67 FR 3155, January 23, 2002
                                                            A-475-829
                                                        Investigation
                                                 POI: 10/1/99-9/30/00
                                                      PUBLIC DOCUMENT
                                                          DAS I/1: JG
MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary
                 for Import Administration
FROM:          Richard W. Moreland
               Deputy Assistant Secretary
                 Import Administration, Group I
SUBJECT: Issues and Decision Memo for the Antidumping Duty Investigation
of Stainless Steel Bar from Italy; Final Determination
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SUMMARY
We have analyzed the briefs and rebuttal briefs of interested parties in
the antidumping duty investigation of stainless steel bar from Italy. As a
result of our analysis, we have made changes, including corrections of
certain inadvertent programming and clerical errors, to the margin
calculations. We recommend that you approve the positions we have
developed in the Discussion of Issues section of this memorandum. Below is
a complete list of the issues in this investigation for which we received
comments and rebuttals by parties:
Comment 1: Treatment of Sales Above Normal Value
Comment 2: Commission Offset
Comment 3: Model Match Methodology
Comment 4: Differences in Bedini LOT and Bedini CEP Offset
Comment 5: Bedini HM Commission Expenses
Comment 6: Clerical Errors in the Calculation of Bedini U.S. Credit
Expenses
Comment 7: Weight-Averaging of U.S. Prices
Comment 8: Collapsing the Sales Prices and Production Costs of Bedini and
U-SI
Comment 9: Application of Adverse Facts Available for Bedini Due to Home
           Market Reporting Flaws
Comment 10: Bedini HM Billing Adjustments
Comment 11: Partial Adverse Facts Available for Unreported Bedini U.S.
Sales
Comment 12: Revisions to the Calculation of Certain Bedini Expense Fields
Comment 13: Adverse Facts Available for All Bedini Expenses Reported on
            an Average, Not A Transaction-Specific, Basis
Comment 14: Methodology for Calculating Bedini's U.S. Credit Expenses
Comment 15: Adjustments to Bedini's Reported Costs to Reconcile With the
            General Ledger
Comment 16: Correction to Bedini's Verification Report
Comment 17: Application of Adverse Facts Available to Cogne
Comment 18: Use of Facts Available to Value Foroni's Packing Costs
Comment 19: Foroni's Advertising Expenses
Comment 20: Foroni's Calculation of Direct Materials
Comment 21: Exclusion of Foroni's Directors' Fees from the G&A Expense
Ratio
Comment 22: Foroni's Short-Term Bond Interest Offset
Comment 23: Foreign Exchange Gains & Losses
Comment 24: Foroni's Yield Loss
Comment 25: Use of Rodacciai's Reported Data
Comment 26: Rodacciai's Reported Home Market Date of Sale
Comment 27: Additional Sales Submitted by Rodacciai
Comment 28: Rodacciai's U.S. Indirect Selling Expenses
Comment 29: Rodacciai's U.S. Warehousing Expenses
Comment 30: Rodacciai's U.S. Sales with Missing Date of Payment
Comment 31: Rodacciai's G&A Expense Ratio
Comment 32: Rodacciai's Interest Expense Ratio
Comment 33: Recalculation of Certain Home Market Expenses Reported by
            Rodacciai
Comment 34: Rodacciai's Home Market Credit Adjustments
Comment 35: Corrections to and Based on Valbruna's CEP Verification Report
Comment 36: Valbruna's Opportunity Cost on VAT Rebates
Comment 37: Valbruna's Levels of Trade
Comment 38: Treatment of Valbruna's Consignment Holding Period
Comment 39: Valbruna's U.S. Brokerage Expenses
Comment 40: Valbruna's U.S. Warranty Expenses
Comment 41: Valbruna's Unreported Price Adjustment
Comment 42: Valbruna's U.S. Repacking Expenses
Comment 43: Use of Actual Prices Paid by Valbruna's Customers
Comment 44: Valbruna's U.S. Indirect Selling Expense Ratio
Comment 45: Valbruna's Home Market Inventory Carrying Costs
Comment 46: Valbruna's G&A Expense Ratio
Comment 47: Valbruna's Financial Expense Ratio
Comment 48: Inclusion of Depreciation Expense in Valbruna's Reported
            Manufacturing Costs
Comment 49: Valbruna's Claimed Inventory Adjustment
Comment 50: Treatment of Unreconciled Differences in Valbruna's Cost of
            Manufacture
Comment 51: Foreign Exchange Gains and Losses on Accounts Payable
Comment 52: Foreign Exchange Gains and Losses on Financing
BACKGROUND
On July 26, 2001, the Department of Commerce ("the Department") issued
the preliminary determination of this antidumping duty investigation of
stainless steel bar from Italy. See Notice of Preliminary Determination
of Sales at Less Than Fair Value and Postponement of Final Determination:
Stainless Steel Bar From Italy, 66 FR 40214 (August 2, 2001) ("Preliminary
Determination"). The period of investigation ("POI") is October 1, 1999,
through September 30, 2000. We invited parties to comment on the
Preliminary Determination. At the request of the petitioners, we held a
public hearing on December 5, 2001.
DISCUSSION OF ISSUES
Common Issues
Comment 1: Treatment of Sales Above Normal Value
Respondents' Arguments: Trafilerie Bedini, Srl ("Bedini"), Acciaiera
Foroni SpA ("Foroni"), and Acciaierie Valbruna S.p.A. ("Valbruna")
submitted comments on this issue.   Bedini argues that, in calculating the
antidumping duty margin for the Preliminary Determination, the Department
improperly disregarded the amounts by which particular U.S. sales were
made in excess of normal value, which had the effect of inaccurately
inflating Bedini's dumping margin. Bedini argues that this practice
violates U.S. and international law, and should be corrected in the final
determination.
Specifically, according to Bedini, the U.S. antidumping law requires
that, in calculating an antidumping duty margin, the Department must make
a fair comparison between the EP or CEP and normal value. Like U.S. law,
Bedini states that Article 2.4 of the 1994 WTO Agreement on the
Implementation of Article VI of the General Agreement on Tariffs and Trade
also provides that a fair comparison shall be made between the export
price ("EP") or constructed export price ("CEP") and normal value.
However, according to Bedini, a recent interpretation by the WTO Appellate
Body of Article 2.4 found that the practice of "zeroing," under which
export sales made at prices greater than normal value are assigned a zero
antidumping margin, violates article 2.4. (1)
Bedini argues that this WTO decision is in direct conflict with the
Department's normal practice of calculating dumping margins, which treats
sales above normal value as having no dumping margin instead of a negative
dumping margin. The Department then calculates the weighted-average
dumping margin by dividing the unit margins of the dumped sales plus the
zero margins by the value of dumped and non-dumped U.S. sales. Moreover,
Bedini argues that the U.S. Court of International Trade ("CIT") has
recognized that this methodology introduces a statistical bias in the
calculation of dumping margins. (2) Furthermore, Bedini states that the
Department's practice of "zeroing" is not required by any U.S. statute or
regulation, and that the practice is contrary to the Department's
statutory obligation to make a fair comparison between EP or CEP and
normal value. Finally, Bedini argues that the Department's position in
Notice of Final Determination of Sales at Less Than Fair Value; Certain
Hot-Rolled Carbon Steel Flat Products From The Netherlands, 66 FR 50408
(Oct. 3, 2001) ("Hot-Rolled from the Netherlands") that 1) zeroing is
required by U.S. law under section 771(35)(A) of the Act; 2) zeroing is a
reasonable methodology; and 3) U.S. law takes precedence over any
"potentially conflicting" URAA obligations is incorrect and should not be
followed. Thus, there is no legal basis for the Department to continue
this practice, and it should be discontinued in the final determination.
Foroni also disagrees with the Department's methodology in the
Preliminary Determination. First, inasmuch as this investigation covers
only one class or kind of merchandise, Foroni claims that the Department
should have calculated a single dumping margin, consistent with
777A(d)(1)(A) of the Act, rather than calculating a weighted-average
dumping margin based on the product control number-specific dumping
margins. Second, Foroni claims that the Department's practice of
aggregating the potentially uncollected dumping duties for stainless steel
bar products for which the Department found positive margins while
excluding the negative duties of stainless steel bar products for which
the Department found that the U.S. price exceeded the normal value is
distortive as it has the effect of creating an overall dumping margin
where none otherwise exists. Third, Foroni claims that the unfairness of
the zeroing methodology has been recognized by the WTO in Bed Linen from
India, in which the Appellate Body found that the European Community's
"zeroing" methodology violated Article 2.4.2 of the WTO Antidumping
Agreement. Although this decision does not directly apply to the United
States, Foroni contends that, unless the Department revises its
calculation methodology, the WTO may, in time, rule similarly with respect
to the Department's analogous methodology.
Valbruna contends that the calculation methodology utilized in the
Preliminary Determination improperly removes from the analysis the benefit
that "negative dumping sales" comparisons have on the overall dumping
margin. Valbruna claims that this methodology was found to be inconsistent
with Article 2.4.2 of the WTO Antidumping Agreement by a WTO Panel and the
WTO Appellate Body. See Bed Linen from India (concluding that the practice
of "zeroing" results in an unfair comparison between EP and normal value,
as it does not take fully into account the prices of all comparable export
transactions). Thus, Valbruna concludes that the Department should adjust
its methodology in the final determination by eliminating its practice of
"zeroing" certain underlying comparisons that actually resulted in
negative values in order to make a "fair comparison" as required under
Article 2.4 of the WTO Antidumping Agreement.
Petitioners' Argument: The petitioners argue that the Department has
specifically found in Certain Preserved Mushrooms from India: Final
Results of Antidumping Duty Administrative Review, 66 FR 42507 (August 13,
2001) ("Mushrooms from India") that the WTO decision does not apply to
U.S. proceedings. Therefore, the petitioners argue that the Department
should not abandon its practice with respect to "zeroing" negative
margins.
Department's Position: We disagree with the respondents. As we have
discussed in prior cases, our methodology is consistent with our statutory
obligations under the Act. See, e.g., Hot-Rolled from the Netherlands, at
FR 50408 (October 3, 2001), and accompanying Issues and Decision
Memorandum, at Comment 1. First, sales that did not fall below normal
value are included in the weighted- average margin calculation as sales
with no dumping margin. The value of such sales is included in the
denominator of the weighted-average margin along with the value of dumped
sales. We do not, however, allow sales that did not fall below normal
value to cancel out dumping found on other sales.
Second, the Act requires that the Department employ this methodology.
Section 771(35)(A) of the Act defines "dumping margin" as "the amount by
which the normal value exceeds the export price or constructed export
price of the subject merchandise." Section 771(35)(B) of the Act defines
"weighted-average dumping margin" as "the percentage determined by
dividing the aggregate dumping margins determined for a specific exporter
or producer by the aggregate export prices and constructed export prices
of such exporter or producer." These sections, taken together, direct the
Department to aggregate all individual dumping margins, each of which is
determined by the amount by which normal value exceeds export price or
constructed export price, and to divide this amount by the value of all
sales. The directive to determine the "aggregate dumping margins" in
section 771(35)(B) makes clear that the singular "dumping margin" in
section 771(35)(A) applies on a comparison-specific level, and does not
itself apply on an aggregate basis. At no stage in this process is the
amount by which EP or CEP exceeds normal value on sales that did not fall
below normal value permitted to cancel out the dumping margins found on
other sales. This does not mean, however, that sales that did not fall
below normal value are ignored in calculating the weighted-average rate.
It is important to note that the weighted-average margin will reflect any
"non-dumped" merchandise examined during the investigation, the value of
such sales is included in the denominator of the dumping rate, while no
dumping amount for "non-dumped" merchandise is included in the numerator.
Thus, a greater amount of "non-dumped" merchandise results in a lower
weighted-average margin.
This is, furthermore, a reasonable means of establishing duty deposits in
investigations, and assessing duties in reviews. In an investigation such
as the present case, the deposit rate calculated must reflect the fact
that the Customs Service is not in a position to know which entries of
merchandise entered after the imposition of a dumping order are dumped and
which are not. By spreading the estimated liability for dumped sales
across all investigated sales, the weighted-average dumping margin allows
the Customs Service to apply this rate to all merchandise entered after an
order goes into effect.
Finally, the Bed Linen from India Panel and Appellate Body decisions
concerned a dispute between the European Union and India. We have no WTO
obligation to act based on these decisions. See also Mushrooms from India,
66 FR at 42507 (August 13, 2001).
Comment 2: Commission Offset
Respondent's Argument: Valbruna notes that it reported commissions to
unaffiliated parties in both the U.S. and Italian markets, but that it
paid commissions to unaffiliated parties much more frequently and at a
greater level in Italy than in the United States. In the Preliminary
Determination, the Department adjusted normal value by a commission
offset, increasing normal value by the value of the U.S. indirect selling
expenses incurred in Italy or the difference in the commissions paid in
the two markets. Valbruna contends that, for the final determination, the
Department should not make any commission offset, pursuant to 19 CFR
351.410(e). According to Valbruna, the purpose of the commission offset
provisions in the statute and regulations is to avoid unfair comparisons
of two different prices in two different markets, one which is net of a
commission expense and another in which no commission expense or any
corresponding expense was deducted, i.e., selling expenses are removed
from the sales price in one market through the deduction of the commission
but no analogous selling expense is deducted in the other market.
For CEP sales, Valbruna argues that the CEP deductions already account
for all selling expenses incurred in the U.S. market and, therefore, there
is no danger of unfair price comparisons. Specifically, the Department
deducted commission expense from Valbruna's home market prices to derive
normal value, and subtracted all selling expenses incurred in the United
States in order to derive CEP. Thus, Valbruna claims it was unnecessary
for the Department to offset normal value by the lesser of U.S. indirect
selling expenses incurred in Italy or the difference between the
commissions incurred in each market. This is because the prices in both
markets were net of all selling expenses in the CEP comparisons. Moreover,
because the indirect selling expenses were deducted from the CEP, Valbruna
asserts that they must be excluded from the commission offset calculation.
See Notice of Final Results of Antidumping Duty Administrative Review:
Certain Pasta from Italy, 65 FR 7349, 7352 (February 14, 2000) ("Certain
Pasta from Italy").
Valbruna contends further that there is no justification for including in
the CEP offset adjustment an amount for indirect expenses incurred in
Italy as a surrogate for expenses incurred in the United States. Doing so
is inconsistent with applicable law and achieves indirectly what the
courts have said the Department cannot do directly. See Micron Technology
v. United States, 243 F. 3d 1301, 1314 (Fed. Cir. 2001) (noting that,
under the Department's methodology, the deductions to CEP pursuant to
section 772(d) of the Act result in the comparison of adjusted CEP with
unadjusted normal value comparability because the statute requires that a
level of trade comparison for CEP sales be made at the level of trade that
most nearly corresponds to EP).
For EP sales, Valbruna contends that the regulations contemplate that the
amount of the commission offset be limited to the amount of indirect
selling expenses incurred in the market other than that in which the
commissions were paid. See 19 CFR 351.410. Thus, if commissions were paid
only in the home market, the Department should compare selling expenses
incurred in the United States with the commission in the home market,
according to Valbruna. However, Valbruna asserts that, because it did not
incur indirect selling expenses in the United States on its EP sales,
there are no U.S. expenses to use as a commission offset. Therefore,
Valbruna concludes that it was inappropriate for the Department to
calculate a commission offset on its EP sales by taking the lesser of U.S.
indirect selling expenses incurred in Italy or the difference between the
commissions in each market, inasmuch as neither the statute nor the
regulations contemplate using expenses incurred in the same market in
which the commission is paid.
In summary, Valbruna argues that the application of a commission offset
was unnecessary because the Department already deducts indirect selling
expenses in the United States - analogous to the commissions being
deducted from Italian sales - and unwarranted because neither the statute
nor the regulations provides for an offset comprised of expenses incurred
in the same market in which the commissions are paid.
Petitioners' Argument: The petitioners assert that, for EP sales, the
Department correctly used selling expenses incurred in Italy for U.S.
sales to offset commissions paid on Italian sales. The petitioners contend
that the Department's commission offset methodology is consistent with its
stated practice. See Certain Pasta from Italy. The petitioners further
argue that Valbruna's proposed methodology, in which the adjustment would
be limited to the expenses already deducted from CEP under section 772(d)
of the Act, would result in a one-sided application of the commission
offset provision because the commission offset would only be used when
there were commissions for U.S. sales, but no commissions for home market
sales. Also, the petitioners contend that Valbruna's argument that the
Department's methodology provides for an offset that is comprised of
expenses incurred in the same market as the market in which the
commissions are paid is misplaced because these expenses were associated
with U.S. sales and were incurred on behalf of U.S. sales, even though
there were actually incurred in Italy.
Department's Position: We agree with the petitioners. The Department's
position on commission offsets was explained in Certain Pasta from Italy.
First, we stated that the commission offset is capped by the amount of
indirect expenses attributable to a respondent's CEP sales, but incurred
in the foreign market. This is done because the amount of a respondent's
indirect selling expenses attributable to U.S. sales and associated with
economic activities incurred in the United States are deducted from the
CEP starting price under section 772(d) of the Act. Consequently, in order
to avoid deducting the same indirect expenses twice, we must exclude from
the commission offset those indirect expenses associated with economic
activities in the United States, which are already deducted in the
calculation of the CEP.
Second, in accordance with section 351.410(e) of the Department's
regulations, where commissions are incurred in one market, but not in the
other, we make an allowance for indirect selling expenses in the other
market up to the amount of the commissions. In this case, because
commissions were paid in the home market and in the United States, but to
a greater degree in the home market, we made an adjustment to offset the
greater home market commission deduction. We made this circumstance-of-
sale adjustment by adding the offset to home market price rather than
subtracting it from the U.S. price. Thus, the overall adjustment to normal
value involves deducting home market commissions and then adding U.S.
indirect selling expenses up to the amount of the difference in
commissions paid in the two markets. As noted above, in CEP situations,
the amount of U.S. indirect selling expenses available for purposes of the
commission offset is limited by the extent to which such indirect selling
expenses were incurred in the home market for U.S. sales. This is done in
order to avoid double-counting the same indirect selling expenses while
making this adjustment in accordance with our statutory and regulatory
mandate.
For EP sales, however, where home market commissions are greater than
U.S. commissions, the commission offset that is added to normal value is
equal to the lesser of (1) U.S. indirect selling expenses incurred in
Italy on behalf of U.S. sales and (2) the difference between commissions
paid in both markets. We only use those indirect selling expenses paid for
in Italy - but paid for on behalf of U.S. sales - because, under the
statutory provisions of section 772(d) of the Act, we cannot deduct from
U.S. price (or add to normal value) those indirect selling expenses
attributable to U.S. sales and associated with economic activities
incurred in the United States except in CEP situations.
Therefore, for this final determination, we are continuing to apply the
commission offset (and CEP offset) in accordance with the applicable law
and the methodological principles outlined in Certain Pasta from Italy.
Comment 3: Model Match Methodology
Respondent's Argument: Bedini argues that the Department's model match
methodology is fundamentally flawed and should be changed for the final
determination. Specifically, Bedini argues that, for cost purposes, the
Department required the respondents to report data on a size-range basis.
For sales matching purposes, however, the Department required respondents
to report data on an exact-size basis. According to Bedini, the Department
required this exact-size reporting for sales matching purposes despite the
fact that the Department rejected narrower ranges for cost purposes,
stating that "we feel that the 'size' criteria proposed by the Department
in these investigations adequately defines the {stainless steel bar
("SSB")}. . ." See February 20, 2001 memorandum to Louis Apple "Selection
of Model Matching Criteria for Purposes of Issuing the Antidumping Duty
Questionnaire" ("Model Match Memorandum"). Thus, according to Bedini, the
Department has taken the position that small size variances within the
specified ranges for a given SSB product are not meaningful differences
and do not affect prices, and that such products within the size ranges
are "comparable products."
Furthermore, according to Bedini, the antidumping duty law precludes the
Department from using a different definition of the "foreign like product"
for product matching purposes than it uses for costs. Bedini cites to SKF
USA Inc. v. United States, 263 F.3d 1369, 1382 (Fed. Cir. 2001) ("SKF"),
in which the court stated that "Commerce cannot give the term
'foreign like product' a different definition (at least in the same
proceeding)." Bedini argues that the Department has improperly used
different definitions here.
Bedini argues that this inconsistency undermines the accuracy of the
dumping calculations and contravenes the Department's obligation to
compare the weighted-average prices of "comparable merchandise" in the
U.S. and home markets as required by 19 CFR 351.414(d)(2). According to
Bedini, the Department identified the "comparable merchandise" when it
defined its size ranges for cost reporting purposes, and determined that
it would treat SSB products within these size ranges as identical or
virtually identical. Thus, Bedini argues that, once the "comparable
merchandise" is identified, pursuant to 19 CFR 351.414(d), the Department
should have compared the average prices within one size range sold in the
United States to those in the same size range in the home market.
According to Bedini, by failing to make fair comparisons between
comparable merchandise in the home and U.S. markets, the pricing
comparisons in the Preliminary Determination were artificially restricted
and skewed. The only way to correct this problem, according to Bedini, is
to make sales comparisons using size ranges instead of comparing exact
sizes as the Department did in the Preliminary Determination.
Petitioners' Argument: The petitioners disagree with Bedini, stating that
the model match used by the Department in the Preliminary Determination
properly defines the product as it is priced in the market and as it is
manufactured. First, the petitioners argue that Bedini's reliance on SKF
is misplaced because SKF does not actually offer any guidance by the court
as to how the Department should interpret and apply the definition of a
foreign like product. Instead, the petitioners contend that the court in
SKF was very careful to state that the issue it was facing in that case
was very narrow and was limited only to a discussion relating to the
normal value calculation. The petitioners argue that SKF does not actually
address the argument raised by Bedini in this instance, and, thus, should
be given little weight in this argument.
The petitioners also argue that the Department's definition of the
control number for both sales and cost appropriately reflect the unique
nature of the sales and production of SSB. Specifically, the petitioners
argue that costs vary by ranges of size and not a specific size because
the factory will not retool its operations unless it is planning on
changing from one size range to another. Thus, according to the
petitioners, the cost should reflect the same pattern. However, for sales,
according to the petitioners, the selling price should reflect the actual
size ordered. Thus, the model match should also reflect this market
condition according to the petitioners.
Moreover, the petitioners state that Bedini should have raised this issue
long before the submission of its case brief. The petitioners state that
it is too late in the proceeding to solicit comments for the records of
each of the various countries being investigated in relation to this
product. The petitioners also contend that it is unclear that Bedini's
solution of using size ranges for price comparisons would be any more
appropriate than going to a size-specific cost of production ("COP").
Therefore, the petitioners state that the current model match being used
by the Department is appropriate and should not be changed for the final
determination.
Department's Position: We have not revised our methodology for
calculating average prices as proposed by Bedini. As to the
appropriateness of the Department's model matching criteria, we note that
the Department provided all parties to this investigation and the
companion investigations of stainless steel bar, an opportunity to comment
on the Department's proposed model matching criteria and hierarchy. See
e.g., Letter from John Brinkmann to counsel for Rodacciai, dated January
26, 2001. It is significant to note that, while several parties disagreed
with the Department's proposal to use exact size for sales reporting and
three size ranges for cost reporting purposes, none of the parties
suggested that size was an inappropriate matching criterion, nor did they
suggest that size should rise in importance in the Department's hierarchy.
The Department considered the comments of the petitioners and other
parties to these investigations and issued a decision memorandum defining
the product characteristics and hierarchy to be followed by respondents in
responding to the Department's antidumping duty questionnaire. The
selected model match criteria, in order hierarchical order were: 1)
general type of finish; 2) grade; 3) remelting; 4) type of final finish;
5) shape; and 6) size. The Department also requested that for purposes of
reporting costs, respondents should follow the three size ranges proposed
by the Department, with the significant caveat that if the company's
normal books and records differentiate the production costs associated
with size using slightly different ranges, and the company believed it was
more appropriate to report cost using company specific ranges, then they
should contact the Department. See Model Match Memorandum. See also
Appendix V of the Antidumping Duty Questionnaires issued to respondents in
these investigations. Thus, from the outset of this investigation, it was
established that exact size of the stainless steel bar would be used by
the Department as one of the characteristics to define the physical
characteristics of the subject merchandise for purposes of making less
than fair value comparisons.
We also disagree with the respondent that the Department has used
different definitions of foreign like product in the same proceeding and
that we should make the price comparisons based on the size product
groupings used for the cost of production analysis. Section 771(16)(A) of
the Act defines "foreign like product" as merchandise that is "identical
in physical characteristics." The Department reviewed comments by parties
to this investigation prior to defining six physical characteristics of
stainless steel bar that it considered appropriate for model matching
criteria. Section 777A(d)(1)A)(i) of the Act specifies that the Department
compare "the weighted average of the normal values to the weighted average
of the CEPs for comparable merchandise." In the Preliminary Determination,
the Department's price averaging groups were defined by the six physical
characteristics reported by the respondent, although some modifications
may have been made by the Department on a case-by-case basis. It is
significant to note that CEP and NV prices were defined by the exact same
physical characteristics reported by the respondent, meaning that the same
definition of foreign like product was used for both price averaging
groups.
With respect to the respondent's argument that different definitions were
used to define the "size" physical characteristic for price averaging and
cost reporting, we note that the preamble to the Department's regulations
(61 FR 7339) states that "the Department's practice is to calculate costs
consistent with the model matching criteria it develops at the outset of
an investigation or review, after having received the views of the
interested parties. The product categories developed in such fashion
generally account for significant differences in actual costs affecting
price. The Department intends to continue this practice because it
prevents any manipulation of the cost analysis through changes in internal
product classifications." Thus, while we take the model match (product
definition) criteria into account in determining the appropriate
methodology for reporting cost, this does not mean that in every case we
can or must calculate a unique cost for every unique product (CONNUM)
identified by our product definition criteria. Nor does it mean that if we
accept or adopt a cost methodology that yields the same cost for two
products, we must consider those two products to be a single product
(CONNUM), or a single foreign like product for model matching purposes.
Finally, we disagree with the specific argument that the Department's use
of size ranges for cost reporting purposes results in or is based on the
use of a different definition of foreign like product. For purposes of
reporting costs, the Department instructed the respondent to follow the 3
size ranges proposed by the Department, with the significant caveat that
if the company's normal books and records differentiate the production
costs associated with size using slightly different ranges, and the
company wished to report cost using company-specific ranges, then they
should contact the Department. See Memorandum to Susan Kuhbach and Louis
Apple entitled, "Selection of Model Matching Criteria for Purposes of
Issuing the Antidumping Duty Questionnaire," dated February 20, 2001. The
Department initially created the 3 size ranges for reporting costs in
recognition of its experience in stainless steel bar cases that a
respondent may not keep its cost records by specific sizes and that costs
generally do not vary within specific ranges of sizes. The Department also
recognized that companies that do record their costs by internally unique
size ranges may use cost ranges different than those proposed by the
Department, thus the caveat that such companies "should contact the
Department." In other SSB cases, certain companies did indeed contact the
Department on this issue, which led the Department to revise its size
reporting requirements for those companies with respect to cost:
     The original cost questionnaire requested that parties contact
     the Department if they planned to depart from the designated
     size ranges. Therefore, for clarification and consistency between
     companies we request the following. Your reported per-unit cost
     of production ("COPs") and constructed value must account for cost
     differences between shapes (e.g., rounds, flats, rectangles, etc.).
     For size differences within shapes, you must follow the size
     categories from your normal books and records (i.e., inventory
     valuation or existing cost accounting records). If you do not
     differentiate costs by size in your normal books and records then
     you must use the ranges identified by the Department in the
     original questionnaire.
See e.g., Letter dated May 24, 2001, to Bedini from John Brinkmann
Thus, for cost reporting purposes, the respondent was advised to follow
the size categories maintained in its ordinary books and records. The
record in this investigation shows that the respondent complied with these
instructions by reporting its costs based the Department's size ranges.
Other respondents in the SSB investigations complied with these
instructions by reporting their costs based on exact sizes, company-
specific size ranges or the Department's size ranges. Unless adjustments
to a particular respondent's cost size ranges were warranted based on the
results of verification or other information on the record, it is
reasonable to conclude that the respondents (including Bedini) have
reported their costs for specific sizes on as specific a basis as possible
for that company, whether that is exact size, company size range, or the
Department's alternative size range. Thus, where a respondent reported
costs by size range, the cost for any specific size range corresponds to
the exact cost for any specific size within that range, and we have not
applied different definitions of foreign like product in defining price
averaging groups and in calculating cost.
2. Company-Specific Issues
Comment 4: Differences in Bedini LOT and Bedini CEP Offset
Respondent's Argument: Bedini argues that the Department erred in its
Preliminary Determination when it found that Bedini's direct home market
sales and its CEP sales to the United States were made at the same level
of trade. Bedini contends that is has provided extensive documentation
showing that Bedini's direct ex-works sales to end-users in the home
market occur at a more advanced level of distribution, involving
significantly different and more intense selling functions than Bedini's
CEP sales to Ugine Stainless and Alloys ("US&A"), Bedini's affiliated U.S.
selling agent. The primary selling functions undertaken by Bedini for home
market sales are not undertaken by Bedini for its CEP sales to US&A, and
are equivalent to those undertaken by US&A for the U.S. market. Moreover,
citing to several past cases, (3) Bedini argues that the Department has
found that home market sales and CEP sales to a superdistributor, such as
US&A, to constitute different levels of trade.
Thus, for the final determination, to achieve a fair comparison between
CEP and normal value as required by the Act, the Department should adjust
normal value to account for sales at distinct levels of trade. As there
are no home market sales at the same level of trade as Bedini's CEP sales
to US&A and, thus, a LOT adjustment is not possible, Bedini argues that
the Department should allow a CEP offset of home market selling expenses
to account for the extra layer of selling activities in the home market.
Petitioners' Argument: The petitioners disagree with Bedini and argue
that the Department should continue to find that Bedini's home market
sales are made at the same level of trade as Bedini's U.S. sales. The
petitioners contend that record evidence shows that Bedini's home market
sales are not made at a more advanced level of trade than Bedini's U.S.
sales. Specifically, the petitioners note that both Bedini and US&A
provide the same level of selling functions with regard to invoicing,
arranging transportation, and providing mill certificates. Moreover, the
petitioners argue that record evidence shows that participation in
receiving orders and visiting customers, as well as with respect to
warranty claims, was the same. Therefore, the petitioners request that the
Department continue to find that home market and U.S. sales are made at
the same level of trade.
Department's Position: For the final determination, as in the Preliminary
Determination, we have identified two distinct levels of trade in the home
market. However, in a change from the Preliminary Determination, we agree
with Bedini that the level of trade of its U.S. sales differs from both
home market levels of trade. Upon further review of the record in this
proceeding, we agree with Bedini regarding the extent of its selling
activities for its direct sales to end users in the home market. Thus,
because Bedini does not undertake those same activities with respect to
its U.S. sales, we now find that direct home market sales to end users are
not at the same level of trade as Bedini's U.S. sales. Consequently, we
are unable to match to sales in the home market at the same level of
trade.
Since neither of the home market levels of trade are similar to the CEP
level of trade, we are unable to establish a pattern of consistent price
differences between different levels of trade in the home market that
would allow us to make a level of trade adjustment, nor do we have any
other information that provides an appropriate basis for determining a
level of trade adjustment. Accordingly, we have not made a level of trade
adjustment. See section 773(a)(7)(A) of the Act.
Instead, in accordance with section 773 (a)(7)(B) of the Act, we made a
CEP offset. Since we determined that the starting price sales for Bedini's
CEP were similar to Bedini's home market sales by an affiliated reseller,
we compared these sales, where possible, and made the CEP offset. See
Memorandum from Team to John Brinkmann, "Final Determination Calculation
Memorandum for Trafilerie Bedini, Srl and Ugine Stainless & Alloys, Inc.,"
dated January 15, 2002 ("Bedini Final Determination Calculation
Memorandum").
Comment 5: Bedini HM Commission Expenses
Respondent's Argument: Bedini contends that the Department erred in the
Preliminary Determination by not adjusting normal value to account for
Bedini's home market commissions. According to Bedini, commissions are
direct selling expenses and normal value must be adjusted to account for
them. Bedini argues that these expenses are not indirect selling expenses
as stated by the Department in the Preliminary Determination and were not
included in the indirect selling expense calculation. Bedini states that a
commission was paid to its home market commission agent, USRL/U-SIT, for
each sale in which the commission agent was used. In reporting these
commission expenses, Bedini states that it reported USRL/U-SIT's actual
expenses instead of the commission paid because USRL/U-SIT is affiliated
with Bedini. As Bedini does not pay a commission unless a sales is made by
an agent, Bedini argues that these expenses bear a direct relationship to
the particular sale in question pursuant to 19 CFR 351.410(c).
Furthermore, Bedini argues that it has not asserted that it paid an arm's-
length commission to this agent, and that Bedini is not seeking to deduct
the amount of the commissions from normal value. Rather, Bedini states
that it reported, as instructed by the questionnaire, the actual selling
expenses of USRL/U-SIT for its commission expenses and, according to
Bedini, this is the amount that the Department should deduct from normal
value.
Finally, with respect to the commission offset, Bedini argues that as the
Department has already deducted the corresponding commission expenses in
the U.S. market, no offset is needed.
Petitioners' Argument: The petitioners argue that the Department should
not deduct commission expenses from normal value because Bedini's
commissions to USRL/U-SIT are not at arm's-length. The petitioners point
out that, in its submissions, Bedini clearly admits that its commissions
paid to its affiliated agents "cannot be demonstrated to have been
negotiated at arm's-length." According to the petitioners, the Department
has stated in its past practice that, in situations where the Department
cannot test the arm's-length nature of an affiliated party commission, the
Department will deny the adjustment. (4)
Department's Position: We agree with Bedini that the expenses incurred by
USRL/U-SIT should be accounted for in the final determination margin
calculations, but disagree with Bedini that they should be treated as
direct selling expenses. As both the petitioners and Bedini point out,
Bedini has admitted in its responses that it cannot demonstrate, and is
not claiming, that its commission agreements with USRL/U-SIT were
negotiated in an arm's-length manner. It is the Department's practice to
deny an adjustment for commissions if the commissions are not made at
arm's-length. See, e.g., Final Determination of Sales at Less Than Fair
Value: Coated Groundwood Paper from Finland, 56 FR 56359 (November 4,
1991). Instead, as these expenses were actual expenses that were incurred
by Bedini, in order to account for them in the margin calculations, we are
continuing to treat home market commission expenses as indirect selling
expenses as we did in the Preliminary Determination. With respect to a
commission offset, that issue has been addressed above in Comment 2 and
will not be addressed again here.
Comment 6: Clerical Errors in the Calculation of Bedini U.S. Credit
Expenses
Respondent's Argument: Bedini contends that, in the Preliminary
Determination, the Department erroneously converted the reported U.S.
credit expenses from a per-pound basis to a per-
kilogram basis. Bedini requests that the Department revise its
calculations with respect to this matter for the final determination.
Petitioners' Argument: The petitioners agree with Bedini that the
Department erred, but disagree with Bedini's proposed programming
solution.
Department's Position: We agree with both Bedini and the petitioners and
have corrected this error for our final determination. See Bedini Final
Determination Calculation Memorandum.
Comment 7: Weight-Averaging of U.S. Prices
Respondent's Argument: Bedini argues that, in the Preliminary
Determination, the Department inappropriately calculated separate weighted-
average net U.S. prices for CEP sales of identical products based on
whether they were or were not further manufactured. Bedini contends that,
for
the final determination, the Department should calculate a single
weighted-average net U.S. price for each U.S. CONNUM regardless of whether
it was further manufactured.
Petitioners' Argument: The petitioners disagree with Bedini, stating that
it is the Department's standard practice to calculate two different
weighted-averages in order to recognize that CEP sales are different than
CEP sales that undergo further manufacturing. The petitioners argue that
Bedini has not provided any compelling reason as to why the Department
should deviate from its standard practice. Therefore, the petitioners
argue that the Department should continue to calculate two weighted-
average U.S. prices for the final determination.
Department's Position: We agree with Bedini and are changing Bedini's
calculations with respect to this issue for the final results. While we
agree with the petitioners that the Department's standard calculation
program, by default, calculates separate average U.S. prices which
distinguish between CEP sales that are and are not further manufactured,
we note that the Department requires respondents to report their sales
with a control number that is based on the product that is imported, not
as sold. Thus, when we compare foreign market sales to U.S. sales made on
a CEP basis, section 772(d) of the Act directs us to make additional
deductions to the CEP starting price, including the deduction of further
manufacturing costs, to ensure that a comparison is made on the same
basis. In other words, the additional deductions made to the CEP starting
price result in a net price that is on an as-imported basis, which is the
same basis as the home market or third-country sales. Therefore, for the
final determination, we are altering our methodology such that whether
sales are further manufactured will not be considered when calculating
average net U.S. prices.
Comment 8: Collapsing the Sales Prices and Production Costs of Bedini and
U-SI
Petitioners' Argument: The petitioners contend that, for the final
determination, Bedini and Ugine Savoie-Imphy ("U-SI"), Bedini's parent
company and a respondent in the companion French proceeding, should be
collapsed into a single entity pursuant to 19 CFR 351.401(f).
Specifically, the petitioners argue that, according to 19 CFR 351.401(f),
the Department can treat two or more producers of the subject merchandise
as a single entity, or "collapse" two affiliated producers into a single
entity if 1) the affiliated producers have production facilities for
similar or identical products that would not require substantial retooling
of either facility in order to restructure manufacturing priorities and 2)
there is a significant potential for the manipulation of price or
production. According to the petitioners, because both of these criteria
are satisfied in this instance, Bedini and U-SI should be collapsed into a
single entity and their sales prices and costs of production should be
combined.
With respect to the first criterion, the petitioners argue that the
questionnaire responses submitted by both Bedini and U-SI make it clear
that both are significant producers of SSB, and, thus, neither would have
to substantially retool its manufacturing facilities to produce SSB. As
for the second criterion, according to the petitioners, the facts on the
records of both proceedings clearly show that there is a significant
potential for the manipulation of price or production. First, because U-SI
holds a 99 percent stake in Bedini, the petitioners argue that this degree
of control provides U-SI with a "significant potential" to alter its own
or Bedini's production operations to manipulate prices or production.
Second, the petitioners state that the responses provided by Bedini and U-
SI show that there is significant overlap in the manufacture of each
company's products. For instance, the petitioners note that the majority
of SSB and stainless steel wire rod ("SSWR") used by Bedini in the
production of the subject merchandise is obtained from U-SI. Additionally,
U-SI also uses Bedini to finish the manufacturing of its own subject
merchandise. Both companies sell subject merchandise either supplied in
raw-material form by, purchased from, or finished by one or the other.
Moreover, all U.S. sales for both companies are made by their U.S. sales
affiliate, US&A. According to the petitioners, this all shows that there
is an additional chance that the exact origin of the merchandise could be
manipulated. Third, according to the petitioners, difficulties associated
with identifying the specific manufacturer of any given quantity of SSB
facilitates the manipulation of prices or production by either company.
The petitioners further argue that both Bedini and U-SI have shown by
their actions throughout the course of the ongoing investigations the type
of manipulation that is possible if Bedini and U-SI are not collapsed.
Specifically, the petitioners point to the fact that Bedini and U-SI used
different calculation methodologies to calculate the same US&A expenses in
the two separate investigations. The petitioners also contend that the two
companies should be collapsed because, in the Preliminary Determination,
the Department determined in the French case that sales of SSWR that was
tolled by Bedini into SSB for U-SI should not be considered to be of
French origin but of Italian origin, while at the same time in the Italian
case determined that this should not be considered a Bedini product.
According to the petitioners, by implication, this means that the product
should be considered to be U-SI material of Italian origin. The
petitioners state that such problems can be avoided, and the potential for
distortion can be eliminated, by collapsing the two entities. Otherwise,
the petitioners state that Bedini and U-SI can manipulate their own sales
databases by claiming that, in some instances, SSWR is tolled by Bedini
while in others it was sold to Bedini. The petitioners further note that,
if the Department does not collapse the two entities, these sales should
at least be inserted into the French database because U-SI is the
principal producer, maintains title to the merchandise, and the finishing
operations done by Bedini were not significant. This will ensure that
these sales will not escape the scrutiny of the Department.
The petitioners finally argue that the fact that Bedini and U-SI are
located in different countries is irrelevant. According to the
petitioners, although the Department has not previously dealt with the
situation of collapsing companies across borders, 19 CFR 351.401(f)
specifically states that a determination of whether to collapse companies
"should not be based upon whether fact patterns calling for collapsing are
commonly or rarely encountered." The petitioners argue that nothing in
this regulations states that collapsing should not be done across borders,
and that the Department should make its determination solely based on the
conditions set forth in 19 CFR 351.401(f).
In order for the Department to collapse these entities, the petitioners
state that the Department should immediately require both companies to
submit their sale and cost databases on the records of the respective
French and Italian investigations. If either Bedini or U-SI refuses to do
so, the petitioners note that the Department will, of course, be required
to rely on facts available in order to calculate a single dumping margin
to apply to both Bedini and U-SI.
Respondent's Argument: Bedini argues that the petitioners' suggestion
that the Department collapse two proceedings across country lines is in
express disregard of the plain language of the antidumping law itself.
According to Bedini, the antidumping duty law operates in relation to
merchandise from one country, not from multiple countries. Bedini notes
that the law requires petitions that are filed to name the country that is
being filed against, that the definition of a foreign like product is done
within the context of merchandise that was produced in the same single
country as the subject merchandise, and that normal value is based on the
price at which the foreign like product is sold in the single exporting
country. Furthermore, Bedini points out that the antidumping duty law
specifically precludes the inclusion of two or more countries in a single
proceeding at section 771(3) of the Act when it defines a "country" as a
"foreign
country. . . (that), except for the purpose of antidumping proceedings,
may include an association of 2 or more foreign countries" (emphasis
added). Bedini contends that the petitioners woefully misinterpret 19 CFR
351.401(f) within the context of the antidumping law, and that the law
itself defeats the petitioners' argument outright. Thus, Bedini argues
that U-SI and Bedini may not properly be collapsed under the antidumping
duty law and treated as a single entity.
Department's Position: In an antidumping duty investigation, the
Department is charged with determining whether "a class of kind of foreign
merchandise is being, or likely to be, sold in the United States at less
than its fair value . . . ." Section 731 of the Tariff Act of 1930. To
offset dumping, an antidumping duty is imposed equal to "the amount by
which normal value exceeds export price (or constructed export price) of
the merchandise." Id.
The Department, therefore, must make a comparison between EP or CEP and
normal value. Section 773(a). Normal value is defined as "the price at
which the foreign like product is first sold (or, in the absence of a
sale, offered for sale) for consumption in the exporting country . . . ."
Section 773(a)(1)(B)(i) (emphasis added). Or, normal value may be based on
the price of the "foreign like product" in a third country. Section
773(a)(1)(B)(ii). In certain instances, normal value may be based on
constructed value. Section 773(a)(4). In determining constructed value,
the statute instructs the Department to use the selling, general and
administrative expenses incurred in connection with "the production and
sale of a foreign like product . . . ." Section 773(e)(2)(A) (emphasis
added). Thus, the inescapable conclusion is that the Department must look
to the foreign like product when calculating normal value.
Section 771(16) gives a number of alternative definitions of "foreign
like product." In all of the alternative definitions, the foreign like
product must be produced in the "same country" as the subject merchandise.
"The term 'country' means a foreign country, a political subdivision,
dependent territory, or possession of a foreign country, and, except for
the purpose of antidumping proceedings, may include an association of 2 or
more foreign countries, political subdivisions, dependent territories, or
possessions of countries into a customs union outside the United States."
Section 771(3). Therefore, in an antidumping investigation, normal value
can only be calculated by looking to the subject merchandise in one
country.
The Department's regulations set forth the rules for collapsing. The
regulations begin by stating, "In an antidumping proceeding under this
part, the Secretary will treat two or more affiliated producers as a
single entity where those producers have production facilities for similar
or identical products that would not require substantial retooling of
either facility in order to restructure manufacturing priorities and the
Secretary concludes that there is a significant potential for the
manipulation of price and production." 19 CFR  351.401(f) (emphasis
added). Thus, the regulations make clear that collapsing can only occur
within "an antidumping proceeding." Because an antidumping proceeding only
involves the subject merchandise of one country, this means that the
Department cannot collapse producers across country lines under 19 CFR
351.401(f).
The petitioners here have argued that the Department could calculate one
margin for U-SI in France, and one margin for Bedini in Italy, and then
calculate a weighted average of those margins to come up with one
antidumping margin to apply to both U-SI and Bedini. The petitioners,
however, have no statutory authority upon which to base this request.
Indeed, if the Department were to do so, the Department would be violating
its statutory mandate. In calculating such a weighted average of the
margins, the Department would be injecting into the calculation of normal
value the price of merchandise produced in a second country.
While the Department has used the information from two companies to
calculate a single weighted-average margin for those companies when it
determined collapsing was appropriate, the Department has done so only
within the confines of a single proceeding, which involved a single
country. See, e.g., Gray Portland Cement and Clinker From Mexico; Final
Results of Antidumping Duty Administrative Review, 66 FR 14889, 14889
(March 14, 2001).
The petitioners have expressed a concern that since U-SI and Bedini are
affiliated, applying two separate antidumping margins allows the companies
to manipulate their production processes, avail themselves of the lower
margin, and thereby circumvent one of the antidumping orders. This
concern, however, need not be addressed by collapsing across country
lines. Rather, section 781 of the statute and section 351.225 of the
regulations establish a procedure through which the
petitioners could pursue a circumvention allegation.
Comment 9: Application of Adverse Facts Available for Bedini Due to Home
Market Reporting Flaws
Petitioners' Argument: The petitioners argue that, with respect to
Bedini's home market database, Bedini 1) failed to report all downstream
home market sales and 2) excluded other home market sales due to an
undisclosed computer programming error. Based on these serious errors
relating to Bedini's home market database, the petitioners contend that
the Department should find that Bedini's responses are not satisfactory
and that the requested information was not provided within the specified
time limits.
With respect to the reporting of downstream home market sales, the
petitioners contend that the Department improperly exempted Bedini from
its reporting obligation with respect to the reporting of downstream sales
made by one Bedini affiliate, and that Bedini should, in fact, be required
to report this affiliate's downstream sales. The petitioners contend that,
according to the Department's regulations at 19 CFR 351.403(d), "normal
value will not usually be calculated based on a sale by an affiliated
party if sales of the foreign like product by an exporter or producer to
affiliated parties account for less than five percent of the total value
(or quantity) of the exporter's or producer's sales of the foreign like
product in the market in question. . ." In exempting Bedini's reporting of
this single affiliates downstream sales, the petitioners argue that the
Department improperly did so based on the fact that this single
affiliate's downstream sales alone were less than five percent. The
petitioners contend that the Department should have done its analysis
based on all downstream sales of all affiliates, which, according to the
petitioners, would have been greater than five percent. Therefore, the
petitioners contend the Department should require Bedini to report these
previously unreported downstream sales. Otherwise, the petitioners argue
that the Department should apply the petition rate to all sales in the
United States of the merchandise that are identical to that which was sold
to this affiliate.
As for other excluded home market sales, the petitioners state that, in
its November 14, 2001 submission, Bedini reported that it had
inadvertently excluded certain sales from its home market sales listing
due to a computer error, and submitted a list of these sales as part of
its submission. Bedini further noted that most of those sales consisted of
SSB produced by unaffiliated manufacturers. The petitioners contend that
Bedini did not explain what the specific computer error was that caused
these sales to be excluded in the first place, and did not identify who
the unaffiliated manufacturers of the merchandise were. Thus, the
petitioners state that it is impossible for the Department to verify that
no other errors were made, or that the previously-omitted sales were
actually produced by a manufacturer other than Bedini as Bedini has
claimed.
Moreover, the petitioners contend that the information supplied by Bedini
in its November 14 submission relating to these home market sales was
incomplete due to missing variables, and that complete information was not
provided until November 29, 2001, when Bedini submitted its revised
databases, two weeks after they were due and more than two months after
the close of the record. The petitioners contend that, even when the new
databases were submitted, the data was still incomplete because the data
supplied by Bedini in its November 14 submission differed
from the data submitted on November 29, 2001, and because some of the
data was still missing even when the new databases were submitted.
Therefore, because Bedini failed to submit a complete and accurate
database, according to the petitioners, Bedini withheld information
requested by the Department. Moreover, the petitioners state that Bedini
failed to provide requested information in a timely manner and in the form
requested. The petitioners also state that Bedini significantly impeded
the Department's investigation by not submitting information during the
time when the record was open for information and because Bedini failed to
submit an explanation with respect to the nature of its computer error.
Finally, the petitioners state the Bedini provided information that could
not be verified. The petitioners also contend that Bedini failed to act to
the best of its ability by not submitting a complete home market sales
database in a timely manner. Because of this, the petitioners argue that
the Department should apply the highest margin to all U.S. sales with the
same grade, remelting code, and finish as the home market sales that were
not previously reported by Bedini.
Respondent's Argument: Bedini disagrees with the petitioners, stating
that the petitioners have absolutely no basis to contend that Bedini met
any of the conditions required for the application of facts available.
Moreover, Bedini contends that it has fully cooperated with every aspect
of the investigation and acted to the best of its ability to comply with
the Department's numerous requests.
First, with respect to Bedini's excluded downstream sales, Bedini notes
that it excluded those sales based on the Department's determination to
allow Bedini to not report these sales. Thus, Bedini did exactly what the
Department told it to do. Moreover, Bedini argues that there is no reason
for the Department to change its decision on this matter. Bedini states
that the decision to exclude these sales was, according to Bedini,
consistent with the Department's regulations and practice. Moreover, even
if the Department were to require Bedini to report these sales, according
to Bedini, their inclusion would have no impact on the Department's
analysis because the quantity is so minuscule and there are no sales in
the United States of the same CONNUMs sold by this affiliate in Italy.
Thus, Bedini argues that the Department should reject the petitioners'
argument.
Secondly, with respect to the petitioners' argument relating to other
excluded home market sales,
Bedini states that the petitioners' assertions with respect to Bedini's
"uncooperative behavior" are unfounded. Bedini asserts that, along with
the Department's verifications, its own verification preparations were
interrupted by the September 11 events. However, when asked by the
Department for additional information related to Bedini's cancelled
verification in Italy, Bedini states that it fully cooperated and properly
submitted on November 14, 2001, certain additional information requested
by the Department in a complete and timely manner pursuant to the
Department's request. Bedini further stated that it provided the
Department with revised databases on November 29, 2001, in a timely manner
pursuant to a subsequent request from the Department. Bedini argues that
the information it submitted in its November 14 submission was complete,
and all the required information relating to the previously-unreported
sales was either placed on the record at that time or was already on the
record previously. Bedini contends that there was no inconsistency between
the data in the November 14 submission and that in the November 29
submissions.
Bedini also argues that the information it submitted in its minor
corrections with respect to previously unreported sales would have no
impact on the Department's investigation. According to Bedini, most of
these sales involved SSB manufactured by producers other than Bedini, the
types of sales which were properly excluded by the Department in its
calculations in the Preliminary Determination. Thus, these sales would
have little or no impact on the final determination. Also, Bedini contends
that it did, indeed, report all necessary cost data along with this minor
correction.
Department's Position: Section 776(a)(2) of the Act provides that "if an
interested party or any other person (A) withholds information that has
been requested by the (Department) under this title, (B) fails to provide
such information by the deadlines for submission of the information or in
the form and manner requested, subject to subsections (c)(1) and (e) of
section 782, (C) significantly impedes a proceeding under this title, or
(D) provides such information but the information cannot be verified as
provided in section 782(i), the (Department) shall, subject to section
782(d), use the facts otherwise available in reaching the applicable
determination under this title." Pursuant to section 782(e) of the Act,
the Department "shall not decline to consider information that is
submitted by an interested party and that is necessary to the
determination, even if that information does not meet all the applicable
requirements established by the (Department), if- (1) the information is
submitted by the deadline established for its submission, (2) the
information can be verified, (3) the information is not so incomplete that
it cannot serve as a reliable basis for reaching the applicable
determination, (4) the interested party has demonstrated that it acted to
the best of its ability in providing the information and meeting the
requirements established by the Department with respect to the
information, and (5) the information can be used without undue
difficulties." Section 776(b) of the Act further provides that adverse
inferences may be used when an interested party has failed to cooperate by
not acting to the best of its ability to comply with a request for
information.
With respect to the petitioners' first argument relating to the reporting
of home market downstream sales, we agree with the petitioners that the
Department's regulations at 19 CFR 351.403(d) state that "normal value
will not usually be calculated based on a sale by an affiliated party if
sales of the foreign like product by an exporter or producer to affiliated
parties account for less than five percent of the total value (or
quantity) of the exporter's or producer's sales of the foreign like
product in the market in question. . ." We also agree with the petitioners
that the determination as to whether a respondent should be required to
report downstream sales should be based on sales made by all affiliated
parties and not just the sales of a single affiliated party. However,
although we agree with the petitioners on this matter, the facts of this
case are that the Department instructed Bedini with respect to its
reporting requirements relating to the downstream sales in question here,
however erroneously, and Bedini reported its home market sales according
to the Department's instructions. Thus, because Bedini acted according to
the Department's instructions, it cannot be said that Bedini was in any
way uncooperative on this matter or did not report information requested
by the Department. Moreover, as pointed out by Bedini, these sales were
extremely small in number and would likely not be significant enough to
have any impact on the calculation for the margin for Bedini for the final
determination.
Therefore, there is no reason for the Department to apply facts available
with respect to the reporting of these home market sales.
As for the petitioners' second argument relating to the reporting of
other excluded home market sales, Bedini has reported that these home
market sales were discovered in preparation for Bedini's verification. Due
to extenuating circumstances, the Department was not able to carry out
this verification. However, among other information, the Department
specifically asked Bedini to submit any minor corrections that were found
by Bedini in preparing for verification. The Department asked Bedini to
supply this information by November 14, 2001. In response to the
Department's request, Bedini submitted the information requested in a
timely manner. The Department further asked Bedini to submit revised
databases, a request with which Bedini also complied in a timely manner.
Throughout the course of this investigation, there has been no evidence
that Bedini has not been cooperating to the best of its ability. Bedini
has provided requested information in a timely manner each time such
information was requested by the Department. There is no evidence that
Bedini was not being cooperative with respect to this requested
information. Moreover, although this particular information could have
been verified, the Department itself chose not to do so. Finally, the
information submitted by Bedini is not so incomplete that it cannot serve
as a reliable basis for reaching the applicable determination and can be
used without undue difficulties.
Additionally, these sales would be excluded by the Department from its
margin calculations because the stainless steel bar in question was
supplied by a non-Bedini manufacturer, and Bedini had no such sales of non-
Bedini manufactured stainless steel bar in the United States. Further,
this information would likely not be used in the margin calculation
because it is hot-rolled stainless steel bar, while the U.S. sales
reported by Bedini were cold-rolled stainless steel bar, making it highly
unlikely that the two would even be matched. Thus, based on this
information, there is no reason for the Department to reject Bedini's home
market information and utilize facts available with respect to this home
market sales information for the final determination.
Comment 10: Bedini HM Billing Adjustments
Petitioners' Argument: The petitioners contend that Bedini incorrectly
allocated its home market billing adjustments. The petitioners contend
that, based on sample information submitted in Bedini's home market
verification submission, Bedini allocated its home market billing
adjustments from a specific invoice across all sales on that particular
invoice despite the fact that the particular invoice at issue showed that
the billing adjustment was applicable to only one product. The petitioners
state that this methodology is incorrect and cannot be corrected at this
late point in the investigation. Therefore, the petitioners contend that
the Department should deny all of Bedini's billing adjustments, or, at the
very least, correct the billing adjustment from the sample invoice to
allocate the billing adjustment to just the applicable sale.
Respondent's Argument: Bedini disagrees, stating that its methodology was
reasonable because its computer system does not link credit notes to a
specific item on an invoice, only to an invoice itself. Moreover, Bedini
states that its methodology was done on a more specific basis than the
customer-specific basis that was suggested by the Department. Thus,
because this was the most specific basis possible, and because it was a
reasonable methodology given the time constraints of the case and the
difficulty with which Bedini would have been faced had it had to report on
a line-item specific basis, Bedini argues that the Department should
utilize the billing adjustments as reported for the final determination.
Department's Position: Bedini used a reasonable methodology to report its
home market billing adjustments, a methodology which was revised by Bedini
after extensive questioning and input by the Department in its
supplemental questionnaires. Thus, because the methodology used by Bedini
in its home market billing adjustment calculations reasonable, we are not
revising Bedini's reporting for this field for the final determination.
Comment 11: Partial Adverse Facts Available for Unreported Bedini U.S.
Sales
Petitioners' Argument: The petitioners contend that, based on information
submitted in Bedini's U.S. sales verification exhibits, one U.S. sale with
a Bedini subject merchandise product code was improperly excluded from
Bedini's reported U.S. sales database. According to the petitioners, this
is evidence that Bedini did not report all of its U.S. sales. The
petitioners contend that this is a serious deficiency that the Department
should not overlook. Thus, as facts available, the petitioners contend
that the Department should find that Bedini failed to report a certain
percentage of its U.S. sales (as this percentage from the petitioners'
case brief is proprietary, it will not be explicitly stated here) and
should apply the highest calculated margin for this percentage of Bedini's
unreported U.S. sales.
Respondent's Argument: Bedini contends that the petitioners' argument is
incorrect as the petitioners fail to consider verified facts on the
record. Specifically, Bedini points out that, at verification, the
Department found that merchandise under the product code in question
merely designates SSB, and not the country in which the SSB was
manufactured. Bedini notes that the Department thoroughly examined samples
from Bedini's product exclusion reports, and found that several products
using this product code were properly excluded because they were Bedini
SSB that was manufactured by other, non-Italian manufacturers. Bedini
contends that the petitioners' argument on this issue is groundless, and,
thus, the petitioners' argument must be rejected.
Department's Position: We disagree with the petitioners and are not
applying facts available to a percentage of Bedini's allegedly unreported
U.S. sales. At verification, the Department found that, in doing its sales
reconciliation, Bedini deducted an amount from its reconciliation for
Bedini SSB that was produced by third-country manufacturers. Thus,
although these sales had the same product codes as sales of Bedini-
manufactured SSB, they were not manufactured in Italy. Therefore, as there
is no evidence that Bedini did not report certain of its U.S. sales, there
is no need to apply facts available to Bedini for allegedly unreported
U.S. sales.
Comment 12: Revisions to the Calculation of Certain Bedini Expense Fields
Petitioners' Argument: The petitioners argue that the Department should
revise Bedini's U.S. sales calculations for early payment discounts,
warranty expenses, technical service expenses, and indirect selling
expenses to include in the calculation of these expense ratios any amounts
reported in the freight revenue field. The petitioners state that, because
this field represents an integral part of the cost of the subject
merchandise to the customer, the inclusion of this field in the
calculations of certain expenses would more accurately reflect the actual
discounts received and expenses incurred.
Respondent's Argument: Bedini disagrees, stating that revising Bedini's
expense calculations for these fields would generate expenses in excess of
the amounts that were actually incurred and verified, and would
necessitate an offsetting adjustment to the factor calculation itself.
According to Bedini, the transaction-specific amounts reported in each of
these fields are based on the application of the factors that are
calculated by dividing the amount of the applicable discount or expense by
net sales revenue. However, Bedini reports that US&A does not record
freight revenue as sales revenue. Therefore, Bedini contends that freight
revenue is properly excluded from the calculation of the expenses in these
fields.
Department's Position: We agree with Bedini. Based on our verification
findings, we noted that freight revenue, unlike billing adjustments and
other revenue, is not normally a line item on the sales invoice. In
addition, freight revenue is not generally a part of the total sales
revenue amount reflected in US&A's income statement. We recognize that, on
occasion, US&A includes an amount of freight revenue in the total invoice
amount charged to the customer, but those instances involved small
quantities of shipments and were, therefore, the exception rather than the
rule based on an examination of this issue at verification. For this
reason, we have not included freight revenue in the calculations used to
derive per-unit amounts for the field of information noted above.
Comment 13: Adverse Facts Available for All Bedini Expenses Reported on
an Average, Not A Transaction-Specific, Basis
Petitioners' Argument: The petitioners argue that Bedini incorrectly
reported certain data (inland freight warehouse to customer, U.S. duty,
home market inventory carrying cost, U.S. inventory carrying cost) on an
average rather than on a transaction-specific basis. The petitioners claim
that information on the record indicates that Bedini could have calculated
these costs on a transaction-specific basis despite Bedini's claims that
it could not link the reported U.S. sales to specific shipments from
Bedini. The petitioners state that this would not have been an undue
burden on Bedini, and that Bedini's persistent denial that it could not do
its calculations in this matter show that Bedini was trying to evade
complying with the Department's request for information. Thus, as adverse
facts available, the petitioners contend that the Department should apply
the highest reported per-unit expenses for these items to all relevant
sales.
Respondent's Argument: Bedini disagrees with the petitioners, arguing
that it has properly calculated its movement expenses and inventory
carrying costs. Bedini contends that it and US&A had a limited amount of
time in which to respond to the Department's questionnaire after being
chosen as a voluntary respondent, and it did not have the resources
necessary to carry out the same U.S. sales data calculations that it did
in the concurrent French investigation for U-SI (US&A is also the
affiliated U.S. selling agent for U-SI). Moreover, Bedini argues that
transaction-specific information was not readily available, as US&A and
Bedini record their sales data in different, non-compatible formats.
Bedini contends that it followed the Department's questionnaire
instructions with respect to the use of a reasonable allocation
methodology, and the Department reviewed this methodology and found no
discrepancies at verification. Therefore, Bedini argues that the
Department should ignore the petitioners' arguments and should not use
facts available for these expenses.
Department's Position: We disagree with the petitioners. We found that
Bedini used a reasonable methodology for calculating and reporting these
expenses. Moreover, we disagree that Bedini did not comply with the
Department's request for information. Thus, because Bedini, consistent
with 19 CFR 351.401(g), used a reasonable methodology for reporting these
expenses that was verified by the Department, and provided information
that was requested by the Department in a timely manner, we are not using
facts available with respect to Bedini's calculations for these expenses
for the final determination.
Comment 14: Methodology for Calculating Bedini's U.S. Credit Expenses
Petitioners' Argument: The petitioners claim that Bedini, in calculating
its U.S. credit expenses for its consignment sales, failed to take into
consideration the entire time from shipment to the customer. The
petitioners argue that, because it changed the reporting of its shipment
date to coincide with the withdrawal of the merchandise by the customer,
Bedini failed to account for any time that the consignment merchandise sat
in the consignment customer's warehouse. Thus, the petitioners contend
that, for the final determination, the Department should correct Bedini's
credit expenses so that they reflect the full credit period.
Respondent's Argument: Bedini disagrees, stating that the Department
fully verified Bedini's date of sale methodology with respect to
consignment sales and found no discrepancies. Bedini argues that any
expenses incurred by US&A for its consignment inventory up the 15th day of
the month prior to invoicing are reported in U.S. inventory costs. Any
costs after that point up until the date of customer payment are,
according to Bedini, properly included in U.S. credit expenses. Thus,
Bedini contends that the petitioners' argument is without merit.
Department's Position: We disagree with the petitioners and are not
revising Bedini's reported U.S. credit expenses for consignment sales. As
noted in the Department's questionnaire, it is the Department's practice
to calculate U.S. credit expense using the number of days between date of
shipment to the customer and date of payment. Bedini has properly reported
its credit expenses using this time period as part of its calculation
methodology. Moreover, as pointed out by Bedini, any costs incurred with
respect to consignment sales being held in inventory prior to shipment to
the customer would properly be reported in U.S. inventory carrying costs.
The Department found no inconsistencies with the reporting of either of
these expenses at verification. Thus, there is no need to revise the U.S.
credit expense calculation for consignment sales.
Comment 15: Adjustments to Bedini's Reported Costs to Reconcile With the
General Ledger
Petitioners' Argument: The petitioners argue that the Department should
revise Bedini's reported cost of manufacture ("COM") and general and
administrative ("G&A") expenses because they do not reconcile with
Bedini's general ledger. The petitioners argue that the Department should
increase both COM and G&A for Bedini to take this differential into
account.
Respondent's Argument: Bedini argues that the petitioners' assertions
that Bedini's reported COM and G&A expenses do not reconcile with Bedini's
general ledger are merit less. Bedini argues that, though there may be
small differences between the reported G&A and the general ledger, as
adjusted for taxes, Bedini used the higher figure in its costs to be
conservative. With respect to COM, Bedini argues that the difference
between the correct COM and the general ledger is extremely small. Thus,
the Department should use Bedini's reported G&A and COM.
Department's Position: Based on our review of record evidence, we find
that the methodology and reconciliation methods used by Bedini with
respect to these costs are reasonable and these costs do, in fact,
reconcile with Bedini's general ledger. Thus, we disagree with the
petitioners and are not revising Bedini's G&A and COM for the final
determination.
Comment 16: Correction to Bedini's Verification Report
Respondent's Argument: Bedini notes in its case brief that, in
recalculating US&A's indirect selling expenses following verification, the
Department did not use US&A's corrected reported sales value for Bedini
SSB. Thus, Bedini states that, for the final determination, the Department
should revise its calculation to take into account the corrected sales
value.
Petitioners' Argument: The petitioners disagree, arguing that the call
for a correction is both untimely and unsubstantiated. The petitioners
first argue that, according to 19 CFR 351.301(c)(1), "an interested party
may submit factual information to rebut, clarify, or correct the factual
information no later than 10 days after the date such factual information
is served on the interested party." The petitioners argue that Bedini did
not recommend this correction until long after that deadline. The
petitioners also argue that Bedini failed to cite the source of the
corrected figure it used in its revised calculation. Finally, the
petitioners argue that, if the Department makes any revisions, it should
revise the sales revenue from the reported total for all sales to the
total sales revenue for the subject merchandise (i.e. based on sales
revenue of SSB sold by Bedini and not US&A's sales revenue from Bedini
merchandise).
Department's Position: Based on the information on the record, the sales
value number utilized by the Department to recalculate Bedini's indirect
selling expense ratio was not correct. Thus, for the final determination,
the Department is revising its calculation of Bedini's indirect selling
expense ratio. We further disagree with the petitioners that any other
revisions to the net sales value for Bedini should be made, as the
Department thoroughly verified Bedini's indirect selling expense
calculation and found that the methodology used to calculate this expense
was reasonable.
Comment 17: Application of Adverse Facts Available to Cogne
Petitioners' Argument: The petitioners assert that, consistent with the
Preliminary Determination, the Department should continue to assign total
adverse facts available to Cogne given its failure to act to the best of
its ability in complying with the Department's request for information.
However, the petitioners disagree with the Department's choice in the
Preliminary Determination of using as adverse facts available the highest
price-to-price margin, even though there were higher price-to-constructed
value ("CV") margins. The petitioners further disagree with the
Department's preliminary finding that the price-to-CV margin calculations
in the petition could not be fully corroborated.
As adverse facts available for Cogne, the petitioners urge the Department
to use the higher of the highest margin contained in the petition or the
highest margin calculated for any respondent in this investigation. The
petitioners assert that the cost data contained in the petition are
corroborated by COP data available to the Department from among the four
cooperative respondents. The petitioners conclude that, given that the
price-to-CV margins can be corroborated based on data reasonably available
on the record of this investigation, the Department should use the highest
margin from the petition, in this case a price-to-CV margin, which would
prevent Cogne from benefitting from its uncooperative behavior.
Department's Position: We agree, in part, with the petitioners. As we
stated in the Preliminary Determination, it is the Department's standard
practice in an investigation to use as adverse facts available the higher
of (1) the highest margin stated in the notice of initiation, or (2) the
highest margin calculated for any respondent to this investigation. See,
e.g., Notice of Preliminary Determinations of Sales at Less Than Fair
Value: Certain Large Diameter Carbon and Alloy Seamless Standard, Line and
Pressure Pipe From Japan and Certain Small Diameter Carbon and Alloy
Seamless Standard, Line and Pressure Pipe From Japan and the Republic of
South Africa, 64 FR 69718, 69722 (December 14, 1999), followed in Notice
of Final Determinations of Sales at Less Than Fair Value: Certain Large
Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe From
Japan and Certain Small Diameter Carbon and Alloy Seamless Standard, Line
and Pressure Pipe From Japan and the Republic of South Africa, 65 FR 25907
(May 4, 2000); and Notice of Preliminary Determination of Sales at Less
Than Fair Value: Stainless Steel Wire Rod from Korea and Germany, 63 FR
10826, 10847 (March 5, 1998), followed in Notice of Final Determination of
Sales at Less Than Fair Value: Stainless Steel Wire Rod from Korea and
Germany, 63 FR 40433 (July 29, 1998).
However, we disagree with the petitioners' conclusion that the CV-to-
price margins can be corroborated based on data reasonably available on
the record of this investigation. Pursuant to section 776(c) of the Act,
when the Department relies on secondary information (such as the petition)
in using the facts otherwise available, it must, to the extent
practicable, corroborate that information from independent sources that
are reasonably at its disposal. The SAA clarifies that "corroborate" means
that the Department will satisfy itself that the secondary information
used has probative value (see SAA at 870). Therefore, as the CV-to-price
margins in the petition contained the highest margins, we first attempted
to corroborate the COP data used to calculate the CV-to-price margins in
the petition by the COP data available to the Department.
In order to corroborate this secondary information within the meaning of
section 776(c), we analyzed, to the extent practicable, the reliability
and relevance of the available information by focusing our analysis around
information from which we could draw a reasonable nexus. Accordingly, (1)
we chose the three most common grades (303, 304/L, 316L) from the five
grades used in the petition to calculate margin percentages and (2) after
reviewing each company's financial statements and product characteristics,
we selected Valbruna as our independent source of information because its
product characteristics (i.e., grade and size) match those used in the
petition to calculate the CV-to-price margins.
As explained in the Memorandum from John Brinkmann to Susan Kuhbach,
Preliminary Determination of Stainless Steel Bar from Italy: Corroboration
Memorandum ("Corroboration Memo"), dated July 26, 2001, we were unable to
corroborate the COP component of the CV margin calculation with Valbruna's
COP information, and because price-to-price margin calculations were
available, did not attempt to further corroborate the petition CV-to-price
margin calculations. As we were able to corroborate the price-to-price
data by the price information contained in Valbruna's U.S. sales database,
we preliminarily assigned to Cogne the highest margin listed in the
petition for price-to-price sales, 33.00 percent. See Corroboration Memo.
Therefore, we disagree with the petitioners that it is possible to
corroborate, within the meaning of section 776(c), the CV-to-price margins
by the data reasonably available on the record of this investigation.
Accordingly, for the final determination, we are continuing to assign
Cogne a 33.00 percent margin as the highest margin for which we could
corroborate the secondary information.
Comment 18: Use of Facts Available to Value Foroni's Packing Costs
Respondent's Position: Foroni states that the Department's use of an
adverse facts available value for packing costs with respect to shipments
from Foroni to its affiliate Foroni Metals of Texas ("FMT") in the
Preliminary Determination was unwarranted. Foroni argues that its packing
costs are fully accounted for in the company's General Technical Expenses
cost center, which was included in Foroni's reported G&A expense ratio. As
a result, Foroni contends that the Department grossly overstated Foroni's
packing costs and also double counted these costs when it applied a value
based on facts available. In support of this position, Foroni argues that
the cost verification team verified that the reported amount for packing
materials was included in the general technical consumable materials
category in the fiscal year 2000 trial balance. Therefore, Foroni submits
that the Department should rely on Foroni's original submissions in which
de minimis packing costs are included, along with the small portion of the
labor costs of the shipping department attributable to packing, as fixed
overhead costs. However, if the Department chooses to continue to allocate
an amount for packing costs, it should use the value provided by Foroni in
its August 3, 2001 submission and reduce Foroni's G&A expense ratio.
Petitioners' Position: The petitioners believe that the Department should
continue to apply facts available for Foroni's packing expenses in the
final determination. The petitioners argue that in sections B and C of the
Department's questionnaire and the Department's supplemental questions,
Foroni was asked to report its packing costs. In response to these
questions, Foroni replied that it had no packing expenses. According to
the petitioners, it was not until after the Preliminary Determination that
Foroni reported partial packing expenses, but this information was not
verified by the Department. See Foroni's August 3, 2001 submission.
Additionally, in Foroni's Case Brief, an estimated packing cost was
submitted that Foroni argues should be deducted from the G&A expense
ratio. The petitioners argue this cost was not verified and that it is not
clear whether Foroni accounts for its packing costs in the company's G&A
expense ratio or in the company's fixed overhead costs. See petitioners'
letter to the Department, dated November 28, 2001, at page 5. Therefore,
the petitioners contend there should be no adjustment for packing for home
market sales, no reduction of the G&A expense ratio or production costs,
and that the Department, pursuant to section 776(a)(2)(A) of the Act,
should continue to use facts available to determine the dumping margin in
this case.
Department's Position: We agree with Foroni. Accordingly, we are using
the packing costs submitted by Foroni on August 3, 2001, to value the
packing expense related to shipping the subject merchandise from Italy to
the United States, inasmuch as this information was submitted by Foroni in
a timely manner pursuant to section 351.301(b)(1). Additionally, as we
were able to verify that the packing material costs were included in
Foroni's COM, we reduced Foroni's reported G&A ratio appropriately. See
Memorandum from Robert Greger through Theresa Caherty to Neal M. Halper,
"Verification Report on the Cost of Production and Constructed Value Data
Submitted by Foroni S.p.A." ("Foroni COP Verification Report"), dated
October 24, 2001, at 19 and Memorandum from Team to John Brinkmann, "Final
Determination Calculation Memorandum for Foroni S.p.A. and Foroni Metals
of Texas," dated January 15, 2002 ("Foroni Calc Memo").
Comment 19: Foroni's Advertising Expenses
Petitioners' Position: The petitioners argue that Foroni did incur direct
advertising expenses related to its U.S. sales. The petitioners state that
during the Department's verification of FMT, the Department noted that FMT
officials participated in an offshore technology conference, the
participants of which included FMT's customers' customers. Therefore, the
petitioners contend that the Department correctly found these expenses
related to the conference were advertising expenses and should be included
as direct selling expenses in the Department's calculation of Foroni's
final margin.
Respondent's Position: Foroni does not agree that the Department should
view FMT's participation in the annual Houston Offshore Technology
Conference as a direct advertising expense. Foroni states that the
conference included both indirect and direct customers along with Foroni's
competitors, and that FMT attended the conference in order to build name
recognition for all of its products (stainless steel bar, stainless steel
billets, and superalloys). Therefore, Foroni argues that the associated
costs were correctly included as part of Foroni's reported indirect
selling expenses. However, Foroni states that if the Department determines
to account for the costs of participating in this conference by FMT as a
direct selling expense, the Department should appropriately reduce
Foroni's reported indirect selling expenses.
Department's Position: We agree with the petitioners and, for this final
determination, we are treating FMT's expenses pertaining to its
participation in the Offshore Technology Conference as a direct selling
expense. As noted in the Memorandum from Anthony Grasso to John Brinkmann,
"Verification of the Constructed Export Price Sales of Foroni S.p.A.'s
U.S. Affiliate, Foroni Metals of Texas, in the Antidumping Duty
Investigation of Stainless Steel Bar from Italy," dated October 23, 2001
("Foroni CEP Verification Report"), since FMT sells its products through
distributors, FMT's participation in this conference could be viewed as
sales promotion for its customer's customer. See Foroni CEP Verification
Report, at 14. However, we agree with Foroni that, as indicated in the
Foroni CEP Verification Report, Foroni's reported indirect selling
expenses should be reduced by the same amount. See Foroni CEP Verification
Report, Section VIII, Indirect Selling Expenses, at 16-17 and the Foroni
Calc Memo.
Comment 20: Foroni's Calculation of Direct Materials
Respondent's Argument: Foroni argues that the Department should reduce
its reported CONNUM-specific costs for the overstatement of direct
materials identified during the cost verification. Foroni asserts that the
Department verified that the overstatement was the result of a
conservative assumption regarding the nickel content of its stainless
steel scrap inputs and the use of an average POI exchange rate in the
software program used to calculate direct materials costs. When the
effects of these two errors were corrected, according to Foroni, the
estimated total direct materials cost closely approximated the actual cost
of raw materials consumed as recorded in the company's cost accounting
system. Foroni contends that these errors should be corrected by
allocating the aggregate overstatement of direct materials cost over only
Foroni products that use stainless steel scrap as an input. Foroni
maintains that the Department misunderstood its explanation of the
products affected and allocated the overstatement over both stainless
steel and super alloy production. Foroni asserts that it explained during
verification that stainless steel scrap is only used for production of
stainless steel products and that the overstatement does not affect super
alloys.
Petitioners' Argument: Petitioners do not refute Foroni's argument that
the Department should reduce Foroni's reported CONNUM-specific costs for
the overstatement of direct materials. Petitioners contend, however, that
the Department should not decrease Foroni's direct material costs by more
than the overstatement specified in the Foroni COP Verification Report.
According to petitioners, Foroni had opportunities to explain which costs
were overstated.
Department's Position: We agree that the Department should decrease
Foroni's reported CONNUM-specific costs for the overstatement of material
costs identified at verification. In accordance with section 773(f)(1)(A)
of the Act, a respondent's costs should be calculated based on the records
of the exporter or producer if such records are kept in accordance with
home country GAAP and reasonably reflect the costs of production. At
verification, we found that in calculating its CONNUM-specific cost,
Foroni overstated the cost of direct materials consumed in production
during the POI.
In regard to how the overstatement of direct materials cost should be
allocated across products, we agree with Foroni only in part. We note that
at verification Foroni explained that the nickel content portion of the
overstatement related only to stainless steel products. Therefore, we
agree that this portion of the overstatement should be allocated only over
stainless steel production. We note, however, that the portion
attributable to the average exchange rate was related to all products and
should be allocated to all production.
Comment 21: Exclusion of Foroni's Directors' Fees from the G&A Expense
Ratio
Respondent's Argument: Foroni argues that its directors' fees are
equivalent to dividends and should not have been included in the adjusted
G&A expense ratio calculation in the Preliminary Determination. Foroni
maintains that the directors' fees are not set in advance and are
determined annually by the board of directors, who constitute all
shareholders of the company, as a substitute for dividends.
Foroni notes that in fiscal year 2000 the company did not pay any
dividends to the Foroni family. According to Foroni, the directors' fees
are the means by which the owners of the business receive a return on
their equity. Foroni argues that if these payments had been made as
dividends there is no question that they would have been excluded from the
calculation of COP. Foroni asserts that it is not requesting special
treatment, but that form should not take precedence over substance simply
because the Foroni family chose to make the payments in the form of
directors' fees for legitimate tax purposes. Foroni cites Tapered Roller
Bearings, Finished and Unfinished, and Parts Thereof from Japan; Final
Results of Antidumping Duty Administrative Review, 57 FR 4951, 4957
(February 11, 1992) ("Tapered Roller Bearings from Japan") and contends
that when the Department has concluded that payments to directors are
equivalent to dividends it has not included those payments in G&A. It is
thus proper, Foroni claims, to look past form to substance in determining
the proper treatment for these returns on shareholders' equity.
Petitioners' Argument: The petitioners contend that the Department
properly adjusted Foroni's G&A ratio calculation to include directors'
fees. The petitioners assert that all evidence on the record supports the
Department's decision to treat the directors' fees as an expense, and not
as dividends. The petitioners point out that Foroni classifies the fees in
its normal books and records as an expense and that the fees are recorded
in the G&A section of the companies financial statements.
The petitioners claim that Foroni's reference to Tapered Roller Bearings
from Japan to buttress its argument is misplaced. The key point that
Foroni fails to note, petitioners assert, is that in Tapered Roller
Bearings from Japan the payments in question were paid out of retained
earnings and the Department determined that they were dividends and not
expense items. In the instant proceeding, the petitioners note, the
payments were not paid out of retained earnings but rather classified as
an expense item.
Department's Position: We disagree with Foroni that its directors' fees
should be excluded from the calculation of the G&A ratio. While Foroni
maintains that its directors' fees are equivalent to dividends and should
not be treated as an expense, record evidence shows that the company
recorded these fees as an expense in the G&A section of its audited
financial statements. Under section 773(f)(1)(A) of the Act, the
Department is directed to calculate costs based on the normal records of a
producer or exporter if those records are kept in accordance with the
producer's home country GAAP and reasonably reflect the costs of producing
the merchandise under investigation.
Foroni does not refute the fact that its directors' fees are recorded in
its books as an expense in accordance with Italian GAAP. Nor does Foroni
provide evidence that its directors' fees unreasonably reflect the cost of
producing the merchandise under consideration. Instead, Foroni focuses on
arguing that its directors' fees should be considered as analogous to
dividends. We find Foroni's arguments to be unpersuasive.
We agree with petitioners that Foroni's reference to Tapered Roller
Bearings from Japan is misplaced. In that case, the payments in question
were considered similar to a dividend because they were paid directly out
of retained earnings. Because we find no record evidence to support the
conclusion that the Department should depart from the treatment of
directors' fees in Foroni's audited financial statements, we have
continued to include the directors' fees in the G&A ratio calculation for
the final determination.
Comment 22: Foroni's Short-Term Bond Interest Offset
Respondent's Argument: Foroni contends that its short-term bond interest
should be allowed as an offset to interest expense in the calculation of
the financial expense ratio. According to Foroni, the Department
incorrectly excluded this offset in the Preliminary Determination. Foroni
claims that the underlying bonds that generated the interest are issued by
banks and are of one or two months duration. Further, Foroni asserts, the
Department confirmed this at verification. Foroni cites Notice of Final
Determination of Sales at Less Than Fair Value: Certain Cold-Rolled Flat-
Rolled Carbon-Quality Steel Products from Taiwan, 65 FR 34658 (May 31,
2000) and accompanying Issues and Decision Memorandum, at Comment 13
("Cold-Rolled Steel from Taiwan"), and notes that the Department has
previously recognized that interest income from short-term sources should
be allowed as an offset to financial expense.
Petitioners' Argument: The petitioners did not comment on this issue.
Department's Position: We agree with Foroni that its short-term bond
interest income should be allowed as an offset in the financial expense
ratio calculation. At verification, we reviewed Foroni's interest income
accounts and determined that the claimed income offset was from short-term
sources. In calculating COP and CV, it is the Department's normal practice
to allow a respondent to offset financial expenses with interest income
derived from short-term sources. See, e.g., Cold-Rolled Steel from Taiwan;
Notice of Final Determination of Sales at Less Than Fair Value: Stainless
Steel Sheet and Strip in Coils from the United Kingdom, 64 FR 30688, 30710
(June 8, 1999); and Notice of Final Determination of Sales at Less Than
Fair Value: Static Random Access Memory Semiconductors from Taiwan, 63 FR
8909, 8933 (February 23, 1998).
Comment 23: Foreign Exchange Gains & Losses
Petitioners' Argument: The petitioners argue that the Department should
continue to exclude exchange gains and losses related to accounts
receivable from the calculation of Foroni's financial expense ratio. The
petitioners assert that the facts on the record and the Department's
precedent support the decision to exclude these gains and losses in the
Preliminary Determination. According to the petitioners, it is the
Department's longstanding practice to exclude exchange gains and losses
from accounts receivable from the calculation of COP and CV.
Respondent's Argument: Foroni does not challenge petitioners' assertion.
Department's Position: We agree with petitioners that the Department
should continue to exclude exchange gains and losses realized on accounts
receivable from the calculation of Foroni's financial expense factor. Our
normal practice is to distinguish between exchange gains and losses
realized or incurred in connection with sales transactions and those
associated with manufacturing activities. See, e.g., Notice of Final
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Flat-
Rolled Carbon-Quality Steel Products from Brazil, 64 FR 38756, 38786 (July
19, 1999) and Notice of Final Determination of Sales at Less Than Fair
Value: Stainless Steel Round Wire from Canada, 64 FR 17324, 17334 (April
9, 1999) ("SSWR from Canada"). We normally include in the calculation of
COP and CV the foreign exchange gains and losses that result from
transactions related to a company's manufacturing activities. We do not
consider exchange gains and losses from sales transactions to be related
to the manufacturing activities of the company. See, e.g., SSWR from
Canada and Notice of Final Determination of Sales at Less Than Fair Value:
Steel Wire Rod from Trinidad and Tobago, 63 FR 9177, 9182 (February 24,
1998). Accordingly, for purposes of the final determination, we have
excluded Foroni's foreign exchange gains and losses arising from accounts
receivable from the calculation of COP and CV.
Comment 24: Foroni's Yield Loss
Petitioners' Argument: The petitioners argue that the Department should
increase Foroni's reported raw material cost to account for yield loss.
The petitioners assert that Foroni has provided no explanation of its
treatment of scrap throughout the investigation and that the Department
was unable to perform any verification steps or calculations necessary to
satisfy itself that scrap is accounted for properly. According to the
petitioners, Foroni's explanation of its scrap valuation is not sufficient
considering the size of its scrap loss percentage. The petitioners contend
that it is unreasonable to accept that Foroni would not track scrap
recoveries in its cost accounting system. Based on the lack of data from
Foroni, the petitioners maintain, the Department can not ignore this
significant deficiency and must adjust Foroni's costs to account for scrap
loss by using facts available.
Respondent's Position: Foroni argues that the petitioners are attempting
to create an issue where none exists and that there is no basis for making
an adjustment to its costs to account for yield loss. Foroni refutes the
petitioners' argument that it has provided no explanation of its treatment
of scrap in this proceeding. According to Foroni, the company explained in
its questionnaire responses that internally generated scrap is always
reintroduced into production as raw material. Moreover, Foroni contends,
the Department verified the company's treatment of yield loss on the basis
of records presented and a detailed visual inspection of the company's
mill. Foroni argues that the Department did not ignore this issue as the
petitioners claim and was fully satisfied with the explanation provided by
the company of its treatment of yield losses.
Department's Position: We disagree with the petitioners that the
Department should increase Foroni's reported raw material cost to account
for yield loss. The Department verified the reported cost of manufacturing
submitted in Foroni's questionnaire responses and was satisfied that both
material and conversion costs were reported on a fully yielded basis. See
Foroni COP Verification Report, at 14, 16. The Department was also
satisfied with Foroni's explanation of its treatment of scrap and
performed the verification steps that it deemed necessary to verify that
scrap loss was being accounted for properly. We therefore find no basis on
which to conclude that we should adjust Foroni's reported raw material
cost for yield loss at the final determination.
Comment 25: Use of Rodacciai's Reported Data
Petitioners' Argument: The petitioners contend that, despite several
opportunities to correct its data, the cost and sales data submitted by
Rodacciai S.p.A. ("Rodacciai") contain serious flaws, thus demonstrating a
failure to cooperate to the best of its ability and warranting the
application of facts available. First, Rodacciai misreported home market
sales to affiliated parties. In its original questionnaire response,
Rodacciai stated that it only made sales to one affiliated customer in the
home market. In a supplemental questionnaire response, Rodacciai
identified sales to four additional home market affiliated customers. The
total sales quantities in the home market sales file to two of these four
additional affiliated customers do not match the total sales quantities to
these affiliates listed in Rodacciai's narrative response. According to
the petitioners, Rodacciai either did not report these home market
affiliated party sales or reported these sales as sales to an unaffiliated
customer. If such sales were considered unaffiliated party sales, the
petitioners assert that the Department was prevented from conducting an
arm's length test in the Preliminary Determination, thereby potentially
including non-arm's length prices in the pool of home market sales used as
the basis of normal value.
Second, the petitioners argue that Rodacciai failed to report the actual
transaction price and quantity for its EP sales to one of its customers as
those terms appeared on the actual sales documentation, thereby resulting
in an inaccurate and incomplete U.S. sales database. Given Rodacciai's
decision not to conform with the Department's instructions to report gross
unit price and sales quantity for its EP sales as those items appeared on
the sales documentation, the petitioners contend that Rodacciai has failed
to act to the best of its ability. See, e.g., Issues Memorandum for the
Final Determination, Antidumping Duty Investigation of Certain Hot-Rolled
Steel Flat Products from Indonesia, 66 FR 49628 (September 28, 2001)
(Comment 1). Accordingly, the petitioners urge the Department not to rely
upon Rodacciai's converted prices and quantities for the EP sales in
question, but should, instead, rely only on the verified CEP sales. As
facts available the petitioners suggest applying the highest calculated
margin for individual CEP sales to the EP sales in question.
Third, the petitioners contend Rodacciai has included in its U.S. sales
database subject merchandise produced by producers other than Rodacciai,
inasmuch as Rodacciai reported CEP sales of products in sizes greater than
that which Rodacciai allegedly has the capability of producing. Thus, the
petitioners assert that the Department has sufficient grounds to reject
Rodacciai's submitted data. Alternatively, the petitioners suggest that
the Department exclude products that apparently were not manufactured by
Rodacciai from the final margin analysis.
Respondent's Argument: Rodacciai counters that the Department should rely
on Rodacciai's reported data for the final determination. First, with
respect to Rodacciai's home market sales to affiliated parties, Rodacciai
claims that all affiliated parties had been disclosed in its original
questionnaire submission. Rodacciai acknowledges that it misreported the
customer relationship for one of its affiliated customers, but asserts
that it would have disclosed this minor correction at its Italian
verification had one taken place. Also, Rodacciai claims that it was
unable to report the downstream sales of this affiliated customer because
it is a competitor who would not release that information for Rodacciai.
Further, with respect to certain customer codes identified as "Rodacciai,"
Rodacciai explains that these codes were for trial samples to Rodacciai's
sales office and were not sales by undisclosed affiliated resellers. Also,
Rodacciai reiterates that the record demonstrates that Rodacciai, in
accordance with the Department's instructions, properly excluded it sales
to affiliates that resell the subject merchandise, and instead reported
the downstream sales by those affiliates. Rodacciai further contends that
the Department should not disregard Rodacciai's entire home market
database over these disputed sales to affiliated resellers, which are an
insignificant portion of Rodacciai's overall home market sales and
represent sales that are disregarded from the Department's analysis given
that they do not pass the arm's-length test.
Second, Rodacciai counters that, contrary to the petitioners' allegations
concerning Rodacciai's actual transaction prices and quantities, the gross
unit prices reported in the sales database do match the sales
documentation provided by Rodacciai. Also, Rodacciai claims that certain
sales with minor errors cited by the petitioners actually pertain to CEP
sales that had input errors, not conversion errors, and, therefore, the
petitioners' conclusions concerning the prices and quantities for EP sales
are erroneous. Finally, Rodacciai contends that the petitioners'
assertions concerning the data submitted by Rodacciai's affiliated U.S.
reseller, Sovereign Specialty Steel ("Sovereign"), are unfounded given
that the Department verified Sovereign's response, including errors
submitted at the onset of verification and observations from Rodacciai's
August 8, 2001 submission.
Third, regarding Rodacciai's size reporting, Rodacciai contends that
evidence from its section D questionnaire responses indicates that
Rodacciai can produce hot-rolled bars and smooth turned cold finished bar
of up to 80 millimeters (3.15 inches), but that the largest size reported
is 70 millimeters (2.76 inches). See Rodacciai's April 18, 2001
questionnaire response, at Appendix D-1. Thus, contrary to the
petitioners' contentions and an incorrect statement by a Sovereign
official at the CEP verification regarding the upper limit of what
Rodacciai can actually produce, Rodacciai contends that it is capable of
producing the sizes that it reported in the CEP sales file.
Department's Position: Section 776(a)(2) of the Act provides that "if an
interested party or any other person (A) withholds information that has
been requested by the (Department) under this title, (B) fails to provide
such information by the deadlines for submission of the information or in
the form and manner requested, subject to subsections (c)(1) and (e) of
section 782, (C) significantly impedes a proceeding under this title, or
(D) provides such information but the information cannot be verified as
provided in section 782(i), the (Department) shall, subject to section
782(d), use the facts otherwise available in reaching the applicable
determination under this title." Pursuant to section 782(e) of the Act,
the Department "shall not decline to consider information that is
submitted by an interested party and that is necessary to the
determination, even if that information does not meet all the applicable
requirements established by the (Department), if - (1) the information is
submitted by the deadline established for its submission, (2) the
information can be verified, (3) the information is not so incomplete that
it cannot serve as a reliable basis for reaching the applicable
determination, (4) the interested party has demonstrated that it acted to
the best of its ability in providing the information and meeting the
requirements established by the Department with respect to the
information, and (5) the information can be used without undue
difficulties."
In this instance, Rodacciai provided the Department with a complete
response, including an explanation of its reporting methodology. Rodacciai
has not significantly impeded this investigation and its CEP sales
response was verified by the Department. Furthermore the information that
was supplied by Rodacciai was submitted by the deadline established for
its submission, was subject for verification, is not so incomplete that it
cannot serve as a reliable basis for reaching the applicable
determination, and can be used without undue difficulties. Moreover,
Rodacciai had not proved to be uncooperative or unresponsive in its
proceedings. Rodacciai has generally responded to the Department's
requests in a complete and timely manner, and has provided documents
requested by the Department throughout the course of this proceeding.
Rodacciai has sufficiently described its reporting methodology and has
provided complete data.
We have reviewed the petitioners' claims and find that they are without
merit. First, based on record evidence, we find that Rodacciai has
completely reported its home market sales to affiliated parties in
accordance with the Department's requirements. With respect to the
misreported customer relationship, we have corrected that error for the
final determination. Second, concerning Rodacciai's actual transaction
prices and quantities, we have carefully reviewed the reported EP sales
and compared the amounts reported in the sales database to sample
documentation submitted on the record. We have noted no discrepancies
between the actual documentation and the converted amounts from
Rodacciai's accounting system that were reported in the sales database.
Finally, regarding Rodacciai's size reporting, we agree that record
evidence supports Rodacciai's contention that Rodacciai can actually
produce and did sell the sizes reported in the CEP sales file. Thus, we
find no reason to decline its consideration pursuant to section 782(e) of
the Act and, accordingly, we are using the data provided by Rodacciai for
the final determination.
Comment 26: Rodacciai's Reported Home Market Date of Sale
Petitioners' Argument: For all of its home market sales, Rodacciai used
the date of invoice as the date of sale, whereas in the U.S. market
Rodacciai used multiple dates of sale, including the order confirmation
date and the invoice date. The petitioners contend that the Department
should use the order date as the date of sale for Rodacciai's produced-to-
order home market sales because, according to Rodacciai's questionnaire
responses, this is the date on which the material terms of sale were
determined. The petitioners request that the Department adjust Rodacciai's
reported home market sales by excluding those sales that were made outside
the POI, based on a date of sale methodology that uses a date of sale when
the material terms of sale were first determined. To accomplish this, the
petitioners suggest constructing a date of sale for Rodacciai's produced-
to-order sales in the home market - which, according to Rodacciai,
experienced a six to seven week lag between order and delivery of the
merchandise - by deducting 45.5 days (i.e., 6.5 weeks) from the reported
date of shipment. Additionally, the petitioners argue that the Department
should not accept Rodacciai's reported invoice date as the date of sale
because, in many instances, the invoice date on its home market sales
lagged behind the shipment date, thereby rendering the selected date of
sale methodology inappropriate. See, e.g., Stainless Steel Bar from Japan:
Final Results of Antidumping Administrative Review, 65 FR 13717 (March 14,
2000), and accompanying Issues and Decision Memorandum, at Comment 1;
Notice of Final Determination of Sales at Less Than Fair Value; Hot-Rolled
Flat-Rolled Carbon-Quality Steel Products from Brazil, 64 FR 38756, 38768
(July 19, 1999). Thus, the petitioners conclude that the Department should
use the date of shipment as the date of sale for Rodacciai's home market
sales from inventory and use the constructed order date as the date of
sale for Rodacciai's home market produced-to-order sales.
Respondent's Argument: Rodacciai contends that the Department should
continue to accept its reported home market date of sale. First, Rodacciai
argues that the petitioners' proposed constructed date of sale for
produced-to-order merchandise is unreasonable and unsupported by record
evidence. Rodacciai argues that the six to seven week delivery period
referenced by the petitioners refers only to welding grades of stainless
steel bar and not to all produced-to-order home market sales. Also,
Rodacciai notes that, in addition to produced-to-order sales, there are
other types of selling situations that would not result in a warehousing
expense: (1) the expense on sales through the Ancona warehouse are paid
for by the unaffiliated sales agent, who is compensated through a sales
commission; (2) sales originating from the mill production warehouse; and
(3) sales from Redaelli, a separate corporate entity, do not have
warehousing expenses because Redaelli is not a distribution warehouse.
Therefore, Rodacciai concludes that the petitioners' suggested constructed
date of sale for all produced-to-order sales is unreasonable and
unsupported.
Second, Rodacciai contends that the petitioners' proposed use of date of
shipment for stock sales is unnecessary because a review of the home
market sales file demonstrates that there were no home market sales
reported in which the date of shipment was prior to the POI and,
therefore, changing the methodology would not change the universe of sales.
Department's Position: We disagree with the petitioners in part. The
Department's regulations, at 19 CFR 351.401(i), provide that, in
identifying the date of sale of the foreign like product, the Department
normally will use the date of invoice, as recorded in the exporter or
producer's records kept in the ordinary course of business. However, the
Department may use a date other than the date of invoice (e.g., order
confirmation date) if satisfied that a different date better reflects the
date on which the exporter or producer establishes the material terms of
sale (e.g., price, quantity).
In its original questionnaire response dated March 22, 2001, Rodacciai
conceded that the material terms of sale were generally fixed at the time
of order confirmation. However, Rodacciai stated that the amount of time
that elapsed between the order confirmation date and the date of shipment
is insignificant (1 to 7 days). See Rodacciai's March 22 response, at 22-
23. Rodacciai further noted that prices and quantities almost never change
after the order is confirmed, and that Rodacciai invoices the home market
customer at the end of each week based upon the cumulative shipments to
the customer from the distribution warehouse during the week. Id. at 17.
Thus, Rodacciai contends that there is only a two day difference between
the shipment date and the invoice date. Further, Rodacciai was not aware
of any instances in which invoicing differed from the stated practice.
Id. In its supplemental questionnaire response dated June 14, 2001,
Rodacciai explained that it is extremely difficult to retrieve home market
sales on the basis of order date, because the order date is deleted from
Rodacciai's computer system after the goods are shipped. See Rodacciai's
June 14 response, at 15. Given the large number of home market sales,
manually reviewing the company's paper records to identify and input all
sales with order dates inside the POI would be extremely difficult to
execute and verify, particularly given that a single invoice can have line
items from more than one order.
Based on our review of record evidence, we find that the terms of sale
are typically established by the order confirmation date. As noted above,
the Department normally will use the date of invoice, as recorded in the
exporter or producer's records kept in the ordinary course of business. In
this instance, it is clear that, while the material terms of sale may not
have changed after the order confirmation date, this date is not kept by
Rodacciai in its ordinary course of business. Moreover, to require
Rodacciai to report its home market sales database based on order
confirmation date would place an undue burden on the respondent.
Furthermore, we have reviewed sample home market sales documentation and
agree with Rodacciai's assertion that the time lag between the order
confirmation date and the date of invoice is insignificant, not the six-to-
seven week lag asserted by the petitioners.
However, we also find that using the invoice date may not be appropriate
given that, as Rodacciai acknowledged, the date of shipment may proceed
the date of invoice in light of Rodacciai's invoicing practices.
Accordingly, for this final determination, we are using the earlier of the
date of invoice or the date of shipment as the date of sale for
Rodacciai's reported home market sales.
Comment 27: Additional Sales Submitted by Rodacciai
Petitioners' Argument: On August 8, 2001, prior to the onset of the CEP
verification, Rodacciai submitted a list of minor corrections that
included certain additional U.S. sales that Rodacciai had inadvertently
excluded from the U.S. database. The petitioners argue that these
additional sales contain unsupportable or erroneous information, rendering
the list unreliable and unusable. Specifically, the petitioners contend
that certain of these sales were reportedly either (1) made prior to the
POI; (2) of a product type not produced by Rodacciai; or (3) had a
reported inventory carrying cost that appears inaccurate. In the absence
of complete source documentation for these sales, the petitioners assert
that the Department cannot determine whether these sales in fact had the
above-described errors or whether there were other errors on these
additional sales. Because it is too late for the Department to permit
Rodacciai to explain or correct the apparent errors in these additional
CEP sales, and given that these sales are not complete, verifiable, or can
be used without undue difficulties, the petitioners assert that the
Department should not rely upon this information. Instead, the petitioners
urge the Department to resort to partial facts available. As partial facts
available, the petitioners suggest assigning the highest calculated
individual margin to the total sales quantity of these additional CEP
sales.
Respondent's Argument: Rodacciai counters that the Department should use
the verified CEP sales data. Rodacciai contends that it had submitted its
additional U.S. sales in accordance with the Department's instructions and
normal procedures. Rodacciai notes that the Department verified
Sovereign's reporting of CEP sales data and contends that it has acted to
the best of its ability to comply with the Department's requests. Further,
Rodacciai notes that the Department verified its CEP sales response,
including the information in the August 8, 2001, submission, and,
therefore, its response was complete and verifiable. Rodacciai notes that,
in fact, the Department verified its minor corrections presented at
verification and noted only one minor discrepancy. Moreover, Rodacciai
contends that the Department can use its submitted additional information
without undue difficulties.
Finally, Rodacciai agrees with the petitioners that certain CEP sales
with an order date prior to the POI should not have been reported because
the order date is the proper date of sale on these particular sales, but
Rodacciai does not believe it should be penalized for this error given
that it affected only a few sales. Second, with respect to sales of sizes
that Rodacciai allegedly does not produce, Rodacciai contends that it can
produce such items and Sovereign does sell such items. Third, Rodacciai
agrees with the petitioners that the inventory carrying cost it notes in
its brief is incorrect, and argues that the Department should simply use a
zero or the average inventory carrying cost for this sale.
Department's Position: We disagree with the petitioners. Pursuant to
section 782(e) of the Act, the Department shall not decline to consider
information that is submitted by an interested party and that is necessary
to the determination, even if that information does not meet all the
applicable requirements established by the (Department), if - (1) the
information is submitted by the deadline established for its submission,
(2) the information can be verified, (3) the information is not so
incomplete that it cannot serve as a reliable basis for reaching the
applicable determination, (4) the interested party has demonstrated that
it acted to the best of its ability in providing the information and
meeting the requirements established by the Department with respect to the
information, and (5) the information can be used without undue
difficulties.
The additional sales submitted by Rodacciai meet the threshold of section
782(e) and, accordingly, we are using these sales for the final
determination. First, the information was submitted by the deadline
established for its submission, which, in this case, was one week prior to
the start of the first verification, or August 8, 2001. Second, the
additional sales submitted by Rodacciai could be verified. In fact, one of
the additional sales submitted by Rodacciai in its August 8, 2001
submission was reviewed during the Department's sales traces at the CEP
verification. Third, the information is not so incomplete that it cannot
serve as a reliable basis for reaching the applicable determination, as
Rodacciai, pursuant to the Department's instructions, submitted a database
containing the additional sales. Fourth, Rodacciai acted to the best of
its ability in providing the information and met the requirements
established by the Department with respect to the information. Finally, we
have reviewed the information and find that it can be used without undue
difficulties. Accordingly, we are accepting these additional sales for use
in the final determination, except that we have excluded from our analysis
any sales where the date of sale is outside the POI. Also, consistent with
the Preliminary Determination, we have set reported negative inventory
carrying costs equal to zero. See Final Determination Calculation
Memorandum for Rodacciai S.p.A.," dated January 15, 2002.
Comment 28: Rodacciai's U.S. Indirect Selling Expenses
Petitioners' Argument: The petitioners contend that the Department should
revise Rodacciai's reported U.S. indirect selling expense ratio because it
appears that Rodacciai inappropriately excluded depreciation expenses
incurred by Sovereign in the last three months of the POI, thereby
understating the expenses.
Respondent's Argument: Rodacciai counters that Sovereign reported the
year 2000 portion of its depreciation expense in accordance with its own
financial statements for the period January through September 2000, which
reflected only that depreciation incurred in the first six months of 2000,
but did not include any allocation for the third quarter. Rodacciai notes
that this can be confirmed by comparing CEP Verification Exhibit 11 (see
Memorandum to John Brinkmann "Verification of the Constructed Export Price
Sales of Rodacciai S.p.A. through its U.S. Affiliate, Sovereign Specialty
Steel," dated November 1, 2001 ("Rodacciai Verification Report")) with
Appendix C-9 of Rodacciai's April 18, 2001 questionnaire response. If the
Department does decide to adjust Rodacciai's indirect selling percentage
to the amount recommended by the petitioners, Rodacciai argues that the
new percentage should be applied to a U.S. gross unit price less early
payment discounts and credit adjustments, and should also be applied to
CEP sales that have not yet been shipped.
Department's Position: We agree with both the petitioners and Rodacciai.
As we noted in the Rodacciai Verification Report, the amount of
depreciation reported by Rodacciai for 2000 reflected "only the amounts
incurred during the first six months, but did not include any allocation
for July through September."  See Rodacciai Verification Report, at 22.
Accordingly, we have revised Rodacciai's reported U.S. indirect selling
expense ratio to include the depreciation incurred by Sovereign in the
last three months of the POI. Furthermore, we have applied the indirect
selling expense ratio to a U.S. gross unit price less early payment
discounts and credit adjustments, and to CEP sales that have not yet been
shipped.
Comment 29: Rodacciai's U.S. Warehousing Expenses
Petitioners' Argument: The petitioners note that, at verification, the
Department discovered that Rodacciai did not report an amount for
warehouse supplies for Sovereign's Illinois warehouse during 2000 because
Sovereign did not purchase any new supplies in 2000, but rather used
supplies that had been purchased prior to the POI. The petitioners contend
that Rodacciai inappropriately omitted the costs associated with warehouse
supplies purchased prior to the POI but used during the POI, inasmuch as
the costs incurred to support sales made during the POI should be included
as part of warehousing expense, regardless of when the suppliers were
purchased. Accordingly, the petitioners assert that the Department should
revise Rodacciai's reported U.S. warehousing expense to account for
Sovereign's unreported costs of warehousing supplies.
Respondent's Argument: Rodacciai argues that the Department should not
adjust Rodacciai's reported U.S. warehousing expenses because it is
inappropriate to ask Sovereign to estimate periodic expenses that do not
exist for the POI. Moreover, Rodacciai notes that Sovereign only reported
zero expenses for Illinois warehouse supplies for the 2000 portion of the
POI. Rodacciai contends that all of the expenses incurred for warehouse
supplies during the POI should have been captured by the amount recorded
during the 1999 portion of the POI. If the Department agrees with the
petitioners and decides to use a surrogate figure for the 2000 portion of
the POI, Rodacciai claims that using the cost of warehouse supplies from
the New Jersey warehouse would be inappropriate because the New Jersey
warehouse has a greater volume of sales than the Illinois warehouse and,
therefore, the cost of supplies would be much greater than for the
Illinois warehouse.
Department's Position: We disagree with the petitioners. At verification,
we noted that Sovereign did not report any warehouse supplies for the
Illinois warehouse during 2000 because the company had leftover supplies
from 1999, so it did not purchase any new supplies in 2000. As Rodacciai
correctly contends, these expenses were merely period expenses incurred by
Sovereign during its normal course of business. Were these long-term
expenses, then Sovereign would have been required to capitalize the
expenditures and account for them over the entire period of investigation.
However, expenses such as warehouse supplies are short-term in nature and,
accordingly, Sovereign need only account for them in the period in which
the expenses were incurred. A review of Sovereign's general ledger
confirmed that no new warehouse supplies were purchased during January
through September 2000. Accordingly, we are only including those
warehousing expenses incurred by Sovereign in the 1999 portion of the POI.
Comment 30: Rodacciai's U.S. Sales with Missing Date of Payment
Petitioners' Argument: For the Preliminary Determination, the Department
used the date of the Preliminary Determination (i.e., July 26, 2001) as a
surrogate date of payment for those U.S. sales with a missing date of
payment. For the final determination, the petitioners argue that the
Department should calculate the actual imputed credit expense for those
U.S. sales that now have an actual reported date of payment. Based on a
review of those U.S. sales that continue to have missing payment
information, the petitioners contend that using as a surrogate date of
payment the date of the Preliminary Determination or an average of all
U.S. sales for which payment was reported would not be representative of
Rodacciai's actual payment experience. Accordingly, the petitioners urge
the Department to revise its preliminary methodology and use a surrogate
date that more reasonably reflects the payment experience by Rodacciai for
its U.S. sales. The petitioners suggest using the longest payment period
reported by Rodacciai for the rest of its U.S. sales as the surrogate
payment period for those sales that Rodacciai did not report a date of
payment or, alternatively, using the date of the final determination as
the surrogate for those U.S. sales with a missing date of payment.
Respondent's Argument: Rodacciai claims that the petitioners' recommended
surrogate dates of payment are unduly punitive, particularly since
Rodacciai did not have an opportunity to update its payment information at
verification as the home market and EP sales verifications were cancelled.
For those sales that had missing dates of payment as of the time of
verification, Rodacciai suggests that the Department should, consistent
with prior cases, use the average payment period for all U.S. sales as a
surrogate payment date, which is more neutral than the petitioners'
suggested dates. See, e.g., Stainless Steel Plate in Coils from the
Republic of Korea, 66 FR 45279, 45280 (August 28, 2001); Certain Corrosion
Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon
Steel Plate from Canada, 64 FR 2173, 2179 (January 13, 1999).
Alternatively, Rodacciai suggests that the Department should, consistent
with other prior cases, use the last date of the Sovereign verification as
the surrogate payment date. See, e.g., Stainless Steel Sheet and Strip in
Coils from France, 64 FR 30820, 30822 (June 8, 1999); Aramid Fiber Formed
of Poly Para-Phenylene Terephtalamide from the Netherlands, 63 FR 37516,
37519 (July 13, 1998).
Department's Position: We disagree with petitioners' assertion that the
Department should use an adverse inference in calculating the imputed
credit expense. In this investigation, Rodacciai has not impeded the
investigation by providing inaccurate or unverifiable data, nor has it
provided data that could not be verified. Therefore, for the final
determination, we are using the last day of verification, August 17, 2001,
as the date of payment for unpaid home market and U.S. sales, and have
recalculated home market and U.S. credit expenses accordingly. See
Extruded Rubber Thread From Malaysia; Final Results of Antidumping Duty
Administrative Review, 63 FR 12752, 12757 (1998) (citing Static Random
Access Memory Semiconductors from Taiwan; Final Results of Less than Fair
Value Investigation, 63 FR 8909, 8928 (1998) and Brass Sheet and Strip
from Sweden; Final Results of Antidumping Administrative Review, 60 FR
3617, 3621 (1995)).
Comment 31: Rodacciai's G&A Expense Ratio
Petitioners' Argument: The petitioners contend that, consistent with 19
CFR 351.401(b)(1), the Department should recalculate Rodacciai's G&A
expense ratio to account for adjustments for which Rodacciai did not
provide any justification, inasmuch as G&A expenses should reflect a
respondent's full-year company-wide G&A expense and cost of goods sold as
reported in the respondent's audited financial statements.
Respondent's Argument: Rodacciai argues that it is the Department's
practice to exclude gains or losses from investment activity from
production costs of subject merchandise. See, e.g., Certain Steel Concrete
Reinforcing Bars from Turkey, 66 FR 56274, 56276 (November 7, 2001); Fresh
Atlantic Salmon from Chile, 63 FR 31411 (June 8, 1998); Oil Country
Tubular Goods from Korea, 60 FR 33561, 33567 (June 28, 1995). Rodacciai
also notes that the petitioners have not cited any Department precedent to
support their contentions.
Department's Position: We agree with Rodacciai. As we explained in Fresh
Atlantic Salmon from Chile, the Department considers the disposal of fixed
assets used to produce the merchandise under investigation to be a normal
part of a company's operation, and typically accounts for the gains or
losses generated from these transactions as part of G&A expense in the COP
and CV calculations. However, the Department treats a transfer of an
equity interest in another company as a sale of an investment, which is
unrelated to the production activities for G&A expenses. Accordingly, we
have accepted Rodacciai's reported G&A expense ratio.
Comment 32: Rodacciai's Interest Expense Ratio
Petitioners' Argument: The petitioners contend that the Department should
revise Rodacciai's interest expense ratio because it appears that, as the
result of certain unsupported adjustments made by Rodacciai, its total
reported interest expense was understated.
Respondent's Argument: Rodacciai counters that none of the items cited by
the petitioners are long-term investment income or dividends. Moreover,
Rodacciai notes that the petitioners have not cited any Department
precedent for their contentions. Accordingly, Rodacciai concludes that the
Department should not adjust Rodacciai's interest expense ratio as its
adjustments are appropriate offsets to the total finance expense.
Department's Position: We agree with Rodacciai. The Department's normal
practice is to allow only short-term interest income as an offset to
financial expenses. We have reviewed the interest income used by Rodacciai
to offset its financial statement and agree that none of these interest
income items appears to be long-term in nature. Accordingly, we have made
no revisions to Rodacciai's interest expense ratio for the final
determination.
Comment 33: Recalculation of Certain Home Market Expenses Reported by
Rodacciai
Petitioners' Argument: The petitioners note that Rodacciai calculated
certain home market expenses (i.e., imputed credit expense, commissions,
and indirect selling expenses) by applying a ratio to the gross unit
price, adjusted for credit adjustments. The petitioners contend that
Rodacciai should have applied such ratios to the gross unit price adjusted
for credit adjustments, discounts, and rebates, in order to reflect the
amount Rodacciai expected to receive, rather than the full invoice amount
less credit adjustments only. Otherwise, Rodacciai has inappropriately
inflated the basis for calculating these expenses and, therefore,
overstated the deductions to normal value. Accordingly, the petitioners
urge the Department to recalculate these expenses for the final
determination.
Respondent's Argument: Rodacciai counters that the Department's practice
is not to deduct rebates from gross price for purposes of calculating
credit expenses because rebates are not granted until some time after the
sale and, therefore, are not part of the opportunity cost. Rodacciai
further contends that commissions and indirect selling expenses are not
analogous to credit expenses because opportunity costs are not relevant to
these adjustments. Moreover, commissions are a fixed percentage applied to
the invoice price based on an agreement with the selling agent. Further,
Rodacciai notes that the petitioners have not cited any Department
precedent for their contentions. Alternatively, Rodacciai argues that, if
the Department does make the petitioners' requested deductions from the
net price used to calculate any of the home market expenses, then the
Department should make the same deductions with respect to the calculation
of the analogous U.S. expenses.
Department's Position: We agree with the petitioners in part and with
Rodacciai in part. The petitioners correctly assert that, when applying
ratios to calculate a home market expense, the Department must ensure that
a respondent is not inappropriately inflating the basis for calculating
these expenses and, therefore, overstating the deductions to normal value.
Conversely, when applying ratios to calculate an U.S. expense, the
Department must ensure that a respondent is not inappropriately deflating
the basis for calculating these expenses and, therefore, understating the
deductions to EP or CEP.
In resolving this issue, we note that there is a distinction between
imputed expenses and actual expenses. Imputed expenses are opportunity
costs that are not reflected in the financial records of the company being
investigated, but which must be estimated and reported for purposes of an
antidumping inquiry. An example of an imputed expense is credit expenses,
which reflects the interest expense incurred (or interest revenue
foregone) between shipment of merchandise to a customer and receipt of
payment from the customer. The Department normally imputes the expense by
applying a respondent's annual short-term borrowing rate in the currency
of the transaction, prorated by the number of days between shipment and
payment, to the unit price.
The unit price must reflect that which the respondent actually expects to
receive from the customer.
Thus, when calculating credit expenses, for purposes of the unit price,
we normally look at a gross unit price, adjusted for invoicing errors
(reported as credit or billing adjustments) and discounts actually taken
on the invoice. We typically do not adjust for rebates because, in the
normal course of business, they are not considered until sometime after
the sale and, therefore, are part of the opportunity cost of the delay in
the receipt of payment from the time of shipment. Therefore, for purposes
of calculating Rodacciai's home market and U.S. credit expenses, we are
adjusting the gross unit price for credit adjustments and any on-invoice
discounts.
Finally, we note that commissions and indirect selling expenses, in
contrast to credit expenses, are actual costs, not imputed costs.
Therefore, in calculating these expenses, the Department must ensure that
the reported per-unit expense reflects the actual expenses incurred in
Rodacciai's normal course of business. If a commission expense is applied
as a fixed percentage to the invoice price based with an agreement with
the selling agent, as is the case here, then we must apply the ratio that
basis. Likewise, if an indirect selling expense ratio is inclusive of
discounts and rebates, then it must be applied to a gross unit price that
is inclusive of discounts and rebates. Accordingly, we have not altered
Rodacciai's calculation of commissions or indirect selling expenses for
the final determination.
Comment 34: Rodacciai's Home Market Credit Adjustments
Respondent's Argument: Rodacciai contends that the Department erred in
its treatment of Rodacciai's reported home market credit adjustment
variables, which were reported as positive integers, by adding these
values to the home market net price rather than deducting them.
Petitioners' Argument: The petitioners argue that, if the Department
accepts Rodacciai's arguments concerning the reporting of credit
adjustments for its home market sales, then the Department should also
deduct credit adjustments from U.S. sales rather than adding them.
Department's Position: We agree with Rodacciai and the petitioners have
made these changes for the final determination to both the home market and
U.S. databases.
Comment 35: Corrections to Valbruna's CEP Verification Report
Respondent's Argument: Valbruna argues that the Department should make
two minor, technical corrections to items described in the Memorandum to
John Brinkmann "Verification of the Constructed Export Price Sales of
Acciaierie Valbruna S.p.A. through its U.S. Affiliate, Valbruna
Corporation," dated October 31, 2001, which is on file in the Import
Administration's Central Records Unit ("CRU"), Room B-099 of the main
Department of Commerce building ("Valbruna CEP Verification Report").
Specifically, Valbruna claims that the Department incorrectly stated that
one of its customers has a balance due to Valbruna's U.S. affiliate,
Valbruna Corporation ("Valbruna Corp."), when in fact the customer has
actually overpaid Valbruna Corp. The Department also incorrectly stated
the per-container charge reported by Valbruna in its questionnaire
responses as the basis of its per-unit U.S. brokerage adjustment.
Petitioners' Argument: The petitioners did not comment on this issue.
Department's Position: Based on our review of the CEP verification
exhibits and submitted responses, we agree with Valbruna that the Valbruna
CEP Verification Report incorrectly described the information reviewed at
verification. Accordingly, we have corrected these technical errors for
the final determination. See Memorandum to John Brinkmann, "Final
Determination Calculation Memorandum for Acciaierie Valbruna S.p.A.,"
dated January 15, 2002.
Comment 36: Valbruna's Opportunity Cost on VAT Rebates
Respondent's Argument: Valbruna argues that the Department should grant
Valbruna its claimed adjustment for the opportunity cost of the delay in
receiving VAT rebates, which the Department denied in the Preliminary
Determination. Valbruna claims that this adjustment is the same as the
imputed financial expenses calculated for credit expense and inventory
carrying costs because Valbruna experiences a time delay between the end
of the production process and its receipt of the VAT rebate income, which
affects Valbruna's economic return on the transaction.
Petitioners' Argument: The petitioners contend that the Department should
not accept Valbruna's claimed VAT opportunity cost adjustment. The
petitioners note that the Department denied this adjustment in other
cases. See, e.g., Notice of Final Determination of Sales at Less Than Fair
Value: Stainless Steel Bar from Italy, 59 FR 66921, 66926-27 (December 28,
1994) ("Stainless Steel Bar from Italy - 1994"). Inasmuch as Valbruna has
not provided any information that would justify the Department changing
its prior practice (e.g., calculations showing the payment delays for all
costs, charges, and expenses, rather than one opportunity cost that
pertains solely to home market sales), the petitioners assert that the
Department should not allow Valbruna's claimed VAT adjustment.
Department's Position: We agree with the petitioners. As we noted in
Stainless Steel Bar from Italy - 1994, "The regulations contain no
indication that the Department should consider granting an adjustment to
account for a government imposed tax such as the VAT, or for any other
type of so-called "'opportunity cost.'" 59 FR at 66926. In reaching that
decision, we cited 19 CFR 353.56(a)(2), which is now embodied in 19 CFR
351.410. According to this regulation, the Department will only make
circumstance of sale adjustments for (1) direct selling expenses (e.g.,
commissions, credit expenses, guarantees, and warranties) that result
from, and bear a direct relationship to, the particular sale in question;
and (2) assumed expenses (e.g., advertising expenses) that a seller
assumes on behalf of the buyer. Thus, the current regulations continue to
provide no indication that the Department should consider granting an
adjustment to account for the opportunity cost of the delay in receiving
VAT rebates.
Moreover, as we noted in Stainless Steel Bar from Italy - 1994:
virtually every charge or expense associated with price-to-price
comparisons is either prepaid or paid for at some point after the cost is
incurred. Accordingly, for each pre- or post-service payment, there is
also an opportunity cost (or gain). Thus, to allow the type of adjustment
suggested by respondent would imply that in the future the Department
would be faced with the impossible task of trying to determine the
opportunity cost (or gain) of every freight charge, rebate and selling
expense for each sale reported in a respondent's database.
59 FR at 66926 (quoting Final Determination of Sales at Less Than Fair
Value: Sulfur Dyes, Including Sulfur Vat Dyes, from the United Kingdom, 58
FR 3253 (January 8, 1993)). Valbruna has provided no authority to the
contrary and, accordingly, the same conclusion applies to the present
investigation.
Comment 37: Valbruna's Levels of Trade
Petitioners' Argument: The petitioners assert that the Department should
redefine Valbruna's home market and U.S. levels of trade. With respect to
the home market levels of trade, the petitioners contend that the
Department should amend its preliminary level-of-trade finding and
establish two levels of trade in the home market based on the two channels
of distribution (sales directly from the mill and sales through Valbruna's
affiliated service centers). The petitioners argue that separate channels
of distribution are the first indicator of separate home market levels of
trade, particularly in the steel industry, where the most commercially
significant indicator of a marketing stage is the extent to which a
company extends its corporate structure into the market place (e.g.,
through use of regional service centers). Furthermore, the petitioners
reviewed the four major categories of selling functions relied upon by the
Department in making its level-of-trade determinations (i.e., sales and
marketing support, freight and delivery, inventory and warehousing, and
quality assurance/warranty services) and, based on their analysis, contend
that in all four areas the selling functions are more advanced for sales
through Valbruna's service centers than for its mill-direct sales. The
petitioners attribute the quantified difference in selling functions to
the fact that these two home market channels of distribution reach
distinct sets of customers. Accordingly, the petitioners conclude that,
for the final determination, the Department should find two distinct
levels of trade in the home market.
With respect to the U.S. levels of trade, the petitioners argue that the
Department should find that CEP and EP sales are sold at the same level of
trade, thereby rejecting Valbruna's claim to treat these as separate
levels of trade. The petitioners assert that Valbruna has not presented
evidence supporting its claim of significant differences in selling
functions between CEP and EP sales and, accordingly, the Department should
not consider Valbruna's CEP and EP sales as being made at distinct levels
of trade.  See, e.g., Circular Welded Non-Alloy Steel Pipe from Mexico:
Final Results of Antidumping Duty Administrative Review, 66 FR 21311
(April 30, 2001), and accompanying Issues and Decision Memorandum, at
Comment 3. Similar to the home market, the petitioners reviewed the four
major categories of selling functions relied upon by the Department in
making its level-of-trade determinations and, based on their own
quantitative and qualitative analysis, contend that CEP and EP sales are
qualitatively and quantitatively similar to one another. Accordingly, the
petitioners conclude that, for the final determination, the Department
should find a single level of trade in the U.S. market.
Finally, the petitioners argue that, based on its own review of the home
market and U.S. levels of trade, all mill-direct sales, whether in the
home market or to the United States, were made at fundamentally the same
level of trade. Accordingly, the petitioners contend that, for the final
determination, the Department should treat all U.S. sales as being made at
the same level of trade as Valbruna's mill-direct sales in the home
market. Where sales between the United States and Italy cannot be matched
by level of trade, the petitioners assert that a level-of-trade adjustment
can be calculated and, therefore, no CEP offset is warranted.
Respondent's Argument: Valbruna claims that the Department correctly
granted a CEP offset in the Preliminary Determination to reflect the
different and more advanced home market level of trade. First, Valbruna
claims that its home market channels of distribution reflect differences
in geography, not customer size, customer importance, or level of selling
services demanded by the customers. Valbruna notes that customers located
in close geographic proximity to Valbruna's service centers purchase from
the service centers, irrespective of the customer's size. Conversely,
customers who are located close to Valbruna's mills or who are not
conveniently located near either the service centers or the mills, are
serviced directly from Valbruna. Valbruna provides an analysis of its
domestic sales by channel of distribution and geographical region, and
concludes that the closer a customer is to the point of sale, the smaller
the average quantity purchased, and that, contrary to the petitioners'
assertions, most of Valbruna's largest Italian customers (and not its
smaller customers) purchased from service centers during the POI
Second, Valbruna contends that the petitioners' quantitative analysis
suffers serious flaws, particularly with regard to early payment
discounts, third-party commissions, and quality-assurance/warranty
expense. Valbruna contends that, for early payment discounts and
commissions, the petitioners divided the extended value of the expense in
the numerator by the extended value of all sales in the respective
channels, rather than just those sales in each channel that actually
received the discount or on which commissions were paid. Valbruna further
argues, with respect to commissions, that the record demonstrates that the
selling services provided in the two channels are similar in nature and
degree, but are structured differently because certain commissioned agents
work in conjunction with an established Valbruna service center and are
promoting service center sales. Also, with respect to quality
assurance/warranty expenses, Valbruna claims that nothing in the record
supports the petitioners' determination that warranties are low for sales
from headquarters and are high on sales from service centers.
Finally, Valbruna asserts that U.S. sales require less selling services
from Valbruna Italy than do home market sales, and that U.S. sales are at
a different and less advanced level of trade. Also, Valbruna argues that
the different selling functions performed by Valbruna Italy for EP and CEP
sales justify a finding that there are two distinct levels of trade in the
United States. Valbruna claims that the record demonstrates that Valbruna
Italy is heavily engaged in providing services to all customers in Italy,
regardless of customer size, location, or category. In contrast, Valbruna
provides substantially less selling services to U.S. customers because
Valbruna has its U.S. affiliate to devote its resources for the promotion
of U.S. sales. Valbruna contends that a comparison of indirect selling
expenses incurred by Valbruna Italy on home market sales versus U.S. sales
supports its contentions. Accordingly, Valbruna concludes that the
Department should affirm its preliminary level-of-trade finding with
respect to Valbruna.
Department's Position: We disagree with the petitioners and have not
changed from our Preliminary Determination LOT finding for Valbruna. In
order to determine whether sales in the comparison market are at a
different level of trade than EP or CEP sales, we examine whether the
comparison market sales were at different stages in the marketing process
than the U.S. sales. We make this determination on the basis of a review
of the distribution system in each market (i.e., the "chain of
distribution"), including selling functions, (5) class of customer
(customer category), and the level of selling expenses for each type of
sale. While different stages of marketing necessarily involve differences
in selling functions, differences in selling functions, even substantial
ones, are not alone sufficient to establish a difference in the level of
trade. 19 CFR 351.412(c)(2). Thus, as different levels of trade are
characterized by purchasers at different places in the chain of
distribution and sellers performing qualitatively or quantitatively
different functions in selling to them, an analysis of the chain of
distribution and of selling functions substantiates or invalidates claimed
levels of trade.
The marketing process in the U.S. and comparison markets begins with the
producer and extends to the sale to the final user or consumer. The chain
of distribution between the two may have many or few links, and a
respondent's sales occur somewhere along this chain. While customer
categories such as "distributor" and "end user" are insufficient, in
themselves, to establish that there is a difference in the level of trade,
we find that these customer categories are typical of the classes of
customers found in the chain of distribution for stainless steel bar.
Accordingly, in the Preliminary Determination, to establish levels of
trade, we considered the customer categories and physical channels of
distribution reported by the respondents to evaluate the chain of
distribution and selling functions. To do so, we considered the narrative
responses of each respondent as well as certain quantifiable information
provided for each reported sales transaction. Quantifiable transactional
information, in such areas as freight and warehousing, allowed us to
evaluate the degree to which customers within the customer categories are
similar with respect to the physical distribution of stainless steel bar.
Based on the comments received, we have revisited our preliminary level
of trade finding with respect to Valbruna, consistent with these general
level of trade principles. The fundamental position underlying the
petitioners' arguments is that Valbruna's home market mill direct sales
and sales through its service centers are two distinct levels of trade and
that the mill direct level of trade is similar to the U.S. CEP and EP
levels of trade. Thus, we first examined our Preliminary Determination
with respect to determining the level of trade in the home market. In the
Preliminary Determination, we made the following determination of
Valbruna's home market level of trade:
Valbruna reported two channels of distribution in the home market, with
two customer categories. The first channel of distribution, coded in its
submissions as channel 1, included sales made to end-users and
distributors by factory headquarters. Sales to both customer categories in
this channel were similar with respect to sales process, freight services,
warehouse/inventory maintenance and warranty service. The second channel
of distribution, coded in its submissions as channel 2, were sales made to
end-users and distributors by service centers. We compared these two
channels of distribution and found that, while they differed slightly with
respect to warehouse/inventory maintenance, they were similar with respect
to sales process, freight services and warranty service. Accordingly, we
preliminarily determine that home market sales in these two channels of
distribution constitute a single level of trade.
Preliminary Determination, 66 FR at 40220-21.
We find no convincing evidence on the record to support the petitioners'
position that each of the selling activities examined by the Department
should be qualitatively and quantitatively at a "high" level through the
service center marketing level and at a "low or medium"level for mill
direct sales. Much of the petitioners arguments are premised on a presumed
correlation between the relative importance of the types of customers
purchasing in each channel of distribution (i.e. large volume national
accounts serviced by the mill versus smaller volume regional or local
customers serviced by the service centers) and the presumed amount of
selling services required by Valbruna to sell to these different groups of
customers. We agree with Valbruna that there is no quantitative or
qualitative support in the record for this presumption by the petitioners.
Further, we find that petitioners over-reliance on quantitative analysis
is not in line with the Department's practice of weighing both the
narrative description of the sales process as well as certain quantifiable
information provided for each reported sales transaction. For example,
with respect to the sales and marketing selling function, whether or not
Valbruna grants an early payment discount and the frequency and
utilization of that discount, is a relatively insignificant selling
activity, as early payment discounts are nothing more than optional term
of sale that is largely left to a customer's discretion to exercise.
Similarly, a practical understanding of the sales effort extended by
Valbruna to sell its product to its customers is more significant than an
empirical analysis of whether the actual amounts of commissions and
indirect selling expenses are higher in sales made by service centers than
mill direct sales. Finally, it is illogical to conclude that warranty
servicing should be categorized high for service centers and low for mill
direct sales simply because warranty expenses are included in indirect
selling expenses and total indirect selling expenses are higher for
service-center sales than for mill direct sales. While the Department does
consider quantifiable information in its level of trade analysis, it
primarily does so in such areas as freight, warehousing, and selective
rebate/discount programs where it is relevant to measure the frequency
with which customers in the channel and/or customer category being
examined utilize a particular selling activity.
Thus, the petitioners' analysis does not provide a basis for changing our
position in the Preliminary Determination that the mill direct and service
center sales are similar with respect to sales process, freight services
and warranty service, and therefore at the same level of trade. There is
also no need to evaluate the merits of petitioners' arguments with respect
to
Valbruna's EP and CEP selling functions, because assuming arguendo that
petitioners' classifications of selling functions for EP and CEP are
correct, the single home market level of trade would still differ
significantly from the petitioners' EP and CEP level of trade with respect
to freight services and warehouse/inventory maintenance.
Accordingly, we continue to find, as we did in the Preliminary
Determination, that Valbruna's EP level of trade differed from the home
market level of trade and, consequently, we could not match the EP sales
to sales at the same level of trade in the home market. Since there was
only one level of trade in the home market, there was no pattern of
consistent price differences between different levels of trade in the home
market, nor do we have any other information that provides an appropriate
basis for determining a level of trade adjustment. Therefore, we have not
made a level of trade adjustment. See section 773(a)(7)(A) of the Act.
Finally, we continue to find, as we did in the Preliminary Determination,
that Valbruna's CEP level of trade differed from the single home market
level of trade and, consequently, we could not match to sales at the same
level of trade in the home market. Since there was only one level of trade
in the home market, there was no pattern of consistent price differences
between different levels of trade in the home market, nor do we have any
other information that provides an appropriate basis for determining a
level of trade adjustment. Accordingly, we have not made a level of trade
adjustment. See section 773(a)(7)(A) of the Act. We therefore determined
normal value based on the single level of trade in the home market, and
because this home market level of trade was at a more advanced stage of
distribution than the CEP level of trade, we made a CEP offset in
accordance with section 773(a)(7)(B) of the Act.
Comment 38: Treatment of Valbruna's Consignment Holding Period
Petitioners' Argument: The petitioners note that Valbruna reported that
it made consignment sales to five U.S. customers, and that Valbruna
treated the costs associated with its consignment inventories as inventory
carrying costs. The petitioners contend that, consistent with its prior
practice, the Department should treat the consignment inventory period as
a direct credit expense rather than as an indirect inventory carrying
cost. See Final Determination of Sales at Less Than Fair Value: Certain
Stainless Steel Wire Rod from France, 58 FR 68865, 68870, 68871 (December
29, 1993) ("Stainless Steel Wire Rod from France") (treating expenses
incurred while merchandise that remains in a respondent's customer's
consignment inventory and is unavailable for sale to any other of
respondent's customers as a direct expense); see also Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Round Wire
from Canada, 64 FR 17324, 17331 (April 9, 1999) ("Stainless Steel Round
Wire") (stating that, if the merchandise in consignment inventory is not
available for sale to other customers, the Department will treat the costs
incurred during the consignment inventory period as direct costs and
consider the credit period as beginning when the merchandise is shipped to
consignment inventory). Inasmuch as the Department confirmed that
merchandise in Valbruna's consignment customers inventory was not
available for sale to any other customers, was never moved from one
consignee to another consignee, ultimate collectibility of the sales price
on the goods shipped to the consignment customers is not uncertain, and in
light of its stated practice, the petitioners conclude that the Department
should treat the consignment inventory period as a direct credit expense.
Respondent's Argument: Valbruna counters that, contrary to the
petitioners' assertion, Stainless Steel Round Wire stands for the
proposition that opportunity costs prior to the sale should be treated as
inventory carrying costs, rather than credit expenses. Similar to the
respondent in that case, the customer was not responsible for payment
until Valbruna issued the usage invoice. Accordingly, Valbruna contends
that the opportunity cost during this period should be treated as Valbruna
Corp.'s inventory carrying expense, not as a credit expense, because the
customer does not owe Valbruna any money until the usage invoice is
issued. Valbruna cites recent authority in support of its position, which,
Valbruna notes, the petitioners have not addressed. See Aramid Fiber
Formed of Poly Para-Phenylene Terephtalamide from the Netherlands; Final
Results of Antidumping Duty Administrative Review, 65 FR 67347, 67348
(November 9, 2000) and Issues and Decision Memorandum, at Comment 1B
("Aramid Fiber") (finding that the opportunity cost of consignment
inventory is captured in the inventory carrying cost calculation).
Finally, Valbruna argues that, if the date of sale does not occur until
the merchandise is withdrawn from the consignment warehouse, then the
opportunity cost for holding the consignment inventory should not be
treated as a credit expense.
Department's Position: We agree with Valbruna. In this case, we examined
Valbruna's consignment arrangements extensively at the CEP verification of
Valbruna Corp. We found that, regardless of the customer category,
Valbruna issues the customers an invoice once it receives a report from
the consignment customers, either in the form of a requisition report from
a distributor or a consumption report from an end-user. With regard to
Valbruna's consignment agreements, we noted that:
These agreements state specifically that Valbruna Corp. maintains title
of merchandise in consignment inventory and that third parties are to be
made aware that the customer is holding Valbruna Corp. merchandise. These
agreements also have provisions that everything in consignment inventory
that is not consumed after a certain time is deemed consumed. Once this
point is reached, Valbruna Corp. will issue the consignment customer an
invoice for the merchandise. If there is a serious concern about a
consignment customer's financial solvency, or if an agreement is
terminated, then, according to the agreements, Valbruna Corp. could take
the merchandise back. However, this did not happen during the POI.
According to Valbruna Corp. officials, legally the product is not
considered sold until the consumption report is received or the permitted
time period has elapsed. Also, because there is a requirement in the
consignment provisions that customers must purchase consigned merchandise
after a certain period (i.e., everything not consumed within a specified
time period is deemed consumed), ultimate collectibility of the sales
price on the goods shipped to consignment customers' warehouse is, for
practical purposes, not uncertain. Company officials confirmed that, in
certain circumstances, the company has invoiced consignment customers for
merchandise not consumed within the preordained period.
Memorandum to John Brinkmann "Verification of the Constructed Export
Price Sales of Acciaierie Valbruna S.p.A. through its U.S. Affiliate,
Valbruna Corporation," dated October 31, 2001, at 8-9.
As explained in the Department's standard antidumping questionnaire,
"{i}nventory carrying costs are the interest expenses incurred (or
interest revenue foregone) between the time the merchandise leaves the
production line at the factory to the time the goods are shipped to the
first unaffiliated customer." Conversely, credit expense "is the interest
expense incurred (or interest revenue foregone) between shipment of
merchandise to a customer and receipt of payment from the customer." In
this case, it is clear that, in the normal course of business, Valbruna
does not consider merchandise as being shipped until it receives a
consumption report from its consignment customers. Until the merchandise
is removed from consignment inventory, Valbruna Corp. maintains title to
the merchandise in the consignment inventory, and thus bears the risks and
enjoys the rewards of ownership. In fact, the consignment customers'
customers are made aware that the merchandise being held in consignment
inventory is not that of the consignment customer, but is Valbruna Corp.'s
merchandise. Although, per the consignment agreement provisions,
collectibility on merchandise in consignment inventory is reasonably
assured, Valbruna Corp. cannot recognize any revenue until it either
receives a consumption report or, alternatively, invoices the consignment
customer after a certain preordained period. Therefore, we find that the
date of shipment for Valbruna's U.S. consignment sales does not occur
until the merchandise is removed from the consignment inventory.
As we held in Aramid Fiber, where a respondent includes consignment
shipments in its own inventory until it is notified by the customer of the
sale, then the related imputed expenses are captured in inventory carrying
costs, such that "any addition to imputed credit expense associated with
consignment sales would double-count the opportunity cost, prior to
invoicing, which is already captured in inventory carrying expense."
Aramid Fiber, at Comment 1B. We find that the facts of this case are
similar to Aramid Fiber and not like those of Stainless Steel Wire Rod
from France and Stainless Steel Round Wire, cited by the petitioners,
which stand for the proposition that the imputed expenses related to
consignment inventory are direct in nature where the merchandise remains
in the inventory of the consignment customer rather than in the
respondent's inventory. Accordingly, we are continuing to treat the
opportunity cost of merchandise remaining in inventory as an indirect
inventory carrying cost.
Comment 39: Valbruna's U.S. Brokerage Expenses
Petitioners' Argument: The petitioners argue that, based on its findings
at verification, it appears that Valbruna understated its U.S. brokerage
expense and, accordingly, the Department should adjust Valbruna's reported
U.S. brokerage expense to reflect the highest brokerage cost discovered at
verification.
Respondent's Argument: Valbruna contends that it did not understate its
U.S. brokerage expenses, for the reasons explained above in Comment 35 and
that its reported brokerage expense accurately reflected its actual
brokerage expenses.
Department's Position: We agree with Valbruna and have not made any
changes to Valbruna's reported U.S. brokerage expense for the final
determination. Although we note that, in one instance, the actual
brokerage charge incurred on a transaction was higher than the average
amount used by Valbruna, as noted in the Valbruna CEP Verification Report,
in most of the broker invoices we surveyed, we found that the actual
brokerage expense was less than the average amount relied upon by
Valbruna. Accordingly, we find that the average amount used by Valbruna
for purposes of calculating the U.S. brokerage expense was reasonable.
Comment 40: Valbruna's U.S. Warranty Expenses
Petitioners' Argument: The petitioners note that, at verification, the
Department discovered that Valbruna did not report as a warranty expense
certain cleaning costs incurred on one sale of subject merchandise.
Accordingly, the petitioners contend that the Department should revise
Valbruna's U.S. sales database treating these cleaning costs as a warranty
expense on this one sale.
Respondent's Argument: Valbruna agrees with the petitioners that this
adjustment should be made, but contends that a corresponding reduction
should be made to indirect selling expenses in order to avoid double-
counting this expense.
Department's Position: We agree with the petitioners and Valbruna and
have made these changes for the final determination.
Comment 41: Valbruna's Unreported Price Adjustment
Petitioners' Argument: The petitioners note that, at verification, the
Department discovered that Valbruna did not report a price adjustment on a
particular U.S. POI sales invoice referred to in sales person call
reports. Accordingly, the petitioners contend that the Department should
revise Valbruna's U.S. sales database to apply a price reduction to all
reported sales observations related to this particular invoice.
Respondent's Argument: Valbruna contends that the Department should not
adjust the price to reflect the sales person call reports because there is
no evidence in the accounting system that this credit was ever granted to
the customer, despite the fact that the call report reflects a request by
the customer for the price adjustment. Valbruna claims that this request
was based on a customer complaint that might be taken into account in
future sales negotiations. Accordingly, Valbruna concludes that this is
not a sufficient basis for adjusting the gross unit price on this
particular invoice. Alternatively, if the Department does make this
adjustment, Valbruna argues that the adjustment should be limited based on
a handwritten notation on the call report suggesting a smaller adjustment
was to be granted to the customer.
Department's Position: We agree with the petitioners and have made this
change for the final determination. In the Valbruna CEP Verification
Report, we noted the following about this price adjustment:
In reviewing the call reports we noted a reference in an August 24, 2000
call report from a Valbruna Corp. salesperson indicating that a credit
would be granted to that customer based on certain previous mill direct
sales to that customer (see Verification Exhibit 6, at 16). * * * There
was no documentation indicating that this credit adjustment was ever
applied in the form of a credit memo and an August 24, 2000 fax from the
Valbruna Corp. sales manager to the customer indicated that such a
discount was inappropriate. However, a later call report dated December
13, 2000, contained the statement that the customer "appreciated our help
with the surcharge adjustment on his one container." Valbruna Corp.
officials acknowledged that a discount was likely given to this customer
in the form of a price adjustment on future sales from inventory. The
documentation showed that Valbruna Corp. did have future mill-direct sales
to this customer in April and May 2001, as well as sales by Valbruna Corp.
from inventory throughout the post-POI period.
Valbruna CEP Verification Report, at 31.
We find that this is sufficient evidence to indicate that a price
adjustment was made to this customer on a sale that occurred during the
POI. Although Valbruna could not show that this credit was ever granted to
the customer in its accounting system, it could not show that the
adjustment had not been granted. Moreover, since Valbruna Corp. officials
acknowledged that a discount was likely given to this customer in the form
of a price adjustment on future sales from inventory, and given that there
were future sales from inventory to this customer that were within the
POI, we believe there is a sufficient basis for adjusting the gross unit
price on this particular invoice. As noted above in Comment 9, the
Department may rely on facts available, pursuant to section 776(a)(2) of
the Act, if an interested party, inter alia, withholds information that
has been requested by the Department or provides such information but the
information cannot be verified as provided in section 782(i). Inasmuch as
Valbruna did not provide this information to the Department, and the price
adjustment discovered at the CEP verification could not be verified, we
are relying on facts available with respect to this price adjustment.
A respondent is charged with knowledge of its own business operations.
See, e.g., Mannesmannrohren-Werke AG v. United States, 120 F. Supp. 2d
1075, 1083 (CIT 2000). The failure of Valbruna to identify the appropriate
price adjustment that it granted to its customer amounts to failure to
cooperate to the best of its ability in this limited instance.
Accordingly, we must make an adverse inference, pursuant to section 776(b)
of the Act, that the price adjustment granted to this customer was the
highest one noted on the call reports, not the smaller adjustment that
Valbruna recommends be used for the final determination.
Comment 42: Valbruna's U.S. Repacking Expenses
Petitioners' Argument: The petitioners note that, at verification, the
Department discovered that Valbruna has a separate line item on most
invoices when it incurs U.S. repacking costs, except that, for one
customer, the cost of this packing is included in the cost of the product
and Valbruna Corp. is not reimbursed separately for this packing cost. For
this particular customer, the Department was able to determine the per-
unit repacking expense. Accordingly, the petitioners contend that the
Department should revise Valbruna's U.S. sales database to deduct the per-
unit repacking expense from the reported sales price for all sales to the
specific customer whose shipments were subject to U.S. repacking. The
petitioners further argue that this per-unit repacking expense should be
deducted from all of Valbruna's U.S. inventory sales because it is clear
that Valbruna increases its U.S. price to charge for U.S. repacking costs,
but that Valbruna did not report these repacking costs on a sale-by-sale
basis, even though the amounts were determinable. Furthermore, the
petitioners contend that this repacking expense should be included in the
calculation of CEP selling expenses for purposes of applying the CEP
profit ratio.
Respondent's Argument: Valbruna agrees that this deduction for repacking
costs should be made for the specific customer to which the costs applied,
but objects to the petitioners' argument that this adjustment should apply
for all inventory customers. Valbruna claims that the record does not
provide any support for deducting these repacking costs from all inventory
sales, but rather indicates that repacking costs occur infrequently and,
when they do, are typically invoiced separately to the customer. Moreover,
Valbruna notes that the warehousing expense account, in addition to
including repacking costs, also including repacking revenue as an offset
to the repacking costs, and that the Department verified that the packing
revenue was not included in sales revenue. Thus, Valbruna concludes that
its treatment of repacking costs does not understate repacking costs and,
therefore, the adjustment made should be limited to the single customer
identified at verification.
Department's Position: We agree with the petitioners in part. For the
final determination, we have revised Valbruna's U.S. sales database to
deduct the per-unit repacking expense from the reported sales price for
all sales to the specific customer whose shipments were subject to U.S.
repacking. However, at verification we found no evidence that this
repacking expense applied to all inventory customers. We noted that
"{w}hile Valbruna Corp. has a separate line item on most invoices when it
incurs additional packing, for this customer the cost of this packing is
included in the cost of the product and Valbruna Corp. is not reimbursed
separately for this packing cost." Valbruna CEP Verification Report, at
25. Although Valbruna Corp. was unable to provide the supporting invoice,
company officials were able to identify the packing costs in their
accounting system. Thus, the record clearly demonstrates that the
repacking expense discovered at verification is not typical in Valbruna
Corp.'s ordinary course of business. Accordingly, we are limiting the
change for the final determination to only that customer for whom we found
the repacking expense applied. Furthermore, we are including this expense
in the calculation of CEP selling expenses for purposes of applying the
CEP profit ratio.
Comment 43: Use of Actual Prices Paid by Valbruna's Customers
Petitioners' Argument: The petitioners note that, at verification, the
Department discovered that one of Valbruna's consignment customers
underpaid Valbruna on a particular invoice, that this customer had a
history of overpaying on some invoices and underpaying on others, and that
at the end of the POI there was a balance due to Valbruna. Accordingly,
the petitioners contend that the Department should use information
obtained at verification to adjust the prices reported by Valbruna for all
sales to this customer to reflect the amounts that were actually paid by
this customer.
Respondent's Argument: Valbruna contends that the Department should not
adjust the gross unit price to the consignment customer because, as
explained above in Comment 35, the record demonstrates that the customer
actually overpaid for the sales under the consignment agreement.
Department's Position: We agree with Valbruna and have not made any
changes to the gross unit price for sales to the consignment customer in
question.
Comment 44: Valbruna's U.S. Indirect Selling Expense Ratio
Petitioners' Argument: The petitioners note that, at the onset of
verification, Valbruna revised its U.S. indirect selling expense after
correcting certain minor errors. Furthermore, at verification, Valbruna
officials agreed with Department verifiers that "Other Income" items
should not have been deducted from the total U.S. indirect selling
expenses. Also, the Department discovered that "Interest Income," which
was also deducted from the total U.S. indirect selling expenses, included
income that should have been recorded in the gain and loss on currency
conversion. Accordingly, the petitioners contend that the Department
should revise Valbruna's U.S. indirect selling expense ratio to exclude
all "Other Income" as well as the "Interest Income" related to the gain
and loss on currency conversions, inasmuch as these items were not selling
expenses during the POI.
Respondent's Argument: Valbruna contends that the revisions to the
indirect selling expense factor should be limited to the items
acknowledged by Valbruna during the course of the CEP verification, i.e.,
changes related to the minor corrections at the onset of verification and
the "Other Income" items. Valbruna objects to the exclusion of "Interest
Income" related to the gain and loss on currency conversions, because
these amounts relate to payables, which, under the Department's rules are
included in general expenses.
Department's Position: At verification, we noted that the "Interest
Income" included income that Valbruna Corp. claims should have been
recorded in the "Gain and Loss on Currency Conversion." See Valbruna CEP
Verification Report, at 29-30. We agree with Valbruna that the
Department's normal practice is to include amounts related to payables in
general expenses. Therefore, we disagree with the petitioners that
Valbruna's offset of its indirect selling expenses through the exclusion
of "Interest Income" was inappropriate. For the final determination,
therefore, we are continuing to include "Interest Income" in the
calculation of the indirect selling expense ratio, but have made all other
revisions to the indirect selling expenses based on our verification
findings.
Comment 45: Valbruna's Home Market Inventory Carrying Costs
Petitioners' Argument: The petitioners argue that the Department should
not allow the home market inventory carrying costs claimed by Valbruna
because, contrary to the provisions of section 773(f)(1)(A) of the Act,
the average inventory holding periods that Valbruna claimed in its
questionnaire responses for its sales in Italy are not consistent with
information in Valbruna's financial statements and do not reasonably
reflect the costs associated with the production and sale of the foreign
like product. The petitioners point out discrepancies between the
information in Valbruna's financial statements and its reported inventory
holding periods, which the petitioners assert that Valbruna has not
explained in any of its responses. Since Valbruna has not provided any
information to substantiate its claimed home market average inventory
holding period, and given that these claimed inventory holding periods and
inventory carrying costs were not verified by the Department, the
Department should disallow Valbruna's claimed home market inventory
carrying costs.
Respondent's Argument: Valbruna counters that its reported inventory
carrying costs should be accepted because the petitioners' analysis did
not include in the numerator the finished goods inventory value of
Bolzano, which was a separate entity in 1999, and included in the
denominator sales to all markets, even though most sales to export
markets are produced to order.
Department's Position: We agree with Valbruna. Based on our review of
record evidence, we find that the average inventory holding periods that
Valbruna claimed in its questionnaire responses for its sales in Italy are
consistent with information in Valbruna's and Bolzano's financial
statements and reasonably reflect the costs associated with the production
and sale of the foreign like product. Accordingly, we find no reason to
deny Valbruna's claimed home market inventory carrying costs for the final
determination.
Comment 46: Valbruna's G&A Expense Ratio
Petitioners' Argument: The petitioners assert that the Department should
revise Valbruna's general and administrative expense ("G&A") ratio to
account for the corrections discovered during verification. Specifically,
the petitioners contend, the Department should include the telephone, EDP,
stationery and service center expenses identified by Valbruna, and the
other non-manufacturing expenses that the verifiers discovered Valbruna
had excluded in the ratio calculation. The petitioners state that these
expenses are associated with the overall operation of the company and
should, therefore, be included in the cost of production in accordance
with the Department's practice of using company-wide G&A expenses to
calculate COP.
Respondent's Argument: Valbruna agrees that its G&A ratio should be
revised to account for the telephone, EDP, stationery, service center and
non-manufacturing expenses identified at verification.
Department's Position: We agree and have included the telephone, EDP,
stationery, service center and other non-manufacturing expenses identified
at verification in the calculation of the G&A ratio. As noted in both
Memorandum to Troy H. Cribb from Holly Kuga, Re: Issues and Decision
Memorandum for the Investigation of Certain Cold-Rolled Flat-Rolled Carbon-
Quality Steel Products from Taiwan dated May 22, 2000 and Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Round Wire
from Taiwan, 64 FR 17336, 17339 (April 9, 1999), in calculating the G&A
ratio it is the Department's practice to include revenues and expenses
that relate to the general operations of the company. Consequently, in
determining whether it is appropriate to include particular items in G&A,
the Department reviews the nature of the items and their relationship to
the general operations of the company. At verification, we determined that
each of these items is related to Valbruna's general operations and have,
therefore, included them in the G&A ratio calculation for the final
determination.
Comment 47: Valbruna's Financial Expense Ratio
Petitioners' Argument: The petitioners argue that the Department should
include depreciation on idle assets in Valbruna's reported G&A expenses.
The petitioners cite Notice of Final Determination of Sales at Less Than
Fair Value: Certain Stainless Steel Wire Rod from Taiwan, 63 FR 40461,
40647 (July 29, 1998) ("Wire Rod from Taiwan") and assert that it is the
Department's practice to include depreciation on idle assets in a
respondent's G&A expenses. The petitioners contend that these types of
expenses should be included in G&A even if they do not relate to the
production of subject merchandise as it is also the Department's practice
to calculate G&A expenses on a company-wide basis. See Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and
Strip in Coils from Japan, 64 FR 30574, 30589 (June 8, 1999) ("SSSSC from
Japan").
The petitioners refer to section 773(f)(1)(A) of the Act whereby the
Department is directed to follow the normal records of a producer if those
records are kept in accordance with the producer's home country GAAP. In
this case, the petitioners contend, Valbruna recorded its depreciation on
idled assets in G&A expenses and has stated that Italian GAAP requires
that idle assets be depreciated.
The petitioners argue that if the Department allows Valbruna to exclude
depreciation on idled assets from its G&A expenses, it should also exclude
the miscellaneous income amounts that Valbruna has used to offset G&A from
the calculation of the G&A ratio. The petitioners maintain that if, as
Valbruna has claimed, the depreciation on idled assets is to be excluded
because it is not related to subject merchandise, then the same standard
should be applied to the miscellaneous income amounts. As Valbruna has
failed to demonstrate that any of these items are related to the
production of stainless steel bar, the petitioners contend, they would
also have to be excluded from G&A.
Respondent's Argument: Valbruna disagrees with the petitioners' argument
that depreciation on idle assets should be included in the calculation of
the G&A ratio. According to Valbruna, the company excluded this
depreciation because the idled assets to which it was related were clearly
unrelated to the production of subject merchandise or to Valbruna's
operations. Valbruna claims that two of the three assets in question were
foundries that were used to produce steel castings that are completely
unrelated to the production of stainless steel bar and are unrelated to
the operations of the Vicenza and Bolzano plants. Valbruna states that the
third asset was a building that also was not related to the production or
operations of either plant. Thus, Valbruna argues, there is no reason for
the depreciation of these idled assets to affect the COP calculation for
stainless steel bar.
Moreover, Valbruna refutes the petitioners' assertion that if the
Department allows Valbruna's exclusion of depreciation on idled assets
from its G&A expenses it should also exclude the miscellaneous income
amounts that were used to offset G&A. According to Valbruna, the
miscellaneous income amounts are related to the general operations of the
company. Moreover, Valbruna asserts, the company used the same criteria
for both income and expense items to determine which items should be
included in the G&A ratio.
Department's Position: We disagree with Valbruna that we should exclude
its depreciation on idled assets from the calculation of the G&A ratio.
Although we acknowledge that the idled assets in question were unrelated
to the production of subject merchandise, we consider such depreciation to
be more closely related to the accounting period and the operations of the
company as a whole rather than the current manufacturing costs for
specific products. Our practice, therefore, has been to include
depreciation on idle assets as part of G&A. See Wire Rod from Taiwan,
SSSSC from Japan and Silicon Metal from Brazil: Notice of Final Results of
Antidumping Duty Administrative Review, 64 FR 6305, 6313 (February 9,
1999). Additionally, the Department verified that Valbruna recorded its
depreciation on idled assets in G&A expenses in its unconsolidated
financial statements. Thus, for purposes of the final determination, we
have included Valbruna's depreciation on idled assets in the calculation
of the G&A ratio.
In view of the above, we note that the petitioners' argument that the
Department should exclude miscellaneous income amounts if its allows
Valbruna to exclude depreciation on idled assets from its G&A expenses is
moot.
Comment 48: Inclusion of Depreciation Expense in Valbruna's Reported
Manufacturing Costs
Petitioners' Argument: The petitioners contend that the Department should
revise Valbruna's reported cost of manufacturing to include the total
depreciation expense recorded in the company's fiscal year 2000
unconsolidated financial statements. The petitioners point out that under
section 773(f)(1)(A) of the Act, the Department is directed to calculate
costs based on the normal records of a producer if those records are kept
in accordance with the producer's home country GAAP. The petitioners argue
that Valbruna's depreciation expense calculated based on revalued asset
values is recorded in its audited financial statements and that the
company itself has stated that its accounting practices are in accordance
with Italian GAAP. Therefore, the petitioners contend, that is the expense
that should have been included in the reported cost of manufacturing, and
not the depreciation expense calculated based on historical asset values
submitted to the Department. Moreover, the petitioners assert, it is the
Department's practice to include depreciation expense on revalued assets
in the cost of production. See Notice of Final Determination of Sales at
Less Than Fair Value: Certain Cut-to-Length Carbon-Quality Steel Plate
Products from France, 64 FR 73143, 73153 (December 19, 1999) ("CTL Plate
from France").
Respondent's Argument: Valbruna argues that the Department should
continue to calculate depreciation on the basis of historical cost.
Valbruna holds that historical cost is the appropriate basis for product
cost purposes because that is the basis on which depreciation is
calculated in its cost accounting system and in its audited consolidated
financial statements. The only place where depreciation is calculated on a
revalued asset basis, Valbruna asserts, is in the unconsolidated financial
statements, of which the primary purpose is to determine taxable income.
Valbruna refers to section 773(f)(1)(A) of the Act and states that costs
should normally be calculated based on the records of the exporter or
producer of the merchandise if such records are kept in accordance with
GAAP of the exporting country and reasonably reflect the costs associated
with the production and sale of the merchandise. The Department has
discretion to accept a cost methodology, Valbruna asserts, as long as it
does not distort a company's true costs. Accordingly, Valbruna argues,
Department precedent reflects the acceptance of both historical and
revalued depreciation methods in previous cases. See Final Determination
of Sales at Less Than Fair Value: Circular Welded Non-Alloy Steel Pipe
from the Republic of Korea, 57 FR 42942 (September 17, 1992) and Stainless
Steel Hollow Products from Sweden; Preliminary Results of Antidumping Duty
Administrative Review, 58 FR 69332 (December 30, 1993).
Valbruna argues that the record in this case demonstrates that using the
depreciation based on historical asset values is consistent with the
company's books and records and accurately reflects the cost of producing
the merchandise under investigation. Moreover, Valbruna asserts, the
Department verified that its cost accounting system calculates costs on
the basis of historical asset values and that the same basis is used in
the company's audited consolidated financial statements. Valbruna
maintains that the Department verified that Valbruna revalued its assets
only in its unconsolidated financial statements and solely for tax
purposes.
According to Valbruna, the record in this case establishes that using a
depreciation expense based on asset values calculated for tax purposes
highly distorts its cost of producing subject merchandise during the POI.
In past cases, Valbruna asserts, the Department has ruled that
depreciation calculated for tax purposes should not be used in calculating
costs where the historical value of the assets is unaffected. See Fresh
and Chilled Atlantic Salmon from Norway; Final Results of Antidumping Duty
Administrative Review, 58 FR 37912 (July 14, 1993) ("Salmon from Norway").
The only effect of the revaluation of its assets, Valbruna contends, is to
reduce the company's income tax, which is not relevant to the cost of
producing subject merchandise.
Department's Position: We agree with the petitioners that the Department
should revise Valbruna's reported cost of manufacturing to include the
total depreciation expense recorded in the company's fiscal year 2000
unconsolidated financial statements. Under section 773(f)(1)(A) of the
Act, the Department adheres to an individual manufacturer or exporter's
recording of costs in its books and records if such records are kept in
accordance with its home country GAAP and reasonably reflect the costs
associated with the production of the merchandise under investigation.
During fiscal year 2000 Valbruna merged with Acciaierie di Bolzano S.p.A.
In accordance with Italian GAAP and as a result of the merger, the fixed
assets of the newly created entity were revalued to more accurately
reflect their current valuation. The revalued asset amounts were
recognized in Valbruna's balance sheet, depreciation was calculated based
on the revalued fixed asset amounts, and the revalued depreciation expense
was recognized in the company's income statement. As the revalued asset
amounts more closely compare to the assets' appraised values (see Cost
Verification Exhibit D2) than the historical net asset values, we deem it
reasonable for Valbruna to calculate depreciation expense based on the
revalued fixed asset amounts as recorded in its normal books and records.
Our normal practice has been to rely on the depreciation expense recorded
in the reporting company's financial statements, including instances where
that depreciation expense is calculated based on revalued asset amounts.
See, e.g., CTL Plate from France, Silicon Metal from Brazil; Final Results
of Antidumping Duty Administrative Review, 64 FR 6305, 6321 (February 9,
1999) and Porcelain-on-Steel Cookware from Mexico: Notice of Final Results
of Antidumping Duty Administrative Review, 62 FR 25907, 25913 (May 12,
1997). This practice was upheld by the Court of International Trade
("CIT"). See, e.g., Laclede Steel Co. v. United States, Slip 94-160 at 24
(CIT 1994) and Cinsa S.A. de C.V. v. United States, 966 F. Supp 1230, 1234
(CIT 1997).
We disagree with Valbruna's assertion that historical cost is the
appropriate basis to calculate depreciation for cost reporting purposes
because it is the basis on which depreciation is calculated in its cost
accounting system and its consolidated financial statements. Section
773(f)(1)(A) specifically directs the Department to rely on the financial
statements of the manufacturer or exporter, not the financial statements
of the consolidated entity or the company's cost accounting system. We
also disagree with Valbruna's reliance on Salmon from Norway in its
argument that depreciation expense calculated for tax purposes distorts
the cost of producing subject merchandise. In that case, the Department
found that the depreciation in question did not appear to be a current
income statement cost, but rather an appropriation to an account that
reflects the difference between ordinary depreciation and tax depreciation.
Comment 49: Valbruna's Claimed Inventory Adjustment
Petitioners' Argument: The petitioners argue that the Department should
not allow Valbruna's claimed inventory change adjustment. According to the
petitioners, Valbruna's claimed adjustment contains the same defects that
led the Department to disallow a similar adjustment claimed by Valbruna in
Final Determination of Sales at Less Than Fair Value: Stainless Steel Bar
from Italy, 59 FR 66921, 66929 (December 28, 1994) ("Stainless Steel Bar
from Italy"). Both adjustments, the petitioners assert, include beginning
and ending inventories and, therefore, convert cost of manufacturing to
cost of goods sold. The petitioners also claim that in both Stainless
Steel Bar from Italy and the current investigation, Valbruna used the last-
in first-out ("LIFO") method to value its inventories and that this should
result in costs similar to current costs.
The petitioners assert that the inventory change adjustment appears
irrelevant to the calculation of COP and that it is unclear why it is
warranted. As the Department stated in Stainless Steel Bar from Italy, the
petitioners assert, Valbruna's use of the LIFO inventory method should
mean that Valbruna's raw material costs should closely reflect the cost of
materials consumed in production during the POI. Further, the petitioners
contend, Valbruna recorded this LIFO inventory in its separate company
financial statements. The petitioners argue that under section
773(f)(1)(a) of the Act, the Department is directed to calculate costs
based on the normal records of a producer if those records are kept in
accordance with the producer's home country GAAP. Therefore, the
petitioners assert, the Department should use the LIFO inventory costs
reflected in Valbruna's financial records.
The petitioners maintain that the Department allowed Valbruna to report
its COP based on calendar year 2000 data rather than POI data in part
because Valbruna claimed that its costs were higher during 2000.
Valbruna's inventory change adjustment, the petitioners argue, appears to
be an attempt to roll back the period for computing its raw materials
costs because it is based on the difference in the average prices of raw
materials in its inventory at the end of 1999 and at the end of 2000.
Respondent's Argument: Valbruna claims that the reported cost of
manufacture should be adjusted by the amount of its verified inventory
adjustment. Valbruna refutes the petitioners' argument that the inventory
adjustment should be rejected on the grounds that the same adjustment was
rejected in Stainless Steel Bar from Italy. In that case, Valbruna
asserts, the Department recognized the reasonableness of its claim, but
denied the adjustment because (1) it included finished goods inventory in
the calculation and converted the cost of manufacture into cost of goods
sold, and (2) the current cost method used for reporting purposes is
similar to the LIFO method used for financial accounting purposes.
Valbruna contends that it has addressed both of those concerns in the
instant proceeding. Valbruna asserts that the inventory adjustment
submitted in this investigation eliminates finished goods inventory from
the calculation and that the Department recognized that the adjustment was
made only to measure the price effects between current costing and LIFO
valuation.
Valbruna argues that the purpose of the inventory adjustment is to adjust
the reported unit cost of manufacturing, which is based on the current
cost of raw materials, to reflect the benefit of being able to use lower
priced opening inventory. Valbruna objects to the petitioners' assertion
that its inventory adjustment is an attempt to roll back the period for
computing raw material costs and suggests that the adjustment is instead
an attempt to properly value the cost of raw materials consumed during the
cost reporting period. The Department should continue to include the
inventory adjustment in its final determination, according to Valbruna, in
order to accurately reflect the average cost of consumption rather than
purchases in fiscal year 2000.
Department's Position: We disagree with Valbruna that the Department
should allow its claimed inventory change adjustment. The Department
disallowed a similar adjustment in Stainless Steel Bar from Italy and we
continue to consider the adjustment inappropriate. The adjustment that
Valbruna is claiming is not recorded in its normal books and records.
Section 773(f)(1)(A) of the Act requires the Department to use the
producer's normal accounting records if they are kept in accordance with
GAAP of the producing country and they reasonably reflect the cost to
produce the merchandise under consideration. While Valbruna has shown that
by using different cost assumptions it can calculate a different cost for
the merchandise under consideration, it has failed to demonstrate that the
company's normal inventory valuation method distorts the cost of producing
stainless steel bar.
Companies have numerous options with regard to how they value inventory
(e.g., LIFO, FIFO, weighted-average, etc.). No one method is deemed better
than another. Usually, the decision as to which method to use is driven by
the unique characteristics of the industry and the company involved. Once
an inventory valuation method is adopted, consistency in applying the
method is critical. In Valbruna's case, it has consistently used the LIFO
inventory method in its normal books and records. Other than the fact that
it results in a higher cost of manufacturing for antidumping purposes,
Valbruna has provided no evidence that its normal costing and inventory
valuation methods unreasonably state costs. Thus, for the final
determination we have not adjusted Valbruna's cost of production by its
proposed inventory change adjustment.
Finally, we disagree with Valbruna's assertion that the Department
recognized that the inventory adjustment was made only to measure the
price effects between current costing (i.e., the reporting methodology)
and LIFO valuation. Evidence obtained at verification clearly demonstrates
that the LIFO methodology followed in the company's normal books and
records closely reflects the methodology used for reporting purposes. See
Cost Verification Exhibits B3 and C1. Thus, there are no price effects
between them and no need to calculate an inventory adjustment.
Comment 50: Treatment of Unreconciled Differences in Valbruna's Cost of
Manufacture
Petitioners' Argument: The petitioners argue that the Department should
continue to adjust Valbruna's reported cost of manufacturing to account
for unreconciled differences. The petitioners note that the verification
report identified an unreconciled difference between the total cost of
manufacturing in Valbruna's questionnaire response and the total cost of
manufacturing in its cost accounting system and that this difference has
not been explained. The petitioners cite Notice of Final Determination of
Sales at Less Than Fair Value: Certain Stainless Steel Wire Rods from
France, 58 FR 68865, 68874 (December 29, 1993) and maintain that in past
cases where there were unreconciled differences in cost the Department has
adjusted the respondents' reported cost data to account for these
differences. According to the petitioners, Valbruna has provided no reason
for the Department to depart from its practice in this case. Further, the
petitioners suggest that the adjustment should be calculated by dividing
the unreconciled difference by the submitted cost of manufacturing subject
merchandise.
Respondent's Argument: Valbruna argues that the Department should not
increase the reported cost of manufacturing for the amount of its
unreconciled difference. Valbruna asserts that the adjustment made in the
preliminary determination was not warranted and that it has demonstrated
through its responses and verification that it reported its COP and CV
data accurately. According to Valbruna, the difference between the total
reported cost and the cost of manufacturing as reported in the cost
accounting system is inconsequential and shows that no adjustment is
necessary. If the Department does decide to make an adjustment, Valbruna
holds, then it should use the verified information in the cost
verification report and exhibits. Valbruna argues that petitioners'
suggested calculation of the unreconciled difference should not be used
because it incorrectly expresses the difference as a percentage of subject
merchandise only instead of the total cost of manufacturing both subject
and non-subject merchandise.
Department's Position: We agree with the petitioners that the Department
should adjust Valbruna's reported cost of manufacturing to account for the
unreconciled difference between the total cost of manufacturing in its
cost accounting system and the reported costs. Our normal practice is to
include such items in the calculation of COP and CV unless the respondent
can identify and document why the amount does not relate to the
merchandise under investigation. See, e.g., Notice of Final Determination
of Sales at Less Than Fair Value: Certain Hot-Rolled Flat-Rolled Carbon-
Quality Steel Products from Brazil, 64 FR 38756, 38785 (July 19, 1999)
("Hot-Rolled Steel from Brazil"). In this case, Valbruna was unable to
identify the amount as specifically related to either subject or non-
subject merchandise. Because it is possible that the entire unreconciled
amount relates to subject merchandise, for the final determination we have
increased Valbruna's reported cost of manufacturing for the full amount of
the unreconciled difference.
Comment 51: Foreign Exchange Gains and Losses on Accounts Payable
Petitioners' Argument: The petitioners argue that the Department should
revise Valbruna's G&A expenses to include the total net foreign exchange
losses on accounts payable. The petitioners assert that the Department's
stated practice is to include foreign exchange gains and losses on
accounts payable in G&A, include foreign exchange gains and losses on
financing transactions in interest expense and exclude foreign exchange
gains and losses on accounts receivable. See Hot-Rolled Steel from Brazil.
The petitioners assert that Valbruna did not identify the sources of its
foreign exchange gains and losses prior to verification, and also shifted
its estimated net foreign exchange losses on accounts payable from its
reported G&A expenses to its reported financial expenses. The petitioners
argue that the Department's findings in its verification report contain
the information needed to identify the actual total net foreign exchange
losses on accounts payable, and that this amount should be included in
Valbruna's reported G&A expenses, not its financial expenses.
Respondent's Argument: Valbruna claims that all foreign exchange gains
and losses associated with production were included in the calculation of
its financial expense factor. Valbruna does not object, however, to the
petitioners' argument that the total net foreign exchange losses on
accounts payable should be included in G&A expenses, as long as the amount
is excluded from the calculation of the financial expense factor.
Department's Position: We agree with the petitioners that the Department
should revise Valbruna's G&A ratio to include the total net foreign
exchange loss on accounts payable. Our normal practice is to distinguish
between exchange gains and losses realized or incurred in connection with
sales transactions and those associated with purchase transactions. See
Hot-Rolled Steel from Brazil, Notice of Final Determination of Sales at
Less Than Fair Value: Steel Wire Rod from Trinidad and Tobago, 63 FR 9177,
9182 (February 24, 1998) and Notice of Final Determination of Sales at
Less Than Fair Value: Stainless Steel Round Wire from Canada, 64 FR 17324,
17334 (April 9, 1999). We normally include exchange gains and losses
associated with purchase transactions in the G&A ratio calculation. See
Hot-Rolled Steel from Brazil.
As noted by the petitioners, the Department obtained information at
verification that enables it to identify the actual net exchange loss on
accounts payable. Accordingly, for purposes of the final determination, we
have included the verified net foreign exchange loss on accounts payable
in the calculation of the G&A ratio. We have also addressed Valbruna's
concern noted above and excluded this amount from the calculation of the
financial expense factor.
Comment 52: Foreign Exchange Gains and Losses on Financing
Petitioners' Argument: The petitioners argue that the Department should
revise Valbruna's financial expense ratio based on the net foreign
exchange loss information obtained at verification. Specifically, the
petitioners argue that the Department should include the exchange loss on
U.S. dollar loans, the net exchange loss on cash and other, and the
unrealized foreign exchange loan losses in the calculation of the
financial expense ratio because they were all incurred as a result of
Valbruna's financing transactions. It is the Department's stated practice,
the petitioners maintain, to include exchange gains and losses from
financing operations in the calculation of the financial expense ratio.
See Hot-Rolled Steel from Brazil.
Respondent's Argument: Valbruna agrees with the petitioners' argument
that the Department should adjust the financial expense ratio to account
for foreign exchange gains and losses associated with financing. Valbruna
argues, however, that the portion related to the net exchange loss on cash
and other should be allocated evenly between accounts payable and accounts
receivable rather than allocated completely to accounts payable.
Department's Position: We agree with the petitioners that the Department
should revise Valbruna's financial expense ratio based on the information
on net foreign exchange losses obtained at verification. We normally
include foreign exchange gains and losses from financing transactions in
the calculation of the financial expense ratio. See Hot-Rolled Steel from
Brazil. Therefore, we have included the exchange loss on U.S. dollar
loans, the net exchange loss on cash and other, and the unrealized foreign
exchange loan losses in the ratio calculation.
As for Valbruna's assertion that the Department should divide the net
exchange loss on cash and other evenly between accounts payable and
accounts receivable, we find that evidence on the record does not support
this treatment. We verified the amount of foreign exchange gains and
losses from accounts payable, accounts receivable, U.S. dollar loans and
cash and other as recorded in Valbruna's financial accounting system and
we find no basis to conclude that the verified amounts should not be used
for the final determination. Additionally, because cash accounts are
generally associated with a company's net financing activity, we included
the net exchange gains and losses generated from these accounts in the
financial expense ratio calculation.
RECOMMENDATION
Based on our analysis of the comments received, we recommend adopting all
of the above positions and adjusting all related margin calculations
accordingly. If these recommendations are accepted, we will publish the
final determination of this investigation and the final weighted-average
dumping margins for all investigated firms in the Federal Register.
AGREE _________ DISAGREE _________
_______________________
Faryar Shirzad
Assistant Secretary
  for Import Administration
_______________________
Date
______________________________________________________________________
footnotes:
1. See European Communities - Anti-Dumping Duties on Imports of Cotton-
Type Bed Linen from India, Report of the Appellate Body, WT/DS141/AB/R
(March 1, 2001), affirming European Communities - Anti-Dumping Duties on
Imports of Cotton-Type Bed Linen from India, Report of the Panel,
WT/DS141/R (October 30, 2000) ("Bed Linen from India").
2. See Bowe Passat Reinigungs - Und Waschereitechnik GmbH v. United
States, 926 F. Supp. 1138, 1150 (CIT 1996).
3. See, e.g. Certain Stainless Steel Wire Rods from France, 58 FR 68865
(1993), Certain Stainless Steel Wire Rods from France, 63 FR 30185 (1998),
and Stainless Steel Sheet and Strip in Coils from France, 64 FR 30820
(1999).
4. See, e.g., Final Determination of Sales at Less Than Fair Value:
Coated Groundwood Paper from Belgium, Finland, France, Germany and the
United Kingdom, 56 FR 56359 (November 4, 1991).
5. Selling functions associated with a particular chain of distribution
help us to evaluate the level(s) of trade in a particular market. For
purposes of this final determination, we have organized the common SSB
selling functions into four major categories: sales process and marketing
support, freight and delivery, inventory and warehousing, and quality
assurance/warranty services. Other selling functions unique to specific
companies were considered, as appropriate.