Final Determination of Sales at Less Than Fair Value: Certain Carbon and Alloy Steel Wire Rod from Canada

DEPARTMENT OF COMMERCE

International Trade Administration

[A-122-824]

Final Determination of Sales at Less Than Fair Value: Certain

Carbon and Alloy Steel Wire Rod from Canada

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: April 20, 1994.

FOR FURTHER INFORMATION CONTACT: David J. Goldberger or Michelle A.

Frederick, Office of Antidumping Investigations, Import Administration,

U.S. Department of Commerce, 14th Street and Constitution Avenue, NW.,

Washington, DC 20230; telephone (202) 482-4136 or 482-0186,

respectively.

FINAL DETERMINATION: We determine that imports of certain carbon and

alloy steel wire rod (``steel wire rod'') from Canada are being, or are

likely to be, sold in the United States at less than fair value (Less

Than Fair Value), as provided in section 735 of the Tariff Act of 1930,

as amended (the Act). The estimated margins are shown in the

``Suspension of Liquidation'' section of this notice.

Case History

Since our November 19, 1993, preliminary determination (58 FR

62639, November 29, 1993), the following events have occurred: We

received requests for a public hearing on December 8, 1993, from

respondent Stelco Inc. and interested party Michelin Tire Corporation,

and on December 9, 1993, from the petitioners.

Sales and cost verifications took place in Canada and the United

States from November 1993 through February 1994. During this period,

respondents Stelco and Ivaco Inc. submitted revisions and corrections

to their questionnaire responses, including revised computer media

sales and cost listings.

On December 29, 1993, we advised interested parties that all scope

issues would be addressed in conjunction with the briefs and hearing

for the final determinations in the companion investigations of steel

wire rod from Brazil and Japan. Accordingly, petitioners, Stelco, and

interested parties Michelin, the Barnes Group, and Amercord Inc., filed

case briefs on January 5, and rebuttal briefs on January 10, 1994. A

public hearing on scope issues for all three steel wire rod

investigations took place on January 12, 1994.

On March 7, 1994, petitioners, Ivaco, Stelco, and interested party

Sidbec-Dosco Inc. filed case briefs on issues related solely to this

investigation. These parties filed rebuttal briefs on March 14, 1994.

The request for a public hearing was withdrawn on March 16, 1994.

Scope of Investigation

The products covered by this investigation are hot-rolled carbon

steel and alloy steel wire rod, in coils, of approximately round cross

section, between 0.20 and 0.75 inches in solid cross-sectional

diameter. The following products are excluded from the scope of this

investigation:

Steel wire rod 5.5 mm or less in diameter, with tensile

strength greater than or equal to 1040 MPa, and the following chemical

content, by weight: carbon greater than or equal to 0.79%, aluminum

less than or equal to 0.005%, phosphorous plus sulfur less than or

equal to 0.040%, and nitrogen less than or equal to 0.006%;

Free-machining steel containing 0.03% or more of lead,

0.05% or more of bismuth, 0.08% or more of sulfur, more than 0.4% of

phosphorus, more than 0.05% of selenium, and/or more than 0.01% of

tellurium;

Stainless steel rods, tool steel rods, free-cutting steel

rods, resulfurized steel rods, ball bearing steel rods, high-nickel

steel rods, and concrete reinforcing bars and rods; and

Wire rod 7.9 to 18 mm in diameter, containing 0.48 to

0.73% carbon by weight, and having partial decarburization and seams no

more than 0.075 mm in depth.

The decision regarding the scope of this investigation was based on

the great weight afforded petitioners in determining the products from

which they require relief, and because Michelin failed to adequately

support its claim that the Department should divide wire rod into more

than one class or kind. Our decision regarding the scope in this case

is more fully explained in the final determinations with respect to

steel wire rod from Brazil and Japan published on February 9, 1994 (59

FR 5984 and 5987, respectively).

The products under investigation are currently classifiable under

subheadings 7213.31.3000, 7213.31.6000, 7213.39.0030, 7213.39.0090,

7213.41.3000, 7213.41.6000, 7213.49.0030, 7213.49.0090, 7213.50.0020,

7213.50.0040, 7213.50.0080, 7227.20.0000, and 7227.90.6050 of the

Harmonized Tariff Schedule of the United States (HTSUS). Although the

HTSUS subheadings are provided for convenience and customs purposes,

our written description of the scope of this investigation is

dispositive.

Period of Investigation

The period of investigation is October 1, 1992, through March 31,

1993.

Such or Similar Comparisons

We have determined that the products covered by this investigation

constitute a single category of such or similar merchandise. Where

there were no sales of identical merchandise in the home market to

compare to U.S. sales, we made similar merchandise comparisons on the

basis of certain criteria including chemical composition and quality,

heat treatment, and dimensions. For a full definition of the criteria

see appendix V to the antidumping duty questionnaire, and the appendix

V amendment of August 12, 1993, both of which are on file in Room B-099

of the main building of the Department of Commerce.

Fair Value Comparisons

To determine whether Ivaco's and Stelco's sales 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.

We have not considered in our analysis Ivaco's purchase price

transactions which underwent further manufacturing after importation

for the reasons explained in comment 5 below.

United States Price

Generally, we calculated USP for both Ivaco and Stelco according to

the methodology described in our notice of preliminary determinations.

Except as noted below, all findings at verifications were incorporated

in revised computer sales, constructed value (CV), and further

manufacturing tapes submitted subsequent to verifications.

In comparing USP to FMV on a price-to-price basis, we made

adjustments to Ivaco's and Stelco's USP for the Goods and Services Tax

(GST) paid on the comparison sale in Canada. In Federal-Mogul

Corporation and The Torrington Company v. the United States (Federal-

Mogul), Slip Op. 93-194 (CIT October 7, 1993), the Court of

International Trade (CIT) prohibited us from applying a purely tax

neutral margin calculation methodology. As discussed in recent

determinations, such as Final Determination of Sales at Less Than Fair

Value: Certain Stainless Steel Wire Rod from France (58 FR 68865,

68867, 68870 (December 29, 1993)) (French Rods), we have made our tax

methodology conform to the instructions of the CIT, and adjusted USP

for tax by multiplying the Canadian GST rate of seven percent by the

U.S. price at the point in the chain of commerce of the U.S.

merchandise that is analogous to the point in the Canadian chain of

commerce at which Canada applies the GST. We also calculated the amount

of the tax adjustment that was due solely to the inclusion in the

original tax base of expenses that are later deducted from the price to

calculate USP (i.e., seven percent of the sum of any adjustments,

expenses and charges that were deducted from the price of the U.S.

merchandise). We deducted this amount from the net USP after all other

additions and deductions had been made. By making this additional tax

adjustment, we avoid a distortion that would cause the creation of a

dumping margin even when pre-tax dumping is zero. See Comment 2.

In addition, we made the following company-specific revisions and

adjustments:

A. Ivaco

To calculate USP, we added freight when freight charges were not

included in the gross price but billed separately to the customer on

the invoice, and deducted the corresponding expenses incurred by Ivaco

on these transactions. (See Comment 12).

To determine the general and administrative (G&A) expenses

attributable to further manufactured sales made by its related

subsidiary, Sivaco New York, Ivaco allocated G&A over its cost of

sales. It then applied the G&A rate only to the further manufacturing

costs of Sivaco New York. We reallocated the expenses by multiplying

the reported G&A rate by the sum of Sivaco New York's cost of

manufacturing (COM) and the COM of the steel coming from Ivaco. The

Department's adjustment was made because while the denominator in

Ivaco's calculation (cost of sales) includes materials, labor, and

factory overhead, it had been applied only to labor and factory

overhead.

B. Stelco

To calculate USP, we added freight brokerage, and/or duty charges,

when these charges were not included in the gross price but billed

separately to the customer on the invoice, and deducted the

corresponding freight expense incurred by Stelco on these transactions.

(See Comment 12).

Foreign Market Value

Generally, we calculated FMV for both Ivaco and Stelco according to

the methodology described in our notice of preliminary determination

except where specifically noted below. We included in FMV the amount of

the GST collected in the Canadian market. We also calculated the amount

of the tax that was due solely to the inclusion in the original tax

base of expenses that are later deducted from home market price to

calculate FMV (i.e., seven percent of the sum of any adjustments,

expenses, charges, and offsets that were deducted from the home market

price). We deducted this amount after all other additions and

deductions were made. By making this additional tax adjustment, we

avoid a distortion that would cause the creation of a dumping margin

even when pre-tax dumping is zero. In addition, we calculated a re-

adjustment of the amount of tax to take into account the amount of

packing expenses added to FMV (i.e., seven percent of the packing

expenses). All findings at verifications were incorporated in revised

computer sales and cost of production (COP) tapes submitted subsequent

to verifications.

Cost of Production

We calculated the COP for each company according to the methodology

described in our preliminary determination, except for the following

company-specific revisions:

A. Ivaco

No new adjustments were made.

B. Stelco

We reclassified gains on the sale of production equipment from COM

to G&A expenses (see Comment 17).

After calculating COP, we tested whether home market sales of steel

wire rod were at prices below COP according to the methodology

discussed in our preliminary determination.

For both Ivaco and Stelco, as explained in our preliminary

determination, we found that for certain models more than 90 percent of

home market sales were at below-COP prices over an extended period of

time. No information has been provided to show that the below cost

sales were at prices that would permit recovery of all costs within a

reasonable period of time in the normal course of trade. For U.S. sales

left without a match as a result of disregarding these below COP sales,

we based FMV on CV, in accordance with section 773(b) of the Act. (see

Comment 1).

Constructed Value

We calculated CV according to the methodology described in our

preliminary determination, except for Stelco as noted above under Cost

of Production.

Price-to-Price Comparisons

For both Ivaco and Stelco, for those products for which there were

an adequate number of sales at prices above the COP, we based FMV on

home market prices. Except as noted below, we calculated FMV according

to the methodology described in our preliminary determination. In

accordance with the decision in Ad Hoc Committee of AZ-NM-TX-FL

Producers of Gray Portland Cement v. United States (Cement), Slip Op.

93-1239 (Fed. Cir., January 5, 1994), we made circumstance-of-sale

adjustments for post-sale movement expenses for both companies.

A. Ivaco

We compared U.S. sales to home market sales without regard to level

of trade since we determined that Ivaco was unable to support its claim

that it made its sales at different levels of trade. (See Comments 3

and 4.) We added freight charges when these expenses were not included

in the gross price, but billed separately to the customer on the

invoice, and deducted the corresponding freight expense incurred by

Ivaco on these transactions. We also revised the circumstance-of-sale

adjustments for credit expenses to include freight charges in the price

base used to impute credit (See Comment 12).

For home market to exporter's sales price (ESP) comparisons that

involved further manufacturing in the United States, we adjusted the

cap on the deduction for home market indirect selling expenses to

properly account for the portion of U.S. indirect selling expenses and

the portion of commissions (if any) attributable to the foreign-

produced input product.

B. Stelco

We added freight charges when these expenses were not included in

the gross price, but billed separately to the customer on the invoice,

and deducted the corresponding freight expense incurred by Stelco on

these transactions.

In making circumstance-of-sale adjustments, we used Stelco's

reported credit expenses, which were calculated to include movement

revenue in the price base (see Comment 12). We also recalculated

warranty expenses to reflect Stelco's five-year warranty history, as

discussed below under Comment 11.

For home market to ESP comparisons that involved further

manufacturing in the United States, we corrected the cap on the

deduction for home market indirect selling expenses to properly account

for the portion of U.S. indirect selling expenses and the portion of

commissions (if any) attributable to the foreign-produced input

product.

Currency Conversion

We made currency conversions based on official exchange rates as

certified by the Federal Reserve Bank.

Verification

As provided in section 776(b) of the Act, we verified information

provided by Ivaco and Stelco by using standard verification procedures,

including the examination of relevant sales and financial records, and

selection of original source documentation containing relevant

information.

Interested Party Comments

Comment 1: Ivaco and Stelco claim that the statute and judicial

precedent require that, in determining FMV, if the Department finds

that sales of the identical or most similar product are below the COP,

the Department should use the next most similar product sold above cost

to determine FMV, rather than immediately resort to CV. They contend

that section 773(b) of the Act requires that the Department use CV only

when there is no home market product sold above cost with a difference

in merchandise adjustment of less than 20 percent available for

comparison to the U.S. sale. Further, respondents argue that the Policy

Bulletin dated December 15, 1992, concerning this policy contravenes

the law.

Petitioners contend that the respondents' proposal violates the

statutory prohibition against using similar merchandise to calculate

FMV when identical merchandise is available. Petitioners contend that

were we to conduct the cost test prior to model matching, FMV would be

based on the most similar of the above-cost home market products,

rather than on the identical or most similar product, thereby making

the cost test a factor in the model matching process. They further

state that the statute clearly distinguishes between selecting the

appropriate model match and calculating FMV. Accordingly, petitioners

contend that this separation clearly establishes that model matching

shall be based only on the criteria included in the statutory

definition of ``such or similar merchandise,'' and that FMV shall be

calculated on the basis of the appropriate match so selected unless

there are insufficient above-cost sales of that product, in which case

CV shall be used.

DOC Position: We disagree with respondents that the statute

prohibits our use of CV when there are sales of similar merchandise at

above cost prices. As articulated in such determinations as Final

Determination of Sales at Less Than Fair Value: Ferrosilicon from

Venezuela (58 FR 27522, 27534, May 10, 1993), section 771(16) of the

Act defines such or similar merchandise and provides a hierarchy of

preferences for determining which merchandise sold in the foreign

market is most similar to the merchandise sold in the United States.

Whether a model is sold in the home market or third countries at prices

below cost is not a criterion for determining what is most similar

merchandise under the statute.

Furthermore, the Department conducts the cost test on a model-by-

model basis. Thus, we treat the ``remaining sales'' referred to in

section 773(b) as the above-cost sales of the best-match model. These

above cost sales of the most similar model are all used in calculating

the weighted average which serves as the FMV for any sales of the U.S.

model to which that home market model is matched.

Finally, the judicial cases and administrative decisions cited by

respondents are not contrary to our position. In Koyo Seiko Co., Ltd.

v. United States, 810 F.Supp. 1287 (March 1993), for example, we

requested remand in order to apply the 20 percent difmer test referred

to above. This approach can be distinguished from the approach

suggested by the respondents because the 20 percent difference in

merchandise (difmer) test is the Department's way of implementing the

mandate in subsection (B)(iii) of section 771(16) of the Act, which

requires that similar merchandise be merchandise ``which the

administering authority determine[s] may reasonably be compared with''

the merchandise exported to the United States. Thus, the difmer test is

part of the statutory criteria for selecting the single best match.

Comment 2: Petitioners contend that the treatment of the Canadian

Goods and Services Tax in the preliminary determination is inconsistent

with the Federal-Mogul decision at the CIT, which held that Commerce

must increase USP by the amount of tax that the exporting country would

have assessed on the merchandise if it had been sold in the home

market. Accordingly, petitioners state that the Department should apply

the methodology adopted in such recent cases as French Rods for the

final determination.

Ivaco, Stelco, and Sidbec-Dosco argue that the Department adjusted

properly for the GST in the preliminary determination, by adding to the

U.S. price the absolute amount of GST assessed on the home market

merchandise. Stelco claims that the Department's French Rods

methodology exceeded the court's ruling in Federal-Mogul, which Stelco

states simply rejected the Department's previous methodology, and

created a distortive methodology that exaggerates any dumping margin.

Sidbec-Dosco adds that the Federal-Mogul decision is not binding on

this case. Ivaco contends that the Federal-Mogul decision is

inconsistent with higher court decisions, such as Zenith Electronics

Corp. v. United States, 988 F.2d 1573 (Fed. Cir. 1993) (Zenith).

DOC Position: We are continuing to use the methodology articulated

in French Rods and described in the ``United States Price'' and

``Foreign Market Value'' sections of this notice. This methodology is

consistent with both the Federal-Mogul decision to allow the

``multiplier effect'' and the decisions in Zenith and Federal-Mogul,

which allow the Department to avoid the ``margin creation'' effect.

(See French Rods, Comment 4, 58 FR 68870.)

Regarding Stelco's comment that the methodology exaggerates dumping

margins, we note that the CIT opinion in Federal-Mogul interpreted the

observation in Zenith that ``[t]he multiplier effect occurs only when a

dumping margin already exists'' as a clear indication that ``tax

neutrality is irrelevant to the proper application of 19 U.S.C.

1677a(d)(1)(C).'' In response to Sidbec-Dosco's comment, we note that,

since the Department has decided not to appeal the holding in Federal-

Mogul, we have acted reasonably in adopting the methodology set forth

in that holding. This decision, while not necessarily the only

methodology consistent with the Zenith case, has been found by the CIT

to be consistent with that higher court holding.

Comment 3: Petitioners contend that Ivaco has failed to demonstrate

that its alleged level of trade classifications (integrated processors

(level 1), distributors (level 2), and end-users (level 3)) represent

discrete customer functions. They cite several examples from the

verification reports of inconsistencies in Ivaco's customer

classifications.

Ivaco contends that the Department correctly recognized Ivaco's

levels of trade in the preliminary determination and that verification

supported its position.

DOC Position: We agree with petitioners. Comparisons are made at

distinct, discernable levels of trade based on the function each level

of trade performs, such as end-user, distributor, and retailer. At

verification, we found that most level 1 customers differed from level

3 customers in the quantities and types of products purchased from

Ivaco, but not in terms of function. That is, both levels represent

end-users. Level 1 integrated processors purchase rod from Ivaco and

manufacture a finished good in the same manner as level 3 customers.

For our preliminary determination, we accepted Ivaco's representations

of the level of trade functions. However, we found at verification that

the primary basis for classifying Ivaco's customers was not the

function of the purchasing entity, but which Ivaco entity made the

sale. That is, if Ivaco Rolling Mills made the sale, it was classified

as a level 1 sale, and if a related processor such as Sivaco Ontario

made the sale, it was usually classified as a level 3 sale. Further,

Ivaco did not demonstrate that any differences in sales process or

expenses were directly related to differences in selling at the claimed

levels of trade.

Comment 4: Ivaco claims that the Department should make its product

comparisons first by level of trade and then by the physical

characteristics of the product. Accordingly, if no product identical to

the U.S. sale was sold in the home market at the same level of trade,

Ivaco contends that the Department should match the U.S. sale to the

most similar product at the same level of trade, rather than to an

identical product at a different level of trade.

Petitioners argue that Ivaco's approach puts level of trade above

physical similarity of the merchandise, which is clearly at odds with

the Department's model matching methodology which is based solely on

the physical characteristics of the merchandise. Further, as noted

above, petitioners claim that Ivaco failed to support it's

characterization of its levels of trade. Thus there is no basis to

follow such a methodology.

DOC Position: We agree with petitioners. As discussed above, Ivaco

failed to support its level of trade claim. Therefore, there is no

basis to consider level of trade at all, much less to give it

precedence over the physical characteristic in our matching criteria.

Comment 5: Ivaco claims that the statute directs the Department to

consider its purchase price sales that underwent further manufacturing

subsequent to importation on an ``as imported'' basis because the

statute directs the Department to add to USP the amount necessary to

place the merchandise in a condition for shipment to the U.S., and to

make deductions from USP for items incident to bringing the merchandise

to the place of delivery in the United States.

Petitioners contend that consideration of these products on an ``as

sold'' basis is proper and insures that the U.S. product that is

actually sold to an unrelated party is matched to the identical or most

similar product in the home market.

DOC Position: The statute envisions the calculation of FMV based on

home market sales of a product comparable to the imported product and

the assessment of the duty on the merchandise as imported. However, the

statute makes no provisions in a purchase price situation for deducting

from the USP the value added by further manufacturing which takes place

in the United States. Thus, were we to utilize these further

manufactured purchase price sales in calculating a margin, we would

have two options: (a) Compare an FMV and a USP based on the merchandise

as sold, which would conflict with the statutory intent that the FMV

calculation be based on home market sales comparable to the imported

merchandise; or (b) deduct the further manufacturing expenses on the

U.S. sales as we would do if these were an ESP type of transaction,

which is inconsistent with section 772 of the Act. Because of this

dilemma, and because only a very small quantity of Ivaco's U.S. sales

are further manufactured purchase price sales, we have excluded these

sales from consideration in our analysis.

Comment 6: Petitioners claim that Ivaco erroneously allocated the

fabrication costs incurred in the melt shop and continuous caster based

on special productivity factors rather than tonnage. Petitioners argue

that the ``days of production'' statistic that Ivaco used to allocate

these fabrication costs does not reconcile to the total days of actual

production. Because Ivaco could not reconcile the discrepancy caused by

its submission methodology, petitioners claim that the Department

should revise the calculated cost based on tonnage.

Ivaco contends that its allocation of these fabrication costs is

more accurate than an allocation based on tonnage. Ivaco's methodology

allocated a relatively lower per ton cost to product grades that were

produced more quickly, and a higher cost to products that required more

time to produce. The ``missing'' days were intentionally excluded

because more than one grade of steel were produced on these days, which

renders them useless for calculating production efficiencies between

grades of steel.

DOC Position: We agree with Ivaco. It is not relevant whether the

sum of the estimated days of production used by Ivaco to allocate

fabrication costs between grades of steel reconciled to the total days

of actual production, because the statistics for the days used in the

calculation are merely a representative sample. The use of tonnage to

allocate melt shop costs, as petitioner suggests, would result in the

same cost per ton regardless of the grade of steel. Ivaco's methodology

provides a reasonable estimate of the efficiencies incurred by the melt

shop and caster when producing different grades of steel.

Comment 7: Petitioners argue that the Department should reject

Ivaco's allocation of corporate overhead expenses. They urge the

Department to allocate the portion of corporate overhead not normally

allocated to divisions or affiliates using the same ratio Ivaco

generally uses in allocating the corporate overhead. In its own

accounting system, Ivaco allocates only a portion of corporate overhead

to its divisions and affiliates. Of this allocated portion, the vast

majority is charged to the divisions. Petitioners argue that the same

ratio between the divisional allocation and the affiliate allocation

should be used to achieve the complete allocation of corporate overhead

required by the Department for purposes of this investigation.

Ivaco argues that the methodology it used in its response,

allocating the corporate overhead expenses based on the proportional

cost of goods sold of each division and affiliate, is consistent with

the Department's request contained in the questionnaire. Ivaco argues

that its normal methodology allocates a lower percentage of total

corporate overhead than the methodology it used to respond to the

Department.

DOC Position: We agree with Ivaco. A company's management may

allocate overhead charges in many different ways and for many different

reasons, frequently for tax and income reporting requirements. In

addition, there is nothing on the record to support the assertion that

the total corporate head office charges, most of which are not normally

allocated at all, should be allocated in the same proportion as those

which are normally allocated between divisions and affiliates. Upon

further review, the Department has accepted Ivaco's allocation based on

cost of goods sold because an allocation of G&A based on cost of goods

sold applies G&A proportionately to each product regardless of

management's subjective allocations.

Comment 8: Ivaco argues that the Department's analysis in the

verification report, questioning the cost of goods sold figure used to

allocate interest, incorrectly commingled divisional data with

consolidated data. Ivaco contends that only consolidated data should be

used because intercompany revenue and expenses are eliminated upon

consolidation. The use of divisional data overstates the non-

manufacturing expense that the Department subtracted from the total

production costs as reported in the consolidated financial statements.

DOC Position: We agree with Ivaco. Intercompany transactions are

eliminated upon consolidation. The commingling of consolidated and

company level data as well as the uses of different accounting

principles used at the corporate and divisional levels, account for the

differences.

Comment 9: Petitioners state that Ivaco excluded from the COP

certain restructuring charges reported in its consolidated financial

statements. They argue that the Department should increase the G&A

expense percentage to compensate for this oversight.

Ivaco argues that it properly excluded these restructuring costs

from the reported G&A expense because they relate to non-subject

merchandise. The restructuring costs in question are solely related to

the operations of a subsidiary not involved in the production of the

subject merchandise.

DOC Position: We agree with Ivaco. Non-operating expenses, such as

restructuring costs, have been excluded by the Department when they

relate solely to entities outside of facilities producing the subject

merchandise. These restructuring costs relate solely to the operations

of a company which produces plastic and not the subject merchandise,

thus Ivaco properly excluded these costs from the G&A expense

computation.

Comment 10: Petitioners contend that Ivaco should not be allowed to

offset interest expense with its dividend income because dividend

income is considered investment income and Department policy dictates

that it may not be used to reduce actual production expenses.

Ivaco states that the dividend income in question relates to

exchangeable debentures that bear interest equal to the cash dividend

Ivaco earns on shares in another company, plus a premium. Thus, Ivaco

is legally obligated to pay to the debenture holder all of the

dividends that Ivaco earns on these shares, plus a premium. Ivaco

further notes that it excluded all other dividend income from its

interest expense calculation.

DOC Position: We agree with Ivaco. Ivaco demonstrated at

verification that the dividend income is merely passed through Ivaco

from Dofasco to the debenture holder. Because the interest expense and

these specific dividends are directly linked, Ivaco properly treated

these dividends as a direct offset to Ivaco's debenture interest. All

other dividend income was excluded.

Comment 11: Petitioners claim that Stelco's home market warranty

expenses for the POI are unusually high when compared to the historical

five-year average that Stelco reported. Petitioners further state that

Stelco offers no explanation for this apparent discrepancy, therefore

they contend that the Department should substitute the five-year

average for the reported expenses.

Stelco responds that its home market warranty expenses were simply

higher during the period of investigation and that these expenses were

verified.

DOC Position: Because respondents usually cannot tie POI sales to

their associated warranty expenses, the Department often relies on

historical data. Obviously, historical data would not be a more

accurate reflection of the warranty expenses where a respondent is able

to demonstrate a relationship between POI sales and its warranty

expense claim. This relationship could be shown by tying actual

warranty expenses to POI sales, or by demonstrating why warranty

expenses during the POI would be a more representative proxy of

eventual warranty expenses on POI sales than the historical average,

such as by showing that the POI sales reflected a new technology or

demonstrate quality control improvements. Although the POI warranty

expense amount claimed by Stelco was verified, Stelco's methodology was

not based on a relationship between the reported POI warranty expenses

and anticipated warranty expenses on POI sales. Accordingly, we have

recalculated both U.S. and home market warranty expenses to reflect the

historical five-year average.

Comment 12: In some cases in both markets, Stelco sold the

merchandise to the customer at a price exclusive of movement charges,

and recorded a separate charge for freight and, on U.S. sales, duty and

brokerage. For such sales, Stelco claims that the Department should

calculate the imputed credit expense on a price base that includes

these movement expenses not included in the selling price as listed on

the invoice, but listed separately on the invoice. Stelco reasons that

it effectively extends credit to its customers on this basis, rather

than on the basis of price of the merchandise alone, and thus the full

value of its opportunity cost should be reflected in the imputed credit

calculation.

Petitioners state that the Department was correct in the

preliminary determination in excluding these expenses from the credit

calculation. They note that the record contains no information

supporting Stelco's claim that it incurred a true opportunity cost for

these expenses since Stelco did not demonstrate that it must pay its

shippers prior to receipt of payment from its customers.

DOC Position: Where freight and movement charges are not included

in the price, but are invoiced to the customer at the same time as the

charge for the merchandise, the Department considers the transaction to

be similar to a delivered price transaction since the seller may

consider its return on both transactions in setting price. Thus we have

revised the methodology used in our preliminary determination for Ivaco

and Stelco to add to both USP and FMV the freight and other movement

charges to the customer, and deducted the corresponding freight expense

incurred by the respondents on these transactions. This methodology is

consistent with our treatment of these expenses where they are included

in the gross price. Since we now have, in effect, a gross price that

includes the movement charge, it is appropriate to include the movement

charge in calculating imputed credit. Accordingly, we have recalculated

imputed credit for both respondents to reflect this addition to price,

where appropriate.

With respect to the opportunity cost arguments raised by Stelco and

petitioners, the Department is not required to determine the true

economic cost of each adjustment when such a level of precision poses

such an unreasonable burden (see Federal-Mogul Corporation and The

Torrington Company v. the United States 839 F. Supp. 881 (1993)).

Whether Stelco has demonstrated an opportunity cost or not is

immaterial, since we are making the imputed credit adjustment for the

reason described above, rather than based on Stelco's opportunity cost

theory.

Comment 13: Stelco claims that it is entitled to a circumstance-of-

sale adjustment for post-sale warehousing expenses in both markets. It

contends that it has provided sufficient evidence to show that, as a

commercial reality, this expense is a condition of sale and that the

Department does not need to require a formal contract between the

parties specifying these warehousing services in order to allow this

adjustment.

Petitioners respond that Stelco was unable to produce ``hard

evidence'' that post-sale warehousing was a condition of sale. Its use

of this service was instead a discretionary business decision that

would not qualify for this adjustment. Petitioners cite Final

Determination of Sales at Less Than Fair Value: Certain Carbon Steel

Butt-Weld Pipe Fittings from Japan (51 FR 46892, 46894 (December 29,

1986)) to show that the Department requires contractual agreement to

warehousing expenses in order to grant the adjustment.

DOC Position: We agree with petitioners that, in order for the

Department to allow adjustment, the respondent must provide some

evidence that it is obligated to perform this service as a condition of

sale, as in Final Determination of Sales at Less Than Fair Value:

Carbon Steel Wire Rod from Trinidad and Tobago (46 FR 43206 (September

22, 1983)). The information Stelco submitted and presented at

verification described Stelco's perception of the expectations of the

customer regarding the condition of the product, but does not

specifically indicate that the post-sale warehousing was a necessary

condition of the sale, particularly as Stelco failed to demonstrate

that it provided this service on each sale to the customer.

Accordingly, we have not treated post-sale warehousing expenses as a

direct expense in making circumstance of sale adjustments. We have,

however, included the expense as an indirect expense.

Comment 14: Petitioners assert that purchases of scrap by Stelco

McMaster Ltee, a wholly owned Stelco subsidiary which produces billets

used in the production of wire rod, from a 50 percent owned related

party, were incorrectly valued at intercompany transfer prices.

Petitioners further state that the transfer prices were below the COP

of the scrap.

Stelco argues that it followed the Department's instructions in the

COP questionnaire, in which the Department instructed Stelco to provide

the transfer price for purchases from subsidiaries in which the

respondent's ownership interest is 50 percent or less. Moreover, Stelco

argues that for COP purposes, in determining the cost of inputs from

related suppliers, the Department correctly applied the rule of using

transfer price when subsidiaries in which the respondent's interest is

50 percent or less are involved (see, Final Determination of Sales at

Less Than Fair Value: Antifriction Bearings from West Germany, 54 FR

18992 (May 3, 1989)).

DOC Position: We agree with Stelco. In the COP questionnaire issued

to Stelco, the Department clearly requested, for COP purposes, that the

company submit transfer prices for purchases of inputs from companies

that have direct or indirect common ownership of 50 percent or less.

This request is in accord with long-standing Department practice, and

was followed by Stelco in reporting these scrap purchases. The

Department's treatment of related party transactions for COP tracks the

requirements for consolidation contained in Canadian and U.S. Generally

Accepted Accounting Principles (GAAP). The consolidation principle

states that economic activities are consolidated for all companies that

have direct or indirect common ownership of greater than 50 percent

(ARB Number 51). Therefore no adjustment was made for the final

determination.

Comment 15: Petitioners claim that Stelco incorrectly valued at

cost iron ore received from a related supplier in which Stelco held a

minority interest. Because Stelco only holds a minority interest in the

supplier, petitioner maintains that Stelco should have used the

transfer price in valuing the iron ore received from the related

supplier.

Stelco argues that the transfer price of iron ore obtained from

Wabush (an unincorporated joint venture which transfers pellets to its

members at cost) was the same as actual cost. Stelco further states

that the figure the petitioner interpreted to be the transfer price is

a budgeted value assigned by Stelco's interim cost accounting system.

DOC Position: We agree with Stelco. The Department verified that

Stelco's purchases of iron ore (i.e. transfer price) from its minority

owned related supplier occurred at the supplier's actual COP, i.e., the

transfer price and the actual price were the same. Additionally, the

Department verified that transfer price was the same as the price paid

by an unrelated purchaser to the related supplier for the same grade of

iron ore. Therefore, no adjustment was made.

Comment 16: Petitioners claim that Stelco should adjust the cost of

coal received from Ontario Coal for a portion of the overall corporate

losses incurred by Ontario Coal, a related supplier. Petitioners argue

that if overall operations experience a loss, it is part of the cost of

doing business for all the products made for all customers. Therefore

part of the loss should be attributable to coal sold to Stelco.

Petitioners further argue that this situation is especially true in a

high fixed cost sector like mining, in which producers may sell

incremental tonnage at a price higher than variable cost, but below

total cost, to realize economies of scale and spread fixed costs over a

larger tonnage. Ontario's unprofitable sales to external customers

would reduce the total cost of the coal sold to Stelco.

Stelco argues that the loss on Ontario Coal's December 31, 1992

financial statements was not a result of Stelco's purchases from

Ontario, but rather a result of Ontario's selling coal to unrelated

parties at prices below its fully absorbed cost of producing the coal.

Stelco further states that its average cost of acquiring coal from

Ontario was within one penny of covering Ontario's fully absorbed cost

of producing the coal.

DOC Position: We agree with Stelco. The Department verified that

Ontario Coal's sales to Stelco occurred at Ontario Coal's actual COP.

Therefore, no adjustment was made for the final determination.

Comment 17: Petitioners contend that Stelco incorrectly reduced its

reported COM by the amount of gains on the sale of production

equipment. Petitioners argue that the gain on the sale of the

production equipment should be reclassified as a credit to the reported

G&A expenses as opposed to a credit to the COM.

Stelco contends that in its normal accounting system, gains and

losses arising from the sale of production equipment are included in

its reported depreciation expenses. For the purpose of consistency,

Stelco also included the gain on the sale of production equipment with

its depreciation expense for submission purposes.

DOC Position: We agree with petitioners. Stelco provided no

evidence that the production equipment which generated the gains on the

sale was solely related to the production of subject merchandise.

Therefore, the Department considers these gains to be related to the

general production activities of Stelco as a whole, and they were,

therefore, reclassified to the G&A expense calculation.

Comment 18: Petitioners claim that Stelco incorrectly reduced the

depreciable basis of its capital assets by an investment tax credit

(``ITC'') recognized during the POI. Petitioners further state that the

Department should recalculate Stelco's depreciation expense excluding

the offset of the ITC against the depreciable basis of the capital

assets.

Stelco contends that its inclusion of the ITC in reporting

depreciation expenses is consistent with Canadian GAAP. Stelco further

states that the Department instructed Stelco to quantify and value its

reported COM in accordance with GAAP.

DOC Position: Stelco's submitted depreciation expense was

calculated utilizing a historical cost fixed asset basis reduced by any

investment tax credits realized as a result of purchasing the

depreciated equipment. This methodology was in accordance with Canadian

GAAP. The Department found that this Canadian approach to defining

basis for depreciation purposes is not distortive for antidumping

purposes in this case because the impact of the ITC is so small as to

have essentially no effect on the overall cost of production of the

subject merchandise. Therefore, we have continued to calculate cost of

production using the depreciation expense as submitted by Stelco.

Comment 19: Petitioners allege that Stelco's classification of

secondary merchandise as a co-product for purposes of the investigation

is inconsistent with its own accounting system and understates the cost

of prime merchandise. Petitioners further state that the Department

must correct Stelco's accounting for secondary merchandise by treating

all secondary rod as a by-product. In doing so, the petitioners

recommend allocating the cost less the recovery value of secondary rod

to production of prime merchandise.

Stelco cites IPSCO Inc. v. United States (IPSCO) (965 F.2d 1057

(Fed. Cir. 1990) in which the Court upheld the Department's treatment

of secondary pipe (pipe that did not meet the specifications for prime

pipe, also known as ``off-specification'' pipe) as a co-product, not a

by-product. Stelco contends that the Department must follow the IPSCO

precedent in its treatment of off-specification wire rod.

DOC Position: We agree with Stelco. Stelco's steel wire rod comes

in two grades: Prime and non-prime. After production of a manufacturing

lot, the wire rod is examined and classified as either prime or non-

prime by inspection teams. Non-prime wire rod is then sold to companies

that transform it into such things as shopping carts, sofa springs and

nails. The same manufacturing factors go into the production of both

prime and non-prime wire rod. Other than quality and market value,

there are no differences between prime and non-prime wire rod. Stelco's

reporting methodology was consistent with IPSCO.

Suspension of Liquidation

In accordance with section 733(d)(1) of the Act, we are directing

the Customs Service to continue to suspend liquidation of all entries

of steel wire rod from Canada 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 require a

cash deposit or posting of a bond equal to the estimated dumping

margins, as shown below. The suspension of liquidation will remain in

effect until further notice. The weighted-average margins are as

follows:

------------------------------------------------------------------------

Weighted-

average

Producer/manufacturer/exporter margin

percentage

------------------------------------------------------------------------

Ivaco Inc.................................................. 10.25

Stelco Inc................................................. 13.20

All Others................................................. 11.36

------------------------------------------------------------------------

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

ITC of our determination. The ITC will now determine whether these

imports are materially injuring, or threaten material injury to, the

U.S. industry within 45 days. If the ITC determines that material

injury, or threat of material injury, does not exist with respect to

the subject merchandise, the proceeding will be terminated and all

securities posted will be refunded or cancelled. 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 from Canada entered, or

withdrawn from warehouse, for consumption on or after the effective

date of the suspension of liquidation.

Notice to Interested Parties

This notice also serves as the only reminder to parties subject to

administrative protective order (APO) of their responsibility, pursuant

to 19 CFR 353.34(d), concerning the return or destruction of

proprietary information disclosed under APO. 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. 1673d(d)) and 19 CFR 353.20(a)(4).

Dated: April 13, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-9551 Filed 4-19-94; 8:45 am]

BILLING CODE 3510-DS-P