Hot-Rolled Lead and Bismuth Carbon Steel Products from Germany and the United Kingdom; Negative Final Determinations of Circumvention of Antidumping and Countervailing Duty Orders

DEPARTMENT OF COMMERCE

International Trade Administration

[A-412-810; C-412-811--A-428-811; C-428-812]

Hot-Rolled Lead and Bismuth Carbon Steel Products from Germany

and the United Kingdom; Negative Final Determinations of Circumvention

of Antidumping and Countervailing Duty Orders

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Negative Final Determinations of Circumvention of

Antidumping and Countervailing Duty Orders.

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SUMMARY: On May 1, 1998, the Department of Commerce published

preliminary negative determinations of circumvention of the antidumping

and countervailing duty orders on hot-rolled lead and bismuth carbon

steel products from Germany and the United Kingdom.

We provided interested parties an opportunity to comment on the

preliminary negative determinations. After our analysis of the case and

rebuttal briefs, we have determined that imports into the United States

of leaded steel billets that were exported from Germany and the United

Kingdom do not constitute circumvention of the antidumping and

countervailing duty

[[Page 40337]]

orders on hot-rolled lead and bismuth carbon steel products from

Germany and the United Kingdom, within the meaning of section 781(a) of

the Tariff Act of 1930, as amended.

EFFECTIVE DATE: July 26, 1999.

FOR FURTHER INFORMATION CONTACT: Russell Morris or Richard Herring,

Office of AD/CVD Enforcement, Office VI, Group II, Import

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

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

20230; telephone (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930 (the Act), as

amended, by the Uruguay Round Agreements Act (URAA), effective January

1, 1995. In addition, unless otherwise indicated, all references to the

Department's regulations are to 19 C.F.R. Parts 353 and 355 (1997).

Background

On March 22, 1993, the Department of Commerce (the Department)

published in the Federal Register the antidumping duty (AD) orders (58

FR 15334) and countervailing duty (CVD) orders (58 FR 15325, 15327) on

hot-rolled lead and bismuth carbon steel products (hot-rolled lead bar)

from Germany and the United Kingdom. On April 14, 1997, the Department

received an application (amended on May 14, 1997) filed by Inland Steel

Bar Company and USS/KOBE Steel Company (the petitioners) requesting

that the Department conduct anticircumvention inquiries of the AD and

CVD orders on lead bar from Germany and the United Kingdom pursuant to

section 781(a) of the Act. The petitioners alleged that the principal

German (Saarstahl A.G. i.K. and Thyssen Stahl A.G.) and British

(British Steel plc) producers of lead bar are circumventing their

respective orders by shipping leaded-steel billets (lead billets) to

the United States, where they are easily and inexpensively converted

into the lead bar products covered by the orders.

Pursuant to the petitioners' application and in accordance with 19

C.F.R. 353.29(e) and 355.29(e), the Department initiated circumvention

inquiries of the AD and CVD orders on hot-rolled lead bar from Germany

and the United Kingdom (62 FR 34213; June 25, 1997).

In conducting the inquiries, we requested and received detailed

information on a range of topics, such as processing, pricing, and

conversion costs. We also collected data on patterns of trade, sourcing

patterns, and other trend data for the period January 1, 1991 through

June 30, 1997, for the United Kingdom proceeding and January 1, 1988

through June 30, 1997, for the German proceeding.

The preliminary determination in this investigation was issued on

April 23, 1998. See Hot-Rolled Lead and Bismuth Carbon Steel Products

from Germany and the United Kingdom; Negative Preliminary

Determinations of Circumvention of Antidumping and Countervailing Duty

Orders, 63 FR 24156 (May 1, 1998) (Preliminary Determination).

In May 1998, we verified the responses of two of the re-rollers,

American Steel & Wire and Republic Engineered Steels. We followed

standard verification procedures, including meeting with company

officials, and examination of relevant accounting records and original

source documents. Our verification results are outlined in detail in

the verification reports, which are on file in public version form in

the Central Records Unit, Room B-099, of the Commerce Department.

In May 1998, the petitioners requested that the Department hold a

public hearing on these circumvention inquiries. Based upon their

request a hearing was held on July 29, 1998. Case and rebuttal briefs

were filed by the interested parties prior to the hearing. Comments

raised by the interested parties in their respective case and rebuttal

briefs are addressed in the ``Analysis of Comments Received'' section

of this notice.

Scope of AD and CVD Orders

Imports covered by these orders include hot-rolled bars and rod of

non-alloy or other alloy steel, whether or not descaled, containing by

weight 0.03 percent of lead or 0.05 percent of bismuth, in coils or cut

lengths, and in numerous shapes and sizes. The order excludes ``other

alloy steels,'' as defined by Chapter 72, note 1(f) of the Harmonized

Tariff Schedule of the United States (HTSUS), ``except steels

classified as other alloy steel by reason of containing by weight 0.4

percent or more of lead or 0.1 percent or more of bismuth, tellurium or

selenium.'' Most of the products covered are provided for under

subheadings 7213.20.00.00 and 7214.30.00.00 of the HTSUS. Small

quantities of these products may also enter the United States under the

following HTSUS subheadings: 7213.31.30.00, 60.00; 7213.39.00.30,

00.60, 00.90; 7214.40.00.10, 00.30, 00.50; 7214.50.00.10, 00.30, 00.50;

7214.60.00.10, 00.30, 00.50; and 7228.30.80.00. Although the HTSUS

subheadings are provided for convenience and for customs purposes, the

written description of the scope of the order remains dispositive.

Scope of the Circumvention Inquiries

The products subject to these circumvention inquiries are carbon or

alloy steel billets containing 0.03 percent or more of lead or 0.05

percent or more of bismuth (the only accepted metallurgical equivalent

to lead), and other alloy steel billets by reason of containing by

weight 0.4 percent or more of lead or 0.1 percent or more of bismuth,

tellurium or selenium, that meet the chemical requirements for the

merchandise subject to the orders.

Facts Available

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

available if ``an interested party or any other person * * * withholds

information that has been requested by the administering authority * *

* under this title.'' The facts on the record show that Bar Tech did

not comply with the Department's requests for information required to

calculate the value of the processing performed in the United States.

In our initial questionnaire dated September 10, 1997, the Department

requested information regarding the total amount of lead billet

consumed in the production of one unit of lead bar (lead billet

consumption rate). Bar Tech responded to our questionnaire on October

29, 1997, but did not provide its lead billet consumption rate.

The Department's supplemental questionnaires dated November 18,

1997 and January 7, 1998, again requested that Bar Tech report its lead

billet consumption rate. Bar Tech, however, did not provide its lead

billet consumption rate to the Department.

Section 776(b) of the Act permits the administering authority to

use an inference that is adverse to the interests of an interested

party if that party has ``failed to cooperate by not acting to the best

of its ability to comply with a request for information.'' Such an

adverse inference may include reliance on information derived from (1)

the petition, (2) a final determination in the investigation under this

title, (3) any previous review under section 751 or determination under

section 753 regarding the country under consideration, or (4) any other

information placed on the record. Because Bar Tech did not comply with

the Department's requests to provide its

[[Page 40338]]

lead billet consumption rate, we find that Bar Tech failed to cooperate

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

Department's information requests. Therefore, we are using adverse

inferences in accordance with section 776(b) of the Act. In making an

adverse inference for Bar Tech's lead billet consumption rate, the

Department has used the highest average lead billet consumption rate

submitted by another U.S. re-roller participating in these inquiries.

Corroboration of this data is not necessary because this information is

not considered secondary information. See Statement of Administrative

Action (SAA) accompanying the URAA, H.Doc. 103-316, Vol. 1, at 870

(1994).

Nature of the Circumvention Inquiry

Section 781(a)(1) of the Act provides that the Department, after

taking into account any advice provided by the United States

International Trade Commission (ITC) under section 781(e), may include

the imported merchandise under review within the scope of an order if

the following criteria have been met:

A. The merchandise sold in the United States is of the same class

or kind as any other merchandise that is the subject of--

(i) an antidumping duty order issued under section 736,

(ii) a finding issued under the Antidumping Act, 1921, or

(iii) a countervailing duty order issued under section 706 or

section 303;

B. Such merchandise sold in the United States is completed or

assembled in the United States from parts or components produced in the

foreign country with respect to which such order or finding applies;

C. The process of assembly or completion in the United States is

minor or insignificant; and

D. The value of the parts or components [produced in the foreign

country with respect to which the order applies], is a significant

portion of the total value of the merchandise.

If one of the four elements does not apply, there can be no finding

of circumvention. However, even if all four of these criteria are met,

the Act requires that the Department also consider additional factors.

Section 781(a)(3) of the Act directs the Department to consider, in

determining whether to include parts or components produced in a

foreign country within the scope of an AD and CVD order, such factors

as: (A) the pattern of trade, including sourcing patterns; (B) whether

the manufacturer or exporter of the parts or components is affiliated

with the person who assembles or completes the merchandise sold in the

United States from the parts or components produced in the foreign

country; and (C) whether imports into the United States of the parts or

components produced in such foreign country have increased after the

initiation of the investigation which resulted in the issuance of such

order or finding.

U.S. Re-Rollers

We requested information from U.S. re-rollers with respect to these

circumvention inquiries. Information was submitted by the following

five U.S. re-rollers: (1) American Steel & Wire (AS&W), a wholly-owned

subsidiary of Birmingham Steel Corporation; (2) Bar Tech; (3) Nucor

Steel Corporation (Nucor); (4) Republic Engineered Steels (Republic);

and (5) Sheffield Steel Corporation (Sheffield). Based upon our

analysis of the information submitted by the foreign respondents and

the U.S. re-rollers, we have determined that no affiliation exists

between the U.S. re-rollers and the foreign respondents, as defined in

section 771(33) of the Act. A determination with respect to sections

781(a)(1) and (2) of the Act is based solely on the processing of lead

billets into hot-rolled lead bar by these unaffiliated U.S. re-rollers.

The rolling facilities owned by each of the U.S. re-rollers, except Bar

Tech, were in operation before the initiation of the respective AD and

CVD investigations of hot-rolled lead bar from Germany and the United

Kingdom. Bar Tech was established after the issuance of the AD and CVD

orders when Bar Tech purchased Bethlehem Steel's Bar, Rod & Wire (BRW)

facilities in Lackawanna, New York in 1994. Bethlehem Steel, a former

roller of lead billet into hot-rolled lead bar, was one of the original

petitioners in the lead bar investigations.

Much of the information provided by the U.S. re-rollers is

proprietary. Therefore, in most instances, the information used in our

analysis below has been ranged, and our discussion of this information

has been generalized in order to maintain the proprietary treatment of

submitted information. In addition, for most of the U.S. re-rollers,

the source of their imported lead billet supply is also proprietary.

Therefore, the analysis below refers to imports from both Germany and

the United Kingdom.

Statutory Analysis

(1) Whether the Class or Kind of Merchandise Is Sold in the United

States

AS&W, Bar Tech, Republic, and Sheffield sell hot-rolled lead bar in

the United States. Nucor processes lead billets into hot-rolled lead

bar, which the company further processes into cold-finished products.

(2) Whether Merchandise Sold in the United States is Completed or

Assembled in the United States from Foreign Parts or Components

All of the U.S. re-rollers purchase lead billets from one or more

of the foreign respondents subject to the AD and CVD orders. They each

use the lead billets to produce hot-rolled lead bar in the United

States.

(3) Whether the Process of Assembly or Completion is Minor or

Insignificant

Section 781(a)(2) lists the factors the Department will consider in

determining whether the process of assembly or completion is minor or

insignificant. The SAA states that no single factor listed in section

781(a)(2) of the Act will be controlling. SAA at 893. The SAA also

states that the Department will evaluate each of the factors as they

exist in the United States depending on the particular circumvention

scenario. Id. Therefore, the importance of any one of the factors

listed under 781(a)(2) of the Act can vary from case to case depending

on the particular circumstances unique to each specific circumvention

inquiry. As discussed below, each of the factors set forth in section

781(a)(2) of the Act is examined below for the U.S. re-rollers.

(a) The Level of Investment in the United States

The rolling facilities owned by each of the U.S. re-rollers were in

operation before the initiation of the respective AD and CVD

investigations of hot-rolled lead bar from Germany and the United

Kingdom. Although Bar Tech did not exist before the initiation of the

investigations, the facility producing subject merchandise that is

operated by the company does pre-date the investigations. Each of the

U.S. re-rollers has made substantial capital investments in its

respective rolling mills.

AS&W entered the hot-rolled lead bar market in 1986, with its

purchase of rolling facilities from U.S. Steel. In 1993, Birmingham

Steel acquired AS&W and entered the specialty bar, rod, and wire

products business. In 1996, Birmingham Steel invested $132 million

[[Page 40339]]

in a new high-quality rolling mill at AS&W's Cleveland, Ohio facility,

enabling the company to produce larger-sized bar products and bars with

tighter size tolerances and more stringent mechanical properties. AS&W

primarily produces nonlead hot-rolled bars, and less than a quarter of

the mills' production utilizes lead billets. AS&W sells the hot-rolled

lead bar that it produces to unaffiliated customers.

Bar Tech came into existence in 1994, with the purchase of

Bethlehem Steel's BRW facilities for $19 million. From 1994 through

1997, Bar Tech made additional investments in the rolling facilities'

buildings, machinery, and equipment. In April 1996, Bar Tech acquired

Bliss & Laughlin (B&L), the largest cold-finishing company in the

United States. In September 1997, Bar Tech announced plans to invest

$30 million in its steelmaking facilities. Approximately half of the

investment is allocated for the production of lead and nonlead semi-

finished steels at its Johnstown meltshop. The majority of the

remaining investment is designated for equipment upgrades at its 13-

inch rolling mill in Lackawanna, New York to roll both lead and nonlead

billets.

Nucor's steel mill in Darlington, South Carolina became operational

as a new steel mill in 1969. Prior to 1991, Nucor added a high-speed

rolling line to its mill. The addition of such equipment allows for

automatic straightening, shearing, stacking, and bundling of bar, and

has significantly enhanced Nucor's ability to produce hot-rolled lead

and nonlead bar from lead and nonlead billets. Since 1991, Nucor has

made several investments for a variety of improvements.

In November 1989, Republic was created through an employee stock

ownership plan with the purchase of LTV's Bar Division. With the

purchased steelmaking facilities, Republic gained the ability to

produce lead and nonlead ingots, and hot-rolled and cold-finished bar

products. Republic currently produces lead billets via the ingot

process in a shared facility; however, the quantity it can produce is

restricted by environmental permit limits. During the 1990's, Republic

invested in the construction of a continuous casting facility which has

the capability to produce both lead and nonlead billets; however,

Republic currently only produces nonlead billets at the facility.

Sheffield was established in the early 1980's, with the purchase of

the Sand Springs, Oklahoma meltshop and rolling facility in 1981, and

the construction of the Kansas City, Missouri rolling facility in 1985.

In 1986, Sheffield purchased a 12-inch rolling mill facility in Joliet,

Illinois from Continental Steel for $3.5 million. This rolling mill was

originally installed around 1957. Since acquiring the Joliet mill in

1986, Sheffield has made additional investments of approximately $6

million in the facility, which is the company's only rolling mill which

produces hot-rolled lead bar. Sheffield entered the hot-rolled lead bar

market in 1992.

(b) The Level of Research and Development (R&D) in the United States

Four of the five re-rollers had little or no R&D related to the

production of hot-rolled lead bar. One U.S. re-roller reported that it

conducted some R&D with respect to the development of heating, rolling

and inspection practices used in the production of leaded steels. The

U.S. re-rollers reported that there have been few technological

breakthroughs affecting leaded steels since 1991. Because the rolling

of hot-rolled lead bar is a technically mature process, R&D is not a

significant factor in this industry.

(c) The Nature of the Production Process in the United States

The ITC states that the manufacturing process for the production of

hot-rolled lead bar consists of three different stages: (1) melting,

(2) casting, and (3) hot-rolling. See Certain Hot-Rolled Lead and

Bismuth Carbon Steel Products From Brazil, France, and the United

Kingdom, Final Determinations of the Commission in Investigations Nos.

701-TA-314 thru 317, USITC Publication 2611 (March 1993). Lead billets

are created during the second stage; the U.S. re-rollers perform the

third and final stage in the manufacturing process of hot-rolled lead

bar.

Each of the U.S. re-rollers are fully operational hot-rolled lead

and nonlead bar producers, manufacturing bar in a like manner. The

nature of the process overall consists of a series of steps for the

purpose of sizing and shaping the lead billets to produce specific

sized and shaped hot-rolled bar on rolling equipment used to

manufacture either hot-rolled lead or nonlead bars. The rolling process

does not require equipment devoted exclusively to the production of

hot-rolled lead bar. Three of the five re-rollers also have cold-

finishing operations to further process the hot-rolled lead bar. In the

cold-finishing process, the bar undergoes surface treatments in the

form of polishing, turning, grinding, and straightening.

The process for producing hot-rolled lead bar from lead billets is

as follows. First, the lead billets are placed in a re-heat furnace and

heated to a temperature usually above 2200 degrees Fahrenheit. This

heating procedure increases the malleability of the steel, reducing

energy consumption and wear on the rolling mill. Once the lead billets

reach the necessary temperature, walking beams gradually discharge them

from the re-heat furnace onto the rolling lines. The lead billets are

then rolled on a series of rolling mills, including roughing,

intermediate, and finishing mills. Each rolling mill has a series of

stands which compress and shape the lead billets with each pass

through. As a lead billet passes through the stands, it becomes

elongated and its cross-section becomes smaller. This process

transforms a lead billet into a hot-rolled lead bar product having a

specific size and shape. Generally four to 15 percent of a lead

billet's weight is lost in the rolling process.

The hot-rolled lead bar is then placed on a hot bed and cooled to a

temperature of about 800 degrees Fahrenheit. Once cooled, the hot-

rolled lead bar undergoes straightening, non-destructive testing,

deburring, and saw cutting. The hot-rolled lead bar is either coiled or

cut into various lengths at the finishing shear. At this stage, some

re-rollers apply a surface treatment to clean and coat their products.

After being inspected for straightness, length, and defects, the hot-

rolled lead bars are weighed, packaged, and placed in the warehouse for

later shipment.

There are environmental issues and limitations in rolling lead

billets versus nonlead billets. Environmental controls, worker safety,

and health regulations are more stringent for lead than for nonlead

grades. For instance, additional ventilation of exhaust fumes is

necessary as lead and bismuth steel wastes are classified as hazardous

waste, necessitating their segregation and separate treatment from

other scrap. Specialized safety equipment and more rigorous operating

procedures must also be used in compliance with Occupational Safety and

Health Administration (OSHA) standards.

(d) The Extent of Production Facilities in the United States

In general, each of the U.S. re-rollers has production facilities

in various states throughout the United States, but the rolling of hot-

rolled lead bar mainly takes place in Illinois, Ohio, Utah, South

Carolina, and New York. As we have noted earlier, most of the U.S. re-

rollers were rolling lead billets into hot-rolled lead bar before the

initiation of the AD and CVD investigations of hot-rolled lead bar from

Germany and the United Kingdom.

[[Page 40340]]

In analyzing the extent of production facilities, we considered the

square footage of building space dedicated to rolling lead billet into

hot-rolled lead bar, the number of employees involved in rolling the

lead billets, and the capital equipment used in the production of hot-

rolled lead bar. Sheffield, for example, reported that its Joliet

rolling facility encompasses 334,305 square feet for the processing of

lead billet into hot-rolled lead bar.

With regard to the number and level of skilled employees involved

in rolling lead billets into hot-rolled lead bar, Sheffield, for

example, reported that in the production process of hot-rolled lead

bar, from the time the lead billets are received in the billet yard to

the time that hot-rolled lead bar is shipped to a customer, there are

25 skilled workers responsible for the rolling of a lead billet into

hot-rolled lead bar, and all of the other ancillary functions.

With respect to the capital equipment used in the processing of

lead billet into hot-rolled lead bar, the U.S. re-rollers have invested

a substantial amount of money not only in the construction of factory

buildings used in rolling operations for both lead and nonlead

products, but also in the purchase of sophisticated machinery required

to produce hot-rolled bar from lead and nonlead billets, and in the

maintenance required for such machinery.

(e) Whether the Value of the Processing Performed in the United States

Represents a Small Proportion of the Value of the Merchandise Sold in

the United States

We calculated the difference in value between the hot-rolled lead

bar sold in the United States and the value of the lead billets

purchased from the foreign respondents that were used in the production

of that merchandise. For AS&W, BarTech, Republic, and Sheffield, we

based our calculation of value added to the merchandise sold in the

United States on the difference between the delivered lead billet

import price and the ex-factory sales price of the hot-rolled lead bar.

This methodology was used because both transactions (lead billet

purchases and hot-rolled lead bar sales) were sales between

unaffiliated parties. To derive the value of processing performed by

each U.S. re-roller, we subtracted from the ex-factory sales price of

hot-rolled lead bar to unaffiliated customers the delivered price of

lead billets, after adjusting for a yield factor (to account for

additional lead billet consumed in the production of one unit of hot-

rolled lead bar).

In regard to Nucor, because the company uses all the hot-rolled

lead bar that it produces to further manufacture cold-finished

products, we applied a different value-added methodology. We based our

calculation of value-added on the comparison between the conversion fee

Nucor's rolling mill charged its affiliated cold-finisher and the

resulting total input cost of hot-rolled lead bar to the cold-finisher,

after adjusting both for a yield factor (to account for additional lead

billet consumed in the production of one unit of hot-rolled lead bar).

Some of the U.S. re-rollers purchased lead billets from all three

suppliers of lead billets subject to these inquiries, while others

purchased exclusively from one source. Some of the U.S. re-rollers,

however, were unable to identify the supplier of lead billets on a

transaction-specific basis with respect to the U.S. sales of the

processed hot-rolled lead bar. Therefore, for each U.S. re-roller, the

calculation of value-added is based upon a weighted-average price of

imported lead billet from the foreign respondent(s) from whom the U.S.

re-roller purchased its lead billets. Because the processing of the

imported lead billet into hot-rolled lead bar is virtually identical

regardless of the source of the imported lead billet, we consider this

weighted-average, non-supplier specific calculation of value-added to

be appropriate in those instances. However, where possible, we used the

supplier-specific information to calculate the value-added to each

supplier.

The value of processing performed in the United States ranges from

approximately 10 percent to 29 percent for the U.S. re-rollers. The

relative value of processing varies because of the lead billet prices

charged by the foreign respondents to the U.S. re-rollers, the U.S. re-

roller's yield factor for rolling one unit of lead billet into one unit

of hot-rolled lead bar, and the different prices charged by the U.S.

re-rollers to their customers due to size and shape of the hot-rolled

lead bar. Because the calculation of the value of processing is based

upon proprietary data, the value-added percentages presented above have

been ranged.

(4) Whether the Value of Imported Parts is a Significant Portion of

Value of Lead Bar

Under section 781(a)(1)(D) of the Act, the value of the imported

parts or components must be a significant portion of the total value of

the subject merchandise sold in the United States in order to find

circumvention. The imported lead billet is the sole material input into

the completed hot-rolled lead bar and a significant portion of the

value of the completed hot-rolled lead bar is for this material cost.

Other Factors To Consider

In making a determination whether to include parts or components

within an order, section 781(a)(3) of the Act instructs us to take into

account such factors as: the pattern of trade, including sourcing

patterns; whether affiliation exists between the exporter of the parts

and the person who assembles or completes the merchandise sold in the

United States; and whether imports into the United States of the parts

produced in the foreign country have increased after the initiation of

the investigation which resulted in the issuance of the order. Each of

these factors are examined below.

(1) Pattern of Trade And Sourcing

The first factor to consider under section 781(a)(3) is changes in

the pattern of trade, including changes in the sourcing patterns of the

lead billets. SAA at 894. Unlike our examination of the processing of

lead billets into hot-rolled lead bar in the United States, which was

essentially the same for all of the U.S. re-rollers, there are

differences in the pattern of trade among the U.S. re-rollers and the

three foreign respondents (British Steel, Thyssen, and Saarstahl).

Among the foreign respondents, British Steel and Thyssen are the two

largest lead billet exporters to the United States. In comparison,

Saarstahl is a small exporter of lead billets.

British Steel began selling lead billets to the United States in

1994. By 1996, the company's lead billet sales doubled. British Steel's

sales of hot-rolled lead bar peaked in 1992, declined in 1993 and 1994,

rebounded in 1995, and continued to trend upwards in 1996. In general,

sales of hot-rolled lead bar by British Steel have greatly exceeded its

sales of lead billets to the U.S. market (despite the AD and CVD

orders). British Steel's sales of hot-rolled lead bar in the U.S.

market have remained substantial since the imposition of the orders. In

fact, Sheffield reported that its primary competition for hot-rolled

lead bar shapes is imports from British Steel.

Thyssen has been selling lead billets to the United States since

1988, well before the Department initiated its hot-rolled lead bar

investigations in May 1992. Thyssen's lead billet shipments to the

United States increased steadily from 1991 to 1996, peaking in 1996,

while its hot-rolled lead bar sales to the U.S. market terminated in

1992. Thyssen has stated that lead billets, and not hot-rolled lead

bar, have always

[[Page 40341]]

been its primary U.S. market, and the pattern of trade for both

products indicates this to be accurate.

Saarstahl began selling lead billets to the United States in 1992,

the last year the steelmaker sold hot-rolled lead bar to U.S.

customers. Saarstahl's exports of lead billets to the United States

peaked in 1993, and since then have significantly decreased.

AS&W has been purchasing lead billets since its inception in 1986.

AS&W reported that since 1992, the company has sourced lead billets

from both foreign and domestic suppliers. A major change in the

company's sourcing was the termination of a billet supply agreement

(inclusive of lead and nonlead billets) with USS/KOBE. When Birmingham

Steel purchased AS&W in 1993, there was a lead billet supply agreement

in effect with USS/Lorain Works, which subsequently became USS/KOBE.

USS/KOBE terminated the supply agreement in 1996, citing a lack of lead

billet availability. With the termination of this supply agreement,

AS&W was no longer able to source lead billets domestically.

Bar Tech began purchasing lead billets in 1996. Bar Tech has not

sourced lead billets from domestic producers. Bar Tech never purchased

lead bar from the foreign respondents.

Nucor did not begin purchasing lead billets until 1992, when the

company began sourcing from foreign respondents. Purchases from the

foreign respondents have been generally declining. Nucor had previously

purchased hot-rolled lead bar from foreign sources.

Republic's predecessor began purchasing lead billets from foreign

sources in the mid-80's. Since becoming an independent company in 1989,

Republic has continued to source its lead billets from foreign sources

to supplement its own production. Republic has not purchased lead

billets from domestic producers. The company did purchase hot-rolled

lead bar from foreign sources in the early 1990's; however, since 1993,

Republic has sourced hot-rolled lead bar exclusively from domestic

suppliers.

Sheffield has sourced lead billets from both domestic and foreign

producers since it began purchasing lead billets in 1992. Throughout

much of 1993, Sheffield sourced lead billets from Inland; however, by

late 1993, Inland stopped its external sales of lead billets citing its

own internal lead billet consumption needs. In June 1995, Inland was

again in a position to supply lead billets. Sheffield placed orders

with Inland, but by the fourth quarter of 1995, Inland once again

stopped selling lead billets. Since 1996, Sheffield has sourced lead

billets from abroad.

(2) Affiliation

The second factor to consider under section 781(a)(3) of the Act is

whether the manufacturer or exporter of the lead billets is affiliated

with the entity that assembles or completes the merchandise sold in the

United States from the imported lead billets. In these circumvention

inquiries, the Department inquired whether affiliation existed between

the U.S. re-roller and the foreign respondents, pursuant to section

771(33) of the Act. Based upon our analysis of the information on the

record, including the questionnaire responses from both the U.S. re-

rollers and the foreign respondents, we find that no affiliation exists

between the parties. There is no common ownership, direct or indirect,

between the U.S. re-rollers and the foreign suppliers of lead billets,

or a joint venture between the companies. Further, there are no facts

(e.g., close supplier relationship) that suggest control of any of the

re-rollers by the foreign respondents. In sum, we have found no

evidence to indicate that the foreign respondents have attempted either

to purchase or to construct re-rolling facilities in the United States

which would allow them to import lead billet and process it into hot-

rolled lead bar for their own use.

(3) Whether Imports Have Increased

The third factor to consider under section 781(a)(3) is whether

imports of lead billets into the United States have increased after the

initiation of the hot-rolled lead bar investigations. Therefore, we

have analyzed the level of imports of lead billets from both Germany

and the United Kingdom since 1992, the year in which the AD and CVD

investigations of hot-rolled lead bar were initiated. While we find

that imports of lead billets have increased from all three foreign

respondents, there are reasons beyond the initiation of the AD and CVD

investigations to explain their rise.

According to some of the U.S. re-rollers, there has been a switch

from domestically produced lead billets to foreign-sourced lead billets

because Inland and USS/KOBE have not met the lead billet supply needs

of the U.S. market. In addition, there were two new entrants to the

hot-rolled lead bar market after the initiation of the hot-rolled lead

bar investigations that required supplies of lead billet. Sheffield

entered into the hot-rolled lead bar market after Bethlehem Steel

exited the market in 1992. Two years later, Bar Tech entered the hot-

rolled lead bar market after purchasing Bethlehem's rolling facilities.

Bethlehem Steel, one of the original petitioners in the hot-rolled lead

bar investigations, produced its own lead billets; however, neither

Sheffield nor Bar Tech currently have lead billet production and thus,

must source their lead billets from other outside sources.

Further, according to the ITC, in the United States almost all

semifinished steel such as blooms, billets, and slabs are used in

captive production of finished steel products. Steel processors, such

as the U.S. re-rollers, are an important outlet for excess semifinished

steel products manufactured by steel producers. In the relatively

limited semifinished steel market, the consumer is also likely to be

the supplier's competitor in sales of finished steel. See USITC

Publication 2758, Industry & Trade Summary Semifinished Steel (March

1994) 3, 5, and 11. Because the consumer of a billet is generally a

competitor of the supplier, the dynamics of supply operate differently

than for finished steel products. A steelmaker with excess melting

capacity may have incentive to refrain from selling semifinished steel,

such as billets.

It has also been difficult to measure the rise in imports of lead

billets from Germany and the United Kingdom against import trends from

other countries. This is because the primary HTS number under which

lead billets are imported is a basket category which includes other

imports of semifinished products of iron or nonalloy steel with a

chemical content of under 0.25 percent carbon. In its application,

Inland and USS/KOBE provided import data for this HTS category.

According to these data, imports of semifinished products of iron or

nonalloy steels from countries not subject to AD or CVD orders

increased after the initiation of the hot-rolled lead bar

investigations, and significantly in some cases.

Summary of Statutory Analysis

As discussed above, in order to make an affirmative determination

of circumvention, all the elements under sections 781(a)(1) of the Act

must be satisfied, taking into account the factors under section

781(a)(2). In addition, section 781(a)(3) of the Act instructs the

Department to consider, in determining whether to include parts or

components within the scope of an order, such factors as: pattern of

trade, affiliation, and whether imports into the United States of such

parts or components increased after the initiation of the investigation

which resulted in the issuance of the order. When the criteria

[[Page 40342]]

of section 781(a)(1), taking into account the factors under section

781(a)(2), are applied to the individual facts, our analysis of whether

circumvention is occurring is inconclusive. However, when the evidence

to be considered under section 781(a)(3) of the Act, is incorporated

into our analysis, we find that all of the evidence, taken as a whole,

does not lead us to find a basis for including lead billets within the

scope of the AD and CVD orders on hot-rolled lead bar from Germany and

the United Kingdom.

Pursuant to sections 781(a)(1) and (2), we find that the processing

of lead billets into hot-rolled lead bar is essentially identical for

all of the U.S. re-rollers involved in these inquiries. A detailed

description of the re-rolling process is provided above. Though the

U.S. re-rollers perform only one of the three processes needed to

produce hot-rolled lead bar, they do perform the final process of

converting the semifinished steel product into a functional finished

steel good. Also, because the production process of converting lead

billets into hot-rolled lead bar is a technically mature process, we

did not find significant R&D expenditures by the U.S. re-rollers.

The process of rolling lead billet into hot-rolled lead bar

requires significant capital investment in rolling machinery and

equipment, and compliance with a variety of OSHA and environmental

regulations. Capital equipment and machinery used by the U.S. re-

rollers, once purchased, installed, and operational, represent

significant fixed plant and equipment which cannot be easily

disassembled and transported to another location. Investment in re-

rolling facilities requires a long-term investment of capital, long-

term corporate planning, and a long-term business commitment by the

U.S. re-roller.

Pursuant to section 781(a)(3), in reaching our determination, we

took into consideration the factors of pattern of trade, sourcing,

affiliation, and import trends. The facts concerning pattern of trade,

sourcing, affiliation, and import trends do not indicate that there is

circumvention of the hot-rolled lead bar orders. Even if we were to

conclude that the value of processing performed by the U.S. re-rollers

in the United States is relatively small, when we examined sections

781(a)(1) and (2) in conjunction with the factors under section

781(a)(3), the facts, taken as a whole, do not lead us to find that

circumvention of the hot-rolled lead bar orders is occurring.

Throughout the United States, the U.S. re-rollers have extensive

capital-intensive rolling facilities staffed by skilled workers. As

previously discussed, the U.S. re-rollers are not affiliated with the

foreign respondents and their rolling facilities were in existence and

operational before the initiation of the hot-rolled lead bar

investigations. Indeed, the petition for the hot-rolled lead bar

investigations was filed on behalf of two of the five U.S. re-rollers,

AS&W and Republic. In addition, a third U.S. re-roller, Bar Tech,

purchased its rolling facilities from Bethlehem Steel, one of the two

original petitioners in the hot-rolled lead bar investigations.

Based upon the information on the record, most of the U.S. re-

rollers' investment in rolling facilities in the United States was made

before the initiation of the AD and CVD investigations of hot-rolled

lead bar from Germany and the United Kingdom. In addition, some of the

U.S. re-rollers made large investments in their rolling mills after

1992, the year in which the investigations on hot-rolled lead bar

began. Thus, before and after 1992, U.S. re-rollers made large

investments of capital and resources into their rolling facilities.

These facts demonstrate that there were substantial production

facilities for converting lead billets into hot-rolled lead bar before

the initiation of the hot-rolled lead bar investigations.

Further, as discussed above, British Steel remains a large exporter

of hot-rolled lead bar to the United States and its bar market in the

United States is still much larger than its U.S. lead billet market.

Thyssen was primarily a lead billet exporter to the United States

before 1992, the year the hot-rolled lead bar investigations were

initiated. That did not change after the initiation of the hot-rolled

lead bar investigations. Saarstahl, which exports a relatively small

volume of lead billets to the United States, is not a major player in

the U.S. lead billet market.

With respect to the U.S. re-rollers, changes in their respective

sourcing patterns after 1992 appear to be due to changes in the U.S.

market, independent of the hot-rolled lead bar investigations. U.S. re-

rollers were purchasing lead billets and rolling them into hot-rolled

lead bar before 1992. For example, Republic began purchasing lead

billets in the mid-80's from foreign sources. New hot-rolled lead bar

entrants came into the market after the departure of Bethlehem, causing

an increase in the demand for lead billets. While Bethlehem was able to

produce its own lead billets, the two new entrants, Bar Tech and

Sheffield, have to purchase their lead billets from independent

sources. In addition, there were also shifts from domestic to foreign

billet suppliers because the domestic companies producing lead billets

were only able to meet their own internal consumption needs. As

discussed above, since 1996, both AS&W and Sheffield have been forced

to source lead billets from foreign suppliers as a result of the

termination of their supply arrangements with USS/KOBE and Inland,

respectively.

Our analysis demonstrates that the increase in the importation of

lead billets by the U.S. re-rollers in order to produce hot-rolled lead

bar was due to many factors above and beyond the imposition of the bar

orders. As noted above, a number of the U.S. re-rollers were producing

hot-rolled lead bar from foreign lead billet suppliers prior to the

orders and continued to produce hot-rolled lead bar after the orders.

In addition, these unaffiliated U.S. re-rollers invested a substantial

amount in their rolling facilities both before and after the AD and CVD

orders to roll both lead and nonlead billets into hot-rolled bar.

The facts of these inquiries also show that the foreign respondents

did not change their product lines in the United States as a result of

the initiation of the hot-rolled lead bar investigations. As noted,

Thyssen's primary market in the United States has been lead billets

since the mid-80's. British Steel, which commenced selling lead billets

in 1994, continues to export a significant amount of hot-rolled lead

bar to the United States.

Based upon this analysis under section 781(a) of the Act, we

determine that circumvention of the AD and CVD orders on hot-rolled

lead bar is not occurring by reason of imports of lead billets from

Germany and the United Kingdom.

Analysis of Comments Received

We invited interested parties to comment on the preliminary

negative determinations of circumvention of hot-rolled lead and bismuth

carbon steel products from Germany and the United Kingdom. We received

case and rebuttal briefs from the foreign respondents, British Steel,

Saarstahl, Thyssen; two of the U.S. re-rollers, Republic and Sheffield;

and the petitioners, USS/KOBE and Inland Steel Bar Company. All

comments and rebuttal arguments properly raised by the parties in their

briefs to the proceeding are discussed below.

[[Page 40343]]

Comment 1: The Statute Does Not Instruct the Department To Evaluate Why

Imports Into the United States Have Increased

The petitioners argue that pursuant to section 781(a)(3)(C) of the

Act, the Department will consider whether ``the parts or components

produced in such foreign country have increased after the initiation of

the investigation which resulted in the issuance of such order or

finding.'' The petitioners argue that the statute instructs the

Department to consider whether an increase of the lead billets have

occurred after the initiation of the original investigation without

evaluating possible reasons for such an increase before or during the

investigation period and up to the order date.

The petitioners assert that the data on the record clearly

demonstrates that the level of imported lead billets into the U.S.

market from Germany and the United Kingdom has increased dramatically

since the investigations of hot-rolled lead bar in 1992, while imports

of bars and rods subject to the orders have markedly declined.

The petitioners argue that the Department's reasons for the sharp

increase of lead billets, as stated in the preliminary determinations,

including general sourcing patterns in the U.S. semifinished steel

market, import trends from other countries, and the re-rollers ``short

supply'' argument, do not hold up to the facts. Moreover, the

petitioners argue that none of the U.S. re-rollers or foreign

respondents has alleged that there is a shortage of lead billets in the

United States. The petitioners argue that none of the alternate

rationales provided by the Department disproves the fact that the

imports of lead billets from the United Kingdom and Germany increased

since the investigation and subsequent orders placed on hot-rolled lead

bars in 1992 and 1993, respectively.

The foreign respondents argue that the pattern of trade

demonstrates that the foreign respondents were selling lead billets to

the United States before the imposition of the AD and CVD orders on

hot-rolled lead bar. In addition, the U.S. re-rollers participating in

these inquiries were in existence before the imposition of the hot-

rolled lead bar orders. Further, the U.S. re-rollers that were in

existence before the AD and CVD orders on hot-rolled lead and bismuth

carbon steel products had been purchasing lead billets prior to the AD

and CVD orders.

Collectively, the foreign respondents argue that the individual

patterns of trade for British Steel, Thyssen, and Saarstahl are vastly

different, and do not demonstrate on their part or the U.S. re-rollers'

part that circumvention of the orders is occurring. For example,

British Steel argues that its shipments of hot-rolled lead bar to the

United States have and continue to exceed its shipments of lead

billets. Thyssen argues that it was never a significant exporter of

hot-rolled lead bars to the United States. Rather, Thyssen states that

it sells significantly greater quantities of lead billets to unrelated

companies throughout the world, including the United States, than hot-

rolled lead bars. Additionally, Thyssen notes that prior to the certain

hot-rolled lead and bismuth carbon steel products from Brazil, France,

Germany and the United Kingdom investigations, it sold lead billets to

the United States in significantly greater quantities than its sales of

hot-rolled lead bar. Saarstahl argues that its sales of lead billets to

the United States have significantly declined since peaking in 1993.

Both the foreign respondents and U.S. re-rollers argue that,

because four of the five U.S. re-rollers participating in these

proceedings either do not currently produce lead billets themselves, or

can not produce sufficient quantities of lead billets to meet their

requirements, a reliable source of lead billet supply is necessary. The

U.S. re-rollers, as well as the foreign respondents, stress that the

reason for the increase in lead billet imports from Germany and the

United Kingdom is due to the fact that the domestic lead billet

industry (i.e., petitioners) is either ``unwilling'' or ``unable'' to

provide a consistent and reliable supply of lead billets to the U.S.

re-rollers respective facilities. AS&W, Republic, and Sheffield have

made repeated assertions that Inland and USS/KOBE do not have the

capacity to meet their demands or the demands of the domestic lead

billet merchant market and, therefore, were compelled to source lead

billets from the foreign respondents because both Inland and USS/KOBE

refused to sell lead billets on a consistent basis. British Steel notes

that AS&W approached British Steel as a possible supply source of lead

billets only after USS/KOBE terminated a supply agreement with AS&W in

1996.

Department's Position: Although the pattern of trade is not a

determining factor, but rather one of several factors which the

Department considers in evaluating whether circumvention is occurring,

the Department did consider this to be an important factor in its

analysis as to whether circumvention of the AD and CVD orders are

occurring.

The petitioners have argued that in evaluating the pattern of

trade, it is sufficient merely to look at the trends of the data

without further examination of the facts surrounding those trends. For

example, petitioners contend that we have disregarded the statute by

going behind the import statistics to consider what they characterize

as ``short supply'' issues. We disagree with petitioners''

interpretation of the statute. The petitioners' argument that the

Department only examine whether imports have increased would convert

this criterion into a mechanical approach which we believe is much less

meaningful than an examination of all the relevant circumstances,

including the causes behind the import trends. The ``pattern of trade''

is more than just bare import statistics alone.

Therefore, in order to determine whether circumvention of an order

has occurred, we are directed by the SAA to examine the individual

facts on a case-by-case basis for each circumvention inquiry. For

example, if imports of lead billet increased after the order by 10

percent, while the increase in imports of hot-rolled lead bar was 100

percent after the imposition of the order, the petitioners'

interpretation of the statute would require that the Department ignore

contributing factors and explanations for an increase in the level of

importations when deciding whether or not circumvention of an order has

occurred. To adopt this interpretation of the statute would render the

individual facts of a circumvention inquiry meaningless. In other

words, the petitioners' suggestion that the Department must only

consider quantitative changes pursuant to section 781(a)(3)(C) of the

Act without consideration of the facts of the circumvention inquiry and

the underlying causes that may have contributed to such changes is

inappropriate for evaluation of this criterion.

In analyzing the level of imports of lead billets from both Germany

and the United Kingdom, respectively, we found that imports of lead

billets have increased from all three foreign respondents. However, the

respective increases appear to be the result of causes other than the

initiation of the hot-rolled lead bar investigations and the subsequent

orders.

In evaluating the criterion provided by section 781(a)(3)(C), the

Department relied, in part, upon the fact that since the mid-1980s

Thyssen's primary product market in the United States has been lead

billets, not hot-rolled lead bar. With respect to British Steel, the

Department found that the pattern of trade did not suggest

circumvention because British Steel remains a large exporter of hot-

rolled lead bar to the

[[Page 40344]]

United States and its hot-rolled lead bar market in the United States

is still much larger than its lead billet market. Further, the

reduction or elimination of domestic supply by Inland and/or USS/KOBE's

inability to provide a consistent supply of lead billets to the U.S.

merchant lead billet market is a contributing cause to the reported

increase in imported lead billets into the United States. Thus, even

though the petitioners contend that there is now ``available'' domestic

capacity to meet the U.S. lead billet merchant market demand, the

record clearly demonstrates that the petitioners' capacity is not

necessarily available to U.S. re-rollers as evidenced by the re-

rollers' inability to secure a consistent supply from domestic sources.

Indeed, Inland has stated publicly that it does not sell lead billets

to the U.S. lead billet merchant market. See February 17, 1998 Ex Parte

Memorandum from the Team, through Barbara E. Tillman, to the File.

We also found during our verification of Republic various

contractual agreements between Republic and its customers. These

contracts, also known as a ``frozen practice,'' identify the lead

billet supplier, specifications and functional requirements of the

input. Republic has entered into a number of ``frozen practice''

arrangements with its customers which require Republic to use specific

lead billet suppliers in the production of the multiple downstream

products which are purchased by the automobile industry in the United

States. In these cases, changes in sourcing lead billets without

written approval of the customer are subject to refusal. See

Verification of Republic Engineered Steel's Questionnaire Responses in

the Anticircumvention Inquiry of the Antidumping and Countervailing

Duty Orders on Hot-Rolled Lead and Bismuth Carbon Steel Products from

Germany and the United Kingdom, July 6, 1998 at 4.

Comment 2: The Department Should Compare the Investments in a Re-

rolling Mill to the Investments Required for an Integrated Steel

Facility

The petitioners argue that the Department failed to provide a

proper analysis pursuant to section 781(a)(2) of the Act as to whether

the process carried on in the United States is ``minor'' or

``insignificant.'' In particular, the petitioners argue that the

Department's analysis was deficient with respect to the level of

investment factor. The petitioners contend that the Department, in

reaching its preliminary determinations, merely summarized generic hot-

rolling investment information submitted by the U.S. re-rollers and

concluded that ``[i]nvestment in re-rolling facilities requires a long

term investment of capital'' and that all of the U.S. re-rollers have

made ``large investments of capital and resources into their rolling

facilities'' without providing a proper comparison of what constituted

a ``long term investment of capital'' and ``large investment of

capital.'' The petitioners argue that the Department in its final

determination must compare the level of investment required to produce

lead billets relative to the investment required to roll lead billet

into hot-rolled lead bar. The petitioners argue that using a

comparative analysis would demonstrate that the production of lead

billets requires ``substantial'' investment in specialized facilities,

including dedicated equipment, such as bloom casters, lead injection

equipment, and fume control technology, whereas the level of investment

dedicated and required to roll lead billets into hot-rolled lead bar at

the U.S. re-roller facilities would be deemed ``minor'' or

``insignificant.''

The petitioners argue that the investment data from the U.S. re-

rollers clearly establishes that the plant and equipment required for

the production of hot-rolled lead bar represents only a fraction of the

plant and equipment required for the production of lead billets.

According to the petitioners, the investment required to construct the

facilities and purchase capital machinery dedicated and required for

the production of lead billets vastly exceeds the level of investment

in the U.S. re-rollers' current facilities and equipment which merely

roll the lead and/or nonlead billets into hot-rolled bar.

The petitioners also note that in their application for these

circumvention inquiries, the petitioners compared the level of

investment necessary to roll lead billets into hot-roll lead bar with

that required to produce lead billets, and that this relative

comparison prompted the Department to initiate these inquiries because

the level of investment required to roll lead billets at the U.S. re-

roller facilities was ``minor'' in comparison to the production of lead

billets at the petitioners'' integrated facility.

Further, the petitioners contend that the Department, in reaching

its preliminary determination, failed to follow previous

anticircumvention inquiries where the Department conducted a

comparative analysis of the level of investment between an industry and

its individual segments. See Granular Polytetrafluoroethylene Resin

from Italy; Final Affirmative Determination of Circumvention of

Antidumping Duty Order, 63 FR 26100 (April 30, 1993)(PTFE), and Brass

Sheet and Strip from Canada; Final Affirmative Determination of

Circumvention of Antidumping Duty Order, 58 FR 33610 (June 18, 1993)

(Brass Sheet and Strip). In PTFE, the petitioners assert, the

Department made an affirmative finding of circumvention, in part,

because ``* * * in comparison to the investment required to establish

an integrated production facility for granular PTFE resin (finished

product), respondent's investment in the United States is relatively

minor'' (58 FR at 26103). Petitioners also cite to Brass Sheet and

Strip, where the Department found that failure to compare the re-

roller's operations to an integrated mill would not ``provide * * * an

accurate representation of the industry as a whole * * * nor a

meaningful evaluation of Great Lakes' operations in particular'' (58 FR

at 33613).

The U.S. re-rollers and foreign respondents disagree with the

petitioners' assertion that the level of investment is ``minor'' and

that a comparison of an integrated facility to a rolling facility is

warranted in these inquiries. The U.S. re-rollers and foreign

respondents argue that the record in these inquiries demonstrates that

the U.S. re-rollers' absolute level of their investment in their

respective bar mills is ``significant.'' Both the U.S. re-rollers and

foreign respondents argue that during the course of these inquiries,

documentation has been provided and verified confirming that the level

of investment required to modernize a bar mill facility or to construct

a new state of the art bar mill facility in the United States

demonstrated a substantial level of investment in absolute terms. These

multi-million dollar investments in the United States, the U.S. re-

rollers and foreign respondents argue, do not comport with the type of

``screwdriver'' operations intended to be captured by the statutory

anticircumvention provisions.

Both the U.S. re-rollers and foreign respondents argue that the

mining, smelting, casting and refining of steel is performed by

integrated producers, which is just one part of the entire U.S. steel

making industry, whereas the U.S. re-rollers are a distinct segment of

the steel making industry. Further, the foreign respondents point out

that the Department has previously rejected comparisons of a

petitioner's production activities with those of foreign respondents,

when separate segments of the industry exist. See, e.g., Portable

Electric Typewriters from Japan (Brother

[[Page 40345]]

Industries, Ltd. and Brother Industries (USA), Inc.); Negative Final

Determination of Circumvention of Antidumping Order 56 FR 58031

(November 15, 1991)(PETS). Similarly, the foreign respondents argue

that the rolling operation of lead billets into lead bar is not the

kind of secondary operation the Department found in Brass Sheet and

Strip, but rather, is a substantial operation involving large amounts

of investment necessary to perform its intended operation (i.e.,

rolling, testing, finishing, etc.).

Department's Position: In reaching our final determinations, the

Department evaluated the U.S. re-rollers' level of investment within

the context of the amount of investment required at a rolling mill for

the production of hot-rolled lead and nonlead bar. We believe that a

comparison of the U.S. re-rollers' level of investment with that of an

integrated steel making facility, as suggested by the petitioners, is

not called for in these inquiries. First, neither the statute and SAA,

nor the legislative history contains a requirement that the Department

make such a comparison.

Second, it is not necessary or appropriate in this case to

undertake such an analysis because the activities undertaken by the

U.S. re-rollers historically represent a pre-existing and distinct

segment of the leaded steel industry. The investment made by each U.S.

re-roller in its facilities, as the Department has verified, was

largely made prior to the orders. Although the actual amount of an

individual U.S. re-rollers' investment is business proprietary

information, the data from the U.S. re-rollers reveal that, prior to

the inquiries in these cases, they made long-term commitments to

produce hot-rolled bar from leaded and nonleaded billets and, to this

end, invested a substantial amount of money in plant and equipment.

Furthermore, according to the ITC, the manufacturing process for the

leaded steel industry involves mining, melting, casting, rolling,

testing, and finishing. The ITC notes that operations performed by

integrated mills include all of the above and, therefore, such

facilities require more investment in relation to the U.S. re-rollers

which undertake the end stage, characterized by rolling, testing and

finishing operations. Thus, a comparison of operations undertaken and

the investment needed by an integrated mill would not represent an

appropriate standard in this case and would fail to provide an accurate

representation of the U.S. re-rollers' level of investment. The

petitioners' assertion that the U.S. re-rollers' investment in rolling

mills is small compared to its integrated mills' investment in the

United States is irrelevant because, here, we are only concerned with

the investment required at a rolling mill, a separate, recognized

segment of the steelmaking industry as identified by the ITC.

Section 781 of the Act was not intended to deter commercial

investment in the United States or to thwart the legitimate business

interests of U.S. companies. SAA at 894. In this regard, the record in

this proceeding establishes that each U.S. re-roller has made

significant investment in the United States in plant, equipment, and

the training of employees related to the rolling of leaded billets, and

they did so largely prior to the antidumping investigations. In view of

the amount and type of investment by the U.S. re-rollers and the

existence of these operations prior to the investigations, we do not

agree that the level of investment in this case plainly supports a

finding that the processing in the United States is minor or

insignificant, whether or not the level of investment may be smaller

than the amount needed for a fully integrated steel mill, as

petitioners argue. Rather, when all of the facts of this case are

considered, we find that these investments represent significant

investments in the re-rolling segment of the U.S. industry.

Although the petitioners cite to previous circumvention decisions

where the Department did compare segments of an industry to its whole,

the Department has also found it unnecessary to make such comparisons

in other circumvention inquiries. See, e.g., Certain Internal-

Combustion, Industrial Forklift Trucks from Japan; Negative Final

Determination of Circumvention of Antidumping Duty Order, 55 FR 6028

(February 21, 1990) (Forklift Trucks). In Forklift Trucks, the

Department noted that the foreign respondents ``made substantial

investments in plant and equipment'' (55 FR at 6029), and that the

``level of production operations is too great to characterize these

operations as completion or assembly operations established for the

purpose of evading the antidumping duty order'' (see Certain Internal-

Combustion, Industrial Forklift Trucks from Japan; Preliminary

Determination of Circumvention of Antidumping Duty Order, 54 FR 50260,

50263 (December 5, 1989)). In Forklift Trucks the Department determined

that ``it is not necessary that respondent's investments be comparable

with those of (petitioners) * * * in order for the Department to decide

if respondent's facilities are more than mere completion or assembly

operations' (55 FR at 6029).

In addition, there are factual differences between these

circumvention inquiries of the lead bar orders and the two cases cited

by the petitioners. In PTFE, the inquiry involved whether the Italian

PTFE manufacturer set up and operated facilities in the United States

in order to circumvent the PTFE order. The facility was newly

established and performed only a portion of the manufacturing process

the company performed in Italy. Thus, in that case, a comparison of the

Italian manufacturer's operations in the United States with its

operations in Italy was relevant to the inquiry because the allegation

of circumvention in PTFE focused on whether the Italian respondent had

set up a related subsidiary in the United States in order to circumvent

the order. Given the nature of the allegation, it would have been

extremely difficult to determine whether the Italian company started

its U.S. processing in order to circumvent the order on PTFE without

comparing the nature of its processing facilities in the United States

with that company's operations in Italy. This fact pattern is not

present in these circumvention inquiries on lead bar. For one thing,

the U.S. rerollers are not related to the U.K. and German lead bar

producers. Moreover, the U.S. rerollers existed at the time that the

lead bar orders were issued.

In addition, the fact pattern in Brass Sheet and Strip does not

support the petitioners' argument that we should compare the

investments made by the U.S. re-rollers with the investments required

of an integrated steel manufacturer. In Brass Sheet and Strip, the

Department compared the processes performed by the importer's facility

with the operations normally performed by brass mills in the United

States, because the importer's operations were not part of a separate,

recognized segment of the brass sheet and strip industry. In Brass

Sheet and Strip, we found that the importer's small amount of cold-

breakdown rolling was insufficient for us to consider it a fabricator,

but also that its operations were not comparable to the brass re-

rollers because the re-rollers purchase brass sheet and strip and roll

it into a different brass sheet and strip product. The purchased

products already were within the scope of the order, as was the final

product. In contrast, the importer subject to the circumvention

inquiry, Great Lakes, purchased brass plate that had been processed to

the point of being one rolling step short of constituting sheet and

strip. Because Great Lakes

[[Page 40346]]

performed some processing of the plate, the operations it performed did

not represent the type of processing that had been performed by a

separate, recognized segment of the brass sheet and strip industry.

Prior to Great Lakes, there were no ``re-rollers'' that processed

plate. Great Lakes' operations, which were established after the order

was issued, included an operation normally performed by brass mills and

not by re-rollers. Thus, in Brass Sheet and Strip, we compared the U.S.

importer's processing to that of the brass mill, where the type of

processing Great Lakes performed normally took place in that industry.

Again, the facts which caused us to compare Great Lakes' rolling

facilities to integrated facilities in Brass Sheet and Strip are not

present in the hot-rolled lead bar circumvention inquiries. This case

does not involve a new and different type of processor. The U.S. lead

bar industry is comprised of both integrated producers and re-rollers.

This composition of the U.S. lead bar industry existed before the

initiation of the original AD and CVD investigations of lead bar from

Germany and the United Kingdom. Because re-rollers are a separate,

recognized part of the U.S. lead bar industry, there is no need to

compare their investments and facilities to another segment of the U.S.

steel industry.

Comment 3: The Department Should Compare the Extent and Nature of Re-

rolling Operations to Those of an Integrated Steel Facility

The petitioners argue that using a comparative analysis between the

nature and extent of a U.S. re-roller's processing and that of an

integrated facility would demonstrate that the quality, inherent

characteristics and machinability of the final product are imparted at

the steps taken in the casting stage of an integrated producer and that

the rolling of lead billets into hot-rolled lead bar is merely a

shaping and sizing process which does not add to the value because the

fundamental chemical properties are imparted in the production of the

semifinished leaded steel. The petitioners contend that the production

of the semifinished lead billet is substantial in terms of equipment

required (i.e., specialized facilities, including dedicated equipment,

such as bloom casters, lead injection equipment, and fume control

technology) and that the conversion of the semifinished steel into hot-

rolled bar is ``minor.''

Further, the petitioners argue that the Department has failed to

follow previous anticircumvention precedent where the Department made a

comparison of a segment of an industry to the entire industry as a

whole. The petitioners argue that, in Brass Sheet and Strip, the

Department evaluated a similar industry via a relative comparison, and

that this comparison rendered an affirmative determination of

circumvention. In Brass Sheet and Strip, the Department considered that

the nature of the production process indicated that U.S. value added

was ``small'' because melting and casting operations performed in

integrated brass mills were the ``primary operations for production of

brass sheet and strip; whereas rolling operations add only the last

fraction of value.'' The petitioners contend that the U.S. re-rollers,

in the instant proceeding, perform the last of three stages in the

manufacturing process for hot-rolled leaded bar and that this process

is similar to the finishing processes of brass plate in Brass Sheet and

Strip, where the rolling of brass plate into brass sheet entailed only

one process for turning a semifinished product into a single finished

product.

Similarly, the petitioners assert that in PTFE the Department

compared the respondent's integrated facility in Italy with its

affiliated U.S. production facility. The petitioners point out that in

PTFE the Department concluded that the ``post-treatment processes are

not complex relative to the processes required to produce PTFE wet raw

polymer, and do not fundamentally alter the nature of the product'' (58

FR at 26102). The petitioners argue that as in the instant proceedings,

the inherent characteristics of the lead billet are imparted at the

melting stage, not the rolling stage and that the rolling stage should

be considered similar to post treatment.

The foreign respondents refute the petitioners' allegations that

the nature and extent of processing lead billets into hot-rolled lead

bar is ``minor.'' In particular, Thyssen points out that Inland argued

to the ITC in the original lead bar investigations, that:

[t]he rolling practice of injected steels is also unique and with it

come additional production costs * * * must be heated up to an hour

longer than SBQ (special bar quality) carbon steels to achieve the

proper rolling temperature; therefore adding extra heating cost * *

* [t]here is substantially more time involved in producing a lead or

bismuth product and therefore it becomes a more costly process.

(See Thyssen's July 21, 1997 submission.) Further, the foreign

respondents and U.S. re-rollers contend that the Department has the

discretion to engage in a comparative analysis, and that the use of a

comparative analysis would be nonsensical in the steel industry

context, because the integrated facility produces a full range of

products with a different cost structure, different production volumes

and various product mixes than that of a rolling mill. The foreign

respondents argue that under the petitioners' hypothesis, any

production process that takes place after the casting of the

semifinished steel may be characterized as ``minor or insignificant''

by comparison, even though the further processing is very significant

in absolute terms. The U.S. re-rollers contend that an examination of

their descriptions of the production process reveal that the processing

of lead billet into hot-rolled lead bar that they perform in the United

States is substantial. According to the U.S. re-rollers, the operations

performed at their respective U.S. facilities require sophisticated and

complex machinery in order to adhere to strict environmental and

process quality controls.

The foreign respondents also refute the petitioners' assertions

that the machinery at the melting and casting stages at an integrated

facility is dedicated solely to the production of lead billets. The

foreign respondents argue that neither an integrated facility's nor the

U.S. re-rollers' equipment is used solely for the production of either

leaded and nonleaded steel products, but rather a product mix involving

chemistries for both leaded and nonleaded products. The foreign

respondents argue that the smelting and casting equipment at the

integrated facility (i.e., furnace and tundish) can be used to produce

both leaded and nonleaded steel products.

Both the foreign respondents and U.S. re-rollers argue that, given

the nature of the U.S. re-rollers operations, the fact that they do not

add any materials to the imported lead billet is irrelevant because

there is virtually no market for lead billet other than re-roller

facilities. The U.S. re-rollers state that they must substantially

transform the lead billet into a hot-rolled lead bar in order to

produce a saleable product. Foreign respondents stress that a lead

billet is a semifinished product that is used by the U.S. re-rollers to

produce other semifinished products (e.g., hot-rolled lead bar) and

finished products, (i.e., cold-finished lead bar).

Department's Position: The petitioners' main argument that the

Department should compare a re-rolling facility to an integrated steel

facility in determining whether the re-rolling operations in the United

States are ``minor'' or ``insignificant'' and their citations to Brass

Sheet and Strip and

[[Page 40347]]

PTFE have been addressed in the ``Department's Position'' to ``Comment

2.'' The issue present in these circumvention inquiries is not whether

the production of steel is more complex than the re-rolling and

completion of a semifinished steel product but whether the rolling of

lead billets into hot-rolled lead bar is a ``minor'' or

``insignificant'' process being used to circumvent the AD and CVD

orders on hot-rolled lead bar from Germany and the United Kingdom. For

the reasons stated earlier in our response to ``Comment 2,'' we did not

compare the operations of the U.S. re-rollers to the production of

steel by integrated steel producers.

In our analysis of the process used by the U.S. re-rollers'

operations, the Department thoroughly considered many factors,

including the square footage of building space dedicated to hot-

rolling, the number of employees involved in hot-rolling, and the

capital equipment used in the production of hot-rolled lead bar, as

well as the ITC's description of the re-rolling process carried on by

the U.S. industry. On the basis of this analysis, the Department

concluded in the preliminary determinations that throughout the United

States, the U.S. re-rollers have extensive capital-intensive rolling

facilities staffed by skilled workers which are used to transform lead

billet into hot-rolled lead bar.

In making our final determinations, we again reviewed the records

in these inquiries. During verification, the Department toured AS&W's

rolling facilities and Republic's meltshop and rolling facilities. We

reviewed the production processes and facilities with respect to the

manufacture of lead billets and the subsequent rolling of the lead

billet into hot-rolled lead bar. While touring Republic's meltshop, we

verified that Republic employs workers responsible for teeming,

controlling, and inoculating the molten steel with lead wire. See

Republic's Verification Report at 7. In addition, during our tour of

AS&W's bar mill facility, company officials stated that while AS&W

``does not have machinery dedicated exclusively for the purpose of

rolling leaded steel products, the bar mill was designed specifically

to roll high quality lead and alloy products.'' Further, AS&W provided

documentation which showed that in comparison to its rod mill, its bar

mill rolls at very high tolerances, and as such, normally will roll

lead billets as opposed to nonlead billets into hot-rolled products.

See AS&W Verification Report at 6. Both plant tours demonstrated that

the production processes at the U.S. re-roller facilities require

stringent quality control, strict adherence to OSHA and environmental

regulations, and special training for employees.

Thus, we disagree with the petitioners that the production of hot-

rolled lead bar from lead billets is similar to the process examined in

Brass Sheet and Strip. Based on our analysis of the re-rollers

production process, we found the transformation of lead billet into

lead bar to be a more substantial undertaking than the process used in

Brass Sheet and Strip. For example, Great Lakes did not perform hot-

breakdown rolling, but merely a small amount of cold-breakdown rolling;

whereas, the re-rollers in these inquiries perform hot-breakdown

rolling before the lead billet can be transformed into a lead bar.

Next, the Department found in Brass Sheet and Strip that the rerolling

operations that Great Lakes performed, which included all of the

processes that rerollers perform, with one additional step, namely that

of cold-breakdown rolling, ``add only the last fraction of value''

because Great Lakes'' fabrication process turned a semifinished product

(brass plate), a product which was merely one rolling step short of

constituting a single finished product (brass sheet and strip). In

contrast, the production of lead bar from lead billets is a more

involved multi-process operation as we found on verification and as

described in the ITC's report. See Statutory Analysis Section of this

notice for a discussion of the production processes.

In Forklift Trucks, the Department examined all of the facts and

circumstances surrounding the respondent's domestic assembly operations

and noted that all foreign respondents ``made substantial investments

in plant and equipment,'' and that the ``level of production operations

is too great to characterize these operations as completion or assembly

operations established for the purpose of evading the antidumping

order.'' Specifically, the Department discussed the manner in which it

analyzed the processing operations performed in the following manner:

We examined the nature of foreign respondents' U.S. production

facilities in order to determine whether such facilities were

similar to the examples of circumvention cited in the legislative

history. Since a major goal of the circumvention provision is to

prevent evasion of an antidumping duty order through ``slight

changes'' in the method of production or shipment * * * examination

of foreign respondents' U.S. production processes is an important

part of our analysis.

55 FR at 6030. Forklift Trucks is instructive for these final

determinations because the record in these proceedings demonstrates

that the operations which the U.S. re-rollers undertake in order to

produce hot-rolled lead bar from lead billets do not involve evasion of

the orders through ``slight changes.''

Comment 4: Valued-Added Calculated for U.S. Re-Rolling Process is

``Minor''

The petitioners contend that a comparison of the ranged value-added

data in these inquiries to that found in Brass Sheet and Strip should

have led the Department to conclude that the amount of value added by

the U.S. re-rollers in rolling lead billet into hot-rolled lead bar is

``minor'' or ``insignificant.'' In support of their argument, the

petitioners provided the Department with a weighted-average calculation

of the value-added by the re-rollers which indicated that the value

added in the instant inquiries is ``similar in amount'' to the value-

added calculated in Brass Sheet and Strip. Given this similarity, the

petitioners argue that the weight-averaged value-added calculation is

within the range that the Department previously determined to be

``small'' under the pre-URAA statute.

Foreign respondents argue that the value-added that the Department

calculated in its preliminary determinations is not ``small.'' They

argue that the Department can determine whether the value-added in a

circumvention inquiry is ``significant'' on a case-by-case basis.

Department's Position: The legislative history to section 781(a)

establishes that Congress intended the Department to make

determinations regarding circumvention on a case-by-case basis in

recognition that the facts of individual cases and the nature of

specific industries vary widely. In particular, Congress directed the

Department to focus more on the nature of the production process and

less on the difference in value between the subject merchandise and the

imported parts or components. (See S. Rep. No. 103-412, 81-82 (1994)).

Thus, we believe that any attempt to establish a numerical standard

would be contrary to the intentions of Congress.

The Department's determination that the U.S. value-added in Brass

Sheet and Strip was ``small'' is irrelevant to the present proceedings

because that decision concerns the unique nature and extent of

fabrication undertaken by a U.S. importer in an entirely different

industry with different production processes. In addition, that case

was decided before 1995, i.e., before the changes made in section 781

of the Act

[[Page 40348]]

by the URAA were effective. The URAA, which became effective on January

1, 1995, redirected the focus of an circumvention inquiry away from a

numerical calculation of value-added towards a more qualitative focus

on the nature of the production process. Under the URAA, which provides

the current statutory language for section 781 of the Act, the

numerical calculation of value-added is just one of five factors the

Department is to examine in our determination of whether the processing

undertaken in the United States is minor or insignificant.

We also note, in conclusion, that in Brass Sheet and Strip, which

is cited by the petitioners in support of their argument, the

Department explicitly stated in the ``Affirmative Final Determination

of Circumvention'' section of that final determination ``that our

analysis of the difference in value and resulting determination of

`small' in this case are not necessarily synonymous with such

determinations that the Department will formulate in future anti-

circumvention inquiries since Congress has directed us to make

determinations regarding the difference in value on a case-by-case

basis.''

Comment 5: The Department's Preliminary Determination of No

Circumvention Conflicts With Prior Case Precedent

The petitioners argue that the Department's preliminary

determinations are incompatible with its previous finding of

circumvention in Brass Sheet and Strip, which involved similar fact

patterns (i.e., value-added calculations, capital-intensive industries,

production processes, etc.).

In their case briefs, the petitioners provide the Department with a

calculated weighted-average amount of the value-added in the instant

inquiries and argue that this weighted-average amount is ``similar'' to

the value-added of 15% determined in Brass Sheet and Strip, where the

Department found circumvention. The petitioners also contend that in

Brass Sheet and Strip the Department determined that the re-rolling of

brass plate into brass sheet and strip neither adds additional

materials nor imparts essentially physical characteristics to the

rerolled brass plate but rather ``adds only the last fraction of

value'' by shaping and sizing the brass plate. The petitioners argue

that the Department in Brass Sheet and Strip considered that the nature

of the production process was indicative that the U.S. value-added was

``small,'' since melting and casting operations performed in integrated

brass mills were the ``primary operations for production of brass sheet

and strip; whereas re-rolling operations add only the last fraction of

value * * *'' (58 FR at 33614).

The foreign respondents argue that the brass sheet and strip

industry (i.e., producers and fabricators and its subgroup, secondary

mills) and the hot-rolled lead bar industry are vastly different. They

contend that in Brass Sheet and Strip, the brass plate was merely

``finished'' into brass sheet and strip. On the other hand, the U.S.

re-rollers and foreign respondents argue that the production of hot-

rolled lead bar from lead billets is much more involved than merely

``finishing'' the lead billet into hot-rolled bar. They assert that the

record clearly demonstrates that the production of lead billets into

hot-rolled lead bar involves more steps (i.e., hot-rolling, testing,

and finishing) than the mere conversion of brass sheet and strip from

brass plate (i.e., finishing). In addition, the foreign respondents and

U.S. re-rollers argue that the majority of hot-rolled lead bar sold in

the merchant market is still an intermediate good that must undergo

further processing (i.e., cold finishing, forming, and testing) before

it can be considered a finished good. On the other hand, foreign

respondents argue, brass sheet and/or strip are themselves finished

goods.

Department's Position: We agree with the foreign respondents and

U.S. re-rollers that the fact pattern of these inquiries is different

from Brass Sheet and Strip. As we have previously noted, the Department

must determine whether or not circumvention of an order has occurred

based upon the nature of the specific circumvention inquiry and the

facts surrounding that circumvention inquiry. Thus, the facts which are

present in the instant circumvention inquiries and the nature of the

circumvention allegations differ from the facts which were present in

Brass Sheet and Strip. A review of Brass Sheet and Strip and a review

of the allegations and the facts surrounding these lead bar

circumvention inquiries reveal that the petitioners' reliance on Brass

Sheet and Strip to support their argument that the Department has erred

in finding no circumvention of the lead bar orders is misplaced.

In order to determine whether the value added by Great Lakes, a

secondary mill, specifically a brass plate re-roller, in Brass Sheet

and Strip was ``small,'' the Department examined the operations of

Great Lakes' re-rolling of brass plate into brass sheet and strip. We

compared Great Lakes' operations to the operations performed by

fabricators in the U.S. brass sheet and strip industry, otherwise known

as brass mills, which perform fabrication processes such as casting,

melting and some re-rolling. Since Great Lakes re-rolled thicker brass

plate, while secondary mills normally re-roll the thinner gauge brass

sheet and strip, the Department determined that a comparison of the

Great Lakes' operations to the operations normally performed by a brass

mill was warranted, and upon examination, determined that the value

added by Great Lakes indicated that the processing performed was minor.

This decision was essentially based upon the fact that Great Lakes was

founded in 1990, more than three years after the issuance of the

antidumping order and the fact that, at the time of the original

investigation, brass plate re-rollers were not considered a separate

and recognized segment of the U.S. brass sheet and strip industry

because the established re-rollers began the re-rolling process with

brass sheet and strip, which itself was already within the scope of the

investigation and subsequent order. See the ``Department's Position''

to ``Comment 2'' in Brass Sheet and Strip. In other words, because

there was no brass plate re-roller industry segment with which to

compare Great Lakes' activities during the POI, the Department compared

Great Lakes' operations to that of a fabricator.

As we stated in Brass Sheet and Strip, the U.S. importer, Great

Lakes, imported brass plate, a product which was one rolling step short

of constituting sheet and strip prior to importation. In the brass

sheet and strip industry, the primary fabrication process is hot-

breakdown rolling, whereby brass ingots are heated, rolled, and coiled,

then further reduced through cold-breakdown rolling. The relatively

small amount of Great Lakes' cold-breakdown rolling was insufficient to

consider Great Lakes a fabricator; however, since Great Lakes re-rolled

brass plate, not the thinner brass sheet and strip re-rolled by the

recognized secondary brass sheet and strip mills, the Department

compared Great Lakes operations to the operations of brass fabricators

and concluded that the re-rolling of brass plate into brass sheet and

strip relative to a fabricator's processes was ``small.'' The

petitioners' arguments that we should compare the hot rolling process

in these inquiries to the process of an integrated steel facility

because such a comparison was conducted in Brass Sheet and Strip is

misplaced, because the rolling mills which subsequently roll lead

billets into hot-rolled lead bar predate the order and have always been

[[Page 40349]]

considered a distinct part of the industry. In contrast, brass plate

re-rollers were not considered a separate and recognized segment of the

brass sheet and strip industry but one created by a foreign exporter in

an attempt to evade the order on brass sheet and strip.

Since the date of the determination of circumvention in Brass Sheet

and Strip, there were also changes in the statute relating to the

determination of the amount of value added in the United States and the

place that this has in the Department's analysis. Whereas under the

statute applicable in Brass Sheet and Strip a determination of

circumvention required a finding that the value added to the imported

parts or components was ``small,'' under the current statute the amount

of value added is but one factor to be considered in determining

whether the processing or assembly in the United States is ``minor or

insignificant.'' Accordingly, whether or not the value added is a

``small proportion,'' we must consider other factors in determining

whether the processing is ``minor or insignificant.'' Thus, while case

precedent prior to the enactment of the URAA, which became effective

January 1, 1995, can provide useful guidance to the Department in post-

URAA circumvention inquiries, certain changes in the Act expanded the

factors to be considered by the Department in determining whether

circumvention of an order has occurred.

For example, in Brass Sheet and Strip, our circumvention

determination did not address level of investment. With the changes to

the Act under the URAA, the Department must consider the level of

investment by the U.S. re-rollers in determining whether the processing

in the United States is minor or insignificant. As stated earlier, some

of the U.S. re-rollers have invested over 100 million dollars in their

rolling facilities. These facts must be considered by the Department in

reaching determinations in these hot-rolled lead bar inquiries, while

these factors were not addressed in Brass Sheet and Strip.

In both these hot-rolled lead bar circumvention inquiries and in

Brass Sheet and Strip, the Department did examine patterns of trade to

determine whether there were increases in imports of the alleged

circumventing product. In Brass Sheet and Strip, the facilities of

Great Lakes, an affiliated importer, were introduced into production in

1990, more than three years after issuance of the antidumping duty

order, and imports of Canadian brass plate increased ten-fold from 1990

to 1991 (58 FR at 33610, 33615). This massive increase in imports of

brass plate following the establishment of this facility contrasts

markedly with the fact pattern in these hot-rolled lead bar inquiries,

where there was no dramatic increase in the importation of lead billets

connected with the establishment of an affiliated rolling mill in the

United States before and after the issuance of these orders (see the

``Department's Position'' to ``Comment 1,'' above). In these inquiries,

while there was some increase in imports of lead billets, the product

alleged to be circumventing the respective orders, after the initiation

of these investigations, the circumstances were quite different. In

particular, the U.S. re-rolling facilities existed prior these

investigations, the re-rollers that imported the lead billets are not

affiliated with any foreign producer or exporter of the lead billets,

and at least one of these re-rollers imported lead billets before the

initiation of the investigations. Thus, this pattern of trade in these

inquiries is different from the pattern of trade in Brass Sheet and

Strip.

In addition, the history and nature of the production process at

issue in Brass Sheet and Strip bears no relationship to the history and

nature of the processing performed by the U.S. re-rollers in these

inquiries. In Brass Sheet and Strip the type of processing performed by

the U.S. importer was not in existence at the time of the original AD

investigation. Indeed, the U.S. importer and brass finisher in Brass

Sheet and Strip was not established, and did not begin operations,

until more than three years after the issuance of the antidumping order

on brass sheet and strip. This contrasts with the facts in these lead

bar circumvention inquiries, where most of the U.S. re-rollers were in

existence, importing lead billets and processing them into lead bar,

before the AD and CVD petitions on lead bar were filed with the

Department.

In conclusion, the facts in Brass Sheet and Strip which caused the

Department to find circumvention in that inquiry are not present in the

circumvention inquiries on lead bar. Based on the facts present in

these inquiries and the current statute, we find that circumvention of

the lead bar orders is not occurring. Additional information with

respect to the petitioners' comment regarding the similar value-added

found in our preliminary determinations and the value-added determined

in Brass Sheet and Strip can be found in our position in ``Comment 4.''

Comment 6: Most of the Merchandise Sold in the United States is a

Different Class or Kind From That Under the AD and CVD Orders

The foreign respondents argue that the vast majority of the

merchandise sold in the United States from the purchase of lead billets

is not the same class or kind of merchandise that is subject to the

leaded bar order. They state that the majority of the imported lead

billet further processed into hot rolled bar is subsequently cold

finished by the U.S. re-roller before it is sold to unaffiliated

customers or is sold to cold drawers. Thus, much of the merchandise

sold in the United States, i.e., cold finished leaded bar, is not the

same class or kind of merchandise subject to the orders. Foreign

respondents argue that in recognition of the fact that the

circumvention provision only applies to component materials used to

produce subject merchandise sold in the United States, the Department

has previously excluded from its circumvention findings component

materials used to produce nonsubject merchandise. The foreign

respondents argue that in Brass Sheet and Strip, the Department

excluded from its final affirmative determination brass plate used to

produce products sold as something other than brass sheet and strip.

Further, Republic has stated that if the Department issues an

affirmative final determination, at the very least, the Department

would need to adopt an importer/exporter certificate program so that

lead billets purchased by Republic for conversion to cold-finished bars

are excluded from the scope of the hot-rolled lead bar orders.

The petitioners argue that the foreign respondents' argument

ignores the fact that hot-rolled lead bar has been historically sold to

unaffiliated and affiliated cold finishers for further processing and

suggests that sales of merchandise for further manufacturing are not

``sales'' within the meaning of the statute. This would be inconsistent

with the Department's previous precedent in circumvention cases such as

Brass Sheet and Strip and PTFE. In both of those cases, the Department

found that products sold in the United States were of the same class or

kind as the merchandise subject to unfair trade orders even though the

items that were produced from parts or components were subject to

further processing before reaching the ultimate consumer.

Department's Position: Because the Department has determined that

imports of lead billets from Germany and the United Kingdom are not

circumventing the respective AD and CVD orders on

[[Page 40350]]

hot-rolled lead bar, we are addressing arguments concerning the

coverage of a circumvention finding.

Comment 7: Lead Billets Are Not Parts or Components

The foreign respondents argue that the anticircumvention statute

requires that the merchandise sold in the United States be completed or

assembled in the United States from parts or components from the

country subject to the orders. The foreign respondents assert that the

Department's preliminary determinations merely stated that all of the

U.S. re-rollers purchased lead billet from one or more of the foreign

respondents and that the re-rollers ``use the lead billet to produce

hot-rolled lead bar in the United States.'' They argue that the use of

a lead billet in the production of hot-rolled lead bar in the United

States does not establish a finding that the process of rolling lead

billets into hot-rolled lead bar constitutes ``completion.'' The

foreign respondents further argue that the petitioners recognized in

their methodological comments that lead billets are a complete product

upon importation when the petitioners described the hot-rolling of lead

billets into bars as a ``conversion'' process, rather than a process of

completion.

Further, the foreign respondents argue that broadening the scope of

an order beyond the like product examined in the ITC's injury

determination in the original AD and CVD investigations is inconsistent

with the anticircumvention statute. The foreign respondents assert that

lead billets and hot-rolled lead bar constitute separate and distinct

like products produced by separate and distinct domestic industries, as

determined by both the ITC and the Department in the initial

investigations. They also argue that because the petitioners in the

initial hot-rolled lead bar investigations made the strategic decision

to limit their petition to hot-rolled lead bar (rather than including

lead billets within its scope), the Department must now conclude, as a

matter of law, that circumvention does not exist.

The petitioners argue the anticircumvention statute does not

require a finding that the parts or components fall within the same

like product category as the finished product and certainly does not

require a separate finding that the products subject to an

anticircumvention inquiry must fall within the ITC's prior like product

and injury determinations. The petitioners also note that in previous

anticircumvention inquiries, Steel Wire Rope from Mexico and Brass

Sheet and Strip, the Department correctly included merchandise in the

scope of antidumping order that had previously been excluded from the

ITC's like product and injury determinations.

The petitioners note that the Department stated in its notice of

initiation of these inquiries that this investigation is analogous to

the anticircumvention inquiry in Steel Wire Rope from Mexico, where the

Department made an affirmative finding of circumvention and expanded

the scope of an order to include a component that the petitioners had

expressly excluded from the original investigation. Even though the

expressly excluded merchandise was not part of the ITC's like product

determination or injury determination, the petitioners argue in the

instant case that the Department should follow the plain meaning of the

statute (i.e., that the anticircumvention statute permitted expansion

of the scope beyond the original like product) and make an affirmative

finding. The petitioners note that in Brass Sheet and Strip the

Department included brass plate within the order on brass sheet and

strip even though the brass plate was not included within the scope of

the original investigation.

Department's Position: We disagree with the respondents' first

argument that a so-called ``completed'' product cannot be a ``part or

component'' of lead bar for purposes of section 781(a) of the Act.

Indeed, it is difficult to imagine that many ``parts and components''

used to produce or assemble subject merchandise could not be considered

``complete'' in and of themselves. For example, an engine is a

``completed'' product, but it can still be imported in the United

States and ``assembled'' into a forklift truck. Accordingly, the

engine, although a completed product, can still be a part or component

of another item. Thus, whether a part or component is or is not

characterized as ``completed'' is irrelevant to the circumvention

section of the statute. The question is whether that item becomes part

of the product sold in the United States that is of the same class or

kind of merchandise subject to an order.

Because the Department has determined that imports of lead billets

from Germany and the United Kingdom are not circumventing the

respective AD and CVD orders on hot-rolled lead bar, we are not

addressing the arguments concerning the ITC's injury determination.

Comment 8: Because There Is Minimal R&D in the Re-rolling Process, the

Re-rolling Process Must Be Minor or Insignificant

The petitioners contend that the Department's findings on the lack

of R&D in the U.S. re-rollers' facilities are consistent with the

petition, where the petitioners demonstrated that R&D expenditures are

typically concentrated in the relatively more complex melt shop

facility and that the Department's finding that ``R&D into the process

of rolling bar is not a significant factor in this industry''

demonstrates that foreign producers can easily shift from selling bars

and rod to selling billets, and, thus, circumvent the order. Therefore,

the petitioners argue that the Department's finding that little, if

any, R&D is evident at the rolling stage means that the production

process is ``minor'' or ``insignificant.''

The foreign respondents agree in part with the petitioners that the

amount of R&D expenditures related to the rolling of lead billets into

hot-rolled bar is minimal. However, they argue that, because the

production of leaded steels is technically a mature process, the

Department properly gave little weight to the level of R&D in the

United States in determining whether the conversion of leaded billet

into hot-rolled lead bar is ``minor'' or ``insignificant.'' Further,

the foreign respondents argue that the anticircumvention statute does

not require an analysis of R&D when the Department finds that it is not

a meaningful factor with respect to the industry and merchandise under

review.

Department's Position: We disagree with the petitioners that a lack

of R&D in the production of hot-rolled lead bar means that the foreign

respondents can readily shift from the sale of hot-rolled lead bars to

the sale of lead billets in circumvention of the orders. While R&D may

be a significant factor in some industries, it is not in others.

Further, the significance of its presence or absence depends on the

industry and product under investigation. For example, changes in

technology occur very rapidly in the electronics industry. This

requires significant amounts for R&D. Thus, R&D might be a significant

factor in a circumvention inquiry of that industry. In other

industries, such as this one R&D is not a significant factor because of

the maturity of the production process. However, a lack of R&D does not

necessarily mean that circumvention is more easily accomplished. Where

R&D is almost non-existent in the industry in general, whether that

industry is located in the

[[Page 40351]]

respondent's country or in the United States, the absence of such

expenditures does not automatically equate with ease of circumvention.

As we have explained above, the re-rolling of lead billet into lead bar

is not accomplished in temporary, transitory facilities. The lack of

R&D in this industry does not change that fact. Accordingly, the

Department gave little weight to R&D as an informative factor in its

determination as to whether the lead bar orders were being

circumvented.

Comment 9: The Department Placed Too Much Emphasis on the Fact that the

U.S. Re-rollers and Foreign Manufacturers are Unaffiliated

The petitioners argue that the Department has placed greater weight

on the fact that the respondents and the U.S. re-rollers are

unaffiliated than contemplated by the statute or previous circumvention

decisions. Specifically, the petitioners cite to the Department's

observation in the preliminary determination that ``these unaffiliated

re-rollers invested a substantial amount in their re-rolling facilities

both before and after the AD and CVD orders to roll both lead and

nonlead billets into hot-rolled bar.'' 63 FR at 24162. They also note

that affiliation is not necessary in order for the Department to make

an affirmative finding of circumvention.

The foreign respondents argue that while the absence of affiliation

does not mandate a negative determination, the arm's length nature of

the business relationships between the foreign respondents and the U.S.

re-rollers cannot be ignored in the Department's analysis.

Department's Position: The second factor the Department is required

to consider under section 781(a)(3) of the Act is whether the

manufacturer or exporter of the parts or components (in this instance,

the foreign respondents which produce and export the lead billets) is

affiliated with the persons which assemble or complete the merchandise

in the United States (here, the U.S. re-rollers). In its preliminary

determination, the Department set out the facts which lead it to find

that no affiliation of any kind existed between the foreign respondents

and the U.S. re-rollers.

Neither the statute, the SAA, nor the relevant legislative history

provide any guidance as to how the Department is to consider this

particular factor. Accordingly, the Department may reasonably determine

how to evaluate that factor on a case-by-case basis in light of the

pertinent facts particular to a specific circumvention inquiry. We

agree with the petitioners that, as a general proposition, affiliation

is not necessary for a finding of circumvention. However, a finding of

no affiliation cannot be dismissed as having no relevance to the

Department's determination, particularly when the statute mandates that

this factor be considered. Thus, we disagree with the petitioners that

we have elevated affiliation beyond that contemplated by the statute or

previous circumvention determinations. Indeed, in several prior

circumvention determinations, the Department has explicitly stated that

we consider circumvention to be more likely when the manufacturer/

exporter of the parts and components is related to the party completing

or assembling merchandise in the United States using the imported

components. See, e.g., PTFE and Brass Sheet and Strip.

In these circumvention inquiries, we found that the U.S. re-rollers

acted on behalf of their respective commercial interests, independently

of the foreign respondents' interests. The lack of any affiliation

between the foreign respondents and the U.S. re-rollers was a

contributing factor in the U.S. re-rollers' decisions on how best to

protect and advance their own economic interests given, in particular,

the sourcing problems for domestic leaded billet they encountered in

the market place. However, as we explained in the preliminary

determination and in this final determination, as well, affiliation is

only one of several factors the Department considered in reaching a

determination that circumvention does not exist.

Conclusion

Based on the analysis under section 781(a) of the Act, detailed

above, we determine that circumvention of the AD and CVD orders on hot-

rolled lead bar is not occurring by reason of imports of lead billets

from Germany and the United Kingdom.

These negative final circumvention determinations and notice are in

accordance with section 781(a) of the Act and 19 C.F.R. 353.29(e) and

19 C.F.R. 355.29(e).

Dated: July 20, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-19019 Filed 7-23-99; 8:45 am]

BILLING CODE 3510-DS-P