Small Diameter Circular Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From Germany: Preliminary Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-428-820]

Small Diameter Circular Seamless Carbon and Alloy Steel Standard,

Line and Pressure Pipe From Germany: Preliminary Results of Antidumping

Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of preliminary results of antidumping duty

administrative review.

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SUMMARY: In response to a request from the respondent,

Mannesmannroehren-Werke AG (``MRW'') and Mannesmann Pipe & Steel

Corporation (``MPS'') (collectively, ``Mannesmann''), the Department of

Commerce (the Department) is conducting an administrative review of the

antidumping duty order on small diameter circular seamless carbon and

alloy steel standard, line and pressure pipe from Germany. This review

covers the above manufacturer/exporter of the subject merchandise to

the United States. The period of review (POR) is January 27, 1995,

through July 31, 1996.

We preliminarily determine the dumping margin for Mannesmann to be

28.69 percent during the POR. Interested parties are invited to comment

on these preliminary results. Parties who submit arguments in this

proceeding should also submit with their arguments (1) a statement of

the issues, and (2) a brief summary of the arguments.

EFFECTIVE DATE: September 9, 1997.

FOR FURTHER INFORMATION CONTACT: Nancy Decker or Linda Ludwig,

Enforcement Group III, Import Administration, International Trade

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

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

1324 or (202) 482-3833, respectively.

SUPPLEMENTARY INFORMATION:

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

1930, as amended (the Act) are references to the provisions effective

January 1, 1995, the effective date of the amendments made to the Act

by the Uruguay Round Agreements Act (URAA). In addition, unless

otherwise indicated, all references to the Department's regulations are

to 19 CFR part 353, as amended by the Department's interim regulations

(April 1, 1997). Where appropriate, we have cited the Department's new

regulations, codified at 19 CFR part 351 (May 19, 1997--62 FR 27296).

While not binding on this review, the new regulations serve as a

restatement of the Department's policies.

Background

On June 19, 1995, the Department published in the Federal Register

(60 Fed. Reg. 31974) the final affirmative antidumping duty

determination on small diameter circular seamless carbon and alloy

steel standard, line and pressure pipe from Germany. We published an

antidumping duty order and amended final determination on August 3,

1995 (60 FR 39704). On August 12, 1996, the Department published the

Opportunity to Request an Administrative Review of this order for the

period January 27, 1995 through July 31, 1996 (61 FR 41768). The

Department received a request for an administrative review of

Mannesmann's exports from Mannesmann itself, a producer/exporter of the

subject merchandise. We published a notice of initiation of the review

on September 17, 1996 (61 FR 48882).

Under section 751(a)(3)(A) of the Act, the Department may extend

the deadline for completion of an administrative review if it

determines that it is not practicable to complete the review within the

statutory time limit of 365 days. On March 5, 1997, the Department

published a notice of extension of the time limit for the preliminary

results in this case. See

[[Page 47447]]

Extension of Time Limit for Antidumping Duty Administrative Review, 62

FR 10025 (March 5, 1997).

The Department is conducting this review in accordance with section

751(a) of the Act.

Scope of the Review

The scope of this review includes small diameter seamless carbon

and alloy standard, line and pressure pipes (seamless pipes) produced

to the American Society for Testing and Materials (ASTM) standards A-

335, A-106, A-53 and American Petroleum Institute (API) standard API 5L

specifications and meeting the physical parameters described below,

regardless of application. The scope of this review 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 review, 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, beveled 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 this review 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, 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 review,

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 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 ASTM 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 review 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 review. Therefore, seamless pipes

meeting the physical description above, but not produced to the ASTM A-

335, ASTM A-106, ASTM 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 review.

Specifically excluded from this review are boiler tubing and

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

ASTM A-106, ASTM A-53 or API 5L specifications and are not used in

standard, line or pressure applications. In addition, finished and

unfinished oil country tubular goods (OCTG) are excluded from the scope

of this review, 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 review 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 review

is dispositive.

Verification

As provided in section 782(i) of the Act, we verified information

provided by the respondent by using standard verification procedures,

including on-site inspection of the manufacturer's facilities, the

examination of relevant sales and financial records, and selection of

original documentation containing relevant information. Our

verification results are outlined in the verification reports, the

public versions of which are available at the Department of Commerce,

in Central Records Unit (CRU), Room B099.

[[Page 47448]]

Transactions Reviewed

The Department determined the normal value (NV) and constructed

export price (CEP) of each sale to the first unaffiliated customer in

the United States during the POR.

Product Comparisons

In accordance with section 771(16) of the Act, we considered all

products produced by the respondent, covered by the description in the

``Scope of the Review'' section, above, and sold in the home market

during the POR, to be foreign like products for purposes of determining

appropriate product comparisons to U.S. sales. Where there were no

sales of identical merchandise in the home market to compare to U.S.

sales, we compared U.S. sales to the most similar foreign like product

on the basis of the characteristics listed in Appendix V of the

Department's antidumping questionnaire.

Fair Value Comparisons

To determine whether sales of small diameter circular seamless

carbon and alloy steel standard, line and pressure pipe by Mannesmann

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

CEP to the NV, as described in the ``Constructed Export Price'' and

``Normal Value'' sections of this notice. In accordance with section

777A(d)(2) of the Act, we calculated monthly weighted-average prices

for NV and compared these to individual U.S. transactions.

Date of Sale

The Department's current policy is normally to use the date of

invoice as recorded in the exporter or producer's records kept in the

ordinary course of business as the date of sale. However, we may use a

date other than the date of invoice where appropriate.

For Mannesmann's home-market sales, the company reported and we

used invoice date (which is also shipment date) as the date of sale.

For Mannesmann's U.S. sales, the company reported the date of order

confirmation as the date of sale. In the Department's September 18,

1996 questionnaire to Mannesmann at Appendix I, the Department stated

that in no case could the date of sale be later than the date of

shipment. Because the date of shipment for Mannesmann's U.S. sales was

in all cases earlier than the date of invoice (and thus not reported as

date of sale), we have used the shipment date of U.S. sales as date of

sale. Since there can be several months between order confirmation and

shipment, using shipment date in both markets puts home market and U.S.

sales on the same basis for date of sale.

Constructed Export Price

We have preliminarily determined that Mannesmann's U.S. sales

reported as export price (EP) sales were CEP sales. Our determination

is based on the evidence in the record of this review establishing that

U.S. sales were made through Mannesmann's affiliated sales agent, MPS,

who, as shown below, was more than a mere conduit, performing only

clerical functions, for the producer/exporter.

The Department determines U.S. sales through affiliated sales

agents to be EP only if: (1) The merchandise was shipped directly to

the unaffiliated buyer, without being introduced into the affiliated

selling agent's inventory; (2) this procedure is the customary sales

channel between the parties; and (3) the affiliated selling agent

located in the United States acts only as a processor of documentation

and a communication link between the foreign producer and the

unaffiliated buyer. See, e.g., Certain Cut-to-Length Carbon Steel Plate

from Germany: Final Results of Antidumping Duty Administrative Review,

62 FR 18390, 18389-18391 (April 15, 1997); Notice of Final

Determination of Sales at Less than Fair Value: Large Newspaper

Printing Presses and Components Thereof, Whether Assembled or

Unassembled, From Germany, 61 FR 38166, 38174-5 (July 23, 1996);

Certain Corrosion-Resistant Carbon Steel Flat Products From Korea:

Final Results of Antidumping Duty Administrative Review, 61 FR 18547,

18551 (April 26, 1996). This test has been approved by the CIT.

Independent Radionic Workers of America v. United States, Slip Op. 95-

45 at 2-3 (CIT 1995); PQ Corp. v. United States, 652 F. Supp. 724, 733-

35 (CIT 1987).

In applying the first two criteria to the present review, we found

that for the majority of sales, the merchandise was shipped directly to

the unaffiliated U.S. customer without being introduced into MPS's

inventory. We found that MPS occasionally buys for its own inventory,

but we did not find any subject merchandise purchased for inventory

during the POR. In addition, several sales were warehoused upon arrival

in the U.S. when the original customer canceled its order. MPS could

not find a new customer and subsequently sold the merchandise to the

original customer. The Department verified that the terms of sale

during the POR were CIF, duty paid to a port of entry near the

customer's plant, and that MPS did not take physical possession of the

shipment, except in the unusual instance described above.

Concerning the third criterion, however, the Department has

determined that MPS did act as more than a processor of sales documents

and a communications link between the unaffiliated U.S. customer and

MRW, the producer in Germany. Although the MRW participates with MPS in

meetings with U.S. customers once or twice a year and claims to reserve

the right to approve all orders, MPS negotiates each of the sales with

the customers, aiming to get the best price the market will allow. MPS

admitted it had a small say in the price negotiated but claimed that it

is very limited. The Department determined that MPS essentially

negotiates all sales. We found no evidence to support Mannesmann's

claim that MRW approved of or knew of the final prices on individual

sales to U.S. customers. To the contrary, regardless of whether MRW has

final approval rights, the record indicated that MPS has significant

involvement in the sales process. Further, while MPS admitted that it

is allowed to make a small profit on the U.S. sales, we found the price

differential between the price from the German sales agent (Mannesmann

Handel, a go-between for MRW and MPS) to MPS and the price from MPS to

the customer to be unexplained by the small commissions or profits

referenced by MPS at verification, nor by the U.S. duties and cash

deposits on antidumping duties, which MPS pays as importer of record

(see Sales Verification Report). Therefore, based on an analysis of all

the facts, we find that the selling activities of MPS extend beyond

those of a processor of documents or a communications link.

We calculated CEP based on packed prices to unaffiliated customers

in the United States. Where appropriate, we made deductions from the

starting price for discounts, foreign inland freight, international

freight, marine insurance, other transportation expenses, U.S. Customs

duties, warranties, credit expense, and other selling expenses that

were associated with economic activities occurring in the United

States. Finally, we made an adjustment for CEP profit in accordance

with section 772(d)(3) of the Act.

Based on our verification of Mannesmann's sales responses, we made

adjustments to credit, quantity, gross unit price, shipment date, and

sales date on certain sales, and we also increased other transportation

expenses on certain sales to account for unreported unloading expenses.

We also rejected as unverifiable reported U.S.

[[Page 47449]]

duty, foreign inland freight and international freight. Accordingly,

pursuant to section 776(a) of the Act, we used partial facts available.

For U.S. duty and foreign inland freight, we used the highest reported

U.S. duty and foreign inland freight, respectively, on any individual

U.S. sale. For international freight, we added the highest differential

between the actual and the reported international freight (from the

sales examined at verification) to reported international freight on

every U.S. sale.

Mannesmann's response indicated that U.S. credit expense was

calculated using the U.S. sales agent's interest rate on inter-company

loans from its parent. We compared this to the U.S. prime rate. Since

the company did not indicate that it has external borrowings and the

prime rate was always higher than the inter-company rate, we

recalculated credit expense using the U.S. prime rate.

At verification, the respondent indicated that it had not reported

any U.S. sales of ASTM A-333 (although it had reported home market

sales of this specification) to the Department because it believed the

scope definitively excluded this specification (as low temperature

service steels). We note that the scope discussion indicates A-333

(along with several other specifications) is covered by the scope of

this review if it is used in a standard, line, or pressure pipe

application. The respondent did not address the applications of the A-

333 sales during verification. Therefore, as facts available, we are

assuming all unreported low temperature steel sales (sourced from the

German producer) by MPS to be A-333 and, therefore, subject

merchandise. We summed the total quantity of these sales from

verification documents and applied Mannesmann's rate from the original

investigation as facts otherwise available (see ``Use of Facts

Otherwise Available'' section below).

Normal Value

Based on a comparison of the aggregate quantity of home market and

U.S. sales, we determined that the quantity of the foreign like product

sold in the exporting country was sufficient to permit a ``fair''

comparison with the sales of the subject merchandise to the United

States, pursuant to section 773(a) of the Act. Therefore, in accordance

with section 773(a)(1)(B)(i) of the Act, we based NV on the price at

which the foreign like product was first sold for consumption in the

home market, in the usual commercial quantities and in the ordinary

course of trade, at the same level of trade as the export price. See

``Level of Trade'' section below.

We excluded from our analysis negative quantity observations

reported in the database, while leaving in the database the positive

quantity observations on the same orders with the negative quantity

observations. We found that the products in question would not likely

be used in matching to U.S. sales. We also excluded from our analysis

NV sales to affiliated home market customers where the weighted-average

sales prices to the affiliated parties were less than 99.5 percent of

the weighted-average sales prices to unaffiliated parties. See Usinor

Sacilor v. United States, 872 F. Supp. 1000, 1004 (CIT 1994).

On May 5, 1997, Mannesmann requested to be excused from reporting

all ``downstream sales'' (sales by affiliated resellers to unaffiliated

customers). It based its request on the fact that the sales to the

affiliated resellers would pass the arm's-length test or would not be

used in the Department's analysis. On May 14, 1997, the Department

informed Mannesmann that, based on Mannesmann's portrayal of the

information submitted, it did not have to report downstream sales at

that time. We preliminarily find that sales to one affiliated reseller

pass the arm's-length test, while sales to the other affiliated

resellers do not pass the arm's-length test but would not be used for

matching purposes.

Where appropriate, we deducted credit expenses, warranties,

packing, and certain discounts, and we added interest revenue. We

rejected as unverifiable inland freight, ``other adjustments,'' and

certain rebates and discounts (see Sales Verification Report). We

denied deductions from the reported price for each of these items.

The respondent reported credit expense based on a POR-average days

outstanding for receivables (all customers) on all sales (including

non-subject merchandise), since it indicated that it could only

manually provide payment date information on all sales. We compared

this overall average days of outstanding payment to the actual days

payment was outstanding on the sales examined at verification. We found

the actual days between shipment and payment to be consistently lower

than the average days used. Therefore, we calculated a simple average

days outstanding using actual shipment and payment dates from the sales

examined at verification, and we recalculated credit expense using this

average figure.

We found that respondent paid commissions in the home market on the

foreign like product to affiliated parties. Since there is no benchmark

which can be used to determine whether affiliated party commissions are

arm's-length values (i.e., the producer does not use an unaffiliated

selling agent for sales of the foreign like product), we have assumed

that affiliated party commissions were not paid on an arm's-length

basis. As a result, we did not make a circumstance-of-sale adjustment

for affiliated party commissions in the home market.

For comparison to CEP, we increased NV by U.S. packing costs in

accordance with section 773(a)(6)(A) of the Act. We made adjustments to

NV for differences in cost attributable to differences in physical

characteristics of the merchandise, pursuant to section

773(a)(6)(C)(ii) of the Act.

Level of Trade

In accordance with section 773(a)(1)(B)(i) of the Act and the

Statement of Administrative Action (SAA) accompanying the URAA, to the

extent practicable, the Department will calculate normal values based

on sales at the same level of trade as the U.S. sales (either EP or

CEP). When the Department is unable to find sales in the comparison

market at the same level of trade as the U.S. sales, the Department may

compare sales in the U.S. and foreign markets at different levels of

trade, and adjust NV if appropriate. The NV level of trade is that of

the starting-price sales in the home market. When NV is based on CV,

the level of trade is that of the sales from which we derive selling,

general and administrative expenses, and profit.

As the Department explained in Gray Portland Cement and Clinker

From Mexico: Final Results of Antidumping Duty Administrative Review,

62 FR 17148, 17156 (April 9, 1997) (``Cement From Mexico''), for both

EP and CEP, the relevant transaction for the level of trade analysis is

the sale from the exporter to the importer. While the starting price

for CEP is that of a subsequent resale to an unaffiliated buyer, the

construction of the EP results in a price that would have been charged

if the importer had not been affiliated. We calculate the CEP by

removing from the first resale to an independent U.S. customer the

expenses specified in section 772(d) of the Act and the profit

associated with these expenses. These expenses represent activities

undertaken by, or on behalf of, the affiliated importer. Because the

expenses deducted under section 772(d) represent selling activities in

the United States, the deduction of these expenses normally yields a

different level of trade

[[Page 47450]]

for the CEP than for the later resale (which we use for the starting

price).

To determine whether home market sales are at a different level of

trade than U.S. sales, we examine whether the home market sales are at

different stages in the marketing process than the U.S. sales. The

marketing process in both markets begins with the good being sold by

the producer and extends to the sale to the final user. The chain of

distribution between the producer and the final user may have many or

few links, and each respondent's sales are generally to an importer,

whether independent or affiliated. We review and compare the

distribution systems in the home market and the United States,

including selling functions, class of customer, and the extent and

level of selling expenses for each claimed level of trade. Customer

categories such as distributor, retailer or end-user are commonly used

by respondents to describe level of trade, but without substantiation,

they are insufficient to establish that a claimed level of trade is

valid. An analysis of the chain of distribution and of the selling

functions substantiates or invalidates the claimed customer

categorization levels. Different levels of trade necessarily involve

differences in selling functions, but differences in selling functions,

even substantial ones, are not alone sufficient to establish a

difference in the level of trade. Differences in levels of trade are

characterized by purchasers at different stages in the chain of

distribution and sellers performing qualitatively or quantitatively

different functions in selling to them.

When we compare U.S. sales to home market sales at a different

level of trade, we make a level-of-trade adjustment only if the

difference in level of trade affects price comparability. We determine

any effect on price comparability by examining sales at different

levels of trade in a single market, the home market. Any price effect

must be manifested in a pattern of consistent price differences between

home market sales used for comparison and sales at the equivalent level

of trade of the export transaction. See Granular Polytetrafluorethylene

Resin from Italy; Preliminary Results of Antidumping Duty

Administrative Review, 62 FR 26283, 26285 (May 13, 1997); Cement From

Mexico at 17156. To quantify the price differences, we calculate the

difference in the average of the net prices of the same models sold at

different levels of trade. We use the average percentage difference

between these net prices to adjust NV when the level of trade of NV is

different from that of the export sale. If there is a pattern of no

price differences, then the difference in level of trade does not have

a price effect and, therefore, no adjustment is necessary.

Mannesmann sold to end-users and distributors in the U.S. market

and in the home market. Mannesmann claimed that sales to end-users and

distributors were at separate levels of trade. While Mannesmann's

questionnaire response indicated that it provided higher levels of

support to end-users than to distributors, Mannesmann did not explain

what distinguished high from low support or support these claims at

verification. At verification, when asked about levels of trade,

Mannesmann merely provided an MWR organization chart, which showed that

there was a different sales group for sales to end-users than for sales

to distributors. This chart did not indicate a separate subdivision for

U.S. sales. The respondent provided no support or information, as

requested in the sales verification outline, regarding differences in

selling functions for sales to end-users versus distributors and

between sales to its home market customers and the CEP level of trade.

Thus, our analysis of the information in this case leads us to conclude

that sales within each market and between markets are not made at

different levels of trade. Accordingly, we preliminarily find that all

sales in the home market and the U.S. market are made at the same level

of trade. Therefore, all price comparisons are at the same level of

trade and no adjustment pursuant to section 773(a)(7) is warranted.

Use of Facts Otherwise Available

We preliminarily determine, in accordance with section 776(a) of

the Act, that the use of facts available is appropriate for certain

aspects of Mannesmann's response as described in the ``Constructed

Export Price'' and ``Normal Value'' sections above. We find that we

were unable to verify certain information and that the respondent did

not provide the information necessary to make a decision on whether

certain unreported U.S. sales should have been reported under the scope

of this review.

Furthermore, we determine that, pursuant to section 776(b) of the

Act, it is appropriate to make an inference adverse to the interests of

this company because it failed to cooperate by not acting to the best

of its ability in providing the Department with information. We found

that Mannesmann did not act to the best of its ability by not providing

information on the uses of certain U.S. sales (A-333 sales). Also,

Mannesmann did not provide us with the majority of sales trace

verification packages until late on the final day of the home market

verification. These packages did not include any supporting

documentation for numerous adjustments (as discussed under the ``Normal

Value'' section above). Section 776(b) of the Act also authorizes the

Department to use as adverse facts available information derived from

the petition, the final determination, a previous administrative

review, or other information placed on the record. In this case, as

described above, we have used as facts available Mannesmann's rate from

the original investigation, which was based on information from the

petition. Although we have not fully corroborated this information in

accordance with section 776 (c) of the Act, we will do so for the final

results.

Cost of Production Analysis

Petitioners alleged, on December 20, 1996, that Mannesmann sold

small diameter circular seamless carbon and alloy steel standard, line

and pressure pipe in the home market at prices below cost of production

(COP). Based on this allegation, in accordance with Section 773(b) of

the Act, the Department determined, on January 31, 1997, that it had

reasonable grounds to believe or suspect that Mannesmann had sold the

subject merchandise in the home market at prices below COP. See Letter

to Mannesmann and Decision Memorandum (January 31, 1997). We therefore

initiated a cost investigation with regard to Mannesmann in order to

determine whether the respondent made home-market sales at prices below

its COP within the meaning of section 773(b) of the Act. Before making

any fair value comparisons, we conducted the COP analysis described

below.

A. Calculation of COP

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

materials and fabrication for the foreign like product, plus amounts

for home market selling, general, and administrative expenses (SG&A)

and packing costs in accordance with section 773(b)(3) of the Act.

Based on our verification of Mannesmann's cost response, we adjusted

Mannesmann's reported COP to reflect certain adjustments to cost of

manufacturing and interest expense as described below. We also have

denied a claimed start-up adjustment (as described below) and used

reported costs without the start-up adjustment.

1. Major Inputs

Mannesmann purchased the majority of its major inputs, billet

rounds, for seamless pipe, from an affiliated party.

[[Page 47451]]

Sections 773(f)(2) and (3) of the Act specify the treatment of

transactions between affiliated parties for purposes of reporting cost

data (for use in determining both COP and CV) to the Department.

Section 773(f)(2) indicates that the Department may disregard such

transactions if the amount representing that element (the transfer

price) does not fairly reflect the amount usually reflected (typically

the market price) in the market under consideration (where the

production takes place). Under these circumstances, the Department may

rely on the market price to value inputs purchased from affiliated

parties.

Section 773(f)(3) indicates that, if transactions between

affiliated parties involve a major input, then the Department may value

the major input based on the COP if the cost is greater than the amount

(higher of transfer price or market price) that would be determined

under 773(f)(2). Section 773(f)(3) applies if the Department ``has

reasonable grounds to believe or suspect that an amount represented as

the value of such input is less than the COP of such input.'' The

Department generally finds that such ``reasonable grounds'' exist where

it has initiated a COP investigation of the subject merchandise.

Because a COP investigation is being conducted in this case, the

Department requested in its supplemental Section D questionnaire that

Mannesmann provide cost of production information for the billet

rounds. That cost information was provided by the affiliated party and

was verified. In accordance with sections 773(f) (2) and (3), we used

the highest of transfer price, cost of production or market value to

value the billets. To determine the market value, we compared

information on one grade of billets which was obtained from both

affiliated and unaffiliated parties during the POR. We applied the

percentage price increase paid to unaffiliated parties to affiliated

party purchases to reflect market value (see Department's September 2,

1997 Analysis Memorandum).

2. Financial (Interest) Expense

In calculating net financial expense in its response, respondent

subtracted what it claimed to be financial income from short-term

sources. At verification, however, respondent failed to provide support

that the income was, in fact, short term in nature (see Cost

Verification Report). The Department considers financial income from

long-term investments as not being related to the production activities

of the company and, therefore, does not allow financial income from

long-term investments as offsets to financial expense in calculating

COP and CV. The Department only allows financial expense to be offset

by interest income from short-term sources (i.e., working capital). We

have therefore disallowed respondent's claimed offsets.

3. Start-Up Costs

Respondent claimed a start-up adjustment for operations at the

Zeithain plant during the first half of 1996. Specifically, these

start-up operations were associated with the complete rebuilding and

modernization of certain production equipment. Respondent claims that

it is eligible for this adjustment because the project represented a

major change in the production process and because output was adversely

affected by the start-up operations in a manner unrelated to the

pressures of market demand and seasonal factors.

Under section 773(f)(1)(C)(ii) of the Act, Commerce may make an

adjustment for start-up costs only if the following two conditions are

satisfied: (1) A company is using new production facilities or

producing a new product that requires substantial additional

investment, and (2) production levels are limited by technical factors

associated with the initial phase of commercial production.

The SAA at 166 states that ``new production facilities'' includes

the substantially complete retooling of an existing plant.

Substantially complete retooling involves the replacement of nearly all

production machinery or the equivalent rebuilding of existing

machinery. The production machinery which was replaced represents only

one process in multiple processes according to Mannesmann's internal

documentation describing the production process (see Department's

September 2, 1997 Analysis Memorandum). Thus, it does not meet the

requirement that nearly all production machinery be replaced, and does

not represent a substantial portion of the overall assets in the

facility.

Furthermore, Mannesmann did not demonstrate that production levels

were limited by technical factors associated with the initial phase of

commercial production. Company records indicate that production and

manufacturing activity levels were substantially the same during the

January to June 1995 time period as during the alleged start-up period

of January to June 1996.

Accordingly, we reject Mannesmann's claim for a start-up adjustment

because it did not demonstrate that they were using new production

facilities, including substantially complete retooling; nor did they

demonstrate that production levels were limited by technical factors

associated with the initial phase of commercial production.

B. Test of Home Market Prices

We used the respondent's weighted-average COP, as adjusted (see

above), for the period January 1, 1995 to July 31, 1996. We compared

the weighted-average COP figures to home market sales of the foreign

like product as required under section 773(b) of the Act. In

determining whether to disregard home-market sales made at prices below

the COP, we examined whether (1) Within an extended period of time,

such sales were made in substantial quantities, and (2) such sales were

made at prices which permitted the recovery of all costs within a

reasonable period of time. On a product-specific basis, we compared the

COP to the home market prices, less any applicable movement charges,

rebates, and discounts.

C. Results of COP Test

Pursuant to section 773(b)(2)(C), where less than 20 percent of

Mannesmann's sales of a given product were at prices less 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.'' Where 20 percent or more of respondent's sales of a given

product during the POR were at prices less than the COP, we determined

such sales to have been made in ``substantial quantities'' within an

extended period of time in accordance with section 773(b)(2)(B) of the

Act. We also determined that such sales were also not made at prices

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

time, in accordance with section 773(b)(2)(D) of the Act, and

therefore, we disregarded the below-cost sales. Where all

contemporaneous sales of a specific comparison product were at prices

below the COP, we calculated NV based on CV.

D. Calculation of CV

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

based on the sum of Mannesmann's cost of materials, fabrication, SG&A,

U.S. packing costs, and interest expenses as reported and a calculated

profit. As noted above, we recalculated Mannesmann's cost of

manufacturing, SG&A, and interest expense based on our verification

results. In accordance with section 773(e)(2)(A) of the Act, we based

SG&A and profit on the amounts incurred and realized by the respondent

in connection with the production and sale of the foreign like product

in the

[[Page 47452]]

ordinary course of trade, for consumption in the foreign country. For

selling expenses, we used the weighted-average home market selling

expenses.

Currency Conversion

For purposes of the preliminary results, 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.

Section 773A(a) of the Act directs the Department to use a daily

exchange rate in order to convert foreign currencies into U.S. dollars,

unless the daily rate involves a ``fluctuation.'' In accordance with

the Department's practice, we have determined as a general matter that

a fluctuation exists when the daily exchange rate differs from a

benchmark by 2.25 percent. The benchmark is defined as the rolling

average of rates for the past 40 business days. When we determine a

fluctuation exists, we substitute the benchmark for the daily rate.

Preliminary Results of the Review

As a result of this review, we preliminarily determine that the

following weighted-average dumping margin exists:

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

Margin

Manufacturer/exporter Period (percent)

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

Mannesmannroehren-Werke AG....... 1/27/95-7/31/96.......... 28.69

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

Parties to the proceeding may request disclosure within five days

of the date of publication of this notice. Any interested party may

request a hearing within 10 days of publication. Any hearing, if

requested, will be held 44 days after the date of publication or the

first business day thereafter. Case briefs from interested parties may

be submitted not later than 30 days after the date of publication.

Rebuttal briefs, limited to issues raised in those briefs, may be filed

not later than 37 days after the date of publication of this notice.

The Department will publish the final results of this administrative

review, including its analysis of issues raised in the case and

rebuttal briefs, not later than 120 days after the date of publication

of this notice.

The following deposit requirements will be effective upon

publication of the final results of this antidumping duty review for

all shipments of small diameter circular seamless carbon and alloy

steel standard, line and pressure pipe, entered, or withdrawn from

warehouse, for consumption on or after the publication date, as

provided by section 751(a) of the Tariff Act: (1) The cash deposit rate

for the reviewed company will be that established in the final results

of review; (2) for exporters not covered in this review, but covered in

the LTFV investigation or previous review, the cash deposit rate will

continue to be the company-specific rate from the LTFV investigation;

(3) if the exporter is not a firm covered in this review, a previous

review, or the original LTFV investigation, but the manufacturer is,

the cash deposit rate will be the rate established for the most recent

period for the manufacturer of the merchandise; (4) the cash deposit

rate for all other manufacturers or exporters will continue to be 57.72

percent, the ``All Others'' rate made effective by the LTFV

investigation. These requirements, when imposed, shall remain in effect

until publication of the final results of the next administrative

review.

This notice serves as a preliminary reminder to importers of their

responsibility under 19 CFR 353.26 to file a certificate regarding the

reimbursement of antidumping duties prior to liquidation of the

relevant entries during this review period. Failure to comply with this

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double antidumping duties.

This administrative review and notice are published in accordance

with section 751(a)(1) of the Act and 19 CFR 353.22.

Dated: September 2, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-23856 Filed 9-8-97; 8:45 am]

BILLING CODE 3510-DS-P