Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Stainless Steel Sheet and Strip in Coils From the United Kingdom

DEPARTMENT OF COMMERCE

International Trade Administration

[A-412-818]

Notice of Preliminary Determination of Sales at Less Than Fair

Value and Postponement of Final Determination: Stainless Steel Sheet

and Strip in Coils From the United Kingdom

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: January 4, 1999.

FOR FURTHER INFORMATION CONTACT: Charles Rast at (202) 482-5811 or

Nancy Decker at (202) 482-0196, Antidumping and Countervailing Duty

Enforcement Group III, Import Administration, International Trade

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

Constitution Avenue, NW, Washington, DC 20230.

Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department's

regulations are to the regulations codified at 19 CFR Part 351, 62 FR

27296 (May 19, 1997).

Preliminary Determination

We preliminarily determine that stainless steel sheet and strip in

coils (SSSS) from the United Kingdom is being, or is likely to be, sold

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

section 733 of

[[Page 86]]

the Tariff Act. The estimated margins of sales at LTFV are shown in the

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

Case History

On June 30, 1998, the Department initiated antidumping duty

investigations of imports of SSSS from France, Germany, Italy, Japan,

Mexico, South Korea, Taiwan, and the United Kingdom. See Initiation of

Antidumping Duty Investigations: Stainless Steel Sheet and Strip in

Coils From France, Germany, Italy, Japan, Mexico, South Korea, Taiwan,

and the United Kingdom, 63 FR 37521, (July 13, 1998). Since the

initiation of this investigation the following events have occurred.

The Department set aside a period for all interested parties to

raise issues regarding product coverage. On July 29, 1998, Allegheny

Ludlum Corporation, Armco, Inc., J&L Specialty Steel, Inc., Washington

Steel Division of Bethlehem Steel Corporation, United Steelworkers of

America, AFL-CIO/CLC, Butler Armco Independent Union, and Zanesville

Armco Independent Organization, Inc. (collectively ``petitioners'')

filed comments proposing clarifications to the scope of these

investigations. Also, from July through October 1998, the Department

received numerous responses from respondents aimed at clarifying the

scope of the investigations. See Memorandum to Joseph A. Spetrini,

December 14, 1998.

During July 1998, the Department requested and received information

from the U.S. Embassy in London to identify producers/exporters of the

subject merchandise. On July 21, 1998, the Department also requested

comments from petitioners, potential respondents, and the British

Embassy in Washington regarding the criteria to be used for model

matching purposes. On July 27, 1998, petitioners and a potential

respondent, Avesta Sheffield Ltd. and Avesta Sheffield NAD, Inc.

(collectively ``Avesta''), submitted comments on our proposed model

matching criteria.

Also on July 24, 1998, the United States International Trade

Commission (the Commission) notified the Department of its affirmative

preliminary injury determination in this case.

The Department subsequently issued its antidumping questionnaire to

Avesta and to Lee Steel Strip Ltd. (``Lee'') on August 3, 1998. The

questionnaire was divided into five parts, in which we requested that

Avesta and Lee respond to section A (general information, corporate

structure, sales practices, and merchandise produced), section B (home

market or third-country sales), section C (U.S. sales), and section D

(cost of production/constructed value).

Avesta and Lee submitted their responses to section A of the

questionnaire on September 8, 1998; Avesta's responses to sections B

through D followed on September 28, 1998.

On September 8, 1998, Lee requested to be excused from being a

mandatory respondent because it accounted for a minimal share of

imports of subject merchandise. On September 10, 1998, petitioners

stated that they did not object to Lee's request. On September 14,

1998, the Department granted Lee's request to withdraw from the

investigation because of its minimal share of imports of subject

merchandise (see Memorandum to Richard Weible, September 14, 1998). On

September 21, 1998, the Department decided to (1) limit the examination

of producers/exporters of subject merchandise, and (2) not investigate

voluntary respondents in this investigation, as well as in the related

investigations of Stainless Steel Sheet and Strip in Coils From France,

Germany, Italy, Japan, Mexico, South Korea, and Taiwan (see Memorandum

to Joseph A. Spetrini, September 21, 1998).

Petitioners filed comments on Avesta's questionnaire responses on

September 23 and October 13, 1998. We issued a supplemental

questionnaire for section A to Avesta on October 9, 1998, and a

supplemental questionnaire for sections B through D on October 28,

1998. Avesta responded to our supplemental questionnaire for section A

on November 2, 1998, and to our supplemental questionnaire for sections

B through D on November 23, 1998.

On August 28, 1998, Avesta requested that the Department exempt it

from reporting certain U.S. resales of rejected merchandise. On

September 4, 1998, petitioners argued that the Department should deny

Avesta's request because these sales are needed for making a fair

comparison of the company's U.S. and home market sales. On October 26,

1998, the Department indicated in a decision memorandum that Avesta

should report these U.S. sales subject to its exclusion request.

However, if the Department determines based on verification that

Avesta's claims about the nature of the resales are correct, they will

not be used in the final antidumping margin calculations. (See

Memorandum to Joseph A. Spetrini, October 26, 1998.)

On October 6, 1998, petitioners made a timely request for a thirty-

day postponement of the preliminary determination pursuant to section

733(c)(1)(A) of the Tariff Act. On October 23, 1998, we postponed the

preliminary determination until no later than December 17, 1998. See

Stainless Steel Sheet and Strip From Italy, France, Germany, Mexico,

Japan, the Republic of Korea, the United Kingdom, and Taiwan; Notice of

Postponement of Preliminary Determinations in Antidumping Duty

Investigations, 63 FR 56909 (October 23, 1998).

Scope of the Investigation

For purposes of this investigation, the products covered are

certain stainless steel sheet and strip in coils. Stainless steel is an

alloy steel containing, by weight, 1.2 percent or less of carbon and

10.5 percent or more of chromium, with or without other elements. The

subject sheet and strip is a flat-rolled product in coils that is

greater than 9.5 mm in width and less than 4.75 mm in thickness, and

that is annealed or otherwise heat treated and pickled or otherwise

descaled. The subject sheet and strip may also be further processed

(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that

it maintains the specific dimensions of sheet and strip following such

processing.

The merchandise subject to this investigation is classified in the

Harmonized Tariff Schedule of the United States (``HTSUS'') at

subheadings: 7219.13.00.30, 7219.13.00.50, 7219.13.00.70,

7219.13.00.80, 7219.14.00.30, 7219.14.00.65, 7219.14.00.90,

7219.32.00.05, 7219.32.00.20, 7219.32.00.25, 7219.32.00.35,

7219.32.00.36, 7219.32.00.38, 7219.32.00.42, 7219.32.00.44,

7219.33.00.05, 7219.33.00.20, 7219.33.00.25, 7219.33.00.35,

7219.33.00.36, 7219.33.00.38, 7219.33.00.42, 7219.33.00.44,

7219.34.00.05, 7219.34.00.20, 7219.34.00.25, 7219.34.00.30,

7219.34.00.35, 7219.35.00.05, 7219.35.00.15, 7219.35.00.30,

7219.35.00.35, 7219.90.00.10, 7219.90.00.20, 7219.90.00.25,

7219.90.00.60, 7219.90.00.80, 7220.12.10.00, 7220.12.50.00,

7220.20.10.10, 7220.20.10.15, 7220.20.10.60, 7220.20.10.80,

7220.20.60.05, 7220.20.60.10, 7220.20.60.15, 7220.20.60.60,

7220.20.60.80, 7220.20.70.05, 7220.20.70.10, 7220.20.70.15,

7220.20.70.60, 7220.20.70.80, 7220.20.80.00, 7220.20.90.30,

7220.20.90.60, 7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and

7220.90.00.80. Although the HTS subheadings are provided for

convenience and Customs purposes, the Department's written description

of the merchandise under investigation is dispositive.

[[Page 87]]

Excluded from the scope of this investigation are the following:

(1) sheet and strip that is not annealed or otherwise heat treated and

pickled or otherwise descaled, (2) sheet and strip that is cut to

length, (3) plate (i.e., flat-rolled stainless steel products of a

thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled

sections, with a prepared edge, rectangular in shape, of a width of not

more than 9.5 mm), and (5) razor blade steel. Razor blade steel is a

flat rolled product of stainless steel, not further worked than cold-

rolled (cold-reduced), in coils, of a width of not more than 23 mm and

a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5

percent chromium, and certified at the time of entry to be used in the

manufacture of razor blades. See Chapter 72 of the HTSUS, ``Additional

U.S. Note'' 1(d).

In response to comments by interested parties the Department has

determined that certain specialty stainless steel products are also

excluded from the scope of this investigation. These excluded products

are described below:

Flapper valve steel is defined as stainless steel strip in coils

containing, by weight, between 0.37 and 0.43 percent carbon, between

1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent

manganese. This steel also contains, by weight, phosphorus of 0.025

percent or less, silicon of between 0.20 and 0.50 percent, and sulfur

of 0.020 percent or less. The product is manufactured by means of

vacuum arc remelting, with inclusion controls for sulphide of no more

than 0.04 percent and for oxide of no more than 0.05 percent. Flapper

valve steel has a tensile strength of between 210 and 300 ksi, yield

strength of between 170 and 270 ksi, plus or minus 8 ksi, and a

hardness (Hv) of between 460 and 590. Flapper valve steel is most

commonly used to produce specialty flapper valves in compressors.

Also excluded is a product referred to as suspension foil, a

specialty steel product used in the manufacture of suspension

assemblies for computer disk drives. Suspension foil is described as

302/304 grade or 202 grade stainless steel of a thickness between 14

and 127 microns, with a thickness tolerance of plus-or-minus 2.01

microns, and surface glossiness of 200 to 700 percent Gs. Suspension

foil must be supplied in coil widths of not more than 407 mm, and with

a mass of 225 kg or less. Roll marks may only be visible on one side,

with no scratches of measurable depth. The material must exhibit

residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm

over 685 mm length.

Certain stainless steel foil for automotive catalytic converters is

also excluded from the scope of this investigation. This stainless

steel strip in coils is a specialty foil with a thickness of between 20

and 110 microns used to produce a metallic substrate with a honeycomb

structure for use in automotive catalytic converters. The steel

contains, by weight, carbon of no more than 0.030 percent, silicon of

no more than 1.0 percent, manganese of no more than 1.0 percent,

chromium of between 19 and 22 percent, aluminum of no less than 5.0

percent, phosphorus of no more than 0.045 percent, sulfur of no more

than 0.03 percent, lanthanum of between 0.002 and 0.05 percent, and

total rare earth elements of more than 0.06 percent, with the balance

iron.

Permanent magnet iron-chromium-cobalt alloy stainless strip is also

excluded from the scope of this investigation. This ductile stainless

steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10

percent cobalt, with the remainder of iron, in widths 228.6 mm or less,

and a thickness between 0.127 and 1.270 mm. It exhibits magnetic

remanence between 9,000 and 12,000 gauss, and a coercivity of between

50 and 300 oersteds. This product is most commonly used in electronic

sensors and is currently available under proprietary trade names such

as ``Arnokrome III.''1

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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering

Company.

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Certain electrical resistance alloy steel is also excluded from the

scope of this investigation. This product is defined as a non-magnetic

stainless steel manufactured to American Society of Testing and

Materials (ASTM) specification B344 and containing, by weight, 36

percent nickel, 18 percent chromium, and 46 percent iron, and is most

notable for its resistance to high temperature corrosion. It has a

melting point of 1390 degrees Celsius and displays a creep rupture

limit of 4 kilograms per square millimeter at 1000 degrees Celsius.

This steel is most commonly used in the production of heating ribbons

for circuit breakers and industrial furnaces, and in rheostats for

railway locomotives. The product is currently available under

proprietary trade names such as ``Gilphy 36.'' 2

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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.

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Certain martensitic precipitation-hardenable stainless steel is

also excluded from the scope of this investigation. This high-strength,

ductile stainless steel product is designated under the Unified

Numbering System (UNS) as S45500-grade steel, and contains, by weight,

11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon,

manganese, silicon and molybdenum each comprise, by weight, 0.05

percent or less, with phosphorus and sulfur each comprising, by weight,

0.03 percent or less. This steel has copper, niobium, and titanium

added to achieve aging, and will exhibit yield strengths as high as

1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after

aging, with elongation percentages of 3 percent or less in 50 mm. It is

generally provided in thicknesses between 0.635 and 0.787 mm, and in

widths of 25.4 mm. This product is most commonly used in the

manufacture of television tubes and is currently available under

proprietary trade names such as ``Durphynox 17.'' 3

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\3\ ``Durphynox 17'' is a trademark of Imphy, S.A.

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Finally, three specialty stainless steels typically used in certain

industrial blades and surgical and medical instruments are also

excluded from the scope of this investigation. These include stainless

steel strip in coils used in the production of textile cutting tools

(e.g., carpet knives).4 This steel is similar to ASTM grade

440F, but containing, by weight, 0.5 to 0.7 percent of molybdenum. The

steel also contains, by weight, carbon of between 1.0 and 1.1 percent,

sulfur of 0.020 percent or less, and includes between 0.20 and 0.30

percent copper and between 0.20 and 0.50 percent cobalt. This steel is

sold under proprietary names such as ``GIN4 Mo.'' The second excluded

stainless steel strip in coils is similar to AISI 420-J2 and contains,

by weight, carbon of between 0.62 and 0.70 percent, silicon of between

0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent,

phosphorus of no more than 0.025 percent and sulfur of no more than

0.020 percent. This steel has a carbide density on average of 100

carbide particles per square micron. An example of this product is

``GIN5'' steel. The third specialty steel has a chemical composition

similar to AISI 420 F, with carbon of between 0.37 and 0.43 percent,

molybdenum of between 1.15 and 1.35 percent, but lower manganese of

between 0.20 and 0.80 percent, phosphorus of no more than 0.025

percent, silicon of between 0.20 and 0.50 percent, and sulfur of no

more than 0.020 percent. This product is supplied with a hardness of

more than Hv 500 guaranteed after customer processing,

[[Page 88]]

and is supplied as, for example, ``GIN6''.5

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\4\ This list of uses is illustrative and provided for

descriptive purposes only.

\5\ ``GIN4 Mo'', ``GIN5'' and ``GIN6'' are the proprietary

grades of Hitachi Metals America, Ltd.

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Period of Investigation

The period of investigation (POI) is April 1, 1997, through March

31, 1998.

Postponement of Final Determination and Extension of Provisional

Measures

Pursuant to Section 735(a)(2) of the Tariff Act, on December 8 and

9, 1998, Avesta requested that, in the event of an affirmative

preliminary determination in this investigation, the Department

postpone its final determination until not later than 135 days after

the date of the publication of an affirmative preliminary determination

in the Federal Register, and request to extend the provisional measures

to not more than six months. In accordance with 19 CFR 351.210(b),

because (1) our preliminary determination is affirmative, (2) Avesta

accounts for a significant proportion of exports of the subject

merchandise, and (3) no compelling reasons for denial exist, we are

granting the respondent's request and are postponing the final

determination until no later than 135 days after the publication of

this notice in the Federal Register. Suspension of liquidation will be

extended accordingly.

Fair Value Comparisons

To determine whether sales of SSSS from the United Kingdom to the

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

price (EP) or constructed export price (CEP) to the normal value (NV),

as described in the ``Export Price and Constructed Export Price'' and

``Normal Value'' sections of this notice, below. In accordance with

section 777A(d)(1)(A)(i) of the Tariff Act, we calculated weighted-

average EPs and CEPs for comparison to weighted-average NVs.

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 Tariff 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.'' The URAA

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

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

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.

Transactions Investigated

For its home market and U.S. sales, Avesta reported the date of

invoice as the date of sale, in keeping with the Department's stated

preference for using the invoice date as the date of sale. Avesta

stated that the invoice date best reflects the date on which the

material terms of sale are established and that price and/or quantity

can and do change between order date and invoice date. However,

petitioners have alleged that the sales documentation indicates that

the order date appears to be the date when the material terms of sale

are set for the majority of Avesta's sales of SSSS. Given the relevance

of petitioners comments and the nature of marketing these types of

made-to-order products, petitioners claims have some merit.

Consequently, on October 9 and 28, 1998, the Department requested that

Avesta provide additional information concerning the nature and

frequency of price and quantity changes occurring between the date of

order and date of invoice. We also asked Avesta to report order date

for all home market and U.S. sales and to ensure that all sales with

order or invoice dates within the POI are reported. On November 2 and

23, 1998, Avesta reiterated that invoice date is the appropriate date

of sale and stated that it is unable to gather the data within a

reasonable period of time. Avesta did not report order date for home

market sales. However, Avesta reported the order date for U.S. sales,

including sales with order dates within the POI but invoices after the

POI. The Department is preliminarily using the invoice date as the date

of sale for both home market and U.S. sales. We intend to fully examine

this issue at verification, and we will incorporate our findings, as

appropriate, in our analysis for the final determination. If we

determine that order confirmation is the appropriate date of sale, we

may resort to facts available for the final determination to the extent

that this information has not been reported.

In its September 28, 1998, response, Avesta noted that slabs, which

are initially produced in the U.K., are hot-rolled outside of the U.K.

(i.e., in Sweden), and then returned to the U.K. for annealing and

pickling. Avesta asserts that hot-rolled merchandise, which is sold

only in the home market, should be considered a product of Sweden and,

thus, sales of hot-rolled merchandise should be excluded from the

Department's analysis. Avesta also asserts that a small amount of

merchandise reported in the U.S. and/or home market databases is: (1)

hot-rolled and cold-rolled in Sweden, and then further cold-rolled,

annealed and finally processed in the U.K. (affecting U.S. and home

markets); and (2) hot-rolled and cold-rolled in Sweden and then further

processed in the U.K. (affecting the home market). Avesta claims that

this cold-rolled merchandise should also be considered a product of

Sweden and, as such, it should be excluded from the Department's

analysis. In Stainless Steel Plate from Sweden, we determined that hot

bands rolled in Sweden from British slab are within the scope of that

antidumping finding (see Memorandum to Joseph A. Spetrini, December 22,

1997, the public version of which is attached to our Preliminary

Determination Analysis Memorandum, December 17, 1998). Therefore, we

preliminarily determine, pending the results of verification, to

exclude from our analysis (1) Avesta's hot-rolled sales, and (2) those

sales of merchandise that are first cold-rolled in Sweden. The

Department invites parties to submit information and comment on this

issue. Interested parties are instructed to submit their comments,

along with any additional supporting information, to the Department by

January 7, 1998.

Product Comparisons

In accordance with section 771(16) of the Tariff Act, we considered

all products produced by the respondent covered by the description in

the ``Scope of the Investigation'' section, above, and sold in the home

market during the POI, to be foreign like products for purposes of

determining appropriate product comparisons to U.S. sales. Where there

were no sales of identical merchandise in the home market to compare to

U.S. sales, we compared U.S. sales to the next most similar foreign

like product on the basis of the characteristics and reporting

instructions listed in the Department's questionnaire.

Level of Trade

In accordance with section 773(a)(1)(B) of the Tariff Act, to the

extent practicable, we determine NV

[[Page 89]]

based on sales in the comparison market at the same level of trade

(LOT) as the EP or CEP transaction. The NV LOT is that of the starting-

price sales in the comparison market or, when NV is based on CV, that

of the sales from which we derive selling, general and administrative

(SG&A) expenses and profit. For EP it is the level of the sale from the

exporter to the importer. For CEP, it is the level of the constructed

sale from the exporter to the importer. If the sales being compared are

at different LOTs, and the difference affects price comparability, as

manifested in a pattern of consistent price differences between the

sales on which NV is based and the U.S. sales being compared, we make a

LOT adjustment under section 773(a)(7)(A) of the Tariff Act.

To determine whether NV sales are at a different LOT than EP or CEP

sales, we examine stages in the marketing process and selling functions

along the chain of distribution. If the comparison market sales are at

a different LOT, and the difference affects price comparability, as

manifested in a pattern of consistent price differences between the

sales on which NV is based and comparison market sales at the LOT of

the export transaction, we make a LOT adjustment under section

773(a)(7)(A) of the Tariff Act. Finally, for CEP sales, if the NV level

is more remote from the factory than the CEP level and there is no

basis for determining whether the differences in the levels between NV

and CEP sales affect price comparability, we adjust NV under section

773(A)(7)(B) of the Tariff Act (the CEP offset provision). (See, e.g.,

Certain Carbon Steel Plate from South Africa, Final Determination of

Sales at Less Than Fair Value, 62 FR 61731 (November 19, 1997).)

In the home market, Avesta made sales to distributors and end-

users. The company claims five channels of distribution with respect to

these sales: (1) mill ``super direct'' sales (i.e., sales shipped

directly to affiliated and unaffiliated end-user customers and invoiced

from the producing mill); (2) mill ``direct'' sales to unaffiliated

distributor and end-user customers (i.e., sales shipped directly from

the mill, using Avesta Sheffield Distribution Ltd. (AVSD), an

affiliated sales company/service center, as a sales agent); (3) AVSD

``service center distributor'' sales (i.e., the producing mills sell to

AVSD, which resells the merchandise in original form or following

further processing) ; (4) Billing Stainless, an affiliated sales

company, sales (i.e., resales of offcuts and non-prime merchandise from

the mills); and (5) AVSD consignment sales. Avesta claims that each

channel of distribution represents a separate LOT. In the U.S. market,

Avesta reported sales made to distributors and end-users, claiming

three channels of distribution for these sales: (1) Mill ``direct''

sales (i.e., sales shipped directly from the mill to the unaffiliated

U.S. distributor and end-user customers, using Avesta Sheffield, Inc.

(ASI), an affiliated sales company, as a sales agent); (2) sales from

warehouse stock which includes ASI ``master distributor'' sales; and

(3) ASI consignment sales. Avesta claims two LOTs in the U.S.: (1) CEP

sales; and (2) EP sales. The first channel of distribution (i.e., mill

direct sales) includes both CEP and EP sales, while the other two

channels of distribution (i.e., ASI master distributor and ASI

consignment sales) consist solely of CEP sales. Avesta also asserts

that prices charged to customers in the United States and in the United

Kingdom tend to vary across channels of distribution and that these

variations typically reflect differences in the selling activities

performed. Avesta claims that CEP sales were made at a LOT comparable

to ``super direct'' mill sales in the home market. Avesta requests that

the Department make a LOT adjustment or, alternatively, grant a CEP

offset to the extent ASI's CEP sales cannot be compared to sales at the

same LOT.

In determining whether separate LOT actually existed in the home

market, we first examined whether Avesta's sales involved different

marketing stages (or their equivalent) and selling functions along the

chain of distribution between Avesta and its unaffiliated customers. We

found that Avesta provided no detailed narrative explanation supporting

its claim that the channels of distribution represent different LOTs,

nor did it explain why each of these channels represents a different

stage of marketing. Normally, stages of marketing focus on whether

sales are to service centers or end-users, in some instances taking

into account whether or not sales are made through intermediate

parties. On this basis, it appears that Avesta's mill super direct

sales may be at a different stage of marketing than its other sales

because these sales were sold directly from the mill to the

unaffiliated customer, whereas sales through the other four channels of

distribution involved an affiliated intermediary before going to the

unaffiliated customer. This would indicate that Avesta has, at most,

two home market LOTs, rather than five.

In further analyzing Avesta's LOT claims in the home market, we

reviewed available information on the record about the company's

selling functions at each marketing stage. Avesta identified 30

different selling functions (see Attachment SRA-5 of Avesta's November

2, 1998, supplemental section A response). We closely examined these

functions and concluded that the following ten functions do not appear

to be selling functions relevant to the Department's LOT analysis

because they do not characterize significant services provided to

customers: issuing purchase order confirmations; inputting orders;

sending a mill certificate; sending packing lists; issuing invoices;

buying coils from mills; acting as commission agent; buying merchandise

on account; repacking; and issuing product brochures and data sheets.

We also decided to combine several other functions because we found

that they were not sufficiently different to warrant being treated as

unique selling functions. Thus, we consolidated negotiating price/

discounts/rebates to unaffiliated and affiliated customers and

maintaining internal and external warehouses into two single

categories. Similarly, we have combined several sales and marketing

support functions (i.e., identifying customers, acting as mill and

customer liaison, promoting new products, maintaining sales department,

sales and marketing support, and developing sales strategies) into a

single sales and marketing support selling function. As a result of our

analysis, we concluded that Avesta performed 13 separate selling

functions in its home market, rather than 30.

Next, we tested whether these selling functions are provided

consistently across all five channels of distribution in the home

market, finding that the following eight functions were provided across

all channels of distribution: negotiating prices; performing credit

checks; extending credit; collecting payment; assuming warranty

obligations; maintaining inventory; arranging shipment logistics; and

providing sales and marketing support. Of the remaining five selling

functions, we noted the following differences: processing services are

not provided on super direct and mill direct sales; warehousing

services are not provided on mill direct sales; technical services and

market research are not provided on Billing Stainless sales; and R&D is

only provided on super direct sales.

In conclusion, while Avesta claimed differences in selling

functions in connection with each channel of distribution, we find that

the actual differences in selling functions between channels are

relatively minor. Thus, we conclude that the company did not

[[Page 90]]

adequately support these claims. Therefore, we preliminarily determine

that only one LOT existed for Avesta in the home market.

In determining whether two LOTs existed in the U.S. market, as

Avesta claims, we examined the selling functions performed by Avesta

for both EP and CEP sales. According to Avesta, it provides no selling

functions in support of its CEP sales, when the expenses associated

with the sales by ASI to the unaffiliated buyer are excluded pursuant

to the Department's practice. Avesta reported that the following

selling functions were provided for EP sales: sales and marketing

support (including negotiating prices); logistics; credit checks;

credit; collecting payment; and assuming warranty obligations. Based on

our analysis of the information on the record, we find that these

functions were not provided for Avesta's CEP sales. Consequently, we

determine that Avesta provided significantly different selling

functions for its EP sales than it did on CEP sales.

In analyzing the differences between stages of marketing, we have

also concluded that Avesta's EP and CEP sales are at two separate

stages of marketing. See Preliminary Analysis Memorandum, December 17,

1998, a public version of which is on file in room B-099 of the main

Commerce building. Based on our analysis, we have preliminarily

determined that Avesta has two separate LOTs in the United States.

We next compared EP sales to home market sales to determine whether

they were made at the same LOT. To perform this analysis, we compared

the selling functions offered by Avesta on its EP sales to the

functions performed by it on its home market sales. The information on

the record indicates that, for both EP and home market transactions,

Avesta performed numerous similar selling functions, such as sales and

marketing support, negotiating prices, logistics, credit checks,

extending credit, collecting payment and assuming warranty obligations.

We also noted that there were some selling functions performed by

Avesta that were not common to its EP and home market sales (e.g.,

inventory maintenance, processing services, R&D, warehousing, technical

support and market research). We believe these differences are

qualitatively and quantitatively significant. See Preliminary Analysis

Memorandum, December 17, 1998. Because we compared these EP sales to

home market sales at a different LOT, we examined whether a LOT

adjustment may be appropriate. In this case, Avesta sold at one LOT in

the home market; therefore, there is no basis upon which Avesta has

demonstrated a pattern of consistent price differences between LOTs.

Further, we do not have the information which would allow us to examine

pricing patterns of Avesta's sales of other similar products, and there

are no other respondents or other record evidence on which such an

analysis could be based. Therefore, we cannot make a LOT adjustment,

and a CEP offset, pursuant to section 773(a)(7)(B) of the Tariff Act,

is not appropriate because these are EP sales.

Avesta requested a CEP offset in this investigation. Section

773(a)(7)(B) of the Tariff Act establishes that a CEP ``offset'' may be

made when two conditions exist: (1) NV is established at a LOT which

constitutes a more advanced stage of distribution than the LOT of the

CEP; and (2) the data available do not provide an appropriate basis to

determine a LOT adjustment. In this case, we note that for CEP sales,

after excluding the expenses associated with the sales by ASI to the

unaffiliated buyers in the United States, Avesta performed no services

for the customer. Therefore, the differences in selling functions

between home market sales and CEP sales are even greater than those

described above. Because Avesta's home market sales are at a more

advanced stage of distribution than its CEP sales, these sales are at a

different LOT. See Preliminary Analysis Memorandum, December 17, 1998.

Because we compared these CEP sales to home market sales at a

different LOT, we examined whether a LOT adjustment may be appropriate.

See discussion above. Because the data available do not provide an

appropriate basis for making a LOT adjustment, but the home market LOT

is at a more advanced stage than the LOT of the CEP sales, a CEP offset

is appropriate in accordance with section 773(a)(7)(B) of the Tariff

Act, as claimed by Avesta. We based the CEP offset amount on the amount

of home market indirect selling expenses, and limited the deduction for

home market indirect selling expenses to the amount of indirect selling

expenses deducted from CEP in accordance with section 772(d)(1)(D) of

the Tariff Act. We applied the CEP offset to NV, whether based on home

market prices or CV.

Export Price and Constructed Export Price

Avesta reported as EP transactions its sales of subject merchandise

to unaffiliated U.S. customers, in which sales arrangements are

negotiated with sales representatives at the U.K.-producing mill,

although paperwork, invoicing, and shipment are handled by ASI. For EP

sales, Avesta has claimed that the prices are negotiated by sales

representatives in the United Kingdom before importation into the

United States, and the products were shipped directly to the customer

through ASI without being introduced into U.S. inventory. Avesta

reported as CEP transactions its sales of subject merchandise sold to

ASI for its own account. ASI then resold the subject merchandise to

unaffiliated customers in the United States.

We calculated EP, in accordance with section 772(a) of the Tariff

Act, for those sales where the merchandise was sold to the first

unaffiliated purchaser in the United States prior to importation and

CEP methodology was not otherwise warranted, based on the facts of

record. We based EP on the packed, delivered, duty paid price to

unaffiliated purchasers in the United States. We made deductions for

freight charged to the customer and other movement expenses in

accordance with section 772(c)(2)(A) of the Tariff Act; these included,

where appropriate, freight charged to the customer (the amount included

in reported gross unit price), foreign inland freight, foreign inland

insurance, international freight, marine insurance, U.S. inland

freight, U.S. inland insurance, unloading charges, U.S. duty, and

foreign and U.S. brokerage and handling.

We calculated CEP, in accordance with subsection 772(b) of the

Tariff Act, for those sales made by ASI to unaffiliated purchasers in

the United States. We based CEP on the packed, delivered, duty paid

prices to unaffiliated purchasers in the United States. We made

adjustments for discounts and rebates, where applicable. We also made

deductions for freight charged to the customer and other movement

expenses in accordance with section 772(c)(2)(A) of the Tariff Act;

these included, where appropriate, foreign inland freight, foreign

inland insurance, international freight, marine insurance, U.S. inland

freight, U.S. warehousing, U.S. inland insurance, unloading charges,

U.S. duty, and foreign and U.S. brokerage and handling. In accordance

with section 772(d)(1) of the Tariff Act, we deducted those selling

expenses associated with economic activities occurring in the United

States, including direct selling expenses (credit costs, warranty

expenses), inventory carrying costs, and indirect selling expenses. In

accordance with section 772(d)(2) of the Tariff Act, we deducted the

cost of further manufacturing (slitting costs). For CEP sales, we also

made an adjustment for

[[Page 91]]

profit in accordance with section 772(d)(3) of the Tariff Act.

Normal Value

In order to determine whether there was a sufficient volume of

sales in the home market to serve as a viable basis for calculating NV

(i.e., the aggregate volume of home market sales of the foreign like

product was equal to or greater than five percent of the aggregate

volume of U.S. sales), we compared the respondent's volume of home

market sales of the foreign like product to the volume of U.S. sales of

the subject merchandise, in accordance with section 773(a)(1)(C) of the

Tariff Act. As Avesta's aggregate volume of home market sales of the

foreign like product was greater than five percent of its aggregate

volume of U.S. sales of the subject merchandise, we determined that the

home market was viable. Therefore, we have based NV on home market

sales in the usual commercial quantities and in the ordinary course of

trade.

Affiliated-Party Transactions and Arm's-Length Test

Sales to affiliated customers in the home market not made at arm's-

length prices (if any) were excluded from our analysis because we

considered them to be outside the ordinary course of trade. See 19 CFR

351.102. To test whether these sales were made at arm's-length prices,

we compared, on a model-specific basis, the starting prices of sales to

affiliated and unaffiliated customers net of all movement charges,

direct selling expenses, and packing. Where, for the tested models of

subject merchandise, prices to the affiliated party were on average

99.5 percent or more of the price to unaffiliated parties, we

determined that sales made to the affiliated party were at arm's

length. See 19 CFR 351.403(c). In instances where no price ratio could

be constructed for an affiliated customer because identical merchandise

was not sold to unaffiliated customers, we were unable to determine

that these sales were made at arm's-length prices and, therefore,

excluded them from our LTFV analysis. See, e.g., Final Determination of

Sales at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat

Products from Argentina, 58 FR 37062, 37077 (July 9, 1993); Notice of

Preliminary Determination of Sales at Less Than Fair Value and

Postponement of Final Determination: Emulsion Styrene-Butadiene Rubber

from Brazil, 63 FR 59509 (Nov. 8, 1998), citing to Final Determination

of Sales at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat

Products from Argentina, 58 FR 37062 (July 9, 1993). Where the

exclusion of such sales eliminated all sales of the most appropriate

comparison product, we made a comparison to the next most similar

model.

Cost of Production Analysis

Based on a cost allegation filed by petitioners, the Department

found reasonable grounds to believe or suspect that Avesta's sales of

the foreign like product were made at prices which represent less than

the cost of production (COP). See section 773(b)(2)(A) of the Tariff

Act. As a result, the Department has initiated an investigation to

determine whether the respondent made home market sales during the POI

at prices below their respective COPs, within the meaning of section

773(b) of the Tariff Act. (See Initiation, 63 FR 37521, July 13, 1998).

In accordance with section 773(b)(3) of the Tariff Act, we

calculated COP based on the sum of Avesta's cost of materials and

fabrication for the foreign like product, plus an amount for G&A,

interest expenses, and packing costs. In addition, on a transaction

specific basis, we added to COP, tolling costs for slitting work done

by an unaffiliated party.

We used the information from Avesta's section D questionnaire

responses to calculate COP. We compared the weighted-average COP for

Avesta to home market sales prices of the foreign like product, as

required under section 773(b) of the Tariff Act. In determining whether

to disregard home market sales made at prices less than the COP, we

examined whether such sales were made (i) in substantial quantities

over an extended period of time, and (ii) at prices which permitted the

recovery of all costs within a reasonable period of time. On a product-

specific basis, we compared COP to home market prices, less any

applicable movement charges, billing adjustments, and discounts and

rebates.

Pursuant to section 773(b)(2)(C)(i) of the Tariff Act, where less

than twenty percent of a respondent's sales of a given product were at

prices less than the COP, we did not disregard any below-cost sales of

that product because we determined that the below-cost sales were not

made in ``substantial quantities.'' Where twenty percent or more of a

respondent's sales of a given product during the POI were at prices

less than the COP, we determined such sales to have been made in

substantial quantities, in accordance with section 773(b)(2)(C)(i) of

the Tariff Act. In addition, we determined that such below-cost sales

were made within an extended period of time, in accordance with section

773(b)(2)(B) of the Tariff Act. In such cases, pursuant to section

773(b)(2)(D) of the Tariff Act, we also determined that such sales were

not made at prices which would permit recovery of all costs within a

reasonable period of time. Therefore, we disregarded the below-cost

sales. Where all sales of a specific product were at prices below the

COP, we disregarded all sales of that product and relied on similar

merchandise to match, if available (see CEMEX v. United States, 1998 WL

3626 (Fed. Cir.)).

Our cost test for Avesta revealed that less than twenty percent of

Avesta's home market sales of certain products were at prices below

Avesta's COP. We retained all such sales in our analysis. For other

products, more than twenty percent of Avesta's sales were at below-cost

prices. In such cases we disregarded the below-cost sales, while

retaining the above-cost sales for our analysis. See Preliminary

Determination Analysis Memorandum, December 17, 1998.

Constructed Value

In accordance with section 773(e)(1) of the Tariff Act, we

calculated CV based on the sum of respondent's cost of materials,

fabrication, SG&A, interest expenses, and profit. In accordance with

section 773(e)(2)(A) of the Tariff Act, we based SG&A and profit on the

amounts incurred and realized by Avesta in connection with the

production and sale of the foreign like product in the ordinary course

of trade for consumption in the foreign country. We used the CV data

Avesta supplied in its section D questionnaire responses.

Price-to-Price Comparisons

We calculated NV based on FOB or delivered prices to unaffiliated

customers or prices to affiliated customers that we determined to be at

arm's-length prices. We made adjustments for billing adjustments and

discounts and rebates. We made deductions, where appropriate, for

foreign inland freight, warehousing, and inland insurance, pursuant to

section 773(a)(6)(B) of the Tariff Act. In addition, we made

adjustments for differences in physical characteristics of the

merchandise pursuant to section 773(a)(6)(C)(ii) of the Tariff Act, as

well as for differences in circumstances of sale (COS) in accordance

with section 773(a)(6)(C)(iii) of the Tariff Act and 19 CFR 351.410. We

made COS adjustments for imputed credit expenses and warranties.

Finally, we deducted home market packing costs and added U.S. packing

costs in accordance with

[[Page 92]]

section 773(a)(6)(A) and (B) of the Tariff Act.

Price-to-CV Comparisons

In accordance with section 773(a)(4) of the Tariff Act, we based NV

on CV if we were unable to find a home market match of identical or

similar merchandise. We calculated CV based on the costs of materials

and fabrication employed in producing the subject merchandise, SG&A,

and profit. In accordance with section 773(a)(2)(A) of the Tariff Act,

we based SG&A expense and profit on the amounts incurred and realized

by the respondent in connection with the production and sale of the

foreign like product in the ordinary course of trade for consumption in

the United Kingdom. For selling expenses, we used the weighted-average

home market selling expenses. Where appropriate, we made adjustments to

CV in accordance with section 773(a)(8) of the Tariff Act. For

comparisons to EP, we made COS adjustments by deducting home market

direct selling expenses and adding U.S. direct selling expenses. When

we compared CV to CEP, we deducted from CV the weighted-average home

market direct selling expenses.

Currency Conversion

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(a) of the

Tariff Act.

Verification

As provided in section 782(i) of the Tariff Act, we will verify all

information relied upon in making our final determination.

Suspension of Liquidation

In accordance with section 733(d) of the Tariff Act, we are

directing the Customs Service to suspend liquidation of all imports of

subject merchandise that are entered, or withdrawn from warehouse, for

consumption on or after the date of publication of this notice in the

Federal Register. We will instruct the Customs Service to require a

cash deposit or the posting of a bond equal to the weighted-average

amount by which the NV exceeds the export price, as indicated below.

These suspension-of-liquidation instructions will remain in effect

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

follows:

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

Weighted-

Exporter/manufacturer average margin

(percentage)

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

Avesta Sheffied........................................ 13.45

All Others............................................. 13.45

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

Commission Notification

In accordance with section 733(f) of the Tariff Act, we have

notified the Commission of our determination. If our final

determination is affirmative, the Commission will determine before the

later of 120 days after the date of this preliminary determination or

45 days after our final determination whether imports of stainless

steel sheet and strip in coils are materially injuring, or threaten

material injury to, the U.S. industry.

Public Comment

Case briefs or other written comments may be submitted to the

Assistant Secretary for Import Administration no later than fifty days

after the date of publication of this notice, and rebuttal briefs,

limited to issues raised in case briefs, no later than fifty-five days

after the date of publication of this preliminary determination. A list

of authorities used and an executive summary of issues should accompany

any briefs submitted to the Department. This summary should be limited

to five pages total, including footnotes. In accordance with section

774 of the Tariff Act, we will hold a public hearing, if requested, to

afford interested parties an opportunity to comment on arguments raised

in case or rebuttal briefs. Tentatively, any hearing will be held

fifty-seven days after publication of this notice at the U.S.

Department of Commerce, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230, at a time and location to be determined.

Parties should confirm by telephone the date, time, and location of the

hearing 48 hours before the scheduled time.

Interested parties who wish to request a hearing, or to participate

if one is requested, must submit a written request to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

1870, within 30 days of the date of publication of this notice.

Requests should contain: (1) The party's name, address, and telephone

number; (2) the number of participants; and (3) a list of the issues to

be discussed. At the hearing, each party may make an affirmative

presentation only on issues raised in that party's case brief, and may

make rebuttal presentations only on arguments included in that party's

rebuttal brief. See 19 CFR 351.310(c). If this investigation proceeds

normally, we will make our final determination by no later than 135

days after the publication of this notice in the Federal Register.

This determination is issued and published in accordance with

sections 733(d) and 777(i)(1) of the Tariff Act.

Dated: December 17, 1998.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-34460 Filed 12-31-98; 8:45 am]

BILLING CODE 3510-DS-P