[Federal Register Volume 62, Number 190 (Wednesday, October 1, 1997)]
[Notices]
[Pages 51420-51426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26047]



[[Page 51420]]

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DEPARTMENT OF COMMERCE

International Trade Administration
[A-580-827]


Notice of Final Determination of Sales at Not Less Than Fair 
Value: Collated Roofing Nails From Korea

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 (202) 482-1766, Group II, Office Five, Antidumping 
Countervailing Enforcement, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, N.W., Washington, D.C. 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 Rounds Agreements Act (``URAA''). In addition, unless 
otherwise indicated, all citations to the Department regulations are to 
the regulations, as codified at 19 CFR Part 353 (1997).

Final Determination

    We determine that collated roofing nails (``CR nails'') from Korea 
are not being sold in the United States at less than fair value 
(``LTFV''), as provided in section 735 of the Tariff Act of 1930, as 
amended (``the Act''). The estimated margins are shown in the 
``Termination of Suspension of Liquidation'' section of this notice.

Case History

    Since the preliminary determination in this investigation (Notice 
of Preliminary Determination and Postponement of Final Determination: 
Collated Roofing Nails from Korea, 62 FR 25895 (May 12, 1997)), the 
following events have occurred:
    In June 1996, we verified questionnaire responses for Kabool Metals 
(``Kabool'') and Senco Korea Company, Ltd., Senco Products 
Incorporated, and Je Il Steel Company, Ltd. (collectively ``SENCO''). 
Paslode Division of Illinois Tool Works Inc. (``Petitioner''), 
respondents, and Stanley Bostich (``Stanley''), an interested party in 
this investigation, submitted case briefs on August 7, 1997, and 
rebuttal briefs on August 12, 1997. The Department held a public 
hearing on August 13, 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.

Fair Value Comparisons

    To determine whether sales of the subject merchandise by Kabool and 
SENCO to the United States were made at LTFV, we compared the Export 
Price (``EP'') or Constructed Export Price (``CEP'') to the Normal 
Value (``NV''), as described in the EP, CEP, and NV 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.
    Kabool reported that it had no viable home market or third country 
sales during the POI. Therefore, we made no price-to-price comparisons 
for Kabool. See the NV section of this notice, below, for further 
discussion.

Level of Trade and CEP Offset

    In the preliminary determination, the Department determined that no 
difference in level of trade (``LOT'') existed between home market and 
U.S. sales for either Kabool or SENCO. None of the parties have 
contested that determination. Accordingly, the Department has not 
investigated further into this issue. Therefore, we determine that all 
of SENCO's sales are made at a single LOT and no LOT adjustment or CEP 
offset is warranted.
    As explained below, we based the NV for Kabool entirely on 
constructed value (``CV''). The CV LOT is that of the sales from which 
we derive SG&A and profit. We derived selling, general, and 
administrative expenses (``SG&A'') and profit from Kabool's sales of 
all types of nails in the home market. However, the record contains 
insufficient information to analyze the selling activities associated 
with those sales. Therefore, as facts available, we are drawing the 
inference that there is no distinction between the CV and U.S. LOTs. 
This inference is consistent with the fact that neither petitioner nor 
Kabool alleged a difference in LOT. Therefore we determine that a level 
of trade adjustment is not warranted.

Export Price and Constructed Export Price

Kabool

    We used EP in accordance with section 772(a) of the Act because the 
subject merchandise was sold to unaffiliated customers before 
importation and the CEP methodology was not indicated by the facts of 
record. We calculated EP based on the same methodology used in the 
preliminary determination, with the following exceptions: adjustments 
to brokerage expenses; duty drawback; and other corrections were made 
based on verification findings. (For details, see September 24, 1997, 
final determination calculation memorandum for Kabool, hereafter 
``Kabool calculation memo.'')

SENCO

    We used EP in accordance with section 772(a) of the Act where the 
subject merchandise was sold to unaffiliated customers prior to 
importation because the CEP methodology was not indicated by the facts 
of record. We used CEP in accordance with section 772(b) of the Act 
where the subject merchandise was sold to unaffiliated customers after 
importation. We calculated CEP and EP based on the same methodology 
used in the preliminary determination, with the following exceptions: 
adjustments to packing expenses; rebates; early payment discounts; 
advertising expenses; and inland freight were made based on 
verification findings. For CEP we also adjusted reported indirect 
selling expenses and inventory carrying costs to exclude Korean 
incurred components and applied them to transfer prices rather than 
starting prices. Furthermore, we are no longer using facts available 
for foreign inland freight expenses.
    In addition, verification revealed that SENCO's CEP sales listing 
included non-subject merchandise that SENCO had purchased from Taiwan 
and Mexico. Although SENCO did not record the country of origin for 
specific sales, the Department was able to determine for each model 
reported the percentage of total CR nail purchases accounted for by 
subject CR nails and to adjust SENCO's sales listing as appropriate. 
For example: if for model ``A'' Senco Products Incorporated (``SPI'') 
purchased 57 percent of its CR nails from Korea, the Department

[[Page 51421]]

multiplied the reported quantity by 57 percent for all sales of model 
``A'' within SENCO's CEP sales listing. (For details, see September 24, 
1997, final determination calculation memorandum for SENCO, hereafter 
``SENCO calculation memo.'')

Normal Value

    In order to determine whether there was a sufficient volume of 
sales in the home market to serve as a viable basis for calculating NV 
(i.e., the aggregate volume of home market sales of the foreign like 
product 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.

SENCO

    SENCO reported that it had no home market sales during the POI. 
Therefore, in accordance with section 773(a)(1)(B)(ii), we based NV for 
Senco Korea on sales to its largest third country market, Canada. We 
calculated NV based on the same methodology used in the preliminary 
determination, with the following exceptions: adjustments were made to 
packing expenses; and domestic brokerage and handling based on 
verification findings. In addition, SENCO corrected omissions in the 
third country sales listing used for the preliminary determination. For 
purposes of calculating the final margin, we are no longer applying 
facts available for the certain U.S. sales that had no third country 
matches. (For details, see SENCO calculation memo).

Kabool

    Kabool reported that it had no viable home or third country market 
during the POI. Therefore, in accordance with section 773(a)(4) of the 
Act, we based NV for Kabool on CV. In accordance with section 773(e)(1) 
of the Act, we calculated CV based on the sum of the costs of 
materials, labor, overhead, SG&A, profit and U.S. packing costs. We 
adjusted U.S. packing costs based on our findings at verification.
    Section 773(e)(2)(A) states that SG&A and profit are to be based on 
the actual amounts incurred in connection with sales of a foreign like 
product. In the event such data is not available, 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. The alternative methods are: (1) calculate SG&A and profit 
incurred by the producer based on the sales of merchandise of the same 
general type as the exports in question; (2) average SG&A and profit of 
other producers of the foreign like product for sales in the home 
market; or (3) any other reasonable method, capped by the amount 
normally realized on sales in the foreign country of the general 
category of products. In addition, the Statement of Administrative 
Action (``SAA'') states that, if the Department does not have the data 
to determine amounts for profit under alternatives one and two, or a 
profit cap under alternative three, it still may apply alternative 
three (without the cap) on the basis of the ``facts available.'' SAA at 
841.
    In this case, we based Kabool's SG&A and profit on the actual 
amounts incurred and realized in connection with the production and of 
the same general category of merchandise as described in alternative 
one, above (see Comment 1, below, for further discussion).

Price to CV Comparisons

    Where we compared CV to EP for Kabool, we made circumstance of sale 
adjustments pursuant to section 773(a)(6)(C)(iii) of the Act and 19 CFR 
section 353.56(a)(2). We made circumstance of sale adjustments, where 
appropriate, for differences in bank charges and credit expenses. We 
adjusted bank charges based on findings at verification. (For details, 
see Kabool calculation memorandum).

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 convert 
foreign currencies based on the dollar exchange rate in effect on the 
date of sale of the subject merchandise, except if it is established 
that a currency transaction on forward markets is directly linked to an 
export sale. When a company demonstrates that a sale on forward markets 
is directly linked to a particular export sale in order to minimize its 
exposure to exchange rate losses, the Department will use the rate of 
exchange in the forward currency sale agreement.
    Section 773A(a) also 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. (For an explanation of this 
method, see Policy Bulletin 96-1: 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 neither the 
Korean Won nor the Canadian Dollar underwent 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 this case, our final determination is negative. Accordingly, a 
critical circumstances determination is irrelevant because there is no 
possibility of retroactive suspension of liquidation.

Verification

    As provided in section 782(i) of the Act, we verified 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.

[[Page 51422]]

Interested Party Comments

Comment 1: SG&A and Profit Calculations

    Petitioner opposes the Department's use of Kabool's company-wide 
SG&A and profit, arguing that the company-wide data includes lower 
export prices, which decreases the profit rate and, consequently, 
artificially lowers dumping margin. Instead, petitioner contends that 
Kabool's SG&A and profit should be based only on sales of merchandise 
that belong to the same general category of ``collated nails'' and not 
``all nails'' (i.e., collated and non-collated). According to 
petitioner, basing SG&A and profit on both collated and non-collated 
nails is inappropriate because collated nails require significantly 
different capital investment and are sold to different markets.
    Stanley agrees with petitioner, arguing that the use of Kabool's 
company-wide SG&A and profit artificially lowers the dumping margin. 
Stanley also notes that, because of the significant investment and 
overhead costs attributable to CR nails, the same general category of 
merchandise cannot be broader than collated nails for purposes of 
calculating profit. Further, Stanley contends that Kabool has the 
ability to separate the profit for collated nails from the company-wide 
profit rate, but simply chose not to do so. Therefore, Stanley argues 
that the Department should apply facts available in calculating the 
dumping margin for Kabool.
    Kabool asserts that the Department should use the profit rate based 
on Kabool's sales of collated and non-collated nails, which was 
provided in its April 16, 1997, supplemental Section D response, as 
corrected and verified by the Department at verification. Kabool argues 
that both collated and non-collated nails are processed in the same 
facility using the same equipment and the same production processes. 
Moreover, Kabool notes that the Department previously held that the 
``class or kind'' of merchandise in a case involving steel wire nails 
included all steel wire nails--without distinguishing between collated 
and non-collated nails. Finally, Kabool argues that petitioner's claim 
that the Department should use a profit rate specific to collated nails 
was only raised in petitioner's case brief and, thus, too late in this 
proceeding to request such information. Kabool also notes that although 
the Department's questionnaire never requested information regarding 
the profit on home market sales of collated and non-collated nails, 
Kabool submitted information on its profit for nail products in the 
home market. Therefore, Kabool contends that the Department should 
reject petitioner's and Stanley's arguments and determine that the same 
general category of merchandise upon which to base SG&A and profit is 
collated and non-collated nails.

DOC Position

    We agree with Kabool. Kabool does not have a viable home market or 
third country market for a foreign like product. Section 773(e)(2)(B) 
of the Act states that if actual SG&A and profit data on home market 
sales of the subject merchandise are not available, the Department may 
use the SG&A and profit rates incurred by the producer on the sales of 
the same general category of merchandise as the exports in question 
(see Kabool's NV section for a discussion of the three alternative 
methodologies ). In this instance, we verified the aggregated SG&A and 
profit data on Kabool's sales in the home market of both collated and 
non-collated nails that it submitted. We determined that collated and 
non-collated nails are of the same general category of merchandise. 
(Cf. Certain Steel Wire Nails From Korea: Final Results of Changed 
Circumstances Administrative Review and Revocation of Antidumping Duty 
Order, 50 FR 40045 (Oct. 1, 1985) (all steel wire nails found to 
constitute a single class or kind of merchandise). Accordingly, 
consistent with section 773(e)(2)(B), the Department has used the 
verified SG&A and profit rate reported by Kabool on its sales of all 
nails in the home market.

Comment 2: Facts Available

    Petitioner contends that the Department should use adverse facts 
available for SENCO's and Kabool's dumping margins. Petitioner argues 
that the numerous verification corrections, whether disclosed by the 
respondents or found by Department officials, indicate that both Kabool 
and SENCO have failed to act to the best of their abilities. Petitioner 
specifies four examples of problems with SENCO's responses: (1) errors 
in the reporting of purchases of CR nails from Je Il Steel Company Ltd. 
(``JISCO''); (2) inability to explain discrepancies in reported 
trucking freight charges; (3) discrepancies noted by the Department 
when reconciling quantity and value figures to SPI's financial 
statements; and (4) failure to include POI sales to Canada in the third 
country database. Further, petitioner argues that SENCO did not provide 
a complete explanation of its relationship with its distributor in 
Canada.
    SENCO states that petitioner correctly summarizes the instances in 
which SENCO's submissions, prior to the preliminary determination, 
warranted the use of facts available by the Department. However, SENCO 
contends that it has corrected all the deficiencies in its June 2, 
1997, response to the Department's second supplemental antidumping 
questionnaire. Because the corrected deficiencies have been verified by 
the Department, SENCO claims that the Department should use the 
information provided by SENCO to make the final determination in this 
investigation.
    Kabool contends that the petitioner has not indicated which 
corrections and errors actually merit the use of adverse facts 
available. Kabool claims that the corrections it has submitted do not 
warrant wholesale rejection of its responses. Kabool states it was 
cooperative in providing information throughout the investigation. 
Kabool further states that petitioner has not identified a single 
instance of a pattern or systematic misstatement of fact in Kabool's 
submissions. Accordingly, Kabool contends that there is no basis for 
the Department to reject Kabool's submissions or to rely on adverse 
facts available. Rather, Kabool claims that the Department's final 
determination in this investigation should be based on the information 
it has submitted.

DOC Position

    We agree with both respondents. The facts on the record of this 
investigation demonstrate that the respondents answered the 
Department's questionnaire to the best of their ability. The 
corrections and errors found in the responses to the Department's 
questionnaire and at verification do not warrant the use of facts 
available. The Department's practice is to permit respondents to 
provide minor corrections to submitted information at the commencement 
of verification. See, e.g., Notice of Final Determination of Sales at 
Less Than Fair Value: Melamine Institutional Dinnerware Products From 
Taiwan, 62 FR 1726, 1729 (January 13, 1997). Kabool and SENCO provided 
the Department with their corrections in a timely manner at the 
beginning of their respective verifications (cost verification report 
for Kabool dated July 28, 1997; sales verification reports for Kabool, 
Senco Korea, and SPI dated July 7, 1997, and July 30, 1997, July 29, 
1997, respectively). In sum, the corrections submitted by Kabool and 
SENCO were typical of the minor corrections routinely accepted by the 
Department at the commencement of verification.

[[Page 51423]]

Accordingly, we determine that resorting to facts available is 
unwarranted in this particular case. We, therefore, used all verified 
information for both respondents in the final margin calculations.

Comment 3: Plating Thickness

    Petitioner argues that the plating thicknesses of CR nails 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 the Department. Therefore, petitioner contends that the 
Department should assume that respondents were aware of the U.S. 
building codes and produced CR nails that complied with the codes. 
Petitioner urges the Department to use the information contained in the 
petition to calculate NV based on CR nails that meet the U.S. building 
codes.
    Kabool argues that petitioner's statements regarding plating 
thickness are unsubstantiated and do not provide any basis for 
rejecting or even questioning Kabool's submissions. Kabool states that, 
because its NV was based on CV, there is no question of incorrect 
product comparison. Further, Kabool contends that it reported actual 
costs incurred in producing (and plating) the CR nails exported to the 
United States, thereby accounting for all of its materials and 
fabrication costs incurred in the process of plating CR nails. Kabool 
also states that the costs reported by Kabool were verified by the 
Department. Accordingly, there is no basis for rejecting Kabool's 
submissions.
    SENCO argues that there is no indication in the petitioner's case 
brief as to where or when the issue of sub-standard plating thickness 
of CR nails was previously raised on the record. SENCO states that 
there is nothing on the record to suggest that its CR nails do not meet 
applicable standards. Accordingly, SENCO contends that there is no 
basis for rejecting SENCO's submissions.

DOC Position

    We agree with Kabool that we have captured all costs incurred in 
producing CR nails. During the cost verification of Kabool, we examined 
whether all material costs (including plating costs) associated with 
the subject merchandise were included 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 report for 
Kabool dated July 28, 1997). Thus, we have verified all of Kabool's 
material costs. With respect to SENCO, we noted no discrepancies 
regarding its reported product characteristics. 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 4: Allocation Methods

    Petitioner contends that respondents' allocation methods were 
distortive because they were based on incorrect and unsupported 
expenses in the following areas:
    (1) Shipping Expenses. International freight expenses were 
improperly based on gross weight instead of volume. Because CR nails 
weigh less per cubic foot than bulk nails, respondents' shipping 
expenses were thus systematically under-reported.
    (2) Production Expenses, Factory Overhead, and Indirect Selling 
Expenses. The allocation method for production-related expenses, 
factory overhead, and indirect selling expenses should be based on 
weight that includes scrap. However, the post-scrap production 
expenses, such as packing, should be allocated based on weight of the 
CR nails without scrap.
    (3) Duty drawback. The duty drawback expense allocation method 
should be based on the net weight of CR nails.
    (4) Actual Weighing. The Department should rely on actual physical 
weighing of the CR nails, not the reported gross weight for all 
allocation methods based on weight.
    In rebuttal, Kabool argues that petitioner's assertions, which are 
enunciated for the first time in petitioner's case brief, are untimely. 
Moreover, Kabool emphasizes that the allocation methods used are 
consistent with the Department's past practice and the proposed 
modification would produce insignificant changes. Therefore, any 
modification of Kabool's current allocations is without merit. 
Specifically, Kabool addresses the following allocations:
    First, Kabool argues that petitioner's assumption that Kabool's 
shipments regularly include both bulk nails and CR nails is inaccurate. 
Kabool states that it reported actual ocean freight costs for its U.S. 
sales on a shipment-by-shipment basis. Moreover, Kabool contends that 
allocation of ocean freight costs based on weight, rather than volume, 
is consistent with the Department's normal practice. Moreover, an 
alternative allocation based on volume would not have been practical 
since the documents do not state the volume of each shipment. Thus, 
there is no basis to revise the freight allocations.
    Second, Kabool states that petitioner's proposed allocations for 
production-related expenses, factory overhead, and indirect selling 
expenses are factually incorrect and contrary to the law. Kabool claims 
that most of these items were not allocated based on weight. For 
instance, Kabool's indirect selling expenses were allocated based on 
sales value. Kabool asserts that the only overhead allocation based on 
weight was the fabrication costs for polishing and coating. According 
to Kabool, any new allocation would result in insignificant changes.
    Third, Kabool argues that it did allocate duty drawback based on 
the net weight of the CR nails.
    Finally, Kabool states that it reported its shipping expenses, 
production-related expenses, factory overhead, indirect selling 
expenses, and duty drawback in accordance with Korea's generally 
accepted accounting principles (``GAAP'') and its own cost accounting 
system. Kabool claims that the statute requires the Department to 
follow the methodologies used in the company's normal accounting 
system. Moreover, Kabool argues that to allocate expenses based on a 
weight that includes scrap is nonsensical as this would result in 
allocating a portion of the product costs to scrap and not to the 
finished product. Accordingly, there is no reason to allocate these 
expenses in the manner petitioner has proposed.
    SENCO claims that petitioner failed to adequately identify in its 
case brief what type of shipping expenses should be subject to a 
different allocation methodology. SENCO also notes that its 
methodologies for calculating freight expenses were verified by the 
Department and generally accepted as appropriate. In addition, SENCO 
states that it reported that it received no duty drawback on the 
exportation of CR nails.

DOC Position

    The Department normally accepts the company's recording of costs, 
provided that it reasonably reflects the cost of producing subject 
merchandise and it is in accordance with the home country's GAAP. See 
section 773(f)(1)(A); SAA at 834-35; Final Determination of Sales at 
Less Than Fair Value: Large Newspaper Printing Presses from Japan, 61 
FR 38139 (July 23, 1996). We have determined that the allocations of 
the expenses, challenged by petitioner, are reasonable for the reasons 
stated below.
    (1) Shipping Expenses. We found no discrepancies with respect to 
the allocation methodology used by respondents. (See Sales Verification 
Reports for Kabool at 7 and Senco Korea

[[Page 51424]]

at 10 dated July 7, 1997, and July 30, 1997, respectively.) 
Respondents' cost accounting systems, which are consistent with Korean 
GAAP, only record the weight of their shipments to customers, not the 
volume. Thus, the allocation method used was the most specific method 
feasible. In addition, it does not cause distortions or inaccuracies in 
our calculations. Therefore, the Department has not changed the freight 
methodology for the final determination.
    (2) Production Related Expenses, Factory Overhead, and Indirect 
Selling Expenses. Allocating expenses over the weight of the finished 
goods 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.
    Further, most of Kabool's items were not allocated based on weight. 
Indirect selling expenses were allocated based on sales value. The only 
overhead allocation based on weight was the fabrication costs for 
polishing and coating. Therefore, any new allocation would have been 
insignificant. Thus, we reject petitioner's argument and will continue 
to allocate expenses over the total amount of finished product.
    (3) Duty Drawback. As stated in the sales verification reports 
dated July 9, 1997, and July 30, 1997, the Department verified that 
Kabool allocated duty drawback on the net weight of the CR nails and 
that Senco Korea received no duty drawback on the exportation of CR 
nails.
    (4) Physical Weights. At verification, the Department examined the 
weights of the products in order to confirm certain allocation factors. 
We found no discrepancies. We will use each company's verified weights 
in our calculations.
    Respondents reported all of the aforementioned expenses in 
accordance with Korea's GAAP and their own cost accounting systems (see 
Section 773(f)(1) of the Act). The methodologies for calculating these 
expenses were verified by the Department and accepted as appropriate. 
Accordingly, the Department did not change the allocation methodologies 
for these expenses. Further, as noted above, because few factors were 
allocated on the basis of weight any changes in the allocations would 
not have a significant impact.

Comment 5: Constructed Value Calculation--Kabool

    Petitioner argues that Kabool's cost methodology for CV was not 
appropriate because the cost of materials obtained from non-affiliated 
suppliers should be determined through a price comparison against 
independent Korean market values to ensure that prices are reasonable.

DOC Position

    We disagree with petitioner. The Department verified Kabool's cost 
of materials. Kabool's material purchases constituted arm's-length 
transactions and reported costs were tested against Kabool's cost 
accounting systems. Because the prices that Kabool paid for its 
materials reflect market values, it is neither necessary nor 
appropriate for the Department to benchmark Kabool's material costs 
against other ``independent'' market values.

Comment 6: Collapsing Senco Korea and its Affiliate

    Petitioner claims that Senco Korea and its affiliate should be 
collapsed for purposes of the final determination. Petitioner states 
that in identifying the potential for manipulation of price or 
production the Department may consider the following factors: (1) Level 
of common ownership; (2) shared management; (3) intertwined operations, 
shared facilities and/or employees, and significant transactions 
between affiliated parties. Petitioner cites Sulfanilic Acid From 
China: Preliminary Results of Antidumping Duty Administrative Review, 
62 FR 25917 (May 12, 1997), in which the Department found that two 
companies were affiliated when substantial retooling of either company 
would not be necessary to restructure their collective manufacturing 
priorities, and that there was a potential for price manipulation 
between the two producers. Petitioner claims that the same principle 
should be applied to Senco Korea and its affiliates.
    SENCO argues that petitioner fails to identify Senco Korea's 
alleged affiliate, but states that SENCO assumes that petitioner is 
referring to JISCO. SENCO states that it has readily acknowledged on 
the record that JISCO is affiliated with Senco Korea. However, SENCO 
contends that because the Department verified that JISCO had no 
independent sales of CR nails, Senco Korea has reported all of its 
sales of CR nails.

DOC Position

    The Department has treated Senco Korea, JISCO, and SPI as 
affiliated parties throughout the entire investigation. The companies 
submitted a consolidated questionnaire response and verification 
revealed no material errors or omissions that could not be corrected. 
See section 771(33)(E) of the Act and SENCO's February 28, 1997, 
submission of section ``A'' response to the Department's antidumping 
questionnaire. Accordingly, the Department has treated these companies 
as one entity. Because we are dealing with a single producer, the type 
of collapsing analysis suggested by petitioner is not relevant.

Comment 7: SENCO Indirect Selling Expenses

    Petitioner makes two points with respect to SENCO's reported 
indirect selling expenses. First, petitioner argues that certain U.S.-
incurred indirect selling expenses, such as salaries and benefits for 
the heads of customer service and distribution services, which SENCO 
proposed to exclude from reported indirect selling expenses, should be 
deducted from CEP. However, petitioner states that ``the Department 
should make an offsetting adjustment to SG&A.''
    Second, petitioner contends that SENCO inappropriately revised its 
reporting of Korean-incurred indirect selling expenses and inventory 
carrying costs by allocating these items over transfer price instead of 
gross price.
    SENCO claims that it properly reported and allocated its indirect 
selling expenses. Prior to verification, SENCO revised its indirect 
selling expenses to excluding certain expenses related to selling 
activities in the United States. SENCO argues that this correction was 
appropriate because these expenses are incurred in Korea. SENCO also 
asserts that SG&A expenses should not have been included in the 
indirect selling expenses incurred in Korea and that the corrected 
amounts were reviewed at verification.
    SENCO contends that basing indirect selling expenses on the 
transfer price, rather than the resale price originally reported, 
constituted an appropriate correction that was explained to the 
Department at verification.

DOC Position

    With respect to petitioner's first argument, we agree. We have not 
accepted SENCO's proposal to exclude from the indirect selling expenses 
deducted from CEP certain selling expenses incurred at SPI because 
those expenses relate to economic activity in the United States. 
Because Senco Korea's margin calculation is based on a price-to-price 
comparison, there is no

[[Page 51425]]

need to correct SG&A as that figure is not used in the calculation.
    With respect to the allocation of Korea-incurred selling and 
inventory carrying expenses, the Department does not need to address 
this question because these expenses have not been determined to be 
associated with economic activity in the United States and thus are not 
being deducted from CEP or otherwise taken into account.

Comment 8: Correct Reporting of Affiliated Parties

    Petitioner contends that sales made between Senco Korea and its 
customer in Canada do not appear to be at arm's length. Accordingly, 
petitioner urges the Department to use facts available in its final 
determination in this investigation.
    Stanley claims that SENCO failed to provide complete information 
regarding its affiliations (or ``relationships with its customers''). 
Stanley states that Senco Korea's distributor for CR nails in Canada is 
affiliated with the corporate entity that controls SPI. Because of the 
lack of complete information with respect to SENCO's affiliates, 
Stanley contends that the Department is not able to determine whether 
Senco Korea's reported third country sales are arm's-length 
transactions. Accordingly, Stanley contends, the Department is required 
to use facts available for making SENCO's final determination in this 
investigation.
    SENCO argues that it has no affiliates in Canada and that it 
properly excluded from its sales listing CR nails sales made by its 
unaffiliated distributor. According to SENCO, its customer in Canada is 
an unaffiliated distributor and the independent relationship of many of 
SPI's various distributors was verified by the Department.

DOC Position

    We agree with SENCO. At verification, we noted that SPI has a large 
number of formal business relationships with many distributors and 
resellers throughout the world and the majority of these relationships 
do not meet the Department's requirements for affiliation (see SPI 
verification report at 3, July 29, 1997). Specifically, there was no 
indication noted by the Department that SPI was affiliated with its 
customer in Canada. Accordingly, there is no basis to conclude that the 
third country sales listing is flawed, and use of facts available for 
the Department's determination is not warranted. Moreover, we note that 
petitioner and Stanley first raised this concern in their case briefs--
far too late in this proceeding for a detailed analysis of potential 
affiliation between a supplier and its customer.

Comment 9: Critical Circumstances

    Petitioner alleges that the petition provided a reasonable basis to 
suspect that critical circumstances exist with respect to imports of 
subject merchandise. In particular, petitioner maintains that the 
revoked antidumping order on steel wire nails from Korea, Certain Steel 
Wire Nails From Korea, 50 FR 40045 (Oct. 1, 1985), provides a 
sufficient basis to find a history of dumping (a requirement of section 
733(e)(1)(i) of the Act). Accordingly, petitioner believes that there 
is a reasonable basis to suspect that critical circumstances exist with 
respect to imports of subject merchandise.
    Kabool contends the Department should affirm its preliminary 
determination that critical circumstances do not exist in this case for 
Kabool. Kabool asserts that petitioner neglected to mention three 
facts: (1) The steel wire nails final determination cited by petitioner 
was published in 1980, which is more than 15 years ago; (2) the same 
steel wire nails antidumping order was revoked in October 1985; (3) 
Kabool was not investigated in that proceeding, and it was never found 
to be dumping steel wire nails or any other product. For the above 
reasons, Kabool claims that petitioner's argument should be rejected.
    SENCO states that nothing has changed since the preliminary 
determination to alter the Department's conclusion that the first prong 
of section 733(e)(1) pertaining to history of dumping, or knowledge on 
the part of importers, has not been met. Furthermore, SENCO submits 
that the second prong of that provision cannot be satisfied because the 
change in the quantity of shipments of CR nails by Senco Korea to the 
United States from the post-petition period over the pre-petition 
period does not indicate that imports were massive. Because neither 
prong of section 733(e)(1) has been satisfied, SENCO argues that there 
is no basis to find that critical circumstances exist.

DOC Position

    Because our final determination is negative, it is not necessary to 
address whether critical circumstances exist as there is no possibility 
of retroactive suspension of liquidation.

Comment 10: Unverified CEP Expenses

    SENCO claims that the Department should accept its reported data 
for the following expenses: U.S. inland freight, U.S. customs duties, 
credit expenses, advertising expenses, and inventory carrying costs 
incurred in the United States. Although the Department was unable to 
verify these expenses, SENCO notes that the verification process was 
generally complete. SENCO contends it demonstrated a willingness to 
cooperate with the Department by responding to the antidumping 
questionnaires in a timely manner. Accordingly, the application of 
adverse facts available would be inappropriate.
    Petitioner contends that the Department's inability to verify the 
CEP expenses was not minor. Petitioner argues that the treatment of 
these expenses directly affects the Department's calculation 
methodology for the final determination. Petitioner claims that the 
Department is required to verify all information relied upon in its 
final determination. Accordingly, for these unverified expenses, 
petitioner urges the Department to use facts available.

DOC Position

    Due to limitations of time and resources, the Department is rarely 
able to verify every single piece of data submitted in a response. See 
Monsanto Co. v. United States 698 F. Supp. 275, 281 (1988) 
(``Verification is a spot check and is not intended to be an exhaustive 
examination of the respondent's business.'') Verification is an 
opportunity for the Department to test the accounting and business 
systems of the respondent to a level of detail that gives the 
Department a reasonable indication as to the integrity of the response. 
See Micron Technology, Inc. v. United States, 117 F.3d 1386, 1396 
(1997) (ITA performs selective verification of reported data until it 
is satisfied that the data supplied by the foreign respondent is 
accurate). For the information that was verified, the Department found 
no significant problems. While we would have preferred to have an 
opportunity to verify these expenses, based on the results of 
verification, we find SENCO's data to be reliable overall. Moreover, we 
find that the level of SENCO's cooperation with our requests for 
information would not warrant an adverse inference. Nor have we found 
any reason based on other information on the record to conclude that 
the information in question is erroneous. Thus, even though not 
specifically verified, SENCO's reported expense information is the most 
appropriate facts available to the Department for the calculation of 
SENCO's margin. Accordingly, the Department has used

[[Page 51426]]

SPI's CEP expenses for purposes of the final determination.

Comment 11: Treatment of Relocation Costs for CV

    Kabool states that it made a substantial investment in relocating 
its production facilities. Kabool states that production levels were 
limited by technical factors and contends that production during and 
immediately after relocation constitutes a start-up operation under the 
statute. Kabool contends that the Department should reduce CV to 
account for this relocation, either by granting a start-up adjustment 
or by determining that these costs are extraordinary.
    Kabool contends that the plant relocation was clearly unusual in 
nature and infrequent in occurrence, thus satisfying the criteria for 
an expense to be considered extraordinary.
    Petitioner contends that Kabool's plant relocation does not require 
special treatment by the Department. Petitioner further states that 
Kabool did not supply the necessary data to effect the requested 
adjustment. Furthermore, Kabool did not establish (as the statute 
requires) that the startup period extended ``beyond the POI.''

DOC Position

    We agree with petitioner that it is not appropriate to make an 
adjustment, under the startup provision of section 773(f)(1)(C)(ii) of 
the Act, to account for the costs incurred by Kabool during the 
relocation of its production facility. To qualify for an adjustment for 
startup operations, the producer must show that (1) it is using new 
production facilities or producing a new product that requires 
substantial additional investment, and (2) the production levels are 
limited by technical factors associated with the initial phase of 
commercial production. See 773(f)(1)(C)(ii). The SAA explains that 
``new production facilities'' means substantially complete retooling of 
an existing plant that involves a replacement or rebuilding of nearly 
all production machinery. See SAA at 836. A product is ``new,'' 
according to the SAA, if it requires ``substantial additional 
investment,'' or if the producer incurs substantial additional cost 
because of revamping or redesigning its existing product. Id.
    In this case, Kabool reported in its April 16, 1997, supplemental 
section D response that all of the production machinery used in 
Kabool's new plant was transferred from its old plant. Kabool thus did 
not replace or rebuild nearly all of its machinery, but merely 
relocated its production facility. Kabool's technology for producing CR 
nails has not changed and there is nothing on the record to indicate 
that a new product is being produced in the new facility. Because 
Kabool merely relocated its production facility without replacing or 
rebuilding nearly all of its machinery, and the record evidence does 
not show that the relocation involved a substantial investment in 
connection with the revamping or redesigning of CR nails, the first 
condition for the start up adjustment is not satisfied.
    Because Kabool does not meet the requirements outlined in the first 
prong of the start-up provision, the Department is not required to 
address whether or not Kabool's production levels were limited by 
technical factors associated with the initial phase of commercial 
production during the relocation of its facilities. In sum, the 
Department has determined to reject Kabool's claim for startup 
adjustment because it did not demonstrate that its production facility 
was new, or that it would involve a production of a new product under 
section 773(f)(1)(C)(ii) of the Act.
    As in the preliminary determination, Department did not make an 
adjustment for Kabool's relocation costs based on the Department's 
practice of adjusting CV for extraordinary costs. The Department 
maintains that additional expenses stemming from Kabool's relocation do 
not constitute, in the words of the SAA at page 832, ``an unforeseen 
disruption in production,'' which is beyond the management's control.'' 
(See also Final Determination of Sales at Less Than Fair Value: Large 
Newspaper Printing Presses, from Japan, 61 FR 38139, 38153, July 23, 
1996). Accordingly, because the relocation was not an unforseen event, 
the Department will include all the expenses associated with the 
relocation of Kabool's nail production facilities for purposes of 
calculating CV.

Comment 12: Indirect Selling Expenses--Kabool

    Kabool claims that the revised home-market indirect selling expense 
calculation set forth in the sales verification report incorrectly 
allocates all of Kabool's home-market indirect selling expenses (which 
related to sales of all of its products) over the sales of CR nails 
sales instead of company wide sales. Accordingly, the Department should 
make the correction of the calculation error.
    Petitioner states that the Department should include indirect 
selling expenses for the same general category of products (i.e. 
collated nails) as the Department should select for SG&A and profit. 
Petitioner argues that by including indirect selling expenses allocated 
for sales in the same general category, the Department will be making 
the most precise calculation of CV.

DOC Position

    We agree with Kabool. The Department made a calculation error in 
the recalculation of the home-market indirect selling expense (see the 
Department's July 28, 1997, cost verification report, page 13). 
Accordingly, the Department has corrected the calculation as 
illustrated on page 15 of Kabool's August 6, 1997, case brief. For 
reasons outlined in our response to comment 1 we are calculating 
indirect selling expenses based on sales of the same general category 
of nails as provided by Kabool.

Termination of Suspension of Liquidation

    In accordance with section 735(c)(2) of the Act, we are directing 
the Customs Service to terminate suspension of liquidation and release 
any bond or other security and refund any cash deposit.
    The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                                Margin  
               Manufacturer/Producer/Exporter                 percentage
------------------------------------------------------------------------
Senco......................................................            0
Kabool.....................................................            0
------------------------------------------------------------------------

    Because our determination is negative, the investigation will be 
terminated upon publication of this notice and no order will be issued.

International Trade Commission Notification

    In accordance with section 735(d) of the Act, we have notified the 
International Trade Commission of our determination.
    This determination is published pursuant to section 735(d) of the 
Act.

    Dated: September 24, 1997.
Robert LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-26047 Filed 9-30-97; 8:45 am]
BILLING CODE 3510-DS-P