40404 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

The weighted-average dumping margins

are as follows:

Exporter/manufacturer

Weightedaverage

margin percentage

Roldan, S.A ............................... 4.72

All Others .................................. 4.72

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. 98–20016 Filed 7–28–98; 8:45 am]

BILLING CODE 3510–DS–P

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 hotrolled 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 hotrolling, 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 coldfinished 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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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 companyspecific 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 abovecost 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 nonAISI 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 intracompany 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
40406 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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
40408 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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 numberspecific 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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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 colocation, 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
40410 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

‘‘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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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 whollyowned 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 perunit 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 numberspecific 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 CorrosionResistant 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
40412 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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 productspecific 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 reestimated 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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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 longterm 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,
40414 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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 internationallyrecognized grade standards and that

neither type of prime product contained

the surface defects inherent in nonprime 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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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 perunit 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 underreported 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
40416 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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 nonoperating 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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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
40418 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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.
40420 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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 Sammiproduced 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 Sammiproduced 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 Sammiproduced 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
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 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 majorinput 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 coldrolled 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 transactionsdisregarded 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 semifinished 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 transactionsdisregarded 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 transactionsdisregarded 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
40422 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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:

Exporter/manufacturer

Weightedaverage

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

DEPARTMENT OF COMMERCE

International Trade Administration

[A–475–820]

Notice of Final Determination of Sales

at Less Than Fair Value: Stainless

Steel Wire Rod From Italy

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT:

Shawn Thompson or Irina Itkin, Import

Administration, International Trade

Administration, U.S. Department of

Commerce, 14th Street and Constitution

Avenue, NW, Washington, DC 20230;

telephone: (202) 482–1776 or (202) 482–

0656, 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 regulations of the Department of

Commerce (the Department) 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 Italy 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,

below.

Case History

Since the preliminary determination

in this investigation 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 Italy, 63 FR 10831 (Mar. 5, 1998)),

the following events have occurred:

In February 1998, we issued

supplemental questionnaires to the two

respondents in this case, Acciaierie

Valbruna S.r.l. (including its subsidiary

Acciaierie di Bolzano SpA) (collectively

‘‘Valbruna’’) and Cogne Acciai Speciali

S.r.l. (CAS). We received responses to

these questionnaires in March 1998.

In March, April, and May 1998, we

verified the questionnaire responses of

the two respondents, as well as the

section A response of an additional

company, Rodacciai SpA (Rodacciai). In

May 1998, CAS and Valbruna submitted

revised sales databases 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 both

respondents submitted case briefs on

June 3, 1998, and rebuttal briefs on June

10, 1998. The Department held a public

hearing on June 17, 1998.

Scope of Investigation

For purposes of this investigation,

SSWR comprises products that are hotrolled 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 hotrolling, 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 coldfinished 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,