65 FR 39358 June 26, 2000 A-201-827 Investigation Public Document Grp. II/VI: RM/GC MEMORANDUM TO: Richard W. Moreland Acting Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary for Import Administration SUBJECT: Issues and Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Certain Large Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Mexico - April 1,1998, through March 31, 1999 SUMMARY: We have analyzed the case and rebuttal briefs submitted by interested parties in the antidumping duty investigation of certain large diameter carbon and alloy seamless standard, line and pressure pipe ("large diameter seamless pipe") from Mexico. As a result of our analysis of the comments, we have made changes in the margin calculations. Below is the complete list of the issues in this investigation for which we received comments from the parties: Comment 1: Coding of U.S. Market Products Comment 2: Date of Sale Methodology Comment 3: Variable Cost of Manufacture Comment 4: Direct Selling Expenses Comment 5: Merchandise Processing Fee Comment 6: U.S. Inland Freight Expenses Comment 7: Unreported U.S. Sales Comment 8: Short-Term Borrowing Rate Comment 9: Calculation of Credit Expense Comment 10: Export Price ("EP")/Constructed Export Price("CEP") Sales Classification Comment 11: CEP Profit Calculation We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. BACKGROUND: On February 4, 2000, the Department of Commerce (the "Department") published the preliminary determination in this investigation. See Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Certain Large Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe From Mexico, 65 FR 5587 (February 4, 2000)("Preliminary Determination"). The period of investigation ("POI") is April 1, 1998, through March 31, 1999. The investigation covers large diameter seamless pipe sales made by one manufacturer/exporter, Tubos de Acero de Mexico ("TAMSA"). We invited parties to comment on our Preliminary Determination. We received case briefs from TAMSA and the petitioners (1) on May 1, 2000 and rebuttal briefs from both parties on May 8, 2000. There was no public hearing. Scope of Investigation The products covered are large diameter seamless carbon and alloy (other than stainless) steel standard, line, and pressure pipes produced, or equivalent, to the American Society for Testing and Materials ("ASTM") A- 53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-589, ASTM A-795, and the American Petroleum Institute ("API") 5L specifications and meeting the physical parameters described below, regardless of application, with the exception of the exclusions discussed below. The scope of this investigation also includes all other products used in standard, line, or pressure pipe applications and meeting the physical parameters described below, regardless of specification, with the exception of the exclusions discussed below. Specifically included within the scope of this investigation are seamless pipes greater than 4.5 inches (114.3 mm) up to and including 16 inches (406.4 mm) in outside diameter, regardless of wall- thickness, manufacturing process (hot finished or cold-drawn), end finish (plain end, beveled end, upset end, threaded, or threaded and coupled), or surface finish. The seamless pipes subject to this investigation are currently classifiable under the subheadings 7304.10.10.30, 7304.10.10.45, 7304.10.10.60, 7304.10.50.50, 7304.31.60.50, 7304.39.00.36 7304.39.00.40, 7304.39.00.44, 7304.39.00.48, 7304.39.00.52, 7304.39.00.56, 7304.39.00.62, 7304.39.00.68, 7304.39.00.72, 7304.51.50.60, 7304.59.60.00, 7304.59.80.30, 7304.59.80.35, 7304.59.80.40, 7304.59.80.45, 7304.59.80.50, 7304.59.80.55, 7304.59.80.60, 7304.59.80.65, and 7304.59.80.70 of the Harmonized Tariff Schedule of the United States ("HTSUS"). Specifications, Characteristics, and Uses: Large diameter seamless pipe is used primarily for line applications such as oil, gas, or water pipeline, or utility distribution systems. Seamless pressure pipes are intended for the conveyance of water, steam, petrochemicals, chemicals, oil products, natural gas and other liquids and gasses in industrial piping systems. They may carry these substances at elevated pressures and temperatures and may be subject to the application of external heat. Seamless carbon steel pressure pipe meeting the ASTM A-106 standard may be used in temperatures of up to 1000 degrees Fahrenheit, at various American Society of Mechanical Engineers ("ASME") code stress levels. Alloy pipes made to ASTM A-335 standard must be used if temperatures and stress levels exceed those allowed for ASTM A-106. Seamless pressure pipes sold in the United States are commonly produced to the ASTM A-106 standard. Seamless standard pipes are most commonly produced to the ASTM A-53 specification and generally are not intended for high temperature service. They are intended for the low temperature and pressure conveyance of water, steam, natural gas, air and other liquids and gasses in plumbing and heating systems, air conditioning units, automatic sprinkler systems, and other related uses. Standard pipes (depending on type and code) may carry liquids at elevated temperatures but must not exceed relevant ASME code requirements. If exceptionally low temperature uses or conditions are anticipated, standard pipe may be manufactured to ASTM A-333 or ASTM A-334 specifications. Seamless line pipes are intended for the conveyance of oil and natural gas or other fluids in pipe lines. Seamless line pipes are produced to the API 5L specification. Seamless water well pipe (ASTM A-589) and seamless galvanized pipe for fire protection uses (ASTM A-795) are used for the conveyance of water. Seamless pipes are commonly produced and certified to meet ASTM A-106, ASTM A-53, API 5L-B, and API 5L-X42 specifications. To avoid maintaining separate production runs and separate inventories, manufacturers typically triple or quadruple certify the pipes by meeting the metallurgical requirements and performing the required tests pursuant to the respective specifications. Since distributors sell the vast majority of this product, they can thereby maintain a single inventory to service all customers. The primary application of ASTM A-106 pressure pipes and triple or quadruple certified pipes in large diameters is for use as oil and gas distribution lines for commercial applications. A more minor application for large diameter seamless pipes is for use in pressure piping systems by refineries, petrochemical plants, and chemical plants, as well as in power generation plants and in some oil field uses (on shore and off shore) such as for separator lines, gathering lines and metering runs. These applications constitute the majority of the market for the subject seamless pipes. However, ASTM A-106 pipes may be used in some boiler applications. The scope of this investigation includes all seamless pipe meeting the physical parameters described above and produced to one of the specifications listed above, regardless of application, with the exception of the exclusions discussed below, whether or not also certified to a non- covered specification. Standard, line, and pressure applications and the above-listed specifications are defining characteristics of the scope of this investigation. Therefore, seamless pipes meeting the physical description above, but not produced to the ASTM A-53, ASTM A-106, ASTM A- 333, ASTM A-334, ASTM A-589, ASTM A-795, and API 5L specifications shall be covered if used in a standard, line, or pressure application, with the exception of the specific exclusions discussed below. For example, there are certain other ASTM specifications of pipe which, because of overlapping characteristics, could potentially be used in ASTM A-106 applications. These specifications generally include ASTM A-161, ASTM A-192, ASTM A-210, ASTM A-252, ASTM A-501, ASTM A-523, ASTM A-524, and ASTM A-618. When such pipes are used in a standard, line, or pressure pipe application, such products are covered by the scope of this investigation. Specifically excluded from the scope of this investigation are: A. Boiler tubing and mechanical tubing, if such products are not produced to ASTM A-53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-589, ASTM A-795, and API 5L specifications and are not used in standard, line, or pressure pipe applications. B. Finished and unfinished oil country tubular goods ("OCTG"), if covered by the scope of another antidumping duty order from the same country. If not covered by such an OCTG order, finished and unfinished OCTG are included in this scope when used in standard, line or pressure applications. Products produced to the A-335 specification unless they are used in an application that would normally utilize ASTM A-53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-589, ASTM A-795, and API 5L specifications. Line and riser pipe for deepwater application, i.e., line and riser pipe that is (1) used in a deepwater application, which means for use in water depths of 1,500 feet or more; (2) intended for use in and is actually used for a specific deepwater project; (3) rated for a specified minimum yield strength of not less than 60,000 psi; and (4) not identified or certified through the use of a monogram, stencil, or otherwise marked with an API specification (e.g., "API 5L"). With regard to the excluded products listed above, the Department will not instruct Customs to require end-use certification until such time as petitioner or other interested parties provide to the Department a reasonable basis to believe or suspect that the products are being utilized in a covered application. If such information is provided, the Department will require end-use certification only for the product(s) (or specification(s)) for which evidence is provided that such products are being used in a covered application as described above. For example, if, based on evidence provided by petitioner, the Department finds a reasonable basis to believe or suspect that seamless pipe produced to the A-335 specification is being used in an A-106 application, it will require end-use certifications for imports of that specification. Normally the Department will require only the importer of record to certify to the end- use of the imported merchandise. If it later proves necessary for adequate implementation, the Department may also require producers who export such products to the United States to provide such certification on invoices accompanying shipments to the United States. Although the HTSUS subheadings are provided for convenience and Customs purposes, our written description of the merchandise subject to this scope is dispositive. Discussion of the Issues Comment 1: Coding of U.S. Market Products The petitioners contend that TAMSA erred when it reported the specification code for a sale to its largest U.S. customer, Company A. The petitioners assert that the specification code for this sale to Company A should be reclassified as code 7 for sour service pipe, rather than code 6 for standard pipe. The petitioners note that certain TAMSA sales documentation (e.g., sales invoice and sales acknowledgment) and production records (e.g., quality control and manufacturing plans) identify the pipe in this sale as sour service pipe, or pipe intended for sour service applications. Accordingly, the petitioners request that the Department reclassify this sale as code 7 sour service pipe in order to ensure that this sale is appropriately matched to code 7 home market sales of pipe with the same sour service specification. Finally, the petitioners contend that since TAMSA misreported the specification for sales to Company A and examples of sales documentation were not available to determine whether similar errors occurred for the remaining U.S. sales, the Department should use facts available in reaching its determination. For the remaining U.S. sales, petitioners urge the Department to apply adverse facts available by changing the gross unit price of the home market sales that Commerce matches to U.S. sales by an amount equal to the price differential between sour and standard pipe. TAMSA refutes the petitioners' assertion that TAMSA should have classified the pipe sold to Company A as sour service pipe. TAMSA states that the record is clear that TAMSA produced the merchandise as standard pipe rather than sour service pipe and therefore they properly reported the product characteristics on an "as produced" basis. It further noted that this practice of reporting the merchandise "as produced," rather than on an "as sold" basis is consistent with Department precedent. See Gray Portland Cement and Clinker from Mexico: Final Results of Antidumping Review, 64 FR 13148, 13153-4 (March 17, 1999) ("CEMEX") (Department determined that product matching is done on an "as produced" basis, not an "as sold" basis). Specifically, TAMSA notes that the accompanying mill test certificate for this sale indicates that the steel specification is for standard pipe, not sour service pipe. The mill test certificate for this sale does not carry either of TAMSA's internal codes for sour service pipe (e.g., SA or SS), which do appear on the mill certificates for other sales the Department examined during verification that TAMSA reported as sour service pipe. Finally, the respondent rebuts the petitioners' assertion that partial adverse facts available should be applied for the remaining U.S. sales because it properly classified sales to Company A. Department's Position: We agree with TAMSA that it properly classified the product in the sale to Company A as code 6 standard pipe. First, we note that although certain sales and production records do indicate that the pipe sold to Company A may have some form of sour service pipe application, other sales and production records (e.g., purchase order and mill test certificate) make no such reference. Indeed, the purchase order from Customer A only specifies certain types of additional quality testing for the standard line pipe ordered. Information on the record does not demonstrate that this testing, for which the customer is separately charged, is the type of testing used to define a pipe for sour service applications. More significant to this issue is our reliance on TAMSA's internal production records to verify the product specification, as well as other product characteristics, for all sales examined during verification. The mill test certificate, which is the ultimate indicator relied upon by both the producer and customer to define the merchandise actually produced, indicates that TAMSA produced the pipe for this sale as standard pipe rather than sour service pipe. We did confirm that TAMSA does have specific product code identifiers for sour service pipe and that when it produces sour service pipe, TAMSA does specify this product code on mill certificates. The mill certification for the sale in question did not carry the TAMSA product code identifier for sour service pipe. Moreover, we agree with the respondent that there is no basis for applying adverse facts available. TAMSA properly classified the sales to Company A as standard pipe. Thus, there is no reason to assume that the specification code was misreported for the remaining U.S. sales. Comment 2: Date of Sale Methodology The petitioners argue that the Department should not accept TAMSA's methodology of reporting the date of sale in both markets based on the date of the sale acknowledgment, but rather should use the sale invoice date. The petitioners note that TAMSA acknowledged that changes do take place when it stated that "changes to price and quantity rarely occur after issuance of the sales acknowledgment." Further, the petitioners note that the Department's verification of TAMSA's sales process identified material changes after the issuance of the sales acknowledgment. The petitioners contend that the Department's regulations establish a presumption that the invoice date will be used to determine the date of sale (see 19 C.F.R. 351.401(i)), and that the U.S. Court of International Trade ("CIT") recently has specified that this presumption may not easily be disregarded. See Thai Pineapple Canning Industry Corp. v. United States, Slip. Op. 00-17 (CIT Feb. 10, 2000) ("Thai Pineapple II"). The petitioners note that in Thai Pineapple II , the CIT held that invoice date, rather than contract date, had to be used to determine date of sale where there were post-contract changes in the sale terms and that, even though changes after the contract date may have occurred only in "rare instances," this was not a "substantial reason to abandon the invoice date presumption." TAMSA contends that it followed the Department's instructions for identifying the correct date of sale because the line pipe sold in both markets is sold pursuant to a bidding process and the agreed material terms are first reported in the sales acknowledgment, not the invoice. Moreover, TAMSA notes that if any material changes occur between the time that the sale is first entered into TAMSA's records as the sales acknowledgment, TAMSA reports the date of the second sales adjustment as the reported date of sale. Department's Position: While we agree with the petitioners that the Department's regulations create a rebuttable presumption in favor of the invoice date as the date of sale, we are mindful that this presumption does not require the use of invoice date if the facts of a case indicate a different date better reflects the time at which the material terms of sale were established. In this investigation, the sales acknowledgment, rather than commercial invoice, better reflects the date on which the material terms of sale for both markets are established. See 19 C.F.R. 351.401(i). Although TAMSA stated that "changes may occur after the issuance of the sales acknowledgment," our analysis of TAMSA's sales processes in both markets has led us to conclude that sales acknowledgment date is the more appropriate date of sale, as opposed to the invoice, because the invoice is reflective of the material terms identified on the sales acknowledgment form that is generated before the invoice. During verification of TAMSA's sales response, the Department reviewed sales-related documentation (e.g., sales acknowledgment and invoices) from TAMSA's largest U.S. customer (who accounts for a significant portion of reported quantity) indicating that there was a slight change in the quantity shipped between the sales acknowledgment date and the invoice date. This adjustment in quantity is not a substantial change to the material terms of sale. The discrepancy in the quantity listed on the sales acknowledgment and the invoice was less than 0.5 percent of the total quantity shipped, which falls within the over-under thresholds allowed by the customer. Concerning the home market sales, TAMSA identified the "orden de surtimiento" for Pemex Exploracion y Produccion ("PEP") transactions and the sales acknowledgment for non-PEP transactions as the reported date of sale. The Department did not identify any material changes in the home market between the sales acknowledgment, "orden de surtimiento" and the invoice. In sum, because there were no material changes in the home market sales and only one minor change in quantity in U.S. sales between the sales acknowledgment date and invoice date, it is appropriate for us to conclude that the material terms of the sale were established on the sales acknowledgment date. We note that in Thai Pineapple II, the CIT held that the invoice date, rather than contract date, should be applied to determine the date of sale where there were few changes in the terms of sale between contract date and invoice date. The CIT further held that in that case the Department did not adequately explain why those changes were not sufficient to cause the Department to follow its presumption in favor of invoice date. The Department believes, however, that its determination in this case is both consistent with its regulation and with the CIT's finding in Thai Pineapple II because there were no material changes between the sales acknowledgment and the invoice date. Comment 3: Variable Cost of Manufacture The petitioners note that TAMSA omitted the calculated variance in its variable cost of manufacturing and urge the Department to increase the variable cost of manufacturing equal to the variance. TAMSA agrees with the petitioners. Department's Position: We agree with the petitioners and adjusted the variable cost of manufacturing expense to account for the omitted variance. See Final Results Calculation Memorandum - Tubos de Acero de Mexico, dated June 16, 2000, public version ("Final Calculation Memo") on file in the Central Records Unit ("CRU") of the main Department building, Room B-099. Comment 4: Direct Selling Expenses The petitioners argue that the respondent did not accurately report certain direct selling expenses directly related to sales to U.S. customer, Company A. According to the petitioners, the respondent reported a significantly lesser amount in direct selling expenses (e.g. wharfage and stevedoring charges) for certain sales to Company A compared to the reported direct selling expense for the remaining sales to Company A, despite the fact that all sales had the same terms of sale, destination, and involved identical merchandise. The petitioners claim that the explanation provided by respondents why a large disparity exists in direct selling expense is contradicted by the record. Therefore, petitioners urge the Department to apply adverse facts available for the direct selling expenses for the U.S. sales in question. TAMSA argues that it correctly reported these direct selling expenses for sales to Company A, and notes that the reported direct selling expense was less for certain sales because the merchandise was shipped directly to the customer. In contrast to the sales with a minimal amount for direct selling expense, TAMSA transported the merchandise related to the other sales to Company A via an intermediary port where the pipe was unloaded and thus, incurred a wharfage and stevedoring expense which respondent reported as part of the direct selling expense. Department's Position: We agree with TAMSA. At verification, we reviewed supporting shipping and sales documentation demonstrating that, for the sales for which TAMSA reported a lesser amount in direct selling expense, TAMSA shipped the pipe directly to the customer. See Supplemental Section A at Attachment A-27 (e.g., purchase order) dated October 12, 1999 (for a thorough explanation, see Business Proprietary Version). The other sales to Company A had the same terms of sale and destination, and involved the identical merchandise, but this merchandise was ultimately unloaded at an intermediary port before being shipped to the customer. The additional amount for direct selling expenses reflects the fees charged to TAMSA for unloading the merchandise at the intermediary port. Comment 5: Merchandise Processing Fee Petitioners argue that despite the Department's instructions at verification to report a merchandise processing fee ("MPF") for all sales through TAMSA's U.S. selling affiliate, Siderca Corp. ("Siderca"), where Siderca is the importer of record, TAMSA's revised Section C database did not contain a MPF for all such sales. TAMSA agrees with petitioners and states that certain values for the MPF were inadvertently omitted from the revised database. Department's Position: We revised the U.S. sales database by applying the MPF to all of the appropriate sales. See Final Calculation Memo. Comment 6: U.S. Inland Freight Expenses The petitioners argue that TAMSA should have reported inland freight expense (port to warehouse) for all transactions related to a specific invoice to the same customer but erred when it only reported the freight expense on four of the five transactions. Petitioners urge the Department to correct the omitted freight expense by using the data reported in that field for the other sales to that customer. TAMSA agrees with the petitioner that an inland freight expense should have been reported for the particular observation in question. TAMSA explains that the freight on these 5 transactions was presented to the Department as a clerical error on the first day of verification but the format they used to present the data to the Department was in error because it referred to the incorrect database observation number. TAMSA contends that they properly reported an inland freight expense for all five transactions and that the error can be easily corrected by referring to the list of correct observation numbers they have provided to the Department. Department's Position: We agree with the petitioner, in part. TAMSA did report the inland freight expense related to these transactions as a clerical error at verification and we observed during the course of verification that all transactions related to this invoice incurred a freight charge. We agree that TAMSA's clerical error submission incorrectly assigned the freight expense to the observation of one transaction covered by another invoice. However, we are satisfied that adjusting the observation numbers in the manner suggested by TAMSA results in the correct freight being applied to the appropriate transactions. Consequently, we have revised the U.S. database using the list provided by TAMSA which identifies the inland freight with the correct observation number. See Final Calculation Memo. Comment 7: Unreported U.S. Sales The petitioners urge the Department to apply partial adverse facts available to two previously unreported U.S. sales by one of TAMSA's U.S. affiliated selling agents that TAMSA presented to the Department as clerical errors at the outset of verification. The petitioners note that the Department has repeatedly declared that the failure of a respondent to report U.S. sales is "one of the most serious errors a respondent can commit." See Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils from Italy, 64 FR 30757 (June 8, 1999) ("Coils from Italy") The petitioners argue that TAMSA repeatedly failed to include these sales in its U.S. sales database that was submitted on three separate occasions prior to verification. The petitioners cite to numerous cases where the Department applied partial adverse facts available for those sales that were not reported prior to verification or on the first day of verification (see i.e., Coils from Italy, 64 FR at 30757; Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils from Germany, 64 FR 30710, 30732 (June 8, 1999) ("Coils from Germany"); Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod from Spain, 63 FR 40391, 40397 (July 29, 1998) ("Wire Rod from Spain"); Notice of Final Determination of Sales at Less Than Fair Value: Certain Helical Spring Lock Washers from the People's Republic of China, 58 FR 48833, 48835 (September 20, 1993) ("Washers from the PRC")). Secondly, the petitioners contend that the Department has applied adverse facts available to unreported U.S. sales where the omission consisted of a single sale or the quantity of the unreported sales is considered to be small. See Coils From Germany, 64 FR 30732 (applying adverse facts available despite the respondent's argument that its omitted sales were not "significant"); Wire Rod From Spain, 63 FR 40396-97 (applying adverse facts available to a "small quantity" of omitted U.S. sales); and Washers From the PRC, 58 FR 48835 (applying adverse facts available to a single missing U.S. sale). The petitioners in the instant investigation state that the two omitted sales follow similar circumstances of the cases cited above. Third, the petitioners assert that the Department cannot accept TAMSA's sales information as a "minor correction" of a clerical error. The petitioners note that to qualify as an acceptable "minor correction," the Department has identified six criteria under which it will accept corrections of clerical errors. See Certain Fresh Cut Flowers From Colombia: Final Results of Antidumping Duty Administrative Reviews, 61 FR 42833, 42834 (August 19, 1996) ("Flowers from Colombia"). The petitioners assert that the sales in question do not meet the Department's test, specifically the criterion "{t}he error in question must be demonstrated to be a clerical error, not a methodological error, an error in judgment, or a substantive error." The petitioners note that TAMSA's failure to report the U.S. sales was not a clerical error; rather, it was based on TAMSA's selection criteria for identifying the date of sale for those sales which fell within the POI. TAMSA contends that the petitioners' reliance on Coils from Italy, Coils from Germany, and Wire Rod from Spain is misplaced. The facts in those cases, TAMSA argues, are not remotely comparable to the facts in the instant investigation. In Coils from Italy, the Department applied partial facts available for U.S. sales reported prior to verification, stating that "[f]ailure to report . . . U.S. sales data, indicates a lack of best efforts, unless there are extenuating circumstances that explain the failure." The Department found no evidence of extenuating circumstances because the respondent "stated at verification that it did not know the reasons why these sales were excluded." In contrast, TAMSA asserts that it demonstrated to the Department at verification precisely how these sales were identified and explained why they should be included, and that no other sales had been excluded. In Coils from Germany, the Department discovered five unreported sales during the U.S. sales verification. In contrast, in this case, TAMSA brought the two sales to the Department's attention in its list of corrections on the first day of verification. Finally, in another case the petitioners cite, Wire Rod from Spain, the Department applied facts available for U.S. sales that a respondent failed to report where it provided only the quantity and the gross unit price for the unreported sales. TAMSA asserts that it provided the Department with complete information related to these sales in its post verification revised Section C database that was submitted to the Department on March 24, 2000. Conversely, TAMSA notes that in a recent investigation, Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products from Japan, 64 FR 73215 (March 16, 1999) ("Japanese Plate"), Department included in its margin analysis for the final determination information that the Department accepted at verification concerning three unreported sales related to a single invoice that were disclosed during verification. Unlike the fact pattern in Japanese Plate, TAMSA claims that it immediately, and voluntarily, brought these sales to the Department's attention on the first day of verification. TAMSA notes that the missing sale was first identified just prior to verification in the course of preparing for its reconciliation of its reported sales to its internal records. Moreover, TAMSA argues that these sales, which are actually part of one invoice, represent an insignificant portion of TAMSA's U.S. sales transactions and that its failure to report them is simply a clerical error. TAMSA states that these two transactions represent a minor correction (less than one percent of the U.S. sales database by volume) to information already on the record. Department's Position: We agree with TAMSA that the information related to these sales that was presented to the Department as a clerical error at verification constitutes a minor correction to information already on the record. Therefore, we have included these two sales in our margin analysis for the final determination. With respect to the reporting of new sales, the decision of the Department whether to accept new sales at verification is to be made on a case-by-case basis and depends on the significance of the new information. See, The Coalition for the Preservation of American Brake Drum and Rotor Aftermarket Manufacturers v. United States, 44 F. Supp. 2d 229 (CIT 1999); see also Department's 1998 Antidumping Manual at Chapter 13 at page 30. The Department's practice is to accept new information during verification only when that information constitutes minor corrections to information already on the record, or when that information corroborates, supports, or clarifies information already on the record. See, Japanese Plate, 64 FR at 73234. At the outset of verification, TAMSA voluntarily disclosed to Department officials the nature of the previously unreported sales to the United States made by its U.S. affiliated selling agent. As noted in the verification report and confirmed in Comment 3 above, TAMSA's reported date of sale methodology for both markets was the sales acknowledgment date, not the invoice date. The omitted sales in question originated from TAMSA's computer system identifying subject merchandise sales in both databases dependent on the last date identified on the sales acknowledgment form, not the original entered date. As noted in the verification report, there did exist in both markets a few instances where the sales acknowledgment was modified and the subsequent date of modification was reported as the date of sale. (2) As a result, TAMSA's computer-generated query for sales during the POI did not identify these sales because it queried possible sales of subject merchandise based upon the last adjusted date, not the original date. As noted in the verification report, the sales acknowledgment for this transaction was originally generated during the POI, but subsequent modifications after the POI caused the date of sale to fall outside the POI. During verification, Department officials verified the excluded sales' documentation (e.g., sales acknowledgment and invoice) and the nature of the excluded sales from the Section C database. Moreover, during verification TAMSA provided quantity and value information to support its assertion that there were no additional unreported U.S. sales, and the Department was satisfied that there were no additional unreported U.S. sales. (3) We have no reason to believe that TAMSA intentionally withheld from the Department these sales, which constituted a very minor percentage of total U.S. sales, and are satisfied that the record is now complete and accurate regarding this company's sales of subject merchandise during the POI. Furthermore, the facts of the instant investigation are similar to Japanese Plate where the Department determined to accept the additional sales disclosed at verification because they were minor corrections to information already on the record. Comment 8: Short-Term Borrowing Rate TAMSA contends that a Mexican peso-based short-term borrowing interest rate instead of a U.S. dollar-based interest rate should be applied when calculating the home market imputed credit expense even though TAMSA does not have any peso-denominated financing and its sales in the home market are denominated in U.S. dollars. TAMSA asserts that in cases where the producer has no local currency-based financing, the Department has accepted the prevailing short-term interest rate in the country where the sale occurs (e.g., peso-denominated interest rate). (4) The petitioners state that home market credit expense was correctly calculated using a U.S. dollar-denominated interest rate. Further, the petitioners refute the respondent's interpretation of the Department's policy concerning the application of the short-term interest rate based upon where the sales occur. The petitioners note that the Department's policy actually states that in cases where the respondent does not have local currency-based financing, the Department should tie the interest rate to the currency in which the home market sales were made. See Import Administration Policy Bulletin 98-2 "Imputed Credit Expenses and Interest Rates"("Policy Bulletin 98.2"), dated February 23, 1998. The petitioners argue that the record demonstrates that TAMSA invoiced the customer and received payment in U.S. dollars. Thus, the Department should calculate the credit expense using a U.S. dollar-based interest rate. Department's Position: We agree with the petitioners. We use a short-term interest rate tied to the currency of the transaction. See Policy Bulletin 98.2 The prices fixed on the date of sale are in U.S. dollars, and TAMSA invoiced and received payment for the sales in question in the same U.S. dollar amounts. Therefore, the appropriate short-term interest rate is U.S. dollar denominated. The respondent incorrectly interprets Policy Bulletin 98-2 to support its argument that we should use a peso-based interest rate. Comment 9: Calculation of Credit Expense The petitioners argue that the Department should recalculate TAMSA's home market imputed credit expense by first adjusting the gross unit price by any relevant billing adjustments, and then calculating the imputed credit. TAMSA concurs with the petitioners that when calculating imputed credit, gross unit price should be adjusted for any billing adjustments. However, TAMSA notes that it did calculate its home market imputed credit expense net of billing adjustments. Department's Position: We agree with both the respondent and petitioners that it is our policy to calculate imputed credit expense net of billing adjustments. See Final Results of the Third Administrative Review: Certain Pasta from Italy, 65 FR 7349 (February 14, 2000). During verification, we confirmed that TAMSA properly adjusted for billing adjustments when calculating its home market imputed credit expense. Therefore, we have not made any changes to this calculation. Comment 10: Export Price ("EP") /Constructed Export Price ("CEP") Classification TAMSA contends that in the Preliminary Determination, the Department should not have reclassified all of TAMSA's reported EP sales through Siderca, TAMSA's affiliated U.S. selling agent, as CEP sales. According to TAMSA, the Department appropriately applied the "three prong" test derived from PQ Corp. v. United States (5) (the "PQ Test"), but was incorrect when it concluded that Siderca, acted as more than simply a "processor of sales- related documentation" or a "communication link." For a further discussion, see "Certain Large Diameter Carbon and Alloy Seamless Standard Line and Pressure Pipe from Mexico" dated January 28, 2000", public version on file in the CRU of the main Department building, room B-099 ("EP/CEP Memorandum). TAMSA argues that the record clearly demonstrates that Siderca's role is merely "ancillary" and, therefore, satisfies the "three prong" test with respect to these sales. Accordingly, for the final determination, the Department should reclassify these sales transactions as EP sales, as originally reported by TAMSA. TAMSA further urges the Department to continue applying the three prong test until a recently issued decision by the Court of Appeals for the Federal Circuit ("CAFC"), AK Steel Corp. v. United States ("AK Steel"), (6) becomes final. Conversely, if the Department elects to adhere to the AK Steel decision, TAMSA contends that at least its sales to end-users through Siderca should be treated as EP transactions. TAMSA states that the critical negotiation of sales to these end-users (e.g., quality specifications, price, quantity and terms of delivery) are defined by TAMSA in Mexico via negotiations between TAMSA and the unaffiliated U.S. customer, not Siderca. The petitioners note that the Department recently applied AK Steel in a review with similar fact patterns (7) and urge the Department to continue applying AK Steel. The petitioners assert that Commerce should continue to treat the sales at issue as CEP sales because Siderca invoices and receives payments from the unaffiliated U.S. customers. Specifically, the petitioners note that AK Steel stated: "If the contract for sale was between a U.S. affiliate of a foreign producer and an unaffiliated U.S. purchaser, then the sale must be classified as a CEP sale." AK Steel, 203 F. 3d at 1341. The petitioners argue that the "contract for sale" is the invoice and receipt of payment between Siderca and the unaffiliated customer. Conversely, the petitioners note that if the Department does not apply AK Steel, the Department should continue to classify all of Siderca's sales as CEP transactions because the selling process in the United States by Siderca does not meet the third criterion of the PQ Test, meaning the role of Siderca is not merely "ancillary." Specifically, the petitioners assert that Siderca sets the price, solicits sales, and obtains customer approval regarding sale terms. More importantly, petitioners note that the Sales and Marketing Agreement between TAMSA and Siderca clearly outlines Siderca's functions and is conclusive evidence that Siderca's role is not simply a "communications link." Department's Position: We agree with petitioners that all of TAMSA's sales should be classified as CEP transactions. Section 772(a) of the Act states that EP is the price at which the subject merchandise is first sold (or agreed to be sold) before the date of importation by the producer or exporter of the subject merchandise outside of the United States to an unaffiliated purchaser in the United States. Section 772(b) of the Act states that CEP is the price at which the subject merchandise is first sold (or agreed to be sold) in the United States before or after the date of importation by or for the account of the producer or exporter of such merchandise or by a seller affiliated with the producer or exporter, to a purchaser not affiliated with the producer or exporter. In this case, the agreement for sale is made in the United States between Siderca, TAMSA's U.S. selling affiliate, and the unaffiliated U.S. customer. While a quality control meeting is held at TAMSA's facilities in Mexico for certain sales to end-users, the essential terms of the sale (e.g. price and quantity) are set in the United States prior to these meetings. The purpose of the quality control meeting in Mexico is merely "to allow all parties {unaffiliated U.S. customer, Siderca, and TAMSA} to fully understand one another's expectations and responsibilities in the sales process." See Verification Report at Section II, p. 7. Virtually all sales contacts are between Siderca and the unaffiliated US customer. Siderca receives the purchase order from the unaffiliated U.S. customer, confirms the purchase order with a sales acknowledgment, invoices the unaffiliated U.S. customer, and receives payment. Moreover, sales through Siderca are made through a series of back-to-back transactions in which Siderca takes title to the merchandise prior to forwarding the title to the U.S. customer. Accordingly, the Department determines that TAMSA's sales through Siderca are CEP sales. Comment 11: CEP Profit Calculation Petitioners argue that movement expenses should be removed from the denominator of the CEP profit ratio. The petitioners note that the CIT ruled that "movement expenses may not be included in the denominator of the ratio to be applied to actual total profit." U.S. Steel Group, a Unit of USX Corporation v. United States 15 F. Supp.2d 892, 898 (CIT 1998). Furthermore, the CIT has reaffirmed this holding twice. See, Thai Pineapple Canning Indus. Corp. v. United States 1999 Ct. Int'l Trade LEXIS 32, 1999 WL 288772 (Ct. Int'l Trade May 5, 1999); see also, Pohang Iron and Steel Co., Ltd. 1999 Ct. Int'l Trade LEXIS 105 (Ct. Int'l Trade Oct. 20, 1999). TAMSA refutes the petitioners assertion and argues that the Department should include movement expenses in the denominator for calculating CEP profit because it is consistent with Department policy and in accordance with the statute. Department's Position: We agree with TAMSA. It is the Department's policy to include movement expenses in "total expenses," the denominator for the CEP profit ratio. See, Import Administration Policy Bulletin 97-1, "Calculation of Profit for Constructed Export Price Transactions" dated September 4, 1997. The Department is currently appealing the CIT decision in U.S. Steel Group, and has emphasized in recent cases that it will continue to follow its policy of including movement expenses in the denominator of the CEP profit ratio in accordance with the Department's interpretation of section 772(f) of the Act. See "Issues and Decision Memorandum for the Administrative Review of Gray Portland Cement and Clinker from Mexico" dated March 15, 2000; see also, Korean Steel. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margin for the reviewed firm in the Federal Register. Agree Disagree Richard W. Moreland Acting Assistant Secretary for Import Administration Date _________________________________________________________________________ footnotes: 1. The petitioners in this investigation are: U.S. Steel Group, Lorain Tubular Co. LLC (both units of USX Corp.), and the United Steel Workers of America 2. No material changes were made between sales acknowledgment and invoice date as discussed in Comment 3. Generally, these changes were minor changes in addresses or destination points. 3. To test whether TAMSA captured all sales acknowledgment forms originally generated during the POI, and subsequently modified after the POI, we tested TAMSA's date of sale methodology, reviewed computer program language delineating the dates, and reviewed sales acknowledgments amended before and after the POI. See Verification of the Sales Response of Tubos de Acero de Mexico in the Antidumping Duty Investigation of Certain Large Diameter Carbon and Alloy Seamless, Standard, Line and Pressure Pipe from Mexico ("Verification Report"), dated April 19, 2000, Section II, at p. 15. 4. See Import Administration Policy Bulletin 98.2 "Imputed Credit Expenses and Interest Rates"("Policy Bulletin 98.2"), dated February 23, 1998 and Silicon Metal from Brazil; Final Results of Antidumping Duty Administration Review, 61 FR 46763, 46774 (September 5, 1996) 5. 652 F. Supp. 724, 733-35 (CIT 1987) 6. 203 F. 3d 1330 (Fed. Circ. 2000) 7. Petitioners state that the Department applied AK Steel in the final results of the fifth administrative review of Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea: Final Results of Antidumping Duty Administrative Review, 65 FR 13359, 13361 (March 13, 2000) ("Korean Steel")