Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea

DEPARTMENT OF COMMERCE

INTERNATIONAL TRADE ADMINISTRATION

[A-580-836]

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

Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: December 29, 1999.

FOR FURTHER INFORMATION CONTACT: Howard Smith, Frank Thomson, or Lyman

Armstrong, Office 4, Group II, Import Administration, International

Trade Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-

5193, (202) 482-4793 or (202) 482-3601, respectively.

The Applicable Statute

Unless otherwise indicated, all citations to the statute are

references to the provisions as of January 1, 1995, the effective date

of the amendments made to the Tariff Act of 1930 (``the Act'') by the

Uruguay Round Agreements Act (``URAA''). In addition, unless otherwise

indicated, all references are made to the Department's regulations at

19 CFR part 351 (1998).

Final Determination

We determine that certain cut-to-length carbon-quality steel plate

products (``CTL plate'') from Korea are being, or are likely to be,

sold in the United States at less than fair value (``LTFV''), as

provided in section 733 of the Act. The estimated margins of sales at

LTFV are shown in the ``Suspension of Liquidation'' section of this

notice.

Case History

Since the preliminary determination in this investigation (Notice

of Preliminary Determination of Antidumping Investigations: Certain

Cut-To-Length Carbon-Quality Steel Plate from Korea, 64 FR 41224 ( July

29, 1999) (``Preliminary Determination'')), the following events have

occurred:

In August, September, and October 1999, the Department conducted

verifications of Pohang Iron & Steel Co., Ltd. (``POSCO'') and Dongkuk

Steel Mill Co., Ltd. (``DSM''), the respondents in the instant

investigation. A public version of our analysis and report of the

results of this verification is on file in room B-099 of the main

Department of Commerce building, under the appropriate case number.

On October 15, 1999, and October 27, 1999, respondents submitted

revised databases. Petitioners 1 and respondents submitted

case briefs on November 12, 1999, November 15, 1999, and November 16,

1999, and rebuttal briefs on November 22, 1999. On November 23, 1999,

the Department held a public hearing concerning this investigation.

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\1\ The petitioners are Bethlehem Steel Corporation, Gulf States

Steel, Inc., IPSCO Steel Inc., Tuscaloosa Steel Corporation, the

United Steelworkers of America, and the U.S. Steel Group (a unit of

USX Corporation).

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Subsequent to the hearing on November 29, 1999, petitioners

submitted a letter alleging that respondents' rebuttal brief contained

untimely filed new factual information that must be rejected.

Specifically, petitioners stated that an opinion from an expert on

accounting issues was new information. On December 3, 1999, respondents

submitted a letter arguing that this opinion was not new factual

information. The opinion in question is that of Dr. Charles T.

Horngren, and was found at attachment 4 to respondent's cost rebuttal

brief. We agree with petitioners that this opinion constitutes new

factual information because it is offered as an ``expert opinion,'' and

as such, constitutes testimony rather than a general opinion.

Therefore, we find that the information in question is new factual

information untimely submitted pursuant to section 351.301(b) of the

Department's regulations. Normally such new factual information is

returned to the submitter. However, given that this issue was raised so

late in the proceeding--less than two weeks before the final

determination--for administrative convenience we have not returned

these data. We have not considered them in making our final

determination in this case. Rather, all copies were removed from the

record and destroyed, except that, pursuant to section

351.104(a)(ii)(A), of the Act, we have kept one copy solely for the

purpose of documenting the reason for rejecting the new information.

Scope of Investigation

The products covered by the scope of this investigation are certain

hot-rolled carbon-quality steel: (1) Universal mill plates (i.e., flat-

rolled products rolled on four faces or in a closed box pass, of a

width exceeding 150 mm but not exceeding 1250 mm, and of a nominal or

actual thickness of not less than 4 mm, which are cut-to-length (not in

coils) and without patterns in relief), of iron or non-alloy-quality

steel; and (2) flat-rolled products, hot-rolled, of a nominal or actual

thickness of 4.75 mm or more and of a width which exceeds 150 mm and

measures at least twice the thickness, and which are cut-to-length (not

in coils). Steel products to be included in this scope are of

rectangular, square, circular or other shape and of rectangular or non-

rectangular cross-section where such non-rectangular cross-section is

achieved subsequent to the rolling process (i.e., products which have

been ``worked after rolling'')--for example, products which have been

beveled or rounded at the edges. Steel products that meet the noted

physical characteristics that are painted, varnished or coated with

plastic or other non-metallic substances are included within this

scope. Also, specifically included in this scope are high strength, low

alloy (``HSLA'') steels. HSLA steels are recognized as steels with

micro-alloying levels of elements such as chromium, copper, niobium,

titanium, vanadium, and molybdenum. Steel products to be included in

this scope, regardless of Harmonized Tariff Schedule of the United

States (``HTSUS'') definitions, are products in which: (1) Iron

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

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

the elements listed below is equal to or exceeds the quantity, by

weight, respectively indicated: 1.80 percent of manganese, or 1.50

percent of silicon, or 1.00 percent of copper, or 0.50 percent of

aluminum, or 1.25 percent of chromium, or 0.30 percent of cobalt, or

0.40 percent of lead, or 1.25 percent of nickel, or 0.30 percent of

tungsten, or 0.10 percent of molybdenum, or 0.10 percent of niobium, or

0.41 percent of titanium, or 0.15 percent of vanadium, or 0.15 percent

zirconium. All products that meet the written physical description, and

in which the chemistry quantities do not equal or exceed any one of the

levels listed above, are within the scope of these investigations

unless otherwise specifically excluded. The following products are

specifically excluded from these investigations: (1) Products clad,

plated, or coated with metal, whether or not painted, varnished or

coated with plastic or other non-metallic substances; (2) SAE grades

(formerly AISI grades) of series 2300 and above; (3) products made to

ASTM A710 and A736 or their proprietary

[[Page 73197]]

equivalents; (4) abrasion-resistant steels (i.e., USS AR 400, USS AR

500); (5) products made to ASTM A202, A225, A514 grade S, A517 grade S,

or their proprietary equivalents; (6) ball bearing steels; (7) tool

steels; and (8) silicon manganese steel or silicon electric steel.

The merchandise subject to these investigations is classified in

the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,

7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,

7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,

7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,

7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,

7226.91.8000, 7226.99.0000.

Although the HTSUS subheadings are provided for convenience and

Customs purposes, the written description of the merchandise under

investigation is dispositive.

Period of Investigation

The period of investigation (POI) is January 1, 1998, through

December 31, 1998.

Product Comparisons

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

products produced by POSCO and DSM covered by the description in the

``Scope of Investigation'' section, above, and sold in Korea during the

POI to be foreign like products for purposes of determining appropriate

product comparisons to U.S. sales. We compared U.S. sales to sales made

in the home market, where appropriate. Where there were no sales of

identical merchandise in the home market made in the ordinary course of

trade to compare to U.S. sales, we compared U.S. sales to sales of the

most similar foreign like product made in the ordinary course of trade.

In making the product comparisons, we matched foreign like products

based on the physical characteristics reported by respondents in the

following order of importance (which are identified in Appendix V of

the questionnaire): painting, quality, grade specification, heat

treatment, nominal thickness, nominal width, patterns in relief, and

descaling.

Because neither POSCO nor DSM had sales of non-prime merchandise in

the United States during the POI, we did not use home market sales of

non-prime merchandise in our product comparisons. See, e.g., Final

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

Rod from Sweden 63 FR 40449, 40450 (July 29, 1998) (``SSWR'').

Changes From the Department's Preliminary Determination

The following is a summary of changes from the Department's

Preliminary Determination. For a full explanation of DSM and POSCO

sales, see Dongkuk Steel Mill Co., Ltd. Calculation Memorandum, dated

December 13, 1999 and Pohang Iron & Steel Co., Ltd. Memorandum, dated

December 13, 1999. For POSCO, the Department utilized the most recent

affiliated service center data submitted. For DSM, the Department

revised certain codes reported for PLQUAL2H/U in accordance with

corrections submitted on July 16, 1999. Additionally, the Department

made the following changes to DSM's sales database: for certain U.S.

sales observations we revised the per-unit international freight as a

result of verification, for a certain U.S. sales observation we revised

the amount reported for other discounts, and for a certain U.S. sales

observation we revised the order date.

For DSM cost we made changes to the following general areas: scrap

offset, affiliated input costs, start-up cost depreciation, inventory,

and foreign exchange gains and losses. See Cost of Production and

Constructed Value Calculation Memorandum, dated December 13, 1999.

Verification

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

information provided by POSCO and DSM with respect to its sales and

costs, including on-site inspection of facilities, the examination of

relevant accounting and financial records, and selection of original

documentation containing relevant information. Our verification results

are outlined in the cost verification and sales report. See Cost

Verification Report--Pohang Iron and Steel Company, Ltd., from James

Terpstra to Official File (November 4, 1999); Cost Verification

Report--Dongkuk Steel Mill Co., Ltd., from Garri Gzirian and Lauren Van

Houten to Neal Harper (October 21, 1999); Sales Verification Report--

Pohang Iron and Steel Company, Ltd. from Frank Thomson to James

Terpstra (November 10, 1999); Sales Verification Report--Dongkuk Steel

Mill Co., Ltd., from Howard Smith and Lyman Armstrong to James Terpstra

(November 10, 1999).

Currency Conversion

We made currency conversions into U.S. dollars based on the

exchange rates in effect on the dates of the U.S. sales as certified by

the Federal Reserve Bank.

Section 773A(a) of the Act directs the Department to use a daily

exchange rate in order to convert foreign currencies into U.S. dollars

unless the daily rate involves a fluctuation. It is the Department's

practice to find that a fluctuation exists when the daily exchange rate

differs. When we determine a fluctuation to have existed, we substitute

the benchmark rate for the daily rate, in accordance with established

practice. Further, section 773A(b) of the Act directs the Department to

allow a 60-day adjustment period when a currency has undergone a

sustained movement. A sustained movement has occurred when the weekly

average of actual daily rates exceeds the weekly average of benchmark

rates by more than five percent for eight consecutive weeks. (For an

explanation of this method, see Policy Bulletin 96-1: Currency

Conversions 61 FR 9434 (March 8, 1996).

Particular Market Situation

On October 8, 1999, petitioners submitted an allegation that a

``particular market situation'' exists within the meaning of section

773(a)(1)(C)(iii) of the Act. This allegation was based on a variety of

information sources that, according to petitioners, show that the

Government of Korea (``GOK'') controls the price of steel in the home

market to such an extent that the prices cannot be considered to be

competitively set, such that home market prices cannot be used as a

basis for normal value. Petitioners supplemented this allegation on

October 29, 1999.

Petitioners provided four types of evidence to support their

allegations: (1) Market research, including interviews with steel

industry indicating GOK control of steel prices; (2) a time series of

transaction prices showing flat prices (indicative of price controls

according to petitioners); (3) a GOK document related to steel prices;

and (4) a variety of media articles related to this topic.

On October 19, 1999, respondents submitted a rebuttal to this

allegation. Respondents asserted that the allegation was untimely and

should be rejected. Respondents also stated that this allegation was

fully evaluated in a previous case and found to be without merit.

Finally, respondents submitted home market prices data for showing

variation in home market prices, which

[[Page 73198]]

they claimed to be indicative of market forces operating freely.

Regarding timeliness, 19 CFR 351.301(d)(1) requires that an

allegation must be submitted within 40 days after the date on which the

original questionnaire was transmitted, unless the Secretary extends

the time limit. In this case, the questionnaire was transmitted on

March 17, 1999, and thus this allegation would normally have been due

on or before April 26, 1999.

In considering whether to extend the deadline for this allegation,

as permitted by the regulations, we consider, inter alia, how the

allegation would affect the schedule of the case. See 19 CFR

351.302(b). The regulations state that ``unless expressly precluded by

statute, the Secretary may, for good cause, extend any time limit

established by this part. Furthermore, with regard to the allegation

itself, the regulations regarding this provision foresee that such an

allegation would lead to the rejection of an otherwise viable home

market in favor of sales to a third country as the basis for normal

value. See 19 CFR 351.404(c)(1). As such, the deadlines are predicated

on the assumption that we would need sufficient time to collect and

analyze third country sales. Whatever the merits of the allegation in

this case, the timing of petitioners allegation would not have allowed

for sufficient time to collect and analyze third country sales data.

Therefore, we have not extended the deadline for filing the allegation

in this case. Consequently, we find petitioners allegation to be

untimely filed and have not considered it in our final determination.

Analysis of the Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received case and rebuttal briefs from

petitioners and case and rebuttal briefs from respondents.

Home Market and U.S. Sales

DSM

Comment 1: Physical Characteristics of Subject Merchandise

Petitioners argue that the methodology DSM used for reporting its

plate specification information is flawed and cannot be accepted.

Petitioners state that DSM's claim of producing high-strength

shipbuilding plate from ``general'' quality slabs demonstrates an error

in the physical characteristics designated by either DSM's slab

supplier or DSM itself. Under either scenario, petitioners feel that

DSM's reported plate specification and quality information must be

considered unreliable. Petitioners argue that the Department's sales

verification report says nothing about manufacturing a high strength

product from general quality slab. See Department's Sales Verification

of DSM at 12. Petitioners contend that it is not possible to create a

high-strength plate from non-high strength slab. Petitioners argue that

all the chemical properties (such as carbon content) which engenders a

CTL plate product with high-strength qualities are added prior to the

production of slab. According to petitioners, while the subsequent

rolling and finishing of a slab (in the production of CTL plate) may

improve the mechanical attributes of the product, they cannot alter the

chemical composition of the product. Given these assumptions,

petitioners claim that the Department cannot have any confidence in any

of the plate quality and specification information submitted by DSM.

Petitioners also argue that DSM's claim that general quality plates

are produced from high-strength shipbuilding slabs is inconsistent with

the statute, the Department's questionnaire, and past practice.

Petitioners claim that pursuant to 19 U.S.C. 1667b(a), the Department

must compare products that are identical in physical characteristics,

and not merely identical in the assigned product specification.

In addition, petitioners contend that there is the potential for

manipulation stemming from the use of a methodology that relies on

something other than physical characteristics. Petitioners argue that

if the Department were to determine that the actual physical

characteristics of a finished product are not relevant and the only

relevant information is the specification designated on the sales

invoices, then companies could legally sell their products in the

United States at the lesser specification, when in fact the products

actually possess significantly different physical characteristics.

Petitioners recommend that the Department use partial facts available

given that DSM did not assign costs to the merchandise actually

produced; but rather to the merchandise as ordered by the customer.

According to petitioners, this would lead to a distorted comparison

between home market sales and U.S. sales. Petitioners claim that, as

partial facts available, the Department should designate all of DSM's

U.S. sales as sales of high-strength shipbuilding plate, to account for

the fact that under the flawed reporting methodology, any of the

company's U.S. sales could actually be of a high-strength shipbuilding

specification.

DSM claims that they reported subject merchandise correctly and

that the Department verified the information. DSM asserts that it

seldom produces general quality plate using high strength slab, except

in order to avoid delays in meeting a customer's order. Further, DSM

states that a customer cannot use plate with a general quality

certification for a high strength application. Citing the Verification

Report, DSM argues that the Department randomly selected two months,

June and July 1998, and found no instances in which general plate was

produced using slabs that were not of general quality.

Department's Position

We disagree with petitioners. During verification, Department

officials found one instance where DSM used slabs that were certified

to a general quality specification to produce plates that were

certified to a high-strength specification. In addition, DSM reported

that during the POI, it used both general quality and high-strength

slabs to produce plates that were certified to a general quality

specification. For the following reasons we have not rejected the

reported product characteristics. First, the evidence on the record

supports DSM's claim that it produced high-strength plates from slabs

certified to a general quality specification, and that it properly

reported the quality and specification of such plates. The Department

verified that the slabs in question were certified to a general quality

specification, and hence DSM classified them as general quality slabs

in its inventory system. See Sales Verification Report at 9 and exhibit

32. However, the mill test certificate for the slabs showed that their

chemical characteristics satisfied the chemical standards of the high-

strength specification to which the plates were produced.2

The fact that the slabs had only been tested in accordance with the

general quality specification and, thus, only certified to that

specification does not change the fact that, chemically, they also

satisfied the requirements of a high-strength specification and were

used to produce that specification. Moreover, the plates that were

produced from these slabs were tested and found to meet the high-

strength specification that DSM reported to the Department. Thus, this

method of production does

[[Page 73199]]

not demonstrate that DSM's submitted product characteristics are

unreliable. Second, at verification the Department found no evidence to

indicate that DSM had incorrectly reported the physical characteristics

of the plates sold. Furthermore, it is inappropriate to conclude, based

solely on the quality of the slabs, that plates that were produced from

high-strength slabs and certified to a general quality specification

are in fact high-strength plates. The record shows that the production

of high-strength plates may involve special hot-mill processing which

improves the mechanical properties of certain high-strength steels.

Thus, additional factors must be considered before concluding that such

plates are high-strength. Moreover, there is no information on the

record to show that these products were marketed or sold as a

specification other than that for which they were tested and to which

they were certified. Finally, the record shows that only a very small

percentage of the slabs that DSM used to produce general quality plates

were high-strength slabs. For the foregoing reasons, we have accepted

the product characteristics as reported.

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\2\ At verification, DSM officials explained that they select

the slabs to be used to produce a plate order based on similarities

between the physical characteristics of the slab and the ordered

plate irrespective of the quality assigned to the slab in DSM's

inventory system.

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Comment 2: Commission Expense

DSM focuses a statement in the Department's verification report

that one of the selling agents received a lesser commission for each

sale. While DSM admits this selling agent received less of a commission

for each U.S. sale it was involved in, DSM argues that this agent also

received a salary which was reported in DSM's indirect selling expense.

This additional compensation was not considered in the Department's

analysis.

DSM argues that it is Departmental practice to report commissions

paid to independent sales agents, as a direct selling expense and

employee's salary, as an indirect selling expense. Accordingly, DSM has

properly reported its commission expenses in the United States.

Petitioners did not comment on this issue.

Department's Position

We agree with DSM. We recognize that the sales agent in question

received a salary in addition to his commission and that the amount of

the salary was properly included in the reported indirect selling

expense.

Comment 3: CEP Offset

DSM argues that a CEP offset is warranted because (1) NV is

established at a Level of Trade (``LOT'') which constitutes a more

advanced stage of distribution than the LOT of the CEP; and (2) the

data available do not provide an appropriate basis to determine a LOT

adjustment. See 19 CFR 351.412(c)(2); Notice of Preliminary

Determination of Stainless Steel Sheet and Strip from the United

Kingdom, 64 FR 90 (January 4, 1999). At verification, DSM demonstrated,

and the Department verified, that DKA, not DSM, was responsible for

negotiating prices with customers and for invoicing customers in U.S.

Channels 1 and 3. In those CEP channels, DSM argues that DKA was also

responsible for market research and all interactions with the U.S.

customers, including arranging for freight and delivery in the United

States and, in Channel 1, U.S. Customs clearance. See Sales

Verification Report at 8-9; Sales Verification Exhibit 9.

Accordingly, DSM states that there is no reseller in Korea that

fulfills the role on home market sales that DKA performs on U.S. sales

in Channels 1 and 3. As a result, when DKA's selling activities are

excluded for purposes of the LOT analysis (CEP LOT), the home market

comparison price becomes incomparable because it included significant

expenses, communication expenses, rent, and market research. As such, a

CEP offset is warranted in this case.

Petitioners claim that a CEP offset adjustment is not warranted in

this case. First, petitioners argue that the record evidence fails to

indicate that there are significant differences in selling functions

between DSM's home market and CEP LOTs. Second, petitioners argue that

there is no effect on price comparability on the LOT in this case. As

such, the Department should uphold its preliminary determination that

U.S. and home market sales were made at the same LOT.

Petitioners claim that, in the event that the Department

erroneously determines to make a CEP offset adjustment to normal value

for home market sales matched to CEP sales, it must ensure any

adjustment is properly applied and not double-counted with the

commission offset adjustment. Citing Static Random Access Memory

Semiconductors From Taiwan, 63 FR 8909 (February 23, 1998), petitioners

argue that the Department must ``offset any commission paid on U.S.

sale by reducing the NV by any home market indirect selling expense

remaining after the deduction for the CEP offset, up to the amount of

the U.S. commission.''

Department's Position:

We agree with the petitioners. In accordance with section

773(a)(1)(B)(i) of the Act, to the extent practicable, we determine NV

based on sales in the comparison market at the same LOT as the EP or

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

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

from which we derive selling general and administrative expenses and

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

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

the Department makes its analysis at the level of the constructed

export sale from the exporter to the affiliated importer.

Because of the statutory mandate to take LOT differences into

consideration, the Department is required to conduct a LOT analysis in

every case, regardless of whether or not a respondent has requested a

LOT adjustment or a CEP offset for a given group of sales. To determine

whether NV sales are at a different LOT than EP or CEP sales, we

examine stages in the marketing process and selling functions along the

chain of distribution between the producer and the unaffiliated

customer. If the comparison market sales are at a different LOT, and

the difference affects price comparability, as manifested in a pattern

of consistent price differences between the sales on which NV is based

and comparison market sales at the LOT of the export transaction, we

make a LOT adjustment under section 773(a)(7)(A) of the Act. Finally,

for CEP sales, if the NV level is more remote from the factory than the

CEP level and there is no basis for determining whether the differences

in the LOTs between the NV and the CEP sales affects price

comparability, we adjust NV under section 773(A)(7)(B) of the Act (the

CEP offset provision). See Certain Cut-to-Length Carbon Steel Plate

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

As stated in the preliminary determination notice, Dongkuk reported

one channel of distribution in the home market through which it sold to

distributors and affiliated and unaffiliated end-users. Dongkuk

reported no appreciable differences in the functions performed in

selling to different types of customers in the home market. Thus, sales

to these customers constitute a single marketing stage and, therefore,

we continue to find that all of DSM's home market sales were made at

one LOT.

In the U.S. market, DSM reported four sales channels: (1) CEP sales

through Dongkuk Industries Co., Ltd. (``DKI''), Dongkuk's affiliated

trading company in Korea, to Dongkuk International, Inc. (``DKA''),

Dongkuk's U.S. affiliate, to unaffiliated customers; (2) EP sales

through DKI, to unaffiliated customers;

[[Page 73200]]

(3) CEP sales through DKA, to unaffiliated customers; and (4) EP sales

from Dongkuk to unaffiliated customers. After adjusting CEP sales in

accordance with section 772(d) of the Act, we find no substantial

differences in selling activities between EP and CEP sales. Moreover,

in comparing home market sales to EP sales and CEP sales, as adjusted

under 772(d), we find that DSM performs many of the same functions in

selling to its U.S. and home market customers. Therefore, we find that

there is no difference in the LOT for NV, EP, or CEP sales. Because

there is no difference in the LOT for NV and CEP sales we have not

granted DSM a CEP offset. See Dongkuk Steel Mill Co., Ltd: Level of

Trade Analysis, dated December 13, 1999.

Comment 4: Minor Adjustments Made at the Preliminary Determination Are

No Longer Needed

DSM argues that minor adjusts to DSM's database made at the

Preliminary Determination are no longer needed. First, the Department

recalculated credit expense in the home market database because of a

database programming error. At the start of verification, DSM corrected

the programming that had resulted in incorrect payment dates for a

number of their home market sales. See Sales Verification Report at 3.

Second, the Department had found several missing payment dates and used

the signature date as payment date for those sales. Again, at

verification, DSM provided the correct payment dates for the invoices

that were paid subsequent to the Preliminary Determination and the

payment date for any remaining unpaid sales. As a result, DSM claims

that the Department should have no need to create new payment dates or

to make any other adjustments to the sales database.

Petitioners did not comment on this issue.

Department's Position

We agree with the DSM that the minor adjustments to its database

are no longer needed. At verification, DSM provided the Department with

the correct payment dates for the invoices that were paid subsequent to

the Preliminary Determination and the payment date for any remaining

unpaid sales. See Sales Verification Report at 3 and exhibit 1.

Comment 5: Gross Unit Price for Home Surprise Sales 6 and 7

DSM argues that the verification report incorrectly stated that the

prices for home market surprise sales 6 and 7 were understated. DSM

argues that the value for freight revenue was not included in the

variable gross unit price (GRSUPRH); rather for both sales this value

was reported in freight revenue (FRTREVH) and was verified as such. See

Sales Verification Report at Exhibit 24 and 25. However, in the normal

course of business, freight revenue and gross unit price are recorded

as a single line item in DSM's invoice. In its questionnaire response,

DSM reported freight revenue separately from gross unit price and if it

was included in gross unit price it would double the amount reported

for freight revenue. DSM maintains that the freight revenue accounted

for an insignificant percentage of the total value of sales for the two

sales, and that the Department found no discrepancies in the reported

sales values for the other sales reviewed at verification. As the

Department also verified the total reported value and tested the

accuracy of DSM's reported data in a variety of ways, DSM argues no

adjustment is needed.

Petitioners argue that when errors are discovered at verification,

it is the Department's practice to adjust the untested portion of the

data in line with the verified findings based on facts available.

According to petitioners, these errors are fundamental to the

Department's analysis as they relate directly to the prices charged for

the foreign like product and as such the Department should increase the

gross unit price for all home market sales.

Department's Position

We agree with DSM that no adjustment is needed to the gross unit

price of home market surprise sales 6 and 7. At verification we found

that the value of freight revenue for both sales was captured in the

variable FRTREVH rather than GRSUPRH. Moreover, this discrepancy does

not necessitate the use of adverse facts available for all home market

sales, as petitioners suggest. If the Department added the difference

between the invoice gross unit price and the reported gross unit price,

it would double the amount of freight revenue reported for each sale,

as this is already captured in another variable, i.e., FRTREVH.

Consequently, the Department has made no adjustment to home market

surprise sales 6 and 7.

Comment 6: DSM's Model Matching Methodology

Petitioners claim that a comparison of the plate specifications

(i.e., PLSPECH) for the home market matching hierarchies to the plate

specifications for the U.S. market (PLSPECU) submitted by DSM and POSCO

revealed significant discrepancies in the two respondents'

methodologies. These discrepancies indicate that DSM's and POSCO's

respective specification concordances for ``similar'' products are

unreliable. Therefore, the Department should rely on facts available in

determining the margins for all U.S. sales not matched to identical

PLSPECHs in the home market. Specifically, the Department should assign

the highest reported home market price to all sales of non-identical

PLESPECHs matching to U.S. sales.

DSM contends that petitioners are most concerned that DSM and POSCO

did not report the same suggested matching hierarchy in their

questionnaire responses. DSM states that it is unaware of any

requirement that respondents report identical matching hierarchies.

Further, DSM argues that their company and POSCO were precluded from

consulting with one another on this issue due to the proprietary nature

of the information. Instead, the companies reviewed the physical

characteristics guidelines in the Department's questionnaire; discussed

it with their engineers; and made an informed assessment of the most

reasonable hierarchy for all specifications sold in the home market.

According to DSM, the hierarchy for the subject merchandise is

moot. Both companies sold sufficient quantities of the identical

merchandise above cost in the home market to eliminate the necessity of

selecting the next most similar product. DSM states that the Department

verified the underlying product characteristics associated with DSM's

model matching hierarchy. Because this information has been verified as

accurate, and because the Department has the discretion to alter the

hierarchy, there is no basis for utilizing facts available.

Department's Position

We disagree with petitioners that the reported model matching

hierarchies proposed by DSM are flawed and must be rejected. The

questionnaire in this case instructed respondents to identify, for

every specification sold to the United States, the identical and four

or five most similar specifications sold in the home market. In the

questionnaire, respondents are requested to explain their identical and

similar selections. The Department normally relies on this information

in developing its model match concordance. However, if we disagree with

any selection of similarity, we can rearrange this hierarchy as

appropriate. In this case, petitioners, have not disputed any of these

hierarchies at any time prior to the submission of case briefs.

Moreover, we have not questioned either party on the

[[Page 73201]]

use of these hierarchies in any supplemental questionnaire or found

specific faults with any chosen selection.

We also note that the similarity in hierarchies can vary based on

the fact that each company sells a different mix of specifications in

the home market. Moreover, in this case, the great majority of all of

the U.S. sales were matched to either identical, or functionally

identical, home market specifications. Thus, for the majority of the

reported U.S. transactions, second and third next most similar

specifications were not relevant to the margin calculations, as they

were not utilized as matches.

Comment 7: Application of Adverse Facts Available to DSM's Cost of

Production Data

Petitioners contend that the Department should apply total facts

available with an adverse inference in making its final determination

in this case. According to petitioners, the Department has resorted to

the facts otherwise available in similar cases. See Final Results of

Antidumping Duty Administrative Review: Fresh Cut Flowers from Mexico,

60 FR 49569 (Sept. 26, 1995) (``Flowers from Mexico''); Final Results

of Changed Circumstances Antidumping Duty Administrative Review:

Sweaters Wholly or in Chief Weight of Man-Made Fiber from Taiwan, 58 FR

32644 (June 11, 1993) (``Sweaters from Taiwan'').

Petitioners assert that DSM's financial statements are materially

misstated and, therefore, are unreliable. They question the credibility

of DSM's auditors by citing articles published in 1999 in the Korean

press, which indicate that this accounting firm ceased operations

because of the repeated sanctions imposed by the Korean oversight

authorities for poor audits of the companies it audited. Additionally,

they claim that, in the course of this investigation, the Department

has detected numerous examples where DSM's financial statements are

either not compiled in accordance with Korean Generally Accepted

Accounting Principles (GAAP), misrepresent relevant financial

information, or utilize unreasonable accounting methods. According to

petitioners, these problems demonstrate that DSM's financial statements

are materially misstated and artificially understate the company's true

costs and overstate its income. Furthermore, petitioners argue that

these examples also indicate the unreliability of DSM's auditors and

their audit report with respect to DSM's financial statements.

Petitioners list four instances of such material misstatements:

1. Petitioners argue that DSM violated Korean GAAP by materially

overstating the value of its raw materials inventory. Specifically, DSM

did not state raw materials inventory at the lower of cost or market

value. Petitioners point out that DSM misstated its actual accounting

practice in the footnotes to its audited financial statements, by

stating that it had valued its inventories at the lower of cost or

market value, when in fact it did not do so. To refute DSM's defense

that the company's independent auditors did not require this

adjustment, petitioners refer to the U.S. Securities and Exchange

Commission's (``SEC'') pronouncements on the issue of materiality of

misstatements in the financial statements. Petitioners claim that DSM's

failure to write-down its raw materials inventory value constitutes a

material misstatement.

2. Petitioners argue that DSM, in its treatment and reporting of

capitalized 1997 foreign exchange losses, misrepresented its accounting

policies, mistranslated certain Korean text, violated Korean GAAP, and

employed an unreasonable accounting practice. Specifically, petitioners

point out that the company's 1998 financial statements footnote claimed

that foreign exchange losses related to debt are amortized over the

corresponding maturity periods. In 1998, however, the vast majority of

these deferred expenses was transferred to fixed assets and subject to

depreciation over asset lives. In addition, according to petitioners,

DSM mistranslated Korean GAAP by omitting the fact that the

capitalization of certain financial type expenses, other than interest

expenses related to certain asset acquisitions, should be disclosed in

the footnotes to the financial statements. Therefore, petitioners

contend that by not disclosing the transfer of the capitalized foreign

exchange losses to fixed assets DSM violated Korean GAAP.

3. Petitioners assert that DSM, in its treatment and reporting of

1998 foreign exchange gains, misrepresented its accounting policies,

mislead the Department as to the information in the footnotes of the

company's Korean financial statements, and employed an unreasonable

accounting practice. Specifically, petitioners point out that the

footnotes to the company's financial statements submitted to the

Department claimed that foreign exchange gains and losses are amortized

over the corresponding maturity periods. However, in fact, the gross

amount of the gain was reported on the company's financial statements.

4. Petitioners contend that DSM's extension of the useful lives of

its asset represent an unreasonable accounting practice. They note that

to support the reasonableness of adopting these asset lives, DSM

referred the Department to several sources, none of which, provide an

adequate justification for DSM's adoption of longer asset lives for its

machinery and equipment.

Petitioners summarize their arguments by asserting that each of the

issues presented above represents a material misstatement and alone is

a sufficient ground for not relying on DSM's financial statements.

Moreover, the cumulative effect of each issue requires the Department

to reject DSM's financial statements and to use total facts available.

Petitioners argue that, if the Department found these material

misstatements based on its limited examination, numerous other

instances of material misstatement may also be present in DSM's 1998

financial results. Petitioners contend that these issues demonstrate

that DSM has failed to cooperate by not acting to the best of its

ability to comply with a request for information, and, therefore, the

Department should apply total adverse facts available.

DSM argues that petitioners' request for the use of total adverse

facts available is without merit, and should be rejected by the

Department. According to DSM, it cooperated fully with the Department

in this investigation, and its data submissions were fully verified by

the Department. DSM contends that the alleged misstatements identified

by petitioners are no more than instances in which petitioners are

attempting to second-guess the interpretation and application of Korean

GAAP. DSM maintains that the Department should rely on the certified

Korean financial auditor's opinion that its financial statements were

fairly stated. Furthermore, DSM argues that even if petitioners could

identify misstatements in DSM's financial statements, the Department

has held that such errors cannot form the basis for the use of adverse

facts available absent a showing that the errors prevented the

verification of submitted data or otherwise impeded the Department's

investigation. DSM argues that no such showing has been, or can be,

made in this investigation.

DSM contends that the two cases cited by petitioners in support of

their position (i.e., Flowers from Mexico and Sweaters from Taiwan) are

far from being on point. According to DSM, in both cases the Department

resorted to

[[Page 73202]]

facts available only where the Department had determined that the

financial statements in question were unreliable, and that it was

impossible to verify the accuracy of fundamental questionnaire response

data. DSM claims that these cases stand in stark contrast to facts of

record in this investigation because, according to DSM, the Department

verified without exception each and every element of DSM's antidumping

questionnaire responses. DSM contends that the Department was able to

link DSM's reported data not only to its accounting ledgers and its

audited financial statements and income tax return, but also to journal

vouchers, invoices, mill certificates, sales order summaries, and other

underlying source documents. Therefore, DSM claims that the Department

may not resort to facts available in such a situation. See Sulfanilic

Acid From the People's Republic of China; Final Results of Antidumping

Duty Administrative Review, 61 Fed. Reg. 53711, 53713 (October 15,

1996) (``Sulfanilic Acid from China'').

DSM objects to petitioners attempt to impugn the legitimacy of its

audit by noting that the accounting firm that performed DSM's audit was

subsequently sanctioned by the Korean authorities for deficiencies in

unrelated audits conducted for other companies. DSM calls this argument

``guilt by association'', and asserts that the Department may not

refuse to accept the professional opinion of DSM's auditor that DSM's

financial statements were fairly stated under Korean GAAP in the

absence of any indication of irregularities in its audit of DSM. It

points out that the Korean Securities and Exchange Commission (KSEC)

has never questioned the accuracy or validity of DSM's audited

financial statements. DSM also notes that its financial statements were

reconciled by the Department to DSM's income tax returns, which were

accepted without adjustment by the Korean tax authorities.

DSM rebuts each specific allegation of misstatement in the

financial statements made by petitioners:

1. DSM claims that its inventory was properly valued on its

financial statements and no adjustment should be made to its costs on

account of this issue. DSM argues that petitioners' claim is misguided,

and is contradicted by the proper application of the lower-of-cost-or-

market rule, under both Korean and U.S. GAAP. DSM points out that its

profits in the first-half 1999 are precisely opposite of the

substantial losses that would have been incurred had DSM in fact

overstated the value of its inventory on hand at the end of 1998.

2. DSM argues that its deferral and transfer to fixed asset value

of the 1997 exchange gains and losses associated with the financing of

fixed assets was in accordance with Korean GAAP. According to DSM,

prior to 1997, Korean GAAP required that foreign currency gains and

losses incurred on long-term debt be fully recognized in the year they

were incurred. Effective for fiscal year 1997, Korean Financial

Accounting Standards were amended to provide that such gains and losses

could be accounted for as deferred charges or credits and amortized.

The company claims that it followed this accounting treatment in 1997

and amortized both gains and losses on long-term foreign currency

obligations in that year. DSM maintains that it also followed Korean

GAAP when the deferred losses associated with the financing of capital

assets were subsequently transferred to the capitalized cost of those

assets when they were placed into service in 1998. The company cites

relevant articles of Korean Financial Accounting Standards to support

this treatment.

DSM disagrees with petitioners assertion that DSM's accounting

treatment of these items was not properly disclosed in DSM's audited

financial statements. DSM also disagrees that the translation of the

relevant section of the Korean GAAP prepared internally by DSM and

submitted to the Department misstates the original text. DSM argues

that Korean GAAP does not require a separate disclosure in the notes of

the subsequent transfer of previously deferred charges (i.e., foreign

exchange loss capitalized in 1997) from one balance sheet account

(i.e., deferred charges account) to another (i.e., fixed assets

account). Moreover, DSM argues that the issue of disclosure in the

financial statements is simply irrelevant because, according to DSM, it

fully disclosed to the Department the methodologies it used both in the

financial statements and in its submitted data, and the Department

verified both the methodologies and the underlying figures. DSM further

points out that the Korean Securities and Exchange Commission has never

questioned the adequacy of DSM's financial statement disclosure.

3. DSM argues that its accounting treatment of 1998 exchange gains

and losses was also in accordance with Korean GAAP. DSM points out that

in 1998 the Korean Financial Accounting Standards were amended again,

which allowed DSM to make an election to return to the previous rule

which prescribed that foreign exchange gains and losses on long-term

assets and liabilities ``shall be recognized in the current year.'' DSM

claims that it followed this accounting treatment in its 1998 financial

statements, and thus recognized the full amount the long-term foreign

exchange gains and losses incurred during that year. Due to a

translation error, however, according to DSM, the footnote to the

English language version of the 1998/1997 unconsolidated financial

statements failed to include a reference to this latter change in

accounting standards. Thus, according to DSM, while long-term foreign

exchange gains and losses were in fact accounted for differently in

1998 than in 1997, this was due to a change in Korean Financial

Accounting Standards and does not in any way call into question the

consistency and reasonableness of DSM's choice of accounting policies.

4. DSM argues that its useful lives for fixed assets are fully in

accordance with Korean GAAP. It asserts that not only were the useful

lives specifically concurred with by DSM's financial auditors, but they

are supported by an appraisal performed by a certified appraisal firm,

by a survey conducted by the Korean Iron & Steel Association, and by

statements by the manufacturers of the equipment, all of which attest

to the reasonableness of the useful lives adopted by DSM.

Department's Position

We disagree with petitioners that the issues raised concerning

DSM's audited financial statements warrant the application of total

adverse facts available. The examples of alleged material misstatement

cited by petitioners are issues of accounting conventions and

principles adopted by company management, as opposed to the reliability

of the underlying financial data. At verification, we noted no

instances which raise doubts as to the reliability of DSM's underlying

financial data. Although the Department agrees that an audit entails a

much more thorough testing of the source financial data as compared to

a verification, we noted no inconsistencies in the underlying cost

information reviewed (e.g., financial accounting system, cost

accounting system, and production records). While there are legitimate

concerns about whether the specific accounting practices identified by

petitioners result in unreasonable per unit costs for antidumping

purposes, we find that after reviewing DSM's treatment, of the

identified issues, DSM's management applied the requirements of Korean

GAAP in a reasonable manner.

[[Page 73203]]

Korean GAAP specifies that the market value of inventory as used in

the lower-of-cost-or-market adjustment should be based on the net

realizable value of the inventory. See DSM's Rebuttal Brief,

Attachments 2. Korean GAAP is not clear as to whether the net

realizable value should be determined based on the estimated sales

value for the raw material in question or by starting with the

estimated sales value of the finished goods the raw material will be

used to produce. Specifically, it states that the net realizable value,

``shall be determined as estimated selling price, less estimated

expenses that can ordinarily be expected to occur.'' See Cost

Verification Exhibit 25. We consider DSM's approach of starting with

the estimated sales value of the finished goods a plausible

interpretation of Korean GAAP because the ``estimated selling price''

referred to by Korean GAAP could be interpreted as being of the

finished good as well as the raw material. Thus, we disagree with

petitioners that DSM's decision not to make an adjustment to its

inventory for the lower of cost or market supports the position that

DSM's audited financial statements are unreliable.

Effective for fiscal year 1997, Korean GAAP provided that all

foreign exchange gains and losses related to long-term debt should be

capitalized and amortized over the corresponding maturity period for

the loans. Effective for fiscal year 1999 and 1998, if a company

elected to do so (emphasis added), Korean GAAP provides that all

foreign exchange gains and losses related to long-term debt may be

recognized in full, in the year incurred. While we have concerns about

the inconsistent treatment of the foreign exchange gains and losses in

1998 (recognizing the gains over a shorter period than the losses) and

its effect on the antidumping duty analysis (see Comment 9), the

treatment of exchange gains and losses fall within the confines of

Korean GAAP. That is, it appears that the capitalization of the foreign

currency losses associated with acquisition of equipment and the

subsequent depreciation of these losses over the life of the equipment,

as opposed to the corresponding maturity period of the loans, is an

acceptable interpretation of Korean GAAP.

While we also have concerns about the timing and magnitude of

useful life changes adopted by DSM during 1998, we do not consider

these changes to constitute grounds for rejecting a company's audited

financial statements in their entirety. The new useful lives adopted by

DSM were largely approved by a certified independent appraiser and were

fully disclosed by the company in its financial statements. While the

Korean tax laws prescribe a rigid limit on depreciable lives, Korean

GAAP does not set such strict constraints. Korean GAAP stipulates that

companies may select estimated useful lives that differ from those in

the tax law. It allows the management of a company to use its

judgement, within certain guidelines, in determining useful life and

depreciation methodology. Based on this, we do not find the new lives

adopted by DSM necessarily conflict with Korean GAAP. See discussion in

Comment 10.

Lastly, we disagree with petitioners that the fact that DSM's

auditors have ceased operations due to repeated sanctions imposed by

the Korean oversight authorities for poor audits automatically

impeaches the DSM audit. Despite the problems identified by the Korean

oversight committee related to audits performed on other companies,

there is no evidence that similar types of problems are present with

regard to DSM's audit. Absent factual evidence specific to DSM, we have

no grounds to reject their audited financial statements.

Comment 8: Ending Inventory Balance Valuation

Petitioners assert that DSM has understated its true cost of

production by failing to value ending inventory at the lower of cost or

market value (which, according to Korean GAAP, should be determined at

net realizable value). Petitioners also point out that the net

realizable value as it is defined under Korean GAAP, would actually

differ from the acquisition cost because it should be net of certain

other costs (e.g., selling expenses). Therefore, petitioners argue,

because the Department does not have information on how much DSM has

understated its costs due to this particular error, the Department

should apply the highest known difference between DSM's stated year-end

inventory value and DSM's December acquisition cost to DSM's total

year-end inventory value and allocate that calculated amount over costs

of goods sold.

Petitioners contend that DSM's suggested definition of the ``net

realizable value'' of slab is unreasonable. According to petitioners,

DSM's definition of the net realizable value of slab (a raw material

input to the CTL plate under investigation) ignores the known market

value of slab (i.e., the value of year-end purchases of slab by DSM

from unaffiliated parties) and instead relies on a derivation involving

several estimated values--the estimated value of the finished plates

that will be produced from the particular slabs in inventory at the

time of valuation, the estimated fabrication costs associated with

producing those finished plates, and the estimated general expenses

associated with producing those finished plates. Petitioners argue that

the Department should not ignore the known market value of the raw

material being valued and instead resort to a derived value based on

estimates and presumptions. Petitioners also claim that DSM provides no

reference to any authority supporting its slab valuation methodology.

DSM contends that its inventories are appropriately valued in its

audited financial statements, and, therefore, no adjustment to DSM's

inventory value is required or permitted. DSM argues that the

Department may not substitute its own judgment on the application of

Korean GAAP for that of DSM's outside auditors. According to DSM, the

purpose of verification is not to conduct a ``super audit'' of the

company's financial statements, but rather to determine (1) that the

submitted costs reconcile with the audited financial statements, and

(2) that the resulting costs fairly reflect the actual unit costs of

producing subject merchandise, as required for calculating COP and CV.

DSM argues that any attempt on the part of the Department to override

the accounting treatment specified in a company's audited financial

statements is directly contrary to section 773(f)(1)(A) of the Act.

DSM argues that any conclusion that DSM or its auditors failed to

follow Korean GAAP in the valuation of DSM's raw materials inventory is

unsupported by any information on the record in this investigation.

According to DSM, under Korean GAAP, the correct valuation of raw

materials inventory for purposes of applying the lower-of-cost-or-

market rule is net realizable value, and not the replacement value. The

net realizable value, in turn, would be determined by calculating an

estimated selling price for the finished product (i.e., plate) and

subtracting fabrication and general expenses. DSM disagrees with the

method where the average purchase price for slab in December of 1998 is

used as raw material year-end inventory value because DSM is not in the

business of selling slab. DSM claims that the year-end raw material

inventory value when determined according to its method provides no

grounds to conclude that there was a sharp decline in value that would

have required a write-down under Korean GAAP. DSM argues that any

decline in value of raw materials was due to the fact that the majority

of DSM's slab was imported, and the fluctuation in the Korean won

[[Page 73204]]

and the general instability caused by the Asian crisis led to

significant fluctuations in the won-denominated price for slabs. DSM

asserts that, even assuming that the market value of its raw materials

inventory had declined sharply as of the end of 1998, the decline would

not produce a loss material enough to require an adjustment to

inventory under Korean GAAP.

DSM claims that the Department's normal policy regarding the

treatment of inventory write-downs that have been made in a DSM's

audited financial statements appears to be that such write-downs are

normally included in cost of production for the period. At the same

time, according to respondent, write-downs that are not reflected in

the company's cost of goods sold for financial accounting purposes are

not included in COP or CV. See Final Determination of Sales at Less

Than Fair Value: Canned Pineapple Fruit From Thailand, 60 FR 29553,

29571 (June 5, 1995) (``Pineapple from Thailand''); Antifriction

Bearings (Other Than Tapered Roller Bearings) and Parts From France,

Germany, Italy, Japan, Singapore, and the United Kingdom; Results of

Antidumping Duty Administrative Reviews, 62 FR 2081, 2118 (January 15,

1997) (``Antifriction Bearings-1997''); Antifriction Bearings (Other

Than Tapered Roller Bearings) and Parts Thereof From France, Germany,

Italy, Japan, Singapore, Sweden, and the United Kingdom; Final Results

of Antidumping Duty Administrative Reviews and Partial Termination of

Administrative Reviews, 61 FR 66472, 66495 (December 17, 1996)

(``Antifriction Bearings-1996''). DSM argues that if the Department

makes an inventory adjustment where no write-down was made for

financial accounting purposes, this would violate the requirement that

COP and CV be based on the actual costs of the company. See IPSCO, Inc.

v. United States, 965 F.2d. 1056 (Fed. Cir. 1992).

Finally, DSM claims that, even if the Department were to

erroneously determine that some adjustment is appropriate to DSM's

reported costs to account for an apparent decline in the value of DSM's

raw materials inventory, the adjustment proposed by petitioners would

wildly exaggerate any possible decline in inventory value and would

amount to an unjustified and punitive overstatement of DSM's actual

costs.

Department's Position

We disagree with DSM that the Department's practice is to only

consider the write-downs that are reflected in the company's cost of

goods sold for financial accounting purposes. The antidumping law

requires the Department to base its calculation of costs upon the costs

recorded in respondent's books and records unless doing so would be

distortive. Section 773(f)(1)(A) of the Act provides that for purposes

of calculating COP and CV, ``[c]osts shall normally be calculated based

on the records of the exporter or producer of the merchandise, if such

records are kept in accordance with the generally accepted accounting

principles of the exporting country (or the producing country, where

appropriate) and reasonably reflect the costs associated with the

production and sale of the merchandise.''

In the instant case, Korean GAAP requires the application of the

lower-of-cost-or-market rule to the company's inventory valuation. The

purpose of this rule, which is also a part of the U.S. GAAP, and

International Accounting Standards, as well as many other national

accounting systems, is to comply with the one of the basic accounting

measurement principals--the ``matching principle''. This accounting

principle, in the context of inventory valuation, requires that a loss

of inventory value be reflected as a charge against the revenues of the

period in which it occurs. Different accounting systems, though, may

differ on the specifics of the lower-of-cost-or-market rule, including

the definition of the term ``market.'' The information on the record

demonstrates that the Korean GAAP defines this term as ``net realizable

value.'' However, as we noted above, Korean GAAP is not clear as to

whether the net realizable value should be determined based on the

estimated sales value for the inventory item in question (i.e., raw

materials in this case), or by starting with the estimated sales value

for the finished goods the raw material will be used to produce.

We agree that choice of the method, just like the application of

the lower-of-cost-or-market rule in general, may depend upon the

specific facts and circumstances under consideration, and calls for the

application of professional judgement. We believe that it is

conceivable that both methods of calculating net realizable value may

be acceptable under Korean GAAP. However, in this specific case, the

method utilized by DSM distorts the costs because, the estimated future

profits from the finished product sales mask the loss in raw materials

inventory value that occurred during the POI. In the current case, we

found that the method based on the sales value for raw materials is

more appropriate because it more accurately reflects the costs the

company incurred during the POI by utilizing the market prices readily

available for this particular inventory item. Therefore, we adjusted

DSM's costs to include the loss in raw materials inventory value that

occurred during the period of investigation.

Comment 9: Foreign Exchange Gains and Losses

Petitioners argue that, while DSM's reclassification of 1997 long-

term foreign exchange losses incurred on monetary liabilities related

to specific capitalized assets may be allowed under Korean GAAP, it

nevertheless is unreasonable and distorts the company's costs.

Accordingly, petitioners assert that reclassification should be

rejected by the Department. They contend that gains or losses incurred

on monetary liabilities such as loans (or financial obligations) should

remain tied to those liabilities, rather than being re-assigned to non-

monetary assets. In addition, petitioners assert that DSM's treatment

of its foreign exchange losses is inconsistent with its treatment of

foreign exchange gains (i.e., DSM's foreign exchange gains are

amortized over the terms of the underlying financial instruments while

its foreign exchange losses are depreciated over the useful life of its

assets). This, according to petitioners, may lead to miscalculation of

carry forward amounts from prior years that should be reflected in the

current year. Therefore, petitioners contend that, the Department does

not have the information to make the treatment of its foreign exchange

gains consistent with the treatment of its foreign exchange losses and

cannot reasonably determine the accurate amount of foreign exchange

gains and losses for the current year. Accordingly, petitioners argue

that the Department should apply adverse facts available with respect

to this claimed adjustment by disallowing any foreign exchange gains

and assuming the largest amount of foreign exchange losses incurred in

the current year. The petitioners contend that, at a minimum, the

Department should assume that all of these foreign exchange losses

relate to the current period, and increase DSM's submitted G&A costs by

the full amount related to the reclassification.

DSM argues that its accounting treatment of 1998 exchange gains and

losses was in accordance with Korean GAAP. According to DSM, while

long-term foreign exchange gains and losses were in fact accounted for

differently in 1998 than in 1997, this was due to a change in Korean

Financial Accounting Standards and does not in any way call into

question the consistency and reasonableness of DSM's choice of

[[Page 73205]]

accounting policies. In addition, DSM argues that its deferral and

transfer to fixed asset values of the 1997 exchange gains and losses

associated with the financing of fixed assets was in accordance with

Korean GAAP. DSM objects to petitioners suggestion that the gains or

losses incurred on long-term obligations should remain tied to those

liabilities as lacking any accounting authority, and points out that

this treatment would not be supported by either Korean or U.S. GAAP.

DSM points out that, notwithstanding the fact that DSM, in accordance

with Korean GAAP, recognized the full amount of the long-term foreign

currency gains and losses in its 1998 income statement, for purposes of

the antidumping response, DSM amortized the gain over the remaining

life of the underlying obligations and reported only the current

portion of this gain as an offset to its reported interest expense for

COP and CV.

Department's Position

Section 773(f)(1)(A) of the Act requires the Department to base its

calculation of costs upon the costs recorded in the books and records

of the respondent, provided such records are kept in accordance with

the local GAAP, unless doing so would be distortive. In the instant

case, while we agree with DSM that its treatment of foreign exchange

gains and losses for the purposes of financial reporting may be

consistent with Korean GAAP, we consider the inconsistent treatment of

foreign exchange gains and losses to be distortive.

DSM's inconsistent treatment of foreign exchange gains and losses

results in losses being amortized over the life of fixed assets,

whereas the gains are being amortized over the life of loans. This

inconsistency is of particular concern when the same loans which

generated the 1997 foreign exchange losses assigned to fixed assets

also generated a portion of the foreign exchange gains recognized in

1998. As a result, the foreign exchange losses from those loans are

being depreciated over a significantly longer period than the foreign

exchange gains from the same loans. This results in the smoothing out

of losses and the recording of gains (i.e. income) in the current

period of time. In order to neutralize this inconsistent treatment, we

consider it appropriate to amortize the foreign exchange losses in

question over the life of the loans, as opposed to the life of the

equipment. This treatment is both consistent with DSM's reported

treatment of its 1998 foreign exchange gains and with the Department's

preferred method for foreign exchange gains and losses related to long-

term debt.

Comment 10: Extension of Useful Lives of Depreciable Assets

DSM contends that the Department erroneously overstated its

depreciation expense in the preliminary determination. DSM states that

the antidumping law requires the Department to base its calculation of

costs (including depreciation expense) upon the costs recorded in the

books and records of the respondent unless doing so would be

distortive, citing Notice of Final Determination of Sales at Less Than

Fair Value: Stainless Steel Sheet and Strip in Coils From France, 64 FR

30820, 30836 (June 8, 1999) (``Sheet and Strip from France''); Silicon

Metal from Brazil: Notice of Final Results of Antidumping Duty

Administrative Review, 64 FR 6305, 6321 (February 9, 1999) (``Silicon

Metal from Brazil'').

DSM maintains that the equipment acquired for Plate Mill #2 had

never been operated and remained in mint condition at the time DSM

acquired it. DSM claims that petitioners' reliance on POSCO to define

an industry practice is misplaced because the shorter useful lives used

by POSCO reflect a different election under Korean GAAP, and not a

different practice with respect to the determination of the actual,

economic useful lives of the assets.

DSM refers to Notice of Final Determination of Sales at less than

Fair Value: Stainless Steel Sheet and Strip in Coils from the Republic

of Korea, 64 FR 30664, 30684 (June 8, 1999) (``Sheet and Strip from

Korea'') as having similar circumstances and outcome. DSM claims that

in that case the Department accepted the respondent's depreciation

expense as reflected on the audited financial statements, even though

there has been a change in depreciation methodology and useful lives

from prior periods, because the respondent in that case ``provided

evidence that its change in depreciation methods and useful lives were

reasonable, and that the change occurred in a time period prior to the

initiation of the investigation.'' DSM contends that it, too, has

demonstrated that the depreciation methodology and useful lives it has

used are reasonable, and that the changes in question were adopted well

before the POI and before the initiation of this antidumping

investigation.

DSM also claims that a major portion of the Department's adjustment

to DSM's depreciation expense in the preliminary determination is

unrelated to the determination of the appropriate useful lives for

fixed assets. Rather, it relates to the change in depreciation

convention used for determining the depreciation expense. Specifically,

prior to 1998, DSM followed the ``six-month convention'' for

determining depreciation. Beginning in 1998, however, DSM began

calculating depreciation on a monthly basis, so that depreciation was

determined with reference to the month the asset was actually placed

into service. DSM argues that, while both conventions are permissible

under Korean Financial Accounting Standards, the monthly convention

applied by DSM is inherently more accurate than the six-month

convention. DSM presents an example where, under the monthly

convention, a machine installed in November of 1998 would be

depreciated in 1998 only for the two months in which it was actually in

service during the year. Under the six-month convention, however, the

same machine would be depreciated for a full six months, as if it had

been installed on July 1. Similarly, machinery installed in June of

1998 would, under the six-month convention, be depreciated for a full

year, as if it had been installed on January 1. DSM also points out

that this change in depreciation convention was determined to be a

reasonable change in accounting methodology for fiscal year 1998 by

DSM's outside auditor.

According to DSM, the Department's adjustment in the preliminary

determination ignored the fact that DSM also revalued upward its fixed

assets in 1998. This upward revaluation increased DSM's depreciation

expense. DSM claims that if the Department intends to rely upon the

previous useful life figures used by DSM prior to 1998, then it must

also use the original asset values.

In conclusion, DSM asserts that, for the reasons stated above, and

consistent with the Department's decision in Sheet and Strip from Korea

and long-standing precedents, the Department should eliminate the

adjustment to DSM's depreciation expense made in the preliminary

determination and instead use the actual depreciation expense for the

subject merchandise reported by DSM and verified by the Department.

Petitioners assert that DSM has massively understated its

depreciation costs by extending the useful lives of depreciable assets,

using new asset lives that are unreasonable. Petitioners argue that the

revaluation of assets and the restatement of asset lives are not

inextricably linked, but rather independent decisions having no direct

bearing on one another. Therefore, according to petitioners, the

Department

[[Page 73206]]

should reject DSM's extension of asset lives.

Petitioners assert that claims by manufacturers of equipment that

their machinery and equipment is still functional after 20 years are

irrelevant because the functionality of equipment over an extended

period relates to the magnitude of repair and maintenance performed.

For the same reason, petitioners maintain, the KSA's survey is not

relevant to the issue at hand, because different companies may have

different policies on equipment maintenance. In addition, petitioners

point out that the asset lives referred to by DSM relate to new assets,

while most of the DSM's newly acquired assets had not been operated for

fourteen years, and not been maintained for six years. They also note

that it is unclear from the information provided by the respondent

exactly which of the fourteen-year old equipment was in ``mint

condition,'' and which had already been installed in Mexico by the

previous owners.

Petitioners argue that the finding of the certified appraiser that

provided the basis for DSM's change in useful lives should be ignored

because, the appraisal was not conducted with professional due

diligence. Petitioners claim that the appraiser was unaware of the fact

that the equipment in question spent over a decade in Mexico before it

was purchased by DSM. They also contend that the appraiser did not

examine any information on POSCO's plate equipment to compare it to

DSM's equipment. Petitioners claim that DSM in several instances did

not follow the useful lives guidelines established by the Korean

Appraisal Board (``KAB''). Petitioners note that, for example, the

lives assigned to certain equipment exceed the limits indicated in KAB

guidelines.

Petitioners claim that by adopting extended asset lives DSM

violated a fundamental accounting convention. That convention,

according to petitioners, is the practice of following particular

accounting techniques applicable to the company's industry.

Specifically, petitioners refer to useful lives used by POSCO (i.e., up

to 9 years), which is the only other major producer of CTL plate in

Korea, as being indicative of the useful lives that would have been

used by other Korean producers of the same products.

Petitioners also claim that, even though DSM changed its useful

lives policy prior to the initiation of the case, it was already clear

at that point to all the parties involved in the investigation, based

on the statistics and dynamics of the DSM sales in the United States,

that an antidumping investigation was practically unavoidable.

Petitioners assert that this was at least one of the factors DSM

considered in switching to an accounting policy reducing the reported

costs.

Petitioners contend that the cases cited by DSM in support of

retaining the company's submitted depreciation expenses are

distinguishable from the current situation. According to petitioners,

in Sheet and Strip from France, Silicon Metal from Brazil and Sheet and

Strip from Korea, the respondents' submitted costs were not found to be

unreasonable (i.e., distorted), while in the instant investigation

petitioners claim that DSM's submitted depreciation expenses do distort

the company's actual costs.

Department's Position

Sheet and Strip from Korea represents one of the most recent cases

where the Department identified the factors it considers in deciding

whether a change in an accounting method, or estimate, should be

allowed for the purposes of COP and CV calculations. That is, the

Department, while relying on a company's normal books and records,

analyzes the reasonableness of the newly adopted accounting method, and

considers if the fact, or an expectation, of being involved in an

antidumping investigation might have played a role in the company's

decision to change its accounting practice (see Sheet and Strip from

Korea, 64 FR 30664, 30684 (June 8, 1999)). In the instant case, within

months of initiation of the investigation, DSM made three changes

affecting its depreciation expense calculations: revaluation of fixed

assets, change in depreciation convention, and extension of useful

lives.

We agree with DSM that revaluation of fixed assets and a change in

depreciation convention may result in more accurate cost reporting. The

revaluation of fixed asset values restates amounts recorded in prior

years to current currency levels. We also agree with DSM that the new

month-of-acquisition convention for when to start depreciating an

asset, being in conformity with Korean GAAP, reasonably reflects the

costs, and is generally more accurate than the six-month convention

previously used by the company. Therefore, we allowed these two changes

to the company's depreciation methodology.

However, we disagree with DSM's assertion that it has demonstrated

that the new useful lives are reasonable. Pursuant to section

773(f)(1)(A) of the Act, the Department ``shall consider all available

evidence on the proper allocation of costs, * * *, if such allocations

have been historically used by the exporter or producer in particular

for establishing appropriate amortization and depreciation periods.''

(emphasis added) In 1998, DSM departed from its historical useful life

policy by aggressively extending asset lives, which resulted in a

dramatic reduction in depreciation expenses. This is distortive because

it understates the actual depreciation expense incurred during the POI

as well as understating the depreciation expense for the current fiscal

year.

DSM refers to useful life guidelines established by the Korean

Appraisal Board (``KAB'') as support for the company's revised asset

lives. However, we agree with petitioners that the useful lives DSM

assigned to certain equipment exceed the limits indicated in KAB

guidelines. Furthermore, the KAB guidelines require that the condition

of the equipment in question should be taken into account when choosing

an appropriate life within the established range. As we stated in our

Cost Verification Report, all the opinions and guidelines provided by

DSM to support the extended useful lives referred to the lives of new

equipment. See Cost Verification Report at 12. However, it has been

established in the course of investigation that the equipment DSM

acquired for Plate Mill #2 was not new. The September 1998 article from

Steel Times International supplied by DSM shows that some of the

equipment was already installed by the Mexican company and had to be

dismantled (see DSM's November 8, 1999, submission at Attachment 1).

Therefore, we agree with petitioners that it is unclear from the

information provided by DSM exactly which components of the fourteen-

year-old equipment were in ``mint condition.''

Moreover, even if we were to assume that, as DSM claims, this

equipment had never been operated, fourteen year old equipment is still

subject to obsolescence, if not other factors commonly associated with

a ``moth balled'' asset. Nevertheless, DSM assigned to these assets the

useful lives that in certain cases even exceeded the upper limits

established by KAB for these types of assets. See Cost Verification

Exhibit 8. For these reasons, we believe that the longer useful lives

distort the reported costs of production by allowing respondent to

recognize a small amount of depreciation in a given year. The resulting

distortion understates the true actual depreciation expense for the

period, thereby resulting in lower reported total cost of production.

Therefore, we have adjusted the new extended useful lives, and

[[Page 73207]]

applied to both the COP and CV calculations the lives historically used

by the company because this approach more consistently and accurately

captures the costs.

Comment 11: Startup Adjustment

DSM argues that its audited financial statements reasonably

accounted for the costs of construction, test, and start-up of Plate

Mill #2. DSM claims that this is the accounting treatment followed by

DSM for financial accounting purposes, which is in accordance with

Korean GAAP, and which has been accepted by the Department in previous

cases.

DSM argues that it did not request the startup adjustment provided

for in section 773(f)(1)(C) of the Act because, according to DSM, the

purpose of section 773(f)(1)(C) is to adjust costs for purposes of

calculating COP and CV under the antidumping statute when a

respondent's normal accounting system fails to account for the effects

of start-up operations. DSM contends that this is an exception to the

general rule in section 771(f)(1)(A) that costs shall be calculated

based on the books and records of the producer, when those books are

maintained in accordance with GAAP. Therefore, according to DSM,

because its normal costs already reasonably account for the effects of

start-up operations, no adjustment to DSM's normal costs under section

773(f)(1)(C) is necessary. See Notice of Final Determination of Sales

at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of

One Megabit and Above (``DRAMs'') From Taiwan, 64 FR 56308, 56318-

56319, (October 19, 1999) (``DRAMs from Taiwan''); Micron Technology,

Inc. v. United States, 893 F. Supp. 21, 36 (CIT 1995); Notice of Final

Determination of Sales at Less Than Fair Value: Steel Wire Rod From

Canada, 63 FR 9182, 9186-9187 (February 24, 1998) (``Wire Rod from

Canada''); and Micron Technology, Inc. v. United States, 893 F. Supp.

21, 36 (Ct. Int'l Trade 1995).

DSM also argues that even if the Department were to determine that

the criteria for an adjustment under section 773(f)(1)(C) are relevant

to this case, DSM's new plate mill clearly satisfies the criteria for

startup operations under the statute (i.e., it is a new production

facility and requiring substantial new investment). Furthermore, DSM

asserts that it has demonstrated that its production levels at Plate

Mill #2 during the first five months of 1998 were limited by technical

factors uniquely associated with the start of commercial production.

Therefore, DSM contends that no adjustment should be made to its

reported costs, as reflected in DSM's audited financial statements.

Petitioners contend that the Department should adjust DSM's COM to

eliminate DSM's startup adjustment. Petitioners note that, according to

19 U.S.C. Sec. 1677b(f)(1)(C)(ii), ``Adjustments shall be made for

startup operations only where--(I) a producer is using new production

facilities or producing a new product that requires substantial

additional investment, and (II) production levels are limited by

technical factors associated with the initial phase of commercial

production.'' Petitioners argue that DSM did not satisfy the first

prong of the statute because the opening of the Plate Mill #2

production in the first half of 1998 represented simply an expansion of

the capacity of an existing production line (i.e., extension of

existing plate production in Pohang). With respect to the second prong,

petitioners argue that DSM did not satisfy it either because: (a) DSM

did not provide evidence demonstrating that production quantities were

limited; (b) the company's operations were not limited by technical

factors, but rather, were limited because its employees were on

vacation; (c) the capacity utilization DSM defined as commercial was

actually achieved in the middle of the claimed startup period; and, (d)

DSM failed to link the three technical factors it claimed to have

limited production levels with the production process, or explain how

these factors actually limited the production. Therefore, according to

petitioners, DSM has failed to satisfy either prong of the startup

adjustment test under the statute and the Department should deny the

claimed startup adjustment entirely.

Petitioners disagree with DSM's position that the statutory

criteria for a startup adjustment is not relevant and that the only

criteria is whether the Plate Mill 2's treatment was consistent with

Korean GAAP. Petitioners contend that, even if this is true, the

Department must reject DSM' startup calculations, because DSM has not

shown that the mill's treatment was in accordance with the Korean GAAP

(which, according to petitioners, distinguishes the current case from

DRAMs from Taiwan and Wire Rod from Canada cited by DSM) and that its

treatment reasonably reflect DSM's actual costs.

Department's Position

We agree with DSM, in part. Section 773(f)(1)(C) of the Act

provides for a claimed start-up adjustment in cases where a respondent

has not already done so in its normal books and records. Nevertheless,

under section 773(f)(1)(A) of the Act, the Department is directed to

follow the normal records of the exporter or producer if such records

are kept in accordance with the producer's home country GAAP and

reasonably reflect the costs associated with the production of the

merchandise. Therefore, because DSM's normal records already accounted

for the start-up operation, we must follow such treatment if it

reasonably reflects the costs associated with the production of the

merchandise.

However, we have determined that the DSM's accounting method for

startup period costs is distortive in two respects: First, it

overstated the period of startup and, therefore, understated the

reported costs. DSM asserted that its production levels at Plate Mill

#2 were limited by technical factors uniquely associated with the start

of commercial production during the first five months of 1998. However,

at verification, we found that, from the end of March through May, the

daily production quantities were relatively the same as the daily

production levels for the three months subsequent to DSM's designated

end to the start-up period. Therefore, we identified the point at which

DSM reached normal production levels and have adjusted the start-up

period costs accordingly.

Second, under DSM's method, the company capitalized the startup

period costs net of startup period sales. We agree that this approach

may be acceptable for financial accounting purposes because, if a

company does not include the same sales in its gross sales figure on

its financial statements, the effect of such treatment on the company's

net income figure is minimal. However, for COP and CV calculations, we

consider this methodology to be distortive because the same startup

period sales that are included in the home and U.S. sales files, are,

at the same time, used as an offset to the costs. Therefore, in

calculating our adjustment, we eliminated the effect of the startup

period sales on the startup period costs. For further explanation of

our findings at verification, see DSM Cost Verification Report, dated

October 21, 1999. Consequently, we have adopted DSM's treatment of

startup costs except for these two corrections, because its

methodology, otherwise accurately reflects costs associated with

production of the subject merchandise.

Comment 12: Transactions with Affiliated Entities

DSM contends that, in the final determination, the Department

should eliminate the adjustment it made in the

[[Page 73208]]

preliminary determination on purchases of slab through two affiliated

trading companies, Dongkuk International, Inc. (``DKA'') and Dongkuk

Corporation (``DKC''), and should base its valuation of DSM's slab

costs on the prices reported by DSM for these slab purchases as

reflected in DSM's normal cost accounting system. DSM argues that the

major input rule does not apply to these slab purchases because DKA and

DKC did not produce the slabs. According to DSM's interpretation of the

Act, while section 773(f)(2) of the Act--the ``Transactions

Disregarded'' rule applies to transactions between any affiliated

persons, section 773(f)(3)--``the Major Input Rule'' applies only to

situations when an affiliated person is involved in production of a

major input to the merchandise. DSM cites section 773(f)(3) which

refers to the case ``of a transaction between affiliated persons

involving the production by one of such persons of a major input to the

merchandise'' (emphasis added). DSM asserts that there is an apparent

contradiction between this section of the Act and section 351.407(b) of

the Department's antidumping regulations, which refer to ``a major

input purchased from an affiliated person'' (emphasis added). DSM notes

that, in the event of a conflict between section 773(f)(3) and the

Department's regulations, the statutory language governs.

DSM argues that the intent of major input rule, as explained in SAA

to the Uruguay Round Agreement Act, is to prevent manipulation of costs

between affiliated producers, and not just any affiliated parties. DSM

disagrees with the Department's reasoning in such cases as Notice of

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

Round Wire from Canada, 64 FR 17324 (April 9, 1999) (``SSRW from

Canada''), where the Department explained that the intent of major

input rule and the related regulations is ``to account for the

possibility of shifting costs to an affiliated party. This possibility

arises when an input passes to the responding company through the hands

of an affiliated supplier, regardless of the value added to the product

by the affiliated supplier.'' DSM contends that the Department's

decision in SSRW from Canada is directly contrary to the language and

intent of section 773(f)(3) and should not be followed in this

investigation. DSM further asserts that the statutory language with

regard to the major input rule is unambiguous, and allows for only one

interpretation: the affiliated person must be engaged in the

``production'' of the merchandise, or the rule does not apply. As to

the ``possibility of shifting costs to an affiliated party'', DSM

claims that where the Department knows the actual price charged by an

unaffiliated producer of the input (i.e., the market value), and where

the affiliated supplier performs no substantive role in the

transaction, such a possibility does not exist.

DSM proceeds with an argument that DSM should be even entitled to

value the purchases it made through DKA and DKC at the price paid by

the affiliates to the unaffiliated suppliers, not the higher transfer

price paid to DKA or DKC, and cites AK Steel Corporation v. United

States, 34 F. Supp. 2d, 756, 765 (Ct. Int'l Trade 1998) (``AK Steel

Corporation''), where the Court upheld the Department's determination

not to apply 19 U.S.C. 617b(f)(2)-(3) to transactions between collapsed

entities.

DSM asserts that because DKA and DKC are not the manufacturers of

the merchandise, the Department's calculations of their cost of

production for the purposes of major input rule err by including costs

and expenses incurred by these trading companies in unrelated lines of

business. DSM also claims that, in fact, DKA and DKC simply provide a

service to DSM which is limited to the resellers' minor commission or

margin on the exchange and does not rise to the level required for an

adjustment to be permitted under the major input rule. See Final

Determination of Sales at Less Than Fair Value; Stainless Steel Sheet

and Strip in Coils From Germany, 64 FR 30710, 30747 (Comment 29) (June

8, 1999) (``Sheet and Strip from Germany'').

Furthermore, DSM argues that no adjustment to the transfer prices

reported by DSM is permitted under Section 773(f)(2) of the Act. DSM

claims that if, however, the Department decides to disregard the

transfer price in this situation, the price paid by DKA and DKC to its

unaffiliated suppliers should be used by the Department as the amount

that ``would have been if the transaction had occurred between persons

who are not affiliated'' under the alternative valuation rule of

Section 773(f)(2) of the Act. According to DSM, the Department should

compare the price DSM paid to DKA or DKC (i.e., transfer price) to a

``market value'' based on the actual price the affiliates paid to their

unaffiliated slab suppliers for that particular slab, but not based on

DSM's purchases of slabs from other suppliers. Finally, DSM argues that

because the transfer price paid by DSM to its affiliates is greater

than the price paid by the affiliates to their unaffiliated suppliers

for those very slabs, there can be no basis for the Department to

determine that the transfer price ``does not fairly reflect the amount

usually reflected'' in sales of such slabs.

Petitioners contend that the Department should follow its decision

in SSRW from Canada and revise DSM's submitted costs to properly value

its slab inputs that were purchased through its affiliates to reflect

the higher of transfer price, cost of production, or market value. They

argue that, just as in SSRW from Canada, the possibility of shifting of

costs exists in this case because, while the price at which the

affiliated party purchased the input from an unaffiliated party may

represent a ``market'' value of the input, the transfer price may or

may not reflect all costs related to the input.

Petitioners contend that the Department should adjust it for the

following items: (a) Indirect selling expenses of the affiliates should

be included in their cost of production; (b) any offset for the

interest income should be excluded from the affiliates' finance cost

calculations since DSM improperly included long-term interest income in

the offset amount; (c) interest expenses of DKA, which were included in

DSM's consolidation, and were improperly excluded by the Department in

its preliminary determination; and, (d) the highest of transfer price,

cost of production, or market value, determined on quarterly basis.

Department's Position

We disagree with respondents, in part. Section 773(f)(2) of the Act

allows for the Department to disregard transactions between affiliates

if the transfer price does not fairly reflect the amount usually

reflected in sales of merchandise under consideration in the market

under consideration. Because the affiliate is providing an input

(slabs) into the production of subject merchandise, as well as services

related to the acquisition of the slab input, the selling, general and

administrative expenses (``SG&A'') of the affiliate must be included.

We disagree with respondent that the trading company's overhead should

not be added to its purchase price (i.e., its cost of sales) in

determining the value of the input. The trading company purchases the

material, takes title to the item, and provides for the sale and

transport of the good to the affiliated respondent. All of these

activities have costs associated with them that must be taken into

account in order to calculate a total actual cost.

Finally, we disagree with the respondent that in identifying a

market value, the Department's preference

[[Page 73209]]

should be to look to the prices that the affiliated suppliers paid to

their unaffiliated suppliers, and not to the prices paid by the

respondent to its unaffiliated suppliers from whom it directly

purchased the major input. Both sets of transactions may constitute a

usable market value. Respondent seems to suggest that because the

affiliated supplier's supplier is providing the specific input, the

price between them would be the preferable standard. We disagree. The

price that a respondent pays directly to a supplier might be preferable

since the statute, at section 773(f)(2), specifically refers to

transactions ``in the market under consideration.'' The prices paid by

the respondent in an investigation by definition represent the market

under consideration. Therefore, we have valued the inputs received from

affiliates at the higher of the affiliate's average acquisition cost

plus SG&A, average market price, or transfer price.

Comment 13: Production Quantities During ``Test'' Period

Petitioners claim that while DSM did not include any production

costs incurred in the ``test'' period, it did include the related

production quantities. Petitioners argue that the Department should

revise DSM's manufacturing costs to exclude these quantities from per-

unit cost calculations.

DSM notes that it did include in the reported costs the material

cost associated with the ``test'' period, as well as the related

quantities. Only fabrication costs associated with this production were

ultimately capitalized and added to Plate Mill #2 fixed assets. While

DSM agrees that petitioners' argument has certain merit, it argues that

the production quantities during the test period are so small as to

have virtually no effect on the per-unit costs. DSM claims that it

ignored the impact of these test period quantities and material costs

simply as a matter of convenience and, also, to facilitate verification

of total production quantity and total costs by remaining consistent

with DSM's internal accounting treatment.

Department's Position

We agree with DSM that although the production quantities during

the test period were small, as noted in our Cost Verification Report at

14, there is an inconsistency in DSM's treatment of the ``test'' period

quantities and costs: all the quantities are included in the reported

production quantity, only a portion of the related costs was included.

Moreover, for accurate per-unit cost calculations, any exclusion of the

production quantities should be accompanied by the exclusion of the

related costs, which would result in an adjustment that has virtually

no effect on the per-unit costs. Section 351.413 of the Regulations

addresses the Department's authority to disregard insignificant

adjustments under section 777A(a)(2) of the Act. ``[A]n ``insignificant

adjustment'' is any individual adjustment having an ad valorem effect

of less than 0.33 percent, or any group of adjustments having an ad

valorem effect of less than 1.0 percent of the export price,

constructed export price or normal value, as the case may be.'' See 19

C.F.R. 351.413 (1997). In the instant case, the effect of the

individual adjustment on an ad valorem basis is less than 0.33 percent

of normal value (i.e., Constructed Value). See DSM Cost Verification

Report; see also Final Cost of Production Analysis Memo, dated December

13, 1999.

Comment 14: Gain from Disposal of Certain Fixed Assets

DSM argues that the Department should not adjust its reported G&A

expenses to eliminate gains from the disposal of fixed assets that

included certain non-depreciable assets. According to DSM, it is the

Department's long-standing policy that gains and losses on the disposal

of fixed assets, including the sale of an entire manufacturing

facility, should be included in COP and CV as part of G&A expenses,

provided that these assets had been used to produce subject

merchandise. See Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts Thereof From France, Germany, Italy, Japan,

Romania, Sweden, and the United Kingdom; Final Results of Antidumping

Duty Administrative Reviews, 64 FR 35,590, 35,614 (July 1, 1999)

(``Antifriction Bearings--1999''); Final Determination of Sales at Less

Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR 7019, 7042

(February 6, 1995) (``Roses from Ecuador'').

Petitioners contend that the Department should continue to disallow

DSM's offset to G&A expenses generated by the sale of the above

mentioned fixed assets. They point out that DSM reported negative G&A

expenses, based largely on the large gain the company received on the

sale of certain non-depreciable fixed assets. See Certain Internal-

Combustion, Industrial Forklift Trucks from Japan; Final Results of

Antidumping Duty Administrative Review, 57 FR 3167 (January 28, 1992)

(comment 57) (``Forklift Trucks from Japan''). Petitioners, argue, as

evidenced by the above-mentioned cases, that the Department has never

allowed this type of negative SG& A reported in its calculation of COP.

Petitioners assert that, according to Final Determination of Sales

at Less Than Fair Value: Certain Welded Stainless Steel Pipe From the

Republic of Korea, 57 FR 53693, 53704 (November 12, 1992) (``Stainless

Steel Pipe from Korea''), the Department's practice on treatment of

dispositions of fixed assets is that in order to be included in the

reported costs, these dispositions should be a normal part of the

company's operations and a routine disposition of fixed assets.

Petitioners argue that in the current case, the sale of assets in

question is outside of DSM's ordinary course of business and is not a

``routine disposition'' of fixed assets, and the resulting gain is not

income from activities related to the company's general operations.

Petitioners argue that the cases cited by DSM (Antifriction Bearings--

1999, Roses from Ecuador, et al.) are easily distinguished from the

present case because in those cases the Department found that the

assets were used to manufacture the subject merchandise and their sale

were a normal part of operations, or did not address whether the

transaction at issue was routine.

Department's Position

We disagree with DSM that the Department should include, as an

offset to G&A expense, the gain incurred on the sale of certain non-

depreciable fixed assets. We also disagree that this asset's

relationship to production is the standard for whether to include the

gain in G&A expense. U.S. Steel Group v. United States, 998 F.Supp.

1151 (CIT 1998). G&A expenses are those expenses which relate to the

general operations of the company as a whole, rather than to the

production process. Therefore, it is not relevant whether or not the

particular asset was used to produce subject merchandise.

In analyzing whether to include an item in G&A, the Department

considers the nature of the activity and whether the activity is

significant enough to be treated separately from the respondent's other

business activities. ``[I]n determining whether it is appropriate to

include or exclude a particular item from the G&A calculation, the

Department reviews the nature of the G&A activity and the relationship

between this activity and the general operations of the company.'' See

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

Random Access Memory Semiconductors of One Megabit and Above

(``DRAMs'') From

[[Page 73210]]

Taiwan, 64 FR 56308, 56323 (October 19, 1999). In cases where the

activity is comparatively small in relation to the company's primary

activities, the Department has included the occasional miscellaneous

gain or loss in G&A expense. However, at the point where an activity

becomes significant enough to constitute a separate business activity,

the Department treats it as such. ``However, the gain SMP is claiming

as an offset to G&A expenses is related to the sale of a significant

manufacturing plant and adjacent land area. This sales transaction is

not a routine disposition of fixed assets' (emphasis added). Stainless

Steel Pipe from Korea, 57 FR 53693, 53704 (November 12, 1992). See,

also, Notice of Final Determination of Sales at Less Than Fair Value;

Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From

Brazil, 64 FR 38756, 38791 (July 19, 1999). In past cases, the portion

of the sale of facilities related to certain non-depreciable fixed

assets has not been specifically addressed, indicating that the

particular treatment of those assets must not have been significant to

the overall gain or loss. See, e.g., Roses from Ecuador, 60 FR 7019,

7042 (February 6, 1995). In the instant case, the gain on the sale of

these non-depreciable assets constitutes the bulk of the gain from the

sale of the facility and, as noted above, is greater than DSM's entire

G&A expense.

A gain or loss on the sale of a non-depreciable asset, particularly

one as significant as that incurred by DSM, warrants separate

treatment. This is due to the fact that no depreciation expense

associated with this asset were accounted for in the calculation of the

cost of production. This is especially true in light of the fact that

non-depreciable assets, which are not consumed in the production

process and generally retain their value regardless of the state of a

particular industry, are normally not treated as a depreciable asset.

Depreciation expense is generally not calculated on these assets, which

means that no costs associated with these expenses are included in COP

or CV. Therefore, it would not be reasonable to include the associated

gain or loss on disposal of this kind of assets when they are sold. As

a result, we have continued to exclude the gain for the final

determination.

POSCO

Comment 1: Whether POSCO's home market and U.S. sales were made at

a different LOT than sales by POSCO's affiliated service centers.

POSCO asserts that, based on the information on the record, the

Department should conclude that POSCO's home market sales are at a

different LOT than the service centers' sales because each sells to

purchasers at different stages in the chain of distribution and each

performs qualitatively and quantitatively different selling functions.

POSCO argues that the differences in the LOT between POSCO and the

service centers is demonstrated by significant differences in their

marketing positions, quantity sold, customer base, selling activities,

warranty services, and sales expenses.

POSCO states that it is an integrated manufacturer which produces a

wide range of steel products, sells subject merchandise on a large

scale, and has adapted its expense structure in order to maximize

profit by selling on a large scale. On the other hand, according to

POSCO, the service centers are small resellers which sell out of

inventory on a much smaller scale.

In addition, POSCO asserts that it sold significantly more subject

merchandise than the service centers during the POI. According to

POSCO, its customers are large end-users, resellers or wholesalers, and

service centers that buy in large quantities and process the products.

The service centers' customers, on the other hand, are typically small

resellers and end-users who cannot hold inventory or shear products,

and therefore, tend to order small quantities. POSCO argues that these

differences in customer base and customer purchasing power are

significant indications that POSCO sells merchandise at a different

point in the distribution chain than the service centers and, thus, at

a different LOT.

POSCO states that the regulations, at 19 CFR 351.412(c)(2), require

the Department to look for differences in selling activities when

conducting a LOT analysis, and that the differences in the LOT between

POSCO and service centers is demonstrated by significant differences in

their selling functions. POSCO states that the service centers maintain

inventory for sales of subject merchandise, while POSCO sells subject

merchandise to order. Another difference, according to POSCO, is that

it usually produces subject merchandise in standard lot sizes because

its customers later process the merchandise, while the service centers

typically process the merchandise into different sizes for small

customers who are unable to perform this function. POSCO also states

that it provides more delivery options and more differentiated freight

arrangements than the service centers. POSCO argues that, while the

company and the service centers do provide some similar delivery terms,

the mere fact that certain selling activities are performed in a

similar manner does not preclude a finding of different LOTs.

POSCO argues that the Department has also emphasized differences in

warranty services, technical services and other sales-related

activities when examining LOTs, and cite Carbon Steel Products from

Germany, 64 F.R. at 16,703, 16,705 (April 6, 1999); Steel Wire Rod from

Canada, 63 F.R. at 9191-9193 (April 1, 1999); Stainless Steel Sheet and

Strip in Coils from Mexico, 64 F.R. 30790, 30807-30810 (June 8, 1999).

POSCO argues that while it provides warranty services for base metal

and provides technical services to its customers, the service centers

do not.

POSCO next argues that the differences in the LOT between POSCO and

the service centers is demonstrated by differences in their sales

expenses. POSCO argues that its selling expense structure is very

different from that of the service centers, in that it spends

significantly more on sales expenses. POSCO further argues that the

service centers assume the risk of finding a customer for the products

they purchase from POSCO, while POSCO has a commitment from its

customer before production. Respondent states that the Department noted

no discrepancies in the data POSCO presented in support of POSCO's

arguments regarding the different LOTs, and that the Department's

findings at verification confirm its analysis.

Petitioners argue that there is no significant difference between

the levels of selling activity performed by POSCO and its affiliated

service centers because, while the service centers may inventory

products longer than POSCO, POSCO provides such selling functions as

warranty, technical advice and market research for all customers.

Petitioners claim that, contrary to POSCO's assertion, no

significant difference exists between sales quantities and customer

categories sold upstream and those downstream. Petitioners further

argue that, in any case, differences in sales quantities and customer

categories are irrelevant for purposes of determining separate LOTs.

According to petitioners, without evidence that significant differences

in selling functions exist between sales channels, there is no basis

for the Department to determine that different LOTs exist.

Department's Position

We agree with petitioners. In accordance with section

773(a)(1)(B)(i) of the Act, to the extent practicable, we determine NV

based on sales in the

[[Page 73211]]

comparison market at the same LOT as the EP or CEP transaction. The NV

LOT is that of the starting price sales in the comparison market or,

when NV is based on CV, that of the sales from which we derive SG&A and

profit. For CEP sales, the Department makes its analysis at the level

of the constructed export sale from the exporter to the affiliated

importer. See sections 773 (a)(7)(A) and 772 (b) of the Act.

Because of the statutory mandate to take LOT differences into

consideration, the Department is required to conduct a LOT analysis in

every case, regardless of whether a respondent has requested a LOT

adjustment or a CEP offset for a given group of sales. To determine

whether NV sales are at a different LOT than EP or CEP sales, we

examine stages in the marketing process and selling functions along the

chain of distribution between the producer and the unaffiliated

customer. If the comparison market sales are at a different LOT, and

the difference affects price comparability, as manifested in a pattern

of consistent price differences between the sales on which NV is based

and comparison market sales at the LOT of the export transaction, we

make a LOT adjustment under section 773(a)(7)(A) of the Act. Finally,

for CEP sales, if the NV level is more remote from the factory than the

CEP level and there is no basis for determining whether the differences

in the LOTs between the NV and the CEP sales affects price

comparability, we adjust NV under section 773(A)(7)(B) of the Act (the

CEP offset provision). See Certain Cut-to-Length Carbon Steel Plate

from South Africa, 62 FR at 61731.

In the Preliminary Determination, the Department found that there

were no differences in LOT between POSCO's and the service centers'

home market sales and, therefore, did not make any LOT adjustment to

the normal value. See LOT Memo, dated July 19, 1999; Preliminary

Determination, 64 FR at 41226-27. In order to determine whether NV was

established at a different LOT than EP sales, we examined stages in the

marketing process and selling functions along the chains of

distribution between POSCO and its home market and U.S. customers.

Based on our analysis of the chains of distribution and selling

functions performed for EP sales in the U.S. market, we continue to

determine that POSCO and its subsidiaries POSCO Steel Sales and Service

Co., Ltd. (``POSTEEL''), the service centers, and POSAM (for EP sales)

provided a sufficiently similar degree of services on sales to all

channels of distribution, and that the sales made to the United States

constitute one LOT. See LOT Memo, dated July 19, 1999; Preliminary

Determination.

We find that the facts in this case are similar to those in Certain

Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from

Korea, 64 Fed. Reg. 48767, 48773 (Sept. 8, 1999). While different types

of selling activities were performed by POSCO, POSTEEL, and the service

centers, in examining the selling functions associated with various

LOTs, the Department will compare the cumulative level of selling

activity rather than simply collating specific activities. See LOT

Memo, dated July 19, 1999; see generally, Certain Cut-to-Length Carbon

Steel Plate from South Africa, 62 FR at 61731. In comparing the

cumulative level of selling activity, we find that the differences in

selling functions between POSCO's two claimed home market LOTs are not

substantial. Accordingly, we find the U.S. sales and home market sales

to be at the same LOT, such that no LOT adjustment under section

773(a)(7)(A) of the Act is warranted.

Comment 2: Whether the Department should reclassify POSCO's U.S. sales

as CEP transactions

Petitioners contend that the Department should reclassify POSCO's

U.S. sales as CEP transactions, and assert that record evidence

demonstrates that POSAM sets prices in the United States and performs a

number of significant selling functions.

According to petitioners, POSAM was solely responsible for selling

POSCO's product and keeping contact with POSCO's customers. Petitioners

argue that U.S. customers initially contact POSAM, and POSCO has

admitted that during the POI it did not send any sales personnel or

senior managers to the United States. Petitioners also state that POSCO

reported that POSAM employs numerous individuals in the United States

responsible for various activities that are consistent with an active

selling operation in the United States, not an operation whose only

purpose is to process sales-related documentation. In addition,

petitioners state that POSAM's financial statements indicate that POSAM

extended credit for its customers' purchases of subject merchandise

from POSCO and POSTEEL. Thus, according to petitioners, POSAM is

undertaking the entire risk of these sales and, as such, is far more

than a mere processor of sales-related documentation.

POSCO argues that its sales through POSAM are properly treated as

EP sales. Respondent states that the Department closely examined this

issue at verification and found that POSAM merely functions as a

forwarder of requests to POSCO, and that only POSCO can approve the

price and terms of sale.

POSCO maintains that the Department found at verification that all

prices and terms of sale for U.S. sales are determined by POSCO or

POSTEEL and not POSAM, and that POSAM's role was limited to that of a

processor of sales-related documentation and providing a communication

link. See Sales Verification Report, dated November 10, 1999. POSCO

asserts that in no instance did POSAM have discretion to adjust prices

or negotiate with the customer. Furthermore, according to POSCO, POSAM

merely served as a communication link between POSCO and its U.S.

unaffiliated customers due to the time difference and communication

costs.

POSCO also argues that POSAM employs few employees and that it

would not be feasible for such a small number of employees to conduct

and operate an ``active selling operation.'' Next, POSCO states that

POSAM did not extend credit to POSCO's customers but merely received

payment which it then transferred to POSCO. Finally, POSCO argues that

the circumstances in the instant investigation are distinguishable from

other proceedings before the Department. In prior cases such as

Stainless Steel Wire Rod, Certain Cold-Rolled and Corrosion Resistant

Carbon Steel Flat Products, and Stainless Steel Plate in Coils from the

Republic of Korea, the circumstances were different and the factual

basis for the Department's decisions also differed. In each of the

above-mentioned cases, there was tangible evidence that POSAM did not

change or reject prices; POSAM is not the importer of record for the

overwhelming majority of sales; and POSAM did not provide any financing

to the U.S. customers. Based on these factors, POSCO argues that there

is nothing on the record to indicate that POSAM took steps beyond those

necessitated for EP classification. Accordingly, POSCO requests that

the Department continue to accord EP treatment to POSCO's U.S. sales

through POSAM.

Department's Position

We agree with POSCO that sales through POSAM are more appropriately

treated as EP transactions. The facts in this investigation are similar

to the facts in the Final Determination of Stainless Steel Wire Rod

from the Republic of Korea 63 FR 40461 (July 29, 1998) cited by POSCO,

and sufficient record evidence exists which leads the

[[Page 73212]]

Department to conclude that POSCO's U.S. sales through POSAM warrant

classification as EP sales.

The Department treats sales through an agent in the United States

as CEP sales, unless the activities of the agent are merely ancillary

to the sales process. Specifically, where sales are made prior to

importation through a U.S.-based affiliate to an unaffiliated customer

in the United States, the Department examines several factors to

determine whether these sales warrant classification as EP sales. These

factors are: (1) Whether the merchandise was shipped directly from the

manufacturer to the unaffiliated U.S. customer without being introduced

into the physical inventory of the affiliated selling agent; (2)

whether this is the customary commercial channel between the parties

involved; and (3) whether the function of the U.S. selling agent is

limited to that of a ``processor of sales-related documentation'' and a

``communication link'' with the unrelated U.S. buyer. Where the factors

indicate that the activities of the U.S. selling agent are ancillary to

the sale (e.g., arranging transportation or customs clearance), we

treat the transactions as EP sales. Where the U.S. selling agent is

substantially involved in the sales process (e.g., negotiating prices),

we treat the transactions as CEP sales. See Certain Cut-to-Length

Carbon Steel Plate from Germany: Final Results of Antidumping

Administrative Review, 62 FR 18389, 18391 (April 15, 1997); see also

Mitsubishi Heavy Industries v. United States, 15 F. Supp.2d 807, 811-12

(CIT 1998).

We note that neither party has disputed that POSCO's U.S. sales

through POSAM meet the first two criteria of the Department's standard.

Therefore, the determining factor in this case is the degree of

involvement by POSAM in the sales process. In the Preliminary

Determination, the Department based its EP classification of sales

through POSAM on POSCO's statement that POSTEEL or POSCO determined

price and terms of sale. See 64 FR at 41227-28. Based upon our findings

at verification, it is clear that POSTEEL and/or POSCO perform almost

all selling activities for U.S. sales through POSAM, including

undertaking business trips to meet with potential U.S. customers of the

subject merchandise. See Sales Verification Report at 11. The record

further supports POSCO's assertion that POSAM is merely a processor of

sales-related documentation. First, POSAM is only a point of contact

via whom the U.S. unaffiliated customer ultimately contacts POSCO or

POSTEEL. POSAM officials explained that because of the time zone

difference and the cost of long distance, it would be expensive and

inconvenient for the customer to contact POSTEEL directly. See Sales

Verification Report, dated November 10, 1999. POSAM acts as merely a

conduit between the unaffiliated U.S. customer and POSTEEL. See Sales

Verification Report, dated November 10, 1999. POSAM merely collects

payment from the customer and transfers this money to POSTEEL or POSCO.

See Sales Verification Report, dated November 10, 1999. The functions

performed by POSAM indicate that it is a mere facilitator and not a

seller of subject merchandise. This selling arrangement between POSAM

and POSTEEL is similar to the one between POSAM and Changwon, addressed

in Stainless Steel Wire Rod, where the U.S. customers remit payment to

POSAM, which subsequently transfers the payment to POSTEEL, which, in

turn, transfers it to Changwon. See Stainless Steel Wire Rod From

Canada, 64 FR at 40419. Furthermore, of the sales examined by the

Department during the POSAM verification, we found no evidence that

POSAM was given discretion in adjusting the price of the sale. See

Sales Verification Report at 30. Thus, the record evidence demonstrates

that POSAM has no sales negotiating authority with regard to U.S.

sales. Therefore, because of the lack of significant risk incurred by

POSAM, in addition to its lack of other selling activities, we find

that POSAM's activities are merely ancillary to the sales process and

have classified POSCO's U.S. sales through POSAM as EP transactions.

Comment 3: Whether the Department should disregard POSCO's model-

matching methodology

Petitioners state that due to significant discrepancies between the

model-matching reporting methodologies submitted by POSCO, the

Department should disregard POSCO's model-matching methodology.

Petitioners argue that for a U.S. specification, POSCO and Dongkuk

assigned different home market specifications in the most similar model

match chart. According to petitioners, this indicates that POSCO's and

Dongkuk's specification concordances for similar products are

unreliable. Petitioners argue that the Department should assign, as

facts available, the highest reported home market price to all sales of

non-identical home market specifications matching to U.S. sales.

POSCO claims that its model match methodology was verified and is

reliable. POSCO states that petitioners propose that the Department

assign the highest reported home market price to all sales of non-

identical specifications matching to U.S. sales because POSCO did not

report the same model matching hierarchy in the questionnaire

responses. POSCO claims that it is not aware of any requirement that

respondents report identical matching hierarchies. POSCO asserts that

the Department verified POSCO's approach to model matching and the

underlying information at verification. POSCO further argues that the

issue of model match hierarchy is moot due to the fact that, for the

specification at issue, the Department did not have to match to a

similar product for POSCO. POSCO claims that both companies sold a

sufficient quantity of the product above cost in the home market to

eliminate the necessity of selecting the next most similar product.

Department's Position

We disagree with petitioners that POSCO's reported model matching

hierarchies are flawed and must be rejected. The questionnaire in this

case instructed respondents to identify, for every specification sold

to the United States, the identical and four or five most similar

specifications sold in the home market. In the questionnaire,

respondents are requested to explain their identical and similar

selections. The Department normally relies on this information in

developing its model match concordance. See Original Questionnaire

Response: Section B, C and Appendix V (March 17, 1999). However, if we

disagree with any selection of similarity, or if any petitioners raise

any issues, we can and do rearrange this hierarchy in any way we deem

appropriate. Prior to raising this issue in their case brief,

petitioners did not dispute any of the hierarchies proposed by

respondents.

The Department verified the methodologies chosen by each of the

responding companies, and we noted no discrepancies between the

companies' records in the normal course of business and the

characteristics reported to us. We also note that each company sells a

different mix of specifications in the home market. Thus, the

similarity hierarchies can vary based on this fact. Therefore, we find

that the methodology used by POSCO to report physical characteristics

and matching hierarchies is accurate and reasonable under the

circumstances. In addition, in this case, the great majority of all of

the U.S. sales were matched to either identical, or functionally

identical, home market specifications. As a result, we have not

[[Page 73213]]

questioned the use of these hierarchies in supplemental questionnaires

or found specific faults with any of POSCO's selections. Thus, the

second and third choice for similar specifications are not relevant to

the margin calculations because these categories were not used in

matching.

Comment 4: Whether the Department should apply adverse facts available

for POSCO's reported downstream sales in the home market.

Petitioners claim that POSCO's reported sales and cost information

for affiliated service centers is significantly flawed and, as a

result, the Department should apply adverse facts available for POSCO's

reported downstream sales in the home market. Petitioners argue that

POSCO did not distinguish between prime and non-prime merchandise sold

by its affiliated service centers despite the Department's explicit

requests for that information. Petitioners state that the Department

discovered that POSCO's reporting of the PRIMEH Fields for sales made

by one service center was based entirely on the nature of the

merchandise purchased from POSCO, rather than on the nature of the

merchandise sold by the service center. Petitioners argue that while

the merchandise purchased from POSCO by one service center was reported

as prime material, that does not confirm the fact POSCO sold only prime

merchandise. Petitioners claim that the merchandise could have been

damaged during shipment or failed to meet customer-specified

characteristics that would warrant the production of non-prime

merchandise.

Petitioners further claim that POSCO failed to report affiliated

service centers' further processing costs for products produced by

POSCO. Petitioners argue that POSCO reported variable costs for the

affiliated service centers based solely on POSCO's own costs, as

opposed to the combined manufacturing costs of POSCO and its affiliated

service centers. Petitioners state that POSCO only provided cost

information for the unique products produced by the affiliated service

centers and did not provide the information requested by the Department

for the common products produced by both POSCO and the affiliated

service centers. Petitioners claim that POSCO withheld critically

important information and did not fully cooperate with the Department's

repeated requests and therefore, the Department should apply adverse

facts available.

POSCO argues that the Department verified the accuracy of its

reported downstream sales information. POSCO claims that the service

center's product code defines the merchandise that it is selling, not

the merchandise that it purchased. POSCO argues that the second and

third digits identify whether the merchandise was imported or purchased

domestically and the fourth and fifth digits of the code identifies the

specification of the merchandise being sold. Therefore, POSCO claims

that the service center is able to demonstrate that its sales of second

grade material were not from POSCO. POSCO states that it provided

complete and accurate answers to the Department's questions on

reporting the conditions of the merchandise.

POSCO states that it fully explained the basis for its methodology,

and the Department verified the accuracy of the reporting methodology.

POSCO claims that the Department verified that the additional cost has

a de minimis impact and is therefore, unnecessary for the service

centers to be included in the analysis.

Department's Position

We agree with POSCO. At verification, the Department conducted a

detailed examination of the reported downstream sales to determine the

accuracy of the reported characteristics and the methodology for

reporting any additional processing costs and expenses. See Sales

Verification Report, dated November 10, 1999, at 2. Therefore, we have

used the reported downstream sales in our analysis.

We agree with petitioners, in part, that POSCO failed to report the

reseller's further processing costs on the COP computer tape. At

verification, POSCO indicated that it did not include such costs in the

reported COPs because they would be negligible when included and

weight-averaged with POSCO's costs. See Cost Verification Report, dated

November 4, 1999, at 7. We tested this at verification and found that

POSCO's failure to include the resellers' further manufacturing costs

resulted in a minor understatement of COP. See Cost Verification

Report. We have increased the reported COP, based on our findings at

verification, to account for this understatement.

The Department normally requests responding companies to identify

whether sales are of prime or secondary merchandise in both the home

and U.S. markets to ensure that a proper comparison is made between

sales in both markets. See Original Questionnaire Response: Section B

and C (March 17, 1999). However, the Department will also consider the

burden on the responding company, whether the information is retained

in the normal course of business, and whether the requested information

is retrievable without undue burden. In the instant case, the

Department examined the records of the affiliated resellers which we

visited. We verified that one reseller does not maintain a product code

designation for non-prime or off-grade merchandise, thus rendering it

impossible for that reseller to identify possible sales of non-prime

merchandise. See Sales Verification Report, dated November 10, 1999 at

22. For the other reseller with which we conducted verification, we

noted no discrepancies in reviewing documentation to confirm its

assertion that it had no sales of non-prime merchandise purchased from

POSCO during the POI. See Sales Verification Report, dated November 10,

1999, at 25.

Based upon our examination of POSCO's records and its affiliated

resellers' records, the Department finds that POSCO's information was

properly reported to the Department as requested. Therefore, we have

continued to use all of POSCO's downstream sales in our analysis.

Comment 5: Facts Available for Certain Unique Product Costs

Petitioners argue that the Department should resort to adverse

facts available in adjusting POSCO's reported costs for certain

products. Petitioners claim that POSCO did not identify the unique

costs associated with producing products to various specified widths.

Petitioners state that POSCO indicated that it did not identify unique

costs for the width characteristic for cut-to-length plate although it

tracked the unique costs for hot-rolled plate and hot-rolled sheet

products. Petitioners claim that the Department confirmed that for

subject merchandise produced at the plate mill, POSCO's reported costs

did not reflect the differences in width. Petitioners argue that width

is an important physical characteristic in the Department's model match

hierarchy and that POSCO failed to cooperate to the best of its ability

to provide information requested by the Department.

POSCO claims that, as verified by the Department, the costs

associated with width are minor. POSCO states that width was not taken

into account in the product definition for plate products. POSCO argues

that the Department confirmed that any attempt to superimpose width as

a cost allocator raises serious risk that other costs would be

distorted in the process.

Department's Position: We agree with POSCO that the cost

differences associated with width are minor and that any attempt to

adjust for these differences could be distortive. As detailed in the

cost verification report,

[[Page 73214]]

we determined the minor cost differences associated with width (one of

several relevant physical characteristics) and found a way to isolate,

measure, and adjust for them. See Costs Verification Report, dated

November 4, 1999, at 5. However, POSCO's reported costs differ for

reasons unrelated solely to physical characteristics--POSCO's costs for

different products vary based on which plate mill will produce the

product as well as which blast furnace, steel making unit, and concast

unit will produce the slab. See POSCO Cost Verification Report, dated

November 10, 1999. Because each of these has different efficiencies and

standard costs, the same product (not to mention products whose only

difference is thickness) will have a different cost based on which mill

in which it was produced. As a consequence, cost differences are not

purely isolated to physical characteristics. Thus, applying an

adjustment factor based solely on physical characteristics to the

reported costs, which vary for reasons not associated with physical

characteristics, may not increase the accuracy of the reported costs.

We note that POSCO reported the actual costs it incurred to produce the

subject merchandise. For COP purposes, these costs are accurate and

reliable. However, for purposes of adjustments for physical differences

in merchandise, these costs are somewhat problematic in that POSCO

cannot always isolate cost differences purely associated with physical

differences (e.g., when identical products are produced at separate

facilities, production efficiencies become a factor in the calculation

of the cost of the product). In this case, the vast majority of price-

to-price comparisons are of identical merchandise. Therefore, any

adjustment would have a negligible effect.

Comment 6: Variable and Total Cost of Manufacture

Petitioners argue that POSCO misstates the burden of producing

complete and accurate data. They argue that the data provided to the

Department and petitioners was not readable due to the existence of

multiple VCOM values within a single CONNUM. Petitioners state that

POSCO's revised table of ``cost by CONNUMU,'' attached to the July 16,

1999 letter, is not an acceptable explanation of the previous

inadequate submission. In all cases, most of the sales represented by

the CONNUMU had been assigned one VCOM value, while other VCOM was

assigned to a much smaller number of sales. In POSCO's revised table,

the VCOM value which had previously been assigned to the smaller number

of sales for each CONNUMU is now identified as being the actual VCOM

value for all sales. Accordingly, petitioners feel that this is not a

logical explanation of POSCO's previous submission. In light of these

deficiencies in the database, petitioners recommend the Department

apply, as partial facts available, the highest calculated margin for

any CONNUM to each of these sales implicated by the deficiencies.

POSCO claims that its reported variable and total cost information

on the U.S. sales database is correct. POSCO asserts that an

inadvertent error in creating files caused different values in variable

costs for the same products in a previous submission. POSCO states that

the error has been corrected and subsequent databases have reported a

single variable cost and a single total cost of each unique CONNUM.

POSCO claims that the costs were fully and successfully verified by the

Department.

Department's Position

We agree with POSCO. Upon review of the record, we found that the

errors noted by petitioner made when POSCO filed its July 12, 1999,

response appear to be inadvertent. Subsequently, at the request of the

Department, POSCO corrected this error in its post-verification filing

on October 27, 1999. The Department has utilized the database filed on

October 27, 1999, with the unique variable cost of manufacturing and

total cost of manufacturing in its final determination.

Comment 7: Home Market Viability

Respondent claims that the issue regarding home market viability

raised by petitioners should be rejected by the Department. Respondent

argues that since petitioners did not raise that issue in their case

briefs, they have waived the right for consideration of the issue by

the Department.

Department's Position

The Department has not considered or substantially addressed this

issue in the instant final determination because petitioners

allegations were untimely. For a full discussion, see Particular Market

Situation, section, above.

Continuation of Suspension of Liquidation

In accordance with section 735(c)(1)(B) of the Act, we are

directing the Customs Service to continue to suspend liquidation of all

entries of subject merchandise from Korea that were entered, or

withdrawn from warehouse, for consumption on or after July 19, 1999

(the date of publication of the Department's preliminary determination)

for DSM, and those companies which received the ``all others'' rate.

POSCO's rate continues to be de minimis, as it was in the Preliminary

Determination; therefore the Department will not suspend liquidation of

these entries. The Customs Service shall continue to require a cash

deposit or posting of a bond equal to the estimated amount by which the

normal value exceeds the U.S. price as shown below. These suspension of

liquidation instructions will remain in effect until further notice.

The weighted-average dumping margins are as follows:

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

Weighted-average margin

Exporter/Manufacturer percentage

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

Pohang Iron & Steel Co., Ltd.............. 0.05 de minimis

Dongkuk Steel Mill Co., Ltd............... 2.98

All Others................................ 2.98

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

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

International Trade Commission (``ITC'') of our determination. Because

our final determination is affirmative, the ITC will, within 45 days,

determine whether these imports are materially injuring, or threatening

material injury to, the U.S. industry. If the ITC determines that

material injury, or threat of material injury does not exist, the

proceeding will be terminated and all securities posted will be

refunded or canceled. If the ITC determines that such injury does

exist, the Department will issue an antidumping duty order directing

Customs officials to assess antidumping duties on all imports of the

subject merchandise entered, or withdrawn from warehouse, for

consumption on or after the effective date of the suspension of

liquidation.

This determination is issued and published in accordance with

sections 735(d) and 777(i)(1) of the Act.

Dated: December 13, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-33234 Filed 12-28-99; 8:45 am]

BILLING CODE 33510-DS-P