[Federal Register: June 29, 1998 (Volume 63, Number 124)]
[Notices]
[Page 35190-35200]
DEPARTMENT OF COMMERCE
International Trade Administration
[A-489-501]
Notice of Final Results and Partial Rescission of Antidumping
Duty Administrative Review: Certain Welded Carbon Steel Pipe and Tube
From Turkey
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
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SUMMARY: On February 6, 1998, the Department of Commerce published the
preliminary results of its administrative review of the antidumping
duty order on certain welded carbon steel pipe and tube from Turkey.
The review covers shipments of this merchandise to the United States by
one respondent during the period May 1, 1996, through April 30, 1997.
Based on our analysis of comments received, these final results differ
from the preliminary results. The final results are listed below in the
section ``Final Results of Review.''
EFFECTIVE DATE: June 29, 1998.
FOR FURTHER INFORMATION CONTACT: Charles Riggle or Kris Campbell,
Office of AD/CVD Enforcement 2, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
0650 and (202) 482-3813, respectively.
SUPPLEMENTARY INFORMATION:
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 the Department of Commerce's (the
Department's) regulations refer to the regulations last codified at 19
CFR part 353. While the Department's revised regulations, as codified
at 19 CFR part 351 (Antidumping Duties; Countervailing Duties, 62 FR
27296 (May 19, 1997) (``revised regulations''), do not govern this
review, they do describe the Department's practice where cited in this
notice.
Background
This review covers one manufacturer/exporter, the Borusan Group
(Borusan), of merchandise subject to the antidumping duty order on
certain welded carbon steel pipe and tube from Turkey. On February 6,
1998, the Department published the preliminary results of this review.
See Notice of Preliminary Results of Antidumping Duty Administrative
Review: Certain Welded Carbon Steel Pipe and Tube from Turkey, 63 FR
6155 (Preliminary Results). On March 9, 1998, we received case briefs
from Allied Tube & Conduit Corporation and Wheatland Tube Company
(collectively, ``the petitioners'') and from Borusan. We
[[Page 35191]]
received rebuttal briefs from both parties on March 16, 1998.
Scope of Review
Imports covered by this review are shipments of certain welded
carbon steel pipe and tube products with an outside diameter of 0.375
inch or more but not over 16 inches, of any wall thickness. Imports of
subject merchandise are currently classifiable under the following
Harmonized Tariff Schedule of the United States (HTSUS) subheadings:
7306.30.10.00, 7306.30.50.25, 7306.30.50.32, 7306.30.50.40,
7306.30.50.55, 7306.30.50.85, 7306.30.50.90. These products, commonly
referred to in the industry as standard pipe and tube, are produced to
various American Society for Testing and Materials (ASTM)
specifications, most notably A-120, A-53 or A-135. Although the HTSUS
subheadings are provided for convenience and customs purposes, the
written description of the scope of this proceeding is dispositive.
Partial Rescission
We originally initiated a review of three companies: Borusan,
Yucelboru Ihracat Ithalat ve Pazarlama A.S./Cayirova Boru Sanayi ve
Ticaret A.S. (Yucelboru), and Erbosan Erviyas Boru Sanayii ve Ticaret
A.S. (Erbosan). See Notice of Initiation of Antidumping Duty
Administrative Review, 62 FR 35154 (June 30, 1997). However, as noted
in the preliminary results, Yucelboru and Erbosan notified us that they
had no shipments of subject merchandise during the period of review
(POR). Although we inadvertently did not publish a notice of rescission
at the time of the preliminary results, we did confirm with the Customs
Service that this was correct and so stated in the preliminary results.
See Preliminary Results at 6155. We received no comments concerning
either of these companies for the final results. Therefore, consistent
with our practice (see, e.g., Certain Fresh Cut Flowers From Colombia;
Final Results and Partial Rescission of Antidumping Duty Administrative
Review, 62 FR 53287, 53288 (October 14, 1997), we have rescinded our
review of the two companies with no shipments during the POR. See also
19 CFR 351.213(d)(3) of the Department's revised regulations.
Fair Value Comparisons
We calculated export price (EP) and normal value based on the same
methodology used in the preliminary results. However, as discussed
further below, due to a change in our matching methodology vis a vis
sales disregarded as below cost, we were able to match all U.S. sales
to sales of similar merchandise sold in the home market without
resorting to constructed value (CV).
On January 8, 1998, the Court of Appeals of the Federal Circuit
issued a decision in Cemex v. United States, 1998 WL 3626 (Fed. Cir.)
(Cemex). In that case, based on the pre-URAA Act, the Court discussed
the appropriateness of using CV as the basis for foreign market value
(normal value) when the Department finds home market sales to be
outside the ``ordinary course of trade.''
Although this issue was not raised by any party in this proceeding,
in light of the Cemex decision the Department has reconsidered its
practice with respect to any sales found to be outside the ``ordinary
course of trade.'' Under the URAA, such sales now include sales
disregarded as below cost. See Section 771(15). In accordance with
Cemex, the Department has determined that it would be inappropriate to
resort directly to CV, in lieu of comparison market sales, as the basis
for normal value where sales of merchandise identical to, or most
similar to, that sold in the United States are disregarded as below
cost. Instead, we will use sales of similar merchandise, if such sales
exist, and will resort to CV as the basis for normal value only when
there are no above-cost sales that are otherwise suitable for
comparison. Therefore, in this proceeding, when making comparisons in
accordance with section 771(16) of the Act, we considered all products
sold in the home market as described in the ``Scope of the Review''
section of this notice, above, that were in the ordinary course of
trade for purposes of determining appropriate product comparisons to
U.S. sales. Where there were no contemporaneous sales of identical
merchandise in the home market made in the ordinary course of trade to
compare to U.S. sales, we were able to compare U.S. sales to
contemporaneous sales of the most similar foreign like product made in
the ordinary course of trade, based on the matching characteristics
identified in the preliminary results. See Preliminary Results at 6156.
Cost of Production
As discussed in the preliminary results, we conducted an
investigation to determine whether Borusan made home market sales of
the foreign like product during the POR at prices below its cost of
production (COP) within the meaning of section 773(b)(1) of the Act.
We calculated the COP following the same methodology as in the
preliminary results, with the following exceptions.
1. While we based our calculation of interest expenses on the
interest expenses of the consolidated Borusan Group companies, we have
allocated this expense (which was reported on an annual basis) to each
month of the POR using the ratio of monthly to annual interest expenses
for the four largest of the Borusan Group companies, consistent with
the 1994-95 review. We have also recalculated Borusan's amortized
foreign exchange losses. See Comment 7.
2. We have valued purchases of coil and zinc by Borusan's mills
from affiliated parties at the higher of the cost of producing the
input, the transfer price, or the market price. See Comment 8.
3. We added packing to the cost of manufacturing (COM) in order not
to understate the calculation of general and administrative expenses
(G&A) and interest, because the cost of goods sold (COGS) used in the
denominator to calculate the G&A and interest expense factor includes
packing. See Comment 9.
4. We deducted imputed credit expenses from CV. See Comment 10.
5. We corrected a clerical error regarding indexation of monthly
costs. See Final Results Analysis Memorandum from Case Analyst to File:
Pipe and Tube from Turkey (June 8, 1998) (Final Results Analysis
Memorandum).
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. As noted above, we received comments and rebuttal
comments from the petitioners and from Borusan.
Comment 1: Level of Trade
The petitioners submit the following comments regarding the level-
of-trade analysis in the preliminary results: (1) the Department
incorrectly determined that there are two levels of trade in the home
market without sufficient record evidence that home market sales differ
significantly in terms of the stage of marketing involved (see Comment
1A, below); (2) because there is only one home market level of trade,
the Department incorrectly granted a level-of-trade adjustment when
comparing U.S. sales to one of the two purported home market levels
(see Comment 1A, below); (3) even if the Department finds two home
market levels of trade, no adjustment should be made because Borusan
has not demonstrated a causal
[[Page 35192]]
link between (a) differences in the marketing stages between the two
levels and (b) pricing differences between the two levels, i.e., it has
not shown that marketing differences at the two purported levels have
caused pricing differences at the two levels (see Comment 1B, below);
and (4) if a level-of-trade adjustment is granted, it should be
calculated on a reseller-specific basis (see Comment 1C, below).
Comment 1A--Identification of Home Market Levels of Trade
The petitioners state that there is only one level of trade in the
home market because there are no significant differences in the stage
of marketing for any of Borusan's purported levels of
trade.1 The petitioners contend that, based on an analysis
of the customer class and the selling functions involved, LOT C sales
should not be considered as a separate level of trade.
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\1\ Borusan initially claimed three home market levels of
trade--sales shipped directly from the mill to distributors/
wholesalers (LOT A, ``mill direct''), sales made by affiliated
resellers that also involve direct shipment from the mill to the
customer (LOT B, ``reseller back-to-back''), and sales made by
affiliated resellers out of locally maintained forward inventory
(LOT C, ``reseller inventory sales''). As in the 1994-95 review, we
collapsed LOTs A and B in the preliminary results, but found that
LOT C sales were made at a level of trade separate from LOT A/B
sales. Contrary to the 1994-95 review, however, we found a pattern
of consistent price differences between the two levels, and made a
level-of-trade adjustment when comparing U.S. sales with LOT C
sales. See Preliminary Results at 6158; see also Notice of Final
Results of Antidumping Duty Administrative Review: Certain Welded
Carbon Steel Pipe and Tube from Turkey, 61 FR 69067, 69068-69069
(December 31, 1996) (1994-95 Final Results).
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The petitioners first emphasize that the type of customer is an
important factor in the level-of-trade analysis. Referencing the
preamble to the Department's revised regulations (Preamble to
Antidumping Duties; Countervailing Duties, 62 FR 27296, 27371, (May 19,
1997) (Preamble)) and Gray Portland Cement and Clinker from Mexico:
Final Results of Antidumping Duty Administrative Review, 62 FR 17148,
17156 (April 9, 1997) (Mexican Cement), the petitioners state that
different levels of trade necessarily involve purchasers at different
places in the chain of distribution. According to the petitioners,
Borusan's mill direct sales at LOT A, back-to-back sales through
resellers at LOT B, and reseller inventory sales at LOT C all involve
sales to end users. The petitioners submit that Borusan has shown only
that there are sales to different types of end users at all three
claimed levels of trade, and argue that distinctions among types of end
users are not relevant to a determination regarding whether such
customers occupy different places in the chain of distribution.
Regarding selling functions, the petitioners contend that four of
the 12 claimed selling functions as reported by Borusan are not selling
functions at all, and maintain that the remaining eight do not show any
material difference in the nature or level of selling function being
provided. The petitioners claim that inventory maintenance is the only
significant selling function present in LOT C and not in LOT A/B. Even
here, however, the petitioners contend that LOT A/B sales also involve
maintaining inventory at the mill, and argue that any difference in the
inventory maintenance at the two levels is not significant in terms of
the level-of-trade analysis. Citing Notice of Final Determination of
Sales at Less Than Fair Value: Certain Pasta from Italy, 61 FR 30326,
30337 (June 14, 1996) (Pasta from Italy), the petitioners assert that
mere differences in the degree to which a particular selling function
is performed are given little weight in establishing separate levels of
trade. The petitioners add that it is rare that the Department would
find that any single selling function is so significant as to warrant a
finding of different levels of trade, citing Preamble to Antidumping
Duties; Countervailing Duties; Proposed Regulations, 61 FR 7308, 7348
(February 27, 1996) (Proposed Regulations). The petitioners conclude
that, since LOT C sales are not made at a level of trade separate from
LOT A/B, no adjustment should be made for comparisons involving LOT C
sales.
Borusan responds that, although it disagrees with the Department's
determination to collapse LOTs A and B, the Department should continue
to find at least two levels of trade (LOT A/B and LOT C) because
Borusan has adequately demonstrated the existence of separate and
distinct levels of trade in the home market. Borusan characterizes its
home market channels of distribution as follows: LOT A involves made-
to-order sales direct from the mill to sophisticated, unaffiliated
distributor/resellers at high volumes; LOT B sales are made through
affiliated resellers primarily to unaffiliated distributors, on an FOB-
mill basis where the merchandise is shipped directly to the customers
without the merchandise entering the resellers' inventory; and, LOT C
sales are made by the resellers out of locally maintained forward
inventory to small local retailers and end users.
Borusan argues that its sales at LOT C involve several
qualitatively and quantitatively different selling functions than those
involved in LOT A/B. Principally, Borusan claims, LOT C sales are made
out of pre-positioned inventory from regional warehouses instead of
directly from the mill. According to Borusan, this sales process does
not involve only inventory maintenance, but also requires the
performance of a number of additional functions (and the incurrence of
certain additional selling expenses) at the LOT C level, including
forecasting of regional demand for different products, inventory
planning, placing orders with the mill, making arrangements for
shipping from the mill, and incurring inventory carrying costs during
the holding period. Borusan argues further that, since LOT C sales are
routinely made to small, local retailers and end-users, LOT C resellers
are involved in customer education and problem-solving, and providing
advice on suitability, uses, and characteristics of Borusan's products.
Finally, with respect to the petitioners' argument that inventory
maintenance occurs at both LOT A/B and LOT C, Borusan notes that LOT C
involves the pre-positioning of forward inventory, a selling function
that the Department has recognized as both significant in and of
itself, and distinct from the inventory maintenance that occurs at the
mill, citing Pasta from Italy at 30341-30342.
DOC Position: We continue to find that there are two home market
levels of trade, LOT A/B and LOT C. We also find that LOT C involves a
more remote level than LOT A/B. For these final results, we have
continued to match U.S. sales first to LOT A/B; where we matched U.S.
sales to LOT C, we have granted a level-of-trade adjustment, as
discussed further in our response to Comments 1B and 1C below.
In order to find that sales are made at different levels of trade,
we must determine that such sales involve different stages of
marketing. See 19 CFR 351.412(b)(2). As a threshold matter, we analyze
selling functions to determine if the levels of trade identified by a
party are meaningful. Preamble at 27371. Our examination of the record
evidence in this case confirms that, consistent with our preliminary
results and with the final results of the 1994-95 review,2
there are significant differences in the selling functions involved in
LOT A/B sales in comparison with those involved in LOT C sales.
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\2\ No review was conducted with respect to the 1995-96 period.
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At LOT A/B, Borusan makes home market sales directly from the mill
to large, sophisticated customers or, in a
[[Page 35193]]
`back-to-back' manner, where the sale is made by an affiliated reseller
who does not take the merchandise into its inventory. In both
instances, sales are made on an FOB-mill basis, and Borusan's customers
make their own transportation arrangements regarding delivery of the
merchandise from the mill. At LOT C, Borusan: (1) makes low-quantity
sales to smaller customers through affiliated resellers who take the
merchandise into inventory prior to the sale; (2) provides delivery
services once the sale is made; and (3) maintains more intensive and
frequent interactions with the customer. Thus, contrary to the
petitioners' assertions, we find that there is more than one
significant selling function that occurs at LOT C and not at LOT A/B.
We discuss each in turn, below.
First, while it is not the only difference between LOT C sales and
LOT A/B sales, inventory maintenance is a principal selling function
that distinguishes these levels. Since LOT C sales are made out of
stock, the affiliated resellers at LOT C have the responsibility of
storing merchandise before purchasers have been found. The additional
responsibility of maintaining merchandise in inventory also gives rise
to related selling functions that are performed at LOT C. These include
forecasting of regional demand for different products, inventory
planning, placing orders with the mill, and incurring inventory
carrying costs during the holding period. We also note that, in taking
merchandise into inventory at LOT C, Borusan's affiliated resellers
perform delivery-related functions that are not performed at LOT A/B,
including: (1) arranging for shipment of merchandise involved in LOT C
sales from the mill to the affiliated reseller's warehouse; and (2)
providing immediate local delivery of such pre-positioned inventory
once the sale is made to the final customer. See Borusan Questionnaire
Response Section A (Borusan section A response) at 14 (resellers making
LOT C sales ``specialize in providing immediate local delivery of
standard grades which they keep in inventory'').
The additional forward warehousing and related activities performed
by the affiliated resellers in making LOT C sales, as described above,
constitute a distinct set of selling activities separate from any
inventory maintenance performed at the mill. Thus, we disagree with the
petitioners' contention that, since some form of inventory maintenance
is conducted at each level of trade, any differences in this selling
function are insufficient to support a finding of different levels of
trade. Considering the additional selling functions associated with
maintaining inventory at the affiliated reseller's warehouse for LOT C
sales, we do not accept the petitioners' claim that the inventory
maintenance performed at Borusan's mills is so similar to the reseller
forward warehousing performed by affiliated resellers making LOT C
sales as to render the differences in inventory maintenance between LOT
A/B and LOT C sales insignificant for our analysis.
In addition to the inventory-and delivery-related selling
activities described above, LOT C sales, which are typically smaller-
volume sales, involve customer-based selling activities specific to the
customers involved in such sales, which, as further discussed below,
differ in the aggregate from the customers served by LOT A/B. These
include customer education and advice on the suitability, uses, and
characteristics of Borusan's products.
Based on the above analysis of selling activities, we have
determined that there are meaningful distinctions between LOT A/B and
LOT C. Aside from selling functions, we also consider the type of
customer and the level of selling expenses in determining whether sales
are made at different stages of marketing. See Preamble at 2731.
Regarding the petitioners' arguments with respect to customer class,
while we agree with the petitioners that the type of customer is an
important indicator in identifying levels of trade (id.), we disagree
with their assertion that the fact that both levels of trade involve
some sales to end-users requires a finding that there are no customer
differences between these levels. First, as a point of clarification,
Borusan's LOT C sales are made not only to end users, but also to local
distributors and small retailers. Second, the relevant standard,
regardless of customer labels, is whether the customers involved at
each purported level of trade constitute purchasers at different stages
in the chain of distribution. See Antifriction Bearings from France et
al.; Final Results of Antidumping Duty Administrative Reviews, 62 FR
54053, 54055 (October 17, 1997) (AFBs 1995-96).
The record evidence before us indicates that LOT C customers occupy
a different place in the chain of distribution than do LOT A/B
customers. At LOT C, the affiliated resellers tend to make sales in
small quantities (``sometimes just a few pieces of pipe at a time'') to
these customers. Borusan section A response at 13. In contrast, Borusan
makes mill direct sales only to the following customers: affiliated
companies, customers requiring special technical services, or customers
located in Istanbul that purchase at high volume. Id. at 12.
Finally, with respect to the level of selling expenses involved at
each channel of distribution, our examination of the expenses reported
on home market sales indicates that, as Borusan claims, the per-unit
indirect selling expenses are higher for sales made through LOT C than
for those made at LOT A/B. Consistent with the Department's practice
and regulations, we have considered this as an additional factor in our
determination that LOT C is separate from, and more advanced than, LOT
A/B.
Comment 1B--Price Differences Between Levels of Trade
The petitioners contend that, even if the Department correctly
determined that Borusan's LOT C sales were made at a different level of
trade than its LOT A/B sales, the Department erred in granting a level-
of-trade adjustment with respect to comparisons made to LOT C sales.
According to the petitioners, Borusan has not demonstrated that any
price differences that exist between LOT A/B and LOT C are due to the
difference in level of trade. The petitioners note that the Statement
of Administrative Action accompanying the URAA (SAA) provides that the
Department will grant a level-of-trade adjustment only where there is a
difference in level of trade and the difference affects price
comparability. Therefore, the petitioners claim, the burden is on
Borusan to demonstrate a ``causal link'' between the difference in
selling functions and the difference in prices.
The petitioners argue that, in this case, one likely reason that
prices for sales at LOT C are higher than at LOT A/B is because of the
smaller volumes involved in LOT C sales. In this respect, the
petitioners reference the SAA (at 830) for the proposition that the
Department must ``ensure that a percentage difference in price is not
more appropriately attributable to differences in the quantities
purchased in individual sales.'' The petitioners also suggest that
another factor in higher LOT C prices is the fact that trade discounts
are offered at LOT A/B but not at LOT C. The petitioners conclude that,
because Borusan has made no effort to discount the impact of non-level-
of-trade factors that account for the difference in prices, it is not
entitled to a level of trade adjustment.
Borusan responds that there is no provision in the statute or
regulations that requires that there be a causal link
[[Page 35194]]
between different selling functions and differences in prices. Rather,
Borusan asserts, after finding separate levels of trade, the Department
need only find that a pattern of price differences exists at different
levels of trade, which allows the presumption that the price
differences are attributable to different levels of trade. Borusan
agrees in part that the price differences here arise because of a
difference in quantities sold at each level; however, Borusan disagrees
with the petitioners' interpretation of the SAA's provision regarding
quantities and level-of-trade adjustments. Borusan argues that the
petitioners have taken this quote out of context, as it is only
intended to be illustrative of the Department's concern against double-
counting when a party claims both a level-of-trade adjustment and an
adjustment for differences in quantities.
DOC Position: We agree with the petitioners that we may adjust for
differences in levels of trade only when such a difference is
``demonstrated to affect price comparability,'' as provided at section
773(a)(7)(A)(ii) of the Act. However, this sub-section also explicitly
provides for how any such effect on price comparability is to be
determined, i.e., based on ``a pattern of consistent price differences
between sales at different levels of trade in the country in which
normal value is determined.'' Id. In this case, as stated in the
preliminary results, we determined that a pattern of consistent price
differences existed because we found the monthly average prices were
higher at one level of trade for virtually all models and months as
well as for virtually all sales. See Preliminary Results at 6158.
Therefore, we cannot accept the petitioners' argument that Borusan must
otherwise demonstrate a ``causal link'' between the difference in
selling functions and prices in order to receive a level-of-trade
adjustment for comparisons involving LOT C sales.
The Department ruled definitively on this issue in Antifriction
Bearings from France et al., 62 FR 2081, 2108 (January 15, 1997) (AFBs
1994-95). In addressing an argument made by the petitioner in that case
that various respondents had failed to demonstrate that differences in
prices were due to differences in the selling functions performed at
each level of trade, the Department stated:
The adoption of [the petitioner's] ``due to'' standard would
impose an independent causation requirement upon both the level-of-
trade adjustment and CEP-offset provisions. Such a requirement is
neither required by the statute nor administratively feasible.
Id.
We also note the following regarding the petitioners' arguments
concerning the effect on prices of (1) Borusan's discount policy and
(2) the quantities sold at each level of trade. First, regarding the
argument that the lower net prices at LOT A/B are caused in part by
greater discounts granted at this level versus those granted at LOT C,
while we agree that such differences in Borusan's discount policy
between levels of trade may result in lower net prices at LOT A/B, this
does not change that fact that such differences in net prices between
levels of trade exist. Regarding the petitioners' argument concerning
differences in quantities sold, the SAA provision cited by the
petitioners regarding quantity differences vis a vis the level-of-trade
analysis concerns the importance of not double-counting any quantity
adjustment already granted (no quantity adjustment was made in this
case). In this respect, the SAA provides:
Commerce will isolate the price effect, if any, attributable to
the sale at different levels of trade, and will ensure that expenses
previously deducted from normal value are not deducted a second time
through a level of trade adjustment.
SAA at 830. See also Senate Report on the Uruguay Round Agreements Act,
which provides as follows:
[S]ection 224 first creates section 773(a)(7)(A) providing for
level of trade adjustments. Under this new provision, Commerce is
directed to increase or decrease normal value to make due allowance
for any difference (or lack of difference) between normal value and
export price or constructed export price that is shown to be wholly
or partly due to a difference in level of trade. To avoid double
counting, however, this new section expressly precludes level of
trade adjustments to account for differences for which an allowance
has already otherwise been made.
Joint Report of the Committee on Finance et al., Uruguay Round
Agreements Act, S. Rep. No. 103-412, at 70 (1994) (emphasis added).
Comment 1C--Reseller-Specific Level-of-Trade Adjustment
The petitioners contend that, in the event the Department continues
to grant a level-of-trade adjustment for comparisons involving home
market sales made at LOT C, it should make the adjustment on a
reseller-specific basis. The petitioners argue that this is a more
accurate methodology because it reflects the average amount of
additional inventory maintenance performed by the specific reseller
involved in each transaction.
Borusan responds that there is no legal basis for making the level-
of-trade adjustment on a reseller-specific basis. Borusan states that
the Department's revised regulations regarding level of trade state
that the Department will normally calculate the amount of a level-of-
trade adjustment by: (1) calculating the weighted-averages of the
prices of sales at the two home market levels of trade; (2) calculating
the average of the percentage differences between those weighted-
average prices; and (3) applying this average percentage difference to
normal value. See 19 CFR 351.412(e). Thus, Borusan concludes, the
adjustment is to be made using a combined weighted-average of all sales
at a particular level of trade.
DOC Position: We agree with Borusan that the revised regulations
provide for a weighted-average adjustment. Further, the SAA states that
``any adjustments under section 773(a)(7)(A) will be calculated as the
percentage by which the weighted-average prices at each of the two
levels of trade differ in the market used to establish normal value.''
See SAA at 830. Accordingly, we have not changed the manner in which we
have calculated the adjustment for these final results.
Comment 2: Home Market Indirect Selling Expenses
The petitioners argue that, because Borusan failed to follow the
instructions in the Department's initial questionnaire regarding one of
its two reported home market indirect selling expense fields, the
Department should re-calculate these expenses based on adverse facts
available. The petitioners' comments concern the INDIRSH1 expense, for
which Borusan calculated separate factors based on the indirect selling
expenses of each company that makes the final sale to the unaffiliated
customer (i.e., expenses incurred by the mills--Borusan Boru (BBBF),
Kartal Boru, and Bosas--for LOT A sales, and expenses incurred by
resellers for LOT B 3 and LOT C sales), allocated across
home market sales made by each company. Borusan's specific deficiencies
with respect to the Department's instructions include the following,
according to the petitioners: (1) the failure to provide a list of
overhead expenses itemizing the specific elements of each company's
expenses, and (2) the submission of worksheets that are meaningless
because they do not demonstrate either the amount of each type of
expense or
[[Page 35195]]
the manner in which it was derived and allocated.
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\3\ Although, as noted above, we consider Borusan's claimed LOT
A and LOT B sales to be made at the same level of trade, we continue
to refer to sales made through the back-to-back reseller channel as
`LOT B' sales for ease of reference and in keeping with the
terminology used by the interested parties in this case.
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The petitioners also list a number of indirect selling expense and
sales values that purportedly do not reconcile with Borusan's financial
statements. Due to the proprietary nature of this list of selling
expenses and sales values, we are unable to summarize or address the
petitioners' specific comments in this regard. We address these claims
further in the Final Results Analysis Memorandum.
Noting that the Department did not conduct a verification of
information provided by Borusan in this review, the petitioners assert
that the accuracy of the Department's margin calculation depends almost
entirely on Borusan's cooperation and responsiveness, and maintain that
Borusan's disregard of the Department's instructions is tantamount to
failing verification. The petitioners claim that Borusan should,
therefore, be deemed an uncooperative respondent, and its indirect
selling expenses should be calculated using adverse facts available,
based on the precedent established in Olympic Adhesives, Inc. v. United
States, 899 F.2d 1565, 1571 (Fed. Cir. 1990). The petitioners recommend
that the Department apply the highest indirect selling expense factor
calculated for any member of the Borusan Group to each producer and
reseller in the Borusan Group.
Borusan responds that its indirect selling expenses were adequately
documented and, therefore, should not be modified. First, Borusan
explains that, in response to the Department's instructions, it
provided a complete explanation of how indirect selling expenses were
calculated for BBBF, the largest pipe producer in the Borusan Group,
and for Bozoklar, an affiliated reseller. Second, Borusan explains
that, for this review, it used the same methodology that was verified
and accepted by the Department in the 1993-94 and 1994-95 reviews.
DOC Position: Consistent with the past two reviews involving this
company, we have accepted Borusan's methodology for reporting indirect
selling expenses.
Section 776 of the Act provides, inter alia, that the Department
shall apply facts available if an interested party withholds
information that has been requested by the Department. In this case,
there is no basis upon which to apply facts available as Borusan has
provided the necessary information requested.
First, we do not agree with the petitioners regarding the adequacy
of the supporting documentation submitted by Borusan concerning its
INDIRSH1 expense. In its response to our supplemental questionnaire,
Borusan provided detailed support for indirect selling expenses
incurred by the largest pipe producer (BBBF) and by one of its largest
resellers (Bozoklar). See Borusan sections A-D supplemental
questionnaire response (December 19, 1997) (Borusan supplemental
response), at Exhibits 13-14. As we explain further in the Final
Results Analysis Memorandum, this documentation supports the reported
expense and is in accordance with the company's normal books and
records.
Regarding the petitioners' proposal that we treat Borusan as if it
had failed verification due to the failure to provide information
requested by the Department, as noted above, we have no basis for that
decision; accordingly, we have not changed the calculation of Borusan's
indirect selling expenses. In addition, we note that: (1) we conducted
successful verifications of this company in the past two administrative
reviews; (2) no verification was required for Borusan in this
administrative review; and (3) the petitioners did not request that we
verify Borusan's data in this review.
Comment 3: Allocation of Home Market Inland Freight From Plant to
Warehouse, Warranty, and Interest Revenue
The petitioners contend that Borusan's calculations of home market
inland freight from plant to warehouse, warranty expenses, and interest
revenue on an annual basis are distortive and should have been
calculated on a monthly basis. Citing Tapered Roller Bearings and Parts
Thereof, Finished and Unfinished, from Japan and Tapered Roller
Bearings, Four Inches or Less in Outside Diameter, and Components
Thereof, from Japan (TRBs from Japan), 63 FR 2565 (January 15, 1998),
the petitioners state that the Department's practice is to accept
allocations only if they are not distortive and the respondent is fully
cooperative but unable to report the information in a more specific
manner.
With respect to inland freight from plant to warehouse, the
petitioners argue that the allocation of freight charges across the
entire POR is distortive, and maintain that Borusan has not shown that
it is unable to report this expense on a monthly basis. Regarding
warranty expenses, the petitioners assert that in addition to
allocating this expense on an annual basis, Borusan has failed to
comply with the Department's instructions to report such expenses on a
model-specific basis, or on the most product-specific basis possible.
Regarding interest revenue, the petitioners claim that Borusan's
customer-specific allocations are insufficient because, as with inland
freight and warranty, allocating this revenue on a yearly basis does
not properly account for inflation in Turkey. The petitioners request
that the Department base freight charges and warranty expenses on
adverse facts available by not deducting these expenses from normal
value; for interest revenue, the petitioners recommend the highest
revenue reported for any customer during the POR.
Borusan responds generally that: (1) its responses to the
Department's information requests concerning these expenses were
complete; (2) while the Department requested further explanation
regarding how Borusan calculated these charges, it never instructed
Borusan to recalculate the expenses once Borusan supplied these
explanations; and (3) the petitioners have provided no evidence for
their assertion that Borusan's methodology with respect to these
expenses is distortive.
Regarding inland freight expenses, Borusan cites to its
supplemental questionnaire response, wherein the company provides an
explanation regarding why it would be extremely burdensome to tie
particular freight invoices to particular sales invoices. Borusan
argues that its approach is reasonable given the large number of home
market sales. In addition, Borusan notes that it based its reporting of
freight charges on calendar year 1996, which the company maintains is
conservative since, in so doing, it applied an average 1996 charge per
ton to POR sales, including those made in 1997. According to Borusan,
it is the Department's practice to accept values from the fiscal year
that most closely approximates the POR when the POR spans two fiscal
years.
Regarding the warranty expense, Borusan states that the
Department's supplemental questionnaire focused on inquiring into why
Borusan had calculated warranty expenses on a calendar-year basis
instead of on a POR basis. Borusan states that it explained in its
responses the calculation of warranty on a fiscal year basis is
appropriate because it most closely reflects the POR. Borusan adds
that, as with inland freight, it is conservative to calculate home
market warranty expenses on a calendar-year (1996) basis given the high
inflation rate in Turkey.
Finally, regarding interest revenue, Borusan states that, as
explained in its supplemental response, it is unable to tie these
charges to individual
[[Page 35196]]
transactions. Borusan adds that calculating this item on an annual
basis is less distortive than a monthly calculation because interest
collected in one month generally relates to invoices from a prior
month.
DOC Position: We do not agree with the petitioners' claim that,
because Borusan's home market inland freight expense, warranty expense,
and interest revenue were not reported on a monthly basis, we should
base these items on adverse facts available. However, we have
determined that Borusan incorrectly reported home market inland freight
expenses for certain LOT B sales, because the terms of sale indicate
that these expenses were not incurred on such sales. We have not
adjusted for inland freight with respect to LOT B sales.
We first address the petitioners' claims regarding monthly versus
annual expense allocations. In our supplemental questionnaire, we asked
Borusan for further clarification regarding a number of aspects of its
reporting of these items, including requests for further descriptions
of the allocation methodologies used in calculating the per-unit
amounts reported in Borusan's home market sales database. Our questions
concerned primarily: (1) the allocation of the inland freight expense
to subject versus non-subject merchandise; (2) the feasibility of
reporting the inland freight expense on a transaction-specific basis;
(3) the direct versus indirect nature of the warranty expense; and (4)
the rationale for reporting the warranty expense on a calendar-year, as
opposed to POR, basis. See, e.g., questions 34-36, and 39, of the
Department's supplemental questionnaire (November 21, 1997). Borusan
addressed each of our questions in turn in its supplemental response.
See Borusan Supplemental Response at 29-33. Borusan's initial
questionnaire response also addressed the basis for its reporting of
interest revenue using a customer-specific methodology. See Borusan
Questionnaire Response for sections B-D (September 8, 1997) (Borusan
sections B-D response).
While we requested further information regarding various aspects of
Borusan's allocation methodologies, we did not request the company to
report these items on a monthly basis in either the initial or the
supplemental questionnaire. Given that we did not request that Borusan
report these items in this manner, it would be inappropriate to resort
to adverse facts available as requested by the petitioners.4
---------------------------------------------------------------------------
\4\ In the event that future reviews of this order are
requested, we will reconsider whether to request certain selling
expense information on a monthly basis.
---------------------------------------------------------------------------
However, we did not deduct freight expenses reported in the home
market sales listing for LOT B sales, because Borusan has clearly
indicated that such sales are made on an FOB-mill basis. Borusan
allocated its freight expenses on a reseller-specific basis, allocating
total freight expenses across all sales by each reseller, regardless of
whether the sale was made at claimed LOT B or at LOT C. In response to
our request that it report inland freight expenses on a transaction-
specific basis, Borusan explained in its supplemental response (at 30-
31) that it was unable to do so due to the large number of transactions
involved, and, instead, continued to allocate these expenses across all
sales by reseller. Thus, if a reseller made both LOT B and LOT C sales,
Borusan reported per-unit freight expenses (Inland Freight, Plant to
Distribution Warehouse; Inland Freight, Plant/Warehouse to Customer)
for both LOT B and LOT C sales made by that reseller. In providing this
explanation, Borusan referred to delivery expenses incurred on ``back-
to-back'' sales. However, Borusan has clearly indicated, in a number of
places in its questionnaire responses and in its case briefs, that the
terms of sale for LOT B sales do not include delivery. See Borusan
section A response at 13 (describing the delivery process on LOT B
sales: ``The customer arranges for the transportation of the
merchandise from the mill to the intended destination.''); see also
Borusan sections B-D response at B-15, regarding terms of delivery for
each channel of distribution; see also Borusan rebuttal brief at 5:
(``LOT B sales involve shipment of the merchandise on an FOB-mill basis
directly to the customers without the merchandise entering into the
resellers' inventory.'') Although one element of the inland freight
from plant to warehouse expense (truck loading expense) is reportedly
incurred on all domestic shipments of merchandise produced by one mill
(BBBF), Borusan provided no means of isolating this expense from the
other inland freight expenses that it did not in fact incur on LOT B
sales. Accordingly, for these final results, we have not made a
deduction for inland freight expenses with respect to sales made at LOT
B.
Comment 4: Pre-Sale Warehouse Expenses
The petitioners assert that the Department should deny any
adjustment to normal value for Borusan's pre-sale warehouse expenses
based on Borusan's failure to quantify these expenses properly.
According to the petitioners, Borusan did not take the following
actions, as required by the initial questionnaire: (1) Borusan did not
list all warehouse locations used to distribute the foreign like
product; (2) Borusan did not follow the instructions that it report as
pre-sale warehouse expenses direct warehouse expenses only, and that it
include indirect expenses for pre-sale warehousing among its reported
indirect selling expenses; and (3) Borusan did not describe how the
indirect and the direct costs of warehouse operations were separated.
The petitioners state that, instead, Borusan simply calculated the
reported pre-sale warehouse expense for each reseller by dividing the
total warehouse expense incurred during 1996, including indirect
expenses, by the total quantity of goods sold out of stock in 1996. In
light of these alleged failures to comply with the Department's
instructions, the petitioners assert that the Department should deny
any deduction to normal value for pre-sale warehouse expenses.
Borusan responds that it properly documented its pre-sale warehouse
expenses incurred in connection with home market sales. First, Borusan
claims, the Department's policy, pursuant to section 773(a)(6) of the
Act, is to make an adjustment to normal value for warehouse expenses,
such as these, that are incurred at remote selling locations, citing
Certain Porcelain-on-Steel Cookware From Mexico: Final Results of
Administrative Review, 62 FR 42496 (August 7, 1997) (Cookware from
Mexico). Borusan adds that its calculation of pre-sale warehouse
expenses was prepared according to the methodology that was verified
and accepted by the Department during the two most recent reviews.
Finally, Borusan states, the Department did not ask in a supplemental
questionnaire for additional information regarding Borusan's
calculation of pre-sale warehouse expenses and, because the petitioners
have provided no evidence to serve as a basis for the denial of an
adjustment for Borusan's pre-sale warehouse expenses, the Department
should continue to make this adjustment to normal value.
DOC Position: We have accepted as a movement expense the pre-sale
warehouse expenses claimed by
[[Page 35197]]
Borusan. With respect to the petitioners' concern regarding the listing
of warehouse locations, we note that Borusan did provide, in its
initial questionnaire response (at Exhibit B-7), a list of locations
for warehouses leased by its affiliated resellers. (Borusan incurred
this expense for sales involving such leased warehouses but not with
respect to warehouses owned by its affiliates.) With respect to the
petitioners' concern regarding direct versus indirect warehouse
expenses, first, we consider warehousing expenses that are incurred
after the foreign like product leaves the original place of shipment as
movement expenses. See 19 CFR 351.401(e)(2). Second, Borusan properly
isolated this expense to only those sales on which it was incurred,
i.e., sales of merchandise stored in leased warehouses. Accordingly, we
have accepted Borusan's reporting of this expense.
Comment 5: Packing Costs
The petitioners argue that Borusan failed to create a factual
record supporting its calculation of packing costs for both the
comparison market and the United States market and, therefore, the
Department should calculate Borusan's packing costs using adverse facts
available.
First, the petitioners claim that sections B and C of the
Department's questionnaire instructed Borusan to do the following: (1)
Describe the packing types used in the comparison market and those used
to prepare merchandise for shipment to the United States; (2) submit
worksheets listing the packing materials used, the average cost of each
material, how much of each material was used, the average labor hours
by packing type and the average per-hour labor cost, including
benefits; and, (3) provide a list of overhead expenses incurred in
packing and demonstrate how those expenses were allocated by packing
type.
Instead, the petitioners argue, Borusan merely stated that: (1) It
packs standard pipe for shipment in both the export and the domestic
markets by tying bundles of pipes together with metal straps; and, (2)
the reported packing cost includes the costs of labor, materials and
overhead incurred during each month allocated over the total metric
tons packed.
The petitioners argue further that, while section D of the
Department's questionnaire requests a complete and detailed description
of each stage of the production process, Borusan's description of the
packing stage merely states that the pipe is marked and bundled for
final shipment. While acknowledging that Borusan lists some packing
materials in response to this item, the petitioners maintain that
Borusan neglected to explain whether all bundles are packed in the same
manner, or to report the quantities and costs of each packing material
used. Likewise, the petitioners argue, Borusan failed to provide
average labor hours and average labor costs per hour for packing, and
provided no explanation for its allocation of packing overhead
expenses. Finally, the petitioners challenge Borusan's methodology for
allocating packing costs by weight, and insist that packing costs in
the pipe industry are largely a function of the number of pieces being
packed, not the weight.
For these reasons, the petitioners suggest that, consistent with
Circular Welded Non-Alloy Pipe and Tube From Mexico: Final Results of
Antidumping Duty Administrative Review, 62 FR 37014, 37020 (July 10,
1997) (Pipe and Tube from Mexico), the Department should double the
average reported home market packing costs and use that as the U.S.
packing cost as adverse facts available.
Borusan responds that the petitioners' arguments are without merit,
and maintains that the petitioners have overlooked important
information contained in Borusan's response. First, Borusan asserts
that varnishing costs are materials costs (and were fully discussed in
Borusan's sections B-D response at D-41-42) and not packing costs as
argued by the petitioners. Second, Borusan claims that it provided
allocation worksheets (at Exhibit D-13) that clearly explain the
derivation of the reported per-unit costs for each month of the POR.
With respect to the petitioners' argument that Borusan failed to
provide a list of variable overhead expenses incurred in packing,
Borusan points out that it reported (at D-8) a list of the packing
material used to bundle the pipes for shipment, plus the amount and
description of each overhead expense incurred in packing.
Finally, Borusan claims that, while the petitioners objected to
Borusan's allocation of packing costs based on weight, they offered no
evidence to support a claim that Borusan's allocation methodology is
distortive or inaccurate. Instead, Borusan argues, the methodology is
reasonable and, furthermore, is consistent with the methodology
verified and accepted by the Department during the two most recent
reviews.
DOC Position: The petitioners' argument in favor of calculating
Borusan's packing costs by use of adverse facts available is
essentially two-pronged: (1) That Borusan has failed to act to the best
of its ability to provide the complete information requested, and (2)
that Borusan's chosen methodology, which allocates packing costs on the
basis of weight, instead of pieces, is not reflective of actual
practice in the pipe industry.
Regarding the first point, Borusan listed (at D-8) its material
inputs by type, including packing materials. Further, Borusan's product
brochure (at Exhibit A-27) explains that the merchandise is packaged as
``bare bundles.'' The petitioners have provided no evidence to indicate
that Borusan has neglected to report all packing materials by type.
In addition, in response to our questionnaire, Borusan provided (at
Exhibits D-13, D-14 and D-15) monthly transformation cost tables for
its three production facilities. Borusan also provided (at Exhibits D-
21 and D-23, respectively) worksheets illustrating the cost
calculations for the highest volume U.S. product and the highest volume
home market product. Borusan explained in its questionnaire response
(at D-44) that all of the costs used in Exhibits D-13, D-14 and D-15
were taken from data contained in the company's internal monthly
ledgers.
Regarding the second point, we note that in Pipe and Tube From
Mexico, the petitioners' suggested model by which we use adverse facts
available to calculate packing costs, the packing costs were calculated
on a weight basis, the same methodology challenged as unreliable by the
petitioners in this review. Furthermore, our acceptance of Borusan's
methodology, which was verified and accepted by the Department in the
two most recent reviews, is consistent with prior segments of this
proceeding.
Comment 6: Allocation of Domestic Brokerage and Handling on U.S. Sales
The petitioners argue that Borusan should not have reported Turkish
lashing charges, customs charges, loading charges, and port fees based
on the weight of each U.S. shipment, since such charges are actually
incurred on an ad valorem basis. The petitioners explain that basing
such charges on weight results in a distortion when entries cover
merchandise of varying values. Therefore, the petitioners assert, the
Department should apply the highest domestic brokerage and handling
amount reported for any U.S. transaction to all U.S. sales as facts
available.
Borusan responds that the petitioners assertion that brokerage and
handling
[[Page 35198]]
costs are incurred on an ad valorem basis is incorrect. Borusan asserts
that a percentage charge contained in Borusan's response, which is
cited by the petitioner in support of its claim that these expenses are
incurred on an ad valorem basis, is in fact simply the value-added-tax
rate collected on the customs charges and does not relate to the amount
of the customs charges in any way.
DOC Position: The information on the record supports Borusan's
position that the brokerage and handling charges, which Borusan
reported on a shipment-specific basis, reflect the actual charges
incurred by Borusan in connection with its U.S. shipments. See Borusan
sections B-D response at Exhibit C-5. Therefore, we have not accepted
the petitioners' arguments.
Comment 7: Interest Expense Factor
The petitioners make the following comments regarding Borusan's
reported interest expense factor. First, they raise a general
allocation claim, i.e., that Borusan incorrectly calculated this factor
by taking the Borusan Group companies' annual expense amounts and
dividing by 12. The petitioners propose that, as in the 1994-95 review,
the Department should allocate the annual interest expense reported by
Borusan to each month of the POR using the ratio of monthly-to-annual-
interest expenses for the four largest of the Borusan Group firms.
Regarding the specific items that comprise Borusan's reported
interest expense, the petitioners comment on the calculation of this
item in the preliminary results as follows: (1) The Department
correctly denied the claim made by Borusan in its supplemental response
that foreign exchange losses should be excluded because they are due to
inflation; (2) Borusan incorrectly included foreign exchange gains
related to sales; (3) Borusan incorrectly amortized foreign exchange
losses; and (4) Borusan incorrectly included various income items as
offsets to its financial expenses, while improperly excluding a
miscellaneous ``other financial expenses'' item. Regarding each of
these items, the petitioners also claim that it is not possible to
reconcile Borusan's breakout of reported income and expense items with
the totals reported in Borusan's financial statements.
The petitioners' primary arguments concerning each of these issues
are as follows. With respect to (1), the petitioners state that
Borusan's own financial statement treats foreign exchange losses as an
expense, not as an inflation adjustment. Regarding (2), while the
petitioners acknowledge that gains on financial assets such as cash
balances are appropriate offsets to financing costs, they maintain that
Borusan has not explained sufficiently why its reported gains are
appropriate offsets, particularly in light of the fact that the
Department excluded Borusan's foreign exchange gains in the past two
reviews (finding that Borusan's reported foreign exchange gains were
related to sales, not production operations). Regarding (3), the
petitioners state that exchange rate losses should not be amortized
but, instead, all period losses should be included in the interest
expense factor, and maintain that Borusan has not reported this expense
in accordance with its normal books and records. Finally, with respect
to (4), the petitioners state that the Department should not allow
Borusan's claimed offsets for various categories of interest income
(which concern offsets other than the exchange rate gain offset
discussed in item 2, above), but should include the ``other financial
expenses'' item because Borusan did not explain sufficiently why this
should be excluded.
While Borusan does not address the petitioners' general comment
that the Department should allocate interest expenses to each month of
the POR using the ratio of monthly-to-annual-interest expenses for the
four largest of the Borusan Group firms, it does respond to each of the
other comments raised by the petitioners.
First, Borusan contends that, as claimed in the supplemental
questionnaire, exchange rate losses are caused by inflation and should
not be included in interest expense. Second, Borusan states that,
consistent with the two most recent reviews, it did not make any offset
for exchange gains related to sales. Third, Borusan disagrees with the
petitioners' contention that there is no precedent for Borusan's
amortization of exchange rate losses on foreign currency debt. In fact,
Borusan claims, it is the Department's practice to amortize such
translation losses over the life of the loan. Fourth, Borusan disputes
the petitioners' suggestion that it did not substantiate its claimed
interest income offsets, and maintains that its ``other financial
expenses'' item should be excluded because it concerns bank
commissions, which are reported in a separate field.
DOC Position: We first note that, consistent with prior segments of
this proceeding and with the petitioners' arguments in this segment of
the proceeding, we have allocated Borusan's interest expenses to each
month of the POR using the ratio of monthly-to-annual-interest expenses
for the four largest of the Borusan Group companies. See 1994-95 Final
Results at 69074.
Regarding the petitioners' comments on the calculation of the
interest factor, we agree with the petitioners that exchange losses on
foreign currency debt represent a cost of borrowing and, therefore,
should be included in the financial expense calculation. See 1993-94
Final Results at 51632 (``The Department has clearly established that
translation losses on dollar-denominated loans, as reflected in the
company's income statement, are appropriately included in the cost of
production because they reflect an actual increase in the amount of
local currency that will have to be paid to settle these loans.'') We
have continued to include such losses in the interest expense
calculation.
We disagree, however, with the petitioners' assertion that none of
Borusan's reported exchange rate gains should be allowed. Our practice
is to include foreign exchange gains as an offset to finance expenses
if they are related to the cost of acquiring debt for purposes of
financing production operations, and to exclude this item if it relates
to sales. See Notice of Final Determination of Sales at Less Than Fair
Value: Certain Steel Concrete Reinforcing Bars from Turkey (Rebar from
Turkey), 62 FR 9737, 9741 (March 4, 1997); see also Notice of Final
Determination of Sales at Less Than Fair Value: Certain Pasta from
Turkey, 61 FR 30309, 30324 (June 14, 1996). In applying this standard
in the prior two segments of this proceeding, we did not allow any of
Borusan's reported exchange rate gains as an offset, finding that such
gains ``were not debt-related, but rather involved export sales
activities (i.e., the gains arising from foreign-currency denominated
export receivables).'' 1994-95 Final Results at 69074; see also 1993-94
Final Results at 51632 (``In this case, we find that foreign exchange
gains are related to sales, not production; therefore, they should not
be used as an offset for calculating home market interest expenses.'')
However, unlike prior reviews, in the instant proceeding Borusan
has included in its interest expense calculation only those exchange
rate gains related to cash balances and inventory, while excluding
those related to sales (accounts receivable). See Borusan sections B-D
response at Exhibit D-20 (separating exchange rate gains ``earned on
accounts receivable'' from those earned on ``cash balances and other,''
and demonstrating that these two items equal ``total foreign exchange
gains''); see also Borusan
[[Page 35199]]
supplemental response, Attachment J 5). Exchange rate gains
on cash balances and inventory are short-term in nature and do not
constitute a separate investing activity. Accordingly, we have accepted
these exchange gains as an offset to finance expenses.
---------------------------------------------------------------------------
\5\ The petitioners argue, based on proprietary information,
that the information provided in this exhibit is insufficient to
allow the Department to change its position from the past two
reviews and grant an offset for exchange gains. We address this
aspect of the petitioners' argument in the Final Results Analysis
Memorandum.
---------------------------------------------------------------------------
We also disagree with the petitioners' contention that Borusan
should not be permitted to amortize its exchange rate losses. For
purposes of our analysis, it is appropriate to amortize the foreign
exchange losses over the life of the associated debt, since the gain or
loss is realized only as the loans are paid. See, e.g., Rebar from
Turkey at 9743. However, we also disagree with Borusan's proposed
weighted-average amortization of the foreign exchange losses. Instead,
we have amortized the foreign exchange loss incurred on each loan over
the life of the associated loan.
Finally, regarding Borusan's claimed ``other income'' offsets and
its rationale for not including its ``other financial expenses'' item,
we note the following. First, as a general matter, we disagree with the
petitioners' contention that it is not possible to substantiate the
breakout of reported income and expense items from the totals reported
in the financial statements. In fact, other than an amount called
discount on term transactions, Borusan provided a detailed breakdown of
the items listed in its financial expense calculation and a brief
description of each item included therein. See Borusan sections B-D
response at D-20.
It is the Department's practice to allow a respondent to offset
financial expenses with short-term interest income earned from the
general operations of the company. See, e.g., Timken v. United States,
852 F. Supp. 1040, 1048 (CIT 1994). The Department does not, however,
offset interest expense with interest income earned on long-term
investments because long-term investment does not relate to current
operations. See Notice of 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, 31991 (June
19, 1995). Therefore, we have included income offsets that Borusan
demonstrated were short-term in nature. We note in particular that the
largest such offset, Borusan's `other financial income,' relates to
short-term bank interest; the absence of long-term notes receivable on
Borusan's financial statements indicates that this amount is from
short-term sources. We did not allow one claimed offset, `discount on
term transactions,' for which Borusan failed to explain either the
source of the income or the short or long-term nature of the item.
We also agree with Borusan that `other financial expenses' concern
bank commissions, which were reported separately. Accordingly, we have
not added such expenses to Borusan's interest expense calculation, as
requested by the petitioners.
Comment 8: Purchases From Affiliated Suppliers
The petitioners argue that the Department should revalue the costs
of coil and zinc purchased by Borusan's mills (BBBF, Kartal Boru, and
Bosas) from affiliated parties. The petitioners state that the
following data in Borusan's response indicate below-market pricing of
such inputs: (1) BBBF's coil purchases from an affiliated party covered
only the cost of production, plus transportation, exclusive of the
affiliated party's selling, general and administrative expenses or
profit; and (2) proprietary information in Borusan's response (as
further described in the Final Results Analysis Memorandum) indicates
that Kartal Boru's and Bosas' coil purchases, and BBBF's zinc purchases
also were not made at market prices.
Borusan responds that the petitioners' allegation regarding prices
paid to suppliers selectively ignores information provided in Borusan's
supplemental response that demonstrates that the mills paid market
prices for affiliated party coil and zinc inputs. Borusan claims that
the petitioners distort the administrative record by characterizing
BBBF's coil purchases from its affiliated supplier as `substantial.'
DOC Position: We consider the inputs in question (coil and zinc) to
be major inputs with respect to the production of subject merchandise.
Accordingly, we have valued purchases of coil and zinc by Borusan's
mills from affiliated parties at the higher of the cost of producing
the input, the transfer price, or the market price. See section
773(f)(3) of the Act; see also 19 CFR 351.407(b). We describe our
methodology for doing so in the Final Results Analysis Memorandum.
Comment 9: G&A and Interest Expense
The petitioners argue that the G&A and interest expense factors
must be recalculated because the denominator (COGS) includes packing,
which, when the factors are applied to COMs exclusive of packing,
understates the G&A and interest expense calculations. The petitioners
suggest that the Department should add packing to COM to correct the
understatement of G&A and interest expenses, citing Circular Welded
Non-Alloy Steel Pipe from the Republic of Korea, 62 FR 55574, 55581
(October 27, 1997).
Borusan responds that it has used the same methodology in the two
most recent reviews and that this methodology was verified and accepted
by the Department. Borusan contends that packing represents an
insignificant portion of the understatement and is more than offset by
applying historical G&A and interest expense factors to replacement
costs.
DOC Position: We agree with the petitioners and have added packing
to COM when calculating the G&A and interest expenses. Although Borusan
asserts that the distortion is negligible, there is still an
understatement of these expenses. As for Borusan's claim that we are
applying a historical G&A and interest expense factor to replacement
costs, both G&A and interest have been adjusted to account for
inflation before calculating the G&A and interest expense factors.
Comment 10: Circumstance-of-Sale Adjustment for Imputed Credit
Borusan claims that the Department failed to make a circumstance-
of-sale (COS) adjustment to normal value for imputed credit expenses
when normal value was based on CV. Borusan argues that, pursuant to
section 773(a)(8) of the Act, the Department's well-established
practice dictates that it make such an adjustment, citing, e.g., Notice
of Final Determination of Sales at Less Than Fair Value: Steel Wire Rod
From Canada, 63 FR 9182, 9195 (February 24, 1998); TRB's From Japan at
2583; Amended Final Results of Antidumping Duty Administrative Review:
Fresh Kiwi Fruit From New Zealand, 62 FR 47440 (September 9, 1997)).
The petitioners respond that: (1) due to Borusan's failure to
quantify the COS adjustment it seeks, no such adjustment is warranted,
and (2) if the Department does grant a COS adjustment, such adjustment
should be based on a proper calculation of Borusan's net prices.
Regarding the adequacy of Borusan's credit calculation, the petitioners
claim that Borusan calculated a POR-average home market interest rate,
and maintain that Borusan's failure to provide monthly interest rates
makes it impossible to properly calculate home market credit expenses
for purposes of
[[Page 35200]]
the COS adjustment. The petitioners assert that the various interest
rates charged to Borusan during the POR vary widely, and suggest that,
due to the high inflation in Turkey, it would be unfair to calculate
interest expense on an average basis. Further, the petitioners add, it
is the Department's practice to calculate costs on a monthly basis,
citing Pipe and Tube from Mexico at 37016.
The petitioners argue in the alternative that, if the Department
does make the COS adjustment requested by Borusan, imputed home market
credit expenses must be based on a proper calculation of Borusan's net
prices. Specifically, the petitioners argue, Borusan's calculation of
net price does not include a deduction for the quantity rebate granted
to certain customers by Borusan, thereby overstating the net price to
which the credit expense is applied.
DOC Position: Pursuant to section 773(a)(8) of the Act, a COS
adjustment for home market imputed credit expenses should be made when
CV is the basis for normal value. We use imputed credit expenses to
measure the effect of a specific respondent's selling practices in the
United States and in the comparison market. Because Borusan's U.S.
sales were export price sales, the adjustment entails adding U.S.
imputed credit to the CV, and subtracting home market imputed credit
from the CV. Although we added the U.S. imputed credit for the
preliminary results, we neglected to deduct the home market imputed
credit. We have made this correction for the final results.
We disagree with the petitioners' assertion that, because Borusan
did not calculate its home market credit expense using monthly interest
rates, we should disallow this adjustment. Borusan calculated this
expense on a weighted-average basis, i.e., the total principle times
the number of days utilized for each short-term loan. This methodology
is consistent with that used in calculating interest for both the 1993-
94 and the 1994-95 reviews of this proceeding, and we did not request
that Borusan recalculate this expense using monthly interest rates.
Under these facts, it would be inappropriate to deny this adjustment.
We also disagree that a deduction for the quantity rebate, as
proposed by the petitioners, is appropriate, because the quantity
rebate is not part of the opportunity cost of the use of money in each
sale. Instead, the quantity rebate is given after payment has been made
by Borusan's customer.
Final Results of Review
As a result of our review, we determine that the following margin
exists for the period May 1, 1996, through April 30, 1997:
------------------------------------------------------------------------
Margin
Manufacturer/exporter (percent)
------------------------------------------------------------------------
The Borusan Group.......................................... 0.02
------------------------------------------------------------------------
The Department shall determine, and Customs shall assess,
antidumping duties on all appropriate entries. As discussed above,
because the number of transactions involved in this review and other
simplification methods prevent entry-by-entry assessments, we have
calculated importer-specific assessment rates. We divided the total
dumping margins for the reviewed sales by the total entered value of
those reviewed sales. We will direct Customs to assess the resulting
percentage margin against the entered customs values for the subject
merchandise on each of that importer's entries under the relevant order
during the review period.6 While the Department is aware
that the entered value of the reviewed sales is not necessarily equal
to the entered value of entries during the POR, use of entered value of
sales as the basis of the assessment rate permits the Department to
collect a reasonable approximation of the antidumping duties which
would have been determined if the Department had reviewed those sales
of merchandise actually entered during the POR.
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\6\ We note that, in the preliminary results, we erroneously
indicated that if the assessment rates that we calculated for the
final results were de minimis, we would not instruct Customs to
assess duties. However, section 353.6 (b) of our regulations
requires the assessment of duties for any importer-specific
assessment rates greater than zero. Accordingly, we have not
disregarded de minimis rates for assessment purposes.
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Furthermore, the following deposit requirements will be effective
for all shipments of the subject merchandise entered, or withdrawn from
warehouse, for consumption on or after the publication date of these
final results of administrative review, as provided by section 751(a)
of the Act: (1) the cash deposit rate for Borusan will be zero; (2) for
merchandise exported by manufacturers or exporters not covered in this
review but covered in a previous segment of this proceeding, the cash
deposit rate will continue to be the company-specific rate published in
the most recent final results in which that manufacturer or exporter
participated; (3) if the exporter is not a firm covered in this review
or in any previous segment of this proceeding, but the manufacturer is,
the cash deposit rate will be that established for the manufacturer of
the merchandise in these final results of review or in the most recent
final results in which that manufacturer participated; and (4) if
neither the exporter nor the manufacturer is a firm covered in this
review or in any previous segment of this proceeding, the cash deposit
rate will be 14.74 percent, the all others rate established in the
less-than-fair-value investigation. These deposit requirements shall
remain in effect until publication of the final results of the next
administrative review.
This notice also serves as final reminder to importers of their
responsibility to file a certificate regarding the reimbursement of
antidumping duties prior to liquidation of the relevant entries during
this review period. Failure to comply with this requirement could
result in the Secretary's presumption that reimbursement of antidumping
duties occurred, and in the subsequent assessment of double antidumping
duties.
This notice also is the only reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 353.34(d). Failure to
comply is a violation of the APO.
This determination is issued and published in accordance with
sections 751(a)(1) and 777(i)(1) of the Act.
Dated: June 18, 1998.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-17250 Filed 6-26-98; 8:45 am]
BILLING CODE 3510-DS-P