Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From Mexico

DEPARTMENT OF COMMERCE

International Trade Administration

[A-201-822]

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

Stainless Steel Sheet and Strip in Coils From Mexico

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 7, 1999.

FOR FURTHER INFORMATION CONTACT: Fred Baker or Martin Odenyo, Import

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

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

20230; telephone: (202) 482-2924 or (202) 482-5254, respectively.

Applicable Statute and Regulations

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 codified at 19 CFR part 351 (1998).

Final Determination

We determine that stainless steel sheet and strip in coils (SSSS)

from Mexico are being, or is likely to be, sold in the United States at

less than fair value (LTFV), as provided in section 735 of the Act. The

estimated margins of sales at LTFV are shown in the ``Suspension of

Liquidation'' section of this notice.

[[Page 30791]]

Case History

We published in the Federal Register the preliminary determination

in this investigation on January 4, 1999. See Notice of Preliminary

Determination of Sales at Less Than Fair Value and Postponement of

Final Determination: Stainless Steel Sheet and Strip in Coils from

Mexico, 64 FR 125 (January 4, 1999) (Preliminary Determination). Since

publication of the Preliminary Determination the following events have

occurred:

We received an allegation of ministerial errors from Allegheny

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

Division of Bethlehem Steel Corporation, the United Steelworkers of

America, and AFL-CIO/CLC (petitioners) on December 28, 1998. We

addressed those allegations in a memorandum to the file dated January

28, 1999.

On January 6, 1999, we issued a supplemental questionnaire to

Mexinox S.A. de C.V. (Mexinox) regarding its section E (further

manufacturing) response. In response Mexinox made two submissions, one

on January 15, 1999, and the other on January 22, 1999.

We verified Mexinox's sections A (General Information), B (Home

Market Sales), and C (U.S. Sales) responses in San Luis Potosi, Mexico,

from February 1 through February 5, 1999. See Memorandum to the File;

``Verification of the Information Submitted by Mexinox S.A. de C.V.,''

March 5, 1999 (Mexinox sales verification report). We also verified

Mexinox's section D (cost of production) response in San Luis Potosi

from February 25 through February 29, 1999. See Memorandum to Neal

Halper, Acting Director, Office of Accounting; ``Verification of the

Cost of Production and Constructed Value Data,'' March 22, 1999

(Mexinox cost verification report). Public versions of these and all

other Departmental memoranda referred to herein are on file in room B-

099 of the main Commerce building.

From February 24, 1999 through February 26, 1999, we verified the

sales response of a U.S. entity we have determined to be affiliated

with Mexinox (Reseller). See Memorandum to the File; ``Verification of

the Information Submitted by Reseller;'' March 15, 1999 (Reseller sales

verification report). We verified the section E (further manufacturing)

response of Reseller from March 2, 1999 through March 4, 1999. See

Memorandum to Neal Halper, Acting Director, Office of Accounting;

``Verification of the Cost of Further Manufacturing,'' March 18, 1999

(Reseller cost verification report).

On January 22, 1999, and February 2, 1999, Mexinox and petitioners,

respectively, requested a public hearing on this investigation. We

received case briefs from petitioners and Mexinox on March 29, 1999; we

received rebuttal briefs from petitioners and Mexinox on April 5, 1999.

On April 14 and 15, 1999, petitioners and Mexinox, respectively,

withdrew their requests for a hearing.

Scope of the Investigation

We have made minor corrections to the scope language excluding

certain stainless steel foil for automotive catalytic converters and

certain specialty stainless steel products in response to comments by

interested parties.

For purposes of this investigation, the products covered are

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

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

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

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

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

that is annealed or otherwise heat treated and pickled or otherwise

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

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

it maintains the specific dimensions of sheet and strip following such

processing.

The merchandise subject to this investigation is classified in the

Harmonized Tariff Schedule of the United States (HTS) at subheadings:

7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,

7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,

7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,

7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,

7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,

7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,

7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,

7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,

7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,

7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,

7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,

7220.20.60.10, 7220.20.60.15, 7220.20.60.60, 7220.20.60.80,

7220.20.70.05, 7220.20.70.10, 7220.20.70.15, 7220.20.70.60,

7220.20.70.80, 7220.20.80.00, 7220.20.90.30, 7220.20.90.60,

7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and 7220.90.00.80.

Although the HTS subheadings are provided for convenience and Customs

purposes, the Department's written description of the merchandise under

investigation is dispositive.

Excluded from the scope of this investigation are the following:

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

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

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

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

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

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

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

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

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

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

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

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

In response to comments by interested parties, the Department has

determined that certain specialty stainless steel products are also

excluded from the scope of this investigation. These excluded products

are described below.

Flapper valve steel is defined as stainless steel strip in coils

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

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

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

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

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

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

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

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

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

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

commonly used to produce specialty flapper valves for compressors.

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

specialty steel product used in the manufacture of suspension

assemblies for computer disk drives. Suspension foil is described as

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

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

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

[[Page 30792]]

Suspension foil must be supplied in coil widths of not more than 407

mm, and with a mass of 225 kg or less. Roll marks may only be visible

on one side, with no scratches of measurable depth. The material must

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

1.6 mm over 685 mm length.

Certain stainless steel foil for automotive catalytic converters is

also excluded from the scope of this investigation. This stainless

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

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

structure for use in automotive catalytic converters. The steel

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

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

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

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

than 0.03 percent, lanthanum of less than 0.002 or greater than 0.05

percent, and total rare earth elements of more than 0.06 percent, with

the balance iron.

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

excluded from the scope of this investigation. This ductile stainless

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

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

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

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

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

sensors and is currently available under proprietary trade names such

as ``Arnokrome III.'' 1

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

Company.

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Certain electrical resistance alloy steel is also excluded from the

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

stainless steel manufactured to American Society of Testing and

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

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

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

melting point of 1390 degrees Celsius and displays a creep rupture

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

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

for circuit breakers and industrial furnaces, and in rheostats for

railway locomotives. The product is currently available under

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

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

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Certain martensitic precipitation-hardenable stainless steel is

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

ductile stainless steel product is designated under the Unified

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

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

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

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

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

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

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

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

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

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

manufacture of television tubes and is currently available under

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

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

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Finally, three specialty stainless steels typically used in certain

industrial blades and surgical and medical instruments are also

excluded from the scope of this investigation. These include stainless

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

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

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

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

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

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

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

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

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

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

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

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

carbide particles per 100 square microns. An example of this product is

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

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

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

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

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

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

more than Hv 500 guaranteed after customer processing, and is supplied

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

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

descriptive purposes only.

\5\ ``GIN4 HI-C'', ``GIN5'' and ``GIN6'' are the proprietary

grades of Hitachi Metals America, Ltd.

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Period of Investigation

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

31, 1998.

Fair Value Comparisons

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

were made at LTFV, we compared the export price (EP) or constructed

export price (CEP) to the normal value (NV), as described in the

``Export Price and Constructed Export Price'' and ``Normal Value''

sections of this notice, below. In accordance with section

777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs and

CEPs for comparison to weighted-average NVs or constructed values

(CVs).

Transactions Investigated

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

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

preference for using the invoice date as the date of sale. See 19 CFR

351.401(i). As explained in response to comment 12 (below), for this

final determination we have continued to rely upon Mexinox's invoice

dates in the home and U.S. markets as the date of sale. However, should

this investigation result in an antidumping duty order, we intend to

scrutinize further this issue in any subsequent segment of this

proceeding involving Mexinox.

Product Comparisons

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

products produced by the respondent covered by the description in the

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

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

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

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

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

like product on the basis of the characteristics and reporting

instructions listed in Appendix V of the Department's August 3, 1998

antidumping questionnaire.

[[Page 30793]]

Level of Trade

In our Preliminary Determination, we agreed with Mexinox that one

level of trade (LOT) existed for Mexinox in the home market.

Furthermore, we agreed with Mexinox that its U.S. EP and CEP sales

constituted two distinct LOTs, and that a CEP offset to NV was

warranted when comparing CEP to NV or CV. In their comments on the

Preliminary Determination, petitioners challenged our LOT

determination. However, based on our analysis of petitioners' comments

and Mexinox's rebuttal comments, we have not changed our Preliminary

Determination with respect to LOT. See comment 9 (below).

Export Price and Constructed Export Price

In the Preliminary Determination, we used Mexinox's reported EP/CEP

classification of its U.S. sales. In their comments on the Preliminary

Determination, petitioners challenged our acceptance of Mexinox's EP/

CEP classification. However, based on our analysis of petitioners'

comments and Mexinox's rebuttal comments, we have not changed our

preliminary determination with respect to EP/CEP classification. See

comment 8 (below).

We calculated EP and CEP using the same methods employed in the

Preliminary Determination except as noted below in the ``Department's

Position'' portions of the ``Comments,'' section of this notice and in

the Final Determination Analysis Memorandum from Fred Baker to John

Kugelman, dated May 19, 1999.

Normal Value

Home Market Viability

As discussed in the Preliminary Determination, in order to

determine whether the home market was viable for purposes of

calculating NV (i.e., the aggregate volume of home market sales of the

foreign like product was equal to or greater than five percent of the

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

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

sales of the subject merchandise, in accordance with section

773(a)(1)(B) of the Act. As Mexinox's aggregate volume of home market

sales of the foreign like product was greater than five percent of its

aggregate volume of U.S. sales of the subject merchandise, we

determined that the home market was viable. Therefore, we based NV on

home market sales in the usual commercial quantities and in the

ordinary course of trade.

Cost of Production Analysis

In response to a timely allegation filed by petitioners, we

conducted an investigation to determine whether Mexinox made sales of

the foreign like product during the POI at prices below its cost of

production (COP). In accordance with section 773(b)(3) of the Act, we

calculated the weighted-average COP based on the sum of Mexinox's cost

of materials, fabrication, general expenses, and packing costs. We

relied on respondent's COP and CV amounts except in the following

instances:

a. We made adjustments to the cost of inputs received from

affiliates in accordance with sections 773(f)(2) and (3) of the Act.

b. We revised the reported general and administrative expense to

include the accrued sludge clean-up for 1997 and to exclude expenses

incurred on behalf of subsidiaries.

c. We recalculated Mexinox's general and administrative expense

ratio based on the total cost of manufacturing.

d. We revised the reported net financing expense ratio to exclude

unsubstantiated foreign exchange gains.

We compared the weighted-average COP for Mexinox to home market

sales prices of the foreign like product, as required under section

773(b) of the Act. In determining whether to disregard home market

sales made at prices less than the COP, we examined whether such sales

were made (i) in substantial quantities within an extended period of

time and (ii) at prices which permitted recovery of all costs within a

reasonable period of time. On a product-specific basis, we compared COP

to home market prices, less any applicable movement charges, early

payment and other discounts, and direct and indirect selling expenses.

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

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

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

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

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

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

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

substantial quantities, in accordance with sections 773(b)(2)(C)(i) and

773(b)(2)(B) of the Act. Because we used POI average costs, in such

cases, pursuant to section 773(b)(2)(D) of the Act, we also determined

that such sales were not made at prices which would permit recovery of

all costs within a reasonable period of time. Therefore, we disregarded

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

prices below the COP, we disregard all sales of that product. When

there were no home market sales of identical or similar merchandise to

match to U.S. sales, we compared the U.S. sales to CV in accordance

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

Our cost test for Mexinox revealed that for certain products less

than twenty percent of Mexinox's home market sales were at prices below

Mexinox's COP. Therefore, we retained all sales of those products in

our analysis. For other products, more than twenty percent of Mexinox's

sales were at prices below COP. In such cases we disregarded the sales

that failed the cost test, while retaining the remaining sales for our

analysis. See Final Determination Analysis Memorandum dated May 19,

1999.

Price-to-Price Comparisons

For those products with home market sales that passed the cost

test, we based NV on Mexinox's sales to unaffiliated home market

customers and to affiliated home market customers who passed the

Department's arms-length test. (For an explanation of the arms-length

test, see the Preliminary Determination, 64 FR at 129.) We made

adjustments, where appropriate, for physical differences in the

merchandise in accordance with section 773(a)(6)(C)(ii) of the Act.

Where appropriate, we deducted from NV the amount of indirect selling

expenses capped by the amount of the U.S. commissions. We made a CEP

offset due to differences in LOT (see ``Level of Trade'' section

(above) and comment 9 (below)). We continued to make circumstance-of-

sale (COS) adjustments in accordance with section 773(a)(6)(c)(iii) of

the Act.

Price-to-CV Comparisons

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

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

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

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

profit. See section 773(e)(1) of the Act. In accordance with section

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

incurred and realized by the respondent in connection with the

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

of trade for consumption in Mexico. We calculated the cost of

materials, fabrication, and general expenses using the method described

in the ``Cost of Production Analysis'' section (above).

[[Page 30794]]

For selling expenses, we used the weighted-average home market selling

expenses. Where appropriate, we made adjustments to CV in accordance

with section 773(a)(8) of the Act. We also made COS adjustments by

deducting home market direct selling expenses from CV and adding U.S.

direct selling expenses.

Facts Available

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, or provides information

which cannot be verified, the Department shall use, subject to sections

782(d) and (e), the facts otherwise available in reaching the

applicable determination. See, e.g., Roller Chain, Other Than Bicycle

Chain, From Japan; Final Results and Partial Rescission of Antidumping

Duty Administrative Review, 63 FR 63671, 63673 (November 16, 1998). In

this investigation the Department has determined, for the reasons

stated in detail below, that one of Mexinox's U.S. affiliates submitted

information that could not be verified. Therefore, pursuant to section

776(a) of the Act, we have determined that the use of the facts

otherwise available is necessary in this instance.

However, the statute requires that certain conditions be met before

the Department may resort properly to the facts available. Where the

Department determines that a response to a request for information does

not comply with the request, section 782(d) of the Act provides that

the Department will so inform the party submitting the response and

will, to the extent practicable, provide that party the opportunity to

remedy or explain the deficiency. If the party fails to remedy the

deficiency within the applicable time limits, the Department may,

subject to section 782(e), disregard all or part of the original and

subsequent responses, as appropriate. Briefly, section 782(e) provides

that the Department ``shall not decline to consider information that is

submitted by an interested party and is necessary to the determination

but does not meet all the applicable requirements established by [the

Department]'' if the information is timely, can be verified, is not so

incomplete that it cannot be used, and if the interested party acted to

the best of its ability in providing the information. Where all of

these conditions are met, and the Department can use the information

without undue difficulties, the statute requires it to do so.

Finally, in selecting from among the facts otherwise available,

section 776(b) of the Act permits the use of an adverse inference if

the Department also finds that an interested party failed to cooperate

by not acting to the best of its ability to comply with the requests

for information. Adverse inferences are appropriate ``to ensure that

the party does not obtain a more favorable result by failing to

cooperate than if it had cooperated fully.'' The Statement of

Administrative Action (SAA) reprinted in H.R. Doc. 103-316 at 870

(1994). Furthermore, ``an affirmative finding of bad faith on the part

of the respondent is not required before the Department may make an

adverse inference.'' Antidumping Duties; Countervailing Duties; Final

Rule, 62 FR 27296, 27340 (May 19, 1997) (Final Rules). The statute

continues by noting that in selecting from among the facts available

the Department may, subject to the corroboration requirements of

section 776(c), rely upon information drawn from the petition, a final

determination in the investigation, any previous administrative review

conducted under section 751 (or section 753 for countervailing duty

cases), or any other information on the record.

As explained in the Department's response to Comment 6 (below), we

have determined that we must resort to the facts available with respect

to the sales and further-manufacturing data submitted by the Reseller.

At verification, we discovered numerous and systemic errors in the data

used by the Reseller to report its costs of further manufacturing of

subject merchandise. These errors included, inter alia, the failure to

match properly input coils and output finished products, the allocation

of processing costs to sales which had undergone no further processing

whatever, and cases where the quantities of output goods exceeded the

inputs. The vast majority of the subject merchandise sold through the

Reseller was first further processed by this company; therefore, the

deficiencies in its data affect a corresponding percentage of the

Reseller's submitted sales data. Furthermore, the mis-allocations not

only affected the Reseller's reported sales which had been subject to

further processing, but tainted the non-further-processed portion of

its database as well. In addition, the Reseller failed to identify the

producer of a significant portion of its sales in the United States,

and failed to report physical criteria vital to our model matching for

certain other transactions. As the breadth and depth of the

discrepancies leave us with no confidence in the underlying further-

processing data submitted by the Reseller, we have determined that

these data cannot serve adequately in the calculation of Mexinox's

overall weighted-average margin. Further, the record indicates that the

Reseller could readily have discovered and corrected the majority of

these errors prior to submitting its data to the Department and, at the

latest, prior to verification. See comment 6 (below). Accordingly, as

provided in section 776(b) of the Act, we find that the Reseller has

failed to cooperate by not acting to the best of its ability in

responding to the Department's requests for information. Therefore, we

have relied upon adverse facts available for the entirety of the data

submitted by the Reseller. As facts available we have assigned the

highest non-aberrational margin calculated for this final determination

to the weighted-average unit value for sales reported by the Reseller.

To determine the highest non-aberrational margin we examined the

frequency distribution of the margins calculated from Mexinox's

reported data. We found that roughly ten percent of Mexinox's

transactions fell within a range of 40 to 49 percent; we selected the

highest of these as reflecting the highest non-aberrational margin. We

then multiplied the resulting unit margin by the total quantity

attributed to resales of subject merchandise by the Reseller. See also

the Final Determination Analysis Memorandum, dated May 19, 1999. This

total quantity includes the material affirmatively verified as being of

Mexinox origin, as well as a portion of the merchandise of unidentified

origin allocated to Mexinox. To apportion the unidentified sales among

the investigations of stainless sheet in coil from Germany, Italy, and

Mexico (see Comment 7, below) we have adjusted the quantity for each of

the unidentified sales on a pro rata basis, using the verified

percentages of the Reseller's merchandise supplied by each of the three

respondent mills. We then applied the facts-available margin to these

unidentified sales transactions as explained above.

Affiliation

As explained in the Preliminary Determination and immediately

below, we find that for purposes of this investigation Mexinox is

affiliated with Thyssen Stahl and Thyssen AG (Thyssen) and, through

them, their affiliated sellers and steel service centers in the United

States. The Act defines ``affiliated persons'' at section 771(33).

Included within that definition

[[Page 30795]]

are the following persons: family members, any organization and its

officers or directors, partners, and employer and employee. See section

771(33)(A) through (D) of the Act. The statute also considers as

affiliated persons:

(E) Any person directly or indirectly owning, controlling, or

holding with power to vote, 5 percent or more of the outstanding

voting stock or shares of any organization and such organization.

(F) Two or more persons directly or indirectly controlling,

controlled by, or under common control with, any person.

(G) Any person who controls any other person and such person.

See section 771(33)(E) through (G) of the Act.

``Control'' is defined as one person being ``legally or

operationally in a position to exercise restraint or direction over the

other person.'' The SAA at 870 explained that including control in an

analysis of affiliated parties ``permit[s] a more sophisticated

analysis which better reflects the realities of the market place.'' The

SAA continues, ``[t]he traditional focus on control through stock

ownership fails to address adequately modern business arrangements,

which often find one firm `operationally in a position to exercise

restraint or direction' over another even in the absence of an equity

relationship.'' Id. at 838.

Finally, as the Department noted in its ``Explanation to the Final

Rules'' (i.e., its regulations), ``section 771(33), which refers to a

person being `in a position to exercise restraint or direction,'

properly focuses the Department on the ability to exercise `control'

rather than the actuality of control over specific decisions.'' Final

Rules, 62 FR at 27348. Thus, the statute does not require that we find

the actual exercise of control by one person over the other in order to

find the parties affiliated; rather, the potential to exercise control

is sufficient for such a finding.

In this final determination, we continue to find that Mexinox is

affiliated with Thyssen Stahl and Thyssen because Thyssen Stahl

indirectly owns and controls, through Krupp Thyssen Stahl (KTS),

thirty-six percent of Mexinox's outstanding stock. Thyssen, which

wholly owns Thyssen Stahl, likewise indirectly owns and controls

thirty-six percent of Mexinox. See Preliminary Determination, 64 FR at

126 and Memorandum to Joseph Spetrini, Mexinox Affiliation, December

17, 1998 (Affiliation Memo).

In addition, we continue to find that Mexinox is affiliated with

Thyssen's U.S. sales affiliates because the nature and quality of

corporate contact establish this affiliation by virtue of Thyssen's

common control of its affiliates and of KTS. The record demonstrates

that Thyssen, as the majority equity holder in, and ultimate parent of,

its various affiliates, is in a position to exercise direction and

restraint over the affiliates' production and pricing. As we stated in

the Preliminary Determination, ``Thyssen's substantial equity ownership

in Mexinox and Thyssen's other affiliates, in conjunction with the

`totality of other evidence of control' requires a finding that these

companies are under the common control of Thyssen.'' Id. For a full

discussion of Mexinox's affiliations see Comment 2 (below) and the

Affiliation Memo.

Currency Conversion

We made currency conversions into U.S. dollars in accordance with

section 773A(a) of the Act based on the exchange rates in effect on the

dates of the U.S. sales, as certified by the Federal Reserve Bank.

Analysis of Interested Party Comments

Issues Relating to Sales

Comment 1: Affiliation

Mexinox argues that the Department erred in finding that it is

affiliated with the Reseller, and in thus including the Mexinox-sourced

U.S. sales by the Reseller in the margin calculation. It argues that

under section 771(33) of the Act, the Department can find affiliation

between Mexinox and the Reseller only if it finds either:

1. A direct relationship between Mexinox and the Reseller whereby

one company:

a. Directly or indirectly owns, controls, or holds the power to

vote five percent or more of the other company's outstanding voting

shares (subsection (E)); or,

b. Otherwise controls the other company (subsection (G)); or

2. An indirect relationship between Mexinox and Reseller whereby

the two companies directly or indirectly control, are controlled by, or

are under common control with another party (subsection (F)).

Regarding a possible direct relationship between Mexinox and the

Reseller, Mexinox argues that the facts do not support such a finding

because neither company directly or indirectly owns, controls, or holds

the power to vote five percent or more of the other company's

outstanding voting shares, and there is no direct bilateral

relationship that allows one company to control the other. It states

that while the Reseller's parent company, Thyssen AG (Thyssen), does

indirectly own more than five percent of Mexinox through its ownership

of Thyssen Stahl AG (Thyssen Stahl) (which, jointly with Fried. Krupp

AG Hoesch-Krupp (Krupp), owns the entity Krupp Thyssen Stainless (KTS),

Mexinox's immediate parent), the relationship that must be examined is

that between Mexinox and the Reseller, and not that between Mexinox and

Thyssen. The corporate relationships at issue in this investigation,

Mexinox argues, are similar to those that existed in Certain Cold-

Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea;

Final Results of Antidumping Duty Administrative Review, 62 FR 18404

(April 15, 1997) (Steel from Korea). There respondent POSCO

participated in a joint venture (the entity POCOS) involving DSM, a

parent company of respondent Union. The Department concluded that

despite the existence of the joint venture, POSCO and Union were not

affiliated because (1) the two companies were separate operational

entities with no overlapping stock ownership, and (2) nothing in the

record indicated that either Union or POSCO was in a position to

control, either legally or operationally, the other party. Mexinox

argues that for the same reasons the Department must reach a similar

conclusion here if it focuses on Mexinox and the Reseller, the entities

at issue, rather than on Mexinox and Thyssen.

Given the absence of a direct relationship between the parties at

issue, Mexinox argues, Mexinox and the Reseller cannot be deemed

affiliated unless, in accordance with subsection (F) of section 771(33)

of the Act, they directly or indirectly control a third party, or are

themselves controlled by, or under common control with, another party.

Since neither Mexinox nor the Reseller control Thyssen, Mexinox states,

and the three companies are not under the common control of another

party, Mexinox cannot be deemed affiliated with the Reseller unless

Thyssen also directly or indirectly controls Mexinox. Mexinox argues

that despite the Department's preliminary determination, such is not

the case. It cites Steel from Korea to demonstrate that the Department

has held that the participation of two companies in a joint venture

(such as is the case here with Thyssen and Krupp, which jointly own

KTS, Mexinox's immediate parent) does not mean that the companies'

respective subsidiaries are affiliated with each other. As explained

above, in Steel from Korea, POSCO and DSM jointly owned the entity

POCOS, and

[[Page 30796]]

DSM independently owned and controlled a subsidiary, Union, which had

no operational or legal connection to POCOS. In response to

petitioners' argument that POSCO and Union were affiliated, the

Department stated, ``POSCO affiliation with DSM (through POCOS) and DSM

control over Union do not add up to POSCO control of Union. The

affiliation standard set forth in subsection (F) is thus not

satisfied.'' See Steel from Korea, 62 FR at 18417. Using the same

reasoning, Mexinox argues, the Department cannot find affiliation

between Mexinox and the Reseller simply because Krupp and Thyssen

jointly own KTS.

Furthermore, Mexinox argues that in making its determination that

Thyssen has the ability to control Mexinox and the Reseller (explained

in a December 17, 1998 memorandum to Joseph Spetrini, available in the

public file (Affiliation Memo)), the Department failed to consider both

the applicable law and certain factual data indicating that no such

control exists. 19 CFR Sec. 351.102(b)(1998) states that:

In determining whether control over another person exists, * * *

the Secretary will consider the following factors, among others:

corporate or family groupings; franchise or joint venture

agreements; debt financing; and close supplier relationships. The

Secretary will not find that control exists on the basis of these

factors unless the relationship has the potential to impact

decisions concerning the production, pricing, or cost of the subject

merchandise or foreign like product * * *

Furthermore, in the preamble to the final rules adopting this

definition the Department stated that ``we will consider the full range

of criteria identified in the SAA (Statement of Administrative Action),

at 838, in determining whether control exists.'' See Final Rules, 62 FR

at 27998. Moreover, Mexinox argues, the SAA admonishes that the

determination of whether control exists must ``reflect the realities of

the marketplace.'' See SAA at 838.

Given these legal criteria, Mexinox argues, the Department's

determination was flawed because it is Krupp, and not Thyssen, that

controls the operations of KTS and Mexinox, including Mexinox's

production, pricing, and cost decisions. Thyssen, Mexinox states, does

not have the ``potential to impact'' such decisions. This ``marketplace

reality'' is reflected in both a June 5, 1995 Krupp/Thyssen Stahl

shareholders agreement and in the circumstances surrounding KTS's and

Mexinox's operations. By its terms, this shareholders agreement,

Mexinox argues, ensures that Thyssen does not have the ability to

control KTS's operational decisions, and that the ability to make such

decisions rests solely with Krupp. In the Affiliation Memo, Mexinox

argues, the Department virtually ignored the provisions establishing

Krupp's direct control over KTS, and focused instead on certain

provisions that in principle allow Thyssen Stahl to exercise a degree

of influence over KTS in certain limited circumstances. For example:

The Department is correct that Thyssen was involved in

defining the underlying purpose of the joint venture prior to the

establishment of KTS, but the shareholders agreement in no way suggests

that Thyssen enjoyed ongoing operational control over KTS during the

POI. All joint venture partners enjoy freedom to contract at the outset

of a project. In this case, Mexinox states, in consideration for giving

up control over its stainless steel assets to Krupp through KTS,

Thyssen gained Krupp's management expertise and experience in stainless

steel manufacturing. From that point forward, Mexinox states, Thyssen

by agreement became a passive partner in the management of KTS.

The Department concluded from the shareholder's agreement

that Thyssen Stahl retained ``the ability to affect KTS's stainless

steel production and sales.'' However, Mexinox argues, the ability to

affect a party is not tantamount to the ability to control the party. A

finding of affiliation requires a showing of operational control, and

not the ability to affect another.

The Department, in stating that Thyssen Stahl's 40 percent

holding in KTS is ``sufficient to block (i.e., restrain) certain KTS

activities,'' shows that it is focusing on issues relating to the

corporate structure of KTS (e.g., decision-making powers), rather than

the operational matters that should be examined in an affiliation

analysis (e.g., the ability of one party to influence the production,

sales, or transfer pricing of the other).

The Department's affiliation memo states that under the

shareholders agreement specific powers and authority are accorded

directly to Thyssen as part of the agreement. This statement, Mexinox

argues, is a broad overstatement. The plain language of the

shareholders agreement establishes a dominant role for Krupp in the

formation and operation of the KTS management team and sharply limits

Thyssen's operational powers and authority as a party to the agreement.

Other examples Mexinox gives are not susceptible to public summary,

and are discussed in its March 29, 1999 case brief at pages 16-18.

For these reasons, Mexinox argues that the Department should

disregard the Reseller sales data and should instead calculate a margin

based on the arm's-length sales to the Reseller.

Petitioners argue that the Department correctly determined that

Mexinox and the Reseller are affiliated. First, they argue that Thyssen

does not need to be a majority shareholder in a company for the

Department to determine that control exists. As support for this

proposition, they cite Plate from Brazil in which the Department

stated,

The legislative history of the URAA make it clear that the statute

does not require majority ownership for a finding of control. Even a

minority shareholder interest, examined within the totality of other

evidence of control, can be a factor that we consider in determining

whether one party is in a position to control another.

See Cut-to-Length Carbon Steel Plate from Brazil; Final Results of

Antidumping Duty Administrative Review, 62 FR 18486, 18490 (April 15,

1997) (Plate from Brazil).

Furthermore, petitioners argue that contrary to Mexinox's

arguments, evidence of actual control is not required under the statute

to make a finding of control. Control is defined in terms of the

ability to control, that is, having the power to restrain or direct

another company's commercial activities. This does not require that the

one company be in a position to exert absolute control over the other,

either directly or indirectly. It is sufficient if the company merely

has ``the potential to impact decisions concerning the production,

pricing, or cost of the subject merchandise or foreign like product.''

See 19 CFR Sec. 351.102(b). Petitioners argue that the substantial

shareholdings in Mexinox through KTS by Thyssen Stahl (and, by

extension, its parent Thyssen) are only one important indicator of

Thyssen's control over Mexinox. Another is that Mexinox is publicly

described and well-known as a member of both the Krupp and Thyssen

Groups. Still another is that the record clearly demonstrates that the

two industrial groups have had a high--and increasing--degree of

cooperation and coordination.

Furthermore, petitioners argue that the fact that the shareholder's

agreement nominally gives Krupp (rather than Thyssen) ``full

operational and industrial control over KTS'' is not dispositive. The

preamble to the Department's regulations makes clear, they argue, that

the test is not whether a company has the ``enforceable ability to

compel or restrain commercial actions,'' but whether one firm is ``in a

position to exercise restraint or

[[Page 30797]]

direction'' (regardless of whether such control is actually exercised).

See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296,

27298 (May 19, 1997). Moreover, they state, the terms ``restraint and

direction'' are not synonymous with ``absolute control,'' but rather

are more suggestive of substantial ``influence'' over the other party's

commercial decisions.

Moreover, petitioners argue, the question is not which joint

venture partner is dominant under the shareholders agreement or how

disputes among the KTS directors are to be resolved under the

agreement. They argue that the very nature of a joint venture is to

operate a business for mutual benefit and with a least a large degree

of consensus, whatever the relative equity interests of the parties.

Clearly, Thyssen is participating in KTS because it hopes to benefit

from the venture. It is extremely unrealistic to believe that Thyssen

would take a forty percent stake in KTS and not expect that venture to

be responsive to Thyssen's own commercial interests to at least some

extent.

Furthermore, petitioners argue that the recent full merger of Krupp

and Thyssen confirms the closely allied interests of the two firms.

While Krupp and Thyssen formally remained separate companies during the

POI, their formal merger agreement in September 1998 only confirmed

what was obviously a longstanding strategic alliance between the two

firms, reflected most prominently in KTS. Between the KTS joint venture

and the ongoing merger discussions between them, petitioners state,

Thyssen and Krupp can reasonably be regarded as part of a single

corporate grouping during the POI.

Petitioners also argue that Mexinox's reliance on Steel from Korea

is misplaced. The issue here is not, as in Steel from Korea, whether

two parties who control a third party are themselves affiliated, but

whether a person jointly controlled by two parties is affiliated with

those parties' subsidiaries.

Based on the foregoing analysis, petitioners argue that Mexinox is

affiliated with Thyssen and that Thyssen has the ability to exercise

restraint over Mexinox within the meaning of 19 USC Sec. 1677(33) of

the Act. Moreover, given that Thyssen is affiliated with its

subsidiaries and thus has the ability to control those subsidiaries,

they argue that Mexinox is affiliated as well with the Thyssen

subsidiaries under the combined provisions of 19 USC Secs. 1677(33)(F)

and (G) of the Act.

Department's Position: We disagree with Mexinox. As stated in our

Preliminary Determination and Affiliation Memo, we have determined that

Mexinox is affiliated with Thyssen Stahl and Thyssen. Section

771(33)(E) of the Act provides that the Department shall consider

companies to be affiliated where one company owns, controls, or holds,

with the power to vote, five percent or more of the outstanding shares

of voting stock or shares of any other company. Where the Department

has determined that a company directly or indirectly holds a five

percent or more equity interest in another company, the Department has

deemed these companies to be affiliated.

We examined the record evidence to evaluate the nature of Mexinox's

relationship with Thyssen Stahl and Thyssen and have determined that

Mexinox is affiliated with Thyssen and Thyssen Stahl. Thyssen Stahl

indirectly owns and controls, through KTS, thirty-six percent of

Mexinox's outstanding stock. Thus, Thyssen, which wholly owns Thyssen

Stahl, likewise indirectly owns and controls thirty-six percent of

Mexinox. Mexinox's Section A questionnaire response (p. A-12) dated

September 8, 1998 (section A response), states that Mexinox is ninety-

percent owned by KTS. The supporting exhibits to this submission

confirm Thyssen Stahl's interest in KTS and KTS's ninety-percent

shareholder interest in Mexinox. In a submission dated December 9,

1998, the petitioners placed on the record publicly available data that

confirmed not only the foregoing shareholding interests, but also

confirmed that Thyssen Stahl is a wholly-owned subsidiary of Thyssen.

Consequently, Thyssen, through Thyssen Stahl and KTS, indirectly owns a

thirty-six percent interest in Mexinox. Therefore, Mexinox as a

subsidiary of the joint venture entity KTS, is affiliated with the

joint venturer Thyssen Stahl and its parent company Thyssen pursuant to

section 771(33)(E) of the Act. See Steel Wire Rod From Sweden; Notice

of Final Determination of Sales at Less Than Fair Value, 63 FR 40449,

40453 (July 29, 1998) (Rod from Sweden).

In addition, we have determined that Mexinox is affiliated with

Thyssen and its U.S. affiliates. Section 771(33)(F) of the Act provides

that the Department shall consider companies to be affiliated where two

or more companies are under the common control of a third company. The

statute defines control as being in a position legally or operationally

to exercise restraint or direction over the other entity. Actual

exercise of control is not required by the statute. In this

investigation the nature and quality of corporate contact necessitate a

finding of affiliation by virtue of Thyssen's common control of its

affiliates and of KTS. See Preliminary Determination 64 FR at 126 and

the Affiliation Memo. Such a finding is consistent with the

Department's determinations in Plate from Brazil (64 FR at 18490) and

Rod from Sweden (63 FR at 40452).

We also agree with petitioners that record evidence show that

Thyssen, as the majority equity holder and ultimate parent company of

its various affiliates, is in a position to exercise direction and

restraint over the Thyssen affiliates' production and pricing. See

Preliminary Determination 64 FR at 126 and the Affiliation Memo.

Thyssen also holds indirectly a substantial equity interest in Mexinox,

plays a significant role in Mexinox's operations and management, and

thus enjoys several avenues for exercising direction and restraint over

Mexinox's production, pricing and other business activities (see

Affiliation Memo). In sum, Thyssen's substantial equity ownership in

Mexinox and Thyssen's other affiliates, in conjunction with the

``totality of other evidence of control,'' requires a finding that

these companies are under the common control of Thyssen. Therefore, as

in the Preliminary Determination, we continue to find that Mexinox is

affiliated with Thyssen and Thyssen's U.S. subsidiaries, including the

Reseller.

Comment 2: Overreporting of Sales

Mexinox states that the Reseller over-reported resales of material

purchased from Mexinox by including transactions that it subsequently

traced to purchases of non-subject cut-to-length sheet. Mexinox argues

that since this merchandise is not covered by the scope of the

investigation, these non-subject sales should be excluded from the

Reseller's sales database.

Additionally, Mexinox separately listed at verification another

much smaller number of transactions where the material sold by the

Reseller was linked to non-subject cut-to-length metal purchased from

Mexinox, but where the U.S. Reseller performed additional processing.

Mexinox requests that this data set of non-subject merchandise also be

excluded from the margin calculations for the final determination.

Department's Position: We agree with Mexinox that information on

the record indicates that the Reseller reported some sales that are not

subject to the investigation. See the March 15, 1999 Reseller sales

verification report, p. 4. In our calculation of facts available for

the Reseller's sales in this final

[[Page 30798]]

determination, we have excluded the overreported volume of sales from

the calculation.

Comment 3: Downstream U.S. Sales

Mexinox argues that the Department erred in the Preliminary

Determination by including in its calculations a set of sales made by a

downstream reseller of the Reseller, and by applying a facts available

rate to these sales that was aberrational. The Reseller resold a small

amount of merchandise to another reseller of the Thyssen Group of

companies in the United States (Reseller II) on the last day of the

POI, and the first of this material was resold by U.S. Reseller II

after the POI. Mexinox argues that since the first sale to an

unaffiliated party occurred outside of the POI, none of these sales

should be included in the investigation. The respondent further argues

that it put forth its best effort to provide information about the

Reseller to the Department, and objects to the Department's decision to

resort to adverse facts available. Specifically, Mexinox disagrees with

the Department's decision to apply a facts available rate derived from

a sale of non-prime material. Finally, Mexinox believes that the

Department made a clerical error in applying facts available that

resulted in an overstatement of the margin for the sales at issue.

Petitioners state that there is no basis for the respondent's

objection to the Department's selection of facts available. They argue

that it is not appropriate to assume that sales to which facts

available are being applied are prime merchandise. They also restate

that the respondent's non-prime designations were found to be

completely unreliable at verification, and that the Department should

continue to apply the highest transaction margin where it determines

that facts available is appropriate for a quantity of U.S. sales.

Department's Position: We agree with Mexinox that because the sales

were sold to the first unaffiliated buyer in the United States after

the end of the POI, they should not be included in the analysis for

this determination. In our calculation of facts available for the

Reseller's sales in this final determination, we have excluded the

downstream volume of sales from the calculation.

Comment 4: Early Payment Discounts

Mexinox contends that the Department should apply neutral, rather

than adverse, facts available to the early payment discounts given by

the Reseller that the Department discovered (after publication of the

Preliminary Determination) at the Reseller verification. It states that

the discounts were not identified prior to verification as a result of

a misunderstanding on the part of company personnel. Furthermore, it

argues that its volume of discounts was very small, and the Reseller

would have gained no possible advantage by intentionally not reporting

them. For these reasons, Mexinox argues, the Department should apply

neutral facts available. It suggests applying a rate to all U.S. sales

based on the value of early payment discounts as a share of total sales

revenue.

Petitioners state that should the Department decide to use the

Reseller's sales listings, it would be appropriate for the Department

to attribute to each U.S. sale the maximum early payment discount

offered. Petitioners argue that because the respondent failed to report

these discounts on a sale-specific basis, the impact of this adjustment

is not negligible, but rather unknown. They argue further that the

respondent's explanation of why the adjustment was unreported is

irrelevant, and that the overall volume of omissions throughout the

investigation process should compel the Department to apply facts

available to the entire quantity of the Reseller's sales listing.

However, petitioners argue that if the Department decides to use the

Reseller's sales listing, it should attribute to each U.S. sale the

maximum early payment discount offered.

Department's Position: Because we have applied facts available to

the Reseller's sales, this issue is moot.

Comment 5: Prime Merchandise

Mexinox disputes the Reseller sales verification report's

determination that some of the material shipped as non-prime

merchandise was prime merchandise. Mexinox claims that of the six non-

prime transactions reviewed during verification, three had physical

defects, one was mis-reported, and two involved obsolete products which

remained in inventory for two years due to unusual product

characteristics. Mexinox cites the existence of a Department memorandum

which supports the definition of secondary merchandise as ``generally

steel which has suffered some defect during the production process* *

*'' (emphasis added). However, Mexinox argues that there are other

circumstances, such as sales of obsolete inventory, `side strands,'

`pup coils,' and the like which also call for non-prime designation of

the material. In support of this argument, the respondent emphasizes

that these sales were designated non-prime in the ordinary course of

business before commencement of antidumping proceedings. Mexinox cites

the existence of U.S. steel industry price lists which confirm that

non-prime designations are not limited to products with surface damage

or chemistries out of tolerance, but rather include products with

unusual characteristics which make it impossible for the producer to

sell the product as prime grade and at prime grade prices. Therefore,

Mexinox argues, the Department should not presume that only products

with specific physical damage or chemical irregularities are

legitimately classified as secondary.

Petitioners object to Mexinox's method of identifying non-prime

merchandise, stating that the method used has one implication when used

throughout the industry but a very different (and inappropriate)

implication in the context of an antidumping analysis. Petitioners do

not dispute the contention that for certain reasons an industry may on

occasion designate a non-defective product as non-prime. However, they

argue that for antidumping purposes, only verifiably defective

merchandise can be considered non-prime. Petitioners state that only

through this approach to classifying prime vs. non-prime merchandise

can the Department verify the bona fide nature of such categories.

Petitioners state that at a minimum, the Department should apply

adverse facts available to the quantity of Reseller sales reported as

non-prime (with the exception, perhaps, of the three sales that were

found at verification to be correctly so designated). Petitioners

further argue that the Department should state in its final

determination that in any administrative review proceedings, only

products with objective physical defects will be treated as non-prime.

Department's Position: Because we have applied facts available to

the Reseller's sales, this issue is moot.

Comment 6: Use of Facts Available for Reseller Based on Failure of

Verification

Mexinox reiterates its position regarding its affiliation with the

Reseller, but insists that if the Department uses the Reseller's data

in determining the final dumping margin, it use neutral facts available

as a result of any unforeseen errors or omissions in the data. Mexinox

claims that the use of adverse facts available would be inconsistent

with Departmental policy, because (1) Mexinox acted to the best of its

ability to respond to the Department's request for information, and (2)

any deficiencies in the data provided by the Reseller are due to

[[Page 30799]]

circumstances beyond Mexinox's control because it is unaffiliated with

the Reseller, and had no operational control over the Reseller. With

respect to the latter point, Mexinox argues that the Department has in

the past declined to use adverse facts available in cases where the

respondent's inability to obtain the requested data is due to its lack

of operational control over the reseller. In one instance where it did

otherwise, the CIT reversed and remanded the Department's final

determination applying adverse facts available to certain unreported

downstream sales by secondary steel centers in which the respondent

owned a minority interest. See Usinor Sacilor v. United States, 872

F.Supp. 1000 (Ct. Int'l Trade 1994) (Usinor).

Petitioners argue Mexinox has failed to make a case that the use of

neutral facts available is appropriate in this case. They argue that

particularly in light of Mexinox's affiliation with Thyssen and the

Reseller (an indirect subsidiary of Thyssen), the Reseller's lack of

cooperation should be imputed to Mexinox, and adverse facts available

applied to the Reseller's response. Regarding Mexinox's argument that

it cooperated to the best of its ability, petitioners state that the

exceptional number and range of instances in which Mexinox has given

incomplete and inaccurate data to the Department do not present the

picture of a company that was truly intent on assisting the Department

in the investigation. Had Mexinox straightforwardly wanted to give its

unqualified cooperation to the Department, petitioners argue, Mexinox

would have come forth with all of the Reseller's sales and would not

have compiled such a spotty and unreliable record. Based on the record,

they state, it is not reasonable to say that Mexinox has cooperated to

the best of its ability, and adverse facts available are therefore

appropriate.

Regarding Mexinox's argument that it had no operational control

over Reseller, petitioners argue that allowing a respondent

automatically to escape adverse facts available on the ground that the

respondent cannot secure information from another party is not an axiom

that the Department should embrace. The fact that necessary information

lies with even an unrelated third party is not a bar to application of

adverse facts available. See Helmerich & Payne, Inc. v. United States,

24 F.Supp. 2d 304, 308-309 n.6 (Ct. Int'l Trade 1998) (the Department

may apply adverse facts available in its discretion even when the

requested information is controlled by an uncooperative unrelated

company); Asociacion Colombiana de Exportadores de Flores v. United

States, 6 F.Supp. 2d 865, 887-88 (Ct. Int'l Trade 1998); Transacom,

Inc. v. United States, 5 F.Supp. 2d 984, 990-91 (Ct. Int'l Trade 1998).

Ultimately, therefore, whether or not the Department should resort to

adverse facts available, petitioners argue, is a decision the

Department has to make after having scrutinized the particular facts of

a given case, including whether the respondent has cooperated to the

best of its ability with the Department.

Furthermore, petitioners argue that the holding in Usinor has no

application here. First, the operative facts of Usinor were very

different from those here. In the proceeding that gave rise to Usinor

there was obviously an active discussion of limiting reporting

requirements. By contrast, Mexinox did not even attempt to engage in a

dialogue about reporting requirements, instead unilaterally conferring

permission for limited reporting upon itself. Moreover, the limited

reporting in question for Usinor dealt with 180,000 invoices that would

have had to be manually traced to the supplier--a hundred-fold more

than were at stake in Mexinox's situation. Finally, the question in

Usinor--whether the respondent has operational control over its

affiliated reseller--is clearly moot in this case because Mexinox's

affiliated reseller did in fact respond to the Department's

questionnaire in the instant proceeding (albeit incompletely).

Moreover, petitioners argue that Mexinox's arguments are misplaced.

The question at hand, they state, is not Mexinox's direct control over

the Reseller, but Thyssen's control over both Mexinox and the Reseller,

its indirect wholly-owned subsidiary. Had there been the will by

Mexinox to be responsive, the means were at hand for it to secure the

data through the intervention of Thyssen.

Further, petitioners argue that the verification uncovered numerous

significant errors that degrade the integrity of the sales listing, and

that therefore adverse facts available is warranted. First, the

Reseller never reported that it had granted early payment discounts on

sales to U.S. customers. The Department discovered the existence of

these discounts at the verification. (Petitioners also argue that if

the Department does not apply facts available to all of the Reseller's

U.S. sales, it should at least apply facts available to the early

payment discounts.)

Second, petitioners state that the Reseller improperly applied

prime and non-prime designations to its reported sales. They state that

the record does not support the Reseller's contention that it does not

warrant non-prime merchandise. Furthermore, they argue, the

verification report indicates that the Reseller acknowledged at the

verification that some of the material it sells as non-prime actually

has no physical defects. This admission is borne out, petitioners

state, by the Department's attempt to verify the non-prime designation

reported for specific sales. Of the six reported non-prime merchandise

sales the Department examined at verification, only two actually

consisted of defective merchandise. See Reseller sales verification

report at 7. The danger presented by accepting without penalty what is

at best a subjective designation by the Reseller is that it invites

manipulation. Respondents will be free to label as non-prime any low-

priced sales that they would like to have matched to lower priced sales

in the home market, thereby limiting the Department's ability to detect

and quantify dumping that is actually occurring.

Third, petitioners argue that there were numerous other errors in

the sample sales selected for verification. These included:

Misreported commission amounts;

Misreported grades;

Unreported further manufacturing charges;

Misreported payment dates;

Overstated gross prices;

Misreported freight;

Misreported quantities; and

Misreported interest rates.

Petitioners argue that none of the four Mexinox observations examined

by the Department came up ``clean.'' Even the overall quantity and

value of sales reported to the Department could not be reconciled.

Furthermore, petitioners argue that the reported further

manufacturing costs were also inaccurate. Based on the cost

verification report, they state that:

The cost allocation method (based on standard ``quantity

extras'') proved to be flawed;

Data underlying product-specific yield ratios proved to be

nonsensical in that output exceeded input;

The overall reporting of finished goods was grossly

overstated;

costs of certain processes went unallocated; and

Neither the outside processing costs nor the basis upon

which the Reseller allocated these costs to subject merchandise could

be substantiated.

Petitioners argue that because of the last-mentioned point, if the

Department decides not to use facts available for the

[[Page 30800]]

Reseller's entire sales database, it should at least use adverse facts

available for the value-added adjustment.

Mexinox argues that the Reseller did not fail verification.

Although the Department did identify some errors at verification, they

were isolated and did not undermine the basic integrity of the data.

Regarding early payment discounts, Mexinox states that the failure

to report this adjustment was caused by a misunderstanding on the part

of Reseller officials, and was an isolated and discrete error that had

no bearing on the accuracy or completeness of other portions of the

reported data. Mexinox acknowledges that some form of partial facts

available may be appropriate to fill in the gap in the data, but states

it would be inappropriate and unfair to apply punitive adverse facts

available.

Regarding the designation of prime and non-prime merchandise,

Mexinox admits that the Reseller does sell a small amount of material

as second grade that does not have physical or chemical defects, but

states that that material does contain other physical features

rendering it unfit for sale as a prime product (e.g., unusual sizes,

weights, and dimensions). Such non-standard material has lower value

and more limited marketability because the material is either

unsuitable for normal uses (such as where the coil is too small to be

efficiently run through machinery) or must be further worked to become

usable (such as where the material must be further slit, or cut to a

standard size). Because of its limited commercial value, such material

must be sold in the ordinary course of trade as non-prime products. The

practice that the Reseller follows in this regard, Mexinox states, is

no different from that followed by petitioner J&L Specialty Steel which

publishes a price list for ``secondary'' products including prices for

``sidestrands'' and ``excess prime.'' Furthermore, Mexinox argues that

if the Department were to follow the narrow definition of ``non-prime''

advocated by petitioners it would be ignoring real physical differences

in the material that limit its marketability and justify downgrading

the material as non-prime. The Department would err by unjustifiably

ignoring an established industry-wide practice followed by petitioners

themselves. Finally, Mexinox argues that petitioners' objection that

the designation of quality under these circumstances is subjective and

therefore not to be trusted makes no sense in the context of this

investigation. The Reseller's coding of non-prime products occurred

before the filing of the antidumping petition and was carried out in

the ordinary course of business. Therefore, Mexinox argues, whatever

concerns petitioners may have about ``manipulation'' of quality

designations to affect dumping comparisons in the future do not apply

to this investigation.

Regarding the numerous miscellaneous errors that petitioners cite,

Mexinox states that though the Department did identify some small

errors in the Reseller data during verification, the errors were not

nearly as widespread or serious as petitioners would wish them to

appear. Mexinox points out as a preliminary matter that the

verification report indicates that some of the sales selected for

tracing were selected because they had anomalous features. Thus,

Mexinox argues, these sales transactions cannot be considered

representative of the entire sales database. Furthermore, Mexinox

states that the petitioners' summary of the other errors allegedly

discovered in the Mexinox sample sales includes inaccuracies and

exaggeration. For example:

The ``misreported interest rates'' which petitioners cite

actually refers to a first-day clerical correction, rather than an

error discovered at verification.

There were no unreported further manufacturing charges.

The verification report clearly notes that a further manufacturing cost

was reported for the transaction at issue.

No freight was found to be misreported. The invoice

presumably referred to by the petitioners was a transaction where the

computer system did not include a standard freight amount. Rather than

report zero freight for this transaction, the Reseller conservatively

reported an average freight amount.

The ``misreported payment dates'' and ``misreported

commission amounts'' actually were not separate errors but instead were

one isolated error in the reporting of payment date for a particular

invoice which also affected the commission amount for that sale.

Mexinox also disputes petitioners' statement that the ``overall

quantity and value of sales reported to the Department could not be

reconciled.'' Mexinox, assuming that petitioners are referring to the

tiny difference between the quantity and value in the reporting

database and the data contained in the company's invoice history file,

states that the Reseller fully reconciled these amounts. The Reseller

sales verification report states, ``Reseller was able to produce a list

of all the invoices that account for these differences. It is contained

in verification exhibit 16.'' See Reseller sales verification report at

3.

Furthermore, Mexinox disputes petitioners' claims with respect to

the cost verification. It disputes petitioners' claim that the cost

allocation method used to report further manufacturing costs was found

to be flawed. Mexinox acknowledges that a discrete error in the

programming logic was identified at the verification, but states that

the effect of that error was very limited and Mexinox was able to

account for and list all of the transactions affected.

With respect to yield calculations, Mexinox states that there was

no discrepancy in the quantity of finished goods used in the

calculation as erroneously implied in the Reseller cost verification

report. The Department perceived there to be a discrepancy only because

the verifiers were comparing an incorrect figure submitted in the

initial Section E response to the correct figure timely placed on the

record before verification.

Also contrary to petitioners claims, Mexinox argues, there is no

finding in the Department's verification reports that ``costs for

certain processes went unallocated.'' The closest thing to such a

finding is the Department's observation that the computer program did

not directly assign a standard cost for re-spinning processing.

However, the costs of respinning were fully absorbed in the reported

further-manufacturing expenses through the application of the variance.

Thus, no processing costs remained unallocated.

Finally, regarding the calculation of outside processing costs,

Mexinox argues that it employed the best possible means of allocating

outside processing costs for the combined processors given limitations

in the available data. Similarly, although there may have been

differences due to timing between the figures reported in the

management reports used to report outside processing costs and the

amounts booked, those differences were small and were not clearly

biased in either direction. The Reseller's reporting method therefore,

Mexinox states, was both reasonable and accurate.

Based on the above information, Mexinox argues that, contrary to

petitioners' claims, the limited errors identified in the Reseller's

data do not come close to justifying the rejection of the entire

database in favor of facts available. Furthermore, even if the

Department deems it necessary to apply partial facts available with

respect to sales transactions identified as having errors, the

Department may not lawfully

[[Page 30801]]

apply an adverse inference with respect to those transactions absent a

finding that the Reseller failed to act to the best of its ability. It

argues that the conditions for the application of adverse facts

available are not present here because it is clear that both Mexinox

and the Reseller acted to the best of their abilities. Moreover,

Mexinox argues, it is critically important for the Department to

remember that the Reseller's data were compiled and presented by the

Reseller, and not Mexinox (which, it states, has no operational control

over the Reseller). Therefore, applying adverse facts available in this

case would not further the Department's goal of encouraging future

compliance because Mexinox simply lacks the ability to respond any more

completely than it already has.

Department's Position: We agree with petitioners that, pursuant to

section 776(a) of the Act, total facts available are warranted with

regard to sales through Mexinox's affiliated further manufacturer. In

the instant case, the use of total facts available for the Reseller

portion of Mexinox's section C response is warranted because the method

and computer programming used by the Reseller to identify its products'

physical characteristics and to match each of these products with its

associated costs were found at verification to be accomplishing neither

end consistently or accurately. Moreover, both the frequency of the

errors and the absence on the record of information necessary to

correct certain of these errors serve to undermine the overall

credibility of the further-manufacturing response as a whole, thus

compelling the Department to rely upon total facts available for the

Reseller's database. Reliance upon total facts available is required

for all further manufactured sales because the submitted data do not

permit calculation of the adjustments required under section 772(d)(2)

of the Act for ``the cost of any further manufacture or assembly

(including additional material and labor) * * *''.

We also find, as explained below, that the use of an adverse

inference is appropriate in this case because the record established

that the Reseller failed to cooperate with the Department by not acting

to the best of its ability in responding to our requests for

information. The manifest and manifold errors in the Reseller's

response evidence a failure to conduct even rudimentary checks for the

accuracy of the reported further-processing data. Indeed, a reasonable

check by company officials could have shown that (i) products that

underwent no further processing were being assigned further-processing

costs, (ii) further-processed products were not being assigned their

appropriate processing costs, (iii) coils passing through certain

processes were not being allocated any cost for the process, and (iv)

the output width of slit coils generated by a given master coil

exceeded the original width of that input coil.

While the Department frequently corrects reported costs or adjusts

incorrect data with facts otherwise available in order to complete an

investigation, it does so only when it is able reasonably to do so

using information on the record, and when its knowledge of the

company's records and the reasonableness and accuracy of the reporting

method serve to establish the integrity of the underlying data. In this

case, correction of the specific flawed data is not a viable option

because of the high percentage of errors found through our testing

(nearly 40 percent of the items tested were found to be in error). In

addition, some of these errors cannot be corrected using information on

the record. More importantly, the fundamental nature of these errors

raises concerns as to the validity not only of the data subjected to

direct testing, but of the remainder of the response as well.

The Department's antidumping questionnaire put interested parties

on notice that all information submitted in this investigation would be

subject to verification, as required by section 782(i) of the Act, and,

further, that pursuant to section 776 of the Act the Department may

proceed on the basis of the facts otherwise available if all or any

portion of the submitted information could not be verified. In

addition, in letters dated February 17 and 23, 1999, the Department

provided the Reseller with the sales and cost verification agendas it

intended to follow, both of which repeated the warning that any failure

to verify information could result in the application of facts

available. The cost verification agenda identified nine transactions

that the Department intended to test. The Reseller had a full week to

gather supporting documentation for these nine transactions and to test

for itself the accuracy of the further manufacturing data. Clearly, the

Reseller did not avail itself of these opportunities, since our testing

at verification revealed that costs for three of the nine selected

transactions contained fundamental and significant errors. See Reseller

cost verification report at 14 through 17. When the Department then

selected nine additional transactions for review, four of these were

also found to reflect significant errors. These included allocating

processing costs to non-processed material (id. at 15), mis-allocating

quantity surcharges (id.), and, more troubling, reporting finished

weights which exceeded the weight of the input material (``[t]his is

impossible and for this reason we could not verify the amount of

processing for this observation.'' Id.).

The first step identified in the Department's verification agendas

calls for the respondent, at the outset of verification, to present any

errors or corrections found during its preparation for the

verification. As we stated above, none of the errors discussed here

were presented by the Reseller at the outset of verification; many of

them were manifestly apparent and the Reseller was obligated to notify

the Department of these problems prior to verification.

We disagree with Mexinox's assertion that the numerous errors

identified by the Department affect only a small number of products out

of the possible universe of transactions and that the effect of the

errors is minuscule. As mentioned above, the Reseller created a

computer program to respond to the Department's questionnaire which

sought to match an input coil to each output coil sold and to assign a

cost for each processing step through which the finished coil

supposedly passed. When we tested this computer program at verification

to assess its accuracy and reliability, we found that seven of eighteen

tested transactions contained errors in either the allocation of

processing costs or in the matching of input coils to output coils. In

two of these cases, the Reseller had assigned processing costs to

products which had, in fact, undergone no processing whatever. We note

that this discrepancy arose from the input coils and output coils

identified by the Reseller's own computer program. In another

transaction, the combined widths of the finished products were greater

than the original width of the input coil as identified by the system,

an obvious physical impossibility that should have been identified by

the Reseller as an error. The nature of these errors raises serious

doubts as to the accuracy of the overall program used to match input

master coils to output slit coils as sold. It also serves to undercut

Mexinox's assertions that it acted to the best of its ability in

compiling this portion of its section C response. Further, several of

these errors served to understate the costs of further processing by

shifting portions of these costs to non-further-processed merchandise.

Since these errors affect the entire population of products sold (i.e.,

both processed and

[[Page 30802]]

unprocessed products), it is not possible for the Department to isolate

the problems and adjust for the errors accordingly.

The program also failed to assign properly certain finishing costs.

Certain coils with a pre-buff finish applied to the underside had no

finishing costs reported for the additional processing. Finally, other

transactions contained errors in the application of surcharges for

processing small quantity orders. In the samples tested, the Reseller

had reported quantity extra charges in excess of what should have been

reported. This error led to an understating of the variance between the

costs as allocated for purposes of the response and the costs as

maintained in the Reseller's financial accounting system. Once again,

both errors reduced the costs allocated to further processed products,

thus creating further doubts as to the accuracy of the underlying

reporting method.

We also find unpersuasive Mexinox's suggestion that because the

Reseller had to develop the computer program as a result of the

Department's highly detailed questionnaire it should therefore be held

blameless for any errors arising from its implementation of its chosen

computer logic. We must stress that every respondent in every

antidumping investigation is faced with the question of how best to

sort and retrieve the sales and cost data as maintained in its normal

course of business to respond to our questionnaire. This necessarily

entails the winnowing of its larger universe of sales to capture only

that merchandise subject to our investigation, and the further creation

of unique data fields to reflect the specific model-match criteria and

the applicable expense adjustments set forth in the questionnaire.

Finally, the resulting database must be refined to present the

transaction-specific information on sales and adjustments in the

precise formats required by the Department. That the Reseller, like

virtually all respondents in antidumping proceedings, chose to rely

upon a computer program as the easiest means to accomplish this end is

unremarkable and in no way mitigates the failings found in this case.

We note further that Mexinox itself largely succeeded in supplying data

relating to sales, expenses, and COP in compliance with equally

detailed reporting requirements. The surfeit of errors in the

Reseller's data was not the result of any unduly burdensome reporting

requirements imposed by the Department; rather, these shortcomings

resulted in their entirety from the Reseller's reliance on faulty

computer programming and data which the Reseller apparently failed to

review prior to verification.

Finally, we disagree with Mexinox's assertion that it was able to

quantify the extent of the cost errors on the final day of

verification. First, we note that the Reseller made no attempt to

explain or quantify two of the errors discovered by the Department, the

allocation of processing costs to unprocessed material and the

misreporting of the small-quantity surcharge. More importantly, due to

the volume of information that must be verified in a limited amount of

time, the Department does not look at every transaction, but rather

samples and tests the information provided by respondents. See, e.g.,

Bomont Industries v. United States, 733 F. Supp. 1507, 1508 (CIT 1990)

([v]erification is like an audit, the purpose of which is to test

information provided by a party for accuracy and completeness.'') and

Monsanto Company v. United States, 698 F. Supp. 275, 281

(``[v]erification is a spot check and is not intended to be an

exhaustive examination of a respondent's business.''). It has been the

Department's longstanding practice that if no errors are identified in

the sampled transactions, the untested data are deemed reliable.

However, if errors are identified in the sample transactions, the

untested data are presumed to be similarly tainted. This is especially

so if, as here, the errors prove to be systemic in nature. The fact

remains unchallenged that for two days of a scheduled three-day

verification we tested a number of further-manufactured transactions to

assess the reliability of the Reseller's method for reporting costs and

discovered numerous errors. The Reseller claimed on the last day of

verification that it had reviewed its further-manufacturing data and

isolated the magnitude of these errors. However, Mexinox's assertion in

its case brief that the Reseller succeeded in identifying all of the

errors is an unsubstantiated ipse dixit which could not be verified in

the time remaining. The only way to test this eleventh-hour claim would

have been to re-verify the entire further-manufacturing database.

Moreover, the proper time for the Reseller to check the accuracy of its

reported data was before these data were submitted, or, at the latest,

prior to the start of the verification. We presented Mexinox and the

Reseller with the cost verification agenda one week in advance

precisely to allow them to prepare properly for verification. Had the

Reseller reviewed the accuracy of the computer program used to report

its further manufacturing costs prior to verification, it could have

identified the errors and presented them to the Department on the first

day of verification. We consider it inappropriate for respondents to

expect the Department to retest the entire further manufacturing

database on the last day of verification after the Department uncovers

numerous errors as a result of its routine testing. Furthermore, the

requirements of section 782(d) that the Department provide a respondent

the opportunity to remedy such errors is inapplicable. Rather, as we

stated in Certain Cut-to-Length Carbon Steel Plate from Sweden,

[w]e believe [respondent] SSAB has misconstrued the notice

provisions of section 782(d) of the [Tariff] Act. Specifically, we

find SSAB's arguments that the Department was required to notify it

and provide an opportunity to remedy its verification failure are

unsupported. The provisions of section 782(d) apply to instances

where ``a response to a request for information'' does not comply

with the request. Thus, after reviewing a questionnaire response,

the Department will provide a respondent with notices of

deficiencies in that response. However, after the Department's

verifiers find that a response cannot be verified, the statute does

not require, nor even suggest, that the Department provide the

respondent with an opportunity to submit another response.

Certain Cut-to-Length Carbon Steel Plate from Sweden, 62 FR 18396,

18401 (April 15, 1997).

Finally, we reject Mexinox's arguments with respect to the

propriety of drawing an adverse inference with respect to a respondent

over whom they allegedly had no operational control. Mexinox goes to

great pains to assert that it never had control over the data submitted

by the Reseller; therefore, any lack of cooperation evinced by Reseller

cannot be imputed to Mexinox. See, e.g., Mexinox's case brief at 5.

Mexinox presents the issue as one in which Mexinox was at the mercy of

recalcitrant parties, only some of whom could be persuaded to

participate in the investigation: ``It is critically important in this

regard for the Department to remember that the U.S. Reseller's data was

compiled and presented by the U.S. Reseller--without the involvement of

Mexinox or any other respondent in these proceedings. Mexinox has not

even seen--let alone reviewed or prepared--the challenged data, and was

therefore not in a position to affect what or how that information is

compiled or presented.'' (Emphasis in original). See Mexinox's rebuttal

brief at 25. However, Mexinox's protestations that its officials did

not have the opportunity to review the Reseller's submitted data for

accuracy beg the point. The Department has never suggested that Mexinox

was

[[Page 30803]]

in a position to compel a reluctant Reseller to provide its sales and

cost data to Mexinox; rather, the thrust of our affiliation

determination has consistently been that Thyssen, not Mexinox, was in a

position to direct its U.S. affiliates to provide complete and timely

responses to the Department. For reasons beyond the Department's ken,

the Reseller chose to submit responses under the guise of a cooperative

respondent while withholding crucial information to make its responses

usable for purposes of establishing statutory U.S. price.

We note that throughout this investigation Mexinox has been

represented by legal counsel who certified each of Mexinox's (and the

Reseller's) submissions of fact in this case, claiming the counsel had

read the submission and had ``no reason to believe [it] contains any

material misrepresentation or omission of fact.'' See 19 CFR

351.303(g). Similarly, on January 15, 1999, the Reseller certified that

the responsible company official had read its submission and that the

information therein was, to the best of the official's knowledge,

complete and accurate. See, e.g., Mexinox's January 15, 1999 section E

supplemental response. Finally, throughout the preparation for the

Reseller verifications and the verifications themselves, counsel were

present at all times in the conference room. The Reseller was also

assisted by economic consultants retained by Mexinox specifically for

purposes of preparing responses in this antidumping investigation. The

fact remains that despite its disagreement with the Department's

decision on affiliation, Thyssen succeeded in persuading the Reseller

to submit a response; from that moment forward, it was incumbent upon

the Reseller to submit complete and accurate responses to our

questionnaires. It was the further responsibility of Mexinox's legal

representatives, acting throughout this proceeding on Mexinox's behalf,

to ensure that the data it helped prepare were reliable. Finally, the

record does not reflect that after Mexinox was directed to submit the

Reseller's sales and cost information it had trouble securing the

Reseller's cooperation (aside from Mexinox's stated objections for the

Department's legal reasoning). Had it been a case of Mexinox painfully

and laboriously extracting each datum from a recalcitrant unaffiliated

party, one would expect the record to reflect this in, for example,

written pleas of an inability to submit the requested data, or appeals

for modifications to reporting requirements in response to limited

available data. Instead, there is silence on this point. Mexinox

proceeded throughout the investigation as though the Reseller's full

cooperation was a given, once the Department had notified Mexinox that

the further-processed sales would be required for our analysis.

Therefore, we find the record clearly indicates that Mexinox had

the resources to secure the necessary level of cooperation from the

Reseller. The record also indicates that the Reseller failed to

cooperate by not acting to the best of its ability in compiling its

further-manufacturing response. Moreover, because the information

possessed by the Reseller is essential to the dumping determination,

the use of adverse facts available is appropriate regardless of

Mexinox's involvement in providing the information. See, e.g., Notice

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

Flat-Rolled Carbon Quality Steel Products from Japan, 64 FR 24329,

24367 (May 6, 1999). Therefore, consistent with section 776(b) of the

Act, we have drawn an adverse inference in selecting among the facts

available for use in lieu of the Reseller's unverifiable data. As

adverse facts available, we have assigned the highest non-aberrational

margin calculated on Mexinox's properly reported U.S. sales. See the

Final Determination Analysis Memorandum, dated May 19, 1999.

Comment 7: U.S. Sales of Unidentified Origin

Petitioners argue that if the Department does not apply facts

available to the Reseller's U.S. sales based on the results of

verification, it should apply facts available to the Reseller's U.S.

sales because Mexinox intentionally withheld until January 7, 1999 (six

months after receiving the August 3, 1998 antidumping questionnaire and

on the eve of verification) the existence of 2,000 (public version

figure) U.S. sales made by the Reseller. These were sales of

merchandise for which the Reseller claims it was unable to identify the

supplier. Petitioners argue that Mexinox's failure to report these

sales earlier than January 7, 1999 clearly demonstrates that Mexinox

did not act to the best of its ability to provide information in a

timely manner. Mexinox's tardiness in reporting these sales,

petitioners argue, is all the more serious in light of the high volume

they constitute as a percentage of Mexinox's reported total U.S. sales

quantity. The Department should reject Mexinox's attempt to downplay

the importance of these sales. Petitioners argue that the Department

should reject as implausible Mexinox's claim that it could not identify

the supplier of the merchandise. They argue that it is impossible that

a supplier of stainless steel sheet and strip products in the United

States would be unable to determine the origin of input coils in the

event of a product liability claim or a tax audit. Moreover,

petitioners argue, the listing was and remains irreparably incomplete

in that Mexinox has continued to withhold the identity of the suppliers

(despite the fact that the Department found at verification that

suppliers could have been identified for several sales reported as

``unidentified vendor'') and failed to provide important product

characteristics for numerous sales. For all of these reasons,

petitioners argue, the use of facts available is justified under

section 776(a) of the Act which provides that if an interested party

withholds information that has been requested, 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 the alternative, petitioners

argue that adverse facts available should at least be applied to the

sales of unknown origin.

Mexinox argues that petitioners' insinuation that Mexinox

deliberately conspired to withhold information from the Department

related to the unattributed sales is nonsense. It states that it could

not have engaged in such a conspiracy because it had no direct

involvement in the preparation of the Reseller's data, and had

absolutely no knowledge of the content of the data.

Mexinox also argues that petitioners are incorrect in

characterizing the information as untimely. It states that the

Department did not request the information in the August 3, 1998

questionnaire, as petitioners suggest, but in an October 29, 1998

supplemental questionnaire. Furthermore, they argue, under section

351.301(b)(1) of the regulations, a respondent may submit factual

information at any time up to seven days before verification. Moreover,

Mexinox argues, petitioners cannot credibly claim that they were

prejudiced by the timing of the submission, as evidenced by their

multiple submissions commenting on the sales.

Mexinox also contests petitioners' claim that it is implausible

that the Reseller could not trace the origin of the material. It states

that this issue was examined by the verifiers at both the

[[Page 30804]]

sales and cost verifications, and that the verification reports

conclusively confirm that the Reseller's computer system could only

trace the origin of the material as far back as its re-booking into

inventory following transfer from another Reseller location. Because

the rebooking identified the Reseller itself as the vendor in these

circumstances, there was no computerized link available to the original

supplier of the material. This, Mexinox argues, is indicated in the

clearest terms in the Reseller cost verification report which states,

``The system traces vendors from purchase orders (``P.O.s''). Transfers

between warehouses have their own P.O.s, therefore, the Company is

unable to identify their original source through the system.'' Given

the nature of the Reseller's computer system, Mexinox argues,

petitioners' suggestion that the Reseller should have manually traced

the origin of all of these transactions is absurd. Such tracing, though

physically possible, would have required searching by hand through

multiple layers of internal paper transactions, inventory records, and

sales records. While the Reseller can, and occasionally does, do this

on an ad hoc basis to investigate individual claims, repeating that

effort for every invoice and line item in the body of untraceable sales

would have imposed an impossible burden.

Finally, Mexinox takes issue with petitioners' charge that Mexinox

is attempting to downplay the magnitude of the unattributed

transactions. Mexinox states that the petitioners are exaggerating the

magnitude of the sales by attributing 100 percent of the unattributed

sales to Mexinox.

Department's Position: We agree, in part, with petitioners and with

Mexinox. In its January 7, 1999 supplemental response, Mexinox reported

a large quantity of sales by the Reseller which lacked any information

identifying the supplying manufacturer. As noted, Mexinox claimed that

it had no immediate computer link to trace the origin of coils which

had been transferred between the Reseller's different warehouses. Thus,

it had included this unidentified mass of sales in each of the sales

databases filed on the records of the investigations of stainless sheet

in coils from Germany, Mexico, and Italy.

As explained in response to comment 6 (above), we have determined

that the errors affecting the Reseller's reported sales and cost data,

including its failure to identify properly the supplier of a major

portion of its sales, render these data unreliable in their entirety

for purposes of our margin calculations. However, this conclusion does

not dispose of the issue of the proper treatment of these unidentified

transactions. For a significant portion of the Reseller's U.S.

transactions during the POI the manufacturer is simply unknown. The

absence of the supplying mill for this body of sales affects not only

this investigation, but also those involving stainless steel sheet in

coils from Germany and Italy. Furthermore, the absence of this

elementary and critical information forecloses any attempt by the

Department to apportion these sales accurately between merchandise

which is subject to one of the three ongoing investigations and that

which is properly considered non-subject merchandise because it was

obtained from either a domestic or other foreign mill. Thus, this gap

in the record is one of overarching importance, impinging upon our

ability to calculate accurately the margins in three separate

antidumping duty investigations.

We cannot accede to Mexinox's suggestion that we exclude the

unidentified transactions entirely from our calculations. While we are

not able to state with precision which of these transactions represent

subject stainless sheet in coils from Mexico, Mexinox has conceded that

some are properly subject to this investigation (as, indeed, some are

subject to the concurrent investigations involving Germany and Italy).

The Act and the implementing regulations do envision a number of

scenarios where the Department may disregard transactions in its

analysis (sample transactions or sales of obsolete merchandise, for

example, or when sampling transactions pursuant to section 777A of the

Act). However, these exceptions all involve an independent analysis by

the Department of the facts surrounding the proposed exclusions and its

reasoned explanation on the basis of the record that the transactions

at issue are either unnecessary or inappropriate for inclusion in our

calculations. There are no provisions allowing the Department simply to

ignore a significant portion of U.S. sales based on a reseller's

putative inability to identify the affiliated respondent manufacturer.

As for this claimed inability, Mexinox attempts to present as the

Department's own conclusions what were, in fact, its reporting of

Reseller explanation claims at verification. Thus, the Reseller sales

verification report noted that ``Reseller explained that if material

from its warehouse is sold to another location * * * the [receiving]

warehouse subsequently will enter the merchandise into its own

inventory by recording itself as the supplier.'' See Reseller sales

verification report at 6. However, as we note on the previous page,

``Reseller clarified that the original supplier's identification is

traceable, but is not vital to its own needs.'' Id. at 5. Further, we

found at verification that, notwithstanding the Reseller's

protestations, in many cases it was possible through a rudimentary

search of the Reseller's existing computerized records to identify the

supplier. As petitioners note, of seven ``unidentified supplier''

transactions sampled at verification, we were able to trace immediately

the outside supplier for three of these using nothing more than a

personal computer in the Reseller's offices. See Reseller sales

verification report at 10.

Section 776(b) of the Act specifies that if the Department

concludes that an interested party failed to act to the best of its

ability to comply with a request for information, the Department ``may

make an inference that is adverse to the interests of that party in

selecting among the facts otherwise available.'' As noted above, we

have determined that the use of facts available is appropriate for the

sales and further-manufacturing data submitted by the Reseller. As for

the unidentified body of sales, the Department also finds that the

available computer records would allow the Reseller to trace with

facility the supplier for nearly half of the sample transactions

selected at verification. Had the Reseller made full use of its

readily-available computer data, the effort required to identify the

manufacturer for the remaining transactions would have been

substantially less, thus largely attenuating the ``enormous amount of

work'' involved in manual tracing ``* * * through several layers of

internal paper transactions, inventory records, and sales records.''

Mexinox's Rebuttal Brief at 12. Accordingly, we find that the Reseller

did not act to the best of its ability in compiling information

essential to our analysis, such as the identity of the supplying mill,

and thus the use of adverse facts available is appropriate.

In selecting the appropriate facts available, we find that there is

no record support for Mexinox's proposal that we allocate a portion of

the unidentified-supplier sales to Mexinox based on the percentage of

the Reseller's sales that is known to have been supplied by Mexinox;

this approach would still result in the Department's disregarding over

half of the unidentified-supplier transactions without any

justification in the record. First, since by Mexinox's own admission

some portion of the unidentified sales were supplied by Mexinox, the

resulting percentage of merchandise identified as being of

[[Page 30805]]

Mexican origin is understated. In addition, we have no means of

conducting an independent evaluation of this large body of sales to

determine whether the patterns found for the identified universe of

transactions would hold true for merchandise which, obviously, moved in

different channels of distribution (e.g., through its transfer between

or among the Reseller's locations). Thus, for purposes of this final

determination we have adopted a variant of Mexinox's proposal. As an

adverse inference, we are treating all of the unidentified merchandise

as having originated with one of the three respondent firms in the

concurrent investigations, rather than assuming that some of it may

have originated from a producer other than AST, KTN, or Mexinox. To

apportion the unidentified sales among the three investigations we have

adjusted the quantity for each of the unidentified sales on a pro rata

basis, using the verified percentages of the Reseller's merchandise

supplied by each of the three respondents' mills. We have then applied

a facts-available margin to these transactions, as explained above in

response to Comment 6.

Comment 8: Classification of U.S. Sales as EP or CEP

Petitioners argue that the Department should consider all of

Mexinox's U.S. sales involving Mexinox USA as CEP sales, rather than EP

sales. Mexinox reported two types of EP sales: Direct shipments (i.e.,

sales of merchandise produced to the customer's order and shipped

through Mexinox USA's Brownsville, Texas, facility directly to the

unaffiliated U.S. customer without remaining in Mexinox USA's warehouse

for longer than four days) and San Luis Potosi (SLP) stock sales (i.e.,

sales of merchandise sold out of finished goods inventory held at the

SLP factory and shipped through Mexinox USA's Brownsville, Texas,

facility directly to the unaffiliated U.S. customer without remaining

in Mexinox USA's warehouse for longer than four days). The record

shows, petitioners state, that Mexinox's reported EP sales are

virtually indistinguishable from its reported CEP sales.

Petitioners state that in evaluating sales made prior to

importation, it is the Department's practice to evaluate:

1. Whether the merchandise is shipped directly to the unaffiliated

buyer without being introduced into the physical inventory of the

selling agent;

2. Whether direct shipment to the unaffiliated buyer is the

customary channel for sales of subject merchandise between the parties

involved; and

3. Whether the selling agent in the United States acts only as a

processor of sales-related documentation and a communication link with

the unaffiliated U.S. buyer.

Petitioners argue that Mexinox's reported EP sales clearly meet the

first of these criteria because Mexinox freely acknowledges that for

direct shipments, the merchandise ``must pass through Mexinox USA's

distribution facility in Brownsville (Texas) so that it can be

transferred from the Mexican carrier to a U.S. carrier for further

shipment.'' See Mexinox's section A response at A-16 (n.5). The same is

true for Mexinox's sales of stock held in SLP. See section A response

at A-17 (n.7). Thus, petitioners state, the first criterion is clearly

met because the criterion contemplates only whether merchandise enters

the affiliates' inventory, and not the length of time in inventory.

Petitioners argue that the second criterion is met inasmuch as

there is no reason to conclude that shipment through Mexinox USA's

Brownsville warehouse is anything but the customary channel of

distribution for Mexinox's reported EP sales.

With respect to the third criterion, petitioners begin by stating

that the Department has amplified its policy of evaluating the level of

involvement of U.S. subsidiaries by determining that sales are

appropriately classified as CEP sales where the U.S. subsidiary: (1)

Was the importer of record and took title to the merchandise; (2)

financed the relevant sales transactions; (3) arranged and paid for

further processing; and (4) assumed the seller's risk. See Certain Cold

Rolled and Corrosion Resistant Carbon Steel Flat Products from Korea;

Preliminary Results of Antidumping Duty Administrative Reviews, 61 FR

51882, 51885 (October 4, 1996) (Steel from Korea Preliminary Results).

These facts are significant, petitioners state, because for all of

Mexinox's reported EP sales Mexinox USA:

Was the importer of record;

Took title to the merchandise;

Warehoused the merchandise after importation;

Invoiced the U.S. customer; and

Collected payment.

For direct sales, petitioners state, Mexinox USA also negotiates

directly with U.S. customers and takes purchase orders. Furthermore,

petitioners argue that even though Mexinox USA did not report any

further processing after its importation of the subject merchandise,

Mexinox USA was responsible for other post-importation services such as

arranging customs clearance and U.S. freight, and it also assumed the

financial risk associated with its U.S. sales. For all of these reasons

petitioners conclude that it is evident that Mexinox USA is not merely

a ``paper processor,'' but that it handles almost every aspect of

making U.S. sales, and meets the criteria set forth in Steel from Korea

with respect to its level of involvement in direct and SLP stock sales.

Moreover, petitioners claim that contrary to Mexinox's statement

that price terms are ultimately set by management in Mexico, there is

no evidence that Mexinox USA's invoice prices reflect prices initially

approved by Mexinox. Even if the Department is convinced that Mexico

sets U.S. prices, petitioners argue, the Department must also consider

other forms of the affiliate's involvement, such as contact with the

U.S. customer, contacting the factory to arrange production and

shipment, and issuing the final invoice to, and collecting payment

from, the customer.

Petitioners also argue that as a general guideline the Department

should take the mere involvement of a U.S.-based subsidiary,

particularly one comprised of a large staff that includes an active

sales force, and billing and accounting staff, as a strong indication

that the activity of the U.S. sales force must be significant.

Otherwise a respondent would simply conduct operations from its home

market. The degree of significance is determined by the per-unit amount

of the indirect selling expenses. For example, a true paper-processing

subsidiary would have an inexpensive office and a small, clerical staff

with little more than telephone and facsimile equipment in order to

communicate with the home office.

Therefore, petitioners argue, because of Mexinox USA's extensive

involvement in the selling process, the Department should deduct the

indirect selling and operating costs of Mexinox USA from the starting

prices for all U.S. sales involving Mexinox USA. In the alternative,

petitioners state that if the Department determines that Mexinox USA's

role in the direct and SLP sales does not cross the CEP threshold, the

Department must recalculate the reported indirect selling expense ratio

to allocate it only to CEP sales (and not EP sales) by Mexinox USA.

Mexinox argues that the Department correctly determined that its

direct shipment and SLP stock sales were EP sales. It bases this

argument on the analysis of the three criteria identified by

petitioners (cited above) that the Department uses in evaluating sales

made prior to importation. Regarding the first criterion, Mexinox

states that petitioners are factually incorrect in

[[Page 30806]]

saying that the direct shipment and SLP stock sale material enters

Mexinox USA's inventory. It states that the Department verified through

sample sales transactions the period of time between shipment to

Brownsville and further shipment from Brownsville, and confirmed in

each case that the period was less than four days. Mexinox also takes

issue with petitioners' reading of the term ``whether'' as used in

conjunction with the inventory prong of the Department's test for EP

treatment. Petitioners' interpretation, Mexinox states, would mean that

merchandise had been inventoried if it was physically on the premises

of an affiliate for any length of time, presumably even for one minute.

To be in an entity's inventory, Mexinox states, means the product must

not merely be physically present on the premises, but must instead be

considered part of the stock of the affiliate. As support for this

distinction, Mexinox cites Steel from Korea, in which the Department

said, ``While in some cases certain merchandise sold by [the foreign

producer] was entered into [the U.S. affiliate's] inventory, this

merchandise was sold prior to the importation of the merchandise, but

not from [the U.S. affiliate's] inventory.'' See Steel from Korea, 62

FR at 18439. This same distinction, Mexinox states, can be made with

respect to Mexinox's sales at issue, where the material is not being

sold out of Mexinox USA's general inventory, but rather directly from

Mexinox's factory in SLP.

Mexinox also argues that petitioners' interpretation of what

constitutes inventory also ignores the reasons why the material was

brought to Mexinox USA's distribution facility in the first place. It

cites a portion of its October 28, 1998 supplemental questionnaire

response in which it says that it had no choice:

All shipments from Mexinox's factory in Mexico must stop in

Brownsville for at least some period of time to allow for transfer

to a US truck. This is because the United States, contrary to its

obligations under the North American Free Trade Agreement, refuses

to allow Mexican trucks access to US border states. Therefore

uninterrupted shipment of the material from Mexico to the US

customer is a practical impossibility and an incidental stop-over in

Brownsville is unavoidably part of the direct shipment process.

See Mexinox's October 28, 1998 submission at 6-7. Mexinox argues that

the brief period (no longer than four days) during which direct

shipment or SLP stock material may have been held in the Brownsville

distribution facility did not transform the material into inventory as

petitioners would have the Department believe.

Regarding the second criterion, Mexinox agrees with petitioners

that shipment through Mexinox USA's Brownsville warehouse is the

customary channel of distribution for Mexinox's direct and SLP stock

sales.

Regarding the third criterion, Mexinox does not dispute that

Mexinox USA performs the selling activities that petitioners cite (with

the exception of warehousing), but insists that these selling

activities are consistent with EP treatment. It states that the Court

of International Trade (CIT) has on many occasions upheld EP (formerly

purchase price (PP)) classification where the U.S. affiliate engaged in

activities that were at least equal to or exceeded those alleged to be

conducted by Mexinox USA:

PP classification was upheld where the U.S. affiliate

first shipped merchandise to independent warehouses whose cost was

borne by the U.S. affiliate, the U.S. affiliate was the importer of

record, the U.S. affiliate paid estimated antidumping duties on the

merchandise, the U.S. affiliate retained title prior to sale to the

unrelated U.S. party, and the U.S. affiliate received commissions for

its role in the transactions. Outokumpu Copper Rolled Products v.

United States, 829 F. Supp. 1371, 1379-80 (Ct. Int'l. Trade 1993),

appeal after remand dismissed, 850 F. Supp. 16 (Ct. Intl. Trade 1994).

PP classification was upheld where the U.S. affiliate

received purchase orders and invoiced the related customer, the U.S.

affiliate was invoiced for and directly paid the shipping company for

movement charges, the U.S. affiliate occasionally warehoused, at its

own expense, and the U.S. affiliate received a substantial mark-up over

the price at which it purchased from the exporter. E.I. DuPont de

Nemours & Co. v. United States, 841 F. Supp. 1237, 1248-50 (Ct. Int'l.

Trade 1993).

PP classification was upheld where the U.S. affiliate

invoiced customers, collected payments, acted as the importer of

record, paid customs duties, and may have taken title to the goods when

they arrived in the United States. Zenith Electronics Corp. v. United

States, 18 CIT 870, 873-74 (Ct. Intl. Trade 1994).

PP classification was upheld where the U.S. affiliate

processed the purchase order, performed invoicing, collected payments,

arranged U.S. transportation, and served as the importer of record.

Independent Radionic Workers v. United States, CIT Slip Op. No. 94-45

(Ct. Int'l Trade 1995).

Furthermore, Mexinox argues that while these cases all pre-date the

URAA, the SAA states that ``no change is intended in the circumstances

under which export price versus constructed export price are used.''

See SAA at 152-53.

Mexinox also disagrees with petitioners that Mexinox USA's selling

activity in connection with these transactions ``meets the criteria set

forth in Steel from Korea.'' It argues that the preliminary

determination notice in that case classified as CEP only a sub-category

of the respondent's sales ``where the merchandise was further processed

by an outside contractor in the United States.'' See Steel from Korea

Preliminary Results, 61 FR at 51885. Furthermore, in the final results

in that case, the Department refused to extend CEP treatment to any of

the other transactions, even though the U.S. affiliate's activities

went beyond what petitioners would presumably deem acceptable for EP

treatment. The Department stated:

``UA's (U.S. affiliate's) role, for example, in extending credit

to U.S. customers, processing of certain warranty claims, limited

advertising, processing of import documents, and payment of cash

deposits on antidumping and countervailing duties, appears to be

consistent with purchase-price classification. These selling

services as an agent on behalf of the foreign producer are thus a

relocation of routine selling functions from Korea to the United

States. In other words, we determine that UA's selling functions are

of a kind that would normally be undertaken by the exporter in

connection with these sales.''

See Steel from Korea, 62 FR at 18439. Mexinox states that with the

exception of a set of sales identified on the first day of verification

(which Mexinox admits are CEP), no products were further-processed in

the United States. Thus, Mexinox argues, Mexinox USA's activities do

not meet the criteria laid out in Steel from Korea.

Mexinox also disputes petitioners' contention that there is no

evidence that price terms for U.S. sales are set by management in

Mexico. It cites the sales verification report, which states, ``In both

markets the final price paid is the ``price in effect,'' at the time of

shipment. The ``price in effect'' is a customer-specific price

determined by the commercial director based on prevailing market

prices, and is negotiated with each customer.'' See Mexinox sales

verification report at 6. Mexinox states that the commercial director

referred to is a Mexinox official located in SLP. Mexinox also contests

petitioners' attempt to downplay the significance of who sets the

price,

[[Page 30807]]

stating that it is a very important factor, and in some cases has even

been a decisive factor.

Mexinox also urges the Department to reject petitioners' argument

that sales should be classified as CEP based on ``mere involvement'' of

a U.S. affiliate in the U.S. sales process. It states that following

this very restrictive approach would conflict directly with the

Department's three-part test which it has consistently applied, with

express judicial sanction, since 1987.

Finally, Mexinox disagrees with petitioners' argument that Mexinox

USA's indirect selling expenses should be allocated solely to the

reported CEP sales rather than to all U.S. sales handled by Mexinox

USA. It states that Mexinox USA's indirect selling expenses relate to

the affiliate's overall sales operations, and therefore cover expenses

incurred by Mexinox USA in connection with both CEP and EP sales.

Mexinox states that by allocating the indirect selling expenses only to

CEP sales, as petitioners propose, the Department would overstate

indirect selling expenses.

Department's Position: We disagree with petitioners that Mexinox's

reported EP sales should be reclassified as CEP sales. We find that

Mexinox's reported EP sales pass the Department's three-prong test for

evaluating sales made through affiliates prior to importation.

Regarding the first criterion, we agree with Mexinox that the

circumstances under which the imported merchandise passes through

Mexinox USA's facility en route to the ultimate customer justify a

determination that the merchandise did not enter Mexinox USA's

inventory within the meaning of the Department's three-prong test. As

Mexinox points out, the Department in Steel from Korea drew a

distinction between (1) merchandise sold prior to U.S. entry that

subsequently entered the inventory of the U.S. affiliate and (2 )

merchandise sold from the U.S. affiliate's inventory. We stated,

``While in some cases certain merchandise sold by [the foreign

producer] was entered into [the U.S. affiliate's] inventory, this

merchandise was sold prior to the importation of the merchandise, but

not from [the U.S. affiliate's] inventory.'' See Steel from Korea, 62

FR at 18439. Where, as here, the merchandise (sold prior to

importation) was situated at Mexinox USA's facility for the period of

no more than four days and only for the necessary purpose of

transferring to other trucks, we determine that the merchandise was not

sold from the inventory of the U.S. affiliate.

Regarding the second criterion, no party has disputed that this

channel was Mexinox's customary channel of distribution for its U.S.

sales.

Regarding the third criterion, we agree with Mexinox that Mexinox

USA's selling activities are comparable to those that have been upheld

by the courts as consistent with EP treatment. Therefore, Mexinox USA's

performance of these activities do not compel CEP classification for

the sales at issue. Furthermore, our verification uncovered no evidence

that conflicts with Mexinox's claims that the sales were made in

Mexico, and petitioners have cited to none. Moreover, we agree with

Mexinox that the facts of Steel from Korea differ from those present

here in that in Steel from Korea the affiliate arranged for further

manufacturing, whereas here no further manufacturing is performed for

the sales at issue. For these reasons we have not reclassified

Mexinox's EP sales in this final determination.

Finally, we disagree with petitioners that all of Mexinox USA's

reported indirect selling expenses should be attributed to CEP sales.

Although we have determined that the direct sales and SLP stock sales

are appropriately classified as EP sales, they do pass through Mexinox

USA's facility and Mexinox USA performs some selling activities in

connection with them. Therefore, it is appropriate that we allocate a

proportionate share of indirect selling expenses to them.

Comment 9: Level of Trade

Petitioners argue that the Department erred in its Preliminary

Determination with respect to level of trade (LOT). In the Preliminary

Determination, the Department determined that there was one LOT in the

home market, that there were two LOTs in the U.S. market (corresponding

to the EP and CEP sales channels), and that Mexinox's sales to its home

market customers were at a LOT that was different and at a more

advanced stage of distribution than were its sales to its affiliated

customers in the United States (i.e., Mexinox USA, the Reseller, and

the Krupp affiliate). Based on these determinations, it made a CEP

offset for Mexinox's CEP sales in accordance with section 773(a)(7)(B)

of the Act. Petitioners argue that there is only one LOT in the United

States, and that it is more advanced than the home market LOT. Thus,

they argue, no CEP offset is warranted. Furthermore, they argue that

the Department should find that the sales to the Reseller and the Krupp

affiliate are at the same LOT as Mexinox's EP sales because Mexinox did

not even attempt to distinguish them as separate LOTs as it did for its

CEP sales to Mexinox USA.

Petitioners argue first that the list of selling activities Mexinox

submitted to support its LOT adjustment claim exaggerates and distorts

the activities, resulting in the creation of different LOTs where none

exist. Specifically, they argue that Mexinox's list of seventeen

selling activities should be condensed into a list of only seven

activities. They argue:

1. The first four activities on Mexinox's list (pre-sales technical

assistance, sample analysis, prototypes and trial lots, and continuous

technical assistance) really are only one activity, technical

assistance.

2. The next two activities (negotiating prices and processing

customer orders) are really not properly included in the analysis

because anyone selling a product performs these activities for all

customers, regardless of market or affiliation.

3. The next two activities (inventory maintenance and just-in-time

delivery) are both essentially the same service.

4. Two other activities (arranging freight services and shipment of

small packages) should also be considered the same activity.

5. The next two activities (making sales calls and traveling

internationally) are the same activity.

6. The ``further processing'' activity is a manufacturing activity

and thus not properly included as a selling activity. Moreover, to the

extent that it entails cutting to length, such activity is not even

related to the sale of subject merchandise.

7. The credit and collection activity is an activity that companies

selling products routinely engage in with respect to most, if not all,

customers and thus is not properly included in an LOT analysis.

8. The last three activities (accepting currency risk, warranting

merchandise, and accepting low-volume orders) can be considered

distinct selling activities.

Thus, the list of selling activities, as condensed by petitioners,

amounts to:

1. Technical service.

2. Inventory maintenance.

3. Freight services.

4. Sales calls.

5. Currency risks.

6. Warranties.

7. Low-volume orders.

With regard to technical service, petitioners argue that although

Mexinox purports to provide lower levels of technical service for most

U.S. channels, the nature of manufacturing the subject merchandise

requires uniformly high quality levels. Furthermore, petitioners state

that evidence on the record (not susceptible to public summary)

demonstrates that Mexinox affords

[[Page 30808]]

technical services directly or indirectly to both domestic and U.S.

customers.

With respect to inventory maintenance and freight services,

petitioners argue that evidence on the record (not susceptible to

public summary) demonstrates that these activities are equally

pertinent to both EP sales and Mexinox's CEP sales to Mexinox USA.

With respect to sales calls, petitioners point out that Mexinox has

stated that ``this selling activity does not apply to the CEP

transaction between Mexinox and Mexinox USA.'' See section A response

at attachment A-4. Petitioners argue that the Department should not

accept a representation that Mexinox does not need to be in contact

with Mexinox USA because it is not plausible that Mexinox does not make

telephonic and personal sales calls to Mexinox USA as it would with any

other large customer.

With respect to currency risks (a selling activity Mexinox

associates only with home market sales, and not U.S. sales),

petitioners argue that currency risk is normally associated with export

sales, and not home market sales. Further more, during the POI the peso

was remarkably steady. Thus, petitioners state, if this activity is a

factor at all, it should be attributed to EP and CEP sales, but not to

home market sales.

Finally, with respect to warranty claims, petitioners argue that

there is evidence on the record that Mexinox, not Mexinox USA, handles

warranty claims. Furthermore, they argue that examination of Mexinox

USA's itemization of selling expenses reflects nothing that would

indicate that it handles this activity.

Based on the above analysis, petitioners conclude that Mexinox

clearly engages in the same type of selling activities in its dealings

with Mexinox USA as it does with home market and U.S. EP customers. The

only selling activity that petitioners recognize as being different

between the U.S. and home markets is the acceptance of low-volume

orders in the home market.

Moreover, petitioners argue that the Department's preliminary

determination with respect to this issue yields the implausible

conclusion that every transaction between Mexinox and a customer in

North America was at the same LOT except for Mexinox's transactions

with its affiliated reseller. It is inconsistent for the Department to

find that, on the one hand, sales to home market customers and EP sales

to U.S. customers are at the same LOT but, on the other hand, that the

EP sales that the Department has constructed using its CEP sales method

(i.e., the sales between Mexinox and Mexinox USA) are not at the same

LOT as the ``regular'' EP sales. The construction of hypothetical EP

prices to Mexinox USA should, petitioners believe, make the CEP and EP

transactions comparable and representative of the same LOT.

Finally, petitioners argue that, in the alternative, if the

Department continues to grant a CEP offset, it should correct the

offset calculation which, they allege, contains three errors. First,

petitioners claim that in calculating indirect selling expenses

incurred in the United States, the Department incorrectly included

expenses that Mexinox incurred in the home market. Second, the CEP

offset should be the lesser of either: (1) The sum of home market

indirect selling expenses (excluding inventory carrying costs (ICC))

and home market commissions or (2) U.S. ICC and indirect selling

expenses. In the Department's calculation, the offset was the lesser of

either (1) the sum of home market indirect selling expenses (excluding

ICC) and home market commissions or (2) the sum of home market and U.S.

ICC and home market and U.S. indirect selling expenses. Finally,

petitioners argue, the Department failed to ensure that the combined

amount of the deduction for the CEP offset and deductions for the

commission offset do not exceed total U.S. incurred indirect selling

expenses (including ICC).

Mexinox argues that the Department was correct in its LOT

determination and in granting a CEP offset to NV for the CEP LOT. It

argues first that the petitioners' arguments are useless to the

Department because their analysis focuses on the differences between EP

and CEP LOTs, rather than the CEP LOT versus the home market LOT. It

argues that it is this difference between the CEP LOT and the home

market LOT that ultimately justifies the granting of a CEP offset.

Mexinox next argues that its home market sales are at a more

advanced stage in marketing than its U.S. sales. Its argument centers

on the central role that service centers play in its U.S. chain of

distribution both for EP and CEP sales, as distinguished from its home

market chain of distribution in which Mexinox sells to no service

centers. The reason service centers are important, Mexinox argues, is

that they function by acting as intermediaries between the mills and

the larger community of specialized end users. To do so, Mexinox

states, service centers tend to purchase large master coils from the

mills and then further process the material to make it possible for end

users to use them. Service centers also generally provide their

customers with a package of individualized selling services (e.g.,

just-in-time deliveries and other forms of inventory maintenance,

technical advice, and flexible credit terms) that the foreign producer

would otherwise be required to provide. Thus, selling to U.S. service

centers allows Mexinox to concentrate on the production and sale of

larger, higher-yield coils in standard grades, surface finishes, and

dimensions, while the service center focuses on the next level of

distribution to end-users. The sales to service centers encompass a

smaller scope and intensity of selling activities precisely because the

service center takes over the role of providing the specialized selling

services that are requested by end users, such as flexible credit

terms, pre-sale and post-sale technical advice, further processing,

just-in-time delivery, and other specialized inventory requirements.

Furthermore, Mexinox argues that the Department has in the past

recognized that sales to service centers represent a different and less

advanced stage in the marketing process than sales to customers further

downstream. Thus, in the preliminary determination of SSSS from the

United Kingdom the Department explained that, ``Normally, stages of

marketing focus on whether sales are to service centers or end-users,

in some instances taking into account whether or not sales are made

through intermediate parties.'' See SSSS from United Kingdom,

Preliminary Determination of Sales at Less Than Fair Value, 64 FR 85

(January 4, 1999). Similarly, in Cold-Rolled Carbon Steel Flat Products

from the Netherlands the Department determined that home market sales

to service centers and sales to end users constituted entirely

different LOTs. See Cold-Rolled Carbon Steel Flat Products from the

Netherlands; Final Results of Administrative Review, 63 FR 13204 (March

18, 1998). Mexinox acknowledges that the details of these cases may

differ from the present investigation, but states that the observations

the Department made are all generally consistent with the circumstances

relating to Mexinox's sales in the U.S. and Mexican markets. The

essential characteristic of Mexinox's sales, it states, is that it

sells directly to service centers in the U.S. market and acts as a

service center in the home market.

Next, Mexinox argues that it performs far fewer selling functions

in its CEP sales than it does in the home market where it acts as a

service center. It states

[[Page 30809]]

that petitioners are correct that many of the selling activities that

are associated with Mexinox's U.S. sales (whether EP or CEP) are

carried out by Mexinox USA. However, to construct the CEP LOT, Mexinox

states, all of these selling activities undertaken by Mexinox USA in

the United States must be excluded in accordance with section

772(d)(1)(D) of the Act and 19 CFR Sec. 351.412(c)(ii)(1998). When that

is done, the CEP transactions between Mexinox and Mexinox USA involve

relatively few selling functions at all. Essentially the only selling

activities required in connection with the relevant transactions

between the related parties is a low level of freight and delivery

arrangements (via the same SLP-to-Brownsville trucking route) and order

processing.

Next, Mexinox discusses its reported selling functions. Regarding

its reported selling activity ``small package size and low volume

orders,'' Mexinox argues that this activity is fundamentally different

in the home and U.S. markets. Because it sells to service centers in

the United States, Mexinox states, it tends to sell larger coils in

standard sizes, grades, and surface finishes which the service centers

then cut. In the home market, Mexinox itself performs the service

center function of cutting and slitting from master coils. Thus, the

coils tend to be smaller. It also tends to sell in smaller lots, thus

increasing the number of transactions and selling services required to

be performed in the home market. Mexinox states that though arguably

not a selling activity itself, average coil size is a compelling

indicator both of the differences in selling functions performed by

Mexinox as a home market service center and the intensity of those

selling functions because many routine selling activities must be

repeated for each transaction and therefore vary roughly in accordance

with the number of transactions involved.

With respect to further processing, Mexinox disagrees with

petitioners' argument that further processing is a manufacturing

activity and thus not properly included as a selling activity. It

states that the Department has recognized the relevance of further

processing to the LOT analysis in other cases, including the

Preliminary Determination of this case. It argues that further

processing of this kind must be recognized and taken into account as an

integral part of the distinct bundle of selling services offered by

Mexinox in the home market but not the U.S. market.

With respect to technical services, Mexinox states that it provides

no pre-sale technical analysis, sample analysis, prototypes and trial

lots, or continuous technical service in connection with the CEP

transactions between itself and Mexinox USA. Moreover, even if the

Department were to look further downstream, the level of technical

assistance provided in connection with U.S. sales is lower than in the

home market. This is because service centers tend to buy large master

coils in standard sizes, grades, and surface finishes, often without a

specific end user in mind, thus limiting the need for pre- and post-

sale technical assistance, sample analysis, prototypes, or continuous

technical assistance. Furthermore, when a downstream customer does seek

technical assistance, it naturally turns first to the party that sold

the material to him, which in this case is the service center and not

Mexinox. Mexinox states that the opposite situation exists in the home

market because Mexinox itself serves as the service center.

With respect to inventory maintenance and just-in-time deliveries,

Mexinox argues that it provides no inventory maintenance or just-in-

time delivery services in connection with the CEP transactions between

itself and Mexinox USA. However, in keeping with its function as a

service center in the home market, it offers a wide variety of

inventory maintenance and just-in-time delivery services for home

market customers.

With respect to freight and delivery services, Mexinox states that

the intensity of this activity is extremely low in connection with the

CEP sales between itself and Mexinox USA because freight is exclusively

limited to consolidated shipments over a single route between the

factory in SLP and the distribution point in Brownsville, Texas. In

contrast, freight arrangements in the home market involve smaller

volumes and more frequent and varied deliveries from Mexinox's mill in

SLP and from the various remote warehouses located throughout Mexico.

With respect to the order processing, credit, and collection,

Mexinox states that in connection with the CEP transactions between

Mexinox and Mexinox USA, these activities are essentially automatic and

risk free. Moreover, such order processing essentially involves a

single point of contact for all sales. In contrast, Mexinox argues, the

transactions at issue involve handling a full range of unaffiliated

customers. Furthermore, because individual transaction volumes are

smaller, the level of such activities is much higher on a per-ton basis

in the home market than in the United States.

With respect to price negotiation and sales calls, Mexinox states

that these activities are logically more frequent in the home market

because of the higher number and smaller per-transaction volume of

sales in the home market.

With respect to currency risk, Mexinox argues that petitioners have

failed to properly evaluate the currency risk which Mexinox faces in

selling stainless steel in the United States. All home market sales

during the POI were in Mexican pesos. Therefore, because Mexinox

extends credit to its home market customers, Mexinox assumes all

currency risks associated with the peso during the credit period.

Furthermore, Mexinox argues that contrary to the petitioners' comments,

the peso was not remarkably stable during the POI, but instead

depreciated 7.6 percent against the dollar between April 1, 1997 and

March 31, 1998.

Based on the above analysis, Mexinox states that the CEP LOT

involves fewer and different selling functions and is less advanced

than the home market LOT. Accordingly, the Department is required, if

possible, to make a LOT adjustment when matching CEP to NV. Because

there is only one LOT in the home market and it is therefore not

possible to quantify a LOT adjustment, Mexinox states, the Department

should grant a CEP offset.

Finally, Mexinox disagrees with petitioners' contention that the

Reseller and the Krupp affiliate should be deemed to be at the same LOT

as EP sales. First, if the Department determines to use the resale

prices from these entities in its analysis, there is no question that

such sales are properly classified as CEP transactions because the

relevant sales were made after importation. Second, because these sales

are CEP transactions, the Department is required to exclude all selling

functions carried out in the United States by both the reseller and

Mexinox USA in determining the constructed LOT for these sales.

Accordingly, under the Department's standard analysis, Mexinox states,

selling functions associated with sales by these resellers and Mexinox

USA must be backed out until all that is left is the bare transaction

made between Mexinox and Mexinox USA. The LOT and the LOT analysis for

these sales is exactly the same as for other CEP transactions, and a

CEP adjustment is also justified for these sales.

Department's Position: After careful review of the facts on the

record, we have determined not to change our preliminary determination

with respect to LOT. We agree with petitioners that some of the

seventeen selling activities

[[Page 30810]]

that Mexinox reported could legitimately be collapsed, resulting in a

shorter list of activities. Furthermore, some of the reported selling

activities raise questions, and some more strongly support our

determination than others.

Nevertheless, we find that taken collectively the selling

activities Mexinox reported and the way it performs these activities in

the two markets support a finding that there is one LOT in the home

market and two LOTs in the U.S. market. We also find that the EP and

home market sales channels represent one stage of marketing and the

U.S. CEP channel represents another, and that the home market LOT is

more advanced than the CEP LOT. In its section A response, Mexinox

provided the information that some activities are not performed or are

performed at a low level of intensity with respect to the CEP

transactions between itself and Mexinox USA (e.g., technical services,

inventory maintenance, just-in-time delivery). See Mexinox's section A

response, exhibit A-4 and its April 5, 1999 Rebuttal Brief, attachment

1. Petitioners have put no information on the record to rebut Mexinox's

representations.

Furthermore, because of the smaller lots sold in the home market,

we find that the home market order processing, price negotiation, and

payment collection activities would be more expensive on a per-unit

basis than for the CEP sales between Mexinox and Mexinox USA, and thus

reflect a more advanced stage of marketing. Moreover, we agree with

Mexinox that the freight and delivery service activity would likely be

more routine in the CEP transactions between Mexinox and Mexinox USA

than between Mexinox and its customers throughout Mexico, and thus also

reflects a less advanced stage of marketing. Similarly, while

petitioners are doubtless correct that Mexinox does make telephone

calls to Mexinox USA, such calls between a parent and its foreign

subsidiary are likely more routine than calls between a parent and its

numerous unaffiliated home market customers. Further, we agree with

Mexinox that the peso did decline by approximately 7.6 percent during

the POI, and that therefore the peso was not, as petitioners have

alleged, ``remarkably steady.'' Thus, Mexinox did incur some currency

risk in the home market during the POI. For these reasons, we determine

that there is no basis in the record for departing from our LOT

determination as set forth in the Preliminary Determination and, thus,

we have not changed it for this final determination.

Furthermore, we agree with Mexinox that because the sales to the

U.S. Krupp affiliate are CEP transactions sold through Mexinox USA, the

relevant sales transactions we must examine in determining the correct

LOT are those between Mexinox and Mexinox USA. There is therefore no

reason to treat these sales differently than any other of Mexinox's CEP

transactions. Therefore, in our calculations for the final

determination we have continued to make a CEP offset for the sales to

the U.S. Krupp affiliate as well as Mexinox's other CEP sales. With

respect to the Reseller this question is moot because we have used

total facts available.

Finally, we agree with petitioners that the CEP offset calculation

in the Preliminary Determination should be corrected for the three

stated errors. We have done so in this final determination.

Comment 10: Downstream Home Market Sales

Petitioners argue that the Department should never exclude from its

analysis sales made through affiliated resellers (downstream sales) in

the home market. (In the Preliminary Determination the Department did

not require Mexinox to report its downstream sales in the home market

because the sales to the affiliated resellers all passed the

Department's arm's-length test.) Such a practice is bad policy,

petitioners argue, because it invites the affiliate to mark up its

resale prices and thereby mask true dumping. Furthermore, they argue

that since the Department's arm's-length test is only applied to those

particular products that were sold to unaffiliated parties, a

respondent may wholly exclude high-priced home market sales from the

Department's dumping analysis by selling them only through an

affiliate. Petitioners stress that even small quantities can have an

enormous impact that is completely disproportionate to their relative

quantity because they may represent the sales that would be matched to

U.S. sales in a LTFV analysis. Additionally, petitioners state that the

existence of potential matches (even identical matches) among sales to

non-affiliates is not necessarily of use because such sales may prove

either unuseable by virtue of being outside the ordinary course of

trade (e.g., below cost) and thus not under consideration in the LTFV

analysis, or otherwise unrepresentative, particularly if they are below

prices that a reseller is charging to its unaffiliated customers. For

these reasons, petitioners argue that the Department should state for

the record that its policy in the future, particularly for any

administrative reviews of any order in this proceeding, will be to

require the reporting of all downstream sales by affiliated home market

customers.

Mexinox disagrees with the petitioners' argument, but prefaces its

counter-argument by stating that the appropriate forum for the

petitioners' advisory comment is the rule-making process and not an

antidumping investigation. In any event, it argues that for two reasons

the petitioners' proposal cannot be sustained. First, it argues that

the Department does not have the authority to completely ignore section

351.403(d) of the Department's regulations, as petitioners have

recommended, and that even if the Department agreed with the

petitioners, it would be obligated to follow lawful administrative

procedure to formally amend or repeal this section of its regulations.

Second, Mexinox claims that the Department's downstream sales

reporting requirements, and the arm's-length test in particular,

already deal effectively with petitioners' concerns. It states that if

it were to sell to affiliates at artificially lowered prices in order

to manipulate the dumping margins, those sales would fail the arm's-

length test. Therefore, it argues, even if the petitioners can contrive

an implausible scenario in which the affiliated party purchasing at

arm's length could resell the merchandise at an even higher profit in a

downstream sale, the fact remains that sales to the affiliates that

pass the stringent arm's-length test would be completely reliable for

the purpose of determining NV.

Department's Position: We agree with Mexinox that the appropriate

context for the petitioners' comment is the rule-making process.

Furthermore, we will not use this final determination to promulgate

announcements on reporting requirements for possible future segments of

this proceeding. Such requirements are determined on a case-by-case

basis based on the facts of each administrative review.

In the preliminary determination of this investigation we performed

an arm's-length test in accordance with 19 CFR Sec. 351.403(d). We

found that all of Mexinox's home market sales to affiliated resellers

were made at arm's-length prices. See the Department's preliminary

determination analysis memorandum, dated December 17, 1998, p. 12, and

the Preliminary Determination at 129. For this final determination we

performed the same arm's-length test, and found the same results.

Therefore, we have not required Mexinox to report its downstream home

market sales.

[[Page 30811]]

Comment 11: Arm's-Length Test

Petitioners argue that for this and future proceedings the

Department should permanently revise its arm's-length test by comparing

all prices to affiliates against prices charged to unaffiliated

customers. The Department's current practice, petitioners state, is to

test only prices for which identical products were also sold to

unaffiliated customers, and then to apply the result to all sales to

the affiliate. This ``identicals-only'' arms-length test, petitioners

state, was developed before the Department began running its own model

match concordance program. They argue that in light of the Department's

now longstanding practice of itself determining all product matches for

the antidumping analysis, there is no technical obstacle or policy

reason preventing the Department from applying the same method in the

arm's-length test. In other words, the Department should analyze all

models sold to affiliates, whether or not matched to identical models

sold to unaffiliated parties. Petitioners state that doing so would

reduce the risk of a manipulated arm's-length test result that in turn

would distort the margin analysis.

Mexinox states that the burden of proof rests with the petitioners

to demonstrate to the Department that the arm's-length test has been

manipulated or is in some way distorting the margin analysis of this

investigation, and that the petitioners have failed in this regard.

Respondent states that where petitioners fail to support assertions

against the arm's-length test, the Department's practice is to maintain

its position and use of the arm's-length test method. See Tapered

Roller Bearings and Parts Thereof, Finished and Unfinished, from Japan,

and Tapered Roller Bearings, Four Inches or Less in Outside Diameter,

and Components Thereof, From Japan; Final Results of Antidumping Duty

Administrative Review and Termination in Part, 63 FR 20585 (April 27,

1998) (Tapered Roller Bearings). Mexinox also states that courts have

consistently supported the Department in its defense of the arm's-

length test. Thus, in Tapered Roller Bearings, when presented with lack

of evidence of any distortion of price comparability, the CIT found the

application of the Department's arm's-length test reasonable. See

Tapered Roller Bearings, 63 FR at 20592. Thus, Mexinox argues that the

Department should decline to consider modifications to the arm's-length

test given that petitioners cannot point to any information on the

record to suggest that the arm's-length test is distortive and

unreasonable.

Department's Position: We disagree with petitioners. Without a

match of an identical product sold to an unaffiliated party, the

Department has nothing against which to test the sale to the affiliated

party. Thus, to implement the petitioners' suggestion, we would have to

conduct the arms'-length test using similar, rather than identical,

merchandise. Doing so would result in a less accurate measure of the

effect of affiliation on pricing. In the absence of any evidence that

the present arms'-length test is distortive, for our purposes of

determining comparability within the meaning of 19 CFR Sec. 351.403(d),

we would have no reason to implement a new method that could result in

a less accurate result.

Comment 12: Date of Sale

Petitioners argue that the Department erred in the Preliminary

Determination by using the invoice date, rather than the contract or

change order date, as the date of sale. They argue that although the

regulations state that the Department will normally use the date of

invoice as the date of sale (see 19 CFR Sec. 351.401(i)), the evidence

of record in this case supports the use of the date of order

confirmation or change order as the date of sale. They cite the final

results of review of circular welded non-alloy steel pipe from the

Republic of Korea as support. There, the Department articulated that it

evaluates the correct date of sale selection on a case-by-case basis in

light of all relevant facts. The Department stated, ``* * * while we

agree with the respondents that the Department prefers to use invoice

date as the date of sale, we are mindful that this preference does not

require the use of invoice date if the facts of a case indicate a

different date better reflects the time at which the material terms of

sale were established.'' See Final Results of Antidumping Duty

Administrative Review: Circular Welded Non-Alloy Steel Pipe from the

Republic of Korea, 63 FR 32833 (June 16, 1998) (Pipe from Korea). Based

on the facts of that case, the Department used invoice date as the date

of sale in the home market and contract date as the date of sale in the

U.S. market (except for CEP sales made out of inventory) because:

1. Sales in the home market were typically out of inventory with

the purchase order/contract, invoice, and shipment dates all occurring

within a relatively short period of time. In contrast, U.S. sales terms

were set on the contract date and any subsequent changes were usually

immaterial in nature or, if material, rarely occurred.

2. Due to the made-to-order nature of U.S. transactions, there was

a very long period of time between the contract date and the subsequent

shipment and invoicing of the sale.

3. There was no information on the record indicating that the

material terms of sale changed frequently enough between contract date

and invoice date on U.S. sales to give both buyers and sellers any

expectation that the final terms would differ from those agreed to in

the contract.

The Department explained:

As can be seen from the foregoing, ``invoice'' dates in both

markets, while the same in name, are materially quite different for

purposes of determining price discrimination simply because the

sales processes for the two markets are quite different. If we were

to use invoice date as the date of sale for both markets, we would

effectively be comparing home market sales in any given month to

U.S. sales whose material terms were set months earlier--an

inappropriate comparison for purposes of measuring price

discrimination in a market with less than very inelastic demand.

See Pipe from Korea, 63 FR at 32836.

Petitioners argue that the facts in the instant investigation

parallel the facts in Pipe from Korea, particularly for those sales

Mexinox reported as EP direct sales, in that sales tend to be on a

made-to-order basis, and there can be a long period of time between the

contract date and the date of shipment and invoicing. Moreover, some

changes in quantity are usually envisioned by the sales contract, and

the parties are free to divide orders over more than one shipment;

hence, changes in quantity do not necessari

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