18404 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

This notice also serves as a reminder

to parties subject to administrative

protective orders (APOs) of their

responsibility concerning the

disposition of proprietary information

disclosed under APO in accordance

with 19 CFR 353.34(d)(1). Timely

written notification of the 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.

This administrative review and notice

are in accordance with section 751(a)(1)

of the Act 19 U.S.C. 1675(a)(1) and 19

CFR 353.22(c)(5).

Dated: April 2, 1997.

Robert S. LaRussa,

Acting Assistant Secretary for Import

Administration.

[FR Doc. 97–9423 Filed 4–14–97; 8:45 am]

BILLING CODE 3510–DS–P

DEPARTMENT OF COMMERCE

International Trade Administration

[A–580–815 & A–580–816]

Certain Cold-Rolled and CorrosionResistant 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.

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-thanfair-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 coldrolled (cold-reduced) carbon steel flatrolled 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 corrosionresistant 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 flatrolled 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 (‘‘tinfree 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 flatrolled products, which are three-layered

corrosion-resistant carbon steel flatrolled 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:

• ‘‘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’’).

• ‘‘[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.

• ‘‘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.’’
18406 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

• ‘‘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’’).

• ‘‘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).

• ‘‘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).

• ‘‘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)

• ‘‘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.

• ‘‘Domestic steel prices are under

government control * * *’’ John

Burton, ‘‘Strong export prices boost

POSCO 119 percent,’’ Financial Times,

Feb. 8, 1996.

• ‘‘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.

• ‘‘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 coldrolled 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 hotrolled 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 traderelated 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.
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 Englishlanguage 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 hotcoil 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
18408 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 governmentmandated 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 governmentimposed 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 thirdcountry 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 homemarket 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 longterm 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
18410 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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. Customerspecific ‘‘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 nonsubject 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 pricereporting 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
18412 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 minimill, 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 exfactory 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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
18414 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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:

• POSCO holds a 50 percent equity

interest in POCOS;

• DSM owns a 49.99 percent equity

interest in POCOS;

• The remaining 0.01 percent of

POCOS’’ equity is held by the son-inlaw of Mr. Sang Tae Chang, chairman of

the DSM group;

• The Department has determined

DSM to have, through the Chang family,

a controlling interest in Union;

• 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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-inlaw 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:

• BUS is the importer of record for

Union in the United States, and AKO

purchases subject merchandise from

Union in Korea; and

• 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 hotrolled 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
18416 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 hotrolled 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 homemarket sales verification report and

exhibit 99 of Union’s sales verification

report show that import prices were

lower than POSCO’s prices for hotrolled 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, longstanding 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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
18418 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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:

• 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.

• 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-tolength carbon steel plate from Germany

(with respect to A.G. der Dillinger

Hu ̈ttenwerke—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.

• 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 ‘‘minireview,’’ 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 Sta ̊l 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.

• 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:

• 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.

• 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.

• 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 CorrosionResistant 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.

§ 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
18420 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 VI¶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 doublecounting, for the following reasons.

• 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.

• 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.

• 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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, ‘‘dutyfree’’ 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
18422 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 exportsubsidy CVD and an AD duty,

calculated with no adjustment for that

CVD, would impose a double remedy

specifically prohibited by Article VI¶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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 longstanding 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
18424 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 postproduction 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, postproduction 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).
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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
18426 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

initially claimed as its excuse for

omitting partial returns that it had overreported 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 homemarket 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 homemarket 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.
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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
18428 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 CONNUMspecific costs and found that the cost

data were allocated to a sufficient level

of product detail following our modelmatch instructions. See CorrosionResistant 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 perunit 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 ‘‘fairvalue’’ and ‘‘major-input’’ provisions in

this case. The POSCO group argues that

the fair-value provision and the majorinput 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
18430 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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-belowcost 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 fairvalue 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 majorinput 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 coldrolled 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,
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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
18432 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 productspecific 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 salesrelated 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 CorrosionResistant 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
18434 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 CorrosionResistant 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 homemarket 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 InternalCombustion, 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 CorrosionResistant 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.
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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-toback’’ 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
18436 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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, § 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 homemarket sales that were not tensionleveled.

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 coldrolled 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 tensionleveled. 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 CorrosionResistant 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 minorityinterest, acknowledged that overrun

sales were not comparable to nonoverrun 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 homemarket 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 homemarket 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 homemarket sales databases. In fact, they

constitute a considerably smaller

portion of overall sales than did the

forecasted 1997 share of POSCO hotrolled 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 CONNUMspecific 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
18438 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 yearend occurs outside the POR. In support

of their position, petitioners cite NonAlloy 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) (‘‘FlatRolled 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 § 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 yearend 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 ButtWeld 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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
18440 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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.
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 highvolume 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 homemarket 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 homemarket 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:

• The merchandise was obsolete;

• The merchandise was defective

(e.g., thinner than planned); or

• 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 thirdcountry market.

Respondent argues that it is not

affiliated with POSCO, that petitioners

have not demonstrated that Union is

reliant upon or controlled by POSCO,
18442 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 foreigncurrency-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 foreigncurrency-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 VI¶ 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; CorrosionResistant 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 foreignexchange 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 foreignexchange 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-toLength 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 priorperiod 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
18444 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 homemarket price by interest revenue before

comparing the result to the COP. Lastly,

the POSCO group argues that the

Department incorrectly applied the fairvalue 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 actualweight basis.

Petitioners argue that the per-unit

warehousing expense is not

unambiguously expressed on a

theoretical-weight basis or an actualweight 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 theoreticalweight 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 homemarket 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 parentsubsidiary 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:

• A parent-subsidiary relationship

clearly existed;

• The parent company owned 50

percent of the subsidiary’s equity;

• The parent and subsidiary shared

joint control over the subsidiary’s

operations;

• The parent and the subsidiary were

consolidated after the POR; and

• 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
18446 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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:

• Uses: for example, polyester-coated

products are used for roofing and siding

due to their resistance to chemicals and

weather, while high-polymer polyestercoated products are used in home

appliances and electronics on account

of their resistance to heat, abrasion, and

impact;

• Material costs: The differences in

physical characteristics lead to

substantially different manufacturing

costs;

• 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, highpolymer 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 modelmatch 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 corrosionresistant 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
Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices 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 foreignexchange 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 grossweight 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’slength 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

Producer/Manufacturer/Exporter

WeightedAverage

Margin (percent)

Dongbu ..................................... 0.10

Union ......................................... 0.15

POSCO ..................................... 0.54

CERTAIN CORROSION-RESISTANT

CARBON STEEL FLAT PRODUCTS

Producer/Manufacturer/Exporter

WeightedAverage

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
18448 Federal Register / Vol. 62, No. 72 / Tuesday, April 15, 1997 / Notices

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 companyspecific 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 VI¶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 § 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 § 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

DEPARTMENT OF COMMERCE

International Trade Administration

[A–122–822 & A–122–823]

Certain Corrosion-Resistant Carbon

Steel Flat Products and Certain Cut-toLength Carbon Steel Plate From

Canada: Final Results of Antidumping

Duty Administrative Reviews

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of

antidumping duty administrative

reviews.

SUMMARY: On October 4, 1996, the

Department of Commerce (the

Department) published the preliminary

results of its administrative reviews of

the antidumping duty orders on certain

corrosion-resistant carbon steel flat

products and certain cut-to-length

carbon steel plate from Canada. These

reviews cover four 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 upon our analysis of the

comments received, we have changed

the results from those presented in the

preliminary results of review.

We determine that sales have been

made below normal value (‘‘NV’’) by

various companies subject to these

reviews. Thus, we will instruct U.S.

Customs to assess antidumping duties

based on the difference between the

export price (‘‘EP’’) or constructed

export price (‘‘CEP’’) and the NV.

EFFECTIVE DATE: April 15, 1997.

FOR FURTHER INFORMATION CONTACT:

Robert Bolling (Continuous Colour Coat

(‘‘CCC’’)), Eric Johnson (Dofasco Inc.

and Sorevco Inc. (‘‘Dofasco’’)), Greg

Weber (Algoma, Inc. (‘‘Algoma’’)), N.

Gerard Zapiain (Stelco, Inc. (‘‘Stelco’’)),

or Jean Kemp, Import Administration,

International Trade Administration,

U.S. Department of Commerce, 14th

Street and Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone:

(202) 482–3793.

SUPPLEMENTARY INFORMATION:

The Applicable Statute

Unless otherwise indicated, all

citations to the statute refer 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

On October 4, 1996, the Department

published in the Federal Register (61

FR 51892) the preliminary results of its

administrative reviews of the

antidumping duty orders on certain

corrosion-resistant carbon steel flat

products and certain cut-to-length

carbon steel plate from Canada. We gave

interested parties an opportunity to

comment on our preliminary results. We

received written comments on

November 4, 1996 from Algoma, CCC,

Dofasco/Sorevco, Stelco and from the

petitioners: Bethlehem Steel

Corporation, U.S. Steel Group (a Unit of

USX Corporation), Inland Steel

Industries Inc., Gulf States Steel Inc. of

Alabama, Sharon Steel Corporation,

Geneva Steel, and Lukens Steel

Company. We received rebuttal

comments on November 12, 1996 from

interested parties.

As we noted in the preliminary

results of review, on February 28, 1996,

the petitioners requested that the

Department determine whether

antidumping duties had been absorbed

by Algoma, Dofasco, and Stelco (for

corrosion-resistant only) during the

POR, pursuant to section 751(a)(4) of the

Act. Section 751(a)(4) provides that the

Department, if requested, will determine

during an administrative review

initiated two years or four years after