Certain Cold-Rolled Carbon Steel Flat Products From the Netherlands: Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-421-804]

Certain Cold-Rolled Carbon Steel Flat Products From the

Netherlands: Final Results of Antidumping Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of antidumping duty administrative

review.

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

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

Department) published the preliminary results of the administrative

review of the antidumping duty order on certain cold-rolled carbon

steel flat products from the Netherlands. This review covers one

manufacturer/exporter of the subject merchandise to the United States

during the period of review (POR), August 1, 1994, through July 31,

1995. We gave interested parties an opportunity to comment on our

preliminary results. Based on our analysis of the comments received, we

have changed the results from those presented in the preliminary

results of review.

EFFECTIVE DATE: April 15, 1997.

FOR FURTHER INFORMATION CONTACT: Helen Kramer or Linda Ludwig,

Enforcement Group III, Import Administration, International Trade

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

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

0405 or (202) 482-3833, respectively.

SUPPLEMENTARY INFORMATION:

Background

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

Register (61 FR 51891) the preliminary results of the administrative

review of the antidumping duty order on certain cold-rolled carbon

steel flat products from the Netherlands (58 FR 44172, August 19,

1993). The Department has now completed this administrative review in

accordance with section 751 of the Tariff Act of 1930, as amended (the

Act).

Applicable Statute and Regulations

Unless otherwise stated, all citations to the Tariff Act of 1930,

as amended (the Tariff Act) are references to the provisions effective

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

Tariff Act by the Uruguay Round Agreements Act (URAA). 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).

Scope of this Review

The products covered by this review include cold-rolled (cold-

reduced) carbon steel flat-rolled products, of rectangular shape,

neither clad, plated nor coated with metal, whether or not painted,

varnished or coated with plastics or other nonmetallic substances, in

coils (whether or not in successively superimposed layers) and of a

width of 0.5 inch or greater, or in straight lengths which, if of a

thickness less than 4.75 millimeters, are of a width of 0.5 inch or

greater and which measures at least 10 times the thickness or if of a

thickness of 4.75 millimeters or more are of a width which exceeds 150

millimeters and measures at least twice the thickness, as currently

classifiable in the Harmonized Tariff Schedule (HTS) under item numbers

7209.15.0000, 7209.16.0030, 7209.16.0060, 7209.16.0090, 7209.17.0030,

7209.17.0060, 7209.17.0090, 7209.18.1530, 7209.18.1560, 7209.18.2550,

7209.18.6000, 7209.25.0000, 7209.26.0000, 7209.27.0000, 7209.28.0000,

7209.90.0000, 7210.70.3000, 7210.90.9000, 7211.23.1500, 7211.23.2000,

7211.23.3000, 7211.23.4500, 7211.23.6030, 7211.23.6060, 7211.23.6085,

7211.29.2030, 7211.29.2090, 7211.29.4500, 7211.29.6030, 7211.29.6080,

7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7215.50.0015,

7215.50.0060, 7215.50.0090, 7215.90.5000, 7217.10.1000, 7217.10.2000,

7217.10.3000, 7217.10.7000, 7217.90.1000, 7217.90.5030, 7217.90.5060,

and 7217.90.5090. Included in this review are flat-rolled products of

nonrectangular cross-section where such cross-section is achieved

subsequent to the rolling process (i.e., products which have been

``worked after rolling'')--for example, products which have been

beveled or rounded at the edges. Excluded from this review is certain

shadow mask steel, i.e., aluminum-killed, cold-rolled steel coil that

is open-coil annealed, has a carbon content of less than 0.002 percent,

is of 0.003 to 0.012 inch in thickness, 15 to 30 inches in width, and

has an ultra flat, isotropic surface. These HTS item numbers are

provided for convenience and Customs purposes. The written description

remains dispositive.

The POR is August 1, 1994, through July 31, 1995. This review

covers entries of certain cold-rolled carbon steel flat products from

the Netherlands by Hoogovens Staal B.V. (Hoogovens).

Analysis of Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received case and rebuttal briefs from the

respondent (Hoogovens) and petitioners (Bethlehem Steel Corporation,

U.S. Steel Company (a Unit of USX Corporation), Inland Steel

Industries, Inc., Geneva Steel, Gulf States Steel Inc. of Alabama,

Sharon Steel Corporation, and Lukens Steel Company). A hearing was held

on November 25, 1996, at which the parties presented their arguments.

Comment 1

Respondent argues that the Department should not have applied the

reimbursement regulation, 19 CFR 353.26, to more than double Hoogovens'

weighted-average margin in the preliminary results of review. Because

no duties have been assessed, reimbursement could not have occurred,

and the Department's determination is premature. Hoogovens claims that

the reimbursement regulation may not be applied prospectively at the

time of the final results, but may only be applied at the time of

liquidation by Customs. Hoogovens has submitted for the record evidence

demonstrating that it has revised its agency agreement with Hoogovens

Steel USA, Inc. (HSUSA) to clarify that no reimbursement will occur.

Respondent argues that the Department lacks the statutory authority

to deduct from U.S. price the amounts of antidumping duties paid or

reimbursed by foreign exporters to affiliated importers. The

Department's authority, Hoogovens alleges, does not extend to

situations where transactions cannot be construed as payments by a

seller to a buyer, and cannot therefore affect U.S. price. Because

there is no sale between Hoogovens and HSUSA, an affiliated selling

agent which neither purchases, takes title to nor resells subject

merchandise, transactions between Hoogovens and HSUSA have no effect on

the price of Hoogovens' U.S. sales. Respondent cites the CIT's decision

in Outokumpu Copper Rolled Products AB v. United States, 829 F. Supp.

1371 (1993) in support of the claim that the reimbursement regulation

only applies to transactions between a seller and a buyer.

Respondent argues that until recently the Department's view was

that the reimbursement regulation is limited to

[[Page 18477]]

situations in which the importers or customers are unaffiliated. Since

the Department ignores transfer prices and all other financial

transactions between affiliated parties, no adjustments to U.S. price

are ever made as a result of these transactions. Hoogovens claims that

the reimbursement regulation is therefore inapplicable in constructed

export price (CEP) situations, citing Antifriction Bearings (Other than

Tapered Roller Bearings) and Parts thereof from France, et. al., 58 FR

39729, 39736 (July 26, 1993). In Color TVs, the Department justified

the extension of the reimbursement regulation to affiliated parties in

CEP transactions on the basis that otherwise the remedial effect of the

antidumping law could be defeated. 61 FR at 4410. In short, the

reimbursement regulation is intended to prevent attempts by foreign

exporters to avoid the impact of an antidumping order by reducing the

effective price to U.S. customers. Hoogovens considers that the

Department's application of the reimbursement regulation to CEP

transactions is without statutory basis. Further, respondent argues

that since transactions between Hoogovens and HSUSA are not CEP sales,

and Hoogovens does not make CEP sales of subject merchandise to

unaffiliated purchasers, antidumping margins cannot be calculated on

transactions between Hoogovens and HSUSA, as these transactions have no

bearing on the effective price to Hoogovens' unaffiliated U.S.

customers.

Finally, respondent claims that in the absence of any possible

effect on U.S. price, the Department's decision to make a deduction in

this case can only be construed as an attempt to expand the

reimbursement regulation to treat duty as a cost. Further, respondent

alleges that the Department's methodology in the preliminary results of

deducting the calculated margin from U.S. price, thereby more than

doubling Hoogovens' dumping margin, violates Article 9.3 of the

Agreement on Implementation of Article VI of the General Agreement on

Tariffs and Trade 1994 (``WTO Antidumping Code'), which provides that

the amount of any antidumping duties assessed shall not exceed the

calculated dumping margin.

Petitioners support the Department's decision to apply the

reimbursement regulation and to deduct from U.S. price the antidumping

duties that Hoogovens has agreed to reimburse to its affiliated

importer. In Color Television Receivers from the Republic of Korea, 61

FR 4408, 4411 (February 6, 1996), the Department determined that

reimbursement takes place between affiliated parties if the evidence

demonstrates that the exporter directly pays antidumping duties for the

affiliated importer or reimburses the importer for such duties.

Petitioners argue that the Department's decision to apply the

reimbursement regulation in the preliminary results of this review was

well founded, given the verified record evidence. At verification, the

Department examined HSUSA's role as the importer of record, including

its payment of import duties and fees. The Department examined the

notes to NVW's financial statements, credit notes and the associated

bank statements, and obtained Hoogovens'' agency agreement with NVW

(now known as HSUSA).

Petitioners argue further that respondent's interpretation is

flatly inconsistent with the terms of the regulation and has been

explicitly rejected by the Court of International Trade (CIT). The

regulation provides that the adjustment for the reimbursement of

antidumping duties will be made in calculating the United States price.

See 19 CFR 353.26 (a) (1). As the Department calculates the United

States price at the time of its final results, not some time after

liquidation and the actual payment of antidumping duties, the

regulation plainly anticipates that an adjustment for the reimbursement

of antidumping duties can be made as part of the final results based on

evidence of an agreement to reimburse such duties.

Petitioners cite the CIT's decision in PQ Corp. v. United States,

652 F. Supp. 724, 737 (CIT, 1987), reaffirmed in Federal-Mogul Corp. v.

United States, 813 F. Supp. 856, 872 (CIT, 1993), as approving the

Department's practice of making an adjustment for reimbursed

antidumping duties (1) as part of its calculation of the dumping

margin, (2) based on the actual amount to be assessed, and (3) based on

the producer's agreement to reimburse such duties.

Petitioners argue further that in cases where there is no clear

evidence of an agreement to reimburse, the CIT has looked to whether

there is ``a link between intracorporate transfers and the

reimbursement of antidumping duties.'' See, e.g. Torrington Company v.

United States, Slip. Op. 96-163, CIT (1996). In the present case, the

Department found evidence of both an agreement to reimburse antidumping

duties and actual evidence of such reimbursement in the form of

transfers to cover cash deposits of antidumping duties.

Petitioners urge the Department to reject the amended agency

agreement filed by respondent on September 26, 1996, as untimely. Even

if the Department does not reject the new information, petitioners

argue that at the time the transactions took place, and at the time the

merchandise was imported, respondent had agreed to reimburse

antidumping duties.

Petitioners note that the test for determining whether the

reimbursement regulation applies in a situation where there is an

affiliated importer is not whether there has been a demonstrated impact

upon the U.S. price, but whether the evidence demonstrates that the

exporter directly pays or reimburses the importer for such duties. See

Color Televisions from Korea, 61 FR at 4411; Brass Sheet and Strip from

the Netherlands, 57 FR at 9537 (March 19, 1992); Brass Sheet and Strip

from Sweden, 57 FR at 2708 (January 23, 1992); Brass Sheet and Strip

from Korea, 54 FR at 33258 (August 14, 1989). Petitioners further

observe that even though the regulation does not require some kind of

independent showing of an effect on price, it is clear that where an

exporter reimburses an importer for antidumping duties, the importer,

along with the ultimate purchaser, is relieved of liability of the

duties.

Petitioners argue that Hoogovens' claim that the Department's

application of the reimbursement regulation in this review violates the

WTO Antidumping Code is unfounded. Article 2.4 of the Code specifically

provides for adjustments to be made to ensure a fair comparison between

the export price and the normal value. In petitioners' view, the

Department appropriately made an adjustment to account for the fact

that Hoogovens was reimbursing the importer for antidumping duties, and

was therefore bearing the expense of such duties.

Department's Position

We previously determined that reimbursement, within the meaning of

Sec. 353.26 of the Department's regulations, takes place between

affiliated parties if the evidence demonstrates that the exporter

directly pays antidumping duties for the affiliated importer or

reimburses the importer for such duties. See Color Television Receivers

from the Republic of Korea; Final Results of Antidumping Duty

Administrative Reviews, (``Final Results of Korean Tvs'') (61 FR 4408,

4411, Feb. 6, 1996). This position has been upheld by the Court of

International Trade in Outukumpu Copper Rolled Products AB v. United

States, 829 F. Supp. 1371 (CIT 1993). However, as we also stated in the

Final Results of Korean Tvs, application of the regulation to

affiliated parties does not imply that exporters and producers

automatically will be assumed to have

[[Page 18478]]

reimbursed affiliated U.S. importers for antidumping duties by virtue

of the relationship between them. While we have recognized that all

transactions between affiliated parties must be scrutinized with care,

the relationships between the parties are too complex to justify such

an assumption. Instead we have relied upon evidence of inappropriate

financial intermingling or an agreement to reimburse antidumping duties

between the two affiliated parties. Id at 4411.

Consistent with our practice, in the first administrative review of

this order we stated that an agreement to reimburse antidumping duties

is sufficient to trigger the reimbursement regulation. See Certain

Cold-Rolled Steel Flat Products From the Netherlands; Final Results of

Antidumping Duty Administrative Review; 61 FR 48465, 48470 (Sept. 13,

1996). For the preliminary results of this review, as in the first

review of this order, we based our determination upon evidence that an

agreement was in place for the reimbursement of duties to be assessed.

See Certain Cold-Rolled Steel Flat Products From the Netherlands;

Preliminary Results of Antidumping Duty Administrative Review; 61 FR

51888, 51891 (Oct. 4, 1996). In light of the evidence now on the

record, we have determined that Hoogovens and HSUSA no longer have an

agreement to reimburse antidumping duties to be assessed for this

review and that HSUSA is responsible for the payment of such duties.

See Proprietary Memo to File, April 2, 1997.

Petitioners have argued that Hoogovens continues to reimburse

duties. However, in the Department's view, the evidence on the record

of this review indicates that the respondent has changed its practice

with respect to reimbursement and has refunded cash deposits paid by

Hoogovens.

Further, petitioners seek to invoke the reimbursement regulation

regardless of whether an amended agreement makes HSUSA responsible for

payment of all antidumping duties and requires the U.S. affiliate to

refund cash deposits because, petitioners contend, at the time the

transactions took place, respondent had agreed to reimburse antidumping

duties. We find this argument unpersuasive. The issue is not when the

arrangement to reimburse was abrogated, but rather whether there is an

agreement to reimburse antidumping duties to be assessed at the time of

the final results. As we stated in the first review, the payment of

cash deposits does not, by itself, constitute reimbursement of, or an

agreement to reimburse, antidumping duties to be assessed. In the

preliminary results of this review, as in the first review, we

determined that the payment of cash deposits by the parent company

substantiated the existence of an agreement to reimburse duties to be

assessed. For these final results, HSUSA has presented evidence that

the agreement has been amended to eliminate reimbursement of

antidumping duties. It has substantiated that amendment with evidence

of a refund of cash deposits pertaining to entries in the first review

period. Based upon this evidence, we determined that Hoogovens is no

longer reimbursing, or has an agreement to reimburse, antidumping

duties to HSUSA. Therefore, we have not applied the reimbursement

regulation in the final results of this review.

While we find that, based upon the evidence on the record, the

reimbursement regulation is inapplicable in this review, as noted

above, transactions between affiliated parties must be scrutinized with

care. Because Hoogovens previously had an agreement to reimburse

duties, and continues to advance the funds to cover cash deposits, in

future reviews we will thoroughly monitor the refund of cash deposits,

scrutinize the operation of the agreement, and examine whether there is

any inappropriate financial intermingling, to ensure that reimbursement

does not recur. In addition, we will verify relevant information

submitted on the record, where appropriate.

Comment 2

Hoogovens argues that the Department's method of calculating profit

resulted in an excessive allocation of profit to constructed export

price (CEP) sales. This occurred, respondent alleges, because the

Department calculated the total profit on all reported sales, including

export price (EP) sales and home market (HM) sales that were outside

the actual period of review (POR) of August 1994 to July 1995. The

extended window period for home market sales in this review was

December 1993 to September 1995, whereas Hoogovens was required to

report CEP sales made during the POR. The calculation of profit for a

longer period on EP and HM sales than for the reported CEP sales

results in an increase in the amount of profit allocated to CEP and

hence deducted from U.S. price. This, in turn, artificially inflates

the margins on CEP sales. Hoogovens claims that in calculating the CEP

profit ratio, the Department should calculate the total profit based

only on EP and home market sales made during the actual POR.

Petitioners counter that this suggestion conflicts with the plain

language of section 772 (f) (2) of the Act. Under the statute, only

normal value and CEP sales are considered in the calculation of CEP

profit. EP sales do not enter into the calculation. The Department's

program erroneously included the profit from EP sales. The statute

defines total actual profit as the total profit earned by the foreign

producer, exporter and affiliated parties (in the United States) for

which total expenses are determined. In turn, total expenses are

defined as those ``incurred with respect to the subject merchandise

sold in the United States and the foreign like product sold in the

exporting country if such expenses were requested by the administering

authority for the purpose of establishing normal value and constructed

export price.'' The Department requested home market information for

the extended window period challenged by Hoogovens; therefore under the

statute the Department must calculate profit using this same

information.

Department's Position

We disagree with respondent. The expenses requested by the

Department for the purpose of establishing the normal value of the

foreign like product sold in the Netherlands were those incurred during

the extended window period. Consequently, the statute provides that

these expenses are to be used in the calculation of the CEP profit

ratio. We disagree with petitioners' argument that EP sales should be

excluded from the total profit calculation. The calculation of total

actual profit under section 772(f)(2)(D) includes all revenues and

expenses resulting from the respondent's EP sales, as well as from its

CEP and home market sales. The basis for total actual profit is the

same as the basis for total expenses under section 772(f)(2)(C). The

first alternative under this section states that for purposes of

determining profit, the term ``total expenses'' refers to all expenses

incurred with respect to the subject merchandise, as well as home

market expenses. Where the respondent makes both EP and CEP sales to

the United States, sales of the subject merchandise would encompass all

such transactions.

Comment 3

Petitioners argue that in the preliminary results, the Department

improperly excluded imputed expenses (i.e., credit expenses and

inventory carrying costs) from the calculation of

[[Page 18479]]

total United States expenses for the purpose of determining profit on

CEP sales. Section 772(d) of the Act provides that the price used to

establish CEP shall be reduced by an amount for profit allocated to

U.S. selling expenses and costs of further manufacturing. Section

772(f) further provides that the profit shall be determined by

multiplying total actual profit by the ``applicable percentage,'' i.e.,

the percentage determined by dividing ``total United States expenses''

by the total expenses. The statute defines ``total United States

expenses'' as the total expenses described in sections 772(d) (1) and

(2). These sections refer to the direct and indirect selling expenses

incurred in the United States and the cost of any further manufacturing

in the United States.

Petitioners argue that CEP is calculated by deducting credit

expenses and inventory carrying costs (``ICC'') (from the selling price

to the first unaffiliated customer) under section 772(d)(1).

Accordingly, these amounts must be considered a part of ``total United

States expenses'' and must be included in the allocation factor for

such expenses. In Certain Stainless Wire Rods from France, the

Department indicated that this is its practice (61 FR 47874, 47882

(September 11, 1996)):

When the Department allocates a portion of the actual profit to

each U.S. CEP sale, we have included imputed credit and inventory

carrying costs as part of the total U.S. expenses allocation factor.

This methodology is consistent with section 772(f)(1) of the statute

which defines ``total United States Expenses'' as the total expenses

described under section 772(d) (1) and (2). Such expenses include

both credit and inventory carrying costs.

Petitioners conclude that the Department should correct its margin

program to include imputed expenses in the calculation of total United

States expenses.

Respondent argues that the Department should not include imputed

expenses in its allocation of profit to CEP sales. In the preliminary

determination, while the Department excluded the imputed expenses from

CEPSELL, it also excluded imputed expenses on EP and home market sales

from both the calculation of total profit and the allocation of the

profit. While petitioners argue that the Department should include the

imputed expenses in the numerator for this allocation (CEPSELL), they

fail to mention that these expenses should also be included in the

denominator (TOTEXP) for this calculation. Hoogovens argues that the

petitioners' methodology would artificially inflate the allocation

ratio, which would overstate the amount of profit allocated to the CEP

sale.

Hoogovens takes no position on whether the imputed expenses should

be included or excluded from the CEP allocation. Its sole concern is

that these expenses be treated consistently in all aspects of the CEP

profit allocation. In the event that the Department decides to include

the imputed expenses in the CEP selling expenses used to allocate

profit, Hoogovens argues the Department should ensure consistency by

including the imputed expenses in all aspects of the profit allocation.

Thus, in calculating the ratio of U.S. selling expenses to total

selling expenses, Hoogovens argues the Department should include the

imputed expenses on CEP sales in the numerator (CEPSELL), and should

include the imputed expenses on all U.S. and home market sales in the

denominator (TOTEXP).

Department's Position

We agree with petitioners that imputed credit and inventory

carrying costs should be included in the definition of total United

States expenses used in the allocation of profit to CEP sales,

consistent with section 772(f)(1), and have revised our methodology for

these final results. The Statement of Administrative Action (SAA) of

the URAA states that: ``The total U.S. expenses are all of the expenses

deducted under section 772(d) (1) and (2) in determining the

constructed export price.'' SAA at 154. The SAA also explains section

772(d)(1)(D) as providing for the deduction from CEP of indirect

selling expenses. These typically include imputed inventory carrying

costs, which represent the opportunity costs of the capital tied up in

inventories of the finished merchandise. (Id.) Section 772(d)(1)(B)

explicitly includes credit expenses as among the direct selling

expenses to be deducted from CEP.

We disagree with respondent that imputed credit and inventory

carrying costs should be added to the total expenses used in the

denominator in the CEP profit allocation. In determining the amount of

profit to allocate to each CEP sale, the Department first computes the

total profit earned by the foreign producer. This amount is based on

the producer's actual profits calculated in accordance with section

772(f)(2)(D) of the Act and includes any below cost sales but excludes

sales made to affiliates at non-arm's length prices. Because it is the

``actual'' profit, the amount reflects the actual interest expense

incurred by the producer.

A portion of the total actual profit is then allocated to the U.S.

expenses incurred for each CEP sale. This is done based on the

applicable percentage described in section 772(f)(2)(A) of the Act. In

calculating this percentage, the statute directs us to include in the

numerator the CEP expenses deducted under 772(d), which includes

imputed credit and inventory carrying costs. In contrast, the total

expenses in the denominator are those used to compute total actual

profit. See section 772(f)(2)(D). As discussed above, ``actual'' profit

is calculated on the basis of ``actual'' rather than imputed expenses.

Although the actual and imputed amounts may differ, if we were to

account for imputed expenses in the denominator of the CEP allocation

ratio, we would double count the interest expense incurred for credit

and inventory carrying costs because these expenses are already

included in the denominator.

Comment 4

Petitioners argue that the Department should reject Hoogovens'

claim that it sells to only one level of trade (LOT). In respondent's

initial Section A response in this review, Hoogovens stated that it

sold to two categories of customers, which constituted distinct levels

of trade: service centers and end-users. However, when it submitted its

Section B response, Hoogovens claimed that all its customers were at a

single LOT and that it was unable to distinguish between the selling

functions performed for different customers. Hoogovens did not complete

the chart identifying selling functions requested in a supplemental

questionnaire until verification, and petitioners argue the Department

should have rejected it as untimely.

Petitioners argue the record shows that Hoogovens' customers are at

two levels of trade. First, petitioners claim that service centers,

which function as distributors, and end users are at different phases

of marketing. See Certain Corrosion-Resistant Carbon Steel Flat

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

Canada; Preliminary Results of Antidumping Administrative Reviews, 61

FR 51891, 51896 (October 4, 1996). In its Section A response at 13

(Public Version), Hoogovens stated:

The basis for distinguishing steel service centers from end-

users is that the former do not consume the steel they purchase from

Hoogovens, but rather function in a manner similar to distributors

(although * * * some provide processing services). Steel service

centers/distributors, in turn, sell cold-rolled steel to the same

types of end-user customers

[[Page 18480]]

as Hoogovens. Thus, the end-user customers are further ``removed''

from Hoogovens' factory than are the steel service centers.

Petitioners argue that the differences in the selling functions

performed for each group are well-documented, citing Hoogovens'

statement that it provided ``far greater sales assistance, such as

quality and product development support'' to its end-user customers

than to its service center customers. Hoogovens also stated that it had

just-in-time (JIT) delivery arrangements with many of its end-user

customers, but not with service centers. (Section A response at 14.)

Petitioners ask the Department to consider service centers and end-

users as distinct levels of trade for the final determination, and to

make LOT adjustments, as appropriate. Finally, petitioners ask the

Department to deny Hoogovens the capped CEP adjustment, because

Hoogovens has failed to provide complete or timely LOT data in this

review.

Hoogovens responds that at the time it submitted its Section A

response in this review, the Department had not yet published any

determinations explaining and applying the URAA LOT provisions.

Hoogovens continued to rely on the levels of trade used in the

investigation and the first administrative review, which were based on

the market function of the customer, rather than on selling functions

performed by Hoogovens. While Hoogovens stated that it provides more

``sales assistance'' to end-user customers, the basic distinction was

the nature of the customer's business rather than the selling functions

performed by Hoogovens.

To the best of Hoogovens' knowledge, the supplemental questionnaire

issued by the Department in the investigation of Certain Pasta Products

from Italy and Turkey, of which Hoogovens received a copy before it

submitted its Section B response, was the first time that the

Department had developed a series of questions designed to assist in

making determinations of LOT under the URAA LOT provisions. After

reviewing the questionnaire, Hoogovens determined that it could not

substantiate the previously-claimed LOT based on the selling functions

it performed for sales to the two categories of customers.

Petitioners are wrong, Hoogovens argues, to say that identifying

sales ``at different phases of marketing'' represents ``the first prong

of the test to demonstrate two different levels of trade.''

Petitioners' Brief at 5. On the contrary, Hoogovens claims, it is well-

established that under the URAA and as stated in ADDENDUM I to the

Department's questionnaire, ``the selling functions that a customer

performs do not establish that different LOTs exist * * * '' Although

the petitioners rely on the Department's preliminary determination in

the 1994/95 administrative reviews of the Canadian flat-rolled steel

cases as support for their interpretation, in those results, Hoogovens

argues, the Department stressed that ``even substantial'' differences

in selling functions are not alone sufficient to establish different

LOTs. Certain Corrosion-Resistant Carbon Steel Flat Products from

Canada and Certain Cut-to-Length Carbon Steel Plate from Canada;

Preliminary Results of Antidumping Administrative Reviews, 61 FR 51891,

51896. Respondent points out that even where it found customers at

different phases of marketing, the Department did not necessarily find

different LOTs.

Hoogovens argues that the petitioners have failed to point to any

evidence in the record showing that Hoogovens provides different levels

of selling functions to automotive versus other customers. In the

investigation, the Department concluded that automotive customers did

not constitute a separate LOT. At that time, petitioners argued that

Hoogovens had ``totally failed to demonstrate significant differences''

between automotive and other sales. Final Determinations of Sales at

Less than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products and

Certain Cold-Rolled Carbon Steel Flat Products from the Netherlands, 58

FR 37199, 37203 (July 9, 1993).

In its supplemental response dated January 19, 1996, Hoogovens

explained (on page 5) that it had not filled out the chart on LOT,

because it had determined that there were no quantifiable differences

between LOTs for any of the listed selling functions. Hoogovens points

out that during verification, the Department sought to verify the

statement contained in the supplemental response by interviewing the

Senior Sales Executive and reviewing the chart with him. For that

purpose, Hoogovens prepared the chart contained in Verification Exhibit

12. Hoogovens believes that the verified evidence in the record

confirms the Department's conclusion that there are no differences in

LOT in either the EP or home markets resulting from differences in

selling functions performed by Hoogovens. Moreover, in Hoogovens' view,

this conclusion is consistent with the Department's analysis of

respondents in other steel reviews.

Department's Position

Neither the statute nor the SAA defines LOT. The relevant provision

in the statute, section 773(a)(7)(A), allows for a LOT adjustment where

there is a difference in LOTs between the EP or CEP and normal value,

if that difference involves the performance of different selling

activities, and it is demonstrated to affect price comparability, based

on a pattern of consistent price differences between sales at different

LOTs in the foreign comparison market. This adjustment may either

increase or decrease normal value. SAA at 829.

Although the identity of the customer (e.g., end-user or service

center) is an important indicator in identifying differences in LOT,

the existence of different classes of customers, as well as different

functions performed by such customers, is not sufficient to establish a

difference in the LOTs. Accordingly, we consider the class of customer

as one factor, along with the producer/exporter's selling functions and

the selling expenses associated with these functions, in determining

the stage of marketing, i.e., the LOT associated with the sales in

question.

For CEP sales, the relevant customers in our LOT analysis are

Hoogovens'' U.S. affiliates, i.e., the customers at the level of the

CEP. The CEP represents a price exclusive of all selling expenses and

profit associated with economic activities occurring in the United

States. SAA at 823. The adjustments we make to the starting price

pursuant to section 772(d) of the Act normally change the LOT.

Accordingly, we must determine the LOT of CEP sales exclusive of the

expenses (and concomitant selling functions) that we deduct pursuant to

this subsection. This approach does not result in a reliance on an ex-

factory transfer price to the U.S. affiliate in our LOT analysis.

Transfer prices do not enter into our analysis because the CEP is a

calculated price derived from the resale price to the first

unaffiliated customer. CEP is not a price exclusive of all selling

expenses, because it contains the same type of selling expenses as a

directly observed export price. See Antifriction Bearings (Other Than

Tapered Roller Bearings) and Parts Thereof from France, et al., Final

Results of Antidumping Duty Administrative Reviews, 62 FR 2081, 2107

(January 15, 1997) (AFBs VI).

We agree with petitioners that end-users and service centers/

distributors constitute different phases of marketing. However, as

respondent notes, this is not sufficient for the Department to find

that different LOTs exist. In order to determine whether sales in the

[[Page 18481]]

comparison market are at a different level of trade than the export

price or CEP, we examine whether the comparison sales were at different

stages in the marketing process than the export price or CEP. We make

this determination on the basis of a review of the distribution system

in the foreign 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 LOT. Similarly, while customer categories 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 AFBs VI at 2105.

Initially, Hoogovens stated that there were multiple levels of

trade and that it performed different selling functions for its end-

user customers than for its service center customers. However, the LOT

chart provided by respondent at verification indicated that the selling

functions provided to all customers, in both markets, are identical.

Hoogovens explained that after more in-depth examination, it was unable

to distinguish among the selling functions provided to different

categories of customers. See Verification Report, p. 10. Based upon the

results of our verification, we find that there are no differences in

LOT. See the comment below on CEP offsets.

Comment 5

Hoogovens argues that the Department should make a CEP offset

adjustment to normal value pursuant to section 773(a)(7)(B) of the Act

when comparing the reported CEP sales to normal value. Respondent

claims the Department's practice is to compare the ex-factory CEP price

to the price of the home market sale, including all selling functions

that are provided to home market customers. Hoogovens argues that the

Department has repeatedly concluded that a CEP offset is appropriate

where it finds, following this comparison, that the unadjusted home

market price is at a more advanced level of trade (LOT) than the

adjusted CEP price. In the preliminary results, the Department

concluded that there were no differences between the adjusted CEP price

and the unadjusted home market price. Hoogovens claims that this

results in a comparison of sales at different levels of trade, because

the starting price of the home market sales allegedly reflects many

selling activities not reflected in the adjusted CEP price. These

include indirect selling activities, indirect technical service and

warranty expenses, and inventory carrying costs incurred on home market

sales. All of these types of expenses have been deducted from the net

CEP used to establish the LOT for CEP sales. Accordingly, Hoogovens

concludes, the home market LOT must be deemed to be at a different,

more advanced LOT than the adjusted CEP LOT.

Hoogovens claims there were no sales in the home market at a LOT

equivalent to the CEP LOT. Moreover, all home market sales were at the

same LOT. There are no data available to quantify a LOT adjustment to

account for the difference between the CEP LOT and the home market LOT.

Accordingly, Hoogovens concludes, the Department should make a CEP

offset adjustment to normal value for indirect selling expenses up to

the amount of indirect selling expenses deducted from CEP, as required

by 19 U.S.C. 1677b(a)(7)(B).

Petitioners point out that the CEP offset is not automatic. The

respondent bears the burden of demonstrating that such an offset is

warranted. See Mechanical Transfer Presses from Japan, 61 FR 52910,

52915 (October 9, 1996); Large Newspaper Printing Presses and

Components Thereof, Whether Assembled or Unassembled, from Japan, 61 FR

38139, 38143 (July 23, 1996). Petitioners argue that to qualify for a

CEP offset, a respondent must first establish that there are different

levels of trade between home market and U.S. sales. Then, if the data

on the record do not provide an adequate basis for a 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 argue that Hoogovens has failed to meet the

prerequisites for such an adjustment, because it has provided no

evidence that its CEP sales are at a distinct LOT from its home market

sales. In response to the Department's request at verification for LOT

data, Hoogovens' Senior Sales Executive stated that the company

``provides the same types of services to all customers in all

markets.'' (Sales Verification Report at 10 (Public Version).)

Department's Position

Respondent's claim for a CEP offset is inconsistent with its

position that its sales are to only one LOT in both markets. (See

Comment 4.) In submitting its LOT chart at verification, Hoogovens did

not identify any differences in selling functions and selling expenses

between its home market sales and CEP sales after deductions of the

U.S. expenses pursuant to section 772(d) of the Act. In accordance with

section 773(a)(7)(B) of the Act, a CEP offset is granted where normal

value is established at a LOT which constitutes a more advanced stage

of distribution than the LOT of the CEP sale and the data available do

not provide an appropriate basis to determine a LOT adjustment.

Hoogovens failed to meet any of these requirements under section

773(a)(7)(B). Indeed, Hoogovens failed to make a LOT claim and has

failed to substantiate any claim.

The instructions regarding LOT in ADDENDUM I to the Department's

questionnaire explained:

When the U.S. sale is classified as a constructed export price

(CEP) sale, the LOT for that sale is based upon the selling

functions provided by the seller (i.e., the exporter and its

affiliates) to the first unaffiliated party, less those selling

functions related to expenses which are deducted under section

772(d) of the Act. Thus, for CEP sales, the selling functions used

to establish the LOT cannot include selling functions related to

expenses deducted under section 772(d). For comparison market sales,

the LOT is based upon the selling functions provided by the seller

(and its affiliates) to the first unaffiliated customer.

Respondent failed to respond to the Department's supplemental

questionnaire on LOT by the due date. The instructions for preparing

the LOT chart specifically asked respondents not to include in the

chart those expenses deducted from U.S. price. These deductions include

direct selling expenses (credit expense), indirect selling expenses

(warranties, inventory carrying costs) and further manufacturing costs.

In filling out the chart submitted at verification, Hoogovens did not

distinguish between its CEP sales, which are all further manufactured,

and its EP sales. Despite being given every opportunity to demonstrate

on the record that its CEP sales and home market sales are at different

levels of trade, Hoogovens has failed to establish that normal value is

at a different LOT than CEP sales. Rather, to the contrary, Hoogovens

insisted that there were no differences in the services provided to

customers in the two markets. The SAA states:

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

constructed export price offset adjustment under section

773(a)(7)(B). (SAA at 160.)

Thus, the adjustment is not automatic and the burden is on the

respondent to

[[Page 18482]]

demonstrate that normal value is at a different LOT than the CEP, and

that the normal value LOT is at a more advanced stage of distribution

(i.e., more remote from the factory). Hoogovens has failed to establish

the basis for any CEP offset. Accordingly, we have not granted a CEP

offset adjustment in the final results of this review.

Comment 6

Respondent argues that the Department should not match U.S. sales

of secondary merchandise (``seconds'') to constructed value (CV) for

prime merchandise. The Department's policy in the steel cases is to

match sales of prime merchandise to other sales of prime merchandise,

and to match sales of seconds in the U.S. market to sales of seconds in

the comparison market. In the preliminary results, where there were no

matching home market sales of seconds within the ``90/60 window''

period, the Department matched the U.S. secondary sale to the CV of

sales of prime merchandise. Hoogovens disagrees that the Department is

compelled by the decision of the Court of Appeals in IPSCO, Inc. v.

United States, 965 F.2d 1056, 1060 (Fed. Cir. 1992), to use this

approach, and alleges that this comparison results in unfair and

artificially inflated margins on U.S. sales of seconds. Hoogovens

argues that this allegedly unfair approach could be avoided by the

expedient of matching U.S. sales of seconds to home market sales of

seconds that pass the difmer test, without considering whether they

fall within the ``90/60 window'', to calculate margins for seconds.

Petitioners argue that the Department should reject Hoogovens''

proposed change in methodology, which fails to recognize that the

Department's methodology is consistent with past practice and in

accordance with IPSCO, in which the Court upheld the Department's

practice of allocating production costs equally between secondary and

prime merchandise. Petitioners also point out that the reason the

Department uses the ``90/60 window'' is that it satisfies the statutory

requirement (section 773 (a) (1) (A)) that normal value be compared

with contemporaneous EP or CEP sales. See also Certain Circular Welded

Carbon Steel Pipes and Tubes from Thailand, 61 FR 1328, 1332 (January

19, 1996).

Department's Position

We agree with the petitioners. Seconds are merchandise which has

suffered some sort of defect either in the production process or in

subsequent handling, and does not meet the customer's specifications.

In this review, we have continued to follow the policy with respect to

comparisons of sales of seconds set forth in the first review of this

order. (See Cold-rolled Carbon Steel Flat Products from the

Netherlands; Final Results of Antidumping Duty Administrative Review,

61 FR 48465, 48466-7 (September 13, 1996).) We only resorted to CV when

there were no contemporaneous matches of seconds.

Hoogovens' suggestion that we use home market sales outside the

``90/60 window'' period is inconsistent with the requirement in section

773 that we use contemporaneous sales as the basis for normal value.

In Decision Memorandum from Roland L. MacDonald to Joseph A.

Spetrini, Deputy Assistant Secretary for Compliance, ``Treatment of

Non-Prime Merchandise for the First Administrative Review of Certain

Carbon Steel Flat Products,'' (April 19, 1995) at 4, we stated: ``In

past cases the Department has held that the cost of production (COP) of

seconds is the same as the COP of the prime merchandise it was intended

to be because seconds have undergone the same production processes as

prime merchandise.'' The Department's methodology for calculating the

COP for primary and secondary merchandise has been upheld by the Court

of Appeals. See IPSCO. Similarly, there is no basis on the record for

distinguishing between the CV of primary and secondary merchandise.

Comment 7

Hoogovens argues that the Department should use the Customs

Service's quarterly exchange rates to make currency conversions in its

final determination. At the time it made the sales under review,

Hoogovens expected that their antidumping duty liability would be

determined on the basis of these rates. However, on March 8, 1996, the

Department published a notice that it intended to change its practice

for determining the exchange rate, and would use Federal Reserve daily

exchange rates for one year, and then evaluate the model computer

program's performance. Notice: Change in Policy Regarding Currency

Conversions, 61 FR 9434 (March 8, 1996). Despite the fact that the

change was announced over seven months after the end of the POR, and

after verification in the current review, the Department used the

proposed program to make currency conversions in the preliminary

results. Hoogovens argues that the effect of this change is that its

margins were determined using different exchange rates than those

Hoogovens had reasonably expected would be used at the time it made the

sales under review, resulting in considerable increases in Hoogovens''

antidumping duty liability. Respondent further claims that the

Department's change of policy created dumping margins on a considerable

number of sales for which Hoogovens reasonably expected that there

would be no dumping margin found, and increased margins on many other

sales. Hoogovens relied on the Department's consistent prior practice

of using the Customs rates to set its prices so as to avoid dumping.

Respondent argues that the Department should not apply retroactively

such basic changes in methodology as the proposed currency conversion

policy. According to Hoogovens, the Department must, under its duty to

administer the law fairly, ``be bound by its prior actions so that

parties have a chance to purge themselves of antidumping liability.''

Shikoku Chemicals Corp. v. United States, 795 F. Supp. 417, 421 (CIT

1992).

Section 773A of the Uruguay Round Agreements Act (URAA) provides

that the Department shall convert currencies using ``the exchange rate

in effect on the date of sale of the subject merchandise.'' 19 U.S.C.

1677b--1(a). Hoogovens argues that this section does not specify which

rate the Department shall use or in any way mandate or prohibit the use

of exchange rates obtained from any given source. Hoogovens claims that

use of the Customs rates in this review would therefore be fully

consistent with the mandate of section 773A to use the exchange rate in

effect on the date of sale.

Petitioners argue that the Department's use in the preliminary

determination of this review of the daily exchange rates in effect on

the dates of sale, as certified by the Federal Reserve, is in

accordance with the plain language of section 773A. The SAA also

unequivocally states that the Department must adopt a new practice of

applying a daily exchange rate, in the place of its previous practice

of using a quarterly rate, as follows: ``Under new section 773A, the

general rule will be to convert foreign currencies based on the dollar

exchange rate in effect on the date of sale.'' SAA at 172. Petitioners

note that the new law has taken effect and the Department is bound by

it. Petitioners argue that Hoogovens had ample warning that a change in

methodology was dictated by new section 773A. Therefore, in

petitioners' view, the Department should continue to apply the daily

exchange rate for the final results of review.

[[Page 18483]]

Department's Position

We agree with petitioners. This review was conducted in accordance

with the URAA. Section 773A(a) requires the Department to ``convert

foreign currencies into United States dollars using the exchange rate

in effect on the date of sale of the subject merchandise.''

Consequently, the Department has modified its methodology in various

respects to conform to the new provisions in the law.

Comment 8

Petitioners claim that Hoogovens incorrectly calculated its

inventory carrying costs (``ICC'') applicable to CEP sales. For these

sales, Hoogovens reported the ICC from the time production was complete

at IJmuiden until the time the merchandise cleared Customs at the U.S.

port of entry in the field DINVCARU. ICC incurred by Hoogovens' U.S.

affiliated companies prior to shipment to the U.S. customer were

reported in the field INVCARU. In calculating both variables,

petitioners allege Hoogovens failed to use the actual, product-specific

cost of the merchandise. Instead Hoogovens used the price of the

merchandise, deflated by the ratio of total cost of goods sold to total

sales revenue to simulate the cost-based value of the merchandise in

inventory. Petitioners argue that Hoogovens' methodology is flawed

because it applies the ICC factor to the transfer price, rather than

the cost of production. Petitioners claim that this is inconsistent

with the Department's practice, which is to calculate ICC by dividing

the number of days that the goods remain in inventory by 365 and then

multiplying the result by the appropriate interest rate and the actual

cost of the unit, i.e., the product-specific costs. Petitioners argue

that the Department should recalculate Hoogovens' ICC using Hoogovens'

reported constructed value (CV) according to the following formula:

DINVCARU/INVCARU = (COMCV + GNACV + INTEXCV) (interest rate) (number of

days in inventory/365)

Hoogovens responds that the Department rejected the petitioners'

argument with respect to the same methodology in the final results of

Hoogovens' 1993/94 administrative review. Certain Cold-Rolled Carbon

Steel Flat Products from the Netherlands, 61 FR 48465, 48470 (September

13, 1996). Moreover, the Department also verified the reported data in

the current review. Hoogovens argues that its methodology is in fact

cost-based because after multiplying the ICC factor by the transfer

price to its U.S. affiliates, it then multiplies the result by the

ratio of Hoogovens' average cost of production to average sales price.

Hoogovens states that this results in an ICC amount that is in effect

based on the cost of production.

Hoogovens argues that the petitioners' proposed methodology

contains several flaws. First, the petitioners propose to use the

constructed value of manufacturing costs (COMCV) in their equation,

which is inherently less accurate, because COMCV includes the product

mix for sales to all markets of each CONNUM (i.e., EP, home market and

CEP), whereas Hoogovens' methodology is based solely on the costs of

material actually sold by the U.S. affiliates. Second, petitioners did

not convert the values used in their proposed calculation (COMCV,

GNACV, AND INTEXCV) , which are reported in guilders, to U.S. dollars.

This correction would substantially reduce the amount of ICC calculated

under their methodology. Hoogovens argues that petitioners have failed

to show that there is anything unreasonable or inaccurate in Hoogovens'

ICC methodology, and that the Department should accordingly continue to

use the reported ICC amounts in the final results.

Department's Position

We agree with the respondent that the methodology Hoogovens used is

reasonable, and have accepted the verified reported ICC amounts.

Hoogovens' accounting system used in the normal course of business is

based upon standard costs. Consequently, the costs carried in the

company's accounts are not product (or CONNUM)-specific. While CV is

CONNUM-specific for the products sold in the United States, general,

selling and administrative expenses and profit are calculated as if the

merchandise were sold in the home market. Hoogovens' use of the ratio

of average costs of cold-rolled carbon steel flat products to the

average sales price during the POR as a deflator for the transfer price

to its affiliates in the United States is therefore a reasonable

approximation of a product-specific, cost-based ICC calculation.

Comment 9

Petitioners claim that Hoogovens incorrectly reported yield losses

associated with its U.S. affiliate's further manufacturing operations.

Hoogovens determined the yield loss per machine by dividing the total

scrap generated during processing by the starting weight processed at

each machine. Petitioners argue that Hoogovens omitted to take into

account ``unrecovered scrap'' in the numerator of this calculation, and

that the Department should resort to facts otherwise available under

section 776 of the Act. Petitioners further assert that the Department

should make an adverse inference in its selection of facts available,

because of Hoogovens' alleged failure to comply with a request for

information from the administering authority. See 19 U.S.C. 1677e(b).

Hoogovens replies that petitioners have simply misread or

misunderstood the yield loss reports from which Hoogovens calculated

its affiliate's yield loss ratios. Hoogovens argues that a proper

reading of the yield loss reports reveals that there was no such

``unrecovered scrap.'' Petitioners incorrectly assumed that several

headings listed on the yield reports refer to material that vanished as

``unrecovered scrap'' during or after processing. Hoogovens explains

that none of these categories, however, refer to actual scrap or

material otherwise lost or damaged in processing that was not accounted

for in Hoogovens' calculation. Hoogovens argues that the verified

evidence in the record does not support petitioners' claim that any

unsalvaged material losses were omitted from Hoogovens' reported

ratios. See RBC Verification Report at 17. Hoogovens urges the

Department to use the reported yield loss ratios in the final results.

Department's Position

We agree with respondent. The Department verified the reported

yield losses and found no discrepancies. Petitioners' allegations are

based on a misinterpretation of certain column headings in the yield

loss report. See RBC Verification Exhibit 27.

Comment 10

Petitioners argue that Hoogovens failed to include the costs of

certain outside processing in RBC's reported cost of materials.

Hoogovens instead added these costs to the further manufacturing cost

reported in FURMANU. Because these outside processing costs were part

of RBC's direct material costs, petitioners argue that these costs and

the freight expenses for transporting these goods to RBC, should have

been reported as material costs and should have been subject both to

the application of yield loss and the allocation of G&A and interest

expenses. The Department's questionnaire instructs respondents at page

E-7 to include in the direct materials component of further

manufacturing costs ``transportation charges and other expenses

normally associated with

[[Page 18484]]

obtaining the materials that become an integral part of the finished

product sold in the United States.'' Petitioners calculated an amount

they propose that the Department add to the relevant sales to account

for additional yield loss, interest and G&A expenses.

Hoogovens replies that it added the cost of further processing paid

to the outside processor, increased by the yield loss associated with

outside processing, to the reported further manufacturing costs for the

relevant sales. It reported G&A and interest expenses for the

appropriate sales as part of the costs of processing this material at

RBC. Some of RBC's overhead and administrative costs were allocated to

the material processed by the outside processor. Hoogovens argues that

this material does not cost more to process because of the processing

it has undergone prior to arrival at RBC. Accordingly, to allocate more

processing and administrative costs to these sales would appear to be

double-counting. Moreover, there are two errors in the petitioners'

proposed correction, one in the proposed yield loss and the other in

the G&A factor.

Department's Position

We agree in part with the petitioners. The transportation charges

associated with bringing the steel processed by the outside processor

to RBC's plant should have been included in direct materials cost and

an amount added to the relevant sales to account for additional yield

loss, interest and G&A expenses. However, since we disagree with

petitioners' calculation of the yield loss (as discussed in Comment 10)

and petitioners used the wrong G&A factor, we have modified the

petitioners' suggested programming code to correct further

manufacturing costs for outside processed sales using the values for

yielded outside processing costs, SG&A and interest expense shown in

Exhibit 1 of respondent's rebuttal brief. (See the Department's margin

calculation program.)

Comment 11

Petitioners argue that Hoogovens should have included U.S. port-to-

plant freight costs and repacking expenses incurred in the United

States in further manufacturing costs. Instead, they were reported in

the Section C (CEP) data base in the fields ``INLFPWU'' and

``REPACKU.'' Petitioners cite the Department's questionnaire, which

states that further manufacturing costs include ``any costs involved in

moving the product from the U.S. port of entry to the further

manufacturer'' and ``additional U.S. packing expenses.'' Petitioners

point out that inclusion of these expenses is important because of the

effect on the allocation of profit for CEP sales. To correct this

error, petitioners urge the Department to add the amounts reported in

INLFPWU and REPACKU to FURMANU for each CEP (further manufactured)

sale.

Hoogovens notes that it followed the Department's instructions in

its questionnaire in reporting these expenses in the Section C (CEP)

fields, ensuring that these expenses are properly deducted from U.S.

price. Hoogovens argues that the alternative methodology proposed by

the petitioners is pointless, as reporting these expenses in the

Section E file would achieve the same result. To the extent that the

Department considers it appropriate to include these expenses in the

CEP profit allocation, Hoogovens proposes that the Department do so by

means of a simple correction to the program. Hoogovens urges the

Department to take great care that it does not double count these

expenses.

Department's Position

We agree that these expenses should be included in total United

States expenses for the purpose of calculating the CEP profit

allocation, and have modified the computer program for the final

results. We note that the Department's questionnaire contains

conflicting instructions, and will take steps to clarify them in the

next administrative review.

Comment 12

Petitioners observe that the Department's computer program makes

several errors with respect to the currency of U.S. packing costs.

Petitioners propose programming language to make the appropriate

currency conversions.

Hoogovens comments that there are several errors in the

petitioners' proposed language and proposes alternative corrections.

Hoogovens points out that the petitioners erred in proposing to include

the costs of repacking in the United States in the calculation of

constructed value (CV).

Department's Position

We agree with petitioners that there were currency conversion

errors in the treatment of packing expenses in the program used for the

preliminary results of review. We also agree with Hoogovens that U.S.

repacking should not be included in CV, because CV includes only costs

incurred in the Netherlands. We have corrected the program for the

final results of review.

Comment 13

Petitioners point out that Hoogovens added an extra category

(``F'') to the thickness tolerance categories laid out in the

Department's questionnaire. The Department's model match program,

however, does not account for sales with a thickness tolerance of

``F.'' Petitioners propose programming language to correct this

oversight. Hoogovens agrees with the proposed correction.

Department's Position

We have incorporated the proposed correction in the model match

program for the final results.

Comment 14

If the Department decides not to apply the reimbursement regulation

in its final results, petitioners urge that the antidumping duties be

deducted as ``United States import duties'' or ``additional costs,

charges, or expenses'' under section 772(c)(2)(A) of the Tariff Act of

1930, as amended. Petitioners argue that the plain language of the

statute requires that the Department deduct antidumping duties paid by

the respondent or its related party from the price used to establish EP

or CEP. Specifically, petitioners state that the phrase ``import

duties,'' as used in 19 U.S.C. 1677a(c), includes AD and Countervailing

duties, as such duties are plainly ``incident to bringing the subject

merchandise from the original place of shipment in the exporting

country to the place of delivery in the United States.'' Petitioners

argue that U.S. courts and agencies charged with administering the

customs and unfair trade laws have long recognized that ``Congress

desired and intended that {AD/CVD} duties * * * should be considered as

duties for all purposes.'' C.J. Tower & Sons v. United States, 71 F.2d

438, 445 (C.C.P.A. 1934). See also Imbert Imports, Inc. v. United

States, 331 F. Supp. 1400, 1406 (Cust. Ct. 1971) and PQ Corp. v. United

States, 652 F. Supp. 724, 736 n. 15 (CIT 1987). Petitioners assert that

there is nothing in the language or legislative history of section

772(c) to indicate that Congress intended a meaning for the phrase

``import duties'' other than the ``natural and accepted'' meaning

established by the courts. Petitioners further argue that under

accepted canons of statutory construction, the items to be deducted in

calculating EP and CEP pursuant to section 772(c)(2)(A) must be read to

include AD/CVD duties. The cited section requires a deduction for

import duties and other expenses ``except as provided in paragraph

1(C).'' This paragraph, in turn, refers to certain

[[Page 18485]]

countervailing duties imposed to offset export subsidies. If AD/CVD

duties were not intended to be included in the items deducted under

section 772(c)(2)(A), petitioners claim the exception provided by

Congress for certain countervailing duties would be superfluous.

Petitioners hold it is a fundamental precept of statutory construction

that ``a statute should be construed so that effect is given to all its

provisions, so that no part will be inoperative or superfluous, void or

insignificant, and so that one section will not destroy another.''

Sutherland Stat Const Sec. 46.06 (5th Ed).

While petitioners admit that the CIT has never explicitly held that

the language of section 772(c)(2)(A) covers actual antidumping duties,

they claim it has assumed so implicitly. Petitioners cite Federal-Mogul

Corp. v. United States, (813 F. Supp. 856, 872 (CIT 1993)) in which the

plaintiff challenged the Department's refusal to deduct estimated

antidumping duty deposits. According to petitioners, the CIT affirmed

the Department's refusal to deduct the estimated AD duties, relying on

the fact that the duty deposits were only estimates. However,

petitioners claim, the Court did not adopt the Department's reasoning

that section 772 applied only to ``normal'' import duties, and that

antidumping duties were not normal duties within the meaning of the

statute. This case, according to petitioners, requires the Department

to deduct from U.S. price any import duties that can be accurately

determined at the time the Department is calculating the current

dumping margins.

Petitioners insist the legislative history of the URAA in no way

suggests that Congress rejected the petitioners'' construction of

section 772 (c)(2)(A). Petitioners claim that the Senate Finance

Committee specifically recognized that the issue of whether antidumping

duties must be deducted as a cost was being considered by the CIT, and

directed the Department to abide by the outcome of that litigation.

Accordingly, petitioners argue it is clear that Congress did not intend

to ratify the Department's failure to treat duties as a cost in the

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

the judicial process.

Petitioners conclude by stating that treatment of antidumping

duties as a cost would be accomplished in the same manner as the

adjustment for reimbursement of antidumping duties in the preliminary

margin program. The actual difference between normal value and EP or

CEP on each sale is calculated by the margin program. This difference

is equal to the antidumping duties to be paid by the importer and

referred to in section 772 (c)(2)(A). Once this difference is

calculated, it must then be deducted from EP or CEP for use in

calculating the final margin on each transaction.

Hoogovens claims that the petitioners' argument is flatly erroneous

and is based either on a failure to acknowledge or a misinterpretation

of statements by all three branches of government on this issue. In

past cases the Department has repeatedly rejected the argument that

antidumping duties should be deducted as a cost. In fact, the

Department dealt with this issue and rejected petitioners' argument in

the final results of the first administrative review of the order

governing Hoogovens' imports of cold-rolled carbon steel. (61 FR at

48469.) See also Certain Hot-Rolled Lead and Bismuth Carbon Steel

Products from the United Kingdom; Final Results of Antidumping Duty

Administrative Review, 60 FR 44009 (August 24, 1995) and Certain

Corrosion-Resistant Carbon Steel Flat Products from Korea; Final

Results of Antidumping Duty Administrative Review, 61 FR 18547, 18553

(April 26, 1996). No reviewing court has ever reversed the Department's

interpretation of the statute on this point. None of the cases cited by

petitioners dealt with the issue at hand. For example, C.J. Tower

described antidumping duties as ``duties'' for the purpose of

distinguishing them from ``penalties'' that would require compliance

with the due process guarantees of the Fifth Amendment to the U.S.

Constitution. Hoogovens claims it did not remotely consider the issue

whether antidumping duties are to be included among the ``United States

import duties'' referred to in 19 U.S.C. 1677a (c)(2)(A).

Hoogovens points to the petitioners' acknowledgment that the

Department's position before the CIT in Federal Mogul was that the

statute's ``import duty'' language applied to neither antidumping

deposits nor actual assessed duties, and Hoogovens asserts there have

been no legal developments since the Department stated its position in

that case to cause it to reconsider; to the contrary, all developments

have been in favor of the Department's approach.

Hoogovens argues that petitioners have misinterpreted the

legislative history of this issue, citing the Final Results of the

1993/94 administrative review, in which the Department stated that

Congress put to rest the issue of AD/CVD duties as a cost in arduous

debates during the passage of the URAA. (61 FR. at 48469.) Hoogovens

also cites the House Ways and Means Committee's Report accompanying the

URAA, which stated that the new duty absorption provision ``would not

affect the calculation of margins in administrative reviews. This new

provision of law is not intended to provide for the treatment of

antidumping duties as a cost.'' H. Rep. No. 826 (I), 103rd Cong., 2d

Sess. 60-61. Hoogovens concludes by asking the Department to reaffirm

its conclusion regarding duty as a cost in the final results of this

review.

Department's Position

It is the Department's longstanding position that antidumping and

countervailing duties are not a cost within the meaning of 19 U.S.C.

1677a(d). See Certain Cold-Rolled Carbon Steel Flat Products from the

Netherlands, 61 FR 48465, 48469 (September 13, 1996). Antidumping and

countervailing duties are unique. Unlike normal duties, which are an

assessment against value, antidumping and countervailing 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. This logical rationale

for the Department's interpretation of the statute is consistent with

prior decisions of the Court of International Trade. See Federal-Mogul

v. United States, 813 F. Supp. 856, 872 (1993) (deposits of antidumping

duties should not be deducted from USP because such deposits are not

analogous to deposits of ``normal import duties'').

In contrast, petitioners'' reasoning is circular rather than

logical: in calculating the dumping margin the Department must take

into account the dumping margin. Such double counting, i.e., including

the same unfair trade practice twice in a single calculation, is

unjustifiable, except in the limited circumstances provided for in

Sec. 353.26.

Moreover, the treatment of antidumping and countervailing duties

(already paid or to be assessed) as a cost to be deducted from the

export price is an issue that was arduously debated during passage of

the Uruguay Round Agreements Act (URAA) and ultimately rejected by

Congress. See, H.R. 2528, 103rd Cong., 1st Sess. (1993). Alternatively,

Congress directed the Department to investigate, in certain

circumstances, whether antidumping duties were being absorbed by

affiliated U.S. importers. 19 U.S.C. 1675(a)(4). Thus, Congress put to

rest the issue of antidumping and countervailing duties as a cost. URAA

Statement of Administrative Action at 885 (``The duty absorption

inquiry would not

[[Page 18486]]

affect the calculation of margins in administrative reviews. This new

provision of the law is not intended to provide for the treatment of

antidumping duties as a cost.''); see also H. Rep. No. 103-826(I),

103rd Cong., 2nd Sess. (1994) at 60.

Final Results of Review

As a result of our review, we determine that the following

weighted-average margin exists:

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

Margin

Manufacturer/exporter Period of review (percent)

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

Hoogovens Staal B.V........................ 8/1/94-7/31/95 4.33

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

The Department shall determine, and the Customs service shall

assess, antidumping duties on all appropriate entries. Individual

differences between United States price and foreign market value may

vary from the percentages stated above. The Department will issue

appraisement instructions directly to the Customs Service.

Furthermore, the following deposit requirements will be effective

upon publication of this notice of final results of review for all

shipments of cold-rolled carbon steel flat products from the

Netherlands 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 rate for the reviewed company will be the

rate for that firm as stated above; (2) if the exporter is not a firm

covered in this review, or the original less than fair value (LTFV)

investigation, but the manufacturer is, the cash deposit rate will be

the rate established for the most recent period for the manufacturer of

the merchandise; and (3) if neither the exporter nor the manufacturer

is a firm covered in this review, the cash deposit rate will be 19.32

percent. This is the ``all others'' rate from the amended final

determination in the LTFV investigation. See Amended Final

Determination Pursuant to CIT Decision: Certain Cold-Rolled Carbon

Steel Flat Products from the Netherlands, 61 FR 47871. These deposit

requirements, when imposed, shall remain in effect until publication of

the final results of the next administrative review.

This notice serves as a final reminder to importers of their

responsibility under Sec. 353.26 of the Department's regulations 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 also serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with Sec. 353.34(d) of the Department's regulations.

Timely notification of 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 this 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. 97-9427 Filed 4-14-97; 8:45 am]

BILLING CODE 3510-DS-P