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

DEPARTMENT OF COMMERCE.

[A-412-816]

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

Certain Carbon Steel Butt-Weld Pipe Fittings From the United Kingdom

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: February 27, 1995.

FOR FURTHER INFORMATION CONTACT: Julie Anne Osgood or Todd Hansen,

Office of Countervailing Investigations, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, NW, Washington, D.C. 20230; telephone

(202) 482-0167 or 482-1276, respectively.

Final Determination

We determine that certain carbon steel butt-weld pipe fittings from

the United Kingdom are being sold in the United States at less than

fair value, as provided in section 735 of the Tariff Act of 1930, as

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

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

Case History

Since the publication of the preliminary determination in the

Federal Register on October 4, 1994 (59 FR 50571), the following events

have occurred:

On October 3, 1994, pursuant to the Department's regulations (19

CFR 353.20(b)(1) (1994)), BKL Fittings, Ltd. (``BKL''), requested that

the final determination in this case be postponed. On November 14,

1994, the Department published in the Federal Register a notice

postponing the final determination in this case until February 16, 1995

(59 FR 56461). From November 21 through 23, and November 29 and 30,

1994, we verified the further manufacturing operations and exporter's

sales price information of BKL's related entity in Union, New Jersey.

From December 12 through 23, 1994, we verified BKL's responses to the

Department's antidumping duty questionnaire at company headquarters in

Redditch, England. On January 23 and 30, 1995, petitioner and

respondent submitted case and rebuttal briefs to the Department. The

Department held a public hearing in this investigation on February 2,

1995.

Scope of the Investigation

The products covered by this investigation are certain carbon steel

butt-weld pipe fittings (``pipe fittings'') having an inside diameter

of less than fourteen inches (355 millimeters), imported in either

finished or unfinished condition. Pipe fittings are formed or forged

steel products used to join pipe sections in piping systems where

conditions require permanent welded connections, as distinguished from

fittings based on other methods of fastening (e.g., threaded, grooved,

or bolted fittings). Butt-weld fittings come in a variety of shapes

which includes ``elbows,'' ``tees,'' ``caps,'' and ``reducers.'' The

edges of finished pipe fittings are beveled, so that when a fitting is

placed against the end of a pipe (the ends of which have also been

beveled), a shallow channel is created to accommodate the ``bead'' of

the weld [[Page 10559]] which joins the fitting to the pipe. These pipe

fittings are currently classifiable under subheading 7307.93.3000 of

the Harmonized Tariff Schedule of the United States (``HTSUS'').

Although the HTSUS subheading is provided for convenience and Customs

purposes, our written description of the scope of this investigation is

dispositive.

Period of Investigation

The period of investigation (``POI'') is September 1, 1993, through

February 28, 1994.

Such or Similar Comparisons

In making our fair value comparisons, we first compared sales of

merchandise identical in all respects, in accordance with the

Department's standard methodology. If no identical merchandise was

sold, we compared sales of the most similar merchandise, as determined

by the model-matching criteria contained in Appendix V of the

questionnaire (``Appendix V'') (on file in Room B-099 of the main

building of the Department of Commerce (``Public File'')).

Fair Value Comparisons

To determine whether BKL's sales for export to the United States

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

(``USP'') to the foreign market value (``FMV''), as specified in the

``United States Price'' and ``Foreign Market Value'' sections of this

notice. For those U.S. sales compared to sales of similar merchandise,

we made an adjustment, pursuant to 19 CFR 353.57, for physical

differences in the merchandise.

We compared U.S. sales, where possible, with sales in the home

market at the same level of trade, in accordance with 19 CFR 353.58.

We made revisions to BKL's reported data, where appropriate, based

on verification findings.

United States Price

Where BKL's U.S. sales of pipe fittings were made to an unrelated

distributor in the United States prior to importation, and the

exporter's sales price (``ESP'') methodology was not indicated by other

circumstances, we based USP on the purchase price sales methodology in

accordance with section 772(b) of the Act.

We calculated purchase price based on packed, c.i.f. import prices

to an unrelated customer in the United States. We made deductions,

where appropriate, for foreign brokerage, foreign inland freight, ocean

freight, marine insurance, U.S. brokerage and U.S. duty.

Where sales to the first unrelated purchaser took place after

importation of the subject merchandise into the United States, we

calculated USP using the ESP methodology, in accordance with section

772(c) of the Act.

For ESP sales, we made deductions, where appropriate, for

discounts, foreign brokerage, foreign inland freight, ocean freight,

marine insurance, U.S. duty, U.S. inland freight, and U.S. brokerage

and handling. In addition, we deducted credit expense, indirect selling

expense, inventory carrying costs, and commissions to an unrelated

agent.

We made an adjustment to USP for value-added tax (``VAT'') assessed

on comparison sales in the U.K. in accordance with our practice,

pursuant to the Court of International Trade (``CIT'') decision in

Federal-Mogul, et al v. United States, 834 F. Supp. 1391. See

Preliminary Antidumping Duty Determination: Color Negative Photographic

Paper and Chemical Components from Japan, 59 FR 16177, 16179 (April 6,

1994), for an explanation of this methodology.

For pipe fittings that were further manufactured in the United

States, we deducted all value added in the United States, pursuant to

section 772(e)(3) of the Act. The value added consists of the cost of

fabrication and general expenses associated with the further

manufacturing operations, as well as a proportional amount of profit or

loss attributable to the further manufacture. (See, e.g., 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, Certain Corrosion-Resistant Carbon Steel Flat Products,

and Certain Cut-to-Length Carbon Steel Plate from France, 58 FR 37125

(July 9, 1993).) We calculated profit or loss by deducting from the

sales price of the further manufactured merchandise the related

production costs and selling expense incurred by the company in both

the U.K. and the United States. We then allocated total profit or loss

proportionately to all components of cost. We included only the profit

or loss allocated to the further manufacturing portion of total cost in

our calculation of value added. We adjusted BKL's allocation of general

and administrative (``G&A'') expenses for further manufactured sales to

an allocation based on cost of sales rather than weight.

Foreign Market Value

In order to determine whether there was a sufficient volume of

sales in the home market to serve as a viable basis for calculating

FMV, we compared the volume of home market sales of subject merchandise

to the volume of third country sales of subject merchandise, in

accordance with section 773(a)(1)(B) of the Act. BKL's volume of home

market sales was greater than five percent of the aggregate volume of

third country sales. Therefore, we determined that the home market

constituted a viable basis for calculating FMV, in accordance with 19

CFR 353.48(a).

For purposes of calculating FMV, we used BKL's sales to its home

market customers and constructed value (``CV''), as described below. We

excluded from the home market database any sales of fittings not

manufactured by BKL.

Cost of Production

Petitioner alleged that BKL made home market sales during the POI

at prices below the cost of production (``COP''). In the course of this

investigation, we gathered and verified data on production costs.

In order to determine whether home market prices were below the COP

within the meaning of section 773(b) of the Act, we performed a

product-specific cost test, in which we examined whether each product

sold in the home market during the POI was priced below the COP of that

product. We calculated COP based on the sum of BKL's cost of materials,

fabrication, general expenses, and packing, in accordance with 19 CFR

353.51(c). For each product, we compared this sum to the home market

unit price, net of movement expenses and rebates. We made changes,

where appropriate, to submitted COP data, as discussed in the

``Interested Party Comments'' section of this notice, below.

In accordance with section 773(b) of the Act, we also examined

whether the home market sales of each product were made at prices below

their COP in substantial quantities over an extended period of time,

and whether such sales were made at prices that would permit recovery

of all costs within a reasonable period of time in the normal course of

trade.

For each product where less than ten percent, by quantity, of the

home market sales during the POI were made at prices below the COP, we

included all sales of that model for the computation of FMV. For each

product where ten percent or more, but less than 90 percent, of the

home market sales during the POI were priced below the COP, we did not

include in the calculation of FMV those home market sales which were

priced below the COP, provided that the below-cost sales of

[[Page 10560]] that product were made over an extended period of time.

Where we found that more than 90 percent of respondent's sales were at

prices below the COP, and such sales were over an extended period of

time, in accordance with section 773(b) of the Act, we disregarded all

sales of that product and instead based FMV on CV.

In order to determine whether below-cost sales had been made over

an extended period of time, in accordance with section 773(b)(1) of the

Act, 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 did 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.

BKL provided no evidence that the disregarded sales were at prices

that would permit recovery of all costs within a reasonable period of

time and in the normal course of trade. (See Section 773(b)(2); 19

U.S.C. 1677b(b)(2).)

Constructed Value

We calculated CV based on the sum of the cost of materials,

fabrication, general expenses, U.S. packing costs and profit. In

accordance with section 773(e)(1)(B)(i) and (ii) of the Act we: (1)

included the greater of BKL's reported general expenses or the

statutory minimum of ten percent of the cost of manufacture (``COM''),

as appropriate; and (2) used the greater of BKL's actual profit on

sales in the home market or the statutory minimum profit of eight

percent of the sum of COM and general expenses.

Price-to-Price Comparisons

For price-to-price comparisons, we calculated FMV based on ex-

factory or delivered prices, inclusive of packing to home market

customers. We deducted rebates, where appropriate, on home market

sales. We deducted home market packing costs and added U.S. packing

costs in accordance with section 773(a)(1) of the Act. We also made

adjustments, where appropriate, for differences in the physical

characteristics of the merchandise in accordance with section 773(a)(1)

of the Act.

In light of the Court of Appeals for the Federal Circuit's decision

in Ad Hoc Committee of AZ-NM-TX-FL Producers of Gray Portland Cement v.

United States, 13 F.3d 398 (Fed. Cir., January 5, 1994), the Department

can no longer deduct home market movement charges from FMV pursuant to

its inherent power to fill in gaps in the antidumping statute. Instead,

we adjust for those expenses under the circumstance-of-sale provision

of 19 CFR 353.56(a) and the exporter's sales price offset provision of

19 CFR 353.56(b)(2), as appropriate. Accordingly, in the present case,

we deducted post-sale home market movement charges from the FMV under

the circumstance-of-sale provision of 19 CFR 353.56(a). This adjustment

included home market inland freight.

For both price-to-price comparisons and comparisons to CV, we also

made circumstance-of-sale adjustments, where appropriate, for

differences in credit expenses, pursuant to 19 CFR 353.56(a)(2).

We adjusted for VAT in the home market in accordance with our

practice. (See the ``United States Price'' section of this notice,

above.)

Currency Conversion

We made currency conversions based on the official exchange rates

in effect on the dates of the U.S. sales as certified by the Federal

Reserve Bank of New York (19 CFR 353.60).

Final Affirmative Determination of Critical Circumstances

Petitioner alleged that critical circumstances exist with respect

to imports of pipe fittings from the U.K. In our preliminary

determination, pursuant to section 733(e)(1) of the Act and 19 CFR

353.16, we analyzed the allegations using the Department's standard

methodology. Because no additional information has been submitted since

the preliminary determination, the Department is using the same

analysis as explained in its preliminary determination and finds, in

accordance with section 735(a)(3) of the Act, that critical

circumstances exist with respect to imports of certain carbon steel

butt-weld pipe fittings from the U.K.

Verification

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

provided by the respondent using standard verification procedures,

including the examination of relevant sales, cost and financial

records, and selection of original source documentation. Our

verification results are outlined in detail in the public version of

the verification report (Public File).

Interested Party Comments

Comment 1: BKL contends that the methodology used for the

preliminary determination where sales made below the cost of production

were excluded in calculating profit for CV is not in accordance with

law. According to BKL, Section 773(e)(1)(B) of the Tariff Act of 1930,

as amended, provides that profit will be ``equal to that usually

reflected in sales of merchandise of the same general class or kind as

the merchandise under consideration which are made by producers in the

country of exportation, in the usual commercial quantities and in the

ordinary course of trade***'' BKL claims that the statute neither

explicitly nor implicitly authorizes CV profit to be calculated solely

upon above-cost sales. Further, BKL cites to Antifriction Bearings

(Other Than Tapered Roller Bearings) and Parts Thereof From France; et

al.; Final Results of Antidumping Duty Administrative Reviews, 57 FR

28360, 28374 (June 24, 1992) (``AFBs from France'') where the

Department rejected the argument that the calculation of profit should

be based only on sales at prices above the cost of production. BKL

contends that excluding below-cost sales would be contrary to law

because the Department would be excluding a portion of sales ``of the

same class or kind of merchandise.''

Petitioner maintains that the law leaves the decision of whether to

include below-cost home market sales in calculating the profit element

of CV to the discretion of the Department. While the statute does state

that profit is to be calculated based on home market sales of the same

general class or kind of merchandise, it also states that such sales

must be made ``in the ordinary course of trade.'' According to

petitioner, it is entirely consistent with the purpose of the statutory

provision to determine that below-cost sales are made outside the

ordinary course of trade. Petitioner asserts that this approach

advances the statute's purpose by preventing a foreign exporter from

indirectly reducing FMV through below cost sales. Finally, petitioner

argues that the fact that Commerce has included below-cost sales in the

profit calculations in other proceedings does not dictate that the

Department must do so in this investigation.

Department's Position: We agree with respondent. The Department's

practice has been to calculate profit for constructed value using

above- and below-cost home market sales. (See [[Page 10561]] AFBs from

France.) Therefore, we have included below-cost sales in our

calculation of profit for constructed value in the final determination,

and used the greater of the average profit on both above- and below-

cost sales or the statutory eight percent minimum profit.

Comment 2: BKL maintains that sales made below cost in one month of

the POI do not constitute sales made below cost over an extended period

of time. BKL cites to Tapered Roller Bearings, and Parts Thereof,

Finished and Unfinished, From Japan; Final Results of Antidumping Duty

Administrative Review, 57 FR 4960, 4965 (February 11, 1992) (``TRBs

from Japan'') where the Department stated: ``[W]e use a period of three

months to define extended period of time since three months is commonly

used to measure corporate, financial, and economic performance.''

According to BKL, this rationale is inconsistent with defining a single

month as an ``extended period of time.''

In addition, BKL contends that the Department's position that a

single month comprises an ``extended period of time'' is inconsistent

with the Department's definition of the term ``relatively short

period'' in connection with critical circumstances. BKL argues that for

critical circumstances the Department defines the term ``relatively

short period'' as covering at least three months.

BKL also contends that if the frequency of below-cost sales is

limited to one month of the period of investigation, then that is prima

facie evidence of sporadic or possibly seasonal sales. Hence, according

to the legislative history of the COP provision, these sales should not

be disregarded.

Petitioner maintains that the Department's position is clear that

if sales are made in less than three months of the POI, then an

extended period is the number of months in which sales occur. In

support of this argument, petitioner also cites to TRBs from Japan. In

addition, petitioner argues that respondent has provided no evidence

that the sales that occurred in only one month of the POI involved

obsolete products or end-of-year sales.

Department's Position: In determining whether sales below cost were

made over an extended period of time in accordance with section

773(b)(1) of the Act, the Department has consistently considered an

extended period of time to be the lesser of the number of months during

the POI in which sales occur or three months for the reason stated in

TRBs from Japan: ``[T]he use of only a three month time measurement is

incomplete since it excludes models that were only sold in one or two

months of the review period.''

BKL's contention that the Department is inconsistent in defining a

``relatively short period'' is misguided. It ignores the Department's

rationale of needing to preserve the possibility of disregarding below-

cost sales in cases where such sales have occurred in only one or two

months. This is not a consideration that applies to critical

circumstances.

Comment 3: Petitioner contends that by not reporting a portion of

its parent's G&A, BKL has understated its total G&A expense for the

subject merchandise. Additionally, petitioner argues that the

Department should adjust reported G&A expense for the further

manufacturing operations to include the other operating expenses which

are related to the activities of the company as a whole.

BKL disagrees that any of the G&A expense of its parent company

should be allocated to BKL because BKL's entire manufacturing, sales,

and R&D activities are conducted without assistance from its parent.

The parent company receives periodic operational reports from BKL only

for the purpose of evaluating its investment in its capacity as a

shareholder. BKL states that allocating its parent company's G&A to

subsidiaries when the books and records are not consolidated is

inconsistent with the Department's professed policy of relying upon

respondent's cost and financial records in COP investigations.

Department's Position: We agree with petitioner that a portion of

the G&A expense of BKL's parent company should be allocated to BKL. It

is clear from the information on the record of this case that BKL's

parent company's involvement in BKL is more than that of a passive

investor. The parent company's Overseas Department monitors the

operations of BKL through monthly reports from BKL and provides

strategic planning and management services to BKL. Accordingly, we have

allocated to BKL a proportionate share of the expenses from the

Overseas Department of the parent company based on the cost of sales of

its overseas affiliates.

Additionally, we have increased the further manufacturing G&A cost

to include other operating expenses incurred that had not been included

in the reported costs.

Comment 4: Petitioner maintains that the Department should allocate

total G&A for the further manufacturing operations based on cost of

sales rather than weight of finished fittings because an allocation of

G&A based on weight is contrary to the Department's long-standing

practice.

Department's Position: For calculations used in our final

determination, we have allocated G&A expense based on cost of sales

rather than weight. Allocating the G&A costs of the further

manufacturing operations based on weight of finished fittings produces

a less representative result than allocating based on cost. The weight

of fittings varies markedly for fittings of different thicknesses, but

the process of finishing the fittings does not vary proportionately to

weight. (See Final Determination of Sales at Less Than Fair Value:

Certain All-Terrain Vehicles from Japan, 54 FR 4864, 4867 (January 31,

1989).)

Comment 5: Petitioner claims that BKL understated its costs through

incorrect reporting of its financing expenses. According to petitioner,

the finance expense ratios reported by BKL understate the total cost of

subject merchandise because, where BKL combined its interest expense

with its parent, it did not reduce the cost of sales for the combined

group by the intercompany transactions. As a result, the denominator of

the calculation (total cost of sales) was inflated. Similarly,

petitioner contends that the Department should adjust respondent's

financing costs to include its other borrowing not reported, and that

interest expense for the further manufacturing operations should be

allocated on the basis of cost of sales rather than weight.

BKL claims it has correctly calculated financing expense by

combining BKL's financing expense with that of its parent company and

dividing by the combined cost of sales. BKL suggests that for purposes

of computing net interest expense for CV, the Department should adjust

the parent company's interest expense to account for finished goods

inventory and trade accounts receivable.

Department's Position: We agree with petitioner that combining the

financing expense and cost of sales of BKL and its parent creates a

distorted financial expense ratio unless intercompany transactions are

eliminated from the calculation. The Department generally calculates

net financing expense from the financial statements of the consolidated

entity because of the fungible nature of capital. (See Final

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

Butt-Weld Pipe Fittings from Thailand, 57 FR 21065, 21069 (May 18,

1992).) In this investigation, however, the parent company and its

subsidiaries do not prepare consolidated financial statements.

Additionally, we cannot consolidate the financial data of BKL and its

parent company because we are unable to quantify all intercompany

[[Page 10562]] transactions. Since the parent company ultimately

controls the capital of all affiliates in which it holds a controlling

interest, and due to the nature of certain intercompany transactions,

we have used the parent company's financing expense rate as a

reasonable surrogate for purposes of our final determination.

We have also adjusted the parent company's CV financing expense

rate to allow an offset for credit expenses and inventory carrying cost

as is our normal practice.

For purposes of our final determination, we have allocated

financing expense of the further manufacturing operations based on cost

of sales rather than weight. (See Final Determinations of Sales at Less

than Fair Value: Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts Thereof From the Federal Republic of Germany, 54 FR

18992, 19076, May 3, 1989.)

Comment 6: Petitioner contends that BKL understated total cost

through the incorrect reporting of pension costs. Petitioner argues

that BKL excluded certain pension costs in reporting its cost for the

subject merchandise, claiming that the pension costs do not reflect the

actual costs that will be incurred. According to petitioner, because

generally accepted accounting principles (``GAAP'') in the U.K.

required BKL to include an additional amount for pension costs in its

audited financial statements, such costs must be included in the COP

and CV of subject merchandise in order to accurately reflect BKL's

fully absorbed cost for subject merchandise.

Department's Position: We agree with petitioner, and have adjusted

labor costs to reflect pension expense in conformity with U.K. GAAP for

purposes of our final determination. To be in conformity with U.K.

GAAP, an entity is required to perform an annual recalculation of

pension expense to account for fluctuations in investment performance.

The purpose of this recalculation is to more accurately reflect an

entity's year-end pension liability. Not adjusting the pension

liability to conform with U.K. GAAP would result in an understatement

of per-unit costs of production. (See Calculation Memorandum from

Theresa L. Caherty and Peter S. Scholl to Christian B. Marsh, dated

February 9, 1995, (``Proprietary Document'').)

Comment 7: Petitioner states that the Department may not have

properly adjusted FMV to account for VAT for any calculations where FMV

is based on CV. As a result, petitioner maintains that USP was

overstated and BKL's dumping margin was understated.

Respondent cites to Federal-Mogul Corp. v. U.S., 813 F. Supp 856

(CIT 1993), stating the Department is authorized to ``add only the

amount of tax actually paid on each home market sale.'' Respondent

states that CV is not associated with an amount of VAT actually paid,

because CV is not based on actual sales. Thus, an imputed amount for

VAT cannot be included in CV.

Department's Position: In accordance with the statute, our practice

is to exclude indirect taxes on component materials from CV if the

taxes are rebated upon export. Once we have excluded the VAT on

component materials from the constructed value, we cannot add the VAT

to USP because section 772(d)(1)(C) of the Act requires that we add

internal taxes to USP only to the extent that those taxes are included

in the FMV.

Suspension of Liquidation

We are directing the U.S. Customs Service to continue to suspend

liquidation of all entries of butt-weld pipe fittings from the U.K., as

defined in the ``Scope of Investigation'' section of this notice, that

are entered or withdrawn from warehouse for consumption on or after

July 6, 1994, the date 90 days prior to the date of publication of our

preliminary determination, pursuant to section 735(c)(4)(A) of the Act.

The Customs Service shall require a cash deposit or the posting of

a bond equal to the estimated weighted-average amount by which the

foreign market value of the subject merchandise exceeds the U.S. price

as shown below. This suspension of liquidation will remain in effect

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

follows:

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

Margin

Manufacturer/producer/exporter (percent)

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

BKL Industries, Ltd........................................ 48.85

All other producers/exporters.............................. 48.85

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

ITC Notification

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

ITC of our determination.

Notice to Interested Parties

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

administrative protective order (APO) of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 353.34(d). Failure to

comply is a violation of the APO.

This determination is published pursuant to section 735(d) of the

Act (19 U.S. C. 1671(d)).

Dated: February 16, 1995.

Barbara R. Stafford,

Acting Assistant Secretary for Import Administration.

[FR Doc. 95-4726 Filed 2-24-95; 8:45 am]

BILLING CODE 3510-DS-P