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

DEPARTMENT OF COMMERCE

International Trade Administration

(A-580-829)

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

Stainless Steel Wire Rod From Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT: Cameron Werker or Frank Thomson,

Import Administration, International Trade Administration, U.S.

Department of Commerce, 14th Street and Constitution Avenue, NW,

Washington, DC 20230; telephone: (202) 482-3874 or (202) 482-5254,

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 Korea 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 Korea, 63 FR 10825 (March 5, 1998) (Preliminary

Determination). Since the preliminary determination, the following

events have occurred:

In March 1998, we issued supplemental questionnaires to and

received responses from three respondents in this case, Changwon

Specialty Steel Co., Ltd. (Changwon), Dongbang Special Steel Co., Ltd.

(Dongbang), and Pohang Iron and Steel Co., Ltd. (POSCO).

In April 1998, we verified the sales and cost questionnaire

responses of these three companies. In June 1998, Changwon submitted a

revised U.S. sales database at the Department's request.

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 the

respondents submitted case briefs on June 5, 1998, and rebuttal briefs

on June 10, 1998. At the request of all parties, the public hearing

scheduled for June 11, 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.

Manganese................................. 2.00 max.

Phosphorous............................... 0.05 max.

Sulfur.................................... 0.15 max.

Silicon................................... 1.00 max.

Chromium.................................. 19.00/21.00

Molybdenum................................ 1.50/2.50

Lead...................................... added (0.10/0.30)

Tellurium................................. added (0.03 min)

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

K-M35FL

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

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

Carbon.................................... 0.015 max.

Silicon................................... 0.70/1.00

Manganese................................. 0.40 max.

Phosphorous............................... 0.04 max.

Sulfur.................................... 0.03 max.

Nickel.................................... 0.30 max.

Chromium.................................. 12.50/14.00

Lead...................................... 0.10/0.30

Aluminum.................................. 0.20/0.35

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

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.

Affiliation and Collapsing of Respondents

For the reasons stated in the Preliminary Determination, we have

continued to collapse POSCO and Changwon as affiliated producers in

accordance with section 351.401(f) of our regulations. Furthermore, as

stated in the Preliminary Determination, we examined more closely at

verification

[[Page 40405]]

the issue of affiliation between POSCO/Changwon and Dongbang,

particularly with respect to the factors surrounding a close supplier

relationship between the entities. As a result of our analysis, we

determined that these companies are affiliated within the meaning of

section 771(33)(G) of the Act and section 351.102(b) of the

Department's regulations through a close supplier relationship in which

POSCO/Changwon is operationally in a position to exercise restraint or

direction over Dongbang. Moreover, we found that these producers have

production facilities for identical or similar products that would not

require substantial retooling of either facility in order to

restructure manufacturing priorities, and that there is significant

potential for the manipulation of price and production. Therefore, in

accordance with section 351.401(f) of our regulations, we collapsed

POSCO/Changwon and Dongbang as a single entity for purposes of our

final dumping analysis. For further discussion, see POSCO Comment 2 in

the ``Interested Party Comments'' section of this notice. We note that

prior to collapsing these entities, it was necessary to make certain

adjustments to each of the individual companies' submitted data, based

on verification findings and our positions discussed in this notice.

These adjustments are discussed below in the appropriate sections of

this notice.

Fair Value Comparisons

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

were made at less than fair value, we compared the Export Price (EP) to

the Normal Value (NV). Our calculations followed the methodologies

described in the preliminary determination, except as noted below and

in company-specific analysis memoranda dated July 20, 1998.

On January 8, 1998, the Court of Appeals for the Federal Circuit

issued a decision in CEMEX v. United States, 133 F.3d 897 (Fed

Cir.1998). In that case, 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 this court decision and has determined that it would be

inappropriate to resort directly to CV, in lieu of foreign market

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

of merchandise identical or most similar to that sold in the United

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

Department will use sales of similar merchandise, if such sales exist.

The Department will use CV as the basis for NV only when there are no

above-cost sales that are otherwise suitable for comparison. Therefore,

in this proceeding, when making comparisons in accordance with 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.

We made product comparisons based on the same characteristics and

in the same general manner as that outlined in the preliminary

determination. As in the preliminary determination, in instances where

a respondent 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 rather than the non-AISI grade reported by the

respondents for purposes of our analysis. 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 internal grade code reported by the respondents for analysis

purposes. However, in instances in which an internal grade matches all

the specified 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. For further discussion, see General Comment 1 in the

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

In addition, since we have determined that Dongbang, Changwon, and

POSCO comprise one entity for this final determination, consistent with

Certain Cold-Rolled and Corrosion-Resistant Carbon Flat Products from

Korea, 62 FR 18417 (April 15, 1997) (1997 Flat Products from Korea), we

have treated any sales made between the parties comprising the single

entity as intra-company transfers, and have disregarded them from our

analysis accordingly.

Export Price

We used EP methodology as defined in section 772(a) of the Act. See

Changwon Comment 4 in the ``Interested Party Comments'' section of this

notice for a discussion regarding the classification of U.S. sales

reported by Changwon. We calculated EP based on the same methodology

used in the preliminary determination, with the following exceptions:

A. Data Reported by Changwon

1. We corrected for certain clerical errors found during

verification with respect to: 1) the ocean freight expense for six U.S.

sales and 2) the packing costs for the export (Hessian) packing type.

2. We recalculated duty drawback based on rebates which had

actually been received by Changwon, as explained in Changwon Comment 6

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

B. Data Reported by Dongbang

1. In accordance with the Department's position in General Comment

1 in the ``Interested Party Comments'' section of this notice, we

reclassified internal grade XM-7 as AISI grade 302, given that the

chemical content tolerances for grade XM-7 fell within those for AISI

grade 302.

2. We corrected for clerical errors found during verification

regarding the actual bank charges for seven U.S. sales.

3. We corrected for errors in Dongbang's brokerage charges, as

explained in Dongbang Comment 8 in the ``Interested Party Comments''

section of this notice.

Normal Value

We used the same methodology to calculate NV as that described in

the preliminary determination, with the following exceptions:

A. Data Reported by Changwon

1. In accordance with the Department's position in General Comment

1 in the ``Interested Party Comments'' section of this notice, we

reclassified internal grades SUS 304HC and AISI 304HC as AISI grade

304, given that the content tolerances for

[[Page 40406]]

grades SUS 304HC and AISI 304HC fell within those for AISI grade 304.

2. We corrected for certain clerical errors found during

verification with respect to: (1) the average credit period (i.e.,

accounts receivable turnover period) for seven home market customers,

(2) the warranty expense for one home market sale, and (3) the packing

costs for domestic (Hessian) and domestic (Bare) types of home market

packing.

3. We recalculated duty drawback for home market local sales (i.e.,

domestic sales to customers who consume the merchandise in Korea in the

production of finished goods for export, the destination of which is

unknown to Changwon at the time of sale) based on rebates which had

actually been received by Changwon, as explained in Changwon Comment 6

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

B. Data Reported by Dongbang

1. In accordance with the Department's position in General Comment

1 in the ``Interested Party Comments'' section of this notice, we

reclassified internal grade XM-7 as AISI grade 302, given that the

chemical content tolerances for grade XM-7 fell within those for AISI

grade 302.

2. We corrected for certain clerical errors found during

verification, including (1) the date of payment for three home market

local sales, (2) the average credit period for one home market

customer, and (3) the interest revenue for three home market customers

and the interest revenue ratio applicable to three other home market

sales.

Cost of Production

Before making any fair value comparisons, we conducted the cost of

production (COP) analysis for the reasons stated in the Preliminary

Determination. Based on our decision to collapse POSCO, Changwon, and

Dongbang as a single entity, we calculated the weighted-average COP, by

model, based on the sum of each respondent's cost of materials and

fabrication for the foreign like product at the level in which each

respondent was responsible for manufacturing operations. In addition,

we included amounts for home market selling, general, and

administrative (SG&A) expenses for each company involved in the

manufacture of each given product, and packing costs in accordance with

section 773(b)(3) of the Act. We relied on the submitted COPs except in

the following specific instances where the submitted costs were not

appropriately quantified or valued:

A. Data Reported by Changwon

1. As stated above, we computed the weighted-average COP, by model,

based on the sum of each respondent's cost of materials and fabrication

for the foreign like product at the level in which each respondent was

responsible for manufacturing operations. Therefore, for products

produced by Changwon which included material inputs from POSCO, the COP

was calculated by adding POSCO's applicable cost of manufacturing (COM)

and general expenses to Changwon's applicable costs.

2. In accordance with the Department's position in General Comment

1 in the ``Interested Party Comments'' section of this notice, we

reclassified internal grades SUS 304HC and AISI 304HC as AISI grade 304

given that the chemical content tolerances for grades SUS 304HC and

AISI 304HC fell within those for AISI grade 304.

3. As stated in Changwon Comment 2 in the ``Interested Party

Comments'' section of this notice, we increased Changwon's reported

indirect selling expenses by the unreported recognized bad debt

expenses. We also increased Changwon's reported general and

administrative (G&A) expenses for foundation, business start-up, and

stock issuance expenses.

4. We used G&A and interest expense data from POSCO's 1996

financial statements and G&A expense data from Changwon's 1997

financial statements in the calculation of COP. See Changwon Comment 3

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

B. Data Reported by Dongbang

1. As stated above, we computed the weighted-average COP, by model,

based on the sum of each respondents' cost of materials and fabrication

for the foreign like product at the level in which each respondent was

responsible for manufacturing operations. Therefore, for products

produced by Dongbang which included material inputs from POSCO, the COP

was calculated by adding POSCO's applicable COM and general expenses to

Dongbang's applicable costs. In attempting to merge the cost data

provided by POSCO and Dongbang for COP calculation purposes, we found

that for three steel grades sold by Dongbang and POSCO with the same

internal codes, the chemical specifications were slightly different.

Company officials stated at verification that Dongbang's internal grade

codes are the same as POSCO's for reasons of efficiency in ordering and

production (see Memorandum for Holly Kuga from Cameron Werker and Frank

Thomson Re: Verification of the Responses of Dongbang Special Steel

Co., Ltd. in the Antidumping Duty Investigations of Stainless Steel

Wire Rod from the Republic of Korea, dated May 29, 1998 at page 5).

Therefore, in order to assign the POSCO cost portion of the COP of

these three products, we applied facts otherwise available in

accordance with section 776(a) of the Act. As facts available, we used

POSCO's reported costs for the same internal grade code (see Sales,

Cost of Production (``COP''), and Constructed Value (``CV'') Adjustment

Calculations in the Final Determination of Stainless Steel Wire Rod

from the Republic of Korea--Changwon Specialty Steel Co., Ltd.,

Dongbang Special Steel Co., Ltd., and Pohang Iron and Steel Co., Ltd.

(POSCO), dated July 20, 1998) (Final Determination Calculation

Memorandum).

2. In accordance with the Department's position in General Comment

1 in the ``Interested Party Comments'' section of this notice, we

reclassified internal grade XM-7 as AISI grade 302 given that the

chemical content tolerances for grade XM-7 fell within those for AISI

grade 302.

3. As stated in Dongbang Comments 3 and 4 in the ``Interested Party

Comments'' section of this notice, we increased Dongbang's G&A expenses

for recognized net foreign exchange losses related to accounts except

accounts receivable, and excluded from Dongbang's G&A calculation the

disputed reversal of bad debt allowance.

We conducted our sales-below-cost test in the same general manner

as that described in our preliminary determination. However, for

purposes of the final determination, given that we collapsed POSCO/

Changwon and Dongbang, the sales-below-cost test was conducted on

Changwon's and Dongbang's home market sales on a consolidated basis. As

in the preliminary determination, we did not include POSCO's home

market sales of black coil for product comparison purposes, and,

therefore, these sales were excluded from the sales-below-cost test.

We found that, for certain models of SSWR, more than 20 percent of

Dongbang's and Changwon's home market sales within an extended period

of time were at prices less than the COP. Further, the prices did not

provide for the recovery of costs within a reasonable period of time.

We therefore disregarded the below-cost sales and used the remaining

above-cost sales as the basis

[[Page 40407]]

for determining NV, in accordance with section 773(b)(1). For those

U.S. sales of SSWR for which there were no comparable home market sales

in the ordinary course of trade, we compared EPs to CV in accordance

with section 773(a)(4) of the Act.

Constructed Value

In accordance with section 773(e) of the Act, we calculated CV

based on the sum of the respondents' cost of materials and fabrication

for the U.S. products at the level in which each respondent was

responsible for manufacturing operations. We also included appropriate

amounts for G&A expenses, U.S. packing costs, direct and indirect

selling expenses, interest expenses, and profit. We relied on the

submitted CVs except for specific changes described above in the ``Cost

of Production'' section. In addition, for Dongbang, in accordance with

the Department's position in General Comment 1 in the ``Interested

Party Comments'' section of this notice, we have reclassified internal

grade XM-7 as AISI grade 302 given that the chemical content tolerances

for grade XM-7 fell within those for AISI grade 302.

Price-to-Price Comparisons

We made price-to-price comparisons using the same methodology as

that described in the preliminary determination.

Price-to-CV Comparisons

We made price-to-CV comparisons using the same methodology as that

described in the preliminary determination.

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

General

Comment 1: Product Codes

Petitioners state that the Department should ensure that all

product codes designated by respondents correspond to standard AISI

codes for matching purposes. Petitioners maintain that respondents

should not be permitted to rely on internal grade designations for

products that would otherwise fit within a standard AISI grade simply

because they have added small amounts of chemicals (e.g., copper or

molybdenum) that are not otherwise specified as being included in the

standard AISI grade designation.

Petitioners urge the Department to ensure that all internal product

codes designated by the respondents in their questionnaire responses

correspond to a standard AISI code for matching purposes. Otherwise,

the petitioners assert, the methodology of relying on internal grade

designations for products that are only sold in the home market

impermissibly allows respondents to exclude certain high-priced sales

in the home market from the model match process simply by giving

selected internal grade designations a special code in the model match

process that would never then be compared to a U.S. sale of a similar

product with a different grade code.

Changwon and Dongbang argue that if an internal grade does not fall

within the chemical content ranges of an AISI grade, there is no basis

to conclude that the merchandise within the internal grade has similar

component materials, commercial value, or uses as the merchandise

within an AISI grade. Changwon and Dongbang state that petitioners'

argument is unreasonable and speculative. Changwon and Dongbang state

that the Department should continue to apply its model match

methodology from the Preliminary Determination.

DOC Position

We agree with both petitioners and respondents, in part. We agree

with respondents regarding the designation of internal grade codes for

model matching purposes. As in the preliminary determination, we have

continued to utilize a methodology in which we reclassified any

internal grade code as an AISI grade if it fell within the chemical

content tolerance ranges provided by internationally-accepted

standards. In instances in which the properties of an internal grade

did not match the specified chemical content tolerance ranges of any

AISI grade, we have continued to recognize the internal grade as the

appropriate grade for product comparison purposes.

However, we also agree with petitioners that in instances in which

an internal grade matches all the specified chemical content tolerance

ranges of an AISI grade, but that the internal grade also contains

amounts of chemicals (e.g., copper or molybdenum) that are not

otherwise specified as being included in the standard AISI designation,

it is appropriate to classify the internal grade as the AISI grade.

Therefore, we have reclassified all such internal grades as AISI grades

accordingly. See Final Determination Calculation Memorandum) for

further discussion of the models that were reclassified.

POSCO

Comment 1: POSCO's Cost Verification

Petitioners argue that it is clear from the record that POSCO

failed its cost verification because the Department was unable to

verify POSCO's cost of production submissions. Specifically,

petitioners maintain that POSCO officials deliberately withheld POSCO's

actual trial balance with account codes from the verification team.

Petitioners interpret the cost verification report to mean that POSCO

company officials denied the existence of a trial balance which

contained account codes when one was requested by the verification

team. Petitioners maintain that the verification team learned from

POSCO's independent auditors that such a trial balance did exist.

Petitioners further maintain that POSCO's failure to provide a proper

trial balance prevented the Department from reconciling POSCO's overall

costs and also prevented the Department from verifying the cost

information submitted by POSCO. Petitioners state that POSCO's failure

to present usable 1996 and 1997 trial balances to reconcile POI COM

costs, as requested by the Department, forced the Department to review

instead the inventory ledger and attempt to reconcile it to the COM for

the POI. As a result, petitioners assert that POSCO failed its cost

verification. Petitioners argue that POSCO's decision not to cooperate

with the verification team means that POSCO withheld information

requested by the Department, and failed to provide information in the

form and manner requested, with the result that POSCO significantly

impeded the proceeding.

Petitioners further argue that because POSCO failed to cooperate by

not acting to the best of its ability to comply with a request for

information, the Department should use an adverse inference in

determining the facts available for POSCO's unverified cost

information. Petitioners cite several cases in which the Department has

resorted to total adverse facts available when the Department was

unable to verify costs and other significant information (e.g., Certain

Welded Carbon Steel Pipes and Tubes from Thailand (62 FR 53808, October

16, 1997) and Certain Cut-to-Length Carbon Steel Plate from Sweden (62

FR 18396, April 15, 1997)).

Furthermore, petitioners maintain that because Changwon, POSCO's

wholly-owned subsidiary, and POSCO

[[Page 40408]]

are collapsed for sales and margin purposes for this investigation, and

because POSCO failed verification, the combined POSCO/Changwon entity

has failed verification and, therefore, total adverse facts available

should be applied to the combined entity.

In the alternative, petitioners argue that if the Department does

not collapse Changwon and POSCO for the final determination, as a

surrogate for POSCO's COP, the Department should choose the higher of

the following two measures: (1) The total of the highest amounts paid

by Changwon for each element in its COP for subject merchandise, or (2)

the highest NV from the petition.

Moreover, if the Department determines that POSCO and Changwon

should not be collapsed, petitioners maintain that the Department

should apply the ``major input'' rule and the ``transactions

disregarded'' rule to the transfers between POSCO and Changwon, using

the higher of the two surrogates described above as a proxy for POSCO's

COP and then comparing that proxy with the market price and the

transfer price to determine which is higher. Moreover, petitioners

contend that because black coil is within the scope of this

investigation, the prices for transfers of black coil from POSCO to

Changwon should be subject to the arm's-length test.

Changwon and POSCO (Changwon/POSCO) jointly state that the

Department has fully verified the actual COM inputs transferred from

POSCO to Changwon. Changwon/POSCO claim that, while the Department's

cost verification report asserts that the Department was unable to

reconcile the trial balance to the audited financial statements in the

manner it originally intended, the report indicates that the Department

successfully reconciled the trial balance to the audited financial

statements. Specifically, Changwon/POSCO state that POSCO initially

provided the Department with its trial balance (without account codes)

maintained in the ordinary course of business. At the Department's

request, POSCO also created a trial balance that contained account

codes. The Department examined the trial balance, compared it to the

trial balance used by POSCO's auditors, and confirmed that the trial

balance reconciled to the audited financial statements.

Changwon/POSCO next address the section of the cost verification

report that states that POSCO officials did not provide either a

reconciliation from the cost accounting system to the costs recorded in

the trial balance, or schedules showing the activity for each home base

product group (HBPV) (also called home base product value), i.e., the

beginning balance, the current period's manufacturing costs, the value

of the product removed from inventory, and the ending balances of the

HBPG. Changwon/POSCO disagree, stating that POSCO did provide a

reconciliation of the costs recorded in POSCO's cost accounting system

and the audited financial statements, and that the trial balance

likewise reconciles to the costs recorded in the cost accounting

system. Changwon/POSCO add that POSCO did not provide separate

schedules showing the activity for each HBPG but, as is described in

the verification report, all of the requested information was available

directly from the inventory ledgers themselves.

Changwon/POSCO assert that the Department fully verified the

reported control number-specific costs by successfully reconciling the

representative product group values used to calculate the control

number-specific costs to the corresponding HBPG's, and reconciling

these values to the audited financial statements. Changwon/POSCO state

that this is demonstrated in the Department's verification report.

Furthermore, Changwon/POSCO refute petitioners argument that the

Department was unable to perform an overall reconciliation, asserting

that nowhere in the verification report does the Department indicate

that POSCO's reported costs could not be traced to the costs recorded

in POSCO's financial and cost accounting systems.

Changwon/POSCO assert that POSCO has cooperated fully with the

Department and that, contrary to petitioners' allegations, POSCO has

been fully responsive to the Department's requests for information.

Changwon/POSCO also state that POSCO did not withhold documents from

the Department at the cost verification and argue that the cost

verification report confirms this fact.

Changwon/POSCO maintain that, if the Department were to find that

it was dissatisfied with POSCO's reconciliation of its reported costs,

application of total adverse facts available to the collapsed entity

would be unwarranted. Changwon/POSCO contend that the Department may

only apply total facts available to a respondent if it finds that the

entire response is no longer usable, which according to respondents, is

not the case in this situation. Changwon/POSCO argue that if the

Department were to make an adjustment to POSCO's reported costs, it

would be confined to modifying the adjustment factor applied to

Changwon's COM.

Finally, Changwon/POSCO maintain that the cases cited by

petitioners in support of their argument for adverse facts available

are irrelevant in this case because the Department has fully verified

POSCO's submitted costs and the facts of those cases are totally

distinguishable from those in this case.

DOC Position

We disagree with petitioners. POSCO did not fail its cost

verification, as we were able to successfully verify POSCO's COP

submissions. Contrary to petitioners' interpretation of the cost

verification report, we do not agree that POSCO's failure to provide a

trial balance with account codes prevented the Department from

reconciling POSCO's overall costs and that it also prevented the

Department from verifying the cost information submitted by POSCO. Upon

request, POSCO provided two separate trial balances; one with account

codes and one with account names. The trail balance with only account

names was maintained in the ordinary course of business. The balances

on these two trial balances were equal and reconciled to the financial

statements. We also do not agree with petitioners that POSCO failed to

cooperate with the Department in a manner that significantly impeded

the verification proceeding. In fact, we were able to perform several

additional procedures, including a reconciliation of the inventory

ledger, from which the reported per-unit costs were derived, to the

financial statements. See Memorandum from Michael Martin and Cameron

Werker to Irene Darzenta Re: Verification Report on the Cost of

Production and Major Input Cost Data submitted by Pohang Iron and Steel

Co., Ltd. Therefore, we have accepted POSCO's reported cost information

for purposes of this final determination. Regarding the portion of

petitioners argument pertaining to collapsing of POSCO and Changwon,

see POSCO Comment 2 in the ``Interested Party Comments'' section of

this notice.

Comment 2: Affiliation between POSCO and Dongbang

Petitioners claim that the relationship between Dongbang and POSCO

satisfies all of the statutory and regulatory requirements necessary

for the Department to find that these two companies are affiliated.

Petitioners cite section 771(33)(G) of the Act, which states that ``a

person shall be considered to control another person if the person is

legally or operationally in a position to exercise restraint or

direction over the

[[Page 40409]]

other person.'' Petitioners note that actual restraint or direction

need not have been exercised in a relationship, only that one person is

``in a position'' to exercise restraint or direction over another.

Petitioners further state that section 351.102(b) of the Department's

regulations states that the Department will not find control based on

factors such as the existence of franchise or joint venture agreements,

debt financing, and close supplier relationships in determining the

existence of control ``unless the relationship has the potential to

impact decisions concerning the production, pricing, or cost of the

subject merchandise or foreign like product.'' Petitioners stress that

the potential impact on the decision-making process is the key

criterion, not actual exercise of that potential.

Petitioners argue that POSCO exercises control over Dongbang

primarily through a close buyer-supplier relationship. Petitioners

state that in Open-End Spun Rayon Singles Yarn from Austria (62 FR

43707, August 15, 1997) (Yarn from Austria), the Department focused on

a ``majority of sales'' rule in determining whether a close supplier

relationship existed, not whether the supplier could be replaced.

Petitioners maintain that the POSCO/Changwon collapsed entity is a

supplier of Dongbang's input and has the ability to control Dongbang by

threatening to slow or stop deliveries, threatening to increase prices,

or actually taking these steps. Petitioners argue that the Department's

verification confirmed the cohesive nature of the buyer-supplier

relationship between POSCO and Dongbang. Specifically, petitioners

state that POSCO's recent decision to stop production of black coil has

no effect on this relationship given that Changwon, which is collapsed

with POSCO, ``assumed the responsibility of producing black coil for

the POSCO Group.'' Moreover, petitioners state, POSCO/Changwon's status

as the only supplier of black coil in Korea enhances its control of

Dongbang. Petitioners assert that as a result of the level of control

POSCO maintains over Dongbang, the two companies must be deemed

affiliated parties.

In addition to the close supplier relationship, petitioners argue

that a variety of other indicia of control, when considered

cumulatively, demonstrate that POSCO controls Dongbang. For example,

petitioners contend POSCO may exercise indirect control of more than

five percent of the voting stock of Dongbang through POSCO's

relationship with POSTECH. Petitioners also state that POSCO's

interlocking directorate scheme with POSTECH, donations to POSTECH,

their co-location, and other indicia of control add overwhelming

evidence of POSCO's effective, albeit extralegal, control of Dongbang.

Petitioners further argue that the Department's regulations and

past cases demonstrate that more than one company can exercise control

over another and, thus, Dongbang's membership in the Dongbang group

does not preclude POSCO from exercising control over Dongbang (see

Welded Carbon Steel Pipes and Tubes from Thailand (62 FR 53814, October

16, 1997)).

Petitioners also argue that because POSCO and Dongbang are

affiliates, the Department should invoke the major input rule in

evaluating the sale of black coil, which is the foreign like product,

from POSCO to Dongbang.

In determining whether two parties are affiliated based on a buyer-

supplier relationship, Dongbang argues that the Department must find

that one of the parties is in fact reliant upon the other, as stated in

the Statement of Administrative Action (SAA). Dongbang further argues

that section 351.102(b) of the Department's regulations indicates that

one of the parties must have the ``potential to impact the other

party's decisions concerning production, pricing, or cost of the

subject merchandise.'' Dongbang maintains that the term ``potential''

indicates that not only must there be a possibility that a party will

exert control over the other party, but that there is an inherent

likelihood that control could be exerted. Citing 1997 Flat Products

from Korea, Dongbang asserts that the Department must find significant

indicia of control and the standard is not whether one company might be

in a position to become reliant upon another by means of a supplier-

buyer relationship, but that the buyer has, in fact, become reliant

upon the seller, or vice versa. As a result, Dongbang maintains that

only after an initial finding that a buyer or supplier has become

reliant upon the other can the Department examine whether a realistic

potential for control, whereby one of the parties is in a position to

exercise restraint or control over the other, exists based upon that

actual reliance.

Dongbang maintains that the fact that petitioners were unable to

cite a single case in which the Department found that a buyer-supplier

relationship constituted sufficient potential control to support a

finding of affiliation, confirms that the Department is applying the

buyer-supplier relationship provision cautiously to stay mindful of the

commercial and business realities of the marketplace. Dongbang

maintains that even though the Department indicated in Yarn from

Austria that a close buyer-supplier relationship may occur if a

majority of a supplier's sales are to one customer, the Department

determined that the existence of this situation does not alone support

the finding of affiliation. Likewise, Dongbang notes that in Furfuryl

Alcohol from the Republic of South Africa, 62 FR 61086 (November 14,

1997) (Furfuryl Alcohol from South Africa), the Department determined

that the fact that there was only one manufacturer of the subject

merchandise in South Africa was insufficient to find that the

manufacturer and its customers were affiliated.

In this instance, Dongbang argues that there is no evidence on the

record that Dongbang is reliant upon POSCO to the extent necessary to

support an affiliation finding. Dongbang contends that petitioners have

only speculated that it is possible that POSCO could control Dongbang

through threats of stopping deliveries or increasing prices. However,

Dongbang maintains that there is no evidence that POSCO could or has

exerted such control. Dongbang further maintains that the record

demonstrates that it has alternate sources of black coil, as black coil

is a commodity product produced by numerous suppliers around the world.

In addition, Dongbang asserts that there are no long-term supply

contracts or exclusive relationship commitments between Dongbang and

POSCO, nor is there evidence of any law or regulation prohibiting

Dongbang from purchasing black coil from any source that it desires.

Dongbang argues that this fact pattern led the Department to find that

POSCO and Union were not affiliated in the 1997 Flat Products from

Korea case and that the same logic applies to the instant case.

Dongbang further states that petitioners have failed to present any

evidence to contradict the proposition that Dongbang's purchases of a

majority of its black coil requirements from POSCO was the result of

POSCO's comparative advantages, location, product quality, and other

circumstances, rather than a ``special control relationship between

POSCO and Dongbang.'' Dongbang again cites 1997 Flat Products from

Korea where the Department reasoned that POSCO and Union were not

affiliated despite a buyer-supplier relationship, in part because, it

made commercial and business sense for Union to purchase from POSCO

given POSCO's

[[Page 40410]]

``comparative advantages'' in the marketplace.

Moreover, Dongbang disputes petitioners' other allegations that

POSCO controls Dongbang. First, Dongbang maintains that the evidence on

the record shows that Dongbang is under the complete and effective

control of the Dongbang Group. Dongbang argues that even if POSCO

controls POSTECH, which Dongbang maintains it does not, POSTECH could

not control Dongbang through its partial ownership of Dongbang given

the Dongbang Group's majority ownership in Dongbang and thus its active

control over Dongbang. In addition, Dongbang notes that the Department

confirmed at verification that POSTECH's shares in Dongbang are non-

voting. Therefore, Dongbang argues, the Dongbang Group's complete

ownership of 100 percent of Dongbang's voting stock, coupled with its

supervision over Dongbang's operations, precludes POSCO from having

control over Dongbang.

Second, Dongbang maintains that POSCO does not control POSTECH.

Among other things, Dongbang asserts that POSTECH is not part of

POSCO's interlocking directorship. Furthermore, Dongbang notes that the

Department found at verification that POSTECH's board of directors

operates on a majority-rule basis and that, as a result, POSCO

officials cannot unilaterally control POSTECH's decision-making.

Lastly, Dongbang states that the Department found at verification that

the revenue POSTECH earns from POSCO is comparable to its percentage of

revenue from other companies.

Therefore, Dongbang argues that the Department should reject

petitioners' argument that Dongbang and POSCO are affiliated parties.

DOC Position

We agree with petitioners and have considered POSCO and Changwon to

be affiliated with Dongbang, within the meaning of section 771(33)(G)

of the Act and section 351.102(b) of the Department's regulations, for

purposes of the final determination. The Department has stated in past

cases that the term ``affiliated parties,'' as defined in the preamble

to our proposed regulations which states that ``business and economic

reality suggest that these relationships must be significant and not

easily replaced,'' suggests that the Department must find significant

indicia of control (see 1997 Korean Steel). The Department has also

stated that it may consider close supplier relationships as a

sufficient basis for a finding of affiliation. See Large Newspaper

Printing Presses and Components Thereof from Japan, 61 FR 38139 (July

23, 1996) (LNPP). Further, we stated in LNPP that the Department would

make its affiliated party determinations after taking ``into account

all factors which, by themselves, or in combination, may indicate

affiliations.''

The facts on the record in the instant case are unlike past cases

such as Yarn from Austria, Furfuryl Alcohol from South Africa, and 1997

Korean Steel, in which the Department did not find enough evidence on

the record to determine that the buyer had become reliant upon the

seller, or vice versa, and therefore, did not find a close supplier

relationship. In the instant case, we found that not only is POSCO/

Changwon the sole supplier and Dongbang the sole Korean buyer of black

coil (the major input in the production of finished SSWR), but that

Dongbang, by its own admission, has been unable to develop an

alternative source of supply of black coil. Thus, the business and

economic reality is that the relationship between the parties is

significant and, as demonstrated by evidence on the record, not easily

replaced. Furthermore, as stated above, Dongbang's business operations

are almost exclusively dependent on the production of finished SSWR.

The production processes performed by POSCO, Changwon, and Dongbang

are also important in determining whether or not POSCO has control over

Dongbang. POSCO has the facilities to produce SSWR from the beginning

of the process through the black coil production stage. Changwon is a

fully integrated SSWR producer that has the capability to produce SSWR

from start to finish. Dongbang, on the other hand, only has the

facilities to finish black coil (i.e., can only perform annealing and

pickling functions). If POSCO/Changwon were to cut off the supply of

black coil to Dongbang, Dongbang would not be able to produce SSWR

without alternative sources of supply, which do not seem to exist for

Dongbang. POSCO/Changwon indeed has greater leverage over the

production of SSWR due to the fact that it bears a portion of the costs

of producing the SSWR and has the facilities to perform the necessary

finishing activities upon the black coil.

Given the interdependent production operations of POSCO/Changwon

and Dongbang and Dongbang's inability to obtain suitable black coil

from alternative sources, it is reasonable to assume that Dongbang

would suffer economic hardship if POSCO/Changwon ceased to supply black

coil to Dongbang. In this instance, as opposed to the past cases cited

by Dongbang, Dongbang is actually reliant on POSCO/Changwon such that

POSCO/Changwon is in a position of control (i.e., can operationally

exercise restraint or direction) over Dongbang. Moreover, given the

importance of black coil to the production of SSWR, the relationship in

question has the potential to impact decisions concerning the

production, pricing or cost of the subject merchandise or the foreign

like product under investigation.

Based on our review of the record evidence, including our findings

at verification, we have determined that POSCO/Changwon are affiliated

with Dongbang through a close supplier relationship in which actual

reliance exists such that POSCO/Changwon is in a position of control

over Dongbang (i.e., can exercise restraint or direction over

Dongbang).

Given that we determined POSCO/Changwon and Dongbang share a close

supply relationship and are, therefore, affiliated in accordance with

section 771(33) of the Act and section 351.102(b) of the Department's

regulations, we then analyzed the collapsing criteria enumerated in

section 351.401(f) of the Department's regulations. Both POSCO/Changwon

and Dongbang have production facilities (i.e., similar finishing

production equipment) which can produce identical or similar SSWR. The

difference in SSWR production facilities between the two entities is

essentially that Dongbang has the ability to anneal and pickle the

black coil purchased from POSCO/Changwon to produce finished SSWR.

POSCO/Changwon has the ability to perform all processes in the

production of finished SSWR, including annealing and pickling. Because

POSCO/Changwon has the capability and expertise to perform all

processes in the production of finished SSWR and in fact already

produces subject merchandise (i.e., black coil and finished SSWR), we

believe that the companies would not need to engage in major retooling

to shift production of the subject merchandise from one company to

another. Further, although the record of this investigation

demonstrates that POSCO/Changwon do not have common ownership or share

common interlocking officers or directors with Dongbang, the record

does indicate that there is a significant potential for price or cost

manipulation among these companies given their interdependent

operations, as discussed above in the affiliation analysis section.

For these, we have determined it appropriate to collapse all three

producers into one entity for purposes

[[Page 40411]]

of our final analysis, in accordance with section 351.401(f) of the

Department's regulation. For a full discussion, see the Memorandum from

the Team to Holly Kuga regarding: ``Whether Pohang Iron and Steel Co.,

Ltd. (POSCO), and its subsidiary Changwon Specialty Steel Co., Ltd.

(Changwon), are affiliated with Dongbang Special Steel Co., Ltd.

(Dongbang). Whether to collapse Dongbang with the already collapsed

entity POSCO/Changwon for antidumping analysis purposes,'' dated July

20, 1998.

Comment 3: POSCO's Costs of Production Used in Calculations for

Changwon and Dongbang

Petitioners maintain that both Changwon and Dongbang purchased

significant amounts of their input materials from POSCO. Petitioners

state that Dongbang purchases all its black coil for the production of

finished SSWR and that POSCO and its wholly-owned subsidiary, Changwon,

supply Dongbang with this black coil. Furthermore, petitioners state

that Changwon purchased blooms, billets, and black coil from POSCO.

Petitioners maintain that these major inputs, especially black coil,

account for the vast majority of the COP of finished SSWR. Petitioners

argue that in light of the importance of the raw material inputs

sourced from POSCO and the fact that the Department now lacks the

ability to validate these input prices and costs (see POSCO Comment 1

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

Department should choose the higher of the two measures of facts

available for POSCO's COP as described in POSCO Comment 1 in the

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

DOC Position

We disagree with petitioners. As stated in the DOC Position to

POSCO Comment 1 in the ``Interested Party Comments'' section of this

notice, POSCO did not fail its cost verification. Therefore, we have

used POSCO's actual costs, as appropriate, for both Changwon and

Dongbang, given that we have collapsed POSCO, Changwon, and Dongbang

into one entity for final margin calculation purposes. See also

Changwon Comment 7 in the ``Interested Party Comments'' section of this

notice for discussion of the inapplicability of the major input and

fair value rules in this case.

Comment 4: Corrections to POSCO's Sales Database Based on Findings at

Verification

Petitioners state that the Department should use the correct short-

term interest rate found at verification. Petitioners also state that

the Department should correct the amount of fees POSCO paid to outside

research entities in 1997, as provided by POSCO at verification.

Furthermore, petitioners contend that the Department should correct the

misreported amounts for other revenue and total revenue for POSCO's

1996 Description of Revenue of POSTECH.

DOC Position

We have corrected all errors found at verification for purposes of

the final determination and have considered them in our final analysis,

where appropriate.

Dongbang

Comment 1: Accuracy of Dongbang's Cost Reporting

Dongbang maintains that the Department thoroughly verified and

confirmed the accuracy of its reported cost information. Dongbang notes

that the minor differences found by the Department between the reported

per-unit costs and Dongbang's inventory values resulted from the fact

that Dongbang's financial accounting system accounts for costs only by

steel grade. Dongbang asserts that in order to develop control number-

specific costs which accurately reflected the Department's product

characteristics, it relied on source data used in preparing its

financial statements. Dongbang maintains that the Department verified

the accuracy of its methodology and therefore should use its reported

data in the final determination.

Regarding the accuracy of Dongbang's reported cost information,

petitioners note that the cost verification report states that the

Department has not determined, as of the date of the report, whether

the cost calculation methodologies used by Dongbang were appropriate.

Petitioners further note that the cost verification report states that

Dongbang allocated its fabrication costs using ``alternative allocation

bases, rather than those used in its normal costs system.'' Petitioners

maintain that Dongbang's deviations from its cost system were not

necessitated by the questionnaire's requirement to provide control

number-specific costs, but rather for self-serving purposes.

Petitioners contend that the Department verified that Dongbang's new

allocation methods effectively reduced the COMs for products examined.

Therefore, given that Dongbang deviated from its normal cost accounting

system without approval from the Department and without presenting

information on the record to justify the deviation, petitioners argue

that the Department should disallow Dongbang's submitted methodology

for calculating its COP and CV. However, petitioners maintain that if

the Department decides to use Dongbang's submitted costs, it should

increase all reported COMs by the maximum percentage by which the

Department found Dongbang's methodology reduced the COMs for products

examined.

DOC Position

We agree with Dongbang. The Department fully verified the accuracy

of Dongbang's cost reporting methodology. We found at verification that

Dongbang's financial accounting system did not record costs at the

level of detail requested by the Department. The Department has

determined in several past cases that respondents can allocate costs to

a more detailed product-specific level than their normal cost

accounting methodology in order to report costs on a control number-

specific basis, as required by the Department, provided that the

methodology used is reasonable. See, e.g., 1997 Flat Product from Korea

and Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat

Products from Korea, 63 FR 13170 (March 18, 1998) (1998 Flat Products

from Korea).

Comment 2: Dongbang's Direct and Indirect Cost Allocation Methodology

Petitioners maintain that, as stated in the Department's cost

verification report, Dongbang submitted a cost allocation methodology

for its direct fabrication cost centers that deviates from its normal

cost system. In addition, petitioners maintain that Dongbang's

methodology for allocating indirect costs as submitted for this

investigation also deviates from its normal cost accounting practices

and therefore should be rejected. Specifically, petitioners argue that

two specific indirect costs were allocated on the basis of direct cost

amounts and depreciation costs for each cost center, rather than on the

basis of production quantities, which is Dongbang's normal methodology.

Petitioners argue that Dongbang has not placed information on the

record to justify the deviation from the normal accounting methodology

and that this selected methodology is inherently less precise than the

use of production quantities. Petitioners state that the cost

verification report shows

[[Page 40412]]

that the Department found that the net effect of Dongbang's new

allocation methods was that the reported COMs for the three products

examined were lower than the values contained in Dongbang's inventory

ledger.

As a result, petitioners argue that, while the Department should

dismiss Dongbang's submitted COP and CV data in their entirety and that

adverse facts available be applied (see Dongbang Comment 1), if the

Department decides to use Dongbang's submitted costs, it should

increase all reported COMs by a minimum of the highest percentage

deviation found by the Department between the reported COMs and the

values contained in Dongbang's inventory ledger.

Dongbang maintains that it did not unilaterally depart from its

normal cost accounting system without fully informing the Department,

and that it demonstrated that its normal methods were inaccurate for

the Department's purposes. Dongbang maintains that it notified the

Department in advance by telephone that it intended to deviate from its

normal accounting system in order to report costs on a product-specific

basis and described its reporting methodology in its questionnaire and

supplemental questionnaire responses. Dongbang further states that the

Department fully verified both the accuracy of Dongbang's costs and the

reasonableness of its allocation methodologies.

Dongbang states that it relied on costs recorded in its normal cost

accounting system, which accurately identifies and captures costs by

production process, and only modified those costs in two instances in

which Dongbang's cost accounting system is distortive for antidumping

purposes. Dongbang maintains that the first aspect of the normal

accounting system that was modified, i.e., its methodology for

allocating costs to specific products based on the Department's product

comparison criteria, because its system does not account for

differences in grade and diameter, was not disputed by petitioners.

Dongbang states that petitioners' only dispute relates to Dongbang's

reallocation of indirect costs to direct centers. Regarding the

indirect costs in question, Dongbang states, as verified by the

Department, that these indirect costs are normally allocated based on

production quantities. However, Dongbang asserts also, as verified by

the Department, that its cost system does not track production

quantities at all direct cost centers, and as a result, the cost system

does not allocate indirect costs to all cost centers. Dongbang argues

that given that all direct cost centers benefit from the indirect costs

in question, all the direct cost centers should bear a portion of these

costs. However, Dongbang also argues that it would be distortive to

allocate these indirect costs based on production quantities for all

cost centers as not all cost centers incur the same costs, on a per

metric ton basis, for the activities associated with the indirect costs

in question. Dongbang notes that the allocation of these indirect costs

based solely on production quantities fails to capture significant

differences in production processes and results in the under-allocation

of the indirect costs to specialty steel products.

Dongbang states that the indirect cost associated with a particular

cost center identified by petitioners is only a very small portion of

the total COM. Dongbang further states that the difference between

Dongbang's cost accounting system and its reporting methodology for

indirect costs for this cost center was very small and the impact on

the total COM minimal. Dongbang argues that given that the Department

has verified the accuracy and reasonableness of its accounting system,

no adjustments are required or necessary.

DOC Position

We agree with Dongbang. Dongbang's financial accounting system does

not record costs at the level of detail requested by the Department. As

a result, Dongbang deviated from its normal accounting methodology in

order to conform to the requests of the Department. Furthermore,

Dongbang's questionnaire responses reported the deviation from its

normal accounting system. After reviewing Dongbang's methodology, we

determined, for the reasons stated in our position to Dongbang Comment

1, that the cost reporting methodology utilized by Dongbang, including

its indirect cost allocation methodology, was reasonable and accurate.

Therefore, we have accepted Dongbang's submitted and verified cost

methodology for use in the final determination.

Comment 3: Foreign Exchange Losses

Dongbang notes that the Department confirmed that Dongbang

submitted its interest expense based on Dongbang Transport and

Logistics' consolidated statements. Moreover, Dongbang states that the

Department verified that the amount of foreign exchange losses occurred

in 1996 attributable to financing expense were very minor. Dongbang

notes that the Department routinely ignores adjustments such as these

that are so minor as to have no impact on the analysis.

Petitioners note that Dongbang did not include any of its gains or

losses on foreign currency transactions and translations in its

reported G&A expenses. Petitioners argue that given that the

Department's normal practice is to include in G&A expenses for foreign

exchange gains and losses other than those related to accounts

receivable, Dongbang's net losses should be included in its reported

G&A expenses.

Petitioners also note that the cost verification report states that

Dongbang did not allocate net loss from foreign exchange translation

which was deferred in its 1996 financial statements in its reported

interest expense. Petitioners argue that given that this deferred

capital adjustment was not reflected in the income statement, it should

properly be allocated to Dongbang's reported financial expense in the

cost response. Therefore, petitioners maintain that the Department

should correct Dongbang's reported interest expense accordingly in the

final determination.

DOC Position

We agree with petitioners regarding Dongbang's G&A expenses and

have included the unreported recognized net foreign exchange losses

related to all accounts except accounts receivable in Dongbang's G&A

expenses. However, we agree with Dongbang that its submitted interest

expense was based on Dongbang Transport and Logistics' consolidated

financial statements. Therefore, the amortized portion of the net

losses from long-term foreign exchange translation which was deferred

in Dongbang's 1996 financial statements is moot given that we are not

using Dongbang's 1996 financial statements, but rather, we have used

Dongbang Transport and Logistics' 1996 consolidated financial

statements.

Comment 4: Reversal of Allowance for Bad Debt

Petitioners note that Dongbang subtracted an amount for a reversal

of allowance for bad debts from its reported G&A expenses. Citing the

cost verification report, petitioners state that Dongbang itself

acknowledged that it ``over-estimated the bad debts allowance in the

previous years and that the difference was reversed when it re-

estimated the allowance in 1996.'' Petitioners maintain that the

reversal of allowance for bad debt was a bookkeeping exercise related

to years previous to the POI. Therefore, petitioners argue that

Dongbang's reversal of allowance for bad debt

[[Page 40413]]

cannot be considered an expense related to production during the POI

and should not be netted out from Dongbang's reported G&A expenses.

Regarding petitioners argument that the Department exclude from

Dongbang's G&A calculation the reversal of bad debt allowance, Dongbang

maintains that it appropriately included this line item in its

calculation of bad debt allowance. Dongbang states that its methodology

is consistent with the Department's practice, and cites SRAMS from

Korea as a case in which bad debt was properly classified as a non-

operating general expense.

DOC Position

We agree with petitioners and have excluded from Dongbang's G&A

calculation the reversal of bad debt allowance at issue. Dongbang is

incorrect in stating that its methodology is consistent with the

Department's past practice in SRAMS from Korea. Specifically, in SRAMS

from Korea, respondents made a reversal of allowance for bad debt to

correct for a previously made error. In the instant case, the allowance

estimated for previous years was reversed and reflected in the current

year. Because this practice will distort the expense incurred for the

current year, we excluded from Dongbang's G&A calculation the reversal

of bad debt allowance.

Comment 5: 1996 versus 1997 Annual Data as the Basis for G&A.

Petitioners state that Dongbang reported its G&A expenses for

purposes of its COP and CV on the basis of its audited 1996 financial

statements. Petitioners note that, at verification, Dongbang presented

the Department with its audited 1997 financial statements. Petitioners

argue that given that it is the Department's normal practice to rely

upon the most recent set of audited financial statements in calculating

G&A percentages, the Department should rework Dongbang's G&A expenses

on the basis of its 1997 financial statements which are similar to

those reported in its 1996 financial statements. Petitioners provide a

recommendation for a conservative, shortcut method of estimating the

effect of the changes in Dongbang's net foreign exchange losses on

transactions and translations in 1997 compared to those in 1996.

Dongbang refutes petitioners' assertion that the Department should

use its 1997 annual data for G&A expenses as opposed to the 1996 data

reported by Dongbang. Dongbang argues that it is the Department's clear

practice to calculate G&A expenses based on annual data which most

closely corresponds to the POI in order to eliminate distortions that

are caused by periodic expenses which may fluctuate dramatically during

the fiscal period, but which are otherwise representative of a

company's experience.

Dongbang maintains that in this case, the use of 1996 annual data

is more appropriate, as reliance on the 1997 annual data would result

in distortions to the Department's analysis. Specifically, Dongbang

argues that there is no significant difference in G&A expenses between

1996 and 1997, and that the significant difference between the two

periods for non-operating expenses is due entirely to foreign exchange

losses. Dongbang contends that these losses are unrelated to production

or sales of subject merchandise during the POI. Dongbang states that as

of 1997, under Korean GAAP, Korean companies must analyze outstanding

long-term debt as of the end of the fiscal year (December 31 for

Dongbang) and must amortize the foreign exchange translation losses

relating to that debt based on the life of the loans. As a result,

Dongbang maintains that its 1997 year-end financial statements show

large foreign exchange translation losses based on the artificial use

of December 31, 1997, when the Korean won underwent significant

devaluation, as the point in time when these losses are measured for

accounting purposes. Dongbang states that in Oil Country Tubular Goods

from Mexico, 60 FR 33572 (June 28, 1995), the Department, given very

similar facts, declined to rely on 1994 annual financials statements

for the calculation of interest expense, as urged by petitioners,

because Mexico experienced severe devaluation of its currency in

December of 1994, which the Department stated made the 1994 financial

statements unrepresentative of the POI and severely distortive.

Moreover, regarding the foreign exchange losses which represent the

significant difference between the 1996 and 1997 annual data, Dongbang

maintains that the Department considers such gains and losses an

element of interest expense, and cites SRAMS from Korea to support its

argument. Dongbang asserts that it properly based its interest expense

on the experience of its consolidated parent, Dongbang Transport and

Logistics. Dongbang further maintains that including exchange gains and

losses in G&A, therefore, would double-count these expenses, once as an

element of G&A and once as an element of interest expense. However,

Dongbang does not dispute petitioners' proposition that the Department

include foreign exchange gains and losses attributable to accounts

payable in the calculation of G&A expense.

Therefore, Dongbang argues that the Department should reject

petitioners' argument to rely on 1997 data or to add elements of the

1997 foreign exchange losses to 1996 expenses.

DOC Position

We have continued to use Dongbang's reported G&A expenses derived

from the 1996 annual data. We note that it is the Department's practice

to use G&A expenses based on annual data which most closely corresponds

to the POI. In this instance, given that the POI covers a six month

period in both 1996 and 1997, both years' financial data equally

correspond to the POI. However, although Dongbang submitted its 1997

audited financial statements at verification, we used the audited 1996

financial statements for our reconciliations and other verification

procedures since all submitted G&A expense rate data was based on the

1996 financial statements. In this case, given that all parties agree

that Dongbang's G&A expenses from both 1996 and 1997 are similar with

the exception of the foreign exchange losses related to long-term debt,

which impacts the interest expense calculation rather than G&A expense

calculation, we used Dongbang's 1996 annual data. In addition, we

continued to use Dongbang Transport & Logistics' consolidated 1996

financial statements for the interest expense calculation. We found

that the devaluation of the Korean won began in earnest near the end of

August 1997 and continued through the remainder of the year and into

1998 (see Federal Reserve exchange rates). Since the use of Dongbang

Transport & Logistics' consolidated 1997 financial statements for

interest expense would incorporate this post-POI devaluation, we have

considered it more appropriate to rely on Dongbang Transport &

Logistics' consolidated 1996 financial statements.

Comment 5: Dongbang's Local Sales.

Petitioners contend that although Dongbang's home market sales

listing shows prices for local sales both in terms of U.S. dollars and

Korean won, Dongbang has suggested throughout this investigation that

these sales are actually denominated in U.S. dollars. Petitioners

maintain that it is the Department's longstanding practice that the

respondent should report expenses and revenues in the currencies in

which they are incurred. As a result,

[[Page 40414]]

petitioners maintain that the Department should use the U.S. dollar

prices provided in Dongbang's home market sales database.

DOC Position

We agree with petitioners regarding the Department's longstanding

practice that the respondent should report expenses and revenues in the

currencies in which they are incurred. While it appears that Dongbang's

home market local sales are incurred in U.S. dollars, the evidence on

the record is inconclusive as to whether freight income is included in

the reported dollar-denominated gross unit price field on Dongbang's

sales listing. Furthermore, at verification, we verified the Korean won

prices and traced these Korean won prices through Dongbang's accounting

system and to payment records. Therefore, although it is our preference

to recognize prices, expenses, and revenues in the currency in which

they are incurred, we have continued to use the reported Korean won

prices in our final analysis given the information on the record in

this case.

Comment 6: Clarifications to the Dongbang Verification Report.

Dongbang notes that although the Department's sales verification

report indicates that a single interest rate was used by Dongbang for

reporting its home market bank credit charges, a review of the sales

listing shows that this credit expense reflects the November 1996

interest rate change. Dongbang also states that it reported its sales

prices for local export sales in U.S. dollars, not Korean won as

indicated by the Department's verification report. Petitioners did not

address these issues.

DOC Position

We agree with Dongbang that there were no errors in Dongbang's

reported home market bank credit charges or its U.S. sales reporting

with regard to local export sales.

Comment 7: ``Prime 2'' Merchandise.

Petitioners maintain that the discovery of the existence of ``prime

2'' merchandise during verification constitutes new information for

which Dongbang had never before provided any explanation. Petitioners

state that company officials informed Department verifiers that while

Prime 1 products are produced to strict quality controls as per

specific customers' requests and can be sold to all customers, prime 2

products are SSWR produced to Dongbang's own quality standards and,

thus, cannot be sold to prime 1 customers. Petitioners contend that

there is nothing on the record of this proceeding to clarify the

distinction between prime 1 and prime 2 products and to indicate

whether it is even possible to distinguish between the two types of

products in Dongbang's sales or cost files. Petitioners argue that

since prime 2 product cannot be sold to prime 1 customers and because

there is no clear way to distinguish the prime 2 product and remove it

from Dongbang's home market sales database, the Department should

assume that all products in the home market database is of prime 2

quality, and that such products sell at a relative price discount.

Therefore, petitioners contend that the Department should use the

highest sales price within each control number as the weighted-average

price for that particular control number as a means of adjusting the

reported sales data.

Dongbang states that, in its responses, it indicated that there are

two internal codes for prime merchandise. Dongbang asserts that prime 2

merchandise is prime merchandise and should continue to be treated as

such. According to Dongbang, prime 2 merchandise meets all of

Dongbang's quality standards, is not sold at a discount, and does not

contain the surface defects that characterize non-prime merchandise.

Dongbang further states that there is no price difference between the

two product classifications.

Dongbang argues that because both of these internal codes reflect

prime merchandise, they are comparable for the Department's purposes.

Dongbang states that petitioners cite no cases to the contrary.

Moreover, Dongbang states that in past cases involving steel products,

the Department has treated all types of prime products equally as prime

merchandise. For example, Dongbang cites the Notice of Final

Determination of Sales at Less Than Fair Value: Steel Wire Rod from

Trinidad and Tobago, 63 FR 9177, 9180 (February 24, 1998) (Wire Rod

from Trinidad and Tobago) in which the Department treated two types of

merchandise as prime merchandise because both types were identical

under the Department's matching characteristics, and were purchased and

used by customers as prime merchandise. Dongbang further notes that it

is common industry practice to have multiple internal codes for prime

merchandise, and that in past cases the Department has treated all

types of prime products as prime merchandise.

DOC Position

We disagree with petitioners that the existence of prime 2

merchandise constitutes new information. As noted in its rebuttal

brief, Dongbang previously reported in its latest supplemental

questionnaire response that prime merchandise is identified by two

internal codes. Furthermore, while at verification, we substantiated

Dongbang's assertion that it maintains separate codes for prime

merchandise. Regarding petitioners' contention that there is no way to

distinguish prime 1 merchandise from prime 2 merchandise in the sales

and cost files, we confirmed at verification that both prime 1 and

prime 2 products meet the chemical content tolerances of

internationally-recognized grade standards and that neither type of

prime product contained the surface defects inherent in non-prime

products. Although, as petitioners contend, we are unable to determine

from a review of the sales listings or questionnaire responses whether

prime 2 products are sold at a discount from prime 1 products, we found

no physical differences between the two prime products that would lead

us to believe that prime 1 and prime 2 products are not comparable in

price or cost. We agree with Dongbang that the facts in this case are

consistent with those in Wire Rod from Trinidad and Tobago, in which

the Department determined that products that were verified to be

identical in every way to prime merchandise within each control number

and within the meaning of the statute and the Department's product

matching hierarchy should be treated as prime merchandise. Moreover,

contrary to petitioners' proposition that all home market sales should

be assumed to be prime 2 merchandise absent evidence distinguishing

sales of prime 1 from sales of prime 2 merchandise, our sales

verification exhibit on this topic demonstrates that prime 1

merchandise comprises the majority of both home market and U.S. sales.

(See Sales Verification Exhibit 17.) Therefore, we find no basis for

determining that prime 1 merchandise and prime 2 merchandise are not

comparable. Consequently, we have rejected petitioners' argument that

we use the highest sales price within each control number as the

weighted-average price for that particular control number as a means of

adjusting the reported sales data.

Comment 8: Brokerage Charges for Dongbang's U.S. Sales.

Petitioners argue that the Department should review Dongbang's U.S.

sales listing and set all brokerage charges that are less than 12,000

won per shipment to 12,000 won given that the Department found at

verification that Dongbang incurs minimum brokerage charges on its U.S.

sales of the greater of 0.08 percent of the FOB sales value

[[Page 40415]]

of the shipment or 12,000 won per shipment.

Dongbang acknowledges that it did not utilize the 12,000 won

minimum brokerage charge in its brokerage expense methodology for five

U.S. sales. However, Dongbang states that the Department should not

apply the full 12,000 won to each of these sales. Dongbang argues that

since the 12,000 won minimum applies to a shipment, not each individual

sale, this method would be distortive and unreasonable in cases where

more than one sale is included in a shipment.

Dongbang also states that it reported a per-unit brokerage charge

in its sales listing (i.e., brokerage charge for the shipment divided

by the sales quantity), not the entire expense. Dongbang therefore

argues that if the Department chooses to utilize the 12,000 won minimum

brokerage charge for these five sales, it should divide this charge by

the sales quantity to arrive at the per-unit brokerage charge.

DOC Position

We agree with petitioners' assertion that the Department should

review Dongbang's U.S. sales listing for sales that do not reflect the

12,000 won minimum brokerage charge applied to Dongbang's shipments of

SSWR. We performed this exercise at verification and confirmed that

Dongbang under-reported brokerage charges for five U.S. sales, in

accordance with the reporting methodology described by Dongbang.

However, we also agree with Dongbang in that the Department should

not apply the full 12,000 won to each of the five sales at issue for

two reasons. First, we agree with Dongbang that it reported a per-unit

brokerage charge (i.e., brokerage charge for the shipment divided by

the sales quantity), not the entire expense. We also agree with

Dongbang's argument that since the 12,000 won minimum is applied to a

shipment and not each individual sale, the 12,000 won minimum should be

allocated over all sales in the shipment.

In attempting to revise the brokerage expenses reported for the

five sales in question to account for the 12,000 won minimum charge, we

found that the evidence on the record only allowed us to recalculate

brokerage for two of the five sales that have been under-reported.

Therefore, in accordance with section 776(a) of the Act, which allows

the Department to use facts available when information necessary to the

Department's analysis is not available, we applied the weighted-average

brokerage adjustment calculated for these two sales to the remaining

three sales, as facts available, to arrive at an appropriate per-unit

brokerage charge for all affected transactions.

Comment 9: Duty Drawback.

Petitioners argue that Dongbang fails to qualify for a duty

drawback adjustment because Dongbang has not provided an explanation

for why it has sales of identical products in the home market and U.S.

market for which its duty drawback amounts are different. As a result,

petitioners contend that Dongbang has not met the Department's two-

prong test in that it has not been able to demonstrate that there is a

direct link between the import duty and the rebate granted.

Therefore, petitioners argue that the Department should deny a duty

drawback adjustment to U.S. price as it did in Stainless Steel Bar from

India 63 FR 13622, 13625 (March 20, 1998) (Steel Bar from India).

Dongbang asserts that it reported duty drawback amounts for U.S.

sales by dividing the total duty drawback actually received for each

sale by the quantity of the sale. Dongbang states that its per-unit

duty drawback amounts vary from sale to sale because of this

transaction-specific methodology. Dongbang maintains further that two

sales of the same grade of SSWR may result in different duty drawback

payments because the amount of duty drawback in a sale reflects the

specific composition of imported raw materials for that sale. Dongbang

also asserts that the Department noted no discrepancies regarding duty

drawback in its verification report and should apply Dongbang's

reported duty drawback amounts in the final determination.

DOC Position

We disagree with petitioners that Dongbang should not be entitled

to the claimed duty drawback adjustment. Section 772(c)(1)(B) of the

Act provides for adjustment for duty drawback on import duties which

have been rebated (or which have not been collected) by reason of the

exportation of the subject merchandise. In accordance with this

provision, we will grant a duty drawback adjustment if we determine

that 1) import duties and rebates are directly linked to and are

dependent upon one another, and 2) the company claiming the adjustment

can demonstrate that there are sufficient imports of raw materials to

account for the duty drawback received on exports of the manufactured

product. See e.g., Steel Wire Rope from the Republic of Korea; Final

Results of Antidumping Administrative Review, 61 FR 55965 (October 30,

1996) (Rope from Korea). The first prong of the above test requires the

Department to analyze whether the foreign country in question makes

entitlement to duty drawback dependent upon the payment of import

duties (see Far Eastern Machinery 699 F. Supp. 309, 311 (Ct. of Int'l

Trade 1988)). This ensures that a duty drawback adjustment will be made

only where the drawback received by the manufacturer is contingent on

import duties paid or accrued. The second prong requires the foreign

producer to show that it imported a sufficient amount of raw materials

(upon which it paid import duties) to account for the exports, based on

which it claimed rebates. Id.

We are satisfied that under the duty drawback method reported by

Dongbang, the Korean Government makes entitlement to duty drawback

dependent upon the payment of import duties, which satisfies the first

prong of the duty drawback test. In addition, we are satisfied that

Dongbang is required by the Korean government to provide adequate

information that shows that it had sufficient imports of raw materials

to account for the duty drawback received on exports of the

manufactured product. This satisfies the second prong of the duty

drawback test. (See Rope from Korea). Furthermore, our review of

selected transactions in both the home and U.S. markets during

verification indicated that there were no discrepancies with the duty

drawback amounts reported by Dongbang. Therefore, we have accepted

Dongbang's reported duty drawback for purposes of the final

determination.

Changwon

Comment 1: Changwon's Reported Interest Revenue.

Petitioners assert that the Department should not include

Changwon's reported interest revenue in the calculation of net U.S.

prices. Petitioners argue that Changwon incorrectly calculated the per-

unit interest revenue based on interest revenue to be received from its

customers. Petitioners next argue that the total Pohang Steel America

Corporation (POSAM) invoice amounts for value and quantity, upon which

the reported interest revenue was calculated, include sales of non-

subject merchandise. Thus, petitioners maintain, Changwon failed to

provide evidence that it in fact received the interest revenue for

sales of SSWR during the POI.

Petitioners further contend that even if Changwon did charge

interest to its customers for late payments, Changwon failed to tie the

interest revenues that it charged to its customers to the subject

merchandise. Petitioners cite Tapered

[[Page 40416]]

Roller Bearings and Parts Thereof, Finished or Unfinished, From Japan,

and Tapered Roller Bearings, Four Inches or Less in Outside Diameter,

and Components Thereof From Japan, 63 FR 20,585 20,602 (April 27, 1998)

(TRBs from Japan), as a case in which the Department disallowed the

respondent's claimed amounts for discounts, rebates, and other post-

sale adjustments as direct deductions to the home market sales prices,

on the grounds that the respondent failed to tie the adjustments

directly to the sales of subject merchandise.

Changwon argues that it reported the actual interest revenue

received from U.S. customers for late payments. Further, Changwon

states that the reported interest revenue is directly tied to each sale

of subject merchandise. Changwon asserts that petitioners' allegation

that the calculation of interest revenue includes sales of non-subject

merchandise is wrong. Changwon states that every sale contained in the

invoices upon which the interest revenue was allocated was a sale of

subject merchandise and, thus, the portion of interest revenue

allocated to a sale is the actual amount of interest revenue earned on

that sale.

Changwon also argues that petitioners' citation to TRBs from Japan

actually supports Changwon's position because, in that case, the

Department stated that it treats an allocated adjustment as the actual

amount associated with a sale if the adjustment was ``granted as a

fixed and constant percentage of the sale price of all transactions for

which it was reported and to which it was allocated.'' Changwon states

that it in fact based its allocation on applying a fixed and constant

percentage to the price for each sale on the invoice. For these

reasons, Changwon argues that the Department should adjust U.S. sales

prices for the reported interest revenue in the final determination.

DOC Position

We agree with Changwon and have adjusted U.S. sales prices for the

reported interest revenue, where appropriate. We disagree with

petitioners' arguments regarding Changwon's reporting of interest

revenue. First, we found at verification that, contrary to petitioners'

allegation, the interest revenue reported by Changwon had in fact been

received by Changwon from its U.S. customers for late payments.

Second, we find petitioners' allegation that sales of non-subject

merchandise were included in the invoices upon which the interest

revenue calculation was based to be incorrect. Our findings at

verification for selected invoices confirmed that the sales comprising

each invoice upon which the interest revenue calculations were based,

were sales of subject merchandise.

Third, petitioners' contention that Changwon failed to tie the

interest revenues that it charged to its customers to the subject

merchandise is also incorrect. As noted above, we confirmed at

verification that all sales included in the interest revenue

calculation were of subject merchandise and that the interest revenue

reported was directly tied and properly allocated to these sales. (See

TRBs from Japan.)

For the reasons stated above, we have included Changwon's reported

interest revenue relevant to its U.S. sales in our EP calculations.

Comment 2: Changwon's G&A Expenses.

Petitioners state that the Department should revise Changwon's

reported G&A expense ratio to include bad debt expenses, amortization

for foundation expenses, business start-up expenses and stock issuance

expenses that were not previously included in the G&A ratio.

Petitioners argue that these expenses were incurred by Changwon during

the POI and all such expenses were period expenses, and, therefore,

should be included as part of the expenses for the period.

Petitioners maintain that the bad debt expenses which the company

recognizes during the fiscal period and were reported in Changwon's

financial statements should be included in its G&A calculation.

Petitioners contend that after the POI, some percentage of accounts

receivable on subject merchandise sold within the POI would undoubtably

be reclassified as bad debt. Therefore, petitioners argue that

Changwon's 1997 financial statements do not reflect any bad debt

because, due to the fact that the company was established in February

1997, the company had no previous bad debt experience to carry over

from 1996.

Petitioners also argue that the bad debt reported in Changwon's

financial statements which it classified as non-operating expense

``related only to tax law'' in accordance with Korean GAAP, and

excluded from the G&A calculation, should also be included in its G&A

calculation. Petitioners state that Changwon has placed nothing on the

record to substantiate its claim that this bad debt relates only to tax

law. Petitioners argue that absent evidence to back up this contention,

it must be assumed that the GAAP-accepted practice reported by Changwon

relates to a meaningful expense from the accounting period and, thus,

this bad debt expense should be included in the G&A calculation.

Petitioners assert that these expenses should be characterized as G&A

rather than selling expenses because Changwon was not created until the

second half of the POI thus no previous fiscal year exists from which

to develop bad debt.

Furthermore, petitioners state that it is the Department's normal

practice not to include foreign exchange losses and gains related to

accounts receivable, but to include other types of exchange gains and

losses in the calculations for G&A. Petitioners state that Changwon's

reporting methodology is inaccurate in that it excluded from its G&A

calculation any gains and losses that were related to short-term

borrowings and deposits, but included gains and losses related to

accounts receivable. Petitioners state that the Department should

adjust Changwon's G&A calculation in accordance with its normal

practice.

Changwon states that its financial statements identify two types of

bad debt: the first type represents the company's recognition of bad

debt during the fiscal period, and the second type of bad debt is an

accrual that does not reflect an actual expense, but is an allowance

under Korean GAAP that is recorded for income tax purposes. Changwon

notes that it erroneously indicated in its responses that the first

type of bad debt expense had been included in the calculation of direct

selling expenses. Changwon clarifies that it actually did not incur

this type of bad debt expense during the POI and thus did not report it

as a selling expense or in its G&A calculation.

Changwon also states that it properly excluded the second type of

bad debt expense because this expense relates solely to tax law and

represents no real cost to Changwon. In fact, Changwon maintains that

to include these costs would be distortive for antidumping purposes

because they relate solely to taxes. Changwon cites Stainless Steel

Angles from Japan, 60 FR 16608, 16617 (March 31, 1995) and Fresh and

Chilled Atlantic Salmon from Norway, 58 FR 37912, 37915 (July 14,

1993), among other cases, in support of its argument that the

Department has, in the past, disregarded costs reported solely for tax

purposes.

Changwon also argues that it correctly excluded amortization

expenses, business start-up expenses, and stock issuance expenses from

its G&A calculation because these were extraordinary, one-time expenses

and were not related to the subject

[[Page 40417]]

merchandise. Changwon states however, that if the Department were to

include these expenses in the G&A calculation, it should include only

the portion of the expenses appropriately attributable to the reporting

period (i.e., amounts amortized in accordance with Korean GAAP).

Changwon also states that, with regard to foreign exchange gains

and losses, the Department considers these gains and losses to be an

element of interest expense (see SRAMS from Korea), so to include them

in the G&A calculation would double-count these expenses.

DOC Position

We agree with petitioners. Both types of allowance for bad debt

expenses are actual costs recognized in the respondent's financial

records, whether they are actually incurred or not, based on Korean

GAAP. All of the other mentioned amortization expenses are also

recognized expenses in the financial statements and only the amortized

portion was reflected in the Changwon's 1997 financial statements.

Contrary to Changwon's assertions that these expenses should not be

included because they either relate solely to tax law or that they were

extraordinary, one-time expenses, we found that the amortized portions

were actually recorded in Changwon's accounting system and its

financial statements and therefore represent costs related to

operations. In addition, we find nothing extraordinary about these

expense items (i.e., they are neither unusual in nature or infrequent

in occurrence). Therefore, the Department included all types of bad

debt expense in the reported indirect selling expenses, and

amortization for foundation expenses, business start-up expenses and

stock issuance expenses, in the reported G&A expenses.

Comment 3: Changwon's Interest Expense Reporting Period.

Changwon states that the Department properly utilized its reported

interest expense based on the most recently completed fiscal year.

Changwon states that its reported interest expense was based on POSCO's

consolidated information for 1996, which is the period that most

closely corresponds to the POI and is in accordance with the

Department's policy to rely on the interest expense based on the prior-

year consolidated financial statements, so long as the interest expense

reasonably reflects the current financial situation. Changwon claims

that this is the case because the prior year is assumed to be

reasonably representative of the company's normal experience. Changwon

cites Certain Hot-Rolled Carbon Steel Flat Products from France, 58 FR

37125, 37135 (July 9, 1993) (Flat Products from France) in support of

its position.

Changwon also states that even in the isolated cases in which the

Department has deviated from this policy, financial statements that

cover a period subsequent to the POI are not utilized. For example,

Changwon cites Certain Corrosion-Resistant Carbon Steel Flat Products

and Certain Cut-to-Length Carbon Steel Plate from Canada, 61 FR 13815,

13829 (March 28, 1996), where the Department accepted interest expense

based on the full year 1993 and the first half of 1994, rather than

exclusively the 1993 figures (the POI was February 1993 through July

1994).

Changwon maintains that use of the 1997 data on interest expense

would be distortive because it includes substantial foreign exchange

losses that occurred at year-end 1997 which were due to the rapid

depreciation of the won in December 1997, subsequent to the POI.

Changwon argues that the economic crisis that precipitated the currency

depreciation was in no way related to the production or sale of the

subject merchandise during the POI and, thus, to include these losses

would be distortive. Changwon asserts that, under similar

circumstances, the Department has declined to utilize a time period

which included a severe devaluation of a currency in past cases such as

Oil Country Tubular Goods from Mexico, 60 FR 33567, 33572 (June 28,

1995). Changwon argues that should the Department determine that 1996

is not representative, it should limit any adjustments to the interest

expense ratio to changes in the exchange rate which occurred during the

POI.

Petitioners contend that Changwon's interest expenses should be

based on POSCO's 1997 financial statements. Petitioners state that

Changwon should be consistent in its choice of financial statements

from which to draw its expense ratios since it reported G&A on the

basis of its financial statements for 1997 but employed POSCO's

consolidated 1996 financial statements for purposes of reporting its

interest expense ratio. Given that 1997 is the most recent year for

which financial statements are available, it would be logical for both

G&A and interest expense to be derived from 1997 figures.

Petitioners argue that the cases cited by Changwon do not support

Changwon's position, but instead indicate a preference to use the

closest corresponding fiscal year financial statements. For example, in

Silicon Metal from Brazil, 63 FR 6899, 6906 (February 11, 1998), the

Department stated that it normally uses the ``financial statement that

most closely corresponds to the POI.'' Also, in Flat Products from

France, the Department noted that its ``normal methodology is to

calculate G&A expenses based on the audited annual financial statements

which most closely correspond to the period of investigation.'' Only in

cases in which ``such financial statements are not available, the

Department has relied on financial statements from the fiscal year

prior to the POI, when such statements provide a reasonable

approximation of the company's current financial position.''

Petitioners further argue that since 1997 is the most recent year

for which audited financial statements are now available, is the year

that Changwon came into existence, and includes the entire part of the

POI during which Changwon produced and sold the subject merchandise,

1997 is the logical choice on which to base Changwon's interest

expenses.

DOC Position

We disagree with petitioners, and have used POSCO's 1996

consolidated financial statements as the basis for Changwon's interest

expense. In this case, it is our preference to use the 1996 financial

statement data for the reasons similar to those stated in Dongbang

Comment 5 of the ``Interested Party Comments'' section of this notice.

However, unlike Dongbang, Changwon was not in existence in 1996 and,

therefore, we have no alternative but to use Changwon's 1997 financial

statements for purposes of calculating G&A expenses.

Comment 4: EP vs. CEP Sales Classification.

Petitioners argue that the Department should determine that

Changwon's sales through POSAM are CEP sales. Petitioners cite 1998

Flat Products from Korea, a decision in which the Department found, in

contrast to several previous determinations, that POSCO's sales in the

United States through POSAM should be classified as CEP sales.

Petitioners argue that the facts in the 1998 Flat Products from Korea

case regarding the classification of U.S. sales are virtually identical

to those in this case.

Petitioners maintain that the record does not demonstrate that the

U.S. affiliate's involvement in making the sales was incidental or

ancillary. Petitioners assert that Changwon seldom had contact with

U.S. customers, that typically POSAM was directly contacted by

unaffiliated U.S. customers that wished to purchase the subject

[[Page 40418]]

merchandise, and that POSAM signed the sales contract. Petitioners

claim that POSAM also plays a central role in sales activities after

merchandise arrives in the United States. Petitioners also question

respondent's claim that the U.S. affiliate had no role in price

negotiation by stating that Changwon did not provide tangible proof

that it had rejected prices for sales organized by POSAM (which,

according to petitioners, is a critical test of the involvement of the

Korean producer in price setting.) Petitioners further argue that POSAM

and POSTEEL are more than just mere paper processors based on

proprietary evidence found by the Department at verification.

Changwon argues that its U.S. sales should be treated as EP

transactions because they pass the Department's criteria for EP sales:

the subject merchandise is shipped directly from the manufacturer to

the unaffiliated buyer, such direct shipments to the unaffiliated buyer

are a customary channel of trade, and the U.S. affiliate only acts as a

processor of sales-related documents and a communication link with the

unaffiliated buyer. Changwon claims that POSAM is merely a

communications link, does not have independent sales negotiation

authority, and holds no inventory.

Changwon states that, at verification, the Department established

that Changwon initiated contact with its U.S. customers and met with

these customers to discuss its export strategy and determine the

substantive terms of sale with them. Moreover, Changwon asserts, it was

at these meetings that Changwon established its pricing policy based on

quarterly price lists. Changwon also states that, at verification, the

Department confirmed the U.S. sales process by which orders flow from

the U.S. customer through POSAM and POSTEEL to Changwon and back the

same route to the U.S. customer. Changwon asserts that POSAM merely

transfers pricing information from customers to Changwon, and that

Changwon reviews and has final approval of all sales.

Changwon refers to sales examined at verification to further its

argument that it is the sole authority for approving its U.S. sales. It

notes that POSAM indicates in its faxes to Changwon that the sale offer

is ``for your {Changwon's} review'' and that Changwon's response to

POSAM refers to ``{confirmation of} our {Changwon's/POSAM's} offer'' to

the customer. Also, Changwon notes a sale in which Changwon initially

rejected, but then ultimately accepted, a customer's price offer that

differed from its price list. Based on these facts, Changwon argues

that it is clear that POSAM's only role in this situation was that of a

communication link.

Changwon refutes petitioners' argument that POSAM plays a central

role in Changwon's activities because it provides such services as

invoicing Changwon's customers and arranging for transportation.

Changwon maintains that the Department has, in numerous past cases,

deemed these types of sales activities as ancillary, and that they are

not a sufficient basis for classifying sales as CEP transactions.

Changwon rejects, as mere speculation, petitioners' argument that

because it did not present at verification an example of a sale in

which it rejected an offer made by the customer, Changwon may not have

the final authority on sales prices. Finally, Changwon states that

petitioners' assertion that POSAM or POSTEEL distributed Changwon's

product brochures and conducted certain activities in the United States

for Changwon is incorrect. Changwon asserts that it, in fact, performed

these activities.

DOC Position

We agree with Changwon that its U.S. sales were properly classified

as EP sales, and have continued to treat Changwon's U.S. sales as EP

sales in the final determination. At verification we confirmed

Changwon's assertions that POSAM is not in a position to negotiate,

confirm, or reject prices without approval from Changwon. We further

found that Changwon issues quarterly price lists for U.S. sales which

POSAM uses in the U.S. sales process. We disagree with petitioners'

contention that POSAM acts as anything but a communications link in

this instance.

Section 772(b) of the Act, as amended, 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.'' 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 for

determining 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 are 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., 1998 Flat Products from Korea and Viscose Rayon Staple Fiber from

Finland, 63 FR 32820 (June 16, 1998).)

In the instant investigation the sales in question were made prior

to importation through Changwon's affiliated Korean trading company,

POSTEEL, and its affiliated U.S. trading company, POSAM, to an

unaffiliated customer in the United States. The record in this case

indicates that the subject merchandise was shipped directly from

Changwon to the unaffiliated U.S. customers and that this was the

customary commercial channel between these parties. The remaining issue

is whether POSAM's role in the sales process was limited to that of a

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

link.'' The record shows that the U.S. sales process, beginning with

the establishment of Changwon during the POI, includes the following

events: (1) Changwon held an export strategy meeting in March 1997 with

potential U.S. customers (these were the same customers Changwon sold

to during the POI) wherein substantive terms of sale, payment, and

delivery terms were discussed. Changwon also established its pricing

policy based on quarterly price lists during this meeting; (2) For the

remaining three months of the POI, U.S. customers contacted POSAM to

inquire about purchasing Changwon's SSWR. However, POSAM did not

actively advertise for Changwon in the United States and did not

solicit business on

[[Page 40419]]

behalf of Changwon. Changwon itself contacted its potential U.S.

customers, as evidenced by the above-referenced export strategy

meeting; (3) POSAM does not negotiate sales terms with Changwon's U.S.

customers. POSAM relays information through POSTEEL between Changwon

and its U.S. customers. Correspondence by faxes reviewed at

verification confirmed Changwon's assertion that POSAM may not accept

the customer's order without Changwon's final approval; (4) After an

order is accepted by Changwon, POSAM transmits the order acceptance

from POSTEEL to the U.S. customer; (5) After Changwon has produced the

order, it sells the subject merchandise to POSTEEL, who then sells it

to POSAM in a back-to-back transaction wherein title to the goods is

transferred between the parties; (6) POSTEEL arranges transportation of

the subject merchandise to the United States; (7) POSAM arranges to

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

to U.S. customers; (8) POSAM invoices U.S. customers; (9) U.S.

customers remit payment to POSAM, which subsequently transfers the

payment to POSTEEL, which, in turn, transfers it to Changwon.

These facts show that the extent of POSAM's involvement in the

sales process is indicative of the ancillary role normally played by a

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

link.'' While POSAM was involved in document processing and other

ancillary activities related to the sales of subject merchandise to the

U.S. customer (e.g., clearing customs, arranging for U.S.

transportation, issuing invoices, and collecting payment), POSAM had no

substantial involvement in the sales process, such as sales

negotiation, providing technical support, or handling warranty claims,

with respect to subject merchandise. POSAM does not negotiate sales

terms with U.S. customers, but rather relays pricing information

between Changwon and the U.S. customer. We disagree with petitioners'

assertion that Changwon does not have final authority over the sale

based on our findings at verification. For each of the sales examined

at verification, we found that Changwon ultimately accepted or rejected

the sales price. See Changwon Sales Verification Report at Exhibit 17.

Furthermore, although Changwon did not have direct contact with its

U.S. customers on a daily basis during the POI, the export strategy

meeting served to lay out the substantive terms of delivery, sale, and

payment and established Changwon's general pricing policy. With these

terms explicitly stated, it is reasonable to assume that there was

little need for direct contact between Changwon and its U.S. customers

during the remaining three months of the POI. Indirect contact,

however, still continued. In fact, we observed at verification that all

correspondence examined between Changwon and the U.S. customers was

relayed through POSTEEL/POSAM.

The nature of Changwon's initial and ongoing involvement in the

sales process and POSAM's ancillary role in the sales process lead us

to conclude that the sales took place before the date of importation by

the producer of the subject merchandise outside of the United States to

an unaffiliated purchaser in the United States. Therefore, in

accordance with Section 772(a) of the Act we have continued to classify

Changwon's U.S. sales as EP sales for the final determination.

Comment 5: Corrections for Clerical Errors Found at Verification.

Petitioners state that the Department should allocate Changwon's

indirect selling expenses incurred by POSTEEL in Korea for U.S. sales

based on sales value rather than sales quantity, and that the

Department make any corresponding changes in its calculations since

Changwon recalculated its indirect selling expenses incurred from

fiscal year 1996 to 1997.

Petitioners agree that the VAT total account receivable figures for

certain customers should be corrected in order to properly decrease the

average credit period for seven customers.

Petitioners state that the Department should use the corrected

warranty expense for home market observation 59 and revised ocean

freight for U.S. observations 17 through 21.

Petitioners state that the Department should correct the product

characteristics that were misreported by Changwon for grades SUS 304L,

SUSY 308, SUSY 308L, AWSER 308L, AWSER316L, SUS XM7, and ER 309L. They

also state that in correcting these items, the Department should use

the actual chemical composition of the products for product-matching

purposes.

Changwon did not comment on this issue.

DOC Position

We agree with petitioners in part. As noted above in the ``Export

Price'' and ``Normal Value'' sections of this notice, we have made

appropriate revisions for all errors found at verification. However, we

disagree with petitioners' statement that we should use the actual

chemical compositions of the products in our analysis. For the reasons

stated in the December 18, 1997, Memorandum to Holly Kuga from the Team

Re: Whether to Reconsider the Department's Model Match Methodology for

this Product and the Preliminary Determination, the Department has

rejected the use of actual chemical composition as a product

characteristic for product comparison purposes.

Comment 6: Changwon's Duty Drawback Adjustment.

Petitioners argue that Changwon does not qualify for a duty

drawback adjustment to U.S. price. Petitioners state that Changwon has

failed to meet the Department's two-part test which requires that (1)

import duties and rebates are directly linked to and are dependent upon

one another, and (2) the company claiming the adjustment can

demonstrate that there are sufficient imports of raw materials to

account for the duty drawback received on exports of the manufactured

product.

Petitioners refer to Changwon's November 10, 1997 response, in

which Changwon gave a ``best estimate'' of duty drawback because its

system for reporting duty drawback was not yet fully operable.

Petitioners believe that this fact alone justifies a denial of a duty

drawback adjustment. Petitioners cite Steel Bar from India as a

situation in which the Department denied a duty drawback adjustment to

a respondent that based its duty drawback calculations on theoretical

amounts of an input product, rather than on amounts of raw materials

that were actually imported for use in the subject merchandise.

Petitioners state that the facts in this case (whereby the drawback

credits were not calculated based on the product actually imported) are

similar to those in Steel Bar from India.

Petitioners contend that another reason Changwon should be denied a

duty drawback adjustment is the fact that, at verification, the

Department found that ``Changwon cannot track imported raw material

used in the production of finished product to the specific export

sale.'' Petitioners assert that Changwon's reliance on the ``standard

government calculation for each applicable raw material'' to claim duty

drawback is unacceptable, because, among other reasons, there is no

means by which the Department can determine whether the respondent is

claiming more drawback than that to which it is entitled. Petitioners

also point out that Changwon's claim also fails because it is

apparently not able to track imported raw material usage to U.S.

exports of the subject merchandise, and drawback is not being claimed

on amounts of imported materials actually being used.

[[Page 40420]]

Petitioners state that there is no direct link between the import duty

and rebate granted, and that there were not sufficient imports of raw

materials used in the production of the final exported product to

account for the drawback on the exported product.

Petitioners assert that, even if the above described problems did

not exist, Changwon would not be eligible for an adjustment because it

did not actually receive any duty drawback during the POI. Petitioners

state that any adjustment for duty drawback must be based on drawback

payments actually received during the POI or review period. Petitioners

cite Final Determination of Sales at Less Than Fair Value: Canned

Pineapple Fruit from Thailand, 60 FR 29553, 29566 (June 5, 1995) and

Final Results of Countervailing Duty Administrative Review: Certain

Iron-Metal Castings from India, 56 FR 52521, 52527 (October 21, 1991)

as examples whereby the Department has recognized that refunds should

be taken into account for the period in which they are received.

Petitioners also refute Changwon's claims that the Department fully

verified Changwon's duty drawback adjustment and that the Department's

``standard practice'' is to recognize adjustments that are accrued by a

company such as volume rebates. Petitioners state that while the

Department was able to verify some information regarding the duty

drawback adjustment, it did not successfully verify the claims

themselves. Petitioners then argue that there is no ``standard

practice'' by which the Department would grant adjustments for duty

drawback when the duty drawback payments are not received by the

respondent during the POI or review period.

Furthermore, regarding Sammi-produced merchandise purchased by

Changwon, petitioners state that there is no information on the record

indicating that Sammi had imported materials for its production of the

SSWR. Similarly, petitioners state that there is no information that

indicates whether, if Sammi had imported materials for its production

of the SSWR, those import duties would satisfy the Department's two-

prong test for duty drawback adjustment. Furthermore, petitioners

contend that is no indication that the prices paid by Changwon for

Sammi-produced SSWR included import duties, and if so, whether Changwon

was entitled to get any duty drawback on those duties.

Changwon maintains that the Department's findings during

verification support the Department's preliminary decision to allow

Changwon's reported duty drawback adjustments. Changwon states that it

has demonstrated, and the Department has fully verified, that it

accurately reported the duty drawback incurred on its sales during the

POI. Changwon asserts that its most recent supplemental response

contained resubmitted duty drawback adjustments which incorporated the

actual amounts of duty drawback acquired by Changwon.

Changwon states that the Department confirmed during verification

that Changwon can claim a duty drawback only if the amount of raw

materials on an import certificate are sufficient to produce the

quantity of subject merchandise stated on an export certificate. This,

according to Changwon, fulfills the Department's requirements for a

duty drawback adjustment that the import duty and rebate are directly

linked and dependent on one another and that there were sufficient

imports of the raw materials to account for the duty drawback received.

Further, Changwon asserts that the accuracy of Changwon's reported duty

drawback was confirmed through the Department's trace of the reported

duty drawback amounts to its applications for duty drawback to the

Korean Government. Changwon also states that petitioners' allegation

that it did not report actual amounts of duty drawback is incorrect and

that the above-mentioned resubmitted duty drawback adjustments are in

fact based on actual amounts.

Changwon dismisses petitioners' argument that Changwon must tie its

receipt of duty drawback to U.S. exports. Changwon cites Laclede Steel

Co. v. United States, 18 CIT 965, 972-73 (1994) as a case in which the

Court of International Trade held that a respondent's reported duty

drawback adjustment may result in export sales receiving more or less

of an adjustment than was actually rebated is not a basis for rejecting

those adjustments.

Changwon refutes petitioners' argument that it did not show that it

had sufficient imports of raw materials to produce the quantity of

exports that incurred duty drawback by attributing the argument to a

misreading of Changwon's duty drawback exhibit. Changwon states that

the worksheets referred to by petitioners were merely examples and did

not represent all imported raw materials that were available for

producing the exported merchandise.

Changwon states that petitioners' argument regarding duty drawback

received on sales of Sammi-produced merchandise are also erroneous

because, as part of Changwon's acquisition of Sammi, the company

assumed Sammi's duty liability for imported merchandise and Sammi's

import certificates were transferred to Changwon. This allowed Changwon

to properly receive duty drawback on the export of Sammi-produced

merchandise.

Changwon argues that it properly included duty drawback received

after the end of the POI because its normal business practice is to

record its duty drawback payments on an accrual basis. Changwon states

that it is the Department's practice to accept a company's sales

expenses and adjustments that are reported consistently with its normal

accounting practices. Changwon asserts that there is no evidence on the

record that contradicts the fact that Changwon applies for duty

drawback as a normal part of its business practice and that it fully

receives the amount of duty drawback claimed.

DOC Position

We agree, in part, with both parties. First, contrary to

petitioners allegation regarding Changwon's explanation of its duty

drawback reporting methodology, we agree that Changwon revised its duty

drawback adjustments to reflect the actual amounts of duty drawback in

its most recent supplemental response. Furthermore, we disagree with

petitioners that Changwon is required to trace imported raw materials

to export sales. In fact, the Department's practice is not that a

company must trace imported input directly from importation through

exportation, but rather, that a company must satisfy the two-prong test

described in Dongbang Comment 9, above. In this regard, we are

satisfied that Changwon has met each of the two prongs of this test for

reasons similar to those explained above for Dongbang. However, in

accordance with section 772(c)(1)(B) of the Act, which requires the

Department to increase starting price for EP and CEP by the amount of

any import duties ``imposed by the country of exportation which have

been rebated, or which have not been collected by reason of the

exportation of the subject merchandise to the United States,'' we have

recalculated Changwon's reported duty drawback to reflect only those

amounts actually rebated. Regarding duty drawback on Sammi-produced

merchandise which was sold by Changwon, the information provided by

Changwon is inconclusive as to whether Changwon is entitled to duty

drawback on this merchandise. However, given that we have calculated

duty drawback only on rebates actually received by

[[Page 40421]]

Changwon, this issue is moot. See Final Determination Calculation

Memorandum, for further discussion.

Comment 7: Transactions-Disregarded and Major-Input Rules.

Changwon argues that if the Department continues to collapse

Changwon and POSCO as a single producer for the final determination,

the Department should not apply the transactions-disregarded and major-

input rules under section 773(f)(2) and (3) in determining the value of

inputs provided by POSCO to Changwon. Changwon notes that the

Department has stated that once it collapses two companies, it no

longer applies the major-input or transactions-disregarded rules for

valuing transfers of products from one part of the entity to another.

Changwon cites 1997 Flat Products from Korea where the Department

determined that the POSCO group (encompassing three separate producers:

POSCO, Pohang Coated Steel (POCOS) and Pohang Steel Industries (PSI))

represents one producer of certain cold-rolled steel flat products and

that as such, transactions among the parties be valued based on the

group as a whole. It further states that since the POSCO group was

considered one entity, the major-input rule and transactions-

disregarded provisions of the Act were not applied because there are no

transactions between affiliated persons. Changwon notes that the

Department reaffirmed its clear position on this issue in 1998 Flat

Products from Korea.

In support of the above argument, Changwon states that it has

submitted and the Department has verified Changwon's costs, adjusted to

reflect POSCO's actual cost of manufacturing transferred inputs. After

the preliminary determination and learning of the Department's decision

to collapse Changwon and POSCO, Changwon submitted cost data that was

consistent with the Department's collapsing decision. Changwon asserts

that semi-finished products should be treated as transfers among

factories or divisions within the same company, and should be valued

within the single entity at the actual cost of manufacturing the input.

This policy avoids double counting of POSCO's G&A, and avoids including

POSCO's internal profit earned on the input. Specifically, the

Department should use the COM to value the inputs rather than the

transfer price.

Petitioners contend that the Department should continue to apply

the major-input rule and transactions-disregarded rule in valuing

inputs received by Changwon from POSCO. Petitioners explain that the

major-input rule and transactions-disregarded rule have a specific

purpose that is separate and distinct from the purpose of the

collapsing test. Petitioners note that statutes always take precedence

over regulations, and that the major-input rule and transactions-

disregarded rule are statutory, while the collapsing analysis is

performed pursuant to the Department's regulations. Petitioners further

assert that the statute does not provide for an exception to the

application of these rules in the case of collapsed parties, and thus

the Department should enforce the statute in applying these rules.

Petitioners maintain that the Department would be writing out of

existence the statutory major-input rule and transactions-disregarded

rule based on its interpretation of a regulation if it were to collapse

POSCO and Changwon for input cost purposes.

Petitioners assert that Congress intended that the application of

the major-input rule and collapsing test remain independent of each

other, citing the SAA for support. Petitioners assert that by listing

price issues separate from cost issues in its explanation of the major-

input rule and transactions-disregarded rule, the drafters of the SAA

did not intend affiliation price and cost issues to be lumped together,

but to be considered separately. Petitioners argue that the legislative

history would have suggested that these rules for calculating cost be

combined with the collapsing test in connection with circumvention and

price issues if the drafters intended this. Instead, petitioners state

that the SAA focuses exclusively on cost issues in its explanation of

the major-input rule and transactions-disregarded rule. Petitioners

assert further that the statutory provisions of the major input rule

and transactions disregarded rule focus clearly on cost input issues

that are not affected by the collapsing of producers to prevent

circumvention, and the Department should thus continue to apply these

rules in valuing inputs sold from POSCO to Changwon.

DOC Position

We agree with respondent. The facts in this case are similar to

those present in 1997 Flat Products from Korea wherein the Department

held that treating affiliated producers as a single entity for dumping

purposes obviates the application of the major-input rule and

transactions-disregarded rule because there are no transactions between

affiliated persons. As stated in 1997 Flat Products from Korea at

18430, 18431: the POSCO group {encompassing three separate producers:

POSCO, Pohang Coated Steel (POCOS) and Pohang Steel Industries (PSI)}

represents one producer of certain cold-rolled steel flat products * *

* We have determined that a decision to treat affiliated parties as a

single entity necessitates that transactions among the parties also be

valued based on the group as a whole. * * * With regard to transfers of

inputs among the POSCO group companies we have valued transfers of

substrate between the companies as the cost of manufacturing of the

substrate {i.e., a major input, also subject merchandise, further

manufactured and then resold.} * * * Since we have determined that the

POSCO Group is one entity for these final results, {the major input

rule and fair value provisions} of the Act cannot apply because there

are no transactions between affiliated persons.

As noted by Changwon, the Department reaffirmed its clear position

on this issue in 1998 Flat Product from Korea at 13185, stating that:

because we are treating these companies {POSCO, POCOS, and PSI} as one

entity for our analysis, intra-company transactions should be

disregarded. * * * {T}he decision to treat affiliated parties as a

single entity necessitates that transactions among the parties also be

valued based on the group as a whole and as such, among collapsed

entities the fair-value and major-input provisions are not controlling.

As a result, we have used actual costs in determining the COM for

Changwon as well as Dongbang in the final determination.

Comment 8: Changwon's Methodology To Identify the Manufacturer.

In regard to the Department's sales verification report, Changwon

states that the Department properly noted that Changwon has reported

itself as the manufacturer where appropriate. Changwon states that this

is in accordance with the Department's practice to treat the last

company involved in the production process as the manufacturer of the

resulting merchandise. For example, in Corrosion-Resistant Carbon Steel

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

61 FR 13815, 13821 (March 28, 1996), the Department treated Continuous

Color Coat, Inc. (``CCC'') as the manufacturer of the subject

merchandise sold by CCC, even though CCC purchased the subject

merchandise and then performed either painting or galvanizing

functions. Similarly, in Circular Welded Non-Alloy Steel Pipe from the

Republic of Korea, 62 FR 64559, 64561 (Dec. 8, 1997), some of the

respondent companies purchased subject merchandise from third parties

[[Page 40422]]

and performed minor further manufacturing activities to produce

merchandise that was still within the scope of the review. Changwon

claims that the above determinations are indistinguishable from the

facts pertaining to Changwon and, thus, the Department should continue

to utilize Changwon's reported manufacturer for each sale.

Petitioners did not comment on this issue.

DOC Position

We agree with Changwon and given there are no arguments or evidence

on the record to suggest otherwise, we have continued to use Changwon

as the manufacturer, as reported, where appropriate.

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 Korea 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.

The weighted-average dumping margins are as follows:

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

Weighted-

average

Exporter/manufacturer margin

percentage

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

Dongbang Special Steel Co., Ltd./ Changwon Specialty Steel

Co., Ltd./ Pohang Iron and Steel Co., Ltd................. 3.18

Sammi Steel Co., Ltd....................................... 28.44

All Others................................................. 3.18

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

Pursuant to section 735(c)(5)(A) of the Act, the Department has

excluded the margins determined entirely under section 776 of the Act

(facts available) from the calculation of the ``All Others Rate.''

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. 98-20017 Filed 7-28-98; 8:45 am]

BILLING CODE 3510-DS-P