Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From Canada: Final Results of Antidumping Duty Administrative Reviews

DEPARTMENT OF COMMERCE

International Trade Administration

[A-122-822 & A-122-823]

Certain Corrosion-Resistant Carbon Steel Flat Products and

Certain Cut-to-Length Carbon Steel Plate From Canada: Final Results of

Antidumping Duty Administrative Reviews

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of antidumping duty administrative

reviews.

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

SUMMARY: On October 4, 1996, the Department of Commerce (the

Department) published the preliminary results of its administrative

reviews of the antidumping duty orders on certain corrosion-resistant

carbon steel flat products and certain cut-to-length carbon steel plate

from Canada. These reviews cover four 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 upon our analysis of the

comments received, we have changed the results from those presented in

the preliminary results of review.

We determine that sales have been made below normal value (``NV'')

by various companies subject to these reviews. Thus, we will instruct

U.S. Customs to assess antidumping duties based on the difference

between the export price (``EP'') or constructed export price (``CEP'')

and the NV.

EFFECTIVE DATE: April 15, 1997.

FOR FURTHER INFORMATION CONTACT: Robert Bolling (Continuous Colour Coat

(``CCC'')), Eric Johnson (Dofasco Inc. and Sorevco Inc. (``Dofasco'')),

Greg Weber (Algoma, Inc. (``Algoma'')), N. Gerard Zapiain (Stelco, Inc.

(``Stelco'')), or Jean Kemp, Import Administration, International Trade

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

Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)

482-3793.

SUPPLEMENTARY INFORMATION:

The Applicable Statute

Unless otherwise indicated, all citations to the statute refer 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

On October 4, 1996, the Department published in the Federal

Register (61 FR 51892) the preliminary results of its administrative

reviews of the antidumping duty orders on certain corrosion-resistant

carbon steel flat products and certain cut-to-length carbon steel plate

from Canada. We gave interested parties an opportunity to comment on

our preliminary results. We received written comments on November 4,

1996 from Algoma, CCC, Dofasco/Sorevco, Stelco and from the

petitioners: Bethlehem Steel Corporation, U.S. Steel Group (a Unit of

USX Corporation), Inland Steel Industries Inc., Gulf States Steel Inc.

of Alabama, Sharon Steel Corporation, Geneva Steel, and Lukens Steel

Company. We received rebuttal comments on November 12, 1996 from

interested parties.

As we noted in the preliminary results of review, on February 28,

1996, the petitioners requested that the Department determine whether

antidumping duties had been absorbed by Algoma, Dofasco, and Stelco

(for corrosion-resistant only) during the POR, pursuant to section

751(a)(4) of the Act. Section 751(a)(4) provides that the Department,

if requested, will determine during an administrative review initiated

two years or four years after

[[Page 18449]]

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.

For transition orders as defined in section 751(c)(6)(C) of the

Act, i.e., orders in effect as of January 1, 1995, Sec. 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, Notice of

Proposed Rulemaking and Request for Public Comments, 61 FR 7308, 7366

(February 27, 1996) (``Proposed Regulations''). 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. Id. 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 assures 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). Because the

orders on corrosion-resistant carbon steel flat products and cut-to-

length carbon steel plate from Canada have been in effect since 1993,

these are transition orders. Therefore, based on the policy stated

above, the Department will first consider a request for a duty

absorption determination for reviews of these orders initiated in 1996.

Because these reviews were initiated in 1995, we have not considered

the issue of absorption in these reviews. However, if requested, we

will do so in the next reviews.

Under the Act, the Department may extend the deadline for

completion of administrative reviews if it determines that it is not

practicable to complete the reviews within the statutory time limit of

365 days. On April 1, 1996, the Department extended the time limits for

the preliminary and final results in this case. See, Extension of Time

Limit for Antidumping Duty Administrative Reviews 61 FR 14291 (1996).

We have now completed the administrative reviews in accordance with

section 751 of the Act.

Scope of Reviews

The merchandise under review is certain corrosion-resistant carbon

steel flat products and certain cut-to-length carbon steel plate.

Although the Harmonized Tariff Schedule of the United States (HTSUS)

subheadings are provided for convenience and customs purposes, the

written description of the merchandise under investigation is

dispositive.

I. Certain Corrosion-Resistant Carbon Steel Flat Products

These products include 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 HTSUS 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.

II. Certain Cut-to-Length Carbon Steel Plate

These products include hot-rolled carbon steel universal mill

plates (i.e., flat-rolled products rolled on four faces or in a closed

box pass, of a width exceeding 150 millimeters but not exceeding 1,250

millimeters and of a thickness of not less than 4 millimeters, not in

coils and without patterns in relief), of rectangular shape, neither

clad, plated nor coated with metal, whether or not painted, varnished,

or coated with plastics or other nonmetallic substances; and certain

hot-rolled carbon steel flat-rolled products in straight lengths, of

rectangular shape, hot rolled, neither clad, plated, nor coated with

metal, whether or not painted, varnished, or coated with plastics or

other nonmetallic substances, 4.75 millimeters or more in thickness and

of a width which exceeds 150 millimeters and measures at least twice

the thickness, as currently classifiable in the HTSUS under item

numbers 7208.40.3030, 7208.40.3060, 7208.51.0030, 7208.51.0045,

7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000, 7210.70.3000,

7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045, 7211.90.0000,

7212.40.1000, 7212.40.5000, 7212.50.0000. 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

grade X-70 plate.

The period of review (POR) is August 1, 1994, through July 31,

1995.

[[Page 18450]]

Analysis of Comments Received

Algoma

Comment 1

Petitioners argue that Algoma's method of reporting costs is

distortive and should be rejected because Algoma allocated rolling

costs based on the average rolling cost of only one of its two mills

that produces subject merchandise. Petitioners argue that the

Department has consistently required that respondents report COP and CV

based on the actual costs incurred. Petitioners point to the

Department's antidumping questionnaire which states that COP and CV

figures ``should be calculated based on the actual costs incurred by

your company during the period of review * * * as recorded under its

normal accounting system.'' Petitioners also cite IPSCO, Inc. and IPSCO

Steel, Inc. v. United States, 687 F. Supp. 633, 639 (CIT 1988) which

quotes F.W. Myers & Co., Inc. v. United States, 376 F. Supp. 860, 873

(CIT 1974) in stating ``value determinations made in antidumping cases

`must be based upon proof of actual costs of prices--not estimates,

approximations or averages. ' Petitioners argue that Algoma did not

weight-average the actual rolling costs of each mill. As the

Department's antidumping questionnaire at D-2 states, ``If you produce

the merchandise under review at more than one facility, you must report

COP and CV based on the weighted-average of costs incurred at all

facilities.'' Petitioners cite Antifriction Bearings (Other Than

Tapered Roller Bearings) and Parts Thereof From Italy, 60 FR 10959,

10962 (February 28, 1995): ``if a respondent produces subject

merchandise at more than one facility, the reported COM should be the

weighted-average manufacturing costs from all facilities.'' Petitioners

claim that Algoma's methodology resulted in the misreporting of COP and

CV.

Petitioners also claim that Algoma's methodology causes all

comparisons of non-identical merchandise to be erroneous. Petitioners

argue that Algoma's failure to report actual costs--whether under or

overstated--means that the difference in merchandise tests are invalid.

Petitioners claim that the 20-percent test, which the Department uses

to determine if a non-identical home market product is sufficiently

similar to the U.S. product for a price comparison, will not operate

properly due to Algoma's flawed methodology. Therefore, petitioners

argue that where non-identical sales are being matched, there is no way

to ensure that the comparison is being made with merchandise that is

comparable as required by the statute. Thus, petitioners argue that

since costs are overstated, the DIFMER adjustment will always be

incorrect. Petitioners cite Certain Pasta from Turkey, 61 FR 30309,

30311 (June 14, 1996) which states, ``Insofar as DIFMER data is based

on cost information {that is flawed}, the effect of these physical

differences cannot be determined by the Department.''

Petitioners also argue that Algoma's attempts to justify its

allocation system must be rejected. Petitioners specifically point to

Algoma's claim that its accounting system does not record costs at a

sufficient level of detail that would permit direct calculation of

actual costs incurred at the 106'' mill that relate only to the subject

merchandise. Petitioners argue that there are few, if any, accounting

systems that maintain costs in the normal course of business in a

manner that mirrors the Department's reporting requirements.

Petitioners point to Sec. 351.308 of the Department's Proposed

Regulations which state, ``not all information that needs to be

produced during the course of a proceeding is kept in the ordinary

course of business (e.g., worksheets), and failure to provide such

information may be deemed to violate the `best of ability' standard.''

Petitioners go on to say that all respondents--including Algoma--are

required to construct methodologies for reporting purposes that result

in the reasonable allocation of actual costs.

Finally, petitioners argue that Algoma's distortive allocation

methodology leaves the Department with no alternative but to reject COP

and CV and apply total facts available. Petitioners claim, pursuant to

section 776(b) of the statute, that the Department should select the

most adverse margin available as the final weighted-average margin for

this review. However, petitioners argue, if the Department decides not

to apply total adverse facts available, then it should apply facts

available with regard to the comparison of non-identical merchandise.

In selecting partial facts available, they argue, the Department should

follow its own established practice and add an upward DIFMER adjustment

equal to 20 percent of TCOMU to normal value for each comparison of

non-identical products. Petitioners cite two Department decisions, Gray

Portland Cement and Clinker from Mexico, Results of Redetermination

Pursuant to Court Remand, and Tapered Roller Bearings, and Certain

Components Thereof, from Japan, 56 FR 26054, 26057 (June 6, 1991), in

which the Department added an upward DIFMER adjustment of 20 percent as

best information available. Accordingly, petitioners feel the

Department should apply the same remedy in this situation.

Algoma argues that although they were unable to report actual

rolling costs for the 106'' mill, the Department must examine any cost

allocation to determine if it is reasonable. Respondent cites Floral

Trading Council v. U.S., 822 F. Supp 766, 772 (CIT 1993) and Welded

Stainless Steel Pipe from Malaysia, Final Determination of Sales at

Less Than Fair Value, 59 FR 4023, 4027 (January 28, 1994) in which the

Department accepted allocation methods as reasonable. Respondent

asserts that the Department should continue to accept Algoma's rolling

cost allocation method because it did so in the first review of this

case, Certain Steel Products from Canada: Final Results of

Administrative Review, 61 FR at 13817. In that decision, the Department

accepted Algoma's rolling cost calculation methodology stating,

``Algoma's reporting of rolling costs incurred at only one of its

manufacturing facilities is reasonable, considering (1) The nature of

its cost accounting system, (2) Algoma's verified inability to

determine specific rolling costs based upon the gauge of materials

being manufactured at either facility, and (3) the conservative

methodology adopted by Algoma.'' Respondent contends that same

rationale is fully supported by the record in this review and leads to

the conclusion that Algoma's method for calculating rolling costs is

reasonable.

Additionally, respondent asserts that Algoma explicitly sought the

Department's guidance on whether to use the same rolling cost

calculation methodology as in the first administrative review and that

the Department instructed Algoma to use the same methodology.

Respondent argues Algoma does not track rolling costs by width and

gauge in the normal course of business. In addition, a very large

percentage of the products produced on the 166'' Plate Mill and a very

small percentage of the products produced on the 106'' Strip Mill

constitute subject merchandise. Respondents contend, in light of those

two verified facts, Algoma had only three reasonable alternatives in

assigning rolling costs to a particular category of subject

merchandise: It could either assign the average Strip Mill rolling

costs, assign the average Plate Mill rolling costs, or assign a mixture

of the two. Respondents argue that since the 106'' Strip Mill average

[[Page 18451]]

rolling costs are overwhelmingly determined by non-subject merchandise,

using the average 106'' mill rolling cost, or a mixture of costs from

both mills, would have caused the rolling cost calculation to be driven

by the cost of rolling non-subject merchandise. Therefore, Algoma used

the average rolling cost of the 166'' mill--where only products with

gauges falling within the definition of subject merchandise are

rolled--as a surrogate for the average rolling cost of the 106'' mill.

Respondent argues that this is a conservative methodology based on the

verified fact that rolling costs on the 166'' mill were higher than

rolling costs on the 106'' mill. Based on the facts above, respondents

argue that Algoma's rolling cost methodology should again be determined

reasonable by the Department.

Concerning petitioners' argument that Algoma's methodology renders

the DIFMER adjustment inaccurate, respondent argues that these

arguments are based on conclusions that are untrue. Respondent provides

calculations for the potentially affected matches, which they argue

demonstrate that it would be mathematically impossible for the cost

reporting methodology to yield a distortion in the results of the

DIFMER test.

Department's Position. We agree with respondent. Consistent with

the final results of the first review, Certain Steel Products from

Canada: Final Results of Administrative Review, 61 FR at 13817,

Algoma's cost reporting methodology is reasonable, considering (1) we

verified its cost accounting system, (2) Algoma's verified inability to

determine specific rolling costs based upon the gauge of the material

being manufactured at either facility, (3) the conservative methodology

adopted by Algoma and verified by the Department, and (4) respondent's

compliance with Department instructions on cost reporting methodology

in this review.

Petitioners state that it is the responsibility of any respondent

to construct methodologies for reporting purposes that result in the

reasonable allocation of costs. The Department determined that Algoma's

cost accounting system computes one average rolling cost for all

products rolled on the 166'' Plate Mill and one average rolling cost

for all products rolled on the 106'' Strip Mill. Moreover, the

Department verified that a very large percentage of the products

produced on the 166'' mill and a very small percentage of the products

produced on the 106'' mill are subject merchandise. Therefore it was a

reasonable and non-distortive methodology for Algoma to use the average

cost of the 166'' mill as a surrogate for the rolling cost of the 106''

mill. Accepting this methodology is made more reasonable by the fact

that the average rolling cost of the 166'' mill is higher than the

average rolling cost of the 106'' mill, thus insuring a conservative

costing methodology. However, this difference in rolling costs is not

so great as to cause significant distortions to the DIFMER.

Regarding petitioners' claim that the Department should reject

Algoma's COP and CV data and apply total facts available, respondent

has acted to the best of its ability and provided the Department with a

reasonable methodology that has been verified. Moreover, the Department

provided guidance on Algoma's cost reporting methodology and

respondents complied with that guidance. Regarding petitioners' claim

that the Department should apply facts available with regard to the

comparison of non-identical goods, once again, respondent has provided

a reasonable methodology and the DIFMER is, therefore, reliable.

Respondent has demonstrated that for the product comparisons in

question Algoma's cost methodology would not cause the 20-percent

DIFMER test to yield inaccurate results. In addition, while it is

possible that the allocation method could change the DIFMER adjustment

amount slightly for some product comparisons, the insignificant degree

of the possible difference is not enough to render the allocation

method unreasonable and invalid. Based on the above arguments, the

verified record, and previous Department decisions, we find that

Algoma's cost allocation methodology, productivity matrices, exclusion

of certain runs, and DIFMER adjustments are accurate and reasonable.

Comment 2

Petitioners argue that the record shows that Algoma sold subject

merchandise at two different levels of trade. Petitioners contend that

in determining whether customers are at separate levels of trade, the

Department reviews the selling activities performed by the seller for

each type of customer. Petitioners assert that Algoma stated that it

sold subject merchandise to ``two very different types of customers'':

steel service centers (SSCs) and end-users. Petitioners state that

Algoma specifically stated in its July 11 supplemental response that it

performed selling functions for end-users that are not ``routinely

performed'' for SSCs. In addition, Algoma stated that it performed some

of the selling functions identified by the Department ``mainly for end

users.'' Petitioners assert that this is significant because the

Department has previously found differences in these types of selling

functions to be important in distinguishing separate levels of trade.

See, Antifriction Bearings from France, 61 FR at 35720.

Petitioners argue that the Department accepted Algoma's claim that

all sales are at one level of trade based on the Department's

``examin{ation} and verif{ication} of the selling functions''

identified by Algoma. Petitioners note, however, that Algoma did not

report its selling functions on the record until two months after

verification. Therefore, Petitioners contend, there is no possible way

for the Department to have ``examined and verified'' Algoma's selling

functions. Even if the Department were to rely on Algoma's unverified

descriptions of selling functions, Petitioners argue that the

Department must still find that Algoma sold to two levels of trade.

Petitioners assert that such a conclusion is mandated because the

functions undertaken by Algoma for its end-user customers are

significantly different from those engaged in for the SSC customers.

Therefore, Petitioners argue that the Department must make a level

of trade adjustment. Petitioners contend that the statute requires that

``to the extent practicable,'' U.S. sales should be compared to home

market sales at the same level of trade, 19 U.S.C. section 1677b

(a)(1)(B). When a U.S. sale is compared to a home market sale at a

different level of trade, however, the Department is required to

determine if a level of trade adjustment should be made, 19 U.S.C.

section 1677b(a)(7)(A). Petitioners argue that an adjustment must be

made under the statute where the difference in level of trade affects

price comparability. Petitioners claim that the Department set forth

its methodology for making this determination in Antifriction Bearings

from France, 61 FR at 35719. Petitioners argue that the difference in

level of trade between sales to SSCs and end-users does affect price

comparability. Petitioners present a number of calculations that they

contend demonstrate a pattern of consistent price difference between

the different levels of trade in the home market based on both the

number of models and the quantity of sales. Accordingly, petitioners

argue that a level of trade adjustment is warranted.

Respondent contends that the Department correctly concluded in the

preliminary results that Algoma sells plate products at one level of

trade.

[[Page 18452]]

Respondent asserts that conclusion is fully supported by the verified

record in this review, and the Department should reach the same

conclusion in the final results of review. Respondent points to the

Department's preliminary analysis memorandum, which states that the

Department ``examined and verified the selling functions'' performed by

Algoma for its two customer classes: end-users and steel service

centers (SSCs). Based on the verified information, the Department

concluded in its analysis memorandum that ``Algoma's selling activities

were substantially similar for both classes of customers for sales of

subject merchandise and warrant one level of trade.'' Respondent states

that Algoma determined that it sold plate products at only one level of

trade, by comparing the services performed for plate customers to those

performed for purchasers of sheet products, its largest product line.

For sheet products, Algoma engages in very different levels and types

of selling functions for service centers and fabricators. Respondent

states for plate products, however, those services are rarely

performed. Respondent also asserts that on those rare occasions when

services like just-in-time delivery are performed for plate customers,

they are mainly performed for end-users. Respondent points to Algoma's

July 11 supplemental questionnaire response which states that ``(w)hile

Algoma does perform some selling functions for end-users in plate trade

that are not routinely performed for SSCs, in Algoma's view the

activity is not so significant as to cause plate end-users to be a

level of trade different from SSCs.

Respondent also asserts that the Department's preliminary decision

that Algoma sells plate products to only one level of trade is

consistent with other recent decisions. Respondent points to the final

determination in Certain Pasta from Italy, 61 FR 30326, 30337-39, and

30342-43 (June 14, 1996) (quoting Proposed Regulations), which states

that ``small differences in the functions of the seller will not alter

the level of trade.'' Respondent claims Algoma has demonstrated that

the selling functions performed for various customer classes of the

subject merchandise are ``sufficiently similar'' to justify a finding

of one level of trade, as was the case for many of the respondents in

that case. In addition, respondent asserts that the Department should

disregard petitioners'' calculations that suggest that a price

discrepancy exists between levels of trade. Respondent claims that

petitioners'' calculations hardly constitute the ``significant

correlation between prices and selling expenses on one hand, and levels

of trade on the other,'' required to make a level of trade adjustment.

See, Steel Plate from Sweden, 61 FR 15772, 15776 (April 9, 1996) (Final

Review). Based on the above comments and previous Department decisions,

respondent contends that the Department is correct in finding that

Algoma sold plate products at one level of trade and, thus, there is no

need for the Department to make a level of trade adjustment.

Department's Position. The Department agrees with respondent that

Algoma sold plate products at one level of trade and, thus, no level of

trade adjustment is warranted.

In order to determine whether sales in the comparison market are

made at more than one level of trade, the Department must find that

sales have been made at different stages in the marketing process, or

the equivalent. We make this determination on the basis of a review of

the distribution system, including selling functions, class of

customer, and the level of selling expenses for each type of sale.

Different stages of marketing necessarily involve differences in

selling functions, but differences in selling functions, even

substantial ones, are not alone sufficient to establish a difference in

the level of trade. While customer categories such as ``distributor''

and ``wholesaler'' may be useful in identifying different levels of

trade, they are insufficient in themselves to establish that there is a

difference in the level of trade. See, Antifriction Bearings (other

than Tapered Roller Bearings) and Parts Thereof from France, et al:

Final Results of Antidumping Administrative Reviews, 62 FR 2081, 2105

(January 15, 1997).

An examination of Algoma's selling activities--the selling

functions and the level of selling expenses--for Algoma's two customer

classes indicates that while Algoma occasionally may perform some

services for end-users that it does not perform for SSCs, these

differences in terms of selling functions and level of selling expenses

are not great enough to warrant a finding of different levels of trade.

As respondent noted in Certain Pasta from Italy, 61 FR 30326, 30337-39,

and 30342-43 (June 14, 1996), small differences in selling functions do

not warrant a different level of trade. Petitioners' arguments on price

comparability are moot because the Department has determined that only

one level of trade exists.

Finally, the Department disagrees with petitioners'' contention

that the Department did not review Algoma's selling activities at

verification because Algoma submitted some of its selling activity

information after verification. Prior to verification, there was enough

information on the record concerning Algoma's selling activities for

the Department to determine whether these activities were

``substantially similar'' for Algoma's two customer classes: end-users

and steel service centers (SSCs). Moreover, prior to verification,

petitioners notified the Department of their concerns and requested

that the Department carefully analyze and test all of Algoma's selling

functions and differences in these selling functions between end-users

and SSCs. At verification, the Department examined the differences in

selling activities between end-users and SSCs. Algoma's supplemental

response concerning level of trade, requested by the Department and

submitted after verification, presented no evidence to contradict this

determination and does not invalidate the information which was

verified.

Comment 3

Petitioners claim that Algoma's failure to provide plate qualities

for certain sales warrants the application of adverse facts available.

For the preliminary results, respondent identified plate quality as

``structural'', ``pressure vessel'', or ``other.'' Algoma reported

``other'' as the plate quality for a number of its prime home market

sales and for some of its prime U.S. market sales as well. Petitioners

argue that Algoma's incomplete reporting of plate quality has

undermined the Department's model match program. For this reason,

petitioners assert the Department should apply facts available to all

U.S. sales where plate quality has been identified as ``other.''

Petitioners state that Algoma attempted to justify its reporting

method by claiming that its method was consistent with industry

standards and practices. According to Algoma, any plate not falling

into either the structural or pressure vessel quality categories, is

appropriately considered ``other.'' Petitioners claim, however, that

there are, in fact, other plate quality categories recognized in the

steel industry. Petitioners point to the Iron and Steel Society's

authoritative Steel Products Manual which mentions four other ``quality

descriptions'' for steel plate.

Petitioners contend that the Court of International Trade (CIT) has

specifically stated that respondents must provide complete information

regarding the physical characteristics of subject merchandise. In

Timken Co. v. United States, 630 F. Supp. 1327, 1338 (CIT 1986), the

CIT stated, ``It is of

[[Page 18453]]

particular importance that the administering agency itself make the

required determination of what constitutes most similar merchandise,

rather than delegating that responsibility to an interested party.'' In

the same case, the CIT states that ``accepting a foreign manufacturer's

assertions as to what constitutes most similar merchandise without

obtaining the complete data needed to determine the appropriateness of

those assertions'', would ``violate the spirit of the statutory

requirement.''

Petitioners contend that because of Algoma's incomplete reporting,

the Department should apply adverse facts available because of the

Department's repeated requests and Algoma's repeated refusals to

provide this information. Petitioners assert that the Department should

apply the most adverse margin to all United States sales where plate

quality has been reported as ``other.''

Respondent claims that Petitioners' arguments are misplaced because

Algoma has properly reported, and the Department has verified and

accepted, the three categories of plate quality reported by Algoma in

this review. In response to the Department's first supplemental

questionnaire, Algoma explained that it:

``followed the Department's instructions in separating subject

merchandise into the categories of `structural,' `pressure vessel'

or `other' in the PLQUALH/U fields. Consistent with industry

standards and practices, the only `quality' types recognized for

plate products are structural and pressure vessel. Any plate not

falling into one of the two categories is appropriately considered

`other,' and therefore was included by Algoma in the `other'

category. The types of plate that may not meet the structural or

pressure vessel qualities, and therefore are appropriately

considered `other,' include floor plate, chemical grades, and non-

prime plate.

Respondent also asserts that at verification, the Department verified

the plate qualities reported by Algoma.

In response to petitioners' cite to the Iron and Steel Society

publication, respondent contends that the additional plate qualities

mentioned by the publication are both out of date and not applicable to

Algoma. Respondent also asserts that the very same publication supports

Algoma's understanding by listing as typical, in ``Typical Standard

Specifications,'' only structural and pressure vessel qualities.

Respondent argues that based on the facts above and the verified

record, the Department should not change its decision regarding plate

quality categories in making its final determination.

Department's Position. We agree with respondent. Algoma classified

all plate that did not fall within the structural or pressure vessel

qualities, as ``other.'' The Department fully verified the plate

qualities reported by Algoma during the period of review. The

Department agrees this practice is consistent with industry standards.

In addition, this classification does not undermine the Department's

model match program. Petitioners' cite to Timken Co. v. United States

is not relevant to this issue because the Department has accepted and

verified Algoma's reporting of qualities; therefore Algoma's response

cannot be considered incomplete. In addition, petitioners' mention of

the Iron and Steel Society's Steel Products Manual is also irrelevant.

That publication quotes additional plate qualities that are not

relevant to this review and that in no way would affect model matches.

Furthermore, since Algoma properly reported all plate qualities, there

is no need to consider petitioners' argument for the use of adverse

facts available. Based on the verified record and industry standards,

the Department fully accepts Algoma's reporting of plate qualities.

Comment 4

Petitioners argue that the Department erred in accepting as a

movement charge deductible from normal value under section

773(a)(6)(B)(ii) of the statute Algoma's reported freight expenses,

which Algoma incurred in transporting merchandise to a further

processor. Petitioners argue that the Department has consistently

treated such expenses as a cost of manufacturing, and not a movement

charge. Therefore, the Department should disallow Algoma's claim for a

freight adjustment for all further processed sales.

Petitioners state that the Department requires respondents to

establish that they are entitled to favorable adjustments to normal

value. Petitioners cite The Timken Company v. United States, 673 F.

Supp. 495, 513, (CIT 1987), in which the Court ``plac(es) the burden of

establishing adjustments on a respondent that seeks the adjustments and

that has access to the necessary information.'' Petitioners contend

that Algoma has failed to establish that it is entitled to a favorable

adjustment to normal value. Petitioners assert that Algoma defends its

reporting by claiming that its freight expenses were incurred ``post-

sale'' and hence should be classified as movement charges. However,

petitioners claim that the freight expenses in question were incurred

in transporting unfinished merchandise for further processing, and

thus, they are properly classified as cost of manufacturing, and not a

movement charge. Therefore, petitioners argue, whether the freight

expenses were incurred pre-sale or post-sale is irrelevant. Petitioners

cite Certain Carbon Steel Flat Products from Canada, 58 FR 37099, 37118

(comment 61) (July 9, 1993), which states ``pre-sale freight charges

for unfinished merchandise should not be considered a movement

charge.'' The Department decision goes on to say, ``(f)reight between a

factory and the further processor of a work in progress is not a

deductible adjustment . . .'' Similarly, petitioners argue, the

Department has consistently treated the freight from the U.S. port to a

further manufacturing plant as a cost of further manufacturing, and not

a freight expense. See, Gray Portland Cement and Clinker from Japan, 60

FR 43761, 43768 (Aug. 23, 1995).

Therefore, based on the reasons above petitioners argue that the

Department should disallow Algoma's claim for a freight adjustment for

all further processed sales.

Respondent claims that petitioners' arguments are based on the

incorrect assumption that these freight expenses are pre-sale freight

expenses. Respondent contends that under the recently amended

antidumping law, all freight expense incurred from the producer to the

processor and from the processor to the customer, should be deducted

from normal value. Section 773 (a)(6)(B)(ii) states that an adjustment

to normal value is appropriate for ``the amount, if any, included in

the price . . . attributable to any additional costs, charges, and

expenses incident to bringing the foreign like product from the

original place of shipment to the place of delivery to the purchaser.''

Respondent cites the Statement of Administrative Action (SAA) at 827,

which also explains that under that new section movement charges are to

be deducted from normal value. According to respondent, Algoma's

movement charges from the plant to the processor and then to the

customer fall within that statutory provision and thus are properly

deducted from normal value. Respondent also claims that petitioners'

citations to the decisions by the Department under the old law are

irrelevant to this review in light of the change in the law and the

Department's practice.

Department's Position. We agree with respondent. The freight from

Algoma to the further processor is a movement charge deductible

pursuant to 773 (a)(6)(B)(ii) because it is not freight incurred in the

process of

[[Page 18454]]

manufacturing subject merchandise but freight incurred in sending

subject merchandise for further processing at the customer's request as

part of the sale. Algoma performs this further processing on a small

percentage of sales as a courtesy to the customer and is not part of

its actual production of subject merchandise which is being used for

comparison in this review. Moreover, it would be unfair to respondent

to compare ex-factory prices in the U.S. market with home market prices

that include freight. In order to insure that a proper comparison is

made with ex-factory home market products and ex-factory U.S. market

products, all ex-factory freight expenses need to be excluded from the

price. Based on the information in the record, the Department has

determined that the respondent has satisfied its burden of establishing

its entitlement to the adjustment under Timken. Petitioners' cite to

Certain Carbon Steel Flat Products from Canada is irrelevant because

that case involved the pre-sale transfer of a work-in-process. In

addition, petitioners' cite to Gray Portland Cement and Clinker from

Japan is inappropriate because it deals with the cost of further

manufacturing in the United States which is not relevant to this case.

Comment 5

Petitioners argue that Algoma should not be allowed a freight

adjustment for sales in which it inadvertently reported actual freight

in the accrued freight field. Throughout this review, Algoma has

claimed that it had reported an accrued freight expense amount in the

INLFACH field of its sales tape. Petitioners state that according to

Algoma, the amount reported in this field was not based on the freight

expenses actually incurred, rather it was based on the expected freight

charge at the time the products were shipped. Petitioners contend that

Algoma claimed, for the first time, four months after verification,

that for certain sales it had ``inadvertently'' reported the actual

amount for inland freight in the accrued freight field (INLFACH) and

that the Department had verified this claim.

Petitioners argue that respondent's claims were untimely,

unsupported by the record and must be rejected by the Department. Again

petitioners point to the Timken case which places the burden of

establishing adjustments on respondents. Petitioners claim that there

is no mention whatsoever in the verification reports of the Department

having verified (or even having been notified of) Algoma's claim.

Moreover, petitioners assert, there is no mention of Algoma's

``inadvertent'' reporting in the Corrections Memorandum that Algoma

submitted at the outset of verification. Therefore, petitioners

contend, the Department has no alternative but to deny Algoma's claimed

freight adjustment for all sales where freight expenses are reported in

the INLFACH field of the sales database.

Respondent argues that the Department's preliminary results

correctly concluded that Algoma properly reported actual freight

expense. Respondent contends that as Algoma explained to Department

officials during verification, due to an oversight, Algoma reported the

actual amount for inland freight associated with those transactions in

the accrued freight (INLFACH) field. Respondent asserts that this fact

does not affect the freight expense calculation and has been fully

explained to the Department.

Respondent states that at verification, Algoma demonstrated that

the freight expense reported for these sales transactions was fully

accounted for and properly included in Algoma's sales tape, but it

merely appeared in the wrong field. Respondent claims the Department

verified this by examining two of the preselected sales traces.

Respondent states that in the sales verification exhibits, Algoma

provided the Department with freight invoices and calculations

confirming that the freight reported in INLFACH represented the actual

freight expense incurred for the shipment to the customer. Respondent

claims that Algoma did not identify this issue in its Corrections Memo

mentioned by petitioners because no correction was necessary.

Respondent asserts that whether the amounts appeared in the actual or

accrued expense field had absolutely no affect on the margin

calculation. Therefore, respondent argues, the Department should

continue to accept Algoma's explanation for the final determination.

Department's Position. We agree with respondent. Whether the actual

freight is reported in the actual freight field (INLFTCH) or the

accrued freight field (INLFACH) has no effect on the margin

calculation. For the preliminary and final determinations, freight

expense was calculated by adding the actual freight field and the

accrued freight field together. Thus, whether the actual freight

expense was in the actual field or the accrued field is not important,

since they are combined into one freight expense. This fact renders

this argument moot as long as the actual freight amounts were reported

and verified in one of the two fields. As stated in the Department's

verification reports and documented by verification exhibits, the

freight amounts were verified by the Department and found to be

accurate.

Comment 6

Petitioners argue that a circumstance-of-sale adjustment for credit

expense should not be allowed for sales where Algoma failed to report

payment dates. Petitioners assert that throughout this review, Algoma

made numerous revisions and corrections to its data tapes. Algoma,

however, never updated its sales tape to include the payment dates that

were missing from its initial sales tape. Petitioners claim that

respondent failed to do this even though the missing information became

available to Algoma during the course of this review. Petitioners

assert that Algoma's failure to report complete payment date

information has made it impossible for the Department to calculate

accurately Algoma's credit expenses.

Petitioners argue that Algoma's justification for incomplete

reporting must be rejected. Respondent stated that it did not provide

the missing payment dates because ``at no time during this review did

the Department request that Algoma update its sales tape to include

payment date information.'' Petitioners cite the Department's decision

in Brass Sheet and Strip from Canada, 61 FR 46618, 46620 (September 4,

1996). Petitioners contend, as with the respondent in Brass Sheet and

Strip, Algoma failed to provide information that had been specifically

requested by the Department and which was in respondent's possession.

Petitioners argue for the reasons above, the Department must deny

respondent's claim for a circumstance of sale adjustment for credit

expenses for all sales with missing payment dates.

Respondent contends that Algoma reported all requested payment date

information and that information was fully verified by the Department.

Respondent states that as Algoma demonstrated during verification,

payment dates were not reported on Algoma's sales tape for orders that

were unpaid at the time Algoma created the tape. Respondent asserts

that this is customary practice and at no time during the review did

the Department request that Algoma update its sales tape to include

payment date information. Respondent also states that the Department

carefully verified and gathered supporting documentation on those

transactions which petitioners requested the Department verify as

``bona fide.'' Respondent argues that since Algoma has complied with

all the Department's requests for information,

[[Page 18455]]

the Department should reject petitioners' arguments.

Department's Position. We agree with respondent. The Department

never requested the updated payment dates from Algoma. In addition, the

alternative methodology Algoma used of substituting in an average

number of days outstanding for the unknown date is reasonable and has

been verified. Based on these facts, the Department will allow the

circumstance-of-sale adjustment for all sales with missing payment

dates.

Comment 7

Petitioners claim that Algoma should not be allowed to use the U.S.

prime rate in calculating its U.S. credit expense, but instead, Algoma

should use a rate more consistent with commercial reality. Petitioners

cite the case La Metalli Industriale v. United States, 912 F.2d 455

(Fed. Cir. 1990), which states the cost of credit ``must be imputed on

the basis of usual and reasonable commercial behavior.'' Petitioners

argue that since Algoma could not qualify for the Canadian prime rate

in any of its home market borrowings, Algoma would not be able to

qualify for the U.S. prime rate. Therefore, petitioners claim the U.S.

prime rate does not reflect the commercial reality of borrowing in the

United States for Algoma. They cite Certain Corrosion-Resistant Carbon

Steel Flat Products from Australia; Final Results of Antidumping Duty

Administrative Reviews, 61 FR 14049, 14054 (March 29, 1996) (Steel from

Australia) and Final Results of Antidumping Duty Administrative Review;

Certain Cut-to-Length Carbon Steel Plate from Sweden, 61 FR 15772,

15780 (April 9, 1996) (Steel from Sweden). In Steel from Australia and

Steel from Sweden, the Department stated that, in the absence of U.S.

dollar borrowings, a reasonable surrogate for imputing U.S. credit

expense must be used. Petitioners argue that the fact that Algoma could

not qualify for the Canadian prime rate provides substantial evidence

that Algoma could not qualify for the U.S. prime rate.

Therefore, petitioners suggest that the U.S. prime rate be adjusted

to reflect this fact, or in the alternative, the Department could use

Algoma's adjusted home market interest rate. In Canada, Algoma

qualified for loans of .5%, 1.0%, and 1.5% above the Canadian prime

rate. Therefore, petitioners state that 1.5% should be added to the

U.S. prime rate to reflect Algoma's commercial reality of borrowing in

the United States. The alternative is to adjust the home market

interest rate to account for currency fluctuations. Petitioners cite

Certain Fresh Cut Flowers from Colombia, 61 FR 42833, 42848 (August 9,

1996) in which this method was used in the absence of U.S. dollar

borrowings.

Respondent argues that the use of the Federal Reserve prime short-

term lending rate is consistent with Department practice. Respondent

cites two cases, Canned Pineapple Fruit from Thailand: Final

Determination of Sales at Less than Fair Value, 60 FR 29553, 29558

(June 5, 1995) and Brass Sheet and Strip from Germany: Final Results of

Antidumping Duty Administrative Review, 60 FR 38542, 38545 (July 27,

1995), in which the U.S. prime rate was used to compute U.S. credit

expense in the absence of any borrowing in U.S. dollars. Respondent

also cites Section C of the Department's questionnaire which states

``if you have not borrowed in U.S. dollars, use a U.S. published

commercial bank prime short-term lending rate.'' Respondent also cites

Steel from Australia and Steel from Sweden. Respondent states that in

both cases the Department concluded that the Federal Reserve rate in

effect over the POR was a ``reasonable surrogate'' for an actual dollar

interest rate. In both cases the Department chose the average short-

term lending rate as calculated by the Federal Reserve. Each quarter

the Federal Reserve collects data on loans made during the first full

week of the mid-month of each quarter by sampling 340 commercial banks

of all sizes. The sample data are used to estimate the terms of loans

extended during that week to all insured commercial banks. This rate

represents a reasonable surrogate for an actual dollar interest rate

because it is calculated based on actual loans to a variety of actual

customers.

Also, respondent states that the Department itself has recognized

that the use of Aexternal ``external'' information, such as the Federal

Reserve rate, is preferred over an adjusted home market interest rate

in deriving computed credit costs. The Department states in its

September 6, 1994 Memorandum re: Proposed Change In Policy Regarding

Interest Rates Used In Credit Calculations that the Department's

preference is to get the interest rate for both currencies concerned,

rather than making an adjustment to the home market interest rate to

account for exchange rate fluctuations. Therefore, respondent argues

that the Federal Reserve commercial bank prime short-term interest rate

should be used when calculating Algoma's credit expense.

Department's Position. We agree, in part, with respondent and

petitioners that commercial reality can be more accurately reflected by

a surrogate U.S. short-term interest rate. Consistent with Department

practice in Steel from Sweden and Steel from Australia, we are

selecting the U.S. average short-term lending rate as reported by the

Federal Reserve. This ``survey rate'' reflects the average short-term

lending rate of 340 U.S. banks given over the quarter. Given the

absence of actual short-term borrowing in the United Stated by Algoma

during the POR, this average is the best measure of the short-term cost

of funds in the United States during the POR.

Comment 8

Respondent claims that the Department's model match program failed

to match U.S. products of a certain grade to home market products of

the same grade. Also, respondent claims that the Department's margin

program incorrectly modified the billing adjustment value for an

invoice on which a rounding difference was identified at Algoma's

verification.

Department's Position. The Department agrees with respondent in

both cases and has made the appropriate corrections for the final

results.

CCC

Comment 1

Petitioners state that CCC utilized Stelco's costs of producing

steel substrate in its cost of production (COP) and constructed value

(CV) data because the Department treated Stelco as an affiliated

supplier to CCC in the first review. Petitioners note that CCC's

reported transfer prices for Stelco substrate were different than the

reported costs. Petitioners, therefore, argue that under the Tariff

Act, CCC would have been required to utilize Stelco's transfer prices

in reporting COP and CV. Petitioners state that sections 773(f)(2) and

(3) of the Act provide that major inputs purchased from affiliated

parties must be valued at the higher of market value, transfer price or

the affiliate's cost of production. Therefore, petitioners state that

the Department must recalculate CCC's COP and CV to account for the

difference between Stelco's costs of production and transfer prices for

the final results.

Respondent states that the antidumping law does not require the use

of the higher of transfer price or cost. It requires the use of cost

whenever the prices between related parties cannot be demonstrated to

be at arm's length. Respondent notes that it has

[[Page 18456]]

always reported its cost of steel substrate at the cost of production

incurred by Stelco, since the original investigation, and the

Department used these costs in the last administrative review.

Respondent argues that the Department has interpreted the antidumping

law to require the use of cost to value inputs by related parties

whenever the transfer prices between them could not be shown to have

been made at arm's length. In addition, respondent states that the

transfer price whether higher or lower than the cost of production is

not relevant if the transfer price could not be shown to have been an

arm's length price. Respondent argues that petitioners have not argued

that Stelco's prices to CCC are at arm's length. Therefore, respondent

states that there is no basis in the law for using's Stelco's prices to

CCC to establish the cost of Stelco's substrate to CCC. Additionally,

respondents states that the facts of the record do not support use of

the transfer prices as the cost of production.

Department's Position. We agree with petitioners. Under section 773

(f)(2) and (3) of the Act, major inputs purchased from affiliated

parties may be valued at the higher of market value, transfer price or

the affiliate's cost of production. In the Final Results of Antidumping

Administrative Review: Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts Thereof from France, Germany, Italy, Japan,

Singapore, and the United Kingdom, 62 FR 2,081, 2,115 (January 15,

1997) the Department found ``that in the case of a transaction between

affiliated persons involving a major input, we will use the highest of

the transfer price between the affiliated parties, the market price

between unaffiliated parties, and the affiliated supplier's cost of

producing the major input.'' There is no market price on the record for

this input. Therefore, the Department's analysis was focused on

transfer prices and cost of production. However, since CCC did not

provide the Department with specific information on transfer prices by

model (i.e., control number), the Department could not perform the

comparison on a model by model basis. Therefore, the Department

compared CCC's average transfer price for all models to the average

total cost of manufacture for all models. The Department found that

CCC's average total cost of manufacture was higher than its average

transfer price. Therefore, for the final results, the Department finds

that substrate from Stelco will be valued at the cost of production. In

addition, we disagree with respondent that the Department has

interpreted the antidumping law to require the use of cost to value

inputs by related parties only where the transfer price between the

parties could not be shown to have been made at arm's length. Even

where prices are demonstrated to have been made at arm's length, under

section 773(f)(3) of the Act, where such prices are for major inputs

and are below the cost of production, the Department may disregard such

prices and base the value of the major input on its cost.

Comment 2

Petitioners argue that CCC failed to report its general and

administrative (G&A) expense in the manner requested by the Department.

Petitioners state that the Department's questionnaire required CCC to

reconcile reported costs to the company's audited financial statements

for the year that most clearly corresponds to the POR. In addition,

petitioners note that CCC's fiscal year data encompasses a full nine

months of the POR, and that administrative and sales expenses in CCC's

financial statements can be reconciled to its audited financial

statements. Petitioners state that CCC used the G&A expenses for the

POR. Therefore, petitioners argue that the Department should

recalculate G&A expenses using a fiscal year period and not a POR

period.

Respondent states that the Department should continue to calculate

G&A expenses based on the POR financial statement data rather than 1995

fiscal year data. Respondent notes that it believes that using 1995

fiscal year data would be improper for several reasons. First, the

Department's past practice has been to use CCC's expenses for the POR

to calculate the G&A ratio. Second, the Department requires that fiscal

year G&A calculations be end-of-year adjustments which are fully

incorporated in the POR costs, which respondent states it has done.

Lastly, the respondent notes that all of its monthly financial

statements can be reconciled with the appropriate audited financial

statements and the audited financial statements are drafted using the

monthly financial statements, which would negate petitioners argument

that the Department should use fiscal year 1995 costs since they can be

reconciled to the audited financial statement. Also, respondent states

that it provided a reconciliation of G&A costs to the aggregated

monthly financial statements. Therefore, the Department should continue

to follow its methodology and calculate G&A costs based on the POR

expenses as reported in the POR financial statement.

Department's Position. We agree with petitioners. It is the

Department's normal practice to calculate G&A expenses based on full-

year G&A and cost of sales figures as reported in the audited financial

statement which most closely corresponds to the POR. (See, Certain

Pasta from Italy, Final Determination of Sales at Less than Fair Value,

61 FR 30326, 30363 (June 14, 1996).) While respondent argues that the

Department should continue to calculate G&A expenses based on POR

financial statement data, the Department may change its position on a

specific issue taken in prior proceedings as long as it provides an

explanation for the change (see, Rust v. Sullivan, 500 U.S. 173, 186-

187 (1991).) Although CCC submitted G&A expenses in the last

administrative review based on costs from monthly financial statements

for the POR, that methodology was not the Department's normal practice

for calculating G&A expenses. Furthermore, there is no basis in this

record to justify deviating from the Department's normal practice.

Consequently, we are following our normal practice in this review,

which is to calculate G&A expense based on CCC's 1995 annual audited

financial statements. (See, Furfuryl Alcohol from Thailand, Final

Determination of Sales at Less Than Fair Value, 60 FR 22557, 22560,

(May 8, 1995).) However, to avoid double-counting, the Department

subtracted indirect selling expenses and movement expenses from the

general and administrative expenses (i.e., the numerator) reported in

the audited financial statements.

Comment 3

Petitioners argue that CCC incorrectly calculated interest expense

and failed to reconcile that value to the amount of interest reported

in its audited income statement. Petitioners note that CCC reduced its

financial statement interest expense by an unexplained amount when it

calculated its interest expense ratio. Petitioners state that the

Department only allows an offset to interest expense for short-term

interest income that is related to production operations. Moreover,

petitioners argue that for the Department to allow the short-term

interest income offset it is the respondent's responsibility to prove

that interest income was short-term and related to production

operations. Therefore, petitioners argue that the Department should

recalculate CCC's interest expense using its 1995 audited financial

statements.

Respondent states that it reported only the interest expense it

paid during the year. Respondent notes that the

[[Page 18457]]

interest it excluded from total interest expense was not paid during

the year. Respondent argues that based on the relationship between the

two parties that it is appropriate to exclude this interest expense.

Therefore, CCC contends it excluded the interest in accordance with

Department practice.

Department's Position. It is the Department's standard practice to

calculate interest expense based on audited financial statements which

most closely correspond to the POR. (See, Notice of Final Determination

of Sales at Less Than Fair Value: Canned Pineapple Fruit from Thailand,

60 FR 29553, 29569 (June 5, 1995)) Only short-term interest income

directly related to general operations of the company may be used as an

offset to interest expense. (See, Antifriction Bearings (Other Than

Tapered Roller Bearings) and Parts Thereof from the Federal Republic of

Germany, Final Results of Antidumping Duty Administrative Review, 56 FR

31734 (July 11, 1991)) The reduction CCC made to its interest expense

was not interest income; rather, it was an exclusion of certain

interest expenses which it had not paid. The Department calculates the

interest expense based on the total interest a company incurs (accrual

basis) and not simply the interest it paid (cash basis). Section

773(f)(1)(a) specifies that costs will be calculated based on records

kept in accordance with generally accepted accounting principles

(GAAP). Financial statements prepared on the accrual basis are GAAP,

while financial statements prepared on the cash basis are not GAAP.

Therefore, for the final results, we have recalculated interest expense

based on CCC's 1995 interest expense from annual audited financial

statements which were prepared on the accrual basis and in accordance

with GAAP.

Comment 4

Petitioners argue that for one control number (CONNUM) CCC reported

inconsistent cost information. Petitioners state that CCC reported its

variable and total costs of manufacture differently in its sales and

costs listings. Moreover, CCC's cost data was not verified, therefore

it is not possible to determine which set of calculations is correct.

Therefore, petitioners argue that the Department should utilize the

higher of the two values for calculating COP and CV, as facts

available.

Respondent states that the cost data for the one U.S. sale falling

within this particular CONNUM should be corrected. Respondent states

that it originally improperly reported this sale as a temper rolled

product. However, during the course of verification, CCC states it

discovered that this sale was a non-temper rolled product.

Additionally, respondent states that it corrected the final sales

database for this CONNUM, but inadvertently failed to do so in its cost

database because of a computer glitch.

Respondent opposes the petitioners' argument that because the

Department did not conduct a full cost verification, it should use an

adverse inference and apply the higher costs for all sales falling

within this CONIUM in the U.S. and home markets. Respondent notes that

this would be unfair. Respondent argues that the Department reviewed

two CONNUMs during verification and verified its VCOM and TCOM

calculations of these two CONNUMs with no discrepancies. Respondent

argues that facts available are used where the requested information is

missing or cannot be used because it has not been provided, was

provided late, or the Department could not verify the information.

Respondent states that it provided the information in a timely manner

and was able to verify the costs. Therefore, no basis exists to

substitute the higher temper rolled costs for the non-temper rolled

costs.

Department's Position. We agree with the respondent. At

verification, the Department discovered that the control number for

this sale was incorrectly reported. The Department then allowed the

respondent the opportunity to correct its database (See, Verification

Report, Pre-Selected U.S. Sale EP1 Exhibit 10). While respondent

corrected the sales information for this control number, it failed to

correct its cost information. In addition, the Department verified

CCC's methodology for calculating the variable cost of manufacturing

(VCOM) and the total cost of manufacturing (TCOM) and found that its

methodology was reasonable (see, Verification Report, CONNUM Cost

Traces). Therefore, for the final results, the Department has corrected

CCC's cost information (i.e., VCOM and TCOM) in the U.S. database for

this CONNUM in the model match program.

Comment 5

Petitioners state that section 772(c) of the Act provides that in

calculating EP or CEP, a deduction must be made to account for duties,

including antidumping duties, paid by the respondent or its related

party, as supported by C.J. Tower & Sons v. United States, 71 f.2d 438,

445 (C.C.P.A. 1934). Thus, conclude petitioners, the statute requires

that the Department must deduct antidumping duties paid by the

respondent on U.S. sales.

Petitioners state that in Federal-Mogul Corp. v. United States, the

plaintiff challenged the Department's decision not to deduct estimated

antidumping duty deposits under the predecessor provision to section

772(c)(2)(A). Petitioners contend that the Department argued that this

provision applied only to deduction of ``normal'' import duties.

Petitioners also state that, the Department argued in the alternative,

not deducting estimated antidumping duties (as opposed to duties

actually to be assessed) had been its longstanding practice. The CIT

affirmed the Department's refusal to deduct estimated AD duties, but

did not adopt the Department's reasoning that section 772 applied only

to ``normal'' import duties, and that antidumping duties were not

normal import duties within the meaning of the statute (813 F. Supp.

872). Thus, petitioners maintain that section 772 requires the

Department to deduct any import duties (including antidumping duties)

that can be accurately determined at the time the Department calculates

dumping margins.

Petitioners state that the legislative history to the URAA does not

suggest that Congress rejected the construction of section 772(c)(2)(A)

urged by petitioners. Petitioners continue that the Senate Finance

Committee recognized that the Court of International Trade was

considering this issue, and directed the Department to abide by the

outcome of that litigation (see, S. Rep. No. 412, 103d Cong., 2d Sess.

64 (1994)). Therefore, state petitioners, Congress did not intend to

ratify the Department's not having treated duties as a cost in the

URAA, but recognized that the issue would be resolved through the

judicial process.

Petitioners state that the difference calculated between normal

value and EP or CEP on each sale by the Department's margin program is

equal to the AD duties to be paid by the importer. Once this difference

is calculated, they argue, it should then be deducted from EP or CEP

for use in calculating final margins.

Respondent asserts that the Department should once again reject

petitioners' argument to deduct AD duties in its margin calculation and

that the Department did not deduct AD duties from EP and CEP sales in

the first administrative review. Respondents contend that petitioners

failed to offer any argument as to why the Department should reach a

different conclusion in this review. Respondent continues that in

numerous determinations over many years, the Department has

consistently

[[Page 18458]]

refused to deduct AD duties from EP and CEP sales and should continue

to do so. Respondent contends that while petitioners'' argue that

section 772(c)(2)(A) requires the Department to deduct AD duties from

EP and CEP sales, there are no U.S. rulings in direct support of their

interpretation. Respondent states that the Department has consistently

rejected petitioners'' argument and that the most succinct rationale

for the Department's policy is contained in Carbon Steel Flat Products

from the Netherlands, 61 FR 48465 (September 13, 1996)). It states, in

part, ``it is the Department's longstanding position that antidumping

and countervailing duties are not a cost within the meaning of 19

U.S.C. section 1677(a)(d). . . . Unlike normal duties, which are an

assessment against value, antidumping duties derive from the margin of

dumping or the rate of subsidization found. Logically, antidumping and

countervailing duties cannot be part of the very calculation from which

they are derived.''

Respondent concludes that the Department's practice is clear, and

that the CIT has consistently affirmed the decision not to deduct AD

duty deposits from EP and CEP sales. Additionally, respondent states

that the URAA House Ways and Means Committee Report and the SAA

explicitly state that the new duty absorption provision is not intended

to provide for the treatment of antidumping duties as a cost. Thus,

states respondent, the Department should continue to refuse to deduct

AD duties from Stelco's EP and CEP sales.

Department's Position. We disagree with petitioners. As we stated

in the final results of the first administrative review of this order.

The Department does not deduct antidumping duties from the U.S. price,

because they do not qualify for deduction as ``normal import duties,

under section 772 and because such a deduction would double-count the

dumping margin. See, Certain Corrosion-Resistant Carbon Steel Flat

Products and Certain Cut-to-Length Carbon Steel Plate from Canada:

Final Results of Antidumping Duty Administrative Review, 61 FR 13815

(March 28, 1996) (Comment 23): note that the applicable provision of

the statute, 1677a(d)(2)(A), in that review was recodified under the

URAA as 1677a(c)(2)(A). Nothing in the SAA or in the legislative

history of the URAA compels the Department to reconsider that decision.

Furthermore, there have been no intervening judicial interpretations

suggesting that the Department reconsider its interpretation of the

statute as it applies to this case.

Dofasco

Comment 1

Petitioners argue that Dofasco failed to use its normal cost

accounting system to prepare the response as required by the

questionnaire. Petitioners maintain that the system which Dofasco, Inc.

chose to use, the PaYs system (a management system), is not audited and

therefore cannot be used to report costs. Petitioners also state that

the Department's questionnaire requires respondent to contact the

official in charge before submitting the response to Section D of the

questionnaire in the event that respondent does not intend to use its

normal cost accounting system and cost allocation methods to compute

COP and CV for the merchandise under review. The Department, therefore,

should use adverse facts available.

Dofasco asserts that it submitted actual, fully-absorbed product

costs. According to Dofasco, it relied on its normal cost accounting

system for the POR costs, and the PaYs system was used only to

calculate product costs. Dofasco further notes that the PaYs system, as

an allocative system, does not require an audit opinion.

Department's Position. The Department's Questionnaire states that

the ``COP and CV figures that you report in the response (to Section D

of the Questionnaire) should be calculated based on the actual costs

incurred by your company during the period of review as recorded under

its normal accounting system.'' See, Department's Second Administrative

Review Antidumping Questionnaire (September 14, 1995), page D-1. The

Questionnaire further states that these figures must reconcile to the

actual cost reported in the company's costs accounting system and to

accounting records used by the company to prepare its financial

statements.

Significantly, the Department verified that the COP and CV figures

reported in Dofasco's response were in fact based on the actual costs

incurred by Dofasco during the period of review. Furthermore, we

reconciled these actual costs to Dofasco's accounting records used by

the company to prepare its financial statements. Therefore, we

determined that the actual costs from Dofasco's process cost accounting

system formed the basis of Dofasco's response. The overriding concern,

then, becomes the allocation methodologies employed by respondents.

Dofasco utilized a management cost system to perform the

allocations of its actual costs. Petitioners question the integrity of

such an allocation system, citing Certain Hot-Rolled Carbon Steel Flat

Products from Korea. Specifically, petitioners note that the Department

stated in that case that reliance on ``a management cost system which

has not been audited and is not used for the preparation of the

financial statements or for any purposed outside internal deliberations

of the company does not assure the Department that such costs have been

stated in accordance with generally accepted accounting principles, or

that all costs have been appropriately captured by the system.'' See,

Certain Hot-Rolled Carbon Steel Flat Products from Korea, 58 FR 37176,

37186 (July 9, 1993).

However, we note that the circumstances surrounding the

Department's decision in Hot Rolled Steel from Korea and this case are

significantly different. First, in Hot-Rolled Steel from Korea, the

Department found at verification that respondent was unable to

reconcile its reported per unit costs to company documents maintained

and used in the ordinary course of business. In contrast, at

verification, Dofasco reconciled its actual costs to documents

maintained and used in the ordinary course of business, such as the

grade code cost table (Cost Verification Report, page 4) the corporate

order history database (Cost Verification Report, pp. 4-5), and

therefore the PaYs system.

Second, while the respondent in Hot-Rolled Steel from Korea

reconciled (with adjustments) the total costs of production from its

management system with the total costs of production used in its

financial accounting system and its audited financial statement,

respondent could not support the adjustments it made to the financial

statement system. Dofasco's reported production costs, in contrast,

tied to its financial accounting system and to its audited financial

statements (see, e.g., page 3 of the Cost Verification Report), and the

Department found no inappropriate adjustments to Dofasco's financial

statement system.

Finally, we note that the Department's remedy in Hot-Rolled Steel

from Korea was to upwardly revise respondent's costs by the difference

between the financial accounting system total costs and the submitted

management system total costs. However, the Department verified that

Dofasco modified PaYs to include all costs (except for the minor

discrepancies discussed at Comments 2 and 3 below). See, e.g., the

Department's review of Dofasco's reported costs for fixed overhead

expense (page 14 of the Cost Verification Report), and for inventory

change (page 15 of the Cost Verification Report).

[[Page 18459]]

Petitioners have also cited Certain Carbon Steel Flat Products from

Brazil, 58 FR 37091 (July 9, 1993) and Erasable Programmable Read Only

Panels from Japan, 51 FR 39680 (October 30, 1986) as further evidence

that the Department expects respondent to base its response on its

normal cost accounting system. However, because we determined that

Dofasco's costs tied to its normal cost accounting system, respondents

have fulfilled that expectation.

Petitioners stress that, as an unaudited system, errors in the

program will remain uncorrected, and that the costs generated by the

system are not necessarily formulated in accordance within generally

accepted accounting principles. 19 U.S.C. section 1677b(f) states that

``costs shall normally be calculated based on the costs of the exporter

or producer...if such records are kept in keeping with the generally

accepted accounting principles of the exporting country.'' In this

respect, Dofasco has responded to the Department's request for

information in accordance with the statute. The Department found at

verification that Dofasco's costs were in fact based on audited costs,

and thus were costs based on records kept in accordance with the

generally accepted accounting principles of Canada. See, e.g., Cost

Verification Report at pp. 7-12, 14-15, 18-19. As respondent has noted

in its rebuttal brief, the PaYs system allocates costs from Dofasco's

cost accounting system to specific Departmentally-defined products

(``control numbers''). Thus, the Department's role at verification with

regard to this allocation system was to (1) ensure that the costs

forming the basis of the allocation were audited costs; and (2) to

examine the parameters on which the allocations were based. As

discussed above, the Department verified that the reported costs were

actual and audited. Furthermore, at verification we examined several

allocations made by the PaYs system (see, pages 5 and 9 of the Cost

Verification Report) to confirm that these allocations were used in

Dofasco's normal course of business, have been used historically by

Dofasco, and reasonably reflect and accurately capture all actual costs

in producing the product under review, as required by the SAA (at 834-

835).

Regarding respondent's obligation to contact the official in charge

before submitting the response to Section D of the questionnaire in the

event that respondent does not intend to use its normal cost accounting

system and cost allocation methods to compute COP and CV for the

merchandise under review, we note that respondent's reported costs tie

to its normal cost accounting system. Furthermore, the PaYs system is a

cost accounting system used by Dofasco for management accounting and

cost control purposes (see, Cost Verification Report, page 4) which

reconciles completely with the financial accounting system. Therefore,

we do not find that Dofasco was obliged to notify the Department of its

methodology prior to submission of its response.

Comment 2

Petitioners maintain that the PaYs system and Dofasco's normal cost

accounting system have different yield loss rates, and such a

difference affects the accuracy of reported costs. Petitioners also

argue that the yield loss calculated for the PaYs system was in part

due to the inclusion of impossible yields on certain individual orders.

Dofasco asserts that the difference in yield loss was due to three

factors. First, Dofasco states that the yield loss for PaYs was based

on home market orders, as requested by the Department, while the yield

loss under Dofasco's normal accounting system is based on total

shipments since separate inventories are not kept for the home market

versus other destinations. Second, Dofasco noted that the yield loss

for PaYs is based on production over the period of review, while the

yield loss under Dofasco's normal accounting system is based on

shipments over the period of review. Finally, Dofasco stated that PaYs

tracks weights by operation, thus separating galvalume from galvanized

material, while under Dofasco's normal accounting system galvalume and

galvanized material are kept in common inventory accounts to the end of

cold rolling.

Department's Position. At verification, the Department reviewed

Dofasco's narrative explanation of the yield loss. See, Cost

Verification Report, pg. 20. Petitioners do not contest the rationale

offered by Dofasco to explain differences between the yield loss rates

and the Department has accepted the rationale as reasonable. However,

as petitioners have noted, an examination of the data placed on the

record indicates that, in addition to the three reasons put forward by

Dofasco explaining the differences in yield loss rates, inaccurate data

also affected the yield loss rates generated by PaYs. As petitioners

also note, Dofasco did not provide a numerical reconciliation of the

difference at verification. Additionally, Dofasco has not offered an

explanation of the apparently aberrational data to which petitioners

have pointed in their case brief.

Section 776(a)(1) of the Act stipulates that if the necessary

information is not available on the record * * * the administering

authority and the Commission shall, subject to section 782(d), use the

facts otherwise available in reaching the applicable determination

under this title. Therefore, for the final results of review, the

Department has calculated the difference between Dofasco's reported

yield loss rate after excluding sales orders which incorporate

inaccurate data. As facts otherwise available, the Department considers

the error for this group of products to be representative of Dofasco's

reporting of all subject merchandise. Because the effect of the error

was to over-report produced weight, the corresponding yield loss rate

was under-reported by the PaYs system. Thus, we have upwardly adjusted

Dofasco's reported cost of manufacture on all models by the percentage

difference between the reported yield loss rate and the corrected yield

loss rate. See, Memorandum to the File: Analysis Memorandum for the

Final Results of Review--Second Administrative Review of Certain

Corrosion-Resistant Carbon Steel Flat Products from Canada (Dofasco),

page 7.

Comment 3

Petitioners maintain that the PaYs system fails to account for

changes in work-in-process inventory (``WIP''), and that Dofasco failed

to include these costs in its reported costs.

Dofasco responds that, because the costs incorporated into PaYs

originate from the normal process cost accounting system, changes in

WIP have been included in PaYs. Further, Dofasco asserts that the

Department verified that Dofasco adjusted for inventory change, both

finished and in process.

Department's Position. We agree with petitioners. Contrary to

respondent's assertion with regard to what the Department verified, at

verification the Department reconciled WIP to Dofasco's financial

statements, and verified Dofasco's reported actual costs for work-in-

process and finished inventory. See, Cost Verification Report at page

3. There is no discussion in the verification report showing that

Dofasco provided a reconciliation of WIP to the costs included in

Dofasco's computer submission to the Department.

While there is no evidence that WIP has been included in Dofasco's

reported costs through PaYs, the record contains evidence of Dofasco's

WIP change for the POR. See, Exhibit 7 of the Cost Verification Report.

Because inventories for all WIP rose for the POR, the effect

[[Page 18460]]

is that Dofasco overstated its costs for the period by a small amount.

See, Analysis Memorandum, pg. 7 and Attachment 2. We have adjusted

Dofasco's cost of manufacture accordingly.

Comment 4

According to petitioners, despite the Department's repeated

requests, Dofasco failed to provide an inventory cost reconciliation.

Petitioners insist that Dofasco should have been able to reconcile its

10 normal cost accounting product groupings to the over-1000

Departmentally-defined ``products.'' Petitioners argue that no company

is expected to maintain its costs using the Department's narrow product

definition.

Petitioners allege that Dofasco failed to prepare the necessary

reconciliation: specifically, multiplying the reported costs by the

quantity and reconciling the total to the financial statements.

Petitioners state that: (1) While individual costs used by PaYs are

derived from the same source documents as the financial statements,

nevertheless it does not follow that per unit costs of manufacture

(COMs) calculated by PaYs will equal the per unit costs maintained for

purposes of the financial statements; and (2) items presented at

verification failed to demonstrate that Dofasco had submitted fully-

absorbed product costs. Petitioners assert that, barring use of adverse

facts available, the Department should request reconciliations again,

and verify them.

Dofasco argues that the PaYs system correctly accounts for changes

in inventory, and that Dofasco has reconciled its reported costs.

Furthermore, the Department verified these costs, by reconciling (1)

the financial statements (which include inventory values) to the normal

cost accounting system, and (2) the normal cost accounting system to

PaYs. In addition, Dofasco claims that for certain ``PRODUCTS''

(Departmentally defined models) selected by the Department, it provided

a detailed reconciliation of the normal cost accounting system to PaYs,

and a reconciliation of PaYs to PRODUCT costs.

Department's Position. In its original questionnaire and in a

supplemental questionnaire, we asked for an inventory cost

reconciliation, for selected models. Specifically, we asked Dofasco to

perform the reconciliation from the per-unit cost of the product

Dofasco records for inventory movements from work-in-process to

finished goods inventory to the COM submitted in the COP/CV response.

In response to this request, Dofasco provided a thorough explanation in

its submission to the Department as to why such a reconciliation was

not possible, explaining adequately why its ten normal, internal

product categories for corrosion-resistant products do not lend

themselves to a reconciliation with specific, Departmentally-defined

models.

Nonetheless, at verification, the company reconciled numerous costs

from the audited financial statements, to plant operating statements,

to Dofasco's Section D response, to the PaYs system, and to submitted

COP/CV data. Additionally, at verification, we reviewed the cost build-

up for two specific models. See, Cost Verification Report, pp. 5-6.

Petitioner cites Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts Thereof from Germany, 56 FR 31692, 31707 (July 11,

1991) and the Department's statement that ``verification depends

precisely on tying amounts reported in the responses to the company's

internal accounting and financial statements. Failure to demonstrate

such a relationship results in a failed verification.'' In this case,

the Department upholds this principle. Actual cost expenditures, as

reported in Dofasco's Section D response, have been tied to Dofasco's

plant operating statements, financial statements, normal accounting

records, and, through PaYs, to the submitted COP/CV. See, e.g., the

discussion of Dofasco's variable overhead expense in the Cost

Verification Report, pp. 11-12. Therefore, the Department determines

that costs have been accurately captured and that the cost amounts

reported in the response reconcile to the company's financial

statements.

Comment 5

Petitioners argue that Dofasco improperly calculated its interest

expense factors. Petitioners state that Dofasco did not include certain

expenses in the calculation of total interest expense. According to

petitioners, Dofasco also improperly included a profit sharing figure

in its cost of sales. Finally, petitioners maintain that Dofasco

improperly adjusted for trade accounts receivable for the CV interest

expense. Petitioners assert that Dofasco should conform the CV interest

expense to its COP expense calculation.

Dofasco contends that it did include the proper expenses in its

consolidated interest expense calculation, and that it properly

included profit sharing in general and administrative expenses only.

With regard to an adjustment for trade accounts receivable, Dofasco

argues that the Department's policy on this issue was elucidated 3 1/2

months after Dofasco's submission of its Section D response. Therefore,

Dofasco maintains that it was not an ``error'' by Dofasco to report the

CV interest expense in the manner it did.

Department's Position. The expenses that petitioners maintain have

been excluded from the interest expense calculation have in fact been

included in respondent's calculation of interest. See, Dofasco, Inc.'s

response to Section D Supplemental, Exhibit Supp. I.8, ``Calculation of

Interest'' for 1995, which shows that the expenses in question have

been included in one of the components of Dofasco's calculation.

With regard to the amount for profit sharing, verification exhibit

33, page B3 shows that the cost of sales figure reported on page B1

does not include profit sharing, but does include the cost of sales

figure used in Dofasco's calculation shown on page A1. Furthermore, the

cost of sales figure reported on page B1 indicates that it is a figure

calculated before certain adjustments, including that for profit

sharing.

Finally, with regard to the calculation of interest expense for CV,

we agree with Dofasco that its response methodology does not constitute

an ``error,'' as the Department had not made clear respondents'

requirements under the new statute at the time of Dofasco Inc.'s

Section D submission. Nevertheless, the Department has stated in

Certain Pasta from Italy that the statute requires interest expense to

be computed in the same way for COP and CV, and that an accounts

receivable offset for CV interest expense is not permitted. Therefore,

for the purposes of calculating interest expense for the final results

of review, we have revised Dofasco's calculation of interest expense

for CV to remove the offset for trade accounts receivable.

Comment 6

Petitioners state that Dofasco should treat sales through Dofasco's

U.S. subsidiary as constructed export price sales, because Dofasco USA

(DUSA) played a significant role in the sales process, incurred

expenses connected with its U.S. and further manufacturing activities,

and because the circumstances regarding ownership and control of the

merchandise sold in the U.S. prior to delivery to customers were such

that these sales should be considered CEP sales.

Petitioners argue that, in the event that the Department does not

classify all DUSA sales as CEP sales, then it must

[[Page 18461]]

at least classify those DUSA sales for which there has been further

manufacturing as CEP transactions. Petitioners allege that in this same

situation, the Department ruled in Certain Cold-Rolled and Corrosion-

Resistant Carbon Steel Flat Products from Korea that such sales should

be considered CEP sales.

Petitioners also maintain that, in the event that the Department

does not classify all further manufactured sales as CEP sales, it must

at least classify those DUSA sales for which the date of sale occurred

after importation as CEP sales.

Dofasco states that the Department properly determined that U.S.

sales through DUSA were export price transactions. Dofasco notes that

the Department and the Court have held that sales through a U.S.

affiliate are export price transactions if the merchandise is sold

directly to U.S. customers without physically entering the affiliate's

inventory. Dofasco goes on to state that the sales constitute a

customary commercial channel of trade, and the U.S. affiliate only

acted as a paper processor and communications link for those sales.

Dofasco argues that the merchandise sold did not enter DUSA's physical

inventory for storage awaiting sale to a customer, and that Dofasco

negotiated the prices charged and was responsible for marketing and

sales development. Dofasco notes that the Department has held

(including in the first review of this case) that the circumstances

surrounding the further processing of some of the merchandise sold

through a U.S. affiliate do not indicate that those sales were CEP

transactions. Dofasco also stresses that the further processing was not

undertaken on the account of the producer or exporter, or the

affiliated party in the United States.

Department's Position. We agree with respondent. The Department, in

the first administrative review of this proceeding, noted that

Dofasco's sales through DUSA were purchase price (now referred to as

export price) transactions. The Department noted that ``while the

Department usually finds further manufacturing of merchandise occurs in

the context of ESP (now CEP) sales, and while 19 U.S.C. section

1677a(e)(3), discussing adjustments to ESP, is the only explicit

reference to further manufacturing in the statute, it would clearly be

a mistake to define the sale as an ESP sale simply because there is

further manufacturing.'' See, Memorandum for Roland MacDonald:

Administrative Review of Corrosion Resistant Carbon Steel Flat Products

from Canada: Categorization of sales of Dofasco, Inc. (``Memorandum for

Roland MacDonald''), page 2 (July 12, 1995) (Public Version). While

this decision was made under the pre-URAA governing statute, there are

no differences under the post-URAA statute with regard to the statutory

basis for this determination.

Thus, in the first administrative review the Department based its

decision with regard to the DUSA sales on three factors: (1) While DUSA

took title to the steel, it did not take the steel into physical

inventory; (2) because DUSA had no facilities in the United States, it

was clear that the channel of delivery was directly from Dofasco to the

customer, or to an unrelated processor of the customer's choosing; and

(3) DUSA was nothing more than a processor of paper and communications

link. See, Memorandum for Roland MacDonald, page 3 (July 12, 1995)

(Public Version).

In the current administrative proceeding, the only change in

circumstances is the establishment of a separate DUSA office in the

United States. Hence, the Department must review the basis of its

earlier decision in light of this changed circumstance. Specifically,

we must determine: (1) Whether DUSA takes physical inventory of subject

merchandise at the new location; (2) whether the channel of delivery is

customary (i.e., still from Dofasco to the customer); and (3) whether

the new office performs a role more significant than that of a

processor of documents and communications link.

With regard to whether DUSA takes physical inventory of subject

merchandise at the new location, Dofasco has stated for the record that

neither Dofasco nor DUSA own or lease any U.S. warehousing facilities.

See, Dofasco's Supplemental Sales Response, pp. 23-24 (January 18,

1996). Petitioners do not dispute this fact. Rather, petitioners argue

that the fact that DUSA does not own a warehouse has no legal

significance. Instead, petitioners stress that the ``critical fact'' is

that the merchandise is in the United States prior to being sent to the

ultimate customer, under circumstances which warrant the Department's

determination that such sales are CEP sales.

Despite petitioners' assertions, as the Department noted in the

first administrative review (Memorandum for Roland MacDonald, page 3

(Public Version)), the Department has long required that the

merchandise be taken into physical inventory, rather than mere

financial (accounting) inventory. See, Certain Steel from France, 58

FR, 37134 (1993) (sale is PP where U.S. subsidiary takes title but does

not warehouse merchandise in the ordinary course of business);

Polyethylene Terephthalate (``PET'') Film, Sheet and Strip from Japan,

56 FR 16300, 16303 (1991) (sale is PP where subsidiary takes financial

but not physical inventory). Therefore, we find no reason to reverse

our decision based on this criterion.

With regard to whether the channel of delivery is customary, the

Department determined in the first administrative review that because

DUSA has no facilities in the United States, it is clear that the

channel of delivery is directly from Dofasco to the customer, or to an

unrelated processor of the customer's choosing. While DUSA now has an

office in the United States, the Department has verified for the

current review that Dofasco's channels of delivery through DUSA remain

the same as for the prior review period. Petitioners suggest that the

mere existence of this U.S. office serves to establish that the ``use

of DUSA as was done during the POR is not the customary channel of

trade.'' See, Petitioners' Case Brief at 38. However, petitioners have

not shown that the channel of delivery is in any way different from the

previous review period. Indeed, there is no record evidence that

subject merchandise is now being shipped to the U.S. affiliate (or to a

warehouse dictated by the customer) from the subsidiary location in the

United States, or that the channel of shipment is otherwise different

from the first administrative period. Therefore, there is no reason to

reverse our decision in the last administrative review based on this

criterion.

With regard to the last criterion, whether DUSA plays a role more

significant than that of a processor of documents and communications

link, petitioners make several arguments. First, petitioners state

that, by virtue of maintaining U.S. operations, DUSA incurred

significant expenses in connection with its activities, such as

salaries of its personnel and general and administrative expenses to

support them. Petitioners argue that deducting such expenses from the

U.S. price in CEP situations is one of the statutory requirements

intended to ensure fair comparisons in an antidumping analysis. Second,

petitioners maintain that the record shows that DUSA was an active

participant in the negotiating and selling process, citing letters with

customers which are on the record of this review. Finally, petitioners

state that certain other support functions performed by DUSA add to the

significance of its role as a seller.

Petitioners suggest that the existence of a U.S. operation which

incurs

[[Page 18462]]

``significant'' expenses requires the Department, by statute, to treat

sales through this U.S. affiliate as CEP sales in order to deduct such

expenses from the U.S. price. However, we disagree that the level of

the expenses, by itself, should be a criterion. Rather, the significant

consideration is whether the U.S. affiliate's function is more than

acting as a communications link between the unaffiliated customer and

the exporter. We have stated this in numerous other cases in which the

Department has considered whether there are circumstances in which

sales through U.S. affiliates should be treated as export price (or,

under the pre-URAA law, purchase price) transactions. See, e.g.,

Certain Corrosion-Resistant Carbon Steel Flat Products from Korea, 61

FR 18547; Stainless Steel Wire Rod from France 58 FR 68865; and New

Minivans from Japan 21 FR 21937. The Department's three criteria for

determining the treatment of sales through a U.S. affiliate as EP or

CEP are appropriate for making this determination.

With regard to petitioners' interpretation of DUSA's role in the

negotiating and selling process, the record evidence does not prove

that the terms and conditions of a specific contract (see, Attachment

I.10 of the January 18, 1996 Supplemental Questionnaire Response, APO

Version) were negotiated by DUSA, nor does the evidence contradict

Dofasco's explanation regarding the contract's circumstances (see,

Respondent's Rebuttal Brief (APO Version), pg. 25). Moreover, numerous

documents have been placed on the record, including those taken at

verification, demonstrating DUSA's role vis-a-vis Dofasco, Inc.'s role

in sales negotiations. See, e.g., exhibit 2 of the Sales Verification

Report; and Attachments I.6, I.8, and I.9 of Dofasco's Supplemental

Questionnaire Response (January 18, 1996). These documents support

respondent's claim that Dofasco, Inc. was primarily responsible for

conducting sales activities with U.S. clients.

Finally, concerning petitioners' assertion that certain other

support functions performed by DUSA add to the significance of its role

as a seller, we believe that the affiliate's status with regard to

title, its involvement in warehousing and further processing, and the

performance of certain selling functions do not warrant rejection of

Dofasco's EP classification of these sales. First, with regard to

title, these circumstances are no different than in the first review.

See, Memorandum for Roland MacDonald at page 3. Second, petitioners

have not accurately described DUSA's role with regard to warehousing

and further processing. Thus, petitioners' cite to Large Newspaper

Printing Presses from Germany does not provide an applicable precedent.

Finally, because the Department verified that DUSA continued to perform

the same functions as a sales facilitator as it did during the first

administrative review (see, Dofasco Sales Verification Report, August

6, 1996, pg. 2), we do not regard the performance of the selling

function cited by petitioners (see, Page 36 of petitioners' Case Brief)

as adding to the significance of DUSA's role.

Comment 7

Petitioners claim that Dofasco failed to report freight charges for

numerous U.S. sales, and that by doing so, Dofasco failed to act to the

best of its ability in preparing its response. Therefore, petitioners

argue that the Department should use the highest freight rate as

partial facts available for these sales, citing PVC and Polystyrene

Framing Stock from the United Kingdom, 61 FR 51411, 51415 (October 2,

1996).

Dofasco asserts that petitioners' contention that it failed to

report any freight charges for U.S. sales is wrong, because the freight

expense is contained in computer fields other than the ones specifying

the maximum freight charge for U.S. transactions.

Department's Position We agree with respondents that, for the large

majority of the sales in question, Dofasco has in fact reported freight

charges as required by the Department. As noted by Dofasco in its

rebuttal brief, in many instances it has reported maximum freight

charges in the computer field for freight from Dofasco to the

warehouse. Additionally, the Department verified that Dofasco reported

actual freight in the computer fields for warehousing, further

processing, and freight-out.

However, for several of these transactions, Dofasco failed to

report any freight charges. See, Analysis Memorandum at page 4. For

these sales, as partial facts available we have assigned the maximum

freight value for that destination (consistent with Dofasco's reporting

methodology of using the maximum value for each destination), or, in

the event there was no maximum freight value for that destination

anywhere on the database, we have assigned the highest maximum freight

value for any destination.

Comment 8

Petitioners argue that the Department should deduct antidumping

duties paid by Dofasco USA which were reimbursed by Dofasco. According

to petitioners, the fact that Dofasco USA had more liabilities than

assets is evidence that it must have been reimbursed antidumping duties

paid on U.S. imports. Petitioners state that this is contrary to the

statute.

Dofasco contends that no evidence exists to support petitioners'

allegation that Dofasco pays antidumping duties on behalf of Dofasco

USA or reimburses Dofasco USA for antidumping duties. Dofasco claims

that the language of the reimbursement provision, as well as the

Department's interpretation of that regulation, indicates that in order

to trigger the regulation, affirmative evidence (``evidence beyond a

mere allegation'') must exist. According to Dofasco, because

petitioners have failed to establish a link between intracorporate

transfers of funds and the reimbursement of antidumping duties, the

Department should not rule that reimbursement exists.

Department's Position. We agree with respondents. In this case,

petitioners have provided no evidence showing that the Dofasco directly

pays antidumping duties or reimburses Dofasco USA specifically for such

duties. Even if Dofasco USAs financial records could be construed to

show that there has been an intracorporate transfer of funds, such a

transfer is likewise insufficient evidence of reimbursement of duties.

As the Department stated in AFBs from France, ``the antidumping law

does not . . . prohibit related parties from transferring money to

one another.'' See, Final Results of Antidumping Administrative Review:

Antifriction Bearings (Other than Tapered Roller Bearings) and Parts

Thereof from France, 57 FR 28360, 28371 (June 24, 1992). The Department

clarified this point before the Court of International Trade, in

Torrington Co. v. United States (881 F. Supp. at 629):

Commerce states 19 CFR 353.26 mandates a deduction to USP, not when

there is any transfer between related parties, but rather, when there

is reimbursement of antidumping duties. Commerce asserts that it has

consistently held that absent evidence of reimbursements, it has no

authority to make such an adjustment to U.S. price.

Thus, we do not find that reimbursement of antidumping duties

exists in this case.

Comment 9

Petitioners argue that the Department must deduct antidumping

duties paid by the respondent or related parties, pursuant to section

772(c)(2)(A) of the Act. Specifically, petitioners argue that

[[Page 18463]]

the phrase ``import'' used in this provision included antidumping and

countervailing duties.

Dofasco asserts that the Department has consistently determined not

to deduct antidumping duties from US price and should continue to do so

for the final results.

Department's Position. We agree with respondents. See, CCC comment

5 supra.

Comment 10

Respondents allege certain clerical errors were made in the

computer program used to calculate Dofasco's margin. Specifically,

Dofasco claims that the Department made errors by: (1) Failing to

follow the established product hierarchy in the model match program;

(2) improperly calculating the weighted-average home market values

where there are two or more most similar products in the home market;

(3) failing to combine a customer category for Sorevco, Inc. in the

same manner as was done for Dofasco Inc.'s customer categories

(petitioners made the same claim); (4) erroneously including customer

category in the model match program; (5) erroneously including sales in

its model match which were excluded in the margin calculation program;

(6) failing to exclude, from the margin calculation program, sales

outside the ordinary course of trade, and those outside the window

period (petitioners made the same claim); (7) incorrectly calculating

entry value for those sales in which Dofasco was unable to provide an

entry value figure; (8) including certain repetitive language in the

program; (9) not eliminating sales of a given product to affiliated

customers when no sales of that same product were made to unaffiliated

customers in the pattern of price differences program; (10) performing

an incorrect mathematical computation in calculating constructed value

profit; (11) erroneously matching sales within the same month at

different levels of trade before matching sales at the same level of

trade within the 90/60 day window period; and (12) improperly including

sales which had failed the arm's-length test in calculating indirect

selling expenses and constructed value profit.

Petitioners additionally claimed that the Department made a

clerical error by including the minimum freight field for expenses used

to calculate cost instead of the maximum freight field.

Department's Position. We agree with all comments made by Dofasco

and petitioners, and have corrected our program for the final results.

Stelco Inc.

Comment 1

Because Stelco reported the cost of painting steel coils by its

affiliate Baycoat in lieu of reporting the price charged by Baycoat to

Stelco, petitioners urge the Department to: (i) Draw an adverse

inference based on Stelco's failure to cooperate; (ii) utilize the most

adverse facts otherwise available to recalculate COP and CV; and, (iii)

use an adverse adjustment to normal value with respect to the

comparison of nonidentical merchandise. Petitioners state the

Department was fully justified in rejecting Stelco's use of

manufacturing costs as the value of painting services provided to

Stelco by its affiliate Baycoat.

Petitioners cite section 773 (f)(2) and (3) of the Tariff Act of

1930 (``the Act'), as amended, which states that when valuing inputs

supplied to a respondent by affiliated suppliers the value reported for

a transaction must be the value of such input (i.e., transfer price)

provided such price reflects the price commonly charged in the market.

Petitioners state that the cost of producing the input may only be used

for a major input where it is greater than the market value.

Petitioners assert the facts on the record of this case establish that

(1) painting was a major input; (2) the prices charged to Stelco by

Baycoat were at market value; and, (3) the transfer prices were higher

than the cost of production.

Petitioners argue that prior determinations did not bind the

Department because of a significant change in the law. Between the time

of the first review and the current proceeding sections 773(f) (2) and

(3) of the Act were amended and now clearly apply to both cost of

production and constructed value, whereas under the old law different

rules applied. Petitioners argue that Stelco's acknowledgment in their

submissions that prices from Baycoat were market prices establish that

the prices were at fair (i.e., market) value.

Petitioners also claim Stelco had more than adequate notice of the

change in the law through the new statute, the statement of

administrative action, the new questionnaire, and the Department's

request for transfer prices in the supplemental questionnaire.

Petitioners cite section 776(b) of the Act, as amended, to support

their contention that the Department use an adverse inference.

Petitioners state that the fact that transfer prices examined by the

Department differed from the reported costs is compelling evidence that

Stelco withheld transfer price information and failed to provide

information in the form or manner requested. Petitioners argue

Department practice is to use an adverse inference where a respondent

has not cooperated to the best of its ability. Petitioners cite the

Preliminary Results of Antidumping Duty Administrative Review: Granular

Polytetrafluoroethylene Resin from Italy, 61 FR 51266, 51267 (October

1, 1996) (Resin from Italy) and the Preliminary Results of Antidumping

Duty Administrative Review: Roller Chain, Other Than Bicycle, From

Japan, 61 FR 28,168, 28,169 (June 4, 1996) (Roller Chain from Japan) to

support their contention the Department has used the most adverse

information when choosing among alternative facts available.

Petitioners reason that applying an adjustment factor to the

difference in merchandise data does not constitute an adverse inference

either. Petitioners suggest the highest difference in merchandise

adjustment that can be added to normal value and still result in

comparable merchandise is 20 percent of the total cost of

manufacturing. Petitioners cite the Final Results of Antidumping

Administrative Review: Tapered Roller Bearings, Four Inches or Less in

Outside Diameter and Certain Components Thereof, from Japan, 56 FR

26,054, 25,055, 25,058 (June 6, 1991), and Gray Portland Cement and

Clinker from Mexico, Results of Redetermination Pursuant to Court

Remand at 13 (February 1, 1996) (remand determination), CEMEX, S.A. v.

United States, Slip Op. 96-132, LEXIS 147, at 10-11 (CIT, 1996) to

support the use of a 20-percent difference in merchandise adjustment.

Respondent states the Department's preliminary results on this

issue reverses the methodology that was specifically accepted in the

original final determination and first review. Stelco argues the

Department's determination is unsupported by any of the usual criteria

for changing methodologies established in prior determinations. Stelco

asserts there has been no change in the law and no significant mistake

in the earlier determination. Stelco cites Shikoku Chemical

Corporation, et al., v. United States, 795 F.Supp. 417 (CIT 1992) which

held that principles of fairness prevented Commerce from changing its

methodology where key facts had not changed to justify a new approach

and respondents had relied on the old method of calculating the

adjustment. Stelco further contends that in this same review the

Department preliminarily accepted Dofasco's use of the cost of painting

by Baycoat. Stelco argues that

[[Page 18464]]

the invoiced prices from Baycoat are inappropriate to use because they

have not been shown to be indicative of market prices or arm's length

prices. Stelco states that Baycoat sells only to its two shareholders,

Stelco and Dofasco, and therefore no unaffiliated transactions exist

with which to establish the arm's length nature of the transactions.

Stelco cites the Final Determination of Sales at Less Than Fair Value:

Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts

Thereof from the Federal Republic of Germany, 54 FR 18,992, Appendix B

(May 3, 1989) (AFB's from Germany) where the Department stated that

lacking arm's length prices for components to compare to transfer

prices, for CV purposes, the Department generally used the cost of the

components as representative of the value reflected in the market under

consideration. Stelco points out that under the shareholder agreement,

each partner shares in the profit or loss from Baycoat at year-end.

Stelco cites AFB's from Germany, to support its claim that when

transfer prices from a joint venture company are used, the transfer

price must be adjusted by any loss incurred by the joint venture

company because the loss of the joint venture must be absorbed by the

participants in the joint venture. Lastly, Stelco asserts if the

Department considered paint a major input, it failed to provide Stelco

with adequate notice and an opportunity to provide transfer price

information.

Department's Position. The Department agrees with petitioners that

sections 773(f) (2) and (3) of the Act directs Commerce to value inputs

supplied by affiliated persons at the transfer price between the

entities provided that such a price reflects the price commonly charged

in the market and, for major inputs, is not below the cost of producing

the input. In the Final Results of Antidumping Administrative Review:

Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts

Thereof from France, Germany, Italy, Japan, Singapore, and the United

Kingdom, 62 FR 2,081, 2,115 (January 15, 1997) the Department found

``that in the case of a transaction between affiliated persons

involving a major input, we will use the highest of the transfer price

between the affiliated parties, the market price between unaffiliated

parties, and the affiliated supplier's cost of producing the major

input.'' Stelco identified painting as a major input in its section D

response to the antidumping questionnaire. Therefore, the Department

agrees that painting services provided to Stelco by its affiliate,

Baycoat, should be valued at the invoice price between the two

companies provided that the invoice price represents a price commonly

charged in the market. The Department agrees with petitioners that

valuing this input at cost would only be appropriate where cost is

higher than the transfer price. See, section 773(f)(3) of the Act. Our

verification established that the transfer price was higher than the

cost of painting services for sample transactions. Furthermore, Stelco

acknowledged that Baycoat's selling prices were set at prevailing

market rates and above cost in their response to the supplemental

section D questionnaire response.

Since Stelco did not report transfer prices for each control number

as requested, we have increased the reported cost of painting by the

average difference between the transfer price from the sampled painting

invoices obtained at the verification and the painting cost reported

for the final results. Section 776(a) of the Act states in part that a

determination may be made on the basis of facts available if necessary

information is not available on the record or if any interested party

fails to provide such information by the deadlines for submission of

the information or in the form and manner requested.

The Department disagrees with petitioners that applying the ratio

representing the difference between the cost and transfer price to the

painting cost reported as part of the variable cost of manufacture does

not appropriately adjust cost for the difference in merchandise

calculation. The difference in merchandise calculation will account for

the cost difference between paint services valued at cost and at

transfer price by taking into account that the transfer price for

painting exceeds the cost.

The Department disagrees with respondent's allegation that the

Department's preliminary results were unsupported by any of the usual

criteria for changing methodologies established in prior determinations

such as a change in the law or a significant mistake made in the

earlier determination. The Department is not bound by prior

determinations because the law changed with the enactment of the

Uruguay Round Agreements Act which amended the Act and made affiliated

party transactions (i.e., the transactions disregarded and major input

rules) apply to both cost of production and constructed value, whereas

these rules previously applied only to the calculation of constructed

value.

The Department disagrees with Stelco's reference to AFB's from

Germany which Stelco contends supports the acceptance of transfer

prices with an appropriate reduction for profits on inputs transferred

from the affiliated party. In AFB's from Germany we compared the

transfer prices to the cost of production and found that the cost of

production of the affiliated inputs was higher than the transfer

prices. The Department used cost for the affiliated inputs in that case

because the transfer prices were below the cost of production.

Mathematically, this was done by adjusting the transfer price upward by

the losses at the affiliate. This is consistent with our practice in

this case where we compared the transfer price of painting to the cost

of painting and found that the transfer price exceeded the cost. The

Department used the transfer price because it is higher than the cost

of production of the major input. Section 773(f)(3) of the Act allows

the Department to use the cost of production of a major input where it

is greater than the transfer price.

The Department has determined that Stelco had adequate notice of

the change in the law through the new statute, the SAA, and through our

request for transfer prices in the original questionnaire and the

supplemental cost questionnaire.

Finally, in order to be consistent in our treatment of painting

services Baycoat provided for its other owner, Dofasco, for these final

results, we have recalculated the input value of Baycoat's painting

services based on transfer price. See, Dofasco's Analysis Memorandum at

page 7.

Comment 2

Petitioners argue Stelco's general and administrative expense

(``G&A'') should be recalculated based entirely on the unconsolidated

income statement. Petitioners state the Department incorrectly combined

selected unconsolidated data with consolidated data (i.e., sundry

income and expense) in the preliminary results and consequently

calculated an inaccurate G&A expense rate. Petitioners state that

Stelco started with the amount of sundry expense reported in its

consolidated financial statements and adjusted the consolidated amount

for certain items specifically related to other consolidated entities.

Petitioners take issue with a consolidating entry reducing

unconsolidated sundry expense. Petitioners claim that Stelco provided

no reasonable explanation for why this offset to unconsolidated sundry

expense should be allowed.

[[Page 18465]]

Petitioners state the offset is not supported by any record evidence

and must be disallowed.

Stelco responds that petitioners'' argument with regard to lack of

record evidence is inconsistent with the Department's preliminary

determination and verification report. Stelco asserts the methodology

for calculating the sundry expense reported using the consolidated

sundry income and expense figure as a starting point was fully

documented in its submissions and was not identified as deficient in

the Department's verification report. Stelco states the Department

verified and traced all the amounts included in Stelco's G&A expense

calculation and used these figures in its preliminary determination.

Stelco concludes that there is no basis to resort to facts available

since they have cooperated fully with the Department's requests for

information.

Department's Position. Petitioners state correctly that the

Department's normal practice is to use G&A expenses from the

unconsolidated income statement. See, the Final Results of Antidumping

Administrative Duty Review: Ferrosilicon from Brazil, 61 FR, 59,407,

59,411 (November 22, 1996) and Final Determination of Sales at Less

Than Fair Value: Certain Hot Rolled Carbon Steel Flat Products, Certain

Cold-Rolled Carbon Steel Flat Products, and Certain Corrosion Resistant

Carbon Steel Flat Products from Japan, 37154, 37166 (July 9, 1993).

However, the Department disagrees with petitioners' assertion that the

Department randomly combined unconsolidated and consolidated G&A data

and consequently computed an incorrect G&A rate. The Department based

G&A on Stelco's unconsolidated data. The Department adjusted a

component of G&A, the unconsolidated sundry income/expense account, for

intercompany transactions which effectively overstated the balance of

this account. The Department has determined it would be inappropriate

to use the unconsolidated sundry income/expense account without

adjustment because this would double count income/expenses which were

subsequently eliminated during consolidation. During consolidation,

profits/losses from intercompany transactions are eliminated in order

to recognize profits/losses from transactions only with unaffiliated

companies. For the final results, the Department has computed a G&A

rate based on Stelco's unconsolidated G&A expenses and cost of sales,

adjusted as noted above.

Comment 3

Petitioners contend that Stelco USA's slitting expenses must be

treated as a further manufacturing cost because slitting costs

represent further processing charges incurred in the United States

pursuant to section 772 (d)(2) of the Act. Petitioners state that

section 772 (d)(2) of the Act requires that adjustments to U.S. price

be made for ``the cost of any further manufacture or assembly

(including additional material and labor), . . . .''

Department's Position. The Department agrees with petitioners that

certain CEP sales which were slit in the United States qualify as

further manufacturing as defined section 772(d)(2) of the Act.

Therefore, for all sales where the computer variable DIRSELU is greater

than zero, we have designated the variable SALETYPE as ``FMG'' and have

added DIRSELU to the variable FURMANU for these final results.

Comment 4

Petitioners, citing Final Results of an Antidumping Duty

Administrative Review: Gray Portland Cement and Clinker from Japan, 58

FR 48,826, 48,829 (Comment 8) (September 20, 1993) state that the

Department has held and the Court of International Trade has affirmed

that freight incurred in moving merchandise from the U.S. port to a

further processor should be treated as a further manufacturing cost,

and that the Department did not do so in its preliminary results.

Petitioners claim that this practice was affirmed in The Ad Hoc

Committee of Southern California Producers of Gray Portland Cement v.

the United States, 914 F. Supp. 535, 541. Petitioners conclude that for

all sales with SALETYPE ``FMG'', the Department should add USOTREU,

INLFTC1U and INLFTC2U to FURMANU.

Department's Position. We agree with petitioners. There is no

record information with regard to movement expenses as a condition of

sale. Thus, we have made appropriate computer program adjustments for

all sales with SALETYPE ``FMG'' to have added USOTREU, (INLFTC1U *

EXRATE) and INLFTC2U to FURMANU.

Comment 5

Stelco disagrees with the Department's decision at the preliminary

results of review to exclude payments to governments other than income

taxes (a component of general and administrative expenses) from their

calculation of cost of sales which was used as the denominator in the

financing expense ratio. Stelco objects to the assertion that the cost

of sales figure it provided was not based on the actual accounting

records of the company. Stelco asserts that its cost of sales figure is

derived directly from its accounting records albeit in a different

format from the published income statement which aggregates general

ledger accounts in summary form. Stelco argues that payments to

governments other than income taxes and corporate services (components

of general and administrative expenses) relate directly to the cost of

production and therefore should be included in the cost of sales

denominator.

Department's Position. We disagree with Stelco. Stelco argues that

the consolidated cost of sales used as the denominator in the financing

expense rate should include corporate services and payments to

governments other than income taxes. Summarized in the caption

corporate services are costs of administration, legal, information

system and treasury services. Summarized in the caption payments to

governments other than income taxes are non-income-based levied by

Canadian federal, provincial, regional and municipal governments such

as property taxes, business taxes, and capital taxes. Corporate

services and payments to governments other than income taxes are

periodic expenses general in nature related to the company as a whole.

The Department has determined these expenses are properly classified as

general and administrative expense items which should be excluded from

cost of sales. As explained in the Final Determination of Sales at Less

Than Fair Value: Certain Pasta from Italy, 61 FR, 30,326, 30,349 (June

14, 1996), the financial expense rate should be calculated on a basis

consistent with the cost of manufacturing (``COM'') figures to which

they are applied. The reported COMs do not include general and

administrative expenses so cost of sales should not include any general

and administrative expenses. We have therefore recalculated the

financing expense rate for the final results excluding corporate

services and payments to governments other than income taxes from the

denominator, cost of sales.

Comment 6

Petitioners allege the Department made several errors in the margin

program utilized in the preliminary results. Petitioners state the

Department omitted the variable SOTHMAT at line 294 of the margin

program when calculating TOTCOM. Petitioners argue

[[Page 18466]]

that the Department included sales which failed the related party arm's

length test in the CV profit calculation which is incorrect since these

sales are outside the ordinary course of trade. Petitioners urge the

Department to exclude such sales in calculating CV profit. Petitioners

argue that in line 1131 of the constructed value portion of the program

that the Department used an ampersand instead of an asterisk in the

formula. Petitioners assert the Department omitted the variable SOTHMAT

at line 1140 of the constructed value portion of the program.

Petitioners also state the Department added asterisks to lines 1139 and

1143 making these lines inoperable and recommend removing the

asterisks. Petitioners note the Department defined Stelco's total cost

of manufacture for CV purposes as TOTCOMU whereas in subsequent lines

of programming, however, the Department used the term TOTCOM instead.

Petitioners advocate replacing TOTCOM with TOTCOMU in lines 1145, 1146,

1148 and 1149 of the final margin program. Petitioners observe that in

line 1150 the Department reduced CV by TOTCOM which was incorrect.

Petitioners state the Department should correct line 1150 to read CV =

TOTCV-DSELCV. Petitioners note that the Department failed to convert

inland freight charges listed under ``INLFTC1U,'' which were reported

in Canadian currency.

Petitioners also claim that in implementing the CEP offset, the

Department failed to cap the offset by the amount of U.S. indirect

selling expenses. Petitioners recommend amending the computer program.

However, respondent contests petitioners' claim, stating that the

Department properly capped this offset. Additionally, respondent

contends that petitioners' proposed correcting language attempts to

obtain a change in calculation methodology not related to the capping

of the CEP offset.

Department's Position. The Department agrees with petitioners in

all cases noted in the comment above, except the one pertinent to the

CEP offset. The Department has thus made all appropriate corrections to

its margin calculations for these final results.

Comment 7

Petitioners argue that because Stelco had neither requested nor

established entitlement to a CEP offset, the Department should not have

made such an adjustment. To qualify for a CEP offset, state

petitioners, referring to section 773(a)(7)(B) of the statute and the

Statement of Administrative Action (``SAA'') at 830, a respondent must

first establish that different levels of trade exist between home

market and U.S. sales. Then, if the data do not provide an adequate

basis for LOT adjustment and normal value is established at a more

advanced stage of distribution than the CEP, the Department is required

to reduce normal value by the CEP offset. Petitioners maintain that

Stelco did not demonstrate all of the conditions which would entitle it

to the CEP offset granted by the Department as a surrogate for a LOT

adjustment. Petitioners contend that Stelco has not established that

different LOTs exist, it has not claimed an LOT adjustment, nor has it

requested a CEP offset. Petitioners conclude that use of a CEP offset

was unwarranted and should not be used in the final determination.

Respondent replies that the Department properly fulfilled its

statutory mandate in granting Stelco a CEP offset. Respondent agrees

that it must submit LOT data to demonstrate that it is entitled to a

CEP offset. Once appropriate LOT data is submitted, states respondent,

section 773(a)(7)(B) requires that the Department grant a CEP offset as

long as two conditions are met: (1) When normal value is established at

a level of trade which constitutes a more advanced stage of

distribution than the level of trade of the constructed export price;

and (2) the data available do not provide an appropriate basis to

determine a level of trade adjustment. Respondent concludes that if the

Department finds that the LOT data submitted by respondent satisfies

both statutory criteria, normal value shall be adjusted accordingly.

Respondent also contests petitioners' apparent claim that a

respondent must claim a LOT adjustment in order for the Department to

conduct an LOT analysis. Respondent states that section 773(a)(7)(A)

requires the Department to pursue an LOT analysis in all instances, and

that the Department acted properly in doing so.

Respondent maintains that despite petitioners' claims, the record

is replete with LOT data submitted by Stelco and that the Department

had all the factual information it needed for its LOT analysis, and

consequently had all the information to support its use of a CEP

offset. Accordingly, respondent argues, the Department should reaffirm

its decision to grant Stelco a CEP offset adjustment.

Department's Position. We agree with respondent. Section

773(a)(1)(B) requires that Commerce, to the extent practicable,

establish normal value based on home market (or third country) sales at

the same level of trade as the constructed export price or the starting

price for the export price. If Commerce is able to compare sales at the

same level of trade, it will not make any level of trade adjustment or

constructed export price offset in lieu of a level of trade adjustment.

When sales in the U.S. and foreign markets cannot be compared at

the same level of trade, an adjustment to normal value may be

appropriate. Section 773(a)(7)(A) provides that, after making all

appropriate adjustments to export price or constructed export price and

normal value, Commerce shall adjust normal value to account for any

differences in these prices that are demonstrated to be attributable to

differences in the level of trade of the comparison sales in each

market. This adjustment may either increase or decrease normal value.

Commerce will grant such adjustments only where: (1) There is a

difference in the level of trade (i.e., there is a difference between

the actual functions performed by the sellers at the different levels

of trade in the two markets); and (2) the difference affects price

comparability.

In order to determine whether Stelco's sales in the comparison

market are at a different level of trade than the export price or CEP,

we examined whether the comparison sales were at different stages in

the marketing process than the export price or CEP. We made this

determination on the basis of a review of the distribution system in

the comparison market, including selling functions, class of customer,

and the level of selling expenses for each type of sale. Different

stages of marketing necessarily involve differences in selling

functions, but differences in selling functions, even substantial ones,

are not alone sufficient to establish a difference in the level of

trade. While customer categories such as ``distributor'' and

``wholesaler'' may be useful in identifying different levels of trade,

they are insufficient in themselves to establish that there is a

difference in the level of trade.

Our discussion of the specific selling functions that we examined,

as well as our Stelco-specific findings in this regard, are contained

in our preliminary results.

The effect on price comparability is measured by examining price

differences between goods sold to different levels of trade in the

foreign market where normal value is being established. Commerce

measures any effect on price comparability by determining if there is a

pattern of price differences between sales at the different levels of

trade in the foreign market.

[[Page 18467]]

Any adjustment under section 773(a)(7)(A) will be calculated as the

percentage by which the weighted-average prices at each of the two

levels of trade differ in the market used to establish normal value. An

effect on price comparability must be identified and measured by

observed differences between prices at different levels of trade. The

Department will isolate the price effect, if any, attributable to the

sale at different levels of trade, and will ensure that expenses

previously deducted from normal value are not deducted a second time

through a level of trade adjustment.

Only where different functions at different levels of trade are

established under section 773(a)(7)(A)(i), but the data available do

not form an appropriate basis for determining a level of trade

adjustment under section 773(a)(7)(A)(ii), will Commerce make a CEP

offset adjustment under section 773(a)(7)(B). In the case of Stelco,

there is only one home market level of trade for the subject

merchandise and that level of trade is different from the level of

trade of the CEP. Therefore, Stelco's home market sales do not provide

an appropriate basis for determining a level-of-trade adjustment.

Moreover, we have determined that data from Dofasco (the other company

in this proceeding with multiple levels of trade) does not form an

appropriate basis for determining whether a level of trade adjustment

is appropriate because none of Dofasco's home marketlevels of trade are

sufficiently similar to Stelco's CEP level of trade. See, Stelco

Analysis Memorandum at Attachment 1. Therefore, because Stelco's home

market sales are at a more advanced stage of distribution than the

level of trade of the CEP and the data available do not provide an

appropriate basis to determine a level-of-trade adjustment, we have

made a CEP offset adjustment. This adjustment is ``capped'' by the

amount of indirect expenses deducted in calculating CEP under section

772(d)(1)(D).

Comment 8

Petitioners argue that the Department improperly excluded imputed

expense (i.e., credit expenses and inventory carrying costs) from the

calculation of total United States expenses for the purpose of

determining profit on CEP sales. Petitioners state that credit expenses

and inventory carrying costs are deducted under section 772(d)(1) of

the Act. Accordingly, conclude petitioners, these amounts must be

considered a part of ``total United States expenses'' and must be

included in the allocation factor for such expenses.

Department's Position. We agree with petitioners. Section 772(d)(3)

requires that we deduct an amount of profit allocated to the expenses

described in sections 772(d) (1) and (2). Section 772(d)(1) (B) and (C)

state that the price used to establish constructed export price shall

also be reduced by expenses that result from, and bear a direct

relationship to, the sale, such as credit expenses, guarantees and

warranties; (and) any selling expenses that the seller pays on behalf

of the purchaser. We have thus corrected our margin calculation program

to include imputed expenses in the calculation of total United States

expenses for this purpose. In computing the total CEP profit for

allocation, we included any below-cost sales in determining the total

revenues earned by Stelco and excluded any sales to affiliated parties

that were found to have been made at non-arm's-length prices.

Comment 9

Petitioners state that section 772(c) of the Act provides that in

calculating EP or CEP, a deduction must be made to account for duties,

including antidumping duties, paid by the respondent or its affiliated

party, as supported by C.J. Tower & Sons v. United States, 71 f.2d 438,

445 (C.C.P.A. 1934). Thus, conclude petitioners, the statute requires

that the Department must deduct antidumping duties paid by the

respondent on U.S. sales.

Petitioners state that in Federal-Mogul Corp. v. United States, the

plaintiff challenged the Department's decision not to deduct estimated

antidumping duty deposits under the predecessor provision to section

772(c)(2)(A). Petitioners contend that the Department argued that this

provision applied only to deduction of ``normal'' import duties.

Alternatively, say petitioners, the Department argued that not

deducting estimated antidumping duties (as opposed to duties actually

to be assessed) had been its longstanding practice. The CIT affirmed

the Department's refusal to deduct estimated AD duties, but did not

adopt the Department's reasoning that section 772 applied only to

``normal'' import duties, and that antidumping duties were not normal

import duties within the meaning of the statute (813 F. Supp. 872).

Thus, petitioners maintain that section 772 requires the Department to

deduct any import duties (including antidumping duties) that can be

accurately determined at the time the Department calculated dumping

margins.

Petitioners state that the legislative history to the URAA does not

suggest that Congress rejected the construction of section 772(c)(2)(A)

urged by petitioners. Petitioners continue that the Senate Finance

Committee recognized that the Court of International Trade was

considering this issue, and directed the Department to abide by the

outcome of that litigation (see, S. Rep. No. 412, 103d Cong., 2d Sess.

64 (1994)). Therefore, state petitioners, Congress did not intend to

ratify the Department's not having treated duties as a cost in the

URAA, but recognized that the issue would be resolved through the

judicial process.

Petitioners state that the difference calculated between normal

value and EP or CEP on each sale by the Department's margin program is

equal to the AD duties to be paid by the importer. Once this difference

is calculated, state petitioners, it is then deducted from EP or CEP as

a cost for use in calculating final margins.

Respondent asserts that the Department should once again reject

petitioners'' argument to deduct AD duties in its margin calculation

and that the Department did not deduct AD duties from EP and CEP sales

in the first administrative review. Respondent contends that

petitioners failed to offer any argument as to why the Department

should reach a different conclusion in this review. Respondent

continues that in numerous determinations over many years, the

Department has consistently refused to deduct AD duties from EP and CEP

sales and should continue to do so. Respondent continues that

petitioners argument that section 772(c)(2)(A) requires the Department

to deduct AD duties from EP and CEP sales notwithstanding, there are no

U.S. rulings in direct support of their interpretation. Respondent

states that the Department has consistently rejected petitioners

argument as supported in Carbon Steel Flat Products from the

Netherlands (61 FR 48465 (September 13, 1996)). It states, in part,

``it is the Department's longstanding position that antidumping and

countervailing duties are not a cost within the meaning of 19 U.S.C.

section 1677(a)(d). . . . Unlike normal duties, which are an assessment

against value, antidumping duties derive from the margin of dumping or

the rate of subsidization found. Logically, antidumping and

countervailing duties cannot be part of the very calculation from which

they are derived.''

Respondent concludes that the Department's practice is clear, and

that the CIT has consistently affirmed the its decision not to deduct

AD duty deposits

[[Page 18468]]

from EP and CEP sales. Also, respondent states that the URAA House Ways

and Means Committee Report and the SAA explicitly state that the new

duty absorption provision is not intended to provide for the treatment

of antidumping duties as a cost. Thus, states respondent, the

Department should continue to refuse to deduct AD duties from Stelco's

EP and CEP sales.

Department's Position. We agree with respondent. See, CCC comment

5, supra.

Final Results of Reviews

As a result of our review of the comments received, we have changed

the results from those presented in preliminary results of review.

Therefore, we determine that the following margins exist as a result of

our review:

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

Margin

Manufacturer/exporter Time period (percent)

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

Corrosion-Resistant Steel:

Dofasco............................. 8/1/94-7/31/95 0.56

CCC................................. 8/1/94-7/31/95 1.58

Stelco.............................. 8/1/94-7/31/95 0.55

Cut-to-Length Plate:

Algoma.............................. 8/1/94-7/31/95 \1\ 0.37

Stelco.............................. 8/1/94-7/31/95 0

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

\1\ This is a de minimis margin.

The Department shall determine, and the Customs Service shall

assess, antidumping duties on all appropriate entries. Individual

differences between U.S. price and normal value may vary from the

percentages stated above. The Department will issue appraisement

instructions directly to the Customs Service. Furthermore, the

following cash deposit requirements will be effective upon publication

of these final results for all shipments of this merchandise, entered

or withdrawn from warehouse for consumption on or after the publication

date, as provided for by section 751(a)1) of the Act: (1) the cash

deposit rates for the reviewed companies will be the rates for those

firms as stated above (except that if the rate for a particular product

is de minimis i.e., less than 0.5 percent, a cash deposit rate of zero

will be required for that company); (2) for previously investigated

companies not listed above, the cash deposit rate will continue to be

the company-specific rate published for the most recent period; (3) if

the exporter is not a firm covered in this review, or the original

investigation, but the manufacturer is, the case deposit rate will be

the rate established for the most recent period for the manufacturer of

the merchandise; and (4) the case deposit rate for all other

manufacturers will be the ``all others'' rate made effective by the

final results of the 1993-1994 administrative review of these orders

(see, Certain Corrosion-Resistant Carbon Steel Flat Products and

Certain Cut-to-Length Steel Plate from Canada; Final Results of

Antidumping Administrative Reviews, 61 FR 13815 (March 28, 1996)). As

noted in those final results, these rates are the ``all others'' rates

from the relevant LTFV investigations which were 18.71 percent for

corrosion-resistant steel products and 61.88 percent for plate (see,

Amended Final Determination, 60 FR 49582 (September 26, 1995)). These

deposit requirements shall remain in effect until publication of the

final results of the next administrative reviews.

This notice also serves as a final reminder to importers of their

responsibility under 19 CFR 353.26 to file a certificate regarding the

reimbursement of antidumping duties prior to liquidation of the

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

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double antidumping duties. This notice serves as a

reminder to parties subject to administrative protective orders (APOs)

of their responsibility concerning the disposition of proprietary

information disclosed under APO in accordance with 19 CFR 353.34(d)(1).

Timely written notification of the return/destruction of APO materials

or conversion to judicial protective order is hereby requested. Failure

to comply with the regulations and the terms of an APO is a

sanctionable violation. This administrative review and notice are in

accordance with section 751(a)(1) of the Act 19 U.S. C. 1675(a)(1)) and

Sec. 353.22 of the Department's regulations.

Dated: April 2, 1997.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 97-9425 Filed 4-14-97; 8:45 am]

BILLING CODE 3510-DS-P