Certain Welded Carbon Standard Steel Pipes and Tubes From India; Final Results of New Shippers Antidumping Duty Administrative Review
Federal RegisterSep 10, 1997
Ask Donna
What actually matters in this document.
Text
DEPARTMENT OF COMMERCE
International Trade Administration
[A-533-502]
Certain Welded Carbon Standard Steel Pipes and Tubes From India;
Final Results of New Shippers Antidumping Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of new shippers antidumping duty
administrative review.
-----------------------------------------------------------------------
SUMMARY: On May 1, 1997, the Department of Commerce published the
preliminary results of a new shippers administrative review of the
antidumping duty order on certain welded carbon steel standard pipes
and tubes from India. The review covers two manufacturers/exporters.
The period of review is May 1, 1995 through April 30, 1996.
Based on our analysis of the comments received, we have made
changes, including corrections of certain inadvertent programming and
clerical errors, in the margin calculations for Rajinder Pipes Ltd. and
Lloyd's Metals & Engineers Ltd. The final weighted-average dumping
margins for the reviewed firms are listed below in the section entitled
``Final Results of Review.''
EFFECTIVE DATE: September 10, 1997.
FOR FURTHER INFORMATION CONTACT: Davina Hashmi or Kristie Strecker, at
Import Administration, International Trade Administration, U.S.
Department of Commerce, Washington, D.C. 20230; Telephone: (202) 482-
4733.
[[Page 47633]]
SUPPLEMENTARY INFORMATION:
The Applicable Statute
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (the Tariff Act), are references to the provisions
effective January 1, 1995, the effective date of the amendments made to
the Tariff Act by the Uruguay Round Agreements Act (URAA).
Background
On May 1, 1997, the Department of Commerce (the Department)
published the preliminary results of a new shippers administrative
review of the antidumping duty order on certain welded carbon steel
standard pipes and tubes from India (62 FR 23760) (Preliminary
Results). On May 30, 1997, we received briefs on behalf of Allied Tube
& Conduit Corp., Sawhill Tubular Division of Armco, Inc., Wheatland
Tube Co., and Laclede Steel Co. (petitioners), and Rajinder Pipes Ltd.
(Rajinder). We received rebuttal briefs from petitioners, Rajinder
Pipes Ltd., and Lloyd's Metals & Engineers (Lloyd's) on June 6, 1997.
The Department has conducted this new shippers administrative review in
accordance with section 751(a)(2)(B) of the Act.
This review covers Rajinder Pipes Ltd. (Rajinder) and Lloyd's
Metals and Engineers (Lloyd's), and the period of review is May 1, 1995
through April 30, 1996.
Scope of Review
The products covered by this review include circular welded non-
alloy steel pipes and tubes, of circular cross-section, with an outside
diameter of 0.372 inch or more but not more than 406.4 millimeters (16
inches) in outside diameter, regardless of wall thickness, surface
finish (black, galvanized, or painted), or end finish (plain end,
beveled end, threaded, or threaded and coupled). These pipes and tubes
are generally known as standard pipe, though they may also be called
structural or mechanical tubing in certain applications. Standard pipes
and tubes are intended for the low-pressure conveyance of water, steam,
natural gas, air and other liquids and gases in plumbing and heating
systems, air-conditioner units, automatic sprinkler systems, and other
related uses. Standard pipe may also be used for light load-bearing and
mechanical applications, such as for fence tubing, and for protection
of electrical wiring, such as conduit shells.
The scope is not limited to standard pipe and fence tubing or those
types of mechanical and structural pipe that are used in standard pipe
applications. All carbon-steel pipes and tubes within the physical
description outlined above are included in the scope of this order,
except for line pipe, oil-country tubular goods, boiler tubing, cold-
drawn or cold-rolled mechanical tubing, pipe and tube hollows for
redraws, finished scaffolding, and finished rigid conduit.
Imports of the products covered by this review are currently
classified under the following Harmonized Tariff Schedule (HTS)
subheadings: 7306.30.10.00, 7306.30.50.25, 7306.30.50.32,
7306.30.50.40, 7306.30.50.55, 7306.30.50.85, and 7306.30.50.90.
Although the HTS subheadings are provided for convenience and customs
purposes, our written description of the scope of this proceeding is
dispositive.
Changes Since the Preliminary Results
Based on our analysis of comments received, we have made certain
corrections that changed our results. We have corrected certain
programming and clerical errors in our Preliminary Results, where
applicable; they are discussed in the relevant comment sections below.
Comment 1
Petitioners contend that, based on the record developed in this new
shippers review, Rajinder is not entitled to a duty-drawback adjustment
to constructed export price (CEP). Petitioners state that there is
little supporting documentation on the record with respect to the duty-
drawback program to which Rajinder subscribes and that the information
that is on the record is vague. Petitioners also argue that the record
is void of evidence that Rajinder applied for or received duty drawback
from the government for materials imported and used as inputs for the
finished product exported to the United States. Petitioners state that
the only evidence on the record supporting Rajinder's claimed duty
drawback is a statement by Rajinder that it received a duty-drawback
license.
In addition, petitioners contend that the Department applies a two-
part test for determining whether an adjustment for duty drawback is
appropriate, which petitioners contend Rajinder did not meet. First,
petitioners maintain that the record does not indicate that import
duties and rebates were directly linked to and dependent on one
another. Second, petitioners also maintain that the record does not
demonstrate that there were sufficient imports of raw materials (citing
Far East Machinery Co. v United States, 699 F. Supp 309, 311 (CIT
1988); Carlisle Tire & Rubber Co. v United States, 657 F. Supp. 1287
(CIT 1987)).
Petitioners further contend that the Advanced License program at
issue is an export-incentive program rather than a duty-drawback
program. Petitioners argue that, under the Indian Advanced License
program to which Rajinder subscribed, eligibility for the benefit was
based on the act of exporting rather than the act of importing.
Petitioners indicate that, in its supplemental questionnaire response,
Rajinder termed the duty-drawback program as an ``export incentive''
program and that Rajinder stated that payment was carried in its
financial books as an export-incentive program. Petitioners assert that
the Advanced License program operates in a manner similar to export-
restitution payments. Petitioners maintain that, as in Sorbitol From
France; Final Determination of Sales at Less Than Fair Value, 47 FR
6459, 6460 (February 12, 1982), the Department found that export-
restitution payments did not constitute a proper duty-drawback program
and that the Court of International Trade (CIT) upheld the Department's
decision denying drawback in the case where exporters of sorbitol were
eligible for an export payment whether or not any import duties were
paid.
Petitioners also contend that Rajinder's export-incentive program
does not meet the requirement for an adjustment under the statute.
Citing Huffy v. United States, 632 F. Supp. 50, 53 (CIT 1986),
petitioners argue that the payment of duties on imported material must
be a prerequisite to receipt of the export rebate in order to qualify
for a duty-drawback adjustment.
Rajinder maintains that, in its questionnaire response, it stated
that its claimed duty drawback is ``on the record''. Rajinder further
states that, not only is there information on the record that a duty-
drawback program exists in India, but the Department examined such
information when it conducted a verification of Lloyds' claimed duty
drawback. Rajinder also states that, despite the absence of
``documentary evidence'' on the record, it was ready and willing to
provide evidence of its duty-drawback program at verification.
Rajinder deems petitioners' comment meaningless that eligibility
for the benefit was based on the act of exporting a finished product,
not on the act of importing a dutiable product. Rajinder maintains
that, under the Advanced License program, the drawback benefit never
accrues unless the product is exported. If a company imports raw
materials duty-free and
[[Page 47634]]
then fails to meet its export obligation, the company would be required
to pay the duty on the imported material. Rajinder also states that,
under the Advanced License program, there is a direct link between the
imported material and the exported finished product because duty-free
materials that may be imported are specified in the license and the
materials imported must conform to the materials used in the finished
export product. Rajinder points out that the Department granted
adjustments for duty drawback in Notice of Final Determination of Sales
at Less Than Fair Value: Certain Carbon Steel Butt-Weld Pipe Fittings
From India, 60 FR 10545, 10547 (February 27, 1995), and Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Bar
from India, 59 FR 66915, 66919-20 (December 28, 1994), although in
these cases adjustments were made to constructed value (CV).
Rajinder contends that the Advanced License program is different
from cases which generally relate to export-restitution payments.
Rajinder maintains that the Department affirmed that the Advanced
License scheme is equivalent to a duty-drawback system in Certain Iron-
Metal Castings from India: Final Results of Countervailing Duty
Administrative Review, 61 FR 64687 (December 6, 1996).
Department's Position
Although we allowed it for the preliminary results, we have denied
Rajinder's claimed duty drawback for these final results of review. In
our supplemental questionnaire, we requested Rajinder to provide
information demonstrating that it met our two-part test. In using this
test, we consider: (a) whether the import duty and rebate are directly
linked to, and dependent upon, one another; and (b) whether the company
claiming the adjustment can show that there were sufficient imports of
the imported raw materials to account for the drawback received on the
exported product. This test has been upheld consistently by the Court
of International Trade (CIT). See, e.g., Federal-Mogul Corp. v. United
States, 862 F. Supp. 384, 409 (CIT 1994) (Federal-Mogul). Although we
have recognized India's Advanced License program in other cases
involving Indian companies exporting merchandise to the United States,
Rajinder responded inadequately to our requests for further information
regarding this claimed adjustment because its response did not contain
the information we requested in our supplemental questionnaire.
Rajinder only supplied a narrative description of the Advanced License
program and a worksheet showing its duty-drawback calculations.
Rajinder did not supply a copy of the Advanced License nor any evidence
that a duty-drawback transaction occurred. Therefore, the record lacks
any evidence supporting Rajinder's claimed duty drawback. Rajinder only
stated that it applied for the license for duty drawback after the
period of review (POR). Rajinder argued that we reviewed duty drawback
at Lloyd's and, therefore, the adjustment should be granted to
Rajinder. The program we reviewed at Lloyd's was the Passbook system,
while Rajinder uses the Advanced License program and, therefore, this
argument is not relevant.
Because we have denied Rajinder's claimed duty drawback on this
basis, we have not addressed the other arguments concerning the program
which petitioners raised.
Comment 2
Petitioners contend that Lloyd's is not entitled to a duty-drawback
adjustment for its export price sales. Petitioners assert that Lloyd's
failed to meet the Department's two-part test for a duty-drawback
adjustment. Petitioners argue that the record fails to demonstrate that
the payment of import duties was directly linked to and dependent upon
receipt of the export rebate. Petitioners argue, in particular, that
the payment of duties on imported material must be a prerequisite to
receipt of the export rebate in order to qualify for a duty-drawback
adjustment (citing Huffy v. United States). Petitioners maintain that,
under India's Passbook system (a duty-drawback program), Lloyd's can
apply for the export incentive even though it did not previously import
raw material used in the production of the exported merchandise.
According to petitioners, under the Passbook system, Lloyd's first
exports products and then receives credit based on its volume of
exports. Petitioners point out that, in its supplemental questionnaire
response, Lloyd's states that the credit received may not be limited to
the raw material used in the production of exported merchandise for
which it received credit.
Petitioners assert that Lloyd's was free to import any type of hot-
rolled steel product regardless of whether it was an input used in the
production of the exported subject merchandise. Petitioners refer to
the Input-Output (I-O) Norms, which identify on a product-specific
basis the amount of raw material which may be imported compared to the
amount of finished product which may be exported under the drawback
program. Petitioners argue that Lloyds' response indicates that these
norms allow for the importation of steel material that may not be used
to produce the exported product.
Petitioners contend that the verification exhibit and Lloyds'
supplemental questionnaire response demonstrate that, rather than
operating as a duty-drawback system, the Passbook system is an export-
incentive program. Petitioners state that the Passbook program is
similar to that in Sorbitol From France, 47 FR 6459, 6460 (1982), in
which the Department denied a duty-drawback adjustment because
exporters of sorbitol were eligible for an export payment whether or
not any import duties were paid, and the CIT upheld the Department's
determination in Roquette Freres v. United States, 583 F. Supp. 599,
602 (1984). Petitioners conclude that, as in Roquette Freres, there is
no evidence on the record in this case that accrual of the benefit is
determined on the importation of an input product that could be used in
the production of the exported merchandise from which the export
benefit was calculated. Therefore, petitioners argue that the drawback
adjustment should be denied.
Lloyd's responds that petitioners' arguments are baseless. Lloyd's
contends that it has met both parts of the Department's two-part test.
Specifically, Lloyd's argues that under the Passbook system there is a
direct link between the import duty and the rebate of duties. Lloyd's
explains that the credits recorded in the Passbook can only be given to
the exporter upon exportation of certain items and the credit can only
be used by the exporter to pay import duties. Lloyd's argues that, if a
sufficient amount of credits exist in the Passbook, the Indian Customs
Service does not collect duties. Lloyd's points out that the credit
received is limited to the payment of customs duties by the exporter
and that these credits are otherwise rendered useless. Lloyd's states
that, in the instant case, it accrued benefits for import duties.
Lloyd's further asserts that the verification documents provide
evidence that there were sufficient raw materials on which Lloyd's paid
duty and which were used in the production and subsequent export of
subject merchandise.
Lloyd's states that the Passbook system is an international-trade
incentive because it encourages and requires both imports and exports.
Lloyd's states that the Passbook system requires the credits accrued to
be applied toward import duties and the refund can be used for any
purpose.
[[Page 47635]]
Lloyd's also indicates that the Passbook system allows Indian companies
to select the most advantageous raw materials without regard to duties,
which results in a savings in costs and sales prices.
Lloyd's argues that petitioners incorrectly characterize the
Passbook program as an export-incentive program. Lloyd's explains that
the Indian government changed its former system, the International
Price Reimbursement Scheme, to its current Passbook system because it
determined that the old scheme did not comport with the U.S. fair-trade
statute. Lloyd's indicates that, under the new program, eligible export
items and their corresponding import items are identified.
Lloyd's also rebuts petitioners' claim that Lloyd's I-O Norms allow
for the importation of steel products that are not used in the
production of the final exported merchandise. Lloyd's maintains that
the products identified are steel products that are both authorized as
qualifying goods and envisioned for use in the production of pipe and
tube. Lloyd's asserts that it met the requirements that imports be
sufficient to cover the amount of exports which Lloyd's argues it
demonstrated at verification.
Lloyd's contends that the Passbook program can be easily
distinguished from the program cited in Roquette Freres. In Roquette
Freres, Lloyd's asserts, the Department denied the claimed drawback
because the export credits were received regardless of whether the
recipient had imported raw materials. Lloyd's maintains that, unlike
the program cited in Roquette Freres, the credit Lloyd's received is
dependent upon the identity and quantity of exported goods. Lloyd's
further contends that, under the drawback program in Roquette Freres,
imports were not required, whereas under the Passbook program, receipt
of benefits are contingent upon the importation of materials.
Lloyd's maintains that the Passbook program meets the requirements
under section 772(c)(1)(B) of the statute. Lloyd's states that this
provision of the law applies to both rebates and the non-collection of
duties. Lloyd's argues that there is no requirement in the statute that
duties must first be paid and then rebated.
Department's Position
We disagree with petitioners. Section 772(c)(1)(B) of the Act
provides that export price (or constructed export price) shall be
increased by ``the amount of any import duties imposed by the country
of exportation which have been rebated, or which have not been
collected, by reason of the exportation of the subject merchandise to
the United States' (emphasis added). As described in response to
comment 1 above, we determine whether an adjustment to U.S. price for a
respondent's claimed duty drawback is appropriate when the respondent
can demonstrate that it meets both parts of our two-part test. There
must be: (1) a sufficient link between the import duty and the rebate,
and (2) a sufficient amount of raw materials imported and used in the
production of the final exported product. Petitioners have not
challenged the Department's determination regarding the second part of
the test, that Lloyd's has demonstrated that it imported a sufficient
amount of raw materials, or hot-rolled (HR) coils, used in the
production of the final exported product. See Lloyds' Home-market
Verification Report, at 11 (May 9, 1997).
As for the first part of the test, which petitioners have
challenged, the Indian Passbook System presents the rare situation in
which, rather than being rebated as is usually the case, the import
duties were actually ``not collected, by reason of the exportation of
the subject merchandise to the United States.'' This type of program
falls within the express language of section 772(c)(1)(B). As described
below, Lloyd's has demonstrated to our satisfaction that it met both
parts of our two-part test.
The Indian Passbook system constitutes a proper drawback program.
At verification, we examined Lloyd's claimed duty drawback and certain
aspects of the Indian law which govern the application of the Passbook
system. The system requires that the input used in the production of
the final exported product be imported in order to obtain the drawback
benefit. Under the program, the Indian government records all imports
and exports in a ``passbook''. The government reduces the amount of
duties owed on future imports, provided the final exported merchandise
incorporates an amount of the input product equivalent to that which
was previously imported and an equivalent amount of duties were
previously suspended. As explained in our verification report,
``Lloyd's must show to the government that the exported product
includes imported inputs in order to be credited the percentage charged
for the imported goods' (emphasis added). Lloyds' Verification Report
at 12.
We disagree with petitioners that payment of duties on the imported
material is a prerequisite to receipt of benefits. As noted, section
772(c)(1)(B) requires either that the import duties be rebated or that
they not be collected by reason of the exportation of the subject
merchandise to the United States. Consequently, the Department has
never established a strict prerequisite that import duties must
actually be paid and subsequently rebated in order for there to be the
necessary link justifying an adjustment to U.S. price. Nor have the
courts established such a requirement. It is true, as petitioners note,
that the CIT stated in Far East Machinery that payment of import duties
is a ``prerequisite to receipt of an export rebate'' to qualify for an
adjustment. 699 F. Supp. at 313. However, petitioners have taken the
CIT's discussion of this issue out of context. In Far East Machinery,
as in other cases, the respondent had actually paid duties upon
importing the input and had received some amount of rebate upon
exporting the subject merchandise. The question concerned only whether
the government drawback program at issue established the necessary link
between actual payment of the duties and receipt of the rebate. See
id.; see also E.I. DuPont de Nemours & Co. v. United States, 841 F.
Supp. 1237, 1242-43 (CIT 1993); Huffy Corp., supra, 632 F. Supp. at 53.
The Department is not aware of any case in which the CIT has ruled upon
a government drawback program, such as the Indian Passbook system,
under which duties are suspended on imported inputs, provided the
company subsequently exports merchandise containing an equivalent
amount of the input as was imported, all of which is monitored by way
of a credit-debit system. Therefore, these cases do not address the
Department's present determination.
In this case, the Indian government has effectively suspended
collection of duties on imported steel contingent upon the same company
later exporting pipe containing an equivalent amount of steel. The
Department has reviewed this type of program before. For instance, in
Silicon Metal From Brazil; Final Results of Antidumping Duty
Administrative Review, 62 FR 1970, 1976 (January 7, 1997), the
Department found that a certain Brazilian duty-drawback program
suspended the payment of taxes or duties that ordinarily would have
been due upon importation. The Department granted a duty-drawback
adjustment to export price pursuant to section 771(c)(1)(B) of the Act.
In Extruded Rubber Thread From Malaysia; Final Results of Antidumping
Duty Administrative Review, 62 FR 33588, 33598-99 (June 20, 1997), a
duty was imposed upon imported goods sold in the home market but not
collected
[[Page 47636]]
when the subject merchandise incorporating those imported goods was
exported. The Department ``add[ed] the amount of the uncollected duty
to the U.S. price.''
Therefore, the issue in this review remains whether Lloyd's has
established the necessary link between the government's collection--or,
in this case, suspension--of import duties and the rebate, which in
this case is a credit. The Department is satisfied that this link
exists.
Further, we disagree with petitioners' contention that the Passbook
system constitutes an export-restitution program rather than a duty-
drawback program. For instance, the Passbook program differs from the
export-substitution program administered by the European Community in
Sorbitol From France. There, the Department denied the claimed drawback
because export-restitution payments were received by exporters
regardless of whether they used inputs that were imported or sourced
domestically. The CIT upheld this determination in Roquette Freres,
supra, 583 F. Supp. at 602-03. By contrast, the Indian Passbook program
requires that the final exported product contain an equivalent amount
of the input as was imported. At our verification of Lloyd's, we
examined the provision of the Indian law requiring that a company
``show to the government that the exported product includes imported
inputs.'' The raw materials referred to in this provision of the Indian
law are the ``. . . imports of the input used in the exported
product.'' Lloyds' Verification Report at 11.
Comment 3
Petitioners argue that the Department should reject Rajinder's
reported steel costs, which petitioners contend contain numerous
problems and deficiencies. Petitioners allege that (1) Rajinder's
reported steel prices may not include freight costs; (2) although
Rajinder made purchases from other suppliers, it reported its steel
prices only on the prices based from the Steel Authority of India
(SAIL) and the Department was not able to verify purchases made from
other suppliers because Rajinder did not provide invoices for other
suppliers; (3) the cost of steel reported in Rajinder's 1996 annual
report is higher than the rates listed on the invoices at verification;
(4) Rajinder never provided supporting documentation for its assumed
scrap rate and, based on the verification report, it appears that the
Department never verified the actual scrap rate; and (5) Rajinder
grossly overstated the scrap value of steel. For these reasons,
petitioners urge the Department to value scrap based on the ratio of
the reported scrap price per metric ton to the average price of steel
consumed and apply this ratio to the price of steel reported in the
cost response.
Rajinder argues that its cost response indicates that
transportation costs, along with other selling expenses, were included
in the steel price. Rajinder also maintains that the Department
verified its freight costs and found no discrepancies.
With respect to the issue of Rajinder's other suppliers, Rajinder
argues that, although the verification report indicates that ``on rare
occasions'' Rajinder purchased from other suppliers, it is unlikely
that these rare purchases were made at prices higher than those made
from SAIL. Rajinder also points out that not every invoice is required
to be provided at verification. Rajinder maintains that the Department,
nonetheless, found no discrepancies with Rajinder's reported steel
costs.
Rajinder contends that petitioners have used an invalid approach to
conclude that, on average, the cost of steel reported in Rajinder's
annual report is higher than the price it reported. Rajinder also
argues that there is nothing on the record or in the verification
report that suggests that Rajinder's scrap rate is unreasonable or
should not have been used. Rajinder states that the scrap value was
verified and, therefore, should be accepted for the final results of
review.
Department's Position
We agree with petitioners that freight costs are not included in
the cost of steel, and we have added freight costs to Rajinder's
reported steel costs for these final results of review. Although
Rajinder reported the correct amount for steel costs, it neglected to
include the amounts for freight which are clearly indicated on its
invoices. Therefore, we have adjusted Rajinder's reported steel prices
for freight costs. See Section B response, October 7, 1996, page B-7;
Section D Supplemental Questionnaire response, March 18, 1997, page 8;
and verification exhibit 22.
Concerning Rajinder's reported steel prices, we have accepted them
for these final results of review. See Memo to the File, August 29,
1997.
Petitioners are incorrect that the cost of steel reported in
Rajinder's 1996 annual report is higher than the rates listed on the
invoices at verification. Petitioners compared the average cost of
steel consumed for year-end 1996 to individual steel invoice prices.
Petitioners determined an average cost of steel consumed by dividing
the total value, in rupees, of iron and steel consumed by the total
quantity of iron and steel consumed. This equation contains general
values that are comprised of both steel and iron. However, iron is not
a material used in the production of merchandise covered by the scope
of this order. Further, the steel inputs in the numerator are not
limited to the production of subject merchandise. Therefore,
petitioners have incorrectly made a comparison between a broad spectrum
of merchandise reported in Rajinder's financial statements and the
individual steel invoice prices that are materials Rajinder used to
produce merchandise subject to this review.
Petitioners' argument that the scrap value is too high, as well as
petitioners' suggested alternative method for calculating the scrap
value, are equally misplaced. Petitioners determined that the scrap
value was too high by dividing a scrap resale value by the invoice
value of a single transaction. This method is incorrect because the
numerator is based on both subject and non-subject merchandise, whereas
the denominator reflects subject merchandise only. However, scrap value
can be easily and correctly derived by dividing the quantity of
merchandise (i.e., iron and steel) by the value of such merchandise
(i.e., iron and steel). Based on this method, the scrap value for
either category of merchandise in the financial statement (i.e.,
material consumed or ending inventory) provides reasonable values upon
which we can rely. Moreover, we verified these amounts and found no
discrepancies. Therefore, there is no reason to suspect the reported
scrap rate.
Comment 4
Petitioners argue that the Department should reject Rajinder's
reported zinc costs. Petitioners argue that the zinc price and zinc
scrap value Rajinder reported in its questionnaire response were
understated and overstated, respectively, compared with the zinc price
and zinc scrap value Rajinder reported in its annual report.
Petitioners contend that, for the final results of review, the
Department should make the necessary changes to the reported zinc price
and zinc scrap value.
Rajinder states that, with respect to zinc costs, there is no
reason to suspect that Rajinder overvalued its scrap adjustment.
Rajinder states that virtually all cost data were verified and the
Department found no discrepancies with the zinc cost data. Rajinder
further maintains that the difference between amounts reported by
Rajinder and the average cost for zinc that the
[[Page 47637]]
Department and the petitioners calculated can be attributed to the
adjustments for excise and sales tax, as noted in the Department's
verification report.
Department's Position
We disagree with petitioners. Reference to the amounts in the
financial statement is not necessary here because we verified the
reported amounts and are satisfied that use of these amounts is
appropriate.
Rajinder also confuses the issue by arguing that the difference
between the amount of zinc it reported and the average cost of zinc
that the Department and petitioners calculated can be explained by an
adjustment for excise and sales tax. As we stated in the verification
report, excise and sales tax account for the difference between the
cost per metric ton, reported in Indian rupees, and the average cost
per metric ton of zinc purchased during the period of review (POR),
also reported in Indian rupees. The comparison of these zinc costs to
which Rajinder referred in its reply brief is different from the
comparison of zinc costs that petitioners made, which focused on the
figures reported for zinc price, zinc scrap value, and zinc consumed.
In conclusion, we are satisfied that the reported amounts were
verified and accurately reflect Rajinder's costs. For the final
results, we have accepted Rajinder's reported zinc price and scrap
value.
Comment 5
Petitioners argue that the Department should reject Rajinder's
reported variable, labor, and fixed overhead costs. Petitioners also
contend that the Department should disregard Rajinder's response and
apply adverse facts available because Rajinder refused to comply with
the Department's request to provide labor and overhead costs on a
product-specific basis. Petitioners point out that Rajinder stated in
its supplemental questionnaire response that it could not provide the
requested product-specific information because it does not maintain
costs in the manner requested by the Department. Petitioners assert
that, because Rajinder did not provide the requested information, costs
for products with different physical characteristics were not
differentiated. Petitioners further state that labor and overhead costs
will be affected because pipes with different sizes and finish have
different processing times and the number of pieces to handle will also
be different. Petitioners also maintain that galvanized pipe will have
higher labor and overhead costs than black pipe as a result of the pipe
undergoing an additional galvanizing process.
Petitioners argue that respondents are often required to provide
information in an antidumping proceeding that is different from the
manner in which they maintain their records in the ordinary course of
business. Petitioners also state that, because Rajinder requested this
review, it should be held to the standard of providing information that
conforms to the manner in which the Department calculates dumping
margins. Petitioners maintain that, without the product-specific labor,
variable, and overhead costs, the Department cannot perform accurate
cost-of-production (COP) and CV analyses and difference-in-merchandise
(difmer) adjustments.
Petitioners contend that, with respect to steel prices, steel scrap
prices, zinc values, and zinc scrap values, the Department was unable
to reconcile with Rajinder's financial statements information that was
collected at verification. Petitioners argue that this provides
additional grounds, in addition to Rajinder's refusal to provide labor,
variable, and overhead cost information on a product-specific basis,
for disregarding Rajinder's response and applying adverse facts
available.
Rajinder states that it did not refuse to comply with the
Department's request to report its labor, variable, and fixed overhead
costs on a product-specific basis. Rather, Rajinder states, it did not
have the necessary data in its cost system. Rajinder states that the
verification report further supports its inability to provide the
information as requested by the Department. For instance, Rajinder
states that the verification report notes that labor and overhead costs
were reported for one type of pipe; it also notes that Rajinder
allocated costs on a mill-specific basis which Rajinder believes is
more reasonable than if it had allocated the costs over all production
from the various mills. Further, Rajinder contends that petitioners
erroneously suggest that black pipe was used in Rajinder's calculations
because galvanized pipe will have higher labor and overhead costs.
Rajinder maintains that its labor and overhead costs were calculated
for galvanized pipe only.
Rajinder maintains that it cooperated fully in this review, that it
provided information based on its available records, and that the
Department should accept its response. Rajinder concludes that it makes
no sense for the Department to verify Rajinder's costs, find no
discrepancies, use the information for the preliminary results of
review, and then disregard the entire response because petitioners feel
these costs should have been calculated differently.
Department's Position
We have determined that Rajinder's allocation of its reported labor
and overhead costs (variable and fixed) was reasonable. The Department
generally prefers that respondents report costs on a product-specific
basis. However, in accordance with section 773(f)(1)(A) of the Act, our
practice is to adhere to an individual firm's recording of costs,
provided we are satisfied that such costs reasonably reflect the costs
of producing the subject merchandise and are in accordance with the
generally accepted accounting principles (GAAP) of the firm's home
country. See, e.g., Notice of Final Determination of Sales at Less Than
Fair Value: Large Newspaper Printing Presses and Components Thereof,
Whether Assembled or Unassembled, From Japan, 61 FR 38139, 38154 (July
23, 1996).
Rajinder provided its labor and overhead costs on a mill-specific
basis. Rajinder used this methodology to record and allocate these
costs in the company's ordinary course of business during the POR. See
Rajinder's Supplemental Cost Response at 12, 26 (March 18, 1997). As we
noted in the verification report, Rajinder produces merchandise at
several mills. Black and galvanized pipe, merchandise subject to this
review, were produced at two of these mills. Moreover, as stated in the
verification report, black and galvanized pipe were also produced at
separate mills. See Rajinder's Cost Verification Report, at 7 (May 9,
1997). The three home-market models of pipe that proved to be the most
comparable matches to the models sold in the United States were all
galvanized pipe. Each of these models passed the sales-below-cost test
and were within the Department's twenty-percent difmer threshold. The
record demonstrates that all of these comparable models were produced
at the same mill. See Rajinder's Cost Questionnaire Response at 5
(January 22, 1997); Rajinder's Section B Questionnaire Response,
Exhibit B-1 and B-2 (October 7, 1996); and Rajinder's Cost Verification
Report at 7. In addition, all of the pipe exported to the United States
was produced in the same mill. See id. Therefore, because we matched
galvanized pipe sold in the United States to galvanized pipe of
comparable size sold in the home market and because black pipe was not
produced at the same mill at which the comparable models were produced,
our calculations do not rely
[[Page 47638]]
on any averaging of costs for galvanized and black pipe.
Therefore, we have accepted Rajinder's allocation of its reported
labor and overhead costs. We are satisfied that Rajinder's allocation
methodology reasonably reflects its costs of producing the subject
merchandise and it is in accordance with Indian GAAP.
Comment 6
Petitioners argue that the Department failed to include any sales
from Rajinder's affiliate, Rajinder Steels Ltd. (RSL), in the
preliminary margin calculations. Petitioners maintain that, for the
final results of review, the Department should include RSL's sales in
the price comparison because RSL manufactured and sold subject
merchandise during the POR and RSL's reported sales transactions had
control numbers that matched Rajinder's reported U.S. sales.
Rajinder responds that the Department properly excluded RSL's sales
transactions from the margin calculation. Rajinder contends that only
Rajinder sold subject merchandise to the United States. Rajinder also
argues that its sales in the United States were comparable in size to
home-market sales. Rajinder maintains that the Department is not
required to use RSL's sales in the price comparisons or cost test
because, as verified, the facilities of Rajinder and RSL are separate.
Further, Rajinder states that there is no indication of price
manipulation.
Department's Position
For purposes of the final results, we have treated RPL and RSL as a
single entity, as described below.
As a precondition to ``collapsing'' two companies in an antidumping
analysis, the Department must determine that the parties are
``affiliated'' within the meaning of section 771(33) of the Act.
Section 771(33) provides several bases for finding affiliation.
Subsection (F) of section 771(33) is applicable here. It provides that
the definition of ``affiliated persons'' includes ``[t]wo or more
persons directly or indirectly controlling, controlled by, or under
common control with, any person.'' Section 771(33) further explains
that control exists when one person is ``legally or operationally in a
position to exercise restraint or direction over another person.''
The Department's final regulations implementing the URAA elaborate
upon the meaning of ``control'' under section 771(33). See Antidumping
Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27380 (May 19,
1997) (Sec. 351.102(b)) (Final Regulations); see also Statement of
Administrative Action (SAA), H.R. Doc. 103-316, at 838 (1994). The
final regulations are not directly applicable to this review because
the review was initiated prior to the date the regulations took effect.
However, these new regulations do provide a concise and accurate
statement of the Department's practice and the type of evidentiary
criteria the Department has determined are relevant to a collapsing
determination.
Section 351.102(b) of the Final Regulations provides that, in
determining whether control exists for the purpose of finding
affiliation, the Department will consider, among other things,
corporate or family groupings, franchise or joint-venture agreements,
debt financing, and close supplier relationships. See also SAA at 838.
Rajinder refers to RPL and RSL as ``affiliated'' but also claims that
they are ``independent'' companies, with their operational
responsibilities managed by different sets of people. Rajinder argues
that this is because the two companies have separate shareholders and
separate operations--including accounts, commercial, manufacturing, and
sales activities. As explained below, however, we find that these are
immaterial differences and that RPL and RSL are affiliated on the basis
of control.
The record demonstrates that RPL and RSL are ``manufacturing
units'' within the ``Rajinder Group.'' See Rajinder's Supplemental
Section A Response, Nov. 13, 1996, at 2-6 & Appendix 1 (Section A
Supplemental); Rajinder's Section A Response, Aug. 20, 1996, at 10
(Section A Response). The two companies share four members of their
boards of directors out of a total of seven board members for RPL and
nine for RSL. RPL and RSL also share the same top-level management.
Respondent also identified numerous other management and operational
functions performed jointly on behalf of the entire Rajinder Group.
Therefore, we determine that RPL and RSL, and the Rajinder Group as a
whole, constitute a single ``corporate grouping,'' as contemplated in
our final regulations and the SAA, which is under the common control,
directly or indirectly, of the same person or persons, who are legally
or operationally in a position to exercise restraint or direction over
the entire Rajinder Group. Furthermore, we find that this
``relationship has the potential to impact decisions concerning the
production, pricing, or cost of the subject merchandise of foreign like
product.'' Final Regulations, 62 FR at 27380 (Sec. 351.102(b)). On this
basis, we determine that RPL and RSL are affiliated pursuant to section
771(33)(F) of the Act.
Section 351.401(f)(1) of the final regulations provides that,
consistent with the Department's practice, the Department will collapse
two or more affiliated producers (1) which have production facilities
for similar or identical products that would not require substantial
retooling of either facility in order to restructure manufacturing
priorities and (2) the Department concludes that there is a significant
potential for the manipulation of price or production. See Final
Regulations, 62 FR at 27410 (Sec. 351.401(f)). Regarding the first
requirement, Rajinder acknowledges that, like RPL, RSL produces and
sells subject merchandise in the home market. Section A Supplemental at
2 and 6. According to Rajinder, this merchandise is ``similar'' to that
exported by RPL to the United States. On this basis, we determine that
RPL and RSL have production facilities for similar or identical
products that would not require substantial retooling of either
facility in order to restructure manufacturing priorities.
Regarding the second requirement, whether ``there is a significant
potential for the manipulation of price or production,'' section
351.401(f) explains that the factors the Department may consider
include (1) the level of common ownership; (2) whether managerial
employees or board members of one of the affiliated producers sit on
the board of directors of the other affiliated person; and (3) whether
operations are intertwined, such as through the sharing of sales
information, involvement in production and pricing decisions, the
sharing of facilities or employees, or significant transactions between
the affiliated producers. See also FAG Kugelfischer v. United States,
932 F. Supp. 315 (CIT 1996); Certain Fresh Cut Flowers From Colombia;
Final Results of Antidumping Duty Administrative Reviews, 61 FR 42833,
42853 (August 19, 1996). Not all of these criteria must be met in a
particular case; the requirement is that the Department determine that
the affiliated companies are sufficiently related to create the
potential of price or production manipulation. See, e.g., Final
Regulations, 62 FR at 27346 (preamble); Flowers From Colombia, 61 FR at
42853.
We note that when affiliation is based upon control, as in the
present review, there may be substantial overlap between the evidence
relied upon to determine affiliation and that relied upon to determine
whether there is a significant potential for the
[[Page 47639]]
manipulation of price or production. The decision of whether to
collapse is normally dependent to one extent or another upon the
potential of one or more persons or a part of a company to control
another. As we have often stated, in collapsing, we look at the ``level
of inter-relatedness between parties'' or the ``type and degree'' of
the parties'' relationship or affiliation. See, e.g., Sulfanilic Acid
from the PRC: Final Results of Antidumping Duty Administrative Review,
61 FR 53,711, 53,712 (1996) (citing Nihon Cement v. United States, 17
CIT 400, 426 (1993)); Final Results of Antidumping Duty Administrative
Review; Iron Construction Castings From Canada, 59 FR 25,603, 25,603-04
(1994); Final Determination 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 18,992, 19,089
(1989).
We determine that this requirement is met as well. For the most
part, we have based this determination upon the same evidence upon
which we relied to determine that the two companies are affiliated. We
consider the evidence regarding control and the overlap between the two
companies' boards of directors and management sufficient to warrant
concluding that RPL and RSL pose a significant potential for the
manipulation of price or production. As detailed above, the boards of
directors of the two companies broadly overlap. Moreover, three of the
four overlapping directors also jointly manage the two affiliated
companies. Along with the other evidence of control in the record, this
evidence supports a finding that the two companies essentially function
or have a significant potential to function as a single entity. There
is also proprietary information on the record of common ownership and
inter-company transactions within the Rajinder Group. This evidence is
not complete, however, and we have not relied upon it in reaching our
determination.
Based upon our analysis of the evidence on the record, we determine
that RPL and RSL are affiliated pursuant to section 771(33)(F) of the
Act; the two companies have production facilities for similar or
identical products that would not require substantial retooling of
either facility in order to restructure manufacturing priorities; and,
because of the extent of common control between the two companies, RPL
and RSL pose a significant potential for manipulation of price or
production. Therefore, we have collapsed and treated RPL and RSL as a
single entity for purposes of calculating the appropriate dumping
margin in these final results of review.
Comment 7
Petitioners requested that the Department conduct sales and cost
verifications of the responses submitted by Lloyd's and Rajinder.
Petitioners contend that the Department's failure to verify Lloyds'
cost response and Rajinder's sales response is contrary to law.
Petitioners state that, while the Department enjoys ``a degree of
latitude in implementing its verification procedures,'' these
procedures must be reasonable.
Petitioners state that, given the large number of inaccuracies in
Lloyds' sales response presented to the Department officials at the
outset of verification and the fact that Lloyd's is a first-time
participant, it is plausible that Lloyds' cost response also contains
numerous deficiencies. Petitioners assert that Lloyd's did not provide
corrections to its cost response knowing that its cost response would
not be verified. Petitioners conclude that the Department should either
verify Lloyds' cost response prior to the final results of review or
apply facts available.
As for Rajinder, petitioners argue that the company's failure to
provide supporting documentation of price adjustments, its failure to
allocate costs on a product-specific basis, and inaccuracies found at
verification should have compelled the Department to conduct a more
complete verification and are grounds to base the final results on
adverse facts available.
Lloyd's states that the Department conducted a thorough five-day
verification of Lloyds' response and there was no reason to suspect or
find inadequate the verified information. Lloyd's argues that the
Department's verification report is filled with conclusions of ``no
discrepancies''. Lloyd's also asserts that it is unreasonable to throw
out Lloyds' cost response because it presented minor corrections of its
sales response at the outset of verification.
Lloyd's responds that the law does not require the Department to
verify every aspect of a response. Lloyd's maintains that the
Department has the discretion to determine which items it wishes to
examine at verification. Further, Lloyd's asserts that it is common
practice for a respondent to present corrections to its response that
were discovered during the preparation for verification. Lloyd's also
asserts that the corrections presented at verification were minor and
did not undermine the reliability of Lloyd's response. Lloyd's adds
that, as far as it knew, the Department intended to conduct a cost
verification since the verification outline contained procedures for a
cost verification. Lloyd's further states that its cost information was
accessible for examination during the verification.
Rajinder responds that no verification is required in a new shipper
review. Rajinder also states that the Department's decision to conduct
only a cost verification of Rajinder's response is not contrary to law
because no verification was required. Rajinder also argues that,
because there were no discrepancies found with the verified data, there
is no reason to assume that discrepancies would be found with non-
verified data.
Department's Position
We have conducted this new shippers review in accordance with
section 751(a)(2) of the Act and our regulations. Although a
verification was not required by statute, the Department decided to
verify the accuracy of both parties' submissions.
The courts have long agreed that verification is a selective
procedure and the Department's ability to verify complete responses is
constrained by limitations on time and resources. See, e.g., Bomont
Indus. v. United States, 733 F. Supp. 1507, 1508 (CIT 1990). As in this
case, it is not always practicable for the Department to conduct both
sales and cost verifications of every company during every review. The
Department has considerable latitude in picking and choosing which
items it will examine in detail. See Monsanto Co. v. United States, 698
F. Supp. 275, 281 (CIT 1988) (citing Hercules, Inc. v. United States,
673 F. Supp. 454, 469 (CIT 1987)). It is enough for the Department ``to
receive and verify sufficient information to reasonably and properly
make its determination.'' Hercules, 673 F. Supp. at 471; see also
Certain Internal-Combustion Industrial Forklift Trucks From Japan:
Final Results of Antidumping Duty Administrative Review, 62 FR 5992,
5602 (February 6, 1997).
Therefore, contrary to petitioners' assertions, the fact that the
Department could not devote the resources necessary to verify Rajinder
and Lloyds' entire responses does not, standing alone, call those
responses into question. Moreover, to the extent we found problems with
those portions of the responses that we did verify, these problems were
relatively minor and did not seriously call the responses into
question, neither with respect to the portions we did verify nor those
which we did not. See Forklift Trucks From Japan, 62 FR at 5602. For
these reasons,
[[Page 47640]]
we have continued to rely upon both respondents' complete responses,
except where indicated.
Comment 8
Rajinder contends that, for the final results of review, the
Department should make a level-of-trade adjustment for the Channel One
sales that were compared to U.S. sales because a pattern of price
differences exists at the different levels of trade. Rajinder also
contends that the Department should use the weighted-average price
differences provided in Rajinder's questionnaire response. Rajinder
states that the Department's inability to determine a pattern of
consistent price differences should not work to the disadvantage of
respondents, particularly since the information has already been
provided on the record. Further, Rajinder maintains that, until the
Department formulates a satisfactory methodology of determining
consistent price differences, the pricing differences presented by a
respondent should be valid indicators that such differences exist at
the different levels of trade and should be used by the Department as
the pricing differences between the different levels of trade.
Petitioners respond that the Department should not grant a level-
of-trade adjustment. Petitioners claim that Rajinder has not
demonstrated that a pattern of different price levels exists.
Petitioners assert that Rajinder's calculation of the price
differential is flawed and that the statute requires more than the
comparison of two average prices. According to petitioners, the statute
requires that prices be reviewed on a product-specific basis.
Petitioners also argue that the difference in prices must be measured
against net prices, exclusive of all statutory adjustments, in order to
ensure no double counting occurs. Citing Certain Carbon Steel Pipe and
Tube From Turkey, 61 FR 69,067 (December 31, 1996), petitioners
maintain that the Department has applied these minimum standards in
other cases.
Department's Position
Rajinder reported two channels of distribution in the home market:
(1) Sales to government agencies, original equipment manufacturers, and
end-users (Channel One); and (2) sales to local distributors and
trading companies (Channel Two). In our preliminary results, we
determined, based on an analysis of the selling functions performed and
the point in the chain of distribution where the sale takes place, that
these two channels constituted two different levels of trade in the
home market.
With respect to the U.S. market, Rajinder reported that all sales
were made through one channel of distribution, a local distributor. For
our preliminary results, we determined that the CEP sales constituted a
single level of trade. Further, we found that, although there were
differences in terms of selling activities performed in Channel Two in
the home market and the CEP sales in the United States, these
differences in selling functions were not alone sufficient to establish
a difference in the level of trade. We did find that a difference in
the level of trade existed between Rajinder's CEP sales and Channel One
sales in the home market. For certain CEP sales where we found that
sales of identical matches took place only at the Channel One level of
trade, we matched these sales to sales at the Channel One level of
trade. However, because we were unable to determine the extent of any
pattern of consistent price differences between the two home-market
channels of distribution, we did not make a level-of-trade adjustment.
We did, however, apply a CEP-offset adjustment in the preliminary
results.
As we stated in the preliminary results, we continued to examine
the issue of level of trade in this review. After a more in-depth
analysis, we confirm our preliminary findings that there are two
different levels of trade in the home market and that sales to Channel
Two are made at the same level as the sales to the United States. Since
some products did not have a match at the same level of trade, we
reexamined the issue of whether we should have granted Rajinder a
level-of-trade adjustment.
When we compare U.S. sales to home market sales at a different
level of trade, we make a level-of-trade adjustment if the difference
in levels 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. 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. If we find a pattern of
consistent price differences, we use the average difference in net
prices to adjust normal value when normal value is based on a level of
trade different from that of the export sale. If there is no pattern of
consistent price differences, the difference in levels of trade does
not have a price effect and, therefore, no adjustment is necessary. See
Preliminary Results of Antidumping Administrative Review: Antifriction
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from
France, Germany, Italy, Japan, Romania, Singapore, Sweden and the
United Kingdom, 62 FR 31566 (June 10, 1997).
In its October 7, 1996, submission Rajinder presented its
calculations of a level-of-trade adjustment. However, Rajinder provided
no evidence that the prices it used for its analysis were net prices or
that the calculations were done on a model-specific basis.
Therefore, we determined whether there was a pattern of consistent
price differences between the different levels of trade in the home
market. We made this determination by comparing, for each model sold at
both levels, the average net price of sales made in the ordinary course
of trade at the two levels of trade. If the average prices were higher
at one of the levels of trade for a preponderance of the models, we
considered this to demonstrate a pattern of consistent price
differences. We also considered whether the average prices were higher
at one of the levels of trade for a preponderance of sales, based on
the quantities of each model sold, in making this determination. For
Rajinder, we found a pattern of consistent price differences. We
applied the average percentage difference to the adjusted normal value
as the level-of-trade adjustment. See Final Results of Antidumping
Administrative Review: Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from France, Germany, Italy, Japan,
Singapore, and the United Kingdom, 62 FR 2081, 2105 (January 15, 1997).
Comment 9
Rajinder argues that, if the Department uses a CEP-offset
adjustment for the final results of review, it must correct the home-
market indirect selling expenses figure the Department used in this
calculation. Rajinder explains that, while the Department's CEP-offset
amount is intended to represent home market indirect selling expenses
in dollars per metric ton, it did not calculate it correctly. Rajinder
states that the Department divided the total reported indirect selling
expenses by the total sales quantity to obtain the numerator in rupees
per metric ton. However, Rajinder notes that the total indirect selling
expenses were already reported on a per-metric-ton basis, causing the
[[Page 47641]]
Department to make a lower CEP-offset adjustment. Rajinder states that
record evidence shows that the rupee figure is already reported on a
per-metric-ton basis and that the Department should correct this error
for the final results of review.
Petitioners respond that, should the Department change the
calculation of home-market indirect selling expenses as Rajinder
requests, it must make several other changes to the calculations as
well. Petitioners repeat their comment concerning commissions
(discussed in comment 13, below). Petitioners assert that the
Department must ensure that deductions from normal value for indirect
selling expenses are also deducted from the home-market price in the
below-cost-sales analysis.
Department's Position
We agree with Rajinder that the amount it reported for indirect
selling expenses was already on a metric-ton basis. We have corrected
this clerical error for the final results.
Further, in conducting the cost test, we adjust normal value and do
not include all deductions that we make to the weighted-averaged normal
value. In doing this we adjust normal value to a level comparable to
the reported COP, not to a level comparable to U.S. sales. In
particular, although adjusted normal value reflects all actual
deductions, it does not include deductions for expenses such as credit
or inventory carrying cost. Moreover, both parties' comments concerning
commissions and appropriate CEP offset are irrelevant since the
Department has determined not to use a CEP offset as described in
response to comment 8, above.
Finally, we have addressed petitioners' argument concerning
commissions and the appropriate CEP offset in response to comment 13,
below.
Comment 10
Petitioners state that, for Rajinder's U.S. sales, the Department
incorrectly calculated gross unit price on a metric-ton basis. Further,
they state that the Department used the incorrect conversion factor to
translate net-ton gross unit prices into metric-ton gross unit prices
which, according to petitioners, resulted in an overstatement of gross
unit prices. Petitioners provide instructions on how to calculate gross
unit price properly on a metric-ton basis for the final results of
review.
Rajinder agrees that the Department applied the incorrect
conversion factor to translate net-ton gross unit prices into metric-
ton gross unit prices. Rajinder also claims, however, that, aside from
the gross unit price, many other deductions were overstated because the
Department used the incorrect conversion factor to convert all U.S.
expenses to a metric-ton basis. Rajinder recommends that the Department
correct all deductions, in addition to the gross unit price, that were
affected by this conversion error. Rajinder states that the Department
also incorrectly converted the adjustment for ``Inland Freight-Plant to
Distribution Warehouse'' into metric tons because it had reported this
adjustment on a metric-ton basis.
Department's Position
We agree with both petitioners and Rajinder that we converted the
gross unit price and selling expenses incorrectly for the preliminary
results. We have examined all conversions, including Inland Freight-
Plant to Distribution Warehouse, as recommended by Rajinder and
petitioners and have corrected them for the final results.
Comment 11
Petitioners state that, although the preliminary analysis memo
indicated a deduction, the Department failed to deduct Rajinder's U.S.
commissions from CEP. Petitioners request that the Department make this
deduction for the final results of review.
Rajinder agrees that the Department failed to deduct U.S.
commissions from CEP. Rajinder explains that the Department's failure
to make this deduction has no effect on the margins, however, because
the Department inadvertently did not make the deduction for commissions
in calculating normal value. Rajinder suggests that, if the Department
makes a deduction from CEP starting price for U.S. commissions, it must
offset that deduction with a corresponding deduction from normal value
for commissions or, as appropriate, indirect selling expenses, in
accordance with 19 CFR 353.56(b)(1). Thus, Rajinder claims, the net
effect of this adjustment would be zero.
Department's Position
The Department agrees with both parties. In the preliminary
results, we neglected to deduct commissions from either CEP or normal
value. In accordance with 19 CFR 353.56(a)(2), the Department makes
reasonable allowances for differences in circumstance of sale,
including commissions. For the final results, we have deducted
commissions from both CEP and normal value, using the amounts reported
in the response. Where Rajinder has a commission on the U.S. sale but
no home-market commission, we have adjusted normal value by using home-
market indirect selling expenses as an offsetting commission to the
commission in the U.S. market. See our response to comment 13.
Comment 12
Petitioners claim that the Department incorrectly calculated the
CEP-profit ratio by dividing the total selling expenses reported by
Rajinder and RSL in their financial statements by the profit reported
in the financial statements. Petitioners state that, to calculate total
expenses in accordance with section 772(f)(2)(C) of the Act, the
Department should use the expenses incurred in order of preference (1)
on subject merchandise sold in the home and U.S. markets, (2) the
narrowest category of merchandise sold in the United States and home
market that contains the subject merchandise, or (3) the narrowest
category of merchandise sold in all countries that contains the subject
merchandise. Petitioners claim that the Department should have used the
sales and profit data for the foreign like product as a basis for the
CEP-profit calculation, as required by the statute, instead of relying
on data at the overall sales level from the financial statements, which
is the third choice under section 772(f)(2)(C) of the Act.
Additionally, petitioners claim that the CEP ratio used by the
Department in the preliminary margin calculation contained a misplaced
decimal point which should be corrected. Petitioners also contend that
the Department must include commissions in the U.S. selling expenses
when it calculates CEP profit for the final results of review.
Rajinder states that, because the Department made a clerical error
in applying the calculated CEP-profit ratio, the ratio the Department
applied is grossly different than the CEP ratio that the Department
actually calculated. Provided the CEP ratio for the final results of
review does not change, Rajinder contends that the Department should
use the ratio that it actually calculated. Rajinder explains that any
change the Department makes to the calculation of the CEP ratio may
produce lower, if not de minimis, CEP-profit figures than the ratio
that the Department actually calculated for the preliminary results of
review.
Department's Position
We agree with the petitioners in part. We used information from the
financial statements to determine CEP profit in
[[Page 47642]]
our preliminary results, which is the third preference under section
772(f)(2)(C) of the Act. Because COP information was reported for only
an extraordinarily small portion of its pipe sales in the home market,
in this case, we have continued to use profit levels which we
calculated from the financial statements.
We agree that there were several ministerial errors in the
calculation of CEP profit which caused us to understate CEP profit. We
have reexamined Rajinder's financial statements and have made several
changes to the profit calculation. We added the amounts listed as
``variation in stock'' to the total revenue amounts. We added interest
expense and depreciation expense to total cost and then subtracted an
amount for change in inventory from total cost. We divided total
revenue by total cost to arrive at the CEP-profit figure. Additionally,
when applying this percentage to U.S. expenses, no change is necessary
as petitioners suggest because we have already included commissions in
the denominator.
Comment 13
Petitioners state that, according to the analysis memorandum
prepared for Rajinder for the preliminary results, the Department
deducted both the indirect selling expenses and the CEP offset from
normal value and, as a result, some indirect selling expenses were
deducted twice. Petitioners claim that indirect selling expenses should
not be deducted from the home-market gross unit price to calculate net
home-market price because these expenses can only be deducted as a CEP
offset when comparing sales at different levels of trade. Petitioners
state, that as a circumstance-of-sale (COS) adjustment, commissions and
indirect selling expenses may be deducted from net home-market price up
to the amount of U.S. commissions. Petitioners contend that, when a COS
adjustment is based on the amount of home-market indirect selling
expenses (limited by the U.S. commission amount), the CEP offset cannot
include those expenses that were already deducted from the net home-
market price through the commission-offset step.
Rajinder responds that, contrary to petitioners' assertion, the
preliminary calculations demonstrate that home-market indirect selling
expenses were not deducted from net home-market price. Therefore, these
expenses were not double counted. Rajinder states that home-market
inventory carrying costs were not deducted from normal value and, since
they are post-sale expenses, they are direct costs and normal value
should be adjusted to account for these costs.
Department's Position
Since the Department has determined that a CEP-offset adjustment is
not appropriate, both petitioners' and Rajinder's comments are moot.
See our response to comment 8 above.
Comment 14
The petitioners state that the Department must apply a difmer
adjustment because the products sold in the United States and home
market are not identical.
Rajinder claims that the petitioners' assertion that the Department
should have adjusted normal value upward is incorrect. Rajinder states
that evidence on the record indicates that the total cost of
manufacture for pipe sold in the United States is less than the cost of
manufacture for the comparable pipe sold in India. Rajinder adds that,
if the Department adjusts for difmer, the adjustment should be a
deduction from, not an addition, to normal value.
Department's Position
We agree with the petitioners that a difmer adjustment should be
applied because the products are not identical. The third matching
characteristic, wall thickness, varies slightly for the subject
merchandise sold in the United States. Therefore, in accordance with
section 773 (a)(6)(C)(iii), a difmer adjustment is appropriate to
account for this difference.
We have calculated the difmer adjustment by subtracting the
variable cost of manufacture for the closest model match in the home
market from the variable cost of manufacture for each U.S. sale. We
then added the difmer amount to normal value.
Comment 15
Petitioners state that the Department incorrectly calculated
Rajinder's interest expense in the COP calculation. Petitioners claim
that it not clear where the Department obtained the figures it used to
calculate COP. According to petitioners, the COP figures the Department
used were different from those which Rajinder reported in its
supplemental cost-questionnaire response. Petitioners recommend that
the Department correct its COP analysis based on the more recent
supplemental cost-questionnaire response Rajinder submitted.
Rajinder disagrees with petitioners. Rajinder explains that the
Department's COP calculation is different from the COP reported by
Rajinder in its supplemental cost-questionnaire response because the
reported HM gross unit prices do not include taxes, whereas the data
reported in the supplemental cost-questionnaire response do include
taxes. Rajinder claims that the Department properly calculated COP
because the taxes excluded from gross unit price must also be excluded
from the cost calculation for comparison purposes.
Department's Position
We disagree with both parties. In its supplemental cost response,
Rajinder reported separate interest-expense calculations for Rajinder
and its affiliated party, RSL. In situations involving affiliated
parties, it is sometimes appropriate for the Department to calculate
the interest expense based on the operations of the consolidated
corporation. See Ferrosilicon From Brazil: Final Results of Antidumping
Duty Administrative Review, 61 FR 59407, 59412 (Nov. 22, 1996); Certain
Corrosion-Resistant Carbon Steel Flat Products From Korea: Final
Results of Antidumping Duty Administrative Review, 61 FR 18547, 18567
(April 26, 1996). This is because ``debt is fungible and corporations
can shift debt and its related expenses toward or away from
subsidiaries in order to manage profit.'' Ferrosilicon From Brazil, 61
FR at 59412. Therefore, the Department calculates COP using the
consolidated financing expenses of the corporation or the affiliated
parties whenever the parent or the controlling entities have ``the
power to determine the capital structure of each member company within
the group.'' Final Determination of Sales at Less Than Fair Value: New
Minivans From Japan, 57 FR 21937, 21946 (May 26, 1992). This is
particularly the case when the Department determines to collapse two or
more affiliated parties, as here. See our response to comment 6, above.
Therefore, in this case, we used the combined financial statements
of Rajinder and RSL to recalculate the interest expense by dividing the
reported interest expense by the sum of the cost of goods sold plus the
depreciation. This yields an applicable ratio representative of the
interest expenses of both companies combined. Contrary to petitioners'
recommendation to use the reported amounts in the supplemental
response, the Department has used the recalculated amounts that it used
in the preliminary results. Rajinder's argument that taxes were
excluded from this calculation is irrelevant.
[[Page 47643]]
Comment 16
Petitioners claim that there were serious deficiencies in Lloyds'
cost response which the Department never examined. Petitioners claim
that Lloyd's purchased coils from an affiliated party and, while
Lloyd's claims the purchases were at arm's length, the transfer price
of coils from unaffiliates were on average seven percent higher than
prices from the affiliate. Petitioners recommend that the Department
disregard the steel prices from Lloyds' affiliate and use the average
from unaffiliated parties.
Additionally, petitioners assert that Lloyd's did not report labor
and overhead costs to account for differences in physical
characteristics. Petitioners explain that Lloyd's allocated all costs
by tonnage which failed to differentiate the costs for products with
different physical characteristics. Petitioners state that pipes with
different sizes and finish have different processing times and the
number of pieces to handle will be different which ultimately affects
labor and overhead costs. Petitioners explain that, since Lloyds' COP
and CV calculations are based on inherently flawed and distorted data,
the Department is unable to perform an accurate COP analysis.
Petitioners reason that respondents are often required to provide
information in an antidumping review that is different from the manner
in which they maintain their records in the ordinary course of
business. Petitioners claim that, since Lloyd's requested this review,
Lloyd's should be held to the standard of providing information that
conforms to the manner in which the Department calculates dumping
margins. Petitioners remark that the Department requested that Lloyd's
provide information on a product-specific basis and declined to do so;
therefore, Lloyd's has withheld information and impeded this review
which is grounds for applying facts available. Petitioners state that,
absent this information, the Department cannot perform accurate COP and
CV analyses and difmer adjustments.
Lloyd's responds that petitioners have no basis to question that
purchases from affiliated suppliers were priced lower than purchases
from unaffiliated suppliers. Lloyd's argues that petitioners merely
make an observation from one exhibit on the record which demonstrates
price fluctuation. Lloyd's points out that prices from affiliated
suppliers were not consistently higher or lower than prices from
unaffiliated suppliers. Lloyd's claims that, in fact, several purchases
from affiliated suppliers were priced lower than purchases from
unaffiliated suppliers. Lloyd's states further that these fluctuations
in price are indicative of price negotiation and that seven percent is
not a meaningful difference in price.
Lloyd's states that, contrary to petitioners' claim, it properly
reported labor and overhead costs. Lloyd's claims that it sold only one
type of pipe in the United States and that the variable costs for
producing pipe do not vary significantly depending on the type of steel
pipe reported. Lloyd's maintains that, since the Department agreed with
Lloyds' choice of home-market sales to report (black, plain end, non-
galvanized pipe), there were no significant differences in physical
characteristics such as size, surface finish or end finish and,
accordingly, no significant differences in labor and overhead costs to
report. Lloyd's explains that it differentiates and allocates its costs
in the normal course of business, a methodology the Department accepts
when the allocation of costs is reasonable (citing Final Determination
of Sale at Less Than Fair Value: Fresh Cut Roses From Colombia, 60 FR
6980, 7015 (Feb. 6, 1995)). Lloyd's claims that petitioners make
reference to the higher costs associated with galvanizing steel pipe
and manufacturing threaded and coupled pipe, but that petitioners fail
to take into account that Lloyds' reported sales did not included
galvanized, threaded or coupled pipe. Additionally, Lloyd's explains
that it did report a difference in U.S. packing costs which were
approximately 30 percent higher than home-market packing costs, due to
extra costs associated with packing for international shipment.
Department's Position
We agree in part with both parties. Concerning the costs of hot-
rolled coil, we have used the average price listed for other home-
market suppliers from Exhibit 3 of the March 17, 1997 submission. We
found that the purchases from Lloyd's Steel Industries Ltd. (LSIL),
Lloyds' affiliated supplier, were nearly all lower in price than those
from the other home-market suppliers. While Lloyd's claims that its
purchases of hot-rolled coil from LSIL were at arm's-length prices, the
evidence on the record indicates otherwise. When, as here, the transfer
price between affiliated parties is significantly lower than the price
from unaffiliated suppliers, the respondent bears the burden to provide
evidence that the affiliated-party's transfer prices were at arm's-
length. See section 773(f)(2) of the Act. Lloyd's failed to provide
such evidence. Therefore, we have not relied upon Lloyds' steel prices
from LSIL and have instead relied entirely upon the price from the
unaffiliated home-market suppliers in our calculations of steel
material values.
Concerning the reporting of labor and overhead costs, we agree with
Lloyd's. We found that Lloyds' allocation of its labor and overhead
costs was reasonable. Because Lloyds' U.S. sales consisted of only one
type of pipe (black, plain-end pipe), the Department permitted Lloyd's
to limit its home market data base to those sales which Lloyd's
considered most similar to the sale made in the United States,
conditioned upon the Department agreeing with Lloyds' model-match
selections. The appropriate model matches submitted by Lloyd's were all
black, plain-end pipe. Therefore, contrary to petitioners' assertion,
Lloyd's was not required to differentiate costs for products with
different physical characteristics; such products were simply not used
for matching purposes.
Lloyd's reported its costs for the home market, including labor, on
a product-specific basis. This reflects Lloyd's cost-recording
methodology used in its ordinary course of business. See Section D
Questionnaire, January 22, 1997, page 21. Furthermore, petitioners
incorrectly claim that Lloyd's allocated its costs by tonnage. Lloyd's
explained that it allocated the product-specific costs associated with
the production of the subject merchandise on the basis of the quantity
and time required in the mill to produce the product. See Section D
Supplemental Response, March 17, 1996, page 8.
Comment 17
Petitioners state that the Department should deduct U.S. customs
duties indicated in verification exhibit 10 from export price.
Petitioners claim that, because Lloyd's is the importer of record, it
is responsible for the payment of the duties.
Lloyd's responds that it did not pay the U.S. customs duties.
Lloyd's explains that, with respect to most commercial imports, the
buyer typically pays U.S. customs duties and then seeks reimbursement
from the party contractually responsible. Lloyd's points to its
supplemental questionnaire response which states that in this case, the
buyer of Lloyds' merchandise was responsible for paying the U.S.
customs duties. Lloyd's concludes that the Department should not deduct
import duties from export price.
[[Page 47644]]
Department's Position
We agree with petitioners. Lloyd's is the importer of record and,
therefore, ultimately responsible for the payment of duties. Although
record evidence indicates that Lloyd's sent a letter to the U.S. buyer
making the buyer responsible for paying the U.S. customs duties, we
have no evidence that the customer either accepted these terms or paid
the duties. We, therefore, determine that Lloyd's was responsible for
the payment of the U.S. duties, and we have deducted the regular duties
from the export price.
Comment 18
Rajinder contends that the Department improperly failed to deduct
certain expenses from home-market sales prices. Rajinder maintains that
the Department's preliminary analysis memorandum states that the
Department intended to deduct, among other things, commissions,
advertising and inventory carrying costs in the calculation of normal
value. However, Rajinder argues, the printouts released at disclosure
indicate that the Department failed to make these deductions, and
Rajinder requests that the Department correct this error for the final
results of review.
Petitioners respond that the Department may deduct from normal
value commissions and advertising expenses as circumstance-of-sale
adjustments. Petitioners also respond that the Department may deduct
from normal value indirect selling expenses, such as inventory carrying
costs, as a CEP offset where two markets are being compared at
different levels of trade.
Department's Position
We agree with both parties that we should have adjusted home-market
prices for advertising and commission expenses. With respect to
advertising expenses, Rajinder reported these expenses as direct in
nature although it was not able to tie these expenses to the specific
models of merchandise under review. Rajinder states in its response
that, ``advertising expenses are incurred only to advertise the
merchandise to small farmers, retailers, and households.'' Hence, the
advertising expenditures are aimed at the Rajinder's customer's
customer and, therefore, the reported expenses are direct.
We agree with Rajinder that commissions should be treated as direct
expenses which we have deducted from normal value. Where Rajinder
reported commissions in only the U.S. market, we have offset this
expense by deducting the home-market indirect selling expenses by an
equivalent amount.
Because we have not applied a CEP offset to normal value, the
inclusion of inventory carrying costs in Rajinder's indirect selling
expenses pool is irrelevant.
Comment 19
Rajinder states that the Department improperly deducted inland
freight from U.S. prices for the distance from the plant to the
warehouse in India. Rajinder explains that the Department incorrectly
converted the inland freight expense into rupees per metric ton,
thereby overstating the deduction of inland freight from U.S. price.
According to Rajinder, the record provides evidence that this expense
was already reported on a per-metric-ton basis. Rajinder states that
the Department should correct this error for the final results.
Petitioners respond that the Department should ensure that all
adjustments are properly converted on a per-metric-ton basis for both
the price-to-price and below-cost-sales analyses.
Department's Position
We agree with Rajinder that by making the wrong conversion we
improperly calculated the deduction of inland freight from plant to
warehouse. We have corrected this error for these final results.
Additionally, as suggested by petitioners, we have reexamined all of
the adjustments for normal value, U.S. price, and the below-cost-sales
analysis to ensure that we have converted them to the correct units.
Final Results of Review
As a result of our analysis, we have determined that the following
weighted-average margins exist for the period May 1, 1994, through
April 31, 1995:
------------------------------------------------------------------------
Margin
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Rajinder.................................................... 25.45
Lloyd's..................................................... 0.00
------------------------------------------------------------------------
The results of this review shall be the basis for the assessment of
antidumping duties on entries of merchandise covered by these final
results and for future deposits of estimated duties. The posting of a
bond or security in lieu of a cash deposit, pursuant to section
751(a)(2)(B)(iii) of the Act and section 353.22(h)(4) of the
Department's regulations, will no longer be permitted for these firms.
The Department shall determine, and the Customs Service shall
assess, antidumping duties on all appropriate entries. We have
calculated an exporter/importer-specific assessment rate for both
companies. For each respondent we have divided the total dumping
margins for the reviewed sales by the total entered value of those
reviewed sales. We will direct Customs to assess the resulting
percentage margin against the entered Customs values for the subject
merchandise on each of respondents' entries during the review period.
While the Department is aware that the entered value of sales during
the POR is not necessarily equal to the entered value of entries during
the POR, use of entered value of sales as the basis of the assessment
rate permits the Department to collect a reasonable approximation of
the antidumping duties which would have been determined if the
Department had reviewed those sales of merchandise actually entered
during the POR.
Furthermore, the following deposit requirements will be effective
upon publication of this notice of final results of administrative
review for all shipments of Indian pipe and tube entered, or withdrawn
from warehouse, for consumption on or after the date of publication, as
provided by section 751(a)(1) of the Act: (1) the cash deposit rates
for the reviewed companies will be the rates shown above; (2) for
previously reviewed or investigated companies not listed above, the
cash deposit rate will continue to be the company-specific rate
published for the most recent period; (3) if the exporter is not a firm
covered in this review, a prior review, or the less than fair value
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. In accordance with the CIT's decisions in Floral Trade
Council v. United States, Slip Op. 93-79, and Federal-Mogul v. United
States, Slip Op. 93-83, the cash deposit rate for all other
manufacturers or exporters will be 7.08 percent, the rate determined in
the original less than fair value investigation (51 FR 9089, March 17,
1986).
These deposit requirements shall remain in effect until publication
of the final results of the next administrative review.
This notice also serves as a final 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
[[Page 47645]]
subsequent assessment of double antidumping duties.
This notice also serves as the only reminder to parties subject to
administrative protective orders (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 353.34(d)(1). Timely
written notification of the return/destruction of APO materials or
conversion to judicial protective order is hereby requested. Failure to
comply with the regulations and the terms of an APO is a sanctionable
violation. Failure to comply is a violation of the APO.
This administrative review and this notice are in accordance with
section 751(b) of the Act (19 U.S.C. 1675(b)(1)) and 19 CFR
353.22(h)(1997).
Dated: August 29, 1997.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-23994 Filed 9-9-97; 8:45 am]
BILLING CODE 3510-DS-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.