Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Japan

DEPARTMENT OF COMMERCE

International Trade Administration

[A-588-846]

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

Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Japan

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: May 6, 1999.

FOR FURTHER INFORMATION CONTACT: Nithya Nagarajan, John Totaro, LaVonne

Jackson, or Keir Whitson, Import Administration, International Trade

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

Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-

4243, (202) 482-1374, (202) 482-0961, and (202) 482-1394, respectively.

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department's

regulations are to the regulations at 19 C.F.R. part 351 (1998).

Final Determination

We determine that hot-rolled, flat-rolled, carbon-quality steel

products (``hot-rolled steel'') from Japan is being sold in the United

States at less than fair value (``LTFV''), as provided in Section 735

of the Act. The estimated margins are shown in the ``Continuation of

Suspension of Liquidation'' section of this notice.

Case History

Since the Preliminary Determination (see Notice of Preliminary

Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled

Carbon-Quality Steel Products from Japan, 64 FR 8291 (Feb. 19, 1999))

(``Preliminary Determination''), the following events have occurred:

During February and March 1999, respondents Nippon Steel

Corporation (``NSC''), NKK Corporation (``NKK'') and Kawasaki Steel

Corporation (``KSC'') submitted responses to the sales and cost

supplemental questionnaires issued by the Department. On February 12,

1999, February 25, 1999, and March 3, 1999, petitioners submitted

comments regarding the issue of date of sale and the Department's Japan

sales and cost verifications. On February 19, 1999, NKK filed an

allegation of clerical error and requested the Department to issue an

amended preliminary determination. On March 1, 1999, NSC submitted pre-

verification changes and new factual information presumably discovered

while preparing for the sales verification in Japan. On March 4, 1999,

KSC submitted corrections presumably discovered while preparing for

sales verification. Similarly, on March 4, 1999, NKK submitted pre-

verification changes and new factual information

[[Page 24330]]

presumably discovered while preparing for sales verification.

During February and March 1999, we conducted sales and cost

verifications of NSC's, NKK's and KSC's responses to the antidumping

questionnaire. On March 26, 1999, we issued our sales and cost

verification reports for all three responding companies. Petitioners

and respondents submitted case briefs on April 12, 1999, and rebuttal

briefs on April 19, 1999. On April 21, 1999, the Department held a

public hearing. In addition, on April 12, 1999, General Motors

Corporation (``GM'') requested a scope exclusion for hot-rolled carbon

steel that both meets the standards of SAE J2329 Grade 2 and is of a

gauge thinner than 2 mm with a 2.5 percent maximum tolerance. On April

22, 1999, the petitioners requested that certain ASTM A570-50 grade

steel be excluded from the investigation. For a more detailed

discussion of scope issue, please see Scope Amendments Memorandum,

dated April 28, 1999.

Scope of Investigation

For purposes of this investigation, the products covered are

certain hot-rolled flat-rolled carbon-quality steel products of a

rectangular shape, of a width of 0.5 inch or greater, neither clad,

plated, nor coated with metal and whether or not painted, varnished, or

coated with plastics or other non-metallic substances, in coils

(whether or not in successively superimposed layers) regardless of

thickness, and in straight lengths, of a thickness less than 4.75 mm

and of a width measuring at least 10 times the thickness. Universal

mill plate (i.e., flat-rolled products rolled on four faces or in a

closed box pass, of a width exceeding 150 mm but not exceeding 1250 mm

and of a thickness of not less than 4 mm, not in coils and without

patterns in relief) of a thickness not less than 4.0 mm is not included

within the scope of these investigations.

Specifically included in this scope are vacuum degassed, fully

stabilized (commonly referred to as interstitial-free (``IF'')) steels,

high strength low alloy (``HSLA'') steels, and the substrate for motor

lamination steels. IF steels are recognized as low carbon steels with

micro-alloying levels of elements such as titanium and/or niobium added

to stabilize carbon and nitrogen elements. HSLA steels are recognized

as steels with micro-alloying levels of elements such as chromium,

copper, niobium, titanium, vanadium, and molybdenum. The substrate for

motor lamination steels contains micro-alloying levels of elements such

as silicon and aluminum.

Steel products to be included in the scope of this investigation,

regardless of HTSUS definitions, are products in which: (1) iron

predominates, by weight, over each of the other contained elements; (2)

the carbon content is 2 percent or less, by weight; and (3) none of the

elements listed below exceeds the quantity, by weight, respectively

indicated:

1.80 percent of manganese, or

1.50 percent of silicon, or

1.00 percent of copper, or

0.50 percent of aluminum, or

1.25 percent of chromium, or

0.30 percent of cobalt, or

0.40 percent of lead, or

1.25 percent of nickel, or

0.30 percent of tungsten, or

0.012 percent of boron, or

0.10 percent of molybdenum, or

0.10 percent of niobium, or

0.41 percent of titanium, or

0.15 percent of vanadium, or

0.15 percent of zirconium.

All products that meet the physical and chemical description provided

above are within the scope of this investigation unless otherwise

excluded. The following products, by way of example, are outside and/or

specifically excluded from the scope of this investigation:

Alloy hot-rolled steel products in which at least one of

the chemical elements exceeds those listed above (including e.g., ASTM

specifications A543, A387, A514, A517, and A506).

SAE/AISI grades of series 2300 and higher.

Ball bearing steels, as defined in the HTSUS.

Tool steels, as defined in the HTSUS.

Silico-manganese (as defined in the HTSUS) or silicon

electrical steel with a silicon level exceeding 1.50 percent.

ASTM specifications A710 and A736.

USS Abrasion-resistant steels (USS AR 400, USS AR 500).

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni

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

0.10-0.14%....................... 0.90% Max............ 0.025% Max........... 0.005% Max........... 0.30-0.50%........... 0.50-0.70%........... 0.20-0.40%.......... 0.20% Max.

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

Width = 44.80 inches maximum; Thickness = 0.063-0.198 inches;

Yield Strength = 50,000 ksi minimum; Tensile Strength =

70,000-88,000 psi.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni Mo

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

0.10-0.16%..................... 0.70-0.90%......... 0.025% Max........ 0.006% Max........ 0.30-0.50%........ 0.50-0.70%........ 0.25% Max......... 0.20% Max......... 0.21% Max

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

Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;

Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi

Aim.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni V(wt.) Cb

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

010.10-0.14%................... 11.30-1.80%..... 10.025% Max..... 1.005% Max...... 10.30-0.50%..... 10.50-0.70%..... 10.20-0.40%..... 10.20% Max...... 010.10 Max...... 0.08% Max

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

Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;

Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi

Aim.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

[[Page 24331]]

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

C Mn P S Si Cr Cu Ni Nb Ca Al

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

0.15% Max..................... 1.40% Max...... 0.025% Max..... 0.010% Max.... 0.50% Max..... 1.00% Max..... 0.50% Max..... 0.20% Max..... 0.005% Min.... Treated....... 0.01-0.07%

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

Width = 39.37 inches; Thickness = 0.181 inches maximum; Yield

Strength = 70,000 psi minimum for thicknesses 0.148 inches

and 65,000 psi minimum for thicknesses >0.148 inches; Tensile Strength

= 80,000 psi minimum.

Hot-rolled dual phase steel, phase-hardened, primarily

with a ferritic-martensitic microstructure, contains 0.9 percent up to

and including 1.5 percent silicon by weight, further characterized by

either (i) tensile strength between 540 N/mm 2 and 640 N/mm

2 and an elongation percentage 26 percent for

thicknesses of 2 mm and above, or (ii) a tensile strength between 590

N/mm 2 and 690 N/mm 2 and an elongation

percentage 25 percent for thicknesses of 2mm and above.

Hot-rolled bearing quality steel, SAE grade 1050, in

coils, with an inclusion rating of 1.0 maximum per ASTM E 45, Method A,

with excellent surface quality and chemistry restrictions as follows:

0.012 percent maximum phosphorus, 0.015 percent maximum sulfur, and

0.20 percent maximum residuals including 0.15 percent maximum chromium.

Grade ASTM A570-50 hot-rolled steel sheet in coils or cut

lengths, width of 74 inches (nominal, within ASTM tolerances),

thickness of 11 gauge (0.119 inch nominal), mill edge and skin passed,

with a minimum copper content of 0.20%.

The merchandise subject to these investigations is classified in

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

subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00,

7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60,

7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60,

7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30,

7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90,

7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00,

7208.90.00.00, 7210.70.30.00, 7210.90.90.00, 7211.14.00.30,

7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00,

7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60,

7211.19.75.90, 7212.40.10.00, 7212.40.50.00, 7212.50.00.00. Certain

hot-rolled flat-rolled carbon-quality steel covered by this

investigation, including: vacuum degassed, fully stabilized; high

strength low alloy; and the substrate for motor lamination steel may

also enter under the following tariff numbers: 7225.11.00.00,

7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00,

7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60,

7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00,

7226.91.80.00, and 7226.99.00.00. Although the HTSUS subheadings are

provided for convenience and Customs purposes, the written description

of the merchandise under investigation is dispositive.

Period of Investigation

The period of investigation (``POI'') is July 1, 1997 through June

30, 1998.

Product Comparisons

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

produced by the respondents covered by the description in the Scope of

Investigation section, above, and sold in Japan during the POI are

considered to be foreign like products for purposes of determining

appropriate product comparisons to U.S. sales. We have relied on eleven

characteristics to match U.S. sales of subject merchandise to

comparison market sales of the foreign like product: paint, quality,

carbon content, strength, thickness, width, coiled or non-coiled,

temper rolling, pickling, edge trim, and patterns. These

characteristics have been weighted by the Department where appropriate.

Where there were no sales of identical merchandise in the home market

to compare to U.S. sales, we compared U.S. sales to the next most

similar foreign like product on the basis of the characteristics listed

in the antidumping questionnaire and reporting instructions.

Changes From the Department's Preliminary Determination

The Department, upon review of the preliminary margin calculation

program, found that there were errors associated with the calculation

of the difference in merchandise adjustment (DIFMER) in NKK's model

match program. The program that we used, failed to calculate the DIFMER

adjustment associated with the matching home market CONNUM. Instead,

the DIFMER calculation selected in the concordance program was chosen

from the last comparison, resulting in the application of an incorrect

DIFMER adjustment. For a complete discussion, please see the

Department's Final Determination Analysis Memo, dated April 28, 1999.

Second, the Department disallowed KSC's home market technical

service expenses because these expenses could not be verified. However,

we continue to adjust for U.S. technical service expenses. See KSC Home

Market Verification Report, dated March 26, 1999; see also KSC Final

Analysis Memo, dated April 28, 1999.

Third, the Department corrected the model match and margin programs

for all three companies in calculating packing costs for use in the

cost test and constructed value. In the Preliminary Determination, the

Department inadvertently used a sale specific packing cost for use in

the calculation of general and administrative (``G&A'') expenses and

interest expenses in both the cost test and constructed value analysis.

For the final determination, the Department has revised this section of

the program to calculate a weighted-average packing cost per CONNUM for

use in these calculations. For a more complete analysis, please see the

Final Determination Analysis Memo, dated April 28, 1999, for all three

responding companies.

Interested Party Comments

Home Market and U.S. Sales

Comment 1: Date of Sale.

NKK

NKK states that the Department should reaffirm its preliminary

finding that the invoice date/shipment date is the most appropriate

date of sale for NKK. NKK argues that the material terms of sale were

not finalized until after shipment for the majority of its U.S. and

home market sales as supported by documentation provided during

verification. In addition, NKK argues that the Department's regulations

and other determinations dictate the use of date of invoice as the date

of sale.

NKK argues that its demonstrated sales process clearly indicates

that the invoice date/shipment date best reflects the date on which the

final material terms of sale were finalized during the period of

investigation, and that material terms of sale, i.e. price and

quantity, often changed after the order confirmation date. NKK argues

that the

[[Page 24332]]

Department verified that a significant portion of home market and U.S.

sales had significant changes to price and/or quantity during the POI,

and therefore the invoice/shipment date is the most appropriate date of

sale for NKK's sales of subject merchandise.

Secondly, NKK argues that the Department's regulations indicate a

preference for the use of date of invoice as the date of sale where

changes from the original order occur on a frequent basis. NKK states

that the Department established a presumption that material terms would

be considered established on the invoice date after adopting

Sec. 351.401(i) of its regulations. NKK also argues that the

presumption in favor of invoice date is supported by the language in

the preamble to the regulations and that an alternative date of sale

will be used only when there is evidence satisfying the Department that

the different date better reflects the date on which the exporter or

producer establishes the material terms of sale. NKK argues that the

regulations therefore place the burden of proof on the party claiming

that another date is more appropriate, and that this burden of proof

has not been satisfied by record evidence. Rather, the record supports

the finding that the material terms of sale are set on the date of

shipment/invoice; thus, that date is the most appropriate date of sale.

Petitioners argue that the Department may use a date of sale other

than invoice date if it determines that an alternative date more

accurately reflects the date on which the material terms of sale are

established. Petitioners argue that the documents and information

obtained at NKK's verification support the conclusion that the

essential terms of sale are set on the order confirmation date and

therefore the order confirmation is the appropriate date of sale for

this investigation.

Petitioners contend that NKK manufactures product to order and that

the principal terms of sale are set at the point the customer places

the order. Further, they argue that although the Department examined

numerous transactions at verification, the data show that only a

minuscule portion of sales had changes to material terms (i.e., price

terms). Petitioners argue that, for the majority of sales, price terms

did not change between order confirmation date and invoice/shipment

date, and that, in instances where changes did occur, they were

accounted for after the invoice was issued. Petitioners contend that

changes to price terms which occur after invoicing are not an

appropriate adjustment for consideration in the Department's date of

sale analysis. Petitioners further argue that, in the majority of sales

reviewed at verification, the quantities shipped were within shipping

tolerances and should therefore not be considered in the date of sale

analysis. Because sales where the quantity shipped was outside the

applicable delivery tolerances occurred only in a small number of

verified transactions, the order confirmation date is the appropriate

date of sale. Petitioners further argue that, in Certain Corrosion-

Resistant Carbon Steel Flat Products from Japan: Final Results of

Antidumping Duty Administrative Review (``Certain Corrosion-Resistant

Carbon Steel From Japan''), 64 FR 12951, 12956-12957 (Mar.16, 1999),

the Department used the order confirmation date as the date of sale

under similar factual circumstances. Finally, petitioners argue that

the Department should use facts available due to the fact that NKK did

not report a separate database of sales based on order confirmation

date. According to petitioners, the Department requested NKK to provide

this information in both its original questionnaire as well as its

supplemental questionnaire, and NKK refused to provide the requested

information. Therefore, since the record evidence indicates that order

confirmation date is the most appropriate date of sale, the Department

should assign the highest dumping margin, or the highest rate in the

petition as facts available.

NKK rebuts petitioners' arguments that order confirmation date is

the date of sale. NKK argues that petitioners are incorrect in arguing

that only a few transactions were reviewed at verification for the

Department's date of sale analysis. NKK argues that the Department

reviewed a large sample of sales and found that over fifty percent of

these transactions had changes to material terms. See NKK Sales

Verification Report, dated March 26, 1999, at 14. NKK argues that,

contrary to petitioners' assertion, the frequency of changes for both

price and quantity terms is sufficiently large to justify using invoice

date as the date of sale. Secondly, NKK argues that petitioners'

contention that post-shipment price changes are irrelevant to the date

of sale analysis is incorrect. Citing Diameter Circular Seamless Carbon

and Alloy Steel Standard Line and Pressure Pipe from German: Final

Results of Antidumping Duty Administrative Review, 63 FR 13217 (March

18, 1998), NKK argues that the Department stated that it will use

shipment date as a proxy date for sales invoice after shipment, not

that all post-shipment price changes are to be ignored in the date of

sale analysis. Third, NKK argues that the evidence on the record

demonstrates that the final price invoiced was not determined until

after shipment occurred and this differs from the price stated on the

order confirmation. Fourth, NKK contends that each of the cases cited

by petitioners in their argument can be distinguished from the facts in

the present case. NKK argues that, in each of these cases, the

Department used the order confirmation date because there were no

changes to the terms of sale after the order date, whereas in the

instant case, NKK has proven and the Department has verified that

material terms are not final at order confirmation and that material

terms changed frequently. These facts, according to NKK, support the

conclusion that shipment/invoice date is the appropriate date of sale.

Finally, NKK argues that it is inappropriate to apply adverse facts

available to NKK. NKK contends that the Department gave NKK the choice

as to whether to provide a single sales database using invoice date as

the date of sale or to provide both invoice date and order confirmation

date databases. NKK contends that it chose to provide a single database

and has subsequently proven, through record evidence, that invoice date

is the appropriate date of sale. Thus, there is no basis to use facts

available.

Petitioners rebut NKK's argument that invoice date is the date on

which material terms of sale are set and should be the date of sale.

Petitioners reiterate their argument that only a small percentage of

home market and U.S. sales had changes to material terms after the

order confirmation date. Petitioners continue to argue that changes

made after shipment are not an appropriate basis for the Department's

date of sale analysis. Petitioners contend that the Department's

verification demonstrates that only a few sales had changes to material

terms, and state that this confirms that order confirmation date is the

appropriate date of sale. Petitioners further contend that, because NKK

failed to provide sales databases using order confirmation date as the

date of sale, the Department should apply adverse facts available.

According to petitioners, NKK did not report all sales where the order

was confirmed within the POI, therefore the necessary sales are not on

the record. Because NKK failed to report these sales, there is

justification for the Department to reject NKK's response and apply

facts available.

[[Page 24333]]

NSC

NSC argues that the Department should follow its preliminary

determination and continue using the date of shipment as the date of

sale. NSC argues that the Department verified that the essential terms

of sale changed between the initial order and shipment date for a

significant portion of home market and U.S. sales. NSC used the date of

shipment as a proxy for the date of invoice because the shipment date

falls within a short time of the invoice date.

NSC argues that the Department's regulations mandate the use of

date of invoice as the date of sale, and that there is a rebuttable

presumption that the appropriate date of sale is the invoice date. NSC

argues that the presumption can only be overcome by compelling evidence

on the record. NSC states that the essential terms of sale for its

sales of subject merchandise are not finally established until, and

sometimes after, shipment, and that this supports the presumption in

favor of invoice date. NSC argues that there is a high standard to be

met to overcome this presumption, and that record evidence on the

frequency of changes and the potential for change to the essential

terms after the initial order support the finding that invoice date is

the appropriate date of sale.

NSC argues that the Department verified that material terms of sale

changed after the initial order was placed in a significant portion of

the sales examined. In addition, respondent argues that the Department

verified that, in the Japanese hot-rolled steel industry, terms of sale

are not established until the material is shipped to the purchaser.

Based on these reasons, NSC argues that the date of shipment/invoice is

the most appropriate date of sale as supported by the preference stated

in the Department's regulations and record evidence and we should

continue using the date of shipment as the date of sale for the final

determination.

Petitioners argue that the Department may use a date of sale other

than invoice date if it determines that an alternative date more

accurately reflects the date on which the material terms of sale are

established. Petitioners argue that the documents and information

obtained at NSC's verification support the conclusion that the

essential terms of sale are set on the order confirmation date and

therefore the order confirmation is the appropriate date of sale for

this investigation. In sum, petitioners argue that there was not a

significant portion of sales for which material terms of sale changed,

and that as a result the most appropriate date of sale is the date of

order confirmation.

Petitioners argue that NSC only produces merchandise after the

customer places the order and that the critical step in determining the

material terms of sale is the issuance of the order confirmation.

Petitioners further argue that the evidence examined at verification

supports the conclusion that only modifications that occur between

order confirmation and shipment are relevant to the date of sale

analysis, and that modifications which occur after shipment are not

relevant to the date of sale because the Department does not examine

any date after the date of shipment as a possible date of sale.

Petitioners contend that the data examined at verification indicate

that only a small portion of home market and U.S. sales have changes to

either price or quantity between order confirmation and shipment.

Further, they contend that the analysis presented by NSC at

verification was incorrect. Petitioners argue that their examination of

the record shows that the sales traces examined indicated changes after

the date of shipment and are therefore inappropriate to use as a basis

for examining the most appropriate date of sale. In sum, the

petitioners argue that NSC's claimed date of sale is not supported by

record evidence and the Department should use the order confirmation

date as the date of sale, as it did in Certain Corrosion-Resistant

Carbon Steel Products from Japan 64 FR at 12956-57.

Petitioners argue that, should the Department choose to use date of

invoice as the date of sale, it should employ a transaction-specific

date of sale analysis, isolate those individual transactions for which

material terms did not change, and use the order confirmation date as

the date of sale for such transactions. In cases where terms of sale

did change, the Department could use the date of shipment/invoice as

the date of sale.

Petitioners rebut NSC's argument that date of shipment/invoice is

the appropriate date of sale. Petitioners argue that the information on

the record does not support the conclusion that a significant number of

NSC's home market and U.S. sales had changes to material terms after

shipment occurred. In fact, petitioners contend that only a small

minority of reviewed transactions had changes to material terms

sufficient to justify the determination that shipment/invoice date is

the appropriate date of sale. In addition, petitioners state that NSC's

argument that there are compelling facts on the record to warrant the

use of shipment/invoice date as the date of sale creates a new standard

unsupported by statutory or case precedent. Further, they claim that

the argument that there is a potential for change should also be

disregarded as it is based on a misunderstanding of the Department's

regulations. Rather, they contend that it would be unreasonable to use

invoice date as the date of sale merely because there is a hypothetical

potential for post-order modifications. Petitioners conclude that,

based on the facts and evidence on the record, the Department should

use the order confirmation date or the date of the revised order

confirmation as the date of sale.

NSC rebuts petitioners' arguments that order confirmation date is

the most appropriate date of sale by reiterating its initial arguments

on this topic. In addition, NSC contends that petitioners' analysis of

the information on the record is wrong both in fact and in law. NSC

argues that petitioners have misread how NSC reports its price

adjustments after shipment and how NSC's documents reflect order

modifications. NSC rebuts each of petitioners' points using proprietary

information which is incapable of adequate public summary. NSC argues

that petitioners' claims that order modification is the correct date

because changes in the orders prior to shipment are reflected in the

order modification and that changes after shipment cannot be considered

are wrong. According to NSC, the Department may consider potential for

changes both pre- and post-shipment in conducting its date of sale

analysis. In fact, NSC argues, the Department's questionnaire instructs

them to report the unit price recorded on the invoice for sales shipped

and invoiced in whole or in part, which is what NSC reported to the

Department.

NSC argues that the Department's regulations create a presumption

in favor of date of invoice as the date of sale, a presumption which

the petitioners have not overcome through record evidence. NSC argues

once again that the significance of potential for change has been

supported by Department precedent. Thus, the Department has concluded

that simply because the essential terms of sale did not change after

the initial contract date, this does not demonstrate that essential

terms of sale were not subject to change after this date. See Certain

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

Korea: Final Results of Antidumping Duty Administrative Reviews

(``Carbon Steel Flat Products from Korea''), 64 FR 12927, 12935 (March

16, 1999). NSC concludes, that because the terms of NSC's sales of

[[Page 24334]]

subject merchandise remain subject to change throughout the sales

process, petitioners cannot overcome the presumption in favor of

invoice date. Finally, NSC argues that the Department verified that 36

percent of its sales during the POI were in fact modified after the

order confirmation was issued. The mere fact that hot-rolled steel

products are made-to-order is not conclusive evidence that the parties

engage in formal negotiating and contracting procedures that would

result in terms of sale which are finally and irrevocably established

at the beginning of the sales process. NSC argues that hot-rolled steel

is a commodity product that is not sold through a formal negotiation

and contracting process. Therefore, petitioners' argument that hot-

rolled product is made to order is irrelevant to the date of sale

analysis. NSC argues that, based upon the evidence placed on the

record, the most appropriate date of sale is the shipment/invoice date.

KSC

Respondent argues that the Department's regulation establishes a

presumption that invoice date should be used as the date of sale.

Respondent also argues that the Department has consistently applied

this rule. Specifically, respondent cites Notice of Final Determination

of Sales at Less Than Fair Value: Stainless Steel Plate in Coils from

South Africa, 64 FR 15459, 15465 (March, 31, 1999) as evidence that the

Department reaffirmed its practice of using the invoice date as the

proper date of sale when material terms of sale can change between

order and invoice date, even if the changes are not frequent, and the

reporting company uses invoice date in its internal records.

Furthermore, KSC asserts that the Department has stated that its

preference for invoice date is based on two policy rationales. First,

the date on which the terms of sales are normally established is the

invoice date. Second, the Department intends that the reporting and

verification of information be simplified, resulting in predictable

outcomes as well as the efficient use of resources. Additionally,

respondent asserts that the Department will use invoice date as the

date of sale unless the material terms of sale, as evidence by the

record, are established on a different date.

Respondent argues that material changes to the terms of sale,

affecting price or quantity, may and do occur between KSC's order

confirmation and invoice. As a result, the terms of sale become fixed

and finalized on the shipment/invoice date. In certain instances within

the home market, price changes may occur even after invoicing.

Respondent believes that the frequency of material changes between

order confirmation and invoice, as seen during verification, proves

that the invoice date should be used as KSC's date of sale because the

terms of sale are final only at invoicing (even though the price may

change afterward in the home market).

Respondent also argues that invoice date is the date of sale for

KSC because, in accordance with the Department's regulations which

provide that the date of sales is to be based upon data maintained by

the respondent in the ordinary course of business, the books and

records of KSC, Kawasho Corporation (``Kawasho'') and Kawasho

International USA, Inc. (``Kawasho International'') are based on

invoice data. Additionally, using the invoice date as the date of sale

results in an efficient use of resources by simplifying reporting and

the verification of information. Finally, respondent states that by

using the invoice date, the Department allows for predictability in its

proceedings.

Petitioners did not comment on KSC's date of sale argument.

Department's Position: We agree with all three respondents (NSC,

NKK and KSC) that invoice/shipment date is the correct date of sale for

all home market and U.S. sales of subject merchandise for each of the

responding companies.

Under our current practice, as codified in the Department's Final

Regulations at Sec. 351.401(i), in identifying the date of sale of the

subject merchandise, the Department will normally use the date of

invoice, as recorded in the producer's records kept in the ordinary

course of business. See Certain Welded Carbon Steel Pipes and Tubes

from Thailand: Final Results of Administrative Review, 63 FR 55578,

55587 (1998) (``Pipes and Tubes from Thailand''). However, in some

instances, it may not be appropriate to rely on the date of invoice as

the date of sale, because the evidence may indicate that the material

terms of sale were established on some date other than invoice date.

See Preamble to the Department's Final Regulations at 19 CFR Part 351

(``Preamble''), 62 FR 27296 (1997). Thus, despite the general

presumption that the invoice date constitutes the date of sale, the

Department may determine that this is not an appropriate date of sale

where the evidence of the respondent's selling practice points to a

different date on which the material terms of sale were set.

In this investigation, in response to the original questionnaire,

NSC and NKK reported invoice/shipment date as the date of sale in both

the U.S. and home markets. KSC reported order confirmation date as the

date of sale based on the belief that that is what the Department

wanted. However, KSC also provided sales databases using invoice/

shipment date as the date of sale, and continued to argue that this

would be a more appropriate date of sale. To ascertain whether NSC, NKK

and KSC accurately reported the date of sale, the Department included

in its January 4, 1999 supplemental questionnaire a request for

additional information regarding changes in terms of sale subsequent to

order date. In its January 25, 1999 response, NSC, NKK and KSC

indicated that there were numerous instances in which terms such as

price and quantity changed subsequent to the confirmation of the

original orders in the U.S. and home markets. NSC, NKK and KSC cited

specific figures for each type of change. For purposes of our

Preliminary Determination, we accepted the date of invoice as the date

of sale subject to verification. See Preliminary Determination, 64 FR

at 8294.

At verification, we carefully examined NSC's, NKK's and KSC's

selling practices. We found that each company records sales in its

financial records by date of invoice/shipment. For the home market, we

reviewed several sales observations for which the price and quantity

changed subsequent to the original order (see Home Market Verification

Reports, dated March 26, 1999 for the respective companies). For the

U.S. market, we reviewed several instances in which terms of sale

changed subsequent to the original order. Based on respondents'

representations, and as a result of our examination of each company's

selling records kept in the ordinary course of business, we are

satisfied that the date of invoice/shipment should be used as the date

of sale because it best reflects the date on which material terms of

sale were established for NSC's, NKK's and KSC's U.S. and home market

sales.

We disagree with the petitioners' claim that, since the terms do

not change after the order confirmation date, the order date (or the

final change order date) is the most appropriate date of sale for

NSC's, NKK's and KSC's U.S. and home market sales. The fact that terms

often changed subsequent to the original order, and even after an

initial order confirmation, suggests that these terms remained subject

to change (whether or not they did change with respect to individual

transactions) until as late as the invoice date. For sales that

[[Page 24335]]

we reviewed, we found this to be true for material terms of sale such

as price and quantity, including quantity changes outside of

established tolerances. The Department's decision in Certain Corrosion-

Resistant Carbon Steel Flat Products from Japan, 64 FR 12951, 12958

(Mar. 16, 1999) should, therefore, not be followed in this case. In

that case, the Department found that the material terms of sale were

established on the date of the final order confirmation and that there

were no material changes thereafter. As stated in the Federal Register

notice, the Department in that case found that there were no changes

between the final revised order confirmation and the shipment/invoice

date. In addition, in the Corrosion-Resistant Steel case, there was no

discussion on the possibility or frequency of changes between the

original order confirmation, any revised order confirmations, the

invoice, and changes subsequent to the invoice. The facts of the

instant case are distinguishable. In the instant case, pursuant to our

findings at verification, the Department determines that there are

changes between the original order confirmation date (i.e, the date of

sale proposed by petitioner), the invoice date (i.e., the date of sale

proposed by respondents), and in certain instances changes which occur

after the invoice date for a significant number of individual

transactions. Each of these facts distinguishes the factual record in

the current case from the Department's decision in the Corrosion-

Resistant Steel case. Therefore, pursuant to our findings at

verification, we have determined that invoice date is the appropriate

date of sale for NSC's, NKK's and KSC's sales, as it most accurately

represents the date on which the material terms of sale are

established.

In addition, the Department has also examined the time lags between

order date and invoice date to determine whether it was appropriate to

use order date as the date of sale dates. See Circular Welded Non-Alloy

Steel Pipe from the Republic of Korea; Final Results of Antidumping

Duty Administrative Review (``Steel Pipe from Korea''), 63 FR 32833,

32835 (June 16, 1998). However, it is important to note that, in Steel

Pipe from Korea, the Department found that ``{t}he material terms of

sale in the United States are set on the contract date and any

subsequent changes are usually immaterial in nature or, if material,

rarely occur.'' Id., 63 FR at 32836. In contrast, NSC, NKK and KSC each

reported that there were numerous instances of changes in terms of sale

between the initial order date, and the shipment/invoice date.

Therefore, invoice date is the most appropriate date of sale,

notwithstanding some time lag between order confirmation and invoice.

As noted above, we observed a significant number of such instances at

verification where changes did occur between order confirmation and

invoice.

We also disagree with petitioners' assertion that NSC's, NKK's and

KSC's reported sales information was inaccurate and incomplete. During

the course of sales verifications, the Department requested specific

documentation from each of the responding companies in support of its

claim that the date of invoice should be used as the date of sale. NSC,

NKK and KSC complied with the verifiers' request for sales trace

documentation, and the Department utilized the purchase order, order

confirmation and invoice information provided by each company as part

of the basis for its decision on this issue. At verification, the

Department also clarified which quantity changes were and were not

within tolerance, and used this information in conducting its date of

sale analysis.

Finally, we have not accepted petitioners' suggestion that the

Department should use a transaction-specific date of sale methodology.

While this may be appropriate for products involving only a handful of

sales within the period of investigation or review, such an approach

would impose a very substantial undue burden on both respondents and

the Department in terms of reporting and verification. As explained in

the Preamble to the Department's regulations, the use of a single date

of sale for each respondent makes more efficient use of the

Department's resources and enhances the predictability of outcomes. See

62 FR at 27348.

Comment 2: Preliminary Determination of Critical Circumstances.

NKK

NKK argues that the Department's preliminary finding of critical

circumstances is not supported by the facts on the record. First, NKK

states, there is no history of dumping with respect to this product;

thus, the Department must find ``knowledge of dumping'' in order to

find critical circumstances. In this respect, NKK states, the

Department normally relies on company-specific margins of over 25

percent to impute knowledge of dumping. NKK claims that its final

margin, if adjusted for the alleged clerical error, will not exceed 25

percent and will therefore not meet the first statutory criterion for

finding critical circumstances. NKK argues that although the Department

relied on margins alleged in the petition in its preliminary critical

circumstances finding, there is no basis for not using company-specific

margins in the final critical circumstances determination.

Second, NKK argues that its shipments were not massive during the

three months immediately preceding and the three months immediately

following the filing of the petition. NKK argues that the Department's

longstanding practice is to compare the volume of shipments during the

three months preceding the filing of the petition with the volume of

shipments in a comparable period following the filing of the petition.

The Department deviated from this practice in its preliminary

determination as to critical circumstances, comparing instead the

December 1997-April 1998 period to the May 1998-September 1998 time

period. NKK argues that there is no basis for the use of this time

period to support a finding of critical circumstances, and that the

evidence on the record does not support a finding that there were

massive imports of NKK merchandise during the appropriate comparison

period. In addition, NKK argues that the Department's conclusions with

respect to importer knowledge of dumping based on press reports and

rumors about the possibility of antidumping cases were contradicted by

price increases during the same time period. Respondent argues that the

Department's reliance on vague news articles and press reports placed

on the record prior to the preliminary determination as to critical

circumstances was misplaced because these sources did not clearly

indicate that it was likely that the domestic industry would file

antidumping cases against hot-rolled steel from Japan. NKK concludes

that, due to the serious economic consequences a finding of critical

circumstances could involve for itself and its customers, the

Department should utilize company-specific import data for its final

critical circumstances determination. If it does so, NKK claims, it

must make a negative finding, because the ``massive shipments''

criterion has not been satisfied.

Petitioners rebut NKK's argument that the Department's preliminary

determination of critical circumstances is not supported by the

information on the record. Petitioners contend that NKK's argument for

use of company-specific shipment data is contrary to the Department's

regulations. According to petitioners, the Department must

[[Page 24336]]

examine imports into the United States as opposed to shipments, which

may or may not correlate to imports during the relevant period.

Secondly, petitioners argue that, if the Department were to use

shipment data, this information would still not be an accurate basis

for analysis as this would be company-specific data, whereas the

analysis should focus on total imports from Japan. Because NKK has not

cited any authority for its statement that the Department should make a

company-specific critical circumstances finding, the Department should

affirm its preliminary finding by using total imports from Japan as the

basis for its critical circumstances determination. Finally,

petitioners argue that NKK and other respondents knew that an

antidumping investigation was likely, based upon the articles in the

press placed on the record. Thus, petitioners argue, the Department

should continue to disregard respondents' argument to the contrary and

base its decision on record evidence.

NSC

NSC argues that the statute requires that the Department, if it is

finding critical circumstances, must first either find a history of

dumping, or impute knowledge of dumping and of material injury by

reason of dumped sales. NSC argues that the Department's preliminary

finding of critical circumstances was based on inflated margins and was

contrary to law. NSC argues that the Department's final determination

as to critical circumstances must be supported by evidence on the

record.

First, NSC argues that the Department's reliance on allegations

from the petition and the use of these allegations to make a

preliminary finding of critical circumstances were unacceptable

precedent. NSC states that mere allegations in the petition do not

provide sufficient support for the Department to impute knowledge based

on the magnitude of dumping margins and injury. NSC argues that the

statute requires that the Department conduct a factual investigation

and determine that there is a reasonable basis to believe or suspect

that products are being dumped before making a finding of critical

circumstances. In conducting this analysis, respondent argues, the

Department has never before relied merely on petition allegations to

form a reasonable belief concerning critical circumstances. Because the

Department's preliminary determination was based on alleged and

unsupported information from the petition, it cannot withstand

scrutiny. Therefore, NSC argues, the Department should not find

critical circumstances in the final determination.

Second, NSC argues that the Department's preliminary determination

of sales at less than fair value was based on adverse inferences with

no basis in either fact or law. Specifically, NSC argues that the use

of facts available for NSC's home market freight cost and U.S.

theoretical weight sales was not supported by record evidence. NSC

argues that the Department cannot rely on margins based on improper

adverse inferences in imputing knowledge for purposes of its final

determination as to critical circumstances.

In rebuttal, petitioners argue that the Department's Policy

Bulletin dated October 7, 1998 governs the decision reached by the

Department. Petitioners note that NSC is incorrect in its assertion

that the Department has unlawfully taken a substantive action adverse

to it based solely on the information contained in the petition. They

note that, under Article 5.3 of the World Trade Organization's

(``WTO'') Agreement on Antidumping the Department must examine the

adequacy of the evidence presented in the petition and whether these

allegations are supported by evidence. Second, petitioners argue that

the Department should not rely on NSC's statutory construction

argument, because as NSC interprets the argument, the Department would

have to issue questionnaires, evaluate responses and calculate company-

specific margins prior to issuing a preliminary critical circumstances

determination. Petitioners contend that there is no legal basis for

this argument, because the requirements for a preliminary critical

circumstances finding are not the same as those for a preliminary

dumping determination. The fact remains, petitioners state, that the

primary factor reviewed for a critical circumstances finding is whether

there has been a massive increase in imports. Petitioners argue that

the existence of massive imports was known at the time the petition was

filed. They further argue that, based on this information, the statute

leaves it to the Department's discretion to decide what procedures it

will follow in determining whether there is reason to believe or

suspect that dumping is occurring.

KSC

KSC asserts that the Department's preliminary critical

circumstances determination contravened the statute. First, KSC argues

that the Department does not have the authority to use a time frame

other than the one based upon the date of filing of the petition to

determine whether or not there were massive imports. Further, the

articles relied upon by the Department to support the use of an

earlier-than-usual time frame do not support a conclusion that KSC had

reason to believe a case was being filed or likely to be filed. Second,

KSC claims that it did not have massive imports during the ``proper

time frame.'' Third, KSC claims that the Department violated its normal

practice when it relied upon country-specific, rather than company-

specific shipment data. Fourth, KSC argues that the Department's

preliminary critical circumstances finding should have been negative

because the ITC preliminarily determined that there was no present

material injury with respect to this product. KSC's arguments with

respect to each of these points is discussed in greater detail below.

KSC first argues that neither the statute nor the regulations grant

the Department authority to examine a shipment period unrelated to

either the filing of the petition or the preliminary determination in

measuring ``massive shipments'' for purposes of the critical

circumstances determination. According to the Department's regulations,

the determination of whether or not there has been a massive increase

in imports is normally made based on the period beginning on the date

the proceeding begins and ending at least three months later. See 19

CFR Sec. 351.216(h) and (i). KSC argues that the Department overstepped

its authority by using a time frame disconnected from the date of

filing of the petition. KSC further asserts that the use of any

comparison time other than period immediately following the filing of

the petition is unlawful because it contravenes the purpose of the

statutory provision, which (according to the legislative history) is to

deter the increase of exports ``during the period between initiation of

an investigation and a preliminary determination'' (H. Rep. No. 96-317

at 63 (1979). Thus, KSC argues, the proper comparison is between

shipments during the October-December 1998 period and shipments during

the July-September 1998 period. KSC also argues that the articles

relied upon by the Department to impute knowledge of dumping involve

mere speculation, do not specifically refer to hot-rolled steel, and

are not grounded in fact. KSC concludes that without a specific

allegation with respect to a proceeding against hot rolled steel from

Japan, the Department cannot attribute knowledge of a proceeding to KSC

in order to provide a basis for use of a

[[Page 24337]]

different time frame for its massive imports analysis.

Second, KSC argues that, based on company-specific data of record,

it did not have massive imports during the normal time frame provided

for in the regulations. Rather, its imports decreased, in both quantity

and value terms, during the post-petition October--December 1998

period, as compared to the pre-petition July-September 1998 period.

Therefore, KSC argues, the Department should reverse its preliminary

finding of critical circumstances.

Third, KSC argues that the Department unlawfully used country-

specific data rather than company-specific data in its preliminary

finding. KSC argues that the Department failed to request company-

specific import data until after the preliminary critical circumstances

determination, and the Department's failure to obtain this information

unfairly punished KSC by applying an adverse inference even though they

were cooperating. KSC argues that the Department must use the company-

specific shipment data submitted by KSC for its final determination.

Finally, KSC argues that the Department's preliminary critical

circumstances finding was unlawful because, given the ITC's preliminary

determination that there was no present material injury, the Department

could not reasonably impute knowledge of material injury, which is

necessary for a finding of critical circumstances under post-URAA law

when there is no history of dumping. KSC argues that a preliminary

critical circumstances determination cannot be made by the Department

unless the ITC determines that there was actual material injury. See

Preliminary Determination of Sales at Less Than Fair Value: Certain

Cut-to-Length Carbon Steel Plate from the Russian Federation, 62 FR

31967, 31971 (June 11, 1997). KSC states that the Department cannot

ignore the ITC injury finding. Thus, KSC argues that the Department

should make a negative critical circumstances finding in the final

determination.

Petitioners rebut each of KSC's four arguments regarding the

Department's preliminary determination of critical circumstances.

First, with respect to the Department's choice of a time frame for

measuring shipments, petitioners argue that, despite KSC's reference to

various legal authorities, the Statement of Administrative Action

(``SAA''), congressional reports, and Department documents, KSC does

not explain why the Department's regulation is at issue, or why the

Department's actions in this case are not consistent with the

authorities cited. Petitioners assert that the Department's action in

this case did, in fact, serve to deter an increase in imports during

the period following initiation.

Petitioners rebut criticism of the Department's reliance on

published articles for selecting an early time frame by pointing out

that, although KSC disputed the significance of certain articles

considered by the Department in its determination, the articles

discussed by KSC in its brief were, with one exception, published after

April 1998. Petitioners thus conclude that it is apparent that the

Department did not rely on these articles. Petitioners make two points

in this respect.

First, petitioners contend, one report included in an exhibit to

the petition is sufficient by itself to prove requisite knowledge by

KSC. Petitioners cite the report dated April 1998 by CRU Steel Monitor.

See Exhibit 3 of Petition for the Imposition of Antidumping Duties:

Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From

Japan, (September 30, 1998). Petitioners assert that this report,

respected within the industry worldwide, discusses concerns actually

expressed by Japanese producers.

Second, petitioners argue that, although it is true that the other

materials included as part of the petition did not refer specifically

to hot-rolled imports from Japan, it is equally true that certain of

these reports did refer specifically to the likelihood of antidumping

cases being filed against hot-rolled steel imports. Petitioners add

that although these reports mentioned Russia, the fact that, during

this period, Japan was the second largest hot-rolled import supplier to

the U.S. market makes it far-fetched to imagine that Japanese

producers, like KSC, would infer that cases would be brought against

Russia, the largest importer, but not Japan. Petitioners also contend

that KSC is aware that U.S. flat-rolled producers have filed a large

number of trade cases over the past two decades and those cases have

always been brought against multiple countries.

Petitioners contend that KSC's argument that the Department's use

of country-wide (rather than company-specific) import data for purposes

of its analysis is an unjustified departure from the Department's

normal practice is a moot point because, as KSC concedes, the company-

specific data submitted to the Department shows a massive increase in

imports by KSC during the period examined.

Finally, petitioners provide two reasons why, in their view, KSC's

assertion that the Department was precluded from finding critical

circumstances because the ITC did not preliminarily find present

material injury in it preliminary injury determination is incorrect.

First, petitioners argue that neither the statute nor its legislative

history indicates that the Department must find that there is no

material injury for purposes of such determination simply because the

ITC did not find present material injury. Second, the ITC may find

present material injury in its final determination even when it did not

make such a finding in its preliminary investigation. Petitioners point

out that the ITC, in its opinion, did not actually say that it did not

find a reasonable indication of present material injury. Instead, the

ITC avoided that issue entirely by moving directly to the threat of

injury. Petitioners assert that this opinion is unusual, and that the

Department might reasonably wonder whether this is because the ITC was

carefully refusing to rule out a finding of present material injury in

a final investigation.

Sumitomo Metal Industries

Sumitomo argues that the Department should not find critical

circumstances with respect to it in the final determination. Sumitomo

argues that the Department chose not to investigate Sumitomo because of

the administrative burden to the Department, yet nevertheless applied

its preliminary affirmative critical circumstances finding to imports

by Sumitomo. Sumitomo argues that, as a cooperative non-selected

respondent, it is entitled to a negative critical circumstances finding

in the final determination. See Preliminary Determinations of Critical

Circumstances: Brake Drums and Brake Rotors from The People's Republic

of China, 61 FR 55269, 55270 (October 25, 1996). Sumitomo argues that

it is the Department's practice not to issue final affirmative critical

circumstances with regard to cooperative non-selected companies. For

these reasons, Sumitomo argues the Department should find negative

critical circumstances for non-mandatory cooperative respondents.

Department's Position: For the reasons discussed below, we continue

to find critical circumstances for respondent KSC and ``all other''

respondents. However, in the final determination, we do not find

critical circumstances with respect to NSC or NKK.

Section 735(a)(3) of the Act provides that if critical

circumstances are alleged, the Department will determine whether:

(A)(i) there is a history of dumping and

[[Page 24338]]

material injury by reason of dumped imports in the United States or

elsewhere of the subject merchandise, or (ii) the person by whom, or

for whose account, the merchandise was imported knew or should have

known that the exporter was selling the subject merchandise at less

than its fair value and that there would be material injury by reason

of such sales, and (B) there have been massive imports of the subject

merchandise over a relatively short period.

As discussed in the preliminary critical circumstances finding, we

are not aware of any antidumping order in any country on hot-rolled

steel from Japan, for purposes of this final determination. Therefore,

in this final determination we examined whether there was importer

knowledge. In determining whether an importer knew or should have known

that the exporter was selling hot-rolled steel at less than fair value

and thereby causing material injury, the Department normally considers

margins of 25 percent or more and a preliminary ITC determination of

material injury sufficient to impute knowledge of dumping and the

resultant material injury. The Department's final margins for KSC

exceeded 25 percent. Therefore, we determine that importers knew or

should have known that KSC was dumping the subject merchandise. As to

the knowledge of injury from such dumped imports, in the present case,

the ITC preliminarily found threat of material injury to the domestic

industry due to imports of hot-rolled steel from Japan. Therefore, we

also considered other sources of information, including numerous press

reports from early to mid-1998 regarding rising imports, falling

domestic prices resulting from rising imports and domestic buyers

shifting to foreign suppliers. For a full discussion of the evidence on

the record see Final Critical Circumstances Memo, dated Apr. 28, 1999.

Based on this information, we find that importers knew or should have

known that there would be material injury from the dumped merchandise.

Because we have found that the first statutory criterion is met

with regard to KSC, we must consider the second statutory criterion:

whether imports of the merchandise have been massive over a relatively

short period. According to 19 CFR Sec. 351.206(h), we consider the

following to determine whether imports have been massive over a

relatively short period of time: (1) volume and value of the imports;

(2) seasonal trends (if applicable); and (3) the share of domestic

consumption accounted for by the imports.

When examining volume and value data, the Department typically

compares the export volume for equal periods immediately preceding and

following the filing of the petition. Under 19 CFR Sec. 351.206(h),

unless the imports in the comparison period have increased by at least

15 percent over the imports during the base period, we normally will

not consider the imports to have been ``massive.'' In addition,

pursuant to 19 CFR Sec. 351.206(i), the Department may use an

alternative period if we find that importers, exporters, or producers

had reason to believe, at some time prior to the beginning of the

proceeding, that a proceeding was likely. In the instant case, to

determine whether or not imports of subject merchandise have been

massive over a relatively short period for the final determination, we

examined each selected respondents' export volumes from May-September

1998, as compared to December 1997-April 1998 and found that imports of

hot-rolled steel from Japan increased by more than 100 percent. In this

case, petitioners argue that importers, exporters, or producers of

Japanese hot-rolled steel had reason to believe that an antidumping

proceeding was likely. We find that press reports, particularly in

March and April 1998, are sufficient to establish that by the end of

April 1998, importers, exporters, or producers knew or should have

known that a proceeding was likely concerning hot-rolled products from

Japan. See Critical Circumstances Memo, dated Apr. 28, 1999.

Accordingly, we examined the increase in import volumes from May--

September 1998 as compared to December 1997--April 1998 and found that

imports of hot rolled steel from Japan increased by more than 100

percent. Based on our analysis, we find that there was a massive

increase in imports with respect to KSC.

With regard to ``all others'' (i.e., companies that were not

analyzed in this investigation, e.g., Sumitomo), we have reconsidered

our Preliminary Determination finding of critical circumstances. For

the final determination we conducted the following analysis, based on

the experience of the investigated companies, to determine whether a

finding of critical circumstances is appropriate with respect to

uninvestigated exporters. See Notice of Final Determination of Sales at

Less than Fair Value: Certain Steel Concrete Reinforcing Bars from

Turkey, 62 FR 9737, 9741 (March 4, 1997) (Rebars from Turkey). In

Rebars from Turkey, the Department found critical circumstances for the

``all others'' category because it found critical circumstances for

three of the four companies investigated. However, we are concerned

that literally applying that approach may produce anomalous results in

certain cases. For example, if the ``all others'' rate is below the

critical circumstances threshold, we do not believe it would be

appropriate to find critical circumstances for the all others category

even if we found critical circumstances for a majority of the

investigated companies. Therefore, we believe it is appropriate to

address both critical circumstances criteria in reaching a

determination concerning the ``all others'' category. Thus, we have

applied that experience to both criteria. First, in determining whether

knowledge of dumping existed, we looked to the ``all-others'' rate,

which is based on the weighted-average of the individual rates for the

investigated companies. In the instant case, the ``all others'' rate

exceeds 25 percent. Thus, we find importers knew or should have known

that there was dumping by the all other companies. Similarly, as with

respondent KSC, we find that importers knew or should have known that

injury from the dumping by all other companies existed based on the

ITC's threat finding and the extensive press coverage, from early to

mid-1998, of widespread lost sales and falling domestic prices as a

result of dumped imports. Second, we have evaluated whether there are

``massive imports'' for the ``all others'' companies in terms of both

the imports of the investigated companies and country-specific import

data. An evaluation of the company-specific shipment data provided by

respondents indicates that all three mandatory respondents had massive

imports and that, on average, imports increased by over 50 percent

during the comparison period. In addition, where, as in the instant

case, the U.S. customs data also permit the Department to analyze

overall imports of the product at issue, we will consider whether those

data are consistent with a finding of massive imports overall. Again,

in the instant case, aggregate imports of hot-rolled steel during the

comparison period increased by more than 100 percent. Thus, we find

that imports from uninvestigated exporters were massive during the

relevant period. Therefore, based on these factors, the Department

determines that there are critical circumstances with regard to all

other imports of hot-rolled steel from Japan. For a complete discussion

of the data examined, see the Department's Final Critical Circumstances

Memo, dated April 28, 1999.

[[Page 24339]]

Comment 3: NKK's Home Market Levels of Trade.

In its case brief submitted to the Department, NKK argues that in

the preliminary determination, the Department incorrectly concluded

that NKK sells at one level of trade in the home market. NKK asserts

that, prior to the Department's preliminary determination, NKK had

provided supporting qualitative evidence to confirm that in the home

market sales by NKK to unaffiliated trading companies and end-users and

sales made by affiliated trading companies take place at two distinct

levels of trade.

NKK asserts that section 773(a)(1)(B) of the Act requires the

Department to compare prices, as is practicable, at the same level of

trade. Furthermore, NKK asserts that the Department's own regulations

describe that sales are made at different levels of trade when sales

are made at different marketing stages. See 19 C.F.R.

Sec. 351.412(c)(2). NKK argues that two levels of trade can be, but are

not always, based on substantial differences in selling activities. NKK

further argues that the Department must determine in its analysis if

levels of trade are meaningful. See Preamble, 62 FR at 27371.

NKK reminds the Department that in its initial section A

questionnaire response it presented three distinct channels of trade in

the home market and argued that the first two channels to end users and

sales to unaffiliated trading companies, should be consolidated into

one level of trade. The other level of trade, sales to affiliated

trading companies, is distinct from sales to unaffiliated end-users and

trading companies. NKK contends that the Department, in its level of

trade analysis memorandum for the preliminary determination, ignored

the selling category in which NKK sells merchandise to unaffiliated

trading companies. NKK asserts that these sales account for 90 percent

of total sales to unaffiliated customers during the period of

investigation. NKK believes that this is a significant error.

NKK argues that there is a significant difference between the

selling activities of NKK and the selling activities of its affiliated

resellers. NKK asserts that while it performs a high degree of selling

activities in sales to end-users, this type of sale is a small part of

this level of trade. NKK argues that, in general, its selling

activities for total sales are smaller than the selling activities of

its affiliated resellers. See Level of Trade Exhibit, attached to

Verification Report, dated March 26, 1999. NKK argues that when its

end-user sales are compared to its affiliated trading companies' end-

user sales, NKK engages in significantly less selling activity related

to the development of new users, the assessment of user demand, the

financing of steel purchases by end-users, the provision of inventory

management and warehousing, and the management of delivery. NKK's

affiliated trading companies, on the other hand, engages to a high

degree in the aforementioned selling activities.

NKK argues that there is a substantial and meaningful difference

between selling activities performed by NKK and those performed by

affiliated resellers/trading companies. NKK points out that the

Department's own regulations establish that a substantially different

selling function results with additional layers of selling activities.

See Preamble, 62 FR at 27371. NKK asserts that its affiliated trading

companies also incur comparatively greater risk as a result of more

active and diverse selling activities. NKK, on the other hand, chooses

to limit its own risk by selling 93 percent of its merchandise through

affiliated trading companies and makes sales directly to end-users only

in the case of well-established customers. Finally, NKK argues that its

indirect selling expense ratio was significantly less than that of one

of its trading companies during the POI. This, according to NKK, is

consistent with the preamble to the Department's regulations, and

definitively supports the notion that NKK and its affiliated trading

companies sell at two distinct levels of trade in the home market. See

Id.

Petitioners assert that, having found itself unable to quantify

pricing differences for the sake of claiming a LOT adjustment, NKK is

now claiming that the home market is actually two LOTs, and that U.S.

sales should be only matched to the closer level. Petitioners further

assert that NKK's argument that the Department's chart, used for

comparison of selling activities, is inaccurate should be accorded no

weight, since pursuant to Sec. 351.412(c)(2) of the Department's

regulations, the ``substantial differences in selling activities are a

necessary, but not sufficient, condition for determining that there is

a difference in the stage of marketing.'' Finally, petitioners rebut

NKK's claims that (1) its affiliate's high degree of performance of

selling functions yields a higher level of exposure for them and NKK

can thus diffuse risk and that (2) there is a difference in indirect

expenses ratios between itself and its trading company by asserting

that, whether or not it is true, NKK's first claim is unquantifiable,

and the second claim is problematic because the higher level of

indirect selling expenses may be typical for a reseller. Therefore,

petitioners assert that, as in the Preliminary Determination, the

Department should continue to deny NKK any LOT adjustment.

Petitioners argue that although NKK claims that it never provided

inventory warehousing and management for its sales to unaffiliated

trading companies, and rarely provided such services to end-users, the

record shows that NKK provided high level delivery management services

on sales to unaffiliated trading companies and also contradicts NKK's

claim as to inventory warehousing. Therefore, for the 4 ``mill''

functions and 2 of the 5 ``trading company'' functions, (i.e., for 6

out of the 9 categories of selling functions that NKK performs) NKK's

selling functions on sales to unaffiliated customers and sales by its

trading company to end-users are substantially the same. In light of

these facts, petitioners argue that the Department should continue to

find one level of trade in the home market.

Department's Position: We do not agree that NKK's home market sales

are made at two distinct levels of trade. In accordance with section

773(a)(1)(B)(i) 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

CV, that of the sales from which we derive SG&A and profit.

To determine the LOT of a company's sales (whether in the home

market or in the U.S. market), we examine stages in the marketing

process and selling functions along the chain of distribution between

the producer and the unaffiliated customer. See Notice of Final

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

Carbon Steel Plate from South Africa (``Certain Cut-to-Length Carbon

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

NKK sells subject merchandise in the home market through two

channels of distribution: one channel involves sales by NKK to

unaffiliated customers (including both end-users and trading

companies); the second channel involves sales by NKK's affiliate to

unaffiliated customers. For the preliminary determination, the

Department found that NKK's sales to these three types of home market

customers involved essentially the same level of selling functions.

After a careful analysis of the information on the

[[Page 24340]]

record, we continue to find that there was not a substantial difference

in the selling functions performed by NKK in making sales to its

unaffiliated customers and those associated with sales by NKK's

affiliated company to its unaffiliated customers. Therefore, we

continue to find that there is one level of trade in the home market.

As discussed in the Department's preliminary Level of Trade Memo,

dated February 12, 1999, the Department reviewed the selling functions

performed with respect for each of the customer categories. As

indicated by NKK in its January 19, 1999, supplemental section A

response, NKK collapsed sales directly to unaffiliated companies (end-

users and others) into one level of trade. In conducting its analysis

the Department reviewed the information placed on the record and did

not ignore the level of selling activity for sales to unaffiliated

trading companies, as evidenced by the inclusion of this category in

the Level of Trade Memo.

Second, NKK argues that there are substantial differences in the

selling activities performed by NKK and the selling activities of its

affiliated resellers. In the instant case, in conducting its level of

trade analysis, the Department compared the selling functions performed

for sales in the home market to the first unaffiliated customer. As

evidenced by the discussion in the Department's Level of Trade Memo

(referenced above), the information on the record indicates that the

selling functions and activities performed by NKK on sales to

unaffiliated customers as compared to the selling functions and

activities performed by both NKK and its affiliate on sales to

unaffiliated customers do not vary on a qualitative basis. NKK's

argument that there are differences between these selling functions is

not supported by the evidence on the record. Once again, in the

Department's Level of Trade Memo we discussed the level of service

provided for each channel of distribution and we found no distinction

in the levels of service provided. NKK further argues that there are

substantial differences in the amount of selling functions associated

with the two groups of sales. However, the Department finds that, while

the record indicates some differences in the amount of certain

functions performed, these differences are not so substantial as to

warrant finding different LOTs on this basis alone. Therefore, because

the customer types are the same, the types of selling functions are the

same, and there are not substantial differences in the level of

functions performed, we continue to find that there is one LOT in the

home market.

Comment 4: KSC's CEP Offset.

Petitioners argue that the Department should not grant KSC a CEP

offset to the normal value of its home market sales in the final

determination since KSC has failed to factually establish its

entitlement to a CEP offset. Furthermore, petitioners argue that KSC's

statements on the record actually refute its claim for a CEP offset.

Petitioners claim that KSC has not established sufficiently that its

home market and CEP sales through its affiliates, Kawasho Corporation

and Kawasho International, are at different level of trades. For

instance, petitioners claim that KSC originally stated in its section A

response that it had two levels of trade in the home market and the

same two levels of trade in the United States market. Petitioners state

that KSC only claimed that its home market and U.S. sales to

unaffiliated trading companies were at a less advanced stage in the

marketing process than its sales to its affiliates. Petitioners also

claim that KSC did not respond to Department inquiries that KSC

``explain why [it] considers the home market level of trade more

advanced than the U.S. level of trade to warrant a CEP offset if

necessary.''

Petitioners also argue that the fact that all sales to both markets

were manufactured to order and were to the same categories of customers

indicates that there are no differences in levels of trade between home

market and the United States. Finally, petitioners claim that KSC's

descriptions of its selling activities and services have been

inconsistent and thus unreliable. As a result, petitioners argue that

KSC has not met the required burden of proof to factually demonstrate

that its home market sales and CEP sales were made at different levels

of trade. Thus, the Department should not grant KSC a CEP offset for

the final determination.

Respondent contends that the Department's decision to grant KSC a

CEP offset is in accordance with law and is supported by substantial

evidence on the record. As legal authority, respondent relies upon

section 772(a)(7)(B) of the Tariff Act (19 U.S.C. Sec. 1677b(a)(7)(B))

and the SAA at 831. Respondent argues that, contrary to petitioners'

assertions, the facts on the record support KSC's claim for a CEP

offset. Respondent asserts that petitioners misread KSC's response to

the Department's section A questionnaire and that petitioners are

incorrect in stating that KSC asserted that there were two levels of

trade in the U.S. which correspond exactly to the two levels of trade

in the home market. According to the respondent, KSC's section A

response explains that there are at least three marketing stages for

its CEP sales. In addition, KSC has consistently explained, in its

section A, Supplemental section A, and section B responses, that its

CEP sales were at a different level of trade than its home market sales

through Kawasho. In fact, the respondent states that KSC's home market

sales through Kawasho are at a more advanced level of trade than its

CEP sales because these home market sales are at a more advanced stage

of distribution and farther removed from the factory. Respondent

asserts that, throughout the immediate investigation, KSC has supplied

the Department with information, in its Supplemental responses and

during verification, showing that it has to perform more and different

selling activities and services for its home market sales than for its

CEP sales. Furthermore, respondent argues that the difference in the

number of employees for the different markets confirms that more is

required to sell in the home market than to the CEP level of trade.

Respondent concludes by stating that since there is no comparable level

of trade in the home market, KSC is unable to calculate a trade

adjustment for its CEP sales and instead requests the Department to

grant a CEP offset pursuant to section 772(a)(7)(B) of the Tariff Act

(19 U.S.C. Sec. 1677b(a)(7)(B)) and 19 CFR Sec. 351.412(f).

Department's Position: We disagree with petitioners that KSC's CEP

offset should be denied. In accordance with section 773(a)(1)(B)(i) 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 CV, that of the sales from

which we derive SG&A and profit. For CEP sales, the Department makes

its analysis at the level of the constructed export sale from the

exporter to the affiliated importer.

Because of the statutory mandate to take level of trade differences

into consideration, the Department is required to conduct a LOT

analysis in every case, regardless of whether or not a respondent has

requested a LOT adjustment or a CEP offset for a given group of sales.

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

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

along the chain of distribution between the producer and the

unaffiliated customer. If the comparison market sales are at a

different LOT, and the

[[Page 24341]]

difference affects price comparability, as manifested in a pattern of

consistent price differences between the sales on which NV is based and

comparison market sales at the LOT of the export transaction, we make a

LOT adjustment under section 773(a)(7)(A) of the Act. Finally, for CEP

sales, if the NV level is more remote from the factory than the CEP

level and there is no basis for determining whether the differences in

the LOTs between the NV and the CEP sales affects price comparability,

we adjust NV under section 773(A)(7)(B) of the Act (the CEP offset

provision). See Certain Cut-to-Length Carbon Steel Plate from South

Africa, 62 FR at 61731.

In the Preliminary Determination, the Department made a CEP offset

adjustment to the normal value of KSC's sales that were compared to CEP

sales in the United States, because the Department preliminarily found

that all of KSC's home market sales were made at levels of trade

different from and more advanced than the level of trade of KSC's CEP

sales in the United States, and there is no basis for determining

whether the differences in the LOTs between the NV and the CEP sales

affects price comparability. See Level of Trade Memo, dated February

12, 1999. In particular, the Department found that KSC performed fewer

and different selling functions in connection with CEP sales to Kawasho

International and Kawasho Corporation than in connection with home

market sales to its unaffiliated customers. For example, the Department

found that KSC provided a high level of warehousing, processing,

freight arrangement, and payment collection services in the home

market, but did not provide the same level of services on its CEP sales

to the United States. Further, the Department found that it was not

possible to quantify a LOT adjustment based on the available data. The

fact that KSC originally identified a different LOT pattern is not

determinative. As explained above, the Department conducts its own LOT

analysis, rather than merely accepting the assertions of the parties.

Similarly, just as sales to a different customer category is

insufficient, by itself, to establish a different level of trade, all

sales to the same customer category are not necessarily sales made at

the same level of trade. See Preamble to the Department's regulations,

62 FR at 27371. Finally, the Department is satisfied that it has

sufficient reliable information to reach a decision as to the levels of

trade at which KSC and its affiliates sell subject merchandise.

Furthermore, the Department verified the data used in making this

analysis. See Verification Report, dated March 26, 1999. Thus, after

further examination of the record, the Department will continue to make

a CEP offset because the facts on the record indicate that KSC's CEP

level of trade is different from and less advanced than KSC's home

market levels of trade and that the data of record do not permit it to,

instead, make a LOT adjustment based on the effect of the LOT

difference on price comparability.

Comment 5: Overruns.

NKK asserts that the Department should consider its sales of

overruns in its calculation of home market price because such sales

meet the Department's criteria for sales in the ordinary course of

trade. NKK argues that (1) its invoice coding system identifies sales

as overruns; (2) its overruns are sold for the same uses as ordinary

production, and unlike non-prime merchandise, the specific product

characteristics are maintained and used to determine whether overruns

meet a customer's needs, and there is no physical difference between

overruns and ordinary production; and (3) the number of customers

purchasing overruns and the volume of overruns purchased are similar to

ordinary sales according to the Department's overrun methodology.

Petitioners, in rebuttal, argue that the Department properly

excluded the overruns in its preliminary determination margin

calculation. Furthermore, petitioners argue that application of the

Department's own standards for determining whether overrun sales are in

the ordinary course of trade supports the Department's decision to

exclude overruns from its margin calculation. See, e.g., Circular

Welded Non-Alloy Steel Pipe from the Republic of Korea; Preliminary

Results of Antidumping Duty Administrative Review, 62 FR 64559, 64561

(December 8, 1997) referencing, Laclede Steel Co. v. United States, 18

CIT 965, (1995); Carbon Steel Flat Products from Korea, 64 FR at 12941-

42. Petitioners argue that, by the Department's standards, NKK's

overrun sales are outside the ordinary course of trade based on the

ratio of overrun sales to home market sales, the number of overrun

customers in relation to the total number of customers, the average

price of overrun sales compared to commercial production sales, the

relative profitability of overrun sales, and the quantity of overrun

sales compared to the total quantity of commercial sales. Petitioners

claim that no one factor among these standards is dispositive, and,

finally, that the Department has excluded and should continue to

exclude overruns in its margin calculation.

Department's Position: We agree with petitioners that overruns

should continue to be excluded from the Department's final analysis.

After an examination of the record, the Department has determined that

NKK's overrun sales are sold at a lower price, sold in smaller

quantities overall and sold to fewer customers than product that is not

overruns. Second, based on the results of verification, where the

Department examined overrun sales, we determined that these sales are

made only after they cannot be applied to other sales and after a

significant time lag follows production as compared to other sales in

the normal course of business. The Department concedes that NKK's

overruns are sold as prime merchandise; however, this sole factor does

not enable these sales to be considered in the ordinary course of

trade. Third, the Department found that there were sufficient matches

to non-overrun prime merchandise sold in the ordinary course of trade,

which is the Department's preference in determining matches between

U.S. sales and home market sales. Based on these factors, the

Department continues to exclude overrun sales from its analysis.

Comment 6: Department's Arm's Length Test.

NKK argues that the Department should use a different arm's length

test than the ``99.5 percent'' test that it normally uses and used in

the preliminary determination. The Department's current policy is to

treat home market sales prices to an affiliated customer as having been

made at ``arm's length'' (and therefore useable in the normal value

calculation) if prices to that affiliated purchaser are, on average, at

least 99.5 percent of the prices charged to unaffiliated purchasers.

See Preamble, 62 FR at 27355. NKK states that the Department has not

codified its ``99.5 percent'' arm's length test methodology, and

therefore suggests what it believes to be a more accurate arm's length

test. NKK claims that both generally and on the fact of this case, the

Department's current test produces distorted results. NKK argues that

there is no factual basis on which to conclude that sales to one of its

affiliated trading companies were not made at arm's length prices.

NKK describes two variations of the test used in past dumping

investigations and argues that both variations are methodologically

flawed. Specifically, NKK argues that the current arm's length test

methodology is flawed because the application of a single fixed

[[Page 24342]]

ratio ( ``99.5 percent'') to CONNUM-specific or weighted-average

related/unrelated customer price ratios distorts commercial reality by

not taking into account actual pricing practices. NKK references

several types of situations in which it argues the current test

produces anomalous results.

NKK also proposes a new approach involving several changes to its

current test. First, NKK asserts that the Department should abandon its

methodology of creating an ``overall customer percent-ratio

aggregation'' and, instead, base its arm's length test on CONNUM-

specific sales data. In short, NKK argues that the arm's length test

should be applied on a CONNUM-specific basis, rather than a customer-

specific basis. Second, NKK argues that, instead of using an

``inflexible and mechanical'' 99.5% of the mean for a benchmark to

determine arm's length sales, the Department should instead adopt a

test based on standard deviations. Such a test, according to NKK, would

address the variability and magnitude of pricing data. Specifically,

when the mean price for the CONNUM sold to the related customer is

within one standard deviation of the mean price to the unrelated

customer, the Department should consider that sales of that CONNUM to

that customer are at arm's length.

NKK argues that its proposed test would not be difficult to apply,

and includes proposed SAS programming. Finally, NKK asserts that if the

Department adopts an arm's length analysis methodology that applies a

standard-deviation test on a CONNUM-specific basis, the record will

show that NKK's sales to affiliated trading companies were, in fact, at

arm's length.

Petitioners, in rebuttal, argue that there is no reason for the

Department to abandon its current arm's length test. Specifically,

petitioners argue that the Department has considerable discretion in

determining when to exclude related party sales in the calculation of

normal value. See, e.g., Usinor Sacilor v. United States, 872 F. Supp.

1000, 1004 (CIT 1994). Furthermore, petitioners argue that the courts

will uphold the Department's arm's length test unless respondents can

prove that the test is unreasonable and distorts price comparability.

See SSAB Svenskt Stal AB v. Bethlehem Steel Corporation, 976 F. Supp.

1027, 1030-1031 (CIT 1997); Micron Technology Inc. v. United Tests, 893

F. Supp. 21, 38 (CIT 1995). Petitioners argue that the burden of

persuasion, with respect to the theory that the Department's arm's

length test distorts price comparability, falls on the respondent. See

NEC Home Electronics Ltd. v. United States, 54 F. 3d 736, 744 (Fed.

Cir. 1995).

Petitioners specifically reject NKK's proposed arm's length test.

Petitioners argue that NKK's proposed alternative test is based

entirely on the idea of using standard deviations to account for

pricing variability. Petitioners, citing statistical authorities,

assert that the application of a mean/standard deviation analysis only

works when there is a symmetrical, bell-shaped frequency distribution,

and claim that NKK's data sets do not fit this model. Petitioners

reject the accuracy of the sample scenarios that NKK advances in its

case brief. For example, petitioners argue that one of NKK's case brief

scenarios misrepresents the facts of a standard deviation-based

analysis to the extent that NKK does not establish the standard

deviation for unrelated prices. Petitioners assert that NKK's proposed

arm's length test is over-inclusive, and statistically inaccurate;

therefore, they argue, it should be dismissed by the Department.

Department's Position: The Department has not adopted NKK's

proposed arm's length test for purposes of this investigation. As NKK

has acknowledged, determining whether home market sales made to

affiliated parties are made at arm's length is a complex process which

the Department considered in some detail during the most recent round

of regulatory revisions. At that time, the Department decided that it

would not codify the current test, but would continue to apply it

unless and until it developed a new method, in which case the new

methodology would be described and announced in a policy bulletin. See

Preamble, 62 FR at 27355. The Department's ``99.5 percent'' arm's

length test methodology is well established and the CIT has repeatedly

sustained the methodology. See Micron Technology Inc. v. U.S., 893 F

Supp. 21 (CIT 1995) and Torrington Co. v. United States, 960 F. Supp.

339 (CIT 1997).

An agency's interpretation of the statute it administers must be

accorded substantial weight. Thus, the Department's well-established

practice can be sustained as long as it is ``sufficiently reasonable.''

See American Lamb Co. v. United States, 785 F.2d 994, 1001 (Fed. Cir.

1986). In Usinor Sacilor v. United States, 872 F. Supp. at 1004, the

Court of International Trade stated that it would uphold the

Department's ``99.5 percent'' test unless it was shown to be

unreasonable. While NKK has proposed an alternative methodology based

on a statistical approach, it has not demonstrated that the current

methodology is unreasonable. The CIT has already rejected the idea that

the ``99.5 percent'' test is unreasonable because it does not take into

account price variance. See Usinor Sacilor v. United States, 872 F.

Supp. at 1004.

With respect to NKK's concern of applying the arm's-length test on

a customer basis, we note that the question underlying the arm's-length

test is whether affiliation between the seller and the customer has (in

general) affected pricing. Because affiliation is the result of

relationships between firms, the focus of the arm's-length test is the

customer, not a particular product. For this reason, the Department

makes one up-or-down call on pricing to an affiliated customer: either

there is arm's-length pricing or there is not. However, under NKK's

proposed connum-by-connum approach, affiliation could be found to

matter for some connums, but not for others, even though the customer

in both cases is the same. To support it's proposal, in exhibit B to

it's submission dated April 12, 1999, NKK claims that the sales to an

affiliated customer, NKK Trading of certain CONNUMs were considered not

to be at arm's length prices although the prices for over 50% of those

sales exceeded the mean price to the unaffiliated customers for these

connums. However, the relatively small share of total sales to NKK

Trading for which these connums account is perfectly consistent with

the Department's finding that NKK's affiliation with NKK Trading has in

general affected price.

Additionally, NKK presents several theoretical situations under the

Department's current approach, where NKK claims that sales could be

excluded for reasons unrelated to affiliation. In particular, NKK

argues that a statistical approach would reduce the likelihood of

testing error when pricing to affiliated and unaffiliated customers is

the same (i.e., the error of finding that affiliation has affected

prices when, in fact, it has not). However, NKK does not address the

concern that, by lowering the threshold for accepting affiliated party

sales under their statistical approach from the Department's current

standard, NKK's test would increase the likelihood of testing error

when pricing to affiliated and unaffiliated customers is not the same

(i.e., the error of finding that affiliation has not affected price

when, in fact, it has). Given this concern with NKK's proposed

approach, the Department continues to believe that the ``99.5 percent''

test imposes a reasonable requirement on affiliated-party prices:

[[Page 24343]]

on average, they essentially must be as high as prices to unaffiliated

parties.

Comment 7: NSC's Affiliated Freight Costs.

NSC argues that the Department should allow all of NSC's home

market inland freight expenses for the final determination because the

Department verified that NSC procures inland freight services at arm's

length prices, and that NSC had properly reported these expenses.

NSC argues that, under the antidumping law, the Department shall

reduce the normal value price by the costs incurred to bring the

subject merchandise from the original place of shipment to the place of

delivery to the purchaser in order to achieve an undistorted fair value

comparison. See section 772(c)(2)(A); SAA at 4040. NSC argues that the

Department has allowed respondents to deduct the full expense of inland

freight services provided by affiliates unless the Department cannot

establish that the services were not purchased in an arm's length

transaction. See Notice of Final Determinations of Sales at Less than

Fair Value: Certain Hot-Rolled, Cold-Rolled, and Corrosion Resistant

Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate

from France, 58 FR 37125, 37132 (1993); Certain Cold Rolled Carbon

Steel Flat Products from Korea: Final Results of Antidumping Duty

Administrative Review, 63 FR 781, 788 (January 7, 1998); Steel Pipe

from Korea, 63 FR at 32,839; see also Gray Portland Cement and Clinker

from Mexico: Final Results, 63 FR 12764, 12780 (1998).

NSC states that it ``confirmed'' prior to verification that these

services from affiliates were purchased at arm's length prices by

providing freight charts and explaining that it paid the same rates to

affiliates and unaffiliates. NSC argues that the Department verified

that NSC paid arm's length prices to affiliated and non-affiliated

freight suppliers, and that NSC reported its inland freight charges

accurately. See Verification Report at 14-15, dated March 26, 1999. NSC

concludes that, therefore, the Department must make a deduction for

NSC's home market inland freight expenses when calculating normal value

for the final determination.

Department's Position: We agree with NSC. The Department has

allowed a deduction for home market freight expenses because NSC

reported its freight expenses in accordance with Departmental

methodology and the expenses were verifiable. While NSC's responses to

the Department's questionnaires did not demonstrate that NSC had

procured inland freight services from affiliates at arm's length

prices, at verification, we examined contracts and payment

documentation which demonstrated that NSC's reported inland freight

charges were accurate and non-distortive. See Verification Report at

15, dated March 26, 1999. Therefore, in the final determination, we

have utilized NSC's reported home market freight expenses in the

calculation of normal value.

Comment 8: NKK's Home Market Freight Costs.

Petitioners assert that, according to NKK, the company does not

track actual delivery charges on an individual shipment basis; thus, it

calculated its reported movement costs in the home market based on the

way in which a particular product was most likely transported.

Petitioners note that NKK, late in the process, disclosed that the

reported delivery terms, for 19 percent of its transactions, were

incorrect. In addition, NKK also revealed that a computer programming

error resulted in the wrong method of transportation being reported for

a full 13 percent of its home market sales. Petitioners argue that, in

light of the numerous errors in NKK's reporting of movement expenses,

NKK has failed to demonstrate that (1) its method for allocating its

home market movement expenses does not cause inaccuracies or distortion

and (2) it is entitled to an adjustment for movement expenses in the

home market. Therefore, petitioners assert that, at minimum, the

Department should deny NKK's reported adjustments for movement expenses

for certain specific sales.

NKK asserts that it reported, in its original and supplemental

questionnaire responses, that it does not retain transaction specific

movement expenses. Instead, using its monthly summaries, NKK determined

an average per-ton movement expense for each category of

transportation, as well as by each method of transportation.

In addition, NKK argues, that pursuant to the Department's

practice, a week before verification NKK submitted new revised

databases. The Department accepted and verified the accuracy of the

method for allocating these rates to specific transactions, and tested

the reported movement expenses in 45 sample sales transactions. No

discrepancies were found. Furthermore, NKK asserts that, contrary to

what petitioners alleged in both in their pre-verification comments and

briefs, the Department verified that the sales terms code did match the

claim of a movement expense. Therefore, NKK's asserts that its

methodology was reliable and accurate. NKK has successfully

demonstrated its entitlement to an adjustment for movement expenses in

the home market, and evidence on the record proves that petitioners'

claims have no basis.

Department's Position: We agree with NKK and have allowed a

deduction for freight expenses for home market sales of subject

merchandise because the reported expenses are in accordance with

Departmental methodology, are consistent with the company's accounting

practices, and were substantiated at verification. See Verification

Report, dated March 26, 1999. NKK has reported home market freight in

accordance with its accounting system and provided the data on a

product, transportation-type and destination-specific basis. Based on

its findings at verification, the Department determined that

respondent's reported freight costs for home market sales of hot-rolled

steel are not distortive, and provide a reasonable estimate of actual

transaction-specific freight expenses. Therefore, we are granting NKK a

home market freight adjustment for sales of subject merchandise.

Comment 9: NSC's U.S. Sales.

Petitioners contend that certain of NSC's U.S. sales, those made

through an affiliated U.S. reseller and reported as export price

(``EP'') sales, are constructed export price (``CEP'') sales and that

adverse facts available should be applied to these sales. Petitioners

state that NSC was not forthright with its explanation of the U.S.

reseller's functions in the sales process, as the Department found that

the reseller performed many more functions than were originally

outlined in the questionnaire responses. More specifically, petitioners

believe that the findings at verification demonstrate the involvement

of the reseller in the negotiation of the substantive terms of sales,

such as prices. Furthermore, petitioners assert that NSC's claim that

the reseller was merely a processor of information and a communication

link is untenable. In addition, petitioners argue that because NSC

failed to report ``significant facts'' regarding the reseller's role in

the sales process the Department should use facts available.

Petitioners contend that NSC withheld information from the Department,

failed to provide information in a timely manner and impeded the

proceeding. Lastly, petitioners have requested that the Department use

the highest calculated margin for NSC's U.S. sales as facts available.

NSC argues that verification confirmed the facts underlying the

Department's preliminary decision that

[[Page 24344]]

NSC's U.S. sales were properly characterized as EP sales. NSC states

that the sales meet criteria for EP sales established in Mitsubishi

Heavy Indus., Inc. v. United States, 15 F.Supp. 2d 807, 812 (CIT 1998)

(citing PQ Corp. v. United States, 652 F.Supp. 724, 731 (CIT 1987), and

affirmed in AK Steel Corp. v. United States, No. 97-05-00865, 1998 WL

846764, at *6 (CIT 1998).

NSC argues that if a transaction meets these criteria, the

Department will treat the sales as EP because the routine selling

functions of the manufacturer have been relocated geographically from

the selling country to the United States. See Koenig & Bauer-Albert AG

v. United States, 15 F. Supp. 2d 834, 352 (CIT 1998). NSC adds that, in

such circumstances, the EP sales are in effect made directly to the

unrelated buyer because the U.S. affiliate has no independent function.

The remainder of NSC's argument cannot be recreated in a public

summary.

Petitioners rebut NSC's contention that the Department should not

use adverse inferences with regard to NSC's sales made through its

affiliated U.S. reseller. The petitioners cite to the Department's

Verification Report which shows that the U.S. reseller negotiated terms

of sale with customers. Petitioners further argue that NSC's arguments

ignore the U.S. reseller's role as verified by the Department.

Additionally, petitioners state that due to the reseller's role in the

``negotiations and base price proposals'' the sales should be deemed

CEP. Furthermore, petitioners contend that because NSC did not describe

the full range of the reseller's role and the Department consequently

does not have all of the information necessary with which to calculate

a margin for CEP sales, the Department should find adverse inferences

and use the highest calculated margin for these sales.

Petitioners argue that the Department finds that CEP treatment is

justified where a U.S. affiliate plays a significant role in soliciting

business and maintaining customer contacts, or participates in the

negotiation of sales price to the extent that it is more than a

processor of sales-related documentation or a communications link. See

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

from Korea: Final Results of Antidumping Duty Administrative Reviews,

63 FR 13170, 13172 (March 18, 1998). Petitioners argue that, contrary

to NSC's assertions, the facts in this case justify classifying certain

of NSC's sales as CEP.

Petitioners also note that where the U.S. affiliate acts as the

first and only point of contact for the U.S. unaffiliated customer, or

that it played the primary role in generating the sale by bringing the

customer to the foreign producer, the Department has found that the

affiliate's role in the sales process is significant. See Stainless

Steel Plate in Coils from the Republic of Korea, 64 FR 15444, 15453

(March, 31, 1999); see also Notice of Final Determination of Sales at

Less Than Fair Value: Extruded Rubber Thread from Malaysia: Final

Results of Antidumping Duty Administrative Review, 64 FR 12967, 12971

(March 16, 1999); Carbon Steel Flat Products from Korea, 64 FR at

12927. Petitioner also argues that the Department has found that where

the U.S. affiliate participates in negotiations, its role is elevated

beyond a processor of documentation or a communications link.

Petitioner argues this is true even where the U.S. affiliate negotiates

along with the foreign producer (Small Diameter Circular Seamless

Carbon and Alloy Steel Standard Line and Pressure Pipe from Germany:

Preliminary Results of Antidumping Duty Administrative Review, 62 FR

47446, 47448 (September 15, 1997), reserved the right to approve all

orders, id. or limited the affiliate's ability to negotiate prices

within certain ranges, Cut-to-Length Carbon Steel Plate from Belgium:

Preliminary Results of Antidumping Duty Administrative Review, 62 FR

48213, 48214-15 (1997); Certain Cut-to-Length Carbon Steel Plate from

Germany: Final Results of Antidumping Duty Administrative Review, 62 FR

18390, 18391-92 (1997)). Petitioners argue that where the U.S.

affiliate's role is not incidental or ancillary, CEP treatment is

appropriate. See Industrial Nitrocellulose from the United Kingdom:

Final Results of Antidumping Duty Administrative Review, 64 FR 6609,

6611 (February 10, 1999). Petitioners cite the U.S. verification report

in support of their argument that CEP is appropriate for certain of

NSC's U.S. sales, and argue that application of facts available is

justified as well, based NSC's failure to provide complete information

on these circumstances.

In its rebuttal, NSC argues that the Department should continue to

treat NSC's sales through its affiliated U.S. reseller as EP sales. NSC

contends that the affiliated U.S. reseller acted as a communication

link between the affiliated Japanese reseller and the U.S. customer.

NSC states that the U.S. reseller acted ``only as a processor of sales-

related documentation and a communication link with the unrelated U.S.

buyer.'' See Mitsubishi Heavy Indus., Ltd. v. United States, 15 F.

Supp. 2d 807, 812 (CIT 1998). Furthermore, NSC argues that the U.S.

reseller was in constant communication with the Japanese reseller and

that messages during the sales negotiations document that the U.S.

reseller had no authority to make decisions without the consent of the

Japanese reseller. NSC contends that the U.S. reseller acted as a

communication link, which is a role that U.S. affiliates may play in EP

sales. See AK Steel Corporation v. United States, 34 F. Supp. 2d 756

(CIT 1998); see also NSC U.S. Verification Memorandum, dated March 26,

1999, at Exhibit 4. In sum, NSC argues that at no point did the

affiliated U.S. reseller make any decisions with regard to the terms of

sale without first consulting the Japanese reseller. Finally, NSC

contends that if the U.S. reseller had authority to negotiate terms of

sale the documented correspondence between the U.S. and Japanese

resellers would not have occurred. Thus, the U.S. reseller was simply a

conduit for communication.

Department's Position: We disagree with petitioners that NSC's U.S.

sales should be treated as CEP sales. The statute defines export price

as the price at which the subject merchandise is first sold (or offered

for sale) to an unaffiliated purchaser before the date of import by the

exporter outside the United States. In contrast, CEP is the price at

which the subject merchandise is first sold (or offered for sale),

before or after the date of import, in the United States by or for the

account of the exporter or by a seller affiliated with the exporter to

an unaffiliated purchaser. Thus, sales made prior to import can be

either EP or CEP, with the former being sold by the exporter or

producer outside the United States and the latter being sold by someone

in the United States who is selling for the account of the exporter or

is affiliated with the exporter. In cases in which both the exporter

and a U.S. affiliate or a party in the United States acting on the

exporter's behalf are involved in the sales transaction, a case-by-case

determination must be made, based on the facts associated with the

transactions at issue, to determine whether such sales are properly

characterized as EP or CEP sales. Normally, when a party in the United

States is involved in the sale to the first unaffiliated customer, the

sales are properly treated as CEP sales. However, the Department has a

long history of recognizing so-called ``indirect EP sales,'' which are

sales made by an exporter, with the party in the United States

performing only certain ancillary

[[Page 24345]]

functions that support the sales process. To determine whether sales

are properly classified as EP in such cases the Department examines

three criteria: whether (1) the merchandise is not inventoried by the

importer, (2) the sale is made through a customary commercial channel

for sales of this merchandise, and (3) the affiliated importer acts

only as a processor of sales-related documents and as a communications

link with the exporter. See, e.g., Du Pont, 841 F. Supp. at 1248-50; AK

Steel, 1998 WL 846764 at *6. Only when all three criteria are met does

the Department treat the sales as EP sales. As the Court explained in

AK Steel, this test is simply a means to determine whether a sale at

issue is in essence between the exporter and the unaffiliated buyer, in

which case the EP rules apply, or whether the role of the affiliate has

sufficient substance that the CEP rules apply. Id.

In this case, NSC's small U.S. office merely assisted NSC and its

affiliated Japanese trading company in making the sales in question.

With respect to the first prong of the indirect EP test, the

merchandise at issue was shipped directly from the manufacturer to the

unaffiliated U.S. customer without being introduced into the physical

inventory of NSC's U.S. affiliate. With respect to the second prong,

this pattern of direct shipment is a customary commercial channel for

sales of such merchandise in the industry, and there is no indication

that the sales between the parties involved represented any departure

from the customary commercial patterns. As for the third prong,

information obtained by the Department at verification confirmed NSC's

claims that its U.S. affiliate's role was that of a processor of sales-

related documents and as a communications link with the exporter.

The gravamen of petitioner's claim that these sales should be

classified as CEP sales appears to be the fact that the affiliate is

involved in the negotiation process. However, the sales-related

documents we examined at verification indicated that the affiliate's

role in the sales negotiation process is properly characterized as

ancillary to the role of NSC and an affiliated trading company in

Japan. See U.S. Sales Verification Report, dated March 26, 1999. The

primary function of the U.S. affiliate in negotiation was conveying

offers and counter-offers between the customer on the one hand, and NSC

and the Japanese trading company on the other--in other words, serving

as a ``communications link'' between the parties involved in making the

decisions with respect to these sales. Contrary to petitioners'

assertions, the U.S. affiliate cannot be said to have participated in

any real sense in the negotiation of the sales at issue.

Verification also confirmed the accuracy of information NSC

provided on the record with respect to its performance of other support

functions related to these U.S. sales, including conveying an initial

offer to bid, issuing certain sales documentation, and assisting in

arranging the transport of the merchandise from Japan to the customer.

The affiliate also pays U.S. import duties and certain transportation

expenses (wharfage, brokerage, barge/demurrage, stevedoring, and

trucking expenses) on these sales, receives payment from the customer

and receives a commission on the sale. See NSC U.S. Verification Report

at 2-4, dated March 26, 1999. These are all functions that have

previously been found to be compatible with a finding that the sales

involved are EP sales. In addition, the Court of International Trade

has held that the fact that a U.S. subsidiary receives a commission for

providing such services is not incompatible with a finding that the

sales are EP sales. See Outokumpu Copper Rolled Products AB v. United

States (``Outokumpu''), 829 F. Supp. 1371, 1378-80 (CIT 1993). Thus,

the facts of record, taken as a whole and considered in context,

demonstrate that these sales are essentially sales between NSC's

affiliated Japanese trading company and the unaffiliated U.S. customer,

with certain routine sales support functions carried out by the U.S.

affiliate. Therefore, we find that the facts on the record demonstrate

that the sales at issue meet the well-established criteria for indirect

EP sales.

In addition, we note that these sales constitute such a minute

portion of NSC's U.S. sales that, even if the Department had accepted

petitioners' argument both that they should be considered CEP sales and

that the Department should apply an adverse margin to these sales, the

impact on NSC's margin, if any, would have been negligible.

Comment 10: NSC's U.S. Sales Prices.

Petitioners contend that the Department should use the gross unit

U.S. price in dollars which appears on the invoice, and not a converted

net price in yen as the basis for its U.S. price calculations. NSC

reported the gross unit price for its U.S. sales in dollars, and this

value appears on the invoice, even though NSC's customers ultimately

pay for the merchandise in yen based on a nine day forward exchange

rate. NSC reported the price paid in yen minus a trading company

discount as NETPRTCU. Petitioners claim that the Department converted

the net yen value to dollars on the date of shipment, and state that

this approach is improper. Petitioners rely upon Ferrosilicon from

Brazil: Amended Final Results of Antidumping Duty Administrative Review

(``Ferrosilicon from Brazil''), 62 FR 54085, 54086 (1997), where the

Department amended its final results in order to use the U.S. dollar-

denominated gross unit price, and on Notice of Final Determination of

Sales at Less Than Fair Value: Stainless Steel Wire Rod from Japan, 63

FR 40434, 40446-7 (1998), where the Department also used a gross unit

price in dollars.

Department's Position: The Department disagrees that we should use

the gross unit U.S. price in dollars which appears on the invoice and

not the converted price in yen. The yen value on the invoice is the

value which is invoiced and paid by NSC's customers. For every U.S.

sale, and other export sales, NSC records the dollar value, the yen

value, and the exchange rate used to convert the dollar to yen, and

then tracks the yen invoice value through to their accounts receivable.

Petitioners' argument is that the Department should avoid unnecessary

conversion where possible. The Department verified that the yen value

on the invoice is converted using the yen to dollar exchange rate on

the ninth day after shipment. This conversion is pursuant to the terms

of sale agreed upon by the parties at the time of the order

confirmation. Therefore, for purposes of NSC's normal accounting

records, the yen value posted in the normal course of business is the

converted dollar value effective on the date of shipment, using the

methodology discussed above. In reporting U.S. sales to the Department,

NSC directly reported the yen value from the invoice as recorded in the

normal course of business. As a result, the Department used the yen

value from the invoice as the starting point in its calculation of U.S.

price.

Petitioners' reliance on the two administrative cases cited is

misplaced. The Ferrosilicon from Brazil case, unlike this case,

involved a forward exchange rate agreement. Thus, section 773A(a) of

the Act required that foreign currencies be converted into U.S. dollars

based on the exchange rate specified in the forward exchange rate

agreement. Instead, the Department, due to the erroneous impression

that it did not have dollar-denominated prices on record, ``mistakenly

converted the U.S. sales prices reported in Brazilian currency to U.S.

dollars on the date of sale.'' 62 FR at 54086. Because the

[[Page 24346]]

Brazilian currency gross unit amount which appeared on the commercial

invoice corresponded to the dollar-denominated price as of the date of

conversion pursuant to the forward exchange agreement, converting that

Brazilian currency value to U.S. dollars was an exchange rate error.

Because the dollar value reported to the Department already

corresponded to the dollar equivalent of the amount to be paid in

Brazilian currency on the proper day for making that currency exchange,

the Department used the submitted dollar value.

The Japanese wire rod case involved a situation similar to

Ferrosilicon from Brazil. In that case, the Department stated that the

invoice listed a gross unit price only in dollars, the conversion

factor associated with the forward exchange agreement, the amount

corresponding to a commission (or ``discount'') paid to the Japanese

trading company to which Nippon (i.e., NSC in the instant case) sold,

and a net price in yen that results after that ``discount'' was

deducted. 63 FR at 40447. As instructed in the questionnaire, Nippon

had reported the gross unit price on the invoice (which was in

dollars), and the Department had used this price as the starting price

in its preliminary calculations. Id. Petitioners urged that, because

payment was made in yen, rather than in dollars, the Department should

disregard Nippon's data and use facts available. Id. In the final

determination, the Department continued to use the reported dollar

gross price because Nippon, as requested, had provided the price on the

invoice. Id. In addition, the Department had verified that Nippon

received the yen-denominated amount corresponding to that dollar

amount, converted at the forward exchange rate reflected on the

invoice, minus the trading company's ``discount.'' Id. In other words,

once the discount was taken into consideration (as it would necessarily

be regardless of which currency was used), the dollar amount exactly

corresponded to the net yen amount petitioners complained had not been

used in the first place.

Based on the facts of the instant case, the Department has used the

yen value reported on the invoice as the starting point for the

calculation of U.S. price.

Comment 11: NSC's Arm's Length Analysis.

Petitioners argue that the Department should apply the arm's length

test to resales made by NSC's affiliated customer to other NSC

affiliates. On January 4, 1999, the Department requested that NSC add a

field to its sales database indicating the relation of the end-user to

NSC for sales made through one of NSC's affiliated resellers. Citing

lack of time, NSC responded by providing the Department with a list of

the affiliated reseller's customers who were also affiliated with NSC,

instead of updating the database. Therefore, petitioners request that

the Department apply the arm's length test to the subsequent sales by

NSC's affiliated reseller, where applicable.

Department's Position: The Department disagrees with petitioners.

The Department's regulations state that, if an exporter or producer

sold the foreign like product to an affiliated party, it may calculate

normal value based on such sales if it determines that the price is

comparable to the price at which the exporter or producer sold the

foreign like product to a person who is not affiliated with the seller.

See 19 C.F.R. Sec. 351.403(c). It is the Department's normal practice

to run the arm's length test on home market sales made by the producer

to an affiliated company to determine whether the prices for such sales

are comparable to prices charged to unrelated parties. In the instant

case, the Department conducted its normal arm's length analysis and

found that NSC's sales to the affiliated reseller at issue failed the

arm's length test. Therefore, our preference is to use the downstream

sales if available. Based upon the information placed on the record, we

find no basis for departing from the Department's normal practice in

this regard.

As the Department has stated in the Preamble to its regulations,

``[t]he purpose of an arm's length test is to eliminate prices that are

distorted.'' See 62 FR at 27356. Once a non-distorted price has been

identified in a given series of transactions for use as normal value,

``the Department does not believe it is necessary or appropriate to

require the reporting of downstream sales in all instances.'' See Id.

The approach proposed by petitioners, which would require routine

reporting of all downstream data for home market sales to affiliates,

so that the arm's length test could be conducted at multiple levels,

would be both burdensome and unnecessary. Thus, for the final

determination, when a sale by NSC to an affiliated party passed the

arm's length test, we did not conduct further tests to determine

whether the sales by that affiliate were also made at arm's length.

Comment 12: NSC's Home Market Downstream Sales.

NSC argues that the Department should continue to find that NSC

need not report any further downstream sales. As it did in the

Preliminary Determination, NSC contends that the process of acquiring

the necessary information for the still unreported downstream sales

would be overly burdensome due to the manual effort involved, and the

affiliated reseller's limited retention of paper documents.

Furthermore, NSC has continued to work to report the downstream sales.

At verification, NSC demonstrated that the task of reporting the

outstanding downstream sales would be overly burdensome, and, in some

cases, impossible. In addition, NSC cites to the Department's

regulations at 19 C.F.R. Sec. 351.403(d), which state that in some

cases the Department will not require the reporting of all downstream

sales if the outstanding sales ``account for less than five percent of

the total value (or quantity) of the exporter's or producer's sales of

the foreign like product * * *'' As NSC's unreported downstream sales

meet this Departmental requirement, NSC requests that the Department

not change its Preliminary Determination regarding this issue.

Petitioners did not comment on NSC's argument in their rebuttal briefs.

Department's Position: We agree with NSC that certain downstream

sales should continue to be disregarded in the final determination.

Pursuant to Sec. 351.403 of the Department's regulations, the

Department does not normally require the reporting of downstream sales

if total sales of the foreign like product by a firm to all affiliated

customers account for five percent or less of the firm's total sales of

the foreign like product. In general, the Department does not believe

it necessary or appropriate to require the reporting of downstream

sales in all instances. Questions concerning the reporting of

downstream sales are complicated, and the resolution of such questions

depends on a number of considerations, including the nature of the

merchandise sold to and by the affiliate, the volume of sales to the

affiliate, the levels of trade involved, and whether sales to

affiliates were made at arm's length. In addition, the Department

normally will not require the respondent to report the affiliate's

downstream sales unless the sales to the affiliate fail the arm's

length test. The Department believes that imposing the burden of

reporting small numbers of downstream sales often is not warranted, and

that the accuracy of determinations generally is not compromised by the

absence of such sales.

In the instant case, NSC requested that it be excused from

reporting a small percentage of home market downstream

[[Page 24347]]

sales due to overwhelming burdens in obtaining the information and the

fact that these downstream sales will not constitute appropriate

matches for their U.S. sales of subject merchandise. Furthermore, the

Department examined these sales at verification and confirmed that

these sales will not constitute appropriate matches for U.S. sales. See

NSC Home Market Verification Report, dated March 26, 1999. After

examining the data placed on the record, the Department has determined

that there are sufficient matches of sales in the home market and that

the downstream sales in question account for less than three percent of

each firm's total home market sales of subject merchandise. For

purposes of this final determination, the Department is disregarding

this small percentage of downstream sales.

Comment 13: Request for Written Opinion/ Ex Parte Communications.

NSC argues that, pursuant to section 782(g) of the Tariff Act (19

U.S.C. Sec. 1677m(g)), and in accordance with the SAA at 814, the

Department must inform all parties of the essential facts under

consideration before making a final determination, and give all parties

sufficient time to defend their interests. See Bethlehem Steel Corp. v.

United States, 27 F. Supp. 2d 201, 207-08 (CIT 1998); Michael Y. Chung,

U.S. Antidumping Laws: A Look at the New Legislation, 20 N.C.J. Int'l

L. & Com. Reg. 495, 525 (1995). NSC states that the Court of

International Trade has held that the Department cannot rely on

information on which the parties have not been given an opportunity to

comment. See Wieland-Werke AG v. United States, 4 F. Supp. 2d 1207 (CIT

1998). NSC argues that this requirement is necessary to provide due

process and a fair judgement. NSC charges that the Department has not

provided NSC with all information relevant to this investigation, and

thus appears to be about to make a final determination which does not

afford NSC the right to defend itself or respond to that information.

In particular, NSC notes that the Department has not placed on the

record the factual or legal bases for its decision not to verify NSC's

theoretical-actual weight conversion factor. NSC states that the

Department has not responded to its letters on this issue and has not

placed on the record an ex-parte memorandum with respect to the meeting

between NSC's representatives and Deputy Assistant Secretary Spetrini

at which this issue was discussed.

NSC argues that the Department's failure to explain its basis for

not verifying the conversion factor violates section 782(g) of the

Tariff Act (19 U.S.C. Sec. 1677m(g)) and Article 6.9 of the Antidumping

Agreement (referring to informing parties of the essential facts under

consideration, so that they may defend their interests), as well as

Sec. 351.307(c) of the Department's regulations and Article 6.7 of the

Antidumping Agreement (which relate to reporting on the results of

verification). NSC argues that the Department has refused to provide

this information, that this refusal was illegal, and that it has

prejudiced NSC's ability to defend its interests and affected its due

process rights. In this respect, NSC relies upon the SAA at 814, and

Clifford v. United States, 136 F.3d 144, 149 (D.C. Cir. 1998). NSC

states that the Department's actions raise the specter of government

officials secretly prejudging this matter, and not allowing NSC to

respond or defend its interests. See NEC Corp. v. United States, 151

F.3d 1361, 1374 (Fed. Cir. 1998). NSC concludes that, for these

reasons, the Department's decision on theoretical weight cannot stand.

NSC also cites the statutory requirement that the agency document

ex-parte communications on the official record. See section 777(a)(3)

of the Tariff Act (19 U.S.C. Sec. 1677f(a)(3)); see also Gilmore Steel

Corp. v. United States, 585 F. Supp. 670, 679 (CIT 1984). The

Department is required to include notice of these communications in the

official record of the case for judicial review. NSC states that, in

addition, in order to allow interested parties to comment on

information submitted by other parties during such meetings, see 19

C.F.R. Sec. 351.301(c)(1), information communicated during ex-parte

meetings must be placed on the record.

NSC states that the Department has ``chosen secrecy over

transparency'' by not placing on the official record memoranda

memorializing any ex-parte meetings between petitioner or other

interested parties and members of the Administration concerning issues

presented during this proceeding, and cites press reports alleging the

occurrence of several meetings relating to this case. NSC adds that the

Department also did not respond to NSC's letters requesting that ex-

parte memoranda be placed on the record. NSC argues that the Department

is thus in violation of section 777(a)(3) of the Tariff Act (19 U.S.C.

Sec. 1677f(a)(3)) and 19 C.F.R. Sec. 351.104. NSC claims that, coupled

with the violations of Article 6.9 and 19 U.S.C. Sec. 1677m(g)

described above, the Department's actions in this respect threaten the

fairness and integrity of the entire proceeding. Petitioners did not

comment on NSC's request in their rebuttal briefs.

Department's Position: We disagree with NSC's assertion that the

Department has not provided NSC with all information relied upon in the

investigation, in particular information relating to the Department's

decision regarding NSC's sales made on a theoretical weight basis. At

the time that the Department made the decision not to verify the

theoretical-to-actual weight conversion factor, the Department

explained to NSC's counsel the basis for the Department's actions. In

addition, the Department issued a letter dated April 12, 1999,

explaining the reason for rejecting the submitted conversion factors.

The factual and legal bases for the Department's decision regarding

these sales are also discussed in Comment 29, ``Use of Facts Available

for NSC's Theoretical Weight Sales.''

The Department, pursuant to section 777f(a)(3) of the Act has

placed all ex parte communications on the official record of the case

and they are available to interested parties in room B-099 of the main

Department of Commerce building. The only ex parte communications

relating to NSC's sales made on a theoretical weight basis were

communications with representatives of NSC. Therefore, NSC was not

prejudiced by any delay in recording those communications for the

record. In addition, as reflected in the memos summarizing ex parte

communications, all ex parte communications with petitioners' counsel

involved no new information and all information discussed was on the

record.

The Department disagrees with NSC that it was not informed of the

essential facts and did not have sufficient time to defend its

interests. NSC, like other parties in this proceeding, has availed

itself of the myriad opportunities to participate actively in the

antidumping investigation by submitting information and argument and by

commenting on information and argument placed upon the record. NSC has

done so in meetings with the Department, in written briefs, and during

the hearing conducted in this proceeding. In particular, NSC devoted

over 40 pages of its case brief to arguing the actual/theoretical

weight issue and argued the issue again at the hearing. Thus, NSC, like

all other parties, has been given ample time to analyze and comment

upon the essential facts under consideration, and to preserve its

rights to appeal the decisions of the Department.

[[Page 24348]]

Cost of Production

NSC

Comment 14: NSC's Costs for Particular CONNUMs.

Petitioners argue that the Department should use adverse facts

available for any U.S. sales that are matched to control numbers

(``CONNUMs'') for which NSC failed to report product-specific cost.

Petitioners state that the Department requested NSC to provide product-

specific cost for all CONNUMs, including those that, in NSC's view,

were not likely to be matched to U.S. sales. By refusing to provide the

information, the petitioners assert, NSC has significantly impeded the

investigation by failing to cooperate to the best of its ability.

Petitioners maintain that the statute mandates use of facts available

in several circumstances, including when a respondent withholds

requested information or ``fails to provide such information by the

deadlines for submission of the information.'' Section 776(a)(2)(A) and

776(b) of the Act authorize the Department to use an adverse inference

where the respondent has ``not acted to the best of its ability to

comply with a request for information.'' As further support for their

position, petitioners cite Certain Welded Carbon Steel Pipes and Tubes

from Thailand: Final Results of Antidumping Duty Administrative Review,

62 FR 53808, 53819-20 (October 16, 1997), in which the Department

determined that an adverse inference was warranted because the company

being reviewed failed to act to the best of its ability and did not

comply with the Department's request.

In addition, petitioners contend that adverse facts available

should be applied to 19 CONNUMs for which the Department found certain

problems at verification. For these CONNUMs, costs were reported on a

product-specific basis and on a CAPS code basis, but were then weight-

averaged across a ``mix of products.'' According to petitioners, the

evidence shows the respondent did not act to the best of its ability in

reporting these costs, and an adverse inference should be used in

applying facts available to ensure that the respondent will not be

rewarded for its failure to supply the necessary information. Thus, for

the final determination, whenever a U.S. sale is matched to a home

market CONNUM for which product-specific costs were not reported, the

Department should apply the highest calculated margin as facts

available.

NSC argues that petitioners' suggestion that the Department should

use adverse facts available for the products for which costs were

reported on a broad product group average (i.e., CAPS code specific

basis) is unwarranted. NSC contends that it has cooperated as far as

possible given the accelerated timeframe and fully explained its

inability to report all costs on a product-specific basis. Moreover,

NSC asserts that under section 782(e) of the Tariff Act (19 U.S.C.

Sec. 1677m(e)), the Department is required to consider respondents'

information, even if it is not submitted by the deadlines or in the

form requested. NSC claims, however, that the information submitted was

timely, complete and verified, and thus the Department has no basis for

the use of facts available or adverse facts available.

Further, NSC asserts that if facts available is warranted, an

adverse inference should not be applied because the information on the

record does not establish that NSC failed to act to the best of its

ability throughout the investigation. In support of its position NSC

cities 62 FR 27340, where the Department explained that it will

consider whether ``practical difficulties'' contributed to a

respondent's inability to supply requested information. Accordingly,

the Department has no grounds to apply facts available with adverse

inferences.

In addition, NSC argues that if the Department decides an adverse

inference is proper, applying the highest calculated margin is aberrant

and not consistent with the law or the Department's past practice.

According to NSC, the Department's well-established policy limits it to

the highest non-aberrant margin. See Notice of Final Determination of

Sales at Less Than Fair Value: Stainless Steel Wire Rod From Italy, 63

FR 40422, 40428 (1998). Further, NSC contends that a margin is not

always the most appropriate means of substituting missing information.

Thus, NSC asserts, should the Department choose to apply an adverse

inference in selecting facts available, it should consider using

information on the record related to the missing data, as opposed to

using a punitively high margin.

Department's Position: We agree with petitioners that adverse facts

available should be applied to any U.S. sales which are matched to

CONNUMs for which the product-specific costs have not been provided. As

noted in the comments from the petitioners, section 776(a) of the Act

provides that, if an interested party withholds information that has

been requested by the Department, fails to provide such information in

a timely manner or in the form or manner requested, significantly

impedes a proceeding under the antidumping statute, or provides

information which cannot be verified, the Department shall use, subject

to section 782 (d) and (e), facts otherwise available in reaching the

applicable determination. In this investigation, on more than one

occasion, the Department requested that NSC provide product-specific

cost data for all U.S. and home market sales of subject merchandise.

However, NSC failed to provide this information for certain CONNUMs. As

noted in the cost verification report, the Department found nineteen

CONNUMs where the mix of products within the CONNUM included both

product-specific costs and costs reported on a broader product group

cost, which means that the reported costs for these CONNUMs are not

product-specific. Since NSC failed to provide the necessary information

in the form and manner requested, and in some instances the submitted

information was found to be inaccurate, we conclude that pursuant to

section 776(a) of the Act, use of facts otherwise available is

appropriate.

Moreover, section 776(b) of the Act, provides that an adverse

inference may be used when an interested party has failed to cooperate

by not acting to the best of its ability to comply with requests for

information. As discussed above, even though we asked twice, NSC failed

to comply with our requests for product-specific information. The

information necessary to compute CONNUM specific costs for the products

in question was available in NSC's books and records (as evidenced by

the existence of similar data used to report product-specific costs for

the products sold to the United States). NSC, however, simply elected

not to report CONNUM-specific costs for these products because they

believed these products would not be used as matches in the antidumping

margin. Thus, for the final determination, we applied the highest

calculated margin to any U.S. sales which is matched to home market

CONNUMs for which the product-specific cost data was not reported.

Comment 15: NSC's Corrections to U.S. CONNUM Database Presented at

Verification.

At verification, NSC submitted, as a minor correction, data showing

that certain CONNUMs had been reported incorrectly due to an improper

conversion from millimeters to inches. This resulted in the creation of

a small number of new U.S. CONNUMs. According to petitioners, the

Department should use adverse facts available for these CONNUMs in

[[Page 24349]]

calculating the margin for the final determination, because NSC failed

to supply cost information for the new CONNUMs.

NSC rebuts petitioners argument and states that the costs for the

new CONNUMs are reported in Verification exhibit B.1 and 15, and also

included in the revised cost file NSC submitted at the Department's

request on April 14, 1999. NSC asserts that it did not fail to report

product costs for the minor corrections submitted at verification. NSC

contends that full costs for all U.S. CONNUMs, including all of the new

CONNUMs related to the minor corrections were included in the cost

verification exhibits and in a cost file subsequently requested by the

Department.

Department's Position: We disagree with petitioners. At

verification, NSC provided a worksheet which showed the product-

specific cost for the new CONNUMs created due to the minor correction.

In addition, on April 14, 1999, the Department requested and received a

revised COP and CV tape which reflects the minor corrections presented

at verification.

Comment 16: NSC's Electricity Purchases.

The petitioners argue that the Department should not use transfer

prices to value transactions between NSC and its affiliated suppliers

of electricity. Instead, petitioners assert that, in dealing with

transactions between affiliated suppliers under section 773(f)(2) and

(3) of the Act, it is the Department's practice to value major inputs,

like electricity, at the higher of the transfer price, market price or

actual cost of production. Further, petitioners contend that there is

nothing on the record to warrant changing the Department's an

established practice. According to petitioners, NSC's claim that the

price differential between the affiliated and unaffiliated suppliers is

due to the different levels of distribution is baseless. Petitioners

assert that the record shows there is no ``wholesale market'' for

electricity in Japan.

In addition, petitioners dispute NSC's claims that the financial

performances of the affiliated and unaffiliated suppliers are relevant

as to whether the market price exceeds transfer price. Further,

petitioners contend that financial analyses are not a function of

prices charged to an affiliated company. Therefore, NSC is overlooking

the purpose of the arm's length test-- to guarantee a price that

reflects the market value. Thus, for the final determination, the

petitioners contend that the Department should adjust the transfer

price to reflect the higher market price.

NSC contends that the Department should not adjust the price it

paid to its affiliated electric power cooperatives (``co-ops'').

According to NSC, a simple comparison between the rates paid to their

affiliated suppliers and those paid to their unaffiliated suppliers

(i.e., regional electric companies) is meaningless. NSC argues that the

electricity supplied by the affiliated and unaffiliated suppliers

involves different segments of the electricity market. Specifically,

the co-ops are wholesalers, whereas the regional companies are

retailers. In addition, respondent asserts that it demonstrated at

verification, through financial analysis, that the co-ops are not

selling electricity at unreasonably low rates for wholesalers of

electric power as compared to the unaffiliated regional electric

companies. NSC further points out that if co-ops were to adjust their

prices to equal the retail market price, the result would be an

unrealistically high rate of return on assets. Thus, NSC claims it

would be inappropriate for the Department to make any adjustment to its

reported electricity costs.

Department's Position: While we disagree with petitioners that

NSC's electricity purchases from its affiliated suppliers represent a

major input in this case, we agree that the reported cost of

electricity purchased from its affiliates should be adjusted to a

market price (i.e., arm's length price) in accordance with section

773(f)(2) of the Act.

We disagree with NSC's argument that section 773(f)(2) of the Act

requires the Department to take into account whether NSC's affiliated

and unaffiliated suppliers of electricity are at different levels of

distribution, and if they are, to refuse to compare the prices charged

by each the two groups of suppliers. Even if these suppliers do operate

at different levels of distribution, the customer (i.e., NSC) in all

instances, is at the same level. Section 773(f)(2) of the Act focuses

on whether the arms-length comparison reflects comparable merchandise

and whether the transaction occurred in the market under consideration.

It does not focus on the nature or circumstances of the supplier. In

this instance, both NSC's affiliated and unaffiliated electricity

suppliers provided the identical input to NSC. Purchases of electricity

from its affiliated and unaffiliated suppliers occurred in Japan, the

market under consideration.

We also disagree with NSC that a comparative return on asset

analysis is indicative of whether transactions between affiliates

occurred at market prices. The structure and efficiency of an entity is

unique to that entity's operations. We agree that those characteristics

do impact the profitability of an entity; however, we disagree that it

is indicative of whether the selling practices in a particular market

are necessarily at arm's-length prices. Accordingly, for the final

determination, we adjusted NSC's electricity purchases from affiliates

to reflect the prices charged by its unaffiliated suppliers.

Comment 17: NSC's Exchange Gains and Losses.

The petitioners argue that NSC failed to provide requested

information as to the types of transactions that gave rise to reported

foreign exchange gains and losses. The petitioners claim that NSC is

able to segregate its foreign exchange gains and losses and contend

that NSC's chart of accounts provides evidence that the means to do so

were readily available. The petitioners note that this information was

necessary because the Department treats exchange gains and losses

differently depending on their source.

The petitioners state that, since NSC failed to comply with the

Department's request to the best of its ability, the Department should

draw an adverse inference and conclude that the entire amount of the

transaction exchange gain is related to accounts receivable and thus

should be disallowed. In addition, the petitioners argue that the

Department should draw the adverse inference that the entire amount of

exchange losses is related to accounts payable and should therefore be

included in the cost of manufacturing.

NSC contends that in reporting foreign exchange gains and losses,

it acted to the best of its ability and petitioners claim that an

adverse inference should be applied is without merit. Although NSC

notes that its chart of accounts divides exchange gains and losses into

certain categories, in practice those accounts are not used. NSC

asserts that it does not maintain transaction-specific data on foreign

exchange gains and losses. Accordingly, NSC argues that reclassifying

the information to meet the Department's request would be overwhelming.

Thus, NSC asserts that it acted to the best of its ability and there is

nothing on the record to suggest that it could have reported the

requested information. Further, NSC argues that the Department should

continue to exclude the portion of the exchange losses unrelated to the

cost of production of hot-rolled steel.

Department's Position: While we disagree with the petitioners that

we found evidence indicating that NSC had the means to segregate its

foreign exchange gains and losses, we agree that

[[Page 24350]]

the foreign exchange gains should be excluded and certain foreign

exchange losses included in the calculation of the G&A expense ratio.

It is the Department's normal practice to distinguish between foreign

exchange gains and losses from sales transactions and exchange gains

and losses from other types of transactions. See, e.g., Final

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

Trinidad & Tobago, 63 FR 9177, 9181 (February 24, 1998). The Department

normally does not include exchange gains and losses generated from

accounts receivable. Since NSC failed to provide any documentation

showing that the foreign exchange gains should be included as an offset

to the G&A expenses, we do not consider it appropriate to allow the

gains as an offset to reported costs. In addition, with the exception

of the exchange losses associated with or incurred by to divisions

unrelated to steelmaking, NSC failed to provide any substantiation that

the foreign exchange losses should be excluded. We therefore adjusted

NSC's G&A expense ratio to exclude the foreign exchange gains and

include certain foreign exchange losses.

Comment 18: NSC's G&A Expenses.

The petitioners argue that the Department should recalculate NSC's

G&A expense ratio to include all appropriate expenses, including

certain expenses the nature of which constitutes business proprietary

information. The petitioners contend that the expenses at issue, which

are discussed in more detail in the proprietary version of their case

brief, relate to the company as a whole, and that NSC should not be

permitted to exclude the portions of those expenses that relate to non-

steel divisions.

In addition, the petitioners argue that there is no reason to

believe that the poor performance of the Japanese economy affected any

NSC division differently than any other division and that NSC failed to

support this claim. The petitioners therefore believe that economic

conditions are irrelevant to the issue at hand and provide no basis for

excluding certain expenses from the G&A calculation.

NSC argues that its calculation of general and administrative

expenses properly allocates company-wide costs to the production of

hot-rolled steel. Specifically, NSC states that non-operating and

special profits and losses are properly allocated to the production of

hot-rolled steel using steel division cost of sales in the denominator,

and that all exclusions from the calculation relate to gains and losses

of non-steel divisions. NSC asserts that its non-operating and special

profits and losses differ from general and administrative expenses as

they arise from specific events and are not related to the operations

of the company as a whole. NSC contends that the Department has

excluded such special gains and losses from the cost calculation in the

past and cites Stainless Steel Wire Rod from Italy, 63 FR at 40430 in

support of its argument.

NSC argues that certain expenses at issue that were excluded from

the G&A calculation are accurately classified as special losses and

that the exclusion of these expenses should be retained. NSC contends

that these expenses are related to ongoing restructuring and are

determined by economic conditions at each separate division of the

company. Accordingly, NSC argues that such expenses are not related to

the company as a whole, but instead are specifically tied to each

division, and there is no reason to allocate a portion of the

proprietary expense associated with or pertaining to a separate

division to the G&A expenses of the steel division. Further, NSC

asserts that it demonstrated at verification that its allocation

methodology actually excluded fewer costs than were incurred by non-

steel divisions.

Department's Position: We agree with petitioners that the total

amount of the proprietary expenses should be included in the G&A

expense calculation. We find no reason to conclude that NSC's normal

accounting treatment of not including this proprietary item as a cost

of manufacturing, in accordance with its home country Generally

Accepted Accounting Principles (``GAAP''), is unreasonable or

distortive. In fact, there is virtually no difference in the amount of

these proprietary expenses allocated to subject merchandise whether

they are treated as G&A or as a cost of manufacturing. We consider

these expenses to relate to the general operations of the company as a

whole and as such consider it appropriate to allocate them on a

company-wide basis as a percentage of unconsolidated cost sales.

Comment 19: NSC's Blast Furnace Costs.

The petitioners argue that, for the final determination, the

Department should eliminate an offset for a reversal of a reserve for

the repair of blast furnaces. According to petitioners, the

Department's practice is to disallow the reversal of a charge taken in

a prior year because it would distort the current year's costs.

Petitioners note that, for instance, in Certain Cut-to-Length Carbon

Steel Plate from Germany: Final Results of Antidumping Duty

Administrative Review, 61 FR 13834, 13837 (March 26, 1996), the

Department disallowed a reduction in current year production costs by

the reversal of prior year operating expense accruals and write downs

of equipment and inventory. Petitioners further claim that, although a

reversal of a prior period charge is in accordance with Generally

Accepted Accounting Princip

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