Notice of Preliminary Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From South Korea

Federal RegisterJan 4, 1999

Ask Donna

What actually matters in this document.

Text

DEPARTMENT OF COMMERCE

International Trade Administration

[A-580-834]

Notice of Preliminary Determination of Sales at Less Than Fair

Value: Stainless Steel Sheet and Strip in Coils From South Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: January 4, 1999.

FOR FURTHER INFORMATION CONTACT: Maria Dybczak (Pohang Iron and Steel

Company, Ltd. (``POSCO'')), Brandon Farlander (Inchon Iron & Steel Co.,

Ltd. (``Inchon'')), or Rick Johnson, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, N.W., Washington, D.C. 20230;

telephone: (202) 482-1398 (Dybczak), (202) 482-0182 (Farlander), or

(202) 482-3818 (Johnson).

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department's

regulations are to the regulations at 19 CFR part 351, 62 FR 27296 (May

19, 1997).

Preliminary Determination

We preliminarily determine that stainless steel sheet and strip in

coils (``SSSS'') from South Korea is being, or is likely to be, sold in

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

section 733 of the 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) (``Initiation'').

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, petitioners,

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

Washington Steel Division of Bethlehem Steel Corporation (formerly

Lukens, Inc.), the United Steelworkers of America, AFL-CIO/CLC, the

Butler Armco Independent Union, and the Zanesville Armco Independent

Organization, Inc., 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 For Joseph

A. Spetrini, Re: Scope Issues, dated December 14, 1998.

In July 1998, the Department requested information from the U.S.

Embassy in South Korea to identify producers/exporters of the subject

merchandise. On July 21, 1998 the U.S. Embassy in South Korea responded

to the Department's request for this information. Also, on July 21,

1998, the Department requested comments from petitioners and other

interested parties regarding the criteria to be used for model matching

purposes. On July 27, 1998, petitioners submitted comments on our

proposed model matching criteria.

On July 24, 1998, the United States International Trade Commission

(``ITC'') notified the Department of its affirmative preliminary injury

determination in this case. On August 3, 1998, the Department

subsequently issued its antidumping questionnaire to the following

respondents: Pohang Iron and Steel Co., Ltd. (``POSCO''); Inchon Iron

and Steel Co., Ltd. (``Inchon''); Taihan Electric Wire Co., Ltd.

(``Taihan''); Sammi Steel Co., Ltd. (``Sammi''); and Dai Yang Metal

Co., Ltd. (``Dai Yang''). On August 7, 1998, Sammi submitted a letter

to the Department stating that it did not export the subject

merchandise to the United States during the period of investigation

(``POI''), with a request that it be excluded from further

participation in the investigation.

POSCO, Inchon, Sammi, and Dai Yang submitted responses to section A

of the questionnaire on September 8, 1998. Taihan did not respond to

section A of the Department's questionnaire. On September 21, the

Department issued a decision with regard to selection of respondents in

the above-mentioned investigations (see Memorandum to Joseph A.

Spetrini, dated September 21, 1998). On the basis of the analysis

detailed in the memorandum, the Department chose three mandatory Korean

respondents for the investigation: POSCO, Inchon, and Taihan. POSCO

submitted responses to sections B through D on September 23, 1998.

Taihan did not respond to sections B through D of the Department's

questionnaire. Inchon submitted responses to sections B and C on

September 23, 1998, and to section D on September 25, 1998. Petitioners

filed comments on POSCO's section A through D responses on October 13,

1998, and October 21, 1998. Petitioners filed comments on Inchon's

section A on September 21, 1998; to sections B and C on October 14,

1998; and to section D on October 16, 1998. We issued supplemental

questionnaires for sections A, B and C to POSCO on October 23, 1998,

and October 27, 1998. In addition, we issued a supplemental

questionnaire to POSCO for section D on October 20, 1998. We issued

supplemental questionnaires for sections A, B, C, and D to Inchon on

October 26, 1998. POSCO responded to our supplemental questionnaires

for sections A, B and C on November 23, 1998, and to our supplemental

questionnaires for section D on November 17, 1998. Inchon responded to

our supplemental questionnaires for sections A, B, C, and D on November

19, 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 Act. The Department determined that these

concurrent investigations are extraordinarily complicated and warranted

the thirty-day postponement requested by petitioners. On October 23,

1998, we postponed the preliminary determination until no later than

December 17, 1998. See Stainless Steel Sheet and Strip in Coils From

Italy, France, Germany, Mexico, Japan, the Republic of Korea, Taiwan,

the United Kingdom, and Taiwan; Notice of Postponement of Preliminary

Determinations in Antidumping Duty Investigations, 63 FR 56909 (October

23, 1998). On October 30, 1998, petitioners alleged that there is a

reasonable basis to believe or suspect that critical circumstances

exist with respect to imports of SSSS from South Korea. The critical

circumstances analysis for the preliminary determination is discussed

[[Page 138]]

in the ``Critical Circumstances'' section of the notice below.

On December 3, 1998, petitioners submitted comments regarding

product concordance. See Memorandum to File: Analysis for the

Preliminary Determination in the Investigation of Stainless Steel Sheet

and Strip in Coils from Korea--Pohang Iron and Steel Co., Ltd.

(``POSCO'') (``Analysis Memo: POSCO'') (December 17, 1998) and

Memorandum to File: Analysis for the Preliminary Determination in the

Investigation of Stainless Steel Sheet and Strip in Coils from Korea--

Inchon Iron and Steel Co., Ltd. (``Inchon'') (``Analysis Memo:

Inchon'') (December 17, 1998) for the Department's discussion and

treatment regarding product concordance.

Postponement of Final Determination and Extension of Provisional

Measures

Pursuant to section 735(a)(2) of the Act, on December 15, 1998,

POSCO informed the Department that, in the event of an affirmative

preliminary determination in this investigation, it would request a

full extension of the final determination, until not later than 135

days after the date of publication of the preliminary determination. On

December 16, 1998, POSCO amended its request to include a 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) POSCO 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 date of publication in the Federal Register of the

preliminary determination. Suspension of liquidation will be extended

accordingly.

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.

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

[[Page 139]]

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

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

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

Company.

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

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

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

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

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

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

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

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

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

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, and is supplied

as, for example, ``GIN6''.5

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

\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.

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

Period of Investigation

The period of investigation is April 1, 1997 through March 31,

1998.

Selection of Respondents

Section 777A(c)(1) of the Act directs the Department to calculate

individual dumping margins for each known exporter and producer of the

subject merchandise. However, section 777A(c)(2) of the Act gives the

Department discretion, when faced with a large number of exporters/

producers, to limit its examination to a reasonable number of such

companies if it is not practicable to examine all companies. Where it

is not practicable to examine all known producers/exporters of subject

merchandise, this provision permits the Department to investigate

either: (1) a sample of exporters, producers, or types of products that

is statistically valid based on the information available at the time

of selection; or (2) exporters and producers accounting for the largest

volume of the subject merchandise that can reasonably be examined.

After consideration of the complexities expected to arise in this

proceeding and the resources available to the Department, we determined

that it was not practicable in this investigation to examine all known

producers/exporters of subject merchandise. Instead, we found that,

given our resources, we would be able to investigate the Korean

producers/exporters with the greatest export volume, as identified

above. In total, these companies (POSCO, Inchon and Taihan) accounted

for more than 85 percent of all known exports of the subject

merchandise during the POI. For a more detailed discussion of

respondent selection in this investigation, see Memorandum to Joseph A.

Spetrini: Selection of Respondents, September 21, 1998.

Inflation

Generally, when the annual inflation rate in the country under

investigation exceeds 25 percent, the Department considers that

inflation to be significant and uses a modified methodology. See, e.g.,

Import Administration Antidumping Manual, Chapter 8, Section 15,

(January 1998).

Petitioners allege that the Korean economy should be classified as

hyperinflationary, basing their argument on an ``annualized'' monthly

rate for three months of producer prices (see Petitioners' submissions

of September 4, 1998 and December 2, 1998). However, in accordance with

the Department's practice, we considered the Korean inflation rate for

the POI, which was 17.06 percent. Although the inflation rate in Korea

for December 1997 was 8.19 percent, the annual inflation rate during

the POI was well below 25 percent. See International Monetary Fund's

International Financial Statistics: Producer Prices (July 1998; March

1998; December 1997; July 1997). Therefore, we preliminarily determine

that it is not appropriate to use the Department's high inflation

methodology in this case. For a further discussion of this issue, see

Analysis Memo: POSCO.

Fair Value Comparisons

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

were made at less than fair value, we compared the 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

[[Page 140]]

777A(d)(1)(A)(i) of the 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 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 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

POSCO

POSCO reported that it made sales of subject merchandise to

affiliated resellers during the POI, but claimed that less than five

percent of these resales were sales of subject merchandise. In its

response to the Department's October 23, 1998 supplemental

questionnaire, POSCO provided detailed information regarding the sales

of subject merchandise made to its affiliates. The Department

preliminarily finds that the sales of subject merchandise made to

affiliated resellers constitutes less than five percent of POSCO's

total sales in the home market (subject to verification), and thus, the

Department considered POSCO's sales to the affiliated service centers.

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 the 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 calculated 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., Notice of Preliminary

Determination of Sales at Less Than Fair Value and Postponement of

Final Determination: Emulsion Styrene-Butadiene Rubber from Brazil, 63

Fed. Reg. 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 Fed, Reg, 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.

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

invoice as the date of sale, because POSCO stated that the invoice date

represented the date when the essential terms of sales, i.e., price and

quantity, are definitively set, and that up to the invoice date, these

terms were subject to change. Petitioners have alleged that the sales

documentation provided by POSCO does not appear to support POSCO's

claim that price and quantity may change at any time between the order

acceptance date (confirmation date) and the final invoice date. Given

the relevance of petitioners' comments and the nature of marketing

these types of made-to-order products, petitioners claims have merit.

Consequently, the Department requested further information concerning

date of sale. On November 23, 1998, in its supplemental questionnaire

response, POSCO provided additional information concerning the nature

and frequency of price and quantity changes occurring between the date

of order and date of invoice. This information appears to support

POSCO's contention that terms of the contract are not finalized until

the invoice date. We will conduct an in-depth examination of

information concerning the designation of date of sale (i.e., order

date versus invoice date) at verification. However, based on POSCO's

record submissions to date, we preliminarily determine that the date of

invoice is the appropriate indicator of the actual date of sale because

price and quantity are subject to negotiation until the date of

invoice. For a further discussion of this issue, see Analysis Memo:

POSCO.

In calculating EP, the Department determined that those U.S. sales

for which POSCO was not paid should be excluded from the U.S. database.

We preliminarily determine that the U.S. sales for which POSCO did not

receive payment because the customer went bankrupt are atypical and not

part of POSCO's normal business practice. Therefore, for this

preliminary determination, the Department has excluded these sales from

our margin analysis. Nevertheless, record evidence indicates that

POSCO's U.S. sales affiliate, Pohang Steel America Corp. (``POSAM''),

recognized the cost of these sales. Petitioners suggest that the

Department treat the cost of these sales as a direct expense. However,

direct expenses are typically expenses that are incurred as a direct

and unavoidable consequence of the sale (i.e., in the absence of the

sale these expenses would not be incurred), whereas indirect expenses

are fixed expenses that are incurred whether or not a sale is made. In

this case, the cost of these sales would have occurred whether or not

other sales had been made, and therefore, the Department preliminarily

determines that the costs associated with these sales are more

appropriately treated as indirect selling expenses incurred on U.S.

sales.

Inchon

For both home market and U.S. transactions, Inchon reported the

invoice date as the date of sale, i.e., the date when price and

quantity are finalized, because Inchon states that the price and

quantity may change until the time of shipment and invoicing. However,

petitioners have requested that the Department examine whether the

material terms of sale (i.e., price and quantity) change and, if the

material terms do change, how frequently are the material terms of sale

changed. Also, petitioners have requested that the Department determine

whether Inchon charges a fee for changes to the terms of sale and how

much time, on average, exists between the purchase order date and the

shipment/invoice date. Given the relevance of petitioners' comments and

the nature of marketing these types of made-to-order products,

petitioners claims have merit. Consequently, on October 26, 1998, the

Department issued a supplemental questionnaire, requesting that Inchon

answer several questions regarding changes, if any, in Inchon's

material terms of sale between

[[Page 141]]

the order confirmation date and the invoice date. In Inchon's November

19, 1998 supplemental questionnaire, Inchon stated that for

approximately 17 percent of U.S. sales, based on sales volume, there

was a change in the material terms of sale (i.e., price or quantity)

between the order date and the invoice date. Based on this information,

the Department has determined that the invoice date is the most

appropriate date to use for the date of sale for U.S. sales, because

the frequency of changes in price and quantity between order

confirmation and invoice date indicate that the essential terms of sale

are not fixed until the invoice date.

Inchon claimed that it could not report the frequency of changes

made in the material terms of sale for home market sales. In Inchon's

November 19, 1998 supplemental questionnaire response, Inchon stated

that most of its home market sales are from inventory. Inchon stated

that when a sale is made from inventory, the terms of sale rarely

change because the order is filled within one or two days. However, if

Inchon receives an order that it does not have in inventory, Inchon

will usually produce the requested product. Inchon claims that if a

product is produced to fill the order, there can be significant changes

in the terms of sale between the order date and the invoice date.

Because, as Inchon states, the majority of its sales in the home market

are made from inventory, and thus the terms are set, and because Inchon

has not been able to substantiate its claim of frequent changes in the

terms of its non-inventory sales, the Department preliminarily

determines that the order date is the most appropriate date to use for

the date of sale for home market sales. For a further discussion of

this issue, see Analysis Memo: Inchon.

Product Comparisons

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

products produced by the respondents 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 August 3, 1998 questionnaire.

Export Price and Constructed Export Price

The Department considers several factors in making its

determination concerning whether sales made prior to importation

through a U.S. affiliate to an unaffiliated customer in the United

States are EP sales. These factors are: (1) whether the merchandise was

shipped directly from the manufacturer to the unaffiliated U.S.

customer without being introduced into the physical inventory of the

affiliated selling agent; (2) whether the sales follow customary

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

functions of the U.S. sales affiliates are limited to those of a

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

link'' with the unrelated U.S. buyer. Where the factors indicate that

the activities of the U.S. sales affiliate are ancillary to the sale,

we treat the transactions as EP sales. Where the U.S. sales affiliate

has a significant role in the sales process, we treat the transactions

as CEP sales. See Certain Cut-to-Length Carbon Steel Plate from

Germany: Final Results of Antidumping Administrative Review, 62 FR

18389, 18391 (April 15, 1997); Mitsubishi Heavy Industries v. United

States, Slip Op. 98-82 at 6 (CIT, June 23, 1998).

POSCO

POSCO reported three channels of distribution for U.S. sales. In

channel 1, POSCO Steel Sales and Service Co., Ltd. (``POSTEEL''), which

is POSCO's affiliated trading company, sold directly to a U.S.

customer. In channel 3, POSTEEL sold directly to unaffiliated Korean

trading companies for resale of subject merchandise to the United

States. We classified sales made through these two channels as EP

sales, since the U.S. affiliate, POSAM, had no involvement in the

selling process. In channel 2, however, POSAM was involved in all the

sales made to unaffiliated U.S. customers, and reported that although

the majority of sales were EP sales, there were some sales classified

as CEP.

For U.S. sales channels one and three, we based our calculation on

EP, in accordance with section 772 (a) of the Act, because the subject

merchandise was sold by the producer or exporter directly to the first

unaffiliated purchaser in the United States prior to importation, and

CEP methodology was not otherwise indicated. For U.S. sales channel

two, for those sales for which POSCO categorized as EP sales, we based

our calculations on EP, in accordance with section 772(a) of the Act.

For sales for which POSCO categorized as CEP, we based our calculations

on CEP, in accordance with 772(b) of the Act.

The record indicates that those of POSCO's channel 2 sales reported

as EP sales were shipped directly from the manufacturer to the

unaffiliated U.S. customer and that the reported U.S. sales, with the

exception of ``bankrupt'' sales not included in our analysis (see

``Transactions Investigated'', above), were made in the customary

commercial channel, thereby satisfying the first two criteria mentioned

above. In determining whether the U.S. affiliate acted solely as a

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

link'' with the unaffiliated U.S. customer, we reviewed the selling

functions performed by POSAM and the sales process for these sales.

POSAM performed a variety of selling functions on behalf of POSCO

in connection with POSCO's SSSS sales in the United States. These

functions include forwarding inquiries and confirmations to and from

the customer and POSTEEL, invoicing customers, arranging for freight to

the customer from the U.S. port, extending credit and collecting

payment, and serving as importer of record. POSCO has stated that

POSTEEL determined price and terms of sale and performed ``all other''

sales related activities, including meeting with U.S. customers on

standard marketing trips, warranty-related functions, market research

and technical assistance.

In addition, according to POSCO's response, POSTEEL ``communicates

a variety of general price information to and from POSAM,'' including

``quarterly FOB price guidelines'' (see November 23, 1998 response at

11). Record evidence indicates that although POSTEEL presents POSAM

with quarterly guidelines, each sale must be approved by POSTEEL. In

some instances, POSTEEL has rejected terms of particular inquiries

submitted by POSAM.

We will conduct an in-depth examination of the information

concerning classification of POSCO's U.S. sales through POSAM (i.e.,

CEP versus EP) at verification. However, based on POSCO's record

statements, we preliminarily determine that POSCO's U.S. sales of SSSS

through POSAM reported as EP sales qualify as EP sales. For further

discussion of this issue, see Analysis Memo: POSCO.

As discussed in ``Transactions Investigated'', above, one of

POSCO's customers declared bankruptcy during the POI. During this time,

shipments to

[[Page 142]]

this customer were canceled en route to the United States, and POSCO

had to place the merchandise into an unaffiliated warehouse. POSCO then

resold the merchandise with POSTEEL as the facilitator. As these sales

to the first unaffiliated purchaser took place after importation into

the United States, they have been correctly classified by POSCO as CEP

sales.

We based EP on the packed prices to unaffiliated purchasers in the

United States. We made deductions for foreign inland freight, brokerage

and handling, ocean freight, marine insurance, U.S. inland freight

(where applicable), U.S. brokerage and wharfage charges (where

applicable) and U.S. Customs duties in accordance with section

772(c)(2)(A) of the Act. Additionally, we added to the U.S. price an

amount for duty drawback pursuant to section 772(c)(1)(B) of the Act.

For a further discussion of this issue, see Analysis Memo: POSCO.

We calculated CEP, in accordance with subsections 772(b), (c), and

(d) of the Act, for those sales to the first unaffiliated purchaser

that took place after importation into the United States. We based CEP

on the packed, delivered, duty paid or delivered prices to unaffiliated

purchasers in the United States. We made deductions for movement

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

included, where appropriate, foreign inland freight, foreign wharfage

and loading, international freight, marine insurance, domestic inland

freight, U.S. brokerage and wharfage, and U.S. warehousing expenses. In

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

expenses associated with economic activities occurring in the United

States, including direct selling expenses (credit costs and bank

charges) and indirect selling expenses (e.g., inventory carrying

costs). For CEP sales, we also made an adjustment for profit in

accordance with section 772(d)(3) of the Act. Additionally, we added to

the U.S. price an amount for duty drawback pursuant to section

772(c)(1)(B) of the Act. For a further discussion of this issue, see

Analysis Memo: POSCO.

Inchon

For U.S. sales channels two and three, which are defined in the

Level of Trade section below, we based our calculation on EP, in

accordance with section 772 (a) of the Act, because the subject

merchandise was sold by the producer or exporter directly to the first

unaffiliated purchaser in the United States prior to importation, and

CEP methodology was not otherwise indicated. For U.S. sales channel

one, which is defined in the Level of Trade section below, we based our

calculation on CEP, in accordance with section 772 (b) of the Act,

because the merchandise was sold by or for the account of the producer

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

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

or exporter, and based on our analysis of the facts as discussed in

this section.

We have preliminarily determined that the affiliated purchaser in

the United States, Hyundai U.S.A., did more than merely act as a

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

with the unrelated U.S. buyer.'' Inchon claimed that all of its U.S.

sales of subject merchandise are EP sales, including those sales made

prior to importation through Hyundai U.S.A., Hyundai Corporation's

wholly-owned U.S. subsidiary (i.e., channel 1 sales). Inchon claims

that Hyundai U.S.A., did not act in a significant role in the sales

negotiation process. We preliminarily disagree with this

characterization.

To ensure proper application of statutory definitions, where a U.S.

affiliate is involved in making a sale, we normally consider the sale

to be CEP unless the record demonstrates that the U.S. affiliate's

involvement in making the sale is incidental or ancillary. The record

demonstrates that Hyundai U.S.A.'s role exceeds that of an incidental

or ancillary role.

Hyundai U.S.A. participates in several significant pre- and post-

sale selling activities. At the initial stages, Inchon and Hyundai

U.S.A. jointly call on U.S. customers to discuss sales and prices.

Hyundai U.S.A. quotes prices to prospective customers and if the price

is acceptable, the customer submits a purchase order to Hyundai U.S.A.

When the merchandise arrives in the United States, Hyundai U.S.A. acts

as the importer of record and arranges for U.S. inland freight. For a

significant number of channel 1 transactions, Hyundai U.S.A. also

arranged and paid for post-sale warehousing and freight to the

warehouse. Hyundai U.S.A. invoices and collects payment from the U.S.

customer, including any late payments and/or outstanding accounts

receivable. Additionally, there is one other selling function which

supports our determination that these sales are CEP. However, because

this information is business proprietary, please see our discussion in

the analysis memorandum. See Analysis Memo: Inchon, page 4. Based on

the record as stated above, we have determined that these sales are CEP

transactions. For a further discussion of this issue, see Analysis

Memo: Inchon.

We based EP on the packed, delivered, tax and duty unpaid price to

unaffiliated purchasers in the United States. We made deductions for

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

these included, where appropriate, foreign inland freight, foreign

wharfage and loading, international freight, marine insurance, domestic

inland freight, and U.S. brokerage and wharfage. Additionally, we added

to the U.S. price an amount for duty drawback pursuant to section

772(c)(1)(B) of the Act. For a further discussion of this issue, see

Analysis Memo: Inchon.