[Federal Register Volume 62, Number 72 (Tuesday, April 15, 1997)]
[Notices]
[Pages 18404-18448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9424]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-580-815 & A-580-816]


Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat 
Products From Korea: Final Results of Antidumping Duty Administrative 
Reviews

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

ACTION: Final results of antidumping duty administrative reviews.

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SUMMARY: On October 4, 1996, the Department of Commerce (``the 
Department'') published the preliminary results of the administrative 
reviews of the antidumping duty orders on certain cold-rolled and 
corrosion-resistant carbon steel flat products from Korea. These 
reviews cover three manufacturers/exporters of the subject merchandise 
to the United States and the period August 1, 1994, through July 31, 
1995. We gave interested parties an opportunity to comment on our 
preliminary results. Based on our analysis of the comments received, we 
have changed the results from those presented in the preliminary 
results of review.

EFFECTIVE DATE: April 15, 1997.

FOR FURTHER INFORMATION CONTACT: Charles Rast (Dongbu), Steve 
Bezirganian (POSCO), Alain Letort (Union), or John Kugelman, AD/CVD 
Enforcement Group III--Office 8, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230, telephone 202/482-5811 
(Rast), 202/482-1395 (Bezirganian), 202/482-4243 (Letort), or 202/482-
0649 (Kugelman), fax 202/482-1388.

SUPPLEMENTARY INFORMATION:

Applicable Statute

    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's regulations are 
to the current regulations, as amended by the interim regulations 
published in the Federal Register on May 11, 1995 (60 FR 25130).

Background

    The Department published antidumping duty orders on certain cold-
rolled and corrosion-resistant carbon steel flat products from Korea on 
August 19, 1993 (58 FR 44159). The Department published a notice of 
``Opportunity to Request an Administrative Review'' of the antidumping 
duty orders for the 1994/95 review period on August 1, 1995 (60 FR 
39150). On August 31, 1995, respondents Dongbu Steel Co., Ltd. 
(``Dongbu''), Union Steel Manufacturing Co., Ltd. (``Union''), and 
Pohang Iron and Steel Co., Ltd. (``POSCO''), requested that the 
Department conduct administrative reviews of the antidumping duty 
orders on cold-rolled and corrosion-resistant carbon steel flat 
products from Korea. On the same day, the petitioners in the original 
less-than-fair-value (``LTFV'') investigations (Bethlehem Steel 
Corporation, U.S. Steel Group--a unit of USX Corporation, Inland Steel 
Industries, Inc., Geneva Steel, Gulf States Steel Inc. of Alabama, 
Sharon Steel Corporation, and Lukens Steel Company, collectively 
referred to as ``petitioners'') filed a similar request. We initiated 
these reviews on September 5, 1995 (60 FR 46817--September 8, 1996).
    Under the Act, the Department may extend the deadline for 
completion of an administrative review if it determines that it is not 
practicable to complete the review within the statutory time limit of 
365 days. On March 22, 1996, the Department extended the time limits 
for preliminary and final results in these reviews. See Extension of 
Time Limit for Antidumping Duty Administrative Reviews, 61 FR 14291 
(April 1, 1996).
    On October 4, 1996, the Department published in the Federal 
Register the preliminary results of the second administrative reviews 
of the antidumping duty orders on certain cold-rolled and corrosion-
resistant carbon steel flat products from Korea (61 FR 51882). The 
Department has now completed these administrative reviews in accordance 
with section 751 of the Act.

Scope of the Review

    The review of ``certain cold-rolled carbon steel flat products'' 
covers cold-rolled (cold-reduced) carbon steel flat-rolled products, of 
rectangular shape, neither clad, plated nor coated with metal, whether 
or not painted, varnished or coated with plastics or other nonmetallic 
substances, in coils (whether or not in successively superimposed 
layers) and of a width of 0.5 inch or greater, or in straight lengths 
which, if of a thickness less than 4.75 millimeters, are of a width of 
0.5 inch or greater and which measures at least 10 times the thickness 
or if of a thickness of 4.75 millimeters or more are of a width which 
exceeds 150 millimeters and measures at least twice the thickness, as 
currently classifiable in the Harmonized Tariff Schedule (``HTS'') 
under item numbers 7209.15.0000, 7209.16.0030, 7209.16.0060, 
7209.16.0090, 7209.17.0030, 7209.17.0060, 7209.17.0090, 7209.18.1530, 
7209.18.1560, 7209.18.2550, 7209.18.6000, 7209.25.0000, 7209.26.0000, 
7209.27.0000, 7209.28.0000, 7209.90.0000, 7210.70.3000, 7210.90.9000, 
7211.23.1500, 7211.23.2000, 7211.23.3000, 7211.23.4500, 7211.23.6030, 
7211.23.6060, 7211.23.6085, 7211.29.2030, 7211.29.2090, 7211.29.4500, 
7211.29.6030, 7211.29.6080, 7211.90.0000, 7212.40.1000, 7212.40.5000, 
7212.50.0000, 7215.50.0015, 7215.50.0060, 7215.50.0090, 7215.90.5000, 
7217.10.1000, 7217.10.2000, 7217.10.3000, 7217.10.7000, 7217.90.1000, 
7217.90.5030, 7217.90.5060, 7217.90.5090. Included in this review are 
flat-rolled products of non-rectangular cross-section where such cross-
section is achieved subsequent to the rolling process (i.e., products 
which have been ``worked after rolling'')--for example, products which 
have been beveled or rounded at the edges. Excluded from this review is 
certain shadow mask steel, i.e., aluminum-killed, cold-rolled steel 
coil that is open-coil annealed, has a carbon content of less than 
0.002 percent, is of

[[Page 18405]]

0.003 to 0.012 inch in thickness, 15 to 30 inches in width, and has an 
ultra flat, isotropic surface.
    The review of ``certain corrosion-resistant carbon steel flat 
products'' covers flat-rolled carbon steel products, of rectangular 
shape, either clad, plated, or coated with corrosion-resistant metals 
such as zinc, aluminum, or   zinc-, aluminum-, nickel- or iron-based 
alloys, whether or not corrugated or painted, varnished or coated with 
plastics or other nonmetallic substances in addition to the metallic 
coating, in coils (whether or not in successively superimposed layers) 
and of a width of 0.5 inch or greater, or in straight lengths which, if 
of a thickness less than 4.75 millimeters, are of a width of 0.5 inch 
or greater and which measures at least 10 times the thickness or if of 
a thickness of 4.75 millimeters or more are of a width which exceeds 
150 millimeters and measures at least twice the thickness, as currently 
classifiable in the HTS under item numbers 7210.30.0030, 7210.30.0060, 
7210.41.0000, 7210.49.0030, 7210.49.0090, 7210.61.0000, 7210.69.0000, 
7210.70.6030, 7210.70.6060, 7210.70.6090, 7210.90.1000, 7210.90.6000, 
7210.90.9000, 7212.20.0000, 7212.30.1030, 7212.30.1090, 7212.30.3000, 
7212.30.5000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7212.60.0000, 
7215.90.1000, 7215.90.3000, 7215.90.5000, 7217.20.1500, 7217.30.1530, 
7217.30.1560, 7217.90.1000, 7217.90.5030, 7217.90.5060, 7217.90.5090. 
Included in this review are corrosion-resistant flat-rolled products of 
non-rectangular cross-section where such cross-section is achieved 
subsequent to the rolling process (i.e., products which have been 
``worked after rolling'')--for example, products which have been 
beveled or rounded at the edges. Excluded from this review are flat-
rolled steel products either plated or coated with tin, lead, chromium, 
chromium oxides, both tin and lead (``terne plate''), or both chromium 
and chromium oxides (``tin-free steel''), whether or not painted, 
varnished or coated with plastics or other nonmetallic substances in 
addition to the metallic coating. Also excluded from this review are 
clad products in straight lengths of 0.1875 inch or more in composite 
thickness and of a width which exceeds 150 millimeters and measures at 
least twice the thickness. Also excluded from this review are certain 
clad stainless flat-rolled products, which are three-layered corrosion-
resistant carbon steel flat-rolled products less than 4.75 millimeters 
in composite thickness that consist of a carbon steel flat-rolled 
product clad on both sides with stainless steel in a 20%-60%-20% ratio.
    These HTS item numbers are provided for convenience and customs 
purposes. The written descriptions remain dispositive.
    The period of review (``POR'') is August 1, 1994 through July 31, 
1995. These reviews cover sales of certain cold-rolled and corrosion-
resistant carbon steel flat products by Dongbu, POSCO, and Union.

Verification

    As provided in section 776(b) of the Act, we verified information 
provided by Dongbu, POSCO, and Union using standard verification 
procedures, including the examination of relevant sales and financial 
records, and selection of original source documentation containing 
relevant information.

Analysis of Comments Received

    We gave interested parties an opportunity to comment on the 
preliminary results. We received comments and rebuttal comments from 
Dongbu, POSCO, and Union, exporters of the subject merchandise 
(``respondents''), and from petitioners. Petitioners requested a public 
hearing, which was held on December 16, 1996.

General Comments

Petitioners' Comments
    Comment 1. Petitioners allege that the home market for such or 
similar merchandise in Korea is not a viable comparison market, and 
that the Department should base normal value (``NV'') on sales to third 
countries. Petitioners cite section 773(a)(1)(C)(iii) of the Act, which 
provides that the Department will use third-country sales as the basis 
for normal value if ``the particular market situation in the exporting 
country does not permit a proper comparison with the export price or 
the constructed export price.'' 19 U.S.C. 1677b(a)(1)(C)(iii). The 
Statement of Administrative Action (``SAA'') accompanying the URAA 
states that ``* * * Commerce may determine that home-market sales are 
inappropriate as a basis for determining normal value if the particular 
market situation would not permit a proper comparison. The Agreement 
[on Implementation of Article VI] does not define `particular market 
situation,' but such a situation might exist where a single sale in the 
home market constitutes five percent of sales to the United States or 
where there is government control over pricing to such an extent that 
home-market prices cannot be considered to be competitively set.'' H.R. 
Doc. No. 316, 103rd Cong., 2nd Sess. 822 (1994). Petitioners argue that 
steel prices in Korea are controlled de facto by the government of 
Korea to such an extent that home-market prices cannot be considered to 
be competitively set, making the Korean market non-viable.
    Petitioners provide several lines of argument in support of their 
contention that the Korean market is not viable. In their first line of 
argument, petitioners contend that statements by numerous sources--both 
the interested parties themselves and widely acknowledged independent 
authorities--demonstrate the Korean government's control over the price 
at which both subject merchandise and other non-steel products are 
sold. These sources are:
    (1) Circumstantial evidence, in the form of data submitted by the 
respondents themselves, which allegedly demonstrates that prices for 
subject merchandise in Korea remained flat and coincident from 1991 
through 1995, even though all formal, de jure government price controls 
had ended by February 7, 1994.
    (2) Petitioners claim that independent, third party sources confirm 
the existence of government control over steel prices and that no 
credible, independent source has ever denied the existence of price 
controls. Petitioners cite numerous articles and financial reports, 
published in reputable financial dailies and by major financial 
institutions in which the existence of government control over steel 
prices is discussed. In particular, petitioners cite the following 
sources in support of their allegations:
    <bullet> ``Domestic steel prices in Korea do not necessarily move 
directly with international prices or the domestic supply and demand 
due to government price controls.'' Barclays de Zoete Wedd (Asia) 
Limited, POSCO: The Price Is Right at 4 (Jan. 29, 1996) (``BZW 
Report'').
    <bullet> ``[T]he government allowed 4.2 percent domestic price 
increases in April for the first time since 1991 to induce cold-rolled 
steel makers to supply more volume to the domestic market.'' Id. at 11.
    <bullet> ``POSCO needs government approval to raise domestic prices 
and domestic prices rarely fluctuate due to the government's anti-
inflationary pricing policy.'' Id. at 17, in the section entitled 
``Domestic Prices Are Under Government Control.''

[[Page 18406]]

    <bullet> ``Prices, however, continued to fall due to the 
government's tight pricing policy on * * * steel and cement.'' Hoare 
Govett Securities, Ltd., Korean Steel Companies--Industry Report at 6 
(Nov. 1, 1994) (``HGS Report'').
    <bullet> ``With the Government as its largest shareholder, [POSCO] 
has supported many domestic steel companies with stable prices.'' 
Young-Kyun Ryu, ``Steel: Imported Hot-coil Price is Lower Than POSCO's 
Local Price,'' Investment Newsletter (June 27, 1996).
    <bullet> ``About 75 percent of POSCO's products are sold in Korea 
where a controlled market and strong domestic demand have smoothed the 
traditional volatility of international steel markets.'' Investext, 
POSCO--Company Report (June 12, 1996).
    <bullet> ``The balanced market conditions have helped the 
government establish a stable pricing policy on steel that protects 
POSCO against cyclical downturns in the global steel industry.'' (BZW 
Report)
    <bullet> ``Domestic steel prices in Korea do not necessarily move 
directly with international prices or domestic supply and demand due to 
government price controls.'' John Burton, ``POSCO moves to pre-empt 
challenge from Hyundai,'' Financial Times, Mar. 15, 1996.
    <bullet> ``Domestic steel prices are under government control * * 
*'' John Burton, ``Strong export prices boost POSCO 119 percent,'' 
Financial Times, Feb. 8, 1996.
    <bullet> ``Last September, Metal Bulletin reported that `[d]omestic 
Korean prices of CR and surface-treated sheet are closely monitored by 
the Korean government * * *' '' Russ McCulloch, ``Pocos proposes 
expansion into a growing market,'' Metal Bulletin, Sep. 1995, at 67.
    <bullet> ``Though it denies it, POSCO is widely believed to 
`consult' with the government about its business plans and its 
pricing.'' ``South Korean Industry: The war goes on,'' The Economist, 
Mar. 2, 1996, at 62.
    As recognized by the Court of Appeals for the Federal Circuit 
(``CAFC'') in Matsushita Elec. Indus. Co. v. United States, 750 F.2d 
927, 934 (Fed. Cir. 1984), even circumstantial evidence is ``always 
relevant and, indeed, may be more reliable than self-serving 
declarations'' provided by respondents. Petitioners argue that these 
articles and reports are so numerous, and emanate from such credible 
and neutral third parties, as to give them the weight of authority. The 
authors of the reports in question depend upon their knowledge of the 
Korean steel market and their credibility for their very livelihoods, 
claim petitioners.
    (3) Petitioners assert that Union has previously admitted to the 
existence of government price controls during the POR, and that Union's 
subsequent retraction cannot be given any weight. In the verification 
report issued as part of the first administrative review of this 
proceeding, a Union official was quoted as volunteering that his 
company was subject to government price controls and that ``the Korean 
government sets the price levels for domestic sales * * *.'' Although 
Union later ``clarified'' this statement by explaining that the Korean 
government simply ``reviews and approves the price lists for domestic 
sales,'' petitioners claim that this ``non-denial denial'' actually 
substantiates their own claims. Petitioners argue that a year later, 
after they had filed their allegation that the home market is not 
viable and the full import of such a statement became clear, Union 
retracted its ``non-denial denial'' and attempted to explain away its 
admission by confusion over the date on which formal price controls had 
been eliminated. Petitioners contend that the idea that a Union 
executive could have so little idea of the company's pricing practices 
as to provide a totally erroneous explanation of the government's 
involvement in them is ludicrous. Petitioners point out that the record 
contains several such instances of misrepresentation, omission, and 
subsequent recantation by Union. Petitioners argue that admissions 
against interest are considered so inherently trustworthy and probative 
that they are an exception to the hearsay rule under the Federal Rules 
of Evidence, and are deemed by courts to carry a circumstantial 
guarantee of reliability that a party's neutral and favorable 
statements are deemed to lack. See, e.g., Masson v. New Yorker 
Magazine, Inc., 501 U.S. 496, 512 (1991).
    (4) Petitioners contend that the Korean Iron and Steel Association 
(``KOSA'') itself has acknowledged the existence of government price 
controls. Petitioners quote KOSA's 1995 yearbook, which states in 
pertinent part that ``the domestic price of the cold-rolled steel has 
been maintained lower than the international price,'' and that the 
``price management system can cause a shortage of domestic supply if 
the difference of international and domestic prices becomes bigger.'' 
Petitioners add that when two independent professional translators, 
neither of whom was apprised of the nature of the document or for what 
purpose it would be used, were asked to translate this passage, they 
both used ``price control'' rather than ``price management system.'' 
Petitioners argue that these minor differences in translation do not 
detract from the evidence that the government controls steel prices in 
Korea.
    (5) Petitioners also submit that the price reporting termination 
notices sent by the Korean government's Economic Planning Board to the 
respondents repeatedly request their cooperation in the price 
stabilization effort regardless of the reporting requirements. 
According to petitioners, these notices indicate that the Korean 
government controls the price at which subject merchandise is sold. 
Petitioners also cite an authority on the Korean economy, who wrote, in 
pertinent part, that ``[b]ecause of the acceptance of the government's 
control over business, Korean companies will nearly always respond to 
government directions even though they may not be legally binding. [ * 
* * ] Failing to comply with administrative guidance on the ground that 
it is not legally binding may result in disadvantageous treatment in 
future transactions for which government approval is required.'' See 
Trenholme J. Griffin, Korea: The Tiger Economy, 1988, appended to 
petitioners' October 15, 1996 letter at Exhibit 10.
    (6) Petitioners contend that the Korean government itself recently 
announced price controls on flat-rolled steel products outside the 
scope of the instant review. On October 9, 1996, petitioners allege, 
the Korean Ministry of Finance and Economy issued a press release in 
which it stated that POSCO would reduce domestic prices of hot-rolled 
steel coil from its mini-mills at the end of that month. Petitioners 
argue that whether or not POSCO announced the price cut itself in an 
earlier press release is irrelevant, since that announcement was 
subsequent to the Korean government's ``September 3rd 
Countermeasures,'' whose explicit policy goal was the stabilization of 
prices. Petitioners cite a letter (dated October 22, 1996) from Korea's 
Ministry of Trade, Industry, and Energy to the United States Trade 
Representative (``USTR'') as further proof of their allegations.
    Petitioners find it ``suspicious'' that the Korean government saw 
no need to ``clarify'' its statement until after the press release was 
entered on the record of these proceedings and the trade-related 
implications of the October 9 announcement became apparent. POSCO 
itself did not protest the Korean government's announcement of the 
price reduction as its own initiative until after the press release was 
entered onto the record of these proceedings.

[[Page 18407]]

Petitioners argue that if the official government press release 
announcing POSCO's price reductions was truly in error, then there is 
no reason to accept the veracity of statements contained in a self-
serving, post hoc government letter of limited circulation. Petitioners 
also stress that the fact that the Korean government's letter to USTR 
bears the same date as POSCO's letter to the Department, to which it 
was appended, demonstrates the degree of cooperation between the Korean 
steel industry and the Korean government, a relationship which 
respondents insist does not exist.
    (7) Petitioners assert that Hanbo Steel, whose products potentially 
are subject to the antidumping duty orders on subject merchandise, has 
previously admitted that price controls exist, and that its subsequent 
retraction cannot be given any weight. Petitioners cite a May 27, 1994 
Offering Circular by Hanbo (four months after the date the Korean 
respondents claim all price controls ended), in which Hanbo stated that 
prices are ``determined by the Korean government'' and that its 
competitors charge the same prices for the same products. Although 
Hanbo later retracted this statement, petitioners point out that in the 
Offering Circular, Hanbo confirmed that the information contained in 
that document was true and accurate in all material respects. Said 
Offering Circular, petitioners point out, was subject to securities 
fraud laws in the United States and in other jurisdictions in which 
Hanbo's securities were offered or sold. Given the potential 
ramifications of an admission by Hanbo of the existence of price 
controls during the Department's verification in a dumping case, Hanbo 
had every reason to conceal their existence and to explain away its 
prior admission in the Offering Circular. Therefore, petitioners argue, 
Hanbo's recantation at verification should be ignored. Furthermore, 
petitioners argue, the Department's own Hanbo verification report 
actually supports the fact that the Korean government controls domestic 
steel prices. See the Memorandum from Richard O. Weible to the Files 
dated February 21, 1997.
    (8) Finally, petitioners point to an article in Korea's leading 
English-language daily, the Korea Herald, according to which leading 
Korean steel makers, in a meeting with the Minister of Trade, Industry, 
and Energy, requested the lowering of domestic hot-coil prices. 
Petitioners affirm this belies statements by Korean government 
officials denying government intervention in steel pricing. In another 
article reporting on the same meeting and submitted by respondents 
Dongbu and Union, it was stated that ``the request embarrassed the 
Minister because that issue was not on the agenda of the meeting * * 
*.'' To petitioners, such language suggests that issue is sometimes 
included on the agenda of government-industry meetings.
    In their second line of argument, petitioners claim that mechanisms 
remain by which the Korean government can control the price at which 
steel is sold in the domestic market, and which explain why 
respondent's prices remained flat after the purported end of price 
controls. Petitioners allege that the Korean government controls prices 
through administrative guidance and through monitoring of the 
respondents' prices and production costs under the ``Monopoly 
Regulation and Fair Trade Act'' (``MRFTA'').
    Petitioners allege that the Department itself, in a 1995 commercial 
guide issued by the International Trade Administration, concluded that 
``government intervention is extensive'' and that ``the prices of many 
products are de facto controlled.'' See Korea: Economic Trends and 
Outlook (USDOC, International Trade Administration, August 23, 1995). 
Petitioners also allege that in a May 1994 article, after the putative 
end of de jure price controls, the Korean president's senior economic 
adviser acknowledged that price controls should be liberalized ``so 
that prices may be determined normally in the market and thus 
administrative guidance on prices can be eliminated altogether.'' See 
Ed Paisley, ``The Morning After,'' in Far Eastern Economic Review, May 
26, 1994, at 52. The legal authority for these price controls, 
petitioners allege, derives from the Price Stabilization and Fair Trade 
Act of 1992. Petitioners allege that the Korean government uses 
administrative means at its disposal to pressure businesses into 
complying with its price guidelines, in particular by means of tax 
audits or the threat thereof. In support of this contention, 
petitioners quote the English-language daily The Korea Times as saying, 
on October 12, 1996, that ``[t]he government must stop its long 
practice of mobilizing tax auditors, policemen, ward officials and fire 
fighters to bully businessmen not to increase prices.'' Petitioners 
affirm that POSCO's own ``Economic Policy Direction for 1995'' (sales 
verification exhibit 85-E) is further evidence of the Korean 
government's role in stabilizing domestic prices. Finally, petitioners 
note that the Korean government's status as POSCO's single largest 
shareholder enables it to control domestic steel prices. Petitioners 
contend that one of POSCO's competitors, Hanbo, admitted as much to a 
Department official during verification: ``POSCO does not raise prices 
because of the partial government control of POSCO.'' See Hanbo 
Viability Verification Report at 2.
    According to petitioners, respondents admit, and verification 
confirmed, that the Korean government continues to collect certain data 
from respondents under the MRFTA. Petitioners contend that verification 
exhibits demonstrate that the data collected relates not only to market 
share, but also to liabilities, capital, and profit. In petitioners' 
view, this confirms the statements made in KOSA's 1994 and 1995 
yearbooks that domestic steel prices ``do not reflect market 
conditions'' and ``are not flexible.'' See June 26, 1996 letter from 
Dewey Ballantine to the Secretary of Commerce, Exhibit 3 (at 233).
    Petitioners contest respondents' assertions that the Korean 
government lifted price controls on February 7, 1994, stating that the 
respondents' own pricing data demonstrate the opposite. Indeed, 
petitioners affirm, prices of the subject merchandise in Korea remained 
flat and coincident from 1991 through 1995, well after the official 
lifting of price controls. No Korean steel company changed its prices 
or charged a price statistically different from its competitors after 
the formal lifting of price controls.
    Petitioners argue that, once freed of government control, 
respondents would have been expected to alter pricing on the basis of 
market forces, especially in an environment of rapidly increasing 
demand and high capacity utilization. Because this did not happen, 
petitioners surmise that de jure price controls were replaced with de 
facto price controls. Petitioners state that the Department has used 
the lack of change in certain practices as evidence of the continuation 
of de facto government activity, notwithstanding the alleged 
termination of de jure government involvement. See, e.g., Final 
Affirmative Countervailing Duty Determinations and Final Negative 
Determinations of Critical Circumstances: Certain Steel Products from 
Korea (58 FR 37328, 37342-45--July 9, 1993), where the Department 
rejected respondents' claim that the Korean government was no longer 
engaged in credit allocation.
    Petitioners find respondents' explanations for continued and 
coincident flat prices in the home market conflicting and, therefore, 
incredible. On the one hand, say petitioners, respondents claim that 
price stability was due to long-term market

[[Page 18408]]

strategy and a concern for their customers' ``well-being,'' but on the 
other hand, they claim that transaction prices vary due to adjustments 
in sales and payment terms. Petitioners contend that respondents' 
explanations for their domestic pricing behavior are ``incredible'' for 
several reasons.
    First, POSCO has admitted that its home-market prices did not 
change in a context of fluctuating economic indicators, such as world 
prices, capacity utilization, exchange rates, and domestic inflation. 
Since International Monetary Fund statistics show that domestic 
consumer prices in Korea rose 27.2 percent between 1991 and 1995, 
petitioners argue that Korean steel prices, unchanging in nominal 
terms, actually decreased by nearly a third during that period, at a 
time when demand for steel products in Korea was extremely strong.
    Second, in response to respondents' claim that their pricing 
behavior is normal and expected in an oligopolistic market situation, 
petitioners retort that typical oligopolistic behavior conspires to 
keep prices high, not low as is the case here. Moreover, note 
petitioners, in an open market even oligopolies must respond to 
international price pressures. Petitioners contend that what is at work 
here is an oligopoly dominated by a government-owned entity (POSCO) and 
dedicated to imposing government-mandated price disciplines on much 
smaller entities (Dongbu and Union).
    Third, argue petitioners, not only are respondents' claims that 
they were able to compensate for the stability of list prices in the 
1991-1995 period by altering their ``effective'' prices unsupported by 
evidence on the record, these claims actually provide further evidence 
that respondents are not free to alter domestic prices in response to 
market conditions. After initially denying the existence of discounts, 
petitioners say, respondents subsequently claimed that effective prices 
were in fact altered by their discount policies. Petitioners find these 
claims irrelevant, since what they have alleged all along is a 
government-imposed ceiling, not a floor, on domestic steel prices. In 
addition, record evidence shows that such discounts as were granted 
were minimal and had no discernible effect on the stability of reported 
transaction prices. If record evidence is to be believed, say 
petitioners, many of the respondents' claimed ``discounts'' are in fact 
credits for returns of merchandise, set sales terms which do not vary 
with market conditions, or discounts for cash payments, which are not 
true discounts since they are merely an acknowledgment that the 
customer, not the respondent, is bearing the cost of financing the 
sales transaction.
    Petitioners also dismiss as incredible respondents' claims that 
differences in credit terms have also been used to vary effective 
prices. If respondents' previous claims that they maintain open payment 
systems in which customers are invoiced and make payments on a 
revolving rather than a sale-specific basis are correct, then the terms 
of payment of any particular sales transaction are irrelevant, because 
respondents are unable to link payments to specific sales. Petitioners 
also contend that the questionnaire responses and verification exhibits 
belie the respondents' claims that differences in credit terms were 
used to alter effective prices selectively. In fact, the record shows 
remarkably little variance in credit terms, in particular, in the 
number of days for which credit was extended. Petitioners argue that 
whatever differences in credit terms existed were minor and 
statistically insignificant, as evidenced by the limited variation in 
respondents' domestic net prices.
    Finally, petitioners characterize Dongbu's claim at verification 
that differences in freight terms were also used to vary effective 
prices as ``new'' and unconvincing. Although Dongbu claimed it changed 
the freight absorption for a selected customer twice in two years, 
petitioners argue that Dongbu did not demonstrate that it was reacting 
to market conditions, or that transaction prices to that customer were 
actually affected.
    According to petitioners, all of the foregoing reasons lead to the 
inescapable conclusion that stable and coincident home-market prices 
are a result of Korean government control of domestic steel prices. 
Therefore, since the Korean home market is not viable and collection of 
third-country sales data is not feasible at this late stage in the 
proceedings, petitioners urge the Department to resort to constructed 
value (``CV'') for purposes of determining NV. Petitioners contend that 
if the Department bases NV on CV, it must calculate CV in a manner 
consistent with a finding that the home market is not viable. 
Specifically, petitioners say it would be inappropriate for the 
Department to calculate the profit component of CV based on the actual 
profit realized on sales in Korea, because those transactions did not 
reflect true market prices. Because Japan is the Korean steelmakers' 
largest third-country market, and because the Department normally uses 
sales to the largest third-country market to calculate NV when the home 
market is not viable, ideally the Department should base the profit 
component of CV on the respondents' experience in that market. The 
record, however, does not contain complete data on the respondents' 
sales to Japan. Petitioners therefore urge the Department to rely on 
the facts available, within the meaning of section 776(c) of the Act, 
in determining the profit component of CV.
    Petitioners suggest that the most comprehensive and product-
specific facts available to the Department at this point are official 
Korean trade statistics showing export prices of subject merchandise to 
Japan. Petitioners submit that a CV profit figure could be calculated 
based on the difference between export prices, as reported in these 
official statistics, and the respondents' costs of production 
(``COP'').
    Respondents retort that the Korean home market is in fact viable. 
To support this contention, they set forth two affirmative arguments 
and one negative argument. The affirmative arguments are that the 
government does not set home-market prices and that home-market prices 
are based on free market competition. The negative argument is that 
petitioners have provided no evidence that suggests that there are 
government price controls of subject merchandise.
    To support their affirmative argument that the government does not 
set home-market prices, Dongbu and Union first argue that any 
government controls on prices of the subject merchandise ended long 
before the POR. They deny petitioners' allegation that they had 
themselves acknowledged that price controls existed until February 
1994. In fact, they argue, their responses to the Department's 
viability questionnaire and their statements at the verifications 
demonstrate that the government policy of ``prior approval'' of prices 
(i.e., price controls) ended in 1981, and that applicable ``post-price 
change'' reporting requirements for cold-rolled products were 
terminated in 1990 and for galvanized products in 1986. Such 
requirements, Dongbu and Union argue, never applied to colored products 
or any other subject merchandise. Furthermore, they argue that even 
these previously terminated reporting requirements did not involve 
``control'' or influence over their private pricing decisions, but 
actually went no further than the reporting and monitoring of price 
data. Similarly, POSCO argues that the only subject merchandise for 
which it was required to report prices were for cold-rolled sheet and 
hot-dipped

[[Page 18409]]

galvanized (``GI'') coil, and that even the reporting requirement for 
these products was terminated in 1981.
    Second, POSCO argues that there is ``substantial record proof'' to 
demonstrate that the government of Korea does not in fact control 
prices. POSCO cites in support the September 18, 1996, Memorandum from 
Steve Bezirganian and Robin Gray to the Files (``Korea sales 
verification report''). This report notes that the 1995-1996 Korean 
Government Economic Plans make no reference to any purported plans by 
the Korean government for steel prices. The verification report also 
discusses documentation from the Korean Ministry of Finance reviewing 
the history of price monitoring. That discussion, POSCO argues, 
indicates that there were no price controls on subject merchandise in 
place during the POR. POSCO argues that the Department's extensive 
verification of the issue must serve as the core of the Department's 
analysis of the issue.
    Third, POSCO cites to the verification reports of Korean customers 
and of Hanbo Steel as evidence that the Korean government does not 
control steel prices. The Customer verification report, for instance, 
states, ``regarding government influences in the prices of steel 
products, company A stated it is not aware of any involvement by the 
government in prices set by domestic suppliers.'' Furthermore, 
according to the verification report, representatives from Hanbo Steel 
reported that, ``at one time they did report prices to the government 
for long products, but the prices were not subject to government 
approval.''
    Fourth, POSCO cites to documentation written by the government of 
Korea and submitted to the record of this review as evidence that the 
government of Korea does not control prices. In submissions to USTR on 
June 23, 1995 and July 7, 1995, the Korean government stated that it 
had repealed all laws and regulations imposing any price reporting or 
monitoring requirements in the Korean market. More recently, the Korean 
Minister of Trade and Industry filed an official submission with USTR 
on October 22, 1996 which states that the government of Korea ``had no 
role or input in POSCO's pricing decisions,'' and that the government 
of Korea does not control prices for hot-rolled coil from mini-mills, 
or any other type of steel in the Korean market. According to POSCO, 
these statements alone, submitted in the context of the Section 301 
consultation mechanism, should be the end of the matter.
    Finally, POSCO cites an investment report concerning POSCO prepared 
by the Hannuri Salomon Securities Co., Ltd. According to POSCO, the 
Hannuri Salomon report conclusively states that ``the Korean 
government's direct control of domestic steel prices ended in March 
1982. Thereafter, the government has not participated in POSCO's 
pricing decisions.''
    To support their affirmative argument that home-market prices are 
based on free market competition, and are thus not subject to 
government control, all respondents first explain that their relatively 
stable home-market prices, which petitioners cite as a demonstration of 
government control, are actually a function of their long-term pricing 
strategies. Dongbu and Union explain that their strategy is to ensure 
long-term growth of their companies by maintaining a loyal and healthy 
domestic customer base and a consistently high volume of domestic 
sales. Similarly, POSCO states that its strategy is to maintain a 
stable, steady, and loyal customer base and high capacity utilization 
rates. Because of these pricing strategies, all three respondents state 
that they resist any major revisions to their price schedules.
    Furthermore, all three respondents argue that, despite the 
stability of their home-market prices, there is free market competition 
in the Korean market, and that evidence of this competition is on the 
record of this review. To support this argument, respondents cite to 
their discounts, varying credit terms, and adjustments in freight 
terms. These variations in sales terms, they argue, are clear evidence 
of price competition. Therefore, based on the alleged evidence of price 
competition, Dongbu and Union ask, ``If, in fact, prices in the Korean 
market were repressed by the alleged government price controls, what 
incentive would there be for the Korean respondents to provide any 
discounts, much less [ * * * ], extended credit terms, and freight 
discounts?'' (Emphasis in original.) They argue that the existence of 
discounts and other concessions is compelling and dispositive evidence 
that prices in the Korean market are competitively set, and should be 
determinative of the issue.
    In addition to seeking to establish that there is evidence of price 
competition on the record, respondents also seek to rebut petitioners' 
arguments purporting to show the contrary. First, respondents argue 
that petitioners are mistaken in stating that prices of the subject 
merchandise in Korea remained flat and coincident from 1991 through 
1995. Dongbu and Union state that in fact they raised their domestic 
prices in March 1995 in response to market conditions; POSCO states 
that for the same reason (and because Dongbu and Union had raised their 
prices) it raised its domestic prices in April 1995. POSCO argues 
further that the Department verified through examination of internal 
POSCO documentation that POSCO raised its prices because of changing 
market conditions. POSCO theorizes that petitioners chose not to 
discuss this price increase because it contradicted their theories. 
Moreover, all respondents find it significant that there is no evidence 
on the record that the government of Korea was in any way involved in 
the price increase that occurred in March and April 1995, which was, 
they state, the first significant increase in list prices for the 
subject merchandise in four years.
    Second, regarding petitioners' argument that their pricing policies 
are not consistent with oligopolistic behavior because their domestic 
prices are low, Dongbu and Union argue that the petitioners' argument 
ignores long-term trends, and that the Department verified that over 
the period 1991-1994 Dongbu and Union in fact maintained stable high 
domestic prices for subject merchandise relative to their export 
prices. Regarding petitioners' argument that what is at work here is an 
oligopoly dominated by a government-owned entity (POSCO) and dedicated 
to imposing government-mandated price disciplines on much smaller 
entities (Dongbu and Union), POSCO argues that government officials 
play no role in POSCO's pricing policies. It states that no government 
officials were on POSCO's board of directors, the government did not 
appoint the chairman of the board, and no government officials had 
access to POSCO's pricing data. POSCO, it argues, is managed and 
operated independently of the government. POSCO states too that the 
Department's verification report noted no discrepancies concerning any 
of these key issues.
    Third, regarding petitioners' argument that the existence of 
discounts is irrelevant because the petitioners are alleging a 
government-imposed ceiling, and not floor, POSCO argues that if the 
government of Korea did control a ceiling on prices then, as profit 
maximizers, POSCO and other Korean respondents would bump right up 
against that price ceiling and would not discount off of it in order to 
meet competition and short-term market conditions. Regarding 
petitioners' argument that the effect of the discounts was minimal, 
Dongbu and Union argue that competition does not occur in the

[[Page 18410]]

aggregate, but in terms of individual customers (for whom discounts 
clearly do matter), and that the discounts clearly contributed to the 
statistical variation in the Korean market.
    Fourth, regarding petitioners' argument that the respondents' 
credit terms are irrelevant because the respondents maintain an open 
payment system and are unable to link payments to specific sales, 
Dongbu and Union argue that because customers usually pay by promissory 
note, they can easily adjust the payment period by reducing or 
increasing the number of days for which they will accept the promissory 
note. Thus, they argue, while payment occurs on a revolving basis, the 
average credit period can be and is altered, as the Department 
verified. With respect to the same argument, POSCO argues that the fact 
that it did not track payment terms in its accounting records on a 
transaction-specific basis during the POR does not mean that POSCO did 
not alter those same credit terms during the period 1991-1995. Rather, 
it means only that POSCO cannot track those changes and credit terms on 
specific sales after the fact from its computerized database.
    Fifth, regarding petitioners' argument that the effect of the 
varying credit terms is statistically insignificant, Dongbu and Union 
argue that petitioners' argument misses the point. They argue that 
these varying credit terms are only one of several pieces of an overall 
policy that, when used together, have an appreciable effect on the 
companies' ability to engage in significant price competition.
    Sixth, regarding petitioners' argument that varying freight terms 
did not establish varying effective prices, Dongbu argues that 
petitioners again miss the point. They argue that freight equalization 
exists solely because there is competition in the market. Customer-
specific ``discounts'' would not exist in a market where prices are 
fixed and established at repressed levels because the suppliers would 
have no incentive to incur any freight expense.
    To support their negative arguments that petitioners have provided 
no evidence that suggests that there are government price controls of 
subject merchandise, respondents attack individually the arguments that 
petitioners set forth that purportedly substantiate that there are 
government price controls of the subject merchandise.
    First, respondents argue that petitioners are incorrect in stating 
that on February 7, 1994 the government of Korea decontrolled prices. 
They argue that what happened on February 7, 1994 was that the price 
reporting requirements for hot-rolled coil (which they allege is non-
subject merchandise) were eliminated. Dongbu and Union argue that the 
elimination of this reporting requirement was a non-event for producers 
of the subject merchandise, and that this explains why prices did not 
change as a result of the elimination of the reporting requirement. 
POSCO argues that the fact that prices remained level after the lifting 
of the reporting requirements actually confirms that those reporting 
requirements had no impact on POSCO's or the other Korean respondents' 
prices in the first place.
    Second, respondents attack the reliability of petitioners' many 
``independent third-party sources.'' Dongbu and Union argue that this 
``evidence'' has been superseded by the Department's findings at 
verification. These findings include, they argue, the termination of 
the price-monitoring system. Similarly, POSCO argues that for the 
Department to ignore its own verification findings (which, they argue, 
demonstrate that much of the information petitioners submitted on this 
issue is incorrect ) and to instead rely on third-party press accounts 
would totally negate the integrity and importance of the Department's 
own verification process. Furthermore, Dongbu and Union argue that the 
petitioners have focused exclusively on those statements in the 
``third-party sources'' which support their interpretation, and ignored 
statements contained therein that would permit an alternative 
interpretation. As an example, they cite petitioners' use of the BZW 
Report. Petitioners use this report to support their contention that 
there is government control of pricing in Korea. However, Dongbu and 
Union point out, petitioners ignore the statement in the report that 
``POSCO does not keep its domestic prices and local export prices lower 
than international prices any more * * * . Indeed, domestic and local 
export prices exceeded international export prices in late 1991 and had 
remained at higher levels until mid 1994.'' Thus, Dongbu and Union 
argue, the BZW Report does not support petitioners' central contention 
that the alleged price controls have kept domestic prices low.
    Additionally, POSCO argues that the ``third-party sources'' are 
speculative, outdated, and largely irrelevant. It argues that the bulk 
of the sources consist merely of third-hand references to outdated 
materials concerning non-subject merchandise or, more commonly, only 
the Korean economy generally and not the steel industry at all. These 
reports, POSCO argues, do not constitute evidence, much less 
``convincing evidence,'' that the government of Korea controls prices 
for subject merchandise in the Korean market.
    Third, POSCO argues that petitioners' argument with respect to the 
KOSA 1995 yearbook is invalid. It argues that the Department's 
translator determined that there was no reference to price controls in 
the KOSA report. The Dongbu verification report, POSCO argues, states 
that the quotes from the KOSA report upon which the petitioners rely 
were mistranslated.
    Fourth, POSCO argues that the Economic Planning Board's requests 
for cooperation in the price stabilization effort are not evidence of 
government control, but merely hortatory language equivalent to the 
standard exhortations that governments make in nearly all countries.
    Fifth, respondents argue that the government of Korea's October 9, 
1996 press release does not provide evidence of government price 
controls on subject merchandise. They point out that the press release 
concerned hot-rolled coil, not subject merchandise. POSCO further 
argues that the press release concerns only hot-rolled coil produced at 
its mini-mill, and not hot-rolled coil produced at its integrated 
facilities. In light of the fact that the hot-rolled coil produced at 
the mini-mill represents a miniscule amount of total hot-rolled coil 
production, POSCO argues, the government would surely have required a 
reduction in prices of hot-rolled coil produced at the integrated 
facilities if it actually intended to control prices. Moreover, POSCO 
argues that the press release did not even say that the government had 
any role in POSCO's pricing decision regarding the merchandise in 
question; it simply said that the pricing decision was a positive 
development. If the government considered POSCO's decision to be an 
``official act,'' respondents argue, this only reflects the fact that 
all governments seek to take credit for positive events in which they 
were not involved. Finally, respondents argue that at the POSCO 
verification the Department examined various internal documents 
concerning POSCO's pricing decision, and that none of those documents 
indicate any government involvement in the decision.
    Sixth, respondents argue that petitioners' arguments regarding 
Hanbo's Offering Circular are invalid. They point out that at the Hanbo 
verification Department officials interviewed and discussed the 
Offering Circular at length with Hanbo officials, and that they 
informed Department

[[Page 18411]]

officials that the statements in the Offering Circular were incorrect. 
Furthermore, respondents argue, the verification report does not 
discredit or undercut the validity of Hanbo's statements at the 
verification. Additionally, Dongbu and Union argue that the Offering 
Circular is irrelevant because Hanbo was not then and is not now a 
producer of the subject merchandise. Moreover, they argue that much 
more telling than the Offering Circular is information in the Hanbo 
verification report indicating that Hanbo's hot coil prices are based 
on competitive market conditions.
    Seventh, POSCO argues that no weight should be given to the article 
in the Korea Herald according to which leading Korean steel makers, in 
a meeting with the Minister of Trade, Industry, and Energy requested 
the lowering of domestic hot-coil prices. It argues that at 
verification it presented to Department verifiers more current and more 
detailed documentation which demonstrates that newspaper accounts of 
that meeting relied on by petitioners were misplaced and inaccurate.
    Eighth, POSCO argues that petitioners' speculations as to what 
possible indirect mechanisms could be used by the Korean government to 
possibly control prices do not constitute evidence of price control. In 
fact, POSCO argues, petitioners themselves acknowledge that they have 
not identified any mechanisms which are in fact used to control prices. 
Regarding petitioners' use of verification exhibit 85-E, POSCO states 
that petitioners have conveniently ignored the plain language of the 
Department's verification report, which states that, ``in reviewing the 
plans we found nothing that specifically referred to plans by the 
Korean government for steel prices.''
    Finally, respondents argue that the evidentiary burden of proof 
placed upon the petitioners is extremely high. They must show, 
respondents argue, by ``convincing evidence'' that the home market is 
not viable because the government of Korea controlled the prices of 
subject merchandise in the Korean market ``to such an extent that home-
market prices cannot be considered to be competitively set.'' SAA at 
152. Respondents argue that, taken together, the ``evidence'' 
petitioners have produced does not come close to meeting that burden. 
Dongbu and Union argue that even if there were a ``price ceiling'' in 
the home market, the existence of that ceiling does not nearly meet the 
standard in the SAA for government control of prices to the extent that 
prices cannot be considered to be competitively set. Because 
petitioners have failed to meet their burden, respondents argue, their 
contention should be rejected.
    DOC Position. We disagree with petitioners' contention that the 
particular market situation in the exporting country, Korea, does not 
permit a proper comparison with EP and CEP. Although petitioners have 
provided evidence indicative of a not insubstantial level of government 
interest, and even involvement, in the day-to-day operations of the 
Korean steel industry, including domestic price levels, the record 
nevertheless does not show that the Korean government controls domestic 
steel prices to such an extent that home-market prices cannot be 
considered to be competitively set.
    Although petitioners have alleged that controls existed over 
domestic steel prices in Korea until February 7, 1994, information 
collected at verification shows that the Korean government's policy of 
``prior approval'' over domestic steel prices ended in 1981. See, e.g., 
Union sales verification exhibits 88 and 89. These exhibits also show 
that, after 1981, Union's price-reporting requirements were terminated 
for galvanized (i.e, corrosion-resistant) products in 1986 and for 
cold-rolled products in 1990. POSCO's general reporting requirements 
for cold-rolled products were eliminated in 1981, and Dongbu's 
reporting requirements for these products were eliminated in April 
1993. Because home-market steel prices were flat both before and after 
the reporting requirements were terminated, we cannot conclude that 
those requirements had any impact on domestic prices. Furthermore, 
statements made in the supplemental verification reports on the issue 
of home-market viability by Hanbo and two other POSCO customers support 
the conclusion that government price controls do not exist. 
Additionally, the Hannuri Salomon report provided by POSCO at 
verification and cited by petitioners as providing evidence of Korean 
government control over domestic steel prices states that the Korean 
government's direct control of domestic steel prices ended in March 
1982, and that since that date the government has not participated in 
POSCO's pricing decisions. See POSCO home-market sales verification 
exhibit 85E at 21.
    The record also contains a number of official Korean government 
documents which deny the existence of government control over domestic 
steel prices during the POR. The sales verification report for POSCO 
notes that the 1995-1996 Korean Government Economic Plans make no 
reference to any plans by the Korean government with respect to steel 
prices. Documentation from the Korean Ministry of Finance indicated 
that there were no price controls on the subject merchandise during the 
POR. See POSCO sales verification report at 21. The Korean government, 
in formal submissions made to USTR on June 23, 1995, and to the Section 
301 committee on July 7, 1995, stated that all laws and regulations 
requiring any price reporting or monitoring of domestic steel prices 
had been repealed in stages between 1981 and February 1994, i.e., 
before the POR. More recently, on October 22, 1996, the Korean Ministry 
of Trade and Industry officially notified the USTR that the Korean 
government had no role or input in POSCO's pricing decisions, and that 
the Korean government does not control the prices of any type of steel 
in the Korean market.
    With regard to the press articles, academic treatises, and reports 
from financial institutions submitted by petitioners, we believe that 
most of that documentation, while perhaps accurate at the time it was 
written, has become somewhat outdated. Further, petitioners omitted to 
cite passage in the BZW Report stating that ``POSCO does not keep its 
domestic prices and local export prices lower than international prices 
any more * * *. Indeed, domestic and local export prices exceeded 
international export prices in late 1991 and had remained at higher 
levels until mid 1994.''
    With respect to the issue of whether the KOSA report confirms the 
existence of government ``price controls,'' as alleged by petitioners, 
our translator confirmed that this report mentioned no such controls. 
We stand by the bona fides and professional qualifications of its 
translators, who are hired through the auspices, and with the 
recommendation, of the United Stares Embassy in Korea. See Dongbu sales 
verification report at 52.
    While petitioners have cited an article in the Korea Herald 
according to which leading Korean steelmakers ``requested government 
intervention in price adjustments,'' more current and detailed 
documentation submitted at verification casts doubt on the 
verisimilitude of this account. In particular, the industry periodical 
Metal Bulletin, published in the United Kingdom, noted on May 30, 1996 
that the Korean Minister of Trade, Industry, and Energy ``maintained 
that the Korean government has no say in the pricing policies of 
private companies * * *. The Government has no right to decide 
prices.''
    With respect to petitioners' allegation that the press release of 
October 9, 1996

[[Page 18412]]

by the Korean Ministry of Finance and Economy demonstrates government 
control over domestic steel prices, the Department agrees with POSCO 
that (1) the press release does not explicitly or even implicitly refer 
to government involvement in POSCO's price increase, but only reports a 
price increase and comments on it as a positive development; (2) the 
press release concerns not the subject merchandise, but hot-rolled coil 
(``HRC'), its major feedstock; and (3) the price increase in the press 
release in question concerns only HRC produced at POSCO's mini-mill, 
and not HRC produced at its integrated steel mills, which represents 
the vast majority of POSCO's HRC production.
    Petitioners have claimed that a sentence in a February 1994 notice 
by the Economic Planning Board (``EPB'') terminating price reporting 
requirements, in which the EPB hopes that POSCO will cooperate in 
efforts to foster the country's general economic development and price 
stabilization, is evidence of continued government price controls. At 
verification we examined POSCO's submissions to the EPB and found no 
evidence of price controls during the POR, or evidence of price 
monitoring after February 1994. Governments, including our own, 
routinely exhort businesses to cooperate with their macroeconomic and 
public policy goals, which often include fighting inflation. We agree 
with respondents that hortatory language of this kind does not 
constitute evidence of formal price controls.
    Petitioners have argued that Hanbo's Offering Circular states that 
the ex-factory prices of Hanbo's steel products ``are, in practice, 
determined by the Korean government, which approves manufacturers'' 
filed prices having regard to average costs in the Korean steel 
industry, but without reference to the prices of products in 
international markets.'' Hanbo, however, did not then, and does not 
now, manufacture the subject merchandise. Petitioners also ignore 
information in the Hanbo supplemental verification report that Hanbo's 
domestic HRC prices were competitively set. Thus, on the issue of 
government control, the record is somewhat mixed. Further, even if we 
assume that there is some level of government control, we must have 
substantial evidence that government control is so extensive that 
prices are not competitively set. In the absence of such evidence, we 
cannot find the Korean home market not to be viable.
    By contrast, there is positive evidence on the record indicating 
that domestic Korean steel prices were competitively set during the 
POR. First, base (or list) prices were raised during the POR, in March 
1995 by Dongbu and Union and in April 1995 by POSCO. During 
verification, we conducted a thorough and exhaustive examination of 
POSCO's internal records, including correspondence files, and 
ascertained from this review that POSCO had raised its list prices on 
account of changing market conditions; there was no evidence suggesting 
that there was any government interference or involvement in this price 
change. Second, record evidence shows that these list prices were 
subject to discounts and adjustments for credit and freight, which 
caused the effective price charged to customers to vary from customer 
to customer. Although petitioners have claimed that these discounts are 
statistically insignificant, we agree with respondents that discounts, 
credit adjustments, and freight equalization taken together appreciably 
affect the companies' ability to engage in significant price 
competition. Further, the fact that steel prices remained flat 
throughout the POR is not inconsistent with normal, expected price 
trends in an oligopolistic market such as the Korean steel market. 
Therefore, evidence of flat prices per se is insufficient to establish 
that prices are not competitively set.
    Having reviewed and weighed the facts on the record, we find that, 
while there is some evidence of a substantial level of Korean 
government involvement in domestic steel pricing, there is not 
``convincing evidence'' that the Korean government controlled domestic 
steel prices ``to such an extent that home market prices cannot be 
considered to be competitively set.'' SAA at 152. We determine, 
therefore, that the Korean home market is viable for purposes of the 
instant proceedings.
    Comment 2. Petitioners allege that Dongbu and Union are affiliated 
with POSCO based on Dongbu and Union's dependence on POSCO as their 
primary supplier of HRC, the primary input for the subject merchandise. 
Petitioners also allege that Union and POSCO are affiliated based on 
certain corporate and sales relationships between the two companies.
    Petitioners contest the Department's preliminary determination that 
Dongbu and Union are not affiliated with POSCO and suggest that the 
Department acted arbitrarily and unreasonably by avoiding the issue 
rather than addressing its merits. The Department, petitioners argue, 
interpreted much too narrowly the statutory term ``control.'' 
Petitioners contend that the Department, instead of focusing, as the 
statute requires, on whether POSCO was in a position to exercise 
restraint or direction over the activities of Dongbu and Union, looked 
instead for concrete evidence of actual dominance of POSCO over Dongbu 
and Union. In doing so, say petitioners, the Department effectively 
nullified the new definition of affiliated parties by ``administrative 
fiat.'' Petitioners also question the Department's finding in the 
preliminary results that the record at that point in time provided an 
inadequate basis to make an affirmative determination of affiliation 
and that it was too late in these proceedings to solicit additional 
factual information. Not only, petitioners claim, did they make their 
allegation of affiliation at an early stage in these proceedings 
(shortly after the initial questionnaire responses were submitted), but 
the Department explored this issue in great detail in supplemental 
questionnaires and during verification. Even more troubling, according 
to petitioners, is the fact that the Department, at the same time that 
it indicated it was too late to obtain additional information on 
affiliation, afforded the parties an opportunity to provide additional 
factual information concerning the viability of the Korean market. 
This, petitioners submit, demonstrates that the Department's 
preliminary finding on affiliation was an arbitrary ``ruse.''
    If, however, the Department continues to adopt its exceedingly 
narrow interpretation of the statute's affiliation provision in the 
final review results, petitioners contend the Department must conclude 
that Pohang Coated Steel Co., Ltd. (``POCOS'') is unaffiliated with 
company AKO. In its response to Section A of the Department's 
antidumping questionnaire, POSCO initially indicated that it was 
affiliated with AKO and AKO's U.S. affiliate, company BUS. (AKO is 
located in Korea, and BUS is located in the United States; their 
identities are proprietary information. For an explanation of these 
acronyms, please refer to the memorandum from Alain Letort to the 
Files, dated April 2, 1997.) POSCO subsequently retracted and clarified 
this statement by pointing out it owns 50 percent of the equity in 
POCOS, 49.99 percent being owned by Dongkuk Steel Mill (``DSM'') and 
the remaining 0.01 percent by DSM's president personally. DSM is, in 
turn, affiliated with AKO and BUS through stock ownership. Therefore, 
using the Department's definition of affiliated parties, POSCO stated 
that POCOS was indirectly affiliated with AKO and BUS through stock 
ownership. Contesting POSCO's

[[Page 18413]]

assertions, petitioners assert that, since POCOS holds no equity 
ownership in DSM and DSM has do direct equity holding in AKO, POCOS 
cannot be deemed to hold any equity ownership in AKO or BUS.
    Petitioners cite Union, which asserted on the record that under 
Korean law, POSCO's 50 percent interest in POCOS puts it in control of 
the latter. POCOS is included in POSCO's consolidated financial 
statements, not DSM's. POSCO, not DSM, appoints the president of POCOS. 
Petitioners claim that POSCO never challenged Union's assertion. 
Besides, petitioners point out, POSCO and POCOS are collapsed for 
purposes of these proceedings, since the Department determined that the 
relationship between the two companies is so intimate as to present the 
strong possibility of price and/or production manipulation. While 
petitioners state their firm belief that DSM also ``controls'' POCOS as 
that term is defined in the statute, they also affirm that, if the 
Department retains its unreasonably narrow interpretation of that term, 
it should conclude that it is impossible for two entities (POSCO and 
DSM) simultaneously and separately to exercise actual ``control,'' 
i.e., dominance, over POCOS. The Department should also rule that POCOS 
neither exercises actual ``control'' (i.e., dominance) over AKO nor is 
affiliated with it, petitioners urge.
    If the Department so finds, petitioners contend, it must base 
POCOS' U.S. price on the price at which it sells the subject 
merchandise to AKO. This is because POCOS' U.S. sales are made up of 
several ``back-to-back'' transactions: POCOS sells the merchandise to 
AKO, who resells it to BUS, who in turn sells the merchandise to the 
U.S. customer. According to petitioners, where a manufacturer makes 
export sales through an unaffiliated trading company, the Department's 
practice is to determine which transactions are U.S. sales for 
reporting purposes on the basis of whether the manufacturer knows the 
ultimate destination of the merchandise. If the manufacturer does not 
know the ultimate destination of the merchandise, the Department 
determines U.S. price on the basis of the unaffiliated trading 
company's sale to the United States. If the manufacturer does know the 
destination, then the manufacturer's sale to the unaffiliated trading 
company becomes the basis for the U.S. price.
    Petitioners assert that record evidence shows POCOS is aware of the 
ultimate destination of the merchandise, since POCOS' order entry sheet 
shows the name and address of the U.S. customer at the time of the sale 
from POCOS to AKO. Consequently, petitioners say, if the Department 
rules that POCOS is unaffiliated with AKO, it must determine U.S. price 
on the basis of POCOS' selling price to AKO.
    With regard to the issue of whether or not Dongbu and Union are 
affiliated with POSCO because of their supply relationships, 
petitioners contend that the critical point is whether the supplier-
buyer relationship is such that the supplier is in a position to 
exercise restraint or direction over the other. Petitioners claim that, 
in its preliminary review results, the Department used a definition of 
``control'' that is closer to the common meaning of that term (i.e., 
actual dominance) than to the statutory definition of the term. In 
essence, petitioners affirm, the Department has adopted the 
interpretation, advocated by Dongbu and Union and contrary to the 
statute, that one party must control the commercial operations of the 
other.
    According to petitioners, the following factors place POSCO in a 
position to exercise restraint or direction over Dongbu and Union and 
make them ``reliant'' upon POSCO: (1) The sheer weight of POSCO--in 
comparison with other sources of supply--as a supplier to Dongbu and 
Union; (2) the percentage of Dongbu's and Union's cost of manufacturing 
(``COM'') for which POSCO-sourced HRC accounts; and (3) the absence, 
due to comparatively higher prices of imported HRC, of realistic 
alternate sources of supply for Dongbu and Union. Clearly, say 
petitioners, if POSCO were unilaterally to curtail its shipments to 
Dongbu and Union, or increase its prices, it would disrupt their 
production schedules and commercial relationships and create hardship 
for Dongbu and Union. Indeed, petitioners claim, under generally 
accepted accounting principles (``GAAP'') in the United States, 
financial statement disclosure of a company's concentration with a 
particular supplier is required because it is assumed to create the 
risk of ``severe impact * * * from changes in the availability to the 
entity of a resource.'' See American Institute of Certified Public 
Accountants (``AICPA''), Statement of Position 94-6, ``Disclosure of 
Certain Significant Risks and Uncertainties'' (December 30, 1994) 
(``AICPA 94-6'') at 8. Petitioners dismiss Union's contention that its 
purchases from POSCO would not meet the disclosure requirements of 
AICPA 94-6 because it purchases a standard grade of raw material that 
is readily available from a number of different suppliers, meaning that 
its purchases fall into the category described in AICPA's 
``Illustrative Disclosure B'' (``ID-B''). Petitioners retort that 
Union's reference to ID-B is completely inapposite, because it 
discusses a commodity product (wheat), which is entirely fungible 
between various sources of supply, while HRC, Union's feedstock, has 
different specifications, grades, metallurgical and chemical contents, 
and properties; vendors of HRC must be located and qualified. Indeed, 
petitioners assert, respondents vigorously argued before the U.S. 
International Trade Commission (``ITC'') that steel products were not 
fungible or substitutable.
    According to petitioners, the verification exhibits directly 
confirm the extent of POSCO's involvement with Dongbu and Union. The 
Department, they claim, is highly unlikely to encounter circumstances 
more demonstrative of ``control'' via a supply relationship than the 
present situation.
    Petitioners characterize respondents' claim that POSCO is a strong 
competitor with Dongbu and Union in the same downstream market for the 
subject merchandise as ``blatant exaggeration.'' Record evidence, 
according to petitioners, suggests otherwise: one of the Department's 
two supplemental verification reports on home-market viability 
indicates that Dongbu and Union compete with POSCO for certain product 
applications only, since in Korea only POSCO manufactures the full 
spectrum of cold-rolled and corrosion-resistant carbon steel flat 
products.
    Petitioners contradict respondents' contention that they have 
``complete and unfettered access'' to alternative sources of supply. 
According to petitioners, Dongbu and Union statements on the record 
that they continued to buy HRC from POSCO even when cheaper alternative 
sources of supply were available ``because of the reliability of 
supply, the convenience and familiarity, and other similar factors'' 
further demonstrates their reliance on POSCO.
    Petitioners assert further that the relative proportion of Dongbu's 
and Union's HRC purchases from POSCO and from sources other than POSCO 
is more proof of their ``reliance'' upon POSCO.
    Petitioners also argue that Dongbu's and Union's contentions that 
there is no evidence of long-term supply contracts, joint ventures, or 
other agreements between them and POSCO, and that they have no direct 
or indirect involvement with POSCO's production, sales or distribution 
activities beyond the purchase of HRC, are irrelevant and immaterial, 
since neither the statute nor

[[Page 18414]]

the SAA requires the existence of the same in order to establish 
affiliation on the basis of a supply relationship. Moreover, at least 
with respect to Union, not only does there exist a joint venture 
(POCOS) between POSCO and Union's controlling company (DSM), but Union 
and POCOS--POSCO's subsidiary--share common sales channels.
    None of the above ``facts'' cited by the respondents, according to 
petitioners, alters the fact that POSCO was Dongbu's and Union's 
dominant supplier of HRC during the POR and that imported HRC was 
demonstrably dearer than the POSCO product during most of the POR.
    Petitioners argue that the case cited by Dongbu and Union in 
support of their contention that the Department rejected a claim for 
affiliation on the basis of a close supply relationship--Notice of 
Preliminary Determination of Sales at Less Than Fair Value and 
Postponement of Final Determination: Melamine Institutional Dinnerware 
Products from Indonesia (61 FR 43333, 43335--August 22, 1996) 
(``Melamine'')--is inapposite. In addition to the fact that the 
Department's position in that case is only preliminary, the supply 
relationship at issue in Melamine is easily distinguishable from, and 
not even remotely akin to, the facts at issue in the instant case. In 
Melamine, the Indonesian producer channeled 100 percent of its U.S. 
sales through a single, unrelated U.S. importer. The U.S. importer was 
just as free to purchase from other producers as the Indonesian 
producer was to find another U.S. importer. In the instant case, 
petitioners say, clearly Dongbu and Union had no realistic alternate 
sources of supply due to the higher prices of imported HRC and the 
absence of other sources within Korea.
    Responding to Dongbu's and Union's assertions that, through the end 
of 1994, imported HRC was cheaper, rather than dearer, if only their 
highest-volume grade of HRC (i.e., SAE 1008) is taken into 
consideration, petitioners claim that the aggregate figures in Dongbu's 
cost verification exhibit 20 and Union's cost verification exhibit 24 
are more reliable because they are more comprehensive. Respondents' 
comparison of domestic and imported prices for grade SAE-1008 HRC is 
misleading and inaccurate, petitioners argue, because (1) it focuses on 
only one product out of many; (2) it compares home-market base prices 
to import prices, ignoring the actual costs associated with coil 
purchases; (3) it compares delivered domestic prices to import 
purchases made on a f.o.b. basis, significantly understating the import 
price (by the amount of ocean freight, brokerage and handling fees, 
import duties, etc.); and (4) it is unclear whether the quarterly 
prices cited by respondents are weight-averaged, as they ought to be.
    Petitioners dismiss respondents' argument that historical trends 
show that, on average, during the 1991-1995 period, import prices for 
HRC were lower than POSCO's, and that disregarding historical trends 
would allow temporary market fluctuations to be a dispositive factor in 
any affiliation decision by the Department, contrary to the 
Department's proposed regulations. See Notice of Proposed Rulemaking 
and Request for Public Comment, 61 FR 7308, 7310 (February 27, 1996) 
(``Proposed Regulations''). Not only is historical data distortive 
because it is based on a comparison of base rather actual prices, 
petitioners contend, but the fact that import prices for HRC were lower 
in periods preceding the POR only demonstrates that Dongbu and Union 
did not turn to alternate suppliers when imports were cheaper. 
Petitioners contend that Dongbu's and Union's inability and/or 
reluctance to turn to alternative sources of supply when POSCO's HRC 
prices were higher than imported material signifies that the dependence 
and reliance of those companies on POSCO as a supplier is not driven by 
``temporary market power, created by variations in supply and demand 
conditions * * *'' Ibid. at 7310. That Dongbu and Union did not turn to 
alternative sources means, according to petitioners, that their 
dependence on POSCO as a supplier is substantial and long-term, and 
that the supply relationship between POSCO on the one hand and Dongbu 
and Union on the other is significant and not easily replaced.'' Ibid. 
at 7310.
    In addition to their affiliation as a result of their close supply 
relationship, petitioners claim that Union and POSCO are affiliated as 
a result of other corporate and sales relationships. Petitioners argue 
that the Department's preliminary finding that they failed to present 
``any evidence of stock ownership or control'' between POSCO and Union 
or POSCO and DSM, Union's controlling company, is incorrect. The 
correct standard, according to petitioners, is not whether or not 
actual control or dominance exists, but rather whether one party is in 
a position to exercise restraint or direction over another party in 
order to ``control'' that party.
    It is petitioners' contention that POSCO is in just that position 
vis-a-vis Union in view of the fact that:
    <bullet> POSCO holds a 50 percent equity interest in POCOS;
    <bullet> DSM owns a 49.99 percent equity interest in POCOS;
    <bullet> The remaining 0.01 percent of POCOS'' equity is held by 
the son-in-law of Mr. Sang Tae Chang, chairman of the DSM group;
    <bullet> The Department has determined DSM to have, through the 
Chang family, a controlling interest in Union;
    <bullet> The Department has determined the relationship between 
Union and DSM to be so intimate that it collapsed Union with Dongkuk 
Industries, Ltd. (``DKI''), another subsidiary of the Chang family and 
DSM.
    According to petitioners, the statute defines affiliated parties as 
``[t]wo or more persons directly or indirectly controlling * * * any 
person'' and ``[a]ny person who controls any other person and such 
other person.'' Therefore, say petitioners, POSCO and DSM clearly 
constitute affiliated parties inasmuch as they jointly ``control'' 
POCOS as a result of their joint venture. Petitioners contend further 
that, because DSM and Union are essentially one entity since Union and 
DKI were collapsed by virtue of their relationship with DSM, POSCO, 
through its joint venture with DSM, is clearly in a position to 
exercise restraint or direction over Union's activities.
    Petitioners also argue that, because DSM and its president's son-
in-law jointly hold 50 percent interest in POCOS (i.e., as much as 
POSCO), DSM is clearly in a position to exercise restraint or direction 
over POCOS. Since Union and POCOS are ``[t]wo or more persons directly 
or indirectly * * * controlled by * * * any person'' (in this case, 
DSM), POCOS and Union are affiliated parties under the terms of the 
statute. If POCOS is affiliated with Union, petitioners contend, the 
realities of the marketplace dictate that POSCO must also be affiliated 
with Union. Furthermore, they say, because POSCO has acknowledged that 
POSCO, POCOS, and Pohang Steel Industries Co., Ltd. (``PSI'') are a 
``single operating entity'' and have been collapsed by the Department, 
any company affiliated with POCOS (e.g., Union) must also be considered 
to be affiliated with POSCO. Petitioners contend that the implications 
of collapsing POSCO and POCOS on the issue of POSCO's affiliation with 
Union in no way alters the fact that POSCO and POCOS are affiliated 
parties; therefore, the statutory tests that follow therefrom, such as 
the ``major-input'' rule, continue to apply. Petitioners also contend 
that collapsing only bears on the level of affiliation and the unusual 
intimacy of the relationship

[[Page 18415]]

between the parties. Petitioners allege that by ignoring the unique 
nature of the relationship between POSCO and POCOS and rigidly fixating 
on the corporate forms of the companies, the Department has ignored 
commercial reality.
    Union, according to petitioners, has not provided any compelling 
evidence or argument to rebut the information on the record 
demonstrating affiliation between Union and POSCO through POCOS and 
DSM, and merely ``pointed out'' at verification that POCOS is not 
affiliated with Union. The fact that POSCO is in a position to exercise 
``control'' over POCOS, petitioners say, does not necessarily entail 
that DSM, with a 50 percent direct and indirect interest in POCOS 
(through the son-in-law of DSM's president), is not also in a position 
to do so. Petitioners are not advocating that Union is in a position to 
control POCOS; rather, they are asserting that Union and POCOS are 
affiliated because they are in the common control of DSM. Petitioners 
agree that the mere affiliation of a party with another does not 
necessarily entail that party's affiliation with all parties affiliated 
with its affiliate. In this case, however, petitioners point out that 
POSCO is not merely affiliated with POCOS--its relationship with POCOS 
is so intimate that it is collapsed with POCOS and both companies are 
treated as a single entity by the Department.
    In addition to the corporate relationships between POSCO and Union, 
petitioners allege that POSCO controls Union through shared U.S. sales 
channels. Petitioners point out that:
    <bullet> BUS is the importer of record for Union in the United 
States, and AKO purchases subject merchandise from Union in Korea; and
    <bullet> All of POCOS's (an entity collapsed with POSCO) U.S. sales 
are made through AKO and BUS.
    Petitioners allege that AKO and BUS provide a conduit for sharing 
pricing and other sensitive information, which could be used to 
manipulate transactions and allocate U.S. sales for the purpose of 
reducing dumping margins. Petitioners aver that the fact that it is 
POCOS and not POSCO that shares sales channels with Union does not 
undermine POSCO's ability to exercise restraint or direction over 
Union, because POSCO has control over POCOS and they are collapsed. 
Petitioners contend that both POSCO and DSM have an incentive to 
minimize POCOS' dumping liability since POCOS' financial statements are 
fully consolidated with POSCO's and DSM is BUS's major shareholder. On 
this basis of shared sales channels alone, petitioners argue, the 
Department should conclude that POSCO and Union are affiliated.
    In its preliminary results, the Department, according to 
petitioners, concluded that Union and POSCO are unaffiliated by 
considering separately each of the grounds presented by petitioners. 
While petitioners believe that each basis for affiliation they have 
argued demonstrates that POSCO and Union are affiliated, neither the 
statute nor the SAA, they claim, require that the Department consider 
each aspect of the relationship between Union and POSCO independently. 
When all of the indicia--the supply relationship between POSCO and 
Union, the joint venture relationship (i.e., POCOS) between POSCO and 
DSM, the corporate relationships between Union and POSCO through POCOS 
and DSM, the shared U.S. sales channels--are considered jointly, 
petitioners believe the Department must find that POSCO is in a 
position to exercise restraint or direction over Union and therefore 
``controls'' Union within the meaning of the statute.
    If the Department determines, as petitioners say it ought to, that 
POSCO is affiliated with Dongbu and Union, in accordance with the 
principle, set forth in section 773(f)(2) of the Act, that transactions 
between affiliated parties must ``fairly reflect the amount usually 
reflected in sales * * * in the market'', and that the price between 
unaffiliated parties is the normal benchmark for market value, the 
Department must compare the value of HRC purchased by Dongbu and Union 
from POSCO with the value of HRC purchased from unaffiliated suppliers. 
See 19 U.S.C. 1677b(f)(2). Such a comparison, in petitioners' view, 
clearly indicates that Dongbu and Union do not purchase HRC from POSCO 
at prices that can be deemed ``arm's-length.'' Verification exhibits on 
the record show, according to petitioners, that HRC purchased by Dongbu 
and Union from unaffiliated parties are substantially dearer than that 
purchased from POSCO. Because the statute requires that input prices 
must reflect fair market value, it is petitioners' view that the 
Department, in calculating Dongbu's and Union's COM, must adjust upward 
the value of the HRC Dongbu and Union purchased from POSCO to reflect 
the value of HRC purchased from unaffiliated suppliers.
    Respondents deny that either Dongbu or Union are affiliated with 
POSCO. POSCO argues that petitioners' arguments merely repeat arguments 
contained in their earlier submissions. Therefore, it argues, the 
Department's September 6, 1996 memorandum to the file in which it 
addressed the issue and determined that neither Dongbu nor Union were 
related to POSCO, must stand. Dongbu and Union argue that the 
conclusion contained in the September 6, 1996 memorandum was not, as 
petitioners allege, arbitrary or unreasonable, but was instead the only 
conclusion supported by evidence and the law.
    In addition to citing the Department's prior determination on the 
issue, respondents set forth their own arguments which, they believe, 
demonstrate that the arguments petitioners set forth in their case 
brief do not support the conclusion that Dongbu and Union are 
affiliated with POSCO.
    First, POSCO argues as a preliminary matter that the petitioners 
are in error in charging that the Department applied the wrong standard 
in the analysis reflected in the September 6, 1996 memorandum. It 
argues that the standard the petitioners want the Department to apply 
is at odds with the plain wording of the SAA. The petitioners, POSCO 
argues, want the Department to read the standard in the SAA to find 
only that two companies might be ``in a position'' to become reliant 
upon the other through a buyer or supplier relationship. POSCO argues 
that the SAA requires the Department to examine first if, through a 
buyer or supplier relationship, ``the supplier or buyer becomes reliant 
upon the other'' (emphasis added). Thus, POSCO argues, only if the 
Department makes the initial finding that Dongbu and Union are reliant 
upon POSCO could the Department conclude that the parties could be in a 
position to exercise restraint or direction over the other. However, 
POSCO argues, the record evidence here, as demonstrated by the 
Department's September 6, 1996 memorandum, does not demonstrate 
reliance.
    Second, respondents argue that both Dongbu and Union purchase their 
hot-rolled products from numerous sources, thus demonstrating that they 
are not reliant upon POSCO. Dongbu and Union state that they have 
``complete and unfettered'' access to numerous alternative supplies of 
hot-rolled coil. Further, POSCO argues that the preamble to the 
Proposed Regulation's definition of ``affiliated parties'' confirms 
that the Department must find significant and actual indicia of 
control. The preamble states that ``[b]usiness and economic reality 
suggest that these relationships must be significant and not easily 
replaced.'' See Proposed Regulations at 7310. Dongbu's and

[[Page 18416]]

Union's purchases from POSCO, POSCO argues, do not meet this standard.
    Moreover, POSCO argues that petitioners' argument that Dongbu and 
Union must have access to essentially identically-priced imports in 
order not to be reliant on POSCO is incorrect. It argues that the 
Department's analysis here must focus on whether POSCO as a supplier 
can ``control'' Dongbu's and Union's activities. The fact that Dongbu 
and Union can and do purchase significant quantities of imported hot-
rolled coil, POSCO argues, should end the analysis. Comparable pricing, 
POSCO argues, is irrelevant.
    Furthermore, Dongbu and Union argue that the record does not 
support petitioners' claim that imports represent a prohibitively more 
expensive alternative to hot-rolled coil purchased from POSCO. They 
point out that the figures in Dongbu's cost verification exhibit 20 and 
Union's cost verification exhibit 24 (upon which petitioners rely to 
establish their argument) are aggregate purchase volumes and values, 
and therefore do not account for product mix, differences in 
specifications, grades, extras, and other similar factors. Furthermore, 
Dongbu and Union argue that exhibit 96 of Dongbu's home-market sales 
verification report and exhibit 99 of Union's sales verification report 
show that import prices were lower than POSCO's prices for hot-rolled 
steel in 15 out of 23 quarters from 1991 through the third quarter of 
1996. Moreover, Dongbu and Union argue, price is only one criterion in 
making purchasing decisions. Other criteria include quality of the 
steel, long-standing relationships, lead-times, and technical support. 
If comparative purchase factors frequently have favored POSCO, the fact 
remains that there are literally dozens of alternative sources for the 
same material located outside of Korea.
    Third, respondents argue that petitioners are in error in their 
allegations regarding the prices at which POSCO sells to Dongbu and 
Union. Dongbu and Union argue that there is no evidence on the record 
that POSCO charges Dongbu and Union any more or less for its hot-rolled 
coil than it charges other domestic customers. POSCO argues that 
petitioners are incorrect in stating that it sold to Dongbu and Union 
at less than the cost of production. It argues that the figures upon 
which petitioners relied in making this allegation are not indicative 
of the costs for the specific types of coil sold to Dongbu and Union. 
When the actual costs are used, POSCO argues, it becomes clear that its 
sales to Dongbu and Union were above cost. POSCO also notes that 
petitioners' calculation included general and administrative expenses 
(``G&A'') as revised by the Department, which POSCO believes to be an 
error.
    Fourth, POSCO and Union argue that the Department's precedent 
confirms that the parties are not affiliated. As support for this 
argument, POSCO cites Melamine, in which the Department concluded that 
no buyer-supplier relationship existed so as to constitute affiliation 
even though the supplier made 100 percent of its U.S. sales through a 
sole U.S. importer. The Department, POSCO states, considered the 
following factors: (1) There was no corporate relationship between the 
two companies; (2) the buyer was free to purchase, and did purchase, 
from other suppliers; and (3) the supplier was free to sell to other 
buyers. POSCO argues that these three factors are all satisfied here. 
It also argues that the petitioners' attempt to distinguish this case 
(based on whether subject merchandise or an input was being bought) is 
irrelevant to the reliance issue facing the Department, and has no 
basis in either the SAA or the Department's precedent.
    Furthermore, POSCO and Union argue that Melamine demonstrates that 
it is not enough to merely point out, as petitioners have, that a 
supplier relationship exists. For the parties to be considered 
affiliated, they argue, the evidence must show that the relationship is 
of a kind that can realistically be characterized as involving 
``control'' of one party over the commercial operations of another.
    With respect to the issue of whether Union and POSCO are affiliated 
through indirect stock ownership, respondents argue that petitioners' 
demonstration that Union is related to POSCO based on ``indirect 
corporate relationships'' is fallacious. POSCO bases this argument on 
two factors. First, there is no stock ownership between POSCO and DSM, 
or between POSCO and Union. They point out that the Department's 
September 6, 1996 memorandum made mention of this very fact. Second, 
POSCO and Union, as well as POSCO and DSM, are completely independent 
entities. POSCO operates independently from both DSM and Union. There 
is thus, POSCO argues, no ``control'' of any kind between POSCO and 
DSM, or between POSCO and Union.
    Furthermore, Union argues that the petitioners, in referencing the 
affiliated persons definition, have incorrectly claimed that there is a 
specific statutory basis for finding POSCO and Union to be affiliated. 
Section 771(33)(E) of the Act states that an affiliated person is 
``[a]ny person directly or indirectly owning, controlling, or holding 
with power to vote 5 percent or more of the outstanding voting stock or 
shares of any organization and such organization.'' It is 
uncontradicted, Union argues, that neither POSCO nor Union, directly or 
indirectly, own or control five percent or more of any of the other 
party's securities. Thus, they argue, the petitioners' claim under this 
provision fails. The second provision that the petitioners' have 
referenced, subsection (F), reads that an affiliated party is ``[t]wo 
or more persons directly or indirectly controlling, controlled by, or 
under common control with, any person.'' According to Union, Union and 
POSCO do not directly or indirectly control, are not controlled by, and 
are not under common control with any party. The third provision that 
the petitioners have referenced, subsection (G), states that an 
affiliated party is ``[a]ny person who controls any other person and 
such other person.'' Union argues that nothing in the record indicates 
that either Union or POSCO is in a position to control, either legally 
or operationally, the other party. In fact, it shows the opposite. It 
shows, for instance, that POSCO and Union strongly compete in the sale 
of subject merchandise in both the home and U.S. markets.
    Finally, POSCO argues that the Department should reject 
petitioners' argument that if the Department adopts a narrow reading of 
the statute's affiliation provision it should also determine that POCOS 
is not affiliated with AKO and BUS. It argues that under the statute 
POCOS and AKO/BUS are clearly affiliated through indirect stock 
ownership with DSM. It first explains that POCOS is jointly owned by 
POSCO and DSM, with POSCO holding a 50 percent ownership interest and 
DSM owning 49.99 percent. Under section 771(33)(F) of the Act, 
affiliated parties include ``[t]wo or more persons directly or 
indirectly controlled by * * * any person.'' Under this definition 
POCOS and AKO/BUS are clearly affiliated, POSCO argues. Neither the 
Department's precedent nor the plain language of the statute requires 
that DSM own more than 50 percent of POCOS or be the only party in a 
position to control POCOS for the statutory definition of affiliated 
parties to apply. Rather, POSCO argues, the statute requires only that 
DSM exercise ``control'' over POCOS. The fact that DSM can ``control'' 
POCOS, POSCO argues, is supported by the fact that a separate statutory 
definition of affiliation (in section 771(33)(E) of the Act) provides 
that two parties are

[[Page 18417]]

affiliated where one party holds a five percent interest in the other. 
It argues that the fact that in a parallel provision of the statute a 
mere 5 percent ownership interest can constitute control confirms that 
an ownership interest of 50 percent can constitute ``control'' over two 
parties under subsection (G). Furthermore, POSCO points out that the 
Department, in current countervailing duty cases under the new law, 
explicitly states in its questionnaire that if party A holds at least a 
twenty percent interest in parties B and C, then parties B and C are 
deemed affiliated.
    Moreover, POSCO argues that apart from the plain language of the 
statute and consistent Department practice, petitioners themselves have 
acknowledged that the fact that POCOS is collapsed with POSCO for 
dumping margin calculations purposes does not mean that DSM also cannot 
exercise sufficient control over POCOS such that POCOS and AKO can be 
deemed affiliated parties. To support this argument, POSCO points to 
petitioners' joint case brief as an example, where petitioners state 
explicitly (at 78) that ``petitioners firmly believe * * * that DSM 
also ``controls'' POCOS as that term is defined in the statute.'' POSCO 
also points to petitioners' statement in its joint case brief (at 104) 
where petitioners state that both DSM and POSCO can ``control'' POCOS 
for the purposes of the statute.
    Finally, POSCO argues that in addition to the fact that AKO/BUS are 
affiliated through DSM, they are also affiliated through POCOS's 
operational control over AKO's selling activities. POSCO explains that 
AKO has no independent authority to negotiate or set sales prices for 
POCOS merchandise. Rather POCOS sets all of AKO's selling prices and 
terms of sale. AKO only acts as a communications link, and all sales 
and negotiation authority lie with POCOS. Under these circumstances, 
POSCO argues, POCOS is clearly exercising operational control over 
AKO's sales activities, and the parties are therefore affiliated.
    DOC Position. We disagree with petitioners' contentions that Dongbu 
and Union are affiliated with POSCO based on their supply relationship, 
and that Union is affiliated with POSCO through indirect stock 
ownership.
    With respect to the issue of affiliation through a supply 
relationship in which one party becomes reliant on the other, we agree 
with respondents that petitioners have applied a wrong standard. The 
standard is not, as petitioners claim, whether one company might be in 
a position to become reliant upon another by means of their supplier-
buyer relationship; rather, the Department must find that a situation 
exists where the buyer has, in fact, become reliant on the seller, or 
vice versa. Only if we make such a finding can we address the issue of 
whether one of the parties is in a position to exercise restraint or 
direction over the other. When the preamble to our Proposed 
Regulations, in its definition of ``affiliated parties,'' states that 
``business and economic reality suggest that these relationships must 
be significant and not easily replaced,'' it suggests that we must find 
significant indicia of control. See Proposed Regulations at 7310. For 
the following reasons, we believe that the record evidence does not 
support the existence of a supply relationship between POSCO on the one 
hand, and Dongbu and Union on the other, in which Dongbu and Union have 
become reliant upon POSCO.
    The record shows that Dongbu and Union have alternate sources of 
supply for HRC, that they can and do purchase significant quantities of 
HRC from abroad. Petitioners have identifed no law, regulation, or 
directive, whether formal or informal, mandating Dongbu and Union to 
purchase HRC from POSCO, or to limit their purchases from non-POSCO 
sources. Nor is it true, as petitioners have alleged, that imports are 
consistently more expensive for Dongbu and Union than POSCO material. 
Record evidence shows that import prices were lower than POSCO's in 15 
out of 23 quarters from 1991 through the third quarter of 1996. The 
record indicates that POSCO has a comparative advantage over imported 
steel for reasons of proximity, cost, reliability of supply, and 
differences in specifications, grade, and quality, which can explain 
POSCO's position as principal supplier to Dongbu and Union. That 
position, therefore, does not signify that Dongbu and Union have a 
relationship which is so significant that it could not be replaced.
    Petitioners have alleged that POSCO sells HRC to Dongbu and Union 
at prices below its cost of production. Petitioners calculated POSCO's 
HRC production cost from POSCO's submitted cost data for cold-rolled 
finished products. But these estimated costs are averages of all 
possible types, grades, and dimensions of hot-rolled coil, and are not 
comparable to the costs of the specific products sold to Dongbu and 
Union for further manufacturing into cold-rolled and corrosion-
resistant products. When the actual costs of the HRC sold to Dongbu and 
Union are used, POSCO's sales to Dongbu and Union are above cost of 
production.
    For the above reasons, the Department determines that there is no 
supply relationship between POSCO on the one hand, and Dongbu and Union 
on the other, to the extent that Dongbu and Union have become reliant 
upon POSCO.
    We also disagree with petitioners' argument that POSCO and Union 
are affiliated by virtue of their respective affiliations with DSM, 
Union's parent company. In support of their argument, petitioners cite 
sections 771(33)(E) through (G) of the Act, which, inter alia, define 
an affiliated person as ``[a]ny person directly or indirectly owning, 
controlling, or holding with power to vote, 5 percent or more of the 
outstanding voting stock or shares of any organization and such 
organization,'' ``[t]wo or more persons directly or indirectly 
controlling, controlled by, or under common control with, any person,'' 
and ``[a]ny person who controls any other person and such other 
person.''
    With respect to subsection (E), there is no record evidence 
indicating that POSCO and Union directly or indirectly own or otherwise 
control five percent or more of each other's equity. While DSM and 
Union are affiliated through stock ownership, DSM and POSCO are not. As 
we stated in an internal memo shortly before the preliminary review 
results, ``we lack[ed] any evidence of stock ownership or control 
between POSCO and Union or POSCO and DSM, Union's controlling 
company.'' See memorandum from Richard O. Weible to Joseph A. Spetrini 
(September 6, 1996). No new evidence has come to light that would lead 
us to alter this statement.
    With respect to subsection (F), Union and POSCO do not directly or 
indirectly control, are not controlled by, and are not under common 
control with, any party. Even though DSM controls Union through its 
58.9 percent equity interest, and DSM and POSCO are affiliated with one 
another due to their common control of their joint venture, POCOS, it 
does not follow that POSCO controls either DSM or Union. As section 
771(33) of the Act specifies, a finding of control hinges on whether a 
person ``is legally or operationally in a position to exercise 
restraint or direction over the other person.'' While POSCO and DSM are 
clearly able to restrain or direct POCOS, and therefore control it for 
purposes of the Act, this does not mean that POSCO and DSM control one 
another. Subsection (F)'s affiliation standard is met where two parties 
control a third, as here. But such a finding of affiliation does not 
mean that the two affiliated parties control one another. The alleged

[[Page 18418]]

link between POSCO and Union is even more tenuous. Because POSCO does 
not control DSM, Union's parent company, DSM is not a vehicle through 
which POSCO can indirectly control Union, DSM's subsidiary. In other 
words, POSCO affiliation with DSM and DSM control of Union do not add 
up to POSCO control of Union. The affiliation standard set forth in 
subsection (F) is thus not satisfied.
    With respect to subsection (G), nothing in the record indicates 
that either Union or POSCO is in a position to control, either legally 
or operationally, the other party. The Department verified that (1) 
POSCO and Union compete in both Korea and the United States for the 
sale of the subject merchandise; and (2) POSCO on the one hand and DSM/
Union on the other are separate operational entities with no 
overlapping stock ownership. The fact that POSCO supplies Union with 
HRC does not alter this conclusion. As discussed above, this supplier 
relationship does not rise to the level of reliance on POSCO.
    Using the same statutory provisions, we continue to find that POCOS 
is affiliated with AKO and BUS through indirect stock ownership, since 
POCOS is 49.99 percent-owned by DSM, and DSM is affiliated with AKO and 
BUS by virtue of its indirect stock ownership in those companies.
    For the reasons stated above, the Department determines that POSCO 
and Union are not affiliated under the provisions of section 
771(33)(E)-(G) of the Act.
    Comment 3. Petitioners contest the Department's preliminary 
determination not to undertake a duty absorption inquiry despite their 
entreaties to do so. By not considering requests for an absorption 
inquiry until the 1996 administrative reviews, petitioners argue, the 
Department has adopted an overly restrictive interpretation of its 
authority to conduct such inquiries. Petitioners submit that, although 
the statute requires the Department to conduct an inquiry, if 
requested, during reviews initiated in the second and fourth years 
following publication of an order, it does not preclude the Department 
from conducting inquiries in reviews initiated during the first, third, 
or fifth year following publication of an order.
    Petitioners advance four main reasons why the Department should use 
its discretion to conduct a duty absorption inquiry:
    <bullet> There is no valid reason not to examine the issue of duty 
absorption when the record clearly indicates that respondents and their 
affiliated importers have absorbed antidumping duties during the POR.
    <bullet> Confining absorption inquiries to the second and fourth 
reviews will encourage respondents to manipulate the administrative 
review process with a view to avoid duty absorption findings. As an 
example, petitioners have requested duty absorption inquiries in the 
1995-1996 administrative reviews on cold-rolled carbon steel flat 
products from Korea (with respect to Union) and on cut-to-length carbon 
steel plate from Germany (with respect to A.G. der Dillinger 
Huttenwerke--Dillinger). Dillinger and Union, however, claim not to 
have had any imports of these products during the POR. By not 
conducting duty absorption inquiries with respect to these companies, 
petitioners allege, the Department will permit Dillinger and Union to 
elude penalties despite clear evidence on the record that both 
companies absorb duties.
    <bullet> By limiting itself to conducting duty absorption inquiries 
during the second and fourth administrative reviews, the Department is 
only creating additional burdens for itself, since petitioners will 
feel compelled to request complete administrative reviews for the sole 
purpose of obtaining a duty absorption determination. The Department's 
proposed policy effectively requires petitioners in certain 
circumstances to incur additional costs by requesting a review when 
they might not otherwise choose to do so. Petitioners argue that the 
statute was not intended to force petitioners into a position of 
choosing between incurring such additional costs or giving up their 
right to an absorption determination, and the Department should not 
establish a policy that would do so. Although it is conceivable that 
the Department could conduct mini-reviews in the second and fourth 
years focusing exclusively on the issue of duty absorption, the 
workload savings would be far exceeded by the workload of additional 
``protective'' reviews requested by petitioners. Additionally, 
petitioners submit, if a respondent chose not to participate in such a 
``mini-review,'' the Department would have to make an adverse 
assumption that the respondent did, in fact, absorb antidumping duties. 
As an example, petitioners cite the ongoing administrative review of 
cut-to-length carbon steel plate from Sweden, where respondent Svenskt 
Stal AB (``SSAB'') has withdrawn from the review and refuses to answer 
requests for information. Although the Department has the option of 
making an adverse assumption that SSAB absorbed antidumping duties, 
petitioners wonder whether, and to what extent, the ITC in its sunset 
review determination would give weight to a duty absorption 
determination based on adverse assumptions as opposed to actual record 
evidence.
    <bullet> Because all the information needed to conduct a duty 
absorption inquiry is already on record and verified, and only a small 
amount of additional activity is necessary to determine whether 
antidumping duties have been absorbed, petitioners assert there is no 
reason why the Department should not exercise its discretion and 
conduct a duty absorption inquiry.

The record evidence cited by petitioners which, they allege, 
conclusively demonstrates that duty absorption has occurred are the 
following:
    <bullet> Petitioners cite as an example a U.S. sale by Dongbu where 
the ultimate U.S. purchaser was invoiced less than what Dongbu 
Corporation (Korea) billed DBLA, its Los Angeles, California sales 
affiliate. See petitioners' common issues case brief, from Dewey 
Ballantine to the Secretary of Commerce (proprietary version), as 
resubmitted on February 27, 1997 (``CICB''), at 120-122.
    <bullet> Petitioners allege that an analysis of the data submitted 
by POSCO clearly reveals that POSCO's U.S. prices do not reflect the 
full amount of antidumping duties. In their example, petitioners submit 
that the deduction from the reported gross unit price of the total of 
(a) per-unit transfer price, (b) direct and indirect selling expenses 
in the United States, (c) per-unit movement charges paid by BUS, and 
(d) antidumping and countervailing duty cash deposits, results in a 
negative margin. According to petitioners, this example demonstrates 
that, by not raising its U.S. prices sufficiently to cover the margin 
of dumping, BUS elected to pay the dumping duties rather than pass them 
on to the customer. See CICB at 122-124.
    <bullet> Petitioners allege that an analysis of the data submitted 
by Union clearly reveals that Union's prices to unaffiliated U.S. 
purchasers do not reflect the full amount of antidumping duties. In 
their example, petitioners submit that the deduction from the reported 
gross unit price of the total of (a) per-unit transfer price, (b) 
direct and indirect selling expenses in the United States, (c) per-unit 
movement charges paid by Union America (``UA''), and (d) antidumping 
and countervailing duty cash deposits, results in a negative margin. 
According to petitioners, this example demonstrates that, by not 
raising its U.S. prices sufficiently to

[[Page 18419]]

cover the margin of dumping, UA elected to pay the dumping duties 
rather than pass them on to the customer. See CICB at 124-125.
    Respondents retort that the Department should not conduct a duty 
absorption inquiry. First, they argue that the request is premature 
because in section 751(a)(4) of the Act, Congress authorized the 
Department to conduct duty absorption inquiries in ``transition 
reviews,'' (such as this one) only for reviews initiated in 1996 or 
1998. For this same reason, Dongbu and Union argue, the Department, 
contrary to petitioners' assertions, does not have the discretion to 
conduct a duty absorption inquiry in this review.
    Second, POSCO argues that according to the SAA, a duty absorption 
inquiry is relevant only in the context of a sunset review proceeding. 
The SAA (at 885) states that ``[t]he duty absorption inquiry would not 
affect the calculation of margins in administrative reviews.'' Thus, 
POSCO argues, not only is the request premature, but it is irrelevant 
to the calculation of the dumping margin in this proceeding.
    Third, Dongbu and Union argue that there is no evidence of duty 
absorption on the record. The calculations the petitioners give in 
their brief that allegedly demonstrate duty absorption, Dongbu and 
Union argue, are incorrect. They argue that the petitioners' 
calculations treat the antidumping and countervailing duty deposit 
amounts as if they were the equivalent of a dumping margin. Doing so 
was incorrect, Dongbu and Union argue, because the plain language of 
the statute speaks of the absorption of ``antidumping duties,'' and not 
estimated antidumping duties.
    Fourth, regarding petitioners' argument that confining reviews to 
the second and fourth reviews will encourage respondents to manipulate 
the administrative review process, Dongbu and Union argue that this 
argument is invalid. They argue that even if there were such a risk, it 
would not give the Department the right to disregard the statutory 
framework. Moreover, they argue that petitioners' suggestion that Union 
ceased its exports of cold-rolled steel to the United States during the 
1995-96 period in order to avoid a duty absorption inquiry is sheer 
speculation and demonstrably incorrect. They argue that because Union 
has set its prices to the point where the dumping margins determined by 
the Department are insignificant, it is clear that it has not absorbed 
antidumping duties, and the motive for avoiding a duty absorption 
review therefore does not exist.
    Fifth, regarding petitioners' argument that by limiting duty 
absorption inquiries to only the second and fourth administrative 
reviews the Department creates additional burdens for itself, Dongbu 
and Union argue that even this consideration does not give the 
Department the right to thwart the plain language of the law and 
Congressional will by conducting a duty absorption inquiry when it is 
not authorized to do so.
    For these reasons, respondents argue that the Department should 
uphold its determination in the preliminary results of review that 
petitioners' request for a duty absorption inquiry is premature.
    DOC Position. We agree with respondents that we are not required to 
conduct a duty absorption inquiry for this administrative review. 
Section 751(a)(4) of the Act provides that the Department, if 
requested, will determine during an administrative review initiated two 
years or four years after publication of the order whether antidumping 
duties have been absorbed by a foreign producer or exporter subject to 
the order if the subject merchandise is sold in the United States 
through an importer who is affiliated with such foreign producer or 
exporter. Section 751(a)(4) was added to the Act by the URAA.
    Special rules, however, exist for transition orders, defined in 
section 751(c)(6)(C) of the Act as orders in effect as of January 1, 
1995. Section 351.213(j)(2) of the Department's proposed regulations 
provides that the Department will make a duty absorption determination, 
if requested, for any administrative review initiated in 1996 or 1998. 
See Proposed Regulations at 7366. The commentary to the proposed 
regulations explains that reviews initiated in 1996 will be considered 
initiated in the second year and reviews initiated in 1998 will be 
considered initiated in the fourth year. Ibid. at 7317. Although these 
proposed regulations are not yet binding upon the Department, they do 
constitute a public statement of how the Department expects to proceed 
in construing section 751(a)(4) of the amended statute. This approach 
ensures that interested parties will have the opportunity to request a 
duty absorption determination on entries for which the second and 
fourth years following an order have already passed, prior to the time 
for sunset review of the order under section 751(c). See, e.g., Certain 
Welded Stainless Steel Pipe From Taiwan; Preliminary Results of 
Administrative Review, 62 FR 1435 (January 10, 1997) and Fresh Cut 
Flowers From Mexico; Preliminary Results and Partial Termination of 
Antidumping Duty Administrative Review, 62 FR 1318 (January 9, 1997).
    Because the antidumping orders on corrosion-resistant and cold-
rolled carbon steel flat products from Korea have been in place since 
1993, they clearly constitute transition orders. Therefore, based on 
the policy articulated above, the Department will first consider a 
request for a duty absorption determination for reviews of these orders 
initiated in 1996. These reviews were initiated in 1995. Accordingly, 
we have not considered the issue of duty absorption in these reviews. 
See also Certain Corrosion-Resistant Carbon Steel Flat Products and 
Certain Cut-to-Length Carbon Steel Plate From Canada: Preliminary 
Results of Antidumping Duty Administrative Reviews, 61 FR 51891, 51892 
(October 4, 1996).
    Comment 4. Petitioners argue that, in calculating antidumping 
margins for the respondents, the Department must deduct from the price 
used to establish EP or CEP the actual countervailing and antidumping 
duties paid by respondents' affiliated U.S. importers.
    Petitioners argue that the plain language and structure of the 
statute mandate that the Department make such a deduction, since it 
provides, in section 772(c)(2)(A) of the Act, that ``the price used to 
establish export price and constructed export price shall be * * * 
reduced by * * * United States import duties, which are incident to 
bringing the subject merchandise from the original place of shipment in 
the exporting country to the place of delivery in the United States.'' 
19 U.S.C. Sec. 1677a(c)(2)(A) (1995) (emphasis added by petitioners). 
Petitioners also contend that antidumping and countervailing duties are 
plainly ``incident to bringing the subject merchandise from the 
original place of shipment in the exporting country to the place of 
delivery in the United States.'' Nor, they insist, does the language of 
the statute mandate that antidumping and countervailing duties are to 
be distinguished or excluded from the phrase ``United States import 
duties.''
    Petitioners state that the relevant provisions of section 
772(c)(2)(A) of the Act, cited above, first entered U.S. law, verbatim, 
in the Antidumping Act of 1921 (``1921 Act''). Although Congress at the 
time omitted a definition of the phrase ``import duties,'' petitioners 
assert that the Court of Customs and Patent Appeals subsequently and 
specifically addressed the intentions of the drafters of the 1921 Act 
and noted that antidumping and countervailing duties were ``desired and 
intended (by Congress) to be considered as duties for

[[Page 18420]]

all purposes.'' See C.J. Tower & Sons v. United States, 771 F.2d 438, 
445 (C.C.P.A. 1934) (emphasis added by petitioners).
    That antidumping and countervailing duties are to be included in 
the deduction, petitioners maintain, is confirmed when section 
772(c)(2)(A) of the Act is read in conjunction with the later-added 
section 772(c)(1)(C), which provides that, to derive EP or CEP, the 
U.S. price shall be increased by the amount of any countervailing duty 
imposed to offset an export subsidy. That provision was added to U.S. 
law in 1979 to implement Article VIpara.5 of the General Agreement on 
Tariffs and Trade, which prohibits the assessment of both antidumping 
and countervailing duties to compensate for the same cause of unfairly 
low-priced imports, whether by dumping or as a result of an export 
subsidy. See Serampore Indus. Pvt. Ltd. v. United States, 675 F. Supp. 
1354, 1359 (CIT 1987) (quoting H.R. Doc. No. 96-153 at 412, reprinted 
in 1979 U.S.C.C.A.N. 683).
    In the 1979 Trade Agreements Act, petitioners state, Congress, in 
addition to adding section 772(c)(1)(C), added the phrase ``except as 
provided in paragraph 1(C)'' to section 772(c)(2)(A). Petitioners argue 
it is a fundamental precept of statutory construction that a statute 
should be construed so that effect is given to all of its provisions, 
so that no part will be inoperative or superfluous, void or 
insignificant, and so that one section will not destroy another. They 
argue further that Congress' specific exemption of countervailing 
duties from section 772(c)(2)(A) demonstrates it clearly understood 
that subsection's reference to ``any * * * United States import 
duties'' as including antidumping and countervailing duties; otherwise, 
there would have been no reason to exempt certain countervailing duties 
from application of the provision. Had this exception not been 
inserted, petitioners maintain, an equal amount would be added by the 
operation of one subsection (i.e., section 772(c)(1)(C)) and deducted 
as a result of the next subsection (i.e., section 772(c)(2)(A)).
    Petitioners also argue that the Court of International Trade 
(``CIT'') has implicitly held that section 772(c)(2)(A) covers actual 
countervailing or antidumping duties. In Federal-Mogul Corp. v. United 
States, 813 F. Supp. 856, 872 (CIT 1993) (``Federal-Mogul''), the CIT 
did not adopt the Department's reasoning that section 1677a(c)(2)(A) 
applied only to the deduction of ``normal'' import duties, and that 
antidumping duties were not ``normal'' import duties. Rather, according 
to petitioners, the CIT based its refusal to deduct estimated 
antidumping duties on the fact that the duty deposits were only 
estimates--not actual duties--which might not have borne any 
relationship to the actual antidumping or countervailing duties owed. 
Petitioners also cite PQ Corp. v. United States, where the CIT noted 
approvingly that ``antidumping provisions in other jurisdictions 
explicitly list antidumping duties as one of the adjustments to be made 
in constructing prices.'' See PQ Corp. at 724.
    Petitioners also put forward that in no way does the legislative 
history of the URAA suggest that Congress rejected their construction 
of section 772(c)(2)(A). Indeed, according to petitioners, the Senate 
Finance Committee, aware that the issue of whether to deduct 
antidumping duties from EP or CEP was being litigated, directed the 
Department to abide by the outcome of the litigation. See S. Rep. No. 
103-412 at 64 (1994). Petitioners also maintain that the SAA explicitly 
states that no changes in the law were intended with respect to section 
772(c)(2)(A). See SAA at 823. Petitioners deny that, as asserted 
elsewhere by the Department, Congress' rejection of a separate 
provision expressly allowing for the deduction of antidumping duties as 
a cost in the context of the passage of the URAA requires a different 
interpretation of section 772(c)(2)(A). See Certain Cold-Rolled Carbon 
Steel Flat Products from the Netherlands: Final Results of Antidumping 
Duty Administrative Review, 61 FR 48465, 48469 (September 13, 1996) 
(``Netherlands Final''). This rejection, petitioners assert, does not 
alter the Congressional intent with respect to a pre-existing statutory 
provision.
    Petitioners dismiss as illegitimate the Department's repeated 
refusal to deduct antidumping and countervailing duties from U.S. price 
on the grounds that such a deduction would result in double-counting, 
for the following reasons.
    <bullet> First, the statute is not discretionary when it states 
that the Department ``shall'' reduce U.S. price by the amount of United 
States import duties. No conflicting policy rationale, they maintain, 
can justify the Department's refusal to comply with a legal mandate.
    <bullet> Second, petitioners affirm, in the Netherlands Final the 
Department did not consider doubling of antidumping margins to account 
for reimbursement of antidumping duties, as constituting double-
counting. See Netherlands Final at 48470-71.
    <bullet> Third, the Department has refrained from making the 
adjustment for antidumping duties because ``making an additional 
adjustment to USP for the same antidumping duties that correct this 
price discrimination between the U.S. and home markets would result in 
double-counting.'' See Certain Corrosion-Resistant Carbon Steel Flat 
Products from Korea: Final Results of Antidumping Duty Administrative 
Review, 61 FR 18547, 18564 (April 26, 1996) (``Corrosion-Resistant 
Final'') (emphasis added by petitioners). This rationale, petitioners 
argue, cannot apply to countervailing duties, which offset 
subsidization, not price discrimination.
    In the event that the Department determines that actual antidumping 
and countervailing duties do not fall within the general category of 
``United States import duties,'' petitioners argue that antidumping and 
countervailing duties constitute ``additional costs, charges, or 
expenses *  *  * incident to bringing the subject merchandise from *  *  
* the exporting country to *  *  * the United States' within the 
meaning of section 772(c)(2)(A) of the Act. These duties should 
therefore be deducted from EP or CEP, petitioners contend.
    Petitioners contend that, because no party requested a review of 
the countervailing duty order on the subject merchandise at the time of 
the second anniversary of the order, countervailing duties are 
determinable and should be deducted in full from EP and CEP. Although 
the Department is currently enjoined by order of the CIT from 
liquidating the applicable entries pending a final resolution of the 
respondents' legal challenge of the Department's final affirmative 
countervailing duty determination, petitioners assert the presumption 
exists that the Department's determination is correct (see H.R. Rep. 
No. 96-317 at 182 (1979)) and the duties should be treated as final for 
purposes of section 772(c)(2)(A). Indeed, petitioners say, in the 
preliminary results of the instant reviews, the Department treated as 
final those countervailing duties imposed to offset subsidies, and 
stated that a respondent was entitled to an upward adjustment to U.S. 
price, even though liquidation was still enjoined as a result of 
litigation with respect to the entries in question. Petitioners contend 
that, in the event the Department incorrectly determines not to treat 
such duties as being final at this time, the actual amount to be 
collected will be known if the court reaches a decision before the 
final review results are issued, and the Department can make an 
adjustment at that time. At a minimum, petitioners argue, the 
Department should adjust the cash deposit rate upward by the amount of 
countervailing duties (other than

[[Page 18421]]

those offsetting export subsidies) found in the original investigation.
    Finally, petitioners request that the Department deduct the full 
amount of the ``actual'' antidumping duties that respondents' 
affiliated U.S. importers will be responsible for upon liquidation of 
the entries of the subject merchandise. If the Department determines 
that there exists a five percent dumping margin exclusive of the 
payment of estimated antidumping duties, petitioners contend the 
Department must deduct `` as per Federal-Mogul--an additional five 
percent, which is equal to the cost of the antidumping duties that 
Dongbu's, POSCO's, and Union's affiliated importers will be required to 
pay to U.S. Customs. In this case, petitioners say, once the final 
review results are issued, the exact amount of antidumping duties owed 
by Dongbu's, POSCO's, and Union's affiliated importers will actually be 
determined.
    Respondents answer that the petitioners' argument is identical to 
the one the Department considered and properly rejected in the first 
administrative review of the order on corrosion-resistant products, and 
that the Department should reject here as well because the petitioners 
have not advanced any new arguments not set forth and rejected in the 
first review. Dongbu and Union argue that the Department's 
determination in the first review of corrosion-resistant products was 
strengthened further when Congress and the Administration, in enacting 
the URAA amendments under which this review is being conducted, very 
pointedly rebuffed the petitioners' persistent lobbying for a ``duties 
as a cost'' amendment. More recently, Dongbu and Union argue, the 
Department rejected the petitioner's position again in Netherlands 
Final, at 48469. Additionally, POSCO argues that the SAA (at 885) also 
states that the Department does not intend to treat antidumping duties 
as a cost in antidumping cases.
    Furthermore, POSCO argues that petitioners' analogy with 
Netherlands Final (in which the Department did not consider doubling of 
antidumping margins, to account for reimbursement of antidumping 
duties, as constituting double-counting) is inapposite. In the duty 
reimbursement context, POSCO argues, the regulations require the 
Department to double-count antidumping duties as a punitive measure. 
The fact that antidumping duties are double-counted in that context, 
therefore, is not a policy decision over which the Department has any 
discretion. Because the Department's regulations do not require it to 
double-count antidumping and countervailing duties in its antidumping 
margin calculation, POSCO argues, the Department has the discretion to 
conclude that it would be unfair to double-count those expenses.
    Moreover, POSCO argues that petitioners' reasoning is circular. The 
statute, POSCO argues, requires the Department to calculate the margin 
by comparing U.S. price with NV. If the margin must first be subtracted 
from U.S. prices, then, as a matter of simple mathematics, the 
``correct'' margin could never be calculated.
    In summary, Dongbu and Union argue, the petitioners' position is 
entirely without foundation, is either contradicted by or finds no 
support in the plain language of the law, the legislative history of 
the law, court precedent, Department practice, or the United States' 
legal obligations under the WTO Antidumping Agreement which prohibits 
signatories from deducting in excess of the actual margin of dumping.
    DOC Position. We disagree with petitioners. The term ``United 
States import duties'' is not defined in the statute, and is therefore 
open to interpretation. Substantial deference is owed to an agency's 
interpretation of the statute it is charged with administering, as long 
as such interpretation is reasonable. See Chevron U.S.A., Inc. v. 
Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984).
    The term ``United States import duties'' first appeared in section 
203 of the 1921 Act (42 Stat. 12). However, neither the 1921 Act nor 
its legislative history defined the term. The Senate Report 
accompanying the legislation, however, uniformly refers to antidumping 
duties as ``special dumping dut[ies],'' and uniformly refers to 
ordinary customs duties as ``United States import duties.'' The 
rigorous use of these distinct terms indicates that the new ``special 
dumping duties'' (payable only to offset dumping) were considered to be 
distinct from the existing ``United States import duties'' (payable, ad 
valorem, upon importation).
    This conclusion is reinforced by the fact that section 211 of the 
1921 Act (42 Stat. 15), provided that, for the limited purpose of duty 
drawback, ``the special dumping dut[ies]  *  *  *  shall be treated in 
all respects as regular customs duties.'' See S. Rep. No. 16, 67th 
Cong., 1st Sess., at 4 (1921). If ``special dumping duties'' really 
were considered to be just one type of ``United States import duty,'' 
this special provision would have served no purpose. That ``special 
dumping duties'' are distinct from normal import duties also is 
apparent from the fact that section 202(a) of the 1921 Act (42 Stat. 
11) provided that ``special dumping duties'' may be applied to ``duty-
free'' merchandise. In this context, ``duty-free'' meant ``free from 
ordinary import duties.'' If ``duty-free'' meant ``free from any 
duties,'' that would include antidumping (``AD'') duties and 
countervailing duties (``CVDs''). Plainly, however, ``duty-free'' was 
understood to mean ``free from ordinary customs duties.'' Although the 
Congress in 1921 did not explicitly stipulate that the new ``special 
dumping duty'' should not be calculated so as to include itself, the 
most reasonable explanation is that Congress would have considered it 
absurd to spell out such a self-evident proposition.
    When the AD law was amended in 1979, the provision requiring the 
deduction of ``United States import duties'' from the starting price in 
the United States was amended by adding the words ``except as provided 
in paragraph (1)(D).'' Because paragraph (1)(D) provides for the 
addition to the starting price of CVDs to offset export subsidies on 
the subject merchandise, petitioners argue that this indicates that 
Congress in 1979 considered ``United States import duties'' to include 
countervailing duties. However, the only intent of Congress that is 
clear is that the addition of export-subsidy CVDs to the price in the 
United States should not be robbed of its logical effect by an 
offsetting deduction. See Trade Agreements Act of 1979, Report of the 
Committee on Finance on H.R. 4537, S. Rep. No. 249, 96th Cong., 1st 
Sess., at 94 (1979). There is absolutely nothing in the legislative 
history to indicate that Congress intended to change the standard 
practice of not deducting either AD duties or CVDs from the starting 
price in the United States as ``United States import duties.''
    Furthermore, the SAA explicitly states that AD duties are not to be 
treated as ``a cost'' to be deducted from the starting price in the 
United States, and notes that Article 2.4 of the Antidumping Agreement 
(at footnote 7) ``admonishes national authorities not to double count 
adjustments'' in calculating dumping margins. See SAA at 139. In the 
hundreds of antidumping duty administrative reviews that Commerce has 
conducted since 1980, the Department has never deducted AD duties or 
CVDs from the starting price in the United States, and the courts have 
never directed the Department to change this practice. Congress has 
been well aware of this situation, and, despite

[[Page 18422]]

numerous revisions of the antidumping law since 1921, has never amended 
the law to change this result.
    Petitioners' argument that the Department should deduct ``actual'' 
CVDs from U.S. price overlooks the distinction made by Congress in 
section 772(c)(1)(C) of the Act between domestic and export subsidies. 
Domestic subsidies presumably lower the price of the subject 
merchandise both in the home and U.S. markets, and therefore have no 
effect on the measurement of any dumping that might also occur. Export 
subsidies, by contrast, benefit only exported merchandise. Accordingly, 
an export subsidy brings about a lower U.S. price which could be 
ascribed to either dumping or export subsidization, as well as the 
potential for double remedies. Imposing both an export-subsidy CVD and 
an AD duty, calculated with no adjustment for that CVD, would impose a 
double remedy specifically prohibited by Article VIpara.5 of the GATT. 
Thus, the only reasonable explanation for Congress' decision to provide 
for the deduction from U.S. price of export-subsidy CVDs is protection 
against double remedies.
    Finally, the Department rejects petitioners' argument that the AD 
duties and CVDs should be deducted as ``additional costs, charges, and 
expenses  *  *  *  incident to importation'' because the Department's 
rationale for refusing to deduct AD duties and CVDs from the United 
States price (that it double-counts the dumping margin) applies equally 
whether the AD duties and CVDs are described as ``import duties'' or 
``costs of importation.''

Company-Specific Comments

Petitioners' Comments
    Comment 5. Petitioners argue that CV profit must be calculated in a 
manner consistent with the calculation of the CV base cost. Petitioners 
state the Department calculated CV profit as a percentage of total 
profit on above-cost sales over the corresponding sum of COM, G&A, 
interest, commissions, selling expenses, and packing (``COPVALUE''). 
Petitioners allege that in calculating the absolute amount of profit 
for CV, the Department multiplied the CV profit rate by a different 
base value representing the COM, G&A, and interest expenses, but 
excluded selling expenses and packing. Petitioners propose that the 
Department calculate CV profit as the total home-market sales value, 
minus the total COP, and divided by the COP.
    POSCO disagrees with petitioners' proposed correction. POSCO 
asserts the home-market sales and total COP used as the numerator and 
denominator in the calculation of the profit rate are extended values, 
whereas the COP used as the denominator in petitioners' proposed 
correction is a per-unit value. POSCO suggests that for the equation to 
be correct mathematically the COP would have to be a total figure.
    DOC Position. We agree that we incorrectly calculated CV profit in 
the preliminary results. We calculated the profit rate including 
packing and selling expenses and applied it to the CV base cost that 
excluded packing and selling expenses. We have corrected the 
programming language for the final results to include selling and 
packing expenses in the CV base cost consistent with the components of 
the profit rate (i.e., the numerator includes selling and packing 
expenses and the denominator includes selling and packing expenses).
    Comment 6. Petitioners note that Dongbu's CV financial expense 
factor must be revised. According to petitioners, Dongbu incorrectly 
offset CV financial expense with an adjustment based on the ratio of 
accounts receivable and finished goods inventory to assets.
    Dongbu acknowledges it inappropriately reduced its CV financial 
expense rate with imputed accounts receivable and inventory carrying 
expenses. Dongbu states that the company agrees to the use of the COP 
financial expense factor for calculating CV.
    DOC Position. We agree with both petitioners and Dongbu. The Act 
directs the Department to exclude the imputed accounts receivable and 
inventory carrying expense offsets. See, e.g., Final Determination of 
Sales at Less than Fair Value: Certain Pasta from Italy, 61 FR 30326, 
30361 (June 14, 1996) (``Pasta''). Therefore, we revised Dongbu's CV 
financial expense rate for these final results, and used the company's 
submitted COP financial expense factor to calculate the financial 
expense factor used for CV, because this factor appropriately excluded 
imputed offsets.
    Comment 7. Petitioners argue that Dongbu's reported U.S. sales are 
CEP transactions. They maintain that the record demonstrates that 
Dongbu's U.S. sales are made through ``back-to-back'' transactions, in 
which Dongbu USA, Dongbu's affiliated importer, engages in all selling 
functions in the United States. Petitioners claim that new factual 
information available to the Department in this review demonstrates 
that Dongbu's sales are properly characterized as CEP transactions.
    According to petitioners, the criteria typically used by the 
Department for classifying sales as CEP or EP lead to the conclusion 
that Dongbu's sales are CEP transactions. See, e.g., Notice of Final 
Determination of Sales at Less Than Fair Value: Large Newspaper 
Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, from Germany, 61 FR 38166, 38175 (July 23, 1996) 
(``Presses from Germany''); Final Determination of Sales at Less Than 
Fair Value: Coated Groundwood Paper from France, 56 FR 56380, 56384 
(November 4, 1991); Final Determination of Sales at Less Than Fair 
Value: New Minivans from Japan, 57 FR 21937, 21945 (May 26, 1992); and 
Brass Sheet and Strip from Sweden; Final Results of Antidumping Duty 
Administrative Reviews, 57 FR 2706, 2708 (January 23, 1992). They 
maintain that the Department also recently determined that a U.S. sale 
is properly classified as a CEP transaction when the U.S. affiliate 
plays an active role in the sales negotiation process, and when it 
performs significant additional functions in support of U.S. sales. See 
Presses from Germany at 38171. Petitioners claim that all selling 
expenses related to Dongbu's U.S. sales are incurred in the United 
States, that Dongbu USA engages in substantial selling activities in 
the United States, and that the sale itself occurs in the United 
States. Petitioners further argue that the record supports these 
activities since Dongbu USA acts as the importer of record, issues 
sales contracts for all U.S. sales, borrows to finance accounts 
receivable, handles all billing and accounting functions related to 
U.S. sales, and is involved in other selling functions consistent with 
CEP sales.
    Petitioners contend that Dongbu's selling functions exceed those of 
a mere communications link or processor of documents. They argue that 
evidence on the record demonstrates that for every reported U.S. 
transaction, two sales take place, one from Dongbu to Dongbu USA and 
the other from Dongbu USA to the unaffiliated U.S. customer. 
Petitioners note that Dongbu describes its U.S. sales as involving 
``back-to-back'' transactions, a characterization which appears to be 
at odds with Dongbu's portrayal of its U.S. sales as direct sales to 
unaffiliated customers. Petitioners maintain that separate transactions 
indicate that Dongbu USA acts as more than a mere processor of 
documents or communications link, and that the presence of multiple 
transactions with CEP sales is consistent with the amendments made 
under the URAA, as indirect selling expenses would typically be 
incurred on the second

[[Page 18423]]

sales transaction, as they were in the present case.
    Petitioners argue that Dongbu's own information makes it clear that 
significantly greater sales activity occurs in the United States for 
U.S. sales than occurs in the home market, and the amount of Dongbu's 
U.S. indirect selling expenses incurred in Korea is an insignificant 
percentage of sales price. From this evidence, according to 
petitioners, it is clear that Dongbu USA's sales activity in the United 
States is far more significant than that which takes place in Korea for 
equivalent sales. Petitioners note that despite the evidence 
demonstrating that Dongbu USA sells subject merchandise to the U.S. 
customer, Dongbu claims that the U.S. sale is made by Dongbu, because 
Dongbu approves the customer's purchase order. They contend that Dongbu 
has failed to present evidence or documentation indicating that Dongbu 
negotiated the price or quantity of the U.S. sales, or played any other 
role in the sales process other than giving pro forma approval.
    Dongbu asserts that the Department has already thoroughly 
considered and rejected the arguments raised by petitioners in the 
first administrative review and the preliminary review results. Dongbu 
argues that there is no new factual information that the Department has 
overlooked. The nature and scope of Dongbu USA's selling activities in 
the United States have not changed for this review. According to 
Dongbu, petitioners' contention that all selling functions related to 
Dongbu's U.S. sales are incurred in the United States and that Dongbu 
USA is involved in substantial selling activities is easily disproved 
by evidence on the record supporting the fact that sales negotiations 
are undertaken by Dongbu's export department in Seoul and that Dongbu 
USA merely acts as a communications link in this process. Dongbu argues 
further that it is a matter of record that the most significant selling 
activities related to U.S. sales occur in Korea, including sales 
negotiation, production scheduling, shipping scheduling, Korean 
brokerage, handling, and loading expenses, Korean inland freight to the 
port, and ocean freight. Respondent claims that Dongbu USA simply 
facilitates the sale by ensuring delivery of the merchandise to the 
customer after clearance through Customs and by invoicing the customer 
and receiving payment.
    Dongbu also contends that, contrary to petitioners' arguments, the 
issue is not the relative quantity of the selling activities that are 
undertaken in the United States and Korea, but the nature of those 
selling activities; these selling activities are consistent with those 
associated with acting as a communications link and document processor. 
Dongbu points out that the CIT has upheld the classification of sales 
as purchase price (now EP) sales in circumstances where the related 
U.S. company undertook activities similar to, or even more extensive 
than, those in this instance. See, e.g., Outokumpu Copper Rolled 
Products v. United States, 829 F. Supp. 1371, 1379-1380 (CIT 1993), 
appeal after remand dismissed, 850 F. Supp. 16 (CIT 1994); E.I. du Pont 
de Nemours & Co., Inc. v. United States, 841 F. Supp. 1237, 1248-50 
(CIT 1993); Zenith Electronics Corp. v. United States, Consol. Ct. No. 
88-07-00488, Slip Op. 94-146 (CIT) (``Zenith'').
    Dongbu argues that there is no factual evidence to support 
petitioners' claim that the sale itself occurs in the United States. 
The record itself, including the Department's verifications findings, 
confirms that Dongbu USA has no authority to accept or reject U.S. 
sales offers and that the approval of sales comes from Dongbu's export 
department in Seoul. Dongbu also argues that there is no support for 
petitioners' claim, either in past administrative practice or in the 
URAA, that the use of intracorporate invoicing to facilitate shipment 
of sales indicates that sales are CEP transactions. See SAA at 153. 
Respondent contends that back-to-back invoicing is a common method by 
which related parties are able to geographically transfer routine 
selling functions to the United States, and that such invoicing is 
consistent with EP classification.
    DOC Position. We disagree with petitioners that the selling 
functions of Dongbu USA exceed those of a mere communications link or 
processor of documents. As discussed in our position on this matter 
during the first administrative reviews, whenever sales are made prior 
to the date of importation through an affiliated sales entity in the 
United States, we determine whether EP is the most appropriate 
determinant of the U.S. price based upon the following considerations: 
(1) The subject merchandise was shipped directly from the manufacturer 
to the unrelated buyer, without being introduced into the inventory of 
the related shipping agent; (2) direct shipment from the manufacturer 
to the unrelated buyer was the customary channel for sales of this 
merchandise between the parties involved; and (3) the related selling 
agent in the United States acted only as a processor of sales-related 
documentation and a communication link with the unrelated U.S. buyer. 
See, e.g., Certain Stainless Steel Wire Rods from France: Final 
Determination of Sales at Less than Fair Value, 58 FR 68865, 68868-9 
(December 29, 1993) (``Wire Rod''); Granular Polytetrafluoroethylene 
Resin from Japan: Final Results of Antidumping Duty Administrative 
Review, 58 FR 50343-4 (September 27, 1993) (``PTF Resin''). This test 
was first developed in response to the CIT's decision in PQ Corp. at 
733-35. It has also been used to uphold indirect purchase price 
transactions involving exporters and their U.S. affiliates. See, e.g., 
Zenith. We agree with respondent that neither the nature nor the scope 
of Dongbu USA's selling activities with regard to these activities in 
the United States have changed in these reviews.
    Furthermore, we agree with respondent that, when the criteria 
described above are met, we consider the exporter's selling functions 
to have been relocated geographically from the country of exportation 
to the United States, where the sales agent performs them. We determine 
that Dongbu USA's selling functions are of a kind that would normally 
be undertaken by the exporter in connection with these sales. Dongbu 
USA's role in the payment of cash deposits of antidumping and 
countervailing duties, extension of credit to U.S. customers, the 
processing of certain warranty claims, and project development are 
consistent with EP classification and are a relocation of routine 
selling functions from Korea to the United States.
    Comment 8. Petitioners contend that Dongbu's reported credit 
expenses should be revised to reflect the date of shipment from the 
factory. Petitioners claim that Dongbu improperly computes the number 
of credit days based on the date of the bill of lading at the port, 
rather than on the date of shipment from the factory. Accordingly, the 
Department should increase the credit period for all U.S. sales on the 
basis of facts available. Petitioners argue that the Department 
requires respondents to calculate credit expenses based on the number 
of days between date of shipment to the customer and date of payment, 
and that these instructions are consistent with the Department's long-
standing practice. See, e.g., Final Determination of Sales at Less Than 
Fair Value: Certain Welded Stainless Steel Pipe from the Republic of 
Korea, 57 FR 53693, 53700 (November 12, 1992) (``Stainless Pipe from 
Korea''); Polyethylene Terephthalate Film, Sheet, and Strip from the 
Republic of Korea; Final Results of Antidumping Duty

[[Page 18424]]

Administrative Reviews and Notice of Revocation in Part, 61 FR 35177, 
35181 (July 5, 1996) (``PET Film''); and PTF Resin at 50344.
    However, according to petitioners, Dongbu used as the date of 
shipment the date of lading on board the ship as indicated on the bill 
of lading. In doing so, they claim, Dongbu improperly shortened the 
credit expense period in the U.S. market. See, e.g., Final 
Determination of Sales at Less Than Fair Value: Welded Stainless Steel 
Pipe from Malaysia, 59 FR 4023, 4029 (January 28, 1994); and Final 
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Lead 
and Bismuth Carbon Steel Products from the United Kingdom, 58 FR 6207, 
6212 (January 27, 1993).
    Petitioners support their argument by stating that sales 
documentation examined by the Department at verification demonstrated 
time differences between shipment of merchandise from the factory and 
its lading at the port. They argue that Dongbu claims, post hoc, that 
the source of this information was issued directly after production was 
completed and prior to commencement of shipment, and does not indicate 
the date of shipment from the factory. In noting this, petitioners 
assert that Dongbu offers no evidence for its claim, which is 
contradicted by its earlier responses and discredited by the document 
itself. Petitioners contend that Dongbu's position is further weakened 
by its unsupported claim that shipment from the factory does not occur 
until an export permit has been issued by the Korean government. 
Petitioners state that the claim is undermined by Dongbu's own 
calculation of the number of days between the date of export and the 
bill of lading date (as opposed to the date of shipment from the 
factory), and the fact that Dongbu has admitted that subject 
merchandise is warehoused between shipment from the factory and later 
export.
    Dongbu counters these arguments by noting that its use of the bill 
of lading as the date of shipment is consistent with the methodology 
accepted by the Department in the first review of corrosion-resistant-
products and in the preliminary results of the present reviews. Dongbu 
argues that the issue is not whether a minimum number of consecutive 
reviews were conducted prior to the change in practice--as in Shikoku 
Chemicals Corporation v. United States, 795 F. Supp. 417, 421-22 (CIT 
1992) (``Shikoku''), where the calculation methodology was changed 
without notice after four consecutive reviews rather than just after 
one--but whether there was reasonable reliance on the Department's 
prior acceptance of the methodology, whether the fact pattern is 
unchanged, and whether there is evidence of a ``significant error.'' 
Dongbu states that in the present case, it reasonably relied on the 
Department's prior examination and acceptance of the reported date of 
shipment, the fact pattern is unchanged, and there is no evidence of 
error in using shipment date as the date of sale.
    Dongbu maintains that petitioners' argument is based on their 
incorrect identification of a verification document as a shipping 
invoice. The document in question, according to Dongbu, is not a 
shipping invoice, but a document which is generated prior to shipment. 
Dongbu states that actual shipment from the factory does not occur 
until later in the process, following the transmission of vessel 
arrangements to the factory and export clearance being obtained from 
the broker. Therefore, according to respondent, the invoice petitioners 
question is not the same invoice that is generated at the time of 
shipment from Dongbu's factory and which is the basis for recording the 
date of sale in Dongbu's accounting records. Dongbu also notes that the 
export permit, and other documents singled out by petitioners as 
suspect, are documents that are prepared in advance of shipment from 
the factory, while others, including the bill of lading, are issued at 
approximately the time of shipment from the factory. Accordingly, these 
facts explain the short time differences between the export permit date 
and the shipment date questioned by petitioners.
    DOC Position. Although we disagree with petitioners' interpretation 
of the shipping documents, we agree with them that the Department's 
general practice is to calculate credit expenses based on the number of 
days between date of shipment to the customer and date of payment. See, 
e.g., Stainless Pipe from Korea at 53700, PET Film at 35181, and PTF 
Resin at 50344. However, we agree with respondent that Dongbu's use of 
the bill of lading date as the date of shipment is consistent with the 
methodology reviewed and accepted by the Department in both the first 
review of corrosion-resistant products and the preliminary results of 
these reviews; in this instance, the fact pattern is unchanged, and 
there is no evidence that using the bill of lading date as the shipment 
date would be in error. See Shikoku at 421-22.
    While both petitioners and respondent argue at length over the 
identification and characteristics of certain sales verification 
documentation, we refer to our review and analysis of the documents in 
question in our sales verification report for Dongbu. In that report, 
and upon our review of the documents used to support the corresponding 
sales data, we noted that ``no discrepancies were noted for this 
transaction.'' Accordingly, we have continued to use this methodology 
for these final review results.
    Comment 9. Petitioners assert that Dongbu's warehousing expenses 
must be deducted from U.S. price. They argue that Dongbu's warehousing 
expenses should be treated as movement charges since Dongbu has stated 
that subject merchandise is warehoused post-production and after 
shipment from the factory. Petitioners maintain that while Dongbu 
claimed in its questionnaire response that it does not introduce 
subject merchandise into a distribution warehouse in the United States, 
Dongbu later admitted that subject merchandise is warehoused after 
shipment from the factory. According to petitioners, Dongbu's argument 
shifted to the position that its warehousing expenses are more similar 
to pre-shipment manufacturing overhead expenses.
    Petitioners argue that Dongbu's revised claim is based on the 
incorrect view that its warehousing expenses are incurred prior to 
shipment to its U.S. customers. Petitioners state that in contrast to 
this, Dongbu previously admitted that it transports unpainted cold-
rolled merchandise from the Seoul factory to its Inchon warehouse to 
await exportation. Accordingly, the Department, consistent with the 
statute, its proposed regulations, and the SAA, may deduct post-sale 
warehousing expenses from U.S. price. See Proposed Regulations at 7330 
and SAA at 823, 827.
    Petitioners also take issue with Dongbu's claim that its 
warehousing expenses are correctly characterized as overhead expenses 
since they are associated with the temporary storing of semi-finished 
products between product lines. Petitioners state that Dongbu itself 
admitted to warehousing finished products after production is completed 
and after shipment from the production facility. According to 
petitioners, post-production warehousing expenses incurred after 
shipment are not attributable to manufacturing, but instead constitute 
movement charges and should be deducted from U.S. price. See, e.g., 
Erasable Programmable Read Only Memories from Japan; Final 
Determination of Sales at Less Than Fair Value, 51 FR 39680, 39691 
(October 30, 1986).

[[Page 18425]]

    Petitioners contend that the Department should resort to facts 
available in this instance because Dongbu failed to provide the 
requested information regarding warehousing expenses, and because it 
originally claimed that no such warehousing actually occurred. 
Petitioners assert that, at a minimum, the Department should deduct 
from U.S. price, as facts available, the amount calculated by Dongbu 
for warehousing expenses. Alternatively, and only if the Department 
incorrectly concludes that Dongbu's admitted post-warehousing expenses 
are not movement charges, state petitioners, the amount calculated by 
Dongbu for these charges should be deducted as a direct expense, since 
this amount is directly linked to individual sales.
    Dongbu argues that the pre-shipment expenses questioned by 
petitioners are recorded as manufacturing overhead expenses in its 
normal accounting records and have been reported properly as such in 
its COP and CV data. Respondent states that the cost of such pre-
shipment overhead is no different from overhead expenses associated 
with temporarily storing semi-finished products between production 
lines, and that the Department has never treated pre-shipment 
manufacturing costs as selling expenses.
    Contrary to petitioners' claim that Dongbu shifted its position and 
only characterized these expenses as manufacturing overhead following 
petitioners' argument that they be treated as movement expenses, 
respondent notes that it pointed this out three months earlier in its 
Section D cost response to the Department. Respondent argues that 
petitioners continue to miss the important point, which is that Dongbu 
records these expenses as factory overhead, rather than selling 
expenses in its normal course of business. Furthermore, Dongbu argues 
that there is no legal basis to treat these expenses as movement 
expenses pursuant to section 771(c)(2) of the Act since they are 
incurred before shipment to the U.S. customer. Respondent argues that 
the Department most recently stated in the Proposed Regulations that 
the deduction for movement expenses only ``includes a deduction for all 
warehousing expenses incurred after the merchandise leaves the 
producers factory * * * ,'' a position which the Department notes is 
``[c]onsistent with the SAA, at 823 and 827.'' See Proposed Regulations 
at 7330 (preamble to proposed section 351.401(e)).
    DOC Position. We disagree with petitioners' characterization of the 
expenses in question as post-production warehousing expenses which 
Dongbu has incurred after shipment, and that they should be treated as 
movement charges and deducted from U.S. price. As we noted in our sales 
verification report for Dongbu, the respondent indicated that the 
warehousing expenses in question are not treated as selling expenses, 
but rather as cost of manufacturing expenses. We noted in the same 
report that, as such, the amounts reported in Dongbu's questionnaire 
response of May 24, 1996, and the method of allocating these expenses, 
were shown during Dongbu's cost verification to tie directly to audited 
financial statements. Therefore, as in the preliminary results of these 
reviews, we have continued to treat these expenses as manufacturing 
overhead expenses, and we have not deducted them from U.S. price for 
the final review results.
    Comment 10. Petitioners argue that the Department should treat the 
markup charged by Dongbu USA for transportation services in the U.S. 
market consistently with the Department's treatment of similar charges 
by Dongbu Express in the Korean market by deducting them as movement 
expenses from the U.S. price. Petitioners note that in the first review 
of corrosion-resistant products, and in the preliminary results of the 
present reviews, the Department included the markups paid by Dongbu to 
Dongbu's home-market subsidiary, Dongbu Express, in the adjustment made 
to NV for movement charges. Petitioners contend that Dongbu's 
transactions with Dongbu USA are identical in substance to those 
between Dongbu and Dongbu Express, and the Department must analyze them 
in the same way. In doing so, U.S. brokerage and handling expenses, 
ocean freight, and the U.S. customs duty, which are arranged and/or 
paid for Dongbu USA, should therefore be increased by the corresponding 
value of the services performed by Dongbu USA relative to these 
services.
    Respondent argues that the actual expenses of the kind referred to 
by petitioners (i.e., the costs of arranging for U.S. brokerage and 
handling, U.S. customs clearance, and, as importer of record, the 
payment of customs duties), are already completely accounted for. 
According to Dongbu, Dongbu USA does not directly arrange for these 
services, but instead employs Customs brokers for the brokerage 
service, handling, customs clearance, and payment of customs duties. 
Dongbu states that the full costs associated with these expenses were 
fully reported on a sale-by-sale basis in the computer field USOTREU. 
Dongbu maintains that even though it agrees with petitioners that the 
markups charged by Dongbu Express for inland freight services 
constitute deductible movement charges, the services at issue are 
separate from the reported fees paid by Dongbu USA. Dongbu states 
further that there is no legal basis for deducting an amount for Dongbu 
USA's profit on these sales, because U.S. profit deductions such as 
those suggested by petitioners are allowed only in connection with CEP 
sales, and not EP sales.
    DOC Position. We agree with petitioners and Dongbu that the actual 
expenses charged by Dongbu Express for inland freight services in the 
Korean home market consist of movement charges deductible from net 
price and NV. We differ, however, with petitioners' argument that 
Dongbu's transactions with Dongbu USA are identical in substance to 
those between Dongbu and Dongbu Express. We agree with respondent that 
the costs of arranging for U.S. brokerage and handling, U.S. customs 
clearance, and, as the importer of record, the payment of customs 
duties, are reflected in the brokerage fees paid by Dongbu USA and are 
accounted for on a sale-by-sale basis in the reported field USOTREU, 
which we verified during the sales verification. Accordingly, our 
treatment of these expenses has not changed in these final review 
results.
    Comment 11. According to petitioners, the Department must apply 
partial facts available to account for Dongbu's failure to report all 
U.S. brokerage expenses. Petitioners state that the Department's 
verification report indicates that the company did not report any U.S. 
brokerage expenses for one observation number. As a result, the 
Department should use partial facts available for this adjustment in 
its U.S. price calculations. Respondent conceded this reporting error 
and did not contest this issue.
    DOC Position. We agree with petitioners and have corrected this 
error by deducting from U.S. price the amount of U.S. brokerage fee 
which we verified should have been allocated to this transaction.
    Comment 12. Petitioners maintain that the Department must use facts 
available to account for Dongbu's failure to report partial returns in 
the home market. They argue that in its questionnaire responses, Dongbu 
implied that it had reported all credit invoices as requested; however, 
at verification the Department discovered that partial returns were not 
reported. Petitioners state that while Dongbu

[[Page 18426]]

initially claimed as its excuse for omitting partial returns that it 
had over-reported sales, Dongbu now claims that it failed to account 
for partial returns because it could not do so. Petitioners argue that 
the explanation for Dongbu's failure to report partial returns was a 
simple unilateral decision not to do so, and that this omission may 
result in its understatement of home-market monthly weighted prices to 
be compared to U.S. price (i.e., if the original sale involving the 
returned merchandise had a lower price than other sales during the 
month). Petitioners state that in similar situations the Department has 
resorted to facts available. See Antifriction Bearings (Other Than 
Tapered Roller Bearings) and Parts Thereof from France, Germany, Japan, 
Singapore, Sweden, Thailand and the United Kingdom, 60 FR 10900, 10908 
(February 28, 1995) (Final Results of Antidumping Duty Administrative 
Reviews). Petitioners contend that any uncertainty regarding the total 
effect of the partial returns is attributable to Dongbu's misstatement 
of the relevant facts and its failure to account for partial returns. 
They further note that had Dongbu not misled the Department in stating 
that returns had been traced to original invoices, the effect of 
partial returns on specific products or CONNUMs could have been 
reviewed during the course of the review. However, given Dongbu's 
misstatement of the facts and its failure to account for partial 
returns, the Department must resort to facts available.
    Dongbu argues that there is no reason to revise its home-market 
sales data because its methodology used in accounting for partial 
returns is reasonable given its reporting capabilities, and that the 
approach it adopted had no significant impact on the margin. According 
to Dongbu, petitioners ignore the fact that the reason it did not 
offset the reported sales quantities to account for partial returns is 
because it could not do so, and that this was verified by the 
Department. Dongbu excluded these credits from its reporting database, 
but accounted for the universe of such credits during the quantity and 
value reconciliation of the home-market sales verification. Respondent 
argues that petitioners' claim that the exclusion of these partial 
returns might distort monthly weighted-average prices is unfounded 
since documents examined during verification demonstrate that the total 
volume of such adjustments is so small as to have no discernible effect 
on weighted-average prices. According to Dongbu, even if the quantities 
at issue were significant, for petitioners' claim to have merit would 
require that the original sales prices for partially returned 
merchandise on average would have to have been consistently higher or 
lower than prices for comparable merchandise in the same period. 
Respondent contends, however, that given the random nature of returns, 
there is no reason for such a pattern to occur. Also, Dongbu asserts 
that there is no basis for petitioners' claim that it misled the 
Department or misstated the facts, and that the methodology it used to 
account for partial returns is consistent with that which the 
Department verified in the first reviews.
    DOC Position. We agree with Dongbu that its reporting methodology 
was reasonable and consistent with the approach we verified and 
accepted in the first review of corrosion-resistant products. As we 
noted in the home-market section of the Dongbu sales verification 
report, Dongbu did not report its partial returns because it could not 
do so. We agree that it was not possible for the Department's verifiers 
to trace partial return credit invoices to original sales transactions. 
Although Dongbu excluded these credits from its home-market database, 
we sampled and tested a complete listing of all such partial-return 
credits during the quantity and value reconciliation process of the 
sales verification, and found that Dongbu adequately accounted for the 
universe of such credits. We also agree with Dongbu that the total 
volume of the adjustments at issue is not significant and that, due to 
the random nature of the returns, there is no conclusive way of knowing 
that the original sales prices for partially returned products was 
consistently higher or lower than prices of comparable products in the 
same period. Accordingly, for the final results of this review we have 
not adjusted home-market prices to account for partial returns.
    Comment 13. Petitioners argue that Dongbu's home-market credit 
expenses are improperly inflated because the calculation includes 
value-added tax (``VAT'') in the numerator and excludes VAT from the 
denominator. Petitioners further contend that it is the Department's 
long-standing practice to calculate credit expenses exclusive of VAT. 
Petitioners explain that Dongbu calculated the credit period for home-
market sales based on the average credit days outstanding, and thereby 
improperly included VAT in the customer's accounts receivable. They 
state this represents a practice not permitted under the Department's 
precedent. See, e.g., Notice of Final Determination of Sales at Less 
Than Fair Value: Silicomanganese from Venezuela, 59 FR 55436, 55438-39 
(November 7, 1994) (``Silicomanganese''); Steel Wire Rope from the 
Republic of Korea; Final Results of Antidumping Duty Administrative 
Review, 60 FR 63499, 63504 (December 11, 1995) (``Wire Rope''); and 
Final Determinations of Sales at Less Than Fair Value: Calcium 
Aluminate Cement, Cement Clinker and Flux from France, 59 FR 14136, 
14139, 14146 (March 25, 1994).
    According to petitioners, the VAT portion of the customer's 
accounts receivable relates to taxes which Dongbu collects from the 
customer and pays the government of Korea, and not to the price which 
Dongbu charges for the sale of the product under review. Petitioners 
contend that the Department should revise Dongbu's credit expense 
calculation such that the VAT is excluded from both receivables and 
sales in determining the credit period, since the applicable credit 
period concerns the period between shipment and payment for the 
merchandise, and not the customer's payment of VAT. Petitioners further 
argue that in Silicomanganese and Wire Rope, respondent attempted to 
improperly inflate its credit expense by including VAT in the numerator 
(i.e., the average daily receivables), and excluding VAT from the 
denominator (i.e., the average daily sales) of the credit period ratio, 
as Dongbu has done in the present review. Petitioners maintain that 
prior to the Department's discovery at verification, Dongbu did not 
accurately disclose its home-market credit methodology.
    Dongbu argues that its home-market credit period was accurately 
calculated, and that petitioners' comment regarding this issue is based 
on a manifest error in the Department's sales verification report for 
the home-market transaction cited. Dongbu states that the report 
incorrectly reports that the accounts receivable amount used in 
determining customer-specific credit periods is inclusive of VAT, 
whereas the sales amount was not. Respondent argues that the 
verification documentation in question demonstrates that the monthly 
sales total for the customer reported is in fact inclusive of VAT, 
rather than exclusive. Dongbu maintains that since both sides of the 
equation used in determining the customer-specific credit period are 
inclusive of VAT, there is no error in the reporting methodology. 
Respondent notes that a potential problem could only arise if both 
sides of the equation were not reported on the same basis.

[[Page 18427]]

    DOC Position. We disagree with petitioners. While petitioners are 
correct that it is the Department's practice to calculate credit 
expenses exclusive of VAT, we disagree with petitioners' cites to 
Silicomanganese and Wire Rope in support of their argument that Dongbu 
incorrectly calculated the average receivable turnover rate based on an 
average trade receivables inclusive of VAT. Unlike the respondent in 
the present review, the respondents in these cases sought an adjustment 
for the costs associated with carrying additional uncertain liabilities 
for VAT.
    Also, upon review of the sales verification documents cited by 
respondent as the basis for petitioners' incorrect analysis of credit 
periods, we agree that the Department's analysis incorrectly states 
that the accounts receivable amount used in determining customer-
specific credit periods is in fact inclusive of VAT, while reported 
sales values were not. The documents referred to by the respondent 
demonstrate that the total monthly sales used in the credit period 
calculation included--not excluded--VAT. Consequently, because both 
sides of the equation used to determine the customer-specific credits 
are inclusive of VAT, we agree with respondent that Dongbu's reporting 
methodology for credit periods is not in error.
    Comment 14. Petitioners claim that the markup charged by Dongbu 
Express is not a permissible freight deduction, and that the Department 
must adjust Dongbu's home-market movement expenses in the final 
results. Petitioners contend that Dongbu has failed to demonstrate that 
the freight-related markup charged to Dongbu by its affiliated service 
provider, Dongbu Express, was at arm's length. Accordingly, the 
Department should use facts available to ensure that these movement 
charges reflect actual movement expenses, and not merely an intra-
corporate transfer. Petitioners argue that Dongbu reported the majority 
of its home-market inland freight expenses as the amount it is charged 
by Dongbu Express. They state that since Dongbu Express is an 
affiliated concern, the amount charged by it must be shown to be arm's-
length before the data reported can be determined reliable. See, e.g., 
Final Results of Antidumping Duty Administrative Review; Color Picture 
Tubes from Japan, 55 FR 37915, 37922-23 (September 14, 1990).
    Petitioners claim that in the current reviews the record 
demonstrates that Dongbu Express' home-market freight charges to Dongbu 
are artificially inflated in excess of unaffiliated-party charges, and 
that Dongbu has provided ``no credible information or evidence'' to 
show that the markup charged by Dongbu Express for freight-related 
charges reflects market value, and is not simply a price constructed 
for internal bookkeeping purposes. As a result, according to 
petitioners, the Department must revise Dongbu's claimed freight 
adjustment by reducing the reported freight expenses by Dongbu Express 
for merchandise delivered by unaffiliated truckers by the maximum 
reported amount of Dongbu Express' markup. Petitioners further argue 
that if Dongbu is entitled to the freight adjustment, a similar 
adjustment must be made to account for the markup charged by Dongbu USA 
for transportation-related services in the U.S. market.
    Dongbu argues that the markup charged by Dongbu Express is 
reasonable and at arm's length. Dongbu contends that, with respect to 
the markup charged by Dongbu Express on shipments using unaffiliated 
truckers, petitioners made exactly the same argument here as in the 
first administrative reviews; those arguments were rejected by the 
Department. Respondent states that petitioners have mischaracterized 
the markup in question as an intra-corporate transfer or ``internal 
bookkeeping entry'' rather than a real movement expense. Dongbu 
maintains that it has demonstrated on the record of this review that 
the markups at issue are reasonable in magnitude by comparing them to 
Dongbu Express' company-wide overhead and profit, and that while the 
comparison expenses and profit data relate to company-wide operations 
rather than only steel-related trucking services, the test is 
reasonable and accurate for the purpose of demonstrating that the 
markup is commercially reasonable. Dongbu also takes issue with 
petitioners' suggestion that it may be manipulating the markup in 
question in order to ``reduce artificially the margin of dumping 
calculated'' by referencing the data submitted by Dongbu and verified 
by the Department during the home-market sales verification.
    Respondent also points out that the Department verified in Korea 
that Dongbu makes ex-factory sales where Dongbu Express provides the 
freight services and the customer pays Dongbu Express directly for the 
service. In these cases the amount paid is based on the same fee 
schedule charged by Dongbu Express; therefore, the customer is charged 
the same amounts by Dongbu Express that Dongbu Express charges Dongbu 
for the same services.
    DOC Position. We agree with respondent that the amount charged by 
Dongbu Express is reasonable and at arm's length. As indicated by 
Dongbu, it demonstrated during its home-market verification that the 
prices charged by Dongbu Express to Dongbu were commercially reasonable 
charges for the services provided by Dongbu Express. In the present 
reviews, as was the case during the first administrative reviews, 
Dongbu has demonstrated that, on average, the percentage of Dongbu 
Express' general expenses to cost of sales is equal, on average, to the 
profit Dongbu Express earns. The sum of these two items is equal to 
Dongbu Express' markup to unrelated freight company charges, and, 
therefore, the prices charged to Dongbu by Dongbu Express accurately 
reflect market rates.
    Comment 15. Petitioners argue that the Department must use facts 
available to determine the freight adjustment for deliveries where 
Dongbu Express' vehicles were used. Petitioners contend that Dongbu 
refused to answer the Department's repeated inquiries on the matter. 
According to petitioners, Dongbu confirmed in its supplemental 
questionnaire response that Dongbu Express occasionally uses its own 
trucks to transport subject merchandise for Dongbu Steel, but indicated 
that such instances were very rare and involved no greater than an 
estimated 10% of reported shipments. Petitioners state that while 
Dongbu eventually identified those sales which were transported using 
Dongbu Express' trucks, it did not provide the actual costs of the 
services. The Department needs this information, assert petitioners, to 
calculate the freight adjustment based upon actual costs. See, e.g., 
Color Television Receivers, Except for Video Monitors, from Taiwan; 
Final Results, 55 FR 47093, 47099 (November 9, 1990). Therefore, as a 
result of Dongbu's refusal to provide requested information, the 
Department should deny Dongbu any freight deduction for those 
deliveries identified as having been made using Dongbu Express' 
personnel or vehicles.
    Respondent argues that the reported amounts for transportation 
where Dongbu Express vehicles were used were at arm's length. Dongbu 
notes that while it pays a discrete amount for freight to an affiliated 
party in accordance with an established fee schedule, petitioners have 
erroneously claimed that it is the Department's practice to require 
that adjustments for services provided by affiliated parties should in 
all circumstances be reported on the basis of actual costs. Dongbu 
argues that in such instances where respondents pay a fee for such a 
service, the Department's practice is to accept the payment as the 
basis for the reported

[[Page 18428]]

adjustment so long as it can be demonstrated to be at arm's length. If 
this cannot be demonstrated, the Department requires respondents to 
calculate a cost build-up based on the supplier's accounting records. 
Respondent asserts that it has demonstrated in the present review that 
the amounts paid to Dongbu Express for freight services provided using 
its own trucks were reasonable and reflected arm's-length rates when 
compared to a benchmark that is at arm's length. Furthermore, according 
to Dongbu, the benchmark at issue is the arm's-length amount that 
Dongbu Express was charged by unaffiliated trucking companies. Dongbu 
claims it has demonstrated that the amounts charged to Dongbu were 
equal to those third party charges plus a reasonable markup for Dongbu 
Express' expenses and profit incurred in arranging for the freight 
services.
    DOC Position. We agree with Dongbu that the amounts reported for 
transportation expenses when Dongbu Express vehicles were used were 
demonstrated to be at arm's length. We agree that it has been the 
Department's practice to accept the payment made by a respondent for a 
service as the basis for reported adjustments so long as it can be 
demonstrated to be at arm's length. If this cannot be demonstrated, we 
require the respondent to calculate a cost build-up based on suppliers' 
accounting records. See, e.g., Final Determination of Sales at Less 
Than Fair Value; Certain Internal Combustion, Industrial Forklift 
Trucks from Japan, 53 FR 12552 (April 15, 1988). In the present case, 
however, Dongbu has demonstrated that the amounts paid to Dongbu 
Express for freight services provided when using its own trucks were 
reasonable and accurately reflect arm's-length rates. Dongbu did this 
by demonstrating that the amounts charged to Dongbu are equal to those 
charged by unaffiliated trucking companies (that provide trucking 
services) plus a reasonable markup for Dongbu Express' expenses and 
profit incurred in arranging for the freight services.
    Comment 16. Petitioners claim that the POSCO group's method of 
reporting COP and CV data is seriously flawed and warrants the use of 
partial facts available. Petitioners claim that it is unclear whether 
POSCO accurately assigned internal product codes known internally as 
``representative product groups'' (``RPG's'') to control numbers 
(``CONNUM's'') based on the physical characteristics of the CONNUM. An 
RPG is a product having certain industrial specifications. POSCO 
created CONNUMs using the Department's matching criteria by assigning 
RPGs with similar physical characteristics to the CONNUM. Petitioners 
note that in some instances POSCO combined RPGs with different physical 
characteristics into one CONNUM. Petitioners argue that combining 
disparate RPGs to create a single CONNUM and then calculating a single 
cost for this CONNUM results in a severe distortion of costs. 
Petitioners believe that it would be very easy for POSCO to manipulate 
the cost of CONNUMs by combining disparate RPGs into a single CONNUM to 
obtain an artificially low cost for the CONNUM. Petitioners state that 
it would be difficult for the Department to discover this type of 
manipulation due to the large number of RPGs and CONNUMs in the 
database. Consequently, petitioners conclude it is impossible for the 
Department to determine precisely which CONNUMs consist of multiple 
RPGs with disparate physical characteristics and therefore costs which 
are unreasonable. Petitioners continue that because there is no way for 
the Department to assess the extent of these problems, the Department 
should declare the RPG system unreliable and resort to facts available. 
As facts available, petitioners suggest adjusting all of POSCO's 
submitted cost data by assigning to each CONNUM the highest cost of 
manufacturing reported for any particular RPG within that CONNUM.
    POSCO responds that it has accurately assigned RPGs to CONNUMs in 
accordance with the Department's model-match hierarchy. POSCO claims 
that the product characteristics captured at the RPG level are in some 
instances more detailed than the Department's CONNUM characteristics 
and in other instances less detailed. POSCO states that for critical 
characteristics such as width and thickness, POSCO's RPG 
characteristics closely mirror the Department's specifications, 
although the exact ranges are not identical. POSCO asserts the RPG 
system matches the Department's requirements in the vast majority of 
cases and characterizes petitioners' examples of severe systemic 
defects as aberrant examples which were not portrayed as major 
exceptions in the Department's cost verification report.
    DOC Position. We agree with the POSCO group. For these final 
results we have accepted POSCO's reported CONNUM-specific costs. We 
found that POSCO's cost data were allocated to a sufficient level of 
product detail following the model-match instructions. To derive the 
submitted cost data, POSCO assigned and weight-averaged individual RPGs 
based on characteristics that corresponded to our model-match 
instructions. We examined the component RPGs within selected CONNUMs 
and noted, in some instances, that the RPG characteristics were not 
exactly identical to the Department's characteristics, and that POSCO's 
combining of RPGs caused the cost of certain characteristics in the 
CONNUM to be averaged. However, we have determined there is no 
indication of a pervasive problem in how RPGs were assigned to 
particular CONNUMs and that, with certain adjustments, the reported 
CONNUM costs are reliable. We have determined that POSCO's reported 
costs for CONNUMs reasonably reflected the production cost of the 
merchandise during the POR. We made a similar determination in the 
Corrosion-Resistant Final, where we accepted a respondent's CONNUM-
specific costs and found that the cost data were allocated to a 
sufficient level of product detail following our model-match 
instructions. See Corrosion-Resistant Final at 18560.
    Comment 17. Petitioners argue that the POSCO group's use of the 
cost during the POR of the most similar CONNUM for products which were 
not produced but which were sold during the POR warrants the use of 
partial facts available. Petitioners contend that product costs can 
vary substantially from one period to the next. Accordingly, assigning 
a surrogate value from a production period during the POR for a 
different product produced outside the POR may result in a substantial 
distortion of the reported costs. Petitioners state that the POSCO 
group provided no information regarding the method it used in selecting 
the most similar product for use as a surrogate. This practice did not 
allow the Department to assess whether the reported most similar CONNUM 
is, in fact, the most similar. Petitioners contend that all CONNUMs 
with identical costs are surrogates. As partial facts available, 
petitioners suggest using the highest reported cost from this group for 
all the CONNUMs within the group.
    The POSCO group retorts that the number of products which were sold 
during the POR but which were not produced in this period is trivial. 
The POSCO group criticizes petitioners' estimate of the number of 
surrogate sales, stating that petitioners have inaccurately and 
unreasonably summed the volume of all CONNUMs which share the same 
total cost of manufacturing with another CONNUM. The POSCO group 
contends that this

[[Page 18429]]

calculation grossly overstates the use of surrogate values because it 
is the POSCO group's inability to account for all of the 
characteristics in the model match that is the reason for the majority 
of CONNUMs sharing the same total cost of manufacturing.
    DOC Position. We have accepted the POSCO group's surrogate CONNUMs 
for merchandise produced outside this POR. For subject merchandise 
which was sold but was not produced during this POR, the POSCO group 
used as a surrogate the COM of a similar CONNUM produced during this 
POR. We compared the physical characteristics of POSCO's surrogate 
CONNUMs with the product which was produced outside the POR (see cost 
verification exhibit 27). This comparison indicates that the physical 
characteristics of the surrogate closely resembled those of the actual 
product. With regard to petitioners' concern that this method could 
distort costs because manufacturing costs differ among time periods, we 
note that the small amount of sales in question renders this concern 
insignificant when considering the margin analysis as a whole. 
Furthermore, our verification findings indicate that the POSCO group 
reported CONNUMs with identical costs primarily because it weight-
averaged the cost of certain characteristics (see comments 16 and 20 
for further discussion).
    Comment 18. Petitioners argue that the POSCO group entities' 
reported costs are less than those recorded in each company's financial 
statement. Petitioners state that the Department must adjust the 
submitted data to account for this unreconciled difference as partial 
facts available. To support their position, petitioners cite Pasta, in 
which the Department made this type of adjustment.
    The POSCO group counters that petitioners' analysis of information 
on the record is groundless because it relies on the ``total COM 
valuation'' (i.e., a summation of reported per-unit COM values) as the 
basis to prove that there is an understatement of reported costs. The 
POSCO group first claims that petitioner's analysis relies on a 
reconciliation worksheet (cost verification exhibit 26) that requires 
further explanation to avoid misinterpretation of the data. The POSCO 
group explains that this reconciliation did not result in a perfect 
matching of the reported costs to the financial-statement COM because 
the reconciliation relied on sales quantities and not production 
quantities for the period of August 1, 1994 through July 20, 1995. The 
POSCO group then used these sales quantities to extend the per-unit COM 
values. However, the POSCO group states that the COM values reflect 
manufacturing costs from July 1, 1994 through June 30, 1995. Therefore, 
the total costs which were used to derive the unit costs in 
petitioners' analysis reflect a different period of time than did the 
quantity used to derive the sales. Second, the POSCO group explains 
that the data for third-country costs had to be estimated because the 
POSCO group entities do not keep cost records precisely in accordance 
with the Department's requested reconciliation format. In order to 
complete the reconciliation, the POSCO group states that it made the 
simplifying assumption that the distribution of products sold in third 
countries was identical on a CONNUM-by-CONNUM basis to the distribution 
of those sold in the home market. The POSCO group asserts that this 
mismatch does not indicate that the submitted costs do not tie to 
POSCO's, POCOS'', or PSI's audited financial statements, but rather it 
simply indicates that the Department's requested format for the 
analysis did not fit exactly the CONNUM-specific cost reporting when 
applied to third-country sales.
    DOC Position. We agree with the POSCO group. We are satisfied that 
the reconciliation provided by the POSCO group establishes that the 
reported costs are not understated. We also agree with the POSCO group 
that the format of the reconciliation necessarily would not result in a 
perfect match of reported costs to the financial statement, but we have 
determined that the reconciliation did indicate that all costs are 
captured. We disagree with petitioners that this situation is analogous 
to that found in Pasta. In that case, the respondent refused to provide 
a reconciliation and therefore we adjusted for the differences between 
the reported costs and the total costs reported in the financial 
statement based on our reconciliation. In this case, each of the POSCO 
group entities provided the requested reconciliation based on certain 
assumptions that we determined were not significant enough to affect 
the reliability of the data.
    Comment 19. Petitioners submit that the Department should make a 
number of adjustments in determining the appropriate fair value and COP 
for purchases of substrates by POSCO's affiliates. Petitioners allege 
that prices in Korea are not set by market forces and therefore the 
Department should not rely on domestic sales prices of cold-rolled or 
corrosion-resistant products for purposes of determining whether the 
affiliated party transaction prices reflect fair value. Petitioners 
suggest the Department should use export prices to third countries to 
assess whether affiliated party transaction prices reflect fair value.
    If the Department determines that the Korean market is viable, 
petitioners suggest that the Department should calculate the difference 
in profitability between sales to POCOS, PSI, and other customers in 
Korea for sales of subject merchandise only as the measure of fair 
value. Petitioners argue that this company-specific and product-
specific comparison more accurately portrays the difference in the 
level of profitability of sales to affiliates and unaffiliated 
companies.
    Petitioners contend that the Department erroneously compared 
transfer prices of substrates to the COM (as opposed to the COP) of 
substrates. Petitioners argue the statute explicitly requires that this 
test be a comparison of transfer price to COP, not COM.
    The POSCO group argues that the Department erroneously failed to 
treat POSCO, POCOS, PSI, and PCC as a single producer when calculating 
the value of steel substrate that was subsequently painted, coated, 
slit, or sheared by various segments of the collapsed entity. The POSCO 
group states that because the Department is treating POSCO, POCOS, PSI, 
and PCC as a single producer for antidumping duty rate purposes, the 
substrate transferred between them should be valued at cost rather than 
at the higher of cost, transfer price, or fair value.
    The POSCO group challenges the Department's application of the 
``fair-value'' and ``major-input'' provisions in this case. The POSCO 
group argues that the fair-value provision and the major-input rule 
apply only when reviewing transactions between affiliated entities. The 
POSCO group contends that neither subsections (2) nor (3) of section 
773(f) of the Act apply in this case, where the reviewed transactions 
are between segments of a single collapsed entity. The POSCO group 
states that the Department created a single producer for purposes of 
calculating the COP when the Department instructed the POSCO group to 
calculate a single, weighted cost for each unique control number when 
reporting the costs of products manufactured at POSCO, POCOS, PSI, or 
PCC. The POSCO group cites the Final Results of Antidumping Duty 
Administrative Review: Certain Iron Construction Castings from Canada, 
59 FR 25603, 25604 (May 17, 1994) (``Iron Castings'') to support its 
case that the Department treats collapsed respondents as a single 
entity. The POSCO group also states the Department tested sales of a 
single

[[Page 18430]]

control number, without regard to the identity of the producer, to see 
if the control number was sold below cost. The POSCO group argues that 
by applying the major-input rule and the fair-value test to the 
collapsed entity, the Department failed to fulfill its own stated 
intention to treat POSCO, POCOS, PSI and PCC as a single producer.
    The POSCO group cites the Final Results of Antidumping Duty 
Administrative Review: Certain Forged Steel Crankshafts from the United 
Kingdom, 61 FR 54613, 54614 (October 21, 1996) (``Crankshafts'') to 
support its position that the Department does not apply the fair-value 
provision or the major-input rule to transfers of steel substrate 
between divisions of a single company. The POSCO group also states that 
it is logically inconsistent and contrary to law for the Department to 
treat two or more entities as a single unit for some areas of dumping 
analysis such as inter-company transfers under the CEP methodology and 
subject merchandise purchased for resale and not disregard transfer 
prices in this instance. The POSCO group cites examples such as 
technical services, warranty, and advertising expenses that are 
routinely valued at the entity's cost, not at a rate charged by one 
entity to its parent, subsidiary, or sister division. The POSCO group 
sets forth that unaffiliated resellers have argued that, for purposes 
of the sales below cost test, the Department should value subject 
merchandise purchased from unaffiliated suppliers based on the 
acquisition price rather than on the supplier's production costs. POSCO 
states the Department has rejected this argument, explaining that COP 
means actual production costs of the producer--plus selling, general 
and administrative expenses (``SG&A'')--and not the acquisition price, 
in the Final Results of Antidumping Duty Administrative Review: 
Elemental Sulphur from Canada, 61 FR 8239, 8251 (March 4, 1996) 
(``Sulphur'').
    The POSCO group argues that the Department's fair-value adjustment 
inappropriately double counts expenses and erroneously introduces 
profit into the calculated COP for the sales-below-cost analysis. The 
POSCO group asserts using the transfer price to value POCOS'' substrate 
purchases includes POSCO's profit nominally earned on the substrate 
transaction as well as elements of POSCO's SG&A. This, the POSCO group 
avers, violates the Department's own definition of the COM, which 
consists of materials, labor, fixed and variable overhead.
    The POSCO group argues if the Department erroneously applies the 
fair-value test, fundamental errors in the preliminary methodology 
should be corrected for the final results. The POSCO group states the 
statute directs that the amount of the element under consideration, in 
this case the substrate, should fairly reflect the amount usually 
represented in sales of that merchandise in the market under 
consideration. The POSCO group states that it had sales of comparable 
merchandise both to members of the combined entity and to unaffiliated 
customers. The POSCO group contends the Department therefore should 
have compared these two sets of prices when performing the fair-value 
test. The POSCO group criticizes the Department's methodology as too 
broad and inaccurate because the Department did not attempt to compare 
profitability across sales of the same product sold in the same 
relative volume to affiliated and unaffiliated customers.
    Petitioners retort that the statute explicitly requires that the 
major-input rule and fair-value provisions be applied to transactions 
involving transfers of substrate between POSCO, POCOS, PSI, and PCC. 
Petitioners argue that regardless of whether these entities have been 
collapsed, they are clearly and undeniably ``affiliated persons'' under 
the statutory definition. Accordingly, major inputs should be valued 
using the major-input rule and the fair-value provision. Petitioners 
contend the collapsing of entities merely goes to the level of 
affiliation between the separate corporations and the unusual intimacy 
of the relationship between the parties. If collapsed, entities are 
treated as a single firm for the limited purpose of sales reporting and 
calculation of a single margin. Petitioners argue that collapsing, 
however, does not extinguish corporate forms per se. Petitioners state 
that the collapsing of POSCO, POCOS, PSI, and PCC for sales reporting 
and margin calculation does not in any way extinguish, or even 
diminish, the fact that these entities are separate legal businesses. 
Petitioners assert that, to the contrary, the collapsing of these 
entities merely evidences the extremely high degree of affiliation and 
intimate nature of their relationship demonstrated on the record 
between these separate corporate entities. Petitioners cite the Final 
Determination of Sales at Less Than Fair Value: Large Newspaper 
Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, from Germany 61 FR 38166, 38187 (July 23, 1996) to support 
their position that the major-input rule and fair-value provisions 
apply regardless of whether the entities are collapsed for sales 
purposes.
    Petitioners state that the POSCO group's argument regarding the 
Department's valuation of merchandise purchased for resale is incorrect 
since the statutory provision on which the POSCO group relies relates 
to subject merchandise, not inputs. Petitioners also disagree with the 
POSCO group's contention that the application of the major-input rule 
results in the inappropriate inclusion of profit and certain expenses 
because the major-input rule goes exclusively to material costs; 
accordingly, profit earned on sales or purchases of the subject 
merchandise never enters into the major-input rule and cannot be 
infused into the COM as a result of that rule. Petitioners continue 
that, for example, the cost to POCOS of the substrate naturally 
includes a markup charged by POSCO and that the price with the markup 
represents the true cost to POCOS of the input.
    DOC Position. As indicated in the preliminary results of this 
review, we have treated POSCO, POCOS, and PSI as a collapsed, single 
entity, the POSCO group, for purposes of our antidumping analysis. See, 
e.g., Preliminary Results of Antidumping Duty Administrative Review: 
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products 
from Korea, 61 FR 51882, 51884 (October 4, 1996). We have determined 
that the POSCO group represents one producer of certain cold-rolled 
steel flat products and certain corrosion-resistant carbon steel flat 
products. We note that the POSCO group has also been treated as a 
single entity in prior segments of these proceedings. See, e.g., Final 
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled 
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat 
Products, and Certain Cut-to-Length Carbon Steel Plate from Korea, 58 
FR 37176 (July 9, 1993).
    We have reconsidered our position with respect to those companies 
which the Department determined are properly treated as a single entity 
in performing an antidumping analysis. We find that our prior practice 
of collapsing entities while continuing to apply the fair-value 
provision and the major-input rule is improper. We have determined that 
a decision to treat affiliated parties as a single entity necessitates 
that transactions among the parties also be valued based on the group 
as a whole. As such, we find that among collapsed entities, the fair-
value and major-input provisions are not controlling. Thus, for both 
sales and cost reporting purposes,

[[Page 18431]]

we consider the POSCO group to be one producer. With regard to 
transfers of inputs among the POSCO group companies we have valued 
transfers of substrate between the companies at the cost of 
manufacturing of the substrate plus the cost of inter-company 
transportation and packing. We find the facts of this case analogous to 
those found in Crankshafts where we did not apply the fair-value 
provision or the major-input rule to transfers of steel substrate 
between divisions of a single company. In Crankshafts, we sated that 
``[a]lthough respondent describes UEF and UES as ``related'' in various 
sections of their questionnaire response, the weight of record evidence 
(e.g., corporate structure charts and audited financial statements) 
indicate that they are divisions of the same corporation. The 
Department has determined that section 773(e) (2) and (4) does not 
apply in such situations.'' Crankshafts at 54614. See also Final 
Determination of Sales at Less Than Fair Value: Offshore Platform 
Jackets and Piles from Japan, 51 FR 11788, 11791 (April 7, 1986), where 
the Department stated that because NSC's steel was manufactured 
internally by another division of the same company, section 773(e) of 
the Act--in relevant part now sections 773(f) (2) and (3)--is 
inapplicable. Section 773(f)(2) directs the Department to disregard, in 
certain instances, transactions directly or indirectly between two 
persons. Since we have determined that the POSCO group is one entity 
for these final results, sections 773(f) (2) and (3) of the Act cannot 
apply because there are no transactions between affiliated persons.
    We disagree with petitioners' reliance on Presses from Germany 
which they argue supports their position that the major-input rule and 
fair-value provisions apply regardless of whether the entities are 
collapsed for sales purposes. In that case, the companies at issue were 
not collapsed for sales reporting. However, respondents argued for 
combining certain elements of cost between two affiliated companies 
because the combination of these companies met, in their view, the 
sales collapsing criteria set forth by the Department in Iron Castings. 
We did not combine the companies for cost purposes in that case because 
the two companies made different models and the respondent selectively 
averaged certain costs between the companies but not other costs. This 
is not consistent with the facts in the current case where we combined 
companies for sales reporting purposes and are now combining the same 
companies which produce the same models for cost purposes. 
Additionally, in the current case, we are combining all elements of 
cost, not selected elements of cost as respondent's suggested in 
Presses from Germany.
    Petitioners' comments regarding the comparison of affiliated 
transactions to sales to third countries are moot since we have 
determined that the Korean market is viable. The comments received from 
petitioners and respondent concerning the application in these cases of 
the fair-value and major-input provisions are irrelevant to these final 
results, since the Department has determined that sections 773(f) (2) 
and (3) of the Act do not apply here.
    Comment 20. Petitioners argue the Department should apply partial 
facts available for the POSCO group's submitted costs because costs for 
certain physical characteristics were not appropriately accounted for. 
See proprietary version of the Department's cost analysis memo, dated 
April 2, 1997, for an explanation of these physical characteristics. 
Petitioners state RPGs are unreliable as evidenced by the fact that 
some RPGs with similar characteristics have different costs.
    The POSCO group retorts that the Department may not apply adverse 
facts available simply because POSCO did not maintain costs in the 
level of detail contemplated by the Department. The POSCO group states 
in cases where a company has been unable to provide costs at the level 
of detail requested by the Department, the Department has accepted the 
reported costs where it was satisfied that those costs nonetheless 
reasonably reflected the actual costs of producing the subject 
merchandise during the POR. The POSCO group cites the Final Results of 
Antidumping Duty Administrative Review: Certain Corrosion-Resistant 
Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate 
from Canada, 61 FR 13815, 13817 (March 28, 1996) (``Canadian Plate''), 
where the Department accepted submitted costs despite the fact that the 
respondent had reported costs for one of two producing mills. The POSCO 
group states the Department concluded that the respondent's methodology 
was reasonable, given (1) the nature of its cost accounting system, (2) 
its verified inability to determine specific costs, and (3) the 
conservative method in which the costs were reported. The POSCO group 
asserts its reported costs reflect the actual costs as recorded in its 
normal accounting system and reasonably reflect the cost of producing 
the merchandise.
    Petitioners counter that the POSCO group failed to furnish the 
Department with any means to account for the costs associated with 
certain characteristics and did not, as the antidumping questionnaire 
requires, provide costs determined on the basis of specific CONNUMs. 
Petitioners state that the POSCO group's failure to account for the 
cost of these characteristics severely distorts the dumping 
calculations by understating the costs associated with these products.
    The POSCO group argues the Department routinely accepts reported 
costs where the Department is satisfied that those costs reasonably 
reflect the actual costs of producing the subject merchandise. The 
POSCO group asserts that its reported costs are acceptable for the same 
reasons as stated in Canadian Plate. Specifically, the POSCO group 
states the reported costs are based on the costs as recorded in the 
company's normal accounting system. The POSCO group points out it does 
not track cost differences with respect to certain physical 
characteristics, which it maintains is a reasonable and conservative 
approach, because any costs associated with these differences have been 
spread over all products.
    With regard to petitioners' argument that a serious distortion of 
costs results from combining RPGs into CONNUMs, the POSCO group 
responds that the cost difference between two RPGs with similar 
characteristics results from POSCO's ability to produce identical 
products using different production lines and production routes. The 
POSCO group states it may also produce different volumes of a given 
product over a specific period, resulting in varying unit costs. The 
POSCO group argues that deviations in actual costs for similar RPGs are 
not evidence of wide physical dissimilarity or an improper combination, 
but rather a real-world testimony to the accuracy of POSCO's RPG system 
where different processing conditions result in different costs.
    DOC Position. We agree with petitioners and respondent in part. We 
agree with petitioners that the POSCO group did not appropriately 
account for two physical characteristics. See the Department's final 
cost analysis memo, dated April 2, 1997. For the two physical 
characteristics at issue, the POSCO group derived a general weighted-
average cost that was applied uniformly to all merchandise that 
contained these characteristics. This resulted in a distortion of the 
COM of CONNUMs with lower sales volume but which required a costlier 
and higher grade of substrate. This weight-averaged cost is also 
contrary to POSCO's normal

[[Page 18432]]

cost accounting system which reflects cost differences of RPGs; when 
RPGs were combined to create CONNUMs, differentiations were lost 
through averaging. For these final results, we calculated adjustment 
factors specific to different types within each characteristic, and 
recalculated the COM of the affected CONNUMs.
    With regard to the remaining physical characteristics, we have 
determined that the POSCO group reported product-specific costs from 
its normal cost accounting system, which reasonably reflect the actual 
cost of producing the merchandise. We agree with the POSCO group that 
its reported costs for the other physical characteristics were 
reasonable, for the same reasons outlined in Canadian Plate. 
Specifically, the POSCO group reported product costs in as much detail 
as its normal cost accounting system provides, and any costs associated 
with the other physical characteristics are captured and allocated to 
all products.
    Comment 21. Petitioners argue that if the Department persists in 
employing the unduly narrow reading of the statute's affiliation 
provision that it employed in its preliminary results, POCOS's U.S. 
price should be based on the price charged to AKO because, based on 
such a narrow reading, POCOS was not in fact affiliated with that sales 
entity.
    The POSCO group argues that POCOS was affiliated with AKO and BUS, 
and that even petitioners have acknowledged this fact.
    DOC Position. As discussed in the DOC Position to Comment 2, supra, 
we have determined that POCOS was affiliated with the entities in 
question and that, therefore, U.S. price should be based upon the 
prices charged to the unaffiliated U.S. customers reported by the POSCO 
group.
    Comment 22. Petitioners argue that if the Department finds that 
POCOS was affiliated with the Korean and U.S. companies through which 
the U.S. sales of its products were made, the Department should 
classify POCOS's U.S. sales as CEP transactions, and make the required 
deductions from U.S. gross unit price. Petitioners also argue that the 
Department should classify POSCO's U.S. sales, which are made through 
POSTRADE and POSAM, as CEP transactions.
    Petitioners state that the Department classifies sales as EP 
transactions if they satisfy three criteria: The merchandise is not 
inventoried in the United States, the commercial channel at issue is 
customary, and the U.S. selling agent functions only as a 
communications link and mere processor of sales-related documentation. 
See, e.g., Presses from Germany at 38171 and Notice of Final 
Determination of Sales at Less Than Fair Value: Large Newspaper 
Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, From Japan, 61 FR 38139, 38141 (July 23, 1996) (``Presses 
from Japan'').
    Regarding the first two criteria, petitioners state that subject 
merchandise is almost never warehoused for sale in either the United 
States or Korea by manufacturers or trading companies, and the large 
customer that typically buys from the manufacturer or trading company 
would not require an alternative channel of distribution. Consequently, 
petitioners assert, the Department's analysis must focus on the third 
criterion: whether the U.S. selling agent functions as more than a 
communications link and mere processor of sales-related documentation.
    Furthermore, for purposes of this analysis, petitioners argue that 
because POCOS performs virtually no selling functions in any of its 
markets other than actually selling the product and maintaining 
customer contacts, the Department's analysis of the functions of POCOS' 
home market and U.S. sales entities should focus primarily on their 
role in actually selling the product and maintaining customer contacts, 
which petitioners assert is significant enough to warrant classifying 
the U.S. sales in question as CEP sales.
    Petitioners argue that several cases cited by the POSCO group in 
its letter of September 20, 1996, as instances where the Department 
treated sales as EP (formerly purchase price) sales, where the U.S. 
affiliates allegedly played a far more active role than did POSAM and 
BUS, actually involved instances where the Department indicated the 
U.S. affiliates did not play a substantive role in negotiating U.S. 
sales prices. See, e.g., Notice of Final Determinations of Sales at 
Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, 
Certain Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-
Resistant Carbon Steel Flat Products, and Certain Cut-to-Length Carbon 
Steel Plate from France, 58 FR 37125, 37133 (July 9, 1993); Wire Rod at 
68869; and Final Determination of Sales at Less Than Fair Value: Coated 
Groundwood Paper from Finland, 56 FR 56363, 56371 (November 4, 1991). 
Petitioners argue that these determinations support petitioners' point 
that even when a sale is made prior to importation, the Department will 
classify that sale as a CEP transaction when the U.S. affiliate 
negotiates, or plays a significant role in negotiating, the selling 
prices in the United States.
    Petitioners argue that BUS's close contact with U.S. customers 
(both apart from and during the sales process), its role in setting the 
price with the U.S. customers, and its involvement in numerous other 
stages of such transactions show that BUS is much more than a mere 
processor of sales-related documentation or a communications link in 
the U.S. sales process, but rather is actively involved in selling, 
transporting, and financing the product.
    Petitioners argue that the SG&A data of BUS suggests that BUS 
performed even more general selling activities for POCOS' U.S. sales 
than POCOS does for its own home-market sales.
    Petitioners also argue that the Department should treat POSCO's 
U.S. sales made through POSAM, a U.S. trading company owned by POSCO, 
as CEP transactions, because record evidence indicates that POSAM's 
role in the U.S. sales process for POSCO products is very similar to 
that of BUS.
    Petitioners argue that in Presses from Germany the Department found 
similar sales activities being performed by U.S. affiliates, and the 
existence of substantial SG&A expenses incurred by those affiliates in 
the U.S. sales process, and, as a result, the Department classified 
sales transacted by these entities as CEP sales. Petitioners indicate 
that the financial statements of BUS indicate the significant extent to 
which it was involved in the U.S. sales process.
    Petitioners argue that the Department's verification reports do not 
indicate that U.S. customers negotiate directly with POCOS or that BUS 
plays no role in establishing U.S. prices, but rather that the POSCO 
group had only stated these points at verification. Furthermore, 
petitioners argue that the presence of a POCOS official at the U.S. 
sales verification at the offices of BUS, and the assertion by the 
POSCO group that this official considers and confirms the proposed U.S. 
price, do not negate the fact that BUS, not POCOS, deals with the 
customer and negotiates the final price.
    The POSCO group contests petitioners' claim that the Department 
should ignore the first two criteria for determining whether or not 
sales are classified as EP. The POSCO group argues that it is the 
Department's longstanding practice to consider all three criteria, and 
that the Department has in fact done so in prior steel cases, including 
the Corrosion-Resistant Final; Wire Rod at 68869, in regard to the 
other physical characteristics, and Brass Sheet

[[Page 18433]]

and Strip from The Netherlands; Final Results of Antidumping Duty 
Administrative Review, 61 FR 1324, 1326 (January 19, 1996). The POSCO 
group asserts that the SAA and the Proposed Regulations confirm the 
Department's intention to continue its consistent prior practice in 
this area; that the Department cannot simply change its regulations and 
practices for each industry subject to an antidumping inquiry; and that 
changing Department practice on a case-by-case basis and applying 
different standards to respondents in different industries would be 
fundamentally unfair to all parties.
    The POSCO group argues that petitioners' claim that BUS played an 
important role in setting the price to the ultimate customer is 
directly contradicted by the sales verification reports and the record 
evidence. The POSCO group notes that the petitioners state that POSAM's 
role in the U.S. sales process for POSCO products is very similar to 
the role of BUS in the U.S. sales process for POCOS products, and that 
the Korea sales verification report noted that the Department's review 
of sales documentation confirmed that POSAM served as a facilitator of 
the sales process, that any customer service or product specification 
issues were referred to POSCO, and that POSAM's function as facilitator 
of U.S. sales appeared to be limited to functioning as the importer of 
record and processing logistical arrangements such as brokerage and 
handling. The POSCO group also notes that the U.S. sales verification 
report indicates that BUS simply facilitates communications between 
POCOS and the U.S. customer.
    The POSCO group argues that POCOS' approval of the key terms of 
sale was not a pro forma process. Rather, POCOS received its customers' 
requests concerning the key terms of sale, considered them, and 
determined the final price and quantity of each sale. The POSCO group 
indicates that the U.S. sales verification report states that POCOS' 
prices to the U.S. customers were negotiated with POCOS. The POSCO 
group also indicates that one sales trace at the home-market sales 
verification provides support that POCOS determined the quantity sold: 
the U.S. customer tried to change the quantity component of the 
purchase requisition and sent this request to BUS, but this request was 
refused by POCOS.
    The POSCO group argues that petitioners' suggestion that POCOS's 
sales should be classified as CEP sales because all sales contact with 
the customer was made by BUS is ridiculous. The POSCO group states that 
the whole point of having a U.S. affiliate in such back-to-back sales 
transactions as those here and in every other such EP case is to have a 
presence in the United States to facilitate communications which, as 
stated in the U.S. sales verification report, was the role of BUS in 
POCOS's U.S. sales.
    As for petitioners' argument that the Department should classify 
the POSCO group's U.S. sales as CEP sales because BUS and POSAM 
purportedly undertook numerous activities with respect to U.S. sales, 
the POSCO group argues that the Department has determined in scores of 
previous cases that a respondent's sales are properly classified as EP 
(formerly purchase price) sales when its U.S. affiliate undertakes 
activities identical to those undertaken here by BUS and POSAM. For 
example, in the first administrative review of this corrosion-resistant 
steel order, the Department found sales to be EP when the U.S. 
affiliate participated in sales negotiations and took title and 
warehoused the product. See Corrosion-Resistant Final at 18551, 18562. 
The POSCO group argues that petitioners' claim that certain others of 
these past cases are distinguishable because the affiliates did not 
negotiate sales prices is not convincing because BUS likewise did not 
negotiate sales prices but, rather, only communicated sales prices 
determined by POCOS to POCOS' U.S. customers.
    The POSCO group argues that many of the responsibilities attributed 
by petitioners to BUS are commonly undertaken by an affiliated selling 
entity that acts as a communications link, while several others are 
typically undertaken by an entity, like BUS, that serves as the 
importer of record. The POSCO group argues that the record shows that 
BUS played a very limited role in U.S. transportation services, and the 
POSCO group argues that petitioners failed to mention various functions 
POCOS undertakes for U.S. sales, including (1) arranging and paying for 
freight to the Korean port, loading charges, wharfage, harbor 
maintenance fees, miscellaneous charges, and bank charges; (2) applying 
for and supplying documentation for duty drawback; (3) investigating 
and handling warranty claims; (4) determining the quarterly price to be 
charged BUS and the prices for each individual sale; and (5) obtaining 
market research from numerous sources.
    The POSCO group indicates that BUS's overall SG&A expense figure 
does not accurately reflect the expenses it incurs in selling the 
subject merchandise because BUS'' activities extend far beyond selling 
the merchandise subject to this antidumping inquiry, as evidenced by 
relatively small value of its sales of subject merchandise compared to 
total sales. The POSCO group argues that petitioners' continued 
reliance on Presses from Germany is misplaced because in that case the 
U.S. affiliates played a far more active role than did BUS and POSAM in 
these cases, including identification of specific customers, handling 
of warranty expenses, supervision of installation of products, 
substantial procurement of parts, provision of technical assistance, 
and arrangement of post-sale warehousing.
    DOC Position. We disagree with petitioners' assertion that the 
POSCO group's sales should be reclassified as CEP sales. When the three 
criteria described in the DOC Position to Comment 7 supra are met, we 
consider the exporter's selling functions to have been relocated 
geographically from the country of exportation to the United States, 
where the sales agent performs them. We also have recognized and 
classified as indirect EP sales certain transactions involving selling 
activities similar to those of BUS in other antidumping proceedings 
involving Korean manufacturers and their related U.S. affiliates. See, 
e.g., Final Determination of Sales at Less Than Fair Value; Circular 
Welded Non-Alloy Steel Pipe from the Republic of Korea, 57 FR 42942, 
42950-1 (September 17, 1992).
    In these reviews, we determine that the selling functions of POSAM 
and BUS are of a kind that would normally be undertaken by the exporter 
in connection with these sales. The role of POSAM and BUS in the 
payment of cash deposits of antidumping and countervailing duties, 
their arrangement of certain movement-related expenses, their 
involvement in contracts with customers and commissionaires and in 
activities related to customer payment, are consistent with EP 
classification and are a relocation of routine selling functions from 
Korea to the United States.
    Comment 23. Petitioners argue that, regardless of whether the POSCO 
group's U.S. sales are classified as EP or CEP transactions, the 
Department should reduce U.S. price by a portion of the revenue earned 
by POSTRADE, POSAM, AKO, and BUS through the purchase and re-sale of 
steel in the ``back-to-back'' nature of the U.S. sales. The additional 
deduction would reflect a portion of this markup that can be attributed 
to those entities' additional costs (e.g., overhead) and profit that 
can be associated with the movement

[[Page 18434]]

expenses reported by the POSCO group in its U.S. sales file.
    Petitioners indicate that for another respondent in these 
proceedings, Dongbu Steel, the Department has made comparable 
deductions from price, involving transportation expense services 
provided by an affiliated party, Dongbu Express. See Corrosion-
Resistant Final at 18554 and Certain Cold-Rolled and Corrosion-
Resistant Carbon Steel Flat Products from Korea: Preliminary Results of 
Antidumping Duty Administrative Reviews, 61 FR 51882, 51886 (October 4, 
1996) (``Preliminary Results''). Petitioners argue that POSTRADE, 
POSAM, AKO, and BUS performed functions similar to those performed by 
Dongbu Express, and in the case of the latter the Department deducted 
from home-market price the fee charged by Dongbu Express to Dongbu, 
which reflected a markup beyond the expenses directly incurred by 
Dongbu Express in the provision of the services.
    Petitioners argue that the only difference between the POSCO 
group's scenario and that of Dongbu Express is that POSCO, POCOS, and 
PSI did not pay the affiliates directly for the provision of the 
movement expense services; rather, those affiliates were reimbursed for 
these, as well as other services, through the ``back-to-back'' nature 
of the U.S. sales transactions. Petitioners argue that these markups 
reflect payment for all of the services rendered for POSCO, POCOS, and 
PSI, and would have been incurred by POSCO, POCOS, and PSI regardless 
of what entities were involved in the process.
    Petitioners cite an additional case where a similar adjustment was 
made for services provided by affiliated parties. See Certain Internal-
Combustion, Industrial Forklift Trucks from Japan; Final Results of 
Antidumping Duty Administrative Review, 57 FR 3167, 3178-9 (January 28, 
1992) (``Forklifts''). Petitioners argue that, as in Forklifts, the 
Department should presume that the amounts paid by POSCO, POCOS, and 
PSI beyond the actual expenses directly incurred by the affiliated 
parties for the certain specific expenses would have been incurred by 
POSCO and POCOS (directly or indirectly), regardless of who provided 
those services. Consequently, petitioners argue that the Department 
should deduct from U.S. price an additional amount for those services 
to reflect expenses beyond those directly incurred by the affiliates.
    Petitioners argue that because POSTRADE and AKO only provided 
movement services, it is reasonable to deduct the entire markup of 
those Korean affiliates in the calculation of U.S. price. For POCOS, 
petitioners note, the difference for each sale can be derived from the 
U.S. sales database; for the other U.S. sales of respondent (i.e., 
those of POSCO and PSI), petitioners propose a specific per-ton amount, 
based on sales verification report exhibit 24 at 17, which concerns a 
particular sale.
    Regarding POSAM and BUS, the petitioners concede that the 
deductions should not be based on the entire markup, but only the 
expenses and profit that can reasonably be attributed to U.S. movement 
expenses. Petitioners state that it is not possible, from the 
information provided by the POSCO group, to determine what portion is 
attributable to the services other than those concerning U.S. movement 
expenses. Petitioners argue that the Department should use the Dongbu 
Express markup information available from the public record as a basis 
for determining how to adjust the POSCO group's reported U.S. movement 
expenses. Petitioners argue that this is appropriate because Dongbu 
Express only provides services related to movement, and those services 
are similar to some of those provided by the affiliates of POSCO, 
POCOS, and PSI. Petitioners state that information submitted on the 
record by Dongbu indicates that Dongbu Express' markup was 30 percent; 
therefore, petitioners argue, the Department should increase the U.S. 
movement expense variables (INLFWCU, USOTREU, USDUTYU, and MARNINU) by 
30 percent. See the public version of the letter from Morrison & 
Foerster to the Secretary of Commerce, dated February 29, 1996 (Exhibit 
B-31 at 1). As an alternative source for an adjustment factor for the 
U.S. affiliates, the petitioners cite estimates based upon reported 
markups of POSTRADE and AKO.
    The POSCO group argues that petitioners' request to make 
adjustments for POSAM and BUS represents the rejection of years of 
uniform practice, and that the Department properly rejected this 
argument in the preliminary results of these reviews. The POSCO group 
argues that the affiliate revenue in question reflects the affiliates' 
indirect selling expenses and profit, typical of hundreds of identical 
transactions that the Department has examined in scores of prior cases, 
including numerous steel cases.
    Respondent argues that section 772(c) of the Act indicates that 
profit and any indirect selling expenses or overhead are not to be 
deducted from EP. Respondent indicates that the Department has 
frequently examined back-to-back transactions like those involved here, 
and has never deducted profit or indirect selling expenses from EP, and 
did not do so in the Corrosion-Resistant Final.
    The POSCO group argues that the Department's longstanding policy 
concerning EP sales is to utilize the price paid by the first 
unaffiliated U.S. customer and to deduct only direct selling expenses 
from the price. The POSCO group cites Certain Iron Construction 
Castings from Canada: Final Determination of Sales at Less Than Fair 
Value, 51 FR 2412 (January 16, 1986) (``Castings Final'') as a case 
where the Department rejected petitioner's request that a markup earned 
by a related U.S. distributor be deducted from purchase price because 
the law only authorizes deduction of direct expenses from purchase 
price (now EP).
    The POSCO group indicates that even if the petitioners' claim can 
be limited to transportation services, the claim should still be 
rejected because, unlike Dongbu Express, POSAM and BUS purchased and 
re-sold the merchandise in typical back-to-back indirect EP 
transactions, and those affiliates' role in providing transportation 
services was very limited.
    Finally, while it believes it is not necessary because no 
adjustment such as that proposed by petitioners is appropriate, the 
POSCO group notes that the petitioners' calculation of the 30 percent 
adjustment factor is faulty because it apparently reflects total 
revenue earned by Dongbu Express. The POSCO group states that this 
figure is irrelevant because Dongbu Express' expenses would have to be 
deducted from that figure so that one could calculate the relevant 
figure, Dongbu Express' profit as a percentage of cost of sales.
    DOC Position. As indicated elsewhere in this notice, the basis for 
treating the U.S. sales as EP rather than CEP, for purposes of our 
analysis, is that the record indicates that POSAM and BUS acted as mere 
facilitators of the transactions in question, rather than as selling 
agents. Consequently, in analyzing the U.S. sales of the POSCO group, 
it would be inappropriate for us to treat a significant portion of the 
expenses incurred by the affiliates in question as selling expenses, 
indirect or otherwise.
    In any case, petitioners only propose additional adjustments to 
U.S. price that can reasonably be limited to movement expenses, which 
are to be deducted in the calculation of U.S. price. See section 
772(c)(2)(A) of the Act. The U.S.

[[Page 18435]]

expenses reported by the POSCO group were deducted from U.S. price in 
the preliminary results, without objection from respondent and 
consistent with the requirements of the statute. Any additional portion 
of the revenue earned by the affiliates through the ``back-to-back'' 
nature of the U.S. sales that can be attributed to U.S. movement should 
be deducted as well.
    The POSCO group questions the 30 percent adjustment factor proposed 
by petitioners because the POSCO group claims that the profit rate 
would be the ``relevant figure.'' However, none of the cases cited by 
respondent, including the Corrosion-Resistant Final and Forklifts, 
provide any grounds for limiting the adjustment to just profit. In the 
Corrosion-Resistant Final, we deducted from home-market price the 
entire amount charged by Dongbu Express to Dongbu. In Forklifts the CIT 
found that, because the services performed were directly connected with 
the movement of forklift trucks from Japan to the United States, the 
Department correctly determined that Toyo's mark-ups were actual 
expenses relating to the movement of the subject imports that Toyo 
would have incurred regardless of the relationship of the party 
performing the service, and that our conclusions were reasonable and 
our determination was in accordance with the law. See Toyota Motor 
Sales, Inc. v. United States, Consol Ct. No. 92-03-00134, Slip Op. 93-
154 (CIT 1993).
    Furthermore, in Forklifts the CIT also indicated that because the 
parties involved were only related indirectly, no intra-company 
transfer was taking place. This is also the case with POCOS, because it 
is not directly affiliated with its U.S. selling entity; consequently, 
we have determined that the appropriate factor by which to increase the 
reported expenses for those certain specific services provided by BUS 
is the markup of Dongbu Express, including the portion that constitutes 
profit. However, because POSAM was wholly-owned by POSCO, the profit 
earned by POSAM that can be attributed to the movement services it 
provided to POSCO should be treated as an intra-company transfer, and 
therefore should not be deducted from U.S. price. Therefore, the 
appropriate adjustment factor for the U.S. sales of POSCO and PSI would 
be the markup, net of the profit rate.
    We have determined, based on the Dongbu exhibit cited by 
petitioners and the POSCO group, the appropriate markup rate was eight 
percent, of which one-half reflected profit. Consequently, the 
appropriate adjustment factor is eight percent for POCOS and four 
percent for POSCO and PSI. We multiplied these factors by the variables 
cited by petitioners, and deducted the results in the calculation of 
U.S. price.
    Regarding the Castings Final, that case actually states that the 
distributor's markup was not deducted from U.S. price because it did 
not fall into any of the categories of expenses that should be deducted 
from U.S. price for purchase price sales. See Castings Final at 2414. 
However, as noted above, POSAM and BUS clearly did provide services 
involving movement expenses, and some of the markup, beyond the portion 
reflected in the movement expenses reported by the POSCO group in its 
U.S. sales databases, can be attributed to those movement services.
    Regarding POSTRADE and AKO, the POSCO group did not contest either 
petitioners' assertion that those affiliates only provided 
transportation services, or petitioners' conclusion that it is 
consequently reasonable to deduct from U.S. price the entire markup 
(or, in the case of sales through POSTRADE, a markup based on a 
verified sale). No information on the record indicates that those 
affiliates provided services other than those described by petitioners. 
To account for the additional unreported expenses, for POCOS's U.S. 
sales we have deducted from U.S. price the entire difference between 
the price paid by BUS to AKO and the price paid by AKO to POCOS. 
However, for POSCO's and PSI's U.S. sales, which were made through 
POSTRADE, we have only deducted from U.S. price that portion of the 
POSTRADE markup that is not accounted for by POSTRADE profit (i.e., 
one-half of the markup, in accordance with the Dongbu Express 
information), because that profit can be considered to have been an 
internal transfer.
    Comment 24. Petitioners argue that the Department should reverse 
its preliminary decision regarding duty absorption, should conduct duty 
absorption inquiries, and should determine that respondents have, in 
fact, absorbed antidumping duties on behalf of their customers. 
Petitioners argue that the statute provides that during any review 
initiated two years after publication of an antidumping duty order, the 
Department, if requested, will determine whether a foreign producer 
absorbed antidumping duties on behalf of its U.S. customers when 
subject merchandise is imported into the United States through an 
affiliate of the producer. Petitioners argue that they requested such a 
determination, and that reviews were initiated two years after the 
publication of the relevant antidumping duty order.
    Petitioners argue that even if the Department continues to 
determine that it is not required to conduct the requested duty 
absorption inquiry during these reviews because it determines that 
these reviews are the ``first'' ones for purposes of duty absorption, 
the Department nevertheless retains the discretion to do so and should 
do so in these reviews.
    Petitioners argue that the Department should not ignore absorption 
when it is obvious on the record. Petitioners argue that analysis of 
U.S. sales of POCOS indicates that the return to POCOS on certain sales 
was negative and, consequently, that duties were absorbed.
    Petitioners argue that confining absorption inquiries to the second 
and fourth reviews will encourage respondents to manipulate the 
administrative review process to avoid duty absorption findings. 
Petitioners argue that if respondents know with certainty that 
absorption reviews will only be conducted in the second and fourth 
reviews, they could, and likely will, alter their absorption practices, 
or not export any subject merchandise to the United States for the 
review periods in which the absorption reviews are to be conducted.
    Petitioners argue that absorption inquiries in these administrative 
reviews would eliminate the necessity of filing protective absorption 
inquiry requests that would otherwise be imposed upon petitioners. 
Petitioners state that limiting such inquiries to certain reviews would 
require petitioners to incur the additional expense of requesting a 
review in those years solely to check for absorption. Petitioners state 
that such additional requests would also consume the limited resources 
of the Department and impose greater burdens on respondents. Even if 
the Department chose to conduct such an absorption inquiry where a 
review was not requested, substantial information would be required 
which could be obtained during the normal course of reviews such as 
these.
    The POSCO group argues that petitioners' duty absorption argument 
is untimely and irrelevant in this administrative review. The 
Department's proposed regulations indicate that for ``transition 
orders'' such as these, the Department will only make a duty absorption 
determination for administrative reviews initiated in 1996 or 1998. 
Furthermore, respondent argues, the SAA states that the duty absorption 
inquiry is only relevant in the context of a sunset review proceeding. 
Respondent states that the SAA indicates that ``[t]he duty absorption 
inquiry would not affect the

[[Page 18436]]

calculation of margins in administrative reviews'' (SAA at 885).
    DOC Position. We disagree with petitioners. As we stated in the 
preliminary results of these reviews and earlier in this notice in the 
DOC Position on Comment 3, for transition orders as defined in section 
751(c)(6)(C) of the Act, i.e., orders in effect before January 1, 1995, 
Sec. 351.213(j)(2) of our Proposed Regulations provides that the 
Department will make a duty absorption determination, if requested, for 
any administrative review initiated in 1996 or 1998. See Preliminary 
Results at 51883. It is not the Department's intent to go beyond what 
the statute provided with respect to conducting duty absorption 
determinations in the second-and fourth-year reviews.
    Comment 25. Petitioners argue that the Department should adjust NV 
to account for physical differences between cold-rolled products that 
were tension-leveled and those that were not tension-leveled. 
Petitioners state that this process imparts special flatness 
characteristics to steel products and, therefore, results in commercial 
distinctions among products which frequently command a price extra.
    Petitioners argue that the POSCO group apparently did not provide 
any information during verification supporting its claim that there are 
no commercial differences between products that were tension-leveled 
and those that were not, except perhaps for products which were 
processed on one other specific line which could impart characteristics 
similar to those imparted by tension levelers. Petitioners argue that 
the POSCO group conceded that a large volume of products were not 
tension-leveled or processed on that other single line. Consequently, 
it is very possible that tension-leveled U.S. sales are being compared 
to home-market sales that were not tension-leveled.
    Petitioners argue that the Department should recognize that 
tension-leveling does, in fact, create commercial distinctions among 
otherwise identical products, which are reflected in higher prices for 
tension-leveled products. Petitioners argue that as adverse facts 
available the Department should presume that all products sold in the 
United States were tension-leveled, and that all of these sales are 
being matched to home-market sales of products that have not been 
tension-leveled. The Department should then make an upward adjustment 
to normal value to account for physical differences in tension-leveling 
between U.S. and home-market products. Petitioners assert this 
adjustment should be based upon information submitted by petitioners, 
because the POSCO group's responses do not contain data that can be 
used to quantify the commercial difference between products that have 
been tension-leveled and those that have not.
    The POSCO group argues that its methodology is reasonable, that the 
Department verified the products at issue are commercially 
indistinguishable, and that the Korea sales verification report 
supports this conclusion.
    The POSCO group argues that petitioners are incorrect in their 
claim that respondent has not demonstrated that products that are not 
separately tension-leveled are commercially indistinguishable from 
other products that have been tension-leveled. The POSCO group argues 
that because it does not charge any extras depending on whether or not 
the product is tension-leveled, and because the respondent's customers, 
in placing the orders, did not specify whether or not the products 
should be tension-leveled, the products are commercially 
indistinguishable, and, in fact, the same price is charged whether or 
not the product is separately tension-leveled.
    The POSCO group also argues that the petitioners are mistaken in 
their estimates of the quantity of steel that did not pass through any 
type of equipment that imparts tension-leveled characteristics.
    For the above reasons, the POSCO group argues that the Department 
should not increase the NV of cold-rolled products to account for 
alleged unreported differences in physical characteristics due to 
differences in tension-leveling.
    DOC Position. While inconsistencies exist between the explanations 
of this product characteristic provided by the POSCO group in (a) its 
February 13, 1996 submission, (b) at the sales verification in Korea, 
and (c) in its rebuttal brief, nothing on the record of these reviews 
contradicts the conclusion that a large portion of the home-market 
sales of cold-rolled merchandise (other than full-hard coil and 
electrical steel) was either tension-leveled or processed in such a way 
that it possessed properties very similar to steel that had been 
tension-leveled. Furthermore, no information on the record of these 
reviews indicates that the customers of the POSCO group requested that 
their steel be tension-leveled, or that the POSCO group charged extra 
for steel that was tension-leveled (or otherwise processed in a way 
that would impart similar properties). Furthermore, there is no 
information on the record of these reviews indicating that the POSCO 
group could actually determine from its internal records whether or not 
specific sales consisted of steel that was tension-leveled. Finally, 
there is no record evidence indicating that the POSCO group failed to 
report the costs associated with these processes. As a result, in these 
reviews we have not made any adjustments for this product 
characteristic.
    Comment 26. Petitioners argue that POSCO's overrun sales are 
outside the ordinary course of trade and, therefore, if the Department 
should base NV on home-market sales, those overrun sales should be 
excluded from the Department's calculations. Petitioners argue that the 
factors considered previously by the Department in analysis of this 
issue--their volume relative to other sales, the profitability of such 
sales, and the types of customers purchasing them--demonstrate that the 
POSCO group's overrun sales were outside the ordinary course of trade. 
Petitioners cite Certain Corrosion-Resistant Carbon Steel Flat Products 
From Australia; Final Results of Antidumping Duty Administrative 
Reviews, 61 FR 14049, 14050-51 (March 29, 1996) (``Australian Final''). 
Petitioners point out that even the POSCO group, in requesting that it 
be excused from reporting the downstream sales of affiliated service 
centers in which POSCO owned a minority-interest, acknowledged that 
overrun sales were not comparable to non-overrun sales through its 
exclusion of sales of overrun coil from its presentation of downstream 
sales data.
    The POSCO group argues that the facts with respect to the POSCO 
group's overrun sales are strikingly similar to those examined by the 
Department in the Australian Final (at 14051), in which the Department 
determined that the overrun sales of Broken Hill Proprietary Company 
Ltd. (``BHP'') were in the ordinary course of trade. The POSCO group 
argues that, as in that case, the Department typically examines several 
factors, none of which is dispositive, including: (1) whether the home-
market sales in question did in fact consist of production overruns; 
(2) whether differences in physical characteristics, product uses, or 
production costs existed between overruns and ordinary production; and 
(3) whether the price and profit differentials between sales of 
overruns and ordinary production were dissimilar.
    The POSCO group argues that the Department verified the POSCO 
group's methodology for classifying overrun sales, and no discrepancies 
were noted

[[Page 18437]]

in the Korea sales verification report, thereby establishing that the 
overrun merchandise had been properly classified for reporting 
purposes. The POSCO group states that, for a given CONNUM, the product 
characteristics and costs associated with the overrun prime merchandise 
were the same as those associated with non-overrun prime merchandise. 
The POSCO group argues that as was the case for BHP in the Australian 
Final, the POSCO group's overrun sales were more than an insignificant 
percentage of total home-market sales, and the profit earned on those 
sales was not insignificant. Finally, the POSCO group argues that 
overrun sales are not unusual or abnormal in the steel industry.
    DOC Position. In the Australian Final we indicated that it is the 
Department's established practice to include home-market sales of such 
or similar merchandise unless it can be established that such sales 
were not made in the ordinary course of trade. In that case, we cited 
as an example Final Determination of Stainless Steel Angle From Japan, 
60 FR 16608, 16614-15 (1995). As noted by the POSCO group, when 
evaluating whether or not sales of overrun merchandise were in the 
ordinary course of trade, we typically examine several factors taken 
together, with no one factor dispositive. See, e.g., Certain Welded 
Carbon Steel Standard Pipes and Tubes From India, 56 FR 64753, 64755 
(1991). In addition to the factors cited by the POSCO group, we also 
stated in the Australian Final that we may consider whether the number 
of buyers of overruns in the home-market and the sales volume and 
quantity of overruns were similar or dissimilar in comparison to other 
sales. See Australian Final at 14051.
    Neither petitioners nor the POSCO group dispute the categorization 
of the sales in question as production overruns.
    Regarding physical characteristics, because overrun sales are made 
from inventory (see Korea sales verification report at 34), the 
thickness of the steel is already known at the time of sale and, 
therefore, any concept of ``thickness tolerance'' is irrelevant. As a 
default, the respondent coded the thickness tolerance variable as 
``standard'' for inventory sales. See Korea sales verification report 
at 33. Consequently, overrun sales were coded in CONNUMs that consisted 
primarily of prime merchandise that was actually ordered to a specific 
thickness tolerance, contrary to overrun sales, which were made from 
inventory.
    Given that overrun sales, unlike the overwhelming bulk of sales of 
prime merchandise, were made from inventory, additional expenses 
associated with this inventorying process would have been incurred for 
overrun sales.
    Regarding product uses and numbers of buyers for overrun 
merchandise, these would have been limited in comparison to other 
merchandise. As indicated in the Korea sales verification report at 34, 
POSCO's selling practices are such that overruns would not normally be 
offered to certain types of customers.
    The reported overrun sales constitute a relatively small portion of 
the home-market sales databases. In fact, they constitute a 
considerably smaller portion of overall sales than did the forecasted 
1997 share of POSCO hot-rolled steel output at its new mini-mill, 
characterized by the respondent in its rebuttal brief at 30 as 
``minuscule.''
    Furthermore, the record indicates that excluding the sales the 
POSCO group reported as overruns, as requested by the petitioners, 
would not in fact exclude overproduced merchandise that was sold in the 
normal course of business. Specifically, the POSCO group, in its 
description of the decision to code specific steel as an overrun, noted 
that typically it attempted to sell merchandise made in excess 
quantities as ordinary prime. See Korea sales verification report at 
34. The remainder, what the POSCO group internally classifies as 
overruns, would just be the portion of what it overproduced which could 
not be sold to customers as typical prime merchandise.
    The POSCO group does not contest petitioners' assertion of 
differences in relative profitability of overrun sales but, rather, 
implies that the profits earned on overrun sales were not 
insignificant. However, as admitted by the POSCO group in its listing 
of factors we have considered in past instances, we are concerned with 
relative profitability, not the ``significance'' of certain levels of 
profitability.
    As indicated by petitioners, the POSCO group did distinguish 
between overruns and other prime merchandise in its request to be 
excused from reporting downstream sales of certain affiliated service 
centers. This is an additional indication that the POSCO group 
considered sales of merchandise that had been actually recorded as 
overruns as outside the ordinary course of trade.
    As a result of these factors, we have determined that the POSCO 
group's sales of overrun products were outside of the ordinary course 
of trade, and have excluded them from our price comparisons.
    Comment 27. Petitioners state that in its preliminary calculations 
the Department presumed that the POSCO group had reported warranty 
expenses in dollars for local sales, and divided the reported warranty 
expenses by the dollar/won exchange rate in order to convert them to 
won. Petitioners argue that the POSCO group in fact appeared to have 
reported the warranty expenses for local sales in won. Petitioners 
argue that the Department should conclude that the per-unit warranty 
expenses for local sales were reported in won and, therefore, did not 
need to be converted to won. Consequently, petitioners state that the 
Department should correct this error by eliminating from the 
programming the equations that divide the reported warranty expenses by 
the dollar/won exchange rate.
    DOC Position. We agree with petitioners, and have corrected this 
error for purposes of these final results.
    Comment 28. Petitioners state that the Department should increase 
Union's reported COP for merchandise with high yield-strength 
characteristics because the company inappropriately reported an average 
cost of HRC with different yield strengths. According to petitioners, 
Union can trace yield strength of HRC to a specific finished product. 
Therefore, Union should have accounted for yield strength using a 
model-specific approach rather than relying on a single weighted-
average cost. Petitioners also claim that Union's processing costs do 
not distinguish between the manufacturing cost of producing merchandise 
with different yield strengths, because reported conversion costs are 
an average between high- and low-yield-strength products.
    Union contends that the petitioners' assertion is incorrect and 
based on their misinterpretation of the Department's findings at 
verification. According to Union, the verification report does not 
raise an issue with respect to its reported weighted-average HRC costs. 
Furthermore, Union identified and provided separate HRC costs based on 
yield strength as demonstrated in cost verification exhibit 26. As for 
submitted processing costs, Union asserts that there is no difference 
in processing costs associated with differing yield strengths because 
there is no significant difference in the production process of high- 
and low-yield-strength merchandise.
    DOC Position. For the final results we have accepted Union's 
CONNUM-specific costs. We found that Union's cost data were allocated 
to a sufficient level of product detail pursuant to our instructions. 
We note that in assessing yield strength, the most important

[[Page 18438]]

variable is the carbon content, and possibly any micro-alloying 
elements in the HRC. An HRC with a higher carbon level will result in a 
finished product with a higher yield strength. However, our model-match 
hierarchy did not require that respondents identify carbon content. 
Therefore, Union's HRC were weight-averaged based on other more 
significant industry characteristics, such as the quality of the HRC. 
This quality characteristic indirectly incorporates the cost of carbon, 
which is the driver of yield strength. As for petitioners' concern 
regarding processing costs, the information on the record does not 
indicate that high- yield-strength and low-yield-strength products 
require significantly different processing. Additionally, we tested 
Union's submitted allocation methods and confirmed that Union allocated 
its total costs (i.e., materials, labor, overhead) to either home-
market, third-country, or U.S. merchandise. We also reviewed and tested 
the allocation methods used by Union to assign costs to individual 
CONNUMs. We did not note any discrepancies in Union's allocation 
methods to individual CONNUMs. Respondent has answered petitioners' 
concerns by referencing the cost verification exhibits and 
demonstrating that no additional adjustments are called for to 
accurately reflect costs of products with different yield strengths.
    Comment 29. Petitioners contend that the Department should increase 
Union's submitted costs to account for the difference between the 1994 
and 1995 year-end adjustment figures. Petitioners claim that because 
Union's POR covers months in both the 1994 and 1995 calendar years, the 
company's submitted costs should reflect year-end accounting 
adjustments for both years. Petitioners further argue that the 
Department has a longstanding policy of accounting for year-end 
accounting adjustments even when the fiscal year-end occurs outside the 
POR. In support of their position, petitioners cite Non-Alloy Steel 
Pipe (at 42952) and Final Determinations of Sales at Less Than Fair 
Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-
Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon 
Steel Flat Products, and Certain Cut-to-Length Carbon Steel Plate from 
Korea, 58 FR 37176, 37187 (July 9, 1993) (``Flat-Rolled Final''), in 
which we included these types of year-end adjustments.
    Union argues that its submitted costs already reflect 1994 year-end 
accounting adjustments and June 30, 1995 semiannual accounting 
adjustments. Therefore, Union contends that there is no practical 
reason that in this instant review year-end adjustments for the last 
six months of 1995, outside the cost reporting period, should be 
included in the reported costs. According to Union, the adjustment the 
petitioners request is de minimis in nature and should be rejected 
pursuant to the Department's authority under 19 CFR Sec. 353.59(a).
    DOC Position. We agree in part with the petitioners. We normally 
consider year-end accounting adjustments when calculating costs during 
the POR. See, e.g., Non-Alloy Steel Pipe at 42952. In the instant case, 
Union reported costs for the period July 1, 1994 through June 30, 
1995--a period that includes parts of two separate calendar years. 
Firms periodically bring their accounting records to a current status 
by means of updating and adjusting entries. The goal of these 
adjustments is to match costs in the periods in which the associated 
revenues are recognized. Union's submitted costs reflect only the 1994 
year-end adjustments. We compared Union's 1994 and 1995 year-end 
accounting adjustments and noted that Union's reliance on only the 1994 
year-end adjustments reasonably reflects the company's costs for the 
POR (see testing at cost verification exhibit 10). We did not find that 
adjustments computed on the basis of a cost-reporting period differed 
significantly from those computed for the calendar year 1994. In recent 
determinations we have accepted a respondent's reported costs where 
they reasonably reflected actual costs. See, e.g., Final Results of 
Antidumping Administrative Review; Aramid Fiber Formed of Poly Para 
Phenylene Terephthalamide from the Netherlands, 61 FR 51406, 51408 
(October 2, 1996) and Presses from Germany at 38185.
    Comment 30. Petitioners state that the Department should increase 
Union's reported manufacturing costs to account for differences between 
the company's POR costs (August 1, 1994 through July 31, 1995) and the 
submitted fiscal period costs (July 1, 1994 through June 30, 1995). 
Petitioners claim that information on the record indicates that Union's 
manufacturing costs for the POR (August 1, 1994 through July 31, 1995) 
exceed the submitted fiscal costs (July 1, 1994 through June 30, 1995). 
Petitioners urge the Department to include this difference in the 
submitted costs.
    Union disagrees with petitioners and states that the Department 
should accept its reported manufacturing costs. Union responds that the 
Department permitted it to report POR costs based on the period July 1, 
1994 through June 30, 1995 because the methodology did not distort 
costs and simplifies the administrative process.
    DOC Position. We agree with Union. We generally require that 
respondents report a single, weighted-average COP and CV for the POR. 
We allow respondents to report these costs based on a fiscal year 
rather than the POR under certain defined conditions as explained in 
Section D of our questionnaire. We confirmed that the change in the 
cost reporting period of one month did not significantly distort costs, 
by comparing significant elements of the COM computed on a fiscal-year 
basis and on a POR basis (see testing at cost verification exhibit 17). 
We noted that the fiscal year figures reasonably reflect the company's 
POR results.
    Comment 31. Petitioners claim that Union excluded its parent 
company G&A expenses in the submitted costs. Petitioners assert that 
the Department should increase Union's reported general expenses to 
include the identified G&A expenses incurred by its parent, DSM, that 
relate to the production of subject merchandise. In support of their 
position, petitioners cite the Final Determination of Sales at Less 
Than Fair Value; Certain Steel Butt-Weld Pipe Fittings from the United 
Kingdom, 60 FR 10558, 10561 (February 27, 1995) (``Butt-Weld Pipe 
Fittings from the U.K.''), in which the Department adjusted a 
respondent's submitted data to include an allocated portion of the 
parent company's G&A expenses.
    Union states that, given the inconsequential amount of the 
adjustment, the Department should adhere to its preliminary findings 
and disregard the petitioners' claim pursuant to section 353.59(a) of 
our regulations.
    DOC Position. We agree with petitioners. It is our practice to 
include a portion of the G&A expense incurred by the parent company on 
behalf of the reporting entity. See, e.g., Butt-Weld Pipe Fittings from 
the U.K. For these final results, we allocated a portion of DSM's G&A 
expenses to Union's general expenses.
    Comment 32. Petitioners argue that the Department should treat all 
of Union's U.S. sales as CEP sales because of information in the 
response and other information discovered at verification. Petitioners 
draw a distinction between the present circumstances and those of the 
first reviews, since the record of these reviews contains additional 
information regarding the nature of UA's activities.
    Petitioners argue that for U.S. sales to be classified as EP sales, 
a respondent must demonstrate that its U.S. sales satisfy three tests, 
as discussed in two recent final determinations, Presses from Germany 
at 38171 and Presses

[[Page 18439]]

from Japan at 38141. According to petitioners, U.S. sales will be 
classified as EP only if (a) merchandise is not inventoried in the 
United States, (b) the commercial channel at issue is customary, and 
(c) the U.S. selling agent is not substantively more than a ``processor 
of sales-related documentation'' or a ``communications link.''
    Concerning the first two aspects of the test, petitioners argue 
that these are not relevant to the instant case, since all merchandise 
is made to order in the respondent's industry, both in the United 
States and in the home market. However, petitioners argue, the 
respondent's U.S. affiliate (UA) performs significant selling functions 
in the United States, plays an active and substantive role in the U.S. 
sales process, and clearly acts as more than a mere processor of sales-
related documentation. Petitioners cite respondent's February 29, 1996 
letters to establish that UA performs market research and strategic and 
economic planning.
    Petitioners argue that UA has substantial discretion and authority 
to determine resale prices in the United States and that its parent's 
approval of its price quotes is done on a pro forma basis.
    Petitioners argue that the Department's verification report 
contains further evidence of UA's active involvement in the sales 
process, since it states that either ``Union America/Dongkuk 
International (DKA) or an independent commissionaire finds a U.S. sale 
for Union.'' This statement, petitioners argue, demonstrates that UA 
acts as more than a mere processor of sales-related documentation and 
that, at a minimum, the Department equates UA's role with that of a 
commission agent.
    Petitioners argue, again based on the verification report and 
Union's February 29, 1996 letters, that, in addition to soliciting 
customers, UA has responsibility for maintaining relationships with 
U.S. customers and for providing numerous other functions in support of 
Union's U.S. sales process: UA negotiates price and purchase terms with 
U.S. customers, performs procurement or sourcing services, acts as the 
importer of record, extends credit to U.S. customers, and makes 
arrangements with independent commission agents.
    Petitioners argue that during the POR, UA's activities were taken 
over by DKA, and that UA thus became part of a larger organization 
engaged in other activities besides the representation of Union. 
Petitioners argue that UA thus ceased to be a part of Union, and became 
instead part of a larger organization. Petitioners argue that UA's 
increased autonomy from Union, and its involvement with other source 
companies, highlights the greater role played by UA in the sales 
process. Citing Presses from Germany and Presses from Japan, 
petitioners argue that the Department holds sales to be CEP when a U.S. 
affiliate plays an active role in the sales negotiation process, and 
when it performs significant additional functions in support of U.S. 
sales. Union's responses and the verification report demonstrate that 
UA played an active and substantive role in the U.S. sales process, and 
that all of Union's U.S. sales should therefore be classified as CEP 
sales.
    Respondent argues that the Department has thoroughly considered and 
rejected these same arguments in both its first administrative review 
final decision and its preliminary findings in these proceedings, and 
argues that nothing has changed with respect to this issue from the 
first administrative review. Respondent argues that it is Union, not 
UA, who determines prices in the United States. Nothing in the record, 
respondent argues, indicates that UA or DKA has any discretion, let 
alone substantial discretion, in establishing Union's selling price in 
the United States.
    The respondent reiterates that no new facts or law would warrant a 
change in the finding by the Department, in the first review of 
corrosion-resistant products and the preliminary results of these 
reviews, that Union's U.S. sales were EP sales. Respondent argues that 
all of petitioners' arguments were fully examined and rejected by the 
Department in the first review of corrosion-resistant products.
    DOC Position. We disagree with petitioners. When the criteria 
outlined in the DOC Position to Comment 7 supra are met, we consider 
the exporter's selling functions to have been relocated geographically 
from the country of exportation to the United States, where the sales 
agent performs them. We also have recognized and classified as indirect 
EP sales certain transactions involving selling activities similar to 
UA's in other antidumping proceedings involving Korean manufacturers 
and their related U.S. affiliates. See, e.g., Final Determination of 
Sales at Less Than Fair Value; Circular Welded Non-Alloy Steel Pipe 
from the Republic of Korea, 57 FR 42942, 42950-1 (September 17, 1992). 
In the present reviews, we ascertained the following with regard to 
sales considered as EP transactions in the preliminary review results: 
(1) Union's sales through UA, its related sales agent in the United 
States, are almost always shipped directly from Union to the unrelated 
buyer, and only rarely are introduced into UA's inventory; (2) Union's 
customary channel of distribution is direct shipment, although certain 
limited sales are normally introduced into UA's inventory; (3) UA 
performed limited liaison functions in the processing of sales-related 
documentation and a limited role as a communication link in connection 
with these sales. UA's role, for example, in extending credit to U.S. 
customers, processing of certain warranty claims, limited advertising, 
processing of import documents, and payment of cash deposits on 
antidumping and countervailing duties, appears to be consistent with 
purchase-price classification. These selling services as an agent on 
behalf of the foreign producer are thus a relocation of routine selling 
functions from Korea to the United States. In other words, we 
determined that UA's selling functions are of a kind that would 
normally be undertaken by the exporter in connection with these sales. 
More specifically, we regard selling functions, rather than selling 
prices, as the basis for classifying sales as EP or CEP. While in some 
cases certain merchandise sold by Union was entered into UA's 
inventory, this merchandise was sold prior to the importation of the 
merchandise, but not from UA's inventory. When all three of the factors 
already described for sales made prior to the date of importation 
through a related sales agent in the United States are met, we regard 
the selling functions of the exporter as having been relocated 
geographically from the country of exportation to the United States, 
where the sales agent performs them. The substance of the transaction 
or the functions do not change whether these functions are performed in 
the United States or abroad. In this case, Union has transferred these 
routine selling functions to its related selling agent in the United 
States and the substance of the transaction is unchanged.
    Comment 33. Petitioners argue that in its preliminary results the 
Department understated Union's per-unit CEP profit by using an 
incorrect base for its profit calculations. Petitioners argue that the 
Department should have included inventory carrying costs in indirect 
selling expenses when the latter were added into the factor labeled as 
``INDEXUS,'' which was the sum of direct and indirect selling expenses, 
plus commissions. Petitioners cite

[[Page 18440]]

section 773 of the Act as requiring the Department to attribute CEP 
profit to all selling expenses incurred with respect to U.S. sales, 
including such imputed expenses as credit, which petitioners note that 
the Department did properly include, and inventory carrying charges.
    Respondent argues that petitioners' assumption that the Department 
intended to use actual interest expenses as a proxy for imputed 
inventory carrying costs is incorrect. Respondent cites programming 
language to show that the Department deliberately excluded inventory 
carrying costs from the profit calculation. Respondent maintains that 
the only correction needed in regards to CEP profit is the inconsistent 
treatment of credit expenses, which is addressed separately. See 
Comment 34 infra.
    DOC Position. We agree with respondent that our programming 
language deliberately excluded inventory carrying costs from the profit 
calculation. For a further discussion of this issue, see the DOC 
position to Comment 34.
    Comment 34. Union argues the Department erred by treating credit 
expenses in the CEP profit calculation inconsistently when classifying 
some of Union's sales as CEP. Union avers that credit expenses were not 
included in the denominator of the CEP profit ratio, but were among the 
expenses multiplied by that ratio. Union contends this inconsistency 
must and can be corrected by adding credit expenses to the denominator 
in the calculation of the CEP ratio, or by removing them from expenses 
multiplied by the ratio.
    Petitioners counter that Union's analysis of the Department's 
methodology is incorrect, because credit expenses are, in fact, 
implicitly included in the denominator of the ratio used to calculate 
the CEP profit rate. The Department, petitioners state, calculates the 
CEP profit rate by dividing the total profit on home-market and U.S. 
sales by the total expenses incurred in both markets. Because the total 
expenses include the actual amount of interest expenses incurred in 
financing accounts receivable, petitioners' view is that credit 
expenses are included in the denominator of the CEP profit ratio. 
Petitioners add that, because the denominator of the CEP profit ratio 
includes interest expenses incurred in extending credit to customers, 
in accordance with the statutory requirement that CEP profit be 
attributed to all selling expenses incurred on U.S. sales, the 
Department deducts the imputed credit expenses reported for each sale 
from the total expenses used to calculate the CEP profit rate in order 
not to double-count these expenses. This does not alter, however, the 
fact that credit expenses are implicitly included in the denominator; 
for that reason, petitioners assert, the Department's methodology is 
appropriate and accurate.
    DOC Position. We agree with petitioners that imputed credit and 
inventory carrying costs should be included in the definition of total 
United States expenses used in the allocation of profit to CEP sales, 
consistent with section 772(f)(1), and have revised our methodology for 
these final results. The SAA states that ``[t]he total U.S. expenses 
are all of the expenses deducted under section 772(d) (1) and (2) in 
determining the constructed export price.'' SAA at 154. The SAA also 
explains section 772(d)(1)(D) as providing for the deduction from CEP 
of indirect selling expenses. These typically include imputed inventory 
carrying costs, which represent the opportunity costs of the capital 
tied up in inventories of the finished merchandise. Id. Section 
772(d)(1)(B) explicitly includes credit expenses as among the direct 
selling expenses to be deducted from CEP.
    We disagree with respondent that imputed credit and inventory 
carrying costs should be added to the total expenses used in the 
denominator in the CEP profit allocation. In determining the amount of 
profit to allocate to each CEP sale, the Department first computes the 
total profit earned by the foreign producer. This amount is based on 
the producer's actual profits calculated in accordance with section 
772(f)(2)(D) of the Act. It includes any below-cost sales but excludes 
sales made to affiliated parties at non-arm's-length prices. Because it 
is the ``actual'' profit, this amount reflects the actual interest 
expense incurred by the producer.
    A portion of the total actual profit is then allocated to the U.S. 
expenses incurred for each CEP sale. This is done based on the 
applicable percentage described in section 772(f)(2)(A) of the Act. In 
calculating this percentage, the statute directs us to include in the 
numerator the CEP expenses deducted under 772(d), which includes 
imputed credit and inventory carrying costs. In contrast, the total 
expenses in the denominator are those used to compute total actual 
profit. See section 772(f)(2)(D). As discussed above, ``actual'' profit 
is calculated on the basis of ``actual'' rather than imputed expenses. 
Although the actual and imputed amounts may differ, if we were to 
account for imputed expenses in the denominator of the CEP allocation 
ratio, we would double count the interest expense incurred for credit 
and inventory carrying costs because these expenses are already 
included in the denominator.
    Comment 35. Petitioners argue that regardless of whether the 
Department classifies Union's U.S. sales as EP or CEP transactions, it 
still must account for the role played by UA with regard to services 
for U.S. sales, including transportation services. Petitioners argue 
that UA performs functions incident to bringing the subject merchandise 
from the original place of shipment to the United States which are 
similar to those performed by Dongbu Express. Petitioners argue that 
although different in form, Union's transactions with UA are identical 
in substance to those between Dongbu and Dongbu Express. The formal 
structure of the transactions between Union and UA should not preclude 
the Department from treating them the same way it would treat them if 
Union were to pay UA directly for these transportation services, 
petitioners argue. Petitioners urge the Department to add a markup to 
the transportation services in question.
    Because information in the record does not permit the Department to 
determine what portion of UA's markup is attributable to 
transportation-related services, the Department must use alternative 
information to calculate the adjustment, petitioners argue. For this 
purpose, petitioners suggest the Department have recourse to the 
publicly available ranged data from Dongbu for the same kind of 
transaction, where the markup is as much as 30 percent. Petitioners 
argue that the Department should therefore add 30 percent to all 
transportation services provided by UA, i.e., deduct 1.3 percent of all 
reported transportation charges from U.S. price.
    Union, citing section 772(d) of the Act, argues that the Act does 
not include profits as one of the possible adjustments to EP, and that 
there is absolutely no basis in law for deduction of CEP adjustments 
from USP for EP sales. Respondent states that the cost of arranging the 
movement-related services in question is included in the U.S. brokerage 
and handling charges, which are fully accounted for as adjustments to 
the U.S. price. Respondent also differentiates its U.S. sales process 
from that of Dongbu by asserting that no comparable charge is paid by 
Union to UA for the services involved, other than those paid by UA to 
customs brokers. Finally, respondent argues, since its sales were EP 
and not CEP, there is no basis in law or the Department's practice for 
the deduction of UA's profit on such sales.

[[Page 18441]]

    DOC Position. We disagree with petitioners and their analysis of 
the facts at issue. We verified that UA does not directly perform for 
U.S. brokerage and handling services for Union but rather employs 
customs brokers to carry out such services, to facilitate customs 
clearance, and to pay any customs duties. We verified that all U.S. 
brokerage and handling expenses (i.e., demurrage and wharfage charges) 
incurred by UA on behalf of Union were fully reported on a sale-by-sale 
basis in the computer field USOTREU. We agree with Union that there is 
no legal basis for deducting an amount for UA's profit on these sales, 
because U.S. profit deductions are allowed only in connection with CEP 
sales, and not EP sales. Accordingly, we have not modified our 
treatment of movement expenses. See also DOC Position in response to 
Comment 10, supra.
    Comment 36. Petitioners argue that the Department should use 
Union's date of shipment as date of sale for all U.S. sales because, in 
multiple transactions, the Department found at verification that the 
sales quantity changed between the sale date and shipment date. 
Analyzing verification exhibit 14, petitioners note that the quantity 
shipped differed from the quantity ordered by more than the established 
delivery allowance of 10 percent in multiple instances. Petitioners 
note that similar findings arose in the first review of corrosion-
resistant products, and that, as a result, the Department used date of 
shipment for date of sale.
    Respondent maintains that the verification actually upheld its 
reported sale dates, since it showed that all of Unions' sales are 
produced to order, that Union schedules its production to meet the 
terms of the sale contract, that the delivery provision of the sales 
contract merely requires the customer to accept any shipment falling 
within the tolerance and does not in any way provide a party with the 
opportunity to void the transaction if the delivered quantity exceeds 
the delivery tolerance, as evidenced by the absence of any refused 
shipments where the quantity fell outside the tolerance. Finally, 
respondent argues, petitioners have exaggerated the data, and the 
instances of quantities falling outside the delivery tolerances were 
``quite limited.''
    DOC Position. We agree with respondent. It is customary in high-
volume metal industries for quantities to vary slightly in unforeseen 
amounts, for production convenience; this practice does not amount to a 
renegotiation or a significant alteration in the terms of trade. 
Therefore, we have continued to use the actual sale date as date of 
sale for purposes of these final results.
    Comment 37. Petitioners note that the Department discovered at 
verification that Union's U.S. credit expenses were based on an 
incorrect interest rate. Petitioners accordingly request the Department 
to use the revised rate in its final results. Respondent did not 
address this issue.
    DOC Position. We agree with petitioners and have amended our 
program accordingly for these final results.
    Comment 38. Petitioners argue that the Department should convert 
all data, including quantity, for U.S. and home-market sales made on 
the basis of theoretical weight, to actual weight; in so doing, the 
Department should divide the calculated per-unit net price by the 
reported weight conversion factor. Respondent did not address this 
issue.
    DOC Position. We agree with petitioners and have amended our 
program accordingly for these final results.
    Comment 39. Petitioners argue that, in the event the Department 
uses Union's home-market prices instead of CV, the Department should 
make certain adjustments to Union's reported home-market sales data.
    Citing the contractual arrangements which govern Union's home-
market distribution, petitioners argue that Union's distributors are 
under Union's effective control; as examples, petitioners cite a 
stipulation in one such contract prohibiting a distributor from selling 
other firms' products. Petitioners cite other clauses which appear to 
``give Union control over its distributors.'' In light of this control, 
petitioners request that the Department subject Union's home-market 
sales to an arm's-length test, and exclude any sales made at less than 
arm's-length prices.
    DOC Position. We disagree with petitioners. The arrangements Union 
has entered into with its home-market distributors are simply exclusive 
sales contracts which are a common commercial arrangement all over the 
world. These arrangements are typically made at arm's length and do not 
normally indicate control of one party over the other. In this case we 
have no evidence that Union's distributors entered into these contracts 
other than voluntarily and that these contracts cannot be terminated at 
regular intervals by either party. For these final results, therefore, 
we have not subjected Union's home-market sales through distributors to 
an arm's-length test.
    Comment 40. Petitioners note that Union identifies certain home-
market merchandise as ``overruns,'' which the Department typically 
excludes from the calculation of NV as outside the ordinary course of 
trade. Petitioners note that, at verification, the Department found 
that Union uses the term ``overrun'' to identify sales that have 
atypical characteristics, including sales of merchandise found to have 
been obsolete, thinner than planned, or priced especially low to 
compensate a customer for previous payments. Petitioners cite the 
definition of ordinary course of trade in section 771(15) of the Act 
and assert that the overrun sales clearly are not in the ordinary 
course of trade. Petitioners also cite additional evidence to this 
effect, such as Union's low volume of overrun sales as a percentage of 
home-market sales, the different profit level on such sales, and the 
sporadic and low-volume nature of the sales in question. Petitioners 
urge the Department to exclude these sales from the calculation of NV.
    Union argues that it does not in fact have any overruns, but that 
it designated certain sales as such at the Department's direction based 
solely on selling price.
    DOC Position. We agree with petitioners. While ``overruns'' may not 
be the correct term of art to describe each of these sales, since it 
was at our direction that Union applied that designation to certain 
sales, the sales bearing this designation do in fact show one of the 
following signs of being outside the ordinary course of trade:
    <bullet> The merchandise was obsolete;
    <bullet> The merchandise was defective (e.g., thinner than 
planned); or
    <bullet> The merchandise was priced especially low to compensate a 
customer for previous payments.
    When viewed as a whole, moreover, the fact that these ``overrun'' 
sales were sporadic, low-volume, accounted for only a small percentage 
of home-market sales, and were far less profitable than was typically 
the case in the home market, all suggest that these sales were, in 
fact, outside the normal course of trade. For these final results, 
therefore, we have eliminated those sales from our calculations of NV.
    Comment 41. Recalling their argument in their general comments that 
Union is affiliated with POSCO, petitioners argue that the Department 
should use third-country prices for the value of Union's purchases of 
HRC, and should use CV for NV, basing CV profit on Union's profit in 
its largest third-country market.
    Respondent argues that it is not affiliated with POSCO, that 
petitioners have not demonstrated that Union is reliant upon or 
controlled by POSCO,

[[Page 18442]]

that petitioners have not demonstrated that Union pays less than arm's-
length prices for HRC purchased from POSCO, and that there is no basis 
for determining that Union is affiliated with POSCO.
    DOC Position. Because the Department has determined that POSCO and 
Union are not affiliated (see DOC Position to Comment 2, supra), this 
comment is moot.
    Comment 42. Petitioners note that in its preliminary results, 
contrary to the intent expressed in its preliminary analysis 
memorandum, the Department neglected to deduct brokerage and handling 
charges incurred in Korea by Union from U.S. price. Petitioners request 
the Department to correct its computer program to ensure that this 
charge is duly deducted from Union's U.S. price.
    DOC Position. We agree with petitioners and have amended our 
program accordingly for these final results.

Respondents' Comments

Comments by Dongbu
    Comment 43. Dongbu argues that it appropriately offset G&A expenses 
by the net gain from foreign currency translations of accounts payable. 
Dongbu asserts that these gains are associated with the production of 
subject merchandise because they relate to the purchase and financing 
of raw materials. In support of its contention, Dongbu states that this 
inclusion of foreign currency gains and losses from translations in COP 
and CV is consistent with the following Departmental determinations and 
judicial precedent: Micron Technology, Inc. v United States, 893 F. 
Supp. 21, 33 (CIT 1995) (``Micron''); Pasta at 30359; and Final 
Determination of Sales at Less than Fair Value: Random Access Memory 
Semiconductors of One Megabit and Above from the Republic of Korea, 58 
FR 15467, 15480 (March 23, 1993) (``DRAMS'').
    Petitioners contend that the Department should exclude Dongbu's net 
gains on foreign currency translations from G&A, COP, and CV 
calculations. The petitioners argue that the Department normally only 
includes foreign exchange transactions and not foreign exchange 
translations in the calculation of G&A expense. According to 
petitioners, the Department does consider certain translation gains and 
losses as a financial expense if such gains related to the cost of 
acquiring debt. However, petitioners claim that this approach does not 
apply in this instance, because the translation gains and losses are 
associated with raw material accounts payable and not debt related to 
external financing.
    DOC Position. We disagree with Dongbu that the company's net gain 
from certain foreign-currency translations gains represents a G&A 
expense. In the past we have found that translation losses represent an 
increase in the actual amount of cash needed by respondents to retire 
their foreign-currency-denominated loan balances. See, e.g., Notice of 
Final Determination of Sales at Less Than Fair Value: Fresh Cut Roses 
from Ecuador, 24 FR 7019, 7039 (February 6, 1995). Using the same 
reasoning, for purposes of these final results we have included 
Dongbu's net gains on foreign-currency translations in COP as an offset 
to financing cost, since the gains represent a decrease in the actual 
amount of cash needed by respondents to retire their foreign-currency-
denominated loan balances.
    Comment 44. Dongbu and Union argue that the Department erred in the 
preliminary determination of this review by failing to add an amount to 
export price to account for export subsidies, as required by section 
772(c)(1)(C) of the Act. According to these respondents, article 
VIpara. 5 of the GATT provides that ``[n]o product * * * shall be 
subject to both antidumping and countervailing duties to compensate for 
the same situation of dumping or export subsidization. This provision 
was implemented into U.S. law by section 772(c)(1)(C) of the Act. As 
provided therein, EP and CEP ``shall be * * * increased by * * * the 
amount of any countervailing duty imposed on the merchandise * * * to 
offset an export subsidy.'' In light of the above, Dongbu and Union 
contend the Department erred by failing to add 0.05 percent (for cold-
rolled) and 0.10 percent (for corrosion-resistant) to EP and CEP to 
account for the payment of countervailing duties offsetting export 
subsidies. These respondents assert that the Department itself 
indicated such an adjustment was warranted in the final LTFV 
determination and in the final results of the first administrative 
review of certain corrosion-resistant carbon steel flat products from 
Korea. See, e.g., Flat-Rolled Final at 37191; Corrosion-Resistant Final 
at 18568.
    Petitioners argue that the Department's decision not to adjust U.S. 
price for CVDs offsetting export subsidies is consistent with 
Department practice. They contend that the statute provides for an 
upward adjustment to U.S. price in order to account for CVDs imposed to 
offset export subsidies. See section 772(c)(1)(C) of the Act. 
Petitioners state that should the Department determine not to deduct 
CVDs from U.S. price because these duties are not imposed, it should 
also not make any upward adjustment to U.S. price for CVDs offsetting 
export subsidies for the same reason. Furthermore, if the Department 
treats the CVDs as not final, and determines to makes a downward 
adjustment to the cash deposit rate for CVDs offsetting export 
subsidies, it should also make an upward adjustment to the duty deposit 
rate for all other CVDs. Petitioners argue that if such an adjustment 
is made to the cash deposit rate, the applicable CVD rate must be 
applied to entered value, and not reported EP.
    Petitioners argue that it is the Department's practice to calculate 
subsidy rates by allocating the benefit received over the f.o.b. 
foreign port value of the respondent's sales. They state that since the 
export subsidy rate is calculated using f.o.b. foreign port prices, the 
adjustment to U.S. price for CVDs offsetting export subsidies should 
also be calculated in this way; and that the percentage of the CVD rate 
attributable to export subsidies must be applied to entered value. 
However, according to petitioners, because respondents failed to 
reported entered value to the Department in their sales submissions, 
the adjustment cannot be made and respondents' request must be denied.
    The POSCO group retorts that the Department was correct, in 
accordance with section 772(c)(1)(C) of the Act, in increasing EP by 
the amount of the CVD imposed to offset export subsidies, and adds that 
petitioners' contention that the adjustment be based on the entered 
value of the merchandise has no basis in the statute.
    DOC Position. For purposes of these final results, we agree with 
Dongbu and Union that they are entitled to a 0.05 percent ad valorem 
adjustment to U.S. price for cold-rolled products and to a 0.10 percent 
ad valorem adjustment to U.S. price for corrosion-resistant products, 
in accordance with section 772(c)(1)(C) of the Act. Moreover, we 
disagree with petitioners' claim that an increase to U.S. price to 
account for export subsidies implies that the remaining portion of the 
CVDs paid on those shipments must be deducted from U.S. price. Also, 
nothing in the statute indicates that the upward adjustment should be 
based on entered value rather than on U.S. price, and it is not our 
practice to do so.
Comments by POSCO
    Comment 45. The POSCO group asserts that the Department erred in 
including foreign exchange gains and

[[Page 18443]]

losses in interest expense. The POSCO group maintains that the foreign 
exchange gains and losses were not related to the production of the 
subject merchandise. The POSCO group states the gains and losses were 
either not realized during the POR or were amortized forward from a 
prior period. The POSCO group argues that these categories of exchange 
gains or losses do not in any way capture actual costs incurred during 
the POR or costs incurred to produce the subject merchandise.
    The POSCO group argues that the Department erroneously overstated 
POSCO's interest expense by basing the denominator in its interest 
expense calculation on the cost of goods sold as reported in POSCO's 
consolidated financial statement, rather than on the higher amount that 
the Department calculated for POSCO's COM during the POR. The POSCO 
group urges the Department first to increase the cost of goods sold to 
reflect any adjustments the Department makes to POSCO's COM before 
dividing POSCO's interest expense by that amount.
    Petitioners reply that the foreign-exchange translation losses are 
related to the cost of acquiring debt. Thus, they are related to 
production and are properly included in the calculation of POSCO's net 
interest expense. Petitioners cite Micron, which held that, to the 
extent that a respondent's translation losses resulted from debt 
associated with production of the subject merchandise, such losses are 
a legitimate component of the COP. Petitioners conclude that whether 
POSCO's foreign exchange gains and losses were realized during the POR 
is immaterial. They resulted from debt associated with production of 
the subject merchandise, and were, accordingly, properly included in 
the reported costs.
    DOC Position. We agree with petitioners that including foreign-
exchange translation losses in net interest expense is appropriate. The 
translation losses at issue are related to the cost of acquiring debt 
and thus are related to production and are properly included in the 
calculation of the POSCO group's net interest expense. The CIT has 
upheld this practice, stating in Micron that ``[t]o the extent that 
respondent's translation losses resulted from debt associated with 
production of the subject merchandise, such losses are a legitimate 
component of COP.'' See Micron at 33. Therefore, we increased POSCO's 
cost of goods sold to reflect our fair-value adjustments for the final 
results.
    Comment 46. The POSCO group contends that the Department 
erroneously included severance benefit expenses that were attributable 
to years prior to the POR in our calculation of G&A. The POSCO group 
cites section 773(f)(1)(B) of the Act, which directs the Department to 
adjust the COP for those nonrecurring costs that benefit current or 
future production, or both. The POSCO group argues that prior-period 
severance benefits are nonrecurring costs that do not benefit current 
or future production and therefore should not be included in the COP. 
The POSCO group cites the Final Results of Antidumping Duty 
Administrative Review: Certain Cut-to-Length Carbon Steel Plate from 
Germany, 61 FR 13834, 13837 (March 28, 1996), to support its contention 
that the Department does not adjust actual production costs incurred 
during the POR to reflect severance costs related to prior periods.
    Petitioners claim the severance benefits were properly included in 
G&A because the POSCO group's omission of this expense understated, and 
failed reasonably to reflect, the costs associated with the production 
and sale of the subject merchandise in accordance with the statute. 
Petitioners take issue with the POSCO group's characterization of 
severance benefits as non-recurring costs. Petitioners cite the Final 
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled 
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat 
Products, Certain Corrosion-Resistant Carbon Steel Flat Products, and 
Certain Cut-to-Length Carbon Steel Plate from Japan, 58 FR 37154, 37174 
(July 9, 1993), to support their position that severance benefits are 
not non-recurring items and should be included in G&A.
    The POSCO group argues that charitable donations should be excluded 
from G&A since donations to charitable causes clearly do not relate to 
activities undertaken to manufacture and sell cold-rolled and 
corrosion-resistant steel products, but rather are payments to support 
the society at large. The POSCO group further argues that charitable 
donations do not fall within any other category of costs that are 
required to be included in the COP under the statute, such as 
materials, fabrication, labor, overhead, or packing costs.
    Petitioners respond that the POSCO group's charitable contributions 
clearly benefit the POSCO group's research and development efforts 
which are clearly activities undertaken to manufacture and sell cold-
rolled and corrosion resistant steel products. Petitioners cite the 
Final Determination of Sales at Less Than Fair Value: Sweaters Wholly 
or in Chief Weight of Man-Made Fiber from Hong Kong, 55 FR 30733, 30741 
(July 27, 1990), to support their position that the Department's 
practice is to include donations as a part of the G&A component of the 
COP and CV.
    DOC Position. We disagree with the POSCO group that the prior-
period severance benefits at issue do not relate to the current POR. In 
1994, POSCO settled a lawsuit brought by current and former employees 
regarding severance benefits promised to employees upon departure. 
POSCO charged the additional severance benefits associated with prior 
periods directly to retained earnings in accordance with generally 
accepted accounting principles in Korea (``Korean GAAP''). However, we 
have determined that including the prior-period severance benefit as an 
element of COP is appropriate because the POSCO group's omission of 
this severance benefit understates and does not reasonably reflect the 
costs associated with the production and sale of the subject 
merchandise pursuant to U.S. GAAP. If the POSCO group had followed U.S. 
GAAP, it would have reported this expense currently and not as a charge 
to retained earnings. According to Financial Accounting Standards Board 
Statement No. 16 (1977), paragraph ten, `` * * * all items of profit 
and loss recognized during a period, including accruals of estimated 
losses from loss contingencies, shall be included in the determination 
of net income for that period.'' Furthermore, this pronouncement 
requires that losses from lawsuits, income tax disputes, and similar 
events be included in the measurement of net income for the current 
period and should not be treated as prior-period adjustments. 
Accordingly, because we have determined that this method reasonably 
reflects the costs associated with the production and sale of the 
subject merchandise, we have included the severance benefits in general 
expenses.
    We have included donations in G&A because contributions to 
charitable causes represent a general expense of the company, providing 
the firm with valuable commercial exposure and recognition in the 
marketplace. General expenses are appropriately included in the COP and 
CV of the merchandise under investigation according to sections 
773(b)(3)(B) and 773(e)(2)(A) of the Act.
    Comment 47. The POSCO group claims the Department made several 
cost-related clerical errors in the preliminary results. First, the 
POSCO group claims the Department applied the wrong factor when the 
Department adjusted the substrate costs to reflect

[[Page 18444]]

fair value for corrosion-resistant products manufactured by POCOS. 
Second, in the sales-below-cost program, the POSCO group alleges the 
Department failed to increase the home-market price by interest revenue 
before comparing the result to the COP. Lastly, the POSCO group argues 
that the Department incorrectly applied the fair-value adjustment in 
situations where cost was higher than the transfer price. The POSCO 
group claims it is inappropriate to apply a percentage figure to a 
basis different from the data from which the percentage was calculated. 
Further, the POSCO group claims the adjustment was intended to increase 
only the value of the substrate; the Department's adjustment, however, 
multiplied this factor by the COM, which includes additional materials 
as well as labor and overhead expenses.
    DOC Position. The POSCO group's contention that we used the wrong 
factor to adjust the substrate costs to reflect fair value for 
corrosion-resistant products manufactured by POCOS is moot since we 
have not used either the major-input or fair-value provisions for these 
final results. We agree that interest revenue should be included in the 
home-market price which we did not include in the preliminary results. 
We have corrected this error for the final results. The issue of 
whether we applied the correct adjustment factor in cases where we 
selected the actual cost of a CONNUM is moot, since we did not apply 
the major-input rule in these final results.
    Comment 48. The POSCO group argues that the Department erred by 
reducing the post-sale warehousing expense for one warehouse because 
the Department mistakenly thought the expense was not at arm's length.
    Petitioners argue that the Department appropriately reduced POSCO's 
expenses for the warehouse. Petitioners state that the POSCO group 
failed to indicate before verification that the warehouse was owned by 
an affiliated party or to provide evidence that the expenses were at 
arm's length, and the Department should not presume that they were.
    DOC Position. During the sales verification in Korea, the POSCO 
group informed us that the warehouse in question was owned by an entity 
that was affiliated with POSCO. See Korea sales verification report at 
71. Included in the POSCO group's proposed list of POSCO expenses 
associated with this warehousing, in addition to expenses directly 
incurred by POSCO, such as those for labor, crane operations, and 
maintenance (see pages 70-71 of the public version of the Korea sales 
verification report), is an additional payment to the affiliated party. 
It is not clear from the record what, if any, were the expenses to the 
affiliated party that were associated with this payment.
    In the preliminary results we deducted from the reported expense a 
share of the additional payment to the affiliated party corresponding 
to the ownership share POSCO held in that party. Given the information 
on the record, we consider this portion of the payment to be an 
internal transfer of funds. Consequently, we have maintained the 
adjustment to the reported post-sale warehousing expense that we made 
in the preliminary results.
    Comment 49. The POSCO group argues that the Department erred by 
failing to convert warehousing expenses to an actual-weight basis. The 
POSCO group notes that it indicated explicitly in its February 27, 
1996, submission that POSCO reported all expenses in a manner 
consistent with the manner in which the product was sold. The POSCO 
group states that no exceptions to this rule were indicated, nor were 
any such exceptions found during verification and, therefore, the 
Department has no basis for not converting this expense to an actual-
weight basis.
    Petitioners argue that the per-unit warehousing expense is not 
unambiguously expressed on a theoretical-weight basis or an actual-
weight basis according to the weight basis of the sale. Petitioners 
indicate that because per-unit warehousing expenses are not expressed 
on a theoretical-weight basis for sales made on a theoretical-weight 
basis, the Department's decision not to divide warehousing expenses for 
those sales by the weight conversion factor was appropriate.
    DOC Position. We agree with petitioners. The POSCO group indicated 
it calculated post-sale warehousing expenses for each warehouse by 
dividing total aggregate expenses incurred at the warehouse by total 
quantity of steel at the warehouse. For sales involving specific 
warehouses, the POSCO group reported the same per-ton post-sale 
warehousing expense regardless of whether the sales were on an actual-
weight basis or a theoretical-weight basis. This indicates that the 
POSCO group was reporting the per-ton expense on the same basis for all 
sales. Consequently, no further adjustment is appropriate.
    It is possible that the total reported quantities for each 
warehouse, which were used to calculate the per-ton expense for the 
respective warehouses, were based on a mix of both theoretical and 
actual weights. However, there is no evidence on the record that the 
total reported quantities were based on such a mix of weight bases and, 
even if there were such evidence, the adjustment proposed by the POSCO 
group would not correct such an underlying methodological problem.
    As a result of the aforementioned review of reported warehousing 
expenses for sales made on a theoretical-weight basis, we discovered 
that none of the per-ton warehousing expenses provided by the POSCO 
group at verification were used in the post-sale warehousing field for 
several home-market sales. See Korea sales verification exhibit 78 at 
10. The value used for those sales is the last figure reported in 
Exhibit 7 of the POSCO group's July 31, 1996, submission. Although the 
POSCO group asserted in the cover letter to that July 31, 1996, 
submission that the information in the attached exhibits contained the 
``corrections'' that ``were presented to the Department during the 
sales verification conducted from July 15-27, 1996,'' the figure in 
question was not presented to the Department at verification, and there 
is no explanation of its derivation on the record. Consequently, for 
the final results we are denying this adjustment to all home market 
sales for which that unverified and unexplainable figure was reported 
as a post-sale warehousing expense.
    Furthermore, the POSCO group indicated at verification that an 
average per-ton expense across all warehouses had been used for sales 
by Kyung Ahn and POSTEEL (see Korea sales verification report at 69 and 
70); therefore, we have limited the post-sale warehousing expense for 
sales by these entities to no more than the recalculated average 
warehousing expense. See Attachment A to the October 8, 1996, 
memorandum from Steve Bezirganian to the Files.
    Comment 50. The POSCO group argues that the Department erroneously 
failed to increase the home-market price used in the cost test by 
interest revenue received by the POSCO group due to late payments by 
customers. Petitioners did not comment on this issue.
    DOC Position. We agree with the POSCO group, and have increased the 
net price used in the cost test by the reported interest revenue for 
each sales observation.
Comments by Union
    Comment 51. Union claims that the Department inadvertently omitted 
to add duty drawback to the U.S. gross unit price when calculating net 
EP and CEP, as required by statute, and requests

[[Page 18445]]

that the Department correct its margin calculation program accordingly.
    DOC Position. We agree and have corrected our margin calculation 
program accordingly.
    Comment 52. Union argues that the Department erred in combining 
Union's net interest expenses with those of DSM and DKI, since (1) 
under Korean GAAP, Union is not considered to be a controlled 
subsidiary of any other company and is not required to be consolidated 
with any other company; and (2) the Department verified that neither 
DSM nor DKI has a controlling interest in Union and that Union's 
financial statements are not consolidated with either of the two other 
companies. Union submits that the Department itself answered the 
question of whether, or under what circumstances, the Department can 
unilaterally create a consolidated interest rate when the companies at 
issue are not in fact consolidated or required to be consolidated, in 
its Notice of Final Determination of Sales at Less Than Fair Value: 
Aramid Fiber Formed of Poly-Phenylene Terephthalamide from the 
Netherlands, 59 FR 23684, 23688 (May 6, 1994) (``Aramid Fiber''). In 
Aramid Fiber the Department clarified that where there are no 
consolidated statements, the issue is whether the parent company had 
``sufficient control'' over the subsidiary, as indicated by equity 
ownership, to warrant consolidation under foreign GAAP. Union adds that 
in Aramid Fiber the Department cited two earlier cases in which it had 
found evidence of ``sufficient control.'' In both cases the parent 
company owned at least 50 percent of the subsidiary. See, e.g., Final 
Determination of Sales at Less Than Fair Value: Certain Carbon Steel 
Butt-Weld Pipe Fittings from Thailand, 57 FR 21065 (May 18, 1992); 
Final Determination of Sales at Less Than Fair Value: Ferrosilicon from 
Brazil, 59 FR 732 (January 6, 1994). Union argues that neither of the 
above conditions are met since DKI's and DSM's equity ownership in 
Union is far less than 50 percent and Korean GAAP do not recognize the 
existence of a parent-subsidiary relationship between DSM or DKI and 
Union.
    Union also states that there is no evidence on the record of DSM's 
or DKI's involvement in the financing activities of Union. In Aramid 
Fiber, says Union, the Department refused to create a consolidated 
interest expense for the respondent even though:
    <bullet> A parent-subsidiary relationship clearly existed;
    <bullet> The parent company owned 50 percent of the subsidiary's 
equity;
    <bullet> The parent and subsidiary shared joint control over the 
subsidiary's operations;
    <bullet> The parent and the subsidiary were consolidated after the 
POR; and
    <bullet> The parent financed the subsidiary's transactions.

Even though none of these circumstances applied to Union's relationship 
with DKI and DSM, Union points out, the Department chose to create a 
consolidated interest rate for Union. Furthermore, Union states, in two 
recent Korean cases the Department did not consolidate interest 
expenses because the companies involved were not consolidated in the 
normal course of business. See, e.g., DRAMs and Final Determination of 
Sales at Less Than Fair Value: Polyethylene Terephthalate Film, Sheet 
and Strip from the Republic of Korea, 56 FR 16305 (April 22, 1991).
    For all the foregoing reasons, Union argues that the Department 
should reverse its preliminary decision and cease consolidating Union 
interest expenses with those of DSM and DKI.
    Petitioners take issue with Union's contention that the 
Department's decision to combine Union's interest expenses with those 
of DSM and DKI is ``neither supported by facts nor by Department policy 
and precedent.'' Indeed, say petitioners, not only did Union make (and 
the Department reject) the same argument in the first administrative 
review, but Union has presented in this review no new arguments that 
would change this conclusion. Petitioners assert that the Department 
does not impose any requirement that firms be formally consolidated 
before combining their interest expenses, as claimed by Union Steel. 
Rather, the Department attempts to determine whether a control 
relationship exists between a respondent and its affiliates. Where 
there is no evidence of significant control, say petitioners, the 
Department will not calculate a combined interest rate, even when two 
firms have a parent-subsidiary relationship on the basis of equity. 
However, when there is a control relationship, the Department will 
calculate a consolidated interest rate even if the two firms did not 
prepare consolidated financial statements. In the first and instant 
reviews of cold-rolled carbon steel flat products, petitioners point 
out, the Department collapsed Union and DKI because they had 
intertwined operations, shared production facilities and board members, 
and were under the common control of the Chang family through its 
ownership in DSM. Therefore, petitioners argue, DSM's level of control 
over DKI and Union warrants the calculation of a consolidated interest 
expense for all three firms. Petitioners claim the cases of Aramid 
Fiber and PET Film cited by Union are inapposite, since in those cases 
the Department did not find sufficient control of the subsidiary by the 
parent. For these reasons, petitioners contend, the Department was 
fully justified in calculating a consolidated interest expense for 
Union, DSM, and DKI.
    DOC Position. For the final results, we calculated a combined net 
interest factor using Union's, DSM's, and DKI's audited financial 
figures obtained from verification exhibits, respondent's submissions, 
and public records. This methodology of calculating a single net 
interest factor is consistent with our longstanding practice for 
computing interest expenses in cases involving parent-subsidiary 
corporate relationships. In contrast to Aramid Fiber, we have 
established that parental control exists. DSM's ownership interest in 
Union and DKI places the parent in a position to influence Union's 
financial borrowing and overall capital structure. We note that, 
contrary to Union's assertions that Union is an independent company and 
not controlled by DSM, the two companies share common directors and 
related stockholders. Based on this information, we do not see how 
Union's operations are independent of its parent to such an extent that 
we should ignore our normal practice of computing interest. See Notice 
of Final Determination of Sales at Less Than Fair Value; Certain Carbon 
Steel Butt-Weld Pipe Fittings from Thailand, 60 FR 10552, 10557 
(February 27, 1995). Additionally, we find it appropriate to combine 
the financing costs of these three companies in this instant review 
because we consider the financing costs of the parent and its 
subsidiaries to be fungible. Furthermore, the facts of these reviews 
differ from both DRAMS and PET Film with regard to combining interest 
expense factors. In DRAMS and PET Film the respondents requested that 
the Department combine limited brother-sister companies to derive a 
consolidated group-level interest expense factor. In those cases, 
however, we determined that a consolidated group-level interest factor 
was inappropriate because, while the respondents' own financial 
statements were audited, those of the sister companies and the group-
level financial statements were unaudited. As we stated in DRAMS, 
absent detailed testing usually associated with an audit, the 
Department cannot rely on the

[[Page 18446]]

statements as submitted. See DRAMs, DOC Position for Comment 24, at 
15475. In the instant review, by contrast, each of the entities in 
question--Union, DSM, and DKI--prepared separate audited financial 
statements, which we could therefore combine to calculate a group-level 
interest expense factor based on Union's assertions that no significant 
inter-company transactions existed.
    Comment 53. Union contends the Department erred by failing to 
differentiate products with disparate paint types that have different 
costs and commercially meaningful different physical characteristics, 
and arbitrarily combining them into a single category, contrary to the 
statutory requirement that the Department make comparisons wherever 
possible between products with identical physical characteristics.
    Union argues the Department has unreasonably aggregated five very 
different paint categories of painted products: (1) Polyester; (2) 
silicone polyester; (3) high-polymer polyester; (4) abrasion-resistant 
steel (``ARS'') texture; and (5) print. Union maintains these products 
have significantly different:
    <bullet> Uses: for example, polyester-coated products are used for 
roofing and siding due to their resistance to chemicals and weather, 
while high-polymer polyester-coated products are used in home 
appliances and electronics on account of their resistance to heat, 
abrasion, and impact;
    <bullet> Material costs: The differences in physical 
characteristics lead to substantially different manufacturing costs;
    <bullet> Values: Union's customers would not be willing to pay 
substantial premiums for certain painting categories such as high-
polymer polyester if the differences in products were as negligible as 
assumed in the Department's model-match hierarchy.

Union claims the CIT has ruled that ``Commerce must adjust for physical 
differences between the products if satisfied that any price 
differential is wholly or partly the result of such physical 
differences.'' See Hussey Copper, Ltd. v. United States, 895 F. Supp. 
311, 313 (1995) (``Hussey'') (emphasis added by Union). By treating 
regular polyester-coated products as identical to silicone polyester, 
high-polymer polyester, and other painted products, the Department, 
Union argues, is violating the statutory requirement of fair 
comparisons and the specific mandate of section 771(16)(A) of the Act 
for comparisons, wherever possible, between products with ``identical 
physical characteristics.'' Union, therefore, requests that the 
Department use the alternative product concordance and difference-in-
COM data it has submitted.
    Petitioners retort that Union's arguments do not address the 
criteria used by the Department to establish product categories and 
determine product comparisons. By focusing on the prices and costs of 
different painted products, petitioners argue, Union ignores the 
Department's longstanding practice of using physical characteristics as 
the primary basis for creating product categories. Petitioners contend 
that the Department could accept Union's proposed alternate painted 
categories only if Union were able to demonstrate that the various 
paint types are so dissimilar that they cannot be compared. According 
to petitioners, the record does not support Union's claims that its 
paint types have different physical characteristics and applications. 
As an example, they cite regular polyester and silicon-polyester 
paints, which both have weather and chemical resistance and can be used 
for the exterior surfaces of buildings. Petitioners contend that 
Union's own descriptions of its various paint types indicate that the 
physical similarities between paint types far outweigh any differences. 
Moreover, they contend that even if the costs and prices of paint types 
were relevant to the creation of paint categories in the Department's 
model-match hierarchy, which they are not, the differences in costs and 
prices among painted products are neither significant nor systematic, 
to the extent that they exist at all. Petitioners therefore urge the 
Department to disregard Union's proposed alternate paint categories.
    DOC Position. We agree with petitioners that Union provided 
insufficient information to support the further differentiation of 
painted products in the Department's model-match hierarchy. Contrary to 
Union's assertions, the uses and applications of the merchandise are 
not dispositive in this analysis. Rather, the Department looks to 
physical differences and adjusts for them ``if satisfied that any price 
differential is wholly or partly the result of such physical 
differences.'' Hussey at 313.
    Union contends that the different uses of products with distinct 
paint coatings demonstrate that each paint coating imparts different 
properties to the steel (e.g., corrosion-resistance, heat resistance, 
etc.). Although Exhibit B-4 of Union's November 27, 1996, response to 
sections B and C of our antidumping questionnaire (with respect to 
corrosion-resistant products) purports to list the physical properties 
of Union's various paint types, a close examination of the data 
presented in that exhibit reveals that the properties listed are all 
extremely general in nature (e.g., ``gloss,'' ``semi-gloss,'' and 
``flat'') and are repeated in every paint category. Other alleged 
physical properties listed by Union, such as ``drying time,'' 
``spreading rate,'' and ``specific gravity'' are not even physical 
properties at all. Union, therefore, has not demonstrated the precise 
nature of the respective properties of its paint categories, or the 
actual physical differences in the paints that impart such properties, 
nor has it offered any analysis of whether, or to what extent, 
differences in physical characteristics between its paint categories 
have resulted in cost differences.
    As the CAFC has found, products possessing similar physical 
characteristics need not be ``technically substitutable, purchased by 
the same types of customers, or applied to the same end use'' in order 
to be compared as ``identical'' merchandise within the meaning of 
section 771(16)(A) of the Act. See Koyo Seiko Co. v. United States, 66 
F.3d 1204, 1210 (Fed. Cir. 1995) (quoting Tapered Roller Bearings, 
Finished and Unfinished, from Japan; Final Results of Antidumping Duty 
Administrative Review, 56 FR 41508, 41511 (August 21, 1991)). Given the 
tremendous number of variations within carbon steel product categories, 
the Department may define certain products as ``identical'' even though 
they contain minor differences. See, e.g., Certain Cold-Rolled Carbon 
Steel Flat Products from Germany; Final Results of Antidumping 
Administrative Review, 60 FR 65264, 65271 (December 19, 1995) and Final 
Determination of Sales at Less Than Fair Value; Gray Portland Cement 
and Clinker from Mexico, 55 FR 29244, 29247-48 (July 18, 1990). Union's 
argument ignores the obvious fact that a product characteristic 
hierarchy cannot possibly account for every single possible difference 
between products--a result not required by Hussey. A range of products 
may thus be considered ``identical'' within the meaning of the statute. 
Therefore, we have disregarded the alternative product concordance and 
difference-in-COM data Union has submitted.
    Comment 54. Union argues the Department erred by removing Union's 
scrap revenue from Union's COM, thereby lowering the COM denominator 
for general expenses and profit allocations. This would have been 
justified, Union says, only if scrap revenue had elsewhere been 
credited to

[[Page 18447]]

costs, which is not the case. Union surmises that the Department may 
have based its decision on the first review of corrosion-resistant 
products, when scrap revenue was included in miscellaneous income, and 
therefore was double-counted when included as an offset to COM. In this 
review, however, Union contends that scrap revenue was not part of 
miscellaneous income, was not used to reduce Union's general expenses, 
and was already included in Union's COM.
    Petitioners retort that Union's argument is factually inaccurate, 
because verification exhibits demonstrate that: (1) Scrap material 
costs are included among the manufacturing costs recorded in Union's 
COM statements, and (2) Union recorded profits from scrap sales as 
sales revenues, not as adjustments to manufacturing costs. The 
Department, they claim, found no evidence that Union reduced its COM by 
the amount of the scrap revenue. Rather, say petitioners, the record 
shows that the manufacturing costs recorded in Union's COM statements 
were used to determine the cost of sales in the financial statements, 
so that the cost of sales has not been reduced by the amount of scrap 
revenue, as the denominator of the allocation ratios for general 
expenses and interest expenses. Petitioners urge the Department to 
continue to deduct Union's scrap revenue from cost of sales in order to 
ensure that per-unit general expenses and interest expenses are 
calculated accurately for purposes of the final review results.
    DOC Position. We agree with petitioners. Using its normal cost 
accounting system, Union prepares COM statements that reflect revenue 
from the sale of scrap credited against production costs. However, 
Union's cost of sales figure does not reflect this same reduction 
because Union reclassifies and recognizes this sale of scrap as sales 
revenue instead of as an offset to cost. The cost of producing the 
scrap remains a manufacturing cost and is included in the company's 
cost of sales. Union's chart of accounts (see cost verification exhibit 
6) and Union's reconciliation of sales revenue (see cost verification 
exhibit 8) confirm this financial accounting treatment. Therefore, we 
reduced Union's reported cost of sales figure by the 1994 scrap 
revenues that Union used to offset manufacturing costs to determine the 
proper denominator for the G&A and financing ratios.
    Comment 55. Union contends the Department erred by excluding 
foreign-exchange transaction gains and losses from Union's reported 
general expenses on the grounds that they related to accounts 
receivable and were therefore more appropriately treated as selling 
expenses than as administrative expenses. The Department's calculation 
of general expenses, says Union, includes indirect selling expenses as 
well as administrative expenses. Consequently, Union contends, the net 
transaction gain on currency conversion should be included in general 
expenses; otherwise, this expense will not be captured in the dumping 
calculation.
    Petitioners retort that Union misstates the Department's position 
with regard to the gains and losses at issue. The Department, 
petitioners contend, never stated that these gains and losses should be 
classified as selling expenses; rather, the Department was concerned 
that Union included them in general expenses when these gains and 
losses do not relate to the production of subject merchandise. It is 
for that reason, according to petitioners, that the Department excluded 
these gains and losses from Union's calculated costs in the first 
administrative review. Petitioners urge the Department not to modify 
its treatment of foreign-exchange gains and losses.
    DOC Position. We agree with petitioners. Union calculated its net 
translation gains from foreign currency gains on accounts receivable 
balances. However, our normal practice is to exclude exchange gains and 
losses on accounts receivable balances because the gains occurred after 
the sale date and, therefore, are not relevant to our margin 
calculations. See, e.g., Final Determination of Sales at Less than Fair 
Value: Fresh Pasta from Turkey, 61 FR 30309, 30324 (June 14, 1996) and 
Final Determination of Sales at Less Than Fair Value: Small Diameter 
Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure 
Pipe from Italy, 60 FR 31981, 31991 (June 19, 1995). For these final 
results we excluded Union's net translation gains from accounts 
receivable balances denominated in foreign currency.
    Comment 56. Union argues the Department erred by treating pre-sale 
freight and warehousing expenses as indirect selling expenses. Union 
submits that the URAA for the first time establishes that home-market 
movement charges are to be deducted from NV in all cases, without being 
subject to a ``direct/indirect'' test like selling expenses, and 
regardless of whether they occur before or after sale. See section 
773(a)(6)(B)(ii) of the Act. Union also submits that the SAA requires 
all movement charges to be deducted from normal value and does not 
provide for them to be calculated sale by sale or analyzed in terms of 
their ``direct'' or ``indirect'' nature. See SAA at 151. Union 
therefore requests that the Department deduct all home-market movement 
charges, including pre-sale freight and warehousing expenses, from NV.
    DOC Position. We agree with Union and have deducted all home-market 
movement charges, including pre-sale freight and warehousing expenses, 
from NV for these final results.
    Comment 57. Union argues that the Department, for purposes of 
converting certain movement charges from a gross-weight to a net-weight 
basis, incorrectly adjusted the field USOTREU rather than the field 
DBROKU.
    DOC Position. We agree with Union and have made this correction for 
these final results.
    Comment 58. Union contends the Department erred by not using the 
most recent data sets in applying the arm's-length test and in 
establishing the product concordance.
    DOC Position. We agree with Union and have used the appropriate 
data sets in these final results.

Final Results of Review

    As a result of this review, we have determined that the following 
margins exist for the period August 1, 1994, through July 31, 1995:

             Certain Cold-Rolled Carbon Steel Flat Products             
------------------------------------------------------------------------
                                                              Weighted- 
                                                               Average  
               Producer/Manufacturer/Exporter                   Margin  
                                                              (percent) 
------------------------------------------------------------------------
Dongbu.....................................................         0.10
Union......................................................         0.15
POSCO......................................................         0.54
------------------------------------------------------------------------


         Certain Corrosion-Resistant Carbon Steel Flat Products         
------------------------------------------------------------------------
                                                              Weighted- 
                                                               Average  
               Producer/Manufacturer/Exporter                   Margin  
                                                              (percent) 
------------------------------------------------------------------------
Dongbu.....................................................         0.00
Union......................................................         1.09
POSCO......................................................         0.09
------------------------------------------------------------------------

    The Department shall determine, and the U.S. Customs Service shall 
assess, antidumping duties on all appropriate entries. The Department 
shall issue appraisement instructions directly to the Customs Service.
    Furthermore, the following deposit requirements shall be effective 
upon publication of this notice of final results

[[Page 18448]]

of review for all shipments of certain cold-rolled and corrosion-
resistant carbon steel flat products from Korea entered, or withdrawn 
from warehouse, for consumption on or after the publication date, as 
provided for by section 751(a)(1) of the Act: (1) The cash deposit 
rates for the reviewed companies named above will be the rates for 
those firms as stated above; (2) for previously investigated companies 
not listed above, the cash deposit rate will continue to be the 
company-specific rate published for the most recent period; (3) if the 
exporter is not a firm covered in these reviews, or the original LTFV 
investigations, but the manufacturer is, the cash deposit rate will be 
the rate established for the most recent period for the manufacturer of 
the merchandise; and (4) if neither the exporter nor the manufacturer 
is a firm covered in these reviews, the cash deposit rate will continue 
to be 14.44 percent (for certain cold-rolled carbon steel flat 
products) and 17.70 percent (for certain corrosion-resistant carbon 
steel flat products), which were the ``all others'' rates in the LTFV 
investigations. See Flat-Rolled Final at 37191.
    Article VIpara.5 of the GATT (cited earlier) provides that ``[n]o 
product * * * shall be subject to both antidumping and countervailing 
duties to compensate for the same situation of dumping or export 
subsidization.'' This provision is implemented by section 772(d)(1)(D) 
of the Act. Since antidumping duties cannot be assessed on the portion 
of the margin attributable to export subsidies, there is no reason to 
require a cash deposit or bond for that amount. Accordingly, the level 
of export subsidies as determined in Final Affirmative Countervailing 
Duty Determinations and Final Negative Critical Circumstances 
Determinations; Certain Steel Products from Korea (58 FR 37328--July 9, 
1993), which is 0.05 percent ad valorem, will be subtracted from the 
cash deposit rate for deposit purposes.
    The deposit requirements, when imposed, shall remain in effect 
until publication of the final results of the next administrative 
reviews.
    This notice serves as a final reminder to importers of their 
responsibility under 19 CFR Sec. 353.26 to file a certificate regarding 
the reimbursement of antidumping duties prior to liquidation of the 
relevant entries during this review period. Failure to comply with this 
requirement could result in the Secretary's presumption that 
reimbursement of antidumping duties occurred and the subsequent 
assessment of double antidumping duties.
    This notice also serves as a reminder to parties subject to 
administrative protective order (``APO'') of their responsibility 
concerning the disposition of proprietary information disclosed under 
APO in accordance with section 353.34(d) of the Department's 
regulations. Timely notification of return/destruction of APO materials 
or conversion to judicial protective order is hereby requested. Failure 
to comply with the regulations and the terms of an APO is a 
sanctionable violation.
    These administrative reviews and notice are in accordance with 
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and Sec. 353.22 of 
the Department's regulations.

    Dated: April 2, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-9424 Filed 4-14-97; 8:45 am]
BILLING CODE 3510-DS-P