66 FR 50397, October 3, 2001 A-834-806 ADI: 04/01/00-09/30/00 Public Document III / 9 / JHC September 21, 2001 MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Less Than Fair Value Investigation of Hot-Rolled Carbon Steel Flat Products from Kazakhstan SUMMARY: We have analyzed the comments and briefs of interested parties in the less than fair value ("LTFV") investigation of hot-rolled carbon steel flat products from Kazakhstan. As a result of our analysis, we have made changes from the Notice of Preliminary Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products from Kazakhstan, 66 FR 22168 (May 3, 2001) ("Preliminary Determination"). The specific programming changes can be found in our Analysis Memorandum for OJSC Ispat Karmet: Final Determination in the Less Than Fair Value Investigation of Hot-Rolled Carbon Steel Flat Products from Kazakhstan (September 21, 2001) ("Final Analysis Memo"). We recommend that you approve the positions developed in the "Discussion of the Issues" sections of this Issues and Decision Memorandum. Below is the complete list of the issues in this investigation: Market Oriented Industry Issue Comment 1: Market Oriented Industry General Issues: Comment 2: Aberrational Surrogate Values Comment 3: Choice of Surrogate Values Comment 4: Double Counting Values Verification Issues: Comment 5: Factors of Production Based on Thickness Comment 6: Dubai Sales Office Comment 7: Nominal Thickness Comment 8: Coil Protectors Comment 9: Inland Freight Distance Comment 10: Manganese Ore Comment 11: Packing Bands Comment 12: Sales to Ispat Sidbec Comment 13: Technical Water Comment 14: Silico-manganese DISCUSSION OF THE ISSUES: Marketed Oriented Industry Issue Comment 1: Market Oriented Industry Respondent OJSC Ispat Karmet ("Ispat") argues the Department should find the hot-rolled carbon steel flat products industry in Kazakhstan to be a market oriented industry ("MOI"). See Ispat's August 20, 2001 Case Brief ("Ispat's Brief"), at 2-5. Ispat addresses the criteria for MOI status, noting it is the only steel producer in Kazakhstan and, thus, constitutes the entire steel industry. Ispat argues it meets the criteria for private or collective ownership, stating it is part of the LNM Group of privately- owned steel companies, which bought the Karaganda Metallurgical Combine from the Government of Kazakhstan, free of any government involvement or encumbrances. Ispat then addresses the remaining two criteria, operating with no government involvement in setting prices or production amounts for subject merchandise, and payment of market-determined prices for all significant inputs. First, Ispat asserts that nothing on the record contradicts its claim that it follows normal business considerations to set prices and production goals. Ispat states the government plays no part in the sales agreements negotiated annually with international traders, nor in the conditions set for each shipment through individual addenda. Ispat posits that the letter from the Minister of Economy and Trade of Kazakhstan confirms no government involvement in setting prices or production. Ispat claims that sales documents examined during verification demonstrate that negotiations on price, quantity and delivery are conducted without government control, regulation or interference. Second, Ispat claims it pays market determined prices for all significant inputs Ispat notes that a "significant" portion of its inputs are from internal sources. Ispat states that most of its coal and much of its iron ore are from its own, or its subsidiary's, mines and the remainder are from privately-owned sources in Kazakhstan. Ispat claims its response demonstrated that its other purchased inputs are either from market economy countries or paid for in U.S. dollars. Ispat claims three supplier contracts submitted in its response demonstrate that its supply contracts are freely negotiated without any government participation. Finally, Ispat notes that internally-generated inputs cannot be under government price control. Accordingly, Ispat asserts that the Department should find the hot-rolled steel industry to be a MOI, and use Ispat's actual costs rather than surrogate values in its margin calculation. Co-petitioners Bethlehem Steel Corporation, LTV Steel Company, Inc., National Steel Corporation, and United States Steel LLC (1) (hereinafter collectively "Co-petitioners") argue that Ispat has not met its burden of proof in a MOI determination. Co-petitioners argue the Department has stated that the test for a MOI finding begins: . . . with a strong presumption that such situations do not occur because nonmarket economies are riddled with distortions. The presumption against finding a market-oriented industry must prevail unless thorough and convincing evidence is presented on the record which demonstrates that the producers operate in an environment of market-based costs and prices and that bounties or grants bestowed on the subject merchandise can be reasonably discerned and measured. Co-petitioners' August 20, 2001 Rebuttal Brief ("Co-petitioners' Rebuttal") at 2, citing Notice of Final Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars from Moldova, 66 FR 33525 (June 22, 2001), and accompanying Issues and Decision Memorandum at Comment 4 ("Rebar from Moldova Decision Memo"). Co-petitioners argue Ispat has provided no such evidence on the record to rebut this presumption against finding a MOI. See Co-petitioners' Rebuttal" at 1-7. Co- petitioners argue Ispat has failed to meet two of the three criteria necessary for a determination of MOI status: 1) no government involvement in setting the prices or production amounts; and 2) market-determined prices paid for all significant inputs, as well as for all but an insignificant portion of the inputs accounting for the total value of the merchandise under investigation. Co-petitioners' Rebuttal at 3, citing Rebar from Moldova Decision Memo at Comment 4; Notice of Final Determination of Sales at Less Than Fair Value: Freshwater Crawfish Tail Meat from the People's Republic of China, 62 FR 41347, 41353 (August 1, 1997). First, Co-petitioners assert Ispat has failed to provide objective corroboration of no government involvement in setting prices or production amounts for hot-rolled steel in Kazakhstan. See Co-petitioners' Rebuttal at 3-5. Regarding Ispat's claim of no government involvement in production, Co-petitioners point out the only information provided by Ispat is a letter from the Ministry of Economy and Trade, which merely cites the agreement of sale between Ispat and the government for the plant. Co-petitioners note that while the Department requested documentation or other support regarding Ispat's claim it was not subject to governmental requirements or restrictions, Ispat provided none for the record, stating it was "not aware" of any such statutes. As for Ispat's claim of no government involvement in pricing, Co-petitioners argue the only documentation or support provided by Ispat, aside from the Ministry letter, are two "representative" supply contracts which fail to provide "thorough and convincing" evidence of no government control over pricing. Moreover, Co-petitioners claim Ispat has failed to demonstrate that its suppliers' industries are not subject to government control and state- required production levels, see Co-petitioners' Rebuttal at 3-5, citing Chrome Plated Lug Nuts from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 61 FR 58519, 58520 (November 15, 1996) ("Lug Nuts from China"), in support, wherein the Department determined the respondent did not demonstrate its suppliers are free of government control of production or prices, despite providing certificates stating its suppliers are free of government control. Co-petitioners discuss the country origins of the inputs, and point out Ispat has failed to provide "thorough and convincing" evidence that a significant portion of its supplier industries, either local or external, are free from government control and state production levels. Co-petitioners also claim Ispat has failed to provide objective corroboration showing that its suppliers' prices are market-determined. Co- petitioners argue that, as already discussed, Ispat has not shown that its suppliers are free of its respective government's involvement or control, thus, it has not shown the suppliers' prices are market-determined. Furthermore, Co-petitioners argue that any inputs not purchased from market economies strongly indicates they are not at market-determined prices. In addition, Co-petitioners point out that the Kazakhstan currency, the tenge, is not convertible outside of Kazakhstan, which also strongly indicates any such inputs are not at market-determined prices. Accordingly, Co-petitioners assert that the Department should dismiss Ispat's request for MOI status, as it has failed to provide "thorough and convincing" evidence on the record in support of its request, and thus failed to meet all three prongs of the MOI test. Department Position: To identify those situations where we would apply a market-economy methodology, as permitted by section 773(c)(1) of the Act, the Department developed its "market-oriented industry" test. As noted in the Preamble to our regulations (62 FR 27295, 27365), this test is not codified in our regulations due to our concerns about the test. As the Department has stated in the past, in order to make an affirmative MOI finding, there must be: 1) virtually no government involvement or state control over setting pricing or production amounts for subject merchandise; 2) an industry characterized by private or collective ownership; and 3) payment of market-determined prices for all significant inputs, whether material or non-material (e.g. labor and overhead), and for all but an insignificant proportion of all the inputs accounting for the total value of the merchandise under investigation. See Lug Nuts from China, 61 FR at 58816. As we stated in Rebar from Moldova Decision Memo at Comment 4, there is a strong presumption that MOI situations do not occur, which can only be overcome by thorough, convincing evidence. Ispat has not demonstrated that it pays market-determined prices for all significant inputs, and for all but an insignificant proportion of all the inputs accounting for the total value of the merchandise under investigation. While Ispat asserts that the prices paid for inputs are market-determined, the only support provided is a list of the purchase prices paid for the inputs (see Second MOI letter at 3-4) and "representative supply contracts" for two of its numerous inputs (see Supp. MOI letter at Exhibit 2). Further, most of Ispat's inputs are purchased from non-market economy countries. In calculating surrogate values for the factors of production, pricing data from non-market economy countries are not taken into account. See Factor Valuation Memorandum (April 23, 2001), at Attachments D and E. We note that we disagree with Co- petitioners' reliance on the non-convertibility of the tenge. Currency convertibility is not one of the MOI test criteria. See Lug Nuts from China, 61 FR at 58816. As noted above, the Department rarely grants MOI status. In this case, there appears to be significant evidence that the Kazakhstan hot-rolled carbon flat steel industry does not satisfy the third prong - - that prices for virtually all inputs be market-determined. However, we also note that a determination on the issue of whether Kazakhstan meets the requirements for market-economy status is pending in the antidumping duty investigation of silicomanganese from Kazakhstan (A-834-807). As a result, while there does not appear to be sufficient evidence of a MOI in this case, we intend to apply, as appropriate, the facts and information found in this case in the determination concerning market-economy status in silicomanganese from Kazakhstan. General Issues Comment 2: Aberrational Surrogate Values Ispat alleges that the Department uses "aberrational" values as surrogate values for the investigation. See Ispat's Brief at 5-11. Ispat states the Department is under an obligation to select surrogate values as representative of the NME country as possible. See Ispat's Brief at 5-6, citing Freshwater Crawfish Tail Meat from the People's Republic of China: Final Results of Administrative Antidumping Duty and New Shipper Reviews, and Final Rescission of New Shipper Review, 65 FR 20948 (April 19, 2000). Ispat notes that the inputs used in manufacturing hot-rolled carbon steel products are uniform through the industry world-wide. As a result, Ispat reasons that the Department's calculation of an average cost of raw materials over $300/ton and an average normal value over $600/ton is "irrational," claiming "no producer in the world is incurring material costs alone of over $300 per metric ton" and pointing to the average total cost of sales of $296 per ton for U.S. producers during the POI. See Ispat's Brief at 6, citing USITC Publication 3381, in Inv. No. 701-TA-404- 408 and 731-TA-898-908, at C-8. Ispat asserts that differences in plant efficiencies cannot account for the difference between the Department's calculated cost and the average domestic cost, especially considering Ispat's proximity to its most important raw materials and its very high capacity utilization rate. Ispat states that it is "well known" that Egypt, the surrogate country, has few, if any, local raw materials for steelmaking and must import the materials. Ispat then claims that the Egyptian import values used by the Department "appear to include significant transport charges incurred to bring the raw material from the source to Egypt." See Ispat's Brief at 7. Ispat claims, in comparison, the Department verified Ispat is relatively close to its raw material suppliers. Thus, Ispat argues, it has an advantage over mills located further from raw material sources, arguing that differences in the cost of materials are due to additional costs incurred in transporting the materials to the mills. Ispat argues the Department vastly overstated surrogate values by failing to deduct ocean transportation costs for transport of material to Egypt, and further erred by adding freight to the surrogate values. Ispat argues that the Department should disregard aberrational surrogate values for reasonable, reliable values. Ispat Karmet claims that the Department has determined that a surrogate country's import data, based primarily on imports from one country and low quantities, which differs significantly from values reported for imports into other countries, is not reliable, citing Notice of Final Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars from Belarus, 66 FR 33528 (June 22, 2001), and accompanying Issues and Decision Memorandum at Comment 1. Ispat Karmet also cites Notice of Final Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars from the People's Republic of China, 66 FR 33522 (June 22, 2001), and accompanying Issues and Decision Memorandum at Comment 5 (Department rejected an aberrational Indian surrogate value for water slag in favor of U.S. pricing data). Ispat also states that the Department has compared import values from different months and different countries and rejected aberrational values, citing Final Results of Antidumping Duty Administrative Review: Chrome Plated Lug Nuts from the People's Republic of China, 63 FR 53872 (Oct. 7, 1998) (Department excluded Indian imports of German steel from a particular month that, compared to imports in other months and other countries, were abnormally high). Ispat also cites Notice of Final Determination of Sales at Less Than Fair Value: Partial Extension Steel Drawer Slides with Rollers from the People's Republic of China, 60 FR 54472 (October 24, 1995), where the Department found the Indian import value used unreliable after comparing it to other values on the record and finding the Indian value much higher; and Notice of Final Determination of Sales at Less Than Fair Value: Steel Wire Rope from the People's Republic of China, 66 FR 12759 (Feb. 28, 2001), and accompanying Issues and Decision Memorandum at section IV (Malaysian import values in the Indian Import Statistics excluded because they were many times higher than the import values from other countries, and not in line with other wire rod prices on the record). Ispat also argues that the Department relied on unit values calculated from "abnormally low quantities" for limestone, scrap, ferromanganese, aluminum, ferrotitanium, fuel oil, and nitrogen. See Ispat's Brief at 9. Ispat asserts that unit values calculated from insignificant imports cannot form the basis for a reasonable estimate of the surrogate cost of production. Ispat points to Notice of Final Determination of Sales at Less Than Fair Value: Certain Cased Pencils from the People's Republic of China, 59 FR 55625 (Nov. 8, 1994), where the Department found Indian factor values aberrational when compared to Pakistani (an alternate surrogate country) and U.S. values. Ispat declares that the Department must analyze public information to confirm the prices of the Egyptian import statistics. Ispat argues that the raw materials used in steelmaking "reflect their anticipated use in steel production," stating, as an example, that iron ores prices are dictated by the percentage of iron content in the ore, and argues that this applies to many other inputs used in carbon steel manufacture. Ispat Brief at 10. Ispat claims this demonstrates that the vast majority of the Department's values are significantly overstated. Id. Ispat also argues that Ispat "is an extremely efficient producer and operated at a very high rate during the POI" which lowers operating costs. Ispat Brief at 11. Accordingly, Ispat argues that "{b}ecause the prices of many of the raw materials used in the production of steel are set in the international marketplace and are essentially the same worldwide, the Department should examine the Egyptian import statistics carefully before using them as a basis for calculating Ispat's normal value." Ispat's Brief at 11. Ispat then asks that the Department, at the very least, "use international prices as a basis for adjusting Egyptian import values to eliminate ocean transportation costs from the exporting country to Egypt." Id. Co-petitioners argue that Ispat had opportunities in which to timely submit alternative surrogate values throughout the investigation, and two months after the deadline is too late. Co-petitioners also argue that the mere fact that the surrogate values are not values preferred by Ispat does not make them aberrational. See Co-petitioners' Rebuttal at 7-16. First, Co-petitioners assert that Ispat's objection of the Department's surrogate valuation methodology is untimely. Co-petitioners point out the numerous opportunities provided by the Department inviting comment on the surrogate country and factors of production values, including an invitation for comments regarding the surrogate country selection and for submission of public information to value the factors of production (see Department's January 23, 2001 letter to the parties), as well as the notification that "interested parties may submit publicly available information to value factors of production within 40 days after the date of publication of the preliminary determination" (see Preliminary Determination, 66 FR at 22172). While Co-petitioners took advantage of the opportunity to comment, Ispat remained silent on the surrogate country selection and instead chose to argue that the Department should not employ a non-market economy methodology. Co-petitioners also point out that the only comment Ispat chose to make regarding the surrogate values for the factors of production was in opposition to the Co-petitioners' recommendation of a surrogate value for iron ore pellets, and choice of financial statements from which to calculate SG&A, interest, profit and overhead rates, issues which Ispat does not address in its brief. See Ispat's letter to the Department (April 18, 2001). As for Ispat's charge that the Department's calculated costs are aberrational, Co-petitioners argue Ispat bases its argument on the unsubstantiated assertion that inputs used to produce hot-rolled steel are uniform throughout the industry. Co-petitioners allege that Ispat fails to acknowledge the differences in manufacturing processes and input costs, not only among different countries, but also among steel producers within a country, using as an example the fact that Ispat uses ingot casting to produce semifinished steel. Co-petitioners observe that the Court of International Trade has confirmed the Department's discretion in selecting surrogate values and found that in determining what constitutes best available information, "Commerce need not prove that its methodology was the only way or even the best way to calculate surrogate values for factors of production as long as it was a reasonable way." See The Coalition for the Preservation of American Brake Drum and Rotor Aftermarket Manufacturers v. United States, 44 F. Supp. 2d 229, 258 (Ct. Int'l Trade 1999). Accordingly, while Ispat argues that the limestone, ferromanganese, ferrotitanium, and nitrogen are not reasonable, Co-petitioners argue that the Department correctly derived its surrogate values from the United Nations Commodity Trade Statistics ("UNCTS") data regarding imports into the primary surrogate country, Egypt, and the Philippines, when unable to obtain an Egyptian value. Department Position: We agree with Co-petitioners. There is no evidence on the record, nor has Ispat pointed to any evidence on the record, that support's Ispat's allegations of aberrational values or improper choice of surrogate country. While Ispat raises objections to the choice of country and valuations in its case brief, there is no evidence on the record to support its allegations. The Department followed proper procedure in selecting its surrogate countries, and used standard UNCTS data in valuing the factors of production; nowhere in the record has the Department's selection been shown to be unreasonable. We also note that parties were given opportunity to provide information for the record and comment on the Department's choice of a surrogate country and choice of surrogate factors of production values. The Department first issued a letter on January 23, 2001, informing parties of the Department's surrogate country selection (which listed Egypt, the Philippines, Morocco, Ecuador, and Algeria as surrogate countries for Kazakhstan) and informing parties they may submit comments on the surrogate country selection, or significant production in the potential countries by February 6, 2001. The letter also informed the parties that they may submit public information to value factors of production either before, or no later than 40 days after, the Preliminary Determination. While Co-petitioners commented on the Department's choice of a surrogate country, and also provided public information to value the factors of production, Ispat did not. In the period prior to the Preliminary Determination, Ispat voiced no objection to the Department's choice of surrogate countries. Instead, Ispat merely stated that it "does not agree that the Department should employ a non-market economy methodology in this investigation but, rather, should employ a market- oriented industry analysis" in reference to its separate MOI request filed on March 21, 2001. See Ispat's letter to the Department (April 18, 2001) at 2. Ispat's only contribution to the valuation of the factors of production was an objection to the Co-petitioners' suggested value for iron pellets and choice of financial statements from which to value SG&A, interest, profit and overhead rates. See Ispat's letter to the Department (April 18, 2001). Furthermore, Ispat did not comment on the surrogate country and factors valuation in the provided forty day window of time after publication of the Preliminary Determination, in accordance with 351.301(c)(3)(i) of the Department's regulations. Ispat did file ministerial error allegations regarding the valuations for coke and the cost of freight for scrap. See Ispat's letter to the Department (April 30, 2001). However, Ispat voiced no objection to the Department's use of Egypt (or in some instances, the Philippines), as the surrogate country, and provided no comments on any of the issues or valuations which it raises now in its case brief. In conclusion, without any information on the record to support Ispat's assertion that the Department's choice of country and surrogate values were unreasonable or aberrational, Ispat has no basis on which it makes its claims. Accordingly, the Department is using the same surrogate country as it did in the Preliminary Determination, and the same surrogate values, except those adjusted as discussed, infra, for this final determination. Comment 3: Choice of Surrogate Values Ispat states that it is "apparent" the high coal value represents a washed coal price, whereas the Department verified the reported input was for unwashed coal. As washing the coal eliminates approximately 31 percent in waste, Ispat asserts that the Department's valuation of coal is overstated. Similarly, Ispat states it "appears" the Department is using primary aluminum as a surrogate value, when Ispat reported it uses a different aluminum, citing its Section D response, at Exhibit 4 (February 26, 2001). Additionally, Ispat makes the claim that the Department verified lime and burnt dolomite are produced in-house from limestone and dolomite, respectively, and argues that it is "irrational" for the Department to have valued the processed materials of lime and burnt dolomite at a lower value than the original raw material. Ispat also argues that the Department's calculated coal costs "constitute 17 percent of the total cost of manufacture, a level that is not remotely related to coal costs incurred by any other steel producer." See Ispat's Brief at 8. Ispat similarly argues that the fuel oil and nail costs, at 4 percent and 0.2 percent of the total cost of manufacture, respectively, could not "conceivably contribute so significantly to the cost of hot-rolled steel." Id. Regarding freight, Co-petitioners argue that Ispat's contention that the Department should exclude ocean freight costs included in the Egyptian statistics, as well as the inland freight costs to Ispat added to the value of the input, contradicts the Department's surrogate value methodology. Co-petitioners maintain that the Department routinely relies on UNCTS data, and that it is Department practice to include international freight when determining surrogate values, citing UCF America Inc. v. United States, 18 CIT 1074, 870 F. Supp. 1120, 1128 (Ct. Int'l Trade 1994) in support (Commerce converted European Community data based on FOB values into CIF (cost, insurance and freight) values for use as surrogate value). Co-petitioners argue that by removing the shipping costs from the surrogate country, the Department would essentially be basing the surrogate values on the cost of the input for each country that delivers to Egypt, rather than basing the values on Egypt itself, when Department practice is to value inputs based on the identified surrogate country. Co- petitioners then argue that it is also Department practice to include inland freight costs to the producer, citing Sigma Corp. v. United States, 86 F. Supp. 2d 1344, 1348-49 (Ct. Int'l Trade 2000). Accordingly, Co- petitioners state the Department should use the freight value from the Preliminary Determination in making its final determination. As for coal, aluminum, lime, burnt dolomite, fuel oil and nail costs, Co- petitioners argue that is no record evidence to support Ispat's claims that: 1) the surrogate coal value used is a washed coal price; 2) the surrogate value used for aluminum is based upon primary aluminum; 3) the surrogate values for lime and burnt dolomite are unreasonable; and 4) the fuel oil and nail costs could not contribute as significantly as they do to the cost of hot-rolled steel. Co-petitioners assert that there is no evidence that any of the surrogate values used by the Department for these factors are unreasonable. Without any information on the record to support Ispat's argument that the surrogate value data is irrational, Co- petitioners assert that the values used by the Department in the Preliminary Determination were reasonable and reliable, and should be used for the final determination. Department Position: We agree with Co-Petitioners. As discussed, supra, there is simply no evidence on the record indicating that the Department's selection surrogate values from the UNCTS data are unreasonable. While the Department verified that Ispat uses raw coal mined from its Karaganda coal mines as input (see Verification Report at 16), Ispat presented no evidence on the record that the surrogate value for coal selected by the Department was improper. Similarly, while Ispat identified aluminum other than primary aluminum as an input (see Section D response, at Exhibit 4; Verification Report at 17), there is no indication on the record that the surrogate value chosen by the Department for aluminum was improper for the reported aluminum. The Department notes that Ispat's claim that the Department verified that lime and burnt dolomite are produced from limestone and dolomite (see Ispat's Case Brief at 7) is unsupported by the Verification Report. Finally, the Department agrees with Co-petitioners argument and cases cited in support that it is long-standing practice for the Department to include international freight and add inland freight to surrogate values. Accordingly, as there is no evidence showing that the Department's selection of these surrogate values for the Preliminary Determination was improper or unreasonable, the Department is not changing its valuation for these surrogate values for the final determination. Comment 4: Double Counting Values Ispat argues that the Department should set the value of the scrap and coke inputs to zero. See Ispat's Brief at 11-12. First, Ispat claims there was "confusion" on the Department's reporting requirements for scrap. Ispat states that it initially reported introduced scrap, but later included self-generated scrap at the Department's instructions. Ispat states that it noted the revised amount included self-generated scrap, citing its Supplemental Sections C and D response at Exhibit 6 (April 2, 2001) ("Supp. C/D response"). Ispat claims the Department verified the amount for scrap was over-reported as it includes self-generated scrap. Second, Ispat argues that the Department verified that coke is manufactured from coal, and thus the reported factor for coal includes coke. Co-petitioners argue Ispat has provided no evidence on the record to support its claim of "double counted" values. See Co-petitioners' Rebuttal at 17-19. Co-petitioners point out that, while Ispat claims the Department verified scrap consumption is over reported, Ispat offers no specific citation to substantiate its claim. Co-petitioners observe that the Department's verification report noted that Ispat's verification statements varied from its submission responses, and the Department did not accept certain information regarding scrap, as it constituted unacceptable new information. See Verification Report at 20. Accordingly, Co-petitioners argue there is insufficient information on the record to support Ispat's claim regarding scrap. Similarly, Co-petitioners argue that there is insufficient information on the record to support Ispat's claim regarding coke. Co-petitioners argue that merely because coke is manufactured from coal, it does not mean that valuing both coke and coal results in double counting. Co-petitioners note that Ispat may have consumed more coke than that which is generated in its coke batteries, either from inventory or from outside suppliers. Co-petitioners argue it is "unclear" whether Ispat's reported coke consumption is derived solely from the coke produced from coal, thus, it is "reasonable" to conclude Ispat consumed more coke than generated. Department Position: We agree with Co-petitioners in part, and respondent in part. We agree with Co-petitioners regarding the issue of the alleged double counting of scrap. In our verification report, we noted that our questionnaire had twice requested that Ispat provide an explanation of its calculation for scrap, and each time Ispat failed to discuss its calculation methodology. See Verification Report at 20. As a result, when Ispat attempted to submit alleged offsetting adjustments for byproduct scrap recovered in the production of hot-rolled steel, the Department determined that it would "not accept information regarding the 'offset' to scrap, as it constituted significant new information of the type that may not be accepted at verification." Id. Prior to verification, the Department informed Ispat that we would be reviewing the "methodology used for calculating weight- average factors of production. The Department considers appropriate reporting of factor usage rates by control numbers to be central to the calculation of a valuable margin and may not treat revisions to any factors of production data as a minor change or correction." See Verification Outline (June 11, 2001) at 9. Accordingly, there is no information on the record to support Ispat's assertion that scrap has been double counted; thus, we have not adjusted the figures used to calculate scrap in the Preliminary Determination for this final determination. However, we agree with Ispat regarding the issue of the alleged double counting of coke. At verification, Ispat demonstrated that most of its coal was from its Karaganda coal mines, while some gaseous coal was purchased elsewhere. See Verification Report at 16. We toured Ispat's steel plant and verified the per-unit calculations for coal. See Verification Report at 7 and 21. We noted no discrepancies and found no evidence to support Co-petitioners' assumption that Ispat may have consumed more coke than that which is generated in its coke batteries, either from inventory or from outside suppliers. Accordingly, as there is evidence on the record to support Ispat's assertion that Ispat generates the coke used in the production process, we are not separately valuing coke for this final determination to prevent double-counting. Verification Issues Comment 5: Factors of Production Based on Thickness Ispat takes issue with the Department's verification finding that Ispat possessed documents that could have been used to allocate the factors of production based on thickness. See Ispat's Brief at 12. Ispat argues that it "reasonably relied on" records maintained in the ordinary course of business, which do not account for differences in thickness, in reporting its factors of production. Id. Ispat also points out that it adjusted the data to account for different quality steels. However, Ispat then states that the Department has data available to adjust for thickness, if it chooses to do so, in the form of a study identifying efficiency coefficients based on thickness ranges. See Verification Report at Exhibit 33; Ispat's Brief at Exhibit 2. On a related issue, Ispat also disagrees with the Department's verification finding that Ispat reported a smaller yield range ratio than actually experienced. Ispat reiterates it reported its factors of production using its normal accounting records, which do not differentiate by thickness, and stresses that the ratios provided at verification were provided to support its contention that its factors of production do not vary significantly due to differences in thickness. However, Ispat notes the Department has the necessary information, if it chooses to do so, to adjust the yield. See Ispat's Brief at 18. Co-petitioners argue the information found at verification is new information which the Department may disregard. See Co-petitioners' Rebuttal at 19. However, because Ispat failed to provide such information with its factors of production data, Co-petitioners argue the Department should use the information if it "is detrimental to Ispat with respect to differences in Ispat's costs associated with thickness," to encourage full disclosure in future investigations. Co-petitioners also argue that if there is insufficient information on the record to perform the calculations, the Department should apply partial facts available, citing Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from the Russian Federation, 64 FR 38626, 38635 (July 19, 1999) (facts available applied where respondent repeatedly failed to provide CONNUM-specific factors of production data, and the data supplied did not reasonably reflect the actual costs of producing subject merchandise during the POI). Co-petitioners did not specifically address the issue of yield in its rebuttal brief. Department Position: We agree with Co-petitioners, in part. In Ispat's Section D response, Ispat acknowledged that "the only characteristics which vary among the products that Ispat sold to the United States during the period of investigation are yield strength (which is defined by grade), thickness, and width." See Ispat's Section D response (February 26, 2001) at 9. However, Ispat claimed that "the consumption of input raw materials for a particular grade does not vary meaningfully for different dimensions" and chose not to report the factors of production by dimension. Id. Although the Department requested that Ispat revise its factors of production database, explaining that different product characteristics should be reflected in the factors of production, Ispat once again stated that the "quantity of inputs does not vary by dimension." See Ispat's Supplemental Sections C and D response (April 2, 2001) at 6. The Department again requested that Ispat revise its factors of production database to include any yield loss differences due to variances by dimension. In response, Ispat explained that "its submitted factors incorporate the average yield loss experienced for the grade," again claiming that in its experience "the difference in yield loss attributable to different dimension is so small as to have no meaningful impact on the final product cost and therefore no meaningful impact on the Department's analysis." See Ispat's Supplemental Sections A, C and D response (April 13, 2001) at 5. However, at verification, when the Department requested the weighted average yield for three products of different dimensions, Ispat calculated yield ratios which differed from each other by as much as over six percentage points, suggesting a potential discernible difference in yield for subject merchandise overall. See Verification Report at 18 and Exhibit 30. Later in the verification, the Department also discovered Ispat had a report from the technical department, which broke down coefficients to be applied to costs based on specific thickness ranges. See Verification Report at 18-19 and Exhibit 33; see also Ispat's Brief at Exhibit 2. We note that this report shows that Ispat itself recognizes in its own books and records that product costs differ in relation to thickness. Accordingly, we have revised Ispat's factor of production database by applying the coefficients discovered at verification. Comment 6: Dubai Sales Office Ispat takes issue with the Department's verification finding that Ispat failed to describe the corporate entities that make up its Dubai sales office. See Ispat's Brief at 12-13. Ispat argues that this failure was "an inadvertent and harmless error due to its unfamiliarity with the Department's detailed reporting requirements." Ispat's Brief at 13. Ispat points out that it identified its international sales office as relocated to Dubai in April 2000, citing its Section A response at 8 (February 1, 2001) ("Section A response"). Ispat also argues that it described the Dubai sales office's activities, citing its Sections A, C and D Second Supplemental response at 4 (April 13, 2001) ("Second Supp. response"). Ispat states it did not realize it also needed to describe the legal structure of the Dubai sales office in relation to Ispat Karmet. Ispat argues this error does not impact the Department's analysis, arguing that the Department verified that Ispat correctly reported the sales value of the invoice to the unaffiliated customer, and verified the completeness of Ispat's reported sales. Co-petitioners argue that Ispat's failure to disclose the affiliated party information was not a "harmless error." See Co-petitioners' Rebuttal at 20-21. Co-petitioners point out that the Department's questionnaire requires disclosure of affiliated entities involved in the sale of subject merchandise, see e.g. Department's questionnaire at A-5 (January 4, 2001) (requesting "the activities of each affiliated company, with particular attention to those involved with the merchandise under investigation"). However, Co-petitioners assert that Ispat's responses gave no indication of certain affiliated entities involved in the sales process. As a result, Co-petitioners point out that the Department's investigation may have been adversely affected in its selection of verification venue, and by a lack of time to further explore the issue; thus, the impact on the margin related to these unreported affiliates is unclear. Petitioners argue that "nondisclosure warrants sanctions," and cites Notice of Final Results of Antidumping Duty Administrative Review: Certain Welded Carbon Steel Pipes and Tubes from Thailand, 62 FR 53808 (October 15, 1997) ("Pipes and Tubes from Thailand") (Department applied total adverse facts available where the respondent failed to identify affiliated producers and customers in its responses), in support. Department Position: We agree with Co-petitioners. Ispat's failure to disclose the affiliated parties involved in the sales of subject merchandise cannot be considered a "harmless error." The Department specifically stressed the importance of identifying the structure of the sales process in instructing Ispat on how to respond to the questionnaire, including, but not limited to, stating in the Corporate Structure and Affiliations section of the original questionnaire that "it is particularly important that the description of those units involved in the development, manufacture, sale and distribution of the merchandise under investigation be sufficiently detailed to provide the Department with a good working understanding of how these units function within the company" (January 4, 2001 Antidumping Duty Questionnaire at A-4); "Provide a list of all the manufacturing plants, sales office locations, research and development facilities and administrative offices involved in the manufacture and sale of the merchandise under investigation operated by your company. Briefly describe the purpose of each" (Id. at A-5); "Provide an organization chart and description of your company's legal structure. In addition to the chart, provide a list of all companies affiliated with your company through stock ownership . . . Describe also the activities of each affiliated company, with particular attention to those involved with the merchandise under investigation" (Id. at A-5). In its response, Ispat asserted that "Ispat does not have any affiliates involved in the production or sale of the subject merchandise in the United States during the period of investigation." See Section A response at A-11. When asked to reconcile this statement with its consolidated financial statement which appeared to indicate an affiliated party involved with production, Ispat never addressed the existence of these other affiliated parties involved with sales. See Supp. Section A response, at 5. Furthermore, while Ispat identified an "international sales office" in Dubai (see Section A response at A-8), nowhere in its response did it ever identify the unreported affiliated parties, nor did it clarify that its "sales office" actually consisted of two separate affiliated entities. Even when Ispat replaced its original organizational chart for the LNM group structure submitted with its Section A response at Exhibit 8, with the revised organizational chart submitted in its Supp. Section A response at Exhibit 3, Ispat failed to include the two affiliated parties involved in the sale of subject merchandise, which the Department discovered upon verification. See Verification Report at 2, 4-5. Without full disclosure, the Department was left with no knowledge of these affiliates or of the extent of their sales activity in Dubai. Ispat failed to provide the Department information that may have led us to verify in Dubai or to inquire more in-depth on these affiliated entities, and to examine whether there were selling expenses incurred by these affiliated entities which should be deducted from U.S. price. Of particular concern is the possibility that information on price adjustments (e.g. credit notes) was contained at the Dubai office. By failing to report the existence of this office, the Department was prevented from verifying whether any such price adjustments were granted by this office. As a result, the Department is applying partial adverse facts available. Section 776(a)(2) of the Act provides that "if an interested party or any other person--(A) withholds information that has been requested by the administering authority or the Commission under this title, (B) fails to provide such information by the deadlines for submission of the information or in the form and manner requested, subject to subsections (c)(1) and (e) of section 782, (C) significantly impedes a proceeding under this title, or (D) provides such information but the information cannot be verified as provided in section 782(i), the administering authority and the Commission shall, subject to section 782(d), use the facts otherwise available in reaching the applicable determination under this title." Use of facts available is warranted in this case because Ispat failed to identify these affiliated parties involved in the sale of subject merchandise. Section 776(b) of the Act provides that adverse inferences may be used when a party has failed to cooperate by not acting to the best of its ability to comply with a request for information. Ispat knew who its sales affiliates were and therefore had the ability to provide this information to the Department. By failing to identify these affiliated parties in response to the Department's questionnaire and supplemental questionnaires, with the sole explanation of an "unfamiliarity with the Department's detailed reporting requirements," Ispat failed to act to the best of its ability. Accordingly, we have determined that an adverse inference is warranted in selecting from among the facts otherwise available. As an adverse inference, the Department has presumed that credit notes issued by these affiliated entities have gone unreported, and has calculated a weighted-average credit note amount to deduct from those U.S. sales without a reported credit note. Comment 7: Nominal Thickness Ispat takes issue with the Department's Verification Report finding that Ispat misreported thickness, in stating it reported nominal thickness when sales documentation indicated it reported minimum thickness. See Ispat's Brief at 13-16. Ispat argues that, other than instructing to report nominal thickness, the Department's questionnaire offered no clarification or explanation of the term. Ispat claims it is common in the steel industry, and claims the Department verified, that customers specify a "nominal" thickness, and tolerances, when ordering a product. Ispat states that positive and negative tolerances range in combination, but "hot- rolled and other products are typically ordered with equal negative and positive tolerances, which are stated either on a percentage basis or on an absolute basis." Ispat's Brief at 14. Ispat states a number of its customers specified "-0/+x" thickness tolerances for the POI, thus indicating identical nominal and minium thicknesses. Ispat declares that it reasonably interpreted "nominal" thickness to mean the nominal thickness as ordered by the customer and recorded on the invoice, and accurately reported the thickness stated on the invoice. Ispat Brief at 15. Ispat argues that, while the packing lists reviewed by the Department identified thickness as "minimum," the tolerances were "-0/+x," and the thickness shown on the packing list was the same as the thickness on all other sales documents reviewed. Thus, Ispat argues it did not mischaracterize its reported minimum thickness as "nominal," but rather both minimum and nominal thickness were identified and "nominal thickness" reasonably reported. Ispat asserts that the Department "first clarified during verification that it defined nominal thickness as the product's target thickness" and argues it cannot be penalized for unclear instructions. Ispat Brief at 15. However, Ispat states the Department can use the field PRODCD1U and the analysis from verification, identifying how codes would have been reported if target thickness was the bases for reporting thickness, if it chooses to adjust the thickness codes to reflect target thickness. See Verification Report at Exhibit 23. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: We disagree with respondent. The Department's letter issued with its antidumping duty questionnaire clearly instructs that if Ispat has any questions to contact the official in charge. See Department letter to Ispat Karmet (January 4, 2001) at 2. Regardless of what Ispat claims is "common to the steel industry" (without any support for this claim), the Department would have requested minimum thickness if it was interested in minimum thickness. We requested nominal thickness, i.e. target thickness, which was not provided. Accordingly, we are applying the information found at verification to adjust for nominal thickness. Comment 8: Coil Protectors Ispat argues that while the Verification Report notes Ispat failed to report the protective strips used as part of packing for coils, they are accounted for in the factors of production as they are made of galvanized steel produced from Ispat's hot-rolled steel. Ispat argues reporting them separately would result in double counting. See Ispat's Brief at 16. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: We disagree with respondent. While company officials for Ispat stated that protectors are made in-house from its hot-rolled product (see Verification Report at 8), we did not verify that the protectors are made in-house, as doing so would have constituted significant new information which should have been reported prior to verification. We previously informed Ispat that "{n}ew information will be accepted at verification only when (1) the need for that information was not evident previously, (2) the information makes minor corrections to information already on the record, or (3) the information corroborates, supports, or clarifies information already on the record." See Verification Outline at 2. None of these situations apply here. Accordingly, it would be appropriate to assign a surrogate value for the coil protectors used in the packing of subject merchandise. However, because we are unable to find an appropriate surrogate value for coil protectors and, in addition, we note that coil protectors appear to constitute an insignificant portion of the total cost of production, we are not valuing this input for the final determination. Comment 9: Inland Freight Distance Ispat points out the Department verified that Ispat mistakenly reported the round-trip distance as the distance from the plant to the railway. Ispat states the Department should use the verified one-way distance for the final determination, in keeping with Department practice. See Ispat's Brief at 16. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: We agree with respondent. We noted at verification that the distance from the plant to the railway was less than reported by Ispat. See Verification Report at 15 and Exhibit 22. Accordingly, the Department is using the verified one-way distance for this final determination. Comment 10: Manganese Ore Ispat states it mistakenly reported its manganese ore input as both iron ore and manganese ore in its questionnaire response. Ispat claims that the Department verified this, and that it should adjust its calculations to properly reflect the input as manganese ore. See Ispat's Brief at 17. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: We agree with respondent. We are recalculating the transportation cost from the supplier to Ispat to reflect transportation for manganese ore instead of iron ore. However, because we have no appropriate surrogate value on the record with which to value manganese ore, we are continuing to apply the value of iron ore used in the Preliminary Determination to value the input of manganese ore. Comment 11: Packing Bands Ispat noted the Verification Report's verification finding that Ispat misreported the total quantity of packing bands purchased from market economy suppliers. See Ispat's Brief at 17-18. Ispat then notes the Verification Report's finding that Ispat misreported the price of packing bands. Ispat argues that it "instructed its employee to report the average prices for the POI, but apparently it reported the price at the end of the POI." Ispat's Brief at 17. Accordingly, Ispat argues that the Department should use the simple average of the reported price and verification price for packing bands. Ispat does not further address the issue of the misreported quantity. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: We disagree with respondent. At verification, we noted the monthly statement for April 2000 indicated the cost of packing strips as lower than reported in Ispat's Section D response. See Verification Report at 22- 23. However, in viewing a September purchase of packing bands, we noted the price was similar to that reported in Ispat's Section D response. Id. at 23. And in viewing the July purchases of packing bands, we noted that while most of the quantity was at a price similar to that reported in Ispat's Section D response, a small quantity was at a greater price. Id. With the range of prices discovered, there is no evidence on the record indicating that there is a need to average the reported price with the lowest price for packing strips found at verification. Accordingly, we are not changing the price for packing bands used in the Preliminary Determination for the final determination. We note that while Ispat addresses the misreported price, it fails to further address the misreported quantity. We note that at verification, we confirmed the purchase price reported was the per metric ton price from the invoices. See Verification Report at Exhibit 28. Accordingly, our verification finding that Ispat misreported the total quantity of packing bands purchased from market economy supplier has no bearing on the per unit metric ton price reported by Ispat. Furthermore, as a result, we note that we erred in our calculation of per unit value for packing bands in our Preliminary Determination. We mistakenly divided Ispat's reported per unit value by the total quantity of packing bands, instead of merely applying Ispat's reported per unit value for packing bands in our calculation. Accordingly, we are correcting our calculations and using Ispat's reported per unit value for packing bands, from its Section C and D Supplemental Response (April 2, 2001) at Exhibit 5, for this final determination. Comment 12: Sales to Ispat Sidbec Ispat argues that while it failed to report some sales were to its affiliate, Ispat Sidbec, in Canada, the Department verified the sales went on to a Canadian customer, and thus do not affect the Department's analysis. See Ispat's Brief at 18. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: We disagree with respondent. While we did review invoices, purchase orders, and dock receipts between Ispat's affiliate, Ispat Sidbec, and a Canadian customer, we did not confirm that Ispat Sidbec did not make downstream sales to the United States. See Verification Report at 12. Because the information discovered at verification raises the question of whether Ispat may have been deficient in reporting its downstream sales, it would be appropriate to assign facts available to these sales. However, because there are no facts on the record from which to assign facts available, we have made no adjustments for the purposes of this final determination. We note that if this issue arises again in future administrative reviews of an antidumping order, in the event this investigation yields an order, facts available may be applied, including with an adverse inference, should we determine that subject merchandise entered the United States and went unreported. Comment 13: Technical Water Ispat notes the Department's verification finding that Ispat treats its water with chemicals for use in the blast furnace, and argues that it uses "infinitesimal" chemical amounts to treat the water. See Ispat's Brief at 18. Nevertheless, Ispat points to a verification exhibit on the chemical amounts for the Department to use, if it chooses, to adjust its factor calculations. Id. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: While the chemicals used to treat the water for use in the blast furnace is small in comparison to other inputs, they were still inputs that should have been reported. Because natural salt, ferric sulphate, lime, and katonite were used in the production of subject merchandise (see Verification Report at 21 and Exhibit 35), we are modifying our factors of production data to include these chemicals in the margin calculation. We have assigned surrogate values for natural salt and lime for purposes of this final determination. However, because we cannot find appropriate surrogate values for ferric sulphate and katonite, and because we note these chemicals appear to constitute an insignificant portion of the total cost of production, we are not valuing these inputs for the final determination. Comment 14: Silico-manganese Ispat notes the reported usage of silico-manganese for semi-killed products was corrected at verification, and states the Department should adjust its calculations to reflect this correction. See Ispat's Brief at 19. Co-petitioners did not submit comment on this issue in their rebuttal brief. Department Position: We agree with respondent. Accordingly, we are adjusting the silico- manganese figure for semi-killed products to adjust for the corrected figure from verification. See Verification Report at 20. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting the above changes and positions, and adjusting the margin calculation program accordingly. If accepted, we will publish the final determination in the investigation and the final weighted-average dumping margin for the investigated firm in the Federal Register. AGREE___________ DISAGREE___________ __________________________________________ Faryar Shirzad Assistant Secretary for Import Administration __________________________________________ Date ________________________________________________________________________ footnotes: 1. On July 2, 2001, U.S. Steel Group, a unit of USX Corporation, changed its name to United States Steel LLC. United States Steel LLC is a Delaware limited liability company and the successor by merger to USX Corporation.