Notice of Preliminary Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Japan

DEPARTMENT OF COMMERCE

International Trade Administration

[A-588-846]

Notice of Preliminary Determination of Sales at Less Than Fair

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

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: February 19, 1999.

FOR FURTHER INFORMATION CONTACT: Nithya Nagarajan, John Totaro, LaVonne

Jackson or Keir Whitson, Import Administration, International Trade

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

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

4243, (202) 482-1374, (202) 482-0961, and (202) 482-1394, respectively.

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department's

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

Preliminary Determination

We preliminarily determine that Hot-Rolled Flat-Rolled Carbon-

Quality Steel Products (``hot-rolled steel'') from Japan is being, or

is 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

On October 15, 1998, the Department initiated antidumping duty

investigations of imports of hot-rolled steel from Brazil, Japan, and

the Russian Federation. See Initiation of Antidumping Duty

Investigations: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel

Products from Brazil, Japan, and the Russian Federation, 63 FR 56607

(October 22, 1998) (Initiation). Since the initiation of this

investigation the following events have occurred:

The Department set aside a period for all interested parties to

raise issues regarding product coverage. Throughout the month of

November, the Department received numerous filings from respondents and

other interested parties proposing amendments to the scope of these

investigations. On January 6, 1999 and January 27, 1999, petitioners

(Bethlehem Steel Corporation, U.S. Steel Group, a unit of USX

Corporation, Ispat Inland Steel, LTV Steel Company, Inc., National

Steel Corporation, California Steel Industries, Gallatin Steel Company,

Geneva Steel, Gulf States Steel, Inc., IPSCO Steel Inc., Steel

Dynamics, Weirton Steel Corporation, the Independent Steelworkers

Union, and the United Steelworkers of America) filed letters agreeing

to amend the scope of these investigations to exclude those products

for which Itochu International, Inc., Nippon Steel Corp., and others

had requested exclusion (see Scope Memorandum to Joseph A. Spetrini,

February 12, 1999).

On October 22, 1998, the Department requested comments from

petitioners and respondents regarding the criteria to be used for model

matching purposes. On October 22 and 27, 1998, petitioners and

respondents (Companhia Siderurgica Nacional, Companhia Siderurgica

Paulista, Usinas Siderurgicas de Minas Gerais, Nippon Steel

Corporation, NKK Corporation, Kawasaki Steel, Sumitomo Metal

Industries, Ltd., and Kobe Steel Ltd.) submitted comments on our

proposed model-matching criteria.

[[Page 8292]]

On November 16, 1998, the United States International Trade

Commission (``ITC'') notified the Department of its affirmative

preliminary finding of threat of material injury in this case.

Additionally, on November 25, 1998, the ITC published its preliminary

determination that there is a reasonable indication that an industry in

the United States is threatened with material injury by reason of

imports of the subject merchandise from Japan (63 FR 65221). On October

19, 1998, the Department issued section A of an antidumping

questionnaire to Nippon Steel Corporation (``NSC''), NKK Corporation

(``NKK''), Kawasaki Steel Corporation (``KSC''), Sumitomo Metal

Industries (``Sumitomo''), Kobe Steel, Ltd. (``Kobe''), and Nisshin

Steel Co. Ltd. (``Nisshin''). On October 30, 1998, the Department

issued a memorandum which identified the respondents whose sales the

Department would examine for purposes of this investigation. (See

Respondent Selection section, below.) As a result of this decision, on

October 30, 1998, the Department issued sections B-E of an antidumping

questionnaire to NSC, NKK, and KSC (the chosen ``respondents''); the

remaining three companies were excused from responding to the section A

questionnaires the Department had sent them. Nevertheless, on November

12, 1998, Nisshin submitted a letter stating that it had not exported

subject merchandise to the United States during the period of

investigation (``POI'').

On November 16, 1998, we received section A questionnaire responses

from NSC, NKK, and KSC. Petitioners filed comments on NSC's, NKK's, and

KSC's section A questionnaire responses on November 30, 1998 and

December 1, 1998. We issued supplemental questionnaires for section A

to NSC, NKK, and KSC on December 4, 1998. On December 11, 1998, we

issued a letter to respondents informing them that the Department would

consider these supplemental questions for section A to have been issued

on January 4, 1999, in order to adhere to the schedule provided to all

interested parties at the time of initiation. On December 21, 1998, we

received responses to sections B, C, and D of the questionnaire from

NSC, NKK, and KSC. Petitioners filed comments on NSC's, NKK's, and

KSC's section B-D questionnaire responses on December 28, 1998. We

issued supplemental questionnaires for sections B, C and D to NSC, NKK,

and KSC on January 4, 1999, and received responses to these

questionnaires on January 25, 1999.

In addition, on November 10, 1998, KSC requested to be excused from

responding to section E (``Further Manufacturing'') of the Department's

questionnaire due to certain problems associated with obtaining the

requisite information. After a review of the material placed on the

record, the Department instructed KSC on January 4, 1999, to respond to

section E of the Department's questionnaire. However, on January 25,

1999, instead of responding to section E of the Department's

questionnaire, KSC argued that it was still unable to obtain the

requested information and reiterated its request to be excused from

providing the further manufactured sales in the United States. With

regard to NSC and NKK, although both companies were sent section E of

the questionnaire, both companies responded by stating that they did

not perform any further manufacturing operations on imports of subject

merchandise.

In the petition filed on September 30, 1998, petitioners alleged

that there is a reasonable basis to believe or suspect that critical

circumstances exist with respect to imports of hot-rolled steel from

Brazil, Japan, and the Russian Federation. On November 23, 1998, in the

investigations of Japan and the Russian Federation, the Department

issued its preliminary critical circumstances determination (63 FR

65750 November 30, 1998). In these determinations, the Department

preliminarily determined that there is a reasonable basis to believe or

suspect that critical circumstances exist with respect to imports of

hot-rolled steel from Japan and the Russian Federation.

Scope of Investigation

For purposes of this investigation, the products covered are

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

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

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

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

(whether or not in successively superimposed layers) regardless of

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

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

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

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

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

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

within the scope of these investigations.

Specifically included in this scope are vacuum degassed, fully

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

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

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

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

to stabilize carbon and nitrogen elements. HSLA steels are recognized

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

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

motor lamination steels contains micro-alloying levels of elements such

as silicon and aluminum.

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

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

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

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

elements listed below exceeds the quantity, by weight, respectively

indicated:

1.80 percent of manganese, or

1.50 percent of silicon, or

1.00 percent of copper, or

0.50 percent of aluminum, or

1.25 percent of chromium, or

0.30 percent of cobalt, or

0.40 percent of lead, or

1.25 percent of nickel, or

0.30 percent of tungsten, or

0.012 percent of boron, or

0.10 percent of molybdenum, or

0.10 percent of niobium, or

0.41 percent of titanium, or

0.15 percent of vanadium, or

0.15 percent of zirconium.

All products that meet the physical and chemical description

provided above are within the scope of this investigation unless

otherwise excluded. The following products, by way of example, are

outside and/or specifically excluded from the scope of this

investigation:

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

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

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

SAE/AISI grades of series 2300 and higher.

Ball bearing steels, as defined in the HTSUS.

Tool steels, as defined in the HTSUS.

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

electrical steel with a silicon level exceeding 1.50 percent.

ASTM specifications A710 and A736.

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

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

[[Page 8293]]

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

C Mn P S Si Cr Cu Ni

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

0.10-0.14%.................... 0.90% Max 0.025% Max 0.005% Max 0.30--0.50 0.50-0.70% 0.20--0.4 0.20% Max

% 0%

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

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

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

88,000 psi.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni

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

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

%

Mo............................ .......... .......... .......... .......... .......... ......... .........

0.21% Max..................... .......... .......... .......... .......... .......... ......... .........

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

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

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

Aim.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni

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

0.10-0.14%.................... 1.30-1.80% 0.025% Max 0.005% Max 0.30-0.50% 0.50-0.70% 0.20-0.40 0.20% Max

%

V(wt.)........................ Cb .......... .......... .......... .......... ......... .........

0.10 Max...................... 0.08% Max .......... .......... .......... .......... ......... .........

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

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

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

Aim.

Hot-rolled steel coil which meets the following chemical,

physical and mechanical specifications:

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

C Mn P S Si Cr Cu Ni

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

0.15% Max..................... 1.40% Max 0.025% Max 0.010% Max 0.50% Max 1.00% Max 0.50% Max 0.20% Max

Nb............................ Ca Al

0.005% Min.................... Treated 0.01-0.07%

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

Width = 39.37 inches; Thickness = 0.181 inches maximum; Yield

Strength = 70,000 psi minimum for thicknesses 0.148 inches

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

= 80,000 psi minimum.

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

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

and including 1.5 percent silicon by weight, further characterized by

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

mm2 and an elongation percentage 26 percent for

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

N/mm2 and 690 N/mm2 and an elongation percentage

25 percent for thicknesses of 2mm and above.

Hot-rolled bearing quality steel, SAE grade 1050, in

coils, with an inclusion rating of 1.0 maximum per ASTM E 45, Method A,

with excellent surface quality and chemistry restrictions as follows:

0.012 percent maximum phosphorus, 0.015 percent maximum sulfur, and

0.20 percent maximum residuals including 0.15 percent maximum chromium.

The merchandise subject to these investigations is classified in

the Harmonized Tariff Schedule of the United States (``HTSUS'') at

subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00,

7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60,

7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60,

7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30,

7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90,

7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00,

7208.90.00.00, 7210.70.30.00, 7210.90.90.00, 7211.14.00.30,

7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00,

7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60,

7211.19.75.90, 7212.40.10.00, 7212.40.50.00, 7212.50.00.00. Certain

hot-rolled flat-rolled carbon-quality steel covered by this

investigation, including: vacuum degassed, fully stabilized; high

strength low alloy; and the substrate for motor lamination steel may

also enter under the following tariff numbers: 7225.11.00.00,

7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00,

7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60,

7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00,

7226.91.80.00, and 7226.99.00.00. Although the HTSUS subheadings are

provided for convenience and Customs purposes, the written description

of the merchandise under investigation is dispositive.

Period of Investigation

The POI is July 1, 1997 through June 30, 1998.

Selection of Respondents

Section 777A(c)(1) of the Act directs the Department to calculate

individual dumping margins for each known exporter and producer of the

subject merchandise. However, section 777A(c)(2) of the Act gives the

Department discretion, when faced with a large number of exporters/

producers, to limit its examination to a reasonable number of such

companies if it is not practicable to examine all companies. Where it

is not practicable to examine all known producers/exporters of subject

merchandise, this provision permits the Department to investigate

either: (1) a sample of exporters,

[[Page 8294]]

producers, or types of products that is statistically valid based on

the information available at the time of selection, or (2) exporters

and producers accounting for the largest volume of the subject

merchandise that can reasonably be examined.

After consideration of the complexities expected to arise in this

proceeding (with respect to each respondent) and the resources

available to the Department, we determined that it was not practicable

in this investigation to examine all known producers/exporters of

subject merchandise. Instead, we found that, given our resources, we

would be able to investigate the Japanese producers/exporters with the

greatest export volume, as identified above. These companies accounted

for more than 90 percent of all known exports of the subject

merchandise during the POI. For a more detailed discussion of

respondent selection in this investigation, see Respondent Selection

Memorandum, dated October 30, 1998.

Date of Sale

For its home market and U.S. sales, NSC reported the date of

shipment, NKK reported the date of shipment for home market sales, and

date of invoice for U.S. sales, and KSC reported the date of invoice as

the date of sale for both U.S. and home market sales. NSC, NKK, and KSC

all stated that the invoice/shipment date best reflects the date on

which the material terms of sale are established and that price and/or

quantity can and do change between order confirmation date and invoice/

shipment date. Petitioners, however, have alleged that the sales

documentation provided by respondents indicates that the order

confirmation date appears to be the date when the material terms of

sale are set for a majority of these respondents' sales of hot-rolled

steel. Given the relevance of petitioners' comments and the nature of

marketing these types of made-to-order products, we determined that

petitioners' claims have some merit. Consequently, on December 4, 1998,

and January 4, 1999, the Department requested respondents to provide

additional information concerning the nature and frequency of price and

quantity changes occurring between the date of order confirmation and

date of invoice. We also asked respondents to report the order

confirmation date for all home market and U.S. sales and to ensure that

the entire universe of sales with order or invoice dates within the POI

were properly reported. On December 21, 1998 and January 25, 1999, NKK

reiterated that invoice/shipment date is the most appropriate date of

sale and requested that it not have to report sales based on order

confirmation date. NSC and KSC provided the requested data in

accordance with the Department's instructions.

The Department is preliminarily using the dates of sales reported

by each respondent (date of shipment for NSC, invoice/shipment date for

NKK, and invoice date for KSC). We intend to fully examine this issue

at verification, and we will incorporate our findings, as appropriate,

in our analysis for the final determination. If we determine that order

confirmation is the most appropriate date of sale, we may resort to

facts available for the final determination to the extent that this

information has not been reported by the respondents. Due to the

complexity of this issue, we invite all interested parties to submit

comments on this issue in accordance with the schedule set forth in

this notice.

Product Comparisons

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

produced by the respondents covered by the description in the Scope of

Investigation section, above, and sold in Japan during the POI are

considered to be foreign like products for purposes of determining

appropriate product comparisons to U.S. sales. We have relied on eleven

characteristics to match U.S. sales of subject merchandise to

comparison market sales of the foreign like product: paint, quality,

carbon content, strength, thickness, width, coiled or non-coiled,

temper rolling, pickling, edge trim, and patterns. These

characteristics have been weighted by the Department where appropriate.

Where there were no sales of identical merchandise in the home market

to compare to U.S. sales, we compared U.S. sales to the next most

similar foreign like product on the basis of the characteristics listed

in the antidumping questionnaire and reporting instructions.

Fair Value Comparisons

To determine whether sales of hot-rolled steel from Japan to the

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

price (``EP'') to the normal value (``NV''), as described in the

``Export Price'' section of this notice below, or the constructed

export price (``CEP'') to the NV, as described in the ``Constructed

Export Price'' section of this notice. In accordance with section

777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs and

CEPs for comparison to weighted-average NVs. In accordance with section

772(a) and (c) of the Act, we calculated EP for all of NSC's sales, all

of NKK's sales, and the sales KSC reported as EP sales since the

subject merchandise was sold to the first unaffiliated purchaser in the

United States prior to importation, and CEP was not otherwise warranted

based on the facts on the record. In accordance, with section 772 (b),

(c) and (d) of the Act, we calculated CEP for all of KSC's reported CEP

sales as the merchandise was sold in the United States by or for the

account of the producer or by a seller affiliated with the producer or

exporter, before or after the date of importation.

Export Price

We based our calculation for certain sales on EP, in accordance

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

sold by the producer or exporter directly to the first unaffiliated

purchaser in the United States prior to importation. We calculated EP

based on packed prices charged to the first unaffiliated customer in

the United States.

For NSC, NKK, and KSC we made company-specific adjustments to the

EP starting price, where appropriate, for the following movement

expenses, in accordance with section 772(c)(2)(A) of the Act: foreign

inland freight, international freight (including ocean freight), marine

insurance fees, and brokerage and handling expenses; discounts and

rebates, and billing adjustments. No other adjustments were claimed or

allowed.

Constructed Export Price

We calculated CEP for KSC, in accordance with section 772(b) of the

Act when the first sale to an unaffiliated purchaser was made in the

United States by a seller affiliated with the producer or exporter

after the subject merchandise was imported into the United States.

We based CEP on the packed ex-warehouse or delivered prices to

unaffiliated purchasers in the United States. Where appropriate, we

made deductions from the starting price for discounts, credit, and

commissions. We also made deductions for the following movement

expenses, where appropriate, in accordance with section 772(c)(2)(A) of

the Act: inland freight from plant/warehouse to port of exportation,

foreign brokerage expenses, international freight (including ocean

freight), marine insurance, U.S. inland freight from warehouse to the

unaffiliated customer, U.S. warehouse expenses, and U.S. Customs

duties. In accordance with section 772(d)(1) of the Act, we deducted

selling expenses

[[Page 8295]]

associated with economic activities occurring in the United States,

including direct selling expenses, inventory carrying costs, and other

U.S. indirect selling expenses. In accordance with section 773(d)(3) of

the Act, we also deducted an amount for profit. In accordance with

section 772(f) of the Act, we computed profit based on total revenues

realized on sales in both the U.S. and home markets, less all expenses

associated with those sales. We then allocated profit to expenses

incurred with respect to U.S. economic activity, based on the ratio of

total U.S. expenses to total expenses for both the U.S. and home

market.

Although KSC performs further manufacturing on imported

merchandise, KSC did not provide transaction-specific information on

these sales in the United States. KSC is affiliated with two further

manufacturers in the United States. With regard to further manufactured

sales by its affiliate VEST Inc. (``VEST''), KSC reported that it was

unable to retrieve the requested data due to difficulties with the

computer system and other complications. After a review of the

information on the record, the Department determined that further

manufactured sales through VEST account for less than five percent of

total U.S. sales. Therefore, for purposes of the preliminary results,

the Department is disregarding these sales and not utilizing these

transactions in its margin calculation.

With regard to KSC's further manufactured sales via its other

affiliated further manufacturer, California Steel Industries, Inc.

(``CSI''), KSC argued that, due to conflicts of interest, CSI was

unable and unwilling to provide transaction-specific further

manufacturing information. After a review of the information placed on

the record, the Department determined that these sales account for a

substantial portion of KSC's U.S. sales. Section 776(a)(2) of the Act

provides, that if an interested party: (A) withholds information that

has been requested by the Department; (B) fails to provide such

information in a timely manner or in the form or manner requested; (C)

significantly impedes a proceeding under the antidumping statute; or

(D) provides such information but the information cannot be verified,

as provided in section 782(i), the Department shall, subject to

subsection 782(d), use facts otherwise available in reaching the

applicable determination. Section 776(b) of the Act provides that

adverse inferences may be used where an interested party has failed to

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

Department's requests for information. See Statement of Administrative

Action (SAA) accompanying the URAA, H.R. Rep. No. 316, 103d Cong., 2d

Sess. 870 (1994). In the instant case, the Department has preliminarily

determined that KSC's and CSI's failure to respond to section E of the

Department's questionnaire satisfies the requirements of section

776(a)(2)(A), (B), and (C), as well as section 776(b). Therefore, the

Department has based its margin on adverse facts available. As facts

available, we used the highest calculated margin for U.S. sales that

fell within the mainstream of KSC's transactions. In selecting the

adverse margin, the Department sought a margin that was indicative of

KSC's customary selling practices and was rationally related to the

transactions to which the adverse facts available were being applied.

The selected margin is also sufficiently adverse to effectuate the

statutory purpose of adverse facts available, which is to induce

respondents to provide the Department with complete information in a

timely manner. See Final Determination of Sales at Less Than Fair

Value: Stainless Steel Wire Rod from Italy, 63 FR 40422, 40428, (July

29, 1998).

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

secondary information rather than on information obtained in the course

of an investigation or review, it shall to the extent practicable

corroborate that information from independent sources that are

reasonably at their disposal. Because the information used to establish

the facts available margins for KSC's further manufactured sales was

information KSC submitted in the course of the investigation, rather

than secondary information, no corroboration of this data is necessary.

Normal Value

After testing home market viability and whether home market sales

were at below-cost prices, we calculated NV as noted in the ``Price-to-

Price Comparisons'' and ``Price-to-CV Comparison'' sections of this

notice.

A. Home Market Viability

In order to determine whether there is a sufficient volume of sales

in the home market to serve as a viable basis for calculating NV (i.e.,

the aggregate volume of home market sales of the foreign like product

is equal to or greater than five percent of the aggregate volume of

U.S. sales), we compared each respondent's volume of home market sales

of the foreign like product to the volume of U.S. sales of the subject

merchandise, in accordance with section 773(a)(1)(C) of the Act. Since

each respondent's aggregate volume of home market sales of the foreign

like product was greater than five percent of its aggregate volume of

U.S. sales for the subject merchandise, we determined that the home

market was viable for all respondents. Therefore, we have based NV on

home market sales in the usual commercial quantities and in the

ordinary course of trade.

B. Arm's Length Test

Sales to affiliated customers in the home market not made at arm's

length prices (if any) were excluded from our analysis because we

considered them to be outside the ordinary course of trade. See 19 CFR

351.102. To test whether these sales were made at arm's length prices,

we compared on a model-specific basis the prices of sales to affiliated

and unaffiliated customers net of all discounts, rebates, billing

adjustments, movement charges, direct selling expenses, and packing.

Where, for the tested models of subject merchandise, prices to the

affiliated party were on average 99.5 percent or more of the price to

unaffiliated parties, we determined that sales made to the affiliated

party were at arm's length and used those sales in determining NV. See

19 CFR 351.403(c). In instances where no price ratio could be

constructed for an affiliated customer because identical merchandise

was not sold to unaffiliated customers, we were unable to determine

that these sales were made at arm's length prices and, therefore,

excluded them from our LTFV analysis. See Notice of Final Determination

of Sales at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat

Products from Argentina, 58 FR 37062, 37077 (July 9, 1993). Where the

exclusion of such sales eliminated all sales of the most appropriate

comparison product, we made a comparison to the next most similar

product.

C. Downstream Sales

Pursuant to section 351.403 of the Department's regulations, the

Department does not normally require the reporting of downstream sales

if total sales of the foreign like product by a firm to all affiliated

customers account for five percent or less of the firm's total sales of

the foreign like product. In general, the Department does not believe

it necessary or appropriate to require the reporting of downstream

sales in all instances. Questions concerning the reporting of

downstream sales are complicated, and the resolution of such questions

depends on a number of considerations, including

[[Page 8296]]

the nature of the merchandise sold to and by the affiliate, the volume

of sales to the affiliate, the levels of trade involved, and whether

sales to affiliates were made at arm's length. In addition, the

Department normally will not require the respondent to report the

affiliate's downstream sales unless the sales to the affiliate fail the

arm's length test. The Department believes that imposing the burden of

reporting small numbers of downstream sales often is not warranted, and

that the accuracy of determinations generally is not compromised by the

absence of such sales.

In the instant case, NSC and KSC requested that they be excused

from reporting a small percentage of home market downstream sales due

to overwhelming burdens in obtaining the information and the fact that

these downstream sales will not constitute appropriate matches for

their U.S. sales of subject merchandise. After examining the data

placed on the record, the Department has preliminarily determined that

there are sufficient matches of sales in the home market and that the

downstream sales in question account for less than three percent of

each firm's total home market sales of subject merchandise. For

purposes of this preliminary determination, the Department is

disregarding this small percentage of downstream sales. The Department

intends to thoroughly examine this issue at verification and will

incorporate our findings, as appropriate in our analysis for the final

determination. If we determine that these downstream sales were

appropriate matches to U.S. sales, or where the data is readily

available, we may resort to facts available for the final determination

to the extent that this information has not been reported by the

respondents.

D. Cost of Production (COP) Analysis

Based on the cost allegation submitted by petitioners in the

original petition, the Department found reasonable grounds to believe

or suspect that each of the respondents had made sales in the home

market at prices below the cost of producing the merchandise, in

accordance with section 773(b)(2)(A)(i) of the Act. As a result, the

Department initiated an investigation to determine whether respondents

made home market sales during the POI at prices below their respective

COPs within the meaning of section 773(b) of the Act. See Initiation

Notice (63 FR 56607, October 22, 1998).

We conducted the COP analysis described below.

1. Calculation of COP

In accordance with section 773(b)(3) of the Act, we calculated COP

for hot-rolled steel based on the sum of the cost of materials and

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

selling, general and administrative expenses (SG&A), interest expenses,

and packing costs. We relied on the COP data submitted by each

respondent in its cost questionnaire response, except, as discussed

below, in specific instances where the submitted costs were not

appropriately quantified or valued.

NSC

We excluded from NSC's COP and CV data the reconciliation

adjustment related to differences between the control number

(``CONNUM'') specific cost and NSC's costs in its normal books and

records.

NKK

We recalculated NKK's G&A expense rate based on NKK's company-wide

G&A. Additionally we included the loss on outage for a blast furnace

accident in G&A expense and the mill movement expenses in the base used

for the G&A rate calculation. We disallowed NKK's adjustment for

alleged double counting of certain cost of manufacturing items.

Finally, we recalculated interest expense using the recalculated total

cost of manufacturing for each CONNUM.

KSC

We recalculated Kawasaki's general and administrative (``G&A'')

expense rate by including losses on disposal of fixed assets, special

retirement expenses, and past service portion of pension cost.

2. Test of Home Market Prices

We compared the weighted-average COP by CONNUM for each respondent,

adjusted where appropriate (see above), to home market sales prices of

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

In determining whether to disregard home market sales made at prices

less than the COP, we examined whether: (1) within an extended period

of time, such sales were made in substantial quantities; and (2) such

sales were made at prices which permitted the recovery of all costs

within a reasonable period of time. We compared the COP to home market

prices, less any applicable movement charges and direct and indirect

selling expenses.

3. Results of the COP Test

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

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

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

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

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

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

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

quantities'' within an extended period of time in accordance with

section 773(b)(2)(B) of the Act. In such cases, because we compared

prices to weighted-average COPs for the POI, we also determined that

such sales were not made at prices which would permit recovery of all

costs within a reasonable period of time, in accordance with section

773(b)(2)(D) of the Act. Therefore, we disregarded the below-cost

sales. Where all sales of a specific product were at prices below the

COP, we disregarded all sales of that product.

Price-to-Price Comparisons

We performed price-to-price comparisons where there were sales of

comparable merchandise in the home market that did not fail the arm's

length and/or cost test. We made comparisons on an actual weight to

actual weight basis. We made adjustments, where appropriate, for

physical differences in the merchandise in accordance with section

773(a)(6)(C) of the Act. In accordance with section 773(a)(6)(A) and

(B), we deducted home market packing costs and added U.S. packing

costs.

NSC

We calculated NV based on prices to affiliated customers that

passed the arm's length test and sales to unaffiliated home market

customers. We made adjustments for physical differences in the

merchandise, where necessary in accordance with 773(a)(6)(C)(ii) of the

Act. We made deductions for quantity and sales promotion discounts,

rebates and movement expenses. We found after reviewing the information

placed on the record that NSC's reported home market freight expenses

(INLFTCH) are inclusive of both affiliated and unaffiliated freight

costs. The Department requested NSC to provide analyses demonstrating

that expenses for freight services provided by affiliated suppliers

were based on a market rate. However, NSC did not provide these

comparisons. In addition, the Department was unable to determine which

freight expenses were paid to affiliated or unaffiliated companies.

Therefore, the Department, for this

[[Page 8297]]

preliminary determination has disallowed this adjustment in the home

market. In addition, we made circumstance-of-sale (``COS'') adjustments

for differences in credit and warranty expenses, where appropriate in

accordance with 773(a)(6)(C)(iii) of the Act. In our NV calculations,

we did not use a certain portion of NSC's reported downstream sales

because the sales by NSC to its affiliated reseller passed the arm's

length test (see Arm's Length Test section, above).

NKK

We calculated NV based on prices to affiliated customers that

passed the arm's length test and sales to unaffiliated home market

customers. We made adjustments for physical differences in the

merchandise, where necessary. We made deductions for quantity and sales

promotion discounts, rebates, billing adjustments, direct selling, and

movement expenses. In addition, we made COS adjustments for differences

in credit and warranty expenses, where appropriate in accordance with

section 773(a)(6)(C)(iii). In our NV calculations, we did not use a

certain portion of NKK's reported downstream sales because the sales by

NKK to its affiliated reseller passed the arm's length test (see Arm's

Length Test section, above).

KSC

We calculated NV based on prices to affiliated customers that

passed the arm's length test and on sales to unaffiliated home market

customers. We made adjustments for physical differences in the

merchandise, where necessary. We made deductions for quantity and sales

promotion discounts, rebates and movement expenses, direct selling

expenses, and processing fees. In addition, we made COS adjustments for

differences in credit and warranty expenses, where appropriate in

accordance with section 776(a)(6)(C)(iii). In our NV calculations, we

did not use a certain portion of KSC's reported downstream sales

because the sales by KSC to its affiliated reseller passed the arm's

length test (see Arm's Length Test section, above).

Level of Trade

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

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

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

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

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

which we derive SG&A and profit. For EP, the LOT is also the level of

the starting price sale, which is usually from the exporter to the

importer. For CEP, it is the level of the constructed export sale from

the exporter to the affiliated importer.

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 levels between NV and

CEP sales affects price comparability, we adjust NV under section

773(A)(7)(B) of the Act (the CEP offset provision). See Notice of Final

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

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

In this investigation, no respondent requested a LOT adjustment;

however, KSC requested a CEP offset. To determine whether a LOT

adjustment was necessary, in accordance with principles discussed

above, we examined information regarding the distribution systems in

both the United States and Japanese markets, including the selling

functions, classes of customer and selling expenses for each

respondent. Results of the LOT analysis for each respondent are

summarized below. For a complete discussion and the results of the LOT

analysis, please see the Department's memorandum on Level of Trade,

dated February 12, 1999.

NSC

In the home market, NSC sold to unaffiliated and affiliated trading

companies and to end-users. In the U.S. market, NSC sold only to

trading companies and reported all sales on an EP basis. Based on our

analysis we find that NSC performed essentially the same level of

selling functions for all three groups of sales.

NSC claims that there is no difference in the selling functions

between the home market and U.S. channels of distribution. When

comparing NSC's U.S. sales to its home market sales, we found that NSC

performed essentially the same level of selling functions in both the

United States and home market. Based on our examination of the

information on the record, we agree with NSC that it sold merchandise

at the same LOT in the home market and the U.S. market. Therefore, we

have not made a LOT adjustment because all price comparisons are at the

same LOT and an adjustment pursuant to section 773(a)(7)(A) of the Act

is not appropriate.

NKK

In the home market, NKK sold to unaffiliated and affiliated trading

companies and to end-users. NKK reported its sales to unaffiliated

trading companies and end-users as the same level of trade. NKK

performed essentially the same level of selling functions for all three

types of home market sales. Therefore, we find that there is one level

of trade in the home market. In the U.S. market, NKK sold only to

unaffiliated trading companies.

NKK claims that there are differences in the selling functions

between the home market and U.S. channels of distribution and therefore

its home market and U.S. sales should be considered made at different

levels of trade. When comparing NKK's U.S. sales to its home market

sales, we found that NKK provided different levels of selling functions

with respect to its U.S. and home market sales. For example, NKK

provided different levels of promotion, technical advice, warranty,

financing, delivery, and inventory and warehousing services in the U.S.

and in Japan. Based on our examination of the information on the

record, we preliminarily determine that NKK sold merchandise at one LOT

in the home market and a different LOT in the U.S. market. However,

after a review of the data on the record, we do not have information

which would allow us to examine pricing patterns between the relevant

levels of trade based on respondent's sales of subject merchandise in

the home market or other record information on which such an analysis

could be based. Therefore, we do not have an appropriate basis upon

which to determine a LOT adjustment. As a result, we have not made a

LOT adjustment. For a complete discussion of LOT, please see the

Department's memorandum on Level of Trade, dated February 12, 1999.

KSC

KSC stated that it sold subject merchandise through five channels

of trade during the period of investigation, three in the home market,

and two in the United States. KSC's U.S. sales were made to

unaffiliated trading companies and reported as EP sales, or through its

[[Page 8298]]

U.S. affiliate, Kawasho International, and reported as CEP sales. Its

three home market channels of trade involved sales to unaffiliated

trading companies; sales to unaffiliated end-users; and sales through

its affiliated reseller, Kawasho. For the last group of sales, the

Department conducted its LOT analysis based on Kawasho's sales to the

first unaffiliated customer.

The Department first examined whether any differences existed with

respect to the selling functions performed by KSC in making sales to

its three types of home market customers. The information on the record

indicates that there is a difference between the selling functions

performed in selling to end-users, directly or via affiliated trading

companies, as compared to the other home market channel of trade.

Therefore, using the information on the record, the Department

preliminarily determined that KSC sells at two levels of trade in the

home market.

Regarding KSC's U.S. EP sales, the Department found that evidence

existed to differentiate the selling functions between sales made to

unaffiliated trading companies for sales to the United States and sales

made at the two different levels of trade in the home market. Based

upon our analysis, we found a difference in the selling functions

performed on EP sales as compared to sales at each of the two distinct

levels of trade in the home market. Therefore, the Department

preliminarily determined that the information on the record justifies

treating KSC's EP sales as having been made at a different LOT from the

two home market levels of trade. However, we do not have information

which would allow us to determine whether there is a pattern of

consistent price differences between the relevant LOTs in the home

market. Therefore, we do not have an appropriate basis to determine a

LOT adjustment.

Regarding KSC's U.S. CEP sales, we examined the selling functions

performed by KSC in the home market in making sales to the two levels

of trade, and the selling functions performed by KSC in making sales to

its affiliate, Kawasho International, in the United States. For these

CEP sales we determined that fewer and different selling functions were

performed in making CEP sales to Kawasho International than in making

sales at any of the two home market LOTs. Therefore, information on the

record justifies treating CEP sales and the two groups of home market

sales as having been made at different levels of trade.

We next examined whether a LOT adjustment was appropriate when

KSC's CEP sales are compared to the home market levels of trade. The

Department makes this adjustment when it is demonstrated that a

difference in LOTs affects price comparability. However, where the

available data do not provide an appropriate basis upon which to

determine a LOT adjustment, and where the NV is established at a LOT

that is at a more advanced stage of distribution than the LOT of the

CEP transactions, we adjust NV under section 773(a)(7)(B) of the Act

(the CEP offset provision). In the instant case, we were unable to

quantify the LOT adjustment in accordance with section 773(a)(7)(A) of

the Act, as we found that none of the LOTs in the home market matched

the LOT of the CEP transactions. Because of this, we were unable to

calculate a LOT adjustment. Instead, because we determined that all of

KSC's home market sales were made at levels of trade more advanced than

the LOT of KSC's U.S. sales, we granted a CEP offset and applied this

to comparisons between KSC's CEP sales and all HM sales.

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, in accordance with section 773A(a) of the

Act.

Facts Available

Section 776(a)(2) of the Act provides, that if an interested party:

(A) withholds information that has been requested by the Department;

(B) fails to provide such information in a timely manner or in the form

or manner requested; (C) significantly impedes a proceeding under the

antidumping statute; or (D) provides such information but the

information cannot be verified, as provided in section 782(i), the

Department shall, subject to subsection 782(d), use facts otherwise

available in reaching the applicable determination.

Section 776(b) of the Act provides that adverse inferences may be

used when an interested party has failed to cooperate by not acting to

the best of its ability to comply with the Department's requests for

information. See also, Statement of Administrative Action (SAA)

accompanying the URAA, H.R.Rep. No. 316, 103d Cong., 2d Sess. 870

(1994). In the instant case, the Department determined that the failure

of KSC and its U.S. affiliate to respond to section E of the

Department's questionnaire satisfies the requirements of section

776(a)(2)(A), (B), and (C). Therefore, in accordance with the statutory

requirements, the Department applied adverse facts available. As

adverse facts available we used the highest calculated dumping margin

found for any individual product (i.e., CONNUM) as the dumping margin

for all sales via KSC's affiliated further manufacturer.

The Department also used facts available in determining the margins

for certain U.S. sales by NSC. NSC reported the majority of U.S. sales

on an actual weight basis. In addition, it reported all comparable

merchandise in the home market on an actual weight basis. However, it

reported a small quantity of U.S. sales on a theoretical weight basis.

Due to the fact that NSC did not provide conversion factors for these

U.S. sales upon the Department's request, we preliminarily assigned the

highest calculated margin by CONNUM as facts available for these

transactions. In addition, NSC did not provide full costs for certain

CONNUMs.

Section 776(b) of the Act provides that adverse inferences may be

used where an interested party has failed to cooperate by not acting to

the best of its ability to comply with the Department's requests for

information. See also, Statement of Administrative Action (SAA)

accompanying the URAA, H.R. Rep. No. 316, 103d Cong., 2d Sess. 870

(1994). As facts available, we used the highest calculated margin for

U.S. sales that fell within the mainstream of NSC's and KSC's

transactions. In selecting the adverse margin, the Department sought a

margin that was indicative of NSC's and KSC's customary selling

practices and was rationally related to the transactions to which the

adverse facts available were being applied. The selected margin is also

sufficiently adverse to effectuate the statutory purpose of adverse

facts available, which is to induce respondents to provide the

Department with complete information in a timely manner. See Final

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

Rod from Italy, 63 FR 40422, 40428, (July 29, 1998).

NKK reported all its U.S. and home market sales on an actual weight

basis, with the exception of less than one percent of home market

sales. Although the Department requested conversion factors for these

transactions, NKK refused to provide conversion factors for these

sales. Therefore, for purposes of the preliminary determination, we

used adverse facts available as the adjusted price for these

transactions used in calculating NV. As adverse facts available for

each CONNUM we assigned the highest calculated adjusted price for that

CONNUM to the relevant transactions within that CONNUM.

[[Page 8299]]

All Others Rate

Recognizing the impracticality of examining all producers and

exporters in all cases (see SAA at 873), section 735(c)(5)(A) of the

Act provides for the use of an ``all others'' rate, which is applied to

non-investigated firms. This section states that the all others rate

shall generally be an amount equal to the weighted average of the

weighted-average dumping margins established for exporters and

producers individually investigated, excluding any zero and de minimis

margins, and any margins based entirely upon the facts available.

Therefore, we have preliminarily assigned to all other exporters of

Japanese hot-rolled steel, an ``all others'' margin that is the

weighted average of the margins calculated for NSC, NKK and KSC.

Verification

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

information relied upon in making our final determination.

Critical Circumstances

The Department notes that it will request company specific export

information from NSC, NKK, and KSC, for our final determination. We

invite interested parties to comment on the issue of critical

circumstances, and we will consider these comments and the company

specific data in making our final determination.

Suspension of Liquidation

In accordance with section 733(d) of the Act, we are directing the

U.S. Customs Service to suspend liquidation of all imports of subject

merchandise that are entered, or withdrawn from warehouse, for

consumption on or after the date which is 90 days prior to the date of

publication of this notice in the Federal Register. We will instruct

the U.S. Customs Service to require a cash deposit or posting of a bond

equal to the weighted-average amount by which the NV exceeds the export

price, as indicated below. These suspension-of-liquidation instructions

will remain in effect until further notice. The weighted-average

dumping margins are as follows:

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

Weighted-

average

Exporter/Manufacturer margin

(percent)

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

Nippon Steel Corporation................................... 25.14

NKK Corporation............................................ 30.63

Kawasaki Steel Corporation................................. 67.59

All Others................................................. 35.06

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

International Trade Commission (ITC) Notification

In accordance with section 733(f) of the Act, we have notified the

ITC of our determination. If our final determination is affirmative,

the ITC will determine before the later of 120 days after the date of

this preliminary determination or 45 days after our final determination

whether imports of hot-rolled steel are materially injuring, or

threaten material injury to, the U.S. industry.

Public Comment

Case briefs or other written comments may be submitted to the

Assistant Secretary for Import Administration no later than fifty days

after the date of publication of this notice, and rebuttal briefs,

limited to issues raised in case briefs, no later than fifty-five days

after the date of publication of this preliminary determination. A list

of authorities used and an executive summary of issues should accompany

any briefs submitted to the Department. This summary should be limited

to five pages total, including footnotes. In accordance with section

774 of the Act, we will hold a public hearing, if requested, to afford

interested parties an opportunity to comment on arguments raised in

case or rebuttal briefs. Tentatively, any hearing will be held fifty-

seven days after publication of this notice at the U.S. Department of

Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C.

20230, at a time and location to be determined. Parties should confirm

by telephone the date, time, and location of the hearing 48 hours

before the scheduled time.

Interested parties who wish to request a hearing, or to participate

if one is requested, must submit a written request to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

1870, within 30 days of the date of publication of this notice.

Requests should contain: (1) the party's name, address, and telephone

number; (2) the number of participants; and (3) a list of the issues to

be discussed. At the hearing, each party may make an affirmative

presentation only on issues raised in that party's case brief, and may

make rebuttal presentations only on arguments included in that party's

rebuttal brief. See 19 CFR 351.310(c). If this investigation proceeds

normally, we will make our final determination no later than April 28,

1999.

This determination is issued and published in accordance with

sections 733(d) and 777(i)(1) of the Act.

Dated: February 12, 1999.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-4196 Filed 2-18-99; 8:45 am]

BILLING CODE 3510-DS-P