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

DEPARTMENT OF COMMERCE.

[A-549-809]

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

Certain Carbon Steel Butt-Weld Pipe Fittings From Thailand

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: February 27, 1995.

FOR FURTHER INFORMATION CONTACT: Vincent Kane or Julie Anne Osgood,

Office of Countervailing Investigations, Import Administration,

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

Street and Constitution Avenue, NW, Washington, DC 20230; telephone

(202) 482-2815 or 482-0167, respectively.

Final Determination

We determine that certain carbon steel butt-weld pipe fittings

exported by Awaji Sangyo (Thailand) Co., Ltd. (AST), from Thailand are

being sold in the United States at less than fair value, as provided in

section 735 of the Tariff Act of 1930, as amended (the ``Act''). The

estimated margin is shown in the ``Suspension of Liquidation'' section

of this notice.

Case History

Since the publication of the preliminary determination in the

Federal Register on October 4, 1994 (59 FR 50568), the following events

have occurred:

On November 14, 1994, we published in the Federal Register a notice

postponing the publication of the final determination in this case

until February 16, 1995 (59 FR 56461). From October 20 to October 26,

1994, we verified the sales information of AST at its offices in

Samutprakarn, Thailand. From December 2 to December 6, 1994, we

verified AST's cost of production and constructed value data. On

January 23 and January 30, 1995, petitioner and respondent submitted

case and rebuttal briefs to the Department. A public hearing in this

investigation was held on February 6, 1995.

We note that all other producers and exporters of the subject

merchandise in Thailand, which export to the United States, are subject

to an antidumping duty order currently in effect for this merchandise.

(See 57 FR 29702, July 6, 1992.) AST was excluded from this order

because in the previous investigation, the Department found its margin

of sales at less than fair value at that time to be de minimis.

Scope of the Investigation

The products covered by this investigation are certain carbon steel

butt-weld pipe fittings having an inside diameter of less than fourteen

inches (355 millimeters), imported in either finished or unfinished

condition. Pipe fittings are formed of forged steel products used to

join pipe sections in piping systems where conditions require permanent

welded connections, as distinguished from fittings based on other

methods of fastening (e.g., threaded, grooved, or bolted fittings).

Butt-weld fittings come in a variety of shapes which include

``elbows,'' ``tees,'' ``caps,'' and ``reducers.'' The edges of finished

pipe fittings are beveled, so that when a fitting is placed against the

end of a pipe (the ends of which have also been beveled), a shallow

channel is created to accommodate the ``bead'' of [[Page 10553]] the

weld which joins the fitting to the pipe. These pipe fittings are

currently classifiable under subheading 7307.93.3000 of the Harmonized

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

subheading is provided for convenience and Customs purposes, our

written description of the scope of this investigation is dispositive.

Period of Investigation

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

February 28, 1994.

Such or Similar Comparisons

In making our fair value comparisons, in accordance with the

Department's standard methodology and section 771(16) of the Act, we

first compared sales of merchandise identical in all respects. If no

identical merchandise was sold, we compared sales of the most similar

merchandise, as determined by the model-matching criteria contained in

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

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

Fair Value Comparisons

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

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

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

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

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

we made an adjustment, pursuant to 19 CFR 353.57 (1994), for physical

differences in the merchandise. Regarding level of trade, AST reported

that it sells to an importer/distributor in the United States and

directly to distributors, end users, and a commissionaire agent in

Thailand. AST negotiates prices on a sale-by-sale basis and states that

it is unable to discern any correlation between selling prices and

customer categories. Further, AST states that its selling expenses do

not vary by customer category. We examined this issue at verification

and found no evidence that AST's prices or conditions of sale differed

on the basis of level of trade. Therefore, in keeping with established

practice (see, e.g., Final Results of Administrative Review:

Antifriction Bearings and Parts Thereof from the Federal Republic of

Germany, et al. (56 FR 31692, 31709-11; July 11, 1991) and Import

Administration Policy Bulletin 92/1, Matching at Levels of Trade,

issued on July 29, 1992), and in accordance with 19 CFR 353.58, we have

compared AST's U.S. sales to its home market sales to all customers.

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

on findings at verification.

United States Price

Because AST's U.S. sales of certain carbon steel butt-weld pipe

fittings were made to an unrelated distributor in the United States

prior to importation, and the exporter's sales price methodology was

not indicated by other circumstances, we based USP on the purchase

price (``PP'') sales methodology in accordance with section 772(b) of

the Act.

We calculated PP based on packed, c.i.f. import prices to an

unrelated customer in the United States. We made deductions from the

U.S. price for foreign brokerage, foreign inland freight, ocean freight

and marine insurance.

We made an adjustment to U.S. price for the consumption tax paid on

the comparison sales in Thailand, in accordance with our practice,

pursuant to the Court of International Trade (CIT) decision in Federal-

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

Antidumping Duty Determination and Postponement of Final Determination;

Color Negative Photographic Paper and Chemical Components Thereof from

Japan, 59 FR 16177, 16179, April 6, 1994, for an explanation of this

tax methodology. In accordance with section 772(d)(1)(B) of the Act, we

made an addition to the U.S. price for the amount of import duties

imposed on inputs which were subsequently rebated upon exportation of

the finished merchandise to the United States. (See Comment 2, below.)

Upon exportation of finished pipe fittings, AST receives a drawback

of import duties, which is greater than the import duties that would

have been assessed had the fittings been sold for home consumption. In

our calculation of USP, we limited the addition for drawback to the

amount of duties that would have been assessed had the goods been sold

in the home market. This approach is consistent with section

772(d)(1)(B) of the Act, which provides that the USP shall be increased

by the drawback of any import duties ``imposed in the country of

exportation which have been rebated or not collected by reason of

exportation of the merchandise to the United States.'' Therefore, we

have capped the amount added to USP at the level of the import duties

imposed in the country of exportation.

For U.S. sales which had not been shipped and for which payment had

not been received, we based AST's credit expense on the average number

of days outstanding between shipment and payment for AST's U.S. sales

with reported shipment and payment dates. For a discussion of the

Department's treatment of the appropriate interest rate to use in the

calculation of credit in this investigation, see Memorandum from

Barbara R. Stafford to Susan G. Esserman (September 26, 1994) on file

in room B-099 of the U.S. Department of Commerce.

Foreign Market Value

In order to determine whether there was a sufficient volume of

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

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

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

accordance with section 773(a)(1)(B) of the Act. On this basis, we

determined that the home market was viable.

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

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

Cost of Production

Petitioner alleged that AST made home market sales during the POI

at prices below the cost of production (COP). Based on petitioner's

allegation and other information on the record, we concluded that we

had the requisite reasonable grounds to believe or suspect that sales

were made below COP. Thus, in accordance with section 773(b), we

initiated a cost investigation.

In order to determine whether home market prices were below COP

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

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

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

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

direct labor, variable and fixed factory overhead, general expenses,

and packing, in accordance with 19 CFR 353.51(c). For each product, we

compared this sum to the home market unit price, net of movement

expenses and commissions.

With the following exceptions, we relied on submitted and verified

COP information. Material costs were modified to reflect only the cost

of seamless pipe used in manufacturing the subject merchandise, rather

than a pipe cost which included not only seamless pipe for fittings

within the scope, but also for fittings outside the scope, and for

welded pipe fittings. Also, we used an interest cost based on the

combined interest cost of AST and [[Page 10554]] its parent, ASK,

rather than one based on AST's interest costs alone.

Section 773(b) of the Act requires us to examine whether below cost

sales were made in substantial quantities over an extended period of

time, and whether such sales were made at prices that would permit

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

course of trade.

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

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

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

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

home market sales during the POI were priced below COP, we disregarded

those home market sales which were priced below COP for purposes of

calculating FMV, provided that the below-cost sales of that product

were made over an extended period of time. Where we found that more

than 90 percent of respondent's sales were at prices below COP, and

such sales were over an extended period of time, we disregarded all

sales of that product for purposes of calculating FMV.

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

an extended period of time, we compared the number of months in which

below-cost sales occurred for each product to the number of months in

the POI in which that product was sold. If a product was sold in fewer

than three months during the POI, we did not exclude sales unless there

were below cost sales in each month of sale. If a product was sold in

three or more months, we did not exclude the below-cost sales unless

there were below-cost sales in at least three months during the POI.

If sales below cost occurred in three or more months of the POI,

they are considered to be made over an extended period of time. When

items are sold in just two or three months of the POI, we would

consider below cost sales of these items to be over an extended period

of time, if they occurred in at least two months of the three months.

When items are sold in just one month of the POI, we would consider any

below cost sales of these items to be over an extended period of time.

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

from Korea (59 FR 58826, November 15, 1994); and Preliminary Results

and Partial Termination of Antidumping Administrative Review: Tapered

Roller Bearings, Four Inches or Less in Outside Diameter, and

Components Thereof (58 FR 69336, 69338, December 10, 1993)). AST

provided no evidence that the disregarded sales were at prices that

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

and in the normal course of trade. (See, Section 773(b)(2).

Constructed Value

In accordance with section 773(e), we calculated CV based on the

sum of the cost of materials (with adjustments as described in the

``Cost of Production'' section of this notice), fabrication, general

expenses, U.S. packing costs and profit. The cost of materials included

import duties paid on imported seamless pipe used to produce the pipe

fittings. The amount of import duties included in CV was equivalent to

the duties that would have been imposed had the fittings been sold for

home consumption. In accordance with section 773(e)(1)(B)(i) and (ii)

of the Act we: 1) included the greater of AST's reported general

expenses or the statutory minimum of ten percent of the cost of

manufacture (COM), as appropriate; and 2) for profit, we used the

statutory minimum of eight percent of the sum of COM and general

expenses because actual profit was less than the statutory minimum.

Price-to-Price Comparisons

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

ex-factory or delivered prices to home market customers. From these

prices, we deducted commission, where appropriate. We deducted home

market packing costs and added U.S. packing costs in accordance with

section 773(a)(1) of the Act. We also made adjustments, where

appropriate, for differences in the physical characteristics of the

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

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

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

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

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

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

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

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

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

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

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

included home market inland freight.

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

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

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

accordance with 19 CFR 353.56(b)(1), we added U.S. indirect selling

expenses as an offset to the home market commission, but capped this

addition by the amount of the home market commission.

We adjusted for a consumption tax collected in the Thai home

market. (See the United States Price section of this notice, above.)

Currency Conversion

We made currency conversions based on the official exchange rates

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

Reserve Bank of New York. See 19 C.F.R. 353.60.

Verification

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

provided by the respondent using standard verification procedures,

including the examination of relevant sales, cost and financial

records, and selection of original source documentation. The public

versions of the November 29, 1994, and the January , 1995 verification

reports are available for review in the Central Records Unit located in

room B-099 of the Department's main building, the Herbert C. Hover

Building.

Interested Party Comments

Comment 1

Petitioner observes that according to AST's response, it did not

commence integrated production of tees in Thailand until after the POI.

However, tees were shipped during the POI. Petitioner claims that these

tees must be of Chinese origin because AST identified certain other

tees sold during the POI as being of Chinese origin. Petitioner argues

that, because the tees in question could not have been produced by AST,

the Department should exclude sales of these tees from the

investigation.

AST maintains that it has correctly identified all of the Chinese

tees which it sold in the home market during the POI. Moreover, AST

points out that it indicated in its response that it began a lengthy

testing of its integrated production of tees during the POI. AST claims

that a limited quantity of tees was produced from these test runs and

was sold in the home market. Therefore, AST argues that it properly

included these sales in its home market sales listing.

DOC Position

While there are statements in AST's response that would support

petitioner's [[Page 10555]] conclusion, AST's Section D response does

refer to a lengthy testing period commencing during the POI. In

addition, AST's July 25, 1994, supplemental response in Exhibit 1

specifically identifies certain tees as Chinese tees and the remaining

as tees being produced by AST, including certain tees which were

shipped during the POI. Because AST identified the Chinese tees in

Exhibit 1 of its July 25 response and because the quantity of tees

shipped during the POI is commensurate with production over a prolonged

test run, we have accepted these tees as tees produced by AST and have

included them in the home market data base.

Comment 2

Petitioner claims that the duty drawback amount added to purchase

price was greater than the drawback amount included in the constructed

value, because the drawback amount added to purchase price included

both import duty and value added tax (VAT) paid on purchases of

imported pipe, whereas the drawback added to constructed value included

only the import duty.

AST maintains that the Department properly excluded the VAT on

component material from the constructed value, because AST received a

rebate of this VAT upon exportation of the finished product. Section

773(e)(1)(A) of the Act states, in part, that constructed value shall

include the cost of materials exclusive of any internal tax applicable

in the country of exportation directly to such materials or their

disposition, but remitted or refunded upon the exportation of the

article in the production of which such materials were used. Therefore,

AST contends that the VAT on component materials was properly excluded

in the calculation of CV.

DOC Position

In accordance with the section 773(e)(1)(A) of the Act, our

practice is to exclude indirect taxes on component materials from CV,

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

component materials from the constructed value, we must also exclude it

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

internal taxes to USP but only to the extent that these taxes are

included in the FMV. When FMV is based on CV, no VAT is included in CV

and we are, thus, precluded from adding VAT to the USP.

Comment 3

AST states that following the rationale of section 773(e)(1)(A),

the Department should also not include the import duties on component

materials in constructed value because this duty is also either

refunded upon export or an exemption of the duty is granted by reason

of exportation of the merchandise.

DOC Position

Section 773(e)(1)(A) directs the Department to exclude from

constructed value internal taxes applicable in the country of

exportation but rebated upon export. We do not consider import duties

to be internal taxes. The courts also have recognized that the term

``internal tax'' denotes taxes other than import duties. See Serampore

Indus. Pvt. Ltd. v. United States Dep't of Commerce, Int'l Trade

Admin., 675 F. Supp. 1354, 1357 (CIT 1987). Therefore, in accordance

with past practice (see, e.g., Offshore Platform Jackets and Piles from

the Republic of Korea, 51 FR 11,795, 11,796 (April 7, 1986)), we have

included the import duties on component materials as part of the cost

of materials in our calculation of constructed value.

Comment 4

AST states that in July 1992, it was excluded from the July 6, 1992

antidumping duty order on pipe fittings from Thailand (57 FR 29702)

because its less than fair value margins were de minimis. In view of

this fact, AST maintains that the Department should have applied a more

rigorous standard in determining whether to initiate an investigation

in this case and that, had it done so, the case never would have been

initiated. Contrary to suggestions in the petition, AST argues that

there was no basis to assume that AST's costs had increased by 100

percent in two years, or that U.S. prices showed significant movement

during that time. Therefore, the Department should re-examine its

initiation and terminate the instant proceeding.

Petitioner maintains that nothing in the statute bars the filing of

an antidumping petition against a specific exporter merely because

other exporters of the same product from the same country are already

subject to an antidumping duty order, nor does the statute impose a

higher burden on petitioner in such circumstances. Because the

proceeding was lawfully initiated, no basis exists for questioning the

Department's decision to initiate.

DOC Position

The fact that a petition on the same merchandise was filed in 1991

and AST was excluded from the subsequent antidumping duty order was not

taken into account in our decision to initiate the current case. A

finding at one point in time that a company is not dumping does not

create a presumption that the company will not dump in the future.

Lacking such a presumption, there is no basis for applying a higher

initiation threshold for later filed cases on the same merchandise.

Comment 5

AST claims that the Department should apply the sales-below-cost

test to all sales of such or similar merchandise on a combined basis,

before applying it on a model-specific basis. This was the approach

used in the prior investigation of the subject merchandise (Final

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

Butt-Weld Pipe Fittings from Thailand, 57 FR 21065, 21070, May 18,

1992).

AST points out that the viability test required by section 773(a)

of the Act is done on a such or similar category basis. AST maintains

that section 773(b) of the Act, in discussing sales below cost, makes

reference to section 773(a). Therefore, the test for below cost sales

should also be done on a such or similar category basis.

Further, the language in section 773(b) suggests that the cost test

be applied on a such or similar category basis rather than on a model-

specific basis. Section 773(b) requires the Department to determine

whether ``sales were made at less than the cost of producing the

merchandise.'' Because the term ``merchandise'' has a broader

connotation than the term ``model'' or ``product, the cost test must be

done on a such or similar category basis.

AST claims that the Department's Policy Bulletin 92/3, dated

December 15, 1992, on the 10/90/10 test for below cost sales does not

provide any basis for performing the cost test solely on a model-

specific basis and bypassing the test on a such or similar category

basis.

In addition, AST maintains that the legislative history of section

773(b) indicates that Congress intended that the Department consider

the rationality of exporter's pricing practices, specifically by giving

allowances for model-specific below cost sales at the end of a model

year.

Finally, AST points out that it was excluded from the original

antidumping duty order on butt-weld pipe fittings from Thailand,

because its overall margin of sales at less than fair value

[[Page 10556]] was de minimis. During the original investigation, the

Department applied the two-tiered cost test and AST has continued to

use this test to avoid the possibility of dumping margins. For the

Department to apply a new test in this investigation is unfair.

Petitioner asserts that the Department's model-specific cost test

is in full accord with the requirements and purpose of Section 773(b)

of the Act because this test is the first step to be taken in

determining FMV, which is based on sales of particular models or

products.

Petitioner adds that the need for a model-specific cost test is

particularly evident for a product like pipe fittings. Despite the fact

that pipe fittings come in a wide range of sizes, only about 20 percent

of the sizes account for about 80 percent of the fittings sold. Below

cost sales of low-volume items in the home market might not be screened

out by a cost test applied on a such or similar category basis. If

these sales happen to be compared to high volume items sold for export

to the United States, many less than fair value sales would go

undetected. Clearly, the purpose of the cost test would be defeated by

such an outcome.

DOC Position

In our final determination, we have adhered to the Department's

Policy Bulletin 92/3, which provides that the cost test be done on a

model-specific basis. Policy Bulletin 92/3 is in complete accordance

with the statute and has been consistently applied by the Department

for over two years. The Policy Bulletin states that the cost test is

intended to avoid basing FMV on below cost sales. Because FMV is

determined on a model-specific basis, the Department has chosen to

apply the cost test on a model-specific basis, as well. Otherwise, for

certain models, FMV would likely be calculated on below cost sales.

AST claims that because 773(b) of the Act contains a reference to

773(a), the Department is required to conduct the below cost sales test

on the same basis as the market viability test. The such or similar

viability test is a general test to determine the level of sales

activity to determine the efficacy of spending resources in examination

of those home market sales. The cost test, on the other hand, is

designed to determine which market sales may be used for comparison

purposes. Nothing in the statute, the regulations, or the legislative

history suggests that tests for general home market activity and for

sales below cost must be on the same basis. Because the purposes of the

two tests are different and because the reference in section 773(b) to

section 773(a) clearly does not compel the Department to use the same

procedure for these tests, we followed Department policy and used the

model-specific cost test.

AST's claim that use of the term ``merchandise'' in section 773(b)

requires the Department to apply the cost test broadly is erroneous.

The term ``merchandise'' is used throughout the statute, in some cases

with a broad connotation and in others, in a narrower sense. For

example, when the statute refers to ``the same general class or kind of

merchandise,'' the connotation is broad and includes the entire class

or kind of merchandise under investigation. However, when the statute

defines ``such or similar merchandise,'' the connotation is narrow,

referring to the particular model sold in the home market which is

identical, or most similar to, a particular model sold for export to

the United States. The fact that section 773(b) of the Act uses the

term ``merchandise'' with respect to the cost test does not require us

to apply the cost test on a broad basis.

AST claims that Policy Bulletin 92/3 does not provide any basis for

``bypassing'' a cost test using such or similar categories. The

Department formulated Policy Bulletin 92/3 as a statement of its intent

to implement uniformly a cost test methodology. The Policy Bulletin

itself states that the Department's practice will be to apply the

model-specific cost test in all future investigations and reviews. The

Policy Bulletin need not explain ``bypassing'' the such-or-similar cost

test because, to the extent that the such-or-similar test had been used

in prior cases, it was no longer Department practice when the

Department adopted the model-specific test advocated in the Policy

Bulletin.

The Department uniformly has applied the model-specific cost test

in both investigations and reviews since the bulletin was released.

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

Ferrosilicon from Venezuela, 58 FR 27522, 27533 (May 10, 1993); Final

Results of Antidumping Administrative Review: Sweaters, Wholly or

Chiefly of Man Made Fiber, from Korea, 59 FR 17513, 17515 (April 13,

1994)). Given these circumstances, AST had adequate notice as to Policy

Bulletin 92/3's contents and that the Department would apply the model-

specific cost test for all future investigations and administrative

reviews.

Regarding the legislative history's reference to below-cost end-of-

model-year sales, we note that this reference concerns whether below-

cost sales are made over an extended period of time. The end-of-model-

year sales are not relevant to a discussion of whether or not the cost

test can be applied on a model-specific basis.

Comment 6

When AST imports seamless pipe under bond, it becomes liable for

the normal duty of 15 percent, plus an additional surcharge of 3

percent, because the import is made under bond. AST states that it

receives a rebate or an exemption upon export of finished pipe fittings

of the surcharge, as well as the normal duty. Therefore, AST claims

that, in accordance with section 772(d)(1)(B) of the Act, both duty and

surcharge should be added to the USP.

Petitioner claims that AST has acknowledged that the three percent

surcharge is not imposed on seamless pipe used to produce pipe fittings

for home consumption. Section 772(D)(1)(c) provides for an increase in

USP for taxes rebated upon export but only to the extent that such

taxes are added to or included in the home market price. Because the

surcharge is not imposed in the home market, the rebate of the

surcharge on export should not be added to USP. In the alternative, if

the Department determines that the three percent surcharge is imposed

on imported pipe used to produce for home consumption, then it should

include the full 18 percent duty in the COP.

DOC Position

During verification, we established that the three percent

surcharge was imposed on seamless pipe used in the production of home

market fittings, in addition to the normal 15 percent duty. Therefore,

because both duty and surcharge are assessed on pipe used for home

market production and because both are exempted on pipe used for export

production, it is appropriate to include both the duty and the

surcharge in the drawback amount added to USP. In addition, because

both duty and surcharge are clearly a part of the cost of home market

pipe fittings, we included both in our calculation of the cost of

production.

Comment 7

AST maintains that the Department should not recompute AST's

submitted COP and CV interest expense to account for the financing

costs of its Japanese parent, Awaji Sangyo K.K. (``ASK''). According to

AST, under Japanese generally accepted accounting principles

(``GAAP''), only publicly-held companies are required to prepare

consolidated financial statements that [[Page 10557]] include the

operating results of their subsidiaries. Because ASK is a privately-

held Japanese company and not required to prepare consolidated

financial data under Japanese GAAP, AST argues that the Department

should base COP and CV interest solely upon AST's audited

(unconsolidated) financial statement information.

AST notes that the Department has a long-standing practice of

accepting home-country GAAP for purposes of computing COP and CV,

unless it can be shown that those practices distort production costs.

In this case, AST maintains that use of a consolidated interest

calculation would violate ASK's normal GAAP and produce distorted

results since AST receives no loans from ASK and did not receive any

new investment from its parent during the POI.

AST further asserts that despite ASK's ownership interest in AST,

the parent company does not exert ``control'' over its subsidiary's

operations. Instead, AST maintains that it operates independently from

its parent and does not rely on ASK for its production, sales (other

than export sales), engineering, financing, research and development,

or management activities.

Lastly, AST argues that the premise underlying the Department's

policy of using consolidated interest expense in computing COP and CV

(i.e., the fungible nature of invested capital) does not apply in this

case. AST asserts that the presumption of easy transfer (fungibility)

of money between parent and related affiliate is vitiated by the fact

that ASK and AST are located in different countries, whose currency

regulation requirements significantly impede the free flow of money

between countries.

Petitioner alleges that AST has understated its COP and CV by

excluding ASK's financing expense. Petitioner states that, because

capital is fungible, the Department requires consolidated interest

expense when the parent company maintains control over the subsidiary.

ASK maintained control over AST's operations and, for this reason, the

financing expenses of ASK and AST were combined in the Department's

prior antidumping investigation involving AST. (Final Determination of

Sales at LTFV: Certain Carbon Steel Butt-Weld Pipe Fittings from

Thailand, 57 F.R. 21065-69 May 18,1992) Petitioner asserts that there

is no reason for the Department to deviate from its approach in the

previous determination.

DOC Position

We agree with petitioner and have based our calculation of AST's

interest expense for COP and CV on the consolidated operations of AST

and ASK. This methodology is consistent with our long-standing practice

for computing interest expense in cases involving parent-subsidiary

corporate relationships. This methodology has been upheld by the CIT in

Camargo Correa Metals, S.A. v. U.S., Consol. Ct. No. 91-09-00641, Slip

Op. 93-163, at 14 (CIT August 13, 1993).

As petitioner has pointed out, AST has not provided us with any

additional information that would lead us to change our determination,

from the 1992 LTFV investigation of Butt-Weld Pipe Fittings from

Thailand, that the company's interest should be computed based on the

consolidated operations of AST and its parent, ASK. AST's argument that

ASK is not required under Japanese GAAP to prepare consolidated

financial statements ignores the fact that, as a privately-held

corporation, ASK is not subject to the same set of accounting

principles as publicly-held entities in Japan. As in most countries,

one of the major objectives of Japanese GAAP is to ensure consistency

in the accounting principles practiced by publicly-held corporations so

that investors may make informed decisions as to how they invest their

capital. There is no such objective under the Japanese Commercial Code

which governs the accounting practices of privately-held companies like

ASK. It should be noted, however, that were ASK a public company,

certain information submitted by AST indicates that ASK would be

required under Japanese GAAP to consolidate the operations of AST in

its financial statements.

ASK's ownership interest in AST places the parent in a position to

influence AST's financial borrowing and overall capital structure. We

note that, contrary to AST's assertions that AST is an independent

company and not ``controlled'' by its parent, the two companies share

common directors and other corporate officials. In fact, according to

AST, the two companies share the same managing director. ASK also acts

as the selling agent for AST's export sales and provided the

technology, equipment, training, engineers, and capital to establish

AST. Based on this information, it is difficult to see how AST's

operations are independent of its parent to such an extent that we

should ignore our normal practice of computing interest expense on the

basis of the consolidated parent and subsidiary.

Regarding AST's claim that it received no intercompany loans or

additional capital investment from its parent during the POI, we note

that this argument fails to take into consideration any borrowing costs

associated with ASK's initial capital investment in the company. AST

maintains that all interest expense incurred by ASK pertains solely to

the parent's operations. Under this principle, AST would have us accept

that its parent funds its own operations largely through borrowing

while, at the same time, funding its initial investment in AST solely

through equity capital. Such a principle ignores the fact that ASK's

capital structure is comprised of both debt and equity and, as such, it

is neither possible nor appropriate in our analysis for the company to

pick and chose which portions of its parent's operations should incur

the additional interest costs associated with borrowed funds.

Lastly, with regard to AST's claim that transfers between AST and

its parent are not ``fungible'' due to currency fluctuations and

restrictions on currency flows between Thailand and Japan, we note that

this argument misrepresents the fungibility principle underlying the

Department's practice regarding consolidated interest expense for COP

and CV. As noted above, ASK has already purchased a controlling capital

interest in AST. ASK's capital structure is comprised of both debt and

equity. These monies are fungible. That is, one cannot reasonably know

which portion of ASK's capital was used for a specific activity. AST

would have us believe that ASK's debt-based capital was used to fund

the company's production of nonsubject merchandise, while its less

costly equity-based capital was used to establish AST's operations.

This ignores the fact that the parent company's capital is used to fund

all of its operations and cannot be segmented and apportioned to

specific operations in any justifiable manner. Thus, it is the

fungibility of the controlling parent's capital structure that is at

issue and not, as AST argues, the parent's future ability to transfer

funds to its subsidiary.

Comment 8

Petitioner contends that all subject fittings sold in the United

States and the home market were made from seamless pipe. AST's

submitted pipe costs, however, included welded pipe and pipe used to

produce pipe fittings outside the scope of the investigation.

Petitioner states that for purposes of the final determination, AST's

raw material [[Page 10558]] costs should reflect only those costs

attributable to seamless pipe used in manufacturing the subject

merchandise.

AST states that its pipe consumption was calculated based on its

normal accounting inventory subledgers which do not track welded and

seamless pipe separately. Furthermore, the Department verified that

welded pipe accounted for a small percentage of total pipe costs and

the price of seamless pipe was not always higher than welded pipe.

Therefore, AST argues that excluding welded pipe would not materially

alter the weighted average cost of pipe used to produce the subject

merchandise.

DOC Position

In computing COP and CV, it is the Departments's practice to

include only those costs incurred in manufacturing the subject

merchandise. Therefore, we adjusted AST's reported material costs to

exclude the costs incurred for welded pipe and pipe inputs that were

used to produce merchandise outside the scope of this investigation.

Suspension of Liquidation

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

the U.S. Customs Service to continue to suspend liquidation of all

entries of butt-weld pipe fittings from Thailand, as defined in the

``Scope of Investigation'' section of this notice, that are produced

and sold by AST and that are entered, or withdrawn from warehouse, for

consumption on or after October 4, 1994.

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

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

foreign market value of AST's subject merchandise exceeds the United

States price as shown below. The suspension of liquidation will remain

in effect until further notice. The weighted-average dumping margin is

as follows:

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

Margin Deposit

Manufacturer/Producer/Exporter percent percent

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

Awaji Sangyo (Thailand) Co., Ltd...................... 38.41 37.67

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

Adjustment of Deposit Rate for Countervailing Duties

Article VI, paragraph 5 of the General Agreement on Tariffs and

Trade provides that ``[no] product . . . shall be subject to both

antidumping and countervailing duties to compensate for the same

situation for dumping or export subsidization.'' This provision is

implemented by section 772(d)(1)(D) of the Act. Because antidumping

duties cannot be assessed on the portion of the margin attributable to

export subsidies, there is no basis to require a cash deposit or bond

for that amount.

Accordingly, the level of export subsidies as determined in the

most recent administrative review of the countervailing duty order,

Carbon Steel Butt-Weld Pipe Fittings From Thailand; Final Results of

Countervailing Duty Administrative Review (57 FR 5248, February 13,

1992), which was 0.74 percent, will be subtracted from the margin for

cash deposit or bonding purposes. This results in a deposit rate of

37.67 percent for AST. We did not determine an ``all others'' rate in

this investigation, because all other producers and exporters of butt-

weld pipe fittings from Thailand are already subject to an antidumping

duty order on this merchandise, which was published in the Federal

Register on July 6, 1992 (57 FR 29702).

ITC Notification

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

ITC of our determination.

Notice to Interested Parties

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

administrative protective order (APO) of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 353.35(d). Failure to

comply is a violation of the APO.

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

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

Dated: February 16, 1995.

Barbara R. Stafford,

Acting Assistant Secretary for Import Administration.

[FR Doc. 95-4727 Filed 2-24-95; 8:45 am]

BILLING CODE 3510-DS-P