[Federal Register Volume 62, Number 190 (Wednesday, October 1, 1997)]
[Notices]
[Pages 51427-51437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26045]



[[Page 51427]]

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DEPARTMENT OF COMMERCE

International Trade Administration
[A-583-826]


Notice of Final Determination of Sales at Less Than Fair Value: 
Collated Roofing Nails From Taiwan

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

EFFECTIVE DATE: October 1, 1997.

FOR FURTHER INFORMATION CONTACT: Everett Kelly at (202) 482-4194, or 
Brian Smith at (202) 482-1766, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Tariff Act of 1930 (``the Act'') by 
the Uruguay Round Agreements Act (``URAA''). In addition, unless 
otherwise indicated, all citations to the Department regulations are to 
19 CFR Part 353, as the codified on April 1, 1997. Although the 
Department's new regulations, codified at 19 CFR 351 (62 FR 27296 (May 
19, 1997) (``Final Regulations''), do not govern this investigation, 
citations to those regulations are provided, where appropriate, as a 
statement of current departmental practice.

Final Determination

    We determine that collated roofing nails (``CR nails'') from Taiwan 
are being sold in the United States at less than fair value (``LTFV''), 
as provided in section 735 of the Act as amended (``the Act''). The 
estimated margins are shown in the ``Suspension of Liquidation'' 
section of this notice.

Case History

    Since the preliminary determination in this investigation (see 
Notice of Preliminary Determination and Postponement of Final 
Determination: Collated Roofing Nails from Taiwan, 62 FR 25904 (May 12, 
1997)), the following events have occurred:
    In June 1996, we attempted to verify the questionnaire responses of 
the following respondents: Unicatch Industrial Co. Ltd. (``Unicatch''), 
Lei Chu Enterprises Co., Ltd (``Lei Chu''), S&J Wire Products Company, 
Ltd. (``S&J''), and Romp Coil Nail Industries (``Romp'').
    The Paslode Division of Illinois Tool Works Inc. (``Petitioner''), 
Unicatch, Lei Chu, and Romp submitted case briefs on July 30, 1997, and 
rebuttal briefs on August 5, 1997. The Department held a public hearing 
on August 7, 1997.

Scope of Investigation

    The product covered by this investigation is CR nails made of 
steel, having a length of \13/16\ inch to 1\13/16\ inches (or 20.64 to 
46.04 millimeters), a head diameter of 0.330 inch to 0.415 inch (or 
8.38 to 10.54 millimeters), and a shank diameter of 0.100 inch to 0.125 
inch (or 2.54 to 3.18 millimeters), whether or not galvanized, that are 
collated with two wires.
    CR nails within the scope of this investigation are classifiable 
under the Harmonized Tariff Schedule of the United States (``HTSUS'') 
subheadings 7317.00.55.06. Although the HTSUS subheadings are provided 
for convenience and customs purposes, our written description of the 
scope of this investigation is dispositive.

Period of Investigation

    The period of this investigation (``POI'') for all respondents is 
October 1, 1995, through September 30, 1996.

Facts Available

A. K. Ticho

    We did not receive a response to our questionnaire from K. Ticho, 
an exporter of the subject merchandise during the POI. Section 
776(a)(2) of the Act requires the Department to base its determination 
on the facts available when interested parties withhold information 
specifically requested by the Department. Because K. Ticho failed to 
submit information that the Department specifically requested, we must 
base our determination for that company on the facts available. Section 
776(b) provides that an adverse inference may be used against a party 
that has failed to cooperate by not acting to the best of its ability 
to comply with a request for information. The Department has determined 
that by failing to respond, K. Ticho has not acted to the best of its 
ability to comply with our request for information and, therefore, in 
selecting from among the facts otherwise available, an adverse 
inference is warranted.
Romp
    Romp reported sales and cost data based on unaudited financial 
statements. At verification, we were unable to reconcile Romp's 
financial statements to its tax return or any other independent source 
(see Romp Coil Cost Verification Report, July 18, 1997). In situations 
where a respondent does not have audited financial statements, the 
Department may use the company's tax return as an independent source to 
substantiate the company's questionnaire responses (see Final Results 
of Antidumping Administrative Review: Fresh Cut Flowers from Mexico; 60 
FR 49569-49572 (September 26, 1995)). In this instance, because we were 
unable to reconcile Romp's financial statements to its tax return, we 
determined that the financial statements were unreliable and unusable 
as we were unable to confirm the quantity and value reported as well as 
confirm that all sales made by Romp during the POI were reported to the 
Department. Section 776(a)(2)(D) of the Act requires the Department to 
base its determination on the facts available when information, but 
that information submitted by a party cannot be verified as provided in 
section 782(i). Accordingly, we must base our determination for Romp on 
the facts available.
    Section 776(b) provides that an adverse inference may be used 
against a party that has failed to cooperate to the best of its 
ability. We have determined that by failing to provide us the financial 
statements used to prepare Romp's tax return for purposes of testing 
the reliability and accuracy of reported costs, expenses, and the value 
of sales during the POI, Romp has not acted to the best of its ability 
in this investigation. Further, the information in the financial 
statements that Romp provided to the Department's verifiers cannot 
serve as a reliable basis for our final determination. While the 
Department attempts to work within the limitations presented by the 
respondent's normal accounting systems, as a threshold matter, the 
Department must ensure that the total amount of reported sales and 
costs during a particular investigation are fully captured in the 
information submitted to the Department. This is especially so in cases 
involving cost of production and constructed value, in which the 
Department must ensure that the total amount of the reported costs 
account for all actual costs incurred by the respondent in producing 
the subject merchandise during the period under examination. Despite 
prior notice by the Department of the intended verification procedures, 
Romp never notified the Department that it was unable to provide a 
reliable independent source to substantiate the data contained in its 
unaudited financial statements. Therefore, in light of the importance 
of this data to the Department's determination, we have determined that 
in selecting from among the facts

[[Page 51428]]

available, an adverse inference is warranted.

Selection of Adverse Facts Available Margin

    As adverse facts available, we considered the highest margin 
contained in the petition (as recalculated by the Department at 
initiation) as the most appropriate information on the record to form 
the basis for dumping margins for K.Ticho and Romp. Section 776(c) of 
the Act provides that where the Department selects from among the facts 
otherwise available and relies on ``secondary information,'' such as 
the petition, the Department shall, to the extent practicable, 
corroborate that information from independent sources reasonably at the 
Department's disposal. The Statement of Administrative Action 
accompanying the URAA, H.R. Doc. No. 316, 103d Cong., 2d Sess at 870 
(1994) (``SAA''), states that ``corroborate'' means to determine that 
the information used has probative value.
    To corroborate the data contained in the petition, we examined the 
basis for the estimated margins. The petitioner based its allegation of 
export price on price quotes from two manufacturer/exporters of CR 
nails in Taiwan and import statistics. These price quotations were 
adjusted for movement expenses using customs data and IM-145 Import 
Statistics. See Notice of Initiation of Collated Roofing Nails from 
Korea, Taiwan and the People's Republic of China, 61 FR at 67307-08. As 
explained in Final Determination of Sales at Less Than Fair Value: 
Certain Pasta From Turkey, 61 FR 30309 (June 14, 1996), we consider 
information from independent public sources, such as import statistics, 
as having probative value. Furthermore, the two price quotes in the 
petition are consistent with export prices reported by the respondents 
on the record of this investigation. Therefore, we determine that the 
export price calculations set forth in the petition have probative 
value.
    The petitioner based Normal Value (``NV'') on Constructed Value 
(``CV''). See Notice of Initiation. To calculate CV, the petitioner 
used manufacturing costs based on its own production experience, its 
1995 audited financial statements, and publicly available industry 
data. Id. The CV calculations in the petition are consistent with the 
CVs reported by the respondents on the record of this investigation. As 
such, we determine that the NV calculations have probative value. (see 
Memorandum, dated May 5, 1997.)
    Based on our reexamination of the price information supporting the 
petition, we determine that the highest margin in the petition, as 
recalculated by the Department corroborated within the meaning of 
section 776(c) of the Act.

Fair Value Comparisons

Unicatch, Lei Chu, S&J

    To determine whether sales of the subject merchandise by Unicatch, 
Lei Chu, and S&J to the United States were made at less than fair 
value, we compared the Export Price (``EP'') or Constructed Export 
Price (``CEP'') to the NV, as described in the ``Export Price'' and 
``Constructed Export Price,'' and ``Normal Value'' sections of this 
notice, below. In accordance with section 777A(d)(1)(A)(i) of the Act, 
we compared POI-wide weighted-average EPs or CEPs to weighted-average 
NVs.
    In making our comparisons, in accordance with section 771(16) of 
the Act, we considered all products sold in the home market, fitting 
the description specified in the ``Scope of Investigation'' section of 
this notice, above, to be foreign like products for purposes of 
determining appropriate product comparisons to U.S. sales. Unicatch, 
Lei Chu, and S&J reported that they had no viable home market or third 
country sales during the POI. We therefore made no price-to-price 
comparisons. See the ``Normal Value'' section of this notice, below, 
for further discussion.

Level of Trade and CEP Offset

    In the preliminary determination, where that we used each 
respondent's financial statements to derive SG&A and profit for the CV 
calculations, the Department determined that there was insufficient 
evidence on the record to justify a level of trade adjustment or CEP 
offset because we were unable to isolate the particular selling 
expenses associated with each respondent's NV. We found no evidence at 
verification to warrant a change from that preliminary determination. 
Accordingly, we have not made either a LOT adjustment or CEP offset for 
any of the respondents in this final determination.

Export Price and Constructed Export Price

    We calculated EP and CEP, as appropriate, in accordance with 
section 772(a), (c) and (d) of the Act, where the CR nails were sold 
directly to the first unaffiliated purchaser in the United States prior 
to importation and where CEP was not otherwise warranted based on the 
facts of record. The calculation for each respondent was based on the 
same methodology used in the preliminary determination, with the 
following exceptions:
    Unicatch--We made changes to the following fields based on 
Unicatch's pre-verification corrections and verification findings: 
Payment Date; Invoice Number; Quantity (Cartons); Gross Unit Price; 
Discounts; U.S. Inland Freight from port to warehouse and warehouse to 
customer; warranties; international freight, brokerage and handling 
(Taiwan); port charges; marine insurance; U.S. duties; Duty Drawback; 
Indirect Selling Expenses; Inventory Carrying Costs; Packing. In 
addition we deleted certain sales of non-subject merchandise and added 
sales found at verification. See Valuation Memorandum dated September 
24, 1997.
    Lei Chu--We made changes to the following fields based on Lei Chu's 
pre-verification corrections and verification findings: Payment Date; 
Sales Terms; Port Charges; Bank Charges; Marine Insurance; Invoice 
Number; Gross Unit Price; Sale Date; Taiwan Inland Freight from plant 
to port; International freight, Brokerage and Handling (Taiwan). See 
Valuation Memorandum dated September 24, 1997.
    S&J--We made changes to the following fields based on S&J's pre-
verification corrections and verification findings: Inland freight; 
Brokerage and Handling, International Freight. In addition, we included 
sales reported by S&J's affiliate New Lan Luang (see Comment 17). See 
Valuation Memorandum dated September 24, 1997.

Normal Value

    In order to determine whether there is a sufficient volume of sales 
in the home market to serve as a viable basis for calculating NV (i.e., 
the aggregate volume of home market sales of the foreign like product 
is greater than five percent of the aggregate volume of U.S. sales), we 
compared each respondent's volume of home market sales of the foreign 
like product to the volume of U.S. sales of the subject merchandise, in 
accordance with section 773(a)(1)(C) of the Act. Unicatch, Lei Chu, and 
S&J reported that they had no home market sales during the POI. 
Therefore, we have determined that none of the respondents have a 
viable home market. Because Unicatch, Lei Chu, and S&J also reported 
that they had no viable third country sales during the POI, we based NV 
on CV in accordance with section 773(a)(4) of the Act.

Calculation of CV

    In accordance with section 773(e)(1) of the Act, we calculated CV 
based on the sum of each respondent's cost of materials, fabrication, 
Selling, General

[[Page 51429]]

and Administrative expenses (``SG&A''), profit and U.S. packing costs 
as reported in the U.S. sales listings. In this case, none of the 
respondents had home market selling expenses or home market profit upon 
which to base CV in accordance with section 772(e)(2)(A).
    Section 773(e)(2)(B) of the Act sets forth three alternatives for 
computing profit and SG&A without establishing a hierarchy or 
preference among the alternative methods. We did not have the necessary 
cost data for method one (calculating SG&A and profit incurred by the 
producer on the home market sales of merchandise of the same general 
category as the exports in question), or method two (averaging SG&A and 
profit of other investigated producers of the foreign like product). 
The third alternative method (section 773(e)(2)(B)(iii) of the Act) 
provides that profit and SG&A may be computed by any other reasonable 
method, capped by the amount of profit normally realized on sales in 
the home market of the same general category of products. The SAA 
states that, if the Department does not have the data to determine 
amounts for profit under alternative method one and two or a profit cap 
under alternative method three, it may apply alternative three (without 
determining the cap) on the basis of ``the facts available.'' SAA at 
841. Therefore, as the facts available under section 773(e)(2)(B)(iii) 
of the Act, for Unicatch and S&J, we are using each respondent's 
overall profit and SG&A rate associated with its total sales as 
recorded in its most recent financial statement. Because the figures 
recorded in the financial statements are company-specific and 
contemporaneous with the POI, we determine this data to be a reasonable 
surrogate for SG&A and profit of the foreign like product. With respect 
to Lei Chu, because its financial statement includes sales of 
merchandise not related to the merchandise under investigation, e.g., 
not within the same general category of CR nails products, we 
determined that using Lei Chu's financial statement is not an 
appropriate basis for deriving SG&A and profit. Therefore, we are using 
the weighted average of the profit rate and SG&A of other respondents 
in this investigation for Lei Chu (see Lei Chu Calculation Memorandum, 
September 24, 1997). For a further discussion of this methodology, see 
Comment 2 below.

Price to CV Comparisons

    Because we based SG&A on respondents' financial statements, where 
we compared CV to EP, we did not make any circumstance of sale 
adjustments for direct expenses and commissions as we were unable to 
isolate these amounts from total SG&A.

Currency Conversion

    We made currency conversions into U.S. dollars based on the 
official exchange rates in effect on the dates of the U.S. sales as 
certified by the Federal Reserve Bank. Section 773A(a) of the Act 
directs the Department to use a daily exchange rate in order to convert 
foreign currencies into U.S. dollars unless the daily rate involves a 
fluctuation. It is the Department's practice to find that a fluctuation 
exists when the daily exchange rate differs from the benchmark rate by 
2.25 percent. The benchmark is defined as the moving average of rates 
for the past 40 business days. When we determine a fluctuation to have 
existed, we substitute the benchmark rate for the daily rate, in 
accordance with established practice. Further, section 773A(b) directs 
the Department to allow a 60-day adjustment period when a currency has 
undergone a sustained movement. A sustained movement has occurred when 
the weekly average of actual daily rates exceeds the weekly average of 
benchmark rates by more than five percent for eight consecutive weeks, 
see Change in Policy Regarding Currency Conversions, 61 FR 9434 (March 
8, 1996). Such an adjustment period is required only when a foreign 
currency is appreciating against the U.S. dollar. The use of an 
adjustment period was not warranted in this case because the New Taiwan 
Dollar (NTD) did not undergo a sustained movement.

Critical Circumstances

    The petition contained a timely allegation that there is a 
reasonable basis to believe or suspect that critical circumstances 
exist with respect to imports of subject merchandise. Section 733(e)(1) 
of the Act provides that the Department will determine that there is a 
reasonable basis to believe or suspect that critical circumstances 
exist if: (A)(i) there is a history of dumping and material injury by 
reason of dumped imports in the United States or elsewhere of the 
subject merchandise, or (ii) the person by whom, or for whose account, 
the merchandise was imported knew or should have known that the 
exporter was selling the subject merchandise at less than its fair 
value and that there was likely to be material injury by reason of such 
sales, and (B) there have been massive imports of the subject 
merchandise over a relatively short period.
    In the preliminary determination, we determined that there was no 
reasonable basis to believe or suspect that critical circumstances 
existed with respect to imports of CR nails from Taiwan by Unicatch, 
Lei Chu, S&J, and Romp. This preliminary determination was based on a 
finding that there was no evidence of a history of dumping and no basis 
to impute knowledge of dumping and resultant material injury. As no 
interested party has challenged this determination and because the 
calculated final dumping margins for Unicatch, Lei Chu, and S&J do not 
exceed the benchmark amounts for establishing imputed knowledge (e.g. 
15% for CEP sales and 25% for EP sales), we do not find that critical 
circumstances exist for any of these companies. Regarding all other 
exporters, because we do not find that critical circumstances exist for 
any of the investigated companies with calculated dumping margins, we 
also determine that critical circumstances do not exist for companies 
covered by the ``All Others'' rate. Based upon adverse facts available, 
however, we do find that critical circumstances exist with respect to 
exports by K. Ticho and Romp. (see Comment 20).

Verification

    As provided in section 782(i) of the Act, we verified or attempted 
to verify the information submitted by respondents for use in our final 
determination. We used standard verification procedures, including 
examination of relevant accounting and production records and original 
source documents provided by respondents.

Interested Party Comments

Comment 1: Indirect Selling Expenses

    Unicatch argues that the Department erroneously deducted its 
indirect selling expenses incurred in Taiwan from CEP. Unicatch states 
that it calculated its Taiwan indirect selling expenses as a percentage 
of total Unicatch sales because it was unable to specify whether any of 
the indirect selling expenses were directly related to its U.S. sales. 
Unicatch asserts pursuant to section 772(d) of the Tariff Act of 1930, 
as amended, that the Department has an established practice in which it 
does not deduct indirect selling expenses incurred by a foreign 
producer in the exporting country in calculating CEP. See Notice of 
Final Determination: Pet Film from Korea, 62 FR 38064, 38066 (July 16, 
1997). Unicatch further contends that the Department has codified this 
established practice in the final regulations citing, 62 FR 27296, May 
19, 1997 at section 351.402(b) which states that the Department ``will 
not make adjustments for any expense

[[Page 51430]]

that is related solely to the sale to an affiliated importer in the 
United States.'' As a result, Unicatch contends the Department should 
not deduct any such indirect selling expenses incurred in Taiwan from 
CEP in the final determination.
    Petitioner contends the Department was correct to deduct Unicatch's 
indirect selling expenses in constructing CEP as all deductions met 
statutory requirements. First, petitioner argues the Department 
verified that Unicatch's sales department provides general sales 
support services for U.S. sales including contacts with affiliates and 
customers. Second, petitioner argues that indirect selling expenses are 
expenses which do not result from a direct relationship with the 
subject merchandise. Thus, petitioner argues that Unicatch's claim that 
these expenses are not directly related to the sale of the subject 
merchandise is irrelevant. Finally, petitioner claims that the 
Department verified that the international sales division dealt with 
sales to various export markets, and although there is no sales 
division devoted to U.S. sales, given that a majority of Unicatch's 
sales are to the U.S., these expenses should be deducted from CEP.

DOC Position

    We agree with the respondent and have not deducted Unicatch's 
indirect selling expenses incurred in Taiwan from CEP because the 
record evidence does not support a finding that these selling expenses 
are related specifically to economic activities in the United States. 
Consistent with the SAA and Sec. 351.402(b) of the Final Regulations 
(62 FR 27411), we make deductions under section 772(d) of the Act only 
for selling expenses that relate to economic activity in the United 
States, which we deem to be expenses associated with the sale to the 
unaffiliated U.S. purchaser and not the sale to the affiliated U.S. 
importer. See, e.g., PET Film from Korea, 62 FR 38064, 38066 (July 16, 
1997); Grey Portland Cement and Clinker from Mexico: Final Results of 
Antidumping Duty Administrative Review, 62 FR 17148, 17168 (April 6, 
1997).
    Unicatch's indirect selling expenses incurred in Taiwan are 
comprised of salary, travel, and entertainment expenses incurred by its 
international and domestic sales divisions. See Sales Verification 
Report for Unicatch, July 17, 1997 (``Unicatch Sales Verification 
Report'') at 11. We verified that Unicatch does not have a sales staff 
dedicated entirely to U.S. sales, but rather its salespeople deal with 
sales to various export markets. Id. Further, we verified that none of 
the reported indirect expenses can be tied specifically to sales to 
unaffiliated customers in the U.S. but rather are incurred by Unicatch 
to complete the sale to the affiliated purchaser. Id. Although 
Unicatch's third country sales are not viable (i.e., greater than 5% of 
U.S. sales) for purposes of calculating NV, we verified that Unicatch 
did have POI sales in other export markets, which further demonstrates 
that its reported indirect selling expenses are not associated solely 
with U.S. sales to unaffiliated customers. Therefore, we disagree with 
petitioner's argument that because the overwhelming majority of 
Unicatch's export sales are to the U.S., we should deduct these 
expenses from CEP. See Notice of Final Determination of Sales at Less 
Than Fair Value: Pasta from Italy, 61 FR 30326, 30352 (June 14, 1996) 
(deducting inventory carrying costs incurred in Italy for enriched 
pasta because enriched pasta was sold in the United States during the 
POI).

Comment 2: Calculation of SG&A and Profit for All Respondents

    Petitioner disagrees with the Department's decision in the 
preliminary determination to use each respondent's overall SG&A and 
profit rates contained in their financial statements because this data 
includes amounts obtained from sales of non-subject merchandise. 
Petitioner asserts that the only data pertaining to SG&A and profit 
specific to the product under investigation is the information provided 
by Lei Chu. Petitioner argues that one of the three alternative methods 
to determine SG&A and profit for CV is to weight-average the actual 
amounts realized on sales of the foreign like product by other 
producers of the subject merchandise. Because Lei Chu was the only 
company to provide the data specific to the subject merchandise, 
petitioner contends that Lei Chu's data is the weighted-average SG&A 
and profit rates for all Taiwan producers and should be used in all 
respondent's CV calculations.
    Unicatch and Lei Chu counter that the profit rate petitioner 
asserts should be used in calculating CV was not verified by the 
Department. More importantly, the profit rate is Lei Chu's 
subcontractor's profit for processing wire into CR nails and does not 
reflect all costs of producing and selling CR nails. Both respondents 
contend that the Department should use the amounts derived from 
Unicatch and Lei Chu's financial statements because this data 
incorporates all appropriate costs and was verified by the Department. 
Moreover, respondents contend that where actual data is not available, 
773(e)(2)(B)(i) of the Act authorizes the Department to use amounts 
generated from the ``general category of products'' as the subject 
merchandise. They cite Shop Towels from Bangladesh 61 FR 65025 
(December 10, 1996) and Forged Steel Crankshafts from the United 
Kingdom 62 FR 16768 (April 18, 1997) as two cases in which the general 
category of merchandise was determined to be all products from textile 
mills and all types of crankshafts, respectively. In this case, 
Unicatch and Lei Chu assert the general category of merchandise 
encompasses nails and other fasteners and that both companies had sales 
of nails and other fasteners in the home market. Therefore, the 
companies contend, the Department should use the SG&A and profit from 
each company's financial statement because the financial statements 
encompass products within the same general category of merchandise.
    Lei Chu argues that the Department erroneously used profit realized 
by its subcontractor to calculate the CV of CR nails in the preliminary 
determination of this investigation. Lei Chu contends the Department 
should use SG&A and profit verified by the Department from Lei Chu's 
financial statement to calculate CV for the sales of the subject 
merchandise because Lei Chu qualifies as the producer of CR nails. Lei 
Chu agrees that there were certain production processes of the subject 
merchandise performed by an affiliated subcontractor. However, Lei Chu 
states that the Department has found in past cases that the party 
contracting for processing services was the producer of the subject 
merchandise. In such instances, the Department applied SG&A and profit 
realized by the contracting party to calculate the CV of the subject 
merchandise and did not use the SG&A and profit of the subcontractor, 
citing Notice of Final Determination: Chrome Plated Lug Nuts from 
Taiwan, 56 FR 36130, 36131 (July 31, 1991).
    According to Lei Chu, the Department verified that Lei Chu 
organized the production of CR nails and performed certain production 
processes during the POI. In addition, Lei Chu states the Department 
verified that it purchased steel wire rods, maintained them as 
inventory, retained title over the materials to produce the CR nails 
and retained ownership over the CR nails throughout the production 
process. Further, Lei Chu states that the Department verified that it 
never sold or purchased wire to or from the subcontractor, and there 
were no sales transactions between the two. Lei Chu claims the 
Department verified that it

[[Page 51431]]

only paid a processing fee to the subcontractor. Finally, Lei Chu 
argues that the fee and the profit from the subcontractors' financial 
statement reflects only the costs of processing wire into CR nails. Lei 
Chu believes its financial statement incorporates the full costs of CR 
nails. As a result, Lei Chu argues that the Department should use its 
1996 financial statements to calculate profit and SG&A.
    Petitioner argues that Lei Chu and its subcontractor should be 
collapsed and the Department was correct in using the profit of Lei 
Chu's subcontractor to calculate CV. Petitioner contends that the 
subcontractor is the producer of the subject merchandise because it 
performs more than minor additions needed to complete the production of 
CR nails. Further, petitioner contends the case cited by Lei Chu, 
Chrome Plated Lug Nuts, is not applicable because the two parties 
involved in that case were not affiliated, and the respondent to that 
investigation had more production responsibilities than Lei Chu. 
Therefore, petitioner contends the Department properly calculated CV 
using the profit of Lei Chu's subcontractor.

DOC Position

    Neither Lei Chu, Unicatch, nor S&J had a viable home market upon 
which to calculate NV; therefore, none of the respondents had home 
market selling expenses and profit for sales of the foreign like 
product upon which to base CV. As a result, in the preliminary 
determination, pursuant to section 773(e)(2)(B)(iii) of the Act and 
consistent with the SAA, we used each respondent's overall profit and 
SG&A associated with total sales as recorded in its most recent 
financial statements as facts available to derive SG&A and profit.
    For Unicatch and S&J, for this final determination, we have 
continued to use the SG&A and profit contained in their most recent 
financial statements. For both companies, we verified that these 
amounts reflected expenses and profit associated with overall sales of 
other types of nails and similar steel products, such as fasteners, 
which we deem to be within the same general category of products as CR 
nails. We are satisfied that using the financial statements is a 
reasonable methodology for calculating each company's SG&A and profit 
because this data is company-specific, contemporaneous with the POI, 
and is the most appropriate information on the record. For the reasons 
discussed below, we disagree with petitioner's argument that we use the 
amounts contained in Lei Chu's financial statements for all respondents 
in lieu of using this verified company-specific data.
    For Lei Chu's SG&A in the preliminary determination, we used its 
financial statements and its affiliated subcontractor's financial 
statements (see Calculation Memorandum dated September 24, 1997). For 
Lei Chu's profit, we used its subcontractor's financial statements. 
However, our findings at verification demonstrated that the amount 
recorded on the subcontractor's financial statements is not reflective 
of profit for the sale of the foreign like product or related 
merchandise but rather is a ``tolling fee'' for its services (see Lei 
Chu Cost Verification Report at pg 3). Further, the SG&A and profit 
recorded in Lei Chu's financial statements are for amounts generated on 
sales of merchandise completed unrelated to the subject merchandise, 
e.g., not within the same general category of CR nails products. We 
also note that Lei Chu's recorded net profit is zero. Although the URAA 
and subsequent revisions to U.S. law eliminated the use of minimum 
profit, we do not believe that it eliminated the presumption of a 
positive profit element in the calculation of CV. Unlike sections 
773(e)(2)(A) and 773(e)(2)(B) (i) or (ii), section 773(e)(2)(B)(iii) 
specifically excludes the use of the term ``actual profit,'' and 
instead directs us to use any other reasonable method that does not 
exceed the amount normally realized by the industry in the same general 
category of products. The SAA states that there is no hierarchy between 
the alternatives in section 773(e)(2)(B), indicating that in some 
instances, it may be more appropriate for the Department to ignore 
``actual profit'' available under the two other alternatives and opt 
instead for some other reasonable method to obtain a profit amount. 
Therefore, if a company has no home market profit or has incurred 
losses in the home market, the Department is not instructed to ignore 
the profit element, include a zero profit, or even consider the 
inclusion of a loss; rather, the Department is directed to find an 
alternative home market profit. A clear reading of the statute 
indicates that a positive amount for profit must be included in CV. See 
Silicomanganese from Brazil: Final Results of Antidumping Duty 
Administrative Review, 62 FR 37869, 37877 (July 15, 1997).
    Therefore, we reject Lei Chu's argument and have not used its 
company-wide SG&A and profit rates in our CV calculations. Instead, as 
facts available, we used the weighted average of the SG&A and profit 
from the financial statements of the other respondents in this 
investigation (see Valuation Memorandum dated September 24, 1997). 
Because this data represents POI-wide expenses and profit associated 
with sales of merchandise in the same general category as CR nails 
products, we find this data to be the most appropriate information on 
the record to derive Lei Chu's SG&A and profit.

Comment 3: Unicatch's Steel Scrap

    Unicatch argues that the Department should subtract its revenue on 
steel scrap sales from the cost of manufacture (COM) of CR nails as 
this information was presented to the Department in a timely manner at 
the commencement of verification. Further, Unicatch states that the 
Department was able to verify all information presented at the 
commencement of verification including revenue from steel scrap and its 
values per kilogram per CR nails. Thus, Unicatch suggests that 
consistent with the Department's past cases, the value of steel scrap 
should be subtracted from normal value, citing Brake Drums and Rotors 
from the PRC.
    Petitioner contends that the disclosure by Unicatch of the revenue 
from steel scrap was not minor or timely. However, petitioner suggests 
that if the Department makes the adjustment, and given that the revenue 
is so small, it should make an adjustment in determining allocated 
expenses and profit.

DOC Position

    We agree with Unicatch that it is the Department's practice to 
deduct from total COM revenue earned on the sale of scrap resulting 
from the production of the subject merchandise. See Elemental Sulphur 
from Canada; Final Results of Antidumping Administrative Review, 61 FR 
8239, 8245 (March 4, 1996). Because we determined that Unicatch 
submitted this data in a timely manner (see Comment 4) and we were able 
to verify these amounts, we have deducted steel scrap revenue from 
Unicatch's total COM.

Comment 4: Unicatch's and Lei Chu's Corrections and Facts Available

    Unicatch and Lei Chu argue that the Department should incorporate 
the corrections submitted at the commencement of their verifications in 
the final margin calculations because the corrections were submitted in 
a timely manner and verified by the Department. Both respondents 
contend that the Department should not use facts available for two 
reasons: (1) Making adverse assumptions and applying facts available 
are not synonymous and (2)

[[Page 51432]]

neither respondent has done anything in this investigation that would 
justify using adverse inferences. Both respondents argue that there 
were few instances in the corrections that the Department was unable to 
verify, and, further, both companies penalized themselves with errors 
as often as they benefitted. Both respondents state that there is no 
evidence on the record to suggest that either failed to cooperate by 
not acting to the best of its ability to comply with Department's 
requests for information. Lei Chu and Unicatch state that the 
Department should weigh the record evidence to determine what type of 
change, if any, would be probative of the issue under consideration. 
However, both recommend that if the Department chooses to use facts 
available, adverse inferences not be applied.
    Petitioner contends that the Department should not incorporate 
respondents' corrections because the corrections are not minor and the 
number of errors reported by the respondents' raise serious doubts 
about whether the companies acted to the best of their ability to 
provide accurate information. In addition, petitioner notes that the 
Department discovered numerous other errors at verification. Therefore, 
petitioner suggests that the Department resort to ``facts available'' 
employing ``adverse inferences'' to portions of the respondents' 
calculations.

DOC Position

    We agree with Unicatch and Lei Chu and have accepted the 
corrections for computing the final margin of the companies. The 
Department's practice is to permit respondents to provide minor 
corrections to submitted information at the commencement of 
verification. See Notice of Final Determination of Sales at Less Than 
Fair Value: Melamine Institutional Dinnerware Products From Taiwan, 62 
FR 1726, 1729 (Jan. 13, 1997). Unicatch and Lei Chu provided the 
Department with their corrections at the beginning of their respective 
verifications. Lei Chu's corrections included sales and production 
quantity, material costs, and fixed overhead. Unicatch's corrections 
included production quantity, plating costs, scrap, packing, selling 
expenses and steel wire costs. These revisions corrected data already 
on the record and did not introduce new issues not previously reported 
on the record. In sum, the corrections submitted by Unicatch and Lei 
Chu were typical of the minor corrections routinely accepted by the 
Department at the commencement of verification.
    Accordingly, we determine that resorting to facts available is 
unwarranted in this particular case. The Department's use of facts 
available is subject to section 782(d) of the Act. Under section 
782(d), the Department may disregard all or part of a respondent's 
questionnaire responses when the response is not satisfactory or it is 
not submitted in a timely manner. The Department has determined that 
neither of these conditions apply. The Department was able to verify 
the responses, thus rendering them satisfactory, and the types of 
revisions submitted by Unicatch and Lei Chu met the deadline for such 
corrections. Under section 782(e), the Department shall not decline to 
consider information that is (1) timely, (2) verifiable, (3) 
sufficiently complete in that it serves as a reliable basis for a 
determination, (4) demonstrated to be provided based on the best of the 
respondent's ability, and (5) can be used without undue difficulties. 
Lei Chu and Unicatch have met these conditions. Therefore, we find no 
basis to reject Lei Chu's and Unicatch's responses, and thus, no basis 
to rely on the facts otherwise available for our final determination.

Comment 5: Plating Thickness

    Petitioner argues that the plating thicknesses reported by 
respondents do not meet U.S. Federal or regional building codes. 
Moreover, petitioner claims that the actual plating thicknesses were 
not verified by Department. Therefore, petitioner contends that the 
Department should assume that respondents were aware of the building 
codes and produced CR nails that did not comply with the codes. The 
Department should use the information contained in the petition to 
calculate NV based on CR nails that meet the U.S. building codes.
    Unicatch and Lei Chu contend that the Department verified that all 
costs attributable to plating were included in the CV database. 
Therefore, both respondents argue that whether or not the subject 
merchandise complies with U.S. building codes is irrelevant because the 
purpose of this investigation is to accurately value respondents' 
production costs of CR nails, not to examine the quality of their CR 
nails.

DOC Position

    We agree with Unicatch and Lei Chu that we have captured all costs 
incurred in producing CR nails. During the cost verifications of all 
respondents, we examined whether all material costs (including plating 
costs) associated with the subject merchandise were reported completely 
and accurately in the CV databases. We noted no discrepancies regarding 
the material costs with the exception of minor errors, which have now 
been corrected (see Cost Verification Reports for Lei Chu, Unicatch, 
and Romp dated July 18, 1997, and Cost Verification Report for S&J 
dated July 23, 1997). Thus, for each respondent with a calculated 
dumping margin we have verified all material costs. Any alleged 
misrepresentation concerning compliance with U.S. building codes is not 
within the purview of the antidumping statute because such 
misrepresentation would have no impact on our calculations.

Comment 6: Allocation Methodologies

    Petitioner contends that respondents' allocation methodologies with 
respect to the following expenses were incorrect.
(i) Shipping Related Expenses
    Petitioner claims that any shipping related expenses should be 
based on volume because the expenses are generally incurred based on 
volume, rather than on gross packed weight. Petitioner argues that 
allocating shipping expenses based on weight results in under-reported 
transportation costs.
    Unicatch and Lei Chu counter that basing shipping related expenses 
on weight is acceptable when volume-based information is unavailable. 
In this case, weight is the only allocation factor on the record. Both 
respondents cite to Industrial Belts and Components Thereof from Japan, 
58 FR 30018, 30022 (May 25, 1993) in support of this position.

DOC Position

    We agree with respondents that a weight-based allocation 
methodology for reporting shipping expenses is acceptable. Although the 
Department prefers sale-specific movement expenses, the Department's 
practice is to accept allocation methodologies for movement expenses at 
the most specific level permitted by the respondent's books and records 
kept in the ordinary course of business. See Notice of Final 
Determination of Sales at Less Than Fair Value: Melamine Institutional 
Dinnerware Products From Taiwan, 62 FR 1726, 1730 (Jan. 13, 1997). 
Moreover, where multiple items were included in a shipment, we 
instructed each respondent to report expenses using an allocation 
methodology on the basis incurred, e.g., weight. Both Unicatch and Lei 
Chu reported that a weight-based allocation methodology was necessary 
because their shipments included non-subject merchandise. See Unicatch 
and Lei Chu's Section C

[[Page 51433]]

response dated March 18, 1997. For S&J, the bill of lading records both 
weight and volume figures without distinguishing between the two. 
Therefore, we determine that allocating freight on weight is acceptable 
for our final margin calculation (see S&J Sales Verification Exhibit 
16).
(ii) Production Related Expenses, Factory Overhead, and Indirect 
Selling Expenses
    Petitioner argues that the allocation methodology of production, 
factory overhead, and indirect selling expenses should be revised to 
reflect the inclusion or exclusion of scrap, depending on the 
processing stage in which the expense was incurred. Petitioner 
suggests, for example, that post-scrap production stages, such as 
packing, should be based on the weight of the product without the 
scrap.
    Unicatch and Lei Chu counter that allocating over finished goods, 
which includes scrap, only increases the per-unit costs. Furthermore, 
both respondents argue that petitioner's methodology will distort costs 
downward by not accounting for scrap.

DOC Position

    We agree with respondents that allocating expenses over the weight 
of the finished good necessarily accounts for all costs related to 
scrap. If the Department were to allocate certain expenses over a 
weight which included scrap, the denominator of the calculation would 
be greater than the weight of the finished product and would result in 
understating the per-unit expense. Thus, we reject petitioner's 
argument and will continue to allocate expenses over the total amount 
of finished product.
(iii) Duty Drawback
    Petitioner argues that the duty drawback allocation should be based 
on the net weight of the CR nails.
    Unicatch and Lei Chu counter that they did allocate duty drawback 
by the net weight of the CR nails.

DOC Position

    We agree with respondents that duty drawback was properly allocated 
based on the net weight of the CR nails. As stated in the Unicatch 
Sales Verification Report at. 8-9, the total duty drawback associated 
with shipments to TCI or Unitech (Unicatch's affiliated U.S. importers) 
were divided by the total net weight of the shipment to arrive at a 
per-unit amount for duty-drawback. This same methodology was followed 
for Lei Chu (see Lei Chu Sales Verification Report dated June 23, 
1997).
(iv) Physical Weights
    Petitioner contends that the Department should physically weigh the 
subject merchandise and base all allocations on physical weights rather 
than gross weights reported by the respondents.
    Unicatch and Lei Chu counter that petitioner's request is untimely 
and unreasonable. Both respondents argue that the weight-based 
methodologies used are reasonable and consistent with past practice and 
urge the Department to reject petitioner's contention.

DOC Position

    At verification the Department examined the reported product 
weights for Lei Chu and Unicatch and noted no discrepancies. Therefore, 
we have used each company's verified weights in our calculations.

Comment 7: Value Added Taxes (VAT)

    Petitioner argues that the Department should not assume that all 
sales and expenses reported net of VAT were correct. Accordingly, 
petitioner believes unless the Department verified all figures, the 
Department must not assume that all figures are net of VAT.
    Lei Chu and Unicatch contend that the sales reported were net of 
VAT because under Taiwan law VAT is rebated on all export sales. 
Because all respondents reported their sales as being export sales, 
both respondents argue that the Department should reject petitioner's 
claim.

DOC Position

    In the preliminary determination, Unicatch or Lei Chu reported 
brokerage and handling and international freight net of VAT. At 
verification, we found that both respondents incur five percent VAT on 
these expenses (see Unicatch Sales Verification Report at 7; Lei Chu 
Sales Verification Report at 8). Since Lei Chu and Unicatch were unable 
to provide supporting documentation to show that this VAT had been 
rebated according to Taiwan law, we have applied a five percent VAT to 
brokerage and handling and international freight for all sales by these 
two companies (see Valuation Memorandum dated September 24,1997). 
However, we found no indication at verification that VAT was incurred 
on export sales for either Unicatch or Lei Chu.

Comment 8: Multinational Corporation Rule (MNC)

    Petitioner argues that the MNC provision of the Act should be 
applied to Unicatch and Top United (a manufacturer of CR nails in the 
People's Republic of China). Petitioner cites to section 773(d) of the 
Act, alleging that the conditions outlined are fulfilled by Unicatch 
and Top United. Further, petitioner cites to Melamine Institutional 
Dinnerware Products from the People's Republic of China 61 FR 43337 
(August 22, 1996), in which the Department determined that the MNC 
provision applies to cases involving non-market economies.
    Unicatch counters that the allegation is untimely and unsupported 
by evidence on the record of this investigation. Finally, Unicatch 
argues that the petitioner has failed to demonstrate that two of the 
three conditions necessary to apply the MNC rule are present, i.e., (1) 
the petitioner has failed to demonstrate that the PRC market is not 
viable; and (2) petitioner has failed to demonstrate that the normal 
value for Taiwan nails is higher than the normal value for PRC nails.

DOC Position

    We agree with Unicatch that petitioner's MNC allegation is 
untimely. As stated in the preamble to the final regulations: ``[t]here 
are a variety of analyses called for by section 773 that the Department 
typically does not engage in unless it receives a timely and adequately 
substantiated allegation from a party * * * the Department does not 
automatically request information relevant to a multinational 
corporation analysis under section 773(d) of the Act in the absence of 
an adequate allegation.'' Final Regulations, 62 FR at 27357, citing 
Certain Small Business Telephones and Subassemblies Thereof from 
Taiwan, 54 FR 31987 (August 3, 1989).
    In this case, petitioner alleged for the first time in its case 
brief that the Department should apply the MNC rule to Unicatch and Top 
United. Determining NV under the MNC provision is a complex analysis 
that necessitates collection of information and calculation of sales 
and cost data from companies who may or may not be subject to 
investigation. Presenting the allegation after the preliminary 
determination does not allow the Department sufficient time to collect 
and analyze the information necessary to make a MNC determination at an 
appropriate point in the proceeding. For this reason, the Department 
has specifically rejected the notion that absent a timely and adequate 
allegation, we are obligated to examine information that is 
quantitatively and/or qualitatively different from the information 
normally gathered as part of

[[Page 51434]]

its standard antidumping analysis because to do so would significantly 
impair the Department's ability to comply with its statutory deadlines. 
See Final Regulations, 62 FR at 27357. Therefore, we reject 
petitioner's MNC allegation as untimely.

Comment 9: Reconciliation of Unicatch Sales to Financial Statements

    Petitioner argues that the Department was unable to tie: (1) the 
reported sales volume totals for all of Unicatch's sales directly to 
the financial statements, and (2) Unicatch's general ledger to its 1995 
income statement. As a result, petitioner asserts that Unicatch's 
reported sales should not be deemed reliable as some sales may have 
been excluded. Accordingly, petitioner suggests that the Department 
apply facts available with adverse inferences because of the potential 
of unreported sales.
    Unicatch contends that because its CEP and EP sales included the 
resale of CR nails by its affiliates, the Department was unable to 
complete a total sales reconciliation using its financial statement 
only. Unicatch states that reconciliation required tying relevant sales 
to its affiliates' financial statements. Unicatch contends that the 
Department verified the quantity and value of the resales at its 
affiliates' headquarters using each affiliate's financial statement and 
was able to clarify the differences from Unicatch's financial statement 
without any discrepancies. Therefore, Unicatch contends that facts 
available with adverse inferences is not warranted.

DOC Position

    We disagree with petitioner's argument that use of adverse facts 
available is warranted in this case. Contrary to petitioner's claim, we 
verified Unicatch's total sales volume and value. As stated in its 
sales verification report, ``we were unable to tie the reported sales 
and volume and value totals for all of Unicatch sales, or for its EP 
sales directly to the financial statements because the sales value 
reported in the financial statement included the sales values for those 
sales to Unicatch affiliated parties.'' Unicatch Sales Verification 
Report at pg 3. However, when we verified Unicatch's affiliates, we 
were able to tie the quantity and value reported to their financial 
statements, clarifying any differences in Unicatch's financial 
statement and reported sales volume (see Unicatch CEP Sales 
Verification Report (July 23, 1997)). Therefore, we have determined 
there is no evidence on the record to suggest Unicatch had any 
unreported POI sales and resort to facts available is not warranted.

Comment 10: Reliability of Unicatch's Reported Costs

    Petitioner argues that the cost methodologies used by Unicatch were 
inappropriate because costs were not properly determined where steel 
was processed through affiliated parties. Petitioner argues that 
Unicatch's cost of materials should be measured against a ``market 
value'' enabling the Department to determine that prices of the steel 
are reasonable. In addition, petitioner states the Department should 
assure that all costs associated with the affiliated parties' costs 
were reported.
    Unicatch contends that at the commencement of verification, it 
provided the Department with sufficient information, including a sales 
price from an unaffiliated supplier of wire rod, that enabled the 
Department to test whether the steel price from an affiliated supplier 
was reasonable. Unicatch states that it showed an example of an 
unaffiliated supplier's price lower than transfer prices charged by 
Unicatch's affiliates, even though the cost of production for those 
affiliates was higher. Therefore, Unicatch contends that the cost of 
production for steel is appropriate for its cost calculation 
methodologies. Further, Unicatch contends that the Department verified 
all reported costs associated with the affiliates' production of steel 
wire (i.e., material, labor, overhead, SG&A and interest) and did not 
find any discrepancies.

DOC Position

    We disagree with petitioner and have determined that there is no 
evidence of the record to suggest Unicatch's cost calculation 
methodologies were incorrect. We verified the two methodologies used by 
Unicatch to determine material costs for steel wire and welding wire. 
The first methodology was based on the transfer price from its 
affiliates and the second methodology was based on the cost of 
production for wire purchased from its affiliates (see Unicatch Cost 
Verification Report at 3-4). Although Unicatch had some purchases of 
steel wire from an unaffiliated supplier, we verified that this 
unaffiliated purchase price was lower than the reported transfer prices 
charged by its affiliated suppliers. (Id. at Ver. Exh. 1). Therefore, 
since the costs of production from Unicatch's affiliates were higher 
than the transfer prices, in accordance with section 773(f)(3), we have 
used the affiliates' COP data to calculate the actual material cost of 
the wire inputs.

Comment 11: Corrections to Unicatch's Questionnaire Responses

    Petitioner argues that the corrections submitted by Unicatch at the 
time of verification are unacceptable because the Department was not 
granted time to review the information and consider the appropriate 
methods for verifying it. Petitioner believes that the Department 
should re-examine the following changes submitted at verification: (1) 
interest expenses; (2) SG&A; (3) packing costs; (4) existence of U.S. 
affiliates; (5) ocean freight; (6) warranty expense; (7) selling 
expense; (8) inland freight; (9) duty drawback; and (10) marine 
insurance.
    Specifically, petitioner states that Unicatch may have 
underreported its interest expense because it may have been offset by 
loans or other money transfers. Further, petitioner claims that 
Unicatch's packing cost should have been reported separately according 
to the Department's questionnaire, and the records about Unicatch's 
affiliates were not accurate and thus, cannot be relied upon by the 
Department. Therefore, petitioner suggests that the Department reject 
Unicatch's submissions entirely based on adverse inferences and apply 
the largest expense found to all of Unicatch's sales transactions, as 
adverse facts available.
    Unicatch contends that the corrections reported at the commencement 
of its verification were not numerous and should not affect the 
integrity of its response. Further, Unicatch states that the Department 
was able to verify all corrections submitted. Unicatch contends that 
the revisions submitted were typographical errors and other minor data 
entry errors to the sales databases. Unicatch contends that the 
Department should use the interest expenses recorded in its verified 
financial statement to calculate CV and, since Unicatch did not 
separate packing cost, the packing labor percentage would have been 
inflated upward without having a major effect on the margin 
calculation. Finally, Unicatch admits that some errors reported would 
warrant the use of facts available but there is no instance in which 
adverse inferences are warranted.

DOC Position

    We agree with Unicatch and have accepted the corrections submitted 
at the beginning of verification and the explanation for the 
discrepancies. We verified all corrections submitted and noted only 
minor discrepancies. In addition, we reviewed the allocation 
methodologies used by Unicatch to compute its reported expenses (i.e.,

[[Page 51435]]

interest expense, warranty expense, duty drawback) and noted no 
discrepancies (see Unicatch Sales Verification Report at 6-9; Unicatch 
Cost Verification Report at 2).
    Section 782(e) of the Act states that the Department shall not 
decline to consider information that does not meet all of its 
requirements 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. Unicatch's 
information meets all of these requirements. Accordingly, we have no 
basis to conclude that the earlier responses distorted the Department's 
analysis and warrant the use of adverse facts available.

Comment 12: Whether Lei Chu and its Affiliate Should Be ``Collapsed''

    Petitioner argues that Lei Chu and its affiliate are sufficiently 
intertwined and should be collapsed and treated as one. Petitioner 
states that Lei Chu has submitted information on the record that it is 
affiliated with the Taichung Production Division (``TPD'') and one of 
its suppliers and controls the sales and production activities of its 
suppliers. Petitioner believes that if the Department does not collapse 
the two companies Lei Chu could shift all of its production and exports 
of the subject merchandise to TPD or TPD's supplier. Further, 
petitioner argues that since the two companies should have been 
collapsed, Lei Chu should have submitted a consolidated response to the 
Department's questionnaire, and their failure to do so mandates the use 
of facts available.
    Lei Chu argues that if the Department determines that it should be 
collapsed with its affiliate, the Department must use Lei Chu's profit 
to calculate the profit of other Taiwan respondents because it reflects 
the consolidated performance of Lei Chu.

DOC Position

    We determine that the facts in this case do not warrant resort to 
our collapsing practice because neither TPD nor Lei Chu's affiliated CR 
nails supplier are separate producers. First, TPD is merely a 
production division of Lei Chu, not a separate entity. Lei Chu Sect. A 
Supp. QR, April 14, 1997, at 1. Although Lei Chu has ceased production 
of CR nails at its TPD division, the evidence on the record 
demonstrates that Lei Chu continues to produce CR nails through a 
subcontractor. Pursuant to the contractual arrangement, Lei Chu 
purchases wire rod and drawing materials and provides these materials 
to its subcontractor who then produces the CR nails (see Lei Chu Cost 
Verification Report, at 3). Lei Chu pays this affiliate a processing 
fee and maintains title over the raw materials and completed CR nails 
throughout the production process. Id. By its own admission, Lei Chu 
controls the sales and production activities of this entity. Further 
all CR nails production by the subcontractor is the property of Lei Chu 
and is sold by Lei Chu. Thus, consistent with the Department's current 
practice with respect to tolling operations (see e.g., section 
351.401(h) of the Final Regulations, 62 FR at 27411), the subcontractor 
is not considered the producer. Lei Chu is the producer of CR nails. In 
essence, the subcontract relationship represents a single, vertically 
integrated production operation rather than two separate producers in a 
position to potentially evade a potential antidumping duty order by 
shifting production from one facility to another.

Comment 13: Lei Chu Sales Below Fair Value

    Petitioner argues that since Lei Chu's 1996 financial statement 
does not show a profit during the POI, Lei Chu sold the subject 
merchandise at less than fair value.
    Lei Chu contends that there is nothing in the statute or the 
Department's past determinations that supports petitioner's view and as 
a result, the Department should reject, petitioner's argument.

DOC Position

    We disagree with petitioner because there is nothing stated in the 
statute or in past determinations to suggest that a company not showing 
a profit is necessarily selling the subject merchandise at less than 
fair value.

Comment 14: Lei Chu's Packing List Weights Are Not Reliable

    Petitioner argues that the Department should not rely on the 
packing list weights to determine the weights of the subject 
merchandise for Lei Chu, because they are not accurate. Therefore, 
petitioner suggests the Department weigh the subject merchandise and 
use the results to compute CV.
    Lei Chu contends the packing weights reported by Lei Chu are 
reliable and were verified by the Department, citing, Lei Chu Cost 
Verification report at 8. Therefore, Lei Chu suggests that the 
Department reject petitioner's argument and continue to use the 
verified packing list weights to compute CV.

DOC Position

    We disagree with petitioner and have determined there is no 
evidence on the record to suggest the weights reported on the packing 
list are unreliable. In addition, we reviewed Lei Chu's packing 
methodologies and did not note any discrepancies (see Lei Chu Cost 
Verification Report at 8-9). Therefore, we will use Lei Chu's reported 
weights to compute CV.

Comment 15: S&J Untimely Submissions

    Petitioner argues that during the investigation, S&J failed to 
provide copies of all of its submissions to all interested parties. 
Further, petitioner claims S&J submitted documents incorrectly 
according to the Administrative Protective Order (APO) regulations. 
Therefore, petitioner suggests that the Department reject S&J 
submissions in total and employ adverse inferences and use facts 
available.

DOC Position

    We disagree with petitioner. We have determined that there is no 
indication or evidence on the record to suggest that S&J did not serve 
all documents to interested parties in a timely manner or according to 
APO regulations.

Comment 16: S&J Omissions and Errors to the Questionnaire Responses

    Petitioner argues that S&J made numerous omissions and errors in 
its questionnaire responses according to the Department's verification 
report. These errors included unreported sales and unaccountable bank 
charges. Therefore, petitioner suggests that in view of the large 
number of errors and omissions, the Department should reject S&J's 
submission in its entirety or apply facts available with adverse 
inferences to the unreported sales.

DOC Position

    We disagree with petitioners. We verified that S&J did not include 
bank charges in its Section C response because it was unable to 
separate bank changes from the other miscellaneous charges included in 
the general ledger category (``Export Expense'') (see S&J Sales 
Verification Report at 10). We

[[Page 51436]]

applied a bank charge percentage to all of S&J sales (see Valuation 
Memorandum dated September 24, 1997). Therefore, although certain 
discrepancies and omissions in S&J's reported sales and cost data were 
discovered during verification, the discrepancies and omissions do not 
warrant the use of adverse facts available. It is acceptable to address 
and correct such errors individually, as was done in this case, where 
appropriate. Such errors were addressed and corrected individually. 
(See, e.g., Certain Corrosion-Resistant Carbon Steel Flat Products from 
Korea; Final Results of Antidumping Duty Administrative Review 61 FR 
18558 (April 26, 1996).)

Comment 17: Collapsing of S&J and New Lan Luang

    Petitioner argues that the Department should collapse S&J and New 
Lan Lung because the parties effectively operate as one. Further, 
petitioner contends that if the Department does not collapse the two 
companies it would provide a loophole for future investigations.

DOC Position

    In order for the Department to collapse two producers, i.e., treat 
them as a single entity, (1) the producers must be affiliated under 
section 771(33) of the Act, (2) the producers must have production 
facilities that are sufficiently similar so that a shift in production 
would not require substantial retooling, and (3) there must be a 
significant potential for manipulation of price or production. See Grey 
Portland Cement and Clinker From Mexico: Final Results of Antidumping 
Administrative Review, 62 FR 17148, 17155 (April 9, 1997); section 
351.401(f) of the Final Regulations, 62 FR at 27410. When based on a 
review of the totality of the circumstances, the Department determines 
that two affiliated producers are sufficiently related so as to warrant 
treatment as a single enterprise, collapsing these entities prevents 
evasion of the antidumping duty order. See Certain Fresh Cut Flowers 
From Colombia; Final Results of Antidumping Duty Administrative 
Reviews, 61 FR 42833, 42853 (Aug. 19, 1996). Applying the criteria of 
our collapsing inquiry as set forth above, we find (1) S&J and New Lan 
Luang are affiliated under Sec. 771(33) of the Act, (2) a shift in 
production would not require substantial retooling, and (3) there is a 
significant potential for price or production manipulation due to, 
among other factors, evidence of intertwined business operations and 
common management of the production and sales decisions of both 
companies. Based on this an analysis of the record evidence, we have 
determined that it is appropriate to treat S&J and New Lan Luang as a 
single entity for purposes of calculating a dumping margin in this 
investigation.
    First, we find that because S&J owns greater than 5% of New Lan 
Luang, these companies are affiliated under Sec. 771(33)(E) of the Act. 
Second, the record evidence demonstrates that although not a current 
producer of CR nails (New Lan Luang ceased production of CR nails in 
1994), New Lan Luang is capable of producing CR nails. See S&J Sect. A 
Supp. QR, April 8, 1997, at 12; S&J Verification Report, at 2. Based on 
these facts, it is reasonable to infer that a substantial retooling of 
New Lan Luang's production facilities would not be necessary if S&J 
were to shift production to New Lan Luang.
    We also determine that the third criterion of our collapsing 
inquiry is met. In determining whether there is a significant potential 
for manipulation of price or production, the Department considers 
factors such as (1) the level of common ownership, (2) interlocking 
board of directors and common management, and (3) intertwined business 
operations as evidenced by shared sales information, involvement in 
production and pricing decisions, or significant transactions between 
the two enterprises. See Certain Welded Carbon Steel Pipes and Tubes 
From India; Final Results of New Shippers Antidumping Duty 
Administrative Review, 62 FR 47632, 47638 (Sept. 10, 1997) (``Pipes and 
Tubes from India''); Sec. 351.401 (f) of the Final Regulations, 62 FR 
at 27410. All of these criteria need not be met in a particular case, 
but rather serve as a reliable basis on which the Department may judge 
whether the affiliated producers are sufficiently related to create the 
potential of price or production manipulation. Pipes and Tubes from 
India, 62 FR at 47638.
    S&J's General Manager is also in charge of New Lan Luang. See S&J 
Sect. A Supp. QR, at 2; S&J Verification Report, at 2. S&J explained 
that its General Manager is responsible for sales and production 
decisions and determines the prices of S&J's CR nails. See S&J Sect. A 
QR, Feb. 26, 1997, at 5. At verification we discovered that the 
Chairman of New Lan Luang is also the founder, former general manager, 
and current advisor to S&J. See S&J Verification Report, at 2. This 
individual is also the father of the S&J's current General Manager. Id. 
Additionally, S&J officials explained that the two entities share 
employees and S&J has on occasion transferred sales order to New Lan 
Luang for completion. Id. The totality of the circumstances presented 
by these facts indicate that the two companies operate under common 
control of the same individual/family with respect to sales and 
production decisions. Although both S&J's General Manager and New Lan 
Luang's Chairman are only minority shareholders in both companies, we 
conclude that their positions of legal and operational control in their 
respective companies create a significant potential for price or 
production manipulation. We therefore have treated S&J and New Lan 
Luang as a single entity for purposes of calculating a dumping margin 
in this investigation.
    To construct a consolidated sales response for S&J/New Lan Luang, 
we have included New Lan Luang's POI sales in our final margin 
calculations. S&J reported New Lan Luang's total quantity and value 
data for its U.S. sales during the POI; however, because we did not 
specifically request S&J to report additional information on New Lan 
Luang's POI sales, we do not have a complete sales database upon which 
to calculate a dumping margin. Therefore, it is necessary to resort to 
facts available in accordance with section 776(a)(1) of the Act for 
this missing information. As facts available, we have used a simple 
average of the amounts reported for the fields not included in the 
sales database (i.e. exchange rate, foreign inland freight, brokerage) 
(see Calculation Memorandum dated September 24, 1997).
    Additionally, at verification, we discovered additional POI sales 
by New Lan Luang that S&J failed to report. (see S&J Sales Verification 
Report at 2). For those sales, we have applied adverse facts available 
because we deem S&J's failure to provide us with complete information 
that we specifically requested as a failure to cooperate to the best of 
its ability within the meaning of section 776(b) of the Act. 
Accordingly, for these unreported sales, we used the highest margin 
calculated for any individual product (see Calculation Memorandum dated 
September 24, 1997).

Comment 18: S&J Unaudited Financial Statements

    Petitioner argues that the absence of audited financial statements 
means that S&J's financial information is not reliable. Petitioner 
argues that the reliance on the accounting system used for the 
preparation of the audited financial system is a vital part of the 
Department's determination that the company's sales and constructed 
value

[[Page 51437]]

data are credible. Therefore, the Department should rely on adverse 
facts available for S&J.

DOC Position

    At verification we were able to reconcile S&J unaudited financial 
statements to its 1996 tax return (see S&J Cost Verification Report 
(July 23, 1997)). Therefore, because we were able to tie S&J's 
financial statements to an independent outside source, we have 
determined that there is no evidence on the record to indicate the 
information on the financial statements is unreliable. See Mexican 
Flowers, 60 FR at 49569.

Comment 19: Non-Mandatory Respondents

    Petitioner suggests that the Department calculate a margin for non-
mandatory respondents using the results of each of the four mandatory 
respondents, except those with zero dumping margins.

DOC Position

    Non-mandatory respondents will be subject to the ``all others'' 
deposit rate, which we have calculated based on the weighted average of 
margins calculated for mandatory respondents--excluding zero and de 
minimis margins. (see March 13, 1997, Decision Memo)

Comment 20: Critical Circumstances

    Petitioner argues that the Department should find that critical 
circumstances exist with respect to K. Ticho. Petitioner contends that 
a timely allegation of critical circumstances was made in the petition 
and that K. Ticho failed to respond to the Department's questionnaire. 
Therefore, as facts available, the Department should determine that 
critical circumstances exist with respect to K. Ticho.

DOC Position

    We agree with petitioner. Because K. Ticho failed to respond to the 
Department's questionnaire, we have used the facts available as the 
basis for determining whether critical circumstances exist. The facts 
available margin (40.28%) exceeds the threshold for imputing knowledge 
of dumping to the importers of the merchandise. In addition, we have 
adversely inferred, as the facts available, a massive increase in 
imports from K. Ticho. We, therefore, determine that critical 
circumstances exist for K. Ticho, and will issue appropriate 
instructions to the Customs service.
    We also determine that critical circumstances exist for Romp. As 
with K. Ticho, the final dumping margin for Romp exceeds 15%, the 
minimum benchmark established sales to impute importer knowledge of 
dumping and resultant injury. Also, because we have determined that the 
reported quantity and value of POI sales are unreliable, we are also 
adversely inferring, as facts available, a massive increase in imports 
from Romp.

Continuation of Suspension of Liquidation

    In accordance with section 733(d)(1) and 735(c)(4)(B) of the Act, 
we are directing the Customs Service to continue to suspend liquidation 
of all entries of CR nails from Taiwan, that are entered, or withdrawn 
from warehouse, for consumption on or after May 12, 1997 (the date of 
publication of the preliminary determination in the Federal Register), 
except as noted below. With respect to entries of CR nails from Taiwan, 
manufactured and exported by K. Ticho or Romp in accordance with 
section 735(c) of the Act, we are directing Customs Service to continue 
suspension of liquidation on all entries that are entered, or withdrawn 
from warehouse, for consumption on or after February 10, 1997, which is 
90 days prior to the date of publication of the preliminary 
determination. The Customs Service shall continue to require a cash 
deposit or posting of a bond equal to the estimated amount by which the 
normal value exceeds the export price as shown below.
    In accordance with section 735(a)(4) of the Act, because we have 
calculated zero or de minimis rates for Unicatch, and Lei Chu, we will 
instruct Customs to terminate suspension of liquidation of entries of 
CR nails manufactured by these companies and to liquidate such entries 
without regard to antidumping duties. We note that pursuant to 19 CFR 
353.21, these companies will be excluded from any antidumping order 
resulting from an affirmative finding of material injury by the 
International Trade Commission. These suspension of liquidation 
instructions will remain in effect until further notice.
    The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                            Critical    
  Manufacturer/producer/exporter    Margin percentage    circumstances  
------------------------------------------------------------------------
Unicatch.........................  0.00                No.              
Lei Chu..........................  0.07 (De Minimis)   No.              
S&J..............................  5.36                No.              
Romp.............................  40.28               Yes.             
K. Ticho.........................  40.28               Yes.             
All Others.......................  5.36                No.              
------------------------------------------------------------------------

    Pursuant to section 733(d)(1)(A) and section 735(c)(5) of the Act, 
the Department has not included zero or de minimis weighted-average 
dumping margins, or margins determined entirely under section 776 of 
the Act, in the calculation of the ``all others'' rate.

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
International Trade Commission (``ITC'') of our determination. As our 
final determination is affirmative, the ITC will, within 45 days, 
determine whether these imports are materially injuring, or threaten 
material injury to, the U.S. industry. If the ITC determines that 
material injury, or threat of material injury does not exist, the 
proceeding will be terminated and all securities posted will be 
refunded or canceled. If the ITC determines that such injury does 
exist, the Department will issue an antidumping duty order directing 
Customs officials to assess antidumping duties on all imports of the 
subject merchandise entered for consumption on or after the effective 
date of the suspension of liquidation.
    This determination is published pursuant to section 735(d) of the 
Act.

    Dated: September 24, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-26045 Filed 9-30-97; 8:45 am]
BILLING CODE 3510-DS-P