Circular Welded Non-Alloy Steel Pipe and Tube From Mexico: Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-201-805]

Circular Welded Non-Alloy Steel Pipe and Tube From Mexico: 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.

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SUMMARY: On December 8, 1997, the Department of Commerce (the

Department) published the preliminary results of its administrative

review of the antidumping duty order on circular welded non-alloy steel

pipe from Mexico covering exports of this merchandise to the United

States by one manufacturer/exporter, Hylsa S.A. de C.V. (``Hylsa'')

during the period November 1, 1995 through October 31, 1996. See

Circular Welded Non-Alloy Steel Pipe and Tube from Mexico: Preliminary

Results of Antidumping Duty Administrative Review and Partial

Termination of Review, 62 FR 64564 (Preliminary Results). We invited

interested parties to comment on the preliminary results. We received

comments and rebuttals from petitioners and Hylsa. Based on our

analysis of the comments received, we have changed the results from

those presented in the preliminary results of review.

EFFECTIVE DATE: June 17, 1998.

FOR FURTHER INFORMATION CONTACT: Ilissa Kabak at (202) 482-0145 or John

Kugelman at (202) 482-0649, Enforcement Group III--Office 8, Import

Administration, International Trade Administration, U.S. Department of

Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C.

20230.

SUPPLEMENTARY INFORMATION:

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

1930, as amended (the Act) are references to the provisions effective

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

by the Uruguay Round Agreements Act (URAA). In addition, unless

otherwise indicated, all references to the Department's regulations are

to 19 C.F.R. Part 353 (April 1, 1997). Where appropriate, we have cited

the Department's new regulations, codified at 19 C.F.R. 351 (62 FR

27296, May 19, 1997). While not binding on this review, the new

regulations serve as a restatement of the Department's policies.

Background

The Department published an antidumping duty order on circular

welded non-alloy steel pipe and tube from Mexico on November 2, 1992

(57 FR 49453). The Department published a notice of ``Opportunity to

Request an Administrative Review'' of the antidumping duty order for

the 1995/96 review period on November 4, 1996 (61 FR 56663). On

November 27, 1996, respondents Hylsa and Tuberia Nacional S.A. de C.V.

(``TUNA'') requested that the Department conduct an administrative

review of the antidumping duty order on circular welded non-alloy steel

pipe and tube from Mexico. We initiated this review on December 16,

1996. See 61 FR 66017. On February 4, 1997, TUNA requested a withdrawal

from the proceeding. Pursuant to 19 C.F.R. 353.22(a)(5) of the

Department's regulations, the Department may allow a party that

requests an administrative review to withdraw such request not later

than 90 days after the date of publication of the notice of initiation

of the administrative review. TUNA's request for withdrawal was timely

and there were no requests for review of TUNA from other

[[Page 33042]]

interested parties. Therefore, the Department terminated this review

with respect to TUNA in the December 8, 1997 preliminary results of

this administrative review in accordance with Sec. 353.22(a)(5) of the

Department's regulations (19 CFR 353.22(a)(5)).

Under Sec. 751(a)(3)(A) of the Act, the Department may extend the

deadline for issuing the preliminary results of an administrative

review if it determines that it is not practicable to complete the

review within the statutory time limit of 245 days. The Department

determined that timely completion was not practicable. Accordingly, on

July 8, 1997, the Department published a notice of extension of the

time limit for the preliminary results in this case to December 2,

1997. See Extension of Time Limit for Antidumping Duty Administrative

Review, 62 FR 36488. We held a public hearing on February 20, 1998.

The Department has now completed this review in accordance with

Sec. 751(a) of the Act.

Scope of the Review

The products covered by this order are circular welded non-alloy

steel pipes and tubes, of circular cross-section, not more than 406.4

millimeters (16 inches) in outside diameter, regardless of wall

thickness, surface finish (black, galvanized, or painted), or end

finish (plain end, beveled end, threaded, or threaded and coupled).

These pipes and tubes are generally known as standard pipes and tubes

and are intended for the low pressure conveyance of water, steam,

natural gas, and other liquids and gases in plumbing and heating

systems, air conditioning units, automatic sprinkler systems, and other

related uses, and generally meet ASTM A-53 specifications. Standard

pipe may also be used for light load-bearing applications, such as for

fence tubing, and as structural pipe tubing used for framing and

support members for reconstruction or load-bearing purposes in the

construction, shipbuilding, trucking, farm equipment, and related

industries. Unfinished conduit pipe is also included in these orders.

All carbon steel pipes and tubes within the physical description

outlined above are included within the scope of this order, except line

pipe, oil country tubular goods, boiler tubing, mechanical tubing, pipe

and tube hollows for redraws, finished scaffolding, and finished

conduit. Standard pipe that is dual or triple certified/stenciled that

enters the U.S. as line pipe of a kind used for oil or gas pipelines is

also not included in this order.

Imports of the products covered by this order are currently

classifiable under the following Harmonized Tariff Schedule (HTS)

subheadings: 7306.30.10.00, 7306.30.50.25, 7306.30.50.32,

7306.30.50.40, 7306.30.50.55, 7306.30.50.85, and 7306.30.50.90.

Although the HTS subheadings are provided for convenience and

customs purposes, our written description of the scope of these

proceedings is dispositive.

The period of review (POR) is November 1, 1995 through October 31,

1996. This review covers sales of circular welded non-alloy steel pipe

and tube by Hylsa.

Fair Value Comparisons

To determine whether sales of subject merchandise from Mexico to

the United States were made at less than fair value, we compared the

export price (EP) to the normal value (NV), as described in the

``Export Price'' and ``Normal Value'' sections of the preliminary

results of review notice (see Preliminary Results at 64565-64566). On

January 8, 1998, the Court of Appeals for the Federal Circuit issued a

decision in CEMEX v. United States, 133 F.3d 897 (Fed. Cir. 1998). In

that case, which involved a determination by the Department under pre-

URAA law, the Court discussed the appropriateness of using constructed

value (CV) as the basis for foreign market value when the Department

finds home market sales to be outside the ``ordinary course of trade.''

However, the URAA amended the definition of sales outside the

``ordinary course of trade'' to include sales below cost. See

Sec. 771(15) of the Act. Consequently, the Department has reconsidered

its practice in light of this court decision and has determined that it

would be inappropriate to resort directly to CV, in lieu of foreign

market sales, as the basis for NV if the Department finds foreign

market sales of merchandise identical or most similar to that sold in

the United States to be outside the ``ordinary course of trade.''

Instead, the Department will use sales of similar merchandise, if such

sales exist. The Department will use CV as the basis for NV only when

there are no above-cost sales that are otherwise suitable for

comparison. Therefore, in this proceeding, when making comparisons in

accordance with Sec. 771(16) of the Act, we considered all products

sold in the home market as described in the ``Scope of Review'' section

of this notice, above, that were in the ordinary course of trade for

purposes of determining appropriate product comparisons to U.S. sales.

Where there were no sales of identical merchandise in the home market

made in the ordinary course of trade to compare to U.S. sales, we

compared U.S. sales to sales of the most similar foreign like product

made in the ordinary course of trade, based on the characteristics

listed in Sections B and C of our antidumping questionnaire. We have

implemented the Court's decision in this case, to the extent that the

data on the record permitted.

Analysis of Comments Received

We invited interested parties to comment on our preliminary results

of review. We received both comments and rebuttals from petitioners and

Hylsa. The following analysis addresses the issues raised by the

parties in these comments and rebuttals.

Comment 1: Reimbursement

During the POR, Hylsa was the producer, exporter, and importer of

record for all U.S. sales of subject merchandise. Hylsa's U.S. customs

broker claims Hylsa as the importer of record on the customs entry

document completed upon importation of subject merchandise. The broker

then invoices Hylsa to reclaim the customs duties and service fees it

incurred. Hylsa International Corporation (Hylsa International) is a

U.S. company wholly-owned by Hylsa; it has no employees, nor does it

perform any sales activities. Hylsa International is used by Hylsa as a

conduit through which Hylsa passes sales invoices to, and collects

payments from, its U.S. customers. To this end, Hylsa issues two

invoices for its U.S. sales; one invoice is from Hylsa to Hylsa

International while the other is from Hylsa International to the U.S.

customer. The latter invoice is issued to the U.S. customer for

purchase and payment records. The U.S. customer remits payment to Hylsa

International's bank account, and Hylsa applies these payments to the

customer account it maintains for Hylsa International. For a more

detailed explanation of Hylsa International, see Sales Verification

Report at 8.

Petitioners request that the Department apply the reimbursement

regulation, 19 CFR Sec. 353.26, in this administrative review by

deducting the amount of antidumping duties paid by Hylsa on behalf of

the importer, or reimbursed to the importer, from the export price.

Petitioners object to the Department's interpretation of Sec. 353.26

set forth in the preliminary results of this administrative review. The

Department stated in the preliminary results that separate corporate

entities must exist as producer/reseller and importer in order to

invoke the

[[Page 33043]]

reimbursement regulation. Petitioners argue that, contrary to the

Department's position, the regulation does not require that the

producer/exporter and importer be separate entities. According to

petitioners, the only case in which this situation was addressed was in

the previously completed administrative review of this order. See

Circular Welded Non-Alloy Steel Pipe and Tube from Mexico (Final

Results of Pipe and Tube from Mexico), 62 FR 37014 at 37017 (July 10,

1997) (Comment 4). There, petitioners aver, the Department did not

decide this issue.

Petitioners state that cases in which the Department has discussed

the application of the reimbursement regulation all involved the

payment of duties by a foreign affiliate. In such cases, petitioners

contend, the Department has not inferred that reimbursement has

occurred from the mere fact of affiliation. To this end, petitioners

cite Certain Cut-to-Length Carbon Steel Plate from Germany, 62 FR 18390

at 18394 (April 15, 1997) (Comment 6). On the other hand, petitioners

argue, the Department has not hesitated in applying the reimbursement

regulation in cases where there is evidence of the producer's direct

payment of, or reimbursement for, antidumping duties incurred by an

affiliated importer. See Furfuryl Alcohol from the Republic of South

Africa (Furfuryl Alcohol), 62 FR 36488, 36490 (July 8, 1997)

(preliminary results) and Certain Cold-Rolled Carbon Steel Flat

Products from the Netherlands (Preliminary Results of Steel Products

from the Netherlands), 61 FR 51888, 51891 (October 4, 1996). According

to petitioners, the Department has rejected the argument that since two

affiliated parties are collapsed to calculate a dumping margin, the

parties should also be collapsed under the reimbursement regulation

(citing Circular Welded Non-Alloy Steel Pipe from the Republic of Korea

(Pipe from Korea), 62 FR 55574, 55580 (October 27, 1997) and Color

Television Receivers from the Republic of Korea (Color Television

Receivers), 61 FR 4408, 4411 (February 6, 1996)). Petitioners argue

that, because the Department has not collapsed entities to apply the

reimbursement regulation, we have not concluded whether the regulation

can apply to a single entity. Additionally, because Sec. 353.26 applies

regardless of the affiliation between the producer/exporter and the

importer, it would be inconsistent to apply the regulation in a case

where the producer and importer are affiliated but not apply it when

the producer and importer are a single entity. Petitioners state that

the Department recognized this principle with regards to duty

absorption in Certain Hot-Rolled Lead and Bismuth Carbon Steel Products

from the United Kingdom, 61 FR 65022 at 65023 (December 10, 1996)

(preliminary results).

Petitioners note that in the few cases in which the Department has

addressed the issue of reimbursement, it has demonstrated that the

producers' direct payment of antidumping duties triggers Sec. 353.26.

Petitioners cite to Brass Sheet and Strip from the Netherlands (Brass

from the Netherlands), 57 FR 9534 (March 19, 1992) (Comment 6) and

Color Television Receivers at 4410-4411 in support of their position.

Petitioners maintain that while the Department has previously stated

that the reimbursement regulation cannot apply in cases where, as here,

the importer is the exporter, the Department has, nevertheless, applied

the reimbursement provision in cases with CEP sales without addressing

concerns over the possibility of one party reimbursing itself.

Petitioners refer to Certain Cold-Rolled Carbon Steel Flat Products

from the Netherlands (Final Results of Steel Products from the

Netherlands), 61 FR 48465 at 48470 (September 13, 1996) (Comment 17)

and Furfuryl Alcohol at 36490.

However, petitioners state that if the Department continues to

interpret the regulation as requiring two separate entities, we should

find reimbursement in this case because two entities are, in fact,

involved. Petitioners note that in the regulations the Department

defines ``importer'' as ``the person by whom, or for whose account, the

merchandise is imported.'' 19 CFR Sec. 353.2(i). Petitioners argue that

this definition may refer to more than one entity. In this case, they

assert that while Hylsa may be the ``importer'' because it is ``the

person by whom * * * the merchandise is imported,'' Hylsa International

may also be considered an ``importer'' if it is the party ``for whose

account * * * the merchandise is imported.'' Because Hylsa

International is a separate legal entity that acts as a reseller for

Hylsa's sales to U.S. customers, we may consider it to be the

``importer'' in this case. Therefore, petitioners argue that if Hylsa

International is the ``importer,'' then the Department should find that

Hylsa is paying U.S. antidumping duties on behalf of the ``importer''

within the framework of Sec. 353.26.

Petitioners also assert that the reimbursement regulation applies

even though assessment of antidumping duties has not occurred and cites

Final Results of Steel Products from the Netherlands at 48470-71.

According to petitioners, the Department has taken several approaches

to implementing the reimbursement provisions. Petitioners note that in

past cases, including the above referenced administrative review, we

have ordered the U.S. Customs Service to double the duty assessment

rates published in the final results instead of deducting the amount of

antidumping duties from the export price when applying the

reimbursement regulation. However, in the Preliminary Results of Steel

Products from the Netherlands, the Department deducted the amount of

antidumping duties to be paid from the export price. Petitioners urge

the Department to adhere to the plain language of the regulation and

deduct any antidumping duties paid by Hylsa from EP.

Hylsa counters that the reimbursement regulation is inapplicable in

this case. Arguing that Hylsa is the ``importer,'' Hylsa notes that

Sec. 353.26 mandates the ``importer'' to file a pre-liquidation

certificate with the appropriate District Director of Customs stating

that the ``importer'' has not entered into any duty reimbursement

agreement with the manufacturer, producer, seller, or exporter. Hylsa

argues that since the importer of record is the only party required to

provide this certification, the ``importer'' under the reimbursement

regulation is defined as the ``importer of record.'' Since Hylsa

International has not entered into any reimbursement agreement with

Hylsa, respondent concludes, the reimbursement provision of Sec. 353.26

does not apply.

Hylsa argues that the Department's interpretation of the regulation

was correct in the preliminary results of this administrative review.

The Department stated in the preliminary results that separate entities

must exist as producer and/or seller and importer in order to apply the

reimbursement regulation. Hylsa agrees that Sec. 353.26 requires the

participation of two separate corporate entities and that the

regulation applies only when antidumping duty payments are made on

behalf of the importer. Hylsa also agrees with the petitioners that the

Department has never applied the reimbursement regulation in a case in

which the producer/reseller and importer are the same corporate entity,

but asserts, contrary to petitioners, that this is not a case of first

impression. Hylsa argues that international sales made on a duty-paid

basis are a normal part of international commerce. Therefore, the fact

that the Department has not addressed the issue of reimbursement in

these situations does

[[Page 33044]]

not mean that it has not previously been considered by the Department

or that the Department does not have an established practice with

regard to this issue. Rather, Hylsa argues that this indicates that

parties involved in previous cases agreed that reimbursement is

impossible where the producer and importer are the same entity.

Lastly, Hylsa asserts that if the Department is inclined to

reconsider its interpretation of Sec. 353.26, it would not be proper to

do so for the final results of this administrative review. Hylsa

believes that applying the reimbursement regulation in cases where the

producer/reseller and importer are the same entity would be a

fundamental change in Departmental policy that should be completed

through our normal rule-making procedures, including publication in the

Federal Register, and provision for comment by all interested parties.

The application of the reimbursement regulation to Hylsa's sales in

this review would penalize Hylsa for failing to predict what Hylsa

characterizes as a fundamental policy change.

Department's Position

We disagree with petitioners that 19 CFR Sec. 353.26 is applicable

in this case. Petitioners claim that because the Department has not

collapsed entities to apply the reimbursement regulation in past cases,

we have not addressed whether the regulation can apply to a single

entity. Our decision as to reimbursement is based upon our regulatory

interpretation of 19 CFR Sec. 353.26, which is that two separate

corporate entities must exist to invoke the reimbursement regulation.

This interpretation was the basis for the decision not to apply the

reimbursement regulation in the preliminary results of this

administrative review. Petitioners cited to Brass Sheet and Strip from

the Netherlands and Final Results of Steel Products from the

Netherlands, in which the Department invoked the reimbursement

regulation, and claimed that the regulation should likewise be applied

here, where the exporter is the importer. However, because two separate

entities were present in both of those cases, those decisions do not

apply to the instant case in which one corporate entity is the

producer, exporter and importer of record.

We also disagree with petitioners' claim that Hylsa International

could be considered the ``importer'' to satisfy the separate corporate

entity requirement. Hylsa International is a paper company with no

employees or sales activities. In addition, the customs broker bills

Hylsa, not Hylsa International, for fees it incurred. The customs

broker also claims Hylsa, not Hylsa International, as the importer of

record on the customs entry document completed upon importation of

subject merchandise. Therefore, we do not agree that the subject

merchandise imported into the United States by Hylsa is for Hylsa

International's account. Accordingly, we conclude that, for purposes of

the reimbursement provision, Hylsa is the importer as defined in 19

C.F.R. Sec. 353.2(i) because it is ``the person by whom . . . the

merchandise is imported.''

As indicated above, petitioners assert that Sec. 353.26 applies

even when the producer and importer are the same entity. Petitioners

claim that the Department has applied the reimbursement regulation to

cases with CEP sales without addressing concerns regarding an entity

reimbursing itself and cites two antidumping cases to support this

argument. As indicated above, petitioners assertions are incorrect. In

Color Television Receivers, our premise was precisely the notion that

the reimbursement regulation does not apply when the producer, exporter

and importer are one and the same entity. In that case, the issue was

whether companies which had been collapsed and treated as a single

entity for purposes of calculating duties should also be considered a

single entity for purposes of applying the reimbursement regulation.

See Id. at 4411. In that case, we determined that these are distinct

issues, requiring different analyses. As we stated, ``[h]ow antidumping

duties are calculated and who, under the law, is responsible for paying

those duties are separate and distinct issues.'' Id. at 4411. Unlike

the case now before us, Color Television Receivers did not involve a

single entity involved in the production, export and import of subject

merchandise. In the cases cited by petitioners, two entities were

involved in the production, export, and import of the subject

merchandise. Because the Department has determined that a single entity

is involved in the production, export, and import of subject

merchandise in this administrative review, the two cited cases are

inapplicable in this instance.

While we recognize that petitioners' position may be a permissible

interpretation of the regulation, the Department continues to believe

that our interpretation is more appropriate given the circumstances of

this case.

Comment 2: Co-export Sales

Hylsa grants co-export rebates on sales to home market customers

that use pipe as input material to manufacture non-subject merchandise

for export. Hylsa explained that it provides the rebate to account for

the differential between home market and export prices for subject pipe

charged to these customers. Hylsa requires the majority of its co-

export customers to submit export documentation as proof that they are

eligible for the rebate. See Sales Verification Report at 9.

Petitioners assert that the Department should exclude these co-

export sales for comparison purposes because the price at which the

merchandise is sold is not ``the price at which the foreign like

product is first sold . . . for consumption in the exporting country''

under 19 U.S.C. Sec. 1677b(a)(1)(B)(i). Petitioners argue that the

Department is entitled to agency deference in defining home market

consumption on a case-by-case basis, citing Chevron U.S.A. Inc. v.

Natural Resources Defense Council, 467 U.S. 837, 842-843 (1984).

Because co-export rebates are granted only for sales which are

subsequently exported after further processing, petitioners insist that

such sales are not ``for consumption'' in Mexico, and believe that

including co-export sales in the normal value calculation would

encourage price discrimination of subject merchandise between Mexican

and U.S. markets. Use of these sales for comparison purposes,

petitioners conclude, will not provide an accurate measurement of any

price differences between the two markets.

Alternatively, petitioners argue that the Department may consider

co-export sales to be outside of the ordinary course of trade as

defined at 19 U.S.C. Sec. 1677(15). Petitioners list a number of

factors that the Department should consider when deciding whether sales

of subject merchandise are made outside of the ordinary course of

trade, citing the Court of International Trade's (CIT) decision in

Laclede Steel Co. v. United States, Slip Op. 95-144, 1995 Court of

International Trade LEXIS 191 (Ct. Intl. Trade 1995). These factors

are: 1) the price of the merchandise as compared to other home market

sales, 2) the profit margin of the merchandise as compared to other

home market sales, 3) the number of customers purchasing the product,

4) quality assurances extended for the merchandise, 5) differences in

how the product is sold, 6) the end use of the merchandise, 7) the

average size of the sale compared to other home market sales, and 8)

distinguishable characteristics of the product by the seller.

Petitioners state that the Department should also note other particular

characteristics of Hylsa's co-export sales, including (i) only home

market customers that export to the U.S.

[[Page 33045]]

market receive the rebate, and (ii) co-export sales are made at prices

not representative of ``conditions and practices within Mexico for

sales of standard pipe.'' Petitioners maintain that Hylsa's co-export

sales prices are below ``normal'' home market prices, which proves that

profitability is below that of normal domestic sales. Sales terms for

co-export sales differ from normal home market sales in that separate

export documentation and dual invoicing are required. Petitioners note

that these sales are also made by Hylsa's export sales department

instead of the domestic sales department, which handles all other home

market sales.

Petitioners assert that even if the Department does consider these

sales to be within the ordinary course of trade, in the past it has

reserved the inherent authority under 19 C.F.R. Sec. 353.44(b) to

exclude home market sales from its calculation, if the Department

believes that their inclusion would not serve the purpose of the

antidumping law. This provision states that if 80 percent of home

market sales are made at the same price, the Department will calculate

normal value based on that sales price alone, excluding the remaining

transactions. Petitioners also cite 19 C.F.R. Sec. 353.44(c), which

provides that, if the Department decides that Sec. 353.44(b) does not

apply and that using weighted-average price or prices (as provided for

in Sec. 353.44(a)) is inappropriate, the Department will use any other

reasonable method for calculating normal value that it deems

appropriate. Therefore, petitioners believe that we should disregard

co-export sales in the calculation of normal value.

Petitioners assert that if the Department includes the co-export

sales, it should not allow any adjustment for ``co-export rebates''

granted to home market customers. According to petitioners, the

Department could not verify the basic operation of these rebates as a

result of inconsistent and contradictory explanations made by Hylsa at

verification. Therefore, petitioners assert that the Department should

add the rebate amounts back into the invoiced home market price using a

circumstance-of-sale (COS) adjustment to increase normal value by the

amount equal to the co-export rebates, as provided under 19 U.S.C.

Sec. 1677b(a)(6). Petitioners cite Zenith Electronics Corp. v. United

States, 77 F.3d 426 (Fed. Cir. 1996), Mantex, Inc. v. United States,

841 F. Supp. 1290 (Ct. Intl. Trade 1993), and Sawhill Tubular Division

Cyclops Corp. v. United States, 666 F. Supp. 1550 (Ct. Intl. Trade

1987) to support the discretion the courts have allowed the Department

regarding COS adjustments. Petitioners state that we made a COS

adjustment in Oil Country Tubular Goods from Argentina, 60 FR 33539

(June 28, 1995) (Comment 6) to account for rebates granted on third-

country comparison market sales. Petitioners note further that the CIT

upheld our adjustment and finding of a ``causal link'' between the

rebates and any difference ``or lack thereof'' between U.S. market

prices and comparison market prices in U.S. Steel Group v. United

States, 973 F. Supp. 1076 (Ct. Intl. Trade 1997). Petitioners argue

that a ``causal link'' exists between Hylsa's co-export rebates and the

difference in prices between the U.S. and comparison prices in the

instant review.

Hylsa avers that the Department should continue to include co-

export sales for comparison with U.S. sales. Hylsa maintains that the

operations of the co-export rebate program were fully explained to the

Department and that the confusion petitioners cite arose from one sales

trace analyzed at verification. Hylsa argues that the payment process

for this sale was not characteristic of co-export sales payments, and

that normal invoicing procedures were followed by Hylsa. Therefore,

Hylsa believes that the co-export rebate program was described

correctly to the Department.

Hylsa further argues that co-export sales are made for consumption

in the home market, demonstrated by the fact that the co-export

customers transform the foreign like product into merchandise outside

the scope of the antidumping duty order before exportation. Hylsa cites

to Dynamic Random Access Memory Semiconductors of One Megabit and Above

from Korea (DRAMS from Korea), 58 FR 15467, 15473 (March 23, 1993) in

support of its position.

Additionally, Hylsa asserts that co-export sales are made within

the ordinary course of trade. Hylsa notes that its co-export rebate

program predates the original antidumping duty investigation and that

the Department included these sales in its home market price

calculations in the original investigation, published in Circular

Welded Non-Alloy Steel Pipe from Mexico (Final Determination of Pipe

from Mexico), 57 FR 42953, 42954 (September 17, 1992). Hylsa maintains

that no differences exist in ``quality assurance, average size of sale,

product markings, or the manner in which the pipe is sold'' between co-

export sales and other home market sales. Hylsa contends that, under

the Department's established practice, price differentials alone are

not sufficient to classify a company's sales, with otherwise-normal

distribution channels, as sales made outside the ordinary course of

trade. See Electrolytic Manganese Dioxide from Japan, 58 FR 28551,

28552 (May 14, 1993).

Hylsa also argues against the petitioners' proposed application of

a COS adjustment to co-export sales to adjust for any price

differential attributable to co-export rebates. Hylsa contends that the

regulation regarding COS adjustments provides for the application of a

COS adjustment to account for differences in direct selling and other

assumed expenses. Hylsa notes that petitioners do not address any

differences in direct selling and/or assumed expenses between Hylsa's

co-export and other home market sales. Hylsa also notes that any price

differential between these sales exists because the co-export customer

commits to using the foreign like product as input for non-subject

merchandise which is subsequently exported. The Department cannot, and

should not, use this commitment to apply an unfavorable COS adjustment,

according to Hylsa.

Department's Position

We disagree with petitioners that co-export sales are not made for

consumption in the home market or that these sales are outside the

ordinary course of trade. Additionally, we disagree with petitioners

that the Department should exclude these sales under 19 CFR Sec. 353.44

(b) and (c) or that we should apply a COS adjustment.

Hylsa's co-export customers purchase the foreign like product to

use as an input for the processing of merchandise outside the scope of

the antidumping duty order. This finished merchandise is then exported

to the United States or South America. We agree with Hylsa that the

transformation of the foreign like product into non-subject merchandise

constitutes consumption by the home market co-export customers and that

such transactions constitute home market sales under section

773(a)(1)(B)(i) of the Act. We followed this practice in the past. See,

e.g., DRAMS from Korea at 15473. Consistent with our findings in DRAMS

from Korea, the merchandise exported by Hylsa's co-export customers is

not within the class or kind of merchandise subject to the order.

Morever, as in DRAMS from Korea, the record in this case indicates that

Hylsa does not know the ultimate export destination to which the

further-processed merchandise is shipped. See Id.

Furthermore, we do not consider Hylsa's co-export sales to be

outside of

[[Page 33046]]

the ordinary course of trade under 19 U.S.C. Sec. 1677(15). This

provision states that ``ordinary course of trade'' means the

``conditions and practices which, for a reasonable time prior to the

exportation of the subject merchandise, have been normal in the trade

under consideration with respect to merchandise of the same class or

kind.'' We note that Hylsa implemented the co-export rebate program

before the antidumping petition was filed. Therefore, co-export sales

have been part of Hylsa's normal business practices for many years.

Additionally, we considered these sales as within the ordinary course

of trade and included them in our home market price calculation in the

original investigation in this case (see Final Determination of Pipe

from Mexico at 42954). Petitioners argued that Laclede Steel Co. v.

United States outlined eight factors which the Department should

consider when determining whether sales were made within the ordinary

course of trade. We agree with petitioners that co-export sales prices

are lower than other home market sales prices and that sales terms are

different for co-export sales. However, no sales differences exist with

regard to quality assurance for the product, distinguishable

characteristics of the pipe, average size of the sale, or the manner in

which the majority of co-export sales are sold (see Proprietary Version

of Hylsa's July 3, 1997 Response at 35). We believe that the above-

cited differences between co-export and other home market sales in and

of themselves are not sufficient to consider co-export sales as outside

the ordinary course of trade.

Petitioners note that we have the inherent authority under 19

C.F.R. Sec. 353.44 (b) and (c) to exclude those sales that would not

serve the purposes of the antidumping statute. We note that

Sec. 353.44(b) concerns home market transactions sold at the ``same

price.'' The majority of Hylsa's home market sales are made at varying

price levels, thus rendering this provision inapplicable. Additionally,

Sec. 353.44(c) states that if the Department determines that

Sec. 353.44 (a) and (b) do not apply, we have the authority to ``use

any other method for calculating foreign market value.'' Subparagraph

(a), which states that the Department will calculate normal value by

using the weighted-average price when home market sales vary in price,

applies in the review. Because we consider the co-export sales to be

made within the ordinary course of trade and consider such sales as

home market sales, we do not need to invoke our authority to exclude

these sales when calculating normal value.

Finally, we disagree with petitioners that a COS adjustment is

warranted for the co-export sales. Under 19 C.F.R. Sec. 353.56(a)(2),

factors that would warrant the use of a COS adjustment involve

differences in selling expenses, such as ``commissions, credit terms,

guarantees, warranties, technical assistance, and servicing * * * [and]

also * * * differences in selling costs.'' We did not find that Hylsa's

co-export sales had any demonstrable differences in selling expenses,

as referenced above. Therefore, a COS adjustment is not warranted for

Hylsa's co-export sales.

Comment 3: Additional Foreign Inland Freight, Additional Inland

Freight, Additional Foreign Brokerage Fees, and Additional U.S.

Brokerage Fees

Hylsa argues that the Department improperly rejected Hylsa's

reported additional foreign inland freight, additional inland freight,

additional foreign brokerage fees, and additional U.S. brokerage fees

and improperly applied adverse partial facts available. Hylsa explains

that in its normal course of business it incurs freight and brokerage

expenses which exceed the amounts billed to, and collected from, its

customers. Hylsa asserts that it used a reasonable allocation basis for

reporting these additional expenses, given that it does not maintain

actual freight and brokerage costs on a sales-specific basis, and that

transaction-specific reporting would have been too burdensome. Hylsa

argues that the calculation methodology it used in this administrative

review was identical to that which was verified and accepted by the

Department in the original investigation of this case. Hylsa also cites

to the following cases as examples where the Department allowed the

allocation of movement expenses when the calculation of transaction-

specific costs was deemed too burdensome: Industrial Belts from Japan,

58 FR 30018, 30022; Steel Wire Rope from India, 56 FR 46285, 46287

(September 11, 1991).

Hylsa argues that the Department verified the accuracy of the

reported additional freight and brokerage expenses by reconciling the

amounts reported in Hylsa's section B and C sales listings to Hylsa's

cost accounting system. Additionally, Hylsa asserts that the Department

verified the unreasonable burden Hylsa would have faced in attempting

to report these expenses on a transaction-specific basis. Hylsa

reiterated that it does not have computer capabilities to match the

additional freight expenses to specific invoices.

Hylsa asserts that the Department has no reasonable basis for

rejecting the reported additional freight and brokerage expenses. Hylsa

notes that the Department claimed in the preliminary results of this

administrative review that the information was unverifiable based on

transaction-specific freight and brokerage expenses the Department

calculated from individual sales traces reviewed at verification. Hylsa

maintains that the allocation of these additional expenses was

reasonable given that, ``on average[,] Hylsa's customers paid Hylsa

less for shipping and brokerage expenses than Hylsa paid its suppliers.

Due to the inherent nature of averages, however, a given customer may

have paid more or less than Hylsa paid on any specific transaction.''

Hylsa's February 6 brief at 13. Hylsa contends that this fluctuation

does not render the information unverifiable.

Hylsa further argues that the Department was not warranted in its

use of partial adverse facts available for the additional freight and

brokerage expenses in the preliminary results. Hylsa asserts that it

provided verifiable information and cooperated to the best of its

ability to comply with our requests for information. In addition, Hylsa

maintains that the Department did not advise Hylsa in its supplemental

questionnaires that its reporting methodology was incorrect. In sum,

Hylsa argues that the reporting of additional freight and brokerage

expenses, in addition to those charged to customers, to compensate for

the difference between the actual and invoiced freight and brokerage

expenses, is proper and should be used.

Petitioners assert that the Department should continue to disallow

the additional inland freight and foreign inland freight expenses

reported by Hylsa for the final results of this review. Petitioners

argue that the methodology Hylsa employed to calculate the additional

freight expenses for both home market and U.S. sales is unacceptable

because it encompasses fees incurred on both subject and nonsubject

merchandise allocated only to sales of subject merchandise that

incurred freight expenses. Additionally, petitioners argue that

additional freight charges result from partial truck load shipments,

noting that ``[t]he shipping company charges by the truckload, but

Hylsa invoices its customers for shipping charges based on a flat per-

ton rate that assumes the truck is full.'' Petitioners' February 13

rebuttal brief at 3. Petitioners contend that Hylsa's methodology

implies that it pays the

[[Page 33047]]

same proportion of additional freight fees for subject and non-subject

merchandise sales delivered by partial truck loads. However,

petitioners note that there is no evidence on the record supporting

this assumption. Petitioners assert that the verification report shows

that an overall calculated percentage does not reasonably represent

additional freight charges for individual transactions.

Petitioners cite to the final results of the previous

administrative review of this case in which the Department disallowed

Hylsa's claimed adjustment for additional freight expenses. See

Circular Welded Non-Alloy Steel Pipe and Tube from Mexico (Final

Results of Pipe from Mexico), 62 FR 37014, 37017 (July 10, 1997)

(Comment 5). Petitioners note that although the methodology Hylsa used

to report the additional expenses in the above-cited review was

different than in this review, it was flawed for similar reasons that

are apparent in the present review; specifically, it resulted in the

improper allocation of freight and brokerage expenses incurred on sales

of non-subject merchandise to sales of subject merchandise.

Additionally, the Department found in the previous review that Hylsa

maintained records that would have allowed it to tie freight expenses

to specific sales but that Hylsa destroyed these records after a short

period of time. In response, the Department stated in the final results

that it intended to investigate this situation in future reviews.

Petitioners argue that Hylsa should have been prepared in this present

review to substantiate its freight claim by maintaining the appropriate

records.

Petitioners argue that the Department should also continue to deny

any adjustment for the additional foreign and U.S. brokerage expenses.

Petitioners contend that because the calculations represent brokerage

expenses incurred on subject and nonsubject merchandise exported to

both U.S. and third-country markets, it is not a reasonable

representation of additional brokerage fees incurred on U.S. sales of

subject merchandise. Petitioners cite to the Memorandum to the File

from Ilissa Kabak, December 4, 1997 (Analysis Memo) at 2 and the Sales

Verification Report, November 20, 1997, at 33.

Department's Position

We disagree with Hylsa's claim that we improperly rejected the

reported additional foreign inland freight, additional inland freight,

additional foreign brokerage fees, and additional U.S. brokerage fees.

We also disagree with Hylsa's claim that we improperly applied adverse

partial facts available.

Hylsa's methodology for allocating additional freight and brokerage

expenses to reported home market and U.S. sales is unacceptable. In its

original and supplemental questionnaire responses, Hylsa never

explicitly indicated that its additional freight calculations included

expenses incurred on non-subject as well as subject merchandise.

Hylsa's February 21, 1997 Section B response at 27 and July 3, 1997

response at 70. Thus, Hylsa's complaint that we did not alert Hylsa

that the reporting methodology was incorrect in supplemental

questionnaires is not compelling. Because Hylsa inadequately explained

its calculation methodology before verification, it was not possible

for us to advise Hylsa that its methodology was incorrect. We agree

with petitioners that, because these additional expenses for sales of

subject and non-subject merchandise are allocated only to sales of

subject merchandise that incurred freight expenses, the calculation

methodology for this expense is unacceptable. As for the additional

foreign and U.S. brokerage expenses, Hylsa again did not explicitly

state in its responses prior to verification that its calculations for

these expenses included fees incurred for both subject and non-subject

merchandise sales to both U.S. and third-country markets. Hylsa's July

3, 1997 Section C response at 88. Therefore, we agree with petitioners

that because these additional expenses for subject and non-subject

merchandise, and for export markets other than the United States, are

allocated only to subject merchandise sales to the U.S. market, the

calculation methodology is distortive and, therefore, unacceptable.

We also disagree with Hylsa that the information regarding the

additional freight and brokerage expenses was verified and should not

be rejected. When comparing the total reported freight and brokerage

expenses with actual costs incurred for the sales traces we analyzed at

verification, we determined that the total freight and brokerage fees,

including the additional expenses reported, did not reasonably

represent the actual costs incurred by Hylsa and, therefore, could not

be considered verified. Accordingly, we adjusted the expenses in our

margin calculation as explained in the Analysis Memo at 2-3.

It is the respondent's burden to provide the Department with

verifiable information in antidumping proceedings. See 19 CFR 353.37

and 353.54. As we noted in the final results of the previous

administrative review, Hylsa maintains computerized records that would

allow it to tie total freight expenses to specific transactions but

destroys these records after a short period of time in the normal

course of business. Therefore, if these records exist in Hylsa's

accounting system, we expect Hylsa's full cooperation in providing us

with verifiable information, which would include these records, to tie

freight charges to specific transactions. Therefore, we believe that

Hylsa did not cooperate to the best of its ability and that the use of

partial adverse facts available is justified. As we explained in our

preliminary results, we have applied partial facts available in

accordance with section 776 of the Act. See Preliminary Results, 62 FR

64564 at 64565.

In sum, the use of partial adverse facts available for additional

freight and foreign and U.S. brokerage charges on U.S. sales and the

denial of additional freight deductions on home market sales is

justified and we continue to follow this approach in these final

results of review.

Comment 4: U.S. Credit Expenses

Petitioners argue that the Department should base U.S. credit

expenses on facts available. Petitioners note that in its questionnaire

response, Hylsa explained that credit expenses were calculated on a

sale-by-sale basis using the actual number of days between the shipment

and payment dates, citing Hylsa's February 21, 1997 Section C

questionnaire response at 31-32. Subsequently, petitioners note that at

verification the Department found that actual payment dates were not

used for Hylsa's credit calculation, noting the findings presented in

the Sales Verification Report at 18-20. Therefore, petitioners argue

that the Department should use the longest reported shipment-to-payment

date interval to calculate U.S. credit expenses.

Hylsa disagrees with petitioners' request for the Department to

apply facts available to U.S. credit expenses. Hylsa contends that the

reported sale-specific payment dates were the dates on which the

payments for U.S. sales were posted in Hylsa's accounting system in the

normal course of business. Hylsa supported its position by reiterating

that when a U.S. customer specifies invoices for which it is paying,

Hylsa's accounting system records the actual date of payment. However,

if the U.S. customer does not specify invoices with its payment, Hylsa

makes a ``reasonable assignment'' of the payment to outstanding

invoices in Hylsa International's customer account with Hylsa, retiring

the oldest outstanding

[[Page 33048]]

balance first. Hylsa's February 13 rebuttal brief at 18. Hylsa's

accounting records reflect a longer outstanding balance than is

actually the case for these sales. Therefore, Hylsa asserts, the

reported payment dates tend to over-state U.S. credit expenses due to

the lag time between the receipt of payment and recording of payment

for these sales in the accounting system, thereby rendering the

application of facts available unnecessary.

Department's Position

We agree with Hylsa that applying facts available for U.S. credit

expenses is unreasonable. While it is correct that Hylsa did not use

the actual payment date for certain sales, we noted from the verified

sales traces that Hylsa reported payment date as the date on which the

payment was recorded in its accounting records in the normal course of

business. We agree with Hylsa that the reported payment dates tend to

over-state U.S. credit expenses due to the lag time between the actual

receipt of payment and its subsequent recording in the accounting

system. Because Hylsa's methodology would tend to over-state, rather

than understate, U.S. credit expenses, the application of facts

available is not justified in this instance.

Comment 5: Inland Freight Expenses for 1996 Co-Export Sales

Hylsa asserts that we improperly disallowed deductions for inland

freight expenses incurred on co-export sales made in 1996. Hylsa

claimed that although Department verifiers noted in the verification

report that no freight charges were incurred on co-export sales made

during 1996, this conclusion is incorrect due to a misunderstanding by

the Department. Hylsa argues that no company official claimed during

verification that the co-export sales made in 1996 did not incur

freight expenses. To support this, Hylsa filed with its February 6 case

brief an affidavit from the company official responsible for presenting

freight information during verification. The affidavit states that this

company official explained to Department verifiers that freight

expenses for 1996 co-export sales were recorded in Hylsa's export

freight expense account. Hylsa also argues that in its submissions,

Hylsa claimed freight expenses for these sales and that during

verification the Department confirmed that the sales in question

incurred freight charges. Therefore, Hylsa contends that the Department

should not disallow the freight expenses reported for 1996 co-export

sales.

Petitioners argue that if the Department uses co-export sales for

comparison for the final results of this administrative review (see

Comment 2 above), we should continue to disallow the deduction of

freight expenses for 1996 co-export sales. Petitioners contend that the

discrepancies the Department discovered between the questionnaire

response and information presented at verification justify denying the

adjustment. Additionally, petitioners argue that the affidavit

submitted by Hylsa with its case brief was untimely filed because the

deadline for submitting factual information to the Department was June

16, 1997, 180 days after the publication date of the notice of

initiation, as outlined in Sec. 353.31(a)(1)(ii) of the Department's

regulations. Petitioners believe that this affidavit should not be

considered for the final results of this review nor retained for the

record, as allowed under Sec. 353.31(a)(3). Petitioners note that even

if the Department retains the affidavit, the document should not negate

the statement, noted by the Department in its sales verification

report, that Hylsa did not incur freight expenses on 1996 co-export

sales.

Department's Position

We disagree with Hylsa that we improperly disallowed deductions for

inland freight expenses incurred on co-export sales made in 1996.

During verification, Hylsa presented the Department with worksheets

regarding freight expenses that were incurred throughout the POR. We

noted that the co-export freight accounts had zero recorded for each

month of 1996. Prior to submission of its case brief, Hylsa never

provided the Department with an explanation that freight charges for

its home market co-export sales were expensed in the export freight

account.

Further, the record does not contain evidence concerning i) how

much freight was incurred on co-export sales in 1996, and ii) where,

and how, such charges were expensed in Hylsa's accounting records.

Although Hylsa submitted an affidavit with its February 6 case brief

(at Appendix 1) from the official in charge of presenting freight

expenses to the Department at verification, by the affiant's own

statement, he ``did not include[ ]'' data on 1996 co-export freight

expenses in the worksheets presented specifically for purposes of

verifying domestic inland freight. Therefore, Hylsa itself made any

such expenses unverifiable by withholding the information that would

substantiate the claimed adjustment. Therefore, we are denying Hylsa's

claimed adjustment for freight expenses incurred on 1996 co-export

sales.

Comment 6: Simultaneous Reporting of Early Payment Discounts and

Reported Interest Revenue

Hylsa argues that the Department improperly disallowed early

payment discounts for observations where Hylsa reported both early

payment discounts and interest revenue collected on late payments.

According to Hylsa, the company's accounting records permitted it to

report only a customer-specific allocated amount of early payment

discounts granted and late payment fees/interest revenues collected

during the POR. Hylsa notes that the Department accepted the customer-

specific allocation methodology for these adjustments. Hylsa argues

against the Department's preliminary decision that the allocation of

both an early payment discount and interest revenue fee to the same

transaction is inconsistent. Hylsa maintains that this allocation

reflects that the customer in question remitted payment early for some

purchases and late for others, not that the customer earned early

payment discounts and paid late-payment charges on the same sales

transaction. Hylsa believes that because this approach accurately

reflects the discounts granted and income Hylsa received from these

customers, the Department should not deny deductions of early payment

discounts for those sales that also have a reported interest revenue.

Petitioners maintain that the Department should continue to

disallow any deduction for early payment discounts for those

transactions with simultaneously reported interest revenue. Petitioners

note it is impossible for any given customer, on average, to pay both

early and late. Therefore, argue petitioners, the Department was

correct in denying the adjustment for these transactions.

Department's Position

Prior to verification, Hylsa neglected to explain that early

payment discounts reported for sales made in 1996 were reported on an

allocated, not actual, basis. See Hylsa's February 21, 1997 response at

19 and July 3, 1997 response at 64. Although specifically asked to

explain how the reported per-unit early payment amount was calculated,

Hylsa never suggested that the reported early payment discounts were

calculated, allocated amounts. In its February 21 response Hylsa stated

that ``[t]he amount of the prompt-payment discount granted for each

sale is reported on a per-metric-ton basis. . .''. We note that

[[Page 33049]]

for other adjustments reported on an allocated basis, Hylsa fully

explained in its questionnaire response that the expenses were indeed

allocated amounts, not transaction-specific amounts (e.g., interest

revenue, inventory carrying costs). See id. at 33, 38. Therefore, prior

to verification, Hylsa did not fully and accurately disclose the

methodology it used to report early payment discounts for sales made in

1996 prior to verification.

At verification Hylsa explained that it implemented a new

accounting system in 1996. Hylsa stated that with this new accounting

system, it lost the ability to tie early payment discounts and the

accompanying credit memos to specific invoices issued throughout 1996.

See Sales Verification Report at 23. Hylsa then explained that, for

early payment discounts granted in 1996, it calculated a customer-

specific percentage of early payment discounts granted on sales of

subject and non-subject merchandise for the calendar year 1996. Hylsa

then applied these customer-specific percentages to reported home-

market sales. See Sales Verification Report at 24 and Verification

Exhibit 17.

In response to comments submitted in the case and rebuttal briefs,

we further analyzed Hylsa's questionnaire responses and verification

exhibits. We have concluded from information on the record that Hylsa

did indeed have the ability to report transaction-specific early

payment discounts. Included in documentation submitted by Hylsa at

Appendix SA-11 are examples of sales invoices issued in 1996 with

accompanying credit memos for early payment discounts. The credit memo

includes the invoice number for which the early payment discount was

granted. Additionally, page 21 of Verification Exhibit 21 shows the

customer account detail for a home market customer. We found that this

customer account subledger reflects debit and credit movement, by sales

invoice, of the account. Additionally, we found that early payment

discounts are recorded, by invoice, in the same customer account

subledger. Therefore, we conclude that Hylsa had the ability to tie

early payment discounts to specific sales invoices, contrary to its

claims at verification. Furthermore, Hylsa specifically stated that it

was unable to report transaction-specific early payment discount

amounts, not that sales-specific reporting would be too burdensome. We

find that Hylsa did not act to the best of its ability in responding to

our requests for information. Hylsa failed to provide accurate and

verifiable information regarding early payment discounts granted in

1996. Therefore, for the final results, we are denying the deduction of

all early payment discounts granted in 1996; we are continuing to allow

deduction of early payment discounts for sales made in 1995, which were

reported on a transaction-specific basis.

Comment 7: Bare and Varnished Pipe

Hylsa argues that the Department improperly instructed it to treat

bare and varnished pipe as having the same surface finish when

assigning control numbers (CONNUMs). In its original questionnaire

responses, Hylsa reported bare and varnished pipe as products with

separate surface finishes. Prior to verification the Department

instructed Hylsa to consider bare and varnished pipe as the same

products when assigning CONNUMs and subsequently treated these products

as identical merchandise for the preliminary margin calculation. Hylsa

asserts that bare and varnished pipe are not identical products because

of material and production process differences, and that bare and

varnished pipe are recognized in the marketplace as discrete products,

with differing prices and applications.

Hylsa cites Gray Portland Cement and Clinker from Mexico, 55 FR

29244, 29247 (July 18, 1990) in which the Department emphasized that

Sec. 771(16)(A) of the Act states a preference for matching home market

merchandise with identical characteristics to those products sold in

the U.S. market. Hylsa argues that bare and varnished pipe are not

physically identical merchandise and, therefore, the Department should

follow statutory preference and match identical products. Because Hylsa

sold varnished pipe in Mexico identical to merchandise sold in the

United States, Hylsa argues, the Department should not match home

market sales of bare pipe to U.S. sales of varnished pipe.

Hylsa further asserts that market behavior demonstrates that bare

and varnished pipe are different products that are not easily

interchangeable. For example, customers who galvanize pipe themselves

prefer bare pipe so that they will not have to remove the varnish prior

to galvanization. Additionally, Hylsa contends that price differentials

between the two products can be significant and cites a proprietary

example from its database of transactions reported for January 1996.

According to Hylsa, bare and varnished pipe go through different

finishing stages during the production process. While varnished pipe is

coated with a lacquer varnish, bare pipe may be pickled, oiled, or left

untreated. Due to these differences, Hylsa argues, end products incur

different costs of production.

Petitioners respond that the Department has always treated bare and

varnished pipe as the same product for model-matching purposes in its

pipe and tube cases. Because varnishing is viewed by the industry

primarily as a packing treatment to inhibit rust, petitioners aver, its

presence does not transform the merchandise into a different product.

Petitioners claim that Hylsa's example of a price differential is

unreliable. They note it is based on a comparison of one January 1996

sale of bare pipe, which was sold to a customer not even included in

Hylsa's list of standard pipe customers, to three, weighted-average

January 1996 sales of varnished pipe. Furthermore, argue petitioners,

the inclusion of co-export sales and unreliable adjustments reported in

the sales database cause substantial price differences between

identical products sold within the same month. According to

petitioners, these price differences operate independently of the

pipe's surface finish. Lastly, petitioners state that one selective

example of a price differential between bare and varnished pipe does

not rise to the level of a prima facie demonstration of price

differentials attributable to differing surface finish.

Department's Position

We agree with petitioners. Pickling, oiling and varnishing are

packing treatments used to inhibit rust development on finished pipe

products. The application of these treatments does not transform the

finished merchandise into a different product for purposes of

merchandise comparison under Sec. 771(16)(A) and (B) of the Act. We are

unable to determine from the record the significance of Hylsa's example

of the price differential between bare and varnished pipe because one

example of a price differential is not representative of a trend of

price differentials. We have treated bare and varnished pipe as

identical merchandise in previous reviews of this and other pipe cases

and we continue to do so for the final results of this review.

Comment 8: Value-Added Tax Included in the Home Market Credit Expense

Calculation

The Department explained its decision to exclude value-added taxes

(IVA) from the home market credit expense calculation in the previous

review of this case. See Final Results of Pipe from Mexico at 37016. In

this review we determined that because the IVA is revenue for the

government and not for Hylsa, it should not be included

[[Page 33050]]

in the credit calculation. Because of the Department's decision in the

previous review, Hylsa reported home market credit expenses for this

review exclusive of IVA. Hylsa claims, however, that we should include

IVA when calculating home market credit expenses for these final

results, as we accepted this methodology in the less-than-fair-value

(LTFV) investigation of this case.

Hylsa claims that it allows its customers to delay payment of the

entire invoice amount of a sale, which includes the IVA. Therefore, the

opportunity cost to Hylsa of extending credit should be based on the

entire amount of the invoice. Hylsa cites to Certain Fresh Cut Flowers

from Mexico, 56 FR 1794,1798 (January 17, 1991) and Shop Towels from

Bangladesh, 57 FR 3996, 4001 (February 3, 1992) as cases where the

Department's approach to credit expenses supports Hylsa's argument.

Hylsa argues that the fact that IVA is a revenue for the government,

not the company, is irrelevant because the customer carries credit

based on the entire amount of the invoice, and it is based on this

amount that Hylsa incurs the opportunity cost of capital.

Petitioners object to Hylsa's suggestion that the Department

include IVA in the home market credit expense calculation. They note

that Hylsa is presenting the same argument that the Department rejected

in the previous administrative review in Final Results of Pipe from

Mexico at 37016. Petitioners argue that although the opportunity cost

of the money used to pay taxes may be as genuine as other opportunity

costs, they represent an incident of taxation, inclusion of which does

not serve any purpose under the antidumping statute.

Department's Position

We disagree with Hylsa that IVA should be included in the home

market credit expense calculation because the IVA is not a revenue for

Hylsa but for the government. As the Department explained in Certain

Cut-to-Length Steel Plate from Brazil, 62 FR 18486 at 18488 (April 15,

1997), it is not our practice to include VAT payments in credit expense

calculations. In that case we stated that ``[w]hile there may be a

potential opportunity cost associated with the respondents' prepayment

of the VAT, this fact alone is not a sufficient basis for the

Department to make an adjustment in price-to-price comparisons.'' Id.

at 1848. The Department continued to explain that ``to allow the type

of credit adjustment suggested by the respondents would imply that in

the future the Department would be faced with the virtually impossible

task of trying to determine the potential opportunity cost or gain of

every charge and expense reported in the respondents' home market and

U.S. databases.'' Id. at 18488. Furthermore, no statute or regulation

requires us to include IVA in the home market credit expense

calculation. For these final results, we are following our established

practice of excluding the IVA from home market credit expense

calculations in the final results of this review.

Comment 9: General and Administrative Expenses

Hylsa objects to the Department's recalculation of Hylsa's general

and administrative expenses (G&A) in the preliminary results of this

administrative review and believes that the Department should use

Hylsa's reported G&A rates. See Analysis Memo at 9, Appendix 2. Hylsa

argues that in other cases the Department has accepted its methodology

which involves a ``layered calculation'' in which ``corporate-wide G&A

expenses are allocated over corporate-wide cost of goods sold, and

divisional G&A expenses are allocated over divisional costs of goods

sold.'' Hylsa cites Flat Panel Displays from Japan, 56 FR 32376, 32398-

99 (July 16, 1991) as support for its reporting methodology. Hylsa

believes that its reported ``layered'' G&A expenses are consistent with

the methodology the Department has routinely accepted. Further, Hylsa

claims the Department's methodology in the instant review is illogical

because Hylsa's total G&A expenses include costs for divisions that are

not related to the production or sale of subject merchandise. Hylsa

argues in the alternative that if the Department does not accept its

methodology for reporting G&A expenses, the information the Department

would need to recalculate G&A on a company-wide basis is on the record.

Therefore, argues Hylsa, the Department should not apply adverse facts

available as requested by the petitioners.

Petitioners note that the Department decided in the previous

administrative review of this case to use company-wide G&A rates for

the G&A calculation in Final Results of Pipe from Mexico at 37022.

Petitioners assert that although the Department has determined that G&A

must be reported on a company-wide basis, Hylsa has deliberately

refused to comply with the Department's request in this review. In

light of Hylsa's deliberate refusal in this regard, petitioners assert

that the Department should apply adverse facts available using Hylsa's,

or any related entity's, highest G&A rate on the record.

Department's Position

We disagree with both Hylsa and petitioners, in part. In the

original questionnaire issued to Hylsa on December 23, 1996, page D-16

states that ``G&A expenses are those period expenses which relate to

the activities of the company as a whole rather than to the production

process alone * * * [y]ou should also include in your reported G&A

expenses an amount for administrative services performed on your

company's behalf by its parent company or other affiliated party.'' It

is our practice to use company-wide G&A expenses when calculating cost

of production and constructed value. See, e.g., Final Determination of

Sales at Less Than Fair Value: Furfuryl Alcohol From South Africa, 60

FR 22550, 22556 (1995).

However, we disagree with petitioners' contention that we should

use adverse facts available for G&A expenses. We obtained the

information to calculate acceptable G&A rates at verification.

Therefore, it is unnecessary and unreasonable to apply adverse facts

available given the circumstances in this review. For these final

results of review we have continued to use the G&A rates that we used

for the preliminary results.

Comment 10: Additional Depreciation

Petitioners claim that in its margin calculation program, the

Department neglected to include the additional depreciation due to

revaluation of fixed assets for the Flat Products Division. According

to petitioners, this information was discovered at verification and is

on the record.

Hylsa argues that these depreciation costs were already included in

the preliminary results margin calculation program, citing to the

Analysis Memo at 8.

Department's Position

We agree with Hylsa that these costs were included in the

preliminary results margin calculation program. See Analysis Memo at 8

and Appendix 1. Therefore, we have continued to include these

additional depreciation costs for these final results.

Comment 11: Classification of Aluminum, Zinc, and Zinc Chloride

Petitioners assert that the cost verification report implies that

aluminum, zinc, and zinc chloride have been inappropriately classified

as overhead and not direct materials. See Cost Verification Report at

27. Petitioners note that because these are

[[Page 33051]]

material inputs, they should be reclassified as direct materials costs.

Hylsa asserts that the materials in question were correctly

included in the reported direct material costs and cites to the Cost

Verification Report at 22.

Department's Position

We agree with Hylsa. After further analysis we determined that

aluminum, zinc, and zinc chloride were properly classified as direct

materials for the purposes of this review. Therefore, no adjustment to

Hylsa's reported material costs is needed for the final results.

Comment 12: Indirect Selling Expenses in the Arm's-Length Test

Petitioners note that the computer program used to determine

whether Hylsa's home market sales to affiliated parties were at arm's

length for the preliminary results of this administrative review

unintentionally neglected to subtract indirect selling expenses from

the gross unit prices prior to testing the affiliated-party prices.

Department's Position

It is the Department's practice not to adjust for indirect selling

expenses for home market sales in the arm's-length test and margin

calculation programs when the reviewed U.S. transactions are EP sales.

See Notice of Final Results of Antidumping Duty Administrative Review:

Certain Welded Carbon Steel Pipe and Tube from Turkey, 61 FR 69067

(December 31, 1996). Therefore, we are not adjusting our methodology

for the final results of this administrative review.

Comment 13: Reported Customer Codes

Petitioners argue that Hylsa's reported customer codes are reported

in a non-numeric and inconsistent format. Petitioners assert that this

inconsistency may result in one customer being treated as two separate

entities in the arm's-length test if it has two customer codes. Because

the arm's-length program does not include special instructions to

correct for this error, reason petitioners, the Department should

insert the proper language.

Department's Position

We noted the inconsistent format in which Hylsa reported customer

codes for the preliminary results of this review. We inserted special

computer language to correct for the inconsistencies that the

petitioners noted for affiliated-customer codes in the arm's-length

test for the preliminary results. Since the arm's-length test compares

the weighted-average prices of affiliated party sales, by customer code

and CONNUM, to the weight-averaged prices of unaffiliated party sales

by CONNUM only, there is no need to insert code to ``correct'' for the

home market customer codes. Therefore, for these final results, we have

not inserted additional programming language related to this issue.

Final Results of the Review

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

weighted-average dumping margin exists:

Circular Welded Non-Alloy Steel Pipes and Tubes

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

Weighted-

Producer/manufacturer/exporter average margin

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

Hylsa................................................... 8.31

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

The Department will determine, and the U.S. Customs Service shall

assess, antidumping duties on all appropriate entries. Because Hylsa

was the only importer during the POR, we have calculated the importer-

specific per-unit duty assessment rate for the merchandise imported by

Hylsa by dividing the total amount of antidumping duties calculated

during the POR by the total quantity entered during the POR. 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 circular welded non-alloy steel pipe from Mexico entered,

or withdrawn from warehouse, for consumption on or after the

publication date, as provided for by Sec. 751(a)(1) of the Act: (1) The

cash deposit rate for the reviewed company will be the rate stated

above; (2) if the exporter is not a firm covered in this review, a

prior review, or the original 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; (3) for

previously reviewed or investigated companies not listed above, the

cash deposit rate will continue to be the company-specific rate

published for the most recent period; (4) the cash deposit rate for all

other manufacturers or exporters will continue to be the ``all others''

rate of 32.62 percent.\1\ See Notice of Antidumping Orders: Certain

Circular Welded Non-Alloy Steel Pipe from Brazil, the Republic of Korea

(Korea), Mexico, and Venezuela, and Amendment to Final Determination of

Sales at Less Than Fair Value: Certain Circular Welded Non-Alloy Steel

Pipe from Korea, 57 FR 49453 (November 2, 1992). These deposit

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

the final results of the next administrative review.

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\1\ The preliminary results of this administrative review

incorrectly stated that the ``all others'' rate was 36.62 percent.

Preliminary Results at 62 FR 64568.

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

This notice serves as a final reminder to importers of their

responsibility under 19 C.F.R. 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 19 C.F.R. Sec. 353.34(d)(1) of the Department's

regulations. Timely 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 determination is issued and published in accordance with

sections 751(a)(1) and 777(i)(1) of the Act.

Dated: June 8, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-16108 Filed 6-16-98; 8:45 am]

BILLING CODE 3510-DS-P