Notice of Final Determination of Sales at Less Than Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe From Italy

DEPARTMENT OF COMMERCE

[A-475-814]

Notice of Final Determination of Sales at Less Than Fair Value:

Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line

and Pressure Pipe From Italy

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 19, 1995.

FOR FURTHER INFORMATION CONTACT: Dolores Peck or James Terpstra, Office

of Antidumping Investigations, Import Administration, International

Trade Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-

4929 or 482-3965, respectively.

FINAL DETERMINATION: The Department of Commerce (the Department)

determines that small diameter circular seamless carbon and alloy

steel, standard, line and pressure pipe (seamless pipe) from Italy is

being, or is likely to be, 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'') (1994). The estimated weighted-average margins are shown

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

Case History

Since our negative preliminary determination on January 19, 1995

(60 FR 5358, January 27, 1995), the following events have occurred:

On February 1, 1995, we initiated a sales below cost investigation

of the respondent, Dalmine, S.p.A. (``Dalmine''). We instructed Dalmine

to respond to the complete cost questionnaire which it had previously

used to only report constructed value data. Dalmine submitted its

response to this questionnaire on March 7. Supplemental cost and sales

responses and revisions were submitted in February, March, and April

1995.

On February 8, 1995, we postponed the final determination until not

later than June 12, 1995 (60 FR 9012, February 16, 1995).

We conducted verifications of Dalmine's sales and cost

questionnaire responses in Italy and the United States in March and

April 1995. Verification reports were issued in May 1995.

On April 27, 1995, Koppel Steel Corporation, an interested party to

this investigation, requested that it be granted co-petitioner status,

which the Department granted.

The petitioner and the respondent submitted case briefs on May 18

and rebuttal briefs on May 24, 1995.

On May 22, and May 30, 1995, respectively, the Department returned

the respondent's case and rebuttal briefs and instructed the respondent

to refile the briefs redacting new information. The respondent did so

on May 25, and June 2, 1995.

Scope of the Investigation

The following scope language reflects certain modifications made

for purposes of the final determination, where appropriate, as

discussed in the ``Scope Issues'' section below.

The scope of this investigation includes seamless pipes produced to

the ASTM A-335, ASTM A-106, ASTM A-53 and API 5L specifications and

meeting the physical parameters described below, regardless of

application. The scope of this investigation also includes all products

used in standard, line, or pressure pipe applications and meeting the

physical parameters below, regardless of specification.

For purposes of this investigation, seamless pipes are seamless

carbon and alloy (other than stainless) steel pipes, of circular cross-

section, not more than 114.3 mm (4.5 inches) in outside diameter,

regardless of wall thickness, manufacturing process (hot-finished or

cold-drawn), end finish (plain end, bevelled end, upset end, threaded,

or threaded and coupled), or surface finish. These pipes are commonly

known as standard pipe, line pipe or pressure pipe, depending upon the

application. They may also be used in structural applications. Pipes

produced in non-standard wall thicknesses are commonly referred to as

tubes.

The seamless pipes subject to these investigations are currently

classifiable under subheadings 7304.10.10.20, 7304.10.50.20,

7304.31.60.50, 7304.39.00.16, 7304.39.00.20,

[[Page 31982]] 7304.39.00.24, 7304.39.00.28, 7304.39.00.32,

7304.51.50.05, 7304.51.50.60, 7304.59.60.00, 7304.59.80.10,

7304.59.80.15, 7304.59.80.20, and 7304.59.80.25 of the Harmonized

Tariff Schedule of the United States (HTSUS).

The following information further defines the scope of this

investigation, which covers pipes meeting the physical parameters

described above:

Specifications, Characteristics and Uses: Seamless pressure pipes

are intended for the conveyance of water, steam, petrochemicals,

chemicals, oil products, natural gas and other liquids and gasses in

industrial piping systems. They may carry these substances at elevated

pressures and temperatures and may be subject to the application of

external heat. Seamless carbon steel pressure pipe meeting the American

Society for Testing and Materials (ASTM) standard A-106 may be used in

temperatures of up to 1000 degrees fahrenheit, at various American

Society of Mechanical Engineers (ASME) code stress levels. Alloy pipes

made to ASTM standard A-335 must be used if temperatures and stress

levels exceed those allowed for A-106 and the ASME codes. Seamless

pressure pipes sold in the United States are commonly produced to the

ASTM A-106 standard.

Seamless standard pipes are most commonly produced to the ASTM A-53

specification and generally are not intended for high temperature

service. They are intended for the low temperature and pressure

conveyance of water, steam, natural gas, air and other liquids and

gasses in plumbing and heating systems, air conditioning units,

automatic sprinkler systems, and other related uses. Standard pipes

(depending on type and code) may carry liquids at elevated temperatures

but must not exceed relevant ASME code requirements.

Seamless line pipes are intended for the conveyance of oil and

natural gas or other fluids in pipe lines. Seamless line pipes are

produced to the API 5L specification.

Seamless pipes are commonly produced and certified to meet ASTM A-

106, ASTM A-53 and API 5L specifications. Such triple certification of

pipes is common because all pipes meeting the stringent A-106

specification necessarily meet the API 5L and ASTM A-53 specifications.

Pipes meeting the API 5L specification necessarily meet the ASTM A-53

specification. However, pipes meeting the A-53 or API 5L specifications

do not necessarily meet the A-106 specification. To avoid maintaining

separate production runs and separate inventories, manufacturers triple

certify the pipes. Since distributors sell the vast majority of this

product, they can thereby maintain a single inventory to service all

customers.

The primary application of ASTM A-106 pressure pipes and triple

certified pipes is in pressure piping systems by refineries,

petrochemical plants and chemical plants. Other applications are in

power generation plants (electrical-fossil fuel or nuclear), and in

some oil field uses (on shore and off shore) such as for separator

lines, gathering lines and metering runs. A minor application of this

product is for use as oil and gas distribution lines for commercial

applications. These applications constitute the majority of the market

for the subject seamless pipes. However, A-106 pipes may be used in

some boiler applications.

The scope of this investigation includes all seamless pipe meeting

the physical parameters described above and produced to one of the

specifications listed above, regardless of application, and whether or

not also certified to a non-covered specification. Standard, line and

pressure applications and the above-listed specifications are defining

characteristics of the scope of this investigation. Therefore, seamless

pipes meeting the physical description above, but not produced to the

A-335, A-106, A-53, or API 5L standards shall be covered if used in a

standard, line or pressure application.

For example, there are certain other ASTM specifications of pipe

which, because of overlapping characteristics, could potentially be

used in A-106 applications. These specifications generally include A-

162, A-192, A-210, A-333, and A-524. When such pipes are used in a

standard, line or pressure pipe application, such products are covered

by the scope of this investigation.

Specifically excluded from this investigation are boiler tubing and

mechanical tubing, if such products are not produced to A-335, A-106,

A-53 or API 5l specifications and are not used in standard, line or

pressure applications. In addition, finished and unfinished OCTG are

excluded from the scope of this investigation, if covered by the scope

of another antidumping duty order from the same country. If not covered

by such an OCTG order, finished and unfinished OCTG are included in

this scope when used in standard, line or pressure applications.

Finally, also excluded from this investigation are redraw hollows for

cold-drawing when used in the production of cold-drawn pipe or tube.

Although the HTSUS subheadings are provided for convenience and

customs purposes, our written description of the scope of this

investigation is dispositive.

Scope Issues

Interested parties in these investigations have raised several

issues related to the scope. We considered these issues in our

preliminary determination and invited additional comments from the

parties. These issues, which are discussed below, are: (A) whether to

continue to include end use as a factor in defining the scope of these

investigations; (B) whether the seamless pipe subject to these

investigations constitutes more than one class or kind of merchandise;

and (C) miscellaneous scope clarification issues and scope exclusion

requests.

A. End Use

We stated in our preliminary determination that we agreed with

petitioner that pipe products identified as potential substitutes used

in the same applications as the four standard, line, and pressure pipe

specifications listed in the scope would fall within the class or kind

of subject merchandise and, therefore, within the scope of any orders

issued in these investigations. However, we acknowledged the

difficulties involved with requiring end-use certifications,

particularly the burdens placed on the Department, the U.S. Customs

Service, and the parties, and stated that we would strive to simplify

any procedures in this regard.

For purposes of these final determinations, we have considered

carefully additional comments submitted by the parties and have

determined that it is appropriate to continue to employ end use to

define the scope of these cases with respect to non-listed

specifications. We find that the generally accepted definition of

standard, line and pressure seamless pipes is based largely on end use,

and that end use is implicit in the description of the subject

merchandise. Thus, end use must be considered a significant defining

characteristic of the subject merchandise. Given our past experience

with substitution after the imposition of antidumping orders on steel

pipe products 1, we agree with petitioner that if products

produced to a non-listed specification (e.g., seamless pipe produced to

A-162, a non-listed specification in the scope) were actually used as

standard, line, or pressure pipe, [[Page 31983]] then such product

would fall within the same class or kind of merchandise subject to

these investigations.

\1\ See Preliminary Affirmative Determination of Scope Inquiry

on Antidumping Duty Orders on Certain Welded Non-Alloy Steel Pipes

from Brazil, the Republic of Korea, Mexico and Venezuela, 59 FR

1929, January 13, 1994.

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Furthermore, we disagree with respondents' general contention that

using end use for the scope of an antidumping case is beyond the

purview of the U.S. antidumping law. The Department has interpreted

scope language in other cases as including an end-use specification.

See Ipsco Inc. v. United States, 715 F.Supp. 1104 (CIT 1989) (Ipsco).

In Ipsco, the Department had clarified the scope of certain orders, in

particular the phrase, ``intended for use in drilling for oil and

gas,'' as covering not only API specification OCTG pipe but, `` `all

other pipe with [certain specified] characteristics used in OCTG

applications * * *'' Ipsco at 1105. In reaching this determination, the

Department also provided an additional description of the covered

merchandise, and initiated an end-use certification procedure.

Regarding implementation of the end use provision of the scope of

these investigations, and any orders which may be issued in these

investigations, we are well aware of the difficulty and burden

associated with such certifications. Therefore, in order to maintain

the effectiveness of any order that may be issued in light of actual

substitution in the future (which the end-use criterion is meant to

achieve), yet administer certification procedures in the least

problematic manner, we have developed an approach which simplifies

these procedures to the greatest extent possible.

First, we will not require end-use certification until such time as

petitioner or other interested parties provide a reasonable basis to

believe or suspect that substitution is occurring.2 Second, we

will require end-use certification only for the product(s) (or

specification(s)) for which evidence is provided that substitution is

occurring. For example, if, based on evidence provided by petitioner,

the Department finds a reasonable basis to believe or suspect that

seamless pipe produced to A-162 specification is being used as pressure

pipe, we will require end-use certifications for imports of A-162

specification. Third, normally we will require only the importer of

record to certify to the end use of the imported merchandise. If it

later proves necessary for adequate implementation, we may also require

producers who export such products to the United States to provide such

certification on invoices accompanying shipments to the United States.

For a complete discussion of interested party comments and the

Department's analysis on this topic, see June 12, 1995, End Use

Decision Memorandum from Deputy Assistant Secretary Barbara Stafford

(DAS) to Assistant Secretary Susan Esserman (AS).

\2\ This approach is consistent with petitioner's request.

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B. Class or Kind

In the course of these investigations, certain respondents have

argued that the scope of the investigations should be divided into two

classes or kinds. Siderca S.A.I.C., the Argentine respondent, has

argued that the scope should be divided according to size: seamless

pipe with an outside diameter of 2 inches or less and pipe with an

outside diameter of greater than 2 inches constitute two classes or

kinds. Mannesmann S.A., the Brazilian respondent, and Mannesmannrohren-

Werke AG, the German respondent, argued that the scope should be

divided based upon material composition: carbon and alloy steel

seamless pipe constitute two classes or kinds.

In our preliminary determinations, we found insufficient evidence

on the record that the merchandise subject to these investigations

constitutes more than one class or kind. We also indicated that there

were a number of areas where clarification and additional comment were

needed. For purposes of the final determination, we considered a

significant amount of additional information submitted by the parties

on this issue, as well as information from other sources. This

information strongly supports a finding of one class or kind of

merchandise. As detailed in the June 12, 1995, Class or Kind Decision

Memorandum from DAS to AS, we analyzed this issue based on the criteria

set forth by the Court of International Trade in Diversified Products

v. United States, 6 CIT 155, 572 F. Supp. 883 (1983). These criteria

are as follows: (1) the general physical characteristics of the

merchandise; (2) expectations of the ultimate purchaser; (3) the

ultimate use of the merchandise; (4) the channels of trade in which the

merchandise moves; and (5) the cost of that merchandise.

In the past, the Department has divided a single class or kind in a

petition into multiple classes or kinds where analysis of the

Diversified Products criteria indicates that the subject merchandise

constitutes more than one class or kind. See, for example, Final

Determination of Sales at Less than Fair Value; Anti-Friction Bearings

(Apart from Tapered Roller Bearings) from Germany, 54 Fed. Reg. 18992,

18998 (May 3, 1989) (``AFBs from Germany''); Pure and Alloy Magnesium

from Canada: Final Affirmative Determination; Rescission of

Investigation and Partial Dismissal of Petition, 57 Fed. Reg. 30939

(July 13, 1992).

1. Physical Characteristics

We find little meaningful difference in physical characteristics

between seamless pipe above and below two inches. Both are covered by

the same technical specifications, which contains detailed

requirements.3 While we recognize that carbon and alloy pipe do

have some important physical differences (primarily the enhanced heat

and pressure tolerances associated with alloy grade steels), it is

difficult to say where carbon steel ends and alloy steel begins. As we

have discussed in our Class or Kind Decision Memorandum of June 12,

1995, carbon steel products themselves contain alloys, and there is a

range of percentages of alloy content present in merchandise made of

carbon steel. We find that alloy grade steels, and pipes made

therefrom, represent the upper end of a single continuum of steel

grades and associated attributes.4

\3\ The relevant ASTM specifications, as well as product

definitions from other independent sources (e.g., American Iron and

Steel Institute (AISI)), describe the sizes for standard, line, and

pressure pipe, as ranging from 1/2 inch to 60 inches (depending on

application). None of these descriptions suggest a break point at

two inches.

\4\ The Department has had numerous cases where steel products

including carbon and alloy grades were considered to be within the

same class or kind. See, e.g., Preliminary Determination of Sales at

Less than Fair Value: Oil Country Tubular Goods from Austria, et

al., 60 Fed. Reg. 6512 (February 2, 1995); Final Determination of

Sales at Less than Fair Value: Certain Alloy and Carbon Hot-Rolled

Bars, Rods, and Semi-Finished Products of Special Bar Quality

Engineered Steel from Brazil, 58 Fed. Reg. 31496 (June 3, 1993);

Final Determination of Sales at Less than Fair Value: Forged Steel

Crankshafts from the United Kingdom, 60 Fed. Reg. 22045 (May 9,

1995).

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In those prior determinations where the Department divided a single

class or kind, the Department emphasized that differences in physical

characteristics also affected the capabilities of the merchandise

(either the mechanical capabilities, as in AFBs from Germany, 54 Fed.

Reg. at 18999, 19002-03, or the chemical capabilities, as in Pure and

Alloy Magnesium from Canada, 57 Fed. Reg. at 30939), which in turn

established the boundaries of the ultimate use and customer

expectations of the products involved.

As the Department said in AFBs from Germany,

[t]he real question is whether the physical differences are so

material as to alter the essential nature of the product, and,

therefore, rise to the level of class or kind distinctions. We

believe that the physical differences between the five classes or

kinds [[Page 31984]] of the subject merchandise are fundamental and

are more than simply minor variations on a theme.

54 Fed. Reg. at 19002. In the present cases, there is insufficient

evidence to conclude that the differences between pipe over 2 inches in

outside diameter and 2 inches or less in outside diameter, rise to the

level of a class or kind distinction.

Furthermore, with regard to Siderca's allegation that a two-inch

breakpoint is widely recognized in the U.S. market for seamless pipe,

the Department has found only one technical source of U.S. market data

for seamless pipe, the Preston Pipe Report. The Preston Pipe Report,

which routinely collects and publishes U.S. market data for this

merchandise, publishes shipment data for the size ranges \1/2\ to 4\1/

2\ inches: it does not recognize a break point at 2 inches.

Accordingly, the Department does not agree with Siderca that ``the U.S.

market'' recognizes 2 inches as a physical boundary line for the

subject merchandise.

In these present cases, therefore, the Department finds that there

is insufficient evidence that any physical differences between pipe

over 2 inches in outside diameter and 2 inches or less in outside

diameter, or between carbon and alloy steel, rise to the level of class

or kind distinctions.

2. Ultimate Use and Purchaser Expectations

We find no evidence that pipe above and below two inches is used

exclusively in any specific applications. Rather, the record indicates

that there are overlapping applications. For example, pipe above and

below two inches may both be used as line and pressure pipe. The

technical definitions for line and pressure pipe provided by ASTM,

AISI, and a variety of other sources do not recognize a distinction

between pipe over and under two inches.

Likewise, despite the fact that alloy grade steels are associated

with enhanced heat and pressure tolerances, there is no evidence that

the carbon or alloy content of the subject merchandise can be

differentiated in the ultimate use or expectations of the ultimate

purchaser of seamless pipe.

3. Channels of Trade

Based on information supplied by the parties, we determine that the

vast majority of the subject merchandise is sold through the same

channel of distribution in the United States and is triple-stenciled in

order to meet the greatest number of applications.

Accordingly, the channels of trade offer no basis for dividing the

subject merchandise into multiple classes or kinds based on either the

size of the outside diameter or on pipe having a carbon or alloy

content.

4. Cost

Based on the evidence on the record, we find that cost differences

between the various products do exist. However, the parties varied

considerably in the factors which they characterized as most

significant in terms of affecting cost. There is no evidence that the

size ranges above and below two inches, and the difference between

carbon and alloy grade steels, form a break point in cost which would

support a finding of separate classes or kinds.

In conclusion, while we recognize that certain differences do exist

between the products in the proposed class or kind of merchandise, we

find that the similarities significantly outweigh any differences.

Therefore, for purposes of the final determination, we will continue to

consider the scope as constituting one class or kind of merchandise.

C. Miscellaneous Scope Clarification Issues and Exclusion Requests

The miscellaneous scope issues include: (1) whether OCTG and

unfinished OCTG are excluded from the scope of these investigations;

(2) whether pipes produced to non-standard wall thicknesses (commonly

referred to as ``tubes'') are covered by the scope; (3) whether certain

merchandise (e.g., boiler tubing, mechanical tubing) produced to a

specification listed in the scope but used in an application excluded

from the scope is covered by the scope; and (4) whether redraw hollows

used for cold drawing are excluded from the scope. For a complete

discussion of interested party comments and the Department's analysis

on these topics, see June 12, 1995, Additional Scope Clarifications

Decision Memorandum from DAS to AS.

Regarding OCTG, petitioner requested that OCTG and unfinished OCTG

be included within the scope of these investigations if used in a

standard, line or pressure pipe application. However, OCTG and

unfinished OCTG, even when used in a standard, line or pressure pipe

application, may come within the scope of certain separate, concurrent

investigations. We intend that merchandise from a particular country

not be classified simultaneously as subject to both an OCTG order and a

seamless pipe order. Thus, to eliminate any confusion, we have revised

the scope language above to exclude finished and unfinished OCTG, if

covered by the scope of another antidumping duty order from the same

country. If not covered by such an OCTG order, finished and unfinished

OCTG are included in this scope when used in a standard, line or

pressure pipe application, and, as with other non-listed

specifications, may be subject to end-use certification if there is

evidence of substitution. Regarding pipe produced in non-standard wall

thicknesses, we determine that these products are clearly within the

parameters of the scope of these investigations. For clarification

purposes, we note that the physical parameters of the scope include all

seamless carbon and alloy steel pipes, of circular cross-section, not

more than 4.5 inches in outside diameter, regardless of wall thickness.

Therefore, the fact that such products may be referred to as tubes by

some parties, and may be multiple-stenciled, does not render them

outside the scope.

Regarding pipe produced to a covered specification but used in a

non-covered application, we determine that these products are within

the scope. We agree with the petitioner that the scope of this

investigation includes all merchandise produced to the covered

specifications and meeting the physical parameters of the scope,

regardless of application. The end-use criteria included in the scope

is only applicable to products which can be substituted in the

applications to which the covered specifications are put i.e. standard,

line, and pressure applications.

It is apparent that at least one party in this case interpreted the

scope incorrectly. Therefore, we have clarified the scope to make it

more explicit that all products made to ASTM A-335, ASTM A-106, ASTM A-

53 and API 5L are covered, regardless of end use.

With respect to redraw hollows for cold drawing, the scope language

excludes such products specifically when used in the production of

cold-drawn pipe or tube. We understand that petitioner included this

exclusion language expressly and intentionally to ensure that hollows

imported into the United States are sold as intermediate products, not

as merchandise to be used in a covered application.

Standing

The Argentine, Brazilian, and German respondents have challenged

the standing of Gulf States Tube to file the petition with respect to

pipe and tube between 2.0 and 4.5 inches in outside diameter, arguing

that Gulf States Tube does not produce these products. [[Page 31985]]

Pursuant to section 732(b)(1) of the Act, an interested party as

defined in section 771(9)(C) of the Act has standing to file a

petition. (See also 19 C.F.R. Sec. 353.12(a).) Section 771(9)(C) of the

Act defines ``interested party,'' inter alia, as a producer of the like

product. For the reasons outlined in the ``Scope Issues'' section

above, we have determined that the subject merchandise constitutes a

single class or kind of merchandise. The International Trade Commission

(ITC) has also preliminarily determined that there is a single like

product consisting of circular seamless carbon and alloy steel

standard, line, and pressure pipe, and tubes not more than 4.5 inches

in outside diameter, and including redraw hollows. (See USITC

Publication 2734, August 1994 at 18.) For purposes of determining

standing, the Department has determined to accept the ITC's definition

of like product, for the reasons set forth in the ITC's preliminary

determination. Because Gulf States is a producer of the like product,

it has standing to file a petition with respect to the class or kind of

merchandise under investigation. Further, as noted in the ``Case

History'' section of this notice, on April 27, 1995, Koppel, a U.S.

producer of the product size range at issue, filed a request for co-

petitioner status, which the Department granted. As a producer of the

like product, Koppel also has standing.

The Argentine respondent argues that Koppel's request was filed too

late to confer legality on the initiation of these proceedings with

regard to the products at issue. Gulf States Tube maintains that the

Department has discretion to permit the amendment of a petition for

purposes of adding co-petitioners who produce the domestic like

product, at such time and upon such circumstances as deemed appropriate

by the Department.

The Court of International Trade (CIT) has upheld in very broad

terms the Department's ability to allow amendments to petitions. For

example, in Citrosuco Paulista, S.A. v. United States, 704 F. Supp.

1075 (Ct. Int'l Trade 1988), the Court sustained the Department's

granting of requests for co-petitioner status filed by six domestic

producers on five different dates during an investigation. The Court

held that the addition of the co-petitioners cured any defect in the

petition, and that allowing the petition to be amended was within

Commerce's discretion:

[S]ince Commerce has statutory discretion to allow amendment of a

dumping petition at any time, and since Commerce may self-initiate a

dumping petition, any defect in a petition filed by [a domestic

party is] cured when domestic producers of the like product [are]

added as co-petitioners and Commerce [is] not required to start a

new investigation.

Citrosuco, 704 F. Supp. at 1079 (emphasis added). The Court reasoned

that if Commerce were to have dismissed the petition for lack of

standing, and to have required the co-petitioners to refile at a later

date, it ``would have elevated form over substance and fruitlessly

delayed the antidumping investigation * * * when Congress clearly

intended these cases to proceed expeditiously.'' Id. at 1083-84.

Koppel has been an interested party and a participant in these

investigations from the outset. The timing of Koppel's request for co-

petitioner status and the fact that it made its request in response to

Siderca's challenge to Gulf States Tube's standing does not render its

request invalid. See Final Affirmative Countervailing Duty

Determination; Live Swine and Fresh, Chilled, and Frozen Pork Products

from Canada, 50 Fed. Reg. 25097 (June 17, 1985). The Department has

rejected a request to add a co-petitioner based on the untimeliness of

the request only where the Department determined that there was not

adequate time for opposing parties to submit comments and for the

Department to consider the relevant arguments. See Final Affirmative

Countervailing Duty Determination: Certain Stainless Steel Hollow

Products from Sweden, 52 Fed. Reg. 5794, 5795, 5803 (February 26,

1987). In this investigation, the respondents have had an opportunity

to comment on Koppel's request for co-petitioner status, and the

Argentine respondent has done so in its case brief. Therefore, we have

determined that, because respondents would not be prejudiced or unduly

burdened, amendment of the petition to add Koppel as co-petitioner is

appropriate.

Period of Investigation

The period of investigation (``POI'') is January 1, 1994, through

June 30, 1994.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute and the

Department's regulations refer to these provisions as they existed on

December 31, 1994.

Such or Similar Comparisons

We have determined that all the products covered by this

investigation constitute a single category of such or similar

merchandise. We made fair value comparisons on this basis. In

accordance with the Department's standard methodology, we first

compared identical merchandise. Referencing Appendix V of our

questionnaire, Dalmine states that the physical characteristics for the

majority of the merchandise exported to the United States are identical

to the physical characteristics of merchandise sold in the home market.

We verified this claim. Where there were no sales of identical

merchandise in the home market to compare to U.S. sales, we based

foreign market value (``FMV'') on constructed value (``CV'') because

the difference in merchandise adjustment (``difmer'') for any similar

product comparison exceeded 20 percent. See Appendix V to the

antidumping questionnaire, on file in Room B-099 of the main building

of the Department.

Fair Value Comparisons

To determine whether sales of certain seamless pipe from Italy to

the United States were made at less than fair value, we compared the

United States price (USP) to the FMV, as specified in the ``United

States Price'' and ``Price-to-Price Comparisons'' sections of this

notice.

United States Price

We calculated USP according to the methodology described in our

preliminary determination, with the following exceptions:

We corrected certain clerical errors found at verification,

including: (a) the reduction of the marine insurance expense for one

sale (see U.S. verification report); b) an increase in the U.S.

interest rate used to calculate imputed credit expenses (see U.S.

verification report); and c) an increase in the percentage used to

calculate an offset for home market commissions (See Comment 5 below).

We also limited VAT adjustments to those sales on which VAT was paid on

the comparison home market sale.

Cost of Production

Based on the petitioner's allegations, the Department found

reasonable grounds to believe or suspect that sales in the home market

were made at prices below the cost of producing the merchandise. As a

result, the Department initiated an investigation to determine whether

Dalmine made home market sales during the POI at prices below their

cost of production (COP) within the meaning of section 773(b) of the

Act. See memorandum from the Team to Barbara Stafford dated February 1,

1995.

A. Calculation of COP

We calculated the COP based on the sum of the respondent's cost of

materials, fabrication, general expenses, and home market packing in

accordance [[Page 31986]] with 19 CFR 353.51(c). We relied on the

submitted COP data, except in the following instances where the costs

were not appropriately quantified or valued:

1. We recalculated the weighted average costs for two control

numbers (``CONNUM''). CONNUM's are used to identify a group of products

considered to be identical. See Comment 18 below.

2. We adjusted depreciation expenses to reflect mill- specific

costs. See Comment 13 below.

3. We used the revised total indirect costs submitted at

verification to recalculate the indirect cost allocation rate.

4. We disallowed the portion of the reported variance which

resulted from reversals of prior period accounting entries. See Comment

17 below.

5. We used Instituto per la Ricostruzione Industriale S.p.A.'s

(``IRI'') consolidated financing costs. IRI is the parent of Dalmine's

parent company. See Comment 14 and 15 below.

B. Test of Home Market Sales Prices

After calculating COP, we tested whether, as required by section

773(b) of the Act, the respondent's home market sales of subject

merchandise were made at prices below COP, over an extended period of

time in substantial quantities, and whether such sales were made at

prices which permit recovery of all costs within a reasonable period of

time in the normal course of trade. On a product-specific basis, we

compared the COP (net of selling expenses) to the reported home market

prices, less any applicable movement charges, rebates, and direct and

indirect selling expenses. To satisfy the requirement of section

773(b)(1) of the Act that below-cost sales be disregarded only if made

in substantial quantities, we applied the following methodology. If

over 90 percent of the respondent's sales of a given product were at

prices equal to or greater than the COP, we did not disregard any

below-cost sales of that product because we determined that the below-

cost sales were not made in ``substantial quantities.'' If between ten

and 90 percent of the respondent's sales of a given product were at

prices equal to or greater than the COP, we discarded only the below-

cost sales, provided sales of that product were also found to be made

over an extended period of time. Where we found that more than 90

percent of the respondent's sales of a product were at prices below the

COP, and the sales were made over an extended period of time, we

disregarded all sales of that product, and calculated FMV based on CV,

in accordance with section 773(b) of the Act.

In accordance with section 773(b)(1) of the Act, 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 three or more

months of the POI, we do not exclude below-cost sales unless there were

below-cost sales in at least three months during the POI. When we found

that sales of a product only occurred in one or two months, the number

of months in which the sales occurred constituted the extended period

of time, i.e., where sales of a product were made in only two months,

the extended period of time was two months; where sales of a product

were made in only one month, the extended period of time was one month.

See Final Determination of Sales at Less Than Fair Value: Certain

Carbon Steel Butt-Weld Pipe Fittings from the United Kingdom, 60 FR

10558, 10560 (February 27, 1995).

C. Results of COP Test

We found that for certain products more than 90 percent of the

respondent's home market sales were sold at below COP prices over an

extended period of time. Because Dalmine provided no indication that

the disregarded sales were at prices that would permit recovery of all

costs within a reasonable period of time in the normal course of trade,

for all U.S. sales left without a match to home market sales as a

result of our application of the COP test, we based FMV on CV, in

accordance with section 773(b) of the Act.

D. Calculation of CV

In accordance with section 773(e)(1) of the Act, we calculated CV

based on the sum of the respondent's cost of materials, fabrication,

general expenses and U.S. packing costs as reported in the U.S. sales

database. In accordance with section 773(e)(1)(B) (i) and (ii) of the

Act, we included: (1) for general expenses, the greater of the

respondent's reported general expenses, adjusted as detailed in the

``Calculation of COP'' section above, or the statutory minimum of ten

percent of the cost of manufacture; and (2) for profit, the statutory

minimum of eight percent of the sum of COM and general expenses because

actual profit on home market sales for the respondent was less than

eight percent. We recalculated the respondent's CV based on the

methodology described in the calculation of COP above.

Price-to-Price Comparisons

We calculated FMV according to the methodology described in our

preliminary determination with the following exceptions:

1. We excluded from our analysis reported home market sales that

were sold for shipment to third countries. See Comment 5 below.

2. We revised the imputed credit calculation for transactions

without reported payment dates, using the earliest verified payment

date from the preselected sales in our verification report. See Comment

10 below.

3. We limited VAT adjustments to those sales on which VAT was paid.

4. We decreased the interest rate used to calculate imputed credit

based on verified data. See home market verification report.

Price-to-CV Comparisons

Where we made CV to purchase price comparisons, we deducted from CV

the weighted-average home market direct selling expenses and added the

U.S. product-specific direct selling expenses. We adjusted for

differences in commissions in accordance with 19 CFR 353.56(a)(2).

Because commissions were paid on some, but not all home market sales,

we deducted from CV both (1) indirect selling expenses attributable to

those sales on which commissions were not paid; and (2) weighted

average commissions. The total deduction was capped by the amount of

indirect expenses paid on the U.S. sales in accordance with 19 CFR

353.56(b)(1) (1994).

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, pursuant to 19 CFR 353.60.

Verification

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

provided by Dalmine 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

Sales Issues

Comment 1

The petitioner contends that a margin based on the best information

available (BIA) should be assigned to each of the

[[Page 31987]] unreported sales of subject merchandise discovered at

verification; stating that there is no evidence on the record that

Dalmine made a request to have these sales excluded. Additionally, the

petitioner asserts that the respondent's unilateral exclusion of

certain pipe sales without notice to or permission from the Department

was a deliberate and material omission which affected the Department's

decision to excuse the respondent from reporting certain categories of

sales. Had the Department known about the totality of the exclusion

being requested, it would not have excused the respondent from

reporting these sales.

The respondent argues that its non-reported sales fall into the

category of merchandise produced to a subject specification, but which

are used in a non-subject application. Thus, these sales are outside

the scope and therefore need not be reported. Since these unreported

sales involved non-subject merchandise, no exclusion request was

necessary. The respondent contends it only requested exclusions for

products produced to subject specifications and used in subject

applications, in accordance with the Department's published scope

language.

DOC Position

We agree in part with the petitioner. With respect to certain

unreported sales of merchandise which was the subject of the

respondent's exclusion request, we agree that BIA is appropriate. In

the early stages of this investigation, the respondent made several

requests to be excused from reporting particular categories of U.S.

sales which were clearly covered by the scope of this investigation.

The respondent based this exclusion request on the claim that these

sales represented a certain percentage of total U.S. sales. Based on

this representation, we granted the request but indicated that the

claim would be subject to verification. At verification we found

additional unreported sales of the same merchandise that was the

subject of the respondent's exclusion request. These additional

unreported sales constitute a significant additional quantity than was

represented in the exclusion request. Accordingly, we have assigned a

margin based on BIA to the U.S. sales involved in the exclusion

request, as well as the additional unreported sales of the same

merchandise.

With regard to the other unreported sales discovered at

verification, we agree that the merchandise is within the scope of this

investigation. However, we have decided that the use of adverse BIA for

these unreported sales is unwarranted. As discussed above (see the

Miscellaneous Scope Clarification Issues and Exclusion Requests section

of this notice) the scope language, as published in the notice of

initiation and the preliminary determination, was unclear as to whether

the products in question are subject merchandise. The respondent did

not report these sales based on its reading of the scope of the

initiation. Since the scope language in the initiation is ambiguous

(and hence has been clarified in the final determination), it is not

appropriate to penalize the respondent.

Comment 2

The petitioner urges the Department to apply a BIA margin to one

unreported U.S. sale of subject merchandise discovered during

verification. According to the petitioner, the Department should view

Dalmine's failure to report this sale against the background of the

respondent's failure to report other sales of subject merchandise, and

apply an adverse BIA margin.

The respondent acknowledges that it inadvertently failed to report

this sale. According to the respondent, the order for this unreported

sale appeared to be filled when it reported its U.S. sales data.

However, two months later, the respondent made an additional shipment

pursuant to this order, which was mistakenly not loaded with the first

two parts of the order. The respondent claims it did not attempt to

identify subsequent shipments pursuant to this order, since it

considered this order filled at the time it prepared the sales listing.

Only in the course of preparing for verification did the additional

invoice amount come to the company's attention.

DOC Position

We agree with the petitioner, in part. The respondent made several

shipments of subject merchandise pursuant to a customer's order. Each

of the shipments were separately invoiced. Two of the invoices were

reported in the respondent's sales listing. However, the respondent

failed to report one invoice for a small amount of subject merchandise

sold pursuant to this order. The facts do not support applying an

adverse BIA margin to this sale. Instead, as BIA, we applied the

average of all positive margins calculated for the remaining U.S.

sales.

Comment 3

The petitioner claims the respondent misreported home market

freight charges because it reported a calculated amount based on

certain assumptions rather than an actual amount. Therefore, the

petitioner urges the Department to use the lowest freight expense in

the home market response as the freight expense for all sales for its

price to price comparisons. For the Department's price to cost

comparisons, the Department should consider the highest freight charge

for any home market sale to be the freight charge for all home market

sales.

In reply, the respondent argues that it would have been

extraordinarily burdensome, if not impossible, to match specific

freight invoices to specific shipments because freight invoices are not

computerized. At verification, the respondent demonstrated it was

impractical to link thousands of freight invoices to the specific

shipments to which the invoices related. Therefore, the respondent

calculated the reported freight charges from published tariff rates by

assuming all shipments were part of a full truck load that was

delivered to more than one location. The respondent claims that the

Department verified that its freight estimates are reasonable and any

differences between estimated amounts and actual freight charges are

minor.

DOC Position

We agree with the respondent. At verification, we noted that, while

Dalmine maintained computerized databases regarding all sales and cost

information, it did not maintain invoice-specific expense data in its

computerized sales database. At verification the invoice-specific

actual expenses, calculated to check the information in the sales

response, had to be calculated manually and there was some difficulty

in obtaining source documentation.

At verification, we examined the respondent's methodology for

calculating estimated freight expenses. We compared actual freight

expenses with the reported estimated freight expenses, and noted only

minor discrepancies between these two figures. Therefore, the use of

BIA for this adjustment is not warranted.

Comment 4

The petitioner urges the Department to disallow the home market

credit expense adjustment in its dumping margin calculation because the

respondent overstated substantially credit costs by reporting March 6,

1995, as the payment for all sales unpaid as of November 1994. The

petitioner also claims the home market credit expense adjustment should

be disallowed because verified credit differed from the actual credit

for six of the eight [[Page 31988]] preselected sales. Further, the

petitioner asserts that the respondent failed to take into account

certain outstanding short-term loan balances in its calculation of the

interest rate used to compute credit costs. Finally, the petitioner

cites page 54 of the Department's Italian verification report where it

claims the Department notes that the payment dates reported by Dalmine

were either incorrect or not available.

The respondent admits that it did not update payment data in its

home market sales listing after the submission of December 19, 1994

(which reported all payments as of November 25, 1994). Nevertheless,

the respondent acknowledges that, for purposes of calculating imputed

credit costs in its March 6, 1995, filing, it assumed incorrectly that

all sales unpaid as of November 1994 remained unpaid as of March 6,

1995. As a result, the imputed credit calculation was wrong for sales

paid between November 25, 1994, and March 6, 1995. The respondent urges

the Department to calculate the imputed credit cost adjustment for all

sales for which no home market payment date was reported using November

1, 1994, as the date of payment, since this is a more conservative

approach than that employed in the Preliminary Determination.

DOC Position

We disagree with both the petitioner and the respondent. During the

Italian verification, we were able to verify the payment dates for

preselected and surprise home market sales. The petitioner's reference

to page 54 of the Italian sales verification report in support of its

statement that payment dates were not available for sales not paid

after November 23, 1994, is incorrect. The Italian sales verification

report in its entire discussion of payment dates and credit expenses

makes no statement regarding the unavailability of payment dates. We

used the earliest verified payment date, November 18, 1994, as the

payment date in the credit expense calculation for sales without

reported payment dates which were shipped before November 18, 1994. We

assumed no credit expenses were incurred for sales without reported

payment dates which were shipped after November 18, 1994.

Comment 5

The petitioner argues that the respondent incorrectly based its

commission offset on U.S. indirect selling expenses taken from

Dalmine's U.S. subsidiary's (TAD USA's) 1993 SG&A expenses. The

petitioner maintains that the Department must use the verified 1994

SG&A expenses to the extent that it offsets home market commissions.

According to the respondent, it acted reasonably in basing the

indirect selling expenses in its questionnaire response on 1993 SG&A

expense data, given that 1994 data was unavailable at the time the

response was being prepared. The respondent concedes that the 1994 data

obtained at verification would be more useful to the Department than

the 1993 data.

DOC Position

It is the Department's practice to use the most recent verified

data for indirect selling expenses in our margin calculations.

Accordingly, we used the verified 1994 SG&A figures in our final

determination calculations.

Comment 6

The petitioner claims that Dalmine incorrectly reported average

rather than actual foreign inland freight on U.S. sales. The petitioner

also claims that the respondent could have reported actual foreign

inland freight charges because its records are computerized. Therefore,

the petitioner urges the Department to assign the highest foreign

inland freight charge observed at verification to all U.S. sales.

In reply, the respondent claims the difference between the highest

foreign inland freight charge used in its calculation of average

freight and the average foreign inland freight reported for all U.S.

sales is immaterial. Moreover, the respondent maintains that its inland

and ocean freight documents are not computerized.

DOC Position

We agree with the respondent. There is no evidence that the

respondent's automated system allowed it to link individual sales with

the freight charges incurred for those sales. At verification, we noted

the actual per unit foreign inland freight charges for the U.S.

preselected sales did not differ materially from the average charge

reported in the sales listing.

Comment 7

In its case brief, the respondent requests that the Department

clarify which of its customers are related within the meaning of the

U.S. antidumping duty law.

In its rebuttal brief, the petitioner claims that there is no need

to make this distinction for the purposes of the final determination.

Should the Department address such an issue, the petitioner requests

that it do so in a manner consistent with any findings made in the

Antidumping Duty Investigation of Oil Country Tubular Goods from Italy

(A-475-816).

DOC Position

We agree with the petitioner that such a finding is unnecessary.

The respondent identified all related parties in its questionnaire

response. We verified the accuracy of that response (see page 6 of our

home market verification report). No further determination is

necessary.

Comment 8

The respondent argues that tubes and pipes are distinct products,

and urges the Department to clarify that the scope of this proceeding

is limited to pipes. In its case brief, the respondent included an

affidavit from a steel pipe and tube expert in which the expert

explains that hollow steel products known as ``pipe'' have specific

technical and commercial characteristics distinct from those hollow

steel products commonly known as ``tubes.'' According to this expert,

the pipe producing and consuming industries consider pipe to be a

product with any combination of outside diameter (``OD'') and wall

thickness set forth in the American Society for Testing Materials

(``ASTM'') standard B36.10. This expert reports that hollow steel

products that do not correspond to the OD and wall specifications set

forth in this standard are not pipes. The respondent's expert also

cites numerous reasons why products produced to non-pipe sizes are

normally not used in subject pipe applications. Finally, the respondent

notes that according to the American Iron & Steel Institute, tubing, as

distinguished from pipe, is normally produced to outside or inside

diameter dimensions and to a great variety of diameters and wall

thicknesses, and to chemical compositions and mechanical properties not

commonly available in pipe. Therefore, the respondent requests that the

Department clarify that products produced to non-pipe dimensions are

not subject to this investigation.

The petitioner argues that the petition and the published scope

expressly state that subject seamless pipe includes all outside

diameters not exceeding 4.5 inches regardless of wall thickness. The

petitioner contends that the specifications covered by the scope of

this investigation allow products to be made to non-standard dimensions

and notes that neither the petition, nor the published scope,

distinguishes between pipes and tubes. In addition, the petitioner

states that the ITC found a single like product containing both pipes

and tubes using an analysis [[Page 31989]] similar to that employed by

the Department. Finally, the petitioner argues that respondent's own

sales invoices and internal records refer to products made to non-

standard dimensions as pipes.

DOC Position

We agree with the petitioner. See Scope clarification discussion in

the body of this notice above.

Comment 9

The petitioner maintains that pipe and tube subject to this

investigation constitutes a single class or kind of merchandise. The

respondent did not comment on the class or kind issue in its case or

rebuttal briefs.

DOC Position

We agree with the petitioner. See Class or Kind discussion in the

body of this notice above.

Comment 10

The petitioner asserts that the respondent's home market sales data

contains a multitude of errors that render it unsuitable for

calculating an accurate FMV. Combined with substantial unreported U.S.

sales and misreported costs, the petitioner considers it appropriate

for the Department to base the final determination on BIA (petitioner

cites Final Determination of Sales at Less Than Fair Value: Circular

Welded Non-Alloy Steel Pipe from Brazil, 57 FR 42940 (September 17,

1992)).

The respondent claims that the discrepancies mentioned by the

petitioner are immaterial and the use of BIA is unwarranted.

DOC Position

We agree with the respondent that the use of total BIA is

unwarranted. Based on the facts on the record, we believe the errors

discovered at verification are minor in nature, and resulted from

oversight or mathematical rounding. In addition, the lack of clarity in

the scope, as published in the notice of initiation and the preliminary

determination, may have resulted in respondent misinterpretation. The

possibility that some of the unreported sales discovered at

verification were not reported because the respondent misinterpreted

the scope cannot be overlooked in our decision to accept or reject the

home market sales response.

However, we made certain adjustments to the home market sales

listing based on our findings at verification. Specifically, we deleted

sales of small quantities of subject merchandise which were unlikely to

be shipped and sales which the respondent believed would be exported to

a country other than the United States. See the June 12, 1995

concurrence memorandum to Barbara Stafford from the Team for a complete

discussion of this issue.

Cost Issues

Comment 11

The petitioner maintains that Dalmine understated its depreciation

expense by excluding improperly the costs associated with 1993 fixed

asset write-downs. Such costs, according to the petitioner, should be

amortized over a number of years, including the POI. The petitioner

argues that the Department should adjust the COP/CV figures by

including a portion of the 1993 fixed asset adjustment.

The respondent claims that the 1993 adjustment referred to by the

petitioner is not related to fixed assets, but is the adjustment to

Dalmine's investment in its subsidiaries. The amount of the adjustment

represents the operating losses of those subsidiaries. The respondent

argues that, even if the adjustment had involved the company's fixed

assets or inventory, it still should not be included in COP/CV as none

of the subject merchandise sold during the POI was produced in 1993.

DOC Position

We agree with the respondent. The write-downs referred to by the

petitioner are identified in Dalmine's 1993 annual report as write-

downs due to the operating results of subsidiaries, associated

companies and to an adjustment of the shareholder's equity of two

subsidiaries. Accordingly, these write-downs are not related to the

respondent's production activities or the subject merchandise and,

therefore, we did not adjust the reported COP/CV figures.

Comment 12

The petitioner claims that Dalmine understated its depreciation

expense by excluding improperly depreciation of its idle equipment.

Although Italian generally accepted accounting principles (GAAP) may

permit this practice, the petitioner argues that the Department should

not allow the respondent to exclude depreciation of idle assets since

this treatment creates distortions. The petitioner further states that

the Department's long-standing practice is to include depreciation on

idle assets in calculating COP and CV because such assets represent a

cost to the company. To support this statement, the petitioner cites

Antifriction Bearings and Parts Thereof from France, Germany, Italy,

Japan, Romania, Singapore, Sweden, Thailand and the United Kingdom, 58

FR 39729, 37756 (1993) (Antifriction Bearings). The petitioner asserts

that the Department should write off the remaining book value of the

idle assets and allocate the expense to the POI, because the petitioner

is unable to determine their remaining useful lives.

The respondent argues that it properly excluded depreciation

expense relating to its assets because the facility is permanently

closed and such accounting treatment is in accordance with Italian GAAP

(Iron Construction Castings From India, 51 FR 9486, 1988). If the

Department were to impute depreciation expense for the assets in the

closed facility, the respondent argues we should allocate the imputed

depreciation over 16 years, the average life of the fixed assets,

rather than expensing the remaining book value of the idle assets

during the POI.

DOC Position

The fixed assets in question relate to one of the respondent's

facilities which is no longer in operation. The land and building

housing these fixed assets have been sold and the company is currently

attempting to sell the equipment. Italian GAAP requires the recognition

of a loss on discontinued operations in the income statement, but the

appropriate period of recognition is not defined. The respondent, in

its normal books and records, has yet to recognize a gain or loss from

the remaining assets of the discontinued operation.

The assets in question relate clearly to discontinued operations

from a prior period and are no longer productive assets; they are

merely awaiting sale. Accordingly, we do not consider the respondent's

normal accounting treatment of these assets to be unreasonable. The

Antifriction Bearings case cited by the petitioner is not controlling

because it involved operations which were temporarily idle, while

Dalmine's facility is permanently closed.

Additionally, had we considered the respondent's accounting

treatment to be unreasonable and treated the discontinued operations in

accordance with U.S. GAAP, we would consider the loss to be related to

the year in which the decision was made to discontinue the operations,

which was prior to the POI. Upon disposal of these assets, the gain or

loss on the sale will be included on the respondent's income statement

and we will include the gain or loss in COP/CV, if an order is issued

and an administrative review conducted. [[Page 31990]]

Comment 13

The petitioner argues that Dalmine improperly allocated

depreciation expense using internal management reports instead of the

mill-specific fixed asset ledgers which are kept in the normal course

of business. The management reports, according to the petitioner, are

used for allocating plant-wide depreciation expense to specific mills,

but do not properly take into account the actual plant and equipment

used in manufacturing. Instead, the petitioner claims, the submitted

allocation method shifted costs from cost centers producing the subject

merchandise to cost centers producing non-subject merchandise. The

petitioner urges the Department to apply BIA because an analysis they

performed suggests that the respondent applied an unusually slow rate

of depreciation.

The respondent claims that it did not understate reported

depreciation costs, as the verification report suggested, and argues

that it may, in fact, have overstated its reported depreciation costs.

Dalmine asserts that the internal management reports used to calculate

depreciation for the submission segregate separately depreciation by

mill and are not used for company-wide allocations. It also maintains

that the depreciation expense for equipment used to produce the subject

merchandise, as reported in the company's fixed asset ledgers, is

substantially less than the depreciation expense which was reported in

the submitted COP/CV data.

DOC Position

We agree with the petitioner, in part. The respondent reported its

depreciation expense consistent with the way its cost accounting system

allocates it to specific mills in the ordinary course of business.

However, we believe that the use of its normal cost accounting

methodology may not be a reasonable and accurate methodology as it does

not properly take into account the actual plant and equipment used in

manufacturing the subject merchandise. We consider the mill-specific

fixed asset ledgers to be the most accurate basis for allocating

depreciation expense to specific products. Therefore, we used the mill-

specific depreciation expense.

We note that the petitioner's analysis regarding the unusually slow

depreciation rate is flawed because it did not properly consider the

cost of some fixed assets, such as land, which are not depreciated, and

the cost of other fixed assets, which have long useful lives.

Comment 14

The petitioner argues that the Department should reject Dalmine's

reported financing costs because Dalmine failed to disclose the fact

that its financial results are consolidated with the financial results

of its parent, ILVA S.p.A., in liq. (ILVA). These financial results

are, in turn, consolidated with the financial results of ILVA's parent,

IRI. The petitioner asserts that the Department calculates interest

expense on a consolidated basis, unless the financial structure of the

parent and the operating subsidiary are clearly not integrated, or

there are no reliable audited consolidated financial statements.

According to the petitioner, neither of these exceptions are applicable

in this case.

The petitioner also contends that the Department should reject the

respondent's argument that Dalmine's 1994 interest costs should be used

instead of IRI's 1993 interest costs because the Dalmine-based figures

are more closely correlated to the POI. The petitioner argues for the

application of BIA in the final determination. However, if the

Department determines that total BIA is inappropriate, then the

petitioner believes the Department should calculate financing costs

using IRI's 1993 audited financial statement information.

The respondent claims that it properly reported interest expense

based on the consolidated financing costs incurred at the Dalmine

level, rather than at the consolidated IRI level. In support of its

claim, the respondent states that IRI does not exercise control over

Dalmine's operations or its capital structure. In addition, the

respondent maintains that using IRI's consolidated financial expenses

would distort Dalmine's true financing costs because IRI's financing

costs include expenses for entities which are dissimilar to Dalmine.

Additionally, the respondent points out that IRI's 1994 audited

consolidated financial statements were not available at verification

and only its 1993 audited consolidated financial statements are on the

record. However, Dalmine's 1994 audited consolidated financial

statements are on the record and, according to the respondent, they are

more relevant because they encompass the entire POI. Lastly, the

respondent objects to the petitioner's insinuation that it attempted to

mislead the Department by failing to disclose that its financial

results are consolidated with the financial results of IRI. The

respondent asserts that this information was not provided since it was

not requested in the Department's questionnaires. When the Department

did request IRI's consolidated financial data at verification, the

respondent provided this information.

DOC Position

We agree with the petitioner, in part. The Department's long-

standing practice is to calculate interest expense for COP/CV purposes

from the borrowing costs incurred by the consolidated group. Silicon

Metal From Brazil, 56 Fed. Reg. at 26,986 (1991). This methodology,

which has been upheld by the CIT in Camargo Correa Metals, S.A. v.

U.S., Slip Op 93-163 (CIT 1993), is based on the fact that the

consolidated group's controlling entity has the power to determine the

capital structure of each member of the group. IRI has such power since

it owns a substantial majority of Dalmine through ILVA. In addition,

although the respondent claims that IRI does not exercise control over

Dalmine's operations, it is the Department's position that majority

equity ownership is prima facie evidence of corporate control. See,

e.g., Final Determination of Sales at Less Than Fair Value: New

Minivans from Japan, (Minivans) 57 FR 21946 (May 26, 1992) The

respondent has not presented sufficient evidence to demonstrate that

IRI's consolidated financing expense would distort Dalmine's financing

costs. In Minivans, we determined that, as a member of a consolidated

group of companies, the operations of a financing company remain under

the controlling influence of the group. Like other members of the

consolidated group, the financing company's capital structure is

determined largely within the group. Consequently, its interest income

and expenses are as much a part of the group's overall borrowing

experience as any other member company.

Lastly, we do not consider it more appropriate to use Dalmine's

1994 consolidated figures over IRI's 1993 consolidated figures simply

because Dalmine's audited information more closely relates to the time

period of the POI. We have no reason to believe that IRI's 1993 audited

financial statement interest expense data is not representative of the

POI.

Comment 15

The petitioner believes the Department should not allow the

respondent to offset its IRI level financing costs with short-term

interest income because the reported interest income included both

short and long-term interest income.

The respondent claims that the Department should reduce Dalmine's

interest expenses by long and short-term [[Page 31991]] interest income

since both long and short-term investments arise from the company's

current operations. The respondent argues that it must earn revenue

from its current operations in order to make long and short-term

investments. Therefore, it is illogical for the Department to only

consider short-term interest income to be related to current

operations. Additionally, the respondent notes that treating short and

long-term interest income differently contradicts the Department's

fungibility of money argument. The respondent claims that the

Department should recognize the symmetrical nature of interest income

and expense and calculate a true net interest cost which would take

long-term interest income into account.

DOC Position

We agree with the respondent, in part. It is the Department's

practice to allow a respondent to offset financial expenses with

interest income earned from the general operations of the company. See,

e.g., Timkin v. United States, 852 F. Supp. 1040, 1048 (CIT 1994). The

Department does not, however, offset interest expense with interest

income earned on long-term investments because long-term interest

income does not relate to current operations. See, e.g., Antifriction

Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From

the Federal Republic of Germany: Final Results of Antidumping Duty

Administrative Review, 56 FR 31734 (July 11, 1991). The company did not

provide a break-down of short and long-term interest income for IRI.

However, we were able to determine the amount of short-term interest

income for the consolidated IRI group from verification exhibits and

have applied short-term interest income as an offset to Dalmine's

financing costs.

Comment 16

The petitioner contends that the Department should not allow the

respondent to offset production costs with foreign exchange gains

because the gains were not verified by the Department.

The respondent maintains that, contrary to the verification report,

it does not associate exchange gains and losses with particular

transactions. The respondent states that it classifies exchange gains

and losses as part of the company's general expenses and it urges the

Department to accept this treatment of these exchange gains and losses.

As an alternative to including both foreign exchange gains and losses

in its financing cost calculation, the respondent argues that the

Department should exclude both gains and losses. The respondent states

in its brief that it was not aware of the Department's treatment of

exchange gains and losses until it received the verification agenda

where the distinction was explicitly noted.

DOC Position

We agree with the petitioner. It is the Department's normal

practice to distinguish between exchange gains and loses from sales

transactions and exchange gains and losses from purchase transactions.

See, e.g., Final Determination of Sales at Less Than Fair Value;

Silicomanganese from Venezuela, 59 FR 55436 (November 7, 1994)

(Silicomanganese). Accordingly, the Department does not include

exchange gains and losses on accounts receivable because the exchange

rate used to convert third-country sales to U.S. dollars is that in

effect on the date of the U.S. sale. (See 19 CFR 353.60). The

Department includes, however, foreign exchange gains and losses on

financial assets and liabilities in its COP and CV, calculation where

they are related to the company's production. Financial assets and

liabilities are directly related to a company's need to borrow money,

and we include the cost of borrowing in our COP and CV calculations.

See Silicomanganese. The respondent did not provide any substantiation

for the exchange gains and losses reflected in either Dalmine's

financial statements or IRI's financial statements. However, Dalmine

did state at verification that exchange gains are generally from sales

transactions and exchange losses are generally from purchase

transactions. We therefore adjusted the interest expense rate

calculation to include IRI's exchange losses and exclude IRI's exchange

gains.

Comment 17

The petitioner argues that the Department should disallow the

portion of the LIFO variance adjustment which is comprised of reversals

of accruals and other reserves. The petitioner claims that these

accruals and reserves were established in prior accounting periods and

do not relate to POI production. According to the petitioner, allowing

such reversals provides companies that have advance knowledge of a

dumping case with a simple means of shifting costs out of the POI.

The respondent contends that it included properly reversals of 1993

accruals and write-downs in its COP/CV costs. Dalmine claims that the

Department's general practice is to include accruals which are

recognized in the respondent's audited financial statements in the COP/

CV calculations. According to the respondent, this treatment

necessitates the inclusion of any accrual reversals in COP/CV

calculations for the period in which the respondent recognizes the

reversal. Otherwise, the respondent claims, the Department would be

overstating the company's total costs.

DOC Position

We agree with the petitioner. We do not consider it appropriate to

reduce current year production costs by the reversal of prior year

operating expense accruals and write-downs of equipment and inventory.

The subsequent year's reversal of these estimated costs does not

represent revenue or reduced operating costs in the year of reversal.

See Notice of Final Determinations of Sales at Less Than Fair Value:

Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-Rolled

Carbon Steel Flat Products, and Certain Cut-to-Length Carbon Steel

Plate From France, 58 FR 37079 (July 9, 1993). Rather, they represent a

correction of an estimate which was made in a prior year. If the

Department is able to verify that an operating expense accrual or an

equipment or inventory write-down recorded during the POI is

subsequently adjusted because the company overestimated the cost, we

will use the corrected figure, but only for the same period in which

the accrual or write-down occurred. However, absent any verified

information supporting the overestimation of cost, we have no choice

but to rely on the amounts recorded by the company. The fact that a

company is unable to determine that it over accrued certain costs in

time for verification does not justify distorting the actual production

costs incurred in a subsequent year by reducing subsequent year costs

by the overestimated amount. In the present case, since the accruals

and write-downs did not occur during 1994, it would be inappropriate to

recognize the reversals of such entries in the reported costs.

Comment 18

The petitioner asserts that Dalmine has not reported the COP and CV

for all of the subject merchandise sold in the U.S. during the POI.

This assertion is based on the fact that Dalmine did not calculate a

weighted average cost for CONNUM's 45 and 108, because the company did

not produce those products during the POI. The petitioner claims that a

significant percentage of U.S. sales during the POI were for control

numbers not produced during the POI. The petitioner argues that the

[[Page 31992]] Department should increase the submitted COP and CV for

the two products sold in the U.S. during the POI, but produced prior to

the POI, because Dalmine was less profitable in 1993.

The respondent maintains that it calculated the average COP and CV

for CONNUM's 45 and 108 by using a simple average of the cost of the

products that comprise each CONNUM rather than a weighted average with

a weighting factor for the cost of products not produced during the

POI. Thus, the respondent contends that it properly reported actual

contemporaneous cost information.

DOC Position

We agree with the respondent. Dalmine used a simple average of the

cost of the products that comprised CONNUM's 45 and 108 and our

statement in the verification report that the respondent used a

weighting factor for some of the products in its cost calculation for

CONNUM's 45 and 108 is inaccurate. We calculated COP/CV by weight

averaging the average costs of products classified within those

CONNUM's by the production quantities which we obtained at

verification.

We disagree with the petitioner's claim that the Department should

increase the submitted cost data for the products produced prior to the

POI because the company was less profitable in the prior year. The

Department tested Dalmine's standard costs as adjusted to actual costs

at verification and determined that these costs actually reflect the

costs incurred during the POI.

Comment 19

The petitioner contends that Dalmine understated its reported

general and administrative (G&A) expenses as it failed to include an

allocation of G&A expenses incurred by ILVA and IRI. Because Dalmine

failed to disclose that it was consolidated with ILVA and IRI, the

petitioner believes that, as BIA, the Department should add the G&A

expenses calculated from ILVA's 1992 financial statements and IRI's

1993 financial statements to the amounts reported by Dalmine.

The respondent maintains that the Department verified that an

appropriate share of parent company management costs was included in

the submitted COP/CV data.

DOC Position

We agree with the respondent. It is the Department's practice to

include a portion of the G&A expenses incurred by affiliated companies

on the reporting entity's behalf in total G&A expenses for COP/CV

purposes. Final Determination of Sales at Less Than Fair Value: Welded

Stainless Steel Pipe from Malaysia, 59 Fed. Reg. 4023, 4027 (Jan. 28,

1994); Final Determination of Sales at Less Than Fair Value:

Ferrosilicon from Venezuela, 58 Fed. Reg. 27524 (May 10, 1993); Final

Determination of Sales at Less Than Fair Value: Sweaters from Hong

Kong, 55 Fed. Reg. 30733 (July 27, 1990); Final Determination of Sales

at Less Than Fair Value: Certain Small Business Telephones and

Subassemblies Thereof from Korea, 54 Fed. Reg. 53141 (Dec. 27, 1989).

In the present case, the respondent included a portion of Dalmine's G&A

expenses and the G&A expenses of its producing subsidiary in the

submitted G&A expenses. We identified no parent company costs allocable

to Dalmine.

Comment 20

The petitioner questions whether all steel mill variances have been

captured because steel bar costs have been reported exclusively on the

basis of standard costs. The petitioner claims that price and

efficiency variances for the steel mill were excluded from the ratio

used to allocate variances to each product.

The respondent claims that the Department verified that the steel

mill variance was properly allocated to the subject merchandise.

DOC Position

We agree with the respondent. The steel mill net profit reported on

the respondent's management report was zero after all steel mill costs

were allocated to producing mills, based on steel usage by the mills.

Therefore, all steel mill activity, including variances, was properly

allocated to the producing mills.

Suspension of Liquidation

Pursuant to the results of this final determination, we will

instruct the Customs Service to require a cash deposit or posting of a

bond equal to the estimated final dumping margin, as shown below, for

entries of seamless standard, line and pressure pipe from Italy that

are entered or withdrawn from warehouse, for consumption from the date

of publication of this notice in the Federal Register. The suspension

of liquidation will remain in effect until further notice. The

weighted-average dumping margins are as follows:

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

Weighted-

average

Producer/manufacturer exporter margin

(percent)

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

Dalmine.................................................... 1.84

All Others................................................. 1.84

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

ITC Notification

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

ITC of our determination. The ITC will make its determination whether

these imports materially injure or threaten injury to a U.S. industry

within 45 days of the publication of this notice. If the ITC determines

that material injury or threat of material injury does not exist, the

proceeding will be terminated and all securities posted will be

refunded or cancelled. However, if the ITC determines that material

injury or threat of material injury does exist, the Department will

issue an antidumping duty order.

Notification to Interested Parties

This notice serves as the only reminder to parties subject to

administrative protection order (``APO'') in these investigations of

their responsibility covering the return or destruction of proprietary

information disclosed under APO in accordance with 19 CFR 353.4(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. 1673(d))and 19 CFR 353.20.

Dated: June 12, 1995.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 95-14939 Filed 6-16-95; 8:45 am]

BILLING CODE 3510-DS-P