Notice of Final Determination of Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber From the Republic of Korea

DEPARTMENT OF COMMERCE

International Trade Administration

[A-580-833]

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

Emulsion Styrene-Butadiene Rubber From the Republic of Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: March 29, 1999.

FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or James Nunno, AD/CVD

Enforcement Group II, Office V, Import Administration, International

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

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

2613 or (202) 482-0783, respectively.

Applicable Statute and Regulations

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 of Commerce's (the

Department's) regulations are references to 19 CFR Part 351 (April 1,

1998).

Final Determination

We determine that emulsion styrene-butadiene rubber (ESBR) from the

Republic of Korea is being sold in the United States at less than fair

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

margins of sales at LTFV are shown in the ``Continuation of Suspension

of Liquidation'' section of this notice, below.

Case History

Since the preliminary determination in this investigation on

October 28, 1998 (see Notice of Preliminary Determination of Sales at

Less Than Fair Value and Postponement of Final Determination: Emulsion

Styrene-Butadiene Rubber from the Republic of Korea, 63 FR 59514

(November 4, 1998) (Preliminary Notice)), the following events have

occurred:

In November 1998, we received a supplemental response to Section D

of the Department's antidumping questionnaire from Korea Kumho

Petrochemical Co. Ltd. (KKPC).

In January 1999, we verified the questionnaire responses of KKPC.

In February 1999, we issued our verification reports for KKPC. Also in

February 1999, KKPC submitted a revised sales database, reflecting

verification revisions, at the Department's request.

On February 16, 1999, the petitioners (i.e., Ameripol Synpol

Corporation and DSM Copolymer), and KKPC submitted case briefs. On

February 22, 1999, the petitioners and KKPC submitted rebuttal briefs.

The Department held a public hearing on February 25, 1999.

Scope of Investigation

For purposes of this investigation, the product covered is ESBR.

ESBR is a synthetic polymer made via free radical cold emulsion

copolymerization of styrene and butadiene monomers in reactors. The

reaction process involves combining styrene and butadiene monomers in

water, with an initiator system, an emulsifier system, and molecular

weight modifiers. ESBR consists of cold non-pigmented rubbers and cold

oil extended non-pigmented rubbers that contain at least one percent of

organic acids from the emulsion polymerization process.

ESBR is produced and sold, both inside the United States and

internationally, in accordance with a generally accepted set of product

specifications issued by the International Institute of Synthetic

Rubber Producers (IISRP). The universe of products subject to this

investigation are grades of ESBR included in the IISRP 1500 series and

IISRP 1700 series of synthetic rubbers. The 1500 grades are light in

color and are often described as ``Clear'' or ``White Rubber.'' The

1700 grades are oil-extended and thus darker in color, and are often

called ``Brown Rubber.'' ESBR is used primarily in the production of

tires. It is also used in a variety of other products, including

conveyor belts, shoe soles, some kinds of hoses, roller coverings, and

flooring.

Products manufactured by blending ESBR with other polymers, high

styrene resin master batch, carbon black master batch (i.e., IISRP 1600

series and 1800 series) and latex (an intermediate product) are not

included within the scope of this investigation.

The products under investigation are currently classifiable under

subheading 4002.19.0010 of the Harmonized Tariff Schedule of the United

States (HTSUS). Although the HTSUS subheading is provided for

convenience and customs purposes, the written description of the scope

of this investigation is dispositive.

Period of Investigation

The period of investigation (POI) is April 1, 1997, through March

31, 1998.

[[Page 14866]]

Facts Available

The petition in this investigation named both KKPC and Hyundai

Petrochemical Co., Ltd. (Hyundai) as producers/exporters of ESBR from

Korea to the United States. On May 8, 1998, Hyundai requested that it

be excluded from participation as a mandatory respondent. On May 12,

1998, the petitioners submitted a letter to the Department opposing

Hyundai's exclusion from this proceeding. On May 13, 1998, the

Department notified Hyundai that it was selected as a mandatory

respondent. On May 21, 1998, the Department issued the antidumping duty

questionnaire to both companies. Hyundai did not submit a response to

the questionnaire. Consequently, for purposes of the preliminary

determination, the Department based the antidumping margin for Hyundai

on facts otherwise available and assigned it a margin of 118.88

percent, which was the higher of either the highest margin in the

petition or the highest margin calculated for a respondent. See

Preliminary Notice. Hyundai did not submit comments on the Department's

preliminary determination and, thus, has continued not to participate

in this investigation. Accordingly, for the final determination, the

Department has continued to base the antidumping margin for this

company on facts otherwise available and assigned it a margin of 118.88

percent, which was the higher of either the highest margin in the

petition or the highest margin calculated for a respondent.

Product Comparisons

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

products sold in the home market as described in the ``Scope of

Investigation'' section of this notice, above, that were in the

ordinary course of trade for purposes of determining appropriate

product comparisons to U.S. sales. 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,

based on the characteristics listed in Sections B and C of our

antidumping questionnaire.

Fair Value Comparisons

To determine whether sales of ESBR from Korea to the United States

were made at less than fair value, we compared the export price (EP) to

the normal value (NV). Our calculations followed the methodologies

described in the preliminary determination except as noted below under

the ``Export Price'' and ``Normal Value'' sections of the notice.

Level of Trade

For purposes of the preliminary determination, we conducted a level

of trade analysis for KKPC, and determined that the level of trade for

all EP sales is the same as that of the home market sales. See

Preliminary Notice. Based on our findings at verification, we find no

indication that the level of trade for EP sales is different from that

of the home market sales. Furthermore, neither the petitioners nor KKPC

commented on the Department's level of trade determination. Therefore,

for purposes of the final determination, we have continued to hold that

a level of trade adjustment is not warranted for KKPC.

Export Price

In accordance with section 772(a) and (c) of the Act, we used EP

methodology for KKPC because the subject merchandise was sold directly

to the first unaffiliated purchaser in the United States prior to

importation and CEP methodology was not otherwise indicated.

We calculated EP based on the same methodology used in the

preliminary determination, with the following exceptions: (1) we

recalculated U.S. credit expenses using the average short-term lending

rates calculated by the Federal Reserve (see Calculation Memorandum for

the Final Determination for Korea Kumho Petrochemical Co., Ltd. dated

March 19, 1999 (Final Calculation Memorandum)); and (2) we adjusted the

reported amounts for U.S. bank charges and packing expenses based on

corrections presented at the start of verification.

Normal Value

We used the same methodology to calculate NV as that described in

the preliminary determination, with the following exceptions: (1) we

used the February 12, 1999, home market sales listing reflecting

verification revisions, submitted at the Department's request; (2) we

adjusted the reported amounts for home market inland freight charges

and packing expenses based on corrections presented at the start of

verification; and (3) we recalculated home market credit expenses

denominated in U.S. dollars using the average short-term lending rates

calculated by the Federal Reserve (see Final Calculation Memorandum).

We continued to make no adjustment for imputed credit expenses related

to the payment of value-added taxes (VAT), in accordance with our long-

standing practice (see Comment 2 below). In those instances where KKPC

did not report payment dates, we recalculated reported credit expenses

using the date of the last day of the sales verification as the payment

date.

Cost of Production

We calculated the cost of production (COP) based on the sum of

KKPC's cost of materials and fabrication for the foreign like product,

plus amounts for home market selling, general and administrative (SG&A)

expenses and packing costs, in accordance with section 773(b)(3) of the

Act. We relied on the submitted COPs, except for the following specific

instances where we modified the margin calculation program to correct

for certain adjustments and updated cost data based on verification

findings (see Final Calculation Memorandum): (1) based on information

obtained at verification, we adjusted KKPC's reported cost of

manufacturing (COM) to reflect the POI costs (see Comment 5 below); (2)

we recalculated KKPC's financial expense ratio used in the calculation

of COP and CV on a consolidated basis (see Comment 6 below), and

additionally, in accordance with Department practice to exclude

exchange gains and losses from accounts receivable (see Comment 7

below, and Notice of Final Determination of Sales at Less Than Fair

Value: Stainless Steel Wire Rod from Korea, 63 FR 40404, 40416 (July

29, 1998)); and (3) based on our analysis of KKPC's supplemental

response to Section D of the Department's antidumping questionnaire, we

determined that an adjustment to the direct labor costs reported in

KKPC's COP and CV databases was unwarranted (see Comment 8 below).

We also conducted our sales below cost test in the same manner as

that described in our preliminary determination. As with the

preliminary determination, we found that, for certain grades of ESBR,

more than 20 percent of KKPC's home market sales were at prices less

than the COP within an extended period of time. See Section

773(b)(1)(A) of the Act. Further, the prices did not provide for the

recovery of costs within a reasonable period of time. We, therefore,

disregarded the below-cost sales and used the remaining above-cost

sales as the basis for determining NV, in accordance with section

773(b)(1) of the Act.

Constructed Value

In accordance with section 773(e) of the Act, we calculated CV

based on the sum of KKPC's cost of materials, fabrication, SG&A

expenses, profit, and

[[Page 14867]]

U.S. packing costs. We relied on the submitted CVs, except in the

specific instance noted in the ``Cost of Production'' section above.

Currency Conversion

As noted in the Preliminary Notice, our preliminary analysis of

Federal Reserve dollar-won exchange rate data showed that the won

declined rapidly at the end of 1997, losing over 40 percent of its

value between the beginning of November and the end of December. The

decline was, in both speed and magnitude, many times more severe than

any change in the dollar-won exchange rate during the previous eight

years. Had the won rebounded quickly enough to recover all or almost

all of the initial loss, the Department might have been inclined to

view the won's decline at the end of 1997 as nothing more than a

sudden, but only momentary drop, despite the magnitude of that drop. As

it was, however, there was no significant rebound. We continue to

determine that the decline in the won at the end of 1997 was so

precipitous and large that the dollar-won exchange rate cannot

reasonably be viewed as having simply fluctuated during this time,

i.e., as having experienced only a momentary drop in value. Therefore,

for purposes of the final determination, the Department continued to

use daily rates exclusively for currency conversion purposes for home

market sales matched to U.S. sales occurring between November 1 and

December 31, 1997. For sales occurring after December 31, but before

March 1, 1998, the Department continued to rely on the standard

exchange rate model, but used as the benchmark rate a (stationary)

average of the daily rates over this period. In this manner, we used an

``up-to-date'' (post-precipitous drop) benchmark, but at the same time

avoided undue day-to-day fluctuations in the exchange rates used. For

sales occurring after March 1, the standard model and standard

(rolling, 40-day) benchmark rate were used (see Comment 1 below).

Critical Circumstances

On September 24, 1998, the petitioners alleged that there is a

reasonable basis to believe or suspect that critical circumstances

exist with respect to imports of ESBR from Korea. Section 733(e)(1) of

the Act provides that the Department will determine that there is a

reasonable basis to believe or suspect that critical circumstances

exist if: (A)(i) there is a history of dumping and material injury by

reason of dumped imports in the United States or elsewhere of the

subject merchandise, or (ii) the person by whom, or for whose account,

the merchandise was imported knew or should have known that the

exporter was selling the subject merchandise at less than its fair

value and that there was likely to be material injury by reason of such

sales, and (B) there have been massive imports of the subject

merchandise over a relatively short period.

For purposes of the preliminary determination, we found that no

critical circumstances existed because there was no history of dumping,

and the preliminary margins were insufficiently high to impute

knowledge of dumping to exporters, producers, or importers of the

subject merchandise. Because the margin remains insufficiently high to

impute such knowledge, our final determination of critical

circumstances remains negative (see Comment 4 below).

Verification

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

information submitted by KKPC for use in our final determination. We

used standard verification procedures, including examination of

relevant accounting and production records, and original source

documents provided by KKPC.

Interested Party Comments

General Issues

Comment 1: Exchange Rate Methodology

The petitioners argue that the Department did not fully analyze its

methodology for currency conversion used in the preliminary

determination in which it modified the exchange rate database by using

the actual daily exchange rates during the period of devaluation,

November 1, 1997-December 31, 1997, to convert prices denominated in

Korean won into U.S. dollars. The petitioners contend that the

Department neither explained how it identified the devaluation of the

Korean won as too precipitous and large to represent a fluctuation, nor

did it cite any support for its decision to use a modified benchmark

for sales after January 1, 1998, which provided no clear notice to

interested parties as to what the official exchange rate would be on a

particular date of sale. The petitioners argue that the Department's

methodology used for the preliminary determination, in addition to

being unnecessarily complex and unpredictable, is inconsistent with

Congressional intent that the currency conversion process not distort

dumping margins, and should, therefore, not be used for purposes of the

final determination.

The petitioners contend that the Department should, instead, use

its standard exchange rate model, which would treat the won as a

fluctuating currency. As an alternative, the petitioners suggest that

the Department apply its existing ``sustained movement'' analysis (used

for situations in which a foreign currency appreciates against the U.S.

dollar) to the period of devaluation in Korea. The petitioners claim

that using this approach would deny an exporter the benefit of lower

dumping margins when it is selling products in the United States at

less than fair value, and would also provide a consistent treatment of

both increases and decreases in the value of the foreign currency.

Finally, the petitioners suggest that, as a third option, the

Department limit the POI to the seven months preceding the devaluation

of the won.

KKPC argues that the depreciation in the Korean won cannot be

considered a ``fluctuation'' because its value at the end of March

1998, three months after the period of devaluation, was still 50

percent less than what it had been in October 1997, which is contrary

to the definition of a fluctuation. Further, KKPC asserts that the

Department's ``sustained movement'' analysis is designed to prevent

artificial dumping margins created by appreciations in the foreign

currency in situations in which there would ordinarily be no margins.

KKPC contends that if the Department were to implement a ``sustained

movement'' policy to devaluating currency situations, it would apply an

exchange rate reflective of the pre-devaluation period to prices

reflective of the won's devaluation, and would, thus, penalize

exporters that immediately adjust their prices when the foreign

currency depreciates in value instead of waiting to adjust prices until

after the won rebounds in value. KKPC cites to recent cases involving

currency depreciations in which the Department chose not to follow this

approach (e.g., Final Determination of Sales at Less Than Fair Value:

Certain Preserved Mushrooms from Indonesia, 63 FR 72268, 72269

(December 31, 1998)). Moreover, KKPC argues that the Department should

not alter the POI because the Department's regulations require that the

Department investigate sales during the four fiscal quarters prior to

the filing of the petition. KKPC asserts that the petitioners had

knowledge of the currency devaluation in Korea before filing the

antidumping petition, and could have avoided a POI including the

devaluation of the won by filing their petition at an earlier date.

[[Page 14868]]

DOC Position

We have continued to use the currency conversion methodology used

for purposes of the preliminary determination, for the reasons

explained in the Preliminary Notice. Although neither party requested

that we use separate averaging periods, the petitioners did request

that we consider using a truncated POI. Under section 777A(d)(1)(A) of

the Act, the Department has wide latitude in calculating the average

prices used to determine whether sales at less than fair value exist.

More specifically, under 19 CFR 351.414(d)(3), the Department may use

averaging periods shorter than the POI where NV, EP, or constructed

export price varies significantly over the POI. In the instant case, NV

(in dollars) in the last five months of the POI differs significantly

from NV earlier in the POI due primarily to a significant change in the

underlying dollar value of the won. In this case, the change is

evidenced by the precipitous drop in the won's value that occurred in

November and December 1997, without a quick, significant rebound. The

won's value decreased by more than 40 percent in relation to the dollar

in the span of these two months and remained substantially at this new

lower value for the remainder of the POI. While we do not believe that

it is appropriate in this case to ignore sales that occurred in the

latter five months of the POI, and, thus, truncate the POI as the

petitioners have proposed, it is appropriate to use two averaging

periods to avoid the possibility of a distortion in the dumping

calculation. Therefore, we have used two averaging periods for purposes

of the final determination: April through October 1997, and November

1997 through March 1998.

We disagree with the petitioners' claim that we should not have

modified the currency conversion model, as was done for purposes of the

preliminary determination. As the petitioners themselves have

acknowledged, ``whenever the decline in the value of a foreign currency

is so precipitous and large as to reasonably preclude the possibility

that it is only fluctuating, the lower actual daily rates will be

employed from the time of the large decline.'' Exchange Rate

Methodology, Policy Bulletin, March 4, 1996. The petitioners dispute

our interpretation of the movement in the dollar-won exchange rate

during November and December of 1997 as so precipitous and large as to

reasonably preclude the possibility that it was only fluctuating.

However, as KKPC points out in its case brief, within an approximately

two-month period, the won's value fell from 920 per U.S. dollar to 1700

per U.S. dollar. In addition, while the won recovered slightly after

the rapid two-month decline, it did not regain its value of the period

prior to the rapid devaluation. A devaluation of almost 50 percent over

a period of two or three months cannot reasonably be seen as a mere

fluctuation. Accordingly, the Department continued to apply the

currency conversion methodology outlined above in the ``Currency

Conversion'' section, and divided the POI into two separate averaging

periods for purposes of the final determination.

Sales Issues

Comment 2: Calculation of Home Market Credit Expenses

According to KKPC, the Department erred in its decision to not

include home market VAT in the price used as the basis for the

calculation of home market credit expenses. KKPC explains that the

purpose of calculating credit expenses is to determine the economic

cost to the seller when it decides to allow the customer to delay its

payment. KKPC asserts that the Department should calculate credit

expenses based on the total price actually paid by the customer,

because the cost to KKPC of the delayed payment must be measured by the

total amount on which payment was delayed, which includes the tax-

exclusive price, plus VAT. KKPC argues that calculating credit expenses

on a tax-exclusive basis understates the economic effect of its

decision to extend credit.

Furthermore, KKPC states that calculating credit expenses net of

only VAT, without also deducting other costs borne by the seller, is

incongruent with the Department's stated methodology in Final

Determination of Sales at Less Than Fair Value: Sulfur Dyes, Including

Sulfur Vat Dyes, From the United Kingdom, 58 FR 3253 (January 8,

1993)(Sulphur Vat Dyes). KKPC argues that the treatment of VAT should

not differ from the treatment of other costs that the seller pays from

the proceeds of the sale (e.g., commissions), and asserts the

Department has never calculated credit expenses net of such other

costs.

KKPC cited cases in which the Department calculated credit expenses

based on prices that include taxes (e.g., Notice of Final Determination

of Sales at Less Than Fair Value: Circular Welded Non-Alloy Steel Pipe

From Mexico, 57 FR 42953 (September 17, 1992); Notice of Final

Determination of Sales at Less Than Fair Value: Silicon Metal From

Brazil, 56 FR 26977 (June 12, 1991); and Notice of Final Results of

Administrative Review of Antidumping Duty Order: Color Television

Receivers from Korea, 49 FR 50420 (December 28, 1984). KKPC contends

that the Department's past practice on calculating credit expenses has

been inconsistent, and that there is no rationale for excluding VAT

from the total price paid by the customer.

The petitioners state that such a circumstance-of-sale adjustment

for credit expenses relating to VAT is not warranted by the

Department's regulations, and refer to the stated methodology

concerning credit expense calculations in Notice of Final Determination

of Sales at Not Less Than Fair Value: Stainless Steel Bar from Italy,

59 FR 66921 (December 28, 1994), in which the Department explained that

the regulations contain no indication that an adjustment should be

granted for a government imposed tax such as VAT, or for any type of

so-called ``opportunity cost.'' The petitioners assert that KKPC did

not support its argument with any statutory or regulatory basis. In

addition, the petitioners argue that KKPC supports its argument with

cases that are outdated, and that the Department has since then

reflected on the treatment of VAT for credit expense calculations and

concluded that it should not make a circumstance-of-sale adjustment for

imputed interest expenses related to the payment of VAT. Finally, the

petitioners assert that the Department should continue to calculate

credit expenses net of VAT, because these expenses do not bear a

``direct relationship'' to the sales in question, as defined by the

Department's regulations.

DOC Position

We agree with the petitioners. As the petitioners noted, we have

evaluated this issue in past cases, and have come to the conclusion

that our regulations do not imply that we should treat the payment of

VAT as an opportunity cost to the seller on behalf of the buyer (See

Sulfur Vat Dyes). Furthermore, no statute or regulation requires us to

include VAT in the home market credit expense calculation (see Circular

Welded Non-Alloy Steel Pipe and Tube from Mexico: Final Results of

Antidumping Duty Administrative Review, 63 FR 33041, 33050 (June 17,

1998)). As the Statement of Administrative Action accompanying the

Uruguay Round Agreements Act, H.R. Doc. No. 103-316, vol. 1 (1994)

(SAA) states at page 827, ``[t]he deduction from normal value for

indirect taxes constitutes a change from the existing statute. The

change is intended to ensure that dumping

[[Page 14869]]

margins will be tax-neutral.'' Thus, Congress specifically intended for

normal value to be tax-neutral. Accordingly, computing imputed credit

expenses on a price that specifically includes an indirect tax such as

the VAT, as KKPC insists that we do, would be clearly inconsistent with

Congressional intent on this subject. For the final determination, we

are following our established practice of excluding VAT from home

market credit expense calculations for purposes of the final

determination (see Frozen Concentrated Orange Juice From Brazil:

Preliminary Results and Partial Rescission of Antidumping Duty

Administrative Review, 64 FR 5767, 5769 (February 5, 1999)).

Comment 3: Home Market Date of Sale

The petitioners argue that the Department should not use KKPC's

invoice date as the date of sale for its larger home market customers,

because the terms of sale are established at an earlier date (i.e., the

order date). The petitioners cite past cases in which the Department

used a date other than the invoice date for the respondent's date of

sale, and assert that the Department can appropriately use KKPC's order

date as the date of sale. The petitioners state that at a minimum,

because KKPC's order dates are not on the record, the Department should

use KKPC's date of shipment as the date of sale, since this information

is on the record of this proceeding. The petitioners explain that

because of the currency crisis in Korea, the order date during this

time period may precede the invoice date by more than a month, which

can have a significant effect on the calculation of dumping margins.

KKPC asserts that it properly reported the invoice date as the date

of sale for all sales to its larger home market customers, because in

the normal course of business, such customers place orders and receive

shipments throughout the month. KKPC maintains that it recognizes home

market sales, and records them as sales in its accounting records, when

it issues the invoice to the customer. In addition, KKPC states that

reporting the shipment date for these sales based on the month-end

invoice date understates the number of days between shipment and

payment, reduces the amount of credit expense relating to the sale, and

overstates the resulting dumping margin calculated for KKPC, since the

average shipment date would be at the middle of the month. KKPC argues

that the petitioners' allegation is untimely, because they had not

contended its use of the invoice date as the date of sale until their

case brief. Further, KKPC contends that using the invoice date is

consistent with the Department's regulations, and that the petitioners

did not provide a sufficient basis to use a different date. Finally,

KKPC contests that, although the sales quantity can be tied to its

transaction statements that are prepared for each shipment prior to

invoicing, the invoice itself is the first document generated in its

sales process which provides written evidence of the sales price

charged to the customer. KKPC explains that the transaction statement

and invoice relating to a specific shipment are always generated in the

same month that the shipment is made, and, therefore, all of its

relevant sales were included in the sales listing reported to the

Department.

DOC Position

We agree with KKPC. The Department's current practice is to use

invoice date as the date of sale, unless record evidence demonstrates

that the material terms of sale, i.e., price and quantity, are

established on a different date. See 19 CFR 351.401(i). The Department

explained in the preamble to its regulations at 62 FR 27348 (May 19,

1997):

* * * as a matter of commercial reality, the date on which the

terms of a sale are first agreed is not necessarily the date on

which those terms are finally established. In the Department's

experience, price and quantity are often subject to continued

negotiation between the buyer and the seller until a sale is

invoiced.

As noted in its responses to Sections A, B, and C of our

questionnaire, KKPC explained its above-stated invoicing methodology

for its home market customers. Furthermore, we noted ``* * * no

inconsistencies between the information concerning the date of sale

methodology in the company responses and the information gathered at

verification.'' See Sales Verification Report, dated February 15, 1999,

at page 9. During the course of this investigation, we found no

indication that a different date is more suitable as a date of sale. We

find that KKPC accurately reported the invoice date as the appropriate

date of sale because the invoice date best reflected the date on which

the essential terms of the sale were established.

Comment 4: Critical Circumstances

The petitioners request the Department reconsider their critical

circumstances allegation, should it calculate a final dumping margin

greater than 25 percent.

KKPC argues that even if the final calculated dumping margin, if

any, exceeds 25 percent, there is no way that an importer knew or

should have known that the subject merchandise was being sold at less

than fair value. KKPC asserts that it is unfair for the Department to

penalize importers with a retroactive assessment of duties when it

changes its methodologies from the preliminary determination, which

might cause the margin to exceed 25 percent, because an importer has

limited information.

DOC Position

As stated above in the ``Critical Circumstances'' section of this

notice, KKPC's margin does not exceed 25 percent for EP sales, and

there are no CEP sales in this investigation. Therefore, we find both

the petitioners' and KKPC's arguments to be moot in this case.

Cost Issues

Comment 5: Use of Fiscal Year Costs Versus POI Costs

According to KKPC, it correctly reported its costs based on the

fiscal year (i.e., January 1 through December 31, 1997) and not based

on the POI, because, although KKPC calculates monthly ESBR

manufacturing costs on a product-specific basis, the costs for certain

expenses, such as severance and depreciation costs, are based on

estimates. In addition, KKPC explains that its monthly ESBR

manufacturing costs for materials and inventories are valued using a

monthly moving average method, while the annual cost calculations use

an annual average method. As a result, the summation of KKPC's monthly

costs do not reconcile directly to the annual costs because the

differences between the monthly costs through November and the annual

costs are recorded as year-end adjustments to the December costs, which

can lead to aberrant December costs.

Moreover, KKPC argues that the Department has allowed respondents

to report fiscal year costs when the POI and fiscal year do not differ

by more than a few months, citing Certain Corrosion-Resistant Carbon

Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From

Canada: Final Results of Antidumping Duty Administrative Reviews, 63 FR

12725, 12734 (March 16, 1998), in which the Department granted the

respondent's request to base its reported costs on its fiscal period

rather than the period of review. KKPC asserts that it indicated its

use of fiscal year data in its September 18, 1998, response to the

Section D questionnaire, and that, although the petitioners asked the

[[Page 14870]]

Department to require KKPC to report POI costs, the Department did not

request POI costs until verification. According to KKPC, it would be

inappropriate for the Department to use the monthly POI costs now on

the record, because the fiscal year 1997 covers nine months of the POI,

and the monthly costs cannot be tied directly to its annual costs or to

KKPC's financial statements.

The petitioners argue that, although KKPC has maintained that only

its annual costs could be reconciled to its audited financial

statements, information gathered at verification proves that the

monthly cost statements could be reconciled to its financial

statements. In support of its argument, the petitioners refer to the

following items noted in the Department's Cost Verification Report,

dated February 7, 1999: (1) KKPC's cost accounting system is integrated

with its financial accounting system; (2) KKPC produces monthly trial

balances, income statements, and COM statements; and (3) the unit costs

calculated in the monthly COM statements match the unit costs as

calculated in KKPC's reconciliation of reported costs to its annual COM

statement. The petitioners assert that the monthly cost information

reported to the Department at verification could have been provided at

an earlier date, and that the Department should, therefore, consider

the information to be submitted in an untimely fashion. In addition,

the petitioners argue that in light of the increase in the COM during

the first quarter of 1998, as noted in the Cost Verification Report,

KKPC's decision to report fiscal year costs and not POI costs was

intended to minimize its costs of production. The petitioners suggest

that, consequently, the reported COMs should be rejected, and the

Department should apply adverse facts available, using the rate of

118.88 percent for KKPC's sales of subject merchandise, as was applied

to Hyundai.

The petitioners argue that if the Department decides not to reject

KKPC's reported COMs, it should, at a minimum, adjust KKPC's reported

COPs to reflect the differences in COM between the fiscal year 1997 and

the POI. However, the petitioners state that an upward adjustment based

on the percentage difference should not be used because of the

devaluation of the Korean won at the end of the POI, which would

benefit KKPC rather than penalize it. As an alternative, the

petitioners suggest that, as adverse facts available, the Department

should either: (1) limit the POI to the seven months prior to the

devaluation of the won (see Comment 1 above); or (2) convert HM prices

denominated in U.S. dollars to won both for purposes of the cost test,

as well as for calculating NV. The petitioners explain that although

KKPC has HM sales denominated in U.S. dollars, these US dollar prices

reflect won-based prices that were converted to U.S. dollars for the

convenience of KKPC's customers. The petitioners state that converting

all HM prices into won would, therefore, be consistent with KKPC's

pricing practice.

DOC Position

We disagree with the petitioners that we should reject KKPC's

response in toto and apply total facts available for purposes of the

final determination. We note that although the Department, in its May

21, 1998, Section D questionnaire at D-3, instructed KKPC to report its

costs based on the costs incurred during the POI, KKPC reported its

costs to the Department based on its fiscal year 1997. In its September

18, 1998, Section D response, KKPC stated that the company's cost

accounting system calculates costs on an annual basis at the end of

each fiscal year and these annual figures are the only calculations

that reconcile to KKPC's audited financial statements (See pages 24 and

25 at footnote 9). KKPC further stated that while the company also

calculates monthly product costs for management purposes, using the

same methodologies used in the company's normal cost accounting system,

these monthly management cost calculations are not used in KKPC's

accounting systems and do not reconcile directly to the company's

audited financial statements. Based on such claims, the Department did

not require KKPC to report POI cost data subsequent to its September

18, 1998, submission. We note that the Department does allow a

respondent to report fiscal year costs where there is only a few months

difference between the POI and the company's fiscal year. In such

instances, the Department will test the impact of the shift in the cost

reporting period to ensure that the use of fiscal year costs is not

distortive for purposes of our COP and CV analysis.

At the start of verification, contrary to its statements in its

questionnaire responses, KKPC disclosed to Department officials that

KKPC does, in fact, record monthly cost data in its accounting system.

Consequently, we requested and reviewed KKPC's monthly cost data,

noting that the monthly costs do reconcile to the company's audited

financial statements, after accounting for year-end adjustments for

certain expenses. During verification, we tested and compared the POI

costs based on the monthly cost data to the reported fiscal year costs

and noted that the per-unit COMs for each grade of ESBR for the POI

were higher than the per-unit COMs for the fiscal year (see Cost

Verification Report at pages 7 and 8 for a detailed discussion). Thus,

in this instance, because the Department originally requested POI cost

data, and our verification findings indicate that the use of the

reported fiscal year cost data is distortive, we have used the verified

POI cost data for purposes of the final determination, as facts

available, in accordance with section 776(a) of the Act (see Cost of

Production and Constructed Value Calculation Adjustments for the Final

Determination Memorandum, dated March 19, 1999). See e.g., Final

Determination of Sales at Less Than Fair Value: Canned Pineapple Fruit

from Thailand, 60 FR 29553, 29568 (June 5, 1995) (where the Department

disagreed with the respondent's reporting period for cost data, and

used the costs obtained during the verification for purposes of the

final determination).

Comment 6: Allocation of Financial Expenses to Investment Activities

KKPC argues that the Department erred in its calculation of

financial expenses for purposes of the preliminary determination. KKPC

calculated its financial expenses reported in the COP and CV data by

allocating its total financial expenses between its investment

activities and its manufacturing and sales activities, based on the

ratio of the income generated by each of these lines of business. For

purposes of the preliminary determination, the Department rejected

KKPC's methodology and recalculated KKPC's financial expenses by

allocating the company's total financial expenses over its cost of

goods sold (see Preliminary Notice at 59517). KKPC, citing Final

Determination of Sales at Less than Fair Value: Sweaters Wholly or in

Chief Weight of Man-Made Fiber from Korea, 55 FR 32659, 326678 (August

10, 1990) (Sweaters from Korea) and Porcelain-on-Steel Cooking Ware

from Mexico: Final Results of Antidumping Duty Administrative Review,

58 FR 32095 (June 8, 1993), argues that the methodology adopted by the

Department for its preliminary determination is not consistent with

established Department practice. KKPC contends that, as the Department

recognized in Sweaters from Korea, financial expenses incurred by a

company relate both to the company's investment activities and to its

[[Page 14871]]

manufacturing and sales activities. Thus, KKPC asserts that an

allocation that assigns all of the financial expenses to the company's

manufacturing and sales activities is incorrect and urges the

Department to revise its calculation of financial expenses for the

final determination.

The petitioners argue that KKPC offers no compelling reason for the

Department to deviate from its long-standing practice of allocating a

company's total financial expenses over its cost of goods sold, and,

therefore, urge the Department to deny KKPC's request for reallocation

of its financial expenses to the company's investment activities.

DOC Position

We disagree with KKPC that we erred in rejecting its method of

allocating interest expenses. As the Department has repeatedly stated,

and the Court of International Trade has upheld, we

recognize the fungible nature of a corporation's invested capital

resources, including debt and equity, and we do not allocate

corporate financing expenses to individual divisions of a

corporation on the basis of sales per division. Instead, we allocate

the interest expense related to the debt portion of the

capitalization of the corporation, as appropriate, to the total

operations of the consolidated corporation. More importantly, our

established practice of requiring the use of consolidated financial

statements recognizes: (1) the fungible nature of invested capital

resources such as debt and equity of the controlling entity within a

consolidated group of companies; and (2) that the controlling entity

within a consolidated group has the power to determine the capital

structure of each member company within its group (see, e.g., Aramid

Fiber Formed of Poly Para-Phenylene Terephthalamide From the

Netherlands; Final Results of Antidumping Administrative Review, 62

FR 38058 (July 16, 1997)).

E.I. Du Pont de Nemours & Co. v. U.S., SLIP OP. 98-7 (CIT 1998).

In this instance, KKPC is asking that the Department deviate from

its established practice of allocating financial expenses to the

merchandise under investigation using consolidated results of

operations (due to the proprietary nature of this issue, for a full

explanation, please see Memorandum to Louis Apple, Office Director,

from Team, dated March 19, 1999). Accordingly, for purposes of the

final determination, we continued to rely on the interest expense

calculation methodology used for purposes of the preliminary

determination.

Comment 7: Treatment of Exchange Gains and Losses on Sales

KKPC argues that foreign exchange gains and losses arising from

sales transactions should be included in the calculation of COP and CV.

KKPC asserts that foreign exchange gains and losses on sales

transactions relate to a company's general operations and, as such,

should be included as part of the financial expense of the company.

Furthermore, KKPC maintains that the treatment of exchange gains and

losses on sales transactions as a cost of financing sales is

inconsistent with the fundamental principle that money is fungible.

Accordingly, KKPC argues that the Department's financial expense

calculation should include all exchange gains and losses, including

gains and losses that arise from sales transactions.

The petitioners maintain that KKPC presents no compelling

justification for the Department to deviate from its long-standing

policy of excluding exchange gains and losses on sales transactions

from the calculation of COP and CV.

DOC Position

We disagree with KKPC. The Department typically only includes

foreign exchange gains and losses in a respondent's financial expense

if such gains and losses are related to the cost of acquiring debt.

Moreover, it is the Department's normal practice to distinguish between

exchange gains and losses realized or incurred in connection with sales

transactions and those associated with purchase transactions. See,

e.g., Notice of Final Determination of Sales at Less Than Fair Value:

Steel Wire Rod from Trinidad and Tobago, 63 FR 9177, 9181 (February 24,

1998) (Steel Wire Rod from Trinidad and Tobago). The Department

normally includes in its calculation of COP and CV foreign exchange

gains and losses resulting from transactions related to a company's

manufacturing activities (e.g., purchases of inputs). We do not

consider exchange gains and losses from sales transactions to be

related to the manufacturing activities of the company. See, e.g.,

Steel Wire Rod from Trinidad and Tobago, 63 FR at 9181 and Notice of

Final Determination of Sales at Less Than Fair Value: Fresh Atlantic

Salmon from Chile, 63 FR 31411, 31430 (June 9, 1998). Accordingly, for

purposes of the final determination, we disallowed exchange gains and

losses arising from sales transactions in the COP and CV calculation.

Alleged Clerical Errors Made in the Preliminary Determination Margin

Calculation Program

Comment 8: Corrections to KKPC's Direct Labor Costs

In the preliminary determination, we recalculated KKPC's reported

direct labor cost, because, based on information on the record at the

time, we could not reconcile KKPC's reported direct labor costs to its

total labor costs. KKPC notes that, subsequent to the Department's

preliminary determination, the company provided a reconciliation of its

direct labor costs to its total labor costs in its November 2, 1998,

response to the Department's section D supplemental questionnaire. In

addition, KKPC states that the Department verified that the direct

labor costs were calculated correctly. Therefore, KKPC asserts that the

Department should accept the reported direct labor costs and should,

accordingly, correct the margin program.

DOC Position

We agree. We have made the appropriate corrections for purposes of

the final determination.

Comment 9: Product Characteristics Used for Purposes of Model Matching

The petitioners argue that, for purposes of the preliminary

determination, the Department improperly excluded grade as one of the

matching criteria in performing its model matching. In addition, the

petitioners claim that by excluding grade, the Department assigned one

control number to two different ESBR products (i.e., ESBR grades 1502

and 1507).

KKPC asserts that the Department clearly stated its intention to

not include grade as a matching criterion, and that by not doing so,

two products are treated as one product. KKPC argues that these do not

constitute inadvertent or clerical errors, and that there is no basis

for changing the matching criteria.

DOC Position

We agree with both the petitioners and KKPC, in part. In response

to our April 28, 1998, letter to interested parties, in which we

requested information concerning the product characteristics, the

petitioners stated that ``* * * any product matching that relied simply

on the IISRP grading system as product matching criteria, rather than

on the essential physical characteristics of ESBR product, would

necessarily fail to match certain product sales that properly should be

included

[[Page 14872]]

in the Department's matching analysis.'' We, therefore, used the

product characteristics attached to the petitioners' aforementioned

response as our matching criteria, and did not include grade as a

product characteristic. Excluding the grade from the matching criteria

was, therefore, not an inadvertent or clerical error.

However, based on the arguments raised in this proceeding, we have

reexamined our matching criteria. We note that indeed two of KKPC's

reported products are assigned one control number based on our matching

criteria, as verified. Sales Verification Report at page 6. Based on

KKPC's written description of ESBR grades 1502 and 1507, as noted in

its June 18, 1998, response to Section A of the Department's

questionnaire, grade 1507 has a ``* * * lower mooney viscosity than the

1500 and 1502 grades.'' Based on our review of the record in this case,

we find that the ranges for mooney viscosity, as defined by KKPC's

standard specifications (and also reflected in the IISRP's The

Synthetic Rubber Manual), are different for grades 1502 and 1507. In

addition, there are cost and price differences between these two grades

based on KKPC's submitted COPs and sales listings. Therefore, we

recognize that mooney viscosity is an essential product characteristic

that defines the grade, and conclude that KKPC's sales of grades 1502

and 1507 should be treated as two separate products for purposes of the

final determination (see Notice of Final Results and Partial Recission

of Antidumping Duty Administrative Review: Roller Chain, Other than

Bicycle, from Japan, 62 FR 60472, 60475 (November 10, 1997) (where the

Department used additional product characteristics for the final

results in order to prevent grouping of physically diverse chain as

identical or similar merchandise)). In addition, for purposes of any

future administrative reviews, the Department intends to include mooney

viscosity as a product characteristic for matching purposes (see Final

Calculation Memorandum).

Comment 10: Quantity Variable Used in the Margin Program

The petitioners argue that the Department made a certain

inadvertent programming error in its preliminary margin calculation,

and that the Department should correct this error for purposes of the

final determination. Specifically, the petitioners note that the

Department overstated the U.S. sales quantity by using an incorrect

quantity variable.

DOC Position

We agree. We have made the appropriate corrections for purposes of

the final determination (see Final Calculation Memorandum).

Continuation of Suspension of Liquidation

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

Customs Service to continue to suspend liquidation of all entries of

ESBR from Korea that are entered, or withdrawn from warehouse, for

consumption on or after November 4, 1998, the date of publication of

our preliminary determination in the Federal Register. The Customs

Service shall continue to require a cash deposit or the posting of a

bond equal to the weighted-average amount by which the normal value

exceeds the U.S. price, as indicated in the chart 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

percentage

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

Korea Kumho Petrochemical Co., Ltd.......................... 16.65

Hyundai Petrochemical Co., Ltd.............................. 118.88

All Others.................................................. 16.65

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

Pursuant to section 735(c)(5)(A) of the Act, the Department has

excluded any zero and de minimis margins, and any margins determined

entirely under section 776 of the Act, from the calculation of the

``All Others Rate.''

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

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

the ITC will, within 45 days, determine whether these imports are

materially injuring, or threaten 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.

Return or Destruction of Proprietary Information

This notice serves as the only reminder to parties subject to

Administrative Protective Order (APO) of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 355.34(d). Failure to

comply is a violation of the APO.

This determination is published pursuant to section 777(i) of the

Act.

Dated: March 19, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-7526 Filed 3-26-99; 8:45 am]

BILLING CODE 3510-DS-P