Notice of Final Determination of Sales at Less Than Fair Value; Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil
Federal RegisterJul 19, 1999
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-351-828]
Notice of Final Determination of Sales at Less Than Fair Value;
Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From
Brazil
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final determination of sales at less than fair value.
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EFFECTIVE DATE: July 19, 1999.
FOR FURTHER INFORMATION, CONTACT: Maureen McPhillips at 202-482-0193
for CSN, Barbara Chaves at 202-482-0414 or Samantha Denenberg at 202-
482-1386 for USIMINAS/COSIPA, or Linda Ludwig at 202-482-3833,
Antidumping and Countervailing Duty Enforcement Group III, Import
Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC
20230.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (the Act), are to the provisions effective January 1,
1995, the effective date of the amendments made to the Act by the
Uruguay Round Agreements Act (URAA). In addition, unless otherwise
indicated, all citations to the Department's regulations are to the
regulations codified at 19 CFR part 351 (1999).
Final Determination
We determine that certain hot-rolled flat-rolled carbon-quality
steel products (hot-rolled steel) from Brazil are being, or are likely
to be, sold in the United States at less than fair value (LTFV), as
provided in section 735 of the Act. The estimated margins of sales at
LTFV are shown in the ``Suspension of Liquidation'' section of this
notice.
Case History
We published in the Federal Register the preliminary determination
in this investigation on February 19, 1999. See Notice of Preliminary
Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled
Carbon-Quality Steel Products from Brazil, 64 FR 8299 (Feb. 19, 1999)
(Preliminary Determination). Since the publication of the Preliminary
Determination the following events have occurred:
The respondents in this investigation: Companhia Siderurgica
Nacional (CSN); Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS);
and Companhia Siderurgica Paulista (COSIPA) requested postponement of
the final determination in accordance with Section 735(a)(2) of the Act
on February 2, 1999. Accordingly, we postponed the final determination
in this investigation on February 18, 1999 for 30 days. See
Postponement of Final Determination of Antidumping and Countervailing
Duty Investigations of Hot-Rolled Flat-Rolled Carbon-Quality Steel
Products from Brazil, 64 FR 9475 (February 26, 1999).
The Department verified sections A (General Information), B (Home
Market Sales) and C (U.S. Sales) of CSN's responses on March 8 through
March 12, 1999. The Department verified section D (Cost) of CSN's
response on March 15 through March 19, 1999. These verifications were
performed at CSN's production facility in Volta Redonda. See Memorandum
to the File; ``Sales Verification Report of Companhia Siderurgica
Nacional (CSN),'' April 7, 1999, (CSN's Sales Verification Report) and
Memorandum to Neal Halper, Acting Director, Office of Accounting;
``Verification of the Cost of Production and Constructed Value Data--
CSN,'' April 7, 1999, (CSN's Cost Verification Report). Public versions
of these, and all other Departmental memoranda referred to herein, are
on file in room B-099 of the main Commerce building.
The Department verified sections A-C of USIMINAS' responses on
March 15 through March 20, 1999 at USIMINAS' corporate headquarters in
Belo Horizonte and its production facility in Ipatinga, Brazil. The
Department verified section D of USIMINAS' response on March 22 through
March 26, 1999 at USIMINAS'' production facility in Ipatinga, Brazil.
See Memorandum For the File; ``Sales Verification of Sections A-C
Questionnaire Responses Submitted by Usinas Siderurgicas de Minas
Gerais, S.A. (USIMINAS),'' April 9, 1999 (USIMINAS' Sales Verification
Report) and Memorandum to Neal Halper, Acting Director, Office of
Accounting; ``Verification of the Cost of Production and Constructed
Value Data--USIMINAS,'' April 9, 1999 (USIMINAS' Cost Verification
Report).
The Department verified section D of COSIPA's response on March 15
through March 19, 1999 at COSIPA's production facility in Cubatao,
Brazil. The Department verified sections A-C of COSIPA's responses on
March 22 through March 27, 1999 at COSIPA's production facility in
Cubatao, Brazil. See Memorandum to Neal Halper, Acting Director, Office
of Accounting; ``Verification of the Cost of Production and Constructed
Value Submissions of Companhia Siderurgica Paulista,'' April 8, 1999
(COSIPA's Cost Verification Report) and Memorandum For the File;
``Sales Verification of Sections A-C Questionnaire Responses Submitted
by Companhia Siderurgica Paulista (COSIPA),'' April 9, 1999 (COSIPA's
Sales Verification Report).
On March 22, 1999, CSN, USIMINAS, and COSIPA (respondents)
requested a public hearing in this case. California Steel Industries,
Gallatin Steel Company, Geneva Steel, Gulf States Steel, Inc., IPSCO
Steel Inc., Steel Dynamics, Inc., Weirton Steel Corporation, Bethlehem
Steel Corporation, U.S. Steel Group, a unit of USX Corporation, Ispat
Inland Steel, LTV Steel Company, Inc., National Steel Corporation,
Independent Steelworkers Union, and United Steelworkers of America
(petitioners) also requested a public hearing on March 22, 1999. On
April 16, 1999, petitioners and respondents in this investigation filed
case briefs. We received rebuttal briefs from petitioners and
respondents on April 26, 1999. On April 22, 1999, the Department sent a
request to USIMINAS and COSIPA to report further information identified
at the verifications. The Department received this information on April
28, 1999.
In addition, on April 15, 1999, General Motors Corporation (``GM'')
requested a scope exclusion for hot-rolled carbon steel that both meets
the standards of SAE J2329 Grade 2 and is of a gauge thinner than 2 mm
with a 2.5 percent maximum tolerance. On April 22, 1999, the
petitioners requested that certain ASTM A570-50 grade steel be excluded
from the investigation. For a more detailed discussion of scope issues,
please see Scope Amendments Memorandum (April 28, 1999).
On May 5, 1999, the respondents and counsel for petitioners
withdrew requests for a hearing, and therefore, there was no hearing
for in this investigation. On, May 6, 1999, the Department published
Postponement of Final Determination of Antidumping and Countervailing
Duty Investigations of Hot-Rolled Flat-Rolled Carbon-Quality Steel from
Brazil, 64 FR 24321, further extending the deadline for this
investigation.
Scope of the Investigation
For purposes of this investigation, the products covered are
certain hot-rolled flat-rolled carbon-quality steel products of a
rectangular shape, of a width of 0.5 inch or greater, neither clad,
plated, nor coated with metal and whether or not painted, varnished, or
coated with plastics or other non-metallic
[[Page 38757]]
substances, in coils (whether or not in successively superimposed
layers) regardless of thickness, and in straight lengths, of a
thickness less than 4.75 mm and of a width measuring at least 10 times
the thickness. Universal mill plate (i.e., flat-rolled products rolled
on four faces or in a closed box pass, of a width exceeding 150 mm, but
not exceeding 1250 mm and of a thickness of not less than 4 mm, not in
coils and without patterns in relief) of a thickness not less than 4.0
mm is not included within the scope of these investigations.
Specifically included in this scope are vacuum degassed, fully
stabilized (commonly referred to as interstitial-free (``IF'')) steels,
high strength low alloy (``HSLA'') steels, and the substrate for motor
lamination steels. IF steels are recognized as low carbon steels with
micro-alloying levels of elements such as titanium and/or niobium added
to stabilize carbon and nitrogen elements. HSLA steels are recognized
as steels with micro-alloying levels of elements such as chromium,
copper, niobium, titanium, vanadium, and molybdenum. The substrate for
motor lamination steels contains micro-alloying levels of elements such
as silicon and aluminum.
Steel products to be included in the scope of this investigation,
regardless of HTSUS definitions, are products in which: (1) Iron
predominates, by weight, over each of the other contained elements; (2)
the carbon content is 2 percent or less, by weight; and (3) none of the
elements listed below exceeds the quantity, by weight, respectively
indicated:
1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.012 percent of boron, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent of zirconium.
All products that meet the physical and chemical description
provided above are within the scope of this investigation unless
otherwise excluded. The following products, by way of example, are
outside and/or specifically excluded from the scope of this
investigation:
Alloy hot-rolled steel products in which at least one of
the chemical elements exceeds those listed above (including e.g., ASTM
specifications A543, A387, A514, A517, and A506).
SAE/AISI grades of series 2300 and higher.
Ball bearing steels, as defined in the HTSUS.
Tool steels, as defined in the HTSUS.
Silico-manganese (as defined in the HTSUS) or silicon
electrical steel with a silicon level exceeding 1.50 percent.
ASTM specifications A710 and A736.
USS Abrasion-resistant steels (USS AR 400, USS AR 500).
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:
--------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni
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0.10-0.14%................... 0.90% Max....... 0.025% Max...... 0.005% Max...... 0.30-0.50%...... 0.50-0.70%..... 0.20-0.40%..... 0.20% Max.
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Width = 44.80 inches maximum; Thickness = 0.063--0.198 inches;
Yield Strength = 50,000 ksi minimum; Tensile Strength = 70,000--88,000
psi.
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni Mo
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.10-0.16%...................... 0.70-0.90%........ 0.025% Max........ 0.006% Max........ 0.30-0.50%........ 0.50-0.70%........ 0.25% Max......... 0.20% Max......... 0.21% Max
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Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi
Aim.
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:
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C Mn P S Si Cr Cu Ni V(wt.) Cb
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0.10--0.14%................... 1.30-1.80%...... 0.025% Max...... 0.005% Max...... 0.30-0.50%...... 0.50-0.70%...... 0.20-0.40%...... 0.20% Max....... 0.10 Max........ 0.08% Max
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Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi
Aim.
Hot-rolled steel coil which meets the following chemical, physical and
mechanical specifications:
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C Mn P S Si Cr Cu Ni Nb Ca Al
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.15% Max....................... 1.40% Max......... 0.025% Max........ 0.010% Max........ 0.50% Max......... 1.00% Max......... 0.50% Max......... 0.20% Max......... 0.005% Min........ Treated........... 0.01-0.07%.
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Width = 39.37 inches; Thickness = 0.181 inches maximum;
Yield Strength = 70,000 psi minimum for thicknesses 0.148
inches and 65,000 psi minimum for thicknesses >0.148 inches; Tensile
Strength = 80,000 psi minimum.
Hot-rolled dual phase steel, phase-hardened, primarily
with a ferritic-martensitic microstructure, contains 0.9 percent up to
and including 1.5 percent
[[Page 38758]]
silicon by weight, further characterized by either (i) tensile strength
between 540 N/mm \2\ and 640 N/mm \2\ and an elongation percentage
26 percent for thicknesses of 2 mm and above, or (ii) a
tensile strength between 590 N/mm \2\ and 690 N/mm \2\ and an
elongation percentage 25 percent for thicknesses of 2mm and
above.
Hot-rolled bearing quality steel, SAE grade 1050, in
coils, with an inclusion rating of 1.0 maximum per ASTM E 45, Method A,
with excellent surface quality and chemistry restrictions as follows:
0.012 percent maximum phosphorus, 0.015 percent maximum sulfur, and
0.20 percent maximum residuals including 0.15 percent maximum chromium.
Grade ASTM A570-50 hot-rolled steel sheet in coils or cut
lengths, width of 74 inches (nominal, within ASTM tolerances),
thickness of 11 gauge (0.119 inch nominal), mill edge and skin passed,
with a minimum copper content of 0.20%.
The merchandise subject to these investigations is classified in
the Harmonized Tariff Schedule of the United States (``HTSUS'') at
subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00,
7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60,
7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60,
7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30,
7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90,
7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00,
7208.90.00.00, 7210.70.30.00, 7210.90.90.00, 7211.14.00.30,
7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00,
7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60,
7211.19.75.90, 7212.40.10.00, 7212.40.50.00, 7212.50.00.00. Certain
hot-rolled flat-rolled carbon-quality steel covered by this
investigation, including: Vacuum degassed, fully stabilized; high
strength low alloy; and the substrate for motor lamination steel may
also enter under the following tariff numbers: 7225.11.00.00,
7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00,
7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60,
7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00,
7226.91.80.00, and 7226.99.00.00. Although the HTSUS subheadings are
provided for convenience and Customs purposes, the written description
of the merchandise under investigation is dispositive.
Period of Investigation
The period of investigation (POI) is July 1, 1997 through June 30,
1998.
Facts Available
Section 776(a)(2) of the Act provides that ``if an interested party
or any other person--(A) withholds information that has been requested
by the administering authority; (B) fails to provide such information
by the deadlines for the submission of the information or in the form
and manner requested, subject to subsections (c)(1) and (e) of section
782; (C) significantly impedes a proceeding under this title; or (D)
provides such information but the information cannot be verified as
provided in section 782(i), the administering authority shall, subject
to section 782(d), use the facts otherwise available in reaching the
applicable determination under this title.''
The statute requires that certain conditions be met before the
Department may resort to the facts available. Where the Department
determines that a response to a request for information does not comply
with the request, section 782(d) of the Act provides that the
Department will so inform the party submitting the response and will,
to the extent practicable, provide that party the opportunity to remedy
or explain the deficiency. If the party fails to remedy the deficiency
within the applicable time limits, the Department may, subject to
section 782(e), disregard all or part of the original and subsequent
responses, as appropriate. Briefly, section 782(e) provides that the
Department ``shall not decline to consider information that is
submitted by an interested party and is necessary to the determination
but does not meet all the applicable requirements established by (the
Department)'' if the information is timely, can be verified, is not so
incomplete that it cannot be used, and if the interested party acted to
the best of its ability in providing the information. Where all of
these conditions are met, and the Department can use the information
without undue difficulties, the statute requires it to do so.
In addition, section 776(b) of the Act provides that, if the
Department finds that an interested party ``has failed to cooperate by
not acting to the best of its ability to comply with a request for
information,'' the Department may use information that is adverse to
the interests of the party as the facts otherwise available. Adverse
inferences are appropriate ``to ensure that the party does not obtain a
more favorable result by failing to cooperate than if it had cooperated
fully.'' See Statement of Administrative Action (SAA) accompanying the
URAA, H.R. Doc. No. 316, 103d Cong. 2nd Sess. (1994), at 870.
Furthermore, ``an affirmative finding of bad faith on the part of the
respondent is not required before the Department may make an adverse
inference.'' Final Rule, 62 FR at 27340. The statute notes, in
addition, that in selecting from among the facts available the
Department may, subject to the corroboration requirements of section
776(c), rely upon information drawn from the petition, a final
determination in the investigation, any previous administrative review
conducted under section 751 (or section 753 for countervailing duty
cases), or any other information on the record.
CSN
We are applying adverse facts available where the criteria laid out
in section 776(a)(2) of the Act are present. For this final
determination, we have applied facts available to account for those
unreported U.S. sales where the nota fiscal date--the date of sale--was
within the POI but the commercial invoice date (the date of sale
reported by CSN) fell outside the POI. Please see Comment 5 for a more
detailed explanation of this issue.
USIMINAS/COSIPA
In March, 1999, the Department conducted verifications of USIMINAS
and COSIPA and was unable to verify various issues. As noted in
USIMINAS'' Sales Verification Report, COSIPA's Sales Verification
Report, and the respective Cost Verification Reports, respondents were
either unprepared, unwilling, or unable to review certain issues at the
verifications. When the material remained unverified, but respondents
exhibited cooperation in supplying at least a basic level of
information, the Department applied facts available in accordance with
section 776(a) of the Act. This was the case in the Department's
application of facts available for USIMINAS'' costs. USIMINAS deviated
from its normal allocation system in reporting its product-specific
costs. As a result, it failed to pick up all costs captured in its
financial accounting records. As facts available, the Department
adjusted USIMINAS'' reported costs to coincide with its normal
accounting records. See Comment 47. The Department also used facts
otherwise available in its determination of critical circumstances. See
the Critical Circumstances section below.
In several other instances, the respondent failed to cooperate to
the
[[Page 38759]]
best of its ability. In these cases the Department asked repeatedly to
cover certain issues, but respondents declined and they remained
outstanding at the end of verification. Therefore, in accordance with
section 776(b) of the Act, we have determined that adverse inferences
are warranted for USIMINAS'' unreported U.S. sales where the nota
fiscal date--the date of sale--was within the POI but the commercial
invoice date (the date of sale reported by USIMINAS) fell outside the
POI. See Comment 19. We have also determined that adverse inferences
are warranted for the following items: downstream sales data, USIMINAS'
home market inland freight, USIMINAS' U.S. inland freight, USIMINAS'
warranty expense, COSIPA's home market inland freight, COSIPA's
brokerage and handling expenses, COSIPA's packing, and USIMINAS'
failure to report its affiliated supplier's actual cost of production
(COP),. See Comments 18, 25, 26, 30, 34, 35, 40, and 49. See also
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Pasta from Turkey, 61 FR 30309, 30310 (June 14, 1996).
Critical Circumstances
In our preliminary determination, the Department found that there
was no reasonable basis to believe or suspect that critical
circumstances exist with respect to imports of hot-rolled steel from
Brazil. In this final determination, the Department finds the same to
be true. In accordance with section 735(a)(3) of the Act, if a
petitioner alleges critical circumstances, the Department will
determine whether: (A)(i) There is a history of dumping and material
injury by reason of dumped imports in the United States or elsewhere of
the subject merchandise, or (ii) the person by whom, or for whose
account, the merchandise was imported knew or should have known that
the exporter was selling the subject merchandise at less than its fair
value and that there would be material injury by reason of such sales,
and (B) there have been massive imports of the subject merchandise over
a relatively short period.
As in the Preliminary Determination, the Department finds that the
first criterion has been met since Mexico has an antidumping duty order
on hot-rolled steel from Brazil. This shows a history of dumping and
material injury by reason of dumped imports of the subject merchandise.
To determine whether the second criterion is met, i.e. whether imports
were massive over a relatively short time period, the Department
typically compares the import volume of the subject merchandise for at
least three months immediately preceding and following the filing of
the petition. See 19 CFR 351.206(i). The Department, therefore,
requested on February 9, 1999, that respondents submit monthly U.S.
shipment data from January 1997 through January 1999. COSIPA submitted
this data on February 19, 1999; USIMINAS on March 1, 1999; and CSN on
February 22, 1999. In the Department's verification outlines and at
verification, the Department requested that respondents demonstrate
their methodology in reporting the monthly U.S. shipment data. CSN's
monthly shipment data was verified, but USIMINAS and COSIPA's was not.
See USIMINAS' Sales Verification Report, page 59 and COSIPA's Sales
Verification Report, page 45.
Pursuant to 19 CFR 351.206(h)(2), the Department will consider an
increase of 15 % or more in the imports of the subject merchandise over
the relevant period to be massive. CSN's verified data demonstrates
that the threshold needed to find critical circumstances was not met
since a comparison of shipments immediately preceding and following the
filing of the petition did not reflect an increase of more than 15%.
See Exhibit 5 of CSN's February 22, 1999 submission of monthly U.S.
shipment data. We were unable to verify USIMINAS/COSIPA's shipment
data, and therefore, are not using it in making our final critical
circumstances determination. However, based on information available to
the Department including official Census statistics, verified data for
CSN, and the fact that CSN, USIMINAS, and COSIPA are the only known
producers/exporters of the subject merchandise to the United States, we
have determined that imports of the subject merchandise produced by
USIMINAS/COSIPA did not increase by 15%. See Memorandum to the File:
``Analysis for Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) /
Companhia Siderurgica Paulista (COSIPA) for the Final Determination of
the Antidumping Duty Investigation of Certain Hot-Rolled Flat-Rolled
Carbon-Quality Steel Products from Brazil for the period July 1, 1997
through June 30, 1998,'' July 6, 1999, (USIMINAS/COSIPA's Analysis
Memo). Therefore, the threshold for critical circumstances was not met.
Fair Value Comparisons
To determine whether sales of hot-rolled steel from Brazil to the
United States were made at LTFV, we compared export price (EP) to the
normal value (NV), as described in the ``Export Price'' and ``Normal
Value'' sections of this notice, below. In accordance with section
777A(d)(1)(A)(i) of the Act, we calculated weighted-average export
prices for comparison to weighted-average normal values or constructed
values.
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 the Investigation'' section above, and sold in the home
market during the POI, to be foreign like products for purposes of
determining appropriate comparisons to U.S. sales. Where there were no
sales of identical merchandise in the home market to compare to U.S.
sales, we compared U.S. sales to the next most similar foreign like
product on the basis of the characteristics and reporting instructions
listed in the Department's questionnaire. If there were no home market
foreign like products to compare to a U.S. sale, we used constructed
value (CV).
Affiliated Respondents
In our preliminary determination, we determined that USIMINAS and
COSIPA were affiliated parties, and we collapsed these entities. See
Collapsing Memorandum to Joseph A. Spetrini from Richard Weible,
December 22, 1998 (Collapsing Memo). For the purpose of this
investigation, we continue to consider these two respondents as a
single entity. See Comment 17 below for a further discussion of this
issue. Petitioners also argue that all three respondents are affiliated
and should be collapsed. For this final determination, the Department
determined that there is insufficient evidence on the record to warrant
a collapsing of all three respondents. See Comment 1 below for a
further discussion of this issue. However, should this investigation
result in an antidumping duty order, we intend to scrutinize this issue
in any subsequent segment of this proceeding.
Level of Trade
CSN
In our preliminary determination we agreed with CSN that one level
of trade (LOT) existed for CSN in the home market. Furthermore, we
agreed with CSN that its EP sales in the United States were at a single
LOT, and that CSN's sales in both markets were at the same LOT (see
Preliminary Determination, 64 FR 8302). During verification, in the
course of reviewing
[[Page 38760]]
CSN's sales process, accounting system, and sales documentation for
both home market and U.S. customers, we found no evidence of different
selling functions based on customer category, distribution channels, or
market (see CSN's Sales Verification Report, p. 15).
No party to this investigation commented on this issue relative to
CSN and the Department has no new evidence that would warrant altering
our preliminary determination. Therefore, as in the preliminary
determination, we find that CSN's sales within or between markets were
made at the same LOT and, therefore, a LOT adjustment pursuant to
section 773(a)(7)(A) of the Act is not appropriate.
USIMINAS/COSIPA
In our preliminary determination, the Department found that two
LOTs existed in the home market, one to affiliated resellers and the
other to all other types of customers which we termed mill direct
sales. In the U.S. market, the Department determined that there was one
LOT, and that the U.S. LOT was equivalent to all types of home market
sales except those to affiliated resellers. However, we were unable to
verify USIMINAS/COSIPA's LOT claims. Therefore, for this final
determination we are considering all U.S. and home market sales to be
at the same LOT. See Comment 18 below.
Export Price
The Department based its calculations 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. The Department calculated EP
based on packed prices charged to the first unaffiliated customer in
the United States.
We calculated EP for CSN and USIMINAS/COSIPA based on the same
methodology employed in the Preliminary Determination, except as noted
in the Comment section below. See Memorandum to the File: ``Analysis
for Companhia Siderurgica Nacional (CSN) for the Final Results of the
Antidumping Duty Investigation of Certain Hot-Rolled Flat-Rolled
Carbon-Quality Steel Products from Brazil for the period July 1, 1997
through June 30, 1998,'' (July 6, 1999), (CSN's Analysis Memo), and
USIMINAS/COSIPA's Analysis Memo.
Normal Value
Home Market Viability
As discussed in the Preliminary Determination, in order to
determine whether the home market was viable for purposes of
calculating NV (i.e., the aggregate volume of home market sales of the
foreign like product was equal to or greater than five percent of the
aggregate volume of U.S. sales), we compared the respondents' volume of
home market sales of the foreign like product to the volume of U.S.
sales of the subject merchandise, in accordance with section
773(a)(1)(C) of the Act. As CSN's and USIMINAS/COSIPA's aggregate
volumes of home market sales of the foreign like product were greater
than five percent of these companies' aggregate volumes of U.S. sales
of the subject merchandise, we determined that the home market was
viable for both CSN and USIMINAS/COSIPA. Therefore, we based NV on home
market sales in the usual commercial quantities and in the ordinary
course of trade.
Affiliated-Party Transactions and Arm's Length Test
Sales to affiliated customers in the home market not made at arm's
length prices (if any) were excluded from our analysis because we
consider them to be outside the ordinary course of trade. See 19 CFR
351.102. To test whether these sales were made at arm's length prices,
we compared, on a model-specific basis, the prices of sales to
affiliated and unaffiliated customers, net of all movement charges,
direct selling expenses, and packing. Where, for the tested models of
subject merchandise, prices to the affiliated party were on average
99.5 % or more of the price to unaffiliated parties, we determined that
sales made to the affiliated party were at arm's length. See 19 CFR
351.403(c). In instances where no price ratio could be constructed for
an affiliated customer because identical merchandise was not sold to
unaffiliated customers, we were unable to determine that sales to that
affiliated customer were made at arm's length prices and, therefore, we
excluded them from our LTFV analysis. See, e.g., Final Determination of
Sales at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat
Products from Argentina, 58 FR 37062, 37077 (July 9, 1993).
Where the exclusion of such sales eliminated all sales of the most
appropriate comparison product, we made a comparison to the next most
similar model.
Cost of Production Analysis
Petitioners provided reasonable grounds to believe or suspect that
CSN and USIMINAS/COSIPA's sales of the foreign like product under
consideration for determining NV may have been at prices below the cost
of production (COP), as provided in section 773(b)(2)(A)(ii) of the
Act. Therefore, pursuant to section 773(b)(1) of the Act, we initiated
a COP investigation of sales by the respondents in this investigation.
In accordance with section 773(b)(3) of the Act, we calculated the
weighted-average COP based on the sum of respondents' cost of
materials, fabrication, general expenses, and packing costs. We relied
on CSN's and USIMINAS/COSIPA's submitted COP, except in the following
specific instances:
CSN
1. We revised COP and CV to include the identified reconciliation
items and minor corrections, presented on the first day of
verification, which were not included in CSN's reported costs. See
Comment 43.
2. We revised CSN's selling, general and administrative (SG&A)
expense rate in order to include the net exchange loss and the
amortization of goodwill. See Comment 44.
3. We recalculated CSN's financial expense rate to include certain
net exchange losses which were financial in nature. We also revised the
long-term financial income amount based on consolidated statement
figures instead of company-specific figures. See Comment 44.
USIMINAS
1. We adjusted the reported cost of manufacturing (COM) for each
CONNUM to coincide with its normal accounting records. See Comment 47.
2. Where different COM's were reported for the same CONNUM, we used
the higher amount. See Comment 48.
3. We adjusted the transfer price for iron ore and coal obtained
from an affiliated supplier in accordance with the major input rule.
See Comment 49.
4. We computed the interest income offset using data from the
USIMINAS unconsolidated entity. See Comment 51.
5. We adjusted the G&A rate calculation to exclude those expenses
which directly relate to revenue received from non-operational
activities. See Comment 52.
COSIPA
1. We revised the cost of iron ore to reflect the market value of
this input. See Comment 54.
[[Page 38761]]
2. We revised COSIPA's G&A expense rate calculation to reflect
amounts from the 1997 financial statements and disallowed income
resulting from rescheduling of ICMS payments to offset general and
administrative expenses. See Comment 55.
3. We revised the interest expense rate to use USIMINAS's revised
rate. See Comment 51.
Price-to-Price Comparisons
CSN
For those product comparisons for which there were sales at home
market prices at or above the COP, we based NV on CSN's sales to
unaffiliated home market customers or sales to affiliated customers
that we determined to be at arm's length. We made adjustments for U.S.
packing expenses. We made deductions, where appropriate, for movement
expenses, taxes, and home market packing pursuant to section
773(a)(6)(B) of the Act. In addition, we made adjustments, where
appropriate, for physical differences in the merchandise in accordance
with section 773(a)(6)(C)(ii) of the Act. We made circumstance-of-sale
(COS) adjustments for warranty expenses, credit, and interest revenue
in accordance with section 773(a)(6)(C)(iii) of the Act.
USIMINAS/COSIPA
For those product comparisons for which there were sales at home
market prices at or above the COP, we based NV on USIMINAS/COSIPA's
sales to unaffiliated home market customers or prices to affiliated
customers that we determined to be at arm's length prices. We made
adjustments for selling expenses, discounts, movement expenses, packing
and taxes in accordance with section 773(a)(6) of the Act. We made
adjustments, where appropriate, for physical differences in the
merchandise in accordance with section 773(a)(6)(C)(ii) of the Act. In
addition, we made COS adjustments for warranty expenses, credit, and
interest revenue in accordance with section 773(a)(6)(C)(iii) of the
Act.
Price-to-Constructed Value Comparisons
In accordance with section 773(a)(4) of the Act, we based NV on CV
if we were unable to find a home market match of identical or similar
merchandise. We calculated CV based on the costs of materials and
fabrication employed in producing the subject merchandise, SG&A, and
profit. See section 773(e)(1). In accordance with section 773(e)(2)(A)
of the Act, we based SG&A expense 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 Brazil. We calculated the cost of materials,
fabrication, and general expenses based upon the methodology described
in the ``Cost of Production Analysis'' section above. For selling
expenses, we used the weighted-average home market selling expenses.
Where appropriate, we made adjustments to CV in accordance with section
773(a)(8) of the Act. We made COS adjustments by deducting home market
direct selling expenses from NV and adding U.S. direct selling
expenses.
Currency Conversion
We made currency conversions into U.S. dollars in accordance with
section 773A(a) of the Act based on the exchange rates in effect on the
dates of the U.S. sales, as certified by the Federal Reserve Bank.
Analysis of Interested Party Comments
I. Sales Issues pertaining to all three respondents
Comment 1: Whether to collapse USIMINAS/COSIPA with CSN.
Petitioners assert that in addition to collapsing USIMINAS and COSIPA,
all of the respondents should be collapsed into a single entity for
purposes of this investigation. They argue that CSN and USIMINAS/COSIPA
produce the same products, share common directors, and have intertwined
operations, all of which create the potential for the manipulation of
price or production. Referring to the Letter from Dewey Ballantine LLP
to the U.S. Department of Commerce, Case No. A-351-828 (March 11, 1999)
(Collapsing Comments), petitioners argue that the linkages between all
three respondents clearly satisfy the affiliation and collapsing
criteria set out in the Department's regulations.
Petitioners cite to the definition of affiliated parties in section
771(33) of the Act. Petitioners maintain that CSN, in conjunction with
Companhia Vale do Rio Doce (CVRD) and other affiliated companies, or
the ``CSN/CVRD group,'' is affiliated with USIMINAS/COSIPA as evidenced
by (1) the CSN/CVRD group sharing equity and managerial relationships
which petitioners claim establish an integrated unit under the control
of Benjamin Steinbruch and his family; (2) the ``CSN/CVRD group''
sharing board members with USIMINAS; and (3) the CSN/CVRD group holding
significant equity interest in USIMINAS.
Petitioners first argue that CSN and CVRD should be treated as a
single entity, and that this ``CSN/CVRD'' entity is affiliated with
USIMINAS by virtue of the alleged control of both by Mr. Steinbruch. In
support of this theory, petitioners note that Mr. Steinbruch is the
head of the Vicunha Group, or Steinbruch family business, which owns
14.1% of CSN through Textilia. Textilia is a member of CSN's
shareholders' agreement (a group of minority shareholders which vote as
a block and together control 64.3% of the voting shares) and has two
representatives on CSN's board, including Mr. Steinbruch. Mr.
Steinbruch is chairman of both CSN and CVRD's boards, and petitioners
cite Business Week and Financial Times articles referring to Mr.
Steinbruch as controlling the ``CSN/CVRD group.'' In fact, petitioners
claim that CSN's stake in CVRD through its 31% ownership of Valepar,
S.A. (Valepar) (which owns 27% of CVRD) and CVRD's stake in CSN through
its 96.84% ownership of Vale do Rio Doce Navegacao (Docenave)(which, in
turn, owns 25.2% of CSN), effectively makes CSN and CVRD a single
business entity. In quoting the Financial Times, petitioners state that
Mr. Steinbruch's reorganization of CVRD strengthened his control of
this company beyond what CSN's ownership would imply.
Petitioners believe that the directors and officers shared by CVRD
and Valepar and by CSN and CVRD further solidify Mr. Steinbruch's
control over the companies, and ``provide a ready means for the
companies to act in concert (e.g., planning and pricing decisions).''
Petitioners point out that Gabriel Stoliar, a director of CVRD, sits on
CSN's and USIMINAS'' board of directors. On the subject of board
members, petitioners take issue with the different explanations by
USIMINAS and CSN of the function of a board of directors. They state
that USIMINAS compares the function of the ``Administrative Council''
to a U.S. board of directors and the ``Board of Directors'' to a
company's management, while CSN makes no such distinction. Therefore,
when petitioners use the term ``Board of Directors'' they intend it to
mean ``the entity controlling the company.''
Second, petitioners claim that because of CSN's equity interest in
CVRD, which in turn owns a 23% interest in USIMINAS, CSN has more than
5% of the outstanding stock in USIMINAS. They believe that this factor
demonstrates CSN's ability to exercise restraint or direction over
USIMINAS and is sufficient grounds for finding affiliation between CSN
and USIMINAS.
[[Page 38762]]
Third, petitioners argue that CSN and USIMINAS are affiliated based
on common ties to the Caixa de Previdencia dos Funcionarios do Banco do
Brasil (Previ) (employee pension fund of the Bank of Brazil). They
believe that CSN has a close relationship with Previ and acts in
concert with it to acquire and control various companies, including
USIMINAS. They argue that Previ is not a passive investor of pension
funds but an important source of capital for Mr. Steinbruch's
investments. Petitioners state that Previ is a member of CSN's
shareholders agreement, directly owns 13.8% of the company, and
together with CSN, submitted the winning bid in the privatization of
CVRD. According to petitioners, Previ and CSN together maintain 30 or
38% of the outstanding voting stock of CVRD. They also point out that
Previ is the third largest shareholder in USIMINAS, and while not a
member of its shareholders' agreement, has two employees from the Banco
do Brasil on USIMINAS' Board of Directors. Petitioners argue that
Previ's ownership in CSN, CVRD, and USIMINAS and its joint interests
and activities with CSN demonstrate that Previ and CSN together are
affiliated with USIMINAS.
Having explained their arguments for affiliation, petitioners next
argue that CSN's legal, organizational, and operational ties with
USIMINAS/COSIPA also satisfy the Department's other criteria for
collapsing. Petitioners note that, pursuant to Sec. 351.401(f)(1) of
the Department's regulations, affiliated producers will be treated as a
single entity if (1) the producers have production facilities for
similar or identical products that would not require substantial
retooling of either facility in order to restructure manufacturing
priorities, and (2) the Department concludes that there is a
significant potential for the manipulation of price or production.
Petitioners believe that CSN and USIMINAS/COSIPA are capable of
easily shifting production of identical or similar products among
themselves, as evidenced by similar production facilities and similar
products. In discussing the ``significant potential'' criterion,
petitioners quote Sec. 351.401(f)(2), which explains that the
Department examines the following factors, among others: (i) The level
of common ownership; (ii) the extent to which managerial employees or
board members of one firm sit on the board of directors of an
affiliated firm; and (iii) whether operations are intertwined, such as
through the sharing of sales information, involvement in production and
pricing decisions, the sharing of facilities or employees, or
significant transactions between the affiliated producers.
Petitioners cite cases (see FAG Kugelfischer v. United States, 932
F. Supp. 315 (CIT 1996); Nihon Cement Co., Ltd. v. United States, 17
CIT 400 (1993); Queen's Flowers de Colombia, et al., v. United States,
981 F. Supp. 617 (CIT 1997), in which the U.S. Court of International
Trade (the Court) upheld the Department's articulation of these
collapsing criteria. Petitioners believe that the central issue
according to the Court is ``whether parties are sufficiently related to
present the possibility of price manipulation.'' Petitioners believe
there is significant potential for manipulation of price or production
between CSN and USIMINAS/COSIPA. Petitioners state that this potential
stems from the high level of common ownership, common members on the
boards of directors, and intertwined operations, and is reflected in
the ongoing price fixing investigation of CSN, USIMINAS and COSIPA by
the Brazilian government (see USIMINAS' Sales Verification Report, page
9 and COSIPA's Sales Verification Report, pages 5-6 for a discussion of
the ongoing price-fixing investigation).
With respect to intertwined operations, petitioners cite several
factors. They argue that there is a connection between USIMINAS and CSN
through a third company in the United States. CSN is affiliated with
this third company by way of two companies in which it has equity.
USIMINAS also has a relationship with this third U.S. company through a
commercial agreement. Petitioners believe there is potential for CSN
and USIMINAS to use this common tie to manipulate U.S. prices.
Additionally, petitioners believe that respondents' joint purchase of
coal, common ownership in MRS Logistica (a railroad transport company),
and a common source of inputs demonstrate operational links.
Petitioners include iron ore among the common inputs, arguing that just
as USIMINAS/COSIPA purchases iron ore from CVRD, a statement by Mr.
Steinbruch in ``CSN Denies Cartel Charges,'' American Metal Market
(March 1, 1999) indicates that CSN does so as well.
In conclusion, petitioners argue that respondents' nearly identical
production facilities and products, common equity ownership, shared
board members, the on-going price-fixing investigation, and intertwined
operations all indicate that there is a significant potential for price
or production manipulation. Petitioners also believe that these factors
are similar to those relied upon in prior determinations such as Final
Results of Antidumping Duty Administrative Review: Certain Fresh Cut
Flowers from Columbia, 61 FR 42833, 42853, (August 19, 1996), (Fresh
Cut Flowers) and Final Results of Antidumping Duty Administrative
Review: Gray Portland Cement and Clinker from Mexico, 64 FR 13148,
13151 (March 17, 1999) and Final Determination of Sales at Less than
Fair Value: Stainless Steel Wire Rod from Sweden, 63 FR 40449, 40453-54
(July 29, 1998) in which the Department collapsed respondents.
While respondents did not address the issue of collapsing CSN with
USIMINAS/COSIPA, they did argue that USIMINAS and COSIPA should not be
collapsed for this investigation. See Comment 17.
Department's Position: The Department has determined that USIMINAS
and COSIPA should be collapsed for margin calculation purposes (see
Comment 17). To collapse CSN with USIMINAS/COSIPA, as petitioners
suggest, requires that we first find that CSN and USIMINAS/COSIPA are
affiliated parties within the meaning of section 771(33) of the Act.
Because we find that USIMINAS/COSIPA is not affiliated with CSN, we
have not collapsed these entities for purposes of this investigation.
The issue of whether CSN is affiliated with USIMINAS/COSIPA, is
governed by section 771(33) of the Act, which deems the following
persons to be affiliated: (A) Members of a family; (B) any officer or
director of an organization and such organization (C) partners; (D)
employer and employees; (E) any person directly or indirectly owning,
controlling, or holding with power to vote, 5% or more of the
outstanding voting stock or shares of any organization and such
organization; (F) two or more persons directly or indirectly
controlling, controlled by, or under common control with, any person;
and (G) any person who controls any other person and such other person.
For purposes of this provision, a person controls another person if the
person is in a position to exercise restraint or direction over the
other person. Petitioners arguments for finding USIMINAS/COSIPA and CSN
affiliated appear to be based on subparagraphs (E), (F) and (G) of
section 771(33) of the Act.
Pursuant to section 771(33)(E), the Department examined CSN's
ownership interest, direct or indirect, in USIMINAS (USIMINAS/COSIPA
does not own or control any shares in CSN). CSN owns a 31% equity
interest in
[[Page 38763]]
Valepar, which owns 27%, 42%, or 52% of CVRD, depending on which of the
sources submitted in this investigation is used. Throughout the POI,
CVRD, in turn, had a 15.48% interest in USIMINAS. Even assuming the
highest possible percentages of equity ownership by CSN in Valepar, by
Valepar in CVRD, and by CVRD in USIMINAS, CSN would own well under 5%
of USIMINAS. Based on this evidence, CSN and USIMINAS/COSIPA are not
affiliated within the meaning of section 771(33)(E) of the Act.
With respect to affiliation based on control, petitioners have not
clearly identified which entities they believe are in a position to
exercise control over CSN and USIMINAS (or USIMINAS/COSIPA) or on which
specific subparagraph (F or G) of section 771(33) they are relying in
their analysis. Therefore, we have analyzed petitioners comments under
both section 771(33)(F) and (G).
In accordance with section 771(33)(F), we first examined whether
the record establishes common control over these entities by Mr.
Steinbruch, CVRD, or Previ as separate entities. Assuming arguendo that
we were to conclude that Mr. Steinbruch, as chairman of CSN's board of
directors, controls CSN, the record contains no evidence that he
controls USIMINAS.
CVRD is affiliated with both CSN and USIMINAS under section
771(33)(E). CVRD directly owns more than 5% of USIMINAS (15.48% of the
voting shares) and indirectly owns, through its holdings in Docenave,
more than 5% of CSN (10.3% of the voting shares). However, CVRD does
not control both CSN and USIMINAS. Mr. Gabriel Stoliar, the CEO of
CVRD, serves on the eight-to-ten-member boards of both CSN and
USIMINAS. In addition, CVRD appoints an additional board member at
USIMINAS and through Docenave (in which CVRD is the majority
stockholder), appoints one at CSN. However, Brazilian law prohibits
board members from representing any other company's interests while
serving on the board of a different company. See USIMINAS' Sales
Verification Report at 5-6 and COSIPA's Sales Verification Report at 2.
In addition, the record indicates that the USIMINAS board of directors
(the ``administrative council'') is responsible for macroeconomic
issues such as large investment matters and does not control daily
operations. See USIMINAS' Sales Verification Report, at 5. Finally,
CVRD is not a member of the USIMINAS shareholder's agreement, whose
members control 53% of the voting stock of that company. The Department
finds that, under the circumstances of this case, CVRD is not in a
position to control USIMINAS within the meaning of section 771(33) of
the Act. Because CVRD does not control USIMINAS, it cannot exercise
common control over both CSN and USIMINAS within the meaning of
subsection (F). Therefore, the issue of whether CVRD controls CSN is
moot for purposes of this analysis.
Previ, like CVRD, is affiliated with both CSN and USIMINAS through
equity ownership. However, subsection (F) requires a finding of common
control, not merely of common affiliation. Previ is not a member of the
USIMINAS shareholders' agreement, which controls 53% of the voting
stock of that company. Nor is there other evidence that Previ is in a
position to control USIMINAS. Because the record evidence does not
establish that Previ is otherwise in a position to control USIMINAS, we
find that CSN and USIMINAS are not affiliated by virtue of common
control by Previ.
The SAA recognizes that, even in the absence of an equity
relationship, control may be established ``through corporate or family
groupings'' (see SAA at 838), i.e., a corporate or family group may
constitute a ``person'' within the meaning of section 771(33) of the
Act. See Ferro Union v. United States, Slip Op. 99-27 (Ct. of Int'l
Trade, March 23, 1999). In such a case, the control factors of
individual members of the group (e.g., stock ownership, management
positions, board membership) are considered in the aggregate.
Accordingly, the Department considered whether USIMINAS and CSN are
affiliated by virtue of common control by a corporate or family group.
Petitioners allege that the Steinbruch family controls the ``CSN/
CVRD group.'' However, there is no record evidence that the family
controls USIMINAS. Therefore, there is no basis to find CSN and
USIMINAS affiliated through common control by the Steinbruch family.
What constitutes a ``corporate group'' for purposes of the
affiliation analysis is not defined; the Department must address the
issue on a case-by-case basis. The cases in which the Department has
recognized that affiliation exists by virtue of participation in the
same corporate or family group involved common control of the firms at
issue by members of the same family, the same group of investors, or
the same group of corporations. In other words, the ``control group''
language in the SAA does not add a new criterion to the statutory
definition of ``affiliation.'' It merely acknowledges that the
controlling entity of the ``common control'' provision can be something
other than a physical or legal person, and can exercise that common
control by means other than equity ownership. It does not allow for
treating all affiliation relationships as if they created new ``control
groups.'' With respect to USIMINAS and CSN, there is no such pattern of
common control. Although petitioners reference a variety of connections
between various other entities and CSN and USIMINAS, they do not
identify, nor do we find, any definable corporate group that controls
both CSN and USIMINAS. Thus, we do not have a basis in the record to
find affiliation under section 771(33)(F) of the Act.
With respect to section 771(33)(G) of the Act, petitioners have
again failed to clearly identify a basis for finding that CSN controls
USIMINAS (or USIMINAS/COSIPA), or vice versa. Petitioners appear to
argue that CSN and CVRD are a ``corporate group'' for purposes of the
affiliation analysis. While we agree that CSN and CVRD are affiliated,
that by itself is not sufficient to consider them a ``corporate group''
for purposes of an affiliation analysis. Moreover, even if the
Department were to treat CSN and CVRD as a corporate group, there is no
evidence that the alleged ``CSN/CVRD group'' controls USIMINAS within
the meaning of section 771(33)(G) of the Act. In some instances
petitioners appear to suggest that the corporate group includes not
only CSN and CVRD, but also Previ. However, we do not find a sufficient
basis in the record to treat CSN, CVRD and Previ as a corporate group
for purposes of the affiliation analysis.
Because the record evidence does not support a finding that
USIMINAS (or USIMINAS/COSIPA) and CSN are affiliated under any
provision of section 771(33), there is no basis to apply the collapsing
criteria in Sec. 351.401(f). Therefore, the Department has continued to
treat CSN and USIMINAS/COSIPA as separate entities for the purposes of
this investigation.
Comment 2: PIS/COFINS Taxes. To avoid duplication, USIMINAS/COSIPA
and CSN prepared a joint description of their PIS/COFINS tax argument
in CSN's Case Brief of April 16, 1999 (CSN's Case Brief). In their
argument, respondents note that section 773(a)(6)(B)(iii) of the Act
(``the tax adjustment provision''), as amended, ensures that the
Department makes a tax-neutral comparison when comparing normal value
to export price. This section of the statute achieves this end by
requiring the Department to adjust normal value by the amount of any
[[Page 38764]]
indirect taxes imposed on home market sales, but not on export sales.
Respondents state that, until recently, the Department considered
Brazil's Programa de Integracao Social (PIS) and Contribuicao do Fin
Social (COFINS) taxes to be indirect taxes that fall within the meaning
of the tax adjustment provision. The Department's change in its
treatment of these taxes, according to respondents, is based on a
factually incorrect assumption that these taxes apply to total gross
revenue and on a legally improper understanding of what indirect taxes
are.
Respondents point out that the statute and prior case law make
clear that three circumstances must exist for the tax adjustment
provision to apply to a particular tax. First, the tax must be
``directly'' imposed on the home market product. Second, it must be
rebated or not collected on export sales. Third, it must be added to or
included in the price of the home market sale. The fact that these
taxes are not imposed on exports has never been an issue. Thus,
respondents state that the only requirements of significance in this
review are the first and third requirements.
In failing to adjust respondents' home market price for Brazil's
PIS/COFINS taxes in the Preliminary Determination, respondents argue
that the Department incorrectly determined that ``these taxes are
levied on total revenues.'' Respondents state that until recently, the
Department consistently held that PIS/COFINS fall within the meaning of
the tax adjustment provision. Respondents cite numerous antidumping
cases from Brazil in support of their position that PIS and COFINS
should be deducted from home market price. See CSN's Case Brief, p. 7.
Respondents contend that in the Final Administrative Review of
Silicon Metal from Brazil, 62 FR 1970 (January 14, 1997)(Silicon Metal
from Brazil, 1997), the Department erroneously determined that PIS/
COFINS are analogous to two Argentine taxes previously determined not
to be indirect taxes within the meaning of the tax adjustment
provision. Respondents state that in the Final Determination of the
Less-Than-Fair Value Investigation of Silicon Metal from Argentina, 56
FR 37891 (August 9, 1991) (Silicon Metal from Argentina), the
Department refused to make an upward adjustment to U.S. price for two
Argentine taxes because these taxes were based on non-sales revenue as
well as sales revenue. The Department concluded that these taxes were
not ``directly'' imposed on Argentine sales within the meaning of
section 773(a)(6)(B)(iii) of the Act.
According to respondents, petitioners in Silicon Metal from Brazil,
1997 glossed over the fact that Brazilian and Argentine taxes are, in
fact, vastly different and asserted that PIS/COFINS are ``almost
identical'' to the two Argentine taxes. Respondents state that PIS/
COFINS are imposed only on a company's total domestic sales.
Respondents assert that CSN's Sales Verification Report and Exhibit 28
of the Report demonstrate that the basis for both PIS and COFINS is
gross sales (Receita Bruta de Vendas), minus credit billing
adjustments, canceled sales, and IPI, plus ``other'' sales revenue.
Respondents state that the accounting documents in Exhibit 28 further
demonstrate that it calculates its PIS and COFINS tax liability on
sales revenue alone. Moreover, respondents note that Brazilian law
specifies that the COFINS tax ``shall be two percent and charged
against monthly billing, that is gross revenues derived from the sale
of goods and services of any nature.'' (emphasis added). See CSN's
Supplemental Response--Sections B and C at Exhibit 9 (January 25,
1999). Likewise, the PIS tax represents 0.65% of invoicing--
``invoicing'' being defined as the ``gross revenue* * *originating from
the sale of goods from own account (sic), from the price of the
services rendered and from the result obtained from alien's (i.e.,
consignees) account.'' See Supplementary Law No. 70 of September 7,
1970. Since neither tax is based on non-sales revenue, respondents
maintain that PIS/COFINS are not ``gross revenue taxes'' and,
therefore, not analogous to the Argentine taxes in Silicon Metal from
Argentina.
In addition, respondents claim that the Department's decision not
to make an adjustment for PIS and COFINS is unsupported by any
accounting or economic analysis. The fact that PIS and COFINS sales
taxes are calculated on an aggregate basis as opposed to an invoice-
specific basis is irrelevant--the tax liability is the same. In
respondents' view, no basis exists to conclude that the manner of
calculating a tax disqualifies a tax from an adjustment under section
773(a)(6)(B)(iii) of the Act.
Respondents state that the Department has not, in any of its
decisions relating to this issue, identified any support for its
classification of a sales tax as a ``gross revenue tax'' simply because
it is calculated on an aggregate basis. As a result, respondents
reiterate that the taxes are based exclusively on home market sales and
for this reason the Department for almost two decades found these taxes
to qualify for a COS adjustment.
The third prong, inclusion of the taxes in the home market price,
is satisfied in the instant case--the Department has never based its
denial of the PIS/COFINS adjustment on a specific or explained finding
that the taxes were not included in the price and passed through to the
home market customer. Respondents note that in the Final Administrative
Review of Color Television Receivers from Korea, 49 FR 50420 (December
28, 1984), the Department made an adjustment for home market taxes
based on the conclusion that the taxes were fully passed through to the
home market customers. The ensuing court appeals upheld the
Department's practice of making an adjustment for home market taxes
under section 772(d)(1)(C) of the Act. See American Alloys, Inc. v.
United States, 810 F3d.1469, 1475 (Fed. Circ., 1994). Therefore,
respondents urge the Department to determine that PIS and COFINS are
included in the home market price, and passed through to home market
customers. In addition, respondents assert that in the Preliminary
Determination, the Department did not cite to any record evidence that
there is no pass-through. Nor did it prepare any questions related to
the pass-through aspect of these taxes in its questionnaires or at
verification. Since the Department never asked respondents to rebut any
newfound presumption that these taxes were not included in the home
market price to the customers, respondents believe the Department is
not justified in finding no pass-through in this investigation.
If the Department were to argue that PIS and COFINS are not
included in the price because they are not itemized on the invoice
(like the IPI and ICMS taxes), respondents maintain that it would be
wrong for two reasons: (1) PIS and COFINS were not itemized on the
Brazilian invoices in all the Department's previous investigations, yet
it always found that these taxes were included in the home market
price, and qualified for an adjustment. (2) Whether or not the tax is
itemized on the invoice is irrelevant to a pass-through finding. If the
tax is not itemized, it is included in the gross unit price.
Itemization on the invoice only indicates how the tax is calculated in
the accounting records of the company.
Respondents conclude that there is no justification for the
Department's preliminary decision to ignore the necessary deduction for
PIS and COFINS. The PIS/COFINS adjustment is consistent with Department
findings (except for recent erroneous decisions),
[[Page 38765]]
and decisions by the Courts. Moreover, there is no evidence on the
record to support a Department presumption that PIS/COFINS are not
included in the home market price. The PIS/COFINS adjustment is
required to ensure that the Department's LTFV comparisons are tax
neutral, as contemplated by the U.S. dumping law and Article 2.4 of the
WTO Antidumping Agreement.
Petitioners counter that the statute and the SAA clearly state that
downward adjustments to normal value may only be made for tax amounts
directly imposed upon sales of the foreign like product. See section
773(a)(6)(B)(iii) of the Act and SAA, pp. 827-828. In this case,
neither the PIS nor the COFINS is directly imposed on sales of the
foreign like product. To the contrary, petitioners maintain that these
taxes are based on income, not sales prices, and are imposed on all of
the company's domestic sales revenue, including service revenue, on an
aggregate basis. In fact, petitioners contend that neither PIS nor
COFINS appears to be a simple aggregation of sales revenue, as
suggested by respondents. COFINS tax liability is net of the ``tax on
industrialized goods,'' and as to PIS, it is not clear that PIS is
levied on sales revenues and exclusive of financial revenue. See
Rebuttal Brief of Schagrin Associates, p. 3, April 27, 1999.
According to petitioners, respondents bear the burden of creating a
record sufficient to support findings made by the Department.
Petitioners claim that the record in the instant case is devoid of
evidence that PIS and COFINS are fully passed through to purchasers.
Contrary to respondents' suggestion that the Department lacks an
understanding of indirect taxes, petitioners state that the Department
is ``intimately familiar with the way the PIS/COFINS taxes are imposed
and collected,'' and since mid-1997 has consistently disallowed claimed
adjustments to normal value for these taxes. See footnote no. 10, p. 4
of Dewey Ballantine Rebuttal Brief, April 26, 1999. Petitioners urge
the Department not to disturb its settled practice on this issue.
Department's Position: Petitioners are correct in stating that
since mid-1997 the Department has consistently disallowed claimed
adjustments to normal value for these taxes. Pursuant to section
773(a)(6)(B)(iii) of the Act, normal value of the merchandise will be
reduced by the amount of any taxes imposed directly upon the foreign
like product or components thereof which have been rebated, or which
have not been collected, on the subject merchandise, but only to the
extent that such taxes are added to or included in the price of the
foreign like product.
Respondents have not provided any evidence to support their claim
that the Department incorrectly concluded that the PIS and COFINS taxes
are taxes on gross revenue exclusive of export revenue and, thus, are
not imposed specifically on the merchandise or components thereof.
Information on the record demonstrates that the PIS and COFINS taxes
are taxes on gross revenue exclusive of export revenue. These taxes do
not appear to be imposed on the subject merchandise or components
thereof, and therefore, we have no statutory basis to deduct them from
NV. As in the most recent review of Silicon Metal from Brazil, 64 FR
6318 (February 19, 1999), (Silicon Metal from Brazil, 1999), the
Department has determined that a deduction of the PIS and COFINS taxes
is not correct in the calculation of NV because these taxes are levied
on total revenues (except for export revenues), and thus the taxes are
direct, similar to taxes on profit or wages. Therefore, we made no
adjustment for PIS/COFINS taxes in the calculation of the dumping
margin for this final determination.
Comment 3: Input Tax Credit. While petitioners made this comment
with respect to CSN, it also applies to USIMINAS/COSIPA. According to
petitioners, the Department inappropriately deducted the gross ICMS and
IPI tax amounts shown on CSN's sales invoices from CSN's reported home
market gross unit price. Petitioners believe that for the final
determination, the Department should deduct only the actual net ICMS
and IPI payments made by CSN to the state and federal governments from
CSN's reported home market gross unit prices. Petitioners cite the
statute, which states that normal value shall be reduced by ``the
amount of any taxes imposed directly upon the foreign like product* *
*, but only to the extent that such taxes are added to or included in
the price of the foreign like product.'' See section 773(a)(6)(B)(iii)
(emphasis added). The SAA reiterates petitioners' position: ``It would
be inappropriate to reduce a foreign price by the amount of the tax,
unless a tax liability had actually been incurred on that sale.'' See
Uruguay Round Agreements Act, Statement of Administrative Action, H.R.
Doc. No. 103-516, 103d Cong., 2d Sess. at 827-828. (emphasis added).
Petitioners argue that the actual net ICMS and IPI payments made by
CSN to the state and federal governments were significantly less than
the amounts reported by CSN in its home market database. First,
petitioners aver that CSN clearly stated in its Section B Response that
``the net liability is the amount of the IPI and ICMS owing on the sale
of the finished product, minus the credit for ICMS and IPI paid on raw
materials.'' (CSN Section B Response at B-23) (emphasis added). Second,
petitioners point out that both ICMS and IPI are value-added taxes
(VAT), meaning that they are intended to tax the value added by each
producer, not the full amount of the producer's sales value.
Petitioners suggest that CSN does not understand the nature of a VAT.
Finally, petitioners state that the Department's Sales Verification
Report clearly indicates that the actual ICMS and IPI tax payments made
by CSN to the state and federal governments were significantly less
than the gross tax amounts reported in the TAX1 and TAX2 fields of
CSN's home market database. Petitioners provide specific examples from
the Department's CSN Sales Verification Report at 35 to support this
conclusion.
CSN counters that petitioners' arguments for reducing the amount of
the adjustment to home market prices for ICMS and IPI taxes to account
for the credit received by manufacturers for ICMS and IPI paid on
inputs, are wrong both as a matter of fact and of law. CSN cites
section 773(b)(6)(B)(iii) of the Act and Daewoo Electronics Co. v.
United States, 6 F.3d 1511, 1513-14 (Fed. Cir. 1993) (Daewoo
Electronics) in support of its position that the statute requires an
adjustment ``to the extent to which the company bears the burden of
such taxes.'' The Court of Appeals of the Federal Circuit (CAFC)
stated:
To prevent the creation of dumping margins merely because the
country of exportation taxes home market sales but not exports, the
antidumping law provides an offsetting adjustment to the sales price
of the goods. . . . (emphasis added).
CSN notes that the court refused to engage in an inquiry into the
extent that the tax is ``passed through'' to the customer; if it is
imposed on the home market sale but not on the U.S. sale, it is fully
deductible.
CSN claims that the petitioners were selective in their reading of
the SAA. CSN states that according to petitioners, the quoted language
seeks only to distinguish between sales which incur a tax liability and
those which do not. CSN, however, maintains that the clear language of
the statute is to make sure that a fair comparison be made between
prices on the same basis. CSN concludes that there is nothing in either
the statute or the legislative history which requires
[[Page 38766]]
any inquiry into the amount of payment actually remitted by the
manufacturer.
However, CSN emphasizes that the steel companies, in fact, do incur
the full amount of ICMS and IPI imposed on the sale of their products.
In order to prevent the ``cascading'' of a tax, each processor is given
a credit for the tax it pays on the inputs it uses to produce the
product, so the tax that the manufacturer pays is no more than the tax
that is incident on the sale of the finished product. Citing the
antidumping statute, CSN notes that the tax is limited to ``the extent
that such taxes are added to or included in the price of the foreign
like product.''
According to CSN, petitioners are wrong in implying that value-
added taxes are somehow different from excise taxes when in fact the
courts have made clear that value-added taxes are to be treated in the
same manner as excise taxes when it comes to granting the adjustment
for indirect taxes. See Daewoo Electronics at 1517. In addition, CSN
maintains that petitioners' ultimate conclusion is wrong in that value-
added taxes do not ensure that a company's liability is less than the
amount of the tax on the product; on the contrary, it is only by the
credit against taxes paid on the inputs that the value-added tax
ensures that the manufacturer's liability is equal to the amount of the
tax on the product it manufactures.
Department's Position: We agree with CSN. To prevent the creation
of dumping margins merely because the country of exportation taxes home
market sales but not exports, the antidumping law provides an
offsetting adjustment to the sales price of the goods in the United
States. See section 773(a)(6)(B)(iii) of the Act.
The CAFC in Daewoo Electronics concluded that ``[i]f an exporter's
records show that a tax was either a separate ``add on'' to the
domestic price or, although not separately stated, was, in fact,
included in the price and that the taxes were paid to the government,
that satisfies the tax inquiry required by the statute for an
adjustment of the U.S. price.'' The CAFC further stated that the
statute does not speak to tax incidence, shifting burdens, or pass-
through, nor does it contain any hint that an econometric analysis must
be performed. The statutory language does not mandate that the ITA look
at the effect of the tax on consumers rather than on the . . . company.
The CAFC reasoned that as an unavoidable incident of any sale by the
company, these taxes can only be recouped in their entirety from
purchasers. Id. at 1517.
Section 773 (a)(6)(B)(iii) of the Act requires the deduction from
NV of any taxes imposed directly upon the foreign like product or
components thereof which have been rebated or which have not been
collected on the subject merchandise, but only to the extent that such
taxes are added to or included in the price of the foreign like
product. The SAA (see, Section B.2.c.(2), at 157)) explains that the
deduction of indirect taxes from NV constitutes a change from the
existing statute, which required the addition of the tax amount to the
U.S. price. The requirement that the home-market consumption taxes in
question be ``added to or included in the price'' of the foreign-like
product is intended to ensure that such taxes actually have been
charged and paid on the home market sales used to calculate NV, rather
than charged on sales of such merchandise in the home market generally.
As the SAA states, ``[it] would be inappropriate to reduce a foreign
price by the amount of the tax, unless a tax liability had actually
been incurred on that sale.'' At verification, we verified the amount
of ICMS and IPI taxes CSN reported for home market sales used to
calculate NV. Besides tracing CSN's monthly payments to the government
for these taxes from CSN's fiscal accounts to the proof of payment
form, in the course of our home market sales traces, we verified that
the ICMS and IPI taxes were included on each home market sale invoice.
See Exhibits 25 and 29 of CSN's Sales Verification Report.
In sum, the Department is treating consumption taxes in a manner
consistent with its longstanding policy (i.e., calculating tax-neutral
dumping margins), and in conformity with the statute as amended by the
URAA. Since the reported home market gross unit price includes ICMS and
IPI taxes, as demonstrated at verification, we have continued to deduct
the full amount of these taxes from the home market price in order to
achieve parity between the reported U.S. price, exclusive of taxes, and
the NV of the comparison model.
Comment 4: Quality Designations. Though petitioners commented on
CSN's quality designations, USIMINAS/COSIPA also submitted additional
quality fields. Therefore, in the Department's Position below, we have
addressed both companies' quality designations.
In petitioners' opinion, the Department should not allow CSN to
adopt two additional quality designations: American Petroleum Institute
(API) quality (code 9) and automotive wheel quality (code 10).
According to CSN, code 9 is produced to API standards for oil
pipelines, has a high silicon content, and very clean edges to ensure a
tight weld. Petitioners note that end use is irrelevant and the limited
information on the record indicates that this quality of steel is
already identified by the Department's quality designation ``1'' (i.e.,
``High Strength Low Alloy''). According to petitioners, the American
Society of Testing and Materials (ASTM) specification A 572 is within
quality code ``1'' and contains the ``high silicon content'' that CSN
claims is limited to its API quality products. Moreover, petitioners
state that CSN's claims regarding the ``very clean'' or ``purified''
nature of this quality steel is equally inappropriate for requiring a
separate quality designation. They state that CSN's claim that all its
products are ``either aluminum killed or a combination of aluminum
killed and silicon'' applies equally to the ASTM A 572 family of
steels.
With respect to CSN's claims regarding the need for an automotive
wheel quality designation (code ``10''), petitioners assert that this
separate designation is based on end use and the Department's existing
quality designations confirm that application or use is not the
determining factor in distinguishing quality designations. Furthermore,
petitioners state that steel products with these characteristics are
already separately identified in quality code ``6'' (i.e., deep
drawing, whether or not fully stabilized (interstitial-free) or special
killed; pressure vessel) is comprised almost exclusively of steels with
low silicon content, mechanical strength, and formability.
For the foregoing reasons, petitioners recommend that the
Department revise CSN's quality designations so that quality
designation ``9'' is revised to ``1'' and quality designation ``10'' is
revised to ``6''. Furthermore, they state that the cost dataset should
be revised to weight-average the cost of CONNUMS that are identical but
for quality code ``1'' and ``9'', and ``6'' and ``10,'' respectively.
If this approach proves too difficult to program, petitioners recommend
that the Department use the higher of the two reported cost amounts.
Respondents did not comment on this issue.
Department's Position: We agree with petitioners. We believe that
the quality codes designated by the Department in its initial
questionnaire to the respondents adequately cover the different
classifications possible for hot-rolled flat-rolled carbon-quality
steel products. Therefore, we have designated the quality code ``9'' as
quality code ``1'' and quality code ``10'' as quality code
[[Page 38767]]
``6'') and adjusted the cost of the CONNUMS accordingly. See Analysis
Memo for CSN.
USIMINAS/COSIPA also adopted four additional quality designations
which we believe are adequately covered by the codes designated by the
Department in its initial questionnaire. We have changed the new codes
created by them and matched each one to the correct code among the
eight originally designated by the Department. We have, therefore,
changed codes ``9'' and ``11'' to code ``3'' and codes ``10'' and
``12'' to code ``4'' and adjusted the cost of the CONNUMS accordingly.
See USIMINAS/COSIPA's Analysis Memo.
II. Company Specific Sales Comments
CSN
Comment 5: Date of Sale. Petitioners argue that for sales to the
United States, the commercial invoice date is not an appropriate date
of sale for CSN in this investigation. Rather, the record in this case
overwhelmingly indicates that the date of the order confirmation is the
date when the material terms of sale are established and, therefore,
should be used as the date of sale.
Although the Department's regulations provide that the date of sale
will normally be the invoice date, petitioners state that, as a general
rule, the date of sale may not occur after the date of shipment (see
Department Questionnaire, B-16, n.7 (``no date occurring after the date
of shipment, including invoice may be used as the ``date of sale''').
Moreover, petitioners note that a date other than invoice date may be
used where ``a different date better reflects the date on which the
exporter or producer establishes the material terms of sale.'' See
Preliminary Results of Antidumping Duty Administrative Review of
Circular Welded Non-alloy Steel Pipe from Korea, 62 FR 64559, 64560
(December 8, 1997).
Petitioners point out that in its Preliminary Determination the
Department stated that ``in most cases, the U.S. date of sale reported
by respondents is after the date of shipment of the product from the
factory. Because it is the Department's practice to use shipment date
as the latest date of sale, the Department is using the ex-factory
shipment date as the date of sale for U.S. sales in those cases in
which the commercial invoice date is later.'' See Preliminary
Determination, p. 8304. Petitioners term the Department's practice of
not using a date of sale after shipment as ``appropriate,'' because it
reflects the common sense notion that a producer does not ship a
product, particularly one made to order, without agreement on the
material terms of sale.
Petitioners term the selection of the date of the ``nota fiscal''
(i.e., the ex-factory date) as the Department's ``default'' date of
sale methodology. However, in petitioners'' view, the ex-factory date
evinces no particular establishment of the material terms of sale.
According to petitioners, the record in this investigation indicates
that the material terms for CSN's U.S. sales were established at the
order confirmation date. To support their position, petitioners cite
CSN's Section A submission, which states that the order confirmation is
computer generated and ``sets forth the general terms of sale, and
specifies...the product type, weight, weight tolerance, price,
delivery, destination and other terms and conditions for sale.'' See
Section A of CSN's Questionnaire Response (November 11, 1998), p. 27.
Moreover, petitioners note that a discussion of the sales process with
company personnel at verification confirmed that material terms of sale
are established by negotiation of price and quantity, the specific
terms of which are confirmed by fax to the customer. See CSN's Sales
Verification Report, p. 9).
CSN's U.S. shipment data also supports order confirmation as the
date of sale, according to petitioners. They point out that for a large
majority of CSN's U.S. sales, the quantities shipped met the order
confirmation terms, and even where the quantities shipped exceeded
contract quantity tolerances, there appeared to be no change in the
unit price for the merchandise. Petitioners note that order date is
available for most CSN sales and non-adverse facts available can be
used for those instances where the date is not available.
Petitioners conclude that invoice date is not an acceptable date of
sale and shipment date is simply an arbitrary construction which does
not reflect the evidence of record. Therefore, the Department should
use order confirmation date as the date of sale for CSN's sales to the
United States.
CSN maintains that the Department should continue to use the nota
fiscal date as the home market date of sale and use the commercial
invoice date as the U.S. date of sale. CSN notes that petitioners seem
to acquiesce in the use of nota fiscal date as the date of sale for
home market sales. It is CSN's opinion that petitioners are briefing
the U.S. date of sale because (a) an earlier U.S. date of sale will
move the universe of POI sales to the United States forward so as to
capture invoices issued after the POI and (b) CSN's failure to report
sales with nota fiscal or commercial invoice dates outside the POI
could result in application of facts available.
CSN states that the commercial invoice date is the only appropriate
date of sale for U.S. sales because it is the earliest date by which
the material terms of sale are finalized. To support its position CSN
notes the following: (1) The fact that quantity tolerances are often
exceeded is enough to establish a post-order confirmation date of sale
(see, e.g., Final Results of Administrative Review of Certain Welded
Carbon Steel Pipes and Tubes from Thailand, 63 FR 55578, 55588 (October
16, 1998)); (2) use of the order confirmation date is not practicable
for CSN because it is not maintained in the computer system for more
than a few months, after which point, the numbers are reused; (3) the
only purpose of the nota fiscal is to accompany the over-land shipment
from the mill to the port, in conformity with Brazilian law; (4) once
at the port, a product originally destined for one market can be
diverted to another market; and (5) as verified by the Department,
``the commercial invoice is issued after the coils are in the hold of
the ship and, therefore, at that time it is definitely an export
sale.'' See CSN's Sales Verification Report, p. 9.
CSN, therefore, stands by its position that the only appropriate
U.S. date of sale is the date of the commercial invoice. To the extent
that the commercial invoice date is after the ex-port shipment date,
CSN suggests that the Department use the ex-port shipment date as an
alternative date of sale.
In an issue related to the selection of the date of the U.S. sale,
petitioners believe that the Department should apply facts available to
those sales CSN failed to report based on the date of shipment from the
factory. Although CSN claimed that the date of invoice from its
affiliate CSN Cayman/Overseas was the most appropriate date for
determining date of sale, petitioners note that the Department used the
date of shipment from the mill as the date of sale in its Preliminary
Determination. Petitioners state that this information was obtained as
a result of a request in the Department's supplemental questionnaire.
Petitioners claim that the Department discovered at verification
that CSN had failed to report all sales based on date of shipment from
the factory, and subsequently requested that CSN provide the additional
sales information. Petitioners argue that because this information was
provided late and contains fundamental flaws (i.e.
[[Page 38768]]
lack of CONNUM designation, price adjustment amounts), the Department
should reject it and employ the highest calculated margin to these
sales. See section 776(a)(1995) of the Act.
Department's Position: We agree with CSN that the order
confirmation date is not the appropriate date of sale. We have
determined that the nota fiscal date is the home market date of sale.
For U.S. sales, we have continued to use the ex-factory shipment date
as the date of sale because the commercial invoice date, the date CSN
reported as the date of sale, is after shipment from the factory.
The Department considers the date of sale to be the date on which
all substantive terms of sale are agreed upon by the parties. This
normally includes the price, quantity, delivery terms and payment
terms. In accordance with 19 CFR 351.401(i), the date of sale will
normally be the date of the invoice, as recorded in the exporter's or
producer's records kept in the ordinary course of business, unless
satisfactory evidence is presented that the exporter or producer
establishes the material terms of sale on some other date. In some
instances, it may not be appropriate to rely on the date of invoice as
the date of sale, because the evidence may indicate that the material
terms of sale were established on some date other than the invoice
date. See Preamble to the Department's Final Regulations at 19 CFR part
351 (``Preamble''), 62 FR 27296 (1997); Final Determination of Sales at
Less Than Fair Value; Polyvinyl Alcohol from Taiwan, 61 FR 14067 (March
29, 1996). Further, in submissions throughout this investigation, CSN
has reiterated the fact that the date of the order confirmation is not
maintained in its computer system, hard copies are not always kept, and
the order confirmation numbers are reused after a few months.
Department staff verified the accuracy of these statements (see CSN's
Sales Verification Report, pp. 9-11).
The Department does not consider dates subsequent to the date of
shipment from the factory as appropriate for date of sale. We also
disagree with CSN's assertion that invoice date or export shipment date
most appropriately represent date of sale. Because the commercial
invoice date reported by CSN as its U.S. date of sale falls after the
date of shipment of the product from the factory, the Department is
continuing to use the ex-factory shipment date as the date of sale for
its U.S. merchandise. CSN reported the date of the nota fiscal (i.e.,
the ex-factory shipment date) of its U.S. sales in its supplemental
submission. However, although we gave CSN ample opportunity to report
the dates of all potential dates of sale, including order confirmations
and notas fiscais issued during the POI, CSN elected not to submit the
requested data in its entirety.
In our supplemental questionnaire to CSN's Section A Response
(December 4, 1998), we requested that CSN report:
all sales for which ``the order confirmation date (or comparable
date if data on order confirmation does not exist) was within the
POI. If you believe another date is a more appropriate date of sale,
you should provide all sales during the POI based on order
confirmation date, using alternative production or accounting
records, and the other date (provided the other date is not after
the merchandise is shipped from the plant). (emphasis added)
In our January 4, 1999 Supplemental Questionnaire to Sections BCD,
we repeated this question and added:
If CSN chooses not to report order confirmation date, and we
determine at verification that this information is available and is
a more appropriate date of sale than that reported, CSN may be
subject to the use of adverse facts available pursuant to section
776 of our statute.
In its response to this submission (January 25, 1999), CSN did
provide the dates of the U.S. notas fiscais, but only those dates
associated with the commercial invoices issued during the POI. In their
pre-verification comments, petitioners requested that at verification
the Department examine those sales shipped from the factory, but not
invoiced during the POI (see, Dewey Ballantine's Letter to the
Secretary, March 8, 1999). Accordingly, the Department specifically
requested this information in its verification outline. At
verification, CSN prepared a printout of the quantity and value of
those U.S. sales which left the mill (i.e., which had a nota fiscal
date) during the POI, but were not invoiced until after the POI (see
Exhibit 27 of CSN's Sales Verification Report), which represent
unreported U.S. sales.
Since CSN failed to follow explicit instructions in the
questionnaire, or to contact the Department to determine whether an
alternate reporting basis was appropriate, we find that CSN did not
cooperate to the best of its ability. Therefore, as adverse facts
available, we are applying the highest calculated margin to those U.S.
sales. The Department finds that this margin is indicative of CSN's
customary selling practices and is rationally related to the
transactions to which the adverse facts available are being applied.
Comment 6: Affiliation. Petitioners contend that despite explicit
instructions in the Department's questionnaire to report U.S. prices
that are ``calculated from the price at which the subject merchandise
is first sold to a person not affiliated with the foreign producer or
exporter,'' CSN inappropriately reported as its ultimate U.S. price the
transaction between itself and a trading company to which CSN has
numerous connections. Petitioners note that in response to the
Department's request for additional information on the relationship
between CSN and this customer, CSN stated that its customer is ``simply
a trading company that receives a commission from its suppliers.'' See
Section A of CSN's Supplemental Response, January 19, 1999, p. 41.
Petitioners claim that CSN failed to inform the Department that the
person who manages the trading company's daily operations is also a
board member of both CSN and the trading company's controlled
subsidiary, Emesa, which, petitioners point out, CSN acknowledges as a
``related party.'' According to petitioners, the fact that the manager
of the trading company's operations is ``required by law to act in the
best interest of CSN'' further demonstrates an affiliation between the
two parties. Petitioners assert that, faced with similar circumstances
in the past, the Department not only deemed companies to be affiliated,
but also collapsed companies, based on overlapping board involvement by
senior managers. In support of their position, petitioners cite the
Final Results of New Shippers Antidumping Duty Administrative Review of
Certain Welded Carbon Standard Steel Pipes and Tubes From India, 62 FR
47632, 47639 (September 10, 1997) (Steel Pipes and Tubes From India).
In addition, petitioners note that CSN's Sales Verification Report
reveals a surprising similarity in terminology between Brazilian GAAP's
definition of a related party and the Act's definition of an affiliated
entity (see Exhibit 2a, p. 4 and 771(33) (1995) of the Act). As stated
under Brazilian GAAP, petitioners claim that CSN's transactions with
the trading company should also be described as ``lacking the
independence that characterizes the transactions with independent third
parties.'' Ibid. Petitioners also contend that the language of the
Brazilian GAAP suggests other undisclosed links between the two
parties. For example, even though CSN has stated that there is no
controlling relationship between itself and the trading company's
subsidiary, Emesa, CSN's 1998 Financial Statement indicates that Emesa
is related to CSN. Moreover, petitioners note that CSN's disclosure of
[[Page 38769]]
the trading company's subsidiary as a related party is in isolation.
The important point, according to petitioners is that the subsidiary is
defined as a related party even though CSN did not fully disclose why
it was deemed a related party.
Petitioners conclude that the evidence on the record indicates that
the Department should not base its final determination on the reported
transaction prices between CSN and the trading company. Rather, the
Department should resort to adverse facts available and apply the
highest transaction margin in the petition or the highest calculated
transaction margin to these sales.
CSN rejects petitioners' conclusion that the trading company and
CSN are affiliated because a customer of CSN owns a percentage of
Emesa, which in turn owns 1.1% of CSN. The fact that one of the
officers of the trading company sits on the boards of both Emesa and
CSN is equally unconvincing in CSN's view.
CSN contends that petitioners' reasoning cannot possibly lead to a
determination that Emesa, with only 1.1% of CSN shares, controls CSN.
Moreover, CSN notes that Emesa must vote with the majority of the
parties to the shareholders' agreement and consequently has as little
power as other shareholders with similar percentage holdings in CSN.
According to CSN, the critical question regarding Mr. Netto's
position as an officer of the trading company and a member of CSN's
board, is whether Mr. Netto is in a position to control both companies.
While Mr. Netto may be able to control the trading company, CSN
maintains that he has no ability to control CSN because Emesa, the
company he represents, holds only 1.1 % of CSN shares.
Furthermore, CSN argues that evidence on the record shows that CSN
board members play no role in setting prices (see CSN's Sales
Verification Report, pp. 4-5). To confirm this statement, CSN ran the
traditional arm's length test used by the Department and found that
sales to this customer passed the test, i.e., the prices charged to
this company were not lower than the prices charged to its other U.S.
customers.
For all the above reasons, CSN urges the Department to use the U.S.
sales data as reported by CSN (i.e., CSN's sales to the trading
company) and not require CSN to report the resales of the trading
company.
Department's Position: We agree with CSN. Section 771(33) of the
Act provides that the following persons are affiliated: (A) Members of
a family; (B) any officer or director of an organization and such
organization; (C) partners; (D) employer or employee (E) any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting stock or shares of any
organization and such organization; (F) two or more persons, directly
or indirectly controlling, controlled by, or under common control with,
any person; (G) any person who controls any other person and such other
person.
An examination of each of these criteria results in the conclusion
that the trading company and CSN are not affiliated pursuant to section
771(33) of the Act. The relationships among the trading company, Emesa,
and CSN, and the connection that Mr. Netto has to each as a board
member of CSN and a corporate officer of the trading company and of
Emesa provide, the basis for petitioners' conclusion that CSN and the
trading company are affiliated. First, section 771(33)(A) of the Act is
inapplicable because evidence on the record does not reveal any
familial ties among the three entities and Mr. Netto. Nor is the
relationship between CSN and its customer, the trading company, one of
a partnership or employer or employee within the meaning of sections
771(33)(C) and (D) of the Act.
As a corporate officer of the trading company and a member of CSN's
board, the Department considers Mr. Netto affiliated to the trading
company and CSN pursuant to section 771(33)(B) of the Act. As a
corporate officer of the trading company, Mr. Netto may be able to
control that entity within the meaning of section 771(33), but he is in
no position to control CSN because Emesa, the company he represents on
CSN's board, holds only 1.1% of CSN's shares. We find this percentage
ownership, even with Emesa's participation in CSN's shareholders
agreement, insufficient to establish that Emesa is in a position to
control CSN, as required under section 771(33)(F) or (G) of the Act.
Moreover, Mr. Netto is obligated to vote with the majority of the
parties to the shareholders' agreement and has little say in the
operations of CSN. Mr. Netto's affiliation with the trading company and
CSN does not put him in a position to control CSN or Emesa, even though
he is on the board of each of these companies.
Finally, section 771(33)(E) of the Act, which considers any persons
or parties affiliated if they directly or indirectly own, control, or
hold with power to vote 5% or more of the outstanding votes in a
company, does not apply. Although Emesa is considered a subsidiary of
the trading company, its 1.1% voting share in CSN's stock does not meet
the statutory criteria.
In conclusion, we find no basis for affiliation between CSN and its
customer, the trading company. Petitioners' reliance on the similarity
between the Brazilian GAAP's definition of a ``related party'' and the
Act's definition of an ``affiliated party'' is irrelevant. A similarity
in the definition of two words does not necessarily give them the same
meaning, especially when applied in different circumstances.
Petitioners provide no support for their conclusion that CSN's dealings
with the trading company ``lack independence.'' Finally, the fact that
CSN's 1998 financial statement indicates that Emesa is related to CSN
does not establish that CSN is affiliated with the trading company
within the meaning of section 771(33) of the Act.
Therefore, for this final determination, we are using the U.S.
sales between CSN and the trading company as reported by CSN.
Comment 7: Commissions. Petitioners object to CSN's
characterization of a certain payment directly to CSN's customer as a
``commission,'' when, in fact, it is a rebate or discount. According to
petitioners, when customers receive payments from suppliers, those
payments cannot be classified as commissions unless the party that
receives the payment is functioning solely as a commissionaire and not
as a purchaser--which is not the case in this instance. Petitioners
state that there is no dispute in this investigation that the so-called
``commission agent'' is affiliated with the U.S. customer. Therefore,
petitioners contend that the Department should follow its practice of
treating payments made directly to the U.S. customer or to a customer's
affiliate as a rebate or discount, not a commission. Petitioners cite
the Preliminary Determination of Sales at Less-than-Fair-Value; Open-
End Spun Rayon Singles Yarn from Austria, 62 FR 14399, 14401 (March 26,
1997), (Preliminary Determination of Spun Rayon Singles Yarn) in
support of their position.
CSN claims that petitioners' reading of this case improperly
suggests that the Department's analysis focuses entirely on whether an
unaffiliated purchaser resells subject merchandise to a party with whom
that purchaser is affiliated. CSN notes that petitioners conceded that
the Department reversed its preliminary determination to treat the
commission as rebates in the Final Determination of Sales at Less Than
Fair Value of Open-End Spun Rayon Singles
[[Page 38770]]
Yarn From Austria, 62 FR 43708-09 (August 15, 1997) (Final
Determination of Spun Rayon Singles Yarn) after it learned that the
unaffiliated purchaser indeed acted as a commissionaire. CSN claims
that contrary to what petitioners suggest, the Department did not
reverse its treatment of the commission from the Preliminary
Determination to the Final Determination of Spun Rayon Singles Yarn
solely because the selling agent and the selling agent's customer were
unaffiliated, but because the unaffiliated selling agent ``performed
the functions of a commission agent'' and because the respondent made
``payments directly to the selling agent for services rendered in the
sales transaction'' See Id.
CSN states that it pays a commission directly to the affiliate of
its ultimate customer, not to these companies' customers, for the
selling services these companies perform for CSN (e.g., handling the
paperwork involved in a sale). Moreover, CSN directly invoices the
ultimate customers and consistently refers to the payments it makes to
these two parties as commissions in its accounting records.
CSN also rejects petitioners' claim that its payments to another
customer for sales services are rebates because the party is a
customer, not a commissionaire. According to CSN, this party earns the
commission by establishing a portion of CSN's export business in the
United States and handling sales paperwork and claims that arise from
that portion of CSN's export business. For these reasons, and the fact
that CSN refers to these payments as commissions in its questionnaire
responses and its accounting records, CSN maintains that the Department
was correct in treating these payments as commissions.
Department's Position: We agree with CSN. Generally speaking, a
commission is a payment to a sales representative for engaging in sales
activity. See, e.g., Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof From France, et al.; Final Results of
Antidumping Duty Administrative Reviews, and Revocation in Part of the
Antidumping Duty Orders, 60 FR 10900, 10914 (February 28, 1995). A
discount is a reduction in price to a customer, while a commission is a
form of payment for services. Therefore, the issue is not whether or
not the trading company is affiliated with the customer but whether
there was one transaction between CSN and the ultimate customer in
which the trading company acted as sales agents for a commission; or
whether there were two transactions, one in which the trading company
bought from CSN and received a discount on the price for that initial
sale and subsequently resold the merchandise to the ultimate purchaser.
See Certain Cold-Rolled Carbon Steel Flat Products from Germany; Final
Results of Antidumping Duty Review 60 FR 65264, 65277-8 (December 19,
1995); Certain Carbon Steel Products from Austria; Final Determination
of Sales at LTFV, 50 FR 33365 (August 19, 1985).
The general purpose and administration of the payments at issue is,
in most instances, consistent with the characteristics of commissions
to trading companies outlined in the Final Determination of Sales at
Less-Than-Fair Value: Stainless Steel Angle from Japan, 60 FR 16608,
16611 (March 31, 1995): The Department has recognized that commissions
paid to trading companies have certain characteristics: (1) They are
agreed upon in writing, (2) they are earned directly on sales made,
based on flat rates or percentage rates applied to the value of
individual orders, (3) they take into consideration the expenses which
a trading company incurs, and (4) they take into consideration the
sales and marketing services performed by a trading company in lieu of
an exporter/manufacturer establishing its own larger sales force. See
Gray Portland Cement and Clinker From Japan; Final Results of
Antidumping Duty Administrative Review, 61 FR 67308-67318 ( December
20, 1996) and Oil Country Tubular Goods from Austria, 60 FR 33551 (June
28, 1995) (OCTG from Austria).
Although CSN does not maintain general commission agreements with
either the agents or with the trading companies it uses, the commission
rate is negotiated on a sale-by-sale basis and is referenced on the
``production order'' that CSN issues upon receiving an order from a
client. See Document B in Exhibit 5 of CSN's Section A Response.
Commissions are normally set at given rates prior to sale. During
the POI, CSN's commission rate remained constant, regardless of the
price of the individual sale or the trading company involved. The
trading companies used for sales of the subject merchandise performed
the functions of a commission agent. CSN characterizes its payments to
these trading companies as recognition for services performed in the
sales process. As such, they are by nature sales commissions (see OCTG
From Austria).
Each U.S. sale involved one transaction between CSN and its U.S.
customer. CSN, through CSN Overseas or CSN Cayman, invoiced the U.S.
customer directly. The U.S. customer, not the selling agent, paid for
the merchandise. If CSN had paid the ``commission'' to the ultimate
unaffiliated U.S. customer the expense would be considered a discount
on the price between the U.S. customer and CSN. CSN paid the trading
companies a commission in a separate transaction for services rendered.
Moreover, at verification we established that the payments CSN made to
the trading companies during the POI were administered and documented
as commissions in CSN's accounting records. See CSN's Section A
Response to the Department's Questionnaire, Exhibit 5.
Comment 8: Overruns. Petitioners maintain that, consistent with its
prior practice, the Department should not include overrun sales in its
calculation of normal value because these sales are not in the ordinary
course of trade.
In CSN's opinion, the fact that these products are sold out of
inventory does not make them a different product from that which is
produced to order. CSN concedes that if the product were non-prime
quality, petitioners would have a good argument. However, CSN states
that these products are mostly prime-quality merchandise. CSN maintains
that the fact that these products are sometimes sold at a discount is
no reason to exclude them.
Department's Position: We agree with respondent. To determine if
sales or transactions are outside the ordinary course of trade, the
Department evaluates all of the circumstances particular to the sales
in question. Examples of sales that we might consider outside the
ordinary course of trade are sales involving off-quality merchandise or
merchandise produced according to unusual product specifications,
merchandise sold at aberrational prices or with abnormally high
profits, merchandise sold pursuant to unusual terms of sale, or
merchandise sold to an affiliated party at a non-arm's length price.
See 19 CFR 351.102.
In its questionnaire response, CSN stated that it generally
produces to order. Sometimes, however, the company runs coil that
weighs more than the customer will accept or is of a quality that meets
the necessary specifications but does not meet the customer's
particular quality expectations. The product is set aside to be sold
out of inventory to other customers that will accept it. CSN then
assigns an order confirmation number identifying the sale as an
overrun. At verification we learned that overruns, like any of the
merchandise produced by CSN can occasionally be judged as off-quality
by a committee of production engineers, be placed in inventory, and
[[Page 38771]]
subsequently sold as non-prime product. However, the merchandise can
just as readily involve the wrong dimensions for a specific customer's
order and continue to be sold as prime merchandise.
Moreover, CSN did not produce any of the subject merchandise
according to unusual specifications. Nor were any of CSN's products
sold at aberrational prices, with abnormally high profits, or sold
pursuant to unusual terms of sale.
Finally, at verification we determined that those sales classified
as overruns by CSN were only sold in the home market and represent such
an insignificant portion of total home market sales during the POI that
their effect on the margin, if any, would be negligible (see Exhibit 9
(c) of CSN's Sales Verification Report). Since the factors that the
Department considers in determining if merchandise is outside the
ordinary course of trade are not germane to the sales CSN classifies as
overruns, we do not think they warrant exclusion from the home market
database.
Comment 9: Duty Drawback. Since CSN failed to present the requested
information on duty drawback at verification, petitioners state that
consistent with the Act and Department practice regarding information
that is unverified, the Department should disallow any duty drawback
adjustment for purposes of this final determination.
CSN counters that it is not uncommon for the Department to decline
to verify several items during the course of a verification. In fact,
CSN notes that this practice is specifically endorsed in the
Department's Antidumping Manual (see Chapter 13, pp. 5-6, January 22,
1998). CSN states that since this item has a relatively small impact on
the antidumping margin and verification of duty drawback adjustments
can take an inordinate amount of time, the Department elected not to
verify CSN's duty drawback adjustment. CSN concludes that denial of
this adjustment would be inconsistent with Department policy and would
set a bad precedent for future cases.
Department's Position: We disagree with petitioners. The
petitioners are incorrect in stating that it is consistent with the Act
and Department practice to disallow any unverified adjustment. In
Monsanto v. United States, 698 F. Supp 275, 281 (CIT 1988) the Court
upheld the Department's discretion to pick and choose which items it
wants to examine in detail. The Court stated that ``verification is a
spot check and is not intended to be an exhaustive examination of the
respondent's business.'' Id. In addition, in the Department's
Antidumping Duty Manual we state the following:
Usually, it is not necessary, nor is there time to verify every
bit of data in the questionnaire response. Therefore, it is critical
to rank your verification topics in priority . . . . The fact that
an item was not actually verified will not mean that the item is
unverified. Verifications involve a great deal of sampling.
Consequently, assumptions about items not selected for verification
will depend on how the verification went for the selected items . .
. .
Due to time constraints and the relatively small impact of the duty
drawback adjustment on the dumping margin, it was mutually agreed that
other adjustments (e.g., interest rate for imputed credit) were of
greater significance. Therefore, we did not examine the documentation
relating to CSN's duty drawback adjustment. We have continued to adjust
U.S. price for duty drawback in this final determination.
Comment 10: Inland Freight Costs. Petitioners cite a number of
instances in the Department's Verification Report where it was unable
to verify CSN's reported home market and U.S. inland freight costs.
Moreover, petitioners note that the Department was unable to verify the
arm's length nature of CSN's freight expenses with MRS and FCA, both
rail companies in which CSN owns shares.
Accordingly, petitioners maintain that the Department should not
rely on CSN's reported amounts, but rather should resort to (adverse)
facts available, using either zero or the lowest amount reported for
home market sales and the highest amount reported for all U.S. sales.
CSN strongly objects to petitioners' recommendation that the
Department use adverse facts available for its home market and U.S.
inland freight expenses. CSN points out that for each of the many
shipments which leave its mill every day, it receives an invoice from
the transportation company, the amounts of which are input manually
into CSN's nota fiscal database. According to CSN, since verification
of these amounts involved searching manually for the transportation
invoice(s) associated with each selected sale, time did not permit
finding all of the documentation for the pre-selected and surprise
sales chosen by the Department.
In response to petitioners' claim that CSN could not establish the
arm's length nature of its rail expenses, CSN states that MRS's
financial statements during the POI demonstrate its profitability. CSN
also showed the arm's length nature of its purchase of transportation
services from FCA by comparing the rates charged to CSN with the rates
charged to unaffiliated customers for similar distances and similar
products.
CSN points out that it did not provide documents showing that the
reported inland freight amounts were wrong. It simply did not have
enough time. CSN concludes that since the integrity of the reported
amounts was never questioned, the Department should find CSN's
methodology for reporting inland freight to be reasonable and accurate.
If the Department determines otherwise, CSN suggests the following: an
alternative combined port expense/inland freight adjustment (see CSN's
Sales Verification Report, p. 29 and Exhibit 23) for U.S. sales; use
the amount in CSN's income statement for the POI for freight and divide
by the POI sales value for a factor to be applied to the gross unit
price).
Department's Position: We agree with CSN. At verification we
determined that CSN used the actual freight expenses incurred for its
home market inland freight expenses. We were able to trace these
amounts to CSN's nota fiscal database. For U.S. inland freight
expenses, the only error as noted by CSN during verification was the
incorrect coding of a U.S. shipment by truck when, in fact, the
merchandise was shipped by rail. Since trucking is more expensive than
rail, this error was not to CSN's advantage.
In addition, we cannot accept petitioners' claim that CSN's freight
expenses were not made at arm's length. MRS' financial statements
during the POI indicate that the rail company sold above its cost of
production and the Department's cost verifiers noted its net
profitability in its financial statements covering the POI (see Exhibit
14 of CSN's Section A Response, November 16, 1998 and CSN's Cost
Verification Report, April 8, 1999, p. 14). In addition, in its
Supplemental Section BCD Response, CSN demonstrated the arm's length
nature of its purchase of FCA transportation services, showing CSN's
expenses as greater than the average rate charged to other FCA
customers.
We are satisfied that CSN demonstrated the integrity of its home
market and U.S. inland freight expenses. Moreover, CSN showed that its
transactions with the affiliated rail companies were arm's length in
nature. Therefore, we have accepted CSN's freight expenses as reported
for the final determination.
Comment 11: Imputed Credit. According to CSN, the Department erred
in its calculation of both U.S. and home market imputed credit in the
[[Page 38772]]
Preliminary Determination. CSN objects to the Department's use of the
period between the ex-factory date and date of payment by the customer
in calculating U.S. credit. In its calculation of home market credit,
CSN contends that the Department should use the gross unit price,
inclusive of ICMS and IPI, and not the net unit price.
U.S.
CSN argues that the ex-port shipment date more accurately reflects
the theory behind the U.S. imputed credit adjustment. According to CSN,
under the time value of money theory, a seller begins losing money the
day the product is released from its possession for delivery to a
customer until the day the seller receives payment from the customer.
To support its opinion, CSN cites the CAFC in LMI-LaMetalli Industriale
v. United States, 912 F.2d 455, 460-61 (Fed. Cir. 1990)(LMI-LaMetalli),
which stated that the imputation of credit costs ``must correspond to a
. . . figure reasonably calculated to account for such value during the
gap between delivery and payment.''
CSN asserts that the Department determined during verification that
shipment of the product to the port simply represents the day the
product leaves the mill for the port, where it may or may not be placed
on a ship for export. CSN notes that the nota fiscal, not the
commercial invoice, accompanies the merchandise to the port, where it
can then be diverted to other markets, including the home market. CSN
states that since ``delivery'' can only be deemed to begin when the
product leaves the port, the Department should use ex-port date to
calculate U.S. imputed credit expenses.
Petitioners point out that CSN recognizes that the appropriate
calculation of U.S. credit is inextricably linked to the issue of the
appropriate U.S. date of sale. Since the Department correctly used the
date of the nota fiscal as the date of sale in the Preliminary
Determination, petitioners believe the U.S. imputed credit should be
calculated from this date to the date of payment by the customer.
Petitioners note that CSN has reported that the vast majority of
its U.S. sales are produced to order. Therefore, they conclude that CSN
knows that the product is destined for the United States in most
instances. As support for their argument, petitioners point out that
the Department verified that the only merchandise diverted to the home
market is damaged merchandise. See CSN's Sales Verification Report, p.
9. In petitioners' opinion, CSN is asking the Department to determine
the date of sale, and thereby, the appropriate date for calculating
imputed credit costs, on exceptional cases rather than on the vast
majority of sales.
Moreover, regardless of its destination, petitioners contend that
the product, once it leaves the factory, incurs an imputed credit cost.
This, according to petitioners, is the ``commercial reality'' which
must be reflected in the Department's calculations. See, LMI-LaMetalli
v. United States, 912 F.2d 455 (Federal Circuit 1990); cf CSN's Case
Brief, p. 5.
Alternatively, petitioners state that if no credit cost is incurred
until shipment from the port, then CSN must incur an inventory carrying
cost for the time between shipment from the factory and shipment from
the port.
Home Market
CSN views the Department's calculation of the home market imputed
credit adjustment net of ICMS and IPI taxes as inappropriate because
the money lost as a result of the passage of time between shipment to
the customer and the receipt of payment from the customer is the entire
amount of the payment due on the invoice (i.e., inclusive of on-invoice
taxes).
CSN states that it is required to pay the government each month for
the amount of the invoiced ICMS and IPI it collects (net of credit for
taxes paid on inputs). CSN emphasizes that it alone is responsible for
any time value of money losses it incurs as a result of extending its
customers' credit terms. Therefore, CSN asserts that the basis for the
calculation of home market credit should be the gross unit price,
inclusive of taxes.
To support its position, CSN cites the final LTFV determination in
Silicon Metal from Brazil, 56 FR 26982 (June 12, 1991) as precedent for
this approach: ``The ICMS incident to a home market sale is outstanding
until the time that the customer pays for its merchandise. Until the
customer pays . . . the (producer) cannot use the ICMS collected on the
sale to offset the ICMS it has paid on purchases of materials used in
the production of the subject merchandise * * * . Therefore, we have
included the ICMS in the home market price when calculating imputed
credit expenses.'' The respondent also cites the CAFC, in LMI-LaMetalli
v. United States, which stated that the imputation of credit cost, as
``a reflection of the time value of money, * * * must correspond to a *
* * figure reasonably calculated to account for such value during the
gap between delivery and payment,'' and that it should conform with
``commercial reality.'' 912 F.2d at 460-61.
CSN concludes that the VAT taxes in Brazil, which are included on
each invoice, are a part of the time value losses incurred by Brazilian
companies when extending credit terms to their customers. Therefore, it
reflects commercial reality to include these taxes in the home market
imputed credit adjustment.
Petitioners argue that the Department correctly calculated home
market credit expenses using a price net of ICMS and IPI taxes.
(Petitioners noted that although the Department intended to calculate
home market credit expenses net of taxes, it inadvertently failed to do
so in the computer programming.) They maintain that there are no credit
costs associated with the ICMS and IPI payments to the government
because CSN admits that it does not pay these taxes until it collects
from its customers. Petitioners state that even if CSN pays the
government on an invoice-specific basis, these taxes are only paid once
a month. Moreover, the record contains no data which correlates
shipments, customer payments to CSN, and CSN's payment of VAT taxes to
the government, which would permit the accurate calculation of the
claimed imputed credit cost adjustment.
Regarding CSN's contention that an imputed credit cost inclusive of
ICMS and IPI taxes is warranted because the producer cannot use the
ICMS collected on the sale to offset the tax paid on raw materials used
in the production of the merchandise, petitioners argue that the
imputed credit costs would be incurred only on the amount of the VAT on
the raw material costs and not on the finished product. Furthermore,
petitioners maintain that this imputed credit cost would have to
reflect the CSN payment period on raw material purchases for both home
market and exported merchandise. Petitioners add that even if CSN did
pay the VAT on the final product prior to payment from CSN's customer,
the period for home market imputed credit costs would be the date of
payment to the government, not the date of shipment.
Petitioners note in the Final Results of the Antidumping
Administrative Review of Certain Cut-to-Length Carbon Steel Plate from
Brazil, 62 FR 18486, 18488 (April 15, 1997), the Department stated that
there is no statutory or regulatory requirement for making this
adjustment. According to petitioners, to allow the type of credit
adjustment suggested by the respondents would imply that in the future
the Department would be faced with the virtually impossible task of
trying to determine
[[Page 38773]]
the potential opportunity cost or gain of every charge and expense
reported in respondents' home market and U.S. databases.
Therefore, petitioners conclude that the Department should continue
to use its well-supported and consistent practice of calculating
imputed home market credit expenses net of ICMS and IPI taxes.
Department's Position: Both petitioners and the respondent are
incorrect in their contention that the credit period is inextricably
linked to the date of sale. As cited by petitioners, the seller begins
losing money the day the product is released from its possession for
delivery to a customer until the day the seller receives payment from
the customer. This period comprises the imputed credit period. It is
the Department's longstanding policy when calculating imputed credit to
use the period between the date of shipment from the factory and the
date of payment by the customer. See Notice of Final Results of
Antidumping Duty Administrative Review; Ferrosilicon From Brazil, 62 FR
43508 (August 14, 1997).
CSN's characterization of the ex-factory date as ``simply the day
the product leaves the mill for the port, where it may or may not be
placed on a ship for export'' is misleading. The ex- factory date is
the date marking the commencement of delivery of an order to a specific
customer. The imputation of credit costs ``must correspond to a * * *
figure reasonably calculated to account for such value during the gap
between delivery and payment.'' See LMI-LaMetalli, 912 F.2d at 460-61.
Since the vast majority of CSN's sales are produced to order, CSN
knows which products are destined for the United States when the
product leaves the factory. Diverting an order of merchandise destined
for export to a home market customer because of damage or some other
reason is certainly the exception, not the rule, as CSN seems to
characterize it.
CSN itself characterized the calculation of the imputed credit
adjustment as ``the difference between ex-factory shipment date and
payment date divided by 365 multiplied by the interest rate multiplied
by the gross unit price. See CSN's Section C Response to the
Department's Questionnaire, p. C-34.
Therefore, we have continued to use the day the product leaves the
factory for delivery to a customer until the day the seller receives
payment from the customer as the period for the calculation of both
home market and U.S. imputed credit.
With regard to CSN's contention that home market imputed credit
should be calculated using a gross price, the Department agrees with
petitioners that home market imputed credit expense should be
calculated using the price net of taxes, rather than the gross unit
price. It is the Department's practice not to impute credit expenses
related to VAT payments. Nor is there any statutory or regulatory
requirement for making the adjustment proposed by the respondent.
While there may be an opportunity cost associated with the
respondents' prepayment of the VAT, this fact alone is not a sufficient
basis for the Department to make an adjustment in price-to-price
comparisons. Virtually every charge or expense associated with price-
to-price comparisons is either prepaid or paid for at some point after
the cost is incurred. Consequently, there is potentially an opportunity
cost or gain associated with each expense. To allow the type of credit
adjustment suggested by CSN would imply that the Department would have
the impossible task of trying to determine the opportunity cost or gain
of every charge and expense reported in the respondent's U.S. and home
market databases. Therefore, we have changed the computer program for
this final determination to reflect our intention in the Preliminary
Determination of calculating home market imputed credit expenses using
the price net of VAT taxes. See Certain Cut-to-Length Carbon Steel
Plate from Brazil, 62 FR 18488, (April 15, 1997); Notice of Final
Determination of Sales at LTFV: ESBR from Korea, 64 FR 14865, 14868-69
(March 29, 1999).
Comment 12: Late Payment Fee. CSN objects to the Department
imputing a late payment fee on CSN's home market sales when payment had
not been received by the date of CSN's January 25, 1999 submission. CSN
notes that imputing such late payment fees for these sales is
inappropriate because the Department discovered at verification that
CSN does not always charge its customers with these late payment fees.
The Department, therefore, should not add the imputed fees to CSN's
home market price.
Petitioners, however, maintain that in the Preliminary
Determination the Department correctly imputed late payment fees for
home market sales with missing payment dates because this reflects
commercial reality, and CSN's stated policy. Since the Department found
at verification that it was CSN's practice to charge late payment fees,
petitioners state that it is only logical to impute late payment fees
for sales that have missing payment dates. The burden was on CSN to
provide specific information on those sales exempt from a late payment
fee. In fact, petitioners note that it is the Department's practice to
supply facts available data where the information on the record is
missing or inadequate. See Final Determination of Sales at Less Than
Fair Value; Certain Preserved Mushrooms from Chile, 63 FR 56613, 56622
(October 22, 1998). Given that it is CSN's practice to charge late
payment fees and CSN failed to report payment dates on a number of
sales, petitioners believe the Department's decision to impute late
payment fees was reasonable and in accordance with commercial reality.
Moreover, the burden was on CSN to provide specific information on
those sales exempt from late payments.
Department's Position: We agree with petitioners. Although CSN's
statement that late payment fees on home market sales were not always
assessed was borne out at verification, it is CSN's general policy to
require a late payment fee. In fact, in the course of the sales
verification, we noted that specific rates for late payments appeared
on the invoices of some of the customers. Absent any specific
information which would indicate which sales were exempt from payment
of a late fee, for this final determination, the Department has assumed
that CSN assesses a late payment fee on home market sales under the
contractual sales terms.
USIMINAS/COSIPA
Comment 13: What Constitutes Verification. In several comments,
respondents disagree with the Department's assessment in USIMINAS'' and
COSIPA's Sales Verification Reports of what constitutes a verified
item. Specifically they dispute the use of terms such as ``spot-
checking,'' ``unable to fully review,'' and ``unverified.'' They
particularly disagree with the Department's assessment in the USIMINAS
and COSIPA verification reports that several items were deemed
unverified ``because the Department has not reviewed that item, or not
reviewed all accounting records related to that document or
transaction.'' They find the Department's practices in several
instances to not be in keeping with Chapter 13 of the Department's
Antidumping Manual. Furthermore, respondents argue that the vast
majority of their fundamental sales and cost data verified.
In referring specifically to certain home market sales trace
packets, respondents disagree with the term ``spot checking,'' since
they believe that
[[Page 38774]]
the documents reviewed in fully verified traces were similar to those
reviewed in spot checks. Respondents believe that both types of checks
included the documents of internal order allocation screen, nota
fiscal, order confirmation sheet, mill certificate, and the bill of
lading. USIMINAS states that the only additional documents found in a
fully verified trace were bank documents, accounting ledgers, and
payment advices. Additionally, respondents argue that checking every
document for every field in order to consider them fully verified
contradicts Department practice as noted in the Antidumping Manual,
Chapter 13, 47-50. They note that this section of the manual says the
goal of this phase of verification is to verify the details of each
sale, such as date of sale, product description, customer, destination,
date of invoice, date of shipment, quantity, price, credit terms, and
date of payment.
USIMINAS also disagrees with the Department's use of the expression
``unable to fully review'' in referring to a sales trace and dispute
the accuracy of this phrase. Respondents also do not believe that they
suggested that the Department ``spot check'' sales traces but rather
insisted that the Department ``move on and verify the items that are
most important to the verification'' so as not to spend an ``inordinate
amount of time verifying such insignificant expenses'' as had been
verified in previous sales traces. USIMINAS cited the length of the
COSIPA inland insurance and the USIMINAS indirect selling expense
exhibits, noting the insignificance of these adjustments.
Petitioners argue that the Department should stand by its verified
sales findings in the final determination. They believe that
respondents were ``woefully unprepared'' for verification and little of
the submitted information could be verified. In citing Chapter 13 of
the Antidumping Manual, petitioners note that the Department's
verifiers correctly followed Departmental practice by examining source
documents ``rather than simply accepting `explanations' '' offered by
respondents. Petitioners note that in respondents' first example of a
spot-checked sales trace, they mistakenly appear to be comparing a home
market with a U.S. sales trace. Petitioners also argue that absent
proof of payment and proof of receipt of payment, a sales trace is
incomplete and cannot be considered ``verified.'' They subsequently
quote eleven statements in the verification reports that they believe
demonstrate USIMINAS and COSIPA's general lack of preparation in
providing fundamental verification documentation. In petitioners' view,
this lack of preparation and uncooperative behavior call for the
application of total adverse facts available in the final
determination.
Department's Position: As indicated by the USIMINAS and COSIPA
verification reports, respondents either said they were unprepared or
preferred to cover other topics at each point when items requested by
the Department were left unaddressed. In the Department's March 8, 1999
verification outline sent to USIMINAS and the March 11, 1999 outline
sent to COSIPA, we stated, ``If your clients are not prepared to
support or explain a response item at the appropriate time, the
verifiers will move on to another topic. If, due to time constraints,
it is not possible to return to that item, we may consider the item
unverified. Furthermore, if information requested for verification is
not supplied, or is unverified, pursuant to section 776(a) of the Act,
we may use facts available for our final determinations, which may
include information supplied by the petitioners.'' Respondents were
fully aware that failure to cover items requested by the Department
could result in these items being considered unverified. The Department
sought to verify each of the items at issue, but these items were not
addressed by the company at the time of the request. Further, the
verification procedures and verification reports were in compliance
with Departmental procedures laid out in Chapter 13 of the Antidumping
Manual.
At the same time, most of the items that Commerce was unable to
verify are relatively minor and the most essential components of
verification were successfully completed. The Department, therefore,
does not agree with petitioners that the use of total adverse facts
available is warranted. The Department is, instead, applying partial
facts available where necessary and using an adverse inference where
appropriate under section 776(b) of the Act. See the Facts Available
section of this notice and the treatment of specific issues in the
comments.
Comment 14: Prioritization and Volume of Material Covered.
USIMINAS/COSIPA generally argue that the large volume of material the
Department attempted to review in one week and the time the Department
spent reviewing ``many items in detail'' did not permit certain items
to be verified. They disagree with the manner in which the Department
conducted verification and do not believe the Department followed
proper time management and prioritization procedures as outlined in
Chapter 13 of the Antidumping Manual. Respondents had four specific
comments related to prioritization and time management.
USIMINAS believes that the Department's attempt to review USIMINAS
and its downstream affiliates, Rio Negro and Fasal, within one week was
misguided. It argues that the Department sought to review in detail
each company's accounting practices, corporate structure, sales
process, quantity and value, and sales trace documents. The respondent
believes that this was too difficult and time consuming a task and
notes that the review of Fasal as discussed in the USIMINAS
Verification Report took nearly a full day of the USIMINAS
verification.
Respondents claim that the Department sought to verify ``numerous
time consuming and contentious issues'' such as date of sale, order
confirmation, CONNUM methodologies, and production and cost
information. Respondents argue that the Department should have allotted
extra time for the verification, given the level of complexity and
detail with which the Department reviewed these items.
Respondents state that the Department requested twenty preselected
sales traces, fourteen partial sales traces for specific issues in the
verification report, ten surprise sales traces on the first day of
verification, and twenty more surprise ``date of sale'' sales traces.
They argue that retrieving and compiling all the source documents for
these sales was unduly burdensome for USIMINAS staff to prepare, review
for accuracy, and present to the Department.
Lastly, respondents argue that the Department sought to verify each
item of a sales trace in detail regardless of its importance to the
Department's calculations. For instance, they believe that the
Department spent ``hours verifying USIMINAS' inland insurance'' and
that the length of COSIPA's exhibit on inland insurance demonstrates
the Department's overemphasis on the issue. Respondents quote sections
of Chapter 13 of the Department's Antidumping Manual to demonstrate
that the Department should not ``spend one day verifying inland
insurance'' and that verifiers should not treat all information with
the same importance.
Petitioners argue that the Department did prioritize issues but
USIMINAS and COSIPA prevented the verifiers from verifying those
issues. As noted in Chapter 13 of the Antidumping Manual, petitioners
state that setting priorities is the responsibility of the verifiers,
not
[[Page 38775]]
the respondents. They argue that the verifiers' efforts to keep the
verification moving and to set priorities were constantly challenged by
respondents. They cite thirteen quotations from the verification report
which they believe support this claim. An example of such a quote is,
``Although we asked for documentation regarding Dufer's sales process,
COSIPA requested that we move on to verify other verification subjects,
and return to Dufer. We never returned to this issue.'' Petitioners
argue that if USIMINAS and COSIPA could dictate which issues could be
verified and how deeply, they would be able to ``manipulate the outcome
of the verification.''
Petitioners state that ``the verification agenda is not to blame
for the fact that USIMINAS and COSIPA were unprepared for
verification.'' They disagree that the ``large volume of material the
Department attempted to verify'' or the ``considerable time'' the
Department spent reviewing items were responsible for USIMINAS and
COSIPA's performance at verification. Petitioners note that the
Department issues a similarly detailed verification agenda in virtually
every proceeding and that respondents never complained to the
Department prior to verification. Petitioners contradict respondents'
assumption that more time would have allowed verifiers to consider each
issue by stating that ``virtually no issue could be verified,
regardless of the amount of time devoted to it.'' For example,
petitioners note that the Department was unable to verify Fasal's
quantity and value despite the amount of time spent reviewing Fasal.
Instead, petitioners argue that respondents were unprepared and
uncooperative and the Department should apply total adverse facts
available in the Final Determination.
Department's Position: In the Department's verification agendas, we
informed respondents to contact the Department ``[I]f you have any
questions regarding this verification or if you believe any of the
verification procedures cannot be performed.'' The Department did not
receive any submissions from respondents regarding the length or
breadth of the outline prior to verification. The outlines given to the
companies were based on Departmental standards with the exception of
downstream data, a topic only covered when merited by the facts of a
case. The Department disagrees with respondents' description of the
amount of time it took to review certain topics such as USIMINAS'
corporate structure and inland insurance, and notes that the length of
time it took to cover other topics such as quantity and value was left
unaddressed by respondents. The verification exhibits themselves
demonstrate one factor that contributed to the slow pace of
verification--the number of untranslated pages.
The Department recognizes that, like many verifications, there was
a significant amount of material to cover. However, it is the
Department's responsibility to set priorities and to determine the
amount of time spent on topics to ensure that the verification moves
forward. As noted in the Department's verification outline, it is the
responsibility of the respondents to be prepared for verification to
allow this information to be covered expeditiously. The Department
believes that it met its responsibilities and that the time spent
reviewing certain fundamental issues, such as downstream affiliates,
date of sale, order confirmation, and CONNUM methodologies was
appropriate for information essential to this investigation.
Comment 15: Use of Total Facts Available. Petitioners state that,
based on multiple problems with USIMINAS' sales verification, the
Department should apply total adverse facts available. Petitioners
specifically reference the Department's inability to complete all of
the pre-selected and surprise sales trace examinations in the home
market and the U.S. market during its verification of USIMINAS. Based
on the problems noted in the USIMINAS' Sales Verification Report,
petitioners question the reliability and accuracy of the following
reported information in the home market: Taxes, billing adjustments,
quantity discounts, other discounts, inland freight, inland insurance,
payment date, credit expense, interest revenue, warranty expense,
indirect selling expenses, inventory carrying costs, packing expenses,
and variable cost of manufacture. Petitioners also question, in most
instances, the reliability of the following reported information in the
U.S. market: Product characteristics, customer name, date of payment,
sales terms, terms of payment, level of trade, domestic inland freight,
domestic brokerage and handling, international freight, destination,
credit expense, interest revenue, warranty expense, indirect selling
expenses, packing expenses, and variable costs. Petitioners recommend
that the Department apply as total adverse facts available, the highest
rate calculated in the petition, 85.71%.
Petitioners likewise state that based on multiple problems with
COSIPA's sales verification, the Department should apply total adverse
facts available. Petitioners specifically reference the Department's
inability to complete all of the pre-selected and surprise sales trace
examinations in the home market and the U.S. market. Petitioners
question the reliability and accuracy of the following reported
information in the home market: value-added tax credits on production
inputs, billing adjustments, quantity discounts, other discounts,
inland freight, inland insurance, payment date, credit expense,
interest revenue, warranty expenses, indirect selling expenses,
inventory carrying costs, packing expenses, and variable cost of
manufacture. Petitioners question, in most instances, the reliability
of the following reported information in the U.S. market: product
characteristics, customer name, order date, sale date, date of
shipment, date of payment, sales terms, terms of payment, quantity,
level of trade, domestic inland freight, domestic brokerage and
handling, destination, credit expense, interest revenue, warranty
expense, indirect selling expense, packing expense, and variable costs.
As further argument that the Department should apply total adverse
facts available in this case, petitioners state that the Department was
unable to verify the accuracy of the date of sale reported by COSIPA
for home market sales. Petitioners refer to the COSIPA verification
where the Department requested specific documents for ten additional
home market sales. Petitioners state that since the Department only
received one document for a limited number of the requested sales, that
the Department cannot be confident that the appropriate date of sale
was reported for home market sales. Petitioners also maintain that
other problems discovered at verification are cause to use total facts
available. Petitioners refer to COSIPA's omission of supplementary
notas fiscais issued during the period of investigation, the
Department's inability to verify the reported order confirmation date,
and instances where the Department requested but did not receive sales
process information and documentation. Furthermore, petitioners refer
to problems with verification of COSIPA's quantity and value.
Petitioners highlight instances where the company neglected to report
certain home market sales to the Department for more than one customer.
Petitioners recommend that the Department apply as total adverse facts
available, the highest rate calculated in the petition, 85.71%.
Respondents do not feel that the information willingly submitted by
[[Page 38776]]
USIMINAS and COSIPA satisfies the high threshold for the application of
total adverse facts available. Respondents refer to Borden, Gooch Foods
and Hershey Foods v. United States, 4 F. Supp. 2d. 1221, 1244 (CIT
1998) (Borden Foods), to support their opinion that it is not proper
for the Department to apply total adverse facts available in this
investigation. Respondents provide several facts to support their claim
that they cooperated fully in these proceedings. First, respondents
point to the number of questionnaire and supplemental questionnaire
responses that they have submitted in this investigation as evidence
that they have fully cooperated. In addition to the numerous
questionnaire responses, respondents note the refinements to submitted
data that were researched by hand, such as multiple payment dates,
calculating actual freight amounts, creating additional CONNUMS for
unique qualities, creating additional methodologies to report missing
carbon and yield strengths, and designing and implementing complicated
computer programs to extract scope merchandise based on chemical
composition. Respondents refer to NSK Ltd. and NSK Corp. v. United
States, 919 F. Supp. 422, 448 (CIT 1996) (NSK Ltd.) and Ferro Union v.
United States, Slip Op. 99-27 (CIT March 23, 1999) (Ferro Union), as
support for their argument that the Department should not accept
petitioners' suggestion that it disregard months of work on USIMINAS'
and COSIPA's parts in lieu of total facts available since they
cooperated throughout the proceeding. Second, respondents state that
the USIMINAS and COSIPA opened up company books, records, and computer
systems to Department officials during verification. Respondents state
that they brought representatives of the affiliated resellers to their
own locations to provide source documentation and maintain that they
prepared volumes of information for verification. Respondents argue
they did not hamper the investigation in any way and state that it was
only when the companies were faced with unrealistic demands at
verification that they were unable to provide all the information
sought by the Department.
Respondents refute petitioners' claim that much of the submitted
data was unverified, claiming that value and volume, product
characteristics, date of sale, sales processes, accounting processes,
corporate structures, and production processes were fully verified.
Respondents assert that quantity and value were verified and that any
discrepancies were either noted at the beginning of verification, or
minor errors discovered during the course of verification. Respondents
state that petitioners did not allege any significant errors regarding
the quantity and value of respondents' reported sales. Respondents
maintain that the Department reviewed and verified the sales processes
of the companies and that the verification reports did not note
significant discrepancies. Respondents believe that the verification
reports substantiate respondents' claims that order date should not be
used for date of sale purposes. Respondents point out that no
discrepancies were noted in the verification reports regarding the
Department's review of production processes and facilities, the
explanation of the classification of products, and plant tours.
Respondents cite Asociacion Colombiana de Exportadores v. United
States, 704 F. Supp. 1114, 1117 (CIT 1989) (Asociacion Colombiana) as
further evidence that the verification deficiencies of minor expenses
are not enough to justify the use of total adverse facts available.
Respondents state that petitioners' claim that Department verifiers
were unable to verify USIMINAS' and COSIPA's sales data is incorrect.
Respondents maintain that the Department's sampling of the selected
sales traces was reasonable and therefore, the sales information should
be considered verified. Respondents point to the number of home market
sales traces that were completed by the Department and state that the
spot checks of the other traces in conjunction with the separate
verification of the allocated expenses constitute verification of sales
data.
Respondents also state that petitioners do not point to basic
problems or flaws with the sales data actually reviewed. Respondents
assert that petitioners focus on the Department's inability to review
information at verification, and that it would be inconceivable for the
Department to apply total facts available simply because the Department
did not review all the fields of all of the sales traces. Respondents
state that petitioners incorrectly make the assumption that the
Department's inability to verify certain subjects means that those
subjects were not considered verified. Respondents maintain that the
Department's failure to review an item does not mean that the item is
not verified.
Respondents also state that petitioners are incorrect in asserting
that COSIPA did not report certain home market sales. COSIPA maintains
that these sales had been previously reported, but had been
inadvertently omitted from the March 1, 1999 submission of data. COSIPA
states that these sales were corrected and reported at verification.
Department's Position: The Department disagrees with petitioners'
call for total adverse facts available for USIMINAS and COSIPA. While
the Department acknowledges that there were multiple problems at the
sales verifications of USIMINAS and COSIPA, the nature and extent of
these problems do not support the use of total facts available. The
Department agrees with respondents that the major components of
verification verified. These include quantity and value, production
characteristics, and sales and accounting processes. By contrast, the
majority of the information that did not verify generally constituted
relatively minor issues and adjustments. The Department does not find
that the inability to complete all of the pre-selected and surprise
sales traces is substantial enough in this case to necessitate the use
of total facts available.
Respondents' reference to Borden Foods, however, is off point. In
the Borden Foods case, the Court did not disagree with the Department's
use of total adverse facts available. Instead, that case dealt with the
subject of corroboration of the facts available margin imposed in that
proceeding.
Further, the Department disagrees with respondents' assumption that
the Department's failure to review certain items at verification
equates to the verification of those items. As stated in USIMINAS' and
COSIPA's Sales Verification Reports, there were numerous instances in
which the Department sought to cover certain items, and the respondents
declined for reasons described in the report. These items do not have
the same status as items which the Department chooses not to raise at
verification. The Department considers these items which were raised by
the Department, but not addressed by the respondents, to be unverified.
Please see Comment 13 on What Constitutes Verification for a complete
discussion of this issue.
While the Department does not find the use of total facts available
appropriate in this investigation, there were several instances which
merited the use of partial facts available. See the comments below for
specific applications of facts available.
Comment 16: Use of Facts Available. Petitioners state that if the
Department decides to accept USIMINAS and COSIPA's questionnaire
responses, facts available must be applied in certain
[[Page 38777]]
instances as described in several comments below.
Respondents refer to Borden Foods in asserting that the Department
must use caution in applying facts available, but respondents suggest
that the Department use facts available in certain instances as
described in specific comments below. Respondents also refer to
National Steel in stating that the Department should not make adverse
inferences where respondents have acted to the best of their ability
and the error is minor.
To support their claim that verification problems were
insignificant, respondents cite NSK Ltd., which in turn cites Ad Hoc
Comm. Of AZ-NM-TX-FL Producers of Gray Portland Cement v. United
States, 865 F. Supp. 857, 866, (CIT 1994), stating, ``Neutral BIA is
`applied only to a respondent who has substantially complied and there
is also an inadvertent or unavoidable gap in the record, or when a
minor or insignificant adjustment is involved.' '' 919 F. Supp. at 448.
Department's Position: As discussed in the Facts Available section
above, the Department has determined that facts available should be
applied for certain sales adjustments and expenses. The Department gave
USIMINAS and COSIPA substantial opportunity to verify multiple
outstanding issues at the sales verification. As noted in the Sales
Verification Reports for both companies, respondents were either unable
to or unwilling to verify these issues. The agendas were provided to
respondents prior to verification, and the information was repeatedly
requested by the Department officials at the verification. In instances
in which the material remained unverified, the Department applied facts
available. In several instances, because the respondents failed to
cooperate to the best of their abilities, the Department applied
adverse facts available in accordance with section 776(b) of the Act.
See the individual comments below for specific applications of facts
available and adverse facts available.
In reference to Borden Foods and National Steel, the Department
notes that these cases were not governed by the current statute, and
the use of adverse inferences is now governed by section 776(b) of the
Act. Moreover, respondents' reference to Borden Foods is off point. See
Comment 15 above. In addition, respondents' reliance on National Steel
in asserting that the Department should not make adverse inferences in
the application of facts available is misplaced. Further examination of
National Steel supports the use of partial facts available ``when only
part of the submitted information is deficient,'' and the use of an
adverse inference ``depend[ing] on the level of sufficiency of the
information provided.'' 919 F. Supp. at 442.
Comment 17: Collapsing USIMINAS AND COSIPA. Respondents assert that
the Department's decision to collapse USIMINAS and COSIPA into a single
company for purposes of calculating dumping margins, a single average
cost of production and unified average prices was incorrect.
Respondents do not dispute two of the criteria used by the Department
in making this determination: (1) The two companies manufacture
substantially similar products and (2) USIMINAS has a high level of
direct ownership in COSIPA. They do, however, dispute the Department's
determination that there is some intertwining of operations and do not
believe that USIMINAS is in a position to manipulate COSIPA's prices or
production
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