[Federal Register Volume 60, Number 38 (Monday, February 27, 1995)]
[Notices]
[Pages 10552-10558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4727]



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DEPARTMENT OF COMMERCE.
[A-549-809]


Notice of Final Determination of Sales at Less Than Fair Value: 
Certain Carbon Steel Butt-Weld Pipe Fittings From Thailand

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
EFFECTIVE DATE: February 27, 1995.

FOR FURTHER INFORMATION CONTACT: Vincent Kane or Julie Anne Osgood, 
Office of Countervailing Investigations, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW, Washington, DC 20230; telephone 
(202) 482-2815 or 482-0167, respectively.

Final Determination

    We determine that certain carbon steel butt-weld pipe fittings 
exported by Awaji Sangyo (Thailand) Co., Ltd. (AST), from Thailand are 
being sold in the United States at less than fair value, as provided in 
section 735 of the Tariff Act of 1930, as amended (the ``Act''). The 
estimated margin is shown in the ``Suspension of Liquidation'' section 
of this notice.

Case History

    Since the publication of the preliminary determination in the 
Federal Register on October 4, 1994 (59 FR 50568), the following events 
have occurred:
    On November 14, 1994, we published in the Federal Register a notice 
postponing the publication of the final determination in this case 
until February 16, 1995 (59 FR 56461). From October 20 to October 26, 
1994, we verified the sales information of AST at its offices in 
Samutprakarn, Thailand. From December 2 to December 6, 1994, we 
verified AST's cost of production and constructed value data. On 
January 23 and January 30, 1995, petitioner and respondent submitted 
case and rebuttal briefs to the Department. A public hearing in this 
investigation was held on February 6, 1995.
    We note that all other producers and exporters of the subject 
merchandise in Thailand, which export to the United States, are subject 
to an antidumping duty order currently in effect for this merchandise. 
(See 57 FR 29702, July 6, 1992.) AST was excluded from this order 
because in the previous investigation, the Department found its margin 
of sales at less than fair value at that time to be de minimis.

Scope of the Investigation

    The products covered by this investigation are certain carbon steel 
butt-weld pipe fittings having an inside diameter of less than fourteen 
inches (355 millimeters), imported in either finished or unfinished 
condition. Pipe fittings are formed of forged steel products used to 
join pipe sections in piping systems where conditions require permanent 
welded connections, as distinguished from fittings based on other 
methods of fastening (e.g., threaded, grooved, or bolted fittings). 
Butt-weld fittings come in a variety of shapes which include 
``elbows,'' ``tees,'' ``caps,'' and ``reducers.'' The edges of finished 
pipe fittings are beveled, so that when a fitting is placed against the 
end of a pipe (the ends of which have also been beveled), a shallow 
channel is created to accommodate the ``bead'' of [[Page 10553]] the 
weld which joins the fitting to the pipe. These pipe fittings are 
currently classifiable under subheading 7307.93.3000 of the Harmonized 
Tariff Schedule of the United States (``HTSUS''). Although the HTSUS 
subheading is provided for convenience and Customs purposes, our 
written description of the scope of this investigation is dispositive.

Period of Investigation

    The period of investigation (``POI'') is September 1, 1993, through 
February 28, 1994.

Such or Similar Comparisons

    In making our fair value comparisons, in accordance with the 
Department's standard methodology and section 771(16) of the Act, we 
first compared sales of merchandise identical in all respects. If no 
identical merchandise was sold, we compared sales of the most similar 
merchandise, as determined by the model-matching criteria contained in 
Appendix V of the questionnaire (``Appendix V'') (on file in Room B-099 
of the main building of the Department of Commerce (``Public File'')).

Fair Value Comparisons

    To determine whether AST's sales for export to the United States 
were made at less than fair value, we compared the United States price 
(``USP'') to the foreign market value (``FMV''), as specified in the 
``United States Price'' and ``Foreign Market Value'' sections of this 
notice. For those U.S. sales compared to sales of similar merchandise, 
we made an adjustment, pursuant to 19 CFR 353.57 (1994), for physical 
differences in the merchandise. Regarding level of trade, AST reported 
that it sells to an importer/distributor in the United States and 
directly to distributors, end users, and a commissionaire agent in 
Thailand. AST negotiates prices on a sale-by-sale basis and states that 
it is unable to discern any correlation between selling prices and 
customer categories. Further, AST states that its selling expenses do 
not vary by customer category. We examined this issue at verification 
and found no evidence that AST's prices or conditions of sale differed 
on the basis of level of trade. Therefore, in keeping with established 
practice (see, e.g., Final Results of Administrative Review: 
Antifriction Bearings and Parts Thereof from the Federal Republic of 
Germany, et al. (56 FR 31692, 31709-11; July 11, 1991) and Import 
Administration Policy Bulletin 92/1, Matching at Levels of Trade, 
issued on July 29, 1992), and in accordance with 19 CFR 353.58, we have 
compared AST's U.S. sales to its home market sales to all customers.
    We made revisions to AST's reported data, where appropriate, based 
on findings at verification.
United States Price

    Because AST's U.S. sales of certain carbon steel butt-weld pipe 
fittings were made to an unrelated distributor in the United States 
prior to importation, and the exporter's sales price methodology was 
not indicated by other circumstances, we based USP on the purchase 
price (``PP'') sales methodology in accordance with section 772(b) of 
the Act.
    We calculated PP based on packed, c.i.f. import prices to an 
unrelated customer in the United States. We made deductions from the 
U.S. price for foreign brokerage, foreign inland freight, ocean freight 
and marine insurance.
    We made an adjustment to U.S. price for the consumption tax paid on 
the comparison sales in Thailand, in accordance with our practice, 
pursuant to the Court of International Trade (CIT) decision in Federal-
Mogul, et al v. United States, 834 F. Supp. 1391. See Preliminary 
Antidumping Duty Determination and Postponement of Final Determination; 
Color Negative Photographic Paper and Chemical Components Thereof from 
Japan, 59 FR 16177, 16179, April 6, 1994, for an explanation of this 
tax methodology. In accordance with section 772(d)(1)(B) of the Act, we 
made an addition to the U.S. price for the amount of import duties 
imposed on inputs which were subsequently rebated upon exportation of 
the finished merchandise to the United States. (See Comment 2, below.)
    Upon exportation of finished pipe fittings, AST receives a drawback 
of import duties, which is greater than the import duties that would 
have been assessed had the fittings been sold for home consumption. In 
our calculation of USP, we limited the addition for drawback to the 
amount of duties that would have been assessed had the goods been sold 
in the home market. This approach is consistent with section 
772(d)(1)(B) of the Act, which provides that the USP shall be increased 
by the drawback of any import duties ``imposed in the country of 
exportation which have been rebated or not collected by reason of 
exportation of the merchandise to the United States.'' Therefore, we 
have capped the amount added to USP at the level of the import duties 
imposed in the country of exportation.
    For U.S. sales which had not been shipped and for which payment had 
not been received, we based AST's credit expense on the average number 
of days outstanding between shipment and payment for AST's U.S. sales 
with reported shipment and payment dates. For a discussion of the 
Department's treatment of the appropriate interest rate to use in the 
calculation of credit in this investigation, see Memorandum from 
Barbara R. Stafford to Susan G. Esserman (September 26, 1994) on file 
in room B-099 of the U.S. Department of Commerce.

Foreign Market Value

    In order to determine whether there was a sufficient volume of 
sales in the home market to serve as a viable basis for calculating 
FMV, we compared the volume of home market sales of subject merchandise 
to the volume of third country sales of subject merchandise, in 
accordance with section 773(a)(1)(B) of the Act. On this basis, we 
determined that the home market was viable.
    For purposes of calculating FMV, we used AST's sales to its home 
market customers and constructed value (CV), as described below.

Cost of Production

    Petitioner alleged that AST made home market sales during the POI 
at prices below the cost of production (COP). Based on petitioner's 
allegation and other information on the record, we concluded that we 
had the requisite reasonable grounds to believe or suspect that sales 
were made below COP. Thus, in accordance with section 773(b), we 
initiated a cost investigation.
    In order to determine whether home market prices were below COP 
within the meaning of section 773(b) of the Act, we performed a 
product-specific cost test, in which we examined whether each product 
sold in the home market during the POI was priced below the COP of that 
product. We calculated COP based on the sum of AST's cost of materials, 
direct labor, variable and fixed factory overhead, general expenses, 
and packing, in accordance with 19 CFR 353.51(c). For each product, we 
compared this sum to the home market unit price, net of movement 
expenses and commissions.
    With the following exceptions, we relied on submitted and verified 
COP information. Material costs were modified to reflect only the cost 
of seamless pipe used in manufacturing the subject merchandise, rather 
than a pipe cost which included not only seamless pipe for fittings 
within the scope, but also for fittings outside the scope, and for 
welded pipe fittings. Also, we used an interest cost based on the 
combined interest cost of AST and [[Page 10554]] its parent, ASK, 
rather than one based on AST's interest costs alone.
    Section 773(b) of the Act requires us to examine whether below cost 
sales were made in substantial quantities over an extended period of 
time, and whether such sales were made at prices that would permit 
recovery of all costs within a reasonable period of time in the normal 
course of trade.
    For each product where less than ten percent, by quantity, of the 
home market sales during the POI were made at prices below COP, we 
included all sales of that model for the computation of FMV. For each 
product where ten percent or more, but less than 90 percent, of the 
home market sales during the POI were priced below COP, we disregarded 
those home market sales which were priced below COP for purposes of 
calculating FMV, provided that the below-cost sales of that product 
were made over an extended period of time. Where we found that more 
than 90 percent of respondent's sales were at prices below COP, and 
such sales were over an extended period of time, we disregarded all 
sales of that product for purposes of calculating FMV.
    In order to determine whether below-cost sales had been made over 
an extended period of time, we compared the number of months in which 
below-cost sales occurred for each product to the number of months in 
the POI in which that product was sold. If a product was sold in fewer 
than three months during the POI, we did not exclude sales unless there 
were below cost sales in each month of sale. If a product was sold in 
three or more months, we did not exclude the below-cost sales unless 
there were below-cost sales in at least three months during the POI.
    If sales below cost occurred in three or more months of the POI, 
they are considered to be made over an extended period of time. When 
items are sold in just two or three months of the POI, we would 
consider below cost sales of these items to be over an extended period 
of time, if they occurred in at least two months of the three months. 
When items are sold in just one month of the POI, we would consider any 
below cost sales of these items to be over an extended period of time. 
(See Final Determination of Sales at Less Than Fair Value: Saccharin 
from Korea (59 FR 58826, November 15, 1994); and Preliminary Results 
and Partial Termination of Antidumping Administrative Review: Tapered 
Roller Bearings, Four Inches or Less in Outside Diameter, and 
Components Thereof (58 FR 69336, 69338, December 10, 1993)). AST 
provided no evidence that the disregarded sales were at prices that 
would permit recovery of all costs within a reasonable period of time 
and in the normal course of trade. (See, Section 773(b)(2).
Constructed Value

    In accordance with section 773(e), we calculated CV based on the 
sum of the cost of materials (with adjustments as described in the 
``Cost of Production'' section of this notice), fabrication, general 
expenses, U.S. packing costs and profit. The cost of materials included 
import duties paid on imported seamless pipe used to produce the pipe 
fittings. The amount of import duties included in CV was equivalent to 
the duties that would have been imposed had the fittings been sold for 
home consumption. In accordance with section 773(e)(1)(B)(i) and (ii) 
of the Act we: 1) included the greater of AST's reported general 
expenses or the statutory minimum of ten percent of the cost of 
manufacture (COM), as appropriate; and 2) for profit, we used the 
statutory minimum of eight percent of the sum of COM and general 
expenses because actual profit was less than the statutory minimum.

Price-to-Price Comparisons

    For price-to-price comparisons, we calculated FMV based on packed, 
ex-factory or delivered prices to home market customers. From these 
prices, we deducted commission, where appropriate. We deducted home 
market packing costs and added U.S. packing costs in accordance with 
section 773(a)(1) of the Act. We also made adjustments, where 
appropriate, for differences in the physical characteristics of the 
merchandise in accordance with section 773(a)(1) of the Act.
    In light of the Court of Appeals for the Federal Circuit's decision 
in Ad Hoc Committee of AZ-NM-TX-FL Producers of Gray Portland Cement V. 
United States, 13 F.3d 398 (Fed. Cir., January 5, 1994), the Department 
no longer can deduct home market movement charges from FMV pursuant to 
its inherent power to fill in gaps in the antidumping statute. Instead, 
we adjust for those expenses under the circumstance-of-sale provision 
of 19 CFR 353.56(a) and the exporter's sales price offset provision of 
19 CFR 353.56(b)(2), as appropriate. Accordingly, in the present case, 
we deducted post-sale home market movement charges from the FMV under 
the circumstance-of-sale provision of 19 CFR 353.56(a). This adjustment 
included home market inland freight.
    For both price-to-price comparisons and comparisons to CV, we also 
made circumstance-of-sale adjustments, where appropriate, for 
differences in credit expenses, pursuant to 19 CFR 353.56(a)(2). In 
accordance with 19 CFR 353.56(b)(1), we added U.S. indirect selling 
expenses as an offset to the home market commission, but capped this 
addition by the amount of the home market commission.
    We adjusted for a consumption tax collected in the Thai home 
market. (See the United States Price section of this notice, above.)

Currency Conversion

    We made currency conversions based on the official exchange rates 
in effect on the dates of the U.S. sales as certified by the Federal 
Reserve Bank of New York. See 19 C.F.R. 353.60.

Verification

    As provided in section 776(b) of the Act, we verified information 
provided by the respondent using standard verification procedures, 
including the examination of relevant sales, cost and financial 
records, and selection of original source documentation. The public 
versions of the November 29, 1994, and the January , 1995 verification 
reports are available for review in the Central Records Unit located in 
room B-099 of the Department's main building, the Herbert C. Hover 
Building.

Interested Party Comments

Comment 1

    Petitioner observes that according to AST's response, it did not 
commence integrated production of tees in Thailand until after the POI. 
However, tees were shipped during the POI. Petitioner claims that these 
tees must be of Chinese origin because AST identified certain other 
tees sold during the POI as being of Chinese origin. Petitioner argues 
that, because the tees in question could not have been produced by AST, 
the Department should exclude sales of these tees from the 
investigation.
    AST maintains that it has correctly identified all of the Chinese 
tees which it sold in the home market during the POI. Moreover, AST 
points out that it indicated in its response that it began a lengthy 
testing of its integrated production of tees during the POI. AST claims 
that a limited quantity of tees was produced from these test runs and 
was sold in the home market. Therefore, AST argues that it properly 
included these sales in its home market sales listing.

DOC Position

    While there are statements in AST's response that would support 
petitioner's [[Page 10555]] conclusion, AST's Section D response does 
refer to a lengthy testing period commencing during the POI. In 
addition, AST's July 25, 1994, supplemental response in Exhibit 1 
specifically identifies certain tees as Chinese tees and the remaining 
as tees being produced by AST, including certain tees which were 
shipped during the POI. Because AST identified the Chinese tees in 
Exhibit 1 of its July 25 response and because the quantity of tees 
shipped during the POI is commensurate with production over a prolonged 
test run, we have accepted these tees as tees produced by AST and have 
included them in the home market data base.

Comment 2

    Petitioner claims that the duty drawback amount added to purchase 
price was greater than the drawback amount included in the constructed 
value, because the drawback amount added to purchase price included 
both import duty and value added tax (VAT) paid on purchases of 
imported pipe, whereas the drawback added to constructed value included 
only the import duty.
    AST maintains that the Department properly excluded the VAT on 
component material from the constructed value, because AST received a 
rebate of this VAT upon exportation of the finished product. Section 
773(e)(1)(A) of the Act states, in part, that constructed value shall 
include the cost of materials exclusive of any internal tax applicable 
in the country of exportation directly to such materials or their 
disposition, but remitted or refunded upon the exportation of the 
article in the production of which such materials were used. Therefore, 
AST contends that the VAT on component materials was properly excluded 
in the calculation of CV.

DOC Position

    In accordance with the section 773(e)(1)(A) of the Act, our 
practice is to exclude indirect taxes on component materials from CV, 
if the taxes are rebated upon export. Once we have excluded the VAT on 
component materials from the constructed value, we must also exclude it 
from the USP because section 772(d)(1)(C) the Act requires that we add 
internal taxes to USP but only to the extent that these taxes are 
included in the FMV. When FMV is based on CV, no VAT is included in CV 
and we are, thus, precluded from adding VAT to the USP.
Comment 3

    AST states that following the rationale of section 773(e)(1)(A), 
the Department should also not include the import duties on component 
materials in constructed value because this duty is also either 
refunded upon export or an exemption of the duty is granted by reason 
of exportation of the merchandise.

DOC Position

    Section 773(e)(1)(A) directs the Department to exclude from 
constructed value internal taxes applicable in the country of 
exportation but rebated upon export. We do not consider import duties 
to be internal taxes. The courts also have recognized that the term 
``internal tax'' denotes taxes other than import duties. See Serampore 
Indus. Pvt. Ltd. v. United States Dep't of Commerce, Int'l Trade 
Admin., 675 F. Supp. 1354, 1357 (CIT 1987). Therefore, in accordance 
with past practice (see, e.g., Offshore Platform Jackets and Piles from 
the Republic of Korea, 51 FR 11,795, 11,796 (April 7, 1986)), we have 
included the import duties on component materials as part of the cost 
of materials in our calculation of constructed value.

Comment 4

    AST states that in July 1992, it was excluded from the July 6, 1992 
antidumping duty order on pipe fittings from Thailand (57 FR 29702) 
because its less than fair value margins were de minimis. In view of 
this fact, AST maintains that the Department should have applied a more 
rigorous standard in determining whether to initiate an investigation 
in this case and that, had it done so, the case never would have been 
initiated. Contrary to suggestions in the petition, AST argues that 
there was no basis to assume that AST's costs had increased by 100 
percent in two years, or that U.S. prices showed significant movement 
during that time. Therefore, the Department should re-examine its 
initiation and terminate the instant proceeding.
    Petitioner maintains that nothing in the statute bars the filing of 
an antidumping petition against a specific exporter merely because 
other exporters of the same product from the same country are already 
subject to an antidumping duty order, nor does the statute impose a 
higher burden on petitioner in such circumstances. Because the 
proceeding was lawfully initiated, no basis exists for questioning the 
Department's decision to initiate.

DOC Position

    The fact that a petition on the same merchandise was filed in 1991 
and AST was excluded from the subsequent antidumping duty order was not 
taken into account in our decision to initiate the current case. A 
finding at one point in time that a company is not dumping does not 
create a presumption that the company will not dump in the future. 
Lacking such a presumption, there is no basis for applying a higher 
initiation threshold for later filed cases on the same merchandise.

Comment 5

    AST claims that the Department should apply the sales-below-cost 
test to all sales of such or similar merchandise on a combined basis, 
before applying it on a model-specific basis. This was the approach 
used in the prior investigation of the subject merchandise (Final 
Determination of Sales at Less Than Fair Value: Certain Carbon Steel 
Butt-Weld Pipe Fittings from Thailand, 57 FR 21065, 21070, May 18, 
1992).
    AST points out that the viability test required by section 773(a) 
of the Act is done on a such or similar category basis. AST maintains 
that section 773(b) of the Act, in discussing sales below cost, makes 
reference to section 773(a). Therefore, the test for below cost sales 
should also be done on a such or similar category basis.
    Further, the language in section 773(b) suggests that the cost test 
be applied on a such or similar category basis rather than on a model-
specific basis. Section 773(b) requires the Department to determine 
whether ``sales were made at less than the cost of producing the 
merchandise.'' Because the term ``merchandise'' has a broader 
connotation than the term ``model'' or ``product, the cost test must be 
done on a such or similar category basis.
    AST claims that the Department's Policy Bulletin 92/3, dated 
December 15, 1992, on the 10/90/10 test for below cost sales does not 
provide any basis for performing the cost test solely on a model-
specific basis and bypassing the test on a such or similar category 
basis.
    In addition, AST maintains that the legislative history of section 
773(b) indicates that Congress intended that the Department consider 
the rationality of exporter's pricing practices, specifically by giving 
allowances for model-specific below cost sales at the end of a model 
year.
    Finally, AST points out that it was excluded from the original 
antidumping duty order on butt-weld pipe fittings from Thailand, 
because its overall margin of sales at less than fair value 
[[Page 10556]] was de minimis. During the original investigation, the 
Department applied the two-tiered cost test and AST has continued to 
use this test to avoid the possibility of dumping margins. For the 
Department to apply a new test in this investigation is unfair.
    Petitioner asserts that the Department's model-specific cost test 
is in full accord with the requirements and purpose of Section 773(b) 
of the Act because this test is the first step to be taken in 
determining FMV, which is based on sales of particular models or 
products.
    Petitioner adds that the need for a model-specific cost test is 
particularly evident for a product like pipe fittings. Despite the fact 
that pipe fittings come in a wide range of sizes, only about 20 percent 
of the sizes account for about 80 percent of the fittings sold. Below 
cost sales of low-volume items in the home market might not be screened 
out by a cost test applied on a such or similar category basis. If 
these sales happen to be compared to high volume items sold for export 
to the United States, many less than fair value sales would go 
undetected. Clearly, the purpose of the cost test would be defeated by 
such an outcome.
DOC Position

    In our final determination, we have adhered to the Department's 
Policy Bulletin 92/3, which provides that the cost test be done on a 
model-specific basis. Policy Bulletin 92/3 is in complete accordance 
with the statute and has been consistently applied by the Department 
for over two years. The Policy Bulletin states that the cost test is 
intended to avoid basing FMV on below cost sales. Because FMV is 
determined on a model-specific basis, the Department has chosen to 
apply the cost test on a model-specific basis, as well. Otherwise, for 
certain models, FMV would likely be calculated on below cost sales.
    AST claims that because 773(b) of the Act contains a reference to 
773(a), the Department is required to conduct the below cost sales test 
on the same basis as the market viability test. The such or similar 
viability test is a general test to determine the level of sales 
activity to determine the efficacy of spending resources in examination 
of those home market sales. The cost test, on the other hand, is 
designed to determine which market sales may be used for comparison 
purposes. Nothing in the statute, the regulations, or the legislative 
history suggests that tests for general home market activity and for 
sales below cost must be on the same basis. Because the purposes of the 
two tests are different and because the reference in section 773(b) to 
section 773(a) clearly does not compel the Department to use the same 
procedure for these tests, we followed Department policy and used the 
model-specific cost test.
    AST's claim that use of the term ``merchandise'' in section 773(b) 
requires the Department to apply the cost test broadly is erroneous. 
The term ``merchandise'' is used throughout the statute, in some cases 
with a broad connotation and in others, in a narrower sense. For 
example, when the statute refers to ``the same general class or kind of 
merchandise,'' the connotation is broad and includes the entire class 
or kind of merchandise under investigation. However, when the statute 
defines ``such or similar merchandise,'' the connotation is narrow, 
referring to the particular model sold in the home market which is 
identical, or most similar to, a particular model sold for export to 
the United States. The fact that section 773(b) of the Act uses the 
term ``merchandise'' with respect to the cost test does not require us 
to apply the cost test on a broad basis.
    AST claims that Policy Bulletin 92/3 does not provide any basis for 
``bypassing'' a cost test using such or similar categories. The 
Department formulated Policy Bulletin 92/3 as a statement of its intent 
to implement uniformly a cost test methodology. The Policy Bulletin 
itself states that the Department's practice will be to apply the 
model-specific cost test in all future investigations and reviews. The 
Policy Bulletin need not explain ``bypassing'' the such-or-similar cost 
test because, to the extent that the such-or-similar test had been used 
in prior cases, it was no longer Department practice when the 
Department adopted the model-specific test advocated in the Policy 
Bulletin.
    The Department uniformly has applied the model-specific cost test 
in both investigations and reviews since the bulletin was released. 
(See, e.g., Final Determination of Sales at Less Than Fair Value: 
Ferrosilicon from Venezuela, 58 FR 27522, 27533 (May 10, 1993); Final 
Results of Antidumping Administrative Review: Sweaters, Wholly or 
Chiefly of Man Made Fiber, from Korea, 59 FR 17513, 17515 (April 13, 
1994)). Given these circumstances, AST had adequate notice as to Policy 
Bulletin 92/3's contents and that the Department would apply the model-
specific cost test for all future investigations and administrative 
reviews.
    Regarding the legislative history's reference to below-cost end-of-
model-year sales, we note that this reference concerns whether below-
cost sales are made over an extended period of time. The end-of-model-
year sales are not relevant to a discussion of whether or not the cost 
test can be applied on a model-specific basis.

Comment 6

    When AST imports seamless pipe under bond, it becomes liable for 
the normal duty of 15 percent, plus an additional surcharge of 3 
percent, because the import is made under bond. AST states that it 
receives a rebate or an exemption upon export of finished pipe fittings 
of the surcharge, as well as the normal duty. Therefore, AST claims 
that, in accordance with section 772(d)(1)(B) of the Act, both duty and 
surcharge should be added to the USP.
    Petitioner claims that AST has acknowledged that the three percent 
surcharge is not imposed on seamless pipe used to produce pipe fittings 
for home consumption. Section 772(D)(1)(c) provides for an increase in 
USP for taxes rebated upon export but only to the extent that such 
taxes are added to or included in the home market price. Because the 
surcharge is not imposed in the home market, the rebate of the 
surcharge on export should not be added to USP. In the alternative, if 
the Department determines that the three percent surcharge is imposed 
on imported pipe used to produce for home consumption, then it should 
include the full 18 percent duty in the COP.

DOC Position

    During verification, we established that the three percent 
surcharge was imposed on seamless pipe used in the production of home 
market fittings, in addition to the normal 15 percent duty. Therefore, 
because both duty and surcharge are assessed on pipe used for home 
market production and because both are exempted on pipe used for export 
production, it is appropriate to include both the duty and the 
surcharge in the drawback amount added to USP. In addition, because 
both duty and surcharge are clearly a part of the cost of home market 
pipe fittings, we included both in our calculation of the cost of 
production.
Comment 7

    AST maintains that the Department should not recompute AST's 
submitted COP and CV interest expense to account for the financing 
costs of its Japanese parent, Awaji Sangyo K.K. (``ASK''). According to 
AST, under Japanese generally accepted accounting principles 
(``GAAP''), only publicly-held companies are required to prepare 
consolidated financial statements that [[Page 10557]] include the 
operating results of their subsidiaries. Because ASK is a privately-
held Japanese company and not required to prepare consolidated 
financial data under Japanese GAAP, AST argues that the Department 
should base COP and CV interest solely upon AST's audited 
(unconsolidated) financial statement information.
    AST notes that the Department has a long-standing practice of 
accepting home-country GAAP for purposes of computing COP and CV, 
unless it can be shown that those practices distort production costs. 
In this case, AST maintains that use of a consolidated interest 
calculation would violate ASK's normal GAAP and produce distorted 
results since AST receives no loans from ASK and did not receive any 
new investment from its parent during the POI.
    AST further asserts that despite ASK's ownership interest in AST, 
the parent company does not exert ``control'' over its subsidiary's 
operations. Instead, AST maintains that it operates independently from 
its parent and does not rely on ASK for its production, sales (other 
than export sales), engineering, financing, research and development, 
or management activities.
    Lastly, AST argues that the premise underlying the Department's 
policy of using consolidated interest expense in computing COP and CV 
(i.e., the fungible nature of invested capital) does not apply in this 
case. AST asserts that the presumption of easy transfer (fungibility) 
of money between parent and related affiliate is vitiated by the fact 
that ASK and AST are located in different countries, whose currency 
regulation requirements significantly impede the free flow of money 
between countries.
    Petitioner alleges that AST has understated its COP and CV by 
excluding ASK's financing expense. Petitioner states that, because 
capital is fungible, the Department requires consolidated interest 
expense when the parent company maintains control over the subsidiary. 
ASK maintained control over AST's operations and, for this reason, the 
financing expenses of ASK and AST were combined in the Department's 
prior antidumping investigation involving AST. (Final Determination of 
Sales at LTFV: Certain Carbon Steel Butt-Weld Pipe Fittings from 
Thailand, 57 F.R. 21065-69 May 18,1992) Petitioner asserts that there 
is no reason for the Department to deviate from its approach in the 
previous determination.

DOC Position

    We agree with petitioner and have based our calculation of AST's 
interest expense for COP and CV on the consolidated operations of AST 
and ASK. This methodology is consistent with our long-standing practice 
for computing interest expense in cases involving parent-subsidiary 
corporate relationships. This methodology has been upheld by the CIT in 
Camargo Correa Metals, S.A. v. U.S., Consol. Ct. No. 91-09-00641, Slip 
Op. 93-163, at 14 (CIT August 13, 1993).
    As petitioner has pointed out, AST has not provided us with any 
additional information that would lead us to change our determination, 
from the 1992 LTFV investigation of Butt-Weld Pipe Fittings from 
Thailand, that the company's interest should be computed based on the 
consolidated operations of AST and its parent, ASK. AST's argument that 
ASK is not required under Japanese GAAP to prepare consolidated 
financial statements ignores the fact that, as a privately-held 
corporation, ASK is not subject to the same set of accounting 
principles as publicly-held entities in Japan. As in most countries, 
one of the major objectives of Japanese GAAP is to ensure consistency 
in the accounting principles practiced by publicly-held corporations so 
that investors may make informed decisions as to how they invest their 
capital. There is no such objective under the Japanese Commercial Code 
which governs the accounting practices of privately-held companies like 
ASK. It should be noted, however, that were ASK a public company, 
certain information submitted by AST indicates that ASK would be 
required under Japanese GAAP to consolidate the operations of AST in 
its financial statements.
    ASK's ownership interest in AST places the parent in a position to 
influence AST's financial borrowing and overall capital structure. We 
note that, contrary to AST's assertions that AST is an independent 
company and not ``controlled'' by its parent, the two companies share 
common directors and other corporate officials. In fact, according to 
AST, the two companies share the same managing director. ASK also acts 
as the selling agent for AST's export sales and provided the 
technology, equipment, training, engineers, and capital to establish 
AST. Based on this information, it is difficult to see how AST's 
operations are independent of its parent to such an extent that we 
should ignore our normal practice of computing interest expense on the 
basis of the consolidated parent and subsidiary.
    Regarding AST's claim that it received no intercompany loans or 
additional capital investment from its parent during the POI, we note 
that this argument fails to take into consideration any borrowing costs 
associated with ASK's initial capital investment in the company. AST 
maintains that all interest expense incurred by ASK pertains solely to 
the parent's operations. Under this principle, AST would have us accept 
that its parent funds its own operations largely through borrowing 
while, at the same time, funding its initial investment in AST solely 
through equity capital. Such a principle ignores the fact that ASK's 
capital structure is comprised of both debt and equity and, as such, it 
is neither possible nor appropriate in our analysis for the company to 
pick and chose which portions of its parent's operations should incur 
the additional interest costs associated with borrowed funds.
    Lastly, with regard to AST's claim that transfers between AST and 
its parent are not ``fungible'' due to currency fluctuations and 
restrictions on currency flows between Thailand and Japan, we note that 
this argument misrepresents the fungibility principle underlying the 
Department's practice regarding consolidated interest expense for COP 
and CV. As noted above, ASK has already purchased a controlling capital 
interest in AST. ASK's capital structure is comprised of both debt and 
equity. These monies are fungible. That is, one cannot reasonably know 
which portion of ASK's capital was used for a specific activity. AST 
would have us believe that ASK's debt-based capital was used to fund 
the company's production of nonsubject merchandise, while its less 
costly equity-based capital was used to establish AST's operations. 
This ignores the fact that the parent company's capital is used to fund 
all of its operations and cannot be segmented and apportioned to 
specific operations in any justifiable manner. Thus, it is the 
fungibility of the controlling parent's capital structure that is at 
issue and not, as AST argues, the parent's future ability to transfer 
funds to its subsidiary.

Comment 8

    Petitioner contends that all subject fittings sold in the United 
States and the home market were made from seamless pipe. AST's 
submitted pipe costs, however, included welded pipe and pipe used to 
produce pipe fittings outside the scope of the investigation. 
Petitioner states that for purposes of the final determination, AST's 
raw material [[Page 10558]] costs should reflect only those costs 
attributable to seamless pipe used in manufacturing the subject 
merchandise.
    AST states that its pipe consumption was calculated based on its 
normal accounting inventory subledgers which do not track welded and 
seamless pipe separately. Furthermore, the Department verified that 
welded pipe accounted for a small percentage of total pipe costs and 
the price of seamless pipe was not always higher than welded pipe. 
Therefore, AST argues that excluding welded pipe would not materially 
alter the weighted average cost of pipe used to produce the subject 
merchandise.

DOC Position

    In computing COP and CV, it is the Departments's practice to 
include only those costs incurred in manufacturing the subject 
merchandise. Therefore, we adjusted AST's reported material costs to 
exclude the costs incurred for welded pipe and pipe inputs that were 
used to produce merchandise outside the scope of this investigation.

Suspension of Liquidation

    In accordance with section 733(d)(1) of the Act, we are directing 
the U.S. Customs Service to continue to suspend liquidation of all 
entries of butt-weld pipe fittings from Thailand, as defined in the 
``Scope of Investigation'' section of this notice, that are produced 
and sold by AST and that are entered, or withdrawn from warehouse, for 
consumption on or after October 4, 1994.
    The Customs Service shall require a cash deposit or the posting of 
a bond equal to the estimated weighted-average amount by which the 
foreign market value of AST's subject merchandise exceeds the United 
States price as shown below. The suspension of liquidation will remain 
in effect until further notice. The weighted-average dumping margin is 
as follows:

------------------------------------------------------------------------
                                                         Margin  Deposit
            Manufacturer/Producer/Exporter              percent  percent
------------------------------------------------------------------------
Awaji Sangyo (Thailand) Co., Ltd......................    38.41    37.67
------------------------------------------------------------------------

Adjustment of Deposit Rate for Countervailing Duties

    Article VI, paragraph 5 of the General Agreement on Tariffs and 
Trade provides that ``[no] product . . . shall be subject to both 
antidumping and countervailing duties to compensate for the same 
situation for dumping or export subsidization.'' This provision is 
implemented by section 772(d)(1)(D) of the Act. Because antidumping 
duties cannot be assessed on the portion of the margin attributable to 
export subsidies, there is no basis to require a cash deposit or bond 
for that amount.
    Accordingly, the level of export subsidies as determined in the 
most recent administrative review of the countervailing duty order, 
Carbon Steel Butt-Weld Pipe Fittings From Thailand; Final Results of 
Countervailing Duty Administrative Review (57 FR 5248, February 13, 
1992), which was 0.74 percent, will be subtracted from the margin for 
cash deposit or bonding purposes. This results in a deposit rate of 
37.67 percent for AST. We did not determine an ``all others'' rate in 
this investigation, because all other producers and exporters of butt-
weld pipe fittings from Thailand are already subject to an antidumping 
duty order on this merchandise, which was published in the Federal 
Register on July 6, 1992 (57 FR 29702).

ITC Notification

    In accordance with section 735(b) of the Act, we have notified the 
ITC of our determination.

Notice to Interested Parties

    This notice also serves as the only reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the return or destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 353.35(d). Failure to 
comply is a violation of the APO.
    This determination is published pursuant to section 735(d) of the 
Act (19 U.S.C. 1671(d)).

    Dated: February 16, 1995.
Barbara R. Stafford,
Acting Assistant Secretary for Import Administration.
[FR Doc. 95-4727 Filed 2-24-95; 8:45 am]
BILLING CODE 3510-DS-P