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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-475-820]

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

Stainless Steel Wire Rod From Italy

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson or Irina Itkin, Import

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

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

20230; telephone: (202) 482-1776 or (202) 482-0656, 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 regulations of the Department

of Commerce (the Department) 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 Italy 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, below.

Case History

Since the preliminary determination in this investigation 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 Italy, 63 FR 10831 (Mar. 5, 1998)), the following

events have occurred:

In February 1998, we issued supplemental questionnaires to the two

respondents in this case, Acciaierie Valbruna S.r.l. (including its

subsidiary Acciaierie di Bolzano SpA) (collectively ``Valbruna'') and

Cogne Acciai Speciali S.r.l. (CAS). We received responses to these

questionnaires in March 1998.

In March, April, and May 1998, we verified the questionnaire

responses of the two respondents, as well as the section A response of

an additional company, Rodacciai SpA (Rodacciai). In May 1998, CAS and

Valbruna submitted revised sales databases 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 both

respondents submitted case briefs on June 3, 1998, and rebuttal briefs

on June 10, 1998. The Department held a public hearing on June 17,

1998.

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,

[[Page 40423]]

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.

Molybednum................................ 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.

Fair Value Comparisons

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

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

the Normal Value (NV). Except as noted below, our calculations followed

the methodologies described in the preliminary determination.

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

issued a decision in CEMEX v. United States, 1998 WL 3626 (Fed Cir.).

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.

In instances in which a respondent has reported a non-AISI grade

(or an internal grade code) for a product that falls within a single

AISI category, we have used the actual AISI grade rather than the non-

AISI grade reported by the respondent for purposes of our analysis.

However, in instances in which the chemical content range of a reported

non-AISI (or an internal grade code) grade is outside an AISI grade, we

have used the grade code reported by the respondents for analysis

purposes. For further discussion of this issue, see Comment 3 in the

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

Level of Trade

In the preliminary determination, we conducted a level of trade

analysis for both respondents. Based on this analysis, we determined

that a level of trade adjustment was not warranted for either company.

No party to this investigation has commented on our level of trade

determination. Accordingly, for purposes of the final determination, we

continue to find that a level of trade adjustment is not warranted.

Export Price

For both respondents, we used EP methodology, in accordance with

section 772(a) of the Act, because the subject merchandise was sold

directly to the first unaffiliated purchaser in the United States prior

to importation and CEP methodology was not otherwise indicated. For

further discussion, see Comment 1 in the ``Interested Party Comments''

section of this notice.

A. CAS

We calculated EP based on the same methodology used in the

preliminary determination, except as noted below:

1. At the time of the preliminary determination, CAS had not

reported U.S. customs duties and U.S. brokerage and handling expenses

for certain U.S. sales. Because this information is now on the record

and has been verified, we have used it for purposes of the final

determination.

2. We made adjustments for other transportation expenses (e.g.,

demurrage), where appropriate, based on our findings at verification.

B. Valbruna

We made no changes to the methodology used in the preliminary

determination.

Normal Value

We calculated NV, cost of production (COP) and CV based on the same

methodology used in the preliminary determination, except as noted

below.

A. CAS

For the calculation of COP and CV, we adjusted CAS's reported costs

by:

1. Adding the accelerated portion of CAS's depreciation expenses

(see Comment 10);

2. Adding depreciation expenses related to leasehold improvements

(see Comment 11);

3. Adding back to material costs a deduction made by CAS for the

balance in its inventory provision (see Comment 12);

4. Deducting finished goods inventory write-downs from CAS's

general and administrative expenses (see Comment 12);

5. Adding back to material and variable overhead costs a deduction

made by CAS for inventory write-up adjustments (see Comment 13);

6. Adding unaccrued purchase costs that were excluded by CAS (see

Comment 14);

7. Reclassifying certain expense and income items from general and

administrative expenses to financial expenses (see Comment 16);

[[Page 40424]]

8. Correcting the double-counting of certain expenses that were

reported in both variable overhead and general and administrative (G&A)

expenses; and

9. Correcting an error made by CAS in a reported variable overhead

adjustment factor.

These adjustments are further discussed in the Memorandum regarding

Cost Calculation Adjustments from William Jones to Chris Marsh, dated

July 20, 1998.

As in the preliminary determination, we found that, for certain

models of SSWR, more than 20 percent of CAS's home market sales within

an extended period of time were at prices less than 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 for determining NV, in

accordance with section 773(b)(1) of the Act. For those U.S. sales of

SSWR for which there were no comparable home market sales in the

ordinary course of trade, we compared EP to CV in accordance with

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

We made the following changes to our price-to-price or price-to-CV

comparisons:

1. In the preliminary determination, we made no adjustment for home

market packing costs or warranty expenses because CAS failed to provide

the supporting documentation requested by the Department. Because

verified packing and warranty information is now on the record, we have

used it for purposes of the final determination.

2. Also in the preliminary determination, we made no adjustment for

home market credit expenses because CAS based its credit periods on

estimates, rather than on the accounts receivable information requested

in a supplemental questionnaire. Because verified accounts receivable

information is now on the record, we made an adjustment for home market

credit expenses for purposes of the final determination.

3. We offset home market freight expenses by a freight revenue

factor based on our findings at verification.

B. Valbruna

We made the following changes to our price-to-price comparisons:

1. In the preliminary determination, we made no adjustment for pre-

sale warehousing expenses because Valbruna had not appropriately

segregated these expenses from its indirect selling expenses. Because

this information is now on the record, we have used it for purposes of

the final determination. See Comment 18.

2. In the preliminary determination, we also made no adjustment for

certain inland freight expenses because these expenses were based on

data outside the POI. Because Valbruna revised its freight calculations

to utilize POI data, we have adjusted for these freight expenses in the

final 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 Issues

Comment 1: CEP vs. EP Methodology.

The petitioners argue that the Department should treat all of the

respondents' sales through their affiliated parties in the United

States as CEP transactions. According to the petitioners, the

Department's practice in this area is to classify sales as CEP sales

when the U.S. affiliated party has more than an incidental involvement

in making the sale (e.g., soliciting sales, negotiating sales contracts

or prices) or performs other selling functions. As support for this

assertion, the petitioners cite Certain Cold-Rolled and Corrosion-

Resistant Steel Flat Products from Korea: Final Results of Antidumping

Duty Administrative Reviews, 63 FR 13170, 13172 (Mar. 18, 1998) (Korean

Steel); and Notice of Preliminary Determination of Sales at Less Than

Fair Value and Postponement of Final Determination: Stainless Steel

Wire Rod from Spain, 63 FR 10849, 10852 (Mar. 5, 1998) (SSWR from Spain

Preliminary).

The petitioners allege that documents obtained at verification

demonstrate that the affiliated parties were substantially involved in

the sales process and were not mere communication links with their

Italian parents. Specifically, the petitioners assert that these

documents show that the affiliates served as contacts for the U.S.

customers and were involved in the negotiation of sales terms and

prices.

Regarding CAS, the petitioners maintain that its U.S. affiliate,

CAS USA, was unable to demonstrate at verification that CAS controlled

all pricing decisions in Italy, because: 1) CAS USA was unable to

provide any customer inquiries during the POI; and 2) the post-POI

document proffered by CAS merely showed that the Italian sales manager

approved a portion of the order. Morever, the petitioners note that CAS

USA recorded the purchase and resale of SSWR in its accounting records,

collected payment from the customer, took title to the merchandise, and

stored it in a U.S. warehouse while it awaited delivery to the U.S.

customer.

According to the respondents, the Department correctly found in the

preliminary determination that all of their U.S. sales were EP

transactions. The respondents note that the Department's long-standing

practice is to classify sales as EP if the sale occurred prior to

importation and the following three criteria are met: 1) the

merchandise is shipped directly to the U.S. customer without entering

the affiliate's inventory; 2) this is the customary channel of trade

for the affected sales; and 3) the affiliate acts only as a sales

document processor and communications link. In support of their

position, the respondents cite Certain Cold-Rolled and Corrosion-

Resistant Steel Flat Products from Korea: Final Results of Antidumping

Duty Administrative Reviews, 62 FR 18404, 18423 (Apr. 15, 1997); Final

Determination of Sales at Less Than Fair Value: Large Newspaper

Printing Presses and Components Thereof, Whether Assembled or

Unassembled from Germany, 61 FR 38166, 38175 (July 23, 1996); and Final

Results of Antidumping Duty Administrative Reviews; Certain Corrosion-

Resistant Carbon Steel Flat Products from Canada, 63 FR 12725 (Mar. 16,

1998).

The respondents argue that their sales meet each of the above

criteria. Regarding the first two criteria, they state that subject

merchandise never enters their physical inventory in the United States

and that this sales channel is their customary channel of trade, CAS

argues that CAS USA exerts no physical control over the subject

merchandise, because almost all sales are either shipped directly to

the U.S. customer or to the customer's storage facility for its own

account. Moreover, CAS asserts that any warehousing performed at the

port is done merely while unloading occurs; this merchandise is

destined for a specific customer and cannot be sold to another party.

Thus, CAS notes that SSWR never enters CAS USA's physical inventory.

Regarding CAS USA's involvement in the sales process, CAS asserts

that CAS USA's role is ancillary or incidental, because CAS USA simply

functions as a paper processor and communications link with CAS. CAS

asserts that it controls all aspects of the marketing and sales process

from Italy. Specifically, CAS maintains that CAS USA has no

[[Page 40425]]

negotiating or pricing authority with regard to SSWR, but rather only

forwards sales inquiries from U.S. customers to Italy. According to

CAS, because most of its pricing instructions to CAS USA are via

telephone, the absence of written records is not significant.

CAS asserts that the decision made in Korean Steel is not

applicable here. Specifically, CAS asserts that the U.S. affiliate of

one of the two respondents in that case had almost complete negotiating

control over the sale, including the authority to write and sign sales

contracts and to set prices, while the U.S. affiliate of the other

respondent engaged in significant after-sale activity.

Valbruna notes that all of its U.S. merchandise was shipped

directly to the U.S. customer without entering a warehouse in the

United States. Moreover, Valbruna notes that its U.S. affiliates act

only as paper processors and communications links with their parent

companies, due to the time difference that exists between the United

States and Italy. Valbruna maintains that it negotiates all sales and

makes all pricing decisions in Italy, confirms the sale, determines the

production and delivery schedule, arranges for the delivery, invoices

the customer, and collects payment. According to Valbruna, the evidence

of U.S. selling activity cited by the petitioners was either taken out

of context or misinterpreted. For example, Valbruna notes that, in one

instance, the petitioners cited a fax relating to non-subject

merchandise and, in another, merely referenced a pro forma closing

statement to a letter.

DOC Position

We agree with the respondents and have continued to classify their

U.S. sales as EP transactions for purposes of the final determination.

We have based this finding on an analysis of the three factors that the

Department uses to determine the appropriate classification of U.S.

sales transactions (i.e., customary channel of trade, method of

shipment, and the affiliate's role in the sales process).

Regarding the first two criteria, we find that both respondents

shipped their merchandise directly to the U.S. customer without the

merchandise entering the affiliate's inventory and that this

constituted the customary channel of trade for the affected sales.

Thus, we find that the first two criteria for designating these sales

as EP transactions have been met. Regarding the petitioners' contention

that CAS USA warehoused SSWR at the port, we disagree that this is

relevant. We noted at verification that the warehousing performed by

CAS USA was independent of the company's normal physical inventory

maintained for non-subject products. Because the merchandise never

entered CAS USA's physical inventory, we consider the criterion for

designating the sales as EP transactions to be met.

Regarding the third criterion, we find that both respondents'

affiliates acted as processors of paperwork and communication links

with their Italian parent companies for sales of subject merchandise.

Specifically, we confirmed at verification that both companies have no

authority to negotiate prices or sales terms with the customer, they do

not contact customers on their own initiative, and they perform no

marketing activities or after-sale support functions. We found that

these companies received requests for quotations from customers, via

either fax or telephone, which they then forwarded on to Italy for

approval or counter-offer. For this reason, we find that the

significant selling activities for the sales in question took place in

Italy, while those activities performed in the United States (e.g.,

invoicing, collecting payment, etc.) were ancillary or incidental to

the sale.

Regarding the company-specific concerns raised by the petitioners,

we note that CAS USA was operational for only four months during the

POI. Consequently, while CAS USA was able to provide only a limited

number of examples of written communication between itself and its

parent, this is sufficient to demonstrate that pricing decisions are

made in Italy. Regarding Valbruna, we find that the statements cited by

the petitioners were taken out of context, as asserted by Valbruna.

In addition, we note that the petitioners' citation to Korean Steel

does not apply here. In Korean Steel, one of the U.S. affiliates had

the authority to write and sign sales contracts, while another

performed significant after-sale support functions. Neither of these

conditions apply in this case. Likewise, we find that SSWR from Spain

Preliminary also is not applicable. In that case, not only was the

respondent unable to demonstrate that pricing decisions were made in

Spain, but the U.S. affiliate admitted, and the Department verified,

that it had the authority to set prices for certain sales without

consultation with its parent and initiated contact with the U.S.

customers on its own authority. None of these facts are present here.

Consequently, we have continued to classify the respondents' sales

through their U.S. affiliated parties as EP sales for purposes of the

final determination. We also have continued to treat CAS's sales

through AST USA as EP sales for purposes of the final determination

because the sales process for these sales is nearly identical to that

of sales through CAS USA. Our decision here is consistent with our

decisions on the matter in the concurrently published final

determinations on SSWR from Spain and Taiwan.

Comment 2: Date of Sale.

According to the petitioners, the Department should continue to use

purchase order date as the date of sale for CAS and revise its date of

sale methodology for Valbruna to use the date of sales confirmation

instead of invoice date. The petitioners assert that use of these dates

is consistent with both the Department's regulations and its practice,

because the material terms of sale are set at the time of the purchase

order/sales confirmation. As support for Department precedent in this

area, the petitioners cite memoranda issued in the 1995-1996 new

shipper review on stainless steel flanges from India and the 1996-1997

new shipper review on stainless steel bar from India, in which the

Department used the date of purchase order as the date of sale, as well

as the Notice of Final Results of Antidumping Duty Administrative

Review; Canned Pineapple Fruit from Thailand, 63 FR 7392, 7394 (Feb.

13, 1998), in which the Department used the date of a sales contract.

The petitioners note that, not only do both respondents produce

SSWR to order, but the sales documents reviewed at verification also

showed that the price, quantity, product specifications, and shipment

dates were established when the order was approved. Further, the

petitioners note that the lag-times between shipment and invoicing (for

CAS) and sales confirmation and invoicing (for Valbruna) are

significant.

The petitioners contend that Valbruna should not be allowed to

report an incorrect date of sale merely because the proper date is not

readily available in a computerized database, especially given that

Valbruna was able to provide the proper information in a previous

antidumping duty investigation involving stainless steel bar. According

to the petitioners, the Department should use the average number of

days between sales confirmation and invoice date, as observed at

verification, in order to construct a theoretical date of sales

confirmation. Specifically, the petitioners contend that this average

period should be subtracted from the reported invoice date to derive

the date of sale, and that this resulting date

[[Page 40426]]

should be used when making currency conversions.

According to CAS, the Department erred in its preliminary

determination by using the purchase order date instead of the invoice

date as the date of sale. CAS argues that the Department's regulations

establish a strong presumption in favor of using invoice date as the

date of sale for purposes of antidumping proceedings and that the

Department should adhere to this presumption for several reasons.

First, CAS asserts that, because the exact amount of the alloy

surcharge is not known until the time of shipment, it would be

distortive to compare U.S. prices to Italian prices based on the

purchase order date as the date of sale. Second, CAS states that use of

invoice date eases the reporting and verification burdens because it is

the date recorded in CAS's accounting records in the ordinary course of

business. Third, CAS argues that using the purchase order date as the

date of sale establishes bad precedent, in that one of the purposes of

the Department's current regulations was to simplify reporting

requirements and improve the predictability of the antidumping law. CAS

notes that the circumstances under which the Department would depart

from its presumption in favor of the invoice date are not present here,

because CAS neither sells large custom-made merchandise nor sells

pursuant to long term contracts. As support for this position, CAS

cites to the preamble to the Department's regulations (see Antidumping

Duties; Countervailing Duties; Final rule, 62 FR 27296, 27349, 27350

(May 19, 1997) (Final rule).

According to Valbruna, it appropriately reported the date of

invoice as the date of sale. Specifically, Valbruna notes that the

Department not only instructed it to report the date of invoice, but

the Department also verified that this information was reported

accurately.

Valbruna maintains that the petitioners' reliance on the length of

time between sales confirmation and invoicing is misplaced. According

to Valbruna, the Department's standard test is to compare the dates of

shipment and invoicing, rather than the dates of order confirmation and

invoicing. As support for this contention, Valbruna cites the

Department's questionnaire at Appendix I-4. Valbruna asserts that the

time between when it ships its merchandise and when it issues its

invoices is inconsequential, because this period is a matter of days,

not weeks or months.

Finally, Valbruna asserts that the petitioners' reference to the

stainless steel bar investigation is equally misplaced. According to

Valbruna, in the bar case, the order confirmation used as the date of

sale was the confirmation issued by the U.S. subsidiary. Valbruna

asserts that, in this investigation, all of the sales documentation is

issued by Valbruna in Italy. Consequently, Valbruna claims that there

is no relationship between the dates of sale used in the bar case and

here.

DOC Position

We disagree with CAS, in part, and agree with Valbruna. The

Department treats the invoice date as the date of sale under normal

circumstances. As both discussed in the preamble to the Department's

regulations and noted by CAS, use of invoice date simplifies the

reporting and verification of information and enhances the

predictability of outcomes. See Final rule at 27348. The preamble,

however, confirms that the Department retained the flexibility to use a

different date as the date of sale in appropriate circumstances. See

Final rule at 27348, 27349 and 27411 (19 CFR 351.401(i)). In the

preamble to the regulations, the Department indicated that use of

invoice date may not be appropriate in situations involving large,

custom-made products or long-term contracts. See Final rule at 27349,

27350. The Department further articulated conditions under which it

would consider departing from the invoice date as the date of sale in

its questionnaire. Therein, the Department stated:

[G]enerally, the date of sale is the date of invoice, as

recorded in the exporter or producer's records kept in the ordinary

course of business, provided that: (1) the exporter does not use

long-term contracts to sell its subject merchandise; and (2) there

is not an exceptionally long period between the date of invoice and

the date of shipment. See letter from James Maeder to William

Silverman, September 19, 1997, at Appendix I-4.

In the instant investigation, neither respondent sold subject

merchandise pursuant to long-term contracts, nor did they sell the type

of large custom-made merchandise envisioned in the preamble to the

regulations. However, in the case of CAS, a significant period of time

often passes between the date of shipment and the date of invoice.

Therefore, because the material terms of sale are normally set no later

than the date of shipment, we find that the invoice date is not an

appropriate date of sale for CAS. Having ruled out the invoice date for

CAS, we then determined that the purchase order date, which we used in

the preliminary determination, best reflected the date at which the

material terms of sale were established.

We disagree with CAS's assertion that it would be distortive to

compare U.S. and Italian prices using the purchase order as the date of

sale. CAS's argument relies upon the fact that the alloy surcharges are

not known until the time of shipment. However, this is not accurate, as

the final amount paid by the customer often is determined at the time

of the purchase order. Nevertheless, even assuming that the purchase

order date might not be appropriate in some instances, use of this date

does not create distortion because: (1) we used it as the date of sale

for both markets; and (2) we determined that the length of time between

purchase order and invoice date was comparable in the two markets.

Given those circumstances and the fact that we compare POI-average NVs

to POI-average EPs, we find that no material distortion exists in our

price-to-price comparisons due to minimal timing differences related to

the alloy surcharges received by CAS.

For Valbruna, we have continued to use invoice date as the date of

sale. As discussed above, our presumption is that the invoice date is

the appropriate date of sale unless the facts suggest otherwise. For

Valbruna, there is no significant difference between the shipment and

invoice dates, and we have no reason to believe that the material terms

of sale are set significantly prior to the date of invoice. Moreover,

the fact that a different date of sale was used for Valbruna in the

stainless steel bar case is irrelevant because each antidumping

proceeding is distinct and based on its own record.

Comment 3: Use of AISI Grade Designations for Product Matching.

According to the petitioners, the Department should perform its

model matches using standard AISI grades for steel, rather than the

respondents' internal grade designations.

The respondents agree, noting that the Department verified that

they appropriately classified each of their internal grades into its

corresponding AISI category where possible.

DOC Position

We agree. We examined the respondents' grade classifications at

verification and confirmed that both of the respondents appropriately

classified each of their internal SSWR grades into the corresponding

AISI category. Accordingly, we have utilized this information for

purposes of the final determination.

Comment 4: Corrections Arising From Verification.

[[Page 40427]]

According to both the petitioners and the respondents, the

Department should correct the respondents' data for clerical errors

found during verification.l

DOC Position

We agree. We have made the appropriate corrections for purposes of

the final determination. These corrections are further discussed in a

separate memorandum regarding the calculation adjustments performed for

this company. (See Memorandum regarding Calculations Performed for

Acciaierie Valbruna Srl/Acciaierie di Bolzano SpA (Valbruna) for the

Final Determination in the Antidumping Duty Investigation on Stainless

Steel Wire Rod from Italy from Shawn Thompson to The File, dated July

20, 1998.)

Specific Issues

A. CAS

Comment 5: Treatment of U.S. Sales Involving AST USA: In the

preliminary determination, the Department treated AST USA.

A party unaffiliated with CAS, as a U.S. sales agent. According to

the petitioners, both CAS's description of AST USA's sales process and

the U.S. sales documents contained in the questionnaire responses and

reviewed at verification indicate that AST USA was a customer rather

than a sales agent. Specifically, the petitioners cite CAS's March 16,

1998, supplemental response, in which CAS stated that it ``has

concluded that it may be more appropriate to consider AST USA as CAS's

first unaffiliated U.S. customer.'' Accordingly, the petitioners state

that, because the Department is required to base U.S. price on the sale

to the first unaffiliated customer, it must base U.S. price on the

price between CAS and AST USA for purposes of the final determination.

Nonetheless, the petitioners contend that, should the Department

determine that AST USA acted as a sales agent, the Department should

also determine that sales made through AST USA should be classified as

CEP sales for the same reasons that sales made through CAS USA should

be classified as CEP sales. See Comment 1.

Notwithstanding its March 16, 1998, statement, CAS maintains that

AST USA operated as CAS's unaffiliated sales agent and not as its U.S.

customer. Therefore, CAS maintains that the Department should continue

to base U.S. price on the price that AST USA charged its unaffiliated

customers.

DOC Position

We agree with CAS. Based on the information on the record, we find

that AST USA acted as a sales agent for CAS in making sales of SSWR in

the United States. Specifically, AST USA had a formal sales

representative agreement with CAS which outlined the relationship

between the parties during the POI. According to this agreement, AST

USA was responsible for taking orders from U.S. end-user customers on

behalf of CAS, for which AST USA, in turn, earned a sales commission.

This agreement stated explicitly that CAS company officials have

exclusive authority to make decisions regarding sales terms. See CAS

Home Market Verification Report, May 13, 1998, at 4.

In addition to the conditions outlined in the formal agreement, we

found that CAS knew AST USA's customers and it shipped its merchandise

directly to them in the United States. At verification, we found that

AST USA performed essentially the same role in the sales process as did

CAS's affiliated sales agent, CAS USA. See CAS USA Verification Report,

May 22, 1998, at 5.

For these reasons, we have continued to treat AST USA as a sales

agent for purposes of the final determination. Moreover, as discussed

in Comment 1, we have also continued to treat sales through AST USA as

EP sales.

Comment 6: Treatment of Commissions Paid to AST USA.

The petitioners argue that the Department should make an adjustment

for commissions paid to AST USA for selling the subject merchandise in

the United States. As support for their position, the petitioners cite

section 772(d)(1)(A) of the Act and 19 U.S.C. 1677a(d)(1)(A).

CAS agrees that the Department should adjust for commissions paid

to AST USA for purposes of the final determination.

DOC Position

Where U.S. price is based on EP, it is the Department's practice to

adjust for commissions paid to unaffiliated parties under the

circumstance of sale provision set forth in section 773(a)(6) of the

Act. (See also 19 CFR 351.410(e).) Because AST USA is an unaffiliated

party that received commissions related to EP sales during the POI, we

have made a circumstance-of-sale adjustment to NV to account for these

commissions for purposes of the final determination.

Comment 7: Treatment of Commissions Paid by CAS to CAS USA.

The petitioners assert that the Department should treat the

difference between the price that CAS charged CAS USA and the price

that CAS USA charged the unaffiliated customer as a commission for

purposes of the final determination. The petitioners further assert

that the Department should adjust for these commissions, regardless of

whether the Department determines CAS's U.S. sales to be EP or CEP

sales. If the Department finds CAS's U.S. sales to be CEP sales, the

petitioners assert that the Department should use the commission as a

surrogate for indirect selling expenses, given that CAS was not

required to report its actual indirect selling expenses.

According to CAS, the spread between the price that CAS charged CAS

USA and the price that CAS USA charged the unaffiliated U.S. customer

accounts for costs that CAS would have incurred in Italy, but for the

relocation of the incidental services that CAS USA performs on behalf

of CAS in the United States. Further, CAS states that, since these

expenses would not be deductible from the U.S. price in an EP scenario,

the Department should not deem the difference to be a commission and,

therefore, should not make a commission adjustment for purposes of the

final determination.

DOC Position

We agree with CAS. The Department's current practice is to not make

an adjustment for affiliated party commissions in EP situations because

we consider them to be intra-company transfers of funds to compensate

an affiliate for actual expenses incurred in facilitating the sale to

unaffiliated customers. See Notice of Final Determination of Sales at

Less Than Fair Value: Steel Wire Rod from Trinidad and Tobago, 63 FR

9177, 9181 (Feb. 24, 1998) and Antifriction Bearings (Other Than

Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy,

Japan, Romania, Singapore, Sweden, and the United Kingdom; Final

Results of Antidumping Duty Administrative Reviews, 63 FR 33320, 33345

(Jun. 18, 1998). Consequently, we have not adjusted U.S. price for

these commissions for purposes of the final determination.

Regarding the petitioners' argument concerning the commission

adjustment as a surrogate for indirect selling expenses, this issue is

moot because we have determined that the sales made by CAS through CAS

USA are EP sales. See Comment 1.

Comment 8: Treatment of Unreported Sales.

During the U.S. verification, the Department discovered that CAS

did not report any POI sales with invoices issued in 1998. According to

the petitioners, for purposes of the final determination, the

Department should base the margins for these sales on either: (1) the

average of the margins

[[Page 40428]]

alleged in the petition; or (2) the highest non-aberrant calculated

margin. As support for its position, the petitioners cite Final

Determination of Sales at Less Than Fair Value: Certain Stainless Steel

Wire Rods from France, 58 FR 68865, 68869 (Dec. 29, 1993) (SSWR from

France), in which the Department used best information available to

determine the margin for sales that were not reported due to a computer

error.

According to CAS, its failure to report the sales in question was

inadvertent. Specifically, CAS notes that, at the time the Department

requested that sales data be submitted on an order date basis, the

invoices in question had not yet been issued and, therefore, were not

available for inclusion in the sales listing. However, CAS maintains

that, because the prices associated with these sales are typical of

other POI sales, no adverse inference is warranted.

CAS asserts that the situation in SSWR from France is

distinguishable from the present case. Specifically, CAS states that

the French sales were omitted due to computer error, whereas its own

sales data were not available at the time of the submission of the

relevant sales listing. Furthermore, CAS notes that this issue would be

moot if the Department were to use invoice date as the date of sale

(see Comment 2, above).

DOC Position

We agree with the petitioners. Although the invoice data did not

exist at the time that CAS submitted its January 1998 sales listing,

the purchase order and other transaction-related information did exist

when CAS completed its questionnaire response. Moreover, the invoice

information existed and was available when CAS submitted its March 1998

supplemental response. Because CAS failed to provide a complete

database, we have based the margin for the unreported U.S. sales on

facts available.

Section 776(b) of the Act provides that adverse inferences may be

used when a party has failed to cooperate by not acting to the best of

its ability to comply with requests for information. See also Statement

of Administrative Action accompanying the URAA, H.R. Rep. No. 316, 103d

Cong., 2d Sess. 870 (SAA). CAS's failure to report the information in

question to the Department's questionnaire demonstrates that it has

failed to act to the best of its ability in this investigation. Thus,

the Department has determined that, in selecting among the facts

otherwise available to this company, an adverse inference is warranted.

As adverse facts available, we have selected a margin from the fair

value comparisons which were performed for CAS's reported sales that is

sufficiently adverse so as to effectuate the statutory purposes of the

adverse facts available rule to induce respondents to provide the

Department with complete and accurate information in a timely manner.

We also sought a margin that is indicative of CAS's customary selling

practices and is rationally related to the transactions to which the

adverse facts available are being applied. To that end, we selected a

margin for sales of a product that involved a substantial commercial

quantity and fell within the mainstream of CAS's transactions based on

quantity. Finally, we found nothing on the record to indicate that the

sales of the product we selected were not transacted in a normal

manner. For details regarding the methodology used to select the margin

for the sales in question, see the Sales Calculation Memorandum from

Irina Itkin to the File, dated July 20, 1998.

Comment 9: Treatment of Unpaid Sales.

At verification, the Department found that CAS had not received

payment for a small number of U.S. sales. According to the petitioners,

the Department should use the date of the final determination as date

of payment for these transactions. As support for their position, the

petitioners cite Certain Stainless Wire Rods from France; Final Results

of Antidumping Duty Administrative Review, 61 FR 47874, 47881 (Sep. 11,

1996).

DOC Position

We disagree. The Department's recent practice regarding this issue

has been to use the last day of verification as the date of payment for

all unpaid sales. See Brass Sheet and Strip from Sweden; Final Results

of Antidumping Administrative Review, 60 FR 3617, 3620 (Jan. 18, 1995),

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

Random Access Memory Semiconductors From Taiwan, 63 FR 8909 (Feb. 23,

1998), and Extruded Rubber Thread from Malaysia; Final Results of

Antidumping Duty Administrative Review, 63 FR 12752, 12757 (Mar. 16,

1998). Accordingly, we have used the last day of CAS's U.S.

verification as the date of payment for all unpaid transactions or

portions thereof.

Comment 10: Depreciation Expenses.

The petitioners argue that the Department should increase CAS's COP

and CV data for accelerated depreciation expenses, which were excluded

from its submitted costs. The petitioner notes that the Department's

policy is to calculate COP/CV based on the normal accounting records

maintained by the respondent and that CAS's income statement reflects

the accelerated depreciation expenses in question.

CAS notes that Italian fiscal law allows companies to recognize

additional depreciation expense (i.e., accelerated depreciation) on new

equipment in an amount equal to the ordinary expense that would be

calculated using a straight-line depreciation method. According to CAS,

the purpose of recognizing such additional expense is to reduce taxable

income. CAS argues that, because accelerated depreciation does not

accurately reflect the company's actual cost of manufacturing, it

excluded the accelerated portion of depreciation expense recognized in

the company's financial statements. Specifically, CAS claims that the

use of both ordinary straight-line depreciation and accelerated

depreciation would double its depreciation expenses for qualified

assets and, thus, cannot reasonably reflect the company's actual

manufacturing costs. As support for its position, CAS cites to Final

Determination of Sales at Less Than Fair Value: Fresh and Chilled

Atlantic Salmon from Norway, 56 FR 7661, 7665 (Feb. 25, 1991)

(Norwegian Salmon), in which the Department included only the

respondent's ordinary depreciation expenses in COP and CV.

DOC Position

We agree with the petitioners and have adjusted CAS's submitted

costs to reflect the total depreciation expense reported in its

financial statements. Section 773(f)(1)(A) of the Act states:

[c]osts shall normally be calculated based on the records of the

exporter or producer of the merchandise, if such records are kept in

accordance with the generally accepted accounting principles of the

exporting country (or the producing country, as appropriate) and

reasonably reflect the costs associated with the production and sale

of the merchandise. The administering authority shall consider all

available evidence on the proper allocation of costs . . . if such

allocations have been historically used by the exporter of producer,

in particular for establishing appropriate amortization and

depreciation periods, and allowances for capital expenditures and

other development costs.

For the past three years, CAS has chosen to use an accelerated

depreciation methodology, which is consistent with Italian generally

accepted accounting principles (GAAP), to calculate depreciation

expenses on both its audited financial statements and its tax return.

Accelerated

[[Page 40429]]

depreciation methods, such as the one applied by CAS, provide for a

higher depreciation charge in the years immediately following an

asset's acquisition, while lower charges are recorded in later periods.

We disagree with CAS's assertion that the use of this accelerated

depreciation methodology results in an inaccurate cost of

manufacturing. Other than merely stating that the accelerated

depreciation method results in a greater expense than would be

calculated using a straight-line methodology, CAS has provided no

evidence demonstrating that its depreciation methodology is distortive.

According to Intermediate Accounting: 8th Edition (Kieso &

Weygandt, 1995), the use of an accelerated depreciation methodology is

neither wrong nor distortive. The text notes that an accelerated method

may, in some instances, be more appropriate than a straight-line

depreciation method that records an equal amount of depreciation each

year an asset is in service. As the text states, ``The matching concept

does not justify a constant charge to income. If the benefits from the

asset decline as the asset gets older, then a decreasing charge to

income would better match cost to benefits.''

In past cases, the Department has included the accelerated portion

of depreciation expenses when such an approach is reflected in the

respondent's financial statements, in accordance with the home country

GAAP, and the respondent has not demonstrated that the use of

accelerated depreciation is distortive. See, e.g., Silicon Metal from

Brazil; Final Results of Antidumping Duty Administrative Review and

Determination Not to Revoke in Part, 62 FR 1954, 1958 (Jan. 14, 1997),

in which COP was calculated using the respondent's financial records,

which reflected the historical use of accelerated depreciation in

accordance with Brazilian GAAP; and Notice of Final Determination of

Sales at Less Than Fair Value: Foam Extruded PVC and Polystyrene

Framing Stock From the United Kingdom, 61 FR 51411, 51418 (Oct. 2,

1996), in which COP was calculated using the respondent's financial

records, which historically used an accelerated depreciation method.

Our practice is to adhere to a respondent's recording of costs in

accordance with GAAP of its home country if we are satisfied that such

records reasonably reflect the costs of producing the subject

merchandise. See, e.g., Certain Fresh Cut Flowers from Colombia; Final

Results of Antidumping Duty Administrative Reviews, 61 FR 42833, 42846

(Aug. 19, 1996); and section 773(f)(1)(A) of the Act. This practice has

been sustained by the Court of International Trade (CIT). See, e.g.,

Laclede Steel Co. v. United States, Slip Op. 94-160 at 21-25 (CIT Oct.

12, 1994) (upholding the Department's rejection of the respondent's

reported depreciation expenses in favor of verified information from

the company's financial statements that were consistent with Korean

GAAP); and Hercules, Inc. v. United States, 673 F. Supp. 454 (CIT 1987)

(upholding the Department's reliance on COP information from the

respondent's normal financial statements maintained in conformity with

GAAP).

Comment 11: Leasehold Improvements.

The petitioners argue that the Department should adjust CAS's COP

and CV data to include the cost of leasehold improvements, which were

excluded from its submitted costs. The petitioners note that the

Department's policy is to calculate COP and CV based on the normal

accounting records maintained by the respondent and that CAS's income

statement reflects the cost of leasehold improvements.

CAS notes that, during 1995 and 1996, it made several improvements

to leased assets, including a new production facility roof, a new

cafeteria, and an infirmary. According to CAS, under Italian GAAP,

lessors are prohibited from capitalizing and depreciating leasehold

improvements and, instead, are required to expense such costs in the

year incurred. CAS argues that the inclusion of the full value of its

leasehold improvements in COP/CV would be highly distortive, given that

these expenditures represent a long-term investment in fixed assets and

have a multi-year usefulness. CAS proposes that a logical alternative

to excluding leasehold improvement costs in total would be to

depreciate the cost over the thirty-year term of its lease.

DOC Position

We agree with the petitioners, in part. Section 773(f)(1)(A) of the

Act states that COP and CV shall normally be calculated based on the

books and records of the exporter or producer of the merchandise if

such records are kept in accordance with GAAP of the exporting country

and if such records reasonably reflect the costs associated with the

production of the merchandise under investigation. Because the

leasehold improvements made by CAS represent costs that were associated

with the production of the merchandise under investigation, we find

that it is appropriate to include them in the calculation of its COP

and CV.

We disagree with the petitioners, however, that the full cost of

the leasehold improvements should be recognized in the year incurred.

These costs, as argued by CAS, are expected to benefit future periods.

We therefore consider it appropriate, in this instance, to deviate from

Italian GAAP by capitalizing and depreciating these costs over a

reasonable period of time, not to exceed the actual term of the lease.

CAS's proposal of a thirty-year depreciation period would be

appropriate if the company could be expected to benefit from the

improvements for that period of time. However, the useful life of CAS's

fixed assets, as submitted, indicates that a shorter period is

appropriate for the types of leasehold improvements in question.

Accordingly, we calculated depreciation expense for the leasehold

improvements made by applying the accelerated depreciation methodology

used in CAS's normal accounting records to the useful life of the

assets.

Comment 12: Adjustment Related to the Inventory Write-down

Provision.

The petitioners argue that the Department should value material

costs in accordance with CAS's financial statements. Specifically, the

petitioners argue that the Department should disallow CAS's submitted

offset to materials costs for its inventory write-down provision.

According to the petitioners, the Department's policy is to calculate

COP and CV based on the normal accounting records maintained by the

respondent.

CAS argues that it properly reduced its materials costs for the

inventory write-down provision. CAS notes that it adjusts the provision

at the end of each fiscal year to account for fluctuations in the

values of its raw materials, work-in-process (WIP), and finished goods

inventories, which are stated on a last-in, first-out (LIFO) basis. CAS

claims that the provision reflects the difference between the LIFO

values of its inventories and their current market values. CAS argues

that, consistent with this approach, its reported materials costs

reflect the deduction of the inventory write-down provision from the

cost of materials consumed as reported on its financial statements. As

support for its position, CAS cites to Antifriction Bearings (Other

Than Tapered Roller Bearings) and Parts Thereof From France, Germany,

Italy, Japan, Singapore, and the United Kingdom; Final Results of

Antidumping Duty Administrative Reviews, 62 FR 2081, 2118 (Jan. 15,

1997), in which the Department stated that the respondent's inventory

write-downs ``are not actual costs but are a provisional reduction-in-

[[Page 40430]]

inventory value in anticipation of a lower resale value.''

According to CAS, the Department noted at verification that CAS

included the 1996 addition to its inventory write-down provision in its

reported G&A expenses. CAS argues that, should the Department revise

the reported COP/CV data in order to exclude the provision, it should

make a corresponding adjustment by removing the 1996 addition from the

G&A calculation to avoid double-counting this expense.

DOC Position

We agree with the petitioners that CAS should not have reduced its

material costs by the value of its inventory write-down provision. The

provision that CAS established for inventory value fluctuations is a

balance sheet account that relates to CAS's inventory values at the end

of the year and has no impact on the actual cost of materials used in

production. Accordingly, in calculating COP and CV, there is no basis

for reducing the material costs actually incurred by the full amount of

the inventory write-down provision on CAS's balance sheet.

We disagree with CAS's assertion that, because we have not reduced

the company's materials costs by the full amount of the inventory

write-down provision, the Department must exclude from G&A expenses the

amount of the change to the provision that was reported as an expense

in CAS's 1996 income statement. Specifically, only the incremental

increase or decrease in this provisional account is recognized by the

company on its income statement and the incremental change during 1996

was reported by CAS as a G&A expense item for purposes of its

submission. The incremental change in the provision is the only portion

of the provision that may be appropriate to include in CAS's COP and CV

calculations. In this case, however, the full amount of the increase to

the provision should not be included in the calculation of COP and CV

because the portion of the write-down associated with finished goods

inventory is not a cost of production to CAS. Unlike the complete

write-off of unsaleable merchandise which the Department considers a

cost, this type of inventory write-down arises when a company

determines that the market value for its finished goods inventory is

less than its cost to produce the merchandise. Consequently, it would

be unreasonable to include such write-down amounts, which arise only

because CAS cannot sell the merchandise for what it cost to produce, as

an additional cost of production.

We disagree with CAS's assertion, however, that write-downs

associated with raw materials and WIP inventories should also be

excluded from COP and CV. Both raw materials and WIP inventories are

inputs into the cost of manufacturing the merchandise. It is the

Department's practice to recognize the full amount paid to acquire

production inputs, which are included in raw materials and WIP

inventories, in determining the cost of producing the merchandise.

Consequently, for the final determination, we removed the offset to

CAS's material costs for the inventory write-down provision.

Additionally, we included in G&A expense only the incremental change in

CAS's inventory write-down provision that is associated with raw

materials and WIP inventories.

Comment 13: Materials and Spare Parts.

The petitioners argue that CAS inappropriately reduced its 1997

materials and spare parts costs for an inventory ``write-up''

adjustment that is not reflected in its financial statements or normal

accounting records. CAS applied the adjustment to the costs shown in

its normal accounting records to derive the reported costs.

CAS argues that, in calucating its reported 1997 material and spare

parts costs, it adjusted its inventory based on prices paid during the

period. CAS argues that such an adjustment is necessary to calculate

its cost of production on a current basis, although the adjustment is

not reflected in its financial statements.

DOC Position

We agree with the petitioners. It is the Department's practice to

base the cost of manufacturing on costs incurred during the period of

investigation, as reflected in CAS's normal books and records, rather

than on current prices. In accordance with section 773(f)(1)(A) of the

Act, the Department accepts the inventory valuation methods

historically used by the respondent unless it can be shown that these

methods distort the reported costs. The simple fact that costs would be

lower using an alternative inventory valuation method is not a valid

reason for deviating from a company's normal books and records.

Accordingly, we have removed the adjustment applied by CAS in

calculating its submitted costs.

Comments 14: Accruals for Previous Year Purchases.

The petitioners argue that the Department should make an adjustment

for supplier invoices related to 1996 purchases that were excluded from

CAS's reported costs.

CAS argues that the Department should not adjust its submitted

costs. According to CAS, at year-end 1996, it properly accrued expenses

on purchases for which it anticipated it would receive invoices in

1997. CAS claims that its accrual was based on a reasonable estimate of

the amounts on the invoices to be received and was prepared in

accordance with Italian GAAP and the company's normal internal

accounting policies. CAS notes that it recorded the difference between

its accrual and the invoiced amounts as extraordinary expense in 1997,

and that such treatment is also consistent with Italian GAAP.

DOC Position

We agree with the petitioners. While CAS's treatment of the

supplier invoices received in 1997 for 1996 purchases may have been in

accordance with Italian GAAP, it does not properly reflect the cost of

production during the period of investigation. The recording of an

accrual is a normal part of the year-end accounting process and, as CAS

notes, is based on an estimate. At the end of 1996, CAS recorded

accruals for supplier invoices yet to be received for purchases made

during the year. In early 1997, it became known that CAS's 1996

accruals were understated and, therefore, its 1996 production costs

were understated. The POI encompasses portions of both 1996 and 1997

and, thus, it is proper to adjust the submitted amounts to include the

correct input costs rather than an incorrect estimate. We have

therefore corrected for the understated production costs for purposes

of the final determination.

Comment 15: Offset to G&A Expenses.

The petitioners claim that the Department should remove an offset

that was included in CAS's G&A expense calculation. The offset amount

represents a correction of prior year accruals and is classified in the

financial statements as non-operating management profits. The

petitioners argue that a correction of prior year accruals does not

relate to operations during the POI and, therefore, should not be used

to offset actual G&A expenses incurred during the POI.

DOC Position

We agree with the petitioners. Since CAS failed to provide details

surrounding the over-accrued amounts which were corrected during the

POI, we are unable to determine exactly what merchandise the accruals

relate to. The prior year accruals being corrected may relate solely to

non-subject merchandise

[[Page 40431]]

(in which case we would exclude the correction), solely to subject

merchandise (in which case we would apply the amount to offset the cost

of manufacturing), or to the general production activity of the company

as a whole (in which case we would apply the offset to G&A expenses).

Since we do not know which activities these over-accruals relate to, we

excluded the correction of the prior year's accruals from the submitted

COP and CV computations.

Comment 16: Foreign Exchange Gains and Losses.

The petitioners argue that the Department should revise CAS's

reported G&A expense calculation to exclude certain foreign exchange

gains and losses related to hedging. The petitioners note that such

amounts were classified in CAS's financial statements as financial

income or financial expense and argue that the Department should treat

these amounts in the same manner.

CAS agrees with the petitioners regarding the classification of

foreign exchange gains and losses.

DOC Position

We agree. The foreign exchange gains and losses incurred by CAS on

its hedging operations are more properly classified as financial income

and expenses. Accordingly, we reclassified these amounts for the final

determination.

Comment 17: Double-Counting of Currency Option Expenses.

CAS argues that the Department, in making its preliminary

determination, improperly adjusted CAS's financial expenses to include

an amount related to currency option expenses. CAS notes that this

amount was already included in its G&A expense calculation and, as a

result, the Department double-counted these costs in calculating COP

and CV.

DOC Position

We agree. We have corrected the G&A expense calculation to exclude

the amount that was double-counted.

B. Valbruna

Comment 18: Home Market Warehousing Costs.

According to Valbruna, the Department erred in its preliminary

determination by not adjusting for various costs incurred at its home

market service centers. Specifically, Valbruna contends that the

Department should have deducted its service center costs from NV under

the warehousing provision of the regulations (i.e., 19 CFR

351.401(e)(2)), because one of the functions of the service centers is

warehousing. However, Valbruna asserts that, if the Department does not

consider all service center costs to be warehousing for purposes of the

final determination, it should, at a minimum, deduct all costs directly

associated with warehousing.

The petitioners argue that the Department should continue to

disallow an adjustment for Valbruna's service center costs. The

petitioners cite the Department's preliminary concurrence memorandum,

which stated that the Department denied Valbruna's claim for the

preliminary analysis because: 1) the service centers were merely

branches or sales offices of Valbruna; and 2) only one of the service

centers carried inventory of SSWR. Accordingly, the petitioners

maintain that, if the product under investigation is not maintained in

inventory at the service centers, there is no basis for subtracting

from NV any warehousing costs incurred there.

DOC Position

We agree with Valbruna, in part. Under 19 CFR 351.401(e)(2), the

Department considers warehousing expenses that are incurred after the

merchandise leaves the original place of shipment to be movement

expenses. Accordingly, to the extent that Valbruna incurred expenses

relating to the warehousing of SSWR at its service centers, we have

treated these expenses as movement costs.

Regarding those expenses incurred at the service centers which

relate to selling functions, however, we disagree with Valbruna that

these expenses also constitute part of its warehousing. Rather, we find

that these expenses constitute indirect selling expenses. Because we

have found U.S. sales to be EP sales and we are making no offsets for

U.S. commissions under 19 CFR 351.410(e), we have disregarded these

expenses for purposes of the final determination.

Comment 19: Use of Long-Term Debt in the Calculation of the Home

Market Interest Rate.

Valbruna argues that the Department should base the calculation of

its home market interest rate on the company's interest experience on

all of its current liabilities, not just those arising from short-term

obligations. Specifically, Valbruna asserts that the Department should

include in its calculation the short-term portion of a long-term debt,

because this debt is classified as a current liability on the company's

balance sheet. As such, Valbruna asserts, it is part of the company's

working capital, which is used to finance the company's current assets

(including accounts receivables).

The petitioners disagree. According to the petitioners, it is

irrelevant that Valbruna reclassified a portion of its long-term debts

as a current liability; the interest rate on that portion remains the

rate paid on the company's long-term obligations. According to the

petitioners, it is not appropriate to include long-term debts in the

formula used to calculate the weighted-average short-term interest

rate, because the interest paid on these debts does not properly

measure a company's short-term interest experience. Consequently, the

petitioners maintain that the Department should continue to exclude the

current portion of Valbruna's long-term debt from the calculation of

its short-term interest rate.

DOC Position

We agree with the petitioners. The imputed credit calculation

measures the opportunity cost associated with carrying accounts

receivables. Because accounts receivables are short-term in nature, it

is appropriate to base the interest rate used in the credit calculation

only on rates paid on short-term loans.

We note that long-term debt generally is incurred to finance large-

scale projects (e.g., acquisition of machinery, capital improvements,

etc.). Because it is not incurred to manage the day-to-day cash flow of

a company, it would be inappropriate to include the interest paid on

this type of debt in the credit calculation. The fact that some portion

of the long-term debt becomes a current liability each year is

irrelevant to this reasoning. Accordingly, we have continued to exclude

long-term debt from the calculation of the home market interest rate

for purposes of the final determination.

Comment 20: Inventory Carrying Costs as a Direct Selling Expense.

Valbruna claimed the inventory carrying costs at certain of its

service centers as a direct selling expense. According to the

petitioners, the Department should continue to treat these expenses as

indirect, because Valbruna could not substantiate its claim for direct

treatment at verification. Specifically, the petitioners argue that

Valbruna could not demonstrate that it maintained a customer-specific

inventory during the POI, nor could it show that the merchandise

initially tagged for shipment to particular customers was not sold to

different companies after it left the factory.

Valbruna contends that the expenses in question are analogous to

pre-sale warehousing expenses. According to Valbruna, the URAA

establishes that home market movement expenses,

[[Page 40432]]

including pre-sale freight and warehousing expenses, are to be deducted

from normal value in all cases, without being subject to a ``direct/

indirect'' test similar to selling expenses.

Nonetheless, Valbruna argues that the facts cited by the

petitioners are inconsequential. According to Valbruna, the fact that

its inventory records are not company-specific does not prove that it

incurred no pre-sale warehousing expenses. Moreover, Valbruna asserts

that it shipped merchandise tagged for particular customers to other

clients only under emergency situations.

DOC Position

We agree with the petitioners. The expenses in question are not

actual pre-sale warehousing expenses, such as rent on the warehouse or

salaries of the warehousing personnel. Rather, they are the imputed

costs associated with maintaining an inventory at the warehouse. As

such, they form part of Valbruna's selling expenses, not its

warehousing expenses.

Valbruna was unable to substantiate the facts on which it based its

assertion that these costs were directly related to the sales of SSWR

reported in its home market sales listing. Notably, we found that the

data which formed the basis for Valbruna's claim reflected the

company's inventory levels more than eight months after the end of the

POI. Therefore, we have made no adjustment for these expenses for

purposes of the final determination.

Comment 21: Home Market Freight Costs.

In its questionnaire response, Valbruna calculated freight expenses

at one of its service centers using an 11-month period, rather than the

full 12-month POI. Valbruna contends that the Department should accept

this calculation, rather than recalculate Valbruna's freight costs

using 12 months, because the volume of shipments in the twelfth month

was insignificant. Valbruna asserts that such a recalculation would be

inappropriate because it would result in a mis-matching of expenses

over time.

According to the petitioners, the Department should allocate

Valbruna's freight costs over the entire POI. The petitioners note that

not only did Valbruna make shipments throughout the POI, but also many

of the expenses (e.g., depreciation and insurance) were incurred

regardless of whether the company's trucks were idle.

DOC Position

We agree with the petitioners. At verification, we noted that

Valbruna both shipped SSWR to its customers and incurred freight

expenses throughout the POI. Accordingly, we have used a freight factor

applicable to the 12-month POI for purposes of the final determination.

Continuation of Suspension of Liquidation

In accordance with section 735(c)(1)(B) of the Act, we are

directing the Customs Service to continue to suspend liquidation of all

entries of SSWR from Italy--except those produced and sold for export

to the United States by Valbruna, for whom the final antidumping rate

is de minimis--that are entered, or withdrawn from warehouse, for

consumption, on or after March 5, 1998, the date of publication of our

preliminary determination in the Federal Register. Article VI.5 of the

General Agreement on Tariffs and Trade (GATT 1994) provides that ``[n]o

product . . . shall be subject to both antidumping and countervailing

duties to compensate for the same situation of dumping or export

subsidization.'' This provision is implemented by section 772(c)(1)(C)

of the Act. Since antidumping duties cannot be assessed on the portion

of the margin attributed to export subsidies, there is no reason to

require a cash deposit or bond for that amount. The Department has

determined, in its Final Affirmative Countervailing Duty Determination:

Certain Stainless Steel Wire Rod from Italy, that the product under

investigation benefitted from export subsidies. Normally, where the

product under investigation is also subject to a concurrent

countervailing duty (CVD) investigation, we instruct the Customs

Service to require a cash deposit or posting of a bond equal to the

weighted-average amount by which the NV exceeds the EP, as shown below,

minus the amount determined to constitute an export subsidy. (See

Antidumping Order and Amendment of Final Determination of Sales at Less

Than Fair Value: Extruded Rubber Thread from Malaysia, 57 FR 46150

(Oct. 7, 1992).) For CAS, we are subtracting for cash deposit purposes,

the cash deposit rate attributable to the export subsidies found in the

CVD investigation for that company (i.e., 0.01 percent). The ``All

Others'' deposit rate is also based on subtracting the rate

attributable to the export subsidies found in the CVD investigation for

CAS.

These suspension of liquidation instructions will remain in effect

until further notice. The weighted-average dumping margins are as

follows:

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

Weighted-

average Bonding

Exporter/Manufacturer margin percentage

percentage

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

Acciaierie Valbruna/Acciaierie di

Bolzano SpA............................ 1.27 N/A

Cogne Acciai Speciali S.r.l............. 12.73 12.72

All Others.............................. 12.73 12.72

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

Pursuant to section 735(c)(5)(A) of the Act, the Department has

excluded all zero and de minimis weighted-average dumping margins 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 735(d) of the

Act.

Dated: July 20, 1998.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-20018 Filed 7-28-98; 8:45 am]

BILLING CODE 3510-DS-P