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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-122-826]

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

Steel Wire Rod From Canada

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

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

EFFECTIVE DATE: February 24, 1998.

FOR FURTHER INFORMATION CONTACT: Alexander Braier at 202/482-3818,

Lisette Lach 202/482-0190, Cindy Sonmez 202/482-0961 or Dorothy Woster

at 202/482-3362, Import Administration, International Trade

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

Constitution Avenue, N.W., Washington, D.C. 20230.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the Tariff Act of 1930

(``the Act'') as amended, 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

references to the provisions codified at

[[Page 9183]]

19 CFR part 353 (April 1997). Although the Department's new

regulations, codified at 19 CFR 351 (62 FR 27296 (May 19, 1997)) do not

govern these proceedings, citations to those regulations are provided,

where appropriate, to explain current departmental practice.

Final Determination

We determine that steel wire rod (``SWR'') from Canada is being, or

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

(``LTFV''), as provided in section 735 of the Act. The estimated

margins are shown in the ``Suspension of Liquidation'' section of this

notice.

Case History

Since the preliminary determination in this investigation (see

Preliminary Determination of Sales at Less Than Fair Value and

Postponement of Final Determination: Steel Wire Rod (``SWR'') from

Canada, 62 FR 51572 (October 1, 1997) (``Preliminary Determination'')),

the following events have occurred:

In October and November 1997, we conducted verification of the

responses of the following respondents: Sidbec-Dosco (Ispat) Inc. (now

Ispat-Sidbec), Stelco, Inc. (``Stelco''), and Ivaco, Inc. (``Ivaco'').

In November and December 1997, the Department instructed Ispat-Sidbec,

Ivaco, and Stelco to resubmit their computer data which incorporated

corrections made at verification. On December 2, 1997, Stelco submitted

its revised computer data. On December 15, 1997, Ispat-Sidbec requested

an extension of time to resubmit its data. On December 18, 1997, the

Department granted Ispat-Sidbec an extension, until January 7, 1998, in

which to resubmit its computer data. On December 12, 1997, Ivaco

requested an extension of time for the case and rebuttal briefs,

originally due December 23, 1997, and December 30, 1997, respectively.

On December 18, 1997, the Department granted an extension of time for

submission of case and rebuttal briefs to all interested parties. The

new deadline for the case briefs was January 7, 1998, and rebuttal

briefs, January 14, 1998. As none of the parties requested a public

hearing, no such hearing was held.

Scope of Investigation

The products covered by this investigation are certain hot-rolled

carbon steel and alloy steel products, in coils, of approximately round

cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch),

inclusive, in solid cross-sectional diameter. Specifically excluded are

steel products possessing the above noted physical characteristics and

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

definitions for (a) stainless steel; (b) tool steel; (c) high nickel

steel; (d) ball bearing steel; (e) free machining steel that contains

by weight 0.03 percent or more of lead, 0.05 percent or more of

bismuth, 0.08 percent or more of sulfur, more than 0.4 percent of

phosphorus, more than 0.05 percent of selenium, and/or more than 0.01

percent of tellurium; or (f) concrete reinforcing bars and rods.

The following products are also excluded from the scope of this

investigation:

Coiled products 5.50 mm or less in true diameter with an

average partial decarburization per coil of no more than 70 microns in

depth, no inclusions greater than 20 microns, containing by weight the

following: carbon greater than or equal to 0.68 percent; aluminum less

than or equal to 0.005 percent; phosphorous plus sulfur less than or

equal to 0.040 percent; maximum combined copper, nickel and chromium

content of 0.13 percent; and nitrogen less than or equal to 0.006

percent. This product is commonly referred to as ``Tire Cord Wire

Rod.''

Coiled products 7.9 to 18 mm in diameter, with a partial

decarburization of 75 microns or less in depth and seams no more than

75 microns in depth, containing 0.48 to 0.73 percent carbon by weight.

This product is commonly referred to as ``Valve Spring Quality Wire

Rod.''

Coiled products 11 mm to 12.5 mm in diameter, with an

average partial decarburization per coil of no more than 70 microns in

depth, no inclusions greater than 20 microns, containing by weight the

following: carbon greater than or equal to 0.72 percent; manganese

0.50-1.10 percent; phosphorus less than or equal to 0.030 percent;

sulfur less than or equal to 0.035 percent; and silicon 0.10-0.35

percent. This product is free of injurious piping and undue

segregation. The use of this excluded product is to fulfill contracts

for the sale of Class III pipe wrap wire in conformity with ASTM

specification A648-95 and imports of this product must be accompanied

by such a declaration on the mill certificate and/or sales invoice.

This excluded product is commonly referred to as ``Semifinished Class

III Pipe Wrapping Wire.''

The products under investigation are currently classifiable under

subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030,

7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the

HTSUS subheadings are provided for convenience and customs purposes,

our written description of the scope of this investigation is

dispositive.

Exclusion of Pipe Wrapping Wire

As stated in the Preliminary Determination, North American Wire

Products Corporation (``NAW''), an importer of the subject merchandise

from Germany, requested that the Department exclude SWR used to

manufacture Class III pipe wrapping wire from the scope of the

antidumping and countervailing duty investigations of SWR from Canada,

Germany, Trinidad and Tobago, and Venezuela. Because petitioners did

not agree to this scope exclusion, we did not exclude this merchandise

in the preliminary determination. On December 22, 1997, NAW submitted

to the Department a proposed exclusion definition. On December 30,

1997, and January 7, 1998, the petitioners submitted letters concurring

with the definition of the scope exclusion and requesting exclusion of

this product from the scope of the investigation. We have reviewed

NAW's request and petitioners' comments and have excluded SWR for

manufacturing Class III pipe wrapping wire from the scope of this

investigation. See Memorandum to Richard W. Moreland dated January 12,

1998. Accordingly, on February 3, 1998, we instructed the U.S. Customs

Service to terminate suspension of liquidation on all entries of Class

III pipe wrapping wire from Canada.

Period of Investigation

The period of investigation (``POI'') for all respondents is

January 1, 1996 through December 31, 1996.

Fair Value Comparisons

To determine whether sales of SWR sold by respondents to the United

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

(``EP'') to the normal value (``NV''), as described in the ``EP and

CEP'' and ``Normal Value'' sections of this notice below. In accordance

with section 777A(d)(1)(A)(i), we calculated weighted-average EPs or

CEPs for comparison to weighted-average NVs.

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 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

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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 listed in the antidumping duty questionnaire and the

May 22, 1997, reporting instructions.

Consistent with our practice, we compared prime merchandise sold in

the United States to prime merchandise sold in the home market, and

secondary merchandise to secondary merchandise. See e.g., Certain Cold-

Rolled Carbon Steel Flat Products from the Netherlands; Final Results

of Antidumping Duty Administrative Review, 61 FR 48465 (Sept. 13,

1996).

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

issued a decision in Cemex, S.A. v. United States, No. 97-1151, 1998 WL

3626 (Fed. Cir. Jan. 8, 1998). In that case, based on the pre-URAA

version of the Act, the Court discussed the appropriateness of using

constructed value (``CV'') as the basis for foreign market value when

the Department finds home market sales to be outside the ordinary

course of trade. This issue was not raised by any party in this

proceeding. However, the URAA amended the definition of sales outside

the ``ordinary course of trade'' to include sales disregarded as below

cost. See section 771(15) of the Act. Because the Court's decision was

issued so close to the deadline for completing this administrative

review, we have not had sufficient time to evaluate and apply (if

appropriate and if there are adequate facts on the record) the decision

to the facts of this ``post-URAA'' case. For these reasons, we have

determined to continue to apply our policy regarding the use of CV when

we have disregarded below-cost sales from the calculation of NV.

Level of Trade

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

practicable, we determine NV 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 constructed value (``CV''), that of the sales from

which we derive selling, general and administrative (``SG&A'') expenses

and profit. For EP, the U.S. LOT is also the level of the starting-

price sale, which is usually from exporter to importer. For CEP, it is

the level of the constructed sale from the exporter to the importer.

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

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

along the chain of distribution between the producer and the

unaffiliated customer. 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 an LOT adjustment under section

773(a)(7)(A) of the 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 difference in the levels between NV and CEP

affects price comparability, we adjust NV under section 773(a)(7)(B) of

the Act (the CEP offset provision). See Notice of Final Determination

of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel

Plate from South Africa, 62 FR 61731 (November 19, 1997).

Ispat-Sidbec and Stelco did not claim a LOT adjustment. In the

preliminary determination, for both respondents, we made no LOT

adjustment, because we found all sales in the U.S. and home market to

be at the same LOT. Our findings at verification do not warrant a

change from our preliminary determination. Therefore, for the final

determination, no LOT adjustment is warranted for Ispat-Sidbec and

Stelco.

Ivaco did claim a LOT adjustment for its sales. In the preliminary

determination, we determined that a LOT adjustment was appropriate,

because we found sales in the U.S. and home market to be at different

LOTs. Our findings at verification do not warrant a change from the

preliminary determination. Therefore, for the final determination,

where applicable, we have made a LOT adjustment for Ivaco's sales.

Export Price (``EP'') and Constructed Export Price (``CEP'')

We calculated EP and CEP, as appropriate, in accordance with

subsections 772(a), (c) and (d) of the Act. The calculation for each

respondent was based on the same methodology used in the preliminary

determination.

Normal Value (``NV'')

We calculated NV, in accordance with subsections 773(a) of the Act.

The calculation for each respondent was based on the same methodology

used in the preliminary determination.

Cost of Production Analysis

A. Calculation of COP

The calculation for each respondent was based on the respective

cost submissions for each respondent, with the following exceptions:

Ispat-Sidbec

We adjusted Ispat-Sidbec's reported COP to include the consolidated

financing cost of Ispat International N.V. We recalculated Walker

Wire's further manufacturing COM to reflect the yield loss incurred

during the production process. See Memorandum to Chris Marsh from Stan

Bowen, dated February 13, 1998.

Ivaco

We recalculated Ivaco's general and administrative amounts based on

the expenses incurred by IRM, Sivaco Ontario, and Sivaco Quebec. We

adjusted the cost of billets to account for Atlantic Steel's selling,

general, and administrative costs. We recalculated further

manufacturing general and administrative amounts to reflect Sivaco New

York's verified expenses rather than IRM's expenses. We adjusted

Ivaco's COM to reflect the green rod yield loss incurred during rod

processing at Sivaco Ontario and Sivaco Quebec. See Memorandum to Chris

Marsh from Art Stein, dated February 13, 1998.

Stelco

We adjusted Stelco's reported COP to allocate ingot teeming costs

only to the products manufactured from billets produced at the facility

for which these costs were incurred. We subtracted Stelco McMaster

Ltee's G&A expenses from Stelco's combined G&A expense calculation.

Stelco McMaster Ltee's G&A expense was applied to the billet cost of

only those CONNUMs that were produced using Stelco McMaster Ltee's

billets. We recalculated Stelco's general and administrative amounts to

exclude certain off-sets to research and development and capital tax

expenses. See Memorandum to Chris Marsh from Stan Bowen, dated February

13, 1998.

B. Test of Home Market Prices

The calculation for each respondent was based on the same

methodology used in the preliminary determination.

C. Results of the COP Test

The calculation for each respondent was based on the same

methodology used in the preliminary determination.

D. Calculation of Constructed Value (CV)

The calculation for each respondent was based on the same

methodology used in the preliminary determination. We used the cost

information submitted by each respondent, except for the

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adjustments noted above under ``Calculation of COP.''

Currency Conversion

For purposes of the preliminary determination, we made currency

conversions using the official daily exchange rate in effect on the

date of the U.S. sales. These exchange rates were derived from actual

daily exchange rates certified by the Dow Jones & Company, Inc. See

Change in Policy Regarding Currency Conversions, 61 FR 9434 (March 8,

1996).

Verification

As provided in section 782(i) of the Act, we verified the

information submitted by all respondents for use in our final

determination. We used standard verification procedures, including

examination of relevant accounting and sales/production records and

original source documents provided by respondents.

Comments Related to U.S. Price

Comment 1: Ispat-Sidbec Freight Expenses

Ispat-Sidbec contends that the Department should use Ispat-Sidbec's

reported and verified freight expenses in its final determination. In

the normal course of business, Ispat-Sidbec maintains all freight costs

recorded in its accounting system in Canadian dollars, regardless of

whether the original invoice was issued in U.S. or Canadian dollars by

the shipper. Due to the large number of sales, and the fact that one

sale may have multiple freight invoices, Ispat-Sidbec claims that it

would be virtually impossible to report the freight expense for each

sale in the currency in which the freight invoice was received.

Moreover, Ispat-Sidbec states that the Department verified that the

freight expenses had been properly converted to Canadian dollars, and

that this is how these expenses are maintained in the company's

internal accounting system. To support its position, Ispat-Sidbec

claims that the Department recently reaffirmed its preference for the

use of verified information maintained in a company's normal course of

business, even when that information may not correspond exactly to that

requested by the Department, citing Certain Cut-to-Length Steel Plate

From the People's Republic of China: Final Determination of Sales at

Less Than Fair Value, 62 FR 61964, 91991 (November 20, 1997).

Petitioners counter that, pursuant to section 776(a)(2)(A), the

Department should substitute the highest rate reported as adverse facts

available for Ispat-Sidbec's U.S. freight costs because Ispat-Sidbec

refused to submit freight expenses reported in the currency incurred,

as requested by the Department. Petitioners argue that the Department

must not accept Ispat-Sidbec's unilateral determination that the

requested information is unnecessary. Petitioners claim that if the

Department does not apply adverse inferences, Ispat-Sidbec will benefit

from its own lack of candor and cooperation.

Department's Position

Before applying facts available, section 782(e) of the Act permits

the Department to consider the ability of an interested party to submit

requested information if the party notifies the Department it cannot

provide the necessary information and includes a full explanation and

suggested alternatives. In its January 7, 1998 submission, Ispat-Sidbec

notified the Department that to report freight expenses in the currency

in which they were incurred would create an enormous burden requiring

Ispat-Sidbec to review numerous sales individually. While the

Department's standard questionnaire normally requires all parties to

report expenses in the currency in which they were incurred, the

Department verified that the expenses had been properly converted to

Canadian dollars using the daily exchange rate, and that this is how

the expenses were kept in the company's internal accounting system. In

this case, we have continued to use Ispat-Sidbec's reported and

verified freight expenses for these final results.

Comment 2: Ispat-Sidbec U.S. Selling Expenses

Ispat-Sidbec claims that in converting Ispat-Sidbec's U.S. selling

expenses to Canadian dollars for purposes of the CEP profit

calculation, the Department incorrectly applied the exchange rate

conversion to Ispat-Sidbec's inventory carrying cost in the country of

manufacture, which was already reported in Canadian dollars.

Department's Position

We agree with respondent and have corrected the CEP profit

calculation for this final determination.

Comments Related to Normal Value

Comment 1: Ispat-Sidbec Home Market Rebates

Ispat-Sidbec contends that the Department should continue to deduct

both of its reported rebates on home market sales from NV in the final

determination. Ispat-Sidbec claims that the Department verified the

terms and conditions of one (REBATE2H), and that another (REBATE1H)

clearly qualifies as a rebate under the Department's definition.

Department's Position

We agree with respondent that the record evidence supports a

deduction from NV for these rebates. In both instances, we verified the

terms and conditions of REBATE1H and REBATE2H. See Verification of the

Sales Data for Sidbec-Dosco (Ispat) Inc., December 18, 1997, at 12 and

19. Therefore, we will continue to deduct both REBATE1H and REBATE2H

from NV for purposes of this final determination.

Comment 2: Exclusion of Certain Stelco Home Market Sales

Petitioners argue that Stelco has reported home market sales of

subject merchandise that are neither made in commercial quantities nor

made in the ordinary course of business. Petitioners contend that sales

which do not meet Stelco's minimum order requirements are not sold in

commercial quantities. Particularly, petitioners argue that Stelco's

home market sale of a single coil was not made in commercial

quantities, as confirmed by Stelco at verification. Petitioners reject

Stelco's explanation that the sale at issue was made to fulfill a

previous under-delivery, as consistent with the record evidence.

Petitioners also argue that Stelco's sale of a single coil was not

made in the ordinary course of trade. They insist that the sale of a

single coil is aberrational in the wire rod industry and claim that

sales of single coils are used for samples, testing purposes, or other

aberrational circumstances. Petitioners allege that the preliminary

determination produced an anomalous result in the model match, where

Stelco's largest volume of U.S. sales was matched to the sale at issue.

Therefore, petitioners contend that the Department should exclude this

sale from the margin calculations, citing Nachi-Fujikoshi Corp. v.

United States, 798 F. Supp. 716, 718 (CIT 1992); Stainless Steel Angle

from Japan, 60 FR 16608, 16614 (March 31, 1995); Granular

Polytetrafluoroethylene Resin from Japan, 60 FR 5622, 5623 (January 30,

1995); Carbon Steel Plate from France, 58 FR 37125, 37126 (July 9,

1993).

Stelco urges the Department to reject petitioners' request to

exclude certain home market sales made by Stelco. Respondent maintains

that petitioners' arguments are meritless, because they rely primarily

on one sale made by

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Stelwire. Stelco asserts that this sale of one coil is a perfectly

normal sale because it was part of shipment of multiple products, all

of which constituted a complete truckload.

Stelco also asserts that it included this sale, along with other

sales made by Stelwire, in the sales listings at petitioners'

insistence. It excluded this sale in the original response because the

sale at issue was a sale to an affiliated party. However, upon the

request of petitioners and the Department, Stelco included sales to

affiliates in its supplemental submissions to the Department.

Consequently, the sale of one coil was included in Stelco's subsequent

submissions of the sales tapes.

Moreover, Stelco insists that petitioners misinterpret Department

practice with respect to sales outside the ordinary course of trade.

Stelco alleges that petitioners have cited to court cases and

Department determinations arguing for, rather than against, the

inclusion of the sale at issue. First, respondent asserts that the

court case, Nachi-Fujikoshi Corp. v. United States, involved a decision

in which the Court upheld the Department's decision not to exclude a

sample sale from its LTFV comparisons as outside the ordinary course of

trade. Second, with regard to petitioners' cite to Stainless Steel

Angles from Japan, Stelco contends that petitioners fail to acknowledge

that, in that case, the Department rejected requests from both

petitioners and respondents to exclude certain sales as outside the

ordinary course of trade. Instead, the Department included in its

dumping comparisons the sales which parties argued were outside the

ordinary course of trade. Finally, Stelco asserts that Granular

Polytetrafluoroethylene Resin from France, and Carbon Steel Flat

Products from France, also do not support petitioners' argument.

Respondent maintains that, in both those cases, the Department decided

to exclude sales from its dumping comparisons because they were samples

and sales of seconds. Since petitioners have not alleged the sale at

issue is a sample sale, Stelco argues that these decisions are not

relevant to this investigation.

Department Position

We disagree with petitioners that certain Stelco home market sales,

including the sale of the single coil they reference, should be

excluded as sales not in ``usual commercial quantities'' and not in the

ordinary course of trade. First, we note that, while petitioners refer

to ``certain sales'' their arguments exclusively address Stelco's sale

of a single. With respect to petitioners' claim that this sale was made

in a non-commercial quantity, we reviewed the volumes, values, and

prices of Stelco's home market sales and found no evidence on the

record that this sale was not sold in ``usual commercial quantities''

within the meaning of section 771(17) of the Act. The record evidence

demonstrates that over 10% of the number of Stelco's home market sales,

to affiliated and unaffiliated customers, is comprised of quantities

comparable to the sale of the single coil. The prices of these sales,

including the price of the sale of the single coil, fall very close to

the midpoint of the price range of both Stelco's home market affiliated

and unaffiliated sales. Moreover, based upon the particular facts of

this case, we do not consider Stelco's minimum order practices as

determinative of whether these sales are within ``usual commercial

quantities'' because the record evidence demonstrates that Stelco made

a large number of sales of SWR in quantities below the volume orders,

and we have discovered nothing aberrational concerning these sales.

We also found the sale of the single coil to be within the ordinary

course of trade under section 771(15) of the Act. The Department

considers sales outside the ordinary course of trade to have

extraordinary characteristics for the market in question. 19 CFR

351.102, 62 FR at 27381. An ordinary course of trade determination

requires evaluation of sales on ``an individual basis taking account

all of the relevant facts of each case.'' Nachi-Fujikishi Corp. v.

United States, 798 F. Supp. 716, 719 (CIT 1992). This means that the

Department must review all circumstances particular to the sales in

question. See Gray Portland Cement and Clinker From Mexico: Final

Results of Antidumping Duty Administrative Review, 62 FR 17153 (April

9, 1997). The particular facts of this case do not support a finding

that the sale of the single coil was an extraordinary transaction in

relation to other home market sales transactions. First, during the

POI, the sale of the single coil was shipped as a line item in an

invoice including more than one type of subject merchandise, consistent

with the vast majority of Stelco's sales, and was shipped pursuant to

Stelco's regular shipping procedures. See Stelwire verification Exhibit

3. Second, Stelco had many similar sales of similar volumes in the home

market to both affiliated and unaffiliated customers. Third, as noted

above, the price of the sale at issue is near the midpoint of the price

range of Stelco's home market sales, and there is no evidence that the

price was aberrational. Fourth, there were no special handling or

shipping arrangements made for this particular coil. In sum, we have

found no record evidence demonstrating any significant distinctions

between the sale of the single coil and Stelco's other home market

sales. Therefore, since this sale was made in usual commercial

quantities and in the ordinary course of trade, we will not exclude it

from the home market sales listing.

Comments Related to Cost of Production

Comment 1: Ivaco Deferred Pre-Production Costs

Petitioners claim that the Department should deny Ivaco's deferral

of ``start-up'' costs associated with its furnace conversion.

Petitioners assert that the circumstances involving the furnace upgrade

fail to satisfy the statutory and regulatory standards for a start-up

cost adjustment because the furnace upgrade did not constitute a new

production facility or the replacement or rebuilding of nearly all

production machinery. Petitioners concede that the Department may rely

on records kept by the respondent in the normal course of business if

those accounts are in accordance with the home country GAAP and

reasonably reflect the costs associated with the production of the

subject merchandise. Petitioners argue that in this case, however,

Canadian GAAP distorts actual costs. Petitioners, citing Final

Determination: Certain Pasta from Italy, 62 FR 3026, 30355 (June 14,

1996) and Micron Technology, Inc. v. United States, 893 F. Supp. 21, 34

(CIT 1995), aff'd 117 F.3d 1386 (Fed. Cir. 1997), contend that because

the furnace upgrade costs were incurred during the POI, they should be

matched to the sales of the same period, and therefore, included in the

POI production costs.

Ivaco asserts that it never requested a ``start-up adjustment under

the statute,'' but that it deferred these expenses in its own books.

Respondent claims that the upgrades implemented during the furnace

conversion were extensive in nature and constituted major production

changes. Ivaco states that its external auditors approved its deferral

of its pre-production costs, as disclosed in notes (2) and (5) of IRM's

1996 audited financial statements. Ivaco argues that if the Department

chooses to disallow Ivaco's methodology of deferring and amortizing its

pre-production costs, then the Department must net out the pre-

production costs that Ivaco

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capitalized prior to 1996 and amortized in 1996.

Department's Position

We agree with Ivaco that it properly deferred and amortized its

pre-production costs associated with its furnace conversion. Section

773(f) of the Act directs the Department to calculate costs based upon

the respondent's records, provided that such records are kept in

accordance with respondent's home country GAAP and reasonably reflect

the costs associated with the production of the merchandise. In this

case, Ivaco is not claiming a start-up adjustment in accordance with

section 773(f)(1)(C) of the Act. Rather, Ivaco, in the ordinary course

of business, capitalized certain costs related to its conversion of a

furnace. Ivaco's methodology of capitalizing and amortizing certain

pre-production costs over periods of up to five years is consistent

with Canadian GAAP and was approved by the company's auditors, as

evidenced by the disclosures in notes (2) and (5) of IRM's 1996 audited

financial statements.

Additionally, we consider it reasonable in this instance for Ivaco

to spread the furnace upgrade costs over future periods because these

costs will benefit the company's future operations through higher, more

efficient production levels. Ivaco has demonstrated this, having

deferred similar costs in past accounting periods. In fact, the

amortization recognized by Ivaco this year with respect to such

deferred costs from previous years approximates the total amount of

furnace upgrade costs that Ivaco deferred in the current year. Thus, we

find no reason to determine that such a methodology distorts the costs

associated with the production of the merchandise. Because we have

accepted Ivaco's methodology, the issue of netting out pre-production

costs capitalized prior to 1996 is moot.

Comment 2: Ivaco Deferred Foreign Exchange Costs

Petitioners assert that the full amount of the POI foreign exchange

losses should be included in the POI costs. Petitioners claim that

Department precedent is to treat foreign exchange gains and losses as

current period income or expenses, regardless of home country GAAP.

According to petitioners, the Department may rely on records kept by

the respondent in the normal course of business if those accounts are

in accordance with the home country GAAP and reasonably reflect the

costs associated with the production of the subject merchandise.

Petitioners maintain that Canadian GAAP distorts actual costs in this

situation. Petitioners cite Certain Pasta from Italy, where the

Department stated that the extinguishment of debt caused a foreign

exchange loss which represents a cost that provides no future benefit

and that if the current foreign exchange losses were deferred they

would not be properly matched against the sales of the period.

Petitioners also cite Micron Technology, Inc. v. U.S., an appeal from

the Department's determination in DRAMS from Korea, in which it was

ruled that if the foreign exchange translation gains and losses on

outstanding foreign currency monetary assets and liabilities were

deferred, the costs would not be appropriately matched to the sales of

the company during the POI.

Ivaco justifies its practice of deferring foreign exchange gains

and losses arising from non-current monetary items (i.e., payments to

be made after December 31, 1997) and amortizing those gains and losses

over the payment of the debt, as being consistent with Canadian GAAP.

Ivaco argues that this case differs from Certain Pasta from Italy

because, in that case, the respondent sought to defer current foreign

exchange gains and losses related to debt that had already been

extinguished. Ivaco claims that it has deferred only those foreign

exchange losses related to loans that were not extinguished, and that

it has expensed all foreign exchange losses related to extinguished

loans. Ivaco asserts that its methodology does not conflict with the

decision in Micron Technology, Inc. v. United States, where the Court

ruled that foreign exchange losses should be matched to the period in

which the loss occurred. Ivaco maintains that all its foreign exchange

losses related to loan repayments made in 1996 and projected loan

repayments to be made in 1997 were expensed in 1996 and included in its

COP, and that it deferred only those unrealized foreign exchange losses

related to the non-current portion of its loans as of December 31,

1996. Finally, Ivaco makes the same consistency argument it made

regarding its accounting for pre-production costs. Ivaco asserts that

if the Department chooses to disallow the deferral of the foreign

exchange losses, it should exclude the current period amortization of

foreign exchange costs that were deferred from prior years. Ivaco

claims that such treatment would result in a minimal difference in

Ivaco's costs.

Department's Position

We agree with Ivaco that it properly amortized foreign exchange

losses related to loans that were not extinguished during the POI. In

this instance, there is little difference between its method of

accounting for foreign exchange gains and losses and the method of

amortizing deferred exchange gains and losses used by the Department in

past cases. The Department normally relies upon the respondent's

records, provided that such records are kept in accordance with

respondent's home country GAAP and reasonably reflect the costs

associated with the production of the merchandise. Ivaco demonstrated

that its methodology of capitalizing non-current foreign exchange

gains/losses attributable to its outstanding debt and amortizing the

gains/losses over the payment of the debt is consistent with Canadian

GAAP and was approved by its auditors, as disclosed in notes (1) and

(6) of Ivaco Inc.'s 1996 audited financial statements. The Department's

position, established in recent cases, is that exchange gains/losses

should be amortized over the remaining life of the respondent's loans.

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

Fresh Cut Roses from Ecuador, 24 FR 7019, 7039 (February 6, 1995) and

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

Steel Concrete Reinforcing Bars from Turkey, 42 FR 9737, 9743 (March 4,

1997). In this case, the impact of the difference between Ivaco's

methodology of deferring and amortizing exchange gains/losses on only

the non-current portion of long term debt and the Department's

preferred methodology of deferring and amortizing exchange gains/losses

over the remaining life of the debt is immaterial. Therefore, we find

Ivaco's methodology acceptable because it reasonably reflects the costs

associated with the production of the subject merchandise.

Comment 3: Sivaco Ontario and Quebec Yield Cost

Ivaco claims that it explained in its cost submissions and at

verification that because Sivaco Ontario's cost computation is based on

the volume produced at each production stage, its computation properly

accounts for the yield loss associated with the green rod. Ivaco

asserts that the yield losses are accurately reflected because the

denominator used to compute the per unit costs is the produced volume,

net of the yield loss.

Department's Position

We disagree with Ivaco that its methodology properly accounts for

yield loss, and therefore, reflects the actual cost of production of

SWR as

[[Page 9188]]

required by section 773(b)(3) of the Act. Although Sivaco Ontario and

Sivaco Quebec properly accounted for the heat treating and cleaning/

coating materials and processing costs associated with the rod lost

during their processing, the companies failed to include such costs

associated with the green rod received from IRM. We therefore

calculated a weighted average yield loss percentage for the rod used in

production at Sivaco Ontario and Sivaco Quebec. We based our

calculation on the yields reported in Ivaco's submissions and the

production volumes reported at verification. We then applied the yield

loss percentage to the cost of the green rod.

Comment 4: Sivaco New York Further Manufacturing G&A Calculation

Ivaco states that the Department should use the reported further

manufacturing data and G&A denominator in computing the further

manufacturing G&A rate for Sivaco New York. Ivaco claims that the

Sivaco New York cost of sales figure reported in the company's Section

D submission is based on Sivaco New York's audited financial statement.

Ivaco notes, however, that the cost of sales figure reported at

verification is based on Sivaco New York's internal financial

statement. Ivaco asserts that the cost of sales per Sivaco New York's

audited financial statement exceeds the cost of sales per its internal

financial statement by the sum of its shipping department and certain

freight-in costs (for returning damaged or defective merchandise or

racks). According to Ivaco, because these shipping department and

certain freight-in costs are included in Sivaco New York's submitted

further manufacturing costs, these costs must be included in the cost

of sales figure used as the denominator in computing Sivaco New York's

further manufacturing G&A rate.

Department's Position

We agree with Ivaco's contention that the cost of sales figure

reported at verification was based on Sivaco New York's internal

financial statement and excludes its shipping department and certain

freight-in costs. We also agree with Ivaco that these costs were

included in Sivaco New York's submitted further manufacturing costs.

However, the difference between the cost of sales figure reported in

the Section D submission and the cost of sales figure reported at

verification is slightly larger than the sum of the shipping department

and freight-in costs. We therefore adjusted the cost of sales figure

reported at verification to include these costs and recalculated

Ivaco's further manufacturing G&A rate for our final determination.

Comment 5: Ispat-Sidbec Interest Expense

Ispat-Sidbec contends that it is inappropriate for the Department

to request that the company use an interest expense factor that is

based on a reorganization that occurred after the POI. Ispat-Sidbec

maintains that the company derived the revised interest expense factor

solely for the Department's investigation and that it is not based on

POI data maintained by Ispat-Sidbec in the ordinary course of business.

According to Ispat-Sidbec, the statute requires the Department to

calculate costs based on a company's normal records if the respondent

maintains those records in accordance with GAAP. Ispat-Sidbec further

notes that in Aramid Fiber Formed of Poly-Phenylene Terephthalamide

from the Netherlands, 59 FR 23684, 23688 (May 6, 1994), the Department

declined to calculate interest expense based on consolidated data, when

the corporate restructuring did not occur until after the POI. Thus,

Ispat-Sidbec argues that the Department should accept its interest

expense factor as originally calculated based on the company's 1996

consolidated financial statements in accordance with Canadian GAAP.

Petitioners respond that for corporate groups, such as Ispat

International and its subsidiaries, the Department generally calculates

interest expense based on the consolidated financial results of a

parent corporation and its subsidiaries, whether or not the respondent

normally maintains such information in the ordinary course of business.

Petitioners state that the Department's policy is ``based on the fact

that the group's parent, primary operating company, or other

controlling entity . . . because of its influential ownership interest,

has the power to determine the capital structure of each member company

within the group.'' New Minivans from Japan, 57 FR 21937, 21946 (May

26, 1992). Petitioners also note that Ispat-Sidbec's argument that this

interest information as derived solely for the investigation is flawed

because Ispat International's consolidated financial statements for

1994 through 1996 were part of the record.

Department's Position

We agree with petitioners that it is the Department's long-standing

practice to calculate interest expense for COP and CV purposes based on

the borrowing costs incurred at the consolidated group level. This

methodology, which has been upheld by the CIT in Camargo Correa Metals,

S.A. v. U.S., No. 91-09-00641, Slip Op. 93-163 (CIT August 13, 1993),

is based on the fact that the consolidated group's controlling entity

has the power to determine the capital structure of each member of the

group. Thus, financial expenses at the group consolidation level must

reasonably reflect the borrowing costs incurred by each member of the

group. In this instance, prior to the POI, Ispat-Sidbec was a wholly-

owned subsidiary within a large group of companies. Although these

companies would normally prepare consolidated financial statements at

the group level, it was unnecessary for them to do so because they were

privately owned. Shortly after the POI, the Ispat Group reorganized its

operations, eliminating certain holding companies as well as making

other changes to its overall corporate structure. As part of the

reorganization, Ispat International N.V. emerged as the lead entity of

the former Ispat Group. Ispat International prepared consolidated

financial statements for the group, including statements covering the

POI.

Contrary to respondents arguments, this situation differs from that

in Aramid Fiber Formed of Poly-Phenylene Terephthalamide from the

Netherlands, 59 FR 23684, 23688 (May 6, 1994). In that instance, the

Department did not compute interest expense at the consolidated level

because the equity ownership in the respondent did not meet the

requirements for consolidation until the post POI reorganization.

However, in this case, Ispat-Sidbec was a member of the same group of

consolidating companies both prior to and after the reorganization.

Therefore, we will continue to use the Ispat Group's consolidated

interest expense factor for purposes of this final determination.

Comment 6: Walker Wire Further Manufacturing Yield Loss

Ispat-Sidbec states that the Department should accept the yield

loss reported in Walker Wire's further manufacturing Section E

questionnaire. Ispat-Sidbec claims that Walker Wire submitted the yield

loss that it normally calculates. Respondent maintains that Walker

Wire's cost accounting system appropriately tracks all costs, including

yield loss. In addition, Ispat-Sidbec asserts that the method used to

allocate yield loss to merchandise is appropriate and reasonable.

Department's Position

We disagree with Ispat Sidbec that Walker Wire's reported costs

adequately

[[Page 9189]]

accounts for yield loss associated with the further manufacture of the

subject merchandise. Walker Wire's reported yield loss accounts only

for a portion of its total yield loss because the company determined

the reported loss based on the quantity of raw material recovered and

sold for scrap. The company's methodology does not account for loss

that it never recovers. Secondly, Walker Wire's reported conversion

costs fail to account for yield loss incurred during production, which

understates Walker Wire's conversion costs. Finally, Walker Wire

uniformly allocates its yield loss to all products sold. Walker Wire

allocated yield loss to merchandise bought for resale that required no

fabrication and to customer-owned material that it fabricated. Neither

of these items should incur the yield loss associated with Walker

Wire's processing of its own materials. Therefore, for this final

determination, we have increased Walker Wire's reported costs to

account for the company's total yield loss.

Comment 7: Stelco Allocation of Excess Cost of Ingot Teeming

Stelco argues that it properly allocated the excess cost of ingot

teeming (i.e., the cost of ingots that are not required by Stelco's

internal order practice) to only round products produced during the

POI. Stelco notes that in its normal books and records it allocates

these costs to all products produced, both flat-rolled and round

products. However, in its submitted COP and CV data, Stelco allocated

its ingot teeming costs to only round products produced since it cannot

use ingots to produce flat-rolled products. Stelco contends that the

Department should accept this allocation methodology because, in

accordance with section 773(f) of the Act, it is the closest to

Stelco's normal accounting procedures and because it reasonably

reflects the actual cost of producing subject merchandise. Stelco

further supports this argument by stating that the company can produce

all of its round (i.e., rod and bar) products from either ingot steel

or cast steel.

Stelco further argues that if the Department does not accept its

methodology of allocating excess ingot teeming costs to all round

products, the Department should allocate these costs to those products

that, because of customer requirements, could only be manufactured

using ingots. Stelco maintains that during the POI, while no customers

specifically required that only ingot steel be used in their orders,

some customers required cast steel only.

Petitioners argue that the Department should reject Stelco's COP

and CV data and apply total adverse facts available for the final

determination because Stelco has repeatedly misreported its costs

incurred on the teeming of ingots. Petitioners claim that Stelco incurs

these costs on specific products and had the ability to assign its

ingot teeming costs in a product-specific manner. Petitioners contend,

however, that Stelco did not allocate its ingot teeming costs to

specific products produced from ingots but, instead, allocated these

costs over products that it claims could potentially be produced from

ingots. Petitioners argue that this allocation methodology is

unacceptable because the statute and the Department's long-standing

practice require product-specific cost reporting. Petitioners cite

Final Results of Antidumping Duty Administrative Review: Gray Portland

Cement and Clinker from Mexico, 58 FR 25803, 25809 (April 28, 1993), as

precedent for use of best information available, in this case, when the

respondent does not report product-specific materials costs.

Petitioners also assert that Stelco's submitted costs are not based

on its books and records maintained in the normal course of business

and argue that neither of Stelco's various cost submissions reasonably

reflect the costs associated with the production and sale of subject

merchandise. Petitioners claim that because Stelco's submitted

methodologies do not assign costs only to the products for which those

costs were incurred, Stelco diluted the dumping margins on ingot-teemed

products, while reducing its profit margins on non-ingot teemed

products. Petitioners further argue that since there is no verified

evidence on the record demonstrating which specific CONNUMs are ingot-

teemed products, the Department does not have the ability to correct

Stelco's reported costs. Thus, petitioners urge the Department to

reject Stelco's reported costs in their entirety and apply total

adverse facts available, using either the dumping margin alleged in the

petition for a Canadian respondent, or the highest dumping margin

generated on any sale reported in Stelco's questionnaire response.

Department's Position

We disagree with petitioners that because Stelco was unable to

allocate ingot teeming costs only to those products manufactured from

ingot-produced billets, the Department should reject Stelco's reported

costs in their entirety and resort to total adverse facts available.

First, we do not find that Stelco's cost submissions are totally flawed

and rendered unusable for the final determination under section 782(e)

of the Act. Stelco submitted its cost data in a timely manner, we were

able to verify significant elements of its COP and CV data, and as

discussed below, we were able to use the cost data without undue

difficulties. Thus, the facts in this case, do not support rejection of

the entire cost submission. See e.g., Certain Welded Carbon Steel Pipes

and Tubes from Thailand: Final Results of Antidumping Duty

Administrative Review, 62 FR 53808, 53819-20 (Oct. 16, 1997) (resorting

to total adverse facts available because the respondent's cost

submission was unverifiable). In addition, we do not find a sufficient

basis to apply adverse inferences in accordance with section 776(b) of

the Act because we determine that Stelco reported these costs to the

best of its ability. Although Stelco did not report product-specific

costs for all subject merchandise that used ingot steel, we confirmed

at verification Stelco's claim that its computerized production records

do not permit it to identify when a product is made using ingot steel.

Based on this examination, we consider it acceptable for Stelco to

allocate ingot teeming costs using an alternative methodology that

reasonably reflects the costs associated with producing the subject

merchandise.

However, we find neither of Stelco's alternative methodologies

acceptable for the final determination. Because Stelco McMaster Ltee

does not produce billets from ingots, allocating the ingot teeming

costs incurred at the Hilton Works facility to all round products,

including those made from billets manufactured at Stelco McMaster Ltee,

unreasonably understates ingot teeming costs. Also, allocating ingot

costs only to products that may be produced from ingots in the absence

of actual production records unreasonably relies upon unsubstantiated

costs. Therefore, we find that because Stelco states that it teems

ingot to allow maximum utilization of available steel in the Hilton

Works' ladles and that all round products can be produced using ingot

steel, a reasonable methodology is to allocate ingot teeming costs to

all products which used Hilton Works billets. Accordingly, for the

final determination, we allocated ingot teeming costs incurred at the

Hilton Works facility to all products manufactured from billets

produced at this facility.

Comment 8: Inclusion of Stelco Capital Tax Credit in the G&A

Expense Calculation

Stelco argues that its capital tax credit should be included in the

general and administrative (``G&A'') expense

[[Page 9190]]

calculation. Stelco cites Final Results of Antidumping Duty

Administrative Reviews: Certain Corrosion-Resistant Carbon Steel Flat

Products and Certain Cut-to-Length Carbon Steel Plate from Canada, 62

FR 18448, 18465 (April 15, 1997) (``Carbon Steel from Canada''), as

precedent for classifying capital taxes as a G&A expense. Stelco

contends that because capital tax is a G&A expense, it properly offset

the capital tax credit against G&A expenses. Furthermore, Stelco notes

that the Department's practice is to include income items that are

properly a part of G&A in the G&A expense calculation. To support this

argument, Stelco cites Notice of Antidumping Duty Order and Amended

Final Determination: Canned Pineapple Fruit from Thailand, 60 FR 36775,

36776 (July 18, 1995), in which the Department states it inadvertently

relied on the gross, rather than the net, G&A expenses of the company

in the calculations of COP and CV. Stelco maintains that the full

amount of the credit relates to the POI, and not to prior years.

Stelco further argues that if the Department accepts expense items

which relate to non-POI periods because they are recorded in the

company's normal books and records for the period, the Department

should accept income items which relate to non-POI periods if they are

recorded in the company's normal books and records in accordance with

GAAP. Stelco cites Final Results of Antidumping Duty Administrative

Review: Certain Cold-Rolled Carbon Steel Flat Products from Canada, 58

FR 37099, 37120 (July 9, 1993), in which the Department determined that

because the respondent chose to expense the entire amount of certain

expenses which related to future periods in the current period, the

total expense was included in the calculation of COP and CV. Therefore,

Stelco argues that even if the costs did relate to prior POI events,

section 773(f) of the Act and the Department's long-standing policy

require that costs be included in the calculation of COP and CV in the

year those costs are recorded in a company's books, if those records

are in accordance with GAAP and reasonably reflect the costs associated

with the production and sale of the merchandise. Thus, Stelco maintains

that its capital tax credit should be included in the calculation of

G&A expenses for the final determination because it is recorded in

Stelco's normal books and records in accordance with GAAP and

reasonably reflects COP.

Petitioners urge the Department to exclude Stelco's capital tax

offset from its G&A expense calculation. Petitioners argue that

Stelco's credit to G&A expenses is improper because the Department does

not normally include income taxes in its COP and CV calculations and

because it does not relate to the POI since Stelco recorded this credit

to reverse an overstated accrued liability from 1991. Petitioners state

that, contrary to Stelco's claim, the Department does not have a long-

standing policy of accepting such credits, particularly from prior

years. To support this argument, petitioners cite Final Results of

Antidumping Duty Administrative Review: Fresh Kiwifruit from New

Zealand, 57 FR 13695, 13702 (April 17, 1992), in which the Department

determined that ``tax recoveries cannot be used to offset costs.'' In

addition, petitioners argue that while the Department often accepts

costs in the year they are recorded in a company's books, the statue

specifically notes that COP shall be based on those records only when

they reasonably reflect the costs associated with the production and

sale of the merchandise. Thus, petitioners maintain that Stelco's

capital tax credit should be excluded from the G&A expense calculation

because it artificially and improperly lowers G&A expenses for the POI.

Department's Position

We agree with Stelco that the capital tax, which is a non-income-

based tax, is a G&A expense item and, therefore, credits to capital tax

should be offset to G&A expenses. See e.g., Oil Country Tubular Goods

From Canada; Final Determination of Sales at Less Than Fair Value, 51

FR 15029 (April 22, 1986) and Certain Steel from Canada, 62 FR at

18465. However, we disagree with Stelco that the total amount of the

capital tax credit should be included in the calculation of G&A

expenses. While it is reasonable to offset Stelco's capital tax expense

with its capital tax credit, it is not reasonable to offset other G&A

expenses by the amount of the credit that exceeds the amount of the

capital tax expense. Specifically, because the credit represents a

reduction in the amount of capital taxes due by the company, it is

unreasonable to offset unrelated G&A expenses, such as administrative

salaries, professional fees, and office supplies. Therefore, for the

final determination, we are including in Stelco's calculation of G&A

expenses its capital tax credit only to the extent of its current

capital tax expenses.

Comment 9: Inclusion of Stelco Tax Credit in G&A Expense Calculation

Stelco asserts that its investment tax credit should be included as

a reduction to the company's G&A expenses. Stelco maintains that the

credit is a reimbursement by the Canadian government of research and

development (``R&D'') expenses and, therefore, the company properly

offset this credit to the R&D expenses it included as part of the total

G&A expense. Stelco explains that although the Canadian government

reimburses the company through a reduction of its income tax payable,

the credit is not an income tax benefit. To support its argument that

it properly recorded the credit as an offset to G&A expenses, Stelco

cites the Canadian Institute of Chartered Accountants (``CICA'')

Handbook, the Canadian equivalent of U.S. GAAP. The Handbook states,

where the investment tax credit relates to R&D costs, it should be

accounted for using the cost reduction approach by including it in the

period's net income if it relates to current expenses. If on the other

hand, the ITC relates to fixed asset purchases, it may be accounted for

either, by deducting the credit from the related assets and calculating

depreciation expense on the net basis of the asset, or by deferring it

if it relates to the acquisition of assets and amortizing it to income.

The Handbook, however, states that ``when the investment tax credits

are not accrued in the year in which the qualifying expenditures are

made because there is no reasonable assurance that the credit will be

realized, such credits should be accrued in the subsequent year in

which reasonable assurance of realization is first obtained.'' Stelco

contends that reasonable assurance occurred in 1996 when the company

had sufficient net income taxes payable to apply the investment tax

credit. Stelco further argues that the Department's long-standing

policy is to calculate COP and CV using net G&A expenses. Stelco

maintains that the full amount of this credit should be included in the

calculation of G&A expenses for the final determination. However,

Stelco states that if the Department rejects its argument, it should at

a minimum allow a full offset to Stelco's R&D expenses for the POI.

Petitioners counter that the Department should exclude Stelco's

investment tax credit from the G&A expense calculation because the

Department normally does not include income taxes in its COP and CV

calculations. Petitioners cite Statement of Financial Accounting

Standards No. 109: Accounting for Income Taxes to show that U.S. GAAP

provides that investment tax credits be recorded as a reduction to

income tax expense.

[[Page 9191]]

Petitioners respond that since Stelco concedes that the method of

payment by the government is a reduction of income tax payable, the

Department should adopt the approach that if a tax credit (such as an

investment tax credit) results in an income tax reduction, it should be

considered as an income tax item and thus excluded from G&A.

Petitioners further argue that the credit should be excluded because

portions of the credit may relate to R&D costs from previous years, or

the credit may be calculated based on the purchase of equipment that is

to be depreciated over future years. Petitioners allege that Canadian

companies would receive an unfair advantage if the Department allows

this credit to be classified as a reduction of cost of production

instead of a reduction to income tax expense. Finally, petitioners

claim that Stelco did not adequately support its classification of this

credit to G&A expenses. They argue that the Department should reject as

new factual information the CICA Handbook excerpts submitted by Stelco

in its January 7, 1998, brief which relate to the timing of the receipt

of the benefit, but do not address its classification. Petitioners

conclude that Stelco's approach does not conform to Canadian GAAP

because Stelco did not submit material to support its presentation and

disclosure of the credit. Therefore, petitioners maintain that Stelco's

investment tax credit should be excluded in the calculation of G&A

expenses for the final determination.

Department's Position

We disagree with petitioners that the excerpts from the CICA

Handbook submitted by Stelco in its January 7, 1998, brief constitute

untimely new factual information which should be rejected. Stelco

previously provided this information during the cost verification to

clarify and support information already on the record. See Stelco Cost

Verification Exhibit 29 at 10. However, we agree with petitioners that

the Department normally does not include income taxes in its COP and CV

calculations. The CICA Handbook states that ``investment tax credits

are a type of government assistance related to specific qualifying

expenditures that are prescribed by tax legislation.'' These credits

reduce the amount of income taxes Stelco pays. We do not consider it

appropriate to offset production costs by the reduced income tax

liability arising from tax legislation, because the Department does not

include income taxes in the calculation of COP and CV. See e.g., Fresh

Cut Flowers From Mexico; Final Results of Antidumping Duty

Administrative Review and Revocation in Part of Antidumping Duty Order,

61 FR 63822, 63824 (December 2, 1996). Thus, we are excluding Stelco's

investment tax credit in the calculation of G&A expenses for the final

determination.

Comment 10: Inclusion of Stelco Pension Expenses in the G&A Expense

Calculation

Stelco included in its G&A expenses an adjustment for the company's

additional pension liability as of December 31, 1995, which resulted

from a 1996 court decision to partially wind up the company's pension

plan. Stelco notes that the company did not have any ``control'' over

the events which triggered the applicability of its pension expense or

its capital tax credit recorded during the POI. Stelco argues that if

the Department excludes its capital tax and investment tax credits from

its calculation of G&A expenses because these credits relate to prior

years, the Department should also exclude this partial pension wind-up

cost from the G&A calculation because it relates to prior years.

Petitioners state that Stelco's recognition in the POI of pension

costs from prior years was proper and should be included in the G&A

expense calculation. Petitioners reason that Stelco should include this

cost because, unlike Stelco's tax credits, this amount was not

``controlled'' by Stelco, but by the Canadian courts. In addition,

petitioners claim that, unlike the tax credits, the pension expense was

recorded in accordance with both Canadian and U.S. GAAP which state

that a liability contingent on a lawsuit's outcome is recorded only if

the company is likely to lose the suit. Therefore, petitioners argue

that the Department should include Stelco's pension cost expense

related to prior years in the G&A expense calculation.

Department's Position

We agree with petitioners that Stelco's partial pension wind-up

costs should be included in the calculation of G&A expenses. In Final

Results of Antidumping Duty Administrative Reviews: Certain Cold-Rolled

and Corrosion-Resistant Carbon Steel Flat Products from Korea, 62 FR

18404, 18443 (April 15, 1997), (``Carbon Steel Flat Products from

Korea''), we determined that including prior-period expenses, such as

severance benefits, as an element of COP and CV is appropriate to

reasonably reflect the costs associated with the production and sale of

the subject merchandise. We disagree with Stelco that if the Department

excludes the company's capital tax and investment tax credits from the

calculation of G&A expenses, we must also exclude these pension

expenses. The Department considers each cost issue separately, based on

the facts and circumstances surrounding each issue. Stelco did not

recognize the pension expenses as a contingent liability in prior years

because Stelco expected to successfully appeal the Canadian pension

commissioner's ruling that employees terminated in the early 1990's

were entitled to certain pension benefits. Stelco recognized these

costs for the first time during the POI in accordance with GAAP after

the Canadian Supreme Court denied Stelco's appeal. See Cost

Verification Report, at 2-3. Consistent with Carbon Steel Flat Products

from Korea, we determine that including Stelco's prior-period pension

expenses as an element of COP and CV is appropriate to reasonably

reflect the costs associated with the production and sale of the

subject merchandise. Therefore, for the final determination, we have

included Stelco's partial pension wind-up cost in the calculation of

G&A expenses.

Comments Related to Other Issues

Comment 1: Whether a LOT Adjustment for Ivaco is Warranted

Petitioners state that the Department should reverse its

preliminary determination to grant a level of trade adjustment to

Ivaco. Petitioners argue that when examining the way in which IRM and

its affiliates do business, the record evidence demonstrates that no

level of trade adjustment is applicable in this case.

Petitioners first note that in its Level of Trade Memorandum (``LOT

Memorandum'') and Preliminary Determination, the Department found that

IRM and Sivaco both sell to the same category of customer, and that

both sell green and processed rod. Petitioners then state that the

Department also found that warranty and credit services were provided

at the same level. Petitioners argue that based on these similarities

in business practices, and without record evidence of any substantial

differences in the selling functions offered by the companies, the

Department must determine that an LOT adjustment is not warranted in

this case.

Petitioners then argue that the distinctions in selling functions

between IRM and Sivaco, which Ivaco claims are indicative of different

levels of trade, are instead simply a function of product mix, as IRM

sells mostly green rod, while Sivaco, being a

[[Page 9192]]

processor, sells mostly processed rod. Petitioners argue that a

comparison of IRM and Sivaco on a product-to-product basis would yield

very similar selling practices and expenses. First, petitioners assert

that IRM provides the same inventorying and JIT services that Sivaco

provides through a certain type of IRM sale. They argue that this type

of IRM sale is identical to a Sivaco sale from inventory, as in both

types of sale, the seller incurs all opportunity costs up to the point

of sale, and the customer purchases merchandise only when needed.

Second, petitioners state that Ivaco's claimed differences in

inventory carrying periods do not constitute evidence of substantially

different selling activities but instead are largely attributable to

product mix differences. Petitioners assert that the inventory periods

for processed rod is similar for both entities. In addition,

petitioners argue that the average inventory period verified by the

Department does not include the inventory period of a particular type

of IRM's sales. Petitioners point out that while it is true that Sivaco

maintains green rod inventory for a different period than IRM, this is

only logical since Sivaco's green rod typically must go through

additional processing. Petitioners conclude that since IRM's sales of a

particular type allow IRM to extend the same JIT services as Sivaco,

both companies offer the same products and inventory services.

Third, petitioners take issue with Ivaco's claims concerning

differences in delivery terms, arguing that differences in shipment

quantities are irrelevant to the level of trade analysis because both

companies sell rod on a delivered basis, both deliver rod to the

majority of their customers by truck, and both sell in truckload and

less than truckload quantities. Finally, petitioners' comments also

briefly addressed other selling function distinctions alleged by Ivaco.

Petitioners claim that Sivaco's provision of bid assistance does not

constitute a substantial difference between IRM and Sivaco, because

Sivaco supplied this service to only a few of its customers, and

because the provision of this service occupied a small percentage of

the time of their employees. They state that the other alleged selling

functions, (producing to order, small order processing, shipping in

small quantities, and customer pick-up services) are all part of the

services offered by both IRM and Sivaco and as such, do not constitute

differences in levels of trade.

In response, Ivaco notes that petitioners do not dispute the fact

that IRM's sales are made at an earlier point in the chain of

distribution than Sivaco's sales, which is the first criterion that

must be established in order to qualify for an LOT adjustment.

Petitioners' argument that the Department should look at the customer

category is the old law standard. The new standard, citing Professional

Electric Cutting Tools from Japan, is that ``* * * Differences in

levels of trade are characterized by purchasers at different stages in

the chain of distribution and sellers performing qualitatively or

quantitatively different functions in selling to them.'' Ivaco Rebuttal

Brief at 1. Ivaco notes that in the LOT Memorandum, the Department

agreed with Ivaco on both these points.

According to Ivaco, petitioners ignore one of the most important

differences between IRM and Sivaco: the fact that Sivaco offers

significant inventory services while IRM does not. Ivaco notes that in

order to provide these services, Sivaco maintains a large uncommitted

general inventory, whereas IRM maintains no general uncommitted

inventory. Ivaco notes that in its verification report, the Department

confirmed that Sivaco Ontario inventories green rod many times longer

than IRM. Further, Ivaco asserts that Sivaco acts as a service center

for rod, bar, and wire, and maintains a large uncommitted inventory in

order to service its customers' requirements for: ``(i) small

quantities of rod; (ii) inventory services; and/or (iii) JIT

delivery.'' Ivaco Rebuttal Brief at 9. Ivaco goes on to cite several

cases (Polyethylene Terephthalate Film, Sheet, and Strip from the

Republic of Korea and Welded Carbon Steel Pipe and Tube from Turkey),

in which the Department has recognized the importance of services

associated with maintaining inventory as a factor in defining distinct

levels of trade.

Ivaco states that none of the arguments raised in petitioners' case

brief alters the conclusion in the LOT memorandum, and confirmed by the

Department's verification report and Preliminary Determination, that

Sivaco offers significantly different services than IRM. Ivaco states,

for example, that petitioners' contention that the difference in actual

number of days of credit outstanding between IRM and Sivaco is not

``particularly large'' is contradicted by the facts on the record which

indicate the actual difference in average payment dates is almost

double for Sivaco Ontario as compared to IRM. Further, Ivaco noted that

the Department stated in its LOT Memorandum that ``IRM's customer's

average payment period * * * reflects the greater liquidity of a larger

company, whereas Sivaco's * * * reflects the generally smaller size of

its customers.'' Ivaco Rebuttal Brief at 7.

Ivaco states that petitioners' attempt to categorize the inventory

services provided by Sivaco Ontario as a ``product-mix'' issue is

without merit. The company asserts that petitioners' comparison of the

quantity of processed rod sold by IRM versus Sivaco Ontario is

misleading, because during the POR, processed rod as a percentage of

IRM's total sales is extremely small, while for Sivaco Ontario, this

percentage is a very high percentage of sales. Therefore, Ivaco

concludes that petitioners' comparison of overall tonnage does not take

into consideration the ``actual magnitude of sales or the business

practices of either company.'' Ivaco Rebuttal Brief at 11.

Ivaco asserts that petitioners' argument that Sivaco does not offer

significantly different delivery services is without merit because

IRM's delivery services are structured to serve high-volume customers,

whereas Sivaco's delivery services are structured to serve smaller

customers who do not have the inventory capacity or buying power of

larger customers and therefore require JIT or short-lead time delivery

capability. Accordingly, Ivaco states, IRM sales structure is organized

around its quarterly rolling schedule, while Sivaco's sales structure

is organized around its uncommitted green rod inventory. Sivaco

delivery services are set up to accommodate routine customer pick-up,

while IRM is set up to provide for train-load deliveries. Further,

Ivaco states that the Department's LOT Memorandum and Verification

report confirm that Sivaco and IRM offer significantly different

delivery services.

Ivaco also disagrees with petitioners' claim that IRM provides, for

a particular type of sale, delivery services similar to those Sivaco

provides its customers. Ivaco states that the only difference between

its typical direct sales and this particular type of sale are the

payment terms. Ivaco stresses that IRM provides no other services for

this type of sale that are distinct from its other direct sales.

Department's Position

We disagree with petitioners that Ivaco's sales are made at the

same LOT, and therefore, a LOT adjustment is not warranted in this

case. As detailed in the LOT Memorandum for the preliminary

determination, we examined the selling functions performed by IRM and

Sivaco at each stage in the marketing process and identified

substantial differences in

[[Page 9193]]

services provided. We concluded that these differences were attributed

to selling at different points in the chain of distribution, i.e., IRM

primarily sells direct from the factory and Sivaco acts as a reseller

of SWR. Our findings at verification confirmed this analysis, and

petitioners have identified no record evidence to warrant changing our

preliminary determination. For example, petitioners continue to assert

that no LOT differences exist because both IRM and Sivaco sell to end-

users and provide the same type of warranty and credit services.

However, customer category alone is not the determinative factor of

establishing a level of trade. See e.g., Notice of Final Determination

of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel

Plate from South Africa, 62 FR 61731, 61732 (Nov. 19, 1997). Moreover,

the mere fact that certain selling activities are performed in a

similar manner does not refute a finding of different LOTs, rather, the

Department considers the totality of the circumstances in evaluating

whether qualitatively and quantitatively different selling functions

are performed for purchasers at different places in the chain of

distribution. In this instance, the record evidence supports our

finding of significant differences in the selling activities performed

by IRM and Sivaco and no substantiation of petitioners' claim that

these differences are attributable to product mix.

Comment 2: Petitioners' LOT Adjustment Methodology

Petitioners argue that if the Department does grant Ivaco a LOT

adjustment, the Department should apply the cost test to the LOT-

adjusted home market sales prices, and remove those sales which fail

from the margin calculation. Petitioners state that this proposed

methodology is supported by the statute, which requires the Department

to make ``due allowance'' for any differences in EP CEP and NV caused

by a difference in levels of trade. They assert that section 773(b)

states that where 20 percent or more of a respondent's sales of a given

product during the POI are at prices less than COP, the Department

should disregard the below cost sales in the determination of normal

value. Petitioners also point out that the Statement of Administrative

Action (SAA) states that ``[t]he Administration intends that Commerce

will disregard sales [below cost] when the conditions in the law are

met.'' See Petitioners Case Brief at 13. Petitioners argue that, when

viewed together, these provisions establish a clear intention that the

Department must not make ``due allowance'' for a level of trade

adjustment when such adjustment would cause the home market normal

value to fall below cost. Petitioners state that the importance of the

below-cost principle to the Department is demonstrated in Large

Newspaper Printing Presses and Components Thereof, Whether Assembled or

Unassembled, from Japan, 61 FR 38139, 38144 (July 23, 1996) (``Printing

Presses from Japan''), in which the Department excluded below-cost

sales from normal value, even though it did not initiate a below-cost

investigation.

Finally, petitioners assert that, after removing the sales with

prices below the cost of production, the data available does not

provide an ``appropriate basis'' to determine a level of trade

allowance, and therefore the Department should deny a level of trade

adjustment for CEP sales in this investigation. Petitioners note,

however, that the Department may grant a CEP offset where a LOT

adjustment is not warranted, and where the comparison sales are made at

a more advanced level of trade than sales to the United States, in

accordance with section 773(a)(7)(B) of the Act.

Ivaco responds that petitioners' argument is specious, because it

fails to take into account the fact that the sales used to calculate

the LOT adjustment have already passed a below-cost test. As such,

petitioners' cite to Newspaper Presses is not relevant, since, Ivaco

claims, the issue there was whether the Department could use sales when

no formal below-cost test was performed. In this case, the Department

has already applied the below-cost test once; petitioners are

requesting that it now be applied a second time. Ivaco states that

petitioners, by contending that the LOT adjustment causes normal values

to fall below cost, are asking the Department to: (1) Ignore the actual

pricing differentials that exist between above cost sales at levels one

and two; (2) perform a second below-cost test on home market sales that

have already passed one below-cost test; and (3) perform a below-cost

test on weighted-average normal values, which is contrary to the

Department's practice for performing a below-cost test. Furthermore,

Ivaco points out that it is just as likely that applying a difmer

adjustment or a circumstances of sale (COS) adjustment might cause a

given FUPDOL to be lower than the original home market sale's cost of

production. Despite this fact, the Department has never thrown out such

home market sales for failing the cost test. The reason, according to

Ivaco, is obvious: the normal values in question have already passed a

below-cost test.

Department Position

We disagree with petitioners that the Department should only apply

the cost test to LOT-adjusted home market sales. The statute directs

the Department to determine NV based on the price at which the foreign

like product is sold for consumption in the home market, in the normal

commercial quantities, and in the ordinary course of trade. Section

771(15) of the statute states that the sales which fail the cost test

under section 773(b) are deemed to be outside the ordinary course of

trade, and therefore should be excluded from the pool of home market

sales used to determine NV. The statute contemplates that the remaining

sales are suitable for purposes of determining NV. See section

773(b)(1) of the Act. The Department appropriately applies the LOT

methodology after the cost test is administered to those sales which,

according to the statute, are suitable for establishing NV. Moreover,

petitioners ignore the fact that LOT-adjusted home market sales that

``fail'' the cost test do not do so because the actual selling prices

are below cost, but do so as the result of other statutory adjustments

to NV, which have nothing to do with determining COP. Thus, LOT-

adjusted sales are not made at prices below cost within the meaning of

section 773(b) of the Act. Based on the above, the Department finds

that the petitioners' proposed methodology is inconsistent with the

statute, and will not be used for the final determination.

Comment 3: Ivaco's Proposed Level of Trade Methodology

Ivaco asserts that the Department should use its proposed LOT

methodology suggested in its pre-verification submissions. This

methodology is to apply the Department's concordance program to the

home market sales at level one and the home market sales at level two,

and subsequently apply an appropriate difmer adjustment. Ivaco claims

that this methodology allows the Department to analyze weight-averaged

pricing for both identical and similar products, based on the same

standard the Department uses for identifying similar products when

comparing U.S. and home market sales. By employing this proposed

methodology, the Department can assess the pricing differentials

between levels one and two, rather than allowing a handful of products

to determine the adjustment, as is currently the case. Furthermore,

applying a difmer adjustment will

[[Page 9194]]

remove any distortions that would result from differences in the

product mix at each level.

Ivaco states that the SAA provides the Department with wide

latitude in making a LOT adjustment, and does not mandate that the

Department rely solely on home market sales of identical products.

Ivaco asserts that the Department's methodology is inadequate to

demonstrate a pattern of price differences because it takes into

account a small percentage of possible comparisons, and accounts for

less than 25 percent of the home market sales quantity. Ivaco states

that by applying the Department's ``difmer'' adjustment to the home

market sales listing, the Department would avail itself of all home

market sales.

Ivaco asserts that by using only identical sales to determine the

amount of the adjustment, the Department failed to take into account

most of the products sold in the home market, and that the identical

matches used were of green rod, thus limiting the price comparison to

products that are not representative of the Sivaco Ontario's overall

business.

Department Position

We disagree with Ivaco that a difmer adjustment should be used in

our LOT methodology in this case. The SAA states that the Department

will normally base the calculation on sales of the same product;

however, if this information is not available, the adjustment may be

based on sales of similar products by the same company. See The

Statement of Administration Accompanying the URAA, H.R. Doc. 316,

Vol.1, 103d Cong. 830 (1994). Consistent with the SAA, to the extent

possible, the Department calculates the LOT adjustment based on

identical merchandise to reasonably ensure that the LOT adjustment is

isolated to differences in price between the two levels, and not other

factors. See e.g., section 351.412 (d)(s) and (e), Final Rule, 62 FR

27415 (May 19, 1997); Antifriction Bearings (Other Than Tapered Roller

Bearings and Parts Thereof from France: Final Results of Antidumping

Duty Administrative Review, 62 FR 2081, 2016 (Jan. 15, 1997).

Moreover, we disagree that our standard LOT methodology results in

distorted comparisons. Products sold at both home market LOTs account

for nearly 25% of the quantity of Ivaco's home market sales. Ivaco's

argument that over 98% of the home market control numbers were not used

in this calculation does not diminish the fact nearly 25% of Ivaco's

production was accounted for. Further, we note that the control numbers

used in the LOT analysis were sold at both LOTs in sufficient

quantities for a finding of a pattern of consistent price differences.

Ivaco further argued that the Department based its adjustment only on

green rod sales, and thus limited the price comparison to products that

are not representative of Sivaco Ontario's overall business. Ivaco's

assertion, although factually accurate, fails to address the underlying

rationale for making a LOT adjustment. The Department's LOT adjustment

is designed to isolate pricing differentials due to the provision of

different services by comparing sales of identical products at

different levels of trade. The LOT adjustment isolates pricing

differentials which exist due to services provided to customers, and

not to differences in products. Sivaco provided these services to all

of its customers, irrespective of the control number associated with

the products it sold them. The Department found a pattern of

consistence during the POI. These pricing differentials, therefore,

between sales of identical products sold by Sivaco and IRM, reflect

these different services, and thus the different levels of trade. The

Department's methodology reflects this principle, in that it calculates

only one LOT adjustment percentage for each type of comparison of

identical products at different levels of trade, irrespective of the

control number of the products being compared.

Comment 4: Freight and Packing Calculation

Ivaco states that the Department incorrectly allocated all freight

and packing variables to U.S. and home market sales, when in fact some

of these variables are cost items. Ivaco claims that in situations in

which Sivaco Ontario, Sivaco Quebec, or Sivaco New York process on

behalf of IRM or independently sell the rod themselves, IRM's freight

or packing on the unfinished goods shipped to these entities should be

part of the cost of production, constructed value and CEP profit.

Petitioners disagree that all freight and packing expenses for

movement of rod from IRM to Sivaco Ontario, Sivaco Quebec and Sivaco

New York should be included in the cost of production. Citing Section

773(a)(6)(B)(ii) of the Act, as well as several Department

determinations, petitioners state that freight and packing expenses are

charges deductible from the selling price of the subject merchandise,

and the Department adjusts for freight as a COS adjustment where such

adjustment constitutes a direct selling expense.

Department Position

We agree with Ivaco, and petitioners in part. We agree with Ivaco

that the Department incorrectly assigned all freight and packing

expense variables to selling expenses, when in fact some of these

variables are cost items. For Ivaco sales of processed rod, the packing

and freight required to transport the rod from IRM to the processor is

necessary to complete the production process and, as such, is a cost of

production. See e.g., Final Determination of Sales at Less Than Fair

Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-

Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon

Steel Flat Products, Certain Cut-to-Length Carbon Steel Plate from

Canada, 58 FR 37099, 37118 (Feb. 4, 1993). The exception to this

practice is with regard to CEP transactions. Consistent with the URAA,

for these transactions, all packing and freight expenses incurred in

order to transport the subject merchandise to the U.S. processor are

treated as further manufacturing expenses for the purpose of

establishing the constructed export price and CEP profit. See sections

772(d) and 772(f)(2)(B) of the Act. Freight and packing expenses

incurred in order to transport the finished product in condition packed

and ready for shipment to the place of delivery are deducted as

movement expenses from EP and CEP and treated as direct selling

expenses in the home market. See sections 772(c)(2)(A) and 773(a)(6)(B)

of the Act. As petitioners have correctly noted, when appropriate, the

Department adjusts for such direct expenses through a circumstances of

sale adjustment to NV. Therefore, we have modified our programing for

the final determination consistent with these principles.

Comment 5: Exclusion of Trials

Ivaco states that the Department should exclude trial sales from

its calculations. Petitioners disagree, arguing that the statute only

allows the Department to exclude sales that are not within the usual

commercial quantities . . . or . . . ordinary course of trade.

Petitioners state that the gross weighted-average home market and U.S.

prices for the sales Ivaco reported as trials are comparable to the

average prices reported for Ivaco's non-trial sales, and that only a

certain number of trial sales exceed a certain quantity of short tons

in shipment size. Petitioners conclude from these facts that Ivaco's

trial sales are ``clearly not aberrational and certainly fall within

the ordinary course of trade. Accordingly, the Department

[[Page 9195]]

should retain these sales in the margin calculation, as well as other

programs.

Department Position

We disagree with Ivaco. An analysis of the sales Ivaco reported as

trials indicates that the majority of these sales were made in the

typical quantities and prices of Ivaco's other sales that were found to

be in the normal course of trade. Therefore, for the final

determination, the Department has continued to include trial sales in

the margin calculations for Ivaco.

Comment 6: Clerical Errors in the Level of Trade Program

Ivaco states that the pattern of price differences (LOT) program

does not exclude Ivaco's sales of seconds, and sales of rod

manufactured by other manufacturers. Petitioners did not comment on

these items.

Department Position

We agree with Ivaco and have modified program for the final

determination accordingly.

Comment 7: Clerical Errors in the Arm's Length Program

Ivaco claims that the Department's arm's length program does not

exclude seconds, does not incorporate the LOT adjustment, and does not

exclude sales of rod manufactured by other manufacturers. Petitioners

did not comment on these items.

Department Position

We agree with Ivaco and have modified the final determination

accordingly.

Comment 8: Clerical Errors in the Concordance Program

Ivaco claims the Department made several clerical errors in the

concordance program used for the preliminary determination. First,

Ivaco claims that the Department incorrectly applied the revised billet

costs which overstated the reduction in the COM. Ivaco argues that this

error artificially eliminates home market sales from comparison with

U.S. sales. Ivaco contends that the revised billet costs should also be

reflected in a revised value for variable COM. Second, Ivaco claims

that the Department's concordance program failed to exclude sales of

subject merchandise produced by other manufacturers, trial sales in the

home and U.S. markets, and sales of secondary merchandise even though

these categories of sales were excluded from the margin calculation

program. Finally, Ivaco claims that the Department's concordance

program improperly converted values for control numbers for U.S. sales

to character values.

Department Position

We agree with Ivaco that we inadvertently applied the incorrect

amount to revised billet costs and inadvertently failed to make a

corresponding correction to variable COM. We also agree that sales of

subject merchandise produced by other manufacturers and sales of

secondary merchandise should be excluded from the concordance program.

As we stated in the preliminary determination, we concluded that sales

of SWR produced by other manufacturers are outside the scope of this

investigation. See Preliminary Determination, 62 FR at 51573. In

addition, while the Department normally includes sales of secondary

merchandise in its margin calculations, matching sales of secondary

merchandise in the home market to sales of secondary merchandise in the

U.S., the record evidence demonstrates that Ivaco had no U.S. sales of

secondary merchandise during the POI; therefore, we have excluded home

market sales of secondary merchandise from the concordance program. We

have made all of the above changes to the concordance program for the

final determination.

We have not excluded trial sales from the concordance program

because we have determined that these sales are properly included in

the margin calculation, and we have corrected the program accordingly.

(see Comment 5). Finally, we have also corrected the concordance

program with respect to the assigned values to control numbers for U.S.

sales.

Comment 9: Ivaco's U.S. Price Calculations

Ivaco claims that the U.S. price calculation improperly calculates

prices without considering levels of trade. Second, Ivaco contends that

the Department's program improperly merged the revised further

manufacturing data with the U.S. sales data set, causing numerous

values to be uninitialized, including the value for revised total

further manufacturing costs for all U.S. sales. Third, Ivaco asserts

that the Department erred in calculating the indirect selling expenses

incurred in Canada by expressing Sivaco Ontario's and IRM's indirect

selling expenses as percentages even though Ivaco reported the figures

as percentages and also failed to deduct amounts for credit

adjustments. Fourth, Ivaco states the Department incorrectly calculated

weighted-average U.S. prices by failing to combine EP and CEP sales in

the weighted-average calculation. Fifth, Ivaco argues the Department

incorrectly calculated direct U.S. selling expenses by adding the cost

of further manufacturing on Ivaco's CEP sales to direct U.S. selling

expenses rather than deducting further manufacturing costs from the net

U.S. price of the specific CEP transactions which incurred the cost.

Sixth, Ivaco claims the Department added rather than subtracted the

credit adjustment amount in the calculation of home market revenue for

CEP profit.

Department Position

We disagree with Ivaco in part. The Department has properly

calculated level of trade. We also disagree that EP and CEP sales

should be combined in the weighted-average calculation. Section

777A(d)(1)(A)(i) of the Act directs the Department to compare weighted-

average NVs to weighted-average EP or weighted-average CEP sales. See

e.g., Notice of Final Determination of Sales at Less Than Fair Value:

Certain Cut-to-Length Carbon Steel Plate From South Africa, 62 FR

61731, 61732 (Nov. 19, 1997). Because different statutory adjustments

are made to determine the net price of EP and CEP sales, combining

these prices to calculate a single weighted-average price would distort

the margin calculation. We agree, however, that the margin calculations

contain the other clerical errors identified above and have corrected

the calculations accordingly for the final determination. In addition,

we have added amounts for credit to the calculation of U.S. direct

selling expenses.

Comment 10: Clerical Errors in Ivaco's CV Calculations

Ivaco asserts that the CV calculation contains the following

clerical errors: (1) Direct and indirect selling expenses should be

included in the calculation of net cost of production, (2) credit

expenses should be excluded because they are imputed rather than actual

expenses, (3) the CV calculation should be based upon selling expenses

and profit for each LOT in the home market, (4) in calculating CV by

LOT, the Department should correct the program to ensure that each U.S.

sale will be matched to a constructed value at the same LOT, (5)

variable credit expenses should be excluded from the CV calculations.

Department Position

We agree with Ivaco that we inadvertently excluded indirect and

direct selling expenses from the calculation of net price cost of

[[Page 9196]]

production and included credit and variable credit expenses in the CV

calculations. We have corrected the margin calculations accordingly for

the final determination. However, we disagree that CV should be

calculated based upon LOT. As explained in the preliminary

determination, our methodology is not to calculate CV based upon LOT.

Rather, we calculate CV and then use the sales from which we derived

selling expenses and profit in CV to determine the LOT of CV. The CV

calculation program is consistent with the Department's standard

methodology; therefore, we have not made Ivaco's suggested changes

concerning LOT to the CV calculations.

Comment 11: Clerical Errors in Ivaco's CEP Calculations

Ivaco contends that several clerical errors exist in the

calculation of CEP and CEP profit. First, Ivaco asserts that after

correcting the calculation of U.S. indirect selling expenses as

discussed above, the Department should make appropriate corrections to

the calculation of total selling expenses in the CEP profit

calculation. Second, Ivaco claims that the calculation of U.S. direct

selling expenses should exclude amounts for imputed expenses and

expenses incurred in the country of manufacture. Third, inventory

carrying costs incurred for U.S. sales was reported in Canadian

currency, and therefore, should be converted into U.S. dollars. Fourth,

the calculation of U.S. selling expenses should be corrected to reflect

amounts only for indirect selling expenses. Fifth, the Department

should revise the CEP selling expenses variable to include direct

selling expenses for further manufacturing and indirect selling

expenses incurred in the U.S., including imputed expenses. Sixth, the

calculation of CEP net price should be corrected to reflect the changes

made in direct and indirect selling expenses.

Petitioners did not comment on any of these alleged clerical

errors.

Department Position

We agree with Ivaco and have modified the calculations for the

final determination accordingly.

Comment 12: Clerical Errors in Ispat-Sidbec Sales Below Cost Test

Ispat-Sidbec alleges that the Department made a clerical error in

the sales below cost test. Ispat-Sidbec claims that the Department

calculated the net price for each home market sale by deducting all

movement, selling, and packing expenses from the gross unit price. The

Department then compared this net price to a COP composed of the cost

of manufacture, plus general and administrative expenses, net interest

expense, plus selling expenses. Ispat-Sidbec claims that this results

in an ``apples-to-oranges'' comparison, and that the Department should

compare net price to a cost of production composed solely of total cost

of manufacture, general and administrative expenses, and interest

expenses. Ispat-Sidbec argues that the Department should change the

margin calculation program accordingly for the final determination.

Petitioners have no comment on this issue.

Department's Position

We agree with Ispat-Sidbec and have modified the calculations

accordingly.

Comment 13: Exclusion of Secondary and Non-Prime Sales in Ispat-Sidbec

Arm's Length Test

Ispat-Sidbec argues that the Department improperly excluded sales

of secondary or non-prime merchandise from the arm's length test.

Ispat-Sidbec contends that because the Department calculates dumping

margins on sales of both prime and secondary merchandise, the

Department's general practice is to include both types of merchandise

in its arm's length test. To support its argument, respondent cites

Certain Cold-Rolled Carbon Steel Flat Products from Argentina, 58 FR

7066, 7069 (February 4, 1993), and Certain Cold-Rolled Carbon Steel

Flat Products from Germany, 60 FR 65264, 65273 (December 19, 1995), in

which an arm's length analysis was performed on all sales.

Petitioners agree with Ispat-Sidbec that the Department's

consistent practice for steel cases is to perform the arm's length test

on all sales, including prime and secondary (non-prime) merchandise.

However, petitioners also note that the Department recognizes the

potential for distortion if sales of non-prime merchandise are compared

to sales of prime merchandise. Therefore, argues petitioners, the

Department must separate the non-prime from the prime merchandise

before performing the arm's length test.

Department's Position

We agree with respondent that the Department improperly excluded

sales of non-prime merchandise from the arm's length test. We also

agree with petitioners that sales of prime and non-prime merchandise

must be separated before performing the arm's length test. As noted in

Certain Cold-Rolled Carbon Steel Flat Products from Germany, in cases

where sales of prime and secondary merchandise were reported together

in the same CONNUM, the Department treated them as separate CONNUMs for

purposes of the arm's length test. For purposes of the final

determination, the arm's length test has been conducted on all of

Ispat-Sidbec's home market sales, separating prime from non-prime

merchandise.

Comment 14: Ispat-Sidbec Model Match

Ispat-Sidbec argues that the model match hierarchy matched both

non-AWS welding grades (GRDRANGH/U = `81') and products sold according

to ASTM and CSA grades (GRDRANGH/U = `91') to the numerically closest

ranges, instead of to the most similar match. Ispat-Sidbec argues that,

for example, welding grades are most similar to each other, and AWS

grades are most similar to non-AWS welding grades. Ispat-Sidbec

proposes that the Department modify the model match hierarchy to

produce the most similar matches.

Department's Position

At the home market verification, we examined several sales of

products classified as GRGRANGH/U = `81' and verified the

appropriateness of the grade range classification. We agree with

respondent that such non-AWS welding grade products should be matched

to other welding grade products in the absence of an identical match,

and have modified the model match hierarchy accordingly for purposes of

the final determination. However, with respect to products classified

as GRDRANGH/U = `91' (products sold according to ASTM and CSA grades)

we do not accept Ispat-Sidbec's separate classification of these

products. In general, such products should fall within the AISI grade

ranges determined by the Department. No such products were examined at

verification, and the Department does not have enough information to

determine which AISI grade range is most appropriate for these ASTM and

CSA grade products. We also note that only a small number of home

market sales were classified as GRDRANGH = `91,' and that no products

classified as GRDRANGU = `91' were sold in the U.S. market. Therefore,

we have not used products with GRDRANGH = `91' in the margin

calculation for the final determination.

Comment 15: Classification of Silicon-Killed Steel with Titanium

Additives (``Grade X'')

Stelco argues that the Department erroneously classified Stelco's

product coding for one product sold by Stelco (e.g., silicon-killed

steel with titanium additives or ``Grade X''). Stelco contends that

this classification, which allegedly results in an inappropriate

[[Page 9197]]

product matching of dissimilar Grade X U.S. sales to dissimilar Grade X

home market sales, is inconsistent with Department practice, court

decisions, the underlying structure of the product matching hierarchy

in this proceeding, and positions argued by petitioners at the outset

of this investigation. Therefore, the Department should accept Stelco's

revised product coding to ensure that Stelco's Grade X U.S. sales are

matched only to Stelco's Grade X home market sales and accordingly

revise the margin calculations of the final determination.

Stelco argues that Grade X steel warrants a separate deoxidation

category other than those deoxidation categories, as defined in the

Department's May 22, 1997 letter to Stelco, which revised the product

coding system. Respondent maintains that such steel is fine-grained

because titanium (an element not defined in any of the deoxidation

codes in the above-mentioned letter) is a grain refiner. Classifying

Grade X under deoxidation code of ``2'' for ``silicon-killed'' is

inappropriate because silicon-killing is a deoxidant for coarse-grained

steel rather than fine-grained steel. Stelco insists that merging

coarse-grained steels with fine-grained steels is inconsistent with

Department practice and courts decisions. Citing NTN Bearing Corp. v.

United States, 747 F. Supp. 726 (CIT 1990), Stelco asserts that the

principal objective of the Department's model match program is to

obtain the most useful comparison possible. Stelco also argues that in

practice the Department will consider a respondent's internal product

code system in developing its product matching hierarchy as set forth

in 19 CFR 351 (62 FR 27296, 27378 (May 19, 1997)).

Stelco contends that given the status of Grade X as a fine-grained

steel, the Department should consider the most appropriate

classification for Grade X steel. Stelco maintains that due to the

physical, cost and price distinctions, this steel should not be

classified under a deoxidation code of ``2'' for ``silicon-killed.''

Stelco claims that important physical differences exist between coarse-

grained, silicon-killed steel correctly classified as a deoxidation

code of ``2'' and Grade X steel and that the most significant

differences are the grain-refining process and the resulting grain

size. Furthermore, it maintains that, as presented at verification, the

current cost information for a standard coarse-grained, silicon-killed

steel and a Grade X steel demonstrates a vast cost difference between

the two products. It also maintains that a similar examination of the

Section D cost information for the same two products evidences

disparities in the costs for the two products. Therefore, Stelco urges

the Department to not reclassify Grade X steel under the deoxidation

code of 2 for ``silicon-killed.''

Petitioners urge the Department to reject Stelco's request to

reclassify Grade X steel. They argue that Stelco did not suggest that

titanium had special properties that required a separate category

during the product coding comment process at the outset of this

investigation or for two months after the comment period, and that

since that time, Stelco has presented no dispositive evidence to

support its classification. Thus, petitioners maintain that Stelco's

request to reclassify Grade X steel should be denied.

First, petitioners assert that Stelco's request to reclassify Grade

X steel under a separate model match was untimely. They state that the

Department conducted a thorough inquiry on model match issues,

providing an opportunity for parties to argue extensively over whether

and how to categorize different deoxidation and grain refinement

practices. Since Stelco did not comment on the impact of titanium in

the deoxidation process during this period, petitioners argue that the

Department did not address this issue in its revised reporting

instructions for product characteristics. As a result, the Department

only created five deoxidation categories.

Second, petitioners insist that they have submitted reliable

scientific evidence from multiple sources demonstrating that titanium

is not a reliable grain refiner. They claim that they have shown that

titanium grain refined is not a recognized industry product

classification, and that purchasers generally do not specify titanium

as a grain refiner. Petitioners refute respondent's claim that Grade X

has fine-grain structure and that its customers requested the addition

of titanium to produce fine-grain rods. Citing the Stelco Sales

Verification Report, they argue that the first point is irrelevant,

claiming that only specified physical characteristics matter. Given

that Stelco provided the Department only ``hand-picked'' samples of

Grade X steel, the existence of fine-grained steel is expected because

titanium widely affects the grain structure. Therefore, petitioners

reiterate that Stelco has failed to provide record evidence for its

claim that titanium is a grain refiner. As such, they argue that the

Department should classify Grade X steel as silicon-killed steel.

Department's Position

The Department agrees with petitioners that reclassification of

Stelco's Grade X steel is not warranted in this case. First, the

Department's May 22, 1997, letter to respondents which revised the

reporting instructions for product characteristics for this

investigation was ``in response to interested party comments regarding

modifications to the product characteristic reporting requirements.''

See May 22, 1997, letters to Ivaco, Sidbec and Stelco at 1-3. After

careful review of the comments received from both petitioners and

respondents, the Department ``modified the product reporting

instructions,'' including a field for deoxidation practices. Id. As a

result, the Department derived the various deoxidation codes, as

identified in the above-cited letter. Thus, all interested parties had

an opportunity to review and comment on the Department's product

characteristic reporting requirements.

Second, since the issue of titanium as a grain refiner was not

addressed during the comment period and since the Department did not

intend to account for every conceivable physical characteristic in the

subject merchandise, the Department did not subdivide a separate

category for silicon-killed with titanium additives. The Department

bases the product matching criteria on commercially meaningful

characteristics and on interested parties' comments, which permits the

Department to draw reasonable distinctions between products for

matching purposes, without attempting to account for every possible

difference inherent in the merchandise. Through this process, the

Department is able to match certain products as ``identical,''

consistent with section 771(16)(A) of the Act, even though they contain

minor differences. See e.g., Final Determination of Sales at Less Than

Fair Value; Gray Portland Cement and Clinker from Mexico, 55 FR 29244,

29247-48 (July 18, 1990). Furthermore, the Department need not account

for every conceivable physical characteristic of a product in its model

matching hierarchy. As such, in creating the various deoxidation codes,

which reflected parties' comments, the deoxidation code of ``2'' for

``silicon-killed'' was intended to include all silicon-killed steels

other than silicon-killed vanadium or niobium grain-refined steels.

Since silicon-killed steel with titanium additives is not included

among the five specific deoxidation codes, the Department has

reclassified Grade X steels as Code ``2'' for ``silicon-

[[Page 9198]]

killed.'' See Preliminary Determination of Sales at Less Than Fair

Value and Postponement of Final Determination: Steel Wire Rod from

Canada, 62 FR 51573 (October 1, 1997).

Comment 16: Rejection of Stelco Sales Data Due to Numerous Verified

Changes

Petitioners urge the Department to reject the changes made to

Stelco's revised December 2, 1997, sales listing and to calculate U.S.

price and NV based on the sales listing submitted prior to the above-

cited submission. They assert that Stelco's changes, as found by the

Department at verification, affected a number of inputs to U.S. price

and NV, including rebates, freight taxes, inventory carrying costs,

packing costs and inland freight. Because these changes were presented

at verification, petitioners claim that neither they nor the Department

had the opportunity to verify thoroughly these significant changes.

Furthermore, they argue that even at verification, the Department found

several inaccuracies in the revised data and that they find it

difficult to ascertain whether Stelco has actually corrected all the

errors identified at verification. As such, for its final

determination, the Department should reject these changes and calculate

U.S. price and NV based on the sales tapes submitted prior to Stelco's

December 2, 1997, submission.

Stelco urges the Department to accept Stelco's verified

information, insisting that petitioners are incorrect in alleging that

Stelco's December 2, 1997, sales tapes contain last-minute revisions.

Stelco states that respondents in an investigation are permitted by

long-standing Department policy to present corrections to their

response found when preparing for verification. In supporting its

allegation, Stelco cites section 351.301(b)(1) of the Department's

regulations. In addition, respondent asserts that it presented its list

of corrections at the outset of verification, and that the corrections

were minor. See Stelco Sales Verification Report at 1.

Department Position

We agree with Stelco that it is appropriate to use its revised

sales listings for purposes of this final determination. The

Department's practice is to permit respondents to submit minor

corrections to their submitted sales data prior to verification for use

in the final determination. See e.g., Certain Cut-to-Lengths Carbon

Steel Plate from the People's Republic of China, 62 FR 61996 (November

20, 1997). At the outset of its verification, Stelco presented a list

of corrections it found while preparing for verification. The

Department's review of the corrections during the course of the

verification indicates that they were caused by oversight or clerical

error on the part of Stelco. See Stelco's Sales Verification Report at

1. In addition, as a result of corrections found at the beginning of

verification, the Department instructed Stelco to revise its sales

listings. In previous cases, the Department has accepted such

corrections for the final determination. Therefore, the Department

disagrees with petitioners' request to reject Stelco's December 2,

1997, sales tapes due to minor errors which allegedly affected a host

of inputs to U.S. price and normal value and believes that Stelco's

latest submission of sales data is the most appropriate version for the

final margin calculations.

Suspension of Liquidation

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

Customs Service to continue to suspend liquidation of all entries of

steel wire rod from Canada, that are entered, or withdrawn from

warehouse, for consumption on or after the date of publication of this

notice in the Federal Register. The Customs Service will require a cash

deposit or posting of a bond equal to the estimated duty margins by

which the normal value exceeds the USP, as shown below. These

suspension of liquidation instructions will remain in effect until

further notice. The weighted-average dumping margins are as follows:

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

Weight-

average

Manufacturer/producer/exporter margin

percentage

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

Ispat-Sidbec Inc........................................... 11.94

Ivaco, Inc................................................. 11.47

Stelco, Inc................................................ 0.91

All Others Rate............................................ 11.62

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

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

ITC of our determination. As our final determination is affirmative,

the ITC will determine, within 45 days, whether these imports are

causing material injury, or threat of material injury, to an industry

in the United States. If the ITC determines that material injury, or

threat of material injury, does not exist, the proceedings will be

terminated and all securities posted will be refunded or canceled. If

the ITC determines that such injury does exist, the Department will

issue antidumping duty orders directing Customs officials to assess

antidumping duties on all imports of the subject merchandise entered,

or withdrawn from warehouse, for consumption on or after the effective

date of the suspension of liquidation.

This determination is published pursuant to section 735(d) of the

Act.

Dated: February 13, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-4700 Filed 2-23-98; 8:45 am]

BILLING CODE 3510-DS-P