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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-821-809]

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

Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From the Russian

Federation

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 19, 1999.

FOR FURTHER INFORMATION CONTACT: Lyn Baranowski or Carrie Blozy, Import

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

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

20230; telephone: (202) 482-3208 or (202) 482-0165, respectively.

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department's

regulations are to the regulations at 19 CFR part 351 (1998).

Final Determination

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

products (``hot-rolled steel'') from the Russian Federation

(``Russia'') are being sold in the United States at less than fair

value

[[Page 38627]]

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

margins are shown in the ``Continuation of Suspension of Liquidation''

section of this notice.

Case History

Petitioners in this investigation are Bethlehem Steel Corporation,

U.S. Steel Group, a unit of USX Corporation, Ispat Inland Steel, LTV

Steel Company, Inc., National Steel Corporation, California Steel

Industries, Gallatin Steel Company, Geneva Steel, Gulf States Steel

Inc., IPSCO Steel Inc., Steel Dynamics, Weirton Steel Corporation, the

Independent Steelworkers Union, and the United Steelworkers of America.

Respondents in this investigation are JSC Severstal

(``Severstal''), Novolipetsk Iron & Steel Corporation (``NISCO''), and

Magnitogorsk Iron & Steel Works (``MMK'').

Since the Notice of Preliminary Determination of Sales at Less Than

Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from

the Russian Federation, 64 FR 9312 (February 25, 1999) (``Preliminary

Determination''), the following events have occurred:

On March 1 and March 2, 1999, respectively, respondents NISCO and

MMK submitted letters informing the Department that they were

withdrawing from further participation in the proceeding. On March 8,

1999, NISCO submitted a letter alleging clerical errors in the

preliminary determination.

In April 1999, we conducted sales and factors of production

verifications of Severstal's responses to the antidumping

questionnaires (see Verification Report for Severstal dated April 14,

1999 (``Verification Report'')). Petitioners and Severstal submitted

case briefs on April 19, 1999, and rebuttal briefs on April 26, 1999.

On April 12, 1999, General Motors Corporation (``GM'') requested a

scope exclusion for hot-rolled carbon steel that both meets the

standards of SAE J2329 Grade 2 and is of a gauge thinner than 2 mm with

a 2.5 percent maximum tolerance. On April 22, 1999, petitioners

requested that certain ASTM A570-50 grade steel be excluded from the

investigation. We adjusted the scope of this investigation pursuant to

the decisions detailed in the Scope Amendments Memorandum, dated April

28, 1999.

On July 12, 1999, the Department signed a suspension agreement with

the Ministry of Trade of the Russian Federation (the Agreement). If the

ITC determines that material injury exists, the Agreement shall remain

in force but the Department shall not issue an antidumping order so

long as (1) the Agreement remains in force, (2) the Agreement continues

to meet the requirements of subsections (d) and (l) of the Act, and the

parties to the Agreement carry out their obligations under the

Agreement in accordance with its terms.

On July 7, 1999, we received a request from petitioners requesting

that we continue the investigation. Pursuant to this request, we have

continued and completed the investigation in accordance with section

734(g) of the Act.

Scope of Investigation

For purposes of this investigation, the products covered are

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

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

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

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

(whether or not in successively superimposed layers) regardless of

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

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

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

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

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

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

within the scope of these investigations.

Specifically included in this scope are vacuum degassed, fully

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

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

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

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

to stabilize carbon and nitrogen elements. HSLA steels are recognized

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

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

motor lamination steels contains micro-alloying levels of elements such

as silicon and aluminum.

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

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

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

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

elements listed below exceeds the quantity, by weight, respectively

indicated:

1.80 percent of manganese, or

1.50 percent of silicon, or

1.00 percent of copper, or

0.50 percent of aluminum, or

1.25 percent of chromium, or

0.30 percent of cobalt, or

0.40 percent of lead, or

1.25 percent of nickel, or

0.30 percent of tungsten, or

0.012 percent of boron, or

0.10 percent of molybdenum, or

0.10 percent of niobium, or

0.41 percent of titanium, or

0.15 percent of vanadium, or

0.15 percent of zirconium.

All products that meet the physical and chemical description provided

above are within the scope of this investigation unless otherwise

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

specifically excluded from the scope of this investigation:

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

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

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

SAE/AISI grades of series 2300 and higher.

Ball bearing steels, as defined in the HTSUS.

Tool steels, as defined in the HTSUS.

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

electrical steel with a silicon level exceeding 1.50 percent.

ASTM specifications A710 and A736.

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

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni

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

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

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

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

Yield Strength = 50,000 ksi minimum; Tensile Strength = 70,000-88,000

psi.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

[[Page 38628]]

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

C Mn P S Si Cr Cu Ni Mo

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

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

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

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

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

Aim.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

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

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

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.

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

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

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

Aim.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni Nb Ca Al

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

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

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

Width = 39.37 inches; Thickness = 0.181 inches maximum;

Yield Strength = 70,000 psi minimum for thicknesses 0.148

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

Strength = 80,000 psi minimum.

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

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

and including 1.5 percent silicon by weight, further characterized by

either (i) tensile strength between 540 N/mm2 and 640 N/

mm2 and an elongation percentage 26 percent for

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

N/mm2 and 690 N/mm2 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 January 1 through June 30,

1998.

Nonmarket Economy Country Status

The Department has treated Russia as a nonmarket economy (``NME'')

country in all past antidumping duty investigations and administrative

reviews (see, e.g., Titanium Sponge from the Russian Federation: Final

Results of Antidumping Administrative Review, 64 FR 1599 (January 11,

1999); Notice of Final Determination of Sales at Less Than Fair Value:

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

62 FR 61787 (November 19, 1997); Notice of Final Determination of Sale

at Less Than Fair Value: Pure Magnesium and Alloy Magnesium from the

Russian Federation, 60 FR 16440 (March 30, 1995); Notice of Preliminary

Determination of Sales at Less Than Fair Value and Postponement of the

Final Determination: Ferrovanadium and Nitridid Vanadium from the

Russian Federation, 60 FR 438 (January 4, 1995)). A designation as an

NME remains in effect until it is revoked by the Department (see

section 771(18)(C) of the Act). Therefore, for this final

determination, the Department is continuing to treat Russia as an NME.

Separate Rates

The Department presumes that a single dumping margin is appropriate

for all exporters in an NME country. See Final Determination of Sales

at Less Than Fair Value: Silicon Carbide from the People's Republic of

China, 59 FR 22585 (May 2, 1994) (``Silicon Carbide''). The Department

may, however, consider requests for a separate rate from individual

exporters. Severstal, NISCO, and MMK have each requested a separate,

company-specific rate. Because NISCO and MMK withdrew from this

proceeding, we were only able to verify information provided by

Severstal and thus, we are only considering granting Severstal's

request for a separate rate for this final determination. To establish

whether a firm is sufficiently independent from government control to

be entitled to a separate rate, the Department analyzes each exporting

entity under a test

[[Page 38629]]

arising out of the Final Determination of Sales at Less Than Fair

Value: Sparklers from the People's Republic of China, 56 FR 20588 (May

6, 1991) and amplified in Silicon Carbide. Under the separate rates

criteria, the Department assigns separate rates in NME cases only if a

respondent can demonstrate the absence of both de jure and de facto

government control over export activities. For a complete analysis of

separate rates, see Memorandum to Edward C. Yang from Lesley Stagliano

Re: Separate Rates for Exporters that Submitted Questionnaire Responses

(``Separate Rates Memo''), dated February 22, 1999.

1. Absence of De Jure Control

An individual company may be considered for separates rates if it

meets the following de jure criteria: (1) an absence of restrictive

stipulations associated with an individual exporter's business and

export licenses; (2) any legislative enactments decentralizing control

of companies; and (3) any other formal measures by the government

decentralizing control of companies.

Severstal has placed on the administrative record a number of

documents to demonstrate absence of de jure control. These documents

include laws, regulations, and provisions enacted by the central

government of Russia, describing the deregulation of Russian enterprise

as well as the deregulation of the Russian export trade, except for a

list of products that may be subject to central government export

constraints. Severstal claims that the subject merchandise is not on

this list. This information supports a final finding that there is an

absence of de jure government control for Severstal. See Separate Rates

Memo.

2. Absence of De Facto Control

The Department typically considers four factors in evaluating

whether each respondent is subject to de facto governmental control of

its export functions: (1) whether the export prices (``EP'') are set by

or subject to the approval of a governmental authority; (2) whether the

respondent has authority to negotiate and sign contracts and other

agreements; (3) whether the respondent has autonomy from the government

in making decisions regarding the selection of management; and (4)

whether the respondent retains the proceeds of its export sales and

makes independent decisions regarding disposition of profits or

financing of losses. Severstal has reported that it is a publicly-owned

company and that there is not aggregate government ownership greater

than 25 percent.

Severstal has asserted that the company establishes its prices in

negotiation with its customers, and that theses prices are not subject

to review or guidance from any government organization. Furthermore,

Severstal's management has the authority to negotiate and sign

contracts, also without review or guidance from outside organizations.

Severstal stated that it can retain all export earnings, and that there

are no restrictions on the use of the company's export revenues or

utilization of profits. Severstal further reported that its management

is appointed by the company's shareholders, and that the government has

no role in, and is not advised of, the selection of its management. At

verification for Severstal, we verified reported information

substantiating Severstal's separate rates claim (see Verification

Report at 4-5).

In addition, the respondent's questionnaire responses indicate that

company-specific pricing during the POI does not suggest coordination

among exporters. This information supports a final finding that there

is an absence of de facto governmental control of the export functions

of Severstal. Consequently, for this final determination, we determined

that Severstal meets the criteria for application of a separate rate.

For a further discussion of this issue, see Separate Rates Memo.

Russia-Wide Rate

After sending questionnaires to the 16 companies identified as

potential respondents in the petition, we received complete Section A

responses from only three producers--Severstal, MMK and NISCO. In the

Respondent Selection Memorandum from Edward Yang to Joseph Spetrini

dated November 19, 1998, we limited our examination of producers of

subject merchandise to these three companies. However, two of the

companies (MMK and NISCO) subsequently withdrew from the investigation.

Furthermore, U.S. import statistics indicate that the total quantity

and value of U.S. imports of hot-rolled steel from Russia is greater

than the total quantity and value of hot-rolled steel reported by

Russian companies that submitted responses that were subsequently

verified (see Memorandum on Final Determination of Critical

Circumstances from Edward Yang to Joseph Spetrini dated July 12, 1999

(``Final Critical Circumstances Memo'')). Accordingly, we are applying

a single antidumping rate--the Russia-wide rate--to all exporters in

Russia based on our presumption that those respondents who failed to

respond to the initial questionnaire or withdrew from the investigation

(i.e., MMK and NISCO) constitute a single enterprise under common

control by the Russian government. See, e.g., Final Determination of

Sales at Less Than Fair Value: Bicycles from the People's Republic of

China, 61 FR 19026 (April 30, 1996) (``Bicycles''). The Russia-wide

rate applies to all entries of subject merchandise except for entries

from Severstal.

Application of Facts Available

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

withholds information that has been requested by the Department, fails

to provide such information in a timely manner or in the form or manner

requested, significantly impedes a proceeding under the antidumping

statute, or provides information which cannot be verified, the

Department shall use, subject to sections 782(d) and (e) of the Act,

facts otherwise available in reaching the applicable determination.

Thus, pursuant to section 776(a) of the Act, the Department is required

to apply, subject to section 782(d), facts otherwise available.

Pursuant to section 782(e), the Department shall not decline to

consider such information if all of the following requirements are met:

(1) the information is submitted by the established deadline; (2) the

information can be verified; (3) the information is not so incomplete

that it cannot serve as a reliable basis for reaching the applicable

determination; (4) the interested party has demonstrated that it acted

to the best of its ability; and (5) the information can be used without

undue difficulties.

Facts Available

Severstal

Section 776(a)(2)(B) of the Act requires the Department to use

facts available when a party does not provide the Department with

information in the form and manner requested or when necessary

information is not available on the record. In this case, we find that

Severstal failed to provide the Department with normal value data in

the form and manner requested and that factors of production (FOP) data

for each specific control number (CONNUM) were not available on the

record.

As described below (see Comment 2), Severstal did not report

CONNUM-specific FOP data as requested in the original and supplemental

questionnaires and instead explained that the limitations of its

accounting system prevented it from reporting FOPs

[[Page 38630]]

on a CONNUM-specific basis. Therefore, we find that the application of

facts available for Severstal in the final determination is appropriate

because Severstal's FOP data: (1) is not allocated sufficiently to

discrete grades or qualities, resulting in NVs which are not accurate

reflections of the grades to which they relate; and (2) does not

measure the factors relevant to individual products actually being

produced. We note that we were unable to adjust the reported FOPs due

to the broad basis on which the costs were accumulated and the lack of

information on the record on how to adjust these costs. As a result,

the normal values calculated from Severstal's reported FOP database

cannot serve as a reliable basis for reaching a final determination

(see section 782(e)(3) of the Act), and we have instead relied on facts

available for Severstal for this final determination.

Although the reported FOPs were not on a CONNUM-specific basis, we

found that the FOPs reported by Severstal were consistent with the data

kept by the company in the normal course of business. Also, in the

aggregate, we did not find any reason to suggest that the reported

costs did not accurately reflect the costs associated with all subject

merchandise in its entirety. Therefore, as facts available, we have

calculated one weighted-average normal value and compared all U.S.

prices to the single normal value.

Notwithstanding the Department's decision to use Severstal's

reported FOP data in this manner, this decision does not represent an

endorsement by the Department of Severstal's methodology for reporting

factor data. As explained in detail below in Comment 2, there are

serious flaws in Severstal's methodology which render ineffective the

Department's established methodology of calculating dumping margins on

the basis of comparisons of sales prices for individual U.S. products

to product-specific normal values. In particular, the Department is

advising Severstal that the reporting methodology used in this

investigation will be unacceptable for future segments of this

proceeding. The use of Severstal's factor data in an administrative

review, in which assessment rates for antidumping duties are

calculated, could result in an understated margin due to the effects of

averaging Severstal's FOP data into one normal value. In such future

segments, Severstal risks the application of adverse facts available in

the event that it fails to report FOP data that (1) is allocated

sufficiently to discrete grades or qualities; (2) yields NVs which are

reflective of the grades to which they relate; and (3) measures the

factors of production of merchandise actually being produced.

Russia-Wide Rate

Section 776(a)(2)(A) of the Act requires the Department to use

facts available when a party withholds information which has been

requested by the Department. Additionally, section 782(i)(1) of the Act

provides that the Department must rely on verified information for

making a final determination in an antidumping duty investigation. In

this case, some exporters of the single enterprise failed to respond to

the Department's request for information and MMK and NISCO withdrew

from the investigation prior to verification of their questionnaire

responses. Thus, consistent with section 782(e)(2) of the Act, we have

declined to consider information submitted by either MMK or NISCO

(including information regarding their eligibility for separate rates)

because it could not be verified. Pursuant to section 776(a) of the

Act, in reaching our final determination, we have used total facts

available for the Russia-wide rate because certain entities did not

respond and we could not verify MMK's and NISCO's questionnaire

responses.

Adverse Facts Available

Russia-Wide Rate

Section 776(b) of the Act provides that, in selecting from among

the facts available, the Department may employ adverse inferences when

an interested party fails to cooperate by not acting to the best of its

ability to comply with requests for information. See also ``Statement

of Administrative Action'' accompanying the URAA, H.R. Rep. No. 103-

316, 870 (``SAA''). The statute and SAA provide that such an adverse

inference may be based on secondary information, including information

drawn from the petition.

Because certain exporters in the single entity did not respond to

our questionnaire and others (i.e., MMK and NISCO) withdrew from this

proceeding, we consider the single entity to be uncooperative.

Therefore, the Department has determined that, in selecting from among

the facts available, an adverse inference is appropriate. Consistent

with Department practice in cases in which a respondent has been

uncooperative, as adverse facts available, we have applied a margin

based on information in the petition (see Comment 1 below and

Initiation Checklist: Certain Hot-Rolled Flat-Rolled Carbon-Quality

Steel Products from Japan, Brazil, and the Russian Federation,

Attachment: Revised NVs and Margins for Russia (October 19, 1998)

(``Initiation Checklist'')).

Section 776(c) of the Act provides that, when the Department relies

on secondary information, such as the petition, as facts available, it

must, to the extent practicable, corroborate that information from

independent sources that are reasonably at its disposal. The SAA

clarifies that ``corroborate'' means that the Department will satisfy

itself that the secondary information to be used has probative value

(see SAA at 870). The SAA also states that independent sources used for

corroboration may include, for example, published price lists, official

import statistics and customs data, and information obtained from

interested parties during the particular investigation (see id.).

In order to determine the probative value of the petition margins

for use as adverse facts available for the purposes of this

determination, we have examined evidence supporting the petition

calculations. In accordance with section 776(c) of the Act, to the

extent practicable, we examined the key elements of the U.S. price and

normal value calculations on which the petition margin was based. In

corroborating U.S. price data, we compared the data used in the

petition to the reported sales database of Severstal, the only Russian

respondent whose questionnaire response was verified. In corroborating

NV information, we made certain adjustments to account for surrogate

values used in the final determination. Based on this analysis, we have

corroborated the highest margin in the petition, as adjusted by the

Department for this final determination. See Facts Available

Corroboration Memorandum, date July 12, 1999.

For these reasons, we have chosen the highest petition margin, as

adjusted, as the basis for using total adverse facts available for the

single Russian entity. See Facts Available Corroboration Memorandum.

The revised highest petition rate, which we have used as the Russia-

wide rate, is 184.56 percent.

Fair Value Comparisons

To determine whether sales of hot-rolled steel products from Russia

to the United States by Severstal were made at less than fair value, we

compared the EP to the NV, as described in the ``Export Price'' and

``Normal Value'' sections of this notice.

Export Price

For Severstal, we preliminarily calculated EP in accordance with

section 772(a) of the Act because the subject merchandise was sold to

the first

[[Page 38631]]

unaffiliated purchaser in the United States prior to importation and

constructed export price (``CEP'') methodology was not otherwise

indicated. In accordance with section 777A(d)(1)(A)(i) of the Act, we

compared POI-wide weighted-average EPs to the NV based on factors of

production.

We calculated EP based on either packed FOB prices or FCA (free

carrier) prices to unaffiliated trading companies. When appropriate,

for FOB sales, we made deductions from the starting price for brokerage

and handling. These services were assigned a surrogate value based on

public information from Certain Circular Welded Carbon Steel Pipe and

Tube from Turkey. See Memorandum to Edward C. Yang; Re: Factor

Valuation for Severstal, MMK, and Novolipetsk (``Factor Valuation

Memo''), dated February 22, 1999. We also made adjustments for foreign

inland freight, which was valued using Polish transportation rates,

since public information on Turkish values was unavailable. Because the

mode of transportation reported by Severstal is proprietary, for a

further discussion, see Factor Valuation Memo (proprietary version).

In a pre-verification correction, Severstal reported that certain

sales were erroneously included in the sales database due to miscoding

of the specification date. For the final determination, we excluded

these sales for purposes of our margin calculation. See Calculation

Memorandum for the Final Determination for JSC Severstal from Lyn

Baranowski to The File dated July 12, 1999 (``Final Calculation

Memo'').

Normal Value

A. Factors of Production

Section 773(c)(1) of the Act provides that the Department shall

determine the NV using a factors-of-production methodology if: (1) the

merchandise is exported from an NME country; and (2) the information

does not permit the calculation of NV using home-market prices, third-

country prices, or constructed value under section 773(a) of the Act.

Factors of production include: (1) hours of labor required; (2)

quantities of raw materials employed; (3) amounts of energy and other

utilities consumed; and (4) representative capital costs, including

depreciation. We calculated NV based on factors of production reported

by Severstal with the following exceptions: Severstal's ``charge by-

products,'' packing bands, and cleaning gas. For further discussions of

these exceptions, see Factor Valuation Memo, Final Calculation Memo. We

valued all the input factors using publicly available information as

discussed in the ``Surrogate Country'' and ``Factor Valuations''

sections of this notice.

At verification, we discovered that Severstal did not include labor

costs for supervisors, specialists, and administrative personnel in

their calculation of labor expenses. We also note that there is no

indication that the overhead ratio derived from the Turkish data is

inclusive of factory overhead that includes these kind of employees. As

facts available, we have adjusted the reported labor factor in the

manner explained in the Final Calculation Memo.

At verification, we discovered that EAF slab inputs were

overreported while BOF slab inputs were underreported at hot-shop two

(see Verification Report at 16-17). We have determined that because the

change has a minimal effect and the misreported slab inputs effectively

offset one another, we will continue to value these inputs as reported.

See Final Calculation Memo.

At verification, we additionally found that Severstal underreported

the amount of recycled materials at two shops: at hot-shop two for

certain products and at the sintering shop (see Verification Report at

17). We have continued to value the by-product as reported by

Severstal, because the use of the reported values is conservative. See

Final Calculation Memo.

We also discovered at verification that Severstal excluded one

supplier of iron ore from its calculation of iron ore usage at the

sintering shop, thereby underreporting iron ore usage for every CONNUM

(see Verification Report at 17). Because of the complex calculations

this change involves and because of its minimal effect, we have used

the reported iron ore usage rates. See Final Calculation Memo.

We found at verification that Severstal underreported natural gas

usage at hot-shop one (see Verification Report at 19), a change which

affects all cost codes. As facts available, we recalculated natural gas

usage for one cost code and applied the percent change for that cost

code to all other cost codes for natural gas input. See Final

Calculation Memo.

We also found at verification that Severstal underreported the

benzoil by-product credit at the coke furnace. Because of the complex

calculations this change involves and its minimal effect, and because

the use of the reported by-product credit is more conservative, we have

used the reported benzoil by-product credit. See Final Calculation

Memo.

Finally, we note that in the preliminary determination, we included

packing labor, as reported by Severstal, in overall packing cost.

However, we have since found that Severstal included packing labor in

the reported direct labor factor. Therefore, to avoid double-counting

of packing labor, we reduced Severstal's direct labor factor by the

packing labor factor. See Final Calculation Memo for additional

details.

B. Factor Valuations

In the preliminary determination, we used Turkey as the surrogate

country but said that we would re-evaluate that choice for the final

determination. Although there is now more Polish information on the

record, we are continuing to use Turkey as the surrogate country (see

Comment 4).

The selection of the surrogate values was based on the quality and

contemporaneity of the data. When possible, we valued material inputs

on the basis of tax-exclusive domestic prices in the surrogate country.

When we were not able to rely on domestic prices, we used import prices

to value factors. When appropriate, we adjusted import prices to make

them delivered prices. For those values not contemporaneous with the

POI, we adjusted for inflation using producer or wholesale price

indices, as appropriate, published in the International Monetary Fund's

International Financial Statistics.

To value coal, iron ore concentrate, iron ore pellets, recycled

materials, and scrap, we used public information published by the

United Nations Trade Commodity Statistics for 1997 (``UNTCS'').

Severstal did not provide information on the record regarding iron

content for iron ore pellets; however, we determined at verification

the iron content of Severstal's iron ore. For the final determination,

we have continued to value iron ore pellets based on the same data as

was used for the preliminary determination, because the iron content of

the pellets for this data is comparable to the iron ore pellets used by

Severstal. See Factor Valuation Memo, Attachment 6.

For limestone, coal tar, and kerosene, we used information from

1996 UNTCS. For packing, Severstal reported that it uses a certain

material for bands, and we discovered at verification that the same

material is used for fasteners. Therefore, we have used the 1996 UNTCS

data for valuing bands and fasteners for the final determination.

We have valued by-products in the production of hot-rolled steel

reported

[[Page 38632]]

by Severstal. We have valued non-solid by-products at their natural gas

equivalents. We have valued solid by-products based on 1996 and 1997

UNTCS data.

For some of the energy inputs reported (natural gas, blast furnace

gas, coke oven gas, and electricity), we relied on public information

from ``Energy Prices and Taxes: 2nd Quarter 1998,'' published by the

International Energy Agency, OECD.

For movement, because we were unable to obtain publicly available

Turkish values, we used Polish transport information to value

transportation for raw materials. Since the mode of transportation

reported by Severstal is proprietary, for a full discussion of this

issue, see Factor Valuation Memo (proprietary version).

For labor, we used the Russian regression-based wage rate at Import

Administration's homepage, Import Library, Expected Wages of Selected

NME Countries, revised in May 1999. Because of the variability of wage

rates in countries with similar per capita gross domestic products,

section 351.408(c)(3) of the Department's regulations requires the use

of a regression-based wage rate. The source of this wage rate data on

Import Administration's homepage is found in the 1998 Year Book of

Labour Statistics, International Labour Office (``ILO'') (Geneva:

1998), Chapter 5B: Wages in Manufacturing. This value differs from that

used in the preliminary determination, because it reflects a more

contemporaneous period.

As in the preliminary determination, to value overhead, general

expenses and profit, we used public information reported in the 1997

financial statements of Eregli Demir ve Celik Fabrikalari TAS

(``Erdemir''), a Turkish steel producer. We adjusted Erdemir's

depreciation expenses for the effects of high inflation, and we reduced

its financial expenses by including estimated short-term interest

income and excluding estimated long-term foreign exchange losses. For a

further discussion of this issue, see Attachment 10 of the Factor

Valuation Memo.

For the final determination, we adjusted Erdemir's profit ratio to

account for the adjustment made to the financial expense ratio, as

explained above. For a further explanation, see Comment 4 below and the

Memorandum from Lyn Baranowski and Bill Jones to Rick Johnson dated

July 12, 1999 (``Final Cost Memo'').

Verification

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

information submitted by Severstal for use in our final determination.

We used standard verification procedures including examination of

relevant accounting and production records and original source

documents provided by respondents. Our findings are contained in the

Verification Report.

Critical Circumstances

Section 735(a)(3) of the Act provides that, in a final

determination, 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.

1. History or Knowledge of Dumping and Material Injury

In determining whether there is a history of dumping and material

injury by reason of dumped imports, the Department considers evidence

of an existing antidumping order on hot-rolled steel from Russia in the

United States or elsewhere to be sufficient. In this case, petitioners

alleged that Chile, Indonesia, and Mexico all have current antidumping

duty orders covering hot-rolled steel from Russia. Our research shows

that the Chilean antidumping order is no longer in effect; therefore,

we are not considering it for purposes of this determination. However,

presently, there are antidumping duty orders in effect in Indonesia and

Mexico on Russian hot-rolled steel. As a result, we find that with

respect to hot-rolled steel from Russia, there is a history of dumping

causing material injury. Since we have found a history of dumping

causing material injury with respect to Russia, there is no need to

examine importer knowledge.

2. Massive Imports

In order to determine whether imports of the merchandise have been

massive over a relatively short period, in accordance with 19 CFR

351.206(h), we consider: (1) volume and value of the imports; (2)

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

consumption accounted for by the imports.

When examining volume and value data, the Department typically

compares the export volume for equal periods immediately preceding and

following the filing of the petition. Consistent with 19 CFR

351.206(h), unless imports in the comparison period have increased by

at least 15 percent over the imports during the base period, we

normally will not consider the imports to have been ``massive.'' In

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

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

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

proceeding, that a proceeding was likely. In this case, petitioners

argue that prior to the filing of the petition, importers, exporters,

or producers of Russian hot-rolled steel had reason to believe that an

antidumping proceeding was likely. We find that press reports,

particularly in March and April 1998, indicate that, by the end of

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

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

Russia (see Final Critical Circumstances Memo). Therefore, to determine

whether imports of subject merchandise have been massive over a

relatively short period, we examined Severstal's export volumes from

May-September 1998, as compared to December 1997-April 1998 and found

that there were massive imports from Severstal over this period.

Because this analysis involves proprietary information, see the Final

Critical Circumstances Memo for additional details.

Concerning seasonal trends, we have no reason to believe that

seasonal trends affected the import levels in this case. Therefore, in

determining whether imports were massive over the ``relatively short

period,'' we did not analyze the affects of seasonal trends.

When examining the share of domestic consumption accounted for by

the imports from Severstal, we find that Severstal accounted for an

increasing percentage of the U.S. market from the period December 1997-

April 1998 when compared to May 1998-September 1998. As this analysis

involved proprietary information, please refer to the Final Critical

Circumstances Memo for additional details.

Based on the history of dumping causing material injury with

respect to Russia and the massive imports noted above, the Department

determines that critical circumstances exist for Severstal.

3. Russia-Wide Entity Results

With respect to companies subject to the Russia-wide rate (which

will apply to NISCO, MMK, and companies which

[[Page 38633]]

did not participate in the investigation), we have determined that

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

imports because we found evidence of existing antidumping duty orders

on hot-rolled steel from Russia in Indonesia and Mexico (see discussion

above). Since we have found a history of dumping causing material

injury with respect to Russia, there is no need to examine importer

knowledge.

In order to determine whether imports of the merchandise have been

massive over a relatively short period, in accordance with 19 CFR

351.206(h), we have examined the volume and value of the imports in

question in the manner described above and find that there was a 98

percent increase in imports from the Russia-wide entity from May-

September 1998, as compared to December 1997-April 1998. See Final

Critical Circumstances Memo for an additional description.

Concerning seasonal trends, we have no reason to believe that

seasonal trends affected the import levels in this case. Therefore, in

determining whether imports were massive over the ``relatively short

period,'' we did not analyze the affects of seasonal trends.

When examining the share of domestic consumption accounted for by

the imports from the Russian entity, we find that imports from Russia

accounted for an increasing percentage of the U.S. market from the

period December 1997--April 1998 when compared to May 1998-September

1998. Based on our analysis of these criteria, we have determined that

there were massive imports from the Russia-wide entity over this

period.

Based on the history of dumping causing material injury with

respect to Russia and the massive imports noted above, the Department

determines that critical circumstances exist for the Russia-wide

entity.

Interested Party Comments

Comment 1: Adverse Facts Available for MMK and NISCO

Petitioners assert that the Department should draw an adverse

inference from MMK's and NISCO's withdrawal and base the final margins

for these companies on the highest individual margins calculated for

each in the Department's preliminary determination. Specifically,

petitioners maintain that the statute requires that the Department

``use the facts otherwise available in reaching the applicable

determination'' when an interested party ``provides such [necessary]

information but the information cannot be verified as provided in

section 1677m(i) of this title.'' 19 U.S.C. 1677e(a) (section 776(a) of

the Act). Likewise, citing the Notice of Final Determination of Sales

at Less Than Fair Value: Steel Wire Rod from Venezuela, 63 FR 8946,

8947 (February 23, 1998) (``Steel Wire Rod from Venezuela'') and Final

Determination of Sales at Less Than Fair Value: Vector Supercomputers

From Japan, 62 FR 45623, 45623, 45625-45 (August 28, 1997) (``Vector

Supercomputers''), petitioners contend that it is the Department's

longstanding practice to use total facts available to establish the

dumping margin when the party prevents the Department from verifying

its data and withdraws from participation in an investigation. Finally,

petitioners argue that in its application of facts available, the

Department should draw an adverse inference based on MMK's and NISCO's

failure to cooperate to the best of their ability. They claim that the

statute and Departmental practice support drawing an adverse inference

when a respondent has withdrawn, citing 19 U.S.C. 1677e(b) (section

776(b) of the Act); Steel Wire Rod from Venezuela at 63 FR 8947; and

Vector Supercomputers at 62 FR 45625-45626. Also, petitioners maintain

that central to the Department's use of facts available is the need to

ensure that a respondent does not benefit from its refusal to

cooperate. Citing Notice of Final Results and Partial Recission of

Antidumping Duty Administrative Review; Roller Chain, Other than

Bicycle, from Japan, 62 FR 60472, 60477 (November 10, 1997),

petitioners assert that in considering whether the selected facts

available are sufficiently ``adverse,'' one factor the Department

considers is the ``extent to which a party may benefit from its own

lack of cooperation.'' Without the application of adverse inferences,

petitioners assert that MMK and NISCO stand to benefit from their

refusal to cooperate.

Respondents MMK and NISCO did not comment.

Department's Position

We agree in part with petitioners. We find that, with respect to

MMK and NISCO, for the reasons discussed above in the Facts Available

section, we are applying facts available and have determined that an

adverse inference is appropriate. However, we disagree with

petitioners' proposal to use the highest individual margins calculated

in the preliminary determination. Under section 782(i)(1) of the Act,

the Department must rely on verified information for making a final

determination in an antidumping duty investigation. MMK's and NISCO's

withdrawal prior to verification of their questionnaire responses

prevents the Department from using their information to calculate a

weighted-average margin for our final determination. In addition, the

Department does not normally use any of such information as facts

available. We also note that because MMK's and NISCO's information

could not be verified, they are not entitled to a separate rate in this

proceeding. As such, MMK and NISCO are part of the Russia-wide entity,

as explained above in the Facts Available section of this notice.

Moreover, contrary to petitioners' claims, using MMK's and NISCO's

unverified information as the basis for the final margin could

potentially benefit them by assigning a margin lower than what would

have been calculated using verified information. As noted above, in

cases such as this one, the Department relies on the facts otherwise

available, normally data from the petition, in making its

determination. In this instance, we have no basis to depart from this

practice. Therefore, we find that the highest rate alleged in the

petition, as corroborated by the Department, is the appropriate facts

available rate in this determination.

Comment 2: Severstal's Factors of Production Methodology

Petitioners state that section 776 of the Act mandates that the

Department employ total facts available if ``necessary information is

not on the record,'' respondent's information ``cannot be verified,''

or if respondent ``fails to provide information...in the form and

manner requested'' (see 19 U.S.C. 1677e(a)). Petitioners claim that in

this proceeding, each of these statutory criteria is satisfied and the

Department must employ facts available for Severstal as a result.

First, petitioners claim that for some of its U.S. sales, Severstal

failed to report yield strength, despite being instructed to do so

twice by the Department (referencing Sections C and D Questionnaire

(October 30, 1998) (Questionnaire) at C-10 and V-4 and the Sections C

and D Supplemental Questionnaire (January 4, 1999) (Supplemental

Questionnaire) at number 10). Petitioners argue that Severstal's

explanation that yield strength was not reported when the relevant

specification did not require yield strength is unpersuasive; a

qualified metallurgist, they claim, could determine the likely yield

strength of every ASTM grade reported by

[[Page 38634]]

Severstal. Alternatively, petitioners cite what they claim to be a

standard reference work which would permit extrapolation of the yield

strength of numerous steel products (Modern Steels and Their

Properties: Carbon and Alloy Steel Bars, 6th Ed., Bethlehem Steel

Corporation (1961)). Petitioners suggest applying facts available to

Severstal's U.S. sales dataset by matching all sales where Severstal

reported a ``4'' for yield strength to COSTCODE ``1,'' the COSTCODE

which contains the highest reported factor usage amounts in the factors

of production (FOP) database.

Second, Severstal's failure to report CONNUM-specific (model-

specific) FOPs, as requested by the Department (see the Questionnaire

at C-42 and D-3 and the Supplemental Questionnaire at number 38) merits

facts available treatment, petitioners contend. Petitioners point out

that products were assigned to seven cost codes based on broad

categories which do not match the Department's model match criteria.

Petitioners assert that Severstal's cost codes do not account for yield

strength, width, pickling, or edge trimming. Additionally, petitioners

contend that Severstal does not classify its products based on the

characteristics of merchandise actually produced. Instead, products are

classified on the basis of the requirements contained in the order

specification and costed in this manner. Costs, therefore, reflect

merchandise grouped together at the time the order is placed, and do

not reflect the cost of the merchandise actually produced, which can

vary from the original order.

Petitioners assert that Severstal's claim that it was unable to

report CONNUM-specific factors is unavailing. Petitioners state that

most companies, in the normal course of business, do not maintain data

that corresponds to the product groups identified by the Department for

purposes of the margin calculation. Respondents routinely allocate

costs maintained in their normal accounting records to CONNUMs,

petitioners argue. According to petitioners, Severstal has made no

attempt to allocate costs in this manner, and therefore the Department

should not allow Severstal to be exempt from these fundamental

reporting requirements. Petitioners assert that these requirements are

consistent with instructions to every respondent in antidumping

proceedings (citing Final Results of Antidumping Duty Administrative

Review: Certain Cut-to-Length Carbon Steel Plate from Mexico, 64 FR 76,

77-78 (January 4, 1999)).

Petitioners argue that Severstal could have derived the total

volume of each input used to produce subject merchandise and, using

information on which CONNUMs require more or less of a given input,

could have arrived at an allocation which would allow CONNUM-specific

factor reporting. Severstal's failure to attempt this kind of exercise

indicates that Severstal did not act to the best of its ability in

reporting factors, petitioners assert.

Another point raised by petitioners is that there are numerous

inconsistencies with respect to Severstal's assignment of cost codes to

CONNUMs. For example, petitioners assert that Severstal has assigned

distinct grades and qualities of steel to the same cost code,

indicating that the cost associated with producing each of these grades

is the same. Additionally, petitioners contend that Severstal has

assigned distinct grades to one CONNUM, indicating that the physical

characteristics of these grades are the same. Petitioners also contend

that the factor amounts (and resulting total manufacturing costs and

normal values) reported by Severstal do not appear to bear any

relationship to the products for which they were reported. Finally,

petitioners maintain that Severstal's reporting of its internal product

information is inconsistent between cost codes and the corresponding

product codes.

In summary, petitioners believe that 1) Severstal's reported

factors and costs bear no relationship to CONNUMs; 2) Severstal has

failed to provide information requested by the Department; and 3) the

information that Severstal did provide is inconsistent, inaccurate, and

unreliable. As a result, petitioners argue that the normal values

derived from Severstal's factors ``cannot serve as a reliable basis for

reaching the applicable determination'' and that the submitted costs

cannot ``be used without undue difficulties'' (citing section 776 of

the Act). Therefore, petitioners maintain that total adverse facts

available is warranted for Severstal in this proceeding.

Concerning the reporting of yield strength for U.S. sales,

Severstal contends that reported yield strength plays no role in the

calculation of Severstal's margin and, therefore, Severstal's failure

to report yield strength for all sales does not effect the outcome of

this proceeding. Severstal maintains that because U.S. sales are not

matched to home market sales on the basis of physical characteristics

in an NME case, precise reporting of all the product characteristics

used to generate CONNUMs is not necessary. Severstal additionally

states that the Department verified that yield strength plays no role

in the calculation of FOPs and that Severstal did report yield strength

to the best of its ability. Severstal states that although a

metallurgist could have determined likely yield strength for the sales

for which no yield strength was reported, Severstal, in accordance with

the Department's instructions, reported yield strength only where there

was documentary evidence for such an assignment, and not based on

unverifiable estimates by Severstal personnel. As such, Severstal urges

the Department to dismiss petitioners' request for facts available

treatment due to the failure to report yield strength for all U.S.

sales.

Severstal claims that petitioners' second argument, that the

Department should apply total adverse facts available to Severstal's

cost system, should be rejected by the Department. Severstal first

states that it reported its factors of production to the greatest level

of detail permitted by the applicable Factory Cost Ledgers. Severstal

asserts that it accurately assigned the factors to individual U.S.

sales by identifying the physical characteristics of the merchandise

sold against the definition of the products included within its product

groups. Severstal states that it assigned FOPs to individual

transactions on the basis of cost codes because that is most

representative of the manner in which it conducts business. Severstal

contends that it cannot allocate factors calculated according to the

internal product groups to individual CONNUMs. Should the Department

decide to calculate an average cost on the basis of CONNUM, Severstal

argues that it would need only to calculate a simple average of the

cost codes assigned to transactions with the same CONNUM in Severstal's

U.S. sales database (consistent with the approach taken for the

preliminary determination).

Severstal argues that if petitioners are suggesting that a more

complex method of allocating factors to individual CONNUMs is possible

in this case, then petitioners misunderstand the record in this case.

Severstal states that: (1) Its records permit it to identify the volume

of inputs in each of the cost code groupings included in the Factory

Cost Ledgers; (2) it does not know whether the production of certain

CONNUMs requires more or less of a given output; and (3) it is

impossible, based on their system, for the company to rank the factor

inputs required to produce each of the reported CONNUMs. Severstal

contends that petitioners offer many proposals concerning what

Severstal should have done in the abstract, but do not offer any

suggestions regarding how these proposals would be implemented.

Severstal states that its cost system

[[Page 38635]]

simply does not have a framework that would allow it to allocate its

factors to CONNUMs.

Severstal states that the inconsistencies to which petitioners

refer each have logical explanations. Where Severstal has assigned

distinct grades and qualities to the same cost code, Severstal states

that the Department verified that these grades are pooled within the

same cost code category in the normal course of business. Where

Severstal has assigned distinct grades to the same CONNUM, Severstal

states that it is possible for different grades to have the same

physical characteristics, which is the basis for assigned CONNUMs.

Pursuant to petitioners' claim that the factor input amounts do not

appear to have any relationship to the product to which they relate,

Severstal asserts that its dataset reveals that some of the individual

FOPs assigned to the cost codes do differ and that in these cases, the

fact that the total manufacturing costs are similar is pure

coincidence. Concerning petitioners' argument that there are

inconsistencies in Severstal's reporting of cost codes and product

codes, Severstal states that the inconsistency to which petitioners

refer is simply caused by petitioners' misunderstanding of the cost

code group to which they refer.

In summary, Severstal argues that the Department should find that:

(1) Severstal does not maintain FOP information on a CONNUM-specific

basis; (2) it submitted factors data to the greatest level of detail

permitted by its normal books and records; and 3) Severstal's reporting

system is complete and reliable. As such, Severstal contends that the

Department should reject petitioners' demand for adverse facts

available treatment for Severstal in the final determination.

Department's Position

We agree, in part, with petitioners and disagree with respondents.

We determine that the application of facts available is appropriate,

because Severstal repeatedly failed to provide CONNUM-specific FOP data

and the data which it did supply did not reasonably reflect the actual

costs of producing the subject merchandise during the POI.

For purposes of calculating margins in an NME proceeding, the

Department first calculates weighted-average U.S. prices by model

(i.e., by CONNUM) and compares these prices to NVs by CONNUM created

from a respondent's FOP data. The respondent's U.S. sales database

includes product characteristic data, which the Department instructs

respondent to use in reporting CONNUM-specific FOP data. In both the

original and supplemental questionnaires in this proceeding, the

Department instructed Severstal to report CONNUM-specific FOP data;

however, Severstal stated that its accounting system did not allow it

to develop CONNUM-specific FOP data. In fact, for 61 distinct CONNUMs

(as defined in accordance with the Department's instructions),

Severstal calculated only seven discrete sets of factors and assigned

each CONNUM one (or more) of these seven sets of factors. At

verification, the Department found that, even when using Severstal's

own overly general FOP reporting methodology, Severstal could have

calculated eleven discrete sets of factors based on the system it

employed to report FOP data; however, Severstal chose to combine

several of its internal product classification categories to report

only seven.

The Department's review of Severstal's accounting system revealed

that the company does not assign product-specific costs to each of the

models reported in the sales database. In order to comply with the

Department's CONNUM-specific FOP reporting requirements, an allocation

of usages to grades would have been necessary (although not necessarily

sufficient). Severstal failed to develop a reasonable allocation

methodology for purposes of this proceeding and instead reported FOPs

based on internally recorded costs. Specifically, at verification, the

team found that, in its normal course of business, Severstal pools its

costs into broad categories. These categories do not correspond to

international commercially-acceptable standards (upon which the

Department's product concordance is based). For example, merchandise

which was reported as ``commercial'' quality in Severstal's U.S. sales

database is assigned to multiple sets of cost categories. The

considerable overlap in Severstal's internal designations and

Severstal's failure to develop a methodology to relate internal costs

to the Department's product concordance characteristics (such as

``quality'') resulted in FOP reporting which has little to do with the

reported product characteristics for the U.S. sales. For an in-depth

discussion of this issue, see Final Calculation Memo (proprietary

version) and the attached tables. It is clear that a comparison of

normal values calculated from overly general, and often inconsistent,

factor information would result in an inaccurate margin calculation.

Given the nature of the FOP data on the record, it is not feasible

for the Department to develop accurate CONNUM-specific FOPs using

Severstal's data. The normal values calculated for the preliminary

determination, which are based on Severstal's reported factor

information, are not accurate depictions of the costs for merchandise

to which they purport to relate. Specifically, the Department's

analysis of Severstal's normal values reveals anomalies in the relative

costs, based on the steelmaking process. For specific examples of

anomalies in the relative costs, see Final Calculation Memo

(proprietary version). These anomalies result directly from the

reported FOPs. This review of Severstal's normal values indicates that

Severstal's cost reporting system did not accurately associate cost

differences (and thus usages) to particular grades and qualities of

steel.

An additional problem is that Severstal's cost system does not

track costs of merchandise actually produced; rather, it tracks the

cost of merchandise as ordered by the customer. At verification, we

found that when a product is ordered, it is assigned a product grouping

and costed within the assigned grouping, regardless of the actual

production or chemical composition of the finished product.

Specifically, the Department verified one instance in which two

customers ordered products which were categorized within separate cost

categories. However, notwithstanding the merchandise's chemical

composition at the time of production and shipment (the mill

certificates indicate that the merchandise was, in all relevant

aspects, identical), each product was costed within the product group

it was assigned when the customer placed the order. See Final

Calculation Memo. Therefore, we conclude that Severstal's reported

``product-specific'' FOP data, do not reflect merchandise actually

produced.

In sum, Severstal did not report CONNUM-specific FOP data as

requested in the original and supplemental questionnaires and instead

explained that the limitations of their accounting system prevented

them from reporting FOPs on such a basis. Severstal made no attempt to

develop an alternative methodology that would allow the company to

assign production factors on a more consistent, product-specific basis,

despite the Department's expressed concern with the overly generalized

FOP methodology used. Therefore, we find that the application of facts

available for Severstal in the final determination is appropriate

because Severstal's FOP data: (1) Is not allocated sufficiently to

discrete grades

[[Page 38636]]

or qualities, resulting in NVs which are not accurate reflections of

the grades to which they relate; and (2) does not measure the FOPs of

merchandise actually being produced. As a result, the normal values

calculated from Severstal's FOP database, as reported, cannot serve as

a reliable basis for reaching a final determination (see 776(e)(3) of

the Act), and we are instead relying on facts available for Severstal

for this final determination in the manner described above (see Facts

Available section of this notice).

With respect to petitioners' argument that the Department should

apply total adverse facts available, we find that the use of adverse

facts available is not appropriate in this case notwithstanding the

deficiencies in Severstal's Section D response. As stated above, the

Department verified that, in its normal course of business, Severstal

records costs on the basis of the above-described product groups. Thus,

while necessary information is not available on the record to calculate

CONNUM-specific normal values for Severstal, we cannot conclude that

Severstal failed to cooperate by not acting to the best of its ability.

That is, the Department finds no reason to conclude that Severstal did

not make a good faith effort to report the requested FOP data utilizing

an internal system which it believed to be adequate. As noted above,

the need to resort to facts available stems from the fact that the data

Severstal provided, calculated based on an inadequate internal

accounting system, is unuseable.

We also disagree with petitioners' argument that the Department

should apply adverse facts available for those sales where there is no

specified minimum yield strength by assigning to them the cost code

with the highest reported factor of production inputs. As noted by

Severstal, it relied on ASTM grade descriptions to determine the yield

strength of the merchandise sold to the United States, and in cases

where the ASTM description did not include a description of yield

strength of the covered product, it coded those sales as having no

specified yield strength. At verification, the Department asked

Severstal personnel why there was no specified yield strength for the

ASTM A-569 specification despite the fact that the ASTM book maintained

by the Department specifies a yield strength for A-569. We verified

that the ASTM A-569 specification used during the POI (1993 version)

does not require yield strength. See Verification Report at pg. 10.

Based on the above, we do not find that application of adverse facts

available is appropriate for those sales with no specified yield

strength. Furthermore, the Department's decision to calculate one

weighted-average normal value renders the lack of a yield strength

insignificant.

Comment 3: Surrogate Freight Value

Petitioners argue that, should the Department not employ total

adverse facts available for Severstal, then it must revise the

surrogate rail freight information. Petitioners argue that due to the

size of Russia as compared to Poland, a rate schedule for a country the

size of Russia would include rates for distances greater than 1200

kilometers. Accordingly, petitioners contend that it is inappropriate

to base the freight rates for distances greater than 1200 kilometers on

rates that reflect the limited traveling distances within Poland. For

the final determination, petitioners urge the Department to recalculate

the freight rate for distances exceeding 1200 kilometers by dividing

the per-metric ton rate by 1200 and multiplying the resulting amount by

the relevant distance.

Severstal first argues that the tariff chart used to derive the

freight rates clearly shows that as the distance over which freight is

transported increases, the per-kilometer tariff rate decreases.

Therefore, Severstal argues, the Department's use of the per-kilometer

rate equivalent to 1200 kilometers used to value shipments which travel

more than 1200 kilometers is appropriate; the incrementally smaller

per-kilometer tariff for shipments at greater distances properly

reflects the fact that as the distance increases, the shipping expense

declines.

Second, Severstal contends that to calculate and apply a per-

kilometer freight value to transportation in Russia based on the

distance categories in Poland would improperly penalize Russia for its

size. Severstal maintains that the Department should not assume that

the per-kilometer freight cost incurred in the shorter distances in

smaller countries would apply to the distances in Russia.

Finally, Severstal argues that nothing in the information obtained

from the Polish source suggests that if longer distances existed in

Poland, the tariffs that would apply to shipments over those longer

distances would be calculated as a straight per-kilometer amount based

on the tariff for 1200 kilometer shipments. Severstal states that the

evidence on the record suggests that for distances greater than 1200

kilometers, the flat rate shown in the Polish tariff chart applies. In

Severstal's opinion, the Department should maintain the methodology

established for the preliminary determination in valuing surrogate

freight expenses.

Department's Position

We agree with respondents that our calculation of surrogate freight

rates in the preliminary determination was appropriate based on the

information on the record for this proceeding. Because none of the

relevant distances exceed 1200 kilometers, this issue with respect to

Severstal is moot (see Final Calculation Memo). For the final

determination, we have continued to apply the same methodology adopted

in the preliminary determination in valuing surrogate freight.

Comment 4: Surrogate Country Selection

Severstal argues that the Department should use Poland as the

primary surrogate country for the final determination in this

proceeding. Severstal notes that in the preliminary determination, the

Department relied on information from Turkey as the primary surrogate,

stating that although Turkey and Poland are economically comparable and

are both significant producers of subject merchandise, Turkey was

preferable due to data (specifically, financial data) availability.

Severstal notes that it submitted information clarifying the data from

Poland on both February 2 and April 2, 1999. Additionally, the April 2,

1999 submission contains a complete set of surrogate values which are

reasonably contemporaneous and publicly available, Severstal maintains.

Therefore, Severstal urges the Department to reconsider the selection

of surrogate country.

Severstal argues that Poland is superior to Turkey as a surrogate

country when examining other criteria used by the Department in past

cases. Specifically, Severstal contends that the distribution of the

labor force in Poland is more similar to that in Russia than is the

labor force distribution in Turkey.

Moreover, Severstal maintains that financial data from Erdemir,

upon which the Department relied in the preliminary determination, is

flawed for a number of reasons. First, Severstal argues that the

depreciation figure used is inflated because a substantial portion of

the amortization amount resulted from the revaluation of assets

required to counteract the impact of hyperinflation in 1997. Although

the Department adjusted depreciation for the preliminary determination,

Severstal contends that the Department should not burden itself with

the complexities that arise from the use of a hyperinflationary economy

like Turkey

[[Page 38637]]

as the primary surrogate when an alternative exists that meets all the

criteria for an acceptable surrogate and is not hyperinflationary.

Second, Severstal argues that the depreciation would need to be

additionally reduced to account for an additional adjustment noted in

the Auditor's Opinion of Erdemir's financials. Severstal notes that the

Department instructed petitioners to recalculate depreciation to

account for this reduction for the purposes of initiation (see

Supplemental Questionnaire on Petition on Certain Hot-Rolled Carbon

Steel Flat Products from the Russian Federation, 8-9 and Attachment L

(October 9, 1998) (Supplemental Questionnaire on Petition)), and

petitioners recalculated depreciation accordingly. However, for the

preliminary determination, Severstal argues, the Department did not

reduce depreciation to account for this reduction. Severstal argues

that the Department's failure to do so should be corrected for the

final determination.

Additionally, Severstal contends that the financial ratio

calculated by petitioners was ``swollen'' due to aberrational foreign

exchange differences. Although Severstal admits that the Department

corrected for this problem in the preliminary determination, Severstal

again contends that the Department should not burden itself with the

complexities that arise from the use of a hyperinflationary economy

like Turkey as the primary surrogate when an alternative exists that

meets all the criteria for an acceptable surrogate and is not

hyperinflationary.

Severstal also argues that the financing expenses portion of the

financial ratio and the development expenses were aberrational due to

the massive construction and development projects ongoing at Erdemir.

Severstal contends that Erdemir is not an appropriate surrogate due to

the fact that its productive assets are new and expanding while

Severstal's assets are contracting. Erdemir's data, in Severstal's

view, is aberrational when compared to the Russian industry and should

therefore not be used for the final determination (citing Final

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

Carbon Steel Plate from Poland, 59 FR 37205, 37207 (July 9, 1993),

Final Determination of Sales at Less Than Fair Value: Saccharin from

the People's Republic of China, 59 FR 58818, 58820 (November 15, 1994),

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

Length Carbon Steel Plate from the People's Republic of China, 62 FR

61964, 61987 (November 20, 1997) and Final Determination of Sales at

Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from

Ukraine, 62 FR 61754, 61764 (November 19, 1997)).

Severstal argues that the Department should not accept Erdemir's

data for the overhead expense ratio calculation, because that

calculation is based on what Severstal believes to be unsubstantiated

and unaudited figures contained in a fax from Erdemir to counsel for

petitioners. Severstal maintains that this overhead data does not meet

the Department's preference for publicly available information.

Severstal argues that the reliance on Erdemir's expense category

for the overhead expense ratio calculation may double-count some of the

expenses (all energy inputs other than natural gas, fuel oil, and

electricity, which are broken out separately) that Severstal has

reported as individual FOPs. Severstal speculates that the other energy

types not specifically listed are included in either the ``general

materials'' or ``other operating expenses'' figures in Erdemir's chart.

Severstal contends that the inclusion of the entire amount of the two

expense categories as well as Severstal's full range of energy factors

would effectively double-count all of the energy categories listed by

Severstal beyond the three mentioned in Erdemir's list (natural gas,

fuel oil, and electricity).

For the above reasons, Severstal urges the Department to select

Poland as the primary surrogate country in this proceeding.

Petitioners argue that the Department's use of Turkey as the

surrogate country in this proceeding is within its statutory mandate,

citing 19 U.S.C. 1677b(c)(4) (section 773(c)(4) of the Act).

Specifically, petitioners submit that Turkey is: (1) at a level of

economic development comparable to Russia; and (2) a significant

producer of hot-rolled steel. Furthermore, data from Turkey is publicly

available, fulfilling another of the Department's preferences in

selecting surrogate values, petitioners claim.

Petitioners maintain that Severstal's data supporting its argument

that the distribution of Poland's labor force is more similar to

Russia's than is Turkey's is unavailing. Specifically, they state that

Severstal's argument that the Turkish economy is less developed than

the Polish economy is contradicted by Severstal's statement that the

Turkish steel industry is new and expanding.

Concerning the merits of the financial data, petitioners believe

that Erdemir's financial data is much more reliable than that of the

Polish producer, Sendzimira. Petitioners submit that there is no

indication that the untranslated Sendzimira financial report submitted

on April 2, 1999 was ever made available to the public, raising the

issue of whether the information contained therein is publicly

available. Regardless of its availability, petitioners argue that there

is no indication that any of the Sendzimira information was examined by

an independent auditor and therefore there is no confirmation that the

data conforms with Poland's generally accepted accounting principles

(GAAP). Additionally, petitioners argue that the financial statements

are not accompanied by notes, which are necessary to understand the

methods used to derive the information provided in the financial

statements.

Third, petitioners point out that Sendzimira's financial

information does not segregate the manufacturing and non-manufacturing

components of expenses, and many of the expense accounts (such as labor

and other operating costs) are incurred for both manufacturing and non-

manufacturing costs. Petitioners claim that it is necessary to

segregate the manufacturing and non-manufacturing components because

the depreciation, SG&A and interest expense ratios used by the

Department are derived from only the manufacturing expenses (i.e., cost

of sales) portion. An accurate calculation of financial ratios depends

on accurate identification of the expenses, argue petitioners.

In addition, petitioners argue that Severstal overstated

manufacturing expenses and understated SG&A in the worksheets in which

it calculated financial ratios. As a result, petitioners argue,

Sendzimira's financial statements are inaccurate, incomplete, and

invalid and should be rejected for the final determination.

Unlike the Polish financial data, petitioners argue, Erdemir's

financial data are audited, accompanied by notes, and separately

identify many detailed accounts on the income statement. First,

petitioners refute Severstal's argument that there are anomalies within

Erdemir's financial data which render the data unuseable. Petitioners

state that Erdemir's currency exchange losses and its adjustment of

depreciable assets to account for inflation reflect ordinary financial

activity, for which the Department made simple adjustments in the

preliminary determination.

Concerning the calculation of depreciation, petitioners state that

the Department already adjusted Erdemir's depreciation ratio to account

for the effects of inflation in the preliminary

[[Page 38638]]

determination. Petitioners also argue that the Department should not

reduce Erdemir's depreciation expense to account for an item mentioned

in the company's auditor's letter, as requested by Severstal.

Petitioners contend that, as they informed the Department in the

supplemental questionnaire response on the petition (see the submission

dated October 9, 1998 at pp. 8-9), this item in the auditor's statement

indicates that Erdemir's change in depreciation practice was not

approved by the Turkish tax authorities and as a result, the lower

depreciation figure was not employed in reporting depreciation on the

financial statement. Petitioners, therefore, claim that Severstal's

requested adjustment to depreciation is inappropriate.

Concerning the calculation of financial expenses, petitioners state

that the Department already adjusted Erdemir's financial expense ratio

to account for non-current assets (principal foreign exchange

differences) in the preliminary determination. Petitioners therefore

claim that Severstal's requested adjustment to the financial expenses

ratio is inappropriate.

Concerning the calculation of overhead, petitioners contend that

the information upon which the Department relied to calculate overhead

in the preliminary determination is as publicly available as is the

Polish financial information placed on the record by Severstal.

Moreover, petitioners argue that this information is the only

information on the record relating to factory overhead.

With regard to Severstal's claim that the Department's overhead

calculation may double-count energy costs, petitioners argue that there

is no evidence that the ``other operating expenses'' category includes

any additional sources of energy. Petitioners state that it is likely

that Erdemir grouped the costs of all energy sources into three major

categories (natural gas, electricity, and fuel oil), which it

separately identified in its breakout of the components of cost of

sales. Petitioners argue that natural gas, fuel oil, and electricty

account for a substantial percent of energy costs included in the

calculation of normal value and that the energy costs not broken out on

Erdemir's financials could not exceed the remaining portion not

accounted for in the cost buildup of NV.

Finally, petitioners note that the Department should have made an

upward adjustment to Erdemir's profit amount in the preliminary

determination to offset the Department's downward adjustment to

Erdemir's reported financial expense and request that the Department,

to the extent that it makes a downward adjustment to Severstal's

financial expense amount in the final determination, make a

corresponding upward adjustment to Erdemir's profit amount.

Department's Position

In determining a surrogate country for use in a NME proceeding, the

Department, in accordance with section 773(c)(4) of the Act, shall

value a respondent's factors of production at the prices or costs in a

surrogate country that is at a comparable level of economic development

and is a significant producer of comparable merchandise. In the event

that more than one country satisfies both of the statutory criteria,

the Department may choose a single country on the basis of data

availability. For the preliminary determination in the instant case, we

used Turkey as the primary surrogate country, stating that the data

from Turkey is superior to that from Poland (see Preliminary

Determination at 64 FR 9315). However, we stated in the Preliminary

Determination that we would reexamine this issue for this final

determination should parties submit additional information.

Having examined the new information placed on the record concerning

the Sendzimira financial statements, we have decided to continue to use

Turkey as the primary surrogate country for the final determination. In

this case, we find that the financial statements from the Turkish

producer Erdemir are more reliable than those from the Polish producer

Sendzimira.

First, concerning the distribution of the labor forces, the

Department considered all of the countries included in the Memorandum

from Jeff May to Rick Johnson on Nonmarket Economy Status and Surrogate

Country Selection dated December 21, 1998 (``Policy Surrogate Memo'')

to be equally comparable in terms of economic development (see page 1

of Policy Surrogate Memo). We did not determine any country included in

the Policy Surrogate Memo to be preferable for surrogate country

purposes to any other included therein on the basis of distribution of

labor forces. Furthermore, as noted in the Surrogate Country Selection

Memorandum dated February 22, 1999 (``Surrogate Country Selection

Memo''), the Department finds that the fact that the World Bank did not

indicate the percentage of the Russian labor force in agriculture in

its World Development Report for 1998/99 to be a strong indicator of

the lack of knowledge concerning the present labor distribution in

Russia. See Surrogate Country Selection Memo.

Concerning the Erdemir financial statements, we first note that

many of the alleged problems with Erdemir's financial data that

Severstal cites were remedied by the Department for the preliminary

determination. Specifically, in the preliminary determination, the

Department: (1) adjusted the depreciation figure to account for the

revaluation of assets required to counteract the impact of

hyperinflation in 1997; and (2) adjusted Erdemir's financial expense

ratio to account for non-current assets (principal foreign exchange

differences).

Concerning Severstal's argument that depreciation should be further

adjusted to account for an additional adjustment noted in the Auditor's

Opinion, we agree with petitioners that although we adjusted

depreciation in this manner for the initiation of this investigation,

we now find that the statement in the Auditor's Opinion at issue

indicates that Erdemir revised its useful life estimates in 1996 but

then reverted to the original useful lives because it was unable to

obtain approval from the Turkish tax authorities for the revision.

Thus, we believe that the amount reported for depreciation on the

financial statements reflects the useful lives of Erdemir's fixed

assets. The depreciation expense listed on the financial statements,

therefore, should not be reduced because Erdemir has not received

approval for the revisions to the useful lives of its assets.

We find that Severstal's argument that Erdemir is not an

appropriate surrogate because its assets are expanding due to

construction and development projects, and that this data, therefore,

is aberrational, is unavailing. First, we note that whether a country's

economy is growing or shrinking is one of the factors examined when

developing a list of economically comparable countries. Additionally,

there is no evidence on the record that the kinds of activities that

Erdemir engaged in during 1997 are not representative of the kinds of

activities that a steel producer in a country of Turkey's level of

economic development would undertake in the normal course of business.

Furthermore, nothing in the statute, the Department's regulations or

past Department practice obligates the Department to consider the

specific activities in which a producer engages for any given year when

analyzing its data for purposes of surrogate country suitability. We

also note that a review of the financial statements from Sendzimira

shows that this company was also expanding, engaging in significant

capital

[[Page 38639]]

investments in 1997. Specifically, the Financial and Economic Results

portion of the financial statements (see the February 2, 1999

submission) refers to ``very high costs of the on-going modernization''

and discusses construction and modernization projects completed in

1997.

Concerning the calculation of overhead and the Department's use of

a fax from Erdemir to petitioners' counsel, we find that because it is

the only source of information on the record which specifically breaks

out factory overhead, it is appropriate to use this information for the

final determination. We also note that the fax at issue comes directly

from Erdemir, as certified by petitioners.

Concerning the potential double-counting of energy expenses raised

by Severstal, we find that there is no evidence that either ``other

operating expenses'' or ``general materials'' contains costs for energy

sources. Moreover, percent usage of all energy fields accounted for by

natural gas, fuel oil, and electricity is further indication that any

double-counting, if it exists, is negligible. See Final Calculation

Memo for a further description, because this analysis involves

proprietary information.

With regard to the profit rate calculation, we agree with

petitioners that because of the adjustment the Department made to the

financial expense ratio, we should have taken this adjustment into

account when calculating Erdemir's profit ratio, and have done so for

the final determination. See Final Cost Memo for a further description

of this adjustment.

Concerning the relative useability of the Polish and Turkish

financial data, although we believe that both sets of financial

statements at issue are useable, we believe that Erdemir's are

ultimately preferable given the following problems associated with the

Polish financial data.

First, neither the financial statements nor the detailed schedules

in the Polish financial statements are audited, and thus, there is no

confirmation that the data was prepared in accordance with Poland's

GAAP. Although it is not required that financial statements be audited,

the Department has established a clear preference to use audited

financial statements when available (see, e.g., Notice of Final

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

Reinforcing Bars from Turkey, 62 FR 9737, 9740 (1997) (noting

Department's preference for audited financials over the same company's

tax returns)).

Second, neither the financial statements nor the detailed schedules

in the Polish financial statements break out expenses between

manufacturing and non-manufacturing (i.e., G&A) expenses. This

methodology could result in some G&A expenses being classified by

Sendzimira as cost of manufacturing (COM), thus understating G&A in the

normal value calculation, since these G&A expenses would be excluded

from the derivation of the G&A ratio.

Third, Sendzimira was a government-owned and -operated entity for

one third of the year, and, although the financial data breaks out

amounts incurred before and after the government ceded control, we

normally prefer to use a full year's worth of operations to calculate

costs in order to eliminate fluctuations that may occur over shorter

periods (see, e.g., Circular Welded Non-Alloy Steel Pipe and Tube from

Mexico: Final Results of Antidumping Duty Administrative Review, 62 FR

37014 (1997). We also note that the financial statements indicate that

privatization is not yet complete.

Therefore, for all of the above reasons, we are continuing to use

Turkey as the surrogate country in this investigation.

Comment 5: Severstal's Pre-Verification Corrections

Severstal argues that the Department should correct two clerical

errors submitted at the beginning of verification. The first clerical

error was one affecting the FOP calculations for two of the reported

seven cost codes.

Severstal argues that because the Department has accepted the

underlying correction to the factual data (namely, revised Exhibit D-

7), the Department must make revisions in the calculation of the FOPs

for both cost codes. Severstal alleges that the information it

attempted to provide at verification (Exhibit D-9) was minor in nature

because it provides corrected calculations of the FOPs based on

mathematical manipulations of the data already submitted. Exhibit D-9,

Severstal argues, serves as a ``bridge'' from the data submitted in

various exhibits to the FOP information included on the Section D

computer file. Severstal claims that the Department's refusal to accept

the information violates the Court of Appeals' standard for accepting

corrections submitted by respondents in NTN Bearing Corp. v. United

States (74 F.3d 1204 (Fed. Cir. 1995) (NTN)). Severstal maintains that

if the Department persists in its refusal to accept the revised Exhibit

D-9 that Severstal attempted to submit at verification, then the

Department must determine the impact that the March 24 correction has

on the calculation of the FOPs for the two cost codes and create its

own corrected version of Exhibit D-9 for the cost codes.

Severstal contends that the Department should correct a second

clerical error described by Severstal at the outset of verification,

namely, the inclusion of data for two cost codes as one (reported

aggregately as cost code 5). Severstal argues that information on the

record clearly shows the error, no new information was submitted, and

Exhibits D-7, D-8, and D-22 contain breakouts for the cost code which

was inadvertently combined. Therefore, Severstal argues, only the

mathematical manipulations necessary to generate the factors of

production (Exhibit D-9) are required to calculate the FOPs for this

cost code.

Severstal contends that the identity of the CONNUMs affected by

this error are readily identifiable in Severstal's sales database,

because it would be impossible for sales of merchandise which was

reported with the relevant product code to be combined with factors

information for the relevant cost code.

Severstal also maintains that the error in pooling the factor data

for the cost code at issue was a result of the conditions surrounding

this investigation, including the accelerated schedule imposed by the

Department and the response deadlines. Severstal argues that the

Department adopted this schedule in response to political pressures in

the United States, which is inappropriate for the fundamental purpose

underlying the antidumping process (see, e.g., D&L Supply Co. v. United

States, 113 F.3d 1220, 1223 (Fed. Cir. 1997), Borlem S.A.--

Empreedimentos Industriais v. United States, 913 F.2d 933, 939 (Fed.

Cir. 1990), NTN, and Rhone Poulenc, Inc. v. United States, 899 F.2d

1185, 1191 (Fed. Cir. 1990)). Severstal suggests that should the

Department refuse to accept this clerical error on the basis that it is

not ``minor'' in nature, the Department will be compounding the

difficulties imposed on the respondent by its artificially accelerated

schedule.

Petitioners argue that the Department was correct in rejecting

Severstal's efforts to submit a substantially revised FOP dataset.

Concerning the first clerical error, petitioners argue that Severstal's

March 24, 1999 submission gave no indication that the error discovered

in Exhibit D-7 affected more than just Exhibit D-7. At verification,

petitioners argue, Severstal confronted the Department verifiers with a

new

[[Page 38640]]

exhibit showing that the one number corrected in the March 24

submission actually affected a huge range of other figures on the

record (i.e., all the reported FOPs for cost codes 1 and 2). This

correction, petitioners claim, would result in the revision of the

normal values associated with many of Severstal's U.S. sales.

Concerning the second clerical error, petitioners maintain that the

creation of an entirely new cost code (and an eighth set of FOP data)

would impact a significant portion of Severstal's U.S. sales.

Petitioners argue that a major revision to most of Severstal's FOP

data would render meaningless the Department's verification, since the

Department would not have been able to examine the new calculations or

data prior to its verification. Petitioners state that respondent bears

the burden of preparing and providing the Department with an accurate

submission within the statutory deadline (see NSK Ltd. v. United

States, 825 F. Supp. 315, 318-319 (CIT 1993)) and cannot expect the

Department to serve as a surrogate to guarantee the correctness of

submissions (see Murata Mfg. Co., Ltd. v. United States, 820 F.Supp.

603, 607 (CIT 1993)).

Petitioners argue that the U.S. Court of Appeals, in NTN,

considered three primary factors for determining whether to allow

untimely clerical error corrections requested by respondents: first,

the correction must not require the Department to begin anew, thus

wasting effort; second, it must not delay the final determination; and

third, the parties must have exercised due care during the course of

the proceeding. Petitioners contend that Severstal meets none of these

criteria. First, petitioners assert that the corrections would require

much more than a mathematical adjustment, as Severstal claims. The

effect of the change is significant and pervasive, in petitioners'

opinion; such an effect would fundamentally change the Department's

analysis and overall understanding of the dataset, requiring the

Department to ``begin anew.'' Petitioners point out that Severstal

devoted over a page in their case brief describing the calculations

required to adjust the data for one single product.

Second, petitioners argue that accepting the new FOP dataset would

delay the final determination. Because the Department is required to

verify information in an antidumping duty investigation, verification

of this information would require the Department to re-verify

Severstal's response once it had become familiar with the data, which

is a time-consuming undertaking.

Third, petitioners maintain that Severstal has not exercised due

care in its preparation of questionnaire responses. Petitioners believe

that Severstal's data contains inaccuracies and inconsistencies, and

lacks specificity. In addition, petitioners contend that corrected data

was not submitted until over two months after it was due under the

Department's extended questionnaire deadline. In petitioners' opinion,

Severstal should have evaluated its reported data well before its

preparation for verification.

Petitioners conclude that the Department was well within its

statutory requirements to reject the revised Exhibit D-9 and new cost

code information.

Department's Position

We agree in part with both petitioners and respondents.

Concerning Severstal's first clerical error, the error affecting

the FOP calculations for two of the reported seven cost codes, we agree

with respondent. The information (revised Exhibit D-7) affected two of

the reported seven cost codes. This underlying error was obviously

clerical in nature and represented a minor change to the pre-existing

Exhibit D-7. We find that in this case, the change did not require the

Department to begin anew and did not delay the final determination, and

that Severstal informed the Department of this error prior to

verification.

As a result, we have used information on revised FOPs for cost

codes 1 and 2 for our final determination. Please refer to the Final

Calculation Memo for additional details.

However, concerning Severstal's second clerical error, the

inclusion of data for two cost codes as one, we agree with petitioners.

We find that Severstal failed to provide the Department with necessary

information related to components of each cost code to which this

clerical error relates.

In its original Section D response dated December 21, 1998,

Severstal reported seven discrete cost codes and did not provide the

Department with any narrative description of the reported cost code

categories.

The March 15, 1999 verification outline informed Severstal that

``at verification, the Department cannot accept new information or

revisions to previously submitted information which would substantially

alter some or all of the questionnaire responses'' and that the

Department considered appropriate reporting of FOP data, based on

internal cost codes, to be central to the calculation of a valuable

margin. Consequently, Severstal was made aware of the importance the

Department placed on this issue prior to the deadline for submitting

new factual information in this proceeding (under section 351.301(b)(1)

of the Department's regulations, Severstal had until seven days before

the date on which verification began, or March 29, 1999, to submit new

factual information), and did not inform the Department at that time of

any revisions to the factors associated with the cost code at issue. At

verification, Severstal attempted to provide information to the

Department which would have created an eighth cost code, which

represented a major revision to Severstal's questionnaire response.

Moreover, because Severstal did not provide the Department with

both a narrative description of the cost code and the worksheets

demonstrating the calculations needed to derive the factors associated

with the cost code, it was impossible for the Department to determine

that Severstal maintained an additional unreported cost code. As the

Court held in NSK, ``an error in the original information submitted by

a respondent must be obvious from the administrative record in

existence at the time the error is brought to the ITA's attention.''

Unlike the clerical error discussed above, because information was not

provided for the affected cost code, the correction respondent

attempted to make was not obvious from the administrative record at the

time the error was brought to the Department's attention.

Moreover, we disagree with Severstal's argument that it is being

unfairly penalized as a result of the ``artificially accelerated

schedule.'' We note that the Department has acted in accordance with

the governing statute and regulations in this case. Specifically, the

Department has afforded respondent sufficient time, including several

extensions, to answer its questionnaires, and also has afforded

respondent the opportunity, as provided in section 782(d) of the Act of

the statute, to address deficiencies.

For the reasons discussed above, we have disallowed Severstal's

reported clerical error, the inclusion of data for two cost codes as

one, because the information included therein constituted substantial

new factual information which was submitted in an untimely fashion.

Additionally, because we verified that Severstal relied upon a complete

universe of data relating to subject merchandise to report its FOPs, no

adjustment is necessary to account for the unreported cost code

described above, due to the Department's

[[Page 38641]]

calculation of normal value, as discussed above in Comment 2.

Comment 6: Preliminary Critical Circumstances Determination

Severstal argues that because the Department's preliminary critical

circumstances determination (see Preliminary Determination of Critical

Circumstances: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel

Products from Japan and the Russian Federation, 63 FR 65750 (November

30, 1998) (``Preliminary Critical Circumstances Determination'')) was

issued more than two months before the Department's preliminary

determination in this proceeding, the Department was compelled to rely

on information from a period long before the period used in every other

antidumping investigation. As a result, Severstal contends that the

Department's haste in issuing an early preliminary critical

circumstances decision has generated an unlawful determination.

Specifically, in examining whether there were massive imports,

Severstal contends that the Department deviated from standard practice

(to compare import volumes 90 days after the filing of the petition to

the volume entered 90 days prior to filing of the petition) and instead

accepted petitioners' urgings to use the end of April 1998 as the

benchmark, thus comparing import volumes 5 months before and after

April 30, 1998 to determine if the increase was ``massive.'' Severstal

notes that the Department stated that the April 1998 date was selected

based on the press coverage during that period, stating that there were

significant increases in imports of hot-rolled steel from Russia and

that an antidumping case might be filed by the domestic industry on

hot-rolled steel. See Preliminary Critical Circumstances Determination.

Severstal submits that the press reports do not form the basis upon

which importers should have been aware of the likelihood of cases filed

against hot-rolled steel from Russia. Similarly, the Department cannot

assume, in Severstal's opinion, that the press reports themselves

caused the massive imports (in the same way that a petition may trigger

a sudden, massive increase). Severstal argues that the most the

Department can deduce is that importers, exporters and foreign

producers were aware that the U.S. industry was engaging in the common

tactic of threatening future trade cases if market conditions did not

improve. Severstal contends that these press reports are routinely used

as a tactical weapon by competitors to gain market share. These kinds

of press articles, Severstal maintains, cannot serve as a basis of

legal liability under the critical circumstances element of the

antidumping law.

Furthermore, Severstal argues that the Department's action cedes a

vital element of the critical circumstances determination to the

domestic industry, which is now empowered to issue press reports in a

strategic manner. Severstal asserts that these kinds of press reports

are commonplace and often do not lead to the filing of an antidumping

investigation. The critical circumstances provision of the antidumping

law is too significant for the Department to permit petitioners to

manipulate the temporal trigger for liability with press releases,

argues Severstal. In its opinion, the Department should base a final

critical circumstances determination on data before and after the date

of the filing of the petition.

Petitioners argue that the Department's determination of critical

circumstances with respect to hot-rolled steel from Russia was anchored

firmly in the Department's statutory and regulatory requirements.

Petitioners additionally contend that the Department's analysis is in

full accord with its legal mandates.

In choosing to base its analysis of whether there were massive

imports on a date earlier than the filing of the petition, the

Department was well within its statutory and regulatory mandate.

Specifically, petitioners cite section 351.206(i) of the Department's

regulations, which state that ``if the Secretary finds that importers,

or exporters or producers, had reason to believe, at some time prior to

the beginning of a proceeding, that a proceeding was likely, then the

Secretary may consider a period of not less than three months from that

earlier time.'' Thus, according to petitioners, the Department's

regulations are clear that the Department does not need to use the date

the proceeding begins.

Petitioners argue that there was a link between the news coverage

regarding potential antidumping cases and the subsequent massive

increase in Russian steel imports, as the Department acknowledged in

its Preliminary Critical Circumstances Determination. For the above

reasons, petitioners urge the Department to maintain its critical

circumstances finding in the final determination.

Department's Position

We agree with petitioners that in issuing an early preliminary

critical circumstances determination, the Department acted within

statutory and regulatory authority. As the statute (see sections

705(a)(2)(B) and 735(a)(3)(B) of the Act), our regulations (see 19 CFR

351.206(i)), and the Policy Bulletin (see Changes in Policy Regarding

Timing of Issuance of Critical Circumstances Determinations, October

15, 1998 (63 FR 55364)) make clear, the Department may issue a

preliminary critical circumstances determination prior to making a

preliminary determination of dumping, assuming adequate evidence of

critical circumstances is available. Moreover, if the facts of a case

show that importers, exporters, or producers had reason to believe that

a case was likely to be filed, the regulations provide that an earlier

base period can be used to measure the existence of massive imports.

In this case, consistent with the above cited provisions, we have

found that press articles from March and April 1998 indicated that a

dumping investigation on hot-rolled steel from Russia was likely, thus

giving importers, exporters, or producers reason to believe so.

Therefore, we have measured imports using the April 30, 1998 date as

the end of the benchmark period for purposes of determining whether

there were ``massive imports.'' Consistent with this analysis, we found

that there were massive imports after the April 30, 1998 date.

In conclusion, we find that our analysis and resulting preliminary

determination of critical circumstances was in full accord with both

the governing statute and regulations.

Continuation of Suspension of Liquidation

On July 12, 1999, the Department signed a suspension agreement with

the Ministry of Trade of the Russian Federation (the Agreement).

Therefore, we will instruct Customs to terminate the suspension of

liquidation of all entries of hot-rolled steel from Russia. Any cash

deposits of entries of hot-rolled steel from Russia shall be refunded

and any bonds shall be released.

On July 7, 1999, we received a request from petitioners requesting

that we continue the investigation. Pursuant to this request, we have

continued and completed the investigation in accordance with section

734(g) of the Act. We have found the following weighted-average dumping

margins:

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

Margins

Company (percent)

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

JSC Severstal.............................................. 73.59

Russia-Wide Rate........................................... 184.56

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

[[Page 38642]]

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

International Trade Commission (``ITC'') of our determination. Because

our final determination is affirmative, the ITC will, within 45 days,

determine whether these imports are materially injuring, or threatening

material injury to, the U.S. industry. If the ITC determines that

material injury, or threat of material injury does not exist, the

Agreement will have no force of effect, and the investigation shall be

terminated. See Section 734(f)(3)(A) of the Act. If the ITC determines

that such injury does exist, the Agreement shall remain in force but

the Department shall not issue an antidumping order so long as (1) the

Agreement remains in force, (2) the Agreement continues to meet the

requirements of subsections (d) and (l) of the Act, and the parties to

the Agreement carry out their obligations under the Agreement in

accordance with its terms. See section 734(f)(3)(B) of the Act.

This determination is issued and published in accordance with

sections 735(d) and 777(i)(1) of the Act.

Dated: July 12, 1999.

Bernard Carreau,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-18371 Filed 7-16-99; 8:45 am]

BILLING CODE 3510-DS-P