Stainless
Plate in Coils was published in the Federal Register one day after
the filing of KTN's rebuttal brief.
---------------------------------------------------------------------------

    KTN further claims that petitioners have mischaracterized the
Department's normal practice with respect to the reporting of new sales
at verification. The Department's Antidumping Manual, argues KTN,
clearly establishes that the decision whether or not to accept new
sales at verification is to be made on a case-by-case basis. KTN cites
as an example of this case-specific approach Disposable Pocket Lighters
from the People's Republic of China, 60 FR 22539, 22365 (May 5, 1995)
(Pocket Lighters from the PRC), where the Department discovered three
previously unreported invoices at verification. In that determination,
KTN points out, the Department concluded that the omissions ``were
inadvertent and the corrected information was verified.'' KTN's
Rebuttal Brief at 31, quoting Pocket Lighters from the PRC. The
Department further indicated in its determination that ``the new sales
represent a small percentage of total sales during the POI and, at
verification, were not hidden or misrepresented.'' Id. KTN argues that,
as in Pocket Lighters from the PRC, the Department should accept the
new sales presented at verification, as they represent a small
percentage of total sales and were neither hidden nor misrepresented.
    Finally, KTN argues that in the event the Department agrees with
petitioners that it cannot accept the new sales, it should still use
the documentation provided by KHSP on the record as facts available.
KTN suggest this approach would be consistent with Porcelain-on-Steel
Cooking Ware from the People's Republic of China, 62 FR 32757 (June 17,
1997) (Porcelain-on-Steel Cookware), in which the Department determined
that no adverse inference was warranted with respect to three new
invoices discovered at verification. KTN's Rebuttal Brief at 32.
    Department's Position: We agree in part with petitioners. In
Certain Cut-to-Length Carbon Steel Plate From South Africa, 61 FR 61731
(November 19, 1997) (Steel Plate from South Africa), the Department
applied the highest non-aberrational margin to three of respondent
Highveld's unreported U.S. sales which were discovered at verification.
The Department rejected Highveld's arguments that there was no
significant failure to report the U.S. sales and that the effect of
these omissions was minor. In fact, in that case the unreported U.S.
sales represented an even smaller percentage of total sales than do
KHSP's newly-identified transactions. Similarly, in the earlier Lock
Washers case the Department took this same approach and applied the
highest non-aberrational margin calculated for a single sale. It is
also important to note that, as in this case, the respondent in Lock
Washers identified the sales at issue at the outset of verification.
Accordingly, we are not convinced by KTN's suggestions that disclosure
of such sales at verification somehow warrants their acceptance for
calculating KTN's weighted-average margin. In addition, by the time the
Department conducted its U.S. verification, KHSP submitted three U.S.
sales databases (on September 29, 1998, November 16, 1998, and January
6, 1999) reflecting various revisions. Thus, KTN had ample opportunity
to review KHSP's submitted data for completeness.
    With respect to KTN's reliance on Porcelain-on-Steel Cookware, we
note that the facts in that case are distinguishable from those in this
investigation. In that case the three unidentified invoices discovered
at verification were relevant to the calculation of factors of
production for steel inputs and did not constitute unreported sales
intended for inclusion in the Department's price-to-price margin
calculations.
    We do not accept, however, petitioners' characterization of KHSP's
omissions as ``more egregious'' than those in Lock Washers. Although
KHSP did not provide the aggregate volume and value of these sales in
the opening-day correction letter submitted for the record, Exhibit 1
to the KHSP Verification Report makes clear that KHSP identified these
missing sales at the outset of verification. See KHSP Verification
Report, Exhibit 1 at 3 and 10 through 16. Furthermore, KHSP provided a
complete packet containing copies of each of the relevant invoices
which the Department included on the record as a verification exhibit.
Nevertheless, for the reasons stated above, we find that KHSP had three
opportunities spread over four months to provide the Department with a
complete listing of its U.S. sales. In response to its failure to do
so, as adverse facts available, we are applying the highest non-
aberrational margin calculated based on KTN's correctly reported CEP
transactions to the unreported sales and have included these
transactions in our calculation of the overall weighted-average margin.

Comment 11: Facts Available for Reseller's Indirect Selling Expenses

    KTN contends that the Department should no longer apply facts
available for ISEs for each U.S. sale made by one of Thyssen's
affiliated resellers based in Germany because after the Preliminary
Determination KTN provided this reseller's ISEs which were verified
without discrepancy.
    Department's Position: We agree with KTN. At the time of our
preliminary determination KTN had not submitted information regarding
the ISEs incurred by the reseller at issue. However, as part of its
January 6, 1999 supplemental response, KTN reported the ISEs for this
reseller. During our U.S. sales verification we specifically reviewed
the ISEs for the reseller in question and noted no discrepancies.
Therefore, for these final results we have used the verified ISEs as
reported for this reseller.

Comment 12: U.S. Credit Expenses

    KTN maintains that in its Preliminary Determination the Department
erroneously rejected KTN's reported credit expense for CEP sales and
recalculated the expense using the credit period beginning with the
date that KNE shipped the product from the European port (reported as
SHIPDAT3U) rather than the date of shipment to the customer from the
U.S. port (reported separately as SHIPDAT1U). KTN claims that using the
earlier date of shipment from Germany overstates U.S. credit expenses
by double-counting the time that

[[Page 30733]]

merchandise is in transit between the European and U.S. ports; KTN
claims it has included this time in its ICC. KTN argues that upon
shipment to KHSP from the European port KNE bills KHSP for the
merchandise; at that time KHSP recognizes the products as inventory on
its books and records its value in its accounts payable. Similarly, KNE
books the item as a sale to KHSP and includes the total in its accounts
receivable due from KHSP. Thus, the time between SHIPDAT3U and
SHIPDAT1U represents a period of credit being extended by KNE to KHSP,
not by KHSP to the unaffiliated customer. KTN asserts that it has
properly recognized this period by including the average time at sea as
part of its ICCs in Germany. Therefore, under the Department's own
practice, KTN contends, the correct date of shipment to use in the
calculation of U.S. credit for CEP sales is the date of shipment to the
final U.S. customer from the U.S. port. KTN's Case Brief at 56, citing
Brake Drums and Brake Rotors From the Peoples Republic of China, 61 FR
53190, 53195 (October 10, 1996) (Brake Drums I).
    Petitioners take issue with KTN's attempt to describe these sales
as if they were made from KHSP's inventory in the United States. The
sales in question, petitioners note, are not of merchandise that enters
KHSP's inventory and is then later sold to the unaffiliated customer,
but instead are sales that have been ordered by the final U.S. customer
with the terms of sale set well before entry into the United States.
Petitioners' Rebuttal Brief at 55. Dismissing KTN's references to
KHSP's ``accounting inventory'' as a ``clever semantic cover,''
petitioners point to KTN's own statements for the record that it does
not maintain inventory in the United States, but rather, makes direct
shipments from Germany to the first unaffiliated customer in the United
States through the CEP agent KHSP. Id. at 56. Petitioners accuse KTN of
seeking to lower its margin by shifting the ex-factory-to-U.S. port
expenses from its U.S. credit (a direct expense) to its foreign ICC (an
indirect expense). Thus, petitioners continue, a Deutsche-mark interest
rate would apply and the amount would not be deducted from the CEP
starting price. However, petitioners maintain that the valuation of
merchandise during this period is in U.S. dollars, as demonstrated by
the documentation of transactions from KTN through KNE to KHSP.
Therefore, petitioners submit, U.S. credit expenses should be
calculated based on the time from KNE's shipment from the European port
(SHIPDAT3U) using a dollar-denominated interest rate.
    Department's Position: We agree in part with petitioners. In
response to our section A supplemental questionnaire, KTN reported that
``[i]t typically is not KHSP's practice to maintain an inventory of the
subject merchandise for its customers. During the POI, KHSP did
maintain a small inventory of subject merchandise, but did not sell
this merchandise.'' KTN's October 23, 1998 supplemental response at 6.
KTN reiterated this point in a December 1, 1998 submission on critical
circumstances: ``[a]s stated in prior submissions, KTN does not
maintain inventory in the United States.'' Therefore, we conclude that
during the POI KHSP did not have any sales of subject merchandise made
out of inventory. This being true, all of KTN's sales during the POI
were made-to-order sales that were drop-shipped from KNE in Germany
(i.e., direct shipments). Therefore, we disagree with KTN's
characterization of these transactions as KHSP's ``inventory sales.''
    Further, we disagree with KTN's conclusion that Brake Drums I
articulated a practice of using the date of shipment from the U.S. port
to the U.S. customer as the correct date of shipment in calculating the
credit period for CEP sales. In fact, in Brake Drums I the Department
stated that:

    [i]n CEP cases where the merchandise received is shipped to the
U.S. customer from inventory of a U.S. affiliate, the credit period
begins from the point of shipment from U.S. inventory. However, in
the case of [respondent] Laizhou/Shenyang merchandise is shipped to
the U.S. customer directly from the foreign port. Therefore, we have
relied on a credit period beginning with the date of the bill of
lading at the foreign port.

Brake Drums I, 61 FR at 53195.
    Therefore, we have recalculated KTN's credit expense based on the
date of shipment from the German port (SHIPDAT3U) rather than shipment
from the U.S. port, which is fully consistent with Brake Drums I.
    However, we agree with KTN's assertion that it recognized this time
period by including the average days at sea as part of its ICCs in
Germany. Therefore, in order to avoid double-counting the time in
transit by including this period in both KTN's U.S. credit and its
foreign ICCs, we have adjusted the latter figure to account for time at
sea, as reported in KTN's section C supplemental response.

Comment 13: Proper Shipping Date for U.S. Resales

    Assuming, arguendo, that the Department will again recalculate
credit expenses for either KTN or KHSP sales and continues to use
SHIPDT3U, KTN insists that the Department must ensure that the shipment
date field used to calculate the payment days for individual
transactions contains a date. KTN claims that a subset of the U.S.
sales reported by KHSP represent transactions where the merchandise was
directed to a different customer after the product's arrival in the
United States (e.g., in the case of a canceled sale), or resales of
merchandise initially rejected by the original U.S. customer after
delivery. Thus, irrespective of the larger issue of KTN's proper credit
period, the appropriate date of shipment for these resales is the date
of shipment within the United States (SHIPDT1U). Therefore, KTN argues
that should the Department continue to use the date of shipment from
the European port for KHSP's other U.S. sales, the Department must
still use SHIPDT1U for this subset of sales.
    Department's Position: As stated in response to Comment 12, we have
continued to use SHIPDT3U in our calculation of U.S. credit expenses.
However, we agree with KTN that in those instances where merchandise
was resold by KHSP after arrival in the United States, the date of
shipment to use in our calculation of imputed credit expenses should be
the date KHSP shipped the merchandise to the final U.S. customer
(SHIPDT1U), and not the date of the original shipment from KNE in
Germany. Therefore, we have revised our program to account for such
resales in the United States. See Ministerial Errors Memorandum.

Comment 14: Short-Term Interest Rates

    KTN states that as part of its Preliminary Determination the
Department applied an interest rate of 9.5 percent, the prime rate plus
one percent, to calculate U.S. credit expenses because KTN did not
report Fried. Krupp's short-term interest rate, and because the
reported U.S. short-term borrowing rate did not represent an arm's-
length rate. However, KTN claims that because, as part of the post-
preliminary home market and U.S. verifications, both KTN and KHSP
provided information on their respective short-term borrowing rates
that correct these deficiencies, these verified rates should be used
for the final determination.
    Petitioners raise a number of issues relevant to both KTN's home
market and U.S. interest rates. First, petitioners urge the Department
to reject as untimely information the figures KTN provided at
verification regarding its home market interest rate. Petitioners
suggest that the

[[Page 30734]]

Department instead either allow no adjustment whatever for home market
credit as adverse facts available, or rely upon a second rate reviewed
at the home market verification as non-adverse facts available.
    Regarding the U.S. interest rate, petitioners assert that, despite
numerous requests, KTN never supplied the necessary supporting data for
the interest rates available to Krupp USA Financial Services, Inc.
(KFSI). Even accepting the specific reported rate, petitioners claim,
the information KHSP did present at verification regarding KFSI
demonstrates that the interest rate is not at arm's length.
Furthermore, petitioners contend that neither the Krupp nor the KHSP
interest rate can be applied to U.S. sales since neither is based on
U.S. dollar-denominated lending.
    Petitioners suggest as facts available the use of the interest rate
KHSP charges its U.S. customers for late payments. Petitioners argue
that this rate (i) is not skewed by intra-company affiliated
transactions, (ii) accurately reflects the value on receivables based
on KHSP's actual commercial practice, (iii) ensures arm's length
treatment, (iv) is based on dollar-denominated lending and thus is in
keeping with the Department's policy of matching the denomination of
the interest rate to that of the transactions to which it applies, and
(v) ensures parity with the calculated net interest expenses for U.S.
sales.
    Petitioners also object to KTN's failure to weight-average the
interest rates by the outstanding loan amounts, and chides KTN for
failing to even list the amounts of these loans in the relevant exhibit
to its supplemental response. For the final determination, petitioners
urge the Department to continue to base KTN's U.S. interest rate on the
prime rate plus one percent, or 9.5 percent. Petitioners' Case Brief at
57.
    In rebuttal, KTN disagrees with petitioners assertions concerning
home market interest rates, arguing that they have overlooked the fact
that the Department's verification outline explicitly requested that
KTN provide Fried. Krupp's short-term interest rate. In response to
this request, claims KTN, it included with its opening-day correction
letter the short-term interest rate for Fried. Krupp which was
subsequently verified by the Department. Furthermore, KTN argues, the
Department has the option of accepting new information at verification
provided it serves to corroborate, support, or clarify information
already on the record.
    Further clarifying its position, KTN argues that, contrary to
petitioners' assertions, KHSP never claimed that its short-term
borrowings were from Fried. Krupp. Rather, KTN contends, KHSP's short-
term borrowings were made through a Krupp central cash management
system administered by KFSI. KTN argues that it has never claimed that
the Fried. Krupp short-term Deutsche-mark-denominated interest rate
should be applied to its U.S. sales. KTN asserts that the short-term
interest rate that should be examined is KHSP's borrowing rate from the
cash management system run by KFSI, which is an entirely separate cash
management system from that run by Fried. Krupp. KTN's Rebuttal Brief
at 46.
    Regarding petitioners' concerns about the arm's-length nature of
KHSP's interest rate, KTN argues that the Department examined this
information during verification and found no discrepancies.
Furthermore, contends KTN, petitioners assume that since KHSP is
borrowing from an affiliated party, the interest rate charged by KFSI
cannot be at arm's length. However, KTN argues that a given percentage
of Krupp USA's capital comes from banks at market rates and the
remainder comes from the central Krupp (not Fried. Krupp) cash
management system. KTN also cites in support of its argument a passage
from the KFSI cash management agreement.
    KTN also takes issue with petitioners' questioning the methodology
of deriving a rate as a simple average of daily rates during the POI.
KTN contends that whether the rates were based on a simple average or a
weighted average, the short-term interest rate would be almost
identical. KTN's Rebuttal Brief at 47.
    Finally, KTN urges the Department to use the Federal Reserve rate
at the time of the transaction if KHSP's reported short-term interest
rate is not used, and not the rate assessed by KHSP as late-payment
interest. KTN suggests that this approach would be consistent with the
Department's practice, in the absence of borrowings in the proper
currency, to rely upon publicly-available information to establish a
short-term interest rate. Id., at 48, citing Flat Products From Canada,
64 FR at 2176.
    Department's Position: We agree with KTN. Regarding KTN's home
market interest rate, as stated in the KTN Preliminary Analysis
Memorandum at 12, KTN failed to provide specific information requested
in its November 16, 1998 Section B supplemental response regarding the
average short-term interest rate for Fried. Krupp, one of KTN's parent
companies. Rather, KTN reported the rate at which it borrowed funds
from Fried. Krupp. As a result, in the Preliminary Determination we
used this rate as non-adverse facts available on the basis that the
average rate of borrowing between KTN and Fried. Krupp would reasonably
be lower than the average lending rate between Fried. Krupp and an
unaffiliated lender. However, as part of our January 7, 1999 home
market verification agenda, we specifically requested this information
again. During verification KTN presented the Department with
information pertaining to Fried. Krupp's short-term cost of borrowing
which was verified without discrepancy. While petitioners note that KTN
failed to report this information when originally requested, it did
comply with our later requests. Therefore, for these final results we
have used the average short-term interest rate between Fried. Krupp and
its unaffiliated lender.
    In addition, KTN's Section C supplemental response indicated that
KHSP's U.S. short-term borrowing rate for loans from Krupp's central
cash management system were not at arm's length when compared with
publicly-available information placed on the record by KTN. See KTN's
September 28, 1998 Section C supplemental response. Because, as
indicated above, KTN did not provide the requested information on the
specific short-term rates at which Fried. Krupp borrowed, and because
the submitted rates were not at arm's length, we preliminarily
recalculated KTN's credit expense using the publicly-available prime
lending rate of 8.5 percent reported by KTN, increased by one percent
to approximate a commercially-available lending rate. However, as part
of its January 6, 1999 submission, KTN provided the short-term
borrowing rate from the Krupp central cash management system run by
KFSI. In addition, our U.S. verification agenda again requested that
KTN provide information pertaining to the short-term borrowing rate of
Fried. Krupp. See U.S. Verification Agenda, January 23, 1999 at 14. As
part of KTN's U.S. verification we examined KHSP's annual cost of
borrowing, comparing the short-term borrowing rates between KHSP's
affiliated and unaffiliated lenders, and noted no discrepancies. See
KHSP Verification Report at 21. Based on this comparison, we have
determined that KHSP's affiliated-party lending rate was at arm's
length. Therefore, based on information submitted on the record
subsequent to our Preliminary Determination, for these final results we
have used KHSP's short-

[[Page 30735]]

term lending rate from Krupp USA Financial Services.

Comment 15: U.S. Indirect Selling Expenses

    To derive its U.S. ISE ratio, KHSP first isolated those expenses it
could attribute specifically to its Wayne, New Jersey sales division
which handled only sales of subject merchandise. KHSP then allocated a
portion of the remaining ``unidentifiable'' selling expenses (i.e.,
those attributable to KHSP's selling activities generally) to sales of
subject merchandise on the basis of sales value. Finally, KHSP divided
the sum of the Wayne office expenses and the allocated general selling
expenses by the total value of sales through the Wayne office.
Petitioners argue, however, that the use of an ISE ratio applicable to
the operations of KHSP as a whole (i.e., total KHSP ISEs divided by
total KHSP sales value) is preferable. Petitioners' Case Brief at 45.
    Furthermore, petitioners argue that the Department should deny
KHSP's proposal to reduce the total ISEs by amounts for foreign
exchange gains and losses and interest expenses, as they are applicable
specifically to KHSP's CEP sales operations. With respect to interest
expenses, petitioners argue, KHSP has failed to provide any evidence
demonstrating that the amount of ISEs should be reduced by interest
expenses. Petitioners cite Cold-Rolled and Corrosion-Resistant Carbon
Steel Flat Products From Korea, 64 FR 12927 (March 16, 1999) (Flat
Products from Korea III), wherein the Department stated that:

    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 starting price. . . . [I]nterest 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.

Petitioners' Case Brief at 46, quoting Flat Products From Korea III, 64
FR at 12931.
    Regarding its allocation of U.S. ISEs, KTN argues that the
petitioners' suggested methodology for allocating these expenses is at
odds with section 772(d) of the Tariff Act, which authorizes the
Department to deduct from the CEP starting price only those expenses
incurred in selling subject merchandise. Petitioners' methodology,
asserts KTN, would serve to overstate ISEs because it would include
those expenses incurred by KHSP's Atlanta office which deals primarily
with non-subject merchandise. In contrast, argues KTN, its methodology
results in a more accurate calculation and is in accordance with
section 772(d) of the Tariff Act in that it isolates expenses related
to the sale of subject merchandise. KTN's Rebuttal Brief at 33. KTN
clarifies that only where it was unable to identify which sales office
incurred a given expense did it allocate the expense on the basis of
overall sales value. KTN argues that the Department should accept its
reported ISE ratio for U.S. sales in light of the Department's
successful verification of these expenses.
    With respect to the second argument raised by petitioners, KTN
responds that it appropriately deducted foreign exchange gains and
losses and interest expenses from its total ISEs. As noted, because
section 772(d) of the Tariff Act authorizes the Department to deduct
from the CEP starting price only those ISEs incurred in the sale of
subject merchandise, and because the record indicates that KHSP clearly
incurred no foreign exchange gains or losses on the sale or purchase of
subject merchandise during the POI, a downward adjustment to exclude
these amounts is justified. KTN's Rebuttal Brief at 35.
    Similarly, argues KTN, an adjustment for net interest expenses is
warranted. KTN disputes petitioners' suggestion that these expenses
should be included in both its financial expenses and its ISEs. In
fact, KTN claims, in Flat Products from Korea III the Department stated
that it would exclude ``some portion or all of a U.S. sales affiliate's
interest expenses in its calculation of 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.'' Accordingly, the Department
``excluded interest expenses associated with non-subject merchandise''
and then ``reduced the remaining amount for interest expense for an
amount attributable to financing of accounts receivable and inventory,
leaving nothing left to include in the calculation of indirect selling
expenses.'' KTN's Rebuttal Brief at 36, quoting Flat Products From
Korea III, 64 FR at 12931. KTN argues that the Department, in a manner
consistent with Flat Products from Korea III and section 772(d) of the
Tariff Act, should allow a downward adjustment to KHSP's reported ISEs
for interest expenses, as ``there is no portion of KHSP's interest
expense remaining to include in the calculation of indirect selling
expenses after (1) excluding interest expenses associated with non-
subject merchandise, and (2) reducing the remaining interest expense to
account for amounts already reported as imputed expenses.'' Id.
    Department's Position: We agree in part with petitioners. With
regard to the manner in which KHSP allocated its U.S. selling expenses,
as noted above, KHSP was able to identify certain ISEs associated with
its Wayne, New Jersey sales office. Those expenses which could not be
attributed specifically to the Atlanta or Wayne offices were allocated
to Wayne on the basis of sales value. KHSP then summed the total
expenses attributable to the Wayne operations and those expenses
allocated to sales from Wayne and divided by the Wayne sales value to
derive its ISE ratio. See KHSP Verification Report at 23 through 26 and
Exhibit 8. While petitioners argue for a company-wide approach, we find
no evidence that KHSP's allocation methodology is distortive or
inaccurate. With respect to the first step in KHSP's allocation of its
ISEs (i.e., the isolation of the Wayne office's expenses), we verified
fully that the Wayne office dealt in subject merchandise exclusively as
well as the manner in which KHSP determined which expenses to include.
Regarding the second step in the allocation process (i.e., the
allocation of ``unidentifiable'' expenses on the basis of Wayne
office's sales value), we have no reason to believe this approach
results in distortions or somehow understates U.S. ISEs.
    In a recent administrative review involving Japanese tapered roller
bearings the Department employed an approach to recalculate respondent
NTN's ISEs similar to the second step in KHSP's allocation. We first
summed NTN's total U.S. ISEs, multiplied this amount by the ratio of
covered merchandise to total sales and, finally, divided the resulting
figure by sales of covered merchandise to derive an ISE ratio. See,
e.g., Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or
Less in Outside Diameter, and Components Thereof, From Japan, 63 FR
63860, 63867 (November 17, 1998). For this final determination we have
concluded that the manner in which KHSP allocated its U.S. ISEs is
neither distortive nor inaccurate and, in fact, reflects accurately
KHSP's experience with respect to sales of subject merchandise during
the POI. We have, accordingly, accepted KHSP's methodology.

[[Page 30736]]

    However, we agree with petitioners concerning KHSP's claimed
downward adjustments to U.S. ISEs for exchange rate gains and losses
and interest expenses. In Belgian Stainless Plate in Coils the
Department, over the respondent's objections, included interest
expenses in the calculation of ISEs because the record did not
demonstrate that these expenses arose from the financing of inventory
or accounts receivable and were not associated solely with non-subject
merchandise. To the extent that interest expenses are shown to relate
to the financing of accounts receivable and inventory, we normally will
not include them in the calculation of ISEs. In Belgian Stainless Plate
in Coils, however, we concluded that

    * * * the Department has included U.S. affiliate interest
expenses in the calculation of U.S. ISEs independent of our
calculation of imputed credit expenses, even if the interest
expenses in question constituted part of the basis for determining
the interest rate used to calculate the imputed credit expenses. * *
* [W]e note that the record evidence is not clear these interest
expenses reflected short-term debt. More importantly, the short-term
or long-term nature of the debt is irrelevant in this context, given
that either type may relate to subject merchandise and involve
activities other than financing of inventory or receivables.

Id., 64 FR at 15488.
    As in Belgian Stainless Plate in Coils, we are unable to determine
from the record whether or not KHSP's claimed interest offset to ISEs
relates to the financing of inventory or accounts receivable. The only
information on the record relating to KHSP's interest expenses is a
worksheet prepared for verification identifying the amount of interest
expenses recorded under certain account codes. See KHSP Verification
Report at Exhibit 8. This itemization does not allow us to determine
the nature of the loans for which these interest expenses were
incurred, nor has KHSP provided any narrative explanation regarding
such expenses. Accordingly, for this final determination we have denied
KTN's claimed offset to ISEs for interest expenses. KTN has likewise
provided no convincing evidence to support its claimed downward
adjustment to U.S. ISEs to account for exchange rate gains and losses.
The most we are able to determine from the record is the aggregate
amount of POI exchange rate gains and losses reflected in a worksheet
which accompanies Exhibit 8 of the KHSP Verification Report. Absent
information regarding the circumstances under which these gains and
losses were incurred, we have no basis for excluding them from KHSP's
ISEs; accordingly, we have denied KHSP's offset to its selling expenses
for exchange rate gains and losses.

Comment 16: Charges by Affiliated Freight Carrier

    Petitioners argue that, as articulated in a Departmental memorandum
in Large Newspaper Printing Presses from Japan, the Department requires
evidence from a respondent that charges for goods or services provided
by affiliated parties were made at arm's length. However, petitioners
claim, KTN has provided no such evidence with respect to charges it
incurred for international freight services provided by an affiliated
carrier. In fact, maintain petitioners, an analysis which it conducted
using KTN's sales data demonstrates that the international freight
charges for a substantial portion of those transactions involving KTN's
affiliated carrier were not at arm's length. As non-adverse facts
available, petitioners argue that the Department should replace those
reported international freight expenses charged by an affiliated
carrier deemed not to reflect arm's-length prices with port-specific,
weighted-average, arm's-length ocean freight charges derived from
unaffiliated CEP freight transactions.
    KTN responds that freight charges for those U.S. sales shipped by
an affiliated carrier, when evaluated in total, were at arm's-length
prices and, as such, do not warrant an adjustment. Using the same
arm's-length methodology employed by petitioners in their October 15,
1998 deficiency comments, KTN claims to have performed an analysis of
the revised data submitted with its January 6, 1999 supplemental
response. The results of its analysis, argues KTN, clearly demonstrate
that the transactions between KNE and the affiliated carrier were at
arm's length for two of the three U.S. ports to which the carrier
shipped merchandise. KTN's Rebuttal Brief at 37 and 38.
    If the Department determines that an adjustment is necessary, avers
KTN, it should disregard petitioners' argument for an adjustment factor
which is based on prices to different final destinations. Instead,
argues KTN, the Department should conduct an analysis of the correct
arm's-length adjustment which uses as its final point of comparison the
relative prices for all transactions at issue rather than the prices by
port of destination.
    Finally, KTN argues, if the Department determines that a port-
specific adjustment is appropriate, it should only apply an adjustment
factor to those transactions shipped to the specific port for which
ocean freight charges were deemed not to be at arm's length.
    Department's Position: We agree with petitioners that, for those
transactions shipped by KTN's affiliated carrier, the claimed expenses
were not at arm's length. After reviewing the data from KTN's January
6, 1999 submission, we have determined that for two of the three ports
to which the affiliated carrier shipped merchandise, the affiliated
carriers' prices were not at arm's length when compared to non-
affiliated carriers' prices to the same port. The results of our
analysis are more fully described in the Final Analysis Memorandum. We
have not adopted KTN's suggestion to base our arm's-length analysis on
the relative prices for all transactions. This approach would compare
prices charged by unaffiliated and affiliated carriers shipping to
different destinations for which ocean freight charges would presumably
vary widely. For this final determination we have applied a port-
specific adjustment factor as described in our Final Analysis
Memorandum to those sales transactions shipped by KTN's affiliated
carrier for which ocean freight charges were deemed not to be at arm's
length.

Comment 17: Warranty Expenses

    In the home market KTN reported expenses associated with warranty
claims on both a transaction-specific and an allocated basis. However,
KTN reported only allocated warranty expenses for its U.S. CEP sales.
Petitioners argue that KTN was uncooperative by refusing to provide
transaction-specific U.S. warranty expenses incurred by KHSP for CEP
sales. Given that KTN was able to report transaction-specific warranty
claims in the home market, petitioners see no reason why KTN would have
been unable to do the same with respect to U.S. CEP sales. Petitioners
offer as evidence of KTN's ability to report these expenses on a
transaction-specific basis KTN's statement in its September 29, 1998
questionnaire response that ``respondents maintain a log of credit and
debit memos that includes warranty claims for the subject
merchandise.'' Petitioners' Case Brief at 51, quoting KTN's September
29, 1998 section C response at C-49.
    Petitioners suggest that KTN's attempt in its supplemental
questionnaire response to justify an allocation in preference to
transaction-specific reporting is not adequate. In fact, petitioners
contend, the fact patterns regarding U.S. warranty claims bear a
similarity to those of the home market for which KTN reported sale-
specific

[[Page 30737]]

warranty expenses. Petitioners further argue that while the Department
found only minor discrepancies in its verification of KTN's home market
transaction-specific warranty expenses, such was not the case for its
allocated warranty expenses. KTN officials admitted, petitioners claim,
that the warranty expense total was calculated incorrectly due to the
erroneous inclusion of a billing adjustment category among warranty
claims when compiling the response. Petitioners' Case Brief at 52. In
light of these alleged discrepancies, petitioners urge the Department
to apply the highest single absolute value for reported CEP warranty
expenses to all CEP sales of prime merchandise and to use zero for home
market warranty expenses. Id. at 53.
    As an additional matter, petitioners maintain that the respondent's
reliance throughout the course of this investigation on AFBs, 62 FR
2081 (January 15, 1997) is misplaced. Petitioners claim that AFBs did
not, as KTN suggests, advance the proposition that average allocated
warranty expenses are preferable to transaction-specific expenses.
Rather, contend petitioners, the Department stated in AFBs that it
would accept allocated warranty expenses provided it was not feasible
for the respondent to report the expense on a more specific basis.
    Petitioners' argument, KTN asserts, is a misinterpretation of both
the law and the facts in this case. KTN argues that while the
Department's regulations express a preference for transaction-specific
reporting as a whole, the Department has for many years explicitly
recognized that warranty expenses may be reported on an allocated
basis. KTN argues that the reason for this practice is twofold. First,
KTN asserts, warranty obligations arise from the universe of all
transactions for which the warranty is offered whereas warranty
expenses arise only on the few transactions for which the warranty is
invoked. KTN argues that it is wrong to attribute the cost of a general
obligation only to those transactions for which a specific expense was
incurred. KTN's Rebuttal Brief at 40. Second, claims KTN, the
Department has noted in AFBs that ``it is not possible to tie [POI]
warranty expenses to [POI] sales, since the warranty expenses can be
incurred on pre-[POI] sales. Likewise, [the respondent] may not incur
warranty expenses on [POI] sales until a future time period.'' Id.,
quoting AFBs 62 FR at 2098 (KTN's redactions).
    KTN argues that, like the respondent in AFBs, KTN and KHSP have
reported warranty expenses in the most feasible manner given each
company's circumstances and that its chosen methodology is neither
distortive nor inaccurate. KTN asserts that it attempted to assign home
market warranty expenses to specific product groups, but discovered
that, due to limitations arising from claims where information
regarding product type was not recorded or not available, it was not
possible to do so. In those instances, KTN notes, its computer system
assigned these unattributable expenses to a single product group. As a
result, KTN argues, the attempted product group allocations did not
properly reflect claims within the group. KTN points out that as soon
as it discovered this shortcoming, it prepared a revised worksheet that
allocated warranty expenses across all subject merchandise,
differentiating them only by market. KTN further asserts that, contrary
to petitioners' contention, the Department did in fact verify and
accept KTN's allocated warranty expenses during the home market
verification. Id. at 41.
    With respect to the manner in which KHSP reported warranty
expenses, KTN notes that KHSP tabulated the warranty expenses
associated with specific transactions and reported those expenses on an
allocated basis. KTN asserts that the Department was able to verify
that KHSP accurately captured all expenses associated with warranty
claims. Moreover, argues KTN, its methodology does not lead to
inaccuracies or distortions because in both the home market and the
United States warranty expenses incurred on stainless steel merchandise
were allocated across sales of stainless steel merchandise on the basis
of value. Id. at 42.
    Furthermore, KTN argues, even if the Department should reject KTN's
argument for allocating warranty expenses, the use of adverse facts
available is not appropriate. KTN disagrees with petitioners'
characterizations that KTN was ``uncooperative'' and ``steadfastly
refused to report invoice-specific warranty expenses'' for U.S. sales.
In fact, KTN claims, it fully complied with the Department's requests
for information regarding warranty expenses and has provided the
Department with verified information which would allow it to apply
warranty expenses to U.S. sales on a transaction-specific basis,
thereby rendering the application of adverse facts available especially
unnecessary.
    Department's Position: As the Department verified, KTN and KHSP are
generally able to tie warranty claims to specific sales even though
they initially reported warranty expenses on an allocated basis. With
respect to its home market sales, for its January 6, 1999 supplemental
response KTN searched its database through September 1998, or six
months after the close of the POI, for warranty claims associated with
subject merchandise and, where possible, linked these to POI sales in
order to report these expenses on a transaction-specific basis.
Regarding U.S. warranty expenses incurred by KHSP, we noted during our
verification that its debit and credit memos bore references to the
original invoices which would have allowed it to track such claims on a
sale-specific basis, even though KHSP had reported these expenses using
an allocation in its original submissions. As indicated in the KHSP
Verification Report, we verified KHSP's allocated warranty expenses and
examined the manner in which the company tracked warranty claims.
    However, notwithstanding KTN's and KHSP's ability to track these
expenses on a transaction-specific basis, we have long recognized that
the nature of warranty expenses (i.e., that claims made for specific
sales are often made long after the close of a given period of
investigation or review) often renders necessary the use of an
allocation. While KHSP maintains a log containing, inter alia, credit
memos relating to claims, there is no guarantee that a review of this
log six months after the completion of the POI will accurately capture
all warranty expenses relating to POI sales, as the potential remains
for claims against POI sales to be presented at yet a later date. This
same potential for inaccuracy also affects home market sales because
there are likely to have been claims made on subject POI transactions
which were processed after the date through which KTN searched its
database (i.e., September 1998). As we noted in AFBs, it is not always
possible to tie POI warranty expenses to POI sales, since the warranty
expenses can be incurred during the POI on sales before the POI;
likewise, a respondent may not incur warranty expenses on POI sales
until well after it is required to submit those sales to the
Department.
    Therefore, we agree with KTN and have used the verified information
on its allocated warranty expenses for home market and U.S. sales. With
respect to home market sales, however, because the Department found
minor discrepancies between the reported and verified allocated
warranty expenses, in accordance with section 776(a)(D) of the Tariff
Act, we have based the warranty adjustment on the facts available. We
calculated the lowest reported ratio of warranty expenses using the

[[Page 30738]]

transaction-specific warranty expense and applied this ratio to all
home market sales. This calculation is further detailed in our Final
Analysis Memorandum; see also KTN Sales Verification Report at pages 47
and 48.

Comment 18: Other Corrections at Verification

    Petitioners highlight three items from the U.S. and home market
verification reports which were specified in the opening-day correction
letters. First, in light of KHSP's admission at verification that there
were certain sales for which it did not apply the expense ratio
calculated for certain brokerage and handling charges, petitioners
request that the Department correct the reported CEP sales listing to
ensure that all transactions reflect this charge. In addition,
petitioners urge the Department to revise KHSP's reported U.S. duty
expenses for resales to reflect the corrected ratio KHSP calculated
prior to verification. Finally, petitioners request that the Department
apply to EP sales marine insurance charges which KTN initially did not
report.
    KTN does not dispute petitioners' comments with respect to these
issues and points out that it brought these items to the attention of
the Department during the first day of the home market and U.S.
verifications.
    Department's Position: For this final determination we have made
revisions to our computer programs to correct for these errors.

U.S. Reseller Issues

Comment 19: Facts Available for U.S. Reseller

    Petitioners present a number of grounds for disregarding the
questionnaire response of KTN's affiliated processor and reseller in
toto and basing the margin for this body of U.S. sales transactions on
adverse facts available. Petitioners accuse U.S. Reseller of (i)
failing to provide requested sales documentation at verification, (ii)
misclassifying a significant portion of its sales as being of unknown
origin by refusing to trace the original suppliers, (iii) failing to
report physical characteristics of its merchandise essential to the
Department's sales matching, (iv) classifying sales of prime material
as secondary, or non-prime, (v) neglecting to report early payment
discounts granted on its sales, and (vi) mis-reporting further-
manufacturing costs. Petitioners' Case Brief at 82.
    In addition to the alleged shortcomings in U.S. Reseller's sales
response, petitioners point to a number of problems with U.S.
Reseller's further-manufacturing COP response, as well. For example,
petitioners note that U.S. Reseller allocated further-processing costs
to products which did not undergo further processing. In certain cases
reviewed at the cost verification, continue petitioners, the output
weight of the finished goods exceeded the input weight of the original
master coil, which is, petitioners note, a physical impossibility.
Furthermore, petitioners assert, U.S. Reseller reported incorrectly
quantity extras (surcharges for further processing performed on small
orders), and failed to account for the costs of finishing operations
performed on the underside of sheet products and ``re-spinning'' single
coils into several smaller coils. These failings, petitioners aver, are
``systemic in nature and thus universally applicable'' as they arise
from the underlying computer program used to identify the
characteristics of specific products and to assign costs based on these
identified characteristics. Id. at 99. Petitioners maintain that the
Department cannot be left the task of reconstructing an accurate
response; therefore, the only appropriate solution is the application
of total adverse facts available to the U.S. Reseller portion of KTN's
response. In the alternative, petitioners urge the Department to apply
partial adverse facts available for all missing or miscalculated cost
data and sales adjustments.
    KTN takes issue with petitioners' attempt to portray isolated
errors discovered at verification as impeaching the entirety of U.S.
Reseller's sales data. For example, the inability to produce the
requested surprise sales documentation, KTN avers, stemmed from U.S.
Reseller's inability to retrieve the relevant sales documentation from
its archives and represented the only instance in which U.S. Reseller
was unable to provide documents requested by the Department. KTN
suggests that given U.S. Reseller's ``questionable'' involvement in
this investigation through the Department's finding of affiliation,
U.S. Reseller cannot be held to the same standard as a respondent in an
ongoing administrative review process.
    KTN also dismisses the significance of any noted reporting errors,
and attributes these to the computer program developed by U.S. Reseller
solely to comply with the Department's detailed reporting requirements.
As a steel service center, KTN maintains, U.S. Reseller has no need to
track each input stainless steel coil to the finished products as re-
sold to the ultimate end user. As a result, avers KTN, U.S. Reseller
never developed the computer programming necessary to tie each
transaction to its input stainless steel. KTN explains that U.S.
Reseller attempted to accomplish this first by merging data maintained
separately by U.S. Reseller's different warehouses to develop a list of
each item sold. U.S. Reseller then had to merge this item list with its
invoice history file which, KTN continues, would provide links to the
original customer orders. Aside from errors arising from bad data,
e.g., data entry errors when originally posting the items, KTN
suggests, this merger of data was successful in ``the overwhelming
majority of transactions * * *''. KTN claims that for those invoices
sourced from multiple input coils, U.S. Reseller developed a computer
algorithm to match input coil and output sheet and strip on the basis
of product characteristics and weights consumed versus weights shipped
to customers. KTN dismisses the subset of erroneous results as ``very
small and fully identified,'' with potential mismatches of input and
output material occurring in no more than 4.25 percent of the reported
transactions. Id. at 70 and 72 (original emphases). Even this subset is
overstated, KTN claims, by the inadvertent inclusion of sales of non-
subject merchandise. KTN further claims that it identified each of the
``problematic'' transactions for the cost verification team,
discounting assertions in the U.S. Reseller Cost Verification Report
that time constraints precluded any examination of this list.
    KTN ``freely concedes'' that its linking program did not execute
perfectly. However, KTN insists, any resulting errors were (i)
identified to the Department, (ii) fully explained, and (iii) only
affected slightly more than four percent of U.S. Reseller's reported
sales. Therefore, KTN concludes, ``[t]he accuracy of the remaining
95.95 percent of transactions is simply not at issue.'' KTN Case Brief
at 74.
    As for early payment discounts, KTN suggests that the number of
transactions affected by this error was minuscule. Exhibit 11 of the
U.S. Reseller Sales Verification Report, KTN notes, included the
overall value of early payment discounts and their significance
expressed as percentages of both total sales value and subject
merchandise sales value. Even were the Department to assume that all
early payment discounts applied to sales of subject merchandise,
submits KTN, these discounts are insignificant.
    KTN also disputes the significance of the Department's conclusion
in the U.S. Reseller Cost Verification Report that U.S. Reseller failed
to allocate finishing costs for products sold with a ``pre-

[[Page 30739]]

buffed'' bottom finish. U.S. Reseller ``conceded at verification that
this was a programming error that was simply overlooked,'' KTN asserts.
Contrary to the U.S. Reseller Cost Verification Report, KTN maintains,
it fully identified each transaction affected by this error; in any
event, avers KTN, the quantity of such transactions is trivial,
involving just 26 items. KTN Case Brief at 75.
    With respect to re-spinning costs, KTN contends that these are
common to virtually all products sold by U.S. Reseller; as such, argues
KTN, re-spinning costs are not separately identifiable in U.S.
Reseller's normal records. KTN claims that as a result U.S. Reseller
appropriately included re-spinning costs in its calculation of fully-
absorbed factory overhead.
    As for the allocation of costs for processing performed by outside
vendors, KTN urges the Department to place this matter in perspective
by considering that processors of both aluminum and stainless steel
accounted for a minority of the total processing charges incurred by
U.S. Reseller from outside vendors. U.S. Reseller had no means to
identify directly the portion of the processing expenses properly
allocable to stainless versus other products, KTN avers; U.S. Reseller
acted reasonably, therefore, in allocating these expenses using the
proportion of stainless to non-stainless processing based on its own
historical experience. For the Department to assume otherwise, KTN
objects, is rank speculation. KTN Case Brief at 78. KTN also disputes
the significance of any discrepancies between processing costs as
recorded in U.S. Reseller's management reports and the actual amounts
observed in spot checks conducted by the Department at verification,
and challenges the fairness of the methods employed in uncovering these
discrepancies. Prior to January 1998, KTN asserts, computer records
allowing vendor-specific calculations of outside processing costs were
not available. U.S. Reseller, therefore, relied upon its management
reports, ``the only consistent source of information on processor-
specific outside processing costs covering the entire POI.'' KTN Case
Brief at 79. Furthermore, KTN insists, U.S. Reseller fully explained
these discrepancies as arising from credit notes or unpaid invoices
issued after U.S. Reseller's books for a given month had been closed.
Claiming that there is no evidence that the discrepancies introduce
bias in any particular direction, KTN suggests that the Department has
no grounds for concluding that the charges of outside processors has
been either over- or under-stated.
    KTN further argues that there is no mystery about the difference
between the verified quantity of processed goods used in calculating
yield losses and the higher figure included in KTN's section E further-
manufacturing response: for its first response U.S. Reseller had
assumed erroneously that all of its merchandise had been subject to
further processing. KTN insists that U.S. Reseller identified and
corrected this error in its January 6, 1999 supplemental section E
response. The Department was able to trace the corrected actual amount
without discrepancy during the U.S. Reseller cost verification. KTN's
Case Brief at 80.
    Department's Position: We agree with petitioners that, pursuant to
section 776(a) of the Tariff Act, total facts available are warranted
with regard to sales through KTN's affiliated further manufacturer. In
the instant case the use of total facts available for the U.S. Reseller
portion of KTN's section C response is warranted because the
methodology and computer programming used by U.S. Reseller to identify
its products' physical characteristics and to match each of these
products with its associated costs were found at verification to be
accomplishing neither end consistently or accurately. Moreover, both
the frequency of the errors and the absence on the record of
information necessary to correct certain of these errors serve to
undermine the overall credibility of the further-manufacturing response
as a whole, thus compelling the Department to rely upon total facts
available for U.S. Reseller's database. Reliance upon total facts
available is required for all further manufactured sales because the
submitted data do not permit calculation of the adjustments required
under section 772(d)(2) of the Tariff Act for ``the cost of any further
manufacture or assembly (including additional material and labor) * *
*''.
    We also find, as explained below, that the use of an adverse
inference is appropriate in this case because the record established
that U.S. Reseller did not cooperate with the Department by acting to
the best of its ability in responding to our requests for information.
The manifest and manifold errors in U.S. Reseller's response evidence a
failure to conduct even rudimentary checks for the accuracy of the
reported further-processing data. Indeed, a reasonable check by company
officials could have shown that (i) products that underwent no further
processing were being assigned further-processing costs, (ii) further-
processed products were not being assigned their appropriate processing
costs, (iii) coils passing through certain processes were not being
allocated any cost for the process, and (iv) the output width of slit
coils generated by a given master coil exceeded the original width of
that input coil.
    The Department may correct reported costs or adjust incorrect data
in response to its findings at verification. See, e.g., Extruded Rubber
Thread From Malaysia, 64 FR 12967, 12976 (March 16, 1999). In this
case, however, correction of the specific flawed data is not a viable
option because of the high percentage of errors found through our
testing (nearly 40 percent of the items tested were found to be in
error). In addition, some of these errors cannot be corrected using
information on the record. More importantly, the fundamental nature of
these errors raises concerns as to the validity not only of the data
subjected to direct testing, but of the remainder of the response as
well.
    The Department's August 3, 1998 antidumping questionnaire put
interested parties on notice that all information submitted in this
investigation would be subject to verification, as required by section
782(i) of the Tariff Act, and, further, that pursuant to section 776
the Department may proceed on the basis of the facts otherwise
available if all or any portion of the submitted information cannot be
verified. In addition, in letters dated February 17 and 23, 1999, the
Department provided U.S. Reseller with the sales and cost verification
agendas it intended to follow, both of which repeated the warning that
any failure to verify information could result in the application of
facts available. The cost verification agenda identified nine
transactions that the Department intended to test. U.S. Reseller had a
full week to gather supporting documentation for these nine
transactions and to test for itself the accuracy of the further
manufacturing data. Clearly, U.S. Reseller did not avail itself of
these opportunities, since our testing at verification revealed that
costs for three of the nine selected transactions contained fundamental
and significant errors. See U.S. Reseller Cost Verification Report at
14 through 17. When the Department then selected nine additional
transactions for review, four of these were also found to reflect
significant errors. These included allocating processing costs to non-
processed material (id. at 15), mis-allocating quantity surcharges
(id.), and, more troubling, reporting finished weights which exceeded
the weight of the input material (``[t]his is impossible

[[Page 30740]]

and for this reason we could not verify the amount of processing for
this observation.'' Id.).
    The first step identified in the Department's verification agendas
calls for the respondent, at the outset of verification, to present any
errors or corrections found during its preparation for the
verification. As we stated above, none of the errors discussed here
were presented by U.S. Reseller at the outset of verification; yet many
of them were manifestly apparent and U.S. Reseller was obligated to
notify the Department prior to the start of verification of these
problems.
    We disagree with KTN's assertion that the numerous errors
identified by the Department affect only a small number of products out
of the possible universe of transactions and that the effect of the
errors is minuscule. As mentioned above, U.S. Reseller created a
computer program to respond to the Department's questionnaire which
sought to match an input coil to each output coil sold and to assign a
cost for each processing step through which the finished coil
supposedly passed. When we tested this computer program at verification
to assess its accuracy and reliability, we found that seven of eighteen
tested transactions contained errors in either the allocation of
processing costs or in the matching of input coils to output coils. In
two of these cases U.S. Reseller had assigned processing costs to
products which had, in fact, undergone no processing. We note that this
discrepancy arose from the input coils and output coils identified by
U.S. Reseller's own computer program. In another transaction the
combined widths of the finished products were greater than the original
width of the input coil as identified by the system, an obvious
physical impossibility that should have been identified by U.S.
Reseller as an error. The nature of these errors raises serious doubts
as to the accuracy of the overall program used to match input master
coils to output slit coils as sold. It also serves to undercut KTN's
assertions that KTN acted to the best of its ability in compiling this
portion of its section C response. Further, several of these errors
served to understate the costs of further processing by shifting
portions of these costs to non-further-processed merchandise. Since
these errors affect the entire population of products sold (i.e., both
processed and unprocessed products), it is not possible for the
Department to isolate the problems and adjust for the errors
accordingly.
    The program also failed to assign properly certain finishing costs.
Certain coils with a pre-buff finish applied to the underside by the
reseller had no finishing costs reported for the additional processing.
Finally, other transactions contained errors in the application of
surcharges for processing small quantity orders. In the samples tested
U.S. Reseller had reported quantity extra charges in excess of what
should have been reported. This error led to an understating of the
variance between the costs as allocated for purposes of the response
and the costs as maintained in the U.S. Reseller's financial accounting
system. Once again, both errors reduced the costs allocated to further
processed products, thus creating further doubts as to the accuracy of
the underlying reporting methodology.
    We also find unpersuasive KTN's suggestion that because U.S.
Reseller had to develop the computer program as a result of the
Department's highly detailed questionnaire it should therefore be held
blameless for any errors arising from its implementation of its chosen
computer logic. We must stress that every respondent in every
antidumping investigation is faced with the question of how best to
sort and retrieve the sales and cost data as maintained in its normal
course of business to respond to our questionnaire. This necessarily
entails the winnowing of its larger universe of sales to capture only
that merchandise subject to our investigation, and the further creation
of unique data fields to reflect the specific model-match criteria and
the applicable expense adjustments set forth in the questionnaire.
Finally, the resulting database must be refined to present the
transaction-specific information on sales and adjustments in the
precise formats required by the Department. That U.S. Reseller, like
virtually all respondents in antidumping proceedings, chose to rely
upon a computer program as the easiest means to accomplish this end is
entirely unremarkable and in no way mitigates the failings found in
this case. We note further that KTN and a number of its home market and
U.S. affiliates largely succeeded in supplying data relating to sales,
expenses, and COP in responding to the same antidumping questionnaire
with equally detailed reporting requirements. The surfeit of errors in
U.S. Reseller's data was not the result of any unduly burdensome
reporting requirements imposed by the Department; rather, these
shortcomings resulted in their entirety from U.S. Reseller's reliance
on faulty computer programming and data which U.S. Reseller apparently
failed to review prior to verification.
    In addition, we disagree with KTN's assertion that it was able to
quantify the extent of the cost errors on the final day of
verification. First, we note that U.S. Reseller made no attempt to
explain or quantify two of the errors discovered by the Department, the
allocation of processing costs to unprocessed material and the
misreporting of the small-quantity surcharge. More to the point, due to
the volume of information that must be verified in a limited amount of
time, the Department does not look at every transaction, but rather
samples and tests the information provided by respondents. See, e.g.,
Bomont Industries v. United States, 733 F. Supp. 1507, 1508 (CIT 1990)
([v]erification is like an audit, the purpose of which is to test
information provided by a party for accuracy and completeness) and
Monsanto Company v. United States, 698 F. Supp. 275, 281 (CIT 1988)
(``[v]erification is a spot check and is not intended to be an
exhaustive examination of a respondent's business''). It has been the
Department's long standing practice that if no errors are identified in
the sampled transactions, the untested data are deemed reliable.
Conversely, if errors are identified in the sample transactions, the
untested data are presumed to be similarly tainted absent satisfactory
explanation and quantification on the part of the respondent. See,
e.g., Tatung Company v. United States, 18 CIT 1137 (December 14, 1994).
This is especially so if, as here, the errors prove to be systemic in
nature. The fact remains unchallenged that for two days of a scheduled
three-day verification we tested a number of further-manufactured
transactions to assess the reliability of U.S. Reseller's methodology
for reporting costs and discovered numerous errors. U.S. Reseller
claimed on the last day of verification that it had reviewed its
further-manufacturing data and isolated the magnitude of these errors.
KTN's assertion in its case brief that U.S. Reseller succeeded in
identifying all of the errors is an unsubstantiated ipse dixit which
could not be verified in the time remaining. The only way to test this
eleventh-hour claim would have been to re-verify the entire further-
manufacturing database to ensure that all erroneous transactions had,
in fact, been captured. Moreover, as indicated in the verification
outlines presented to KTN and U.S. Reseller, the proper time for U.S.
Reseller to check the accuracy of its reported data was before these
data were submitted, or, at the latest, prior to the start of the
verification. We presented KTN and its U.S. Reseller

[[Page 30741]]

with the cost verification agenda one week in advance precisely to
allow them to prepare properly for verification. Had U.S. Reseller
reviewed the accuracy of the computer program used to report its
further manufacturing costs prior to verification, it could have
identified the errors and presented them to the Department on the first
day of verification. We consider it inappropriate for respondents to
expect the Department to retest the entire further manufacturing
database on the last day of verification after the Department uncovers
numerous errors as a result of its routine testing. Furthermore, the
requirements of section 782(d) that the Department provide a respondent
the opportunity to remedy such errors is inapplicable. Rather, as we
stated in Certain Cut-to-Length Carbon Steel Plate from Sweden,

    [w]e believe [respondent] SSAB has misconstrued the notice
provisions of section 782(d) of the [Tariff] Act. Specifically, we
find SSAB's arguments that the Department was required to notify it
and provide an opportunity to remedy its verification failure are
unsupported. The provisions of section 782(d) apply to instances
where ``a response to a request for information'' does not comply
with the request. Thus, after reviewing a questionnaire response,
the Department will provide a respondent with notices of
deficiencies in that response. However, after the Department's
verifiers find that a response cannot be verified, the statute does
not require, nor even suggest, that the Department provide the
respondent with an opportunity to submit another response.

Certain Cut-to-Length Carbon Steel Plate from Sweden, 62 FR 18396,
18401 (April 15, 1997).
    Finally, we reject KTN's arguments with respect to the propriety of
drawing an adverse inference with respect to a respondent ``whose
involvement in the proceeding was questionable in the first place.''
KTN goes to great pains to assert that it never had control over the
data submitted by U.S. Reseller; therefore, any lack of cooperation
evinced by U.S. Reseller cannot be imputed to KTN. See, e.g., KTN's
Rebuttal Brief at 73 and Public Hearing transcript at 46 and 47. KTN
presents the issue as one in which KTN was at the mercy of recalcitrant
parties, only some of whom could be persuaded to participate in the
investigation: ``U.S. Reseller's sales and cost data found its way into
the record of this investigation only after its release was negotiated
and it was confidentially transmitted to KTN's counsel.'' Id. However,
KTN's protestations that its officials in Bochum, Germany did not have
the opportunity to review U.S. Reseller's submitted data for accuracy
beg the point. The Department has never suggested that KTN was in a
position to compel a reluctant U.S. Reseller to provide its sales and
cost data to KTN; rather, the thrust of our affiliation determination
has consistently been that Thyssen, not KTN, was in a position to
direct its German and U.S. affiliates to provide complete and timely
responses to the Department. We suggest here that where it was in KTN's
interests to do so, Thyssen did precisely that, by instructing selected
affiliates to cooperate with the Department's investigation. For
reasons beyond the Department's ken, U.S. Reseller chose to submit
responses under the guise of a cooperative respondent while withholding
crucial information to make its responses usable for purposes of
establishing statutory U.S. price.
    We note that throughout this investigation KTN has been represented
by legal counsel who certified each of KTN's (and U.S. Reseller's)
submissions of fact in this case, claiming the counsel had read the
submission and had ``no reason to believe [it] contains any material
misrepresentation or omission of fact.'' See 19 CFR 351.303(g).
Similarly, on January 13, 1999, U.S. Reseller certified that the
responsible company official had read its submission and that the
information therein was, to the best of the official's knowledge,
complete and accurate. See, e.g., KTN's January 15, 1999 section E
supplemental response. Finally, throughout the preparation for the U.S.
Reseller verifications and the verifications themselves, counsel were
present at all times in the conference room. U.S. Reseller was also
assisted by economic consultants retained by KTN specifically for
purposes of preparing responses in this antidumping investigation. The
fact remains that despite its disagreement with the Department's
decision on affiliation, Thyssen succeeded in persuading U.S. Reseller
to submit a response; from that moment forward, it was incumbent upon
U.S. Reseller to submit complete and accurate responses to our
questionnaires. It was the further responsibility of KTN's legal
representatives, acting throughout this proceeding on KTN's behalf, to
ensure that the data it helped prepare were reliable. Finally, the
record does not reflect that once KTN was directed to submit U.S.
Reseller's sales and cost information it was having trouble securing
U.S. Reseller's cooperation (aside from KTN's stated objections for the
Department's legal reasoning). Had this been the case of KTN painfully
and laboriously extracting each datum from a recalcitrant unaffiliated
party, one would expect the record to reflect this in, for example,
written pleas of an inability to submit the requested data, or appeals
for modifications to reporting requirements in response to limited
available data. Instead, there is silence on this point. KTN proceeded
throughout the investigation as though U.S. Reseller's full cooperation
was a given, once the Department had notified KTN that the further-
processed sales would be required for our analysis.
    Therefore, the Department concludes that KTN had the resources to
secure the necessary level of cooperation from U.S. Reseller. In
addition, the Department finds that, for the reasons discussed above,
U.S. Reseller failed to cooperate by acting to the best of its ability
in compiling its further-manufacturing response. Moreover, because the
U.S. Reseller's information is essential to the dumping determination,
the use of adverse facts available is appropriate irrespective of KTN's
involvement in providing the information. See, e.g., Hot-Rolled Steel
From Japan, 64 FR at 24367. Therefore, consistent with section 776(b)
of the Tariff Act, we have drawn an adverse inference in selecting
among the facts available for use in lieu of U.S. Reseller's
unverifiable data. As adverse facts available we have assigned the
highest non-aberrational margin calculated on KTN's properly reported
U.S. sales.

Comment 20: U.S. Sales of Unidentified Origin

    Petitioners accuse KTN of belatedly submitting such vast revisions
to U.S. Reseller's sales listings as to constitute an entirely new
response. Petitioners note that on January 6, 1999, KTN reported for
the first time a significant body of U.S. Reseller's sales
transactions. These sales data were not only submitted late,
petitioners aver, but also in many cases were missing essential
information identifying the manufacturer and the products' physical
characteristics.
    With respect to unidentified suppliers, petitioners deem
unpersuasive KTN's evolving explanations for these discrepancies. The
stainless industry requires strict quality control, petitioners insist,
including warranty provisions and the routine transmission of quality
certifications from the producing mill. Out of necessity, U.S. Reseller
would be able to track merchandise back to its suppliers. Petitioners
also dismiss as irrelevant KTN's claims that its computer system did
not permit a full linking of U.S. Reseller's sales transactions to the
supplying mills. Even if true, petitioners argue, KTN's assertions do
not obviate its

[[Page 30742]]

responsibility to take the steps necessary to supply the Department
with complete data including, if necessary, the manual search of paper
records. Petitioners aver that had KTN raised this issue, i.e., its
difficulty in reporting accurately all sales, when it received the
questionnaire in August 1998, ``the Department and petitioners could
have addressed how best to proceed in a deliberate fashion with KTN.''
Petitioners' Case Brief at 86. Petitioners accuse KTN of deliberately
withholding this information until after the Preliminary Determination
so it could present the Department with a fait accompli on the eve of
the Department's verification.
    Petitioners further argue that the Department's verification
debunked KTN's claims with respect to U.S. Reseller's ability to report
the supplying mill; of a random sampling of seven invoices involving
unidentified suppliers, in three cases U.S. Reseller was able readily
to identify the manufacturer. Petitioners note that three months
elapsed between U.S. Reseller's initial sales listing of November 16,
1998 and its final database submitted on February 17, 1999; U.S.
Reseller's failure to use this time to identify its supplying mills
demonstrates that it failed to cooperate to the best of its ability.
The Department's response, petitioners argue, should be recourse to
adverse facts available.
    Furthermore, petitioners maintain, much of U.S. Reseller's sales
data includes significant discrepancies such as missing gauge or finish
information that render the data useless for the Department's analysis.
As with the missing supplier information, petitioners argue, even if
U.S. Reseller's computer records did not readily permit collation and
reporting of this information, a review of U.S. Reseller's sales
records would have yielded the required product characteristics.
Petitioners point to the Department's finding at verification that the
omissions arose from errors such as the inclusion of non-subject
merchandise (e.g., stainless steel angles) in U.S. Reseller's sales
listings, data entry errors, or missing values generated by the
computer program used to merge the various source files used in
compiling U.S. Reseller's response. U.S. Reseller had ample time,
petitioners suggest, to conduct a manual review of sales documents to
remove non-subject merchandise from its response and to supply the
missing characteristics for the remaining sales of subject merchandise.
    Continuing in their rebuttal brief, petitioners dismiss KTN's
request for the Department to make extensive corrections to its
reported data and insist upon the use of adverse facts available.
Petitioners' Rebuttal Brief at 57. In fact, petitioners suggest, some
of the proposed corrections are beyond the Department's capacity. For
example, sales of stainless steel angles which U.S. Reseller
inadvertently included in its sales listing are not readily discernible
from the submitted computer sales file. These corrections, petitioners
maintain, should not be the Department's burden; rather, the Department
should rely upon adverse facts available for the U.S. Reseller portion
of KTN's response.
    KTN argues in rebuttal that there is no longer any question that
the U.S. Reseller could not trace the origin of these sales. KTN's
Rebuttal Brief at 68. According to KTN, the Department's cost and sales
verification reports both noted that once U.S. Reseller transfers
inventory between its locations, its computerized inventory system
issues a new stock number, thereby erasing the original link with the
supplying mill. KTN quotes approvingly the Department's conclusion that
``* * * the Company is unable to identify [the products'] original
source through the system.'' Id., quoting the Reseller Cost
Verification Report at 5.
    Rejecting as absurd petitioners' argument that U.S. Reseller could
have tracked the source manually, KTN claims that, while physically
possible such a trace would require an inordinate amount of effort and
would cause extended disruption to U.S. Reseller's business operations.
The Department, maintains KTN, ``cannot impose such unreasonable
burdens on respondents * * *''. Id. at 69.
    KTN characterizes petitioners' comments as betraying a fundamental
misunderstanding of the nature of the additional sales reported on
January 6, 1999, and why KTN chose to include them. KTN reiterates its
view that the only transactions which properly should be included in
the Department's final determination are those which can be established
affirmatively as having originated at KTN. Consistent with this view,
KTN argues, its initial U.S. Reseller response included only those
items sold which could be linked directly through the inventory
database to a master coil produced by KTN; any transactions which
lacked this direct link were omitted. KTN justifies this approach by
suggesting that more likely than not, the unidentified material came
from a supplier other than KTN, given the relative proportion of
stainless flat products positively identified as having been supplied
by KTN.
    KTN insists that the purpose of its later decision to report
transaction-specific data on the unidentified merchandise was to assist
with the Department's verification and not to concede that these sales
should properly be subject to our margin calculations. As to the proper
treatment of these transactions for the final determination, KTN urges
the Department to disregard them entirely. In the alternative, KTN
suggests allocating the unidentified transactions across the three
concurrent investigations involving stainless sheet in coil (i.e., from
Germany, Mexico and Italy) based on the verified share of the
identified sales supplied by each of the respondents in these
investigations (respectively, KTN, Mexinox, and Acciai Speciali Terni,
S.p.A.). For this investigation this could be accomplished by
multiplying the weight of each unidentified transaction by the
percentage of U.S. Reseller's merchandise purchased from KTN, as
reflected in the sales sourced from identified suppliers.
    Department's Position: We agree, in part, with petitioners and with
KTN. In its January 6, 1999 supplemental response KTN reported a large
quantity of sales by U.S. Reseller which lacked any information
identifying the supplying manufacturer. As noted, KTN claimed that it
had no immediate computer link to trace the origin of coils which had
been transferred between U.S. Reseller's different warehouses. Thus, it
had included this unidentified mass of sales in each of the sales
databases filed on the records of the investigations of stainless sheet
in coils from Germany, Mexico, and Italy.
    As explained in response to Comment 19, we have determined that the
errors affecting U.S. Reseller's reported sales and cost data,
including its failure to identify properly the supplier of a major
portion of its sales, render this portion of KTN's section C response
unreliable in its entirety for purposes of our margin calculations.
However, this conclusion does not dispose of the issue of the proper
treatment of the unidentified transactions. For a significant portion
of U.S. Reseller's U.S. transactions during the POI the manufacturer is
simply unknown. The absence of the supplying mill for this body of
sales affects not only this investigation, but also those involving
stainless steel sheet in coils from Mexico and Italy. Furthermore, the
absence of this elementary and critical information forecloses any
attempt by the Department to apportion these sales accurately between
merchandise which is subject to one of the three ongoing investigations
and that which is properly considered non-subject

[[Page 30743]]

merchandise because it was obtained from either a domestic or other
foreign mill. Thus, this gap in the record is one of overarching
importance, impinging upon our ability to calculate accurately the
margins in three separate antidumping duty investigations.
    We cannot accede to KTN's suggestion that we exclude the
unidentified transactions entirely from our calculations. While we are
not able to state with precision which of these transactions represent
subject stainless sheet in coils from Germany, KTN has conceded that
some are properly subject to this investigation (as, indeed, some are
subject to the concurrent investigations involving Mexico and Italy).
The Tariff Act and the implementing regulation do envision a number of
scenarios where the Department may disregard transactions in its
analysis (sample transactions or sales of obsolete merchandise, for
example, or when sampling transactions pursuant to section 777A of the
Tariff Act). However, these exceptions all involve an independent
analysis by the Department of the facts surrounding the proposed
exclusions and its reasoned explanation on the basis of the record that
the transactions at issue are either unnecessary or inappropriate for
inclusion in our calculations. There are no provisions allowing the
Department simply to ignore a significant portion of U.S. sales based
on a reseller's putative inability to identify the affiliated
respondent manufacturer.
    As for this claimed inability, KTN attempts to present as the
Department's own conclusions what were, in fact, its reporting of KTN's
claims at verification. Thus, the Reseller Sales Verification Report
noted that ``Reseller explained that if material from its warehouse is
sold to another location * * * the [receiving] warehouse subsequently
will enter the merchandise into its own inventory by recording itself
as the supplier.'' U.S. Reseller Sales Verification Report at 6.
However, the report also states on the previous page that ``Reseller
clarified that the original supplier's identification is traceable, but
is not vital to its own needs.'' Id. at 5. Further, we found at
verification that, notwithstanding U.S. Reseller's assertions, in many
cases it was possible through a rudimentary search of U.S. Reseller's
existing computerized records to identify the supplier. As petitioners
note, of seven ``unidentified supplier'' transactions sampled at
verification, we were able to trace immediately the outside supplier
for three of these using nothing more than a personal computer in U.S.
Reseller's offices. See U.S. Reseller Sales Verification Report at 10.
    As noted above, we have determined that the use of adverse facts
available is appropriate for the sales and further-manufacturing data
submitted by U.S. Reseller. As for the unidentified body of sales, the
Department also finds that the available computer records would allow
U.S. Reseller to trace with facility the supplier for nearly half of
the sample transactions selected at verification. Had U.S. Reseller
made full use of its readily-available computer data, the effort
required to identify the manufacturer for the remaining transactions
would have been substantially less, thus largely attenuating the
``enormous amount of work'' involved in ``manual tracing'' * * *
through several layers of internal paper transactions, inventory
records, and sales records.'' KTN's Rebuttal Brief at 68. Accordingly,
we find that U.S. Reseller failed to cooperate by acting to the best of
its ability in compiling information essential to our analysis, such as
the identity of the supplying mill, and will make an adverse inference
in apportioning the unidentified transactions.
    In selecting facts available we find that there is no record
support for KTN's proposal that we allocate the unknown universe of
U.S. Reseller's transactions based on the observable percentages in the
known universe; this approach would still result in the Department's
disregarding over half of the unidentified U.S. transactions without
any justification in the record. First, since by KTN's own admission
some portion of the unidentified sales were supplied by KTN, the
resulting percentage of merchandise identified as being of German
origin is understated. In addition, we have no means of conducting an
independent evaluation of this large body of sales to determine whether
the patterns found for the identified universe of transactions would
hold true for merchandise which, obviously, moved in different channels
of distribution (e.g., through its transfer between or among U.S.
Reseller's locations). Thus, for purposes of this final determination
we have adopted a variant of KTN's proposal. As an adverse inference we
are treating all of the unidentified merchandise as having originated
with one of the three respondent firms in the concurrent
investigations. To apportion the unidentified sales among the three
investigations we have adjusted the quantity for each of the
unidentified sales on a pro rata basis, using the verified percentages
of U.S. Reseller's merchandise supplied by each respondent mill. We
have then applied a facts-available margin to these transactions, as
explained above in response to Comment 19.

Comment 21: Merchandise Imported in Cut-to-Length Form

    KTN notes that at the verification of the U.S. Reseller it
identified certain transactions involving non-subject merchandise which
had inadvertently been included in U.S. Reseller's sales files. These
sales involved merchandise originally imported from Germany in cut-to-
length form and, thus, not subject to the instant investigation. In
addition, U.S. Reseller reported a number of transactions involving
stainless steel angles, shaped products likewise not subject to this
investigation. KTN suggests that the Department use its reported data,
coupled with a list of non-subject transactions provided at the U.S.
Reseller verification, to delete these sales from its reported data
base.
    Petitioners dismiss as without merit KTN's request that the
Department correct U.S. Reseller's sales data, noting that not all of
the non-subject sales can be identified using the reported data. The
burden of compiling an accurate sales listing, petitioners aver, should
not rest with the Department.
    Department's Position: While KTN claims that it identified the
quantity of cut-to-length merchandise at the outset of the U.S.
Reseller verification, we compared these figures to the sales data
submitted on January 6, 1999. We found the total quantity of stainless
sheet which was acquired by U.S. Reseller in cut-to-length form as
reflected in U.S. Reseller's sales listing greatly exceeded the
quantities for cut-to-length products presented in Exhibit 6. Because
we cannot reconcile the various figures we have no evidentiary basis
for making the quantity adjustment claimed by KTN. See Final Analysis
Memorandum. As a result we have applied the adverse facts available
margin to the entire quantity of stainless sheet products included in
U.S. Reseller's submitted data.

Comment 22: Other U.S. Reseller Issues

    Petitioners and KTN each presented a number of other arguments
pertaining to the sales by U.S. Reseller, many addressing points raised
in the U.S. Reseller Sales Verification Report. As mentioned in passing
under Comment 20, above, petitioners and KTN commented on additional
problems discovered at the U.S. reseller verification, including (i)
U.S. Reseller's inability to provide documents for the ``surprise''
sales trace requested at verification, (ii) the discovery by the

[[Page 30744]]

Department of unreported early payment discounts on U.S. sales, and
(iii) the alleged mis-classification of prime merchandise as non-prime.
    Petitioners also faulted KTN on the manner in which U.S. Reseller
calculated its ISEs for further-manufactured merchandise, including its
omission of its net financial expenses from the ISE calculation. In
addition, petitioners suggested that the Department recalculate U.S.
Reseller's SG&A to correct ``serious discrepancies'' discovered by
Thyssen, Inc.'s independent auditors. Furthermore, petitioners accused
U.S. Reseller of mis-allocating its stainless steel scrap yield ratio
by using a numerator and a denominator derived from different universes
of transactions. KTN objected in turn to each of petitioners' comments
on these issues. For its part, KTN protested the timing of the release
of the U.S. Reseller verification reports and the subsequent schedule
for filing case and rebuttal briefs; petitioners dismissed KTN's
objections as baseless.
    Department's Position: Because we have determined to use adverse
facts available for U.S. Reseller's sales data, these additional
comments are moot and are not addressed further here.

KTN's Cost of Production

Comment 23: General and Administrative Expenses

    Petitioners assert that the Department should include expenses
relating to KTN's international projects, year-end adjustments, and
personnel costs in KTN's revised G&A. Petitioners also argue that
revenue from rebate claims, provisions and internal freight do not
warrant treatment as offsets to KTN's G&A expenses, suggesting that the
Department does not adjust a respondent's COP for offsets unrelated to
its production activities.
    In petitioners' view the costs associated with KTN's international
projects, comprising joint ventures such as Shanghai Krupp (SKS) in the
People's Republic of China, ``directly affect[ ] the allocation of the
entire Nirosta world-wide manufacturing scheme.'' Petitioners' Case
Brief at 64. In addition, petitioners contend that KTS's experiences in
building and launching new facilities, such as the joint-venture plant
in Shanghai, will benefit the entire Nirosta group. Thus, petitioners
argue, international projects expenses should be included in KTN's G&A
calculation.
    Furthermore, petitioners argue that KTN's year-end adjustments
pertain to pension and legal liabilities; as such, petitioners
maintain, these adjustments are properly considered part of KTN's
general operations and should be included in KTN's total COP. Finally,
petitioners argue that adjustments KTN makes in its normal course of
business relating to NSC's executive compensation should be included in
KTN's G&A total because (i) there is no evidence these expenses pertain
solely to NSC's operations and (ii) KTN has not reported these expenses
separately under NSC's G&A expenses.
    In addition, petitioners argue, expenses arising from the
acquisition by KTN's parent KTS of Mexinox, the Mexican re-roller of
stainless steel hot bands purchased from KTN, should be included in
KTN's G&A expenses because Mexinox is an integral part of KTN's
operations. Therefore, petitioners aver, the ``extremely interwoven
nature'' of the Nirosta group shows that the Mexinox acquisition costs
are in fact related to the core business of KTN and should be included
in KTN's total COP. Petitioners' Case Brief at 63 and 64.
    However, petitioners claim that revenues from rebate claims,
provisions and internal freight do not warrant treatment as offsets to
KTN's G&A expenses, suggesting that the Department does not adjust a
respondent's COP for non-production-related offsets. Petitioners Case
Brief at 63, citing U.S. Steel Group v. United States, 998 F. Supp.
1151 (CIT 1998), and Certain Pasta From Italy, 63 FR 42368, 42371
(August 7, 1998).
    KTN counters that costs associated with the international projects
center are unrelated to the production of subject stainless sheet in
coils in Germany, as they are associated with the foreign operations of
KTS. Likewise, accruals for severance payments do not represent G&A
expenses incurred during the POI. KTN maintains that the downsizing for
which the expenses were accrued never took place; thus, no severance
payments were actually made. KTN expresses no objection, however, to
including the personnel costs associated with NSC's operations in its
G&A calculation.
    KTN also rejects petitioners' assertion that the costs incurred in
the Mexinox acquisition should be included in KTN's G&A. According to
KTN, these costs incurred by KTN's parent company, KTS, bear no
relationship to costs ``pertaining to production and sales of the
foreign like product by the exporter in question''--the statutory test
for including SG&A expenses for purposes of COP. KTN insists that
because these expenses were incurred by KTS, rather than the respondent
KTN, and because they are not associated with production and sale of
the foreign like product by KTN, they are properly excluded. KTN
dismisses as unfounded petitioners' assertion that Mexinox represents
an integral part of KTN's operations, noting that the black band
supplied by KTN to Mexinox represents a raw material cost to Mexinox
which has been captured fully in Mexinox's verified COP.
    With respect to rebates, claims, provisions, and internal freight,
KTN suggests that petitioners' objections are based upon the incorrect
assumption that the adjustments involve revenue received by KTN, an
assumption fueled by the Department's Preliminary Cost Calculation
Memorandum and KTN's Case Brief, which repeated this erroneous
characterization. KTN's Rebuttal Brief at 50. In fact, KTN insists,
these items are not revenues but adjustments to revenue, i.e.,
expenses, which have been reported properly within KTN's sales listing.
Treating these items as adjustments to KTN's G&A, argues KTN, would
result in double-counting. Petitioners' reliance on U.S. Steel is
misplaced, KTN concludes, because that case addressed the proper
classification of expenses within a cost response as either G&A or a
cost of manufacture (COM), not whether the disputed items should be
included in both the cost and the sales files.
    Department's Position: We agree with petitioners that the costs
associated with international projects as well as those arising from
year-end adjustments should be included in KTN's G&A expenses. The
costs of international projects are properly included in G&A because
they relate primarily to general expenses of the group as a whole.
These projects had not developed into stand-alone commercial entities.
Thus, as petitioners note, their costs affect directly the allocation
of the entire Nirosta world-wide manufacturing scheme.
    As for the year-end adjustments, throughout the investigation KTN
provided conflicting information as to the true nature of these
adjustments. At verification we determined that the majority of these
were for severance accruals. See KTN Cost Verification Report at 19 and
20. We consider severance costs to be expenses that relate to the
general operation of a company as a whole. In setting up a severance
accrual, KTN was reasonably certain that it would need to make
severance payments for its workers currently employed by the company at
some point in the near future. KNT recognized these severance costs
during the current year and they directly relate to the company's
current employees. Accordingly, we consider it appropriate to include
these year-end adjustments in

[[Page 30745]]

the respondent's G&A calculation. Finally, as both petitioners and KTN
agree, we have included NSC's personnel costs in the G&A expense ratio
calculation.
    Regarding the Mexinox acquisition costs, we agree with KTN that
these expenses should not be included in KTN's G&A expenses. While we
agree with petitioners' characterization of Mexinox as an integral part
of Fried. Krupp's operations, we do not consider it appropriate to
include inter-company finance charges in our calculation of G&A
expenses. Financing expenses related to Fried. Krupp's purchase of
Mexinox will be captured in Fried. Krupp's consolidated financial
statements.
    We also agree with KTN regarding the treatment of rebate claims,
provisions and internal freight. As noted in Exhibit 23 of the KTN Cost
Verification Report, the expenses included in this account are
predominantly for commissions and freight which the Department treats
as selling expenses. Appropriately, KTN has reported these expenses in
its sales listing. Therefore, we have excluded them from the G&A
expense calculation.

Comment 24: Allocation of G&A Expenses

    KTN takes issue with the Department's suggestion in the KTN Cost
Verification Report that G&A expenses should be allocated based on
total cost of manufacture (TCOM). Rather, KTN insists, its methodology,
which allocates aggregate G&A expenses to products based on processing
costs alone, achieves a more accurate result, as it is not skewed by
wide variations in material costs. Material costs vary sharply, KTN
explains, not only as a result of the differing alloy content of
different grades of stainless steel, but also because of fluctuations
in alloy prices. Therefore, according to KTN, while G&A activities do
not vary according to grades of steel, material costs do vary depending
upon the nickel content of the specific steel grade. As a result, KTN
avers, inclusion of material costs will result in products which
require the same G&A activities having sharply divergent per-ton
allocated G&A expenses. KTN's Case Brief at 50. While it is reasonable,
KTN suggests, to assign a higher G&A cost to a product which requires
more processing activities, as the processing requires active
management, it is inherently unreasonable to assign higher G&A costs to
a product whose sole distinction is a higher cost for its constituent
materials. Therefore, KTN believes that the Department should accept
KTN's reported activity-based G&A expenses and not recalculate G&A
based on its TCOM.
    Petitioners oppose KTN's request for the allocation of its G&A
expense ratio based on processing costs alone, calling KTN's suggested
approach ``a results-oriented attempt to distort fully absorbed
costs.'' Petitioners' Rebuttal Brief at 52. Such an approach, contend
petitioners, results in a grade-neutral ratio which assigns the same
absolute G&A expense to both low-cost and high-cost products.
Petitioners insist that, contrary to KTN's methodology, the proper
allocation of G&A over COM always includes the cost of materials. The
rationale for a value-based allocation, petitioners argue, is that
higher-value products absorb the same proportional amount, but a
greater absolute amount, than lower-value products. Id. at 53.
Petitioners argue that this approach for the allocation of SG&A
expenses has been used consistently by the Department in such cases as
Pure Magnesium from the People's Republic of China, 63 FR 3085 (January
21, 1998). Petitioners draw further support from Belgian Stainless
Plate in Coils where the Department rejected the respondent's
``improvements'' in attempting to use a quantity-based methodology in
allocating its selling expenses. As a result, petitioners note, the
Department allocated the respondent's SG&A expenses solely on the basis
of value.
    Department's Position: We agree with petitioners that G&A expenses
should be allocated as a percentage of the total cost of manufacturing
the merchandise, as opposed to KTN's assertion that they be allocated
as a percentage of processing costs. As set forth in Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled, From Japan, 61 FR 38139, 38149 (July 23, 1996) and Certain
Carbon and Alloy Steel Wire Rod From Canada, 59 FR 18791, 18795 (April
20, 1994), our normal methodology for allocating G&A expenses is to
apply these types of costs as a percentage of total manufacturing cost.
This approach recognizes that the category termed ``G&A expense''
comprises a wide range of costs, some of which bear such an indirect
relationship to the immediate production process that any allocation
based on a single factor, i.e., processing costs, would be purely
speculative. The Department's normal method for allocating G&A costs
based on total manufacturing cost takes into account all production
factors (i.e., materials, labor, and overhead) rather than a single
factor chosen arbitrarily. By allocating G&A consistently over total
manufacturing costs the Department attempts to minimize discriminatory
cost allocations. In addition, G&A expenses represent period costs, not
product costs, and as such they should be spread proportionately over
all merchandise produced in the period. By computing G&A based on a
percentage of total manufacturing costs, each product absorbs the same
proportional amount of G&A expenses relative to its total cost, even if
the absolute amount might vary. This approach avoids distortions to the
price or cost analysis caused by apportioning a higher percentage of
processing costs to lower-cost products.
    We also disagree with KTN's assertion that activity-based costing
and standard accounting practices support the allocation of period
costs based on processing costs. As the name suggests, activity-based
costing provides that a cost element should be allocated based on the
activity which gave rise to that cost element. G&A expenses, however,
do not arise from individual processing costs or activities. We also
disagree with KTN's unsupported argument that the more processing a
product undergoes, the greater the amount of general and administrative
activities properly associated with the product. By definition, G&A
expenses relate to the general operations of the company as a whole
and, as noted, to a period of time, not to specific products or
processes. Absent evidence that our normal G&A allocation method
unreasonably states G&A costs, we allocate such costs based on the
total manufacturing cost. Therefore we have calculated KTN's G&A
expenses as a percentage of the total manufacturing cost, including
material costs.

Comment 25: Exchange Rate Gains and Losses

    Petitioners maintain that because KTN was unable to reconcile its
reported schedule of exchange gains and losses to the financial
statements of Fried. Krupp, the Department should adopt the methodology
suggested in the KTN Cost Verification Report by including foreign
exchange rate losses, but excluding foreign exchange rate gains, in
calculating consolidated financial expenses.
    KTN disagrees, asserting that the Department should rely upon the
exchange rate gains and losses realized by KTN proper, rather than the
overall exchange rate experience of Fried. Krupp as a whole. To the
extent the Department does rely upon the exchange rate gains and losses
indicated in Fried. Krupp's financial statements, KTN argues, any
losses should be offset

[[Page 30746]]

by the gains. KTN further avers that the Department found sufficient
evidence at verification to distinguish between the short-term and
long-term interest reflected in Fried. Krupp's consolidated 1997
financial statements; interest income from long-term investments is
shown separately from other interest and similar income drawn from
short-term resources.
    Department's Position: As a general matter we disagree with KTN
that for computing interest expenses the Department should use KTN's
company-specific foreign exchange and interest income figures rather
than the consolidated figures reflected in Fried. Krupp's financial
statements. The Department has a longstanding practice of calculating
the respondent's net interest expense rate based on the financing
expenses incurred on behalf of the consolidated entity. This practice
recognizes the fungible nature of invested capital resources (i.e.,
debt and equity) within a consolidated group of companies. The Court
sustained this approach in Camargo Correa Meais, S.A. v. United States,
17 C.I.T. 897, 902 (August 13, 1993), where the Court quoted
approvingly Certain Small Business Telephone Systems and Subassemblies
Thereof From Korea, 54 FR 53141, 53149 (December 27, 1989):

    The Department recognizes the fungible nature of a corporation's
invested capital resources including both debt and equity, and does
not allocate corporate finances to individual divisions of a
corporation * * * Instead, [Commerce] allocates the interest expense
related to the debt portion of the capitalization of the
corporation, as appropriate, to the total operations of the
consolidated corporation.

    Accordingly, we will continue to use the consolidated financial
statements of Fried. Krupp in the calculation of KTN's financial
expense ratio.
    As for the foreign exchange gains and losses, the Department
requested in two questionnaires and again at verification that KTN
provide information to support the inclusion of Fried. Krupp's foreign
exchange gains and exclusion of its foreign exchange losses from the
interest expense computation. However, KTN, which has the sole ability
and responsibility to support the requested adjustments, failed to
provide any supporting information. Thus, we agree with petitioners
that since KTN failed to provide evidence to support the inclusion of
gains and the exclusion of losses from the financial expense ratio
calculation, we have included Fried. Krupp's foreign exchange rate
losses while excluding its foreign exchange rate gains from the
financial expense ratio calculation.
    We agree with KTN, however, that based on our findings at
verification, the interest income used as an offset to financial
expenses is appropriately classified as short-term. Fried. Krupp's 1997
consolidated financial statements distinguish between interest earned
from long-term and short-term financial assets. Accordingly, we
included the interest income earned from short-term assets, less the
amounts relating to trade receivables, as an offset to financial
expenses.

Comment 26: Deep-Drawing by Affiliated Processor

    Petitioners accuse KTN of failing to report that an affiliated
party, Thyssen Umformtechnik, performed deep drawing operations on
stainless flat products produced by KTN. The Department, petitioners
contend, must apply adverse facts available in accounting for this
critical element in KTN's COP.
    KTN suggests that petitioners have misunderstood the role of these
deep drawing operations. KTN maintains that rather than representing a
cost associated with producing the foreign like product, deep drawing
actually involves the consumption of the foreign like product in the
manufacture of non-subject products ranging from vacuum bottles to
automotive parts.
    Department's Position: We agree with KTN with respect to the
alleged role of deep drawing operations in the production of the
foreign like product. The deep drawing at issue, as KTN claims,
involves the consumption of the merchandise in the production of non-
subject products and is not, as petitioners contend, a ``critical
element'' of KTN's reported COP. As such, we made no adjustment for the
deep drawing processes performed by Thyssen Umformtechnik.

Comment 27: Failure To Report Affiliated Supplier

    Petitioners note that KTN purchased small quantities of titanium
<SUP>8</SUP> from a company owned by Acciai Speciali Terni S.p.A.
(AST), a sister company of KTN. According to petitioners, KTN failed to
disclose prior to the Department's cost verification that the titanium
was in fact purchased from an affiliated party. KTN's failure to
disclose its affiliation with the supplier warrants use of adverse
facts available, petitioners insist, because while titanium may
represent a small portion of KTN's total raw material purchases, it
comprises a major portion of the material costs for those grades of
stainless steel which are alloyed with titanium.
---------------------------------------------------------------------------

    \8\ The specific input and the supplier's identity were afforded
treatment as business proprietary information, and were so treated
in petitioners' case brief. However, KTN identifies the input
publicly in its rebuttal brief.
---------------------------------------------------------------------------

    KTN rejects as pure conjecture petitioners' arguments concerning
purchases of titanium from its affiliate. Petitioners, KTN avers, have
provided no information or analysis which could lead the Department to
suspect the nature of the transactions between the affiliate and KTN.
Furthermore, argues KTN, titanium purchases from the affiliate involved
only small quantities of this input.
    Department's Position: We disagree with petitioners. KTN disclosed
at the outset of verification that it purchased small quantities of
titanium from an affiliated company's subsidiary. We discussed the
affiliation and these purchases with KTN officials, and noted that
KTN's product brochures list titanium as a trace element (i.e., less
than one percent) in certain grades of stainless steel. Given the
relative insignificance of this input, we deferred further testing of
the purchases and instead focused our testing on KTN's purchases of
more significant inputs. Thus, contrary to petitioners' assertions, KTN
identified the nature of these purchases; at verification the
Department exercised its discretion in electing to concentrate on
inputs which have a greater affect on KTN's reported COP.

Comment 28: Major Inputs From Affiliated Suppliers

    Petitioners insist that KTN did not provide its affiliates'
acquisition costs for certain raw materials used in the production of
subject stainless steel sheet and strip. Petitioners argue that, as
major inputs, the raw materials purchased from affiliates should be
valued at the higher of transfer prices, market value, or the
affiliates' COP, in accordance with section 773(f)(2) and (3) of the
Tariff Act. However, in the instant case, petitioners aver, the
transfer prices paid by KTN to its affiliated suppliers for inputs such
as nickel and chromium were, on average, below market value.
Petitioners' Case Brief at 68, citing Exhibit 23 of the KTN Cost
Verification Report. Petitioners disagree with the Department's
opinion, voiced in this report, that KTN's transfer prices were greater
than both market value and the affiliates' COP (i.e., the affiliates'
acquisition costs). Furthermore, evidence of the affiliates' overall
profitability does not address whether or not the transfer prices at
issue were above the cost of acquisition for these raw materials.

[[Page 30747]]

    Petitioners suggest increasing the value of KTN's nickel, chromium,
and scrap inputs by the difference between KTN's highest unit costs for
purchases from unaffiliated suppliers and the average transfer price,
using the data in KTN Cost Verification Exhibit 23. If the Department
persists in conducting the major inputs test in spite of KTN's refusal
to provide its affiliated suppliers' acquisition costs, petitioners
continue, the Department as a ``corrective measure'' should increase
the value of these inputs by the difference between the average
transfer price and the average market price.
    KTN asserts that the Department verified that the transfer prices
for raw materials supplied by affiliated parties were greater than both
market prices and the affiliates' cost of production; accordingly, KTN
argues, the Department should use the transfer prices in calculating
COP and CV.
    Department's Position: We disagree with petitioners. Section
773(f)(2) allows the Department to test whether transactions between
affiliated parties involving any element of value required to be
considered in calculating COP (i.e., major or minor inputs) are at
prices that ``fairly reflect * * * the market under consideration.''
Section 773(f)(3) allows the Department to further test whether
transactions between affiliated parties involving a major input are at
prices above the affiliated supplier's cost of production. In other
words, if an understatement of the value of a major input would have a
significant impact on the reported cost of the subject merchandise, the
statute allows the Department to insure that the transfer price or
market price is above the affiliated supplier's COP.
    The determination as to whether an input is considered major is
made on a case-by-case basis. See Final Rule, 62 FR at 27362. In
determining whether an input is considered major, among other factors,
the Department looks at the percentage of the input obtained from
affiliated suppliers (versus un-affiliated suppliers) and the
percentage the individual element represents of the product's COM
(i.e., whether the value of inputs obtained from an affiliated supplier
comprises a substantial portion of the total cost of production for
subject merchandise. Id. In the instant case we examined both the
percentage of the input obtained from affiliated versus unaffiliated
suppliers and the percentage of the product's COM represented by the
specific elements of value, here, nickel, chromium, and alloyed scrap.
The limited amounts of the inputs obtained from affiliated suppliers,
combined with the relatively small percentage the individual elements
represent of the product's COM, mitigates the effect purchases of these
inputs from affiliates would have on KTN's total COP. Accordingly, we
determine that in this investigation section 773(f)(3) of the Tariff
Act does not apply to the nickel, chromium, and alloyed scrap purchased
from affiliated parties. However, we did find that the prices paid to
affiliated parties for nickel were below market price; therefore, as
provided by section 773(f)(2) of the Tariff Act, we have increased the
COM accordingly.

Comment 29: Hot Rolling Costs

    Petitioners charge KTN with supplying data on the costs of hot-
rolling services provided by an affiliate that are both incomplete and
inaccurate. As a result, petitioners maintain, the Department lacks the
necessary data to conduct the major input test described at section
773(f)(3) of the Tariff Act. Because KTN failed to provide its
affiliate's total actual manufacturing costs, as well as the supporting
documentation to calculate the affiliate's SG&A and net financial
expenses, argue petitioners, the Department must rely upon adverse
facts available to establish the TCOM for all of KTN's products.
    According to petitioners, KTN selectively applied variances (to
adjust standard costs to actual costs) to only limited portions of its
cost build-up. In doing so, petitioners contend, KTN failed to account
fully for the affiliate's actual per-unit costs of the hot-rolling
services. Petitioners claim that as a result, KTN's reported costs do
not cover the actual COM of the affiliated hot-roller.
    Petitioners contend KTN has further skewed its reporting of hot-
rolling costs by failing to include amounts for the affiliate's
variable operating costs and SG&A expenses. Petitioners insist that to
capture fully the affiliate's COP, the reported costs must include the
SG&A of the affiliate, as well as the interest expenses of its parent
firm, Thyssen Stahl AG. Further, petitioners argue that KTN failed to
submit for the record data on the affiliate's expenses, such as its
financial statements, that would allow a calculation of these additions
to COM. Absent the profit and loss statement of the affiliate or, at
the least, its parent, petitioners contend, there is no way to
establish either the SG&A or financial expense portions of fully-
captured COP for this hot rolling.
    In light of KTN's failure to report the actual TCOM and the
additional data necessary to determine adjustments for SG&A and net
financial expenses, petitioners aver, the Department must resort to the
facts available to establish KTN's COP. Petitioners suggest as an
adverse inference that the Department should apply the single highest
TCOM to all of KTN's products. That failing, conclude petitioners, the
Department should adjust the reported COM to reflect actual, not
standard, costs, and to include surrogates for the missing SG&A and
financial expense data for the affiliated hot roller.
    KTN takes issue with a number of petitioners' assertions. First,
KTN argues, petitioners have not even established that the hot-rolling
services at issue constitute a major input for the purposes of section
773(f)(3). Hot-rolling services, submits KTN, account for a small
fraction of KTN's costs and are not a major input. That petitioners
fail to address a necessary predicate to their entire line of argument,
KTN maintains, is grounds for rejecting that argument entirely. While
acknowledging that the Department has no bright-line figure for
establishing what constitutes a major input, KTN nevertheless suggests
that hot rolling adds relatively little value to the foreign like
product; stainless steel derives most of its value from metallurgy
(i.e., at the liquid steel stage) and through cold rolling, annealing,
and other finishing processes. Hot rolling, KTN concludes, is not a
major input.
    Second, KTN maintains, petitioners' allegations betray a
misunderstanding of KTN's reporting methodology; the Department, on the
other hand, tested this methodology at verification and found it to be
sound. KTN's Rebuttal Brief at 57. KTN claims that petitioners
virtually ignored the agreement between KTN and its affiliate setting
forth the terms for its purchase of these services, whereas the
Department examined this document, tested its formulae, and concluded
that the transfer price covered the affiliate's cost of providing hot
rolling. Petitioners' assertion that certain of the affiliate's costs
were omitted from the transfer price, KTN avers, is drawn from the
incorrect document, which merely addresses end-of-year adjustments to
these costs. Rather, KTN maintains, the hot-rolling services agreement
provides an itemization of costs to be included in the transfer price
that is so liberal that ``KTN is of the view that it is paying too much
for the hot rolling services.'' KTN's Rebuttal Brief at 61.
    KTN concludes that petitioners' objections to its reported hot-
rolling costs are misinformed. KTN insists that it has provided all
documentation requested by the Department, and these hot-rolling
services were discussed at length at verification. Petitioners'

[[Page 30748]]

arguments, therefore, should be dismissed.
    Department's Position: We agree with KTN that the transfer prices
paid to its affiliated hot roller were at arm's length and, therefore,
no adjustment is necessary. As mentioned above, when determining
whether an input or process is considered major, the Department
considers, inter alia, the percentage of the input or process obtained
from affiliated suppliers and the percentage the individual element
represents of the product's COM. In this case because hot-rolling
comprises a relatively small percentage of the foreign like product's
COM the impact of any misstatement of these costs upon total COP is
reduced. As a result, we have determined that the hot-rolling services
supplied by the affiliate do not constitute a major input as defined by
section 773(f)(3) of the Tariff Act. However, as the hot rolling
represents an input supplied by an affiliate, the Department still
tests whether or not the transfer prices were at arm's length. In the
instant case no market prices for hot-rolling services were available.
Therefore, at verification the Department confirmed that the transfer
prices, after the year-end adjustments enumerated in the purchase
contract, were above the affiliated supplier's cost of production.
Further, the Department confirmed at verification that the contract
between KTN and its affiliated hot roller establishes prices which
cover all fixed and variable manufacturing costs and SG&A as well as a
provision for profit to the affiliate. Finally, we verified that the
actual prices paid by KTN to the affiliate reflected the terms of the
contract.

Ministerial Errors and Miscellaneous Comments

Comment 30: Separate Weighting of Nickel Alloys for Model Matching

    KTN argues that the Department should use separate product codes
for its 304L low-nickel and 304L high-nickel alloys because there are
significant differences in the physical characteristics between the two
which have a direct bearing on their respective costs of manufacture.
KTN points to the widely divergent nickel content of the low-and high-
nickel variants of its 304L stainless steel.
    Petitioners contend that the model-matching grade criteria should
not undergo selective modification to redefine product bands in the
results-oriented exercise suggested by KTN, citing Ferrosilicon from
Venezuela, 57 FR 61879, 61880 (December 29, 1992) (preliminary
determination), and 58 FR 27522 (May 10, 1993) (final determination).
    Department's Position: We agree with petitioners. In order to
understand the Department's position, it is first helpful to clarify
our methodology for assigning weight factors. We assigned individual
weighting factors to those reported grades recognized by the AISI
nomenclature. We also assigned unique factors to any reported
proprietary grades or foreign grade specifications if the chemical
content was sufficient to distinguish them from any existing AISI grade
already assigned a ranking factor in our matching hierarchy (e.g., DIN
specification 1.4462). Where a proprietary or foreign grade
specification was similar in chemical composition to an AISI grade, we
assigned it the same weight as the comparable AISI grade, rather than
assigning a unique weighting factor to that particular grade. We also
did not assign unique weights to certain ``sub-grades'' (e.g., 304DDQ)
because the percentage ranges of chromium, carbon, nickel, and
molybdenum do not differ from the broader AISI grade.
    After deciding which grades to assign unique weighting factors, we
established a linear weighting system designed to search for matches
within the general classes of stainless steel (e.g., the chromium-
nickel series, the straight chromium (hardenable) series, and the
straight chromium (non-hardenable) series). In addition to ensuring
matches within the general classes or families of stainless steel, our
weighting system is designed to match grades in the same family based
on chemical composition. For example, within the chromium-nickel
series, where an identical match is not possible, our preference is to
pair grades containing molybdenum (e.g., grades 316 and 317) with each
other before searching for a grade with no molybdenum (e.g., grades 302
and 304).
    KTN argues that the Department should use separate product codes
for 304L low-nickel and 304L high-nickel alloys, stating that

    * * * DIN grade 4306 can be equated to AISI grade 304L. However,
KTN sells different versions of DIN grade 4306--4306.00 and 4306.90.
DIN grade 4306.00 has a nickel content of 10.0 through 10.2% while
DIN grade 4306.90 has a nickel content of 8.05-9.12%. These
differences in nickel content result in a large difference in costs
and thus in price as well. Therefore, for sales of 4306.00, KTN has
reported the information in GRADE2H as ``304L H'' with an H
indicating high nickel content. For sales of 4306.90, KTN has
reported the information in GRADE2H as ``304L L,'' with an L
indicating low-nickel content.

KTN's September 29, 1998 section B questionnaire response at 9.
    AISI grade 304L, to which we have assigned a unique weighting
factor for purposes of our model match, contains between 8 and 10.5
percent nickel by weight. The nickel ranges specified by KTN for
4306.90 (304L L), 8.05 to 9.12 percent, and 4306.00 (304L H), 10 to
10.2 percent, fall entirely within the broader range specified for AISI
grade 304L. Therefore, while the nickel content of the low- and high-
nickel variants differs somewhat, both fall within the limits
recognized as acceptable for grade 304L stainless steel. Accordingly,
for this final determination we have not altered our model match
program to distinguish between different variants of the same grade
304L stainless steel.

Comment 31: Errors in Model-Match Program

    KTN claims that the programming language included in the
Department's model-match program to consider gauge and finish did not
execute properly due to a formatting discrepancy between the number of
digits used in the Department's program and the number included in
KTN's reported sales databases. As a result, KTN notes, two of the nine
physical criteria intended for use in the model-match program were not
considered, thus skewing the matching and the attendant adjustments for
differences in merchandise (difmer).
    Department's Position: We examined our model-match program and
agree with KTN that the program inadvertently failed to consider the
gauge and finish variables when matching home market and U.S. products.
KTN reported gauge and finish in a different format than it did the
other physical characteristics considered in the model-match program,
inserting a leading zero for all values less than ten. As a result, for
many models the program read the gauge and finish variables as equal to
zero, and generated missing values for those records. Furthermore, in
cases where sales of coil in the United States were matched to sales of
similar merchandise in the home market (rather than sales of the
identical coil) the model-match program did not calculate difmer
adjustments as it should but, rather, set the value for these
adjustments to zero. Therefore, for this final determination we have
amended our program to account for the leading zeros inserted in KTN's
reported gauge and finish. See also the Department's Ministerial Errors
Memorandum.

[[Page 30749]]

Comment 32: Disclosure Under Administrative Protective Order

    Petitioners argue that KTN has improperly double-bracketed the
identities of its affiliated Thyssen distributors in the United States
and Germany, refusing to release this information under administrative
protective order (APO), even though this information has been in the
public domain. According to petitioners, documentation they submitted
on November 12, 1998 and January 11, 1999, clearly shows that the
stainless steel distribution role of the various disputed Thyssen
distributors ``is not only generally known, but in fact advertised,
placed on the Internet, briefed in public company announcements,
analyzed in the trade press, touted in public annual reports, outlined
in Dun and Bradstreet company profiles, reported to the SEC, and
highlighted in product brochures.'' Petitioners' Case Brief at 109.
Therefore, petitioners assert that given these circumstances, KTN
should not be allowed to succeed in pressing its claim for proprietary
treatment for the affiliates' identities and should not only be
required to release the names under APO, but should publicly identify
these parties for the record.
    Department's Position: We disagree with petitioners. From the
outset of this investigation KTN has not released the names of its
affiliates in the U.S. or home market under APO, instead choosing to
double-bracket their names. On September 28, 1998, petitioners wrote
the Department requesting that KTN be required to replace double-
bracketed affiliated party names with single bracketing or, at a
minimum, use a naming convention or coding of affiliates that would
permit the consistent and reliable tracking of affiliations throughout
the investigation. In a November 5, 1998 letter, KTN argued that in
accordance with section 771(c)(1)(A) of the Tariff Act, it should not
be required to disclose the names of KTN's customers to counsel for
petitioners. Petitioners responded on November 12, 1998, by submitting
documentation in support of its assertions that the affiliates' names
which KTN was attempting to withhold from disclosure under APO were, in
fact, in the public domain. After a thorough review of the record, on
December 4, 1998, we notified KTN that ``we will permit the double
bracketing of all customers in both the home market and U.S. market. We
require however, that you code the affiliated customers in both
markets.'' Letter from Ann Sebastian to Hogan & Hartson, December 4,
1998. On December 15, 1998, KTN submitted this coding, as instructed.
On January 11, 1999, petitioners again placed information on the record
attempting to bolster their original claim that these names deserved
treatment as public information.
    Section 777(c)(1)(A) of the Tariff Act states that ``[c]ustomer
names obtained during any investigation which requires a determination
under section 705(b) or 735(b) may not be disclosed by the
administering authority under protective order until either an order is
published under section 706(a) or 736(a) as a result of an
investigation or the investigation is suspended or terminated.''
Further, the Department's regulations hold that ``[t]he Secretary will
require that all business proprietary information presented to, or
obtained or generated by, the Secretary during a segment of a
proceeding be disclosed to authorized applicants, except (i) customer
names submitted in an investigation.'' 19 CFR 351.304(a)(2) (emphasis
added).
    Based on the plain language of both the statute and the
Department's regulations we have concluded that KTN was entitled to
withhold the names of affiliates in the U.S. and home market from
release under APO during this investigation. While petitioners provided
voluminous documentation that KTN's affiliates' names were publicly
available during the POI, we must defer to the statute's sensitivity
regarding the improper disclosure of customer names during an
antidumping duty investigation. Of all categories of business
proprietary information routinely collected by the Department in
antidumping duty proceedings, the Tariff Act specifically prohibits
only the disclosing of customer names by ``the administering
authority,'' i.e., the Department. <SUP>9</SUP> After thorough review
we have determined that petitioners' documentation does not
definitively indicate whether or not these parties were indeed
customers of KTN. Thus, while these parties' names may be available
through public means, the nature and extent of their dealings with one
another are not. Requiring KTN to publicly release such information
without conclusive public evidence of their roles has the potential for
causing competitive harm to KTN. Further, it is important to note that
the Department instituted one of the petitioners' proposed compromise
solutions by requiring KTN to provide codes for its affiliates which
were then released to petitioners. Therefore, for this final
determination we will continue to allow KTN to withhold the identities
of its affiliated customers in both the home and U.S. markets.
---------------------------------------------------------------------------

    \9\ Section 777(c)(1) also protects from disclosure privileged
and classified information, which rarely factors into antidumping
investigations, and ``information of a type for which there is a
clear and compelling need to withhold from disclosure.''
---------------------------------------------------------------------------

Comment 33: Erroneous Subtraction of Home Market Billing Adjustments

    KTN claims that the Department erred by adding, rather than
subtracting, its reported billing adjustments when creating a variable
to represent total discounts, rebates and billing adjustments. These
billing adjustments, KTN asserts, should be added to the home market
gross price, not deducted as in the Preliminary Determination.
    Department's Position: We agree with KTN. We inadvertently deducted
KTN's home market billing adjustments in our calculation of home market
net price. Therefore, for these final results we have subtracted KTN's
billing adjustment from our calculation of total discounts and rebates,
which has the net effect of adding them to gross unit price, as
appropriate.

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Tariff Act, we are
directing the Customs Service to continue to suspend liquidation of all
imports of subject merchandise entered, or withdrawn from warehouse,
for consumption on or after January 4, 1999, the date of publication of
the Preliminary Determination in the Federal Register. We will instruct
the Customs Service to require a cash deposit or the posting of a bond
equal to the weighted-average amount by which the NV exceeds the export
price or constructed export price, as indicated in the chart below.
These suspension-of-liquidation instructions will remain in effect
until further notice. The weighted-average dumping margins are as
follows:

------------------------------------------------------------------------
                                                            Weighted-
                 Exporter/manufacturer                   average  margin
                                                           (in percent)
------------------------------------------------------------------------
Krupp Thyssen Nirosta GmbH.............................            25.72
All Others.............................................            25.72
------------------------------------------------------------------------

International Trade Commission Notification

    In accordance with section 735(d) of the Tariff Act, we have
notified the Commission of our determination. As our final
determination is affirmative, the Commission will determine within 45
days after our final determination

[[Page 30750]]

whether imports of stainless steel sheet and strip in coils from
Germany are materially injuring, or threaten material injury to, the
U.S. industry. If the Commission determines that material injury, or
threat thereof, does not exist, the proceeding will be terminated and
all securities posted will be refunded or canceled. If the Commission
finds that such injury does exist, the Department will issue an
antidumping duty order directing the Customs Service to assess
antidumping duties on all imports of the subject merchandise entered,
or withdrawn from warehouse, for consumption on or after the effective
date of the suspension of liquidation.
    This determination is published pursuant to sections 735(d) and
777(i)(1) of the Tariff Act.

    Dated: May 19, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-13682 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P