[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40404-40422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20017]


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DEPARTMENT OF COMMERCE

International Trade Administration
(A-580-829)


Notice of Final Determination of Sales at Less Than Fair Value: 
Stainless Steel Wire Rod From Korea

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

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT: Cameron Werker or Frank Thomson, 
Import Administration, International Trade Administration, U.S. 
Department of Commerce, 14th Street and Constitution Avenue, NW, 
Washington, DC 20230; telephone: (202) 482-3874 or (202) 482-5254, 
respectively.

The Applicable Statute

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (the Act), are references to the provisions effective 
January 1, 1995, the effective date of the amendments made to the Act 
by the Uruguay Round Agreements Act (URAA). In addition, unless 
otherwise indicated, all citations to the Department's regulations are 
to the regulations at 19 CFR part 351, 62 FR 27296 (May 19, 1997).

Final Determination

    We determine that stainless steel wire rod (SSWR) from Korea is 
being sold in the United States at less than fair value (LTFV), as 
provided in section 735 of the Act. The estimated margins are shown in 
the ``Suspension of Liquidation'' section of this notice.

Case History

    The preliminary determination in this investigation was issued on 
February 25, 1998. See Notice of Preliminary Determination of Sales at 
Less Than Fair Value and Postponement of Final Determination: Stainless 
Steel Wire Rod from Korea, 63 FR 10825 (March 5, 1998) (Preliminary 
Determination). Since the preliminary determination, the following 
events have occurred:
    In March 1998, we issued supplemental questionnaires to and 
received responses from three respondents in this case, Changwon 
Specialty Steel Co., Ltd. (Changwon), Dongbang Special Steel Co., Ltd. 
(Dongbang), and Pohang Iron and Steel Co., Ltd. (POSCO).
    In April 1998, we verified the sales and cost questionnaire 
responses of these three companies. In June 1998, Changwon submitted a 
revised U.S. sales database at the Department's request.
    The petitioners (i.e., AL Tech Specialty Steel Corp., Carpenter 
Technology Corp., Republic Engineered Steels, Talley Metals Technology, 
Inc., and the United Steel Workers of America, AFL-CIO/CLC) and the 
respondents submitted case briefs on June 5, 1998, and rebuttal briefs 
on June 10, 1998. At the request of all parties, the public hearing 
scheduled for June 11, 1998, was canceled.

Scope of Investigation

    For purposes of this investigation, SSWR comprises products that 
are hot-rolled or hot-rolled annealed and/or pickled and/or descaled 
rounds, squares, octagons, hexagons or other shapes, in coils, that may 
also be coated with a lubricant containing copper, lime or oxalate. 
SSWR is made of alloy steels containing, by weight, 1.2 percent or less 
of carbon and 10.5 percent or more of chromium, with or without other 
elements. These products are manufactured only by hot-rolling or hot-
rolling, annealing, and/or pickling and/or descaling, are normally sold 
in coiled form, and are of solid cross-section. The majority of SSWR 
sold in the United States is round in cross-sectional shape, annealed 
and pickled, and later cold-finished into stainless steel wire or 
small-diameter bar.
    The most common size for such products is 5.5 millimeters or 0.217 
inches in diameter, which represents the smallest size that normally is 
produced on a rolling mill and is the size that most wire-drawing 
machines are set up to draw. The range of SSWR sizes normally sold in 
the United States is between 0.20 inches and 1.312 inches diameter. Two 
stainless steel grades, SF20T and K-M35FL, are excluded from the scope 
of the investigation. The chemical makeup for the excluded grades is as 
follows:

                                  SF20T                                 
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Carbon....................................  0.05 max.                   
Manganese.................................  2.00 max.                   
Phosphorous...............................  0.05 max.                   
Sulfur....................................  0.15 max.                   
Silicon...................................  1.00 max.                   
Chromium..................................  19.00/21.00                 
Molybdenum................................  1.50/2.50                   
Lead......................................  added (0.10/0.30)           
Tellurium.................................  added (0.03 min)            
------------------------------------------------------------------------


                                 K-M35FL                                
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Carbon....................................  0.015 max.                  
Silicon...................................  0.70/1.00                   
Manganese.................................  0.40 max.                   
Phosphorous...............................  0.04 max.                   
Sulfur....................................  0.03 max.                   
Nickel....................................  0.30 max.                   
Chromium..................................  12.50/14.00                 
Lead......................................  0.10/0.30                   
Aluminum..................................  0.20/0.35                   
------------------------------------------------------------------------

    The products under investigation are currently classifiable under 
subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and 
7221.00.0075 of the Harmonized Tariff Schedule of the United States 
(HTSUS). Although the HTSUS subheadings are provided for convenience 
and customs purposes, the written description of the scope of this 
investigation is dispositive.

Period of Investigation

    The period of investigation (POI) is July 1, 1996, through June 30, 
1997.

Affiliation and Collapsing of Respondents

    For the reasons stated in the Preliminary Determination, we have 
continued to collapse POSCO and Changwon as affiliated producers in 
accordance with section 351.401(f) of our regulations. Furthermore, as 
stated in the Preliminary Determination, we examined more closely at 
verification

[[Page 40405]]

the issue of affiliation between POSCO/Changwon and Dongbang, 
particularly with respect to the factors surrounding a close supplier 
relationship between the entities. As a result of our analysis, we 
determined that these companies are affiliated within the meaning of 
section 771(33)(G) of the Act and section 351.102(b) of the 
Department's regulations through a close supplier relationship in which 
POSCO/Changwon is operationally in a position to exercise restraint or 
direction over Dongbang. Moreover, we found that these producers have 
production facilities for identical or similar products that would not 
require substantial retooling of either facility in order to 
restructure manufacturing priorities, and that there is significant 
potential for the manipulation of price and production. Therefore, in 
accordance with section 351.401(f) of our regulations, we collapsed 
POSCO/Changwon and Dongbang as a single entity for purposes of our 
final dumping analysis. For further discussion, see POSCO Comment 2 in 
the ``Interested Party Comments'' section of this notice. We note that 
prior to collapsing these entities, it was necessary to make certain 
adjustments to each of the individual companies' submitted data, based 
on verification findings and our positions discussed in this notice. 
These adjustments are discussed below in the appropriate sections of 
this notice.

Fair Value Comparisons

    To determine whether sales of SSWR from Korea to the United States 
were made at less than fair value, we compared the Export Price (EP) to 
the Normal Value (NV). Our calculations followed the methodologies 
described in the preliminary determination, except as noted below and 
in company-specific analysis memoranda dated July 20, 1998.
    On January 8, 1998, the Court of Appeals for the Federal Circuit 
issued a decision in CEMEX v. United States, 133 F.3d 897 (Fed 
Cir.1998). In that case, based on the pre-URAA version of the Act, the 
Court discussed the appropriateness of using constructed value (CV) as 
the basis for foreign market value when the Department finds home 
market sales to be outside the ``ordinary course of trade.'' This issue 
was not raised by any party in this proceeding. However, the URAA 
amended the definition of sales outside the ``ordinary course of 
trade'' to include sales below cost. See Section 771(15) of the Act. 
Consequently, the Department has reconsidered its practice in 
accordance with this court decision and has determined that it would be 
inappropriate to resort directly to CV, in lieu of foreign market 
sales, as the basis for NV if the Department finds foreign market sales 
of merchandise identical or most similar to that sold in the United 
States to be outside the ``ordinary course of trade.'' Instead, the 
Department will use sales of similar merchandise, if such sales exist. 
The Department will use CV as the basis for NV only when there are no 
above-cost sales that are otherwise suitable for comparison. Therefore, 
in this proceeding, when making comparisons in accordance with section 
771(16) of the Act, we considered all products sold in the home market 
as described in the ``Scope of Investigation'' section of this notice, 
above, that were in the ordinary course of trade for purposes of 
determining appropriate product comparisons to U.S. sales. Where there 
were no sales of identical merchandise in the home market made in the 
ordinary course of trade to compare to U.S. sales, we compared U.S. 
sales to sales of the most similar foreign like product made in the 
ordinary course of trade, based on the characteristics listed in 
Sections B and C of our antidumping questionnaire. We have implemented 
the Court's decision in this case, to the extent that the data on the 
record permitted.
    We made product comparisons based on the same characteristics and 
in the same general manner as that outlined in the preliminary 
determination. As in the preliminary determination, in instances where 
a respondent has reported a non-AISI grade (or an internal grade code) 
for a product that falls within an AISI category, we have used the 
actual AISI grade rather than the non-AISI grade reported by the 
respondents for purposes of our analysis. In instances where the 
chemical content ranges of a reported non-AISI grade (or an internal 
grade code) are outside the parameters of an AISI grade, we have used 
the internal grade code reported by the respondents for analysis 
purposes. However, in instances in which an internal grade matches all 
the specified chemical content tolerance ranges of an AISI grade, but 
the internal grade also contains amounts of chemicals that are not 
otherwise specified as being included in the standard AISI designation, 
we have used the corresponding AISI grade rather than the internal 
grade. For further discussion, see General Comment 1 in the 
``Interested Party Comments'' section of this notice.
    In addition, since we have determined that Dongbang, Changwon, and 
POSCO comprise one entity for this final determination, consistent with 
Certain Cold-Rolled and Corrosion-Resistant Carbon Flat Products from 
Korea, 62 FR 18417 (April 15, 1997) (1997 Flat Products from Korea), we 
have treated any sales made between the parties comprising the single 
entity as intra-company transfers, and have disregarded them from our 
analysis accordingly.

Export Price

    We used EP methodology as defined in section 772(a) of the Act. See 
Changwon Comment 4 in the ``Interested Party Comments'' section of this 
notice for a discussion regarding the classification of U.S. sales 
reported by Changwon. We calculated EP based on the same methodology 
used in the preliminary determination, with the following exceptions:

A. Data Reported by Changwon

    1. We corrected for certain clerical errors found during 
verification with respect to: 1) the ocean freight expense for six U.S. 
sales and 2) the packing costs for the export (Hessian) packing type.
    2. We recalculated duty drawback based on rebates which had 
actually been received by Changwon, as explained in Changwon Comment 6 
in the ``Interested Party Comments'' section of this notice.

B. Data Reported by Dongbang

    1. In accordance with the Department's position in General Comment 
1 in the ``Interested Party Comments'' section of this notice, we 
reclassified internal grade XM-7 as AISI grade 302, given that the 
chemical content tolerances for grade XM-7 fell within those for AISI 
grade 302.
    2. We corrected for clerical errors found during verification 
regarding the actual bank charges for seven U.S. sales.
    3. We corrected for errors in Dongbang's brokerage charges, as 
explained in Dongbang Comment 8 in the ``Interested Party Comments'' 
section of this notice.

Normal Value

    We used the same methodology to calculate NV as that described in 
the preliminary determination, with the following exceptions:

A. Data Reported by Changwon

    1. In accordance with the Department's position in General Comment 
1 in the ``Interested Party Comments'' section of this notice, we 
reclassified internal grades SUS 304HC and AISI 304HC as AISI grade 
304, given that the content tolerances for

[[Page 40406]]

grades SUS 304HC and AISI 304HC fell within those for AISI grade 304.
    2. We corrected for certain clerical errors found during 
verification with respect to: (1) the average credit period (i.e., 
accounts receivable turnover period) for seven home market customers, 
(2) the warranty expense for one home market sale, and (3) the packing 
costs for domestic (Hessian) and domestic (Bare) types of home market 
packing.
    3. We recalculated duty drawback for home market local sales (i.e., 
domestic sales to customers who consume the merchandise in Korea in the 
production of finished goods for export, the destination of which is 
unknown to Changwon at the time of sale) based on rebates which had 
actually been received by Changwon, as explained in Changwon Comment 6 
in the ``Interested Party Comments'' section of this notice.

B. Data Reported by Dongbang

    1. In accordance with the Department's position in General Comment 
1 in the ``Interested Party Comments'' section of this notice, we 
reclassified internal grade XM-7 as AISI grade 302, given that the 
chemical content tolerances for grade XM-7 fell within those for AISI 
grade 302.
    2. We corrected for certain clerical errors found during 
verification, including (1) the date of payment for three home market 
local sales, (2) the average credit period for one home market 
customer, and (3) the interest revenue for three home market customers 
and the interest revenue ratio applicable to three other home market 
sales.

Cost of Production

    Before making any fair value comparisons, we conducted the cost of 
production (COP) analysis for the reasons stated in the Preliminary 
Determination. Based on our decision to collapse POSCO, Changwon, and 
Dongbang as a single entity, we calculated the weighted-average COP, by 
model, based on the sum of each respondent's cost of materials and 
fabrication for the foreign like product at the level in which each 
respondent was responsible for manufacturing operations. In addition, 
we included amounts for home market selling, general, and 
administrative (SG&A) expenses for each company involved in the 
manufacture of each given product, and packing costs in accordance with 
section 773(b)(3) of the Act. We relied on the submitted COPs except in 
the following specific instances where the submitted costs were not 
appropriately quantified or valued:

A. Data Reported by Changwon

    1. As stated above, we computed the weighted-average COP, by model, 
based on the sum of each respondent's cost of materials and fabrication 
for the foreign like product at the level in which each respondent was 
responsible for manufacturing operations. Therefore, for products 
produced by Changwon which included material inputs from POSCO, the COP 
was calculated by adding POSCO's applicable cost of manufacturing (COM) 
and general expenses to Changwon's applicable costs.
    2. In accordance with the Department's position in General Comment 
1 in the ``Interested Party Comments'' section of this notice, we 
reclassified internal grades SUS 304HC and AISI 304HC as AISI grade 304 
given that the chemical content tolerances for grades SUS 304HC and 
AISI 304HC fell within those for AISI grade 304.
    3. As stated in Changwon Comment 2 in the ``Interested Party 
Comments'' section of this notice, we increased Changwon's reported 
indirect selling expenses by the unreported recognized bad debt 
expenses. We also increased Changwon's reported general and 
administrative (G&A) expenses for foundation, business start-up, and 
stock issuance expenses.
    4. We used G&A and interest expense data from POSCO's 1996 
financial statements and G&A expense data from Changwon's 1997 
financial statements in the calculation of COP. See Changwon Comment 3 
in the ``Interested Party Comments'' section of this notice.

B. Data Reported by Dongbang

    1. As stated above, we computed the weighted-average COP, by model, 
based on the sum of each respondents' cost of materials and fabrication 
for the foreign like product at the level in which each respondent was 
responsible for manufacturing operations. Therefore, for products 
produced by Dongbang which included material inputs from POSCO, the COP 
was calculated by adding POSCO's applicable COM and general expenses to 
Dongbang's applicable costs. In attempting to merge the cost data 
provided by POSCO and Dongbang for COP calculation purposes, we found 
that for three steel grades sold by Dongbang and POSCO with the same 
internal codes, the chemical specifications were slightly different. 
Company officials stated at verification that Dongbang's internal grade 
codes are the same as POSCO's for reasons of efficiency in ordering and 
production (see Memorandum for Holly Kuga from Cameron Werker and Frank 
Thomson Re: Verification of the Responses of Dongbang Special Steel 
Co., Ltd. in the Antidumping Duty Investigations of Stainless Steel 
Wire Rod from the Republic of Korea, dated May 29, 1998 at page 5). 
Therefore, in order to assign the POSCO cost portion of the COP of 
these three products, we applied facts otherwise available in 
accordance with section 776(a) of the Act. As facts available, we used 
POSCO's reported costs for the same internal grade code (see Sales, 
Cost of Production (``COP''), and Constructed Value (``CV'') Adjustment 
Calculations in the Final Determination of Stainless Steel Wire Rod 
from the Republic of Korea--Changwon Specialty Steel Co., Ltd., 
Dongbang Special Steel Co., Ltd., and Pohang Iron and Steel Co., Ltd. 
(POSCO), dated July 20, 1998) (Final Determination Calculation 
Memorandum).
    2. In accordance with the Department's position in General Comment 
1 in the ``Interested Party Comments'' section of this notice, we 
reclassified internal grade XM-7 as AISI grade 302 given that the 
chemical content tolerances for grade XM-7 fell within those for AISI 
grade 302.
    3. As stated in Dongbang Comments 3 and 4 in the ``Interested Party 
Comments'' section of this notice, we increased Dongbang's G&A expenses 
for recognized net foreign exchange losses related to accounts except 
accounts receivable, and excluded from Dongbang's G&A calculation the 
disputed reversal of bad debt allowance.
    We conducted our sales-below-cost test in the same general manner 
as that described in our preliminary determination. However, for 
purposes of the final determination, given that we collapsed POSCO/
Changwon and Dongbang, the sales-below-cost test was conducted on 
Changwon's and Dongbang's home market sales on a consolidated basis. As 
in the preliminary determination, we did not include POSCO's home 
market sales of black coil for product comparison purposes, and, 
therefore, these sales were excluded from the sales-below-cost test.
    We found that, for certain models of SSWR, more than 20 percent of 
Dongbang's and Changwon's home market sales within an extended period 
of time were at prices less than the COP. Further, the prices did not 
provide for the recovery of costs within a reasonable period of time. 
We therefore disregarded the below-cost sales and used the remaining 
above-cost sales as the basis

[[Page 40407]]

for determining NV, in accordance with section 773(b)(1). For those 
U.S. sales of SSWR for which there were no comparable home market sales 
in the ordinary course of trade, we compared EPs to CV in accordance 
with section 773(a)(4) of the Act.

Constructed Value

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of the respondents' cost of materials and fabrication 
for the U.S. products at the level in which each respondent was 
responsible for manufacturing operations. We also included appropriate 
amounts for G&A expenses, U.S. packing costs, direct and indirect 
selling expenses, interest expenses, and profit. We relied on the 
submitted CVs except for specific changes described above in the ``Cost 
of Production'' section. In addition, for Dongbang, in accordance with 
the Department's position in General Comment 1 in the ``Interested 
Party Comments'' section of this notice, we have reclassified internal 
grade XM-7 as AISI grade 302 given that the chemical content tolerances 
for grade XM-7 fell within those for AISI grade 302.

Price-to-Price Comparisons

    We made price-to-price comparisons using the same methodology as 
that described in the preliminary determination.

Price-to-CV Comparisons

    We made price-to-CV comparisons using the same methodology as that 
described in the preliminary determination.

Currency Conversion

    As in the preliminary determination, we made currency conversions 
into U.S. dollars based on the exchange rates in effect on the dates of 
the U.S. sales as certified by the Federal Reserve Bank in accordance 
with Section 773A of the Act.

Interested Party Comments

General

Comment 1: Product Codes

    Petitioners state that the Department should ensure that all 
product codes designated by respondents correspond to standard AISI 
codes for matching purposes. Petitioners maintain that respondents 
should not be permitted to rely on internal grade designations for 
products that would otherwise fit within a standard AISI grade simply 
because they have added small amounts of chemicals (e.g., copper or 
molybdenum) that are not otherwise specified as being included in the 
standard AISI grade designation.
    Petitioners urge the Department to ensure that all internal product 
codes designated by the respondents in their questionnaire responses 
correspond to a standard AISI code for matching purposes. Otherwise, 
the petitioners assert, the methodology of relying on internal grade 
designations for products that are only sold in the home market 
impermissibly allows respondents to exclude certain high-priced sales 
in the home market from the model match process simply by giving 
selected internal grade designations a special code in the model match 
process that would never then be compared to a U.S. sale of a similar 
product with a different grade code.
    Changwon and Dongbang argue that if an internal grade does not fall 
within the chemical content ranges of an AISI grade, there is no basis 
to conclude that the merchandise within the internal grade has similar 
component materials, commercial value, or uses as the merchandise 
within an AISI grade. Changwon and Dongbang state that petitioners' 
argument is unreasonable and speculative. Changwon and Dongbang state 
that the Department should continue to apply its model match 
methodology from the Preliminary Determination.

DOC Position

    We agree with both petitioners and respondents, in part. We agree 
with respondents regarding the designation of internal grade codes for 
model matching purposes. As in the preliminary determination, we have 
continued to utilize a methodology in which we reclassified any 
internal grade code as an AISI grade if it fell within the chemical 
content tolerance ranges provided by internationally-accepted 
standards. In instances in which the properties of an internal grade 
did not match the specified chemical content tolerance ranges of any 
AISI grade, we have continued to recognize the internal grade as the 
appropriate grade for product comparison purposes.
    However, we also agree with petitioners that in instances in which 
an internal grade matches all the specified chemical content tolerance 
ranges of an AISI grade, but that the internal grade also contains 
amounts of chemicals (e.g., copper or molybdenum) that are not 
otherwise specified as being included in the standard AISI designation, 
it is appropriate to classify the internal grade as the AISI grade. 
Therefore, we have reclassified all such internal grades as AISI grades 
accordingly. See Final Determination Calculation Memorandum) for 
further discussion of the models that were reclassified.
POSCO

Comment 1: POSCO's Cost Verification

    Petitioners argue that it is clear from the record that POSCO 
failed its cost verification because the Department was unable to 
verify POSCO's cost of production submissions. Specifically, 
petitioners maintain that POSCO officials deliberately withheld POSCO's 
actual trial balance with account codes from the verification team. 
Petitioners interpret the cost verification report to mean that POSCO 
company officials denied the existence of a trial balance which 
contained account codes when one was requested by the verification 
team. Petitioners maintain that the verification team learned from 
POSCO's independent auditors that such a trial balance did exist. 
Petitioners further maintain that POSCO's failure to provide a proper 
trial balance prevented the Department from reconciling POSCO's overall 
costs and also prevented the Department from verifying the cost 
information submitted by POSCO. Petitioners state that POSCO's failure 
to present usable 1996 and 1997 trial balances to reconcile POI COM 
costs, as requested by the Department, forced the Department to review 
instead the inventory ledger and attempt to reconcile it to the COM for 
the POI. As a result, petitioners assert that POSCO failed its cost 
verification. Petitioners argue that POSCO's decision not to cooperate 
with the verification team means that POSCO withheld information 
requested by the Department, and failed to provide information in the 
form and manner requested, with the result that POSCO significantly 
impeded the proceeding.
    Petitioners further argue that because POSCO failed to cooperate by 
not acting to the best of its ability to comply with a request for 
information, the Department should use an adverse inference in 
determining the facts available for POSCO's unverified cost 
information. Petitioners cite several cases in which the Department has 
resorted to total adverse facts available when the Department was 
unable to verify costs and other significant information (e.g., Certain 
Welded Carbon Steel Pipes and Tubes from Thailand (62 FR 53808, October 
16, 1997) and Certain Cut-to-Length Carbon Steel Plate from Sweden (62 
FR 18396, April 15, 1997)).
    Furthermore, petitioners maintain that because Changwon, POSCO's 
wholly-owned subsidiary, and POSCO

[[Page 40408]]

are collapsed for sales and margin purposes for this investigation, and 
because POSCO failed verification, the combined POSCO/Changwon entity 
has failed verification and, therefore, total adverse facts available 
should be applied to the combined entity.
    In the alternative, petitioners argue that if the Department does 
not collapse Changwon and POSCO for the final determination, as a 
surrogate for POSCO's COP, the Department should choose the higher of 
the following two measures: (1) The total of the highest amounts paid 
by Changwon for each element in its COP for subject merchandise, or (2) 
the highest NV from the petition.
    Moreover, if the Department determines that POSCO and Changwon 
should not be collapsed, petitioners maintain that the Department 
should apply the ``major input'' rule and the ``transactions 
disregarded'' rule to the transfers between POSCO and Changwon, using 
the higher of the two surrogates described above as a proxy for POSCO's 
COP and then comparing that proxy with the market price and the 
transfer price to determine which is higher. Moreover, petitioners 
contend that because black coil is within the scope of this 
investigation, the prices for transfers of black coil from POSCO to 
Changwon should be subject to the arm's-length test.
    Changwon and POSCO (Changwon/POSCO) jointly state that the 
Department has fully verified the actual COM inputs transferred from 
POSCO to Changwon. Changwon/POSCO claim that, while the Department's 
cost verification report asserts that the Department was unable to 
reconcile the trial balance to the audited financial statements in the 
manner it originally intended, the report indicates that the Department 
successfully reconciled the trial balance to the audited financial 
statements. Specifically, Changwon/POSCO state that POSCO initially 
provided the Department with its trial balance (without account codes) 
maintained in the ordinary course of business. At the Department's 
request, POSCO also created a trial balance that contained account 
codes. The Department examined the trial balance, compared it to the 
trial balance used by POSCO's auditors, and confirmed that the trial 
balance reconciled to the audited financial statements.
    Changwon/POSCO next address the section of the cost verification 
report that states that POSCO officials did not provide either a 
reconciliation from the cost accounting system to the costs recorded in 
the trial balance, or schedules showing the activity for each home base 
product group (HBPV) (also called home base product value), i.e., the 
beginning balance, the current period's manufacturing costs, the value 
of the product removed from inventory, and the ending balances of the 
HBPG. Changwon/POSCO disagree, stating that POSCO did provide a 
reconciliation of the costs recorded in POSCO's cost accounting system 
and the audited financial statements, and that the trial balance 
likewise reconciles to the costs recorded in the cost accounting 
system. Changwon/POSCO add that POSCO did not provide separate 
schedules showing the activity for each HBPG but, as is described in 
the verification report, all of the requested information was available 
directly from the inventory ledgers themselves.
    Changwon/POSCO assert that the Department fully verified the 
reported control number-specific costs by successfully reconciling the 
representative product group values used to calculate the control 
number-specific costs to the corresponding HBPG's, and reconciling 
these values to the audited financial statements. Changwon/POSCO state 
that this is demonstrated in the Department's verification report.
    Furthermore, Changwon/POSCO refute petitioners argument that the 
Department was unable to perform an overall reconciliation, asserting 
that nowhere in the verification report does the Department indicate 
that POSCO's reported costs could not be traced to the costs recorded 
in POSCO's financial and cost accounting systems.
    Changwon/POSCO assert that POSCO has cooperated fully with the 
Department and that, contrary to petitioners' allegations, POSCO has 
been fully responsive to the Department's requests for information. 
Changwon/POSCO also state that POSCO did not withhold documents from 
the Department at the cost verification and argue that the cost 
verification report confirms this fact.
    Changwon/POSCO maintain that, if the Department were to find that 
it was dissatisfied with POSCO's reconciliation of its reported costs, 
application of total adverse facts available to the collapsed entity 
would be unwarranted. Changwon/POSCO contend that the Department may 
only apply total facts available to a respondent if it finds that the 
entire response is no longer usable, which according to respondents, is 
not the case in this situation. Changwon/POSCO argue that if the 
Department were to make an adjustment to POSCO's reported costs, it 
would be confined to modifying the adjustment factor applied to 
Changwon's COM.
    Finally, Changwon/POSCO maintain that the cases cited by 
petitioners in support of their argument for adverse facts available 
are irrelevant in this case because the Department has fully verified 
POSCO's submitted costs and the facts of those cases are totally 
distinguishable from those in this case.

DOC Position

    We disagree with petitioners. POSCO did not fail its cost 
verification, as we were able to successfully verify POSCO's COP 
submissions. Contrary to petitioners' interpretation of the cost 
verification report, we do not agree that POSCO's failure to provide a 
trial balance with account codes prevented the Department from 
reconciling POSCO's overall costs and that it also prevented the 
Department from verifying the cost information submitted by POSCO. Upon 
request, POSCO provided two separate trial balances; one with account 
codes and one with account names. The trail balance with only account 
names was maintained in the ordinary course of business. The balances 
on these two trial balances were equal and reconciled to the financial 
statements. We also do not agree with petitioners that POSCO failed to 
cooperate with the Department in a manner that significantly impeded 
the verification proceeding. In fact, we were able to perform several 
additional procedures, including a reconciliation of the inventory 
ledger, from which the reported per-unit costs were derived, to the 
financial statements. See Memorandum from Michael Martin and Cameron 
Werker to Irene Darzenta Re: Verification Report on the Cost of 
Production and Major Input Cost Data submitted by Pohang Iron and Steel 
Co., Ltd. Therefore, we have accepted POSCO's reported cost information 
for purposes of this final determination. Regarding the portion of 
petitioners argument pertaining to collapsing of POSCO and Changwon, 
see POSCO Comment 2 in the ``Interested Party Comments'' section of 
this notice.

Comment 2: Affiliation between POSCO and Dongbang

    Petitioners claim that the relationship between Dongbang and POSCO 
satisfies all of the statutory and regulatory requirements necessary 
for the Department to find that these two companies are affiliated. 
Petitioners cite section 771(33)(G) of the Act, which states that ``a 
person shall be considered to control another person if the person is 
legally or operationally in a position to exercise restraint or 
direction over the

[[Page 40409]]

other person.'' Petitioners note that actual restraint or direction 
need not have been exercised in a relationship, only that one person is 
``in a position'' to exercise restraint or direction over another. 
Petitioners further state that section 351.102(b) of the Department's 
regulations states that the Department will not find control based on 
factors such as the existence of franchise or joint venture agreements, 
debt financing, and close supplier relationships in determining the 
existence of control ``unless the relationship has the potential to 
impact decisions concerning the production, pricing, or cost of the 
subject merchandise or foreign like product.'' Petitioners stress that 
the potential impact on the decision-making process is the key 
criterion, not actual exercise of that potential.
    Petitioners argue that POSCO exercises control over Dongbang 
primarily through a close buyer-supplier relationship. Petitioners 
state that in Open-End Spun Rayon Singles Yarn from Austria (62 FR 
43707, August 15, 1997) (Yarn from Austria), the Department focused on 
a ``majority of sales'' rule in determining whether a close supplier 
relationship existed, not whether the supplier could be replaced. 
Petitioners maintain that the POSCO/Changwon collapsed entity is a 
supplier of Dongbang's input and has the ability to control Dongbang by 
threatening to slow or stop deliveries, threatening to increase prices, 
or actually taking these steps. Petitioners argue that the Department's 
verification confirmed the cohesive nature of the buyer-supplier 
relationship between POSCO and Dongbang. Specifically, petitioners 
state that POSCO's recent decision to stop production of black coil has 
no effect on this relationship given that Changwon, which is collapsed 
with POSCO, ``assumed the responsibility of producing black coil for 
the POSCO Group.'' Moreover, petitioners state, POSCO/Changwon's status 
as the only supplier of black coil in Korea enhances its control of 
Dongbang. Petitioners assert that as a result of the level of control 
POSCO maintains over Dongbang, the two companies must be deemed 
affiliated parties.
    In addition to the close supplier relationship, petitioners argue 
that a variety of other indicia of control, when considered 
cumulatively, demonstrate that POSCO controls Dongbang. For example, 
petitioners contend POSCO may exercise indirect control of more than 
five percent of the voting stock of Dongbang through POSCO's 
relationship with POSTECH. Petitioners also state that POSCO's 
interlocking directorate scheme with POSTECH, donations to POSTECH, 
their co-location, and other indicia of control add overwhelming 
evidence of POSCO's effective, albeit extralegal, control of Dongbang.
    Petitioners further argue that the Department's regulations and 
past cases demonstrate that more than one company can exercise control 
over another and, thus, Dongbang's membership in the Dongbang group 
does not preclude POSCO from exercising control over Dongbang (see 
Welded Carbon Steel Pipes and Tubes from Thailand (62 FR 53814, October 
16, 1997)).
    Petitioners also argue that because POSCO and Dongbang are 
affiliates, the Department should invoke the major input rule in 
evaluating the sale of black coil, which is the foreign like product, 
from POSCO to Dongbang.
    In determining whether two parties are affiliated based on a buyer-
supplier relationship, Dongbang argues that the Department must find 
that one of the parties is in fact reliant upon the other, as stated in 
the Statement of Administrative Action (SAA). Dongbang further argues 
that section 351.102(b) of the Department's regulations indicates that 
one of the parties must have the ``potential to impact the other 
party's decisions concerning production, pricing, or cost of the 
subject merchandise.'' Dongbang maintains that the term ``potential'' 
indicates that not only must there be a possibility that a party will 
exert control over the other party, but that there is an inherent 
likelihood that control could be exerted. Citing 1997 Flat Products 
from Korea, Dongbang asserts that the Department must find significant 
indicia of control and the standard is not whether one company might be 
in a position to become reliant upon another by means of a supplier-
buyer relationship, but that the buyer has, in fact, become reliant 
upon the seller, or vice versa. As a result, Dongbang maintains that 
only after an initial finding that a buyer or supplier has become 
reliant upon the other can the Department examine whether a realistic 
potential for control, whereby one of the parties is in a position to 
exercise restraint or control over the other, exists based upon that 
actual reliance.
    Dongbang maintains that the fact that petitioners were unable to 
cite a single case in which the Department found that a buyer-supplier 
relationship constituted sufficient potential control to support a 
finding of affiliation, confirms that the Department is applying the 
buyer-supplier relationship provision cautiously to stay mindful of the 
commercial and business realities of the marketplace. Dongbang 
maintains that even though the Department indicated in Yarn from 
Austria that a close buyer-supplier relationship may occur if a 
majority of a supplier's sales are to one customer, the Department 
determined that the existence of this situation does not alone support 
the finding of affiliation. Likewise, Dongbang notes that in Furfuryl 
Alcohol from the Republic of South Africa, 62 FR 61086 (November 14, 
1997) (Furfuryl Alcohol from South Africa), the Department determined 
that the fact that there was only one manufacturer of the subject 
merchandise in South Africa was insufficient to find that the 
manufacturer and its customers were affiliated.
    In this instance, Dongbang argues that there is no evidence on the 
record that Dongbang is reliant upon POSCO to the extent necessary to 
support an affiliation finding. Dongbang contends that petitioners have 
only speculated that it is possible that POSCO could control Dongbang 
through threats of stopping deliveries or increasing prices. However, 
Dongbang maintains that there is no evidence that POSCO could or has 
exerted such control. Dongbang further maintains that the record 
demonstrates that it has alternate sources of black coil, as black coil 
is a commodity product produced by numerous suppliers around the world. 
In addition, Dongbang asserts that there are no long-term supply 
contracts or exclusive relationship commitments between Dongbang and 
POSCO, nor is there evidence of any law or regulation prohibiting 
Dongbang from purchasing black coil from any source that it desires. 
Dongbang argues that this fact pattern led the Department to find that 
POSCO and Union were not affiliated in the 1997 Flat Products from 
Korea case and that the same logic applies to the instant case.
    Dongbang further states that petitioners have failed to present any 
evidence to contradict the proposition that Dongbang's purchases of a 
majority of its black coil requirements from POSCO was the result of 
POSCO's comparative advantages, location, product quality, and other 
circumstances, rather than a ``special control relationship between 
POSCO and Dongbang.'' Dongbang again cites 1997 Flat Products from 
Korea where the Department reasoned that POSCO and Union were not 
affiliated despite a buyer-supplier relationship, in part because, it 
made commercial and business sense for Union to purchase from POSCO 
given POSCO's

[[Page 40410]]

``comparative advantages'' in the marketplace.
    Moreover, Dongbang disputes petitioners' other allegations that 
POSCO controls Dongbang. First, Dongbang maintains that the evidence on 
the record shows that Dongbang is under the complete and effective 
control of the Dongbang Group. Dongbang argues that even if POSCO 
controls POSTECH, which Dongbang maintains it does not, POSTECH could 
not control Dongbang through its partial ownership of Dongbang given 
the Dongbang Group's majority ownership in Dongbang and thus its active 
control over Dongbang. In addition, Dongbang notes that the Department 
confirmed at verification that POSTECH's shares in Dongbang are non-
voting. Therefore, Dongbang argues, the Dongbang Group's complete 
ownership of 100 percent of Dongbang's voting stock, coupled with its 
supervision over Dongbang's operations, precludes POSCO from having 
control over Dongbang.
    Second, Dongbang maintains that POSCO does not control POSTECH. 
Among other things, Dongbang asserts that POSTECH is not part of 
POSCO's interlocking directorship. Furthermore, Dongbang notes that the 
Department found at verification that POSTECH's board of directors 
operates on a majority-rule basis and that, as a result, POSCO 
officials cannot unilaterally control POSTECH's decision-making. 
Lastly, Dongbang states that the Department found at verification that 
the revenue POSTECH earns from POSCO is comparable to its percentage of 
revenue from other companies.
    Therefore, Dongbang argues that the Department should reject 
petitioners' argument that Dongbang and POSCO are affiliated parties.

DOC Position

    We agree with petitioners and have considered POSCO and Changwon to 
be affiliated with Dongbang, within the meaning of section 771(33)(G) 
of the Act and section 351.102(b) of the Department's regulations, for 
purposes of the final determination. The Department has stated in past 
cases that the term ``affiliated parties,'' as defined in the preamble 
to our proposed regulations which states that ``business and economic 
reality suggest that these relationships must be significant and not 
easily replaced,'' suggests that the Department must find significant 
indicia of control (see 1997 Korean Steel). The Department has also 
stated that it may consider close supplier relationships as a 
sufficient basis for a finding of affiliation. See Large Newspaper 
Printing Presses and Components Thereof from Japan, 61 FR 38139 (July 
23, 1996) (LNPP). Further, we stated in LNPP that the Department would 
make its affiliated party determinations after taking ``into account 
all factors which, by themselves, or in combination, may indicate 
affiliations.''
    The facts on the record in the instant case are unlike past cases 
such as Yarn from Austria, Furfuryl Alcohol from South Africa, and 1997 
Korean Steel, in which the Department did not find enough evidence on 
the record to determine that the buyer had become reliant upon the 
seller, or vice versa, and therefore, did not find a close supplier 
relationship. In the instant case, we found that not only is POSCO/
Changwon the sole supplier and Dongbang the sole Korean buyer of black 
coil (the major input in the production of finished SSWR), but that 
Dongbang, by its own admission, has been unable to develop an 
alternative source of supply of black coil. Thus, the business and 
economic reality is that the relationship between the parties is 
significant and, as demonstrated by evidence on the record, not easily 
replaced. Furthermore, as stated above, Dongbang's business operations 
are almost exclusively dependent on the production of finished SSWR.
    The production processes performed by POSCO, Changwon, and Dongbang 
are also important in determining whether or not POSCO has control over 
Dongbang. POSCO has the facilities to produce SSWR from the beginning 
of the process through the black coil production stage. Changwon is a 
fully integrated SSWR producer that has the capability to produce SSWR 
from start to finish. Dongbang, on the other hand, only has the 
facilities to finish black coil (i.e., can only perform annealing and 
pickling functions). If POSCO/Changwon were to cut off the supply of 
black coil to Dongbang, Dongbang would not be able to produce SSWR 
without alternative sources of supply, which do not seem to exist for 
Dongbang. POSCO/Changwon indeed has greater leverage over the 
production of SSWR due to the fact that it bears a portion of the costs 
of producing the SSWR and has the facilities to perform the necessary 
finishing activities upon the black coil.
    Given the interdependent production operations of POSCO/Changwon 
and Dongbang and Dongbang's inability to obtain suitable black coil 
from alternative sources, it is reasonable to assume that Dongbang 
would suffer economic hardship if POSCO/Changwon ceased to supply black 
coil to Dongbang. In this instance, as opposed to the past cases cited 
by Dongbang, Dongbang is actually reliant on POSCO/Changwon such that 
POSCO/Changwon is in a position of control (i.e., can operationally 
exercise restraint or direction) over Dongbang. Moreover, given the 
importance of black coil to the production of SSWR, the relationship in 
question has the potential to impact decisions concerning the 
production, pricing or cost of the subject merchandise or the foreign 
like product under investigation.
    Based on our review of the record evidence, including our findings 
at verification, we have determined that POSCO/Changwon are affiliated 
with Dongbang through a close supplier relationship in which actual 
reliance exists such that POSCO/Changwon is in a position of control 
over Dongbang (i.e., can exercise restraint or direction over 
Dongbang).
    Given that we determined POSCO/Changwon and Dongbang share a close 
supply relationship and are, therefore, affiliated in accordance with 
section 771(33) of the Act and section 351.102(b) of the Department's 
regulations, we then analyzed the collapsing criteria enumerated in 
section 351.401(f) of the Department's regulations. Both POSCO/Changwon 
and Dongbang have production facilities (i.e., similar finishing 
production equipment) which can produce identical or similar SSWR. The 
difference in SSWR production facilities between the two entities is 
essentially that Dongbang has the ability to anneal and pickle the 
black coil purchased from POSCO/Changwon to produce finished SSWR. 
POSCO/Changwon has the ability to perform all processes in the 
production of finished SSWR, including annealing and pickling. Because 
POSCO/Changwon has the capability and expertise to perform all 
processes in the production of finished SSWR and in fact already 
produces subject merchandise (i.e., black coil and finished SSWR), we 
believe that the companies would not need to engage in major retooling 
to shift production of the subject merchandise from one company to 
another. Further, although the record of this investigation 
demonstrates that POSCO/Changwon do not have common ownership or share 
common interlocking officers or directors with Dongbang, the record 
does indicate that there is a significant potential for price or cost 
manipulation among these companies given their interdependent 
operations, as discussed above in the affiliation analysis section.
    For these, we have determined it appropriate to collapse all three 
producers into one entity for purposes

[[Page 40411]]

of our final analysis, in accordance with section 351.401(f) of the 
Department's regulation. For a full discussion, see the Memorandum from 
the Team to Holly Kuga regarding: ``Whether Pohang Iron and Steel Co., 
Ltd. (POSCO), and its subsidiary Changwon Specialty Steel Co., Ltd. 
(Changwon), are affiliated with Dongbang Special Steel Co., Ltd. 
(Dongbang). Whether to collapse Dongbang with the already collapsed 
entity POSCO/Changwon for antidumping analysis purposes,'' dated July 
20, 1998.

Comment 3: POSCO's Costs of Production Used in Calculations for 
Changwon and Dongbang

    Petitioners maintain that both Changwon and Dongbang purchased 
significant amounts of their input materials from POSCO. Petitioners 
state that Dongbang purchases all its black coil for the production of 
finished SSWR and that POSCO and its wholly-owned subsidiary, Changwon, 
supply Dongbang with this black coil. Furthermore, petitioners state 
that Changwon purchased blooms, billets, and black coil from POSCO. 
Petitioners maintain that these major inputs, especially black coil, 
account for the vast majority of the COP of finished SSWR. Petitioners 
argue that in light of the importance of the raw material inputs 
sourced from POSCO and the fact that the Department now lacks the 
ability to validate these input prices and costs (see POSCO Comment 1 
in the ``Interested Party Comments'' section of this notice), the 
Department should choose the higher of the two measures of facts 
available for POSCO's COP as described in POSCO Comment 1 in the 
``Interested Party Comments'' section of this notice.

DOC Position

    We disagree with petitioners. As stated in the DOC Position to 
POSCO Comment 1 in the ``Interested Party Comments'' section of this 
notice, POSCO did not fail its cost verification. Therefore, we have 
used POSCO's actual costs, as appropriate, for both Changwon and 
Dongbang, given that we have collapsed POSCO, Changwon, and Dongbang 
into one entity for final margin calculation purposes. See also 
Changwon Comment 7 in the ``Interested Party Comments'' section of this 
notice for discussion of the inapplicability of the major input and 
fair value rules in this case.

Comment 4: Corrections to POSCO's Sales Database Based on Findings at 
Verification

    Petitioners state that the Department should use the correct short-
term interest rate found at verification. Petitioners also state that 
the Department should correct the amount of fees POSCO paid to outside 
research entities in 1997, as provided by POSCO at verification. 
Furthermore, petitioners contend that the Department should correct the 
misreported amounts for other revenue and total revenue for POSCO's 
1996 Description of Revenue of POSTECH.

DOC Position

    We have corrected all errors found at verification for purposes of 
the final determination and have considered them in our final analysis, 
where appropriate.
Dongbang

Comment 1: Accuracy of Dongbang's Cost Reporting

    Dongbang maintains that the Department thoroughly verified and 
confirmed the accuracy of its reported cost information. Dongbang notes 
that the minor differences found by the Department between the reported 
per-unit costs and Dongbang's inventory values resulted from the fact 
that Dongbang's financial accounting system accounts for costs only by 
steel grade. Dongbang asserts that in order to develop control number-
specific costs which accurately reflected the Department's product 
characteristics, it relied on source data used in preparing its 
financial statements. Dongbang maintains that the Department verified 
the accuracy of its methodology and therefore should use its reported 
data in the final determination.
    Regarding the accuracy of Dongbang's reported cost information, 
petitioners note that the cost verification report states that the 
Department has not determined, as of the date of the report, whether 
the cost calculation methodologies used by Dongbang were appropriate. 
Petitioners further note that the cost verification report states that 
Dongbang allocated its fabrication costs using ``alternative allocation 
bases, rather than those used in its normal costs system.'' Petitioners 
maintain that Dongbang's deviations from its cost system were not 
necessitated by the questionnaire's requirement to provide control 
number-specific costs, but rather for self-serving purposes. 
Petitioners contend that the Department verified that Dongbang's new 
allocation methods effectively reduced the COMs for products examined. 
Therefore, given that Dongbang deviated from its normal cost accounting 
system without approval from the Department and without presenting 
information on the record to justify the deviation, petitioners argue 
that the Department should disallow Dongbang's submitted methodology 
for calculating its COP and CV. However, petitioners maintain that if 
the Department decides to use Dongbang's submitted costs, it should 
increase all reported COMs by the maximum percentage by which the 
Department found Dongbang's methodology reduced the COMs for products 
examined.

DOC Position

    We agree with Dongbang. The Department fully verified the accuracy 
of Dongbang's cost reporting methodology. We found at verification that 
Dongbang's financial accounting system did not record costs at the 
level of detail requested by the Department. The Department has 
determined in several past cases that respondents can allocate costs to 
a more detailed product-specific level than their normal cost 
accounting methodology in order to report costs on a control number-
specific basis, as required by the Department, provided that the 
methodology used is reasonable. See, e.g., 1997 Flat Product from Korea 
and Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat 
Products from Korea, 63 FR 13170 (March 18, 1998) (1998 Flat Products 
from Korea).

Comment 2: Dongbang's Direct and Indirect Cost Allocation Methodology

    Petitioners maintain that, as stated in the Department's cost 
verification report, Dongbang submitted a cost allocation methodology 
for its direct fabrication cost centers that deviates from its normal 
cost system. In addition, petitioners maintain that Dongbang's 
methodology for allocating indirect costs as submitted for this 
investigation also deviates from its normal cost accounting practices 
and therefore should be rejected. Specifically, petitioners argue that 
two specific indirect costs were allocated on the basis of direct cost 
amounts and depreciation costs for each cost center, rather than on the 
basis of production quantities, which is Dongbang's normal methodology. 
Petitioners argue that Dongbang has not placed information on the 
record to justify the deviation from the normal accounting methodology 
and that this selected methodology is inherently less precise than the 
use of production quantities. Petitioners state that the cost 
verification report shows

[[Page 40412]]

that the Department found that the net effect of Dongbang's new 
allocation methods was that the reported COMs for the three products 
examined were lower than the values contained in Dongbang's inventory 
ledger.
    As a result, petitioners argue that, while the Department should 
dismiss Dongbang's submitted COP and CV data in their entirety and that 
adverse facts available be applied (see Dongbang Comment 1), if the 
Department decides to use Dongbang's submitted costs, it should 
increase all reported COMs by a minimum of the highest percentage 
deviation found by the Department between the reported COMs and the 
values contained in Dongbang's inventory ledger.
    Dongbang maintains that it did not unilaterally depart from its 
normal cost accounting system without fully informing the Department, 
and that it demonstrated that its normal methods were inaccurate for 
the Department's purposes. Dongbang maintains that it notified the 
Department in advance by telephone that it intended to deviate from its 
normal accounting system in order to report costs on a product-specific 
basis and described its reporting methodology in its questionnaire and 
supplemental questionnaire responses. Dongbang further states that the 
Department fully verified both the accuracy of Dongbang's costs and the 
reasonableness of its allocation methodologies.
    Dongbang states that it relied on costs recorded in its normal cost 
accounting system, which accurately identifies and captures costs by 
production process, and only modified those costs in two instances in 
which Dongbang's cost accounting system is distortive for antidumping 
purposes. Dongbang maintains that the first aspect of the normal 
accounting system that was modified, i.e., its methodology for 
allocating costs to specific products based on the Department's product 
comparison criteria, because its system does not account for 
differences in grade and diameter, was not disputed by petitioners. 
Dongbang states that petitioners' only dispute relates to Dongbang's 
reallocation of indirect costs to direct centers. Regarding the 
indirect costs in question, Dongbang states, as verified by the 
Department, that these indirect costs are normally allocated based on 
production quantities. However, Dongbang asserts also, as verified by 
the Department, that its cost system does not track production 
quantities at all direct cost centers, and as a result, the cost system 
does not allocate indirect costs to all cost centers. Dongbang argues 
that given that all direct cost centers benefit from the indirect costs 
in question, all the direct cost centers should bear a portion of these 
costs. However, Dongbang also argues that it would be distortive to 
allocate these indirect costs based on production quantities for all 
cost centers as not all cost centers incur the same costs, on a per 
metric ton basis, for the activities associated with the indirect costs 
in question. Dongbang notes that the allocation of these indirect costs 
based solely on production quantities fails to capture significant 
differences in production processes and results in the under-allocation 
of the indirect costs to specialty steel products.
    Dongbang states that the indirect cost associated with a particular 
cost center identified by petitioners is only a very small portion of 
the total COM. Dongbang further states that the difference between 
Dongbang's cost accounting system and its reporting methodology for 
indirect costs for this cost center was very small and the impact on 
the total COM minimal. Dongbang argues that given that the Department 
has verified the accuracy and reasonableness of its accounting system, 
no adjustments are required or necessary.

DOC Position

    We agree with Dongbang. Dongbang's financial accounting system does 
not record costs at the level of detail requested by the Department. As 
a result, Dongbang deviated from its normal accounting methodology in 
order to conform to the requests of the Department. Furthermore, 
Dongbang's questionnaire responses reported the deviation from its 
normal accounting system. After reviewing Dongbang's methodology, we 
determined, for the reasons stated in our position to Dongbang Comment 
1, that the cost reporting methodology utilized by Dongbang, including 
its indirect cost allocation methodology, was reasonable and accurate. 
Therefore, we have accepted Dongbang's submitted and verified cost 
methodology for use in the final determination.

Comment 3: Foreign Exchange Losses

    Dongbang notes that the Department confirmed that Dongbang 
submitted its interest expense based on Dongbang Transport and 
Logistics' consolidated statements. Moreover, Dongbang states that the 
Department verified that the amount of foreign exchange losses occurred 
in 1996 attributable to financing expense were very minor. Dongbang 
notes that the Department routinely ignores adjustments such as these 
that are so minor as to have no impact on the analysis.
    Petitioners note that Dongbang did not include any of its gains or 
losses on foreign currency transactions and translations in its 
reported G&A expenses. Petitioners argue that given that the 
Department's normal practice is to include in G&A expenses for foreign 
exchange gains and losses other than those related to accounts 
receivable, Dongbang's net losses should be included in its reported 
G&A expenses.
    Petitioners also note that the cost verification report states that 
Dongbang did not allocate net loss from foreign exchange translation 
which was deferred in its 1996 financial statements in its reported 
interest expense. Petitioners argue that given that this deferred 
capital adjustment was not reflected in the income statement, it should 
properly be allocated to Dongbang's reported financial expense in the 
cost response. Therefore, petitioners maintain that the Department 
should correct Dongbang's reported interest expense accordingly in the 
final determination.

DOC Position

    We agree with petitioners regarding Dongbang's G&A expenses and 
have included the unreported recognized net foreign exchange losses 
related to all accounts except accounts receivable in Dongbang's G&A 
expenses. However, we agree with Dongbang that its submitted interest 
expense was based on Dongbang Transport and Logistics' consolidated 
financial statements. Therefore, the amortized portion of the net 
losses from long-term foreign exchange translation which was deferred 
in Dongbang's 1996 financial statements is moot given that we are not 
using Dongbang's 1996 financial statements, but rather, we have used 
Dongbang Transport and Logistics' 1996 consolidated financial 
statements.

Comment 4: Reversal of Allowance for Bad Debt

    Petitioners note that Dongbang subtracted an amount for a reversal 
of allowance for bad debts from its reported G&A expenses. Citing the 
cost verification report, petitioners state that Dongbang itself 
acknowledged that it ``over-estimated the bad debts allowance in the 
previous years and that the difference was reversed when it re-
estimated the allowance in 1996.'' Petitioners maintain that the 
reversal of allowance for bad debt was a bookkeeping exercise related 
to years previous to the POI. Therefore, petitioners argue that 
Dongbang's reversal of allowance for bad debt

[[Page 40413]]

cannot be considered an expense related to production during the POI 
and should not be netted out from Dongbang's reported G&A expenses.
    Regarding petitioners argument that the Department exclude from 
Dongbang's G&A calculation the reversal of bad debt allowance, Dongbang 
maintains that it appropriately included this line item in its 
calculation of bad debt allowance. Dongbang states that its methodology 
is consistent with the Department's practice, and cites SRAMS from 
Korea as a case in which bad debt was properly classified as a non-
operating general expense.
DOC Position
    We agree with petitioners and have excluded from Dongbang's G&A 
calculation the reversal of bad debt allowance at issue. Dongbang is 
incorrect in stating that its methodology is consistent with the 
Department's past practice in SRAMS from Korea. Specifically, in SRAMS 
from Korea, respondents made a reversal of allowance for bad debt to 
correct for a previously made error. In the instant case, the allowance 
estimated for previous years was reversed and reflected in the current 
year. Because this practice will distort the expense incurred for the 
current year, we excluded from Dongbang's G&A calculation the reversal 
of bad debt allowance.
    Comment 5: 1996 versus 1997 Annual Data as the Basis for G&A.
    Petitioners state that Dongbang reported its G&A expenses for 
purposes of its COP and CV on the basis of its audited 1996 financial 
statements. Petitioners note that, at verification, Dongbang presented 
the Department with its audited 1997 financial statements. Petitioners 
argue that given that it is the Department's normal practice to rely 
upon the most recent set of audited financial statements in calculating 
G&A percentages, the Department should rework Dongbang's G&A expenses 
on the basis of its 1997 financial statements which are similar to 
those reported in its 1996 financial statements. Petitioners provide a 
recommendation for a conservative, shortcut method of estimating the 
effect of the changes in Dongbang's net foreign exchange losses on 
transactions and translations in 1997 compared to those in 1996.
    Dongbang refutes petitioners' assertion that the Department should 
use its 1997 annual data for G&A expenses as opposed to the 1996 data 
reported by Dongbang. Dongbang argues that it is the Department's clear 
practice to calculate G&A expenses based on annual data which most 
closely corresponds to the POI in order to eliminate distortions that 
are caused by periodic expenses which may fluctuate dramatically during 
the fiscal period, but which are otherwise representative of a 
company's experience.
    Dongbang maintains that in this case, the use of 1996 annual data 
is more appropriate, as reliance on the 1997 annual data would result 
in distortions to the Department's analysis. Specifically, Dongbang 
argues that there is no significant difference in G&A expenses between 
1996 and 1997, and that the significant difference between the two 
periods for non-operating expenses is due entirely to foreign exchange 
losses. Dongbang contends that these losses are unrelated to production 
or sales of subject merchandise during the POI. Dongbang states that as 
of 1997, under Korean GAAP, Korean companies must analyze outstanding 
long-term debt as of the end of the fiscal year (December 31 for 
Dongbang) and must amortize the foreign exchange translation losses 
relating to that debt based on the life of the loans. As a result, 
Dongbang maintains that its 1997 year-end financial statements show 
large foreign exchange translation losses based on the artificial use 
of December 31, 1997, when the Korean won underwent significant 
devaluation, as the point in time when these losses are measured for 
accounting purposes. Dongbang states that in Oil Country Tubular Goods 
from Mexico, 60 FR 33572 (June 28, 1995), the Department, given very 
similar facts, declined to rely on 1994 annual financials statements 
for the calculation of interest expense, as urged by petitioners, 
because Mexico experienced severe devaluation of its currency in 
December of 1994, which the Department stated made the 1994 financial 
statements unrepresentative of the POI and severely distortive.
    Moreover, regarding the foreign exchange losses which represent the 
significant difference between the 1996 and 1997 annual data, Dongbang 
maintains that the Department considers such gains and losses an 
element of interest expense, and cites SRAMS from Korea to support its 
argument. Dongbang asserts that it properly based its interest expense 
on the experience of its consolidated parent, Dongbang Transport and 
Logistics. Dongbang further maintains that including exchange gains and 
losses in G&A, therefore, would double-count these expenses, once as an 
element of G&A and once as an element of interest expense. However, 
Dongbang does not dispute petitioners' proposition that the Department 
include foreign exchange gains and losses attributable to accounts 
payable in the calculation of G&A expense.
    Therefore, Dongbang argues that the Department should reject 
petitioners' argument to rely on 1997 data or to add elements of the 
1997 foreign exchange losses to 1996 expenses.
DOC Position
    We have continued to use Dongbang's reported G&A expenses derived 
from the 1996 annual data. We note that it is the Department's practice 
to use G&A expenses based on annual data which most closely corresponds 
to the POI. In this instance, given that the POI covers a six month 
period in both 1996 and 1997, both years' financial data equally 
correspond to the POI. However, although Dongbang submitted its 1997 
audited financial statements at verification, we used the audited 1996 
financial statements for our reconciliations and other verification 
procedures since all submitted G&A expense rate data was based on the 
1996 financial statements. In this case, given that all parties agree 
that Dongbang's G&A expenses from both 1996 and 1997 are similar with 
the exception of the foreign exchange losses related to long-term debt, 
which impacts the interest expense calculation rather than G&A expense 
calculation, we used Dongbang's 1996 annual data. In addition, we 
continued to use Dongbang Transport & Logistics' consolidated 1996 
financial statements for the interest expense calculation. We found 
that the devaluation of the Korean won began in earnest near the end of 
August 1997 and continued through the remainder of the year and into 
1998 (see Federal Reserve exchange rates). Since the use of Dongbang 
Transport & Logistics' consolidated 1997 financial statements for 
interest expense would incorporate this post-POI devaluation, we have 
considered it more appropriate to rely on Dongbang Transport & 
Logistics' consolidated 1996 financial statements.
Comment 5: Dongbang's Local Sales.
    Petitioners contend that although Dongbang's home market sales 
listing shows prices for local sales both in terms of U.S. dollars and 
Korean won, Dongbang has suggested throughout this investigation that 
these sales are actually denominated in U.S. dollars. Petitioners 
maintain that it is the Department's longstanding practice that the 
respondent should report expenses and revenues in the currencies in 
which they are incurred. As a result,

[[Page 40414]]

petitioners maintain that the Department should use the U.S. dollar 
prices provided in Dongbang's home market sales database.
DOC Position
    We agree with petitioners regarding the Department's longstanding 
practice that the respondent should report expenses and revenues in the 
currencies in which they are incurred. While it appears that Dongbang's 
home market local sales are incurred in U.S. dollars, the evidence on 
the record is inconclusive as to whether freight income is included in 
the reported dollar-denominated gross unit price field on Dongbang's 
sales listing. Furthermore, at verification, we verified the Korean won 
prices and traced these Korean won prices through Dongbang's accounting 
system and to payment records. Therefore, although it is our preference 
to recognize prices, expenses, and revenues in the currency in which 
they are incurred, we have continued to use the reported Korean won 
prices in our final analysis given the information on the record in 
this case.
    Comment 6: Clarifications to the Dongbang Verification Report.
    Dongbang notes that although the Department's sales verification 
report indicates that a single interest rate was used by Dongbang for 
reporting its home market bank credit charges, a review of the sales 
listing shows that this credit expense reflects the November 1996 
interest rate change. Dongbang also states that it reported its sales 
prices for local export sales in U.S. dollars, not Korean won as 
indicated by the Department's verification report. Petitioners did not 
address these issues.
DOC Position
    We agree with Dongbang that there were no errors in Dongbang's 
reported home market bank credit charges or its U.S. sales reporting 
with regard to local export sales.
    Comment 7: ``Prime 2'' Merchandise.
    Petitioners maintain that the discovery of the existence of ``prime 
2'' merchandise during verification constitutes new information for 
which Dongbang had never before provided any explanation. Petitioners 
state that company officials informed Department verifiers that while 
Prime 1 products are produced to strict quality controls as per 
specific customers' requests and can be sold to all customers, prime 2 
products are SSWR produced to Dongbang's own quality standards and, 
thus, cannot be sold to prime 1 customers. Petitioners contend that 
there is nothing on the record of this proceeding to clarify the 
distinction between prime 1 and prime 2 products and to indicate 
whether it is even possible to distinguish between the two types of 
products in Dongbang's sales or cost files. Petitioners argue that 
since prime 2 product cannot be sold to prime 1 customers and because 
there is no clear way to distinguish the prime 2 product and remove it 
from Dongbang's home market sales database, the Department should 
assume that all products in the home market database is of prime 2 
quality, and that such products sell at a relative price discount. 
Therefore, petitioners contend that the Department should use the 
highest sales price within each control number as the weighted-average 
price for that particular control number as a means of adjusting the 
reported sales data.
    Dongbang states that, in its responses, it indicated that there are 
two internal codes for prime merchandise. Dongbang asserts that prime 2 
merchandise is prime merchandise and should continue to be treated as 
such. According to Dongbang, prime 2 merchandise meets all of 
Dongbang's quality standards, is not sold at a discount, and does not 
contain the surface defects that characterize non-prime merchandise. 
Dongbang further states that there is no price difference between the 
two product classifications.
    Dongbang argues that because both of these internal codes reflect 
prime merchandise, they are comparable for the Department's purposes. 
Dongbang states that petitioners cite no cases to the contrary. 
Moreover, Dongbang states that in past cases involving steel products, 
the Department has treated all types of prime products equally as prime 
merchandise. For example, Dongbang cites the Notice of Final 
Determination of Sales at Less Than Fair Value: Steel Wire Rod from 
Trinidad and Tobago, 63 FR 9177, 9180 (February 24, 1998) (Wire Rod 
from Trinidad and Tobago) in which the Department treated two types of 
merchandise as prime merchandise because both types were identical 
under the Department's matching characteristics, and were purchased and 
used by customers as prime merchandise. Dongbang further notes that it 
is common industry practice to have multiple internal codes for prime 
merchandise, and that in past cases the Department has treated all 
types of prime products as prime merchandise.
DOC Position
    We disagree with petitioners that the existence of prime 2 
merchandise constitutes new information. As noted in its rebuttal 
brief, Dongbang previously reported in its latest supplemental 
questionnaire response that prime merchandise is identified by two 
internal codes. Furthermore, while at verification, we substantiated 
Dongbang's assertion that it maintains separate codes for prime 
merchandise. Regarding petitioners' contention that there is no way to 
distinguish prime 1 merchandise from prime 2 merchandise in the sales 
and cost files, we confirmed at verification that both prime 1 and 
prime 2 products meet the chemical content tolerances of 
internationally-recognized grade standards and that neither type of 
prime product contained the surface defects inherent in non-prime 
products. Although, as petitioners contend, we are unable to determine 
from a review of the sales listings or questionnaire responses whether 
prime 2 products are sold at a discount from prime 1 products, we found 
no physical differences between the two prime products that would lead 
us to believe that prime 1 and prime 2 products are not comparable in 
price or cost. We agree with Dongbang that the facts in this case are 
consistent with those in Wire Rod from Trinidad and Tobago, in which 
the Department determined that products that were verified to be 
identical in every way to prime merchandise within each control number 
and within the meaning of the statute and the Department's product 
matching hierarchy should be treated as prime merchandise. Moreover, 
contrary to petitioners' proposition that all home market sales should 
be assumed to be prime 2 merchandise absent evidence distinguishing 
sales of prime 1 from sales of prime 2 merchandise, our sales 
verification exhibit on this topic demonstrates that prime 1 
merchandise comprises the majority of both home market and U.S. sales. 
(See Sales Verification Exhibit 17.) Therefore, we find no basis for 
determining that prime 1 merchandise and prime 2 merchandise are not 
comparable. Consequently, we have rejected petitioners' argument that 
we use the highest sales price within each control number as the 
weighted-average price for that particular control number as a means of 
adjusting the reported sales data.
    Comment 8: Brokerage Charges for Dongbang's U.S. Sales.
    Petitioners argue that the Department should review Dongbang's U.S. 
sales listing and set all brokerage charges that are less than 12,000 
won per shipment to 12,000 won given that the Department found at 
verification that Dongbang incurs minimum brokerage charges on its U.S. 
sales of the greater of 0.08 percent of the FOB sales value

[[Page 40415]]

of the shipment or 12,000 won per shipment.
    Dongbang acknowledges that it did not utilize the 12,000 won 
minimum brokerage charge in its brokerage expense methodology for five 
U.S. sales. However, Dongbang states that the Department should not 
apply the full 12,000 won to each of these sales. Dongbang argues that 
since the 12,000 won minimum applies to a shipment, not each individual 
sale, this method would be distortive and unreasonable in cases where 
more than one sale is included in a shipment.
    Dongbang also states that it reported a per-unit brokerage charge 
in its sales listing (i.e., brokerage charge for the shipment divided 
by the sales quantity), not the entire expense. Dongbang therefore 
argues that if the Department chooses to utilize the 12,000 won minimum 
brokerage charge for these five sales, it should divide this charge by 
the sales quantity to arrive at the per-unit brokerage charge.
DOC Position
    We agree with petitioners' assertion that the Department should 
review Dongbang's U.S. sales listing for sales that do not reflect the 
12,000 won minimum brokerage charge applied to Dongbang's shipments of 
SSWR. We performed this exercise at verification and confirmed that 
Dongbang under-reported brokerage charges for five U.S. sales, in 
accordance with the reporting methodology described by Dongbang.
    However, we also agree with Dongbang in that the Department should 
not apply the full 12,000 won to each of the five sales at issue for 
two reasons. First, we agree with Dongbang that it reported a per-unit 
brokerage charge (i.e., brokerage charge for the shipment divided by 
the sales quantity), not the entire expense. We also agree with 
Dongbang's argument that since the 12,000 won minimum is applied to a 
shipment and not each individual sale, the 12,000 won minimum should be 
allocated over all sales in the shipment.
    In attempting to revise the brokerage expenses reported for the 
five sales in question to account for the 12,000 won minimum charge, we 
found that the evidence on the record only allowed us to recalculate 
brokerage for two of the five sales that have been under-reported. 
Therefore, in accordance with section 776(a) of the Act, which allows 
the Department to use facts available when information necessary to the 
Department's analysis is not available, we applied the weighted-average 
brokerage adjustment calculated for these two sales to the remaining 
three sales, as facts available, to arrive at an appropriate per-unit 
brokerage charge for all affected transactions.
    Comment 9: Duty Drawback.
    Petitioners argue that Dongbang fails to qualify for a duty 
drawback adjustment because Dongbang has not provided an explanation 
for why it has sales of identical products in the home market and U.S. 
market for which its duty drawback amounts are different. As a result, 
petitioners contend that Dongbang has not met the Department's two-
prong test in that it has not been able to demonstrate that there is a 
direct link between the import duty and the rebate granted.
    Therefore, petitioners argue that the Department should deny a duty 
drawback adjustment to U.S. price as it did in Stainless Steel Bar from 
India 63 FR 13622, 13625 (March 20, 1998) (Steel Bar from India).
    Dongbang asserts that it reported duty drawback amounts for U.S. 
sales by dividing the total duty drawback actually received for each 
sale by the quantity of the sale. Dongbang states that its per-unit 
duty drawback amounts vary from sale to sale because of this 
transaction-specific methodology. Dongbang maintains further that two 
sales of the same grade of SSWR may result in different duty drawback 
payments because the amount of duty drawback in a sale reflects the 
specific composition of imported raw materials for that sale. Dongbang 
also asserts that the Department noted no discrepancies regarding duty 
drawback in its verification report and should apply Dongbang's 
reported duty drawback amounts in the final determination.
DOC Position
    We disagree with petitioners that Dongbang should not be entitled 
to the claimed duty drawback adjustment. Section 772(c)(1)(B) of the 
Act provides for adjustment for duty drawback on import duties which 
have been rebated (or which have not been collected) by reason of the 
exportation of the subject merchandise. In accordance with this 
provision, we will grant a duty drawback adjustment if we determine 
that 1) import duties and rebates are directly linked to and are 
dependent upon one another, and 2) the company claiming the adjustment 
can demonstrate that there are sufficient imports of raw materials to 
account for the duty drawback received on exports of the manufactured 
product. See e.g., Steel Wire Rope from the Republic of Korea; Final 
Results of Antidumping Administrative Review, 61 FR 55965 (October 30, 
1996) (Rope from Korea). The first prong of the above test requires the 
Department to analyze whether the foreign country in question makes 
entitlement to duty drawback dependent upon the payment of import 
duties (see Far Eastern Machinery 699 F. Supp. 309, 311 (Ct. of Int'l 
Trade 1988)). This ensures that a duty drawback adjustment will be made 
only where the drawback received by the manufacturer is contingent on 
import duties paid or accrued. The second prong requires the foreign 
producer to show that it imported a sufficient amount of raw materials 
(upon which it paid import duties) to account for the exports, based on 
which it claimed rebates. Id.
    We are satisfied that under the duty drawback method reported by 
Dongbang, the Korean Government makes entitlement to duty drawback 
dependent upon the payment of import duties, which satisfies the first 
prong of the duty drawback test. In addition, we are satisfied that 
Dongbang is required by the Korean government to provide adequate 
information that shows that it had sufficient imports of raw materials 
to account for the duty drawback received on exports of the 
manufactured product. This satisfies the second prong of the duty 
drawback test. (See Rope from Korea). Furthermore, our review of 
selected transactions in both the home and U.S. markets during 
verification indicated that there were no discrepancies with the duty 
drawback amounts reported by Dongbang. Therefore, we have accepted 
Dongbang's reported duty drawback for purposes of the final 
determination.
Changwon
    Comment 1: Changwon's Reported Interest Revenue.
    Petitioners assert that the Department should not include 
Changwon's reported interest revenue in the calculation of net U.S. 
prices. Petitioners argue that Changwon incorrectly calculated the per-
unit interest revenue based on interest revenue to be received from its 
customers. Petitioners next argue that the total Pohang Steel America 
Corporation (POSAM) invoice amounts for value and quantity, upon which 
the reported interest revenue was calculated, include sales of non-
subject merchandise. Thus, petitioners maintain, Changwon failed to 
provide evidence that it in fact received the interest revenue for 
sales of SSWR during the POI.
    Petitioners further contend that even if Changwon did charge 
interest to its customers for late payments, Changwon failed to tie the 
interest revenues that it charged to its customers to the subject 
merchandise. Petitioners cite Tapered

[[Page 40416]]

Roller Bearings and Parts Thereof, Finished or Unfinished, From Japan, 
and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, 
and Components Thereof From Japan, 63 FR 20,585 20,602 (April 27, 1998) 
(TRBs from Japan), as a case in which the Department disallowed the 
respondent's claimed amounts for discounts, rebates, and other post-
sale adjustments as direct deductions to the home market sales prices, 
on the grounds that the respondent failed to tie the adjustments 
directly to the sales of subject merchandise.
    Changwon argues that it reported the actual interest revenue 
received from U.S. customers for late payments. Further, Changwon 
states that the reported interest revenue is directly tied to each sale 
of subject merchandise. Changwon asserts that petitioners' allegation 
that the calculation of interest revenue includes sales of non-subject 
merchandise is wrong. Changwon states that every sale contained in the 
invoices upon which the interest revenue was allocated was a sale of 
subject merchandise and, thus, the portion of interest revenue 
allocated to a sale is the actual amount of interest revenue earned on 
that sale.
    Changwon also argues that petitioners' citation to TRBs from Japan 
actually supports Changwon's position because, in that case, the 
Department stated that it treats an allocated adjustment as the actual 
amount associated with a sale if the adjustment was ``granted as a 
fixed and constant percentage of the sale price of all transactions for 
which it was reported and to which it was allocated.'' Changwon states 
that it in fact based its allocation on applying a fixed and constant 
percentage to the price for each sale on the invoice. For these 
reasons, Changwon argues that the Department should adjust U.S. sales 
prices for the reported interest revenue in the final determination.
DOC Position
    We agree with Changwon and have adjusted U.S. sales prices for the 
reported interest revenue, where appropriate. We disagree with 
petitioners' arguments regarding Changwon's reporting of interest 
revenue. First, we found at verification that, contrary to petitioners' 
allegation, the interest revenue reported by Changwon had in fact been 
received by Changwon from its U.S. customers for late payments.
    Second, we find petitioners' allegation that sales of non-subject 
merchandise were included in the invoices upon which the interest 
revenue calculation was based to be incorrect. Our findings at 
verification for selected invoices confirmed that the sales comprising 
each invoice upon which the interest revenue calculations were based, 
were sales of subject merchandise.
    Third, petitioners' contention that Changwon failed to tie the 
interest revenues that it charged to its customers to the subject 
merchandise is also incorrect. As noted above, we confirmed at 
verification that all sales included in the interest revenue 
calculation were of subject merchandise and that the interest revenue 
reported was directly tied and properly allocated to these sales. (See 
TRBs from Japan.)
    For the reasons stated above, we have included Changwon's reported 
interest revenue relevant to its U.S. sales in our EP calculations.
    Comment 2: Changwon's G&A Expenses.
    Petitioners state that the Department should revise Changwon's 
reported G&A expense ratio to include bad debt expenses, amortization 
for foundation expenses, business start-up expenses and stock issuance 
expenses that were not previously included in the G&A ratio. 
Petitioners argue that these expenses were incurred by Changwon during 
the POI and all such expenses were period expenses, and, therefore, 
should be included as part of the expenses for the period.
    Petitioners maintain that the bad debt expenses which the company 
recognizes during the fiscal period and were reported in Changwon's 
financial statements should be included in its G&A calculation. 
Petitioners contend that after the POI, some percentage of accounts 
receivable on subject merchandise sold within the POI would undoubtably 
be reclassified as bad debt. Therefore, petitioners argue that 
Changwon's 1997 financial statements do not reflect any bad debt 
because, due to the fact that the company was established in February 
1997, the company had no previous bad debt experience to carry over 
from 1996.
    Petitioners also argue that the bad debt reported in Changwon's 
financial statements which it classified as non-operating expense 
``related only to tax law'' in accordance with Korean GAAP, and 
excluded from the G&A calculation, should also be included in its G&A 
calculation. Petitioners state that Changwon has placed nothing on the 
record to substantiate its claim that this bad debt relates only to tax 
law. Petitioners argue that absent evidence to back up this contention, 
it must be assumed that the GAAP-accepted practice reported by Changwon 
relates to a meaningful expense from the accounting period and, thus, 
this bad debt expense should be included in the G&A calculation. 
Petitioners assert that these expenses should be characterized as G&A 
rather than selling expenses because Changwon was not created until the 
second half of the POI thus no previous fiscal year exists from which 
to develop bad debt.
    Furthermore, petitioners state that it is the Department's normal 
practice not to include foreign exchange losses and gains related to 
accounts receivable, but to include other types of exchange gains and 
losses in the calculations for G&A. Petitioners state that Changwon's 
reporting methodology is inaccurate in that it excluded from its G&A 
calculation any gains and losses that were related to short-term 
borrowings and deposits, but included gains and losses related to 
accounts receivable. Petitioners state that the Department should 
adjust Changwon's G&A calculation in accordance with its normal 
practice.
    Changwon states that its financial statements identify two types of 
bad debt: the first type represents the company's recognition of bad 
debt during the fiscal period, and the second type of bad debt is an 
accrual that does not reflect an actual expense, but is an allowance 
under Korean GAAP that is recorded for income tax purposes. Changwon 
notes that it erroneously indicated in its responses that the first 
type of bad debt expense had been included in the calculation of direct 
selling expenses. Changwon clarifies that it actually did not incur 
this type of bad debt expense during the POI and thus did not report it 
as a selling expense or in its G&A calculation.
    Changwon also states that it properly excluded the second type of 
bad debt expense because this expense relates solely to tax law and 
represents no real cost to Changwon. In fact, Changwon maintains that 
to include these costs would be distortive for antidumping purposes 
because they relate solely to taxes. Changwon cites Stainless Steel 
Angles from Japan, 60 FR 16608, 16617 (March 31, 1995) and Fresh and 
Chilled Atlantic Salmon from Norway, 58 FR 37912, 37915 (July 14, 
1993), among other cases, in support of its argument that the 
Department has, in the past, disregarded costs reported solely for tax 
purposes.
    Changwon also argues that it correctly excluded amortization 
expenses, business start-up expenses, and stock issuance expenses from 
its G&A calculation because these were extraordinary, one-time expenses 
and were not related to the subject

[[Page 40417]]

merchandise. Changwon states however, that if the Department were to 
include these expenses in the G&A calculation, it should include only 
the portion of the expenses appropriately attributable to the reporting 
period (i.e., amounts amortized in accordance with Korean GAAP).
    Changwon also states that, with regard to foreign exchange gains 
and losses, the Department considers these gains and losses to be an 
element of interest expense (see SRAMS from Korea), so to include them 
in the G&A calculation would double-count these expenses.
DOC Position
    We agree with petitioners. Both types of allowance for bad debt 
expenses are actual costs recognized in the respondent's financial 
records, whether they are actually incurred or not, based on Korean 
GAAP. All of the other mentioned amortization expenses are also 
recognized expenses in the financial statements and only the amortized 
portion was reflected in the Changwon's 1997 financial statements. 
Contrary to Changwon's assertions that these expenses should not be 
included because they either relate solely to tax law or that they were 
extraordinary, one-time expenses, we found that the amortized portions 
were actually recorded in Changwon's accounting system and its 
financial statements and therefore represent costs related to 
operations. In addition, we find nothing extraordinary about these 
expense items (i.e., they are neither unusual in nature or infrequent 
in occurrence). Therefore, the Department included all types of bad 
debt expense in the reported indirect selling expenses, and 
amortization for foundation expenses, business start-up expenses and 
stock issuance expenses, in the reported G&A expenses.
    Comment 3: Changwon's Interest Expense Reporting Period.
    Changwon states that the Department properly utilized its reported 
interest expense based on the most recently completed fiscal year. 
Changwon states that its reported interest expense was based on POSCO's 
consolidated information for 1996, which is the period that most 
closely corresponds to the POI and is in accordance with the 
Department's policy to rely on the interest expense based on the prior-
year consolidated financial statements, so long as the interest expense 
reasonably reflects the current financial situation. Changwon claims 
that this is the case because the prior year is assumed to be 
reasonably representative of the company's normal experience. Changwon 
cites Certain Hot-Rolled Carbon Steel Flat Products from France, 58 FR 
37125, 37135 (July 9, 1993) (Flat Products from France) in support of 
its position.
    Changwon also states that even in the isolated cases in which the 
Department has deviated from this policy, financial statements that 
cover a period subsequent to the POI are not utilized. For example, 
Changwon cites Certain Corrosion-Resistant Carbon Steel Flat Products 
and Certain Cut-to-Length Carbon Steel Plate from Canada, 61 FR 13815, 
13829 (March 28, 1996), where the Department accepted interest expense 
based on the full year 1993 and the first half of 1994, rather than 
exclusively the 1993 figures (the POI was February 1993 through July 
1994).
    Changwon maintains that use of the 1997 data on interest expense 
would be distortive because it includes substantial foreign exchange 
losses that occurred at year-end 1997 which were due to the rapid 
depreciation of the won in December 1997, subsequent to the POI. 
Changwon argues that the economic crisis that precipitated the currency 
depreciation was in no way related to the production or sale of the 
subject merchandise during the POI and, thus, to include these losses 
would be distortive. Changwon asserts that, under similar 
circumstances, the Department has declined to utilize a time period 
which included a severe devaluation of a currency in past cases such as 
Oil Country Tubular Goods from Mexico, 60 FR 33567, 33572 (June 28, 
1995). Changwon argues that should the Department determine that 1996 
is not representative, it should limit any adjustments to the interest 
expense ratio to changes in the exchange rate which occurred during the 
POI.
    Petitioners contend that Changwon's interest expenses should be 
based on POSCO's 1997 financial statements. Petitioners state that 
Changwon should be consistent in its choice of financial statements 
from which to draw its expense ratios since it reported G&A on the 
basis of its financial statements for 1997 but employed POSCO's 
consolidated 1996 financial statements for purposes of reporting its 
interest expense ratio. Given that 1997 is the most recent year for 
which financial statements are available, it would be logical for both 
G&A and interest expense to be derived from 1997 figures.
    Petitioners argue that the cases cited by Changwon do not support 
Changwon's position, but instead indicate a preference to use the 
closest corresponding fiscal year financial statements. For example, in 
Silicon Metal from Brazil, 63 FR 6899, 6906 (February 11, 1998), the 
Department stated that it normally uses the ``financial statement that 
most closely corresponds to the POI.'' Also, in Flat Products from 
France, the Department noted that its ``normal methodology is to 
calculate G&A expenses based on the audited annual financial statements 
which most closely correspond to the period of investigation.'' Only in 
cases in which ``such financial statements are not available, the 
Department has relied on financial statements from the fiscal year 
prior to the POI, when such statements provide a reasonable 
approximation of the company's current financial position.''
    Petitioners further argue that since 1997 is the most recent year 
for which audited financial statements are now available, is the year 
that Changwon came into existence, and includes the entire part of the 
POI during which Changwon produced and sold the subject merchandise, 
1997 is the logical choice on which to base Changwon's interest 
expenses.
DOC Position
    We disagree with petitioners, and have used POSCO's 1996 
consolidated financial statements as the basis for Changwon's interest 
expense. In this case, it is our preference to use the 1996 financial 
statement data for the reasons similar to those stated in Dongbang 
Comment 5 of the ``Interested Party Comments'' section of this notice. 
However, unlike Dongbang, Changwon was not in existence in 1996 and, 
therefore, we have no alternative but to use Changwon's 1997 financial 
statements for purposes of calculating G&A expenses.
    Comment 4: EP vs. CEP Sales Classification.
    Petitioners argue that the Department should determine that 
Changwon's sales through POSAM are CEP sales. Petitioners cite 1998 
Flat Products from Korea, a decision in which the Department found, in 
contrast to several previous determinations, that POSCO's sales in the 
United States through POSAM should be classified as CEP sales. 
Petitioners argue that the facts in the 1998 Flat Products from Korea 
case regarding the classification of U.S. sales are virtually identical 
to those in this case.
    Petitioners maintain that the record does not demonstrate that the 
U.S. affiliate's involvement in making the sales was incidental or 
ancillary. Petitioners assert that Changwon seldom had contact with 
U.S. customers, that typically POSAM was directly contacted by 
unaffiliated U.S. customers that wished to purchase the subject

[[Page 40418]]

merchandise, and that POSAM signed the sales contract. Petitioners 
claim that POSAM also plays a central role in sales activities after 
merchandise arrives in the United States. Petitioners also question 
respondent's claim that the U.S. affiliate had no role in price 
negotiation by stating that Changwon did not provide tangible proof 
that it had rejected prices for sales organized by POSAM (which, 
according to petitioners, is a critical test of the involvement of the 
Korean producer in price setting.) Petitioners further argue that POSAM 
and POSTEEL are more than just mere paper processors based on 
proprietary evidence found by the Department at verification.
    Changwon argues that its U.S. sales should be treated as EP 
transactions because they pass the Department's criteria for EP sales: 
the subject merchandise is shipped directly from the manufacturer to 
the unaffiliated buyer, such direct shipments to the unaffiliated buyer 
are a customary channel of trade, and the U.S. affiliate only acts as a 
processor of sales-related documents and a communication link with the 
unaffiliated buyer. Changwon claims that POSAM is merely a 
communications link, does not have independent sales negotiation 
authority, and holds no inventory.
    Changwon states that, at verification, the Department established 
that Changwon initiated contact with its U.S. customers and met with 
these customers to discuss its export strategy and determine the 
substantive terms of sale with them. Moreover, Changwon asserts, it was 
at these meetings that Changwon established its pricing policy based on 
quarterly price lists. Changwon also states that, at verification, the 
Department confirmed the U.S. sales process by which orders flow from 
the U.S. customer through POSAM and POSTEEL to Changwon and back the 
same route to the U.S. customer. Changwon asserts that POSAM merely 
transfers pricing information from customers to Changwon, and that 
Changwon reviews and has final approval of all sales.
    Changwon refers to sales examined at verification to further its 
argument that it is the sole authority for approving its U.S. sales. It 
notes that POSAM indicates in its faxes to Changwon that the sale offer 
is ``for your {Changwon's} review'' and that Changwon's response to 
POSAM refers to ``{confirmation of} our {Changwon's/POSAM's} offer'' to 
the customer. Also, Changwon notes a sale in which Changwon initially 
rejected, but then ultimately accepted, a customer's price offer that 
differed from its price list. Based on these facts, Changwon argues 
that it is clear that POSAM's only role in this situation was that of a 
communication link.
    Changwon refutes petitioners' argument that POSAM plays a central 
role in Changwon's activities because it provides such services as 
invoicing Changwon's customers and arranging for transportation. 
Changwon maintains that the Department has, in numerous past cases, 
deemed these types of sales activities as ancillary, and that they are 
not a sufficient basis for classifying sales as CEP transactions. 
Changwon rejects, as mere speculation, petitioners' argument that 
because it did not present at verification an example of a sale in 
which it rejected an offer made by the customer, Changwon may not have 
the final authority on sales prices. Finally, Changwon states that 
petitioners' assertion that POSAM or POSTEEL distributed Changwon's 
product brochures and conducted certain activities in the United States 
for Changwon is incorrect. Changwon asserts that it, in fact, performed 
these activities.
DOC Position
    We agree with Changwon that its U.S. sales were properly classified 
as EP sales, and have continued to treat Changwon's U.S. sales as EP 
sales in the final determination. At verification we confirmed 
Changwon's assertions that POSAM is not in a position to negotiate, 
confirm, or reject prices without approval from Changwon. We further 
found that Changwon issues quarterly price lists for U.S. sales which 
POSAM uses in the U.S. sales process. We disagree with petitioners' 
contention that POSAM acts as anything but a communications link in 
this instance.
    Section 772(b) of the Act, as amended, defines CEP as ``the price 
at which the subject merchandise is first sold (or agreed to be sold) 
in the United States before or after the date of importation by or for 
the account of the producer or exporter of such merchandise or by a 
seller affiliated with the producer or exporter, to a purchaser not 
affiliated with the producer or exporter, as adjusted.'' Section 772(a) 
of the Act defines EP as ``the price at which the subject merchandise 
is first sold (or agreed to be sold) before the date of importation by 
the producer or exporter of the subject merchandise outside of the 
United States to an unaffiliated purchaser in the United States, or to 
an unaffiliated purchaser for exportation to the United States, as 
adjusted.'' When sales are made prior to importation through an 
affiliated or unaffiliated U.S. sales agent to an unaffiliated customer 
in the United States, our practice is to examine several criteria for 
determining whether the sales are EP sales. Those criteria are: (1) 
Whether the merchandise was shipped directly from the manufacturer to 
the unaffiliated U.S. customer; (2) whether this was the customary 
commercial channel between the parties involved; and (3) whether the 
function of the U.S. selling agent was limited to that of a ``processor 
of sales-related documentation'' and a ``communications link'' with the 
unaffiliated U.S. buyer. Where all three criteria are met, indicating 
that the activities of the U.S. selling agent are ancillary to the 
sale, the Department has regarded the routine selling functions of the 
exporter as merely having been relocated geographically from the 
country of exportation to the United States where the sales agent 
performs them, and has determined the sales to be EP sales. Where one 
or more of these conditions are not met, indicating that the U.S. sales 
agent is substantially involved in the U.S. sales process, the 
Department has classified the sales in question as CEP sales. (See, 
e.g., 1998 Flat Products from Korea and Viscose Rayon Staple Fiber from 
Finland, 63 FR 32820 (June 16, 1998).)
    In the instant investigation the sales in question were made prior 
to importation through Changwon's affiliated Korean trading company, 
POSTEEL, and its affiliated U.S. trading company, POSAM, to an 
unaffiliated customer in the United States. The record in this case 
indicates that the subject merchandise was shipped directly from 
Changwon to the unaffiliated U.S. customers and that this was the 
customary commercial channel between these parties. The remaining issue 
is whether POSAM's role in the sales process was limited to that of a 
``processor of sales-related documentation'' and a ``communications 
link.'' The record shows that the U.S. sales process, beginning with 
the establishment of Changwon during the POI, includes the following 
events: (1) Changwon held an export strategy meeting in March 1997 with 
potential U.S. customers (these were the same customers Changwon sold 
to during the POI) wherein substantive terms of sale, payment, and 
delivery terms were discussed. Changwon also established its pricing 
policy based on quarterly price lists during this meeting; (2) For the 
remaining three months of the POI, U.S. customers contacted POSAM to 
inquire about purchasing Changwon's SSWR. However, POSAM did not 
actively advertise for Changwon in the United States and did not 
solicit business on

[[Page 40419]]

behalf of Changwon. Changwon itself contacted its potential U.S. 
customers, as evidenced by the above-referenced export strategy 
meeting; (3) POSAM does not negotiate sales terms with Changwon's U.S. 
customers. POSAM relays information through POSTEEL between Changwon 
and its U.S. customers. Correspondence by faxes reviewed at 
verification confirmed Changwon's assertion that POSAM may not accept 
the customer's order without Changwon's final approval; (4) After an 
order is accepted by Changwon, POSAM transmits the order acceptance 
from POSTEEL to the U.S. customer; (5) After Changwon has produced the 
order, it sells the subject merchandise to POSTEEL, who then sells it 
to POSAM in a back-to-back transaction wherein title to the goods is 
transferred between the parties; (6) POSTEEL arranges transportation of 
the subject merchandise to the United States; (7) POSAM arranges to 
move the subject merchandise through U.S. Customs and to transport it 
to U.S. customers; (8) POSAM invoices U.S. customers; (9) U.S. 
customers remit payment to POSAM, which subsequently transfers the 
payment to POSTEEL, which, in turn, transfers it to Changwon.
    These facts show that the extent of POSAM's involvement in the 
sales process is indicative of the ancillary role normally played by a 
``processor of sales-related documentation'' and a ``communications 
link.'' While POSAM was involved in document processing and other 
ancillary activities related to the sales of subject merchandise to the 
U.S. customer (e.g., clearing customs, arranging for U.S. 
transportation, issuing invoices, and collecting payment), POSAM had no 
substantial involvement in the sales process, such as sales 
negotiation, providing technical support, or handling warranty claims, 
with respect to subject merchandise. POSAM does not negotiate sales 
terms with U.S. customers, but rather relays pricing information 
between Changwon and the U.S. customer. We disagree with petitioners' 
assertion that Changwon does not have final authority over the sale 
based on our findings at verification. For each of the sales examined 
at verification, we found that Changwon ultimately accepted or rejected 
the sales price. See Changwon Sales Verification Report at Exhibit 17. 
Furthermore, although Changwon did not have direct contact with its 
U.S. customers on a daily basis during the POI, the export strategy 
meeting served to lay out the substantive terms of delivery, sale, and 
payment and established Changwon's general pricing policy. With these 
terms explicitly stated, it is reasonable to assume that there was 
little need for direct contact between Changwon and its U.S. customers 
during the remaining three months of the POI. Indirect contact, 
however, still continued. In fact, we observed at verification that all 
correspondence examined between Changwon and the U.S. customers was 
relayed through POSTEEL/POSAM.
    The nature of Changwon's initial and ongoing involvement in the 
sales process and POSAM's ancillary role in the sales process lead us 
to conclude that the sales took place before the date of importation by 
the producer of the subject merchandise outside of the United States to 
an unaffiliated purchaser in the United States. Therefore, in 
accordance with Section 772(a) of the Act we have continued to classify 
Changwon's U.S. sales as EP sales for the final determination.
    Comment 5: Corrections for Clerical Errors Found at Verification.
    Petitioners state that the Department should allocate Changwon's 
indirect selling expenses incurred by POSTEEL in Korea for U.S. sales 
based on sales value rather than sales quantity, and that the 
Department make any corresponding changes in its calculations since 
Changwon recalculated its indirect selling expenses incurred from 
fiscal year 1996 to 1997.
    Petitioners agree that the VAT total account receivable figures for 
certain customers should be corrected in order to properly decrease the 
average credit period for seven customers.
    Petitioners state that the Department should use the corrected 
warranty expense for home market observation 59 and revised ocean 
freight for U.S. observations 17 through 21.
    Petitioners state that the Department should correct the product 
characteristics that were misreported by Changwon for grades SUS 304L, 
SUSY 308, SUSY 308L, AWSER 308L, AWSER316L, SUS XM7, and ER 309L. They 
also state that in correcting these items, the Department should use 
the actual chemical composition of the products for product-matching 
purposes.
    Changwon did not comment on this issue.
DOC Position
    We agree with petitioners in part. As noted above in the ``Export 
Price'' and ``Normal Value'' sections of this notice, we have made 
appropriate revisions for all errors found at verification. However, we 
disagree with petitioners' statement that we should use the actual 
chemical compositions of the products in our analysis. For the reasons 
stated in the December 18, 1997, Memorandum to Holly Kuga from the Team 
Re: Whether to Reconsider the Department's Model Match Methodology for 
this Product and the Preliminary Determination, the Department has 
rejected the use of actual chemical composition as a product 
characteristic for product comparison purposes.
    Comment 6: Changwon's Duty Drawback Adjustment.
    Petitioners argue that Changwon does not qualify for a duty 
drawback adjustment to U.S. price. Petitioners state that Changwon has 
failed to meet the Department's two-part test which requires that (1) 
import duties and rebates are directly linked to and are dependent upon 
one another, and (2) the company claiming the adjustment can 
demonstrate that there are sufficient imports of raw materials to 
account for the duty drawback received on exports of the manufactured 
product.
    Petitioners refer to Changwon's November 10, 1997 response, in 
which Changwon gave a ``best estimate'' of duty drawback because its 
system for reporting duty drawback was not yet fully operable. 
Petitioners believe that this fact alone justifies a denial of a duty 
drawback adjustment. Petitioners cite Steel Bar from India as a 
situation in which the Department denied a duty drawback adjustment to 
a respondent that based its duty drawback calculations on theoretical 
amounts of an input product, rather than on amounts of raw materials 
that were actually imported for use in the subject merchandise. 
Petitioners state that the facts in this case (whereby the drawback 
credits were not calculated based on the product actually imported) are 
similar to those in Steel Bar from India.
    Petitioners contend that another reason Changwon should be denied a 
duty drawback adjustment is the fact that, at verification, the 
Department found that ``Changwon cannot track imported raw material 
used in the production of finished product to the specific export 
sale.'' Petitioners assert that Changwon's reliance on the ``standard 
government calculation for each applicable raw material'' to claim duty 
drawback is unacceptable, because, among other reasons, there is no 
means by which the Department can determine whether the respondent is 
claiming more drawback than that to which it is entitled. Petitioners 
also point out that Changwon's claim also fails because it is 
apparently not able to track imported raw material usage to U.S. 
exports of the subject merchandise, and drawback is not being claimed 
on amounts of imported materials actually being used.

[[Page 40420]]

Petitioners state that there is no direct link between the import duty 
and rebate granted, and that there were not sufficient imports of raw 
materials used in the production of the final exported product to 
account for the drawback on the exported product.
    Petitioners assert that, even if the above described problems did 
not exist, Changwon would not be eligible for an adjustment because it 
did not actually receive any duty drawback during the POI. Petitioners 
state that any adjustment for duty drawback must be based on drawback 
payments actually received during the POI or review period. Petitioners 
cite Final Determination of Sales at Less Than Fair Value: Canned 
Pineapple Fruit from Thailand, 60 FR 29553, 29566 (June 5, 1995) and 
Final Results of Countervailing Duty Administrative Review: Certain 
Iron-Metal Castings from India, 56 FR 52521, 52527 (October 21, 1991) 
as examples whereby the Department has recognized that refunds should 
be taken into account for the period in which they are received.
    Petitioners also refute Changwon's claims that the Department fully 
verified Changwon's duty drawback adjustment and that the Department's 
``standard practice'' is to recognize adjustments that are accrued by a 
company such as volume rebates. Petitioners state that while the 
Department was able to verify some information regarding the duty 
drawback adjustment, it did not successfully verify the claims 
themselves. Petitioners then argue that there is no ``standard 
practice'' by which the Department would grant adjustments for duty 
drawback when the duty drawback payments are not received by the 
respondent during the POI or review period.
    Furthermore, regarding Sammi-produced merchandise purchased by 
Changwon, petitioners state that there is no information on the record 
indicating that Sammi had imported materials for its production of the 
SSWR. Similarly, petitioners state that there is no information that 
indicates whether, if Sammi had imported materials for its production 
of the SSWR, those import duties would satisfy the Department's two-
prong test for duty drawback adjustment. Furthermore, petitioners 
contend that is no indication that the prices paid by Changwon for 
Sammi-produced SSWR included import duties, and if so, whether Changwon 
was entitled to get any duty drawback on those duties.
    Changwon maintains that the Department's findings during 
verification support the Department's preliminary decision to allow 
Changwon's reported duty drawback adjustments. Changwon states that it 
has demonstrated, and the Department has fully verified, that it 
accurately reported the duty drawback incurred on its sales during the 
POI. Changwon asserts that its most recent supplemental response 
contained resubmitted duty drawback adjustments which incorporated the 
actual amounts of duty drawback acquired by Changwon.
    Changwon states that the Department confirmed during verification 
that Changwon can claim a duty drawback only if the amount of raw 
materials on an import certificate are sufficient to produce the 
quantity of subject merchandise stated on an export certificate. This, 
according to Changwon, fulfills the Department's requirements for a 
duty drawback adjustment that the import duty and rebate are directly 
linked and dependent on one another and that there were sufficient 
imports of the raw materials to account for the duty drawback received. 
Further, Changwon asserts that the accuracy of Changwon's reported duty 
drawback was confirmed through the Department's trace of the reported 
duty drawback amounts to its applications for duty drawback to the 
Korean Government. Changwon also states that petitioners' allegation 
that it did not report actual amounts of duty drawback is incorrect and 
that the above-mentioned resubmitted duty drawback adjustments are in 
fact based on actual amounts.
    Changwon dismisses petitioners' argument that Changwon must tie its 
receipt of duty drawback to U.S. exports. Changwon cites Laclede Steel 
Co. v. United States, 18 CIT 965, 972-73 (1994) as a case in which the 
Court of International Trade held that a respondent's reported duty 
drawback adjustment may result in export sales receiving more or less 
of an adjustment than was actually rebated is not a basis for rejecting 
those adjustments.
    Changwon refutes petitioners' argument that it did not show that it 
had sufficient imports of raw materials to produce the quantity of 
exports that incurred duty drawback by attributing the argument to a 
misreading of Changwon's duty drawback exhibit. Changwon states that 
the worksheets referred to by petitioners were merely examples and did 
not represent all imported raw materials that were available for 
producing the exported merchandise.
    Changwon states that petitioners' argument regarding duty drawback 
received on sales of Sammi-produced merchandise are also erroneous 
because, as part of Changwon's acquisition of Sammi, the company 
assumed Sammi's duty liability for imported merchandise and Sammi's 
import certificates were transferred to Changwon. This allowed Changwon 
to properly receive duty drawback on the export of Sammi-produced 
merchandise.
    Changwon argues that it properly included duty drawback received 
after the end of the POI because its normal business practice is to 
record its duty drawback payments on an accrual basis. Changwon states 
that it is the Department's practice to accept a company's sales 
expenses and adjustments that are reported consistently with its normal 
accounting practices. Changwon asserts that there is no evidence on the 
record that contradicts the fact that Changwon applies for duty 
drawback as a normal part of its business practice and that it fully 
receives the amount of duty drawback claimed.
DOC Position
    We agree, in part, with both parties. First, contrary to 
petitioners allegation regarding Changwon's explanation of its duty 
drawback reporting methodology, we agree that Changwon revised its duty 
drawback adjustments to reflect the actual amounts of duty drawback in 
its most recent supplemental response. Furthermore, we disagree with 
petitioners that Changwon is required to trace imported raw materials 
to export sales. In fact, the Department's practice is not that a 
company must trace imported input directly from importation through 
exportation, but rather, that a company must satisfy the two-prong test 
described in Dongbang Comment 9, above. In this regard, we are 
satisfied that Changwon has met each of the two prongs of this test for 
reasons similar to those explained above for Dongbang. However, in 
accordance with section 772(c)(1)(B) of the Act, which requires the 
Department to increase starting price for EP and CEP by the amount of 
any import duties ``imposed by the country of exportation which have 
been rebated, or which have not been collected by reason of the 
exportation of the subject merchandise to the United States,'' we have 
recalculated Changwon's reported duty drawback to reflect only those 
amounts actually rebated. Regarding duty drawback on Sammi-produced 
merchandise which was sold by Changwon, the information provided by 
Changwon is inconclusive as to whether Changwon is entitled to duty 
drawback on this merchandise. However, given that we have calculated 
duty drawback only on rebates actually received by

[[Page 40421]]

Changwon, this issue is moot. See Final Determination Calculation 
Memorandum, for further discussion.
    Comment 7: Transactions-Disregarded and Major-Input Rules.
    Changwon argues that if the Department continues to collapse 
Changwon and POSCO as a single producer for the final determination, 
the Department should not apply the transactions-disregarded and major-
input rules under section 773(f)(2) and (3) in determining the value of 
inputs provided by POSCO to Changwon. Changwon notes that the 
Department has stated that once it collapses two companies, it no 
longer applies the major-input or transactions-disregarded rules for 
valuing transfers of products from one part of the entity to another. 
Changwon cites 1997 Flat Products from Korea where the Department 
determined that the POSCO group (encompassing three separate producers: 
POSCO, Pohang Coated Steel (POCOS) and Pohang Steel Industries (PSI)) 
represents one producer of certain cold-rolled steel flat products and 
that as such, transactions among the parties be valued based on the 
group as a whole. It further states that since the POSCO group was 
considered one entity, the major-input rule and transactions-
disregarded provisions of the Act were not applied because there are no 
transactions between affiliated persons. Changwon notes that the 
Department reaffirmed its clear position on this issue in 1998 Flat 
Products from Korea.
    In support of the above argument, Changwon states that it has 
submitted and the Department has verified Changwon's costs, adjusted to 
reflect POSCO's actual cost of manufacturing transferred inputs. After 
the preliminary determination and learning of the Department's decision 
to collapse Changwon and POSCO, Changwon submitted cost data that was 
consistent with the Department's collapsing decision. Changwon asserts 
that semi-finished products should be treated as transfers among 
factories or divisions within the same company, and should be valued 
within the single entity at the actual cost of manufacturing the input. 
This policy avoids double counting of POSCO's G&A, and avoids including 
POSCO's internal profit earned on the input. Specifically, the 
Department should use the COM to value the inputs rather than the 
transfer price.
    Petitioners contend that the Department should continue to apply 
the major-input rule and transactions-disregarded rule in valuing 
inputs received by Changwon from POSCO. Petitioners explain that the 
major-input rule and transactions-disregarded rule have a specific 
purpose that is separate and distinct from the purpose of the 
collapsing test. Petitioners note that statutes always take precedence 
over regulations, and that the major-input rule and transactions-
disregarded rule are statutory, while the collapsing analysis is 
performed pursuant to the Department's regulations. Petitioners further 
assert that the statute does not provide for an exception to the 
application of these rules in the case of collapsed parties, and thus 
the Department should enforce the statute in applying these rules. 
Petitioners maintain that the Department would be writing out of 
existence the statutory major-input rule and transactions-disregarded 
rule based on its interpretation of a regulation if it were to collapse 
POSCO and Changwon for input cost purposes.
    Petitioners assert that Congress intended that the application of 
the major-input rule and collapsing test remain independent of each 
other, citing the SAA for support. Petitioners assert that by listing 
price issues separate from cost issues in its explanation of the major-
input rule and transactions-disregarded rule, the drafters of the SAA 
did not intend affiliation price and cost issues to be lumped together, 
but to be considered separately. Petitioners argue that the legislative 
history would have suggested that these rules for calculating cost be 
combined with the collapsing test in connection with circumvention and 
price issues if the drafters intended this. Instead, petitioners state 
that the SAA focuses exclusively on cost issues in its explanation of 
the major-input rule and transactions-disregarded rule. Petitioners 
assert further that the statutory provisions of the major input rule 
and transactions disregarded rule focus clearly on cost input issues 
that are not affected by the collapsing of producers to prevent 
circumvention, and the Department should thus continue to apply these 
rules in valuing inputs sold from POSCO to Changwon.
DOC Position
    We agree with respondent. The facts in this case are similar to 
those present in 1997 Flat Products from Korea wherein the Department 
held that treating affiliated producers as a single entity for dumping 
purposes obviates the application of the major-input rule and 
transactions-disregarded rule because there are no transactions between 
affiliated persons. As stated in 1997 Flat Products from Korea at 
18430, 18431: the POSCO group {encompassing three separate producers: 
POSCO, Pohang Coated Steel (POCOS) and Pohang Steel Industries (PSI)} 
represents one producer of certain cold-rolled steel flat products * * 
* 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. * * * With regard to transfers of 
inputs among the POSCO group companies we have valued transfers of 
substrate between the companies as the cost of manufacturing of the 
substrate {i.e., a major input, also subject merchandise, further 
manufactured and then resold.} * * * Since we have determined that the 
POSCO Group is one entity for these final results, {the major input 
rule and fair value provisions} of the Act cannot apply because there 
are no transactions between affiliated persons.
    As noted by Changwon, the Department reaffirmed its clear position 
on this issue in 1998 Flat Product from Korea at 13185, stating that: 
because we are treating these companies {POSCO, POCOS, and PSI} as one 
entity for our analysis, intra-company transactions should be 
disregarded. * * * {T}he 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 and as such, among collapsed 
entities the fair-value and major-input provisions are not controlling.
    As a result, we have used actual costs in determining the COM for 
Changwon as well as Dongbang in the final determination.
    Comment 8: Changwon's Methodology To Identify the Manufacturer.
    In regard to the Department's sales verification report, Changwon 
states that the Department properly noted that Changwon has reported 
itself as the manufacturer where appropriate. Changwon states that this 
is in accordance with the Department's practice to treat the last 
company involved in the production process as the manufacturer of the 
resulting merchandise. For example, in Corrosion-Resistant Carbon Steel 
Flat Products and Certain Cut-to-Length Carbon Steel Plate from Canada, 
61 FR 13815, 13821 (March 28, 1996), the Department treated Continuous 
Color Coat, Inc. (``CCC'') as the manufacturer of the subject 
merchandise sold by CCC, even though CCC purchased the subject 
merchandise and then performed either painting or galvanizing 
functions. Similarly, in Circular Welded Non-Alloy Steel Pipe from the 
Republic of Korea, 62 FR 64559, 64561 (Dec. 8, 1997), some of the 
respondent companies purchased subject merchandise from third parties

[[Page 40422]]

and performed minor further manufacturing activities to produce 
merchandise that was still within the scope of the review. Changwon 
claims that the above determinations are indistinguishable from the 
facts pertaining to Changwon and, thus, the Department should continue 
to utilize Changwon's reported manufacturer for each sale.
    Petitioners did not comment on this issue.
DOC Position
    We agree with Changwon and given there are no arguments or evidence 
on the record to suggest otherwise, we have continued to use Changwon 
as the manufacturer, as reported, where appropriate.

Continuation of Suspension of Liquidation

    In accordance with section 733(d) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
SSWR from Korea that are entered, or withdrawn from warehouse, for 
consumption, on or after the date of publication of this notice in the 
Federal Register. The Customs Service shall continue to require a cash 
deposit or posting of a bond equal to the estimated amount by which the 
normal value exceeds the U.S. price as shown below. These suspension of 
liquidation instructions will remain in effect until further notice. 
The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                              Weighted- 
                                                               average  
                   Exporter/manufacturer                        margin  
                                                              percentage
------------------------------------------------------------------------
Dongbang Special Steel Co., Ltd./ Changwon Specialty Steel              
 Co., Ltd./ Pohang Iron and Steel Co., Ltd.................         3.18
Sammi Steel Co., Ltd.......................................        28.44
All Others.................................................         3.18
------------------------------------------------------------------------

    Pursuant to section 735(c)(5)(A) of the Act, the Department has 
excluded the margins determined entirely under section 776 of the Act 
(facts available) from the calculation of the ``All Others Rate.''

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
International Trade Commission (ITC) of our determination. As our final 
determination is affirmative, the ITC will, within 45 days, determine 
whether these imports are materially injuring, or threaten material 
injury to, the U.S. industry. If the ITC determines that material 
injury, or threat of material injury does not exist, the proceeding 
will be terminated and all securities posted will be refunded or 
canceled. If the ITC determines that such injury does exist, the 
Department will issue an antidumping duty order directing Customs 
officials to assess antidumping duties on all imports of the subject 
merchandise entered for consumption on or after the effective date of 
the suspension of liquidation.
    This determination is published pursuant to section 777(i) of the 
Act.

    Dated: July 20, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-20017 Filed 7-28-98; 8:45 am]
BILLING CODE 3510-DS-P