Notice of Final Determination of Sales at Less Than Fair Value Stainless Steel Round Wire from Canada
Federal RegisterApr 9, 1999
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-122-829]
Notice of Final Determination of Sales at Less Than Fair Value--
Stainless Steel Round Wire from Canada
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: April 9, 1999.
FOR FURTHER INFORMATION CONTACT: Thomas Schauer or Robin Gray, Office
of AD/CVD Enforcement 3, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-4852 or (202) 482-4023, respectively.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (``the Act'') by
the Uruguay Round Agreements Act (``URAA''). In addition, unless
otherwise indicated, all citations to Department of Commerce (``the
Department'') regulations refer to the regulations codified at 19
C.F.R. Part 351 (April 1998).
Final Determination
We determine that stainless steel round wire from Canada is being
sold, or is likely to be sold, in the United States at less than fair
value (``LTFV''), as provided in section 735 of the Act. The estimated
margins are shown in the Continuation of Suspension of Liquidation
section of this notice.
Case History
The preliminary determination in this investigation was issued on
November 12, 1998. See Notice of Preliminary Determinations of Sales at
Less Than Fair Value and Postponement of Final Determinations--
Stainless Steel Round Wire From Canada, India, Japan, Spain, and
Taiwan; Preliminary Determination of Sales at Not Less Than Fair Value
and Postponement of Final Determination--Stainless Steel Round Wire
From Korea, 63 FR 60402 (November 18, 1998) (``preliminary
determination''). Since the preliminary determination, the following
events have occurred.
In January 1999, we conducted on-site verifications of the
questionnaire responses submitted by Central Wire Industries Ltd.
(``Central Wire'') and Greening Donald Co. Ltd. (``Greening Donald'')
(collectively ``the respondents'').
We received case briefs from the petitioners 1 and both
respondents on February 23, 1999, and we received rebuttal briefs from
the same parties on March 2, 1999. We held a public hearing and a
proprietary hearing on March 11, 1999.
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\1\ ACS Industries, Inc., Al Tech Specialty Steel Corp.,
Branford Wire & Manufacturing Company, Carpenter Technology Corp.,
Handy & Harman Specialty Wire Group, Industrial Alloys, Inc., Loos &
Company, Inc., Sandvik Steel Company, Sumiden Wire Products
Corporation, and Techalloy Company, Inc.
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Scope of Investigation
The scope of this investigation covers stainless steel round wire
(``SSRW''). SSRW is any cold-formed (i.e., cold-drawn, cold-rolled)
stainless steel product of a cylindrical contour, sold in coils or
spools, and not over 0.703 inch (18 mm) in maximum solid cross-
sectional dimension. SSRW is made of iron-based alloys containing, by
weight, 1.2 percent or less of carbon and 10.5 percent or more of
chromium, with or without other elements. Metallic coatings, such as
nickel and copper coatings, may be applied.
The merchandise subject to this investigation is classifiable under
[[Page 17325]]
subheadings 7223.00.1015, 7223.00.1030, 7223.00.1045, 7223.00.1060, and
7223.00.1075 of the Harmonized Tariff Schedule of the United States
(``HTSUS''). Although the HTSUS subheadings are provided for
convenience and customs purposes, the written description of the
merchandise under investigation is dispositive.
Period of Investigation
The period of the investigation (``POI'') is January 1, 1997,
through December 31, 1997. This period corresponds to each respondent's
four most recent fiscal quarters prior to the month of the filing of
the petition (i.e., March 1998).
Fair Value Comparisons
To determine whether sales of stainless steel round wire from
Canada to the United States were made at less than fair value, we
compared the export price (``EP'') or constructed export price
(``CEP''), as appropriate, to the normal value. Our calculations
followed the methodologies described in the preliminary determination
except as noted below. See also the company-specific analysis memoranda
dated March 31, 1999, which have been placed in the file.
Export Price and Constructed Export Price
For the price to the United States, we used EP or CEP as defined in
section 772 of the Act. We calculated EP and CEP based on the same
methodology we used in the preliminary determination, with the
following exceptions:
1. We calculated and deducted U.S. duties from EP for certain sales
for which Central Wire did not report the duties. See comment 11,
below.
2. We recalculated Central Wire's indirect selling expenses to
account for the fact that Central Wire's sales were made in mixed
currencies. See comment 4, below.
3. We excluded Greening Donald's U.S. consignment sales from our
analysis. See comment 12, below.
Normal Value
We used normal value as defined in section 773 of the Act. As in
the preliminary determination, we excluded certain sales for both
respondents pursuant to section 773(b) of the Act because we found that
these sales were made below the cost of production within an extended
period of time in substantial quantities and were not at prices which
permit recovery of all costs within a reasonable period of time. We
calculated normal value based on the same methodology we used in the
preliminary determination, with the following exceptions:
1. We revised the list of Central Wire's home-market sales which we
determined to have been made outside the ordinary course of trade. See
comment 2, below.
2. We recalculated Central Wire's indirect selling expenses to
account for the fact that Central Wire's sales were made in mixed
currencies. See comment 4, below.
Cost of Production
In accordance with section 773(b)(3) of the Act, we calculated the
weighted-average cost of production (``COP''), by model, based on the
sum of each respondent's cost of materials, fabrication, general
expenses, and packing costs. We relied on the submitted COP data except
in the following specific instances where Greening Donald's submitted
costs were not quantified or valued appropriately:
1. We included certain costs which Greening Donald did not report
in its submitted costs. See comment 13, below.
2. We calculated Greening Donald's general and administrative
expenses (``G&A'') in accordance with our normal methodology which is
based on the producing company as a whole. See comment 14, below.
3. We calculated Greening Donald's financial expenses based on the
total operations of the consolidated corporation (i.e., the Thyssen
Group). See comment 16, below.
4. We included foreign-exchange gains and losses related to
Greening Donald's cash accounts and accounts payable accounts in the
COP and constructed value (``CV''). See comment 16, below.
5. We relied on Greening Donald's normal books and records kept in
accordance with Canadian generally accepted accounting principles, and
we included the year-end depreciation adjustment in the calculation of
Greening Donald's costs. See comment 20, below.
6. During the POI, Greening Donald purchased certain major inputs
from an affiliated supplier and from unaffiliated suppliers. In order
to follow our normal practice of using the highest of transfer price,
market price, or the affiliate's cost of production to calculate the
cost of affiliated-party inputs, we calculated an adjustment which we
applied to the per-unit direct material cost of all products
incorporating this input. See comment 18, below.
7. Greening Donald asserted that its reported variances represented
the weighted-average cost of fiscal year 1997 and the first quarter of
fiscal year 1998. It also stated that the denominator it used in the
calculation of the reported variance rates was based on cost-of-sales
information rather than cost-of-manufacturing information. For the
final determination, we used the variance rates based on the POI cost
of manufacturing to calculate COP and CV.
Currency Conversions
As in the preliminary determination, we made currency conversions
in accordance with section 773A of the Act. The Department's preferred
source for daily exchange rates is the Federal Reserve Bank.
Verification
As provided in section 782(i)(1) of the Act, we verified the
information submitted by the respondents for use in our final
determination. We used standard verification procedures, including
examination of relevant accounting and production records, as well as
original source documents provided by the respondents.
Interested Party Comments
Comment 1: Substantial Transformation. The respondents argue that
the Department's preliminary determination that wire rod is
substantially transformed in the production of round wire yields a
fundamentally unfair result. The respondents contend that they must pay
both ``non-NAFTA'' tariff duties and estimated dumping duties on the
same wire used to produce stainless steel round wire because this wire
is classified both as ``Canadian'' and as ``foreign'' under essentially
identical Customs and Department of Commerce substantial-transformation
tests. The respondents contend that the rod imported (into Canada) is
not physically or chemically substantially transformed in Canada such
that it merits classification as a Canadian product subject to dumping
duties. The respondents observe that the Court of International Trade
(``CIT'') has ruled that wire rod is not substantially transformed into
round wire in the context of a Customs case, citing Superior Wire v.
United States, 669 F. Supp. 472 (CIT 1987) (``Superior Wire''),
affirmed 867 F. 2d 1409 (Fed. Cir. 1989). The respondents contend that
the CIT, in Superior Wire, noted that the end use of wire is determined
by the rod input.
The respondents also contend that wire rod constitutes an essential
active component which defines the key chemical and physical parameters
of the finished wire and that the level of accuracy required for
accurate model
[[Page 17326]]
matching in a dumping analysis is not necessary in a substantial-
transformation analysis. The respondents contend that the substantial-
transformation test requires a substantial change in the physical and
chemical properties, not small differences which may be implicated in
applying the model-matching criteria.
The respondents contend further that the Department's analysis of
the end-uses of stainless steel wire is too specific. Citing Final
Determination of Sales at Less than Fair Value: Static Random Access
Memory Semiconductors from the Republic of Korea, 63 FR 8934 (February
23, 1998), the respondents argue that the Department rarely considers
changes in specific end-uses as opposed to general end-use categories
sufficient to qualify as substantial transformation.
In addition, the respondents contend that the Department, lacking
contrary evidence from the petitioners, should base its determination
of relative investment for rod production versus wire drawing on
uncontested evidence provided by the respondents. Citing Brass Sheet
and Strip from Canada, 58 FR 6615, 6617 (February 1, 1993), Granular
Polyetrafluoroethylene Resin from Italy, 58 FR 26100, 26102 (April 30,
1993), and section 351.402(c)(2) of the Department's regulations, the
respondents contend that the value added in the wire-drawing process is
insignificant and, according to Departmental policy, it does not
qualify as a substantial transformation of the product. Alternatively,
the respondents suggest, the Department should classify those wire
products found to have particularly low value-added transformations as
a product of the country from which the rod was purchased and,
therefore, not subject to this investigation.
The respondents argue further that the substantial-transformation
test the Department applied constitutes an ``administrative
determination of general application,'' as defined by Article 1 of the
World Trade Organization (``WTO'') Agreement on the rules of origin
and, therefore, subject to that agreement. The respondents request that
the Department explain its rationale behind its belief that Article 2
of the WTO Agreement on Rules of Origin does not require the Department
to apply the country-of-origin determinations made by Customs.
Considering the totality of the factors on the record in this case, the
respondents request that the Department reverse its decision and
terminate the investigation of SSRW from Canada.
The petitioners agree with the Department's preliminary
determination that stainless steel wire rod is substantially
transformed into round wire. According to the petitioners, the
respondents have not made any significantly different arguments than
they did prior to the preliminary determination and, moreover, the
information they have submitted in support of their arguments only
serves to confirm that the Department's preliminary determination is
correct.
The petitioners argue that the scope of an antidumping
investigation is not based on Customs rules of origin nor on the WTO
rules of origin. The petitioners assert that there is nothing in the
current rules that requires the Department to apply Customs country-of-
origin determinations for purposes of antidumping or countervailing
duty proceedings. The petitioners, citing the WTO Agreement on Rules of
Origin, Article 1 n.1, contend that the respondents ignore the plain
language of the WTO Rules of Origin Agreement that says its provisions
do not apply to ``those determinations made for purposes of defining
`domestic like product' or `like products of the domestic industry' or
similar terms wherever they apply.'' Moreover, the petitioners argue,
even if the WTO Agreement on Rules of Origin were applicable to
antidumping proceedings, there is no existing agreement on the actual
origin for specific products.
The petitioners also argue that Customs Service determinations on
classification or origin of a product are not binding on the
Department. The petitioners assert that there are important policy
reasons why the Department should not be bound by Customs Service
rulings, claiming that, because of the difficult standards that have
been established regarding claims of circumvention, industries that
rely on a single major raw material input might not be able to obtain
any relief from dumping or unfair subsidization of the downstream
product.
The petitioners assert further that the respondents are not
disproportionately affected by the Department's substantial-
transformation ruling. The petitioners observe that both respondents
use U.S.-origin wire rod to make wire that they import to the United
States and that this wire qualifies for a NAFTA tariff. Furthermore,
the petitioners claim that, even when the respondents use wire rod
imported from countries other than the United States, they are not any
different than the respondents in the other stainless steel round wire
investigations.
The petitioners also assert that the respondents' reliance on
Superior Wire is misplaced. The petitioners observe that Superior Wire
concerned carbon steel wire, which is a different product than the one
covered in this investigation. Citing The Making, Shaping and Treating
of Steel, a standard industry reference, the petitioners claim that
carbon steel and stainless steel products are quite different. The
petitioners also observe that the Superior Wire ruling was made in the
context of a voluntary restraint agreement, which is completely
different from the context of an antidumping investigation. The
petitioners conclude that the factual analysis of Superior Wire is
limited to the facts of that case alone and is of no precedential value
in this case. The petitioners also note that, for its preliminary
determination in this investigation, the Department determined that the
characteristics of stainless steel round wire are not predetermined by
the rod input but, rather, that the wire rod is altered in the process
of making it into round wire. The petitioners also observe that,
although the respondents argue that the Department's end-use analysis
is too specific, they do not suggest any alternatives.
Finally, the petitioners argue that the respondents' reliance on
the data they presented regarding the value added to wire rod by the
cold-drawing process is misplaced. Since these data are unverified
estimates. The petitioners also assert that, based on the Greening
Donald's cost data, the record indicates that the value added to wire
rod by the cold-drawing process is significant.
Department's Position: We continue to find, as we stated in the
Memorandum to Richard W. Moreland dated November 12, 1998 (``November
12 memorandum''), that stainless steel wire rod cold-drawn in Canada to
produce stainless steel round wire is substantially transformed into a
Canadian product and is within the scope of this investigation,
regardless of the origin of the stainless steel wire rod input. The
cold-drawing process results in a product with physical properties and
end-uses that are distinct from those of the stainless steel wire rod
input, thus transforming the rod into a new and different article. The
stainless steel round wire industry is distinct from the stainless
steel wire rod industry and the value added by the cold-drawing process
is significant.
Furthermore, the respondents' reliance on Superior Wire is
misplaced. Superior Wire was a ruling on carbon steel wire, not
stainless steel wire.
[[Page 17327]]
Superior Wire, at 479, held that ``the wire rod dictates the final form
of the finished wire.'' Regardless of what circumstances may apply in
the carbon steel wire industry, this statement is demonstrably not true
here, as is described in detail in the November 12 memorandum.
Although the respondents argue that our substantial-transformation
analysis is too specific by incorporating model-matching criteria,
their argument that we should only take into account the ``overall
parameters'' and not ``small model-matching criteria'' in our analysis
is unconvincing. First, it is not clear why model-matching criteria
such as size and tensile strength would not be part of the
``parameters'' of round wire. Second, it is unclear why we should not
consider a change in wire rod such that the finished product (round
wire) is, for example, one-third of the diameter of the rod input to be
substantial. The analysis in the November 12 memorandum, at pages 4-5,
demonstrates that the chemical composition, or grade, of the wire is
not the only physical characteristic of the round wire. We use
additional characteristics to define two products that are identical,
and all those characteristics are changed by the drawing process.
Moreover, we disagree with the respondents' assertion that the end-
use of wire is determined by the rod input. Again, the respondents'
reliance on Superior Wire is misplaced. As we stated in the November 12
memorandum, at page 5, the cold-drawing process results in a product
with end-uses that are distinct from those of the wire-rod input.
Whatever the circumstances may be in the carbon steel wire industry, it
is clear that the end-uses of stainless steel wire are dependent on
factors other than the grade of the wire-rod input. The respondents
have not cited any evidence on the record of this investigation or to
any industry reference that suggests otherwise. Given these
circumstances, we conclude that the circumstances examined in Superior
Wire simply do not apply here.
Furthermore, we disagree with to the respondents' argument that our
end-use analysis is too specific. In their case brief, quoting from
Greening Donald's December 29, 1998, submission, the respondents state
that ``the Department is correct in noting that, within each set of
general end-uses, there may be more specific end-uses. The drawing
process may make SSRW more suitable for one rather than another
specific end-use: nevertheless, the grade of the wire rod has pre-
determined the general set of end-uses for which the wire may be used.
Thus, for example, neither AISI 304 nor AISI 316 could provide the high
temperature resistance required to produce a high temperature conveyor
belt. By contrast, AISI 314 would provide the necessary ``high
temperature resistance.'' Thus, the respondents consider ``high
temperature conveyor belts'' to be a general end-use. ``Spring wire,''
that is, wire used to produce springs, which we used in an example in
the November 12 memorandum, at page 5, is no less general an end-use
than the example cited by the respondents. Moreover, the respondents'
citation to Semiconductors from the Republic of Korea is inapposite. In
that case, we determined that ``[p]rocessed wafers produced in Korea,
but packaged, or assembled into memory modules, in a third country, are
included in the scope; processed wafers produced in a third country and
assembled or packaged in Korea are not included in the scope.'' Thus,
it is the processed wafers that are the subject merchandise, not the
packaging or memory modules. In this case, it is the stainless steel
round wire that is subject to this investigation. How it is packaged is
not relevant to our substantial transformation analysis.
With regard to the respondents' argument that the investment
required to draw wire is less than the investment required to produce
rod, we agree that this can be a factor in our determination as to
whether a product is substantially transformed. We do not agree that it
is a controlling factor. Our review of the record indicates that
``[t]he facilities, machinery and expertise needed to cold-draw
stainless rod into stainless wire are distinct from those needed to
produce stainless rod.'' See November 12 memorandum, at page 5. The
respondents have not cited any evidence to contradict this. Thus, we
find that the stainless steel round wire industry is separate and
distinct from the stainless steel wire rod industry, and the two
industries are not interchangeable. For this reason, we do not consider
the relative levels of investment required in the industries to be as
relevant in this proceeding as the fact that stainless steel round wire
is a product with physical properties, that end-uses are distinct from
those of stainless steel wire rod, and that the industries are
distinct.
We also disagree with the respondents' assertion that the value
added by the drawing process is insignificant. The cost data submitted
by the respondents indicates that, on average, the value added by the
drawing process is greater than the threshold suggested by the cases
they cite. Furthermore, section 351.402(c)(2) of our regulations
establishes whether we should apply the special rule in section 772(e)
of the Act and is inapposite to a substantial-transformation
determination. Section 772(e) of the Act directs that the Department
may calculate the margins on further-manufactured merchandise in
instances where the value added by an affiliated party is likely to
exceed substantially the value of the subject merchandise. Neither
section 772(e) of the Act nor 19 C.F.R. 351.402(c)(2) affect the
Department's determination of whether a product is substantially
transformed.
Finally, we reiterate that the disciplines of the WTO Agreement on
Rules of Origin that are currently in effect under Article 2 of the
Agreement simply do not require us to apply the country-of-origin
determinations made by the Customs Service when making determinations
in AD or CVD proceedings. Therefore, we have not altered our
preliminary determination regarding our substantial transformation
decision for this final determination.
Central Wire Comments
Comment 2: Ordinary Course of Trade. Central Wire argues that the
Department should exclude all of the sales that it claimed were made
outside the ordinary course of trade from the home-market sales used to
calculate normal value. Central Wire contends that the statute directs
the Department to base normal value only on sales that are made in
commercial quantities and that are made in the ordinary course of trade
and that the Department will consider the totality of circumstances in
examining this issue, citing Murata Mfg. Co. v. United States, 820 F.
Supp. 603, 607 (CIT 1993).
Central Wire notes that the Department excluded some of its claimed
outside-the-ordinary-course-of-trade sales from the calculation of
normal value because the Department found that some of the sales had
aberrational pricing. Central Wire contends, however, that the standard
the Department applied was too restrictive and argues that it would be
more appropriate to use a 25-percent price difference between the sale
and other sales of similar products made within the ordinary course of
trade, rather than the 50-percent price difference the Department used,
to determine whether an individual sale is outside the ordinary course
of trade.
Central Wire also notes that the Department excluded some of its
claimed outside-the-ordinary-course-of-trade sales from the calculation
of
[[Page 17328]]
normal value because the Department found, based on Central Wire's
descriptions in its responses, that the circumstances of the sales
demonstrated that they were made outside the ordinary course of trade.
However, Central Wire claims, there were some sales that it reported as
outside the ordinary course of trade which the Department did not
exclude and for which the Department did not explain why it had not
excluded the sales. With regard to these sales, Central Wire contends
that the Department's findings at verification demonstrate that all of
its claimed outside-the-ordinary-course-of-trade sales were, in fact,
made outside the ordinary course of trade and should be excluded from
the Department's dumping calculations.
The petitioners contend that the information on the record does not
provide a sufficient basis to support Central Wire's claims. The
petitioners argue that Central Wire essentially claimed sales it made
to new customers or sales of products with different specifications to
existing customers as outside the ordinary course of trade. The
petitioners argue that this does not demonstrate that a sale is outside
the ordinary course of trade and observe that Central Wire had a number
of ``one-time'' sales to customers that it did not claim were made
outside the ordinary course of trade. The petitioners contend that, to
do business in a competitive market, a producer has to accommodate its
customers' needs, to sell to new customers, even to solicit new
customers, and that it should not be a commercial irregularity that
Central Wire sometimes sells to less-desirable customers or that it
could sometimes take advantage of the market situation and charge a
higher-than-normal price for identical or similar merchandise to other
customers. The petitioners also argue that the nature of the customer,
such as whether it was a supplier to Central Wire, should not be a
factor in determining whether a sale was made outside the ordinary
course of trade.
Central Wire rebuts that the Department should not accept the
petitioners' argument regarding Central Wire's claimed outside-the-
ordinary-course-of-trade sales on procedural grounds because, according
to Central Wire, the petitioners never raised the issue of its claimed
outside-the-ordinary-course-of-trade sales previously in this
investigation. Central Wire argues that, if the Department accepts the
petitioners arguments, it will leave respondents unable to respond
adequately to allegations made by petitioners adequately. Moreover,
Central Wire contends that it conservatively identified its sales as
being outside the ordinary course of trade and that, perhaps,
additional sales may have been able to be similarly identified.
Department's Position: We agree with the petitioners in part. A
company may well obtain new customers or sell different products to
existing customers, and it may even seek such business actively. In
addition, the record shows that Central Wire had a number of apparent
``one-time'' sales which it did not claim as outside the ordinary
course of trade. Thus, the fact that Central Wire has some sales to
customers to which it does not normally sell or sells products that the
customer does not normally buy does not demonstrate, in itself, that a
sale is outside the ordinary course of trade. However, this fact, in
conjunction with other circumstances, such as aberrational pricing, may
lead us to conclude that a sale is outside the ordinary course of
trade. In this case, we have reconsidered our analysis of Central
Wire's claimed outside-the-ordinary-course-of-trade sales. We have
accepted portions of Central Wire's claim that certain sales were made
outside the ordinary course of trade and excluded those sales from our
normal value calculation. We determined that one-time, small-quantity
sales that had unusual circumstances, such as aberrational pricing,
were outside the ordinary course of trade. Due to the business-
proprietary nature of the information, please see the Memorandum from
Thomas Schauer to Richard W. Moreland dated April 2, 1999, for a
complete description of the sales we excluded and the circumstances
which led us to conclude that they were outside the ordinary course of
trade.
Furthermore, we disagree with Central Wire's assertion that we
should use a threshold of 25 percent to determine aberrational prices
instead of the 50-percent threshold we used for the preliminary
determination. Central Wire argues that the lower threshold is more
appropriate on the theory that the threshold we used was too
``restrictive,'' given the nature of SSRW sales and the frequent
presence of a market price for a particular product. However, Central
Wire did not explain how the nature of SSRW sales renders a 25-percent
threshold more appropriate, nor did it point to any evidence in support
of its claim. In addition, Central Wire did not explain how the
frequent presence of a market price for particular products suggests
that a lower threshold would be more appropriate. We must ensure that
our consideration is tailored in a manner that does not result in
excluding sales that, while different from the majority of sales, are
not outside the ordinary course of trade. Therefore, the standard for
determining whether a sale is outside of the ordinary course of trade
needs to be high in order to prevent potential manipulation of a sales
database that would result in excluding sales not outside the ordinary
course of trade. Central Wire has presented no convincing argument to
support its claim that the threshold we used in our analysis was
inappropriate. Therefore, we have not changed our threshold for this
case in our analysis.
Finally, we disagree with Central Wire that we should reject the
petitioners' arguments on procedural grounds. Central Wire should read
the record more carefully. The petitioners have voiced their concern
about Central Wire's claimed outside-the-ordinary-course-of-trade sales
in a number of submissions prior to its case brief at various stages of
this investigation. Further, when we receive comments in a case brief,
we consider all issues raised in the context of the record as it stands
at that time. Thus, there is no reason to reject the petitioners'
arguments as a procedural matter.
Comment 3: Quantity-Band Matching. Central Wire argues that the
Department should account for variations in prices due to quantities
sold. Central Wire claims that section 773(a)(1) of the Act directs the
Department to compare U.S. sales only to home-market sales made in the
usual commercial quantities. Central Wire claims further that section
773(a)(6) of the Act, as well as the Department's regulations at 19
C.F.R. 351.409, directs the Department to adjust its price comparisons
if there is a difference in price due wholly or in part to differences
in the quantities of the normal value sale and the EP sale being
compared.
Central Wire contends that, though the Department has historically
been reluctant to make quantity adjustments pursuant to 19 C.F.R.
351.409, there is no reason why the Department should not make a
quantity adjustment in Central Wire's case. Central Wire acknowledges
that the quantity-adjustment regulation does not appear to be tailored
for, nor does it account for, Central Wire's circumstances because
Central Wire does not grant quantity discounts, per se, although it
does effectively impose a surcharge for low-quantity sales.
Central Wire suggests that the Department compare U.S. sales to
home-market sales made within the same ``quantity band'' which Central
Wire suggested prior to the preliminary determination. By matching
within the
[[Page 17329]]
same quantity bands, Central Wire argues, the Department would minimize
the need for a quantity adjustment. Citing Framing Stock from the
United Kingdom, 61 FR 51411, 51420 (October 2, 1996) (``Framing
Stock''), Central Wire contends that the Department has used the
quantity-band concept for matching purposes in prior cases. Central
Wire also claims that an examination of prices within each of the
quantity bands demonstrates that the average prices at each quantity
band differ from each other in both the U.S. and home markets. Finally,
Central Wire suggests, if the Department can not match the identical or
most similar product within the same quantity band, that the Department
make an adjustment based on the difference in the weighted-average
prices across quantity bands.
The petitioners assert that, section 771(16) of the Act requires
the Department to compare the subject merchandise based on the
products' physical characteristics. The petitioners argue that, because
the quantity of the product has nothing to do with the physical
characteristics of round wire, quantity bands should not be used as a
matching criterion. The petitioners, citing United Eng'g & Forging v.
United States, 779 F. Supp. 1375, 1381-82 (CIT 1991), also argue that
the courts have upheld the Department's practice of not using volume as
a criterion for selecting the most similar merchandise.
The petitioners argue further that because Central Wire has not
demonstrated that during the POI it granted quantity discounts of at
least the same magnitude on 20 percent or more of sales of the foreign
like product for that country or the discounts reflect savings
specifically attributable to the production of different quantities,
criteria required in the Department's regulations, it is not eligible
for a quantity discount.
In addition, the petitioners assert that the circumstances in
Framing Stock are different from the instant situation. In that case,
according to the petitioners, the respondent asked for a quantity
adjustment for its products and the Department determined that a
quantity adjustment was warranted in certain instances but not in
others. In any event, the petitioners contend, the respondent in that
case was seeking a quantity adjustment and not a new product-matching
criterion based on sales quantities.
Finally, the petitioners argue that, even if there were not clear
statutory and case precedents against comparing products on the basis
of quantities, Central Wire has not provided convincing evidence to
attribute price differences between its sales to differences in
quantities. The petitioners argue that, in its price analysis, Central
Wire did not control for certain differences, such as differences in
merchandise sold among the claimed quantity bands or differences in
expenses such as freight or packing for each sale. The petitioners also
contend that price differences could also be caused by a number of
other reasons such as the timing of the sale, customers' relationships
with the supplier, and market conditions for finished products and raw
materials. The petitioners conclude that it would be inappropriate to
make any quantity adjustment or compare across quantity bands without
taking these other factors into account.
Department's Position: Central Wire did not demonstrate that the
difference in prices among its claimed quantity bands were wholly or
partly due to the differences in quantities. Central Wire's price
analysis did not account for many factors that might more reasonably be
said to cause the differences in prices. For example, Central Wire
presumably has different product mixes within the different claimed
quantity bands. If one claimed quantity band consists mainly of sales
of fine wire and another claimed quantity band consists mainly of sales
of wire that has undergone only one draw, then that, in our view, would
be a more likely explanation of any difference in prices. Also, Cental
Wire's analysis reflected gross prices, and did not take other factors,
such as differences in packing or freight expenses, into account. Thus,
because Central Wire has not demonstrated that any differences in price
among its claimed quantity bands is wholly or partly due to the
differences in quantities, it would be inappropriate to attempt to
match products using Central Wire's claimed quantity bands as a
matching criterion. Therefore, we have not attempted to match products
by quantity bands.
With respect to making an adjustment if we make comparisons of
products sold at different quantities, our regulation at 19 C.F.R.
351.409 states that ``the Secretary will make a reasonable allowance
for any difference in quantities to the extent the Secretary is
satisfied that the amount of any price differential * * * is wholly or
partly due to that difference in quantities.'' The regulation
identifies the standards we use to determine whether any price
differential is wholly or partly due to that difference in quantities:
``[t]he Secretary normally will calculate normal value based on sales
with quantity discounts only if * * * the exporter or producer granted
quantity discounts of at least the same magnitude on 20 percent or more
of sales of the foreign like product'' or ``the exporter or producer
demonstrates to the Secretary's satisfaction that the discounts reflect
savings specifically attributable to the production of the different
quantities.'' Central Wire did not grant quantity discounts nor did it
demonstrate that any difference in prices were specifically
attributable to the production of the different quantities. In
addition, Central Wire did not demonstrate how any evidence on the
record, such as price lists, supported its claim that prices varied by
quantity. Therefore, we have not made any quantity adjustments.
Comment 4: Allocation of Indirect Selling Expenses. Central Wire
disagrees with the Department's re-allocation of its reported U.S. and
home-market indirect selling expense adjustments. Claiming that there
is no evidence on the record that it incurred indirect selling expenses
on a value basis rather than a weight basis, Central Wire argues that
there is no conceptual, accounting, or economic justification for the
Department's preference for a value-based allocation.
Central Wire argues further that, in the event that the Department
continues to re-allocate its indirect selling expenses on a value
basis, the Department should adjust its re-allocation methodology to
reflect the fact that some of the sales values in the Department's
calculation are in U.S. dollars while other values are in Canadian
dollars.
The petitioners agree with the Department's reallocation of Central
Wire's indirect selling expenses, contending that the Department's
normal practice is to require that a respondent allocate indirect
selling expenses based on sales value rather than on sales quantity.
The petitioners also observe that a volume allocation would likely
allocate a smaller portion of the expenses to small-sized, more
expensive wire than to relatively inexpensive larger wire.
Department's Position: In the Final Determination of Sales at Less
Than Fair Value: Stainless Steel Plate in Coils From Belgium, 64 FR
15476 (March 31, 1999), we stated that, in calculating indirect selling
expenses, ``the Department should use a value-based allocation rather
than a quantity-based one,'' and that ``the Department's normal
practice is to base calculations of [selling, general, and
administrative expenses] based on value [or cost].'' While Central Wire
claims that there is no evidence on the record that it incurred
indirect selling expenses on a
[[Page 17330]]
value basis rather than a weight basis, neither is there any evidence
to support a conclusion that Central Wire incurred these expenses on a
weight rather than value basis. Because there is no evidence on the
record demonstrating the need to deviate from our normal practice, we
have reallocated Central Wire's indirect selling expenses on a value
basis. Moreover, based on our findings at verification, we have revised
our calculation for varying currencies in our re-allocation worksheet.
See Central Wire Final Determination Analysis Memorandum dated March
31, 1999.
Comment 5: Post-Verification Cost Submission. The petitioners argue
that the Department should not accept the cost data which Central Wire
submitted after verification because the changes Central Wire made to
its data were more extensive than necessary as indicated by the
Department's verification report. Although Central Wire presented
corrections to the verifiers at the beginning of verification, the
petitioners contend that certain changes, such as production quantities
and the number of products sold, should not have been affected by those
corrections. The petitioners also claim that Central Wire reported its
costs based on the products sold during the POI, whereas the Department
asked for respondents to report costs based on the products produced
during the POI.
The petitioners also contend that Central Wire did not reconcile
its reported costs for subject merchandise to its normal accounting
records, thereby preventing the Department from performing certain
verification procedures.
Finally, the petitioners argue that Central Wire should not be
allowed to use verification as an opportunity to make substantial
revisions to its submitted responses. The petitioners conclude that, in
light of these facts, the Department should not use the cost databases
submitted by Central Wire after verification and instead use the
databases Central Wire submitted prior to verification.
Central Wire argues that the Department should use the databases
that Central Wire submitted subsequent to verification. Central Wire
contends that its revised costs correct inaccuracies in its previous
submissions, the Department verified these revised costs, and it did
not in any way modify the total cost of goods sold it used to calculate
costs of production. Central Wire argues further that the Department is
required by law and practice to accept its new information as it is
demonstrably more accurate than its earlier information and was
submitted in a timely manner. Central Wire contends that the number of
products and the production quantities changed because of corrections
presented at the start of the sales verification. Finally, 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 and Determination To Revoke in Part, 64 FR
2173 (January 13, 1999), Central Wire argues that the fact that its
data is based on sales quantities rather than production quantities is
not a basis for rejecting Central Wire's costs. Central Wire contends
that, because it does not maintain production records which would allow
it to calculate model-specific costs on the basis of production
quantities, it acted to the best of its ability in reporting its costs.
Department's Position: The cost data Central Wire submitted after
verification is accurate. By applying the cost variances in Exhibit 8
of the cost-verification report dated February 8, 1999, to the model-
specific standard costs in Exhibit 7 of the cost-verification report
dated February 8, 1999, we obtained the same cost figures that Central
Wire submitted after verification. Because we verified the data in
Exhibits 7 and 8 of the cost-verification report by tying the data to
Central Wire's audited financial statements, we are satisfied that the
cost-of-production data in Central Wire's submission is accurate. With
regard to the number of control numbers and production quantities, we
agree with Central Wire that the cause of the difference is due to
corrections presented at the start of verification.
Although the petitioners are correct that Central Wire reported its
revised costs based on the products sold during the POI, this is the
manner in which Central Wire reported its original costs. In addition,
we never asked Central Wire to revise its methodology for calculating
costs nor is there any evidence on the record suggesting that Central
Wire's methodology is distortive. In light of these facts and because
the revised database contains data which we verified to be accurate, it
would be inappropriate to reject Central Wire's revised database in
favor of its original database.
Furthermore, while we normally would share the petitioners'
concerns regarding the accuracy of post-verification revisions, in this
case we requested that Central Wire revise and resubmit its databases
pursuant to our findings at verification. Because we requested the data
and because Central Wire met the deadline we imposed upon it for
submitting the revised data, we determine that Central Wire's revisions
were filed in a timely manner. Thus, because Central Wire's information
is timely filed and verified to be accurate, we have used the revised
databases Central Wire submitted.
Comment 6: General and Administrative Expenses. The petitioners
argue that the Department should recalculate Central Wire's reported
general and administrative expense ratio to include certain expenses
which Central Wire did not include in its general and administrative
expense calculation.
Central Wire contends that it did include the expenses to which the
petitioners refer in its general and administrative expense
calculation.
Department's Position: Exhibit 4 of the cost-verification report
dated February 8, 1999, demonstrates that Central Wire included these
expenses in its general and administrative expense calculation.
Therefore, no adjustment is necessary.
Comment 7: Alleged Consignment Sales. The petitioners contend that
the Department found that Central Wire did not report certain sales in
its home-market database and that the Department should include these
sales in its margin calculation for Central Wire for the final
determination. The petitioners argue further that, to the extent that
the data the Department collected are not sufficient, the Department
should resort to partial facts available to fill in the blanks for
information not on the record.
Central Wire argues that it reported these sales properly. Central
Wire contends that, during the period of time in which these sales
occurred, the consignment agreement with the consignee had not been
concluded and thus Central Wire prepared an invoice at the time of
shipment. Central Wire asserts that it did not begin issuing usage
invoices for shipments to the consignee until after reaching a
consignment agreement. According to Central Wire, the existence of the
consignment agreement therefore explains why merchandise was shipped in
1996 but had sales dates in 1997.
Department's Position: We disagree with the petitioners. The record
shows that Central Wire did not enter into a consignment agreement with
the consignee until October 1996. Furthermore, according to the
Department's Central Wire Sales Verification Report dated February 8,
1999, at page 7, for shipments to the consignee ``prior to the signing
of the consignment agreement, [Central Wire]
[[Page 17331]]
invoiced the consignment sales at the time of delivery to the consignee
rather than the time of usage.'' Thus, these sales can be distinguished
from the shipments to the consignee after the agreement was made. In
the case of sales Central Wire made prior to the agreement, the date
that the price and quantity were set was the date of shipment and the
customer was responsible for payment at that time. In the case of sales
after the agreement, the price and quantity were not set until the
customer actually used the merchandise, at which time Central Wire
issued a usage invoice for the merchandise. In this case, the customer
was not responsible for payment until Central Wire issued the usage
invoice. Therefore, we conclude that Central Wire excluded the sales
made prior to the agreement from its home-market sales database
properly because they occurred prior to the POI. See Memorandum from
Thomas Schauer to Richard W. Moreland dated April 2, 1999 for further
discussion of this issue.
Comment 8: Inventory Carrying Costs. The petitioners argue that the
Department should not consider certain inventory carrying costs as
direct expenses as Central Wire claimed. The petitioners contend that
Central Wire is the owner of the merchandise during the inventory
carrying period in question and thus these expenses should be treated
as any other inventory carrying expense. The petitioners contend
further that the facts were different in Stainless Steel Wire Rod From
France, 58 FR 68865 (December 29, 1993), which Central Wire cited to
support its claim. The petitioners state that Central Wire reported the
date that the consignee used the merchandise as the date of sale rather
than the date when Central Wire shipped the merchandise to the
consignee.
Central Wire asserts that the petitioners do not demonstrate that
the Department's decisions applicable to these circumstances are wrong,
nor do they distinguish this situation with the situation in the case
it cited in claiming these expenses as direct. Central Wire contends
that, because it is the Department's practice to treat consignment
inventory carrying costs as direct expenses, the Department deducted
them from normal value in the preliminary determination as direct
expenses appropriately. Central Wire cites Stainless Steel Wire Rod
From France, 58 FR 68865, 68870 (December 29, 1993), and Flat-Rolled
Steel From France, 58 FR 37125, 37133 (July 9, 1993), in support of its
contention.
Department's Position: Central Wire's situation is similar to that
of Usinor, a respondent in Flat-Rolled Steel From France, in which we
treated the expense of holding inventory at the customer's warehouse as
a direct expense. In that case, the ``merchandise [was] shipped to a
warehouse selected by the customer and the customer assumes the
warehousing expense. Usinor [did] not invoice the customer until it
[was] notified that the customer has withdrawn the material from the
warehouse.'' See Concurrence Memorandum (public version), dated June
17, 1993 for Final Determinations in Antidumping Duty Investigations of
Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-Rolled
Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon Steel
Flat Products, and Certain Cut-to-Length Carbon Steel Plate From France
(Investigations A-427-806 through 809), at pp. 10-11. Similarly, in
this case, because the so-called ``consignee'' is itself the customer
for this merchandise and this ``consignment'' arrangement is a term of
sale, these expenses are direct in nature. Therefore, we have not
changed our treatment of these expenses for the final determination.
Comment 9: Freight Expense. The petitioners argue that the
Department should restate Central Wire's reported freight expense for
CEP sales. The petitioners observe that, in instances in which Wire
Industries, Central Wire's U.S. affiliate, included goods on more than
one invoice in a shipment, Central Wire calculated the per-unit inland
freight by dividing the freight expense by the gross weight of the
shipment rather than the net weight, thereby understating the expense.
The petitioners argue that, because Central Wire did not revise its
reported inland freight expense in the CEP sales listing based on the
Department's verification findings, the Department should revise the
expense for the final determination. Because it is not possible to
determine from the record which sales are affected by this
understatement, the petitioners argue that the Department should adjust
the freight expense for all CEP sales.
Central Wire argues that the Department should accept its reported
inland freight. Citing the sales-verification report, Central Wire
contends that this type of calculation was infrequent and only has a
minimal effect on the actual adjustment. Given the infrequent nature of
this calculation and the minuscule impact of this calculation, Central
Wire concludes that it would be inappropriate for the Department to
make an upward adjustment to freight for all of its CEP sales.
Department's Position: We found at verification that this
calculation affected only a small proportion of its CEP sales. See the
Department's Central Wire sales-verification report dated February 8,
1999, at page 9. Section 777A(a)(2) of the Act directs that ``[f]or
purposes of determining the export price (or constructed export price)
* * * the administering authority may * * * decline to take into
account adjustments which are insignificant in relation to the price or
value of the merchandise.'' Section 351.413 of our regulations defines
``insignificant adjustments'' as any individual adjustment having an ad
valorem effect of less that 0.33 percent of the export price,
constructed export price, or normal value. The sales-verification
report demonstrates that the effect of Central Wire's calculation was
less than 0.33 percent of price. Ibid. We conclude from the facts on
the record that Central Wire's calculation for these few sales will not
affect the margin significantly. It would be inappropriate to increase
the freight expense for all of Central Wire's CEP sales because the
verification report demonstrates that this allocation affected a
minority of these sales. Therefore, we have not revised Central Wire's
reported freight expense.
Comment 10: Fuel Surcharge. The petitioners argue that, because the
Department found that Central Wire did not include a fuel surcharge for
one CEP transaction in its inland-freight calculation for one product,
the Department should adjust the freight expense for all CEP sales of
that product for the final determination.
Central Wire argues that the Department should not make an
adjustment because the effect is minuscule and that it only affected
one sale. Central Wire argues further that, in the event that the
Department does make the change the petitioners suggest, the Department
should not rely on the petitioners' formula because it is
mathematically incorrect.
Department's Position: We found at verification that Central Wire
inadvertently did not include a fuel surcharge incurred on one shipment
in its reported freight expense. It is clear from Exhibit 12a of the
Department's Central Wire sales-verification report dated February 8,
1999, that the fuel surcharge affects several different products.
However, in examining the data on the record, we conclude that it is
not possible for us to include the fuel surcharge except for the
individual product we verified. To correct this error for the one
product accurately, we allocated the freight surcharge to that product
in the same manner as Central
[[Page 17332]]
Wire calculated the freight expense and recalculated the total freight
accordingly.
With regard to the rest of the products affected, we do not have
the data on the record to include the fuel surcharge in Central Wire's
freight expenses. Because it is clear from Exhibit 12a of Central
Wire's sales-verification report dated February 8, 1999, that the
effect is substantially less than 0.33 percent of the price of the sale
we verified, correction of this error will not affect the margin
significantly. Therefore, because it is impossible for us to correct
the error except for the one product and because the effect of the
error is insignificant, we have restated Central Wire's reported
freight expense only for the one product.
Comment 11: U.S. Customs Duties. The petitioners contend that
Central Wire did not report U.S. duties for certain EP sales with
``delivered'' terms of sale. The petitioners claim there is no reason
why Central Wire would not incur U.S. duties for such sales and argue
that the Department should use the higher of the duty rates which the
Department verified for EP sales to calculate the duties for these
sales.
Central Wire argues that it reported U.S. duties correctly, which
the Department verified. Central Wire also asserts that it was
incumbent on the petitioners to raise this issue prior to verification
so that the Department could address it at verification.
Department's Position: We requested that Central Wire report the
unit amount of any customs duty paid on the subject merchandise in our
questionnaire. Although Central Wire stated in its narrative
questionnaire response that it reported duties on all sales for which
they were incurred, the EP sales database did not reflect these duties
for certain sales. There is no explanation on the record showing why
these specific EP sales would not have U.S. duty expenses related to
them nor is there any evidence that Central Wire did not incur these
expenses for these sales. Because these were ``delivered'' sales, which
means that Central Wire was responsible for all shipping costs to the
customer, we assume that Central Wire did, in fact, incur these
expenses. In determining the amount of duties paid on the subject
merchandise and in accordance with section 776(e) of the Act, we have
used the average U.S. duty rate for other EP sales with the same sales
terms to calculate the U.S. duties for these sales.
Greening Donald Comments
Comment 12: U.S. Consignment Sales. The petitioners argue that the
Department should treat Greening Donald's U.S. consignment sales as CEP
sales because the merchandise was sold by or for Greening Donald's
account after importation into the United States and because the
consignee is substantially involved in selling in the United States on
behalf of Greening Donald.
The respondent argues that the Department should continue to treat
its consignment sales as EP sales because the title of goods remains
with Greening Donald and that the consignee acts independently of
Greening Donald in terms of sales, pricing, and region, as the
Department confirmed at verification. The respondent argues that these
facts do not meet the Department's test for distinguishing between EP
and CEP sales and thus the Department should consider these sales to be
EP sales.
Department's Position: Section 772(b) of the Act defines CEP as
``the price at which the subject merchandise is first sold (or agreed
to be sold) in the United States before or after the date of
importation by or for the account of the producer or exporter of the
subject merchandise'' (emphasis added). Section 772(a) of the Act
defines EP as ``the price at which the subject merchandise is first
sold (or agreed to be sold) before the date of importation by the
producer or exporter of the subject merchandise'' (emphasis added). The
record is clear that Greening Donald did not make a sale prior to the
time that the subject merchandise was imported into the United States.
Therefore, we agree with the petitioners that Greening Donald's
consignment sales are CEP sales. However, because we did not request
Greening Donald to report the consignee's sales to the unaffiliated
customer in the United States and because we do not otherwise have the
prices of those sales, we cannot treat these sales as required by the
statute and the regulations. Furthermore, these sales represent less
than five percent of Greening Donald's total sales to the United
States. Therefore, we have disregarded these U.S. sales for purposes of
calculating Greening Donald's margin for the final determination.
Comment 13: Certain Supplies. Greening Donald argues that, in its
preliminary determination, the Department erred by including in its
manufacturing costs the cost for certain supplies purchased during the
POI but not used until after the POI. Greening Donald claims that these
costs should be excluded from the calculation of COP and CV because the
expenses cannot properly be matched to the merchandise that was sold
during the POI, citing AK Steel Corporation v. United States, No 96-05-
01312, Slip. Op. 97-152 (CIT 1997). Greening Donald asserts that,
because the supplies were purchased during the POI but they were not
used until after the POI, inclusion of the cost of these supplies in
the COP and CV calculations would distort the reported costs. The
respondent also cites Small Diameter Circular Seamless Carbon and Alloy
Steel, Standard, Line and Pressure Pipe from Italy, 60 FR 31981, 31991
(June 19, 1995), in which the Department refused to include the
respondent's reported cost reversals that were recorded during the POI
but that related to operational expenses of a prior period, in support
of its position.
Greening Donald asserts that its normal books and records distort
costs because they do not reflect the cost associated with the
production and sale of the merchandise. Greening Donald claims that in
such instances the Department allows or makes adjustments to the
respondent's costs as reported in the normal books and records, citing
Static Random Access Memory Semiconductors from The Republic of Korea,
63 FR 8934, 8937 (February 23, 1998), and Static Random Access Memory
Semiconductors from Taiwan, 63 FR 8909, 8920 (February 23, 1998).
Therefore, Greening Donald argues that such an adjustment should be
made in this instance to conform to the Statement of Administrative
Action, H. Doc, 316, 103d Cong., 2d Sess. 821 (1994) (``SAA'') which
states that ``costs will be allocated using a method that reasonably
reflects and accurately captures all of the actual costs incurred in
producing and selling the product under investigation'' and Antidumping
Duties; Countervailing Duties; Final Rule, 62 FR 27295-27379, 27362
(May 19, 1997).
The petitioners agree with the Department's denial of Greening
Donald's claim to exclude the cost of certain supplies from its COP.
The petitioners point out that, during verification, Greening Donald
was unable to substantiate the quantity and value of the supplies in
question that it consumed during the POI. The petitioners also observe
that Greening Donald recorded the cost of the supplies in question in
its financial statements, which were in accordance with Canadian
generally accepted accounting principles (``GAAP''). Thus, the
petitioners argue that the Department should continue to include these
costs in Greening Donald's COP for its final analysis.
Department's Position: We have not accepted Greening Donald's claim
that
[[Page 17333]]
we should exclude from the calculation of COP and CV the expense that
the respondent recognized for certain supplies during the POI. Section
773(f) of the Act directs the Department to calculate costs based upon
the respondent's records, provided that such records are kept in
accordance with respondent's home-country GAAP and reasonably reflect
the costs associated with the production of the merchandise. In this
case, Greening Donald's independent auditors accepted the company's
treatment of these supplies (i.e., written-off or expensed fully during
the period).
We disagree with Greening Donald's contention that we should depart
from the costs that it calculates in the ordinary course of business
and exclude the portion of the costs that relate to supplies that it
may have not consumed during the POI. First, the amount the company
wishes to capitalize is merely an approximation because the company
does not maintain inventory or movement records that identify the
actual quantity and the value of the supplies in question. See Greening
Donald Cost Verification Report at page 15. Thus, Greening Donald's
proposed adjustment could not be substantiated with production or
accounting records. In circumstances where there is an absence of
verifiable information supporting a party's claim, our practice is to
rely on the amounts recorded in the books and records of the
respondent. See Final Determination of Sales at Less Than Fair Value:
Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line
and Pressure Pipe From Italy, 60 FR 31981 (June 19, 1995). Second, it
is also likely that Greening Donald actually consumed some supplies
during the POI which it purchased and expensed in prior periods. If we
were to adopt Greening Donald's proposed methodology, we would not only
exclude some of the current purchases, we would also include a portion
of purchases from prior periods. Since this information is not on the
record and the company's normal method of recognizing the full expense
when purchased is acceptable under Canadian GAAP, we have not excluded
these costs for the final determination.
Comment 14: General and Administrative Expenses. Greening Donald
argues that the Department should accept the method the company used to
calculate its reported general and administrative (G&A) expense ratio.
Greening Donald asserts that its reported G&A expense ratio was based
on the company's historic allocations and is the appropriate
methodology and consistent with past practice. Greening Donald states
that it first allocated the company's G&A expenses to its separate
operating divisions using historic allocations which it uses in the
ordinary course of business. It argues that it based these allocations
on the operating realities of the company's business. Greening Donald
states that it allocated each division's portion of the G&A expense to
its merchandise over its cost-of-sales figures. If it simply computed
G&A expenses on a company-wide basis as a percentage of cost of sales,
Greening Donald argues that the result would over-allocate G&A expenses
to the subject merchandise. Moreover, Greening Donald states that the
Department does not always use the company-wide cost-of-sales figure as
the allocation base when the results are distortive. To support this
assertion, Greening Donald cites Dynamic Random Access Memory
Semiconductors of One Megabit of Above from the Republic of Korea, 61
FR 20216, 20217 (May 6, 1996).
If the Department does revise its G&A expense ratio based on the
company-wide cost-of-sales figure, Greening Donald argues that it
should use the company's unconsolidated cost-of-sales figure based on
the sum of its divisional profit and loss (``P&L'') statements.
Greening Donald claims that this step is necessary because the cost-of-
sales figure on the company-wide financial statements represents a
consolidated figure of the three divisions which excludes inter-
divisional transfer amounts. According to Greening Donald, the
Department's normal practice is to calculate the G&A expense rate based
on a respondent company's unconsolidated statements and cites Stainless
Steel Wire Rod from Japan, 63 FR 40434 (Comment 8) (July 29, 1998), to
support this assertion.
The petitioners argue that the Department should calculate Greening
Donald's G&A ratio in accordance with the Department's normal
methodology. According to the petitioners, the respondent did not
follow the instructions in the Department's questionnaire which
requires respondents to calculate the G&A expense ratio based on the
company's audited financial statements. Instead, the petitioners
comment, Greening Donald reported a G&A expense ratio for its wire
division that was based on allocations of its total company G&A
expenses to each division. The petitioners argue that this method is
inappropriate because it is based on historic allocations that Greening
Donald could not substantiate with source records. The petitioners also
disagree with Greening Donald's concern that the Department should use
an unconsolidated cost-of-sales figure if the Department does decide to
revise its G&A expense ratio. According to the petitioners, Greening
Donald is using an incorrect reference to the term ``consolidation.''
The petitioners note that the three operating divisions of the company
are not independent companies so their internal P&L statements do not
represent unconsolidated financial statements. The petitioners also
contend that Greening Donald's cost-of-sales figure is not on the same
basis as the reported cost of manufacturing (``COM'') because the
reported cost-of-sales figure includes packing expenses, freight, and
certain adjustments not included in COM.
Department's Position: Normally, we calculate G&A based on the
producing company as a whole and not on a divisional or product-
specific basis. See Fresh Atlantic Salmon from Chile, 63 FR 31412,
31433 (Comment 29) (June 9, 1998). This approach recognizes the general
nature of these expenses and the fact that they relate to the company
as a whole. The Department's methodology also avoids any distortions
that may result if greater amounts of company-wide general expenses are
allocated disproportionally between products. In this instance,
Greening Donald deviated from the Department's normal methodology and
calculated its G&A expenses using an internal accounting methodology,
under which the company charged some G&A expenses directly to each of
its production divisions.
Both parties agree that it is our normal practice to calculate the
G&A expense rate based on the respondent's unconsolidated operations
(plus a portion of G&A expenses incurred by affiliated companies on
behalf of the respondent). See Stainless Steel Wire Rod from Japan, 63
FR 40434 (comment 8) (July 29, 1998). However, Greening Donald's
divisions are not separate entities that require consolidation but
merely separate business units that make up a single corporation. Thus,
we agree with the petitioners that we can not consider the divisional
P&L statements as ``unconsolidated'' financial statements. As for
Greening Donald's concern that the corporate-wide cost-of-sales figure
is understated because it excludes inter-divisional transfer amounts,
we disagree. It would be inappropriate to allocate G&A expense to
inter-company transactions since the amount would normally be
eliminated when preparing the company-wide financial statements. Even
in the cases where two separate but affiliated companies are collapsed
[[Page 17334]]
into one entity for the purposes of an antidumping analysis, the
Department eliminates inter-company transactions from the calculation
of cost of sales, in effect treating them as a single company. See
Certain Cut-to-Length Carbon Steel Plate from Brazil, 63 FR 12744,
12749 (Comment 8) (March 16, 1998).
As for Greening Donald's citation to Dynamic Random Access Memory
Semiconductors of One Megabit or Above from the Republic of Korea, 61
FR 20216, 20217 (May 6, 1996), the Department's position addressed the
basis of allocating indirect selling expenses and not general expenses.
Thus, the circumstances were different and not related to the
calculation of the G&A expense ratio. For the reasons stated above, we
have calculated Greening Donald's G&A expense ratio in accordance with
our normal methodology using a cost-of-sales figure that was on the
same basis as the reported COM.
Comment 15: Financial Expenses. The petitioners contend that
Greening Donald did not use the financial statements at the highest
level of consolidation to calculate its financial-expense ratio. Thus,
the petitioners recommend that the Department revise the company's
financial expenses accordingly.
Greening Donald claims that it calculated its financial expense
ratio in accordance with the Department's instructions and, thus,
should not be revised. According to Greening Donald, there is no
requirement in the Department's questionnaire that the level of
consolidation must be the highest level of consolidation. Greening
Donald believes that the calculation of financial expense should be
based on the level of consolidation that excludes operations unrelated
to the production of subject merchandise.
Department's Position: We agree with the petitioners that Greening
Donald did not calculate its financial expenses using information from
the consolidated financial statements of the highest level.
Specifically, Greening Donald used Thyssen Industrie's consolidated
financial statements. However, Thyssen Industrie's financial statement
data is consolidated into the Thyssen Group's financial statements. As
we have stated repeatedly and the CIT has upheld, we recognize the
fungible nature of a corporation's invested capital resources. 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 (i.e., Thyssen Group). More
important, our established practice of requiring the use of
consolidated financial statements recognizes the fungible nature of
invested capital resources such as debt and equity of the controlling
entity within a consolidated group of companies and that the
controlling entity within a consolidated group has the power to
determine the capital structure of each member company (e.g., Thyssen
Industrie) within its group. See E.I. Du Pont de Nemours & Co. v. U.S.,
Slip. Op. 98-7 (CIT 1998), Camargo Correa Metals, S.A. v. U.S., 17 CIT
897 (CIT August 13, 1993), and Aramid Fiber Formed of Poly Para-
Phenylene Terephthalamide From the Netherlands; Final Results of
Antidumping Administrative Review, 62 FR 38059, 38060 (July 16, 1997).
Comment 16: Foreign-Exchange Losses. The petitioners state that the
Department should follow its normal practice and include Greening
Donald's foreign-exchange losses generated from accounts payable in the
calculation of COP and CV. As support for their position, the
petitioners cite several Department determinations in which the
Department included this expense in respondent's cost.
Greening Donald recognizes that it is the Department's practice to
include foreign-exchange gains and losses related to all accounts
except accounts receivable accounts. Thus, if the Department decides to
include these amounts, Greening Donald contends that it should include
both the gains and losses generated from accounts payable and cash
accounts. Greening Donald requests further that the Department
reconsider its policy in regards to foreign-exchange gains and losses
related to accounts receivable. The respondent argues that the
Department should treat these gains and losses the same way it treats
gains and losses from short-term investments which are used to adjust
financing costs.
Department's Position: To calculate its reported costs, Greening
Donald excluded foreign-exchange gains and losses. However, our normal
practice is to include a portion of these foreign-exchange gains and
losses in the calculation of COP and CV. Specifically, it is our 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''). We normally include in the calculation of COP and CV the
foreign-exchange gains and losses that result from transactions related
to a company's manufacturing activities. 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 and 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 have
included only the foreign-exchange gains and losses that relate to
maintaining accounts payable and cash accounts. We disallowed foreign-
exchange gains and losses arising from sales transactions in the COP
and CV calculation.
Comment 17: Inventory Write-Downs. The petitioners argue that the
Department should revise Greening Donald's reported costs to include
losses for inventory adjustments. Citing Canned Pineapple Fruit from
Thailand, 60 FR 29553, 29571 (June 5, 1995), the petitioners claim that
it is the Department's practice to include inventory write-downs and
write-offs in the cost of production.
According to Greening Donald, the write-down portion of its
inventory adjustment is associated with finished-goods inventory and,
as such, it should not be included in cost of production. To support
its assertion, Greening Donald cites Stainless Steel Wire Rod from
Italy, 63 FR 40422, 40430 (July 29, 1998), in which the Department
excluded this type of expense.
Greening Donald claims that the other component of its inventory
adjustment is due to changes in the price of wire rod which affect the
cost of production. However, Greening Donald contends, because wire rod
prices increased, not decreased, during the POI, the net amount of
inventory was a gain or a write-up to materials inventory. Thus,
Greening Donald asserts, the net effect on the cost of production, were
the Department to adjust for this, would be to reduce its costs of
production. Greening Donald observes that, in any event, the amount of
these adjustments would have no material effect on the reported cost.
Department's Position: We agree with the respondent that inventory
write-downs which are made to value finished-goods inventory at the
lower of cost or market should not be considered a part of COM. We
derive the product-specific costs during the POI from the cost of
products manufactured, not sold. Thus the value of beginning and ending
finished-goods inventory does not affect the calculation. Therefore,
consistent with our most recent determinations, we have excluded this
expense from the calculation of COP and CV. See, e.g., Stainless Steel
Wire Rod from Italy, 63
[[Page 17335]]
FR 40422, 40429 (July 29, 1998). We disagree that Canned Pineapple
Fruit from Thailand is relevant because of facts specific to that case.
In Canned Pineapple Fruit from Thailand, we found that ``inventory
write-downs are a normal, recurring period adjustment made annually by
(the respondent).''
We agree with the respondent that its adjustment to its wire-rod
prices held in inventory is minor. Specifically, Greening Donald
normally records a variance to reflect the gain or loss that occurs
when its wire-rod standard costs are updated. During the fiscal year,
Greening Donald experienced a favorable variance (reduction in costs)
while during the POI it experienced an unfavorable variance (increase
in costs). Because the variance relates to the value of raw materials,
which are a component of COM, we consider it more appropriate to
include the variance related to the POI rather than the fiscal year.
However, we have not made this adjustment for the final determination
due to the immaterial impact the variance has on the reported costs.
Comment 18: Affiliated-Party Inputs. The petitioners state that the
Department should value major inputs between affiliated companies at
the higher of transfer price, market price, or the cost to the
affiliated supplier. Therefore, the petitioners suggest that, in order
to reflect properly the value of certain wire rod Greening Donald
purchased from an affiliated party, the Department should use the
average price Greening Donald paid to unaffiliated suppliers for the
same input during the POI.
The respondent, citing section 773(f)(3) of the Act, argues that
the major-input rule would be applicable if the affiliated suppliers
were the producers of the wire rod sold to Greening Donald and the
Department had reason to believe or suspect that the price of the major
input between affiliated parties was below the cost of production. With
regard to the first condition, the respondent states that this
affiliated supplier did not produce the input but purchased it from an
unaffiliated supplier. As to the second condition, the respondent
claims that the price this affiliated supplier paid for the input was
lower than the price it charged to Greening Donald. Therefore,
according to the respondent, the Department has no reason to believe
that the transfer price is below the cost of production. In addition,
the respondent argues, even if the Department determines to make the
adjustment the petitioners suggest, it should use a weighted-average
price based on home-market purchases from unaffiliated suppliers.
Department's Position: We agree with the petitioners that the
major-input rule should be applied to Greening Donald's purchases of
certain wire rod obtained from an affiliated party. As a result, we
disagree with the respondent's narrow definition of the term
``producer'' as it is used in section 773(f)(3) of the Act. The intent
of this section and the related regulations is to account for the
possibility of shifting costs to an affiliated party. This possibility
arises when an input passes to the responding company through the hands
of an affiliated supplier, regardless of the value added to the product
by the affiliated supplier.
Sections 773(f)(2) and (3) of the Act specify the treatment of
transactions between affiliated parties for purposes of reporting cost
data (for use in determining both COP and CV) to the Department.
Section 773(f)(2) of the Act indicates that the Department may
disregard such transactions if the amount representing that element
(the transfer price) does not fairly reflect the amount usually
reflected (typically the market price) in the market under
consideration. Under these circumstances, the Department may rely on
the market price to value inputs purchased from affiliated parties.
Section 773(f)(3) of the Act indicates that, if transactions between
affiliated parties involve a major input, then the Department may value
the major input based on the COP if the cost is greater than the amount
(higher of transfer price or market price) that would be determined
under section 773(f)(2) of the Act. Therefore, for the final
determination, we have made an adjustment to increase the transfer
price to a market price using the adjustment factor Greening Donald
suggests.
Comment 19: Miscellaneous Taxes and Expenses. The petitioners
contend that the Department should revise Greening Donald's COP to
include the Ontario capital tax, large-corporation tax, bad-debt
expenses, miscellaneous income and expense, and discount income.
According to the petitioners, Greening Donald inadvertently omitted
these expenses.
The respondent states that it has already corrected this omission.
According to Greening Donald, it provided a revised submission on
December 29, 1998, that included these items in the calculation of COP
and CV. Therefore, the respondent claims no further adjustment is
needed to include them. However, Greening Donald does believe that the
Department should now make an adjustment to remove the large-
corporation tax and the Ontario capital tax included in the calculation
of COP and CV because they relate to taxes paid on capital stock and,
as such, they should not be included in the calculation of COP and CV.
Department's Position: We agree with the respondent that it
included these expenses included in the calculation of COP and CV. See
the Department's Greening Donald Cost Verification Report at page 4,
step I.A. Thus, no further adjustment is necessary to include these
expenses.
With regard to the respondent's claim that we should not include
the large-corporation tax and the Ontario capital tax in Greening
Donald's reported COP, we have stated our position on this issue in
several previous cases. In those cases, we included payments to
governments, other than income taxes, that are periodic general taxes
levied on the company and which are not based on revenues. Thus, it is
appropriate to include them in the calculation of the company's general
expense. See, e.g., Certain Corrosion-Resistant Carbon Steel Flat
Products and Certain Cut-to-Length Carbon Steel Plate from Canada, 62
FR 18448, 18465 (April 15, 1997).
Comment 20: Auditor's Adjustment. The petitioners argue that the
Department should revise Greening Donald's reported cost to include an
adjustment the company's independent auditors made. The petitioners
point out that this adjustment is included in Greening Donald's
financial statements which are prepared in accordance with Canadian
GAAP. As such, the petitioners claim that the expense should be
included in the calculation of COP and CV.
The respondent argues that this adjustment was made by the outside
accountants only for the purposes of calculating Greening Donald's tax
liability. According to the respondent, the adjustment is not included
in the company's internal books and records which are maintained in
accordance with Canadian GAAP.
Department's Position: We agree with the petitioners that it is
appropriate to include this year-end adjustment in the calculation of
COP and CV. Specifically, Greening Donald excluded from its reported
costs a year-end adjustment that reconciles the depreciation expense
reported in its cost accounting systems with the depreciation expense
reported in the audited financial statements. As a result, there is a
difference between the actual manufacturing costs in the financial
statements and the manufacturing costs Greening Donald submitted. We do
not find relevant Greening Donald's claim that the
[[Page 17336]]
outside accountants made this adjustment merely for tax purposes.
First, Greening Donald's audited financial statements, which were
prepared in accordance with Canadian GAAP, include this adjustment.
Moreover, Greening Donald provided no explanation as to why recognition
of this adjustment distorts costs. Consistent with our normal practice,
we rely on the respondent's normal books and records kept in accordance
with the respondent's home country's generally accepted accounting
principles. Thus, we have included this adjustment in the calculation
of COP and CV.
Continuation of Suspension of Liquidation
In accordance with section 735(c)(1)(B) of the Act, we are
directing the Customs Service to continue to suspend liquidation of all
entries of stainless steel round wire from Canada that are entered, or
withdrawn from warehouse, for consumption on or after November 18,
1998, the date of publication of the 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. The suspension of liquidation instructions will remain in
effect until further notice. The weighted-average dumping margins are
as follows:
------------------------------------------------------------------------
Weighted-
Exporter/manufacturer average margin
percentage
------------------------------------------------------------------------
Central Wire............................................ 11.79
Greening Donald......................................... 11.18
All Others.............................................. 11.64
------------------------------------------------------------------------
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (``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
the Customs Service 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.
We are issuing and publishing this determination in accordance with
sections 735(d) and 777(i)(1) of the Act.
Dated: April 2, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-8926 Filed 4-8-99; 8:45 am]
BILLING CODE 3510-DS-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.