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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-580-834]

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

Stainless Steel Sheet and Strip in Coils From the Republic of Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Maria Dybczak (POSCO), Brandon

Farlander (Inchon) or Rick Johnson, Import Administration,

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

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

telephone: (202) 482-5811, (202) 482-1082 or (202) 482-3818,

respectively.

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department 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 the Republic of Korea 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:

Stainless Steel Sheet and Strip in Coils (``SSSS'') from the Republic

of Korea (``Preliminary Determination''), 64 FR 137 (January 4, 1999)),

the following events have occurred:

On December 17, 1998, the Department postponed the final

determination to 135 days after publication of the preliminary

determination (see Notice of Preliminary Determination of Sales at Less

Than Fair Value: Stainless Steel Sheet and Strip in Coils (``SSSS'')

from the Republic of Korea (``Preliminary Determination''), 64 FR 137

(January 4, 1999)). On December 28, 1998, respondent Pohang Iron &

Steel Co., Ltd., (``POSCO'') alleged ``significant ministerial errors''

made in the Department's margin calculation for the preliminary

determination. After reviewing POSCO's allegations, the Department

agreed that it had inadvertently used daily rates instead of a

weighted-average exchange rate, that sales made to unaffiliated

companies were erroneously excluded from the calculation of normal

value, and that deductions for inland freight from plant to warehouse

and warehousing expenses were inadvertently excluded from the

calculation of normal value. Because these errors taken together

constitute a significant ministerial error, as defined in 19 CFR

351.224(g), we amended our preliminary determination. On January 26,

1999 the Department published its amended preliminary determination

(see Notice of Amended Preliminary Determination of Sales at Less Than

Fair Value: Stainless Steel Sheet and Strip in Coils from Korea (64 FR

3928)), amending

[[Page 30665]]

POSCO's cash deposit rate and the All Others rate from 12.59 to 3.92

percent. On February 23, 1999, the Department published a subsequent

amended preliminary determination, incorporating corrected scope

language. See Notice of Preliminary Determinations of Sales at Less

than Fair Value: Stainless Steel Sheet and Strip in Coils 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 8799 (February 23,

1999).

During December 1998, the Department conducted the cost

verification of POSCO's responses to the antidumping questionnaire. On

January 12, 1999, we issued our cost verification report (see

Memorandum to Neal Halper, Acting Director, Office of Accounting: Cost

Verification Report--Pohang Iron and Steel Company, Ltd. (``Cost

Verification Report''), dated January 12, 1999). On February 12, 1999,

we requested that POSCO provide narrative descriptions of certain home

market variables on the first day of the home market sales verification

(see Memorandum to File: Narrative Definitions of Certain Home Market

Variables, dated February 12, 1999). From February 22 through February

26, 1999, and from March 17 through March 18, 1999, we conducted the

sales verification of POSCO's responses to the antidumping

questionnaire. On April 2, 1999, we issued our sales verification

report on the U.S. sales verification of Pohang Steel America

(``POSAM'') (see Memorandum to the File: Report on the Verification of

U.S. Sales by Pohang Steel America (``POSAM'') in the Antidumping

Investigation of Stainless Steel Sheet and Strip in Coils from Korea

(``POSAM Verification Report'')). On April 6, 1999, we issued our sales

verification report on the home market and U.S. sales verification in

Seoul, Korea (see Memorandum to the File: Report on the Sales

Verification of Pohang Iron & Steel Company, Ltd. (``POSCO Verification

Report'')). Following verification, POSCO submitted a revised sales

database reflecting its pre-verification corrections on March 8, 1999.

On February 3, 1999, we received additional comments from

petitioners and, on February 11, 1999, we issued a second supplemental

questionnaire to Inchon. On February 22, 1999, we received Inchon's

second supplemental questionnaire response. We verified Inchon's sales

and cost questionnaire responses in Inchon, South Korea, from March 1-

5, 1999. On March 15-16, 1999, we verified Hyundai U.S.A., a wholly-

owned U.S. subsidiary of Hyundai Corporation, an affiliated trading

company of Inchon. On April 5, 1999, we issued the U.S. sales

verification report (see Memorandum to the File: Report on the

Verification of U.S. Sales by Hyundai U.S.A. in the Antidumping

Investigation of Stainless Steel Sheet & Strip in Coils from South

Korea (``Hyundai U.S.A. Verification Report'')). On April 8, 1999, we

issued the home market sales and cost verification report (see

Memorandum to the File: Inchon Iron & Steel Co., Ltd. Home Market

Sales, United States Sales, and Cost of Production Verification Report

(``Inchon Verification Report'')).

On January 21 and January 28, 1999, respondents and petitioners,

respectively, submitted their requests for a public hearing, and asked

that the Department extend the procedural schedule so that the hearing

might follow the release of all verification reports. On April 15,

1999, respondents and petitioners submitted their case briefs and on

April 21, 1999, all parties submitted their rebuttal briefs. A public

hearing was held on April 26, 1999, a transcript of which has been

placed on the record of this investigation.

Finally, on April 1, 1999, we asked Inchon and POSCO to submit

monthly shipment data for 1996, 1997, and 1998, requested by the

Department for the purposes of making a final critical circumstances

determination. On April 12, 1999, both POSCO and Inchon submitted

monthly shipment information as requested by the Department.

Scope of Investigation

We have made minor corrections to the scope language excluding

certain stainless steel foil for automotive catalytic converters and

certain specialty stainless steel products in response to comments by

interested parties.

For purposes of this investigation, the products covered are

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

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

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

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

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

that is annealed or otherwise heat treated and pickled or otherwise

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

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

it maintains the specific dimensions of sheet and strip following such

processing.

The merchandise subject to this investigation is classified in the

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

7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,

7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,

7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,

7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,

7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,

7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,

7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,

7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,

7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,

7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,

7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,

7220.20.60.10, 7220.20.60.15, 7220.20.60.60, 7220.20.60.80,

7220.20.70.05, 7220.20.70.10, 7220.20.70.15, 7220.20.70.60,

7220.20.70.80, 7220.20.80.00, 7220.20.90.30, 7220.20.90.60,

7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and 7220.90.00.80.

Although the HTS subheadings are provided for convenience and Customs

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

investigation is dispositive.

Excluded from the scope of this investigation are the following:

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

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

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

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

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

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

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

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

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

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

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

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

In response to comments by interested parties, the Department has

determined that certain specialty stainless steel products are also

excluded from the scope of this investigation. These excluded products

are described below.

Flapper valve steel is defined as stainless steel strip in coils

containing,

[[Page 30666]]

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 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 is April 1, 1997 through March 31,

1998.

Transactions Investigated

POSCO

According to section 351.403(d) of the Department's regulations,

downstream sales to a home market affiliate accounting for less than 5

percent of total sales are normally excluded from the normal value

calculation. In the preliminary determination, since respondent's sales

to resellers did not meet the Department's 5 percent threshold, the

Department has considered POSCO's sales to the affiliated service

centers and, to the extent that these sales pass the arm's length test,

has included these sales in our calculation of margin. Additionally, as

described in Comment 5, the Department has determined that for POSCO's

U.S. and home market sales the date of invoice is the appropriate date

of sale as this is the date on which the material terms of sale are

set. Therefore, the Department has included POSCO's sales in our margin

calculation based on invoice date.

[[Page 30667]]

Inchon

For the final determination, the Department determines that, for

Inchon's home market sales, the purchase order date is the appropriate

date of sale as this is the date on which the material terms of sale

are set. For U.S. sales, we determine that Hyundai U.S.A.'s invoice

date (or shipment date, when shipment occurs prior to issuing the

invoice) is the appropriate date of sale as this is the date on which

the material terms of sale are set. See Comment 12 for additional

information. Additionally, Inchon stated that it erroneously included

in its home market sales database sales shipped during the POI but

returned after the POI. Inchon provided a list of these returns. See

Inchon Verification Report, Exhibit 1. Therefore, we have excluded the

returns noted above from Inchon's home market sales database.

Product Comparisons

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

products produced by the respondents, covered by the description in the

Scope of Investigation section above, and sold in the home market

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

appropriate product comparisons to U.S. sales. Where there were no

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

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

product on the basis of the characteristics listed in the antidumping

duty questionnaire and the August 3, 1998 reporting instructions.

Fair Value Comparisons

To determine whether sales of SSSS from the Republic of Korea to

the United States were made at less than fair value, we compared export

price (``EP'') or constructed export price (``CEP'') to the Normal

Value (``NV''), as described below in the ``Export Price/Constructed

Export Price'' and ``Normal Value'' sections of this notice.

POSCO

In the preliminary determination, for sales classified as EP by

POSCO, we compared EP to NV, and compared CEP to NV for those sales the

respondent identified as CEP transactions. However, as discussed in

Comment 3, the Department finds that POSCO's U.S. sales through POSAM

(U.S. channel 2) constitute CEP sales and has therefore compared CEP to

NV for those sales. In accordance with section 777A(d)(1)(A)(i) of the

Act, we calculated weighted-average EPs or CEPs for comparison to

weighted-average NVs.

Inchon

For the final determination, we compared Inchon's U.S. sales

through Hyundai U.S.A. (U.S. channel 1), which we classified as CEP

sales (see Comment 19), to NV for those sales. For Inchon's sales

through U.S. channel's 2 and 3, we compared EP to NV. In accordance

with section 777A(d)(1)(A)(i) of the Act, we calculated weighted-

average EPs or CEPs for comparison to weighted-average NVs.

Level of Trade

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

extent practicable, we determine NV based on sales in the comparison

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

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

comparison market or, when NV is based on CV, that of the sales from

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

and profit. For EP, the LOT is also the level of the starting price

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

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

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

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

along the chain of distribution between the producer and the

unaffiliated customer. If the comparison market sales are at a

different LOT, and the difference affects price comparability, as

manifested in a pattern of consistent price differences between the

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

the export transaction, we make a LOT adjustment under section

773(a)(7)(A) of the Act. Finally, for CEP sales, if the NV level is

more remote from the factory than the CEP level and there is no basis

for determining whether the differences in the levels between NV and

CEP sales 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 Sheet and Strip from South Africa, 62 FR 61731 (November

19, 1997).

In the present investigation, neither respondent requested a LOT

adjustment. To ensure that no such adjustment was necessary, in

accordance with the principles discussed above, we examined information

regarding the distribution systems in both the United States and Korean

markets, including the selling functions, classes of customer, and

selling expenses for each respondent.

POSCO

POSCO did not claim a LOT adjustment. POSCO identified two channels

of distribution in the home market: (1) sales made by POSCO directly to

its customers; and (2) sales made by POSCO through its selling arm,

POSCO Steel Sales & Services Co., Ltd. (``POSTEEL''), to customers.

Both POSCO and POSTEEL made sales to domestic trading companies,

service centers, and unaffiliated and affiliated end-users. For both

channels, POSCO and POSTEEL report that they perform similar selling

functions. Either POSCO or POSTEEL contacted customers, managed

inventory, arranged for shipment and freight, and invoiced the

customer. In addition, POSCO claims that either POSCO or POSTEEL

offered, as needed, technical services and warranty processing. At

verification, the Department confirmed the selling functions performed

by the affiliates. See POSCO Verification Report at 10-12. Therefore,

we determine that selling functions performed in HM Channel 1 (sales

made by POSCO directly to customers) are similar to selling functions

performed in HM Channel 2 (sales made by POSCO through POSTEEL to

customers): freight and delivery, invoicing, sales negotiation, and

limited amounts of market research, warranty services, and technical

advice. Because channels of distribution do not qualify as separate

LOTs when the selling functions performed for each customer class are

sufficiently similar, we find that the home market constitutes a single

LOT.

POSCO reported three channels of distribution in the U.S. market:

(1) sales made by POSTEEL directly to a U.S. end-user; (2) sales to

U.S. end-users made by POSTEEL through its wholly-owned U.S.

subsidiary, POSAM; and (3) sales made by POSTEEL to unaffiliated Korean

trading companies for shipment to the United States. POSCO claimed two

LOTs in the U.S. market, but requested no LOT adjustment for the U.S.

LOT purported to be different from the home market LOT. The Department

examined at verification the claimed selling functions performed by

POSCO and its subsidiaries, POSTEEL and POSAM, for all U.S. sales.

These selling functions included freight and delivery arrangements,

invoicing customers, and extending credit. See POSAM Verification

Report, at 4-6. As discussed in Comment 3 below, we have determined

that POSCO's U.S. sales

[[Page 30668]]

through POSAM (U.S. channel 2) should be classified as CEP

transactions.

In order to determine whether NV was established at a different LOT

than EP or CEP sales, we examined stages in the marketing process and

selling functions along the chains of distribution between POSCO and

its home market and U.S. customers. We compared the selling functions

performed for home market sales with those performed with respect to

the EP and CEP transactions, after deductions for economic activities

occurring in the United States, pursuant to section 772(d) of the Act,

to determine if the home market level of trade constituted a more

advanced stage of distribution than the EP or CEP level of trade.

We have determined that sales made through U.S. channels 1 or 3

should be classified as EP transactions. Therefore, we have examined

the selling functions performed by POSCO and/or POSTEEL, and have found

that they are similar to the functions performed for home market sales.

As discussed in Comment 3 below, we have determined that POSCO's U.S.

sales through POSAM (U.S. channel 2) should be classified as CEP

transactions. With regard to POSTEEL's selling activities and services

offered to its U.S. affiliate (POSAM) for CEP sales, we note that POSCO

failed to provide this information despite the Department's explicit

request in its questionnaire (see Questionnaire at A-7). In any event,

we found at verification that POSTEEL itself performs selling functions

for U.S. sales. Specifically, POSTEEL conducted market research for

initial customer contacts, sales negotiation, arranged for ocean

freight and delivery to the U.S. port, and invoiced POSAM for sales of

subject merchandise. See POSCO Verification Report, at 11-12.

Therefore, we find that the selling activities in the U.S. market are

similar to those in the home market.

Based on our analysis of the chains of distribution and selling

functions performed for sales in the home market and in the U.S.

market, we find that sales to all three channels of distribution are

made at the same stage in the marketing process and involve nearly

identical selling functions. Therefore, we determine that POSCO and its

subsidiaries POSTEEL and POSAM provided a sufficiently similar degree

of services on sales to all three channels of distribution, and that

the sales made to the United States constitute one LOT.

Based on a comparison of the selling activities performed in the

U.S. market to the selling activities in the home market, we find that

there is not a significant difference in the selling functions

performed in both markets, and thus, sales in both markets were made at

the same LOT. Therefore, a LOT adjustment is not appropriate.

Inchon

In the home market, Inchon reported two sales channels: (1) To

unaffiliated distributors; and (2) to affiliated and unaffiliated end-

users. We examined record evidence to identify the selling functions

performed for both channels. These selling functions included inventory

maintenance, freight and delivery arrangements, and credit services. At

verification, we confirmed the selling functions noted above. See

Inchon Verification Report, at 20-21. Because there are no differences

between the selling functions on sales made to either unaffiliated

distributors or affiliated and unaffiliated end-users in the home

market, sales through both channels constitute one LOT. Therefore, for

the final determination, we conclude that sales to unaffiliated

distributors and affiliated and unaffiliated end-users constitute one

LOT in the home market.

For its EP and CEP sales in the U.S. market, Inchon reported three

sales channels: (1) Inchon sales through Hyundai Corporation, Inchon's

affiliated trading company, to Hyundai U.S.A., a wholly-owned

subsidiary of Hyundai Corporation located in the United States and an

affiliate of Inchon, and finally, to an unaffiliated customer; (2)

Inchon sales through Hyundai Corporation, to an unaffiliated customer;

and (3) Inchon sales to an unaffiliated trading customer. For purposes

of our LOT analysis, Inchon's U.S. customers for all three sales

channels are trading companies and distributors. We examined the

selling functions performed for each of the three U.S. sales channels.

These selling functions included freight and delivery arrangements,

credit services, and post-sale warehousing. With the exception of post-

sale warehousing for one sale in channel one, selling functions

performed in the three sales channels were identical. At verification,

we confirmed the selling functions noted above. See Hyundai U.S.A.

Verification Report, at 4-6. Therefore, for the final determination, we

determine that Inchon provided a sufficiently similar degree of

services on sales to all three channels of distribution, and that the

sales made to the United States constitute one LOT.

Further, because we determined that the U.S. LOT and the home

market LOT included similar selling functions, we conclude that these

sales are made at the same LOT. Therefore, a LOT adjustment for Inchon

is not appropriate. For a further discussion, see Analysis Memo:

Inchon.

Export Price/Constructed Export Price

POSCO

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

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

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

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

trading companies for resale of subject merchandise to the United

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

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

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

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

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

as CEP.

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

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

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

unaffiliated purchaser in the United States prior to importation, and

CEP methodology was not otherwise indicated.

For U.S. sales made through POSAM, we calculated CEP based on

packed prices to unaffiliated customers in the United States. We made

deductions for movement expenses in accordance with section

772(c)(2)(A) of the Act; these included, where appropriate, foreign

inland freight, foreign brokerage and handling, international freight,

marine insurance, U.S. inland freight, U.S. Customs Duty, and U.S.

brokerage and wharfage charges. In accordance with section 772(d)(1) of

the Act, we deducted those selling expenses associated with economic

activity occurring in the United States, including direct selling

expenses (credit costs, bank charges, and U.S. commissions) and

indirect selling expenses. In addition, we deducted a per unit direct

selling expense to account for bad debt losses incurred by POSAM for

sales made to a bankrupt customer. For a further discussion of the bad

debt expense and an explanation of its calculation, please refer to

Comment 1, and Memorandum to the File: Analysis for Final Determination

in the Investigation of Stainless Steel Sheet and Strip in Coils from

Korea--Pohang Iron & Steel Co., Ltd., (``Analysis Memo: POSCO''), dated

May 19, 1999. Also, we made an adjustment for CEP profit in accordance

with section 772(d)(3) of the

[[Page 30669]]

Act. Finally, we added to U.S. price an amount for duty drawback

pursuant to section 772(c)(1) (B) of the Act.

Inchon

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

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

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

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

unaffiliated purchaser in the United States prior to importation, and

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

one, which are sales made through Inchon's affiliate, Hyundai U.S.A.,

we based our calculation on CEP, in accordance with section 772(b) of

the Act, because the merchandise was sold by or for the account of the

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

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

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

discussed in this section.

In the preliminary determination, we found that Hyundai U.S.A., the

U.S. affiliate, did more than merely act as a ``processor of sales-

related documentation and a communication link with the unrelated U.S.

buyer.'' See Preliminary Determination, 64 FR at 142. To ensure proper

application of statutory definitions, where a U.S. affiliate is

involved in making a sale, we normally consider the sale to be CEP

unless the record demonstrates that the U.S. affiliate's involvement in

making the sale is incidental or ancillary. The record demonstrates

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

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

Inchon, and Comment 19 below.

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

unaffiliated purchasers in the United States. We made deductions for

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

these included, where appropriate, foreign inland freight, foreign

wharfage and loading, international freight, marine insurance, domestic

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

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

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

Analysis Memo: Inchon.

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

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

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

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

purchasers in the United States. We made deductions for movement

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

included, where appropriate, foreign inland freight, foreign wharfage

and loading, international freight, marine insurance, domestic inland

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

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

expenses associated with economic activities occurring in the United

States, including direct selling expenses (credit costs and bank

charges), and indirect selling expenses. For CEP sales, we also made an

adjustment for profit in accordance with section 772(d)(3) of the Act.

Additionally, we added to the U.S. price an amount for duty drawback

pursuant to section 772(c)(1)(B) of the Act. For a further discussion

of this issue, see Analysis Memo: Inchon.

We made certain adjustments based on minor discrepancies noted at

Inchon's U.S. verification and pre-verification corrections to several

CEP transactions. For one sale, we adjusted credit expenses and the

quantity and converted quantity, in MT, sold. For several sales, Inchon

did not report a handling commission (see Comment 14). In addition, for

several sales, we adjusted U.S. duty per MT and, for one sale, we

adjusted marine insurance. Further, Hyundai U.S.A. had incorrectly

invoiced one of its customers; hence, we adjusted multiple fields for

several sales. As this information involves proprietary information,

see Analysis Memo: Inchon.

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 Comparison'' sections of this

notice.

1. Home Market Viability

As discussed in the preliminary determination, we determined that

the home market was viable and no parties have contested that decision.

For the final determination, we have based NV on home market sales.

2. Cost of Production Analysis

POSCO

As discussed in the preliminary determination, we conducted an

investigation to determine whether POSCO made sales of the foreign like

product in the home market during the POI at prices below their cost of

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

we calculated COP based on the sum of POSCO's cost of materials and

fabrication for the foreign like product, plus amounts for home market

SG&A, interest expenses, and packing costs. We used the information

from POSCO's questionnaire responses and the updated sales database

(dated March 8, 1999) to calculate COP, except in the following

instance.

POSCO purchased a significant amount of elements of value from

affiliated parties during the POI. For each affiliated purchase, we

reviewed whether the transfer price was at an arm's length price. Where

appropriate, we increased POSCO's per unit costs to the market price or

the supplier's cost of production, pursuant to 19 CFR 351.407(b). See

Memorandum to Neal Halper, Acting Director, Office of Accounting: Cost

of Production (``COP'') and Constructed Value (``CV'') Calculation

Adjustments for the Final Determination of Pohang Iron & Steel Co.,

Ltd. (``POSCO'') (``Cost Analysis Memorandum''), dated May 19, 1999.

See also, Comment 11.

Inchon

As discussed in the preliminary determination, we conducted an

investigation to determine whether Inchon made sales of the foreign

like product in the home market during the POI at prices below their

cost of production (``COP''). In accordance with section 773(b)(3) of

the Act, we calculated COP based on the sum of Inchon's cost of

materials and fabrication for the foreign like product, plus amounts

for home market SG&A, interest expenses, and packing costs. We used the

information from Inchon's questionnaire responses and the sales

database to calculate COP, except in the following instance.

Inchon stated that it erroneously used indirect selling expenses

during the POI rather than the 1997 fiscal year. See Inchon

Verification Report, Exhibit 1. We modified Inchon's G&A calculation

based on a pre-verification correction.

3. Test of Home Market Sales Prices

As in our preliminary determination, we compared the weighted-

average COP, adjusted where appropriate (see above), to home market

sales of the foreign like product as required under section 773(b) of

the Act. In determining whether to disregard home market sales made at

prices less than the COP, we examined whether the sales were made (1)

within an extended period of time in substantial quantities, and (2)

whether such sales were made at prices which

[[Page 30670]]

permitted the recovery of all costs within a reasonable period of time.

4. Results of the COP Test

Pursuant to section 773(b)(2)(C) of the Act, where less than 20

percent of respondent's sales of a given product were at prices less

than the COP, we did not disregard any below-cost sales of that product

because we determined that the below-cost sales were not made in

``substantial quantities.'' Where 20 percent or more of a respondent's

sales of a given product during the POI were at prices less than the

COP, we determined such sales to have been made in ``substantial

quantities,'' as defined in section 773(b)(2)(C)(i) of the Act, within

an extended period of time in accordance with section 773(b)(2)(B) of

the Act. In such cases, because we compared prices to weighted-average

COPs for the POI , we also determined that such sales were not made at

prices which would permit recovery of all costs within a reasonable

period of time, in accordance with section 773(b)(2)(D) of the Act.

Therefore, we disregarded the below-cost sales.

Calculation of CV

As in our preliminary determination, we calculated CV based on the

sum of respondent's cost of materials, fabrication, SG&A, interest

expenses and profit. In calculating CV, we made the same adjustments as

those noted above, in the ``Calculation of COP'' section of the notice.

In accordance with section 773(e)(2)(A) of the Act, we based SG&A and

profit on the amounts incurred and realized by the respondent in

connection with the production and sale of the foreign like product in

the ordinary course of trade, for consumption in the foreign country.

Price-to-Price Comparisons

As in our preliminary determination, for those product comparisons

for which there were sales at prices above the COP, 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)(ii) of the Act.

POSCO

We calculated NV based on the same methodology used in the

preliminary determination, with the following exception. As discussed

in Comment 9, we determined at verification that POSCO incorrectly

excluded housing expenses from its calculation of POSAM's indirect

selling expense ratio. We recalculated POSCO's indirect selling

expenses reported for U.S. Channel 2 sales (sales through POSAM), and

used this updated expense in deducting from NV the amount of indirect

selling expenses, capped by the amount of the U.S. commissions.

Inchon

We calculated NV based on the same methodology used in the

preliminary determination, with the following exceptions. In its home

market pre-verification corrections, Inchon discovered that it charged

interest to certain customers, when Inchon extended the due date of the

promissory notes. Inchon argued that because Inchon did not reduce

credit expense by the interest income, interest income should be added,

as noted in Inchon's Interest Revenue for STS Customer during POI

table. See Inchon Verification Report, Exhibit 1. We made an adjustment

to account for Inchon's interest revenue because we had accepted

Inchon's pre-verification correction. Additionally, we adjusted U.S.

Other Transportation Expenses for several sales, based on Inchon's

February 22, 1999 submission.

Price-to-CV Comparisons

For price-to-CV comparisons, we made adjustments to CV in

accordance with section 773(a)(8) of the Act. If appropriate, we

deducted from CV the amount of indirect selling expenses (adjusted as

described in the ``Price-to-Price Comparisons'' section above) capped

by the amount of the U.S. commissions.

Currency Conversion

In the preliminary determination, the Department determined that

the decline in the won at the end of 1997 was so precipitous and large

that the dollar-won exchange rate cannot reasonably be viewed as having

simply fluctuated during this time, i.e., as having experienced only a

momentary drop in value. Therefore, the Department used daily rates

exclusively for currency conversion purposes for HM sales matched to

U.S. sales occurring between November 1 and December 31, 1997, and the

standard exchange rate model with a modified benchmark for sales

occurring between January 1, 1999 and February 28, 1999. See

Preliminary Determination, 64 FR at 145. As discussed in Comment 2, the

Department continues to find that use of daily exchange rates and

modified benchmarks are warranted during the periods noted above.

In addition, as discussed in Comment 2 and Analysis Memo: POSCO, we

have determined that the severe and precipitous drop in the value of

the won from November 1997 through February 1998 necessitates the use

of two averaging periods, under 19 CFR 351.414(d)(3).

Critical Circumstances

On October 30, 1998, petitioners alleged that there is a reasonable

basis to believe or suspect that critical circumstances exist with

respect to imports of SSSS from Korea. In accordance with 19 CFR

351.206(c)(2)(i), we preliminarily determined that critical

circumstances did not exist with respect to respondents POSCO and

Inchon, which the Department had preliminarily determined not to have

margins over 15 percent, the first criterion for ascertaining whether

critical circumstances exist. See Preliminary Determination, 64 FR at

145-46.

Section 735(a)(3) of the Act provides that the Department will

determine that critical circumstances exist if: (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.

To determine whether there is a history of injurious dumping of the

merchandise under investigation, in accordance with section 735(a)(3)

of the Act, the Department considers evidence of an existing

antidumping order on SSSS from the country in question in the United

States or elsewhere to be sufficient. We are not aware of any

antidumping order in any country on SSSS from any of the countries

subject to this investigation.

In determining whether an importer knew or should have known that

the exporter was selling SSSS at less than fair value and thereby

causing material injury, the Department normally considers margins of

15 percent for CEP sales and 25 percent for EP sales or more sufficient

to impute knowledge of dumping and of resultant material injury. See

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

Cut-to-Length Carbon Steel Plate from the People's Republic of China,

63 FR 61964, 61967 (November 20, 1997); see also Notice of Final

Determination of Sales Less Than Fair Value: Manganese Sulphate from

[[Page 30671]]

People's of Republic of China 60 FR 52155, 52161 (October 5, 1995).

In this investigation, respondents POSCO and Inchon, which the

Department has determined have both EP and CEP sales, do not have

margins over 15 percent. Based on these facts, we determine that the

first criterion for ascertaining whether critical circumstances exist

is not satisfied. Therefore, we determine that there is no basis to

find that critical circumstances exist with respect to imports of SSSS

from respondents POSCO or Inchon, pursuant to section 735(a)(3) of the

Act. Therefore, we did not analyze the respondent's shipment data to

examine whether imports of SSSS have been massive over a relatively

short period. See e.g., Notice of Preliminary Determination of Sales at

Less Than Fair Value and Postponement of Final Determination: Collated

Roofing Nails from Korea, 63 FR 25895, 25898 (May 12, 1997).

However, one respondent, Taihan Electric Wire (``Taihan'') has not

responded to the Department's questionnaires, and has been assigned a

margin based on facts otherwise available (see ``Facts Available''

section, below). As Taihan's margin exceeds 25 percent, the first

criterion has been met. Also, as facts available, we consider Taihan to

have had massive imports over a relatively short period. Therefore,

having met both criteria, critical circumstances exist for imports of

subject merchandise from Taihan. See Preliminary Determination of Sales

at Less Than Fair Value: Stainless Sheet and Strip in Coils from Japan,

64 FR 108, 112 (January 4, 1999).

Regarding all other exporters, an ``All Others'' rate has been

determined (see ``The All Others Rate,'' below); because this rate does

not exceed 15 percent, we determine that critical circumstances do not

exist for companies covered by the ``All Others'' rate.

Verification

As provided in section 782(i) of the Act, we conducted on-site

verification of the information submitted by the respondents for use in

our final determination. We used standard verification procedures,

including examination of relevant sales, accounting and production

records and original source documents provided by the respondents.

Interested Party Comments

Comment 1: POSCO--Sales to a Bankrupt Customer

Petitioners argue that POSCO's sales to a bankrupt U.S. customer

are neither atypical nor insignificant, and that the Department should

account for the value of these sales in its final determination.

Petitioners contend that the Department should also not exclude the

sales based on a ``5 percent threshold'' for the exclusion of

insignificant sales from its analysis. Citing Gulf States Tube Div. v.

United States, 981 F. Supp. 630 (CIT 1997) and Certain Carbon and Alloy

Steel Wire Rod from Canada, 58 FR 62639, 62641 (November 29, 1993),

petitioners argue that these cases stand for the proposition that the

exclusion threshold is primarily to limit reporting of sales data that

would place a disproportionate burden on the Department. Petitioners

contend that no such burden exists in the instant case, as the sales

are already on the record.

Petitioners maintain that sales to financially troubled customers

are an everyday occurrence, and that the terms of sale usually reflect

the increased risk borne by the seller. Petitioners note that the chart

of accounts for the Korean parent, POSCO, includes several accounts and

reserves relating to bad debt. Petitioners note that the Department's

practice in an investigation is to take a ``snapshot'' of a

respondent's selling practices, and that since the Department uses a

weighted average of sales in its margin determination, no sales,

whether or not they are atypical, should be excluded from the analysis.

Petitioner notes that in Notice of Final Determination Sales at

Less Than Fair Value: Stainless Steel Plate in Coils (``SSPC'') from

the Republic of Korea (``SSPC from Korea''), 64 FR 15444 (March 31,

1999), the Department treated the cost of the bankrupt sales as direct

selling expenses allocated to all U.S. sales. Petitioners argue that

this treatment was correct. Petitioners further argue that under the

Department's reasoning in the preliminary determination of this

investigation, there would be no consequences when an importer is not

paid for subject merchandise if the sales have been classified as EP

sales. Petitioners further insist that POSCO must bear fees and

production costs associated with the bankrupt sales, and that these

must be classified as direct selling expenses since POSCO would not

have incurred them but for the customer's bankruptcy. Petitioners

contend that the value of these sales is most analogous to a warranty

claim, and that the Department reached this same conclusion in SSPC

from Korea and in Color Television Receivers from the Republic of

Korea: Final Results of Antidumping Administrative Review (``CTVs from

Korea''), 61 FR 4408 (February 6, 1996). Petitioners note that the

Department, citing AOC Intl. v. United States, 721 F. Supp. 314 (CIT

1989) and Daewoo Elecs. Co. v. United States, 712 F. Supp. 931 (CIT

1989), concluded in SSPC from Korea, 64 FR at 15449, that ``a bad debt

expense * * * is directly related to sales of the subject

merchandise,'' which petitioners contend requires a direct selling

expense adjustment to starting price. Petitioners contend that since

the sales were never paid for, and that future payments are highly

unlikely, the expense associated with these sales should be treated in

the same manner as is the expense associated with merchandise returned

for warranty claims, and that there should be no ``sale'' since the

sales had been written off and effectively canceled by POSCO. However,

petitioners note that there is a direct selling expense associated with

the sale of subject merchandise, similar to a warranty-related refund

or forgiveness of payment. Petitioners contend that the loss resulting

from the unpaid sales is a ``direct and unavoidable consequence of the

sale,'' and that the Department should follow its own precedent in its

treatment of these sales.

Petitioners also argue that, according to Timken Co. v. United

States, 852 F. Supp. 1122, 1125 (CIT 1994), all selling expenses are

presumed to be direct, unless the respondent can prove otherwise;

petitioners further argue that as the respondent failed to meet that

burden, the Department must treat these expenses associated with the

bankrupt sales as direct selling expenses. In addition, petitioners

argue that the expenses should be allocated to total sales of subject

merchandise only, citing Smith-Corona Group v. United States, 713 F.2d

1568, 1577 (Fed. Cir.1983), wherein the court stated that the

administrating authority must make a fair value comparison, comparing

``apples to apples.'' Petitioners contend that as information regarding

unpaid sales of stainless steel plate in coil products is not on the

record of this investigation, it would be inappropriate to include

sales of these products in the denominator.

Petitioners also argue that the Department should not include the

bankrupt sales in its margin determination, comparing these sales to

merchandise that was returned or lost in transit, which would not be

considered a sale. Petitioners further argue that sales made to a

bankrupt customer where there is no reasonable expectation of payment

cannot be considered as ``sales'' and must instead

[[Page 30672]]

be considered as a direct selling expense. Petitioners contend,

however, that should the Department include the sales in its margin

analysis, it must impute a credit period, and should assume that

payment was made on the date of the final determination.

Petitioners argue that POSCO has provided no support for its

contention that unpaid sales to the bankrupt customer represent

indirect selling expenses. They contend that in Notice of Final

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

Rod from Korea (``SSWR from Korea''), 63 FR 40404, 40406 (July 29,

1998), the Department treated an accrual for bad debt as an indirect

selling expense, not an actual expense. Petitioners distinguish that

treatment with the instant case, wherein POSCO incurred a tangible loss

directly related to the sales of subject merchandise. In Notice of

Final Determination of Sales at Less Than Fair Value: Bicycles from the

People's Republic of China (``Bicycles from the PRC''), 61 FR 19026,

19044 (April 30, 1996) , petitioners contend, the Department never

addressed the issue of whether the bad debt expense was a direct or an

indirect selling expense: ``(t)hese expenses (have) been deducted from

U.S. price as part of CEP deductions. Because we are not making a

corresponding CEP offset * * * the classification of these expenses as

direct or indirect is moot.'' Petitioners argue that in Bicycles from

the PRC, there was no indication on the record that the expenses in

question were accruals or actual expenses, or whether they involved

subject merchandise. Petitioners note that there are no such questions

in the instant case, and that the expenses are clearly actual and

directly related to subject merchandise. Petitioners note that Final

Determination of Sales at Less Than Fair Value: Certain Fresh Cut

Flowers from Columbia (``Flowers from Columbia''), 52 FR 6842 (March 5,

1987), cited by POSCO, is also distinguishable from this investigation.

In Flowers from Columbia, petitioners note, it was not clear from the

record whether the bad debt expense was related to subject merchandise,

or whether the company had written off the bad debt. In the instant

case, petitioners argue, the bad debt expense is directly related to

subject merchandise, and the respondent has written off the sale.

However, petitioners do not agree with the Department's statement

in Flowers from Columbia that it ``consider(s) bad debt, by its very

nature, to be an indirect selling expense since, under generally

accepted accounting principles (``GAAP''), bad debt is recovered over

time by future price increases.'' Instead, they note that GAAP is

concerned with the measurement of economic activity at the time when

such measurements are recorded. In addition, petitioners argue that

basic accounting principles require a finding that such an expense

would not have occurred but for the making of a sale. Petitioners argue

that the accumulated costs incurred to generate a sale are recognized

when the merchandise is sold, and that therefore, the costs associated

with the bankrupt sales are directly related to the sales, since absent

the sale, they would not have been recognized in POSCO's or POSAM's

accounting system.

Petitioners further contend that POSAM's transfer price for the

bankrupt sales is not a valid basis for determining the amount of the

direct selling expense. Petitioners argue that the transfer price is a

meaningless figure for dumping purposes, and that the Department should

use, as it did in the SSPC from Korea, the more objective benchmark of

the constructed value of the sales.

Respondent argues that sales for which it never received payment

due to the customer's bankruptcy are atypical, and that inclusion of

these sales would distort the margin calculation. POSCO notes that in

the preliminary determination of this investigation, the Department did

not include the sales in the margin calculation, but did include the

cost of those sales (namely, the transfer price between the parent

company and the U.S. affiliate) as an indirect selling expense.

However, as respondent notes, the Department chose a different

treatment of these sales in SSPC from Korea, including the sales to the

bankrupt customer in the calculation of U.S. price and allocating the

actual cost of producing the merchandise (rather than the transfer

price) over all U.S. sales of subject merchandise as a per unit direct

selling expense. Respondent claims that this treatment increased

POSCO's preliminary deposit margin by over 300 percent.

POSCO argues that the Department has ample discretion to exclude

U.S. sales in an investigation where it finds that the sales are

atypical, not part of the respondent's ordinary business practice, and

would undermine the fairness of the comparison, citing Final

Determination of Sales at Less Than Fair Value: Fresh Cut Roses from

Colombia (``Roses from Colombia''), 60 FR 6980, 7004 (February 6,

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

Professional Electric Cutting and Sanding/Grinding Tools from Japan, 58

FR 30144, 30146 (May 26, 1993). Respondent notes that the Department

has used this discretion in an investigation because the initial

deposit rate is intended as an estimate of future behavior, which

should not be calculated on extraordinary or unusual circumstances,

citing Koenig v. United States, 15 F. Supp. 2d 834, 841 (CIT 1998),

wherein the court distinguished between investigations, which are

intended to determine an estimated margin on future sales, and a

review, which is intended to assess actual duties. POSCO maintains that

the unpaid sales in the instant investigation constitute less than 5

percent of total U.S. sales, while in the companion investigation of

stainless steel plate in coils, the quantity was higher. POSCO notes

that the Department has traditionally treated 5 percent as its

threshold measure for determining significance, citing 19 CFR

351.403(d) (stating that downstream sales to affiliates in the home

market accounting for less than 5 percent of total sales are excluded

from the normal value calculation); and 19 CFR 351.404(b) (stating that

a home market is viable if it accounts for five percent of sales to the

United States). Respondent argues that petitioner's suggestion that

these sales are not atypical is wrong. POSCO notes that the scenario

``devised'' by petitioners in which a home market customer receives a

discount for high volume sales is in no way analogous with the

situation involved in the instant case. POSCO points to the fact that

voluntary discounts and terms of sale are negotiated by parties; in the

instant case, the customer's bankruptcy was not under POSCO's control.

Respondent argues that its U.S. affiliate, POSAM, has otherwise

never sold merchandise to a customer that did not eventually pay, and

as the Department verified, POSAM does not have an account for bad debt

in its accounting system. Accordingly, POSCO maintains that these sales

must be considered atypical and should not be included in the margin

calculation. In addition, respondent maintains that the inclusion of

these sales would undermine the fairness of the pricing comparison and

distort the margin, as they maintain occurred in SSPC from Korea.

Respondent contends that the Department further erred in SSPC from

Korea when it treated sales made to a bankrupt customer as both sales

for the purposes of the margin calculation and bad debt in terms of

allocating the cost of the sales as a per unit direct selling expense.

POSCO maintains that by treating the transactions as both sales

[[Page 30673]]

and bad debt, the Department would render the most distortive outcome

possible, violating the United States' obligations under the WTO

Antidumping Agreement to make a fair comparison between export price

and the normal value, citing Federal-Mogul Corp. v. United States, 872

F. Supp. 1011 (CIT 1994) and Melamine Chemicals v. United States

(``Melamine''), 732 F.2d 924, 933 (Fed. Cir. 1984). Respondent further

adds that, contrary to petitioners' contention, the Department has the

authority to take into account ``extraordinary events'' that were

``infrequent in occurrence,'' as cited by petitioners from Floral Trade

Council v. United States, 16 CIT 1014, 1016-17 (1992). POSCO argues

that the inclusion of these sales in the margin calculation would

constitute an unfair comparison between export price and normal value.

POSCO argues that it reported the transactions as sales rather than

bad debt because the transactions coincide with the Department's

definition of a sale and because POSCO fully expected to be paid for

these sales. Respondent notes that in administrative reviews the

Department normally leaves unpaid sales in the database for purposes of

the margin calculation, rather than to treat them as a bad debt

expense. As support for this contention, respondent cites Brass Sheet

and Strip from Sweden, Final Results of Antidumping Administrative

Review, 60 FR 3617, 3621 (January 18, 1995); Polythylene Terephthalate

Film, Sheet and Strip from Korea: Final Results of Administrative

Review, 60 FR 42835, 42839 (August 17, 1995); and Certain Internal-

Combustion, Industrial Forklift Trucks from Japan: Final Results of

Antidumping Administrative Reviews (``Forklift Trucks''), 57 FR 3167,

3173 (January 28, 1992). Respondent maintains that in these cases the

Department applied a credit period to the unpaid sales to reflect the

credit expense in the final margin. POSCO notes that in Forklift

Trucks, the Department treated the unpaid sales as subject sales since

the merchandise had been sold in the normal course of trade in the

period of review.

POSCO argues that the Department also erred in its reliance on CTVs

from Korea. Respondent argues that CTVs from Korea was an

administrative review, not an investigation. As such, POSCO contends

that the Department is responsible in the instant case for calculating

a cash deposit rate that can be relied on as a predictor and reasonable

estimate of future duties, whereas in a review, an actual assessment is

made and exclusions are not ordinarily allowed. Respondent argues that

in CTVs from Korea, the bad debt treated as a direct selling expense

was associated with sales in a prior period and recorded in the

company's bad debt expense account. Therefore, POSCO contends that the

Department did not treat the unpaid sales as sales in the database and

simultaneously as bad debt, instead allocating the expense amount as a

direct expense to the period of review sales that were actually paid.

POSCO further contends that the Department's policy is to treat

recognized bad debt as an indirect selling expense rather than a direct

selling expense. As support for this contention, respondent cites to

several cases: Flowers from Columbia, 52 FR at 6850; SSWR from Korea,

63 FR at 40406; and Bicycles from the PRC, 61 FR at 19041. Respondent

further points out that the Department recognized the cost of these

sales as an indirect selling expenses, based on the definition of

indirect expenses as those which are incurred whether or not a sale is

made. POSCO contends that the cost of these sales bear no direct

relationship to any other sale on the database, and that the cost,

represented by POSAM's payment to POSCO, would have been incurred even

if POSAM made no other U.S. sales. POSCO argues that for these reasons,

the cost of these sales is not a direct selling expense, and should not

be allocated to subject merchandise alone, but to all of POSCO's U.S.

sales.

Respondent argues that the Department's purpose for treating bad

debt as a direct expense in CTVs from Korea was to avoid distortion.

POSCO argues that in Daewoo Electronics v. United States, 712 F. Supp.

931, 938 (CIT 1989), cited in CTVs from Korea, the CIT remanded the

Department's determination, finding that the Department's practice of

disregarding selling expenses for bad debt losses, while granting

adjustments for warranty expenses which were not directly related to

the sales under review, was arbitrary and likely to result in distorted

margin calculations. Respondent maintains that the CIT did not direct

the Department to treat bad debt as a direct selling expense in all

cases, but to avoid distortion in the margin.

POSCO argues that even if the Department were to treat the cost of

sales as a direct selling expense, it should do so based on the

transfer price from the parent company to the affiliate, rather than

the constructed value of the merchandise. Respondent argues that in

CTVs from Korea, the bad debt directly expensed was based on the amount

recorded as bad debt in the respondent's normal books and records, not

on the cost of production. Respondent contends that the Department

verified that POSAM records the transfer price between itself and

POSTEEL as the cost of its sale, that the expense was captured in

POSAM's financial statements, not POSCO's, and that POSAM does not have

any accounts for bad debt in its accounting system.

Therefore, respondent argues that the cost reflected in POSAM's

accounting records, which POSCO argues is the transfer price, should be

the basis for any allocation of bad debt expense.

Respondent further argues that, should the Department include the

cost of the bankrupt sales in its margin calculation, the cost should

be allocated over all U.S. sales of stainless steel, not just

restricted to sales of subject merchandise. POSCO notes that the total

amount of stainless steel sales for the POI had been verified and

recorded as part of the Department's verification, and that therefore,

there is no reason why any recognized expense should not be allocated

over sales of all stainless products.

Respondent argues that petitioner's comparison between the bankrupt

sales and defective or lost merchandise is incorrect. POSCO contends

that defective merchandise is generally returned to the producer and

either resold or reincorporated into the production process. Likewise,

POSCO argues that lost merchandise is covered by insurance and would

not be accounted for in an investigation. Respondent maintains that

while a producer can be held responsible for defective merchandise

resulting in a warranty claim, a customer's bankruptcy is beyond the

producer's control, and that therefore, these transactions should be

excluded from the Department's analysis to the extent that they cause

distortion to the margin.

Department's Position: We agree with petitioners in part. Although

we disregarded the sales in the preliminary determination, we have

reconsidered our determination and find that the sales to the bankrupt

customer for which payment was not received should be included in the

margin analysis. POSCO reported the bankrupt sales as U.S. sales

because the material terms of sale were final, as required under the

statute. Section 772(a) of the Act. There was nothing atypical about

the terms of the sales at the time they were made; we agree with

petitioners that there is an inherent risk, when selling to customers

on a credit basis, that the customer might not make full or even

partial payment. Moreover, the price of the sales themselves is not

necessarily distortive because, at the time they were

[[Page 30674]]

made, POSCO was not aware that the customer would declare bankruptcy.

Therefore, these sales must be included in the database. In addition,

respondent's arguments regarding the relative significance of these

sales compared to POSAM's total sales is inapposite. Although the

Department employs a 5 percent threshold in regard to other issues in

investigations (namely, reporting of downstream sales and home market

viability), none of the instances described by respondent apply to this

case.

As petitioners have noted, the Department uses the 5 percent

threshold, for example, in determining whether to require a party to

report home market (or U.S.) downstream sales data. Where that data,

even if it constitutes less than 5 percent, has already been supplied,

there is no basis for the Department to refuse to use such data.

Furthermore, the Department has chosen a 5 percent benchmark to ease

the administrative burden of an investigation, operating under the

general assumption that there is less likelihood of introducing

distortions into the margin calculation if fewer than 5 percent of a

sales database is excluded. The Department, however, is not persuaded

by respondent's argument that the exclusion of reported sales is

necessary to eliminate distortions. As noted above, there is nothing

atypical or distortive about the price of such sales because, at the

time of such sales, POSCO was not aware that the customer would declare

bankruptcy.

We also disagree with respondent's claim that the Department

``double counted'' the sales by including the sales in the margin

calculation and treating the cost of the sales as a direct selling

expense. As the Department noted in SSPC from Korea, and in CTVs from

Korea, it is our practice to ``include sales which incur bad debt in

the database and treat the bad debt expense as a direct selling expense

when the expense is incurred on sales of subject merchandise.'' See

SSPC from Korea, 64 FR at 15448, and CTVs from Korea, 61 FR at 4412. In

addition, in Notice of Final Determination of Sales at Less Than Fair

Value: Foam Extruded PVC and Polystyrene Framing Stock from the United

Kingdom, 61 FR 51411, 51417 (October 2, 1996), the Department treated

bad debt expenses as direct selling expenses, as they were ``incurred

with respect to sales of the subject merchandise and to specific

customers which went bankrupt during the POI.'' Consequently, as in

SSPC from Korea, we have treated the bad debt expense as a direct

selling expense. However, we have not imputed a credit period for these

sales, due to its distortive effect on the margin. Thus, the Department

did not double-count the cost of the unpaid sales.

Furthermore, contrary to respondent's contention, the appellate

court ruling in Melamine is not relevant to the credit expense issue in

the instant case. In Melamine, the Court ruled that margins created

solely through fluctuations in exchange rates would be unreal,

unreasonable, and unfair. Unlike exchange rate fluctuations, companies

can control credit expenses through negotiation and contractual

agreement. In the instant case, POSAM's decision to sell to this

particular customer and extend credit was solely within its control.

POSAM could have chosen to insure itself against the risk that this (or

any) customer would not pay, as do other companies which sell on a

credit basis. Finally, POSAM could also have negotiated different terms

of sale, which in fact it did when it sold subject merchandise to the

same customer on a cash-on-delivery basis after the customer had

declared bankruptcy.

With regard to the classification of the expense related to these

sales, at verification, the Department found that POSAM reversed the

sales in its books at year-end by issuing negative invoices to the

customer for the unpaid merchandise in question. See POSAM Verification

Report at 6, and Exhibit 6. Although POSAM does not maintain separate

bad debt accounts, these sales have been effectively classified as a

type of bad debt. As in SSPC from Korea and CTVs from Korea, this bad

debt expense is directly related to sales of the subject merchandise.

See AOC International v. US, 721 F. Supp. 314 (CIT 1989) and Daewoo

Electronics v. US, 712 F. Supp. 931 (CIT 1989). We have determined that

the bad debt expense should be treated as a direct selling expense,

since but for the sale made to the bankrupt customer, the bad debt

expense would not have been incurred. We agree with petitioners that

the cases cited by POSCO do not support its contention that the

Department has a practice of treating bad debt expense as an indirect

selling expense in all instances. In all three cases, Bicycles from the

PRC, Flowers from Columbia, and SSWR from Korea, either the bad debt

expensed was an accrual versus an actual expense, or the bad debt could

not be tied to sales of subject merchandise. In the instant case, there

is no dispute that the expense was incurred, since POSAM's own records

indicate that the sales had been written off, and that the expense was

directly related to sales of subject merchandise.

We also agree with petitioners that it is most appropriate to use

an objective measure of the expense incurred for these unpaid sales

(namely, the constructed value of the sales), rather than an intra-

company transfer price which may not accurately reflect the cost of the

merchandise. The constructed value of the sales are determined based on

the actual cost of the inputs to the subject merchandise, which have

been verified by the Department in its Cost Verification. The transfer

price's basis is unknown, and may be based on a percentage of sale

price basis, or a fixed amount equally unrelated to the actual cost of

the product in question. In addition, we agree with petitioners that

the most appropriate allocation of the cost of the sales would be to

sales of subject merchandise, as the expenses plainly resulted from

subject merchandise sales. As petitioners noted, the Department is

required to make a fair value comparison on a fair basis, comparing

``apples to apples,'' citing Smith-Corona Group v. United States, 713

F.2d. 1568, 157 (Fed. Circ. 1983), and as the bad debt directly relates

only to subject merchandise sold to a U.S. customer, the appropriate

calculation is to allocate the direct selling expense over the total

U.S. sales of subject merchandise. For our calculation of the per unit

direct selling expense, see Analysis Memo: POSCO.

Comment 2: POSCO--Multiple Averaging Periods

Petitioners argue that the Department should calculate weighted-

average prices for multiple averaging periods to account for the

devaluation of the Korean won during the POI. Noting that the

Department accounted for this devaluation in the preliminary

determination by using daily and modified exchange rates during the

devaluation period, petitioners contend that this treatment did not

adequately account for the decline in the won, because the rates were

tied to the date of sale reported by respondents. Petitioners urge the

Department to calculate two separate weighted-average price comparisons

for each product under investigation to avoid a dilution of pre-

existing dumping margins solely as the result of the severe and

precipitous drop in the value of the won.

Petitioners argue that in recent investigations involving Korea

(i.e. SSPC from Korea and Final Determination of Sales at Less Than

Fair Value: Emulsion Styrene-Butadiene Rubber from the Republic of

Korea (``Rubber from Korea''), 64 FR 14865

[[Page 30675]]

(March 29, 1999)), the Department has determined that multiple

averaging periods are appropriate. In fact, in a review of the

Department's preliminary determination, petitioners find that there are

virtually no findings of sales at less than fair value during the

November 1997--March 1998 period, which coincides with the period of

currency devaluation. Petitioners argue that these results were

directly related to the Department's failure to adequately account for

the decline in the won.

Petitioners also argue that section 777A(d)(1)(A) of the Act allows

the Department to employ an average-to-average comparison of U.S. sales

to the relevant home market or third country sales, and, according to

the Statement of Administrative Action (``SAA''), time is a factor

which may affect the comparability of sales. Petitioners contend that

the effect of the currency decline on POSCO's costs and prices would be

``blended'' together with pre-crisis costs. They cite to Melamine,

noting that dumping margins should not be artificially eliminated

because of unanticipated changes in the exchange rate. Petitioners also

cite several cases supporting the Department's authority to make

special adjustments to take extraordinary circumstances into account,

including Floral Trade Council v. United States, 16 CIT 1014 (1992),

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

Large Newspaper Presses and Components Thereof, Whether Assembled or

Unassembled, from Japan, 61 FR 38139, 38153 (July 23, 1996).

Petitioners specifically cite to two cases involving adjustments for

currency issues, Final Determination of Sales at Less Than Fair Value:

Industrial Nitrocellulose from Brazil, 55 FR 23120 (June 6, 1990); and

Certain Fresh Cut Flowers from Columbia: Final Results and Partial

Recission of Antidumping Duty Administrative Review, 62 FR 53287, 53297

(October 14, 1997), and refer to these cases as illustrative of the

Department's authority to use a variety of methods to compare prices in

determining whether sales at less than fair value exist. In addition,

petitioners note that the Department's regulations allow it to employ

special procedures for exchange rate conversion where foreign

currencies appreciate vis-a-vis the dollar so that currency

fluctuations do not ``create'' dumping margins. Petitioners urge the

Department to adopt similar measures in this case to prevent currency

fluctuations from reducing dumping margins, and cite to Koyo Seiko, 20

F.3d 1156, 1159 (Fed. Cir. 1994) as indicative of the Department's

obligation to rely on alternative methods to calculate dumping margins

to ensure a fair result.

Petitioners argue that POSCO's arguments against the use of shorter

averaging periods are without merit. Petitioners contend that the fact

that different product matches could result from using shorter

averaging periods does not outweigh the need to employ multiple periods

given the sudden and precipitous drop in the won's value. Petitioners

also argue that POSCO's contention that the use of daily exchange rates

is sufficient to account for the drop in the currency is invalidated by

the Department's use of shorter periods in a significant inflation

scenario. Petitioners also maintain that respondent's argument that use

of shorter periods in the instant case will result in arguments for

multiple periods in all cases involving exchange rate fluctuations is

incorrect, and note that the extraordinary two-month 47 percent drop in

the won's value cannot equate to a typical currency fluctuation.

Respondent POSCO argues that the Department has no basis for a

decision to alter the standard price comparison period. POSCO contends

that because the Department has already applied a mechanism to address

the exchange rate fluctuations (namely, adjusting the exchange rates

used in the calculation of export price/constructed export price and

normal value) in the preliminary determination of this investigation,

there is no further need to alter the comparison period in the final

determination. Citing the Department's policy bulletin on this issue

(Policy Bulletin 96-1: Currency Conversions, 61 FR 9434 (March 8,

1996)), respondent maintains that the Department's treatment of

exchange rates in the preliminary determination ensured that exporters,

when setting U.S. prices, would know with certainty the exchange rate

the Department would use in a dumping analysis. POSCO contends that the

use of averaging periods would eliminate this certainty, and allow for

manipulation of the margin. Respondent further argues that the

Department's own regulations under the Uruguay Round Agreements Act

(``URAA'') stipulate that the Department may only use weighted averages

for shorter periods ``when normal values, export prices or constructed

export prices differ significantly over the course of the period of

investigation.'' POSCO contends that it sold subject merchandise based

on negotiated prices and whatever ``macroeconomic conditions'' existed

in the market during the POI. POSCO argues that the mere fact that

exchange rates fluctuated during the POI does not demonstrate that its

prices, pricing practices, and/or costs changed during the POI.

POSCO further argues that in recent cases, the Department has not

varied the averaging period due to exchange rate fluctuations alone.

Citing Notice of Final Determination of Sales At Less Than Fair Value:

Certain Mushrooms from Indonesia (``Mushrooms''), 63 FR 72268, 72272

(December 31, 1998), respondents contend that the case reflects the

Department's decision not to use two averaging periods to account for

the effect of currency devaluation. POSCO also cites Notice of

Preliminary Determination of Sales at Less Than Fair Value;

Postponement of Final Determination: Certain Preserved Mushrooms from

Indonesia, 63 FR 41783, 41785 (August 5, 1998) (``Preserved

Mushrooms''). Although POSCO states that the Department noted in both

SSPC from Korea and Mushrooms that it also considers prolonged large

changes in exchange rates, respondent maintains that the changes in won

during the POI were addressed by the Department's currency conversion

policy. Respondent points to another case, Final Determination of Sales

at Less Than Fair Value: Polyvinyl Alcohol from Taiwan (``Polyvinyl

Alcohol''), 61 FR 14064, 14069 (March 29, 1996), which the Department

distinguished in Mushrooms based on the facts of that case: the

respondent (in Polyvinyl Alcohol) ``changed the way it conducted

business with its principal home market customers, including its price

structure, while at the same time, U.S. prices and input cost trends

moved in tandem (citing Preserved Mushrooms, 63 FR at 41785).

Respondent argues that, as in Preserved Mushrooms, it did not change

the way it conducted its business or its pricing structure during the

POI.

Respondent also argues that the use of multiple periods has the

potential to distort the margin for reasons wholly unrelated to the

exchange rate. As an example, POSCO notes that the use of shorter

averaging periods may result in U.S. sales being matched to less

similar home market sales because of sales patterns wholly unrelated to

currency issues. POSCO argues that the purpose of calculating margins

based on POI averages is to eliminate the impact of such patterns on

the overall margin. Citing Melamine, 732 F.2d at 932, POSCO contends

that basing a margin on a factor beyond the control of the exporter

would be unreal, unreasonable, and unfair.

Department's Position: We agree with petitioners. Given the

economic

[[Page 30676]]

situation in Korea during the POI, it is most appropriate to use daily

and modified exchange rates in this case, for the reasons explained in

the preliminary determination, and to employ two averaging periods in

calculating the dumping margin. Under section 777A(d)(1)(A) of the Act,

the Department has broad authority to use a number of methodologies in

calculating the average prices used to determine whether sales at less

than fair value exist. More specifically, under 19 C.F.R.

351.414(d)(3), the Department may use averaging periods of less than

the POI when normal value, export price, or constructed export price

varies significantly over the POI. In this investigation, in the last

five months of the POI, NV (in dollars) differed significantly from NV

earlier in the POI, due primarily to a significant change in the

underlying dollar value of the won, evidenced by the precipitous drop

in the won's value that began in November 1997 and continued through

December 1997. In the span of two months, the won's value decreased by

more than 40 percent in relation to the dollar. Consequently, it is

appropriate to use two averaging periods to avoid the possibility of a

distortion in the dumping calculation. Moreover, we disagree with

respondent's claim that the use of averaging periods is dependent upon

a change in a respondent's selling practices. In the final

determination of Preserved Mushrooms, the Department stated that ``in

addition to changes in selling practices, we believe that we should

also consider other factors, such as prolonged large changes in

exchange rates, in determining whether it is appropriate to use more

than one averaging period.'' See Notice of Final Determination of Sales

at Less Than Fair Value: Certain Preserved Mushrooms from Indonesia, 63

FR 72268, 72272 (December 31, 1998). Therefore, for both POSCO and

Inchon, we have used two averaging periods for the final determination:

January through October 1997 and November 1997 through March 1998.

Comment 3: POSCO--CEP vs. EP

Petitioners argue that the Department should classify sales made

through POSCO's U.S. affiliate as CEP sales. Petitioners note that the

Department has found that where the U.S. subsidiary: (1) was the

importer of record and took title to the merchandise; (2) financed the

relevant sales transactions; (3) arranged and paid for further

processing; and (4) assumed the seller's risk, such sales were

classified as CEP sales (citing Certain Cold-Rolled and Corrosion-

Resistant Carbon Steel Flat Products from Korea: Preliminary Results of

Antidumping Duty Administrative Review, 61 FR 51882, 51885 (October 4,

1996); and upheld in Final Results, 62 FR 18404 (April 15, 1997).

Petitioners argue that POSCO's U.S. affiliate meets the criteria set

forth in that case. They contend that POSAM was the importer of record,

financed the sales to the U.S. customer, and assumed the risk

associated with these sales (as is evident with regard to the bankrupt

sales). Although no further processing was reported after importation,

petitioners argue that POSAM was responsible for other post-importation

services, such as arranging customs clearance, U.S. freight, invoicing

customers, and collecting payment.

In addition, petitioners note that in SSPC from Korea, the

Department determined that POSAM is more than a processor of sales-

related documentation, and that all sales through the affiliate were

CEP sales. Petitioners contend that POSAM is the only contact for the

U.S. customer, follows up initial contacts made by the Korean parent,

incurs the cost of unpaid sales, and is responsible for collecting

payment from customers. Petitioners also cite to several other cases

wherein the Department reclassified sales as CEP transactions when the

respondents' U.S. affiliates were found to have significant selling

functions in the United States (e.g. following up on calls made to U.S.

customers; market research for POSTEEL; receiving and preparing orders;

and collecting payments from customers).

Petitioners also argue that the Department should infer from

POSAM's size, both in terms of its staff and its asset value, that

POSAM is involved in setting U.S. prices. Petitioners urge the

Department to find as a general proposition that the mere existence of

a U.S. subsidiary the size of POSAM is a strong indication that the

activity of the staff must be ``significant.'' Petitioners note that

the level of sales and expenditures attributed to POSAM indicate that

POSAM has a significant involvement in setting prices for the subject

merchandise. In addition, petitioners contend that POSAM's selling

expenses should be deducted from the starting price, and should be

modified to reflect expenses for only those sales made to unaffiliated

parties.

Petitioners argue that the Department has found in all recent

cases, with the single exception of SSWR from Korea, that U.S. sales

made through POSCO's affiliate warrant CEP treatment, citing Certain

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

Korea: Final Results of Antidumping Duty Administrative Reviews

(``Carbon Steel from Korea-3rd Review''), 63 FR 13170, 13182-183 (March

18, 1998); and Certain Cold-Rolled and Corrosion-Resistant Carbon Steel

Flat Products from Korea: Final Results of Antidumping Duty

Administrative Reviews (``Carbon Steel from Korea--4th Review''), 64 FR

12927, 12937-38 (March 16, 1999).

POSCO argues that its sales through POSAM meet the Department's

criteria for classification as EP sales. Citing Final Results of

Antidumping Duty Administrative Review and Partial Termination of

Administrative Review: Circular Welded Non-Alloy Steel Pipe from Korea,

62 FR 55574, 55579 (October 27, 1997), respondent notes that the

Department considers whether (1) the merchandise was shipped directly

from the manufacturer to the unaffiliated U.S. customer; (2) this was

the customary commercial channel between the parties involved; and (3)

the functions of the U.S. affiliates were limited to that of processors

of sales-related documentation and communication links with the

unaffiliated U.S. buyer. POSCO argues that the Department has

classified sales as EP when all three criteria have been met, and has

considered the routine functions of the exporter as merely having been

relocated geographically from the country of exportation to the United

States, citing Industrial Phosphoric Acid from Belgium; Preliminary

Results of Antidumping Duty Administrative Review, 63 FR 25830, 25831

(May 11, 1998) and AK Steel Corporation v. United States, Slip Op. 98-

159, 1998 WL 846764 (CIT, November 23, 1998).

Respondent argues that POSAM's role in U.S. sales is that of a

processor of sales-related documentation. POSCO argues that POSTEEL,

POSAM's Korean-based affiliate, determines the material terms of sale,

and performs all sales-related activities, with the exception of

arranging freight for certain delivered sales, and arranging credit for

certain transactions. POSCO contends that POSAM communicates inquiries,

purchase orders, and confirmations between the U.S. customer and

POSTEEL, and that it has no negotiating authority, as petitioners

suggest. POSCO states that, contrary to petitioners' contention, POSAM

is not the first and only point of contact for the U.S. customer,

noting that POSCO or POSTEEL originated all of the contacts and

relationships with U.S. customers, and that the Korean affiliates

maintain direct contact with these customers through marketing trips to

the United

[[Page 30677]]

States. POSCO acknowledges that POSAM discusses the U.S. market

situation and prices with its parent in order to provide insight to

POSCO since POSAM is closer to the market. Respondent also contends

that petitioners' claim that POSAM's size indicates the level of

involvement in sales is inaccurate. POSCO argues that the Department

verified that only two employees at POSAM's headquarters are

responsible for sales of subject merchandise (as well as other product

sales) along with two accounting personnel who are responsible for

processing payment information for all customers and all products.

Respondent argues that petitioners' suggestion that the extent of

POSAM's involvement can be directly linked to the value of merchandise

recorded in POSAM's accounting records is totally irrelevant, and

points out that processing an invoice takes the same amount of time no

matter what its value. POSCO contends that, contrary to petitioners'

claim, the ``mere existence'' of a U.S. subsidiary does not dictate CEP

treatment.

Citing Final Determination of Sales at Less Than Fair Value: Coated

Groundwood Paper from Belgium, 56 FR 56359, 56362 (November 4, 1991)

and Final Determination of Sales at Less Than Fair Value: Coated

Groundwood Paper from Finland, 56 FR 56363, 56371 (November 4, 1991),

POSCO contends that the Department has held that the fact that an

affiliated U.S. company quotes prices to U.S. customers does not lead

to CEP designations, nor does a U.S. affiliate's identifying and

maintaining contact with customers. POSCO also cites to Final

Determination of Sales at Less Than Fair Value: Extruded Rubber Thread

from Malaysia, 57 FR 38465, 38469 (August 25, 1992), noting that the

Department found that the role of a branch office whose functions

include ``receiving orders, preparing and executing order

confirmations, invoices, packing lists, and other sales-related

documentation, and receiving and processing payments from customers'

was not sufficient to classify the affiliates' activities as beyond

those of a mere processor of documents or communications link.

Respondent further argues that petitioners' suggestion that the

Department segregate POSAM's indirect selling expenses by product is

wholly without merit. POSCO contends that, at verification in New

Jersey, the Department examined the activities of POSAM's employees,

and found that the sales and support staff are responsible for all

sales. Respondent notes that allocating POSAM's total indirect selling

expenses across all of its sales is the method by which the Department

has calculated all other reviews and investigations with which POSCO is

involved, including SSPC from Korea.

Department's Position: We agree with petitioners that sales through

POSAM are more appropriately treated as CEP transactions. Although the

facts in this investigation are similar to the facts in the stainless

steel wire rod determination cited by respondent, there are several

significant differences on the record of the present case which lead

the Department to change its decision from the preliminary

determination and conclude that POSCO's U.S. sales through POSAM

warrant classification as CEP sales, as we did in SSPC from Korea.

The Department treats sales through an agent in the United States

as CEP sales, unless the activities of the agent are merely ancillary

to the sales process. Specifically, where sales are made prior to

importation through a U.S. based affiliate to an unaffiliated customer

in the United States, the Department examines several factors to

determine whether these sales warrant classification as EP sales. As

respondents have noted, these factors are: (1) whether the merchandise

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

customer without being introduced into the physical inventory of the

affiliated selling agent; (2) whether this sale is the customary

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

function of the U.S. selling agent is limited to that of a ``processor

of sales-related documentation'' and a ``communication link'' with the

unrelated U.S. buyer. Where the factors indicate that the activities of

the U.S. selling agent are ancillary to the sale (e.g., arranging

transportation or customs clearance), we treat the transactions as EP

sales. Where the U.S. selling agent is substantially involved in the

sales process (e.g., negotiating prices), we treat the transactions as

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

Final Results of Antidumping Administrative Review, 62 FR 18389, 18391

(April 15, 1997); Mitsubishi Heavy Industries v. United States, Slip

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

We note that neither party has disputed that POSCO's U.S. sales

through POSAM meet the first two criterion of the Department's

standard. Therefore, the determining factor in this case is the degree

of involvement by POSAM in the sales process. In the preliminary

determination, the Department based its EP classification of sales

through POSAM on POSCO's statement that POSTEEL determined price and

terms of sale. However, in our preliminary determination, we noted that

we would conduct an in-depth examination of the most appropriate

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

EP) at verification. See Preliminary Determination, 64 FR at 142.

Although POSTEEL performs many selling activities for U.S. sales

through POSAM, including meeting with potential U.S. customers of the

subject merchandise (see POSCO Verification Report, at 11-12 and

Exhibit 15), the record does not support POSCO's assertion that POSAM

is merely a processor of sales-related documentation. First, POSAM is

the primary point of contact for the U.S. unaffiliated customer. POSAM

officials explained that because of the time zone difference and the

cost of long distance, it would be expensive and inconvenient for the

customer to contact POSTEEL directly. See POSCO Verification Report at

11. In addition, POSAM also conducts, albeit informally, market

research for POSTEEL, in that POSAM officials report market conditions

and pricing information to POSTEEL.

Also, as demonstrated by the unpaid sales to the bankrupt customer,

POSAM incurs the ``seller's risk'' for U.S. Channel 2 sales. The record

indicates that it was POSAM, not POSTEEL, who incurred the cost of the

unpaid sales, as POSAM pre-pays POSTEEL. See POSAM Verification Report

at 6. Moreover, it is POSAM, not POSTEEL, who is responsible for

collecting payment from the customer through bankruptcy proceedings.

See POSAM Verification Report, Exhibit 9. Bearing such financial risk

is indicative of a seller, not a mere facilitator. This selling

arrangement between POSAM and POSTEEL differs from the one between

POSAM and Changwon, addressed in SSWR from Korea, where the ``U.S.

customers remit payment to POSAM, which subsequently transfers the

payment to POSTEEL, which, in turn, transfers it to Changwon.'' See

SSWR from Korea, 63 FR at 40419 (emphasis added).

Therefore, because of the significant risk incurred by POSAM in

addition to its other selling activities, we find that POSAM's

activities are more than ancillary to the sales process and have

classified POSCO's U.S. sales through POSAM as CEP transactions.

Additionally, we disagree with petitioners that the reported

indirect selling expenses for POSAM should be adjusted. Petitioners

have not stated that POSCO's calculation was incorrect or is

[[Page 30678]]

in any way distortive. We verified POSCO's calculation of POSAM's

indirect selling expense at verification and noted no discrepancies.

See POSAM Verification Report at 11-12. Thus, for CEP sales, we have

deducted an amount for indirect selling expenses incurred in the United

States using POSCO's reported indirect selling expense for POSAM.

Comment 4: POSCO--Local Letter of Credit Sales

Respondent argues that the Department should calculate normal value

for ``local'' sales made in the home market based on the U.S. dollar

price at which those sales were invoiced. Local sales are sales of

subject merchandise to home market customers who will further process

the merchandise into non-subject products for export. Respondent

maintains that although POSCO is paid in Korean won, the amount of

payment is based on the U.S. dollar-invoiced price. Respondent contends

that because POSCO's local sales are denominated and invoiced in U.S.

dollars, the invoiced prices do not require conversion to won for U.S.

comparison prices, and that the conversion of the U.S. dollar price to

won and then back to dollars is not only unnecessary, but would

significantly distort the margin. Respondent cites to Final

Determination of Sales at Less Than Fair Value: Fresh Cut Roses from

Columbia (``Roses from Columbia''), 60 FR 6980, 7006 (February 6,

1995), noting that the Department agreed and accepted the U.S. prices

for sales invoiced in U.S. dollars, notwithstanding that the respondent

received payment from the customer in the home market currency.

Respondent argues that in the final determination in SSPC from Korea,

the Department's concern was that POSCO's customers paid for local

sales in won, the sales amounts were recorded in won in POSCO's

accounting records, and that the exchange rates utilized by POSCO to

determine the won equivalents were different from those exchange rates

used by the Department. Respondent contends that the fact that payment

is made in won is irrelevant, since both the contract and the invoice

reflect a U.S. dollar price, and that sales are converted to won for

the purposes of consistency with POSCO's accounting records, which are

maintained in won.

Petitioners claim that the use of the dollar value for local sales

in the home market would be inappropriate, given that POSCO receives

payment in won. Petitioners distinguish this case from Roses from

Columbia by noting that in that case, the Department was factoring in

the effects of inflation in the cost-of-production analysis, costs were

converted into dollars; the payments in local currencies had reflected

the prevailing exchange rate, and all home market sales had been

invoiced in dollars and paid in pesos. Petitioners further contend that

in Roses from Columbia, the decision to use U.S. dollar-based prices

was presumably made for convenience and consistency, as costs were also

dollar-denominated. Petitioners further note that the disparity between

the exchange rates reflected in the price conversion and the rates used

by the Department is too great to reconcile, and is in contrast to the

situation in Roses from Columbia. Petitioners argue that the use of a

constant index such as the dollar is used by the Department in the face

of currency depreciation or significant deflation, and should not be

applied selectively to reduce a dumping margin.

Department's Position: We agree with petitioners. First, we believe

that respondent's reliance on Roses from Columbia is misplaced. In that

case, all prices and costs, both in the home market and in the U.S.,

were dollar denominated, and the exchange rates reflected in the

dollar-to-peso conversion coincided with the exchange rates used by the

Department. Given these facts, the use of dollar-denominated prices

provided consistency throughout the Department's analysis in that case.

Neither of these facts are present in the instant case. At

verification, we found that local sales are the only sales made in the

home market that are expressly linked to a dollar value, but that the

sale is ultimately a won-denominated sale. Additionally, the vast

majority of the costs incurred for home market and U.S. sales are

denominated and paid by POSCO in won. See POSCO Verification Report at

14-18. Finally, as we note above, there is a disparity between the

exchange rates reflected in POSCO's accounting records and those used

by the Department (see POSCO Verification Report, Exhibit 17). Although

the sales are linked to a dollar value, there is no question that the

respondent receives payment in won, and therefore, the use of the

dollar-denominated gross unit price for local letter of credit sales in

the home market is unwarranted. In addition, in recent cases involving

POSCO (e.g. SSPC from Korea, and Carbon Steel from Korea--3rd Review),

the Department has used the won-denominated price for local letter of

credit sales in the home market because we found that, as in the

instant case, the local sales were paid in won and recorded in POSCO's

accounting records in won, and the exchange rates used by POSCO were

dissimilar from those used by the Department. See SSPC from Korea, 63

FR at 15456.

Comment 5: POSCO--Date of Sale

Petitioners argue that the Department should use the order

confirmation date as the date of sale for both home market and U.S.

sales unless the circumstances of a particular sale indicated use of

some other date. They contend that the Department ``may use a date

other than the date of invoice if the Secretary is satisfied that a

different date better reflects the date on which the exporter or

producer establishes the material terms of the sale,'' including price

and quantity. See 19 CFR 351.401(i). Petitioners contend that the

Department has the authority to treat order date as the date of sale,

and has done so in the recent past, citing Final Results of Antidumping

Administrative Review: Circular Welded Non-Alloy Steel Pipe from the

Republic of Korea (``Pipe from Korea''), 63 FR 32833, 32835-36 (June

16, 1998)). Petitioners argue that the documents included in the

Department's verification exhibits illustrate that, with the exception

of special circumstances (involving bankrupt sales) the material terms

of sale are set on the order date and do not change prior to shipment

and invoice. Petitioners maintain that documentation reviewed at

verification indicates that POSCO knew well before actual shipment the

order quantity of the invoice. Petitioners note that, with the

exception of two sales involving merchandise originally intended for a

bankrupt customer, the other seven sales (involving either a home

market or a U.S. sale) reviewed at verification did not involve changes

in quantity or price from order date to invoice date.

Petitioners argue that for U.S. sales in channel 2, the Department

should use as the date of sale the date of POSAM's invoice to the U.S.

customer, rather than the date of POSTEEL's invoice to POSAM.

Petitioners further contend that this invoice is meaningless because it

represents the transfer price on an intra-company transaction.

Respondent does not deny that the Department has the discretion to

use a date other than invoice date as date of sale, but noted that in

SSPC from Korea, the Department chose not to alter its date of sale

methodology. POSCO disputes that use of invoice date requires that

price and/or quantity change frequently between order date and invoice

date, contending that the fact that whether material terms change after

the order date does not diminish

[[Page 30679]]

the fact that they could and sometimes do change, so that material

terms are not firmly established as of the order date. Respondent cites

to recent cases as precedent for the Department's decision to use

invoice date as date of sale, including Certain Corrosion-Resistant

Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate

from Canada, 64 FR 2173, 2178 (January 13, 1999), wherein the

Department found at verification that quantity changed between the

order date and the invoice date, and determined that invoice date was

the most appropriate date to use in accordance with normal practice.

POSCO distinguishes the instant case from Pipe from Korea, wherein the

material terms had been set in the U.S. contract, and that subsequent

changes were immaterial in nature. Contrary to petitioners' contention,

POSCO argues that the documents provided at verification support

invoice date as the date of sale, rather than order date, as

petitioners claim. Respondent further argues that the Department's

obligation with regard to date of sale is to determine when price and

quantity are normally finalized, and that the reason for a change in

terms is irrelevant to the Department's analysis. Therefore, POSCO

submits that there is no reason for the Department to deviate from its

standard practice of using invoice date as date of sale.

Respondent believes that the Department, in its preliminary

determination, properly used the date of POSTEEL's invoice to POSAM as

the date of sale since the material terms of sale were finalized upon

shipment to the customer from Korea (the point at which POSTEEL issues

its invoice to POSAM). Moreover, POSCO maintains that the Department

has a well-established rule that the date of sale must precede or be

equal to the date of shipment, citing Carbon Steel from Korea--4th

Review. Respondent further argues that petitioners' contention that the

invoice between POSTEEL and POSAM is meaningless is immaterial to the

determination of the date of sale. POSCO notes that use of an invoice

date between a U.S. affiliate and its unaffiliated customer would only

be appropriate with regard to CEP transactions.

Department's Position: We agree with respondents in part. Under the

Department's regulations, we normally use date of invoice as the date

of sale. 19 CFR 351.401(i). However, we may use another date, such as

date of order confirmation, if that date better reflects the date on

which the material terms of the sale were established. In adopting this

regulation, we explained that the purpose was, whenever possible, to

establish a uniform event which could be used as the date of sale.

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

27348-49 (May 19, 1997). We further explained that we do not treat an

initial agreement as establishing the material terms of sale between

the buyer and seller when changes to such an agreement are common, even

if, for a particular sale, the terms did not actually change.

Consequently, our analysis focuses on whether changes are sufficiently

common to allow us to conclude that initial agreements should not be

considered to finally establish the material terms of sale. As

discussed in detail in the Analysis Memo: POSCO (at 1-2), a review of

the sales documentation supports POSCO's contention that certain

material terms of sale (i.e., price and quantity) are subject to change

until the invoice date. Moreover, we find petitioners' contention that

the record supports use of order confirmation date as date of sale to

be without merit. As the Department noted in Carbon Steel from Korea--

4th Review, ``even if documentation from a few sample U.S. sales

suggests that essential terms of sale did not change after initial

contract date, this does not demonstrate that essential terms of sale

were not subject to change after the initial contract date, or that

essential terms of sale did not in fact change after the initial

contract date for significant numbers of sales.'' See Carbon Steel from

Korea--4th Review, 64 FR at 12935. While we note that, at verification,

we discovered that POSCO's methodology in determining the frequency of

pricing changes overstated the actual number of occurrences (see

Analysis Memo: POSCO), based upon our examination of the frequency of

pricing changes for home market sales, and for U.S. sales classified as

EP transactions, we have determined that invoice date is the

appropriate date for date of sale. However, in keeping with the

Department's practice, the date of sale cannot occur after the date of

shipment. Therefore, when the date of shipment precedes the date of the

invoice to the first unaffiliated purchaser in the United States, we

have used shipment date as the date of sale, in accordance with recent

reviews involving POSCO (see Carbon Steel from Korea--4th Review, 64 FR

at 12935, citing Carbon Steel from Korea--3rd Review, 63 FR at 13172-

73).

Comment 6: POSCO--Sales of Non-Prime Merchandise

POSCO argues that in the final determination, the Department should

distinguish between prime and secondary merchandise. POSCO explains

that it had submitted control numbers corresponding to each product

reported as subject merchandise, and assigned to each control number a

suffix of either ``P'' for prime merchandise or ``N'' for non-prime

merchandise. However, respondent noted that the Department truncated

the suffix from the control numbers, collapsing prime and non-prime

material for the purposes of the cost test. Respondent argues that the

Department's methodology contradicts its practice of distinguishing

between prime and secondary merchandise in its analysis. POSCO cites to

Memorandum from Roland L. MacDonald to Joseph A. Spetrini, dated April

19, 1995 (``Carbon Steel Memorandum''), and Certain Cold-Rolled Carbon

Steel Flat Products from the Netherlands (``Carbon Steel from the

Netherlands''), 61 FR 48465 (September 13, 1996), wherein the

Department segregated secondary merchandise from prime merchandise for

the purposes of conducting the arm's length test, the cost test, and

the margin calculation. POSCO notes that the Department also segregated

secondary from prime merchandise in SSPC from Korea and should follow

the same methodology in the instant case.

Petitioners argue that the Department should not distinguish

between prime and secondary merchandise for purposes of its cost test.

Petitioners contend that a respondent can selectively label merchandise

as ``non-prime'' in order to avoid having low-priced sales tested with

other sales of the same control number, and cause below-cost home

market prices to artificially pass the cost test. Petitioners further

contend that Carbon Steel from the Netherlands stands for the

proposition that the Department acknowledges that prime and secondary

merchandise incur identical costs. Citing Extruded Rubber Thread from

Malaysia: Final Results of Antidumping Duty Administrative Review, 63

FR 12752 (March 16, 1998), petitioners note that the Department's

practice is not to distinguish between first and second quality

merchandise in conducting the cost test.

Department's Position: We agree with respondent. As noted in the

Carbon Steel Memorandum, ``separating prime and seconds for the cost

test has the benefit of facilitating an untainted analysis of the

majority of sales (prime merchandise).'' See Carbon Steel Memorandum at

4. Consistent with Carbon Steel from the Netherlands and IPSCO, 965

F.2d 1056 (Fed. Cir. 1992), in this case, POSCO has reported the

[[Page 30680]]

same cost of production for sales of prime and non-prime merchandise.

However, we do not regard prime and non-prime merchandise as identical

for the purposes of our analysis, as prime and secondary products are

typically fundamentally different from each other, since the latter

normally possess defects resulting from errors in the production

process. For this reason, the Department's model matching methodology

in fact prevents any matches of prime to non-prime merchandise. In the

instant case, POSCO noted that merchandise classified as non-prime does

not meet any standard specification (see POSCO's November 23, 1998

supplemental response at 15), and at verification we examined POSCO's

coding process for prime vis-a-vis non-prime and noted no discrepancies

(see POSCO Verification Report at 5).

The cost test compares the price and cost of all comparison market

sales, by model (identified by control number, or ``CONNUM''). Pursuant

to section 773(b)(2)(C) of the Act, where less than 20 percent of

respondent's sales of a given product were at prices less than the COP,

we do not disregard any below-cost sales of that product because we

determine that the below-cost sales were not made in ``substantial

quantities.'' If we were to combine prime and non-prime sales for a

given CONNUM in the cost test (thereby affecting whether the 20 percent

threshold has been met), sales of prime could be disregarded in the

calculation of NV or, alternatively, sales of below-cost non-prime

could be the basis of NV, solely because the analysis combined prime

with secondary merchandise. This result would stem from the fact that

it is more likely that non-prime sales are sold below cost.

Further, we note that petitioners reliance upon Extruded Rubber

Thread from Malaysia is misplaced. In that case, as in the Carbon Steel

Memorandum, the Department ran separate cost tests for prime and non-

prime merchandise in order to avoid distortions. Thus, for the final

determination in the instant case, we have distinguished prime from

non-prime merchandise using POSCO's reported control numbers for

purposes of the cost test and margin analysis.

Comment 7: POSCO--Application of Facts Available for U.S. Sale

Petitioners argue that POSCO failed to report a U.S. sale to the

Department and that facts available based on the highest transaction

margin calculated for reported sales should be applied to this

``unreported'' quantity. Petitioners also contend that two invoices

excluded from the U.S. sales database based on POSTEEL's invoice date

should be included as POSAM's invoice date for these sales is within

the POI, and should be similarly factored into the margin calculation

with the highest transaction margin.

Respondents argue that the U.S. sale to which petitioners refer had

been discovered during the Department's Korean verification, and had

been reported as a correction at the New Jersey verification (see POSAM

Verification Report, at 1 and Exhibit 1). POSCO contends that the other

sale to which petitioner refers as having been incorrectly excluded

from the database is a sale whose shipment date is before the POI, and

that therefore, the sales had been properly excluded from the U.S.

sales database.

Department's Position: We agree with respondent. The U.S. sale that

respondent inadvertently excluded from the sales database was accepted

by the Department as a minor correction at the beginning of the New

Jersey sales verification. Information relating to the sale was

examined and verified. In addition, the two sales shipped prior to the

POI were correctly excluded from the sales database, as the Department

recognizes the date of sale as the earlier of POSAM's invoice date to

the U.S. customer or the date of shipment from Korea. As such, the use

of facts available for these sales is unwarranted.

Comment 8: POSCO--Correction of POSTEEL's Credit Expense for U.S. sales

Petitioners contend that the Department should correct credit for

U.S. sales involving POSTEEL to reflect the revision noted in the

Department's verification report (see POSCO Verification Report, at 2).

Respondent argues that it had presented the correction to U.S. credit

expense for POSTEEL for all U.S. channel 1 and 3 sales in its pre-

verification corrections, that it had presented the Department with an

updated sales listing incorporating the correct rate on March 8, 1999,

and that no other revisions are necessary.

Department's Position: We agree with respondent. POSCO presented

its pre-verification correction to POSTEEL's short-term borrowing rate

for U.S. dollars and the corresponding corrections to U.S. credit

expenses for sales in channels 1 and 3. In addition, POSCO had

presented these corrections in an updated sales listing, and we find

that no other revisions are required.

Comment 9: POSCO--POSAM's Indirect Selling Expenses

Petitioners argue that POSAM's indirect selling expenses were

understated. Petitioners urge the Department to add to POSAM's indirect

selling expense figure the amount of short-term interest incurred by

POSAM, claiming that such offsets to indirect selling expenses have

been explicitly rejected by the Department (citing Extruded Rubber

Thread from Malaysia, 63 FR 12578). In addition, petitioners also argue

that the amount of housing expenses for POSAM employees incurred in the

year of consideration should be added to total indirect selling

expenses.

Respondent contends that the Department's policy and practice is to

deduct short-term interest expenses from indirect selling expense

figures, as these short-term interest expenses relate to financing

accounts receivable. Because credit expense is calculated separately,

respondent argues that the inclusion of the short-term interest expense

would constitute double counting credit expenses in the U.S. market,

citing SSPC from Korea and Carbon Steel from Korea--4th Review in

support of this contention. Respondent further contends that the

housing expenses noted by petitioners bear no relation to POSAM's sales

during the POI, and therefore, do not require inclusion. However, POSCO

does note that once income derived from housing is deducted from the

expense, the net expense has a negligible effect on the ratio.

Department's Position: We agree in part with respondents. It is the

Department's practice to exclude short-term borrowing expenses in the

calculation of indirect selling expenses when credit expense has been

otherwise accounted for, and the borrowing expense is clearly related

to sales, as in SSPC from Korea and Carbon Steel from Korea--4th

Review. However, we note that the housing expenses found at

verification should be included (less housing income) in the

calculation of the indirect selling expense ratio, as the housing

expenses related to housing provided for POSAM's employees, and no

evidence presented at verification indicated that the expenses bore no

relation to POSAM's sales during the POI. See POSAM Verification Report

at 12. For this calculation, see Analysis Memo: POSCO.

Comment 10: POSCO--Offset to Financial Expenses

Petitioners argue that foreign exchange gains and interest income

[[Page 30681]]

should not be allowed because the Department's verification revealed

that POSCO could not support its reported offsets to financial

expenses. Petitioners state that the reported financial expense ratio

should be recalculated for the final determination.

Respondent asserts that its financial expenses were correctly

reported. POSCO explains that the Department verified the

reasonableness of its reported short-term interest income and the

foreign exchange gains and losses related to debt for the consolidated

company.

Department's Position: We agree with respondent. POSCO calculated

consolidated short-term interest income and consolidated foreign

exchange gains and losses based on the relative percentage of these

items from the unconsolidated financial statements. At verification we

examined the figures used in the calculation and traced them to POSCO's

unconsolidated financial statements. Since POSCO's unconsolidated

financial statements comprise a significant portion of its consolidated

financial statements, we consider the allocation based on the

unconsolidated percentages to be a reasonable surrogate.

Comment 11: POSCO--Affiliated Party Purchases

Petitioners argue that the Department should amend POSCO's reported

costs by valuing raw material inputs purchased from affiliated parties

at the highest of transfer price, COP, or market price in accordance

with the major input rule. Petitioners argue that the major input rule

requires the Department to value purchases from affiliated parties at

the highest of transfer price, the affiliate's COP, or market value, as

cited in section 773(f)(3) of the Act. Petitioners note that the

Department's February 4, 1999 cost verification report indicates that

POSCO's weighted-average purchase price for some affiliated party

inputs occurred at prices that were less than the related parties' COP.

Petitioners state that POSCO failed altogether to report a market price

benchmark for an additional alloy, which requires the Department to

apply facts available for the alloy.

POSCO asserts that material inputs purchased from affiliated

parties do not meet the statutory definition of a major input and

represent arm's length transactions based on the relationship of the

price paid to the affiliated supplier and the cost incurred by that

supplier. POSCO claims that even if the Department were to define one

or more of the inputs as a major input, there is no basis on which to

adjust the submitted costs.

Department's Position: We agree in part with respondent and in part

with petitioners. POSCO obtained three inputs from both affiliated and

non-affiliated suppliers. Sections 773(f)(2) and (3) of the Act allow

the Department to test whether transactions between affiliated parties

are at arm's length. Section 773(f)(2) allows the Department to test

whether transactions between affiliated parties involving any element

of value are at prices that ``fairly reflect * * * the market under

consideration.'' Section 773(f)(3) allows the Department to test

whether transactions between affiliated parties involving a major input

are above the affiliated supplier's cost of production. In other words,

if an understatement in the value of an input would have a significant

impact on the reported cost of the subject merchandise, the law allows

the Department to insure that the transfer price or market price is

above the affiliated suppliers' cost. The determination as to whether

an input is considered major is made on a case-by-case basis. See

Antidumping Duties; Final Rule, 62 FR 27296, 27362 (May 19, 1997). In

determining whether an input is considered major, among other factors,

the Department looks at both the percentage of the input obtained from

affiliated suppliers (verses un-affiliated suppliers) and the

percentage the individual element represents of the subject

merchandise's COM (i.e. whether the value of inputs obtained from an

affiliated supplier comprises a substantial portion of the total cost

of production for subject merchandise).

In the instant case, we looked at these percentages for each of the

three inputs. For one of the three inputs we found that section

773(f)(3) of the Act does apply to POSCO's purchases from affiliated

parties. See Memorandum to Neal Halper: Cost of Production (``COP'')

and Constructed Value (``CV'') calculation adjustments for the Final

Determination of Pohang Iron & Steel Co., Ltd. (``POSCO''), dated May

19, 1999. For this input, we then compared the transfer price between

POSCO and its affiliated supplier to that supplier's actual cost of

production. Since the affiliated supplier's actual cost of production

exceeded the transfer price, we have increased the COM of the subject

merchandise to reflect the cost of the affiliated supplier. However,

for the other two inputs we have determined that because of the limited

amounts of these inputs obtained from affiliated suppliers and the

relatively small percentage that the individual elements represent of

the subject merchandise's COM, section 773(f)(3) of the Act does not

apply. Furthermore, for these two inputs we found that the transfer

price with POSCO's affiliates are reflective of a market price.

Therefore, we have accepted the transfer price from POSCO's affiliate

as the cost with respect to these inputs and have not adjusted the COM

of the subject merchandise, pursuant to section 773(f)(2) of the Act.

Comment 12: Inchon--Date of Sale

Petitioners argue that, based on the verified record, the

appropriate date of sale for home market sales is the invoice date.

Petitioners argue that Inchon does not accept the basic terms of sale

until the shipment request is entered into the warehousing/shipping

document which coincides with the issuance of the invoice to the

customer. Petitioners cite the Department's verification findings,

which state that a ``sale representative enters the order into the

system and awaits sales approval. Inchon's sales team explained that

price and quantity terms had to be approved by sales management; once

approval is gained, the sales team enters a shipment request to the

warehousing/shipping department.'' See Inchon Verification Report, at

20. Petitioners argue that, based on the above verification findings,

Inchon does not accept the material terms of sale until ``sometime

after the order is received from the customer.'' Also, petitioners

argue that it is the Department's preference to use the invoice date

unless the material terms of sale are established at a different date,

citing Antidumping Duties; Countervailing Duties; Final Rule, 62 FR

27296, 27349 (May 19, 1997).

Respondent agrees with petitioners that, for home market sales, the

invoice date should be used, instead of the purchase order/order

confirmation date. Respondent argues that the use of the purchase order

date in the preliminary determination is directly contrary to the

Department's date of sale regulations, which state that ``[i]n

identifying the date of sale of the subject merchandise or foreign like

product, the Secretary normally will use the date of invoice, as

recorded in the exporter or producer's records kept in the ordinary

course of business. However, the Secretary may use a date other than

the date of invoice if the Secretary is satisfied that a different date

better reflects the date on which the exporter or producer establishes

the material terms of sale.'' See 19 CFR 351.401(i). Inchon argues that

while the vast majority of home market sales are filled from inventory

on hand, and the shipping and invoicing takes place within one or two

days of

[[Page 30682]]

the order, if Inchon does not have a requested product in inventory, it

will (if the order is approved) produce the product. Respondent

concludes that if Inchon produces the product, the essential terms of

sale often change between the purchase order date and the invoice date;

thus, the most appropriate date of sale is the invoice date.

For U.S. sales, petitioners argue that the Department should use

the order date/contract date as the date of sale, and not the invoice

date, as the Department preliminarily determined. Petitioners note that

``once material terms and schedules are set, a firm offer is sent by

Inchon to Hyundai Corporation, which sends its firm offer to Hyundai

U.S.A., which finally sends a firm offer to the final customer.'' See

Inchon Verification Report, at 21. Also, petitioners support their

argument by citing to the verification report: ``[a]ccording to Inchon,

it also sends a sales contract to the final contract [sic], which lists

all terms of the sale; this contract is signed by both parties.'' Id.

Petitioners argue that the Department should use the date of

contract/order as the U.S. date of sale unless there is record evidence

that demonstrates that ``the material terms of sale change frequently

enough on U.S. sales so as to give both buyers and sellers any

expectation that the final terms will differ from those agreed to in

the contract'', citing SSPC from Korea and Circular Welded Non-Alloy

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

Duty Administrative Review (``Circular Welded Non-Alloy Steel Pipe From

the Republic of Korea''), 63 FR 32833, 32836 (June 16, 1998).

Petitioners argue that respondent's two sales examples (see

Inchon's November 19, 1998 response, at 21 and Exhibit A-28) do not

demonstrate a change in the material terms of sale between the date of

contract/order and the invoice date. In the first example, petitioners

argue that the U.S. customer asked for a split-shipment of the quantity

ordered and it did not cancel the quantity. In the second example,

``the customer sent a purchase order requesting multiple products;

however, Inchon agreed to supply one of the products from each of the

purchase orders.'' Petitioners argue that this example only illustrates

Inchon's sales process, where Inchon only sends a firm contract to the

customer after the material terms of sale are established.

Petitioners allege that the sales processes in the home market and

in the U.S. market differ because home market sales are usually made

from inventory and U.S. sales are made-to-order. Petitioners argue

another comparison point between the U.S. and home market sales

concerning the terms of payment and invoicing; however, as this subject

involves proprietary information, please see Inchon Analysis Memorandum

for the Final Results of the 1997/1998 Investigation for Stainless

Steel Sheet and Strip in Coils from Korea (``Analysis Memo: Inchon'')

for a more complete discussion of this issue. Petitioners argue that

the Department, in a similar factual situation (Circular Welded Non-

Alloy Steel Pipe From the Republic of Korea, 63 FR at 32835), noted

differences between the U.S. and home market sales process. In the

above Korean case, petitioners noted that the Department used the

invoice date for home market sales from inventory and the date of

contract for U.S. made-to-order sales.

Furthermore, petitioners argue that Inchon's price and quantity

change chart is inaccurate. See Exhibit C-24 of Inchon's November 19,

1998 response. Petitioners note that respondent claims that this chart

illustrates that the price and quantity changed between order date and

the invoice date on 17% of U.S. sales, by sales volume. Petitioners

argue that an accurate comparison would be to compare any price or

quantity changes between Inchon's contract/order date and invoice date,

and not between the customer's purchase order date and the invoice

date. Petitioners argue that, based on the Hyundai U.S.A. verification

exhibits, there were no changes in the material terms of sale (i.e.,

price or quantity) between Inchon's contract/order date and the invoice

date.

Finally, petitioners argue that if the Department disagrees with

petitioners' above arguments to use the date of contract/order as the

U.S. date of sale, the Department should use the date of invoice from

Hyundai U.S.A. to the unaffiliated U.S. customer and not the date of

invoice from Inchon to either unaffiliated customers (channel 3) or

affiliated customers (channels 1 and 2).

Respondent argues that, for U.S. sales, the Department should

continue to use Inchon's invoice date as the date of sale. Respondent

argues that petitioners were incorrect in stating that Inchon's

specific example of a change in quantity from the contract to the

invoice was a split shipment contract. Respondent argues that in this

example, the final shipment was canceled by the U.S. customer because

of a failure to agree on a price and that this information was verified

by the Department. Respondent argues that this is an example of how the

material terms of sale (in this case, quantity) can change after the

date of contract. Respondent argues that petitioners understand that

Inchon uses the terms ``PO'' and ``contract'' interchangeably and that

the reference to ``P/O QTY,'' in Exhibit C-24 of Inchon's November 19,

1998 response refers to the customer contract quantities, and that the

quantities in both the purchase order and customer contract are the

same. Also, respondent argues that in similar cases where there are

documented changes in material terms of sale, the Department has used

the invoice date as the date of sale. See Certain Corrosion-Resistant

Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate

from Canada, 64 FR 2173, 2178 (January 13, 1999).

Respondent also disagrees with petitioners' argument that if the

Department uses invoice date as the date of sale, the Department should

use the invoice date from Hyundai U.S.A. to the unaffiliated U.S.

customer. Respondent argues that using this invoice date is contrary to

the Department's long-standing position that date of sale may not be

after the date of shipment to the unaffiliated customer, citing Carbon

Steel from Korea--3rd Review, 63 FR at 13172-73. Respondent notes that

the Department did use the invoice date to the unaffiliated customer

for U.S. sales through POSAM, the U.S. affiliate of POSCO in SSPC from

Korea; however, the U.S. sales through POSAM were classified as CEP

sales, and not EP sales. See SSPC from Korea, 64 FR at 15456.

Department's Position: We disagree with both parties' assertions

that we should use invoice date for home market sales. For our

preliminary determination, we used the purchase order/order

confirmation date as the home market date of sale because, by

respondents' own admission, ``there would rarely be significant

differences in the sales terms'' between order date and invoice date.

See Inchon's November 19, 1998 supplemental questionnaire response.

Finally, at verification, we noted that for the home market sales

traces, there were no changes in the material terms of sale between

order date and invoice date.

Inchon's case brief states that when Inchon accepts an order for a

product which it does not have in inventory, it produces the requested

product, and, in these instances, the essential terms of sale can often

change. This fact (of which, we note, we were aware at the time of our

preliminary determination) does not change the fact that, for the large

majority of Inchon's home market sales, the essential terms of sale do

not change between order date and invoice date. As we noted in the

preamble to the

[[Page 30683]]

governing regulations, we have established a ``preference for using a

single date of sale for each respondent, rather than a different date

of sale for each sale.'' See Preamble, 62 FR at 27348. In this case,

where the record assertions and evidence support the conclusion that

the essential terms of sale for the ``vast majority'' of sales are

established at order date, our preference to utilize a uniform date of

sale leads to our conclusion that order date is the more appropriate

date. Similarly, we note that petitioners' reference to our

verification findings regarding the sales process does not contradict

Inchon's statements that ``the vast majority'' of home market sales are

made from inventory and that the terms of sale rarely change between

the purchase order date and the invoice date. Hence, we disagree with

both petitioners and respondent's arguments and continue to determine

that the purchase order date, and not the invoice date, is the most

appropriate sale date for home market sales in this case.

For U.S. sales, we disagree with petitioners' arguments to use the

purchase order date instead of the invoice date from Inchon to either

unaffiliated customers (channel 3) or affiliated customers (channels 1

and 2). While we agree with petitioners' argument that Inchon's home

and U.S. sales process differ, it does not automatically follow that we

must therefore use invoice date for home market sales and purchase

order date for U.S. sales. We note that in the case cited by

petitioners, Circular Welded Non-Alloy Steel Pipe From the Republic of

Korea (63 FR at 32836), the Department considered a factual pattern in

which ``[t]he material terms of sale in the U.S. [were] set on the

contract date and any subsequent changes [were] usually immaterial in

nature or, if material, rarely [occurred].'' This is not the situation

for Inchon's U.S. sales, where Inchon has provided evidence that there

were changes to the essential terms of sale for a significant portion

of its U.S. sales. For example, we note that the two examples cited by

Inchon, as well as its price and quantity change chart (see Exhibit C-

24 of Inchon's November 19, 1998 response), demonstrate that the

material terms of sale can and do change often enough to justify using

invoice date. Therefore, for U.S. sales, we determine that Hyundai

U.S.A.'s invoice date (or shipment date, if earlier) is the appropriate

date of sale for Inchon's U.S. sales.

Moreover, for U.S. sales, we disagree with respondent's arguments

that Inchon's invoice date should be used as the date of sale for the

final determination. For U.S. sales categorized as either EP or CEP

transactions, it is the Department's practice to use the date of the

invoice to the first unaffiliated purchaser in the United States. We

note that for Inchon's sales made through Hyundai Corporation,

respondent has provided the date of Inchon's invoice to Hyundai

Corporation as the invoice date rather than the date of Hyundai

Corporation's invoice to the first unaffiliated U.S. purchaser.

However, as noted above in Comment 5, the date of sale cannot occur

after the date of shipment. Therefore, when date of shipment to the

first unaffiliated purchaser in the United States precedes the date of

the invoice, we will use shipment date as the date of sale (see Carbon

Steel from Korea--4th Review, 64 FR at 12935, citing Carbon Steel from

Korea--3rd Review, 63 FR at 13172-73).

Comment 13: Inchon--Net Price vs. Gross Unit Price

Petitioners argue that the Department should recalculate both home

market credit expenses and indirect selling expenses based on the net

price (i.e., after accounting for billing adjustments) rather than the

gross unit price. Petitioners argue that Inchon used incorrect formulas

for its calculation of home market credit expenses and indirect selling

expenses, which were listed on pages B-27 and B-31, respectively, of

Inchon's September 23, 1998 response.

Respondent rebuts petitioners' argument that the Department should

adjust Inchon's home market credit and indirect selling expenses based

on the net price because these adjustments would be ``insignificant

adjustments'' within the meaning of 19 CFR 351.413 (1998). Respondent

argues that these adjustments do not affect the calculation of Inchon's

normal value by more than 1 percent, and would be a waste of the

Department's time and resources to implement.

Department's Position: We agree with petitioners and have

recalculated both home market credit expenses and indirect selling

expenses based upon net price. As noted in the original questionnaire

in this case, the Department uses in its margin calculations a price

net of adjustments, such as discounts, rebates, and post-sale price

adjustments, that are reflected in the purchaser's net outlay. See 19

CFR 351.102(b) and 351.401(c). This calculation formula error was noted

in petitioners' February 3, 1999 alleged deficiency comments.

Respondent's argument for us to use 19 CFR 351.413 to justify not

making the calculation formula change is unfounded. As noted in the

preamble to the governing regulations, ``[section] 351.413 give[s] the

Department the flexibility to determine, on a case-by-case basis,

whether it should disregard a particular insignificant adjustment.''

See Preamble, 62 FR 27372. It would be more of a burden upon the

Department to calculate a margin both with the adjustment and without

the adjustment, compare the results, and determine whether the

adjustment is ``insignificant.'' Therefore, we have used Inchon's net

price to the customer as the basis for credit and indirect selling

expenses.

Comment 14: Inchon--U.S. Handling Commission Fee Adjustment

Petitioners argue that the Department should apply the highest per

unit handling commission fee to all Hyundai U.S.A. sales with a

particular term of payment, as partial facts available, because the

Department discovered at verification that Inchon failed to disclose

the handling commission fee. Because Inchon did not report the handling

commission fee and because the Department discovered the fee at the

Hyundai U.S.A. verification, petitioners argue that the Department

should apply facts available and use the highest per unit handling

commission fee for those U.S. sales with this particular term of

payment.

Respondent argues that at Inchon's U.S. verification, Inchon

realized that it had inadvertently excluded a handling commission fee

for certain of its U.S. sales, and that the Department should apply the

actual transaction-specific adjustment, based on the calculations in

U.S. Verification Exhibit 12. Respondent argues that the Department

should not apply facts available or adverse facts available because the

Department has the information on the record to make the transaction-

specific adjustments. Also, respondent argues that this is the type of

minor correction that the Department normally makes after verification.

Department's Position: We agree with respondent and will apply the

U.S. handling commission fee transaction-specific adjustments, where

applicable. We discovered, and then calculated, the handling commission

fee expenses at verification for all U.S. sales. See Hyundai U.S.A.

Verification Report, Exhibit 12. We disagree with petitioners' argument

to apply partial facts available. First, there is no missing

information with respect to these minor adjustments. Second, the

Department verified the accuracy of these minor adjustments for all

U.S. sales. Thus, the

[[Page 30684]]

application of facts available is unwarranted. See Notice of Final

Results and Partial Rescission of Antidumping Duty Administration

Review: Certain Pasta from Turkey, 63 FR 68,429, 68,432 (December 11,

1998) (Department adjusted freight expenses to reflect verification

findings, despite an argument that the ``adjustment is negligible and

may be ignored,'' citing 19 CFR 351.413.) Therefore, for the final

determination, we have adjusted for these expenses on a transaction-

specific basis. See Analysis Memo: Inchon for a discussion of the

calculations.

Comment 15: Inchon--Converted Quantity

Petitioners argue that the Department should use the converted

quantity field in the U.S. sales database, with quantities in metric

tons, instead of the quantities reported in field QTYU, which,

petitioners argue, contains mixed units of measurement, for the

purposes of calculating an overall antidumping margin.

Respondent Inchon agrees with petitioners that the Department

should use the converted quantity field in the U.S. sales database for

the quantity sold.

Department's Position: We agree with both parties that we should

use the converted quantity field from the U.S. sale database. Because

Inchon had to convert some U.S. sales from short tons into metric tons,

using the converted quantity field in the U.S. sales database assures

us that the quantities used for the final determination are based upon

the same measurement, which is an actual per ton basis, for each

transaction.

Comment 16: Inchon--Other Freight Expenses

Petitioners argue that the Department should correct the U.S. sale

database based on the discovery, at verification, of an error regarding

Inchon's failure to include a standard handling fee as part of other

freight expenses for a particular U.S. sales observation.

Respondent agrees with petitioners that the Department should

correct the error discovered at verification. However, respondent

argues that this handling fee pertains only to merchandise which Inchon

exported through the ports of Pusan or Pohang. Thus, respondent argues

that, in making the handling fee adjustments, the database should be

adjusted only when Inchon shipped through the ports of Pusan or Pohang.

Department's Position: We agree with both parties that, based on

our findings at verification, Inchon had not added a standard handling

fee for all shipments through the ports of Pohang and Pusan. This error

was discovered during verification and the correct figure was

calculated for the U.S. sales observation. See Inchon Verification

Report, at 1. Additionally, we agree with respondent that the error

exists only with respect to those sales which were exported through

Pusan or Pohang. This conclusion is consistent with the information

gathered at verification. See Inchon Verification Report, Exhibit 18.

Therefore, for the final determination, we will adjust the expenses

associated with domestic inland freight to the port of export for all

applicable U.S. sales.

Comment 17: Inchon--Scrap Recovery Value

Petitioner's argue that the Department should reject Inchon's new

methodology for calculating scrap recovery. Previously, Inchon valued

scrap recovery based on net realizable value. However, at the start of

verification, Inchon changed the valuation methodology to the actual

sales value. Petitioners argue that the Department should accept

Inchon's original scrap recovery rate based on net realizable value

because that method is based on Inchon's normal books and records.

Petitioners cite section 773(f)(1)(A) of the Act, which states that

costs shall normally be calculated based on the records of the exporter

or producer if those records are prepared in accordance with the home

country's generally accepted accounting principles, and reasonably

reflect the cost of producing the merchandise.

Petitioners claim that there is no evidence on the record to

suggest that Inchon's normal accounting of scrap recovery costs

recorded in its normal books and records are not reasonable.

Furthermore, petitioners assert that this change in methodology and the

submission of new factual information was not a minor correction; thus

it was untimely filed and pursuant to section 351.302(d) of the

regulations, the Department should not consider or retain in the

official record of the proceeding untimely filed information.

Petitioners claim that the Department only accepts new information at

verification when: (1) The need for that information was not evident

previously, (2) the information makes minor corrections to information

already on the record, or (3) the information corroborates, supports,

or clarifies information already on the record. Petitioners assert that

on all points, Inchon's submission of new factual information is not a

minor correction.

Inchon states that in the normal course of business it values scrap

at its net realizable value. However, to comply with the Department's

policy to reduce material costs by the actual revenue received on sales

of scrap during the POI, Inchon provided a revised scrap recovery

calculation based on actual scrap revenue. Inchon asserts that the

information used in the new scrap recovery calculation was placed on

the record in its November 19, 1998 supplemental D response in exhibit

D-21. Thus, petitioner's argument that the information was submitted

untimely are without merit.

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

the net realizable value scrap recovery method should be used in for

this case. Inchon uses the net realizable method in its normal books

and records which reasonably reflects the costs associated with the

production and sale of the subject merchandise, pursuant to section

773(f)(1)(A) of the Act. We agree that the actual scrap value, as

opposed to a standard or theoretical scrap value, should be used to

reduce material costs. However, the costs associated with obtaining the

scrap (i.e., transportation and processing costs) should be deducted

from the actual sales revenue to arrive at a net value for scrap used

as a reduction in material costs. Inchon has not provided sufficient

evidence to demonstrate that the net realizable method does not

reasonably reflect costs, and therefore, should not be relied upon in

the stainless steel sheet and strip case.

Comment 18: Inchon--Depreciation

Petitioners argue that Inchon's change in useful lives and change

in depreciation method was not justified nor consistent with the

depreciation methodologies that it employed in prior years.

Petitioner's cite Carbon Steel from Korea--3rd Review, where the

Department denied respondent's change in useful life, even though the

change was in accordance with Korean GAAP. In that case, the Department

found that the respondent failed to sufficiently justify the change,

and therefore, the Department calculated the depreciation expense based

on the original useful lives of the assets. Petitioners assert that in

the instant case, Inchon did not provide sufficient justification for

the changes and the depreciation should be recalculated based on the

original method and useful lives of the assets.

Inchon argues that its change in depreciation methodology is fully

consistent with Korean GAAP. Inchon cites section 773(f)(1)(A) of the

Act which requires the Department to base its calculation of costs on

GAAP in the country of manufacture unless the result

[[Page 30685]]

is distortive. Inchon claims that the petitioners have not demonstrated

any such distortion. Furthermore, Inchon asserts that Carbon Steel from

Korea--3rd Review cited by petitioners is not applicable because it

involves an administrative review. Inchon states that in administrative

reviews, the Department must be concerned about possible distortions

arising from changes in methodology from one review period to another,

which could result in some costs never being captured in any review

period. Additionally, in a review, the Department may have legitimate

concerns about respondents making strategic changes to accounting

methodologies in order to affect dumping margins. Inchon argues that in

the instant case neither concern is applicable because in this initial

investigation, the change in depreciation methods and change in useful

lives occurred before the dumping case was filed.

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

examined the change in depreciation method and useful lives, noting

that the changes were neither unusual nor unreasonable. These changes

were reflected in Inchon's December 31, 1997 audited financial

statements in accordance with Korean generally accepted accounting

principles. In addition, the change in depreciation method and useful

lives occurred prior to the initiation of this investigation. We agree

that, where changes in accounting principles and costing methodologies

occur subsequent to the initiation of an antidumping proceeding, the

Department has concerns about the possible distortions which could

result. However, since Inchon provided evidence that its change in

depreciation methods and useful lives were reasonable, and that the

change occurred in a time period prior to the initiation of the

investigation, we have relied on the new methodologies and have not

made adjustments to Inchon's depreciation expense.

Comment 19: Inchon--CEP vs. EP

Respondent argues that the Department should determine that

Inchon's channel one U.S. sales are EP sales, and not CEP sales as

preliminarily determined. Respondent stated that ``[i]n determining

whether U.S. sales made by an affiliated U.S. importer prior to

importation should be classified as EP or CEP sales, the Department

considers whether: (1) The merchandise was shipped directly from the

manufacturer to the unaffiliated U.S. customer; (2) this was the

customary commercial channel between the parties involved; and (3) the

functions of the U.S. sales affiliates were limited to that of

processors of sales-related documentation and communications links with

the unaffiliated U.S. buyer,'' citing Preliminary Results of

Antidumping Review: Circular Welded Non-Alloy Steel Pipe from Korea, 62

FR 55574, 55579 (October 27, 1997). Respondent also argues that when

the above three criteria are met, the Department classifies the

transactions as EP sales, citing, e.g., Industrial Phosphoric Acid from

Belgium, 63 FR 25830, 25831 (May 11, 1998); Independent Radionic

Workers of America v. United States, 19 CIT 375 (1995); and AK Steel

Corporation v. United States, Slip Op. 98-159, WL 846764 (CIT, November

23, 1998).

Respondent argues that in this investigation, the first two

criteria are met because Inchon's channel one U.S. sales through

Hyundai U.S.A. were shipped directly from the manufacturer to the

unaffiliated U.S. customer, which is the customary commercial channel

of distribution for Inchon's channel one U.S. sales. Respondent notes

that for one invoice, which covered four U.S. transactions, at the

unaffiliated U.S. customer's request, Hyundai U.S.A. arranged for a

brief period of warehousing at a commercial warehouse at the U.S. port

of entry. Respondent argues that this post-sale warehousing does not

void Inchon's claim for EP treatment because: (i) it was done at the

customer's request; (ii) the goods never entered the inventory of

Hyundai U.S.A.; and (iii) after warehousing, the goods were shipped

directly to the unaffiliated U.S. customer.

Concerning the third criterion, respondent argues that Hyundai

U.S.A. acted as a processor of sales-related documentation and a

communication link with the unrelated U.S. buyer. Respondent argues

that Hyundai U.S.A.'s role was therefore that of a classic sales

processor and communications link: forwarding orders to Inchon for

approval, serving as a contact point for customer inquiries, arranging

for importation, freight, and delivery to the customer, and performing

invoicing and payment collection functions on behalf of Inchon. More

specifically, respondent argues that the Hyundai U.S.A. Verification

Report demonstrates Hyundai U.S.A.'s limited role in these

transactions. First, respondent argues that Inchon, not Hyundai U.S.A.,

identified U.S. channel one customers and determined which potential

customers should be served through this sales channel. Respondent also

argues that Inchon's own sales personnel would travel from Korea to

make joint sales calls for important U.S. customers. See Hyundai U.S.A.

Verification Report, at 4. Second, respondent argues that it does not

have a specific department or division for stainless steel sales and

the U.S. sales through Hyundai U.S.A. were sold by sales personnel that

are primarily responsible for other non-subject products. Third,

respondent argues that Hyundai U.S.A. was not responsible for setting

prices or other key terms of sale, and that, while Hyundai U.S.A.

personnel were familiar with Inchon's prices and did communicate

current prices to U.S. customers, Hyundai U.S.A. had no authority to

accept or approve sales of subject merchandise. Respondent argues that

Inchon approved all sales and Inchon, after receiving a sales inquiry

from Hyundai U.S.A., would often change the material terms of sale,

which the Department verified.

In addition, respondent argues that none of the following

activities justify the Department's preliminary determination that

Hyundai U.S.A.'s sales should be CEP sales: (i) that Hyundai U.S.A.

sometimes quotes prices to unaffiliated customers, (ii) that Hyundai

U.S.A. arranged for post-sale warehousing for one customer, (iii) that

Hyundai U.S.A. invoices and collects payment from the U.S. customer,

and (iv) that Hyundai U.S.A. extends credit to the U.S. customer.

Citing Final Determination of Sales at Less Than Fair Value: Coated

Groundwood Paper from Belgium, 56 FR 56359, 56362 (November 4, 1991)

and Final Determination of Sales at Less Than Fair Value: Coated

Groundwood Paper from Finland, 56 FR 56363, 56371 (November 4, 1991),

respondent contends that the Department has held that the fact that an

affiliated U.S. company quotes prices to U.S. customers does not lead

to CEP designations, nor does a U.S. affiliate's identifying

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