Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Spain

DEPARTMENT OF COMMERCE

International Trade Administration

[A-469-807]

Notice of Final Determination of Sales at Less Than Fair Value:

Stainless Steel Wire Rod From Spain

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT: Howard Smith or Irene Darzenta, Import

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

Commerce, 14th Street and Constitution Avenue, NW, Washington, DC

20230; telephone: (202) 482-5193 or (202) 482-6320, respectively.

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 citations to the Department's regulations are

to the regulations at 19 CFR part 351, 62 FR 27296 (May 19, 1997).

Final Determination

We determine that stainless steel wire rod (SSWR) from Spain is

being sold in the United States at less than fair value (LTFV), as

provided in section 735 of the Act. The estimated margins are shown in

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

Case History

The preliminary determination in this investigation was issued on

February 25, 1998. See Notice of Preliminary Determination of Sales at

Less Than Fair Value and Postponement of Final Determination: Stainless

Steel Wire Rod from Spain, 63 FR 10849 (March 5, 1998) (Notice of

Preliminary Determination). Since the preliminary determination, the

following events have occurred:

[[Page 40392]]

On March 6, 1998 the respondent in this investigation, Roldan, S.A.

(Roldan), alleged that the Department of Commerce (the Department) made

a ministerial error in calculating the margin for the preliminary

determination. While we agreed with Roldan's allegation, in accordance

with sections 351.224(e) and 351.224(g) of the Department's

regulations, we did not amend our preliminary determination because the

ministerial error was not significant. However, we have corrected this

error in the final determination. For further discussion of the

ministerial error, see the Memorandum from Howard Smith to Holly Kuga

dated March 6, 1998.

In March 1998, we issued supplemental questionnaires to Roldan and

received responses to those questionnaires. Roldan submitted corrected

sales and cost databases in April 1998.

We verified Roldan's questionnaire responses in April and May 1998.

At verification, Roldan identified various errors in its sales and cost

databases, including incorrect payment dates for a significant number

of U.S. sales and incorrect production quantities for all models listed

in the cost databases. We requested that Roldan correct the erroneous

U.S. payment dates and production quantities, and submit revised U.S.

sales and cost databases. In response to our request, Roldan submitted

revised cost data on May 8, 1998, and revised U.S. sales data on June

12, 1998. The revised U.S. sales database included updated U.S. credit

expenses based on the corrected payment dates.

The petitioners (i.e., AL Tech Specialty Steel Corp., Carpenter

Technology Corp., Republic Engineered Steels, Talley Metals Technology,

Inc., and the United Steel Workers of America, AFL-CIO/CLC) and Roldan

submitted case briefs on June 11, 1998, and rebuttal briefs on June 18,

1998. At the request of all parties, the public hearing scheduled for

June 19, 1998, was canceled.

Scope of Investigation

For purposes of this investigation, SSWR comprises products that

are hot-rolled or hot-rolled annealed and/or pickled and/or descaled

rounds, squares, octagons, hexagons or other shapes, in coils, that may

also be coated with a lubricant containing copper, lime or oxalate.

SSWR is made of alloy steels containing, by weight, 1.2 percent or less

of carbon and 10.5 percent or more of chromium, with or without other

elements. These products are manufactured only by hot-rolling or hot-

rolling, annealing, and/or pickling and/or descaling, are normally sold

in coiled form, and are of solid cross-section. The majority of SSWR

sold in the United States is round in cross-sectional shape, annealed

and pickled, and later cold-finished into stainless steel wire or

small-diameter bar.

The most common size for such products is 5.5 millimeters or 0.217

inches in diameter, which represents the smallest size that normally is

produced on a rolling mill and is the size that most wire-drawing

machines are set up to draw. The range of SSWR sizes normally sold in

the United States is between 0.20 inches and 1.312 inches diameter. Two

stainless steel grades, SF20T and K-M35FL, are excluded from the scope

of the investigation. The chemical makeup for the excluded grades is as

follows:

SF20T

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

Carbon 0.05 max Chromium 19.00/21.00

Manganese 2.00 max Molybdenum 1.50/2.50

Phosphorous 0.05 max Lead added (0.10/0.30)

Sulfur 0.15 max Tellurium added (0.03 min)

Silicon 1.00 max

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

K-M35FL

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

Carbon 0.015 max Nickel 0.30 max

Silicon 0.70/1.00 Chromium 12.50/14.00

Manganese 0.40 max Lead 0.10/0.30

Phosphorous 0.04 max Aluminum 0.20/0.35

Sulfur 0.03 max

The products under investigation are currently classifiable under

subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and

7221.00.0075 of the Harmonized Tariff Schedule of the United States

(HTSUS). Although the HTSUS subheadings are provided for convenience

and customs purposes, the written description of the scope of this

investigation is dispositive.

Period of Investigation

The period of investigation (POI) is July 1, 1996, through June 30,

1997.

Fair Value Comparisons

To determine whether sales of SSWR from Spain to the United States

were made at less than fair value, we compared the Constructed Export

Price (CEP) to the Normal Value (NV) as defined in sections 772(b) and

773(a) of the Act, respectively. We calculated CEP and NV following the

general methodologies described in the preliminary determination.

However, as noted in the ``Constructed Export Price'' and ``Normal

Value'' sections below, we adjusted certain reported data based on our

findings at verification and our positions discussed in the

``Interested Party Comments'' section of this notice. For further

discussion, see the Calculation Memorandum from Howard Smith to Irene

Darzenta dated July 20, 1998 (Calculation Memorandum).

Product Comparisons

We performed product comparisons based on the same characteristics

and in the same general manner as that outlined in the preliminary

determination. See Comment 3 in the ``Interested Party Comments''

section of this notice.

As in the preliminary determination, in instances where Roldan has

reported a non-AISI grade (or an internal grade code) for a product

that falls within an AISI category, we have used the actual AISI grade

in our analysis rather than the non-AISI grade reported by Roldan. In

instances where the chemical content ranges of a reported non-AISI

grade (or an internal grade code) are outside the parameters of an AISI

grade, we have used the non-AISI (or internal) grade code reported by

Roldan in our analysis. However, in instances in which an internal

grade matches all the specified

[[Page 40393]]

chemical content tolerance ranges of an AISI grade, but the internal

grade also contains amounts of chemicals that are not otherwise

specified as being included in the standard AISI designation, we have

used the corresponding AISI grade rather than the internal grade.

Use of Constructed Value

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.)

(Cemex). In that case, based on the pre-URAA version of the Act, 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.'' This issue

was not raised by any party in this proceeding. However, the URAA

amended the definition of sales outside the ``ordinary course of

trade'' to include sales below cost. See Section 771(15) of the Act.

Consequently, the Department has reconsidered its practice in

accordance with the Cemex 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 section

771(16) of the Act, we considered all products sold in the home market,

as described in the ``Scope of Investigation'' 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.

Level of Trade

In the preliminary determination we found that Roldan's home market

sales were at a different and more advanced level of trade than its

U.S. sales; however, the information on the record did not permit us to

quantify a level of trade (LOT) adjustment based on a pattern of

consistent price differences and, thus, we were unable to grant a LOT

adjustment. Because we reclassified Roldan's U.S. sales as CEP

transactions we granted Roldan a CEP offset in accordance with section

773(a)(7)(B) of the Act. Our findings at verification continue to

support our preliminary level of trade analysis. Moreover, we have

continued to treat Roldan's U.S. sales as CEP transactions (see Comment

1 in the ``Interested Party Comments'' section of this notice).

Therefore, in the final determination, we have also granted Roldan a

CEP offset.

Facts Available

At verification, we found that Roldan failed to report certain U.S.

sales that were made by its affiliated U.S. sales agent during the POI.

In accordance with section 776 (b) of the Act, we have used adverse

facts available with regard to these sales in reaching our final

determination. For further discussion, see Comment 2 in the

``Interested Party Comments'' section of this notice.

Constructed Export Price

In the preliminary determination, we treated Roldan U.S. sales as

CEP transactions even though Roldan reported all of its U.S. sales as

export price (EP) transactions. In this final determination, we have

continued to treat Roldan's U.S. sales as CEP transactions and, thus,

we followed the methodology described in the preliminary determination

to adjust CEP in accordance with section 772(b) of the Act. However, we

revised the following U.S. sales data based on our verification

findings: (1) the gross unit price for six observations; (2) the

quantity for one observation; (3) the shipment date and credit expense

for one observation; (4) the discount for one observation; (5) the U.S.

inland freight for one observation; and (6) the indirect selling

expenses incurred in both the home and U.S. markets for all U.S.

observations (see the Sales Verification Report from Howard Smith to

Holly Kuga, dated June 4, 1998, at pages 2, 3, 18, 24, 29 and 36 (Sales

Verification Report)).

Normal Value

As noted in the preliminary determination, we determined that

Roldan's sales in the home market serve as a viable basis for

calculating NV. In performing the price-to-price comparisons described

in the ``Fair Value Comparisons'' section of this notice, we followed

the methodology described in the preliminary determination in adjusting

NV in accordance with sections 773(a)(6) and 773(a)(7) of the Act.

However, we revised the following home market sales data based on our

verification findings: (1) the gross unit price for one observation;

(2) the further processing code for one observation; and (3) the

indirect selling expenses incurred in the home market for all home

market observations (see the Sales Verification Report at pages 13, 14,

and 21).

In addition, consistent with our finding in the preliminary

determination, we have excluded from our analysis Roldan's home market

sales to an affiliated consumer of SSWR because we determined that

those sales were not made at arm's-length prices and, thus, were

outside the ordinary course of trade. Furthermore, we found that for

certain models of SSWR, more than 20 percent of Roldan's home market

sales made within an extended period of time were sold at prices that

were less than the cost of production (COP), and that these prices did

not provide for the recovery of costs within a reasonable period of

time. Thus, in accordance with section 773 (b)(1) of the Act, we

disregarded the below-cost sales and used the remaining above cost

sales as the basis for determining NV. For further discussion of the

arm's-length and sales-below-cost test used in our analysis, see Notice

of Preliminary Determination, at pages 13-16.

Calculation of COP

We calculated the weighted-average COP, which was used in our

sales-below-cost test, in accordance with section 773(b)(3) of the Act.

Specifically, we calculated the weighted-average COP for each model by

adding together Roldan's cost of materials and fabrication for the

foreign like product, plus amounts for home market selling, general and

administrative expenses and packing costs. We have relied on Roldan's

reported COP except in the following specific instances where the

reported amount was not appropriately quantified or valued:

(1) We disallowed Roldan's claimed startup adjustment (see Comment

6 in the ``Interested Party Comments'' section of this notice and the

Concurrence Memorandum from Peter Scholl and Howard Smith to Holly

Kuga, dated July 20, 1998 (Concurrence Memorandum)).

(2) We increased reported COP by the amount of the inventory write-

down that Roldan excluded from COP (see

[[Page 40394]]

Comment 7 in the ``Interested Party Comments'' section of this notice).

(3) We increased reported COP by the amount of the productive

assets that were written off during the POI (see Comment 8 in the

``Interested Party Comments'' section of this notice).

For further discussion of the above adjustments, see the

Calculation Memorandum.

Currency Conversion

As in the preliminary determination, we made currency conversions

into U.S. dollars based on the exchange rates in effect on the dates of

the U.S. sales as certified by the Federal Reserve Bank in accordance

with Section 773A of the Act.

Interested Party Comments

Comment 1: Classifying U.S. Sales as EP or CEP Sales

In the preliminary determination, the Department reclassified all

of Roldan's U.S. sales as CEP sales because it found that Roldan's

affiliated U.S. sales entity, Acerinox, U.S.A., performed a variety of

significant selling functions in connection with Roldan's U.S. sales,

including negotiating sales terms with U.S. customers, reporting to

Roldan concerning market conditions, and identifying U.S. customers.

Roldan argues its U.S. sales should be classified as EP sales in the

final determination because the Department verified that Acerinox,

U.S.A. did not perform the selling functions attributed to it in the

preliminary determination but merely communicated Roldan's sales terms

to U.S. customers, provided Roldan with information about market

events, such as potential antidumping complaints, and coordinated with

U.S. freight forwarders to move SSWR through U.S. customs and to

transport it to the U.S. customer. Roldan maintains these services are

ancillary to its U.S. sales and demonstrate that Acerinox, U.S.A. is

simply a ``processor of sales-related documentation'' and a

``communication link'' with the U.S. customer. Furthermore, Roldan

claims Acerinox, U.S.A. did not provide some of the services which the

Department considers to be indicative of a U.S. affiliate's substantial

involvement in the sales process. Specifically, Roldan notes that

Acerinox, U.S.A. did not evaluate U.S. customers' credit, negotiate

sales terms without Roldan's approval and, except for two unusual

sales, take title to the merchandise and invoice the U.S. customer.

Roldan, citing Certain Cut-to-Length Carbon Steel Plate From Germany:

Final Results of Antidumping Duty Administrative Review, 62 FR 18,390

(April 15, 1997), and Extruded Rubber Thread From Malaysia: Final

Results of Antidumping Duty Administrative Review, 63 FR 12,752, 12,759

(March 16, 1998), notes that the Department has classified U.S. sales

as CEP transactions where the U.S. affiliate performed the

aforementioned sales activities. Moreover, Roldan claims that in other

antidumping cases the Department found U.S. affiliates that performed

more services than Acerinox, U.S.A. performed to be ``processors of

sales-related documentation'' and ``communication links.'' In support

of this claim, Roldan cites Certain Cold-Rolled and Corrosion-Resistant

Carbon Steel Flat Products From Korea: Final Results of Antidumping

Duty Administrative Reviews, 62 FR 18,404 (April 15, 1997), where,

according to Roldan, the U.S. affiliate paid antidumping and

countervailing duty cash deposits, extended credit to U.S. customers,

processed warranty claims, and developed projects. Finally, Roldan

notes that in the Notice of Final Determination of Sales at Less Than

Fair Value: Stainless Steel Bar From Spain, 59 FR 66,931, 66,932

(December 28, 1994) (Stainless Steel Bar), the Department determined

that Roldan's U.S. sales were properly classified as purchase price

sales (now called EP sales) because ``the subject merchandise was sold

to unrelated purchasers in the United States before importation and

exporter sales price methodology (currently CEP methodology) was not

otherwise indicated.'' According to Roldan, EP treatment, which should

be determined using the same criteria as that applicable to the former

purchase price treatment, is appropriate in the instant investigation

because its U.S. sales process has not changed.

Furthermore, Roldan objects to the methodology the Department

currently employs to determine whether an affiliated U.S. sales

entity's activities are limited to that of a ``processor of sales-

related documentation'' and a ``communication link.'' According to

Roldan, the Department has unlawfully changed its long-standing

analysis of this issue and now finds that unless the record

demonstrates that the U.S. affiliate's involvement in making the sale

is incidental or ancillary, the U.S. affiliate is more than a

``processor of sales-related documentation'' and a ``communication

link'' and, thus, CEP treatment is appropriate. In support of this

assertion, Roldan cites Certain Cold-Rolled and Corrosion-Resistant

Carbon Steel Flat Products From Korea: Final Results of Antidumping

Duty Administrative Reviews, 63 FR 13170 (March 18, 1998) (Steel From

Korea), in which, Roldan argues, the Department found the U.S.

affiliates' role to be more than ancillary to the sales process and

reclassified respondents' U.S. sales as CEP sales. Roldan argues that

the Department's current analysis of this issue will make it impossible

for a foreign manufacturer with a U.S. affiliate to classify its U.S.

sales as EP sales because today's business practices often do not

provide evidence of the extent of an affiliate's involvement in making

a sale (e.g., communication between foreign manufacturers and their

U.S. affiliates is often over the telephone). Nevertheless, using the

``new'' analysis that the Department applied in Steel From Korea,

Roldan maintains its U.S. sales remain EP sales. According to Roldan,

the record in the instant investigation shows that Acerinox, U.S.A.

performed fewer and less significant functions than those performed by

the U.S. affiliates of the respondents whose sales were reclassified as

CEP sales in Steel From Korea. Roldan also maintains its U.S. sales

should be classified as EP sales under the Department's ``new''

analysis because Acerinox, U.S.A. incurred less indirect selling

expenses than Roldan incurred in selling the subject merchandise.

Petitioners claim that the record in this investigation shows that

Acerinox, U.S.A. is involved in every aspect of the sales process for

Roldan's sales of SSWR in the United States and, thus, the Department

correctly reclassified Roldan's U.S. sales as CEP sales for the

preliminary determination and should continue to do so in the final

determination. According to petitioners, the Department verified that

Acerinox, U.S.A. (1) is contacted by U.S. customers inquiring about

purchasing Roldan's SSWR; (2) contacted U.S. customers that it has not

dealt with for some time; (3) accepted orders of less than 60 metric

tons from U.S. customers without obtaining Roldan's approval of the

sales terms; (4) handled returns of U.S. sales of Roldan's SSWR; and

(5) inventoried Roldan's SSWR in the United States. Petitioners also

note that Roldan identified Acerinox, U.S.A. as the selling agent for

all of its U.S. sales of SSWR in its response to the Department's

antidumping questionnaire. Regarding Acerinox, U.S.A.'s role in those

sales, petitioners maintain that Roldan reported that Acerinox, U.S.A.

contacts U.S. customers, accepts the customers' orders, collects the

customers' payments, pays U.S. import duties on Roldan's SSWR and

arranges for the

[[Page 40395]]

transportation of SSWR from the port of entry to the U.S. customer.

Furthermore, petitioners assert there is no evidence on the record

supporting Roldan's claim that it approved the terms of its U.S. sales

of SSWR or indicating that Roldan had any direct dealings with

unaffiliated U.S. purchasers of its SSWR. Petitioners claim that the

sales in question are CEP sales because Acerinox, U.S.A. handled all of

the dealings with U.S. customers and in doing so, it acted as more than

a ``processor of sales related documentation'' or a ``communications

link'' (see Steel From Korea at page 13183).

Additionally, petitioners argue that if the Department continues to

treat Roldan's U.S. sales as CEP sales, it must reduce U.S. price by

the amount of the sales commission Roldan paid Acerinox, U.S.A. because

(1) this amount exceeds the selling expenses incurred by Acerinox,

U.S.A.; and (2) as Roldan has admitted on the record of this

investigation, the commission payments are at arm's-length. Petitioners

note that the Department's practice of not making any adjustment for

commission expense if it is unable to determine that the commission was

paid at arm's-length does not apply to the instant investigation.

DOC Position: We agree with petitioners, in part, and have

continued to treat Roldan's U.S. sales as CEP sales in the final

determination.

Section 772(b) of the Act defines CEP as ``the price at which the

subject merchandise is first sold (or agreed to be sold) in the United

States before or after the date of importation by or for the account of

the producer or exporter of such merchandise or by a seller affiliated

with the producer or exporter, to a purchaser not affiliated with the

producer or exporter, as adjusted'' (emphasis added). Section 772(a) of

the Act defines EP as ``the price at which the subject merchandise is

first sold (or agreed to be sold) before the date of importation by the

producer or exporter of the subject merchandise outside of the United

States to an unaffiliated purchaser in the United States, or to an

unaffiliated purchaser for exportation to the United States, as

adjusted.'' When sales are made prior to importation through an

affiliated or unaffiliated U.S. sales agent to an unaffiliated customer

in the United States, our practice is to examine several criteria in

order to determine whether the sales are EP sales. Those criteria are:

(1) whether the merchandise was shipped directly from the manufacturer

to the unaffiliated U.S. customer; (2) whether this was the customary

commercial channel between the parties involved; and (3) whether the

function of the U.S. selling agent was limited to that of a ``processor

of sales-related documentation'' and a ``communications link'' with the

unaffiliated U.S. buyer. Where all three criteria are met, indicating

that the activities of the U.S. selling agent are ancillary to the

sale, the Department has regarded the routine selling functions of the

exporter as merely having been relocated geographically from the

country of exportation to the United States where the sales agent

performs them, and has determined the sales to be EP sales. Where one

or more of these conditions is not met, indicating that the U.S. sales

agent is substantially involved in the U.S. sales process, the

Department has classified the sales in question as CEP sales. See,

e.g., Steel From Korea, and Viscose Rayon Staple Fiber from Finland:

Final Results of Antidumping Duty Administrative Review, 63 FR 32820

(June 16, 1998).

In the instant investigation, the sales in question were made prior

to importation through Roldan's affiliated U.S. sales agent, Acerinox,

U.S.A., to unaffiliated customers in the United States. The fact that

the subject merchandise was shipped directly from Roldan to the

unaffiliated U.S. customers and that this was the customary commercial

channel between these parties is not disputed. The issue is whether

Acerinox, U.S.A.'s role in the sales process was incidental or

ancillary to the sale (i.e., limited to that of a ``processor of sales-

related documentation'' and a ``communications link'').

We have determined that the extent and nature of Acerinox, U.S.A.'s

involvement in selling Roldan's SSWR indicates that the subject

merchandise sales occurred in the United States and, thus, are CEP

transactions. The record shows that during the POI, the sales process

for Roldan's U.S. sales of SSWR typically included the following

events:1

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\1\ See the Sales Verification Report at page 33.

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(1) On occasion, Acerinox, U.S.A. will contact U.S. customers that

it has not dealt with for some time. Otherwise, U.S. customers contact

Acerinox, U.S.A. to inquire about purchasing Roldan's SSWR. Acerinox,

U.S.A. does not actively market Roldan's SSWR in the United States

because Roldan's product is well-known among the relatively small

number of customers in the marketplace.

(2) Acerinox, U.S.A. may accept the customer's order, if it is a

small order, without contacting Acerinox, S.A.2 in Spain to

determine if Roldan will accept the sales terms. Acerinox, U.S.A.

accepts small orders based on its past dealings with Roldan, its

knowledge of Roldan's requirements, and the parameters Roldan sets

regarding sales terms. For inquiries regarding significant purchases

(generally more than three containers or 60 metric tons), Acerinox,

U.S.A. will contact Acerinox, S.A. to determine the sales terms that

Roldan will accept. Roldan will then specify an acceptable price, and

any acceptable deviations from this price depending on the quantity the

customer requires, the price the customer desires, and/or the

historical relationship with the customer making the inquiry. In

setting the price, Acerinox, U.S.A. may provide its opinion as to

whether Roldan can obtain a more favorable price from the customer.

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\2\ Acerinox, S.A., the parent company of Roldan and Acerinox,

U.S.A., provides a number of services in connection with Roldan's

U.S. sales of SSWR including serving as a communication link between

Roldan and Acerinox, U.S.A. (e.g., directs customers' technical

questions to the appropriate Roldan personnel). Roldan pays

Acerinox, S.A. a fee for these services.

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(3) After an order is accepted, Acerinox, U.S.A. transmits the

order through Acerinox, S.A. to Roldan.

(4) After Roldan has produced the order, Acerinox, S.A. arranges

transportation of the subject merchandise to the United States.

(5) Acerinox, U.S.A. coordinates with U.S. freight forwarders to

move the subject merchandise through U.S. Customs and to transport it

to U.S. customers.

(6) Acerinox, S.A. invoices U.S. customers in Roldan's name.

(7) U.S. customers remit payment to Acerinox, U.S.A., which

subsequently transfers the payment to Roldan by wire.

Thus, the record shows that Acerinox, U.S.A. was involved in every

aspect of the sales process except for arranging for shipment of SSWR

to the United States and invoicing U.S. customers. Moreover, Acerinox,

U.S.A.'s involvement in the sales process was extensive when compared

to that of Roldan or Acerinox, S.A. Accordingly, the preponderance of

selling functions incurred to sell Roldan's SSWR to U.S. customers

occurred in the United States.

Furthermore, Acerinox, U.S.A.'s role in negotiating the terms of

certain U.S. sales is not indicative of the ancillary role normally

played by a ``processor of sales-related documentation'' and a

``communications link.'' Specifically, Acerinox, U.S.A.'s authority to

negotiate and accept sales terms for small orders of SSWR without

Roldan's specific

[[Page 40396]]

approval of the orders, as well as its authority to initiate contact

with U.S. customers that it has not dealt with for some time,

contradicts Roldan's claim that Acerinox, U.S.A. was simply a

``processor of sales-related documentation'' and a ``communications

link.'' In addition, there is no documentary evidence supporting

Roldan's claim that it approved the sales terms for all large orders

(e.g., evidence of price acceptance or rejection by Roldan); nor is

there any evidence of direct contacts or agreements between Roldan and

the ultimate U.S. purchasers of the subject merchandise. The absence of

such evidence and Acerinox, U.S.A.'s admitted role in negotiating the

terms of small orders, calls into question Roldan's claim that

Acerinox, U.S.A. was simply a ``communication link'' in the sales

negotiation process. Moreover, Acerinox, U.S.A.'s extensive involvement

in the U.S. sales process, its authority to negotiate and accept sales

terms in certain situations and the fact that it initiated contact with

U.S. customers on occasion, distinguishes the instant case from the

cases Roldan cited to support EP treatment of its sales. Therefore, we

have determined that Roldan's U.S. sales were made in the United States

and, in accordance Section 772(b) of the Act, we have classified these

sales as CEP sales for the final determination.

However, we disagree with petitioners' argument that the Department

must reduce Roldan's CEP sales by the amount of the sales commission

Roldan paid Acerinox, U.S.A. in connection with its U.S. sales of SSWR.

Section 772(d) of the Act provides that CEP shall be reduced by selling

expenses ``incurred by or for the account of the producer or exporter,

or the affiliated seller in the United States, in selling the subject

merchandise.'' Section 351.402(e) of the Departments regulations states

that ``where a person affiliated with the exporter or producer incurs

any of the expenses deducted from constructed export price under

section 772(d) of the Act and is reimbursed for such expenses by the

exporter, producer or other affiliate, the Secretary normally will make

an adjustment based on the actual cost to the affiliated person.'' In

the instant investigation, Acerinox, U.S.A. incurred selling expenses

that are deducted from CEP under section 772 (d) of the Act, and Roldan

reimbursed Acerinox, U.S.A. for these expenses through the commission.

Therefore, in accordance with section 351.402(e) of the Department's

regulations, for the final determination we adjusted Roldan's CEP sales

by Acerinox, U.S.A.'s actual selling expenses, revised based on

verification findings.

Comment 2: Unreported U.S. Sales

At verification, the Department found that Roldan's U.S. affiliate,

Acerinox, U.S.A., purchased shipments of Roldan's SSWR that were

rejected by U.S. customers, held the rejected SSWR in inventory, and

then resold the rejected SSWR to other unaffiliated customers in the

United States. However, Roldan failed to report Acerinox, U.S.A.'s

sales of SSWR during the POI. At verification, Roldan stated that it

did not report these sales because they were not made in the ordinary

course of trade. Petitioners maintain Roldan should have reported these

sales because the antidumping provisions allow sales outside the

ordinary course of trade to be excluded from reported home market or

third country sales, but not from U.S. sales. Petitioners also note

that although the original sales of SSWR were canceled, the subsequent

resales of SSWR by Acerinox, U.S.A. should have been reported because

they were not canceled. In addition, petitioners contend that the

information on the unreported sales that Roldan provided at

verification constitutes factual information that must be submitted no

later than seven days before verification. Thus, petitioners argue,

this information was untimely and should not be used by the Department

in the final determination. Petitioners, cite the Final Determination

of Sales at Less Than Fair Value: Certain Stainless Steel Wire Rods

From France 58 FR 68,865, 68,869 (December 29, 1993) (Wire Rods From

France), in support of their view that the Department should assign a

margin to the unreported sales equal to the greater of the average

margins alleged in the petition, or the highest non-aberrant margin

calculated from Roldan's data.

Roldan claims it properly excluded Acerinox, U.S.A.'s resales of

rejected SSWR from reported sales. Specifically, Roldan argues that it

should not have reported the sales in question because the original

U.S. customers canceled the sales and the Department's antidumping

questionnaire clearly instructs respondents not to report canceled U.S.

sales. Even if the Department should ignore the instructions in its

antidumping questionnaire, Roldan maintains it properly excluded these

sales from reported sales because they were sold in a completely

different manner from the rest of its U.S. sales and, thus, were

outside the ordinary course of trade. In particular, Roldan states that

its U.S. customers typically order SSWR prior to its production and

importation and that the SSWR is shipped directly to the customer,

whereas Acerinox, U.S.A. resold SSWR to customers after the material

had been produced, shipped to the original customer in the United

States, and then re-shipped to Acerinox, U.S.A. or Acerinox, U.S.A.'s

customer. In addition, Roldan notes that Acerinox, U.S.A. informed its

customers that they were purchasing rejected material and the

Department has excluded U.S. sales of defective merchandise from its

antidumping analysis in past cases such as the Final Determination of

Sales at Less Than Fair Value: Coated Groundwood Paper From Finland, 56

FR 56,363, 56,371 (November 4, 1991).

According to Roldan, the antidumping statute, legislative history,

and the Department's past practice support a finding that these sales

are outside the ordinary course of trade. Roldan states that in

addition to certain sales below the COP and certain sales between

affiliated parties, the Statement of Administrative Action (SAA) allows

the Department to ``consider other types of sales or transactions to be

outside the ordinary course of trade when such sales or transactions

have characteristics that are not ordinary as compared to sales or

transactions made in the same market.'' While conceding that the

ordinary course of trade requirement has historically been applied to

home market or third country sales, Roldan, citing Ipsco Inc. versus

United States, 714 F. Supp 1211, 1217 (Ct. Int'l Trade 1989) (Ipsco),

notes that the Department may disregard certain U.S. sales if ``the

inclusion of [such] sales, which are clearly atypical, would undermine

the fairness of the comparison of foreign and U.S. sales.'' Roldan also

notes that in Ipsco, the Court recognized the Department's practice of

excluding sales that are not representative of the seller's behavior

and sales whose volume is so low that they would have an insignificant

effect on the margin. Roldan notes that the resales of rejected SSWR

constituted such a small percentage of Acerinox, U.S.A.'s sales that

they cannot be considered representative of Acerinox, U.S.A.'s

behavior. Thus, for the reasons outlined above, Roldan asserts that

Acerinox, U.S.A.''s resales of SSWR are outside the ordinary course of

trade and should not have been reported to the Department.

However, if the Department determines that this small quantity of

sales should have been reported, Roldan requests that the Department

use the actual verified sales data that was provided at verification.

Roldan claims

[[Page 40397]]

petitioners' argument that the Department should assign a margin to

these sales using adverse inferences fails because such inferences are

only appropriate when an interested party fails to cooperate by not

acting to the best of its ability to reply to a request for information

from the administering authority or the Commission. Roldan argues that

petitioners misapplied the Department's ruling in Wire Rods From France

to the instant investigation because, unlike Wire Rods From France,

wherein the respondents failed to report all sales transactions in a

timely manner, Roldan did not report the sales in question because the

Department's antidumping questionnaire specifically instructed Roldan

to report sales net of returns. Moreover, Roldan claims that it

presented information concerning the unreported sales on its own

initiative as part of the completeness test conducted at verification

and that it has fully cooperated with the Department's requests for

additional information regarding these sales. Thus, Roldan maintains

there is no basis for the Department to use adverse facts available to

determine the margin for these unreported sales.

DOC Position: We agree with petitioners. Section 772(b) of the Act

defines CEP as the ``price at which the subject merchandise is first

sold (or agreed to be sold) in the United States before or after the

date of importation by * * * a seller affiliated with the producer or

exporter to a purchaser not affiliated with the producer or exporter *

* *'' Thus, in the antidumping questionnaire issued in this

investigation, the Department instructed Roldan to ``prepare a single

response which includes the information for all affiliates. The

questionnaire goes on to state that the respondent should ``include

information concerning affiliates which sold the products under

investigation during the period of investigation (``POI'') in the

comparison market or the United States market or both. Combine the

sales and cost of these affiliates with your sales and cost in the same

computer data file(s) and submit a single combined narrative

response.'' See the Department's antidumping questionnaire dated

September 19, 1997 at page G-6. Roldan failed to comply with the

Department's instructions even though its U.S. affiliate, Acerinox,

U.S.A., sold subject merchandise to unaffiliated purchasers during the

POI. The fact that Acerinox, U.S.A. purchased subject merchandise from

Roldan after Roldan's original U.S. customer rejected the shipment and

canceled the sale does not change the fact that Acerinox, U.S.A.

subsequently resold that merchandise to other unaffiliated U.S.

customers during the POI. Those resales were not canceled and should

have been reported to the Department.

In addition, the ordinary course of trade provision does not apply

to U.S. transactions (see Notice of Final Determination of Sales at

Less Than Fair Value: Static Random Access Memory Semiconductors From

Taiwan, 63 FR 8909, 8931 (Comment 22) (February 23, 1998)). As the U.S.

Court of International Trade (CIT) noted in American Permac, Inc., et

al., versus The United States, 783 F. Supp. 1421, 1423 (CIT 1992)

(American Permac), ``regular exclusion of sales not in the ordinary

course of trade only occurs on the home-market side of the price

comparison.'' The court went on to state that ``whether sales are in or

out of the ordinary course of trade is not the determinative factor on

the U.S. sales side of the equation. Fairness, distortion,

representativeness are the issues to be examined. The goal is to

include the sales but to utilize whatever methodology is needed to

ensure a fair comparison.'' 783 F. Supp. 1421, 1424. While the

Department may at times exclude certain U.S. sales in order to ensure a

fair comparison (as noted in Ipsco), in the instant investigation there

is no need to exclude the sales at issue because, based on the record

evidence (including our examination of sales documentation), we cannot

conclude that these sales are in any way unrepresentative or would

otherwise improperly distort our calculations. We also note that prior

to the submission of its case brief, Roldan never requested exclusion

of the sales at issue or exoneration of the reporting requirement with

respect to these sales. It was not until after the Department had

discovered the unreported sales at verification (see the Sales

Verification Report at page 12) that Roldan raised the issue of

excluding the unreported sales. Therefore, based on the foregoing, we

conclude that such sales should have been reported to the Department.

As indicated above, Roldan states that if the Department decides

that the sales at issue should have been reported, it should use the

actual verified sales data that was provided at verification. However,

at verification the only information that the Department requested, and

that Roldan provided with regard to Acerinox, U.S.A.'s resales of

subject merchandise, was the quantity and gross unit price of each

sale. The Department requested this information to determine the

magnitude of the unreported sales in comparison to the reported U.S.

sales. The Department did not request, and Roldan did not provide, the

data required to adjust the gross unit price of the unreported sales in

accordance with section 772(c) of the Act (e.g., information on freight

and other selling expenses). Moreover, even if Roldan had provided this

information at verification, it is unlikely that the Department would

have considered the information timely and accepted it (see 19 CFR

351.301(b)(1) and 351.302(d)).

Section 776 (a) of the Act provides that when necessary information

is not available on the record, the administering authority shall * * *

``use the facts otherwise available in reaching the applicable

determination under this title.'' Section 776 (b) of the Act states

that ``if the administering authority or the Commission (as the case

may be) finds that an interested party has failed to cooperate by not

acting to the best of its ability to comply with a request for

information from the administering authority or the Commission, the

administering authority or the Commission (as the case may be), in

reaching the applicable determination under this title, may use an

inference that is adverse to the interests of that party in selecting

from among the facts otherwise available.''

For this final determination, the Department finds that Roldan

failed to act to the best of its ability to comply with the

Department's requests for information regarding sales of subject

merchandise by Acerinox, U.S.A. In its response to section C of the

Department's antidumping questionnaire, Roldan stated that it did not

incur inventory carrying costs in the United States because Acerinox,

U.S.A. ``does not take possession of, or warehouse, the subject

merchandise.'' However, because Acerinox U.S.A.'s 1996 balance sheet

reported an inventory balance, in a supplemental questionnaire, the

Department specifically asked Roldan whether Acerinox, U.S.A. sold

subject merchandise from inventory during the POI. In its January 16,

1998 response to the Department's supplemental questionnaire, Roldan

stated that ``Acerinox, U.S.A. does not keep inventory of Roldan SSWR,

nor generally speaking, of any of Roldan's products. * * * The

inventory balance that appears in the 1996 Acerinox, U.S.A. annual

report relates to non-subject merchandise.'' However, at verification,

the Department found substantial documentation evidencing Acerinox,

U.S.A.'s sales of Roldan's SSWR from inventory during the POI. The fact

that this documentation was readily available and company officials

[[Page 40398]]

had knowledge of these sales, as evidenced by their responses to

questioning at verification, yet Roldan failed to identify and report

these sales even when the Department specifically requested that it do

so, indicates that Roldan did not act to the best of its ability to

comply with the Department's request for information. Consequently, for

the final determination we have based the margin for all unreported

U.S. sales on adverse facts available. As adverse facts available

(AFA), we have selected a sufficiently adverse margin from the fair

value comparisons which were performed for Roldan's reported sales. The

selected AFA margin is sufficiently adverse so as to effectuate the

statutory purposes of the adverse facts available rule to induce

respondents to provide the Department with complete and accurate

information in a timely manner. See the SAA at page 870. We also sought

a margin that is indicative of Roldan's customary selling practices and

is rationally related to the transactions to which the AFA are being

applied. To that end, we selected a margin for sales of a product that

involved a substantial commercial quantity and fell within the

mainstream of Roldan's transactions based on quantity. Finally, we

found nothing on the record to indicate that the sales of the product

we selected were not transacted in a normal manner. For details

regarding the methodology used to calculate the AFA margin, see the

Calculation Memorandum, dated July 20, 1998.

Comment 3: Diameter as a Model Match Criterion

Roldan contends that the diameter of SSWR should not be one of the

model-match criteria used in the instant investigation because it has

no appreciable affect on Roldan's production costs and no affect on the

price Roldan charges its U.S. customers. Roldan notes that the

Agreement on Implementation of Article VI of the General Agreement on

Tariffs and Trade 1994, and section 351.411 of the Department's

regulations, require that in making a fair comparison between EP and

NV, due allowance shall be made for differences which affect price

comparability, including differences in physical characteristics.

According to Roldan, this requirement implies that physical

characteristics that do not affect price should not be used in matching

products for price comparison purposes. Roldan maintains that the

Department examined numerous sales invoices at verification and found

that Roldan charged the same price for different diameters of SSWR with

the same AISI grade that were sold to the same customer under the same

invoice. Moreover, Roldan notes that it placed evidence on the record

of this proceeding showing that U.S. companies, including one

petitioner, sell different diameters of the same AISI grade of SSWR at

the same price. Therefore, Roldan contends, that price is based on AISI

grade and the seller's historical commercial relationship with the

customer, not the diameter of the product. In addition, Roldan

maintains there is no cost basis for using diameter as a model match

criterion because diameter has no affect on its cost of producing SSWR.

Roldan claims it demonstrated at verification that smaller diameter

SSWR, which requires more passes through the rolling mill than larger

diameter SSWR, can have costs similar to larger diameter SSWR because

of the quantities produced and the order of production. Finally, Roldan

argues that in the instant investigation, matching products for price

comparison purposes using the product's diameter has artificially

created a dumping margin because this methodology gives greater

significance to a product category with a large U.S. and relatively

small home market sales volume. Roldan claims this matching

methodology, together with the additional weight given to dumping

margins of products with a large U.S. sales volume, has created a

dumping margin where none exists. Thus, Roldan contends there is

overwhelming evidence on the record of this investigation showing that

diameter should not be used as a model-match criterion. According to

Roldan, AISI grade is the only appropriate model-match criterion.

While petitioners are not in complete agreement with the model-

matching methodology the Department is using in the instant

investigation 3, petitioners argue that Roldan's suggestion

that the Department use AISI grade as the only model-matching criterion

is unjustified, flawed, and untimely. Specifically, petitioners claim

Roldan's assertion that it demonstrated at verification that diameter

has ``no appreciable effect'' on its cost of producing SSWR misstates

the Department's verification findings. Petitioners maintain the

Department actually found that Roldan does not distinguish between the

cost of different diameters of SSWR in its cost accounting records.

Therefore, petitioners contend that Roldan's records prevented the

Department from verifying Roldan's claim that the actual costs incurred

to produce different diameters of SSWR is the same. Furthermore,

petitioners argue that if production costs for different diameters of

SSWR were the same, and price is not based on diameter, the use of

diameter as a model-matching criterion should not distort the dumping

margin as Roldan suggested. Petitioners also maintain that using AISI

grade as the sole model-matching criterion increases the potential for

manipulation of model matches and impairs the Department's ability to

select, where necessary, the most similar model, because the Department

would not have additional information on the record describing the

product's physical characteristics. Finally, petitioners state that

Roldan first asserted that diameter has no ``appreciable'' effect on

production costs more than four months after the antidumping

questionnaire was issued, which was well after the Department had

considered the parties' views on model-matching and decided on its

model-matching methodology. Thus, according to petitioners, Roldan's

argument is untimely. For the above reasons, petitioners urge the

Department to use the product matching criteria identified in the

antidumping questionnaire in the final determination.

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\3\ During the course of the instant investigation, petitioners

requested that the Department include actual chemical content of the

steel, rather than AISI grade, as one of the model-matching

criteria. For further discussion, see the December 18, 1997 Decision

Memorandum to Holly Kuga from The Team, Subject: Whether to

Reconsider the Department's Model Match Methodology for This

Product.

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

DOC Position: We agree with petitioners and have continued to use

diameter as a model-matching criterion in the final determination. In

determining whether a class or kind of foreign merchandise is being, or

is likely to be, sold in the United States at less than its fair value,

the Department compares the price of subject merchandise sold in the

United States with the price of the ``foreign like product'' sold in

the foreign market. Section 771(16) of the Act defines ``foreign like

product'' as: ``merchandise in the first of the following categories in

respect of which a determination for the purposes of subtitle B of this

title can be satisfactorily made:

(A) The subject merchandise and other merchandise which is

identical in physical characteristics with, and was produced in the

same country by the same person as, that merchandise.

(B) Merchandise--

(i) produced in the same country and by the same person as the

merchandise which is the subject of the investigation,

(ii) like that merchandise in component material or materials and

in the purposes for which used, and

[[Page 40399]]

(iii) approximately equal in commercial value to that merchandise.

(C) Merchandise--

(i) produced in the same country and by the same person and of the

same general class or kind as the merchandise which is the subject of

the investigation,

(ii) like that merchandise in the purposes for which used, and

(iii) which the administering authority determines may reasonably

be compared with that merchandise.''

In making fair value comparisons, the Department identifies the

``foreign like product'' by comparing the physical characteristics of

subject merchandise with the physical characteristics of merchandise

sold in the foreign market. So as not to unreasonably distort

comparisons involving similar merchandise, the Department does not

compare subject merchandise sold in the United States to merchandise

sold in the foreign market where the cost of the merchandise differs

from the cost of subject merchandise by more than 20 percent (see

Policy Bulletin 92.2).

In the instant investigation, after soliciting comments from

interested parties, the Department determined that diameter should be

one of the characteristics (i.e., one of the matching criteria) used to

make product comparisons. Although Roldan argues that diameter is an

inappropriate characteristic for purposes of model matching, it has not

placed substantial evidence on the record showing that the Department's

decision to use diameter as a matching criterion is unreasonable. As

noted by the CIT in Toyo Umpanki Co., Ltd. v. United States, 848 F.

Supp. 178, 185 (CIT 1994) (Toyo), the Department has ``broad discretion

in choosing a methodology to carry out its statutory mandate'' under

section 771(16) of the Act which governs model matching. Regarding that

methodology, the CIT noted in Toyo, that ``even if another alternative

is more reasonable, Commerce has acted within its authority if its

decision is reasonable.'' Roldan's argument that the Department's

matching methodology distorted the dumping margin by comparing a

product category with a large U.S. and relatively small home market

sales volume, seems to argue indirectly for the need for a price

adjustment under section 773(a)(6)(C)(i) of the Act, which respondent

has not claimed, rather than a need to alter the Department's matching

criteria. Furthermore, Roldan's argument that diameter has no affect on

sales price is questionable because at verification, the Department

found instances where Roldan sold different diameters of the same AISI

grade of SSWR to the same home market customer under the same invoice

but at different prices (see the Sales Verification Report from at

pages 16-17). Although the Department found at verification that Roldan

records the same cost for different diameters of a particular grade of

SSWR, this fact alone is insufficient to show that the Department acted

unreasonably in selecting the model-matching criteria and that its

selection distorts the dumping margin. Roldan has not demonstrated that

diameter is not a factor in pricing SSWR. Moreover, it is more

reasonable to conclude that if the cost and price of different

diameters of the same AISI grade of SSWR are the same, as Roldan

claims, using diameter as a matching criterion should not distort the

dumping margin. Therefore, we have continued to use diameter as a model

matching criterion in the final determination.

Comment 4: Identifying the Appropriate Interest Rate for the U.S.

Credit Expense Calculation

At verification, the Department found that Roldan calculated its

U.S. credit expenses using the weighted-average interest rate on short-

term peseta-denominated loans that were obtained to finance U.S. dollar

receivables. The Department also found that Roldan did not have any

outstanding U.S. dollar-denominated loans during the POI. Petitioners

note that the Department's antidumping questionnaire instructs

respondents to calculate U.S. credit expenses using a published U.S.

commercial bank short-term prime lending rate if they had not borrowed

U.S. dollars. Thus, for the final determination, petitioners urge the

Department to recalculate Roldan's U.S. credit expenses using the U.S.

prime interest rate for the POI. Based on data from the Chicago Federal

Reserve Bank, petitioners identify this rate as 8.317 percent.

Contrary to the Department's verification findings, Roldan

maintains that the evidence on the record of this investigation shows

it calculated U.S. credit expenses using the weighted-average interest

rate on short-term U.S. dollar-denominated loans. Specifically, Roldan

identifies sales verification exhibit 19a, which contains bank

documentation showing the amount of U.S. dollars borrowed and the

peseta equivalent to this amount. To support its claim, Roldan notes

that it must borrow to pay expenses incurred in U.S. dollars and repay

the U.S. dollar-denominated loans using pesetas because it does not

have a U.S. dollar bank account. Roldan maintains the Department should

accept the reported U.S. credit expenses for the final determination

because Roldan used the proper interest rate to calculate those credit

expenses.

DOC Position: We agree with Roldan and have accepted the interest

rate Roldan used to calculate the reported U.S. credit expenses for the

final determination. During the POI, Roldan financed U.S. dollar

receivables by obtaining short-term bank loans. Because Roldan did not

have a U.S. dollar bank account, the bank converted the amount of the

U.S. dollar loans into pesetas and deposited the pesetas into Roldan's

bank account. Because Roldan actually received pesetas and not U.S.

dollars, the Department identified the loans as peseta-denominated

loans in its verification report and questioned whether it was

appropriate to calculate U.S. credit expenses using the weighted-

average interest rate on these loans. However, upon further examination

of the verification exhibits related to these loans, we have determined

that the loans are dollar-denominated. 4 We reached this

determination because the bank documentation examined at verification

shows that (1) the amount borrowed and the related interest charges

were originally stated in U.S. dollars; and (2) Roldan repaid the loans

using U.S. dollar receipts that were wired directly from the United

States to Roldan's bank in Spain, which loaned Roldan the monies in

question, and then applied to the outstanding loan balances at the same

bank. The fact that the amount borrowed and the related interest

charges were converted into pesetas in order for Roldan to deposit the

funds into, and repay the interest expense from, its bank account, does

not change the fact that Roldan originally borrowed dollars, repaid the

loans in dollars, and paid dollar-based interest charges on the loans.

Thus, we have accepted the short-term interest rate Roldan used to

calculate U.S. credit expenses for the final determination.

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

\4\ See the Sales Verification Report at verification exhibit

19a.

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

Comment 5: Using Estimates to Determine Home Market Indirect Selling

Expenses

Petitioners urge the Department to reject Roldan's adjustment for

home market indirect selling expenses because, petitioners aver, at

verification, Roldan failed to provide information to support the

estimated allocation percentages used in calculating the adjustment.

Roldan contends the Department should accept the estimated

allocation percentages used to calculate the home

[[Page 40400]]

market indirect selling expense adjustment because they are reasonable,

and the company does not keep records in the normal course of business

that would allow it to determine the actual percentages that it

estimated. Roldan holds that its estimates are based on its significant

commercial experience and knowledge of its selling expenses and, thus,

are reasonable. In addition, Roldan asserts that its home market

indirect selling expenses were ``substantially verified'' and that the

results of the sales and cost verifications demonstrate that Roldan has

provided complete and accurate information to the Department throughout

the investigation. Therefore, Roldan maintains the Department has no

reason to believe the estimates are unreasonable. Furthermore, Roldan

states that the Department cannot require a respondent to support

information in its responses with documentation which it does not

maintain. Roldan cites Olympic Adhesives, Inc. v. United States, 899 F.

2d 1565, 1573 (Fed. Cir. 1990), arguing that in this case, the Court

ruled that failure to provide information that does not exist does not

warrant the use of best information available. Roldan also notes that

its accounting system was not designed to supply information that may

be required by the Department in antidumping duty investigations.

Therefore, Roldan urges the Department to accept its claimed home

market indirect selling expenses.

DOC Position: We agree with Roldan and have accepted its use of

estimates in calculating the adjustment for home market indirect

selling expenses in the final determination. At verification, we were

able to reconcile selected expense and cost of sales figures from

Roldan's calculation of the home market indirect selling expense

adjustment to its financial records (see the Sales Verification Report

at page 21). However, we noted that in calculating the home market

indirect selling expense adjustment, Roldan classified a portion of

employee costs and general expenses as indirect selling expenses based

on estimated allocation percentages. We found no evidence at

verification that Roldan maintained records in the normal course of

business that would allow it to classify a portion of these expenses as

indirect selling expenses based on actual figures rather than

estimates. Moreover, the overall results of verification and the

insignificant amount of the reported home market indirect selling

expense adjustment suggest that Roldan did not overstate the

adjustment. Therefore, it is reasonable to presume that Roldan made

these estimates in good faith and that they may be relied upon.

Comment 6: Adjusting Costs for Startup Operations

In the instant investigation, Roldan claimed an adjustment to

production costs for expenses incurred in ``starting up'' its

refurbished rolling mill and pickling facility. Based on its startup

claims, Roldan submitted two COP and CV databases. In the first

database, submitted as part of Roldan's initial questionnaire response,

the Company reported COP and CV that was adjusted for startup costs

based on the methodology Roldan used in its normal books and records to

account for startup costs. In response to our supplemental

questionnaire, Roldan submitted a second COP and CV data file with a

revised adjustment for start-up costs based on the methodology

described in section 773(f)(1)(C) of the Act. Petitioners urge the

Department to reject both of Roldan's claimed startup adjustments

because Roldan (1) incorrectly identified the startup period; (2)

failed to amortize startup costs; and (3) failed to separately report

the actual POI costs and the startup adjustment. First, petitioners

note that Roldan's accounting and production records do not support the

claimed startup period. Specifically, petitioners note that in its

normal accounting records, Roldan adjusted costs to account for what it

considered to be the excess startup costs of the rolling mill by

replacing the unit production costs incurred from September through

December 1996, with the unit costs incurred during the previous eight

months of that year (Roldan reported the excess amount of September

through December production costs over the costs for the previous eight

months as non-operating expenses in its 1996 financial statement).

Thus, petitioners maintain that Roldan's books and records show the

startup period ended on December 31, 1996. However, petitioners point

out that Roldan did not use this startup period to calculate the

adjustment, despite the statutory requirement in section 773(f)(1)(A)

of the Act that production costs be calculated based on the records of

the exporter or producer of the merchandise. Moreover, petitioners

claim that the startup period used in Roldan's accounting records is

supported by the startup provisions in section 773 of the Act.

Petitioners note that section 773(f)(1)(C) of the Act defines the end

of the startup period as ``the point at which the level of commercial

production that is characteristic of the merchandise, producer, or

industry concerned is achieved.'' According to petitioners, this means

that Roldan's startup period ended when it achieved the average level

of production that it normally experienced before refurbishing its

facilities. Petitioners maintain that the rolling mill production data

that Roldan placed on the record in this investigation shows that this

average level was achieved at a point which confirms the startup period

used in Roldan's books and records. Therefore, petitioners maintain

that the record supports a startup period other than the one used to

calculate the reported startup adjustment. Second, petitioners state

that Roldan failed to amortize excess startup costs over a period

subsequent to the startup period in accordance with the SAA's

interpretation of section 773(f)(1)(C)(iii) of the Act. Finally,

petitioners note that in calculating the startup adjustment that was

based on the methodology in section 773(f)(1)(C) of the Act, Roldan

accounted for the startup adjustment by replacing actual POI unit costs

incurred during the startup period with actual unit costs incurred

immediately after the startup period ended. According to petitioners,

Roldan should have reported actual unit costs incurred during the POI,

in accordance with the instructions in section D of the Department's

questionnaire, and separately reported the startup adjustment. Because

of the above deficiencies, petitioners ask the Department to reject

Roldan's claimed startup adjustment.

Roldan believes the Department erred in disallowing its startup

adjustment in the preliminary determination because, according to

Roldan, it satisfied the statutory conditions under which the

Department must make an adjustment for startup costs. Roldan claims it

satisfied the first statutory condition, which requires a producer to

be using a new production facility or producing a new product that

requires substantial additional investment, because during the POI it

replaced nearly all of the equipment in its rolling mill and modified

much of the remaining old equipment so it would work in the new mill.

Roldan notes that under section 351.407(d)(1)(i) of the Department's

regulations, a producer is considered to be using new production

facilities when it has replaced nearly all of the production machinery

in its facility. Roldan also notes that it placed substantial evidence

on the record, which the Department verified, showing that it

extensively refurbished its mill. Roldan also claims it placed

substantial evidence on the record showing that it

[[Page 40401]]

satisfied the second statutory condition for a startup adjustment,

which requires that production levels be limited by technical factors

associated with the initial phase of commercial production.

Accordingly, Roldan concludes that a startup adjustment is required in

the instant investigation. Furthermore, Roldan notes that it placed

evidence on the record, including the installation contract with the

company that refurbished the rolling mill, which shows that it used the

proper startup period in calculating the startup adjustment. Roldan

adds that its rolling mill has not yet reached optimum capacity.

Roldan disagrees with petitioners' rationale for rejecting the

reported startup adjustment. Specifically, Roldan holds that the

startup period used to calculate the adjustment does not have to be the

same as that used in a company's accounting records in order for the

Department to accept the claimed startup adjustment. Roldan notes that

section 773(f)(1)(A) of the Act states that ``costs shall normally be

calculated based on the records of the exporter or producer of the

merchandise * * * '' According to Roldan, the startup provisions were

included in the Act to allow an exception to the requirement that

reported costs reflect the producer's normal records. Roldan states

that this exception recognizes the fact that producers may incur

unusually high costs when starting a new production facility.

Furthermore, Roldan disputes petitioners' claim that the startup period

ended when Roldan achieved the average level of production that it

normally experienced before refurbishing its facilities. Roldan notes

that under section 773(f)(1)(C)(iii) of the Act, ``the startup period

ends at the point at which the level of commercial production that is

characteristic of the merchandise, producer, or industry concerned is

achieved.'' Because the mill refurbishment increased production

capabilities, Roldan argues that pre-refurbishment production levels

cannot be compared to post-refurbishment production levels in order to

determine the point at which Roldan achieved commercial production

levels indicative of the end of startup. Roldan asserts that one must

compare its post-refurbishment production levels with production levels

characteristic of the SSWR industry using the same type of rolling mill

as Roldan in order to determine when Roldan's startup period ended.

Roldan contends that the best indicator of this ``industry standard''

for commercial production is the arm's-length, pre-petition

installation contract for the new mill which identified the quantity of

SSWR to be rolled in a specified number of consecutive runs in order to

reach commercial production levels. Thus, Roldan claims it

appropriately determined that its startup period ended when it reached

the commercial production levels specified in the installation

contract. Consequently, Roldan urges the Department to accept its

claimed adjustment for startup costs.

DOC Position: We have disallowed Roldan's claimed adjustment for

startup costs because the company did not demonstrate its eligibility

for such an adjustment. Specifically, Roldan failed to show that the

renovation of the company's rolling and pickling mills was, indeed, the

equivalent of a ``new production facility'' within the meaning of

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

Section 773(f)(1)(C) of the Act directs the Department to provide

for an adjustment to the actual costs incurred during the period of

investigation or review where such costs are affected by the startup

operations of the producer. The statute provides, however, that the

adjustment is required only for those startup operations where (1) a

producer is using new production facilities or producing a new product

that requires substantial additional investment, and (2) production

levels are limited by technical factors associated with the initial

phase of commercial production. At the most basic level, the statutory

condition surrounding ``new production facilities'' is certainly meant

to include those startup operations that involve entirely new

production facilities. See, for example, Notice of Final Determination

of Sales at Less Than Fair Value: Static Random Access Memory

Semiconductors from Taiwan, 63 FR 8909, 8930 (February 23, 1998) (where

the Department granted a startup adjustment for the subject merchandise

manufactured using a brand new semiconductor fabrication line installed

by the respondent during the POI). Yet, as made clear by the SAA at

page 836, the term ``new production facilities'' may also include

startup operations involving ``the substantially complete retooling of

an existing plant.'' Here, the phrase ``substantially complete

retooling'' is said to involve ``the replacement of nearly all

production machinery or the equivalent rebuilding of existing

machinery.''

There are any number of instances in which producers may choose to

retool, refurbish, or expand their existing operations. These may range

from changing a worn machine part to the replacement of all existing

plant assets. Moreover, in most of these instances, normal production

levels are disrupted as a consequence of the operations. Yet, in

establishing a high threshold for operations involving the

``substantially complete retooling'' of a facility, the SAA, in effect,

limits the situations in which retooling satisfies the conditions for a

startup adjustment by equating such operations to those involving an

entirely new facility. That is, in order for an existing facility to be

considered a new production facility within the meaning of section

773(f)(1)(C) of the Act, the SAA provides that it must be retooled to

the extent that it becomes a brand new facility in virtually all

respects. Indeed, the ``replacement of nearly all production machinery

or the equivalent rebuilding of existing machinery'' would result in

nothing less than an essentially new facility. Thus, the SAA makes

clear that, in analyzing these situations, an adjustment for startup

costs is warranted only in those circumstances wherein the renovations

result in a near new facility.

In the instant case, Roldan claimed that the investment it made in

refurbishing the company's rolling and pickling mills met the statutory

definition of ``new production facilities.'' In its questionnaire

responses and at verification, Roldan demonstrated that it had, in

fact, committed a significant amount of investment capital as part of

the renovation project. In addition, at the verification, Roldan

officials provided documentation supporting the purchase and

installation of new production machinery. Roldan officials maintained

that the new equipment replaced virtually all of the equipment from the

old rolling and pickling mills. Indeed, Roldan provided a plant diagram

as evidence of this claim. In verifying Roldan's claim for a startup

adjustment, however, we found data from the company's normal accounting

records that contradicted Roldan's claim that it had replaced or

rebuilt nearly all of the previously existing production machinery as

part of the renovation project. Portions of this information are

proprietary in nature and are therefore discussed in detail in a

separate memorandum. See the Concurrence Memorandum. In general,

however, while Roldan claims to have replaced or rebuilt the production

machinery from its old rolling and pickling mills, the company's

accounting records do not support the contention that the company

disposed of these assets or otherwise removed them from service. In the

absence of a showing by Roldan that the old production equipment was,

[[Page 40402]]

in fact, scrapped or otherwise disposed of, we have no basis from which

to conclude that the renovation project resulted in the replacement of

nearly all of the previously existing equipment or the equivalent

rebuilding of such equipment.

The SAA at page 838 provides that the burden of demonstrating

entitlement to a startup adjustment rests with the party making the

claim. Here, Roldan failed to demonstrate that the renovated rolling

and pickling mills constituted ``new production facilities'' within the

meaning of section 773(f)(1)(C) of the Act. Because Roldan has not

shown that it meets the first part of the statutory requirement for a

startup cost adjustment, consistent with our past practice, we have not

addressed issues surrounding whether the company's production levels

were limited during the POI by technical factors associated with the

initial phases of commercial production. See Notice of Final Results of

Sales at Less Than Fair Value: Collated Roofing Nails from Korea, 62 FR

51,420, 51, 426 (October 1, 1997) (where the Department did not address

technical factors associated with respondents' claimed startup

operations because the operations did not constitute a new production

facility within the meaning of the statute). Similarly, we have not

addressed the startup period claimed by Roldan as part of its request

for a startup adjustment.

Comment 7: Including Inventory Write-Downs in COP and CV

As a result of Roldan's 1996 startup of the refurbished rolling

mill and pickling facility, the year-end inventory values, as recorded

in Roldan's inventory account, were in excess of market value. Thus, in

accordance with Spanish generally accepted accounting principles

(GAAP), Roldan wrote the book value of its finished goods inventory

down to market value at the end of 1996. Roldan calculated COP and CV

by reducing SSWR production costs by the portion of the inventory

write-down allocated to SSWR.

Petitioners urge the Department not only to disallow this

reduction, but also to add the inventory write-down to COP and CV.

According to petitioners, reducing production costs by the inventory

write-down (1) understates actual production costs; (2) obviates any

finding of sales below cost by reducing actual costs to sales value;

and (3) double counts the adjustment for startup costs. Petitioners,

citing the SAA at 835 and the instructions in section D of the

Department's antidumping questionnaire, note that the Department

requires respondents to report the actual costs incurred in producing

and selling the product under investigation. Petitioners maintain that

the inventory value of SSWR before the write-down reflects the actual

costs incurred to produce SSWR and, thus, Roldan should not have

reduced reported costs by the write-down. Moreover, petitioners claim

that writing down inventory values to market value shows that Roldan's

sales prices are below cost. However, petitioners state that the

Department would not find sales to be below cost if Roldan were allowed

to report production costs that were reduced by the inventory write-

down. Furthermore, petitioners note that Roldan already reduced

reported costs under the provision for startup operations in section

773(f)(1)(C) of the Act. Thus, petitioners argue, that reducing

reported costs by an inventory write-down necessitated by startup

operations, double counts the startup adjustment and understates actual

production costs. Rather than subtracting the write-down from reported

costs, petitioners contend the write-down should be added to COP and

CV. Petitioners note that the SAA at 834 states that ``Commerce

normally will calculate costs on the basis of records kept by the

exporter or producer of the merchandise provided such records are kept

in accordance with generally accepted accounting principles of the

exporting (or producing) country and reasonably reflect the costs

associated with the production and sale of the merchandise.'' According

to petitioners, Roldan recognized and recorded the inventory write-down

as an expense in its accounting records. Petitioners also note that

this write-down was recognized during the POI and recorded in Roldan's

financial statements in accordance with Spanish GAAP. Therefore,

petitioners request that the Department increase COP and CV by the

amount of the inventory write-down.

Roldan holds that its inventory write-down should not be added to

COP or CV because the write-down did not reflect actual costs but was

merely an accounting entry that resulted from its conservative

allocation of startup expenses. Furthermore, Roldan contests

petitioners' claim that its inventory write-down constitutes

recognition that its sales are below cost because, according to Roldan,

the record in this investigation shows that its sales are above cost.

Accordingly, Roldan requests that the Department exclude the inventory

write-down from COP and CV in the final determination.

DOC Position: We agree with both petitioners and Roldan in part.

The finished goods inventory write-down should not be added to

production costs in calculating COP or CV because it is not a cost of

production. Roldan records the cost of manufacturing finished products

in its finished goods inventory account. At the end of 1996, the cost

of finished products recorded in Roldan's inventory account exceeded

the market value of those products. In accordance with Spanish GAAP,

Roldan reduced the value of its finished goods inventory to market

value in order to recognize the fact that the future revenue-producing

ability of the inventory was no longer as great as its cost. Roldan

recorded this reduction in future revenue-producing ability as a loss

in its 1996 profit and loss statement. Although Roldan had not realized

this loss, the conservative nature of accounting requires the loss to

be recognized when the value of inventory exceeds market value, rather

than in the period in which the inventory is sold. Thus, Roldan's

inventory write-down is an accounting provision, not an actual

production cost. In Antifriction Bearings (Other Than Tapered Roller

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

Singapore, and the United Kingdom: Final Results of Antidumping Duty

Administrative Reviews, 62 FR 2081, 2117 (January 15, 1997) (AFBs), the

respondents recognized inventory write-downs similar to Roldan's and

the Department excluded the respondents' inventory write-downs from COP

and CV, noting:

The inventory write-down these respondents reported are not actual

costs but are a provisional reduction in inventory value in

anticipation of a lower resale value * * * {The write-downs} are not

realized expenses but simply a contingent reduction in how much revenue

the companies expect to make from the sale of the merchandise. Since

these particular inventory write-downs are not a realized expense, and

are not reflected in their accounting of costs of goods in inventory,

we have not included them in the calculation of COP and CV.

Therefore, in the final determination, consistent with our approach

in AFBs, we did not add Roldan's inventory write-down to production

costs, as suggested by petitioners.

For similar reasons, in the final determination, we also disallowed

Roldan's reduction of reported production costs by the inventory write-

down. Roldan's inventory write-down is an adjustment to inventory

value, and, ultimately, cost of goods sold, not production costs. As

noted above,

[[Page 40403]]

Roldan's inventory write-down reflects a decline in the future revenue-

producing ability of the inventory, not a reduction in production

costs. Thus, reducing production costs by the inventory write-down

would understate the actual costs incurred to produce SSWR.

Comment 8: Including Write-Offs of Idle Assets in COP and CV

During the POI, Roldan permanently ceased using its melt shop. In

its accounting records, Roldan wrote off the melt shop assets and its

inventory of spare parts for the shop, but excluded the write-offs from

COP and CV because they claimed they were extraordinary costs that did

not relate to SSWR production. Petitioners maintain the melt shop

assets related to SSWR production and, thus, in accordance with

Department policy, the write-offs associated with these assets should

be included in COP and CV. To support their position, petitioners argue

that the Department, in Certain Hot-Rolled Lead Bismuth and Carbon

Steel Products From the United Kingdom: Final Results of Antidumping

Duty Administrative Review, 63 FR 18,879, 18,882 (April 16, 1998)

(Bismuth), included the closure costs associated with productive assets

in the reported general and administrative (G&A) expenses. Moreover,

petitioners argue that recognizing these write-offs for purposes of the

antidumping investigation is consistent with Roldan's recognition of

the write-offs in its accounting records.

Roldan argues that the write-offs of its melt shop assets and

related spare parts should be excluded from reported costs because the

write-offs are merely accounting adjustments which expense the value of

the assets, but do not record actual production costs. According to

Roldan, it could not claim these write-offs as production costs because

the assets were no longer used in production. Even if the write-offs

were included in SSWR production costs, Roldan claims the effect on

costs would be minimal because the assets were only used during a small

portion of the POI and they were primarily used to produce merchandise

not subject to this investigation. Roldan also maintains that

petitioners' reliance on Bismuth is misplaced because Roldan did not

incur any costs in closing its melt shop. Therefore, Roldan urges the

Department to exclude the write-offs from COP and CV in the final

determination.

DOC Position: We agree with petitioners and have included Roldan's

write-offs of permanently idled assets and related spare parts in COP

and CV in accordance with our past practice (see Notice of Final

Results of Antidumping Duty Administrative Review: Extruded Rubber

Thread From Malaysia, 61 FR 54,767, 54,772 (October 22, 1996) (Extruded

Rubber Thread). In Extruded Rubber Thread, the Department stated :

There is nothing unusual about a company's writing off

manufacturing plants or equipment. Accordingly, we do not consider

write-offs to be a type of extraordinary expense that we exclude from

the cost of producing subject merchandise. The Department has in the

past included similar equipment write-offs in the calculation of COP

and CV.

Consistent with our past practice, we have also included the write-

off of spare parts in COP and CV in the final determination. See Final

Determination of Sales at Less Than Fair Value; Color Picture Tubes

From Singapore, 52 FR 44,190, 44,196 (November 18, 1987), wherein the

Department included write-offs of obsolete parts in the COP noting that

``obsolete parts are expenses incurred in normal operations which must

be absorbed by current production.''

Roldan's inventory of spare parts for the permanently idled assets

became obsolete when the assets were written off. Because these parts

were related to production and their cost was expensed during the POI

in Roldan's audited profit and loss statement, it is appropriate to

include the cost of these spare parts in COP and CV.

Comment 9: Reducing General and Administrative Expenses by Foreign

Exchange Gains

At verification, the Department found that Roldan's 1996 foreign

currency exchange gains related solely to accounts receivable.

According to petitioners, in the Notice of Final Determination of Sales

at Less Than Fair Value: Certain Pasta From Italy, 62 FR 30,326,

30,359-60 (June 4, 1996), the Department stated that it does not

include foreign currency exchange gains and loses in COP and CV when

those gains and losses relate to accounts receivable. Therefore,

petitioners contend that in the final determination the Department

should exclude such foreign currency exchange gains from Roldan's G&A

expenses.

Roldan asserts that petitioners' request is unnecessary because the

record shows it did not include foreign currency exchange gains related

to accounts receivable in its reported G&A expenses.

DOC Position: We agree with Roldan. The Department found no

evidence at verification that Roldan reduced its reported G&A expenses

by foreign currency exchange gains related to accounts receivable.

Therefore, we have not increased reported G&A expenses by Roldan's

foreign currency exchange gains as requested by petitioners.

Comment 10: Including the Parent Company's General Expenses in Reported

Costs

Petitioners contend that the reported G&A expenses should have

included an amount for the administrative services Roldan's parent

company, Acerinox, S.A., performed on behalf of Roldan.

Roldan maintains it paid for all the services that Acerinox, S.A.

performed on its behalf and included these payments in its reported

general expenses. Thus, Roldan argues it would be inappropriate to

increase reported G&A expenses by a portion of Acerinox, S.A.'s G&A

expenses.

DOC Position: We agree with Roldan. The Department found evidence

at verification that Roldan paid Acerinox, S.A. for the administrative

services it performed on Roldan's behalf and included these payments in

the reported G&A expenses (see the Cost Verification Report from Howard

Smith and Peter Scholl to Holly Kuga, dated June 4, 1998, at page 41).

Therefore, we did not include in addition, a portion of Acerinox,

S.A.'s expenses in the reported G&A expenses.

Comment 11: Corrections Found at Verification

Petitioners state that the Department should revise Roldan's

reported data in order to correct the errors which were discovered at

verification. Roldan did not comment on this topic.

DOC Position: We agree with petitioners and have corrected the errors

found at verification. For a list of these corrections, see the

``Constructed Export Price'' and ``Normal Value'' sections of this

notice.

Continuation of Suspension of Liquidation

In accordance with section 733(d) of the Act, we are directing the

Customs Service to continue to suspend liquidation of all entries of

SSWR from Spain that are entered, or withdrawn from warehouse, for

consumption, on or after the date of publication of this notice in the

Federal Register. The Customs Service shall continue to require a cash

deposit or posting of a bond equal to the estimated amount by which the

normal value exceeds the U.S. price as shown below. These suspension of

liquidation instructions will remain in effect until further notice.

[[Page 40404]]

The weighted-average dumping margins are as follows:

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

Weighted-

average

Exporter/manufacturer margin

percentage

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

Roldan, S.A................................................ 4.72

All Others................................................. 4.72

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

ITC Notification

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

International Trade Commission (ITC) of our determination. As our final

determination is affirmative, the ITC will, within 45 days, determine

whether these imports are materially injuring, or threaten material

injury to, the U.S. industry. If the ITC determines that material

injury, or threat of material injury does not exist, the proceeding

will be terminated and all securities posted will be refunded or

canceled. If the ITC determines that such injury does exist, the

Department will issue an antidumping duty order directing Customs

officials to assess antidumping duties on all imports of the subject

merchandise entered for consumption on or after the effective date of

the suspension of liquidation.

This determination is published pursuant to section 777(i) of the

Act.

Dated: July 20, 1998.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-20016 Filed 7-28-98; 8:45 am]

BILLING CODE 3510-DS-P