Notice of Final Determination of Sales at Not Less Than Fair Value: Collated Roofing Nails From Korea

DEPARTMENT OF COMMERCE

International Trade Administration

[A-580-827]

Notice of Final Determination of Sales at Not Less Than Fair

Value: Collated Roofing Nails From Korea

AGENCY: Import Administration, International Trade Administration, U.S.

Department of Commerce.

EFFECTIVE DATE: October 1, 1997.

FOR FURTHER INFORMATION CONTACT: Everett Kelly at (202) 482-4194 or

Brian Smith (202) 482-1766, Group II, Office Five, Antidumping

Countervailing Enforcement, Import Administration, International Trade

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

Constitution Avenue, N.W., Washington, D.C. 20230.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions effective January 1, 1995, the effective

date of the amendments made to the Tariff Act of 1930 (``the Act'') by

the Uruguay Rounds Agreements Act (``URAA''). In addition, unless

otherwise indicated, all citations to the Department regulations are to

the regulations, as codified at 19 CFR Part 353 (1997).

Final Determination

We determine that collated roofing nails (``CR nails'') from Korea

are not being sold in the United States at less than fair value

(``LTFV''), as provided in section 735 of the Tariff Act of 1930, as

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

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

Case History

Since the preliminary determination in this investigation (Notice

of Preliminary Determination and Postponement of Final Determination:

Collated Roofing Nails from Korea, 62 FR 25895 (May 12, 1997)), the

following events have occurred:

In June 1996, we verified questionnaire responses for Kabool Metals

(``Kabool'') and Senco Korea Company, Ltd., Senco Products

Incorporated, and Je Il Steel Company, Ltd. (collectively ``SENCO'').

Paslode Division of Illinois Tool Works Inc. (``Petitioner''),

respondents, and Stanley Bostich (``Stanley''), an interested party in

this investigation, submitted case briefs on August 7, 1997, and

rebuttal briefs on August 12, 1997. The Department held a public

hearing on August 13, 1997.

Scope of Investigation

The product covered by this investigation is CR nails made of

steel, having a length of \13/16\ inch to 1\13/16\ inches (or 20.64 to

46.04 millimeters), a head diameter of 0.330 inch to 0.415 inch (or

8.38 to 10.54 millimeters), and a shank diameter of 0.100 inch to 0.125

inch (or 2.54 to 3.18 millimeters), whether or not galvanized, that are

collated with two wires.

CR nails within the scope of this investigation are classifiable

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

subheadings 7317.00.55.06. Although the HTSUS subheadings are provided

for convenience and customs purposes, our written description of the

scope of this investigation is dispositive.

Fair Value Comparisons

To determine whether sales of the subject merchandise by Kabool and

SENCO to the United States were made at LTFV, we compared the Export

Price (``EP'') or Constructed Export Price (``CEP'') to the Normal

Value (``NV''), as described in the EP, CEP, and NV sections of this

notice, below. In accordance with section 777A(d)(1)(A)(i) of the Act,

we compared POI-wide weighted-average EPs or CEPs to weighted-average

NVs.

Kabool reported that it had no viable home market or third country

sales during the POI. Therefore, we made no price-to-price comparisons

for Kabool. See the NV section of this notice, below, for further

discussion.

Level of Trade and CEP Offset

In the preliminary determination, the Department determined that no

difference in level of trade (``LOT'') existed between home market and

U.S. sales for either Kabool or SENCO. None of the parties have

contested that determination. Accordingly, the Department has not

investigated further into this issue. Therefore, we determine that all

of SENCO's sales are made at a single LOT and no LOT adjustment or CEP

offset is warranted.

As explained below, we based the NV for Kabool entirely on

constructed value (``CV''). The CV LOT is that of the sales from which

we derive SG&A and profit. We derived selling, general, and

administrative expenses (``SG&A'') and profit from Kabool's sales of

all types of nails in the home market. However, the record contains

insufficient information to analyze the selling activities associated

with those sales. Therefore, as facts available, we are drawing the

inference that there is no distinction between the CV and U.S. LOTs.

This inference is consistent with the fact that neither petitioner nor

Kabool alleged a difference in LOT. Therefore we determine that a level

of trade adjustment is not warranted.

Export Price and Constructed Export Price

Kabool

We used EP in accordance with section 772(a) of the Act because the

subject merchandise was sold to unaffiliated customers before

importation and the CEP methodology was not indicated by the facts of

record. We calculated EP based on the same methodology used in the

preliminary determination, with the following exceptions: adjustments

to brokerage expenses; duty drawback; and other corrections were made

based on verification findings. (For details, see September 24, 1997,

final determination calculation memorandum for Kabool, hereafter

``Kabool calculation memo.'')

SENCO

We used EP in accordance with section 772(a) of the Act where the

subject merchandise was sold to unaffiliated customers prior to

importation because the CEP methodology was not indicated by the facts

of record. We used CEP in accordance with section 772(b) of the Act

where the subject merchandise was sold to unaffiliated customers after

importation. We calculated CEP and EP based on the same methodology

used in the preliminary determination, with the following exceptions:

adjustments to packing expenses; rebates; early payment discounts;

advertising expenses; and inland freight were made based on

verification findings. For CEP we also adjusted reported indirect

selling expenses and inventory carrying costs to exclude Korean

incurred components and applied them to transfer prices rather than

starting prices. Furthermore, we are no longer using facts available

for foreign inland freight expenses.

In addition, verification revealed that SENCO's CEP sales listing

included non-subject merchandise that SENCO had purchased from Taiwan

and Mexico. Although SENCO did not record the country of origin for

specific sales, the Department was able to determine for each model

reported the percentage of total CR nail purchases accounted for by

subject CR nails and to adjust SENCO's sales listing as appropriate.

For example: if for model ``A'' Senco Products Incorporated (``SPI'')

purchased 57 percent of its CR nails from Korea, the Department

[[Page 51421]]

multiplied the reported quantity by 57 percent for all sales of model

``A'' within SENCO's CEP sales listing. (For details, see September 24,

1997, final determination calculation memorandum for SENCO, hereafter

``SENCO calculation memo.'')

Normal Value

In order to determine whether there was a sufficient volume of

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

(i.e., the aggregate volume of home market sales of the foreign like

product is greater than five percent of the aggregate volume of U.S.

sales), we compared each respondent's volume of home market sales of

the foreign like product to the volume of U.S. sales of the subject

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

SENCO

SENCO reported that it had no home market sales during the POI.

Therefore, in accordance with section 773(a)(1)(B)(ii), we based NV for

Senco Korea on sales to its largest third country market, Canada. We

calculated NV based on the same methodology used in the preliminary

determination, with the following exceptions: adjustments were made to

packing expenses; and domestic brokerage and handling based on

verification findings. In addition, SENCO corrected omissions in the

third country sales listing used for the preliminary determination. For

purposes of calculating the final margin, we are no longer applying

facts available for the certain U.S. sales that had no third country

matches. (For details, see SENCO calculation memo).

Kabool

Kabool reported that it had no viable home or third country market

during the POI. Therefore, in accordance with section 773(a)(4) of the

Act, we based NV for Kabool on CV. In accordance with section 773(e)(1)

of the Act, we calculated CV based on the sum of the costs of

materials, labor, overhead, SG&A, profit and U.S. packing costs. We

adjusted U.S. packing costs based on our findings at verification.

Section 773(e)(2)(A) states that SG&A and profit are to be based on

the actual amounts incurred in connection with sales of a foreign like

product. In the event such data is not available, section 773(e)(2)(B)

of the Act sets forth three alternatives for computing profit and SG&A

without establishing a hierarchy or preference among the alternative

methods. The alternative methods are: (1) calculate SG&A and profit

incurred by the producer based on the sales of merchandise of the same

general type as the exports in question; (2) average SG&A and profit of

other producers of the foreign like product for sales in the home

market; or (3) any other reasonable method, capped by the amount

normally realized on sales in the foreign country of the general

category of products. In addition, the Statement of Administrative

Action (``SAA'') states that, if the Department does not have the data

to determine amounts for profit under alternatives one and two, or a

profit cap under alternative three, it still may apply alternative

three (without the cap) on the basis of the ``facts available.'' SAA at

841.

In this case, we based Kabool's SG&A and profit on the actual

amounts incurred and realized in connection with the production and of

the same general category of merchandise as described in alternative

one, above (see Comment 1, below, for further discussion).

Price to CV Comparisons

Where we compared CV to EP for Kabool, we made circumstance of sale

adjustments pursuant to section 773(a)(6)(C)(iii) of the Act and 19 CFR

section 353.56(a)(2). We made circumstance of sale adjustments, where

appropriate, for differences in bank charges and credit expenses. We

adjusted bank charges based on findings at verification. (For details,

see Kabool calculation memorandum).

Currency Conversion

We made currency conversions into U.S. dollars based on the

official exchange rates in effect on the dates of the U.S. sales as

certified by the Federal Reserve Bank.

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

foreign currencies based on the dollar exchange rate in effect on the

date of sale of the subject merchandise, except if it is established

that a currency transaction on forward markets is directly linked to an

export sale. When a company demonstrates that a sale on forward markets

is directly linked to a particular export sale in order to minimize its

exposure to exchange rate losses, the Department will use the rate of

exchange in the forward currency sale agreement.

Section 773A(a) also 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. It is the Department's practice

to find that a fluctuation exists when the daily exchange rate differs

from the benchmark rate by 2.25 percent. The benchmark is defined as

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

determine a fluctuation to have existed, we substitute the benchmark

rate for the daily rate, in accordance with established practice.

Further, section 773A(b) directs the Department to allow a 60-day

adjustment period when a currency has undergone a sustained movement. A

sustained movement has occurred when the weekly average of actual daily

rates exceeds the weekly average of benchmark rates by more than five

percent for eight consecutive weeks. (For an explanation of this

method, see Policy Bulletin 96-1: Currency Conversions (61 FR 9434,

March 8, 1996). Such an adjustment period is required only when a

foreign currency is appreciating against the U.S. dollar. The use of an

adjustment period was not warranted in this case because neither the

Korean Won nor the Canadian Dollar underwent a sustained movement.

Critical Circumstances

The petition contained a timely allegation that there is a

reasonable basis to believe or suspect that critical circumstances

exist with respect to imports of subject merchandise. Section 733(e)(1)

of the Act provides that the Department will determine that there is a

reasonable basis to believe or suspect that critical circumstances

exist if: (A)(i) there is a history of dumping and material injury by

reason of dumped imports in the United States or elsewhere of the

subject merchandise, or (ii) the person by whom, or for whose account,

the merchandise was imported knew or should have known that the

exporter was selling the subject merchandise at less than its fair

value and that there was likely to be material injury by reason of such

sales, and (B) there have been massive imports of the subject

merchandise over a relatively short period.

In this case, our final determination is negative. Accordingly, a

critical circumstances determination is irrelevant because there is no

possibility of retroactive suspension of liquidation.

Verification

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

information submitted by respondents for use in our final

determination. We used standard verification procedures, including

examination of relevant accounting and production records and original

source documents provided by respondents.

[[Page 51422]]

Interested Party Comments

Comment 1: SG&A and Profit Calculations

Petitioner opposes the Department's use of Kabool's company-wide

SG&A and profit, arguing that the company-wide data includes lower

export prices, which decreases the profit rate and, consequently,

artificially lowers dumping margin. Instead, petitioner contends that

Kabool's SG&A and profit should be based only on sales of merchandise

that belong to the same general category of ``collated nails'' and not

``all nails'' (i.e., collated and non-collated). According to

petitioner, basing SG&A and profit on both collated and non-collated

nails is inappropriate because collated nails require significantly

different capital investment and are sold to different markets.

Stanley agrees with petitioner, arguing that the use of Kabool's

company-wide SG&A and profit artificially lowers the dumping margin.

Stanley also notes that, because of the significant investment and

overhead costs attributable to CR nails, the same general category of

merchandise cannot be broader than collated nails for purposes of

calculating profit. Further, Stanley contends that Kabool has the

ability to separate the profit for collated nails from the company-wide

profit rate, but simply chose not to do so. Therefore, Stanley argues

that the Department should apply facts available in calculating the

dumping margin for Kabool.

Kabool asserts that the Department should use the profit rate based

on Kabool's sales of collated and non-collated nails, which was

provided in its April 16, 1997, supplemental Section D response, as

corrected and verified by the Department at verification. Kabool argues

that both collated and non-collated nails are processed in the same

facility using the same equipment and the same production processes.

Moreover, Kabool notes that the Department previously held that the

``class or kind'' of merchandise in a case involving steel wire nails

included all steel wire nails--without distinguishing between collated

and non-collated nails. Finally, Kabool argues that petitioner's claim

that the Department should use a profit rate specific to collated nails

was only raised in petitioner's case brief and, thus, too late in this

proceeding to request such information. Kabool also notes that although

the Department's questionnaire never requested information regarding

the profit on home market sales of collated and non-collated nails,

Kabool submitted information on its profit for nail products in the

home market. Therefore, Kabool contends that the Department should

reject petitioner's and Stanley's arguments and determine that the same

general category of merchandise upon which to base SG&A and profit is

collated and non-collated nails.

DOC Position

We agree with Kabool. Kabool does not have a viable home market or

third country market for a foreign like product. Section 773(e)(2)(B)

of the Act states that if actual SG&A and profit data on home market

sales of the subject merchandise are not available, the Department may

use the SG&A and profit rates incurred by the producer on the sales of

the same general category of merchandise as the exports in question

(see Kabool's NV section for a discussion of the three alternative

methodologies ). In this instance, we verified the aggregated SG&A and

profit data on Kabool's sales in the home market of both collated and

non-collated nails that it submitted. We determined that collated and

non-collated nails are of the same general category of merchandise.

(Cf. Certain Steel Wire Nails From Korea: Final Results of Changed

Circumstances Administrative Review and Revocation of Antidumping Duty

Order, 50 FR 40045 (Oct. 1, 1985) (all steel wire nails found to

constitute a single class or kind of merchandise). Accordingly,

consistent with section 773(e)(2)(B), the Department has used the

verified SG&A and profit rate reported by Kabool on its sales of all

nails in the home market.

Comment 2: Facts Available

Petitioner contends that the Department should use adverse facts

available for SENCO's and Kabool's dumping margins. Petitioner argues

that the numerous verification corrections, whether disclosed by the

respondents or found by Department officials, indicate that both Kabool

and SENCO have failed to act to the best of their abilities. Petitioner

specifies four examples of problems with SENCO's responses: (1) errors

in the reporting of purchases of CR nails from Je Il Steel Company Ltd.

(``JISCO''); (2) inability to explain discrepancies in reported

trucking freight charges; (3) discrepancies noted by the Department

when reconciling quantity and value figures to SPI's financial

statements; and (4) failure to include POI sales to Canada in the third

country database. Further, petitioner argues that SENCO did not provide

a complete explanation of its relationship with its distributor in

Canada.

SENCO states that petitioner correctly summarizes the instances in

which SENCO's submissions, prior to the preliminary determination,

warranted the use of facts available by the Department. However, SENCO

contends that it has corrected all the deficiencies in its June 2,

1997, response to the Department's second supplemental antidumping

questionnaire. Because the corrected deficiencies have been verified by

the Department, SENCO claims that the Department should use the

information provided by SENCO to make the final determination in this

investigation.

Kabool contends that the petitioner has not indicated which

corrections and errors actually merit the use of adverse facts

available. Kabool claims that the corrections it has submitted do not

warrant wholesale rejection of its responses. Kabool states it was

cooperative in providing information throughout the investigation.

Kabool further states that petitioner has not identified a single

instance of a pattern or systematic misstatement of fact in Kabool's

submissions. Accordingly, Kabool contends that there is no basis for

the Department to reject Kabool's submissions or to rely on adverse

facts available. Rather, Kabool claims that the Department's final

determination in this investigation should be based on the information

it has submitted.

DOC Position

We agree with both respondents. The facts on the record of this

investigation demonstrate that the respondents answered the

Department's questionnaire to the best of their ability. The

corrections and errors found in the responses to the Department's

questionnaire and at verification do not warrant the use of facts

available. The Department's practice is to permit respondents to

provide minor corrections to submitted information at the commencement

of verification. See, e.g., Notice of Final Determination of Sales at

Less Than Fair Value: Melamine Institutional Dinnerware Products From

Taiwan, 62 FR 1726, 1729 (January 13, 1997). Kabool and SENCO provided

the Department with their corrections in a timely manner at the

beginning of their respective verifications (cost verification report

for Kabool dated July 28, 1997; sales verification reports for Kabool,

Senco Korea, and SPI dated July 7, 1997, and July 30, 1997, July 29,

1997, respectively). In sum, the corrections submitted by Kabool and

SENCO were typical of the minor corrections routinely accepted by the

Department at the commencement of verification.

[[Page 51423]]

Accordingly, we determine that resorting to facts available is

unwarranted in this particular case. We, therefore, used all verified

information for both respondents in the final margin calculations.

Comment 3: Plating Thickness

Petitioner argues that the plating thicknesses of CR nails reported

by respondents do not meet U.S. Federal or regional building codes.

Moreover, petitioner claims that the actual plating thicknesses were

not verified by the Department. Therefore, petitioner contends that the

Department should assume that respondents were aware of the U.S.

building codes and produced CR nails that complied with the codes.

Petitioner urges the Department to use the information contained in the

petition to calculate NV based on CR nails that meet the U.S. building

codes.

Kabool argues that petitioner's statements regarding plating

thickness are unsubstantiated and do not provide any basis for

rejecting or even questioning Kabool's submissions. Kabool states that,

because its NV was based on CV, there is no question of incorrect

product comparison. Further, Kabool contends that it reported actual

costs incurred in producing (and plating) the CR nails exported to the

United States, thereby accounting for all of its materials and

fabrication costs incurred in the process of plating CR nails. Kabool

also states that the costs reported by Kabool were verified by the

Department. Accordingly, there is no basis for rejecting Kabool's

submissions.

SENCO argues that there is no indication in the petitioner's case

brief as to where or when the issue of sub-standard plating thickness

of CR nails was previously raised on the record. SENCO states that

there is nothing on the record to suggest that its CR nails do not meet

applicable standards. Accordingly, SENCO contends that there is no

basis for rejecting SENCO's submissions.

DOC Position

We agree with Kabool that we have captured all costs incurred in

producing CR nails. During the cost verification of Kabool, we examined

whether all material costs (including plating costs) associated with

the subject merchandise were included in the CV databases. We noted no

discrepancies regarding the material costs with the exception of minor

errors, which have now been corrected (see cost verification report for

Kabool dated July 28, 1997). Thus, we have verified all of Kabool's

material costs. With respect to SENCO, we noted no discrepancies

regarding its reported product characteristics. Any alleged

misrepresentation concerning compliance with U.S. building codes is not

within the purview of the antidumping statute because such

misrepresentation would have no impact on our calculations.

Comment 4: Allocation Methods

Petitioner contends that respondents' allocation methods were

distortive because they were based on incorrect and unsupported

expenses in the following areas:

(1) Shipping Expenses. International freight expenses were

improperly based on gross weight instead of volume. Because CR nails

weigh less per cubic foot than bulk nails, respondents' shipping

expenses were thus systematically under-reported.

(2) Production Expenses, Factory Overhead, and Indirect Selling

Expenses. The allocation method for production-related expenses,

factory overhead, and indirect selling expenses should be based on

weight that includes scrap. However, the post-scrap production

expenses, such as packing, should be allocated based on weight of the

CR nails without scrap.

(3) Duty drawback. The duty drawback expense allocation method

should be based on the net weight of CR nails.

(4) Actual Weighing. The Department should rely on actual physical

weighing of the CR nails, not the reported gross weight for all

allocation methods based on weight.

In rebuttal, Kabool argues that petitioner's assertions, which are

enunciated for the first time in petitioner's case brief, are untimely.

Moreover, Kabool emphasizes that the allocation methods used are

consistent with the Department's past practice and the proposed

modification would produce insignificant changes. Therefore, any

modification of Kabool's current allocations is without merit.

Specifically, Kabool addresses the following allocations:

First, Kabool argues that petitioner's assumption that Kabool's

shipments regularly include both bulk nails and CR nails is inaccurate.

Kabool states that it reported actual ocean freight costs for its U.S.

sales on a shipment-by-shipment basis. Moreover, Kabool contends that

allocation of ocean freight costs based on weight, rather than volume,

is consistent with the Department's normal practice. Moreover, an

alternative allocation based on volume would not have been practical

since the documents do not state the volume of each shipment. Thus,

there is no basis to revise the freight allocations.

Second, Kabool states that petitioner's proposed allocations for

production-related expenses, factory overhead, and indirect selling

expenses are factually incorrect and contrary to the law. Kabool claims

that most of these items were not allocated based on weight. For

instance, Kabool's indirect selling expenses were allocated based on

sales value. Kabool asserts that the only overhead allocation based on

weight was the fabrication costs for polishing and coating. According

to Kabool, any new allocation would result in insignificant changes.

Third, Kabool argues that it did allocate duty drawback based on

the net weight of the CR nails.

Finally, Kabool states that it reported its shipping expenses,

production-related expenses, factory overhead, indirect selling

expenses, and duty drawback in accordance with Korea's generally

accepted accounting principles (``GAAP'') and its own cost accounting

system. Kabool claims that the statute requires the Department to

follow the methodologies used in the company's normal accounting

system. Moreover, Kabool argues that to allocate expenses based on a

weight that includes scrap is nonsensical as this would result in

allocating a portion of the product costs to scrap and not to the

finished product. Accordingly, there is no reason to allocate these

expenses in the manner petitioner has proposed.

SENCO claims that petitioner failed to adequately identify in its

case brief what type of shipping expenses should be subject to a

different allocation methodology. SENCO also notes that its

methodologies for calculating freight expenses were verified by the

Department and generally accepted as appropriate. In addition, SENCO

states that it reported that it received no duty drawback on the

exportation of CR nails.

DOC Position

The Department normally accepts the company's recording of costs,

provided that it reasonably reflects the cost of producing subject

merchandise and it is in accordance with the home country's GAAP. See

section 773(f)(1)(A); SAA at 834-35; Final Determination of Sales at

Less Than Fair Value: Large Newspaper Printing Presses from Japan, 61

FR 38139 (July 23, 1996). We have determined that the allocations of

the expenses, challenged by petitioner, are reasonable for the reasons

stated below.

(1) Shipping Expenses. We found no discrepancies with respect to

the allocation methodology used by respondents. (See Sales Verification

Reports for Kabool at 7 and Senco Korea

[[Page 51424]]

at 10 dated July 7, 1997, and July 30, 1997, respectively.)

Respondents' cost accounting systems, which are consistent with Korean

GAAP, only record the weight of their shipments to customers, not the

volume. Thus, the allocation method used was the most specific method

feasible. In addition, it does not cause distortions or inaccuracies in

our calculations. Therefore, the Department has not changed the freight

methodology for the final determination.

(2) Production Related Expenses, Factory Overhead, and Indirect

Selling Expenses. Allocating expenses over the weight of the finished

goods necessarily accounts for all costs related to scrap. If the

Department were to allocate certain expenses over a weight which

included scrap, the denominator of the calculation would be greater

than the weight of the finished product and would result in

understating the per-unit expense.

Further, most of Kabool's items were not allocated based on weight.

Indirect selling expenses were allocated based on sales value. The only

overhead allocation based on weight was the fabrication costs for

polishing and coating. Therefore, any new allocation would have been

insignificant. Thus, we reject petitioner's argument and will continue

to allocate expenses over the total amount of finished product.

(3) Duty Drawback. As stated in the sales verification reports

dated July 9, 1997, and July 30, 1997, the Department verified that

Kabool allocated duty drawback on the net weight of the CR nails and

that Senco Korea received no duty drawback on the exportation of CR

nails.

(4) Physical Weights. At verification, the Department examined the

weights of the products in order to confirm certain allocation factors.

We found no discrepancies. We will use each company's verified weights

in our calculations.

Respondents reported all of the aforementioned expenses in

accordance with Korea's GAAP and their own cost accounting systems (see

Section 773(f)(1) of the Act). The methodologies for calculating these

expenses were verified by the Department and accepted as appropriate.

Accordingly, the Department did not change the allocation methodologies

for these expenses. Further, as noted above, because few factors were

allocated on the basis of weight any changes in the allocations would

not have a significant impact.

Comment 5: Constructed Value Calculation--Kabool

Petitioner argues that Kabool's cost methodology for CV was not

appropriate because the cost of materials obtained from non-affiliated

suppliers should be determined through a price comparison against

independent Korean market values to ensure that prices are reasonable.

DOC Position

We disagree with petitioner. The Department verified Kabool's cost

of materials. Kabool's material purchases constituted arm's-length

transactions and reported costs were tested against Kabool's cost

accounting systems. Because the prices that Kabool paid for its

materials reflect market values, it is neither necessary nor

appropriate for the Department to benchmark Kabool's material costs

against other ``independent'' market values.

Comment 6: Collapsing Senco Korea and its Affiliate

Petitioner claims that Senco Korea and its affiliate should be

collapsed for purposes of the final determination. Petitioner states

that in identifying the potential for manipulation of price or

production the Department may consider the following factors: (1) Level

of common ownership; (2) shared management; (3) intertwined operations,

shared facilities and/or employees, and significant transactions

between affiliated parties. Petitioner cites Sulfanilic Acid From

China: Preliminary Results of Antidumping Duty Administrative Review,

62 FR 25917 (May 12, 1997), in which the Department found that two

companies were affiliated when substantial retooling of either company

would not be necessary to restructure their collective manufacturing

priorities, and that there was a potential for price manipulation

between the two producers. Petitioner claims that the same principle

should be applied to Senco Korea and its affiliates.

SENCO argues that petitioner fails to identify Senco Korea's

alleged affiliate, but states that SENCO assumes that petitioner is

referring to JISCO. SENCO states that it has readily acknowledged on

the record that JISCO is affiliated with Senco Korea. However, SENCO

contends that because the Department verified that JISCO had no

independent sales of CR nails, Senco Korea has reported all of its

sales of CR nails.

DOC Position

The Department has treated Senco Korea, JISCO, and SPI as

affiliated parties throughout the entire investigation. The companies

submitted a consolidated questionnaire response and verification

revealed no material errors or omissions that could not be corrected.

See section 771(33)(E) of the Act and SENCO's February 28, 1997,

submission of section ``A'' response to the Department's antidumping

questionnaire. Accordingly, the Department has treated these companies

as one entity. Because we are dealing with a single producer, the type

of collapsing analysis suggested by petitioner is not relevant.

Comment 7: SENCO Indirect Selling Expenses

Petitioner makes two points with respect to SENCO's reported

indirect selling expenses. First, petitioner argues that certain U.S.-

incurred indirect selling expenses, such as salaries and benefits for

the heads of customer service and distribution services, which SENCO

proposed to exclude from reported indirect selling expenses, should be

deducted from CEP. However, petitioner states that ``the Department

should make an offsetting adjustment to SG&A.''

Second, petitioner contends that SENCO inappropriately revised its

reporting of Korean-incurred indirect selling expenses and inventory

carrying costs by allocating these items over transfer price instead of

gross price.

SENCO claims that it properly reported and allocated its indirect

selling expenses. Prior to verification, SENCO revised its indirect

selling expenses to excluding certain expenses related to selling

activities in the United States. SENCO argues that this correction was

appropriate because these expenses are incurred in Korea. SENCO also

asserts that SG&A expenses should not have been included in the

indirect selling expenses incurred in Korea and that the corrected

amounts were reviewed at verification.

SENCO contends that basing indirect selling expenses on the

transfer price, rather than the resale price originally reported,

constituted an appropriate correction that was explained to the

Department at verification.

DOC Position

With respect to petitioner's first argument, we agree. We have not

accepted SENCO's proposal to exclude from the indirect selling expenses

deducted from CEP certain selling expenses incurred at SPI because

those expenses relate to economic activity in the United States.

Because Senco Korea's margin calculation is based on a price-to-price

comparison, there is no

[[Page 51425]]

need to correct SG&A as that figure is not used in the calculation.

With respect to the allocation of Korea-incurred selling and

inventory carrying expenses, the Department does not need to address

this question because these expenses have not been determined to be

associated with economic activity in the United States and thus are not

being deducted from CEP or otherwise taken into account.

Comment 8: Correct Reporting of Affiliated Parties

Petitioner contends that sales made between Senco Korea and its

customer in Canada do not appear to be at arm's length. Accordingly,

petitioner urges the Department to use facts available in its final

determination in this investigation.

Stanley claims that SENCO failed to provide complete information

regarding its affiliations (or ``relationships with its customers'').

Stanley states that Senco Korea's distributor for CR nails in Canada is

affiliated with the corporate entity that controls SPI. Because of the

lack of complete information with respect to SENCO's affiliates,

Stanley contends that the Department is not able to determine whether

Senco Korea's reported third country sales are arm's-length

transactions. Accordingly, Stanley contends, the Department is required

to use facts available for making SENCO's final determination in this

investigation.

SENCO argues that it has no affiliates in Canada and that it

properly excluded from its sales listing CR nails sales made by its

unaffiliated distributor. According to SENCO, its customer in Canada is

an unaffiliated distributor and the independent relationship of many of

SPI's various distributors was verified by the Department.

DOC Position

We agree with SENCO. At verification, we noted that SPI has a large

number of formal business relationships with many distributors and

resellers throughout the world and the majority of these relationships

do not meet the Department's requirements for affiliation (see SPI

verification report at 3, July 29, 1997). Specifically, there was no

indication noted by the Department that SPI was affiliated with its

customer in Canada. Accordingly, there is no basis to conclude that the

third country sales listing is flawed, and use of facts available for

the Department's determination is not warranted. Moreover, we note that

petitioner and Stanley first raised this concern in their case briefs--

far too late in this proceeding for a detailed analysis of potential

affiliation between a supplier and its customer.

Comment 9: Critical Circumstances

Petitioner alleges that the petition provided a reasonable basis to

suspect that critical circumstances exist with respect to imports of

subject merchandise. In particular, petitioner maintains that the

revoked antidumping order on steel wire nails from Korea, Certain Steel

Wire Nails From Korea, 50 FR 40045 (Oct. 1, 1985), provides a

sufficient basis to find a history of dumping (a requirement of section

733(e)(1)(i) of the Act). Accordingly, petitioner believes that there

is a reasonable basis to suspect that critical circumstances exist with

respect to imports of subject merchandise.

Kabool contends the Department should affirm its preliminary

determination that critical circumstances do not exist in this case for

Kabool. Kabool asserts that petitioner neglected to mention three

facts: (1) The steel wire nails final determination cited by petitioner

was published in 1980, which is more than 15 years ago; (2) the same

steel wire nails antidumping order was revoked in October 1985; (3)

Kabool was not investigated in that proceeding, and it was never found

to be dumping steel wire nails or any other product. For the above

reasons, Kabool claims that petitioner's argument should be rejected.

SENCO states that nothing has changed since the preliminary

determination to alter the Department's conclusion that the first prong

of section 733(e)(1) pertaining to history of dumping, or knowledge on

the part of importers, has not been met. Furthermore, SENCO submits

that the second prong of that provision cannot be satisfied because the

change in the quantity of shipments of CR nails by Senco Korea to the

United States from the post-petition period over the pre-petition

period does not indicate that imports were massive. Because neither

prong of section 733(e)(1) has been satisfied, SENCO argues that there

is no basis to find that critical circumstances exist.

DOC Position

Because our final determination is negative, it is not necessary to

address whether critical circumstances exist as there is no possibility

of retroactive suspension of liquidation.

Comment 10: Unverified CEP Expenses

SENCO claims that the Department should accept its reported data

for the following expenses: U.S. inland freight, U.S. customs duties,

credit expenses, advertising expenses, and inventory carrying costs

incurred in the United States. Although the Department was unable to

verify these expenses, SENCO notes that the verification process was

generally complete. SENCO contends it demonstrated a willingness to

cooperate with the Department by responding to the antidumping

questionnaires in a timely manner. Accordingly, the application of

adverse facts available would be inappropriate.

Petitioner contends that the Department's inability to verify the

CEP expenses was not minor. Petitioner argues that the treatment of

these expenses directly affects the Department's calculation

methodology for the final determination. Petitioner claims that the

Department is required to verify all information relied upon in its

final determination. Accordingly, for these unverified expenses,

petitioner urges the Department to use facts available.

DOC Position

Due to limitations of time and resources, the Department is rarely

able to verify every single piece of data submitted in a response. See

Monsanto Co. v. United States 698 F. Supp. 275, 281 (1988)

(``Verification is a spot check and is not intended to be an exhaustive

examination of the respondent's business.'') Verification is an

opportunity for the Department to test the accounting and business

systems of the respondent to a level of detail that gives the

Department a reasonable indication as to the integrity of the response.

See Micron Technology, Inc. v. United States, 117 F.3d 1386, 1396

(1997) (ITA performs selective verification of reported data until it

is satisfied that the data supplied by the foreign respondent is

accurate). For the information that was verified, the Department found

no significant problems. While we would have preferred to have an

opportunity to verify these expenses, based on the results of

verification, we find SENCO's data to be reliable overall. Moreover, we

find that the level of SENCO's cooperation with our requests for

information would not warrant an adverse inference. Nor have we found

any reason based on other information on the record to conclude that

the information in question is erroneous. Thus, even though not

specifically verified, SENCO's reported expense information is the most

appropriate facts available to the Department for the calculation of

SENCO's margin. Accordingly, the Department has used

[[Page 51426]]

SPI's CEP expenses for purposes of the final determination.

Comment 11: Treatment of Relocation Costs for CV

Kabool states that it made a substantial investment in relocating

its production facilities. Kabool states that production levels were

limited by technical factors and contends that production during and

immediately after relocation constitutes a start-up operation under the

statute. Kabool contends that the Department should reduce CV to

account for this relocation, either by granting a start-up adjustment

or by determining that these costs are extraordinary.

Kabool contends that the plant relocation was clearly unusual in

nature and infrequent in occurrence, thus satisfying the criteria for

an expense to be considered extraordinary.

Petitioner contends that Kabool's plant relocation does not require

special treatment by the Department. Petitioner further states that

Kabool did not supply the necessary data to effect the requested

adjustment. Furthermore, Kabool did not establish (as the statute

requires) that the startup period extended ``beyond the POI.''

DOC Position

We agree with petitioner that it is not appropriate to make an

adjustment, under the startup provision of section 773(f)(1)(C)(ii) of

the Act, to account for the costs incurred by Kabool during the

relocation of its production facility. To qualify for an adjustment for

startup operations, the producer must show that (1) it is using new

production facilities or producing a new product that requires

substantial additional investment, and (2) the production levels are

limited by technical factors associated with the initial phase of

commercial production. See 773(f)(1)(C)(ii). The SAA explains that

``new production facilities'' means substantially complete retooling of

an existing plant that involves a replacement or rebuilding of nearly

all production machinery. See SAA at 836. A product is ``new,''

according to the SAA, if it requires ``substantial additional

investment,'' or if the producer incurs substantial additional cost

because of revamping or redesigning its existing product. Id.

In this case, Kabool reported in its April 16, 1997, supplemental

section D response that all of the production machinery used in

Kabool's new plant was transferred from its old plant. Kabool thus did

not replace or rebuild nearly all of its machinery, but merely

relocated its production facility. Kabool's technology for producing CR

nails has not changed and there is nothing on the record to indicate

that a new product is being produced in the new facility. Because

Kabool merely relocated its production facility without replacing or

rebuilding nearly all of its machinery, and the record evidence does

not show that the relocation involved a substantial investment in

connection with the revamping or redesigning of CR nails, the first

condition for the start up adjustment is not satisfied.

Because Kabool does not meet the requirements outlined in the first

prong of the start-up provision, the Department is not required to

address whether or not Kabool's production levels were limited by

technical factors associated with the initial phase of commercial

production during the relocation of its facilities. In sum, the

Department has determined to reject Kabool's claim for startup

adjustment because it did not demonstrate that its production facility

was new, or that it would involve a production of a new product under

section 773(f)(1)(C)(ii) of the Act.

As in the preliminary determination, Department did not make an

adjustment for Kabool's relocation costs based on the Department's

practice of adjusting CV for extraordinary costs. The Department

maintains that additional expenses stemming from Kabool's relocation do

not constitute, in the words of the SAA at page 832, ``an unforeseen

disruption in production,'' which is beyond the management's control.''

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

Newspaper Printing Presses, from Japan, 61 FR 38139, 38153, July 23,

1996). Accordingly, because the relocation was not an unforseen event,

the Department will include all the expenses associated with the

relocation of Kabool's nail production facilities for purposes of

calculating CV.

Comment 12: Indirect Selling Expenses--Kabool

Kabool claims that the revised home-market indirect selling expense

calculation set forth in the sales verification report incorrectly

allocates all of Kabool's home-market indirect selling expenses (which

related to sales of all of its products) over the sales of CR nails

sales instead of company wide sales. Accordingly, the Department should

make the correction of the calculation error.

Petitioner states that the Department should include indirect

selling expenses for the same general category of products (i.e.

collated nails) as the Department should select for SG&A and profit.

Petitioner argues that by including indirect selling expenses allocated

for sales in the same general category, the Department will be making

the most precise calculation of CV.

DOC Position

We agree with Kabool. The Department made a calculation error in

the recalculation of the home-market indirect selling expense (see the

Department's July 28, 1997, cost verification report, page 13).

Accordingly, the Department has corrected the calculation as

illustrated on page 15 of Kabool's August 6, 1997, case brief. For

reasons outlined in our response to comment 1 we are calculating

indirect selling expenses based on sales of the same general category

of nails as provided by Kabool.

Termination of Suspension of Liquidation

In accordance with section 735(c)(2) of the Act, we are directing

the Customs Service to terminate suspension of liquidation and release

any bond or other security and refund any cash deposit.

The weighted-average dumping margins are as follows:

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

Margin

Manufacturer/Producer/Exporter percentage

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

Senco...................................................... 0

Kabool..................................................... 0

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

Because our determination is negative, the investigation will be

terminated upon publication of this notice and no order will be issued.

International Trade Commission Notification

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

International Trade Commission of our determination.

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

Act.

Dated: September 24, 1997.

Robert LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-26047 Filed 9-30-97; 8:45 am]

BILLING CODE 3510-DS-P