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

[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]

[Notices]

[Pages 30574-30592]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 99-13680]

[[Page 30573]]

_______________________________________________________________________

Part II

Department of Commerce

_______________________________________________________________________

International Trade Administration

_______________________________________________________________________

Final Determination of Sales at Less Than Fair Value: Stainless Steel

Sheet and Strip in Coils From Japan, Taiwan, Germany, etc.; Notice

Federal Register / Vol. 64, No. 109 / Tuesday, June 8, 1999 /

Notices

[[Page 30574]]

DEPARTMENT OF COMMERCE

International Trade Administration

[A-588-845]

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

Stainless Steel Sheet and Strip in Coils From Japan

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Letitia Kress or Karla Whalen, Import

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

Commerce, Room 7866, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230; at telephone: (202) 482-3793.

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department of Commerce

(``Department'') regulations are to the regulations at 19 CFR Part 351

(1998).

Final Determination

We determine that stainless steel sheet and strip in coils

(``SSSS'') from Japan are being sold in the United States at less than

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

estimated margins are shown in the ``Continuation of Suspension of

Liquidation'' section of this notice.

Case History

Since the preliminary determination, issued on December 17, 1998

(Notice of Preliminary Determination of Sales at Less Than Fair Value

and Postponement of Final Determination: Stainless Steel Sheet and

Strip in Coils from Japan, 64 FR 108 (January 4, 1999)) (``Preliminary

Determination''), the following events have occurred.

On December 21, 1998, Nippon Steel Corporation (``NSC'') requested

that the Department extend the deadline for its response to the Section

D supplemental questionnaire until January 11, 1998. The Department

granted NSC an extension for this response until January 4, 1999. On

December 22, 1998, petitioners submitted comments on NSC's Section D

response. On January 4, 1999, NSC notified the Department of its

inability to respond to the Section D supplemental request on time. On

January 11, 1999, Petitioners requested that the Department cancel

verification for NSC due to the lack of a response and base its final

determination on facts otherwise available. On January 12, 1999, the

Department granted NSC an extension to respond to the supplemental cost

response until January 25, 1999. On January 19, 1999, NSC notified the

Department that it could not respond to the Department's supplemental

questionnaire. However, in the same letter, NSC also asked the

Department to verify its shipment data for purposes of the Department's

final critical circumstances determination.

On December 22, 1998, the Department issued a supplemental cost

questionnaire to Kawasaki Steel Corporation (``KSC''). On December 23,

1998, KSC requested an extension of the deadline for its response to

supplemental cost questionnaire. On January 4, 1999, KSC submitted a

ministerial error allegation on the Department's Preliminary

Determination. On February 23, 1999, the Department published the

amended preliminary determination incorporating the correct scope

language. See Notice of Preliminary Determinations of Sales at Less

than Fair Value: Stainless Steel Sheet and Strip from France, Germany,

Italy, Japan, Mexico, South Korea, and United Kingdom; and Amended

Preliminary Determination of Sales at Less than Fair Value, Stainless

Steel Sheet and Strip from Taiwan, 64 FR 8749 (Feb. 23, 1999). On

January 25, 1999, KSC submitted its supplemental cost response to the

Department as well as its supplemental home market sales information.

On January 15, 1999, Sumitomo Metal Industries (``SMI''), a

producer not selected as a respondent in this investigation, requested

that the Department reverse its decision that SMI be subject to the

``All Others'' affirmative critical circumstances cooperative finding

since it cooperated with the Department's request for information until

being deselected as a respondent (See Decision Memorandum from Division

Directors, Office VII, to Joseph Spetrini, regarding Selection of

Respondents, September 21, 1998). On January 29, 1999, Nippon Metal

Industry Co., Ltd. (``NMI''), a mandatory but unresponsive respondent,

submitted shipment information in connection with the Department's

preliminary critical circumstances finding.

On January 25, 1999 and February 2, 1999, KSC and NSC,

respectively, requested that the Department conduct a hearing. On

February 2, 1999, petitioners and SMI requested that they too

participate in the hearing.

On January 28, 1999, petitioners submitted comments regarding the

upcoming KSC sales verification. On March 24, 1999, the Department

forwarded the sales verification outline to KSC. The Department

conducted the sales verification from February 1 through February 9,

1999. On February 2, 1999 and February 9, 1999, KSC submitted a list of

minor corrections reported at the beginning of verification for KSC and

Kawasho Corporation (``Kawasho''), its affiliated trading company,

respectively. The Department did not conduct a sales verification of

NSC or NMI.

On February 12, 1999, the Department issued the cost verification

outline to KSC. Petitioners submitted cost verification comments

regarding KSC on February 18, 1999. The Department conducted the cost

verification in conjunction with the LTFV investigation on Certain Hot-

Rolled Flat-Rolled Carbon-Quality Steel Products from Japan from

February 22 through March 5, 1999. The Department issued its cost

verification report on March 23, 1999 and sales verification report on

March 24, 1999. (See Memorandum to James Doyle, Program Manager, AD/CVD

Enforcement Group III, Office 7: Verification of the Sales

Questionnaire Responses of Kawasaki Steel Corporation (``KSC Sales

Verification Report'') and Memorandum to Neal Halper, Acting Director,

Office of Accounting: Cost Verification Report-Kawasaki Steel

Corporation) (``KSC Cost Verification Report''). On April 13, 1999, KSC

submitted a revised sales database which incorporated the minor

corrections presented at verification as well as verification findings.

On April 2, 1999, Petitioners, KSC, SMI, Watanabe Trading Co., Ltd.

(``Watanabe''), and Printing Developments Inc. submitted case briefs.

On April 9, 1999, petitioners, KSC and NSC submitted rebuttal briefs.

The Department conducted the hearing on April 14, 1999.

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

[[Page 30575]]

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 in compressors.

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

specialty steel product used in the manufacture of suspension

assemblies for computer disk drives. Suspension foil is described as

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

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

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

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

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

with no scratches of measurable depth. The material must exhibit

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

over 685 mm length.

Certain stainless steel foil for automotive catalytic converters is

also excluded from the scope of this investigation. This stainless

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

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

structure for use in automotive catalytic converters. The steel

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

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

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

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

than 0.03 percent, lanthanum of 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

[[Page 30576]]

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 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary

grades of Hitachi Metals America, Ltd.

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Period of Investigation

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

March 31, 1998.

Product Comparisons

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

products, covered by the description in the Scope of Investigation

section above produced by KSC, and sold in Japan during the POI to be

foreign like products for purposes of determining appropriate product

comparisons to U.S. sales. We relied on nine characteristics to match

U.S. sales of subject merchandise to comparison market sales of the

foreign like product (listed in order of significance): grade; hot/cold

rolled; gauge; finish; metallic coating; non-metallic coating; width;

temper/tensile strength; and edge trim. These characteristics have been

weighted by the Department where appropriate. Where there were no sales

of identical merchandise in the home market to compare to U.S. sales,

we compared U.S. sales to the next most similar foreign like product on

the basis of the characteristics listed in the antidumping duty

questionnaire instructions.

Fair Value Comparisons

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

were made at LTFV, we compared export price (``EP'') to the normal

value (``NV''), as described in the ``Export Price'' and ``Normal

Value'' sections of this notice below. In accordance with sections

772(a) and (c) of the Act, we calculated EP for all of KSC's sales,

since the subject merchandise was first sold in the United States to an

unaffiliated purchaser, and constructed export price (``CEP'') was not

otherwise warranted based on the facts on the record.

Level of Trade

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

practicable, the Department determines NV based on sales in the

comparison market at the same level of trade (``LOT'') as the EP or CEP

transaction. The NV LOT is that of the starting-price sales in the

comparison market or, when NV is based on constructed value (``CV''),

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

administrative (``SG&A'') expenses and profit. For EP, the U.S. LOT is

also the level of the starting-price sale, which is usually from

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

sale from the exporter to the importer. To determine whether NV sales

are at a different LOT than EP or CEP, we examine stages in the

marketing process and selling functions along the chain of distribution

between the producer and the unaffiliated customer. If the home market

sales are at a different LOT, and the difference affects price

comparability, as manifested in a pattern of consistent price

differences between the sales on which NV is based and home market

sales at the LOT of the export transaction, we make an LOT adjustment

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

level is more remote from the factory than the CEP level and there is

no basis for determining whether the difference in the levels between

NV and CEP affects price comparability, we adjust NV under section

773(a)(7)(B) of the Act (the CEP offset provision). See Notice of Final

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

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

We applied the aforementioned criteria in the Preliminary

Determination and indicated that the information on the record revealed

two levels of trade (end-users and trading companies) for KSC in the

home market. The Department also found that sales made through trading

companies in both the home market and the United States were at the

same level of trade. See Preliminary Determination, 64 FR at 114-115.

As we further explain this issue in response to Comment 3, below, we

continue to find that there are two levels of trade: (1) KSC sales to

end-users; and (2) KSC sales to affiliated and unaffiliated trading

companies. Additionally, we continue to find that no consistent,

significant pattern of price differences existed and therefore we did

not adjust NV for U.S. sales when compared to home market sales made at

a different LOT.

Export Price

We calculated EP based on the packed, delivered price to

unaffiliated purchasers in the United States. For KSC, we deducted,

where appropriate, foreign inland freight, insurance, rebates,

brokerage and handling from the starting price and added duty drawback.

Normal Value

After testing home market viability and whether home market sales

were at below-cost prices, we calculated NV as noted in the ``Price-to-

Price Comparisons'' and ``Price-to-CV Comparisons'' sections of this

notice, below.

1. Home Market Viability

As discussed in the Preliminary Determination, we determined that

the home market was viable. See Preliminary Determination, 64 FR at

113. The parties did not contest the viability of the home market and

we have no other reason to reconsider our preliminary determination

regarding viability. Consequently, for the final determination, we have

based NV on home market sales.

2. 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 KSC's cost of materials,

fabrication, SG&A expenses, and packing costs. We relied on KSC's

submitted COPs, except in the following specific instances where the

[[Page 30577]]

submitted costs were not appropriately quantified or valued.

1. We adjusted KSC's reported cost of manufacturing to remove

variances associated with the packing and transportation cost centers.

2. We revised KSC's reported financial expense rate to include a

subsidiary's excluded foreign exchange losses.

3. We applied the general and administrative expense rate and

financial expense rate to KSC's cost of manufacturing plus packing

expenses and loading costs. See Memorandum of Cost of Production and

Constructed Value Calculation Adjustments for the Final Determination

from William Jones to Neal Halper, dated May 19, 1999. (``Cost

Calculation Memo'')

We conducted the sales-below-cost test in the same manner as

described in our Preliminary Determination, 64 FR at 113. As with our

Preliminary Determination, we found that for certain models of SSSS,

more than 20 percent of KSC's home market sales were at prices less

than the COP within an extended period of time. See section

773(b)(1)(A) of the Act. Further, the prices did not provide for the

recovery of cost within a reasonable period of time. We, therefore,

disregarded the sales that failed the cost test and used the remaining

sales as the basis for determining NV, in accordance with section

773(b)(1) of the Act.

3. Calculation of Constructed Value

In accordance with section 773(e) of the Act, we calculated CV

based on the sum of KSC's cost of materials, fabrication, SG&A

expenses, direct and indirect selling expenses, interest expense,

research and development expenses incurred in producing the subject

merchandise, U.S. packing costs, and profit. We relied on the submitted

CVs except for the specific instances noted in the ``Cost of

Production'' section above.

Price-to-Price Comparisons

For those product comparisons for which there were sales that did

not fail the cost test, we based NV on prices to home market customers.

We made adjustments, where appropriate, for physical differences in the

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

applicable, we made adjustments for rebates and movement expenses. To

adjust for differences in circumstances of sale between the home market

and the United States, we reduced home market prices by the amounts of

direct selling expenses (i.e., warranty and credit expenses) and added

U.S. credit expenses. In order to adjust for differences in packing

between the two markets, we deducted home market packing costs and

added U.S. packing costs.

Price-to-CV Comparisons

In accordance with section 773(a)(4) of the Act, where we were

unable to find a home market match of identical or similar merchandise,

we based NV on CV. We calculated CV based on KSC's cost of materials,

fabrication, SG&A expenses, U.S. packing, direct and indirect expenses,

interest expense, research and development expenses employed in

producing the subject merchandise, and profit. In accordance with

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

the amounts incurred and realized by KSC in connection with the

production and sale of the foreign like product during the ordinary

course of trade for consumption in Japan. 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. For comparisons to EP, we made circumstances of sale (``COS'')

adjustments by deducting home market direct selling expenses and adding

U.S. direct selling expenses.

Changes Since the Preliminary Determination

Based on our analysis of comments received, we have made certain

corrections for the final determination. We have corrected certain

programming and clerical errors that occurred in the Preliminary

Determination. Where applicable, these errors are discussed in the

relevant comment sections below.

Currency Conversion

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

section 773A 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.

Facts Available

Section 776(a)(2) of the Act provides that, if an interested party:

(A) Withholds information that has been requested by the Department;

(B) fails to provide such information in a timely manner or in the form

or manner requested; (C) significantly impedes a proceeding under the

antidumping statute; or (D) provides such information but the

information cannot be verified, as provided in section 782(i), the

Department shall, subject to subsections 782(d) of the Act, use facts

otherwise available in reaching the applicable determination. In this

investigation, NSC, NMI, Nisshin Steel Co., Ltd., and Nippon Yakin

Kogyo failed to provide requested information. Therefore, use of facts

available is warranted.

Section 776(b) of the Act further provides that adverse inferences

may be used for a party that has failed to cooperate by not acting to

the best of its ability to comply with a request for information (See

Statement of Administrative Action (``SAA''), accompanying the URAA,

H.R. DOC. No. 103-316 at 870 (1994)). Given that Nisshin Steel

Corporation, Nippon Yakin Kogyo and NMI refused to comply with the

Department's request for information, we find that these companies have

failed to act to the best of their ability to comply with reporting

obligations in this investigation. Therefore, the Department has

determined that an adverse inference is warranted with respect to these

three mandatory respondents. As in the Preliminary Determination, the

Department has selected as adverse facts available a margin of 57.87

percent, which is based on the highest margin alleged in the petition

for any Japanese producer. As discussed in the Preliminary

Determination, the Department has, to the extent practicable,

corroborated the information used as adverse facts available because

information from a petition is considered secondary information. See 19

CFR 351.308(c) and (d). For example, we reviewed the adequacy and

accuracy of the information in the petition during our pre-initiation

analysis of the petition, to the extent appropriate information was

available for this purpose (e.g., import statistics, call reports, and

data from business contacts). We have also determined that the adverse

facts available petition rate has probative value by comparing this

rate to actual sales made by KSC, the only respondent whose information

the Department was able to verify and use for margin calculation. After

comparing the information in the petition to KSC's verified sales data,

we find that the petition data is reliable for use as adverse facts

available. (See Corroboration Memorandum Detailing Application of Total

Adverse Facts Available from James Doyle, Program Manager, to Roland

MacDonald, Director Office VII, dated May 19, 1999.) (``Corroboration

Memorandum'') Furthermore, no record evidence or argument has been

submitted that would cause the Department to call into question the

accuracy of the data in the petition. Therefore, we determine that the

use of this margin as facts available

[[Page 30578]]

for these three companies is appropriate. For further discussion

regarding the Department's use and selection of facts available for

these three companies, see the Preliminary Determination, 64 FR at 115.

In addition, in light of NSC's decision not to respond to the

Department's December 7, 1998, supplemental cost response despite

repeated extensions by the Department, the Department has determined

that NSC has failed to act to the best of its ability in this

investigation. Furthermore, NSC's failed to provide the requested cost

information, including a large number of affiliated input suppliers, a

breakdown of NSC costs by production process and explanations and

clarifications regarding allocation methodologies used by NSC in

arriving at product-specific costs. As a result, the Department was

unable to assess whether any input constituted major inputs, whether

collapsing certain steel grades is appropriate, as well as the

reasonableness of the allocation methodologies used. Thus, the

Department has determined that, in selecting from among facts

available, an adverse inference is appropriate. Consistent with

Department practice in cases where a respondent withdraws its

participation in an investigation, as adverse facts available, we have

applied the highest margin in the petition. See Comment 13 and

Corroboration Memorandum; see also Final Determination of Sales at Less

Than Fair Value: Vector Supercomputers From Japan, 62 FR 45623 (August

28, 1997).

Critical Circumstances

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

critical circumstances, the Department will determine whether: (A)(i)

There is a history of dumping and material injury by reason of dumped

imports in the United States or elsewhere of the subject merchandise;

or (ii) the person by whom, or for whose account, the merchandise was

imported knew or should have known that the exporter was selling the

subject merchandise at less than its fair value and that there would be

material injury by reason of such sales; and (B) there have been

massive imports of the subject merchandise over a relatively short

period.

As discussed in our preliminary findings of critical circumstances,

we are not aware of any antidumping order in any country on stainless

steel sheet and strip in coils from Japan, nor has any additional

information in this regard been placed on the record for purposes of

the final determination. Therefore, we examined whether there was

importer knowledge. The statute and the Statement of Administrative

Action (``SAA''), which accompany the Uruguay Round Agreements Act, are

silent as to how the Department is to make a finding that there was

knowledge of less than fair value sales and the likelihood of material

injury. Therefore, Congress has left the method of implementing this

provision to the Department's discretion.

In determining whether an importer knew or should have known that

the exporter was selling the product at less than fair value, the

Department normally considers margins of 15 percent or more sufficient

to impute knowledge of dumping for constructed export price (``CEP'')

sales, and margins of 25 percent or more for export price (``EP'')

sales. See Final Determination of Sales at Less Than Fair Value: Brake

Drums and Brake Rotors From the PRC, 62 FR 9160 (February 28, 1997). In

this investigation, as discussed above in the Facts Available section,

we have determined pursuant to an application of adverse facts

available that the petition margin of 57.87 percent is probative of the

selling practices of mandatory respondents Nisshin Steel Corporation,

Nippon Yakin Kogyo, Nippon Metal Industries, and NSC. This margin

indicates dumping over the 15 and 25 percent thresholds for these

respondents' sales. In addition, the Department normally considers a

preliminary International Trade Commission (``ITC'') determination of

material injury sufficient to impute knowledge of likelihood of

resultant material injury. The ITC preliminarily found material injury

to the domestic industry due to imports of sheet and strip from Japan

and, on this basis, the Department may impute knowledge of likelihood

of injury to these respondents. See Preliminary Determination of the

ITC of Certain Stainless Steel Sheet and Strip from France, Germany,

Italy, Japan, the Republic of Korea, Mexico, Taiwan, and the United

Kingdom, 63 FR 33092, (June 17, 1998). Thus, we determine that the

knowledge criterion for ascertaining whether critical circumstances

exist has been satisfied.

Moreover, because we are applying adverse facts available to these

four companies with respect to our final critical circumstances

determination, we also find that imports for each of them have been

massive. Consequently, both prongs of our critical circumstances

analyses have been met. We further discuss our treatment of Facts

Available/Critical Circumstances in Comment 15 below.

We do not find critical circumstances for KSC. KSC was a

cooperative mandatory respondent whose verified shipments did not

evidence massive imports but, instead, showed an increase of less than

the requisite threshold of 15 percent during the relevant comparison

periods (January-May 1998 with June-October 1998). Although the

Department's regulations at 19 CFR 206(i) require that we examine at

least three months in making our determination of whether imports are

massive, it is the Department's practice to examine the longest period

for which information is available up until the preliminary

determination. See Notice of Final Determination of Sales at Less Than

Fair Value: Aramid Fiber Formed of Poly-Phenylene Terephthalamide From

The Netherlands, 59 FR 23684, (May 6, 1994). In this case, for purposes

of the Final Determination, available information permitted us to

examine relevant comparison periods covering five months before and

after the filing of the petition. Additionally, for purposes of the

final determination we included June in the post-petition period, as it

was incorrectly included in the pre-petition period for purposes of the

Preliminary Determination.

We have reconsidered our Preliminary Determination's finding as to

the ``All Others'' category of companies and further discuss our

treatment of the ``All Others'' category in Comment 14 below. For a

complete discussion, see Memo from Roland MacDonald to Joe Spetrini

regarding Final Critical Circumstances Determination, dated May 19,

1999, (``Final Critical Circumstances Memo''). For this final

determination, we do not find critical circumstances for the ``All

Others'' category.

Verification

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

information submitted by KSC for use in our final determination. We

used standard verification procedures, including examination of

relevant accounting and production records and original source

documents provided by KSC.

Interested Party Comments Regarding Sales Issues

Comment 1: Exclusion of Sales of Foil Products

KSC argues that the Department should have excluded product code

R20-5USR grade foil products, which are used for automotive catalytic

converter applications, from its

[[Page 30579]]

preliminary margin calculation since this product meets the exclusion

criteria as outlined in the Scope of Investigation of the Preliminary

Determination. Further, KSC contends that the Department's verification

findings support its claim for exclusion of these foil products. For

instance, KSC claims that at verification, the Department reviewed

numerous sales transactions of R20-5USR foil products, including

production records and mill certificates. KSC argues that these

findings prove that the R20-5USR grade foil product, previously

included in the sales database, met all of the Department's physical

and chemical criteria for exclusion. Thus, KSC argues that the

merchandise is outside the scope of the investigation and therefore

must be removed from the Department's dumping margin calculations for

the final determination.

Alternatively, KSC contends that if the Department decides not to

exclude sales of foil used for automotive catalytic converter

applications, then the Department should exclude the home market trial

sales as being outside the ordinary course of trade. KSC argues that

the home market sales of R20-5USR grade foil product, also classified

as trials, are outside the ``ordinary course of trade,'' in accordance

with the section 773(a)(1) of the Act because: (1) These sales

represent a small percentage of the entire volume of home market sales

of SSSS during the POI; (2) the price of the trial sales is

aberrational; (3) the average quantity of the trial sales is an

insignificant percentage of the average quantity of commercial sales of

all subject merchandise during the POI; and (4) the trial sales are not

used for commercial production by the end-users, but are used only for

testing and evaluation purposes. For the aforementioned reasons, KSC

contends that if the Department should decide to use R20-5USR grade

foil in its margin analysis then the Department should exclude the home

market trial sales from its margin analysis, on the basis of the fact

that these sales are ``outside the ordinary course of trade'' and sold

in non-commercial quantities.

Petitioners' first contention is that respondent's exclusion

request of October 15, 1998, related only to narrowly focused foil

product sold only by Emitec, a producer. According to the petitioners,

KSC sells a wide range of foil products falling under the R20-5USR

designation and the evidence on the record suggests that KSC's home

market sales of foil products do not meet the precise exclusion

specifications agreed to by petitioners. Petitioners agree that the

verified U.S. sales of R20-5USR meet all the ``Emitec specifications''

and thereby fall within the exclusion. However, petitioners argue that

the mill certificates of the home market sales of foil products contain

certain chemical elements but not other elements and do not clearly

indicate that the product meets ``Emitec specifications.''

Furthermore, petitioners assert that the cost data for foil

products vary significantly between the export products and the

domestic products, which they argue indicates that not all foil

products have the same cost of production, as discussed in KSC Cost

Verification Report at S-14. For the aforementioned reasons,

petitioners urge the Department to limit exclusion of sales only to

those sales of foil products that meet the precise exclusion

requirements as defined in its October 15, 1998 submission. As a

result, petitioners request that the Department not exclude home market

foil products from its margin calculations as the exclusion applies

only to a particular producer, and the home market foil products do not

appear to meet the specifications set forth in the exclusion language.

Petitioners' second contention is that KSC's request that its sales of

home market foil products be excluded as being outside the ordinary

course of trade should not be granted. Petitioners argue that these

sales were made at arm's length regardless of the quantity sold.

Department's Position: We agree with KSC. At verification, KSC was

able to demonstrate that its R20-5USR products met all of the

Department's exclusion criteria for foil products as defined in the

Scope of Investigation of the Preliminary Determination. Specifically,

KSC provided copies of mill certificates for a randomly selected group

of foil sales accompanied by a ladle analysis (indicating chemical

contents). This verification documentation demonstrates that the

chemical content of all exclusion elements met the narrow exclusion

requirements as defined in the Scope of Investigation of the

Department's Preliminary Determination.

The Department first disagrees with petitioners' application of the

scope exclusion on a customer-specific basis. The scope of an

antidumping duty order covers merchandise, not companies. Second, the

Department has determined that petitioners' argument that home market

mill certificates contain certain elements not within the scope

exclusion is unjustified given the facts of the record. Contrary to

this contention, we find that the evidence on the record (i.e., mill

certificates and ladle analysis) demonstrates that each of the elements

required by the Department's exclusion criteria, as stated in the

Preliminary Determination, is disclosed on the home market mill

certificates and ladle analysis for the randomly selected and verified

foil sales. (See KSC Sales Verification Report and verification exhibit

3.) Therefore, those chemical elements referred to by petitioners that

were not found in the market mill certificates are not relevant to the

question of scope. Since these sales meet the exclusion criteria, they

do not fall within the scope as defined in the Preliminary

Determination. Thus, we have eliminated them from the final

determination margin calculations because we determine that these sales

meet the exclusion criteria, we do not need to address respondent's

ordinary course of trade argument.

Comment 2: Proper Application of the Arm's Length Test

KSC claims that the Department erred in its application of the

arm's length test by testing sales on a sales destination basis, rather

than on a customer basis. According to KSC, the Department's normal

practice is to compare overall weighted average home market net prices

for each control number sold to affiliated customers with the overall

weighted average home market net prices for each control number sold to

unaffiliated customers. KSC argues that the Department performed its

arm's length test for sales to affiliated customers for each delivery

point, as each delivery point has a unique customer code in KSC's sales

database, rather than aggregating the delivery points maintained by one

particular customer. KSC claims that the arm's length test should have

been performed by customer taking into account the customer's various

delivery points in determining the appropriate comparison price. Hence,

KSC asserts that the Department should perform this test on an

affiliated customer-specific basis, rather than on a destination-

specific basis.

In response, petitioners note that KSC failed to indicate that its

reported customer codes are ``commingled'' with customers'' delivery

locations in its questionnaire response. Further, petitioners contend

that the data on the record contradict KSC's assertion that an

affiliated customer may have numerous delivery points as reflected in

the multiple codes assigned to the customer. First, petitioners claim

that not all of the delivery locations for each home market sale were

reported. Second, petitioners argue with KSC's contention that each

customer code

[[Page 30580]]

signifies a particular destination point since a specific customer code

is reported to have more than one destination point related to it and

certain customer codes share the same destination point as reflected in

KSC's home market sales database. In light of the above contradictions

to KSC's claim, petitioners argue that the Department should continue

to use the existing customer codes in KSC's home market database as in

the Department's Preliminary Determination.

Department's Position: We agree with KSC. Although KSC could have

explained that its individual customer codes may at times reference the

same customer at a different location by a different customer code, the

necessary factual information has already been presented on the record

in the Section B and C responses. Further, the Department did not find

any discrepancies with the reporting of customers or delivery locations

at verification. Hence, we have no reason to suspect that the

information in regard the destination data field (i.e., DESTH) is in

error in the sales databases. Finally, the Department attempts to

calculate margins as accurately as possible and this inadvertent

oversight by KSC and the Department will be corrected by using

information on the record. Accordingly, we have corrected our arm's

length program and tested the prices on a customer basis rather than an

individual customer delivery location basis.

Comment 3: Proper Implementation of Level of Trade Analysis

KSC argues that the Department should recognize that KSC's sales to

all end-users are classified as a separate level of trade regardless of

whether the end-user is a customer of KSC or Kawasho, an affiliated

party of KSC. KSC contends that Kawasho's sales to its end-users

exhibit the same differences in selling functions as KSC's sales to its

end-users. In addition, KSC claims that the Department found no

discrepancies in its review of the framework agreement between KSC and

its end-users and the distinct sales functions performed by Kawasho to

its end-users. According to KSC, these distinctions in selling

functions, as examined during the course of verification, warrant two

separate levels of trade. Kawasaki argues that because sales to trading

companies were at the same LOT in both markets, the Department should

match U.S. sales to trading companies with normal values derived from

home market sales to trading companies, citing Notice of Preliminary

Determination of Sales Less than Fair Value: Certain Welded Carbon

Steel Pipe and Tube from Turkey, 63 FR 6155, 6158 (February 6, 1998)

(``We first attempted to compare sales at the U.S. level of trade to

sales at the identical home market level of trade. If no match was

available at the same level of trade, we attempted to compare sales at

the U.S. level of trade to sales at the second home market level of

trade.''); Certain Stainless Steel Wire Rods From France Final Results

of Antidumping Duty Administrative Review, 61 FR 47874, 47880

(September 11, 1996) (same). Thus, KSC urges that sales to end users

should be segregated from sales to trading companies.

Petitioners did not comment on this issue.

Department's Position: As discussed in the Department's Preliminary

Determination, 64 FR at 114, 115, we disagree with KSC for the

following reasons. To determine whether normal value was established at

a different LOT than KSC's EP sales, we examined stages in the

marketing process and selling functions along the chain of distribution

between KSC and its U.S. customers, and then compared those functions

to the two LOTs that we previously identified in the home market

(``HM''). In the U.S., we identified a single channel of distribution:

sales from KSC to the unaffiliated Japanese trading companies. In the

HM, we identified two channels of distribution: (1) Sales from KSC to

end-users; and (2) sales from KSC to all trading companies (affiliated

and unaffiliated). In examining the LOTs of the HM sales at

verification, we verified that KSC conducted price negotiations,

communications with customers, payment collection activity, and

warranty activity with its end-users. In contrast, KSC did not perform

these same sales functions with respect to sales to both affiliated and

unaffiliated trading companies. In our comparison of sales function of

KSC to affiliated trading companies and then to unaffiliated customers

(end-users/distributors), we noted that KSC's affiliated trading

companies gathered market intelligence and customer information, made

customer contacts, and performed marketing services, price

negotiations, warehousing, processing, payment collection activity, and

warranty activity. Based on the above-referenced distinctions between

the selling functions of KSC to end-users and those of KSC to

affiliated trading companies, and then to unaffiliated customers, we

consider the respondent's request that the Department treat KSC's sales

to all end-users as one level of trade to be unpersuasive. Finally,

because the Department found no ``consistent price differences between

the sales on which NV is based and comparison markets sales at the LOT

of the export transaction,'' we found that no LOT adjustment or offset

was necessary for NV in the event that U.S. sales (KSC sales to

unaffiliated trading companies) were compared to home market sales made

at a different LOT (KSC sales to end-users) as demonstrated in the

Preliminary Determination Pattern of Price Program results. For a

discussion of the Department's practice concerning level of trade

adjustments, see Notice of Final Determination of Sales at Less than

Fair Value: Stainless Steel Plate in Coils from the Republic of Korea,

64 FR 15444, 15445 (March 31, 1999) (``If the comparison market sales

are at a different LOT, and the difference affects price comparability,

as manifested in a pattern of consistent price differences between the

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

the export transaction, we make a LOT adjustment * * *''). Therefore,

for this final determination, in accordance with section 773(a)(7)(A)

of the Act, we maintain our preliminary position with regard to KSC's

level of trade analysis.

Comment 4: Rolled-On or Hard Finish With 2B Finish

Petitioners argue that the Department should collapse the finish

codes 7 and 9 into 2B finish as these finish codes are broad and lack

profound distinctions to justify separate categories. Citing Final

Determination of Sales at Less Than Fair Value: Emulsion Styrene-

Butadiene Rubber from Mexico, 64 FR 14872, 14875 (March 29, 1999)

(``Emulsion Styrene-Butadiene''), petitioners suggest that subtle

differences may exist among various finish codes; however, the

underlying intention of the model match program is not to recognize

each distinction between a product but rather to distinguish the major

physical differences in the merchandise.

Petitioners urge the Department to treat finish codes 7 (Rolled-On)

and 9 (Hard Finish) as a consolidated finish code 2B (temper rolled or

skin passed) in its final determination due to the similarity of the

products and the fact that these two codes are not in KSC's product

brochure which is used in KSC's normal course of business. Moreover,

petitioners cite Rautaruukki Oy v. United States, Slip Op. 98-112 at 14

arguing that a respondent may not unilaterally alter the physical

characteristics of the Department's model match methodology.

KSC responds that it did not ``unilaterally'' alter the product

codes,

[[Page 30581]]

since the Department's model match criteria in the questionnaire

specifically lists code 7, ``Rolled-On,'' as a distinct finish, and

further requested respondent to specify distinct finishes other than

those specifically listed in the questionnaire. Instead, KSC notes that

the individual specifications of these finishes were demonstrated with

support documentation at verification. KSC argues that the products

with finish code 7 and finish code 9 undergo separate production

processes according to customer specifications on finishes. KSC argues

further that there is a lack of evidence on the record to suggest that

KSC's rolled-on or hard finishes are identical to 2B finish.

With respect to petitioners' comment that finish codes 7 and 9 were

not mentioned in KSC's product brochure, KSC argues that it provides

numerous ``bona fide'' grades and options that are not listed in the

main product brochure to its customers. According to KSC, the product

brochure features only the most popular grades and options and by no

means dictates the types of grades and options that it produces for its

customer.

Finally, KSC stresses that if the Department decides to consolidate

these finish codes, it would be necessary to recalculate CONNUM-

specific costs, imposing burdensome programming calculations and

increasing the risk of clerical errors. Therefore, KSC argues that the

Department should not deem it appropriate to consolidate these two

finishes into 2B, and its statement in the verification report should

be read as ``most similar'' to 2B rather than identical.

Department's Position: We agree with KSC. In accordance with

section 771(16)(A) of the Act, the Department's selection of

appropriate matching criteria was based on meaningful physical

characteristics and the comments of the parties. See Emulsion Styrene

Butadiene. As part of the criteria selection process, the Department's

original antidumping questionnaire in this investigation specifically

asked KSC to report ``Rolled-On'' (code 7) and ``Other'' (code 9).

Pursuant to the questionnaire instructions, KSC reported finish code 7

and code 9 in its sales database and constructed CONNUM-specific costs

accordingly. During verification, we noted that KSC offers code 7 and

code 9 finish treatments in its ordinary course of business even though

these specific finishes are not listed in its finish brochure. (See KSC

Sales Verification Report at 8 and Exhibit 3 of the verification

exhibits.) Despite the overall similarities shared by code 7, code 9

and 2B finish, we examined technical documentation for finish code 7

and internal specifications for code 9, and determined that code 7 and

code 9 were distinctly different finishes from 2B. In addition, during

verification, we reviewed sales documentation indicating both types of

finishes. Accordingly, we have maintained our treatment of code 7 and

code 9 as distinct finish codes from code 2B for the final

determination.

Comment 5: Advertising and Technical Service Expenses

KSC argues that it classified home market advertising and technical

services as direct selling expenses in its questionnaire response; yet

the Department inadvertently reclassified these expenses as indirect

selling expenses in its Preliminary Determination margin calculations.

KSC notes that, in response to the Department's questionnaire

instructions, it classified only the technical service expense as

direct expense.

KSC contends that nothing in the Department's sales verification

report contradicts KSC's classification that these expenses are direct.

Instead, numerous documents in the verification exhibits demonstrate

the nature of these expenses as being direct. See KSC Sales

Verification Report at 18-19.

Petitioners argue that KSC's reported home market advertising and

technical service expenses were not directly related to the subject

merchandise, and thus were not direct expenses.

In addition, petitioners maintain that none of the advertisements

on the record referred directly to the subject merchandise. Rather, the

advertisements referred to stainless steel products in general and

covered grades of subject merchandise that were either not subject

merchandise or represented an insignificant percentage of KSC's total

home market sales during the POI. Further, petitioners argue that KSC's

home market advertisements were not directly aimed at the users of the

subject merchandise sold during the POI, but to KSC's customers for

stainless products in general.

With respect to technical service expenses, petitioners argue that

the record suggests that a calculation worksheet from the verification

demonstrates that KSC's financial accounting system captures technical

service expense for subject and non-subject merchandise under the same

cost center, even though KSC used the home market SSSS sales value as

the denominator for its technical service expense calculation. Thus,

petitioners assert that such expenses are not variable costs.

Petitioners cite to the Notice of Final Results of Antidumping Duty

Administrative Review for Certain Internal-Combustion Industrial

Forklift Trucks from Japan, (``Industrial Forklift Trucks from Japan'')

62 FR 5592, 5607-5608 (February 6, 1997) arguing that the Department

considers expenses as direct expenses if these expenses vary with the

sale of a subject merchandise.

KSC rebuts petitioners' argument that KSC's direct selling expenses

should be treated as indirect on the basis that these expenses are

related to the trading company's sale to its customer, rather than

KSC's sale to the trading company. According to KSC, the Department has

consistently treated manufacturer's expenses made on behalf of end-

users as direct, citing the Department's questionnaire at Appendix I at

1-6, Notice of Final Determination of Sales at Less Than Fair Value:

Stainless Steel Wire Rod from Japan (``Stainless Steel Wire Rod''), 63

FR 40434, 40437 (July 29, 1998); Notice of Final Determination of Sales

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

Africa, 64 FR 15459, 15469 (Mar. 31, 1999) (disallowing advertising

expense as a direct expense, because advertising was directed at

respondent's direct customer, rather than at customer's customer); and

Notice of Final Determination of Sales at Less than Fair Value: Calcium

Aluminate Cement, Cement Clinker and Flux from France, 59 FR 14136,

14145 (March 25, 1994). Similarly, KSC contends that its home market

advertising and technical service expenses should be considered direct

as indicated in the Sales Verification Report. Regarding technical

service expenses, KSC argues that technical service expenses should be

classified as direct expenses since KSC incurred those expenses in

connection with particular sales.

Department's Position: We agree, in part, with KSC. Based on the

record evidence in this investigation and the information examined at

verification, we have determined that KSC's reported advertising

expenses apply to all stainless steel products, including subject and

non-subject merchandise, and were incurred on behalf of KSC's customer.

In accordance with the Department's practice, in determining whether

advertising expenses directly tie to particular sales, we applied the

two-prong test used in Final Determination of Sales at Less than Fair

Value: Antifriction Bearings Other than Tapered Roller Bearings and

Parts Thereof from France, Germany, Italy, Japan, Singapore, and the

United Kingdom (``AFB's''), 62 FR 2102-2104 (January 15, 1997). In

AFB's, the

[[Page 30582]]

Department stated that ``for advertising to be treated as a direct

expense, it must be incurred on products under review and assumed on

behalf of the respondent's customer; that is, it must be shown to be

directed toward the customer's customer.'' Id.; See also Stainless

Steel Wire Rod from Japan, 63 FR at 40437 (Department will treat

expenses as direct expenses if they can be directly tied to specific

sales). As evidenced by documentation gathered at verification in

Exhibit 7 of the verification exhibits and KSC Sales Verification

Report, we examined samples of brochures directed to the end-user's

product design needs, invoices for advertisements concerning KSC's

environmental safety record, invoices for advertisements for a

particular company, as well as brochures directed at construction

application uses. At verification, KSC provided sufficient

documentation that the advertising expenses in question relate to

subject merchandise and target the customer's customer. (See KSC Sales

Verification Report at 4-11). Accordingly, we have reclassified KSC's

advertising expenses as direct selling expenses for the purpose of the

final determination. This is consistent with our determination in

Stainless Steel Wire Rod.

With respect to technical service expenses, there is nothing on the

record to support petitioners claims. Furthermore, the case cited by

petitioners, Industrial Forklift Trucks from Japan, is factually

distinguishable from this case as the respondent in that case stated

that its technical service ``expenses are all expenses and do not

relate to specific sales.'' 62 FR at 5605. Furthermore, there is

nothing on the record to support petitioners' position that the

technical expense did not vary with the sale of subject merchandise.

Accordingly, we reclassified KSC's technical service expenses as direct

selling expenses for the final determination.

With regard to petitioners' assertion that KSC used the home market

SSSS sales value as the denominator for its technical service expense

calculation despite KSC's assignment of technical service expenses to

one cost center, we agree with the petitioners and accordingly revised

the reported per-unit technical service expense. In order to properly

reflect the portion of the total technical service and advertising

expense associated with the subject merchandise, we calculated a ratio

by dividing the sales of subject merchandise by total sales of

stainless steel products, and applied the ratio to the total respective

verified technical service and advertising expense amounts for the

stainless steel products.

Comment 6: Home Market Advertising Expenses

Petitioners argue that the Department should apply the revised

advertising expense ratios to KSC's respective sales databases for its

final determination. Additionally, the Department should reject KSC's

correction to the advertising expense for a certain home market sale

observation because this particular reported advertising expense

contradicts other information on the record. Petitioners further claim

that KSC may not use an allocation methodology for some sales but

choose actual expenses for others.

KSC rebuts petitioners' argument that home market advertising

expenses be recalculated on newspapers alone, on the basis that the

home market advertising expense comprises not only the newspaper

expense but also catalogue and other advertising expenses. KSC adds, as

a result, that the home market advertising expense ratio should remain

the same, reflecting the total sum of catalogue, newspaper and

advertising expense. In addition, KSC urges that the Department deny

petitioners' request that HM observation 400 be corrected, pointing to

the verified sales data which support KSC's corrected advertising

value.

Department's Position: The Department agrees with KSC in that the

advertising expenses should be used as reported to the Department since

this expense was verified. Additionally, the Department has taken into

account the minor corrections presented at verification. At

verification, we found no inconsistencies in KSC's reporting of its

advertising expense. See KSC Sales Verification Report at 18. Further,

the Department has determined that the value reported for the

particular home market sale in question corresponds to the verified

expense ratios. Thus, we have not corrected this observation.

Comment 7: Correction of Errors in KSC's Weighted-Average Cost

Calculation for Certain Products

Petitioners argue that in the process of recalculating the value of

financial expenses in its preliminary margin analysis, the Department

miscalculated the financial expenses for constructed value by applying

the financial expenses ratio to KSC's reported financial expenses,

rather than to KSC's reported cost of manufacturing for CV. Thus,

petitioners claim, the Department should revise KSC's margin

calculation program by multiplying the revised total cost of

manufacturing for CV by the revised financial expense ratio.

KSC agrees with this change.

Department's Position: We agree with the proposed change and have

corrected this inadvertent error in this final determination. (See Cost

Calculation Memo).

Comment 8: KSC's Sales to Unaffiliated Trading Companies as Separate

Transactions

Petitioners assert that the information on the record indicates

that the trading company's role is limited to conveying the end-user's

order requests and KSC's acceptance or counter-offer to the end-user.

Petitioners argue that the trading companies' roles are similar to that

of commissioned agents, and thus the Department should not establish

the normal value on the sales price between KSC and the trading

company. Instead, petitioners urge the Department to rely on the price

paid by the end-user or, in the absence of such information, the

Department add an amount for the commission to the sales price reported

by KSC to calculate normal value for KSC's home market sales.

Petitioners contend that if the Department views the transaction

between the trading company and the end-user as a separate transaction,

the Department should then recognize the expenses incurred by KSC on

its sales to trading companies as indirect selling expenses, rather

than direct selling expenses, on the basis that the services associated

with these expenses pertain to ``downstream'' sales and thereby

directly benefit the end-user and not the trading company, citing

Notice of Final Results of Antidumping Duty Administrative Reviews:

Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts

Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden,

and the United Kingdom, 62 FR, 54042, 54054 (October 17, 1997); and

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

Stainless Steel Wire Rod from Japan, 63 FR 40434, 40436 (July 29,

1998). Petitioners request that the Department treat those expenses

that are not part of the negotiated deal between KSC and the trading

companies as indirect selling expenses in KSC's margin calculation

analysis.

KSC argues that the record demonstrates that the unaffiliated

trading companies are customers of KSC, rather than ``commissioned

sales agents. In support, KSC notes that the Department reviewed the

framework agreements for its unaffiliated trading companies as well as

contracts demonstrating that KSC makes bona fide

[[Page 30583]]

sales to the trading companies. (See KSC Sales Verification Report and

verification exhibit 4.) Furthermore, KSC adds that the sales reviewed

by the Department at verification demonstrated that KSC issues an order

confirmation and an invoice to its trading company customer and records

the invoice amount to the trading company in its financial accounting

system. KSC notes that the obligation to pay KSC rests with the trading

company and not on the condition that the trading company receive

payment from its downstream customer for payment to KSC. KSC further

stresses that the trading companies take title to the goods and are

solely responsible for the resale transaction, issue order

confirmations and invoices to their customers, and bear the full

responsibility of a resale profit or loss on their sale. Finally, KSC

argues that, because the sales to the trading companies are actual bona

fide sales, the Department may not disregard those sales. KSC stresses

that the Department practice is to use manufacturers' sales to trading

companies, even in instances where the manufacturers ships the goods

directly to the customers of the trading companies. See Stainless Steel

Wire Rod from Taiwan, 63 FR 40461, 40470 (Jul. 29, 1998), and Stainless

Steel Plate in Coils from South Africa, 64 FR 15459, 15467 (Mar. 31,

1999).

Department's Position: We agree with KSC. At verification, the

Department found that the trading company obtains title to goods and

has direct responsibility for payment to KSC for merchandise sold to

the customer of the trading company even if the customer defaults on

its payment. See KSC Sales Verification Report at 5. Additionally, our

examination of KSC's sales process did not demonstrate that the trading

companies assume the role of commissioned agents. At verification, KSC

stated that trading companies undertake their own sales negotiations

with their customers, issue separate order confirmations and sales

invoices and take title of goods purchased from KSC. See KSC Sales

Verification Report at 3. Thus, we have not changed our treatment of NV

sales for the final determination.

Comment 9: Actual vs. Budgeted Brokerage and Handling Expenses for

KSC's U.S. Sales

Petitioners contend that the Department should rely on the actual

brokerage and handling expenses reported in Verification Exhibit 9

rather than KSC's budgeted brokerage and handling expenses. According

to petitioners, a review of KSC's most recent U.S. sales listing

demonstrates that the verified brokerage and handling expenses were not

reported to the Department. Instead, KSC reported budgeted brokerage

and handling costs for its U.S. sales.

KSC finds no basis for the petitioners' assertion that KSC applied

budgeted rather than actual brokerage and handling expenses. In fact,

KSC argues that the petitioners misconstrued the brokerage and handling

expense calculation in Verification Exhibit 9, as the Department found

values from this worksheet to be actual and calculated on a bi-annual

basis. KSC acknowledges that its original calculation contained errors

that needed to be revised; however, it argues that neither the original

calculation nor the revised calculation were based on budgeted values.

In addition, KSC contends that the Department tested the integrity of

the calculation worksheets, during verification and found no

inconsistencies in the calculation worksheets, with the exception of a

clerical error presented at the beginning of verification. As a result,

KSC concludes that the revised and actual brokerage and handling

expenses should be used by the Department.

Department's Position: We agree with the respondent. Although KSC

reported brokerage and handling expense values in its January 25, 1999

sales listing that were different from those verified, we were able to

confirm the accuracy of the per-unit brokerage and handling expenses

submitted at the time of verification by obtaining support

documentation and reconciling those values to KSC's financial

accounting system. (See KSC Sales Verification Report at 13-15). We

further note that our findings at verification clearly demonstrate that

the verified brokerage and handling amounts are actual and not

budgeted. Thus, for the purpose of the final determination, we will use

KSC's verified brokerage and handling expenses as submitted on April

13, 1999.

Comment 10: Verified Inland Insurance Amounts for KSC's Home Market and

U.S. Sales

Petitioners argue that some of KSC's reported inland insurance

amount exceeded the maximum amount of verified home market inland

insurance expense for home market sales and fell below the minium

verified value for certain U.S. sales. Petitioners contend that in

instances where KSC reported incorrect inland insurance amounts, the

Department should apply adverse facts available to those sales. As

facts available, petitioners argue that the Department should assign a

zero to those home market sales with reported inland insurance greater

than the maximum verified amount, and the maximum amount for those

sales that were reported to have an inland insurance expense lower than

the minimum verified amount.

KSC explains that the higher and lower per-unit values exist simply

as a result of KSC's use of multiple invoices as was verified by the

Department. KSC contends that the per-unit values for certain sales

would be less where not all invoices issued against a given order had

insurance charges, indicating that not all of the quantity for the

particular order incurred inland insurance charges. KSC states that,

even though insurance charges are incurred on an invoice-specific

basis, KSC's allocation of the total insurance charges for a particular

order over the total quantity of that order is consistent with its

freight calculation methodology. Further, KSC emphasizes the relative

insignificance of the alleged inconsistencies, as they only apply to

four home market sales and may potentially apply only to twenty eight

U.S. sales. KSC suggests that even if the Department views these

inconsistencies as errors, the Department should either ignore them or

assign the mean of the home market and U.S. insurance expenses to those

sales, rather than apply any punitive facts available, citing Notice of

Final Determination of Sales Less than Fair Value: Stainless Steel

Plate in Coils from Belgium, 64 FR 15476 (March 31, 1999).

Department's Position: We agree with the petitioners. As noted by

the petitioners, KSC incorrectly reported inland insurance values for

certain home market sales with amounts below the minimum value and

those exceeding the maximum value for inland insurance. KSC's argument

that its inland insurance calculation methodology is consistent with

that of inland freight is without merit. We note that our findings are

in contrast to KSC's claim that the per-unit insurance expense was

derived by allocating total insurance charges to order quantity. As the

Department examined at verification, and as KSC demonstrated in its

exhibits, the per-unit inland insurance expense is a contract-based

amount, with rates that varied on the designated market of the sale

(i.e., home market vs. export market) and location (i.e., Nishinomiya

plant vs. Chiba Works) in which the merchandise was produced. (See KSC

Sales Verification Report at 10-11.) Moreover, our comparison of the

home market sales database to the inland insurance

[[Page 30584]]

expense values submitted at verification confirm these alleged

inconsistencies in KSC's sales data. Therefore, as facts available for

the final determination, we have accounted for the existing

inconsistencies by assigning the average inland insurance rate to those

home market and U.S. sales with reported inland insurance greater than

the maximum verified amount and to those sales that were reported to

have an insurance expense lower than the minimum verified amount.

Comment 11: KSC Misreported Inland Freight Expense for Certain U.S.

Sales

Petitioners argue that a comparison of per-unit inland freight

expense on a particular sale from the verification exhibit to KSC's

January 25, 1999 sales listing reveals that the revised inland freight

expense remains incorrect. Petitioners contend that even though the

total freight expense for the U.S. sale in question is correct, the

verified shipment quantity does not match the reported shipment

quantity on this particular sale. Thus, the Department should use the

total reported quantity for this particular sale on the sales listing

rather than the total shipment quantity that the Department examined

during verification. Petitioners point out that the revised allocation

base will produce results comparable to inland freight expenses of

other U.S. sales while conforming to the overall allocation methodology

used to calculate inland freight expenses.

KSC argues that petitioners have misunderstood KSC's order-based

freight calculations, explaining that the per-unit expense on sales

covered by that specific order is based on the order quantity for each

delivery. KSC reiterates that the Department reviewed relevant

supporting documentation and was able to tie KSC's reported inland

freight expenses to its financial accounting system. For the purposes

of the final determination, KSC urges the Department to continue using

its verified freight information.

Department's Position: We agree with KSC. At verification, we

confirmed that KSC allocates its total inland freight charges on an

order-specific basis rather than on an invoice-specific basis. We again

reviewed Exhibit 10 in regards to the noted invoice and have confirmed

that the per order calculation is correct. It appears that petitioners

neglected to include one invoice of the affected order in their

calculation. Thus, we are using KSC's submitted information for this

invoice.

Comment 12: Duty Drawback

Petitioners argue that KSC's duty drawback calculation is

erroneous. According to petitioners, KSC applied the duty rate to the

total consumption value without duty to derive a duty-inclusive total

consumption value. KSC then used the difference in the unit prices with

and without duty as the per-unit value for duty savings. The duty

inclusive total consumption value after the application of the duty

rate to the total consumption value is different from the value

verified by the Department. Petitioners assert that this mathematical

error improperly increases the per-unit value of duty drawback.

Petitioners request that the Department use KSC's recalculated per-unit

duty saving value for chromium to correct this mathematical error.

KSC agrees with the petitioners' recalculation of duty drawback and

with their suggested programming language to correct KSC's inadvertent

error.

Department's Position: We agree with petitioners and KSC. For the

purpose of the final determination, we have continued to rely on KSC's

duty drawback calculation methodology while adjusting appropriately for

the mathematical error on KSC's part.

Comment 13: Facts Available for NSC

Petitioners contend that the Department should rely on total

adverse facts available for NSC in the final determination. Petitioners

argue that due to NSC's failure to submit cost information and, as a

result, the Department's inability to verify any portion of NSC's

response, the Department should rely on facts available. Petitioners

note that on prior occasions the Department has found that an inability

to utilize cost data results in the inability to use the sales data.

NSC contends that to assess an adverse facts available rate would be to

ignore its ``substantial compliance'' with the Department's requests

and also the reasons for which NSC was unable to respond to the

Supplemental D questionnaire. NSC asserts that it did in fact act to

the best of its ability and that the Department should assess a non-

punitive facts available rate for NSC, using the average margin

calculated in the petition. NSC cites to the preamble to the

Department's regulations which state that ``the Department will

consider whether a failure to respond was due to practical difficulties

that made the company unable to respond by the specified deadline.'' 62

FR 27296, 27340 (May 19, 1997). NSC states that to assess the same

punitive margin to it as that assigned to the totally non-responsive

companies is unfair and would not be consistent with the meaning of the

facts available provision. Furthermore, in one instance, the Department

used the weighted average petition rate to calculate the final margin

where the company had not responded completely and the Department was

not able to verify some of the data. See Notice of Final Determination

of Sales Less than Fair Value: Certain Welded Carbon Steel Pipes and

Tubes from Thailand, 62 FR 53808 (October16, 1997).

Department's Position: We agree with the petitioners that the

highest rate alleged in the petition, and corroborated by the

Department, is the appropriate facts available rate for NSC in this

determination. Although NSC cooperated with the Department until the

deadline for the section D supplemental response, NSC has not

cooperated with the Department's request for cost of production

information, which is essential to our dumping analysis. The

supplemental section D questionnaire requested: (1) Detailed

information on NSC's large number of affiliated input suppliers; (2) a

breakdown of NSC's costs by production process; and (3) explanations

and clarification regarding allocation methodologies used by NSC in

arriving at product-specific costs from NSC's more aggregated

accounting records. Absent the affiliated input data, we are unable to

determine whether transfer prices between the affiliates occurred at

market prices in accordance with section 773(f)(2) of the Act.

Moreover, we are unable to assess whether any of these inputs from

affiliated parties constituted major inputs. If major inputs are found

by the Department to have been used in the production of subject

merchandise, we would need the appropriate affiliated suppliers' actual

costs of production in accordance with section 773(f)(3) of the Act.

With respect to our request for cost information disaggregated

according to the stages of the production process, without this

information, we are unable to collapse steel grades where appropriate

(as we are doing with other respondents in the other SSSS cases),

unable to analyze the validity of the reported product-specific data,

and unable to adequately plan for verification. Thus, this data

omission rendered NSC's response unusable for the cost of production

analysis (i.e., the Department is unable to determine whether home

market sales were made at prices at or above production costs) and, as

a result, for margin analysis.

The Department's practice has been to reject a respondent's

submitted information in toto when flawed and

[[Page 30585]]

unreliable cost data renders any price-to-price comparison impossible.

See, e.g., Preliminary Results of Antidumping Duty Administrative

Review: Certain Cut-to-Length Carbon Steel Plate from Mexico, 63 FR

48181, 48183 (September 9, 1998); and Notice of Final Determination of

Sales at Less Than Fair Value: Grain Oriented Electrical Steel From

Italy, 59 FR 33952 (July 1, 1994). The rejection of a respondent's

questionnaire response is particularly appropriate and consistent with

Department practice in instances where a respondent failed completely

to provide verifiable COP information. Id.; see also Final Results of

Antidumping Duty Administrative Review: Certain Corrosion-Resistant

Carbon Steel Flat Products from Korea, 61 FR 18547, 18559 (April 26,

1996) (use of total BIA warranted where reliable price-to-price

comparisons are not possible). Therefore, where a respondent's failure

to respond is so substantial as to require analysis based upon total

facts available the Department will not then selectively review subsets

of data provided by the respondent.

Comment 14: Critical Circumstances for ``All Others''

Sumitomo Metal Industries, Ltd. (``SMI'') argues that the

Department should not find critical circumstances with respect to it in

the final determination. SMI argues that the Department chose not to

investigate SMI because of the administrative burden to the Department,

yet nonetheless applied its preliminary affirmative critical

circumstances finding to imports by SMI. Sumitomo argues that, as a

cooperative non-selected respondent, it is entitled to a negative final

critical circumstances determination. See Preliminary Determination of

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

Republic of China, 61 FR 55269, 55270 (Oct. 25, 1996). SMI argues that

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

circumstances with regard to cooperative non-selected companies. SMI

also cites to the Department's decision in Honey from the People's

Republic of China, 60 FR 29824, 29825 (Jun. 6, 1995) noting that the

Department determined that it was not appropriate ``to penalize

respondents whose individual data have not been analyzed due to the

Department's own administrative constraints.'' In addition, SMI argues

that even though the company falls within the ``all others'' category,

the Department must consider its shipment data for purposes of

determining whether there were massive imports.

Department's Position: With regard to the ``all others'' category

(i.e., companies that were not analyzed in this investigation, e.g.,

SMI) we have reconsidered our Preliminary Determination finding of

critical circumstances. In order to determine whether a finding of

critical circumstances is appropriate with respect to uninvestigated

exporters, it is the Department's normal practice to conduct its

analysis based on the experience of investigated companies. See Notice

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

Concrete Reinforcing Bars from Turkey, (``Rebars from Turkey'') 62 FR

9737, 9741 (Mar. 4, 1997). In addition, in the instant case, while we

have found affirmative critical circumstances for four of the five

respondents, we did not extend our affirmative critical circumstances

findings to the ``all others'' category, because these companies

received affirmative critical circumstances based on adverse facts

available. In Rebars from Turkey, the Department found critical

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

circumstances for three of the four companies investigated. However, as

we most recently determined in Notice of Final Determination of Sales

at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel

Products from Japan, 64 FR 24329 (May 6, 1999) (``Hot-Rolled Steel from

Japan''), we are concerned that literally applying that approach could

produce anomalous results in certain cases. We believe it would be

inappropriate to extend the Department's application of adverse facts

available to ``all others'' for purposes of making a critical

circumstances determination where there is verified data for an

investigated company. Instead, we find that it is appropriate in this

case to apply the traditional critical circumstances criteria to the

``all others'' category. For further discussion regarding the criteria

considered when determining critical circumstances see Comment 15.

First, in determining knowledge of dumping, we look to the ``all

others'' rate, which is based on the weighted-average rate of all

investigated companies. In this case, such a weighted-average rate

must, of necessity, be based on the individual rate of KSC, the only

investigated company that did not receive adverse facts available in

this investigation. KSC's rate, applied to the ``all others,'' is 37.13

percent. This rate is high enough to impute knowledge of dumping to the

``all others'' category. Furthermore, on the basis of the ITC's

preliminary material injury determination, we also find that importers

knew or should have known that there would be material injury from the

dumped merchandise.

Second, we also must also evaluate the second prong of the critical

circumstances criteria: whether there have been ``massive imports'' for

the ``all others'' companies. In making this determination, we examined

the verified company-specific shipment data provided by KSC, the only

investigated company that did not receive adverse facts available in

this investigation. KSC's data showed an increase of less than 15

percent during the relevant comparison periods, and we therefore found

that KSC's data provided no evidence of massive imports. In accordance

with our decision in Hot-Rolled Steel from Japan, we also considered

U.S. Customs data on overall imports from Japan of the products at

issue. These statistics, however, cover numerous HTS categories that

include merchandise other than subject merchandise. As such, we have

not relied on this data in making our ``massive imports'' determination

for ``all others.'' Based on our review of KSC's data on massive

imports, we find that imports from uninvestigated exporters, (e.g.,

``all others'') were also not massive during the relevant comparison

periods. Given these factors, the Department determines that there are

no critical circumstances with regard to ``all other'' imports of SSSS

from Japan. For a complete discussion of the data examined, see the

Department's Final Critical Circumstances Memo, dated May 19, 1999.

Comment 15: Fact Available/Critical Circumstances

Petitioners argue that the Department should use adverse facts

available with respect to critical circumstances for the non-responding

exporters. As for NSC, petitioners contend that a non-responsive

company should not be able to manipulate or selectively respond to the

Department's questionnaire and benefit as a result. See Carbon Steel

Plate from Mexico and Pistachio Group of the Association of Food

Industries v. United States, 11 CIT 668, 671 F. Supp. 31 (1987).

Petitioners further argue that NSC, Nisshin Steel Co., Nippon Yakin

Kogyo, and Nippon Metal Industries chose not to respond to the

Department and should not be rewarded for the section that they

responded to because they deemed it as beneficial to their company

while remaining non-responsive to other aspects of the

[[Page 30586]]

investigation. Because none of the shipment data has been verified,

petitioners contend that the Department should use facts available when

determining critical circumstances.

In its rebuttal, NSC argues that the Department should use non-

adverse facts available in its critical circumstance determination and

should instead use the submitted data in conjunction with the U.S.

Customs data. Further, NSC contends that the record does not show that

it ``failed to cooperate by not acting to the best of its ability,''

because it submitted the shipment data in a timely manner and requested

that the Department verify the information. Furthermore, NSC argues

that the shipment data it submitted clearly demonstrates that its

shipments to the United States have not been massive during the

relevant period. NSC contends that the Department has used Customs

import data where the respondent's data was not verified. See Sodium

Thiosulfate from the Federal Republic of Germany and the United

Kingdom, (``Sodium Thiosulfate'') 55 FR 51749 (Dec. 17, 1990). In

another case, where the exporters were non-responsive, the Department

used import statistics for its critical circumstances determination and

the petition rates for their margins. See Sodium Thiosulfate from the

PRC, 56 FR 2904 (Jan. 25, 1991). In sum, NSC states that the

Department, in some cases, has used Customs import statistics as facts

available for determining critical circumstances.

Department's Position: We agree with petitioners. With respect to

critical circumstances, it would not be possible to conduct a critical

circumstances analysis without relying on adverse facts available. In

accordance with section 735(a)(3) of the Act for the final

determination, we determine critical circumstances to exist if: (1)

There is a history of dumping and material injury by reason of dumped

imports in the United States or elsewhere of the subject merchandise;

or (2) the importer knew or should have known (imputed knowledge) that

the exporter was selling the subject merchandise at less than fair

value and that there would be material injury by reason of such sales;

and (3) there have been massive imports of the subject merchandise over

a relatively short time.

In order to determine whether or not the importer of a product

under investigation knew or should have known that the exporter was

selling the product at less than fair value, we use the estimated

margins in our determination as a guide to ``impute knowledge.'' See

Final Determination of Sales at Less Than Fair Value: Manganese Sulfate

from the People's Republic of China, 60 FR 52155 (Oct. 5, 1995); Final

Determination of Sales at Less Than Fair Value: Disposable Pocket

Lighters from the People's Republic of China, 60 FR 22359 (May 5,

1995); Final Determination of Sales at Less Than Fair Value:

Ferrosilicon from Brazil, 59 FR 22359 (Jan. 6, 1994). If a particular

exporter's sales to an unaffiliated U.S. company (EP transactions)

yields a margin of 25 percent or greater, we determine that margin

sufficient to impute knowledge to the importer. Similarly, if a

particular exporter's sales to an unaffiliated U.S. company through an

affiliated company (CEP transactions) yields a margin of 15 percent or

greater, we determine that margin sufficient to impute knowledge to the

importer.

In this investigation, as discussed above in the Facts Available

section, we have determined pursuant to an application of adverse facts

available that the petition margin of 57.87 percent is probative of the

selling practices of mandatory respondents Nisshin Steel Corporation,

Nippon Yakin Kogyo, Nippon Metal Industries, and NSC. This margin

indicates dumping over the 15 and 25 percent thresholds for these

respondents' sales. In addition, the Department normally considers a

preliminary International Trade Commission (``ITC'') determination of

material injury sufficient to impute knowledge of likelihood of

resultant material injury. The ITC preliminarily found material injury

to the domestic industry due to imports of stainless steel sheet and

strip in coils from Japan and, on this basis, the Department may impute

knowledge of likelihood of injury to these respondents. See Preliminary

Determination of the ITC of Certain Stainless Steel Sheet and Strip

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

Taiwan, and the United Kingdom, 63 FR 33092, (June 17, 1998). Thus, we

determine that the knowledge criterion for ascertaining whether

critical circumstances exist has been satisfied.

Moreover, because we are applying adverse facts available to these

four companies with respect to our final critical circumstances

determination, we also find that imports for each of the companies have

been massive. Consequently, both prongs of our critical circumstances

analyses have been met. See Critical Circumstances section above for

full discussion.

We disagree with NSC's arguments for the following reasons. First,

NSC argues that the Department should use the shipment data it

submitted. Although, NSC submitted its shipment data in a timely manner

and offered to have this information verified by the Department, the

Department decided not to verify any of the information submitted by

NSC due to substantial missing information since NSC did not respond to

the Department's supplemental cost questionnaire. Thus, because the

Department could not rely on NSC's sales and cost information as a

whole we must apply total adverse facts available and it is not the

Department's practice to verify partial information by a respondent who

has not fully cooperated. Second, NSC argues that the Department can

rely on Customs data in this case as was done previously in Sodium

Thiosulfate. The Department is unable to do such an analysis in this

case since the HTS numbers in the scope of the investigation are basket

categories that include non-subject merchandise, and thus do not permit

the Department to make an accurate analysis as discussed above.

Further, the Department again has determined that, in this case, such

an analysis is not warranted for NSC due to NSC's lack of cooperation

in this investigation. Therefore, we have found affirmative critical

circumstances for NSC.

Comment 16: Date of Sale

KSC asserts that the Department should use invoice date as the date

of sale. KSC contends that the Department proved through numerous tests

during the course of verification that the material terms of sales

change after the order confirmation date and up until the invoice date.

For this reason, KSC believes that the Department's should consider the

date of invoice as the date of sale. KSC cites the Department's

regulations which state that the Secretary normally will use the date

of invoice but, in some cases, will use a date that better reflects the

date on which the exporter or producer establishes the material terms

of sale. KSC asserts that in this case the invoice date is the only

date that reflects the intention of the Department's regulations for

date of sale. Furthermore, KSC cites the Department's decision in

Notice of Final Results of Review: Certain Welded Carbon Steel Pipes

and Tubes from Thailand, 63 FR 55578, 55587-88 (October 16, 1998)

(``Pipes and Tubes from Thailand''), where the Department found the

date on which the essential terms of the sale were established as the

proper date of sale.

Petitioners did not comment on this issue.

Department's Position: We agree with KSC that invoice/shipment date

is the correct date of sale for its home market

[[Page 30587]]

and U.S. sales of subject merchandise. Under our current practice, as

codified in the Department's regulations at section 351.401(i), in

identifying the date of sale of the subject merchandise, the Department

will normally use the date of invoice, as recorded in the producer's

records kept in the ordinary course of business. See Pipes and Tubes

from Thailand, 63 FR at 55578-55587. However, in some instances, it may

not be appropriate to rely on the date of invoice as the date of sale,

because the evidence may indicate that the material terms of sale were

established on some date other than invoice date. See Preamble to the

Department's Final Regulations, 62 FR 27296 (May 19, 1997)

(``Preamble''). Thus, despite the general presumption that the invoice

date is the appropriate the date of sale, the Department may determine

that this is not an appropriate date of sale where the evidence of the

respondent's selling practice points to a different date on which the

material terms of sale were set.

In this investigation, KSC, in its response to the original

questionnaire reported invoice/shipment date as the date of sale in

both the U.S. and home markets. However, when requested by the

Department, KSC also reported order confirmation date, but maintained

that the invoice date would be a more appropriate date of sale. For

purposes of our Preliminary Determination, we accepted the date of

invoice as the date of sale subject to verification. See Preliminary

Determination, 64 FR at 112.

At verification, we carefully examined KSC's selling practices. We

found that it records sales in its sales and financial records by date

of invoice/shipment. For the home market, we reviewed several sales

observations for which the price and quantity changed subsequent to the

original order (see KSC Sales Verification Report, dated March 24,

1999). For the U.S. market, we reviewed several instances in which

material terms of sale changed subsequent to the original order. In

addition, the Department has examined the time lags between order date

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

date as the date of sale. See Circular Welded Non-Alloy Steel Pipe from

the Republic of Korea; Final Results of Antidumping Duty Administrative

Review, 63 FR 32833, 32835 (June 16, 1998) (``Steel Pipe from Korea'').

However, it is important to note that, in Steel Pipe from Korea, the

Department found that ``[t]he material terms of sale in the United

States are set on the contract date and any subsequent changes are

usually immaterial in nature or, if material, rarely occur.'' Id., 63

FR at 32836. In contrast, KSC reported that there were numerous

instances of changes in terms of sale between the initial order date

and the shipment/invoice date. Therefore, invoice date is the most

appropriate date of sale, notwithstanding some time lag between order

confirmation and invoice. As noted above, we observed a significant

number of such instances at verification where changes did occur

between order confirmation and invoice. Based on KSC's representations,

and as a result of our examination of its selling records kept in the

ordinary course of business, we are satisfied that the date of invoice/

shipment should be used as the date of sale because it best reflects

the date on which material terms of sale were established for KSC's

U.S. and home market sales.

Comment 17: Scope Exclusion Requests

Since the Preliminary Determination we received a number of scope

exclusion requests. Printing Developments, Inc. (``PDI'') requests that

the necessary stainless steel supplies used for the production of

printing plates using a stainless steel substrate be excluded from the

scope of the investigation. PDI has found only one Japanese

manufacturer who produces materials to meet PDI's rigorous

specifications. To date, PDI has found no U.S. producer able to produce

this specialized product. PDI is presently discussing the requested

exclusion with one petitioner who has demonstrated some interest in

supplying stainless steel sheet for the production of the printing

plates.

SMI argues that the Department should exclude a certain form of

ASTM specification 403. SMI contends that it is the only producer in

the world of this grade of stainless steel sheet and strip used for

production of certain applications. Furthermore, a partner of SMI in

developing this material solicited three U.S. steel producers but none

were willing or able to produce the material in question.

Watanabe argues that welding strip should be excluded from the

scope of the investigation. Watanabe cites the Preamble in stating that

the Department ``intend(s) to avoid * * * situations where products in

which the domestic industry has no interest are included in the scope

of an order'' 62 FR at 27323. Further, Watanabe claims that it

solicited quotes from all petitioners but received no response.

Therefore, Watanabe urges the Department to exclude welding strip from

the scope of the investigation. Because there is no evidence on the

record of this investigation that U.S. producers have sold the

aforementioned product during the POI and because no U.S. manufacturer

was willing to produce the said merchandise, Watanabe argues that

welding strip should be excluded from the scope. In addition, Watanabe

claims that there are no ASTM and AISI standards for this product.

Petitioners have commented that they are unwilling to consider any

further exclusions from the scope of investigation.

Department's Position: Since petitioners have not indicated a lack

of interest in these particular products, the Department has not

excluded any of these products from the final scope of investigation.

Comment 18: GIN4 and GIN5 Scope Correction

Hitachi Metals America, Ltd. (``HMA'') requests that the Department

make two corrections to the definition for GIN4 and one correction to

the definition of GIN5. First, HMA asserts that the proprietary name

``GIN4 HI-C'' should be included in the definition of GIN4, because the

excluded product is sold under that name as well as GIN4 Mo. Second,

HMA contends that the product GIN4 should be compared to AISI 420 as it

is ``more similar'' to that product than ASTM 440F. Finally, HMA argues

that the Department should revise the units for carbide density for the

product GIN5. HMA asserts that the correct units for carbide density

should read ``one hundred square microns'' as opposed to ``square

micron.''

The petitioners have not commented on these requests.

Department's Position: We agree in part. The Department disagrees

with the suggestion that we include an explicit reference to GIN4 HI-C

in the scope language. The Department's scope has provided illustrative

examples but not an exhaustive list of proprietary names. It is

unreasonable to expect the Department to do such for each particular

product variety and it is unnecessary for the scope language to include

each and every proprietary product meeting the noted exclusion. The

Department agrees that the product GIN4 should be compared to AISI 420

and has made the necessary change. Finally, in regard to the GIN5

correction, the Department agrees with the noted correction and has

made the necessary change.

[[Page 30588]]

Interested Party Comments Regarding Cost

Comment 1: Cost of Second Quality Merchandise

Petitioners argue that the Department should reject KSC's reported

costs for non-prime merchandise (``seconds'') and the related offset

adjustment to prime merchandise costs. Petitioners assert that in its

November 18, 1998 Section D response, KSC did not report costs for

seconds because it claimed it could not identify the physical

characteristics for sales of such products. Petitioners argue that

KSC's home market sales database provides information allowing it to

identify at least three of the product characteristics for seconds.

Petitioners note that KSC offered a proposal in its Section D response

that the Department should use the weighted-average cost of all prime

merchandise as a proxy for the cost of seconds. Petitioners state that

this proposal was rejected by the Department and KSC then submitted

costs for seconds in a supplemental response dated January 11, 1999.

Petitioners claim that, instead of reporting its actual costs for

seconds, KSC provided the average cost of products based on the known

physical characteristics. Petitioners argue that KSC should have

calculated the actual costs of production for seconds based on its

costs for prime merchandise with the same identifiable characteristics.

Petitioners assert that the methodology used by KSC to report the costs

of seconds in its supplemental response resulted in unreasonable cost

allocations. As an example, petitioners claim that nine products with

different grades were assigned the same variable cost of manufacturing.

Petitioners also argue that KSC assigned unreasonable costs that do not

reflect the reported costs of prime merchandise with similar

specifications, as demonstrated by four submitted comparisons of nearly

identical prime and secondary products with significantly different

assigned costs. In addition, petitioners argue that KSC improperly

reduced its costs of prime merchandise with an offset adjustment

related to the assigned costs of seconds. Petitioners note that KSC

claimed this offset was necessary to avoid overstating total costs

because it calculated costs for seconds in the same manner as prime

merchandise. Petitioners assert, however, that KSC did not assign the

same costs for prime merchandise and seconds of the same product

specifications. Petitioners also claim that it is unclear from the

record what methodology was used by KSC to derive its offset adjustment

and that there is no indication that the Department traced this

adjustment to KSC's normal books and records. Therefore, petitioners

argue that the Department should disallow this reduction to the costs

of KSC's prime merchandise.

KSC argues that the Department should use its reported costs for

seconds, which were based on data maintained in the ordinary course of

business. KSC notes that it has repeatedly explained, and the

Department has confirmed, that it does not maintain actual production

costs for seconds and therefore it cannot report actual costs for

seconds. KSC states that, as confirmed by the Department in its sales

verification report, it does not maintain the same product details for

seconds as it maintains for prime merchandise. KSC asserts that the

extent to which its sales records provide reliable evidence as to the

precise characteristics of a secondary product depends on the

information needed by sales personnel in order to make the sale. KSC

claims that some of the reported physical characteristics in its sales

database may be pure estimates and that the only thing known for

certain is that the sales of seconds are, in fact, seconds. With regard

to the different products that were assigned the same variable cost of

manufacturing, KSC asserts that each of those products either had an

unknown grade, finish, or metallic coating, and thus these physical

characteristics could not be reliably identified. KSC states that

seconds are recorded in inventory as a by-product, at their net

realizable value, but that it reported costs for seconds as if they

were co-products of the prime merchandise, in accordance with IPSCO,

Inc. v. United States, 965 F.2d 1056, 1061 (Fed. Cir. 1992) (``IPSCO'')

and Notice of Final Determination of Sales at Less than Fair Value of

Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15444,

15455 (March 31, 1999) (``SSPC from Korea''). KSC asserts that by using

this reporting methodology, which adjusts the costs of seconds, it is

necessary to reduce the costs of prime merchandise to avoid overstating

its total costs of production.

Department's Position: We agree with KSC and have not adjusted its

reported costs. As petitioners note, we did object to the proposal set

forth by KSC in its Section D response for reporting the costs of

seconds. Our supplemental questionnaire dated December 22, 1998 stated,

``the COP for second-quality products should not be calculated using

the methodology suggested at page D-29. The use of a single weighted-

average cost of all prime products is not an acceptable method of

calculating costs for second-quality merchandise. Evidence presented in

the home market sales database indicates that KSC is able to identify

sales of second-quality products to a high level of specificity. To the

extent possible, KSC should use its production system to calculate the

actual production quantities and costs for second-quality products

during the POI. If such detailed production information is not

available, KSC should derive such production quantities and costs based

on its sales records.'' KSC followed these specific directions in

reporting costs for seconds in its supplemental responses, dated

January 11, 1999 and January 25, 1999. The only instances in which KSC

based its reported costs for seconds on the overall weighted-average of

prime merchandise were those in which it was unable to identify the

grade, finish, and non-metallic coating of the secondary product. The

nine secondary products that petitioners submitted as an example of

different products with the same reported costs clearly fall into this

category. While petitioners claim that the grades of these products are

different, the grade, finish and non-metallic coating characteristics

were all coded as unknown. As KSC notes, in no case did the Department

identify a second that was miscoded as a prime, or a prime that was

miscoded as a second. Thus, it is reasonable to expect that the costs

of these seconds would be calculated based on the weighted-average of

all prime products.

In other instances where only one or two of these three

characteristics were unknown, KSC calculated the reported costs of

seconds based on the weighted-average costs of prime merchandise with

the identical characteristics, aside from the unknown

characteristic(s). The four comparisons presented by petitioners

clearly reflect this approach, as we recalculated the cost of these

secondary products without exception. See, Memo to The File from

William Jones, dated May 19, 1999. As a result of our analysis, it

appears that KSC properly reported its cost of seconds, to the extent

it was able, in accordance with the IPSCO rule that prime and secondary

merchandise be treated as co-products and be assigned equivalent costs.

With regard to the offset adjustment that KSC applied to its prime

merchandise, we agree with KSC that this offset was necessary to avoid

overstating its total costs. Since KSC does not track the cost of its

secondary merchandise in its normal books and records, it was necessary

for the company to recalculate costs in the

[[Page 30589]]

manner described above. We reviewed a reconciliation of KSC's total

reported costs to its audited financial statements, noting an

insignificant difference. If the offset adjustment applied to the prime

merchandise had been overstated, then the reported costs of prime

merchandise and seconds would have been understated, and the

reconciliation would have revealed the understatement. Since the offset

adjustment appears to have been properly calculated, we will not make

any additional adjustments to the reported costs of KSC's prime

merchandise.

Comment 2: Application of Cost Variances

KSC allocated its variable cost variances between subject and non-

subject merchandise on the basis of total standard costs incurred for

subject and non-subject production. In the KSC Cost Verification Report

at 2, we stated that it may be appropriate to allocate variable cost

variances at the packing and transportation cost centers on the basis

of production quantities, rather than standard costs, since the costs

in these cost centers are more likely to vary in relation to the

production quantities. KSC allocated its fixed cost variances between

subject and non-subject merchandise on the basis of the total finished

production quantities of subject and non-subject merchandise. We also

stated in our cost verification report that it may be appropriate to

allocate fixed cost variances at KSC's No. 4 refining and No. 4

continuous caster cost centers on the basis of tons processed.

KSC claims that standard cost is the most appropriate basis for

allocating packing and internal transportation costs, as these costs

vary by value, and therefore no adjustment is necessary. KSC argues

that its packing costs vary based on the type of packing rather than

the quantity of production. KSC asserts that the subject merchandise

requires more costly packing to protect the thinner gauge models and to

protect the finish of models with special surfaces. KSC argues that its

internal transportation costs are also more likely to vary with value

because higher-cost products require extensive downstream processing

and are transferred more extensively throughout the mill. KSC claims

that if the Department reallocates the variances incurred at the

refining and continuous caster cost centers, it should do so in a

consistent manner for both variable and fixed variances, based on data

from the entire POI. KSC states that it has no objection to such a

reallocation, though it would result in a de minimis adjustment which

indicates the reasonableness of its submitted methodology.

Petitioners claim that KSC improperly allocated certain variable

and fixed overhead variances, as identified in the cost verification

report, which understated KSC's reported costs. Petitioners argue that

information on the record does not support KSC's assertion that its

packing costs tend to be associated more closely with the value of the

product than with production quantity. Petitioners argue that there is

no consistent correlation between the reported per-unit packing cost

and either sales value or the cost of manufacturing. Petitioners

provide examples to support its claim that there is no information on

the record to affirm KSC's assertion that its internal transportation

costs vary by value rather than quantity. Petitioners note that the

Department's verifiers focused on the common cost centers that

generated the largest variances and that, if the Department had the

resources to examine all of KSC's allocations, other errors requiring

revisions may have surfaced.

Department's Position: We agree with KSC that any reallocation of

variances incurred at the No. 4 refining and No. 4 continuous caster

cost centers should be applied to both variable and fixed cost

variances, and should be calculated based on the entire POI. The result

of such an adjustment would have a de minimis impact and therefore we

have not revised the variance allocations.

We have adjusted the reported costs, however, to remove the packing

and transportation variances. KSC derived its reported costs by first

calculating variable and fixed cost variances, then applying these

variances to the standard cost of each product. Since the resulting

actual cost includes packing and loading costs, it was necessary for

KSC to remove packing and loading which are not part of the cost of

manufacturing. KSC only deducted the standard packing and loading

costs, however, while retaining the variances associated with packing

and transportation cost centers in the reported costs. Since packing

costs are classified as an adjustment to the gross selling price, and

since the packing costs reported in the sales databases are actual

costs (see KSC Sales Verification Report at 17), the variances

associated with packing and transportation should be removed from the

reported cost of manufacturing. We have adjusted the reported costs to

remove these variances, rendering the allocation basis (i.e., quantity

or standard cost) a moot point. It is irrelevant whether production

quantities or standard costs are used to allocate packing and

transportation cost variances between subject and non-subject

merchandise, as long as the allocated variances for these costs are

completely removed in deriving the cost of manufacturing.

Comment 3: G&A Expenses--Losses on Disposal of Fixed Assets

Petitioners argue that KSC erroneously excluded certain losses on

the disposal of fixed assets from the calculation of its general and

administrative (``G&A'') expense rate. Petitioners argue that, although

these fixed assets may be unrelated to production of subject

merchandise, the Department's normal practice is to calculate G&A

expenses based on the producing company as a whole, and not on a

divisional or product-specific basis. See, e.g. Notice of Final

Determination of Sales at Less Than Fair Value: Stainless Steel Round

Wire from Canada, 64 FR 17324, 17333 (April 9, 1999); and Notice of

Final Determination of Sales at Less Than Fair Value: Fresh Atlantic

Salmon from Chile, 63 FR 31412, 31433 (June 9, 1998) (``Fresh Atlantic

Salmon from Chile''). Petitioners claim that it is reasonable to

include all cost of sales as well as all G&A expenses incurred by KSC

during the POI for the calculation of its G&A expense rate.

KSC argues that the Department should not include its losses on the

disposal of fixed assets used for production of non-subject merchandise

in calculating the G&A expense rate. KSC claims that the Department has

recognized that expenses relating exclusively to the production of non-

subject merchandise do not belong in G&A expenses. KSC maintains that

the facts in the instant case are similar to the facts in Fresh

Atlantic Salmon from Chile, in which the Department noted that it would

not include the disposal of fixed assets in G&A if the assets in

questions were tied to the production of non-subject merchandise. KSC

also cites to the following cases as examples of Department practice on

this issue: Brass Sheet and Strip from Canada; Final Results of

Antidumping Duty Administrative Review, 61 FR 46618, 46619-20

(September 4, 1996) (``Brass Sheet and Strip from Canada''); Certain

Hot-Rolled Lead and Bismuth Carbon Steel Flat Products From the United

Kingdom; Final Results of Antidumping Duty Administrative Review, 60 FR

44009, 44012 (August 24, 1995) (``Lead and Bismuth from the U.K.'');

Final Determination of Sales at Less Than Fair Value: Furfuryl Alcohol

From South Africa, 60 FR 22550, 22556 (May 8, 1995) (``Furfuryl Alcohol

from South

[[Page 30590]]

Africa''); and Final Determination of Sales at Less Than Fair Value:

Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18791,

197895 (April 10, 1994) (``Steel Wire Rod from Canada''). KSC claims

that because the assets in question relate to the production of non-

subject merchandise, the Department should exclude such expenses from

the calculation of KSC's G&A expense rate.

Department's Position: We agree with petitioners and, as in the

Preliminary Determination, we have included the losses on the disposal

of fixed assets in our calculation of KSC's G&A expense rate. We

verified that the assets in question relate to the production of non-

subject merchandise. However, it is our practice to calculate G&A

expenses using the operations of the company as a whole. See, e.g.,

Brass Sheet and Strip from Canada, 61 FR at 46619; and Circular Welded

Non-Alloy Steel Pipe and Tube From Mexico: Final Results of Antidumping

Duty Administrative Review, 63 FR 33041, 33050 (June 17, 1998). As we

stated in the original questionnaire issued to KSC, ``G&A expenses are

those period expenses which relate indirectly to the general production

operations of the company rather than directly to the production

process for the subject merchandise * * *''. Therefore, any income or

expense incurred through KSC's disposition of fixed assets should be

included in the G&A expense rate, regardless of whether they are used

purely for the production of subject merchandise or non-subject

merchandise. This policy was established in Final Determination of

Sales at Less Than Fair Value: New Minivans from Japan, 57 FR 21937,

21943 (May 26, 1992) (``Minivans from Japan''). In that case, the

Department stated, ``we generally consider disposal of fixed assets to

be a normal part of a company's operations and have included,

therefore, any gains or losses generated by these transactions in the

cost of production calculation.'' (emphasis added). This is consistent

with our treatment of miscellaneous income expenses in U.S. Steel Group

et al v. United States, 998 F. Supp 1151 (CIT 1998). We note also that

KSC incurred losses on sale of fixed assets related to the production

of subject merchandise and these losses were included in G&A expenses

and allocated over the cost of all products that KSC produced.

In Fresh Atlantic Salmon from Chile, cited by KSC, the issue was

whether to treat temporary shutdown costs as period costs or G&A

expenses, that would normally be allocated over the cost of all

products. The Department determined that the facilities in question

were only idle for a brief period of time and therefore the costs

associated with the temporary shutdown should not be treated as G&A

expenses. Rather, the costs of operating the facility were charged

directly to the cost of manufacturing for the non-subject products

produced in the facility. The Department did not, as KSC implies,

specifically exclude the shutdown costs from the G&A expense

calculation because the facility did not produce subject merchandise.

KSC's reliance on Brass Sheet and Strip from Canada and Steel Wire Rod

from Canada is similarly misplaced. The issue in these cases was

whether to include in a respondent's G&A expenses certain costs that

were incurred by a parent company or a subsidiary. The citations are

not on point since the instant case involves equipment that was owned

by KSC itself and, as noted above, the Department calculates G&A

expenses based on the operations of the respondent as a whole. Expenses

incurred by a parent company, or any other affiliated company, are only

included in the G&A expense calculation where the affiliated company

provides services to the respondent company. KSC's citation to Lead and

Bismuth from the U.K. is also misplaced, since the respondent in that

case closed an entire facility that only produced non-subject

merchandise and then excluded these closure costs from the G&A expense

rate calculation. In the instant case, KSC simply disposed of assets

and, as noted above in Minivans from Japan, the Department's policy is

to include all gains or losses generated by such disposals. The

respondent in Furfuryl Alcohol from South Africa calculated separate

G&A expense rates by division and a company-wide G&A expense rate for

G&A expenses that related to the operations of the company as a whole.

60 FR at 22556. Here, KSC submitted a single G&A expense rate for the

entire company and only included the losses on the sale of fixed assets

related to subject merchandise. It would not be appropriate nor

reasonable to allocate these losses over the cost of producing all

products, while specifically excluding losses on the sale of fixed

assets used for non-subject production. Since the sale of fixed assets

is a general activity of the company, and not specifically related to

production, we have allocated all losses on the sale of fixed assets

over the cost of producing all products.

Comment 4: General Administrative Expenses--Severance Expenses

KSC states that its expenses on special retirement are one-time

severance payments to employees who are transferred from the company

and are considered an extraordinary expense under Japanese generally

accepted accounting principles (``GAAP''). Therefore, KSC claims that

the Department should not include these expenses in the G&A expense

rate calculation. KSC asserts that the special retirement payments are

not normal, as petitioners claim, because these expenses would normally

be accrued as pension liability over an employee's career. KSC also

claims that these amounts are not related to KSC's current operations

since the workers are no longer employed by the company and KSC has no

obligation to make continuing payments to these former employees. KSC

states that it can incur such expenses in more than one year, to the

extent that the downsizing of operations may not be completed in a

single year and additional layoffs or transfers may occur in other

years.

Petitioners argue that KSC erroneously excluded expenses on special

retirement from the calculation of its G&A expense rate. Petitioners

claim that these expenses were incurred during the POI and constitute

normal costs associated with the operation of KSC's business.

Petitioners state that to qualify as ``extraordinary'' in nature, an

expense must be highly unusual and should not reasonably be expected to

recur in the foreseeable future. Petitioners assert that it is not

unusual for a company to layoff employees when downsizing and it is not

unusual for a company to offer severance payments to affected

employees. Petitioners also argue that such expenses cannot be

considered infrequent because KSC recorded the same expenses during the

two prior fiscal years. Petitioners state that it is irrelevant whether

the expenses on special retirement may be classified as extraordinary

under Japanese GAAP, because the Department's practice is to rely upon

a respondent's books and records prepared in accordance with home

country GAAP on the condition that those accounting principles

reasonably reflect the costs associated with the production of subject

merchandise and have been historically used. See, e.g., Notice of Court

Decision: Certain Corrosion-Resistant Carbon Steel Flat Products From

Canada, 63 FR 49078, 49079 (September 14, 1998). Petitioners claim that

since the expenses were incurred both prior to and during the

[[Page 30591]]

POI, and the expenses were associated with KSC's business operations,

the Department should include these expenses in the G&A expense

calculation, regardless of whether Japanese GAAP allows KSC to present

these amounts as ``extraordinary'' items on the financial statements.

Department's Position: We agree with petitioners and, as in the

Preliminary Determination, we have included the expenses on special

retirement in our calculation of KSC's G&A expense rate. The expenses

for special retirement are severance costs that are recorded as part of

KSC's ongoing downsizing operations. The Department's normal practice

is to include severance costs in a company's G&A expenses. See, e.g.,

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

Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil, 64 FR

8299, 8305-8306 (February 19, 1999), and Notice of Final Results and

Partial Rescission of Antidumping Duty Administrative Review: Certain

Pasta From Turkey, 63 FR 68429, 68434 (December 11, 1998). We noted at

verification that these downsizing activities have resulted in

recurring expenses for KSC. The fact that the process may extend over

multiple years does not preclude the use of current period expenses.

KSC has recognized in its audited financial statements the expense

related to the current fiscal year, and it is this period cost which we

have included in KSC's G&A expenses. Also, the classification of these

amounts as extraordinary expenses under Japanese GAAP is irrelevant.

The Department in some instances will exclude costs considered

extraordinary, provided that they are both unusual in nature and

infrequent in occurrence. These expenses for special retirement cannot

be considered infrequent in occurrence since they have been a recurring

cost for KSC and, therefore, are properly included in G&A expenses

along with other period costs. See Silicomanganese From Brazil:

Preliminary Results of Antidumping Administrative Review, 62 FR 1320,

1322 (January 9, 1997).

Comment 5: G&A Expenses--Bonuses

Petitioners claim that KSC should include bonuses paid to the

company's directors and statutory auditors in the calculation of its

G&A expense rate. Petitioners refer to a schedule in KSC's consolidated

financial statements, which indicates that such bonuses totaled 10,773

million yen during the POI.

KSC points out that the petitioners' claim is based on a misreading

of its financial statements and that the bonuses paid to the directors

and statutory auditors were actually 42 million yen. In addition, KSC

claims that its G&A expense rate calculation includes all relevant

bonus expenses.

Department's Position: We agree with KSC and therefore have not

adjusted the G&A expense rate calculation for bonuses. As shown in

KSC's financial statements in its ``Statement of Other Surplus,'' the

total bonuses to directors and statutory auditors during the POI were

only 42 million yen, and we verified that the amount of bonuses

reported in KSC's G&A expenses were reasonable.

Comment 6: G&A and Financial Expense Rate Application

Petitioners argue that the Department should account for packing

costs and loading charges in calculating and applying KSC's G&A and

financial expense rates. Petitioners note that packing costs and

loading charges are included in the cost of sales denominators used to

calculate these rates, but the per-unit cost of manufacturing figures,

to which the rates are applied, do not account for these costs.

Petitioners argue that the Department should correct this situation by

increasing the cost of manufacturing of each product for packing costs

and loading charges.

KSC asserts that the Department could address this problem by

removing packing costs and loading charges from the cost of sales

denominators, as it has in previous cases. See Notice of Final Results

and Partial Rescission of Antidumping Duty Administrative Review:

Certain Pasta From Turkey, 63 FR 68429, 68434 (December 11, 1998).

However, KSC argues that it is impossible for large companies (such as

KSC) to determine the precise amount of packing costs incurred for all

products, in all plants and by all divisions. As an alternative, KSC

suggests that the Department reduce the company-wide cost of sales

figures using the ratio of packing and loading costs to total costs of

manufacturing for the subject merchandise.

Department's Position: We agree with petitioners that an adjustment

is necessary in order to apply the G&A and financial expense rates to

the per-unit cost of manufacturing on the same basis on which it is

calculated. We also agree with KSC that our preferred method of making

this adjustment is to remove packing and loading costs from the cost of

sales denominator. However, as KSC acknowledges, the company-wide

packing and loading costs are not available in the instant case. We

have chosen not to use KSC's proposed alternative, which requires the

assumption that packing costs for all company products are incurred in

the same ratios as the subject merchandise. Instead, we have applied

the G&A and financial expense rates to the per-unit cost of

manufacturing inclusive of packing and loading costs.

Comment 7: Financial Expenses--Foreign Exchange Losses

Petitioners argue that KSC incorrectly excluded a subsidiary's

foreign exchange losses when calculating its reported financial expense

rate. Petitioners note that the Department's practice is to use the

highest level of consolidation to calculate financial expenses due to

the fungibility of financial resources and to include foreign exchange

losses on debt in the same calculation. Petitioners claim that the

excluded foreign exchange losses were related to debt and thus should

be included in the financial expense rate calculation.

KSC acknowledges that an insignificant amount of foreign exchange

losses were inadvertently omitted from the calculation of its financial

expense rate.

Department's Position: We agree with petitioners and have adjusted

KSC's financial expense rate calculation to include the foreign

exchange losses related to debt that were incurred by a KSC subsidiary.

Comment 8: Financial Expenses--Affiliated Party

Petitioners argue that the Department should adjust KSC's reported

costs to include financing costs associated with the purchase of

equipment. Petitioners note that an affiliated company, KSC

Enterprises, purchased equipment from unaffiliated companies and then

sold the equipment to KSC under an installment contract. Petitioners

assert that the cost of financing was not included in the purchase

price and therefore was not included in KSC's depreciation basis for

the purchased assets. Petitioners further note that the financing cost

was not captured since it was eliminated in the preparation of KSC's

consolidated financial statements.

KSC contends that the interest expenses captured on its

consolidated income statement reflect all of the financing expenses

actually incurred by the consolidated entity and that petitioners'

claim seeks to supplement these amounts with financing incurred on

specific assets. KSC argues that petitioners' claim violates the

Department's practice of allocating finance expenses based on the

consolidated corporate entity. See

[[Page 30592]]

Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide From the

Netherlands; Final Results of Antidumping Administrative Review, 63 FR

37516, 37517 (July 13, 1998); E.I. DuPont De Nemours & Co. v. The

United States, 98-7 (CIT Jan. 29, 1998) (``DuPont'').

Department's Position: We agree with KSC. As noted, our long-

standing practice is to derive the financial expense rate using the

respondent's audited consolidated financial statements. See, e.g.,

Silicon Metal From Brazil: Preliminary Results of Antidumping Duty

Administrative Review, 63 FR 42001, 42005 (August 6, 1998). This

practice has been upheld by the CIT as reasonable. See DuPont.

Petitioners are correct in noting that the depreciable basis of the

asset does not include financing costs, and the financing costs

associated with this specific transaction between the two affiliated

entities are eliminated in the preparation of consolidated financial

statements. However, petitioners are incorrect in their assertion that

these financing expenses should be included in the depreciable basis of

the asset as this would result in the double-counting of costs. Since

KSC's reported financial expense rate was properly based on its audited

consolidated financial statements, which reflect all borrowing incurred

by the consolidated entity, we have not made any adjustments to this

rate.

Comment 9: Calculation Error

Petitioners claim that there is an error in KSC's reported cost for

one control number, because the reported cost does not agree to

supporting documents presented at the cost verification. Petitioners

claim that the supporting documents indicate that the reported costs

were understated and the Department should adjust the reported cost

accordingly.

KSC asserts that the reported cost for the control number is

correct. KSC states that the supporting worksheet contains a clerical

error and that, after correcting for this error, the weighted-average

cost calculation on the worksheet agrees to the reported cost.

Department's Position: We agree with KSC. We reviewed the worksheet

that demonstrates the weighted-average cost calculation for this

control number, noting that the unit costs of two products comprising

the control number were switched in error. When the error is corrected,

the resulting weighted-average cost is consistent with the figure

reported by KSC. Therefore no adjustment is warranted.

Continuation of Suspension of Liquidation

In accordance with section 735(c)(1)(B) of the Act, we are

directing the Customs Service to continue to suspend liquidation of all

entries of subject merchandise from Japan that are entered, or

withdrawn from warehouse, for consumption on or after January 4, 1999

(the date of publication of the Preliminary Determination in the

Federal Register) for KSC and companies falling under the All Others

category. We are directing the Customs Service to continue to suspend

liquidation of all entries of subject merchandise from Japan that are

entered, or withdrawn from warehouse, for consumption on or after

October 12, 1998, for NSC, Nippon Metal Industries, Nisshin Steel Co.,

Ltd., and Nippon Yakin Kogyo. The Customs Service shall continue to

require a cash deposit or posting of a bond equal to the estimated

amount by which the normal value exceeds the U.S. price as shown below.

These suspension of liquidation instructions will remain in effect

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

follows:

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

Weighted-

average

Exporter/manufacturer margin

percentage

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

KSC Steel Corporation...................................... 37.13

Nippon Steel Corporation................................... 57.87

Nisshin Steel Co., Ltd..................................... 57.87

Nippon Yakin Kogyo......................................... 57.87

Nippon Metal Industries.................................... 57.87

All Others................................................. 37.13

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

Pursuant to section 735(c)(5)(A) of the Act, the Department has

excluded any zero and de minimis margins and any margins determined

entirely under section 776 of the Act, from the calculation of the

``All Others'' rate.

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

ITC of our determination. As our final determination is affirmative,

the ITC will, within 45 days, determine whether these imports are

materially injuring, or threaten material injury to, the U.S. industry.

If the ITC determines that material injury, or threat of material

injury does not exist, the proceeding will be terminated and all

securities posted will be refunded or canceled. If the ITC determines

that such injury does exist, the Department will issue an antidumping

duty order and direct Customs Service officials to assess antidumping

duties on all imports of the subject merchandise entered, or withdrawn

from warehouse, for consumption on or after the effective dates of the

suspension of liquidation.

This determination is issued and published in accordance with

sections 735(d) and 777(i)(1) of the Act.

Dated: May 19, 1999.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-13680 Filed 6-7-99; 8:45 am]

BILLING CODE 3510-DS-P