Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products From Korea: Final Results of Antidumping Duty Administrative Reviews
Federal RegisterApr 15, 1997
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-580-815 & A-580-816]
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat
Products From Korea: Final Results of Antidumping Duty Administrative
Reviews
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Final results of antidumping duty administrative reviews.
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SUMMARY: On October 4, 1996, the Department of Commerce (``the
Department'') published the preliminary results of the administrative
reviews of the antidumping duty orders on certain cold-rolled and
corrosion-resistant carbon steel flat products from Korea. These
reviews cover three manufacturers/exporters of the subject merchandise
to the United States and the period August 1, 1994, through July 31,
1995. We gave interested parties an opportunity to comment on our
preliminary results. Based on our analysis of the comments received, we
have changed the results from those presented in the preliminary
results of review.
EFFECTIVE DATE: April 15, 1997.
FOR FURTHER INFORMATION CONTACT: Charles Rast (Dongbu), Steve
Bezirganian (POSCO), Alain Letort (Union), or John Kugelman, AD/CVD
Enforcement Group III--Office 8, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230, telephone 202/482-5811
(Rast), 202/482-1395 (Bezirganian), 202/482-4243 (Letort), or 202/482-
0649 (Kugelman), fax 202/482-1388.
SUPPLEMENTARY INFORMATION:
Applicable Statute
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 Round Agreements Act (``URAA''). In addition, unless
otherwise indicated, all citations to the Department's regulations are
to the current regulations, as amended by the interim regulations
published in the Federal Register on May 11, 1995 (60 FR 25130).
Background
The Department published antidumping duty orders on certain cold-
rolled and corrosion-resistant carbon steel flat products from Korea on
August 19, 1993 (58 FR 44159). The Department published a notice of
``Opportunity to Request an Administrative Review'' of the antidumping
duty orders for the 1994/95 review period on August 1, 1995 (60 FR
39150). On August 31, 1995, respondents Dongbu Steel Co., Ltd.
(``Dongbu''), Union Steel Manufacturing Co., Ltd. (``Union''), and
Pohang Iron and Steel Co., Ltd. (``POSCO''), requested that the
Department conduct administrative reviews of the antidumping duty
orders on cold-rolled and corrosion-resistant carbon steel flat
products from Korea. On the same day, the petitioners in the original
less-than-fair-value (``LTFV'') investigations (Bethlehem Steel
Corporation, U.S. Steel Group--a unit of USX Corporation, Inland Steel
Industries, Inc., Geneva Steel, Gulf States Steel Inc. of Alabama,
Sharon Steel Corporation, and Lukens Steel Company, collectively
referred to as ``petitioners'') filed a similar request. We initiated
these reviews on September 5, 1995 (60 FR 46817--September 8, 1996).
Under the Act, the Department may extend the deadline for
completion of an administrative review if it determines that it is not
practicable to complete the review within the statutory time limit of
365 days. On March 22, 1996, the Department extended the time limits
for preliminary and final results in these reviews. See Extension of
Time Limit for Antidumping Duty Administrative Reviews, 61 FR 14291
(April 1, 1996).
On October 4, 1996, the Department published in the Federal
Register the preliminary results of the second administrative reviews
of the antidumping duty orders on certain cold-rolled and corrosion-
resistant carbon steel flat products from Korea (61 FR 51882). The
Department has now completed these administrative reviews in accordance
with section 751 of the Act.
Scope of the Review
The review of ``certain cold-rolled carbon steel flat products''
covers cold-rolled (cold-reduced) carbon steel flat-rolled products, of
rectangular shape, neither clad, plated nor coated with metal, whether
or not painted, varnished or coated with plastics or other nonmetallic
substances, in coils (whether or not in successively superimposed
layers) and of a width of 0.5 inch or greater, or in straight lengths
which, if of a thickness less than 4.75 millimeters, are of a width of
0.5 inch or greater and which measures at least 10 times the thickness
or if of a thickness of 4.75 millimeters or more are of a width which
exceeds 150 millimeters and measures at least twice the thickness, as
currently classifiable in the Harmonized Tariff Schedule (``HTS'')
under item numbers 7209.15.0000, 7209.16.0030, 7209.16.0060,
7209.16.0090, 7209.17.0030, 7209.17.0060, 7209.17.0090, 7209.18.1530,
7209.18.1560, 7209.18.2550, 7209.18.6000, 7209.25.0000, 7209.26.0000,
7209.27.0000, 7209.28.0000, 7209.90.0000, 7210.70.3000, 7210.90.9000,
7211.23.1500, 7211.23.2000, 7211.23.3000, 7211.23.4500, 7211.23.6030,
7211.23.6060, 7211.23.6085, 7211.29.2030, 7211.29.2090, 7211.29.4500,
7211.29.6030, 7211.29.6080, 7211.90.0000, 7212.40.1000, 7212.40.5000,
7212.50.0000, 7215.50.0015, 7215.50.0060, 7215.50.0090, 7215.90.5000,
7217.10.1000, 7217.10.2000, 7217.10.3000, 7217.10.7000, 7217.90.1000,
7217.90.5030, 7217.90.5060, 7217.90.5090. Included in this review are
flat-rolled products of non-rectangular cross-section where such cross-
section is achieved subsequent to the rolling process (i.e., products
which have been ``worked after rolling'')--for example, products which
have been beveled or rounded at the edges. Excluded from this review is
certain shadow mask steel, i.e., aluminum-killed, cold-rolled steel
coil that is open-coil annealed, has a carbon content of less than
0.002 percent, is of
[[Page 18405]]
0.003 to 0.012 inch in thickness, 15 to 30 inches in width, and has an
ultra flat, isotropic surface.
The review of ``certain corrosion-resistant carbon steel flat
products'' covers flat-rolled carbon steel products, of rectangular
shape, either clad, plated, or coated with corrosion-resistant metals
such as zinc, aluminum, or zinc-, aluminum-, nickel- or iron-based
alloys, whether or not corrugated or painted, varnished or coated with
plastics or other nonmetallic substances in addition to the metallic
coating, in coils (whether or not in successively superimposed layers)
and of a width of 0.5 inch or greater, or in straight lengths which, if
of a thickness less than 4.75 millimeters, are of a width of 0.5 inch
or greater and which measures at least 10 times the thickness or if of
a thickness of 4.75 millimeters or more are of a width which exceeds
150 millimeters and measures at least twice the thickness, as currently
classifiable in the HTS under item numbers 7210.30.0030, 7210.30.0060,
7210.41.0000, 7210.49.0030, 7210.49.0090, 7210.61.0000, 7210.69.0000,
7210.70.6030, 7210.70.6060, 7210.70.6090, 7210.90.1000, 7210.90.6000,
7210.90.9000, 7212.20.0000, 7212.30.1030, 7212.30.1090, 7212.30.3000,
7212.30.5000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7212.60.0000,
7215.90.1000, 7215.90.3000, 7215.90.5000, 7217.20.1500, 7217.30.1530,
7217.30.1560, 7217.90.1000, 7217.90.5030, 7217.90.5060, 7217.90.5090.
Included in this review are corrosion-resistant flat-rolled products of
non-rectangular cross-section where such cross-section is achieved
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
beveled or rounded at the edges. Excluded from this review are flat-
rolled steel products either plated or coated with tin, lead, chromium,
chromium oxides, both tin and lead (``terne plate''), or both chromium
and chromium oxides (``tin-free steel''), whether or not painted,
varnished or coated with plastics or other nonmetallic substances in
addition to the metallic coating. Also excluded from this review are
clad products in straight lengths of 0.1875 inch or more in composite
thickness and of a width which exceeds 150 millimeters and measures at
least twice the thickness. Also excluded from this review are certain
clad stainless flat-rolled products, which are three-layered corrosion-
resistant carbon steel flat-rolled products less than 4.75 millimeters
in composite thickness that consist of a carbon steel flat-rolled
product clad on both sides with stainless steel in a 20%-60%-20% ratio.
These HTS item numbers are provided for convenience and customs
purposes. The written descriptions remain dispositive.
The period of review (``POR'') is August 1, 1994 through July 31,
1995. These reviews cover sales of certain cold-rolled and corrosion-
resistant carbon steel flat products by Dongbu, POSCO, and Union.
Verification
As provided in section 776(b) of the Act, we verified information
provided by Dongbu, POSCO, and Union using standard verification
procedures, including the examination of relevant sales and financial
records, and selection of original source documentation containing
relevant information.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received comments and rebuttal comments from
Dongbu, POSCO, and Union, exporters of the subject merchandise
(``respondents''), and from petitioners. Petitioners requested a public
hearing, which was held on December 16, 1996.
General Comments
Petitioners' Comments
Comment 1. Petitioners allege that the home market for such or
similar merchandise in Korea is not a viable comparison market, and
that the Department should base normal value (``NV'') on sales to third
countries. Petitioners cite section 773(a)(1)(C)(iii) of the Act, which
provides that the Department will use third-country sales as the basis
for normal value if ``the particular market situation in the exporting
country does not permit a proper comparison with the export price or
the constructed export price.'' 19 U.S.C. 1677b(a)(1)(C)(iii). The
Statement of Administrative Action (``SAA'') accompanying the URAA
states that ``* * * Commerce may determine that home-market sales are
inappropriate as a basis for determining normal value if the particular
market situation would not permit a proper comparison. The Agreement
[on Implementation of Article VI] does not define `particular market
situation,' but such a situation might exist where a single sale in the
home market constitutes five percent of sales to the United States or
where there is government control over pricing to such an extent that
home-market prices cannot be considered to be competitively set.'' H.R.
Doc. No. 316, 103rd Cong., 2nd Sess. 822 (1994). Petitioners argue that
steel prices in Korea are controlled de facto by the government of
Korea to such an extent that home-market prices cannot be considered to
be competitively set, making the Korean market non-viable.
Petitioners provide several lines of argument in support of their
contention that the Korean market is not viable. In their first line of
argument, petitioners contend that statements by numerous sources--both
the interested parties themselves and widely acknowledged independent
authorities--demonstrate the Korean government's control over the price
at which both subject merchandise and other non-steel products are
sold. These sources are:
(1) Circumstantial evidence, in the form of data submitted by the
respondents themselves, which allegedly demonstrates that prices for
subject merchandise in Korea remained flat and coincident from 1991
through 1995, even though all formal, de jure government price controls
had ended by February 7, 1994.
(2) Petitioners claim that independent, third party sources confirm
the existence of government control over steel prices and that no
credible, independent source has ever denied the existence of price
controls. Petitioners cite numerous articles and financial reports,
published in reputable financial dailies and by major financial
institutions in which the existence of government control over steel
prices is discussed. In particular, petitioners cite the following
sources in support of their allegations:
``Domestic steel prices in Korea do not necessarily move
directly with international prices or the domestic supply and demand
due to government price controls.'' Barclays de Zoete Wedd (Asia)
Limited, POSCO: The Price Is Right at 4 (Jan. 29, 1996) (``BZW
Report'').
``[T]he government allowed 4.2 percent domestic price
increases in April for the first time since 1991 to induce cold-rolled
steel makers to supply more volume to the domestic market.'' Id. at 11.
``POSCO needs government approval to raise domestic prices
and domestic prices rarely fluctuate due to the government's anti-
inflationary pricing policy.'' Id. at 17, in the section entitled
``Domestic Prices Are Under Government Control.''
[[Page 18406]]
``Prices, however, continued to fall due to the
government's tight pricing policy on * * * steel and cement.'' Hoare
Govett Securities, Ltd., Korean Steel Companies--Industry Report at 6
(Nov. 1, 1994) (``HGS Report'').
``With the Government as its largest shareholder, [POSCO]
has supported many domestic steel companies with stable prices.''
Young-Kyun Ryu, ``Steel: Imported Hot-coil Price is Lower Than POSCO's
Local Price,'' Investment Newsletter (June 27, 1996).
``About 75 percent of POSCO's products are sold in Korea
where a controlled market and strong domestic demand have smoothed the
traditional volatility of international steel markets.'' Investext,
POSCO--Company Report (June 12, 1996).
``The balanced market conditions have helped the
government establish a stable pricing policy on steel that protects
POSCO against cyclical downturns in the global steel industry.'' (BZW
Report)
``Domestic steel prices in Korea do not necessarily move
directly with international prices or domestic supply and demand due to
government price controls.'' John Burton, ``POSCO moves to pre-empt
challenge from Hyundai,'' Financial Times, Mar. 15, 1996.
``Domestic steel prices are under government control * *
*'' John Burton, ``Strong export prices boost POSCO 119 percent,''
Financial Times, Feb. 8, 1996.
``Last September, Metal Bulletin reported that `[d]omestic
Korean prices of CR and surface-treated sheet are closely monitored by
the Korean government * * *' '' Russ McCulloch, ``Pocos proposes
expansion into a growing market,'' Metal Bulletin, Sep. 1995, at 67.
``Though it denies it, POSCO is widely believed to
`consult' with the government about its business plans and its
pricing.'' ``South Korean Industry: The war goes on,'' The Economist,
Mar. 2, 1996, at 62.
As recognized by the Court of Appeals for the Federal Circuit
(``CAFC'') in Matsushita Elec. Indus. Co. v. United States, 750 F.2d
927, 934 (Fed. Cir. 1984), even circumstantial evidence is ``always
relevant and, indeed, may be more reliable than self-serving
declarations'' provided by respondents. Petitioners argue that these
articles and reports are so numerous, and emanate from such credible
and neutral third parties, as to give them the weight of authority. The
authors of the reports in question depend upon their knowledge of the
Korean steel market and their credibility for their very livelihoods,
claim petitioners.
(3) Petitioners assert that Union has previously admitted to the
existence of government price controls during the POR, and that Union's
subsequent retraction cannot be given any weight. In the verification
report issued as part of the first administrative review of this
proceeding, a Union official was quoted as volunteering that his
company was subject to government price controls and that ``the Korean
government sets the price levels for domestic sales * * *.'' Although
Union later ``clarified'' this statement by explaining that the Korean
government simply ``reviews and approves the price lists for domestic
sales,'' petitioners claim that this ``non-denial denial'' actually
substantiates their own claims. Petitioners argue that a year later,
after they had filed their allegation that the home market is not
viable and the full import of such a statement became clear, Union
retracted its ``non-denial denial'' and attempted to explain away its
admission by confusion over the date on which formal price controls had
been eliminated. Petitioners contend that the idea that a Union
executive could have so little idea of the company's pricing practices
as to provide a totally erroneous explanation of the government's
involvement in them is ludicrous. Petitioners point out that the record
contains several such instances of misrepresentation, omission, and
subsequent recantation by Union. Petitioners argue that admissions
against interest are considered so inherently trustworthy and probative
that they are an exception to the hearsay rule under the Federal Rules
of Evidence, and are deemed by courts to carry a circumstantial
guarantee of reliability that a party's neutral and favorable
statements are deemed to lack. See, e.g., Masson v. New Yorker
Magazine, Inc., 501 U.S. 496, 512 (1991).
(4) Petitioners contend that the Korean Iron and Steel Association
(``KOSA'') itself has acknowledged the existence of government price
controls. Petitioners quote KOSA's 1995 yearbook, which states in
pertinent part that ``the domestic price of the cold-rolled steel has
been maintained lower than the international price,'' and that the
``price management system can cause a shortage of domestic supply if
the difference of international and domestic prices becomes bigger.''
Petitioners add that when two independent professional translators,
neither of whom was apprised of the nature of the document or for what
purpose it would be used, were asked to translate this passage, they
both used ``price control'' rather than ``price management system.''
Petitioners argue that these minor differences in translation do not
detract from the evidence that the government controls steel prices in
Korea.
(5) Petitioners also submit that the price reporting termination
notices sent by the Korean government's Economic Planning Board to the
respondents repeatedly request their cooperation in the price
stabilization effort regardless of the reporting requirements.
According to petitioners, these notices indicate that the Korean
government controls the price at which subject merchandise is sold.
Petitioners also cite an authority on the Korean economy, who wrote, in
pertinent part, that ``[b]ecause of the acceptance of the government's
control over business, Korean companies will nearly always respond to
government directions even though they may not be legally binding. [ *
* * ] Failing to comply with administrative guidance on the ground that
it is not legally binding may result in disadvantageous treatment in
future transactions for which government approval is required.'' See
Trenholme J. Griffin, Korea: The Tiger Economy, 1988, appended to
petitioners' October 15, 1996 letter at Exhibit 10.
(6) Petitioners contend that the Korean government itself recently
announced price controls on flat-rolled steel products outside the
scope of the instant review. On October 9, 1996, petitioners allege,
the Korean Ministry of Finance and Economy issued a press release in
which it stated that POSCO would reduce domestic prices of hot-rolled
steel coil from its mini-mills at the end of that month. Petitioners
argue that whether or not POSCO announced the price cut itself in an
earlier press release is irrelevant, since that announcement was
subsequent to the Korean government's ``September 3rd
Countermeasures,'' whose explicit policy goal was the stabilization of
prices. Petitioners cite a letter (dated October 22, 1996) from Korea's
Ministry of Trade, Industry, and Energy to the United States Trade
Representative (``USTR'') as further proof of their allegations.
Petitioners find it ``suspicious'' that the Korean government saw
no need to ``clarify'' its statement until after the press release was
entered on the record of these proceedings and the trade-related
implications of the October 9 announcement became apparent. POSCO
itself did not protest the Korean government's announcement of the
price reduction as its own initiative until after the press release was
entered onto the record of these proceedings.
[[Page 18407]]
Petitioners argue that if the official government press release
announcing POSCO's price reductions was truly in error, then there is
no reason to accept the veracity of statements contained in a self-
serving, post hoc government letter of limited circulation. Petitioners
also stress that the fact that the Korean government's letter to USTR
bears the same date as POSCO's letter to the Department, to which it
was appended, demonstrates the degree of cooperation between the Korean
steel industry and the Korean government, a relationship which
respondents insist does not exist.
(7) Petitioners assert that Hanbo Steel, whose products potentially
are subject to the antidumping duty orders on subject merchandise, has
previously admitted that price controls exist, and that its subsequent
retraction cannot be given any weight. Petitioners cite a May 27, 1994
Offering Circular by Hanbo (four months after the date the Korean
respondents claim all price controls ended), in which Hanbo stated that
prices are ``determined by the Korean government'' and that its
competitors charge the same prices for the same products. Although
Hanbo later retracted this statement, petitioners point out that in the
Offering Circular, Hanbo confirmed that the information contained in
that document was true and accurate in all material respects. Said
Offering Circular, petitioners point out, was subject to securities
fraud laws in the United States and in other jurisdictions in which
Hanbo's securities were offered or sold. Given the potential
ramifications of an admission by Hanbo of the existence of price
controls during the Department's verification in a dumping case, Hanbo
had every reason to conceal their existence and to explain away its
prior admission in the Offering Circular. Therefore, petitioners argue,
Hanbo's recantation at verification should be ignored. Furthermore,
petitioners argue, the Department's own Hanbo verification report
actually supports the fact that the Korean government controls domestic
steel prices. See the Memorandum from Richard O. Weible to the Files
dated February 21, 1997.
(8) Finally, petitioners point to an article in Korea's leading
English-language daily, the Korea Herald, according to which leading
Korean steel makers, in a meeting with the Minister of Trade, Industry,
and Energy, requested the lowering of domestic hot-coil prices.
Petitioners affirm this belies statements by Korean government
officials denying government intervention in steel pricing. In another
article reporting on the same meeting and submitted by respondents
Dongbu and Union, it was stated that ``the request embarrassed the
Minister because that issue was not on the agenda of the meeting * *
*.'' To petitioners, such language suggests that issue is sometimes
included on the agenda of government-industry meetings.
In their second line of argument, petitioners claim that mechanisms
remain by which the Korean government can control the price at which
steel is sold in the domestic market, and which explain why
respondent's prices remained flat after the purported end of price
controls. Petitioners allege that the Korean government controls prices
through administrative guidance and through monitoring of the
respondents' prices and production costs under the ``Monopoly
Regulation and Fair Trade Act'' (``MRFTA'').
Petitioners allege that the Department itself, in a 1995 commercial
guide issued by the International Trade Administration, concluded that
``government intervention is extensive'' and that ``the prices of many
products are de facto controlled.'' See Korea: Economic Trends and
Outlook (USDOC, International Trade Administration, August 23, 1995).
Petitioners also allege that in a May 1994 article, after the putative
end of de jure price controls, the Korean president's senior economic
adviser acknowledged that price controls should be liberalized ``so
that prices may be determined normally in the market and thus
administrative guidance on prices can be eliminated altogether.'' See
Ed Paisley, ``The Morning After,'' in Far Eastern Economic Review, May
26, 1994, at 52. The legal authority for these price controls,
petitioners allege, derives from the Price Stabilization and Fair Trade
Act of 1992. Petitioners allege that the Korean government uses
administrative means at its disposal to pressure businesses into
complying with its price guidelines, in particular by means of tax
audits or the threat thereof. In support of this contention,
petitioners quote the English-language daily The Korea Times as saying,
on October 12, 1996, that ``[t]he government must stop its long
practice of mobilizing tax auditors, policemen, ward officials and fire
fighters to bully businessmen not to increase prices.'' Petitioners
affirm that POSCO's own ``Economic Policy Direction for 1995'' (sales
verification exhibit 85-E) is further evidence of the Korean
government's role in stabilizing domestic prices. Finally, petitioners
note that the Korean government's status as POSCO's single largest
shareholder enables it to control domestic steel prices. Petitioners
contend that one of POSCO's competitors, Hanbo, admitted as much to a
Department official during verification: ``POSCO does not raise prices
because of the partial government control of POSCO.'' See Hanbo
Viability Verification Report at 2.
According to petitioners, respondents admit, and verification
confirmed, that the Korean government continues to collect certain data
from respondents under the MRFTA. Petitioners contend that verification
exhibits demonstrate that the data collected relates not only to market
share, but also to liabilities, capital, and profit. In petitioners'
view, this confirms the statements made in KOSA's 1994 and 1995
yearbooks that domestic steel prices ``do not reflect market
conditions'' and ``are not flexible.'' See June 26, 1996 letter from
Dewey Ballantine to the Secretary of Commerce, Exhibit 3 (at 233).
Petitioners contest respondents' assertions that the Korean
government lifted price controls on February 7, 1994, stating that the
respondents' own pricing data demonstrate the opposite. Indeed,
petitioners affirm, prices of the subject merchandise in Korea remained
flat and coincident from 1991 through 1995, well after the official
lifting of price controls. No Korean steel company changed its prices
or charged a price statistically different from its competitors after
the formal lifting of price controls.
Petitioners argue that, once freed of government control,
respondents would have been expected to alter pricing on the basis of
market forces, especially in an environment of rapidly increasing
demand and high capacity utilization. Because this did not happen,
petitioners surmise that de jure price controls were replaced with de
facto price controls. Petitioners state that the Department has used
the lack of change in certain practices as evidence of the continuation
of de facto government activity, notwithstanding the alleged
termination of de jure government involvement. See, e.g., Final
Affirmative Countervailing Duty Determinations and Final Negative
Determinations of Critical Circumstances: Certain Steel Products from
Korea (58 FR 37328, 37342-45--July 9, 1993), where the Department
rejected respondents' claim that the Korean government was no longer
engaged in credit allocation.
Petitioners find respondents' explanations for continued and
coincident flat prices in the home market conflicting and, therefore,
incredible. On the one hand, say petitioners, respondents claim that
price stability was due to long-term market
[[Page 18408]]
strategy and a concern for their customers' ``well-being,'' but on the
other hand, they claim that transaction prices vary due to adjustments
in sales and payment terms. Petitioners contend that respondents'
explanations for their domestic pricing behavior are ``incredible'' for
several reasons.
First, POSCO has admitted that its home-market prices did not
change in a context of fluctuating economic indicators, such as world
prices, capacity utilization, exchange rates, and domestic inflation.
Since International Monetary Fund statistics show that domestic
consumer prices in Korea rose 27.2 percent between 1991 and 1995,
petitioners argue that Korean steel prices, unchanging in nominal
terms, actually decreased by nearly a third during that period, at a
time when demand for steel products in Korea was extremely strong.
Second, in response to respondents' claim that their pricing
behavior is normal and expected in an oligopolistic market situation,
petitioners retort that typical oligopolistic behavior conspires to
keep prices high, not low as is the case here. Moreover, note
petitioners, in an open market even oligopolies must respond to
international price pressures. Petitioners contend that what is at work
here is an oligopoly dominated by a government-owned entity (POSCO) and
dedicated to imposing government-mandated price disciplines on much
smaller entities (Dongbu and Union).
Third, argue petitioners, not only are respondents' claims that
they were able to compensate for the stability of list prices in the
1991-1995 period by altering their ``effective'' prices unsupported by
evidence on the record, these claims actually provide further evidence
that respondents are not free to alter domestic prices in response to
market conditions. After initially denying the existence of discounts,
petitioners say, respondents subsequently claimed that effective prices
were in fact altered by their discount policies. Petitioners find these
claims irrelevant, since what they have alleged all along is a
government-imposed ceiling, not a floor, on domestic steel prices. In
addition, record evidence shows that such discounts as were granted
were minimal and had no discernible effect on the stability of reported
transaction prices. If record evidence is to be believed, say
petitioners, many of the respondents' claimed ``discounts'' are in fact
credits for returns of merchandise, set sales terms which do not vary
with market conditions, or discounts for cash payments, which are not
true discounts since they are merely an acknowledgment that the
customer, not the respondent, is bearing the cost of financing the
sales transaction.
Petitioners also dismiss as incredible respondents' claims that
differences in credit terms have also been used to vary effective
prices. If respondents' previous claims that they maintain open payment
systems in which customers are invoiced and make payments on a
revolving rather than a sale-specific basis are correct, then the terms
of payment of any particular sales transaction are irrelevant, because
respondents are unable to link payments to specific sales. Petitioners
also contend that the questionnaire responses and verification exhibits
belie the respondents' claims that differences in credit terms were
used to alter effective prices selectively. In fact, the record shows
remarkably little variance in credit terms, in particular, in the
number of days for which credit was extended. Petitioners argue that
whatever differences in credit terms existed were minor and
statistically insignificant, as evidenced by the limited variation in
respondents' domestic net prices.
Finally, petitioners characterize Dongbu's claim at verification
that differences in freight terms were also used to vary effective
prices as ``new'' and unconvincing. Although Dongbu claimed it changed
the freight absorption for a selected customer twice in two years,
petitioners argue that Dongbu did not demonstrate that it was reacting
to market conditions, or that transaction prices to that customer were
actually affected.
According to petitioners, all of the foregoing reasons lead to the
inescapable conclusion that stable and coincident home-market prices
are a result of Korean government control of domestic steel prices.
Therefore, since the Korean home market is not viable and collection of
third-country sales data is not feasible at this late stage in the
proceedings, petitioners urge the Department to resort to constructed
value (``CV'') for purposes of determining NV. Petitioners contend that
if the Department bases NV on CV, it must calculate CV in a manner
consistent with a finding that the home market is not viable.
Specifically, petitioners say it would be inappropriate for the
Department to calculate the profit component of CV based on the actual
profit realized on sales in Korea, because those transactions did not
reflect true market prices. Because Japan is the Korean steelmakers'
largest third-country market, and because the Department normally uses
sales to the largest third-country market to calculate NV when the home
market is not viable, ideally the Department should base the profit
component of CV on the respondents' experience in that market. The
record, however, does not contain complete data on the respondents'
sales to Japan. Petitioners therefore urge the Department to rely on
the facts available, within the meaning of section 776(c) of the Act,
in determining the profit component of CV.
Petitioners suggest that the most comprehensive and product-
specific facts available to the Department at this point are official
Korean trade statistics showing export prices of subject merchandise to
Japan. Petitioners submit that a CV profit figure could be calculated
based on the difference between export prices, as reported in these
official statistics, and the respondents' costs of production
(``COP'').
Respondents retort that the Korean home market is in fact viable.
To support this contention, they set forth two affirmative arguments
and one negative argument. The affirmative arguments are that the
government does not set home-market prices and that home-market prices
are based on free market competition. The negative argument is that
petitioners have provided no evidence that suggests that there are
government price controls of subject merchandise.
To support their affirmative argument that the government does not
set home-market prices, Dongbu and Union first argue that any
government controls on prices of the subject merchandise ended long
before the POR. They deny petitioners' allegation that they had
themselves acknowledged that price controls existed until February
1994. In fact, they argue, their responses to the Department's
viability questionnaire and their statements at the verifications
demonstrate that the government policy of ``prior approval'' of prices
(i.e., price controls) ended in 1981, and that applicable ``post-price
change'' reporting requirements for cold-rolled products were
terminated in 1990 and for galvanized products in 1986. Such
requirements, Dongbu and Union argue, never applied to colored products
or any other subject merchandise. Furthermore, they argue that even
these previously terminated reporting requirements did not involve
``control'' or influence over their private pricing decisions, but
actually went no further than the reporting and monitoring of price
data. Similarly, POSCO argues that the only subject merchandise for
which it was required to report prices were for cold-rolled sheet and
hot-dipped
[[Page 18409]]
galvanized (``GI'') coil, and that even the reporting requirement for
these products was terminated in 1981.
Second, POSCO argues that there is ``substantial record proof'' to
demonstrate that the government of Korea does not in fact control
prices. POSCO cites in support the September 18, 1996, Memorandum from
Steve Bezirganian and Robin Gray to the Files (``Korea sales
verification report''). This report notes that the 1995-1996 Korean
Government Economic Plans make no reference to any purported plans by
the Korean government for steel prices. The verification report also
discusses documentation from the Korean Ministry of Finance reviewing
the history of price monitoring. That discussion, POSCO argues,
indicates that there were no price controls on subject merchandise in
place during the POR. POSCO argues that the Department's extensive
verification of the issue must serve as the core of the Department's
analysis of the issue.
Third, POSCO cites to the verification reports of Korean customers
and of Hanbo Steel as evidence that the Korean government does not
control steel prices. The Customer verification report, for instance,
states, ``regarding government influences in the prices of steel
products, company A stated it is not aware of any involvement by the
government in prices set by domestic suppliers.'' Furthermore,
according to the verification report, representatives from Hanbo Steel
reported that, ``at one time they did report prices to the government
for long products, but the prices were not subject to government
approval.''
Fourth, POSCO cites to documentation written by the government of
Korea and submitted to the record of this review as evidence that the
government of Korea does not control prices. In submissions to USTR on
June 23, 1995 and July 7, 1995, the Korean government stated that it
had repealed all laws and regulations imposing any price reporting or
monitoring requirements in the Korean market. More recently, the Korean
Minister of Trade and Industry filed an official submission with USTR
on October 22, 1996 which states that the government of Korea ``had no
role or input in POSCO's pricing decisions,'' and that the government
of Korea does not control prices for hot-rolled coil from mini-mills,
or any other type of steel in the Korean market. According to POSCO,
these statements alone, submitted in the context of the Section 301
consultation mechanism, should be the end of the matter.
Finally, POSCO cites an investment report concerning POSCO prepared
by the Hannuri Salomon Securities Co., Ltd. According to POSCO, the
Hannuri Salomon report conclusively states that ``the Korean
government's direct control of domestic steel prices ended in March
1982. Thereafter, the government has not participated in POSCO's
pricing decisions.''
To support their affirmative argument that home-market prices are
based on free market competition, and are thus not subject to
government control, all respondents first explain that their relatively
stable home-market prices, which petitioners cite as a demonstration of
government control, are actually a function of their long-term pricing
strategies. Dongbu and Union explain that their strategy is to ensure
long-term growth of their companies by maintaining a loyal and healthy
domestic customer base and a consistently high volume of domestic
sales. Similarly, POSCO states that its strategy is to maintain a
stable, steady, and loyal customer base and high capacity utilization
rates. Because of these pricing strategies, all three respondents state
that they resist any major revisions to their price schedules.
Furthermore, all three respondents argue that, despite the
stability of their home-market prices, there is free market competition
in the Korean market, and that evidence of this competition is on the
record of this review. To support this argument, respondents cite to
their discounts, varying credit terms, and adjustments in freight
terms. These variations in sales terms, they argue, are clear evidence
of price competition. Therefore, based on the alleged evidence of price
competition, Dongbu and Union ask, ``If, in fact, prices in the Korean
market were repressed by the alleged government price controls, what
incentive would there be for the Korean respondents to provide any
discounts, much less [ * * * ], extended credit terms, and freight
discounts?'' (Emphasis in original.) They argue that the existence of
discounts and other concessions is compelling and dispositive evidence
that prices in the Korean market are competitively set, and should be
determinative of the issue.
In addition to seeking to establish that there is evidence of price
competition on the record, respondents also seek to rebut petitioners'
arguments purporting to show the contrary. First, respondents argue
that petitioners are mistaken in stating that prices of the subject
merchandise in Korea remained flat and coincident from 1991 through
1995. Dongbu and Union state that in fact they raised their domestic
prices in March 1995 in response to market conditions; POSCO states
that for the same reason (and because Dongbu and Union had raised their
prices) it raised its domestic prices in April 1995. POSCO argues
further that the Department verified through examination of internal
POSCO documentation that POSCO raised its prices because of changing
market conditions. POSCO theorizes that petitioners chose not to
discuss this price increase because it contradicted their theories.
Moreover, all respondents find it significant that there is no evidence
on the record that the government of Korea was in any way involved in
the price increase that occurred in March and April 1995, which was,
they state, the first significant increase in list prices for the
subject merchandise in four years.
Second, regarding petitioners' argument that their pricing policies
are not consistent with oligopolistic behavior because their domestic
prices are low, Dongbu and Union argue that the petitioners' argument
ignores long-term trends, and that the Department verified that over
the period 1991-1994 Dongbu and Union in fact maintained stable high
domestic prices for subject merchandise relative to their export
prices. Regarding petitioners' argument that what is at work here is an
oligopoly dominated by a government-owned entity (POSCO) and dedicated
to imposing government-mandated price disciplines on much smaller
entities (Dongbu and Union), POSCO argues that government officials
play no role in POSCO's pricing policies. It states that no government
officials were on POSCO's board of directors, the government did not
appoint the chairman of the board, and no government officials had
access to POSCO's pricing data. POSCO, it argues, is managed and
operated independently of the government. POSCO states too that the
Department's verification report noted no discrepancies concerning any
of these key issues.
Third, regarding petitioners' argument that the existence of
discounts is irrelevant because the petitioners are alleging a
government-imposed ceiling, and not floor, POSCO argues that if the
government of Korea did control a ceiling on prices then, as profit
maximizers, POSCO and other Korean respondents would bump right up
against that price ceiling and would not discount off of it in order to
meet competition and short-term market conditions. Regarding
petitioners' argument that the effect of the discounts was minimal,
Dongbu and Union argue that competition does not occur in the
[[Page 18410]]
aggregate, but in terms of individual customers (for whom discounts
clearly do matter), and that the discounts clearly contributed to the
statistical variation in the Korean market.
Fourth, regarding petitioners' argument that the respondents'
credit terms are irrelevant because the respondents maintain an open
payment system and are unable to link payments to specific sales,
Dongbu and Union argue that because customers usually pay by promissory
note, they can easily adjust the payment period by reducing or
increasing the number of days for which they will accept the promissory
note. Thus, they argue, while payment occurs on a revolving basis, the
average credit period can be and is altered, as the Department
verified. With respect to the same argument, POSCO argues that the fact
that it did not track payment terms in its accounting records on a
transaction-specific basis during the POR does not mean that POSCO did
not alter those same credit terms during the period 1991-1995. Rather,
it means only that POSCO cannot track those changes and credit terms on
specific sales after the fact from its computerized database.
Fifth, regarding petitioners' argument that the effect of the
varying credit terms is statistically insignificant, Dongbu and Union
argue that petitioners' argument misses the point. They argue that
these varying credit terms are only one of several pieces of an overall
policy that, when used together, have an appreciable effect on the
companies' ability to engage in significant price competition.
Sixth, regarding petitioners' argument that varying freight terms
did not establish varying effective prices, Dongbu argues that
petitioners again miss the point. They argue that freight equalization
exists solely because there is competition in the market. Customer-
specific ``discounts'' would not exist in a market where prices are
fixed and established at repressed levels because the suppliers would
have no incentive to incur any freight expense.
To support their negative arguments that petitioners have provided
no evidence that suggests that there are government price controls of
subject merchandise, respondents attack individually the arguments that
petitioners set forth that purportedly substantiate that there are
government price controls of the subject merchandise.
First, respondents argue that petitioners are incorrect in stating
that on February 7, 1994 the government of Korea decontrolled prices.
They argue that what happened on February 7, 1994 was that the price
reporting requirements for hot-rolled coil (which they allege is non-
subject merchandise) were eliminated. Dongbu and Union argue that the
elimination of this reporting requirement was a non-event for producers
of the subject merchandise, and that this explains why prices did not
change as a result of the elimination of the reporting requirement.
POSCO argues that the fact that prices remained level after the lifting
of the reporting requirements actually confirms that those reporting
requirements had no impact on POSCO's or the other Korean respondents'
prices in the first place.
Second, respondents attack the reliability of petitioners' many
``independent third-party sources.'' Dongbu and Union argue that this
``evidence'' has been superseded by the Department's findings at
verification. These findings include, they argue, the termination of
the price-monitoring system. Similarly, POSCO argues that for the
Department to ignore its own verification findings (which, they argue,
demonstrate that much of the information petitioners submitted on this
issue is incorrect ) and to instead rely on third-party press accounts
would totally negate the integrity and importance of the Department's
own verification process. Furthermore, Dongbu and Union argue that the
petitioners have focused exclusively on those statements in the
``third-party sources'' which support their interpretation, and ignored
statements contained therein that would permit an alternative
interpretation. As an example, they cite petitioners' use of the BZW
Report. Petitioners use this report to support their contention that
there is government control of pricing in Korea. However, Dongbu and
Union point out, petitioners ignore the statement in the report that
``POSCO does not keep its domestic prices and local export prices lower
than international prices any more * * * . Indeed, domestic and local
export prices exceeded international export prices in late 1991 and had
remained at higher levels until mid 1994.'' Thus, Dongbu and Union
argue, the BZW Report does not support petitioners' central contention
that the alleged price controls have kept domestic prices low.
Additionally, POSCO argues that the ``third-party sources'' are
speculative, outdated, and largely irrelevant. It argues that the bulk
of the sources consist merely of third-hand references to outdated
materials concerning non-subject merchandise or, more commonly, only
the Korean economy generally and not the steel industry at all. These
reports, POSCO argues, do not constitute evidence, much less
``convincing evidence,'' that the government of Korea controls prices
for subject merchandise in the Korean market.
Third, POSCO argues that petitioners' argument with respect to the
KOSA 1995 yearbook is invalid. It argues that the Department's
translator determined that there was no reference to price controls in
the KOSA report. The Dongbu verification report, POSCO argues, states
that the quotes from the KOSA report upon which the petitioners rely
were mistranslated.
Fourth, POSCO argues that the Economic Planning Board's requests
for cooperation in the price stabilization effort are not evidence of
government control, but merely hortatory language equivalent to the
standard exhortations that governments make in nearly all countries.
Fifth, respondents argue that the government of Korea's October 9,
1996 press release does not provide evidence of government price
controls on subject merchandise. They point out that the press release
concerned hot-rolled coil, not subject merchandise. POSCO further
argues that the press release concerns only hot-rolled coil produced at
its mini-mill, and not hot-rolled coil produced at its integrated
facilities. In light of the fact that the hot-rolled coil produced at
the mini-mill represents a miniscule amount of total hot-rolled coil
production, POSCO argues, the government would surely have required a
reduction in prices of hot-rolled coil produced at the integrated
facilities if it actually intended to control prices. Moreover, POSCO
argues that the press release did not even say that the government had
any role in POSCO's pricing decision regarding the merchandise in
question; it simply said that the pricing decision was a positive
development. If the government considered POSCO's decision to be an
``official act,'' respondents argue, this only reflects the fact that
all governments seek to take credit for positive events in which they
were not involved. Finally, respondents argue that at the POSCO
verification the Department examined various internal documents
concerning POSCO's pricing decision, and that none of those documents
indicate any government involvement in the decision.
Sixth, respondents argue that petitioners' arguments regarding
Hanbo's Offering Circular are invalid. They point out that at the Hanbo
verification Department officials interviewed and discussed the
Offering Circular at length with Hanbo officials, and that they
informed Department
[[Page 18411]]
officials that the statements in the Offering Circular were incorrect.
Furthermore, respondents argue, the verification report does not
discredit or undercut the validity of Hanbo's statements at the
verification. Additionally, Dongbu and Union argue that the Offering
Circular is irrelevant because Hanbo was not then and is not now a
producer of the subject merchandise. Moreover, they argue that much
more telling than the Offering Circular is information in the Hanbo
verification report indicating that Hanbo's hot coil prices are based
on competitive market conditions.
Seventh, POSCO argues that no weight should be given to the article
in the Korea Herald according to which leading Korean steel makers, in
a meeting with the Minister of Trade, Industry, and Energy requested
the lowering of domestic hot-coil prices. It argues that at
verification it presented to Department verifiers more current and more
detailed documentation which demonstrates that newspaper accounts of
that meeting relied on by petitioners were misplaced and inaccurate.
Eighth, POSCO argues that petitioners' speculations as to what
possible indirect mechanisms could be used by the Korean government to
possibly control prices do not constitute evidence of price control. In
fact, POSCO argues, petitioners themselves acknowledge that they have
not identified any mechanisms which are in fact used to control prices.
Regarding petitioners' use of verification exhibit 85-E, POSCO states
that petitioners have conveniently ignored the plain language of the
Department's verification report, which states that, ``in reviewing the
plans we found nothing that specifically referred to plans by the
Korean government for steel prices.''
Finally, respondents argue that the evidentiary burden of proof
placed upon the petitioners is extremely high. They must show,
respondents argue, by ``convincing evidence'' that the home market is
not viable because the government of Korea controlled the prices of
subject merchandise in the Korean market ``to such an extent that home-
market prices cannot be considered to be competitively set.'' SAA at
152. Respondents argue that, taken together, the ``evidence''
petitioners have produced does not come close to meeting that burden.
Dongbu and Union argue that even if there were a ``price ceiling'' in
the home market, the existence of that ceiling does not nearly meet the
standard in the SAA for government control of prices to the extent that
prices cannot be considered to be competitively set. Because
petitioners have failed to meet their burden, respondents argue, their
contention should be rejected.
DOC Position. We disagree with petitioners' contention that the
particular market situation in the exporting country, Korea, does not
permit a proper comparison with EP and CEP. Although petitioners have
provided evidence indicative of a not insubstantial level of government
interest, and even involvement, in the day-to-day operations of the
Korean steel industry, including domestic price levels, the record
nevertheless does not show that the Korean government controls domestic
steel prices to such an extent that home-market prices cannot be
considered to be competitively set.
Although petitioners have alleged that controls existed over
domestic steel prices in Korea until February 7, 1994, information
collected at verification shows that the Korean government's policy of
``prior approval'' over domestic steel prices ended in 1981. See, e.g.,
Union sales verification exhibits 88 and 89. These exhibits also show
that, after 1981, Union's price-reporting requirements were terminated
for galvanized (i.e, corrosion-resistant) products in 1986 and for
cold-rolled products in 1990. POSCO's general reporting requirements
for cold-rolled products were eliminated in 1981, and Dongbu's
reporting requirements for these products were eliminated in April
1993. Because home-market steel prices were flat both before and after
the reporting requirements were terminated, we cannot conclude that
those requirements had any impact on domestic prices. Furthermore,
statements made in the supplemental verification reports on the issue
of home-market viability by Hanbo and two other POSCO customers support
the conclusion that government price controls do not exist.
Additionally, the Hannuri Salomon report provided by POSCO at
verification and cited by petitioners as providing evidence of Korean
government control over domestic steel prices states that the Korean
government's direct control of domestic steel prices ended in March
1982, and that since that date the government has not participated in
POSCO's pricing decisions. See POSCO home-market sales verification
exhibit 85E at 21.
The record also contains a number of official Korean government
documents which deny the existence of government control over domestic
steel prices during the POR. The sales verification report for POSCO
notes that the 1995-1996 Korean Government Economic Plans make no
reference to any plans by the Korean government with respect to steel
prices. Documentation from the Korean Ministry of Finance indicated
that there were no price controls on the subject merchandise during the
POR. See POSCO sales verification report at 21. The Korean government,
in formal submissions made to USTR on June 23, 1995, and to the Section
301 committee on July 7, 1995, stated that all laws and regulations
requiring any price reporting or monitoring of domestic steel prices
had been repealed in stages between 1981 and February 1994, i.e.,
before the POR. More recently, on October 22, 1996, the Korean Ministry
of Trade and Industry officially notified the USTR that the Korean
government had no role or input in POSCO's pricing decisions, and that
the Korean government does not control the prices of any type of steel
in the Korean market.
With regard to the press articles, academic treatises, and reports
from financial institutions submitted by petitioners, we believe that
most of that documentation, while perhaps accurate at the time it was
written, has become somewhat outdated. Further, petitioners omitted to
cite passage in the BZW Report stating that ``POSCO does not keep its
domestic prices and local export prices lower than international prices
any more * * *. Indeed, domestic and local export prices exceeded
international export prices in late 1991 and had remained at higher
levels until mid 1994.''
With respect to the issue of whether the KOSA report confirms the
existence of government ``price controls,'' as alleged by petitioners,
our translator confirmed that this report mentioned no such controls.
We stand by the bona fides and professional qualifications of its
translators, who are hired through the auspices, and with the
recommendation, of the United Stares Embassy in Korea. See Dongbu sales
verification report at 52.
While petitioners have cited an article in the Korea Herald
according to which leading Korean steelmakers ``requested government
intervention in price adjustments,'' more current and detailed
documentation submitted at verification casts doubt on the
verisimilitude of this account. In particular, the industry periodical
Metal Bulletin, published in the United Kingdom, noted on May 30, 1996
that the Korean Minister of Trade, Industry, and Energy ``maintained
that the Korean government has no say in the pricing policies of
private companies * * *. The Government has no right to decide
prices.''
With respect to petitioners' allegation that the press release of
October 9, 1996
[[Page 18412]]
by the Korean Ministry of Finance and Economy demonstrates government
control over domestic steel prices, the Department agrees with POSCO
that (1) the press release does not explicitly or even implicitly refer
to government involvement in POSCO's price increase, but only reports a
price increase and comments on it as a positive development; (2) the
press release concerns not the subject merchandise, but hot-rolled coil
(``HRC'), its major feedstock; and (3) the price increase in the press
release in question concerns only HRC produced at POSCO's mini-mill,
and not HRC produced at its integrated steel mills, which represents
the vast majority of POSCO's HRC production.
Petitioners have claimed that a sentence in a February 1994 notice
by the Economic Planning Board (``EPB'') terminating price reporting
requirements, in which the EPB hopes that POSCO will cooperate in
efforts to foster the country's general economic development and price
stabilization, is evidence of continued government price controls. At
verification we examined POSCO's submissions to the EPB and found no
evidence of price controls during the POR, or evidence of price
monitoring after February 1994. Governments, including our own,
routinely exhort businesses to cooperate with their macroeconomic and
public policy goals, which often include fighting inflation. We agree
with respondents that hortatory language of this kind does not
constitute evidence of formal price controls.
Petitioners have argued that Hanbo's Offering Circular states that
the ex-factory prices of Hanbo's steel products ``are, in practice,
determined by the Korean government, which approves manufacturers''
filed prices having regard to average costs in the Korean steel
industry, but without reference to the prices of products in
international markets.'' Hanbo, however, did not then, and does not
now, manufacture the subject merchandise. Petitioners also ignore
information in the Hanbo supplemental verification report that Hanbo's
domestic HRC prices were competitively set. Thus, on the issue of
government control, the record is somewhat mixed. Further, even if we
assume that there is some level of government control, we must have
substantial evidence that government control is so extensive that
prices are not competitively set. In the absence of such evidence, we
cannot find the Korean home market not to be viable.
By contrast, there is positive evidence on the record indicating
that domestic Korean steel prices were competitively set during the
POR. First, base (or list) prices were raised during the POR, in March
1995 by Dongbu and Union and in April 1995 by POSCO. During
verification, we conducted a thorough and exhaustive examination of
POSCO's internal records, including correspondence files, and
ascertained from this review that POSCO had raised its list prices on
account of changing market conditions; there was no evidence suggesting
that there was any government interference or involvement in this price
change. Second, record evidence shows that these list prices were
subject to discounts and adjustments for credit and freight, which
caused the effective price charged to customers to vary from customer
to customer. Although petitioners have claimed that these discounts are
statistically insignificant, we agree with respondents that discounts,
credit adjustments, and freight equalization taken together appreciably
affect the companies' ability to engage in significant price
competition. Further, the fact that steel prices remained flat
throughout the POR is not inconsistent with normal, expected price
trends in an oligopolistic market such as the Korean steel market.
Therefore, evidence of flat prices per se is insufficient to establish
that prices are not competitively set.
Having reviewed and weighed the facts on the record, we find that,
while there is some evidence of a substantial level of Korean
government involvement in domestic steel pricing, there is not
``convincing evidence'' that the Korean government controlled domestic
steel prices ``to such an extent that home market prices cannot be
considered to be competitively set.'' SAA at 152. We determine,
therefore, that the Korean home market is viable for purposes of the
instant proceedings.
Comment 2. Petitioners allege that Dongbu and Union are affiliated
with POSCO based on Dongbu and Union's dependence on POSCO as their
primary supplier of HRC, the primary input for the subject merchandise.
Petitioners also allege that Union and POSCO are affiliated based on
certain corporate and sales relationships between the two companies.
Petitioners contest the Department's preliminary determination that
Dongbu and Union are not affiliated with POSCO and suggest that the
Department acted arbitrarily and unreasonably by avoiding the issue
rather than addressing its merits. The Department, petitioners argue,
interpreted much too narrowly the statutory term ``control.''
Petitioners contend that the Department, instead of focusing, as the
statute requires, on whether POSCO was in a position to exercise
restraint or direction over the activities of Dongbu and Union, looked
instead for concrete evidence of actual dominance of POSCO over Dongbu
and Union. In doing so, say petitioners, the Department effectively
nullified the new definition of affiliated parties by ``administrative
fiat.'' Petitioners also question the Department's finding in the
preliminary results that the record at that point in time provided an
inadequate basis to make an affirmative determination of affiliation
and that it was too late in these proceedings to solicit additional
factual information. Not only, petitioners claim, did they make their
allegation of affiliation at an early stage in these proceedings
(shortly after the initial questionnaire responses were submitted), but
the Department explored this issue in great detail in supplemental
questionnaires and during verification. Even more troubling, according
to petitioners, is the fact that the Department, at the same time that
it indicated it was too late to obtain additional information on
affiliation, afforded the parties an opportunity to provide additional
factual information concerning the viability of the Korean market.
This, petitioners submit, demonstrates that the Department's
preliminary finding on affiliation was an arbitrary ``ruse.''
If, however, the Department continues to adopt its exceedingly
narrow interpretation of the statute's affiliation provision in the
final review results, petitioners contend the Department must conclude
that Pohang Coated Steel Co., Ltd. (``POCOS'') is unaffiliated with
company AKO. In its response to Section A of the Department's
antidumping questionnaire, POSCO initially indicated that it was
affiliated with AKO and AKO's U.S. affiliate, company BUS. (AKO is
located in Korea, and BUS is located in the United States; their
identities are proprietary information. For an explanation of these
acronyms, please refer to the memorandum from Alain Letort to the
Files, dated April 2, 1997.) POSCO subsequently retracted and clarified
this statement by pointing out it owns 50 percent of the equity in
POCOS, 49.99 percent being owned by Dongkuk Steel Mill (``DSM'') and
the remaining 0.01 percent by DSM's president personally. DSM is, in
turn, affiliated with AKO and BUS through stock ownership. Therefore,
using the Department's definition of affiliated parties, POSCO stated
that POCOS was indirectly affiliated with AKO and BUS through stock
ownership. Contesting POSCO's
[[Page 18413]]
assertions, petitioners assert that, since POCOS holds no equity
ownership in DSM and DSM has do direct equity holding in AKO, POCOS
cannot be deemed to hold any equity ownership in AKO or BUS.
Petitioners cite Union, which asserted on the record that under
Korean law, POSCO's 50 percent interest in POCOS puts it in control of
the latter. POCOS is included in POSCO's consolidated financial
statements, not DSM's. POSCO, not DSM, appoints the president of POCOS.
Petitioners claim that POSCO never challenged Union's assertion.
Besides, petitioners point out, POSCO and POCOS are collapsed for
purposes of these proceedings, since the Department determined that the
relationship between the two companies is so intimate as to present the
strong possibility of price and/or production manipulation. While
petitioners state their firm belief that DSM also ``controls'' POCOS as
that term is defined in the statute, they also affirm that, if the
Department retains its unreasonably narrow interpretation of that term,
it should conclude that it is impossible for two entities (POSCO and
DSM) simultaneously and separately to exercise actual ``control,''
i.e., dominance, over POCOS. The Department should also rule that POCOS
neither exercises actual ``control'' (i.e., dominance) over AKO nor is
affiliated with it, petitioners urge.
If the Department so finds, petitioners contend, it must base
POCOS' U.S. price on the price at which it sells the subject
merchandise to AKO. This is because POCOS' U.S. sales are made up of
several ``back-to-back'' transactions: POCOS sells the merchandise to
AKO, who resells it to BUS, who in turn sells the merchandise to the
U.S. customer. According to petitioners, where a manufacturer makes
export sales through an unaffiliated trading company, the Department's
practice is to determine which transactions are U.S. sales for
reporting purposes on the basis of whether the manufacturer knows the
ultimate destination of the merchandise. If the manufacturer does not
know the ultimate destination of the merchandise, the Department
determines U.S. price on the basis of the unaffiliated trading
company's sale to the United States. If the manufacturer does know the
destination, then the manufacturer's sale to the unaffiliated trading
company becomes the basis for the U.S. price.
Petitioners assert that record evidence shows POCOS is aware of the
ultimate destination of the merchandise, since POCOS' order entry sheet
shows the name and address of the U.S. customer at the time of the sale
from POCOS to AKO. Consequently, petitioners say, if the Department
rules that POCOS is unaffiliated with AKO, it must determine U.S. price
on the basis of POCOS' selling price to AKO.
With regard to the issue of whether or not Dongbu and Union are
affiliated with POSCO because of their supply relationships,
petitioners contend that the critical point is whether the supplier-
buyer relationship is such that the supplier is in a position to
exercise restraint or direction over the other. Petitioners claim that,
in its preliminary review results, the Department used a definition of
``control'' that is closer to the common meaning of that term (i.e.,
actual dominance) than to the statutory definition of the term. In
essence, petitioners affirm, the Department has adopted the
interpretation, advocated by Dongbu and Union and contrary to the
statute, that one party must control the commercial operations of the
other.
According to petitioners, the following factors place POSCO in a
position to exercise restraint or direction over Dongbu and Union and
make them ``reliant'' upon POSCO: (1) The sheer weight of POSCO--in
comparison with other sources of supply--as a supplier to Dongbu and
Union; (2) the percentage of Dongbu's and Union's cost of manufacturing
(``COM'') for which POSCO-sourced HRC accounts; and (3) the absence,
due to comparatively higher prices of imported HRC, of realistic
alternate sources of supply for Dongbu and Union. Clearly, say
petitioners, if POSCO were unilaterally to curtail its shipments to
Dongbu and Union, or increase its prices, it would disrupt their
production schedules and commercial relationships and create hardship
for Dongbu and Union. Indeed, petitioners claim, under generally
accepted accounting principles (``GAAP'') in the United States,
financial statement disclosure of a company's concentration with a
particular supplier is required because it is assumed to create the
risk of ``severe impact * * * from changes in the availability to the
entity of a resource.'' See American Institute of Certified Public
Accountants (``AICPA''), Statement of Position 94-6, ``Disclosure of
Certain Significant Risks and Uncertainties'' (December 30, 1994)
(``AICPA 94-6'') at 8. Petitioners dismiss Union's contention that its
purchases from POSCO would not meet the disclosure requirements of
AICPA 94-6 because it purchases a standard grade of raw material that
is readily available from a number of different suppliers, meaning that
its purchases fall into the category described in AICPA's
``Illustrative Disclosure B'' (``ID-B''). Petitioners retort that
Union's reference to ID-B is completely inapposite, because it
discusses a commodity product (wheat), which is entirely fungible
between various sources of supply, while HRC, Union's feedstock, has
different specifications, grades, metallurgical and chemical contents,
and properties; vendors of HRC must be located and qualified. Indeed,
petitioners assert, respondents vigorously argued before the U.S.
International Trade Commission (``ITC'') that steel products were not
fungible or substitutable.
According to petitioners, the verification exhibits directly
confirm the extent of POSCO's involvement with Dongbu and Union. The
Department, they claim, is highly unlikely to encounter circumstances
more demonstrative of ``control'' via a supply relationship than the
present situation.
Petitioners characterize respondents' claim that POSCO is a strong
competitor with Dongbu and Union in the same downstream market for the
subject merchandise as ``blatant exaggeration.'' Record evidence,
according to petitioners, suggests otherwise: one of the Department's
two supplemental verification reports on home-market viability
indicates that Dongbu and Union compete with POSCO for certain product
applications only, since in Korea only POSCO manufactures the full
spectrum of cold-rolled and corrosion-resistant carbon steel flat
products.
Petitioners contradict respondents' contention that they have
``complete and unfettered access'' to alternative sources of supply.
According to petitioners, Dongbu and Union statements on the record
that they continued to buy HRC from POSCO even when cheaper alternative
sources of supply were available ``because of the reliability of
supply, the convenience and familiarity, and other similar factors''
further demonstrates their reliance on POSCO.
Petitioners assert further that the relative proportion of Dongbu's
and Union's HRC purchases from POSCO and from sources other than POSCO
is more proof of their ``reliance'' upon POSCO.
Petitioners also argue that Dongbu's and Union's contentions that
there is no evidence of long-term supply contracts, joint ventures, or
other agreements between them and POSCO, and that they have no direct
or indirect involvement with POSCO's production, sales or distribution
activities beyond the purchase of HRC, are irrelevant and immaterial,
since neither the statute nor
[[Page 18414]]
the SAA requires the existence of the same in order to establish
affiliation on the basis of a supply relationship. Moreover, at least
with respect to Union, not only does there exist a joint venture
(POCOS) between POSCO and Union's controlling company (DSM), but Union
and POCOS--POSCO's subsidiary--share common sales channels.
None of the above ``facts'' cited by the respondents, according to
petitioners, alters the fact that POSCO was Dongbu's and Union's
dominant supplier of HRC during the POR and that imported HRC was
demonstrably dearer than the POSCO product during most of the POR.
Petitioners argue that the case cited by Dongbu and Union in
support of their contention that the Department rejected a claim for
affiliation on the basis of a close supply relationship--Notice of
Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Melamine Institutional Dinnerware
Products from Indonesia (61 FR 43333, 43335--August 22, 1996)
(``Melamine'')--is inapposite. In addition to the fact that the
Department's position in that case is only preliminary, the supply
relationship at issue in Melamine is easily distinguishable from, and
not even remotely akin to, the facts at issue in the instant case. In
Melamine, the Indonesian producer channeled 100 percent of its U.S.
sales through a single, unrelated U.S. importer. The U.S. importer was
just as free to purchase from other producers as the Indonesian
producer was to find another U.S. importer. In the instant case,
petitioners say, clearly Dongbu and Union had no realistic alternate
sources of supply due to the higher prices of imported HRC and the
absence of other sources within Korea.
Responding to Dongbu's and Union's assertions that, through the end
of 1994, imported HRC was cheaper, rather than dearer, if only their
highest-volume grade of HRC (i.e., SAE 1008) is taken into
consideration, petitioners claim that the aggregate figures in Dongbu's
cost verification exhibit 20 and Union's cost verification exhibit 24
are more reliable because they are more comprehensive. Respondents'
comparison of domestic and imported prices for grade SAE-1008 HRC is
misleading and inaccurate, petitioners argue, because (1) it focuses on
only one product out of many; (2) it compares home-market base prices
to import prices, ignoring the actual costs associated with coil
purchases; (3) it compares delivered domestic prices to import
purchases made on a f.o.b. basis, significantly understating the import
price (by the amount of ocean freight, brokerage and handling fees,
import duties, etc.); and (4) it is unclear whether the quarterly
prices cited by respondents are weight-averaged, as they ought to be.
Petitioners dismiss respondents' argument that historical trends
show that, on average, during the 1991-1995 period, import prices for
HRC were lower than POSCO's, and that disregarding historical trends
would allow temporary market fluctuations to be a dispositive factor in
any affiliation decision by the Department, contrary to the
Department's proposed regulations. See Notice of Proposed Rulemaking
and Request for Public Comment, 61 FR 7308, 7310 (February 27, 1996)
(``Proposed Regulations''). Not only is historical data distortive
because it is based on a comparison of base rather actual prices,
petitioners contend, but the fact that import prices for HRC were lower
in periods preceding the POR only demonstrates that Dongbu and Union
did not turn to alternate suppliers when imports were cheaper.
Petitioners contend that Dongbu's and Union's inability and/or
reluctance to turn to alternative sources of supply when POSCO's HRC
prices were higher than imported material signifies that the dependence
and reliance of those companies on POSCO as a supplier is not driven by
``temporary market power, created by variations in supply and demand
conditions * * *'' Ibid. at 7310. That Dongbu and Union did not turn to
alternative sources means, according to petitioners, that their
dependence on POSCO as a supplier is substantial and long-term, and
that the supply relationship between POSCO on the one hand and Dongbu
and Union on the other is significant and not easily replaced.'' Ibid.
at 7310.
In addition to their affiliation as a result of their close supply
relationship, petitioners claim that Union and POSCO are affiliated as
a result of other corporate and sales relationships. Petitioners argue
that the Department's preliminary finding that they failed to present
``any evidence of stock ownership or control'' between POSCO and Union
or POSCO and DSM, Union's controlling company, is incorrect. The
correct standard, according to petitioners, is not whether or not
actual control or dominance exists, but rather whether one party is in
a position to exercise restraint or direction over another party in
order to ``control'' that party.
It is petitioners' contention that POSCO is in just that position
vis-a-vis Union in view of the fact that:
POSCO holds a 50 percent equity interest in POCOS;
DSM owns a 49.99 percent equity interest in POCOS;
The remaining 0.01 percent of POCOS'' equity is held by
the son-in-law of Mr. Sang Tae Chang, chairman of the DSM group;
The Department has determined DSM to have, through the
Chang family, a controlling interest in Union;
The Department has determined the relationship between
Union and DSM to be so intimate that it collapsed Union with Dongkuk
Industries, Ltd. (``DKI''), another subsidiary of the Chang family and
DSM.
According to petitioners, the statute defines affiliated parties as
``[t]wo or more persons directly or indirectly controlling * * * any
person'' and ``[a]ny person who controls any other person and such
other person.'' Therefore, say petitioners, POSCO and DSM clearly
constitute affiliated parties inasmuch as they jointly ``control''
POCOS as a result of their joint venture. Petitioners contend further
that, because DSM and Union are essentially one entity since Union and
DKI were collapsed by virtue of their relationship with DSM, POSCO,
through its joint venture with DSM, is clearly in a position to
exercise restraint or direction over Union's activities.
Petitioners also argue that, because DSM and its president's son-
in-law jointly hold 50 percent interest in POCOS (i.e., as much as
POSCO), DSM is clearly in a position to exercise restraint or direction
over POCOS. Since Union and POCOS are ``[t]wo or more persons directly
or indirectly * * * controlled by * * * any person'' (in this case,
DSM), POCOS and Union are affiliated parties under the terms of the
statute. If POCOS is affiliated with Union, petitioners contend, the
realities of the marketplace dictate that POSCO must also be affiliated
with Union. Furthermore, they say, because POSCO has acknowledged that
POSCO, POCOS, and Pohang Steel Industries Co., Ltd. (``PSI'') are a
``single operating entity'' and have been collapsed by the Department,
any company affiliated with POCOS (e.g., Union) must also be considered
to be affiliated with POSCO. Petitioners contend that the implications
of collapsing POSCO and POCOS on the issue of POSCO's affiliation with
Union in no way alters the fact that POSCO and POCOS are affiliated
parties; therefore, the statutory tests that follow therefrom, such as
the ``major-input'' rule, continue to apply. Petitioners also contend
that collapsing only bears on the level of affiliation and the unusual
intimacy of the relationship
[[Page 18415]]
between the parties. Petitioners allege that by ignoring the unique
nature of the relationship between POSCO and POCOS and rigidly fixating
on the corporate forms of the companies, the Department has ignored
commercial reality.
Union, according to petitioners, has not provided any compelling
evidence or argument to rebut the information on the record
demonstrating affiliation between Union and POSCO through POCOS and
DSM, and merely ``pointed out'' at verification that POCOS is not
affiliated with Union. The fact that POSCO is in a position to exercise
``control'' over POCOS, petitioners say, does not necessarily entail
that DSM, with a 50 percent direct and indirect interest in POCOS
(through the son-in-law of DSM's president), is not also in a position
to do so. Petitioners are not advocating that Union is in a position to
control POCOS; rather, they are asserting that Union and POCOS are
affiliated because they are in the common control of DSM. Petitioners
agree that the mere affiliation of a party with another does not
necessarily entail that party's affiliation with all parties affiliated
with its affiliate. In this case, however, petitioners point out that
POSCO is not merely affiliated with POCOS--its relationship with POCOS
is so intimate that it is collapsed with POCOS and both companies are
treated as a single entity by the Department.
In addition to the corporate relationships between POSCO and Union,
petitioners allege that POSCO controls Union through shared U.S. sales
channels. Petitioners point out that:
BUS is the importer of record for Union in the United
States, and AKO purchases subject merchandise from Union in Korea; and
All of POCOS's (an entity collapsed with POSCO) U.S. sales
are made through AKO and BUS.
Petitioners allege that AKO and BUS provide a conduit for sharing
pricing and other sensitive information, which could be used to
manipulate transactions and allocate U.S. sales for the purpose of
reducing dumping margins. Petitioners aver that the fact that it is
POCOS and not POSCO that shares sales channels with Union does not
undermine POSCO's ability to exercise restraint or direction over
Union, because POSCO has control over POCOS and they are collapsed.
Petitioners contend that both POSCO and DSM have an incentive to
minimize POCOS' dumping liability since POCOS' financial statements are
fully consolidated with POSCO's and DSM is BUS's major shareholder. On
this basis of shared sales channels alone, petitioners argue, the
Department should conclude that POSCO and Union are affiliated.
In its preliminary results, the Department, according to
petitioners, concluded that Union and POSCO are unaffiliated by
considering separately each of the grounds presented by petitioners.
While petitioners believe that each basis for affiliation they have
argued demonstrates that POSCO and Union are affiliated, neither the
statute nor the SAA, they claim, require that the Department consider
each aspect of the relationship between Union and POSCO independently.
When all of the indicia--the supply relationship between POSCO and
Union, the joint venture relationship (i.e., POCOS) between POSCO and
DSM, the corporate relationships between Union and POSCO through POCOS
and DSM, the shared U.S. sales channels--are considered jointly,
petitioners believe the Department must find that POSCO is in a
position to exercise restraint or direction over Union and therefore
``controls'' Union within the meaning of the statute.
If the Department determines, as petitioners say it ought to, that
POSCO is affiliated with Dongbu and Union, in accordance with the
principle, set forth in section 773(f)(2) of the Act, that transactions
between affiliated parties must ``fairly reflect the amount usually
reflected in sales * * * in the market'', and that the price between
unaffiliated parties is the normal benchmark for market value, the
Department must compare the value of HRC purchased by Dongbu and Union
from POSCO with the value of HRC purchased from unaffiliated suppliers.
See 19 U.S.C. 1677b(f)(2). Such a comparison, in petitioners' view,
clearly indicates that Dongbu and Union do not purchase HRC from POSCO
at prices that can be deemed ``arm's-length.'' Verification exhibits on
the record show, according to petitioners, that HRC purchased by Dongbu
and Union from unaffiliated parties are substantially dearer than that
purchased from POSCO. Because the statute requires that input prices
must reflect fair market value, it is petitioners' view that the
Department, in calculating Dongbu's and Union's COM, must adjust upward
the value of the HRC Dongbu and Union purchased from POSCO to reflect
the value of HRC purchased from unaffiliated suppliers.
Respondents deny that either Dongbu or Union are affiliated with
POSCO. POSCO argues that petitioners' arguments merely repeat arguments
contained in their earlier submissions. Therefore, it argues, the
Department's September 6, 1996 memorandum to the file in which it
addressed the issue and determined that neither Dongbu nor Union were
related to POSCO, must stand. Dongbu and Union argue that the
conclusion contained in the September 6, 1996 memorandum was not, as
petitioners allege, arbitrary or unreasonable, but was instead the only
conclusion supported by evidence and the law.
In addition to citing the Department's prior determination on the
issue, respondents set forth their own arguments which, they believe,
demonstrate that the arguments petitioners set forth in their case
brief do not support the conclusion that Dongbu and Union are
affiliated with POSCO.
First, POSCO argues as a preliminary matter that the petitioners
are in error in charging that the Department applied the wrong standard
in the analysis reflected in the September 6, 1996 memorandum. It
argues that the standard the petitioners want the Department to apply
is at odds with the plain wording of the SAA. The petitioners, POSCO
argues, want the Department to read the standard in the SAA to find
only that two companies might be ``in a position'' to become reliant
upon the other through a buyer or supplier relationship. POSCO argues
that the SAA requires the Department to examine first if, through a
buyer or supplier relationship, ``the supplier or buyer becomes reliant
upon the other'' (emphasis added). Thus, POSCO argues, only if the
Department makes the initial finding that Dongbu and Union are reliant
upon POSCO could the Department conclude that the parties could be in a
position to exercise restraint or direction over the other. However,
POSCO argues, the record evidence here, as demonstrated by the
Department's September 6, 1996 memorandum, does not demonstrate
reliance.
Second, respondents argue that both Dongbu and Union purchase their
hot-rolled products from numerous sources, thus demonstrating that they
are not reliant upon POSCO. Dongbu and Union state that they have
``complete and unfettered'' access to numerous alternative supplies of
hot-rolled coil. Further, POSCO argues that the preamble to the
Proposed Regulation's definition of ``affiliated parties'' confirms
that the Department must find significant and actual indicia of
control. The preamble states that ``[b]usiness and economic reality
suggest that these relationships must be significant and not easily
replaced.'' See Proposed Regulations at 7310. Dongbu's and
[[Page 18416]]
Union's purchases from POSCO, POSCO argues, do not meet this standard.
Moreover, POSCO argues that petitioners' argument that Dongbu and
Union must have access to essentially identically-priced imports in
order not to be reliant on POSCO is incorrect. It argues that the
Department's analysis here must focus on whether POSCO as a supplier
can ``control'' Dongbu's and Union's activities. The fact that Dongbu
and Union can and do purchase significant quantities of imported hot-
rolled coil, POSCO argues, should end the analysis. Comparable pricing,
POSCO argues, is irrelevant.
Furthermore, Dongbu and Union argue that the record does not
support petitioners' claim that imports represent a prohibitively more
expensive alternative to hot-rolled coil purchased from POSCO. They
point out that the figures in Dongbu's cost verification exhibit 20 and
Union's cost verification exhibit 24 (upon which petitioners rely to
establish their argument) are aggregate purchase volumes and values,
and therefore do not account for product mix, differences in
specifications, grades, extras, and other similar factors. Furthermore,
Dongbu and Union argue that exhibit 96 of Dongbu's home-market sales
verification report and exhibit 99 of Union's sales verification report
show that import prices were lower than POSCO's prices for hot-rolled
steel in 15 out of 23 quarters from 1991 through the third quarter of
1996. Moreover, Dongbu and Union argue, price is only one criterion in
making purchasing decisions. Other criteria include quality of the
steel, long-standing relationships, lead-times, and technical support.
If comparative purchase factors frequently have favored POSCO, the fact
remains that there are literally dozens of alternative sources for the
same material located outside of Korea.
Third, respondents argue that petitioners are in error in their
allegations regarding the prices at which POSCO sells to Dongbu and
Union. Dongbu and Union argue that there is no evidence on the record
that POSCO charges Dongbu and Union any more or less for its hot-rolled
coil than it charges other domestic customers. POSCO argues that
petitioners are incorrect in stating that it sold to Dongbu and Union
at less than the cost of production. It argues that the figures upon
which petitioners relied in making this allegation are not indicative
of the costs for the specific types of coil sold to Dongbu and Union.
When the actual costs are used, POSCO argues, it becomes clear that its
sales to Dongbu and Union were above cost. POSCO also notes that
petitioners' calculation included general and administrative expenses
(``G&A'') as revised by the Department, which POSCO believes to be an
error.
Fourth, POSCO and Union argue that the Department's precedent
confirms that the parties are not affiliated. As support for this
argument, POSCO cites Melamine, in which the Department concluded that
no buyer-supplier relationship existed so as to constitute affiliation
even though the supplier made 100 percent of its U.S. sales through a
sole U.S. importer. The Department, POSCO states, considered the
following factors: (1) There was no corporate relationship between the
two companies; (2) the buyer was free to purchase, and did purchase,
from other suppliers; and (3) the supplier was free to sell to other
buyers. POSCO argues that these three factors are all satisfied here.
It also argues that the petitioners' attempt to distinguish this case
(based on whether subject merchandise or an input was being bought) is
irrelevant to the reliance issue facing the Department, and has no
basis in either the SAA or the Department's precedent.
Furthermore, POSCO and Union argue that Melamine demonstrates that
it is not enough to merely point out, as petitioners have, that a
supplier relationship exists. For the parties to be considered
affiliated, they argue, the evidence must show that the relationship is
of a kind that can realistically be characterized as involving
``control'' of one party over the commercial operations of another.
With respect to the issue of whether Union and POSCO are affiliated
through indirect stock ownership, respondents argue that petitioners'
demonstration that Union is related to POSCO based on ``indirect
corporate relationships'' is fallacious. POSCO bases this argument on
two factors. First, there is no stock ownership between POSCO and DSM,
or between POSCO and Union. They point out that the Department's
September 6, 1996 memorandum made mention of this very fact. Second,
POSCO and Union, as well as POSCO and DSM, are completely independent
entities. POSCO operates independently from both DSM and Union. There
is thus, POSCO argues, no ``control'' of any kind between POSCO and
DSM, or between POSCO and Union.
Furthermore, Union argues that the petitioners, in referencing the
affiliated persons definition, have incorrectly claimed that there is a
specific statutory basis for finding POSCO and Union to be affiliated.
Section 771(33)(E) of the Act states that an affiliated person is
``[a]ny person directly or indirectly owning, controlling, or holding
with power to vote 5 percent or more of the outstanding voting stock or
shares of any organization and such organization.'' It is
uncontradicted, Union argues, that neither POSCO nor Union, directly or
indirectly, own or control five percent or more of any of the other
party's securities. Thus, they argue, the petitioners' claim under this
provision fails. The second provision that the petitioners' have
referenced, subsection (F), reads that an affiliated party is ``[t]wo
or more persons directly or indirectly controlling, controlled by, or
under common control with, any person.'' According to Union, Union and
POSCO do not directly or indirectly control, are not controlled by, and
are not under common control with any party. The third provision that
the petitioners have referenced, subsection (G), states that an
affiliated party is ``[a]ny person who controls any other person and
such other person.'' Union argues that nothing in the record indicates
that either Union or POSCO is in a position to control, either legally
or operationally, the other party. In fact, it shows the opposite. It
shows, for instance, that POSCO and Union strongly compete in the sale
of subject merchandise in both the home and U.S. markets.
Finally, POSCO argues that the Department should reject
petitioners' argument that if the Department adopts a narrow reading of
the statute's affiliation provision it should also determine that POCOS
is not affiliated with AKO and BUS. It argues that under the statute
POCOS and AKO/BUS are clearly affiliated through indirect stock
ownership with DSM. It first explains that POCOS is jointly owned by
POSCO and DSM, with POSCO holding a 50 percent ownership interest and
DSM owning 49.99 percent. Under section 771(33)(F) of the Act,
affiliated parties include ``[t]wo or more persons directly or
indirectly controlled by * * * any person.'' Under this definition
POCOS and AKO/BUS are clearly affiliated, POSCO argues. Neither the
Department's precedent nor the plain language of the statute requires
that DSM own more than 50 percent of POCOS or be the only party in a
position to control POCOS for the statutory definition of affiliated
parties to apply. Rather, POSCO argues, the statute requires only that
DSM exercise ``control'' over POCOS. The fact that DSM can ``control''
POCOS, POSCO argues, is supported by the fact that a separate statutory
definition of affiliation (in section 771(33)(E) of the Act) provides
that two parties are
[[Page 18417]]
affiliated where one party holds a five percent interest in the other.
It argues that the fact that in a parallel provision of the statute a
mere 5 percent ownership interest can constitute control confirms that
an ownership interest of 50 percent can constitute ``control'' over two
parties under subsection (G). Furthermore, POSCO points out that the
Department, in current countervailing duty cases under the new law,
explicitly states in its questionnaire that if party A holds at least a
twenty percent interest in parties B and C, then parties B and C are
deemed affiliated.
Moreover, POSCO argues that apart from the plain language of the
statute and consistent Department practice, petitioners themselves have
acknowledged that the fact that POCOS is collapsed with POSCO for
dumping margin calculations purposes does not mean that DSM also cannot
exercise sufficient control over POCOS such that POCOS and AKO can be
deemed affiliated parties. To support this argument, POSCO points to
petitioners' joint case brief as an example, where petitioners state
explicitly (at 78) that ``petitioners firmly believe * * * that DSM
also ``controls'' POCOS as that term is defined in the statute.'' POSCO
also points to petitioners' statement in its joint case brief (at 104)
where petitioners state that both DSM and POSCO can ``control'' POCOS
for the purposes of the statute.
Finally, POSCO argues that in addition to the fact that AKO/BUS are
affiliated through DSM, they are also affiliated through POCOS's
operational control over AKO's selling activities. POSCO explains that
AKO has no independent authority to negotiate or set sales prices for
POCOS merchandise. Rather POCOS sets all of AKO's selling prices and
terms of sale. AKO only acts as a communications link, and all sales
and negotiation authority lie with POCOS. Under these circumstances,
POSCO argues, POCOS is clearly exercising operational control over
AKO's sales activities, and the parties are therefore affiliated.
DOC Position. We disagree with petitioners' contentions that Dongbu
and Union are affiliated with POSCO based on their supply relationship,
and that Union is affiliated with POSCO through indirect stock
ownership.
With respect to the issue of affiliation through a supply
relationship in which one party becomes reliant on the other, we agree
with respondents that petitioners have applied a wrong standard. The
standard is not, as petitioners claim, whether one company might be in
a position to become reliant upon another by means of their supplier-
buyer relationship; rather, the Department must find that a situation
exists where the buyer has, in fact, become reliant on the seller, or
vice versa. Only if we make such a finding can we address the issue of
whether one of the parties is in a position to exercise restraint or
direction over the other. When the preamble to our Proposed
Regulations, in its definition of ``affiliated parties,'' states that
``business and economic reality suggest that these relationships must
be significant and not easily replaced,'' it suggests that we must find
significant indicia of control. See Proposed Regulations at 7310. For
the following reasons, we believe that the record evidence does not
support the existence of a supply relationship between POSCO on the one
hand, and Dongbu and Union on the other, in which Dongbu and Union have
become reliant upon POSCO.
The record shows that Dongbu and Union have alternate sources of
supply for HRC, that they can and do purchase significant quantities of
HRC from abroad. Petitioners have identifed no law, regulation, or
directive, whether formal or informal, mandating Dongbu and Union to
purchase HRC from POSCO, or to limit their purchases from non-POSCO
sources. Nor is it true, as petitioners have alleged, that imports are
consistently more expensive for Dongbu and Union than POSCO material.
Record evidence shows that import prices were lower than POSCO's in 15
out of 23 quarters from 1991 through the third quarter of 1996. The
record indicates that POSCO has a comparative advantage over imported
steel for reasons of proximity, cost, reliability of supply, and
differences in specifications, grade, and quality, which can explain
POSCO's position as principal supplier to Dongbu and Union. That
position, therefore, does not signify that Dongbu and Union have a
relationship which is so significant that it could not be replaced.
Petitioners have alleged that POSCO sells HRC to Dongbu and Union
at prices below its cost of production. Petitioners calculated POSCO's
HRC production cost from POSCO's submitted cost data for cold-rolled
finished products. But these estimated costs are averages of all
possible types, grades, and dimensions of hot-rolled coil, and are not
comparable to the costs of the specific products sold to Dongbu and
Union for further manufacturing into cold-rolled and corrosion-
resistant products. When the actual costs of the HRC sold to Dongbu and
Union are used, POSCO's sales to Dongbu and Union are above cost of
production.
For the above reasons, the Department determines that there is no
supply relationship between POSCO on the one hand, and Dongbu and Union
on the other, to the extent that Dongbu and Union have become reliant
upon POSCO.
We also disagree with petitioners' argument that POSCO and Union
are affiliated by virtue of their respective affiliations with DSM,
Union's parent company. In support of their argument, petitioners cite
sections 771(33)(E) through (G) of the Act, which, inter alia, define
an affiliated person as ``[a]ny person directly or indirectly owning,
controlling, or holding with power to vote, 5 percent or more of the
outstanding voting stock or shares of any organization and such
organization,'' ``[t]wo or more persons directly or indirectly
controlling, controlled by, or under common control with, any person,''
and ``[a]ny person who controls any other person and such other
person.''
With respect to subsection (E), there is no record evidence
indicating that POSCO and Union directly or indirectly own or otherwise
control five percent or more of each other's equity. While DSM and
Union are affiliated through stock ownership, DSM and POSCO are not. As
we stated in an internal memo shortly before the preliminary review
results, ``we lack[ed] any evidence of stock ownership or control
between POSCO and Union or POSCO and DSM, Union's controlling
company.'' See memorandum from Richard O. Weible to Joseph A. Spetrini
(September 6, 1996). No new evidence has come to light that would lead
us to alter this statement.
With respect to subsection (F), Union and POSCO do not directly or
indirectly control, are not controlled by, and are not under common
control with, any party. Even though DSM controls Union through its
58.9 percent equity interest, and DSM and POSCO are affiliated with one
another due to their common control of their joint venture, POCOS, it
does not follow that POSCO controls either DSM or Union. As section
771(33) of the Act specifies, a finding of control hinges on whether a
person ``is legally or operationally in a position to exercise
restraint or direction over the other person.'' While POSCO and DSM are
clearly able to restrain or direct POCOS, and therefore control it for
purposes of the Act, this does not mean that POSCO and DSM control one
another. Subsection (F)'s affiliation standard is met where two parties
control a third, as here. But such a finding of affiliation does not
mean that the two affiliated parties control one another. The alleged
[[Page 18418]]
link between POSCO and Union is even more tenuous. Because POSCO does
not control DSM, Union's parent company, DSM is not a vehicle through
which POSCO can indirectly control Union, DSM's subsidiary. In other
words, POSCO affiliation with DSM and DSM control of Union do not add
up to POSCO control of Union. The affiliation standard set forth in
subsection (F) is thus not satisfied.
With respect to subsection (G), nothing in the record indicates
that either Union or POSCO is in a position to control, either legally
or operationally, the other party. The Department verified that (1)
POSCO and Union compete in both Korea and the United States for the
sale of the subject merchandise; and (2) POSCO on the one hand and DSM/
Union on the other are separate operational entities with no
overlapping stock ownership. The fact that POSCO supplies Union with
HRC does not alter this conclusion. As discussed above, this supplier
relationship does not rise to the level of reliance on POSCO.
Using the same statutory provisions, we continue to find that POCOS
is affiliated with AKO and BUS through indirect stock ownership, since
POCOS is 49.99 percent-owned by DSM, and DSM is affiliated with AKO and
BUS by virtue of its indirect stock ownership in those companies.
For the reasons stated above, the Department determines that POSCO
and Union are not affiliated under the provisions of section
771(33)(E)-(G) of the Act.
Comment 3. Petitioners contest the Department's preliminary
determination not to undertake a duty absorption inquiry despite their
entreaties to do so. By not considering requests for an absorption
inquiry until the 1996 administrative reviews, petitioners argue, the
Department has adopted an overly restrictive interpretation of its
authority to conduct such inquiries. Petitioners submit that, although
the statute requires the Department to conduct an inquiry, if
requested, during reviews initiated in the second and fourth years
following publication of an order, it does not preclude the Department
from conducting inquiries in reviews initiated during the first, third,
or fifth year following publication of an order.
Petitioners advance four main reasons why the Department should use
its discretion to conduct a duty absorption inquiry:
There is no valid reason not to examine the issue of duty
absorption when the record clearly indicates that respondents and their
affiliated importers have absorbed antidumping duties during the POR.
Confining absorption inquiries to the second and fourth
reviews will encourage respondents to manipulate the administrative
review process with a view to avoid duty absorption findings. As an
example, petitioners have requested duty absorption inquiries in the
1995-1996 administrative reviews on cold-rolled carbon steel flat
products from Korea (with respect to Union) and on cut-to-length carbon
steel plate from Germany (with respect to A.G. der Dillinger
Huttenwerke--Dillinger). Dillinger and Union, however, claim not to
have had any imports of these products during the POR. By not
conducting duty absorption inquiries with respect to these companies,
petitioners allege, the Department will permit Dillinger and Union to
elude penalties despite clear evidence on the record that both
companies absorb duties.
By limiting itself to conducting duty absorption inquiries
during the second and fourth administrative reviews, the Department is
only creating additional burdens for itself, since petitioners will
feel compelled to request complete administrative reviews for the sole
purpose of obtaining a duty absorption determination. The Department's
proposed policy effectively requires petitioners in certain
circumstances to incur additional costs by requesting a review when
they might not otherwise choose to do so. Petitioners argue that the
statute was not intended to force petitioners into a position of
choosing between incurring such additional costs or giving up their
right to an absorption determination, and the Department should not
establish a policy that would do so. Although it is conceivable that
the Department could conduct mini-reviews in the second and fourth
years focusing exclusively on the issue of duty absorption, the
workload savings would be far exceeded by the workload of additional
``protective'' reviews requested by petitioners. Additionally,
petitioners submit, if a respondent chose not to participate in such a
``mini-review,'' the Department would have to make an adverse
assumption that the respondent did, in fact, absorb antidumping duties.
As an example, petitioners cite the ongoing administrative review of
cut-to-length carbon steel plate from Sweden, where respondent Svenskt
Stal AB (``SSAB'') has withdrawn from the review and refuses to answer
requests for information. Although the Department has the option of
making an adverse assumption that SSAB absorbed antidumping duties,
petitioners wonder whether, and to what extent, the ITC in its sunset
review determination would give weight to a duty absorption
determination based on adverse assumptions as opposed to actual record
evidence.
Because all the information needed to conduct a duty
absorption inquiry is already on record and verified, and only a small
amount of additional activity is necessary to determine whether
antidumping duties have been absorbed, petitioners assert there is no
reason why the Department should not exercise its discretion and
conduct a duty absorption inquiry.
The record evidence cited by petitioners which, they allege,
conclusively demonstrates that duty absorption has occurred are the
following:
Petitioners cite as an example a U.S. sale by Dongbu where
the ultimate U.S. purchaser was invoiced less than what Dongbu
Corporation (Korea) billed DBLA, its Los Angeles, California sales
affiliate. See petitioners' common issues case brief, from Dewey
Ballantine to the Secretary of Commerce (proprietary version), as
resubmitted on February 27, 1997 (``CICB''), at 120-122.
Petitioners allege that an analysis of the data submitted
by POSCO clearly reveals that POSCO's U.S. prices do not reflect the
full amount of antidumping duties. In their example, petitioners submit
that the deduction from the reported gross unit price of the total of
(a) per-unit transfer price, (b) direct and indirect selling expenses
in the United States, (c) per-unit movement charges paid by BUS, and
(d) antidumping and countervailing duty cash deposits, results in a
negative margin. According to petitioners, this example demonstrates
that, by not raising its U.S. prices sufficiently to cover the margin
of dumping, BUS elected to pay the dumping duties rather than pass them
on to the customer. See CICB at 122-124.
Petitioners allege that an analysis of the data submitted
by Union clearly reveals that Union's prices to unaffiliated U.S.
purchasers do not reflect the full amount of antidumping duties. In
their example, petitioners submit that the deduction from the reported
gross unit price of the total of (a) per-unit transfer price, (b)
direct and indirect selling expenses in the United States, (c) per-unit
movement charges paid by Union America (``UA''), and (d) antidumping
and countervailing duty cash deposits, results in a negative margin.
According to petitioners, this example demonstrates that, by not
raising its U.S. prices sufficiently to
[[Page 18419]]
cover the margin of dumping, UA elected to pay the dumping duties
rather than pass them on to the customer. See CICB at 124-125.
Respondents retort that the Department should not conduct a duty
absorption inquiry. First, they argue that the request is premature
because in section 751(a)(4) of the Act, Congress authorized the
Department to conduct duty absorption inquiries in ``transition
reviews,'' (such as this one) only for reviews initiated in 1996 or
1998. For this same reason, Dongbu and Union argue, the Department,
contrary to petitioners' assertions, does not have the discretion to
conduct a duty absorption inquiry in this review.
Second, POSCO argues that according to the SAA, a duty absorption
inquiry is relevant only in the context of a sunset review proceeding.
The SAA (at 885) states that ``[t]he duty absorption inquiry would not
affect the calculation of margins in administrative reviews.'' Thus,
POSCO argues, not only is the request premature, but it is irrelevant
to the calculation of the dumping margin in this proceeding.
Third, Dongbu and Union argue that there is no evidence of duty
absorption on the record. The calculations the petitioners give in
their brief that allegedly demonstrate duty absorption, Dongbu and
Union argue, are incorrect. They argue that the petitioners'
calculations treat the antidumping and countervailing duty deposit
amounts as if they were the equivalent of a dumping margin. Doing so
was incorrect, Dongbu and Union argue, because the plain language of
the statute speaks of the absorption of ``antidumping duties,'' and not
estimated antidumping duties.
Fourth, regarding petitioners' argument that confining reviews to
the second and fourth reviews will encourage respondents to manipulate
the administrative review process, Dongbu and Union argue that this
argument is invalid. They argue that even if there were such a risk, it
would not give the Department the right to disregard the statutory
framework. Moreover, they argue that petitioners' suggestion that Union
ceased its exports of cold-rolled steel to the United States during the
1995-96 period in order to avoid a duty absorption inquiry is sheer
speculation and demonstrably incorrect. They argue that because Union
has set its prices to the point where the dumping margins determined by
the Department are insignificant, it is clear that it has not absorbed
antidumping duties, and the motive for avoiding a duty absorption
review therefore does not exist.
Fifth, regarding petitioners' argument that by limiting duty
absorption inquiries to only the second and fourth administrative
reviews the Department creates additional burdens for itself, Dongbu
and Union argue that even this consideration does not give the
Department the right to thwart the plain language of the law and
Congressional will by conducting a duty absorption inquiry when it is
not authorized to do so.
For these reasons, respondents argue that the Department should
uphold its determination in the preliminary results of review that
petitioners' request for a duty absorption inquiry is premature.
DOC Position. We agree with respondents that we are not required to
conduct a duty absorption inquiry for this administrative review.
Section 751(a)(4) of the Act provides that the Department, if
requested, will determine during an administrative review initiated two
years or four years after publication of the order whether antidumping
duties have been absorbed by a foreign producer or exporter subject to
the order if the subject merchandise is sold in the United States
through an importer who is affiliated with such foreign producer or
exporter. Section 751(a)(4) was added to the Act by the URAA.
Special rules, however, exist for transition orders, defined in
section 751(c)(6)(C) of the Act as orders in effect as of January 1,
1995. Section 351.213(j)(2) of the Department's proposed regulations
provides that the Department will make a duty absorption determination,
if requested, for any administrative review initiated in 1996 or 1998.
See Proposed Regulations at 7366. The commentary to the proposed
regulations explains that reviews initiated in 1996 will be considered
initiated in the second year and reviews initiated in 1998 will be
considered initiated in the fourth year. Ibid. at 7317. Although these
proposed regulations are not yet binding upon the Department, they do
constitute a public statement of how the Department expects to proceed
in construing section 751(a)(4) of the amended statute. This approach
ensures that interested parties will have the opportunity to request a
duty absorption determination on entries for which the second and
fourth years following an order have already passed, prior to the time
for sunset review of the order under section 751(c). See, e.g., Certain
Welded Stainless Steel Pipe From Taiwan; Preliminary Results of
Administrative Review, 62 FR 1435 (January 10, 1997) and Fresh Cut
Flowers From Mexico; Preliminary Results and Partial Termination of
Antidumping Duty Administrative Review, 62 FR 1318 (January 9, 1997).
Because the antidumping orders on corrosion-resistant and cold-
rolled carbon steel flat products from Korea have been in place since
1993, they clearly constitute transition orders. Therefore, based on
the policy articulated above, the Department will first consider a
request for a duty absorption determination for reviews of these orders
initiated in 1996. These reviews were initiated in 1995. Accordingly,
we have not considered the issue of duty absorption in these reviews.
See also Certain Corrosion-Resistant Carbon Steel Flat Products and
Certain Cut-to-Length Carbon Steel Plate From Canada: Preliminary
Results of Antidumping Duty Administrative Reviews, 61 FR 51891, 51892
(October 4, 1996).
Comment 4. Petitioners argue that, in calculating antidumping
margins for the respondents, the Department must deduct from the price
used to establish EP or CEP the actual countervailing and antidumping
duties paid by respondents' affiliated U.S. importers.
Petitioners argue that the plain language and structure of the
statute mandate that the Department make such a deduction, since it
provides, in section 772(c)(2)(A) of the Act, that ``the price used to
establish export price and constructed export price shall be * * *
reduced by * * * United States import duties, which are incident to
bringing the subject merchandise from the original place of shipment in
the exporting country to the place of delivery in the United States.''
19 U.S.C. Sec. 1677a(c)(2)(A) (1995) (emphasis added by petitioners).
Petitioners also contend that antidumping and countervailing duties are
plainly ``incident to bringing the subject merchandise from the
original place of shipment in the exporting country to the place of
delivery in the United States.'' Nor, they insist, does the language of
the statute mandate that antidumping and countervailing duties are to
be distinguished or excluded from the phrase ``United States import
duties.''
Petitioners state that the relevant provisions of section
772(c)(2)(A) of the Act, cited above, first entered U.S. law, verbatim,
in the Antidumping Act of 1921 (``1921 Act''). Although Congress at the
time omitted a definition of the phrase ``import duties,'' petitioners
assert that the Court of Customs and Patent Appeals subsequently and
specifically addressed the intentions of the drafters of the 1921 Act
and noted that antidumping and countervailing duties were ``desired and
intended (by Congress) to be considered as duties for
[[Page 18420]]
all purposes.'' See C.J. Tower & Sons v. United States, 771 F.2d 438,
445 (C.C.P.A. 1934) (emphasis added by petitioners).
That antidumping and countervailing duties are to be included in
the deduction, petitioners maintain, is confirmed when section
772(c)(2)(A) of the Act is read in conjunction with the later-added
section 772(c)(1)(C), which provides that, to derive EP or CEP, the
U.S. price shall be increased by the amount of any countervailing duty
imposed to offset an export subsidy. That provision was added to U.S.
law in 1979 to implement Article VIpara.5 of the General Agreement on
Tariffs and Trade, which prohibits the assessment of both antidumping
and countervailing duties to compensate for the same cause of unfairly
low-priced imports, whether by dumping or as a result of an export
subsidy. See Serampore Indus. Pvt. Ltd. v. United States, 675 F. Supp.
1354, 1359 (CIT 1987) (quoting H.R. Doc. No. 96-153 at 412, reprinted
in 1979 U.S.C.C.A.N. 683).
In the 1979 Trade Agreements Act, petitioners state, Congress, in
addition to adding section 772(c)(1)(C), added the phrase ``except as
provided in paragraph 1(C)'' to section 772(c)(2)(A). Petitioners argue
it is a fundamental precept of statutory construction that a statute
should be construed so that effect is given to all of its provisions,
so that no part will be inoperative or superfluous, void or
insignificant, and so that one section will not destroy another. They
argue further that Congress' specific exemption of countervailing
duties from section 772(c)(2)(A) demonstrates it clearly understood
that subsection's reference to ``any * * * United States import
duties'' as including antidumping and countervailing duties; otherwise,
there would have been no reason to exempt certain countervailing duties
from application of the provision. Had this exception not been
inserted, petitioners maintain, an equal amount would be added by the
operation of one subsection (i.e., section 772(c)(1)(C)) and deducted
as a result of the next subsection (i.e., section 772(c)(2)(A)).
Petitioners also argue that the Court of International Trade
(``CIT'') has implicitly held that section 772(c)(2)(A) covers actual
countervailing or antidumping duties. In Federal-Mogul Corp. v. United
States, 813 F. Supp. 856, 872 (CIT 1993) (``Federal-Mogul''), the CIT
did not adopt the Department's reasoning that section 1677a(c)(2)(A)
applied only to the deduction of ``normal'' import duties, and that
antidumping duties were not ``normal'' import duties. Rather, according
to petitioners, the CIT based its refusal to deduct estimated
antidumping duties on the fact that the duty deposits were only
estimates--not actual duties--which might not have borne any
relationship to the actual antidumping or countervailing duties owed.
Petitioners also cite PQ Corp. v. United States, where the CIT noted
approvingly that ``antidumping provisions in other jurisdictions
explicitly list antidumping duties as one of the adjustments to be made
in constructing prices.'' See PQ Corp. at 724.
Petitioners also put forward that in no way does the legislative
history of the URAA suggest that Congress rejected their construction
of section 772(c)(2)(A). Indeed, according to petitioners, the Senate
Finance Committee, aware that the issue of whether to deduct
antidumping duties from EP or CEP was being litigated, directed the
Department to abide by the outcome of the litigation. See S. Rep. No.
103-412 at 64 (1994). Petitioners also maintain that the SAA explicitly
states that no changes in the law were intended with respect to section
772(c)(2)(A). See SAA at 823. Petitioners deny that, as asserted
elsewhere by the Department, Congress' rejection of a separate
provision expressly allowing for the deduction of antidumping duties as
a cost in the context of the passage of the URAA requires a different
interpretation of section 772(c)(2)(A). See Certain Cold-Rolled Carbon
Steel Flat Products from the Netherlands: Final Results of Antidumping
Duty Administrative Review, 61 FR 48465, 48469 (September 13, 1996)
(``Netherlands Final''). This rejection, petitioners assert, does not
alter the Congressional intent with respect to a pre-existing statutory
provision.
Petitioners dismiss as illegitimate the Department's repeated
refusal to deduct antidumping and countervailing duties from U.S. price
on the grounds that such a deduction would result in double-counting,
for the following reasons.
First, the statute is not discretionary when it states
that the Department ``shall'' reduce U.S. price by the amount of United
States import duties. No conflicting policy rationale, they maintain,
can justify the Department's refusal to comply with a legal mandate.
Second, petitioners affirm, in the Netherlands Final the
Department did not consider doubling of antidumping margins to account
for reimbursement of antidumping duties, as constituting double-
counting. See Netherlands Final at 48470-71.
Third, the Department has refrained from making the
adjustment for antidumping duties because ``making an additional
adjustment to USP for the same antidumping duties that correct this
price discrimination between the U.S. and home markets would result in
double-counting.'' See Certain Corrosion-Resistant Carbon Steel Flat
Products from Korea: Final Results of Antidumping Duty Administrative
Review, 61 FR 18547, 18564 (April 26, 1996) (``Corrosion-Resistant
Final'') (emphasis added by petitioners). This rationale, petitioners
argue, cannot apply to countervailing duties, which offset
subsidization, not price discrimination.
In the event that the Department determines that actual antidumping
and countervailing duties do not fall within the general category of
``United States import duties,'' petitioners argue that antidumping and
countervailing duties constitute ``additional costs, charges, or
expenses * * * incident to bringing the subject merchandise from * *
* the exporting country to * * * the United States' within the
meaning of section 772(c)(2)(A) of the Act. These duties should
therefore be deducted from EP or CEP, petitioners contend.
Petitioners contend that, because no party requested a review of
the countervailing duty order on the subject merchandise at the time of
the second anniversary of the order, countervailing duties are
determinable and should be deducted in full from EP and CEP. Although
the Department is currently enjoined by order of the CIT from
liquidating the applicable entries pending a final resolution of the
respondents' legal challenge of the Department's final affirmative
countervailing duty determination, petitioners assert the presumption
exists that the Department's determination is correct (see H.R. Rep.
No. 96-317 at 182 (1979)) and the duties should be treated as final for
purposes of section 772(c)(2)(A). Indeed, petitioners say, in the
preliminary results of the instant reviews, the Department treated as
final those countervailing duties imposed to offset subsidies, and
stated that a respondent was entitled to an upward adjustment to U.S.
price, even though liquidation was still enjoined as a result of
litigation with respect to the entries in question. Petitioners contend
that, in the event the Department incorrectly determines not to treat
such duties as being final at this time, the actual amount to be
collected will be known if the court reaches a decision before the
final review results are issued, and the Department can make an
adjustment at that time. At a minimum, petitioners argue, the
Department should adjust the cash deposit rate upward by the amount of
countervailing duties (other than
[[Page 18421]]
those offsetting export subsidies) found in the original investigation.
Finally, petitioners request that the Department deduct the full
amount of the ``actual'' antidumping duties that respondents'
affiliated U.S. importers will be responsible for upon liquidation of
the entries of the subject merchandise. If the Department determines
that there exists a five percent dumping margin exclusive of the
payment of estimated antidumping duties, petitioners contend the
Department must deduct `` as per Federal-Mogul--an additional five
percent, which is equal to the cost of the antidumping duties that
Dongbu's, POSCO's, and Union's affiliated importers will be required to
pay to U.S. Customs. In this case, petitioners say, once the final
review results are issued, the exact amount of antidumping duties owed
by Dongbu's, POSCO's, and Union's affiliated importers will actually be
determined.
Respondents answer that the petitioners' argument is identical to
the one the Department considered and properly rejected in the first
administrative review of the order on corrosion-resistant products, and
that the Department should reject here as well because the petitioners
have not advanced any new arguments not set forth and rejected in the
first review. Dongbu and Union argue that the Department's
determination in the first review of corrosion-resistant products was
strengthened further when Congress and the Administration, in enacting
the URAA amendments under which this review is being conducted, very
pointedly rebuffed the petitioners' persistent lobbying for a ``duties
as a cost'' amendment. More recently, Dongbu and Union argue, the
Department rejected the petitioner's position again in Netherlands
Final, at 48469. Additionally, POSCO argues that the SAA (at 885) also
states that the Department does not intend to treat antidumping duties
as a cost in antidumping cases.
Furthermore, POSCO argues that petitioners' analogy with
Netherlands Final (in which the Department did not consider doubling of
antidumping margins, to account for reimbursement of antidumping
duties, as constituting double-counting) is inapposite. In the duty
reimbursement context, POSCO argues, the regulations require the
Department to double-count antidumping duties as a punitive measure.
The fact that antidumping duties are double-counted in that context,
therefore, is not a policy decision over which the Department has any
discretion. Because the Department's regulations do not require it to
double-count antidumping and countervailing duties in its antidumping
margin calculation, POSCO argues, the Department has the discretion to
conclude that it would be unfair to double-count those expenses.
Moreover, POSCO argues that petitioners' reasoning is circular. The
statute, POSCO argues, requires the Department to calculate the margin
by comparing U.S. price with NV. If the margin must first be subtracted
from U.S. prices, then, as a matter of simple mathematics, the
``correct'' margin could never be calculated.
In summary, Dongbu and Union argue, the petitioners' position is
entirely without foundation, is either contradicted by or finds no
support in the plain language of the law, the legislative history of
the law, court precedent, Department practice, or the United States'
legal obligations under the WTO Antidumping Agreement which prohibits
signatories from deducting in excess of the actual margin of dumping.
DOC Position. We disagree with petitioners. The term ``United
States import duties'' is not defined in the statute, and is therefore
open to interpretation. Substantial deference is owed to an agency's
interpretation of the statute it is charged with administering, as long
as such interpretation is reasonable. See Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984).
The term ``United States import duties'' first appeared in section
203 of the 1921 Act (42 Stat. 12). However, neither the 1921 Act nor
its legislative history defined the term. The Senate Report
accompanying the legislation, however, uniformly refers to antidumping
duties as ``special dumping dut[ies],'' and uniformly refers to
ordinary customs duties as ``United States import duties.'' The
rigorous use of these distinct terms indicates that the new ``special
dumping duties'' (payable only to offset dumping) were considered to be
distinct from the existing ``United States import duties'' (payable, ad
valorem, upon importation).
This conclusion is reinforced by the fact that section 211 of the
1921 Act (42 Stat. 15), provided that, for the limited purpose of duty
drawback, ``the special dumping dut[ies] * * * shall be treated in
all respects as regular customs duties.'' See S. Rep. No. 16, 67th
Cong., 1st Sess., at 4 (1921). If ``special dumping duties'' really
were considered to be just one type of ``United States import duty,''
this special provision would have served no purpose. That ``special
dumping duties'' are distinct from normal import duties also is
apparent from the fact that section 202(a) of the 1921 Act (42 Stat.
11) provided that ``special dumping duties'' may be applied to ``duty-
free'' merchandise. In this context, ``duty-free'' meant ``free from
ordinary import duties.'' If ``duty-free'' meant ``free from any
duties,'' that would include antidumping (``AD'') duties and
countervailing duties (``CVDs''). Plainly, however, ``duty-free'' was
understood to mean ``free from ordinary customs duties.'' Although the
Congress in 1921 did not explicitly stipulate that the new ``special
dumping duty'' should not be calculated so as to include itself, the
most reasonable explanation is that Congress would have considered it
absurd to spell out such a self-evident proposition.
When the AD law was amended in 1979, the provision requiring the
deduction of ``United States import duties'' from the starting price in
the United States was amended by adding the words ``except as provided
in paragraph (1)(D).'' Because paragraph (1)(D) provides for the
addition to the starting price of CVDs to offset export subsidies on
the subject merchandise, petitioners argue that this indicates that
Congress in 1979 considered ``United States import duties'' to include
countervailing duties. However, the only intent of Congress that is
clear is that the addition of export-subsidy CVDs to the price in the
United States should not be robbed of its logical effect by an
offsetting deduction. See Trade Agreements Act of 1979, Report of the
Committee on Finance on H.R. 4537, S. Rep. No. 249, 96th Cong., 1st
Sess., at 94 (1979). There is absolutely nothing in the legislative
history to indicate that Congress intended to change the standard
practice of not deducting either AD duties or CVDs from the starting
price in the United States as ``United States import duties.''
Furthermore, the SAA explicitly states that AD duties are not to be
treated as ``a cost'' to be deducted from the starting price in the
United States, and notes that Article 2.4 of the Antidumping Agreement
(at footnote 7) ``admonishes national authorities not to double count
adjustments'' in calculating dumping margins. See SAA at 139. In the
hundreds of antidumping duty administrative reviews that Commerce has
conducted since 1980, the Department has never deducted AD duties or
CVDs from the starting price in the United States, and the courts have
never directed the Department to change this practice. Congress has
been well aware of this situation, and, despite
[[Page 18422]]
numerous revisions of the antidumping law since 1921, has never amended
the law to change this result.
Petitioners' argument that the Department should deduct ``actual''
CVDs from U.S. price overlooks the distinction made by Congress in
section 772(c)(1)(C) of the Act between domestic and export subsidies.
Domestic subsidies presumably lower the price of the subject
merchandise both in the home and U.S. markets, and therefore have no
effect on the measurement of any dumping that might also occur. Export
subsidies, by contrast, benefit only exported merchandise. Accordingly,
an export subsidy brings about a lower U.S. price which could be
ascribed to either dumping or export subsidization, as well as the
potential for double remedies. Imposing both an export-subsidy CVD and
an AD duty, calculated with no adjustment for that CVD, would impose a
double remedy specifically prohibited by Article VIpara.5 of the GATT.
Thus, the only reasonable explanation for Congress' decision to provide
for the deduction from U.S. price of export-subsidy CVDs is protection
against double remedies.
Finally, the Department rejects petitioners' argument that the AD
duties and CVDs should be deducted as ``additional costs, charges, and
expenses * * * incident to importation'' because the Department's
rationale for refusing to deduct AD duties and CVDs from the United
States price (that it double-counts the dumping margin) applies equally
whether the AD duties and CVDs are described as ``import duties'' or
``costs of importation.''
Company-Specific Comments
Petitioners' Comments
Comment 5. Petitioners argue that CV profit must be calculated in a
manner consistent with the calculation of the CV base cost. Petitioners
state the Department calculated CV profit as a percentage of total
profit on above-cost sales over the corresponding sum of COM, G&A,
interest, commissions, selling expenses, and packing (``COPVALUE'').
Petitioners allege that in calculating the absolute amount of profit
for CV, the Department multiplied the CV profit rate by a different
base value representing the COM, G&A, and interest expenses, but
excluded selling expenses and packing. Petitioners propose that the
Department calculate CV profit as the total home-market sales value,
minus the total COP, and divided by the COP.
POSCO disagrees with petitioners' proposed correction. POSCO
asserts the home-market sales and total COP used as the numerator and
denominator in the calculation of the profit rate are extended values,
whereas the COP used as the denominator in petitioners' proposed
correction is a per-unit value. POSCO suggests that for the equation to
be correct mathematically the COP would have to be a total figure.
DOC Position. We agree that we incorrectly calculated CV profit in
the preliminary results. We calculated the profit rate including
packing and selling expenses and applied it to the CV base cost that
excluded packing and selling expenses. We have corrected the
programming language for the final results to include selling and
packing expenses in the CV base cost consistent with the components of
the profit rate (i.e., the numerator includes selling and packing
expenses and the denominator includes selling and packing expenses).
Comment 6. Petitioners note that Dongbu's CV financial expense
factor must be revised. According to petitioners, Dongbu incorrectly
offset CV financial expense with an adjustment based on the ratio of
accounts receivable and finished goods inventory to assets.
Dongbu acknowledges it inappropriately reduced its CV financial
expense rate with imputed accounts receivable and inventory carrying
expenses. Dongbu states that the company agrees to the use of the COP
financial expense factor for calculating CV.
DOC Position. We agree with both petitioners and Dongbu. The Act
directs the Department to exclude the imputed accounts receivable and
inventory carrying expense offsets. See, e.g., Final Determination of
Sales at Less than Fair Value: Certain Pasta from Italy, 61 FR 30326,
30361 (June 14, 1996) (``Pasta''). Therefore, we revised Dongbu's CV
financial expense rate for these final results, and used the company's
submitted COP financial expense factor to calculate the financial
expense factor used for CV, because this factor appropriately excluded
imputed offsets.
Comment 7. Petitioners argue that Dongbu's reported U.S. sales are
CEP transactions. They maintain that the record demonstrates that
Dongbu's U.S. sales are made through ``back-to-back'' transactions, in
which Dongbu USA, Dongbu's affiliated importer, engages in all selling
functions in the United States. Petitioners claim that new factual
information available to the Department in this review demonstrates
that Dongbu's sales are properly characterized as CEP transactions.
According to petitioners, the criteria typically used by the
Department for classifying sales as CEP or EP lead to the conclusion
that Dongbu's sales are CEP transactions. 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 Germany, 61 FR 38166, 38175 (July 23, 1996)
(``Presses from Germany''); Final Determination of Sales at Less Than
Fair Value: Coated Groundwood Paper from France, 56 FR 56380, 56384
(November 4, 1991); Final Determination of Sales at Less Than Fair
Value: New Minivans from Japan, 57 FR 21937, 21945 (May 26, 1992); and
Brass Sheet and Strip from Sweden; Final Results of Antidumping Duty
Administrative Reviews, 57 FR 2706, 2708 (January 23, 1992). They
maintain that the Department also recently determined that a U.S. sale
is properly classified as a CEP transaction when the U.S. affiliate
plays an active role in the sales negotiation process, and when it
performs significant additional functions in support of U.S. sales. See
Presses from Germany at 38171. Petitioners claim that all selling
expenses related to Dongbu's U.S. sales are incurred in the United
States, that Dongbu USA engages in substantial selling activities in
the United States, and that the sale itself occurs in the United
States. Petitioners further argue that the record supports these
activities since Dongbu USA acts as the importer of record, issues
sales contracts for all U.S. sales, borrows to finance accounts
receivable, handles all billing and accounting functions related to
U.S. sales, and is involved in other selling functions consistent with
CEP sales.
Petitioners contend that Dongbu's selling functions exceed those of
a mere communications link or processor of documents. They argue that
evidence on the record demonstrates that for every reported U.S.
transaction, two sales take place, one from Dongbu to Dongbu USA and
the other from Dongbu USA to the unaffiliated U.S. customer.
Petitioners note that Dongbu describes its U.S. sales as involving
``back-to-back'' transactions, a characterization which appears to be
at odds with Dongbu's portrayal of its U.S. sales as direct sales to
unaffiliated customers. Petitioners maintain that separate transactions
indicate that Dongbu USA acts as more than a mere processor of
documents or communications link, and that the presence of multiple
transactions with CEP sales is consistent with the amendments made
under the URAA, as indirect selling expenses would typically be
incurred on the second
[[Page 18423]]
sales transaction, as they were in the present case.
Petitioners argue that Dongbu's own information makes it clear that
significantly greater sales activity occurs in the United States for
U.S. sales than occurs in the home market, and the amount of Dongbu's
U.S. indirect selling expenses incurred in Korea is an insignificant
percentage of sales price. From this evidence, according to
petitioners, it is clear that Dongbu USA's sales activity in the United
States is far more significant than that which takes place in Korea for
equivalent sales. Petitioners note that despite the evidence
demonstrating that Dongbu USA sells subject merchandise to the U.S.
customer, Dongbu claims that the U.S. sale is made by Dongbu, because
Dongbu approves the customer's purchase order. They contend that Dongbu
has failed to present evidence or documentation indicating that Dongbu
negotiated the price or quantity of the U.S. sales, or played any other
role in the sales process other than giving pro forma approval.
Dongbu asserts that the Department has already thoroughly
considered and rejected the arguments raised by petitioners in the
first administrative review and the preliminary review results. Dongbu
argues that there is no new factual information that the Department has
overlooked. The nature and scope of Dongbu USA's selling activities in
the United States have not changed for this review. According to
Dongbu, petitioners' contention that all selling functions related to
Dongbu's U.S. sales are incurred in the United States and that Dongbu
USA is involved in substantial selling activities is easily disproved
by evidence on the record supporting the fact that sales negotiations
are undertaken by Dongbu's export department in Seoul and that Dongbu
USA merely acts as a communications link in this process. Dongbu argues
further that it is a matter of record that the most significant selling
activities related to U.S. sales occur in Korea, including sales
negotiation, production scheduling, shipping scheduling, Korean
brokerage, handling, and loading expenses, Korean inland freight to the
port, and ocean freight. Respondent claims that Dongbu USA simply
facilitates the sale by ensuring delivery of the merchandise to the
customer after clearance through Customs and by invoicing the customer
and receiving payment.
Dongbu also contends that, contrary to petitioners' arguments, the
issue is not the relative quantity of the selling activities that are
undertaken in the United States and Korea, but the nature of those
selling activities; these selling activities are consistent with those
associated with acting as a communications link and document processor.
Dongbu points out that the CIT has upheld the classification of sales
as purchase price (now EP) sales in circumstances where the related
U.S. company undertook activities similar to, or even more extensive
than, those in this instance. See, e.g., Outokumpu Copper Rolled
Products v. United States, 829 F. Supp. 1371, 1379-1380 (CIT 1993),
appeal after remand dismissed, 850 F. Supp. 16 (CIT 1994); E.I. du Pont
de Nemours & Co., Inc. v. United States, 841 F. Supp. 1237, 1248-50
(CIT 1993); Zenith Electronics Corp. v. United States, Consol. Ct. No.
88-07-00488, Slip Op. 94-146 (CIT) (``Zenith'').
Dongbu argues that there is no factual evidence to support
petitioners' claim that the sale itself occurs in the United States.
The record itself, including the Department's verifications findings,
confirms that Dongbu USA has no authority to accept or reject U.S.
sales offers and that the approval of sales comes from Dongbu's export
department in Seoul. Dongbu also argues that there is no support for
petitioners' claim, either in past administrative practice or in the
URAA, that the use of intracorporate invoicing to facilitate shipment
of sales indicates that sales are CEP transactions. See SAA at 153.
Respondent contends that back-to-back invoicing is a common method by
which related parties are able to geographically transfer routine
selling functions to the United States, and that such invoicing is
consistent with EP classification.
DOC Position. We disagree with petitioners that the selling
functions of Dongbu USA exceed those of a mere communications link or
processor of documents. As discussed in our position on this matter
during the first administrative reviews, whenever sales are made prior
to the date of importation through an affiliated sales entity in the
United States, we determine whether EP is the most appropriate
determinant of the U.S. price based upon the following considerations:
(1) The subject merchandise was shipped directly from the manufacturer
to the unrelated buyer, without being introduced into the inventory of
the related shipping agent; (2) direct shipment from the manufacturer
to the unrelated buyer was the customary channel for sales of this
merchandise between the parties involved; and (3) the related selling
agent in the United States acted only as a processor of sales-related
documentation and a communication link with the unrelated U.S. buyer.
See, e.g., Certain Stainless Steel Wire Rods from France: Final
Determination of Sales at Less than Fair Value, 58 FR 68865, 68868-9
(December 29, 1993) (``Wire Rod''); Granular Polytetrafluoroethylene
Resin from Japan: Final Results of Antidumping Duty Administrative
Review, 58 FR 50343-4 (September 27, 1993) (``PTF Resin''). This test
was first developed in response to the CIT's decision in PQ Corp. at
733-35. It has also been used to uphold indirect purchase price
transactions involving exporters and their U.S. affiliates. See, e.g.,
Zenith. We agree with respondent that neither the nature nor the scope
of Dongbu USA's selling activities with regard to these activities in
the United States have changed in these reviews.
Furthermore, we agree with respondent that, when the criteria
described above are met, we consider the exporter's selling functions
to have been relocated geographically from the country of exportation
to the United States, where the sales agent performs them. We determine
that Dongbu USA's selling functions are of a kind that would normally
be undertaken by the exporter in connection with these sales. Dongbu
USA's role in the payment of cash deposits of antidumping and
countervailing duties, extension of credit to U.S. customers, the
processing of certain warranty claims, and project development are
consistent with EP classification and are a relocation of routine
selling functions from Korea to the United States.
Comment 8. Petitioners contend that Dongbu's reported credit
expenses should be revised to reflect the date of shipment from the
factory. Petitioners claim that Dongbu improperly computes the number
of credit days based on the date of the bill of lading at the port,
rather than on the date of shipment from the factory. Accordingly, the
Department should increase the credit period for all U.S. sales on the
basis of facts available. Petitioners argue that the Department
requires respondents to calculate credit expenses based on the number
of days between date of shipment to the customer and date of payment,
and that these instructions are consistent with the Department's long-
standing practice. See, e.g., Final Determination of Sales at Less Than
Fair Value: Certain Welded Stainless Steel Pipe from the Republic of
Korea, 57 FR 53693, 53700 (November 12, 1992) (``Stainless Pipe from
Korea''); Polyethylene Terephthalate Film, Sheet, and Strip from the
Republic of Korea; Final Results of Antidumping Duty
[[Page 18424]]
Administrative Reviews and Notice of Revocation in Part, 61 FR 35177,
35181 (July 5, 1996) (``PET Film''); and PTF Resin at 50344.
However, according to petitioners, Dongbu used as the date of
shipment the date of lading on board the ship as indicated on the bill
of lading. In doing so, they claim, Dongbu improperly shortened the
credit expense period in the U.S. market. See, e.g., Final
Determination of Sales at Less Than Fair Value: Welded Stainless Steel
Pipe from Malaysia, 59 FR 4023, 4029 (January 28, 1994); and Final
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Lead
and Bismuth Carbon Steel Products from the United Kingdom, 58 FR 6207,
6212 (January 27, 1993).
Petitioners support their argument by stating that sales
documentation examined by the Department at verification demonstrated
time differences between shipment of merchandise from the factory and
its lading at the port. They argue that Dongbu claims, post hoc, that
the source of this information was issued directly after production was
completed and prior to commencement of shipment, and does not indicate
the date of shipment from the factory. In noting this, petitioners
assert that Dongbu offers no evidence for its claim, which is
contradicted by its earlier responses and discredited by the document
itself. Petitioners contend that Dongbu's position is further weakened
by its unsupported claim that shipment from the factory does not occur
until an export permit has been issued by the Korean government.
Petitioners state that the claim is undermined by Dongbu's own
calculation of the number of days between the date of export and the
bill of lading date (as opposed to the date of shipment from the
factory), and the fact that Dongbu has admitted that subject
merchandise is warehoused between shipment from the factory and later
export.
Dongbu counters these arguments by noting that its use of the bill
of lading as the date of shipment is consistent with the methodology
accepted by the Department in the first review of corrosion-resistant-
products and in the preliminary results of the present reviews. Dongbu
argues that the issue is not whether a minimum number of consecutive
reviews were conducted prior to the change in practice--as in Shikoku
Chemicals Corporation v. United States, 795 F. Supp. 417, 421-22 (CIT
1992) (``Shikoku''), where the calculation methodology was changed
without notice after four consecutive reviews rather than just after
one--but whether there was reasonable reliance on the Department's
prior acceptance of the methodology, whether the fact pattern is
unchanged, and whether there is evidence of a ``significant error.''
Dongbu states that in the present case, it reasonably relied on the
Department's prior examination and acceptance of the reported date of
shipment, the fact pattern is unchanged, and there is no evidence of
error in using shipment date as the date of sale.
Dongbu maintains that petitioners' argument is based on their
incorrect identification of a verification document as a shipping
invoice. The document in question, according to Dongbu, is not a
shipping invoice, but a document which is generated prior to shipment.
Dongbu states that actual shipment from the factory does not occur
until later in the process, following the transmission of vessel
arrangements to the factory and export clearance being obtained from
the broker. Therefore, according to respondent, the invoice petitioners
question is not the same invoice that is generated at the time of
shipment from Dongbu's factory and which is the basis for recording the
date of sale in Dongbu's accounting records. Dongbu also notes that the
export permit, and other documents singled out by petitioners as
suspect, are documents that are prepared in advance of shipment from
the factory, while others, including the bill of lading, are issued at
approximately the time of shipment from the factory. Accordingly, these
facts explain the short time differences between the export permit date
and the shipment date questioned by petitioners.
DOC Position. Although we disagree with petitioners' interpretation
of the shipping documents, we agree with them that the Department's
general practice is to calculate credit expenses based on the number of
days between date of shipment to the customer and date of payment. See,
e.g., Stainless Pipe from Korea at 53700, PET Film at 35181, and PTF
Resin at 50344. However, we agree with respondent that Dongbu's use of
the bill of lading date as the date of shipment is consistent with the
methodology reviewed and accepted by the Department in both the first
review of corrosion-resistant products and the preliminary results of
these reviews; in this instance, the fact pattern is unchanged, and
there is no evidence that using the bill of lading date as the shipment
date would be in error. See Shikoku at 421-22.
While both petitioners and respondent argue at length over the
identification and characteristics of certain sales verification
documentation, we refer to our review and analysis of the documents in
question in our sales verification report for Dongbu. In that report,
and upon our review of the documents used to support the corresponding
sales data, we noted that ``no discrepancies were noted for this
transaction.'' Accordingly, we have continued to use this methodology
for these final review results.
Comment 9. Petitioners assert that Dongbu's warehousing expenses
must be deducted from U.S. price. They argue that Dongbu's warehousing
expenses should be treated as movement charges since Dongbu has stated
that subject merchandise is warehoused post-production and after
shipment from the factory. Petitioners maintain that while Dongbu
claimed in its questionnaire response that it does not introduce
subject merchandise into a distribution warehouse in the United States,
Dongbu later admitted that subject merchandise is warehoused after
shipment from the factory. According to petitioners, Dongbu's argument
shifted to the position that its warehousing expenses are more similar
to pre-shipment manufacturing overhead expenses.
Petitioners argue that Dongbu's revised claim is based on the
incorrect view that its warehousing expenses are incurred prior to
shipment to its U.S. customers. Petitioners state that in contrast to
this, Dongbu previously admitted that it transports unpainted cold-
rolled merchandise from the Seoul factory to its Inchon warehouse to
await exportation. Accordingly, the Department, consistent with the
statute, its proposed regulations, and the SAA, may deduct post-sale
warehousing expenses from U.S. price. See Proposed Regulations at 7330
and SAA at 823, 827.
Petitioners also take issue with Dongbu's claim that its
warehousing expenses are correctly characterized as overhead expenses
since they are associated with the temporary storing of semi-finished
products between product lines. Petitioners state that Dongbu itself
admitted to warehousing finished products after production is completed
and after shipment from the production facility. According to
petitioners, post-production warehousing expenses incurred after
shipment are not attributable to manufacturing, but instead constitute
movement charges and should be deducted from U.S. price. See, e.g.,
Erasable Programmable Read Only Memories from Japan; Final
Determination of Sales at Less Than Fair Value, 51 FR 39680, 39691
(October 30, 1986).
[[Page 18425]]
Petitioners contend that the Department should resort to facts
available in this instance because Dongbu failed to provide the
requested information regarding warehousing expenses, and because it
originally claimed that no such warehousing actually occurred.
Petitioners assert that, at a minimum, the Department should deduct
from U.S. price, as facts available, the amount calculated by Dongbu
for warehousing expenses. Alternatively, and only if the Department
incorrectly concludes that Dongbu's admitted post-warehousing expenses
are not movement charges, state petitioners, the amount calculated by
Dongbu for these charges should be deducted as a direct expense, since
this amount is directly linked to individual sales.
Dongbu argues that the pre-shipment expenses questioned by
petitioners are recorded as manufacturing overhead expenses in its
normal accounting records and have been reported properly as such in
its COP and CV data. Respondent states that the cost of such pre-
shipment overhead is no different from overhead expenses associated
with temporarily storing semi-finished products between production
lines, and that the Department has never treated pre-shipment
manufacturing costs as selling expenses.
Contrary to petitioners' claim that Dongbu shifted its position and
only characterized these expenses as manufacturing overhead following
petitioners' argument that they be treated as movement expenses,
respondent notes that it pointed this out three months earlier in its
Section D cost response to the Department. Respondent argues that
petitioners continue to miss the important point, which is that Dongbu
records these expenses as factory overhead, rather than selling
expenses in its normal course of business. Furthermore, Dongbu argues
that there is no legal basis to treat these expenses as movement
expenses pursuant to section 771(c)(2) of the Act since they are
incurred before shipment to the U.S. customer. Respondent argues that
the Department most recently stated in the Proposed Regulations that
the deduction for movement expenses only ``includes a deduction for all
warehousing expenses incurred after the merchandise leaves the
producers factory * * * ,'' a position which the Department notes is
``[c]onsistent with the SAA, at 823 and 827.'' See Proposed Regulations
at 7330 (preamble to proposed section 351.401(e)).
DOC Position. We disagree with petitioners' characterization of the
expenses in question as post-production warehousing expenses which
Dongbu has incurred after shipment, and that they should be treated as
movement charges and deducted from U.S. price. As we noted in our sales
verification report for Dongbu, the respondent indicated that the
warehousing expenses in question are not treated as selling expenses,
but rather as cost of manufacturing expenses. We noted in the same
report that, as such, the amounts reported in Dongbu's questionnaire
respon
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